<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:
<TABLE>
<S> <C>
[ ] 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.
</TABLE>
BALDWIN PIANO & ORGAN COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(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): ............
(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: ...........................................................
================================================================================
<PAGE> 2
[Baldwin Piano & Organ Company]
BALDWIN PIANO & ORGAN COMPANY
422 Wards Corner Road
Loveland, Ohio 45140-8390
KAREN L. HENDRICKS
Chairman of the Board
May 20, 1999
DEAR FELLOW SHAREHOLDER:
You are cordially invited to attend the Annual Meeting of Shareholders of
Baldwin Piano & Organ Company to be held at 1:00 p.m. on June 14, 1999 at 4680
Parkway Drive, Mason, Ohio. On the following pages, you will find the formal
Notice of Annual Meeting and Proxy Statement. Your Board of Directors and
management look forward to greeting those shareholders able to attend.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted at the meeting. ACCORDINGLY, PLEASE
SIGN, DATE AND MAIL YOUR ENCLOSED PROXY CARD PROMPTLY.
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
/s/ Karen L. Hendricks
KAREN L. HENDRICKS
Chairman of the Board
<PAGE> 3
[Baldwin Piano & Organ Company Logo]
BALDWIN PIANO & ORGAN COMPANY
---------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MONDAY, JUNE 14, 1999
---------------------------------------------
To the Shareholders of
Baldwin Piano & Organ Company:
The Annual Meeting of Shareholders of Baldwin Piano & Organ Company, a
Delaware corporation, will be held at 4680 Parkway Drive, Mason, Ohio, on
Monday, June 14, 1999, at 1:00 p.m., Cincinnati time, for the following
purposes:
(1) To elect six directors for a one-year term ending in 2000;
(2) To ratify the appointment of Deloitte & Touche LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1999;
(3) To consider two shareholder proposals; and
(4) To act upon any other matter that may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 19, 1999, as
the date for determining Shareholders of record entitled to notice of and to
vote at the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement and 1998
Annual Report to Shareholders.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING:
PLEASE NOTE THAT SPACE LIMITATIONS MAKE IT NECESSARY TO LIMIT ATTENDANCE
ONLY TO SHAREHOLDERS OF THE COMPANY AND THE HOLDERS OF SHAREHOLDER PROXIES.
ADMISSION TO THE MEETING WILL BE ON A FIRST-COME, FIRST-SERVED BASIS.
REGISTRATION WILL BEGIN AT APPROXIMATELY 12 NOON, AND SEATING WILL BE AVAILABLE
AT APPROXIMATELY 12:30 P.M. CAMERAS AND RECORDING DEVICES WILL NOT BE PERMITTED
AT THE MEETING. "STREET NAME" SHAREHOLDERS WILL NEED TO BRING A COPY OF A
BROKERAGE STATEMENT REFLECTING STOCK OWNERSHIP AS OF THE RECORD DATE IN ORDER TO
BE ADMITTED TO THE MEETING.
For the Board of Directors
/s/ Karen L. Hendricks
KAREN L. HENDRICKS
Chairman of the Board
May 20, 1999
PLEASE FILL OUT, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE
ACCOMPANYING POSTAGE PAID ENVELOPE, EVEN IF YOU PLAN TO ATTEND THE MEETING. YOU
MAY REVOKE YOUR PROXY IN WRITING OR AT THE ANNUAL MEETING, IF YOU WISH TO VOTE
IN PERSON.
<PAGE> 4
BALDWIN PIANO & ORGAN COMPANY
4680 PARKWAY DRIVE
MASON, OHIO 45040-5301
---------------------------------------------
PROXY STATEMENT
---------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
MONDAY, JUNE 14, 1999
---------------------------------------------
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of Baldwin Piano
& Organ Company, a Delaware corporation (the "Company"), for use at the Annual
Meeting of Shareholders to be held at 1:00 p.m., Cincinnati time, Monday, June
14, 1999, at 4680 Parkway Drive, Mason, Ohio. The proxy is revocable at any time
prior to its exercise by written notice or in person at the Annual Meeting.
Shares represented by proxy will be voted as directed on the proxy form
and, if no direction is given, will be voted in the election of directors for
the persons nominated by the Board of Directors and for the proposals described
herein. Any proxy given by a Shareholder of record may be revoked at any time
prior to its use by execution of a later-dated proxy, by a personal vote at the
Annual Meeting, or by written notice to the Company's Secretary.
This proxy material is being sent to Shareholders on or about May 20, 1999,
together with the Company's 1998 Annual Report, which includes certified
financial statements for the fiscal year ended December 31, 1998.
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders of record at the close of business on Wednesday, May 19, 1999
are entitled to notice of and to vote at the meeting. As of the close of
business on that date, there were outstanding and entitled to vote 3,462,826
shares of Common Stock, $.01 par value (the "Common Stock"), each of which is
entitled to one vote. No cumulative voting rights exist under the Company's
Certificate of Incorporation. For information regarding the ownership of the
Company's Common Stock by holders of more than five percent of the outstanding
shares and by the Company's directors and executive officers, see "Security
Ownership of Certain Beneficial Owners, Directors and Executive Officers."
ELECTION OF DIRECTORS
The Company's Board of Directors is comprised of a single class. Each year
the directors are elected to serve for a term of one year. The Board of
Directors currently consists of six members. Shareholders will vote at the
Annual Meeting for the election of all six directors who will constitute the
Company's Board of Directors for the one-year term expiring at the Annual
Meeting of Shareholders in 2000.
The persons named in the enclosed proxy will vote for the election of the
nominees named below unless authority to vote is withheld. All nominees have
consented to serve if elected. In the event that any of the nominees should be
unable to serve, the persons named in the proxy will vote for such substitute
nominee or nominees as they, in their discretion, shall determine. The Board of
Directors has no reason to believe that any nominee named herein will be unable
to serve.
The six nominees receiving the greatest number of votes cast at the Annual
Meeting upon the presence of a quorum will be elected as directors. The
following material contains information concerning the nominees for election as
directors.
1
<PAGE> 5
NOMINEES FOR DIRECTORS
KAREN L. HENDRICKS, age 51, is the Company's Chairman of the Board, Chief
Executive Officer and President. Prior to joining the Company in 1994, Ms.
Hendricks served as the Executive Vice President and General Manager, Skin Care
Division of the Dial Corporation since 1992, where she had full responsibility
for Dial's United States bar and liquid soap business and their industrial
products. Ms. Hendricks previously was employed for over twenty years by the
Procter & Gamble Company in various executive positions in product development
and was promoted to General Manager of its Vidal Sassoon Hair Care Company in
1987. In her last two years at Procter & Gamble, she was Manager of Worldwide
Strategic Planning for their hair care business. She also currently serves as a
director of ACNielsen Corporation and Columbia Energy Group.
GEORGE E. CASTRUCCI, age 61, has served as a director of the Company since
May 1987, and served as Chairman of the Board from August 1993 until December
1994. Prior to his retirement in March 1992, he served as Chairman and Chief
Executive Officer of Great American Broadcasting Company, a Cincinnati-based
broadcast company, and as President and Chief Operating Officer of its parent
company, Great American Communications Company. Mr. Castrucci also currently
serves as a director of BMF Savings Bank, LanVision Systems, Inc., The Ohio
National Fund, Inc., and ONE Fund, Inc.
WILLIAM B. CONNELL, age 58, has served as a director of the Company since
July 1995. In January 1997, Mr. Connell was named Lead Director by the Board of
Directors. Since 1994, he has also served as the Chairman of EDB Holdings, Inc.,
a privately-held company engaged in the international retail sale of optical
eyewear, and has been a director since 1988. From 1990 to 1994, Mr. Connell
served as President and Vice Chairman of Whittle Communications, a limited
partnership which specialized in multi-media services. Mr. Connell was formerly
the Vice President of the Beauty Care Division of the Procter & Gamble Company
from 1984 to 1989. He also currently serves as a director of Remington Products
Company, L.L.C.
JOHN H. GUTFREUND, age 69, is President of Gutfreund & Company, Inc., a New
York based financial consulting firm which specializes in advising select
corporations and financial institutions in the United States, Europe and Asia.
