<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] 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 Rule 14a-11(c) or Rule 14a-12
HANDLEMAN COMPANY
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
HANDLEMAN COMPANY
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which 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:
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<PAGE> 2
HANDLEMAN COMPANY
______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 9, 1997
To the Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Handleman Company (the "Company") to be held at the Somerset Inn, 2601 West Big
Beaver, Troy, Michigan 48084-3390, on Tuesday, September 9, 1997, at 2:00 p.m.,
Eastern Daylight Time, for the following purposes:
(1) To elect three Directors of the Company to serve until the Annual
Meeting of Shareholders in 2000.
(2) To approve an amendment to the Company's 1992 Performance Incentive
Plan to meet certain requirements of Section 162(m) of the Internal
Revenue Code of 1986 and the Treasury Regulations thereunder.
(3) To consider such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on July 14, 1997 will
be entitled to vote at the meeting.
Your attention is called to the attached proxy statement and accompanying
proxy. It is important that your shares be represented and voted at the Annual
Meeting, regardless of whether or not you plan to attend in person. You are
therefore urged to sign, date and return the accompanying proxy card promptly
in the enclosed envelope, to which no postage need be affixed if mailed in the
United States. If you attend the meeting, you may withdraw your proxy and vote
your own shares.
A copy of the Annual Report of the Company for the fiscal year ended May
3, 1997 accompanies this Notice.
By Order of the Board of Directors,
LEONARD A. BRAMS, Secretary
Troy, Michigan
July 30, 1997
<PAGE> 3
HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084-4142
_______________
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 9, 1997
GENERAL INFORMATION
The Annual Meeting of Shareholders of Handleman Company (the "Company")
will be held at the Somerset Inn, 2601 West Big Beaver, Troy, Michigan
48084-3390, on Tuesday, September 9, 1997, at 2:00 p.m., Eastern Daylight Time,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. The approximate mailing date for this proxy statement and the
proxy is July 30, 1997.
It is important that your shares be represented at the meeting. If it is
impossible for you to attend the meeting, please sign and date the enclosed
proxy and return it to the Company. The proxy is solicited by the Board of
Directors of the Company. The shares represented by valid proxies in the
enclosed form will be voted if received in time for the Annual Meeting. The
expenses in connection with the solicitation of proxies will be borne by the
Company and may include requests by mail and personal contact by its Directors,
Officers and employees. In addition, the Company has retained Corporate
Investor Communications, Inc., 111 Commerce Road, Carlstadt, New Jersey
07072-2586, to aid in the solicitation of proxies from brokers, banks, other
nominees and institutional holders at a fee not to exceed $4,000 plus
out-of-pocket expenses. The Company will reimburse brokers or other nominees
for their expenses in forwarding proxy materials to principals. Any person
giving a proxy has the power to revoke it at any time before it is voted.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of record of shares of $.01 par value common stock (the
"Common Stock") at the close of business on July 14, 1997 are entitled to
notice of, and to vote at, the meeting or at any adjournment or adjournments
thereof, each share having one vote. On such record date, the Company had
issued and outstanding 33,367,619 shares of Common Stock.
Based on information filed with the Securities and Exchange Commission
("SEC"), or otherwise provided to the Company, as of July 14, 1997, (a) the
Ryback Management Corporation, advisor to the Lindner Funds, 7711 Carondelet
Avenue, Suite 700, P.O. Box 16900, St. Louis, Missouri 63105, owns 6,336,000
shares (19.0%) of the Company's outstanding Common Stock, (b) Joseph L.
Harrosh, 40900 Grimmer Blvd., Fremont, California 94538, owns 3,165,500 shares
(9.5%) of the Company's outstanding Common Stock, and (c) the State of
Wisconsin Investment Board, P.O. Box 7842, Madison, Wisconsin 53707, owns
3,157,100 shares (9.5%) of the Company's outstanding Common Stock. Management
does not know of any other person who, as of July 14, 1997, beneficially owned
more than 5% of the Company's Common Stock.
<PAGE> 4
I. ELECTION OF DIRECTORS
The Board of Directors proposes that Messrs. Stephen Strome, James B.
Nicholson and Lloyd E. Reuss be elected as Directors of the Company to hold
office until the Annual Meeting of Shareholders in 2000 or until their
successors are elected and qualified. The persons named in the accompanying
proxy intend to vote all valid proxies received by them for the election of the
nominees named above, unless such proxies are marked to the contrary. The
three nominees receiving the greatest number of votes cast at the Meeting or
its adjournment shall be elected. Abstentions, withheld votes and broker
non-votes will not be deemed votes cast in determining which nominees receive
the greatest number of votes cast. In case any nominee is unable or declines
to serve, which is not anticipated, it is intended that the proxies be voted in
accordance with the best judgment of the proxy holders.
The following information is furnished with respect to each nominee for
election as a Director, each person whose term of office as a Director will
continue after the Meeting and each Executive Officer of the Company as of May
3, 1997 named in the Summary Compensation Table herein.
<TABLE>
<CAPTION>
Percentage of
Shares Total Common
of Common Stock of the
Stock Company
Positions and Offices Beneficially Beneficially Term
Name and Year First with the Company and Other Owned as of Owned as of to
Became a Director Age Principal Occupations July 14, 1997 July 14, 1997 Expire
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS FOR A THREE-YEAR TERM
Stephen Strome (1989)............ 52 President and Chief Executive Officer of the
Company ................................................ 305,782 (2) * 2000
James B. Nicholson (1991)........ 54 President and Chief Executive Officer of
PVS Chemicals, Inc. .................................... 2,600 * 2000
Lloyd E. Reuss (1993)............ 61 Former President of General Motors Corporation ......... 6,200 * 2000
DIRECTORS CONTINUING IN OFFICE
David Handleman (1946)........... 81 Chairman of the Board .................................. 367,667 (1) 1.1% 1999
Richard H. Cummings (1962)....... 75 Retired Senior Vice Chairman of the Board of
Directors of NBD Bancorp, Inc. and of NBD Bank ......... 7,000 * 1999
Gilbert R. Whitaker, Jr. (1990).. 65 Dean and Professor of Business Economics,
Jesse Jones Graduate School of Administration,
Rice University ........................................ 3,000 * 1999
Alan E. Schwartz (1969).......... 71 Partner of the law firm of Honigman Miller
Schwartz and Cohn ...................................... 895 * 1998
John M. Barth (1995)............. 51 Executive Vice President of Johnson Controls, Inc. ..... 0 * 1998
OTHER EXECUTIVE OFFICERS
Peter J. Cline................... 50 Executive Vice President - President of Handleman
Entertainment Resources ................................ 59,842 (2) * --
Lawrence R. Hicks................ 52 Executive Vice President - Sales and
Merchandising .......................................... 82,508 (2) * --
Arnold Gross..................... 56 Senior Vice President - President of Handleman
International (4) ...................................... 13,795 (2) * --
Thomas C. Braum, Jr. ............ 42 Vice President - Corporate Controller .................. 23,822 (2) * --
All Directors and Executive Officers as a group (14 persons) ................................... 876,576 (3) 2.6% --
____________________
</TABLE>
* Less than 1%
(1) Mr. Handleman owns outright and has the sole voting and investment power
for 367,667 shares. The number of shares shown above does not include
243,175 shares owned outright by Marion Handleman, his wife. Mr. Handleman
disclaims beneficial ownership of the shares owned by his wife.
(2) The number shown above as beneficially owned by Messrs. Strome, Cline,
Hicks, Gross and Braum includes 274,524, 50,000, 74,667, 13,340 and 20,750
shares, respectively, which they have the right to acquire within 60 days
of July 14, 1997 pursuant to the Company's stock option plans (assuming, in
certain instances that the stock price reaches certain levels -- see
"Aggregated Option Exercise in the Last Fiscal Year and Fiscal Year-End
Option Values"), 14,783, 8,845, 7,478, 3,478 and 2,832 shares which
represent restricted stock awards granted to Messrs. Strome, Cline, Hicks,
Gross and Braum, respectively, and 390, 195, 363, 20 and 240 shares,
respectively, which have been credited to each of Messrs. Strome, Cline,
Hicks, Gross and Braum under the Company's salary deferral plan (the "401(k)
Plan").
(3) All Executive Officers and Directors of the Company as a group (14 persons)
beneficially owned 876,576 shares (2.6%) of the Company's outstanding
Common Stock as of July 14, 1997, including 433,281 shares which they have
the right to acquire within 60 days of that date pursuant to the Company's
stock option plans, 37,416 shares representing restricted stock awards
granted in June 1995, and 1,208 shares which have been credited to them
under the 401(k) Plan. The total excludes 243,175 shares held by spouses
of the Company's Executive Officers and Directors.
(4) Mr. Gross was designated Senior Vice President-President of Handleman
International effective June 24,1997.
2
<PAGE> 5
OTHER INFORMATION RELATING TO NOMINEES AND DIRECTORS
Following each Director's name and the year in which he first became a
Director is a brief account of the business experience of each nominee and
Director of the Company during the past five years.
DAVID HANDLEMAN 1946
Mr. Handleman has served as Chairman of the Board since December 1, 1974.
Mr. Handleman was also Chief Executive Officer from December 1, 1974 to March
9, 1988 and from December 12, 1989 to May 1, 1991. Mr. Handleman retired as an
Officer and employee of the Company effective July 1, 1993, but is continuing
in the non-officer position of Chairman of the Board. Mr. Handleman also
performs services for the Company as part of an advisory and non-compete
agreement entered into with the Company in 1989.
RICHARD H. CUMMINGS 1962
Mr. Cummings is the retired Senior Vice Chairman of the Board of Directors
of NBD Bancorp, Inc. and NBD Bank. Mr. Cummings is also a Director of Howell
Industries, Inc.
