SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
FUNCO, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions 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>
FUNCOLAND(R)
FUNCOLAND
10120 West 76th Street
Minneapolis, MN 55344
June 28, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Funco, Inc. The meeting will be held at 10:00 a.m. Central
Daylight Time on Friday, July 30, 1999, at the Minneapolis Marriott Southwest
Hotel, 5801 Opus Parkway, Minnetonka, Minnesota 55343. I encourage you to
attend. Whether or not you plan to attend the meeting, I urge you to vote your
proxy.
On behalf of our Board of Directors and employees, thank you for your
continued support and interest in Funco, Inc.
Sincerely,
/s/ David R. Pomije
David R. Pomije
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
FUNCO, INC.
10120 West 76th Street
Minneapolis, Minnesota 55344
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
Please take notice that the 1999 Annual Meeting of Shareholders of
Funco, Inc., a Minnesota corporation (the "Company"), will be held at the
Minneapolis Marriott Southwest Hotel, 5801 Opus Parkway, Minnetonka, Minnesota
55343, on Friday, July 30, 1999, at 10:00 a.m. Central Daylight Time, to
consider and vote upon the following matters, as described in the accompanying
Proxy Statement:
1. Election of directors of the Company.
2. Ratification of appointment of Ernst & Young LLP as independent
auditors of the Company.
3. Such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
The Board of Directors of the Company has fixed the close of business
on June 15, 1999, as the record date for determination of shareholders entitled
to notice of and to vote at the Annual Meeting.
Shareholders who do not expect to be personally present at the Annual
Meeting are urged to vote, sign, date and return the accompanying proxy in the
enclosed, postage paid return envelope as soon as possible. The Board of
Directors of the Company sincerely hopes, however, that all shareholders who can
attend the Annual Meeting will do so.
By Order of the Board of Directors
/s/ Robert M. Hiben
Robert M. Hiben
SECRETARY
June 28, 1999
<PAGE>
FUNCO, INC.
10120 WEST 76TH STREET
MINNEAPOLIS, MINNESOTA 55344
PROXY STATEMENT
- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JULY 30, 1999
- --------------------------------------------------------------------------------
SOLICITATION AND REVOCATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Funco,
Inc. (the "Company") in connection with the 1999 Annual Meeting of Shareholders
of the Company, which will be held on July 30, 1999, and any adjournments
thereof.
A person giving the enclosed proxy has the power to revoke it at any
time before the convening of the Annual Meeting. Revocations of proxy will be
honored if received at the offices of the Company, addressed to the attention of
Robert M. Hiben, on or before July 29, 1999. In addition, on the day of the
meeting, prior to the convening thereof, revocations may be delivered to the
tellers who will be seated at the door of the meeting hall. Unless so revoked,
all properly executed proxies will be voted as specified.
In the event no choice is specified on the proxy, the shares
represented by such proxy will be voted FOR the nominees for directors set forth
herein and FOR Proposal 2. If any other matters properly come before the Annual
Meeting, or if any of the persons named to serve as directors should decline or
be unable to serve, the persons named in the proxy will vote the same in
accordance with their discretion.
Abstentions and broker non-votes are counted for the purpose of
determining whether a quorum is present at the Annual Meeting. For the purpose
of determining whether a proposal (but not the election of directors) has
received a majority vote, abstentions will be included in the vote totals with
the result that an abstention will have the same effect as a negative vote. In
instances where brokers are prohibited from exercising discretionary authority
for beneficial owners who have not returned a proxy (the broker non-votes),
those shares will not be deemed to be present for purposes of calculating the
vote required for approval of such matters.
Expenses in connection with the solicitation of proxies will be paid by
the Company. Proxies are being solicited primarily by mail, but officers,
directors and other employees of the Company may also solicit proxies by
telephone, telegraph or personal calls. No extra compensation will be paid by
the Company for such solicitation. The Company may reimburse brokers, banks and
other nominees holding shares for others for the cost of forwarding proxy
materials to, and obtaining proxies from, their principals. This Proxy Statement
is first being mailed to shareholders on or about June 28, 1999.
<PAGE>
VOTING RIGHTS
Only shareholders of record at the close of business on June 15, 1999,
are entitled to notice of and to vote at the meeting or any adjournment thereof.