Mr. Gutfreund was the former Chairman and Chief Executive Officer of Salomon
Brothers from 1981 to 1991. He also currently serves as a director of Foamex
International Inc., LCA-Vision, Inc. and Universal Bond Fund.
JOSEPH H. HEAD, JR., age 67, has been a director of the Company since May
1987 and was previously a director from November 1983 until June 1986. He also
served as Secretary of the Company from its formation until May 1989. Mr. Head
is Chairman, former Chief Executive Officer and a director of Atkins & Pearce,
Inc., a manufacturer of industrial textiles, since 1990. He also currently
serves as a director of Fifth Third Bancorp, since 1987.
ROGER L. HOWE, age 64, has been a director of the Company since August
1993. Mr. Howe was formerly the Chairman of the Board of U.S. Precision Lens,
Inc., a manufacturer of optical components used in industrial and consumer
products. Mr. Howe retired from U.S. Precision Lens, Inc. on September 1, 1997,
where he had been employed in various executive positions since 1970. He also
currently serves as a director of Convergys Corporation, Cintas Corporation, and
FirStar Corporation.
There are no family relationships among any of the above-named nominees for
director nor among any of the nominees and any executive officers of the
Company. Ms. Hendricks' employment agreement with the Company provides that she
will be nominated as a director of the Company for each year of her employment
as described under "Executive Compensation -- Employment Contracts and Change in
Control Agreements."
2
<PAGE> 6
BYLAW PROVISIONS
Article II, Section 11 of the Company's Bylaws provide that:
(A) Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the stockholders may be
made at an annual meeting of stockholders (i) pursuant to the Company's notice
of meeting, (ii) by or at the direction of the Board of Directors or (iii) by
any stockholder of the Company who was a stockholder of record at the time of
giving of notice provided for in Article II, Section 11 of the Bylaws, who is
entitled to vote at the meeting and who complies in all respects with the notice
procedures set forth in Article II, Section 11 of the Bylaws.
(B) For nominations or other business to be properly brought before an
annual meeting pursuant to clause (iii) of paragraph (A) of Article II, Section
11 of the Bylaws, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company in the form set forth below, and such
other business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Company not later than the close of business
on the 60th day nor earlier than the close of business on the 90th day prior to
the date set by the Board for the Company's annual meeting or the 10th day
following the date on which public announcement of the date of such meeting is
first made by the Company. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. To be in proper form, such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or re-election as a director (each, a
"Stockholder Nominee") all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and Rule 14a-11 thereunder; (ii) as to each Stockholder Nominee, such person's
(x) written consent (with notarized signature) to be named in the proxy
statement as a nominee and to serving as a director, if elected, (y) written
undertaking (with notarized signature) to attend in person at least 75 percent
of the meetings, regular or otherwise, of the Board, if elected and (z) written
representation (with notarized signature) that such Stockholder Nominee (1) does
not hold any position with, or beneficial interest in, any entity which engages
in competition with the Company or whose interests are antagonistic to the
interests of the Company, (2) has no fiduciary or other interest contrary to the
interests of the Company, and (3) has never been charged or convicted or been
the subject of a consent decree under securities, commodities, antitrust,
consumer protection or similar laws in any jurisdiction; (iii) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (iv) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made (a) the name and address of such stockholder, as they appear on the
Company's books and of such beneficial owner and (b) the class and number of
shares of the Company which are owned beneficially and of record by such
stockholder and such beneficial owner.
(C) Notwithstanding anything in the second sentence of paragraph (B) of
Article II, Section 11 of the Bylaws to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Company is
increased and there is no public announcement by the Company naming all of the
nominees for director or specifying the size of the increased Board of Directors
at least 70 days prior to the date set by the Board for the Company's annual
meeting, a stockholder's notice required by Article II, Section 11 of the Bylaws
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Company not later than the close of
business on the 10th day following the day on which such public announcement is
made by the Company.
3
<PAGE> 7
BOARD MEETINGS -- COMMITTEES OF THE BOARD
The Board of Directors of the Company met six times during the year ended
December 31, 1998. In 1998, all directors attended 100% of the meetings of the
Board of Directors and all committees on which the director served during his or
her term.
The Board of Directors has an Executive Compensation Committee and an Audit
Committee. The Executive Compensation Committee reviews the Company's
compensation policies and the salaries and compensation levels of the Company's
executive management. The Audit Committee reviews the Company's accounting
practices and controls. In 1998, the Executive Compensation Committee consisted
of Messrs. Head and Howe and the Audit Committee was comprised of Messrs.
Castrucci, Connell and Gutfreund. The Executive Compensation Committee met one
time in 1998 and the Audit Committee met three times.
In January 1997, the Board of Directors created the position of Lead
Director and appointed Mr. Connell to that position. The Lead Director is a
non-management director whose additional duties include facilitating
communication between Company management and the Board of Directors and among
the directors, coordinating a performance assessment of the Chief Executive
Officer, facilitating the process of Board of Directors meetings and conducting
a formal evaluation of the Board of Directors by the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS
HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP
The following table sets forth information regarding all persons known to
the Company to be the beneficial owners of more than five percent of the
Company's Common Stock as of May 19, 1999.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER(1) OWNERSHIP CLASS
------------------- ---------- ----------
<S> <C> <C>
Heartland Advisors, Inc.................................... 762,600(2) 22.1%
Bolero Investment Group, L.P............................... 349,660(3) 10.1%
David L. Babson & Company, Inc............................. 345,600(4) 10.0%
R. S. Harrison............................................. 302,167(5) 8.8%
State of Wisconsin Investment Board........................ 300,000(6) 8.7%
Dimensional Fund Advisors Inc.............................. 190,300(8) 5.5%
Societe Generale Asset Management Corp..................... 187,000(7) 5.4%
Franklin Resources, Inc.................................... 186,000(9) 5.4%
</TABLE>
- ---------------
(1) Based upon the Schedule 13D's and Schedule 13G's provided to the Company by
the named shareholders: the address of Heartland Advisors, Inc. is 790 North
Milwaukee Street, Milwaukee Wisconsin 53202; the address of Bolero
Investment Group, L.P. is 1101 E. Balboa Boulevard, Newport Beach,
California 92661; the address of David L. Babson & Company, Inc. is One
Memorial Drive, Cambridge, Massachusetts 02142; the address of R. S.
Harrison is 4040 Mt. Carmel Road, Cincinnati, Ohio 45244; the address of
State of Wisconsin Investment Board is P.O. Box 7842, Madison, Wisconsin
53707; the address of Societe Generale Asset Management Corp. is 1221 Avenue
of the Americas, New York, New York 10020; the address of Dimensional Fund
Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California;
and the address of Franklin Resources, Inc. is 777 Mariners Island
Boulevard, San Mateo, California 94404.
(2) Pursuant to Amendment No. 7 to Schedule 13G dated January 13, 1999,
Heartland Advisors, Inc., last informed the Company that it is a registered
investment adviser that may be deemed the beneficial owner of 762,600 shares
of Common Stock. Heartland Advisors, Inc. has sole dispositive power over
all 762,600 shares and sole voting power of 405,100 shares.
4
<PAGE> 8
(3) Pursuant to Forms 3 last delivered to the Company by Bolero Investment
Group, L.P. ("Bolero"), Kenneth W. Pavia, Sr. ("Pavia"), FHI, Inc. ("FHI"),
Florence Partners Inc. ("Florence") and Charles Powers ("Powers")
(collectively, "Bolero Investment Group, et. al."), Bolero, a limited
partnership whose principal business is investing in marketable securities,
directly owns 264,660 shares of Common Stock. FHI, whose principal business
is private investment banking, directly owns 51,000 shares of Common Stock,
and Florence, a corporation whose principal business is investing in
marketable securities, directly owns 34,000 shares of Common Stock. As a
result, Pavia, whose principal business is to make and hold investments, and
who is the sole general partner of Bolero and the founder, a director, and
the sole executive officer and shareholder of FHI and the managing director
of Florence, may be deemed the beneficial owner of 349,660 shares of Common
Stock. Powers, whose principal business is to make and hold investments, and
who is the sole director, executive officer and shareholder of Florence, and
a limited partner of Bolero, may be deemed the beneficial owner of 34,000
shares of Common Stock. In these Forms 3, Messrs. Pavia and Powers have
disclaimed beneficial ownership of the shares that may be attributed to them
and the reporting persons have stated that they have not affirmed the
existence of a "group" as defined in Section 13(d) of the Securities
Exchange Act of 1934.
