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
/x/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AUDIO KING CORPORATION
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
1) Amount Previously Paid:
--------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------
3) Filing Party:
------------------------------------------------------------
4) Date Filed:
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<PAGE>
AUDIO KING CORPORATION
3501 South Highway 100
Minneapolis, Minnesota 55416
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 15, 1995
To the Shareholders of Audio King Corporation:
The Annual Meeting of the Shareholders of Audio King Corporation, a Minnesota
corporation, will be held on Wednesday, November 15, 1995 at 3:45 p.m. at the
Minneapolis Athletic Club, 615 Second Avenue South, Minneapolis, Minnesota, for
the following purposes:
1. To set the number of directors to constitute the Board at five.
2. To elect directors for the ensuing year.
3. To transact such other business as may properly come before the meeting.
Shareholders of record at the close of business on September 25, 1995,
are entitled to notice of and to vote at the Annual Meeting or any adjournment
or adjournments thereof.
Your attention is directed to the Proxy Statement accompanying this
notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Annual Report for the year ended June 30, 1995 also
accompanies this notice.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, please sign, date, and return your Proxy
with the reply envelope provided.
By Order of the Board of Directors
Stuart L. Finney, Secretary
Minneapolis, Minnesota
Dated: October 6, 1995
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
AUDIO KING CORPORATION
PROXY STATEMENT
for
Annual Meeting of Shareholders
to be held November 15, 1995
INTRODUCTION
Your proxy is solicited by the Board of Directors of Audio King
Corporation (the "Company") for use at the Annual Meeting of Shareholders to be
held on Wednesday, November 15, 1995, at 3:45 p.m. at the Minneapolis Athletic
Club, 615 Second Avenue South, Minneapolis, Minnesota, and at any adjournment
thereof, for the purposes set forth in the Notice of Annual Meeting.
The cost of soliciting proxies, including the cost of preparing,
assembling, and mailing proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers, and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies personally
or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the Annual Meeting by giving written notice of such revocation to the
Secretary or other officer of the Company or by filing a later-dated proxy with
an officer of the Company. The enclosed proxy, when properly signed and returned
to the Company, will be voted by the proxy holders at the Annual Meeting as
directed therein.
The presence at the Annual Meeting in person or by proxy of the holders
of a majority of the outstanding shares of the Company's Common Stock entitled
to vote shall constitute a quorum for the transaction of business. Proxies which
are signed but which lack any specification will, subject to the following, be
voted in favor of the proposals set forth in the Notice of Annual Meeting and in
favor of the number and slate of directors proposed by the Board of Directors
and listed herein. If a broker returns a "non-vote" proxy, indicating a lack of
voting instruction by the beneficial holder of the shares and a lack of
discretionary authority on the part of the broker to vote on a particular
matter, then the shares covered by such non-vote shall be deemed present at the
meeting for purposes of determining quorum but shall not be deemed to be
represented at the meeting for purposes of calculating the vote required for
approval of such matter. If a shareholder abstains from voting as to any matter,
then the shares held by such shareholder shall be deemed present at the meeting
for purposes of determining a quorum and for purposes of calculating the vote
with respect to such matter, but shall not be deemed to have been voted in favor
of such matter. Abstentions as to any proposal will therefore have the same
effect as votes against the proposal.
The mailing address of the offices of the Company is 3501 South Highway
100, Minneapolis, Minnesota 55416. The Company expects that the Notice of Annual
Meeting, Proxy Statement, form of proxy, and Annual Report to Shareholders will
first be mailed to shareholders on or about October 6, 1995.
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders entitled to notice of and to vote at the Annual Meeting
and any adjournment thereof are shareholders of record at the close of business
on September 25, 1995. Persons who are not shareholders of record on such date
will not be allowed to vote at the Annual Meeting. At the close of business on
September 25, 1995, 2,721,329 shares of Common Stock, par value $.001 per share,
were issued and outstanding. Each share of Common Stock is entitled to one vote
on each matter to be voted upon at the Annual Meeting. Holders of Common Stock
are not entitled to cumulate their votes for the election of directors.
<PAGE>
DETERMINATION OF NUMBER OF AND ELECTION OF DIRECTORS
(Proposals #1 and #2)
The Board of Directors recommends that the number of directors to be
elected at the 1995 Annual Meeting be set at five. The Bylaws of the Company
provide that the number of directors shall be the number set by the
shareholders, which shall not be less than three.
Under applicable Minnesota law, approval of the proposal to set the
number of directors at five requires the affirmative vote of the holders of the
greater of (1) a majority of the voting power of the shares represented in
person or by proxy at the Annual Meeting with authority to vote on such matter
or (2) a majority of the voting power of the minimum number of shares that would
constitute a quorum for the transaction of business at the Annual Meeting.
Subject to approval by the shareholders of that recommendation, five
directors will be elected at the Annual Meeting. In the absence of other
instruction, the proxies will be voted for each of the individuals listed below.