As of that date, there were issued and outstanding 5,954,181 shares of Common
Stock of the Company, the only class of securities of the Company entitled to
vote at the Annual Meeting. Each shareholder of record is entitled to one vote
for each share registered in the shareholder's name as of the record date. The
Articles of Incorporation of the Company do not grant shareholders the right to
vote cumulatively for the election of directors. The presence in person or by
proxy of holders of a majority of the shares of Common Stock entitled to vote at
the Annual Meeting will constitute a quorum for the transaction of business.
2
<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of June 15, 1999
(or as indicated below), with respect to the stock ownership of all persons
known by the Company to be beneficial owners of more than five percent of its
outstanding shares of Common Stock, each director, each nominee for director,
each of the Named Executive Officers and all directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIALLY OWNED OUTSTANDING SHARES
--------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
David R. Pomije......................................... 1,583,456(1) 26.2%
10120 West 76th Street
Minneapolis, MN 55344
Wellington Management Company, LLP...................... 607,700(2) 10.2%
75 State Street
Boston, MA 02109
SAFECO Asset Management Company......................... 519,400(3) 8.7%
601 Union Street
Suite 2500
Seattle, WA 98101-4074
Woodland Partners LLC................................... 466,550(4) 7.8%
60 South Sixth Street
Suite 3750
Minneapolis, MN 55402
Fleet Financial Group, Inc.............................. 313,470(5) 5.3%
One Federal Street
Boston, MA 02110
Stanley A. Bodine....................................... 186,904(6) 3.1%
George E. Mileusnic..................................... 21,688(7) Less than 1%
Patrick J. Ferrell...................................... 4,000(8) Less than 1%
Jeffrey R. Gatesmith.................................... 97,304(9) 1.6%
Robert M. Hiben......................................... 79,750(10) 1.3%
All directors and executive officers as a group
(6 persons)......................................... 1,973,102(11) 31.3%
</TABLE>
- -----------------------------------
(1) Includes 80,367 shares issuable upon exercise of currently exercisable
options and options exercisable within 60 days of the record date
("currently exercisable options").
(2) Based on Schedule 13G dated December 31, 1998, filed by Wellington
Management Company, LLP, which has shared voting power over 399,700 shares
and shared dispositive power over 607,700 shares.
(3) Based on Schedule 13G dated February 11, 1999, filed jointly by SAFECO
Common Stock Trust ("CST"), SAFECO Asset Management Company ("AMC") and
SAFECO Corporation ("SAFECO"). AMC, a subsidiary of SAFECO, is an
investment adviser and has shared voting and dispositive power over all of
such shares, including shares held by CST, an investment company.
(4) Based on Schedule 13G dated February 8, 1999, filed by Woodland Partners
LLC, which has sole voting power over 404,150 shares and shared voting
power over 62,400 shares.
(5) Based on Schedule 13G dated February 12, 1999, filed by Fleet Financial
Group, Inc.
(6) Includes 109,702 shares issuable upon exercise of currently exercisable
options.
(7) Includes 7,500 shares issuable upon exercise of currently exercisable
options.
(8) Includes 3,000 shares issuable upon exercise of currently exercisable
options.
(9) Includes 78,054 shares issuable upon exercise of currently exercisable
options.
(10) Includes 66,750 shares issuable upon exercise of currently exercisable
options.
(11) Includes 345,373 shares issuable upon exercise of currently exercisable
options.
3
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Management has nominated the individuals listed below for election as
directors, each to serve until the next Annual Meeting of Shareholders and until
his successor is elected and qualified or until his earlier resignation or
removal.
At the 1998 Annual Meeting of Shareholders, five directors were
elected. Richard T. Guidera retired as a director in September 1998. The Board
has determined not to replace Mr. Guidera at this time and, accordingly, only
four directors will be elected at the 1999 Annual Meeting.
