<PAGE>
SCHEDULE 14A INFORMATION
(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:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMISSION FILE NO. 0-6664
K-TEL INTERNATIONAL, 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>
K-TEL INTERNATIONAL, INC.
2605 FERNBROOK LANE NORTH
MINNEAPOLIS, MINNESOTA 55447-4736
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JANUARY 14, 2000
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
K-tel International, Inc. (the "Company") will be held at the Ramada Plaza
Hotel, 12201 Ridgedale Drive, Minnetonka, Minnesota, on Friday, January 14,
2000, at 10:00 a.m., Minneapolis time, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1. To elect six directors for the ensuing year and until their
successors are duly elected and qualified;
2. To consider and vote upon an amendment to the Company's
Articles of Incorporation to increase the Company's authorized
Common Stock from 15,000,000 to 50,000,000 shares;
3. To consider and vote upon amendments to the Company's 1997
Stock Option Plan (the "Plan") which (i) increase the number
of shares reserved thereunder for issuance of stock options
from 2,000,000 to 3,500,000 shares; (ii) expand the classes of
persons eligible to receive options to include directors,
consultants and independent contractors to the Company; (iii)
provide for an annual grant of a stock option for the purchase
of 5,000 shares of the Company's Common Stock to Non-Employee
Directors of the Company, and (iv) permits the Board to
terminate or amend the Plan without shareholder approval,
except where shareholder approval is required by any law, rule
or regulation relating to the listing of the Company's
securities.
4. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The transfer books of the Company will not be closed for the Annual
Meeting. Only shareholders of record at the close of business on December 1,
1999, are entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited and requested to attend the
Annual Meeting in person. Shareholders who are unable to attend in person are
requested to complete, date and sign the enclosed proxy exactly as your name
appears thereon and promptly return it in the envelope provided, which
requires no postage if mailed in the United States. Your proxy is being
solicited by the Board of Directors of the Company. Your attendance at the
Annual Meeting, whether in person or by proxy, is important to ensure a
quorum. If you return your proxy, you still may vote your shares in person by
giving written notice (by subsequent proxy or otherwise) to the Secretary of
the Company at any time prior to your vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Minneapolis, Minnesota Lawrence Kieves
December 6, 1999 President
<PAGE>
K-TEL INTERNATIONAL, INC.
2605 Fernbrook Lane North
Minneapolis, Minnesota 55447-4736
---------------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JANUARY 14, 2000
--------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors (the "Board of Directors"
or the "Board") of K-tel International, Inc. (the "Company" or "K-tel"), to
be voted at the Annual Meeting of Shareholders (the "Annual Meeting") to be
held at the Ramada Plaza Hotel, 12201 Ridgedale Drive, Minnetonka, Minnesota
on Friday, January 14, 2000, at 10:00 a.m., Minneapolis time, and at any
adjournment or postponement thereof. The Notice of Annual Meeting, this Proxy
Statement and the enclosed proxy are first being mailed to Shareholders on or
about December 6, 1999.
The Board of Directors knows of no business which will be presented
at the Annual Meeting other than the matters referred to in the accompanying
Notice of Meeting. However, if any other matters are properly presented at
the Annual Meeting, it is intended that the persons named in the proxy will
vote on such matters in accordance with their best judgement. Shares of
Common Stock represented by properly executed proxies on which no
specification has been made will be voted: (i) in favor of the election of
the nominees for directors listed herein; (ii) in favor of an amendment to
the Company's Articles of Incorporation to increase the Company's authorized
Common Stock; and (iii) in favor of the proposal to approve the amendments to
the Company's 1997 Stock Option Plan. If any other matters are properly
presented at the Annual Meeting for action, including a question of
adjourning the Annual Meeting from time to time, the persons named in the
proxies and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment.
RECORD DATE AND OUTSTANDING COMMON STOCK
Only holders of Common Stock of the Company whose names appear of
record on the books of the Company at the close of business on December 1,
1999 (the "Record Date"), are entitled to receive notice of, and to vote at,
the Annual Meeting. On the Record Date, the issued and outstanding voting
shares of the Company consisted of 9,775,405 shares of Common Stock, each
entitled to one vote per share.
REVOCABILITY OF PROXIES
Any shareholder who executes and returns a proxy may revoke it at
any time before it is voted. Any shareholder who wishes to revoke a proxy can
do so by (i) executing a later-dated proxy relating to the same shares and
delivering it to Chief Financial Officer of the Company prior to the vote at
the Annual Meeting, (ii) filing a written notice of revocation bearing a
later date than the proxy with the Chief Financial Officer of the Company
prior to the Annual Meeting, or (iii) appearing in person at the Annual
Meeting, filing a written notice of revocation and voting in person the
shares to which the proxy relates. Any written notice or subsequent proxy
should be delivered to K-tel International, Inc., 2605 Fernbrook Lane North,
Minneapolis, Minnesota 55447-4736, Attention: Steven A. Kahn, Chief Financial
Officer, or hand-delivered to the Chief Financial Officer of the Company
prior to the vote at the Annual Meeting.
4
<PAGE>
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence, in person or by proxy, of the holders of at least a
majority of the shares of Common Stock outstanding and entitled to vote is
necessary to constitute a quorum for the transaction of business at the
Annual Meeting. All votes will be tabulated by the inspector of election for
the Annual Meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes.
If a properly executed proxy is returned and the shareholder has
abstained from voting on any matter, the shares represented by such proxy
will be considered present at the Annual Meeting for purposes of determining
whether a quorum is present, but will not be considered to have been voted in
favor of such matter.
