UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________to__________________
Commission File Number 0-22982
NAVARRE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 41-1704319
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 49th Avenue North, New Hope, MN 55428
(Address of principal executive offices)
Registrant's telephone number, including area code (612) 535-8333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ]
No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, No Par Value - 6,773,248 shares as of January 31, 1997
NAVARRE CORPORATION
Index
Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated statements of financial position -
December 31, 1996 and March 31, 1996
Consolidated statements of operations -
Three and nine months ended December 31, 1996 and 1995
Consolidated statements of cash flows -
Nine months ended December 31, 1996 and 1995
Notes to consolidated financial statements - December 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Part I. Financial Information
NAVARRE CORPORATION
Consolidated Statements of Financial Position
(In thousands, except share amounts)
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| |December 31, |March 31, |
| | 1996 | 1996 |
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| |------------- |-------------
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|Assets |(Unaudited) | |
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|Current assets: | | |
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| Cash | $7 | $4|
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| Trade accounts receivable, net of | | |
|allowances | | |
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| of $3,306 and $943, | 55,049 | 41,023|
|respectively | | |
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| Inventories | 24,261 | 14,816|
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| Note receivable, officer | 210 | -----|
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| Prepaid expenses and other | 999 | 897|
|current assets | | |
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| |------------- |-------------
|
| | --------- | ----------|
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|Total current assets | 80,526 | 56,740|
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|Investments in and advances to | 6,457 | -----|
|affiliates | | |
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|Property and equipment (net) | 3,055 | 2,861|
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|Other assets | 1,086 | 507|
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| |------------- |-------------
|
| | --------- | ----------|
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|Total assets | $ | $|
| | 91,124 | 60,108|
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| |------------- |-------------
|
| |------------- |-------------
|
| | ------- | --------|
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|Liabilities and shareholders' equity | | |
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|Current liabilities: | | |
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| Note payable to bank | 24,748 | 21,115|
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| Accounts payable, trade | 55,870 | 27,715|
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| Accrued expenses | 386 | 1,321|
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| Income taxes payable | ----- | 309|
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| |------------- |-------------
|
| | -------- | ----------|
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|Total current liabilities | 81,004 | 50,460|
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|Shareholders' equity: | | |
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| Common stock, no par value: | | |
|Authorized | | |
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| shares - 20,000,000, Issued and | | |
|outstanding | | |
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| shares - 6,773,248 and 6,328,946, | 7,712 | 6,460|
|respectively | | |
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|Retained earnings | 2,754 | 3,605|
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|Unearned compensation | (346) | (417)|
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| |------------- |-------------
|
| | -------- | ----------|
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|Total shareholders' equity | 10,120 | 9,648|
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| |------------- |-------------
|
| | -------- | ----------|
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|Total liabilities and shareholders' |
|equity | 91,124 | 60,108|
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| |------------- |-------------
|
| |------------- |-------------
|
| | ------ | --------|
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See accompanying notes
Note: The balance sheet at March 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
NAVARRE CORPORATION
Consolidated Statements of Operations
In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
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| | 1996 | 1995 | 1996 | 1995 |
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| |-------- |-------- |-------- |--------
|
| |------- |------- |------- |-------|
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|Net sales: | | | | |
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| Computer software | | | | |
| | 56,563 | 40,633 |117,985 | 80,869|
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| Music | 13,053 | 16,425 | 39,419 | 40,921|
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| |-------- |-------- |-------- |--------
|
| | ---- | ---- | ---- | ----|
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| | 69,616 | 57,058 |157,404 |121,790|
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|Cost of sales | 62,597 | 50,839 |139,204 |107,310|
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| |-------- |-------- |-------- |--------
|
| | ---- | ---- | ---- | ----|
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|Gross profit | 7,019 | 6,219 | 18,200 | 14,480|
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|Operating expenses: | | | | |
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| Selling and promotion | 1,652 | 1,426 | 4,124 | 3,631|
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| Distribution and | 818 | 625 | 1,960 | 1,489|
|warehousing | | | | |
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| General and | 5,312 | 2,102 | 10,467 | 6,488|
|administration | | | | |
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| |-------- |-------- |-------- |--------
|
| | ---- | ---- | ---- | ----|
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| | 7,782 | 4,153 | 16,551 | 11,608|
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| |-------- |-------- |-------- |--------
|
| | ---- | ---- | ---- | ----|
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|Income (loss) from | (763) | 2,067 | 1,649 | 2,873|
|operations | | | | |
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|Other expense: | | | | |
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| Interest expense | 655 | 419 | 1,619 | 1,111|
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| Other expense | 233 | 61 | 481 | 89|
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|Equity in loss of | (171) | ---- | (585) | -----|
|affiliate | | | | |
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| |-------- |-------- |-------- |--------
|
| | ---- | ---- | ---- | ----|
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|Income (loss) before |(1,651) | 1,587 | (451) | 1,673|
|income taxes | | | | |
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|Income tax expense | (677) | 638 | (185) | 673|
|(benefit) | | | | |
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| |-------- |-------- |-------- |--------
|
| | ---- | ---- | ---- | ----|
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|Net Income (loss) | | | | |
| |(1,145) | 949 | (851) | 1,000|
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| |-------- |-------- |-------- |--------
|
| |-------- |-------- |-------- |--------
|
| | - | - | - | -|
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|Earnings (loss) per common | | | | |
|share: | | | | |
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| Net income (loss) | $ | $ | $ | $|
| | (.17) | .15 | (.13) | .16|
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| |-------- |-------- |-------- |--------
|
| |-------- |-------- |-------- |--------
|
| | - | - | - | -|
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|Weighted average number of | | | | |
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| common and common | | | | |
|equivalent | | | | |
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| shares outstanding | 6,770 | 6,444 | 6,654 | 6,418|
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| |-------- |-------- |-------- |--------
|
| |-------- |-------- |-------- |--------
|
| | - | - | - | -|
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See accompanying notes
NAVARRE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended December 31,
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| | 1996 | 1995 |
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| |---------- |----------
|
| |--------- |---------|
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|Operating activities | | |
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|Net income (loss) | | |
| | (851) |1,000 |
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|Adjustments to reconcile net income | | |
|to net cash | | |
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| provided by (used in) operating | | |
|activities: | | |
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| Depreciation and amortization | | |
| |887 |601 |
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| Equity in loss of affiliate | | |
| |585 |----- |
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| Trade accounts receivable | (14,026) | (18,398)|
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| Inventories | (9,445) | (3,228)|
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| Prepaid expenses and other assets | (69) | |
| | |375 |
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| Accounts payable and accrued | | |
|expenses |27,220 |19,341 |
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| Income taxes payable | (309) | (159)|
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| |---------- |----------
|
| | --- | --|
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|Net cash provided by (used in) | | (468)|
|operating activities |3,992 | |
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|Investing activities | | |
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|Note receivable, officer | (210) | |
| | |255 |
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|Purchase of business | (250) | |
| | |----- |
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|Equity investment in business | (6,000) | |
| | |----- |
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|Purchase of furniture, equipment and | | |
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| leasehold improvements | (839) | (1,330)|
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| |---------- |----------
|
| | --- | --|
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|Net cash used in investing activities | (7,299) | (1,075)|
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|Financing activities | | |
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|Payment on long-term debt | | (135)|
| |----- | |
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|Proceeds from notes payable, bank | | |
| |129,695 |98,489 |
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|Payment on notes payable, bank |(126,062) | (96,585)|
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|Payment on notes payable, other | (500) | -----|
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|Payment on notes payable, | ----- | (302)|
|shareholders | | |
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|Exercise of common stock options | | |
| |177 |77 |
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| |---------- |----------
|
| | --- | --|
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|Net cash provided by financing | | |
|activities |3,310 |1,544 |
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|Net increase in cash | | |
| |3 |1 |
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|Cash at beginning of period | | |
| |4 |2 |
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| |---------- |----------
|
| | --- | --|
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|Cash at end of period | | |
| |7 |3 |
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| |---------- |----------
|
| |--------- | -------|
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| |---------- |----------
|
| |--------- | -------|
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|Supplemental schedule of non-cash | | |
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| transactions; Common stock and | | |
|note payable | | |
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| issued as partial consideration | | |
|for acquisition | | |
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| and equity investment in | | |
|businesses |1,575 | |
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See accompanying notes
NAVARRE CORPORATION
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 1996
Note A - Basis of Presentation
The accompanying unaudited financial statements of Navarre Corporation and
its wholly owned subsidiary, Digital Entertainment, Inc., have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. All intercompany accounts
and transactions have been eliminated. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Because of the
seasonal nature of the Company's business, the operating results for the
nine month period ended December 31, 1996 are not necessarily indicative
of the results that may be expected for the year ended March 31, 1997.