ALAN E. SCHWARTZ 1969
Mr. Schwartz is a partner of the law firm of Honigman Miller Schwartz and
Cohn, Detroit, Michigan, which firm serves as general counsel for the Company.
It is expected that such law firm will continue to be retained by the Company
in the current fiscal year. Mr. Schwartz is also a director of the following
corporations: Core Industries Inc, the Detroit Edison Company, DTE Energy
Company, Howell Industries, Inc., Pulte Corporation and Unisys Corporation.
STEPHEN STROME 1989
Mr. Strome has served as President and Chief Executive Officer of the
Company since May 1, 1991. From May 3, 1990 through April 30, 1991, Mr.
Strome served as President and Chief Operating Officer of the Company. From
June 7, 1989 through May 2, 1990, Mr. Strome served as Executive Vice President
and Chief Operating Officer of the Company.
GILBERT R. WHITAKER, JR. 1990
Mr. Whitaker has served as Dean and Professor of Business Economics, Jesse
Jones Graduate School of Administration, Rice University, since July 1, 1997.
From September 1, 1995 through June 30, 1997, he was Professor of Business
Economics and Provost Emeritus, the University of Michigan. Mr. Whitaker
served as Provost and Executive Vice President for Academic Affairs, the
University of Michigan from September 1, 1993 to August 31, 1995. From
September 1, 1990 through August 31, 1993, Mr. Whitaker served as Provost and
Vice President for Academic Affairs, the University of Michigan. Mr. Whitaker
is a director of the following corporations: Johnson Controls, Inc., Lincoln
National Corporation and Structural Dynamics Research Corporation.
JAMES B. NICHOLSON 1991
Mr. Nicholson has served as President and Chief Executive Officer of PVS
Chemicals, Inc. since 1979. Mr. Nicholson is a director of PVS Chemicals, Inc.
and North American Mortgage Company. Mr. Nicholson is also Chairman of the
Board of Amerisure Companies.
LLOYD E. REUSS 1993
Mr. Reuss served as General Motors Corporation's Executive Vice President
of New Vehicles and Systems from April 6, 1992 through his retirement on
January 1, 1993. Mr. Reuss served as President of General Motors Corporation
from August 1, 1990 through April 5, 1992. Mr. Reuss is a director of Core
Industries Inc, International Speedway Corporation and U.S. Sugar Corporation.
He is also Vice Chairman of the Board of Directors of Detroit Mortgage &
Realty.
JOHN M. BARTH 1995
Mr. Barth has served as Executive Vice President of Johnson Controls, Inc.
since October 1, 1992. Mr. Barth served as Vice President and General Manager
of the Plastics Technology Group and the Automotive Systems Group of Johnson
Controls, Inc. from March 27, 1990 to September 30, 1992. Mr. Barth is a
director of Comerica Bank-Ann Arbor, N.A. and Edwards Brothers.
During the fiscal year ended May 3, 1997, the Board of Directors held five
meetings.
3
<PAGE> 6
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Executive Committee. The current members of the
Executive Committee are David Handleman (Chairman), Richard H. Cummings, Alan E.
Schwartz and Stephen Strome. The Executive Committee meets on call and has
authority to act on most matters between Board meetings. During fiscal year
1997, the Executive Committee held six meetings.
The Company has a standing Audit Committee. The current members of the
Audit Committee are Richard H. Cummings (Chairman), John M. Barth and Lloyd E.
Reuss. During fiscal year 1997, the Audit Committee held five meetings. The
duties of the Audit Committee are briefly: recommending to the Board of
Directors the retention or discharge of the independent public accountants;
reviewing the arrangements and scope of the audit and non-audit engagements and
the compensation of the independent public accountants; reviewing with the
independent public accountants and the Company's financial officers the adequacy
of the Company's internal auditing, accounting and financial controls; reviewing
major changes in accounting policies; and reviewing the scope, status and
results of examinations conducted by the internal audit department of the
Company.
The Company has a standing Compensation and Stock Option Committee. The
current members of the Compensation and Stock Option Committee are James B.
Nicholson (Chairman), Lloyd E. Reuss and Gilbert R. Whitaker, Jr. During fiscal
year 1997, the Committee held three meetings and made recommendations to the
Board of Directors. The duties of the Committee are: recommending to the Board
of Directors the remuneration arrangements for senior management; recommending
to the Board of Directors compensation plans in which Officers are eligible to
participate; and granting stock options, stock appreciation rights and
restricted stock awards under the Company's 1992 Performance Incentive Plan.
The Company has a standing Nominating Committee. The current members of
the Nominating Committee are Alan E. Schwartz (Chairman), John M. Barth, James
B. Nicholson and Stephen Strome. During fiscal year 1997, the Nominating
Committee held one meeting. The Nominating Committee considers the performance
of incumbent Directors and recommends to the shareholders nominees for election
as Directors. The Nominating Committee will consider nominees for Directors
recommended by shareholders, which recommendations for the 1998 Annual Meeting
of Shareholders should be submitted to the Chairman of the Nominating Committee
at the Company's executive offices, no later than March 9, 1998.
Each of the incumbent Directors, except for Mr. Reuss, attended at least
75% of the meetings held during fiscal 1997 by the Board and by each Committee
of which he is a member.
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
Mr. David Handleman, Chairman of the Board of the Company since 1974,
retired as an Officer and employee of the Company effective July 1, 1993. Mr.
Handleman continues as a Director of the Company and as the non-officer Chairman
of the Board. Effective July 1, 1993, and during his lifetime, Mr. Handleman
will receive annual payments of $300,000 per year in consideration of his
performance of advisory and related services to the Company and execution of a
non-competition covenant entered into with the Company in 1989. Such amount is
in addition to the annual amount ($288,564) Mr. Handleman receives pursuant to
the Company's pension plan. In addition, the Company paid $81,021 for certain
life insurance, health insurance, automotive and club dues benefits for Mr.
Handleman pursuant to his agreement with the Company.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF DIRECTORS
Officers of the Company who are Directors do not receive any additional
compensation for services as a Director or as a Committee member. All other
Directors receive annual retainers of $18,000 and meeting fees of $1,000 for
each Board of Directors meeting attended. Each member on a Committee of the
Board of Directors was paid at the rate of $750 for each Committee meeting
attended. Non-Committee Directors who are requested in advance to participate
in any Committee meeting are paid the $750 meeting fee. In addition, during
fiscal year 1997, each Committee Chairman received an annual fee of $3,000.
Directors are reimbursed for travel and other expenses related to attendance at
Board and Committee meetings. The Company has adopted a Director Retirement
Plan which provides that after 10 years of service any non-employee Director
will be, upon retirement, entitled to receive 50% of the annual Director fee
then in effect for the lesser of the number of years the participant served as a
non-employee Director of the Company or the life of the participant. The
Company has approved a Deferral Plan For Payment of Director Fees which permits
members of the Board of Directors to elect to defer to a future date all or any
portion of their Director fees (including retainer fees, attendance fees and
Committee fees), with interest to be added to deferred amounts. Mr. David
Handleman is not entitled to receive any Director or Committee member fees
during the term of his advisory agreement. See "Certain Transactions with
Executive Officers and Directors" for additional information regarding amounts
paid to Mr. Handleman for advisory services.
Under resolutions of the Board of Directors presently in effect, if a
Corporate, Division or Subsidiary Officer or Director should die while serving
in such capacity, the Company will pay to the surviving spouse, or if there is
no surviving spouse then to the decedent's estate, the equivalent of one year's
salary (excluding bonuses) based upon the amount being received by the decedent
at the time of his or her death, in 24 equal monthly installments commencing one
month after death.
4
<PAGE> 7
SUMMARY COMPENSATION TABLE
The following table sets forth information for each of the fiscal years
ended April 29, 1995, April 27, 1996 and May 3, 1997 concerning the compensation
of the Company's Chief Executive Officer and each of the Company's other four
most highly compensated Executive Officers as of May 3, 1997 (collectively, the
"named Executive Officers") whose annual salary and bonus exceeded $100,000 and
an Executive Officer who resigned prior to May 3, 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------- ----------------------------------------------------------
(2) (5) (7)
Other Annual Restricted Stock Options/SARs All Other
(1) Fiscal Salary Bonus Compensation Awards Underlying Securities Compensation
Name and Principal Position Year ($) ($) ($) (#) (#) ($)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen Strome 1997 425,000 -- -- -- 59,000 1,177
President and Chief 1996 422,692 -- -- 14,783 115,000 717
Executive Officer 1995 403,077 115,000 -- -- -- --
Peter J. Cline 1997 260,769 33,000 -- -- 15,000 515
Executive Vice President 1996 252,692 -- -- 8,845 30,000 1,302
- President of Handleman 1995 240,000 47,000 36,372 (3) -- 30,000 --
Entertainment Resources
Lawrence R. Hicks 1997 215,000 -- -- -- 13,000 916
Executive Vice President 1996 213,769 -- -- 7,478 25,000 1,081
- Sales and Merchandising 1995 204,845 40,575 -- -- -- --
Arnold Gross 1997 163,077 15,000 75,996 (4) -- 10,000 129
Senior Vice President 1996 137,254 25,000 66,035 (4) 3,478 20,000 --
- President of Handleman 1995 120,000 5,000 88,293 (4) -- -- --
International
Thomas C. Braum, Jr. 1997 117,020 22,200 -- -- 3,500 959
Vice President 1996 112,846 -- -- 2,832 -- 750
- Corporate Controller 1995 105,752 20,900 -- -- -- --
Richard J. Morris (6) 1997 198,850 -- -- -- -- 1,023
Senior Vice President 1996 185,308 -- -- -- -- 1,500
- Finance, Chief Financial 1995 174,731 34,500 -- -- -- --
Officer and Secretary
</TABLE>
- - ---------------------
(1) Salary deferred by Executive Officers pursuant to the Company's 401(k) Plan
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Stephen Strome 4,871 3,468 3,120
Peter J. Cline 2,269 6,000 --
Lawrence R. Hicks 3,744 4,323 --
Arnold Gross 775 -- --
Thomas C. Braum 3,891 3,000 --
Richard J. Morris 4,965 6,000 --
</TABLE>
(2) Non-cash compensation did not exceed the lesser of $50,000 or 10% of
individual cash compensation for any Executive Officer other than noted
below for Messrs. Cline and Gross.
