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
Filed by 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
( 0 Definitive Additional Materials
( ) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MANCHESTER EQUIPMENT CO., INC.
-------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(x) No fee required.
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filings for which the offsetting fee
was paid previously. Identify previous filing by registration number, or
the form or schedule and the date of its filing.
<PAGE>
MANCHESTER EQUIPMENT CO., INC.
160 Oser Avenue
Hauppauge, New York 11788
(516) 434-8700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on January 14, 1998
To the Shareholders of
MANCHESTER EQUIPMENT CO., INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Manchester Equipment Co., Inc. (the "Company") will be held
at the Smithtown Sheraton, 110 Motor Parkway, Smithtown, New York, on Wednesday,
January 14, 1998 at 10:00 a.m., local time, to consider and act upon the
following proposals:
1. To elect five (5) Directors to serve until the 1999 Annual Meeting of
Shareholders.
2. To ratify the reappointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the year ending July 31, 1998.
3. To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only holders of record of the Company's
Common Stock at the close of business on December 1, 1997, the Record Date for
the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Joel G. Stemple
Secretary
Hauppauge, New York
December 5, 1997
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING
ARE REQUESTED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
2
<PAGE>
Manchester Equipment Co., Inc.
160 Oser Avenue
Hauppauge, New York 11788
(516) 434-8700
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held On January 14, 1998
INTRODUCTION
General
This Proxy Statement is being furnished to holders of Common Stock, par
value $.01 per share (the "Common Stock"), of Manchester Equipment Co., Inc., a
New York corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at its Annual Meeting
of Shareholders to be held on Wednesday, January 14, 1998, at the Smithtown
Sheraton, 110 Motor Parkway, Smithtown, New York, at 10:00 a.m., local time, and
any and all adjournments or postponements thereof (the "Annual Meeting"). The
cost of the solicitation will be borne by the Company. This Proxy Statement and
the enclosed proxy card were first mailed to the Company's shareholders on or
about December 9, 1997. The Company's 1997 Annual Report, a copy of which is
also enclosed herewith, contains the Company's financial statements for its
fiscal year ended July 31, 1997.
Matters to be Considered at the Annual Meeting
At the Annual Meeting, the shareholders will be asked to consider and
vote upon the following proposals:
1. To elect five (5) Directors to serve until the 1999 Annual Meeting of
Shareholders.
2. To ratify the reappointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ending July 31, 1998.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Voting at the Annual Meeting
Only holders of record of Common Stock at the close of business on December
1, 1997 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting, each such holder of record being entitled to one vote per share of
Common Stock on each matter to be considered at the Annual Meeting. On the
Record Date, there were 8,525,000 shares of Common Stock issued and outstanding.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (4,262,501 shares of the 8,525,000 shares outstanding) is
necessary to constitute a quorum at the Annual Meeting. If a quorum is present,
the plurality vote of the total votes cast by the holders of Common Stock is
required to elect the five (5) Directors. The ratification of the reappointment
of KPMG Peat Marwick LLP as independent auditors of the Company for
<PAGE>
the year ending July 31, 1998 will require the affirmative vote of the holders
of a majority of the shares of Common Stock present in person or represented by
proxy at the Annual Meeting and entitled to vote.
If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Annual Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon, subject to the
following conditions:
Election of Directors. Shares represented by a proxy that is marked
"WITHHELD" as to a vote for (i) all five (5) nominees or (ii) any individual
nominee(s) for election as directors and are not otherwise marked "FOR" the
other nominees, will not be counted in determining whether a plurality vote has
been received for the election of directors. In the absence of instructions,
shares represented by a proxy will be voted FOR all of the five (5) nominees.
Ratification of Auditors and Other Matters. Shares represented by a proxy
which is marked "ABSTAIN" on the proposal to ratify KPMG Peat Marwick LLP as
independent auditors of the Company for the year ending July 31, 1998 will not
be counted in determining whether the requisite vote has been received for such
proposal. In the absence of instructions, shares represented by a proxy will be
voted FOR such proposal and at the discretion of the proxies on any other
matters that may properly come before the Annual Meeting.
In instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned proxies (so called "broker
non-votes"), those shares will not be included in the totals. Thus, where the
affirmative vote of a majority of the total votes cast by the holders of Common
Stock is required to approve a corporate action, such as ratification of the
reappointment of the independent auditors referred to above, these broker
non-votes will have the effect of reducing the total number of votes needed to
attain a majority of the total votes cast.
At any time prior to its exercise, a proxy may be revoked by the holder of
the Common Stock granting it by delivering written notice of revocation or a
duly executed proxy bearing a later date to the Secretary of the Company at the
address of the Company set forth on the first page of this Proxy Statement or by
attending the Annual Meeting and voting in person.
