-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9BnKG+oAn40lpqNZvx9Aj8ZCae+g0d393z6koz1lKSFtrkiiaZ0ID3gTzGXVh4V RHH+MJBB+5Zq6f8LAePflQ== 0001045969-02-000503.txt : 20020415 0001045969-02-000503.hdr.sgml : 20020415 ACCESSION NUMBER: 0001045969-02-000503 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020501 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINMARK CORP CENTRAL INDEX KEY: 0000908315 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 411622691 STATE OF INCORPORATION: MN FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22012 FILM NUMBER: 02584160 BUSINESS ADDRESS: STREET 1: 4200 DAHLBERG DRIVE CITY: GOLDEN VALLEY STATE: MN ZIP: 55422-4837 BUSINESS PHONE: 6125208500 FORMER COMPANY: FORMER CONFORMED NAME: GROW BIZ INTERNATIONAL INC DATE OF NAME CHANGE: 19930629 DEF 14A 1 ddef14a.txt DEFINITIVE PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant /x/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /x/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12 WINMARK CORPORATION ------------------------------------------------ (Name of Registrant as Specified In Its charter) Payment of Filing Fee (check the appropriate box): /x/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transactions applies: ------------------------------------------------------------------ (2) Aggregate number of securities to which transaction 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: ------------------------------------------------------------------ --------------------------- WINMARK --------------------------- C O R P O R A T I O N --------------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MAY 1, 2002 --------------------------- TO THE SHAREHOLDERS OF WINMARK CORPORATION Notice is hereby given to the holders of the shares of Common Stock of Winmark Corporation that the Annual Meeting of Shareholders of the Company will be held at the Company's corporate offices, 4200 Dahlberg Drive, Suite 100, Minneapolis, Minnesota on Wednesday, May 1, 2002 at 4:00 p.m. Central Daylight Time, to consider and act upon the following matters: 1. To set the number of members of the Board of Directors at seven. 2. To elect seven directors to serve for a term of one year. 3. To ratify the appointment of Arthur Andersen LLP as independent auditors for the 2002 fiscal year. 4. 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 March 11, 2002 will be entitled to vote at the meeting and adjournments of the meeting. You are cordially invited to attend the meeting. Even if you do not plan to attend the meeting, we urge you to sign, date and return the proxy at once in the enclosed envelope. By the Order of the Board of Directors /s/ John L. Morgan John L. Morgan Chairman and Chief Executive Officer Dated March 25, 2002 Winmark Corporation 4200 Dahlberg Drive, Suite 100 Minneapolis, Minnesota 55422-4837 Annual Meeting of Shareholders May 1, 2002 PROXY STATEMENT GENERAL The Annual Meeting of Shareholders of Winmark Corporation ("Company") will be held on Wednesday, May 1, 2002, at 4:00 p.m., Central Daylight Time, at the Company's corporate offices, 4200 Dahlberg Drive, Suite 100, Minneapolis, Minnesota, for the purposes set forth in the Notice of Annual Meeting of Shareholders. The enclosed proxy is solicited by the Board of Directors of the Company. Such solicitation is being made by mail and may also be made by directors, officers and regular employees of the Company personally or by telephone. Any proxy given pursuant to such solicitation may be revoked by the shareholder at any time prior to the voting thereof by so notifying the Company in writing at the above address, attention: General Counsel, or by appearing in person at the meeting. Shares represented by proxies will be voted as specified in such proxies, and if no choice is specified, will be voted in favor of the proposals set forth in the Notice of Meeting and in favor of the number and slate of directors proposed by the Board of Directors and listed herein. Shares voted as abstentions on any matter (or a "withhold authority" vote as to directors) will be counted as present and entitled to vote for purposes of determining a quorum and for purposes of calculating the vote with respect to such matter, but will not be deemed to have been voted in favor of such matter. If a broker submits a "non-vote" proxy, indicating that the broker does not have discretionary authority to vote certain shares on a particular matter, those shares