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):
[ ] 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 3, 1998
----------------------------------------------
The Annual Meeting of the Shareholders (the "Meeting") of Navarre Corporation
(the "Company") will be held Thursday, September 3, 1998 at 3:30 p.m., local
time, at The Marquette Hotel, Minnesota River Room, Third floor, 710 Marquette
Avenue, Minneapolis, Minnesota, 55402, for the following purposes:
1. To elect two directors to hold office for a term of three years or
until their successors are elected and one director to hold office
for a term of two 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 22, 1998 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 31, 1998
<PAGE>
NAVARRE CORPORATION
7400 49TH AVENUE NORTH
NEW HOPE, MN 55428
(612)535-8333
-------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 3, 1998
-------------------------------------
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 3, 1998 at 3:30 p.m., local time, at The Marquette Hotel, Minnesota
River 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 31, 1998.
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 then 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.
The Company has two classes of stock, no par value common stock and no par value
Class A Convertible Preferred Stock ("Common Stock" and "Preferred Stock"
respectively). Only holders of record of shares on the Company's Common Stock
and Preferred Stock at the close of business on July 22, 1998, 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 22, 1998, the record date
for the Annual Meeting, and which are entitled to vote at the meeting, consist
of 8,110,062 shares of Common Stock, each share being entitled to one vote, and
1,304,223 shares of Preferred Stock, each share of Preferred Stock being
convertible into five shares of Common Stock, and being entitled to five votes.
Although the Preferred Stock is convertible into five shares of Common Stock,
certain holders of Preferred Stock have entered into agreements with the Company
("Five Percent Letters") under which these holders have agreed that,
notwithstanding the number of shares of Common Stock they may be entitled to
vote based upon their ownership of Common Stock or Preferred Stock of the
Company, they are entitled to exercise voting power with respect to no greater
than 4.9% of the number of shares of the Company's issued and outstanding Common
Stock as calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934. Accordingly, the total shares eligible to vote at the Special
Meeting is expected to be 14,250,408, which represents 8,110,062 shares of
Common Stock and 6,140,346 shares of Common Stock into which the Preferred Stock
is convertible. Shareholders do not have the right to accumulate votes for the
election of directors.
<PAGE>
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 nominees 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.
A quorum, consisting of a majority of the shares of voting 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, 1998 with
respect to the beneficial ownership of the Common Stock or Preferred 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, and (iii) all directors and officers of the Company as a group. Because
the Preferred Stock has voting rights equal to the Common Stock into which it is
convertible, all Preferred Stock (other than shares with respect to those
shareholders who have executed Five Percent Letters with the Company) is treated
as outstanding.
<TABLE>
<CAPTION>
Common Stock
Name and Address Underlying Options and Percent of Common
of Beneficial Owner Common Stock Preferred Stock Warrants (1) Shares Outstanding
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eric H. Paulson 2,405,657(2) 200,000 18.3%
Charles E. Cheney 690,730 142,000 5.8%
Dickinson G. Wiltz 211,500 52,676 1.9%
James G. Sippl 10,000 42,000 *
Michael L. Snow 1,135 30,000 *
Alfred Teo 761,900 761,900 10.7%
<PAGE>
<CAPTION>
Common Stock
Name and Address Underlying Options and Percent of Common
of Beneficial Owner Common Stock Preferred Stock Warrants (1) Shares Outstanding
- - -----------------------------------------------------------------------------------------------------
Pequot Scout Fund, LP
354 Pequot Avenue
Southport, CT 06490 380,950 380,950 5.3%
Paradigm Group, LLC
3000 Dundee Road
Suite 105
Northbrook, IL 60062 471,420 471,420 6.6%
All directors and officers
as a group (14 persons) 3,319,022 761,900 1,403,826 38.5%
</TABLE>
* Indicates ownership of less than one percent.
(1) Includes shares of Common Stock issuable upon exercise of outstanding
options and warrants exercisable within sixty days of July 1, 1998.
(2) Includes 14,841 shares of Common Stock beneficially owned by members of Mr.
Paulson's family, with respect to which Mr. Paulson exercises voting power. Mr.
