<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:
/ / 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
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
/s/ Lawrence Kieves
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.
3
<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
(8 persons)............................................ 4,853,097 47.5%
</TABLE>
- --------------------
* Indicates ownership of less than 1% of the outstanding shares of Common
Stock.
4
<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 on 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.
5
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
--------------------------------------- ---------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS UNDERLYING COMPENSATION (1)
OPTIONS(#)
- ------------------------------------------------- ----------- ------------ --------------- -------------------
<S> <C> <C> <C> <C> <C>
Philip Kives 1999 $ --- $ --- 1,036,000 $ ---
Chief Executive Officer 1998 $ --- $ --- 231,000 $ ---
1997 $ --- $ --- 400,000 $ ---
Jeffrey Koblick 1999 $ 208,500 $ --- 27,500 $ 5,076
Executive Vice President 1998 $ 207,231 $ --- 56,500 $ 4,987
Purchasing & Operations 1997 $ 199,312 $ 30,000 --- $ 3,894
Lawrence Kieves (2) 1999 $ 139,231 $ --- 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.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL RATES OF
NAME SECURITIES GRANTED TO EXERCISE EXPIRATION STOCK PRICE FOR OPTION
UNDERLYING EMPLOYEES IN PRICE DATE TERMS (1)
OPTIONS GRANTED FISCAL YEAR ------------------------------
5% 10%
- -------------------- --------------- ---------------- ------------ ------------- ------------- --------------
<S> <C> <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.
6
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Securities
Shares Acquired Value Underlying Options Value of In-the Money Options
Name on Exercise Realized at FY-End at FY-End (1)
Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------- ----------------- ----------- ----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Philip Kives 429,061 $481,100 245,439/361,500 $---/$---
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 $14.34 per share. The new options retained
the replaced existing option vesting schedules and expiration dates.
The following table shows the options exchanged by an executive officer
who was named in the Summary Compensation Table during the fiscal year ended
June 30, 1999 and information on all repricing of options held by any executive
officer during the last 10 fiscal years. The number of shares and the exercise
prices in the table reflect the Company's one-for-two stock split which was
effective as of May 1, 1998.
<TABLE>
<CAPTION>
Length of
Number of Original
Securities Market Price of Exercise Option Term
Underlying Stock at Time Price at Remaining at
Options of Repricing or Time of New Date of
Repriced or Amendment ($) Repricing or Exercise Repricing or
Name Date Amended (#) 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
7
<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.
8
<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.
9
<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.
10
<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 Messrs. Davis, Smalley, Ward and 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.
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 was 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 at which they are elected directors; (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.
REQUIRED VOTE
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
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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, 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 227,000 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 102,150 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
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<PAGE>
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 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.
14
<PAGE>
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.
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 re-election 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.
<TABLE>
<CAPTION>
1997 STOCK OPTION PLAN
----------------------
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>
- ---------------------
* Indeterminable
REQUIRED VOTE
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.
15
<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-Finance 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 and Chief Financial Officer. 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 7, 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 7,
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
/s/ Lawrence Kieves
Lawrence Kieves
President
Minneapolis, Minnesota
December 6, 1999
17
<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 nominees
contrary below) 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.
