<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 Rule 14a-11(c) or Rule 14a-12
VALLEY MEDIA, 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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OF VALLEY MEDIA]
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 11, 2000
----------------
To the Stockholders
of Valley Media, Inc.:
The Annual Meeting of the Stockholders of Valley Media, Inc. (the "Company")
will be held at the Heidrick Ag History Center, 1962 Hays Lane, Woodland,
California on Friday, August 11, 2000, at 10:00 a.m. Pacific Daylight Time for
the following purposes:
1. To elect two directors to serve for a three-year term or until their
successors have been elected and qualified.
2. To approve an amendment to the Company's Amended and Restated 1997
Stock Option Plan increasing the number of shares that may be issued
pursuant to awards granted under the plan.
3. To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for fiscal 2001.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on June 15, 2000 are
entitled to notice of, and to vote at, the meeting and any adjournment or
postponement thereof. In accordance with Delaware law, a list of the Company's
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose germane to the meeting during normal
business hours at the Company's offices at 1280 Santa Anita Court, Woodland,
California 95776, for ten days prior to the meeting.
By Order of the Board of Directors
Sachin Adarkar
Secretary
June 22, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.
<PAGE>
VALLEY MEDIA, INC.
----------------
PROXY STATEMENT
----------------
The accompanying proxy is solicited on behalf of the Board of Directors (the
"Board") of Valley Media, Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of the Stockholders of the Company, to be held at the
Heidrick Ag History Center, Woodland, California on August 11, 2000, at 10:00
a.m. Pacific Daylight Time, and at any adjournment or postponement thereof (the
"Annual Meeting" or "Meeting"), for the reasons set forth in the accompanying
Notice of Annual Meeting of Stockholders. Only stockholders of record at the
close of business on June 15, 2000 are entitled to notice of, and to vote at,
the Annual Meeting. On that date, the Company had outstanding 8,453,291 shares
of common stock. Holders of common stock are entitled to one vote for each
share held.
If the enclosed form of proxy is properly signed and returned, the shares
that the proxy represents will be voted at the Annual Meeting in accordance
with the instructions specified on the proxy. If the proxy does not specify how
the shares are to be voted or withhold authority to vote on any matter, the
proxy will be voted FOR the election of the two directors proposed by the
Board, FOR an amendment to the Company's Amended and Restated 1997 Stock Option
Plan (the "Plan") increasing the number of shares that may be issued pursuant
to awards granted under the Plan and FOR the ratification of Deloitte and
Touche LLP as independent auditors of the Company for fiscal 2001. Any
stockholder signing a proxy in the form accompanying this Proxy Statement has
the power to revoke it prior to or at the Meeting. A proxy may be revoked by a
writing delivered to the Secretary of the Company stating that the proxy is
revoked, by a subsequent proxy signed by the person who signed the earlier
proxy or by attendance at the Meeting and voting in person. Votes will be
tabulated by the inspector of elections of the Meeting.
A majority of the shares entitled to vote, represented in person or by
proxy, constitutes a quorum. If a quorum is present, (i) a plurality vote of
the shares present, in person or by proxy, at the Meeting and entitled to vote
is required for the election of directors and (ii) the affirmative vote of the
majority of the shares present, in person or by proxy, at the Meeting and
entitled to vote is required for the approval of the amendment to the Amended
and Restated 1997 Stock Option Plan and for the ratification of the selection
of Deloitte & Touche LLP as independent auditors of the Company for fiscal
2001. Abstentions are considered shares present and entitled to vote, and
therefore have the same legal effect as a vote against a matter presented at
the Meeting. Broker non-votes are considered as shares not entitled to vote
with respect to a matter, but are counted toward the establishment of a quorum.
The expense of soliciting proxies will be paid by the Company. The Company
anticipates that the amount of such expense will not exceed the amount normally
expended for an election of directors in the absence of a contest, including
the costs represented by salaries and wages of regular employees and officers.
Following the original mailing of the proxies and soliciting materials,
employees of the Company may solicit proxies by mail, telephone, facsimile
transmission and personal interviews. The Company will request brokers,
custodians, nominees and other record holders to forward copies of the proxies
and soliciting materials to persons for whom they hold shares of the Company's
common stock and to request authority for the exercise of proxies; in such
cases, the Company may reimburse such holders for their reasonable expenses.
This Proxy Statement was first mailed to stockholders on or about June 30,
2000.
1
<PAGE>
ITEM 1:
ELECTION OF DIRECTORS
Nominees
Directors of the Company are elected to serve three-year terms on the Board.
At the Annual Meeting two directors will be elected, each to hold office until
a successor is elected and qualified, or until the death, resignation or
removal of the director. The two persons whom the Board has nominated are
Barnet J. Cohen and Christopher Mottern. Shares represented by the accompanying
proxy will be voted for the election of these two nominees unless the proxy is
marked in such a manner as to withhold authority so to vote. The Company has no
reason to believe that the nominees for election will not be available to serve
their prescribed terms. However, if any nominee is for any reason unable to
serve or will not serve, the proxy may be voted for such substitute nominee as
the persons appointed in the proxy may in their discretion determine.
Directors and Nominees for Election at the 2000 Annual Meeting
Barnet J. Cohen, 53, is the founder of the Company and has been Chairman of
the Board from its formation. He served as Chief Executive Officer from March
1979 until December 1997, and has served as acting Chief Executive Officer
since June 2000.
Christopher Mottern, 56, is a member of the Board of Directors, chairman of
the Audit Committee and a member of the Compensation Committee. He has been a
member of the Board since March 1997. Mr. Mottern has served as the President
and Chief Executive Officer of Peet's Coffee and Tea, Inc. since May 1997.
Mr. Mottern served as President of Heublein Wines from July 1992 to September
1996.
Directors Whose Terms Expire at the 2001 Annual Meeting
Wendy Paskin-Jordan, 43, has been a member of the Board since December 1998.
She became a member of the Audit and Compensation Committees in May 1999. Ms.
