<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
STEINWAY MUSICAL INSTRUMENTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(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>
STEINWAY MUSICAL INSTRUMENTS, INC.
800 SOUTH STREET
SUITE 425
WALTHAM, MASSACHUSETTS 02453
(781) 894-9770
May 11, 1999
Dear Stockholders:
Our Annual Meeting of Stockholders will be held on June 11, 1999, at 4:00
p.m., at The Westin Hotel, 70 Third Avenue, Waltham, Massachusetts 02451. We
urge you to attend this meeting to give us an opportunity to meet you
personally, to allow us to introduce to you the key personnel responsible for
management of your Company and to cover any questions you may have.
The formal Notice of Meeting, the Proxy Statement and the proxy card are
enclosed. A copy of the Annual Report to Stockholders describing the Company's
operations during the year ended December 31, 1998 is also enclosed.
Messrs. Kirkland and Messina, who own 100% of the Class A Common Stock, have
advised the Company that they intend to vote their shares of Class A Common
Stock consistent with the recommendations of the Board of Directors set forth in
the attached Proxy Statement. The Class A Common Stock presently represents 84%
of the combined voting power of the Class A Common Stock and the Ordinary Common
Stock. Therefore, stockholder approval in accordance with the Board of
Directors' recommendations is assured.
We hope that you will be able to attend the meeting in person. Whether or
not you plan to attend the meeting, please sign and return the enclosed proxy
card promptly. A prepaid return envelope is provided for this purpose. Your
shares will be voted at the meeting in accordance with your proxy.
If you have shares in more than one name or if your stock is registered in
more than one way, you may receive more than one copy of the proxy material. If
so, please sign and return each of the proxy cards you receive so that all of
your shares may be voted. We look forward to meeting you at the Annual Meeting
of Stockholders.
Very truly yours,
[SIGNATURE]
Dana D. Messina
CHIEF EXECUTIVE OFFICER
<PAGE>
STEINWAY MUSICAL INSTRUMENTS, INC.
800 SOUTH STREET
SUITE 425
WALTHAM, MASSACHUSETTS 02453
(781) 894-9770
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 1999
------------------------
The Annual Meeting of Steinway Musical Instruments, Inc. (the "Company")
will be held on June 11, 1999, at 4:00 p.m., at The Westin Hotel, 70 Third
Avenue, Waltham, Massachusetts 02451, for the following purposes:
1. To elect five (5) directors to hold office until the next annual meeting
of stockholders and until their successors are duly elected and
qualified; and
2. To ratify the appointment of Deloitte & Touche LLP as independent public
accountants for the fiscal year ending December 31, 1999; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on May 3, 1999 will be
entitled to vote at the Annual Meeting or any adjournment or postponement
thereof. All stockholders are urged to attend the meeting in person or by proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED PREPAID RETURN ENVELOPE.
The proxy is revocable and will not affect your right to vote in person in the
event you attend the meeting.
By Order of the Board of Directors,
[SIGNATURE]
Dennis M. Hanson
SECRETARY
Waltham, Massachusetts
May 11, 1999
<PAGE>
STEINWAY MUSICAL INSTRUMENTS, INC.
----------------
PROXY STATEMENT
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Steinway Musical Instruments, Inc. (the "Company") for use in connection with
the Annual Meeting of Stockholders to be held on the 11th day of June, 1999 at
4:00 p.m. (the "Annual Meeting") and at any and all adjournments thereof.
The persons named as proxies were designated by the Board of Directors and
are officers and/or directors of the Company. Any proxy may be revoked or
superseded by executing a proxy bearing a later date or by giving notice of
revocation in writing prior to, or at, the Annual Meeting, or by attending the
Annual Meeting and voting in person. All proxies which are properly completed,
signed and returned to the Company prior to the meeting, and not revoked, will
be voted in accordance with the instructions given in the proxy. If a choice is
not specified in the proxy, the proxy will be voted FOR the election of the
director nominees listed below and FOR the ratification of the appointment of
Deloitte & Touche LLP as independent public accountants for the Company.
This Proxy Statement and the accompanying proxy are being mailed to
stockholders on or about May 11, 1999. The entire cost of the solicitation of
proxies will be borne by the Company. Expenses will also include reimbursements
paid to brokerage firms and others for their reasonable expenses incurred in
forwarding solicitation material regarding the meeting to beneficial owners of
the Company's common stock. It is contemplated that this solicitation will be
primarily by mail. In addition, some of the officers, directors and employees of
the Company may solicit proxies personally or by telephone, facsimile or cable.
