<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
CD WAREHOUSE, INC.
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[LOGO OF CD WAREHOUSE]
CD WAREHOUSE, INC.
1204 Sovereign Row
Oklahoma City, Oklahoma 73108
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 12, 2000
TO OUR STOCKHOLDERS:
The 2000 Annual Meeting of Stockholders of CD Warehouse, Inc., a Delaware
corporation (the "Company"), will be held at The Biltmore Hotel Oklahoma, I-40
and Meridian, Oklahoma City, Oklahoma, on May 12, 2000, at 10:00 a.m., local
time, for the following purposes:
1. To elect one director;
2. To consider a proposal to ratify the appointment of Ernst & Young LLP
as independent auditors of the Company for 2000; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Stockholders of record at the close of business on April 7, 2000, are
entitled to notice of and to vote at the Annual Meeting. A complete list of the
stockholders entitled to vote at the Annual Meeting will be available for
examination by any stockholder at the Company's executive offices, during
ordinary business hours, for a period of at least ten days prior to the Annual
Meeting.
The accompanying Proxy Statement contains information regarding the matters
to be considered at the Annual Meeting. For reasons outlined therein, the Board
of Directors recommends a vote "FOR" the matters being voted upon.
YOUR PROXY IS IMPORTANT TO ASSURE A QUORUM AT THE ANNUAL MEETING. WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE BE SURE THAT THE ENCLOSED
PROXY IS PROPERLY COMPLETED, DATED, SIGNED AND RETURNED WITHOUT DELAY IN THE
ENCLOSED ENVELOPE. IT REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ JERRY W. GRIZZLE
Jerry W. Grizzle,
Chairman of the Board of Directors,
President and Chief Executive Officer
Oklahoma City, Oklahoma
April 10, 2000
<PAGE>
CD WAREHOUSE, INC.
-------------
PROXY STATEMENT
-------------
ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 12, 2000
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of CD Warehouse, Inc., a Delaware corporation
(the "Company"), for use at the Annual Meeting of Stockholders of the Company
(the "Annual Meeting") to be held on the date, at the time and place and for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders,
and any adjournment of the Annual Meeting.
This Proxy Statement and accompanying form of proxy, along with the
Company's Annual Report for its fiscal year ended December 31, 1999, are first
being mailed to holders of the Company's common stock on or about April 10,
2000. Please refer to the Annual Report for financial information concerning
the activities of the Company.
The Board of Directors has established April 7, 2000, as the record date
(the "Record Date") to determine stockholders entitled to notice of and to vote
at the Annual Meeting. At the close of business on the Record Date, 3,660,295
shares of common stock were outstanding. Each share is entitled to one vote.
The holders of a majority of the outstanding common stock, present in person or
by proxy, will constitute a quorum for the transaction of business at the Annual
Meeting.
Each proxy that is properly signed, dated and returned to the Company in
time for the Annual Meeting, and not revoked, will be voted in accordance with
instructions contained therein. If no contrary instructions are given, proxies
will be voted "FOR" each of the proposals submitted to a vote of the
stockholders. You may revoke your proxy at any time prior to its exercise by
delivering a written notice of revocation or a later dated proxy to the
Secretary of the Company or, if you are present at the Annual Meeting, you may
revoke your proxy and vote in person.
Election of the director nominee will be by plurality vote. The Company's
Secretary will appoint an inspector of election to tabulate all votes and to
certify the results of all matters voted upon at the Annual Meeting. Votes
withheld from nominee for director, abstentions and broker non-votes will be
counted for purposes of determining whether a quorum has been reached. Votes
withheld from nominee for director and abstentions on proposals have the same
effect as votes against them. Broker non-votes have no effect on the outcome of
the election of director or other proposals.
The Company will bear the cost of soliciting the enclosed form of proxy.
In addition to solicitation by mail, officers, employees or agents of the
Company may solicit proxies personally, or by telephone, telegraph, facsimile
transmission or other means of communication. The Company will request banks
and brokers or other similar agents or fiduciaries to transmit the proxy
material to the beneficial owners for their voting instructions and will
reimburse them for their expenses in so doing.
