<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
NETRADIO CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
NETRADIO CORPORATION
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
MAY 18, 2000
To the Shareholders of NetRadio Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of NetRadio
Corporation will be held at 3:30 p.m. on Thursday, May 18, 2000, at the Hyatt
Regency Hotel, 1300 Nicollet Mall, Minneapolis, Minnesota, for the following
purposes:
1. To elect two directors to serve on the Board of Directors for three year
terms.
2. To ratify the selection of Ernst & Young LLP as the independent auditors
of NetRadio Corporation for the fiscal year ending December 31, 2000.
3. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on March 31, 2000 as
the record date for the determination of shareholders entitled to receive notice
of and vote at the meeting.
We encourage you to take part in the affairs of your Company either in
person or by executing and returning the enclosed proxy.
By Order of the Board of Directors,
/s/ Edward A. Tomechko
President and Chief Executive Officer
Dated: April 21, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU LATER
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS EXERCISED.
<PAGE> 3
NETRADIO CORPORATION
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2000
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of NetRadio Corporation (the "Company") for
use at the Annual Meeting of Shareholders of the Company to be held at 3:30 p.m.
on Thursday, May 18, 2000, at the Hyatt Regency Hotel, 1300 Nicollet Mall,
Minneapolis, Minnesota, and at any adjournment thereof. A shareholder giving the
enclosed proxy may revoke it at any time before the vote is cast at the annual
meeting by delivering to an officer of the Company either a written notice
terminating the proxy's authority or a proxy bearing a later date, or by
appearing in person and voting at the meeting. Shares of the Company's common
stock, no par value (the "Common Stock"), represented by a proxy will be voted
in the manner directed by a shareholder. If no direction is made, the proxy will
be voted for the election of the nominees for director named in this Proxy
Statement and for the other proposals set forth in this Proxy Statement. This
Proxy Statement and the accompanying form of proxy are being sent or given to
shareholders beginning on or about April 21, 2000, along with the Company's
Annual Report to Shareholders for the year ended December 31, 1999.
Only shareholders of record at the close of business on March 31, 2000 are
entitled to receive notice of and vote at the meeting or at any adjournment
thereof. On March 31, 2000, there were 10,011,700 shares of Common Stock of the
Company outstanding. Each share is entitled to one vote. Cumulative voting is
not permitted. Shares voted as abstentions on any matter (or a "withhold vote
for" as to a director) will be counted as shares that are present and entitled
to vote for purposes of determining the presence of a quorum at the meeting and
as unvoted, although present and entitled to vote, for purposes of determining
the approval of each matter as to which the shareholder has abstained. If a
broker submits a proxy that indicates the broker does not have discretionary
authority as to certain shares to vote on one or more matters, those shares will
be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the meeting, but will not be considered
as present and entitled to vote with respect to such matters.
The Board of Directors knows of no matters other than those that are
described in this Proxy Statement that may be brought before the meeting.
However, if any other matters are properly brought before the meeting, persons
named in the enclosed proxy or their substitutes will vote in accordance with
their best judgment on such matters.
The Company will pay all expenses in connection with the solicitation of
proxies. In addition to solicitation by mail, officers, directors and regular
employees of the Company, who will receive no extra compensation for their
services, may solicit proxies by telephone, facsimile or personal calls.
The Company's principal executive offices are located at Riverplace
Exposition Hall, 43 Main Street Southeast, Suite 149, Minneapolis, Minnesota
55414. Effective as of May 1, 2000, the Company's principal executive offices
will be located at Valley Gate North, 10025 Valley View Road, Suite 190, Eden
Prairie, Minnesota 55344.
1
<PAGE> 4
ELECTION OF DIRECTORS
(PROPOSAL #1)
The Bylaws of the Company provide that directors of the Company shall be
divided into three classes, as nearly equal in number as reasonably possible.
The term of office of the first class of directors will expire at this Annual
Meeting of Shareholders, the term of the second class of directors will expire
at the annual meeting of shareholders in 2001 and the term of the third class of
directors will expire at the meeting of shareholders in 2002. Directors elected
at each annual meeting of shareholders will be of the same class as the
directors whose terms expire at such annual meeting of shareholders, and shall
be elected to hold office for a term expiring at the third succeeding annual
meeting of shareholders or until their successors are elected and shall qualify.
Pursuant to the terms of a Stock Purchase Agreement, dated March 7, 1997 between
the Company, Navarre Corporation and ValueVision International, Inc., as long as
ValueVision owns shares of our common stock, it has the right to elect a number
of directors to our board equal to the total number of our directors, multiplied
by the percentage of ValueVision's ownership of our outstanding common stock,
rounded up to the nearest whole number. As of the closing of our initial public
offering in October 1999, ValueVision had the right to elect two of our
directors.