Messrs. Kirkland and Messina have advised the Company that they intend to
vote all of their shares of Class A Common Stock in favor of the election of the
five nominees recommended by the Board of Directors and the appointment of
Deloitte & Touche LLP to serve as the Company's independent public accountants
to audit the Company's financial statements for 1999. Such action by Messrs.
Kirkland and Messina is sufficient to elect such directors and to appoint the
independent public accountants without any action on the part of any other
holder of common stock.
VOTING AT THE MEETING
Only stockholders of record at the close of business on May 3, 1999 will be
entitled to vote at the Annual Meeting or any adjournment or postponement
thereof. The Company's Restated Certificate of Incorporation (the "Certificate
of Incorporation") authorizes two classes of common stock, designated as
Ordinary Common Stock and Class A Common Stock. Each share of Ordinary Common
Stock and Class A Common Stock entitles the record holder to one vote and 98
votes, respectively, on any action to be taken at the Annual Meeting, unless
Delaware law provides otherwise. As of April 3, 1999, there were 8,766,572 and
477,953 shares of Ordinary Common Stock and Class A Common Stock, respectively,
outstanding. As of that date, all shares of Class A Common Stock were owned by
Kyle R. Kirkland and Dana D. Messina, Chairman of the Board and Chief Executive
Officer of the Company, respectively, representing 84% of the combined voting
power of the Class A Common Stock and Ordinary Common Stock. Neither the holders
of the Ordinary Common Stock nor the holders of Class A Common Stock have
cumulative voting rights.
1
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The stockholders of the Company have no dissenters or appraisal rights in
connection with any of the items scheduled to be presented to the stockholders
at the Annual Meeting.
VOTE REQUIRED
The election of director nominees requires a plurality of the votes cast in
person or by proxy at the Annual Meeting. Under Delaware law, the Certificate of
Incorporation and the Company's bylaws, shares as to which a stockholder
abstains or withholds from voting on the election of directors and shares as to
which a broker indicates that it does not have discretionary authority to vote
("broker non-votes") on the election of directors will not be counted as voting
thereon and therefore will not affect the election of the nominees receiving a
plurality of the votes cast.
Ratification of the appointment of Deloitte & Touche LLP as independent
public accountants of the Company for the 1999 fiscal year requires the
affirmative vote of the holders of at least a majority of the aggregate votes
cast at the meeting. Under Delaware law, the Certificate of Incorporation and
the Company's bylaws, shares as to which a stockholder abstains or withholds
from voting on the ratification of independent public accountants and broker
non-votes have the same effect as a vote against such ratification.
ELECTION OF DIRECTORS
The Certificate of Incorporation fixes the number of directors at not less
than three and not more than nine, with the exact number to be set by resolution
of the Board of Directors. The Board of Directors has set the authorized number
of directors at five and proposes the election of five directors to hold office
until the next annual meeting of stockholders and until their successors are
duly elected and qualified. Unless the authority to vote for directors has been
withheld in the proxy, the persons named in the enclosed proxy intend to vote at
the Annual Meeting for the election of the five nominees presented below. Except
as set forth below, persons named as proxies may not vote for the election of
any person to the office of director for which a bona fide nominee is not named
in the Proxy Statement. All nominees have consented to serve as directors for
the ensuing year and have previously served as directors of the Company.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if any nominee withdraws or otherwise becomes
unavailable to serve, the persons named in the enclosed proxy will vote for any
substitute nominee designated by the Board of Directors.
INFORMATION REGARDING THE NOMINEES
Set forth below are the names, ages, positions and offices held and a brief
account of the business experience for each of the persons to be nominated as a
director by the Board of Directors at the Annual Meeting.
NOMINEES FOR DIRECTORS FOR TERMS EXPIRING IN 2000
KYLE R. KIRKLAND, CHAIRMAN OF THE BOARD AND DIRECTOR (AGE 36). Mr. Kirkland
has served as a director of the Company since 1993. Mr. Kirkland has been a
principal of Kirkland Messina, Inc. since 1994. Mr. Kirkland was a Senior Vice
President of a Los Angeles-based investment bank from 1991 to 1994, where he was
responsible for its private placement financing activities. From 1990 to 1991,
Mr. Kirkland was employed by Canyon Partners as a Vice President. From 1988 to
1990, he was employed by Drexel Burnham Lambert in its High Yield Bond
Department.
