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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]
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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)
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SEC 1913 (02-02)
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
-------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 13, 2004
------------------------------------------------
The Annual Meeting of the Shareholders of Navarre Corporation will be held
Monday, September 13, 2004 at 3:00 p.m., local time, at the Company's
headquarters - 7400 49th Avenue North, New Hope, Minnesota, 55428, for the
following purposes:
1. To elect two (2) directors to hold office for a term of two (2) years
or until their successors are elected and qualified;
2. To elect four (4) directors to hold office for a term of three (3)
years or until their successors are elected and qualified;
3. To approve the appointment of Grant Thornton LLP as the Company's
independent auditors for fiscal year 2005;
4. To approve the 2004 Stock Plan; and
5. 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 19, 2004 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,
Ryan F. Urness
Secretary and General Counsel
July 27, 2004
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428
(763) 535-8333
-----------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 13, 2004
-----------------------------------
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 Monday, September 13, 2004 at 3:00 p.m.,
local time, at the Company's headquarters - 7400 49th Avenue North, New Hope,
Minnesota, 55428, 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, 2004.
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 19, 2004 will be
entitled to vote at the Annual Meeting. On that date, we had outstanding
26,631,396 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 for the terms indicated; to approve the
appointment of Grant Thornton LLP as the Company's independent auditors; to
approve the 2004 Stock 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.
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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, 2004 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, our CEO 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 2,302,186(2) 8.6%
Keith A. Benson 1,200(2) *
Charles E. Cheney 692,774(2) 2.6%
Timothy R. Gentz ---- *
James G. Gilbertson 47,000(2) *
James G. Sippl 54,000(2) *
Michael L. Snow 35,600(2) *
Tom F. Weyl 33,600(2) *
Dickinson G. Wiltz 167,600(2) *
Brian Burke 29,030(3) *
Steve Pritchitt 12,600(2) *
John Turner 11,285(4) *
All directors and executive *
officers as a group (15 persons) 3,786,675(2) 13.9%
Trafelet & Company, LLC 1,305,300 5.1%
*Indicates ownership of less than one percent.
(1) The address for each Named Individual is: 7400 49th Avenue North, New Hope,
Minnesota 55428. Trafelet & Company LLC's address is 900 Third Avenue, 5th
Floor, New York, NY 10022.
(2) Includes shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2004 in the following amounts:
Eric H. Paulson - 100,000 shares; Keith Benson - 1,200 shares: Charles Cheney -
2,400 shares; Tim Gentz - no shares; James Gilbertson - 45,000 shares; James G.
Sippl - 44,000 shares; Michael L. Snow - 35,600 shares; Tom Weyl - 13,600;
Dickinson G. Wiltz - 17,200 shares; Steve Pritchitt - 7,600 shares; and all
directors and executive officers as a group - 551,200 shares.
(3) Includes 28,200 shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2004 owned by Brian Burke and
800 shares of common stock issuable upon exercise of outstanding options
exercisable within sixty days of July 1, 2004 and 15 shares of common stock
owned by Mr. Burke's spouse.
(4) Includes 5,600 shares of common stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 2004 owned by John Turner and
5,670 shares of common stock owned by Mr. Turner's spouse.
3
PROPOSAL 1 - 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 two or three years. The terms of
Messrs. Keith A. Benson, Charles E. Cheney, Timothy R. Gentz, James G.
Gilbertson, Tom F. Weyl, and Dickinson G. Wiltz expire at the Annual Meeting of
Shareholders following fiscal year 2004, and the terms of Messrs. Eric H.
Paulson, James G. Sippl and Michael L. Snow 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, and four directors will be elected at the Annual Meeting
to serve until the Annual Meeting of Shareholders following fiscal year 2007 or
until their successors are elected and qualified. The Board of Directors has
nominated for election the persons named below. The nominees are all 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ALL OF THE
NOMINEES.
Name and Age Principal Occupation and Other Directorships
- ------------ --------------------------------------------
Nominees proposed for election for term expiring at the Annual Meeting following
fiscal year 2006:
James G. Gilbertson (42)... Mr. 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.
Dickinson G. Wiltz (75)... 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 Children's Theatre Company.
4
Nominees proposed for election for term expiring at the Annual Meeting following
fiscal year 2007:
Keith A. Benson (60)...... Mr. Benson has been employed in the retailing
industry for a number of years, including over
20 years at The Musicland Group, Inc. During
his tenure at Musicland he held several key
leadership positions including Executive VP of
Finance, VP and Controller, President of Mall
Stores Division as well as serving as Vice
Chairman and Chief Financial Officer. Prior to
Musicland, Mr. Benson held a variety of
financial positions with The May Company and
Dayton-Hudson Corporation (now Target
Corporation). Mr. Benson has served as an
Advisory Member of the Board of Directors for
Conlin Furniture Company (a privately-held
company) since 2002. Mr. Benson became a
Director of Navarre Corporation in September
2003. Mr. Benson has also served in a
volunteer capacity as a member of the
Professional Accounting Committee at the
University of Iowa.
Charles E. Cheney (61).... 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 was on a
leave of absence while finishing law school.
Mr. Cheney has since completed law school and
is admitted to practice law in Minnesota. Mr.
Cheney left the Company effective April 30,
2004. Prior to joining Navarre, Mr. Cheney was
employed by Control Data Corporation in
various financial capacities for 12 years,
most recently as Controller of Control Data
Commerce International.
Timothy R. Gentz (54)..... Mr. Gentz has served as a director of the
Company since May 2004. Since January 2004,
Mr. Gentz has served as the Chief Operating
Officer of The Palm Tree Group, a
Houston-based international distributor of
medical products and supplies. From January to
December of 2003, Mr. Gentz was a private
consultant to medical products and services
companies. From October 2000 to December 2002
he was the Chief Operating Officer and Chief
Financial Officer for Gulf South Medical
Supply, Inc., a wholly-owned subsidiary of PSS
World Medical, Inc. From August 1995 to
October 2000, Mr. Gentz was a private investor
in an Internet entertainment start-up company,
a CD package company, a Houston-based
investment banking firm and other private
companies.
Tom F. Weyl (61)........... 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.
5
Directors serving continuing terms:
Eric H. Paulson (59)........ 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 home entertainment
products. 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 (56)......... Mr. Sippl has served as a director since July
1993. Mr. Sippl is President of Baby Boo, an
infant apparel company focusing on selling
infant apparel and accessories within the
apparel and gift market. From January 2001 to
August 2003, Mr. Sippl was 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.
Michael L. Snow (53)...... 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, LLP, 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
both Miller Milling Company and Tamisa, the
largest durum millers in the United States and
Mexico. Mr. Snow is also a trustee of The
Minneapolis Institute of Arts.
VOTE REQUIRED
Due to July 2004 amendments to Minnesota Business Corporation Act sections
302A.15 and 302A.437, Minnesota law now makes clear that directors are elected
by a plurality vote of shareholders instead of by the majority-of-quorum or
majority-of-outstanding votes previously believed to be required. 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.
DIRECTOR COMPENSATION
The non-employee members of the Board of Directors each receive a $24,000 per
year retainer, paid $2,000 monthly, plus $600 per board meeting attended and
$500 per committee meeting attended. The Chairperson of the Audit Committee
receives an additional annual fee of $3,000, and the Chairpersons of the
Governance and Nominating and Compensation Committees receive an additional
annual fee of $2,000. Under the terms of our 1992 Stock Option Plan as approved
by the Company's shareholders, each non-employee director is issued on April 1
of each year, a nonqualified stock option to purchase
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6,000 shares of our common stock at the fair market value on the day of the
grant. Options granted to a 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, Messr. Benson received options to purchase 6,000 shares at
a price of $2.90 on September 25, 2003 and Messrs. Benson, Cheney, Sippl, Snow,
Weyl and Wiltz received options to purchase 6,000 shares at a price of $5.84 per
share on April 1, 2004. On January 23, 2004, Mr. Benson received options to
purchase 50,000 shares at a price of $6.52.
INDEPENDENT DIRECTORS
The Company's Board of Directors has determined that each of Messrs. Benson,
Gentz, Sippl, Weyl and Wiltz are "independent," as that term is defined in Rule
4200(a)(15) of the Marketplace Rules of the Nasdaq Stock Market, Inc.
("Nasdaq"). Accordingly, the Board is composed of a majority of independent
directors as required by the Nasdaq Marketplace Rules.
BOARD ACTIONS AND COMMITTEES
During fiscal 2004, the Board of Directors held six (6) formal meetings and each
director attended at least 75% 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 2004 to discuss various aspects of the business affairs
of the Company. The Board of Directors recently reconstituted its committee
structure. The Board now has three committees: an Audit Committee, a Governance
and Nominating Committee, and a Compensation Committee. The Extraordinary
Transactions Committee and the Executive Committee were dissolved. Additional
information about the Audit Committee, the Governance and Nominating Committee
and the Compensation Committee are contained in the sections "Board Committees"
"Report of the Audit Committee" and "Report of the Compensation Committee" in
this Proxy Statement.
BOARD COMMITTEES
The Compensation Committee reviews and makes recommendations to the Board of
Directors regarding salaries, compensation and benefits of executive officers
and senior management of the Company. In addition to the meetings and actions of
the Compensation Committee described above, the entire Board of Directors
discussed and reviewed compensation issues throughout the year at its regular
meetings. The current members of the Compensation Committee are Keith A. Benson,
James G. Sippl, Tom F. Weyl (the Chair) and Dickinson G. Wiltz. The Board of
Directors has determined that all members of the Compensation Committee are
"independent," as that term is defined in Rule 4200(a)(15) of Nasdaq's
Marketplace Rules.
As described in the Audit Committee Report included later in this Proxy
Statement, the Audit Committee oversees the accounting and financial reporting
processes and audits of the consolidated financial statements of the Company.
The Audit Committee assists the Board in fulfilling its oversight
responsibilities for the quality and integrity of the Company's financial
reports, the Company's compliance with legal and regulatory requirements and the
independent auditors' qualifications and independence, as well as accounting and
reporting processes. The Audit Committee also reviews the internal and external
financial reporting of the Company and reviews the scope of the independent
audit. The current members of the Audit Committee are James G. Sippl (the
Chair), Keith A. Benson, and Timothy R Gentz. The Company's Board of Directors
has determined that all members of the Audit Committee are independent under
Rule 4200(a)(15) of Nasdaq's Marketplace Rules and Rule 10A-3 under the
Securities Exchange Act of 1934 ("Exchange Act"). Mr. Sippl has been designated
as the Company's "audit committee financial expert," as that term is defined in
Item 401(h)(2)(i) of Regulation S-K.
On May 20, 2004, the Company's Board of Directors formed a Governance and
Nominating Committee, which consists of Michael L. Snow (the Chairman), Keith A.
Benson, Timothy R. Gentz, Tom F. Weyl, and Dickinson G. Wiltz. All members of
the committee were determined to be independent directors except for
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Mr. Snow. While Mr. Snow is not an independent director, as that term is defined
above, based upon his significant legal and business experience both within and
outside of the Company, and his significant leadership ability, the Board
determined he is an important member to place onto the Governance and Nominating
Committee. The Governance and Nominating Committee is responsible for making
recommendations to the full Board of Directors regarding candidates for election
to the Board. Because it was formed in 2004, the Governance and Nominating
Committee did not meet during 2003. For the 2004 Annual Meeting of Shareholders,
the full Board of Directors considered and nominated the candidates proposed for
election.
New charters for the Audit, Compensation and Governance and Nominating
Committees are attached hereto as Exhibits A, B and C and can also be found at
the Company's website www.navarre.com.
INDEPENDENT DIRECTORS MEETING
The Board formally adopted a policy of establishing an Independent Directors
Meeting, with only independent directors being present, for not less than two
regular meetings each fiscal year.
CODE OF BUSINESS CONDUCT AND ETHICS
On March 29, 2004, the Board approved and the Company adopted a Code of Business
Conduct and Ethics that applies to all directors, officers and employees of the
Company, and this Code is available on the Company's website at www.navarre.com.
The Audit Committee of the Board is responsible for overseeing the Code. In
accordance with Nasdaq's Marketplace Rules, any waivers of the Code for
directors and executive officers must be approved by the Company's Board of
Directors.
QUALIFICATIONS OF CANDIDATES FOR ELECTION TO THE BOARD
The Company's Directors take a critical role in guiding the Company's strategic
direction, and they oversee the management of Company. When Board candidates are
considered, they are evaluated based upon various criteria, such as their
broad-based business and professional skills and experiences, experience serving
as management or on the board of directors of companies such as the Company,
concern for the long-term interests of the shareholders, financial literacy,
personal integrity and judgment. In addition, director candidates must have time
available to devote to Board activities. Accordingly, the Board seeks to attract
and attain highly-qualified individuals who have sufficient time to attend to
their duties and responsibilities to the Company.
The Board of Directors has not established specific requirements for Director
candidates, but intends to consider the candidate's knowledge of and experience
with accounting, his or her general financial literacy, and his or her
understanding of corporate governance practices and responsibilities. The Board
of Directors and, subsequent to its formation, the Governance and Nominating
Committee, retains the right to modify these qualifications from time to time.
Exceptional candidates who do not meet all of these criteria may still be
considered.
PROCESS FOR IDENTIFYING AND EVALUATING CANDIDATES FOR ELECTION TO THE BOARD
Going forward, the Governance and Nominating Committee will review the
qualifications and backgrounds of the Directors, as well as the overall
composition of the Board, and recommend to the full Board the Directors to be
nominated for election at each Annual Meeting of Shareholders of the Company. In
the case of incumbent Directors, the Governance and Nominating Committee will
review such Directors' overall service to the Company, including the number of
meetings attended, level of participation, quality of performance, and whether
the Director continues to meet the applicable independence standards. In the
case of any new Director candidates, the questions of independence and financial
expertise are important to determine what roles can be performed by the
candidate, and the Governance and Nominating Committee will determine whether
the candidate meets the applicable independence standards and the level of the
8
candidate's financial expertise. Any new candidates will be interviewed by the
Governance and Nominating Committee and, if approved by the Committee, then by
all members of the Board. The full Board will approve the final nominations. The
Chairman of the Board, acting on behalf of the full Board, will extend the
formal invitation to become a nominee of the Board of Directors.