Paulson disclaims 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 terms
of Messrs. Charles E. Cheney and Dickinson G. Wiltz expire at the Annual Meeting
of Shareholders following fiscal year 1998, the terms of Messrs. Eric H. Paulson
and James G. Sippl expire at the Annual Meeting of Shareholders following fiscal
year 1999 and the term of Mr. Michael L. Snow expires at the Annual Meeting of
Shareholders following fiscal year 2000. 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 and two directors will be
elected at the Annual Meeting to serve until the Annual Meeting of Shareholders
following fiscal year 2001 or until their successor is elected. The Board of
Directors has nominated for election the persons named below. Two of the
nominees are currently directors and were elected by the shareholders. The third
nominee, Alfred Teo is a new member of the Board of Directors. Under Article VII
of the Company's Restated and Amended Articles of Incorporation, the Board of
Directors increased the size of the Board from five to six members on April 24,
1998. Following the closing of the Company's private placement of its Class A
Convertible Preferred Stock, on May 1, 1998, the Board unanimously elected Mr.
Alfred Teo to serve as a director.
The Board is proposing that the shareholders elect Mr. Teo to serve for a term
of two years, and be considered in the class of directors whose term expires at
the Annual Meeting of Shareholders following fiscal year 2000. It is intended
that proxies will be voted for the named nominees. Unless otherwise indicated,
this nominee and each continuing director has been engaged in his present
occupation as set
<PAGE>
forth below, or has been an officer with the organization indicated, for more
than four years. The Board of Directors believes that the nominees named below
will be able to serve, but should the nominees be unable to serve as directors,
the persons named in the proxies have advised that they will vote for the
election of such substitute nominees as the Board of Directors may propose.
The names of the nominee and other directors filling unexpired terms are set
forth below, based upon information furnished to the Company by the nominees and
directors.
Name and Age Principal Occupation and Other Directorships
- - ------------ --------------------------------------------
NOMINEE PROPOSED FOR ELECTION FOR TERM EXPIRING AT THE ANNUAL MEETING FOLLOWING
FISCAL 2000.
Alfred Teo(52)........... Mr. Teo has been director of the Company since May 1,
1998. Mr. Teo is chairman and chief executive officer
of The Sigma Plastics Group which he started in 1979.
He is a member of the board of directors of Fleet
Bank NA, American Bank Note and Cirrus Logic. Mr. Teo
is also member of the board of trustees of St.
Joseph's Hospital and Medical Center and a trustee
for Stevens Institute of Technology. In addition, Mr.
Teo is the chairman and chief executive officer of
Hillman Eye Center and Alpha Technology, Inc..
NOMINEES PROPOSED FOR ELECTION FOR TERM EXPIRING AT THE ANNUAL MEETING FOLLOWING
FISCAL 2001
Charles E. Cheney(55).... 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.
Dickinson G. Wiltz(69)... 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.
DIRECTORS SERVING CONTINUING TERMS.
Eric H.Paulson(53)....... 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
<PAGE>
was also a director from the time of the inception of
the Company in 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.
James G. Sippl(50)....... Mr. Sippl has been a director of the Company since
July 1993. Mr. Sippl is a financial consultant for
Sippl & Associates. Prior to that Mr. Sippl was chief
operating officer of IntraNet Solutions, a software
company. He has been a vice president of business
development, with Merrill Corporation, a financial
printer. Prior to joining Merrill Corporation, Mr.
Sippl was president of Chicago Cutlery, a
manufacturer of fine cutlery, from 1985 to 1989. From
1970 to 1985, Mr. Sippl was employed at Coopers &
Lybrand, most recently as a partner.
Michael L. Snow(47)...... 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,
a Limited Liability Partnership, 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.
DIRECTOR COMPENSATION
The non-employee members of the Board of Directors each receive $500 per
meeting. 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. Pursuant to the Plan,
each of Messrs. Sippl, Snow and Wiltz received options to purchase 6,000 shares
at a price of $3.75 on April 1, 1997 and options to purchase 6,000 at a price of
$2.5625 on April 1, 1998.
BOARD ACTIONS AND COMMITTEES
During fiscal 1998, 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 1998
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, 1998, 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,
bonus and benefit matters, including recommendations to the full Board on
compensation arrangements of officers and directors, bonuses, benefit plans and
stock
<PAGE>
option grants. The Compensation Committee held two meetings during fiscal
year ended March 31, 1998.
