<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Damark International, Inc.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[DAMARK INTERNATIONAL, INC. LOGO]
March 10, 1998
To Our Shareholders:
The Board of Directors of DAMARK International, Inc.-Registered Trademark-
joins me in extending to you a cordial invitation to attend our 1998 Annual
Meeting of Shareholders. The meeting will be held in the Ballroom East at The
Radisson Plaza Hotel, 35 South 7th Street, Minneapolis, Minnesota 55402, at
10:30 a.m., Minneapolis Time, on Wednesday, April 15, 1998.
In addition to voting on the matters described in the accompanying Proxy
Statement, we will review DAMARK's 1997 business and discuss our direction for
the coming years. There will also be an opportunity to discuss matters of
interest to you as a shareholder.
It is important that your shares be represented at the meeting whether or
not you plan to attend in person. Therefore, please sign and return the enclosed
proxy in the envelope provided. If you do attend the meeting and desire to vote
in person, you may do so even though you have previously sent in a proxy.
We hope that you will be able to attend the meeting and we look forward to
seeing you.
Sincerely,
/s/ Mark A. Cohn
Mark A. Cohn
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Enclosures
<PAGE>
DAMARK INTERNATIONAL, INC.-REGISTERED TRADEMARK-
7101 WINNETKA AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 15, 1998
------------------------
DAMARK International, Inc.
To Our Shareholders:
The 1998 Annual Meeting of Shareholders of DAMARK International, Inc. will
be held at The Radisson Plaza Hotel, 35 South 7th Street, Minneapolis, Minnesota
55402, at 10:30 a.m., Minneapolis Time, on Wednesday, April 15, 1998 for the
following purposes:
1) To elect three directors for three-year terms ending in the year 2001;
2) To approve an amendment to the DAMARK International, Inc. 1991 Stock
Option Plan, as amended (the "Option Plan"), to permit new options to be
granted under the Option Plan with respect to shares as to which options
have been exercised and to increase the number of shares of the Company's
Class A Common Stock reserved for issuance from 1,200,000 shares to
1,600,000 shares;
3) To ratify the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998; and
4) To transact such other business, if any, as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on February 19, 1998,
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting and any adjournment thereof.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU EXPECT TO
ATTEND THE MEETING. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU DECIDE
TO ATTEND THE MEETING.
/s/ Kim H. Plahn
Kim H. Plahn
SECRETARY
Minneapolis, Minnesota
March 10, 1998
<PAGE>
PROXY STATEMENT
OF
DAMARK INTERNATIONAL, INC.
7101 WINNETKA AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
------------------------
ANNUAL MEETING OF SHAREHOLDERS
APRIL 15, 1998
------------------------
PROXIES AND VOTING
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of DAMARK
International, Inc. (the "Company") to be used at the Annual Meeting of
Shareholders of the Company to be held at 10:30 a.m., Minneapolis Time, on April
15, 1998, at The Radisson Plaza Hotel, 35 South 7th Street, Minneapolis,
Minnesota 55402. The meeting has been called for the purposes set forth in the
notice of the meeting. Each shareholder entitled to vote at the Annual Meeting
who signs and returns a proxy in the form enclosed with this Proxy Statement may
revoke the same at any time prior to its use by giving notice of such revocation
to the Company in writing or in open meeting. Unless so revoked, the shares
represented by each proxy will be voted at the Annual Meeting and at any
adjournments thereof. Presence at the Annual Meeting of a shareholder who has
signed a proxy does not alone revoke that proxy. This Proxy Statement and the
accompanying proxy were first mailed to shareholders on or about March 13, 1998.
Only shareholders of record as of the close of business on February 19, 1998
will be entitled to vote at the Annual Meeting. At the close of business on
February 19, 1998, the Company had 7,813,464 shares of Class A Common Stock,
$.01 par value (the "Common Stock"), outstanding. Holders of Common Stock of
record at the close of business on this date, voting together as a single class,
will be entitled to one vote per share on (1) election of directors, (2)
approval of an amendment to the Company's 1991 Stock Option Plan, as amended,
(the "Option Plan"), to permit new options to be granted under the Option Plan
with respect to shares as to which options have been exercised and to increase
the number of shares of the Company's Common Stock reserved for issuance from
1,200,000 shares to 1,600,000 shares, (3) ratification of the appointment of the
independent auditors for the fiscal year ending December 31, 1998, and (4) all
other business to be transacted at the Annual Meeting.
The affirmative vote, in person or by proxy, of a majority of the shares of
Common Stock present and entitled to vote at the Annual Meeting, voting together
as a single class, will be necessary for the adoption of proposals 1, 2 and 3
listed in the notice of the meeting. Broker non-votes are treated as not being
present in person or by proxy at the Annual Meeting. Abstentions are treated as
being present and, because the affirmative vote of a majority of the shares of
Common Stock present is necessary for adoption of any proposal, the effect of an
abstention is a vote against the proposal.
3
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of February 19, 1998 by
each shareholder known to the Company who then beneficially owned more than 5%
of the outstanding shares of Common Stock, each director of the Company, each
nominee for director, each executive officer named in the Summary Compensation
Table set forth later in this Proxy Statement and all executive officers and
directors as a group. As of February 19, 1998, there were 7,813,464 shares of
Common Stock outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) OWNERSHIP OWNERSHIP
- - ---------------------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Mark A. Cohn (2)...................................................... 1,205,490(3) 15.36%
Heartland Advisors, Inc. (4).......................................... 1,678,500 21.48
SafeCo Asset Management Company (5)................................... 735,700 9.42
Manley Fuller Asset Management (6).................................... 547,700 7.01
Morgan Grenfell Capital Management, Inc. (7).......................... 521,300 6.67
Kent A. Arett (8)..................................................... 111,500 1.41
Arlyn J. Lomen (2).................................................... 80,000(9) 1.01
Rodney C. Merry (2)................................................... 20,000(10) 0.26
Michael D. Moroz (2).................................................. 53,833(11) 0.68
Jeff G. Palkovich (2)................................................. 73,000(12) 0.93
George S. Richards (2)................................................ 40,000(13) 0.51
Thomas A. Cusick (14)................................................. 60,000(15) 0.76
Jack W. Eugster (16).................................................. 60,000(17) 0.76
Stephen J. Hemsley (18)............................................... -- 0.00
Harold Roitenberg (19)................................................ 60,000(17) 0.76
Ralph Strangis (20)................................................... 90,000 1.14
Joel N. Waller (21)................................................... 60,000(15) 0.76
All executive officers and directors as a group (13 Persons).......... 1,910,322(22) 22.34%
</TABLE>
- - ------------------------
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and generally includes voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options currently exercisable are deemed outstanding for
computing the percentage of ownership for the person holding such options,
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) The address of Messrs. Cohn, Lomen, Merry, Moroz, Palkovich and Richards is
7101 Winnetka Avenue North, Minneapolis, Minnesota 55428.
(3) On January 30, 1998, Mr. Cohn assigned to the Company an option to acquire
456,548 shares of Common Stock from David A. Russ, a former officer who has
retired from the Company. The option must be exercised by the Company by
June 1, 1998 at an exercise price of $8.95 per share as of January 30, 1998
which increases incrementally to $9.18 per share on June 1, 1998. Mr. Cohn
will vote such shares at the Annual Meeting of Shareholders in accordance
with the recommendations of the Board of Directors. Includes 27,520 shares
held in trust for the benefit of Mr. Cohn's children for which Mr. Cohn
disclaims any beneficial ownership interest. Includes 33,333 shares of
Common Stock which can be purchased at $9.00 per share pursuant to vested
options. Does not include 66,667 shares of Common Stock which can be
purchased at $9.00 per share pursuant to options vesting equally in December
1998 and 1999. Does not include 400,000 shares of Common Stock which can be
purchased
4
<PAGE>
at $10.00 per share pursuant to non-statutory options vesting equally in
January 1999, 2000, 2001, 2002 and 2003, which were not granted under the
Option Plan described under Proposal No. 2.