(4) Pursuant to Amendment No. 9 to Schedule 13G dated January 15, 1999, David L.
Babson & Company, Inc. last informed the Company that it is a registered
investment adviser that may be deemed the beneficial owner of 345,600 shares
of Common Stock. David L. Babson & Company, Inc. has sole dispositive power
over all 345,600 shares and sole voting power over 341,900 shares.
(5) Pursuant to Amendment No. 11 to Schedule 13G dated February 12, 1999, Mr.
Harrison last informed the Company that he directly owns 232,955 shares
(including a trust for his benefit and 69,212 shares of Common Stock held
under four trusts for the benefit of his four adult children which Mr.
Harrison is also deemed to beneficially own.
(6) Pursuant to Amendment No. 5 to Schedule 13G dated January 16, 1999, State of
Wisconsin Investment Board last informed the Company that it is a government
agency which manages public pension funds and that it may be deemed the
beneficial owner of 300,000 shares of Common Stock. State of Wisconsin
Investment Board has sole dispositive power and sole voting power over all
300,000 shares.
(7) Pursuant to Amendment No. 2 to Schedule 13G each dated January 5, 1999,
Societe Generale Asset Management Corp. last informed the Company that it is
an investment adviser and is the beneficial owner of 187,000 shares of
Common Stock.
(8) Pursuant to Schedule 13G dated February 12, 1999, Dimensional Fund Advisors
Inc. stated that it is a registered investment adviser that may be deemed
the beneficial owner of 190,300 shares of Common Stock as a result of its
role as investment advisor to four investment companies and investment
manager to certain other investment vehicles, including commingled group
trusts. Dimensional Fund Advisors Inc. disclaims beneficial ownership of all
such shares. Dimensional Fund Advisors Inc. has sole dispositive power and
sole voting power over all 190,300 shares.
(9) Pursuant to Amendment No. 1 to Schedule 13G, dated January 22, 1999,
Franklin Resources, Inc. ("Franklin") last informed the Company that it is a
holding company through which it is the beneficial owner of 186,000 shares
of Common Stock. Franklin's investment subsidiary, Franklin Advisory
Services, Inc., is an investment advisor that has sole dispositive power and
sole voting power over all 186,000 shares. Charles B. Johnson and Rupert H.
Johnson, Jr. each own in excess of 10% of the outstanding common stock of
Franklin.
5
<PAGE> 9
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the ownership of
Common Stock of the Company for each director, each nominee, each named
executive and all executive officers and directors as a group as of May 19,
1999.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------ ---------- ----------
<S> <C> <C>
CURRENT DIRECTORS AND NOMINEES
Karen L. Hendricks....................................... 196,500(1)(2) 5.4%
Joseph H. Head, Jr....................................... 30,000(2) 0.9%
Roger L. Howe............................................ 29,000(2) 0.8%
George E. Castrucci...................................... 22,000(2) 0.6%
John H. Gutfreund........................................ 14,000(2) 0.4%
William B. Connell....................................... 11,000(2) 0.3%
NAMED EXECUTIVE OFFICERS
Stephen P. Brock......................................... 30,000(1)(2) 0.9%
George C. Huebner........................................ 30,000(1)(2) 0.9%
Perry H. Schwartz........................................ 15,500(1) 0.4%
Randolph R. Marks........................................ 30,000(1)(2) 0.9%
Ronald P. Geguzys........................................ -- 0%
All named executive officers, executive officers and
directors as a group (13 persons)..................... 452,000(1)(2) 11.8%
</TABLE>
- ---------------
(1) Includes shares owned beneficially subject to the holder's right to exercise
outstanding incentive stock options: 40,000 shares for Ms. Hendricks, 26,000
shares for Mr. Brock, 15,500 shares for Mr. Schwartz, 15,000 shares for Mr.
Marks and 25,000 shares for Mr. Huebner.
(2) Includes shares owned beneficially subject to the holder's right to exercise
outstanding non-qualified stock options: 119,000 shares for Ms. Hendricks,
20,000 shares for each of Messrs. Head and Castrucci, 14,000 shares for Mr.
Howe, 10,000 shares for Mr. Connell, 4,000 shares for Mr. Gutfreund, 2,000
shares for each of Messrs. Brock and Huebner and 10,000 shares for Mr.
Marks.
No agreements, formal or informal, exist among the various officers and
directors to vote their shares collectively. Except as otherwise indicated
herein, no director is a party to any contracts, arrangements or understandings
with any person with respect to any securities of the Company. In addition,
except as otherwise indicated herein, no director nor any associate of any
director has any arrangements or understandings with any person with respect to
any future employment by the Company or with respect to any future transaction
to which the Company will or may be a party. See "Executive
Compensation-Employment Contracts and Change in Control Agreements."
RIGHTS AGREEMENT
The preceding tables under "Holders of More than Five Percent Beneficial
Ownership" and "Security Ownership of Directors and Executive Officers" do not
reflect the effect of the Rights Agreement entered into by the Company in
October 1998 (the "Rights Agreement"). Pursuant to the terms of the Rights
Agreement, the Board of Directors of the Company authorized the issuance of one
common share purchase right (a "Right") with respect to each outstanding share
of Common Stock. The Rights were issued on October 23, 1998 to the holders of
record of Common Stock on October 22, 1998. Each Right entitles the registered
holder to purchase from the Company one share of Common Stock at a price of
$45.00 (the "Purchase Price"), subject to adjustment. All of the rights
previously issued by the Company under its September 1996 rights agreement were
redeemed in April 1998.
Initially, the Rights will attach to all Common Stock certificates
representing outstanding shares and no separate Right Certificate will be
distributed. The Rights will separate from the Common Stock and a distribution
date (the "Distribution Date") will occur upon the earlier of (i) 10 days
following a
6
<PAGE> 10
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding Voting Shares (as defined below) of the Company other than pursuant
to a Qualifying Offer (as defined below) or such earlier later date (not beyond
the thirtieth day after the share acquisition date) as the Company's Board of
Directors may from time to time by resolution adopted prior to the Distribution
Date that otherwise would have occurred, or (ii) 10 business days following the
commencement or announcement of an intention to commence a tender offer or
exchange offer the consummation of which would result in any person becoming an
Acquiring Person. "Voting Shares" means (i) the Common Stock and (ii) any other
shares of capital stock of the Company entitled to vote generally in the
election of directors or entitled to vote together with the Common Stock in
respect of any merger or consolidation of the Company, any sale of all or
substantially all of the Company's assets or any liquidation, dissolution or
winding up of the Company.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), the Rights will be transferred with and only with the Common Stock.
Common Stock certificates issued after October 22, 1998, but prior to the
Distribution Date shall evidence one Right for each share of Common Stock
represented thereby and shall contain a legend incorporating by reference the
terms of the Rights Agreement. Promptly following the Distribution Date,
separate certificates evidencing the Rights will be mailed to holders of record
of Common Stock at the Distribution Date.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on October 12, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or the Rights are earlier redeemed or exchanged by
the Company as described below.
If any person becomes an Acquiring Person, each Right then outstanding
(other than Rights beneficially owned by the Acquiring Person which would become
null and void) would become a right to buy that number of shares of Common Stock
that at the time of such acquisition would have a market value of two times the
purchase price of the Right.
If, at any time after a person becomes an Acquiring Person, the Company
were acquired in a merger or other business combination transaction or more than
50% of its consolidated assets or earning power were sold, proper provision will
be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the purchase
price of the Right.
The offer and sale of the Common Stock issuable upon exercise of the Rights
will be registered with the Securities and Exchange Commission but such
registration will not be effective until the Rights become exercisable. As
described above, however, the Rights will not be transferable separately from
the Common Stock until the Distribution Date.
The number of shares of Common Stock or other securities or property
issuable upon exercise of the Rights, and the Purchase Price payable, are
subject to customary adjustments from time to time to prevent dilution.
