<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 12, 1999
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 1999 Annual
Meeting of Shareholders. The meeting will be held at The Hyatt Regency
Minneapolis Hotel, 1300 Nicollet Mall, Minneapolis, Minnesota 55403, at 10:30
a.m., Central Time, on Wednesday, April 21, 1999.
In addition to voting on the matters described in the accompanying Proxy
Statement, we will review DAMARK's 1998 business and describe 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 previously have 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 OF THE BOARD 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 21, 1999
------------------------
DAMARK International, Inc.
To Our Shareholders:
The 1999 Annual Meeting of Shareholders of DAMARK International, Inc. will
be held at The Hyatt Regency Minneapolis Hotel, 1300 Nicollet Mall, Minneapolis,
Minnesota 55403, at 10:30 a.m., Central Time, on Wednesday, April 21, 1999 for
the following purposes:
1) Election of two directors for three-year terms ending in the year 2002;
2) Ratification of the appointment of Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999; and
3) Transaction of 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 23, 1999
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/ Stephen P. Letak
Stephen P. Letak
SECRETARY
Minneapolis, Minnesota
March 12, 1999
<PAGE>
PROXY STATEMENT
OF
DAMARK INTERNATIONAL, INC.
7101 WINNETKA AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55428
------------------------
ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 1999
---------------------
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., Central Time, on April 21,
1999, at The Hyatt Regency Minneapolis Hotel, 1300 Nicollet Mall, Minneapolis,
Minnesota 55403. The meeting has been called for the purpose 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 15, 1999.
Only shareholders of record as of the close of business on February 23, 1999
will be entitled to vote at the Annual Meeting. At the close of business on
February 23, 1999, the Company had 5,911,208 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 two directors for
three-year terms ending in the year 2002, (2) ratification of the appointment of
the independent auditors for the fiscal year ending December 31, 1999, and (3)
transaction of such other business, if any, as may properly come before the
meeting or any adjournments thereof.
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 and 2
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 23, 1999 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 Compensation Table set
forth later in this Proxy Statement and all executive officers and directors as
a group. As of February 23, 1999, there were 5,911,208 shares of Common Stock
outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNERS(1)(2) OWNERSHIP OWNERSHIP
- - ------------------------------------------------------------------------ -------------- ---------
<S> <C> <C>
Mark A. Cohn............................................................ 1,318,823(3) 21.77%
SafeCo Asset Management Company......................................... 1,172,100(4) 19.83
Morgan Grenfell Incorporated............................................ 569,050(5) 9.63
Dimensional Fund Advisors Inc........................................... 412,800(6) 6.98
George S. Richards...................................................... 70,000(7) 1.17
Michael D. Moroz........................................................ 70,333(8) 1.17
Rodney C. Merry......................................................... 40,000(9) 0.67
Jeff G. Palkovich....................................................... 73,000(10) 1.22
Stephen P. Letak........................................................ 50,000(11) 0.85
Andrew J. Franzoni...................................................... 0(12) 0.00
Thomas A. Cusick........................................................ 63,317(13) 1.06
Jack W. Eugster......................................................... 60,000(14) 1.00
Stephen J. Hemsley...................................................... 33,333(15) 0.56
Harold Roitenberg....................................................... 62,072(16) 1.04
Ralph Strangis.......................................................... 98,134(17) 1.63
Joel N. Waller.......................................................... 63,003(18) 1.05
All executive officers and directors as a group (13 Persons)............ 2,002,015(19) 29.94%
</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, Richards, Moroz, Merry, Letak and Franzoni is
7101 Winnetka Avenue North, Minneapolis, Minnesota 55428. The address of
SAFECO Asset Management Company is 601 Union Street, Suite 2500, Seattle,
Washington 98101. The address of Morgan Grenfell Incorporated is 885 Third
Avenue, Suite 3200, New York, New York 10022. The address of Dimensional
Fund Advisors Inc. is 1299 Ocean Avenue, 11(th) Floor, Santa Monica,
California 90401. The address of Mr. Palkovich is 13693 96(th) Avenue North,
Maple Grove, Minnesota 55311. The address of Mr. Cusick is 801 Marquette
Avenue, Minneapolis, Minnesota 55402. The address of Mr. Eugster is 10400
Yellow Circle Drive, Minnetonka, Minnesota 55343. The address of Mr. Hemsley
is 9900 Bren Road East, Minnetonka, Minnesota 55343. The address of Mr.
