SCHEDULE 14A
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-12
HANDLEMAN COMPANY
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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HANDLEMAN COMPANY
August 5, 2002
Dear Fellow Shareholder:
You are cordially invited to join the Board of Directors and Management
of Handleman Company at the Somerset Inn, 2601 West Big Beaver Road, Troy,
Michigan for the Annual Meeting of Shareholders on Tuesday, September 10, 2002
at 2:00 p.m., Eastern Daylight Time.
The Notice of Annual Meeting, proxy statement and proxy card
accompanying this letter describe in detail the matters to be acted upon at the
meeting.
It is important that your shares be represented and voted at the Annual
Meeting, regardless of the number that you hold. Whether or not you plan to
attend the meeting, you are urged to sign, date and return your proxy card as
soon as possible in the enclosed envelope to which no postage need be affixed
if mailed in the United States. If you are registered on Handleman Company's
stock transfer books as the holder of record you can vote your shares by
telephone, by using the Internet, or by mailing your signed proxy card.
Specific instructions for voting by means of the telephone or Internet are
included on the proxy card. If your shares are held of record in the name of a
bank or broker you must follow the instructions from the holder of record in
order to vote your shares. Some banks and brokers may offer telephone and
Internet voting. If you are the holder of record this will not prevent you from
voting your shares in person at the meeting before voting closes if you wish to
do so.
We look forward to seeing you at the Annual Meeting. On behalf of the
Management and Directors of Handleman Company, I want to thank you for your
continued support and confidence in Handleman Company.
Sincerely,
/s/ Stephen Strome
Stephen Strome
Chairman of the Board and
Chief Executive Officer
HANDLEMAN COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 10, 2002
To the Shareholders of Handleman Company:
The Annual Meeting of Shareholders of Handleman Company (the "Company")
will be held at the Somerset Inn, 2601 West Big Beaver Road, Troy, Michigan
48084, on Tuesday, September 10, 2002, at 2:00 p.m., Eastern Daylight Time, for
the following purposes:
(1) To elect three Directors of the Company to serve until the
Annual Meeting of Shareholders in 2005.
(2) To consider such other business as may properly come before
the meeting.
Only shareholders of record of Handleman Company at the close of
business on July 15, 2002 will be entitled to vote at the meeting.
A copy of the Annual Report of the Company for the fiscal year ended
April 27, 2002 accompanies this Notice.
By Order of the Board of Directors,
/s/ Stephen Strome
Stephen Strome
Chairman of the Board
and Chief Executive Officer
Troy, Michigan
August 5, 2002
HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084-4142
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PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 10, 2002
GENERAL INFORMATION
This proxy statement contains information related to the Annual Meeting
of Shareholders of Handleman Company (the "Company") to be held at the Somerset
Inn, 2601 West Big Beaver Road, Troy, Michigan 48084, on Tuesday, September 10,
2002, at 2:00 p.m., Eastern Daylight Time. The approximate mailing date for this
proxy statement and the proxy is August 5, 2002.
At the Company's Annual Meeting, shareholders will act upon the matters
outlined in the accompanying Notice of Annual Meeting, including the election
of Directors. In addition, the Company's management will report on the
performance of the Company during fiscal 2002 and respond to questions from
shareholders.
It is important that your shares be represented at the meeting. We
encourage you to read the proxy statement and vote your shares as soon as
possible. The proxy is solicited by the Board of Directors of the Company. The
shares represented by valid proxies in the enclosed form will be voted if
received in time for the Annual Meeting. The expenses in connection with the
solicitation of proxies will be borne by the Company and may include requests by
mail and personal contact by its Directors, Officers and employees. In addition,
the Company has retained Georgeson Shareholder, 111 Commerce Road, Carlstadt,
New Jersey 07072-2586, to aid in the solicitation of proxies from brokers,
banks, other nominees and institutional holders at a fee not to exceed $5,000
plus out-of-pocket expenses. The Company will reimburse brokers or other
nominees for their expenses in forwarding proxy materials to principals. Any
person giving a proxy has the power to revoke it at any time before it is voted.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only holders of record of shares of $.01 par value common stock (the
"Common Stock") at the close of business on July 15, 2002 are entitled to notice
of, and to vote at, the meeting or at any adjournment or adjournments thereof,
each share having one vote. On the date of record, the Company had issued and
outstanding 26,520,444 shares of Common Stock.
Based on information filed with the Securities and Exchange Commission
("SEC"), a) Franklin Resources Inc., 777 Mariners Island Blvd., San Mateo,
California 94403-7777, owns 1,900,000 shares (7.2%) of the Company's
outstanding Common Stock, b) Dimensional Fund Advisors, 1299 Ocean Avenue,
Santa Monica, California 90401, owns 1,828,836 shares (6.9%) of the Company's
outstanding Common Stock, and c) Awad & Associates Asset Management, 250 Park
Avenue, New York, New York 10177, owns 1,568,430 shares (5.9%) of the Company's
outstanding Common Stock. Management does not know of any other person who, as
of July 15, 2002, beneficially owned more than 5% of the Company's Common
Stock.
1
I. ELECTION OF DIRECTORS
The Board of Directors proposes that Eugene A. Miller, Sandra E.
Peterson and Irvin D. Reid be elected as Directors of the Company to hold office
until the Annual Meeting of Shareholders in 2005 or until their successors are
elected and qualified. The persons named in the accompanying proxy intend to
vote all valid proxies received by them for the election of the nominees named
above, unless such proxies are marked to the contrary. The three nominees
receiving the greatest number of votes cast at the meeting or its adjournment
shall be elected. Abstentions, withheld votes and broker non-votes will not be
deemed votes cast in determining which nominees receive the greatest number of
votes cast. In case any nominee is unable or declines to serve, which is not
anticipated, it is intended that the proxies be voted in accordance with the
best judgment of the proxy holders.
The following information is furnished with respect to each nominee for
election as a Director, each person whose term of office as a Director will
continue after the meeting and each Executive Officer of the Company as of April
27, 2002 named in the Summary Compensation Table herein. The terms of Richard H.
Cummings and David Handleman as Directors expire with this Annual Meeting, and
Messrs. Cummings and Handleman have chosen not to be nominated for re-election.