(4) The address of Heartland Advisors, Inc. is 790 North Milwaukee Street,
Milwaukee, Wisconsin 53202. The information set forth herein is based on a
Schedule 13G dated January 27, 1998 filed with the Securities and Exchange
Commission.
(5) The address of SafeCo Asset Management Company is 601 Union Street, Suite
2500, Seattle, Washington 98101. The information set forth herein is based
on a Schedule 13G dated February 10, 1998 filed with the Securities and
Exchange Commission.
(6) The address of Manley Fuller Asset Management, Inc. is 1185 Avenue of the
Americas, 30th Floor, New York, NY 10036. The information set forth herein
is based on a Schedule 13F dated January 15, 1998 filed with the Securities
and Exchange Commission.
(7) The address of Morgan Grenfell Capital Management, Inc. is 885 Third Avenue,
Suite 3200, New York, NY 10022. The information set forth herein is based on
a Schedule 13F dated February 18, 1998 filed with the Securities and
Exchange Commission.
(8) The address of Mr. Arett is 1025 North Euclid Avenue, Oak Park, Illinois
60302. Includes 50,000 shares of Common Stock which can be purchased at
$21.25 per share, 30,000 shares of Common Stock which can be purchased at
$10.00 per share and 20,000 shares of Common Stock which can be purchased at
$5.875 per share, each pursuant to vested options.
(9) Includes 80,000 shares of Common Stock which can be purchased at $6.625 per
share pursuant to vested options. Does not include 10,000 shares of Common
Stock which can be purchased at $6.625 per share pursuant to options vesting
in January 1999.
(10) Includes 11,667 shares of Common Stock which can be purchased at $9.00 per
share and 8,333 shares of Common Stock which can be purchased at $12.75 per
share, each pursuant to vested options. Does not include 23,333 shares of
Common Stock which can be purchased at $9.00 per share pursuant to options
vesting equally in December 1998 and 1999 and 16,667 shares of Common Stock
which can be purchased at $12.75 per share pursuant to options vesting
equally in September 1998 and 1999.
(11) Includes 3,000 shares of Common Stock which can be purchased at $5.00 per
share, 13,333 shares of Common Stock which can be purchased at $5.875 per
share, 7,500 shares of Common Stock which can be purchased at $7.75 per
share and 30,000 shares of Common Stock which can be purchased at $14.50 per
share, each pursuant to vested options. Does not include 6,667 shares of
Common Stock which can be purchased at $5.875 per share pursuant to options
vesting in August 1998, and 29,500 shares of Common Stock which can be
purchased at $13.625 per share pursuant to options vesting equally in
October 1998, 1999 and 2000.
(12) Includes 65,000 shares of Common Stock which can be purchased at $1.3125
per share and 8,000 shares of Common Stock which can be purchased at $5.00
per share, each pursuant to vested options.
(13) Includes 40,000 shares of Common Stock which can be purchased at $7.50 per
share pursuant to vested options. Does not include 20,000 shares of Common
Stock which can be purchased at $7.50 per share pursuant to options vesting
in December 1998, and 30,000 shares of Common Stock which can be purchased
at $13.625 per share pursuant to options vesting equally in October 1998,
1999 and 2000.
(14) The address of Mr. Cusick is 801 Marquette Avenue, Minneapolis, Minnesota
55402.
(15) Includes 60,000 shares of Common Stock which can be purchased at $7.75 per
share pursuant to vested options.
(16) The address of Mr. Eugster is 10400 Yellow Circle Drive, Minnetonka,
Minnesota 55343.
5
<PAGE>
(17) Includes 60,000 shares of Common Stock which can be purchased at $5.00 per
share pursuant to vested options.
(18) The address of Mr. Hemsley is 9900 Bren Road East, Minnetonka, Minnesota
55343. Does not include 40,000 shares of Common Stock which can be purchased
at $14.25 per share pursuant to options vesting equally in June 1998, 1999
and 2000.
(19) The address of Mr. Roitenberg is 5500 Wayzata Boulevard, Suite 1065,
Minneapolis, Minnesota 55416.
(20) The address of Mr. Strangis is 5500 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402. Includes 60,000 shares of Common Stock
which can be purchased at $5.00 per share and 30,000 shares of Common Stock
which can be purchased at $6.625 per share pursuant to vested options.
(21) The address of Mr. Waller is 7401 Boone Avenue North, Brooklyn Park,
Minnesota 55428.
(22) Includes an aggregate of 737,166 shares of Common Stock that are subject to
options from the Company currently exercisable or which will be exercisable
by May 16, 1998 by all executive officers and directors. Does not include
4,446 common stock equivalents credited to certain directors who have
elected to participate in the Company's Deferred Compensation Plan for
Non-Employee Directors as of December 31, 1997. Directors have no voting
rights with respect to the common stock equivalents until distribution of
Common Stock upon the termination of services or death of the director or in
the event of a change in control.
6
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
Three directors are to be elected at the Annual Meeting for three year
terms. The Restated Articles of Incorporation of the Company provide for no less
than six and no more than nine directors divided as equally as possible into
three classes of directors. The Board of Directors proposes the following three
nominees for the three year term expiring at the Company's Annual Meeting of
Shareholders in the year 2001 or until their successors are duly elected:
<TABLE>
<S> <C> <C>
Mark A. Cohn -- Chairman, President and Chief Executive Officer of the Company
Stephen J. Hemsley -- Senior Executive Vice President of United Healthcare
Corporation
Ralph Strangis -- Member of the law firm of Kaplan, Strangis and Kaplan, P.A.,
counsel to the Company
</TABLE>
Except where authority has been withheld by a shareholder, the enclosed
proxy will be voted for the election of the three nominees to the Company's
Board of Directors. The Board of Directors unanimously recommends a vote FOR the
proposal to elect the nominees as directors of the Company. In the event any one
or more of the above named nominees shall unexpectedly become unavailable before
election, votes will be cast pursuant to authority granted by the enclosed proxy
for such person or persons as may be designated by the Board of Directors.
INFORMATION CONCERNING NOMINEES AND DIRECTORS
MARK A. COHN (40) has been a director of the Company since its inception in
1986. He is a founder of the Company and has been the Chief Executive Officer
since 1986. Mr. Cohn was elected as a director of the Company at its Annual
Meeting of Shareholders in 1995 for a term expiring at the Annual Meeting of
Shareholders in 1998.