SHAREHOLDER NOMINATIONS
Shareholders may nominate Director candidates for consideration by the
Governance and Nominating Committee by writing to Mr. Ryan F. Urness, the
Company's Secretary, and providing to the Secretary the candidate's name,
biographical data and qualifications, including five-year employment history
with employer names and a description of the employer's business; whether such
individual can read and understand fundamental financial statements; other board
memberships (if any); and such other information as reasonably available and
sufficient to enable the Governance and Nominating Committee to evaluate the
minimum qualifications stated above under the section of this proxy statement
entitled "Qualifications of Candidates for Election to the Board." The
submission must be accompanied by a written consent of the individual to provide
information relevant to the position of director - including regarding
independence, positions on other boards or board committees, etc. - requested by
the Board, to stand for election if nominated by the Board of Directors and to
serve if elected by the shareholders. Written notice must be given at least 120
days before the date of the next Annual Meeting of Shareholders. If a
shareholder nominee is eligible, and if the nomination is proper, the Governance
and Nominating Committee then may interview the nominee, request any further
information needed, and will deliberate and make its recommendation to the Board
of Directors.
The Governance and Nominating Committee will not change the manner in which it
evaluates candidates, including the applicable minimum criteria set forth above,
based on whether the candidate was recommended by a shareholder.
COMMUNICATIONS WITH THE BOARD
Shareholders can communicate directly with the Board, or with any Committee of
the Board, by writing to Mr. Ryan F. Urness, Secretary, at the Company's
address. All communications will be reviewed by management and then forwarded to
the appropriate director or directors or to the full Board or Committee, as
appropriate.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers and certain other key members of management are
as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Eric H. Paulson 59 Chairman of the Board, President and Chief Executive Officer
James G. Gilbertson 42 Vice President and Chief Financial Officer
Cary Deacon 52 Chief Operating Officer, Publishing, Corporate Relations Officer
Michael Bell 39 Chief Executive Officer, Encore
Brian Burke 34 Chief Operating Officer, Distribution
Edward Goetz 60 President, BCI
Steve Pritchitt 56 Senior Vice President and General Manager, Navarre Entertainment Media
John Turner 50 Senior Vice President, Global Logistics
Kathleen Conlin 60 Vice President, Corporate Controller
Joyce Fleck 52 Vice President, Marketing
Margot McManus 46 Vice President, Human Resources
James Colson 43 Vice President, Business Affairs, Navarre Entertainment Media
Ryan F. Urness 32 General Counsel and Secretary
9
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. Gilbertson is set forth above under "Election of Directors."
Cary Deacon has been the Chief Operating Officer, Publishing since
September 2003, and until that time was the Corporate Relations Officer since
joining the Company in September 2002. Prior to joining Navarre, his career
spans 30 years in 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. Mr. Deacon also serves as a director of Raindance (Nasdaq:
RNDC).
Michael Bell is the Chief Executive Officer of Encore Software, Inc.
("Encore"), and has served the Company in that role since August 2002 when
Encore, a majority-owned subsidiary of the Company, acquired the primary assets
of Encore's predecessor entity, Encore Software, Inc., in a transaction approved
by the United States Bankruptcy Court. Mr. Bell co-founded Encore Software, Inc.
in October 1994 and served as its CEO from its founding. Mr. Bell also owns a
minority stock equity position (20%) in Encore Software, Inc. Prior to starting
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.
Brian Burke has been Chief Operating Officer, Distribution since February
2004. He previously served as Senior Vice President and General Manager, Navarre
Distribution Services since April 2001, 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 Navarre, Mr. Burke held various
marketing, sales and account manager positions with Imtron and Blue Cross/Blue
Shield of Minnesota.
Edward Goetz has been President of BCI Eclipse Company, LLC since the
Company acquired the assets of BCI Eclipse, LLC in November 2003. Mr. Goetz
had also served as the President of BCI Eclipse, LLC since he joined that firm
in June of 2000. Prior to joining BCI, he served as the President of Simitar
Entertainment from 1984 to 2000. Prior to that, Mr. Goetz held various positions
including National Sales Manager and VP of Media Purchasing at K-Tel
International from 1974 to 1984.
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 Global Logistics since
September 2003. He previously served as Senior Vice President of Operations
since December 2001, and 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.
10
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, Ms. Fleck 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 Media, since November 2001. From 1997 to 2001, he was General
Manager of Valley Media, Inc.'s 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 DNA.
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 F. Urness has been General Counsel and Secretary since July 2004. He
previously served as 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 law firm of Winthrop & Weinstine, P.A. where his
practice was primarily focused on transactions and disputes involving
intellectual property and technology.
11
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other components of
compensation for the fiscal years ending March 31, 2004, 2003, and 2002 for Eric
H. Paulson, our Chief Executive Officer and the four highest paid executive
officers of the Company, James G. Gilbertson, Brian Burke, Steve Pritchitt, and
John Turner, (the "Named Executive Officers") during the fiscal year ended March
31, 2004.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------
----------------------------------- AWARDS
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND FISCAL COMPEN- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD(S) OPTIONS/SARS SATION
- ---------------------------- ------ -------- --------- --------- ---------- ------------ -----------
Eric H. Paulson
Chairman of the Board, 2004 $386,932 $ 147,000 $ 244,192(1) ---- 50,000 $ 44,108(2)
Chief Executive Officer 2003 350,000 134,400 257,675(1) ---- 150,000 41,186(2)
and President 2002 335,193 30,000 ---- ---- ---- 62,477(2)
James G. Gilbertson
Vice President, 2004 204,615 65,232 6,000(3) ---- 25,000 ----
Chief Financial Officer 2003 185,616 36,600 6,000(3) ---- 50,000 ----
2002 176,231 8,750 6,000(3) ---- 100,000 ----
Brian Burke
Chief Operating Officer, 2004 210,846 75,000 ---- ---- 25,000 ----
Navarre Distribution 2003 196,115 40,000 ---- ---- 60,000(4) ----
2002 179,592 64,969 3,115(3) ---- 138,000(4) ----
Steve Pritchitt
Senior Vice President and 2004 200,000 47,000 4,800(3) ---- 15,000 ----
General Manger, Navarre 2003 190,000 20,000 4,800(3) ---- 60,000 ----
Distribution 2002 180,000 11,731 4,800(3) ---- 28,000 ----
John Turner 2004 185,000 53,642 ---- ---- 25,000 ----
Senior Vice President, 2003 170,000 38,000 ---- ---- 60,000 ----
Operations 2002 149,038 56,000 ---- ---- 8,000 ----
(1) During fiscal year 2002, the Company entered into a five year amended
employment agreement with Mr. Paulson. The agreement included a loan for a
maximum of $1,000,000, of which $600,000 was outstanding at March 31, 2004.
Under the terms of the loan, $200,000 of the $1,000,000 principal and all
accrued unpaid interest is to be forgiven by the Company on each of March
31, 2004, 2005, 2006 and 2007. During 2004, the Company forgave $244,192 of
principal and interest, and during 2003 the Company forgave $257,674 of the
principal and interest. The outstanding note bears an annual interest rate
of 5.25%.
(2) Amounts reflect life insurance premiums paid by us of $44,108 in fiscal
2004, $41,186 in fiscal 2003 and $62,477 in fiscal 2002 for Mr. Paulson.
(3) Represents car allowance.
(4) Amounts do not reflect options received by Mr. Burke's spouse in the
following amounts: 1,000 shares in fiscal 2003; and 1,000 shares in fiscal
2002. Mr. Burke's spouse received the options as an employee of the
Company.
12
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 in conjunction with the Compensation Committee, based upon
net profits, net sales and other identified goals. Mr. Paulson is also 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 also provided for the Company, concurrent with the signing of the
Agreement, to make a loan of $1.0 million to Mr. Paulson, which has been and
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, 2004, the second $200,000 of the loan and accrued interest
was forgiven leaving $600,000 outstanding on the loan. The loan bears interest
at 5.25 % per year.
The Agreement also establishes an incentive-based deferred compensation plan
under which Mr. Paulson is eligible, upon his entering into and complying with
the terms of a non-compete agreement at the termination of his employment, 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 incentive 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, but only if his compensation has not already exceeded
$3,000,000.
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, 2004, would have been equal to approximately
$1,600,000.
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. All
capitalized terms in this and in the preceding five paragraphs not defined
herein are defined in the Agreement.
13
CHANGE IN CONTROL AGREEMENTS
The Company has entered into termination agreements with Brian Burke, James G.
Gilbertson and Stephen Pritchitt that provide for certain benefits for them upon
a "change in control" of the Company, as defined in such agreements. If each
such executive's employment with the Company is terminated, if there is an
adverse change in the executive's status or position as an executive, or if the
Company substantially reduces the executive's base salary in effect immediately
prior to the agreement or otherwise changes eligibility requirements or
performance criteria for any benefit other than salary which adversely affects
the executive, such executive would be entitled to cash payments equal to the
average of all taxable compensation and fringe benefits paid to or on behalf of
the executive by the Company, based on the two most recent calendar years, to be
paid over a twelve (12) month period.
STOCK OPTION PLAN
Our 1992 Stock Option Plan (the "1992 Plan") was approved by the Board of
Directors on September 1, 1992. The 1992 Plan and all of its amendments have
also been approved by the shareholders. A total of 5,224,000 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 grants of restricted stock, and
both incentive stock options and non-statutory stock options. Incentive stock
options are granted at an exercise price based upon fair market value and,
provided certain restrictions are met, receive favorable tax treatment under the
Internal Revenue Code. Non-statutory stock options are also typically granted at
fair market value and do not qualify for favorable tax treatment.
On April 1 of each year, each director who is not an employee of the Company is
granted an option to purchase 6,000 shares of common stock under the 1992 Plan,
at a price equal to fair market value. These options are designated as
nonqualified stock options and are subject to the same terms and provisions as
are then in effect with respect to granting of nonqualified stock options to
salaried officers and key employees of the Company. These options vest in
increments of 20% of the original option grant beginning one year from the date
of grant and expire six years from the date of grant.
At July 1, 2004, the Company had issued 2,292,346 options under the 1992 Plan,
2,644,800 shares were subject to outstanding options and 286,854 shares were
reserved for future grant under the 1992 Plan.
14
The following table below presents our Equity Compensation Plan
information as of March 31, 2004:
Number of securities
remaining available for
Number of securities to be future issuance under
issued upon exercise of Weighted-average exercise equity
outstanding options, price of outstanding compensation plans
warrants and rights options, (excluding securities
Plan Category warrants and rights reflected in column (a))
(a) (b) (c)
Equity compensation plans
approved by security holders 2,927,200 $ 3.41 357,154
Equity compensation plans not
approved by security holders
-0- -0- -0-
--------- ------ -------
Total 2,927,200 $ 3.41 357,154
========= ====== =======
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 2004 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
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 G. Paulson 50,000 7.1% $ 6.09 1/30/10 $ 388,628 $ 490,400
James G. Gilbertson 25,000 3.6% 6.09 1/30/10 194,314 245,200
Brian Burke 25,000 3.6% 6.09 1/30/10 194,314 245,200
John Turner 25,000 3.6% 6.09 1/30/10 194,314 245,200
Steve Pritchitt 15,000 2.1% 6.09 1/30/10 116,588 147,120
* All were incentive stock options and were issued with an exercise price
equal to the fair market value on the date of grant.
(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.
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 2004 and unexercised options held at March 31,
2004.
15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT
ON VALUE FISCAL YEAR-END FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
Eric H. Paulson 230,000 $925,000 80,000 210,000 $ 4,400 $301,852
James Gilbertson 45,000 172,882 35,000 145,000 112,515 288,670
Brian Burke 35,000 116,709* 43,400 180,800 142,000 713,965
Steve Pritchitt 25,200 112,124 7,600 70,200 34,902 237,804
John Turner 25,200 95,463 23,600 74,200 13,204 33,612
*Amount does not reflect a $7,252 gain received by Mr. Burke's spouse through
the exercise of options.
The closing price on March 31, 2004, as reported on the Nasdaq National Market
System, was $5.93 per share.
CERTAIN TRANSACTIONS
MICHAEL BELL EMPLOYMENT AGREEMENT AND STOCK PURCHASE
Effective July 31, 2002, the Company's wholly-owned subsidiary, Encore
Acquisition Corporation, a Minnesota Corporation, n/k/a Encore Software, Inc.
("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.
16
As an inducement for Mr. Bell to enter into the Agreement, the Company
guaranteed the collection of Mr. Bell's compensation payable by Encore, which
guarantee expired in August 2003.
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 in consideration for a payment of $500 in cash. Since the value of the
shares was not determinable, the parties mutually agreed that the value of the
shares equaled $500, principally to establish a tax basis for Mr. Bell. These
shares are subject to transfer restrictions which generally prohibit the sale or
other transfer of the shares to any person other than Encore or the Company
during the first ten (10) years after Mr. Bell's acquisition of the shares. If
Encore or Navarre were required to repurchase the shares under this agreement as
of March 31, 2004, Mr. Bell would have been entitled to a payment significantly
less than $500.
CHENEY LEAVE OF ABSENCE AND SEVERANCE AGREEMENTS
On July 15, 2002, we entered into an agreement (the "Leave of Absence
Agreement"), with Mr. Cheney under which Mr. Cheney would have a leave of
absence until February 1, 2004 to enable him to complete law school. Under the
Leave of Absence Agreement, Mr. Cheney was paid nominal compensation, and
continued 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 on February 1, 2004, Mr. Cheney was
entitled to a salary of $240,000 per year. During the leave of absence period,
Mr. Cheney was 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."
Pursuant to a separation agreement and release effective April 30, 2004, (the
"Severance Agreement"), the Company and Mr. Cheney agreed to terms regarding his
resignation and severance. Mr. Cheney's employment with the Company terminated
April 30, 2004. During the period between his return to the Company on February
1 and his resignation on April 30, the Company paid Mr. Cheney approximately
$62,400 in salary. In exchange for certain representations, promises and
releases, including noncompetition and nonsolicitation provisions, the Company
agreed to pay Mr. Cheney an amount equal to two years of his base salary, plus
bonus, which is paid to him in equal installments over the course of forty-eight
(48) months, which equals, in the aggregate, a total of $470,000, and to
continue coverage of medical benefits until April 30, 2006 if certain conditions
are met. In addition, the Company agreed to pay Mr. Cheney a lump sum in the
amount of $4,519 for unused vacation. The Company also agreed to pay Mr. Cheney
$109,778, to be paid over the course of forty-eight (48) months, in
consideration for non-rescission of any of the provisions of the Severance
Agreement.
OTHER ITEMS
During October 2000, Mr. Paulson made a loan to the Company to assist the
Company's repurchase of certain shares from a preferred shareholder. An
accommodation fee of $40,000 was paid to Mr. Paulson in connection with this
loan which reflects fees, costs and interest paid to Mr. Paulson in connection
with the loan. The loan was repaid by the Company in fiscal 2001.