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 53 Chairman of the Board, President and Chief Executive
Officer
Charles E. Cheney 55 Secretary, Treasurer and Director, Executive Vice
President and Chief Financial Officer
Guy M. Marsala 47 Chief Operating Officer
Terri E. Bonoff 40 Vice President, Marketing
James S. Chiado 48 Vice President and General Manager, Independent Music
Division
Kathleen A. Conlin 54 Vice President, Corporate Controller
Thomas J. Lenaghan 48 Vice President and General Manager, Alternative
Retail Marketing
Donavan Pederson 58 Chief Operating Officer, Net Radio Network
John Turner 44 Vice President, Operations
Ian R. Warfield 50 Vice President and General Manager, Computer Products
Division
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 October 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 marketing since February
1998. Joining the Company in October 1995, Ms. Bonoff has served as vice
president and general manager as well as 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.
JAMES S. CHIADO has been vice president and general manager,
Independent Music Division since joining the Company in March 1998. Prior to
joining the Company, Mr. Chiado was senior vice president at Arista Records and
Simitar Entertainment. In addition, Mr. Chiado's twenty-five year industry
career included various management positions with CBS Records and Sony Music
Distribution for more than sixteen years.
<PAGE>
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 April of 1984. Prior to joining Navarre
Ms. Conlin spent four years in California working as an accountant and eleven
years as a full charge bookkeeper for Hussmann North Central, Inc. in
Minneapolis.
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.
DONOVAN PEDERSON has been executive vice president and chief operating
officer of NetRadio since March 1997. Mr. Pederson's previous positions have
included extensive experience in international trade, venture capital,
marketing, and systems integration for technology oriented companies. Before
joining NetRadio, he was president of ComNet Research Corporation, a company
which markets and integrates Fibre Channel networks. He has served as the
Chairman of the Interagency Computer Advisory Group, which advises the United
States Secretary of Commerce on export matters. Mr. Pederson is well known in
the high-performance networking, computing and data storage user community in
the United States.
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.
IAN R. WARFIELD has been vice president and general manager, Computer
Products Division since joining the Company in January 1998. Prior to joining
Navarre, Mr. Warfield served as senior vice president of sales and marketing for
Point Group Corporation, a provider of global OEM software services. In
addition, Mr. Warfield's twenty year industry career included senior management
roles at Software, Etc., Technology Marketing Group, Northgate Computer, Cable
Value Network and Schaak Electronics. His consulting experience as a former
partner at the national consulting firm IMS included the provision of strategic,
tactical and process consulting to IBM, Compaq, Hewlett Packard, Samsonite and
American Airlines.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation and other components of
compensation for the fiscal years ending March 31, 1998, 1997, and 1996, for
Eric H. Paulson, the chief executive officer of the Company, and Charles E.
Cheney and Guy M. Marsala, the only other executive officers of the Company
whose total cash compensation exceeded $100,000 (together, the "Named Executive
Officers") during the fiscal year ended March 31, 1998.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 1998 $246,542 ---- ---- ---- 75,000 $72,000(2)
Chairman of the Board, 1997 $249,246 $172,000(3) $11,769(1) ---- ---- ----
Chief Executive Officer 1996 $210,000 $ 87,500 $18,000(1) $225,000 300,000 ----
and President
Charles E. Cheney 1998 $180,769 ---- $ 9,000(1) ---- 45,000 $72,000(2)
Executive Vice President 1997 $174,680 $ 87,600(3) $ 9,000(1) ---- ---- ----
Chief Financial Officer 1996 $146,000 $ 43,800 $ 9,000(1) $112,500 150,000 ----
Secretary and Treasurer
Guy M. Marsala 1998 $195,000 ---- $ 9,000(1) ---- 20,000 ----
Chief Operating Officer 1997 $ 67,500 ---- $ 3,115(1) ---- 100,000 ----
</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 1997.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements (the "Employment Agreements")
with Mr. Paulson and Mr. Cheney effective October 1, 1996 and with Mr. Marsala
effective November 21, 1996. The Employment Agreements protect the proprietary
rights of the Company to all material and ideas developed by Mr. Paulson, Mr.
Cheney and Mr. Marsala 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 September 30, 2001 and is
automatically 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 eighty percent of his base
salary.
The agreement with Mr. Cheney terminates on September 30, 2001 and is
automatically 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 sixty percent of his base
salary.
The agreement with Mr. Marsala terminates on November 20, 1998 and is
automatically renewable for one year periods. The agreement currently provides
for a base salary of $195,000 per year, subject to annual adjustments by the
Board of Directors, and a year end bonus of up to sixty percent of his base
salary.
<PAGE>
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 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 $895,984 with respect to Mr. Paulson, $589,681
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.
