SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
NAVARRE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MN 55428
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 4, 1997
The Annual Meeting of the Shareholders (the "Meeting") of Navarre Corporation
(the "Company") will be held Thursday, September 4, 1997 at 3:30 p.m., local
time, at The Marquette Hotel, Minnesota Room, Third floor, 710 Marquette Avenue,
Minneapolis, Minnesota, 55402, for the following purposes:
1. To elect one director to hold office for a term of three years
or until his successor is elected.
2. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Shareholders of record at the close of business on July 10, 1997 will be
entitled to vote at the Meeting or any adjournments or postponements thereof.
All shareholders are cordially invited to attend the Meeting.
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO FILL IN,
DATE AND SIGN THE ENCLOSED PROXY AND TO MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE TO MAKE SURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. IN THE
EVENT YOU DECIDE TO ATTEND THE MEETING IN PERSON, YOU MAY, IF YOU DESIRE, REVOKE
YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
/s/ Charles E. Cheney
Charles E. Cheney
Secretary
July 29, 1997
<PAGE>
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MN 55428
(612)535-8333
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 4, 1997
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to the shareholders of Navarre
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors") for use at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held on Thursday,
September 4, 1997 at 3:30 p.m., local time, at The Marquette Hotel, Minnesota
Room, Third floor, 710 Marquette Avenue, Minneapolis, Minnesota, and at any
adjournments or postponements thereof. This Proxy Statement and accompanying
proxy are first being mailed to the shareholders of the Company on or about July
29, 1997.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies otherwise than by use of the mail,
but certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies.
Only holders of record of shares of the Company's no par value common stock (the
"Common Stock") at the close of business on July 10, 1997, will be entitled to
notice of and to vote at the Annual Meeting and any adjournment thereof. The
securities of the Company outstanding as of July 10, 1997, the record date for
the Annual Meeting, and which are entitled to vote at the meeting, consist of
6,902,248 shares of Common Stock, each share being entitled to one vote.
Shareholders do not have the right to accumulate votes for the election of
directors.
The enclosed proxy may be revoked at any time before it is voted by the
execution and delivery of a proxy bearing a later date or by notification in
writing given to the Secretary of the Company prior to the meeting. The enclosed
proxy may also be revoked by attending the meeting and electing to vote in
person.
The enclosed Board of Directors' proxy, when properly signed and returned to the
Company, will be voted at the Annual Meeting as directed therein. Proxies in
which no direction is given with respect to the various matters of business to
be transacted at the meeting will be voted FOR the election of the nominee for
the Board of Directors named in this Proxy Statement. While the Board of
Directors knows of no matters to be presented at the Annual Meeting or any
adjournment thereof, all proxies returned to the Company will be voted on any
such matter in accordance with the judgment of the proxy holders.
<PAGE>
A quorum, consisting of a majority of the shares of Common Stock entitled to
vote at the Annual Meeting, must be present in person or by proxy before action
may be taken at the Annual Meeting. If an executed proxy is returned and the
shareholder has abstained from voting on any matter, the shares represented by
such proxy will be considered present at the meeting for purposes of determining
a quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of such matter. If an executed proxy is returned by a
broker holding shares in "street name" which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, such shares will be considered present at the meeting for purposes of
determining a quorum, but will not be considered to be represented at the
meeting for purposes of calculating the vote with respect to such matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 1, 1997 with
respect to the beneficial ownership of the Common Stock of the Company by (i)
all persons who are known by the Company to hold five percent or more of the
Common Stock of the Company, (ii) each of the directors of the Company, (iii)
the Named Executive Officers in the summary compensation table below and (iv)
all directors and officers of the Company as a group.
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership (1) Percent of Class
------------------- --------------------------- ----------------
Eric H. Paulson 2,635,532 37.2%
7400 49th Avenue North
New Hope, MN 55428
Charles E. Cheney 850,130 12.1%
7400 49th Avenue North
New Hope, MN 55428
Dickinson G. Wiltz 278,236 4.0%
7141 Willow Creek Road
Eden Prairie, MN 55344
James G. Sippl 38,800 *
9625 West 76th Street, Suite 150
Eden Prairie, MN 55344
Michael L. Snow 17,600 *
3300 Norwest Center
Minneapolis, MN 55402
All directors and officers 3,958,543 53.2%
as a group (10 persons)
* Indicates ownership of less than one percent.