Unless instructed not to vote for the election of directors or not to
vote for any specified nominee, the proxies will vote to elect the listed
nominees. If any of the nominees are not candidates for election at the Annual
Meeting, which is not currently anticipated, the proxies may vote for such other
persons as they, in their discretion, may determine.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
-------------------------------------- --------------- -----------------
<S> <C> <C>
David R. Pomije...................... 43 1988
Stanley A. Bodine.................... 49 1992
George E. Mileusnic.................. 44 1993
Patrick J. Ferrell................... 42 1995
</TABLE>
DAVID R. POMIJE is the founder of the Company and has been chairman of the
board and chief executive officer of the Company since its inception in March
1988. He also served the Company as its president and chief financial officer
until April 1995. Mr. Pomije's prior experience includes nine years within the
consumer electronics industry. Mr. Pomije currently serves on the Board of
Directors of Excelsior-Henderson Motorcycle Manufacturing Company.
STANLEY A. BODINE was named president and chief operating officer of the
Company in April 1995. He served as executive vice president from March 1992 to
April 1995. From October 1991 to March 1992, he worked for Funco as a management
consultant. Mr. Bodine held various management positions with The Pillsbury
Company from 1978 to 1991, most recently as senior vice president of The
Haagen-Dazs Company, with responsibility for business development in the United
States, Europe and the Pacific Rim. He also served as general manager of
Haagen-Dazs International and director of planning and development for
Pillsbury's domestic and international divisions.
GEORGE E. MILEUSNIC is currently an independent consultant. From 1996 to
1998, he served as executive vice president of administration of the Outdoor
Recreation division of The Coleman Company, Inc., a leading manufacturer and
marketer of brand name consumer products for the camping and related outdoor
recreational markets in the United States, Canada, Europe and Japan. From 1994
to 1996, he served as executive vice president and chief financial officer of
The Coleman Company. He joined The Coleman Company in September 1989 as senior
vice president and chief financial officer. From 1987 to 1989, he was senior
vice president and controller of Burger King Corporation, a subsidiary of The
Pillsbury Company. Mr. Mileusnic currently serves on the Board of Directors of
Intrust Funds Trust.
4
<PAGE>
PATRICK J. FERRELL is currently the president, chief executive officer and
co-founder of SocialNet, Inc., a company which provides business-to-business
Internet solutions in the social networking area. Prior thereto, he was
president of Strategies & Internet Consulting, providing consultant services to
the interactive entertainment industry. From 1989 to 1997, Mr. Ferrell served as
chief executive officer of Infotainment World, Inc., a subsidiary of IDG
Communications which publishes GAMEPRO, S.W.A.T. PRO and PC GAMES magazines, as
well as related tip books and strategy guides. While with Infotainment World,
Mr. Ferrell created and co-produced the Electronic Entertainment Expo, the
world's largest trade show dedicated exclusively to interactive entertainment
products and services. Mr. Ferrell, a CPA, has held a variety of financial
management positions at Visa, U.S.A., Foster Farms and KPMG Peat Marwick LLP.
DIRECTORS' COMPENSATION
Directors who are not otherwise employees of the Company are paid an annual
retainer of $5,000, plus $200 for each committee meeting attended which is not
held on the same date as a regular board meeting. During fiscal 1999, an
aggregate of $11,800 was paid to outside directors for their services.
Nonemployee directors are eligible for stock option awards under the Company's
1992 Stock Option Plan for Nonemployee Directors. During fiscal 1999 options to
purchase an aggregate of 4,500 shares at an exercise price of $16.36 were
granted to the Company's nonemployee directors. During fiscal 1999, two
directors exercised options, which had been granted in previous years, for
10,500 shares realizing an aggregate value of $58,750.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board of Directors met three times during fiscal 1999 and acted one
time by written consent. All directors attended each of the meetings of the
Board and the committees on which they served. The Board of Directors has
Executive, Compensation and Audit Committees, each comprised of two members. The
Board of Directors does not have a Nominating Committee.
EXECUTIVE COMMITTEE. The Executive Committee is authorized to take action
between meetings of the Board, subject to Board ratification. The Executive
Committee met one time during fiscal 1999. The current members of the Executive
Committee are Messrs. Pomije and Bodine.
COMPENSATION COMMITTEE. The principal function of the Compensation
Committee is to make recommendations to the Board of Directors concerning the
compensation of executive officers and other management personnel. The
Compensation Committee met three times during fiscal 1999. The current members
of the Compensation Committee are Messrs. Mileusnic and Ferrell.