For further information, refer to the financial statements and footnotes
thereto included in Navarre Corporation's Annual Report on Form 10-K for
the year ended March 31, 1996. The shares outstanding and per share
data have been adjusted to reflect the Company's two-for-one stock split
in the form of a 100% stock dividend distributed on June 21, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth for the periods indicated the percentage
of net sales represented by certain items included in the Company's
"Consolidated Statements of Operations."
Three Months Ended Nine Months Ended
December 31, December 31,
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| | 1996 | 1995 | 1996 | 1995 |
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| |-------- |-------- |--------- |---------
|
| |-------- |-------- |-------- |--------|
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|Net sales: | | | | |
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| Computer | 81.2 | 71.2 | 75.0 | 66.4|
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| Music | 18.8 | 28.8 | 25.0 | 33.6|
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| |------- |------- | ------- | -------|
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|Total net sales | 100.0 | 100.0 | 100.0 | 100.0|
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|Cost of sales | 89.9 | 89.1 | 88.4 | 88.1|
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| |------- |------- | ------- | -------|
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|Gross profit | 10.1 | 10.9 | 11.6 | 11.9|
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|Selling and promotion | 2.4 | 2.5 | 2.6 | 3.0|
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|Distribution and | 1.2 | 1.1 | 1.2 | 1.2|
|warehousing | | | | |
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|General and | 7.6 | 3.7 | 6.7 | 5.3|
|administration | | | | |
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| |------- |------- | ------- | -------|
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|Income (loss) from | (1.1) | 3.6 | 1.0 | 2.4|
|operations | | | | |
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|Interest expense | 0.9 | 0.7 | 1.0 | 0.9|
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|Other expense | 0.3 | 0.1 | 0.3 | 0.1|
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| |------- |------- | ------- | -------|
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|Net income (loss) | (1.6) | 1.7 | (0.5) | 0.8|
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Net sales increased 22.0% from $57.1 million to $69.6 million for the three
month period and 29.2% from $121.8 million to $157.4 million for the nine
month period. The increase was primarily due to increased sales in the
Computer Products Division. Computer products sales increased 39.2% from
$40.6 million to $56.6 million for the three month period and 45.9% from
$80.9 million to $118.0 million for the nine month period. This increase was
primarily due to the Company's gains in CD-ROM market share and formalized
agreements with new accounts and major retailers. Music sales decreased
20.5% from $16.4 million to $13.1 million for the three month period and 3.7%
from $40.9 million to $39.4 million for the nine month period. This decrease
was primarily a result of a weak overall market for music. Price increases
did not materially contribute to the increase in net sales.
Gross profit increased 12.9% or $800,000 from $6.2 million to $7.0 million
for the three month period and 25.7% or $3.7 million from $14.5 million to
$18.2 million for the nine month period. As a percentage of net sales, gross
profit decreased from 10.9% during the three month period ending December 31,
1995 to 10.1% for the same period in 1996 and decreased slightly from 11.9%
during the nine month period ending December 31, 1995 to 11.6% for the same
period in 1996. Overall gross margins declined in the three and nine month
period due to the fact that lower gross margin computer products sales
accounted for a higher percentage of net sales. Gross margins from the
Computer Products Division's net sales were $4.7 million or 8.3% of net sales
during the three month period in 1996 compared with $3.4 million or 8.4% of
computer products net sales in the same three month period in 1995 and $10.6
million or 9.0% of computer products net sales during the nine month period
in 1996 compared with $7.0 million or 8.6% as a percentage of net sales in
the same nine month period in 1995. The decrease in gross margin for the
computer products was primarily due to lower prices caused by intense
competition in the computer products industry.
Gross margins from music sales were $2.2 million or 17.1% of music net sales
for the three month period in 1996 compared with $2.8 million or 17.2% of
music net sales for the same three month period in 1995 and $7.5 million or
19.1% for the nine month period in 1996 compared with $7.5 million or 18.4%
of music net sales for the same nine month period in 1995. Gross margins for
music sales increased in fiscal 1997 period due to a higher percentage of the
Company's music sales being to labels under exclusive national distribution
agreements which provide higher gross margins and improved sales margins in
the Alternative Retail Marketing area.
Selling and promotion expenses increased from $1.4 million for the three
month period in 1995 to $1.7 million for the same period in 1996 and from
$3.6 million for the nine month period in 1995 to $4.1 million for the same
period in 1996 but decreased as a percentage of net sales from 2.5% to 2.4%
during the three month period and from 3.0% to 2.6% during the nine month
period. Although selling and promotion expenses increased primarily due to
increased expenses, including freight expenses, associated with a higher
level of sales, selling and promotion expenses decreased as a percentage of
net sales due to internal efficiencies achieved in managing the higher level
of sales.
Distribution and warehousing expenses increased from $625,000 in the three
month period for 1995 to $818,000 in the same period in 1996 and from $1.5
million in the nine month period to $2.0 million in the same period in 1996.
As a percentage of net sales, it remained the same for both periods.
General and administration expenses increased from $2.1 million in the prior
year three month period to $5.3 million in the current three month period and
from $6.5 million in the prior year to $10.5 million in the current nine
month period. As a percentage of net sales, they increased from 3.7% to 7.6%
during the three month period and from 5.3% to 6.7% during the nine month
period. This increase was primarily due to an additional provision of $2.0
million to the Company's allowance for doubtful accounts. The Company
maintains an allowance for doubtful accounts based upon its past experience
and its current perception of the risks that it is subject to with respect to
receivables from its customers. The Company increased its allowance for
doubtful accounts to $3.3 million at December 31, 1996 because of its
concerns that one or more of the Company's customers may be unable to pay all
or a portion of the amount due with respect to their receivables. Although
the Company maintains constant communications with its customers to support
and improve their ability to meet their obligations to the Company, the
Company, in the past, has incurred bad debt losses in the normal course of
its businss and expects to incur them in the future.
Interest expense increased from $419,000 for the three month period in 1995
to $655,000 for the three month period in 1996 and from $1.1 million for the
nine month period in 1995 to $1.6 million for the nine month period in 1996.
This increase resulted from substantially higher borrowing to support the
Company's higher inventory levels resulting from its growth in sales.
The net loss was $1.1 million for the three month period in 1996 compared
with net earnings of $949,000 in the same period in 1995 and a net loss of
$851,000 for the nine month period in 1996 compared with net earnings of $1.0
million in the same period in 1995. The net loss for the three month period
was affected by the provision of $2.0 million to the allowance for doubtful
accounts and the Company's minority share of NetRadio Network's loss of
$171,000.
Liquidity and Capital Resources
The Company has historically financed its working capital needs through bank
borrowings. The level of borrowings has historically fluctuated
significantly during the year. At December 31, 1996, the Company had net
accounts receivable of $55.0 million and inventory of $24.3 million. These
assets are primarily financed by accounts payable of $55.9 million and bank
borrowings of $24.7 million.
For the nine month period ended December 31, 1996, net sales were $157.4
million, an increase of $35.6 million over net sales of $121.8 million during
the same nine month period for the prior year. The Company had a net loss of
$851,000 during this nine month period. The Company financed this growth in
part by generating cash of $4.0 from operating activities. Inventories
increased by $9.4 million during the period and accounts receivable increased
by $ 14.0 million. These changes were offset partially by a $27.2 million
increase in accounts payable and accrued expenses. Investing activities used
$7.3 million of cash, including $6.2 million for investments (including the
Company's $5.0 million investment in Velvel Records LLC in November 1996),
$839,000 for the purchase of furniture, equipment and leasehold improvements.
The Company generated net cash of $3.3 million in financing activities
primarily through proceeds of net bank borrowings of $3.6 million during the
period. Cash at the end of the period was approximately as the same as it was
at the beginning of the period.