will be counted as present for purposes of determining a quorum, but will not be considered present and entitled to vote for purposes of calculating the vote with respect to such matter. All of the expenses involved in preparing, assembling and mailing this proxy statement and the material enclosed herewith will be paid by the Company. The Company may reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to beneficial owners of stock. This proxy statement and accompanying form of proxy are first being mailed to shareholders on or about March 25, 2002. OUTSTANDING SHARES AND VOTING RIGHTS The Board of Directors of the Company has fixed March 11, 2002, as the record date for determining shareholders entitled to vote at the Annual Meeting. Persons who were not shareholders on such date will not be allowed to vote at the Annual Meeting. At the close of business on March 11, 2002, 5,383,354 shares of the Company's Common Stock were issued and outstanding. The Common Stock is the only outstanding class of capital stock of the Company entitled to vote at the meeting. Each share of Common Stock is entitled to one vote on each matter to be voted on at the meeting. Holders of Common Stock are not entitled to cumulative voting rights. 1 ELECTION OF DIRECTORS (Proposals #1 and #2) At the meeting, the Board of Directors of the Company is to be elected to hold office until the 2003 Annual Meeting or until successors are elected and have qualified. The Bylaws of the Company provide that the number of directors of the Company shall be fixed by the shareholders, subject to increase by the Board of Directors. The Board recommends that the shareholders set the number of directors at seven and elect the nominees named below. Under applicable Minnesota law, approval of the proposal to set the number of directors at seven, as well as the election of each nominee, requires the affirmative vote of the holders of the greater of (i) a majority of the voting power of the shares represented in person or by proxy at the Annual Meeting with authority to vote on such matter or (ii) a majority of the voting power of the minimum number of shares that would constitute a quorum for the transaction of business at the Annual Meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below, unless one or more of such nominees should become unavailable for election, in which event such shares shall be voted for the election of such substitute nominees as the Board of Directors may propose. Each person nominated has agreed to serve if elected, and the Company knows of no reason why any of the listed nominees would be unavailable to serve. Information Concerning Nominees: Principal Occupation and Business Experience Name and Age for Past Five Years - ------------ ------------------- John L. Morgan Mr. Morgan was elected Chairman of the Board Age: 60 and Chief Executive Officer of the Company in March 2000. He was an independent investor/business consultant from April 1999 to February 2000. He was the founder of Winthrop Resources Corporation, a business equipment leasing company, and served as its President from March 1982 through March 1999. In addition, Mr. Morgan is currently a private investor and serves as a member of Rush River Group, LLC. Kirk A. MacKenzie Mr. MacKenzie was elected Vice Chairman and Age: 62 a director of the Company in May 2000. In addition, he is currently a private investor and serves as a member of Rush River Group, LLC. From January 1982 to March 1999, Mr. Mackenzie was Executive Vice President of Winthrop Resources Corporation, a business equipment leasing company. Stephen M. Briggs Mr. Briggs has been President, Chief Age: 45 Operating Officer and a director of the Company since December 2000. Prior to joining the Company, he served as Senior Vice President (since June 1999) and Vice President of Consumer Coatings Group (from December 1995 to June 1999) of Valspar Corporation, a global leader in the coatings industry. Jenele C. Grassle Ms. Grassle was elected a director of the Age: 41 Company in January 2001. Ms. Grassle has served as the Vice President of Merchandising at Wilsons Leather, a leading specialty retailer of men's and women's leather apparel and accessories, since July 2000. From September 1988 to March 2000 Ms. Grassle served as Divisional Merchandise Manager for the Target Corporation. 