Proxies may be solicited on behalf of the Board by mail, telephone,
telecopy or in person and solicitation costs will be paid by the Company.
Directors, officers and regular employees of the Company may solicit proxies by
such methods without additional compensation. Banks, brokerage houses and other
institutions, nominees and fiduciaries will be requested to forward the
soliciting material to their principals and to obtain authorizations for the
execution of proxy cards and, upon request, will be reimbursed by the Company
for their reasonable expenses.
Voting by the Company's Principal Shareholder
Barry R. Steinberg is the Company's largest shareholder, beneficially
owning 54.3% of the Common Stock. See "Security Ownership of Certain Beneficial
Owners and Management". The Company understands that Mr. Steinberg intends to
vote all shares of Common Stock beneficially owned by him at the Annual Meeting,
or any adjournment or postponement thereof, for the election of the persons
nominated as directors and for the ratification of the reappointment of the
independent accountants. Mr. Steinberg beneficially owns, without acquiring any
additional shares of Common Stock, shares of Common Stock in an amount
sufficient to permit him to control the outcome of any shareholder vote on these
matters.
2
<PAGE>
Table of Contents
Page
Security Ownership of Certain Beneficial
Owners and Management........................................... 4
Election of Directors................................................ 5
Executive Compensation............................................... 7
Report of the Board of Directors and the Compensation Committee
on Executive Compensation.......................................... 10
Compensation Committee Interlocks and Insider Participation.......... 12
Stock Performance Graph.............................................. 13
Certain Relationships and Related Transactions....................... 14
Section 16(a) Beneficial Ownership Reporting Compliance.............. 15
Ratification of Reappointment of Independent Auditors................ 15
Other Business....................................................... 15
Shareholder Proposals................................................ 15
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information with
respect to the beneficial ownership of the Common Stock by (i) each person who
is known to the Company to beneficially own five percent or more of the
outstanding Common Stock, together with their respective addresses, (ii) each
director and nominee for election as director, (iii) each executive officer
named in the Summary Compensation Table under "Executive Compensation" on page 7
of this Proxy Statement and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
Shares Percent of
Beneficially Outstanding
Name and Address Owned (1) Shares Owned
---------------- --------- ------------
<S> <C> <C>
Barry R. Steinberg (2)(3) 4,630,101 54.3%
Joel G. Stemple (2) 626,263 7.3
Joseph Looney 4,700 *
William F. Scheibel, Jr. -
Joel Rothlein (4) 16,500 *
George Bagetakos 2,500 *
Julian Sandler 3,500 *
All executive officers and
directors as a group
(6 persons) (5) 5,283,564 61.6%
</TABLE>
- ---------------
* Less than 1%
(1) A person is deemed to be the beneficial owner of Common Stock that can be
acquired within 60 days from the Record Date upon the exercise of options,
and that person's options are assumed to have been exercised (and the
underlying shares of Common Stock outstanding) in determining such
person's percentage ownership. Accordingly, the following shares issuable
upon exercise of options have been included in the shares beneficially
owned by the following persons: George Bagetakos -- 2,500 shares; and
Julian Sandler -- 2,500 shares.
(2) Address is 160 Oser Avenue, Hauppauge, New York 11788.
(3) Excludes 29,000 shares owned by Ilene Steinberg and 29,000 shares owned by
Sheryl Steinberg, daughters of Mr. Steinberg, which shares were purchased
with the proceeds of a loan from Mr. Steinberg. As reported on Schedule
13D filed on March 24, 1997, as amended, Mr. Steinberg, Ilene Steinberg,
and Sheryl Steinberg each disclaim beneficial ownership of the common
stock owned by the others.
(4) Consists of 3,300 shares held by Kressel Rothlein & Roth, Esqs., in which
Mr. Rothlein is a partner, and 13,200 shares held by the Kressel Rothlein
& Roth Profit Sharing Plan. Mr. Rothlein disclaims beneficial ownership of
the Common Stock owned by Kressel Rothlein & Roth, Esqs., except to the
extent of his equitable interest in the firm, and of the Common Stock
owned by the Kressel Rothlein & Roth Profit Sharing Plan, except to the
extent of his beneficial interest in such plan.
(5) See notes 1 through 4 above.
4
<PAGE>
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides that the
Board of Directors shall consist of such number of members, with a minimum of
three and a maximum of fifteen, as the Board of Directors determines from time
to time. The five persons listed below are currently directors of the Company
and have been selected by the Board of Directors as nominees for election as
directors at the Annual Meeting. Each director elected at this Meeting will hold
office until the next Annual Meeting or until his successor is elected or
appointed, unless his office is earlier vacated by resignation or other cause.
Directors whose terms expire are eligible for renomination.