DANA D. MESSINA, CHIEF EXECUTIVE OFFICER AND DIRECTOR (AGE 37). Mr. Messina
has served as a director of the Company since 1993. Mr. Messina has been a
principal of Kirkland Messina, Inc. since 1994. Mr. Messina was a Senior Vice
President of a Los Angeles-based investment bank from 1990 to 1994,
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<PAGE>
where he was responsible for all of its corporate finance and merchant banking
activities. From 1987 to 1990, he was employed at Drexel Burnham Lambert in its
High Yield Bond Department.
THOMAS T. BURZYCKI, PRESIDENT--SELMER AND DIRECTOR (AGE 55). Mr. Burzycki
has served as a director of the Company since 1993. Mr. Burzycki joined The
Selmer Company, Inc., a wholly-owned subsidiary of the Company ("Selmer"), in
1990 as President. From 1978 to 1990, Mr. Burzycki held various financial and
operational positions with United Musical Instruments, including President from
1985 to 1990. He has served on numerous industry and music education committees.
BRUCE A. STEVENS, PRESIDENT--STEINWAY AND DIRECTOR (AGE 56). Mr. Stevens
has served as a director of the Company since 1995. Mr. Stevens was employed by
the Polaroid Corporation for 18 years, where he held various positions including
Director of Marketing for all of Polaroid's international business. He joined
Steinway & Sons, an indirect wholly-owned subsidiary of the Company
("Steinway"), in 1985 when Steinway was acquired from Columbia Broadcasting
System television network. He has served on numerous industry and music
education committees.
PETER MCMILLAN, DIRECTOR (AGE 41). Mr. McMillan has served as a director of
the Company since July 1996. Mr. McMillan is Executive Vice President and Chief
Investment Officer of SunAmerica Investments, Inc. As Chief Investment Officer,
Mr. McMillan has overall investment management responsibility for the major
asset classes in SunAmerica's portfolio, including government securities,
mortgage-backed securities, public and private bonds, and commercial and
residential mortgages. Mr. McMillan joined SunAmerica Investments, Inc. in 1989
after managing the fixed-income portfolio for Aetna Life Insurance and Annuity
Company.
Each director of the Company is elected for a period of one year and serves
until his successor is duly elected and qualified. For information regarding the
beneficial ownership of Ordinary Common Stock and Class A Common Stock by each
nominee, see "Principal Stockholders."
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors took action on four separate occasions during 1998.
In addition to actions of the full Board, directors also took action through
Board committees. The Board of Directors has standing Audit, Compensation and
Option Committees. The Board of Directors does not have a standing Nominations
Committee. None of the members of the Board of Directors participated in less
than 75% of the meetings of the Board of Directors held or of the total number
of meetings held by all committees of the Board of Directors on which various
members served during the year ended December 31, 1998. The current members of
each of the Board of Directors' committees are listed below.
THE AUDIT COMMITTEE
The current member of the Audit Committee is Mr. McMillan. The Audit
Committee assists the Board of Directors in assuring that the accounting and
reporting practices of the Company are in accordance with all applicable
requirements. The Audit Committee took action once during 1998.
THE COMPENSATION COMMITTEE
The current members of the Compensation Committee are Messrs. Kirkland and
Messina. The Compensation Committee sets the compensation for the executive
officers of the Company and administers the Company's compensation programs. The
Compensation Committee took action three times during 1998.
3
<PAGE>
THE OPTION COMMITTEE
The current members of the Option Committee are Messrs. Kirkland, Messina
and McMillan. The Option Committee was formed prior to the Company's initial
public offering of shares of Ordinary Common Stock, which occurred on August 1,
1996 (the "IPO"), to administer the Steinway Musical Instruments, Inc. 1996
Stock Plan (the "Stock Plan") and the Steinway Musical Instruments, Inc. 1996
Employee Stock Purchase Plan (the "Purchase Plan"). The Option Committee took
action twice during 1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Set forth below are the names, ages, positions and offices held and a brief
account of the business experience for each executive officer and director of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- ---------------------------------------------
<S> <C> <C>
Kyle R. Kirkland......................... 36 Chairman of the Board and Director
Dana D. Messina.......................... 37 Chief Executive Officer and Director
Thomas T. Burzycki....................... 55 President--Selmer and Director
Bruce A. Stevens......................... 56 President--Steinway and Director
Dennis M. Hanson......................... 44 Chief Financial Officer and Secretary
Michael R. Vickrey....................... 56 Executive Vice President
Thomas Kurrer............................ 50 Managing Director, Steinway--Germany
Peter McMillan........................... 41 Director
</TABLE>
For biographical information concerning Kyle R. Kirkland, Dana D. Messina,
Thomas T. Burzycki, Bruce A. Stevens and Peter McMillan, see "Nominees for
Directors for Terms Expiring in 2000."