2 Paul C. Reyelts Mr. Reyelts was elected a director of the Age: 55 Company in May 2000. He has served as the Senior Vice President of Finance and Chief Financial Officer of the Valspar Corporation, a global leader in the coatings industry, since April 1982. William D. Dunlap, Jr. Mr. Dunlap was elected a director of the Age: 63 Company in May 2000. He has served as Chairman of Campbell Mithun, LLC, an advertising company, since May 1995, and served as its Chief Executive Officer from 1982 through 1995. Mark L. Wilson Mr. Wilson was elected a director of the Age: 53 Company in May 2000. He currently serves as President of Weisman Enterprises, Inc., a vending and small transaction management company and has served in such role since 1998. From November 1974 to December 1998, he was a corporate law and mergers and acquisitions attorney, most recently as the shareholder and officer of the Minneapolis law firm The Wilson Group Limited. Mr. Wilson was a shareholder in the Minneapolis law firm of Ravich, Kirkman, Wilson, Meyer, Nauen and McGrath from December 1992 to August 1997. Meetings of the Board of Directors and Certain Committees The Board of Directors of the Company has standing Audit and Compensation Committees. The Board of Directors has no standing Nominating Committee. The Audit Committee makes recommendations as to the selection of auditors and their compensation and reviews with the auditors the scope of the annual audit, matters of internal control and procedure, the audit results and reports and other general matters relating to the Company's accounts, records, controls and financial reporting. The Audit Committee, which consists of Paul C. Reyelts, William D. Dunlap, Jr. and Mark L. Wilson, held meetings or took action in writing three times during fiscal 2001. The Compensation Committee reviews and recommends to the Board of Directors the compensation guidelines for certain executive officers, other key employees and nonemployee directors and the composition and levels of participation in incentive compensation plans. The Compensation Committee administers the Company's 1992 Stock Option Plan and 2001 Stock Option Plan, including determining the participants, the number of shares subject to option and the terms and conditions of exercise. The Compensation Committee, which consists of Paul C. Reyelts, William D. Dunlap, Jr. and Mark L. Wilson, held meetings or took action five times in fiscal 2001. During fiscal 2001, the Board of Directors of the Company met nine times. All directors attended at least 75% of the meetings of the Board of Directors and committees of the Board of Directors on which they served. 3 Director Compensation Each nonemployee director of the Company receives $500 for each board and committee meeting attended. In addition, pursuant to the terms of the Company's Stock Option Plan for Nonemployee Directors, nonemployee directors are automatically granted an option to purchase 25,000 common shares upon the initial election as a director. Pursuant to this Plan, William D. Dunlap, Jr., Kirk A. Mackenzie, Paul C. Reyelts and Mark L. Wilson were each granted an option to purchase 25,000 common shares at an exercise price of $6.50 per share on May 3, 2000. Also pursuant to this Plan, Jenele C. Grassle was granted an option to purchase 25,000 common shares at an exercise price of $4.75 on January 2, 2001. These options vest 20% per year and expire at the end of six years. AUDIT COMMITTEE REPORT The Board of Directors maintains an Audit Committee comprised of three of the Company's independent directors. The Board of Directors and the Audit Committee believe that the Audit Committee's current member composition satisfies the rule of the National Association of Securities Dealers, Inc. ("NASD") that governs audit committee composition, Rule 4310(c)(26)(B)(i), including the requirement that audit committee members all be "independent directors" as that term is defined by NASD Rule 4200(a)(15). In accordance with its written charter adopted by the Board of Directors, (attached as Appendix A to the Proxy Statement filed in connection with the Company's 2001 Annual Meeting) the Audit Committee assists the Board of Directors with fulfilling its oversight responsibility regarding the quality and integrity of the accounting, auditing and financial reporting practices of the Company. In discharging its oversight responsibilities regarding the audit process, the Audit Committee: (1) reviewed and discussed with management the Company's audited financial statements as of and for the year ended