SHARES OF PERCENTAGE OF TOTAL
COMMON STOCK COMMON STOCK
POSITIONS AND OFFICES BENEFICIALLY BENEFICIALLY TERM
NAME AND YEAR FIRST WITH THE COMPANY AND OTHER OWNED AS OF OWNED AS OF TO
BECAME A DIRECTOR AGE PRINCIPAL OCCUPATIONS AS OF JULY, 15, 2002 JULY 15, 2002 JULY 15, 2002 EXPIRE
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NOMINEES FOR ELECTION AS DIRECTORS FOR A
THREE-YEAR TERM
Eugene A. Miller . . . . . . 64 Chairman of the Board of Comerica Incorporated
and Comerica Bank . . . . . . . . . . . . . . . . . . -- * 2005
Sandra E. Peterson (2001). . .43 Senior Vice President - Medco Health Solutions,Inc.,
wholly owned subsidiary of Merck & Co. . . . . . . . 2,490 (2) * 2005
Irvin D. Reid. . . . . . . . .61 President of Wayne State University . . . . . . . . . -- * 2005
DIRECTORS CONTINUING IN OFFICE
John M. Barth (1995) . . . . .56 President and Chief Operating Officer of
Johnson Controls, Inc. . . . . . . . . . . . . . . . . 11,390 (2) * 2004
Elizabeth A. Chappell (1999). 44 President of the Economic Club of Detroit . . . . . . 11,596 (2) * 2004
Peter J. Cline (2001) . . . . 55 President and Chief Operating Officer of the Company . 56,650 (1) * 2004
Stephen Strome (1989) . . . . 57 Chairman of the Board and Chief Executive Officer
of the Company . . . . . . . . . . . . . . . . . . . .352,584 (1) 1.3% 2003
James B. Nicholson (1991) . . 59 President and Chief Executive Officer of
PVS Chemicals, Inc. . . . . . . . . . . . . . . . . . 15,490 (2) * 2003
Lloyd E. Reuss (1993). . . . 66 Former President of General Motors Corporation . . . . 16,590 (2) * 2003
OTHER EXECUTIVE OFFICERS
Gerardo I. Lopez. . . . . . . 42 Senior Vice President - President of Handleman
Entertainment Resources . . . . . . . . . . . . . . . 17,805 (1) * --
Stephen Nadelberg. . . . . . 61 Senior Vice President - President of
North Coast Entertainment . . . . . . . . . . . . . . 36,351 (1) * --
Sam Milicia. . . . . . . . . 60 Senior Vice President - Music Product . . . . . . . . 17,785 (1) * --
All Directors, listed above, and Executive Officers as a group (14 persons) . . . . . . 564,738 (3) 2.1% --
* Less than 1%
(1) The number shown above as beneficially owned by Messrs. Strome, Cline,
Lopez, Nadelberg and Milicia includes 222,032; 8,665; 17,433; 17,433
and 9,410 shares, respectively, which they have the right to acquire
within 60 days of July 15, 2002 pursuant to the Company's stock option
plans (assuming, in certain instances that the stock price reaches
certain levels) and 1,400; 1,075; 372; 823 and 1,337 shares,
respectively, which have been credited to each Messrs. Strome, Cline,
Lopez, Nadelberg and Milicia under the Company's salary deferral plan
(the "401(k) Plan").
(2) The number shown above as beneficially owned by Ms. Peterson, Mr.
Barth, Ms. Chappell, Mr. Nicholson, and Mr. Reuss includes 833; 5,499;
3,999; 5,499, and 5,499 shares respectively, which they have the right
to acquire within 60 days of July 15, 2002 pursuant to the Company's
stock option plans (assuming, in certain instances that the stock
price reaches certain levels).
(3) All Directors, listed above, and Executive Officers as a group (14
persons) beneficially owned 564,738 shares (2.1%) of the Company's
outstanding Common Stock as of July 15, 2002, including 308,640 shares
which they have the right to acquire within 60 days of that date
pursuant to the Company's stock option plans and 7,047 shares which
have been credited to them under the 401(k) Plan.
2
OTHER INFORMATION RELATING TO NOMINEES AND DIRECTORS
Following each Director's name and the year in which he or she first
became a Director is a brief account of the business experience of each nominee
and continuing Director of the Company during the past five years.
STEPHEN STROME 1989
Mr. Strome has served as Chairman of the Board and Chief Executive
Officer of the Company since January 12, 2001. From May 1, 1991 through January
11, 2001 Mr. Strome served as President and Chief Executive Officer of the
Company.
JAMES B. NICHOLSON 1991
Mr. Nicholson has served as President and Chief Executive Officer of
PVS Chemicals, Inc. since 1979. Mr. Nicholson is a Director of PVS Chemicals,
Inc. and Standard Federal Bank. Mr. Nicholson is also Chairman of the Board of
Amerisure Companies.
LLOYD E. REUSS 1993
Mr. Reuss served as General Motors Corporation's Executive Vice
President of New Vehicles and Systems from April 6, 1992 through his retirement
on January 1, 1993. Mr. Reuss served as President of General Motors Corporation
from August 1, 1990 through April 5, 1992. Mr. Reuss is a Director of
International Speedway Corporation and U.S. Sugar Corporation. He is also Vice
Chairman of the Board of Directors of Detroit Mortgage & Realty Company.
JOHN M. BARTH 1995
Mr. Barth has served as President and Chief Operating Officer of
Johnson Controls, Inc. since September 23, 1998. From October 1, 1992 through
September 22, 1998, Mr. Barth served as Executive Vice President of Johnson
Controls, Inc. Mr. Barth is a Director of Johnson Controls, Inc. and Covisint
LLC.
ELIZABETH A. CHAPPELL 1999
Ms. Chappell has served as President of the Economic Club of Detroit
since April 15, 2002. From January 4, 2001 through April 14, 2002 Ms. Chappell
served as a business consultant in private practice. Ms. Chappell served as the
Executive Vice President Corporate Communications and Investor Relations of
Compuware Corporation from January 3, 2000 to January 3, 2001. Ms. Chappell was
formerly President and Chief Executive Officer of The Chappell Group Inc., a
consulting firm she founded in 1995 that specialized in strategic planning,
organizational development and sales and marketing strategies. Ms. Chappell is a
Director of Compuware Corporation.
SANDRA E. PETERSON 2001
Ms. Peterson has served as the Senior Vice President - Medco Health
Solutions, Inc., a wholly owned subsidiary of Merck & Co., since January 1,
1999. From April 8, 1996 through December 31, 1998 Ms. Peterson served as
Executive Vice President of Nabisco Holding Company. From April 15, 1993 through
April 7, 1996 Ms. Peterson served as Vice President Advanced Products and
Finance, Global Operations of the Whirlpool Corporation.
PETER J. CLINE 2001
Mr. Cline has served as President and Chief Operating Officer of the
Company since January 12, 2001. From May 3, 2000 through January 11, 2001 Mr.
Cline served as Executive Vice President and Chief Operating Officer of the
Company and President of Handleman Entertainment Resources. From April 25, 1994
to May 2, 2000 Mr. Cline served as Executive Vice President and President of
Handleman Entertainment Resources.
3
EUGENE A. MILLER
Mr. Miller has served as Chairman of the Board of Comerica Incorporated
and Comerica Bank since January 1, 2002. From June 1, 1999 through December 31,
2001 Mr. Miller served as Chairman, President and Chief Executive Officer of
Comerica Incorporated and Comerica Bank. From June 30, 1993 through June 1, 1999
Mr. Miller served as Chairman and Chief Executive Officer of Comerica
Incorporated and Comerica Bank. Mr. Miller is a Director of DTE Energy, Inc.