STEPHEN J. HEMSLEY (45) has been a director of the Company since June 1997.
Mr. Hemsley has been Senior Executive Vice President of United Healthcare
Corporation since June 1997. Prior to Mr. Hemsley's appointment at United
Healthcare, he served 23 years with Arthur Andersen LLP, his last position being
Managing Partner, Strategy and Planning, and Chief Financial Officer for Arthur
Andersen Worldwide. Mr. Hemsley was elected as a director of the Company by the
Board of Directors in June 1997.
RALPH STRANGIS (61) has been a director of the Company since February 1991;
he was elected Lead Director in May 1995. Mr. Strangis has been a member of the
law firm of Kaplan, Strangis and Kaplan, P.A., counsel to the Company, for more
than five years. Mr. Strangis is also a director for the following public
companies: TCF Financial Corporation, the parent company of TCF Bank Minnesota,
fsb ("TCF Bank"); and Life USA Holding, Inc., a life insurance holding company.
Mr. Strangis was elected as a director of the Company at its Annual Meeting of
Shareholders in 1995 for a term expiring at the Annual Meeting of Shareholders
in 1998.
THOMAS A. CUSICK (53) has been a director of the Company since May 1993. Mr.
Cusick has been Chief Operating Officer of TCF Financial Corporation since
January 1997 and Vice Chairman since January 1993. Prior thereto, he was
President and Chief Operating Officer of TCF Financial Corporation since its
formation in 1987. Mr. Cusick was also elected Chairman of TCF Bank, a
federally-chartered stock savings bank and a wholly-owned subsidiary of TCF
Financial Corporation, in January 1997 and has served as Chief Executive Officer
of TCF Bank since 1993. He served as Vice Chairman of TCF Bank from 1991 to
January 1997 and prior thereto as Executive Vice President and the Director of
Banking Services of TCF Bank. Currently, he serves as a director of TCF
Financial Corporation and TCF Bank. Mr. Cusick was elected as a director of the
Company at its Annual Meeting of Shareholders in 1996 for a term expiring at the
Annual Meeting of Shareholders in 1999.
7
<PAGE>
JACK W. EUGSTER (52) has been a director of the Company since February 1991
and has been Chairman and Chief Executive Officer of Musicland Stores
Corporation for more than five years. Mr. Eugster is also a director of
Donaldson Co., a manufacturer of filtration devices; ShopKo, Inc., a regional
discount store chain; Jostens, Inc., a marketer of school merchandise; and
MidAmerican Energy Co., a public utility. Mr. Eugster was elected as a director
of the Company at its Annual Meeting of Shareholders in 1997 for a term expiring
at the Annual Meeting of Shareholders in 2000.
HAROLD ROITENBERG (71) has been a director of the Company since February
1991. Since 1982, Mr. Roitenberg has been a private investor. From 1979 to 1982,
Mr. Roitenberg was the Chairman of Modern Merchandising, Inc., a catalog
showroom operator. Mr. Roitenberg is also currently a director of Service
Merchandise Company, Inc., a catalog showroom operator. Mr. Roitenberg was
elected as a director of the Company at its Annual Meeting of Shareholders in
1997 for a term expiring at the Annual Meeting of Shareholders in 2000.
JOEL N. WALLER (58) has been a director of the Company since May 1993. Mr.
Waller has been Chairman of Wilsons The Leather Experts, a specialty retailer
with over 500 stores nationwide, since 1992 and served as its President from
1983 to 1992. Mr. Waller was Vice President of Melville Corporation, a retail
conglomerate, from 1986 to 1996. Currently Mr. Waller is a director of Grand
Casinos, Inc., a gaming company, and Rainforest Cafe, Inc., a specialty
restaurant chain. Mr. Waller was elected as a director of the Company at its
Annual Meeting of Shareholders in 1996 for a term expiring at the Annual Meeting
of Shareholders in 1999.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1997, the Board of Directors held four meetings and took three
actions by unanimous written consent. Each director attended at least 75% of the
meetings of the Board of Directors and any committee on which such director
served.
The Board of Directors has an Audit Committee and a Compensation Committee
but does not have a Nominating Committee. The Audit Committee reviews with the
Company's independent auditors the annual financial statements of the Company
and the Company's internal controls and financial management practices. The
Audit Committee also recommends the appointment of the independent auditors for
the Company. Messrs. Cusick, Eugster and Strangis serve on the Audit Committee
which met twice during 1997. The Compensation Committee, among other matters,
reviews the compensation arrangements for the officers of the Company and
administers the Company's 1991 Stock Option Plan. Messrs. Hemsley, Roitenberg
and Waller serve on the Compensation Committee which did not meet during 1997,
but which took twelve actions by unanimous written consent.
BOARD OF DIRECTORS COMPENSATION
Directors who are not employees of the Company (Messrs. Cusick, Eugster,
Hemsley, Roitenberg, Strangis and Waller) receive an annual director fee of
$10,000, plus a committee meeting fee of $1,000 per committee meeting which is
held on a date other than a date of a Board of Directors meeting. Directors who
are not employees or officers of the Company may participate, at their election,
in the Company's Deferred Compensation Plan for Non-Employee Directors, pursuant
to which director fees deferred by the director are converted into common stock
equivalents distributable to the director as Common Stock upon termination of
services or death of the director or in the event of a change in control. As
indicated in the above Beneficial Ownership Table, the non-employee directors of
the Company have certain stock options which were granted to them when they were
first elected directors and, in the case of Mr. Strangis, when he was elected
the Lead Director. Non-employee director options were granted at fair market
value on the date of grant and become exercisable in three equal installments on
the anniversary date of the grant. As the Lead Director, Mr. Strangis has been
elected by the non-employee directors to address on behalf of the Board of
Directors various governance matters. On January 30, 1998, the Board of
Directors adopted a Director Stock Purchase Plan pursuant to which the
non-employee directors may purchase up to 50,000 shares of Common Stock from the
Company at a price per share equal to the average last reported sale price for
the Company's Common Stock for the twenty trading days preceding the date of
purchase.