December 29, 2001; (2) discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by the Auditing Standards Board, and has discussed with the auditors the auditor's independence; and (3) received and reviewed the written disclosures and the letter from the independent auditors required by the Independence Standards Board's Standard No. 1, Independence Discussion with Audit Committees, as amended by the Independence Standards Board, and discussed with the independent auditors any relationships that may impact their objectivity and independence. Based upon the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001, as filed with the Securities and Exchange Commission. Members of the Audit Committee: William D. Dunlap, Jr. Paul C. Reyelts Mark L. Wilson 4 EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation earned or awarded during each of the last three fiscal years to the Company's Chief Executive Officer and each other executive officer (the "Named Executive Officers") who received total salary and bonus compensation in excess of $100,000 for fiscal 2001: Summary Compensation Table
Long-Term Compensation ------------ Annual Compensation ($) Securities Fiscal --------------------------- Underlying All Other Name and Principal Position Year Salary Bonus Options (#) Compensation - --------------------------- ------ -------- --------- ------------ ------------ John L. Morgan 2001 $ 93,269 - - 2,308(2) Chairman of the Board and 2000 37,884(1) - 600,000 - Chief Executive Officer Stephen M. Briggs 2001 250,000(3) $ 112,500 50,000 - President and Chief Operating Officer Charles V. Kanan 2001 149,000 67,095 20,000 4,469(2) Vice President of Operations 2000 142,000 42,600 - 8,579(2) 1999 142,000 26,625 20,000 7,713(2) Paul F. Kelly 2001 116,000 52,200 20,000 - Vice President of 2000 40,000 11,247(4) - 11,000(5) Financial Services Mark T. Hooley 2001 123,365 56,250 25,000 2,590(2) Vice President and 2000 74,712(6) 24,938 20,000 - General Counsel
- ---------------------- (1) Began employment with the Company in March 2000. (2) Consists of 401(k) Company matching contributions and profit sharing. (3) Began employment with the Company in January 2001. (4) Began employment with the Company in August 2000. (5) Reflects compensation for consulting services beginning in June 2000 through August 2000. (6) Began employment with the Company in May 2000. 5 Options Granted During Fiscal 2001 The following table provides information relating to options granted to the Named Executive Officers during the Company's 2001 fiscal year:
Potential Realizable Value at Assumed Number of Annual Rates of Stock Securities % of Total Price Appreciation for Underlying Options/SARs Option Term(2) Options/SARs Granted to Exercise or ----------------------- Granted Employees in Base Price Expiration Name (#)(1) Fiscal Year ($/Sh) Date 5% ($) 10%($) ---- ------------ ------------- ----------- --------- ------ ------ - - - - John L. Morgan - - - - Stephen M. Briggs 50,000(4) - 10.52 12/19/11 330,799 838,309 Charles V. Kanan 20,000(3) - 4.65 4/11/06 25,694 56,777 Paul F. Kelly 20,000(3) - 4.65 4/11/06 25,694 56,777 Mark T. Hooley 10,000(3) - 4.65 4/11/06 12,847 28,389 15,000(4) - 10.52 12/19/11 99,240 251,493
- ---------------------- (1) The number indicated is the number of common shares that can be acquired upon exercise of the option. The Company has not granted any stock appreciation rights. Each option is non-transferable and provides for forfeiture of any unvested portion upon termination of employment. (2) The assumed 5% and 10% annual rates of appreciation are hypothetical rates selected by the Securities and Exchange Commission and are not intended to, and do not, forecast or assume actual future stock prices. (3) This option becomes exercisable in four installments of 25% per year commencing the first anniversary of the grant date: April 11, 2001. This option is a qualified stock option. (4) This option becomes exercisable in four installments of 25% per year commencing the first anniversary of the grant date; December 19, 2001. This option is a qualified stock option. Aggregated Option Exercises During Fiscal 2001 and Fiscal Year-End Option Values No options were exercised by the Named Executive Officers during fiscal 2001. The following table provides information relating to the number and value of options held by Named Executive Officers at fiscal year-end. The Company does not have any outstanding stock appreciation rights.