(1) Includes shares of Common Stock issuable upon exercise of outstanding
options exercisable within sixty days of July 1, 1997 in the following amounts:
Eric H. Paulson, 184,800 shares; Charles E. Cheney, 133,400 shares; James G.
Sippl, 28,800 shares; Michael L. Snow, 17,600 shares; Dickinson G. Wiltz, 36,736
shares; and all officers and directors as a group, 538,446 shares.
<PAGE>
(2) Includes 50,550 shares of Common Stock beneficially owned by members of Mr.
Paulson's family, with respect to which Mr. Paulson exercises voting power. Mr.
Paulson declaims beneficial interest with respect to such shares.
ELECTION OF DIRECTORS
Pursuant to the terms of the Amended and Restated Articles of Incorporation of
the Company, directors are divided into three classes, with the term of one
class expiring each year. As the term of each class expires, the successors to
the directors in that class will be elected for a term of three years. The term
of Mr. Michael L. Snow expires at the Annual Meeting of Shareholders following
fiscal year 1997, the terms of Messrs. Charles E. Cheney and Mr. Dickinson G.
Wiltz expire at the Annual Meeting of Shareholders following fiscal year 1998
and the terms of Messrs. Eric H. Paulson and James G. Sippl expire at the Annual
Meeting of Shareholders following fiscal year 1999. Vacancies on the Board of
Directors and newly created directorships can be filled by vote of a majority of
the directors then in office.
One director will be elected at the Annual Meeting to serve until the Annual
Meeting of Shareholders following fiscal year 2000 or until his successor is
elected. The Board of Directors has nominated for election the person named
below. This nominee is currently a director and was elected by the shareholders.
It is intended that proxies will be voted for the named nominee. Unless
otherwise indicated, this nominee and each continuing director has been engaged
in his present occupation as set forth below, or has been an officer with the
organization indicated, for more than four years. The Board of Directors
believes that the nominee named below will be able to serve, but should the
nominee be unable to serve as a director, the persons named in the proxies have
advised that they will vote for the election of such substitute nominee as the
Board of Directors may propose.
The names of the nominee and the other directors filling unexpired terms are set
forth below, based upon information furnished to the Company by the nominee and
directors.
Name and Age Principal Occupation and Other Directorships
- ------------ --------------------------------------------
NOMINEE PROPOSED FOR ELECTION FOR TERM EXPIRING AT THE ANNUAL MEETING FOLLOWING
FISCAL 2000
Michael L. Snow (46).............. Mr. Snow was elected a director of the
Company on April 1, 1995. Mr. Snow is of
counsel with the Minnesota law firm of
Maslon Edelman Borman & Brand, which he
joined in 1976. He has served as a director,
officer or founder in numerous public and
private corporations and currently serves as
a director of Osmonics, Inc. and Satellite
Industries, Inc.
DIRECTORS SERVING CONTINUING TERMS
Eric H. Paulson (52).............. Mr. Paulson is the founder and has been
president and chief executive officer of the
Company since its inception in 1983. Mr.
Paulson also served as the executive vice
president and chief operating officer at
Lieberman Enterprises, Inc. during the
period from January 1990 to October 1991
when Live Entertainment, Inc., and Lieberman
Enterprises, Inc. owned the Company. Prior
to 1983, Mr. Paulson served as senior vice
president and general manager of Pickwick
Distribution Companies, a distributor of
records and tapes. Mr. Paulson has been a
director of the Company since October 1991.
He was also a director from the time of the
inception of the Company in
<PAGE>
1983 until the Live Entertainment
acquisition in 1990. Mr. Paulson is also
chairman and president of Net Radio
Corporation as well as chief executive
officer of Digital Entertainment.
Charles E. Cheney (54)............ Mr. Cheney has served as executive vice
president and chief financial officer of the
Company since 1985. Mr. Cheney has been a
director of the Company since October 1991.
Mr. Cheney also served as senior vice
president of Lieberman Enterprises, Inc.,
and general manager of the Company during
1990 and 1991. Prior to joining the Company,
Mr. Cheney was employed by Control Data
Corporation in various financial capacities
for twelve years, most recently as
controller of Control Data Commerce
International. Mr. Cheney is a certified
public accountant. Mr. Cheney is also chief
financial officer of Net Radio Corporation
as well as president and treasurer of
Digital Entertainment.