Paskin-Jordan has served as principal of Paskin & Kahr Capital Management, an
investment management firm, since August 1998, and as principal of Jordan &
Torres LLC, a consulting firm, since August 1998. From January 1995 to July
1998 she served as a Managing Director and Partner for Montgomery Asset
Management.
James Sha, 46, is a member of the Board of Directors and a member of the
Audit Committee. He has been a member of the Board since June 1998. Mr. Sha has
served as a general partner of Apogee Venture Group, LLC, an investment and
management-consulting firm, since October 1998. He served as Senior Vice
President of Commerce Applications for Netscape Communications Corporation from
August 1998 to October 1998, and as Vice President, Unix Division, for Oracle
Corporation from June 1990 to August 1998. Mr. Sha is a director of Abovenet
Communications Inc.
Directors Whose Terms Expire at the 2002 Annual Meeting
Robert R. Cain, 46, served as the Company's President from January 1993 to
May 2000 and as its Chief Executive Officer from December 1997 to May 2000. Mr.
Cain has been a member of the Board of Directors since February 1995.
Lawrence Archibald, 54, is a member of the Board of Directors and chairman
of the Compensation Committee. He has been a member of the Board since March
1997. Mr. Archibald owned and operated Stereophile, Inc., which published a
variety of music reference magazines, from March 1982 to June 1998, when
Stereophile sold substantially all of its assets to Valley Media, Inc.
Committees of the Board of Directors
The Board met a total of five times in fiscal 2000. The Board currently has
two committees, the Audit Committee and the Compensation Committee. The Company
does not have a nominating committee. The Audit
2
<PAGE>
Committee selects the firm to be appointed as independent accountants to audit
the Company's financial statements, discusses the scope and results of the
audit with the independent accountants, reviews the Company's interim and year-
end operating results with management and the independent accountants,
considers the adequacy of the internal accounting controls and audit procedures
of the Company and reviews the non-audit services to be performed by the
independent accountants. The members of the Audit Committee are Messrs. Mottern
and Sha and Ms. Paskin-Jordan. Mr. Mottern is the chairman of the Audit
Committee. The Audit Committee met three times in fiscal 2000. The Compensation
Committee reviews and recommends the compensation arrangements for management
of the Company and administers the Company's stock option plans. The members of
the Compensation Committee are Messrs. Archibald and Mottern and Ms. Paskin-
Jordan. Mr. Archibald is the chairman of the Compensation Committee. The
Compensation Committee met four times in fiscal 2000.
During fiscal 2000, Mr. Sha attended fewer than 75% of the aggregate of (1)
the total number of meetings of the Board of Directors held and (2) the total
number of meetings held by all committees of the Board on which he served. Each
of the remaining directors attended at least 75% of the aggregate of the total
number of meetings of the Board and the total number of meetings held by all
committees on which such director served during fiscal 2000.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was formed in March 1997. Two of the original
Committee members, Mr. Archibald, who is the chairman of the Committee, and Mr.
Mottern, are not and have never been officers or employees of the Company. Mr.
Cohen, who originally was the third member of the Committee, has been Chairman
of the Company since its formation and served as the Company's Chief Executive
Officer from March 1979 to December 1997 and as the acting Chief Executive
Officer from June 2000. In May 1999, Mr. Cohen was replaced by Ms. Paskin-
Jordan, who is not and has never been an officer or employee of the Company.
Compensation of Directors
Directors who are not currently employees of the Company receive (a) an
annual retainer of $5,000, payable quarterly, (b) $1,000 per Board meeting
attended and (c) $500 per committee meeting attended, if such meeting is held
separately from the Board meeting. In addition, non-employee directors are
reimbursed for reasonable expenses incurred in connection with attending each
Board meeting and are eligible to receive stock options under the Company's
Amended and Restated 1997 Stock Option Plan. During fiscal 2000, each director
other than Mr. Cain, was granted an option under the Plan to purchase 8,040
shares of common stock. The exercise price of the options granted to Messrs.
Archibald, Mottern, Sha and Ms. Paskin-Jordan was $7.125 per share, which
represented the fair market value of the common stock as of the date of grant.
The exercise price of the option granted to Mr. Cohen was $7.838 per share,
which represented 110% the fair market value of the common stock as of the date
of grant. Each of these options was fully vested as of the date of grant.
3
<PAGE>
Executive Compensation
The following table sets forth information as to compensation paid or
accrued by the Company for fiscal 2000, 1999 and 1998 to its Chief Executive
Officer and each of its five other most highly compensated executive officers,
including one executive officer who resigned from the Company in fiscal 2000
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term All Other
Annual Compensation Compensation Compensation($)
--------------------------------------- ------------ ------------------------
# of Stock
Other Annual Options
Name and Principal Position Year Salary($) Bonus($) Compensation($) Granted 401K($) ESOP($) Other($)
--------------------------- ---- --------- -------- --------------- ------------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barnet J. Cohen ........
Chairman of the Board 2000 $336,346 -- -- 8,040 $3,962 --
and acting Chief 1999 450,000 $ 60,480 -- -- 6,258 $1,600
Executive Officer 1998 406,923 166,263 -- -- 5,612 1,600
Robert R. Cain(1) ...... 2000 348,942 -- $4,041(2) 49,000 4,500 --
President and Chief 1999 321,692 187,081 -- 16,080 4,100 1,600
Executive Officer 1998 273,077 111,462 -- -- 4,366 1,600
Kenneth Alterwitz(3) ... 2000 165,462 -- -- 8,040 3,783 -- $306,237(4)
Senior Vice President, 1999 215,000 70,305 -- 8,040 4,929 1,600
Sales and Marketing 1998 192,712 62,860 14,153(5) 8,040 4,137 1,600
J. Randolph Cerf(6).....
Senior Vice President, 2000 207,807 -- -- 14,000 2,569 --
Chief Financial Officer 1999 165,462 47,700 -- 8,040 3,477 1,600
and Secretary 1998 152,000 38,000 -- 8,040 3,140 1,570
Melanie Cullen .........