DENNIS M. HANSON, CHIEF FINANCIAL OFFICER AND SECRETARY. Mr. Hanson serves
as the Company's Chief Financial Officer, Secretary and General Counsel. Mr.
Hanson started his career in public accounting at Haskins and Sells in 1976. In
1980, he joined Computervision Corporation, where he held various financial
positions including Vice President of Audit. He joined Steinway in 1988 as Vice
President Finance and assumed duties as General Counsel in 1993.
MICHAEL R. VICKREY, EXECUTIVE VICE PRESIDENT. Mr. Vickrey has been employed
by Selmer since 1970. He has held the positions of Controller, Accounting
Manager, Cost Accounting Manager and Regional Credit Manager. Prior to joining
Selmer, Mr. Vickrey spent seven years in the banking industry, specializing in
commercial finance.
THOMAS KURRER, MANAGING DIRECTOR, STEINWAY--GERMANY. Mr. Kurrer joined
Steinway in 1989 as Managing Director of the Hamburg facility. Mr. Kurrer was
employed by the German-American Chamber of Commerce in New York from 1976 to
1978. Between 1978 and 1989, he held various positions of increasing
responsibility with the Otto Wolff-Group, a conglomerate of steel and machinery
equipment companies. Mr. Kurrer's last position with the Otto Wolff-Group was
Managing Director of Wirth GmbH.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the annual compensation paid and accrued by
the Company for services rendered during the fiscal years ended December 31,
1998, 1997 and 1996 to (i) the Company's Chairman of the Board and the Chief
Executive Officer and (ii) the four other most highly compensated executive
officers of the Company and the Managing Director of Steinway-Germany serving at
the end of the last completed fiscal year (each a "Named Executive Officer").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION (#)
- ----------------------------------------- ------------- ---------- ---------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Kyle R. Kirkland......................... 1998 -- -- (2) --
Chairman of the Board 1997 -- -- (2) --
1996 -- -- (2) 70,750
Dana D. Messina.......................... 1998 -- -- (2) --
Chief Executive Officer 1997 -- -- (2) --
1996 -- -- (2) 70,750
Thomas T. Burzycki....................... 1998 $ 268,000 $ 285,000(4) -- --
President--Selmer 1997 $ 268,000 $ 375,000 -- --
1996 $ 268,000 $ 367,000 -- 20,000
Bruce A. Stevens......................... 1998 $ 387,000 $ 193,500 -- --
President--Steinway 1997 $ 372,000 $ 168,000 -- --
1996 $ 353,462 $ 180,954(3) -- 33,000
Dennis M. Hanson......................... 1998 $ 211,000 $ 165,500 -- --
Chief Financial Officer 1997 $ 201,000 $ 147,000 -- --
and Secretary 1996 $ 182,600 $ 153,525(3) -- 26,500
Michael R. Vickrey....................... 1998 $ 100,000 $ 190,000(4) -- --
Executive Vice President 1997 $ 100,000 $ 235,000 -- --
1996 $ 100,000 $ 175,000 -- 14,500
Thomas Kurrer(5)......................... 1998 $ 238,408 $ 72,118 -- --
Managing Director, 1997 $ 234,713 $ 77,448 -- --
Steinway--Germany 1996 $ 265,980 $ 116,292(3) -- 24,500
</TABLE>
- ------------------------
(1) The table does not include the cost for personal benefits made available by
the Company. However, no executive officer named in the Summary Compensation
Table received such compensation in excess of the lesser of $50,000 or 10%
of such officer's cash compensation, nor did all executive officers together
receive such other compensation in excess of the lesser of $50,000 times the
number of such executive officers or 10% of such officers' aggregate cash
compensation.
(2) Prior to the Company's IPO, Messrs. Kirkland and Messina received
compensation indirectly pursuant to management agreements with subsidiaries
of the Company which allowed, subject to certain performance criteria, the
payment of $400,000 in the aggregate. Effective August 1, 1996, these
management agreements were replaced with agreements which allow for a
payment of $200,000 for each of Messrs. Kirkland and Messina. See
"Employment Contracts" below. In connection with the Company's IPO, Kirkland
Messina, Inc., a company owned by Messrs. Kirkland and Messina, received a
fee of $1.0 million for arranging, negotiating, obtaining bank waivers and
other required consents, financial and market analyses and other similar
consulting and investment banking services. See "Related Party Agreements"
below.
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<PAGE>
(3) Bonus amount includes payments made during 1996 for the July 1 through
December 31, 1995 period as well as amounts earned for the fiscal year ended
December 31, 1996.
