SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
FOR ANNUAL MEETING FOR FISCAL YEAR ENDING August 31, 1998
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NETWORKS NORTH, INC.
14 Meteor Drive
Etobicoke, Ontario
Canada M9W 1A4
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
February 25, 1999
To the Shareholders of Networks North, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting (the "Annual Meeting") of
Shareholders of Networks North, Inc., a New York corporation (the "Company"),
will be held at 10:00 a.m., local time, on February 25, 1999, at the offices of
the Company, 14 Meteor Drive, Etobicoke, Ontario, Canada M9W 1A4, for the
following purposes:
(a) To elect a seven member Board of Directors to serve until
the next Annual Meeting of Shareholders of the Company and until
their successors are duly elected and qualified;
(b) To ratify the Board of Directors' selection of auditors,
Ernst & Young, Chartered Accountants; and
(c) To consider and transact such other business as may
properly come before the Annual Meeting and any adjournments
thereof.
In accordance with the provisions of the Company's By-laws, the Board of
Directors has fixed the close of business on January 4, 1999 as the date for
determining the shareholders of record entitled to receive notice of, and to
vote at, the Annual Meeting and any adjournments thereof.
Dated: January 25, 1999 By Order of the Board of Directors,
Mark Truman, Secretary
SHAREHOLDERS ARE URGED TO FILL IN, DATE, SIGN AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ACCOMPANYING PREPAID ENVELOPE.
It is desirable that as many shareholders as possible be represented, in
person or by proxy, at the Annual Meeting. Consequently, whether or not you now
expect to be present, please execute and return the enclosed proxy. You have the
power to revoke your proxy at any time before it is voted, and the giving of a
proxy will not affect your right to vote in person if you attend the Annual
Meeting.
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
NETWORKS NORTH, INC.
14 Meteor Drive
Etobicoke, Ontario
Canada M9W 1A4
(416) 675-6666
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
February 25, 1999
January 25, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Networks North, Inc. (the
"Company") for use at the Company's Annual Meeting of Shareholders to be held on
February 25, 1999, and at any adjournment thereof (the "Annual Meeting").
Further, solicitation of proxies may be made personally, or by telephone or
telegraph, by regularly employed officers and other employees of the Company,
who will receive no additional compensation for such. The cost of soliciting
proxies will be borne by the Company which may enlist the assistance, and
reimburse the reasonable expenses, of banks and brokerage houses in the
additional solicitation of proxies and proxy authorizations, particularly from
their customers whose stock is not registered in the owner's name, but in the
name of such banks or brokerage houses.
All shares represented at the Annual Meeting by proxies will be voted
provided that such proxies are properly signed and dated. In cases where a
choice is indicated, the shares represented will be voted in accordance with the
specifications so made. In cases where no specifications are made, the shares
represented will be voted FOR the election as directors of the nominees listed
below, and FOR the ratification of the Board of Directors' selection of
auditors.
Any shareholder executing and returning a proxy has the power to revoke
such proxy at any time prior to the voting thereof by: (a) written notice to the
Secretary of the Company at the Company's headquarters delivered prior to the
commencement of the Annual Meeting, (b) providing a signed proxy bearing a later
date, or (c) appearing in person and voting at the Annual Meeting.
A copy of the Annual Report on Form 10-K of the Company for the fiscal
year ended August 31, 1998 (the "1998 Fiscal Year"), including financial
statements, is being mailed concurrently herewith (on or about January 25, 1999)
to all shareholders of record at the close of business on January 4, 1999. The
Annual Report does not constitute a part of the proxy solicitation material for
the Annual Meeting.
VOTING SECURITIES
Only shareholders of record at the close of business on January 4, 1999
are entitled to vote at the Annual Meeting. The total number of shares of common
stock, par value $.0467 per share (the "Common Stock"), of the Company, issued,
outstanding and entitled to be voted on the record date was 2,625,170 shares.
Each of such shares of Common Stock is entitled to one vote upon all matters to
be acted upon at the Annual Meeting.1 In addition, the Company has outstanding
900,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), of the Company. In accordance with the terms of the Certificate of
Designation by which the Preferred Stock was authorized, holders of Preferred
Stock are entitled (after giving effect to the Stock Splits) to three votes for
every fourteen shares of Preferred Stock held of record as of the record date
for the Annual Meeting. Accordingly, there will be 2,625,170 shares (2,625,170
votes) of Common Stock and 900,000 shares (192,857 votes) of Preferred Stock, or
an aggregate of 2,818,027 votes available to be cast at the Annual Meeting. The
holders of a majority of the outstanding votes (i.e., 1,409,014 votes) shall
constitute a quorum, which is necessary for the transaction of business at the
Annual Meeting. In accordance with the Company's Certificate of Incorporation
and By-laws, and applicable law, the election of directors shall be by a
plurality of the votes cast and the ratification of the Board of Directors'
selection of auditors shall be by a majority of the votes cast.