Number of Unexercised Value of Unexercised Securities Underlying Options In-the-Money Options at Fiscal at Fiscal Year-End (#) Year-End ($)(1) Name Exercisable/Unexercisable Exercisable/Unexercisable ---- ----------------------------- ------------------------------ John L. Morgan 120,000 / 480,000 $728,400 / 2,913,600 Stephen M. Briggs 37,500 / 162,500 220,594 / 689,281 Charles V. Kanan 25,000 / 30,000 88,900 / 196,600 Paul F. Kelly 0 / 20,000 0 / 128,400 Mark T. Hooley 5,000 / 40,000 31,600 / 167,250
- --------------------- (1) Options are "in-the-money" if the fair market value of the underlying shares at fiscal year-end is greater than the exercise price. The amounts set forth represent the difference between the fair market value of the common shares on December 29, 2001 (or $11.07 per share) and the option exercise price multiplied by the number of shares subject to the option. 6 Employment Agreements The Company entered into an employment agreement with John L. Morgan, CEO, in March 2000. The Company amended the agreement in February 2001 increasing Mr. Morgan's base salary from $50,000 to $100,000. The agreement continues in effect until terminated. Mr. Morgan is entitled to a bonus determined by the Compensation Committee. In connection with this agreement, Mr. Morgan was granted an option to purchase 600,000 shares of common stock at an exercise price of $5.00 per share. The option becomes exercisable 20% per year over five years, provided that Mr. Morgan remains the CEO of the Company. The Company also entered into an employment agreement with Stephen M. Briggs, President, on December 14, 2000, and his employment began on January 1, 2001. Mr. Briggs' salary under the agreement is $250,000 per year and he has the opportunity to earn an incentive bonus of up to 50% of his salary. In connection with this agreement, Mr. Briggs was granted an option to purchase 150,000 shares of common stock at an exercise price of $5.1875 per share. The option becomes exercisable 25% per year over four years provided that Mr. Briggs remains employed with the Company. For fiscal year 2002, Mr. Briggs' salary was increased to $275,000. No other key executives have an employment agreement with the Company. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the 1934 Act requires the Company's directors, executive officers, and persons who own more than ten percent of the Common Stock of the Company, to file with the Securities and Exchange Commission ("Commission") initial reports of beneficial ownership and reports of changes in beneficial ownership of common shares of the Company. Directors, officers and greater than ten percent shareholders are required by the regulations of the Commission to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 29, 2001, all Form 3, Form 4 and Form 5 filing requirements of the Company's directors, executive officers and persons who own more than ten percent of the Common Stock of the Company were met except as follows. The Company cannot confirm that Ronald G. Olson has complied with all Form 3, Form 4 and Form 5 filing requirements as he has not responded to the Company's requests for a representation to that effect in writing; however, Mr. Olson has made an oral representation that he has complied with all Form 3, Form 4 and Form 5 filing requirements during the fiscal year ended December 29, 2001. COMPENSATION COMMITTEE REPORT Compensation Committee. The purpose of the Compensation Committee of the Board of Directors is to oversee compensation of officers, key employees and nonemployee directors of the Company. The Committee's policy is to insure that compensation programs contribute directly to the success of the Company including enhanced share value. The Compensation Committee is comprised of three members of the Board of Directors, none of whom is an employee of the Company. Executive Compensation Policies and Programs. The Company's executive compensation programs are designed to attract and retain qualified executives and to motivate them to maximize shareholder investment by achieving strategic Company goals. There are three basic components to the Company's executive compensation program: base pay, annual incentive bonus and long-term, equity-based incentive compensation in the form of stock options. Each component is established in light of individual and Company performance, comparable compensation programs in the Minneapolis/Saint Paul metropolitan area, equity among employees and cost effectiveness. 7 Base Pay. Base pay is designed to be competitive, although conservative, as compared to salary levels for equivalent positions at comparable companies in the Minneapolis/Saint Paul metropolitan area. The executive's actual salary within this competitive framework depends on the individual's performance, responsibilities, experience, leadership and potential future contribution. The initial recommendation, with respect to salary of all executive officers, was made by the Chief Executive Officer. Annual increases in base salary for the Chief Executive Officer and President are determined by the Committee. Annual Incentive Bonus. In addition to base pay, each executive is eligible to receive an annual cash bonus. For fiscal 2001, the bonus for all executives was based on the amount of royalties collected by the Company from its franchising operations, the Company's earnings and specific job performance criteria. The Committee believes that it is not in the best interests of the Company to identify the specific financial performance measures. Executives were eligible for a bonus of up to 50% of their base pay. Long-Term, Equity-Based Incentive Compensation. Under the current program, long-term incentive compensation consists of stock options that generally do not fully vest until after four years. Generally, stock options are awarded with an exercise price equal to the fair market value of the Company's common shares on the date