At March 31, 2004, Mr. Paulson was indebted to us in the principal amount of
$600,000 for an unsecured loan. We accrue interest on the outstanding
indebtedness at the rate of 5.25 % per year. See "Employment Agreements" for a
description of the loan and annual forgiveness provisions.
In 2003, we paid Michael L. Snow, a member of the Company's Board of Directors,
a consulting fee of $187,000 for consulting services provided in conjunction
with the acquisition of Encore. A special committee of the Board of Directors
reviewed the compensation paid to Mr. Snow following the hiring of an
independent outside consultant to review Mr. Snow's involvement in the Encore
transaction and assess
17
the appropriate level of compensation. The consulting services Mr. Snow provided
included negotiation with Encore's senior lender, representation as a consultant
with the Company's attorneys in a number of bankruptcy court proceedings,
negotiation with the Creditor Committee and participation in discussions with
the Company's senior lenders.
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. Benson, and Mr. Gentz. Each of the
members of the current Audit Committee is independent as defined by the Nasdaq
listing standards, and Mr. Sippl has been determined to be the Audit Committee
"financial expert" by the Board. This report is submitted by those individuals
serving on the Committee at the end of fiscal 2004. Mr. Teo resigned on April
22, 2004.
The Audit Committee held four (4) meetings during fiscal year 2004. 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
consolidated 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
consolidated 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 consolidated 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.
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, 2004 for filing with the Securities and
Exchange Commission. In addition, the Board of Directors has approved a revised
written charter for the Audit Committee, which is attached hereto as Exhibit A.
SUBMITTED BY THE AUDIT COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Keith A. Benson Timothy R. Gentz
(Chair)
18
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 2004 the
members were Mr. Weyl, Mr. Wiltz, Mr. Sippl and Mr. Benson. Each of the
Committee members is an independent director as such persons are defined in NASD
Rule 4200. 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 three (3) meetings
during fiscal year 2004. 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 2004.
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.
COMPARISON WITH OTHER COMPANIES
The Committee periodically reviews the compensation packages of its executive
officers to ensure that the compensation levels and benefits of the Company are
commensurate with those offered to executive officers at companies of comparable
size and development in comparable industries. For these purposes, during fiscal
2004 the Committee engaged the consulting firm of Towers Perrin to provide
various reports and analysis regarding the Company's compensation packages, as
compared to companies that were determined to be in its peer group. The
Committee reviewed information regarding 21 companies of varying sizes, which
included En Point Technology, Inc., Handleman Company, Ingram Micro, Inc., and
Tech Data Corp.
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. In evaluating the
overall performance of the Company for the purposes of determining executive
officer's salaries, the Committee evaluates annual and long-term increases to
the Company's net revenues, operating income, and net income.
ANNUAL INCENTIVE AWARDS
The Company pays bonuses to its executive officers based upon the performance of
the Company. The Committee may award executive officers either cash, common
stock or a combination of cash and common stock as incentive compensation. In
evaluating the overall performance of the Company for the purposes of
determining bonuses paid to executive officers, the Committee evaluates annual
and long-term increases to the Company's net revenues, operating income, and net
income. Mr. Paulson is eligible to receive an amount up to 100% of his base
salary under his current employment agreement dated November 1, 2001. With
respect to fiscal 2004, the following cash bonuses were awarded: Mr. Paulson -
$147,000; Mr. Gilbertson - $65,232; Mr. Burke - $75,000; Mr. Pritchitt -
$47,000; and Mr. Turner - $53,642.
19
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. All executive officers are eligible for
discretionary grants of stock options or restricted stock. In determining the
level of options or restricted stock to be granted, the Committee considers the
responsibilities and performance on behalf of the Company of the executive
officer. Please see the table entitled "Option Grants in Last Fiscal Year -
Individual Grants" illustrating the grants awarded to our Chief Executive and
our Named Executive Officers during our 2004 fiscal year.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Paulson's base pay for fiscal 2004 was $386,932. 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 2004, the Company made cost of living adjustments
to the base salary. Mr. Paulson received a bonus of $147,000 during fiscal 2004
based upon the Company's accomplishment of certain goals during fiscal 2003.
Under the agreement, Mr. Paulson's bonuses depend upon a combination of the
Company's achievement of certain goals established by the Board of Directors
with respect to net profits, net sales and other specific goals to be determined
by the Board of Directors from time to time. Mr. Paulson also received
compensation from the Company in fiscal 2004 through the forgiveness of $200,000
of principal and accrued interest relating to a loan provided by the Company to
Mr. Paulson. This loan was provided concurrent with the Company's entering into
Mr. Paulson's November 2001 employment agreement and was made upon information
provided by Towers Perrin that similar loan forgiveness arrangements were
commonplace at that time with respect to compensation packages offered to
certain senior executive officers. The terms of Mr. Paulson's employment
agreement are set forth in the section entitled "Employment Agreements."
SUBMITTED BY THE 2004 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
Tom F. Weyl Dickinson G. Wiltz James G. Sippl Keith A. Benson
(Chair)
20
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, 2004 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 2004: Handleman Co., Ingram Micro Inc., Merisel Inc.,
Platinum Entertainment, Inc. and Tech Data Corp. This group is comprised of
companies that, in fiscal 2004 had similar music or software distribution
operations.
PERFORMANCE GRAPH
NAVARRE CORPORATION
COMPARISON OF SIX YEAR CUMULATIVE TOTAL RETURNS
[PERFORMANCE GRAPH]
3/98 3/99 3/00 3/01 3/02 3/03 3/04
------ ------ ------ ----- ----- ----- ------
Navarre Corporation 100.00 530.95 150.02 52.38 41.90 64.76 225.90
NASDAQ Stock Market 100.00 114.04 241.08 87.78 68.74 56.24 93.81
Self-Determined Peer Group 100.00 67.50 69.62 60.82 84.73 54.08 90.38
21
PROPOSAL 2 - APPROVAL OF GRANT THORNTON LLP
AS INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee,
selected the accounting firm of Grant Thornton LLP to audit Navarre's
consolidated financial statements for, and otherwise act as the independent
auditors with respect to, the year ending March 31, 2005, subject to the
ratification of the holders of the Company's common stock. As previously
reported on our Current Report on Form 8-K dated July 20, 2004 and by letter
dated July 20, 2004, Ernst & Young, LLP ("Ernst & Young") was not selected as
our independent auditors for the year ending March 31, 2005. The reports of
Ernst & Young on the consolidated financial statements for the past two fiscal
years ending March 31, 2004 and 2003 contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle. In connection with its audits for the two most recent
fiscal years and through July 20, 2004, there have been no disagreements with
Ernst & Young on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Ernst & Young would have caused them to make
reference thereto in their report on the consolidated financial statements for
such years. We engaged Grant Thornton LLP as our new independent auditors
effective July 19, 2004.
THE BOARD OF DIRECTOR'S SELECTION OF GRANT THORNTON LLP FOR THE CURRENT
FISCAL YEAR IS BEING PRESENTED TO SHAREHOLDERS FOR RATIFICATION AT THE ANNUAL
MEETING. To Navarre's knowledge, neither Grant Thornton LLP nor any of its
partners has any direct financial interest or any material indirect financial
interest in Navarre, or has had any connection since the inception of Navarre in
the capacity of promoter, underwriter, voting trustee, director, officer or
employee. During the two most recent fiscal years and through July 19, 2004, the
Company has not consulted with Grant Thornton LLP regarding either (i) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, and neither a written report
was provided to the Company nor oral advice was provided that Grant Thornton LLP
concluded was an important factor considered by the Company in reaching a
decision as to the accounting, auditing or financial reporting issue; or (ii)
any matter that was the subject of a disagreement, as the term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event as that term is described in Item
304(a)(1)(v) of Regulation S-K. A representative of Grant Thornton LLP is
expected to be present at the annual meeting, will have the opportunity to make
a statement if he or she has the desire to do so and will be available to
respond to appropriate questions from shareholders. A representative from Ernst
& Young will not be present.
If the holders of the common stock do not ratify the selection of Grant
Thornton LLP the Audit Committee may affirm its selection of Grant Thornton LLP
as the Company's independent auditors. All proxies received in response to this
solicitation will be voted in favor of the ratification of the appointment of
Grant Thornton LLP as the Company's independent auditors, unless other
instructions are indicated thereon.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF
GRANT THORNTON LLP AS THE INDEPENDENT AUDITORS.
22
PROPOSAL 3 - APPROVAL OF 2004 STOCK PLAN
On July 21, 2004, the Board of Directors voted to approve a new stock
plan, the Navarre Corporation 2004 Stock Plan (the "2004 Plan") to supplement
and ultimately replace the 1992 Stock Option Plan (the "1992 Plan"). THE
SHAREHOLDERS ARE BEING ASKED TO APPROVE THE 2004 PLAN AT THE ANNUAL MEETING.
The purposes of the 2004 Plan are (a) to promote the long-term interests
of the Company and its shareholders by strengthening the Company's ability to
attract, motivate and retain key personnel and (b) to provide additional
incentive for those persons through stock ownership and other incentives to
improve operations, increase profits and strengthen the mutuality of interest
between those persons and the Company. 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
grant stock-based awards in furtherance of the purposes and objectives of the
2004 Plan, THE BOARD RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE PROPOSED 2004
PLAN.
SUMMARY OF 2004 PLAN
This summary is qualified in its entirety by the terms of the 2004 Plan, a
copy of which is attached hereto as Exhibit D.
GENERAL
The 2004 Plan, which has 1,000,000 authorized shares, 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 ("Nonqualified Options"), (c) stock appreciation rights ("SARs"),
(d) restricted stock and stock units, and (e) performance shares, performance
units and director options.
ADMINISTRATION AND ELIGIBILITY
The 2004 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 2004 Plan, determines
the amount of grants to participants, and prescribes discretionary terms and
conditions of each grant not otherwise fixed under the 2004 Plan. All employees
of the Company are eligible for participation under the 2004 Plan. As of the
date hereof, no award have been granted under the 2004 Plan and future awards
cannot be quantified or estimated.
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. In the
Committee's sole discretion, Nonqualified 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 2004 Plan
during any calendar year may not exceed $100,000. Stock Options have a maximum
term
23
fixed by the Compensation Committee, not to exceed 10 years from the date of
grant. Nonqualified 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.
DIRECTOR GRANTS
Non-employee directors serving as directors on April 1 of each year
starting in 2005 will be granted a Nonqualified Stock Option to purchase 6,000
shares of common stock at an exercise price equal to the fair market value of
the stock on that date. Each Option shall vest in increments of 20% of the
original Option grant beginning one year from the date of the grant and shall
expire on the earlier of (i) six years from the grant date, or (ii) one year
after the person ceases to serve as a director.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") may be granted at any time, and may be
granted in tandem with an Option or alone ("freestanding"). Any SAR that relates
to an Incentive Stock Option must be granted at the same time that the Incentive
Stock Option is granted. The grant price of a tandem SAR shall be equal to the
exercise price of the related option, and the grant price of a freestanding SAR
shall be equal to the fair market value of the common stock for the grant date.
The term of a freestanding SAR shall be as established for that SAR by the
Committee or, if not so established, shall be 10 years from the grant date, and
in the case of a tandem SAR, (a) the term shall not exceed the term of the
related option and (b) the tandem SAR may be exercised for all or part of the
shares subject to the related option upon the surrender of the right to exercise
the equivalent portion of the related option, except that the tandem SAR may be
exercised only with respect to the shares for which its related option is then
exercisable. At the discretion of the Committee, the payment upon exercise of an
SAR may be in cash, in shares of common stock of equivalent value, in some
combination thereof or in any other manner approved by the Committee in its sole
discretion.
RESTRICTED STOCK AND STOCK UNITS
The Committee may grant Restricted Stock and Stock Units on such terms and
conditions and subject to such repurchase or forfeiture restrictions, if any, as
the Committee shall determine in its sole discretion, which terms, conditions
and restrictions shall be set forth in the instrument evidencing the Award (as
such term is defined by the 2004 Plan). Upon satisfying the relevant conditions,
the shares of Restricted Stock covered by each Award shall become freely
transferable by the participant, while Stock Units shall be paid in cash, shares
of common stock or a combination of cash and shares of common stock as the
Committee shall determine in its sole discretion. Any fractional shares subject
to such Awards shall be paid to the participant in cash. Participants holding
shares of Restricted Stock or Stock Units may, if the Committee so determines,
be credited with dividends paid, if any, with respect to the underlying shares
or dividend equivalents while they are so held in a manner and form determined
by the Committee in its sole discretion.
The Committee, in its sole discretion, may waive the repurchase or
forfeiture period and any other terms, conditions or restrictions on any
Restricted Stock or Stock Unit under such circumstances and subject to such
terms and conditions as the Committee shall deem appropriate; provided, however,
that the Committee may not adjust performance goals for any Restricted Stock or
Stock Unit intended to be exempt under Section 162(m) of the Code for the year
in which the Restricted Stock or Stock Unit is settled in such a manner as would
increase the amount of compensation otherwise payable to a participant.
24
PERFORMANCE SHARES AND PERFORMANCE UNITS
Each Award of Performance Shares shall entitle the participant to a
payment in the form of shares of common stock upon the attainment of performance
goals and other terms and conditions specified by the Committee. The number of
shares issued under an Award of Performance Shares may be adjusted on the basis
of later considerations as the Committee shall determine, in its sole
discretion. However, the Committee may not, in any event, increase the number of
shares earned upon satisfaction of any performance goal by any Covered Employee
(as such term is defined by the 2004 Plan). The Committee, in its discretion,
may make a cash payment equal to the fair market value of the common stock
otherwise required to be issued to a participant pursuant to an Award of
Performance Shares.
Performance Units shall entitle the participant to a payment in cash upon
the attainment of performance goals and other terms and conditions specified by
the Committee. Notwithstanding the satisfaction of any performance goals, the
amount to be paid under an Award of Performance Units may be adjusted on the
basis of such further consideration as the Committee shall determine, in its
sole discretion. However, the Committee may not, in any event, increase the
amount earned under Performance Unit Awards upon satisfaction of any performance
goal by any Covered Employee, and the maximum amount earned by any Covered
Employee in any calendar year (without regard to any amounts earned by the
Covered Employee with respect to Awards that are subject to Performance
Criteria, as such term is defined by the 2004 Plan) may not exceed $1,000,000.
The Committee, in its discretion, may substitute actual shares of common stock
for the cash payment otherwise required to be made to a participant pursuant to
a Performance Unit.