Roitenberg is 5500 Wayzata Boulevard, Suite 1065, Minneapolis, Minnesota
55416. The address of Mr. Waller is 7401 Boone Avenue North, Brooklyn Park,
Minnesota 55428. The address of Mr. Strangis is 5500 Norwest Center, 90
South Seventh Street, Minneapolis, Minnesota 55402.
4
<PAGE>
(3) 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
66,666 shares of Common Stock, which can be purchased at $9.00 per share and
80,000 shares of Common Stock which can be purchased at $10.00 per share
pursuant to vested options. Does not include 33,334 shares of Common Stock
which can be purchased at $9.00 per share pursuant to options vesting in
December 1999 and 320,000 shares of Common Stock which can be purchased at
$10.00 per share pursuant to non-statutory options vesting equally in
January 2000, 2001, 2002 and 2003.
(4) The information set forth herein is based on a Schedule 13G dated February
11, 1999 filed with the Securities and Exchange Commission.
(5) The information set forth herein is based on a Schedule 13G dated February
1, 1999 filed with the Securities and Exchange Commission.
(6) The information set forth herein is based on a Schedule 13G dated February
12, 1999 filed with the Securities and Exchange Commission.
(7) Includes 60,000 shares of Common Stock which can be purchased at $7.50 per
share and 10,000 shares of Common Stock which can be purchased at $13.625
per share, each pursuant to vested options. Does not include 60,000 shares
of Common Stock which can be purchased at $6.50 per share pursuant to
options vesting equally in September 1999, 2000 and 2001; 50,000 shares of
Common Stock which can be purchased at $8.25 per share pursuant to options
vesting equally in June 1999, 2000 and 2001; and 20,000 shares of Common
Stock which can be purchased at $13.625 per share pursuant to options
vesting equally in October 1999 and 2000.
(8) Includes 3,000 shares of Common Stock which can be purchased at $5.00 per
share, 20,000 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, 9,833 shares of Common Stock which can be purchased at $13.625 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 19,667 shares of
Common Stock which can be purchased at $13.625 per share pursuant to options
vesting equally in October 1999 and 2000.
(9) Includes 23,334 shares of Common Stock which can be purchased at $9.00 per
share and 16,666 shares of Common Stock which can be purchased at $12.75 per
share, each pursuant to vested options. Does not include 15,000 shares of
Common Stock which can be purchased at $6.50 per share pursuant to options
vesting equally in September 1999, 2000 and 2001; 11,666 shares of Common
Stock which can be purchased at $9.00 per share pursuant to options vesting
in December 1999; and 8,334 shares of Common Stock which can be purchased at
$12.75 per share pursuant to options vesting in September 1999.
(10) 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.
(11) Does not include 75,000 shares of Common Stock which can be purchased at
$5.813 per share pursuant to options vesting equally in September 1999, 2000
and 2001.
(12) Does not include 60,000 shares of Common Stock which can be purchased at
$6.50 per share pursuant to options vesting equally in September 1999, 2000
and 2001.
(13) Includes 60,000 shares of Common Stock, which can be purchased at $7.75 per
share pursuant to vested options. Includes 3,317 common stock equivalents
under the Company's Deferred Compensation Plan for Non-Employee Directors,
as to which Mr. Cusick has no voting rights until distribution of the Common
Stock upon termination of services or a change in control.
5
<PAGE>
(14) Includes 60,000 shares of Common Stock, which can be purchased at $5.00 per
share pursuant to vested options.
(15) Includes 13,333 shares of Common Stock, which can be purchased at $14.25
per share and 20,000 shares of Common Stock which can be purchased at $5.781
per share pursuant to vested options. Does not include 26,667 shares of
Common Stock which can be purchased at $14.25 per share pursuant to options
vesting in June 1999 and 2000.
(16) Includes 60,000 shares of Common Stock, which can be purchased at $5.00 per
share pursuant to vested options. Includes 2,072 common stock equivalents
under the Company's Deferred Compensation Plan for Non-Employee Directors,
as to which Mr. Roitenberg has no voting rights until distribution of the
Common Stock upon termination of services or change in control.
(17) 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. Includes 3,134 common stock equivalents
under the Company's Deferred Compensation Plan for Non-Employee Directors,
as to which Mr. Strangis has no voting rights until distribution of the
Common Stock upon termination of services or change in control.
