SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) 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 Information Statement
[X] Definitive Information Statement
[ ] Confidential, for use of the Commission only
(as permitted by Rule 14c-5(d)(2))
SKYMALL, INC.
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(Name of Registrant as Specified in Its Charter)
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(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 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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<PAGE>
SKYMALL, INC.
1520 East Pima Street
Phoenix, Arizona 85034
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 1997
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To the Shareholders of SkyMall, Inc.:
The Annual Meeting of the shareholders of SkyMall, Inc., a Nevada
corporation (the "Company"), will be held at Red Lion's La Posada Resort, 4949
East Lincoln Drive, Scottsdale, Arizona, on Thursday, May 15, 1997, at 10:00
a.m. P.S.T. for the following purposes:
1. To elect five directors to serve one-year terms; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on April 2, 1997 (the
"Record Date") are entitled to vote at the meeting and at any adjournment or
postponement thereof. Shares can be voted at the meeting only if the holder is
present or represented by proxy. A list of shareholders entitled to vote at the
meeting will be available for inspection at the Company's corporate headquarters
for any purpose germane to the Annual Meeting during ordinary business hours for
ten (10) days prior to the meeting.
A copy of the Company's 1996 Annual Report to Shareholders, which includes
audited financial statements, is enclosed. Management and the Board of Directors
cordially invite you to attend the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert M. Worsley
Chairman, Chief Executive Officer and President
Phoenix, Arizona
April 11, 1997
<PAGE>
SKYMALL, INC.
INFORMATION STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 1997
TABLE OF CONTENTS
INFORMATION STATEMENT........................................................ 1
ELECTION OF DIRECTORS........................................................ 1
Meetings and Committees of the Board of Directors........................... 4
Directors' Fees and Employment Agreement.................................... 4
EXECUTIVE COMPENSATION....................................................... 4
Summary Compensation Table.................................................. 5
Option/SAR Grants in Last Fiscal Year ...................................... 5
Aggregated Options/SAR Exercises and Fiscal Year-End Option/SAR Values...... 6
Stock Option Plans.......................................................... 6
401(k) Plan................................................................. 6
Employment Agreement........................................................ 7
Compensation Committee Report............................................... 7
Stock Price Performance Graph............................................... 7
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...................... 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 10
Tax Indemnification......................................................... 11
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS................................ 12
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING............................ 12
OTHER BUSINESS............................................................... 12
1996 ANNUAL REPORT ON FORM 10-K.............................................. 12
<PAGE>
SKYMALL, INC.
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INFORMATION STATEMENT
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This Information Statement is furnished by the Board of Directors of
SkyMall, Inc. (the "Company" or "SkyMall") in connection with the Annual Meeting
of Shareholders to be held on May 15, 1997. Materials relating to the Annual
Meeting were mailed on or about April 11, 1997 to shareholders of record at the
close of business on April 2, 1997 (the "Record Date"). Only shareholders on the
Record Date are entitled to notice of and to vote at the Annual Meeting or any
adjournment or postponement thereof. As of the Record Date, there were
outstanding 8,654,000 shares of the Company's Common Stock. Shareholders are
entitled to one vote for each share of Common Stock held of record on each
matter of business to be considered at the Annual Meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement was mailed to all shareholders entitled to vote
at the Annual Meeting on or about April 11, 1997. The corporate offices of the
Company are located at 1520 East Pima Street, Phoenix, Arizona 85034 and its
telephone number at that address is (602) 254-9777.
ELECTION OF DIRECTORS
The Board of Directors currently consists of five members. Each director of
the Company is elected for a period of one year at the Company's annual meeting
of shareholders and serves until his or her successor is duly elected and
qualified. The Company has nominated all of its existing directors to be
re-elected at the Annual Meeting. The Company's Bylaws provide that any
shareholder entitled to vote in an election of directors may nominate persons
for election as directors only if written notice of such shareholder's intent to
make such nomination is given, either by personal delivery or by United States
mail, postage prepaid to the Secretary, SkyMall, Inc., 1520 East Pima Street,
Phoenix, Arizona 85034, not less than thirty (30) days and not more than sixty
(60) days prior to the Annual Meeting; provided that if less than forty-five
(45) days notice or prior public disclosure of the date of the Annual Meeting is
given or made to shareholders, such nomination must be mailed or delivered to
the Secretary not later than the close of business on the 10th day following the
date on which the notice of the meeting was mailed or public disclosure was
made, whichever occurs first. Each such notice must set forth: (a) with respect
to the nominee, (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the Company which are
beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed with respect to nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such persons' written consent to be named as a
nominee and to serve as a director if elected); and (b) as to the shareholder
giving the notice (i) the name and address, as they appear on the Company's
books, of such shareholder and (ii) the class and number of shares of the
Company that are beneficially owned by such shareholder and (c) as to the
beneficial owner, if any, on whose behalf the nomination is made, (i) the name
and address of such person and (ii) the class and number of shares of the
Company that are beneficially owned by such person. The chairman of the Annual
Meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedures.