During the nine month period ended December 31, 1996, sales to each of the
three customers, Best Buy, Comp USA and Musicland Stores Corporation,
represented more than ten percent of net revenues. The Company competes with
other companies for the business of each of its customers and there can be no
assurance that the Company will continue to recognize a significant amount of
revenue from sales to any specific customers. If the Company is unable to
continue to sell its products to all or any of these three customers or is
unable to continue to maintain its sales to these three customers or is
unable to continue to maintain its sales to these customers at their current
levels, and is unable to find other customers to replace these sales, there
would be an adverse impact on the Company's revenues and future
profitability. The above customers' receivables to the Company are current
within normal industry standards as of January 31, 1997.
The Company has relied upon bank borrowings to finance its expansion
primarily for inventory and accounts receivable financing and currently has a
$35.0 million credit facility in place with Heller Financial, Inc. The
available amount fluctuates based on an asset borrowing base. At December
31, 1996, the Company had total bank borrowings of $24.7 million. Under the
terms of the Company credit facility, borrowings are dependent upon the
eligibility of accounts receivable and inventory, in the discretion of the
bank. In connection with the Company's establishment of the additional $2.0
million allowance for doubtful accounts with respect to the quarter ended
December 31, 1996, the Company and Heller entered into a consent and waiver
agreement under which the Company and Heller agreed that any failure by
Navarre to meet the fixed charge coverage ratio and tangible net worth
covenants solely by virtue of establishment of the $2.0 million allowance
would not constitute a Default or Event of Default under the terms of the
Loan and Security Agreement governing the credit facility between the Company
and Heller.
The Company believes that it will be necessary for it to acquire additional
bank and other financing in the future in connection with the growth of its
business and the financing of acquisitions.
As previously disclosed, on September 3, 1996, the Company entered into a
Unit Purchase Agreement and Operating Agreement (the "Velvel Agreement") with
Velvel Musical Industries, Inc. Under the terms of the Velvel Agreement,
Velvel Musical Industries, Inc. agreed to form Velvel Records LLC, a Delaware
limited liability company ("Velvel Records") and contribute certain of its
assets to Velvel Records. The Company made an investment of $5.0 million in
Velvel Records on November 15, 1996 and agreed to make an additional
investment of $5.0 million in Velvel Records on or before April 10, 1997. In
connection with its investment, the Company received the right for a period
of five years to distribute substantially all of the Velvel Records products
within the United States. The Company is also entitled to a percent of the
assets of Velvel Records in the event of a liquidation, and in the future,
if, and when Velvel Records obtains profitability, the Company will be
entitled to convert its interest into an additional interest in the share of
the profits of Velvel Records.
The Company borrowed $5.0 million under its credit facility for its November
15, 1996 investment in Velvel Records. In connection with that investment,
the Company agreed with Heller that it will obtain additional equity
financing in the amount of $5.0 million on or before April 1, 1997. In
addition, the Company is required to obtain additional debt or equity
financing to make an additional $5.0 million payment under the Velvel
Agreement. The Company and Velvel Records are working together to determine
a mutually acceptable date for this additional payment. Although the Company
is exploring various sources of additional financing at the current time,
there can be no assurance that the Company will be able to obtain additional
financing upon favorable terms or otherwise restructure or re-negotiate the
terms of or its credit facility when required..
The Company anticipates it will utilize its credit facility during the next
twelve months to meet seasonal working capital needs. The Company believes
cash from operations together with borrowing under the credit facility with
Heller will be appropriate to fund its working capital needs over the next
twelve months.
Forward-looking Statements
Certain of this information in this section contains forward-looking
statements. The Company's actual results could differ materially from the
statements contained in the forward-looking statements as a result of a
number of factors, including risks and uncertainties inherent in the
Company's business, the consumer market for music products and computer
software products, retail customer buying patterns, new or different
competition in the Company's traditional and new markets and the rate of new
product development and commercialization.
Part II. Other information
Item 1. Legal Proceedings
In the normal course of its business, the Company is involved in a number
of routine litigation matters that are incidental to the operation of
its business. In addition, the Company, and, as noted below, NetRadio
Corporation, are involved in the following legal proceedings.
A. Sterling Group, Inc. v. Navarre Corporation
As previously reported, the Company was named as a defendant in Hennepin
County District Court in the matter Sterling Group, Inc. v. Navarre
Corporation (Court File No. CT94-17766). In the lawsuit, the plaintiff sued
the Company seeking the sum of $115,400 under theories of breach of contract
and/or quantum meruit. On July 30, 1996, the Minnesota Court of Appeals
affirm the Trial Court's decision to dismiss with prejudice both claims filed
by Sterling Group, Inc. In August 1996, Sterling Group, Inc. filed its
Petition for a writ of certiorari with the Minnesota Supreme Court. On
October 15, 1996, the Minnesota Supreme Court denied the petition for the
writ of certiorari.
B. Stephen Kornfeld and William Weiss v. NetRadio Corporation
On April 5, 1996, Stephen Kornfeld and William Weiss filed a lawsuit
against NetRadio in Hennepin County District Court in the matter of Stephen
Kornfeld et, al v. NetRadio Corporation et. al (Court File No. CT96-005402)
alleging that it had an oral agreement to acquire an equity interest in
NetRadio and requesting specific performance and damages. On June 6, 1996,
the Court denied a motion by NetRadio to dismiss the complaint. Navarre
Corporation has not been named as a defendant in the lawsuit and is unable to
determine what effect, if any, this lawsuit will have on Navarre's equity
investment in NetRadio.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
Exhibit 10.3: 1992 Stock Option Plan, amended and restated
Exhibit 11: Statement Re: Computation of per share earnings
Exhibit 28.1: Financial Statement Schedule
(b) The Company did not file any reports on Form 8-K during the three
months
ended December 31, 1996.