(18) Includes 60,000 shares of Common Stock, which can be purchased at $7.75 per
share pursuant to vested options. Includes 3,003 common stock equivalents
under the Company's Deferred Compensation Plan for Non-Employee Directors,
as to which Mr. Waller has no voting rights until distribution of the Common
Stock upon termination of services or change in control.
(19) Includes an aggregate of 763,332 shares of Common Stock that are subject to
options from the Company currently exercisable or which will be exercisable
by April 23, 1999 by all executive officers and directors and includes an
aggregate of 11,526 common stock equivalents under the Company's Deferred
Compensation Plan for Non-Employee Directors.
6
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
Two 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 two nominees
for a three-year term expiring at the Company's Annual Meeting of Shareholders
in the year 2002 or until their successors are duly elected:
<TABLE>
<S> <C> <C>
Thomas A. Cusick -- Vice Chairman and Chief Operating Officer of TCF Financial
Corporation
Joel N. Waller -- Chairman, Wilsons The Leather Experts
</TABLE>
Except where authority has been withheld by a shareholder, the enclosed
proxy will be voted for the election of the two 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 both 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
THOMAS A. CUSICK (54) has been a director of the Company since May 1993. Mr.
Cusick has been Chief Operating Officer of TCF Financial Corporation, a
Minneapolis-based national bank holding company with banks in Minnesota,
Illinois, Wisconsin, Colorado and Michigan, since January 1997 and Vice Chairman
since January 1993. Prior thereto, he was President and Chief Operating Officer
of TCF Financial Corporation from its formation in 1987. Mr. Cusick also served
as Chairman of TCF Bank Minnesota, fsb, a federally chartered stock savings bank
and a wholly owned subsidiary of TCF Financial Corporation, and as Chief
Executive Officer of TCF Bank. He served as Vice Chairman of TCF Bank from 1991
to January 1997 and prior thereto as Executive Vice President and Director of
Banking Services of TCF Bank. Currently, he serves as a director of TCF
Financial Corporation. 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.
JOEL N. WALLER (59) 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 Lakes
Gaming, 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.
MARK A. COHN (41) 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 1998 for a term expiring at the Annual Meeting of
Shareholders in 2001.
STEPHEN J. HEMSLEY (46) has been a director of the Company since June 1997.
Mr. Hemsley has been Senior Executive Vice President and Chief Operating Officer
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 at its
7
<PAGE>
Annual Meeting of Shareholders in 1998 for a term expiring at the Annual Meeting
of Shareholders in 2001.
RALPH STRANGIS (62) 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 twenty years. Mr. Strangis is also a director of the following public
companies: TCF Financial Corporation, a Minneapolis-based national bank holding
company with banks in Minnesota, Illinois, Wisconsin, Colorado and Michigan, and
Life USA Holding, Inc., a financial services holding and marketing company. Mr.
Strangis was elected as a director of the Company at its Annual Meeting of
Shareholders in 1998 for a term expiring at the Annual Meeting of Shareholders
in 2001.
JACK W. EUGSTER (53) 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 (72) 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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, the Board of Directors held six meetings and took ten 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 once during 1998. 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 met twice and took seven
actions by unanimous written consent during 1998.
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
lead director. Non-employee director options were granted at fair market value
on
8
<PAGE>
the date of grant and become exercisable in three equal installments commencing
on the first anniversary 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 could purchase up to 50,000 shares of Common Stock of 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. The Plan was amended on November 17, 1998 to reduce the number of
shares available for purchase under the Plan to 25,000 shares. On March 2, 1998,
Mr. Strangis purchased 5,000 shares under the Plan at a purchase price of $11.17
per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 4, 1999, the Board of Directors of the Company determined that it
would be in the best interests of the Company to make a loan to Mark A. Cohn,
Chairman and Chief Executive Officer of the Company, in order to remove the risk
of margin calls against Common Stock securing certain personal loans to Mr. Cohn
which could result in the disposition of certain of Mr. Cohn's shares of Common
Stock and adversely affect the price of the Common Stock. The loan to Mr. Cohn
is evidenced by a promissory note in the principal amount of $1,500,000 bearing
interest at 1% over the prime interest rate announced by USBancorp from time to
time, compounded annually. Payment of principal and accrued interest is due on
January 4, 2001, provided that payments prior to maturity are to be made from
the net after tax proceeds received from the sale by Mr. Cohn of Common stock,
after payment of any debt secured by such Common Stock. Mr. Cohn granted the
Company a security interest in Common Stock owned by him as security for the
payment of the obligations evidenced by the note, including Common Stock
securing existing indebtedness after payment of such indebtedness. Mr. Cohn has
applied the proceeds of the loan to indebtedness secured by Common Stock.