Vacancies and newly created directorships resulting from an increase in the
number of directors may be filled by the vote of a majority of the directors
then in office. The directors so chosen will hold office until the next election
of the class for which such directors shall have been chosen.
At the Annual Meeting of Shareholders to be held on May 18, 2000, the terms
of office of Charles E. Cheney and Donavan W. Pederson will expire. Mr. Cheney
has been nominated to be elected to the Board of Directors for an additional
three year term that will expire at the annual meeting of shareholders in 2003.
Mr. Pederson will retire from service as a director as of the date of the Annual
Meeting and Mr. Cary L. Deacon has been nominated to be elected to the Board of
Directors for a three year term that will expire at the annual meeting of
shareholders in 2003. Mr. Deacon is one of the two directors that ValueVision
has the right to elect pursuant to the terms of the 1997 Stock Purchase
Agreement. The Board of Directors recommends that the shareholders elect Messrs.
Cheney and Deacon as directors of the Company for the ensuing three year period.
The person named as proxy in the enclosed form of proxy intends to vote the
proxies received by the Company for the election of Messrs. Cheney and Deacon,
unless otherwise directed. Each of Messrs. Cheney and Deacon has indicated a
willingness to serve. If, however, either of Messrs. Cheney and Deacon is not a
candidate at the meeting, which is not presently anticipated, the proxy named in
the enclosed form of proxy may vote for a substitute nominee in his discretion.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON
STOCK REPRESENTED AT THE MEETING IS REQUIRED FOR THE ELECTION OF EACH OF MESSRS.
CHENEY AND DEACON. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF MESSRS.
CHENEY AND DEACON.
2
<PAGE> 5
Information regarding the directors of the Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE EXPIRATION OF TERM
- ---- --- ------------------
<S> <C> <C>
Eric H. Paulson.................................. 54 2002
Edward A. Tomechko............................... 51 2002
Donavan W. Pederson.............................. 61 2000
James Caparro(1)(2).............................. 48 2001
Charles E. Cheney(2)............................. 56 2000
Cary L. Deacon................................... 49 *
Marc H. Kalman(1)(2)............................. 55 2001
Gene McCaffery(1)................................ 52 2002
</TABLE>
- -------------------------
* Mr. Deacon is nominated to serve as a director for a term expiring in 2003.
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Eric H. Paulson. Mr. Paulson has served as our Chairman of the Board since
May 1996 and also served as Chief Executive Officer of NetRadio from April 1997
to January 1999. Mr. Paulson has served as Chairman of the Board, Chief
Executive Officer and a director of Navarre since 1983.
Edward A. Tomechko. Mr. Tomechko has served as our Chief Executive
Officer, President and a director of NetRadio since January 1999 and served as
Chief Financial Officer from August 1998 until March 15, 1999. From April 1997
to April 1998, Mr. Tomechko served as Senior Vice President and Chief Financial
Officer of David's Bridal, Inc. From January 1996 to April 1997, Mr. Tomechko
was Senior Vice President and Chief Financial Officer of The County Seat Stores,
Inc., and from 1990 to 1996, Mr. Tomechko served as Vice President and Treasurer
of County Seat. In October 1996, County Seat filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy
Code, in the United States Bankruptcy Court for the District of Delaware. On
October 29, 1997, the Plan of Reorganization was consummated.
Donavan W. Pederson. Mr. Pederson has served as our Chief Operating
Officer since July 1997 and served as our Chief Technology Officer from
September 1997 to June 1999. Mr. Pederson has served as Secretary and a director
of NetRadio since September 1997. From April 1994 to March 1997, he was
President of ComNet Research Corporation, a marketer and integrator of fiber
channel networks. From 1986 to 1994, Mr. Pederson served as President of Donavan
International, Inc., an international trade services company.
James Caparro. Mr. Caparro has served as a director of NetRadio since
January 1999. He is Chairman and Chief Executive Officer of Island/Def Jam Music
Group, a division of Universal/PolyGram Music Operations. From 1992 to 1998 he
served as President and Chief Executive Officer of PolyGram Group Distribution,
Polygram Video, Polymedia, New Media and Business Development, Polygram
Merchandising and Independent Label Sales.
Charles E. Cheney. Mr. Cheney has served as a director of NetRadio since
May 1996. From March 1997 to September 1998, he also served as our Chief
Financial
3
<PAGE> 6
Officer. Mr. Cheney has served as a director, Chief Financial Officer, Executive
Vice President and Secretary of Navarre since 1985.
Cary L. Deacon. Mr. Deacon is nominated to serve as a director of
NetRadio. Mr. Deacon has served as the President of ValueVision Interactive,
Inc., a wholly owned subsidiary of ValueVision, since 1998. Mr. Deacon was a
general partner of Marketing Advocates from 1997 to 1998. Mr. Deacon was Senior
Vice President Marketing and Public Relations/Executive Committee Member of
Macy's from 1995 to 1997. Mr. Deacon is one of two directors that ValueVision is
entitled to elect to the Company's board of directors pursuant to the terms of
the 1997 Stock Purchase Agreement.