James G. Sippl (49)................ Mr. Sippl has been a director of the Company
since July 1993. Currently, Mr. Sippl is
chief operating officer of IntraNet
Solutions, Incorporated. Since 1989, Mr.
Sippl has been a vice president of business
development, with Merrill Corporation, a
financial printer. Prior to joining Merrill
Corporation, Mr. Sippl was employed at
Chicago Cutlery, a manufacturer of fine
cutlery, from 1985 to 1989, most recently as
president. From 1970 to 1983, Mr. Sippl was
employed at Coopers & Lybrand, most recently
as a partner.
Dickinson G. Wiltz (68)........... Mr. Wiltz has been director of the Company
since October 1991. He was also a director
from the time of inception of the Company in
1983 until the Live Entertainment
acquisition in 1990. Mr. Wiltz has been a
self-employed business management consultant
since 1974.
DIRECTOR COMPENSATION
The non-employee members of the Board of Directors each receive $500 per
meeting. In addition, directors were granted an option to purchase 20,000 shares
on March 5, 1996 at the price per share of $2.25. Under the terms of the
Company's 1992 Stock Option Plan, each non-employee director is to receive on
April 1 of each year beginning April 1997, a non-qualified stock option to
purchase 6,000 shares of Company Common Stock at the fair market value on the
day of the grant.
BOARD ACTIONS AND COMMITTEES
During fiscal 1997, the Board of Directors held eight formal meetings and each
director attended 75% or more of the meetings of the Board and of the committees
on which the directors served. Board members met informally during fiscal 1997
to discuss various aspects of the business affairs of the Company.
The Board of Directors has established an Audit Committee and Compensation
Committee. The Audit Committee of the Board of Directors for fiscal 1998
consists of Charles E. Cheney, James G. Sippl and Michael L. Snow. While Mr.
Cheney is an employee of the Company, Mr. Sippl and Mr. Snow are non-employee
directors of the Company. During fiscal year ended March 31, 1997, the Audit
Committee held two meetings. The Audit Committee annually recommends independent
accountants for appointment by the Board of Directors, reviews the services to
be performed by the independent accountants, and receives and reviews the
reports submitted by them.
The Compensation Committee of the Board of Directors for fiscal 1998 consists of
Mr. Sippl and Mr. Snow who are non-employee directors of the Company. The
Compensation Committee has general responsibility for all employee compensation
and bonus and benefit matters, including recommendations
<PAGE>
to the full Board on compensation arrangements of officers and directors,
bonuses, benefit plans and stock option grants. The Compensation Committee held
two meetings during fiscal year ended March 31, 1997.
The Company does not have a nominating committee. The officers of the Company
are appointed by the Board of Directors and hold office until their successors
are chosen and qualified or until their earlier death, resignation or removal
from office.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers and other key members of management are as
follows:
Name Age Position with the Company
---- --- -------------------------
Eric H. Paulson 52 Chairman of the Board, President and Chief
Executive Officer
Charles E. Cheney 54 Secretary, Treasurer and Director, Executive
Vice President and Chief Financial Officer
Guy M. Marsala 46 Chief Operating Officer
Terri E. Bonoff 39 Vice President and General Manager, Computer
Products Division
Kathleen A. Conlin 53 Vice President, Corporate Controller
Thomas J. Lenaghan 47 Vice President and General Manager,
Alternative Retail Marketing
John Turner 43 Vice President, Operations
The following is a brief summary of the business experience of each of the key
members of management of the Company.
GUY M. MARSALA has been chief operating officer since joining the
Company in November 1996. Prior to joining Navarre, Mr. Marsala served as vice
president and general manager for the Scholastic Division of Jostens, Inc. From
1985 through 1994, Mr. Marsala served in a series of positions of increasing
responsibility for Pepsico, Inc., culminating with the position of general
manager of Southern California for Pepsi-Cola. From 1979 through 1984, Mr.
Marsala was employed in various sales and management assignments with American
Hospital Supply Corporation. For the six years prior to that, Mr. Marsala served
as an officer in the United States Army, resigning as a captain in 1979. Mr.
Marsala holds a BS degree in engineering from the United States Military Academy
at West Point and an MBA from the University of Dallas.