QUALIFIED PERFORMANCE-BASED COMPENSATION / CODE SECTION 162(m)
Awards of Restricted Stock, Stock Units, Performance Shares, Performance
Units and other Awards made pursuant to the 2004 Plan may be made subject to the
attainment of preestablished, objective performance goals relating to one or
more business criteria within the meaning of Section 162(m) of the Code,
including, for example: return on average common shareholders' equity; return on
average equity; total shareholder return; stock price appreciation; efficiency
ratio; net operating expense; earnings per diluted share of Common Stock; per
share earnings before transaction-related expense; per share earnings after
deducting transaction-related expense; return on average assets; ratio of
nonperforming to performing assets; return on an investment in an affiliate; net
interest income; net interest margin; ratio of common equity to total assets;
and customer service metrics (the "Performance Criteria"). Performance Criteria
may be stated in absolute terms or relative to comparison companies or indices
to be achieved during a period of time. Performance Criteria does not include
the mere continued employment of the individual to whom the Award is made. Any
Performance Criteria may be used to measure the performance of the Company as a
whole or any business unit of the Company. Performance Criteria shall be
established by the Committee and shall be derived from the Company's audited
financial statements, including footnotes, or the Management's Discussion and
Analysis section of the Company's annual report.
In general, the Committee may adjust downwards, but not upwards, the
amount payable pursuant to an Award that is subject to Performance Criteria. The
Committee may not waive the achievement of the applicable Performance Criteria
with respect to an Award except, in its discretion, in the case of the death or
disability of a Participant.
The annual maximum amount of compensation that a Participant may receive
with respect to Awards that are subject to Performance Criteria is $2,000,000.
The Committee shall have the power to impose such other restrictions on Awards
that are subject to Performance Criteria as it may deem necessary to ensure that
such Awards qualify as performance-based compensation under Section 162(m)(4)(C)
of the Code.
25
FEDERAL INCOME TAX CONSEQUENCES
The following description is a summary, and not a comprehensive
description, of certain federal income tax consequences relating to Awards that
the Company may grant under the 2004 Plan. The description does not address all
tax consequences that may apply to an Award or specific tax consequences that
may apply to a participant who receives an Award because of the participant's
individual circumstances. The description is based on current statutes,
regulations, and interpretations, all of which are subject to change, and any
change of which may have a significant effect on the following description. The
description does not include state or local income tax consequences, which also
may be significant.
Incentive Stock Options
In general, neither a participant nor the Company will have any federal
income tax consequences as a result of the grant to the participant of an
Incentive Stock Option. The participant's exercise of an Incentive Stock Option
also will not result in any federal income tax consequences to the participant
or the Company, except that an amount equal to the excess of the fair market
value of the shares acquired upon exercise of the Incentive Stock Option, as of
the date of exercise, over the option exercise price will be includable in the
participant's taxable income for alternative minimum tax purposes. Upon the
grant of the Incentive Stock Option or, if later, its vesting, a participant may
be subject to an additional excise tax if all or a portion of the value of the
Incentive Stock Option is treated as "excess parachute payments" within the
meaning of the Code.
If a participant disposes of the shares of common stock acquired upon
exercise of an Incentive Stock Option, the federal income tax consequences will
depend upon how long the participant had held the shares of common stock. If the
participant does not dispose of the shares of common stock within two years
after the Incentive Stock Option was granted, or within one year after the
participant exercised the Incentive Stock Option and the shares of common stock
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 from the disposition
of such stock will be taxable as ordinary compensation income in the year in
which the disposition occurs to the extent that, in general, the fair market
value of such stock on the date of exercise exceeds the option exercise price.
The balance of any gain will be characterized as a capital gain.
If the Applicable Holding Periods are satisfied, the Company will not
receive a tax deduction. If the Applicable Holding Periods are not satisfied,
the Company will receive a tax deduction to the extent, and at the time, that
the participant realizes ordinary compensation income.
Nonqualified Options
Neither a participant nor the Company will have any federal income tax
consequences as a result of the grant to the participant of a Nonqualified Stock
Option. In general, when the participant exercises a Nonqualified Stock Option,
the participant will recognize ordinary compensation income to the extent that
the fair market value of the stock on the date of exercise exceeds the option
exercise price, and the Company will receive a tax deduction in an equal amount.
Stock Appreciation Rights
Neither a participant nor the Company will have any federal income tax
consequences as a result of the grant to the participant of a SAR. When the
participant exercises the SAR, the participant will recognize ordinary
compensation income equal to the amount of the cash or the fair market value of
the
26
common stock received by the participant, and the Company will receive a tax
deduction in an equal amount.
Restricted Stock
In general, neither a participant nor the Company will have any federal
income tax consequences as a result of the grant to the participant of
Restricted Stock. If, however, the participant elects within 30 days after the
grant date to recognize income, then the participant will recognize as of the
grant date ordinary compensation income equal to the fair market value of the
Restricted Stock as of the grant date. If the participant does not elect to
recognize income as of the grant date, then, when the restrictions on the
Restricted Stock lapse and the Restricted Stock vests, the participant will
recognize ordinary compensation income equal to the fair market value of the
Restricted Stock at such time. If the Company makes a distribution with respect
to the Restricted Stock before either the participant makes an election to
recognize income or the Restricted Stock vests, the participant also will
recognize ordinary compensation income equal to the amount of the distribution.
The Company will receive a tax deduction to the extent, and at the time, that
the participant realizes ordinary compensation income with respect to Restricted
Stock.
Restricted Stock Units
Neither a participant nor the Company will have any federal income tax
consequences as a result of the grant to the participant of a Restricted Stock
Unit. When the participant receives the Restricted Stock Unit, the participant
will recognize ordinary compensation income equal to the amount of the cash or
the fair market value of the common stock received by the participant, and the
Company will receive a tax deduction in an equal amount.
Performance Shares and Performance Units
Neither a participant nor the Company will have any federal income tax
consequences as a result of the grant to the participant of a Performance Share
or a Performance Unit. When the participant receives cash or common stock with
respect to Performance Shares or Performance Units, the participant will
recognize ordinary compensation income equal to the amount of cash or the fair
market value of the common stock, and the Company will receive a tax deduction
in an equal amount.
Other Awards
When a participant receives cash or common stock with respect to other
awards, the participant will recognize ordinary compensation income equal to the
amount of cash or the fair market value of the common stock, and the Company
will receive a tax deduction in an equal amount.
Section 162(m)
In certain situations, Section 162(m) of the Code could apply to limit the
Company's ability to deduct fully the amount of a deduction that otherwise
arises with respect to Awards. In general, Section 162(m) of the Code disallows
a tax deduction to public companies to the extent that compensation paid during
a year to the chief executive officer or any of the four other most highly
compensated officers for the year exceeds $1,000,000. "Qualified
performance-based compensation," however, is not subject to the limitation.
Several requirements apply for compensation to qualify as qualified
performance-based compensation, including: (1) a compensation committee
comprised solely of at least two outside directors must establish objective
performance goals, which preclude discretion to increase the amounts payable
under the awards; (2) the shareholders must approve (i) the description of the
business criteria on which the performance goals are based, (ii) the employees
who may participate,
27
and (iii) the annual per-participant limit on the amount of the awards; (3)
before payment, the compensation committee must certify that the participant met
the required performance goal or goals and all other material terms; and (4) as
to options and SARs, the exercise price or the base amount may not be less than
fair market value of the common stock on the date of grant. Under the 2004 Stock
Plan, the Company may, but is not required to, grant Awards based on, and
subject to, their qualifying as qualified performance-based compensation.
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 2004 Plan. 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 shares under the 2004 Plan with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, as soon as is
practicable after approval of the 2004 Plan by the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF THE
2004 PLAN.
28
GENERAL
INDEPENDENT AUDITORS
The Board of Directors selected the firm of Ernst & Young LLP, independent
public accountants, as auditors to the Company for the year ended March 31,
2004. Ernst & Young LLP has audited the Company's consolidated financial
statements since 1991. On July 19, 2004, the accounting firm Grant Thornton LLP
was selected to be the Company's certifying accountant for its consolidated
financial statements for the fiscal year ending March 31, 2005, but the
accounting and auditing done for the fiscal year ending March 31, 2004 was
performed by Ernst & Young LLP.
AUDIT AND NON-AUDIT FEES
The SEC has adopted rules that will require the disclosure of fees paid to the
independent auditor and the disclosure of pre-approval policies and procedures
for all audit and non-audit services. The following table summarizes the fees we
paid for audit and non-audit services rendered by Ernst & Young LLP during
fiscal years 2004 and 2003.
SERVICE TYPE FISCAL 2004 FISCAL 2003
- ---------------------- ----------- -----------
Audit Fees (1) $ 128,450 $ 130,050
Audit-related fees (2) 39,556 1,575
Tax Fees (3) -- --
All other fees (4) -- --
--------- ---------
Total Fees Billed $ 168,006 $ 131,625
(1) Consists of fees for professional services rendered in connection
with the audit of our financial statements for the fiscal years
ended March 31, 2004 and 2003; 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 assurance and related services performed by
Ernst & Young LLP that are reasonably related to the performance of
the audit or review of the Company's financial statements. This
includes consultations concerning financial accounting and reporting
issues.
(3) Consists of fees, paid 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.
(4) All other fees are fees for other permissible work performed by
Ernst & Young LLP that do not meet the above category descriptions.
As provided in the Audit Committee's Charter, a copy of which is included in
this Proxy, all engagements for any non-audit services by the Company's
independent auditors must be approved by the Audit Committee before the
commencement of any such services. The Audit Committee may designate a member or
members of the Audit Committee to represent the entire Committee for purposes of
approving non-audit services, subject to review by the full Audit Committee at
the next regularly scheduled meeting.
The Audit Committee considers the provision of services by Ernst & Young LLP to
the Company, over and above the external audit fees, to be compatible with Ernst
& Young LLP's ability to maintain its independence.
29
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 2004 were filed on a timely basis except for
the following inadvertant late filings: a report on Form 4 of an open market
sale by Mr. Cheney of common stock on November 13, 2003 was filed on December
1, 2003; Mr. Deacon filed an amendment to his original form 3 on May 14, 2004
to include 25,000 options; Mr. Goetz, on June 7, 2004, filed an amendment to
his original form 3 to identify shares held as direct as opposed to indirect.
SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for action at the 2005 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, 2005 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 2005 Annual Meeting, if the Company is not provided
notice of a shareholder proposal prior to June 15, 2005, 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 intention 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 2004 is enclosed herewith.
Shareholders may also view this Proxy Statement and Form 10-K on Navarre's
website www.navarre.com, the Securities and Exchange Commission's website
www.sec.gov, or may receive a copy by writing to: Navarre Corporation, 7400 49th
Avenue North, New Hope, Minnesota 55428, Attention: Ryan F. Urness, or by
calling the Company at (763) 535-8333.
By Order of the Board of Directors,
Ryan F. Urness
Secretary and General Counsel
Dated: July 27, 2004
30
EXHIBIT A
NAVARRE CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER DATED JULY 21, 2004
I. PURPOSE
The primary function of the Audit Committee (the "Committee") is to assist
the Board of Directors (the "Board") of Navarre Corporation (the "Corporation")
in fulfilling its general oversight responsibilities by reviewing: the quality
and integrity of the financial reports and other financial information provided
by the Corporation to any governmental body or the public; the Corporation's
systems of disclosure controls and procedures, internal controls over financial
reporting and the ethical standards that management and the Board have
established; the Corporation's auditing, accounting and financial reporting
processes generally; the independence, qualifications, and performance of the
Corporation's independent auditor; the Corporation's compliance with the
Corporation's Code of Business Conduct and Ethics; and the Corporation's overall
compliance with legal and regulatory requirements.
Management is responsible for the preparation, presentation and integrity
of the Corporation's financial statements, accounting and financial reporting
principles, and internal controls and procedures designed to assure compliance
with accounting standards and applicable laws and regulations. The Corporation's
independent auditors are responsible for performing an independent audit of the
financial statements of the Corporation in accordance with generally accepted
auditing standards.
The Committee serves a Board-level oversight role in which it provides
advice, counsel and direction to management and the independent auditors on the
basis of the information it receives, discussions with the independent auditors,
and the experience of the Committee's members in business, financial and
accounting matters.
The Committee will primarily fulfill its responsibilities by carrying out
the activities enumerated in Section IV of this Charter. The Committee has the
authority to conduct any investigation appropriate to fulfilling its
responsibilities, and it has direct access to the independent auditors as well
as to officers and employees of the Corporation.
II. COMPOSITION
The Committee shall be comprised of three or more directors, each of whom
shall be independent, non-officer directors, and free from any relationship
that, in the opinion of the Board, would interfere with the exercise of his or
her independent judgment as a member of the Committee. Committee members shall
otherwise meet the applicable audit committee membership requirements, including
with respect to financial literacy, of the Securities Exchange Act of 1934, the
Securities and Exchange Commission and The NASDAQ Stock Market (as such
requirements may be modified or supplemented from time to time). At least one
member of the Committee shall qualify as a "financial expert" in accordance with
the requirements of the Securities Exchange Act of 1934, the Securities and
Exchange Commission and The NASDAQ Stock Market (as such requirements may be
modified or supplemented from time to time). The existence of such a member,
including his or her name and whether or not he or she is independent, will be
disclosed in periodic filings as required by the Securities and Exchange
Commission.
The members of the Committee shall be elected by the Board and serve until
their successors shall be duly elected and qualified or until their earlier
death or resignation from the Committee. Unless a Chair is elected by the full
Board, the members of the Committee may designate a Chair by majority vote of
the full Committee membership.
III. MEETINGS
The Committee shall meet quarterly and more frequently as circumstances
dictate. As part of its job to foster open communication, and as the Committee
deems appropriate, the Committee may meet privately in separate sessions with
executive management, the principal accounting officer, and/or the independent
auditors and as a committee to discuss any matters that the Committee or each of
these individuals or groups believes should be discussed.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
Documents/Reports Review
1. Review and reassess the adequacy of this Charter at least annually, and
more frequently as conditions dictate, and propose any amendments to the
Charter as it deems necessary or appropriate. Submit the Charter to the
Board for approval and cause the Charter to be approved and disclosed in
periodic filings as frequently as may be required by the regulations of
the Securities and Exchange Commission and the rules of The NASDAQ Stock
Market (as such regulations may be modified or supplemented from time to
time).
2. Review the Corporation's annual audited financial statements before they
are filed with the Securities and Exchange Commission or released. Review
should include discussion with management and the independent auditors of
significant issues regarding critical accounting estimates, accounting
principles, practices and judgments and a review with the independent
auditors of any auditor report to the Committee required under the rules
of the Securities and Exchange Commission or The NASDAQ Stock Market (as
may be modified or supplemented from time to time). Review should also
include review of the independence of the independent auditors (see Item 7
below) and the discussion with the independent auditors of the conduct of
their audit (see Item 10 below). Based on such review, determine whether
to recommend to the Board that the annual audited financial statements be
included in the Corporation's Annual Report on Form 10-K filed under the
rules of the Securities and Exchange Commission.