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 1998. The firm has also been retained by and will render legal
services to the Company in 1999.
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, Insiders and Great
Deal Pack members at no cost to the Company.
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 1998 until the date of this proxy, its officers, directors and greater
than 10 percent shareholders complied with all applicable Section 16(a) filing
requirements.
9
<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, including
annualized salaries for two new executive officers) and one additional
individual who was no longer an executive officer of the Company at December 31,
1998, for each of the fiscal years ended December 31, 1996, 1997 and 1998.
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 ............................... 1998 $ 475,000 $ -- $ -- 400,000(4) $ --
Chairman of the Board 1997 475,000 -- -- -- --
Chief Executive Officer 1996 400,000 400,000 -- 100,000(4) --
George S. Richards ......................... 1998 274,519 -- -- 110,000(5) 1,440
President 1997 209,808 -- -- 30,000(6) 45,947
Chief Operating Officer 1996 175,673 140,000 -- -- 281,211
Michael D. Moroz ........................... 1998 250,000 -- -- -- 1,440
Senior Vice President 1997 209,808 -- -- 29,500(6) 1,440
Marketing Services 1996 175,000 140,000 -- -- 1,490
Rodney C. Merry ............................ 1998 183,096 -- -- 15,000(7) 1,440
Chief Information Officer 1997 155,000 -- -- -- 3,081
Senior Vice President 1996 70,832 33,177 -- 35,000(7) 235
Jeff G. Palkovich .......................... 1998 165,385 -- -- -- 719
Vice President--Marketing 1997 150,000 -- -- -- 385
Teleservices Group 1996 150,000 120,000 -- -- 492
Stephen P. Letak ........................... 1998 73,077 25,000 -- 75,000(8) --
Executive Vice President 1997 -- -- -- -- --
Chief Financial Officer 1996 -- -- -- -- --
Andrew J. Franzoni ......................... 1998 54,615 50,000 -- 60,000(9) 17,190
Senior Vice President 1997 -- -- -- -- --
Catalog Group 1996 -- -- -- -- --
</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
earned by the Company's executive officers in 1997 or 1998, except for
employment bonuses paid to Messrs. Letak and Franzoni in 1998.
(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 include 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
amounts also include the Company's matching contribution to the Company's
401(K) plan. Mr. Franzoni's 1998 amounts represent expenses relating to his
relocation to the Minneapolis area including costs of moving and
reimbursement of temporary living expenses.
10
<PAGE>
(4) In December 1997, Mr. Cohn received an option to purchase 100,000 shares of
Common Stock at $9.00 per share vesting in equal installments in December
1997, 1998 and 1999. On January 30, 1998, contemporaneously with an
assignment by Mr. Cohn to the Company of his right to purchase 456,548
shares of the Company's Common Stock at $9.15 per share, Mr. Cohn was
granted a non-statutory option to purchase 400,000 shares of Common Stock at
$10.00 per share vesting in equal installments in January 1999, 2000, 2001,
2002 and 2003.
(5) In June 1998, Mr. Richards received an option to purchase 50,000 shares of
Common Stock at $8.25 per share vesting in equal installments in June 1999,
2000 and 2001. In connection with his promotion to President and Chief
Operating Officer in September 1998, Mr. Richards was granted an option to
purchase 60,000 shares of Common Stock at $6.50 per share vesting in equal
installments in September 1999, 2000 and 2001.
(6) The exercise price of the options is $13.625 per share; the options vest in
equal installments in October 1998, 1999 and 2000.
(7) Mr. Merry commenced his employment with the Company in February 1994, but
was not employed by the Company from February through September 1996. 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. In connection with his promotion to Chief Information Officer
and Senior Vice President in September 1998, Mr. Merry was granted an option
to purchase 15,000 shares of Common Stock at $6.50 per share vesting in
equal installments in September 1999, 2000 and 2001.
(8) In connection with his commencement of employment with the Company in
September 1998, Mr. Letak received an option to purchase 75,000 shares of
Common Stock at $5.813 per share vesting in equal installments in September
1999, 2000 and 2001. Mr. Letak's annualized salary is $250,000.