Marc H. Kalman. Mr. Kalman has served as a director of NetRadio since
January 1999. Mr. Kalman is affiliated with AMFM and since 1992, he has served
as Vice President and General Manager for KDWB-FM and Cities 97-FM and since May
1997 has served as Vice President and General Manager for WLOL-FM, three leading
FM stations in the Minneapolis/Saint Paul market. Since 1993, Mr. Kalman also
has served as an Executive Board Member of the Variety Childrens Association
Board of Directors and as a director of the Minnesota Broadcasters Board of
Directors.
Gene McCaffery. Mr. McCaffery has served as a director of NetRadio since
November 1998. He currently is Chief Executive Officer, Chairman of the Board
and a director of ValueVision. Prior to joining ValueVision in 1998, Mr.
McCaffery served as Chief Executive Officer and Managing Partner of Marketing
Advocates, a celebrity-driven product and marketing development company based in
Los Angeles. From 1982 to 1996, Mr. McCaffery was employed in several capacities
with Montgomery Ward & Co., Inc., serving most recently as Senior Executive Vice
President. Montgomery Ward filed for Chapter 11 bankruptcy protection in 1997.
From 1994 to 1996, Mr. McCaffery also served as Vice Chairman of The Signature
Group, one of the nation's largest direct marketing companies. Mr. McCaffery
also serves as a director of Metal Management, Inc. Mr. McCaffery is one of two
directors that ValueVision is entitled to elect to the Company's board of
directors pursuant to the terms of the 1997 Stock Purchase Agreement.
Under the terms of a March 1997 stock purchase agreement among Navarre, the
Company and ValueVision International, Inc., and based upon our total number of
directors, Value Vision has the right to elect the number of directors equal to
its proportionate share of ownership of the Company, rounded up to the next
whole number. ValueVision currently has the right to elect two directors of the
Company. Please see "Related Party Transactions."
MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES
During the fiscal year ended December 31, 1999, the Board of Directors met
three times. All incumbent directors attended at least 75% of the aggregate of
those meetings of the Board of Directors and meetings of the committees on which
they served that were held while they were serving on the Board or on such
committee, except for Mr. Caparro who attended two of the three meetings.
The Board of Directors of the Company has Compensation and Audit
Committees, which have a current membership as indicated in the footnotes to the
table on page 2 of this Proxy Statement.
4
<PAGE> 7
Our compensation committee generally has responsibility for recommending to
the board of directors guidelines and standards relating to the determination of
executive compensation, reviewing executive compensation policies and reporting
to our board of directors regarding these matters. Our compensation committee
also has responsibility for administering our stock option plan, determine the
number of options to be granted to the executive officers and reporting to our
board of directors on such matters. During 1999, the Compensation Committee held
one meeting.
Our audit committee generally has responsibility for recommending
independent auditors to the board of directors for selection, reviewing the plan
and scope of the annual audit, reviewing our audit and control functions and
reporting to the full board of directors regarding these matters. During 1999,
the Audit Committee held one meeting.
COMPENSATION OF DIRECTORS
The Company pays outside directors $500 per meeting attended and $0 per
committee meeting attended. The Company also reimburses directors for expenses
actually incurred in attending meetings of the Board of Directors and its
committees. In connection with their appointment to our board of directors, in
January 1999, we granted each of Messrs. Caparro and Kalman options to purchase
10,000 shares of our common stock at an exercise price equal to $5.00 per share.
We expect to grant additional options to non-employee directors in the future in
connection with their service on our board of directors.
Directors who are employees of the Company do not receive any additional
compensation for serving on the Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than ten percent
(10%) of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors, and greater than ten percent (10%)
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors and 10% shareholders were complied with in
1999.
5
<PAGE> 8
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock, as of March 1, 2000, by: (i) each person who is
known by the Company to beneficially own more than 5% of the Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise noted below, the address of each of the following shareholders is the
same as the Company.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED(1) SHARES OWNED(1)
- ---------------- ------------ ---------------
<S> <C> <C>
Navarre Corporation(2)............................. 5,000,000 49.96%
7400 49th Avenue, North
New Hope, Minnesota 55428
Value Vision International, Inc.(3)................ 1,432,500 14.31%
6740 Shady Oak Road
Eden Prairie, Minnesota 55344-3433
Eric Paulson(4).................................... 49,000 *
Edward A. Tomechko(5).............................. 66,666 *
Donavan W. Pederson(5)............................. 101,667 1.02%
James Caparro(5)................................... 4,000 *
Charles E. Cheney(5)............................... 24,000 *
Marc H. Kalman(5).................................. 2,000 *
Gene McCaffery(6).................................. -- *
Michael P. Wise(5)................................. 16,666 *
David R. Witzig(5)................................. 85,000 *
Nancy Kielty(5).................................... 16,666 *
All current executive officers and directors as a
group (11 persons)(4)(5)......................... 365,665 3.60%
</TABLE>
- -------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the SEC, and
includes voting power and/or investment power with respect to securities.