Senior Vice President 2000 168,232 -- -- 28,040 3,736 --
and 1999 137,231 38,151 -- 8,040 3,315 1,600
Chief Operating Officer 1998 125,604 33,887 -- 8,040 2,672 1,336
John Kordic ............ 2000 155,154 -- -- 8,040 3,866 --
Senior Vice President, 1999 142,615 38,151 -- 8,040 3,006 1,600
Operations 1998 122,885 32,663 -- 8,040 1,754 1,269
</TABLE>
--------
(1) Mr. Cain resigned from his position as the Company's President and Chief
Executive Officer in May 2000.
(2) Represents premiums paid by the Company on a disability insurance policy.
(3) Mr. Alterwitz resigned from his position as the Company's Senior Vice
President, Sales and Marketing in December 1999.
(4) Represents amounts paid pursuant to a severance agreement between Mr.
Alterwitz and the Company and a separation and consulting agreement between
Mr. Alterwitz and the Company.
(5) Represents payment of sales commissions.
(6) Mr. Cerf resigned from his position as the Company's Senior Vice President,
Chief Financial Officer and Secretary in May 2000.
4
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning the number
and value of stock options granted to each of the Named Executive Officers in
fiscal 2000. Percentages of total options for individual grants are based on
an aggregate of options to purchase 302,160 shares of the common stock granted
to employees of the Company during fiscal 2000, including the Named Executive
Officers. The exercise price per share of each option was equal to at least
the fair market value of the common stock on the date of grant as determined
by the Board of Directors. Each such option vests with respect to 1/48 of the
shares of common stock underlying such option on the last day of each calendar
month, commencing with the month when the option was granted.
Potential realizable value is based on the assumption that the common stock
appreciates at the annual rate shown (compounded annually) from the date of
grant until the expiration of the five to ten year term. These numbers are
calculated based on Securities and Exchange Commission requirements and do not
reflect the Company's estimates of future stock price growth.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------- Potential realizable
Percent of value at assumed
Number of total annual rates of stock
securities options price appreciation
underlying granted to Exercise for option term
options employees in price Expiration ---------------------
Name granted fiscal 2000 ($/Sh) date 5% 10%
---- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barnet J. Cohen......... 8,040 2.7% $ 7.84 12/23/04 $ 10,094 $ 29,241
Robert R. Cain.......... 49,000 16.2% 14.94 6/18/09 460,327 1,166,559
Kenneth Alterwitz....... 8,040 2.7% 14.94 6/18/09 75,531 191,411
J. Randolph Cerf........ 14,000 4.6% 14.94 6/18/09 131,522 333,303
Melanie Cullen.......... 8,040 2.7% 14.94 6/18/09 75,531 191,411
20,000 6.6% 7.00 1/14/10 88,045 223,124
John Kordic............. 8,040 2.7% 14.94 6/18/09 75,531 191,411
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth, for each of the Named Executive Officers,
certain information concerning the exercise of stock options during fiscal
2000 and the year-end value of unexercised stock options.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Stock Options Held at In-the-Money Options at
Shares April 1, 2000 (#) April 1, 2000(1) ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barnet J. Cohen......... -- -- 8,040 -- -- --
Robert R. Cain.......... 10,000 $25,700 322,880 48,172 $1,016,241 --
Kenneth Alterwitz....... -- -- 47,733 -- 135,805 --
J. Randolph Cerf........ -- -- 75,946 18,454 221,089 $3,752
Melanie Cullen.......... -- -- 59,498 32,485 166,461 3,752
John Kordic............. -- -- 64,518 13,735 187,253 3,752
</TABLE>
--------
(1) The closing price of Valley Media, Inc. common stock on March 31, 2000,
the last trading day prior to Valley's fiscal year end, was $5.750.
Employment Agreements
On April 6, 1998, the Company entered into severance agreements with the
following executive officers:
. Robert Cain
. Kenneth Alterwitz
. J. Randolph Cerf
5
<PAGE>
. Melanie Cullen
. Paige Dickow
. John Kordic
. Ronald Phillips
Each severance agreement provides that the officer who is a party to that
agreement will be entitled to certain severance payments if his or her
employment is terminated constructively or without cause or he or she resigns
within 30 days after the first anniversary of a change in control of the
Company. Such severance payments could include payment of an amount equal to
twice the aggregate of the officer's annual salary immediately prior to the
termination of his or her employment and his or her target bonus for the year
in which such termination occurred.
Principal Stockholders
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of June 2, 2000, by (a) each person
who is known by the Company to own beneficially more than five percent (5%) of
the outstanding shares of common stock, (b) each director, (c) each of the
Named Executive Officers, and (d) all directors and executive officers as a
group. Except as otherwise indicated, the Company believes that each individual
or entity named has sole investment and voting power of the shares of common
stock beneficially owned by them, except for applicable community property
laws. The percentages beneficially owned have been calculated pursuant to Rule
13d-3(d) of the Securities Exchange Act of 1934. Under Rule 13d-3(d), shares
not outstanding that are subject to options, warrants, rights or conversion
privileges exercisable within 60 days of June 2, 2000 are counted as
outstanding for the purpose of calculating the number and percentage owned by
such person, but not counted as outstanding for the purpose of calculating the
percentage owned by any other person listed. Percentages beneficially owned are
based on shares of common stock outstanding as of June 2, 2000. With respect to
shares held in the Employee Stock Ownership Plan (the "ESOP"), allocated shares
are voted by the persons to whose account they are allocated. The ESOP trustees
have authority to direct the votes of unallocated shares and allocated shares
that are not voted by the person to whom they are allocated. All of the shares
held by the ESOP are currently allocated to individual accounts. An asterisk
indicates beneficial ownership of less than 1.0% of the outstanding shares of
common stock.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Name Owned Owned
---- ------------ ------------
<S> <C> <C>
Lawrence Archibald(1)............................... 70,518 *
Christopher Mottern(2).............................. 27,470 *
Wendy Paskin-Jordan(3).............................. 41,875 *
James Sha(4)........................................ 41,958 *
Kenneth Alterwitz(5)................................ 68,824 *
Robert R. Cain(6)................................... 423,363 4.8%
J. Randolph Cerf(7)................................. 118,714 1.4%
Barnet J. Cohen(8).................................. 3,189,920 37.7%
Melanie Cullen(9)................................... 74,133 *
John Kordic(10)..................................... 73,473 *
All Directors and Executive Officers as a Group (13
persons)(11)....................................... 4,272,794 46.0%
</TABLE>
--------
(1) Consists of 67,168 shares of common stock and exercisable options to
purchase 3,350 shares of common stock.