If a properly executed proxy is returned by a broker holding shares
in street name which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, such shares
will be considered present at the Annual Meeting for determining a quorum,
but will not be considered to be represented at the Annual Meeting for
purposes of calculating the vote with respect to such matter.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table contains certain information as of November 15,
1999 regarding the beneficial ownership of the Common Stock by (i) each
person known to the Company to own beneficially five percent or more of the
Common Stock, (ii) each director of the Company, (iii) each executive officer
of the Company and (iv) the directors and executive officers as a group. Any
shares which are subject to an option or a warrant exercisable within 60 days
are reflected in the following table and are deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by the option or
warrant holder but are not deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by any other person. Unless
otherwise indicated, each person in the table has sole voting and investment
power as to the shares shown. Unless otherwise indicated, the address for
each listed shareholder is c/o K-tel International, Inc., 2605 Fernbrook Lane
North, Minneapolis, Minnesota 55447-4736.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL OWNERSHIP(1) OUTSTANDING STOCK
--------------------------- -------------------
<S> <C> <C>
Philip Kives ............................................. 4,736,730 46.4%
220 Saulteaux Crescent
Winnipeg, Manitoba R32 3W3
Canada
Lawrence Kieves........................................... 66,667 *
Herbert Davis............................................. 5,000 *
Jay William Smalley....................................... 5,000 *
Dennis W. Ward............................................ --- *
David Wolinsky............................................ 5,000 *
Jeffrey Koblick........................................... 34,700 *
Steven A. Kahn............................................ --- *
All directors and officers as a group
(9 persons)............................................ 4,853,097 47.5%
</TABLE>
- ---------------------------
* Indicates ownership of less than 1% of the outstanding shares of Common
Stock.
5
<PAGE>
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission (the "Commission")
and accordingly, may include securities owned by or for, among others, the
spouse, children or certain other relatives of such person as well as
other securities as to which the person has or shares voting or investment
power or has the right to acquire within 60 days. The same shares may be
beneficially owned by more than one person.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
K-5 Leisure Products, Inc. ("K-5"), an affiliate controlled by the
Company's Chairman of the Board and Chief Executive Officer, has from time to
time made advances to the Company. As of June 30, 1999 and 1998, the Company
had a loan balance with K-5 of $1,945,000 and $1,000,000, respectively. The
Company pays interest on the unpaid principal amount of financing at the same
rate as the Company pays on its credit facility, until repayment of the loan.
The Company incurred interest of $186,000 in 1999 and $95,000 in 1998 on this
loan.
The advances referred to in the preceding paragraph were made under
an informal borrowing arrangement with K-5. On September 27, 1999, K-tel
entered into a written Line of Credit Agreement with K-5. Under the terms of
the agreement, K-5 has agreed to make available up to $8.0 million on a
revolving basis. The loan bears interest at the same rate as K-tel's loan
from its primary lender, Foothill Capital Corporation ("Foothill") and
expires on November 20, 2001, and is subordinated to the Foothill loan. K-tel
has pledged the stock of its foreign subsidiaries as collateral for the loan.
K-5 and Foothill have agreed that, if Foothill were to make a demand for
payment as a result of a default in the loan, K-5 would have the right to pay
Foothill and assume the secured creditor position of Foothill. K-5 has
separately committed to the Company that in the event of acceleration by
Foothill, K-5 would assume the secured creditor position in addition to
providing the line of credit previously discussed.
The Company purchased approximately $34,000 in fiscal 1999 and
$334,000 in fiscal 1998, of consumer products from K-5. Management believes
purchase prices for these products were at prices comparable to transactions
with an unrelated third party. There was a payable amount of $51,000 at June
30, 1999 and $9,000 at June 30, 1998.
The Company sold approximately $12,000 during fiscal 1999 and
$39,000 during fiscal 1998 of consumer products to K-5. There was a balance
receivable from K-5 at June 30, 1999, of $33,000 and $4,000 at June 30, 1998.
Outstanding balances are settled on a timely basis. No interest was charged
on the related outstanding balances during fiscal 1999.
K-5 retained the services of a consultant to assist it in matters
relating to its operations, as well as those of the Company. K-5 estimates
the value of the services paid to the consultant in fiscal 1999 on behalf of
the Company to be $80,000. The Company has recorded this as a contribution to
additional paid-in-capital.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the aggregate cash compensation paid
to or accrued by each of the Company's executive officers receiving in excess
of $100,000, for services rendered to the Company during the fiscal years
ended June 30, 1999, June 30, 1998 and June 30, 1997. The Company has no
written employment agreements with its executive officers.
6
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- --------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS(#) COMPENSATION (1)
- -------------------------------------------------- ----------- ----------- -------------- ---------------------
<S> <C> <C> <C> <C> <C>
Philip Kives 1999 $ 0 $ 0 1,036,000 $ 0
Chief Executive Officer 1998 $ 0 $ 0 231,000 $ 0
1997 $ 0 $ 0 400,000 $ 0
Jeffrey Koblick 1999 $ 208,500 $ 0 27,500 $ 5,076
Executive Vice President 1998 $ 207,231 $ 0 56,500 $ 4,987
Purchasing & Operations 1997 $ 199,312 $ 30,000 0 $ 3,894
Lawrence Kieves (2) 1999 $ 139,231 $ 0 200,000 $ 2,237
President
</TABLE>
(1) Other compensation for the 1999, 1998 and 1997 fiscal years consists of
the Company contributions under the 401(k) plan.
(2) Mr. Kieves' employment with the Company commenced on October 12, 1998.