of grant. Accordingly, the executive is rewarded only if the shareholders receive the benefit of appreciation in the price of the Common Stock. Because long-term options vest over time, the Company periodically grants new options to provide continuing incentives for future performance. Each executive's annual grants are based upon the individual's performance, responsibilities, experience, leadership and potential future contribution and any other factors deemed relevant by the Committee. Stock options are designed to align the interests of the Company's executives with those of shareholders by encouraging executives to enhance the value of the Company and, hence, the price of the Common Stock and the shareholders' investment. In addition, through deferred vesting, this component of the compensation system is designed to create an incentive for the executive to remain with the Company. Annual Reviews. Each year the Compensation Committee reviews its executive compensation polices and programs and determines what changes, if any, are appropriate for the following year. In addition, the Committee reviews the individual performance of the Chief Executive Officer and Chairman of the Board. Chief Executive Officer. The Chief Executive Officer's compensation is established by the Compensation Committee or the Board of Directors based on a subjective consideration of his performance. The Chief Executive Officer is eligible for an annual incentive bonus as determined appropriate by the Compensation Committee. No bonus was paid for fiscal 2001. Limits On Deductible Compensation Payable To Executive Officers. The Omnibus Reconciliation Act of 1993 added Section 162(m) to the Internal Revenue Code of 1986, as amended (the "Code") limiting corporate deductions to $1,000,000 for certain compensation paid the chief executive officer and each of the four other most highly compensated executives of publicly held companies. The Company does not believe it will pay "compensation" within the meaning of Section 162(m) to such executive officers in excess of $1,000,000 in the foreseeable future. Therefore, the Company does not have a policy at this time regarding qualifying compensation paid to its executive officers for deductibility under Section 162(m), but will formulate a policy if compensation levels ever approach $1,000,000. 8 The foregoing report is submitted by Paul C. Reyelts, William D. Dunlap, Jr. and Mark L. Wilson, the members of the Compensation Committee. Compensation Committee Interlocks No interlocking relationship exists among members of the Company's Board of Directors or Compensation Committee and the Board of Directors or Compensation Committee of any other Company. STOCK PERFORMANCE GRAPH Shown below is a line graph comparing the yearly dollar change in the cumulative total shareholder return on the Company's Common Stock as against the cumulative total return of the Nasdaq Total Return Index and the Nasdaq Retail Stock Index. The graph and table assume the investment of $100 on December 31, 1996 in the Company's Common Stock and in the Nasdaq Total Return Index and the Nasdaq Retail Stock Index. Comparison of Cumulative Total Return Since December 28, 1996
12/96 12/97 12/98 12/99 12/00 12/01 - ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- Winmark $100 $ 137.8629 $ 154.2857 $ 44.2857 $ 52.8571 $ 126.5143 - ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- Nasdaq (US) $100 117.7286 170.1524 312.6654 192.7732 155.9434 - ------------------ ---------------- ---------------- --------------- ---------------- ---------------- --------------- Nasdaq Retail $100 111.8688 138.3474 123.7971 76.6935 107.2285 - ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
9 APPOINTMENT OF INDEPENDENT AUDITORS (Proposal #3) Based on the recommendation of the Audit Committee, the Board of Directors has voted to retain Arthur Andersen LLP to serve as independent auditors for the Company for fiscal year 2002 and is submitting its appointment of such firm to the shareholders for ratification. Arthur Andersen LLP has served as the Company's independent auditors since 1992. If the appointment is not ratified, the Board of Directors will reconsider its selection. Representatives from Arthur Andersen LLP will be present at the meeting, will have the opportunity to make a statement if they desire and will be available to respond to appropriate questions. Audit Fees. The aggregate fees billed by Arthur Andersen LLP for professional services rendered in connection with the audit of the Company's annual financial statements for fiscal 2001 and reviews of the financial statements included in the Company's Forms 10-Q for fiscal 2001 were $58,000. Financial Information Systems Design and Implementation Fees. The aggregate fees billed by Arthur Andersen LLP for financial information systems design and implementation services rendered to the Company during fiscal 2001 were $0. All Other Fees. The aggregate fees billed by Arthur Andersen LLP for all other non-audit services rendered to the Company during fiscal 2001, including fees for tax-related services, were $26,200. The Company's Audit Committee has considered whether provision of the above non-audit services is compatible with maintaining Arthur Andersen LLP's independence and has determined that such services have not adversely affected Arthur Andersen LLP's independence. 10 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS Security Ownership The following table sets forth the number of shares of Common Stock beneficially owned by (i) each person known by the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each Named Executive Officer, (iii) each director of the Company, (iv) each director nominee and (v) all directors and executive officers as a group. All persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned, unless otherwise noted. The number of shares listed is as of March 11, 2002, unless otherwise noted.