TERRI E. BONOFF has been vice president of the computer products
division since January 1997. Joining the Company in October 1995, Ms. Bonoff
has served as general manager and director of merchandising of the computer
products division. Prior to joining Navarre, Ms. Bonoff spent five years in the
toy and video game business, first with Tonka Toys and later Toy Soldiers. In
addition, Ms. Bonoff began her career in fashion retail with Jackson Graves, a
women's specialty store.
KATHLEEN A. CONLIN has been vice president, corporate controller since
1995. She has served as controller, accounting manager and full charge
bookkeeper since joining the Company in 1984.
THOMAS J. LENAGHAN has been vice president and general manager,
Alternative Retail Marketing since joining the Company in June 1997. Prior to
joining the Company, Mr. Lenaghan was employed by the Handleman Company for
twelve years, most recently as vice president of sales.
<PAGE>
JOHN TURNER has been vice president of operations since joining the
Company in September 1995. Prior to joining Navarre, Mr. Turner was senior
director of distribution for Nordic Track in Chaska, MN. He has held various
positions in logistics in the United States and in the United Kingdom.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other components of
compensation for the fiscal years ending March 31, 1997, 1996 and 1995, for Eric
H. Paulson, the chief executive officer of the Company, and Charles E. Cheney,
the only other executive officer of the Company whose total cash compensation
exceeded $100,000 (together, the "Named Executive Officers") during the fiscal
year ended March 31, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------------------
RESTRICTED SECURITIES
NAME AND FISCAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C>
Eric H. Paulson 1997 $249,246 $ 172,000(3) $ 11,769(1) ---- ---- ----
Chairman of the Board, 1996 $210,000 $ 87,500 $ 18,000(1) $225,000 300,000 ----
Chief Executive Officer 1995 $203,077 $ 79,000 $ 18,000(1) ---- ---- $4,808(2)
and President
Charles E. Cheney 1997 $174,680 $ 87,600(3) $ 9,000(1) ---- ---- ----
Executive Vice President 1996 $146,000 $ 43,800 $ 9,000(1) $112,500 150,000 ----
Chief Financial Officer 1995 $140,923 $ 41,050 $ 9,000(1) ---- ---- $4,808(2)
Secretary and Treasurer
</TABLE>
(1) Represents car allowance.
(2) Amounts reflect loan guarantee fees paid to both Mr. Paulson and Mr. Cheney
in consideration of their guarantees of the Company's obligations.
(3) Amounts reflect $86,000 for Eric H. Paulson and $43,800 for Charles E.
Cheney which was accrued in fiscal 1996 but not paid until fiscal 1997.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements (the "Employment Agreements")
with Mr. Paulson and Mr. Cheney effective October 1, 1996. The Employment
Agreements protect the proprietary rights of the Company to all material and
ideas developed by Mr. Paulson and Mr. Cheney during their employment and
prohibit the disclosure of any confidential matters by these employees during or
after their employment with the Company.
The agreement with Mr. Paulson terminates on August 31, 2001 and is renewable
for one year periods. The agreement currently provides for a base salary of
$285,000 per year, subject to annual adjustments by the Board of Directors, and
a year end bonus of up to 80 percent of his base salary.
The agreement with Mr. Cheney also terminates on August 31, 2001 and is
renewable for one year periods. The agreement currently provides for a base
salary of $ 200,000 per year, subject to annual adjustments by the Board of
Directors, and a year end bonus of up to 60 percent of his base salary.
Under the terms of the Employment Agreements, if the employment of either
Messrs. Paulson or Cheney is terminated without cause by the Company or by the
employee, with the employee cause as
<PAGE>
defined in the Agreements, the Employment Agreements require the payment to
Messrs. Paulson and Cheney, respectively of (i) their base salaries through the
end of the term of the Agreement or for two years, whichever is more, in
exchange for a properly executed non-compete agreement between the employee and
the Company and (ii) certain benefits to Mr. Paulson for the greater of two
years or the remaining term of the Agreement and Mr. Cheney for the greater of
one year or the remaining term of the Agreement. In addition, if the termination
by the Company without cause or by the employee for employee cause occurs after
the change of control or ownership of the Company, the employee is entitled to
receive benefits equal to the amount determined by multiplying 2.99 by the
average annual compensation and fringe benefits paid to the employee over the
five most recent fiscal years, an amount currently equal to approximately
$805,240 with respect to Mr. Paulson, $599,509 with respect to Mr. Cheney. The
Agreements further provide, however, that in no event shall the amount due and
payable be such that it would constitute a "parachute payment" within the
meaning of the Internal Revenue Code, and that, in the event that any portion of
the severance payment would be deemed a parachute payment, then the amount of
the severance payment would be reduced to the extent necessary to eliminate such
treatment or characterization.