Unless otherwise specifically directed by shareholders executing proxies,
it is intended that all proxies in the accompanying form received in time for
the Annual Meeting will be voted at the Annual Meeting FOR the election of the
five (5) nominees named below, all of whom are currently directors of the
Company. In the event any nominee should become unavailable for election for any
presently unforeseen reason, it is intended that the proxies will be voted for
such substitute nominee as may be designated by the present Board of Directors.
If a quorum is present, a plurality vote of the total votes cast by the holders
of Common Stock is required to elect the five (5) Directors.
The Board of Directors recommends that shareholders vote FOR the election
of the nominees named below (Proposal No. 1 on the Proxy Card).
Each nominee's name, age, the year first elected as a director, office with
the Company, and certain biographical information are set forth below:
<TABLE>
<CAPTION>
Year First
Name Age Served as a Director Position with the Company
---- --- -------------------- -------------------------
<S> <C> <C> <C>
Barry R. Steinberg 55 1973 Chairman of the Board, President,
Chief Executive Officer and
Director
Joel G. Stemple 55 1982 Executive Vice President,
Secretary and Director
Joel Rothlein 68 1996 Director
George Bagetakos 51 1996 Director
Julian Sandler 53 1996 Director
</TABLE>
Barry R. Steinberg, the founder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer and as a director since
Manchester's formation in 1973. Mr. Steinberg previously served as a systems
analyst for Sleepwater, Inc. and Henry Glass and Co. Joel G. Stemple, has served
as Executive Vice President since September 1996 and as Vice President and as a
director since August 1982. Mr. Stemple previously performed consulting services
for the Company and, from 1966 to 1982, served as Assistant and Associate
Professor of Mathematics at Queens College, City University of New York.
Joel Rothlein, Esq. has been a director of the Company since October 1996.
Mr. Rothlein is a partner in the law firm of Kressel Rothlein & Roth, Esqs.,
Massapequa, New York, where he has practiced law since 1955. Kressel Rothlein &
Roth, Esqs. and its predecessor firms have acted as outside general counsel to
the Company since the Company's inception.
5
<PAGE>
George Bagetakos became a director on December 2, 1996. Mr. Bagetakos has
been the Director of Sales, Major Accounts for Northern Telecom, Inc., a
supplier of telecommunications equipment products, since July 1995, and served
as Manager, National Accounts for Northern Telecom, Inc. from 1984 to June 1995.
Prior to joining Northern Telecom, Mr. Bagetakos was Corporate Vice President,
Telecommunications for American Express Company from 1979 to 1983.
Julian Sandler became a director on December 2, 1996. Mr. Sandler is Chief
Executive Officer of Rent-a-PC, Inc., a full-service provider of short-term
computer rentals, which Mr. Sandler founded in 1984. Mr. Sandler is also the
founder and was the President from 1974 to 1993 of Brookvale Associates, a
national organization specializing in the remarketing of hardware manufactured
by Digital Equipment Corporation. Mr. Sandler also co-founded and from 1970 to
1973 was Vice President of Periphonics Corporation, a developer and manufacturer
of voice response systems.
Meetings and Committees
During the fiscal year ended July 31, 1997 there were three meetings of the
Board of Directors. Other than George Bagetakos, who was absent from one meeting
of the Board of Directors, no director attended fewer than 75% of the aggregate
number of meetings of the Board held during the period in fiscal 1997 in which
he was a director, and the total number of meetings held by all committees of
the Board in which he served in fiscal 1997 during the period he served on such
committees. On eight occasions in fiscal 1997 the Board took action by unanimous
written consent without a meeting.
The Board of Directors has the following three standing committees:
Executive Committee. The Executive Committee, which was formed and became
effective on December 18, 1996, consists of Barry R. Steinberg, Joel G. Stemple
and Joel Rothlein. The function of the Executive Committee is to exercise the
authority of the Board of Directors in the management of the Company between
meetings of the Board, subject to the provisions of the Company's By-Laws. As
the Board met on a regular basis and no Board action was required to be taken
between meetings (or was taken by unanimous written consent), the Executive
Committee did not meet during fiscal 1997.
Audit Committee. The Audit Committee, which was formed and became effective
on December 4, 1996, consists of Joel G. Stemple, Chairman, George Bagetakos and
Julian Sandler. The Audit Committee reviews the Company's internal accounting
practices and the scope of the work performed by the Company's independent
accountants. The Audit Committee met once during fiscal 1997.
Compensation Committee. The Compensation Committee, which was formed and
became effective on December 18, 1996, consists of George Bagetakos, Joel
Rothlein and Julian Sandler. The Committee establishes compensation policies and
determines compensation for the executive officers of the Corporation. The Board
itself administers the Company's Amended and Restated 1996 Incentive and
Non-Incentive Stock Option Plan. The Compensation Committee did not meet during
fiscal 1997.