Under the terms of the Employment Agreement for Mr. Marsala, if the employment
is terminated without cause by the Company or by the employee, with the employee
cause as defined in the Agreement, the Employment Agreement requires the payment
to Mr. Marsala of his base salary and prorated bonus through the end of the
month in which death occurred, his accrued but unpaid vacation pay for the year
in which his death occurred, pro rated to the date of his death, and any unpaid
expense reimbursement.
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 receive 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.
The following table provides required information concerning the year end value
of stock options under the Stock Plan to highly compensated executive officers
of the Company identified on the table below. The following table sets forth
certain information regarding stock options granted to the executive officers
named in the Summary Compensation Table during the Company's 1998 fiscal year.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE EXPIRATION OPTION TERM (1)
NAME OPTIONS GRANTED FISCAL YEAR ($/Sh) DATE 5% 10%
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eric H. Paulson 50,000 14.0 $2.6875 07/16/02 $ 37,125 $ 82,037
25,000 7.0 $2.4100 12/24/03 $ 16,646 $ 36,783
Charles E. Cheney 30,000 8.4 $2.6875 07/16/02 $ 22,275 $ 49,222
15,000 4.2 $2.4100 12/24/03 $ 9,988 $ 22,070
Guy M. Marsala 20,000 5.6 $2.6875 07/16/02 $ 14,850 $ 32,815
</TABLE>
(1) Represents the potential realizable value of grant of options assuming that
the market price of the underlying common stock appreciates in value from its
fair market value on the date of the grant to the end of the option term at the
indicated annual rates.
The following table sets forth information with respect to the Company's
executive officers concerning the exercise of options during fiscal 1998 and
unexercised options held at March 31, 1998. All amounts in the table have been
adjusted to reflect the Company's two-for one stock split in the form of 100%
stock dividend distributed June 21, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
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> <C> <C>
Eric H. Paulson 68,500 114,395 170,000 205,000 45,000 35,375
Charles E. Cheney 34,250 57,198 126,000 109,000 83,700 18,225
Guy M. Marsala --- --- 104,000 16,000 --- ---
</TABLE>
(1) Based on the difference between the March 31, 1998 closing price of $2.625
per share as reported on the NASDAQ Stock Market and the exercise price of the
options.
CERTAIN TRANSACTIONS
In connection with a number of the Company's transaction, 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. In
connection with the Company's execution of a $45 million credit facility in June
1997 with Congress Financial Corporation, Mr. Paulson and Mr. Cheney were
required to guarantee the entire amount of the indebtedness of the Company to
Congress. As consideration for this guarantee the Company paid Mr. Paulson and
Mr. Cheney the sums of $12,000 monthly beginning October 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."
<PAGE>
At March 31, 1998, Mr. Paulson was indebted to the Company in the principal
amount of $299,402. This indebtedness represents the largest principal amount
outstanding during fiscal 1998. Mr. Paulson pays the Company interest on the
outstanding indebtedness of $233,984 at 8.5 percent and no interest on the
outstanding indebtedness of $65,418. At March 31, 1998, Mr. Cheney was indebted
to the Company in the principal amount of $ 32,709. This indebtedness represents
the largest principal amount outstanding during fiscal 1998. Mr. Cheney pays the
Company no interest on the outstanding indebtedness.
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 building. Under the terms of the lease agreement,
the Company agreed to lease the building for approximately the same price as the
contract 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 had the right to purchase the
building for an amount equal to the net present value of future income payments
under the lease, which approximated the purchase option it had under the old
agreement. During the fiscal year ended March 31, 1998, the Company made lease
payments totaling $406,786 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 must be made solely by the
Committee.
Pursuant to recently adopted rules designed to enhance disclosure of Company's
policies toward executive compensation, set forth below is a report submitted by
the Committee addressing the Company's compensation policies for fiscal 1998 as
they affected Mr. Paulson, the Company's chief executive officer, Mr. Cheney and
Mr. Marsala, the other executive officers who, for fiscal 1998, were the
Company's other most highly paid executive officers whose compensation exceeded
$100,000. The following report 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.
<PAGE>
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 eighty percent of his base
salary, Mr. Cheney may receive an amount up to sixty percent of his base salary
and Mr. Marsala may receive an amount up to sixty 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. The Compensation Committee believes that the grant of
restricted stock grants provides additional compensation to the Company officers
by providing them with an additional equity interest in the Company's
securities.