Shares of Common Stock subject to options or warrants currently exercisable
or exercisable within 60 days of March 1, 1999 are deemed outstanding for
computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated by footnote, the Company believes that the persons named in
this table, based on information provided by such persons, have sole voting
and investment power with respect to the shares of Common Stock indicated.
6
<PAGE> 9
(2) Disclosure is made in reliance upon a Schedule 13G filed with the SEC by
Navarre on January 28, 2000. Such Schedule 13G indicates that Navarre has
the sole voting and investment power with respect to such shares.
(3) Disclosure is made in reliance upon a Schedule 13G filed with the SEC by
ValueVision on February 14, 2000. Such Schedule 13G indicates that
ValueVision has the sole voting and investment power with respect to such
shares.
(4) Includes 13,000 shares of Common Stock held by Mr. Paulson's spouse, for
which shares Mr. Paulson disclaims beneficial ownership. Does not include
5,000,000 shares held by Navarre for which Mr. Paulson disclaims beneficial
ownership. Mr. Paulson is Chairman of the Board and Chief Executive Officer
of Navarre and holds approximately 10% of the outstanding shares of Navarre.
(5) Includes the following number of shares of Common Stock issuable upon the
exercise of outstanding options: Mr. Tomechko: 66,666 shares; Mr. Pederson:
667 shares; Mr. Caparro: 2,000 shares; Mr. Kalman: 2,000 shares; Mr. Wise:
16,666 shares; Mr. Witzig: 50,000 shares; and Ms Kielty: 16,666 shares.
(6) Does not include 1,432,500 shares of common stock owned by ValueVision for
which Mr. McCaffery disclaims beneficial ownership. Mr. McCaffery is Chief
Executive Officer, Chairman of the Board and a director of ValueVision.
7
<PAGE> 10
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the cash and noncash
compensation for fiscal years 1999 and 1998 earned by or awarded to the Chief
Executive Officer and the next four most highly compensated executive officers
of the Company whose salary and bonus earned in 1999 exceeded $100,000 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
FISCAL -------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (# SHARES) COMPENSATION
- --------------------------- ------ --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Edward A. Tomechko(1).......... 1999 $175,865 $20,000 125,000 --
Chief Executive Officer 1998 $ 46,846 75,000 --
Michael P. Wise(2)............. 1999 $ 98,558 $29,400 50,000 --
Chief Financial Officer
Donavan W. Pederson(3)......... 1999 $123,846 $23,300 --
Chief Operating Officer 1998 $ 88,656 175,000 --
David R. Witzig(4)............. 1999 $101,894 $30,000 --
Senior Vice President of 1998 $ 94,038 150,000 --
Content and Programming
Nancy R. Kielty(5)............. 1999 $ 91,043 $13,500 50,000 --
Vice President of Commerce
</TABLE>
- -------------------------
(1) Mr. Tomechko has served as our Chief Executive Officer since January 1999
and our Chief Financial Officer from August 1998 until March 15, 1999.
(2) Mr. Wise has served as our Chief Financial Officer since March 15, 1999.
(3) Mr. Pederson has served as our Chief Operating Officer since July 1999 and
our Chief Technology Officer from September 1997 until June 1999.
(4) Mr. Witzig has served as our Senior Vice President of Content and
Programming since May 1996.
(5) Ms. Kielty has served as our Vice President of Commerce since February 1999.
8
<PAGE> 11
Option Grants. The following table summarizes options granted during the
year ended December 31, 1999 to the Named Executive Officers:
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
GRANTED(2) IN 1999(3) SHARE(4) DATE 5% 10%
---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward A. Tomechko............ 125,000 28% $5.00 1/15/04 $172,500 $381,250
Michael P. Wise............... 50,000 11% $5.00 2/17/04 $ 69,000 $152,500
Donavan W. Pederson........... -- -- -- -- -- --
David R. Witzig............... -- -- -- -- -- --
Nancy R. Kielty............... 50,000 11% $5.00 2/1/04 $ 69,000 $152,500
</TABLE>
- -------------------------
(1) The compounding assumes a five year exercise period for all option grants.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC and do not represent the Company's estimate
or projection of the Company's future Common Stock prices. These amounts
represent certain assumed rates of appreciation only. Actual gains, if any,
on stock option exercises are dependent on the future performance of the
Common Stock and overall stock market conditions. The amounts reflected in
this table may not necessarily be achieved.