The Company does not have a standing nominating committee.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued by the Company during the fiscal years ended July 31, 1997 and 1996 to
the Company's Chief Executive Officer and the other executive officers whose
compensation exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
Common Stock
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(6) Options Compensation
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barry R. Steinberg.....1997 $550,000 - $59,252(1) - -
President and CEO 1996 $271,800 $1,816,439 $59,210(1) - -
Joel G. Stemple........1997 $450,000 - $33,050(2) - -
Executive VP and 1996 $251,800 $1,669,193 $29,000(2) - -
Secretary
Joseph Looney..........1997 $125,489 $47,500 $7,610 70,000(5) -
Chief Financial 1996 $31,250 $10,000 $1,275 - -
Officer(3)
William F. Scheibel, Jr1997 $128,956 $22,500 $8,266 70,000(5) -
Chief Technology 1996 $96,157 $17,500 $4,250 - -
Officer(4)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $50,000 of premiums paid by the Company for a whole life insurance
policy in the name of Mr. Steinberg having a face value of $2,600,000 and
under which his daughters, on the one hand, and the Company, on the other
hand, are beneficiaries and share equally in the death benefits payable
under the policy.
(2) Includes $25,000 of premiums paid by the Company for a whole life insurance
policy in the name of the executive officer having a face value of
$1,300,000 and under which his spouse and the Company are beneficiaries and
are entitled to $600,000 and $700,000, respectively, of the death benefits
payable under the policy.
(3) Began employment with the Company on May 2, 1996.
(4) Began employment with the Company on September 7, 1995.
(5) See Option Grant Table below for the exercise price and vesting terms of
Messrs. Looney's and Scheibel's options. (5) (6)Includes in fiscal 1997
employer matching contributions to the Company's defined contribution plan
of $6,252, $6,675, $2,510, and $3,166 for Messrs. Steinberg, Stemple,
Looney and Scheibel, respectively.
Other than as set forth above, no restricted stock awards, stock
appreciation rights or long-term incentive plan awards (all as defined in the
proxy regulations promulgated by the Securities and Exchange Commission) were
awarded to, earned by, or paid to the Named Executive Officers during the fiscal
year ended July 31, 1997.
7
<PAGE>
Option Grant Table
The following table sets forth the information with respect to grants
of stock options to purchase the Company's common stock, par value $0.01 per
share (the "Common Stock"), pursuant to the Company's Amended and Restated 1996
Incentive and Non-Incentive Stock Option Plan (the "Plan") granted to the Named
Executive Officers during the fiscal year ended July 31, 1997 and all options
outstanding to the named Executive Officers as of July 31, 1997.
<TABLE>
<CAPTION>
Individual Grants
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed
Underlying Granted to Annual Rates of Stock
Options Employees in Exercise Expiration Price Appreciation
Granted Fiscal year Price Date For Option Term (1)
------- ----------- ----- ---- -------------------
Name (#) ($/sh) 5% 10%
---- ---- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Joseph Looney 50,000 (2) 6.3% $10.00 2/03/2007 $29,000 $343,000
20,000 (3) 2.5% $ 5.00 3/26/2007 - $20,000
William F. Scheibel, Jr. 50,000 (2) 6.3% $10.00 2/03/2007 $29,000 $343,000
20,000 (3) 2.5% $ 5.00 3/26/2007 - $20,000
</TABLE>
- --------------
(1) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming the specified compounded rates of appreciation of
the Common Stock over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission.
Actual gains, if any, in option exercises are dependent on the time of such
exercise and the future performance of the Common Stock.
(2) Exercisable cumulatively at the rate of 20% per annum commencing February
3, 1999.
(3) Exercisable cumulatively at the rate of 25% per annum commencing May 5,
1999.
Option Exercises and Value Table
No options outstanding were exercised or exercisable during the fiscal year
ended July 31, 1997 or as of July 31, 1997. There were no in-the-money
exercisable or unexercisable options at July 31, 1997.
--------------------
Employment Agreements
In connection with the Company's initial public offering, Barry R.
Steinberg entered into an employment agreement with the Company, pursuant to
which he agreed that his annual base salary for services rendered to the Company
in his positions as President and Chief Executive Officer would be $550,000 in
each of the fiscal years ending July 31, 1997 and 1998. Mr. Steinberg agreed
that he would not be eligible to receive any bonus in fiscal 1997 and that any
bonus payable for fiscal 1998 would require the approval of a majority of the
independent directors of the Company. The Company has made available, and will
continue to make available to him, the car allowance and deferred compensation
benefits that he is currently receiving. Mr. Steinberg is also able to
participate in other benefits that the Company makes generally available to its
employees, such as medical and other insurance, and Mr. Steinberg is able to
participate under the Company's
8
<PAGE>
stock option plan. In the event Mr. Steinberg's employment with the Company were
terminated, he would not be precluded from competing with the Company.