STOCK OPTION PLAN
The Company's 1992 Stock Option Plan (the "Stock Plan") was approved by the
Board of Directors on September 1, 1992. A total of 2,174,000 shares of the
Company's authorized Common Stock are reserved for issuance under the Stock
Plan. The purpose of the Stock Plan is to attract and retain talented employees,
non-employee directors, consultants and independent contractors, as well as
reward such persons who contribute to the achievement to the Company's economic
objectives, by giving them a proprietary interest in the Company. The Stock Plan
provides for both incentive stock options and non-statutory stock options.
Incentive stock options are granted at an exercise price based upon fair market
value and receives favorable tax treatment under the Internal Revenue Code.
Non-statutory stock options are granted at an exercise price determined by the
Board of Directors and do not qualify for favorable tax treatment. The Company
may grant incentive stock options only to employees of the Company.
There were no stock options granted to the Named Executive Officers during the
Company's 1997 fiscal year.
The following table sets forth information with respect to the Company's
executive officers concerning the exercise of options during fiscal 1997 and
unexercised options held at March 31, 1997. All amounts in the table have been
adjusted to reflect the Company's two-for-one stock split in the form of a 100%
stock dividend distributed to shareholders on June 21, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES (1)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT YEAR END OPTIONS AT YEAR END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eric H. Paulson none N/A 154,800 / 213,700 $259,884 / $127,471
Charles E. Cheney none N/A 117,400 / 106,850 $201,142 / $63,735
</TABLE>
(1) Based on the difference between the March 31, 1997 closing price of $2.875
per share as reported on the Nasdaq Stock Market and the exercise price of the
options.
<PAGE>
CERTAIN TRANSACTIONS
In connection with a number of the Company's transactions, the Company's
President, Eric H. Paulson, and its Executive Vice President, Charles E. Cheney,
have been required to guarantee obligations of the Company. The Company's
officers generally have guaranteed the obligations without additional
compensation. In certain cases, however, these officers have received additional
compensation from the Company in consideration of their guarantees. No such
compensation was paid in fiscal 1996 or 1997. In the event that officers of the
Company are required to guarantee bank obligations of the Company in the future,
the Company anticipates paying them additional compensation for these
guarantees. See "Executive Compensation."
At March 31, 1997, Mr. Paulson was indebted to the Company in the principal
amount of $214,000. This indebtedness represents the largest principal amount
outstanding during fiscal 1997. Mr. Paulson pays the Company interest on the
outstanding indebtedness at 8.5 percent.
In January 1995, the Company decided to exercise its option to purchase the
property on which its principal facilities and adjoining land were located, in
part because of continuing disputes with its landlord with respect to matters in
connection with the construction and the operation of the building. In September
1995, the Company entered into a settlement agreement with the landlord under
which all matters with respect to the building were resolved and the Company
acquired the building. At the time of the acquisition of the building, the
Company was unable to arrange satisfactory permanent financing for the building.
Accordingly, the Company entered into a Lease Agreement with a limited liability
company the members of whom were Eric H. Paulson and Charles E. Cheney, the
Company's President and Executive Vice President, respectively, which limited
liability company acquired the buildings. Under the terms of the lease
agreement, the Company agreed to lease the building for approximately the same
price as the lease with the original landlord, provided, that the management fee
to be paid in connection with the leasing of the building was decreased from
five percent of the aggregate rent to three percent of the aggregate rent, and
the cost of living increases in the rent, rather than being effective at the end
of five years, were effective at the end of each year. In addition, the Company
received a purchase option, under which it has the right to purchase the
building for an amount equal to the net present value of future income payments
under the lease, which approximates the purchase option it had under the old
agreement. During the fiscal year ended March 31, 1997, the Company made lease
payments totaling $391,664 to the limited liability company. The proposed
transaction was approved unanimously by the disinterested directors of the
Company's Board of Directors and the Company believes that the terms under which
the Company leased the building from the limited liability company were on terms
no less favorable than could be obtained from independent third parties.