If elected, such individuals shall hold office until the next Annual Meeting of
Shareholders and until their successors have been duly elected and qualified.
The five nominees are members of the present Board of Directors. If,
prior to the Annual Meeting, it should become known to the Board of Directors
that any one of the following individuals will be unable or unwilling to serve
as a director after the Annual Meeting, the proxies will be voted for such
substitute nominee as may be selected by the Board of Directors. Alternatively,
the proxies may, at the discretion of the Board of Directors, be voted for such
fewer number of nominees. The Board of Directors has no reason to believe that
any of the nominees will be unable or unwilling to serve. Nominees to the Board
of Directors are elected by the affirmative vote of a majority of the shares
represented in person or by proxy at the Annual Meeting.
Names, Principal Occupations for the Past Five Years
and Selected Other Information Concerning Nominees and Directors
Randel S. Carlock Chairman of Audio King Corporation
Age - 46 since March 1990 and Director since
September 1986
Mr. Carlock has served as Chairman of Audio King Corporation since March 1990
and as a director since September 1986. Mr. Carlock served as President, Chief
Executive Officer of Audio King Corporation from September 1986 to March 1990.
He served as President of Audio King, Inc. from 1980 to September 1986 and as
Vice President from 1977 to 1980. Prior to joining Audio King, Mr. Carlock was
employed by Dayton Hudson Corporation in various capacities in the areas of
finance, buying, and store operations from 1971 to 1977. Mr. Carlock has taught
management classes at the University of Minnesota on a part-time basis since
1984 and presently teaches at the University of St. Thomas Graduate School of
Business. Mr. Carlock is also a director of Grow Biz International, Inc.
<PAGE>
Henry G. Thorne President and Chief Executive Officer of
Age - 48 Audio King Corporation since March 1990;
Treasurer and Chief Financial Officer of
Audio King Corporation since November
1990; President of Audio King, Inc. since
July 1987 and Director of Audio King
Corporation since September 1987
Mr. Thorne has served as President and Chief Executive Officer of Audio King
Corporation since March 1990 and as Treasurer and Chief Financial Officer of
Audio King Corporation since November 1990. Mr. Thorne has also served as
President and Chief Executive Officer of Audio King, Inc. since July 1987. He
was elected a director of Audio King Corporation in September 1987. He served as
Chief Operating Officer of Video King of Illinois, Incorporated from March 1986
to January 1987. Mr. Thorne served as Vice President of NAP Consumer Electronics
Corporation from February 1984 to December 1985. He served as Executive Vice
President of Team Central, Inc. from June 1980 to November 1983.
Sherman A. Swenson Director of Audio King Corporation
Age - 60 since May 1987
Mr. Swenson was elected as a director of Audio King Corporation in May 1987. Mr.
Swenson has served as Executive Vice President-Finance and Administration of
Bethel College in St. Paul, Minnesota since April 1987. He was employed by
Dayton-Hudson Corporation from 1977 through 1986, serving as Chairman and Chief
Executive Officer of B. Dalton Bookseller from 1981 through 1986, Chief
Operating Officer of Dayton's Department Stores from 1980 to 1981, and President
and Chief Executive Officer of Dayton-Hudson Jewelers from 1977 to 1980.
Barry R. Rubin Director of Audio King Corporation
Age - 49 since September 1987
Mr. Rubin has served as a director of Audio King Corporation since September
1987. Mr. Rubin is a partner and currently serves as President of Schweitzer
Rubin Karon & Bremer, a certified public accounting firm which he joined in
1971.
Gary S. Kohler Director of Audio King Corporation
Age - 39 since March 1992
Mr. Kohler has served as a director of Audio King Corporation since March 1992.
Mr. Kohler has been Vice President of Okabena Company, the managing general
partner of Okabena Partnership K, since 1991, and he was a Portfolio Manager for
Okabena Company from 1986 to 1991.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held four meetings during fiscal 1995 (July 1,
1994 through June 30, 1995). The Company has a Compensation Committee consisting
of Gary S. Kohler, Sherman A. Swenson and Barry R. Rubin and a Stock Option
Committee consisting of Barry R. Rubin, Sherman A. Swenson and Gary S. Kohler.
The Compensation Committee held one meeting during fiscal 1995, at which it
reviewed and made recommendations on officer compensation for fiscal 1994. The
Stock Option Committee held one meeting during fiscal 1995. The combined
attendance at the meetings of the Board of Directors, the Compensation
Committee, and the Stock Option Committee was 100%. The entire Board serves as
the Audit Committee and meets with representatives of Arthur Andersen LLP after
the annual audit to review the audit results and the management recommendations.
The Company does not have a nominating committee.
<PAGE>
EXECUTIVE OFFICERS OF AUDIO KING CORPORATION
AND AUDIO KING, INC.