Shares Held By Directors and Named Executive Officers
Set forth in the table below is information concerning the ownership, as
of the close of business on January 4, 1999, of the Common Stock by the
Company's directors and Named Executive Officers2, and all directors and present
executive officers as a group (assuming all outstanding Preferred Stock is
converted to Common Stock).
- --------------------------
(1) On August 15, 1996, September 30, 1992, and September 4, 1990, the Company
effectuated three-for-two (3:2), one-for-seven (1:7) and one-for-ten
(1:10) stock splits, respectively, of the Common Stock (the "Stock
Splits"). Throughout this Proxy Statement, all references to shares of
Common Stock refer to shares of Common Stock as adjusted to reflect the
effectuation of the Stock Splits.
(2) The term "Named Executive Officers" includes all persons who served as
Chief Executive Officer of the Company at any time during the Company's
fiscal year ended August 31, 1998 (the "1998 Fiscal Year") and the four
highest paid individuals whose total compensation exceeded $100,000 for
the 1998 Fiscal Year and who were serving as executive officers of the
Company at the end of the 1998 Fiscal Year. The only individual meeting
this definition is Peter Rona, the President, Chief Executive Officer and
Principal Financial and Accounting Officer of the Company.
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Amount and Nature of
Name Beneficial Ownership (1) Percent (1)
- ---- ------------------------ -----------
Lorne C. Stephenson(2) ................ 925,787(3) 32.9%
Bart Yabsley(2) ....................... 925,787(3) 32.9
Peter Rona(4) ......................... 410,357(5) 14.6
Douglas Connolly ...................... 62,979(6) 2.2
Adrian P. Towning ..................... 6,000(7) 0.2
Daniel C. Downs ....................... 3,000(7) 0.1
Dale G. Smith ......................... 3,000(7) 0.1
All directors and executive officers
as a group (7 persons) ............. 1,411,123(7)(8) 50.1%
(1) Includes 192,857 votes attributable to the 900,000 shares of Convertible
Preferred Stock outstanding. Unless otherwise indicated, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them. A person is deemed to be the beneficial owner of securities
which may be acquired by such person within 60 days from the date on which
beneficial ownership is to be determined, upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any other
person) and which are exercisable within such 60 day period, have been
exercised.
(2) The address for Messrs. Stephenson and Yabsley is c/o NetStar
Communications Inc., 2225 Sheppard Avenue East - Suite 100, North York,
Ontario, Canada M2J 5C2.
(3) Represents the 925,787 shares of Common Stock owned by NetStar Enterprises
Inc. ("NetStar"), of which Mr. Stephenson is Executive Vice President,
Administration and Mr. Yabsley is Vice President and General Counsel,
Corporate and Secretary.
(4) The address for Peter Rona is c/o Networks North, Inc., 14 Meteor Drive,
Etobicoke, Ontario, Canada M9W 1A4
(5) Includes (a) 192,857 shares of Common Stock issuable upon conversion of
the 900,000 shares of Convertible Preferred Stock held of record by Anor
Management, Ltd. ("Anor"), (b) 40,000 common shares owned by Mr. Rona and
(c) 177,500 common shares issued upon the exercise of certain options. Mr.
Rona is the President, sole director and sole shareholder of Anor.
(6) Represents the payments of stock in lieu of cash based upon two promissory
notes issued to companies controlled by Mr. Connolly. The 62,979 shares of
common stock are beneficially owned by 1199846 Ontario, Ltd., and
Connolly-Daw Inc., both of which Mr. Connolly is the
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principal shareholder and President. The remaining payments due under the
promissory notes are not due within the next 60 days.
(7) Includes 3,000 shares of Common Stock issuable upon exercise of options,
which vested on January 10, 1999.
(8) Includes 192,857 shares issuable upon conversion of the Convertible
Preferred Stock referred to in note (5) above.
Shares Held by Certain Other Shareholders
The following table sets forth, as of the close of business on January 4,
1999, certain information with respect to each person who is known to the
Company to be the beneficial owner of more than five (5%) percent of the Common
Stock, other than the directors set forth in the Directors and Named Executive
Officers Ownership Table above.