1
<PAGE>
ELECTION OF DIRECTOR
(PROXY ITEM NO. 1)
Pursuant to provisions of the Company's Certificate of Incorporation and
Bylaws, the Board of Directors has fixed the number of directors at five. The
Company's Certificate of Incorporation and Bylaws provide for three classes of
directors serving staggered three-year terms, with each class to be as nearly
equal in number as possible. Effective January 4, 2000, Gary D. Johnson
resigned as a director of the Company, and the vacancy thus created has not been
filled. Accordingly, the Board of Directors currently consists of four
directors: Jerry W. Grizzle, Class 1 director with a term expiring at the 2000
annual meeting; Ronald V. Perry, Class 2 director with a term expiring at the
2001 annual meeting; and Robert O. McDonald and Christopher M. Salyer, Class 3
directors with terms expiring at the 2002 annual meeting. The Board of
Directors has nominated Jerry W. Grizzle for re-election as Class 1 director for
a term expiring at the 2003 annual meeting, and until his successor is elected
and qualified. Proxies cannot be voted for a greater number of persons than the
number of nominees named. Other directors who are remaining on the Board will
continue in office in accordance with their previous elections until the
expiration of their terms at the 2001 or 2002 annual meeting, as the case may
be.
The Board of Directors recommends a vote "FOR" the nominee for election to
the Board of Directors for the terms so specified.
It is the intention of the persons named in the enclosed form of proxy to
vote such proxy for the election of the nominee. The Board of Directors expects
that the nominee will be available for election but, in the event that nominee
is not so available, proxies received will be voted for a substitute nominee to
be designated by the Board of Directors.
INFORMATION REGARDING NOMINEE AND DIRECTORS
The following information is furnished for each person who is nominated for
election as a director or who is continuing to serve as a director of the
Company after the Annual Meeting.
Nominee for Election as Class 1 Director for Term Expiring in 2003
Jerry W. Grizzle, age 46, founded the Company in September 1996 and has
served as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company since that time. From 1984 to 1991, Mr. Grizzle was Vice
President and Treasurer of Sonic Corporation, a publicly held fast food
franchisor, and from 1991 to 1994, he owned and operated Orbit Finer Foods, a
privately owned Mexican food product manufacturer. For a four-month period in
1994, Mr. Grizzle served as President of Skolniks, Inc., a publicly held bagel
manufacturer ("Skolniks"). Mr. Grizzle resigned from Skolniks in October 1994
as a result of significant disagreements with the Board of Directors over
Skolniks' corporate practices; subsequent to Mr. Grizzle's resignation, Skolniks
was the subject of an involuntary Chapter 11 proceeding. Mr. Grizzle received
his B.S. degree in Accounting from Southwestern Oklahoma State University in
1976 and received an M.B.A. in 1983 from the University of Central Oklahoma. He
has completed the curriculum requirements for, and expects to receive, a Ph.D.
in Marketing at Oklahoma State University in 2000, and holds the rank of
Brigadier General in the Oklahoma Army National Guard.
Directors Not Standing for Re-election
Robert O. McDonald, age 62, has served as Chairman of the Board of
Directors and Chief Executive Officer of Capital West Securities, Inc., an
investment banking firm ("Capital West"), since May 1995. Capital West was the
managing underwriter for the Company's initial public offering in January 1997,
as well as a
2
<PAGE>
placement agent of a private placement of the Company's securities in June 1998.
See "Certain Transactions." From June 1994 to May 1995, Mr. McDonald was engaged
in managing his personal investments. Prior to June 1994, Mr. McDonald was
employed by Stifel Nicolaus & Co., Inc., where he served as Municipal Syndicate
Manager. Mr. McDonald also serves as a director of Avalon Correctional Services,
Inc., an Oklahoma-based public company providing private correctional services.
Mr. McDonald received his BBA from the University of Oklahoma in 1960.
