<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)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
HANDLEMAN COMPANY
--------------------------------------------------------------------------------
July 31, 2000
You are cordially invited to join the Board of Directors and Management of
Handleman Company at the Northfield Hilton, 5500 Crooks Road at I-75, Troy,
Michigan for the Annual Meeting of Shareholders on Wednesday, September 6, 2000
at 2:00 p.m., Eastern Daylight Time.
The Notice of Annual Meeting, proxy statement and proxy card accompanying
this letter describe in detail the matters to be acted upon at the meeting.
It is important that your shares be represented and voted at the Annual
Meeting, regardless of the number that you hold. Whether or not you plan to
attend the meeting, you are urged to sign, date and return your proxy card as
soon as possible in the enclosed envelope to which no postage need be affixed if
mailed in the United States. This will not prevent you from voting your shares
in person at the meeting before voting closes if you wish to do so.
We look forward to seeing you at the Annual Meeting. On behalf of the
Management and Directors of Handleman Company, I want to thank you for your
continued support and confidence in Handleman Company.
Sincerely,
/s/ Stephen Strome
--------------------------------------
Stephen Strome
President and Chief Executive Officer
<PAGE> 3
HANDLEMAN COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 6, 2000
To the Shareholders of Handleman Company:
The Annual Meeting of Shareholders of Handleman Company (the "Company") will
be held at the Northfield Hilton, 5500 Crooks Road at I-75, Troy, Michigan
48098-2898, on Wednesday, September 6, 2000, 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 2003.
(2) To consider such other business as may properly come before the meeting.
Only shareholders of record of the Company at the close of business on July
10, 2000 will be entitled to vote at the meeting.
A copy of the Annual Report of the Company for the fiscal year ended April
29, 2000 accompanies this Notice.
By Order of the Board of Directors,
/s/ Leonard A. Brams,
-------------------------------------
Leonard A. Brams,
Senior Vice President/Finance,
Chief Financial Officer and Secretary
Troy, Michigan
July 31, 2000
<PAGE> 4
HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084-4142
-----------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 6, 2000
GENERAL INFORMATION
This proxy statement contains information related to the Annual Meeting of
Shareholders of Handleman Company (the "Company") to be held at the Northfield
Hilton, 5500 Crooks Road at I-75, Troy, Michigan 48098-2898, on Wednesday,
September 6, 2000, at 2:00 p.m., Eastern Daylight Time. The approximate mailing
date for this proxy statement and the proxy is July 31, 2000.
At the Company's Annual Meeting, shareholders will act upon the matters
outlined in the accompanying Notice of Annual Meeting, including the election of
Directors. In addition, the Company's management will report on the performance
of the Company during fiscal 2000 and respond to questions from shareholders.
It is important that your shares be represented at the meeting. If you are
unable 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 $4,500 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 10, 2000 are entitled to notice of, and
to vote at, the meeting or at any adjournment or adjournments thereof, each
share having one vote. On the date, of record, the Company had issued and
outstanding 27,684,464 shares of Common Stock.
Based on information filed with the Securities and Exchange Commission
("SEC"), or otherwise provided to the Company, as of July 10, 2000, a) Fidelity
Management & Research Company, 82 Devonshire Street, Boston, Massachusetts
02109-3614, owns 2,127,900 shares (7.7%) of the Company's outstanding Common
Stock, b) Franklin Resources Inc., 777 Mariners Island Blvd., San Mateo,
California 94403-7777, owns 1,960,600 shares (7.1%) of the Company's outstanding
Common Stock, c) Palisade Capital Management, One Bridge Plaza, Fort Lee, New
Jersey 07024, owns 1,947,800 shares (7.0%) of the Company's outstanding Common
Stock and d) Dimensional Fund Advisors, 1299 Ocean Avenue, Santa Monica,
California 90401, in its role as investment advisor and investment manager
possesses both voting and investment power over 1,712,336 shares (6.2%) of the
Company's outstanding Common Stock (but disclaims beneficial ownership of such
securities). Management does not know of any other person who, as of July 10,
2000, beneficially owned more than 5% of the Company's Common Stock.
1
<PAGE> 5
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 2003 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 April
29, 2000 named in the Summary Compensation Table herein.
<TABLE>
<CAPTION>
Percentage
of Total
Common
Shares Stock of
of Common the Company
Stock Beneficially
Positions and Offices Beneficially Owned as of Term
Name and Year First with the Company and Other Owned as of July 10, to
Became a Director Age Principal Occupations as of July 10, 2000 July 10, 2000 2000 Expire
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS FOR A THREE-YEAR TERM
Stephen Strome(1989)........55 President and Chief Executive Officer of the Company.......... 496,502(1) 1.8% 2003
James B. Nicholson(1991)....57 President and Chief Executive Officer of PVS Chemicals, Inc... 8,196 * 2003
Lloyd E. Reuss(1993)........64 Former President of General Motors Corporation................ 9,296 * 2003
DIRECTORS CONTINUING IN OFFICE
David Handleman(1946).......84 Chairman of the Board......................................... 610,842 2.2% 2002
Richard H. Cummings(1962)...78 Retired Senior Vice Chairman of the Board of NBD Bancorp, Inc.