8
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation paid by the Company to the Company's Chief Executive Officer, each
of the five other highest compensated executive officers of the Company (as
determined as of the end of the Company's most recent fiscal year) and one
additional individual who was no longer an executive officer of the Company at
December 31, 1997, for each of the fiscal years ended December 31, 1995, 1996
and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (1) ($) (2) SARS (#) ($) (3)
- - -------------------------------------------- ---- ------------ --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Cohn................................ 1997 $ 475,000 $ -- $ -- -- $ --
Chairman, President and 1996 400,000 400,000 -- 100,000(4) --
Chief Executive Officer 1995 400,000 -- -- -- --
Arlyn J. Lomen.............................. 1997 250,000 -- -- -- 1,440
Senior Vice President-- 1996 250,000 225,000 -- 30,000(5) 1,250
Finance and Administration Group, 1995 126,154(5) -- -- 60,000(5) --
Chief Financial Officer
Kent A. Arett............................... 1997 245,192 -- -- -- 251,440
Senior Vice President-- 1996 250,000 225,000 -- -- 1,698
Information Systems and Operations Group 1995 192,789 -- 38,288 30,000(6) 2,288
Michael D. Moroz............................ 1997 209,808 -- -- 29,500(8) 1,440
Senior Vice President Marketing-- 1996 175,000 140,000 -- -- 1,490
Products & Services Group 1995 146,154 -- -- 20,000(6) 1,582
George S. Richards.......................... 1997 209,808 -- -- 30,000(8) 45,947
Senior Vice President Marketing-- 1996 175,673 140,000 -- -- 281,211
Customers & Clients Group 1995 -- (9) -- -- 60,000(9) ---
Rodney C. Merry............................. 1997 155,000 -- -- -- 3,081
Vice President--Information Systems 1996 70,832 33,177 -- 35,000(7) 235
1995 121,154 8,475 -- 25,000(7) 730
Jeff G. Palkovich........................... 1997 150,000 -- -- -- 385
Vice President Marketing-- 1996 150,000 120,000 -- -- 492
Teleservices Group 1995 150,000 -- -- -- 1,620
</TABLE>
- - ------------------------------
(1) Reflects bonus earned during the fiscal year, although all or a portion of
the bonus may have been paid during the next fiscal year. No bonuses were
paid to the Company's executive officers in 1995 or 1997.
(2) Other Annual Compensation consists of living allowances, automobile
allowances and related reimbursements. Pursuant to the rules of the
Securities and Exchange Commission, personal benefits are not shown if the
aggregate amount is not larger than the lesser of (i) 10% of total annual
salary and bonus or (ii) $50,000.
(3) Amounts represent the Company's matching contribution for each respective
executive's individual contributions to the Company's 401(k) Plan, except
for Mr. Richards whose 1996 and 1997 amounts represent the forgiveness of a
personal loan in the principal amount of $50,000 and costs and expenses of
$210,000 relating to Mr. Richards relocation to the Minneapolis area
including an amount covering the loss on the sale of his residence, costs of
moving and reimbursement of temporary living expenses; Mr. Richards 1997
amount also include the Company matching contribution for his contributions
to the Company's 401(K) plan. Mr. Arett's 1997 amount represents a severance
payment and the Company matching contribution for his contributions to the
Company's 401(K) plan.
9
<PAGE>
(4) The exercise price of the options is $9.00 per share; the options vest in
equal installments in December 1997, 1998 and 1999.
(5) In connection with his commencement of employment with the Company in May
1995, Mr. Lomen received options to purchase 60,000 shares of Common Stock
at $6.625 per share vesting in equal installments in May 1996, 1997 and
1998. In connection with his election as a Senior Vice President of the
Company in January 1996, Mr. Lomen was granted an option to purchase 30,000
shares of Common Stock at $6.625 per share vesting in equal installments in
January 1997, 1998 and 1999. Mr. Lomen resigned as an officer of the Company
on February 9, 1998, but will remain an employee of the Company at least
through August 17, 1998.
(6) The exercise price of the options is $5.875 per share; the options vest in
equal installments in August 1996, 1997 and 1998. Due to his resignation as
an officer and employee of the Company on December 22, 1997, Mr. Arett's
vested options will expire on March 22, 1998, if not exercised prior to that
date.
(7) Mr. Merry commenced his employment with the Company in February 1994, but
was not employed by the Company from February through September 1996. At the
time of his re-employement, Mr. Merry received options to purchase 25,000
shares of Common Stock at $12.75 per share vesting in equal installments in
September 1997, 1998 and 1999. In connection with his election as a Vice
President of the Company in December 1996, Mr. Merry was granted an option
to purchase 35,000 shares of Common Stock at $9.00 per share vesting in
equal installments in December 1997, 1998 and 1999.
(8) The exercise price of the options is $13.625 per share; the options vest in
equal installments in October 1998, 1999 and 2000.
(9) In connection with his commencement of employment with the Company on
December 29, 1995, Mr. Richards received options to purchase 60,000 shares
of Common Stock at $7.50 per share vesting in equal installments in December
1996, 1997 and 1998.
The Company has not made any restricted stock grants to any of the executive
officers named in the Summary Compensation Table.
OPTION GRANTS DURING FISCAL YEAR ENDED DECEMBER 31, 1997
The following table summarizes information relating to options granted
during the fiscal year ended December 31, 1997 to the executive officers named
in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK PRICES
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- - ------------------------------- ------------- --------------- ----------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Cohn................... -- -- -- -- -- --
Arlyn J. Lomen................. -- -- -- -- -- --
Kent A. Arett.................. -- -- -- -- -- --
Michael D. Moroz............... 29,500 11.7% $ 13.625 October 2007 $ 654,719 $ 1,042,522
George S. Richards............. 30,000 11.9% $ 13.625 October 2007 $ 665,811 $ 1,060,192
Rodney C. Merry................ -- -- -- -- -- --
Jeff G. Palkovich.............. -- -- -- -- -- --
</TABLE>
All of the above option grants vest in equal installments on the first three
anniversaries of the date of grant, subject to continued employment with the
Company.
10
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes information relating to options exercised in
1997 and unexercised stock options as of December 31, 1997 of the executive
officers named in the Summary Compensation Table. There were no stock
appreciation rights (SARs) outstanding at December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($) (1)
EXERCISE VALUE ---------------------------- ----------------------------
NAME (#) REALIZED ($) EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
- - --------------------------------- ----------- ------------ ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Mark A. Cohn..................... -- -- 33,333/ 66,667 $ 25,000/ $ 50,000
Arlyn J. Lomen................... -- -- 50,000/ 40,000 $156,250/ $125,000
Kent A. Arett.................... -- -- 100,000/ -- $ 77,500/ --
Michael D. Moroz................. -- -- 53,833/ 36,167 $ 80,915/ $ 25,835
George S. Richards............... -- -- 40,000/ 50,000 $ 90,000/ $ 45,000
Rodney C. Merry.................. -- -- 20,000/ 40,000 $ 8,750/ $ 17,500
Jeff G. Palkovich................ -- -- 73,000/ -- $586,000/ --
</TABLE>
- - ------------------------
(1) The dollar amount represents the positive spread between the exercise price
of options and the year end price per share. The price per share of the
Company's Common Stock on the Nasdaq National Market tier of The Nasdaq
Stock Market on December 31, 1997, the last trading day of the year, was
$9.75 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
RELATIONSHIPS
None of the three directors who serve on the Company's Compensation
Committee (Messrs. Hemsley, Roitenberg and Waller) is or has been an executive
officer of the Company.
Ralph Strangis, a director of the Company, is also a member of the law firm
of Kaplan, Strangis and Kaplan, P.A. which provided legal services to the
Company in 1997 for an amount which was not greater than 5% of the Company's or
the firm's gross annual revenues. The firm has also been retained by and will
render legal services to the Company in 1998. Jack W. Eugster, a director of the
Company, is also the Chairman and Chief Executive Officer of Musicland Stores
Corporation, the parent company of SunCoast Motion Picture Company, one of the
third-party marketing partners providing benefits to the Company's Preferred
Buyers' Club and Insiders club members at no cost to the Company.