(4) Amount reflects estimated payments in accordance with the bonus plan
formula. Final approval by the Compensation Committee and disbursement has
not yet been completed as of the date of this statement.
(5) Mr. Kurrer's compensation information contained in this Proxy Statement has
been converted from Deutsche marks to U.S. dollars based upon an average
foreign exchange rate.
OPTION GRANTS IN 1998
During 1998 no options were granted to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES
The following table provides information related to the exercise of certain
options to purchase the Company's Ordinary Common Stock by the Named Executive
Officers during 1998 and the number and value of options held by the Named
Executive Officers as of the year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS AT
VALUE DECEMBER 31, 1998 DECEMBER 31, 1998(1)
SHARES ACQUIRED ON REALIZED ------------------------------ --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------------- ----------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kyle R. Kirkland............ -- -- 28,300 42,450 $ 180,413 $ 270,619
Dana D. Messina............. -- -- 28,300 42,450 180,413 270,619
Thomas A. Burzycki.......... 4,000 $ 40,125 4,000 12,000 25,500 76,500
Bruce A. Stevens............ -- -- 13,200 19,800 84,150 126,225
Dennis M. Hanson............ -- -- 10,600 15,900 67,575 101,363
Michael R. Vickrey.......... -- -- 5,800 8,700 36,975 55,463
Thomas Kurrer............... -- -- 9,800 14,700 62,475 93,713
</TABLE>
- ------------------------------
(1) Value based on a fair market value of Common Stock of $25.375 on December
31, 1998, less the option exercise price.
EMPLOYMENT CONTRACTS
The Company has entered into an agreement with Kyle R. Kirkland and Kirkland
Messina, Inc. which provides that until December 31, 2006, unless earlier
terminated in accordance with its terms, Mr. Kirkland will serve as Chairman of
the Company. The consideration for such services is an annual payment of
$200,000 subject to an annual cost of living adjustment. In addition, Mr.
Kirkland may be entitled to receive bonuses and certain other employment
benefits as determined by the Board of Directors in its discretion. Mr. Kirkland
is required to devote his time to the Company as may be reasonably required to
discharge his obligations under the agreement and otherwise will be permitted to
render similar services to other companies. Upon a Change of Control (as defined
in the agreement), the contract will terminate.
The Company has entered into an agreement with Dana D. Messina and Kirkland
Messina, Inc. which provides that until December 31, 2006, unless earlier
terminated in accordance with its terms, Mr. Messina will serve as Chief
Executive Officer of the Company. The consideration for such services is an
annual payment of $200,000 subject to an annual cost of living adjustment. In
addition, Mr. Messina may be entitled to receive bonuses and certain other
employment benefits as determined by the Board of Directors in its discretion.
Mr. Messina is required to devote his time to the Company as may be reasonably
required to discharge his obligations under the agreement and otherwise will be
permitted to render similar services to other companies. Upon a Change of
Control (as defined in the agreement), the contract will terminate.
In July 1996, the Company entered into a Noncompete Agreement with each of
Thomas T. Burzycki, Bruce A. Stevens, Dennis M. Hanson and Michael R. Vickrey.
The Noncompete Agreements remain in
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effect for a period of ten years and bar the individual parties thereto from
competing with the Company in any geographic region in which the Company then
conducts business. Additionally, provided that the individual party thereto
refrains from engaging in certain restricted sales of Ordinary Common Stock,
each Noncompete Agreement commits the Company to renew the individual party's
employment agreement described below for successive one-year periods over the
life of the Noncompete Agreement.
On June 22, 1993, the Company entered into an Employment Agreement with
Thomas T. Burzycki that became effective on August 11, 1993. The agreement
provides that unless affirmatively terminated, Mr. Burzycki will serve as
President of Selmer in consideration of an annual base salary, which may be
increased following the end of each year of service. In addition to a base
salary, Mr. Burzycki is eligible to receive bonuses and certain other employment
benefits. Mr. Burzycki's agreement provides that, in certain circumstances, the
Company is obligated to pay up to $550,000 to Mr. Burzycki upon termination of
his employment by Selmer. On May 15, 1998 both parties agreed to cancel the
agreement at which point Mr. Burzycki became an employee "at will".
On May 1, 1995, Steinway entered into an Employment Agreement with Bruce A.
Stevens. The agreement provides that Mr. Stevens will serve as President of
Steinway, in consideration of an annual base salary, which may be increased
following the end of each year of service. In addition to a base salary, Mr.
Stevens is eligible to receive bonuses and certain other employment benefits.