and of NBD Bank............................................... 13,086 * 2002
Alan E. Schwartz(1969)......74 Partner of the law firm of Honigman Miller Schwartz and Cohn.. 3,991 * 2001
John M. Barth(1995).........54 President and Chief Operating Officer of Johnson Controls, Inc 4,096 * 2001
Elizabeth A. Chappell(1999).42 Executive Vice President Corporate Communications and Investor
Relations of Compuware Corporation............................ 5,802 * 2001
OTHER EXECUTIVE OFFICERS
Peter J. Cline..............53 Executive Vice President - Chief Operating Officer and
President of Handleman Entertainment Resources................ 103,966(1),(2) * --
Leonard A. Brams............49 Senior Vice President -Finance, Chief Financial Officer and
Secretary..................................................... 35,892(1) * --
Stephen Nadelberg...........59 Senior Vice President - President of North Coast Entertainment 39,150(1) * --
Samuel Milicia..............58 Senior Vice President - Music Purchasing/Handleman
Entertainment Resources....................................... 36,122(1) * --
All Directors and Executive Officers as a group (13 persons).................................. 1,392,567(3) 5.0% --
--------------------
(*) Less than 1%
</TABLE>
(1) The number shown above as beneficially owned by Messrs. Strome, Cline,
Brams, Nadelberg, and Milicia includes 321,450, 79,200, 24,600, 34,600 and
28,130 shares, respectively, which they have the right to acquire within
60 days of July 10, 2000 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"), 18,414, 11,662, 5,724, 2,251, and 3,376
shares, respectively, which represent restricted stock awards granted to
Messrs. Strome, Cline, Brams, Nadelberg and Milicia, in June 1998 and 852,
640, 814, 351 and 832 shares, respectively, which have been credited to
each of Messrs. Strome, Cline, Brams, Nadelberg and Milicia under the
Company's salary deferral plan (the "401(k) Plan").
(2) In addition to the number of shares shown above as beneficially owned by
Mr. Cline, Mr. Cline has, under the Company's deferred compensation plan
for certain executives, phantom stock units that would represent the
equivalent of 30,797 shares of Handleman Company Common Stock. The units
would be settled in cash (based on the then market value of an equivalent
number of shares) at the earlier of Mr. Cline's termination of employment
with the Company or age 65. Mr. Cline has the right under the deferred
compensation plan to transfer any of such units into certain mutual funds
included within the plan.
(3) All Executive Officers and Directors of the Company as a group (13
persons) beneficially owned 1,392,567 shares (5.0%) of the Company's
outstanding Common Stock as of July 10, 2000, including 507,120 shares
which they have the right to acquire within 60 days of that date pursuant
to the Company's stock option plans, 44,148 shares representing restricted
stock awards granted in June 1998 and 4,213 shares which have been
credited to them under the 401(k) Plan.
2
<PAGE> 6
OTHER INFORMATION RELATING TO NOMINEES AND DIRECTORS
Following each Director's name and the year in which he or she first became
a Director is a brief account of the business experience of each nominee and
continuing 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 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.
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 Pulte Corporation.
STEPHEN STROME 1989
Mr. Strome has served as President and Chief Executive Officer of the
Company since May 1, 1991.
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 Standard Federal Bank. 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 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 President and Chief Operating Officer of Johnson
Controls, Inc. since September 23, 1998. From October 1, 1992 through September
22, 1998, Mr. Barth served as Executive Vice President of Johnson Controls, Inc.
Mr. Barth is a Director of Johnson Controls, Inc. and Edwards Brothers.
ELIZABETH A. CHAPPELL 1999
Ms. Chappell has served as the Executive Vice President Corporate
Communications and Investor Relations of Compuware Corporation since January
3, 2000. Ms. Chappell was formerly President and Chief Executive Officer of The
Chappell Group Inc., a consulting firm she founded in 1995 that specialized in
strategic planning, organizational development and sales and marketing strate-
gies. Prior to forming The Chappell Group, Ms. Chappell spent 15 years with AT&T
Corporation. Her most recent position with AT&T was as Global Services Vice
President. Ms. Chappell is a director of Compuware Corporation.
During the fiscal year ended April 29, 2000, the Board of Directors held
eight meetings.
3
<PAGE> 7
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee. The current members of the Audit
Committee are Richard H. Cummings (Chairman), John M. Barth, Elizabeth A.
Chappell and Lloyd E. Reuss. During fiscal year 2000, the Audit Committee held
four meetings. The Audit Committee is appointed by the Board of Directors of the
Company to provide assistance to the Board of Directors in fulfilling its
oversight responsibility relating to the Company's financial statements and the
financial reporting processes; the systems of internal accounting and financial
controls; the internal audit function; the annual independent audit of the
Company's financial statements; any financially-related legal compliance or
ethics programs as established by the Board; and any other areas specified by
the Board of potential significant financial risk to 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), Elizabeth A. Chappell and Lloyd E. Reuss. During fiscal
year 2000, the Committee held four 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 1998 Stock Option and 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 2000, 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 2001 Annual Meeting
of Shareholders should be submitted to the Chairman of the Nominating Committee
at the Company's executive offices, no later than March 7, 2001.
The Company has a standing Corporate Governance Committee (the "Governance
Committee"). The current members of the Governance Committee are Lloyd E. Reuss
(Chairman), John M. Barth and Alan E. Schwartz. In lieu of formal meetings,
members of the Committee held informal discussions during fiscal 2000. In
February 1998, the Board of Directors adopted corporate governance guidelines
recommended by the Governance Committee. The guidelines are reviewed annually
and are monitored by the Governance Committee. The guidelines establish
corporate governance standards, outline the respective responsibilities of
management and the Board and provide a process for evaluating the performance of
the Board. The Board has the discretion to change the guidelines and also to
make exceptions to the guidelines when it is deemed to be in the best interest
of the Company and its shareholders to do so. A copy of the guidelines is
attached as Appendix A to this Proxy Statement.