In addition, in connection with the Company's initial public offering, the
Company entered into an employment agreement with Joel G. Stemple, the Company's
Executive Vice President and Secretary, under which Mr. Stemple agreed to accept
a base salary of $450,000 in each of the fiscal years ending July 31, 1997 and
1998. Under the employment agreement, Mr. Stemple is not eligible to receive any
bonus in fiscal 1997 and any bonus payable to Mr. Stemple for fiscal 1998 must
be approved by a majority of the independent directors of the Company. Under the
employment agreement, the Company provides Mr. Stemple with an automobile and
certain deferred compensation benefits and provides Mr. Stemple with medical and
other benefits generally offered by the Company to its employees. Mr. Stemple
also is able to participate in the Company's stock option plan. The employment
agreement is terminable by either party on 90 days' prior notice. In the event
the Company so terminates Mr. Stemple's employment, or the Company elects not to
renew his employment agreement, he is entitled to severance equal to 12 months
of his then current base salary. This severance will be payable in accordance
with the Company's customary payroll practices. Under the employment agreement,
if Mr. Stemple terminates his employment, or the Company terminates his
employment for cause, Mr. Stemple is prohibited, for a two-year period from such
termination, from competing with the Company in the eastern half of the United
States.
Each of the other individuals named in the Summary Compensation Table is
employed at will.
Compensation of Directors
Directors who are not full-time employees of the Company are reimbursed for
their expenses and receive a fee of $500 per Board and committee meeting
attended.
On December 4, 1996, the Board of Directors granted to each of George
Bagetakos and Julian Sandler, who are Non-Employee Directors, non-incentive
options under the Plan to purchase 2,500 shares at an exercise price of $10.00
per share (the fair market value of Common Stock on the Company's Initial Public
Offering), which options are for a term of five years from the date of grant and
exercisable commencing one year from the date of grant; provided, however, that
(a) no options to purchase shares shall become exercisable by either of the
foregoing directors after the date he ceases to be a director of the Company for
any reason; and (b) unless either of the foregoing directors ceases to be a
director of the Company due to his death, the option, to the extent it is
exercisable at such time, terminates upon the earlier of (x) three months from
the date of such event; and (y) five years from the date of grant.
9
<PAGE>
REPORT OF THE BOARD OF DIRECTORS AND THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Board of Directors and the Compensation Committee are responsible for
the administration of the Company's compensation programs. These programs
include base salary and cash bonuses for executive officers, which are
determined by the Compensation Committee, and long-term incentive compensation
programs, which are administered by the Board of Directors. Although the
Compensation Committee may implement an annual incentive plan in the future, the
Company does not currently offer any such plan.
Compensation Philosophy
The primary goal of the Company is to align compensation with the Company's
business objectives and performance. In addition, the Company aims to attract,
retain, and reward executive officers and other key employees who contribute to
the long-term shareholder value with a total compensation package that the
Company considers to be competitive yet reasonable. To establish the
relationship between executive compensation and the creation of shareholder
value, the Board has adopted a compensation package comprised of base salary,
cash bonuses and stock option awards. Through stock option awards for executives
and other key employees, the Company attempts to ensure that individuals are
motivated over the long term to respond to the Company's business challenges and
opportunities as owners and not just as employees.
Compensation Program
The Company's executive compensation program has three major components,
each of which are intended to attract, retain and motivate executive officers
consistent with the philosophy set forth above. The Board and the Compensation
Committee consider these components of compensation individually, as well as
collectively, in determining total compensation for executive officers. The
particular elements of the compensation program for executive officers are
explained below:
1. a) Base salaries for fiscal 1997. For fiscal 1997, the base salaries of
the Company's Chief Executive Officer and its Executive Vice President were
fixed pursuant to their employment agreements, as discussed below. The base
salaries of the Company's Chief Financial Officer and Chief Technology Officer
for fiscal 1997 were determined by the Company's Chief Executive Officer, at
rates believed by him to be competitive and within a range that is considered to
be reasonable and necessary to attract and retain persons of similar skills and
experience.
b) Base salaries for fiscal 1998. For fiscal 1998, the base salaries of
the Company's Chief Executive Officer and its Executive Vice President are fixed
pursuant to their employment agreements, as discussed below. The base salaries
of the Company's Chief Financial Officer and Chief Technology Officer for fiscal
1997 were determined by the Company's Chief Executive Officer based primarily on
the contributions made by the officers during the preceding fiscal year and
expected future contributions, and were subsequently ratified by the
Compensation Committee.