EMPLOYMENT CONTRACTS, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an employment agreement, as amended, with Mark
A. Cohn in connection with Mr. Cohn's employment as Chairman, President and
Chief Executive Officer of the Company which provides that Mr. Cohn's employment
may not be terminated by the Company before December 31, 2000 other than for
cause; in addition, the employment term automatically extends for one year on
each January 1, commencing January 1, 1999, unless notice of non-extension is
given. Mr. Cohn's minimum annual base salary during the term of the employment
agreement is $475,000 and Mr. Cohn is eligible to receive incentive compensation
under the Company's management incentive plan. Mr. Cohn's employment agreement
provides for the payment of severance benefits in the event of termination of
employment under certain circumstances. Prior to a change in control (as
defined) or following 24 months after a change in control, in the event of a
termination of Mr. Cohn's employment by the Company without cause (as defined)
or by Mr. Cohn with good reason (as defined), Mr. Cohn is entitled to receive
his base salary for 36 months, a bonus based on the average of the last two
years' bonus and continued participation in the Company's benefit plans for the
balance of the term of the employment agreement. In the event of a
11
<PAGE>
termination of Mr. Cohn's employment prior to a change in control by the Company
for cause or by Mr. Cohn's voluntary resignation, Mr. Cohn's compensation and
benefits shall be as determined in the Company's applicable benefit plans and
policies, except that in the event of voluntary resignation by Mr. Cohn, he
shall be entitled to receive a pro rata portion of the bonus for the year of
resignation. Within 24 months following a change in control, if Mr. Cohn's
employment is terminated by the Company without cause or by Mr. Cohn with good
reason (including termination by Mr. Cohn regardless of reason within the 60-day
period immediately following the first anniversary of a change in control and
including death or disability within one year after a change in control), Mr.
Cohn is entitled to receive a lump sum payment equal to three times his annual
salary, a bonus based on the average of the last two years' bonus plus a pro
rata portion of the bonus for the year of termination, continued participation
in the Company's benefits plans for three years, a lump sum payment of the value
of forfeited stock incentives, a lump sum payment for the unvested portion of
all other deferred benefits and a full gross-up payment for excise taxes.
Following a change in control, if Mr. Cohn's employment is terminated by the
Company with cause or by Mr. Cohn without good reason, Mr. Cohn's compensation
and benefits shall be as determined under the Company's applicable benefit plans
and policies. Under the employment agreement, Mr. Cohn has agreed not to compete
with the Company during the term of his employment and, in the event he
voluntarily resigns or the Company terminates his employment for cause, for a
period of the longer of one year after such termination or the balance of the
term of the employment agreement. In the event of a change in control, Mr. Cohn
has agreed not to compete with the Company for a period of one year regardless
of the reason for termination. In addition, Mr. Cohn has made certain
nonsolicitation and nondisparagement agreements for a three-year period
following termination prior to a change in control and for a one-year period
following termination after a change in control.
The Company and Mr. Cohn have entered into an agreement providing Mr. Cohn's
estate the right to require the Company to repurchase all or a portion of Mr.
Cohn's shares of Common Stock in the event of his death based on and at the then
current market price, up to an aggregate amount of $5,000,000. The Company
carries insurance on Mr. Cohn's life in excess of its obligation under this
repurchase agreement. The agreement also provides that Mr. Cohn's shares after
his death are subject to a right of first refusal in favor of the Company before
any transfer can be made of such shares except for transfers to a family member
or trust for the benefit of a family member, a registered public offering, or
any sale made pursuant to Rule 144. In addition, the agreement provides Mr. Cohn
with piggyback registration rights so long as he owns more than 250,000 shares
of the Company's Common Stock. The agreement terminates if the number of shares
beneficially owned by Mr. Cohn is less than 5% of the outstanding shares of
Common Stock.
The Company has entered into a severance agreement with Mr. Merry, an
executive officer of the Company. Prior to a change in control (as defined), in
the event of a termination of the executive's employment by the Company without
cause (as defined) or by voluntary resignation of the executive, the executive
is entitled to receive his base salary for 24 months, a pro rata bonus for the
year of termination if the executive terminates on or after July 1 in any year,
continued participation in the Company's benefit plans for 24 months and
outplacement services, provided that if the executive voluntarily resigns the
Company has the option to waive the noncompete covenants of the agreement and
pay no severance benefits, modify the term of the noncompete covenants to one
year and pay 50% of the severance benefits or pay all severance benefits and
receive a two-year noncompete covenant. In the event of termination of the
executive's employment for cause prior to a change in control by the Company,
the executive's compensation and benefits shall be as determined under the
Company's applicable benefit plans and policies.
In addition, the Company has entered into change in control agreements with
Messrs. Moroz, Merry and Palkovich, officers of the Company named in the Summary
Compensation Table. Within 24 months following a change in control, if the
executive is terminated by the Company without cause or by the executive with
good reason (including termination by the executive regardless of reason within
the 60-day
12
<PAGE>
period immediately following the first anniversary of the change in control and
including death or disability within one year after a change in control), the
executive is entitled to receive a lump sum payment equal to two times his
annual salary, a bonus equal to the greater of the average of the bonuses for
the last three years and the target bonus for the current year assuming 100%
payout, plus the target bonus for the current year assuming 100% payout
pro-rated for the portion of the year prior to termination, continued
participation in the Company's benefits plans for two years, outplacement
services, a lump sum payment for the value of forfeited stock incentives, a lump
sum payment for the unvested portion of all other deferred benefits and a full
gross-up payment for excise taxes. Following a change in control, if the
executive's employment is terminated by the Company with cause or by the
executive without good reason (other than as described above), the executive's
compensation and benefits shall be as determined under the Company's applicable
benefits plans and policies. In the event of a change of control the executives
have agreed not to compete with the Company for a period of one year regardless
of the reason for termination. In addition, the executives have made certain
nonsolicitation and nondisparagement agreements for a three-year period
following termination prior to a change in control and for a one-year period
following termination after a change in control.
The vesting of outstanding stock options accelerates in the event of a
change in control. None of the obligations of the Company under any employment,
severance or change in control agreement are funded obligations.
13
<PAGE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed of the
following three directors who are not executive officers of the Company: Stephen
J. Hemsley, Harold Roitenberg and Joel N. Waller. The Committee is authorized to
review compensation arrangements for the executive officers of the Company and
to administer the Company's Option Plan including the award of option grants
under the Option Plan. In determining compensation for executive officers, the
Committee considers base salary, bonus and stock incentives in constructing a
total compensation package that will provide base salary at a level consistent
with comparable companies and reflect normal average percentage increases,
bonuses for achieving performance results that are expected to enhance the value
of the Company's Common Stock and stock incentives which encourage retention of
executive officers and provide them with long-term rewards which are consistent
with the interests of the Company's shareholders.
BASE SALARY
The following general factors are taken into consideration in determining
annual base salaries for the executive officers: (i) recommendations from the
Chairman of the Board, President and Chief Executive Officer, (ii) compensation
survey information provided by an independent compensation consulting firm in
late 1996 (the "Survey") which included salary information for growth companies,
catalog and mail order companies and catalog merchant companies, and (iii) the
level of compensation required to attract new executive officers to the Company.
No specific weighting is assigned to specific factors by the Committee. The
catalog and mail order companies identified in the Survey include five of the
nine companies included in the Peer Group Index described under the caption
"Comparative Stock Performance." The catalog and mail order companies identified
in the Survey were selected on the basis of comparable annual revenues.