Each of the Directors attended at least 75% of the meetings held during
fiscal 2000 by the Board and by each Committee of which the Director 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 $64,948, for certain
life insurance, health insurance, automotive and club dues benefits for Mr.
Handleman pursuant to his agreement with the Company.
4
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
DIRECTOR'S COMPENSATION IN FISCAL 2000
Officers of the Company who are Directors do not receive any additional
compensation for services as a Director or as a Committee member. During fiscal
2000, all other Directors received annual retainers of $12,000 in restricted
stock with 100% vesting after one year and $10,000 in cash payable in four
quarterly installments of $2,500. Each Director received 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 were also paid the $750 meeting fee. In addition, during
fiscal year 2000, 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 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. The Company had adopted a Director Retirement Plan
which provided that after 10 years of service any outside Director would 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 outside
Director of the Company or the life of the participant. The Director Retirement
Plan was terminated during fiscal 1998. As of the termination date, Messrs.
Cummings and Schwartz were fully vested and therefore eligible to receive the
retirement compensation upon retirement from the Board. However, no additional
years of service will be accrued and their benefits will be frozen as of the
termination date of the Retirement Plan. No other outside Directors will receive
any retirement benefits.
The 1998 Stock Option and Incentive Plan allows stock option grants to
outside Directors. In September 1999, options for 1,500 shares were awarded to
outside Directors with a three-year graded vesting. It is contemplated that a
stock option grant will be awarded annually to outside Directors.
Mr. 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 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. In the event a Director should die while serving the Company
in such position, the Company shall pay to the deceased's surviving spouse, or
if there be no surviving spouse to the deceased's estate, the equivalent of one
year's cash retainer plus any accrued but unpaid board and committee meeting
fees that the deceased was entitled to receive for such services from the
Company at the time of his or her death, such amount to be paid in a lump sum
one month from the date of death. In addition, the Director's restricted stock
retainer that the deceased was to receive for services to the Company shall
immedi- ately vest and the Company will distribute to the deceased's surviving
spouse, or if there be no surviving spouse to the deceased's estate, a
certificate for the shares.
5
<PAGE> 9
SUMMARY COMPENSATION TABLE
The following table sets forth information for each of the fiscal years
ended April 29, 2000, May 1, 1999 and May 2, 1998 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 April 29, 2000 (collectively, the
"named Executive Officers") whose annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------------------------
(2) (4)
ANNUAL COMPENSATION (1), (3) RESTRICTED OPTIONS/SARS
---------------------------- STOCK UNDERLYING ALL OTHER
FISCAL SALARY BONUS AWARDS SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) (#) ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Strome 2000 521,562 500,000 -- 65,000 1,804
President and Chief 1999 494,230 500,000 36,828 60,000 861
Executive Officer 1998 447,115 -- -- 60,000 1,375
Peter J. Cline
Executive Vice President - 2000 321,163 316,635 -- 40,000 1,538
President of Handleman 1999 295,772 291,885 23,324 14,000 1,100
Entertainment Resources 1998 275,409 108,944 -- 14,000 1,327
Leonard A. Brams
Senior Vice President - 2000 208,927 145,076 -- 20,000 1,405
Finance/Chief Financial 1999 192,692 155,034 11,447 12,000 488
Officer and Secretary 1998 165,192 37,600 -- 12,000 --
Stephen Nadelberg
Senior Vice President - 2000 229,846 98,220 -- 20,000 1,787
President of North Coast 1999 222,692 119,981 4,501 12,000 1,300
Entertainment 1998 213,846 9,736 -- 12,000 --
Samuel Milicia
Senior Vice President - 2000 180,539 102,867 -- 11,000 1,554
Music Purchasing/Handleman 1999 170,385 117,906 6,752 7,000 1,324
Entertainment Resources 1 1998 151,923 61,605 -- 7,000 1,184
</TABLE>
(1) Salary deferred by the named Executive Officers pursuant to the Company's
401(k) Plan follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Stephen Strome $7,213 $3,442 $5,173
Peter J. Cline 6,153 4,399 4,444
Leonard A. Brams 5,618 1,953 --
Stephen Nadelberg 7,149 5,204 1,015
Samuel Milicia 6,216 5,294 4,738
</TABLE>
(2) The Compensation and Stock Option Committee used the services of an outside
consultant who recommended that the Company make a special one-time
restricted stock award to key employees to facilitate employee retention
during the implementation of the Company's strategic repositioning program,
which program was announced on June 2, 1998. Stephen Strome's restricted
stock award vests 50% on the second anniversary from the grant date and the
remaining 50% on the third anniversary. Restricted stock grants to all
other key employees vest 25% on the first anniversary; 25% on the second
anniversary and the remaining 50% on the third anniversary.
(3) Non-cash compensation did not exceed the lesser of $50,000 or 10% of
individual cash compensation for any named Executive Officer.
(4) Represents amounts contributed to the named Executive Officers' 401(k) Plan
accounts for the Company matching of employee contributions.
6
<PAGE> 10
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>
(4)
(1) POTENTIAL REALIZABLE VALUE
%OF TOTAL AT ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE APPRECIATION
GRANTED (2) FOR OPTION TERM
NUMBER OF TO EMPLOYEES IN EXERCISE PRICE (3)
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Strome 65,000 14.4% $11.219 June 15, 2009 $458,250 $1,162,200
Peter J. Cline 40,000 8.9 11.219 June 15, 2009 282,000 715,200
Leonard A. Brams 20,000 4.4 11.219 June 15, 2009 141,000 357,600
Stephen Nadelberg 20,000 4.4 11.219 June 15, 2009 141,000 357,600
Samuel Milicia 11,000 2.4 11.219 June 15, 2009 77,550 196,680
</TABLE>
----------------------
(1) The total number of shares subject to options granted to employees in
fiscal 2000 was 450,200.