IRVIN D. REID
Dr. Reid has served as President of Wayne State University since
November 24, 1997. From August 1, 1989 through November 23, 1997 Dr. Reid served
as President of Montclair State University. Dr. Reid is a Director of Mack-Cali
Real Estate Investment Trust.
During the fiscal year ended April 27, 2002, the Board of Directors
held seven meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Audit Committee. The current members of the
Audit Committee are John M. Barth (Chairman), Elizabeth A. Chappell, Richard H.
Cummings and Sandra E. Peterson. During fiscal year 2002, the Audit Committee
held five meetings. The Audit Committee is appointed by the Board of Directors
of the Company to provide assistance to the Board of Directors in fulfilling its
oversight responsibility relating to the Company's financial statements and the
financial reporting processes; the systems of internal accounting and financial
controls; the internal audit function; the annual independent audit of the
Company's financial statements; any financially-related legal compliance or
ethics programs as established by the Board; and any other areas specified by
the Board of potential significant financial risk to the Company.
The Company has a standing Compensation and Stock Option Committee. The
current members of the Compensation and Stock Option Committee are James B.
Nicholson (Chairman), Elizabeth A. Chappell and Lloyd E. Reuss. During fiscal
year 2002, the Committee held five meetings and made recommendations to the
Board of Directors. The duties of the Committee are: recommending to the Board
of Directors the remuneration arrangements for senior management; recommending
to the Board of Directors compensation plans in which Officers are eligible to
participate; and granting stock options, performance shares and restricted stock
awards under the Company's 2001 Stock Option and Incentive Plan.
The Company has a standing Corporate Governance and Nominating
Committee. The current members of the Governance and Nominating Committee are
Lloyd E. Reuss (Chairman), John M. Barth, James B. Nicholson and Sandra E.
Peterson. During fiscal year 2002, the Committee held two meetings. The
Committee considers the performance of incumbent Directors and recommends to the
shareholders nominees for election as Directors. The Committee will consider
nominees for Directors recommended by shareholders, which recommendations for
the 2003 Annual Meeting of Shareholders should be submitted to the Chairman of
the Nominating Committee at the Company's executive offices, no later than March
14, 2003. In February 1998, the Board of Directors adopted corporate governance
guidelines recommended by the Committee. The guidelines are reviewed annually
and are monitored by the Committee. The guidelines establish corporate
governance standards, outline the respective responsibilities of management and
the Board and provide a process for evaluating the performance of the Board. The
Board has the discretion to change the guidelines and also to make exceptions to
the guidelines when it is deemed to be in the best interest of the Company and
its shareholders to do so. A copy of the guidelines is attached as Appendix A to
this Proxy Statement.
Each of the Directors attended at least 75% of the meetings held during
fiscal 2002 by the Board and by each Committee of which the Director is a
member.
4
CERTAIN TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
Mr. David Handleman, Chairman Emeritus of the Board of the Company
since January 12, 2001 and Chairman of the Board from 1974 through January 11,
2001, retired as an Officer and employee of the Company effective July 1, 1993.
The term of Mr. Handleman as a Director of the Company will expire with this
Annual Meeting and Mr. Handleman has chosen not to be nominated for re-election.
Effective July 1, 1993, and during his lifetime, Mr. Handleman will receive
annual payments of $300,000 per year in consideration of his performance of
advisory and related services to the Company and execution of a non-competition
covenant entered into with the Company in 1989. Such amount is in addition to
the annual amount ($288,564) Mr. Handleman receives pursuant to the Company's
pension plan. In addition, the Company paid $76,567, for certain life insurance,
health insurance, automotive and club due benefits for Mr. Handleman pursuant to
his agreement with the Company.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
DIRECTOR'S COMPENSATION IN FISCAL 2002
Officers of the Company who are Directors do not receive any additional
compensation for services as a Director or as a Committee member. During fiscal
2002, all other Directors received annual retainers of $12,000 in restricted
stock with 100% vesting after one year and $10,000 in cash payable in four
quarterly installments of $2,500. Each Director received meeting fees of $1,000
for each Board of Directors meeting attended during the period of April 29, 2001
through December 12, 2001. Effective December 13, 2001 through the end of fiscal
2002 each Director was paid at the rate of $1,500 for each Board of Directors
meeting attended. Each member on a Committee of the Board of Directors was paid
at the rate of $1,000 for each Committee meeting attended. Non-committee
Directors who are requested in advance to participate in any Committee meeting
were also paid the committee meeting fee. In addition, during fiscal year 2002,
each Committee Chairman received an annual fee of $3,000. Directors are
reimbursed for travel and other expenses related to attendance at Board and
Committee meetings. The Company has approved a Deferral Plan for Payment of
Director Fees which permits members of the Board of Directors to elect to defer
to a future date all or any portion of their Director fees (including retainer
fees, attendance fees and Committee fees), with interest to be added to deferred
amounts. The Company's Director Retirement Plan was terminated during fiscal
1998. Upon Mr. Richard H. Cummings' retirement from the Board of Directors on
September 10, 2002 he is entitled to receive $14,000 per year during his
lifetime. In addition, Mr. Alan E. Schwartz, upon his retirement from the Board
on September 10, 2001, receives $14,000 per year during his lifetime. Mr.
Schwartz is a member of Honigman Miller Schwartz and Cohn LLP, which law firm
served as general counsel to the Company during fiscal 2002. No other outside
Directors will receive any retirement benefits.
The 2001 Stock Option and Incentive Plan allows stock option grants to
outside Directors. In September 2001, options for 2,500 shares were awarded to
outside Directors with a three-year graded vesting. It is contemplated that a
stock option grant will be awarded annually to outside Directors.
Mr. Handleman is not entitled to receive any Director or Committee
member fees during the term of his advisory agreement. See "Certain Transactions
with Executive Officers and Directors" for additional information regarding
amounts paid to Mr. Handleman for advisory services.
Under resolutions of the Board of Directors presently in effect, if a
Corporate, Division or Subsidiary Officer should die while serving in such
capacity, the Company will pay to the surviving spouse, or if there is no
surviving spouse then to the decedent's estate, the equivalent of one year's
salary (excluding bonuses) based upon the amount being received by the decedent
at the time of his or her death, in 24 equal monthly installments commencing one
month after death. In the event a Director should die while serving the Company
in such position, the Company shall pay to the deceased's surviving spouse, or
if there be no surviving spouse to the deceased's estate, the equivalent of one
year's cash retainer plus any accrued but unpaid board and committee meeting
fees that the deceased was entitled to receive for such services from the
Company at the time of his or her death, such amount to be paid in a lump sum
one month from the date of death. In addition, the Director's restricted stock
retainer that the deceased was to receive for services to the Company shall
immediately vest and the Company will distribute to the deceased's surviving
spouse, or if there be no surviving spouse to the deceased's estate, a
certificate for the shares.