(2) Each option represents the right to purchase one share of Common Stock. The
options shown in this column were granted pursuant to the 1998 Stock Option
and Incentive Plan. To the extent not already exercisable, the options
become exercisable in the event of a "change in control" (as defined in the
stock option agreement) involving the Company. All options vest 1/3 on the
first anniversary of the date of grant, 1/3 on the second anniversary of the
date of grant and 1/3 on the third anniversary of the date of grant.
(3) In 1999, the Company granted employees options to purchase an aggregate of
443,850 shares of Common Stock.
(4) The exercise price may be paid in cash, in shares of Common Stock with a
market value as of the date of exercise equal to the option price or a
combination of cash and shares of Common Stock.
9
<PAGE> 12
Option Values. The following table summarizes the value of options held at
December 31, 1999 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward A. Tomechko........ 25,000 175,000 $ 81,250 $568,750
Michael P. Wise........... -- 50,000 $ -- $162,500
Donavan W. Pederson....... 66,667 528,003 667 83,333 4,409 $550,831
24,333 192,717
David R. Witzig........... 25,000 198,000 50,000 75,000 $330,500 $495,750
Nancy R. Kielty........... -- 50,000 $ -- $162,500
</TABLE>
- -------------------------
(1) Value based on the difference between the last sale price of the Common
Stock as reported by the Nasdaq National Market on December 31, 1999 and the
option exercise price per share, multiplied by the number of shares subject
to the in-the-money options.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to the Company's Chief Executive Officer and other executive officers
(collectively, the "Executive Officers"). The SEC rules require the Compensation
Committee of the Board of Directors to issue a report explaining the rationale
and considerations that led to fundamental executive compensation decisions
affecting the Executive Officers. In fulfillment of this requirement, the
Compensation Committee of the Board of Directors (the "Committee"), at the
direction of the Board of Directors, has furnished the following report on
executive compensation:
The Committee is responsible for setting salaries for officers and for
granting incentive awards and stock-based compensation to the Company's
executive officers, including the Chief Executive Officer, on behalf of the
Board of Directors and the shareholders. The Committee also oversees the
operation of the Company's executive compensation benefits.
The Committee consists entirely of outside directors of the Company. During
1999 Messrs. Caparro, Kalman and McCaffery served on the Committee. Mr.
McCaffery is Chairman of the Committee.
COMPENSATION POLICIES
The Company is committed to attracting, hiring and retaining an experienced
management team that can successfully develop and manufacture the Company's
products in commercial quantities, penetrate target markets, obtain and maintain
required regulatory approvals worldwide, and develop new products. With these
goals in mind, the Committee closely aligns its compensation plan for executive
management to the milestones achieved
10
<PAGE> 13
and the influence that each executive has as the Company grows and matures. The
Committee annually reviews and evaluates the Company's corporate performance,
compensation levels and equity ownership of its executive officers. The
Committee strives to establish competitive levels of compensation that are
consistent with the Company's annual and long-term performance goals, are
appropriate for each officer's scale of responsibility and performance,
recognize individual initiative and achievements, will attract and retain the
highest quality personnel possible consistent with the Company's resources, and
provide an incentive to such executives to focus on the Company's long-term
strategic goals by aligning their financial interests closely with long-term
shareholder interests. The Committee intends to make the executive compensation
program competitive with the marketplace while emphasizing compensation in the
form of equity ownership, the value of which is contingent on the Company's
long-term market performance. It is intended that, in judging appropriate levels
of compensation, the Committee will take into account internally set performance
goals and comparisons with the performance of a self-selected group of companies
with similar business characteristics and strategies.
The Company's compensation program has three primary components: base
salary, short-term incentives and long-term incentives. The ultimate composition
of executive compensation reflects the Company's goals of attracting and
retaining highly qualified personnel and supporting a performance-oriented
environment that rewards both corporate and personal performance over the long
term. In general, stock option grants are used to enhance the competitiveness of
compensation packages, to reward exceptional performance and provide incentive
for reaching further performance goals. The Compensation Committee also believes
that the use of stock options is important to align the interests of the
officers with the interests of the shareholders.
BASE SALARIES
The Committee establishes annual base salaries after an analysis of each
executive officer's individual performance during the prior year, the overall
performance of the Company during the prior year and historical compensation
levels within the executive officer group. The Committee believes that executive
salaries must be sufficiently competitive to attract and retain key individuals.