2. a) Annual incentive compensation for fiscal 1997. As noted above, the
Company currently does not offer any short-term incentive program. The
employment agreements with the Company's Chief Executive Officer and its
Executive Vice President prohibit the payment of cash bonuses to such officers
in fiscal 1997. In fiscal 1997, the Company paid cash bonuses to its Chief
Financial Officer and Chief Technology Officer based upon their individual
performance and specific accomplishments during the prior year, including
bonuses of $10,000 to each of such officers in recognition of their performance
in connection
10
<PAGE>
with the Company's initial public offering. The amounts of such bonuses were
determined by the Company's Chief Executive Officer and were subsequently
ratified by the Compensation Committee.
b) Annual incentive compensation for fiscal 1998 and thereafter.
Commencing with fiscal 1998, it is the Company's intent that the Compensation
Committee will determine the cash bonuses payable to the Company's executive
officers. In the case of the Company's Chief Financial Officer, the decision
will be made primarily on the basis of the assistance and performance of such
officer in implementing corporate objectives within the scope of his area of
responsibility. In the case of the Company's Chief Technology Officer, the
Compensation Committee will take into account the specific accomplishments of
such officer that are expected to affect future earnings or had an identifiable
impact on the prior year's results.
3. Equity-based incentive compensation. In line with the Company's
philosophy to motivate individuals as owners, the Company's current long-term
incentive program consists of its stock option plan. The Board has utilized four
and five year vesting periods with respect to the options granted to its
executive officers, with a waiting period prior to commencement of vesting, to
encourage them to continue in the employ of the Company. Through option grants,
executives receive significant equity incentives to build long-term shareholder
value. The exercise price of options granted under the stock option plan is
fixed at no less than 100% of the fair market value of the underlying stock on
the date of grant with respect to incentive stock options, and no less than 85%
of such fair market value with respect to non-incentive stock options. To date,
all grants of stock options have provided for exercise prices of not less than
100% of the fair market value of the underlying stock on the date of grant.
Accordingly, employees receive value from these grants only if the Common Stock
appreciates over the long term.
On February 3, 1997, the Board granted options to purchase 50,000
shares of the Common Stock at an exercise price of $10 per share to each of the
Company's Chief Financial Officer and Chief Technology Officer, in recognition
of their contributions to the Company and to provide such officers with an added
incentive to promote the best interests of the Company. Due to the decline in
the market value of the Company's Common Stock, on March 26, 1997, the Board
granted each such officer options to purchase an additional 20,000 shares of the
Common Stock at an exercise price of $5 per share. See "Option Grant Table"
above.
Chief Executive Officer and Executive Vice President Compensation
Pursuant to his employment agreement with the Company, the Company has paid
and will pay to Barry R. Steinberg, it President and Chief Executive Officer, an
annual base salary of $550,000 in each of the fiscal years ending July 31, 1997
and 1998. Mr. Steinberg has agreed that he will not be eligible to receive any
bonus in fiscal 1997 and that any bonus payable for fiscal 1998 will require the
approval of a majority of the independent directors of the Company. The Company
will continue to make available to him the car allowance and deferred
compensation benefits that he is currently receiving. Mr. Steinberg will also be
able to participate in other benefits that the Company makes generally available
to its employees, such as medical and other insurance, and Mr. Steinberg will be
able to participate under the Company's stock option plan.
See "Executive Compensation."
Pursuant to his employment agreement with the Company, the Company has paid
and will pay to Joel G. Stemple, its Executive Vice President and Secretary, an
annual base salary of $450,000 in each of the fiscal years ending July 31, 1997
and 1998. Under the employment agreement, Mr. Stemple is not eligible to receive
any bonus in fiscal 1997 and any bonus payable to Mr. Stemple for fiscal 1998
must be approved by a majority of the independent directors of the Company.
Under the employment agreement, the Company provides Mr. Stemple with an
automobile and certain deferred compensation benefits and provides Mr.
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Stemple with medical and other benefits generally offered by the Company to its
employees. Mr. Stemple also is able to participate in the Company's stock option
plan. See "Executive Compensation."
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a deduction
for any publicly-held corporation for individual compensation exceeding $1
million in any taxable year for any of the named executive officers, unless
compensation is performance-based. The Board and the Compensation Committee
believe that maintaining the discretion to evaluate the performance of the
Company's management is an important part of its responsibilities and benefits
the Company's stockholders. The Board and the Compensation Committee intend to
take into account the potential application of Section 162(m) with respect to
incentive compensation awards and other compensation decisions made by them in
the future, and do not currently anticipate that Section 162(m) will limit the
deductibility of any compensation paid by the Company to its executive officers
during 1998.