(2) The exercise price (which corresponded to the fair market value of the
Common Stock on the date of grant) may be paid in cash, or, with the
consent of the Compensation and Stock Option Committee, in Common Stock of
the Company, by a promissory note, or in such other manner as the Committee
determines is appropriate in its sole discretion. 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.
(3) The options become exercisable up to 33 1/3% on or after June 15, 2000 and
prior to June 15, 2001; up to 66 2/3% on or after June 15, 2001 and prior
to June 15, 2002; up to 100% on or after June 15, 2002.
(4) 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 2000, 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.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning stock options
exercised by the named Executive Officers during the fiscal year ended April 29,
2000 as well as the value of unexercised options held by such persons on April
29, 2000. This table also includes the number of shares covered by both
exercisable and non-exercisable stock options as of the last day of the fiscal
year.
<TABLE>
<CAPTION>
(2)
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
ON EXERCISE (1) EXERCISABLE (E)/ EXERCISABLE (E)/
NAME OF INDIVIDUAL (#) VALUE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen Strome 14,000 $75,250 321,450(E) $663,729(E)
73,550(U) 198,083(U)
Peter J. Cline 0 0 79,200(E) 127,342(E)
33,800(U) 59,214(U)
Leonard A. Brams 0 0 24,600(E) 37,969(E)
19,400(U) 43,279(U)
Stephen Nadelberg 0 0 34,600(E) 90,469(E)
19,400(U) 43,279(U)
Samuel Milicia 0 0 28,130(E) 93,977(E)
10,870(U) 24,897(U)
</TABLE>
----------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of exercise date.
(2) Assumes, for all unexercised in-the-money options, the difference between
the exercise price and the market price ($12.00 per share) of the Company's
Common Stock as of April 29, 2000.
8
<PAGE> 12
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 April
29, 2000, 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 $170,000 for calendar year 2000.
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>
$170,000(*) $21,519 $43,047 $64,556
</TABLE>
(*) Compensation which may be considered for any purpose under a qualified
pension plan is limited for calendar year 2000 to $170,000.
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 2000 is $135,000.
As of April 29, 2000 the credited years of service under the plan for the
named Executive Officers were as follows: 22 for Stephen Strome; 6 for Peter J.
Cline; 3 for Leonard A. Brams; 3 for Stephen Nadelberg and 30 for Samuel J.
Milicia.
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. 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>
$170,000 $ 3,982 $ 7,963 $ 11,945
250,000 15,982 31,963 47,945
350,000 30,982 61,963 92,945
450,000 45,982 91,963 137,945
550,000 60,982 121,963 182,945
</TABLE>
As of April 29, 2000 the credited years of service under the SERP for the
named Executive Officers were as follows: 22 for Stephen Strome; 6 for Peter J.
Cline; 3 for Leonard A. Brams; 3 for Stephen Nadelberg; and 30 for Samuel J.
Milicia.
9
<PAGE> 13
CHANGE IN CONTROL AGREEMENTS
The Company entered into Change in Control Agreements (the "Agreements")
with Stephen Strome, Peter J. Cline, Leonard A. Brams and Stephen Nadelberg 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, 2000 and are automatically renewed to December 31 of each
subsequent year unless and until the Company or the named 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 the sum of base salary and the average of the
annual bonus accrued during the three fiscal years prior to the termination date
times 2.99. The Agreements also entitle each named Executive Officer 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
named Executive Officer under the Company's 1998 Stock Option and Incentive Plan
or any other incentive plan or arrangement will become 100% vested and
immediately exercisable.
The Agreements with Messrs. Strome and Cline became effective on March 17,
1997. The Agreements with Messrs. Brams and Nadelberg became effective on
October 30, 1997. Based on current salaries, if Messrs. Strome, Cline, Brams or
Nadelberg had terminated their employment as of April 29, 2000 under
circumstances entitling them to severance pay as described above, they would
have been entitled to receive lump sum cash payments of $2,566,416, $1,686,823,
$964,484, $920,857, 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.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN AMONG COMPANY,
S&P 500 AND RUSSELL 2500
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HANDLEMAN 100 57 63 101 133 114
RUSSELL 2500 100 133 144 198 185 231
S&P 500 100 130 165 232 280 309
</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 1995. 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.
10
<PAGE> 14
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 outside Directors who have no interlocking
relationships as defined by the SEC. The members of the Committee are James B.
Nicholson (Chairman), Elizabeth A. Chappell and Lloyd E. Reuss. 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
1998 Stock Option and Incentive Plan and prior stock option plans.
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.
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. Awards under the bonus program to the named
Executive Officers, during fiscal 2000, were based on the Company attaining
certain levels of operating income and cash flow. With respect to Mr. Milicia,
personal objectives were considered in addition to operating income and cash
flow.
STOCK PLANS
The Company's shareholders approved the adoption of the Handleman Company
1998 Stock Option and 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 2000, 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 shares increases.
11
<PAGE> 15
STOCK OWNERSHIP PROGRAM
The Company has 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 three 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 to achieve the stock
ownership guidelines, which may be satisfied through direct ownership of shares,
including shares received upon exercise of options. Restricted shares, however,
are not taken into account until the shares vest.
