<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB/A
AMENDMENT TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
COMMISSION FILE NUMBER 0-24346
------------------------
VIDEO UPDATE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1461110
(State or other jurisdiction (I.R.S. employer
of incorporation or identification No.)
organization)
3100 WORLD TRADE CENTER 55101
30 EAST SEVENTH STREET (Zip Code)
ST. PAUL, MINNESOTA 55427
(Address of principal
executive offices)
(612) 222-0006
(Registrant's telephone number, including area code)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Annual Report for
the fiscal year ended April 30, 1996 on Form 10-KSB as set forth in the
pages attached hereto:
(List all such items, financial statements,
exhibits or other portions amended.)
1. Part III: Item 9 - Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
2. Part III: Item 10 - Executive Compensation.
3. Part III: Item 11 - Security Ownership of Certain Beneficial Owners and
Management.
4. Part III: Item 12 - Certain Relationships and Related Transactions.
- --------------------------------------------------------------------------------
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
VIDEO UPDATE, INC.
By: /s/ Daniel A. Potter
---------------------------------
Daniel A. Potter
Chief Executive Officer
Date: August 27, 1996
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Directors and executive officers of the Company, their positions held in
the Company, and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Daniel A. Potter 38 Chairman and Chief Executive Officer
John M. Bedard 38 President and Director
Daniel C. Howard 35 Chief Operations Officer and Director
Christopher J. Gondeck 41 Chief Financial Officer
Richard Bedard 42 Executive Vice President
Bruce D. Carlson 35 Vice President of Real Estate
Michael G. Schifsky 40 Vice President of Store Development
Robert E. Yager 32 Vice President of Store Operations and Director
Jana Webster Vaughn 33 Director
Paul M. Kelnberger 52 Director
</TABLE>
Each Director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until his successor is duly elected by the
stockholders.
BACKGROUND
The following is a brief summary of the background of each Director and
executive officer of the Company:
DANIEL A. POTTER co-founded the Company in 1983 and has served as the
Company's Chairman and Chief Executive Officer since its inception. Mr. Potter
devised, initiated, and structured the franchising strategy implemented by the
Company and is primarily responsible for the Company's financial and strategic
planning. Mr. Potter is the brother-in-law of Robert E. Yager, a Vice President
of Store Operations and a Director of the Company.
JOHN M. BEDARD co-founded the Company in 1983 with Mr. Potter and has served
as the Company's President and as a Director since its inception. Mr. Bedard,
together with Mr. Potter, devised and implemented the Company's real estate
development program and operations. Mr. Bedard is the brother of Richard Bedard,
an Executive Vice President of the Company.
DANIEL C. HOWARD has served as Chief Operations Officer for the Company
since 1990, has coordinated the Company's operations since 1983 and has served
as a Director since August 1994. Mr. Howard is a member of the audit and
executive compensation committees.
CHRISTOPHER J. GONDECK has served as the Company's Chief Financial Officer
since January 1995. From May 1994 to September 1994, Mr. Gondeck was a financial
consultant to Corning-Donahue, Inc. and Fire Brick Supply, privately held brick
and tile businesses. From 1992 to March 1994, Mr. Gondeck served as Senior Vice
President and Chief Financial Officer for Premier Salons International, Inc.
("Premier"), a privately held company based in Toronto, Ontario. Prior to
December 1993, Premier was known as MEI Salon Corp. ("MEI Salon"), a wholly
owned subsidiary of MEI Diversified, Inc. ("MEI Diversified"), which operated
over 1,000 hair care salon locations throughout the United States and Canada.
While Mr. Gondeck was Chief Financial Officer of MEI Salon, in February 1993,
MEI Salon and MEI Diversified filed for
<PAGE>
bankruptcy protection under federal law. Prior to 1992, Mr. Gondeck served in
various financial and management capacities for MEI Diversified. Mr. Gondeck
also has served as a staff accountant with Ernst & Young LLP. Mr. Gondeck is a
certified public accountant.