(3) Includes $1,740, $6,930 and $27,702 paid during fiscal 1995 to or on
behalf of Mr. Cline for certain life insurance, automobile benefits and
relocation expenses, respectively.
(4) Includes net payments to or on behalf of Mr. Gross for certain life
insurance, automobile benefits, relocation expenses and housing expenses
as follows:
<TABLE>
<CAPTION>
INSURANCE AUTO RELOCATION HOUSING TOTAL
--------- ----- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
1997 1,275 7,217 67,504 -- 75,996
1996 1,222 6,971 17,503 40,339 66,035
1995 799 6,486 37,370 43,638 88,293
</TABLE>
(5) Restricted shares granted during the fiscal year ended April 1995 were
issuable if consolidated return on shareholders' equity exceeded a
predetermined threshold of performance in the fiscal 1995 through fiscal
1997 performance period. The threshold performance level was not met and,
therefore, the restricted stock awards of 13,748, 8,048, 6,802, 2,874 and
2,551 shares granted to Messrs. Strome, Cline, Hicks, Gross and Braum,
respectively, were canceled.
(6) Mr. Morris resigned as an Executive Officer of the Company on April 22,
1997. Accordingly, stock options granted on June 16, 1993, June 14, 1995
and June 12, 1996 of 20,000, 25,000 and 13,000 shares, respectively, and
restricted stock granted on June 15, 1994 and June 14, 1995 of 13,748 and
14,783 shares were canceled upon his termination of employment. Leonard
A. Brams joined the Company on June 2, 1997 as Senior Vice
President/Finance, Chief Financial Officer and Secretary succeeding Mr.
Morris. Mr. Brams formerly served as Vice President/Administration and
Chief Financial Officer of Talon LLC. Prior to his position with Talon,
Mr. Brams was Vice President/Finance with United Technologies Automotive
Corporation.
(7) Represents amounts contributed to the named Executive Officers' 401(k)
Plan accounts for the Company matching of employee contributions.
5
<PAGE> 8
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table provides details regarding stock options granted to the
named Executive Officers in the last fiscal year.
<TABLE>
<CAPTION>
(5)
Potential Realizable Value at
(3) Assumed Annual Rates of
% of Total Stock Price Appreciation
(1) Options Granted (4) For Option Term
Number of to Employees in Exercise Price ---------------------------------
Name Options Granted Fiscal Year Per Share Expiration Date 5% 10%
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Strome 59,000 14.5% $ 6.75 June 11, 2006 (6) $250,750 $634,250
48,750 (2) 12.0% $7.125 June 15, 2003 $218,156 $553,556
Peter J. Cline 15,000 3.7% $ 6.75 June 11, 2006 (6) $ 63,750 $161,250
Lawrence R. Hicks 13,000 3.2% $ 6.75 June 11, 2006 (6) $ 55,250 $139,750
Arnold Gross 10,000 2.5% $ 6.75 June 11, 2006 (6) $ 42,500 $107,500
Thomas C. Braum, Jr. 3,500 .9% $ 6.75 June 11, 2006 (6) $ 14,875 $ 37,625
</TABLE>
- - ---------------------
(1) In February 1997, the Compensation and Stock Option Committee and the
Board of Directors adopted a new program concerning repricing of existing
stock options and requiring a level of Company stock ownership by key
employees. The first element provides an opportunity to key employees
(including the named Executive Officers) to reprice outstanding stock
options ("Repricing Program") if the optionee concurrently purchases
shares of the Company's Common Stock. The second element of the program
establishes guidelines for ownership ("Stock Ownership Program") of the
Company's Common Stock by key employees. The Repricing Program and Stock
Ownership Program are described in this Proxy Statement under the Report
of the Compensation and Stock Option Committee.
(2) 48,750 options were granted on April 2, 1997 to Mr. Strome pursuant to
the Repricing Program.
(3) The total number of shares subject to options granted to employees in
fiscal 1997 was 406,975.
(4) The exercise price (which corresponded to the fair market value of the
Common Stock on the date of grant) may be paid in cash, by delivery of
already owned shares subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes. The Compensation and Stock
Option Committee has approved the issuance of reload options in certain
circumstances and with certain restrictions. A reload option is an option
granted to an employee when the employee exercises an option using
previously owned shares.
(5) The Potential Realizable Value is calculated based on the fair market
value on the date of grant, which is equal to the exercise price of
options granted in fiscal 1997, assuming that the stock appreciates in
value from the date of grant until the end of the option term at the
annual rate specified (5% and 10%). Potential Realizable Value is net of
the option exercise price. The assumed rates of appreciation are
specified in rules of the SEC, and do not represent the Company's estimate
or projection of future stock price. Actual gains, if any, resulting from
stock option exercises and Common Stock holdings are dependent on the
future performance of the Common Stock and overall stock market
conditions, as well as the optionee's continued employment through the
exercise/vesting period. There can be no assurance that the amounts
reflected in this table will be achieved.
(6) The options become exercisable up to 25% on or after June 12, 1998 and
prior to June 11, 1999; up to 50% on or after June 12, 1999 and prior to
June 11, 2000; up to 100% on or after June 12, 2000.
6
<PAGE> 9
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
There were no stock options exercised by the named Executive Officers
during the fiscal year ended May 3, 1997. The following table sets forth the
number of shares covered by both exercisable and non-exercisable stock options
as of the last day of the fiscal year. The exercise price of all outstanding
stock options, exercisable or unexercisable, held by such persons on May 3,
1997 was higher than the market price ($6.625 per share) of the Company's
Common Stock as of such date. The number of exercisable stock options shown in
the following table includes options exercisable within 60 days of July 14,
1997 when the Company's stock price reaches certain levels.
<TABLE>
<CAPTION>
Number of
Unexercised
Options at Fiscal
Year-End
Exercisable/
Name of Individual Unexercisable
------------------- -----------------
<S> <C>
Stephen Strome
Exercisable.......................... 274,524
Unexercisable........................ 97,333
Peter J. Cline
Exercisable.......................... 50,000
Unexercisable........................ 25,000
Lawrence R. Hicks
Exercisable.......................... 74,667
Unexercisable........................ 21,333
Arnold Gross
Exercisable.......................... 13,340
Unexercisable........................ 16,660
Thomas C. Braum, Jr.
Exercisable.......................... 20,750
Unexercisable........................ 3,500
</TABLE>
7
<PAGE> 10
PENSION PLAN
The Company has a pension plan (the "plan") covering all employees of the
Company who have reached the age of 21 and completed one year of service,
except for employees covered by a collective bargaining agreement which does
not provide for plan coverage. The plan provides pension benefits, death
benefits and disability benefits for covered employees. For the fiscal year
ended May 3, 1997, employees with five or more years of service were entitled
to monthly pension benefits beginning at normal retirement age (65). The
computation of benefits under the plan is based upon a formula which takes into
consideration retirement age, years of service up to 30 years, average annual
compensation during the highest five consecutive year period within the 10
years preceding retirement and the average of the taxable wage base for social
security purposes over the employee's career. The plan permits early
retirement at ages 55-64 for employees with 10 or more years of service. A
death benefit equal to a portion of the employee's accrued benefit is paid to
the employee's spouse if the employee dies after becoming vested under the
plan. An employee with 10 or more years of service whose employment by the
Company terminates prior to his or her normal retirement date due to his or her
permanent and total disability is entitled to receive a disability retirement
benefit.
The compensation covered by the plan includes all earnings from the
Company as reported on the employee's W-2 form, for base pay plus overtime and
bonus payments only, plus salary deferrals under the Company's 401(k) Plan, up
to a maximum of $160,000 for calendar year 1997.
The following table illustrates current annual benefits payable under the
plan upon retirement at age 65 to persons in certain compensation and years of
service classifications. The benefits are computed on the basis of a straight
life annuity and are not subject to deductions for social security or other
offset amounts.
<TABLE>
<CAPTION>
Final Average Ten Years Twenty Years Thirty Years
Compensation of Service of Service of Service
-------------------------------------------------------
<S> <C> <C> <C>
$160,000* $20,495 $40,990 $61,486
</TABLE>
* Compensation which may be considered for any purpose under a qualified
pension plan is limited for 1997 to $160,000.
The Internal Revenue Code limits the benefits which can be paid from any
funded pension plan that qualifies for federal tax exemption. The amount for
calendar year 1997 is $125,000.
As of May 3, 1997, the credited years of service under the plan for the
Executive Officers were as follows: 19 for Stephen Strome; 23 for Lawrence R.
Hicks; 12 for Thomas C. Braum, Jr.; 3 for Peter J. Cline and 3 for Arnold
Gross.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company sponsors a supplemental executive retirement plan (the "SERP")
covering a select group of management employees of the Company. The SERP
provides supplemental retirement income and death and disability benefits.
Covered employees with five or more years of service are entitled to monthly
retirement income beginning at normal retirement age (65). The SERP permits
early retirement at ages 55-64 for employees with 10 or more years of service.