The following table summarizes stock option grants and option
exercises during the fiscal year ended June 30, 1999 by each of the Company's
named executive officers for services rendered to the Company during the
fiscal year ended June 30, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS OF STOCK PRICE FOR OPTION
UNDERLYING GRANTED TO TERMS(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- --------------------- -------------- ---------------- ----------- ------------ -------------------------------
<S> <C> <C> <C> <C> <C>
Philip Kives 200,000 12% $ 11.1875 12/15/08 $1,407,000 $ 3,566,000
836,000 49% $ 8.7313 2/25/09 $4,591,000 $11,633,000
Jeffrey Koblick 27,500 2% $ 8.7313 2/25/09 $ 151,000 $ 383,000
Lawrence Kieves 200,000 12% $ 6.50 10/19/08 $ 818,000 $ 2,072,000
</TABLE>
- ------------------------------
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock Price.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Options Value of In-the Money Options
Shares Acquired Value at FY-End at FY-End (1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ ----------------- ------------ --------------------------- -------------------------------
<S> <C> <C> <C> <C>
Philip Kives 429,061 $481,100 245,439/361,500 $0/$0
Jeffrey Koblick 27,200 $453,886 7,500/42,500 $7,267/$14,535
Lawrence Kieves --- --- --- /200,000 $---/$93,800
</TABLE>
(1) Market value of underlying securities at fiscal year end minus the exercise
price.
10-YEAR OPTION REPRICING
As part of the Company's overall program to give its key employees
incentives for their work, during September 1998, the Company offered certain
of its employees the opportunity to exchange their existing stock options for
new options, which were 45% of the original option amount, with an exercise
price equal to the market price per share on the date the Stock Option
Committee adopted the exchange program ($6.00 per share). The exercise price
of the shares prior to the exchange offering was $14.34 per share. The new
options retained the replaced existing option vesting schedules and
expiration dates.
The following table shows the options exchanged by an executive
officer who was named in the Summary Compensation Table during the fiscal
year ended June 30, 1999 and information on all repricing of options held by
any executive officer during the last 10 fiscal years. The number of shares
and the exercise prices in the table reflect the Company's one-for-two stock
split which was effective as of May 1, 1998.
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Exercise Option Term
Underlying Market Price of Price at Remaining at
Options Stock at Time Time of New Date of
Repriced or of Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
- ---------------------------- --------- ------------- ----------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Koblick 9/04/98 22,500 (1) 6.00 14.34 6.00 4/17/07
Executive Vice President
Purchasing & Operations
</TABLE>
(1) On September 4, 1998 50,000 options at $14.34 were exchanged for 22,500
options at $6.00
8
<PAGE>
BOARD REPORT ON EXECUTIVE COMPENSATION
The Company has not established a standing compensation committee
but instead the entire Board of Directors establishes the general
compensation policies of the Company and specific compensation for each
executive officer of the Company. The Board of Directors attempts to make the
compensation packages of the executive officers of the Company sufficient to
attract and retain persons of exceptional quality while at the same time
including effective incentives to motivate Company executives to perform as
necessary to continue the success and growth of the Company. The Stock Option
Committee administers grants of stock options under the Company's 1997 Stock
Option Plan (the "Plan") which was adopted by the Board of Directors in
February, 1997 and approved by the shareholders in February, 1998.
MANAGEMENT INCENTIVE PLAN
The Company has a management incentive plan under which management,
including executive officers, and other key employees may be awarded annual
bonuses based upon the achievement of financial goals and objectives and an
assessment of personal performance during the year. Approximately 25
employees currently participate in the plan. Payments made to the named
executive officers under the management incentive plan are included in the
Cash Compensation Table. Pursuant to the plan, there were no bonuses during
fiscal 1999 and 1998; Mr. Koblick received a bonus of $30,000 for fiscal 1997.
RETIREMENT PLAN
Retirement benefits for full-time U.S. based employees of the
Company are provided under a retirement savings plan qualified under Section
401(k) of the Internal Revenue Code. Participants may elect to contribute,
through salary reductions, up to 20% of their salary to the retirement plan
up to a maximum of $10,000 per year, and the Company may make matching
contributions up to 50% of the first 6% of the participants contributions.
Employee contributions vest immediately; employer contributions vest 50%
after one year of service and 100% after two years. Distributions upon death
or termination of employment are subject to certain restrictions in order
that federal income tax regulations be complied with and the amounts vested
remain on a tax deferred basis until retirement. Amounts contributed by the
Company as matching contributions for the executive officers under the 401(k)
plan are included in the Cash Compensation Table. The Company made matching
contributions of $7,313 in fiscal 1999 for the executive officers named in
the Compensation Table.
STOCK OPTIONS
In February 1997, the Board of Directors adopted the K-tel
International, Inc. 1997 Stock Option Plan ("Plan") for officers and other
key employees of the Company. The shareholders approved the Plan on February
4, 1998. A total of 600,000 shares of the Company's Common Stock were
reserved for issuance upon exercise of the options under the original Plan.
On February 26, 1999 the shareholders approved an increase in the number of
shares reserved for issuance under the Plan from 600,000 to 2,000,000. The
Stock Option Committee administers the Plan, including determination of
option grants, has the sole authority to determine the employees to whom
options and awards are granted, the duration of the exercise period and any
other matters arising under the Plan. The Stock Option Committee has, from
time to time, granted options outside of the Plan.
As of November 15, 1999 there were 866,339 outstanding stock options
granted under the Plan with 352,839 options exercisable. As of November 30,
1999 there were 462,550 options available to be granted under the plan. In
addition as of November 15, 1999 there were 414,000 stock options issued and
outstanding which were granted outside the Plan of which 84,667 were
exercisable.