The executive officers of the Company and Audio King, Inc., its operating
subsidiary, are as follows:
Randel S. Carlock Chairman of Audio King Corporation
Age - 46
(See "Determination of Number of and Election of Directors" for Mr. Carlock's
business experience.)
Henry G. Thorne President, Chief Executive Officer,
Age - 48 Treasurer, Chief Financial Officer,
and Director of Audio King Corporation
and President and Chief Executive
Officer of Audio King, Inc.
(See "Determination of Number of and Election of Directors" for Mr. Thorne's
business experience.)
M. Phillip Ward Senior Vice President of Sales
Age - 49 of Audio King, Inc.
Mr. Ward has served as Senior Vice President of Sales of Audio King, Inc. since
August 1993. From April 1983 to August 1993, Mr. Ward served as Vice President
and General Manager of Audio King, Inc. Prior to joining Audio King, Mr. Ward
was employed by Yamaha Electronics Corporation as a regional sales manager from
July 1981 to April 1983.
Samuel F. Nichols Senior Vice President of Marketing
Age - 54 of Audio King, Inc.
Mr. Nichols has served as Senior Vice President of Marketing of Audio King, Inc.
since August 1993. From March 1985 to August 1993, Mr. Nichols served as Vice
President of Marketing of Audio King, Inc. Prior to joining Audio King, Mr.
Nichols was employed by Dayton Hudson Corporation from 1969 to March 1985 in
various merchandising positions, including Senior Buyer and Store Group Manager.
Audrey M. Brick Vice President and Chief Financial
Age - 39 Officer of Audio King, Inc.
Ms. Brick has served as Vice President and Chief Financial Officer of Audio
King, Inc. since August 1995. From April 1989 to August 1995, Ms. Brick served
as Controller of Audio King, Inc. From April 1988 to April 1989, Ms. Brick
served as Assistant Controller of Audio King, Inc. Prior to joining Audio King,
Ms. Brick was employed from 1984 to 1988 as Controller by The Bedroom, Inc.
Steve Gusa Vice President of Management
Age - 40 Development and Training
of Audio King, Inc.
Mr. Gusa has served as Vice President of Management Development and Training of
Audio King, Inc. since August 1995. From July 1995 to August 1995, Mr. Gusa
served as Director of Training and Development of Audio King, Inc. Mr. Gusa
joined Audio King in September 1986 and has held various positions including
Store Manager and Regional Sales Manager. Prior to joining Audio King, Mr. Gusa
was employed by Schaak Electronics and Sound World in various sales and
management postions.
<PAGE>
Michael L. Sell Vice President of FastTrak Electronic
Age - 43 Repair and Audio King Distribution,
both divisions of Audio King, Inc.
Mr. Sell has served as Vice President of FastTrak Electronic Repair of Audio
King, Inc. since August 1995. From January 1981 to August 1995, Mr. Sell served
as General Manager of FastTrak Electronic Repair of Audio King, Inc. and in July
1991, Mr. Sell also became the General Manager of Audio King Distribution.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and the Company's three most highly compensated executive
officers based on salary and bonus earned during fiscal 1995.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------- ---------------------------------
Other Restricted All
Annual Stock LTIP Other
Name and Principal Fiscal Bonus Compensation Awards(s) Options Payouts Compensation
Position Year Salary($) ($) ($) ($) (#) ($) ($)
- - ------------------ ------ --------- ----- ------------ --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry G. Thorne 1995 165,000 42,000 - - 7,000 (1) - 22,530 (2)
President and Chief 1994 165,000 52,500 - - 8,750 - 19,234
Executive Officer 1993 160,000 - - - 50,000 - 2,606
Randel S. Carlock 1995 95,000 21,000 - - 3,500 (1) - 7,988 (3)
Chairman of the Board 1994 95,000 26,250 - - 4,375 - 8,122
1993 106,000 - - - - - 7,702
M. Phillip Ward 1995 100,000 21,000 - - 4,200 (1) - 12,615 (4)
Senior Vice President 1994 100,000 26,250 - - 5,250 - 10,559
of Sales 1993 95,000 - - - - - 2,148
Samuel F. Nichols 1995 100,000 21,000 - - 4,200 (1) - 13,499 (5)
Senior Vice President 1994 100,000 26,250 - - 5,250 - 11,043
of Marketing 1993 95,000 - - - - - 2,686
</TABLE>
(1) Option granted subsequent to June 30, 1995 year end as part of the
officer's fiscal 1995 compensation pursuant to his employment agreement.
The exercise price is $3.68, which was the market value on the date of the
grant.
(2) Includes for Mr. Thorne's benefit a contribution to the Audio King
Corporation Employee Savings Plan of $1,031, a contribution to the officer
disability program of $5,688, and life insurance payments of $15,811.
(3) Includes for Mr. Carlock's benefit a contribution to the Audio King
Corporation Employee Savings Plan of $594, a contribution to the officer
disability program of $2,858, and life insurance premium payments of
$4,536.