AUDIT COMMITTEE. The Audit Committee has the principal function of
reviewing the adequacy of the Company's internal controls, conferring with the
independent auditors concerning the scope of their examination of the books and
records of the Company, recommending to the Board of Directors the appointment
of independent auditors and considering other appropriate matters regarding the
financial affairs of the Company. The Audit Committee met one time during fiscal
1999. The current members of the Audit Committee are Messrs. Mileusnic and
Ferrell.
5
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, have been the auditors of the
accounts of the Company for the past nine fiscal years. They have been appointed
by the Board of Directors of the Company for the purpose of auditing the
Company's accounts for the 2000 fiscal year and shareholder ratification of such
appointment is requested.
Representatives of the firm of Ernst & Young LLP will be in attendance
at the Annual Meeting of Shareholders and will have the opportunity to make a
statement if they desire to do so. In addition, they will be available to
respond to appropriate questions.
The affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote at the Annual Meeting is
required to approve the appointment of Ernst & Young LLP. In the event that the
appointment of Ernst & Young LLP should not be approved by shareholders, the
Board of Directors will make another appointment to be effective at the earliest
feasible time, either this fiscal year or the next.
The Board of Directors recommends that you vote FOR the ratification of
the appointment of Ernst & Young LLP as the Company's independent auditor for
fiscal 2000. Your proxy will be so voted unless you specify otherwise.
OTHER EXECUTIVE OFFICERS
The Company's executive officers, other than Messrs. Pomije and Bodine,
are identified below.
JEFFREY R. GATESMITH, 47, has served as vice president of retail
operations and human resources of the Company since January 1992. From 1988 to
1991, he served as vice president of human resources for the sixty-store retail
jewelry operations of Henry Birks and Sons, Ltd., Montreal, Quebec, Canada, and
as vice president of operations for Amerpro, Inc., a California firm offering
residential painting services from 1987 to 1988.
ROBERT M. HIBEN, 41, has served as chief financial officer and
secretary of the Company since April 1995. Mr. Hiben joined the Company as
controller in February 1992. He was chief financial officer of Bretts Department
Store Company, a nineteen-store chain, from 1990 to 1992, and served in various
financial capacities, most recently as director of financial planning, for
Wilsons The Leather Experts, a national retailer of leather apparel, from 1982
to 1990.
6
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
With respect to executive compensation, the objectives of the Committee
are to establish and maintain programs and practices that will align executive
compensation with the Company's performance and profitability as well as
motivate and retain executive officers. In meeting these objectives, the
Compensation Committee has determined that executive compensation plans are to
include competitive base salaries, performance-based cash bonuses and
appropriate long-term stock-based incentive awards.
ELEMENTS OF THE COMPANY'S EXECUTIVE COMPENSATION PLANS
BASE SALARY. The Board of Directors establishes the base salary level
for each executive officer, including the chief executive officer, based upon
recommendation of the Compensation Committee. In developing specific salary
recommendations, the Compensation Committee considers the scope of
responsibility for each executive officer, the individual's experience, the
competitive marketplace for the position and input from a consultant hired by
the Company. Base salaries of the Company's Named Executive Officers increased
an average of approximately 9% during fiscal 1999.
PERFORMANCE-BASED CASH BONUS. The Board of Directors establishes an
annual cash bonus plan based upon recommendation of the Compensation Committee,
which correlates incentive payments to factors including overall Company
financial performance, specific individual objectives and the individual
executive officer's base salary. The Company awarded performance-based cash
bonuses to its Named Executive Officers during fiscal 1999 with bonus amounts
averaging approximately 14% of base salary.
STOCK-BASED INCENTIVE AWARDS. The Compensation Committee and the Board
of Directors believe that stock-based incentive awards encourage and reward
effective management actions that bring about long-term corporate financial
success, primarily as measured by increases in shareholder value. During fiscal
1999 the Board of Directors, upon recommendation of the Compensation Committee,
granted options to purchase an aggregate of 124,000 shares at prices ranging
from $13.07 to $13.62 to the Named Executive Officers.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The following criteria were applied by the Compensation Committee to
determine compensation for the Chief Executive Officer, Mr. Pomije, for the last
fiscal year.
The Committee established Mr. Pomije's annual base salary for fiscal
1999 at $270,000, based upon the criteria described above regarding base salary.