The Committee intends that base salaries of the executive officers be set on
a basis that is competitive with mail order catalog, membership services and
other growth companies comparable to the Company in terms of expected annual
revenues. The Committee believes that base salary levels are competitive if they
approximate the level of average base salaries for comparable companies. In
December 1996, the Committee increased the base salaries of Messrs. Moroz and
Richards for 1997 to $200,000 based on information in the Survey and in
recognition of their prior performances and the level of their increased
responsibilities at the Company. In October 1997, Messrs. Moroz and Richards
each received salary increases to $250,000 in recognition of their promotions to
Senior Vice Presidents of the Company. In January 1998, Messrs. Merry and
Palkovich each received salary increases to $175,000 in recognition of past
performances and the level of their increased responsibilities at the Company.
The Committee believes that the established level of compensation for these
executive officers met the overall objectives established by the Committee and
were within the compensation range based on the responsibilities of the
executive officers.
INCENTIVE COMPENSATION
In December 1996, the Committee adopted an incentive plan to provide a bonus
pool for eligible employees, including executive officers, based on achievement
of established performance levels targeting pre-tax income for the year ended
December 31, 1997. Based on achievement of the established performance target
for 1997, the executive officers were entitled to receive incentive compensation
expressed as a percentage of the executive officer's annual base salary. To the
extent actual performance in 1997 exceeded the established performance target,
the incentive compensation would be increased based on a formula related to the
amount by which actual performance exceeded the established performance target,
but in no event would the incentive compensation exceed the following percentage
of annual base salary: 100% for the Chief Executive Officer, 90% for each Senior
Vice President and 80% for each Vice President. The Committee retained the
discretion to modify the income target to take into account special factors that
affected 1997 performance and extraordinary circumstances, as the Committee
deemed appropriate. Based on 1997 results, no bonuses were earned under the 1997
management incentive plan.
14
<PAGE>
In January 1998, the Committee adopted an incentive plan to provide a bonus
pool for eligible employees, including executive officers, based on achievement
of established performance levels targeting pre-tax income for the year ended
December 31, 1998. Based on achievement of the established performance target
for 1998, the executive officers will be entitled to receive incentive
compensation expressed as a percentage of the executive officer's annual base
salary. To the extent actual performance in 1998 exceeds the established
performance target, the incentive compensation will be increased based on a
formula related to the amount by which actual performance exceeds the
established performance target, but in no event will the incentive compensation
exceed the following percentage of annual base salary: 100% for the Chief
Executive Officer, 90% for each Senior Vice President and 80% for each Vice
President. The Committee retains the discretion to modify the income target to
take into account special factors that may affect 1998 performance and
extraordinary circumstances, as the Committee deems appropriate.
STOCK INCENTIVES
The Compensation Committee believes that stock options are an integral part
of the compensation package of the Company's executive officers. By granting
options at current market prices and providing for vesting of the options over a
period of years, the Committee believes that stock options can be used to
attract new executive officers, to retain their services and to align directly
the interests of the executive officers and shareholders in the long-term
performance of the Company and the appreciation of its Common Stock. The
Committee has granted options to attract new executive officers, as it did for
Mr. Richards in 1995 and Mr. Merry in 1996. The Committee also grants additional
stock options to executive officers when they are promoted or assume
significantly increased responsibilities, or to recognize significant
contributions to the Company. During 1997, the Committee granted the following
options to the executive officers named in the Summary Compensation Table:
29,500 shares of Common Stock to Mr. Moroz and 30,000 shares of Common Stock to
Mr. Richards in October 1997 in connection with their promotions to Senior Vice
Presidents. In January 1998, the Committee granted non-statutory options on
400,000 shares of Common Stock to Mr. Cohn in recognition of his outstanding
contributions to the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mark A. Cohn is a founder of the Company and has been the Chief Executive
Officer of the Company since its inception in 1986. In recognition of Mr. Cohn's
importance to the Company as well as his knowledge of the operations and
business of the Company, the Committee approved an employment agreement with Mr.
Cohn in August 1992, which was subsequently amended and extended in July 1995
and restated in January 1998. See "Employment Contracts, Severance and Change in
Control Arrangements." The employment agreement provides that Mr. Cohn will be
employed as Chairman, President and Chief Executive Officer for a rolling term
of three years. Under the agreement, Mr. Cohn's minimum annual base salary is
$475,000 per annum, the level established for 1997. Neither Mr. Cohn or any
other executive officer received a bonus under the 1997 management incentive
plan described above. Mr. Cohn is eligible to participate in the Company's 1998
management incentive plan described above.
OTHER INFORMATION
In 1993, Section 162(m) of the Internal Revenue Code was adopted which,
beginning in 1994, imposes an annual deduction limitation of $1.0 million on the
compensation of certain executive officers of publicly held companies. The
Committee does not believe that the Section 162(m) limitation will materially
affect the Company in the near future based on the level of the compensation of
the executive officers and, if the limitation would otherwise apply, the
Committee could defer payment of a portion of the incentive compensation to
remain under the $1.0 million annual deduction limitation.
Stephen J. Hemsley Harold Roitenberg, Chairman Joel N. Waller
Compensation Committee Compensation Committee Compensation Committee
15
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the period beginning December 31, 1992 on a five
year annual basis until December 31, 1997 with the cumulative total return of
the Nasdaq Stock Market Total U.S. Return Index (the "Nasdaq (U.S.) Index") and
the cumulative total return of a peer group index (the "Peer Group Index")
constructed by the Company as described more fully below, over the same period,
assuming an initial investment of $100 on December 31, 1992.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NASDAQ (U.S.) INDEX PEER GROUP INDEX DAMARK
<S> <C> <C> <C>
12/31/92 $ 100.00 $ 100.00 $ 100.00
12/31/93 $ 114.80 $ 210.21 $ 313.79
12/31/94 $ 112.21 $ 131.10 $ 113.79
12/31/95 $ 158.70 $ 108.81 $ 103.45
12/31/96 $ 195.19 $ 130.50 $ 131.03
12/31/97 $ 239.53 $ 163.93 $ 134.48
</TABLE>
The following table reflects the value of a $100 investment made on December
31, 1992 as shown in the above graph as of December 31:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DAMARK........................................... $ 313.79 $ 113.79 $ 103.45 $ 131.03 $ 134.48
NASDAQ (U.S.) Index.............................. 114.80 112.21 158.70 195.19 239.53
Peer Group Index................................. 210.21 131.10 108.81 130.50 163.93
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The Peer Group Index includes the following companies in the mail order
catalog business based on total weighted market capitalization: Artistic
Greetings, Inc.; Fingerhut Companies, Inc.; Hanover Direct, Inc.; INMAC Corp.;
Lands' End, Inc.; Lillian Vernon Corp.; National Media Corp.; Spiegel, Inc. and
Williams-Sonoma, Inc. The members of the Peer Group were selected by the Company
because each operates in a similar mail order catalog environment and sells
products in similar categories. For 1997, the Peer Group Index does not include
INMAC Corp., which was acquired by another company during 1996 and is no longer
a separate public company. The Company believes that the exclusion of INMAC for
1997 does not materially impact the trend of the Peer Group Index.