<PAGE>
(4) Includes for Mr. Ward's benefit a contribution to the Audio King
Corporation Employee Savings Plan of $625, a contribution to the officer
disability program of $4,084, and life insurance premium payments of
$7,906.
(5) Includes for Mr. Nichols' benefit a contribution to the Audio King
Corporation Employee Savings Plan of $625, a contribution to the officer
disability program of $4,950, and life insurance premium payments of
$7,924.
Option Grants During 1995 Fiscal Year
The following table provides information related to options granted during
fiscal year 1995 to the named executive officers in the Summary Compensation
Table. The options set forth in the Summary Compensation Table for fiscal 1995
were granted subsequent to the June 30, 1995 year end but as a part of the
officers' fiscal 1995 compensation pursuant to their employment agreements.
The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
- - --------------------------------------------------------------------------- Potential Realizable Value
% of Total at Assumed Annual
Options Exercise Rates of Stock Price Appreciation
Granted to or Base for Option Term(1)
Options Employees Price Expiration -----------------------------------
Name Granted (#)(2) in Fiscal Year ($/Share) Date 0% 5% ($) 10% ($)
----- -------------- -------------- --------- ---- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry G. Thorne 8,750 28.50% $4.25 9/19/04 $0 $23,387 $59,267
Randel S. Carlock 4,375 14.25% $4.25 9/19/04 $0 $11,694 $29,634
M. Phillip Ward 5,250 17.10% $4.25 9/19/04 $0 $14,032 $35,560
Samuel F. Nichols 5,250 17.10% $4.25 9/19/04 $0 $14,032 $35,560
</TABLE>
(1) The potential realizable value portion of the forgoing table illustrates
value that might be realized upon exercise of the options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options. These
numbers do not take into account provisions of certain options providing for
termination of the option following termination of employment or
nontransferability.
(2) Options were granted on September 18, 1994, as a result of to the Company
attaining certain goals for fiscal year 1994 and pursuant to the officers'
employment agreements. The options, immediately exercisable on the date of
grant, have an exercise price equal to the fair market value of the Company's
Common Stock on the date of the grant.
Option Exercises During 1995 Fiscal Year and Fiscal Year End Option Values
The following table provides information related to the number and
value of options held by the named executive officers in the Summary
Compensation Table at fiscal year end. There were no options exercised by the
named executive officers during the 1995 fiscal year. The Company does not have
any outstanding stock appreciation rights.
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options Options
Shares at Fiscal Year-End(#) at Fiscal Year-End($)(1)
Acquired Value -------------------------- --------------------------
Name on Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Randel S. Carlock 0 0 4,375 0 0 0
Henry G. Thorne 0 0 108,750 0 226,500 0
M. Phillip Ward 0 0 21,250 0 37,470 0
Samuel F. Nichols 0 0 21,250 0 37,470 0
</TABLE>
(1) The average of the bid and asked prices for the Company's Common Stock as
quoted on the Nasdaq System on June 30, 1995 was $3.375. Value is
calculated on the basis of the difference between the option exercise price
and $3.375 multiplied by the number of shares of Common Stock underlying
the option.
Employment and Change of Control Agreements
The Company and Randel S. Carlock have entered into an employment
agreement which provides that Mr. Carlock will be employed as Chairman of the
Company until June 30, 1996. The agreement provides for a base salary of $95,000
per year and an annual bonus of equal to one-half of the annual bonus paid to
the Company's Chief Executive Officer for the same period plus any discretionary
bonus as determined by the Board of Directors. The agreement also provides for
the payment of an annual premium of $4,536 for a life insurance policy on the
life of Mr. Carlock, with Mr. Carlock being the owner of such policy and naming
the beneficiary. The agreement may be terminated prior to expiration of its term
on 60 days' notice by Mr. Carlock for any reason and by the Company only for
cause, as defined in the agreement, or upon death or disability of Mr. Carlock.
Mr. Carlock has agreed not to compete with the Company in the retail marketing
and sale of consumer electronics for a period of two years following termination
of his employment. For a period of two years after a "Change in Control" of the
Company, as defined in the agreement, Mr. Carlock may terminate his employment
with the Company for "Good Reason," as defined in the agreement, and Mr. Carlock
shall be entitled to receive a payment in an amount equal to two times Mr.
Carlock's base salary for the fiscal year during which the termination occurred
and the bonus paid to Mr. Carlock for the preceding fiscal year. In addition, in
the event of a "Change in Control" termination, Mr. Carlock will not be subject
to the noncompete provisions of his employment agreement.
The Company and Henry G. Thorne have entered into an employment
agreement which provides that Mr. Thorne will be employed as President and Chief
Executive Officer of the Company until June 30, 1996. The agreement provides for
a base salary of $165,000 for fiscal 1994, 1995 and 1996. If the Company meets
the fiscal year end goals established by the Board, Mr. Thorne will receive a
bonus consisting of $60,000 and, subject to approval and appropriate action by
the Company's Stock Option Committee, options to purchase 10,000 shares of the
Company's Common Stock; provided that such bonus will be reduced if the Company
falls short of the goals or increased if the Company exceeds the goals. The
agreement also provides for a discretionary bonus in the sole discretion of the
Board. In addition, the agreement provides for the payment of an annual premium
of $15,000 for a life insurance policy on the life of Mr. Thorne, with Mr.