The Committee established Mr. Pomije's annual incentive bonus opportunity at a
level at which achievement of bonus, together with base salary, would have been
marketplace competitive. The Company awarded an incentive bonus to Mr. Pomije in
the amount of $40,500 based upon fiscal 1999 results. The Committee recommended
to the Board of Directors that pursuant to the 1993 Stock Option Plan, Mr.
Pomije should be granted options to purchase, in the aggregate, 42,000 shares of
Common Stock at exercise prices ranging from $13.07 and $13.62 per share.
7
<PAGE>
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
Compensation Committee does not believe that the Section 162(m) limitation will
materially affect the Company in the near future given the current level of
compensation of the executive officers.
The Compensation Committee: George E. Mileusnic and Patrick J. Ferrell
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's chief
executive officer and the three other executive officers whose total cash
compensation for fiscal 1999 (based on salary and bonus) exceeded $100,000 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
FISCAL ----------------------------- -----------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS/OPTIONS
- ------------------------------------------ ----------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
David R. Pomije........................ 1999 $270,000 $40,500 42,000 shares
Chief Executive Officer 1998 255,000 127,500 42,400 shares
1997 200,000 120,000 37,300 shares
Stanley A. Bodine...................... 1999 220,000 33,000 42,000 shares
President and Chief Operating Officer 1998 200,000 100,000 36,640 shares
1997 168,000 100,800 34,500 shares
Jeffrey R. Gatesmith................... 1999 125,000 15,625 20,000 shares
Vice President of Retail Operations 1998 115,000 50,300 18,080 shares
and Human Resources 1997 102,000 47,500 20,900 shares
Robert M. Hiben........................ 1999 125,000 15,625 20,000 shares
Chief Financial Officer 1998 110,000 47,200 17,280 shares
1997 92,000 46,000 18,900 shares
</TABLE>
8
<PAGE>
OPTIONS GRANTED DURING FISCAL 1999
The following table provides information relating to options granted to
the Named Executive Officers during fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANT VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATE OF STOCK
PERCENT OF TOTAL PRICE APPRECIATION
OPTIONS GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR PRICE DATE 5%(2) 10%(2)
- ------------------------- ----------- ------------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David R. Pomije....... 21,000 7.9% $13.07 6/18/08 $172,613 $437,434
21,000 7.9 13.62 2/28/09 179,876 455,842
Stanley A. Bodine..... 21,000 7.9 13.07 6/18/08 172,613 437,434
21,000 7.9 13.62 2/28/09 179,876 455,842
Jeffrey R. Gatesmith.. 10,000 3.8 13.07 6/18/08 82,197 208,302
10,000 3.8 13.62 2/28/09 85,655 217,068
Robert M. Hiben....... 10,000 3.8 13.07 6/18/08 82,197 208,302
10,000 3.8 13.62 2/28/09 85,655 217,068
</TABLE>
- ------------------
(1) The number indicated is the number of shares of Common Stock that can be
acquired upon exercise of the related option. The Company has not granted
any SARs. All options granted in fiscal 1999 were non-qualified,
nontransferable, vest over a period of three years, become exercisable in
three equal annual installments commencing either June 19, 1999 or March
1, 2000, and provide for forfeiture of unvested options upon termination
of employment.
(2) The assumed rates of 5% and 10% are hypothetical rates of stock price
appreciation selected by the Securities and Exchange Commission and are
not intended to, and do not, forecast or assume actual future stock
prices. The Company believes that future stock appreciation, if any, is
unpredictable and is not aware of any formula that will determine with
any reasonable accuracy the present value of stock options based on
future factors which are unknowable and volatile. No gain to optionees is
possible without an appreciation in stock prices, and any such increase
would benefit all shareholders. There can be no assurance that the
amounts reflected in this table will be achieved.
AGGREGATE OPTION EXERCISES DURING FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised
by the Named Executive Officers during fiscal 1999 and the number and value of
options held at fiscal year-end. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David R. Pomije....... - - 57,500 82,700 $549,707 $462,377
Stanley A. Bodine..... 32,900 $407,421 88,568 77,927 815,614 448,096
Jeffrey R. Gatesmith.. - - 67,022 39,019 711,008 230,401
Robert M. Hiben....... 4,250 38,675 56,250 37,820 573,470 221,416
</TABLE>
- -------------------
(1) Value is determined by the difference between the closing price of the
Company's Common Stock on March 28, 1999, which was $18.875, and the
option exercise price (if less than $18.875) multiplied by the number of
shares subject to the option.