Number of Shares Percent of Name and Address Beneficially Owned Outstanding Shares - ---------------- ------------------ ------------------ John L. Morgan 1,166,900(1)(2) 20.0% 4200 Dahlberg Drive, Suite 100 Minneapolis, MN 55422 Kirk A. MacKenzie 600,000(1)(3) 10.7% 10400 Viking Drive, Suite 160 Eden Prairie, MN 55344 Paul C. Reyelts 11,000(3) * William D. Dunlap, Jr. 10,000(3) * Mark L. Wilson 12,500(3) * Jenele C. Grassle 5,000(4) * Charles V. Kanan 24,398(5) * Stephen M. Briggs 91,500(6) 1.7% Paul F. Kelly 15,500(7) * Mark T. Hooley 14,500(8) * Rush River Group, LLC 420,000(1) 7.5% 10400 Viking Drive, Suite 160 Eden Prairie, MN 55344 Jack A. Norqual 490,000(1) 8.8% 10400 Viking Drive, Suite 160 Eden Prairie, MN 55344 K. Jeffrey Dahlberg 1,201,250(9) 22.3% 455 North Ferndale Drive Wayzata, MN 55391 Ronald G. Olson 1,199,068(10) 22.3% 3400 Fox Street Long Lake, MN 55356 Sheldon T. Fleck 675,100(11) 12.1% 5720 Smetana Drive Minnetonka, MN 55343 All directors and current executive officers as a group (11 persons) 1,537,388(12) 25.8%
11 - ---------------------- * Less than 1% (1) Includes 220,000 shares and a warrant to purchase 200,000 shares held by Rush River Group, LLC, in which Mr. Morgan, Mr. McKenzie and Mr. Norqual each own one-third of the equity interest and which shares are reported as beneficially owned by Mr. Morgan, Mr. MacKenzie, Mr. Norqual and Rush River Group, LLC. Mr. Morgan, Mr. MacKenzie and Mr. Norqual share voting power and dispositive power with respect to the securities owned by Rush River Group, LLC and, along with Rush River Group, LLC, file as a group pursuant to Section 13(d)(3) of the Securities Exchange Act of 1934. (2) Includes 4,300 shares held by Mr. Morgan's wife, for which he disclaims beneficially ownership, and 240,000 shares which may be acquired within 60 days through the exercise of a stock option. (3) Includes 10,000 shares which may be acquired within 60 days through the exercise of a stock option. (4) Such shares are not outstanding but may be acquired within 60 days through the exercise of a stock option. (5) Includes 20,000 shares which may be acquired within 60 days through the exercise of stock options. (6) Includes 37,500 shares which may be acquired within 60 days through the exercise of stock options. (7) Includes 5,000 shares which may be acquired within 60 days through the exercise of stock options. (8) Includes 12,500 shares which may be acquired within 60 days through the exercise of stock options. (9) As disclosed in Form 4 filed on October 9, 2001. Includes 279,250 shares held in trust for minor children. (10) As disclosed in Form 4 filed. Includes 17,900 shares held by Mr. Olson's adult children, 111,600 shares held in trust for these children and 1,500 shares held by Mr. Olson's wife. Mr. Olson disclaims beneficial ownership of these shares. (11) As disclosed in Form 4 filed on January 9, 2001. Includes warrant to purchase 200,000 shares. (12) Includes 366,000 shares which may be acquired within 60 days through the exercise of stock options and 200,000 shares which may be acquired immediately through the exercise of a warrant. 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On July 31, 2000, the Company entered into a credit agreement with Rush River Group, LLC, an affiliate of the Company, to provide a credit facility of up to $7.5 million dollars ("Rush River Facility"). The credit agreement allows such amount to be drawn upon by the Company in one or more term loans. John L. Morgan, CEO and Kirk A. MacKenzie, director, each own one third of the voting equity of Rush River Group, LLC. The initial term loan was $5.0 million dollars to be repaid by the Company over a seven-year period, accruing interest at 14% per year. New term loans will accrue interest at 8% per year. Once repaid, amounts may not be reborrowed. As of December 29, 2001, there was no outstanding balance on the initial term loan. The company has remaining $2.5 million of borrowing capacity on the Rush River Facility. SHAREHOLDER PROPOSALS Any shareholder proposal intended to be considered for inclusion