Thorne being the owner of such policy and naming the beneficiary. The agreement
is renewable for subsequent one-year periods on terms to be determined by mutual
agreement between the Company and Mr. Thorne. The agreement may be terminated
prior to expiration of its term on 60 days' notice by Mr. Thorne for any reason
and by the Company only "for cause," as defined in the agreement, or upon death
or disability of Mr. Thorne. For two years following termination of employment,
Mr. Thorne has agreed not to compete with the Company in the retail marketing
and sale of consumer electronics, and the Company has agreed to pay Mr. Thorne
an amount equal to 75% of his base salary for the fiscal year during which the
termination occurred as severance payments over a two-year period. For a period
of two years after a "Change in Control" of the Company, as defined in the
agreement, Mr. Thorne may terminate his employment with the Company for "Good
Reason," as defined in the agreement, and Mr. Thorne shall be entitled to
receive a payment in an amount equal to two times Mr. Thorne's base salary for
the fiscal year during which the termination occurred and the bonus paid to Mr.
Thorne for the preceding fiscal year. In the event of a "Change in Control"
termination, Mr. Thorne will not be subject to the noncompete provisions of his
employment agreement.
<PAGE>
The Company and M. Phillip Ward have entered into an employment
agreement which provides that Mr. Ward will be employed as Senior Vice President
of Sales until June 30, 1996. The agreement provides for a base salary of
$100,000 for fiscal 1994, 1995 and 1996. If the Company meets the fiscal year
end goals established by the Board, Mr. Ward will receive a bonus consisting of
$30,000 and, subject to approval and appropriate action by the Company's Stock
Option Committee, options to purchase 6,000 shares of the Company's Common
Stock. The agreement also provides for a discretionary bonus in the sole
discretion of the Board; provided that such bonus will be reduced if the Company
falls short of the goals or increased if the Company exceeds the goals. In
addition, the agreement provides for the payment of an annual premium of $7,500
for a life insurance policy on the life of Mr. Ward, with Mr. Ward being the
owner of such policy and naming the beneficiary. The agreement is renewable for
subsequent one-year periods on terms to be determined by mutual agreement
between the Company and Mr. Ward. The agreement may be terminated prior to
expiration of its term on 60 days' notice by Mr. Ward for any reason and by the
Company only "for cause," as defined in the agreement, or upon death or
disability of Mr. Ward. For two years following termination of employment, Mr.
Ward has agreed not to compete with the Company in the retail marketing and sale
of consumer electronics, and the Company has agreed to pay Mr. Ward an amount
equal to 75% of his base salary for the fiscal year during which the termination
occurred as severance payments over a two-year period. For a period of two years
after a "Change in Control" of the Company, as defined in the agreement, Mr.
Ward may terminate his employment with the Company for "Good Reason," as defined
in the agreement, and Mr. Ward shall be entitled to receive a payment in an
amount equal to two times Mr. Ward's base salary for the fiscal year during
which the termination occurred and the bonus paid to Mr. Ward for the preceding
fiscal year. In the event of a "Change in Control" termination, Mr. Ward will
not be subject to the noncompete provisions of his employment agreement.
The Company and Samuel F. Nichols have entered into an employment
agreement which provides that Mr. Nichols will be employed as Senior Vice
President of Marketing of Audio King, Inc. until June 30, 1996. All other terms
of the employment agreement are identical to the terms in the employment
agreement between the Company and Mr. Ward described above.
Compensation of Directors
During fiscal 1995, each director who was not an employee of the
Company (a "Non-Employee Director") received an annual retainer of $5,000. In
addition, pursuant to the Company's 1994 Stock Option Plan, each Non-Employee
Director who is elected or re-elected as a director of the Company at a meeting
of shareholders or whose term continues after a meeting of shareholders at which
directors are elected automatically receives a nonqualified option to purchase
6,000 shares of the Company's Common Stock at a price equal to 100% of the fair
market value of the stock on the date of such meeting, which option is
immediately exercisable in full and expires five years from the date of the
grant.
REPORT OF COMPENSATION COMMITTEE
Overview and Philosophy
The Compensation Committee of the Board of Directors is composed of
Gary S. Kohler, Barry R. Rubin and Sherman A. Swenson and is responsible for
developing and making recommendations to the Board with respect to the Company's
executive compensation policies. In addition, the Compensation Committee,
pursuant to authority delegated by the Board, determines on an annual basis the
compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Company. The Compensation Committee has available to
it an outside compensation consultant and access to independent compensation
data.