(2) Consists of 24,120 shares of common stock and exercisable options to
purchase 3,350 shares of common stock.
(3) Consists of 40,200 shares of common stock and exercisable options to
purchase 1,675 shares of common stock.
6
<PAGE>
(4) Consists of 40,200 shares of common stock and exercisable options to
purchase 1,758 shares of common stock.
(5) Consists of 20,100 shares of common stock, exercisable options to purchase
47,733 shares of common stock and 991 shares of common stock allocated to
Mr. Alterwitz's account under the ESOP.
(6) Consists of 83,728 shares of common stock, exercisable options to purchase
328,302 shares of common stock, and 11,333 shares of common stock
allocated to Mr. Cain's account under the ESOP.
(7) Consists of 39,120 shares of common stock, exercisable options to purchase
78,452 shares of common stock and 1,142 shares of common stock allocated
to Mr. Cerf's account under the ESOP.
(8) Consists of 3,094,966 shares of common stock and 94,954 shares of common
stock allocated to Mr. Cohen's account under the ESOP.
(9) Consists of 11,695 shares of common stock, exercisable options to purchase
60,258 shares of common stock and 2,180 shares of common stock allocated
to Ms. Cullen's account under the ESOP.
(10) Consists of 5,324 shares of common stock, exercisable options to purchase
66,528 shares of common stock and 1,621 shares of common stock allocated
to Mr. Kordic's account under the ESOP.
(11) Consists of 3,445,681 shares of common stock, exercisable options to
purchase 712,178 shares of common stock and 114,935 shares of common stock
allocated to the accounts of Messrs. Cohen, Cain, Cerf, Kordic and
Alterwitz and Ms. Cullen under the ESOP.
Report Of The Compensation Committee Of The Board Of Directors
The Company's Board of Directors formed a Compensation Committee in March
1997 (the "Committee"). The Committee members during fiscal 2000 were Lawrence
Archibald, who was the Committee's Chairman, Christopher Mottern, Barnet Cohen
and Wendy Paskin-Jordan. Messrs. Archibald and Mottern and Ms. Paskin-Jordan
have never been officers or employees of the Company. Mr. Cohen has been the
Chairman of the Board of Directors since the Company's formation and served as
the Company's Chief Executive Officer from March 1979 to December 1997 and the
Company's acting Chief Executive Officer since June 2000. At the time it formed
the Committee, the Board intended that all of the members of the Committee
would be outside (i.e., non-employee) directors after the Company completed its
initial public offering. For this reason, on May 14, 1999, Barnet Cohen
resigned from the Committee and the Board appointed Wendy Paskin-Jordan to
serve on the Committee as Mr. Cohen's successor.
Compensation Philosophy
The Company's philosophy in designing the compensation programs for its
executive officers has been to: (i) motivate each executive toward the
achievement of the Company's short and long-term goals, as reflected in its
strategic business plans and its mission and values statements; (ii) provide an
overall compensation package which is competitive with the median compensation
packages offered by similar companies; and (iii) make a significant portion of
each executive's total compensation at-risk incentive compensation in order to
emphasize the relationship between pay and performance through annual cash
bonus opportunities and long-term equity based incentive awards. The three
components of the executive compensation program are base annual salary, short-
term incentive pay under the Company's annual incentive plan and long-term
equity-based awards in the form of stock options.
The Company has retained independent consultants to assist with development
of its executive compensation program based on a comprehensive analysis of pay
practices of a custom group of comparator companies. These companies were
selected by Valley Media and consisted of national companies in the
distribution, wholesale and retail industries with similar sized revenues,
sales growth and profit margin.
Base Annual Salary
An executive officer's base salary is determined by evaluating the
responsibilities of the position, the individual's experience and the
competitive base salaries paid to executive officers with comparable
qualifications, experience and responsibilities. With the assistance of the
Company's compensation consulting
7
<PAGE>
firm, a survey is conducted of benchmark positions in the comparator group.
Base salaries are targeted at a level below the median salary reported for the
comparator group (adjusted for size). In making its determinations regarding
executives other than the Chief Executive Officer, the Compensation Committee
received the recommendations of the Company's Chief Executive Officer.
Annual Incentive Plan
The Company's Management Incentive Plan (the "MIP") provides for variable
cash bonuses for eligible executive and management employees based on Company
and individual performance. Target bonuses under the MIP are set at levels
comparable to the median target bonus opportunity of the comparator group. For
fiscal 2000, the MIP as it applied to executive officers had a cash bonus
opportunity from 35% to 60% of base salary on March 31, 2000 (60% for the Chief
Executive Officer) if the specified financial and performance objectives were
met. The bonus is based on both corporate performance as measured by net income
and individual performance against pre-established objectives. The corporate
component is weighted 75% and the individual component is weighted 25% for
senior executives. The MIP provides for a threshold of 90% of the net income
target before any incentive award is paid. If the net income target is exceeded
by 120%, the corporate portion of the award will payout at 150%.
Achievement of individual objectives and payment of incentive awards are
subject to the approval of the Chief Executive Officer, or in the Chief
Executive Officer's case, the Compensation Committee.
The net income target was not achieved for fiscal 2000. As a result, no
incentive awards were paid under the MIP for fiscal 2000.
Stock Options
A major objective of the Compensation Committee is to create a strong
alignment between the senior executives and stockholders. Using stock options
to bring total compensation opportunity to a level at or slightly above the
comparator group places a significant portion of compensation at-risk and
aligns executives' long-term financial interests with stockholders.