Respectfully submitted,
The Board of Directors The Compensation Committee
Barry R. Steinberg, Chairman George Bagetakos
Joel G. Stemple Joel Rothlein
Joel Rothlein Julian Sandler
George Bagetakos
Julian Sandler
The foregoing Report of the Board of Directors and Compensation Committee
and the Stock Performance Graph set forth below shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or the Securities Exchange Act of 1934,
as amended, except to the extent the Company specifically incorporates it by
reference into such filing.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are George Bagetakos,
Joel Rothlein, Esq. and Julian Sandler. Mr. Rothlein is a partner of Kressel
Rothlein & Roth, Esqs., which, with its predecessor firms, has acted as outside
general counsel to the Company since the Company's inception. Kressel Rothlein &
Roth, Esqs. was paid approximately $89,000 (exclusive of disbursements) from the
Company for legal fees in the fiscal year ended July 31, 1996 and received fees
of approximately $655,000 from the Company in the fiscal year ended July 31,
1997, which sum includes fees paid to special counsel ($286,000). The Company
leases an additional office in Massapequa, New York at $300 per month ($881 per
month through May 1997) on a month-to-month basis from an entity 25% of whose
equity interests are owned by Mr. Rothlein. In addition, during the year ended
July 31, 1997, the Company recorded revenue of $130,000 in connection with the
sale of computer equipment to a company controlled by Mr. Sandler.
The Company's Stock Option Plan is administered by the Board of Directors.
Barry R. Steinberg is President and Chief Executive Officer and Joel G. Stemple
is Executive Vice President of the Company. In these capacities, as members of
the Board, they could vote on executive compensation issues before the Board
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pertaining to the granting of stock options. Although the issue has not arisen
to date, each of Messrs. Steinberg and Stemple has agreed to abstain from voting
on the grant of stock options to himself or to the other of them.
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
returns for the Company's Common Stock, the NASDAQ Stock Market Index for U.S.
companies, and a group consisting of the Company's peer corporations on a
line-of-business basis. The corporations making up the peer group are Alphanet
Solutions, Inc., CompuCom Systems, Inc., Elcom International, Inc., Pomeroy
Computer Resources, Inc. and Vanstar Corp. The graph assumes (i) the
reinvestment of dividends, if any, and (ii) the investment of $100 on November
26, 1996 (the date the Company's Common Stock commenced trading) in the
Company's Common Stock, the NASDAQ Stock Market Index and the Peer Group Index.
(GRAPH SHOWING COMPARISON OF 8 MONTH CUMULATIVE TOTAL RETURN)
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until August 1994, the Company was affiliated with Electrograph Systems,
Inc. ("Electrograph"),a specialized distributor of microcomputer peripherals
throughout the United States. Barry R. Steinberg, the Company's President and
Chief Executive Officer and its majority shareholder, served as Electrograph's
Chairman of the Board and Chief Financial Officer, and had beneficial ownership
(directly and through shares held by his spouse and certain trusts, of which his
children are beneficiaries) of 35.5% of the outstanding shares of common stock
of Electrograph. During the fiscal years ended July 31, 1993 and 1994, the
Company paid approximately $322,000 and $385,000, respectively, to Electrograph
for the purchase of products. In August 1994, Bitwise Designs, Inc. ("Bitwise"),
a publicly-traded company engaged in the manufacture and distribution of
document imaging systems, personal and industrial computers and related
peripherals, acquired Electrograph through a stock-for-stock merger; Mr.
Steinberg acquired beneficial ownership of less than 1% of the outstanding
capital stock of Bitwise for the common stock of Electrograph in which he had a
direct or indirect beneficial interest. Mr. Steinberg served as a director of,
and provided consulting services to, Bitwise from August 1994 through September
17, 1996.
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired from Electrograph substantially all of its assets and
assumed certain of its liabilities. The purchase price and transaction costs
aggregated approximately $2.6 million. The major categories of products
presently distributed by Electrograph include display devices and graphical user
interfaces.
Three of the Company's four Hauppauge, New York facilities are leased from
entities affiliated with certain of the Company's executive officers, directors
or principal shareholders. The property located at 40 Marcus Boulevard,
Hauppauge, New York is leased from a limited liability company owned 70% by Mr.
Steinberg and his relatives, 20% by Joel G. Stemple, the Company's Executive
Vice President and a principal shareholder, and 10% by Michael Bivona, a
shareholder of the Company. For the fiscal years ended July 31, 1997 and 1996,
the Company made lease payments of $174,000 and $216,000, respectfully, to such
entity. The Company's offices at 160 Oser Avenue, Hauppauge, New York are leased
from a limited liability company owned 65% by Mr. Steinberg, 17.5% by Mr.