3. Review with management and the independent auditors the Corporation's
quarterly financial reports before they are filed with the Securities and
Exchange Commission or released.
4. Report Committee actions to the Board of Directors with such
recommendations as the Committee may deem appropriate.
5. Prepare a report to shareholders to be included in the Corporation's
annual proxy statement as required by the rules of the Securities and
Exchange Commission and The NASDAQ Stock Market (as such rules may be
modified or supplemented from time to time).
6. Review the regular internal reports to management, or summaries thereof,
prepared by the internal auditing department, as well as management's
responses. Review other relevant reports or financial information
submitted by the Corporation to any governmental body or the public,
including
2
management certifications as required by the Sarbanes-Oxley Act of 2002,
and relevant reports rendered by the independent auditors, or summaries
thereof.
Independent Auditors
7. The Corporation's independent auditors are directly accountable to the
Committee and the Board. The Committee shall select and retain the
Corporation's independent auditors and pre-approve the fees and other
compensation to be paid to the independent auditors for their audit
service. The Corporation shall, at all times, make adequate provision for
the payment of all fees and other compensation approved by the Committee
to the Corporation's independent auditors. On an annual basis, or more
frequently as conditions dictate, the Committee shall review and discuss
with the independent auditors all significant relationships the auditors
have with the Corporation to determine the auditors' independence. Such
review should include receipt and review of a report from the independent
auditors regarding their independence consistent with Independence
Standards Board Standard 1 (as may be amended or supplemented from time to
time). All engagements for any permissible non-audit services by the
independent auditors must be pre-approved by the Committee before the
commencement of any such services, and after the Committee has considered
whether the performance of such services is compatible with the auditors'
independence. The Corporation's independent auditors may not be engaged to
perform prohibited activities under the Sarbanes-Oxley Act of 2002 or the
rules of the Public Company Accounting Oversight Board or the Securities
and Exchange Commission. Approval of non-audit services will be disclosed
to investors in periodic reports as required by the Securities Exchange
Act of 1934.
8. Oversee the work performed by the independent auditors; review their
performance; actively engage in dialogue with the independent auditors
with respect to any disclosed relationship or service that may affect the
independence and objectivity of the auditor and take, or recommend that
the full board take, appropriate action to oversee the independence of the
independent auditors; and/or approve any proposed discharge of the
independent auditors when circumstances warrant.
9. Consult with the independent auditors out of the presence of management
about internal controls and the fullness and accuracy of the Corporation's
financial statements.
10. Before filing or releasing annual financial statements, discuss the
conduct and results of the audit with the independent auditors, including
a discussion of the matters required to be communicated to audit
committees in accordance with Statement on Auditing Standards (SAS) No.
61, as amended by SAS No. 84 and SAS No. 90 (and as may be further
modified or supplemented from time to time).
11. Obtain from the independent auditors assurance that the audit was
conducted in a manner consistent with Section 10A of the Securities
Exchange Act of 1934.
12. Consider the independent auditors' judgments about the quality and
appropriateness of the Corporation's accounting principles and critical
accounting estimates as applied in its financial reporting; all
alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management,
ramifications for the use of such alternative disclosures and treatments,
and the treatment preferred by the independent auditor; and other material
written communications between the independent auditors and management.
Financial Reporting Processes and Controls
13. Discuss significant financial risk exposures and the steps management has
taken to monitor, control and report such exposures. Review significant
findings prepared by the independent auditors and the
3
principal accounting officer together with management's responses. Review any
significant changes to the Corporation's auditing and accounting policies.
14. Consider and approve, if appropriate, significant changes to the
Corporation's auditing and accounting principles and practices as
suggested by the independent auditors, executive management, or the
principal accounting officer. Consider the independent auditors' judgments
about the quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting.
15. Receive and review any disclosure from the Corporation's CEO or CFO, made
in connection with the certification of the Corporation's quarterly and
annual reports filed with the Securities and Exchange Commission, of all
significant deficiencies and material weaknesses in the design and
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the Corporation's ability to record,
process, summarize and report financial data; and any fraud, whether or
not material, that involves management or other employees who have a
significant role in the Corporation's internal controls.
Process Improvement
16. Establish regular and separate systems of reporting to the Committee by
member of the Company's executive management, the independent auditors and
the principal accounting officer regarding any significant judgments made
in management's preparation of the financial statements and the view of
each as to the appropriateness of such judgments.
17. Following completion of the annual audit, review separately with executive
management, the independent auditors and/or the principal accounting
officer, as the Committee deems necessary or appropriate, any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
18. Resolve any disagreements between management and the independent auditors
regarding financial reporting.
19. Review with the independent auditors, the principal accounting officer
and/or executive management, as the Committee deems necessary or
appropriate, the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been
implemented. (This review should be conducted at an appropriate time
subsequent to implementation of changes or improvements, as decided by the
Committee.)
Other and Legal Compliance
20. Approve the appointment and compensation of, and oversee the work of, any
accounting firm employed by the Corporation.
21. On at least an annual basis, review with management of the Corporation and
with the Corporation's law firm(s) any legal matters that could have a
significant impact on the Corporation's financial statements, the
Corporation's compliance with applicable laws and regulations and any
inquiries received from regulators or governmental agencies.
22. Oversee procedures for (a) the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal
accounting controls or auditing matters, and (b) the confidential,
anonymous submission to the Committee by employees of the Corporation of
concerns regarding questionable accounting or auditing matters, as
provided for in the "Navarre Corporation Policy on Reporting and
Investigating Complaints Regarding Accounting, Internal Accounting
4
Controls or Auditing Matters and Concerns Regarding Questionable
Accounting or Auditing Matters."
23. Oversee all related-party transactions entered into by the Corporation, as
may be required by the rules of the Securities and Exchange Commission or
The NASDAQ Stock Market (as such rules may be modified or supplemented
from time to time).
24. Retain, at the Corporation's expense, special legal, accounting or other
consultants or experts the Committee deems necessary to carry out its
duties. The Corporation shall, at all times, make adequate provision for
the payment of all fees and other compensation approved by the Committee
to any consultants or experts employed by the Committee.
25. Review and update periodically the Corporation's Code of Business Conduct
and Ethics (the "Code") and determine whether management has established a
system to enforce this Code. Determine whether the Code is in compliance
with all applicable rules and regulations. Review and reassess the
adequacy of the Code at least annually, and more frequently as conditions
dictate, and propose any amendments to the Code as the Committee deems
necessary or appropriate.
26. Review management's monitoring of the Corporation's compliance with its
Code, and determine whether management has the proper review system in
place such that the Corporation's financial statements, reports and other
financial information disseminated to governmental organizations and the
public satisfy legal requirements.
27. As assigned to it by the Board, investigate any potential conflict of
interest between a director, executive officer or employee of the
Corporation and the Corporation.
28. Consider and, if appropriate and permitted, grant any requested waivers of
the Code and, in the case of waivers of the Code that may be granted only
by the Board, make recommendations to the Board regarding such waivers.
29. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or the Board
deems necessary or appropriate.
30. Maintain minutes of Committee meetings and periodically report to the
Board on significant results of the foregoing activities.
Although the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to conduct audits or to determine
that the Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles, which is the
responsibility of management and the independent auditors. It is also the
responsibility of management to assure compliance with laws and regulations and
the Corporation's corporate policies with oversight by the Committee in the
areas covered by this Charter.
Adopted by the Navarre Corporation Board of Directors on July 21, 2004.
5
EXHIBIT B
NAVARRE CORPORATION
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER DATED JULY 21, 2004
I. PURPOSE
The primary function of the Compensation Committee (the "Committee")
is to assist the Board of Directors (the "Board") of Navarre Corporation (the
"Corporation") in fulfilling its responsibility to shareholders by ensuring that
officers, directors and employees are compensated in accordance with the
Company's compensation philosophy, objectives, and policies. The Committee shall
be fully responsible for two central tasks: 1) setting executive compensation
policy; and 2) producing an annual report on executive compensation for
inclusion in the Corporation's proxy statement. It shall also oversee
compensation and benefits policies, strategies, and pay levels necessary to
support Company objectives. The Committee may be assisted on projects by members
of the Company's staff and will consult with the Chief Executive Officer of the
Company (the "CEO") and other members of executive management, as necessary.
II. COMPOSITION
The Committee shall be composed of at least three members of the
Board, one of whom shall serve as chairperson. Except as otherwise permitted by
the applicable NASDAQ Marketplace Rules, each member of the Committee shall be
an "independent director" as that term is defined by the applicable Securities
and Exchange Commission and NASDAQ Marketplace Rules (as such rules may be
modified or supplemented from time to time). The Committee's chairperson shall
be designated by the Board or, if it does not do so, the Committee members shall
elect a chairperson by vote of a majority of the full Committee.
III. MEETINGS
The Committee shall meet as frequently as necessary but not less
than three (3) times a year. Minutes of all Committee meetings shall be properly
recorded. An agenda for each meeting shall be prepared and whenever reasonably
practicable, the meeting agenda as well as the minutes of the previous Committee
meeting shall be distributed to the Committee members prior to each meeting.
IV. RESPONSIBILITIES AND DUTIES
The Committee shall:
1. On an annual basis without the participation of the
Chief Executive Officer, (i) review and approve the
corporate goals and objectives with respect to
compensation for the Chief Executive Officer, (ii)
evaluate the Chief Executive Officer's performance in
light of the established goals and objectives, and (iii)
set the Chief Executive Officer's annual compensation,
including salary, bonus, incentive and equity
compensation.
2. On an annual basis, oversee (i) the evaluation process
and compensation structure for the Corporation's other
senior executives that report directly to the Chief
Executive Officer, and (ii) the Chief Executive
Officer's evaluation of the performance and his
recommendations concerning the annual compensation,
including salary, bonus, incentive and equity
compensation, of other company officers.
3. On an annual basis, and more frequently as matters are
brought to the attention of the Committee, review and
oversee the Corporation's policies relating to the
compensation of its employees generally.
4. As appropriate, approve the grants of stock options and
other equity incentives to employees (under the
Corporation's option plans or otherwise), make
recommendations to the Board with respect to
incentive-compensation plans and equity-based plans.
5. Assist the Board in evaluating potential candidates for
executive positions, including the Chief Executive
Officer, and oversee the development of executive
succession plans.
6. Produce an annual report on executive compensation for
inclusion in the Corporation's proxy statement.
7. Evaluate the Committee's performance annually.
8. Maintain minutes of Committee meetings and periodically
report to the Board on significant results of the
foregoing activities.
V. POLICIES AND PROCEDURES
1. Action. A majority of the members of the Committee shall
constitute a quorum. The Committee shall act on the
affirmative vote of a majority of members present at a
meeting at which a quorum is present. The Committee may
also meet by telephone or video conference. Without a
meeting, the Committee may act by unanimous written
consent of all members. The Chairperson will preside,
when present, at all meetings of the Committee.
2. Investigations. The Committee shall have the authority
to conduct or authorize investigations into any matters
within the scope of its responsibilities as it shall
deem appropriate, including the authority to request any
officer, employee or advisor of the Corporation to meet
with the Committee or any advisors engaged by the
Committee.
3. Independent Advisors. The Committee shall have the
authority to engage such independent legal and other
advisors and consultants as it deems necessary or
appropriate to carry out its responsibilities. Such
independent advisors and consultants may be the regular
advisors and consultants to the Corporation. The
Committee is empowered, without further action by the
Board, to cause the Corporation to pay the compensation
of such advisors and consultants as established by the
Committee.
4. Charter. The Committee shall review and reassess the
adequacy of this Charter at least annually, and more
frequently as conditions dictate, and propose any
amendments to the Charter as it deems necessary or
appropriate.
Adopted by the Navarre Corporation Board of Directors on July 21, 2004.
2
EXHIBIT C
NAVARRE CORPORATION
GOVERNANCE AND NOMINATING COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER DATED JULY 21, 2004
VI. PURPOSE
The primary functions of the Governance and Nominating Committee (the
"Committee") of the Board of Directors (the "Board") of Navarre Corporation (the
"Corporation") are: (a) to identify individuals qualified and suitable to become
Board members and recommend to the Board the director nominees for each annual
meeting of shareholders; and (b) to oversee the Corporation's corporate
governance system.
VII. COMPOSITION
The Committee shall be composed of at least three members of the Board,
one of whom shall serve as chairperson. Except as otherwise permitted by the
applicable NASDAQ Stock Market rules, each member of the Committee shall be an
"independent director" as that term is defined by the applicable Securities and
Exchange Commission and NASDAQ Stock Market rules (as such rules may be modified
or supplemented from time to time). The Committee's chairperson shall be
designated by the Board or, if it does not do so, the Committee members shall
elect a chairperson by vote of a majority of the full Committee. The Committee
members shall serve at the pleasure of the Board for such term or terms as the
Board may determine.
VIII. MEETINGS
The Committee shall meet as frequently as the discharge of its
responsibilities shall require. Minutes of all Committee meetings shall be
properly recorded. An agenda for each meeting shall be prepared and whenever
reasonably practicable, the meeting agenda as well as the minutes of the
previous Committee meeting shall be distributed to the Committee members prior
to each meeting.
IX. RESPONSIBILITIES AND DUTIES
The Committee shall:
Nominating
1. The Committee shall recommend to the Board appropriate
criteria for the selection of new directors and shall
periodically review the criteria adopted by the Board and, if
deemed desirable, recommend to the Board changes to such
criteria.
2. The Committee shall identify and recommend to the Board
candidates the Committee believes are qualified and suitable
to become members of the Board consistent with criteria for
selection of new directors adopted from time to time by the
Board; and recommend to the Board the nominees to stand for
election as directors at each annual meeting of shareholders
or, if applicable, at any special meeting of shareholders. In
the case of a vacancy in the office of a director (including a
vacancy created by an increase in the size of the Board), the
Committee shall recommend to the Board an individual to fill
such vacancy through appointment by a majority of the
Corporation's directors. The
Committee will also review the qualifications of, and make
recommendations regarding, director nominations submitted to
the Corporation by shareholders in accordance with the
Corporation's by-laws or otherwise.
3. The Committee shall identify Board members qualified to fill
vacancies on any committee of the Board (including the
Committee), and recommend that the Board appoint the
identified member or members to the respective committee. In
recommending a member for committee membership, the Committee
shall take into consideration the factors set forth in the
charter of the committee, if any, as well as any other factors
it deems appropriate, including without limitation, the
Corporation's corporate governance principles, the consistency
of the member's experience with the goals of the committee and
the interplay of the member's experience with the experience
of the other committee members.