The Company 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 generally equivalent to a
market price equal to three times the annual cash and stock retainer paid to the
outside Director by the Company.
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 2000 by Stephen Strome, the
Company's Chief Executive Officer, was $521,562. Compensation for the Chief
Executive Officer is determined through a process similar to that discussed for
other Executive Officers. Mr. Strome was paid a bonus of $500,000 in fiscal 2000
based on the overall performance of the Company in terms of operating results
and cash flow. In fiscal 2000, Mr. Strome was awarded a Nonqualified Stock
Option Grant to purchase 65,000 shares of the Company's stock (see "Option
Grants in the Last Fiscal Year"). The goal of the grant is to ensure attention
to the Company's long-term strategies and objectives. The Committee believes
Mr. 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)
Elizabeth A. Chappell
Lloyd E. Reuss
12
<PAGE> 16
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Handleman Company Board of Directors is composed
of four independent directors. The Audit Committee is governed by the Audit
Committee Charter adopted by the Board of Directors. A copy of the Audit
Committee Charter is attached as Appendix B to this Proxy Statement.
As set forth in the Audit Committee Charter, the Committee is appointed by
the Board of Directors to, among other duties and responsibilities, provide
assistance to the Board of Directors in fulfilling its oversight responsibility
relating to the Company's financial statements and the financial reporting
processes; the systems of internal accounting and financial controls; the
internal audit function; and the annual independent audit of the Company's
financial statements.
Management has responsibility for the Company's financial statements and
financial reporting processes, including the system of internal controls. The
independent auditors are responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with generally
accepted auditing standards and issuing a report thereon.
The Committee reviews the Company's financial statements and financial
reporting processes on behalf of the Board of Directors. In fulfilling its
responsibilities, the Committee has met and held discussions with management,
the internal auditors and the independent auditors. Management represented to
the Committee that the Company's consolidated financial statements were prepared
in accordance with generally accepted accounting principles. The Committee has
reviewed and discussed the audited consolidated financial statements contained
in the fiscal year 2000 Annual Report on SEC Form 10-K with management and the
independent auditors.
The Committee discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61, Communications with
Audit Committees, as amended. In addition, the Committee has discussed with the
independent auditors the auditors' independence from the Company and its
management, including the letter regarding its independence provided to the
Committee as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees.
Based upon, and in reliance upon, the Committee's discussions with
management and the independent auditors referred to above, the Committee's
review of the representations of management and the report of the independent
auditors, the Committee recommended to the Board of Directors (and the Board has
approved) that the audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended April 29, 2000
for filing with the Securities and Exchange Commission.
BY THE AUDIT COMMITTEE:
Richard H. Cummings (Chairman)
John M. Barth
Elizabeth A. Chappell
Lloyd E. Reuss
13
<PAGE> 17
II. OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
PricewaterhouseCoopers LLP 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 April 29, 2000. The Company's
independent public accountant is appointed by the Board of Directors after
receiving recommendations from the Audit Committee. PricewaterhouseCoopers LLP
has been reappointed for fiscal year 2001.
Representatives from PricewaterhouseCoopers LLP 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 2001 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices by March 7, 2001.
By Order of the Board of Directors,
/s/ Leonard A. Brams
-------------------------------------
Leonard A. Brams,
Senior Vice President/Finance,
Chief Financial Officer and Secretary
Dated: July 31, 2000
14
<PAGE> 18
APPENDIX A
HANDLEMAN COMPANY
GUIDELINES ON CORPORATE GOVERNANCE ISSUES
1. SELECTION OF CHAIRMAN AND CEO; LEAD DIRECTOR: Currently, the Chairman of the
Board is not an Executive Officer of Handleman Company and the President is
the Chief Executive Officer (CEO). If the Board does not designate the
Chairman of the Board as the CEO, then the President by virtue of his office
is the CEO.
The Board has no policy respecting the need to separate or combine the
offices of Chairman and CEO. The Board believes that this issue is part of
the succession planning process and that it is in the best interests of the
Company to make a determination whenever it elects a new CEO. The Board
recognizes that there may be circumstances in the future that would lead it
to consolidate these offices, but the Board believes there is no reason to
do so at this time.
The Board may designate an independent Director to serve as Lead Director,
with such duties and responsibilities as determined by the Board. If no Lead
Director is designated by the Board, reference in these Guidelines to the
Lead Director shall refer to the Chair of the Compensation and Stock Option
Committee.
2. MEETING WITHOUT CEO: In those instances where the outside Directors meet
without the CEO, the Lead Director will chair the meeting.
3. NUMBER OF COMMITTEES: The Board has the following committees: Audit,
Compensation and Stock Option, Nominating, and Corporate Governance. The
Board has the flexibility to form a new committee or disband a current
committee. It is the policy of the Board that only independent Directors
serve on the Audit and Compensation and Stock Option committees.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS: The CEO and Chairman suggest
the appointment of members to the committees, the composition of which is
discussed and ratified by the entire Board, taking into account the desires
and suggestions of individual Directors. It is the belief of the Board that
committee rotation is a desirable principle, but should not be mandated as a
policy since there may be reasons at a given point in time to maintain an
individual Director's committee membership for a longer period or to shorten
the period. The learning time to become an active contributor on a
particular committee is also a factor.
5. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS: The Chair of each committee, in
consultation with its members, determines the frequency and length of the
meetings of the committee.