NAVARRE CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Navarre Corporation
(Registrant)
Date: February 13, 1997 By /s/ Eric H. Paulson
-----------------------
Eric H. Paulson
Chairman of the Board,
President and
Chief Executive Officer
Date: February 13, 1997 By /s/ Charles E. Cheney
------------------------
Charles E. Cheney
Treasurer and Secretary,
Executive Vice President,
and Chief Financial Officer
NAVARRE CORPORATION
Exhibit 11 - Statement Re: Computation of Per Share Earnings
(In thousands, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------------------------------------------------------
| |1996 | 1995 |1996 | 1995 |
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| |------- |-------- |------- |--------
|
| |---- | --- |---- | --- |
--------------------------------------------------------------------
|Primary | | | | |
--------------------------------------------------------------------
|Weighted average shares | 6,770 | 6,444 | 6,654 | 6,418|
|outstanding | | | | |
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|Net effect of dilutive stock | | | | |
|options | | | | |
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| and warrants - based on the | | | | |
|treasury | | | | |
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| stock method using the | | | | |
|higher of the | | | | |
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| year end or average market | | | | |
|price | | | | |
--------------------------------------------------------------------
--------------------------------------------------------------------
|Total | 6,770 | 6,444 | 6,654 | 6,418|
--------------------------------------------------------------------
--------------------------------------------------------------------
|Net income (loss) | | | | |
| |(1,145) | 949 | (851) | 1,000|
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| |------- |-------- |------- |--------
|
| |------- |-------- |------- |--------
|
| |------- | ----- |------- | -----|
--------------------------------------------------------------------
--------------------------------------------------------------------
|Net income (loss) | | | | |
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| per common shares | | | | |
| | (.17) | .15 | (.13) | .16|
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| |------- |-------- |------- |--------
|
| |------- |-------- |------- |--------
|
| |------- | ----- |------- | -----|
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NAVARRE CORPORATION
Exhibit 28.1 - Financial Data Schedule
-------------------------------------------------------------
|Currency | U.S. Dollars|
-------------------------------------------------------------
|Exchange Rate | 1.000|
-------------------------------------------------------------
|Period Type | 9-months|
-------------------------------------------------------------
|Fiscal Year-end |March 31, 1997
|
-------------------------------------------------------------
|Period Start |April 1, 1996|
-------------------------------------------------------------
|Period End | December 31,|
| | 1996|
-------------------------------------------------------------
|Multiplier | 1,000|
-------------------------------------------------------------
|Cash and cash items | 7|
-------------------------------------------------------------
|Marketable securities | 0|
-------------------------------------------------------------
|Notes and accounts receivable - trade | 55,259|
-------------------------------------------------------------
|Allowances for doubtful accounts | 2,468|
-------------------------------------------------------------
|Inventory | 24,251|
-------------------------------------------------------------
|Total Current assets | 80,526|
-------------------------------------------------------------
|Property, plant and equipment | 3,055|
-------------------------------------------------------------
|Accumulated depreciation | 1,230|
-------------------------------------------------------------
|Total Assets | 91,124|
-------------------------------------------------------------
|Total current liabilities | 81,004|
-------------------------------------------------------------
|Bonds, mortgages and similar debt | 0|
-------------------------------------------------------------
|Preferred stock-mandatory redemption | 0|
-------------------------------------------------------------
|Preferred stock-no mandatory redemption | 0|
-------------------------------------------------------------
|Common Stock | 7,712|
-------------------------------------------------------------
|Other stockholders' equity | 2,408|
-------------------------------------------------------------
|Total liabilities and stockholders' equity | 91,124|
-------------------------------------------------------------
|Net sales of tangible products | 157,404|
-------------------------------------------------------------
|Total revenues | 157,404|
-------------------------------------------------------------
|Cost of tangible goods sold | 139,204|
-------------------------------------------------------------
|Total costs and expenses applicable to | 16,551|
|revenues | |
-------------------------------------------------------------
|Other costs and expenses | 0|
-------------------------------------------------------------
|Provision for doubtful accounts | 2,468|
-------------------------------------------------------------
|Interest and amortization of debt discount | 1,619|
-------------------------------------------------------------
|Income before taxes and other items | (451)|
-------------------------------------------------------------
|Income tax expense | (185)|
-------------------------------------------------------------
|Income/loss continuing operations | 1,649|
-------------------------------------------------------------
|Discontinued operations | 0|
-------------------------------------------------------------
|Extraordinary items | 0|
-------------------------------------------------------------
|Cumulative effect-changes in accounting | 0|
|principles | |
-------------------------------------------------------------
|Net Income or loss | (851)|
-------------------------------------------------------------
|Earnings or loss per share-primary | (.13)|
-------------------------------------------------------------
|Earnings or loss per share-fully diluted | (.13)|
-------------------------------------------------------------
1
NAVARRE CORPORATION
1992 STOCK OPTION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.2 Establishment. Navarre Corporation (the "Company") hereby
establishes a plan providing for stock-based compensation incentive
awards for the performance by certain eligible individuals of services
for the Company. This plan shall be known as the Navarre Corporation
1992 Stock Option Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to advance the interests
of the Company and its shareholders by enabling the company to attract
and retain persons of ability to perform services for the Company, by
providing an incentive to such persons through equity participation in
the Company and by rewarding such persons who contribute to the
achievement by the Company of its economic objectives.
ARTICLE 2. DEFINITIONS.
The following terms shall have the meanings set forth below, unless
the context clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Broker Exercise Notice" means the written notice described in
section 6.6(b) of the Plan.
2.3 "Change in Control" means an event described in Section 10.1 of
the Plan.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means a committee of the Board as may be designated
by the Board, from time to time, for the purpose of administering this
Plan as contemplated by section 3 hereof.
2.6 "Common Stock" means the common stock of the Company, no par
value, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of
the Plan.
2.7 "Disability" means the disability of the Participant as defined
in the long-term disability plan of the Company then covering the
Participant or, if no such plan exists, the permanent and total
disability of the Participant within the meaning of Section 22(e)(3) of
the Code.
2.8 "Eligible Recipient" means all employees (including, without
limitation, officers and directors who are also employees and nonemployee
directors, consultants and independent contractors of the Company or any
Subsidiary.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" means, with respect to the Common Stock,
the following:
(a) If the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so
listed or admitted by transactions in the Common Stock are reported
on the NASDAQ National Market System as of such date (or, if no
shares were traded on such day, as of the next preceding day on
which there was such a trade).
(b) If the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National
Market System, and bid and asked prices therefor in the over-the-
counter market are reported by the NASDAQ System or the National
Quotation Bureau, Inc. (or any comparable reporting service), the
mean of the closing bid and asked prices as of such date, as so
reported by the NASDAQ System, or, if not so reported thereon, as
reported by the National Quotation Bureau, Inc. (or such comparable
reporting service).
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the NASDAQ National
Market System, and such bid and asked prices are not so reported,
such price as the Committee determines in good faith in the exercise
of its reasonable discretion.
2.11 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Article 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section
422 of the Code.
2.12 "Non-Employee Director" means a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Exchange Act or any successor
rule.
2.13 "Non-Statutory Stock Option" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Article 6 of the Plan
that does not qualify as an Incentive Stock Option.
2.14 "Option" means an Incentive Stock Option or a Non-Statutory
Stock Option.
2.15 "Outside Director" means a director who (a) is not a current
employee of the Company or any member of an affiliated group which
includes the Company; (b) is not a former employee of the Company who
receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year; (c) has not been
an officer of the Company; (d) does not receive remuneration from the
Company, either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section 162(m) and
regulations thereunder. For this purpose, remuneration includes any
payment in exchange for goods or services. This definition shall be
further governed by the provisions of Code Section 162(m) and regulations
promulgated thereunder.
2.16 "Participant" means an Eligible Recipient who receives one or
more Options or Restricted Stock awards under the Plan.
2.17 "Person" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of
the Exchange Act), other than the Company, a wholly owned subsidiary of
the Company or any employee benefit plan sponsored by the Company or a
wholly owned subsidiary of the Company.
2.18 "Previously Acquired Shares" means shares of Common Stock that
are already owned by the Participant and shares of Common Stock that are
to be acquired by the Participant pursuant to the exercise of an Option
or the termination of restrictions of a Restricted Stock award.
2.19 "Restricted Stock" means an award of shares of Common Stock
that are subject to restrictions under Article 7 below.
2.20 "Retirement" means the retirement of a Participant pursuant to
and in accordance with the regular or, if approved by the Board for
purposes of the Plan, early retirement/pension plan or practice of the
Company or Subsidiary then covering the Participant.
2.21 "Securities Act" means the Securities Act of 1933, as amended.
2.22 "Subsidiary" means any subsidiary corporation of the Company
within the meaning of Section 424(f) of the Code.
2.23 "Tax Date" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Option or a
Restricted Stock award.
ARTICLE 3. PLAN ADMINISTRATION.
3.1 The Committee. The Plan shall be administered by the Board or
by a Committee of at least two directors, all of whom shall be Outside
Directors and Non-Employee Directors. The Committee may be a subcommittee
of the Compensation Committee of the Board. Members of such a Committee,
if established, shall be appointed from time to time by the Board, shall
serve at the pleasure of the Board and may resign at any time upon
written notice to the Board. A majority of the members of such a
Committee shall constitute a quorum. Such a Committee shall act by
majority approval of the members, shall keep minutes of its meetings and
shall provide copies of such minutes to the Board. Action of such a
Committee may be taken without a meeting if unanimous written consent is
given. Copies of minutes of such a Committee's meetings and of its
actions by written consent shall be provided to the Board and kept with
the corporate records of the Company. As used in this Plan, the term
"Committee" will refer to the Board or to such a Committee, if
established.
3.2 Authority of the Committee.
(a) In accordance with and subject to the provisions of the
Plan, the Committee shall have the authority to determine (i) the
Eligible Recipients who shall be selected as Participants, (ii) the
nature and extent of the Options to be granted to each Participant
(including the number of shares of Common Stock to be subject to
each Option, the exercise price and the manner in which Options will
vest or become exercisable), (iii) the time or times when Options
will be granted, (iv) the duration of each Option, (v) the
restrictions on and other conditions to the exercisability or
vesting of Options, (vi) such other provisions of the Options as the
Committee may deem necessary or desirable and as consistent with the
terms of the Plan, (vii) the nature and extent of Restricted Stock
awards to be granted to a Participant (including the number of
shares of Common Stock to be subject to such Restricted Stock award,
the nature of restrictions and the performance criteria of such
awards), and (viii) such other provisions of the Restricted Stock
awards as the Committee may deem necessary or desirable and as
consistent with the terms of the Plan. The Committee shall
determine the form or forms of the agreements with Participants
which shall evidence the particular terms, conditions, rights and
duties of the Company and the Participants with respect to Options
or Restricted Stock awards granted pursuant to the Plan, which
agreements shall be consistent with the provisions of the Plan.