RICHARD BEDARD has served as an Executive Vice President of the Company
since September 1995. From 1986 to 1995, Mr. Bedard served as the Company's Vice
President of Franchise Development. Mr. Bedard is the brother of John M. Bedard,
the Company's President and a Director.
BRUCE D. CARLSON has served as the Company's Vice President of Real Estate
Operations since 1990. From 1984 to 1990, Mr. Carlson held the positions of
Director of Advertising and Regional Corporate Store Manager.
MICHAEL G. SCHIFSKY has served as the Vice President of Store Development
since rejoining the Company in 1990. Mr. Schifsky also served as District
Manager of the Company from 1984 to 1988. From 1988 to 1990 he was the principal
stockholder of Bankshot Investments, Inc., a privately held company engaged in
the development of billiard facilities.
ROBERT E. YAGER has served as a Vice President of Store Operations since
November 1995 and as a Director since August 1994. From September 1994 to
November 1995, Mr. Yager served as a Regional Manager of the Company. Prior to
that time, since 1989, Mr. Yager owned and operated two franchised Video Update
superstores in the Twin Cities area, until such store operations were purchased
by the Company in September 1994. From 1984 to 1989, Mr. Yager was a computer
programmer for a division of NCR Corporation. Mr. Yager is the brother-in-law of
Daniel A. Potter, the Company's Chairman and Chief Executive Officer.
PAUL M. KELNBERGER has served as a Director since August 1994. Mr.
Kelnberger has been a member of Johnson, West & Co., PLC ("Johnson, West &
Co."), a certified public accounting firm with its principal offices in St.
Paul, Minnesota, since 1975. In addition, since November 1995 Mr. Kelnberger has
served as a Director of Leuthold Funds, a publicly held mutual fund. Johnson,
West & Co. performed auditing services for the Company prior to the fiscal year
ended April 30, 1993. Since that time, Johnson, West & Co. has provided and
continues to provide to the Company accounting services in connection with the
Company's acquisitions and for tax return preparation services. Mr. Kelnberger
has significant franchise and retail company accounting experience. Mr.
Kelnberger is a certified public accountant and holds a Certificate of
Accounting from the Academy of Accountancy in Minneapolis, Minnesota. He chairs
the Board's audit committee and is a member of the executive compensation
committee.
JANA WEBSTER VAUGHN has served as a Director since August 1994. Ms. Vaughn
has been the Director of Marketing and Development of Adoptive Families of
America, a non-profit, national education, legislation and advocacy
organization, since June 1995. From May 1992 to July 1995, Ms. Vaughn was the
Executive Director of the Greater Anoka County, Minnesota Humane Society. From
1989 to 1992, she served as Special Projects Manager for KARE 11 Television, a
network television station in Minneapolis, Minnesota. Ms. Vaughn is a member of
the audit and executive compensation committees.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), requires executive officers and Directors,
and persons who beneficially own more than ten percent (10%) of the Company's
Common Stock, to file initial reports of ownership on Form 3 and reports of
changes in ownership on Form 4 with the Securities and Exchange Commission
(the "SEC") and any national securities exchange on which the Company's
securities are registered. Executive officers, Directors and greater than ten
percent (10%) beneficial owners are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and
Directors, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, Directors and greater than ten percent
(10%) beneficial owners during the fiscal year ended April 30, 1996 were
satisfied, except for Robert E. Yager, a Director of the Company, who filed
one late Form 5 with respect to an acquisition of shares in September 1994.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid to the Company's
officers with respect to services rendered to the Company during the fiscal
years ended April 30, 1996, 1995 and 1994. There were no other executive
officers whose total salary and bonus exceeded $100,000 during the fiscal year
ended April 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
AWARDS
ANNUAL COMPENSATION ---------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY(1) BONUS COMPENSATION(2) OPTIONS/SARS(3) COMPENSATION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
(A) (B) (C) (D) (E) (G) (I)
- ------------------------------------------ --------- ---------- ----------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Potter.......................... 1996 $ 248,002 $ 0 $ 894,357 270,000 $ 21,122
Chairman of the Board 1995 $ 216,671 $ 0 $ 0 0 $ 0
and Chief Executive Officer 1994 $ 288,520 $ 0 $ 0 0 $ 0
John M. Bedard............................ 1996 $ 158,755 $ 0 $ 496,875 150,000 $ 18,081
President and Director 1995 $ 125,000 $ 0 $ 0 0 $ 19,200
1994 $ 43,906 $ 0 $ 0 0 $ 19,200
Christopher J. Gondeck(5)................. 1996 $ 114,548 $ 0 $ 0 45,000 $ 2,854
Chief Financial Officer 1995 $ 34,000 $ 0 $ 0 30,000 $ 0
</TABLE>
- -------------
(1) Amounts shown indicate cash compensation earned and received by executive
officers; no amounts were earned but deferred at the election of those
officers. Executive officers participate in the Company's group health
insurance plan.