4. The Committee shall make recommendations to the Board from
time to time as to changes in the size of the Board that the
Committee believes to be desirable.
Corporate Governance
5. The Committee shall oversee the system of corporate governance
of the Corporation, including: (i) reviewing and reassessing
the adequacy of the system at least annually; and (ii)
recommending to the Board for approval any such changes to the
system as the Committee believes are appropriate.
6. The Committee shall establish procedures for the Committee to
exercise oversight of the evaluation of the Board and
management.
7. The Committee shall report periodically to the Board on all
matters for which the Committee has been delegated
responsibility.
8. The Committee shall undertake and review with the Board an
annual performance evaluation of the Committee, which shall
compare the performance of the Committee with the requirements
of this Charter and set forth the goals and objectives of the
Committee for the upcoming year. The Committee shall conduct
such performance evaluation in such manner as the Committee
deems appropriate, and may report the results of its
performance evaluation through an oral report by the
chairperson of the Committee or any other member of the
Committee designated by the Committee to make this report.
9. Perform any other activities consistent with this Charter, the
Corporation's bylaws and governing law, as the Committee or
the Board deems necessary or appropriate.
X. POLICIES AND PROCEDURES
1. Action. A majority of the members of the Committee shall
constitute a quorum. The Committee shall act on the
affirmative vote of a majority of members present at a meeting
at which a quorum is present. The Committee may also meet by
telephone or video conference. Without a meeting, the
Committee may act by unanimous written consent of all members.
The Chairperson will preside, when present, at all meetings of
the Committee.
2
2. Investigations. The Committee shall have the authority to
conduct or authorize investigations into any matters within
the scope of its responsibilities as it shall deem
appropriate, including the authority to request any officer,
employee or advisor of the Corporation to meet with the
Committee or any advisors engaged by the Committee.
3. Independent Advisors. The Committee shall have the authority
to engage such independent legal and other advisors and
consultants as it deems necessary or appropriate to carry out
its responsibilities. Such independent advisors and
consultants may be the regular advisors and consultants to the
Corporation. The Committee is empowered, without further
action by the Board, to cause the Corporation to pay the
compensation of such advisors and consultants as established
by the Committee.
4. Charter. The Committee shall review and reassess the adequacy
of this Charter at least annually, and more frequently as
conditions dictate, and propose any amendments to the Charter
as it deems necessary or appropriate.
Adopted by the Navarre Corporation Board of Directors on July 21, 2004.
3
EXHIBIT D
NAVARRE CORPORATION
2004 STOCK PLAN
SECTION 1. PURPOSES OF THE PLAN
The purposes of the Navarre Corporation 2004 Stock Plan (the "Plan") are
(a) to promote the long-term interests of Navarre Corporation (the "Company")
and its shareholders by strengthening the Company's ability to attract, motivate
and retain key personnel and (b) to provide additional incentive for those
persons through stock ownership and other incentives to improve operations,
increase profits and strengthen the mutuality of interest between those persons
and the Company's shareholders.
SECTION 2. DEFINITIONS
As used in the Plan:
"AWARD" means any Option, Stock Appreciation Right, Restricted Stock,
Stock Unit, Performance Share, Performance Unit, dividend equivalent, cash-based
award or other incentive payable in cash or in Shares as may be designated by
the Committee from time to time under the Plan.
"BOARD" means the Board of Directors of the Company.
"CHANGE OF CONTROL TRANSACTION" means a transaction involving any of the
following:
(a) the approval by the shareholders of the Company of (i) any sale,
lease, exchange or other transfer of all or substantially all of the
assets of the Company (in one transaction or in a series of related
transactions) to a corporation that is not controlled by the Company, (ii)
any plan or proposal for the liquidation or dissolution of the Company, or
(iii) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
Company stock would be converted into cash, securities or other property,
other than a merger of the Company in which shareholders immediately prior
to the merger have the same proportionate ownership of stock of the
surviving corporation immediately after the merger;
(b) a change in control of the Company of a nature that would be required
to be reported (assuming such event has not been "previously reported") in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Exchange Act, whether or not the Company is then subject to such
reporting requirement;
(c) the public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) of
the Exchange Act) by the Company or any Person that such Person has become
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities,
(d) individuals who constitute the board of directors of the Company prior
to the transaction cease for any reason to constitute at least a majority
thereof.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means the Company's Compensation Committee or any other
committee or persons designated by the Board to administer this Plan under
Section 3 hereof. The Committee shall consist of not less than three members of
the Board and, except as otherwise determined by the Board, such persons shall
be "non-employee directors" under Exchange Act Rule 16b-3 and "outside
directors" under Section 162(m) of the Code.
"COMMON STOCK" means the common stock, no par value, of the Company or the
number and kind of shares of stock or other securities into which such Common
Stock may be changed into in accordance with Section 15 of the Plan.
"COMPANY" means Navarre Corporation, a Minnesota corporation.
"COVERED EMPLOYEE" means a "covered employee" as that term is defined in
Section 162(m)(3) of the Code.
"EFFECTIVE DATE" has the meaning set forth in Section 19.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"EXTRAORDINARY ITEMS" means (a) extraordinary, unusual and/or nonrecurring
items of gain or loss, (b) gains or losses on the disposition of a business, (c)
changes in tax or accounting regulations or laws, or (d) the effects of a merger
or acquisition, all of which must be identified in the audited financial
statements, including footnotes, or the Management's Discussion and Analysis
section of the Company's annual report.
"FAIR MARKET VALUE" means the closing price for the Common Stock on the
NASDAQ National Market System during a regular session trading for a single
trading day as reported for such day in The Wall Street Journal or such other
source the Committee deems reliable. The applicable trading day for determining
Fair Market Value (a) in connection with the grant of Awards shall be the
trading day immediately preceding the Grant Date and (b) otherwise shall be as
determined by the Committee in its sole discretion. If no reported price for the
Common Stock exists on the NASDAQ National Market System for the applicable
trading day, then such price shall be determined by the Committee as follows:
(a) If the Common Stock is listed for trading on one of more national
securities exchanges, or is traded on the NASDAQ Stock Market (including
the NASDAQ Small Cap Market), then the price shall be the last reported
sales price on such national securities exchange or the NASDAQ Stock
Market, or if such Common Stock shall not have been traded on such
principal exchange on such date, the last reported sales price on such
principal exchange on the first day prior thereto on which such Common
Stock was so traded; or
(b) If the Common Stock is not listed for trading on a national securities
exchange or the NASDAQ Stock Market, but is traded in the over-the-counter
market, including the NASDAQ OTC Bulletin Board, then the price shall be
the closing bid price for such Common Stock, or if there is no closing bid
price for such Common Stock on such date, the closing bid price on the
first day prior thereto on which such price existed; or
(c) If neither (a) nor (b) is applicable, by any means fair and reasonable
by the Committee, which determination shall be final and binding on all
parties.
"GRANT DATE" means the date on which the Committee completes the corporate
action authorizing the grant of an Award or such later date specified by the
Committee, provided that conditions to the exercisability or vesting of Awards
shall not defer the Grant Date.
2
"NONEMPLOYEE DIRECTOR" has the meaning set forth in Rule 16b-3 promulgated
under the Exchange Act, or any successor definition adopted by the Securities
and Exchange Commission.
"OPTION" means a right to purchase Common Stock granted under Section 7.
"PARTICIPANT" means any eligible person set forth in Section 5 to whom an
Award is granted.
"PLAN" means the Navarre Corporation 2004 Stock Plan.
"RELATED COMPANY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
"RELATED PARTY TRANSACTION" means (a) a merger or consolidation of the
Company in which the holders of the outstanding voting securities of the Company
immediately prior to the merger or consolidation hold at least a majority of the
outstanding voting securities of the Successor Company immediately after the
merger or consolidation; (b) a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets to a majority-owned subsidiary
company; (c) a transaction undertaken for the principal purpose of restructuring
the capital of the Company, including but not limited to, reincorporating the
Company in a different jurisdiction or creating a holding company, so long as,
immediately after the transaction, at least a majority of the outstanding
securities of the Successor Company are held by holders of the outstanding
voting securities of the Company immediately prior to the transaction; or (d) a
corporate dissolution or liquidation.
"RESTRICTED STOCK" means an Award of Shares granted under Section 9, the
rights of ownership of which may be subject to restrictions prescribed by the
Committee.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"SHARES" means shares of Common Stock, as defined above.
"STOCK UNIT" means an Award granted under Section 9 denominated in units
of Common Stock.
"SUCCESSOR COMPANY" means the surviving company, the successor company or
its parent, as applicable, in connection with a Change of Control Transaction.
SECTION 3. ADMINISTRATION
3.1. AUTHORITY OF COMMITTEE. The Committee shall administer this Plan. The
Committee shall have exclusive power to make Awards and to determine when and to
whom Awards shall be granted, and the form, amount and other terms and
conditions of each Award, subject to the provisions of this Plan. The Committee
may determine whether, to what extent and under what circumstances Awards may be
settled, paid or exercised in cash, Shares or other Awards or other property, or
cancelled, forfeited or suspended. The Committee shall have the authority to
interpret this Plan and any Award or Agreement made under this Plan, to
establish, amend, waive and rescind any rules and regulations relating to the
administration of this Plan, to determine the terms and provisions of any
Agreements entered into hereunder (not inconsistent with this Plan), and to make
all other determinations necessary or advisable for the administration of this
Plan. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent it
shall deem desirable. The determinations of the Committee in the administration
of this Plan, as described herein, shall be final, binding and conclusive.
3.2. DELEGATION OF AUTHORITY. The Committee may delegate all or any part of its
authority under this Plan to (i) one or more subcommittees which may consist
solely of "non-employee directors" under
3
Exchange Act Rule 16b-3 and "outside directors" under Section 162(m) of the Code
and (ii) persons who are not non-employee directors for purposes of determining
and administering Awards solely to Employees who are not then subject to the
reporting requirements of Section 16 of the Exchange Act.
3.3. RULE 16b-3. It is the intent that this Plan and all Awards granted
pursuant to it shall be administered by the Committee (or a subcommittee
thereof) so as to permit this Plan and Awards to comply with Exchange Act Rule
16b-3. If any provision of this Plan or any Award would otherwise frustrate or
conflict with the intent expressed in this Section 3.3, that provision to the
extent possible shall be interpreted and deemed amended in the manner determined
by the Committee so as to avoid such conflict.
3.4. INDEMNIFICATION. To the full extent permitted by law, each member and
former member of the Committee and each person to whom the Committee delegates
or has delegated authority under this Plan shall be entitled to indemnification
by the Company against and from any loss, liability, judgment, damages, cost and
reasonable expense incurred by such member, former member or other person by
reason of any action taken, failure to act or determination made in good faith
under or with respect to this Plan.
3.5. DIVIDENDS OR DIVIDEND EQUIVALENTS. If the Committee so determines, any
Award granted under the Plan may be credited with dividends or dividend
equivalents paid with respect to the underlying shares. The Committee may apply
any restrictions to the dividends or dividend equivalents that the Committee
deems appropriate and may determine the form of payment, including cash, Shares,
Restricted Stock or otherwise.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1. AUTHORIZED NUMBER OF SHARES. Subject to adjustment from time to time as
provided in Section 15, the maximum number of Shares available for issuance
pursuant to all Awards under the Plan shall be 1,000,000.
4.2. SHARE USAGE.
(a) Shares covered by an Award shall not be counted as used unless and
until they are actually issued and delivered to a Participant. If
any Award lapses, expires, terminates or is canceled prior to the
issuance of Shares thereunder or if Shares are issued under the Plan
to a Participant and are thereafter reacquired by the Company, the
Shares subject to such Awards and the reacquired Shares shall again
be available for issuance under the Plan. Any Shares tendered by a
Participant or retained by the Company as full or partial payment to
the Company for the purchase price of an Award shall be available
for Awards under the Plan. The number of Shares available for
issuance under the Plan shall not be reduced to reflect any
dividends or dividend equivalents that are reinvested into
additional Shares or credited as additional Restricted Stock, Stock
Units, Performance Shares or Performance Units. All Shares issued
under the Plan may be either authorized and unissued Shares or
issued shares reacquired by the Company.
(b) The Committee shall have the authority to grant Awards as an
alternative to or as the form of payment for grants or rights earned
or due under other compensation plans or arrangements of the
Company.
(c) Notwithstanding the foregoing, the maximum number of Shares that may
be issued upon the exercise of Incentive Stock Options shall equal
the aggregate share number stated in Section 4.1, subject to
adjustment as provided in Section 15.1.
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SECTION 5. ELIGIBILITY
An Award may be granted to any employee, officer or director of the
Company or a Related Company whom the Committee from time to time selects. An
Award may also be granted to any consultant, agent, advisor or independent
contractor who renders bona fide services to the Company or any Related Company
that (a) are not in connection with the offer and sale of the Company's
securities in a capital-raising transaction and (b) do not directly or
indirectly promote or maintain a market for the Company's securities.
Notwithstanding the foregoing, only individuals who are employees of the Company
or one of its parent or subsidiary corporations (as such terms are defined for
purposes of Section 422 of the Code) may be granted Incentive Stock Options.
SECTION 6. AWARDS
6.1. FORM AND GRANT OF AWARDS. The Committee shall have the authority, in its
sole discretion, to determine the type or types of Awards to be granted under
the Plan. Such Awards may be granted either alone, in addition to or in tandem
with any other type of Award.
6.2. EVIDENCE OF AWARDS. Awards granted under the Plan shall be evidenced by a
written instrument that shall contain such terms, conditions, limitations and
restrictions as the Committee shall deem advisable and are not inconsistent with
the Plan.
6.3. DEFERRALS. The Committee may permit or require a Participant to defer
receipt of the payment of any Award to the extent permitted by law. If any such
deferral election is permitted or required, the Committee, in its sole
discretion, shall establish rules and procedures for such payment deferrals,
which may include provisions for the payment or crediting of interest, or
dividend equivalents, including converting such credits to deferred stock unit
equivalents.
SECTION 7. OPTIONS
7.1. GRANT OF OPTIONS. The Committee may grant Options designated as Incentive
Stock Options or Nonqualified Stock Options.
7.2. OPTION EXERCISE PRICE. The exercise price for Shares purchased under an
Option shall be as determined by the Committee, but shall not be less than the
Fair Market Value of the Common Stock on the Grant Date, except the Committee,
in its sole discretion, may grant Nonqualified Stock Options at an exercise
price that is other than the Fair Market Value of the Common Stock on the Grant
Date as substitute awards in connection with a transaction involving a Change in
Control Transaction or a Related Party Transaction. In no event shall the
Committee cancel any outstanding Option for the purpose of reissuing the Option
to the Participant at a lower exercise price or reduce the exercise price of an
outstanding Option.