6. COMMITTEE AGENDA: The Chair of each committee, in consultation with the
appropriate Officers, will develop the committee's agenda. At the beginning
of the Board year (from annual shareholders meeting to annual meeting), each
committee will establish a schedule of agenda subjects to be discussed
during the year (to the extent these can be foreseen); the schedule for each
committee will be furnished to all Directors. The agenda for each meeting
will be distributed to all Directors in advance and suggestions for changes
or additions will be solicited.
7. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS: The CEO, in consultation with
the Chairman, will establish the agenda for each Board meeting. At the
beginning of the Board year, the Chairman will establish a schedule of
agenda subjects to be discussed during the year (to the extent these can be
foreseen). The agenda for each meeting will be distributed to all Directors
in advance and suggestions for changes or additions will be solicited. At
least one Board meeting each year will be a Board "retreat," the principal
purpose of which will be a Board review of long-term strategic plans and the
principal issues that Handleman Company will face in the future. The Board
will have a minimum of six scheduled meetings per Board year and will be on
call for additional meetings as needed.
8. BOARD MATERIALS DISTRIBUTED IN ADVANCE: Information and data that are
important to the Board's understanding of the business will be distributed
in writing to the Board the week before the scheduled Board meeting. The
Officers will strive to make the information concise yet comprehensive, and
will make an ongoing effort to solicit suggestions from outside Directors on
how to best meet their information needs.
9. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS: The CEO and Chairman
will invite Senior Officers to attend the meeting when their presence is
expected to significantly enhance the quality of Board decisions. Generally,
attendance of non-Directors will take place when their expertise is
required or where attendance is encouraged as noted in Item 11 (e.g., at the
Board retreat).
10. EXECUTIVE SESSIONS OF OUTSIDE DIRECTORS: The outside Directors will meet in
executive session at the conclusion of each scheduled Board meeting. The
Lead Director will report to the CEO on the nature of the discussion
immediately following the Board meeting.
15
<PAGE> 19
11. BOARD ACCESS TO SENIOR MANAGEMENT: Board members have complete access to the
Company's Officers and counsel. It is assumed that Board members will use
appropriate judgment to be sure that this contact is not distracting to the
business operation of the Company and that such contact, if in writing, be
copied to the CEO under normal circumstances. Furthermore, the Board
encourages the CEO, from time to time, to bring executives into Board
meetings who: (a) can provide additional insight into the items being
discussed because of personal involvement in these areas or (b) represent
executives with future potential that the CEO believes should be given
exposure to the Board. The Board may retain outside counsel of its choice
with respect to any issue relating to its activities. The CEO will be
advised on each such occasion of the law firm selected and the issues to be
addressed by it on behalf of the Board.
12. BOARD COMPENSATION REVIEW: It is appropriate for the Officers to report once
a year to the Compensation and Stock Option Committee the status of Board
compensation in relation to other comparable U.S. companies and in
consideration of the most current best practices. Changes in Board
compensation, if any, should come at the suggestion of the Compensation and
Stock Option Committee, but with full discussion and concurrence by the
Board.
13. SIZE OF THE BOARD: It is the opinion of the Board that the optimal size of
the Board under normal circumstances is 8 to 10 members. This size permits
both a diversity of skills and views available to contribute to the duties
of the Board and its Committees as well as the coordination and
participation of all Directors in Board deliberations. However, the Board
would be willing to go to a somewhat larger size in order to accommodate the
availability of an outstanding candidate.
14. MIX OF INSIDE AND OUTSIDE DIRECTORS: The Board believes that, as a matter of
policy, there should be a majority of independent Directors on the Handleman
Board.
15. DEFINITION OF INDEPENDENCE FOR OUTSIDE DIRECTORS: The Company has adopted
the following definition of an independent Director: one who (a) is not and
has not been employed by the Company or its subsidiaries in an executive
capacity; (b) is not a significant advisor or consultant to the Company; (c)
is not affiliated with a significant customer or supplier of the Company;
(d) does not have a significant personal services contract with the Company;
(e) is not affiliated with a tax-exempt entity that receives significant
contributions from the Company; and (f) is not a spouse, parent, sibling or
child of a Board member or senior executive of the Company. The Board
believes that all outside Directors with the exception of Alan E. Schwartz
and David Handleman are independent. Compliance with the definition of
independence is reviewed annually by the Nominating Committee. The ownership
of stock in the Company by Directors is encouraged. The Board's policy is
that each Director should, by April 30, 2002, own Company stock valued at
market price equal to three times the annual retainer.
16. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP: The Board believes this
is a matter to be decided in each individual instance. It is assumed that
when the Chief Executive Officer resigns from that position, he/she should
offer his/her resignation from the Board at the same time. Whether the
individual continues to serve on the Board is a matter for discussion at
that time with the new CEO and the Board.
17. BOARD MEMBERSHIP CRITERIA: The Nominating Committee is responsible for
reviewing with the Board periodically the appropriate skills and
characteristics required of Board members in the context of the current
make-up of the Board. This assessment should include issues of diversity,
age, skills such as understanding of marketing, finance, regulation and
public policy, international background, commitment to Handleman's shared
values, etc. -- all in the context of an assessment of the perceived needs
of the Company and the Board at that point in time.
18. SELECTION OF NEW DIRECTOR CANDIDATE/EXTENDING INVITATIONS TO BOARD: The
Board itself should be responsible, in fact as well as procedure, for
selecting its own members. The Board delegates the screening process
involved to the Nominating Committee with the direct input from the Chairman
and the CEO. The invitation to join the Board should be extended by the CEO
and the Chair of the Nominating Committee.