(2) Amounts shown reflect the difference between the aggregate exercise price of
the options exercised by Messrs. Potter and Bedard during the period, and
the aggregate fair market value of the shares of Class A Common Stock issued
to Messrs. Potter and Bedard upon such exercises, as of the date of
issuance.
(3) Amounts shown reflect grants of options to purchase Class A Common Stock
pursuant to the Company's stock option plans. During fiscal years 1994
through 1996, the Company made no awards of restricted stock and did not
have a long-term incentive plan.
(4) Amounts shown reflect payment for automobile expenses and insurance.
(5) Mr. Gondeck has been employed by the Company since January 2, 1995.
<PAGE>
OPTION/SAR GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
- ------------------------------------------------------------------------------------------------------ ASSUMED ANNUAL RATES
NUMBER OF OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS/SARS OPTION
OPTIONS/SARS GRANTED TO EXERCISE OF TERM(1)(2)
GRANTED(1) EMPLOYEES IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME (#) YEAR(3) ($/SH) DATE(4) 5% ($) 10% ($)
(A) (B) (C) (D) (E) (F) (G)
- --------------------------------- ------------- ------------------------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Potter................. 270,000 33.7% $ 4.3125 05/02/2005 0 0
John M. Bedard................... 150,000 18.7% $ 4.3125 05/02/2005 0 0
Christopher J. Gondeck........... 45,000 5.6% $ 4.3125 05/02/2005 $ 122,045 $ 309,286
</TABLE>
- -------------
(1) Mr. Potter and Mr. Bedard exercised all outstanding options held by them
during fiscal 1996. Mr. Gondeck did not exercise any options granted during
fiscal 1996.
(2) The dollar gains under these columns result from calculations assuming
hypothetical growth rates as set by the Commission and are not intended to
forecast future price appreciation of the Class A Common Stock.
(3) In fiscal 1996, options to purchase a total of 801,000 shares of Class A
Common Stock were granted to employees of the Company, including executive
officers.
(4) These options are subject to earlier termination upon certain events related
to termination of employment.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1996
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FISCAL OPTIONS/SARS
YEAR-END AT FISCAL YEAR-
SHARES VALUE (#) END($)
ACQUIRED ON REALIZED(1) EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE(2) UNEXERCISABLE(3)
(A) (B) (C) (D) (E)
- ------------------------------------------------------ ------------ ----------- ----------------- -------------------
<S> <C> <C> <C> <C>
Daniel A. Potter...................................... 270,000 $ 894,375 0/0 0/0
John M. Bedard........................................ 150,000 $ 496,875 0/0 0/0
Christopher J. Gondeck................................ 3,500 $ 10,938 22,000/49,500 $ 82,563/$185,063
</TABLE>
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(1) The options exercised by Mr. Potter and Mr. Bedard carried an exercise price
of $4.3125. The options exercised by Mr. Gondeck carried an exercise price
of $4.50. The last reported sale price for one share of Class A Common Stock
on August 23, 1995, the date on which all options were exercised, was
$7.625.