In October 1997, the Board of Directors granted Mr. Kives a
non-qualified stock option on 231,000 shares at an exercise price of $3.063
per share for his years of service as Chairman of the Board of Directors and
Chief Executive Officer. The options vested 100% on the date of the grant. In
February 1999 the Stock Option Committee granted Mr. Kives 836,000 options at
$8.7313 per share. During fiscal 1997, 1998 and 1999 Mr. Kives received no
cash compensation.
9
<PAGE>
In October 1998 in connection with his employment the Board of
Directors granted Mr. Lawrence Kieves 200,000 stock options outside of the
Plan at an exercise price of $6.50. As of November 15, 1999 66,667 of these
options were exercisable.
Respectfully submitted,
The Board of Directors:
Philip Kives Herbert Davis Dennis Ward
Lawrence Kieves Jay William Smalley David Wolinsky
COMPANY STOCK PERFORMANCE
The following Common Stock Price Performance Graph compares the
cumulative total return of the Company, the S&P 500 Stock Index and peer
group companies (Navarre Corporation, Platinum Entertainment, and CD Now,
similar music distribution companies and online music retailers) for a six
year period. The cumulative total shareholder return assumes an initial
investment of $100.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
K-TEL INTERNATIONAL ($) $100.00 $76.29 $85.52 $160.91 $607.92 $293.43
S & P 500 ($) $100.00 $126.07 $158.85 $213.97 $278.50 $341.52
PEER GROUP ONLY ($) $100.00 $213.33 $515.98 $169.99 $162.03 $163.19
PEERS + YOUR COMPANY ($) $100.00 $129.99 $273.01 $135.78 $158.86 $140.76
</TABLE>
The Common Stock of the Company is traded on the Nasdaq National
Market. The Common Stock is traded under the symbol KTEL.
10
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The persons named in the accompanying proxy will vote for the
election of the below named nominees, unless authority to vote is withheld.
Each of the six nominees presented for director is currently a member of the
Board and was previously elected by the Company's shareholders. Directors of
the Company are elected annually to serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and qualified. The
Board unanimously recommends a vote for each of the following nominees. All
nominees have agreed to stand for election at the Annual Meeting. If, prior
to the Annual Meeting, the Board learns that any nominee will be unable to
serve by reason of death, incapacity, or other unexpected occurrence, the
proxies which would have otherwise been voted for such nominee will be voted
for a substitute nominee, if any, elected by the Board.
NOMINEES FOR ELECTION AS DIRECTOR
The following table sets forth certain information regarding the
nominees for election as director of the Company. All of the directors of the
Company elected at the Annual Meeting will serve until their successors are
duly elected and qualified.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- ----------------------------------------------
<S> <C> <C>
Philip Kives 70 Chairman, Chief Executive Officer and Director
Lawrence Kieves 51 President and Director
Herbert Davis 61 Director
Jay William Smalley 65 Director
Dennis W. Ward 53 Secretary and Director
David Wolinsky 55 Director
</TABLE>
The following describes the business, the business experience and
background of the nominees, each of whom currently serves as a director of
the Company.
PHILIP KIVES founded the Company in 1968 and has served as its
Chairman of the Board since the Company's inception. In addition, Mr. Kives
was re-appointed the Chief Executive Officer on October 16, 1995.
LAWRENCE KIEVES joined the Company as President in October 1998 with
extensive experience in the entertainment industry and in public service.
From 1995 to 1997 Mr. Kieves served as President of Network Event Theater, a
public company operating large screen broadcast theaters on numerous college
campuses. From 1993 to 1995 Mr. Kieves served as Chief Operating Officer of
RKO Warner Video. Lawrence Kieves is a first cousin once removed of Philip
Kives.
HERBERT DAVIS was elected a director in January 1999. Mr. Davis is
an attorney engaged in the private practice of law with the Law Offices of
Herbert Davis, which he founded in 1984. Mr. Davis specializes in business
litigation and business transactions.
JAY WILLIAM SMALLEY was elected a director in January 1999. Since
1970 Mr. Smalley has been the Chief Executive Officer of JWS, Inc., a
privately owned real estate development and sales company specializing in
hotel, motel, industrial and residential properties.
DENNIS W. WARD was elected a director in January 1999. Since 1990,
Mr. Ward has been the Controller of K-tel International, Ltd., a Canadian
corporation owned by Philip Kives and engaged in the marketing and
distribution of consumer products.
DAVID WOLINSKY was elected a director in January 1999. Mr. Wolinsky
has been a partner with the Winnipeg, Manitoba law firm of Monk Goodwin since
1991 and specializes in entertainment, corporate and commercial law.
11
<PAGE>
THE BOARD AND COMMITTEES
In 1999 the Board held six meetings. Each of the incumbent directors
attended all of the meetings of the Board and each Committee of which he was
a member held during 1999.
On January 7, 1999 the Board ratified the members of its Audit
Committee, and its Stock Option Committee.
The Audit Committee is empowered by the Board to review the
financial books and records of the Company in consultation with the Company's
accounting staff and its independent public accountants and to consider any
questions raised with respect to accounting and auditing policies and
procedures. During 1999 the Audit Committee consisted of Herbert Davis, Jay
William Smalley, Dennis W. Ward and David Wolinsky, and held two meetings.
The Stock Option Committee administers the Company's 1997 Stock
Option Plan, including making grants and determining vesting of options.
During 1999 the Stock Option Committee consisted of Messrs. Davis, Smalley
and Wolinsky, and held one meeting.
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the Company has not established a standing
Compensation Committee but instead the Board of Directors was responsible for
setting levels for 1999. Three members of the Board of Directors were
officers or employees of the Company or its subsidiaries during the fiscal
year ended June 30, 1999. Two executive officers of the Company served as
members of the Compensation Committee.