19. ASSESSING THE BOARD'S PERFORMANCE: The Board commits to participate in a
process of self-evaluation annually, led by the Nominating Committee. This
will be discussed with the full Board following the end of each fiscal year.
This assessment should be of the Board's contribution as a whole and should
specifically review areas in which the Nominating Committee or the CEO
believes a better contribution could be made. Its purpose is to increase the
effectiveness of the Board. The purpose of the evaluation will be to
discover if there are changes to the Board's structure and operations which
will maximize the value that the Board adds to the Company.
16
<PAGE> 20
20. DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY: It is the sense of
the Board that individual Directors who change in a substantial way the
business responsibility they held when they were elected to the Board, or
who develop a conflict as a Director of the Company with the person's
position in, or role with, another entity should inform the Chairman and the
Chair of the Nominating Committee of the change. In addition, they must
volunteer to resign from the Board. It is not the sense of the Board that
the Directions who retire from or change substantially the position they
held when they became a Director should necessarily leave the Board. There
should, however, be an opportunity of the Board via the Nominating Committee
to review the continued appropriateness of Board membership under these
circumstances.
21. RETIREMENT AGE: Directors will submit a written resignation to the Board
upon reaching the age of 72. The Nominating Committee will review the
desirability of continued service by that Director in light of the needs of
the Company at that time and make a recommendation to the Board. If
continued service is requested, that Director will then annually submit a
written resignation to be considered by the Board.
22. FORMAL EVALUATION OF THE CHIEF EXECUTIVE OFFICER: At the beginning of each
fiscal year, the CEO will set forth in writing to the Chair of the
Compensation and Stock Option Committee the CEO's personal goals for the
performance of his duties and responsibilities during such fiscal year.
The outside Directors should make this evaluation annually, and it should be
communicated to the CEO by the Chair of the Compensation and Stock Option
Committee. The evaluation should be based on objective criteria, including
comparison of the CEO's goals for the year against actual results,
performance of the business, accomplishment of long-term strategic
objectives, management development, and the like. The evaluation will be
used by the Compensation and Stock Option Committee in the course of its
deliberations when considering the compensation of the CEO.
23. SUCCESSION PLANNING: There will be an annual report by the CEO to the Board
on succession planning. There should also be available, on a continuing
basis, the CEO's recommendations as to a successor should the CEO be
unexpectedly disabled.
24. MANAGEMENT DEVELOPMENT: There will be an annual report to the Board by the
CEO on Handleman's program for management development. This report should be
given to the Board at the same time as the succession planning report.
25. BOARD INTERACTION WITH INSTITUTIONAL INVESTORS, THE PRESS, CUSTOMERS, ETC.:
The Board believes that, in general, it is optimal for the appropriate
Officers to speak for the Company. Individual Board members may, from time
to time, meet or otherwise communicate with various constituencies that
are involved with the Company, including investors. It is expected that
Board members would do this with the knowledge of the CEO, and absent
unusual circumstances, only at the request of the CEO.
26. ADHERENCE TO CODE OF BUSINESS PRACTICES: Each Director shall be familiar
with and adhere to the Company's Code of Business Practices. The Directors
shall annually acknowledge in writing that the Director has complied with
the Code of Business Practices as it applies to the Director.
17
<PAGE> 21
APPENDIX B
HANDLEMAN COMPANY
AUDIT COMMITTEE CHARTER
I. STATEMENT OF POLICY
The Audit Committee ("Audit Committee") is appointed by the Board of
Directors of Handleman Company (the "Company") to provide assistance to the
Board of Directors in fulfilling its oversight responsibility relating to the
Company's financial statements and the financial reporting processes; the
systems of internal accounting and financial controls; the internal audit
function; the annual independent audit of the Company's financial statements;
any financially-related legal compliance or ethics programs as established by
the Board; and any other areas specified by the Board of potential significant
financial risk to the Company. In discharging its duties and responsibilities,
the Audit Committee is empowered to investigate any matter brought to its
attention, with full access to all necessary books, records, facilities and
personnel of the Company and professional services providers to the Company, and
has the authority to retain at the Company's expense legal, accounting or other
consultants or experts as it deems appropriate.
II. AUDIT COMMITTEE DUTIES, RESPONSIBILITIES AND PROCESSES
The following shall be the principal duties, responsibilities and recurring
processes of the Audit Committee in carrying out its oversight role. The
processes are set forth as a guide with the understanding that the Committee may
supplement them as appropriate. As part of oversight responsibility, the
Committee shall:
A. Meeting Frequency
1. Meet quarterly or more frequently as circumstances dictate. The Chairman
of the Audit Committee shall select the meeting dates after consultation
with other members of the Committee.
2. Be presented in advance of each meeting with an agenda for such meeting
as prepared or approved by the Chairman of the Committee.
B. Financial Reporting Process and Internal Control
1. Review with management and the independent auditors the status of the
annual audit prior to releasing the unaudited year-end earnings; discuss
matters required to be communicated to audit committees in accordance
with AICPA Statement on Auditing Standards (SAS) No. 61.
2. Review with management and the independent auditors the audited financial
statements to be included in the Company's annual report on Form 10-K;
after such review and discussions, recommend to the Board of Directors
that the audited financial statements be included in the Form 10-K for
such year to be filed with the Securities and Exchange Commission.
3. Review quarterly unaudited financial statements, including the related
earnings press release with management and the independent auditors;
discuss with the independent auditors the results of their review
performed in accordance with SAS No. 71 for unaudited financial
statements before the earnings release is distributed to the public and
prior to the Company's filing of its Form 10-Q with the Securities and
Exchange Commission.