Amount and Nature of
Name and Address Beneficial Ownership(1) Percent(1)
- ---------------- ------------------------ -----------
NetStar Enterprises Inc.(2)
2225 Sheppard Avenue East - Suite 100
North York, Ontario
Canada M2J 5C2 .......................... 925,787 32.9%
Anor Management Ltd.
c/o Peter Rona
Networks North, Inc.
14 Meteor Drive
Etobicoke, Ontario
Canada M9W 1A4 .......................... 192,857(3) 6.8
(1) Includes 192,857 votes attributable to the 900,000 shares of Convertible
Preferred Stock outstanding. Unless otherwise indicated, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them. A person is deemed to be the beneficial owner of securities
which may be acquired by such person within 60 days from the date on which
beneficial ownership is to be determined, upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any other
person) and which are exercisable within such 60 day period, have been
exercised.
(2) The address for NetStar Enterprises Inc. is 2225 Sheppard Avenue East -
Suite 100 North York, Ontaria, Canada M2J 5C2.
(3) The address for Anor is c/o Peter Rona, Networks North Inc., 14 Meteor
Drive, Etobicoke, Ontario Canada, M9W 1A4. Includes 192,857 shares of
Common Stock issuable upon conversion of the 900,000 shares of
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Convertible Preferred Stock held of record by Anor. The 900,000 shares of
Convertible Preferred Stock have the equivalent voting power to 192,857
shares of Common Stock.
- 5 -
Voting by Directors and Executive Officers
It is anticipated that the directors and the Named Executive Officers of
the Company will vote FOR the nominees to the Board of Directors, (see "Election
of Directors") and FOR the ratification of the Board of Directors' selection of
auditors (see "Ratification of the Board of Directors' Selection of Auditors").
Such directors and executive officers, and their affiliates, hold 1,224,623 or
44% of the votes entitled to be cast at the Annual Meeting.
ELECTION OF DIRECTORS
The individuals named in the enclosed form of proxy will vote, if so
authorized, FOR the persons named below as directors of the Company, each of
whom has served as a director of the Company for the periods so indicated. Each
such person is to be elected to hold office until the next succeeding Annual
Meeting of Shareholders and until his successor is duly elected and qualified.
Management of the Company is not aware of any reason why any of the nominees
will not be able to serve. If a nominee should subsequently become unavailable
for election, the persons voting the accompanying proxy may, in their sole
discretion, vote FOR such substitute nominee the present Board of Directors may
recommend.
Director
Name Age Principal Positions with the Company Since
- ---- --- ------------------------------------ -----
Peter Rona 52 President, Chief Executive Officer, 1987
Principal Financial and Accounting
Officer and Chairman of the Board
of Directors of the Company
Daniel C. Downs 59 Director of the Company 1993
Dale G. Smith 49 Director of the Company 1993
Adrian P. Towning 54 Director of the Company 1994
Douglas R. Connolly 45 Director of the Company
President of Magic Lantern
Communications Ltd.; 1996
Lorne C. Stephenson 47 Director of the Company 1998
Bart Yabsley 35 Director of the Company 1998
Mark Truman 44 Secretary of the Company N/A
Peter Rona has been the President, Chief Executive Officer, Principal
Financial and Accounting Officer and a director of the Company since September
1, 1987. He has been President of NTN Interactive Network, Inc. (formerly, NTN
Sports, Inc. until 1993) from 1985 to 1991 and February 1993 to present. Mr.
Rona has also been the President, sole director and sole shareholder of Anor
Management, Ltd., a personal holding company since 1987.
Daniel C. Downs has been Executive Vice-President (1983 to April 1994),
Chief Operating Officer (1983 to October 1996), President (April 1994 to March
1997) and a director (1985 to June 1997) of NTN Communications, Inc.
("Communications"), a developer and distributor of interactive programs. Under a
License Agreement, dated March 23, 1990 (the "License Agreement"), between
Communications and NTNIN, the Company, through NTNIN, holds the exclusive
license to market the products and programs of Communications throughout Canada
through December 31, 2015. Mr. Downs was an independent marketing consultant
from 1981 to 1983, during which time he also worked on the development of the
interactive game QB1. From 1979 to 1981, he served as Executive Vice-President
and
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General Manager of Hollywood Park Race Course. From 1974 to 1979, he served as
Executive and General Manager for the Southern California Racing Association at
Los Alamitos Race Course.