9
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with each of the
Named Executive Officers. Each agreement may be terminated at any time by
either the individual or the Company, subject to certain limitations or
continuing obligations. Each agreement prohibits the individual from engaging
in any activity competitive with the business of the Company or contacting
customers for such purpose or interfering with the Company's relationships
with its employees for a period of one year following termination of
employment. The employment agreements provide for an initial term ending March
31, 2001, and are renewable annually thereafter for additional one-year
periods. If any of the agreements are terminated at any time by the Company
other than for "Cause" (as defined in the agreements), the Company is
obligated to continue payment of salary and certain other benefits for the
remainder of the term of the agreement.
If any of these individuals are terminated other than for Cause or
terminate their employment for "Good Reason" (as defined in the agreements)
following a Change in Control of the Company (as defined in the agreements),
he will be entitled to receive compensation equal to two times his then
current base salary and target incentive bonus. A "Change in Control" occurs
when (i) the majority of the directors of the Company are persons other than
persons who are serving as of the date of the agreements ("incumbent
directors") or whose election or appointment was approved by a majority of
incumbent directors, (ii) any person or group of persons (as defined in
Section 13(d) or 14(d) of the Securities Exchange Act of 1934 and the rules
thereunder) acquires 35% or more of the outstanding voting stock of the
Company (with certain exceptions), or (iii) the shareholders of the Company
approve a merger or consolidation (other than a merger or consolidation with a
subsidiary of the Company or in which the Company is the surviving corporation
and the shareholders of the Company immediately prior to the merger own more
than 65% of the outstanding voting stock of the surviving corporation or its
parent corporation), exchange of shares, sale or other disposition of all or
substantially all of the Company's assets, or liquidation or dissolution of
the Company. In the event that any payment made upon the occurrence of a
Change in Control becomes subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, the Company will pay such
additional amounts as would put the individual in the same after-tax position
as if such excise tax did not apply, provided that such additional amount
shall not exceed 100% of the individual's base salary and target incentive
bonus in effect at the date of termination.
During fiscal 1999, and in prior fiscal years, the Named Executive
Officers and other key employees of the Company have been granted stock
options under the Company's 1993 Stock Option Plan (the "Plan"). Under terms
of the Plan, in the event of a change in control (as defined therein), any
option granted thereunder, if so provided in the related option agreement,
will become fully exercisable and vested and the value of all outstanding
options, unless otherwise determined by the stock option committee, will be
cashed out on the basis of the change in control price (as defined in the
Plan). Under the Plan, a change in control may be triggered by (i) the
acquisition by any person or group of persons (with certain exceptions) of 20%
or more of the voting power of the Company's outstanding securities, (ii) a
change in the membership of the Board of Directors so that within any period
of 24 consecutive months, individuals who constituted the Board at the
beginning of the period ("incumbent directors") no longer constitute at least
a majority thereof (except for directors whose appointment or election
10
<PAGE>
has been approved by at least 60% of the incumbent directors), or (iii) the
approval by the shareholders of an acquisition of the Company by an entity
other than the Company or a subsidiary or parent of the Company through
purchase of assets, by merger or otherwise.
11
<PAGE>
STOCK PERFORMANCE CHART
The following table compares the cumulative total shareholder return on
Common Stock for the period commencing April 3, 1994 through March 28, 1999,
with the cumulative total return on the NASDAQ United States Stock Market Index
and the NASDAQ Retail Trade Index over the same period. This comparison assumes
$100 was invested on April 3, 1994, in the Company's Common Stock and in each of
the foregoing indices, and assumes reinvestment of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG FUNCO, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ RETAIL TRADE INDEX
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------
4/3/94 4/2/95 3/31/96 3/30/97 3/29/98 3/28/99
<S> <C> <C> <C> <C> <C> <C>
FUNCO, INC. 100 33 30 101 120 129
NASDAQ STOCK MARKET (U.S.) 100 111 151 172 253 337
NASDAQ RETAIL TRADE 100 98 123 125 182 185
</TABLE>
* $100 INVESTED ON 4/3/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
12
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 ("reporting persons") to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
changes in ownership of Common Stock and other equity securities of the Company.