4. Review audit findings, including any significant suggestions for
improvements provided to management by the independent and internal
auditors, and obtain management's response to the suggestions from the
independent and internal auditors.
5. Review the Company's accounting and financial controls with the
independent and internal auditors and the Company's financial officers,
including obtaining of adequate assurance from the independent auditors
and the internal audit director of the adequacy of the Company's internal
auditing, accounting and financial controls.
6. Review and approve the adoption of major new changes in accounting
principles or policies and methods of application or financial statement
disclosures before they are instituted by the Company or incorporated
into the financial statements of the Company, including obtaining the
opinion of the independent auditor as to acceptability and how preferable
the proposed policy is, including qualitative judgment and gradation.
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7. Review with the Company's counsel any legal matters that could have a
significant impact on the Company's reported results of operations or
financial position.
8. Review management's monitoring of compliance with the Business Practices
Policy of the Company as well as approval of the Business Practices
Policy.
9. Review the findings of significant examination or reviews by any
regulatory or governmental agencies.
10. Review with management the Company's major financial risk exposures and
the efforts undertaken by management to monitor and control such
exposures.
11. Meet periodically with the independent auditor, the director of internal
audit and management in separate executive sessions to discuss any
matters that the Audit Committee or these persons believe should be
discussed privately with the Committee.
12. Perform such other oversight functions as requested by the Board of
Directors.
C. Auditing Functions
1. Since the independent auditor is ultimately accountable to the Board of
Directors and the Audit Committee, as representatives of the
shareholders, the Audit Committee and the Board of Directors shall have
the ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditor (or nominate the independent
auditor to be proposed for shareholder approval in any proxy statement).
2. Approve the arrangements, scope and cost of any non-audit engagement by
the independent auditor for the Company; receive from the independent
auditor a formal written statement annually stating its independence and
delineating all its relationships with the Company; review with the
independent auditor any disclosed relationships or services, particularly
non-audit engagements, that may impact the objectivity and independence
of the independent auditor.
3. Review the arrangements, scope, cost and results of periodic audits and
non-audit engagements conducted by the independent auditor.
4. Review the quarterly plan for internal audit, including staffing/
appointments, and major projects undertaken by internal audit outside of
the plan.
5. Review the scope, status and results of examinations conducted by the
Company's internal auditors.
6. Review annually the operations of the internal audit department of the
Company with the independent auditor.
7. Review periodically with the independent auditor its judgments about the
quality, not just the acceptability, of the Company's accounting
principles as applied in its financial reporting, including such issues
as the reasonableness of significant judgments and the clarity of the
Company's financial disclosures and whether the choices of accounting
principles and underlying estimates and other significant decisions
made by management in preparing the financial statements are
conservative, moderate or aggressive from the perspective of income,
asset and liability recognition and whether those principles, estimates
and disclosures are common practices or are minority practices.
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III GENERAL GUIDELINES ON MEMBERSHIP, RELATIONSHIP TO THE BOARD OF DIRECTORS AND
REPORTS
A. Although the Board of Directors reserve the right at all times to determine
the membership of the Audit Committee, the following are guidelines to be
utilized by the Board in the selection process:
1. The Audit Committee shall consist of three or more members of the Board
of Directors, who are elected by the Board annually.
2. All members of the Audit Committee shall be independent Directors as
defined in the New York Stock Exchange listing standards and shall be
free from any relationship that would interfere with the exercise of his
or her independent judgment. Each member shall also be financially
literate as such qualification is interpreted by the Board of Directors
in its business judgment, or must become financially literate within a
reasonable period of time after the member's appointment to the Audit
Committee. At least one member must have accounting or related financial
management expertise as the Board of Directors interprets such
qualification in its business judgment.
3. It is the policy of the Board that new Board members generally should be
members of the Audit Committee shortly after joining the Board.
Membership of the Audit Committee will assist such Directors in becoming
familiar with the Company's operations.
B. All Directors shall be invited to all Audit Committee meetings.
C. The Chairman of the Audit Committee will call a meeting of the full Board of
Directors at the request of and for the purpose of meeting with the
Company's independent auditors and may call a meeting of the full Board to
consider any other matters within the purview of the Audit Committee.
D. The Chairman of the Audit Committee shall update the Board of Directors on
the activities of the Audit Committee regularly. Minutes of any Audit
Committee meetings shall be provided to all Directors following the Audit
Committee meeting and shall be submitted for the next Board of Directors
meeting, at which time the Chairman of the Audit Committee will provide
additional comments as appropriate.
E. The Audit Committee shall prepare the report required by the Securities and
Exchange Committee to be included in the Company's annual proxy statement.
F. The Audit Committee shall review and reassess the adequacy of the Audit
Committee Charter on an annual basis and any changes thereto shall be
submitted to the Board of Directors for approval. The Audit Committee shall
have the Charter published at least every third year in the Company's proxy
statement in accordance with Securities and Exchange Commission regulations.
G. On an annual basis or upon changes to the composition of the Audit
Committee, the Company must provide the New York Stock Exchange written
confirmation regarding:
1. The determination made by the Board of Directors regarding Audit
Committee member independence.
2. The financial literacy of Audit Committee members.
3. The determination that at least one Audit Committee member has accounting
or financial management expertise.
4. The review and reassessment of the adequacy of this Charter on an annual
basis.
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HANDLEMAN COMPANY
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 6, 2000
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
6, 2000, 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. 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.
(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 2000.
Dated:
-----------------------------,
2000
-----------------------------
-----------------------------
(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.