1
<PAGE>
Information concerning the directors and executive officers of the Company
is set forth below.
NAME AGE POSITION
---- --- --------
Robert M. Worsley 41 Chairman of the Board, Chief Executive Officer and
President
Christine A. Aguilera 33 Vice President of Business Development, General
Counsel and Secretary
Jonathan T. Davis 44 Vice President of Marketing - Customers
John H. Hurley 32 Vice President of Operations
Martin F. Smith 39 Vice President of Marketing - Merchants
David A. Wirthlin 36 Vice President of Finance, Chief Financial Officer
and Treasurer
Alan C. Ashton 52 Director
Lyle R. Knight 51 Director
Thomas J. Litle 56 Director
Randy Petersen 42 Director
ROBERT M. WORSLEY has been the Chairman of the Board, Chief Executive
Officer and President of the Company since it was founded in 1989. From 1985 to
1989, Mr. Worsley was a principal of ExecuShare, Inc., an executive services
firm that provided time-shared financial executives for small companies. From
1980 to 1985, Mr. Worsley was an accountant with Price Waterhouse, a public
accounting firm, where he most recently held the position of Audit Manager. Mr.
Worsley received a bachelor's degree in accounting from Brigham Young University
in 1980. Mr. Worsley is a Certified Public Accountant.
CHRISTINE A. AGUILERA has served as SkyMall's Vice President of Business
Development, General Counsel and Secretary since February 1997. From 1992 until
joining the Company, Ms. Aguilera was an attorney in Phoenix, Arizona practicing
in the areas of corporate and securities law at several large law firms,
including most recently Squire, Sanders & Dempsey, LLP. From 1989 until 1992,
Ms. Aguilera attended The University of Texas School of Law, where she received
a law degree in 1992. From 1986 until 1989, Ms. Aguilera practiced public
accounting with Coopers & Lybrand, where she most recently held the position of
Audit Supervisor. Ms. Aguilera received bachelors' degrees in accounting and
finance from New Mexico State University in 1986. Ms. Aguilera is a Certified
Public Accountant and a member of the State Bar of Arizona.
JONATHAN T. DAVIS has served as SkyMall's Vice President of Marketing --
Customers since August 1996. Prior to joining the Company, Mr. Davis served as
the Vice President of Marketing for Merchants Square, Inc., a television home
shopping network for catalog companies, from 1995 until 1996. Mr. Davis also
served as Director of Marketing for a children's merchandise catalog company,
The Right Start, Inc., from 1992 until 1995, and as Customer Marketing Manager
for L.L. Bean, an outdoor clothing and equipment catalog retailer, from 1989
until 1991. Mr. Davis was the Mail Order Manager for Brookstone, a specialty
goods retailer, from 1984 until 1989. Mr. Davis received a bachelors' degree
from Amherst College in 1975 and an M.B.A. from Columbia University Graduate
School of Business in 1980.
JOHN H. HURLEY has served as the Vice President of Operations since June
1996. Mr. Hurley joined the Company in December 1991 as a Call Center Sales
Agent and was promoted to various positions, including Call Center Sales Manager
and Call Center Sales Director, before becoming SkyMall's Vice President of
Direct Marketing in December 1995. Before joining the Company, Mr. Hurley held
positions in customer relations and sales at Cellular One from 1984 until 1991.
2
<PAGE>
MARTIN F. SMITH has served as SkyMall's Vice President of Marketing --
Merchants since November 1994. Prior to joining the Company, Mr. Smith served as
Director of Sales, Marketing and Advertising for Fulton Homes from 1992 until
1994, and for Tradewinds Homes from 1985 until 1990, both of which are new home
construction firms. Mr. Smith also was employed as District Sales Manager for a
chemical company, Huntsman Chemical Corp., from 1990 until 1992.
DAVID A. WIRTHLIN has served as the Vice President of Finance, Chief
Financial Officer and Treasurer of the Company since 1994. From 1989 until 1994,
he was employed by Arthur Andersen LLP in operational consulting, where he most
recently held the position of Audit Manager. From 1987 until 1989, Mr. Wirthlin
was a student at the University of Chicago Graduate School of Business, where he
received an MBA. Prior to attending business school, Mr. Wirthlin was employed
by Arthur Andersen LLP from 1985 to 1987. Mr. Wirthlin received a Bachelor of
Arts in accounting from the University of Utah in 1985. Mr. Wirthlin is a
Certified Public Accountant.