Christopher M. Salyer, age 48, has been a member of the Board of Directors
since October 1996. Mr. Salyer is currently serving as the Chairman and Chief
Executive Officer of Medical Arts Laboratory, Inc., the nation's oldest
independent medical laboratory, and also serves as the Chairman of the Board of
Accel Financial Staffing, Inc., a temporary services company formed by Mr.
Salyer in April 1995. From February 1984 through December 1994, Mr. Salyer
served as the Chairman and Chief Executive Officer of National Check Cashers
Corporation, a retail financial services company. He received his B.B.A. degree
from Southern Methodist University in 1973 and received an M.B.A. in 1974 from
Babson College in Boston, Massachusetts. Mr. Salyer is a certified public
accountant.
Ronald V. Perry, age 50, a Director of the Company since October 1996, has
served since August 1986 as President and Chief Operating Officer of Prime Time
Travel, Inc., a travel agency specializing providing services to a corporate
client base. He has also served since 1985 as the President and Chief Operating
Officer of Prime Cut Restaurants, Inc., which owns and operates four
restaurants. Mr. Perry received his B.B.A. degree from Oklahoma State
University in 1971.
EXECUTIVE OFFICERS
The following information is furnished for each person, other than Jerry W.
Grizzle, who serves as an executive officer of the Company. Information about
Mr. Grizzle, who is also a director, is presented above under the heading
"Information Regarding Nominee and Directors-Nominee for Election as Class I
Director for Term Expiring in 2003."
David E. Broce, age 32, has served as Vice President-Company Store
Operations since March 1999. From May 1997 to March 1999, Mr. Broce was the
Company's Vice President of Franchise Services, and from January 1997 to May
1997, Mr. Broce served as the Company's Director of Marketing. From November
1993 to May 1997, Mr. Broce worked for the Company's predecessor, Compact Discs
International, Ltd., as the Director of Marketing. Mr. Broce received his B.A.
degree from the University of Texas in May 1991.
Michael E. Chionopoulos, age 35, has served as Vice President and General
Counsel since October 1998. From October 1995 to October 1998, Mr. Chionopoulos
was an associate with the law firm of Abowitz Rhodes & Dahnke. Prior to that
time, Mr. Chionopoulos was self-employed and of counsel with the firm of Joseph
J. Reinke and Associates. Mr. Chionopoulos received his J.D. from Oklahoma City
University in May 1992 and his B.A. from Midwestern State University, Wichita
Falls, Texas in May 1988. Mr. Chionopoulos also currently serves in the
Oklahoma Army National Guard as the Deputy Staff Judge Advocate for the 45th
Infantry Brigade.
Patrick S. DiFazio, age 33, has served as Vice President-Company Store
Operations and as President of Compact Discs Management, Inc., a wholly owned
subsidiary of the Company, since March 1999. From January 1997 to March 1999,
he served as General Manager of Company Stores. For over five years prior to
that time, Mr. DiFazio was the District Manager of a CD Warehouse franchisee.
Mr. DiFazio received his B.A. and B.B.A. degrees from Southern Methodist
University in May 1989.
3
<PAGE>
Doyle E. Motley, age 45, has served as the Senior Vice President and Chief
Financial Officer of the Company since its inception. From 1995 to 1996, Mr.
Motley served as an internal auditor for Bob Moore Financial Group, a multi-
state auto dealership. Prior to that, from 1991 to 1994, Mr. Motley served as
Chief Financial Officer of Orbit Finer Foods. For a four-month period in 1994,
Mr. Motley served as Chief Financial Officer of Skolniks. Mr. Motley resigned
from Skolniks in October 1994 as a result of significant disagreements with the
Board of Directors over Skolniks' corporate practices; subsequent to Mr.
Motley's resignation, Skolniks was the subject of an involuntary Chapter 11
proceeding. Mr. Motley received his Bachelors of Accountancy degree from the
University of Oklahoma in 1977. Mr. Motley is a certified public accountant.