Dale G. Smith is the Chief Financial Officer of the NorShield Financial
Group, a privately owned organization involved in merchant banking and
investment management, since 1998. From 1990 to 1997, he was Executive Vice
President of Montebello Farms Inc., breeders of purebred arabian horses. From
1988 to 1990, he was President of Oden Capital Corporation, a privately owned
venture capital company. From 1969 to 1988, he practiced public accounting with
Deloitte, Haskins & Sells Chartered Accountants, having been admitted to
partnership in 1980.
Adrian P. Towning is a private, independent investor in several companies
involved in the communications industry. As a result of his investments, he has
served as a director of some of these companies, including Medical
Communications Corporation ("MCC") (1994 to July 1996). On May 14, 1996, MCC
filed a petition under Chapter 7 of the United States Bankruptcy Code and the
Bankruptcy Court appointed a Trustee of MCC on July 11, 1996. On July 16, 1996,
MCC was dissolved. From 1983 to 1989, he established and managed
Anglo-Massachusetts Investments Incorporated, with offices in Boston and London,
which was involved in providing financial advice to Europeans.
Douglas Connolly has been the President and a director of Magic Lantern
Communications Ltd. (and its predecessor corporation) ("Magic") since 1985. On
October 2, 1996, the Company acquired all of the outstanding stock of Magic. Mr.
Connolly also has been President, director and a principal shareholder of
Connolly-Daw Holdings Inc. (since 1987) and 1199846 Ontario Ltd. (since
September 1996), two personal holding companies.
Lorne C. Stephenson is the Executive Vice President, Administration
(December 1998 to Present) of NetStar Communications Inc. ("NetStar"), a company
involved in broadcast operations. Mr. Stephenson was Senior Vice President,
Administration and Corporate Affairs (1995 to 1998) for NetStar. Mr. Stephenson
was the Vice President, Corporate Affairs (1991 to 1995), Vice President,
Entertainment (1989 to 1991), Executive Assistant to Chairman and CEO (1983 to
1989) and Director of Corporate Affairs (1979 to 1983) for John Labatt Ltd., a
Canadian-owned international consumer product and entertainment conglomerate. He
is a member of the Canadian Cultural Advisory Group on International Trade, a
member of the Board of Governors and Chairman of the University Advancement
Committee of McMaster University, and a member of the Board of Directors of
Montcrest, a private school in Toronto, Ontario, Canada.
Bart Yabsley is the Vice President and General Counsel, Corporate and
Secretary (December 1998 to Present) of NetStar. Mr. Yabsley was the General
Counsel, Corporate and Secretary (May 1998 to November 1998), Associate General
Counsel, Corporate (November 1997 to April 1998) and Legal Counsel (October 1994
to October 1997) of NetStar.
Mark Truman has been the Controller of the Company since December, 1994.
Pursuant to a Designation Agreement, dated as of October 4, 1994, among
the Company, NTNIN and NetStar, the Company has granted NetStar the right to
designate one-third (1/3) of the members of the Company's Board of Directors so
long as NetStar is the owner of at least 20% and not greater than 50% of the
outstanding Common Stock. Should NetStar's ownership be at least 10% and less
than 20% of the
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outstanding Common Stock, NetStar would be entitled to designate one-sixth (1/6)
of the members of the Company's Board. Further, should NetStar's ownership
exceed 50% of the outstanding Common Stock, NetStar shall be entitled to
designate one-half (1/2) of the members of the Company's Board. In accordance
with the terms of the Designation Agreement, Lorne C. Stephenson and Bart
Yabsley have been designated by NetStar as directors of the Company.
Pursuant to a Management Agreement, dated October 1, 1996 (the "Magic
Management Agreement"), between Magic and Connolly-Daw, Magic recommended that
Douglas Connolly be elected as a director of the Company. On November 25, 1996,
the Board of Directors of the Company acted on such recommendation by expanding
the size of the Board to seven members and elected Mr. Connolly as an additional
director to fill the newly created directorship. In addition, the Employment
Agreement, dated October 1, 1996 (the "D. Connolly Employment Agreement"),
between Magic and Douglas Connolly, which covers the employment term of October
1, 1997 through September 30, 1999, contains a provision under which Magic is to
recommend that Douglas Connolly be elected as a director of the Company. In
accordance with the terms of the Magic Management Agreement and the D. Connolly
Employment Agreement, the Board of Directors nominated, and at the Company's
1998 Shareholders' meeting, the shareholders elected Mr. Connolly for a full
term as a director of this Company.
Board Committees and Attendance Records
The Company's Audit and Compensation Committee currently consists of
Messrs. Dale Smith, Lorne Stephenson and Adrian Towning. Neither Messrs. Smith,
Stephenson nor Towning are officers or employees of the Company and neither has
served in such capacities with the Company in the past.