The number of outstanding Rights and the number of shares of Common Stock
issuable upon exercise of each Right are also subject to adjustment in the event
of a stock split of the Common Stock or a stock dividend on the Common Stock
payable in shares of Common Stock or subdivisions, consolidations or
combinations of the Common Stock occurring, in any such case, prior to the
Distribution Date.
At any time after a person becomes an Acquiring Person and before the
acquisition by a person or group of 50% or more of the outstanding Voting Shares
(other than pursuant to a Qualifying Offer), the Company's Board of Directors,
may, at its option, issue Common Stock in mandatory redemption of, or in
exchange for, all or part of the then outstanding and exercisable Rights (other
than Rights owned by such Acquiring Person or group which would become null and
void) at an exchange ratio of one share of Common Stock for each two shares of
Common Stock for which each Right is then exercisable, subject to adjustment.
7
<PAGE> 11
At any time before a person becomes an Acquiring Person, the Board of
Directors, may redeem all, but not less than all, of the then outstanding Rights
at a price of $0.001 per Right (the "Redemption Price"). The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The terms of the Rights may be amended by the Company's Board of Directors
without the consent of the holders of the Rights, including an amendment to
extend the Final Expiration Date, and, provided a Distribution Date has not
occurred, to extend the period during which the Rights may be redeemed, except
that after the Distribution Date no such amendment may materially and adversely
affect the interests of the holders of the Rights.
The Rights will not be exercisable if a person or group were to acquire 15%
or more of the Voting Shares pursuant to a "Qualifying Offer." A "Qualifying
Offer" is defined as an all cash tender offer for all outstanding voting shares
of the Company which meets the requirements specified in the Agreement,
including:
(1) the offer is accompanied by firm written commitments from
responsible financial institutions to provide funds for such offer
which, when added to the offeror's available cash, will be
sufficient to pay for all shares on a fully-diluted basis and the
second-step transaction described below; and
(2) after consummation of the offer, the offeror will own at least 75%
of the then outstanding voting shares of the Company; and
(3) the offer remains open for at least 45 Business Days; and
(4) the offer is accompanied by a written opinion of a nationally
recognized investment banking firm stating that the price to be
paid in the offer is fair from a financial point of view to the
Company's stockholders; and
(5) the offeror agrees to consummate the second-step transaction in
which all shares not acquired upon completion of the tender offer
will be acquired at the same price per share paid in such offer.
The independent directors of the Company will review the Rights Plan at
least every two years and, if a majority of the independent directors deems it
appropriate, may recommend a modification or termination of the Rights Plan.
This summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement. A copy of the
Rights Agreement has been filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 8-K dated October 12, 1998. Shareholders may
obtain a copy of the Rights Agreement free of charge from the Company.
8
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by the Company's Chief Executive
Officer, the Company's other four most highly compensated executive officers in
1998 and one additional individual who would have been one of the Company's most
highly compensated executive officers if he had still been an executive officer
of the Company on December 31, 1998. Information is provided for each of the
last three fiscal years or such shorter period during which these individuals
(collectively, the "named executives") served as an executive officer of the
Company.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR (1)($) (2)($) (3)($) (#) (4)($)
------------------ ---- -------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Karen L. Hendricks 1998 $350,000 -0- -0- 10,000 $30,039
Chairman, Chief Executive 1997.. 350,000 98,000 12,500 29,000 27,100
Officer and President 1996 318,000 -0- -0- 10,000 31,741
Stephen P. Brock 1998 204,000 -0- -0- 3,000 15,373
Executive Vice 1997 190,000 29,568 -0- 3,000 12,572
President and General 1996 170,500 -0- -0- 12,000 9,846
Manager, Music Division
Perry H. Schwartz 1998 186,000 -0- -0- 2,500 13,306
Senior Vice President 1997 180,000 30,240 -0- 3,000 7,049
and Treasurer 1996 25,155(5) -0- -0- -0- -0-
Randolph R. Marks 1998 215,000(6) 38,700 -0- 20,000 19,775
Executive Vice President,
Piano Operations
George C. Huebner 1998 120,750 39,159 -0- 3,000 8,591
Senior Vice President 1997 116,917 8,962 -0- 3,000 7,783
and General Manager, 1996 110,123 -0- -0- 12,000 8,663
Keyboard Acceptance
Corporation
Ronald P. Geguzys 1998 191,025(7) -0- -0- -0- 26,147
Former Executive Vice
President and General
Manager, Contract
Electronics Division
</TABLE>
- ---------------
(1) Includes amounts contributed by the following named executives to the
Baldwin Piano & Organ Company Retirement Plan for Salaried Employees and the
Baldwin Piano & Organ Company Non-Qualified Deferred Compensation Plan as
elective salary reduction contributions.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Karen L. Hendricks.......................... $20,500 $20,000 $35,530
Stephen P. Brock............................ 16,069 13,072 10,010
Perry H. Schwartz........................... 10,993 5,400 -0-
Randolph R. Marks........................... 12,185 -0- -0-
George C. Huebner........................... 7,666 6,910 11,431
Ronald P. Geguzys........................... 13,212 -0- -0-
</TABLE>
9
<PAGE> 13
(2) The bonuses are shown for the years earned, but were paid in the following
year.
(3) In 1994, the Company's Board of Directors adopted the Company's 1994 Long
Term Incentive Plan pursuant to which awards of restricted stock based upon
the Company's stock performance in comparison to the Russell 2000 index
could be made. No shares of restricted stock have been earned to date under
this Plan. The 12,500 shares of restricted stock granted to Ms. Hendricks in
1997 were issued pursuant to the terms of her employment agreement with the
Company. At December 31, 1998, 7,500 shares of restricted stock granted to
Ms. Hendricks were unvested and had a market value of $72,187.50.
(4) "All Other Compensation" includes, as shown below, amounts contributed by
the Company under the Baldwin Piano & Organ Company Retirement Plan for
Salaried Employees; amounts contributed by the Company under the Baldwin
Piano & Organ Company Non-Qualified Deferred Compensation Plan; group term
life insurance premiums paid by the Company on policies obtained by the
Company for all employees; relocation expenses incurred by Messrs. Marks and
Geguzys; life insurance premiums paid by the Company for $500,000 of
executive life insurance on the life of Ms. Hendricks; and insurance
premiums paid by the Company for supplemental disability coverage for Ms.
Hendricks providing $10,000 in excess disability coverage per month. The net
proceeds of the executive life policy is payable to the estate of Ms.
Hendricks.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Karen L. Hendricks
Retirement Plan..................................... $23,939 $21,000 $26,563
Executive Insurance................................. 2,400 2,400 2,400
Disability Insurance................................ 1,480 1,480 780
Group Life Insurance................................ 2,220 2,220 1,998
------- ------- -------
$30,039 $27,100 $31,741
======= ======= =======
Stephen P. Brock
Retirement Plan..................................... $14,014 $11,400 $ 8,745
Group Life Insurance................................ 1,359 1,172 1,101
------- ------- -------
$15,373 $12,572 $ 9,846
======= ======= =======
Perry H. Schwartz
Retirement Plan..................................... $12,067 $ 5,850 $ 0
Group Life Insurance................................ 1,239 1,199 0
------- ------- -------
$13,306 $ 7,049 $ 0
======= ======= =======
Randolph R. Marks
Group Life Insurance $ 1,315 $ 0 $ 0
Relocation Expenses................................. $18,460 0 0
------- ------- -------
$19,775 $ 0 $ 0
======= ======= =======
George C. Huebner
Retirement Plan..................................... $ 7,783 $ 7,015 $ 8,188
Group Life Insurance................................ 808 768 475
------- ------- -------
$ 8,591 $ 7,783 $ 8,663
======= ======= =======
Ronald P. Geguzys
Group Life Insurance................................ $ 999 $ 0 $ 0
Relocation Expenses................................. 25,148 0 0
------- ------- -------
$26,147 $ 0 $ 0
======= ======= =======
</TABLE>
10
<PAGE> 14
(5) The Company hired Mr. Schwartz effective November 12, 1996.
(6) The Company hired Mr. Marks effective January 1, 1998.