David S. Race, age 32, began serving the Company as Vice President of
Franchise Services in March 1999. Mr. Race was the Senior Manager of Field
Operations for Grow Biz International, Inc. from June 1996 to March 1999 and,
prior to that time, served as a Regional Operations Manager for Target Stores,
Inc., a division of Dayton Hudson Corporation. Mr. Race received his B.A.
degree from the University of Michigan in 1987.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held eight meetings during the Company's fiscal year
ended December 31, 1999. The Board of Directors has a standing compensation and
audit committee. It does not have a standing nominating committee.
The duties of the Compensation Committee are to determine the salaries,
bonuses and other remuneration of the executive officers. The Compensation
Committee may make recommendations to the Board of Directors with respect to the
Company's compensation policy. Mr. Salyer serves as Chairman of the
Compensation Committee and Mr. Perry comprises the remaining Committee member.
The Compensation Committee held one meeting during the fiscal year ended
December 31, 1999.
The Audit Committee recommends engagement of the Company's independent
auditors, reviews the scope of the audit and considers comments made by the
independent auditors with respect to the Company's internal control structure,
including systems, procedures and internal accounting controls in order to
ensure that adequate internal controls and procedures are maintained. During
1999, the Audit Committee was composed of Mr. Salyer and Mr. Perry and met one
time.
Each director attended at least 75% of the total number of Board and
committee meetings held while serving as a director or committee member during
fiscal year 1999.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Security Ownership
The following table sets forth certain information concerning beneficial
ownership of the Company's common stock as of March 20, 2000 (except as
otherwise indicated), by (i) each person (including any "group" as used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who is
known by the Company to own beneficially more than 5% of the Company's common
stock, (ii) each director and the five most highly compensation executive
officers of the Company, and (iii) all directors and executive officers as a
group. Unless otherwise noted, the persons named below have sole voting and
investment power with respect to such shares.
4
<PAGE>
<TABLE>
<CAPTION>
Common Stock
----------------------------------
Number of Percent of
Beneficial Owner Shares Class(1)
---------------- ----------- -----------
<S> <C> <C>
Jerry W. Grizzle*(2) 349,147 (3) 9.39%
Gary D. Johnson (4) 160,934 (4) 4.21%
Doyle E. Motley (2) 116,167 (5) 3.10%
Robert O. McDonald*(2) 99,565 (6) 2.66%
Ronald V. Perry*(2) 33,300 (7) (9)
Christopher M. Salyer*(2) 43,000 (7) 1.16%
Entities affiliated with Formula Growth Limited
1010 Sherbrook Street W., Suite 1409
Montreal, Quebec H3A 2R7 686,000 (8) 18.74%
All executive officers and directors as a group (9 persons) 683,049 (10) 17.10%
</TABLE>
- ------------------------
* Director
(1) Percent of class for any stockholder listed is calculated without regard to
shares of common stock issuable to others upon exercise of outstanding stock
options or subscriptions for common stock. Any shares a stockholder is
deemed to own by having the right to acquire by exercise of an option or by
subscription are considered to be outstanding solely for the purpose of
calculating that stockholder's ownership percentage. The Company computed
the percentage ownership amounts in accordance with the provisions of Rule
13d-3(d), which includes as beneficially owned all shares of common stock
which the person or group has the right to acquire within the next 60 days.
(2) Address is c/o 1204 Sovereign Row, Oklahoma City, Oklahoma 73108.
(3) Includes options to purchase 59,334 shares of common stock which are
presently exercisable by the named individual or that become exercisable
within 60 days of March 20, 2000.
(4) Mr. Johnson, whose address is 33505 Lake Road, Shawnee, Oklahoma 74801,
resigned as Director and Executive Vice President and Chief Operating
Officer effective January 4, 2000. Share shown as beneficially owed by Mr.
Johnson include options to purchase 59,334 shares of common stock which are
presently exercisable by the named individual or that become exercisable
within 60 days of March 20, 2000.
(5) Includes options to purchase 90,667 shares of common stock which are
presently exercisable by the named individual or that become exercisable
within 60 days of March 20, 2000.