(2) Mr. Gondeck holds 45,000 options to purchase Class A Common Stock at an
exercise price of $4.3125 per share, of which 15,000 were exercisable at the
end of fiscal 1996, and 26,500 options to purchase Class A Common Stock at
an exercise price of $4.50 per share, of which 7,000 were exercisable at the
end of fiscal 1996.
(3) In-the-Money options are those options for which the fair market value of
the underlying Common Stock is greater than the exercise price of the
option. On April 30, 1996, the last day of fiscal 1996, the fair market
value of the Company's Class A Common Stock underlying the options (as
determined by the last sale price quoted on the Nasdaq National Market) was
$8.125.
<PAGE>
DIRECTORS' COMPENSATION
Members of the Board of Directors who are not employees of the
Company receive $750 for each meeting of the Board of Directors and for
each committee meeting of the Board of Directors attended by such
Director, in addition to reimbursement of reasonable expenses incurred in
attending such meetings, and receive $2,000 for each quarter of service
as a Director. Additionally, non-employee Directors receive options under
the Company's 1994 Formula Stock Option Plan, as follows: (i) Mr. Kelnberger
and Ms. Vaughn each receive options annually in September to purchase
1,500 shares of Class A Common Stock, which vest in two equal annual
installments on the first two anniversaries of the date of grant and which
are exercisable at a price equal to the fair market value of the Class A
Common Stock on the date of grant, provided that each of them is a Director
on the date of the grant and each of them has attended at least 75% of the
meetings he or she was eligible to attend, and (ii) any non-employee
Directors appointed in the future will receive on the date of such
appointment, options to purchase 3,000 shares of Class A Common Stock,
which will vest in three equal annual installments on the first three
anniversaries of the date of grant and which will be exercisable at a
price equal to the fair market value of the Class A Common Stock on the
date of grant.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, OFFICER LOANS AND CHANGE IN
CONTROL ARRANGEMENTS
In February 1996, the Company entered into employment agreements with Daniel
A. Potter, its Chairman and Chief Executive Officer and John Bedard, its
President, each of whom also is a Director and a principal stockholder of the
Company. The agreements are for three year terms, expiring in February 1999. Mr.
Potter and Mr. Bedard are to receive salaries of $300,000 and $200,000,
respectively. Such compensation may be increased and bonuses may be awarded at
the discretion of the Board of Directors of the Company. Each of Messrs. Potter
and Bedard have agreed to devote their full time and best efforts to fulfill
their duties and responsibilities to the Company. Each of them will be entitled
to participate in employee benefit plans.
The Company has a right to terminate each of the agreements for "cause" as
defined in the agreements or as a result of the employee's disability. Except in
the case of termination for cause, upon early termination of the agreements by
the Company, each of Messrs. Potter and Bedard shall be entitled to receive
their salary plus fringe benefits for 36 months from the date of termination. In
the event of a change of control of the Company, Messrs. Potter and Bedard have
the option to terminate their employment subject to the provisions of the
employment agreements and to receive severance and fringe benefits for 36 months
subject to the provisions of their agreements. A "change in control" includes an
acquisition of 15% of the voting power of the securities of the Company by any
person, certain changes in the composition of the Board of Directors, and an
approval by the stockholders of the Company of a merger, consolidation,
reorganization, liquidation, dissolution or sale of all or substantially all of
the assets of the Company.