<PAGE>
The objectives of the Company's executive compensation program are to:
* Support the achievement of desired Company performance.
* Provide compensation that will attract and retain superior talent
and reward performance.
* Align the executive officers' interests with the success of the
Company by placing a portion of pay at risk; payout dependent upon
corporate performance.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the electronics and retail
industries, as well as a broader group of companies of comparable size and
complexity. Actual compensation levels may be greater or less than average
corporate levels in surveyed companies based upon annual and long-term Company
performance as well as individual performance. The Compensation Committee uses
its discretion to set executive compensation at levels warranted in its judgment
by external, internal or an individual's circumstances.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation, long-term incentive
compensation in the form of stock options and deferred compensation, and various
benefits, including medical and 401(k) savings plans generally available to
employees of the Company.
Base Salary
Base salary levels for the Company's executive officers are set at a
level competitive with companies in the electronics and retail industries and
other comparable companies. In determining salaries, the Committee also takes
into account individual experience and performance and specific issues
particular to the Company.
Annual Incentive Compensation
The Company currently has employment agreements with Randel S. Carlock,
Henry G. Thorne, M. Phillip Ward and Samuel F. Nichols, all of whom are
executive officers of the Company. During 1995 the Company elected three
additional employees as executive officers, but does not have employment
agreements with these officers. Pursuant to Employment Agreements currently in
effect, the Company's executive officers who are subject to such Agreements are
eligible to receive a bonus consisting of stock options and a cash payment, the
amounts of which are dependent upon the extent to which the Company's financial
results meet, exceed or fall short of various goals established for each fiscal
year by the Compensation Committee of the Board of Directors. If the Company
meets the goals established by the Compensation Committee, the executive
officers who are subject to Employment Agreements will receive a cash payment
ranging from $30,000 to $60,000 and, subject to approval and appropriate action
by the Company's Stock Option Committee, stock options covering from 6,000 to
10,000 shares of the Company's Common Stock. These amounts will be decreased if
the Company falls short of the goals or increased if the Company exceeds its
goals. The Company has agreed to pay Mr. Carlock an annual bonus equal to
one-half of the bonus paid to the Chief Executive Officer. In addition to the
contractual bonus, the Board of Directors may, in its sole discretion, award the
executive officers a discretionary bonus based on their individual performance,
financial performance of the Company which significantly exceeds budgeted
amounts, and such other factors as the Board of Directors may determine. During
fiscal 1995, the Company's executive officers who are subject to Employment
Agreements were eligible to receive bonuses provided the Company achieved the
net income set forth in its budget. Because the Company did achieve certain net
income goals, bonuses were paid to executive officers during fiscal 1995 in an
amount equal to 70% of the maximum bonus available. The executive officers who
are not subject to Employment Agreements are eligible to receive cash bonuses
upon the achievement of specific individual goals established by the CompanyOs
Chief Executive Officer.
<PAGE>
Stock Option Program
The stock option program is the Company's long-term incentive plan for
executive officers and key managers. The objectives of the program are to align
executive and shareholder long-term interests by creating a strong and direct
link between executive pay and shareholder return, and to enable executives to
develop and maintain a significant, long-term ownership position in the
Company's Common Stock.
The 1994 Stock Option Plan authorizes a committee of disinterested
directors to award key executives stock options. Stock option grants are
considered annually at an option price equal to the fair market value of the
Company's Stock on the date of the grant, have ten-year terms and may have
vesting requirements over a five-year period. Both the amounts of the awards and
the proportion of stock options increase as a function of higher salary and
position in the Company. Awards are made at a level calculated to be competitive
within the electronics and retail industries as well as a broader group of
companies of comparable size and complexity.
Benefits
The Company provides medical benefits, a 401(k) savings plan and an
Employee Stock Purchase Plan for the executive officers that are generally
available to Company employees. In addition, the Company pays on behalf of
certain executive officers, or reimburses its executive officers for, certain
disability and life insurance premiums. The amount of perquisites received by
such executive officers, as determined in accordance with the rules of the
Securities and Exchange Commission relating to executive compensation, did not
exceed 10% of salary for fiscal 1995.
Chief Executive Officer Compensation
Mr. Thorne has served as the Company's President and Chief Executive
Officer since March 1990. The Company entered into an Employment Agreement with
Mr. Thorne in July 1993 which set Mr. Thorne's base salary at $165,000 for years
1994, 1995 and 1996. These amounts were deemed appropriate in light of the
salaries paid to officers of other companies deemed comparable to the Company
and in light of Mr. Thorne's skill and value to the Company. The agreement
provides for the opportunity to earn a contractual bonus consisting of stock
options and cash payments dependent upon the extent to which the Company meets,
exceeds or falls short of certain goals established by the Compensation
Committee. The Compensation Committee believes the bonus program closely aligns
Mr. Thorne's compensation with the performance of the Company.