The computation of benefits under the SERP is based upon a formula which takes
into consideration retirement age, years of service up to a maximum of 30 years
and average annual compensation during the highest five consecutive years
within the 10 years preceding retirement. A death benefit equal to a portion
of the employee's accrued benefit is paid to the employee's spouse if the
employee dies after becoming vested under the SERP. An employee with 10 or
more years of service whose employment by the Company terminates prior to his
or her normal retirement date due to his or her total and permanent disability
is entitled to receive a disability retirement benefit.
The compensation covered by the SERP includes all earnings from the
Company as reported on the employee's W-2 form, for base pay, overtime and
bonus payments, plus salary deferrals under the Company's 401(k) Plan. No
maximum applies to compensation covered under the SERP.
The benefit amount calculated under the formula is computed on the basis
of a straight life annuity and is subject to an offset by benefits provided
under the pension plan.
The following table illustrates current annual benefits payable under the
SERP upon normal retirement at age 65 to persons in certain compensation and
years of service classifications. These benefits are in addition to benefits
payable under the Company pension plan.
<TABLE>
<CAPTION>
Final Average Ten Years Twenty Years Thirty Years
Compensation of Service of Service of Service
---------------------------------------------------------
<S> <C> <C> <C>
$250,000 $17,005 $ 34,010 $ 51,014
350,000 32,005 64,010 96,014
450,000 47,005 94,010 141,014
550,000 62,005 124,010 186,014
</TABLE>
As of May 3, 1997, the credited years of service under the SERP for the
Executive Officers were as follows: 19 for Stephen Strome; 23 for Lawrence R.
Hicks; 12 for Thomas C. Braum, Jr.; 3 for Peter J. Cline and 3 for Arnold
Gross.
8
<PAGE> 11
CHANGE IN CONTROL AGREEMENTS
Effective March 17, 1997, the Company entered into Change in Control
Agreements (the "Agreements") with Stephen Strome and Peter J. Cline in the
event their employment is terminated as a result of, or in the connection with,
a change in control (as defined in the Agreements). The Agreements end
December 31, 1999 and are automatically renewed to December 31 of each
subsequent year unless and until the Company or the Executive Officer sends a
written notice of termination to the other party.
In event of termination of employment or other specified changes in the
employment relationship within 24 months following a change in control, the
Agreements generally provide for payments of accrued salary and bonus not paid
plus a severance payment equal to 2.99 times the sum of base salary and the
average of the annual bonus accrued during the three fiscal years prior to the
termination date. The Agreements also entitle each Executive to continue
participation in the Company's life and health insurance benefits for 36 months
following the termination date. In addition, all stock options granted to the
Executive Officer under the Company's 1992 Performance Incentive Plan or any
other incentive plan or arrangement will become 100% vested and immediately
exercisable.
Based on current salaries, if Messrs. Strome or Cline had terminated their
employment as of May 31, 1997 under circumstances entitling them to severance
pay as described above, they would have been entitled to receive lump sum cash
payments of $1,385,366 and $859,434, respectively.
Performance Graph
The following line graph compares the cumulative total shareholder return
for the Company's Common Stock with the cumulative total return of the Standard
& Poor's 500 Composite Index and the Russell 2500 Index, for the past five-year
period.
[LINE GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Handelman 100 103 80 82 48 49
S&P 500 100 112 118 139 181 227
Russell 2500 100 113 128 140 187 197
</TABLE>
Assumes an investment of $100 in the Company's Common Stock, the S & P 500
Composite Index and Russell 2500 Index as of the last day of fiscal 1992. It
shows the cumulative total return for the Company's last five fiscal years
assuming reinvestment of dividends.
The Company does not believe it feasible to provide a peer group
comparison since any entities that could conceivably be deemed "peers" are
either privately-held companies or subsidiaries or divisions of larger
publicly-held companies. Therefore, the Company has selected the Russell 2500
Index on the basis of similar market capitalization.
9
<PAGE> 12
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
INTRODUCTION
The Compensation and Stock Option Committee (the "Committee") of the Board
is composed of three independent non-employee Directors who have no
interlocking relationships as defined by the SEC. The members of the Committee
are Messrs. James B. Nicholson (Chairman), Lloyd E. Reuss and Gilbert R.
Whitaker, Jr. The Committee establishes the compensation policy for the
Company's executives and reviews the salaries, bonuses and stock incentives of
each of the Executive Officers including the Chief Executive Officer. The
Committee administers the Company's 1992 Performance Incentive Plan.
GENERAL POLICIES
The Company's compensation policies reflect its belief that the
compensation of its key employees (including Executive Officers) should: (1)
provide a compensation program that motivates key employees to achieve their
strategic goals by tying compensation to the performance of the Company and
applicable business units, as well as, to individual performance; (2) provide
compensation reasonably comparable to that offered by other leading companies
to attract and retain talented executives; and to (3) align the interests of
its key employees with the long-term interests of the Company's shareholders
through the award of stock incentives. The compensation packages offered to
key employees are based on the review of compensation survey studies and the
advice of compensation consultants. In assessing salary levels from a
comparability standpoint, the Committee refers to compensation surveys based on
different groups of corporations with approximately the same sales volume as
the Company.
The Committee has not taken into the account the impact of Section 162(m)
of the Internal Revenue Code (which disallows certain deductions for executive
compensation exceeding $1,000,000 per year) in determining the level of
executive compensation since there is no immediate relationship between the
Company's compensation levels and the provisions of Section 162(m).
BASE SALARIES
Base salaries are established by analyzing and evaluating the
responsibilities of a given position and a comparison of compensation levels of
similar positions in the competitive marketplace on both a regional and
national basis. Each position is included in a structure of graduated salary
levels that have been set up by reference to the pay practices of the companies
included in the outside consultant's compensation surveys. Salary levels are
reviewed annually and are subject to adjustment based on the general movement
in salaries in the job market, as well as the individual's job performance,
contributions to the Company and changes in job responsibilities.
BONUSES
The Company's bonus program is intended to encourage and reward the
achievement of corporate objectives. Under the Company's bonus program, the
Committee establishes a bonus pool and specific bonus payments based on a
targeted return on beginning shareholders' equity. Key management employees
participate in the bonus program. Awards under the program are based, first,
on attaining the targeted return on equity and, second, on each participant's
contribution to the Company's business results based on both quantitative
results and subjective performance review. Bonuses are paid annually, based
upon whether the participant meets annual objectives. In 1997, Messrs. Cline,
Gross and Braum received bonuses based on their individual initiative and
contribution to corporate performance.
STOCK PLANS
The Company's shareholders approved the adoption of the Handleman Company
1992 Performance Incentive Plan (the "Plan") which authorizes the granting of
stock options, stock appreciation rights and restricted stock.
The Committee believes that stock ownership by key employees (including
Executive Officers) and stock-based performance compensation arrangements
foster an interest in the enhancement of shareholder value and thus align
management's interests with that of the shareholders. In fiscal 1997, stock
options were awarded pursuant to the Plan to key employees in amounts
reflecting the participant's position and ability to influence the Company's
overall performance. In determining the size of individual awards, the
Committee considered the amount of options outstanding and previously granted,
both in the aggregate and with respect to the particular executive, and the
amount of options remaining available for grant under the Plan. The
Committee's policy has been to utilize vesting periods to encourage key
employees to continue in the employ of the Company, and to grant options to
provide a long-term incentive. The exercise price of the options is based on
the fair market value of the underlying shares on the date of the grant. Thus,
such options have value only if the price of the underlying share increases.
There were no restricted shares awarded in fiscal 1997. Restricted shares
are held in the custody of the Company and vest only if specified returns on
shareholders' equity are reached. These shares are treated as outstanding for
purposes of calculating earnings per share and may be voted by the participant.
Cash dividends are paid on the restricted stock holdings on the normal
dividend payment dates. Dividends have not been paid on the Company's Common
Stock since January 10, 1996. The number of shares which may vest will be
prorated to the extent the performance goals are achieved. If the minimum
performance goals under which an award is issued are not satisfied, the shares
are forfeited. Restricted shares granted during the fiscal year ended April
1995 were issuable if consolidated return on shareholders' equity exceeded a
predetermined threshold of performance in the fiscal 1995 through fiscal 1997
performance period. The threshold performance level for this portion was not
met and, therefore, the restricted stock awards of 13,748, 8,048, 6,802, 2874,
and 2,551 shares granted to Messrs. Strome, Cline, Hicks, Gross and Braum,
respectively, were canceled.
10
<PAGE> 13
REPRICING PROGRAM AND STOCK OWNERSHIP PROGRAM
The Committee reviewed the Company's stock option program to ascertain
whether it was meeting its objective of encouraging stock ownership among key
employees and providing additional motivation for them to align their interests
with those of the shareholders. The Company's stock price has declined over
the past several years despite what the Committee believes to be a positive
overall performance by the executive staff. As a result, most of the
outstanding stock options are underwater (i.e. the market price of the
Company's Common Stock is less than the exercise price for the applicable stock
options).
The Committee engaged an independent consulting firm to provide assistance
and recommendations to it. The consulting firm reviewed both the current
status of the outstanding stock options and of overall employee stock ownership
and made proposals for accomplishing the interdependent goals of executive
motivation (as well as retention and attraction of key employees) and
shareholder value creation.
The Committee made its recommendations to the Board of Directors, which
then adopted during fiscal 1997 a new program concerning existing stock options
and requiring a level of Company stock ownership by key employees. The program
consists of two related elements. The first (the Repricing Program) is that an
employee holding outstanding stock options will have the right to reduce the
present exercise price of his or her stock options if the optionee concurrently
purchases shares of the Company's Common Stock. For each Company common share
purchased, the optionee would be able to reduce the exercise price on the
optionee's existing stock options for 7.5 shares of stock to an exercise price
equal to the price of the purchased share (which was accomplished through
cancellation of such underwater options and grant of new options at the price
of the purchased share at the 7.5 to 1 ratio). Common shares purchased for
this purpose by the employee generally cannot be sold or transferred for five
years. In order to comply with this program, the optionee will have to
purchase the Company Common Stock before April 1, 1998. From and after April
1, 1998, this Repricing Program will no longer be in effect. The new stock
options will be Nonqualified Options and will have a term of 10 years from the
date of purchase of Common Stock, less the time that has already occurred from
the date of the original option grant.