16
<PAGE>
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of
the Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) reports they file. To the Company's knowledge,
based solely on review of the copies of such reports furnished to the Company
during 1997 until the date of this proxy, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO DAMARK INTERNATIONAL, INC.
1991 STOCK OPTION PLAN, AS AMENDED
In March 1991, the Board of Directors adopted the Damark International, Inc.
1991 Stock Option Plan (the "Option Plan") and amended the plan in January 1992.
In January 1992, the Company's shareholders approved the plan as amended. In
January 1994, the Board of Directors approved amendments to the plan including
(a) an increase in the number of shares of Common Stock reserved for issuance
under the plan from 600,000 shares to 900,000 shares in order to provide a
sufficient number of shares for future grants, (b) the imposition of a
per-employee limitation on the number of shares for which options may be granted
under the plan of 150,000 shares during any calendar year in order to comply
with performance-based requirements under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), and (c) certain changes to comply with
the current requirements of Rule 16b-3 of the Securities and Exchange
Commission. In May 1994, the Company's shareholders approved the plan as
amended. In December 1996, the Board of Directors approved an amendment to the
plan to increase the number of shares of Common Stock reserved for issuance
under the plan from 900,000 to 1,200,000 shares in order to provide sufficient
number of shares for future grants. In April 1997, the Company's shareholders
approved the plan as amended. In July 1997, the Board of Directors amended the
plan to provide for vesting of granted stock options in the event of a change of
control, as defined below. In January 1998, the Board of Directors approved an
amendment to the Option Plan to permit new options to be granted under the
Option Plan with respect to shares as to which options have been exercised and
to increase the number of shares of Common Stock reserved for issuance under the
plan from 1,200,000 to 1,600,000 shares in order to provide sufficient number of
shares for future grants.
The Option Plan is being submitted for approval by the Company's
shareholders because shareholder approval is required in accordance with the
Option Plan for the amendments to the Option Plan which the Board of Directors
approved in July 1997 and January 1998. In addition, Section 162(m) of the Code
requires shareholder approval of stock option plans in order for the plan to be
a "performance based" plan and, therefore, not be subject to the $1.0 million
deductibility limit on compensation to each of the executive officers named in
the Summary Compensation Table.
GENERAL
The purpose of the Option Plan is to provide incentives to key employees of
the Company who are expected to contribute materially to the success of the
Company, to provide a means of rewarding performance and to enhance the interest
of such key employees in the Company's continued success and progress by
providing them a proprietary interest in the Company. Directors of the Company
who are not also employees are not entitled to receive options under the Option
Plan. As of February 19, 1998, 63 employees held options granted under the
Option Plan for an aggregate of 936,249 shares of Common Stock at exercise
prices ranging from $5.00 to $21.25 per share. No options may be granted under
the Option Plan after March 19, 2001.
17
<PAGE>
ADMINISTRATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for the administration of the Option Plan. The Committee must be
comprised of directors who are not eligible to receive grants under the Option
Plan and are "disinterested persons" within the meaning of Rule 16b-3 of the
Securities and Exchange Commission. The Committee has general authority and
discretion to determine the employees to whom and the time or times at which
options may be granted, and the number of shares to be subject to each option;
provided that the Committee may not grant options under the Option Plan of more
than 150,000 shares of Common Stock to any employee during any calendar year. In
addition, the Committee may prescribe the terms applicable to each grant of an
option. The Committee is currently comprised of the following three directors:
Messrs. Hemsley, Roitenberg and Waller.
TERMS AND CONDITIONS OF OPTIONS
Either incentive stock options ("ISOs") within the meaning of Section 422A
of the Code or non-qualified options may be granted under the Option Plan. The
purchase price of shares of Common Stock subject to options granted under the
Option Plan is determined by the Committee, but shall not be less than 100% of
the fair market value of the Company's Common Stock on the date the option is
granted for ISOs and not less than 85% of the fair market value on the date the
option is granted for non-statutory options. An option granted under the Option
Plan vests at such rate and upon such conditions as the Committee determines at
the time the option is granted or may thereafter modify or waive. An option may
be exercised only while the optionee is an employee for the Company or any of
its subsidiaries or, in the event of a termination of employment other than by
death or disability, within ninety (90) days after termination of employment
(but not later than the expiration of the term of the option). Upon the death or
disability of an optionee, the optionee or optionee's legal or personal
representative or beneficiaries may exercise an option to the extent exercisable
by the optionee within one hundred twenty (120) days after the optionee's death
or disability (but not later than the expiration of the term of the option). In
the event any option is exercised or expires or is canceled, surrendered or
terminated without being exercised, the shares subject to such option will again
be available for options under the Option Plan.
CHANGE OF CONTROL
Upon a change of control, all shares of Common Stock subject to options
granted under the Option Plan vest and become immediately exercisable. A change
of control shall be deemed to occur if (i) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended,
except that such term shall not include the Company or any of its subsidiaries,
any employee benefit plan of the Company or a subsidiary, Mark A. Cohn or any
entity which reports beneficial ownership fo the Company's outstanding
securities on Schedule 13G pursuant to Regulation 240.13d-1 promulgated under
the Exchange Act) becomes a beneficial owner, directly or indirectly, of
securities of the Company representing 35% or more of the voting power of all of
the Company's then outstanding securities, (ii) a merger, consolidation or other
corporation reorganization of the Company is consummated and the shareholders of
the Company immediately prior to the consummation of such transaction own less
than 50% of the voting power of the outstanding shares of the entity resulting
from such transaction immediately after the consummation of such transaction, or
(iii) all or substantially all of the assets or business of the Company are
sold.
PAYMENT
Payment for shares of Common Stock purchased upon the exercise of an option
under the Option Plan must be made in full at the time the option is exercised
by (i) payment in cash, (ii) delivery of shares of the Company's Common Stock
which have been owned for at least six months valued at their then fair market
value, or (iii) payment by the optionee's broker from the sale or loan proceeds
for such shares or any other securities the optionee may have in his account
with the broker.
18
<PAGE>
TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. Under the present federal tax regulations, there
will be no federal income tax consequences to either the Company or the optionee
upon the grant of an ISO, nor will an optionee's exercise of an ISO result in
the federal income tax consequences to the Company. Although an optionee will
not realize ordinary income upon exercise of an ISO, the excess of the fair
market value of the shares of Common Stock acquired at the time of exercise over
the exercise price will constitute an "item of tax preference" within the
meaning of Section 57 of the Code and, thus, may result in the imposition of the
"alternative minimum tax" pursuant to Section 55 of the Code on the optionee. If
an optionee does not dispose of the shares of Common Stock acquired through the
exercise of an ISO within two (2) years from the date of grant and within one
(1) year of the exercise of the ISO, any gain realized upon a subsequent
disposition of such shares will constitute long-term capital gain to the
optionee at a capital gain rate of 28%; the capital gain rate is reduced to 20%
if the shares are held eighteen months from the date of exercise or if the
shares are sold by an estate or trust. If an optionee disposes of such shares
within two (2) years from the date of grant or within one (1) year of the date
exercised of the ISO, an amount equal to the lesser of (i) the excess of the
fair market value of such shares on the date of exercise over the exercise
price, or (ii) the actual gain realized upon such disposition will constitute
ordinary income to the optionee in the year of disposition. Any additional gain
upon such disposition will be taxed as short-term capital gain. The Company will
receive a deduction in an amount equal to the amount constituting ordinary
income to the optionee.