Gary S. Kohler
Barry R. Rubin
Sherman A. Swenson
<PAGE>
COMPANY PERFORMANCE
The following graph compares cumulative total stockholder return on the Common
Stock of the Company for the last five fiscal years with the cumulative total
return on the S & P 500 Composite Index and an index of peer companies selected
by the Company. The comparison assumes $100 was invested in the Company's Common
Stock in each of the foregoing indices and assumes reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
(Audio King Corporation, S&P 500, Peer Group)
[GRAPHIC OMITTED]
Source: S&P Compustat Services, Inc.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
June 1990 June 1991 June 1992 June 1993 June 1994 June 1995
Audio King Corporation $100.00 $162.50 $275.00 $225.00 $375.00 $325.00
S & P 500 $100.00 $107.40 $121.80 $138.40 $140.35 $176.94
Peer Group $100.00 $91.38 $117.45 $231.86 $212.01 $265.81
</TABLE>
The total cumulative return on investment (change in year end stock
price plus reinvested dividends) for each of the periods for the Company, the
peer group and the S&P 500 Composite is based on the stock price or composite
index at the end of fiscal 1988.
The above graph compares the performance of the Company with that of
the S&P Composite, and a group of peer companies with the investment weighted on
market capitalization. Companies in the peer group are as follows: Best Buy Co.,
Inc., Circuit City Stores, Inc., Fretter, Inc., Good Guys, Inc., Harvey Group,
Rex Stores Corp., and Sound Advice, Inc. The inclusion of these companies in the
peer group was approved by the Compensation Committee.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company, as of September 25,
1995, by each shareholder who is known by the Company to beneficially own more
than 5% of the outstanding shares of the Company's Common Stock. Unless
otherwise indicated, all persons have sole voting and investment power over such
shares.
<TABLE>
<CAPTION>
Names and Addresses of Number of Percentage of
Owners or Identity of Group Shares Owned (1) Outstanding Shares (1)
--------------------------- ---------------- ---------------------
<S> <C> <C>
Randel S. Carlock 301,353 (2) 11.0%
1817 Knox Avenue South
Minneapolis, Minnesota 55403
Gary S. Kohler 301,334 (3) 11.0%
5140 Norwest Center
Minneapolis, Minnesota 55402
Okabena Partnership K 283,334 10.4%
5140 Norwest Center
Minneapolis, Minnesota 55402
First Bank System, Inc. 365,612 (4) 13.4%
180 East Fifth Street
St. Paul, Minnesota 55101
</TABLE>
(1) Under the rules of the Securities and Exchange Commission, shares not
actually outstanding are nevertheless deemed to be beneficially owned by a
person if such person has the right to acquire the shares within 60 days.
Pursuant to such SEC rules, shares deemed beneficially owned by virtue of a
person's right to acquire them are also treated as outstanding when calculating
the percent of class owned by such person and when determining the percentage
owned by a group.
(2) Includes 8,750 shares which Mr. Carlock may purchase upon exercise of
options which are currently exercisable and 15,000 shares held by the Carlock
Family Foundation; Mr. Carlock, in his capacity as a director, shares the voting
and dispositive power over the shares.
(3) Includes 283,334 shares held by Okabena Partnership K, a Minnesota
partnership; Mr. Kohler, in his capacity as Vice President of Okabena Company,
shares voting and dispositive authority over such shares. Includes 18,000 shares
which may be purchased upon exercise of options which are currently exercisable.
(4) Includes 214,500 shares held by First Trust National Association and 151,112
shares held by First Bank National Association, which shares are held for the
beneficial ownership of various trust or agency accounts for which the
respective holder is trustee and acts in a fiduciary capacity, having sole
voting power over the shares.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of September 25,
1995, by (i) each director, (ii) the named executive officers in the Summary
Compensation Table and (iii) all executive officers and directors, including the
officers of Audio King, Inc., as a group. Unless otherwise indicated, all
persons have sole voting and investment power over such shares.
<TABLE>
<CAPTION>
Names of Number of Percentage of
Owners or Identity of Group Shares Owned(1) Outstanding Shares(1)
--------------------------- --------------- ---------------------
<S> <C> <C>
Randel S. Carlock 301,353 (2) 11.0%
Henry G. Thorne 149,698 (3) 5.3%
Sherman A. Swenson 32,000 (4) 1.2%
Barry R. Rubin 25,000 (5) (10)
Gary S. Kohler 301,334 (6) 11.0%
M. Phillip Ward 55,224 (7) 2.0%
Samuel F. Nichols 56,907 (8) 2.1%
All Executive Officers and
Directors, as a Group 942,282 (9) 31.5%
(10 persons)
</TABLE>
(1) Under the rules of the Securities and Exchange Commission, shares not
actually outstanding are nevertheless deemed to be beneficially owned by a
person if such person has the right to acquire the shares within 60 days.
Pursuant to such SEC rules, shares deemed beneficially owned by virtue of a
person's right to acquire them are also treated as outstanding when calculating
the percent of class owned by such person and when determining the percentage
owned by a group.