Reporting persons are required by SEC regulations 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
fiscal 1999, all Section 16(a) filing requirements applicable to its reporting
persons were complied with, except that a Form 4 reporting a stock option
exercise in December 1998 by George E. Mileusnic was not filed. The transaction
was reported on a timely filed Form 5.
OTHER MATTERS
The Board of Directors is not aware that any matter, other than those
described in the Notice, will be presented for action at the Annual Meeting. If,
however, other matters do properly come before the Annual Meeting, it is the
intention of the persons named in the proxy to vote the proxied shares in
accordance with their best judgment on such matters.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
In order for any shareholder proposal to be considered for inclusion in
the Company's Proxy Statement and form of Proxy relating to the 2000 annual
meeting of shareholders, it must be received by the Company at its principal
executive office no later than February 29, 2000.
In addition, under the Company's Bylaws, any nomination for director to
be elected at the 2000 annual meeting of shareholders or intention to present
other matters for consideration at the annual meeting must be submitted by
shareholders in writing to the Company at its principal executive office no
later than May 1, 2000. If not properly submitted by that date, such
nomination or other matter will not be considered at the annual meeting.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended March 28, 1999, accompanies this Notice of Annual Meeting of
Shareholders and Proxy Statement.
By Order of the Board of Directors
/s/ Robert M. Hiben
Robert M. Hiben
SECRETARY
June 28, 1999
13
<PAGE>
FUNCOLAND(R)
FUNCO, INC.
ANNUAL MEETING OF SHAREHOLDERS
FRIDAY, JULY 30, 1999
10:00 A.M. CENTRAL DAYLIGHT TIME
MINNEAPOLIS MARRIOTT SOUTHWEST HOTEL
5801 OPUS PARKWAY
MINNETONKA, MINNESOTA 55343
- --------------------------------------------------------------------------------
FUNCO, INC.
FUNCOLAND(R) 10120 WEST 76TH STREET, EDEN PRAIRIE, MINNESOTA 55344 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON FRIDAY, JULY 30, 1999.
The shares of stock you hold in your account will be voted as you specify below.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS' INSTRUCTIONS. IF
THE SHAREHOLDER(S) WHO EXECUTE THIS PROXY DO NOT WITHHOLD THEIR VOTES FOR THE
ELECTION OF DIRECTORS AND DO NOT VOTE AGAINST OR ABSTAIN FROM VOTING ON PROPOSAL
NO. 2, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS AND
FOR PROPOSAL NO. 2.
By signing the proxy, you revoke all prior proxies and appoint David R. Pomije
and Stanley A. Bodine, or either of them, with full power of substitution, to
vote your shares on the matters shown on the reverse side and any other matters
which may come before the Annual Meeting and all adjournments.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
-------------------------------
COMPANY #
CONTROL #
-------------------------------
FUNCOLAND(R)
FUNCO, INC.
ANNUAL MEETING OF SHAREHOLDERS
FRIDAY, JULY 30, 1999
10:00 A.M. CENTRAL DAYLIGHT TIME
MINNEAPOLIS MARRIOTT SOUTHWEST HOTEL
5801 OPUS PARKWAY
MINNETONKA, MINNESOTA 55343
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Funco, Inc., c/o Shareowner Services(SM), P.O.
Box 64873, St. Paul, MN 55164-0873.
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1. Election of directors: 01 David R. Pomije 03 George E. Mileusnic [ ] Vote FOR [ ] Vote WITHHELD
02 Stanley A. Bodine 04 Patrick J. Ferrell all nominees, except from all nominees
as indicated below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, ----------------------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
----------------------------------------------------
2. Ratification of Appointment of Ernst & Young LLP as Independent Auditors [ ] For [ ] Against [ ] Abstain
3. In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ]
Indicate changes below: It is urgent that each shareholder complete, date,
sign and mail this Proxy as soon as possible. Your
vote is important!
Date --------------------------------
----------------------------------------------------
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| |
| |
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----------------------------------------------------
Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy.
If held in joint tenancy, all persons must sign.
Trustees, administrators, etc., should include title
and authority. Corporations should provide full name
of corporation and title of authorized officer
signing the proxy.
</TABLE>