(b) With the consent of the Participant affected thereby, the
Committee may amend or modify the terms of any outstanding Option or
Restricted Stock award in any manner, provided that the amended or
modified terms are permitted by the Plan as then in effect. Without
limiting the generality of the foregoing sentence, the Committee
may, with the consent of the Participant affected thereby, modify
the exercise price, number of shares or other terms and conditions
of an Option or a Restricted Stock award, extend the term of an
Option or a Restricted Stock award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to an
Option or a Restricted Stock award, accept the surrender of any
outstanding Option or a Restricted Stock award, or, to the extent
not previously exercised or vested, authorize the grant of new
Options or a Restricted Stock award in substitution for surrendered
Options or Restricted Stock awards.
(c) The Committee shall have the authority, subject to the
provisions of the plan, to establish, adopt and revise such rules
and regulations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's
decisions and determinations under the Plan need not be uniform and
may be made selectively among Participants, whether or not such
Participants are similarly situated. Each determination,
interpretation or other action made or taken by the Committee
pursuant to the provisions of the Plan shall be conclusive and
binding for all purposes and on all persons, including, without
limitation, the Company and its Subsidiaries, the shareholders of
the Company, the Committee and each of its members, the directors,
officers and employees of the Company and its Subsidiaries, and the
Participants and their respective successors in interest. No member
of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option or a
Restricted Stock award granted under the Plan.
ARTICLE 4. STOCK SUBJECT TO THE PLAN.
4.1 Number of Shares. Subject to adjustment as provided in Section
4.3 below, the maximum number of shares of Common Stock that shall be
authorized and reserved for issuance under the Plan shall be 2,174,000
shares of Common Stock. The maximum number of shares authorized may also
be increased from time to time by approval of the Board and, if required
pursuant to Rule 16b-3 under the Exchange Act, Section 422 of the Code,
or the applicable rules of any securities exchange or the NASD, the
shareholders of the Company.
4.2 Shares Available for Use. Shares of Common Stock that may be
issued upon exercise of Options or as Restricted Stock awards shall be
applied to reduce the maximum number of shares of Common Stock remaining
available for use under the Plan. Any shares of Common Stock that are
subject to an Option or a Restricted Stock award (or any portion thereof)
that lapses, expires or for any reason is terminated unexercised shall
automatically again become available for use under the Plan.
4.3 Adjustments to Shares. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification,
stock dividend, stock split, combination of shares, rights offering,
extraordinary dividend or divestiture (including a spin-off) or any other
change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) shall
make appropriate adjustment (which determination shall be conclusive) as
to the number and kind of securities subject to and reserved under the
Plan and, in order to prevent dilution or enlargement of the rights of
Participants, the number, kind and exercise price of securities subject
to outstanding Options and Restricted Stock awards (subject to section
7.3(v). Without limiting the generality of the foregoing, in the event
that any of such transactions are effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets,
including cash, with respect to or in exchange for such Common Stock, all
Participants holding outstanding Options or Restricted Stock awards shall
upon the exercise of such Options or upon the termination of restrictions
of such Restricted Stock award receive, in lieu of any shares of Common
Stock they may be entitled to receive, such stock, securities or assets,
including cash, as would have been issued to such Participants if their
Options had been exercised or restrictions of a Restricted Stock award
had lapsed and such Participants had received Common Stock prior to such
transaction.
ARTICLE 5. PARTICIPATION.
Participants in the Plan shall be those Eligible Recipients who, in
the judgment of the Committee, have performed, are performing, or during
the term of an Option or during the period of restrictions under a
Restricted Stock award will perform, services in the management,
operation and development of the Company or any Subsidiary, and
significantly contributed, are significantly contributing or are expected
to significantly contribute to the achievement of corporate economic
objectives. Eligible Recipients may be granted from time to time one or
more Options or Restricted Stock awards, as may be determined by the
Committee in its discretion. The number, type, terms and conditions of
Options or Restricted Stock awards granted to various Eligible Recipients
need not be uniform, consistent or in accordance with any plan,
regardless of whether such Eligible Recipients are similarly situated.
Upon determination by the Committee that an Incentive Stock Option is to
be granted to an Eligible Recipient, written notice shall be given such
person, specifying the terms, conditions, rights and duties related
thereto. Each Eligible Recipient to whom an Option or a Restricted Stock
award is to be granted shall, if requested by the Committee, enter into
an agreement with the Company, in such form as the Committee shall
determine and which is consistent with the provisions of the Plan,
specifying such terms, conditions, rights and duties. Options or
Restricted Stock awards shall be deemed to be granted as of the date
specified in the grant resolution of the Committee, which date shall be
the date of the related agreement with the Participant.
ARTICLE 6. STOCK OPTIONS.
6.1 Grant. An Eligible Recipient may be granted one or more
Options under the Plan, and such Options shall be subject to such terms
and conditions, consistent with the other provisions of the Plan, as
shall be determined by the Committee in its discretion. The Committee
may designate whether an Option is to be considered an Incentive Stock
Option or a Non-Statutory Stock Option; provided, however, that an
Incentive Stock Option shall be granted only to an Eligible Recipient who
is an employee of the Company or a Subsidiary. The terms of the
agreement relating to a Non-Statutory Stock Option shall expressly
provide that such Option shall not be treated as an Incentive Stock
Option.
No Participant shall receive Options under this Plan which exceed
300,000 shares during any fiscal year of the Company.
6.2 Exercise. An Option shall become exercisable at such times and
in such installments (which may be cumulative) as shall be determined by
the Committee, in its discretion, at the time the Option is granted.
Upon the completion of its exercise period, an Option, to the extent not
then exercised, shall expire. Notwithstanding the foregoing and subject
to the discretionary acceleration rights of the Committee, an Option
granted to a director, officer or 10% shareholder of the Company shall
not be exercisable for a period of six (6) months unless the Option has
been approved by the Board, the Committee or the shareholders of the
Company.
6.3 Exercise Price.
(a) Incentive Stock Options. The per share price to be paid by
the Participant at the time an Incentive Stock Option is exercised
shall be determined by the Committee, in its discretion, at the time
the Option is granted; provided, however, that such price shall not
be less than (i) 100% of the Fair Market Value of one share of
Common Stock on the date the Option is granted, or (ii) 110% of the
Fair Market Value of one share of Common Stock on the date the
Option is granted if, at the time the Option is granted, the
Participant owns, directly or indirectly (as determined pursuant to
Section 424(d) of the Code), more than 10% of the total combined
voting power of all classes of stock of the Company or any
subsidiary or parent corporation of the Company (within the meaning
of Sections 424(f) and 424(e), respectively, of the Code).
(b) Non-Statutory Stock Options. The per share price to be
paid by the Participant at the time a Non-Statutory Stock Option is
exercised shall be determined by the Committee, in its discretion,
at the time the Option is granted.
6.4 Duration.
(a) Incentive Stock Options. The period during which an
Incentive Stock Option may be exercised shall be fixed by the
Committee, in its discretion, at the time the Option is granted;
provided, however, that in no event shall such period exceed 10
years from its date of grant or, in the case of a Participant who
owns, directly or indirectly (as determined pursuant to Section
424(d) of the Code), more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary or
parent corporation of the Company (within the meaning of Sections
424(f) and 424(e), respectively, of the Code), five years form its
date of grant.
(b) Non-Statutory Stock Options. The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the
Committee, in its discretion, at the time the Option is granted.
(c) Effect of Termination of Employment or Other Service.
Notwithstanding this Section 6.4, except as provided in Articles 9
and 10 of the Plan, all Options granted to a Participant shall
terminate and may no longer be exercised if the Participant's
employment or other service with the Company and all Subsidiaries
ceases.