(9) In connection with his commencement of employment with the Company in
September 1998, Mr. Franzoni received an option to purchase 60,000 shares of
Common Stock at $6.50 per share vesting in equal installments in September
1999, 2000 and 2001. Mr. Franzoni's annualized salary is $200,000.
The Company has not made any restricted stock grants to any of the executive
officers named in the Summary Compensation Table.
11
<PAGE>
OPTION GRANTS DURING FISCAL YEAR ENDED DECEMBER 31, 1998
The following table summarizes information relating to options granted
during the fiscal year ended December 31, 1998 to the executive officers named
in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE
SECURITIES PERCENT OF VALUE AT ASSUMED ANNUAL
UNDERLYING TOTAL RATES OF STOCK PRICE
OPTIONS/SARS OPTIONS/SARS APPRECIATION FOR OPTION
GRANTED GRANTED TO EXERCISE OR TERM
GRANTED EMPLOYEES IN BASE PRICE -----------------------
NAME (#)(1) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- - -------------------------- ------------- --------------- ----------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Cohn.............. 400,000(2) 50.52% $ 10.00 January 2008 $6,515,579 $10,374,970
George S. Richards........ 50,000 6.32% $ 8.25 June 2008 $ 671,919 $ 1,069,919
George S. Richards........ 60,000 7.58% $ 6.50 September 2008 $ 635,269 $ 1,011,560
Michael D. Moroz.......... -- -- -- -- -- --
Rodney C. Merry........... 15,000 1.89% $ 6.50 September 2008 $ 158,817 $ 252,890
Jeff G. Palkovich......... -- -- -- -- -- --
Stephen P. Letak.......... 75,000 9.47% $ 5.813 September 2008 $ 710,157 $ 1,130,807
Andrew J. Franzoni........ 60,000 7.58% $ 6.50 September 2008 $ 635,290 $ 1,011,560
</TABLE>
- - ------------------------------
(1) All of the above option grants vest in three equal installments commencing
on the first anniversary of the date of grant, subject to continued
employment with the Company, except that Mr. Cohn's options vest in five
equal installments commencing on the first anniversary of the date of grant.
(2) Non-statutory options were granted to Mr. Cohn contemporaneously with an
assignment by Mr. Cohn to the Company of his right to purchase 456,548
shares of the Company's Common Stock at $9.15 per share.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table summarizes information relating to options exercised in
1998 and unexercised stock options as of December 31, 1998 of the executive
officers named in the Summary Compensation Table. There were no stock
appreciation rights (SARs) outstanding at December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS/SARS
UNEXERCISED OPTIONS/SARS AT DECEMBER 31, 1998
AT DECEMBER 31, 1998 (#) ($)(1)
------------------------ --------------------------
SHARES ACQUIRED ON VALUE REALIZED EXERCISABLE / EXERCISABLE /
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ---------------------------- ------------------- ----------------- ------------------------ --------------------------
<S> <C> <C> <C> <C>
Mark A. Cohn................ -- -- 66,666/ 433,334 $ 0/ $ 0
George S. Richards.......... -- -- 70,000/ 130,000 $ 37,500/ $ 97,500
Michael D. Moroz............ -- -- 70,333/ 19,667 $ 57,188/ $ 0
Rodney C. Merry............. -- -- 40,000/ 35,000 $ 0/ $ 24,375
Jeff G. Palkovich........... -- -- 73,000/ -- $ 467,813/ --
Stephen P. Letak............ -- -- --/ 75,000 --/ $173,400
Andrew J. Franzoni.......... -- -- --/ 60,000 --/ $ 97,500
</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, 1998, the last trading day of the year, was
$8.125 per share.
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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.
EMPLOYMENT CONTRACTS, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an Amended and Restated Employment Agreement
with Mark A. Cohn in connection with Mr. Cohn's employment as Chairman and Chief
Executive Officer of the Company which provides that Mr. Cohn's employment may
not be terminated by the Company before December 31, 2001 other than for cause;
the employment term automatically extends for one year on each January 1, 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 incentive compensation 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, continued participation in the Company's benefit
plans for the balance of the term of the employment agreement and outplacement
services. In the event of a 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, outplacement services, 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
13
<PAGE>
number of shares beneficially owned by Mr. Cohn is less than 5% of the
outstanding shares of Common Stock.