In this regard, salaries for officers are based on experience levels and are
intended to be competitive with median salaries paid to comparable executives in
similar positions at other internet companies. By augmenting base salary with
equity-based compensation, the Company seeks to continue to attract and retain
quality management personnel. Annual increases in base salaries for existing
officers are generally consistent with the merit increase formula used
throughout the Company. The Company grants annual merit increases to all
employees in the range of 0-10% based on performance. Larger increases are
given, as appropriate, to reflect changes in job responsibility and authority or
to internally balance the salary structure among the executive officer group.
SHORT-TERM INCENTIVES
The Committee believes that executive compensation should be based in part
on the achievement of milestones that are important to the short-term success of
the Company. Accordingly, the Committee periodically sets short-term milestones
and then compares the Company's progress against these targets. Members of the
executive team, along with all Company employees, are periodically granted
options to purchase shares of the Common
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<PAGE> 14
Stock with vesting tied to the achievement of specified operating and personal
objectives. The number of options granted with these vesting provisions is
determined based on the individual's experience and position within the Company.
LONG-TERM INCENTIVES
The Committee believes that long-term shareholder interests and executive
compensation should be closely aligned. The Committee believes that stock
ownership by management and stock-based performance compensation arrangements
are beneficial in aligning management's and shareholders' interests in enhancing
shareholder value. Stock options are generally granted to executive officers at
the time they are elected. In determining the number of options to be granted at
such time, the Committee takes into consideration job responsibilities,
experience and contributions of the individual and recommendations of the
President. The stock options give the holder the right to purchase shares of the
Common Stock over a five-year period. Because the options are granted at the
fair market value on the date of grant, they will provide value only when the
price of the Common Stock increases above the share price on the date of the
grant. Options are also subject to vesting provisions designed to encourage
executives to remain employed by the Company. Additional options are granted
from time to time based on individual performance, increased job
responsibilities and the prior level of grants.
CEO COMPENSATION
The determination of the Chief Executive Officer's salary, bonus and grants
of stock options followed the policies set forth above for all executives'
compensation. The Company and Mr. Tomechko entered into an employment agreement
on January 11, 1999. Under the terms of Mr. Tomechko's employment agreement, his
base salary was increased to $200,000 effective upon the completion of the
Company's initial public offering and he received a $20,000 bonus. Under the
terms of his employment agreement, Mr. Tomechko was also eligible to receive a
bonus of 60% of his annual salary based upon the Company achieving certain
financial objectives and Mr. Tomechko achieving mutually agreed upon personal
goals, no bonus was awarded in 1999. In determining Mr. Tomechko's base salary,
the Committee considered such factors as the Company's financial performance in
comparison to that of other internet companies, the Company's market
positioning, Mr. Tomechko's leadership at the Company and within the industry,
his pay of relation to the pay of chief executive officers at other internet
companies and the Company's overall executive compensation philosophy.
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<PAGE> 15
COMPENSATION LIMITATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally limits the corporate deduction for compensation paid to
executive officers to $1.0 million, unless the compensation qualifies as
"performance-based compensation" under the Code. Section 162(m) did not affect
the deductibility of compensation paid to the Company's executive officers in
1999 and will not affect the deductibility of such compensation expected to be
paid in 2000. The Committee will continue to monitor this matter and may propose
changes to the executive compensation program if warranted.
SUBMITTED BY THE COMPENSATION COMMITTEE:
James Caparro
Marc H. Kalman
Gene McCaffery
STOCK PERFORMANCE
The graph below sets forth a comparison of the cumulative shareholder
return of the common stock with the cumulative total return of the Nasdaq Stock
Market-U.S. Index and the Hambricht & Quist Internet Index from October 14, 1999
(the date of the initial public offering of the Common Stock) to December 31,
1999. The graph assumes the investment of $100 in the Common Stock on October
14, 1999, and in each of the indices on September 30, 1999, and that dividends
if any, were reinvested.
[LINE GRAPH]
<TABLE>
<CAPTION>
NETRADIO NASDAQ STOCK HAMBREHT & QUIST
CORPORATION MARKET (U.S.) INTERNET
----------- ------------- ----------------
<S> <C> <C> <C>
10/14/99 100.00 100.00 100.00
12/31/99 75.00 144.32 193.58
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
AGREEMENTS
Except as described below, the Company does not have any employment
agreements with its Named Executive Officers. We have entered into employment
agreements with Edward A. Tomechko, Donavan W. Pederson, and David R. Witzig.
The term of Mr. Tomechko's agreement commenced on January 11, 1999 and ends
on January 10, 2002. Mr. Tomechko's annual base salary increased to $200,000
upon the closing of our initial public offering. Mr. Tomechko received a
one-time $20,000 bonus
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<PAGE> 16
upon the closing of our initial public offering. Mr. Tomechko is eligible to
receive an annual performance bonus of up to 60% of his base salary if we
achieve certain operating objectives under the terms of his employment
agreement. In connection with his initial employment with us and his relocation
to Minnesota, we advanced Mr. Tomechko $62,500 pursuant to a promissory note.