During fiscal 2000, the Company granted stock options to the Chief Executive
Officer and certain senior executives. In determining the number of options to
be granted, the Compensation Committee considered the advice of outside
consultants, which was based upon the competitive practices of the comparator
group and each executive's potential for helping the Company to achieve its
long-term objectives. Options were granted throughout fiscal 2000 under the
Company's Amended and Restated 1997 Stock Option Plan. The options granted were
100% vested at the grant date for Barnet J. Cohen and have a five-year term.
The options granted to the Chief Executive Officer and certain other senior
executives vest 100% over four years following the date of grant and have a
ten-year term.
Chief Executive Officer
Rob Cain's compensation was determined pursuant to the principles noted
above while he was the Company's President and Chief Executive Officer. In July
1999, Mr. Cain's base annual salary was increased from $330,000 to $355,000. In
determining the amount of Mr. Cain's salary increase, the Committee considered
the Company's overall performance in the prior year and the base annual
salaries paid to chief executive officers in comparator companies. Mr. Cain's
MIP target award opportunity of 60% of annual base salary was also determined
by the principles noted above. 100% of Mr. Cain's incentive award opportunity
is based on corporate performance. Because the net income target for fiscal
2000 was not achieved, no incentive award was paid to Mr. Cain. Mr. Cain
received a stock option grant of 49,000 shares during fiscal 2000.
8
<PAGE>
Compensation Deductibility Policy
The Compensation Committee's policy with respect to the tax deductibility of
compensation in excess of $1 million payable to each of the Named Executive
Officers is to comply with the requirements of Section 162(m) of the Code
applicable to qualified performance-based compensation to the extent such
compliance is practicable and in the best interest of the Company and its
stockholders.
Lawrence Archibald, Chairman
Christopher Mottern
Wendy Paskin-Jordan
9
<PAGE>
Company Stock Performance
The graph below provides an indicator of cumulative total stockholder return
for the Company as compared with the Nasdaq Stock Market (U.S.) index and a
Peer Group.
COMPARISON OF TOTAL RETURN
FROM APRIL 4, 1999 TO APRIL 1, 2000
AMONG VALLEY MEDIA, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
[LINE GRAPH]
VALLEY MEDIA, INC. PEER GROUP NASDAQ STOCK MARKET (U.S.)
4/4/99 100 100 100
4/30/99 113.04 101.62 101.73
4/1/00 28.57 135.12 188.95
This graph is based on the assumption that $100 had been invested in Valley
Media common stock and each index on April 4, 1999, and that all quarterly
dividends were reinvested.
The Peer Group Index comprises the returns of the following companies,
weighted according to their respective stock market capitalization: Arrow
Electronics, Inc., Bindley Western Industries, Brightpoint, Inc., CDNOW, Inc.,
Central Garden & Pet Co., Handleman Co., Hollywood Entertainment, Image
Entertainment, Inc., Ingram Micro, Inc., Marshall Industries, Musicland Stores
Corp., Navaree Corp., Transworld Entertainment, and US Foodservice. Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's directors and executive officers and holders of
more than 10% of the Company's common stock file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in
10
<PAGE>
ownership of common stock and other equity securities of the Company. Such
officers, directors and 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the transaction reports it received from
reporting persons, the Company believes that all Section 16(a) filing
requirements applicable to its directors, officers and 10% stockholders were
complied with during fiscal 2000, except that Mr. Cerf inadvertently failed to
file a report of change in beneficial ownership to report his purchase in
August 1999 of shares of the Company's common stock until November 1999 and Ms.
Dickow inadvertently failed to file a report of change in beneficial ownership
to report her exercise of stock options in July 1999 until May 2000.
Certain Transactions
Bernard Herman and Arthur Bach, who were senior officers of Star Video
Entertainment, L.P. ("Star"), entered into three-year and one-year employment
agreements, respectively, with the Company to serve as officers of the
Company's video operations in connection with the Company's acquisition of
substantially all of the assets of Star in May 1997. In July 1997, the Company
and Messrs. Herman and Bach agreed to terminate those agreements and entered
into severance agreements that provided for payments of $21,875 per month to
each individual. Mr. Herman's agreement expired in May 2000 and Mr. Bach's
agreement expired in May 1998.
On December 31, 1999, Mr. Alterwitz resigned from his position as the
Company's Senior Vice President, Sales and Marketing and ceased to be an
employee of the Company. As a result of the termination of his employment with
the Company, Mr. Alterwitz became entitled to certain payments under his
severance agreement. In addition, on December 31, 1999, Mr. Alterwitz entered
into a separation and consulting agreement with the Company, under which the
Company agreed to make certain payments to Mr. Alterwitz and forgive an
outstanding indebtedness of Mr. Alterwitz, and Mr. Alterwitz agreed to provide
consulting services to the Company for a period of six months. The total
payments made to Mr. Alterwitz by the Company pursuant to these agreements are
set forth in the Summary Compensation Table.
On April 10, 2000, Mr. Cerf entered into an agreement with the Company that
superseded the severance agreement he entered into with the Company in April
1998. Under the new agreement, the Company agreed to make certain payments to
Mr. Cerf upon execution of the agreement and upon the closing of a transaction
between Valley and amplified.com, Inc. On May 31, 2000, Mr. Cerf resigned from
his position as the Company's Senior Vice President and Chief Financial Officer
and ceased to be an employee of the Company. On June 2, 2000, Mr. Cerf entered
into a second agreement with the Company, pursuant to which the Company agreed
to make an additional payment to Mr. Cerf in exchange for a general release of
claims. The aggregate amount paid to Mr. Cerf under the two agreements was
$335,000.
In April 1998 and January 1999, Rob Cain, the Company's former President and
Chief Executive Officer, exercised options granted to him under the 1994 Stock
Option Plan to purchase 52,260 shares of common stock at an exercise price of
approximately $2.43 per share. The aggregate exercise price paid by Mr. Cain
was approximately $127,000. As permitted under the plan, Mr. Cain paid the
exercise price by delivering promissory notes in the aggregate principal amount
of approximately $127,000. These notes bore interest at an average interest
rate of 8.125% per annum, with interest payable quarterly and outstanding
principal due three years from the date of issuance. Mr. Cain pledged 52,260
shares of common stock held by him to secure his obligations under the notes.