(6) Shares shown as beneficially owned by Mr. McDonald include: (a) 26,250
common stock purchase warrants granted to the underwriters of the Company's
initial public offering in January 1997, having an exercise price of $7.50
per share; (b) 43,315 common stock purchase warrants granted to the
placement agents of the May 1998 private placements effected pursuant to
Regulation D and Regulation S of the Securities Act of 1933, as amended
(the "Securities Act"), having an exercise price of $10.00 per share; (c)
options to purchase 20,000 shares of common stock which are presently
exercisable by the named individual or that become exercisable within 60
days of March 20, 2000, granted to Mr. McDonald in his capacity as a
director of the Company; (d) 5,000 shares owned directly by Mr. McDonald;
and (e) 5,000 shares owned by his IRA. Mr. McDonald is a majority
stockholder of Affinity Holdings Corporation, the sole stockholder of
Capital West, which holds 18,900 of the underwriters' warrants included in
(a) and 24,365 of the placement agents' warrants included in (b). See
"Executive Compensation-Certain Transactions."
(7) Includes options to purchase 32,000 shares of common stock which are
presently exercisable by the named individual or that become exercisable
within 60 days of March 20, 2000.
(8) According to two separate Schedule 13D/A's dated January 11, 1999, Formula
Growth Limited shares voting and investment power over all of the shares
indicated as beneficially owned by it with two mutual funds for which it
acts as investment manager, Formula Growth Fund and Formula Unit Trust.
Formula Growth Fund indicated in its Schedule 13D/A that it beneficially
owned 300,000 of the shares, and Formula Unit Trust indicated in its
Schedule 13D/A that it beneficially owned 409,300 of the shares.
Subsequently, the Company was informed that Formula Unit Trust had sold
23,300 shares.
5
<PAGE>
(9) Amount represents less than 1% of the Company's outstanding shares of
common stock.
(10) Includes 333,566 shares of common stock which directors and executive
officers as a group have a right to acquire by exercise of options or
warrants granted to individuals within the group and which are currently
exercisable within the meaning of Rule 13d-3(d).
Compliance with Section 16(a) Beneficial Ownership Reporting Requirements
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and any persons who own
more than 10% of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission ("SEC") and Nasdaq reports of
ownership and subsequent changes in ownership of common stock and other
securities of the Company. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on review of the copies of
such reports furnished to the Company or written representations that no other
reports were required, the Company believes that during 1999 all filing
requirements appplicable to its officers, directors and greater than 10%
beneficial owners were met.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the last three fiscal years, the cash
compensation paid by the Company to (i) the Chief Executive Officer and (ii) the
other executive officers who earned in excess of $100,000 during fiscal 1999
(together with the Chief Executive Officer, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------------ ------------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options (#)(1) Compensation
--------------------------- -------- ------------ --------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Jerry W. Grizzle 1999 $150,000 $25,000 10,000 --
President and Chief Executive Officer 1998 128,692 -- 10,000 --
1997 93,462 -- 56,000 --
Gary D. Johnson 1999 115,000 25,000 10,000 --
Executive Vice President and Chief Operating Officer 1998 105,577 -- 10,000 --
1997 83,077 -- 56,000 --
Doyle E. Motley 1999 115,000 25,000 10,000 --
Senior Vice President and Chief Financial Officer 1998 94,615 -- 10,000 --
1997 60,000 -- 106,000 --
</TABLE>
- ------------------
(1) Options are granted with an exercise price equal to the fair market value of
the common stock on the date of the grant.