The second element of the program establishes guidelines for ownership of
Common Stock by key employees (the "Stock Ownership Program"). The Company
adopted certain minimum stock ownership guidelines for key management. For the
Chief Executive Officer it is expected that he would own shares having a value
of 3 times his base salary. For other members of management the value of
shares owned would range from .33 to 2.0 times base salary.
The employees will be given until April 30, 2002 (five years) to achieve
the stock ownership guidelines, which may be satisfied through direct ownership
of shares, including shares received upon exercise of options and shares
purchased and held in connection with the Repricing Program, Restricted
shares, however, are not taken into account until the shares vest.
The Company has also adopted minimum stock ownership guidelines for
outside Directors. Each outside Director of the Company will be expected to
own Handleman Company Common Stock by April 30, 2002 as valued at market price
equal to three times the annual retainer paid to the outside Director by the
Company. The annual retainer is currently $18,000.
OTHER COMPENSATION
At various times in the past the Company has adopted certain broad-based
employee benefit plans in which key management employees have been permitted to
participate and has adopted certain Executive Officer retirement, life and
health insurance and automotive plans. Other than with respect to the
Company's 401(k) Plan, which includes a Company Common Stock Fund so as to
further align employees' and shareholders' long-term financial interests,
benefits under these plans are not directly or indirectly tied to Company
performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
The annual base salary earned in fiscal 1997 by Stephen Strome, the
Company's Chief Executive Officer, was $425,000, an amount that did not
increase materially from his salary in fiscal 1996. Compensation for the Chief
Executive Officer is determined through a process similar to that discussed
above for executive officers. No bonus was paid to Mr. Strome for fiscal year
1997 since the Company's performance goal under its bonus program was not met.
The Chief Executive Officer's bonus is based solely on the Company meeting a
targeted return on shareholders' equity. In fiscal 1997, Mr. Strome was
awarded a Nonqualified Stock Option grant to purchase 59,000 shares of the
Company's stock (see Option Grants in the Last Fiscal Year). The goal of the
option is to insure attention to the Company's long-term strategies and
objectives, and provide payouts for performance that increases shareholder
value. During fiscal 1995, Mr. Strome was awarded 13,748 restricted shares.
These shares were to be issued based on the extent that consolidated return on
shareholders' equity exceeded the performance target for the fiscal 1995-1997
performance period. The threshold performance level was not met and these
shares were canceled (see Long-Term Compensation Awards in the Summary
Compensation Table). The Committee believes Mr. Stephen Strome's compensation
to be competitive with compensation practices of the companies included in the
survey prepared by the outside consultant.
BY THE COMPENSATION AND STOCK OPTION COMMITTEE:
James B. Nicholson (Chairman)
Lloyd E. Reuss
Gilbert R. Whitaker, Jr.
11
<PAGE> 14
II. PROPOSAL TO AMEND HANDLEMAN COMPANY
1992 PERFORMANCE INCENTIVE PLAN
The Board of Directors proposes that the shareholders approve an amendment
(the "Amendment") to the Company's 1992 Performance Incentive Plan (the "Plan")
in order to meet certain requirements of Section 162(m) ("Section 162(m)") of
the Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations thereunder (the "Regulations").
At the 1992 Annual Meeting of Shareholders, the shareholders of the
Company approved the Plan, under which stock options (both Nonqualified Options
and Incentive Options as defined in the Plan), stock appreciation rights and
restricted stock may be granted to key employees (the "Participants") of the
Company or of any corporation in which the Company owns stock possessing more
than 25% of the combined voting power of all classes of stock (a "Subsidiary").
The stock options, stock appreciation rights and restricted stock to be
granted or awarded under the Plan relate to shares of the Company's Common
Stock.
Section 162(m) of the Code was enacted after the 1992 Annual Meeting of
Shareholders. Under Section 162(m), in the case of any publicly held
corporation (which, as defined, would include the Company) no deduction is
allowed for federal income tax purposes with respect to any "covered employee"
(which, as defined in Section 162(m), would consist of each of the five highest
compensated officers of the Company, corresponding to the named Executive
Officers as designated in this Proxy Statement) to the extent that the amount
of the applicable employee remuneration for a taxable year for such covered
employee exceeds $1 million. Applicable employee remuneration would, among
other amounts, include compensation recognized by a Participant upon the
exercise of Nonqualified Options and stock appreciation rights.
However, under Section 162(m) applicable employee remuneration would not
include remuneration payable solely on account of the attainment of one or more
performance goals if certain conditions are specified and satisfied. If the
performance-based conditions under Section 162(m) and the Regulations were
incorporated into the Plan, remuneration of a covered employee (i.e., a named
Executive Officer) on account of the exercise of a Nonqualified Option or stock
appreciation right granted under the Plan would be deductible by the Company
for federal income tax purposes without regard to the limitations of Section
162(m).
The Board of Directors believes that it is in the best interests of the
Company and its shareholders to be able to offer stock options, stock
appreciation rights and restricted stock to key employees (including officers
who are also named Executive Officers) in accordance with the terms of the Plan
in order to provide increased incentives for such employees to make significant
and extraordinary contributions to the long-term performance and growth of the
Company, to join the interests of key employees with the interests of
shareholders of the Company, and to help the Company attract and retain key
employees. At the same time, to the extent that a named Executive Officer
would recognize compensation flowing from stock options or stock appreciation
rights granted and exercised under the Plan, it is in the Company's best
interests to be able to deduct the amount of the compensation recognized by
such Participant without the limitations imposed by Section 162(m).
Accordingly, the purpose of the Amendment is to adopt certain changes to
the Plan to meet all of the requirements of Section 162(m) of the Code and the
Regulations so that any compensation recognized as a result of exercise of
stock options or stock appreciation rights would be treated as
performance-based compensation under Section 162(m) and the Regulations and,
therefore, would be deductible for federal income tax purposes by the Company
without regard to that Section's limitations. It should be noted that
compensation of a covered employee attributable to restricted stock awarded
under the Plan would generally not constitute qualified performance-based
compensation and, therefore, such compensation would be subject to the Section
162(m) deduction limitation.
Certain transitional rules in effect with respect to the Plan expire with
this Annual Meeting of Shareholders. Thus, unless the Amendment is approved by
the shareholders, the compensation recognized by a named Executive Officer upon
exercise of stock options or stock appreciation rights granted under the Plan
after this Annual Meeting would not be deductible by the Company to the extent
that such compensation plus the Participant's other remuneration for the
taxable year exceeds $1 million. Section 162(m), as well as the current
provisions of the Plan, would not affect the deductibility of remuneration
received by any Participant who would not be designated as a named Executive
Officer. To this date, the $1 million limitation of Section 162(m) has had no
impact upon the Company.
A FULL COPY OF THE PLAN WITH THE PROPOSED LANGUAGE CHANGES FROM THE
AMENDMENT IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT. THE LANGUAGE THAT
WOULD BE OMITTED AS A RESULT OF THE AMENDMENT IS LINED AND THE NEW LANGUAGE
PROPOSED BY THE AMENDMENT IS SHOWN IN BOLD FACE.
12
<PAGE> 15
Following is a summary of the Amendment:
COMMITTEE
The Plan is administered by a Committee (the "Committee") appointed by the
Board of Directors. The Plan presently provides that the Committee has to meet
the standards of Rule 16b-3 of the Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Amendment provides
that the Committee must consist of two or more members of the Board of
Directors, each of whom is a "non-employee director" as defined under Rule
16b-3 of the Rules and Regulations under the Exchange Act and, in addition,
must be an "outside director" as defined under Section 162(m) of the Code and
the Regulations. Under the Regulations, in order to be an "outside director" a
director of the Company cannot be a current employee or a former employee of
the Company receiving compensation for prior services during the taxable year,
cannot have been an officer of the Company, and cannot receive remuneration
from the Company, either directly or indirectly, in any capacity other than as
a director.
Subject to the provisions of the Plan, the Committee determines from those
eligible to be Participants under the Plan the persons to be granted stock
options, stock appreciation rights and restricted stock, the amount of stock or
rights to be optioned or granted to each such person, and the terms and
conditions of such grants or awards. The only established criterion to
determine eligibility under the Plan is that individuals must be key employees
(including officers who are also key employees) of the Company or a Subsidiary.
In addition, the Committee is authorized to interpret the Plan, to make, amend
and rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for its administration, all subject to
the provisions of the Plan.
MAXIMUM NUMBER OF SHARES GRANTED UNDER THE PLAN
Although the Plan limits the maximum number of shares of stock which may
be issued pursuant to restricted stock awards or with respect to which stock
options or stock appreciation rights may be granted under the Plan, there is no
limitation as to the number of grants of stock options or stock appreciation
rights to any Participant.
The Regulations provide that in order for compensation attributable to
stock options or stock appreciation rights to be treated as performance-based,
the plan under which the options or rights are granted must specify the maximum
number of shares with respect to which stock options or stock appreciation
rights may be granted during a specified period to any employee. Accordingly,
the Amendment would amend Paragraph 5 of the Plan to provide that the maximum
number of shares with respect to which stock options or stock appreciation
rights may be granted to any Participant during any calendar year shall not
exceed 200,000 shares, subject to adjustments as provided in Paragraph 5 to
reflect stock dividends and similar events.