The Company has entered into Severance, Confidentiality and Noncompete
Agreements with Messrs. Letak and Merry, executive officers 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, Confidentiality
and Noncompete Agreements with Messrs. Letak, Moroz and Merry, executive
officers of the Company. 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 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.
All options granted under the DAMARK International, Inc. 1991 Stock Option
Plan and the options granted to Mr. Cohn in January 1998 vest immediately 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.
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 grants of options under the
Option Plan. In determining compensation for executive officers, the Committee
considers base salary, incentive compensation and stock options 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 options which encourage retention of
executive officers and provide them with long-term rewards which are consistent
with the interests of the Company's shareholders.
14
<PAGE>
BASE SALARY
The following general factors are taken into consideration in determining
annual base salaries for the executive officers: (i) recommendations from the
Chairman and Chief Executive Officer and from the President and Chief Operating
Officer, (ii) compensation information available to the Company with respect to
membership services companies and direct mail companies, and (iii) the level of
compensation required to attract and retain new executive officers to the
Company. No specific weighting is assigned to the factors by the Committee.
The Committee intends that base salaries of the executive officers be set at
a level that is competitive with membership services, direct mail and other
growth companies comparable to the Company in terms of expected annual revenues
and strategic priorities. The Committee believes that base salary levels are
competitive if they approximate the level of average base salaries for
comparable companies. 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, Mr. Merry received a salary increase
to $175,000 in recognition of past performances and the level of his increased
responsibilities at the Company. In September 1998, Mr. Richards received a
salary increase to $325,000 in recognition of his promotion to President and
Chief Operating Officer and Mr. Merry received a salary increase to $200,000 in
recognition of his promotion to Chief Information Officer and Senior Vice
President. In connection with the employment of Messrs. Letak and Franzoni in
September 1998, the Committee established base salaries at $250,000 and 200,000,
respectively. The Committee believes that compensation for each of these
executive officers met the overall objectives established by the Committee and
was within the compensation range for executive officers of similar
responsibilities.
INCENTIVE COMPENSATION
In January 1998, the Committee adopted an incentive compensation 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 were entitled to receive
incentive compensation expressed as a percentage of the executive officer's
annual base salary. To the extent actual performance in 1998 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 percentages 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 1998 performance and
extraordinary circumstances, as the Committee deemed appropriate. Based on 1998
results, no bonuses were earned under the 1998 incentive compensation plan.
In February 1999, the Committee adopted an incentive compensation plan to
provide a bonus pool for eligible employees, including executive officers, based
on the achievement of established economic performance levels. For executive
officers, there are three components of economic performance, each contributing
a specified percentage: catalog cash from operations (50%), membership cash from
operations (25%) and membership revenue (25%). 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 of each
component equals or exceeds a threshold level of 75% of target. Incentive
compensation will increase based on a formula related to the amount by which
actual economic performance exceeds established performance targets for each
component. The components will be calculated separately and then combined to
determine aggregate incentive compensation for executive officers. In no event
will incentive compensation exceed 150% of base annual salary for the Chief
Executive Officer and for the President and 135% of base annual salary for each
Senior Vice President. The Committee retains the discretion to modify the
targets established for each component to take into account special factors that
may affect 1999 performance and extraordinary circumstances, as the Committee
deems appropriate.
15
<PAGE>
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 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 1998, the Committee granted the
following options to the executive officers named in the Compensation Table:
50,000 shares of Common Stock to Mr. Richards in June 1998 in recognition of his
contributions to the Company; 15,000 shares of Common Stock to Mr. Merry and
60,000 shares of Common Stock to Mr. Richards in September 1998 in connection
with their promotions to Chief Information Officer and President and Chief
Operating Officer, respectively; and 75,000 shares of Common Stock to Mr. Letak
and 60,000 shares of Common Stock to Mr. Franzoni in September 1998 in
connection with their employment by the Company. In January 1998, the Committee
granted non-statutory options on 400,000 shares of Common Stock to Mr. Cohn
contemporaneously with an assignment by Mr. Cohn to the Company of his right to
purchase 456,548 shares of the company's Common Stock and 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 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 nor any other
executive received a bonus under the 1998 incentive compensation plan described
above. Mr. Cohn is eligible to participate in the Company's 1999 incentive
compensation 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 become applicable, the
Committee would defer payment of a portion of the incentive compensation to
remain under the $1.0 million annual deduction limitation.