(7) Mr. Geguzys was employed by the Company from January 1, 1998 until November
11, 1998.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company entered into a new Employment Agreement with Karen L. Hendricks
in June 1997. Pursuant to the terms of her Employment Agreement, Ms. Hendricks
will be employed as the Chief Executive Officer, President and Chairman of the
Board of the Company and she will be nominated as a director for each year of
her employment. Her Employment Agreement provides that after December 31, 1998
she will continue in the Company's employ without a specified term until
terminated by the Company or Ms. Hendricks. Ms. Hendricks will receive an annual
base salary of no less than $350,000. She will participate in the Company's
management incentive plans at the highest participant level and will receive all
other benefits normally accorded to the Company's senior officers. Ms.
Hendricks' Employment Agreement further provides that, in addition to the
customary insurance provided to Company employees, the Company will purchase a
$500,000 term life insurance policy on her life payable to her beneficiaries and
supplemental disability coverage providing $10,000 in excess disability coverage
per month. As an added inducement for Ms. Hendricks to enter into the Employment
Agreement, her Employment Agreement further provided that she would receive a
grant of an additional 19,000 non-qualified stock options, such options having
an exercise price equal to the fair market value of the Company's Common Stock
as of such date. As a further inducement for Ms. Hendricks to enter into the
Employment Agreement, her Employment Agreement provided that she would receive a
one time restricted stock grant of 12,500 shares of the Company's common stock,
with 20% of such shares vesting on execution of the Employment Agreement and the
remaining shares vesting 20% on January 1 of each year through January 1, 2001,
but only if Ms. Hendricks is employed by the Company on such vesting dates.
Ms. Hendricks' Employment Agreement provides that in the event the Company
terminates her employment without cause, the Company will pay her as severance
pay a lump sum amount equal to 18 months of base salary at the time of
termination. Such severance payment shall be paid by the Company within ninety
90 days following the date of termination. In the event the Company terminates
Ms. Hendricks' employment without cause, the Company shall also pay the cost of
out placement services for Ms. Hendricks up to an amount equal to 15% of her
annual base salary at the time her employment is terminated. In the event Ms.
Hendricks is terminated for cause, she shall receive her salary through the
effective date of termination and all incentive payments earned by but not yet
paid to her prior to such date. Such amounts shall be paid by the Company within
30 days of the effective date of such termination. Ms. Hendricks' Employment
Agreement contains covenants by Ms. Hendricks not to compete with the Company
for a period of one year after termination of her Employment Agreement by Ms.
Hendricks or by the Company for cause or upon her disability.
The Company also entered into an employment agreement with Randolph R.
Marks effective January 1, 1998. Mr. Marks' employment agreement provides that
the Company will employ him as Executive Vice President, Piano Operations
through December 31, 2000 unless terminated by the Company or Mr. Marks. The
Company agreed to pay Mr. Marks an annual base salary of no less than $215,000,
a cash bonus for 1998 of no less than $38,700 and other benefits normally
accorded to the Company's executive officers. As an added inducement for Mr.
Marks to enter into the employment agreement, the Company granted him 10,000
incentive stock options and 10,000 non-qualified stock options, all having an
exercise price equal to the fair market value of the Company's Common Stock on
January 1, 1998. In future years, he is also eligible to receive annual cash
bonuses, stock options and other performance awards as the Company may award in
its discretion.
Mr. Marks' employment agreement provides that in the event the Company
terminates his employment without cause, the Company will continue to pay his
base salary on a monthly basis through December 31, 1999. In the event that the
Company terminates Mr. Marks' employment for cause or he terminates his
employment voluntarily, then he will receive his salary through the effective
11
<PAGE> 15
date of termination and all incentive payments earned by but not yet paid to him
prior to such date. Mr. Marks also agreed in his employment agreement not to
compete with the Company for a period of one year after termination of his
employment agreement by him or by the Company for cause.
The Company has entered into agreements with each of Karen L. Hendricks,
Daniel B. Baker, Thomas C. Brewer, Stephen P. Brock, George C. Huebner, Duane D.
Kimble, Randolph R. Marks and Perry H. Schwartz (the "Change in Control
Agreements") which provide that if there is a change in control of the Company
and such executive officer's employment with the Company is terminated within a
stated time period thereafter, the Company must pay certain compensation and
provide certain perquisites to the executive officer. The Change in Control
Agreements have a term of five years. Ms. Hendricks' Change in Control Agreement
provides that if a change in control occurs during the term of the agreement and
either the Company or Ms. Hendricks terminates her employment within three years
after the change in control, Ms. Hendricks will receive 2.99 times the average
annual salary and average annual bonus and/or incentive compensation that she
received over the five years immediately preceding her termination. At Ms.
Hendricks' option, such severance compensation may be paid by the Company over
36 months or in a lump sum discounted to present value. Ms. Hendricks' Change in
Control Agreement also provides that health and life insurance coverage will be
maintained by the Company at the level in existence at the time of her
termination, and that Ms. Hendricks will be fully vested and continue her
participation in all employee retirement plans maintained by the Company on the
date of her termination, either for 36 months or until Ms. Hendricks becomes
employed by any other employer. Pursuant to Ms. Hendricks' Change in Control
Agreement, any agreement not to compete entered into by the Company and Ms.
Hendricks shall remain in effect.
The Change in Control Agreements of Messrs. Baker, Brewer, Brock, Huebner,
Kimble, Marks and Schwartz are identical. Pursuant to those Change in Control
Agreements, if a change in control occurs during the term of the agreement and
the Company terminates the employment of the executive officer within one year
after the change in control, the executive officer will receive the average
annual salary and average annual bonus and/or incentive compensation that he
received over the five years immediately preceding his termination. At the
executive officer's option, such severance compensation may be paid by the
Company over 12 months or in a lump sum discounted to present value. The Change
in Control Agreements of Messrs. Baker, Brewer, Brock, Huebner, Kimble, Marks
and Schwartz also provide that health and life insurance coverage will be
maintained at the level in existence at the time of his termination, and that
the executive officer will be fully vested and continue his participation in all
employee retirement plans maintained by the Company on the date of his
termination, either for 12 months or until the executive officer becomes
employed by any other employer. Pursuant to the Change in Control Agreements of
Messrs. Baker, Brewer, Brock, Huebner, Kimble, Marks and Schwartz, the executive
officers are subject to an agreement not to compete with the Company for one
year following the date of termination.
The Change in Control Agreements for each of Ms. Hendricks and Messrs.
Baker, Brewer, Brock, Huebner, Kimble, Marks and Schwartz also provide that all
stock options, restricted stock and other incentive awards granted to such
executive officers will, upon termination of employment, immediately vest in
full and the executive officers will be entitled to receive immediately upon
termination the cash value of any long term incentives payable under any long
term incentive compensation plans maintained by the Company on the date of
termination.
12
<PAGE> 16
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants by the
Company of stock options to each of the named executives during 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
- ------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(4)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (#)(2) FISCAL YEAR(3) ($/SHARE) DATE 5%($) 10%($)
---- ---------- -------------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Karen L. Hendricks 10,000 13.47% $15.75 05/18/08 $ 99,225 $256,725
Stephen P. Brock 3,000 4.04% $15.75 05/18/08 $29,767.50 $ 77,018
Perry H. Schwartz 2,500 3.37% $15.75 05/18/08 $24,806.25 $ 64,181
Randolph R. Marks 20,000 26.94% $16.12 01/01/08 $ 203,112 $492,900
George C. Huebner 3,000 4.04% $15.50 05/18/08 $ 29,295 $ 73,935
Ronald P.
Geguzys........ -0- -0- -0- -- -0- -0-
</TABLE>
- ---------------
(1) All grants were made at the fair market value on the grant date.
(2) Options vest over a four year period, 20% on the grant date and 20% on each
anniversary of the grant date.
(3) Total options granted to all executive officers and other employees of the
Company in 1998 were for an aggregate of 74,250 shares of Common Stock.