ALAN C. ASHTON, who was a co-founder of SkyMall, has been a director of the
Company since December 1996. Dr. Ashton was a co-founder of WordPerfect
Corporation and, from its inception in 1978 until 1993, served as its President.
Dr. Ashton graduated magna cum laude in mathematics from the University of Utah
in 1966 and received a Ph.D. in computer science from the same university in
1970. Dr. Ashton was professor of computer science at Brigham Young University
for 14 years from 1977 until 1991. Dr. Ashton serves on the Boards of Directors
of Geneva Steel Co. and Fonix Corporation.
LYLE R. KNIGHT has been a director of the Company since December 1996. In
1992, Mr. Knight became President and Chief Executive Officer of Caliber Bank,
an affiliate of BankAmerica Corporation. From 1993 until 1995, Mr. Knight served
as President of Caliber Bank, a wholly owned subsidiary of Independent Banks of
Arizona, which has subsequently merged with Norwest Corporation, and Mr. Knight
is currently Senior Vice President of Norwest Banks Arizona. From 1989 until
1992, Mr. Knight was President and Chief Executive Officer of Security Pacific
Bank, Nevada. Mr. Knight graduated from the University of Utah in 1968 with a
Bachelor of Science degree in Banking and Finance and, in 1982, graduated with
honors from Pacific Coast Banking School.
THOMAS J. LITLE has been a director of the Company since December 1996. In
1985, Mr. Litle founded Litle & Company, Inc., which provides information
sharing, payment processing and electronic network services to the direct
marketing industry. Mr. Litle was Chairman of Litle & Company's Board of
Directors and its Chief Executive Officer until 1995, when the business was sold
to First USA. In connection with the sale to First USA, Mr. Litle retained the
networking and non-payment processing part of the business and formed LitleNet
LLC, of which he is the Chairman, which also provides direct commerce connection
and information sharing services to the direct marketing industry. Mr. Litle
received an M.B.A. from Harvard Graduate School of Business Administration in
1964 after graduating from California Institute of Technology with a Bachelor of
Science degree in 1962. Mr. Litle also serves on the Board of Directors of the
Direct Marketing Association, the New York University Center for Direct
Marketing, the Direct Marketing Information Exchange, Foster & Gallagher,
Kearsarge Capital Corp., Tessera, the Catalog Systems Management Network and the
National Catalog Operations Forum.
RANDY PETERSEN has been a director of the Company since December 1996. In
1986, Mr. Petersen founded and is currently the President and Chairman of the
Board of Frequent Flyer Services. Frequent Flyer Services publishes a monthly
frequent flyer magazine and an annual frequent flyer guidebook, produces
frequent traveler oriented merchandise and provides various travel-related
services. Mr. Petersen is also a member of the Association of Corporate Travel
Executives and serves on the Advisory Board of the International Airline
Passenger Association. Mr. Petersen serves on the Board of Directors of
FlightPlan, Inc., TeleMiles, Inc. and Travel & Calling Card, Inc.
3
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1996, the Board of Directors met five times. Each director
attended all of the meetings held during fiscal 1996. During 1996, the Company
had no Audit or Compensation Committees. In February 1997, the Board appointed
Lyle R. Knight and Thomas J. Litle to serve on the Company's Audit Committee.
The Audit Committee is responsible for reviewing and making recommendations
regarding the Company's employment of independent auditors, the annual audit of
the Company's financial statements and the Company's internal accounting
controls, practices and policies. Also in February 1997, the Board appointed
Alan C. Ashton and Randy Petersen to serve on the Company's Compensation
Committee. The Compensation Committee is responsible for making recommendations
to the Board of Directors regarding compensation arrangements for executive
officers of the Company, including annual bonus compensation, and consults with
management of the Company regarding compensation policies and practices. The
Compensation Committee also makes recommendations concerning the adoption of any
compensation plans in which management is eligible to participate, including the
granting of stock options or other benefits under such plans.
DIRECTORS' FEES AND EMPLOYMENT AGREEMENT
Directors who are not employees of the Company receive a quarterly retainer
of $2,500, an option to purchase 5,000 shares of the Company's Common Stock at
its fair market value on the date of grant upon appointment to the Board of
Directors, and an annual option to purchase 3,000 shares of the Company's Common
Stock at its fair market value on the date of grant provided they have attended
a required minimum number of board and committee meetings during the year. All
directors are reimbursed for expenses incurred in connection with attendance at
meetings of the Board of Directors or committees thereof. Directors who are also
officers of the Company will not be compensated for their services as directors.