6
<PAGE>
Stock Options Granted in Fiscal 1999
The following table contains information concerning the grant of stock
options during the year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS DURING LAST FISCAL YEAR
Individual Grants
-------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or Base
Options Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) Date
---- -------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Jerry W. Grizzle 10,000 (1) 7.49% (2) $8.875 5/07/09
Gary D. Johnson 10,000 (1) 7.49% (2) $8.875 5/07/09
Doyle E. Motley 10,000 (1) 7.49% (2) $8.875 5/07/09
</TABLE>
- ---------------------
(1) Pursuant to the CD Warehouse, Inc. Amended 1996 Stock Option Plan, each of
the Named Executive Officers received a grant of nonqualified stock options
in May 1999. The options expire in May 2009 and have an exercise price of
$8.875 per share, which was equal to the per share public offering price of
the Company's common stock on the grant date. Each of the Named Executive
Officers must continue to hold office as a Director of the Company until
the 2000 Annual Meeting before he can exercise any part thereof.
(2) All options granted under the Amended 1996 Stock Option Plan are
nonqualified stock options. During 1999, an aggregate of 133,550 options
were granted under such plan. Options granted to employees other than
employee directors generally become exercisable after one year from the
date of grant. Options granted to directors under the annual grant
provisions of the Amended 1996 Stock Option Plan, whether or not employees,
vest on the next annual stockholders' meeting following the date of grant,
generally resulting in a vesting period of approximately one year. Options
also become exercisable in the event of a change of control of the Company.
Options generally have a term of ten years following the date of grant,
unless sooner terminated in accordance with the terms of such plan.
Fiscal Year End Option Values
The following table sets forth certain information regarding outstanding
options granted under the Amended 1996 Stock Option Plan held by the Named
Executive Officers on December 31, 1999. During 1999, the Named Executive
Officers did not exercise any options, nor were any outstanding options repriced
by the Company. For the purposes of this table, the "value" of an option is the
difference between the market value at December 31, 1999 of the shares of common
stock subject to the option and the aggregate exercise price of such option.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1999 December 31, 1999 (1)
------------------------------------------ -------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------ ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Jerry W. Grizzle, Chairman, President and
Chief Executive Officer 59,334 16,666 -0- -0-
Gary D. Johnson, Executive Vice President
and Chief Operating Officer 59,334 16,666 -0- -0-
Doyle E. Motley, Senior Vice President and
Chief Financial Officer 90,667 35,333 $500 $250
- ----------------------
</TABLE>
(1) Based on the December 31, 1999 closing price of the Company's common stock
of $3.25 per share.
7
<PAGE>
Employment Agreements
The Company has employment agreements with each of the Named Executive
Officers except for Mr. Johnson, who resigned all positions held with the
Company and its subsidiaries effective January 4, 2000. Mr. Grizzle's
employment agreement has an initial five-year term commencing on January 27,
1997, the closing date of the Company's initial public offering, and
automatically renews for additional five-year terms unless terminated by either
the Company or Mr. Grizzle; Mr. Motley's employment agreement has an initial
one-year term commencing on January 27, 1997, and automatically renews for
additional one-year terms unless terminated by either the Company or Mr. Motley.
Under the respective agreements, Mr. Grizzle currently receives an annual salary
of $120,000 and Mr. Motley currently receives an annual salary of $92,000. In
addition, each of the Named Executive Officers may be entitled to receive
incentive compensation consisting of an annual bonus if certain individual and
Company objectives are achieved. During the term of the respective agreements,
the Named Executive Officers may be terminated only for "cause," defined under
the agreement to include: the conviction of a felony; the perpetration of a
fraud, or misappropriation or embezzlement of property of the Company; willful
misconduct with respect to such officer's duties or obligations under his
employment agreement; or intentional or continual neglect of duties. During the
term of employment and for two years subsequent thereto, the Named Executive
Officer is prohibited from directly or indirectly, for his own benefit or on
behalf of others, competing, or becoming an officer, director, employee or
holder of more than 5% of the capital stock or other equity interest of any
corporation or other entity which competes, with the Company or any of its
subsidiaries. Such limitation extends to all geographic areas in which Company
conducts business at the date of the Named Executive Officer's termination of
employment. The agreement also contains a provision prohibiting such person,
subsequent to termination of employment, from disclosing to third parties
proprietary information relating to the Company.