<TABLE>
<S> <C> <C>
Stephen J. Hemsley Harold Roitenberg, Chairman Joel N. Waller
Compensation Committee Compensation Committee Compensation Committee
</TABLE>
16
<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, 1993 on a five
year annual basis until December 31, 1998 with the cumulative total return of
the Nasdaq Stock Market Total U.S. Return Index (the "Nasdaq (U.S.) Index"), the
cumulative total return of the Company's prior peer group index (the "Old Peer
Group Index") constructed by the Company as described more fully below and the
cumulative total return of the Company's revised peer group index (the "New Peer
Group Index") also constructed by the Company as described more fully below,
over the same period, assuming an initial investment of $100 on December 31,
1993.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DAMARK NASDAQ (U.S.) INDEX RUSSELL 2000 OLD PEER GROUP NEW PEER GROUP
<S> <C> <C> <C> <C> <C>
12/31/93 $100.00 $100.00 $100.00 $100.00 $100.00
12/31/94 $36.26 $97.75 $98.18 $62.37 $85.61
12/31/95 $32.97 $138.26 $126.10 $51.76 $125.64
12/31/96 $41.76 $170.01 $146.90 $62.08 $137.14
12/31/97 $42.86 $208.58 $179.75 $77.98 $187.91
12/31/98 $35.71 $293.21 $175.17 $110.13 $126.08
</TABLE>
The following table reflects the value of a $100 investment made on December
31, 1993 as shown in the above graph as of December 31:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
DAMARK............................................ $ 36.26 $ 32.97 $ 41.76 $ 42.86 $ 35.71
NASDAQ (U.S.) Index............................... 97.75 138.26 170.01 208.58 293.21
Russell 2000 Index................................ 98.18 126.10 146.90 179.75 175.17
Old Peer Group Index.............................. 62.37 51.76 62.08 77.98 110.13
New Peer Group Index.............................. 85.61 125.64 137.14 187.91 126.08
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Due to the successful development and growth of the client services channel
of membership distribution in 1998, the Company has significantly expanded its
presence in the membership services industry. Accordingly, the New Peer Group
includes companies focusing on membership services activities including Cendant
Corporation, Memberworks, Inc. and Metris Companies, Inc. database marketing and
management such as Acxiom Corporation and Fingerhut Companies, Inc. and
companies focused on direct to consumer merchandise sales with customers similar
to those of DAMARK, including Creative Computers, Inc. and The Sharper Image.
The Old 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
Corporation, Lands' End, Inc., Lillian Vernon Corporation, National Media
Corporation, Spiegel, Inc. and Williams-Sonoma, Inc. The Company selected the
members of the Peer Group because each operated in a mail order catalog
environment and sold products in categories similar to those of the Company
prior to the development of its client services membership business. For 1997,
the Peer Group Index does not include INMAC Corporation, which was
17
<PAGE>
acquired by another company during 1996 and was no longer a separate public
company; the Company did not believe that the exclusion of INMAC Corporation for
1997 materially affected the trend of the Peer Group Index. The Company also
believes that the Russell 2000 Index is more representative of the Company's
industry than the prior industry group of NASDAQ (U.S.).
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
Arthur Andersen LLP has been the Company's auditors since 1990 and has been
recommended by the Board of Directors to be the Company's independent auditors
for the year ending December 31, 1999. 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 1999.
18
<PAGE>
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal intended to be presented for action at the Annual Meeting of
Shareholders in the year 2000 by any shareholder of the Company must be received
by Stephen P. Letak, Secretary, 7101 Winnetka Avenue North, Minneapolis,
Minnesota 55428 not later than November 30, 1999, 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 the year 2000. The Company shall not be required to
include in its Proxy Statement and form of proxy for the Annual Meeting of
Shareholders in the year 2000 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,
1998 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 to 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
[LOGO]
Stephen P. Letak
SECRETARY
March 12, 1999
19
<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 Stephen P. Letak, and each
of them, as Proxies, each with the power to appoint his substitute, and thereby
authorize 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 23, 1999 at the Annual Meeting of Shareholders to be
held on April 21, 1999 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)
- - -------------------- ----------------------------
Thomas A. Cusick Joel N. Waller
All nominees will serve for a three-year term expiring at the Company's
Annual Meeting of Shareholders in the year 2002 or until their successors are
duly elected.
2. RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1999.
/ / 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 AND 2.
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.