5
SUMMARY COMPENSATION TABLE
The following table sets forth information for each of the fiscal years
ended April 27, 2002, April 28, 2001 and April 29, 2000 concerning the
compensation of the Company's Chief Executive Officer and each of the Company's
other four most highly compensated Executive Officers as of April 27, 2002
(collectively, the "named Executive Officers") whose annual salary and bonus
exceeded $100,000.
ANNUAL COMPENSATION (1), (3) LONG-TERM COMPENSATION AWARDS
---------------------------------------- -------------------------------------------
(2) OPTIONS/SARS (5)
OTHER ANNUAL PERFORMANCE UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION STOCK GRANT SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) (#) ($)
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Stephen Strome 2002 601,308 250,000 -- 54,400 71,100 3,619
Chairman of the Board and 2001 566,923 550,000 -- -- 65,000 1,578
Chief Executive Officer 2000 521,562 500,000 -- -- 65,000 1,804
Peter J. Cline 2002 392,308 150,000 -- 19,900 26,000 2,818
President and Chief 2001 384,068 325,000 -- -- 40,000 1,967
Operating Officer 2000 321,763 316,635 -- -- 40,000 1,538
Gerardo I. Lopez 2002 288,816 116,167 82,684(4) 9,400 12,300 1,231
Senior Vice President 2001 263,000 (6) 161,750 -- -- 20,000 --
-President Handleman
Entertainment Resources
Stephen Nadelberg 2002 243,463 38,055 -- 9,400 12,300 2,967
Senior Vice President 2001 237,543 45,534 -- -- 20,000 1,535
-President North Coast 2000 229,846 98,220 -- -- 20,000 1,787
Entertainment
Samuel Milicia 2002 197,230 54,986 -- 4,700 6,200 3,729
Senior Vice President 2001 188,535 105,000 -- -- 11,000 1,362
-Music Purchasing 2000 180,539 102,867 -- -- 11,000 1,554
(1) Salary deferred by the named Executive Officers pursuant to the Company's
401(k) Plan follows:
2002 2001 2000
--------------------------------------
Stephen Strome $7,570 $6,310 $7,213
Peter J. Cline 5,875 7,870 6,153
Gerardo I. Lopez 2,463 -- --
Stephen Nadelberg 6,615 6,140 6,216
Samuel Milicia 7,570 5,450 6,216
(2) Represents grant of performance shares of Handleman Company common stock,
which would be distributed if certain fixed performance criteria are
satisfied by May 1, 2004.
(3) Non-cash compensation did not exceed the lesser of $50,000 or 10% of
individual cash compensation for any named Executive Officer other than
noted below for Mr. Lopez.
(4) Includes net payments to or on behalf of Mr. Lopez of $600 for certain life
insurance, $8,750 for automobile benefits, $7,797 for financial consulting
and $65,537 for housing costs.
(5) Represents amounts contributed to the named Executive Officers' 401(k) Plan
accounts for the Company matching of employee contributions.
(6) Includes a one-time payment of $20,000 made 60 days after joining the
Company in June 2000.
6
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table provides details regarding stock options granted to the
named Executive Officers in the last fiscal year.
(4)
(1) POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES OF
OPTIONS GRANTED (2) STOCK PRICE APPRECIATION
NUMBER OF TO EMPLOYEES EXERCISE PRICE (3) FOR OPTION TERM
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
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Stephen Strome 71,100 17.6% $15.75 June 12, 2011 $704,253 $1,784,710
Peter J. Cline 26,000 6.4 15.75 June 12, 2011 257,533 652,636
Gerardo I. Lopez 12,300 3.0 15.75 June 12, 2011 121,833 308,747
Stephen Nadelberg 12,300 3.0 15.75 June 12, 2011 121,833 308,747
Samuel Milicia 6,200 1.5 15.75 June 12, 2011 61,412 155,629
(1) The total number of shares subject to options granted to employees in
fiscal 2002 was 404,580.
(2) The exercise price (which corresponded to the fair market value of the
Common Stock on the date of grant) may be paid in cash, or, with the
consent of the Compensation and Stock Option Committee, in Common Stock of
the Company, by a promissory note, or in such other manner as the Committee
determines is appropriate in its sole discretion. The Compensation and
Stock Option Committee has approved the issuance of reload options in
certain circumstances and with certain restrictions. A reload option is an
option granted to an employee when the employee exercises an option using
previously owned shares.
(3) The options become exercisable up to 33 1/3% on or after June 13, 2002 and
prior to June 12, 2003; up to 66 2/3% on or after June 13, 2003 and prior
to June 12, 2004; up to 100% on or after June 13, 2004.
(4) The Potential Realizable Value is calculated based on the fair market value
on the date of grant, which is equal to the exercise price of options
granted in fiscal 2002, assuming that the stock appreciates in value from
the date of grant until the end of the option term at the annual rate
specified (5% and 10%). Potential Realizable Value is net of the option
exercise price. The assumed rates of appreciation are specified in rules of
the SEC, and do not represent the Company's estimate or projection of
future stock price. Actual gains, if any, resulting from stock option
exercises and Common Stock holdings are dependent on the future performance
of the Common Stock and overall stock market conditions, as well as the
optionee's continued employment through the exercise/vesting period. There
can be no assurance that the amounts reflected in this table will be
achieved.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning stock options
exercised by the named Executive Officers during the fiscal year ended April 27,
2002 as well as the value of unexercised options held by such persons on April
27, 2002. This table also includes the number of shares covered by both
exercisable and non-exercisable stock options as of the last day of the fiscal
year.
(2)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT AT FISCAL YEAR
ACQUIRED FISCAL YEAR-END (#) END ($)
ON EXERCISE (1) EXERCISABLE (E)/ EXERCISABLE (E)/
NAME OF INDIVIDUAL (#) VALUE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
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Stephen Strome 49,750 $310,339 222,032 (E) $324,406 (E)
135,318 (U) 41,976 (U)
Peter J. Cline 36,000 242,487 8,665 (E) -- (E)
60,667 (U) 25,831 (U)
Gerardo I. Lopez -- -- 17,433 (E) 25,833 (E)
14,868 (U) 12,917 (U)
Stephen Nadelberg 53,999 352,167 17,433 (E) 19,791 (E)
14,868 (U) 12,917 (U)
Samuel Milicia 35,989 221,853 9,410 (E) 10,898 (E)
7,801 (U) 7,105 (U)
(1) Values are calculated by subtracting the exercise price from the fair
market value of the stock as of exercise date.
(2) Assumes, for all unexercised in-the-money options, the difference
between the exercise price and the market price ($12.25 per share) of
the Company's Common Stock as of April 27, 2002.