With the exception of Robert M. Worsley, who has an employment agreement
with the Company which is described below, each of the executive officers serves
at the pleasure of the Company's Board of Directors.
EXECUTIVE COMPENSATION
The table on the following page sets forth certain information regarding
annual and long-term compensation for services rendered to the Company during
the fiscal years ended December 31, 1995 and 1996 by the Chief Executive Officer
of the Company and other executive officers of the Company who had a total
salary and bonus in fiscal 1996 that exceeded $100,000 (collectively, the "Named
Executive Officers"). No executive officer, other than the Chief Executive
Officer, had a total salary and bonus in fiscal 1995 that exceeded $100,000.
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL OTHER ANNUAL OPTIONS/SARS COMPENSATION
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) (1)(#) (2)($)
-------- ---- --------- -------- --------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
ROBERT M. WORSLEY 1995 138,295 7,500 4,749(3) -0- 1,382
Chairman of the Board 1996 159,077 20,000 6,110(3) -0- 1,369
Chief Executive
Officer and President
MARTIN F. SMITH 1996 95,992 -0- 66,076(4) 54,135(5) 1,045
Vice President of
Marketing --
Merchants
DAVID A. WIRTHLIN 1996 80,000 25,000 -0- 108,270(5) 800
Chief Financial Officer
</TABLE>
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(1) Consists entirely of stock options.
(2) Employer matching contributions pursuant to the Company's 401(k) plan.
(3) Includes a pro rata portion of premiums paid on a life insurance policy on
the life of Mr. Worsley under which a portion of the benefits are payable
to beneficiaries other than the Company.
(4) Commissions earned on sales of merchandise and placement fees.
(5) Includes options to acquire 54,135 shares of Common Stock that were
repriced from $7.39 to $5.56 per share during fiscal 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth for each Named Executive Officer certain
information concerning individual grants of stock options during the 1996 fiscal
year.
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
ASSUMED RATES OF ANNUAL STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
--------------------------------------------------- --------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SAR EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(2) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
DAVID A. WIRTHLIN 54,135(3) 32.3% $5.56 9/30/2006 189,473 479,636
Chief Financial
Officer
</TABLE>
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(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% or 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that
the market price of the underlying security appreciates at the indicated
rate for the entire term of the option and that the option is exercised at
the exercise price and sold on the last day of its term at the appreciated
price.
(2) Consists entirely of stock options.
(3) The option may be exercised for 40% of the underlying stock beginning on
September 30, 1996, for another 20% beginning on September 30, 1997, for
another 20% beginning on September 30, 1998 and for the final 20% beginning
on September 30, 1999.
5
<PAGE>
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
YEAR END AT FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---- ---------------------------- ----------------------------
Martin F. Smith 43,308/10,827 $143,566/$35,891
David A. Wirthlin 64,962/43,308 $215,749/$143,566
- ----------
(1) Consists entirely of stock options.
(2) Value is based on the difference between the exercise price of such options
and the closing price of the Company's Common Stock on the Nasdaq National
Market on December 31, 1996 of $8.875 per share.
STOCK OPTION PLANS
1994 Stock Option Plan. The Company has adopted the SkyMall 1994 Stock
Option Plan (the "Option Plan") pursuant to which incentive and nonqualified
stock options may be granted from time to time to directors, officers and other
key employees of the Company at an exercise price of not less than fair market
value on the date of grant, provided that until December 1997, the one-year
period following the Company's initial public offering, no options may be
granted at an exercise price less than $8.00 per share, which was the initial
public offering price of the Company's Common Stock. The recipients of options,
length of options, exercise price and other terms are determined by the Board of
Directors upon recommendation of the Compensation Committee. The maximum number
of shares of Common Stock subject to options that may be outstanding at any time
under the Option Plan is 650,000, subject to a proportionate increase or
decrease in the event of a stock split, reverse stock split, stock dividend, or
other adjustment to the Company's total number of outstanding shares of Common
Stock. The Company has granted options to employees of the Company to purchase a
total of 503,080 shares.
Non-Employee Plan. The Company has also adopted the SkyMall Non-Employee
Director Stock Option Plan (the "Non-Employee Plan"), which authorizes the Board
of Directors to grant options to non-employee directors of the Company to
purchase shares of Common Stock of the Company. Non-Employee directors of the
Company receive an automatic grant of options to purchase 5,000 shares of Common
Stock on appointment to the Board of Directors and thereafter receive an
automatic grant of options to purchase 3,000 shares annually. In general,
options granted under the Non-Employee Plan are not transferable and expire ten
years after the date of the grant. The per share exercise price of a stock
option granted under the Non-Employee Plan may not be less than the fair market
value of the Common Stock on the date of the grant. The maximum number of shares
of Common Stock that may be outstanding at any time under the Non-Employee Plan
is 100,000, subject to a proportionate increase or decrease in the event of a
stock split, reverse stock split, stock dividend, or other adjustment to the
Company's total number of outstanding shares of Common Stock. The Company has
granted options to non-employee directors to purchase a total of 32,000 shares.