6.5 Manner of Exercise. An Option may be exercised by a
Participant in whole or in part from time to time, subject to the
conditions contained herein and in the agreement evidencing such Option,
by delivery, in person or through certified or registered mail, of
written notice of exercise to the Company at its principal executive
office in New Hope, Minnesota (Attention: President), and by paying in
full the total Option exercise price for the shares of Common Stock
purchased. Such notice shall be in a form satisfactory to the Committee
and shall specify the particular Option (or portion thereof) that is
being exercised and the number of shares with respect to which the Option
is being exercised. Subject to compliance with Section 13.1 of the Plan,
the exercise of the Option shall be deemed effective upon receipt of such
notice and payment complying with the terms of the Plan and the agreement
evidencing such Option. As soon as practicable after the effective
exercise of the Option, the Participant shall be recorded on the stock
transfer books of the Company as the owner of the shares purchased, and
the Company shall deliver to the Participant one or more duly issued
stock certificates evidencing such ownership. If a Participant exercises
any Option with respect to some, but not all, of the shares of Common
Stock subject to such Option, the right to exercise such Option with
respect to the remaining shares shall continue until it expires or
terminates in accordance with its terms. An Option shall only be
exercisable with respect to whole shares.
6.6 Payment of Exercise Price.
(a) The total purchase price of the shares to be purchased upon
exercise of an Option shall be paid entirely in cash (including
check, bank draft or money order); provided, however, that the
Committee, in its sole discretion, may allow such payments to be
made, in whole or in part, by delivery of a Broker Exercise Notice
or a promissory note (containing such terms and conditions as the
Committee may in its discretion determine), by transfer from the
Participant to the Company of Previously Acquired Shares, or by a
combination thereof. In determining whether or upon what terms and
conditions a Participant will be permitted to pay the purchase price
of an Option in a form other than cash, the Committee may consider
all relevant facts and circumstances, including, without limitation,
the tax and securities law consequences to the Participant and the
Company and the financial accounting consequences to the Company.
In the event the Participant is permitted to pay the total purchase
price of an Option in whole or in part with Previously Acquired
Shares, the value of such shares shall be equal to their Fair Market
Value on the date of exercise of the Option.
(b) For purposes of this Section 6.6, a "Broker Exercise
Notice" shall mean a written notice from a Participant to the
Company at its principal executive office in New Hope, Minnesota
(Attention: President), made on a form and in the manner as the
Committee may from time to time determine, pursuant to which the
Participant irrevocably elects to exercise all or any portion of an
Option and irrevocably directs the Company to deliver the
Participant's stock certificates to be issued to such Participant
upon such Option exercise directly to a broker or dealer. A Broker
Exercise Notice must be accompanied by or contain irrevocable
instructions to the broker or dealer (i) to promptly sell a
sufficient number of shares of such Common Stock or to loan the
Participant a sufficient amount of money to pay the exercise price
for the Options and, if not otherwise satisfied by the Participant,
to fund any related employment and withholding tax obligations due
upon such exercise, and (ii) to promptly remit such to the Company
upon the broker's or dealer's receipt of the stock certificates.
6.7 Rights as a Shareholder. The Participant shall have no rights
as a shareholder with respect to any shares of Common Stock covered by an
Option until the Participant shall have become the holder of record of
such shares, and no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date
preceding the date the Participant becomes the holder of record of such
shares, except as the Committee may determine pursuant to Section 4.3 of
the Plan.
6.8 Disposition of Common Stock Acquired Pursuant to the Exercise
of Incentive Stock Options. Prior to making a disposition (as defined in
Section 424(c) of the Code) of any shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option granted under the
Plan before the expiration of two years after its date of grant or before
the expiration of one year after its date of exercise and the date on
which such shares of Common Stock were transferred to the Participant
pursuant to exercise of the Option, the Participant shall send written
notice to the Company of the proposed date of such disposition, the
number of shares to be disposed of, the amount of proceeds to be received
from such disposition and any other information relating to such
disposition that the Company may reasonably request. The right of a
Participant to make any such disposition shall be conditioned on the
receipt by the Company of all amounts necessary to satisfy any federal,
state or local withholding and employment-related tax requirements
attributable to such disposition. The Committee shall have the right, in
its discretion, to endorse the certificates representing such shares with
a legend restricting transfer and to cause a stop transfer order to be
entered with the Company's transfer agent until such time as the Company
receives the amounts necessary to satisfy such withholding an employment-
related tax requirements or until the later of the expiration of two
years from its date of grant or one year from its date of exercise and
the date on which such shares were transferred to the Participant
pursuant to the exercise of the Option.
6.9 Aggregate Limitation of Stock Subject to Incentive Stock
Options. To the extent that the aggregate Fair Market Value (determined
as of the date an Incentive Stock Option is granted) of the shares of
Common Stock with respect to which incentive stock options (within the
meaning of Section 422 of the Code) are exercisable for the first time by
a Participant during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any subsidiary or any
parent corporation of the company (within the meaning of Sections 424(f)
and 424(e), respectively, of the Code)) exceeds $100,000 (or such other
amount as may be prescribed by the Code from time to time), such excess
Options shall be treated as Non-Statutory Stock Options. The
determination shall be made by taking Incentive Stock Options into
account in the order in which they were granted. If such excess only
applies to a portion of an Incentive Stock Option, the Committee, in its
discretion, shall designate which shares shall be treated as shares to be
acquired upon exercise of an Incentive Stock Option.
ARTICLE 7. RESTRICTED STOCK.
7.1 Administration. Shares of Restricted Stock may be issued
either alone or in addition to other awards granted under the Plan. The
Committee shall determine the officers, key employees, members of the
Board and consultants of the Company and Subsidiaries to whom, and the
time or times at which, grants of Restricted Stock will be made, the
number of shares to be awarded, the time or times within which such
awards may be subject to forfeiture, and all other conditions of the
awards. The Committee may also condition the grant of Restricted Stock
upon the attainment of specified performance goals. The provisions of
Restricted Stock awards need not be the same with respect to each
recipient.
7.2 Awards and Certificates. The prospective recipient of an award
of shares of Restricted Stock shall not have any rights with respect to
such award, unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to
the Company, and has otherwise complied with the then applicable terms
and conditions.
(i) Each Participant who has received a Restricted Stock award
shall be issued a stock certificate in respect of shares of
Restricted Stock awarded under the Plan. Such certificate shall be
registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Navarre Corporation
1992 Stock Option Plan and an agreement entered into between
the registered owner and Navarre Corporation. Copies of such
Plan and Agreement are on file in the offices of Navarre
Corporation, 7400 49th Ave. N., New Hope, MN 55428."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of
any Restricted Stock award, the Participant shall have delivered a
stock power, endorsed in blank, relating to the Common Stock covered
by such award.
7.3 Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to the Plan shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the Participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph 7.3(i) of this Article 7,
the Participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including
the right to vote the shares and the right to receive any cash
dividends. The Committee, in its sole discretion, may permit or
require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested in additional shares of
Restricted Stock (but only to the extent shares are available under
Article 4). Certificates for shares of unrestricted Common Stock
shall be delivered to the Participant promptly after, and only
after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (iv) of this Section 7.3, upon termination of employment
for any reason during the Restriction Period, all shares still
subject to restriction shall be forfeited by the Participant.
(iv) In the event of special hardship circumstances of a
Participant whose employment is terminated (other than for cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a Participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to such
Participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, in the event of the sale by
the Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger,
exchange, consolidation or liquidation of the Company, the Board
shall, in its sole discretion, in connection with the Board's
adoption of the plan for sale, merger, exchange, consolidation or
liquidation, provide for one or more of the following with respect
to Restricted Stock awards that are, on such date, still subject to
a Restriction Period: (i) the removal of the restrictions on any or
all outstanding Restricted Stock awards; (ii) the complete
termination of this Plan and forfeiture of outstanding Restricted
Stock awards prior to a date specified by the Board; and (iii) the
continuance of the Plan with respect to the Restricted Stock award
which were outstanding as of the date of adoption by the Board of
such plan for sale, merger, exchange, consolidation or liquidation
and provide to participants holding Restricted Stock awards the
right to an equivalent number of restricted shares of stock of the
corporation succeeding the Company by reason of such sale, merger,
exchange, consolidation or liquidation. The grant of a Restricted
Stock award pursuant to the Plan shall not limit in any way the
right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its
business or assets.