Each of Messrs. Potter and Bedard has agreed not to disclose any
confidential information of the Company during the term of his employment or to
compete with the Company during the term of his employment or for a period of
one year following termination of his employment except in accordance with the
employment agreement.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of August 27, 1996 the number and
percentage of shares of Class A Common Stock and Class B Common Stock
beneficially owned by (i) all persons known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares
of Class A Common Stock or Class B Common Stock, (ii) each named
executive officer and Director, and (iii) all Directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED(2)(3)
----------------- VOTING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT CONTROL(4)
- -------------------------------------------------- --------- ------- ----------
<S> <C> <C> <C>
Daniel A. Potter, Chief Executive Officer and
Chairman(3)(5)................................... 1,356,759 10.5% 27.2%
John M. Bedard, President and Director(3)(6)...... 1,028,117 7.9% 21.7%
Daniel C. Howard, Chief Operations Officer and
Director(3)(7)................................... 69,499 * 1.0%
Christopher J. Gondeck, Chief Financial
Officer(8)....................................... 41,000 * *
Richard Bedard, Executive Vice President(9)....... 20,000 * *
Bruce Carlson, Vice President of Real
Estate(10)....................................... 34,375 * *
Michael Schifsky, Vice President of Franchise
Development(11).................................. 34,200 * *
Robert E. Yager, Vice President of Store
Operations and Director(12)...................... 85,250 * *
Paul M. Kelnberger, Director(13).................. 750 * *
Jana Webster Vaughn, Director(13)................. 750 * *
All Directors and executive officers as a group
(10 persons)
(2)(5)(6)(7)(8)(9)(10)(11)(12)(13)............ 2,670,700 20.3% 50.5%
</TABLE>
- ------------
* Indicates ownership of less than one percent (1%).
(1)The address of Messrs. Potter, John Bedard, Howard, Gondeck, Richard Bedard,
Carlson, Schifsky, Yager, and Kelnberger and Ms. Vaughn is c/o Video Update,
Inc., 3100 World Trade Center, 30 East Seventh Street, St. Paul, Minnesota
55101.
(2)Shares of common stock which an individual or group has a right to acquire
within 60 days upon the exercise of options or warrants are deemed
outstanding for the purposes of computing the percentage of shares
beneficially owned by such individual or group. Such shares are not deemed
to be outstanding for the purpose of computing the percentage of shares
beneficially owned by any other person shown in the table.
(3)Approximately sixty-five percent (65%) of the shares of Class B Common
Stock beneficially owned by Messrs. Potter, Bedard and Howard or
706,394, 570,776 and 22,830 shares of Class B Common Stock,
respectively (1,300,000 shares of Class B Common Stock in the
aggregate), are being held in escrow. So long as such shares are in
escrow, the beneficial owner may vote but not dispose of such shares.
(4)Holders of Class A Common Stock have the right to cast one vote for each
share held of record and holders of Class B Common Stock have the right to
case five votes for each share held of record on all matters submitted to a
vote of the holders of Common Stock.
(5)Includes an aggregate of 39,515 shares of Class B Common Stock held in
custodial accounts for Mr. Potter's children. Does not include 26,250 shares
of Class A Common Stock owned by Mr. Potter's father, in which Mr. Potter
disclaims beneficial ownership.
(6)Includes 39,515 shares of Class B Common Stock held by Mr. Bedard's mother,
but subject to a voting trust of which Mr. Bedard is the voting trustee.
<PAGE>
(7)Includes an aggregate of 34,375 shares of Class A Common Stock issuable upon
the exercise of various stock options. Excludes an aggregate of 23,125
shares of Class A Common Stock issuable upon the exercise of various stock
options that have not and will not vest within 60 days of the date of this
report.
(8)Includes an aggregate of 37,000 shares of Class A Common Stock issuable on
exercise of various stock options. Excludes an aggregate of 34,500 shares of
Class A Common Stock issuable on the exercise of various stock options that
have not and will not vest within 60 days of the date of this report.
(9)Consists of an aggregate of 20,000 shares of Class A Common Stock issuable
upon the exercise of various stock options that have vested. Excludes an
aggregate of 34,000 shares of Class A Common Stock issuable upon the
exercise of stock options that have not and will not vest within 60 days of
the date of this report.
(10)Consists of an aggregate of 34,375 shares of Class A Common Stock issuable
upon the exercise of various stock options that have vested. Excludes an
aggregate of 23,125 shares of Class A Common Stock issuable upon the
exercise of stock options that have not and will not vest within 60 days of
the date of this report.