During the 1998 Fiscal Year, there were six formal meetings of the Board
of Directors of the Company. All of the directors were in attendance at such
meetings, with the exception of one absence by Daniel C. Downs, one absence by
Adrian Towning and two absences by James Thompson, a former director who was a
designee of NetStar who resigned during the 1998 Fiscal Year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
ABOVE-LISTED SLATE OF DIRECTOR-NOMINEES
RATIFICATION OF THE BOARD OF DIRECTORS' SELECTION OF AUDITORS
Subject to shareholder ratification, the Board has selected Ernst & Young,
Chartered Accountants, as independent auditors for the fiscal year ending August
31, 1999, and until its successor is selected. Ernst & Young has audited the
Company's financial statements for the Company's fiscal years ended August 31,
1995, 1996, 1997 and 1998. No representative of Ernst & Young is expected to be
present at the Annual Meeting, and accordingly it will not have an opportunity
to make a statement or be available to answer questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE BOARD OF
DIRECTORS' SELECTION OF AUDITORS
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MANAGEMENT REMUNERATION
General
The Company compensates its employees and directors in Canadian dollars
("Cdn$"). The amounts provided in the Compensation Table below, along with other
disclosures on transactions with the Company's directors and officers, are set
forth in U. S. dollars ("US$"). For information concerning the applicable
exchange rates, see "Exchange Rates."
Summary Compensation Table
The following table sets forth information concerning the compensation
paid or accrued by the Company during the three years ended August 31, 1998 to
the Company's Named Executive Officer.
Long-Term
Compensation
------------
Annual Compensation Awards
----------------------------------- ------------
Securities
Year Ended Other Annual Underlying
Name and Principal Position August 31, Salary Bonus Compensation Options
--------------------------- ---------- ------ ----- ------------ -------
Peter Rona, President and Chief 1998 US$117,044 US$22,907 $ -0- 40,000
Executive Officer 1997 119,103 34,030 -0- 25,000
1996 115,090 10,961 3,483 37,500
During the three year period ended August 31, 1998, the Company did not
grant any restricted stock awards or stock appreciation rights. Additionally,
all of the Company's group life, health, hospitalization, medical reimbursement
or relocation plans, if any, do not discriminate in scope, terms or operation,
in favor of the Named Executive Officers and are generally available to all
salaried employees. Further, no Named Executive Officer received, in any of the
periods specified in the Summary Compensation Table, perquisites and other
personal benefits, securities or property in an aggregate amount in excess of
the lesser of $50,000 or 10% of the total salary and bonus reported for the
Named Executive Officer in the fiscal year in which such benefits were received,
and no single type of perquisite or other personal benefits exceeded 25% of the
total perquisites and other benefits reported for the Named Executive Officer in
the applicable fiscal year.
Option Grants Table
The following table sets forth (a) the number of shares underlying options
granted to each Named Executive Officer during the 1998 Fiscal Year, (b) the
percentage the grant represents of the total number of options granted to all
Company employees during the 1998 Fiscal Year, (c) the per share exercise price
of each option, (d) the expiration date of each option, and (e) the potential
realized value of each option based on: (i) the assumption of a five (5%)
percent annualized compounded appreciation of the market price of the Common
Stock from the date of the grant of the subject option to the end of the option
term, and (ii) the assumption of a ten (10%) percent annualized compounded
appreciation of the market price of the Common Stock from the date of the grant
of the subject option to the end of the option term.
- 9 -
Number of Percentage of Potential Realized Value at
Shares Total Options Assumed Rates of Stock Price
Underlying Granted to Appreciation for Option Term
Options Employees in Exercise Expiration ----------------------------
Name Granted Fiscal Year Price Date 5% 10%
- ---- ------- ----------- ----- ---- -- ---
Peter Rona 40,000 25.6% US$3.00 11/17/02 US$33,153 US$73,612
Options Exercised and Remaining Outstanding
Set forth in the table below is information, with respect to each of the
Named Executive Officers, as to the (a) number of shares acquired during the
1998 Fiscal Year upon each exercise of options granted to such individual, (b)
the aggregate value realized upon each such exercise (i.e., the difference
between the market value of the shares at exercise and their exercise price),
(iii) the total number of unexercised options held on August 31, 1998,
separately identified between those exercisable and those not exercisable, and
(iv) the aggregate value of in-the-money, unexercised options held on August 31,
1998, separately identified between those exercisable and those not exercisable.