(vi) Subject to Article 11 below, recipients of Restricted
Stock awards under the Plan are not required to make any payment or
provide consideration other than the rendering of services.
ARTICLE 8. CASH BONUSES.
In connection with any grant of Options or Restricted Stock awards
or at any time thereafter, the Committee may, in its discretion, grant a
cash bonus to a Participant in connection with the grant or vesting or
exercise of an Option or a Restricted Stock award. The determination of
whether to grant such a cash bonus, the nature and amount of any such
cash bonus and the terms and conditions of such cash bonus shall be
within the discretion of the Committee.
ARTICLE 9. EFFECT OF ON OPTIONS TERMINATION OF EMPLOYMENT OR OTHER
SERVICE.
9.1 Termination of Employment or Other Service Due to Death,
Disability or Retirement. Except as otherwise provided in Article 10 of
the Plan, in the event a Participant's employment or other service with
the Company and all Subsidiaries is terminated by reason of such
Participant's death, Disability or Retirement, all outstanding Options
then held by the Participant shall remain exercisable to the extent
exercisable as of such termination for a period of three months after
such termination (but in no event after the expiration date of any such
Option).
9.2 Termination of Employment or Other Service for Reasons Other
than Death, Disability or Retirement. Except as otherwise provided in
Article 10 of the Plan, in the event a Participant's employment or other
service is terminated with the Company and all Subsidiaries for any
reasons other than death, Disability or Retirement, all rights of the
Participant under the Plan shall immediately terminate without notice of
any kind, and no Options then held by the Participant shall thereafter be
exercisable.
9.3 Modification of Effect of Termination. Notwithstanding the
provisions of this Article 9, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries, the
Committee may, in its discretion (which may be exercised before or
following such termination), cause Options, or any portions thereof, then
held by such Participant to become exercisable and remain exercisable
following such termination in the manner determined by the Committee;
provided, however, that no Option shall be exercisable after the
expiration date thereof and any Incentive Stock Option that remains
unexercised more than three months following employment termination by
reason of Retirement or more than one year following employment
termination by reason of Disability shall thereafter be deemed to be a
Non-Statutory Stock Option.
9.4 Date of Termination. Unless the Committee shall otherwise
determine in its discretion, a Participant's employment or other service
shall, for purposes of the Plan, be deemed to have terminated on the date
such Participant ceases to perform services for the Company and all
Subsidiaries, as determined in good faith by the Committee.
ARTICLE 10. CHANGE OF CONTROL.
10.1 Change in Control. For purposes of this Article 10, a "Change
in Control" of the Company shall mean (a) the sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company
(in one transaction or in a series of related transactions) to a
corporation that is not controlled by the Company, (b) the approval by
the shareholders of the Company of any plan or proposal for the
liquidation or dissolution of the Company, or (c) a change in control of
the Company of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 1(a)
of the Current Report on Form 8-K, as in effect on the effective date of
the Plan, pursuant to Section 13 or 15(d) of the Exchange Act, whether or
not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be
deemed to have occurred at such time as (x) any Person becomes after the
effective date of the Plan the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% or more of
the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, or (y)
individuals who constitute the board of directors of the Company on the
effective date of the Plan cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent
to the effective date of the Plan whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at
least a majority of the directors comprising the board of directors of
the Company on the effective date of the Plan (either by a specific vote
or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (y), considered as though such
person were a member of the board of directors of the Company on the
effective date of the Plan.
10.2 Acceleration of Vesting. If a Change of Control of the Company
shall occur, then, without any action by the Committee or the Board, all
outstanding Options shall become immediately exercisable in full and
shall remain exercisable during the remaining term thereof, regardless of
whether the Participants to whom such Options have been granted remain in
the employ or service of the Company or any Subsidiary.
10.3 Cash Payment. If a Change in Control of the Company shall
occur, then the Committee, in its discretion, and without the consent of
any Participant affected thereby, may determine that some or all
Participants holding outstanding Options shall receive, with respect to
some or all of the shares of Common Stock subject to such Options, as of
the effective date of any such Change in Control of the Company, cash in
an amount equal to the excess of the Fair Market Value of such shares
immediately prior to the effective date of such Change in Control of the
Company over the exercise price per share of such Options.
10.4 Limitation on Change in Control Payments. Notwithstanding
anything in Section 10.2 or 10.3 above to the contrary, if, with respect
to a Participant, the acceleration of the exercisability of an Option as
provided in Section 10.2 or the payment of cash in exchange for all or
part of an Option as provided in section 10.3 above (which acceleration
or payment could be deemed a "payment" within the meaning of Section
280G(b)(2) of the Code), together with any other payments which such
Participant has the right to receive from the Company or any corporation
which is a member of an "affiliated group" (as defined in Section 1504(a)
of the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as defined
in Section 280G(b)(2) of the Code), then the payments to such Participant
pursuant to Section 10.2 or 10.3 above shall be reduced to the largest
amount as will result in no portion of such payments being subject to the
excise tax imposed by Section 4999 of the Code.
ARTICLE 11. RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES.
11.1 General Rules. The Company is entitled to (a) withhold and
deduct form future wages of the Participant (or from other amounts which
may be due and owing to the Participant from the Company), or make other
arrangements for the collection of, all legally required amounts
necessary to satisfy any and all federal, state and local withholding and
employment-related tax requirements (i) attributable to the grant or
exercise of an Option or a Restricted Stock award or to a disqualifying
disposition of stock received upon exercise of an Incentive Stock Option,
or (ii) otherwise incurred with respect to an Option or a Restricted
Stock award, or (b) require the Participant promptly to remit the amount
of such withholding to the Company before taking any action with respect
to an Option or a Restricted Stock award.
11.2 Special Rules.
(a) Without limiting the generality of Section 11.1 above, the
Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to satisfy, in whole or in
party, any withholding or employment-related tax obligations
described in Section 11.1 above by electing to use Previously
Acquired Shares or by electing to have the Company accept a Broker
Exercise Notice with respect to that number of shares, in any such
case, having a Fair Market Value, on the Tax Date, equal to the
amount necessary to satisfy the withholding or employment-related
taxes due, or by agreeing to deliver to the Company a promissory
note in payment for some or all of the necessary amounts (containing
such terms and conditions as the Committee in its discretion may
determine).
(b) A Participant's election to use Previously Acquired shares,
a Broker Exercise Notice or a promissory note must be made on or
prior to the Tax Date, is irrevocable and is subject to the consent
or disapproval of the Committee. If the Participant is an officer,
director or beneficial owner of more than 10% of the outstanding
Common Stock of the Company has a class of equity securities
registered under Section 12 of the Exchange Act, an election to use
Previously Acquired Shares may not be made within six months of the
date the Option is granted (unless the death or Disability of the
Participant occurs prior to the expiration of such six-month
period), and (unless otherwise permitted by the Committee in its
discretion) must be made either six months prior to the Tax Date or
at any time prior to the Tax Date between the third and twelfth
business days following public release of any of the Company's
quarterly or annual summary earnings statements. When shares of
Common Stock are issued prior to the Tax Date to a participant
making an election to use Previously Acquired Shares, the
Participant shall agree in writing to surrender that number of
shares on the Tax Date having an aggregate Fair Market Value equal
to the tax due.
ARTICLE 12. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS:
TRANSFERABILITY.
12.1 Employment of Service. Nothing in the Plan shall interfere
with or limit in any way the right of the Company or any Subsidiary to
the employment or service of any Eligible Recipient or Participant at any
time, nor confer upon any Eligible Recipient or Participant any right to
continue in the employ or service of the Company or any Subsidiary.
12.2 Restrictions on Transfer. Other than pursuant to a qualified
domestic relations order (as defined by the Code), no right or interest
of any Participant in an Option prior to the exercise of such Options
shall be assignable or transferable, or subjected to any lien, during the
lifetime of the Participant, either voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, including
execution, levy, garnishment, attachment, pledge, divorce or bankruptcy.