401(K) PLAN
Under the Company's 401(k) plan, adopted in 1992, eligible employees may
direct that a portion of their compensation, up to a legally established
maximum, be withheld by the Company and contributed to their accounts. All
401(k) plan contributions are placed in a trust fund to be invested by the
401(k) plan's trustee, except that the 401(k) plan may permit participants to
direct the investment of their account balances among mutual or investment funds
available under the plan. The 401(k) plan provides a matching contribution of
25% of a participant's contributions up to a maximum of four percent of the
participant's annual salary.
6
<PAGE>
Amounts contributed to participant accounts under the 401(k) plan and any
earnings or interest accrued on the participant accounts are generally not
subject to federal income tax until distributed to the participant and may not
be withdrawn until death, retirement or termination of employment.
EMPLOYMENT AGREEMENT
On September 30, 1996, the Company's Board of Directors approved an
employment agreement with Robert M. Worsley for services as Chairman of the
Board, Chief Executive Officer and President. This agreement requires Mr.
Worsley to devote his full time to the Company during normal business hours in
exchange for a base annual salary of $190,000, subject to annual increases at
the discretion of the Board of Directors. In addition, Mr. Worsley is entitled
to receive bonuses at the discretion of the Board of Directors in accordance
with the Company's bonus plans in effect from time to time, and the Company will
pay certain life and disability insurance premiums on behalf of Mr. Worsley. The
agreement has an initial three-year term and is automatically extended for
successive two-year renewal periods without any action of the Company or Mr.
Worsley unless the Company or Mr. Worsley provides written notice of termination
to the other party no less than 30 days prior to the expiration of the initial
term of the agreement or of any successive renewal period. Pursuant to the
agreement, Mr. Worsley may not compete with the Company anywhere in the United
States on the termination of Mr. Worsley's employment for a period of two years.
COMPENSATION COMMITTEE REPORT
The Company completed its initial public offering in December of 1996.
Prior to its initial public offering, the Company had no Compensation Committee.
During 1996, compensation of the Company's management was determined by the
Company's sole director, Robert M. Worsley. In February 1997, in compliance with
applicable Nasdaq National Market requirements, the Company's Board of Directors
appointed a Compensation Committee. See "ELECTION OF DIRECTORS - Meetings and
Committees of the Board of Directors." In fiscal 1997, the Compensation
Committee will review the compensation levels of management and make
recommendations to the Board of Directors as it deems appropriate regarding such
compensation.
STOCK PRICE PERFORMANCE GRAPH
The Company's Common Stock commenced trading on the Nasdaq National Market
under the symbol "SKYM" on December 11, 1996. Because the Company's Common Stock
traded for only a brief period in 1996, the Company believes a stock price
performance graph would not be meaningful.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and beneficial owners of more than ten percent of
the Common Stock to file with the Securities and Exchange Commission initial
statements of beneficial ownership and statements of changes in beneficial
ownership of the Common Stock and other equity securities of the Company held by
such persons. Except as noted below, the Company believes, based solely upon a
review of the copies of such beneficial ownership statements furnished to it,
that during the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to the Company's officers, directors and owners of more
than ten percent of the Company's Common Stock were complied with.
7
<PAGE>
The following officers, directors and owners of ten percent or more of the
Company's Common Stock owned certain Convertible Preferred Stock that they
acquired from the Company in a private placement in October 1996 (the "1996
Private Placement"). The Convertible Preferred Stock automatically converted
into Common Stock of the Company upon the closing of the Company's initial
public offering in December 1996. Due to an inadvertent error, the following
persons failed to timely report the conversion of the Convertible Preferred
Stock into Common Stock on a Form 4:
NAME TITLE OR AFFILIATION
---- --------------------
Robert M. Worsley Chairman, President and Chief Executive Officer;
10% shareholder
Christi M. Worsley 10% shareholder
Alan C. Ashton Director and 10% shareholder
Karen Ashton 10% shareholder
Bert A. Getz 10% shareholder
David A. Wirthlin Vice President of Finance, Chief
Financial Officer and Treasurer
Martin F. Smith Vice President of Marketing - Merchants
Thomas J. Litle Director
Lyle K. Knight Director
Martin F. Smith, Vice President of Marketing - Merchants, John H. Hurley,
Vice President of Operations and Thomas J. Litle, Director, purchased shares of
Common Stock in the Company's initial public offering in December of 1996. Due
to an inadvertent error, Mr. Smith, Mr. Hurley and Mr. Litle failed to timely
report the acquisition of the Common Stock on a Form 4.