The note bears interest at an annual rate of 7.75% beginning December 1999 and
matures in December 2001. Mr. Tomechko is required to pay interest on the note
and repay principal in an amount equal to the appraised increase in the value of
his residence at December 2001.
Mr. Wise's terms of employment are contained in an offer letter executed by
him on February 16, 1999. Mr. Wise's annual base salary is $125,000. Mr. Wise is
eligible to receive an annual performance bonus of up 30% of his base salary if
we achieve certain operating objectives. Mr. Wise received a termination
agreement in April 1999, that provides Mr. Wise with a cash severance payment
equal to six months' salary if his employment is terminated, his status with
NetRadio adversely changes or his salary is substantially reduced in connection
with a change in control of NetRadio. Also, in February 1999, Mr. Wise executed
a stock option agreement with NetRadio, that provides that if he is terminated
without cause, his stock options will immediately become fully vested.
The term of Mr. Pederson's agreement commenced on August 1, 1998 and ends
on July 31, 2000. Mr. Pederson's annual base salary increased to $140,000 upon
the closing of our initial public offering. Mr. Pederson received a one-time
$10,000 bonus upon the closing of our initial public offering. Under his
employment agreement, Mr. Pederson is also eligible to receive an annual
performance bonus of up to 40% of his base salary, if we achieve certain
operating objectives
The term of Mr. Witzig's employment agreement commenced on August 1, 1998
and ends on July 31, 2000. Mr. Witzig's annual base salary increased to $130,000
upon the closing of our initial public offering. Mr. Witzig received a one-time
$10,000 bonus upon the closing of this offering. Mr. Witzig is also eligible to
receive an annual performance bonus of up to 40% of his base salary, if we
achieve certain operating objectives. If the employment of Witzig is not renewed
at the end of the term of his employment agreement, except for cause, then his
option to purchase 75,000 shares of common stock will be immediately exercisable
in full.
Ms. Kielty's terms of employment are contained in an offer letter executed
by her on February 12, 1999. Ms. Kielty's annual base salary is $108,000. Ms.
Kielty is eligible to receive an annual performance bonus of up to 30% of her
base salary if we achieve certain operating objectives. Ms. Kielty received a
termination agreement in February 1999 that provides Ms. Kielty with a cash
severance payment equal to six months' salary if her employment is terminated,
her status with NetRadio adversely changes or her salary is substantially
reduced in connection with a change in control of NetRadio. Also, in February
1999, Ms. Kielty executed a stock option agreement with NetRadio, that provides
that if she is terminated without cause, her stock options will immediately
become fully vested.
In addition, the exercisability of options granted to executive officers is
accelerated in the event of a "change in control" over the Company (as such term
is defined in the stock option agreements entered into by the executive
officers).
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<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Caparro, Kalman and McCaffery served as members of our Compensation
Committee during 1999. Mr. McCaffery is Chief Executive Officer of ValueVision.
ValueVision has engaged in certain transactions with the Company, as
described below.
CERTAIN TRANSACTIONS
Under the terms of the stock purchase agreement by and among NetRadio,
ValueVision and Navarre, and based upon our total number of directors,
ValueVision has the right to elect the number of directors equal to its
proportionate share of ownership of NetRadio, rounded up to the next whole
number. ValueVision currently has the right to elect two directors of NetRadio.
ValueVision also has registration rights with respect to its shares of our
common stock, including the right to have 550,000 shares registered for resale
one year from the closing of our initial public offering, and the right to have
its remaining shares registered two years from the closing of our initial public
offering. ValueVision also has the right to have its shares included in other
registration statements filed by NetRadio.
In addition, under the terms of the March 1997 stock purchase agreement, if
NetRadio has revenues, other than from product sales, of at least $3,000,000 in
any rolling consecutive four quarter period, NetRadio has a one-time option for
a 12-month period to require ValueVision to purchase 4.95% of the outstanding
shares of common stock of NetRadio for $500,000. ValueVision similarly has the
right during this period to purchase 4.95% of the outstanding common stock of
NetRadio for $500,000. In connection with the initial offering, NetRadio and
ValueVision have terminated this right in exchange for ValueVision's purchase of
550,000 shares of common stock immediately prior to the closing of our initial
public offering for $500,000.
Fulfillment Agreement. In December 1998, we entered into a five year
fulfillment agreement with Navarre, under which we are required to fulfill our
customer purchase orders for identified products from Navarre before any other
fulfillment source may be utilized. The fulfillment agreement governs order
procedures, product returns, shipping procedures, payments and price lists. The
fulfillment agreement may be terminated by either party if, among other things,
we discontinue online sales of pre-recorded music or Navarre discontinues
fulfillment services to online customers. The amount paid by us for these
services for the year ended December 31, 1999, was $37,504. We believe the terms
of this agreement are at least as favorable as we could obtain from an unrelated
third party.