A Participant shall, however, be entitled to designate a beneficiary to
receive an Option upon such Participant's death. In the event of a
Participant's death, such Participant's rights and interest in Options
shall be transferable by testamentary will or the laws of descent and
distribution, and payment of any amounts due under the Plan shall be made
to, and exercise of any Options (to the extent permitted pursuant to
Article 9 of the Plan) may be made by, the Participant's legal
representatives, heirs or legatees. If in the opinion of the Committee a
Participant holding an Option is disabled form caring for his or her
affairs because of mental condition, physical condition or age, any
payments due the Participant may be made to, and any rights of the
Participant under the Plan shall be exercised by, such Participant's
guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of
such status. Notwithstanding the foregoing, the Board or the Committee
may, in its discretion, determine that an Option may be exercised by
someone other than the Optionee and that the Option may be transferable
based on the tax and federal securities laws then in effect for such
Options.
12.3 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation
plans to programs entered into by the Company. The Plan will be
construed to be in addition to any and all such other plans or programs.
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval will be construed as creating
any limitations on the power or authority of the Board to adopt such
additional or other compensation arrangements as the Board may deem
necessary or desirable.
ARTICLE 13. SECURITIES LAW RESTRICTIONS.
13.1 Share Issuances. Notwithstanding any other provision of the
Plan or any agreement entered into pursuant hereto, the Company shall not
be required to issue or deliver any certificate for shares of Common
Stock under this Plan, and an Option shall not be considered to be
exercised notwithstanding the tender by the Participant of any
consideration therefor, unless and until each of the following conditions
has been fulfilled:
(a) (i) There shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable
state securities laws if the Committee, in its discretion, shall
have determined to file, cause to become effective and maintain the
effectiveness of such registration statement; or (ii) if the
Committee has determined not to so register the shares of Common
Stock to be issued under the Plan, (A) exemptions from registration
under the Securities Act and applicable state securities laws shall
be available for such issuance (as determined by counsel to the
Company) and (B) there shall have been received from the Participant
(or, in the event of death or disability, the Participant's heirs(s)
or legal representative(s)) any representations or agreements
requested by the Company in order to permit such issuance to be made
pursuant to such exemptions; and
(b) There shall have been obtained any other consent, approval
or permit from any state or federal governmental agency which the
Committee shall, in its discretion upon the advice of counsel, deem
necessary or advisable.
13.2 Share Transfers. Shares of Common Stock issued pursuant to
Options or Restricted Stock awards granted under the Plan may not be
sold, assigned, transferred, pledged, encumbered or otherwise disposed
of, whether voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise, except pursuant to registration under the
Securities Act and applicable state securities laws or pursuant to
exemptions from such registrations. The Company may condition the sale,
assignment, transfer, pledge, encumbrance or other disposition of such
shares not issued pursuant to an effective and current registration
statement under the Securities Act and all applicable state securities
laws on the receipt from the party to whom the shares of Common Stock are
to be so transferred of any representations or agreements requested by
the Company in order to permit such transfer to be made pursuant to
exemptions from registration under the Securities Act and applicable
state securities laws.
13.3 Legends.
(a) Unless a registration statement under the Securities Act is
in effect with respect to the issuance or transfer of shares of
Common Stock under the Plan, each certificate representing any such
shares shall be endorsed with a legend in substantially the
following form, unless counsel for the Company is of the opinion as
to any such certificate that such legend is unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS,
THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
SATISFACTION OF THE COMPANY.
(b) The Committee, in its discretion, may endorse certificates
representing shares issued pursuant to the exercise of Incentive
Stock Options with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF
ON OR BEFORE (THE LATER OF THE ONE-YEAR OR TWO-YEAR INCENTIVE
STOCK OPTION HOLDING PERIODS), WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMPANY.
ARTICLE 14. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof
at any time, and may amend the plan from time to time in such respects as
the Board may deem advisable in order that Options or Restricted Stock
awards under the Plan shall conform to any change in applicable laws or
regulations or in any other respect the Board may deem to be in the best
interests of the Company; provided, however, that no such amendment shall
be effective, without approval of the shareholders of the Company, if
shareholder approval of the amendment is then required pursuant to Rule
16b-3 under the Exchange Act or any successor rule or Section 422 of the
Code or under the applicable rules or regulations of any securities
exchange or the NASD. No termination, suspension or amendment of the
Plan shall alter or impair any outstanding Option or a Restricted Stock
award without the consent of the Participant affected thereby; provided,
however, that this sentence shall not impair the right of the Committee
to take whatever action it deems appropriate under Section 4.3 or Article
10 of the Plan.
ARTICLE 15. EFFECTIVE DATE OF THE PLAN.
15.1 Effective Date. The Plan is effective as of September 1, 1992,
the date it was adopted by the Board.
15.2 Duration of the Plan. The Plan shall terminate at midnight on
September 1, 1002, and may be terminated prior thereto by Board action,
and no Option or a Restricted Stock award shall be granted after such
termination. Options outstanding upon termination of the Plan may
continue to be exercised in accordance with their terms.
ARTICLE 16. MISCELLANEOUS.
16.1 Construction and Headings. The use of the masculine gender
shall also include within its meaning the feminine, and the singular may
include the plural and may include the singular, unless the context
clearly indicates to the contrary. The headings of the Articles,
Sections and subparts of the Plan are for convenience of reading only and
are not meant to be of substantive significance and shall not add or
detract from the meaning of such Article, Section or subpart.
16.2 Public Policy. No person shall have any claim or right to
receipt of an Option or a Restricted Stock award if, in the opinion of
counsel to the Company, such receipt conflicts with law or is opposed to
governmental or public policy.
16.3 Governing Law. The place of administration of the Plan shall
be conclusively deemed to be within the State of Minnesota, and the
rights and obligations of any and all persons having or claiming to have
had an interest under the Plan or under any agreements evidencing Options
and Restricted Stock awards shall be governed by and construed
exclusively and solely in accordance with the laws of the State of
Minnesota without regard to the conflict of laws provisions of any
jurisdictions. All parties agree to submit to the jurisdiction of the
state and federal courts of Minnesota with respect to matters relating to
the Plan and agree not to raise or assert the defense that such forum is
not convenient for such party.
16.4 Successors and Assigns. This Plan shall be binding upon and
inure to the benefit of the successors and permitted assigns of the
Company, including, without limitation, whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the Company
and any and all such successors and assigns shall absolutely and
unconditionally assume all of the Company's obligations under the Plan.
16.5 Survival of Provisions. The rights, remedies, agreements,
obligations and covenants contained in or made pursuant to the Plan, any
agreement evidencing an Option or a Restricted Stock award and any other
notices or agreements in connection therewith, including, without
limitation, any notice of exercise of an Option, shall survive the
execution and delivery of such notices and agreements and the delivery
and receipt of shares of Common Stock and shall remain in full force and
effect.
ARTICLE 17. GRANTING OF OPTIONS TO DIRECTORS WHO ARE NOT EMPLOYEES.
17.1 Each director who is not an employee of the Company on March 5,
1996 shall receive an Option to purchase 20,000 shares of the Company's
Common Stock at a price equal to the Fair Market Value. Such Options
shall be designated as Non-Statutory Stock Options and shall be subject
to the same terms and provisions as are then in effect with respect to
granting of Non-Statutory Stock Options to salaried officers and key
employees of the Company. Each option shall vest in increments of 20% of
the original Option grant beginning one year from the date of grant and
shall expire six years from the date of grant. Subject to the foregoing,
all provisions of this Plan not inconsistent with the foregoing shall
apply to the Options granted to directors who are not employees except
that directors shall always have the right to make payment by delivery of
Broker Exercise Notice or by delivery of previously acquired shares as
provided in Section 6.6 of the Plan.
In addition, each director who is not an employee of the Company and
serves as a director on April 1 of the year, beginning on April 1, 1997,
shall receive an Option to purchase 6,000 shares of Common Stock at a
price equal to Fair Market Value. Such Options shall be designated as
Non-Statutory Stock Options. Each Option shall vest in increments of 20%
of the original Option grant beginning one year from the date of grant
and shall expire on the earlier of (i) six years from the date of grant,
and (ii) one year after the person ceases to serve as a director.
In the event discretionary Options are granted to members of the
Committee, such Options shall be granted by the Board.
As amended by Board of Directors
Approved by shareholders on September 5, 1996.