COMPENSATION OF DIRECTORS
Compensation for outside directors of the Company consists of: (i)
an annual option of 5,000 shares of the Company's Common Stock, granted
following the annual meeting of shareholders at which they are elected
directors at an exercise price equal to the closing price on the date of
the annual meeting of shareholders; (ii) $500 per meeting of the Board of
Directors or separate committee meeting that they attend; and (iii)
reimbursement of expenses for attending board or committee meetings. No
compensation was paid to outside directors in fiscal year 1999.
The Board has proposed an amendment to the 1997 Stock Option Plan to
automatically award outside directors 5,000 options following the annual
meeting of the shareholders at which they are elected.
REQUIRED VOTE
Election as a director requires the affirmative vote of the holders
of a majority of the shares of Common Stock represented in person or by proxy
and entitled to vote at the Annual Meeting. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES LISTED ABOVE.
PROPOSAL NO. 2
PROPOSED AMENDMENT TO THE ARTICLES
OF INCORPORATION TO INCREASE THE
COMPANY'S AUTHORIZED COMMON STOCK
By action taken effective November 10, 1999, the Board of Directors
adopted the following resolution, which would increase the authorized Common
Stock of the Company to 50,000,000 shares, $.01 par value, from the
15,000,000 shares currently authorized, subject to approval by the
shareholders at the Annual Meeting of Shareholders.
RESOLVED, that Article III of the Articles of Incorporation of
K-tel International, Inc. (the "Company") shall be amended in
its entirety to read as follows:
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<PAGE>
ARTICLE III
The authorized capital stock of this Corporation
shall be 50,000,000 shares of Common Stock with a par
value of one cent ($.01) per share (the "Common
Stock") and 4,000,000 shares of preferred stock (the
"Preferred Stock") in one or more series, with par
value to be determined by the Board of Directors as
specified below. Each share of Preferred Stock shall
have such par value and shall entitle the holder
thereof to such rights, voting power, dividends,
redemption rights or privileges, rights on
liquidation or dissolution, conversion rights and
privileges and restrictions as may be fixed by the
Board of Directors by resolution thereof filed in
accordance with Chapter 302A of the Minnesota
Statutes. This Corporation shall not issue nonvoting
common stock.
As of November 15, 1999, 9,775,405 shares of Common Stock were
issued and outstanding, and 1,282,889 shares of Common Stock were reserved
for issuance upon exercise of stock options, leaving 3,941,706 shares
available for future issuance. Although the Company has no intention or
commitment to issue any additional shares as of the date of this Proxy
Statement, the Board believes that it is desirable to have the additional
shares available for possible future private or public offerings, acquisition
transactions and other general corporate purposes. The Board believes that
the availability of such shares for issuance in the future will give the
Company greater flexibility and permit such shares to be issued without the
expense and delay of holding a shareholders meeting. The Minnesota Business
Corporation Act and the Company's Bylaws provide that the shares of capital
stock of the Company shall be issued by the Board in such amounts, at such
times, for such consideration, and on such terms and conditions as the Board
shall deem advisable. The Company has no current intent to issue any
preferred stock.
The shares would be available for issuance by the Board without
further shareholder authorization, except as may be required by law or by the
rules of The Nasdaq Stock Market or any other quotation system or stock
exchange on which the Common Shares may then be listed. The shareholders of
the Company do not have any preemptive right to purchase or subscribe for any
part of any new or additional issuance of the Company's securities. There are
at present no specific understandings, arrangements or agreements with
respect to any transactions that would require the Company to issue any new
shares of its Common Stock, other than proposed stock option grants to
employees and directors. See "Proposal to Approve the Amendments to the 1997
Stock Option Plan."
Although not intended as an anti-takeover device, issuing additional
shares could impede a non-negotiated acquisition of the Company by diluting
the ownership interests of a substantial shareholder, increasing the total
amount of consideration necessary for a person to obtain control of the
Company or increasing the voting power of friendly third parties. The Board
could authorize voting rights per share that are the same as or different
than the voting rights of the outstanding Common Shares.
Approval of the amendment requires the affirmative vote of the
holders of a majority of the shares of Common Stock represented at the Annual
Meeting. THE BOARD OF DIRECTORS CONSIDERS THIS AMENDMENT TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THIS AMENDMENT.
PROPOSAL NO. 3
PROPOSAL TO AMEND 1997 STOCK OPTION PLAN
BACKGROUND AND SUMMARY OF THE PLAN
In February 1997 the Board of Directors adopted the Company's 1997
Stock Option Plan (the "Plan"), subject to approval by the Company's
shareholders. The shareholders approved the plan in February 1998. In
December 1998,
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the Board of Directors approved an amendment to the Plan to increase the
number of shares of Company Stock reserved for options granted under the Plan
from 600,000 shares to 2,000,000 shares. The shareholders approved this
increase at the 1998 Annual Meeting of Shareholders in February 1999.
The purposes of the Plan are to provide incentives to key employees
of the Company and its subsidiaries who contribute and are expected to
contribute materially to the success of the Company, to provide a means of
rewarding performance and to enhance the interest of such key employees in
the Company's continued success and progress by providing them a proprietary
interest in the Company. The Company has reserved an aggregate of 2,000,000
shares of common stock for issuance upon the exercise of options granted
under the Plan, as amended. No options may be granted under the Plan after
February 17, 2007.
The Board of Directors has appointed a Stock Option Committee (the
"Committee") to be responsible for the administration of the Plan. The
committee consists of two or more directors who are "Non-Employee Directors"
within the meaning of Rule 16b-3 of the Securities and Exchange Commission.