The notes were paid in full by Mr. Cain in April 1999.
On July 2, 1999, the Company, Valley Entertainment, Inc. ("VE"), and Barnet
Cohen, entered into a Contribution Agreement. Pursuant to the Contribution
Agreement, Valley assigned the assets of its Valley Entertainment division to
VE in return for 19 shares of VE's common stock and a cash payment. Certain
individuals, including Mr. Cohen, transferred a total of $1,620,000 in cash to
VE in return for 81 shares of VE's common stock. Mr. Cohen, who is the
President and Chief Executive Officer of VE, contributed
11
<PAGE>
$1,320,000 in cash in exchange for 66 shares of VE's common stock. Two of the
other VE stockholders are former employees of the Company. Neither of these
former employees was an executive officer or a significant stockholder of the
Company.
At the same time the Company and VE entered into the Contribution Agreement,
the parties entered into an Administrative Services Agreement pursuant to which
the Company agreed to provide certain administrative services to VE. The
Company believes the fees charged by Valley to VE under the Administrative
Services Agreement are the product of good faith, arms-length bargaining
between the parties. The Company also believes these fees are reasonably
related to the fees the Company would charge an unrelated party in a similar
transaction. The Contribution Agreement and the Administrative Services
Agreement have been approved by the disinterested members of the Company's
Board.
VE is a music label that sells prerecorded music products. VE's music
products are distributed through the Company's Distribution North America
division pursuant to a Distribution Agreement between the Company and VE.
Valley believes the terms of the Distribution Agreement are reasonably related
to the terms Valley would obtain in a comparable transaction with an unrelated
party.
The Company has entered into indemnification agreements with each of its
directors and officers. These agreements require the Company to indemnify such
directors and officers for certain expenses (including attorneys' fees),
judgments, fines, penalties and settlement amounts incurred by any such person
in any threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism by reason of any event or occurrence arising out
of such person's services as a director or officer of the Company.
The Board of Directors recommends a vote in favor of each of the nominees.
12
<PAGE>
ITEM 2:
AMENDMENT TO STOCK OPTION PLAN
General
Stockholders are being asked to approve an amendment to the Company's
Amended and Restated 1997 Stock Option Plan that will increase the number of
shares reserved for issuance under the plan from 1,206,000 to 1,706,000. As
amended, the plan would provide for the issuance of stock options for the
purchase of up to 1,706,000 shares of common stock to the Company's employees,
directors and consultants. Aside from the increase in shares reserved for
issuance, all of the remaining provisions of the plan would remain in full
force and effect. The proposed amendment to the plan is attached to this proxy
statement as Appendix I.
As of June 2, 2000, options to purchase an aggregate of 886,292 shares were
outstanding under the plan and options to purchase an aggregate of 11,902
shares had been exercised pursuant to the plan. No awards have been made under
the plan that are contingent on the amendment being adopted.
Description of the Plan
Administration. The plan must be administered by the Board of Directors or
by a committee of the Board comprising two or more members. The Board has
delegated authority to administer the plan to the Compensation Committee (the
"Committee"). The Committee is currently comprised solely of outside directors,
and the Board intends that this remain the case going forward. Among other
things, the Committee has the discretion to select the form and timing of
awards made under the plan and the persons to whom awards are made. The
Committee also has the authority, subject to the terms of the plan, to adopt
rules and regulations to administer and interpret the plan.
Eligibility. Key employees of the Company and its subsidiaries, including
officers of the Company, directors of the Company and independent contractors,
consultants or advisors to the Company, are eligible to receive awards under
the plan. As of June 2, 2000, options had been granted to approximately 112
persons under the plan.
Limits. Under the proposed amendment, an aggregate of 1,706,000 shares could
be issued pursuant to awards granted under the plan. In its current form, the
plan provides that an aggregate of 1,206,000 shares can be issued pursuant to
awards granted under the plan. During any single year no person may receive (i)
stock options for the purchase of more than 150,000 shares, (ii) stock
appreciation rights covering more than 150,000 shares, (iii) performance share
awards covering more than 150,000 shares or (iv) stock issuances of more than
150,000 shares. The number of shares reserved under the plan and the limits on
the respective types of awards, as well as the number of shares subject to any
outstanding awards, will be appropriately adjusted in the event of any stock
split, stock dividend, reverse stock split or other similar change in the
Company's common stock as a class. If an award lapses or rights to the award
are returned to the Company or otherwise terminate, the shares subject to such
award will be available for future awards under the plan. The plan prohibits
the making of awards after March 31, 2009.
Awards. Awards under the plan may be made in the form of stock options,
stock appreciation rights, stock issuances and performance shares.
Stock options granted under the plan may be either incentive stock options
or non-qualified options. The exercise price of an option may not be less than
the fair market value of the underlying shares as of the date of grant. If the
optionee owns 10% or more of the Company's outstanding shares of common stock,
the exercise price must not be less than 110% of the fair market value of the
underlying shares on the grant date. Unless the Committee establishes a
different vesting period for a particular option, options become exercisable
ratably on a monthly basis during the four-year period following the date of
grant. If employment is terminated during the vesting period, unvested options
will expire; vested options may remain outstanding for periods of as long as
one year following termination, depending on the circumstances of the
termination and the type of option. An option may not in any event be
exercisable for more than ten years following the date of grant. Upon a change
13
<PAGE>
in control, outstanding options under the plan will become fully vested. A
change in control is defined as any of the following; (i) the sale of all or
substantially all of the Company's assets; (ii) any change in ownership or
control of the outstanding voting securities of the Company following which any
person or entity other than Barnet Cohen, his spouse, any affiliate or
associate of either of them, or the Company's Employee Stock Ownership Plan
owns 35% or more of the outstanding voting securities of the Company; (iii) any
change in the membership of the Board of Directors following which members of
the current Board or persons appointed to or nominated for membership by a
majority of the members of the current Board do not constitute a majority of
the Board; or (iv) any business combination involving the Company immediately
following which the stockholders of the Company immediately prior to the
combination do not hold more than 65% of the outstanding voting securities of
the entity that survives or results from the combination in the same
proportions as they held common stock of the Company.