Directors' Compensation
During the fiscal year ended December 31, 1999, directors who were not
officers of the Company were paid $1,000 for each meeting attended.
Additionally, all directors received an automatic grant of 10,000 options under
the Company's Amended 1996 Stock Option Plan. All options were granted with an
exercise price equal to the fair market value of the common stock on the date of
grant. See "-Stock Options Granted in Fiscal 1999."
Certain Transactions
Robert O. McDonald, a director of the Company, also serves as Chairman of
the Board of Directors and Chief Executive Officer of Capital West. Capital
West acted as managing underwriter of the Company's initial public offering in
January 1997 and, in connection therewith, received approximately $208,000 in
discounts, commissions, and non-accountable expense allowances, as well as
warrants to purchase 50,000 shares of common stock. The warrants are
exercisable at a price equal to 150% of the initial public offering price for a
period of four years commencing January 22, 1998. The warrants, which are
assignable, grant to the holders thereof, with respect to the registration under
the Securities Act of the securities directly and indirectly issuable upon
exercise of the warrants, one demand registration right during the exercise
period, as well as piggyback registration rights at any time. Of the 50,000
warrants received by Capital West, an aggregate of 31,100 warrants have been
assigned to third parties, including 7,350 warrants to Mr. McDonald. In May
1998, Capital West and another investment banker acted as placement agents for a
private placement of the Company's securities and received, in connection with
their services as placement agents, (i) discounts and commissions of 8.0% of the
gross proceeds of the offering (an aggregate $1,299,440), and (ii) an aggregate
162,430 common stock purchase warrants, which entitle the holders thereof to
purchase common stock at an exercise price of $10.00 per share on and after the
first anniversary of the closing of the offering (June 1999) and expiring on the
fifth anniversary of the closing. Of the 162,430 warrants, an aggregate 43,315
warrants are beneficially owned by Mr. McDonald, including 24,365 warrants
issued to Capital West.
8
<PAGE>
All future and ongoing transactions between the Company and its directors,
officers, principal stockholders or affiliates will be on terms no less
favorable to the Company than may be obtained from unaffiliated third parties,
and any such transactions will be approved by a majority of the disinterested
directors of the Company.
RATIFICATION OF INDEPENDENT AUDITORS
(PROXY ITEM NO. 2)
The Board of Directors has selected the firm of Ernst & Young LLP as
auditors to make an examination of the consolidated financial statements of the
Company for the year ending December 31, 2000. The Company has been informed
that Ernst & Young LLP will have representatives at the Annual Meeting who will
have an opportunity to make statements if they desire to do so and who will be
available to respond to appropriate questions.
The Board of Directors recommends you vote FOR the ratification of the
selection of Ernst & Young LLP as independent auditors for the ensuing year.
STOCKHOLDER PROPOSALS
At the annual meeting each year, the Board of Directors submits to
stockholders its nominees for election as directors. In addition, the Board of
Directors may submit other matters to the stockholders for action at the annual
meeting.
Stockholders of the Company also may submit proposals for inclusion in the
proxy material. These proposals must meet the stockholder eligibility and other
requirements of the Securities and Exchange Commission. In order to be included
in the Company's 2001 proxy material, a stockholder's proposal must be received
not later than December 8, 2000 by the Company at 1204 Sovereign Row, Oklahoma
City, Oklahoma 73108, Attention: Secretary.
In addition, the By-Laws provide that in order for business to be brought
before a stockholders' meeting, a stockholder must deliver written notice to or
mailed and received at the principal executive offices of the Company not less
than forty (40) days prior to the Annual Meeting; provided, however, that in the
event less than forty-five (45) days' notice or prior public disclosure of the
date of the Annual Meeting is given or made to stockholders, notice by the
stockholder must be so received not later than the fifth day following the day
on which such notice of the date of the Annual Meeting was mailed or such
disclosure was made, but not less than five days prior to the Annual Meeting. A
stockholder's notice to the Secretary shall set forth (a) a brief description of
the business to be brought before the Annual Meeting and the reasons for
conducting such business at the Annual Meeting, (b) the name and address, as
they appear on the Company's books, of the stockholder proposing such business,
(c) the class and number of shares of the Company which are beneficially owned
by the stockholder, (d) any material interest of the stockholder in such
business, and (e) a representation that the stockholder intends to appear at the
meeting in person or by proxy to submit the business specified in such notice.