CHIEF EXECUTIVE OFFICER COMPENSATION.
Mr. Paulson's base pay for fiscal 1998 was $246,542. The compensation package
for Mr. Paulson was set by the Board of Directors. Mr. Paulson's base salary was
established in connection with the executive of a new employment agreement in
October 1996. During fiscal 1998, the Company did not make cost of living
adjustments to the base salary. Mr. Paulson was not paid a bonus during fiscal
1998. During fiscal 1998, the Company granted stock options of 75,000 to Mr.
Paulson. The terms of Mr. Paulson's employment agreement are set forth in the
section entitled "Employment Agreements and Change of Control Provisions."
SUBMITTED BY THE 1998 COMPENSATION COMMITTEE OF
THE COMPANY'S BOARD OF DIRECTORS
James G. Sippl Michael L. Snow
<PAGE>
PERFORMANCE GRAPHS
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, 1998 on $100
invested on December 16, 1993, the date of the Company's initial public
offering, assumes reinvestment of all dividends and has been adjusted to reflect
stock splits.
Index levels as of March 31, 1998 were 93.3 for Navarre Corporation, 251.0
NASDAQ Stock Market and 110.9 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 1997: Alliance Entertainment Corp., Handleman Co.,
Ingram Micro Inc., Merisel Inc. and Tech Data Corp. This group of companies is
comprised of companies, which in fiscal 1997 had similar music or software
distribution operations.
PERFORMANCE GRAPH
NAVARRE CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[PLOT POINTS GRAPH]
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
Navarre Corporation 66.7 88.9 148.9 102.2 93.3
NASDAQ Stock Market 98.5 109.6 148.8 165.4 251.0
Self-Determined Peer Group 98.1 60.7 65.8 71.7 110.9
<PAGE>
Index levels as of March 31, 1998 were 93.3 for Navarre Corporation, 251.0
NASDAQ Stock Market and 119.3 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 1998: Handleman Co., Ingram Micro Inc., Merisel Inc.,
Platinum Entertainment, Inc. and Tech Data Corp. This group of companies is
comprised of companies, which in fiscal 1998 had similar music or software
distribution operations.
PERFORMANCE GRAPH
NAVARRE CORPORATION
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
[PLOT POINTS GRAPH]
3/31/94 3/31/95 3/31/96 3/31/97 3/31/98
Navarre Corporation 66.7 88.9 148.9 102.2 93.3
NASDAQ Stock Market 98.5 109.6 148.8 165.4 251.0
Self-Determined Peer Group 99.8 56.0 55.3 75.6 119.3
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,
1999. 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.
<PAGE>
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 occurring in fiscal 1998 were filed on a timely basis. During
fiscal 1998, Mr. Paulson and Mr. Marsala failed to report one transaction in a
timely manner. During fiscal 1998, Mr. Cheney failed to report two transactions
in a timely manner.
SHAREHOLDERS PROPOSALS
The proxy rules of the Securities and Exchange Commission permit shareholders of
a company, after timely notice to the company, to present proposals for
shareholder action in the Company's proxy statement where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by company action in accordance with the
proxy rules. The Navarre Corporation 1999 Annual Meeting of Shareholders is
expected to be held in September 1999, and proxy materials in connection with
that meeting are expected to be mailed on or about July 26, 1999. Shareholder
proposals prepared in accordance with the proxy rules must be received by the
Company on or before March 26, 1999.
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 attention 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 1998 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 31, 1998
<PAGE>
PROXY NAVARRE CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 3, 1998
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 22, 1998, at the Annual Meeting of Shareholders to be
held on Thursday, September 3, 1998, or at any adjournment thereof, upon the
following matters:
(1) Election of the following nominees as directors:
CHARLES E.CHENEY DICKINSON G. WILTZ ALFRED TEO
[ ] FOR ALL NOMINEES [ ] WITHHOLD FOR ALL NOMINEES
FOR ALL NOMINEES EXCEPT THE FOLLOWING:
(Mark no box and write the name(s) of the nominee(s) withheld in the space
provided below.)
- - --------------------------------------------------------------------------------
(CONTINUED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
In their discretion the Proxies are authorized to vote upon such matters as may
properly come before the meeting.
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 THE NOMINEES 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: _________________________, 1998
______________________________________
______________________________________
______________________________________
Signature(s)
[ ] I plan to attend the meeting.
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