(2) Includes 8,750 shares which may be purchased by Mr. Carlock upon exercise of
options which are currently exercisable and 15,000 shares held by the Carlock
Family Foundation. Mr. Carlock, in his capacity as a director, shares the voting
and dispositive power over the shares held by such foundation.
(3) Includes 117,500 shares which may be purchased by Mr. Thorne upon exercise
of options which are currently exercisable or become exercisable within 60 days
of the record date and 2,198 shares held in the Company's 401(k) plan.
(4) Includes 31,000 shares which may be purchased by Mr. Swenson upon exercise
of options which are currently exercisable.
(5) Includes 25,000 shares which may be purchased by Mr. Rubin upon exercise of
options which are currently exercisable.
(6) Includes 283,334 shares held by Okabena Partnership K, a Minnesota
partnership; Mr. Kohler, in his capacity as Vice President of Okabena Company,
shares voting and dispositive authority over such shares. Includes 18,000 shares
which may be purchased by Mr. Kohler upon exercise of options which are
currently exercisable.
(7) Includes 26,500 shares which may be purchased by Mr. Ward upon exercise of
options which are currently exercisable. (8) Includes 26,500 shares which may be
purchased by Mr. Nichols upon exercise of options which are currently
exercisable.
(9) Includes 269,848 shares which may be purchased by executive officers and
directors upon exercise of options which are currently exercisable or become
exercisable within 60 days of the record date.
(10) Less than 1%.
<PAGE>
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Under the Company's Bylaws, any appropriate proposals or nominations to
be submitted by a shareholder of the Company for the 1996 Annual Meeting must be
received in proper form by the Company and its officers by July 17, 1996. In
addition, any other proposals intended to be submitted by a shareholder of the
Company at the 1996 Annual Meeting must be received by the Company at its
offices by June 8, 1996 in appropriate written form to be considered for
inclusion in the Company's Proxy materials relating to its 1996 Annual Meeting.
INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP has been the independent auditors of
the Company since 1987. A representative of Arthur Andersen LLP is expected to
be present at this year's annual meeting, will have an opportunity to make a
statement, if desired, and will be available to answer appropriate questions.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the Annual Meeting of Shareholders, except matters discussed in the Proxy
Statement. If any other matters properly come before the meeting, it is intended
that the shares represented by proxies will be voted in accordance with the
judgment of the persons voting the proxies.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1995 accompanies this Notice of Meeting and Proxy Statement.
No part of such Annual Report is incorporated herein, and no part thereof is to
be considered proxy soliciting material.
FORM 10-K
THE COMPANY WILL FURNISH, WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K OF THE FISCAL YEAR ENDED JUNE 30, 1995, AS FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND
THE FINANCIAL STATEMENT SCHEDULES THERETO. THE COMPANY WILL FURNISH TO ANY SUCH
PERSON ANY EXHIBIT DESCRIBED IN THE EXHIBIT INDEX ACCOMPANYING THE FORM 10-K,
UPON THE PAYMENT, IN ADVANCE, OF REASONABLE FEES RELATED TO THE COMPANY'S
FURNISHING SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH REPORT AND/OR EXHIBIT(S)
SHOULD BE DIRECTED TO HENRY G. THORNE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
THE COMPANY, AT THE COMPANY'S PRINCIPAL ADDRESS.
By Order of the Board of Directors
October 6, 1995 Stuart L. Finney, Secretary
<PAGE>
AUDIO KING CORPORATION
PROXY FOR 1995 ANNUAL MEETING OF SHAREHOLDERS
This proxy is solicited by the Board of Directors.
The undersigned, revoking all prior proxies, hereby appoints Randel S.
Carlock and Henry G. Thorne, or either one of them, with full power of
substitution, as proxy or proxies, to vote all shares of Common Stock of Audio
King Corporation of the undersigned at the Annual Meeting of Shareholders on
November 15, 1995, and at all adjournments thereof, on the following matters:
1. To set the number of directors to constitute the Board at five.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To elect directors for the ensuing year.
[ ] FOR all nominees listed below (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Randel S. Carlock, Henry G. Thorne, Sherman A. Swenson, Barry R. Rubin, and
Gary S. Kohler
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
---------------------------------------------------------
3. In their discretion, the appointed proxies are hereby authorized to vote
on such other business as may properly come before the meeting.
This Proxy is solicited by the Board of Directors and will be voted as specified
above. If no specification is made, the Proxy will be voted in favor of the
above matters.
Please complete, sign, and mail this Proxy promptly in the enclosed addressed
envelope which requires no postage if mailed in the United States.
------------------------------------
Dated: , 1995
------------------ ------------------------------------
Signature(s) of Shareholder(s)
(Please sign your name exactly as it appears hereon, indicating, where proper,
official position or representatiave capacity. In the case of stock held in
joint tenancy, all joint tenants must sign.)