(4) Calculated based upon assumed stock prices for the Company's Common Stock
assuming 5% and 10% annual rates of stock appreciation are achieved over the
full term of the options granted to the executive officers reflected in the
table. The potential realizable gain equals the product of the number of
shares underlying the stock option grant and the difference between the
assumed stock price and the exercise price of each option.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information regarding individual
exercises of stock options during 1998 by each of the named executives.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT 12/31/98 12/31/98
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (1)(#) (2)(3)($)
---- --------------- -------------- --------------------- -------------
<S> <C> <C> <C> <C>
Karen L. Hendricks -0- $ -0- 117,600/ $-0-
31,400
Stephen P. Brock -0- -0- 16,400/ -0-
11,600
Perry H. Schwartz -0- -0- 7,700/ -0-
7,800
Randolph R. Marks -0- -0- 4,000/ -0-
16,000
George C. Huebner 1,000 4,750 13,600/ -0-
11,400
Ronald P. Geguzys -0- -0- -0- -0-
</TABLE>
13
<PAGE> 17
- ---------------
(1) All stock options issued to the named executives under the Company's 1986
Incentive Stock Option Plan are fully vested and are currently exercisable.
See note (2) to the table appearing under "Option Grants in Last Fiscal
Year" regarding the vesting of options granted in 1998.
(2) The shares of the Company's Common Stock issuable upon the exercise of
outstanding stock options granted under the Company's 1986 Incentive Stock
Option Plan, or upon the exercise of non-qualified stock options (except as
noted below), have not been registered under the Securities Act of 1933
("1933 Act"). Generally, such shares may not be resold by the holder for a
minimum period of one year following exercise of the option. The shares of
the Company's Common Stock issuable upon the exercise of outstanding stock
options granted under the Company's 1994 Incentive Stock Option Plan and
1998 Omnibus Stock Plan, and the shares issuable upon the exercise of
100,000 non-qualified stock options granted to Ms. Hendricks under her
employment agreement, have been registered under the 1933 Act and generally
can be resold immediately upon exercise.
(3) The value of unexercised in-the-money options is calculated by determining
the difference between $9.625 per share, the last reported sale price of the
Common Stock on the Nasdaq National Market on December 31, 1998, and the
exercise price of the option as of such date, multiplied by the number of
shares subject to the option. All unexercised stock options granted in 1994
have an exercise price of $16.00 per share, except for the 100,000 stock
options granted to Ms. Hendricks under her employment agreement which have
an exercise price of $12.50. All unexercised stock options granted in 1995
have an exercise price of $11.75 per share, except for options granted to
Stephen P. Brock at $13.375 per share. All unexercised stock options granted
in 1996 to the Company's executive officers have exercise prices of $13.25
and $13.00 per share. All unexercised stock options granted in 1997 have an
exercise price of $13.63 per share, except for 19,000 stock options granted
to Ms. Hendricks under her employment agreement which have an exercise price
of $13.00 per share. All unexercised stock options granted in 1998 to named
executive officers have an exercise price of $15.75 except for options
granted to George C. Huebner which have exercise price of $15.50. Based upon
the $9.625 per share market price of the Common Stock at December 31, 1998,
the unexercised stock options held by the named executive officers had no
value because the exercise prices exceeded the market price.
COMPENSATION OF DIRECTORS
In 1998, non-employee directors of the Company were compensated for serving
on the Board of Directors and the committees thereof, in the amount of $10,000
per year, payable in quarterly installments, and received an additional $900 for
each Board of Directors meeting and each committee meeting attended in person or
by telephone. Such directors are reimbursed for all reasonable expenses incurred
in connection with their services and receive an annual grant of 2,000
non-qualified stock options under the 1998 Omnibus Stock Plan having an exercise
price equal to the market price on the date of the grant. Ms. Hendricks receives
no additional compensation for serving on the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Head and Howe comprised the Company's entire Executive Compensation
Committee during 1998, and were both non-employee directors of the Company. No
director or executive officer of the Company serves on any board of directors or
compensation committee of any entity which compensates Messrs. Head or Howe.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
For the Company's 1998 fiscal year, the Executive Compensation Committee of
the Board of Directors (the "Committee") was at all times comprised entirely of
independent non-employee directors. The Committee is charged with responsibility
for reviewing the performance and approving the compensation of the Company's
key executives on an annual basis.
14
<PAGE> 18
GUIDING PRINCIPLES. In determining compensation, the Committee strives to
adhere to the following key principles:
- executive compensation should directly link individual compensation to
the performances of the Company and of its executive officers and key
management employees, while at the same time motivating long-term growth
in shareholder value;
- executive compensation for the Company's executive officers must be
competitive with similar size companies; and
- executive compensation should be designed to enhance the Company's
ability to attract and retain highly skilled executives.
In furtherance of these objectives, the Committee and the full Board of
Directors have approved and adopted the 1994 Management Incentive Plan (the
"MIP"), the 1994 Incentive Stock Option Plan (the "ISOP"), the 1994 Long Term
Incentive Plan (the "LTIP") and the 1998 Omnibus Stock Plan (the "Omnibus
Plan"). The Committee has established six levels of employee participation in
these plans. The size of the possible awards under each plan is dependent in
large part upon the level at which an employee is designated for participation.
In determining the level of participation for each participant, the Committee
subjectively considers the participant's level of responsibility within the
Company's organization.
Pursuant to these plans, the compensation packages that the Company
typically offers to its executive officers are comprised of base salary, annual
cash bonus and stock options and, for Ms. Hendricks, shares of restricted stock.
These plans also allow for grants of restricted stock, stock appreciation
rights, performance units and performance shares, although no such grants have
been made to date other than for grants of restricted stock to Ms. Hendricks.
BASE SALARIES. The Company establishes annual base salaries for its
executive officers, subject to approval by the Committee. Base salaries may be
adjusted annually based primarily on the participant's individual performance
and secondarily on the Company's performance. The Company and the Committee
subjectively consider any and all factors deemed relevant in adjusting each
participant's base salary from time to time.
ANNUAL CASH BONUSES. The Committee may grant annual cash bonuses based
primarily upon the performance of the Company or, if appropriate, a subsidiary,
division or business segment thereof. Specific performance targets are
established as early as possible at the start of each calendar year and no bonus
is payable unless the minimum threshold established is met or exceeded. In 1998,
depending on the executive officer's responsibilities, one or more of the
following four areas of performance were measured in determining whether bonuses
would be earned and in what amounts: (1) the Company's net profit or business
unit operating profit; (2) achievement of sales levels; (3) adherence to
production schedules; and/or (4) personal key objectives.
STOCK OPTIONS. The Committee is empowered to grant participants stock
options pursuant to the ISOP and the Omnibus Plan. These plans are designed to
afford executive officers and key management employees an incentive to acquire a
proprietary interest in the Company. The primary objective of both plans is to
enhance both the short-term and long-term profitability of the Company by
directly linking awards under these plans to increased shareholder values.
The Committee establishes financial and other performance targets under the
ISOP and the Omnibus Plan for the Company and for the individual participants.
Such targets serve as guidelines in making the actual awards. The primary factor
to be considered by the Committee in awarding stock options is the employee's
individual performance, and the Committee retains discretion as to the actual
number of options granted under the ISOP and the Omnibus Plan to any individual
in a given year.
15
<PAGE> 19
The Committee may also award shares of restricted stock under the LTIP and
the Omnibus Plan, as well as award stock appreciation rights, performance units
and performance shares under the Omnibus Plan. No such awards were made in 1998.
1998 COMPENSATION FOR THE COMPANY'S CHIEF EXECUTIVE OFFICER AND NAMED
EXECUTIVES. The Committee followed the above philosophies and procedures in
determining executive compensation for the Company's 1998 fiscal year. As
previously approved by the Committee, Ms. Hendricks' 1998 base salary was set at
$350,000 and Mr. Marks' base salary was set at $215,000, pursuant to their
respective employment agreements. Annual base salaries for each of Messrs.
Brock, Huebner and Schwartz were increased modestly based on their individual
performances.
The potential for a cash bonus in 1998 for Ms. Hendricks was based solely
on a threshold level of Company net profits, which was not achieved. Similarly,
no bonuses were paid for 1998 to Messrs. Brock and Schwartz. Mr. Marks received
a bonus for 1998 based upon the terms of his employment agreement. Mr. Huebner
earned a bonus for 1998 based upon the operating profit of his business unit.