OPTION PRICE
Paragraph 10 of the Plan provides that with respect to a Nonqualified
Option, the option price may not be less than 50% of the fair market value of
the stock on the date such option is granted. The Regulations provide that in
order to be performance-based, the exercise price of a stock option must be
equal to or greater than the fair market value of the underlying shares on the
date the stock option is granted. Accordingly, the Amendment would amend
Paragraph 10 of the Plan to provide that with respect to a Nonqualified Option,
the option price would not be less than 100% of the fair market value of the
stock on the date such option is granted.
APPROVAL BY SHAREHOLDERS
The Amendment provides that, except as amended, the Plan is reaffirmed in
its entirety and shall remain in full force and effect.
The Amendment will become effective upon the approval of a vote of the
majority of the outstanding shares of Common Stock of the Company at this
Annual Meeting of Shareholders. Abstentions, withheld votes and broker
non-votes will not be deemed votes cast for approval. If the Amendment is not
approved, the Plan would remain in effect but any remuneration received by a
named Executive Officer on account of a stock option or stock appreciation
right granted after the Annual Meeting of Shareholders would not be deductible
by the Company for federal income tax purposes to the extent that such
remuneration, plus the named Executive Officer's other remuneration for a
taxable year, exceeds $1 million.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE HANDLEMAN COMPANY 1992 PERFORMANCE INCENTIVE PLAN.
13
<PAGE> 16
III. OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
Coopers & Lybrand L.L.P. is the independent public accountant for the
Company and its subsidiaries and has reported on the Company's consolidated
financial statements for the fiscal year ended May 3, 1997. The Company's
independent public accountant is appointed by the Board of Directors after
receiving recommendations from the Audit Committee. Coopers & Lybrand L.L.P.
has been reappointed for fiscal year 1998.
Representatives from Coopers & Lybrand L.L.P. are expected to be present
at the Annual Meeting of Shareholders and will have the opportunity to make a
statement at the meeting if they desire to do so, and are expected to be
available to respond to appropriate questions.
OTHER PROPOSALS
Neither the Company nor the members of its Board of Directors intend to
bring before the Annual Meeting any matters other than those set forth in the
Notice of Annual Meeting, and they have no present knowledge that any other
matters will be presented for action at the Meeting by others. However, if any
other matters properly come before the Meeting, it is the intention of the
persons named in the enclosed form of proxy to vote in accordance with their
best judgment.
A shareholder proposal which is intended to be presented at the 1998
Annual Meeting of Shareholders must be received by the Company at its principal
executive offices by March 9, 1998.
By Order of the Board of Directors,
LEONARD A. BRAMS, Secretary
Dated: July 30, 1997
14
<PAGE> 17
APPENDIX A
HANDLEMAN COMPANY
1992 PERFORMANCE INCENTIVE PLAN
1. DEFINITIONS: As used herein, the following definitions shall apply:
(a) "Plan shall mean this Handleman Company 1992 Performance Incentive Plan.
(b) "Corporation" shall mean Handleman Company, a Michigan corporation, or
any successor thereof.
(c) "Committee" shall mean a committee (strike out copy) (meeting the
standard of Rule 16b-3 of the Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any similar successor rule, appointed by the Board of Directors of the
Corporation to administer the Plan or, if no such committee is appointed,
the Board of Directors as whole) CONSISTING OF TWO OR MORE MEMBERS OF
THE BOARD OF DIRECTORS OF THE CORPORATION, EACH OF WHOM (1) SHALL BE AN
"OUTSIDE DIRECTOR" AS DEFINED UNDER SECTION 162(M) OF THE CODE (AS
HEREINAFTER DEFINED, AND THE TREASURY REGULATIONS THEREUNDER, AND (2)
SHALL BE A "NON-EMPLOYEE DIRECTOR" AS DEFINED UNDER RULE 16B-3 OF THE
RULES AND REGULATIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT") OR ANY SIMILAR OR SUCCESSOR PROVISION, AS
APPOINTED BY THE BOARD OF DIRECTORS OF THE CORPORATION TO ADMINISTER THE
PLAN.
(d) "Participant" shall mean any individual designated by the Committee under
Paragraph 6, for participation in the Plan.
(e) "Nonqualified Option" shall mean an option to purchase Common Stock of
the Corporation which meets the requirements set forth in the Plan but
does not meet the definition of an incentive stock option set forth in
Section 422A of the Internal Revenue of 1986, as amended (the "Code").
(f) "Incentive Option" shall mean an option to purchase Common Stock of the
Corporation which meets the requirements set forth in the Plan and also
meets the definition of an incentive stock option set forth in Section
422A of the Code.
(g) "Stock appreciation right" shall mean a right to receive the appreciation
in value, or percent thereof of a specified number of shares of the
Common Stock of the Corporation, as provided in Paragraph 12.
(h) "Subsidiary" shall mean any corporation in which the Corporation owns,
directly or indirectly, stock possessing more than twenty-five percent of
the combined voting power of all classes of stock.
(i) "Restricted stock award" shall mean a grant of Common Stock of the
Corporation which is subject to restrictions against transfer, forfeiture
and such other terms and conditions determined by the Committee, as
provided in Paragraph 18.
2. PURPOSE OF PLAN: The purpose of the Plan is to provide key employees
(including officers who are also key employees) of the Corporation and its
Subsidiaries with incentives to make significant and extraordinary
contributions to the long-term performance and growth of the Corporation and
its Subsidiaries, to join the interests of key employees with the interests of
the shareholders of the Corporation, and to facilitate attracting and retaining
key employees.
3. ADMINISTRATION: The Plan shall be administered by the Committee. Subject
to the provisions of the Plan, the Committee shall determine, from those
eligible to be Participants under the Plan, the persons to be granted stock
options, stock appreciation rights and restricted stock, the amount of stock or
rights to be optioned or granted to each such person, and the terms and
conditions of any stock options, stock appreciation rights and restricted stock.
Subject to the provisions of the Plan, the Committee is authorized to interpret
the Plan, to promulgate, amend and rescind rules and regulations relating to the
Plan and to make all other determinations necessary or advisable for its
administration. Interpretation and construction of any provision of the Plan by
the Committee shall be final and conclusive. Acts approved by a majority of the
members present at any meeting at which a quorum is present, or acts approved in
writing by a majority of the Committee, shall be the acts of the Committee.
4. INDEMNIFICATION OF COMMITTEE MEMBERS: In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option,
stock appreciation right or restricted stock granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by the Board of Directors of the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member has acted in bad faith; provided,
however, that within sixty (60) days after receipt of notice of institution of
any such action, suit or proceeding a Committee member shall offer the
Corporation in writing the opportunity, at its own cost, to handle and defend
the same.
5. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: At any given time, the maximum
number of shares of stock which may be issued pursuant to restricted stock
awards or with respect to which stock options or stock appreciation rights may
be granted under the Plan shall
15
<PAGE> 18
be the total of:
(a) 5% of the number of shares of Common Stock of the Corporation that were
outstanding as of the end of the immediately preceding fiscal year of the
Corporation (rounded downward, if necessary to eliminate fractional
shares), minus the sum of :
(1) the number of shares of restricted stock awarded during the period
consisting of the immediately preceding four complete fiscal years of
the Corporation and its then-current fiscal year to date (the
"Adjustment Period");
(2) the number of shares with respect to which stock options were granted
during the Adjustment Period; and
(3) the number of shares with respect to which stock appreciation rights
were granted during the Adjustment Period,
plus,
(b) the number of shares with respect to which stock options or stock
appreciation rights granted during the Adjustment Period have since
expired or terminated for any reason other than exercise of such
stock options (or related stock appreciation right) or such stock
appreciation rights.
In addition to the foregoing, in no event may the total number of shares
covered by outstanding Incentive Options granted under the Plan, plus the
number of shares issued pursuant to exercise of Incentive Options, whenever
granted, exceed 900,000 shares. FURTHERMORE, THE MAXIMUM NUMBER OF SHARES WITH
RESPECT TO WHICH STOCK OPTIONS OR STOCK APPRECIATION RIGHTS MAY BE GRANTED TO
ANY PARTICIPANT DURING ANY CALENDAR YEAR SHALL NOT EXCEED 200,000 SHARES
(SUBJECT TO ADJUSTMENTS AS PROVIDED IN THIS PARAGRAPH 5).
The number of shares with respect to which a stock appreciation right is
granted during the Adjustment Period, but not the number of shares which the
Corporation delivers or could deliver to a Participant upon exercise of a stock
appreciation right, shall be charged against the aggregate number of shares
available at any time under the Plan; provided, however, that in the case of a
stock appreciation right granted during the Adjustment Period in conjunction
with a stock option under circumstances in which the exercise of the stock
appreciation right results in termination of the stock option and vice versa,
only the number of shares subject to the stock option shall be charged against
the aggregate number of shares available at any time under the Plan.
The number of shares subject to each outstanding stock option or stock
appreciation right or restricted stock award, the option price with respect to
outstanding stock options, the grant value with respect to outstanding stock
appreciation rights, and the aggregate number of shares available at any time
under the Plan shall be subject to such adjustment as the Committee, in its
discretion, deems appropriate to reflect such events as stock dividends, stock
splits, recapitalizations, mergers, consolidations or reorganizations of or by
the Corporation; provided, however, that no fractional shares shall be issued
pursuant to the Plan, no rights may be granted under the Plan with respect to
fractional shares, and any fractional shares resulting from such adjustments
shall be eliminated from any outstanding stock option, stock appreciation
right, or restricted stock award.
6. PARTICIPANTS: The Committee shall determine and designate from time to
time, in its sole discretion, those key employees (including officers who are
also key employees) of the Corporation or any Subsidiary to whom stock options,
stock appreciation rights, or restricted stock are to be granted or awarded and
who thereby become Participants under the Plan.