Mr. Stevens' agreement provides that, in certain circumstances, the Company is
obligated to pay up to $340,000, plus the salary for the remainder of his term,
to Mr. Stevens upon termination of his employment. This agreement was
subsequently assigned from Steinway to the Company and thereafter amended to
automatically renew on an annual basis unless affirmatively terminated.
On May 1, 1995, Steinway entered into an Employment Agreement with Dennis M.
Hanson. The agreement provides that Mr. Hanson will serve as Chief Financial
Officer and Secretary in consideration of an annual base salary, which may be
increased following the end of each year of service. In addition to a base
salary, Mr. Hanson is eligible to receive bonuses and certain other employment
benefits. Mr. Hanson's agreement provides that, in certain circumstances, the
Company is obligated to pay up to $210,000, plus the salary for the remainder of
his term, to Mr. Hanson upon termination of his employment. This Agreement was
subsequently assigned from Steinway to the Company and thereafter amended to
automatically renew on an annual basis unless affirmatively terminated.
As of May 8, 1989, Steinway entered into an Employment Agreement with Thomas
Kurrer that provides that Mr. Kurrer will serve as Managing Director of
Steinway's German operations in consideration of an annual base salary, which
may be increased following the end of each year of service. In addition to a
base salary, Mr. Kurrer is eligible to receive bonuses and certain other
employment benefits. The agreement automatically renews every three years unless
at least 12 months' notice is given by either party.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of the Company do not receive compensation
for their services as directors. All members of the Board of Directors are
reimbursed for all expenses incurred in connection with their serving on the
Board.
RELATED PARTY AGREEMENTS
Prior to the Company's IPO, Selmer entered into a management agreement (the
"Selmer Management Agreement") with Kirkland Messina, Inc. ("KM"), a company
owned by Messrs. Kirkland and Messina, pursuant to which Selmer agreed to pay KM
an aggregate of $250,000 per year to provide management and consulting services,
monitor the business of Selmer and conduct periodic reviews of such business as
reasonably requested by Selmer's board of directors, assist in developing a
long-term strategic plan and identify, review and analyze merger and acquisition
opportunities. KM is a merchant banking firm founded by Messrs. Kirkland and
Messina in 1994. The firm is a licensed broker-dealer and has
7
<PAGE>
participated in numerous financing, leveraged recapitalization and restructuring
transactions. The Company believes that all of the transactions set forth were
made on terms no less favorable than could otherwise be obtained from
unaffiliated persons.
Steinway previously entered into a management agreement (the "Steinway
Management Agreement") with KM, pursuant to which Steinway agreed to pay KM up
to an aggregate of $150,000 per year to provide, among other things, management
and consulting services similar to those provided under the Selmer Management
Agreement.
Effective as of the IPO, both of the Selmer and Steinway Management
Agreements were terminated and replaced with the agreements discussed above
under "Employment Contracts."
In connection with the Company's IPO, KM received a fee of $1.0 million for
arranging, negotiating and obtaining waivers and other required consents and for
providing financial and market analyses and other similar consulting and
investment banking services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kirkland and Messina serve as the Chairman of the Board and Chief
Executive Officer, respectively, of the Company. Each serves on the Compensation
and Option Committees of the Board of Directors. See "Related Party Agreements"
above.
LEGAL PROCEEDINGS INVOLVING DIRECTORS, OFFICERS, AFFILIATES OR BENEFICIAL OWNERS
No director, officer, affiliate or beneficial owner of the Company, or any
associate thereof, is a party adverse to the Company or any of its subsidiaries
in any lawsuit nor has a material adverse interest thereto.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION(1)
COMPENSATION PHILOSOPHY
The Compensation Committee's executive compensation philosophy is to provide
competitive levels of compensation while establishing a strong, explicit link
between executive compensation and the achievement of the Company's annual and
long-term performance goals, rewarding above-average corporate performance,
recognizing individual initiative and achievement, and assisting the Company in
attracting and retaining highly-skilled management. This philosophy has been
adhered to by developing incentive pay programs which provide competitive
compensation that mirrors Company performance. Both short-term and long-term
incentive compensation are based on direct, explicit links to Company
performance and the value received by stockholders.
1998 EXECUTIVE COMPENSATION
Cash compensation includes base salary and annual bonuses. Base salaries are
set at competitive levels, with reference to the responsibilities undertaken by
personnel, their experience and geographic market conditions. Annual salary
adjustments are determined by reference to the Company's and the individual's
performance, as well as the competitive geographic marketplace conditions
generally. Annual bonuses are awarded based primarily on management's ability to
achieve specified earnings levels.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee does not control compensation decisions with
respect to the Chairman of the Board and the Chief Executive Officer. These
decisions are determined by the Board of Directors. Since the Company's IPO, the
Board has taken no action affecting the compensation paid to either the Chairman
of the Board or the Chief Executive Officer.