7
PENSION PLAN
The Company has a pension plan (the "plan") covering all employees of
the Company who have reached the age of 21 and completed one year of service,
except for employees covered by a collective bargaining agreement which does not
provide for plan coverage. The plan provides pension benefits, death benefits
and disability benefits for covered employees. For the fiscal year ended April
27, 2002, employees with five or more years of service were entitled to monthly
pension benefits beginning at normal retirement age (65). The computation of
benefits under the plan is based upon a formula which takes into consideration
retirement age, years of service up to 30 years, average annual compensation
during the highest five consecutive year period within the 10 years preceding
retirement, and the average of the taxable wage base for social security
purposes over the employee's career. The plan permits early retirement at ages
55-64 for employees with 10 or more years of service. A death benefit equal to a
portion of the employee's accrued benefit is paid to the employee's spouse if
the employee dies after becoming vested under the plan. An employee with 10 or
more years of service whose employment by the Company terminates prior to his or
her normal retirement date due to his or her permanent and total disability is
entitled to receive a disability retirement benefit.
The compensation covered by the plan includes all earnings from the
Company as reported on the employee's W-2 form, for base pay plus overtime and
bonus payments only, plus salary deferrals under the Company's 401(k) Plan, up
to a maximum of $200,000 for calendar year 2002.
The following table illustrates current annual benefits payable under
the plan upon retirement at age 65 to persons in certain compensation and years
of service classifications. The benefits are computed on the basis of a
straight life annuity and are not subject to deductions for social security or
other offset amounts.
FINAL AVERAGE TEN YEARS TWENTY YEARS THIRTY YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
--------------------------------------------------------------------------------
$200,000* $25,436 $50,872 $76,308
*Compensation which may be considered for any purpose under a qualified pension
plan is limited for calendar year 2002 to $200,000.
The Internal Revenue Code limits the benefits which can be paid from any
funded pension plan that qualifies for federal tax exemption. The amount for
calendar year 2002 is $160,000.
As of April 27, 2002 the credited years of service under the plan for
the named Executive Officers were as follows: 24 for Stephen Strome; 8 for
Peter J. Cline; 2 for Gerardo I. Lopez; 5 for Stephen Nadelberg; and 30 for
Samuel Milicia.
8
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company sponsors a Supplemental Executive Retirement Plan (the
"SERP") covering a select group of management employees of the Company. The SERP
provides supplemental retirement income, and death and disability benefits.
Covered employees with five or more years of service are entitled to monthly
retirement income beginning at normal retirement age (65). The SERP permits
early retirement at ages 55-64 for employees with 10 or more years of service.
The computation of benefits under the SERP is based upon a formula which takes
into consideration retirement age, years of service up to a maximum of 30 years,
and average annual compensation during the highest five consecutive years within
the 10 years preceding retirement. A death benefit equal to a portion of the
employee's accrued benefit is paid to the employee's spouse if the employee dies
after becoming vested under the SERP. An employee with 10 or more years of
service whose employment by the Company terminates prior to his or her normal
retirement date due to his or her total and permanent disability is entitled to
receive a disability retirement benefit.
The compensation covered by the SERP includes all earnings from the
Company as reported on the employee's W-2 form, for base pay, overtime, and
bonus payments, plus salary deferrals. No maximum applies to compensation
covered under the SERP.
The benefit amount calculated under the formula is computed on the
basis of a straight life annuity and is subject to an offset by benefits
provided under the pension plan.
The following table illustrates current annual benefits payable under
the SERP upon normal retirement at age 65 to persons in certain compensation and
years of service classifications. These benefits are in addition to benefits
payable under the Company pension plan.
FINAL AVERAGE TEN YEARS TWENTY YEARS THIRTY YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
------------------------------------------------------------------------------
$200,000 $9,564 $19,128 $28,692
400,000 44,564 89,128 133,692
600,000 79,564 159,128 238,692
800,000 114,564 229,128 343,692
1,000,000 149,564 299,128 448,692
As of April 27, 2002 the credited years of service under the SERP for
the named Executive Officers were as follows: 24 for Stephen Strome; 8 for Peter
J. Cline; 2 for Gerardo I. Lopez; 5 for Stephen Nadelberg; and 30 for Samuel
Milicia.
CHANGE IN CONTROL AGREEMENTS
The Company entered into Change in Control Agreements (the
"Agreements") with Stephen Strome, Peter J. Cline and Stephen Nadelberg in the
event their employment is terminated as a result of, or in the connection with,
a change in control (as defined in the Agreements). The Agreements end December
31, 2002 and are automatically renewed to December 31 of each subsequent year
unless and until the Company or the named Executive Officer sends a written
notice of termination to the other party.
In event of termination of employment or other specified changes in the
employment relationship within 24 months following a change in control, the
Agreements generally provide for payments of accrued salary and bonus not paid
plus a severance payment equal to the sum of base salary and the average of the
annual bonus accrued during the three fiscal years prior to the termination date
times 2.99. The Agreements also entitle each named Executive Officer to continue
participation in the Company's life and health insurance benefits for 36 months
following the termination date. In addition, all stock options granted to the
named Executive Officer under the Company's 2001 Stock Option and Incentive Plan
or any other incentive plan or arrangement will become 100% vested and
immediately exercisable.
Based on current salaries and prior bonuses, if Messrs. Strome, Cline,
or Nadelberg had terminated their employment as of April 27, 2002 under
circumstances entitling them to severance pay as described above, they would
have been entitled to receive lump sum cash payments of $3,090,000, $1,985,000
and $914,000, respectively.
9
PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder
return for the Company's Common Stock with the cumulative total return of the
Russell 2500 Index and the S&P 500 Composite Index, for the past five-year
period.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN AMONG COMPANY,
RUSSELL 2500 AND S&P 500
1997 1998 1999 2000 2001 2002
HANDLEMAN 100 161 212 181 170 185
RUSSELL 2500 100 138 129 161 159 164
S&P 500 100 140 169 187 163 140
Assumes an investment of $100 in the Company's Common Stock, the
Russell 2500 Index and the S&P 500 Composite Index as of the last day of fiscal
1997. It shows the cumulative total return for the Company's last five fiscal
years assuming reinvestment of dividends.
The Company does not believe it feasible to provide a peer group
comparison since any entities that could conceivably be deemed "peers" are
either privately-held companies or subsidiaries or divisions of larger
publicly-held companies. Therefore, the Company has selected the Russell 2500
Index on the basis of similar market capitalization.
10
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
INTRODUCTION
The Compensation and Stock Option Committee (the "Committee") of the
Board is composed of three independent outside Directors who have no
interlocking relationships as defined by the SEC. The members of the Committee
are James B. Nicholson (Chairman), Elizabeth A. Chappell and Lloyd E. Reuss. The
Committee establishes the compensation policy for the Company's executives and
reviews the salaries, bonuses and stock incentives of each of the Executive
Officers including the Chief Executive Officer. The Committee administers the
Company's 2001 Stock Option and Incentive Plan and prior stock option plans.
GENERAL POLICIES
The Company's compensation policies reflect its belief that the
compensation of its key employees (including Executive Officers) should: (1)
provide a compensation program that motivates key employees to achieve their
strategic goals by tying compensation to the performance of the Company and
applicable business units, as well as, to individual performance; (2) provide
compensation reasonably comparable to that offered by other leading companies to
attract and retain talented executives; and to (3) align the interests of its
key employees with the long-term interests of the Company's shareholders through
the award of stock incentives. The compensation packages offered to key
employees are based on the review of compensation survey studies and the advice
of compensation consultants. In assessing salary levels from a comparability
standpoint, the Committee refers to compensation surveys based on different
groups of corporations with approximately the same sales volume as the Company.