Consistent with the Committee's desire to enhance the long-term
profitability of the Company, the Committee awarded stock options to executive
officers and a combination of other management employees in 1998 who the Company
and the Committee believe can positively impact the Company's results through
their individual performance. The Committee awarded Ms. Hendricks a stock option
grant of 10,000 shares in 1998 based upon the belief that such grant would
provide a substantial link between the Company's future performance and the
total value of her compensation package. Stock options were granted to Ms.
Hendricks and the other named executives primarily to motivate enhanced
individual performance in 1999 and beyond.
INTERNAL REVENUE CODE LIMITS ON DEDUCTIBILITY OF COMPENSATION. While the
Committee does not believe that the Company's compensation practices have to
date raised significant questions as to the deductibility of such compensation
for tax purposes, the Omnibus Plan was designed to comply with Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). Section 162(m)
generally denies a corporate tax deduction for annual compensation exceeding
$1,000,000 paid to the chief executive officer and the four other most highly
compensated officers of a public company ("Covered Employees"). Certain types of
compensation, including "performance-based compensation," are generally excluded
from this deduction limit. It is contemplated that all stock awards made under
the Omnibus Plan will constitute "performance-based compensation" under Section
162(m) of the Code.
While the Company believes that compensation payable pursuant to the
Omnibus Plan generally will be deductible for federal income tax purposes, under
certain circumstances such as death, disability, a change in control, or a grant
of restricted stock to a Covered Employee that does not qualify as
"performance-based compensation" under Section 162(m) of the Code, compensation
not qualified under Section 162(m) of the Code may be payable pursuant to the
provisions of the Omnibus Plan. The Committee also reserves the authority to
award non-deductible compensation in other circumstances as they deem
appropriate. Further, because of ambiguities and uncertainties as to the
application and interpretation of Section 162(m), no assurance can be given that
compensation intended by the Company to satisfy the deductibility requirements
will in fact do so.
THE EXECUTIVE COMPENSATION COMMITTEE
Joseph H. Head, Jr. Roger L. Howe
COMMON STOCK PERFORMANCE
The following performance graph compares the Company's cumulative
shareholder return over a five year period, assuming $100 invested at December
31, 1993, respectively, in Baldwin Piano & Organ Company common stock, the
Russell 2000 index and in an industry group index of twenty-four companies
within the Russell 2000 index engaged in the manufacture or sale of household
furnishing
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<PAGE> 20
related products. Total shareholder return is based on the increase in the price
of the stock and assumes the reinvestment of all dividends.
The Russell 2000 index consists of the smallest 2,000 companies in the
Russell 3000 index. The Company selected the Russell 2000 index as an
appropriate index for comparison based upon the Company's similar size to the
smaller companies represented in the index. The Company is not included in the
Russell 2000 index as of December 31, 1998 due to the Company's smaller market
capitalization level.
The industry household furnishing group is comprised of: Basset Furniture
Industries, Incorporated, Blyth Industries, Inc., Bush Industries, Inc.,
Department 56, Inc., Enesco Group, Inc., Ethan Allen Interiors Inc., Furniture
Brands International, Inc., Haverty Furniture Cos, Inc., Heilig-Meyers Company,
La-Z-Boy Incorporated, Leggett & Platt, Incorporated, Libbey Inc., Meadowcraft,
Inc., Mikasa, Inc., National Presto Industries, Inc., Newell Co., Oneida Ltd.,
O'Sullivan Industries Holdings, Pillowtex Corporation, Premark International,
Inc., Rubbermaid Incorporated, Shaw Industries, Inc., Springs Industries, Inc.,
and Westpoint Stevens Inc. The Company selected this industry group because this
industry group is the most similar to the Company's business and due to the fact
that inadequate information is available regarding the Company's direct
competitors in the music industry because many of such direct competitors are
not public companies and/or are foreign companies.
COMPARATIVE SHAREHOLDER RETURNS
(DIVIDENDS REINVESTED)
<TABLE>
<CAPTION>
BPAO R2000 HOUSEHOLD FURNISHING
---- ----- --------------------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 73.33 98.18 91.49
'1995' 83.33 126.10 93.16
'1996' 75.00 146.90 107.44
'1997' 104.17 179.75 134.08
'1998' 64.17 175.17 149.07
</TABLE>
17
<PAGE> 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the best of the Company's knowledge, all of the Company's directors,
officers and 10% or more shareholders have timely filed with the Securities and
Exchange Commission all reports required to be so filed pursuant to Section 16
of the Securities Exchange Act of 1934 for the Company's 1998 fiscal year except
that one option exercise by Mr. Huebner was not reported on a timely basis on a
Form 4. The transaction by Mr. Huebner was subsequently reported on a Form 5.
OTHER SECURITIES FILINGS
The information contained in this Proxy Statement under the headings
"Executive Compensation -- Report of Compensation Committee on Executive
Compensation" and "Executive Compensation -- Common Stock Performance" are not,
and should not be deemed to be, incorporated by reference into any filings by
the Company under the 1933 Act or the Securities Exchange Act of 1934 that
purport to incorporate other Securities and Exchange Commission filings made by
the Company.
INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP to be the
independent auditors of the Company for the year ending December 31, 1999. This
selection will be submitted for ratification at the Annual Meeting.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
The firm of Deloitte & Touch LLP was engaged as the Company's independent
auditors on September 16, 1998. Previously, through September 10, 1998, KPMG
Peat Marwick LLP had served in this capacity since the Company's inception in
1984. Such actions were approved by the Audit Committee of the Board of
Directors of the Company.
The reports of KPMG on the Company's consolidated financial statements for
the fiscal years 1997 and 1996 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
In connection with the audits of the two fiscal years ended December 31,
1997 and during subsequent interim periods, there were no disagreements on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
KPMG, would have caused KPMG to make reference to the matter in its report.
Additional information regarding the change of accountants is contained in
the Company's Form 8-K dated September 10, 1998 as filed with the Securities and
Exchange Commission.
Ratification of the selection of auditors requires a majority of the votes
cast at the Annual Meeting. The Board of Directors recommends that Shareholders
vote FOR ratification.
SHAREHOLDER PROPOSALS
The Company has been notified that the following Shareholders of the
Company intend to present the proposals set forth below for consideration at the
Annual Meeting. The address and stock ownership of each of the proponents will
be furnished by the Corporate Secretary of the Company to any person, orally or
in writing as requested, promptly upon receipt of any oral or written request
therefor.
SHAREHOLDER PROPOSAL 1:
Mr. Thomas Loucas has submitted the following resolution:
"Resolved that the Shareholders of the Company deem it desirable and
in their best interest that the Board of Directors engage the services of a
nationally recognized and qualified
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<PAGE> 22
investment banker to explore a sale, merger or other business combination
involving the Company."
SUPPORTING STATEMENT:
"Proponent believes that the retention of Lehman Brothers as the Company's
investment banker did not include the specific mandate at first presented by the
Bolero Partnership on September 13, 1996. Although Lehman Brothers has been
providing services for the Company for over a year and a half, no concrete
proposals regarding their efforts to enhance shareholder value have been
communicated, articulated or implemented. Proponent believes that the retention
of a qualified investment banker, other than the current one, if given a clear
mandate and properly instructed by management, would be able to offer
alternatives to enhancing shareholder value. The Board of Directors must
understand that the shareholder's interests would now best be served by prompt,
diligent, and good faith implementation of the above resolution. This would be a
positive means to enable the Company to realize its potential and yield the
returns which we as shareholders deserve."
SHAREHOLDER PROPOSAL 2:
Mr. Troy J. Rillo has submitted the following resolution:
"Resolved, that the shareholders request the Board of Directors to
provide the shareholders with specific, detailed information regarding the
advice rendered by Lehman Brothers Inc. from the date it was engaged on or
about February 24, 1997 to the date such information is provided to the
shareholders."
SUPPORTING STATEMENT:
"On or about September 13, 1996, the Company received a shareholder
proposal requesting the Company to hire an investment bank to explore any and
all alternatives to enhance shareholder value, including the possible sale,
merger or other business combination of the Company. In response and on or about
February 24, 1997, the Company voluntarily engaged Lehman Brothers Inc.