8
<PAGE>
SUMMARY
After its review of the Company's existing programs, the Compensation
Committee believes that the total compensation program for executives of the
Company is competitive with the compensation programs provided by other
corporations with which the Company competes for management talent. The
Compensation Committee also believes that the annual bonuses provide
opportunities to participants that are consistent with the returns that are
generated on behalf of the Company's stockholders.
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 (the "Act") prevents publicly
traded companies from receiving a tax deduction on compensation paid to
proxy-named executive officers in excess of $1 million annually, effective for
compensation paid after 1993. Although the Compensation Committee has not
adopted a policy relating to the Act, the Compensation Committee believes that
there will be little, if any, impact from this limitation to the Company.
COMPENSATION COMMITTEE:
[SIGNATURE]
Kyle R. Kirkland
[SIGNATURE]
Dana D. Messina
- ------------------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Exchange
Act, the Report of the Compensation Committee on Executive Compensation
shall not be incorporated by reference in any such filings.
9
<PAGE>
PERFORMANCE GRAPH(1)
The following graph compares the Company's cumulative total stockholder
return on its Ordinary Common Stock for the period from the Company's IPO on
August 1, 1996, to December 31, 1998, with the cumulative total return of the
Standard & Poor's 500 Stock Index ("S&P 500"), the Russell 2000 Stock Index
("Russell 2000"), and the cumulative total return of a peer group consisting of
Baldwin Piano and Organ Co., Harley-Davidson Inc., Boosey & Hawkes PLC and
Fleetwood Enterprises. This peer group was selected by management based on the
status of each as a manufacturer and distributor of luxury goods. The Russell
2000 has been included in this year's report since, given the recent,
significant disparity in the market between small cap and other stocks,
management believes it is presently a more meaningful index than the S&P 500.
The performance graph assumes a $100 investment on August 1, 1996 in each of the
Company's Ordinary Common Stock, the S&P 500, the Russell 2000 and the common
stock of the selected peer group. The stock price performance shown in this
graph is neither necessarily indicative of nor intended to suggest future stock
price performance.
COMPARATIVE STOCK PRICE PERFORMANCE
AMONG STEINWAY MUSICAL INSTRUMENTS, INC.,
THE S&P 500, THE RUSSELL 2000 AND A PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURNS
<S> <C> <C> <C> <C>
Peer Group Steinway S&P 500 Index The Russell 2000
8/1/96 $100.00 $100.00 $100.00 $100.00
12/31/96 $104.65 $91.45 $115.01 $113.52
12/31/97 $130.19 $121.71 $151.75 $136.82
12/31/98 $112.90 $136.84 $189.11 $132.10
</TABLE>
<TABLE>
<CAPTION>
8/1/96 12/31/96 12/31/97 12/31/98
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Steinway Musical Instruments, Inc........................... $ 100.00 $ 91.45 $ 121.71 $ 136.84
The S&P 500 Index........................................... $ 100.00 $ 115.01 $ 151.75 $ 189.11
The Russell 2000............................................ $ 100.00 $ 113.52 $ 136.82 $ 132.10
Peer Group.................................................. $ 100.00 $ 104.65 $ 130.19 $ 112.90
</TABLE>
- ------------------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Exchange
Act, this Performance Graph shall not be incorporated by reference in any
such filings.
10
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of voting securities of the Company as of April 3, 1999 by (i) each
person known by the Company to be the beneficial owner of more than 5% of any
class of the Company's voting securities, (ii) each of the directors and Named
Executive Officers of the Company and (iii) all executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL BENEFICIAL
OWNERSHIP OF OWNERSHIP CLASS
ORDINARY COMMON A COMMON
STOCK(1) PERCENT STOCK(1) PERCENT
---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
SunAmerica Life Insurance Company......................... 1,791,131 20.4% -- --
1 SunAmerica Center
Los Angeles, CA 90067
John Hancock Mutual Life Insurance Company................ 1,543,553 17.6% -- --
200 Clarendon Street
John Hancock Place, 57th Floor
Boston, MA 02117
Fort Hill Capital LLC..................................... 484,600 5.5% -- --
1010 Franklin Avenue
Suite 303
Garden City, NY 11530
Directors
Kyle R. Kirkland(2)..................................... 196,886 2.2% 226,949 47.5%
Dana D. Messina(2)...................................... 217,571 2.5% 251,004 52.5%
Thomas T. Burzycki...................................... 112,179 1.3% -- --
Bruce A. Stevens........................................ 86,273 1.0% -- --
Peter McMillan(3)....................................... (3) (3) -- --
Other Executive Officers
Dennis M. Hanson........................................ 41,601 .5% -- --
Michael R. Vickrey...................................... 70,000 .8% -- --
Thomas Kurrer........................................... 41,601 .5% -- --
All directors and executive officers as a group (8
persons)(2)(3).......................................... 764,980 8.7% 477,953 100.0%
</TABLE>
- ------------------------
(1) Each share of Class A Common Stock has 98 votes. Each share of Ordinary
Common Stock has one vote.