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at August 31, 1998 August 31, 1998
-------------------------- --------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
Peter Rona 30,000 -0- -0- 177,500 -0- -0-
Director's Remuneration
Each director not otherwise a full time employee of the Company is
eligible to receive Cdn$500 for each meeting of the Board of Directors or
committee thereof which they attend, along with the reimbursement of their
reasonable expenses incurred on the Company's behalf. The NetStar designees on
the Board have declined such compensation in the 1998 Fiscal Year and in
previous fiscal years. In addition, each director, not otherwise a full time
employee of the Company, is eligible to receive 1,500 stock options annually.
All such directors have waived their entitlement to these options in 1998. The
NetStar designees on the Company's Board of Directors have declined such
compensation for the 1998 fiscal year and in previous years.
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Employment Contracts with Named Executive Officers
As of September 1, 1997, NTNIN extended by two years its employment
agreement (the "Rona Employment Agreement") with Peter Rona, its President and
Chief Executive Officer, originally dated as of September 1, 1994. Mr. Rona is
also the President, Chief Executive Officer, Chief Financial and Accounting
Officer and Chairman of the Board of Directors of the Company. NTNIN's
obligations under the Rona Employment Agreement have been guaranteed by the
Company. Mr. Rona does not receive any compensation from the Company other than
pursuant to the Rona Employment Agreement.
The Rona Employment Agreement provides for a base compensation of
Cdn$165,375 with annual increases to be subject to review by the Board of
Directors, but in no event less than the proportional increase in the Consumer
Price Index as published by Statistics Canada, plus a bonus equal to a
percentage of the annual base compensation paid to Mr. Rona determined by
reference to the excess of NTNIN's actual net income before taxes over specified
amounts set forth in the Rona Employment Agreement. The Rona Employment
Agreement further provides for the granting to Mr. Rona of stock options at the
discretion of the Board of Directors. The Board awarded Mr. Rona stock options
to purchase 40,000 shares of Common Stock as of November 17, 1997. In all other
respects, the basic provisions of the Rona Employment Agreement remains the
same.
Magic has entered into two separate Employment Agreements, each dated
October 1, 1996, with Douglas Connolly and Wendy Connolly. These Employment
Agreements each have two year terms commencing on September 1, 1997 and
terminating on August 31, 1999, and pursuant to which Mr. and Ms. Connolly shall
receive annual base salaries of Cdn$125,000 (US$79,506 at August 31, 1998) and
Cdn$70,000 (US$44,524), respectively, together with automotive expenses of
Cdn$12,000 (US$7,632) and Cdn$8,400 (US$5,343), respectively. There is a
provision in each Employment Agreement for a cost-of-living adjustment to their
base salaries for the second year of the term. In addition, under their
respective Employment Agreements, Mr. and Ms. Connolly shall each be entitled to
a bonus, not to exceed Cdn$50,000 (US$31,803) and Cdn$28,000(US$17,809),
respectively (subject to a cost-of living adjustment for the second year of
their respective terms), to be based upon the actual net income before taxes, if
any, of Magic during each year of the terms of the Employment Agreements. The D.
Connolly Employment Agreement further provides for Mr. Connolly to serve as
President and Chief Operating Officer of Magic during its term.
NTNIN has entered into an employment agreement, dated August 15, 1997,
with Don Pagnutti, pursuant to which Mr. Pagnutti shall serve as NTNIN's
Executive Vice President and Chief Operating Officer for a two year term,
commencing on September 15, 1997 and terminating on September 14, 1999, with a
revolving term to be reviewed annually at the anniversary of the commencement
date. The agreement provides for an initial base compensation of $Cdn 137,500
with annual reviews, together with automobile expenses of $Cdn 9,000 plus a
bonus equal to a percentage of the annual base compensation paid to Mr. Pagnutti
determined by reference to the excess of NTNIN's actual net income before taxes
over specified amounts set forth in the agreement. This agreement further
provides for the granting to Mr. Pagnutti of stock options at the discretion of
the Board of Directors. This agreement also provides for Mr. Pagnutti to serve
as Executive Vice President and Chief Operating Officer of NTNIN during its
Term.
Neither the Company nor NTNIN has any other employment agreement in effect
with any other executive employee.
- 11 -
CERTAIN TRANSACTIONS
Set forth below is a description of certain transactions between the
Company and its directors, executive officers and beneficial owners of five
percent or more of the outstanding Common Stock, as well as certain business
relationships between the Company and its directors, which occurred or existed
in the 1998 Fiscal Year.