7.3. TERM OF OPTIONS. Subject to earlier termination in accordance with the
terms of the Plan and the instrument evidencing the Option, the maximum term of
an Option shall be as established for that Option by the Committee, which shall
not be more than ten years from the Grant Date, or, if not so established, shall
be ten years from the Grant Date.
7.4. EXERCISE OF OPTIONS. The Committee shall establish and set forth in each
instrument that evidences an Option the time at which, or the installments in
which, the Option shall vest and become exercisable, any of which provisions may
be waived or modified by the Committee at any time. To the extent an Option has
vested and become exercisable, the Option may be exercised in whole or from time
to time in part by delivery to the Company of a written stock option exercise
agreement or notice, in a form and in accordance with procedures established by
the Committee, setting forth the number of Shares with respect to which the
Option is being exercised, the restrictions imposed on the Shares purchased
5
under such exercise agreement, if any, and such representations and agreements
as may be required by the Committee, accompanied by payment in full as described
in Section 7.5. An Option may be exercised only for whole Shares and may not be
exercised for less than a reasonable number of Shares at any one time, as
determined by the Committee.
7.5. PAYMENT OF EXERCISE PRICE. The exercise price for Shares purchased under
an Option shall be paid in full to the Company by delivery of consideration
equal to the product of the Option exercise price and the number of Shares
purchased. Such consideration must be paid before the Company will issue the
Shares being purchased and must be in a form or a combination of forms
acceptable to the Committee for that purchase, which forms may include:
(a) cash;
(b) check or wire transfer,
(c) tendering Shares already owned by the Participant, provided that the
Shares have been held for the minimum period required by applicable
accounting rules to avoid a charge to the Company's earnings for
financial reporting purposes or were not acquired from the Company
as compensation;
(d) to the extent permitted by applicable law, delivery of a properly
executed exercise notice, together with irrevocable instructions to
a brokerage firm designated by the Company to deliver promptly to
the Company the aggregate amount of sale or loan proceeds to pay the
Option exercise price and any withholding tax obligations that may
arise in connection with the exercise, all in accordance with the
regulations of the Federal Reserve Board; or
(e) such other consideration as the Committee may permit in its sole
discretion.
7.6. ATTESTATION. Whenever in this Plan or any agreement evidencing an Award a
Participant is permitted to pay the Exercise Price of an Option or taxes
relating to the exercise of an Option by delivering Shares, the Participant may,
subject to procedures satisfactory to the Committee, satisfy such delivery
requirement by presenting proof of beneficial ownership of such Shares rather
than physical delivery, in which case the Company shall treat the Option as
exercised without further payment and shall withhold such number Shares from the
Shares issued upon the exercise of the Option.
7.7. POST-TERMINATION EXERCISES. The Committee shall establish and set forth in
each instrument that evidences an Option whether the Option shall continue to be
exercisable, and the terms and conditions of such exercise, after a termination
of employment or service relationship with the Company or a Related Company for
any reason, whether voluntary or involuntary, any of which provisions may be
waived or modified by the Committee at any time.
Other than with respect to Incentive Stock Options, a Participant's change
in status from an employee to a consultant, agent, advisor or independent
contractor, or a change in status from a consultant, agent, advisor or
independent contractor to an employee, shall not be considered a termination of
service for purposes of this Section 7. With respect to Incentive Stock Options,
a Participant's change in status from being an employee to not being an employee
shall be considered a termination of employment or service for purposes of this
Section 7.
7.8. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options shall
comply in all respects with the provisions of Section 422 of the Code.
Individuals who are not employees of the Company or one of its parent or
subsidiary corporations (as such terms are defined for purposes of Section 422
of the Code) may not be granted Incentive Stock Options. An individual who owns
more than ten percent of the
6
total combined voting power of all classes of stock of the Company (or one of
its parent or subsidiary corporations) within the meaning of Section 422 of the
Code may not be granted Incentive Stock Options. To the extent that the
aggregate Fair Market Value of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by a Participant during any
calendar year exceeds $100,000 or, if different, the maximum limitation in
effect at the time of grant under the Code (the Fair Market Value being
determined as of the Grant Date for the Option), such portion in excess of
$100,000 shall be treated as Nonqualified Stock Options. This provision shall be
applied by taking Incentive Stock Options into account in the order in which
they were granted, subject to any Incentive Stock Option, the ability of which
to be exercised has accelerated, being taken into account in the year in which
the acceleration occurs. If the $100,000 limitation applies to an Incentive
Stock Option, the Company may, but is not required to, (i) issue a separate
stock certificate for the stock that is issued with respect to the portion of
the Incentive Stock Option that is treated as an Incentive Stock Option and
designate such stock as Incentive Stock Option stock in the Company's transfer
records and (ii) issue a separate stock for the stock that is issued with
respect to the portion of the Incentive Stock Option that is treated as an
Nonqualified Stock Option and designate such stock as Nonqualified Stock Option
stock in the Company's transfer records. The Committee, in its sole discretion,
may determine the Fair Market Value of Common Stock for purposes of Incentive
Stock Options pursuant to a method that differs from the method that is set
forth in the definition of Fair Market Value for purposes of the Plan if it is
necessary to comply, or advisable in the Committee's sole discretion to ensure
compliance, with the provisions of Section 422 of the Code.
SECTION 8. STOCK APPRECIATION RIGHTS
8.1. GRANT OF STOCK APPRECIATION RIGHTS. The Committee may grant stock
appreciation rights ("Stock Appreciation Rights" or "SARs") to Participants at
any time. An SAR may be granted in tandem with an Option or alone
("freestanding"). Any SAR that relates to an Incentive Stock Option must be
granted at the same time that the Incentive Stock Option is granted. The grant
price of a tandem SAR shall be equal to the exercise price of the related
Option, and the grant price of a freestanding SAR shall be equal to the Fair
Market Value of the Common Stock for the Grant Date. An SAR may be exercised
upon such terms and conditions and for the term as the Committee may determine,
in its sole discretion; provided, however, that, subject to earlier termination
in accordance with the terms of the Plan and the instrument evidencing the SAR,
the term of a freestanding SAR shall be as established for that SAR by the
Committee or, if not so established, shall be ten years from the Grant Date, and
in the case of a tandem SAR, (a) the term shall not exceed the term of the
related Option and (b) the tandem SAR may be exercised for all or part of the
Shares subject to the related Option upon the surrender of the right to exercise
the equivalent portion of the related Option, except that the tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
8.2. PAYMENT OF SAR AMOUNT. Upon the exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying: (a) the difference between the Fair Market Value of the Common
Stock for the date of exercise over the grant price by (b) the number of Shares
with respect to which the SAR is exercised. At the discretion of the Committee,
the payment upon exercise of an SAR may be in cash, in shares of Common Stock of
equivalent value, in some combination thereof or in any other manner approved by
the Committee in its sole discretion.
7
SECTION 9. RESTRICTED STOCK AND STOCK UNITS
9.1. GRANT OF RESTRICTED STOCK AND STOCK UNITS. The Committee may grant
Restricted Stock and Stock Units on such terms and conditions and subject to
such repurchase or forfeiture restrictions, if any (which may be based on
continuous service with the Company or a Related Company or the achievement of
any of the Performance Criteria set forth in Section 11.1), as the Committee
shall determine in its sole discretion, which terms, conditions and restrictions
shall be set forth in the instrument evidencing the Award.
9.2. ISSUANCE / TRANSFERABILITY OF SHARES. Upon the satisfaction of any terms,
conditions and restrictions prescribed with respect to Restricted Stock or Stock
Units, or upon a Participant's release from any terms, conditions and
restrictions of Restricted Stock or Stock Units, as determined by the Committee,
and subject to the provisions of Section 13, (a) the shares of Restricted Stock
covered by each Award of Restricted Stock shall become freely transferable by
the Participant and (b) Stock Units shall be paid in cash, shares of Common
Stock or a combination of cash and shares of Common Stock as the Committee shall
determine in its sole discretion. Any fractional shares subject to such Awards
shall be paid to the Participant in cash.
9.3. DIVIDENDS AND DISTRIBUTIONS. Participants holding shares of Restricted
Stock or Stock Units may, if the Committee so determines, be credited with
dividends paid with respect to the underlying shares or dividend equivalents
while they are so held in a manner determined by the Committee in its sole
discretion. The Committee may apply any restrictions to the dividends or
dividend equivalents that the Committee deems appropriate. The Committee, in its
sole discretion, may determine the form of payment of dividends or dividend
equivalents, including cash, shares of Common Stock, Restricted Stock or Stock
Units.
9.4. WAIVER OF RESTRICTIONS. Notwithstanding any other provisions of the Plan,
the Committee, in its sole discretion, may waive the repurchase or forfeiture
period and any other terms, conditions or restrictions on any Restricted Stock
or Stock Unit under such circumstances and subject to such terms and conditions
as the Committee shall deem appropriate; provided, however, that the Committee
may not adjust performance goals for any Restricted Stock or Stock Unit intended
to be exempt under Section 162(m) of the Code for the year in which the
Restricted Stock or Stock Unit is settled in such a manner as would increase the
amount of compensation otherwise payable to a Participant.
SECTION 10. PERFORMANCE SHARES AND PERFORMANCE UNITS
10.1. GRANT OF PERFORMANCE SHARES. The Committee may grant Awards of performance
shares ("Performance Shares") and designate the Participants to whom Performance
Shares are to be awarded and determine the number of Performance Shares, the
length of the performance period and the other terms and conditions of each such
Award. Each Award of Performance Shares shall entitle the Participant to a
payment in the form of shares of Common Stock upon the attainment of performance
goals and other terms and conditions specified by the Committee. Notwithstanding
satisfaction of any performance goals, the number of shares issued under an
Award of Performance Shares may be adjusted on the basis of such further
consideration as the Committee shall determine, in its sole discretion. However,
the Committee may not, in any event, increase the number of shares earned upon
satisfaction of any performance goal by any Covered Employee. The Committee, in
its discretion, may make a cash payment equal to the Fair Market Value of the
Common Stock otherwise required to be issued to a Participant pursuant to an
Award of Performance Shares.
10.2. GRANT OF PERFORMANCE UNITS. The Committee may grant Awards of performance
units ("Performance Units") and designate the Participants to whom Performance
Units are to be awarded and determine the number of Performance Units and the
terms and conditions of each such Award. Performance Units shall entitle the
Participant to a payment in cash upon the attainment of performance
8
goals and other terms and conditions specified by the Committee. Notwithstanding
the satisfaction of any performance goals, the amount to be paid under an Award
of Performance Units may be adjusted on the basis of such further consideration
as the Committee shall determine, in its sole discretion. However, the Committee
may not, in any event, increase the amount earned under Performance Unit Awards
upon satisfaction of any performance goal by any Covered Employee, and the
maximum amount earned by any Covered Employee in any calendar year (without
regard to any amounts earned by the Covered Employee with respect to Awards
that, pursuant to Section 11, are subject to Performance Criteria (as defined in
Section 11)) may not exceed $1,000,000. The Committee, in its discretion, may
substitute actual shares of Common Stock for the cash payment otherwise required
to be made to a Participant pursuant to a Performance Unit.
SECTION 11. PERFORMANCE GOALS
11.1. AWARDS SUBJECT TO PERFORMANCE GOALS. Awards of Restricted Stock, Stock
Units, Performance Shares, Performance Units and other Awards made pursuant to
the Plan may be made subject to the attainment of preestablished, objective
performance goals relating to one or more business criteria within the meaning
of Section 162(m) of the Code, including, for example: return on average common
shareholders' equity; return on average equity; total shareholder return; stock
price appreciation; efficiency ratio; net operating expense; earnings per
diluted share of Common Stock; per share earnings before transaction-related
expense; per share earnings after deducting transaction-related expense; return
on average assets; ratio of nonperforming to performing assets; return on an
investment in an affiliate; net interest income; net interest margin; ratio of
common equity to total assets; and customer service metrics (the "Performance
Criteria"). Performance Criteria may be stated in absolute terms or relative to
comparison companies or indices to be achieved during a period of time.
Performance Criteria does not include the mere continued employment of the
individual to whom the Award is made.
11.2. USE AND CALCULATION OF PERFORMANCE CRITERIA. Any Performance Criteria may
be used to measure the performance of the Company as a whole or any business
unit of the Company. Any Performance Criteria may include or exclude
Extraordinary Items. Performance Criteria shall be established by the Committee
and shall be derived from the Company's audited financial statements, including
footnotes, or the Management's Discussion and Analysis section of the Company's
annual report. The Committee may not in any event increase the amount of
compensation payable to a Covered Employee upon the satisfaction of any
Performance Criteria.
11.3. ADJUSTMENTS AND RESTRICTIONS THEREON. With respect to an Award that is
subject to Performance Criteria under this Section 11, the Committee may adjust
downwards, but not upwards, the amount payable pursuant to the Award except to
the extent that the downward adjustment will result in an upward adjustment to
another Award that is subject to Performance Criteria under this Section 11.
This Section 11.3 does not prohibit or limit adjustments (either downward or
upward) that are made pursuant to Section 15.1 and that otherwise satisfy the
requirements under Section 162(m)(4)(C) of the Code. The Committee may not waive
the achievement of the applicable Performance Criteria with respect to an Award
except, in its discretion, in the case of the death or disability of a Covered
Employee.
11.4. SECTION 162(m)(4)(C) REQUIREMENTS. The annual maximum amount of
compensation that a Participant may receive with respect to Awards that are
subject to Performance Criteria under this Section 11 is $2,000,000. In
addition, the Committee shall have the power to impose such other restrictions
on Awards that are subject to Performance Criteria under this Section 11 as it
may deem necessary to ensure that such Awards qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code.
9
SECTION 12. OTHER STOCK OR CASH-BASED AWARDS
In addition to the Awards described in Sections 7 through 10, and subject
to the terms of the Plan, the Committee may grant other incentives payable in
cash or in Shares under the Plan as it determines to be in the best interests of
the Company and subject to such other terms and conditions as it deems
appropriate.
SECTION 13. WITHHOLDING
The Company may require the Participant to pay to the Company the amount
of any taxes or similar charges that the Company is required by applicable
federal, state, local or foreign law to withhold with respect to the grant,
vesting, exercise, or receipt of an Award. The Company shall not be required to
issue any Shares, to make any payment, to transfer any other property, or to
take any comparable action under the Plan until such obligations are satisfied.