Stemple and 17.5% by Mr. Bivona. For the fiscal years ended July 31, 1997, 1996
and 1995, the Company made lease payments of $259,000, $360,000 and $255,000,
respectively, to such entity. The property located at 50 Marcus Boulevard,
Hauppauge, New York is leased from Mr. Steinberg doing business in the name of
Marcus Realty. For the fiscal years ended July 31, 1997, 1996 and 1995, the
Company made lease payments of $329,000, $435,000 and $417,000, respectively, to
such entity. The Company leases an additional office in Massapequa, New York at
$300 per month ($881 per month through May 1997) on a month-to-month basis from
an entity of which Messrs. Rothlein and Bivona own 25% and 50%, respectively.
Joel Rothlein, Esq., a director of the Company, is a partner of Kressel
Rothlein & Roth, Esqs., which, with its predecessor firms, has acted as outside
general counsel to the Company since the Company's inception. Kressel Rothlein &
Roth, Esqs. was paid approximately $89,000 (exclusive of disbursements) from the
Company for legal fees in the fiscal year ended July 31, 1996 and received fees
of approximately $655,000 from the Company in the fiscal year ended July 31,
1997, which sum includes fees paid to special counsel ($286,000).
During the year ended July 31, 1997, the Company recorded revenue of
$130,000 in connection with the sale of computer equipment to a company
controlled by Julian Sandler, a director of the Company.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that officers, directors and holders of more than 10%
of the Common Stock (collectively, "Reporting Persons") file reports of their
trading in the Company's equity securities with the Securities and Exchange
Commission. Based on a review of Section 16 forms filed by the Reporting Persons
during the last fiscal year, (a) the Reporting Persons filed Form 3 two days
late; (b) Barry R. Steinberg, a Reporting Person, filed his Form 4 reporting the
acquisition of additional shares of the Common Stock approximately two and
one-half months late; and (c) Julian Sandler, a Director of the Company, filed
his Form 4 reporting the acquisition of shares of the Common Stock approximately
ten months late. Except as noted, the Company believes that the Reporting
Persons timely complied with all applicable Section 16 filing requirements.
RATIFICATION OF REAPPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
reappointed KPMG Peat Marwick LLP as independent auditors for the year ending
July 31, 1998.
The ratification of the reappointment of KPMG Peat Marwick LLP will require
the affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote.
It is anticipated that a representative of KPMG Peat Marwick LLP will be
present at the Annual Meeting to answer appropriate questions within such firm's
field of expertise. Such representative will have the opportunity to make a
statement if he/she desires to do so.
The Board of Directors recommends that shareholders vote FOR the
reappointment of KPMG Peat Marwick LLP as independent auditors for the year
ending July 31, 1998 (Proposal No. 2 on the Proxy Card).
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual
Meeting other than as described above. In the event any other matter properly
comes before the Annual Meeting, the persons named in the accompanying form of
proxy have discretionary authority to vote on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the next Annual Meeting of Shareholders must be
received by the Company at its principal office by August 7, 1998.
Dated: December 5, 1997
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PROXY
MANCHESTER EQUIPMENT CO., INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints BARRY R. STEINBERG and JOEL G. STEMPLE, and
each of them, proxies, each with the power of substitution, to vote the shares
of the undersigned at the Annual Meeting of Shareholders of Manchester Equipment
Co., Inc. on January 14, 1998, and any adjournments and postponements thereof,
upon all matters as may properly come before the Annual Meeting. Without
otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein.
PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE.
<PAGE>
(reverse side of proxy)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
MANCHESTER EQUIPMENT CO., INC.
JANUARY 14, 1998
Please Detach and Mail in the Envelope Provided
[x] Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1) AND (2) LISTED BELOW,
TO COME BEFORE THE ANNUAL MEETING.
FOR WITHHELD
(1) Election of Five [ ] [ ] Nominees: Barry R. Steinberg
(5) Directors to Joel G. Stemple
serve until the Joel Rothlein
1999 Annual Meeting of Shareholders. George Bagetakos
For, except withheld from the Julian Sandler
following nominees:
- -------------------------------------
FOR AGAINST ABSTAIN
(2) To ratify the reappointment of KPMG Peat Marwick
LLP as independent auditors of the Company for the [ ] [ ] [ ]
year ending July 31, 1998.
(3) Upon any and all business that may come before the annual meeting
This proxy, which is solicited on behalf of the board of directors, will be
voted FOR the matters described in paragraphs (1) and (2) unless the shareholder
specifies otherwise, in which case it will be voted as specified.
SIGNATURE(S) DATE:
----------------------------------- ----------------------------
NOTE: Executors, Administrators, Trustees, Etc. should give full title.