REPORT OF THE COMPENSATION COMMITTEE
Decisions on compensation of the Company's executives are generally made by the
two member Compensation Committee of the Board (the "Committee") consisting of
James G. Sippl and Michael L. Snow who are non-employee directors. All decisions
by the Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board, except for decisions about awards under
the Company's 1992 Stock Option Plan, which are currently made solely by the
Committee.
Pursuant to recently adopted rules designed to enhance disclosure of the
Company's policies toward executive compensation, set forth below is a report
submitted by the Committee addressing the Company's compensation policies for
fiscal 1997 as they affected Mr. Paulson, the Company's chief executive officer,
and Mr. Cheney, the other executive officer who, for fiscal 1997, was the
Company's other most highly paid executive officer whose compensation exceeded
$100,000. The following report
<PAGE>
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities and Exchange Act of 1933 (the "1933 Act") or the Securities and
Exchange Act of 1934 (the "1934 Act"), except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under the 1933 Act or the 1934 Act.
COMPENSATION PHILOSOPHY.
The Committee's executive compensation policies are designed to provide
competitive levels of compensation in order to attract and retain highly
qualified executives, establish compensation levels based upon a comparison of
job responsibility within the Company to similar positions in comparable
companies and industries, and recognize individual performance based upon
long-term specific goals, as opposed to short-term or arbitrary measurements of
performance.
BASE SALARY.
The Committee annually reviews each executive officer's salary. In determining
appropriate base salary levels, the Committee considers levels of
responsibility, performance on behalf of the Company, the overall performance of
the Company and external pay practices. With respect to external pay practices,
the Committee uses various surveys of executive compensation for companies of
similar size and comparable industries as a basis for determining competitive
levels of cash compensation.
ANNUAL INCENTIVE AWARDS.
The Company pays bonuses to its executive officers based upon the performance of
the Company. Mr. Paulson may receive an amount up to 80 percent of his base
salary and Mr. Cheney may receive an amount up to 60 percent of his base salary.
The Committee may award executive officers either cash, Common Stock or a
combination of cash and Common Stock as incentive compensation.
STOCK OPTIONS.
In order to promote improved long-term performance by the Company, the Committee
awards stock options to the Company's executive officers. Stock options are
awarded in order to achieve competitive compensation levels and to reward
individual performance of executive officers. Stock options only have value for
the executive officers if the price of the Company's stock appreciates in value
from the date the stock options are granted. Shareholders also benefit from such
stock price appreciation.
CHIEF EXECUTIVE OFFICER COMPENSATION.
Mr. Paulson's base pay for fiscal 1997 was $249,246. The compensation package
for Mr. Paulson was set by the Board of Directors. Mr. Paulson's base salary was
established in connection with the execution of a new employment agreement in
September. During fiscal 1997, the Company made cost of living adjustments to
the base salary. The Company paid a bonus of $172,000 to Mr. Paulson with
respect to services during the fiscal years ended March 31, 1996 and 1997. Mr.
Paulson did not receive restricted stock grants shares during fiscal 1997. The
Compensation Committee believes that the grant of restricted stock grants
provides additional compensation to the Company's officers by providing them
with an additional equity interest in the Company's securities. The bonus
reflected, in part, Mr. Paulson's efforts in increasing the Company's net sales
by 26.7 percent from $158.3 million to $200.7 million. The bonus was equal to
approximately 69 percent of Mr. Paulson's base salary. The terms of Mr.
Paulson's employment agreement are set forth in the section entitled "Employment
Agreements and Change of Control Provisions."
<PAGE>
SUBMITTED BY THE 1997 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Michael L. Snow
PERFORMANCE GRAPH
The following Performance Graphs compare performance of the Company's Common
Stock on the Nasdaq National Market System to the Nasdaq Stock Market (US
Companies) Index and a Peer Group Indices described below. The graphs compare
the cumulative total return from December 16, 1993 to March 31, 1997 on $100
invested on December 16, 1993, the date of the Company's initial public
offering, assumes reinvestment of all dividends and have been adjusted to
reflect stock splits.
Index levels as of March 31, 1997 were 102.2 for Navarre Corporation, 165.4 for
Nasdaq Stock Market and 28.6 for the Self-Determined Peer Group.