NON-QUALIFIED OPTIONS. Under the present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
optionee upon the grant of a non-qualified option under the Option Plan.
However, the optionee will realize ordinary income upon the exercise of a non-
qualified option in an amount equal to the excess of the fair market value of
the shares of Common Stock acquired upon exercise of such option over the
exercise price, and the Company will receive a corresponding tax deduction. The
gain, if any, realized upon subsequent disposition of such shares will
constitute short-term or long-term capital gain, depending upon the optionee's
holding period.
OUTSTANDING OPTIONS
As of February 19, 1998 options were outstanding under the Option Plan for
the executive officers named in the Summary Compensation Table included in this
Proxy Statement as follows: Mark A. Cohn: 100,000 shares at $9.00 per share
(options on 400,000 shares of Common Stock granted January 30, 1998 were not
granted under the Option Plan); Arlyn J. Lomen: 90,000 shares at $6.625 per
share; Kent A. Arett: 50,000 shares at $21.25 per share, 30,000 shares at $10.00
per share and 20,000 shares at $5.875 per share; Rodney C. Merry: 35,000 shares
at $9.00 per share and 25,000 shares at $12.75 per share; Jeff G. Palkovich:
8,000 shares at $5.00 per share (options on 65,000 shares of Common Stock
granted in 1990 were not granted under the Option Plan); Michael D. Moroz: 3,000
shares at $5.00 per share, 20,000 shares at $5.875 per share, 7,500 shares at
$7.75 per share, 30,000 shares at $14.50 per share and 29,500 shares at $13.625
per share; and George S. Richards: 60,000 shares at $7.50 per share and 30,000
shares at $13.625 per share. The seven officers named in the Compensation Table
together as a group have 538,000 shares at exercise prices ranging from $5.00 to
$21.25 per share. Options are outstanding for 56 employees who are not officers
for an aggregate of 398,249 shares at exercise prices ranging from $5.00 to
$16.00. All options were granted at fair market value on the date of grant.
RECOMMENDATION BY BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the proposal to
approve the amendment to the Option Plan to permit new options to be granted
under the Option Plan with respect to shares as to which options have been
exercised and to increase the number of shares reserved for issuance from
1,200,000 shares to 1,600,000 shares.
19
<PAGE>
PROPOSAL NO. 3
APPOINTMENT OF INDEPENDENT AUDITORS
Arthur Andersen LLP has been the Company's auditors since 1990 and have been
recommended by the Board of Directors to be the Company's independent auditors
for the year ending December 31, 1998. A representative of Arthur Andersen LLP
will be present at the Annual Meeting, afforded the opportunity to make a
statement and available to respond to questions.
The Board of Directors unanimously recommends a vote FOR the proposal to
ratify the appointment of Arthur Andersen LLP as the independent auditors for
the Company for the year 1998.
20
<PAGE>
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal intended to be presented for action at the Annual Meeting of
Shareholders in 1999 by any shareholder of the Company must be received by Kim
H. Plahn, Secretary, 7101 Winnetka Avenue North, Minneapolis, Minnesota 55428
not later than November 13, 1998, in order for such proposal to be included in
the Company's Proxy Statement and form of proxy for the Annual Meeting of
Shareholders in 1999. The Company shall not be required to include in its Proxy
Statement and form of proxy for the Annual Meeting of Shareholders in 1999 any
shareholder proposal which does not meet all of the requirements then in effect
for inclusion.
OTHER MATTERS
The Board of Directors does not intend to present to the Annual Meeting any
other matters not referred to above and does not presently know of any matters
that may be presented to the Annual Meeting by others. However, if other matters
come before the Annual Meeting, it is the intention of the persons named in the
enclosed form of proxy to vote the proxy in accordance with their best judgment.
A copy of the Annual Report of the Company for the year ended December 31,
1997, has also been mailed under this cover to each shareholder. Additional
copies of the Annual Report, the Notice of Annual Meeting, the Proxy Statement
and the accompanying Proxy may be obtained by writing DAMARK Investor Relations
at the offices of the Company.
The cost of preparing, assembling and mailing this Proxy Statement, the
notice, the form of Proxy and other material which may be sent to the
shareholders will be borne by the Company. In addition, directors, officers and
regular employees of the Company, at no additional compensation, may solicit
proxies by telephone, facsimile, telegram or in person. Upon request, the
Company will reimburse brokers and other persons holding shares for the benefit
of others for their expenses in forwarding proxies and accompanying material and
in obtaining authorization from beneficial owners of the Company's Common Stock
to give proxies.
In order to assure the presence of the necessary quorum at the Annual
Meeting, please sign and mail the enclosed Proxy promptly in the envelope
provided. No postage is required if mailed within the United States. The signing
of the Proxy will not prevent you from attending the meeting and voting in
person, should you so desire.
THE DAMARK INTERNATIONAL, INC. ANNUAL REPORT ON FORM 10-K, ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE, UPON WRITTEN
REQUEST TO INVESTOR RELATIONS, DAMARK INTERNATIONAL, INC., 7101 WINNETKA AVENUE
NORTH, MINNEAPOLIS, MINNESOTA 55428. Copies of exhibits to Form 10-K may be
obtained upon payment to the Company of the reasonable cost incurred in
providing such exhibits.
By Order of the Board of Directors
/s/ Kim H. Plahn
Kim H. Plahn
SECRETARY
March 10, 1998
21
<PAGE>
DAMARK INTERNATIONAL, INC.
7101 WINNETKA AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark A. Cohn and Kim H. Plahn, and each of
them, as Proxies, each with the power to appoint his or her substitute, and
thereby authorizes such Proxies to represent and to vote, as designated below,
all the shares of Class A Common Stock of DAMARK International, Inc., held of
record by the undersigned on February 19, 1998 at the Annual Meeting of
Shareholders to be held on April 15, 1998 or any adjournment thereof.
1. ELECTION OF FOR all nominees listed WITHHOLD AUTHORITY
DIRECTORS below TO VOTE FOR ALL NOMINEES
(EXCEPT AS MARKED TO THE LISTED BELOW / /
CONTRARY BELOW) / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
- - -------------------- ---------------------------- ----------------------------
Mark A. Cohn Stephen J. Hemsley Ralph Strangis
All nominees will serve for a term of three years expiring at the Annual
Meeting of Shareholders to be held in 2001.
PROPOSAL TO APPROVE THE AMENDMENT TO THE DAMARK INTERNATIONAL,
2. INC. 1991 STOCK OPTION PLAN to permit new options to be granted
under the Option Plan with respect to shares as to which options
have been exercised and to increase the number of shares reserved
for issuance from 1,200,000 shares to 1,600,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP as
independent auditors of the Company.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON REVERSE SIDE)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
__________________________________
Signature
__________________________________
Signature if held jointly
Dated: ___________________________
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