in the proxy statement for presentation at the 2003 Annual Meeting must be received by the Company by November 27, 2002. The proposal must be in accordance with the provisions of Rule 14a-8 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. Stockholders who intend to present a proposal at the 2003 Annual Meeting without including such proposal in the Company's proxy statement must provide the Company notice of such proposal no later than February 10, 2003. If any matters properly come before our 2003 Annual Meeting, but we did not receive notice of it prior to February 10, 2003, the persons named in our proxy card for that Annual Meeting will have the discretion to vote the proxies on such matters in accordance with their best judgment. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001 (WITHOUT EXHIBITS) ACCOMPANIES THIS NOTICE OF MEETING AND PROXY STATEMENT. NO PART OF THE ANNUAL REPORT IS INCORPORATED HEREIN AND NO PART THEREOF IS TO BE CONSIDERED PROXY SOLICITING MATERIAL. THE COMPANY WILL FURNISH TO ANY SHAREHOLDER, UPON WRITTEN REQUEST, ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE FORM 10-K, UPON THE PAYMENT, IN ADVANCE, OF REASONABLE FEES RELATED TO THE COMPANY'S FURNISHING SUCH EXHIBIT(S). ANY REQUEST SHOULD INCLUDE A REPRESENTATION THAT THE SHAREHOLDER WAS THE BENEFICIAL OWNER OF SHARES OF THE COMPANY'S COMMON STOCK ON MARCH 11, 2002, THE RECORD DATE FOR THE 2002 ANNUAL MEETING, AND SHOULD BE DIRECTED TO MARK T. HOOLEY, VICE PRESIDENT AND GENERAL COUNSEL, AT THE COMPANY'S PRINCIPAL ADDRESS. OTHER MATTERS The Board of Directors knows of no other matters to be presented at the meeting. In the event any other business is presented at the meeting, the persons named in the enclosed proxy will have authority to vote on that business in accordance with their judgment. By the Order of the Board of Directors /s/ John L. Morgan John L. Morgan Chairman and Chief Executive Officer 13 WINMARK CORPORATION ANNUAL MEETING OF STOCKHOLDERS Wednesday, May 1, 2002 4:00 p.m. Winmark Corporation Corporate Headquarters 4200 Dahlberg Drive, Suite 100 Minneapolis, MN 55422 Winmark Corporation 4200 Dahlberg Drive, Suite 100, Minneapolis, MN 55422 Proxy - -------------------------------------------------------------------------------- This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 1, 2002. The shares of stock you hold in your account or in a dividend reinvestment account will be voted as you specify below. If no choice is specified, the proxy will be voted "FOR" Items 1, 2, and 3. By signing the proxy, you revoke all prior proxies and appoint John L. Morgan and Stephen M. Briggs, and each of them, with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. See reverse for voting instructions. - -------------------------------------------------------------------------------- The Board of Directors Recommends a Vote FOR Items 1, 2, and 3. 1. Set the number of directors at seven (7) [_] For [_] Against [_] Abstain 2. Election of Directors: 01 John L. Morgan 05 Mark L. Wilson 02 William D. Dunlap, Jr. 06 Stephen M. Briggs 03 Kirk A. MacKenzie 07 Jenele C. Grassle 04 Paul C. Reyelts [_] Vote FOR [_] Vote WITHHELD all nominees from all nominees (except as marked) (Instruction: To withhold authority to vote for any +-------------------------+ indicated nominee, write the number(s) of the | | nominee(s) in the box provided to the right.) +-------------------------+ | | \|/ Please fold here \|/ 3. Ratify selection of Arthur Andersen LLP as independent auditors for fiscal 2002. [_] For [_] Against [_] Abstain 4. In their discretion, upon such other business as may properly come before the meeting or any adjournment thereof. [_] For [_] Against [_] Abstain THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. --- Address Change? Mark Box [_] Indicate changes below: Dated:_________________________, 2002 +------------------------------------------+ | | | | | | +------------------------------------------+ Signature(s) in Box Please sign exactly as your name(s) appear on Proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----