The Company has advised its officers, directors and owners of ten percent
of more of the Company's Common Stock of their obligations under Section 16(a)
of the Securities Exchange Act of 1934 and has implemented procedures to help
prevent inadvertent errors in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table on the following page sets forth certain information as of March
21, 1997, concerning the beneficial ownership of the Company's Common Stock by
(i) each beneficial owner of more than 5% of the Company's Common Stock, (ii)
each director of the Company, (iii) each executive officer of the Company,
including the Named Executive Officers, and (iv) all directors and executive
officers of the Company as a group. To the knowledge of the Company, all persons
listed in the table have sole voting and investment power with respect to their
shares, except to the extent that authority is shared by their respective
spouses under applicable law.
8
<PAGE>
SHARES BENEFICIALLY
OWNED (1)
---------------------
NAMES AND ADDRESS OF BENEFICIAL OWNER (2) NUMBER PERCENT
- ----------------------------------------- ------ -------
Robert M. and Christi M. Worsley (3) ............... 5,196,714 60.0%
Alan C. and Karen Ashton (4) (5) ................... 2,394,798 27.7%
Bert A. Getz (6) ................................... 1,074,596 12.4%
David A. Wirthlin (7) .............................. 68,682 *
Martin F. Smith (8) ................................ 49,368 *
Jonathan T. Davis (9) .............................. 21,654 *
John H. Hurley (10) ................................ 2,200 *
Christine A. Aguilera .............................. 0 *
Thomas J. Litle (5)(11) ............................ 37,900 *
Lyle R. Knight (5)(11) ............................. 32,800 *
Randy Petersen (5) ................................. 8,000 *
All directors and executive officers of
the Company as a group (10) persons ............... 5,412,518 62.5%
- ----------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the exercise
of any option, warrant or right. Shares of Common Stock subject to options,
warrants or rights that are currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage of the person
holding such options, warrants or rights, but are not deemed outstanding
for computing the percentage of any other person. The amounts and
percentages are based upon 8,654,000 shares of Common Stock outstanding as
of March 21, 1997.
(2) The business address for all directors (except Alan C. Ashton) and officers
of the Company is c/o the Company, 1520 E. Pima Street, Phoenix, Arizona
85034.
(3) Includes (i) 2,386,798 shares of Common Stock that Robert M. and Christi M.
Worsley (the "Worsleys") have the right to acquire from Alan C. and Karen
Ashton (the "Ashtons"); (ii) 537,298 shares of Common Stock that the
Worsleys have the right to acquire from Bert A. Getz; and (iii) 900 shares
of Common Stock issuable upon exercise of certain warrants acquired in the
Company's 1996 Private Placement. See "Certain Relationships and Related
Transactions."
(4) The address for the Ashtons is c/o Ralph Rasmussen, Esq., 261 E. 1200
South, Orem, Utah 84058.
(5) Includes 8,000 shares issuable upon exercise of certain stock options
granted pursuant to the Company's Non-Employee Director Stock Option Plan.
(6) The address for Mr. Getz is c/o Globe Corporation, 6730 North Scottsdale
Road, Suite 250, Scottsdale, Arizona 85253.
(7) Includes (i) 64,962 shares issuable upon exercise of stock options granted
to Mr. Wirthlin pursuant to the Option Plan; and (ii) 900 shares of Common
Stock issuable upon exercise of the certain warrants acquired in the
Company's 1996 Private Placement.
(8) Includes (i) 43,308 shares issuable upon exercise of stock options granted
to Mr. Smith pursuant to the Option Plan; and (ii) 1,200 shares of Common
Stock issuable upon exercise of certain warrants acquired in the Company's
1996 Private Placement.
(9) Includes 21,654 shares issuable upon exercise of stock options granted to
Mr. Davis pursuant to the Option Plan.
(10) Includes 2,000 shares issuable upon exercise of stock options granted to
Mr. Hurley pursuant to the Option Plan.
(11) Includes 6,000 shares of Common Stock issuable upon exercise of certain
warrants acquired in the Company's 1996 Private Placement.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To fund the Company's working capital requirements, on March 17, 1994, the
Company obtained loans (the "Working Capital Loans") of $2.0 million from the
Ashtons and $1.0 million from Globe Corporation, an affiliate of Bert Getz
(Globe Corporation and Bert Getz are collectively referred to as "Getz"). These
loans paid interest monthly at a rate of 8.5% and originally matured on July 15,
1994, which date was extended to January 1, 1996 pursuant to a loan modification
and pledge agreement by and between the Company, the Ashtons, the Worsleys and
Getz.