The Committee has not taken into account the impact of Section 162(m)
of the Internal Revenue Code (which disallows certain deductions for executive
compensation exceeding $1,000,000 per year) in determining the level of
executive compensation.
BASE SALARIES
Base salaries are established by analyzing and evaluating the
responsibilities of a given position and a comparison of compensation levels of
similar positions in the competitive marketplace on both a regional and national
basis. Each position is included in a structure of graduated salary levels that
have been set up by reference to the pay practices of the companies included in
the outside consultant's compensation surveys. Salary levels are reviewed
annually and are subject to adjustment based on the general movement in salaries
in the job market, as well as the individual's job performance, contributions to
the Company and changes in job responsibilities.
BONUSES
The Company's bonus program is intended to encourage and reward the
achievement of corporate objectives. The named Executive Officers participate in
the bonus program. Awards under the bonus program, during fiscal 2002, were
based on the Company attaining certain levels of operating performance, net
income and cash flow. In fiscal 2002, Mr. Cline, received a bonus based on the
overall performance of the Company in terms of net income and cash flow. In
fiscal 2002, Messrs. Lopez, Nadelberg and Milicia received bonuses based on the
operating performance and cash flow of their individual business units and the
consideration of personal objectives.
11
STOCK PLANS
The Company's shareholders approved the adoption of the Handleman
Company 2001 Stock Option and Incentive Plan (the "Plan") which authorizes the
granting of stock options, performance shares and restricted stock.
The Committee believes that stock ownership by key employees (including
Executive Officers) and stock-based performance compensation arrangements foster
an interest in the enhancement of shareholder value and thus align management's
interests with that of the shareholders. In fiscal 2002, stock options and
performance shares were awarded pursuant to the Plan to key employees in amounts
reflecting the participant's position and ability to influence the Company's
overall performance.
The Committee's policy has been to utilize vesting periods to encourage
key employees to continue in the employ of the Company, and to grant options to
provide a long-term incentive. The exercise price of the options is based on the
fair market value of the underlying shares on the date of the grant. Thus, such
options have value only if the price of the underlying shares increases.
The Committee reviewed the long-term incentives available to key
employees from the perspective of market competitiveness and value. The
Committee also looked at how to more closely align the Company's long-term
incentive awards with the creation of shareholder value. The Committee
determined that the overall effectiveness and value of the Plan is strengthened
by the addition of performance shares. Performance shares provide a strong link
between pay and performance. The number of shares that key employees would
receive from the fiscal 2002 performance share grant will be based on certain
fixed performance criteria being satisfied by May 1, 2004.
OTHER COMPENSATION
At various times in the past the Company has adopted certain
broad-based employee benefit plans in which key management employees have been
permitted to participate and has adopted certain Executive Officer retirement,
life and health insurance and automotive plans. Other than with respect to the
Company's 401(k) Plan, which includes a Company Common Stock Fund so as to
further align employees' and shareholders' long-term financial interests,
benefits under these plans are not directly or indirectly tied to Company
performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
The annual base salary earned in fiscal 2002 by Stephen Strome, the
Company's Chief Executive Officer, was $601,308. Compensation for the Chief
Executive Officer is determined through a process similar to that discussed for
other Executive Officers. Mr. Strome was paid a bonus of $250,000 in fiscal 2002
based on the overall performance of the Company in terms of net income and cash
flow. In fiscal 2002, Mr. Strome was awarded a nonqualified stock option grant
to purchase 71,100 shares of the Company's stock (see "Option Grants in the Last
Fiscal Year") and a grant of 54,400 performance shares of the Company's common
stock, which would be distributed if certain fixed performance criteria are
satisfied by May 1, 2004. The goals of these grants are to ensure attention to
the Company's long-term strategies and objectives. The Committee believes Mr.
Strome's compensation to be competitive with compensation practices of the
companies included in the survey prepared by the outside consultant.
BY THE COMPENSATION AND STOCK OPTION COMMITTEE:
James B. Nicholson (Chairman)
Elizabeth A. Chappell
Lloyd E. Reuss
12
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Handleman Company Board of Directors is
composed of four independent Directors. The Audit Committee is governed by the
Audit Committee Charter adopted by the Board of Directors.
As set forth in the Audit Committee Charter, the Committee is appointed
by the Board of Directors to, among other duties and responsibilities, provide
assistance to the Board of Directors in fulfilling its oversight responsibility
relating to the Company's financial statements and the financial reporting
processes; the systems of internal accounting and financial controls; the
internal audit function; and the annual independent audit of the Company's
financial statements.
Management has responsibility for the Company's financial statements
and financial reporting processes, including the system of internal controls.
The independent auditors are responsible for performing an independent audit of
the Company's consolidated financial statements in accordance with generally
accepted auditing standards and issuing a report thereon.
The Committee reviews the Company's financial statements and financial
reporting processes on behalf of the Board of Directors. In fulfilling its
responsibilities, the Committee has met and held discussions with management,
the internal auditors and the independent auditors. Management represented to
the Committee that the Company's consolidated financial statements were prepared
in accordance with generally accepted accounting principles. The Committee has
reviewed and discussed the audited consolidated financial statements contained
in the fiscal year 2002 Annual Report on SEC Form 10-K with management and the
independent auditors.
The Committee discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communications with Audit Committees, as amended. In addition, the Committee has
discussed with the independent auditors the auditors' independence from the
Company and its management, including the letter regarding its independence
provided to the Committee as required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees.
Based upon, and in reliance upon, the Committee's discussions with
management and the independent auditors referred to above, the Committee's
review of the representations of management and the report of the independent
auditors, the Committee recommended to the Board of Directors (and the Board has
approved) that the audited consolidated financial statements be included in the
Company's Annual Report on Form 10-K for fiscal year 2002 (fiscal year ended
April 27, 2002) for filing with the Securities and Exchange Commission.
BY THE AUDIT COMMITTEE:
John M. Barth (Chairman)
Elizabeth A. Chappell
Richard H. Cummings
Sandra E. Peterson
13
II. OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
PricewaterhouseCoopers LLP is the independent public accountant for the
Company and has reported on the Company's consolidated financial statements for
the fiscal year ended April 27, 2002. The Company's independent public
accountant is appointed by the Board of Directors after receiving
recommendations from the Audit Committee. PricewaterhouseCoopers LLP has been
reappointed for fiscal year 2003.
Representatives from PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting of Shareholders and will have the opportunity to
make a statement at the meeting if they desire to do so, and are expected to be
available to respond to appropriate questions.