(a) During the 1998 Fiscal Year, both pursuant to the License Agreement
and otherwise, the Company paid Communications an aggregate Cdn$1,792,002
(US$1,139,805) as commissions. Under the License Agreement, the Company, through
NTNIN, holds the exclusive license to market the products and programs of
Communications throughout Canada through December 31, 2015. Daniel C. Downs, a
director of the Company, is a former President and Chief Operating Officer of
Communications.
(b) On October 2, 1996, pursuant to a Stock Purchase Agreement, dated
October 1, 1996 (the "Magic Lantern Agreement"), the Company, through NTNIN,
acquired all of the outstanding stock of Magic. As consideration for the
purchase of such stock the Company delivered Cdn$200,000 (US$146,800 on October
1, 1996) and a Non-Negotiable Promissory Note (the "Connolly-Daw Note") in the
principal amount of Cdn$703,133 (US$516,099) to Connolly-Daw Holdings
Inc.("Connolly-Daw") and a Non-Negotiable Promissory Note (the "1199846 Note")
in the principal amount of Cdn$546,867 (US$401,400) to 1199846 Ontario Ltd
("1199846"). The Connolly Note requires principal payments of Cdn$78,133
(US$57,350), Cdn$312,500 (US$229,375) and Cdn$312,500 (US$229,375) on August 31,
1998, 1999, and 2000, respectively. In lieu of such cash payments, the Company
has the option to tender payment to Connolly-Daw, and Connolly-Daw has the
option to demand payment, in the form of 12,276, 49,097 and 49,096 shares of
Common Stock (collectively, the "Connolly-Daw Shares"), respectively. The
1199846 Note requires principal payments of Cdn$312,500 (US$229,375) and
Cdn$234,367 (US$172,025) on August 31, 1997 and 1998, respectively. In lieu of
such cash payments, the Company has the option to tender payment to 1199846, and
1199846 has the option to demand payment, in the form of 49,097 and 36,821
shares of Common Stock (collectively, the "1199846 Shares"), respectively. Also
pursuant to the Magic Lantern Agreement, Connolly-Daw, NTNIN and the Company
entered into an Option Agreement, dated October 1, 1996, and 1199846, NTNIN and
the Company entered into an Option Agreement, dated October 1, 1996 (together,
the "Option Agreements"). Under the terms of the Option Agreements, in the event
that either Magic or Mr. Connolly choose not to extend the term of the D.
Connolly Employment Agreement beyond its initial term expiring on August 31,
1999, on or after September 1, 1999 and on or before September 30, 1999,
Connolly-Daw and 1199846 shall each have the right to cause the Company to
purchase any of the Connolly-Daw Shares or 1199846 Shares, as the case may be,
then held by Connolly-Daw or 1199846 at a price equal to 90% of the market value
(as defined in the Option Agreements) of such shares (Connolly-Daw having been
granted the right in this event to cause acceleration of the September 1, 2000
payment under the Connolly-Daw Note to August 31, 1999) and the Company shall
have the right to cause the Connolly-Daw and 1199846 to sell to the Company any
of the Connolly-Daw Shares or 1199846 Shares, as the case may be, then held by
Connolly-Daw or 1199846 at a price equal to 110% of the market value (as defined
in the Option Agreements) of such shares (Connolly-Daw having been granted the
right in this event to cause acceleration of the September 1, 2000 payment under
the Connolly-Daw Note to August 31, 1999). Douglas Connolly, a director of the
Company and President of Magic, is the President and a principal shareholder of
both Connolly-Daw and 1199846.
On September 5, 1997, the Company issued 38,158 shares of Common Stock of
the Company and
- 12 -
Cdn$65,000 to 1199846 in lieu of the August 31, 1997 payment pursuant to the
1199846 Note.
On August 31, 1998, the Company issued 12,276 shares of its common stock
in lieu of the Cdn$78,133 payment due that date, pursuant to the Connolly-Daw
Note. Similarly, another 36,821 shares of the common stock of the Company were
issued in lieu of the Cdn$234,367 payment due August 31, 1998, pursuant to the
1199846 Note.
(c) At the time of the Company's acquisition of Magic, Connolly-Daw was
indebted to Magic in the amount of Cdn$160,000 (US$117,440 on October 1, 1996).
This indebtedness is represented by a Promissory Note, dated October 1, 1996
(the "Magic Lantern Note"), in the principal amount of such indebtedness. The
Magic Lantern Note is due on demand and bears interest, at a specified bank
prime rate, payable monthly.