Separation Agreement. In March 1999, we entered into a separation
agreement with Navarre to be effective upon the closing of our initial public
offering. Under the separation agreement, Navarre and NetRadio separated the
accounting, finance, human resources and other administrative functions of
NetRadio and Navarre in the 45-day period following the closing of our initial
public offering. NetRadio paid Navarre $7,500 for services provided during the
transition period. In addition, concurrent with the closing of our initial
public offering, Navarre contributed to the capital of NetRadio $5,234,840 of
principal indebtedness owed by NetRadio to Navarre. In exchange for this
contribution, we have granted Navarre registration rights with respect to
600,000 shares of our common stock
15
<PAGE> 18
owned by Navarre. These registration rights are exercisable beginning six months
after the closing of our initial public offering. Navarre and NetRadio have also
agreed that for a period of four years from the date of the closing of our
initial public offering, Navarre will not directly or indirectly engage in the
Internet broadcasting of music and information or online retail sales of
entertainment-related products in substantially the same manner and format as
currently conducted by NetRadio. We have indemnification obligations to Navarre
and its affiliates under the separation agreement, including indemnification for
liability arising out of statements made in connection with our initial public
offering. Except for the contractual obligations set forth in the separation
agreement or other intercompany agreements, Navarre and NetRadio have agreed to
discharge all claims they may have against each other existing before the
closing of this offering. In connection with the execution of the separation
agreement, NetRadio and Navarre entered into a Multiple Advance Term Note. Under
the Note, NetRadio agreed to repay to Navarre all amounts advanced to NetRadio
beginning January 1, 1999 plus accrued interest on $5,234,840 of principal
indebtedness incurred through December 31, 1998. The Note bears interest at
midwest prime plus one half percentage point. The total amount of the Note is
due on June 1, 2001.
RATIFICATION OF INDEPENDENT AUDITORS
(PROPOSAL #2)
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2000 and recommends that
the shareholders ratify that appointment. Ernst & Young LLP has no relationship
with the Company other than that arising from its employment as independent
auditors. Representatives of Ernst & Young LLP will be present at the 2000
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
shareholders.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF THE COMMON
STOCK REPRESENTED AT THE 2000 ANNUAL MEETING IS REQUIRED TO RATIFY THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS. THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a shareholder to be presented at the next annual meeting
must be received at the Company's principal executive offices, Valley Gate
North, 10025 Valley View Road, Suite 190, Eden Prairie, Minnesota 55344, not
earlier than February 18, 2001 and not later than March 19, 2001.
By Order of the Board of Directors,
/s/ D.W. Pederson
Secretary
Dated: April 21, 2000
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<PAGE> 19
NETRADIO CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 18, 2000
3:30 p.m.
Hyatt Regency Hotel
1300 Nicollet Mall
Minneapolis, Minnesota
NETRADIO CORPORATION
RIVERPLACE EXPOSITION HALL
43 MAIN STREET, SOUTHEAST, SUITE 149
MINNEAPOLIS, MINNESOTA 55414 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF NETRADIO CORPORATION FOR
THE ANNUAL MEETING OF SHAREHOLDERS ON MAY 18, 2000.
The undersigned appoints Edward A. Tomechko and Michael P. Wise, and either of
them, the proxies of the undersigned, with full power of substitution in each,
to vote at the Annual Meeting of Shareholders to be held on May 18, 2000 and at
any adjournment or postponement thereof all of the undersigned's shares of
NetRadio Corporation common stock held of record on March 31, 2000 in the manner
indicated on the reverse side hereof, and with the discretionary authority to
vote as to any other matters that may properly come before such meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON
THE REVERSE SIDE.
This proxy, when properly signed, will be voted in the manner directed. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
See reverse for voting instructions
<PAGE> 20
\/ Please detach here \/
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<CAPTION>
<S><C>
1. Election of directors: 01 Charles E. Cheney 02 Cary L. Deacon / / Vote FOR / / Vote WITHHELD
all nominees from all nominees
(Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) in the box provided to the right.)
-------------------------------------------------
2. To ratify the appointment of Ernst &Young LLP, certified public accountants, as
independent auditors for NetRadio Corporation for the fiscal year ending / / For / / Against / / Abstain
December 31, 2000.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED
FOR EACH PROPOSAL.
Address Change? Mark Box / / Indicate changes below:
Dated: , 2000
---------------------------
------------------------------------------------
Signature(s) in Box
Please sign exactly as your name(s) appear on
Proxy. If held in joint tenancy, all persons
must sign. Trustees, administrators, etc.,
should include title and authority. Corporations
should provide full name of corporation and
title of authorized officer signing the proxy.
</TABLE>