(2) Includes 1,131 shares owned by Kirkland Messina, Inc., which may be deemed
to be beneficially owned by both Kyle R. Kirkland and Dana D. Messina.
(3) Mr. McMillan is Executive Vice President and Chief Investment Officer of
SunAmerica Investments, Inc. As Chief Investment Officer, Mr. McMillan has
overall investment management responsibility for the major asset classes in
SunAmerica's investment portfolio, including the 1,791,131 shares owned by
SunAmerica Life Insurance Company. Mr. McMillan disclaims beneficial
ownership of such shares.
11
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than 10% of the Company's Ordinary Common Stock to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission (the "Commission"). Executive officers, directors and 10%
stockholders are required by the Commission to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its executive officers, directors and
greater than 10% beneficial owners complied with all the filing requirements
applicable to them with respect to transactions during fiscal 1998.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP to serve as the
Company's independent public accountants to audit the financial statements of
the Company for 1999. Deloitte & Touche LLP served as the Company's independent
public accountants since 1993. Representatives of Deloitte & Touche LLP will
attend the Annual Meeting, will be given an opportunity to make a statement if
they desire to do so and will be available to answer appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS, ON THE ADVICE OF ITS AUDIT COMMITTEE,
THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 1999.
Unless a contrary indication is made on the enclosed proxy card, it is the
intention of the persons named in the enclosed form of proxy to vote FOR the
selected accountants.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the Annual Meeting. If any other matters should properly come before the Annual
Meeting, the persons named in the proxy will vote the proxies according to their
best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals, if any, which may be considered for inclusion in the
Company's proxy materials for the 2000 Annual Stockholders Meeting must be
received by the Company at its offices at 800 South Street, Suite 425, Waltham,
Massachusetts 02453 not later than January 28, 2000.
ANNUAL REPORT
The Annual Report to Stockholders for 1998 accompanies this Proxy Statement.
Stockholders may obtain a copy of this report without charge by writing to
Steinway Musical Instruments, Inc., 800 South Street, Suite 425, Waltham,
Massachusetts 02453, Attn: Investor Relations, telephone number (781) 894-9770.
12
<PAGE>
STEINWAY MUSICAL INSTRUMENTS INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 11, 1999
The undersigned stockholder of Steinway Musical Instruments, Inc. (the
"Company"), hereby appoints each of Dana D. Messina and Dennis M. Hanson
attorneys and proxies of the undersigned, each with full power of substitution,
to vote on behalf of the undersigned at the Annual Meeting of Stockholders of
the Company to be held at the The Westin Hotel, 70 Third Avenue, Waltham,
Massachusetts 02451, on June 11, 1999, at 4:00 p.m., and at any adjournment of
said meeting, all of the shares of Ordinary Common Stock which the undersigned
may be entitled to vote.
The Board of Directors recommends a vote FOR the nominees named below and
FOR ratification of the accountants named on the reverse side, and if no
specification is made, the shares will be voted FOR the election of the nominees
named herein, and FOR the ratification of the accountants. The undersigned
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders, the
Proxy Statement and the Annual Report furnished herewith.
<TABLE>
<S> <C> <C> <C> <C>
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY * Exceptions / /
listed below / / to vote for all nominees listed below / /
</TABLE>
Nominees: Kyle R. Kirkland, Dana D. Messina, Thomas T. Burzycki, Bruce A.
Stevens, Peter McMillan
(*Instructions: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and strike a line through that nominee's
name.)
<PAGE>
2. Ratification of Deloitte & Touche LLP to serve as the Company's independent
public accountants to audit the financial statements of the Company for
1999.
/ / FOR / / AGAINST / / ABSTAIN
3. At their discretion regarding other matters presented at the Annual Meeting.
Dated:
----------------------------
----------------------------------
(Signature)
----------------------------------
(Signature)