The Peer Group Index below includes the stock performance of the following
companies, which were used in the Company's performance graph in the Company's
proxy statement for fiscal 1996: Alliance Entertainment Corp., Handleman Co.,
Merisel Inc., Ameriquest Technologies Inc., Kenfil Inc., and Trinty Capital
Oppty Corp. This group of companies is comprised of companies, which in fiscal
1996, had similar music or software distribution operations.
PERFORMANCE GRAPH
[PLOT POINTS GRAPH]
3/31/94 3/31/95 3/31/96 3/31/97
Navarre Corporation 66.7 88.9 148.9 102.2
Nasdaq Stock Market 98.5 109.6 148.8 165.4
Self-Determined Peer Group 93.6 61.4 45.5 28.6
Index levels as of March 31, 1997 were 102.2 for Navarre Corporation, 165.4 for
Nasdaq Stock Market and 71.7 for the Self-Determined Peer Group.
<PAGE>
The Peer Group Index below includes the stock performance of the following
companies which were used in the Company's performance graph in the Company's
proxy statement for fiscal 1997: Alliance Entertainment Corp., Handleman Co.,
Merisel Inc., Ingram Micro Inc., and Tech Data Corp. This group of companies is
comprised companies, which in fiscal 1997, had similar music or software
distribution operations.
PERFORMANCE GRAPH
[PLOT POINTS GRAPH]
3/31/94 3/31/95 3/31/96 3/31/97
Navarre Corporation 66.7 88.9 148.9 102.2
Nasdaq Stock Market 98.5 109.6 148.8 165.4
Self-Determined Peer Group 98.1 60.7 65.8 71.7
GENERAL
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP, independent
public accountants, as auditors to the Company for the year ended March 31,
1998. Ernst & Young LLP has audited the Company's financial statements since
1988. A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting to make a statement if he or she so desires and to respond to
appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. These
insiders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file, including
Forms 3, 4 and 5. Based upon its review of Forms 3, 4 and 5 filed by the
Company's insiders, the Company believes all such forms with respect to
transactions
<PAGE>
occuring in fiscal 1997 were filed on a timely basis. During fiscal 1996, Mr.
Paulson failed to report one transaction in a timely manner.
OTHER BUSINESS
All items of business intended by the management to be brought before the
meeting are set forth in the Proxy Statement, and the management knows of no
other business to be presented. If other matters of business not presently known
to the Board of Directors shall be properly raised at the Annual Meeting, it is
the intention of the persons named in the proxy to vote on such matters in
accordance with their best judgment.
The Annual Report of the Company for fiscal 1997 is enclosed herewith.
Shareholders may receive without charge a copy of the Company's Annual Report
and Form 10-K, including financial statements and schedules thereto, as filed
with the Securities and Exchange Commission, by writing to: Navarre Corporation,
7400 49th Avenue North, New Hope, MN 55428, Attention: Charles E. Cheney, or by
calling the Company at (612) 535-8333.
By Order of the Board of Directors
/s/ Charles E. Cheney
Charles E. Cheney
Secretary
Dated: July 29, 1997
<PAGE>
PROXY
NAVARRE CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 4, 1997
The undersigned, revoking all prior proxies, hereby appoints Charles E. Cheney
and Eric H. Paulson, and either of them, as proxy or proxies, with full power of
substitution and revocation, to vote all shares of common stock of Navarre
Corporation (the "Company") of record in the name of the undersigned at the
close of business on July 10, 1997, at the Annual Meeting of Shareholders to be
held on Thursday, September 4, 1997, or at any adjournment thereof, upon the
following matters:
(1) Election of the following nominee as director:
MICHAEL L. SNOW
[ ] FOR THE NOMINEE [ ] WITHHOLD FOR THE NOMINEE
In their discretion the Proxies are authorized to vote upon such matters as may
properly come before the meeting.
(CONTINUED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
IN FAVOR OF NOMINEE LISTED ABOVE.
Please sign your name exactly as it appears below. In case of shares owned in
joint tenancy or as tenants in common, all should sign. Fiduciaries should
indicate their title and authority.
Dated: __________________________, 1997
_______________________________________
_______________________________________
_______________________________________
Signature(s)
[ ] I plan to attend the meeting.
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