Notwithstanding anything in the By-Laws to the contrary, no business shall be
conducted at a meeting except in accordance with the procedures set forth in the
By-Laws. The chairman of the Annual Meeting shall, if the facts warrant,
determine that business was not properly brought before the Annual Meeting and
in accordance with the provisions of Article II, Section 12 of the By-Laws, and
if he should so determine, he shall so declare to the Annual Meeting and any
such business not properly brought before the Annual Meeting shall not be
transacted.
9
<PAGE>
In addition, nominations for the election of directors shall be made by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if timely notice of such stockholder's intent to
make such nomination or stockholder's notice is delivered to or mailed and
received at the principal executive offices of the Company not fewer than forty
(40) days prior to the Annual Meeting, provided, however, that in the event that
less than forty-five (45) days' notice or prior public disclosure of the date of
the Annual Meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received no later than the close of business on the
tenth day following the day on which such notice of the date of the Annual
Meeting was mailed or such public disclosure was made. Each notice shall set
forth (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the Company entitled to
vote for the election of directors on the date of such notice and intends to
appear in person or by proxy at the Annual Meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholders as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected.
If the chairman of the Annual Meeting for the election of directors
determines that a nomination of any candidate for election as a director at such
meeting was not made in accordance with the applicable provisions of Article
III, Section 4 of the By-Laws, such nomination shall be void.
OTHER MATTERS
The Company's management does not know of any matters to be presented at the
Annual Meeting other than those set forth in the Notice of Annual Meeting of
Stockholders. However, if any other matters properly come before the Annual
Meeting, the persons named in the enclosed proxy intend to vote the shares to
which the proxy relates on such matters in accordance with their best judgment
unless otherwise specified in the proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bruce W. Day
April 10, 2000 Bruce W. Day, Secretary
10
<PAGE>
------------
CD WAREHOUSE, INC. SEE
Oklahoma City, Oklahoma REVERSE
SIDE
------------
PROXY/VOTING INSTRUCTION CARD
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting of Stockholders on May 12, 2000.
The undersigned hereby appoints Jerry W. Grizzle and Doyle E. Motley, or either
of them, as proxies, each with full power of substitution, to attend the Annual
Meeting of Stockholders of CD WAREHOUSE, INC., to be held on May 12, 2000, at
10:00 a.m., local time, and at any adjournments thereof, and to vote as
specified in this Proxy all the shares of stock of the Company which the
undersigned would be entitled to vote if personally present.
P
1. Your vote for the election of Class 1 Director, nominee Jerry W.
R Grizzle, may be indicated on the reverse.
O 2. Your vote to ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for 2000 may be indicated on the reverse.
X
Your vote is important! Please sign and date on the reverse and return
Y promptly in the enclosed postage paid envelope.
Change of Address and/or Comments:
------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(If you have written in the above space, please mark the "Comments" box on the
reverse of this card.)
<PAGE>
[X] Please mark your
votes as in this example.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTIONS ARE INDICATED, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
The Board of Directors recommends a vote FOR Proposals 1 and 2
<TABLE>
<S> <C> <C> <C>
FOR WITHHELD
1. Election of Director (see reverse) [_] [_]
FOR AGAINST ABSTAIN
2. Ratify appointment of Ernst & Young LLP (see reverse) [_] [_] [_]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
[_] Change of Address and Comments on Reverse Side Note: Please sign exactly as name appears on this card. Joint
Owners should each sign personally. Corporation proxies should
be signed by an authorized officer. Executors, administrators,
trustees, etc. should so indicate when signing.
--------------------------------------------------------------
--------------------------------------------------------------
SIGNATURE(S) DATE
</TABLE>