Subsequently, the Company excluded the shareholder proposal from its proxy
materials because the Company claimed that it had already engaged an investment
bank to explore any and all alternatives to enhance shareholder value. In
particular, the Company stated: "We believe that the facts enumerated above
demonstrate that Baldwin has already taken specific steps to implement each and
every action called for by the [1997] Proposal." By excluding the shareholder
proposal, the Company successfully prevented the proposal from being considered
and voted upon by the shareholders. Yet the proponent believes that shareholder
value remains low. The proposal offered today requests the company to provide
specific details concerning the advice rendered by Lehman Brothers Inc. from the
date of its engagement to date such information is provided to the shareholders.
Such information will keep the shareholders informed of the Company's attempts
to enhance shareholder and allow the shareholders to confirm that the Company
had in fact engaged Lehman Brothers Inc. to provide the specific advice
described in the earlier shareholder proposal."
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "AGAINST" THESE
SHAREHOLDER PROPOSALS FOR THE FOLLOWING REASONS.
The Board of Directors is deeply concerned with the performance of the
Company and the enhancement of stockholder value. The Board of Directors is
cognizant of its fiduciary responsibilities to its stockholders and strives to
discharge these responsibilities in a manner that the Board believes is in the
best interests of the Company and it stockholders. As a matter of course, the
Board regularly reviews all of the operations of the Company, including
Management reports evaluating the contribution of each business unit to the
Company's performance. It is the Board's opinion that stockholder value will be
maximized by Management's diligent work toward operating the Company effectively
and efficiently to generate increased operating earnings.
The Board of Directors consists of individuals who are familiar with the
Company and its business, and are experienced and knowledgeable of the
industries in which it operates. All the members of the
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<PAGE> 23
Board of Directors, except one, are independent directors, and all of the
Directors have diverse and broad business backgrounds and expertise on which to
draw. The Board has always been active in exploring strategic alternatives to
enhance stockholder value, including efforts with investment bankers, and it
regularly assesses the long-term outlook for the Company from a strategic
perspective, reviewing the prospects for the Company's current business as well
as future plans, and continually evaluating the range of credible and realistic
strategic opportunities.
Over the last several years, the Board and the Company's Management have
worked to reposition the Company's product lines and reorganize its Management
structure to best equip the Company for consistent long-term growth in
stockholder value. The Company continues to target opportunities to enhance
Company performance. Although the Company has had disappointing financial
results in recent years, the Company and the Board believe that the continued
focus on improvement in the Company's performance and strategic direction will
maximize stockholder value in the long term.
At the same time, the Board continues to consider all strategic options
available to Baldwin. The Board has retained Lehman Brothers to provide
investment banking advice and to evaluate all strategic options to maximize
stockholder value, including a merger, acquisition or other sale of the Company.
This process is currently ongoing.
One proposal requests that the stockholders be provided with detailed
information regarding the advice given by Lehman Brothers. The Board believes
that it can function most effectively when its strategic planning is conducted
confidentially. In this way, ideas and alternatives that may enhance stockholder
value can be, and are currently being, developed and debated without the fear
that they will lead to rumors or public debate that could harmfully restrict the
Board's choices or disrupt the public market for the Common Stock.
The second proposal requests that the Company retain a different financial
advisor. The Board has reviewed Lehman Brothers' performance, is fully satisfied
with the services provided, and intends to continue their engagement.
In conclusion, the Board of Directors does not believe that a vote for the
proposals would be in the best interest of the Company and its stockholders and,
therefore, recommends voting against the proposals.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST"
THESE PROPOSALS, AND YOUR PROXY WILL BE SO VOTED IF THE PROPOSALS ARE PRESENTED
UNLESS YOU SPECIFY OTHERWISE.
ADDITIONAL INFORMATION
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING. Any Shareholder proposal
intended for inclusion in the proxy material for the 2000 Annual Meeting must be
received in writing by the Company on or before January 25, 2000. The inclusion
of any proposal will be subject to applicable rules of the Securities and
Exchange Commission and to the Company's bylaws as described under "Election of
Directors -- Bylaw Provisions".
PROXY SOLICITATION COSTS. The proxies being solicited hereby are being
solicited by the Company. The cost of soliciting proxies in the enclosed form
will be borne by the Company. The Company has retained D.F. King and Co., Inc.
to aid in the solicitation. For these services, the Company will pay D.F. King a
fee of $5,000 and reimburse it for certain out of pocket expenses. Officers and
regular employees of the Company may, without compensation other than their
regular compensation, solicit proxies on behalf of the Company.
ANNUAL REPORT
A copy of the company's Annual Report on Form 10-K for the year ended
December 31, 1998, as filed with the Securities and Exchange Commission, will be
mailed without charge to shareholders
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<PAGE> 24
upon request. Requests should be addressed to the Company, 4680 Parkway Drive,
Mason, Ohio 45040-5301, attention: Mr. Duane D. Kimble, Secretary. The Form 10-K
includes certain exhibits, which will be provided only upon payment of a fee
covering the company's reasonable expenses.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters to
come before the meeting. If any other matters should come before the meeting,
the persons named in the enclosed proxy intend to vote the proxy according to
their best judgment.
You are urged to complete, sign, date and return the proxy card to make
certain your shares will be voted at the 1999 Annual Meeting. For your
convenience in returning the proxy, an addressed envelope is enclosed, requiring
no additional postage if mailed in the United States.
For the Board of Directors,
/s/ Karen L. Hendricks
KAREN L. HENDRICKS
Chairman of the Board
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<PAGE> 25
BALDWIN PIANO & ORGAN COMPANY
4680 PARKWAY DRIVE - MASON, OHIO 45040-5301
THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Duane D. Kimble and Thomas W. Kahle,
or any of them, each with power of substitution, as Proxies of the
P undersigned to attend the Annual Meeting of Shareholders of Baldwin Piano
R & Organ Company (the "Company") to be held on Monday, June 14, 1999, at
O 1:00 p.m., Cincinnati time, at the Company's principal executive offices
X located at 4680 Parkway Drive, Mason, Ohio, on the second floor, and any
Y adjournment or adjournments thereof, and to vote the number of shares of
the Company's Common Stock (par value $.01 per share) which the
undersigned would be entitled to vote if personally present on the
following matters:
1. ELECTION OF DIRECTORS
Vote for Six (6) Nominees to Serve as Directors of the Company for
the one-year term ending at the 2000 Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
WITHHOLD AUTHORITY
NOMINEE FOR TO VOTE
------- --- ------------------
<S> <C> <C>
George E. Castrucci [ ] [ ]
William B. Connell [ ] [ ]
John H. Gutfreund [ ] [ ]
Joseph H. Head, Jr. [ ] [ ]
Karen L. Hendricks [ ] [ ]
Roger L. Howe [ ] [ ]
</TABLE>
2. RATIFICATION OF AUDITORS
For [ ] Against [ ] Abstain [ ] the ratification of the selection
by the Board of Directors of Deloitte & Touche LLP as auditors
for the Company for the fiscal year ending December 31, 1999.
3. SHAREHOLDER PROPOSAL 1
For [ ] Against [ ] Abstain [ ] the shareholder proposal with
respect to the Company engaging an investment banking firm.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
4. SHAREHOLDER PROPOSAL 2
For [ ] Against [ ] Abstain [ ] the shareholder proposal with
respect to the Company providing detailed information about advice
rendered by an investment banking firm to the Company.
5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" ALL NOMINEES LISTED IN ITEM 1, "FOR" ITEM 2,
"AGAINST" ITEMS 3 AND 4, AND IN THE DISCRETION OF THE PROXIES ON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated...................., 1999
[Shareholder's Name and Address
as on Record Books]
-------------------------------
-------------------------------
(Please sign exactly as your
name or names appear hereon.
When shares are held by joint
tenants, both should sign. If
signing as an attorney,
executor, administrator,
trustee or guardian, give your
full title as such. If signing
on behalf of a corporation, the
full name of the corporation
should be set forth accompanied
by the signature on its behalf
of a duly authorized officer.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE
ENVELOPE PROVIDED