Incentive stock options are subject to certain additional restrictions,
including that such options may only be granted to employees; the aggregate
fair market value of the shares underlying incentive stock options that first
become exercisable in any year may not exceed $100,000 based on the fair market
value of the stock on the date the option was originally granted (to the extent
the shares underlying an incentive stock option exceed that threshold, the
option will be treated as a non-qualified stock option); and such options must
expire within 90 days of termination of employment, other than termination due
to death or disability or the option will be treated as a non-qualified option.
A stock appreciation right ("SAR") allows the holder, upon exercise, to
receive common stock or, at the Committee's election, cash or a combination of
cash and common stock, with a value equal to the value of the Company's common
stock at the date of exercise less the purchase price specified in the SAR. The
purchase price may not be less than the fair market value of the common stock
at the date of issue of the SAR. SARs will become vested over periods of time
established by the Committee and shall have such other terms, including
forfeiture provisions, as are established by the Committee. SARs may be granted
in tandem with an option granted under the plan or may be granted
independently. SARs granted in tandem with an option will only be exercisable
when the accompanying option is exercisable. No SAR may remain exercisable for
a period of more than ten years from the date of its grant. The holder of a SAR
has no voting, dividend or other rights of a stockholder.
The plan authorizes stock issuances to eligible persons. Stock issuances may
be made for a consideration that is equal to the per share par value of the
common stock or such higher price as may be approved by the Committee. The
purchase price may be paid in the form of cash, past services rendered to the
Company or the foregoing of salary or bonus that is otherwise payable to the
participant. The right to retain shares issued as a stock issuance may be made
subject to vesting restrictions or performance criteria established by the
Committee. If the holder ceases to be employed by the Company during any
applicable vesting period, or if applicable performance criteria are not
satisfied, the shares of common stock issued as the stock issuance award will
be subject to repurchase at the price originally paid by the holder.
Performance shares awards are credited to an account maintained for the
recipient. An award period is established with respect to each grant, and the
amount of performance shares earned over the period is based on the Company's,
or a subsidiary's or division's, attaining performance goals established by the
Committee over the award period. The performance goals will be based on cash
flow, expenses, increases in stock price, market share, net income (before or
after taxes), net operating income, return on assets, return on equity, return
on investment, revenue, total stockholder return, earnings per share, or
implementation of processes or projects. The payout on performance shares is
equal to the fair market value of the common stock at the end of the award
period times the number of performance shares earned. The Committee may
establish a maximum payment per share. Awards may be paid in shares of common
stock, cash or a combination of both. The holder of performance shares must
remain in the employment of the Company throughout the award period, subject to
the Committee's ability to allow partial payment in the event of death or
disability or a change in control. A recipient of performance shares has no
voting, dividend or other rights of a stockholder until shares of common stock
are actually issued in payment of an award.
14
<PAGE>
Transferability. Interests of participants in the plan are not transferable,
except in the event of a participant's death.
Amendments and Termination. The Board may, with the consent of the affected
participant, cancel or reduce an outstanding award if it determines that
certain aspects of the award are not in the best interests of the Company. The
Board may amend the plan at any time, provided that any amendment of the plan
shall be subject to approval of the Company's stockholders to the extent
required by applicable laws, regulations or rules.
Prior Awards
The plan does not require that awards be made to any particular person or
persons. By way of background, during fiscal 2000, options to purchase 335,928
shares were awarded under the plan. The number of shares subject to options
granted to the Named Executive Officers under the plan is set forth in the
table above under "Executive Compensation--Option Grants in Last Fiscal Year."
The Board of Directors recommends a vote in favor of amending the Amended
and Restated 1997 Stock Option Plan to increase the number of shares reserved
for issuance pursuant to awards granted under the Plan from 1,206,000 to
1,706,000.
ITEM 3:
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS FOR FISCAL 2001
The independent auditors of the Company selected by the Audit Committee for
fiscal 2001 is Deloitte & Touche LLP. The Committee has further directed that
management submit the selection of independent auditors for ratification by the
stockholders at the Annual Meeting. Deloitte & Touche LLP has audited the
Company's financial statements since 1995. The Board of Directors expects that
representatives of Deloitte & Touche LLP will be present at the Annual Meeting,
will be given an opportunity to make a statement at such meeting if they desire
to do so and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors for fiscal 2001 is not required by the Company's
Bylaws or otherwise. However, the Board is submitting the selection of Deloitte
& Touche LLP to the stockholders for ratification as a matter of good corporate
practice. In the event the stockholders fail to ratify the selection, the Board
will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Board in its discretion may direct
the appointment of a different independent accounting firm at any time during
the year if the Board feels that such a change would be in the best interests
of the Company and its stockholders. The affirmative vote of the holders of a
majority of the shares present, in person or by proxy, at the Meeting and
entitled to vote is required to ratify the selection of Deloitte & Touche LLP.
The Board of Directors recommends a vote in favor of the ratification of the
selection of Deloitte & Touche LLP as the Company's independent auditors for
fiscal 2001.
15
<PAGE>
Other Matters
As of the date of this Proxy Statement, the Board of Directors does not
intend to bring any other business before the Annual Meeting and, as far as is
known to the Board, no matters are to be brought before the Annual Meeting
except as specified in the Notice of Annual Meeting. However, as to any other
business that may properly come before the Annual Meeting, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
Shareholder Proposals
Proposals of the Company's stockholders that are intended to be presented by
such stockholders at the Company's 2001 Annual Meeting of stockholders must be
received by the Secretary of the Company at its offices at 1280 Santa Anita
Court, Woodland, California 95776, no later than April 13, 2001 in order to be
considered for possible inclusion in the proxy statement and form of proxy
relating to that meeting.