(11)Consists of an aggregate of 34,200 shares of Class A Common Stock issuable
upon the exercise of various stock options that have vested. Excludes an
aggregate of 22,800 shares of Class A Common Stock issuable upon the
exercise of stock options that have not and will not vest within 60 days of
the date of this report.
(12)Includes 6,500 shares of Class A Common Stock issuable upon the exercise of
stock options that have vested. Excludes 7,000 shares of Class A Common
Stock issuable upon the exercise of stock options that have not and will not
vest within 60 days of the date of this report.
(13)Consists of 750 shares of Class A Common Stock issuable upon the exercise
of stock options that have vested. Excludes 2,250 shares of Class A Common
Stock issuable upon the exercise of various stock options that have not and
will not vest within 60 days of the date of this report.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective August 31, 1995, the Company entered into a Purchase Agreement
with Bedard Entertainment, Inc. ("BEI"), a privately held Minnesota corporation
that owned and operated three video superstores, and the stockholders of BEI.
Under the Purchase Agreement, the Company acquired substantially all of the
assets of BEI in exchange for 15,000 shares of Class A Common Stock and the
assumption of indebtedness of BEI of approximately $275,000. The stockholders of
BEI are Glenn and Deborah Bedard, the brother and sister-in-law of John M.
Bedard, the Company's President and a Director.
On September 2, 1994 the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Koonrod, Inc. ("KRI"), a privately
held Minnesota corporation that owned and operated two of the Company's
franchised superstores, and the stockholders of KRI. Under the Merger
Agreement, the Company acquired all of the outstanding capital stock of
KRI in exchange for $75,000 in cash and 105,000 shares of Class A Common
Stock, and KRI was merged with and into the Company. All of the
outstanding stock of KRI was owned by Donald Potter, the father of Daniel
Potter, the Company's Chief Executive Officer and Chairman, and Robert
Yager, a Director of the Company, the brother-in-law of Daniel Potter, and
the son-in-law of Donald Potter. In exchange for their shares of the capital
stock of KRI, Donald Potter received 26,250 shares of Class A Common
Stock and $19,200 in cash, and Robert Yager received 78,750 shares of
Class A Common Stock and $55,800 in cash.
Craig Belisle entered into the Company's standard ten-year franchise
agreement in February 1984 for the operation of a superstore in the Twin Cities
area. Mr. Belisle recently entered into another standard ten-year franchise
agreement that expires in June 2005. Mr. Belisle is the brother-in-law of John
M. Bedard, the Company's President and a Director.
During fiscal 1996, the Company paid approximately $245,000 to Johnson, West
& Co. for accounting services in connection with the Company's acquisitions and
for tax preparation services. Mr. Kelnberger, a Director of the Company, is a
member of Johnson, West & Co.
The Company believes that the above arrangements were on terms at least as
favorable as could be obtained from unaffiliated parties.
The Company has Recourse Notes from the Company's Chief Executive
Officer and from the President for approximately $2,055,000 and
$1,142,000, respectively, including accrued interest through April 30,
1996. The Recourse Notes, which provide for full recourse against the
respective officer's personal assets and Company stockholdings, are payable
in ten equal annual installments, the last of which is due in May 2005, and
accrue interest at 6.9% per annum. The Recourse Notes were issued by the
executives upon their exercise in August 1995 of 420,000 options granted to
them under the Company's 1995 Stock Option Plan in May 1995 at an exercise
price of $4.3125, the fair market value of the stock on the date the options
were granted. The Recourse Notes represent the total exercise price of such
options plus amounts advanced by the Company to such executives to satisfy
then anticipated tax liabilities.
In addition, as of April 30, 1996, the Company has a note receivable from
the President of the Company for $29,000 which accrues interest at 8% per annum
and is due November 1996. The note represents advances from the Company to the
President from January 1994 to April 1994, together with accrued interest.