PRINCIPAL ACCOUNTING FIRM FEES
For the fiscal year ended April 27, 2002, the Company paid
PricewaterhouseCoopers LLP $294,572 for the audit and audit related services,
$1,281 for financial information systems design and implementation services, and
$457,979 for all other services. All other services are principally comprised of
tax and actuarial services. The Audit Committee determined that the non-audit
services provided (and the aggregated fees billed for such services) by
PricewaterhouseCoopers LLP during fiscal 2002 were compatible with maintaining
their independence.
OTHER PROPOSALS
Neither the Company nor the members of its Board of Directors intend to
bring before the Annual Meeting any matters other than those set forth in the
Notice of Annual Meeting, and they have no present knowledge that any other
matters will be presented for action at the meeting by others. However, if any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote in accordance with their
best judgment.
A shareholder proposal which is intended to be presented at the 2003
Annual Meeting of Shareholders must be received by the Company at its principal
executive offices by March 14, 2003.
By Order of the Board of Directors,
/s/ Stephen Strome
---------------------------------
Stephen Strome
Chairman of the Board
and Chief Executive Officer
Dated: August 5, 2002
14
APPENDIX A
HANDLEMAN COMPANY
CORPORATE GOVERNANCE GUIDELINES
1. SELECTION OF CHAIRMAN AND CEO; LEAD DIRECTOR: Currently, the Chairman of the
Board is the Chief Executive Officer (CEO) of Handleman Company. If the
Board does not designate the Chairman of the Board as the CEO, then the
President by virtue of his office is the CEO.
The Board has no policy respecting the need to separate or combine the
offices of Chairman and CEO. The Board believes that this issue is part of
the succession planning process and that it is in the best interests of the
Company to make a determination whenever it elects a new CEO.
The Board may designate an independent Director to serve as Lead Director,
with such duties and responsibilities as determined by the Board. If no Lead
Director is designated by the Board, reference in these Guidelines to the
Lead Director shall refer to the Chair of the Compensation and Stock Option
Committee.
2. MEETING WITHOUT CEO: In those instances where the outside Directors meet
without the Chairman and CEO, the Lead Director will chair the meeting.
3. NUMBER OF COMMITTEES: The Board has the following committees: Audit
Committee, Compensation and Stock Option Committee and Corporate Governance
and Nominating Committee. The Board has the flexibility to form a new
committee or disband a current committee. It is the policy of the Board that
only independent Directors serve on the Audit Committee, Compensation and
Stock Option Committee and Corporate Governance and Nominating Committee.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS: The Chairman and CEO suggests
the appointment of members to the committees, the composition of which is
discussed and ratified by the entire Board, taking into account the desires
and suggestions of individual Directors. It is the belief of the Board that
committee rotation is a desirable principle, but should not be mandated as a
policy since there may be reasons at a given point in time to maintain an
individual Director's committee membership for a longer period or to shorten
the period. The learning time to become an active contributor on a
particular committee is also a factor.
5. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS: The Chair of each committee, in
consultation with its members, determines the frequency and length of the
meetings of the committee.
6. COMMITTEE AGENDA: The Chair of each committee, in consultation with the
appropriate Officers, will develop the committee's agenda. At the beginning
of the Board year (from annual shareholders meeting to annual meeting), each
committee will establish a schedule of agenda subjects to be discussed
during the year (to the extent these can be foreseen); the schedule for each
committee will be furnished to all Directors. The agenda for each meeting
will be distributed to all Directors in advance and suggestions for changes
or additions will be solicited.
7. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS: The Chairman and CEO will
establish the agenda for each Board meeting. At the beginning of the Board
year, the Chairman and CEO will establish a schedule of agenda subjects to
be discussed during the year (to the extent these can be foreseen). The
agenda for each meeting will be distributed to all Directors in advance and
suggestions for changes or additions will be solicited. At least one Board
meeting each year will be a Board "retreat," the principal purpose of which
will be a Board review of long-term strategic plans and the principal issues
that Handleman Company will face in the future. The Board will have a
minimum of six scheduled meetings per Board year and will be on call for
additional meetings as needed.
8. BOARD MATERIALS DISTRIBUTED IN ADVANCE: Information and data that are
important to the Board's understanding of the business will be distributed
in writing to the Board the week before the scheduled Board meeting. The
Officers will strive to make the information concise yet comprehensive, and
will make an ongoing effort to solicit suggestions from outside Directors on
how to best meet their information needs.
15
9. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS: The Chairman and CEO
will invite Senior Officers to attend the meeting when their presence is
expected to significantly enhance the quality of Board decisions.
Generally, attendance of non-Directors will take place when their expertise
is required or where attendance is encouraged as noted in Item 11 (e.g., at
the Board retreat).
10. EXECUTIVE SESSIONS OF OUTSIDE DIRECTORS: The outside Directors will meet in
executive session at the conclusion of each scheduled Board meeting. The
Lead Director will report to the Chairman and CEO on the nature of the
discussion immediately following the Board meeting.
11. BOARD ACCESS TO SENIOR MANAGEMENT: Board members have complete access to
the Company's Officers and counsel. It is assumed that Board members will
use appropriate judgment to be sure that this contact is not distracting to
the business operation of the Company and that such contact, if in writing,
be copied to the Chairman and CEO under normal circumstances. Furthermore,
the Board encourages the Chairman and CEO, from time to time, to bring
executives into Board meetings who: (a) can provide additional insight into
the items being discussed because of personal involvement in these areas or
(b) represent executives with future potential that the Chairman and CEO
believes should be given exposure to the Board. The Board may retain
outside counsel of its choice with respect to any issue relating to its
activities. The Chairman and CEO will be advised on each such occasion of
the law firm selected and the issues to be addressed by it on behalf of the
Board.
12. BOARD COMPENSATION REVIEW: It is appropriate for the Officers to report
once a year to the Compensation and Stock Option Committee the status of
Board compensation in relation to other comparable U.S. companies and in
consideration of the most current best practices. Changes in Board
compensation, if any, should come at the suggestion of the Compensation and
Stock Option Committee, but with full discussion and concurrence by the
Board.
13. SIZE OF THE BOARD: It is the opinion of the Board that the optimal size of
the Board under normal circumstances is 8 to 10 members. This size permits
both a diversity of skills and views available to contribute to the duties
of the Board and its Committees as well as the coordination and
participation of all Directors in Board deliberations. However, the Board
would be willing to go to a somewhat larger size in order to accommodate
the availability of an outstanding candidate.
14. MIX OF INSIDE AND OUTSIDE DIRECTORS: The Board believes that, as a matter
of policy, there should be a majority of independent Directors on the
Handleman Board.