(d) The Company purchased 51% of the outstanding shares of Interlynx
Multimedia, Inc. effective September 1, 1997.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors is not
aware of any other matter which is to be presented for action at the Annual
Meeting. If any matter other than those described above (i.e., election of
directors, ratification of the Board's selection of auditors does properly come
before the Annual Meeting, the individuals named in the enclosed Proxy will,
unless indicated otherwise, vote the shares represented thereby in accordance
with their best judgment.
EXCHANGE RATES
This Proxy Statement contains translations of certain amounts in Canadian
dollars ("Cdn$") into United States dollars ("US$") based upon the exchange rate
in effect at the end of the period to which the amount relates, or the exchange
rate on the date specified. For such purposes, the exchange rate means the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"). These translations should not be construed as
representations that the Canadian dollar amounts actually represent such U.S.
dollar amounts or that Canadian dollars could be converted into U.S. dollars at
the rate indicated or at any other rate. The Noon Buying Rate at the end of each
of the five years ended August 31, 1998, the average of the Noon Buying Rates on
the last day of each month during each of such fiscal years and the high and low
Noon Buying Rate for each of such fiscal year's were as follows:
August 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
At end of period..... Cdn$1.5722 Cdn$1.3885 Cdn$1.3685 Cdn$1.3432 Cdn$1.3712
Average for period... 1.4390 1.3676 1.3634 1.3742 1.3573
High for period...... 1.5770 1.3942 1.3815 1.4193 1.3890
Low for period....... 1.4100 1.3381 1.3401 1.3410 1.3095
- 13 -
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
Upon the written request of any shareholder of the Company, as record or
beneficial owner, the Company will provide to such shareholder a copy of the
Company's Annual Report on Form 10-K for its fiscal year ended August 31, 1998,
including the financial statements and the schedules thereto, filed with the
Securities and Exchange Commission. Any request should be directed to the
Corporate Secretary, at the Company's place of business listed above. There will
be no charge for the Form 10-K, unless one or more exhibits thereto are
requested, in which event the Company's reasonable expenses of furnishing such
exhibits may be charged.
FUTURE SHAREHOLDER PROPOSALS
From time to time, shareholders present proposals which may be the proper
subject for inclusion in the Company's Proxy Statement and for consideration at
its annual meetings of shareholders. To be considered, proposals must be
submitted on a timely basis. Proposals for the next Annual Meeting of
Shareholders of the Company must be received by the Company no later than
September 15, 1999, for inclusion, if proper, in next year's proxy solicitation
materials.
GENERAL
The Company will pay all of the costs of preparing, assembling and mailing
the form of Proxy, Proxy Statement and other materials which may be sent to the
shareholders in connection with this solicitation, as well as any costs of
soliciting proxies in the accompanying form. Solicitation will be made by mail,
and officers and regular employees of the Company may also solicit proxies by
telephone, telegraph or personal interview for which they will receive no
additional remuneration. The Company expects to request brokers and nominees who
hold stock in their names to furnish this proxy material to their customers and
to solicit proxies from them. The Company will reimburse such brokers and
nominees for their out-of-pocket and reasonable clerical expenses in connection
therewith.
WHILE YOU HAVE THE MATTER IN MIND,
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD.
BY ORDER OF THE BOARD OF DIRECTORS,
Peter Rona, President
- 14 -
PROXY PROXY
NETWORKS NORTH, INC.
14 Meteor Drive, Etobicoke, Ontario MAW1A4
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENT, that the undersigned shareholder of
Networks North, Inc. (the "Company") hereby constitutes and appoints Peter Rona
and Mark Truman and each of them, the true and lawful attorneys, agents and
proxies of the undersigned, each with full power of substitution to vote all of
the shares of stock of the Company that the undersigned would be entitled, if
personally present, to vote at the meeting of shareholders of the Corporation to
be held on February 25, 1999 at 10:00 a.m. at the offices of the Company, 14
Meteor Drive, Etobicoke, Ontario, Canada M9W 1A4, and at any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
1. Election of Directors:
For all nominees listed below (except as marked to the contrary below)
NOMINEES: Douglas Connolly, Daniel C. Downs, Bart Yabsley, Peter Rona,
Dale G. Smith, Lorne C. Stephenson, and Adrian P. Towning
WITHHOLD AUTHORITY
to vote for all nominees listed above __
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
--------------------
2. To Approve the Appointment of Ernst & Young, as Auditors of the Company
for fiscal year 1999.
For ___ Against ___
Dated:_______________, 1999
---------------------------------
Signature