The Committee has general authority and discretion to determine the employees
to whom options will be granted, the exercise price, the time or times at
which the options may be exercised, and the number of shares to be subject to
each option. In addition, the committee may prescribe the terms applicable to
each grant of an option. The Committee is currently comprised of three
outside directors, Herbert Davis, Jay William Smalley and David Wolinsky.
Either incentive stock options ("ISO's") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended or non-qualified
options may be granted under the Plan. Options may be granted only to key
employees of the Company and its subsidiaries who have contributed and are
expected to contribute materially to the success of the Company and its
subsidiaries.
The purchase price of shares of Common Stock subject to options
granted under the Plan is determined by the Committee, but shall not be less
than 100% of the fair market value of the Company's Common Stock on the date
the option is granted for ISO's, and not less than 85% of the fair market
value on the date that the option is granted for non-qualified options. An
option granted under the Plan vests at such rate and upon such conditions as
the Committee may determine at the time the option is granted. No option
granted under the Plan is transferable by the optionee during his or her
lifetime. An option may be exercised only while the optionee is an employee
of the Company or any of its subsidiaries or, in the event of a termination
of employment other than by death or disability, within thirty days after
termination of employment (but no later than the expiration of the term of
the option). Upon the death or disability of an optionee, the optionee or his
or her legal or personal representative or beneficiaries may exercise an
option to the extent exercisable by the optionee within ninety days after the
optionee's death or disability (but not later than the expiration of the term
of the option). In the event any option expires or is canceled, surrendered
or terminated without being exercised, the shares subject to such option (or
the unexercised portion thereof) will again be available for grant under the
Plan.
Payment for the shares of Common Stock purchased upon the exercise
of options under the Plan must be made in full at the time the option is
exercised. Payment may be made in cash, tender of shares of the Company's
Common Stock in payment of the exercise price or payment to be made by the
optionee's broker from the sale or loan proceeds for such shares or any other
securities the optionee may have in his or her account with the broker.
The committee is authorized to permit the surrender and cancellation
of a previously granted option under the Plan and the grant of a replacement
option. The previously granted option surrendered and canceled may be
exercised at prices substantially higher than the exercise price of the
shares of Common Stock on the date the replacement option is granted.
[Since the inception of the Plan, the Committee has not repriced any stock
options granted under the Plan, except for options on an aggregate of
827,000 shares granted in April 1998 at an exercise price of $14.344 per
share which were canceled and replaced by options on an aggregate of
282,150 shares in September 1998 at an exercise price of $6.00 per share,
the then fair market value.]
The Plan may be amended by the Board of Directors, except that
without the affirmative vote of the holders of a majority of the shares of
the Company's Common Stock present and entitled to vote at a meeting at which
a quorum is present, the Board of Directors may not amend the Plan to: (i)
increase the aggregate number of shares of Common Stock which may be issued
and sold under the Plan (except such number of shares may be adjusted in the
event of a recapitalization, stock dividend or similar event), (ii) decrease
the minimum exercise price at which options may be
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<PAGE>
granted under the Plan, (iii) extend the period during which the options may
be granted, or (iv) change the requirements as to the class of employees
eligible to receive options.
TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. Under the present federal tax regulations,
there will be no federal income tax consequences to either the Company or the
optionee upon the grant of an ISO, nor will an optionee's exercise of an ISO
result in federal income tax consequences to the Company. Although an
optionee will not realize ordinary income upon his or her exercise of an ISO,
the excess of the fair market value of the shares of Common Stock acquired at
the time of exercise over the exercise price will constitute an "item of tax
preference" within the meaning of Section 57 of the Code and, thus, may
result in the imposition of the "alternative minimum tax" pursuant to Section
55 of the Code on the optionee. If an optionee does not dispose of the shares
of Common Stock acquired through the exercise of an ISO within two years from
the date of the disposition of such shares will constitute a long-term
capital gain to the optionee at a capital gain rate of 28%; the capital gain
rate is reduced to 20% if the shares are held for 18 months from the date of
exercise or if the shares are sold by an estate or trust. If an optionee
disposes of the ISO, an amount equal to the lesser of (i) the excess of the
fair market value of such shares on the date of the exercise over the
exercise price, or (ii) the actual gain realized upon such disposition will
constitute ordinary income to the optionee in the year of the disposition.
Any additional gain upon such disposition will be taxed as short-term capital
gain. The Company will receive a deduction in an amount equal to the amount
constituting ordinary income to the optionee.
NON-QUALIFIED OPTIONS. Under the present federal income tax
regulations, there will be no federal income tax consequences to either the
Company or the optionee upon the grant of a non-qualified option. However,
the optionee will realize ordinary income upon the grant of a non-qualified
option in an amount equal to the excess of the fair market value of the
shares of Common Stock acquired upon exercise of such option over the
exercise price, and the Company will receive a corresponding tax deduction.
PROPOSED AMENDMENTS
The Board has approved, subject to shareholder approval, certain
amendments to the Plan. The Board is requesting approval by the shareholders
of amendments to the Plan providing for:
(1) an increase of 1,500,000 (to 3,500,000 shares) of the maximum
number of shares which may be issued upon exercise of options
granted under the Plan;
(2) an expansion of the classes of persons eligible to receive
options under the Plan to include (in addition to employees)
directors, consultants and other independent contractors to
the Company;
(3) an annual grant of a stock option for the purchase of 5,000
shares to Non-Employee Directors of the Company; and
(4) an amendment to the Plan which would permit the Company's
Board to terminate or amend the Plan without shareholder
approval, except where shareholder approval is required by any
law, regulation or rule relating to the listing of the
Company's securities.