15. DEFINITION OF INDEPENDENCE FOR OUTSIDE DIRECTORS: The Company has adopted
the following definition of an independent Director: one who (a) is not and
has not been employed by the Company or its subsidiaries in an executive
capacity; (b) is not a significant advisor or consultant to the Company;
(c) is not affiliated with a significant customer or supplier of the
Company; (d) does not have a significant personal services contract with
the Company; (e) is not affiliated with a tax-exempt entity that receives
significant contributions from the Company; and (f) is not a spouse,
parent, sibling or child of a Board member or senior executive of the
Company. The Board believes that all outside Directors with the exception
of David Handleman are independent. Compliance with the definition of
independence is reviewed annually by the Corporate Governance and
Nominating Committee. The ownership of stock in the Company by Directors is
encouraged. The Board's policy is that each Director should, by April 30,
2002, own Company stock valued at market price equal to three times the
annual retainer.
16. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP: The Board believes this
is a matter to be decided in each individual instance. It is assumed that
when the Chief Executive Officer resigns from that position, he/she should
offer his/her resignation from the Board at the same time. Whether the
individual continues to serve on the Board is a matter for discussion at
that time with the new CEO and the Board.
17. BOARD MEMBERSHIP CRITERIA: The Corporate Governance and Nominating
Committee is responsible for reviewing with the Board periodically the
appropriate skills and characteristics required of Board members in the
context of the current make-up of the Board. This assessment should include
issues of diversity, age, skills such as understanding of marketing,
finance, regulation and public policy, international background, commitment
to Handleman's shared values, etc. -- all in the context of an assessment
of the perceived needs of the Company and the Board at that point in time.
16
18. SELECTION OF NEW DIRECTOR CANDIDATE/EXTENDING INVITATIONS TO BOARD: The
Board itself should be responsible, in fact as well as procedure, for
selecting its own members. The Board delegates the screening process
involved to the Corporate Governance and Nominating Committee with the
direct input from the Chairman and CEO. The invitation to join the Board
should be extended by the Chairman and CEO and the Chair of the Corporate
Governance and Nominating Committee.
19. ASSESSING THE BOARD'S PERFORMANCE: The Board commits to participate in a
process of self-evaluation annually, led by the Corporate Governance and
Nominating Committee. This will be discussed with the full Board following
the end of each fiscal year. This assessment should be of the Board's
contribution as a whole and should specifically review areas in which the
Corporate Governance and Nominating Committee or the Chairman and CEO
believes a better contribution could be made. Its purpose is to increase the
effectiveness of the Board. The purpose of the evaluation will be to
discover if there are changes to the Board's structure and operations, which
will maximize the value that the Board adds to the Company.
20. DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY: It is the sense of
the Board that individual Directors who change in a substantial way the
business responsibility they held when they were elected to the Board, or
who develop a conflict as a Director of the Company with the person's
position in, or role with, another entity should inform the Chairman and CEO
and the Chair of the Corporate Governance and Nominating Committee of the
change. In addition, they must volunteer to resign from the Board. It is not
the sense of the Board that the Directors who retire from or change
substantially the position they held when they became a Director should
necessarily leave the Board. There should, however, be an opportunity of the
Board via the Corporate Governance and Nominating Committee to review the
continued appropriateness of Board membership under these circumstances.
21. RETIREMENT AGE: Directors will submit a written resignation to the Board
upon reaching the age of 72. The Corporate Governance and Nominating
Committee will review the desirability of continued service by that Director
in light of the needs of the Company at that time and make a recommendation
to the Board. If continued service is requested that Director will then
annually submit a written resignation to be considered by the Board.
22. FORMAL EVALUATION OF THE CHAIRMAN AND CEO: At the beginning of each fiscal
year, the Chairman and CEO will set forth in writing to the Chair of the
Compensation and Stock Option Committee the Chairman and CEO's personal
goals for the performance of his duties and responsibilities during such
fiscal year. The outside Directors should make this evaluation annually, and
it should be communicated to the Chairman and CEO by the Chair of the
Compensation and Stock Option Committee. The evaluation should be based on
objective criteria, including comparison of the Chairman and CEO's goals for
the year against actual results, performance of the business, accomplishment
of long-term strategic objectives, management development, and the like. The
evaluation will be used by the Compensation and Stock Option Committee in
the course of its deliberations when considering the compensation of the
Chairman and CEO.
23. SUCCESSION PLANNING: There will be an annual report by the Chairman and CEO
to the Board on succession planning. There should also be available, on a
continuing basis, the Chairman and CEO's recommendations as to a successor
should the Chairman and CEO be unexpectedly disabled.
24. MANAGEMENT DEVELOPMENT: There will be an annual report to the Board by the
Chairman and CEO on Handleman's program for management development. This
report should be given to the Board at the same time as the succession
planning report.
25. BOARD INTERACTION WITH INSTITUTIONAL INVESTORS, THE PRESS, CUSTOMERS, ETC.:
The Board believes that, in general, it is optimal for the appropriate
Officers to speak for the Company. Individual Board members may, from time
to time, meet or otherwise communicate with various constituencies that are
involved with the Company, including investors. It is expected that Board
members would do this with the knowledge of the Chairman and CEO and absent
unusual circumstances, only at the request of the Chairman and CEO.
26. ADHERENCE TO CODE OF BUSINESS PRACTICES: Each Director shall be familiar
with and adhere to the Company's Code of Business Practices. The Directors
shall annually acknowledge in writing that the Director has complied with
the Code of Business Practices as it applies to the Director.
17
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HANDLEMAN COMPANY
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 10, 2002
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY
Stephen Strome, James B. Nicholson and Lloyd E. Reuss, and each of
them, are hereby authorized to represent and vote the stock of the
undersigned at the Annual Meeting of Shareholders to be held September
10, 2002, and at any adjournment thereof:
1. THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
ELECTION OF [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
DIRECTORS (except as marked to the contrary below) to vote for all nominees listed
below
Eugene A. Miller Sandra E. Peterson Irvin D. Reid
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below)
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2. In their discretion with respect to any other matters that may properly
come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE HEREIN. IF NO SPECIFICATIONS ARE MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS
LISTED ABOVE.
(Continued and to be signed on other side)
(Continued from other side)
THE UNDERSIGNED HEREBY REVOKES ANY PROXY OR PROXIES HERETOFORE GIVEN TO
VOTE SUCH STOCK, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID
ATTORNEYS AND PROXIES, OR THEIR SUBSTITUTES, MAY DO BY VIRTUE HEREOF.
IF ONLY ONE ATTORNEY AND PROXY SHALL BE PRESENT AND ACTING, THEN THAT
ONE SHALL HAVE AND MAY EXERCISE ALL THE POWERS OF SAID ATTORNEYS AND
PROXIES.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SAID
ANNUAL MEETING OF SHAREHOLDERS, THE PROXY STATEMENT RELATING THERETO
AND THE ANNUAL REPORT FOR 2002.
Dated:
-----------------------, 2002
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(Signature (s) of Shareholder
(s))
The signature (s) of shareholder(s) should correspond exactly with the
name(s) stenciled hereon.
Joint owners should sign
individually. When signing as
attorney, executor,
administrator, trustee or
guardian, please give your
full title as such.
PLEASE PROMPTLY DATE, SIGN
AND MAIL
THIS PROXY IN THE ENCLOSED
ENVELOPE.