On June 30, 1995, the Ashtons loaned an additional $850,000 to the Company
pursuant to a loan and security agreement (the "Ashton Note"). The Note was due
on December 31, 1995 and carried an interest rate of prime plus 2%.
On March 10, 1995, the Company owed $4.0 million to Bank One Arizona, NA
pursuant to the terms of a Loan Agreement dated April 30, 1993 (the "Bank One
Loan"). The Bank One Loan had an interest rate of prime plus 1 1/2% and matured
on April 15, 1995. On March 11, 1995, Getz paid all principal due on the Bank
One Loan, which totaled $4.0 million, and the Company entered into a Loan and
Security Agreement with Getz pursuant to which it agreed to pay Getz $4.0
million (the "Getz Note"). The Getz Note was due on March 11, 1996 and carried
an interest rate of prime plus 1 1/2%.
On October 15, 1996, the Worsleys, the Ashtons, Getz and the Company
entered into agreements (collectively, the "Shareholder Agreements") pursuant to
which the Ashtons and Getz agreed to convert shareholder loans of $1.425 million
and $3.575 million, respectively, into 1,425 and 3,575 shares of Convertible
Preferred Stock of the Company, respectively, effective as of October 20, 1996,
the closing date of the Company's 1996 Private Placement. In addition, under the
Shareholder Agreements, on December 16, 1996, the closing date of the Company's
initial public offering (the "Offering"), the Worsleys acquired an option (the
"Ashton Option") to acquire all of the Common Stock of the Company held by the
Ashtons during the two-year period following the Offering (exclusive of shares
acquired by them in the open market). The Worsleys have agreed to use their best
efforts to obtain financing, including pledging their shares of the Company's
Common Stock, if necessary, from a third party to permit them to exercise the
Ashton Option in full as soon as reasonably practicable following the expiration
of their lock-up agreement with the Company's underwriters in the Offering. In
addition, the Worsleys will have an option (the "Getz Option") to acquire
one-half of all of the Common Stock of the Company held by Getz during the
18-month period following the Offering (exclusive of shares acquired by him in
the open market). The exercise prices of the Ashton Option and the Getz Option
are $6.96 per share and $6.69 per share, respectively, subject to adjustment in
certain circumstances. If the Ashton Option is not exercised during its two-year
term, then following such term, the Worsleys will have a right of first refusal
to purchase all of the Common Stock held by the Ashtons during the following
five years. For twelve months following the Offering, the Ashtons have granted
an irrevocable proxy to the Worsleys to vote all shares of Common Stock owned by
them. If the Getz Option is not exercised during its 18-month term, then
following such term, the Worsleys will have a right of first refusal to purchase
one-half of the shares of Common Stock owned by Getz during the following 18
months.
In order to refinance $2.0 million of notes payable (and interest accrued
thereon) to each of the Ashtons and Getz, the Company entered into a loan
agreement for a $4.0 million line of credit with Merrill Lynch Business
Financial Services Inc. ("MLBFS") dated October 11, 1996. The loan had a
maturity date of December 31, 1998 and a variable annual interest rate of 2.6
percent plus the 30-Day Commercial Paper Rate as quoted in The Wall Street
Journal. In connection with the MLBFS loan, Ashton and Getz executed Financial
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Assets Security Agreements with MLBFS, granting MLBFS a security interest in
Merrill Lynch securities accounts of at least $2.0 million each owned by Ashton
and Getz, respectively. In January of 1997, the Company refinanced the $4.0
million line of credit payable to MLBFS with a $5.0 million line of credit with
Imperial Bank. The Company pledged substantially all of its assets as security
for the Imperial Bank loan. Upon refinancing of the MLBFS line of credit with
Imperial Bank, the MLBFS line of credit was repaid and the related Financial
Assets Security Agreements of Ashton and Getz were terminated.
In April 1993, the Company redeemed 2,268,898 shares of Common Stock held
by the Ashtons in exchange for certain intellectual property, including the
Company's principal trademarks and trade names. The Company secured an exclusive
license to use the intellectual property acquired by the Ashtons in return for a
1% royalty on the Company's sales commencing January 1, 1994. On October 1,
1994, the Ashtons exercised an option granted to them as part of the license,
terminated the Company's obligation to pay the royalty, transferred the
intellectual property back to the Company and were issued 2,268,898 shares of
Common Stock by the Company. At the time such option was exercised, the Company
owed the Ashtons approximately $180,000 pursuant to the license. The Ashtons
forgave approximately $72,000 of such amount and agreed to a payment schedule
for the remainder, of which amount approximately $32,000 is currently
outstanding.