On November 15, 1999, there were options outstanding for the
purchase of 866,339 shares under the Plan, leaving 462,550 shares remaining
issuable for options that may be granted in the future. The grant of stock
options under the Plan are made at the discretion of the Committee as
discussed above. During fiscal year 1999, the Committee granted options, both
under the Plan and outside the Plan, on an aggregate of 1,263,500 shares of
Common Stock to the executive officers named in the Compensation of Executive
Officers table including 1,036,000 shares to Philip Kives. Absent shareholder
approval, the Company would be made to grant options under the Plan,
consistent with its past practices. The Board of Directors believes that it
is advisable to increase the number of shares available for grant under the
Plan by 1,500,000 shares to facilitate future option grants and to further
the purposes of the Plan. At a fair market value of $7.125 per share as of
November 15, 1999, the market value of the additional shares would be
$10,687,500.
The Board believes that it is advisable to expand the classes of
persons eligible to receive options under the Plan to include directors,
consultants and other independent contractors to the Company.
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<PAGE>
Consistent with its recent practice of compensating directors in
part through the grant of stock options, the Board proposes an amendment
which would provide for an automatic grant of an option for the purchase of
5,000 shares to each Non-Employee Director upon election or reelection to the
Board. Options to Non-Employee Directors would vest immediately and be
exercisable for a term ending on the earlier of (a) ten years after the date
of grant or (b) the date an optionee ceases to be a director, plus a time
period equal to the number of months the optionee continuously served as a
member of the Board. The Board may determine other vesting conditions.
Options to Non-Employee Directors are granted at the fair market value of the
Company's Common Stock for the date of grant. Shareholder approval for the
grant of stock options to directors is, except in the case of smaller grants,
required under the rules of the Nasdaq Stock Market.
The Board has also approved, subject to shareholder approval, an
amendment to the Plan which would permit the Board to terminate or amend the
Plan in any respect; provided, that no revision or amendment may be made
without shareholder approval that requires shareholder approval under any
law, rules or regulation pertaining to the listing of the Company's
securities. The purposes of the amendments to the Plan are (i) to enable the
Company to continue to provide incentive to key employees of the Company and
its subsidiaries by encouraging them to invest in the Company's stock and
thereby increase their proprietary interest in its business, (ii) to further
the personal commitment of employees, directors, consultants and independent
contractors to the Company's success and progress, and (iii) to promote the
interests of the Company and its shareholders by enabling the Company to
retain and attract key persons. The Board believes that this amendment will
advance the interests of the Company and its shareholders by more closely
aligning the language of the plans to the revised text of Section 16 of the
Securities Exchange Act of 1934.
On November 15, 1999, the closing price of a share of the Company's
Common Stock on the Nasdaq National Market was $7.125.
NEW PLAN BENEFITS
The following table sets forth the automatic grants of options under
the Plan for 5,000 shares that will be made to each outside director elected
at the Annual Meeting at the time of such directors' election. There are no
other options currently contemplated other than those described below,
although the amount of awards granted to date are not necessarily indicative
of the amounts that will be awarded in the future.
1997 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE NUMBER OF SHARES
- ----------------- ------------ ----------------
<S> <C> <C>
Philip Kives
Chairman, Chief Executive Officer and Director................ --- ---
Jeffrey Koblick
Executive Vice President, Purchasing & Operations............. --- ---
Lawrence Kieves
President and Director........................................ --- ---
Executive Group............................................... --- ---
Non-Employee Director Group................................... --- 15,000
Non-Executive Officer Employee Group.......................... --- ---
</TABLE>
- ---------------------
VOTE REQUIRED. The affirmative vote of holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
Annual Meeting is required to approve the Plan. THE BOARD OF DIRECTORS
CONSIDERS THE PLAN TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN.
16
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Commission and provide the
Company with copies of such reports. Based solely on its review of the copies
of such forms received by it, or written representations from certain
reporting persons, the Company believes that, during the last fiscal year,
its directors and executive officers filed all reports on a timely basis.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information with respect to the
Company's executive officers. Each such person has been appointed to serve
until his or her successor is duly appointed by the Board or his or her
earlier removal or resignation from office.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Philip Kives 70 Chairman, Chief Executive Officer and Director
Lawrence Kieves 51 President and Director
Steven A. Kahn 50 Vice President and Chief Financial Officer
Jeffrey Koblick 52 Executive Vice President Purchasing & Operations
</TABLE>
PHILIP KIVES - See "Election of Directors"
LAWRENCE KIEVES - See "Election of Directors"
STEVEN A. KAHN. - Mr. Kahn joined K-tel in January 1999 as Vice
President-Finance, Chief Financial Officer and Treasurer. From July 1996 to
December 1998, he was Vice President and Chief Financial Officer of ACI
Telecentrics, Inc., a provider of telephone-based sales and marketing
services. From August 1995 to June 1996, he was Vice President and Chief
Financial Officer of Shufflemaster Gaming, Inc., a developer, manufacturer
and marketer of automatic card shuffling equipment, table games and video
slot machine game software. From 1989 to 1995, Mr. Kahn was a divisional Vice
President and Controller with ConAgra, a diversified food company.
JEFFREY KOBLICK - Mr. Koblick has held various offices and/or
managerial positions with the Company for more than the past five years.
The officers of the Company are elected annually and serve at the
discretion of the Board of Directors.
VOTING OF PROXIES AND EXPENSES
The Board recommends that an affirmative vote be cast in favor of
each of the proposals listed in the Proxy.
The Board knows of no other matters that may be brought before the
Annual Meeting which require submission to a vote of the Company's
shareholders. If any other matters are properly brought before the Annual
Meeting, however, the persons named in the enclosed Proxy or their
substitutes will vote in accordance with their best judgment on such matters.