7. WRITTEN AGREEMENT: Each stock option, stock appreciation right and
restricted stock award shall be evidenced by a written agreement between the
Corporation and the Participant and shall contain such provisions as may be
approved by the Committee. Such agreements shall constitute binding contracts
between the Corporation and the Participant, and every Participant, upon
acceptance of such agreement, shall be bound by the terms and restrictions of
the Plan and of such agreement. The terms of each such agreement shall be in
accordance with the Plan, but the agreements may include such additional
provisions and restrictions determined by the Committee, provided that such
additional provisions and restrictions are not inconsistent with the terms of
the Plan.
8. ALLOTMENT OF SHARES: The Committee shall determine and fix the number of
shares of stock with respect to which each Participant may be granted stock
options and stock appreciation rights and the number of shares of restricted
stock which each Participant may be awarded; provided, however, that no
Incentive Option may be granted under the Plan to any one Participant which
would result in the aggregate fair market value, determined as of the date the
option is granted, of underlying stock with respect to which Incentive Options
are exercisable for the first time by such Participant during any calendar year
under any plan maintained by the Corporation (or any parent or subsidiary
corporation of the Corporation) exceeding $100,000.
9. STOCK OPTIONS: Subject to the terms of the Plan, the Committee may grant to
Participants either Incentive Options, Nonqualified Options or any combination
thereof. Each option granted under the Plan shall designate the number of
shares covered thereby, if any, with respect to which the option is an
Incentive Option, and the number of shares covered thereby, if any, with
respect to which the option is a Nonqualified Option.
10. STOCK OPTION PRICE: Subject to the rules set forth in this Paragraph 10,
at the time any stock option is granted, the Committee shall establish the
price per share for which the shares covered by the option may be purchased.
With respect to an Incentive Option, such option price shall not be less than
100% of the fair market value of the stock on the date on which such option is
granted; provided, however, that with respect to an Incentive Option granted to
an employee who at the time of the grant owns (after applying the attribution
16
<PAGE> 19
rules of Section 425(d) of the Code) more than 10% of the total combined voting
stock of the Corporation or of any parent or subsidiary, the option price shall
not be less than 110% of the fair market value of the stock on the date such
option is granted. With respect to a Nonqualified Option, the option price
shall not be less than (strike out) (50%) 100% of the fair market value of the
stock on the date such option is granted. Fair market value of a share
shall be determined by the Committee and may be determined by taking the mean
between the highest and lowest quoted selling prices of the Corporation's stock
on any exchange or other market on which the shares of Common Stock of the
Corporation shall be traded on such date. The option price shall be subject to
adjustment in accordance with the provisions of Paragraph 5 of the Plan.
11. PAYMENT OF STOCK OPTION PRICE: At the time of the exercise in whole or in
part of any stock option granted hereunder, payment of the option price in full
in cash or, with the consent of the Committee, in Common Stock of the
Corporation or by a promissory note payable to the order of the Corporation
which is acceptable to the Committee, shall be made by the Participant for all
shares so purchased. Such payment may, with the consent of the Committee, also
consist of a cash down payment and delivery of such a promissory note in the
amount of the unpaid exercise price. Such payment may also be made in such
other manner as the Committee determines is appropriate, in its sole
discretion. No Participant shall have any of the rights of a shareholder of
the Corporation under any stock option until the actual issuance of shares to
said Participant, and prior to such issuance no adjustment shall be made for
dividends, distributions or other rights in respect of such shares, except as
provided in Paragraph 5.
12. STOCK APPRECIATION RIGHTS: Subject to the terms of the Plan, the Committee
may grant stock appreciation rights to Participants either in conjunction with,
or independently of, any stock options granted under the Plan. A stock
appreciation right granted in conjunction with a stock option may be an
alternative right wherein the exercise of the stock option terminates the stock
appreciation right to the extent of the number of shares purchased upon
exercise of the stock option and, correspondingly, the exercise of the stock
appreciation right terminates the stock option to the extent of the number of
shares with respect to which the stock appreciation right is exercised.
Alternatively, a stock appreciation right granted in conjunction with a stock
option may be an additional right wherein both the stock appreciation right and
the stock option may be exercised; provided, however, that a stock appreciation
right may not be granted in conjunction with an Incentive Option under
circumstances in which the exercise of the stock appreciation right affects the
right to exercise the Incentive Option or vice versa, unless the stock
appreciation right, by its terms, meets all of the following requirements:
(a) The stock appreciation right will expire no later than the Incentive
Option;
(b) The stock appreciation right may be for no more than the difference
between the option price of the Incentive Option and the fair market
value of the shares subject to the Incentive Option at the time the stock
appreciation right is exercised;
(c) The stock appreciation right is transferable only when the Incentive
Option is transferable, and under the same conditions;
(d) The stock appreciation right may be exercised only when the Incentive
Option is eligible to be exercised; and
(e) The stock appreciation right may be exercised only when the fair market
value of the shares subject to the Incentive Option exceeds the option
price of the Incentive Option.
Upon exercise of a stock appreciation right, a Participant shall be entitled to
receive, without payment to the Corporation (except for applicable withholding
taxes), an amount equal to the applicable percentage, as specified in the
right, of the excess of (i) the then aggregate fair market value of the number
of shares with respect to which the Participant exercises the stock
appreciation right, over (ii) the aggregate fair market value of such number of
shares at the time the stock appreciation right was granted. This amount shall
be payable by the Corporation, in the sole discretion of the Committee or as
provided in the grant of the right,
in cash, in shares of Common Stock of the Corporation or any combination
thereof, at the times provided in the grant of right.
13. GRANTING AND EXERCISE OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: Each
stock option and stock appreciation right granted hereunder shall be
exercisable at any such time or times or in any such installments as may be
determined by the Committee at the time of the grant; provided, however, that
no stock appreciation right or stock option granted in conjunction therewith
may be exercisable prior to the expiration of six months from the date of grant
unless the Participant dies or becomes disabled prior thereto. If a
Participant who is granted a stock appreciation right is a person who is
regularly required to report his ownership and changes in ownership of Common
Stock of the Corporation to the Securities and Exchange Commission and is
subject to short-swing profit liability under the provisions of Section 16(b)
of the Exchange Act, then any election to exercise as well as any actual
exercise of his stock appreciation right shall be made only during the period
beginning on the third business day and ending on the twelfth business day
following the release for publication by the Corporation of quarterly or annual
summary statements of sales and earnings. Notwithstanding anything contained
in the Plan to the contrary, stock appreciation rights shall always be granted
and exercised in such a manner as to conform to the provisions of Rule
16b-3(e), or any replacement rule, adopted pursuant to the provisions of the
Exchange Act. In addition, the aggregate fair market value (determined at the
time the option is granted) of the stock with respect to which Incentive
Options are exercisable for the first time by a Participant during any calendar
year shall not exceed $100,000.
A Participant may exercise a stock option or stock appreciation right, if then
exercisable, in whole or in part by delivery to the Corporation of written
notice of the exercise, in such form as the Committee may prescribe,
accompanied, in the case of a stock option, by full payment for the shares with
respect to which the stock option is exercised. Except as provided in
Paragraph 17, stock options and stock
17
<PAGE> 20
appreciation rights may be exercised only while the Participant is an employee
of the Corporation or a Subsidiary.
Successive stock options and stock appreciation rights may be granted to the
same Participant, whether or not the stock option(s) and stock appreciation
right(s) previously granted to such Participant remain unexercised. A
Participant may exercise a stock option or a stock appreciation right, if then
exercisable, notwithstanding that stock options and stock appreciation rights
previously granted to such Participant remain unexercised.
14. NON-TRANSFERABILITY OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: No
stock option or stock appreciation right granted under the Plan to a
Participant shall be transferable by such Participant otherwise than by will,
or by the laws of descent and distribution, and such option and stock
appreciation right shall be exercisable, during the lifetime of the
Participant, only by the Participant.
15. TERM OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: If not sooner
terminated, each stock option and stock appreciation right granted hereunder
shall expire not more than 10 years from the date of the granting thereof;
provided, however, that with respect to an Incentive Option or a related stock
appreciation right granted to a Participant who, at the time of the grant, owns
(after applying the attribution rules of Section 425(d) of the Code) more than
10% of the total combined voting stock of all classes of stock of the
Corporation or any parent or subsidiary, such option and stock appreciation
right shall expire not more than five (5) years after the date of granting
thereof.
16. CONTINUATION OF EMPLOYMENT: The Committee may require, in its discretion,
that any Participant under the Plan to whom a stock option or stock
appreciation right shall be granted shall agree in writing as a condition of
the granting of such stock option or stock appreciation right to remain in the
employ of the Corporation or a Subsidiary for a designated minimum period from
the date of the granting of such stock option or stock appreciation right as
shall be fixed by the Committee.
17. TERMINATION OF EMPLOYMENT: If the employment of a Participant by the
Corporation or a Subsidiary shall be terminated, the Committee may, in its
discretion, permit the exercise of stock options and stock appreciation rights
granted to such Participant (i) for a period not to exceed one year following
such termination of employment with respect to Incentive Options, and (ii) for
a period not to extend beyond the expiration date with respect to Nonqualified
Options; provided, however, that no Incentive Option or related stock
appreciation right may be exercised after three months following a
Participant's termination of employment, unless such termination of employment
is due to the Participant's death or permanent disability, in which event the
Incentive Option and related stock appreciation right may be permitted to be
exercised for up to one year following the Participant's termination of
employment for such reason. In no event, however, shall a stock option or
stock appreciation right be exercisable subsequent to its expiration date and,
furthermore, a stock option or stock appreciation right may only be exercised
after termination of a Participant's employment to the extent exercisable on
the date of termination of employment.