The Committee, in its sole discretion, may permit or require a Participant
to satisfy all or part of the withholding obligations with respect to the
Participant's Award by (a) paying cash to the Company, (b) having the Company
withhold an amount from any cash amounts otherwise due or to become due from the
Company to the Participant, (c) having the Company withhold a number of Shares
that would otherwise be issued to the Participant (or become vested in the case
of Restricted Stock), having a Fair Market Value sufficient to meet the tax
withholding obligations, or (d) surrendering a number of Shares the Participant
already owns, having a Fair Market Value sufficient to meet the tax withholding
obligations. The value of any shares withheld or surrendered may not exceed the
employer's minimum tax withholding obligation, and, to the extent such shares
were acquired by the Participant from the Company as compensation, the shares
must have been held for the minimum period required by applicable accounting
rules to avoid a charge to the Company's earnings for financial reporting
purposes.
SECTION 14. ASSIGNABILITY
No Award or interest in an Award may be sold, assigned, pledged (as
collateral for a loan or as security for the performance of an obligation or for
any other purpose) or transferred by the Participant or made subject to
attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, except to the extent a Participant designates
one or more beneficiaries on a Company-approved form who may exercise the Award
or receive payment under the Award after the Participant's death. During a
Participant's lifetime, an Award may be exercised only by the Participant.
Notwithstanding the foregoing and, with respect to Incentive Stock Options, only
if permitted in the future by Section 422 of the Code, the Committee, in its
sole discretion, may permit a Participant to assign or transfer an Award;
provided, however, that any Award so assigned or transferred shall be subject to
all the terms and conditions of the Plan and the instrument evidencing the
Award.
SECTION 15. ADJUSTMENTS
15.1. ADJUSTMENT OF SHARES. In the event, at any time or from time to time, a
stock dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to shareholders other than
a normal cash dividend, or other change in the Company's corporate or capital
structure results in (a) the outstanding shares of Common Stock, or any
securities exchanged therefore or received in their place, being exchanged for a
different number or kind of securities of the Company or any other company or
(b) new, different or additional securities of the Company or any other company
being received by the holders of shares of Common Stock, then the Committee
shall make proportional adjustments in (i) the maximum number and kind of
securities available for issuance under the Plan; (ii) the maximum number and
kind of securities that may be issued to an individual in any one calendar year
as set forth in Section 4.3; (iii) the maximum number and kind of securities
that may be made subject to the different types of Awards available under the
Plan; and (iv) the number and kind of securities that
10
are subject to any outstanding Award and the per share price of such securities,
without any change in the aggregate price to be paid therefor.
The determination by the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
Notwithstanding the foregoing, the issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
for cash or property, or for labor or services rendered, either upon direct sale
or upon the exercise of rights or warrants to subscribe therefore, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, outstanding Awards. Also notwithstanding the foregoing,
a dissolution or liquidation of the Company or a Change in Control Transaction
shall not be governed by this Section 15.1 but shall be governed by Sections
15.2 and 15.3, respectively.
Notwithstanding the foregoing, no change will be made to an Incentive
Stock Option that would constitute a modification within the meaning of Section
424(h)(3) of the Code or that otherwise would cause the Incentive Stock Option
to fail to continue to qualify as an Incentive Stock Option.
15.2. DISSOLUTION OR LIQUIDATION. To the extent not previously exercised or
settled, and unless otherwise determined by the Committee in its sole
discretion, Options and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company. To the extent a forfeiture provision
or repurchase right applicable to an Award has not been waived by the Committee,
the Award shall be forfeited immediately prior to the consummation of the
dissolution or liquidation.
15.3. CHANGE IN CONTROL TRANSACTION. Notwithstanding anything contained in this
Plan or any Award Agreement to the contrary, in the event of a Change in Control
Transaction, the following shall occur with respect to any and all Awards
outstanding as of such Change in Control Transaction:
(a) Any and all Stock Options and Stock Appreciation Rights granted
hereunder shall become immediately exercisable, and shall remain exercisable
throughout their entire term;
(b) Any restrictions imposed on Restricted Shares shall lapse; and
(c) Unless otherwise specified in a Participant's Award Agreement at
time of grant, the maximum payout opportunities attainable under all outstanding
Awards of Performance Units, Performance Shares and Other Incentive Awards shall
be deemed to have been fully earned for the entire performance period(s) as of
the effective date of the Change of Control Transaction. The vesting of all such
Awards shall be accelerated as of the effective date of the Change of Control
Transaction, and in full settlement of such Awards, there shall be paid out in
cash, or in the sole discretion of the Committee, Shares with a Fair Market
Value equal to the amount of such cash, to Participants within thirty (30) days
following the effective date of the Change of Control Transaction the maximum of
payout opportunities associated with such outstanding Awards.
15.4. FURTHER ADJUSTMENT OF AWARDS. Subject to Sections 15.2 and 15.3, the
Committee shall have the discretion, exercisable at any time before a sale,
merger, consolidation, reorganization, liquidation, dissolution or Change in
Control Transaction, as defined by the Committee, to take such further action as
it determines to be necessary or advisable with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, lifting of restrictions and other modifications, and the Committee may
take such actions with respect to all Participants, to certain categories of
Participants or only to individual Participants. The Committee may take such
action before or after granting Awards to which the action relates and before or
after any public
11
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation, dissolution or change in control that is the reason for such
action.
Notwithstanding the foregoing, the Committee will not take any action with
respect to an Incentive Stock Option that would constitute a modification within
the meaning of Section 424(h)(3) of the Code or that otherwise would cause the
Incentive Stock Option to fail to continue to qualify as an Incentive Stock
Option, and it will not take any action with respect to an Award that is subject
to Performance Criteria under Section 11 that would cause the Award not to
qualify as performance-based compensation under Section 162(m)(4)(C) of the
Code.
15.5. LIMITATIONS. The grant of Awards shall in no way affect the Company's
right to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
15.6. NO FRACTIONAL SHARES. In the event of any adjustment in the number of
Shares covered by any Award, each such Award shall cover only the number of full
Shares resulting from such adjustment.
SECTION 16. AMENDMENT AND TERMINATION
16.1. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board or the
Committee may amend, suspend or terminate the Plan or any portion of the Plan at
any time and in such respects as it shall deem advisable; provided, however,
that, to the extent required by applicable law, regulation or rule, shareholder
approval shall be required for any amendment, suspension, or termination to the
Plan.
16.2. TERM OF THE PLAN. Unless sooner terminated as provided herein, the Plan
shall terminate ten years from the Effective Date. Notwithstanding the
foregoing, no Incentive Stock Options may be granted more than ten years after
the earlier of (a) the adoption of the Plan by the Board and (b) the Effective
Date.
After the Plan is terminated, no future Awards may be granted, but Awards
previously granted shall remain outstanding in accordance with their applicable
terms and conditions and the Plan's terms and conditions.
16.3. CONSENT OF PARTICIPANT. The amendment, suspension or termination of the
Plan or a portion thereof or the amendment of an outstanding Award shall not,
without the Participant's consent, materially adversely affect any rights under
any outstanding Award granted to the Participant under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Participant, be made in a manner so as to constitute a
modification within the meaning of Section 424(h)(3) of the Code or that
otherwise would cause such Incentive Stock Option to fail to continue to qualify
as an Incentive Stock Option. Notwithstanding the foregoing, any adjustments
made pursuant to Sections 15.1 through 15.3 shall not be subject to these
restrictions.
SECTION 17. GRANTING OF OPTIONS TO DIRECTORS WHO ARE NOT EMPLOYEES
Each director who is not an employee of the Company and serves as a
director on April 1 of each year, beginning on April 1, 2005 shall receive an
Option to purchase 6,000 Shares at an exercise price equal to Fair Market Value
on such date. Such Options shall be Nonqualified Stock Options. Each Option
shall vest in increments of 20% of the original Option grant beginning one year
from the date of grant and shall expire on the earlier of (i) six years from the
date of grant, and (ii) one year after the person ceases to serve as a director.
Subject to the foregoing, all provisions of this Plan not inconsistent with the
forgoing shall apply to the Options granted to the directors who are not
employees.
12
SECTION 18. GENERAL
18.1. NO INDIVIDUAL RIGHTS. No individual or Participant shall have any claim to
be granted any Award under the Plan, and the Company has no obligation for
uniformity of treatment of Participants under the Plan.
Furthermore, nothing in the Plan or any Award granted under the Plan shall
be deemed to constitute an employment contract or confer or be deemed to confer
on any Participant any right to continue in the employ of, or to continue any
other relationship with, the Company or any Related Company or limit in any way
the right of the Company or any Related Company to terminate a Participant's
employment or other relationship at any time, with or without cause.
18.2. OTHER BENEFIT AND COMPENSATION PROGRAMS. Payments and other benefits
received by a Participant under an Award shall not be deemed a part of a
Participant's regular, recurring compensation for purposes of any termination,
indemnity or severance pay laws and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan,
contract or similar arrangement provided by the Company or a Related Company,
unless expressly so provided by such other plan, contract or arrangement or the
Committee determines that an Award or portion of an Award should be included to
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of competitive cash compensation.
18.3. ISSUANCE OF SHARES. Notwithstanding any other provision of the Plan, the
Company shall have no obligation to issue or deliver any shares of Common Stock
under the Plan or make any other distribution of benefits under the Plan unless,
in the opinion of the Company's counsel, such issuance, delivery or distribution
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act or the laws of any state or foreign
jurisdiction) and the applicable requirements of any securities exchange or
similar entity.
The Company shall be under no obligation to any Participant to register
for offering or resale or to qualify for exemption under the Securities Act, or
to register or qualify under the laws of any state or foreign jurisdiction, any
Shares, security or interest in a security paid or issued under, or created by,
the Plan, or to continue in effect any such registrations or qualifications if
made. The Company may issue certificates for Shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal, state and foreign securities laws. The Company may also
require such other action or agreement by the Participants as may from time to
time be necessary to comply with applicable securities laws.
To the extent the Plan or any instrument evidencing an Award provides for
issuance of stock certificates to reflect the issuance of Shares, the issuance
may be effected on a noncertificated basis, to the extent not prohibited by
applicable law or the applicable rules of any stock exchange.
18.4. NO RIGHTS AS A SHAREHOLDER. Unless otherwise provided by the Committee or
in the instrument evidencing the Award or in any other written agreement between
a Participant and the Company or a Related Company, no Option or Award shall
entitle the Participant to any voting or other right of a shareholder unless and
until the date of issuance under the Plan of the Shares that are subject of such
Award.
18.5. COMPLIANCE WITH LAWS AND REGULATIONS. Notwithstanding anything in the Plan
to the contrary, the Committee, in its sole discretion, may bifurcate the Plan
so as to restrict, limit or condition the use of any provision of the Plan to
Participants who are officers or directors subject to Section 16 of the Exchange
Act without so restricting, limiting, or conditioning the Plan with respect to
other Participants.
13
18.6. PARTICIPANTS IN OTHER COUNTRIES. The Committee shall have the authority to
adopt such modifications, procedures and subplans as may be necessary or
desirable to comply with provisions of the laws of other countries in which the
Company or any Related Company may operate to ensure the viability of the
benefits from Awards granted to Participants employed in such countries, to
comply with applicable foreign laws and to meet the objectives of the Plan.
18.7. NO TRUST OR FUND. The Plan is intended to constitute an "unfunded" plan.
Nothing contained herein shall require the Company to segregate any monies or
other property, or shares of Common Stock, or to create any trusts, or to make
any special deposits for any immediate or deferred amounts payable to any
Participant, and no Participant shall have any rights that are greater than
those of a general unsecured creditor of the Company.
18.8. SUCCESSORS AND ASSIGNS. All obligations of the Company under the Plan with
respect to Awards shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all the business
and/or assets of the Company.
18.9. SEVERABILITY. If any provision of the Plan or any Award is determined to
be invalid, illegal or unenforceable in any jurisdiction, or as to any person,
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Committee's determination, materially altering the intent of the Plan or the
Award, such provision shall be stricken as to such jurisdiction, person or
Award, and the remainder of the Plan and any such Award shall remain in full
force and effect.
18.10. CHOICE OF LAW. The Plan, all Awards granted thereunder and all
determinations made and actions taken pursuant hereto, to the extent not
otherwise governed by the laws of the United States, shall be governed by the
laws of the State of Minnesota without giving effect to principles of conflicts
of law.
18.11. CODE INTERPRETATION. Each reference in the Plan to a section of the Code
will be interpreted to include the section itself, any successor provision
thereto, the Treasury regulations thereunder (or under a successor provision),
and all applicable administrative or judicial guidance relating thereto.
SECTION 19. EFFECTIVE DATE
The Plan shall become effective (the "Effective Date") immediately
following shareholder approval of the Plan.
Adopted by the Board on July 21, 2004 and approved by the Company's shareholders
on _______________ ____, 2004.
14
NAVARRE CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 13, 2004
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MINNESOTA 55428 PROXY
The undersigned, revoking all prior proxies, hereby appoints Eric H. Paulson and
James G. Gilbertson, 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 19, 2004, at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held on Monday, September 13, 2004, or at any
adjournment thereof, upon the matters stated on reverse:
See reverse for voting instructions.
COMPANY #
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-- 1-800-560-1965-- QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. (CT) on September 12, 2004.
- - Please have your proxy card and the last four digits of your Social
Security Number available. 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 p.m. (CT) on September 12, 2004.
- - Please have your proxy card and the last four digits of your Social
Security Number available. Follow the simple instructions 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 -
1. Electing the following directors for the term described in the
accompanying Proxy Statement:
01 James G. Gilbertson
02 Dickinson G. Wiltz
03 Keith A. Benson
04 Charles E. Cheney
05 Timothy R. Gentz
06 Tom F. Weyl
[ ] Vote FOR all [ ] Vote WITHHELD
nominees except from all nominees
as indicated below
(INSTRUCTIONS: TO WITHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE THE
NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) ________________
2. Approving the appointment of Grant [ ] For [ ] Against [ ] Abstain
Thornton LLP as independent auditors
for the fiscal year ending March 31,
2005.
3. Approving the 2004 Stock Plan. [ ] For [ ] Against [ ] Abstain
In their discretion, the Proxies are authorized to vote upon any other matters
as may properly come before the Annual Meeting or any adjournments thereof.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR Proposals 1, 2 and 3. The Board of Directors recommends a vote for
Proposals 1, 2 and 3.
Address Change? Mark Box [ ] Indicate changes below
Dated:__________________________
___________________________________
Signature(s)
Please sign your name exactly as it
appears at left. In the case of
shares owned in joint tenancy or as
tenants in common, all should sign.
Fiduciaries should indicate their
title and authority.