In December 1995, Bert Getz executed a guarantee of certain indebtedness of
the Company in favor of Quad/Graphics, Inc., the Company's catalog printer and
paper supplier. The guarantee originally included obligations of the Company
incurred between December 1, 1995 and June 30, 1996, but was subsequently
extended by Quad/Graphics, Inc. and Mr. Getz until December 31, 1996. As of
December 31, 1996, the balance owed by the Company to Quad/Graphics, Inc. was
approximately $1.6 million.
On April 19, 1996, the Company entered into an agreement with LitleNet LLC,
a company in which Thomas Litle, a director of the Company, has a controlling
ownership interest, pursuant to which LitleNet LLC provides the Company with
order processing management services. In 1996, the Company paid LitleNet LLC a
one-time set-up fee of $10,000. In 1997, the Company will pay LitleNet minimum
monthly processing fees of up to $20,700 per month. After the initial 12-month
term of the agreement, the agreement is automatically renewed for an additional
12 months unless terminated by either party.
On October 20, 1996, two of the Company's directors, Lyle Knight and Thomas
Litle, each purchased 100 shares of Convertible Preferred Stock and warrants to
purchase 6,000 shares of Common Stock in the Company's 1996 Private Placement
for $100,000. The shares of Convertible Preferred Stock of each of Mr. Knight
and Mr. Litle converted into 18,800 shares of Common Stock of the Company upon
of the closing of the Company's initial public offering in December of 1996. In
addition, Robert Worsley, Martin Smith and David Wirthlin purchased 15, 20 and
15 shares of Convertible Preferred Stock, respectively, and warrants to purchase
900, 1,200 and 900, shares of Common Stock, respectively, in the Company's 1996
Private Placement for $15,000, $20,000 and $15,000. The shares of Convertible
Preferred Stock of Mr. Worsley, Mr. Smith and Mr. Wirthlin converted into 2,820,
3,760 and 2,820 shares of Common Stock, respectively, upon the closing of the
Company's initial public offering in December 1996.
TAX INDEMNIFICATION
From its inception until October 1996, the Company elected to be treated as
an S Corporation for federal tax purposes. Upon the closing of the Company's
1996 Private Placement, the Company terminated its S Corporation status and
became subject to federal taxation as a C Corporation. In connection with the
termination of its S Corporation status, the Company and certain of its
shareholders entered into a Tax Indemnification Agreement (the "Tax Agreement").
Although the Company became subject to corporate income taxation after the date
on which it ceased to be an S Corporation (the "Termination Date"), under
applicable tax laws, the shareholders of the Company prior to such date will
continue to be liable for any tax deficiencies attributable to the Company's
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operations prior to the Termination Date. Accordingly, the Tax Agreement
generally provides that those shareholders will be indemnified by the Company
with respect to federal and state taxes (plus interest and penalties, as well as
any costs incurred in contesting any dispute with a taxing authority) resulting
from any adjustment to S Corporation income for any taxable year that was taxed
directly to those shareholders. The right to indemnification is absolute and is
not conditioned upon realization by the Company of an offsetting adjustment to
the Company's tax liability in a year in which it is not an S Corporation. Any
payment made by the Company to the those shareholders pursuant to the Tax
Agreement may be deemed by the Internal Revenue Service or state taxing
authorities to be nondeductible by the Company for income tax purposes.
Additionally, if a payment made under the Tax Agreement is determined to be
taxable to the those shareholders, then the Company is further obligated to make
additional payments to the those shareholders in amounts sufficient to place the
shareholders in the same net after-tax position that the shareholders would have
been in if the original indemnification had not been included in income.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, to audit the financial statements of the Company for fiscal
1997. Arthur Andersen LLP representatives are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's next
annual meeting of shareholders must be received by the Company no later than
December 9, 1997 to be evaluated by the Board for inclusion in the information
statement for that meeting.
OTHER BUSINESS
The Annual Meeting is being held for the purposes set forth in the Notice
that accompanies this Information Statement. The Board of Directors is not aware
of any other business to be considered or acted upon at the Annual Meeting.
1996 ANNUAL REPORT ON FORM 10-K
The Company files annual reports on Form 10-K with the Securities and
Exchange Commission. A copy of the annual report for the fiscal year ended
December 31, 1996 (except for certain exhibits thereto) may be obtained, free of
charge, upon written request by any shareholder to SkyMall, Inc., 1520 East Pima
Street, Phoenix, Arizona 85034, Attention: Investor Relations. Copies of all
exhibits to the annual report are available upon a similar request, subject to
payment of a $.15 per page charge to reimburse the Company for its expenses in
supplying any exhibit.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert M. Worsley
Chairman, Chief Executive Officer and President
Phoenix, Arizona
April 11 1997
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