In addition, stockholders wishing to nominate directors or propose other
business at the 2001 Annual Meeting, but not intending to include such
nomination or proposal in the Company's proxy statement for such meeting, must
give advance notice pursuant to the requirements of the Company's Bylaws. Per
these requirements, notice of any such nomination or proposal must be received
by the Company's Secretary at the principal executive offices of the Company
not later than June 12, 2001 and not earlier than May 13, 2001, subject to the
alternative dates described in the next sentence. If the 2001 Annual Meeting is
held earlier than July 12, 2001 or later than October 10, 2001, then notice of
such nominations or proposal must be received not sooner than the 90th day
prior to such meeting and not later than the 60th day prior to such meeting,
provided that if the date of such meeting has not been publicly announced by
the Company at least 70 days prior to its date, then such notice must be
received not later than 10 days following the date of the first public
announcement of the meeting date. The notice must contain the information
required under the Company's Bylaws. If notice is not received in accordance
with this schedule, then the nomination or other proposal will not be brought
before the 2001 Annual Meeting.
Sachin Adarkar
Secretary
June 22, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.
16
<PAGE>
APPENDIX I
AMENDMENT NO. 1
TO
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
A. Valley Media, Inc., a Delaware corporation (the "Company"), has adopted
an Amended and Restated 1997 Stock Option Plan (the "Plan") to advance the
interests of the Company and its stockholders by enabling the Company to
attract and retain qualified directors, officers, key employees, independent
contractors, consultants and advisors by providing them with an opportunity for
investment in the Company.
B. The Company desires to further the purposes for which the Plan was
adopted by increasing the maximum number of shares of the Company's common
stock that may be issued pursuant to awards granted under the Plan from
1,206,000 to 1,706,000.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section I.D. of the Plan is deleted in its entirety and replaced with
the following:
D. Shares Reserved for Awards. In no event will the Company issue,
in the aggregate, more than 1,706,000 Shares (inclusive of Shares
issued pursuant to the 1997 Stock Option Plan prior to its amendment
and restatement hereunder) pursuant to Awards.
2. Except as expressly set forth in this Amendment No. 1, the Plan and
each provision thereof shall remain in full force and effect.
<PAGE>
<TABLE>
<CAPTION>
Please detach here
The Board of Directors Recommends a Vote FOR Items 1, 2 and 3.
<S> <C> <C> <C>
1. Election of directors: 01 Barnet J. Cohen 02 Christopher Mottern [ ] 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. Item 2: To approve the amendment to the Company's Amended and Restated
1997 Stock Option Plan [ ] For [ ] Against [ ] Abstain
3. Item 3: To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for fiscal 2001 [ ] For [ ] Against [ ] Abstain
4. In their discretion the proxies are authorized to vote upon such other matters as
may properly come before the meeting [ ] For [ ] Against [ ] Abstain
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: Date:_________________________
Signature(s) In Box
Please sign exactly as your name(s) appear on Proxy. If
held in joint tenancy, all persons must sign. Trustees,
administrators, etc., should include title and authority.
Corporations should provide full name of corporation and
title of authorized officer signing the proxy.
</TABLE>
<PAGE>
VALLEY MEDIA, INC.
ANNUAL MEETING OF STOCKHOLDERS
Friday, August 11, 2000
10:00 a.m.
Heidrick Ag History Center
1962 Hays Lane
Woodland, California 95776
[LOGO OF VALLEY MEDIA, INC.]
Valley Media, Inc.
1280 Santa Anita Court, Woodland, California 95776 proxy
--------------------------------------------------------------------------------
This proxy statement is solicited by the Board of Directors for use at the
Annual Meeting on August 11, 2000.
The shares of stock you hold in your account will be voted as you specify below.
If no choice is specified, the proxy will be voted "FOR" Items 1, 2 and 3.
By signing this proxy, you revoke all prior proxies and appoint Barnet J. Cohen,
Sachin Adarkar, and Donald E. Rose and each of them, with full power of
substitution and revocation, to represent you and vote your shares on the
matters shown on the reverse side and any other matters which may come before
the Annual Meeting and all adjournments or postponements of such meeting.
See reverse for voting instructions.
<PAGE>
<TABLE>
<CAPTION>
Please detach here
---------------------------------------------------------------------------------------------------------------------------------
The Board of Directors Recommends a Vote FOR Items 1, 2 and 3.
<S> <C> <C> <C> <C>
1. Election of directors: 01 Barnet J. Cohen 02 Christopher Mottern [ ] 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. Item 2: To approve the amendment to the Company's Amended and Restated
1997 Stock Option Plan [ ] For [ ] Against [ ] Abstain
3. Item 3: To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for fiscal 2001 [ ] For [ ] Against [ ] Abstain
4. In their discretion the proxies are authorized to vote upon such other matters as
may properly come before the meeting [ ] For [ ] Against [ ] Abstain
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: Date:_____________________
Signature(s) In Box
Please sign exactly as your name(s) appear on Proxy. If held
in joint tenancy, all persons must sign. Trustees,
administrators, etc., should include title and authority.
Corporations should provide full name of corporation and title
of authorized officer signing the proxy.
</TABLE>
<PAGE>
VALLEY MEDIA, INC.
ANNUAL MEETING OF STOCKHOLDERS
Friday, August 11, 2000
10:00 a.m.
Heidrick Ag History Center
1962 Hays Lane
Woodland, California 95776
[LOGO OF VALLEY MEDIA, INC.]
ESOP
1280 Santa Anita Court, Woodland, California 95776 proxy
--------------------------------------------------------------------------------
This proxy statement is solicited by the Board of Directors for use at the
Annual Meeting on August 11, 2000.
The shares of stock you hold in your account will be voted as you specify below.
If no choice is specified, the proxy will be voted "FOR" Items 1, 2 and 3.
By signing this proxy, you revoke all prior proxies and appoint Barnet J. Cohen,
Sachin Adarkar, and Donald E. Rose and each of them, with full power of
substitution and revocation, to represent you and vote your shares on the
matters shown on the reverse side and any other matters which may come before
the Annual Meeting and all adjournments or postponements of such meeting.
See reverse for voting instructions.