18. RESTRICTED STOCK AWARDS: Subject to the terms of the Plan, the Committee
may award shares of restricted stock to Participants. All shares of restricted
stock granted to participants under the Plan shall be subject to the following
terms and conditions (and to such other terms and conditions prescribed by the
Committee):
(a) At the time of each award of restricted shares, there shall be
established for the shares a restricted period, which shall be no less
than six months. Such restricted period may differ among Participants
and may have different expiration dates with respect to portions of
shares covered by the same award.
(b) Shares of restricted stock awarded to Participants may not be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered
during the restricted period applicable to such shares.
Except for such restrictions on transfer, a Participant shall have all of
the rights of a stockholder in respect of restricted shares awarded to
him including, but not limited to, the right to receive dividends on, and
the right to vote, the shares.
(c) If a Participant ceases to be employed by the Corporation or a Subsidiary
for any reason other than death or permanent disability, all shares
theretofore awarded to the Participant which are still subject to the
restrictions imposed by Paragraph 18(b) shall upon such termination of
employment be forfeited and transferred back to the Corporation, without
payment of any consideration by the Corporation; provided, however, that
in the event such employment is terminated by action of the Corporation
or a Subsidiary without cause or by agreement between the Corporation or
a Subsidiary and the Participant, the Committee may, in its discretion,
release some or all of the shares from the restrictions.
(d) If a Participant ceases to be employed by the Corporation or a Subsidiary
by reason of death or permanent disability, the restrictions imposed by
Paragraph 18(b) shall lapse with respect to shares then subject to such
restrictions, unless otherwise determined by the Committee.
(e) Stock certificates shall be issued in respect of shares of restricted
stock awarded hereunder and shall be registered in the name of the
Participant. Such certificates shall be deposited with the Corporation or
its designee, together with a stock power endorsed in blank, and, in the
discretion of the Committee, a legend shall be placed upon such
certificates reflecting that the shares represented thereby are subject
to restrictions against transfer and forfeiture.
18
<PAGE> 21
(f) At the expiration of the restricted period applicable to the shares, the
Corporation shall deliver to the Participant or the legal representative
of the Participant's estate the stock certificates deposited with it or
its designee and as to which the restricted period has expired. If a
legend has been placed on such certificates, the Corporation shall cause
such certificates to be reissued without the legend.
In the case of events such as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by the Corporation, any stock,
securities or other property which a Participant receives or is entitled to
receive by reason of his ownership of restricted shares shall, unless otherwise
determined by the Committee, be subject to the same restrictions applicable to
the restricted shares and shall be deposited with the Corporation or its
designee.
19. INVESTMENT PURPOSE: If the Committee in its discretion determines that as
a matter of law such procedure is or may be desirable, it may require a
Participant, upon any acquisition of stock hereunder (whether by reason of the
exercise of stock options or stock appreciation rights or the award of
restricted shares) and as a condition to the Corporation's obligation to
deliver certificates representing such shares, to execute and deliver to the
Corporation a written statement, in form satisfactory to the Committee,
representing and warranting that the Participant's acquisition of shares of
stock shall be for such person's own account, for investment and not with a
view to the resale or distribution thereof and that any subsequent offer for
sale or sale of any such shares shall be made either pursuant to (a) a
Registration Statement on an appropriate form under the Securities Act of 1933,
as amended (the "Securities Act"), which Registration Statement has become
effective and is current with respect to the shares being offered and sold, or
(b) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption the Participant shall, prior to any offer
for sale or sale of such shares, obtain a favorable written opinion from
counsel for or approved by the Corporation as to the availability of such
exemption. The Corporation may endorse an appropriate legend referring to the
foregoing restriction upon the certificate or certificates representing any
shares issued or transferred to the Participant under this Plan.
20. RIGHTS TO CONTINUED EMPLOYMENT: Nothing contained in the Plan or in any
stock option, stock appreciation right or restricted stock granted or awarded
pursuant to the Plan, nor any action taken by the Committee hereunder, shall
confer upon any Participant any right with respect to continuation of
employment by the Corporation or a Subsidiary as an employee nor interfere in
any way with the right of the Corporation or a Subsidiary to terminate such
person's employment as an employee at any time with or without cause.
21. WITHHOLDING PAYMENTS: If upon the exercise of a Nonqualified Option or
stock appreciation right, or upon the award of restricted stock or the
expiration of restrictions applicable to restricted stock, or upon a
disqualifying disposition (within the meaning of Section 422A of the Code) of
shares acquired upon exercise of an Incentive Option, there shall be payable by
the Corporation or a Subsidiary any amount for income tax withholding, in the
Committee's sole discretion, either the Corporation shall appropriately reduce
the amount of stock or cash to be paid to the Participant or the Participant
shall pay such amount to the Corporation or Subsidiary to reimburse it for such
income tax withholding. The Committee may in its sole discretion, permit
Participants to satisfy such withholding obligations in whole or in part, by
electing to have the amount of Common Stock delivered or deliverable by the
Corporation upon exercise of a stock option or stock appreciation right or upon
award of restricted stock appropriately reduced, or by electing to tender
Common Stock back to the Corporation subsequent to exercise of a stock option
or stock appreciation right or award of restricted stock, to reimburse the
Corporation for such income tax withholding, subject to such rules and
regulations as the Committee may adopt. The Committee may make such other
arrangements with respect to income tax withholding as it shall determine.
22. EFFECTIVENESS OF PLAN: The Plan shall be effective as of June 22, 1992;
provided that the shareholders of the Corporation approve the Plan within 12
months of that date. Stock options, stock appreciation rights and restricted
stock may be granted or awarded prior to shareholder approval of the Plan, but
each such stock option, stock appreciation right or restricted stock grant or
award shall be subject
to shareholder approval of the Plan. No stock option or stock appreciation
right may be exercised prior to shareholder approval, and any restricted stock
awarded is subject to forfeiture if such shareholder approval is not obtained.
23. TERMINATION, DURATION AND AMENDMENTS OF PLAN: The Plan may be abandoned or
terminated at any time by the Board of Directors of the Corporation. Unless
sooner terminated, the Plan shall terminate on the date ten years after its
adoption by the Board of Directors, and no stock options, stock appreciation
rights or restricted stock may be granted or awarded thereafter. The
termination of the Plan shall not affect the validity of any stock option,
stock appreciation right or restricted stock outstanding on the date of
termination.
For the purpose of conforming to any changes in applicable law or governmental
regulations, or for any other lawful purpose, the Board of Directors shall have
the right, with or without approval of the shareholders of the Corporation, to
amend or revise the terms of the Plan at any time; provided, however, that no
such amendment or revision shall (i) increase the maximum number of shares in
the aggregate which are subject to the Plan (subject, however, to the
provisions of Paragraph 5), change the class of persons eligible to be
Participants under the Plan or materially increase the benefits accruing to
Participants under the Plan, without approval or ratification of the
shareholders of the Corporation; or (ii) change the stock option price (except
as contemplated by Paragraph 5) or alter or impair any stock option, stock
appreciation right, or restricted stock which shall have been previously
granted or awarded under the Plan, without the consent of the holder thereof.
As adopted by the Board of Directors on June 22, 1992.
19
<PAGE> 22
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
HANDLEMAN COMPANY
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 9, 1997
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY
David Handleman, Richard H. Cummings, and Alan E. Schwartz and each of
them, are hereby authorized to represent and vote the stock of the undersigned
at the Annual Meeting of Shareholders to be held September 9, 1997, and at any
adjournment thereof:
1. THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
<TABLE>
<S> <C> <C>
ELECTION OF [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
DIRECTORS (except as marked to the contrary below) to vote for all nominees listed
below
</TABLE>
Stephen Strome James B. Nicholson Lloyd E. Reuss
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below)
----------------------------------------------------------------------
2. THE BOARD RECOMMENDS A VOTE FOR AN AMENDMENT TO THE HANDLEMAN COMPANY
1992 PERFORMANCE INCENTIVE PLAN TO MEET CERTAIN REQUIREMENTS OF SECTION
162(M) OF THE INTERNAL REVENUE CODE OF 1986 AND THE TREASURY REGULATIONS
THEREUNDER.
FOR [ ] or AGAINST [ ] the proposal to amend the Handleman Company 1992
Performance Incentive Plan. [ ] ABSTAIN
3. In their discretion with respect to any other matters that may properly
come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS LISTED ABOVE AND FOR THE
AMENDMENT TO THE HANDLEMAN COMPANY 1992 PERFORMANCE INCENTIVE PLAN.
(Continued and to be signed on other side)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(Continued from other side)
THE UNDERSIGNED HEREBY REVOKES ANY PROXY OR PROXIES HERETOFORE GIVEN TO
VOTE SUCH STOCK, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEYS AND
PROXIES, OR THEIR SUBSTITUTES, MAY DO BY VIRTUE HEREOF. IF ONLY ONE ATTORNEY AND
PROXY SHALL BE PRESENT AND ACTING, THEN THAT ONE SHALL HAVE AND MAY EXERCISE ALL
THE POWERS OF SAID ATTORNEYS AND PROXIES.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SAID ANNUAL
MEETING OF SHAREHOLDERS, THE PROXY STATEMENT RELATING THERETO AND THE ANNUAL
REPORT FOR 1997.
Dated: , 1997
---------------------
---------------------------------
---------------------------------
(Signature(s) of Shareholders(s))
The signature(s) of shareholder(s)
should correspond exactly with the
name(s) stenciled hereon. Joint
owners should sign individually.
When signing as attorney,
executor, administrator, trustee
or guardian, please give your full
title as such.
PLEASE PROMPTLY DATE, SIGN
AND MAIL THIS PROXY IN THE
ENCLOSED ENVELOPE.