Expenses incurred in connection with the solicitation of proxies
will be paid by the Company. The proxies are being solicited principally by
mail. In addition, directors, officers and regular employees of the Company
may solicit proxies personally or by telephone, for which they will receive
no consideration other than their regular compensation. The Company will also
request brokerage houses, nominees, custodians and fiduciaries to forward
soliciting material to the beneficial owners of shares of Common Stock and
will reimburse such persons for their expenses so incurred.
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<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
On October 7, 1999, the Company received written notice from Arthur
Andersen LLP, that such firm would not stand for re-election as the Company's
independent public accountants for the fiscal year ending June 30, 2000. The
reports of Arthur Andersen LLP on the Company's financial statements for the
years ended June 30, 1998 and 1999, contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with the audits for the
years ended June 30, 1998 and 1999, and through October 6, 1999, there were
no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of Arthur
Andersen LLP would have caused them to make reference thereto in their report
on the financial statements for such years. During the years ended June 30,
1998 and 1999, and through October 6, 1999, there were no reportable events
(as defined in Regulation S-K Item 304(a)(1)(v)). Representatives of Arthur
Andersen LLP are not expected to be present at the Annual Meeting. The Board
of Directors has authorized the Audit Committee to recommend the engagement
of a new independent public accountant. The Audit Committee is in the process
of considering firms of independent public accountants for the Company and a
successor firm is expected to be selected in the near future.
SHAREHOLDER PROPOSALS
If a shareholder of the Company wishes to present a proposal for
consideration for inclusion in the Proxy Statement for the 2000 Annual
Meeting of Shareholders, the proposal must be sent by certified mail, return
receipt requested, and must be received at the executive offices of the
Company, 2605 Fernbrook Lane North, Minneapolis, Minnesota 55447-4736, Attn:
Chief Financial Officer, no later than August 19, 2000. All proposals must
conform to the rules and regulations of the SEC. The SEC recently amended
Rule 14a-4, which governs the use by the Company of discretionary voting
authority with respect to other shareholder proposals. SEC Rule 14a-4(c)(1)
provides that, if the proponent of a shareholder proposal fails to notify the
Company at least 45 days prior to the month and day of the mailing of the
prior year's Proxy Statement, the proxies of the Company's management would
be permitted to use their discretionary authority at the Company's next
Annual Meeting of Shareholders if the proposal were raised at the meeting
without any discussion of the matter in the Proxy Statement. For purposes of
the 2000 Annual Meeting of Shareholders, the deadline is October 23, 2000.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999, as filed with the SEC, including the financial
statements and the financial statement schedules thereto, accompanies this
Notice of Annual Meeting, Proxy Statement and related proxy card. The Company
will furnish to any person whose proxy is being solicited any exhibit
described in the exhibit index accompanying the Form 10-K, upon the payment,
in advance, of fees based on the Company's reasonable expenses in furnishing
such exhibit(s). Requests for copies of such exhibit(s) should be directed to
Steven A. Kahn, Vice President and Chief Financial Officer, at the Company's
principal address.
BY ORDER OF THE BOARD OF DIRECTORS
Lawrence Kieves
President
Minneapolis, Minnesota
December 6, 1999
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<PAGE>
K-TEL INTERNATIONAL, INC.
2605 FERNBROOK LANE NORTH
MINNEAPOLIS, MINNESOTA 55447-4736
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting
of Shareholders and the Proxy Statement, dated December 6, 1999, hereby
appoints Lawrence Kieves and Steven A. Kahn, and either of them, as proxy or
proxies, with full power of substitution, to represent the undersigned and to
vote, as designated below, all shares of Common Stock of K-tel International,
Inc. (the "Company") held of record by the undersigned on December 1, 1999,
at the Annual Meeting of Shareholders to be held at the Ramada Plaza Hotel,
12201 Ridgedale Drive, Minnetonka, Minnesota, on Friday, January 14, 2000, at
10:00 a.m., Minneapolis time, and any adjournment thereof.
1. To elect six directors of the Company for the ensuing year and until
their successor shall be elected and duly qualified.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the (to vote for all
contrary below) nominees listed below)
PHILIP KIVES, LAWRENCE KIEVES, HERBERT DAVIS, JAY WILLIAM SMALLEY,
DENNIS W. WARD, DAVID WOLINSKY
INSTRUCTION: To withhold authority to vote for any individual, write
that nominee's name in the space provided below.
______________________________________________________________________
2. To consider and vote upon an amendment to the Company's Articles of
Incorporation to increase the Company's authorized Common Stock from
15,000,000 to 50,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. To consider and vote upon the amendments to the Company's 1997 Stock
Option Plan (the "Plan") which (i) increase the number of shares
reserved thereunder for issuance of stock options from 2,000,000 to
3,500,000 shares; (ii) expand the classes of persons eligible to
receive options to include directors, consultants and independent
contractors to the Company; (iii) provide for an annual grant of a
stock option for the purchase of 5,000 shares of the Company's Common
Stock to Non-Employee Directors of the Company; and (iv) permits the
Board to terminate or amend the Plan without shareholder approval,
except where shareholder approval is required by any law, rule or
regulation relating to the listing of the Company's securities.
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any
adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
PROXY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 THROUGH 3. ABSTENTIONS WILL BE COUNTED TOWARD
THE EXISTENCE OF A QUORUM.
Please sign exactly as name appears on this Proxy. When shares are held by
joint tenants, both should sign. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by an
authorized person.
Dated:
--------------------------- ----------------------------------
(Signature)
----------------------------------
(Signature)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE
