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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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HANDLEMAN COMPANY
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SEC 1913 (02-02)
[HANDLEMAN COMPANY LOGO] HANDLEMAN
COMPANY
Handleman Company
500 Kirts Boulevard
Troy, Michigan 48084-4142
Notice of 2005
Annual Meeting of Shareholders
and Proxy Statement
[HANDLEMAN COMPANY LOGO] HANDLEMAN
COMPANY
Stephen Strome
Chairman and Chief Executive Officer
Handleman Company
500 Kirts Boulevard
Troy, MI 48084-4142
July 29, 2005
Dear Shareholders:
It is my pleasure to invite you to Handleman Company's 2005 Annual Meeting of
Shareholders. We will hold the meeting on Wednesday, September 7, 2005, at 2:00
p.m., Eastern Time, at the Somerset Inn, 2601 West Big Beaver Road, Troy,
Michigan 48084. During the Annual Meeting, we will discuss each item of business
described in the enclosed Notice of Annual Meeting and proxy statement and give
a report on the Company's business operations. There will also be time devoted
to respond to shareholder questions.
We hope you will be able to attend the Annual Meeting. Please vote your shares
regardless of whether you plan to attend in person. We are pleased to offer
multiple options for voting your shares. As detailed in the "Questions and
Answers" section of the proxy statement (beginning on page 28), you can vote
using any of the following methods: vote by telephone; the Internet; sign and
date the proxy card or voting instruction card and return it in the prepaid
envelope; or vote in person at the meeting.
Thank you for your continued support of Handleman Company.
Sincerely,
/s/ Stephen Strome
------------------------------------
Stephen Strome
Chairman and Chief Executive Officer
TABLE OF CONTENTS
PAGE
Notice of the 2005 Annual Meeting of Shareholders................... 1
General Information................................................. 3
Voting Securities................................................... 3
Election of Directors............................................... 4
- Board Nominees................................................. 4
- Continuing Directors........................................... 6
- Directors Whose Terms Expire in 2006....................... 6
- Directors Whose Terms Expire in 2007....................... 6
Board Information................................................... 7
- Board Meetings................................................. 7
- Director Independence.......................................... 7
- Board Committees............................................... 7
- Audit Committee............................................ 7
- Corporate Governance and Nominating Committee.............. 7
- Corporate Governance and Nominating Committee Process for
Identifying and Evaluating Nominees..................... 8
- Compensation Committee..................................... 8
- Presiding Director............................................. 9
- Communications with the Board.................................. 9
- Director Education............................................. 9
- Board Compensation - Retainer and Fees......................... 11
- Certain Relationships and Related Transactions................. 12
- Section 16 (a) Beneficial Ownership Reporting Compliance....... 12
- Compensation Committee Interlocks and Insider Participation.... 12
Compensation Committee Report....................................... 12
Audit Committee Report.............................................. 15
Performance Graph................................................... 17
Executive Compensation.............................................. 18
Long-Term Incentive Plan - Awards in Last Fiscal Year............... 19
Option Grants in Last Fiscal Year................................... 20
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values.................................... 21
Pension Plan Table.................................................. 22
Supplemental Executive Retirement Plan Table........................ 23
Change in Control Agreements........................................ 23
Security Ownership of Certain Beneficial Owners and Management...... 24
Other Matters....................................................... 26
- Relationship with Independent Auditor.......................... 26
- Independent Auditor Fees....................................... 26
- Other Proposals................................................ 27
Questions and Answers about the Annual Meeting and Voting........... 28
What is a proxy?............................................... 28
What is a proxy statement?..................................... 28
Who can vote?.................................................. 28
What is the quorum requirement of the Annual Meeting?.......... 28
What am I voting on?........................................... 28
Are the nominees Eugene A. Miller and P. Daniel Miller
related?..................................................... 28
What are the voting recommendations of the Board?.............. 29
What if other matters are presented for determination
at the Annual Meeting?....................................... 29
What vote is required to elect the Directors?.................. 29
What shares are covered by my proxy card?...................... 29
i
PAGE
What is the difference between holding shares as a shareholder of record
and as a beneficial owner?................................................... 29
How do I vote?.................................................................. 30
What is the effect of not voting?............................................... 30
What can I do if I change my mind after I vote my shares?....................... 31
How do participants in the Handleman Company 401 (k) Plan vote their shares?.... 31
How do shareholders of record vote their shares if they are also participants
in the Handleman Company 401 (k) Plan?....................................... 31
What does it mean if I get more than one proxy card?............................ 32
Will there be a management presentation at the Annual Meeting?.................. 32
Who can attend the Annual Meeting?.............................................. 32
What do I need to attend the Annual Meeting?.................................... 32
Can I bring a guest?............................................................ 33
Who will count the vote?........................................................ 33
How much did this proxy solicitation cost?...................................... 33
How do I recommend someone to be a candidate for election as a Director at
the 2006 Annual Meeting?..................................................... 33
When are shareholder proposals due for the 2006 Annual Meeting?................. 33
Where can I find the Corporate Governance Guidelines for Handleman Company?..... 34
Can I access the proxy statement and 2005 Annual Report on the Internet
instead of receiving paper copies?........................................... 34
How do I obtain more information about Handleman Company?....................... 34
Appendix A - Corporate Governance Guidelines......................................... A-1
Appendix B - Code of Business Conduct and Ethics..................................... B-1
Appendix C- Charter of the Audit Committee.......................................... C-1
Appendix D - Charter of the Corporate Governance and Nominating Committee............ D-1
Appendix E - Charter of the Compensation Committee................................... E-1
ii
HANDLEMAN COMPANY
NOTICE OF THE 2005
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 7, 2005
The Annual Meeting of Shareholders of Handleman Company will be held on
Wednesday, September 7, 2005 at 2:00 p.m., Eastern Time, at the Somerset Inn,
2601 West Big Beaver Road, Troy, Michigan 48084. The proposals to be voted on at
the Annual Meeting are as follows:
1. The election of five Directors. Nominees are:
Thomas S. Wilson
Eugene A. Miller
P. Daniel Miller
Sandra E. Peterson
Irvin D. Reid
2. To transact such other business as may properly come before the
Annual Meeting and any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITS NOMINEES FOR DIRECTORS. THE
BOARD OR PROXY HOLDERS WILL USE THEIR DISCRETION ON OTHER MATTERS THAT MAY ARISE
AT THE ANNUAL MEETING.
You are entitled to vote at the Annual Meeting if you were a shareholder of
record at the close of business on July 11, 2005.
If you have any questions about the Annual Meeting, please contact:
Corporate Secretary
Handleman Company
500 Kirts Boulevard
Troy, MI 48084-4142
248-362-4400
BY ORDER OF THE BOARD OF DIRECTORS
1
(This page intentionally left blank)
2
HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084-4142
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 7, 2005
GENERAL INFORMATION
The approximate mailing date for this proxy statement and the proxy is July 29,
2005. A copy of the Annual Report of the Company for the fiscal year ended April
30, 2005 accompanies this Notice.
It is important that your shares be represented at the Annual 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 Mellon Investor Services LLC, 44 Wall Street, 7th
floor, New York, NY 10005 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 shareholders. Any
person giving a proxy has the power to revoke it at any time before it is voted.
For additional information regarding voting your shares, see the "Questions and
Answers" section of this proxy statement (beginning on page 28).
VOTING SECURITIES
Only holders of record of shares of $.01 par value common stock (the "Common
Stock") at the close of business on July 11, 2005 are entitled to notice of, and
to vote at, the Annual Meeting or at any adjournment or adjournments thereof,
each share having one vote. As of July 11, 2005, the date of record, the Company
had issued and outstanding 21,531,821 shares of Common Stock.
3
I. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. At each Annual Meeting,
the term of one class expires. Directors in each class serve for three-year
terms, or until the Director's retirement. Five Nominees for Director are to be
elected by shareholders at the Annual Meeting. Currently, the class of Directors
whose terms expire in 2007 includes two Directors. One nominee for Director,
Thomas S. Wilson, is nominated for election for a two-year term, to be added to
the class expiring in 2007. Four nominees for Director, Eugene A. Miller, P.
Daniel Miller, Sandra E. Peterson and Irvin D. Reid, are to be elected for
three-year terms expiring in 2008. Messrs. Eugene A. Miller and P. Daniel Miller
are not related.
Following each Director's name is (1) the year he or she was first elected a
Director, (2) his or her age, and (3) a brief account of the Director's business
experience during the past five years.
BOARD NOMINEES
NOMINEE FOR A TERM TO EXPIRE AT THE 2007 ANNUAL MEETING:
THOMAS S. WILSON Director since 2004
Age 55
Mr. Wilson has served as President and Chief Executive Officer of Palace Sports
and Entertainment, Inc., since 1993, overseeing the operations of the Detroit
Pistons, Detroit Shock and Tampa Bay Lightning, and such entertainment venues as
The Palace, DTE Energy Music Theatre, Meadow Brook Music Festival in Michigan
and the St. Pete Forum in Florida.
NOMINEES FOR TERMS TO EXPIRE AT THE 2008 ANNUAL MEETING:
EUGENE A. MILLER Director since 2002
Age 67
Mr. Miller served as Chairman of the Board of Comerica Incorporated and Comerica
Bank from January 1, 2002 through his retirement on October 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 May 31, 1999, Mr. Miller served as Chairman and Chief Executive
Officer of Comerica Incorporated and Comerica Bank. Mr. Miller is also a
director of DTE Energy, Inc.
P. DANIEL MILLER Age 57
Mr. P. Daniel Miller has served as Executive Vice President of Kimball
International and as President of Kimball International's Furniture Brands Group
since August 14, 2000. Mr. Miller's prior experience includes positions in
executive management, sales and marketing, manufacturing operations and
multi-billion dollar branded sales and distribution strategies, both
domestically and internationally, at International Knife and Saw, Overhead Door
Corporation and Whirlpool Corporation.
4
SANDRA E. PETERSON Director since 2001
Age 46
Ms. Peterson has served as Executive Vice President of Bayer Healthcare and
President of the Diabetes Care Division of Bayer Healthcare since May 9, 2005.
From February 2, 2004 through May 8, 2005, Ms. Peterson served as a private
investor and consultant. From September 1, 2003 through February 1, 2004, Ms.
Peterson served as a Group Vice President of Medco Health Solutions (also known
as Merck-Medco). From January 1, 1999 through August 31, 2003, Ms. Peterson
served as the Senior Vice President of Health Businesses, Medco Health
Solutions, Inc. From April 8, 1996 through December 31, 1998, Ms. Peterson
served as Executive Vice President of Nabisco Holding Company. Ms. Peterson is
also a director of The Dun & Bradstreet Corporation.
IRVIN D. REID Director since 2002
Age 64
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 also a director of
Mack-Cali Real Estate Investment Trust.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ITS NOMINEES
5
CONTINUING DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE AT THE 2006 ANNUAL MEETING:
JAMES B. NICHOLSON Director since 1991
Age 62
Mr. Nicholson has served as President, Chief Executive Officer and Director of
PVS Chemicals, Inc. since 1979. Mr. Nicholson is a director and the
non-executive Chairman of the Board of LaSalle Bank Corporation.
LLOYD E. REUSS Director since 1993
Age 69
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 also a director of International
Speedway Corporation.
STEPHEN STROME Director since 1989
Age 60
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. Mr.
Strome is also a director of AmerUs Group.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2007 ANNUAL MEETING:
ELIZABETH A. CHAPPELL Director since 1999
Age 47
Ms. Chappell has served as President and Chief Executive Officer of the Detroit
Economic Club 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 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 also a director of American Axle and Manufacturing.
RALPH J. SZYGENDA Director since 2003
Age 56
Mr. Szygenda has served as Group Vice President and Chief Information Officer of
General Motors Corporation since January 7, 2000. Mr. Szygenda joined General
Motors Corporation on June 28, 1996 as Vice President and Chief Information
Officer.
6
BOARD INFORMATION
BOARD MEETINGS:
During the fiscal year ended April 30, 2005, the Board held a total of seven
meetings. During fiscal 2005, each Director of the Company attended at least 75%
of the aggregate number of meetings of the Board and of all committees of the
Board on which such Director served, during the time each such Director was a
member of the Board. The Annual Meeting of Shareholders is held in conjunction
with a regularly scheduled Board meeting, and Directors are expected to attend.
In 2004, seven of the eight Directors attended the Annual Meeting.
Handleman Company's independent Directors met without the Chief Executive
Officer six times during the fiscal year ended April 30, 2005.
DIRECTOR INDEPENDENCE:
During 2003, the New York Stock Exchange adopted new independence standards for
companies listed on the Exchange, including the Company. These standards require
a majority of the Board to be independent and every member of each of the Audit
Committee, Compensation Committee, and Corporate Governance and Nominating
Committee to be independent. A Director is considered independent only if the
Board "affirmatively determines that the Director has no material relationship
with the listed company (either directly or as a partner, shareholder or officer
of an organization that has a relationship with the company)," consistent with
additional requirements contained in the listing standards of the New York Stock
Exchange. In connection with this standard, the Board has affirmatively
determined that all of the Directors (other than Mr. Strome) are independent of
the Company and its management under the standards set forth by the New York
Stock Exchange.
BOARD COMMITTEES:
AUDIT COMMITTEE: 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
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.
All members of the Audit Committee are financially literate, as the Company's
Board has interpreted such qualification in its business judgment. The Board of
Directors has determined that Eugene A. Miller satisfies the standard for "audit
committee financial expert" in compliance with the Sarbanes-Oxley Act of 2002
and has accounting or related financial management expertise as required by the
New York Stock Exchange.
The functions of the Audit Committee are listed in the Audit Committee Charter
which is included herein as Appendix C to this proxy statement.
The Audit Committee held 10 meetings during the fiscal year ended April 30,
2005. Members: Mr. Eugene A. Miller (Chairman), Ms. Sandra E. Peterson, Dr.
Irvin D. Reid and Mr. Ralph J. Szygenda.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE: The Corporate Governance and
Nominating Committee considers the performance of incumbent Directors and
recommends to the Board nominees for election as Directors. The Corporate
Governance and Nominating Committee will consider nominees for Directors
recommended by shareholders, which recommendations for the 2006 Annual Meeting
of Shareholders should be submitted to the Handleman Company Corporate Secretary
at the Company's executive offices, no later than May 10, 2006. Any such
recommendations will be delivered to the Chairman of the Corporate Governance
and Nominating Committee.
7
The Board of Directors has 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. A copy of the guidelines is
included herein as Appendix A to this proxy statement.
Guideline number 35 of the Corporate Governance Guidelines states that the Board
believes that it is important that the Company's stakeholders and others are
able to review its corporate governance practices. Accordingly, the Company's
Corporate Governance Guidelines, Code of Business Conduct and Ethics and
Committee Charters are published on the Company's website, www.handleman.com,
under Investor Relations/Corporate Governance.
The Company's Code of Business Conduct and Ethics is included herein as Appendix
B to this proxy statement.
The functions of the Corporate Governance and Nominating Committee are listed in
the Corporate Governance and Nominating Committee Charter, which is included
herein as Appendix D to this proxy statement.
The Corporate Governance and Nominating Committee held three meetings during the
fiscal year ended April 30, 2005. Members: Mr. Lloyd E. Reuss (Chairman), Mr.
Eugene A. Miller, Mr. James B. Nicholson and Dr. Irvin D. Reid.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE PROCESS FOR IDENTIFYING AND
EVALUATING NOMINEES: The Directors and the Corporate Governance and Nominating
Committee (the "Committee") are responsible for recommending candidates for
membership on the Board. In assessing potential new Directors, the Committee
considers individuals from various disciplines and diverse backgrounds. The
selection of qualified Directors is complex and crucial to Handleman's long-term
success. Board candidates are considered based upon various criteria, such as
their broad-based business skills and experiences, a global business and social
perspective, concern for the long-term interests of the shareholders, and
personal integrity and judgment. In addition, Directors must have time available
to devote to Board activities and to enhance their knowledge of Handleman
Company and the music industry. To assist in the identification and evaluation
of qualified Director candidates, on occasion, the services of a search firm
have been engaged.
During the 2005 fiscal year, the Committee recommended two new candidates to the
Board. These individuals, who were not previously elected by the shareholders,
are nominees for election as Directors at the Annual Meeting. The nominees,
Thomas S. Wilson and P. Daniel Miller, were recommended to the Committee by
independent Directors of the Board.
COMPENSATION COMMITTEE: The duties of the Compensation 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; recommending to the Board of Directors
director compensation programs; and granting stock options, performance shares,
performance units and restricted stock awards under the Company's 2004 Stock
Plan. The functions of the Compensation Committee are listed in the Compensation
Committee Charter, which is included herein as Appendix E to this proxy
statement.
The Compensation Committee held six meetings during the fiscal year ended April
30, 2005. Members: Mr. James B. Nicholson (Chairman), Ms. Elizabeth A. Chappell,
Ms. Sandra E. Peterson and Mr. Lloyd E. Reuss.
8
PRESIDING DIRECTOR:
The Board designates annually an independent, non-employee Director to serve as
Presiding Director. Duties and responsibilities of the Presiding Director
include:
- Presiding over executive sessions of the independent Board members;
- Advising the Chief Executive Officer of appropriate feedback from
executive sessions, including any actions to be taken, as well as
any issues or concerns raised by the independent Directors;
- Advising on the agenda for the Board meetings;
- Meeting with senior officers, if deemed appropriate, to discuss the
business and issues facing the Company;
- Working with the Chairman of the Corporate Governance and Nominating
Committee in the selection of the Committee Chairs; and
- Meeting with shareholders, if appropriate, to discuss their
concerns.
The Chair of the Audit Committee serves as Presiding Director for fiscal year
2006, the Chair of the Corporate Governance and Nominating Committee will serve
for fiscal year 2007, the Chair of the Compensation Committee will serve for
fiscal year 2008, with the position of Presiding Director rotating in the same
fashion thereafter.
Effective May 1, 2005, the Presiding Director is Mr. Eugene A. Miller.
COMMUNICATIONS WITH THE BOARD:
Shareholders wishing to communicate with the Presiding Director or with the
non-employee Directors as a group may send a letter by regular or express mail
addressed to the Corporate Secretary, Handleman Company, 500 Kirts Blvd., Troy,
MI 48084-4142, Attention: Presiding Director or Non-Employee Directors. All
correspondence sent to that address will be delivered to those Directors on a
quarterly basis, unless management determines by individual case that it should
be sent more promptly. All correspondence to Directors will be acknowledged by
the Corporate Secretary and may also be forwarded within Handleman Company to
the subject matter expert for review.
DIRECTOR EDUCATION:
One of Handleman Company's core values is "Continuous Learning and Improvement."
The Company encourages and supports this value throughout all levels within the
organization. The Board members also believe continuous learning is important to
ensure the ongoing effectiveness of the Board. Accordingly, the Board has
established guidelines for ongoing continuing education for Directors. See
guideline 34 of Handleman Company's Corporate Governance Guidelines attached as
Appendix A. Following are recent activities:
MS. SANDRA E. PETERSON attended a course "Accounting Essentials for Corporate
Directors - Enhancing Financial Integrity" presented at the Columbia Business
School, New York, NY, from April 19-21, 2004. The purpose of the course was to
strengthen the ability of corporate directors to evaluate the appropriateness of
financial reporting and accounting decisions and representations made by
management.
9
MS. ELIZABETH A. CHAPPELL attended two "Directors' College" courses presented by
the Stanford Law School, Stanford, CA, from June 20 - 22, 2004 and from June 19
- 21, 2005. The purpose of the courses was to provide the latest information on
critical issues facing boards today - Sarbanes-Oxley Section 404 compliance,
compensation committee best practices, audit committee best practices,
litigation, D&O insurance coverage, and ethical concerns - with perspectives on
best practices. These courses were accredited by Institutional Shareholder
Services ("ISS"):
MR. STEPHEN STROME attended "The Director's Consortium," which was presented by
The Wharton School, The University of Chicago, and Stanford Law School at the
University of Pennsylvania campus from August 25 - 27, 2004. The purpose of the
course was to provide a review of policy and strategy; nominating committee
issues and CEO succession; compensation committee issues; audit
committee-qualifications, responsibilities, and content; finance; and
directors'fiduciary duties - the core duties of directors and what they mean in
practice. This course was ISS accredited.
MR. EUGENE A. MILLER attended "The KPMG Audit Roundtable" on May 10, 2005 in
Dearborn, Michigan. The roundtable focused on enhancing oversight of internal
control over financial reporting. Roundtable participants included members of
audit committees and directors who rely on audit committees. Participants
considered lessons learned from Sarbanes-Oxley Section 404 and explored how
audit committees can improve their oversight of the financial reporting process.
MR. JAMES B. NICHOLSON attended the "Fortune Boardroom Forum" which focused on
the following topics:
- How board members can best safeguard their companies from the five
types of risk: strategic, financial, operational, reputational and
regulatory/compliance;
- The board's role in ensuring that America remains competitive into
the 21st century;
- Should directors who have been taking a more active role in shaping
business strategy also become involved in policy issues that impact
their company's performance;
- Chief Executive Officer succession; and
- Director activism as it relates to compensation, succession, audit,
and strategic planning.
The course was held from June 27 - 28, 2005 in Chicago, Illinois.
10
BOARD COMPENSATION:
RETAINER AND FEES:
Officers of the Company who are Directors do not receive additional compensation
for services as a Director.
During May 2004 through August 2004, non-employee Directors received retainers,
on an annualized basis, of $12,500 in restricted stock with 100% vesting after
one year and $12,500 in cash payable in four quarterly installments of $3,125.
Effective September 2004, non-employee Directors receive annual cash retainers
of $25,000.
During fiscal year 2005 each Director received meeting fees of $1,500 for each
Board of Directors meeting attended. In addition, each member on a Committee was
paid at the rate of $1,500 for each Committee meeting attended, except that the
Audit Committee Chairman received Audit Committee meeting fees of $2,500 for
each meeting attended. During May 2004 through August 2004, the Compensation
Committee Chairman received Compensation Committee meeting fees of $1,500 for
each meeting attended. Effective September 2004, the Compensation Committee
Chairman received Compensation Committee meeting fees of $2,000 for each meeting
attended. Non-committee Directors who are requested in advance to participate in
any Committee meeting are also paid the committee meeting fee. In addition, the
Chief Executive Officer has the discretion to approve payments up to $500 to
independent Directors for participation at unofficial meetings of the various
committees of the Board.
During fiscal year 2005, each Committee Chairman received an annual fee of
$3,500. Directors are reimbursed for travel and other expenses related to
attendance at Board and Committee meetings.
In addition, during fiscal year 2005 the Presiding Director, James B. Nicholson,
received an annual fee of $6,000.
The 2004 Stock Plan allows restricted stock grants to non-employee Directors. In
September 2004, the annual non-employee Director stock option grant of 2,500
shares was replaced with a 2,000 share grant of restricted Handleman Company
stock. These shares vest in equal increments over three years. In addition,
non-employee Directors receive a one time stock grant of 500 shares when first
joining the Board. This grant vests 100% three years from the date the Director
first joins the Board.
The Company has approved a Deferral Plan for Payment of Director Fees that
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 at a rate
equal to the Company's borrowing cost.
Under resolutions of the Board of Directors presently in effect, if certain
Corporate, Division or Subsidiary Officers 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 decedent's surviving spouse, or
if there is no surviving spouse to the decedent's estate, the equivalent of one
year's cash retainer plus any accrued but unpaid Board and Committee meeting
fees that the decedent 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 decedent received for services to the Company shall
immediately vest.
11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
There are no matters relating to certain relationships and related transactions
that Handleman Company is required to disclose under applicable rules and
regulations.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE:
Federal securities law requires that Directors and Executive Officers of the
Company must report to the Securities and Exchange Commission and the Company,
within certain periods, the number of shares of the Corporation's equity
securities they own and any changes in such ownership. Based upon information
furnished by the Directors and Executive Officers, all required Section 16 (a)
filings for fiscal year 2005 have been made in a timely manner, except that one
Form 4, covering one transaction, was filed late by Donald M. Genotti, an
Executive Officer of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:
No member of the Compensation Committee is a current or former officer or
employee of the Company.
COMPENSATION COMMITTEE REPORT
THE COMPENSATION COMMITTEE:
The Compensation Committee (the "Committee") is composed only of independent
Directors as defined by the requirements of the New York Stock Exchange and the
Company's Corporate Governance Guidelines. The Committee exercises the Board's
powers in designing and approving compensation programs for the Company. The
Committee makes every effort to see that the Company's compensation program is
consistent with the values of the Company and furthers its business strategy.
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
2004 Stock Plan and prior stock option plans. A copy of the Compensation
Committee Charter is attached as Appendix E to this proxy statement.
OVERALL OBJECTIVES:
The Company's compensation objectives reflect its philosophy that the
compensation of its key employees (including Executive Officers) should:
- Provide performance-based total compensation at market-competitive
levels to attract and retain key executives critical to the
long-term success of the Company;
- Reward executives for long-term strategic management and the
enhancement of shareholder value;
- 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; and
- 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 surveys 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 volumes as the Company.
12
BASE SALARIES:
Compensation depends on many factors, including individual performance and
responsibilities and an employee's longer term potential. In addition, the
Company's financial performance and the compensation levels at comparable
companies are important in determining base salaries.
Factors considered in establishing base salaries are:
- Analysis and evaluation of each salaried position with a comparison
of compensation levels predicated on responsibilities of similar
positions based upon the competitive marketplace on both a regional
and national basis (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, and
contributions to the Company);
- Prior year salary;
- Changes in individual job responsibilities; and
- Past performance of individuals.
BONUSES:
The Company's bonus program is intended to encourage and reward the achievement
of corporate objectives. The named Executive Officers, among other officers of
the Company, participate in the bonus program. Awards under the bonus program
during fiscal year 2005 were based on the Company attaining certain levels of
operating performance and net income. In fiscal year 2005, Mr. Braum received a
bonus based on the overall performance of the Company in terms of net income. In
fiscal year 2005, Messrs. Albrecht, Lund and Wilson received bonuses based on
the operating performance of the Company or their individual business units as
well as the achievement of personal objectives.
STOCK PLANS:
The Company's shareholders approved the adoption of the Handleman Company 2004
Stock Plan (the "Plan") which authorizes the granting of stock options,
performance shares, performance units 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 2005, stock
options, restricted stock and performance shares were awarded to key employees
in amounts reflecting each 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 2005 performance share grant will be based on certain free cash flow
targets being achieved by April 28, 2007.
13
STOCK OWNERSHIP PROGRAM:
Handleman Company has adopted certain minimum ownership guidelines for key
management and Directors. For the Chief Executive Officer, it is expected that
he own shares having a value equal to five times base salary. For other
executive officers, the value of shares that they are expected to own is two
times base salary. The Company has also adopted minimum stock ownership
guidelines for independent Directors. Each independent Director is expected to
own 5,500 shares of Handleman Company stock. Outside Directors are expected to
meet the share ownership guidelines five years after first being elected a
Director.
The Chief Executive Officer and all outside Directors with five years of service
have met their ownership requirement as of the Company's fiscal year ended April
30, 2005.
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 the Company's 401(k) Plan,
which includes a Company Common Stock Fund intended 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 2005 by Stephen Strome, the Company's
Chief Executive Officer, was $673,385. 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 $286,440 in fiscal 2005 based
on the overall performance of the Company in terms of net income. In fiscal
2005, Mr. Strome was awarded a nonqualified stock option grant to purchase
27,000 shares of the Company's stock (see "Option Grants in the Last Fiscal
Year"). In fiscal 2005, Mr. Strome received $1,874,760 representing the value of
an award of performance shares and units, which were originally granted in
September 2001, and paid in June 2004 based on having met the maximum
performance goal relating to free cash flow for the April 29, 2001 through May
1, 2004 performance period. In fiscal 2005, Mr. Strome received a grant of
40,000 performance shares of the Company's common stock, which will be paid in
June 2007 if certain free cash flow targets are achieved by April 28, 2007. The
purpose of these grants is to ensure attention to the Company's long-term
strategies and objectives. The Committee believes Mr. Strome's compensation to
be competitive with compensation practices of the companies included in the
survey prepared by the outside consultant reporting directly to the Committee.
By the Members of the Compensation Committee of Handleman Company:
James B. Nicholson (Chairman)
Elizabeth A. Chappell
Sandra E. Peterson
Lloyd E. Reuss
14
AUDIT COMMITTEE REPORT
The Audit Committee of the Handleman Company Board of Directors is composed of
four independent Directors. The Audit Committee is governed by the Audit
Committee Charter adopted by the Board of Directors. A copy of the Audit
Committee Charter is attached as Appendix C to this proxy statement.
As set forth in the Audit Committee Charter, the Committee is appointed by the
Board of Directors to, among other duties and responsibilities, provide
assistance to the Board of Directors in fulfilling its oversight responsibility
relating to the Company's financial statements and the financial reporting
processes; the systems of internal accounting and financial controls; the
internal audit function; the annual independent audit of the Company's financial
statements; the adequacy and effectiveness of the Company's financially-related
legal, regulatory, and ethical compliance programs; and any other areas
specified by the Board of Directors of potential significant financial risk to
the Company. The Committee is also responsible for hiring, retaining and
terminating the Company's independent auditors. The Committee reports its
activities to the Board of Directors on a regular basis.
Management has responsibility for the Company's financial statements and
financial reporting processes, including the systems of internal accounting and
financial 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 for the
fiscal year ended April 30, 2005, 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."
The Committee also discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
met with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, the evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting. The Committee also reviewed and discussed with the independent
auditors the fees paid to the independent auditors.
The Company's Chief Executive Officer and Chief Financial Officer also reviewed
with the Committee the certifications that each such officer will file with the
Securities and Exchange Commission (SEC) pursuant to the requirements of
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the rules and
regulations issued by the SEC pursuant thereto. Management also reviewed with
the Committee the policies and procedures it has adopted to ensure the accuracy
of such certifications.
15
Based on, 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, the report of the independent auditors, and the
certifications of the Chief Executive Officer and Chief Financial Officer
pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, 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 2005 (fiscal year ended April 30,
2005) for filing with the SEC.
By the members of the Audit Committee of the Board of Directors of Handleman
Company:
Eugene A. Miller (Chairman)
Sandra E. Peterson
Irvin D. Reid
Ralph J. Szygenda
16
PERFORMANCE GRAPH
The line graph below compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return of the Russell 2500
Index and the S & P 500 Index, for the past five-year period.
[PERFORMANCE GRAPH]
2000 2001 2002 2003 2004 2005
HANDLEMAN 100 94 102 141 188 145
RUSSELL 2500 100 97 101 85 115 124
S&P 500 100 86 74 64 76 81
The graph assumes an investment of $100 in the Company's Common Stock, the
Russell 2500 Index and the S&P 500 Index as of the last day of fiscal 2000. The
graph shows the cumulative total return for the Company's last five fiscal years
as compared to these indices.
The Company does not believe it is feasible to provide a peer group comparison
since entities that are 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.
17
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years
ended April 30, 2005, May 1, 2004 and May 3, 2003 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 30, 2005 (collectively, the "named Executive Officers") whose annual
salary and bonus exceeded $100,000, as well as for the former Senior Vice
President and President of Handleman Entertainment Resources and the
former Senior Vice President and Chief Information Officer.
ANNUAL COMPENSATION (a) LONG-TERM COMPENSATION AWARDS
-------------------------------------- ----------------------------------------
(g)
LONG-TERM
(b) SECURITIES INCENTIVE PLAN (h)
OTHER ANNUAL UNDERLYING SHARE ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS PAYMENTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) (#) ($)
--------------------------- ------ ------- ------- ------------ ---------- -------------- ------------
Stephen Strome 2005 673,385 286,440 (e) 27,000 1,874,760 5,449
Chairman of the Board and 2004 642,300 300,000 -- 27,200 -- 3,500
Chief Executive Officer 2003 617,300 425,000 -- 71,100 -- 5,673
Thomas C. Braum, Jr. 2005 265,577 125,000 -- 10,000 323,948 4,869
Senior Vice President and 2004 230,800 125,000 -- 6,900 -- 3,785
Chief Financial Officer 2003 205,384 130,000 -- 11,000 -- 4,202
Mark J. Albrecht 2005 202,307 70,383 -- 7,000 161,974 4,165
Senior Vice President, 2004 191,900 65,400 -- 4,000 -- 2,469
Human Resources and 2003 181,900 80,800 -- 6,200 -- 4,069
Organizational Development
Ronnie W. Lund 2005 191,462 85,000 -- 7,000 72,371 3,998
Senior Vice President, 2004 179,077 42,000 -- 4,000 -- 4,139
Product Management and 2003 165,577 58,612 -- 2,700 -- 4,407
Logistics and Business
Processes
Scott A. Wilson 2005 187,624 68,029 -- 7,000 72,371 3,945
Group Vice President, 2004 170,487 47,460 -- 2,100 -- 4,250
Sales, Marketing and 2003 152,249 49,261 -- 2,700 -- 4,107
Canadian Operations
Former Executive Officers of the Company:
Gerardo I. Lopez (c) 2005 173,502 -- -- 10,000 323,948 269
Former Senior Vice 2004 342,300 125,000 -- 6,900 -- 4,106
President and 2003 318,846 150,000 -- 15,000 -- 6,143
President of Handleman
Entertainment Resources
Robert J. Sausa (d) 2005 170,384 -- 97,263 (f) 7,000 161,974 2,212
Former Senior Vice 2004 246,900 79,400 -- 4,000 -- 3,627
President and Chief 2003 236,923 108,027 -- 7,500 -- 5,573
Information Officer
(a) Salary deferred by the named Executive Officers pursuant to the
Company's Salary Deferral Plan (the "401(k) Plan") follows:
2005 2004 2003
------- ------- -------
Stephen Strome $10,896 $ 7,000 $11,346
Thomas C. Braum, Jr. 10,646 7,569 8,404
Mark J. Albrecht 8,331 4,938 8,138
Ronnie W. Lund 8,595 8,277 8,814
Scott A. Wilson 7,889 8,500 8,215
Former Executive Officers of the Company:
Gerardo I. Lopez $ 538 $ 8,212 $12,287
Robert J. Sausa 4,423 7,253 11,146
18
(b) Except as indicated for Mr. Sausa, other annual compensation did not exceed
the lesser of $50,000 or 10% of individual cash compensation.
(c) Mr. Lopez resigned as Senior Vice President and President of Handleman
Entertainment Resources on September 17, 2004.
(d) Mr. Sausa resigned as Senior Vice President and Chief Information Officer
on January 1, 2005.
(e) Does not include a deferred compensation payout of $294,541. Of this
amount, $249,230 was included in compensation reported in previous years
and $45,311 represents earnings on deferred amounts paid by a third party.
(f) Includes payments to Mr. Sausa of $7,422 for automobile benefits, $722 for
life insurance, $4,119 for financial consulting and a severance payment of
$85,000 upon his resignation from the Company.
(g) Represents value of award of performance shares and units which were
originally granted in September 2001 and paid in June 2004 based on having
met the maximum performance goal relating to free cash flow for the April
29, 2001 through May 1, 2004 performance period.
(h) Represents amounts contributed to the named Executive Officers' 401(k)
Plan accounts for the Company matching of employee contributions.
LONG-TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR
The following table provides details regarding long-term incentive plan awards
granted to the individuals listed in the summary compensation table in the last
fiscal year.
(a)
NUMBER OF ESTIMATED FUTURE PAYOUT
PERFORMANCE ---------------------------
NAME OF SHARES PERFORMANCE PERIOD UNTIL MATURATION THRESHOLD TARGET MAXIUM
-------------------- ----------- ----------------------------------- --------- ------ ------
Stephen Strome 40,000 May 2, 2004 through April 28, 2007 20,000 40,000 60,000
Thomas C. Braum, Jr. 15,000 May 2, 2004 through April 28, 2007 7,500 15,000 22,500
Mark J. Albrecht 10,000 May 2, 2004 through April 28, 2007 5,000 10,000 15,000
Ronnie W. Lund 10,000 May 2, 2004 through April 28, 2007 5,000 10,000 15,000
Scott A. Wilson 10,000 May 2, 2004 through April 28, 2007 5,000 10,000 15,000
Former Executive Officers of the Company:
Gerardo I. Lopez 15,000(b) May 2, 2004 through April 28, 2007 7,500 15,500 22,500
Robert J. Sausa 10,000(b) May 2, 2004 through April 28, 2007 5,000 10,000 15,000
(a) Represents grant of performance shares of Handleman Company common stock,
which would be distributed if certain free cash flow targets are achieved
during the May 2, 2004 through April 28, 2007 performance period.
(b) The performance share grants to Messrs. Lopez and Sausa terminated upon
their resignation from the Company.
19
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides details regarding stock options granted to the
individuals listed in the summary compensation table in the last fiscal year.
(e)
%OF POTENTIAL REALIZABLE VALUE AT ASSUMED
(a) TOTAL OPTIONS ANNUAL RATES OF
NUMBER GRANTED TO (c) (d) STOCK PRICE APPRECIATION FOR OPTION TERM
OF OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
------------------- ---------- ------------- -------------- ------------ --------------- ---------
Stephen Strome 27,000 9.28% $ 22.46 June 7, 2014 $ 381,374 $ 966,477
Thomas C. Braum, Jr. 10,000 3.44 22.46 June 7, 2014 141,250 357,955
Mark J. Albrecht 7,000 2.40 22.46 June 7, 2014 98,875 250,568
Ronnie W. Lund 7,000 2.40 22.46 June 7, 2014 98,875 250,568
Scott A. Wilson 7,000 2.40 22.46 June 7, 2014 98,875 250,568
Former Executive Officers of the Company:
Gerardo I. Lopez 10,000(b) 3.44 22.46 June 7, 2014 141,250 357,955
Robert J. Sausa 7,000(b) 2.40 22.46 June 7, 2014 98,875 250,568
(a) The total number of shares subject to options granted to employees in
fiscal 2005 was 291,100.
(b) The options granted to Messrs. Lopez and Sausa terminated upon their
resignation from the Company.
(c) 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 Committee, in such other manner as the
Committee determines is appropriate in its sole discretion.
(d) The options become exercisable up to 33 1/3% on or after June 8, 2005
and prior to June 7, 2006; up to 66 2/3% on or after June 8, 2006 and
prior to June 7, 2007; up to 100% on or after June 8, 2007.
(e) Potential Realizable Value assumes that the Company's stock
appreciates in value from the date of grant until the end of the 10
year option term at the annual rate specified (5% and 10%). Potential
Realizable Value is net of the option exercise price. The exercise
price of options granted in fiscal 2005 is based on the fair market
value of the stock on the date of grant. The assumed rates of
appreciation are specified in rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection
of future stock price. Actual gains, if any, resulting from stock
option exercises are dependent on the future performance of the
Company's 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.
20
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock option exercises by
the individuals listed in the summary compensation table in the last fiscal
year, as well as the value of unexercised options held by such persons on April
30, 2005. 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.
(b)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
ACQUIRED ON (a) EXERCISABLE (E)/ EXERCISABLE (E)/
NAME OF INDIVIDUAL EXERCISE (#) VALUE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
-------------------- ------------ -------------- ------------------------------ ----------------------
Stephen Strome 60,000(c) $ 515,160 145,637(E) $ 383,369(E)
27,066(U) 3,383(U)
Thomas C. Braum, Jr. 10,066(c) 78,529 9,300(E) 21,238(E)
8,967(U) 978(U)
Mark J. Albrecht 5,466(c) 42,837 5,735(E) 11,933(E)
6,000(U) 567(U)
Ronnie W. Lund -- -- 7,700(E) 12,518(E)
6,600(U) 567(U)
Scott A. Wilson 1,800 13,622 4,633(E) 5,568(E)
5,367(U) 298(U)
Former Executive Officers of the Company:
Gerardo I. Lopez 11,400(c) 100,200 --(E) --(E)
--(U) --(U)
Robert J. Sausa 5,899 36,633 --(E) --(E)
--(U) --(U)
(a) Values are calculated by subtracting the aggregate exercise price from
the fair market value of the stock as of the exercise date.
(b) Assumes, for all unexercised in-the-money options, the difference
between the exercise price and the market price of the Company's
Common Stock as of April 30, 2005 ($17.35 per share).
(c) Shares of the exercised options were turned into the Company by
Messrs. Strome, Braum, Albrecht and Lopez, 42,754, 8,136, 4,326 and
9,028 respectively, in payment of the exercise price and tax liability
incident to the exercise of the options.
21
PENSION PLAN TABLE
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 and part-time employees working less than 1,000 hours
per year. The plan provides pension benefits, death benefits and disability
benefits for covered employees. For the fiscal year ended April 30, 2005,
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 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 10 YEARS 20 YEARS OF 30 YEARS
COMPENSATION OF SERVICE SERVICE OF SERVICE
------------- ---------- ----------- -----------
$200,000* $24,835 $49,670 $74,504
*Compensation which may be considered for any purpose under a qualified pension
plan is limited for calendar year 2005 to $210,000.
The compensation covered by the plan includes all earnings from the Company, as
reported on the employee's W-2 form, for base pay, overtime and bonus payments,
plus salary deferrals under the Company's 401(k) Plan, up to a maximum of
$210,000 for calendar year 2005.
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 2005 is $170,000.
As of April 30, 2005, the credited years of service under the plan for the named
Executive Officers were as follows: 27 for Stephen Strome; 20 for Thomas C.
Braum, Jr.; 6 for Mark J. Albrecht; 10 for Ronnie W. Lund; and 5 for Scott A.
Wilson.
22
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
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 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 10 YEARS 20 YEARS OF 30 YEARS
COMPENSATION OF SERVICE SERVICE OF SERVICE
------------- ---------- ----------- ----------
$ 200,000 $ 10,165 $ 20,330 $ 30,496
400,000 45,025 90,050 135,076
600,000 80,025 160,050 240,076
800,000 115,025 230,050 345,076
1,000,000 150,025 300,050 450,076
The compensation covered by the SERP includes all earnings from the Company, as
reported on the employee's W-2 form, for base pay, overtime and bonus payments,
plus salary deferrals under the Company's 401(k) Plan. No maximum applies to
compensation covered under the SERP.
As of April 30, 2005, the credited years of service under the SERP for the named
Executive Officers were as follows: 27 for Stephen Strome; 20 for Thomas C.
Braum, Jr.; 6 for Mark J. Albrecht; 10 for Ronnie W. Lund; and 5 for Scott A.
Wilson.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Change in Control Agreements (the "Agreements")
with Stephen Strome and Thomas C. Braum, Jr. in the event their employment is
terminated as a result of, or in connection with, a change in control (as
defined in the Agreements). The Agreements expire December 31, 2005, 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 by September 1st.
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 Messrs. Strome and Braum to continue
participation in the Company's life and health insurance benefits for 36 months
following the termination date.
23
In addition, all restrictions on any outstanding incentive awards (including
restricted stock and rights to performance shares and units) granted to Messrs.
Strome and Braum under any incentive plan or arrangement shall lapse and such
incentive award shall become 100% vested, and all stock options and stock
appreciation rights granted to Messrs. Strome and Braum under any incentive plan
or arrangement will become 100% vested and immediately exercisable.
Based on current salaries and prior bonuses, if Messrs. Strome or Braum had
terminated their employment as of April 30, 2005 under circumstances entitling
them to severance pay as described above, they would have been entitled to
receive lump sum cash payments of $3,047,200 and $1,200,983, respectively.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below reflects the number of shares beneficially owned by (a) each
Director of the Company; (b) each Executive Officer of the Company named in the
Summary Compensation Table; (c) all Directors and Executive Officers as a group;
and (d) each person or group owning more than five percent of the outstanding
shares of Handleman Company Common Stock. Unless otherwise noted, the
information is stated as of July 11, 2005, and the beneficial owners exercise
sole voting and/or investment power over their shares.
NAME OF BENEFICIAL OWNER SHARES OWNED PERCENT OF CLASS
------------------------ ------------ ----------------
Elizabeth A. Chappell.......................................... 22,215(b) *
James B. Nicholson............................................. 19,380(b) *
Eugene A. Miller............................................... 8,618(b) *
P. Daniel Miller............................................... - *
Sandra E. Peterson............................................. 12,275(b) *
Dr. Irvin D. Reid.............................................. 8,619(b) *
Lloyd E. Reuss................................................. 19,648(b) *
Stephen Strome................................................. 389,781(a) 1.8%
Ralph J. Szygenda.............................................. 5,138(b) *
Thomas S. Wilson............................................... 2,500 *
Thomas C. Braum, Jr. .......................................... 41,145(a) *
Mark J. Albrecht............................................... 17,342(a) *
Ronnie W. Lund................................................. 16,265(a) *
Scott A. Wilson................................................ 11,645(a) *
All Directors and Executive Officers as a Group (15 persons)... 585,661(c) 2.7%
Elm Ridge Capital Management................................... 1,613,500(d) 7.5%
Dimensional Fund Advisors...................................... 1,532,166(d) 7.1%
NFJ Investment Group Inc. ..................................... 1,485,900(d) 6.9%
PNC Financial Services Group, Inc. ............................ 1,292,965(d) 6.0%
LSV Asset Management........................................... 1,282,077(d) 5.9%
Goldman Sachs Asset Management................................. 1,248,211(d) 5.8%
Barclays Global Investors...................................... 1,161,463(d) 5.4%
Putnam Investment Management, L.L.C. .......................... 1,104,300(d) 5.1%
24
(a) The number shown above as beneficially owned by Messrs. Strome, Braum,
Albrecht, Lund and Wilson includes 145,637, 9,300, 5,735, 7,700 and
4,633 shares, respectively, which they have the right to acquire
within 60 days of July 11, 2005, pursuant to the Company's stock
option plans (assuming, in certain instances, that the stock price
reaches certain levels) and 2,263, 1,994, 2,092, 630 and 967 shares,
respectively, which have been credited to each of Messrs. Strome,
Braum, Albrecht, Lund and Wilson under the Company's 401 (k) Plan.
(b) The number shown above as beneficially owned by Ms. Chappell,
Mr. Nicholson, Mr. Miller, Ms. Peterson, Dr. Reid, Mr. Reuss and
Mr. Szygenda includes 10,666, 9,166, 4,166, 6,666, 1,668, 7,334 and
1,666 shares, respectively, which they have the right to acquire
within 60 days of July 11, 2005, pursuant to the Company's stock
option plans (assuming, in certain instances that the stock price
reaches certain levels).
(c) All Directors, Director nominees and Executive Officers as a group (15
persons) beneficially owned 585,661 shares (2.7%) of the Company's
outstanding Common Stock as of July 11, 2005, including 218,804 shares
which they have the right to acquire within 60 days of that date
pursuant to the Company's stock option plans and 9,410 shares which
have been credited to them under the 401 (k) Plan.
(d) Based on information filed with the Securities and Exchange
Commission, a) Elm Ridge Capital Management, 747 3rd Avenue, 33rd
Floor, New York, New York 10017-2803, owns 1,613,500 shares (7.5%) of
the Company's outstanding Common Stock, b) Dimensional Fund Advisors,
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401-1005,
owns 1,532,166 shares (7.1%) of the Company's outstanding Common
Stock, c) NFJ Investment Group, Inc., 2121 San Jacinto Street, Dallas,
TX 75201-6701, owns 1,485,900 shares (6.9%) of the Company's
outstanding Common Stock, d) PNC Financial Services Group, Inc., One
PNC Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222-2707, owns 1,292,965
shares (6.0%) of the Company's outstanding Common Stock, e) LSV Asset
Management, 1 North Wacker Drive, Suite 4000, Chicago, Illinois
60606-3417, owns 1,282,077 shares (5.9%) of the Company's outstanding
Common Stock, f) Goldman Sachs Asset Management, 32 Old Slip, 23rd
Floor, New York, NY 10005-3504, owns 1,248,211 shares (5.8%) of the
Company's outstanding Common Stock, g) Barclays Global Investors, 45
Fremont Street, 17th Floor, San Francisco, California 94105-2228, owns
1,161,463 shares (5.4%) of the Company's outstanding Common Stock, and
h) Putnam Investment Management, L.L.C., 1 Post Office Square, Boston,
MA 02109-2106, owns 1,104,300 shares (5.1%) of the Company's
outstanding Common Stock. Management does not know of any other person
who, as of July 11, 2005, beneficially owned more than 5% of the
Company's Common Stock.
* Less than 1% of the Company's outstanding shares of Common Stock.
25
II. OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP is the independent auditor for the Company and has
reported on the Company's consolidated financial statements for the fiscal years
ended April 30, 2005 and May 1, 2004. For fiscal years 2005 and 2004, the
Company's independent auditor was appointed by the Board of Directors after
receiving recommendations from the Audit Committee. PricewaterhouseCoopers LLP
has been reappointed by the Board of Directors for fiscal year 2006 as
recommended by the Audit Committee.
INDEPENDENT AUDITOR FEES
The following table presents fees for professional audit services performed by
PricewaterhouseCoopers LLP for the audit of the Company's annual consolidated
financial statements for fiscal years 2005 and 2004, for the review of the
Company's interim consolidated financial statements for each quarter in fiscal
years 2005 and 2004, and for tax and all other services performed in fiscal
years 2005 and 2004:
FISCAL YEAR ENDED FISCAL YEAR ENDED
APRIL 30, 2005 MAY 1, 2004(1)
----------------- ----------------
Audit Fees (2).................. $ 1,227,800 $ 353,000
Audit-Related Fees (3).......... 320,700 231,200
Tax Fees (4).................... 85,400 101,900
All Other Fees (5).............. 2,000 2,100
------------ ------------
Total............. $ 1,635,900 $ 688,200
============ ============
(1) Amounts reported in the proxy statement for the September 2004 Annual
Meeting of Shareholders related to Sarbanes-Oxley Section 404 have been
reclassified and are now reported under audit fees.
(2) Includes recurring audit of consolidated financial statements including
statutory audits, services to perform an audit in accordance with
Generally Accepted Auditing Standards, services related to SEC
registration statements and financial reporting, and fees related to
Sarbanes-Oxley Section 404.
(3) Audit services related to benefit/pension plans, assistance in financial
due diligence related to mergers and acquisitions, review of impact of
new accounting pronouncements and review of accounting impact for
businesses sold.
(4) Includes tax return review and tax planning services.
(5) Review of actuarial assumptions, reports and retiree benefit
calculations.
The Audit Committee's current practice on pre-approval of services performed by
the independent auditors is to approve all audit services and permissible
non-audit services to be provided and assess the impact of the service on the
auditor's independence. In addition, the Audit Committee has delegated authority
to grant certain pre-approvals to the Audit Committee Chair. Pre-approvals
granted by the Audit Committee Chair are reported to the full Audit Committee at
its next regularly scheduled meeting.
In fiscal year 2005, all non-audit services were pre-approved by the Audit
Committee.
26
The Audit Committee determined that the non-audit services provided (and the
fees billed for such services) by PricewaterhouseCoopers LLP during fiscal 2005
and 2004 were compatible with maintaining their independence.
Representatives from PricewaterhouseCoopers LLP will be present at the Annual
Meeting of Shareholders, where they will be provided the opportunity to make a
statement if they desire, and will also be available to respond to appropriate
questions.
OTHER PROPOSALS
Neither the Company nor the members of its Board of Directors intend to bring
before the Annual Meeting any matters other than those set forth in the Notice
of Annual Meeting, and they have no present knowledge that any other matters
will be presented for action at the meeting by others. However, if any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed form of proxy to vote in accordance with their best
judgment.
A shareholder proposal which is intended to be presented at the 2006 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices by May 10, 2006.
By Order of the Board of Directors,
/s/ Stephen Strome
-------------------------------
Stephen Strome
Chairman and Chief Executive Officer
Dated: July 29, 2005
27
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Q: WHAT IS A PROXY?
A: A proxy is another person that you legally designate to vote your shares.
If you designate someone as your proxy in a written document, that
document also is called a proxy or proxy card.
Q: WHAT IS A PROXY STATEMENT?
A: It is a document that SEC regulations require Handleman Company to give to
you when we ask you to sign a proxy card to vote your shares at the Annual
Meeting. The proxy statement summarizes the information you need to know
to vote your shares.
Q: WHO CAN VOTE?
A: You can vote at the Annual Meeting if you were a shareholder of record as
of the close of business on July 11, 2005. If you own the Company's Common
Stock, then you are entitled to one vote per share.
Q: WHAT IS THE QUORUM REQUIREMENT OF THE ANNUAL MEETING?
A: A majority of the outstanding shares on July 11, 2005 constitutes a quorum
for voting at the Annual Meeting. If you vote or attend the meeting, your
shares will be part of the quorum. On the record date, 21,531,821 shares
of Handleman Company's Common Stock were outstanding.
Q: WHAT AM I VOTING ON?
A. You are voting on one proposal, the election of five Directors. One
nominee for Director, Thomas S. Wilson, is nominated for election for a
two-year term, to be added to the class expiring in 2007. Four nominees
for Director, Eugene A. Miller, P. Daniel Miller, Sandra E. Peterson and
Irvin D. Reid, are to be elected for three-year terms expiring in 2008.
Q: ARE THE NOMINEES EUGENE A. MILLER AND P. DANIEL MILLER RELATED?
A. The nominees Eugene A. Miller and P. Daniel Miller are not related.
28
Q: WHAT ARE THE VOTING RECOMMENDATIONS OF THE BOARD?
A. The Board of Directors is soliciting the proxy and recommends a vote "FOR"
each of its nominees for Directors.
Q: WHAT IF OTHER MATTERS ARE PRESENTED FOR DETERMINATION AT THE ANNUAL
MEETING?
A: Other than the one proposal described in this proxy statement, the Company
does not expect any other matters to be presented for a vote at the Annual
Meeting. If you grant a proxy, the proxy holders (Elizabeth A. Chappell,
James B. Nicholson and Lloyd E. Reuss) will use their judgment in voting
your shares on other matters that may arise at the meeting.
Q: WHAT VOTE IS REQUIRED TO ELECT THE DIRECTORS?
A: The five individuals who receive the most votes, even if not a majority,
will be elected.
Q: WHAT SHARES ARE COVERED BY MY PROXY CARD?
A: The shares covered by your proxy card represent shares of Handleman
Company stock you own either as a:
- Shareholder of record;
- Participant in the Handleman stock fund of the Company's 401(k)
Plan; or
- Beneficial owner of shares held in street name.
Q: WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD
AND AS A BENEFICIAL OWNER?
A: If your shares are registered directly in your name with Handleman
Company's transfer agent, Mellon Investor Services, you are considered the
"shareholder of record." The proxy statement, 2005 Annual Report and proxy
card have been sent directly to you by Handleman Company c/o Mellon
Investor Services.
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the "beneficial owner" of shares held in
street name. The proxy statement and 2005 Annual Report have been
forwarded to you by your broker, bank or nominee, which is considered the
shareholder of record. As the beneficial owner, you have the right to
direct your broker, bank or nominee how to vote your shares by using the
voting instruction card included in the mailing or by following their
instructions for voting by telephone or the internet.
29
Q: HOW DO I VOTE?
A: You may vote using any of the following methods:
- Proxy card or voting instruction card. Be sure to sign and date the
card and return it in the prepaid envelope. If you are a shareholder of
record and you return your signed proxy card but do not indicate your
voting preferences, the persons named in the proxy card will vote "FOR"
the election of Directors.
- By telephone or the Internet. The telephone and Internet voting
procedures established by Handleman Company for shareholders of record
are designed to authenticate your identity, to allow you to give your
voting instructions and to confirm that these instructions have been
properly recorded. The availability of telephone and Internet voting
for beneficial owners will depend on the voting process of your broker,
bank or nominee. Therefore, we recommend that you follow the voting
instructions in the materials you receive.
- In person at the Annual Meeting. All shareholders may vote in person at
the Annual Meeting. If you are a beneficial owner of shares, you must
obtain a legal proxy from your broker, bank or nominee and present it
to the inspectors of election with your ballot when you vote at the
meeting.
Q: WHAT IS THE EFFECT OF NOT VOTING?
A: It will depend on how your share ownership is registered. If you own
shares as a shareholder of record and do not return a signed proxy card,
your shares will not count toward the quorum and will not be voted.
If you are a beneficial owner and do not vote, your broker may represent
your shares at the meeting for purposes of obtaining a quorum. In the
absence of your voting instructions, your broker may or may not vote your
shares in its discretion depending on the proposals before the meeting.
Your broker may vote your shares in its discretion and your shares will
count toward the quorum requirement on "routine matters." Regarding
"non-routine matters" your broker may not be able to vote your shares in
its discretion. The election of Directors is a routine matter on which
brokers are permitted to vote on behalf of their clients if no voting
instructions are furnished.
30
Q: WHAT CAN I DO IF I CHANGE MY MIND AFTER I VOTE MY SHARES?
A: If you are a shareholder of record, you may revoke your proxy at any time
before it is voted at the Annual Meeting by:
- Sending written notice of revocation to the Office of the Secretary,
Handleman Company, 500 Kirts Boulevard, Troy, MI 48084-4142;
- Submitting a new proxy by telephone, Internet or paper ballot, after
the date of the revoked proxy; or
- Attending the Annual Meeting and voting in person.
If you are a beneficial owner of shares, you may submit new voting
instructions by contacting your broker, bank or nominee. You may also vote
in person at the Annual Meeting if you obtain a legal proxy as described
in the answer to the previous question.
Q: HOW DO PARTICIPANTS IN THE HANDLEMAN COMPANY 401(k) PLAN VOTE THEIR
SHARES?
A: As a participant in the Handleman Company 401(k) Plan, you have the right
to direct Fidelity Management Trust Company how to vote the shares of
Handleman Company credited to your account.
You have been sent a proxy statement, 2005 Annual Report and proxy card
from Handleman Company c/o Mellon Investor Services. Mellon Investor
Services will transmit your voting instructions to Fidelity Management
Trust Company who will vote the shares on your behalf.
The shares credited to your account will be voted as directed; if the
proxy card is not received by September 5, 2005, the shares credited to
your account will not be voted.
Q: HOW DO SHAREHOLDERS OF RECORD VOTE THEIR SHARES IF THEY ARE ALSO
PARTICIPANTS IN THE HANDLEMAN COMPANY 401(k) PLAN?
A: Shareholders of record who also own shares in the Handleman Company 401(K)
Plan and maintain the same registration for both accounts will receive one
proxy card for their total shares. The proxy statement, 2005 Annual Report
and proxy card have been sent directly to you by Handleman Company c/o
Mellon Investor Services.
For the shares credited to your 401(k) Plan account, Mellon Investor
Services will transmit your voting instructions to Fidelity Management
Trust Company who will vote the shares on your behalf. The shares will be
voted as directed; if your proxy card is not received by September 5,
2005, the shares credited to your 401(k) Plan account will not be voted.
31
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means your shares are in more than one account. You should vote the
shares on all your proxy cards. If you are shareholder of record we
encourage you to have all your shares registered in the same name and
address.
To register all your shares in the same name, or if you have other
questions about your stock holdings, please contact Mellon Investor
Services by telephone by calling:
U.S. Shareholders: (800) 851-1713
TDD for U.S. Hearing Impaired Shareholders: (800) 231-5469
Foreign Shareholders: (201) 329-8660
TDD for Foreign Hearing Impaired Shareholders: (201) 329-8354
If you wish to communicate with Mellon Investor Services by e-mail you can
do so by contacting them at shrrelations@melloninvestor.com.
Shareholders can view their certificate history or make address changes on
Mellon Investor Services website, www.melloninvestor.com/ISD.
Q: WILL THERE BE A MANAGEMENT PRESENTATION AT THE ANNUAL MEETING?
A: Stephen Strome, Chairman and Chief Executive Officer, will report on the
performance of the Company during fiscal 2005 and respond to questions
from shareholders.
Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All shareholders of record as of the close of business on July 11, 2005
can attend. Seating, however, is limited. Seating at the Annual Meeting
will be on a first arrival basis.
Q: WHAT DO I NEED TO ATTEND THE ANNUAL MEETING?
A: To attend the Annual Meeting, please follow these instructions:
- To enter the Annual Meeting, bring your proof of ownership and
identification.
- If a broker or other nominee holds your shares, bring proof of your
ownership with you to the Annual Meeting.
32
Q: CAN I BRING A GUEST?
A: Seating availability at the Annual Meeting is limited.
Q: WHO WILL COUNT THE VOTE?
A: Representatives of Mellon Investor Services will tabulate the votes and
act as inspectors of election at the Annual Meeting.
Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: The Company will solicit proxies by mail and will cover the expense of
such solicitation. Mellon Investor Services will help us solicit proxies
for all brokers and nominees at a cost of $5,000 plus expenses. We may
reimburse brokers or other nominees for reasonable expenses they incur in
sending these proxy materials to you if you are a beneficial owner.
Q: HOW DO I RECOMMEND SOMEONE TO BE A CANDIDATE FOR ELECTION AS A DIRECTOR AT
THE 2006 ANNUAL MEETING?
A: You may recommend any person to be a Director by writing to the Secretary
of the Company. The Company's by-laws require that shareholders send
written notice no later than May 10, 2006, in order to recommend an
individual for consideration as a Director at the 2006 Annual Meeting. In
accordance with the Company's by-laws, the notice must set forth (a) as to
each person whom the shareholder proposes to nominate for election (1) the
name, age, business address and residence address of such person, (2) the
principal occupation or employment of such person, (3) the class and
number of shares of the Company which are beneficially owned by such
person and (4) such person's written consent to being named in the proxy
statement as a nominee and to serve as a Director if elected; and (b) as
to the shareholder giving the notice (1) the name and address, as they
appear on the corporation's books, of such shareholder and (2) the class
and number of shares of the corporation which are beneficially owned by
such shareholder.
Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2006 ANNUAL MEETING?
A: Shareholder proposals must be presented by May 10, 2006 to be included in
the Company's proxy materials for the 2006 Annual Meeting.
33
Q: WHERE CAN I FIND THE CORPORATE GOVERNANCE GUIDELINES FOR HANDLEMAN
COMPANY?
A: A copy of the Corporate Governance Guidelines is attached as Appendix A to
this Proxy Statement. The Corporate Governance guidelines are also posted
on the Company's web site, www.handleman.com, under Investor
Relations/Corporate Governance.
Q: CAN I ACCESS THE PROXY STATEMENT AND 2005 ANNUAL REPORT ON THE INTERNET
INSTEAD OF RECEIVING PAPER COPIES?
A: This proxy statement and the 2005 Annual Report are located on Handleman
Company's web site. Shareholders can access future proxy statements and
annual reports on the Internet instead of receiving paper copies in the
mail.
If you are a shareholder of record, you can choose this option by marking
the appropriate box on your proxy card or by following the instructions if
you vote by telephone or the Internet. If you choose to access future
proxy statements and annual reports on the Internet, you will receive a
proxy card in the mail next year with instructions containing the Internet
address for those materials. Your choice will remain in effect until you
advise Handleman Company otherwise.
If you are a beneficial owner, please refer to the information provided by
your broker, bank or nominee for instructions on how to elect to access
future proxy statements and annual reports on the Internet. Most
beneficial owners who elect electronic access will receive an e-mail
message next year containing the Internet address for access to the proxy
statement and annual report.
Q: HOW DO I OBTAIN MORE INFORMATION ABOUT HANDLEMAN COMPANY?
A: To obtain additional information about Handleman Company, you may:
- Contact the Vice President, Investor Relations, at 1-248-362-4400,
Extension 211;
- Go to the website at www.handleman.com; or
- Write to:
Handleman Company
Attention: Investor Relations
500 Kirts Boulevard
Troy, MI 48084-4142
PLEASE VOTE. YOUR VOTE IS VERY IMPORTANT.
PROMPTLY RETURNING YOUR PROXY WILL HELP TO REDUCE THE COST OF THIS SOLICITATION.
34
APPENDIX A
HANDLEMAN COMPANY
CORPORATE GOVERNANCE GUIDELINES
Handleman Company's stakeholders' interests are best served through the
perpetuation of a growing, financially sound business enterprise which is
committed to sound operating principals and values. The Board is responsible for
determining that the Company is managed in such a way to ensure this result.
This must be an active, as opposed to passive, responsibility. The Board has the
responsibility to ensure that management is capably executing its
responsibilities, and to regularly monitor the effectiveness of management
policies and decisions, including the execution of its strategies.
In addition to fulfilling its obligations for increased shareholder value, the
Board has responsibility to Handleman Company's customers, employees, suppliers
and to the communities where it operates -- all of whom are essential to a
successful business. These responsibilities are best served through the
successful perpetuation of the business.
The Corporate Governance and Nominating Committee ("Committee") of the Board has
been empowered by its charter to review and recommend corporate governance
practices and policies of Handleman Company, which may include comparing the
corporate governance practices of Handleman Company to those of other public
companies and to make recommendations to the Board to assure the Company's
leadership in this area. In this regard, the Committee reviews guidelines or
practices adopted by other leading public companies, surveys and trend
information. The Committee will report its findings and recommendations for
action by the entire Board.
1. SELECTION OF CHAIRMAN AND CEO; PRESIDING 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 will designate an independent Director to serve as Presiding
Director. Duties and responsibilities of the Presiding Director include:
a. Presiding over executive sessions of the independent Board members.
b. Advising the CEO of appropriate feedback from the executive session
including any actions to be taken, as well as any issues or concerns
raised by the independent Directors.
c. Advising on the agenda for the Board meetings
d. Meeting with senior officers, if deemed appropriate, to discuss the
business and issues facing the Company.
e. Working with the Chairman of the Corporate Governance and Nominating
Committee in the selection of the Committee Chairs.
f. Meeting with shareholders, if appropriate, to discuss their
concerns.
2. MEETING WITHOUT CEO: In those instances where the independent Directors
meet without the Chairman and CEO, the Presiding Director will chair the
meeting.
3. NUMBER OF COMMITTEES: THE Board has the following committees: Audit
Committee, Compensation 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 Committee
and Corporate Governance and Nominating Committee.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS: The Chairman of the
Corporate Governance and Nominating Committee with the assistance of the
Presiding Director recommends the appointment of members to the
committees, the composition of which is discussed and ratified by
A-1
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. COMMITTEE INDEPENDENCE: The Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee are to be comprised entirely
of independent Directors.
6. COMMITTEE STRUCTURE: The Audit, Compensation, and Corporate Governance and
Nominating Committees will adopt written charters which specify each
committee's responsibilities and duties.
7. 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.
8. 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.
9. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS: At the beginning of the
Board year, the Chairman will establish a schedule of agenda subjects to
be discussed during the year (to the extent these can be foreseen). The
Chairman will also establish the agenda for each Board meeting. The agenda
for each meeting will be distributed to the Presiding Director in advance
and suggestions for changes or additions will be solicited. Each Board
member is free to suggest the inclusion of items on the agenda. The agenda
will include reports from each committee that has held a meeting. 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.
10. BOARD MATERIALS: 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 independent Directors on how to best
meet their information needs. Interim financial and operational reports
will be sent to the Directors monthly.
11. RETENTION OF CONSULTANTS: The Board has full authority to retain such
financial, legal, or other consultants, as it deems appropriate. The
necessary funds will be made available to pay for such services.
12. DIRECTOR RESPONSIBILITIES: Each Director is expected to use their best
efforts to attend all Board, and committee meetings on which such Director
serves and the Annual Shareholders' Meeting. Attendance by phone is
acceptable if a Director cannot attend meetings due to travel problems,
schedule conflicts or similar causes.
13. 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
expertiseis required or where attendance is encouraged as noted in Item 15
(e.g., at the Board retreat).
14. EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS: The independent Directors
will meet in executive session during each scheduled Board meeting. The
Presiding Director will preside over
A-2
the executive session and will report to the Chairman and CEO on the
nature of the discussion immediately following the Board meeting. If the
Presiding Director is unavailable to preside over an executive session,
the Director designated to follow in the rotation as Presiding Director
shall serve as Presiding Director for that meeting. The Chair of the
Compensation Committee shall preside at such executive sessions of the
Board as Presiding Director for fiscal year 2005, the Chair of the Audit
Committee for fiscal year 2006, the Chair of the Corporate Governance and
Nominating Committee for fiscal year 2007, and rotating in the same
fashion thereafter.
15. BOARD ACCESS TO SENIOR MANAGEMENT: The Presiding Director will have
complete access to the Company's Officers and counsel and will communicate
issues brought up by management with the other outside Directors. It is
assumed that the Presiding Director 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.
16. BOARD COMPENSATION REVIEW: Only non-employee Directors receive payment for
serving in the Board. The Compensation Committee is responsible for
annually evaluating and recommending Director compensation programs,
including retainers, fees and stock grants, for discussion and concurrence
by the full Board. Given the conflict inherent with Directors setting
their own pay levels, these recommendations will be based upon information
in relation to other comparable U.S. companies and in consideration of the
most current best practices provided by outside consultants and/or
director compensation surveys.
17. 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.
18. 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.
19. DEFINITION OF INDEPENDENT DIRECTOR: 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 an advisor or consultant to the Company; (c) is not affiliated with
a significant customer or supplier of the Company; (d) does not have a
personal services contract or arrangement 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 present outside Directors are independent. Compliance
with the definition of independence is reviewed annually by the Corporate
Governance and Nominating Committee.
The Board will establish and maintain standards used to determine which
directors are independent. These standards shall consider the definition
of (i) an "independent director" as defined under the rules of the New
York Stock Exchange, as may be amended from time to time (ii) a
"Non-Employee Director", as defined in Rule 16b-3 promulgated under
Section 16 of the Securities and Exchange Act of 1934, as amended, and
(iii) an "outside director" under Regulation Section 1.162-27 promulgated
under Section 162(m) of the Internal Revenue Code of 1986, as amended.
In addition, in order to be deemed independent of management of the
Company, a Board member cannot have engaged in any transaction or have
been involved in any business relationship or
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otherwise that is described or set forth in Item 404 of Regulation S-K
promulgated by the Securities and Exchange Commission.
20. STOCK OWNERSHIP OF OUTSIDE DIRECTORS: The ownership of stock in the
Company by outside Directors is required. The Board's policy is that each
outside Director should, within five years of first election to the Board,
own 5,500 shares of Handleman Company stock.
21. LOANS TO DIRECTORS AND EXECUTIVE OFFICERS: It is the policy of the Company
not to make any personal loans to its Directors and Executive Officers.
22. 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.
23. 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, other time demands (including service on other boards),
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. In order to optimize Directors ability to represent the
interest of the Company's shareholders and other constituencies, the Board
has established a guideline whereby individuals nominated to serve as a
Director of the Company can serve as a director on a maximum of five other
public company boards.
24. IDENTIFYING NEW DIRECTOR CANDIDATES/EXTENDING INVITATIONS TO BOARD: The
Board itself should be responsible, in fact as well as procedure, for
identifying new members. The Board delegates the screening process
involved to the Corporate Governance and Nominating Committee and the
Presiding Director with direct input from the Chairman and CEO. The
Corporate Governance and Nominating Committee is responsible for
evaluating and recommending criteria for Board membership. The invitation
to join the Board should be extended by the Chairman and CEO and the Chair
of the Corporate Governance and Nominating Committee.
25. 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 annually with the full Board.
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.
26. 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.
27. 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
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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.
28. FORMAL EVALUATION OF THE CEO: At the beginning of each fiscal year, the
CEO will set forth in writing to the Chair of the Compensation Committee
the CEO's personal goals for the performance of his duties and
responsibilities during such fiscal year. The independent Directors should
make this evaluation annually, and it should be communicated to the CEO by
the Chair of the Compensation Committee. The evaluation should be based on
objective criteria, including comparison of the CEO's goals for the year
against actual results, performance of the business, accomplishment of
long-term strategic objectives, management development, and the like. The
evaluation will be used by the Compensation Committee in the course of its
deliberations when considering the compensation of the CEO.
29. SUCCESSION PLANNING: There will be an annual report by the CEO to the
Board on succession planning. There should also be available, on a
continuing basis, the CEO's recommendations as to a successor should the
CEO be unexpectedly disabled.
30. 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.
31. 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 and to communicate such
feedback to the Board. The Presiding Director and individual outside 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.
32. ADHERENCE TO CODE OF BUSINESS CONDUCT AND ETHICS: Each Director shall be
familiar with and adhere to the Company's Code of Business Conduct and
Ethics. The Directors shall annually acknowledge in writing that the
Director has complied with the Code of Business Conduct and Ethics as it
applies to the Director. Additionally, a Financial Integrity and Contols
Hotline will be maintained for employees to report questionable accounting
policies or practices on an anonymous basis. Management will report all
such reports directly to the Audit Committee.
33. BOARD ORIENTATION: Each new Director will participate in an orientation
program to be acquainted with the business, the financial position,
compliance policies, and other policies relevant to Directors. In addition
a "Director Information Book" is distributed to each Director, which
contains information on director compensation, indemnification, meeting
schedules, Company SEC filings and corporate by-laws.
34. CONTINUING EDUCATION FOR DIRECTORS: One of Handleman Company's core values
is continuing learning and improvement. The Company encourages and
supports this value throughout all levels of the organization. Board
members also believe continuous learning is important to ensure the
ongoing effectiveness of the Board. The Board encourages each Director to
participate in at least one continuing education program during each Board
term. Annually, management will provide the Board a list of certified
continuing education programs available during the calendar year.
35. TRANSPARENCY: The Board believes that it is important that the Company's
stakeholders and others are able to review its corporate governance
practices. Accordingly, the Company's Corporate Governance Guidelines,
Code of Business Conduct and Ethics and Committee Charters will be
published on the Company's website.
A-5
APPENDIX B
HANDLEMAN COMPANY
CODE OF BUSINESS CONDUCT AND ETHICS
INTRODUCTION
The foundation of the Handleman Company ("Handleman" or "Company") Code of
Business Conduct and Ethics ("Code") is based upon conducting business as a good
corporate citizen in strict compliance with the laws of the jurisdictions in
which it does business, and promoting an environment which allows its employees,
officers and Directors to practice and maintain high ethical standards. The
Company proactively promotes ethical behavior among its various stakeholders.
Ethical behavior requires one to go beyond minimum standards for legally
acceptable behavior and act responsibly, with due regard for the well being of
shareholders, customers and suppliers, as well as fellow employees and
management.
Each employee, officer and Director at Handleman is responsible for his or her
own behavior. While performing their job duties, employees are responsible for
ensuring that they conduct themselves in a manner that reflects positively on
the Company. All employees, officers and Directors should refrain from any
action that reasonably might prejudice or embarrass them or the Company, or that
might give or reasonably appear to give any organization an unfair competitive
advantage over others similarly situated. If a situation arises which causes
uncertainty as to proper conduct, and such situation is not covered by the Code
of Business Conduct and Ethics, the employee should seek counsel from their
supervisor, or, if necessary, executive officers or Directors of the Company.
This Code is supplemented in part by other corporate statements, but such other
statements shall not be construed to replace or modify any of the policies in
this Code. This Code applies to Handleman Company and each of its subsidiary
companies.
HANDLEMAN CORE VALUES
Throughout its history, Handleman's growth, profitability and prosperity are
linked to our employees' ability to make decisions that are consistent with the
Company's business values and core ethical principles. By embedding these
business values and principles in the Company's policies and practices,
Handleman Company has established an ethical business culture that is accepted
by its employees, officers and Directors, and woven into the fabric of the ways
in which we work. Handleman is an exceptional company, committed to:
- HONESTY AND INTEGRITY - Honesty and integrity are defined as being
free from deception, and being conscientious and adhering to a code
of values. In other words, doing the right thing even when it's not
in one's own self-interest.
An honest person understands that if he or she finds a wallet, it is
the right thing to return it. A person with integrity will point out
an error on a bill even when undercharged. As a member of the
business community and representative of Handleman Company, honesty
and integrity must be fundamental in all of our actions.
- ACCOUNTABILITY - In our industry we are accountable to our
customers, vendors and each other. To be accountable, one must
accept responsibility and be held accountable for the results. When
results are not achieved, the person responsible will be held
accountable, and when results are achieved that person shares in the
rewards.
We are accountable to each other, and the Company is only as strong
as the weakest link. In whatever area we work, the field, ADC or in
the corporate office, we cannot operate in a vacuum. Instead we must
interact and communicate to ensure that individual and mutual
accountabilities are met and exceeded.
B-1
- CONTINUOUS LEARNING AND IMPROVEMENT - STAYING ONE STEP AHEAD OF THE
INDUSTRY - Handleman's position as the leader in our industry
demands that we must lead and not follow. We are obligated to create
an environment of continuous learning and improvement. No matter
what level of experience or knowledge we have, there is always room
for improvement. The world is changing at a rapid pace; we must
adapt to this change.
At the same time, continuous learning and improvement involves
risks. It's easy to have a 100% success rate when you aren't taking
risks; however, the true industry leader accepts failure and adapts
while always moving forward. Staying one step ahead is paramount to
our continued success.
- FOCUSED ON OUR STAKEHOLDERS - CUSTOMERS, EMPLOYEES, VENDORS AND
SHAREHOLDERS - Company shareholders win when the Company's
customers, vendors and fellow employees win. This necessitates an
environment of shared learning, risks and rewards. This must be our
mutual goal. Everything we do and every decision we make must relate
in a way that benefits our customers, vendors, fellow employees, and
shareholders.
Our organization structure is designed to accomplish this goal and
in doing so we are challenged to share best practices, communicate
openly and honestly and have mutual respect throughout all parts of
the Company.
These core values support and guide our leadership in establishing the strategic
direction of the Company. The Company's employees, officers, Directors,
representatives and vendors are expected to conduct their business in accordance
with these ethical principles. We must work according to our ethical principles
and endeavor to conduct ourselves in a manner beyond reproach. Handleman's
reputation is based on the personal integrity of each of its employees,
officers, Directors and those with whom we do business. Sound judgment must be
exercised in the service of our reputation as a global business leader, employer
of choice and good corporate citizen.
USE AND PROTECTION OF COMPANY ASSETS
All employees, officers and Directors should protect the Company's assets and
ensure their efficient use. Theft, carelessness and waste have a direct impact
on the Company's profitability. All Company assets should be used for legitimate
business purposes. Use of corporate funds or other assets for any unlawful
purpose is prohibited, local customs and traditions notwithstanding.
The improper removal of Company property from Company premises is forbidden.
This includes unauthorized disclosure or transmittal of Company information to
outside parties.
All work product generated by an employee, officer or Director during any period
of time for which he/she is compensated by the Company is the sole property of
the Company. The Company's Code does not intend that the Company would own the
product of any work performed by an employee, officer or Director outside of
Handleman work time, created without the use of Handleman facilities or
equipment, and which is not in any way related to Handleman Company or its
business.
During working hours and during any period of time that an employee is utilizing
Company facilities or equipment, substantially all of the employee's time shall
be devoted to his/her employment duties. Additionally, employees are responsible
for the use of and control over all assets and resources employed or entrusted
to them.
B-2
The Company's computer and network hardware, software, stored data and
communication systems are key components of its business. Examples of
communication systems are telephone, voicemail, e-mail, Internet/Intranet, fax
machines and pagers. Access to the Internet is limited to business purposes only
and should be made only from authorized connection points. Handleman reserves
the right to review and disclose the contents of any electronic communication to
others either inside or outside the Company. Employees, officers and Directors
should not use any Handleman communications systems to transmit information or
messages they wish to keep private. Each employee, officer and director is
responsible for protecting these resources from damage, destruction, viruses,
alteration, theft, fraudulent manipulation, and unauthorized access, disclosure,
or use. All employees are required to review and comply with the Company
Information System Security Policies Manual and sign the Data Security
Compliance Agreement form as requested.
ACCURATE AND COMPLETE RECORDS
Employees, officers and Directors are expected to observe and comply with
generally accepted accounting principles, the system of internal accounting
controls established by the Company and provisions of the Foreign Corrupt
Practices Act and Sarbanes-Oxley Act requiring that corporate books and records
accurately and fairly reflect, in reasonable detail, the transactions and
dispositions of the assets of the Company. Employees, officers and Directors
should also provide constituents with information that is full, fair, accurate,
complete, objective, relevant, timely and understandable. In furtherance of
these requirements:
a. No false, misleading or artificial entries shall be made on
corporate books, records and reports for any reason.
b. No undisclosed or unrecorded corporate funds or assets shall be
established for any purpose nor should any off-balance sheet
transactions or financing occur without the knowledge and approval
of the Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO") of the Company.
c. No payments from corporate funds or other assets shall be approved
or be made with the intention or understanding that any part of such
payment is to be used for any purpose other than that described by
the documents supporting the payment. All payments must be supported
with appropriately approved purchase orders, invoices or receipts,
expense reports or other customary documents, all in accordance with
established policy.
d. Officers, Directors and persons under their direction are prohibited
from improperly influencing the external auditors of the Company.
GIFTS, GRATUITIES AND BUSINESS COURTESIES
Gifts and other gratuities, personal favors or benefits provided directly
or indirectly by vendors, customers or other parties doing or attempting to do
business with Handleman Company are prohibited, except for lawful items of
nominal value which are customary in the industries in which the Company
operates. Reasonable business related expenditures for food and beverage are
allowed.
Gifts and other gratuities, personal favors or benefits provided out of
corporate funds or from other Company assets are prohibited, except for lawful
items of nominal value which are customary in the industries in which the
Company operates. Reasonable business related expenditures for food and beverage
are to be properly accounted for on corporate records. Customary nominal
gratuities for services performed are permitted.
Gifts, favors and entertainment may be provided at the Company's expense only if
they are of sufficiently reasonable and limited value and in a form that could
not be construed as a bribe, pay-off, kick back, or other illegal or unethical
payment. If you feel that a gift is appropriate, please confer with your Senior
Management Executive prior to giving any gifts.
Payments in the nature of a bribe or kickback from corporate funds or other
assets are prohibited. Amounts received either directly or through a third party
with an understanding that rebates or refunds will be made are prohibited.
Rebates and refunds resulting from activities performed by or for the Company
must be remitted to the Company.
B-3
No employee or Company sponsored or affiliated group may solicit or accept any
gift, favor, support or sponsorship from an organization that does business, or
seeks to do business, with the Company without the express written approval of
the CEO. This includes Company athletic events or other Company recreational
activity, such as a Christmas party or other Company sponsored gathering,
consisting principally of Company employees.
POLITICAL CONTRIBUTION AND ACTIVITIES
The making of unlawful contributions from corporate funds or other assets to a
political party, political committee or other political organization, or to a
candidate for political office, is prohibited. Political contributions, if
lawful, require Board of Directors' approval. Please contact Executive Assistant
to the CEO, for a copy of the Company's Charitable Contribution Program for
eligible contributions as well as the Matching Gifts Policy.
COMPLIANCE WITH THE LAWS, RULES AND REGULATIONS
Participation, in any capacity, by the Company or any employee, officer or
Director on behalf of the Company in any action or scheme for any unlawful
purpose is prohibited.
The Company and its employees, officers and Directors are expected to adhere
strictly to the requirements of various laws, rules and regulations affecting
the Company's business. In addition to other laws mentioned in this Code, these
laws include the Internal Revenue Code and various applicable federal, state,
provincial and local laws, appropriate private and public regulatory agencies,
the Securities Act and the Securities Exchange Act (including prohibitions on
various insider trading activities in the Company's stock and prohibitions on
disclosure of material or confidential inside information), and various
antitrust laws, such as the Sherman Act, the Clayton Act, the Robinson-Patman
Act and the Federal Trade Commission Act (including prohibitions on price
fixing, improper price inducements or allowances on the sale or purchase of
merchandise, discriminatory allowances for various services or false and
misleading advertising). It is not expected that every employee, officer and
Director will have full knowledge of the laws affecting his or her
responsibilities, but will have a general knowledge of prohibited activities
related to his or her work and will seek guidance, either directly from an
executive officer of the Company or from Company counsel, on any matter on which
there is a question.
INSIDER TRADING
The Company's CFO or Corporate Secretary will notify individuals who are
considered "restricted employees" with respect to trading in Company stock. No
stock of Handleman Company should be purchased or sold by a Director or
restricted employee without first clearing the proposed purchase or sale with
the Company's CFO or Corporate Secretary (who will review the proposed
transaction with our law firm Honigman Miller Schwartz and Cohn). In addition,
the Company's policy is that any trading in the Company's stock should be made
by a Director, officer or restricted employee only during the period beginning
three calendar days after the date of the earnings release or release of other
material information and through the end of such current fiscal quarter (the
"open window period") The open window period may be extended for up to two weeks
after the close of a fiscal quarter when, upon consultation with the CFO and
Honigman Miller Schwartz and Cohn, it is determined that there is no undisclosed
material non-public information about the Company that could be expected to
affect the investment decision of an investor. If, however, during the closed
window period a release of preliminary financial results occurs, the Company's
CFO or Corporate Secretary will make a determination, after consulting with the
CEO and corporate counsel, if such release constitutes an earnings release
sufficient to end the restricted period. If such a determination is made, the
restricted period will end three calendar days after the date of release of
preliminary financial results.
The Company's CFO or Corporate Secretary will be responsible for advising
Directors, officers and restricted employees of this change. If a personal
hardship or other extenuating circumstances cause a need to sell Company stock
during the restricted period, the Company's CFO or Corporate Secretary can
approve sales of 500 shares or less.
B-4
In any event, however, no trading can take place at any time if there is
material information regarding the Company that has not been publicly disclosed
(in which event the "restricted period" shall be deemed to be in effect until
the open period, beginning three calendar days after such information is
publicly disclosed or is no longer material). Accordingly, since a restricted
employee might not be aware of possible material developments concerning the
Company, the restricted employee must always consult with the Company's CFO or
Corporate Secretary before any trading occurs.
The exercise of a stock option pursuant to an existing stock option agreement
may occur at any time; however, the sale of any shares of the Company's stock
received as a result of the exercise of the option should be handled in the
manner described in the previous paragraphs. This general rule may be further
restricted, in the case of beneficial owners, Directors and Executive Officers,
by the policy promulgated herein which requires adherence to various laws
affecting the Company's business, including the Securities Act and the
Securities Exchange Act. Such further restriction would relate to the
prohibition against such individual realizing a profit by purchasing and
selling, or selling and purchasing, any equity security of the Company within
any period of less than six months.
Guidance for a restricted employee's participation in the Company's 401 (k) Plan
("401 (k)") follows:
- Upon first joining the Plan, an employee may begin contributing into
the Company stock fund at any time.
- The Company match can occur at any time.
- An employee may reduce or stop deferring salary into the Company
stock fund at any time.
- Once in the Plan, an employee may make a new deferral or increase a
current deferral into the Company stock fund only during an open
window period.
- Employee may make intra-Plan transfers into or out of the Company
stock fund only during an open window period.
401 (k) transactions of Executive Officers are further regulated by the SEC.
Requirements include the prohibition against realizing a profit by purchasing
and selling, or selling and purchasing Company stock in the Plan within any
period of less than six months.
Employees that are not considered "restricted employees" may purchase or sell
Handleman Company stock at any time. If a non-restricted employee, however,
becomes aware of financial results or other material information that has not
been publicly disclosed, the individual will be subject to the same restricted
trading periods as a restricted employee.
CONFLICT OF INTEREST
A "conflict of interest" occurs when an individual's private interest interferes
in any way or even appears to interfere with the interests of the Company as a
whole.
Employees, officers and Directors are expected to act with honesty and
integrity, avoiding actual or apparent conflicts of interest in personal and
professional relationships. Proper ethical handling of actual or apparent
conflicts of interest between personal and professional relationships must be
maintained.
It is important for all personnel to avoid conflicts of interest that could
impair their independence of judgment concerning Company business. It is the
desire of the Company to avoid not only actual and potential conflicts, but also
the appearance of conflicts of interest involving any employee, officer or
Director of the Company or its subsidiaries. The problem is not a simple one. No
statement of policy, no matter how comprehensive and detailed, can possibly
cover all situations and answer definitively the difficult questions of judgment
involved. The Company must rely on the character, integrity and common sense of
its personnel to avoid situations in which such conflicts might appear to exist.
Employees, officers and Directors must act in good faith, responsibly, with due
care, competence and diligence, without misrepresenting material facts or
allowing their independent judgment to be subordinated.
B-5
When there is any question that a conflict of interest might be involved in an
existing situation, or in some proposed action, an employee, officer or Director
should not attempt to judge his/her own case, but should resolve any doubt in
favor of full disclosure of the facts to the Company.
A Director, officer or employee of the Company could be considered to have
violated his/her obligation to the Company in any situation where such Director,
officer or employee violates, or fails to disclose to the Company the activities
of any other Director, officer or employee of the Company which violate, the
guidelines outlined below.
a. No employee, officer or Director shall engage in any activity that
is or could foreseeable become competitive with any business
activities and operations conducted from time to time by the
Company.
b. No employee, officer or Director shall engage in any part-time
business consulting arrangements or other business activities that
would affect his/her ability to perform his duties efficiently for
the Company. This would not apply to normal civic or charitable
duties.
c. No employee, officer or Director or any of his/her immediate
relatives shall sell or lease to, or buy or lease from, the Company
any kind of property, facility, equipment or service directly or
indirectly without the approval of the Chief Executive Officer (this
section excludes the purchase of compact discs, tapes, books or
other merchandise sold by the Company as permitted under normal
Company operating guidelines).
d. No employee, officer or Director or any of his/her immediate
relatives shall have any interest, direct or indirect, in any
vendor, supplier, customer, contractor or subcontractor doing
business with the Company, except for the ownership of securities of
a publicly traded company.
e. No executive officer or Director shall obtain a personal loan from
the Company.
DUTY OF LOYALTY TO COMPANY
Employees, officers and Directors should not place themselves in a situation
where they, rather than the Company profit from a business transaction in which
the circumstances indicate that the business opportunity and the related profit
rightfully should have been made available to the Company. In general, business
opportunities which might reasonably be expected to be of interest to the
Company should be brought to the CEO's attention for a determination as to
whether the Company wishes to pursue it.
CONFIDENTIALITY
Employees, officers and Directors should maintain the confidentiality of
information entrusted to them by the Company or its customers, except when
disclosure is authorized or legally mandated. Confidential information includes
all non-public information that might be of use to competitors, or harmful to
the Company or its customers, if disclosed. Confidential information acquired in
the course of an employee's, officer's, or Director's work must not be used for
their personal advantage.
It is imperative that all information relating to the Company not be disclosed
to any unauthorized persons. Even within your own unit or branch, information
should only be revealed to those specific employees that have a need to know
that information.
No employee, officer or Director shall disclose or use trade secrets, price
lists, supplier lists or inside information or other confidential information
which is obtained in the course of employment for such employee's, officer's or
Director's or anyone else's, personal financial gain, or disclose such
information to any outside person or party at any time, including after
separation of employment from the Company.
B-6
FAIR DEALING
Each employee, officer and Director should endeavor to deal fairly with
Handleman's customers, suppliers, competitors, shareholders and employees. No
employee, officer or Director shall take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts or any other intentional unfair dealing practice.
It is the policy of Handleman Company to recruit and hire, compensate, train,
promote, discipline, demote and discharge employees in full compliance with
state and federal laws relating to equal-employment opportunity.
Handleman views diversity as a business imperative that impacts sales,
marketing, customer service, teamwork, recruitment, productivity, globalization
and competitive advantage. The Company's aggressive growth goals, require that
the workforce demographics and management of workforce diversity be an integral
part of the organizational strategy.
Further, the Company has always taken pride in striving to provide a positive
and harassment-free work environment, which offers each employee and officer the
opportunity to perform to full potential. The Company prohibits harassment
relating to an individual's race, color, creed, religion, age, national origin,
citizenship status, gender, sexual orientation, weight, height, disability,
marital status, veteran status or any other protected classification.
Handleman's commitment to a harassment-free work environment applies to every
aspect of the relationship with the Company and includes employees, contractors,
customers and members of the public.
REPORTING OF ILLEGAL OR UNETHICAL BEHAVIOR
All employees, officers and Directors have a duty to adhere to the Code.
The Company will not discharge, demote, suspend, threaten, harass or in any
manner discriminate against any employee in terms and conditions of employment
based upon any lawful actions of such employee with respect to good faith
reporting of violations of laws, rules, regulations, or the Code. All employees
can be assured that the reporting of any known violations of others will not
have an effect on their careers with Handleman Company.
The Company does not expect its employees and officers to monitor each others
business policy and conduct, but expects employees and officers to maintain high
ethical standards and personal integrity which may require reporting violations
of this code. Any employees having information or knowledge of violation of this
Code shall promptly report such matter to (i) your supervisor or other member of
management, (ii) P.O. Box 206, Troy, MI 48099-0203, or (iii) the ethics e-mail
at ethics@handleman.com.
Effective May 1, 2004, employees may anonymously submit concerns regarding
questionable accounting or auditing matters by calling "The Network", an
independent organization, which provides an anonymous reporting service for
Handleman Company's Financial Integrity and Controls Hotline.
COMPLIANCE STANDARDS AND PROCEDURES
All employees, officers and Directors shall be responsible for compliance with
this policy, including distribution to, and compliance by, the employees of
their respective departments.
The Code of Business Conduct and Ethics is included on Handleman's Internet
website at www.handleman.com, and Intranet website.
The CFO will update and distribute the Code to all employees, officers, and
Directors, at least annually. Key employees, officers and Directors shall
periodically certify compliance with this policy, and shall also require other
employees to do so. The Company will discipline employees and officers who do
not submit accurate acknowledgement letters in a timely manner.
B-7
Any violations of the Code must be reported as outlined above (Reporting of
Illegal and Unethical Behavior).
The CEO of Handleman Company shall have overall responsibility for supervising
compliance with the policy, establishing procedures whereby compliance can be
monitored and investigating violations or suspected violations of this policy.
The Company's Audit Committee of the Board of Directors will oversee treatment
of employee concerns of any violations or suspected violations of this policy.
Any employee or officer who violates the policies in this Code shall be subject
to disciplinary action up to and including dismissal.
Any waiver of this Code for executive officers or Directors may be made only by
the Board of Directors or a Board committee and will be promptly disclosed as
required by law and/or NYSE regulation.
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APPENDIX C
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY
This Charter sets forth the duties and responsibilities of the Audit Committee
(the "Committee") of the Board of Directors (the "Board") of Handleman Company
(the "Company").
MISSION STATEMENT
The Audit Committee's mission is to assist the Board 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; the adequacy and effectiveness of the Company's
financially-related legal, regulatory, and ethical compliance programs; and any
other areas specified by the Board of potential significant financial risk to
the Company.
COMPOSITION
The Committee is established by the Board and will consist of three or more
members, with the exact number being recommended by the Corporate Governance and
Nominating Committee. All members must be independent of the management of the
Company, and free of any relationship that would interfere with their exercise
of independent judgment as a Committee member. Each of the members of the
Committee will be (i) an "independent director" as defined under the rules of
the New York Stock Exchange, as may be amended from time to time (ii) a
"Non-Employee Director" as defined in Rule 16b-3 promulgated under Section 16 of
the Securities and Exchange Act of 1934, as amended, and (iii) an "outside
director" under Regulation Section 1.162-27 promulgated under Section 162(m) of
the Internal Revenue Code of 1986, as amended.
In addition, in order to be deemed independent of management of the Company,
unless the Board of Directors determines otherwise, a member of the Committee
cannot have engaged in any transaction or have been involved in any business
relationship or otherwise that is described or set forth in Item 404 of
Regulation S-K promulgated by the Securities and Exchange Commission.
Each member shall also be financially literate as such qualification is
interpreted by the Board in its business judgment, or must become financially
literate within a reasonable period of time after the member's appointment to
the Audit Committee. At least one member must have accounting or related
financial management expertise as the Board interprets such qualification in its
business judgment.
Committee members may not simultaneously serve on audit committees of more than
three public companies without Board determination and disclosure in the annual
proxy statement that such service would not impair the ability of such member to
serve on the Company's Audit Committee.
The Chairman of the Corporate Governance and Nominating Committee, with the
assistance of the Presiding Director and Chairman of the Board, will recommend
the annual appointment of the Committee members, as well as the Committee Chair.
The Committee membership, including the Chair, will be determined by the entire
Board of Directors.
The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.
All members of the Committee serve at the discretion of the Board.
In the event a Director becomes disqualified from membership on the Audit
Committee, such Director shall be removed as soon as practicable from service on
the Audit Committee by the Board. In the event removal, resignation, retirement,
death or other termination of a Director from service on the Audit Committee
results in the Audit committee comprising less than three members, the Board
shall appoint a new qualified Director to the Audit Committee as soon as
practicable.
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PRINCIPAL FUNCTIONS
The Committee provides assistance to the Board of Directors in fulfilling its
oversight responsibilities for the financial reporting process, the systems of
internal control, the audit process, and the Company's process for monitoring
compliance with laws and regulations and the Company's code of conduct.
The Committee shall:
a. Review with management and the independent auditors the status of
the annual audit prior to releasing the unaudited year-end earnings,
as well as the audited financial statements to be included in the
Company's Annual Report on Form 10-K;
b. Review quarterly unaudited financial statements, including the
related earnings press release and any financial information or
earnings guidance provided to the analysts or ratings agencies along
with the quarterly unaudited financial statements;
c. Review significant accounting and reporting issues, including
complex or unusual transactions and highly judgmental areas of
potential significance;
d. Obtain assurance from the independent and internal auditors of the
adequacy of the Company's accounting and financial controls;
e. Review significant legal matters with the Company's legal counsel;
f. Review management's monitoring of compliance with the Company's code
of ethics;
g. Establish procedures for the receipt, treatment and retention of
complaints regarding accounting, internal accounting controls or
auditing matters;
h. Appoint, approve compensation for, and oversee the work of the
independent auditors annually, including a review of the auditor's
independence, performance and results of periodic audit and
non-audit engagements;
i. Review the budget, staffing, activities, performance and results of
examinations of the Internal Audit Department;
j. Prepare a report annually that is in accordance with the applicable
rules and regulations of the SEC for inclusion in the Company's
annual proxy statement; and
k. Report Committee activities to the Board on a periodic basis.
The Company will provide appropriate funding for the Audit Committee. In
discharging its duties and responsibilities, the Audit Committee is empowered to
investigate any matter brought to its attention, with full access to all
necessary books, records, facilities and personnel of the Company and
professional services providers to the Company, and has the authority to retain
at the Company's expense special legal, accounting or other advisors,
consultants or experts as it deems appropriate.
DUTIES AND RESPONSIBILITIES
The principle duties and responsibilities of the Committee in carrying out its
oversight responsibilities are set forth below. The duties and responsibilities
are set forth as a guide with the understanding that the Committee may
supplement them as appropriate and may establish policies and procedures from
time to time that the Committee deems necessary or advisable in fulfilling its
responsibilities.
A. Financial Reporting Process and Internal Control:
1. Review with management and the independent auditors the status
of the annual audit prior to releasing the unaudited year-end
earnings; discuss matters required to be
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communicated to the Audit Committee in accordance with AICPA
Statement on Auditing Standards (SAS) No. 61.
2. Review with management and the independent auditors: the
audited financial statements to be included in the Company's
Annual Report on Form 10-K including disclosures under
"Management's Discussion and Analysis of Financial Condition
and Results of Operations;" qualitative judgments of the
independent auditors about the appropriateness, not just the
acceptability, of the Company's accounting principles, and the
clarity of the financial statements; assurance from the
independent auditors that Section 10A of the Securities
Exchange Act of 1934 has not been implicated; and major issues
regarding auditing principles and practices as well as the
adequacy of internal controls that could significantly affect
the Company's financial statements. After such review and
discussions, recommend to the Board of Directors that the
audited financial statements be included in the Form 10-K for
such year to be filed with the Securities and Exchange
Commission.
3. Review periodically with the independent auditors their
judgments about the quality, not just the acceptability, of
the Company's accounting principles as applied in its
financial reporting, including such issues as the
reasonableness of significant judgments and the clarity of the
Company's financial disclosures and whether the choices of
accounting principles and underlying estimates and other
significant decisions made by management in preparing the
financial statements are conservative, moderate or aggressive
from the perspective of income, asset, revenue and liability
recognition and whether those principles, estimates and
disclosures are common practices or are minority practices.
4. Review with management and the independent auditors quarterly
unaudited financial statements, including the related earnings
press release and any financial information or earnings
guidance provided to the analysts or ratings agencies; discuss
with the independent auditors the results of their review
performed in accordance with SAS No. 100 for unaudited
financial statements before the earnings release is
distributed to the public and prior to the Company's filing of
its Form 10-Q with the Securities and Exchange Commission.
5. Review disclosures made to the Committee by the Company's CEO
and CFO during their certification process for the Form 10-K
and Form 10-Q with respect to the financial statements and
about any significant deficiencies in the design or operation
of disclosure controls and procedures and internal controls or
material weaknesses therein and any fraud involving management
or other employees who have a significant role in the
Company's disclosure controls and procedures and internal
controls.
6. Review audit findings, including any significant issues, audit
problems, scope limitations, disagreements with management,
and/or suggestions for improvements provided to management by
the independent and internal auditors, and obtain management's
response to the suggestions from the independent and internal
auditors.
7. Review the Company's accounting and financial controls with
the independent and internal auditors and the Company's
financial officers, including obtaining of adequate assurance
from the independent auditors and the internal audit director
of the adequacy of the Company's internal auditing, accounting
and financial controls.
8. Review with management and the independent auditors any
significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements, including (i) an analysis of the effect of
alternative GAAP methods on the Company's financial
statements, (ii) a description of any transactions as to which
management obtained SAS No. 50 letters, (iii) any significant
changes in the Company's selection or application of
accounting principles or policies, (iv) any changes to the
methods of application, and (v) any major issues as to the
adequacy of the Company's internal controls.
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9. Review with the Company's legal counsel: (i) any significant
legal matters that could have a material impact on the
Company's financial statements; (ii) legal compliance matters,
including corporate securities trading policies and material
notices to or inquiries received from government agencies; and
(iii) reports or evidence of a material violation of
securities laws or breaches of fiduciary duty.
10. Review management's monitoring of compliance with the
Company's Code of Business Conduct and Ethics.
11. Establish procedures for receiving, processing and retaining
complaints or employee concerns about accounting, internal
accounting controls and auditing matters and for the
confidential anonymous submission of concerns regarding
questionable accounting or auditing matters; review with
management and the independent auditors any correspondence
with regulators or governmental agencies and any employee
complaints or published reports, which raise material issues
regarding the Company's financial statements or accounting
policies.
12. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk
assessment and risk management policies.
13. Meet periodically with the independent auditors, the director
of internal audit and management in separate executive
sessions to discuss any matters that the Audit Committee or
these persons believe should be discussed privately with the
Committee.
B. Auditing Functions:
1. Review the independence and performance of the independent
auditors annually. The independent auditors report directly to
the Committee, and the Committee is directly responsible for
the appointment, retention, termination, compensation and
oversight of the work of the independent auditors, including
resolution of disagreements between management and the
independent auditors regarding financial reporting. The
Committee requires rotation of the lead and concurring audit
partners in accordance with applicable requirements.
2. On an annual basis, review and discuss with the independent
auditors all significant relationships they have with the
Company that could impair the auditors' independence and
receive the written disclosures and letter from the
independent auditors required by Independence Standards Board
No. 1 and the New York Stock Exchange listing standards.
3. Approve the engagement letters and the fees to be paid to the
independent auditors. Pre-approve all audit and non-audit
services to be provided by the independent auditors and
consider the possible effect that these services could have on
the independence of such auditors; provided that prohibited
non-audit services shall include bookkeeping, information
technology design, financial systems design, appraisal or
valuation services, actuarial services, internal audit
services, management or human resources functions, and legal
services or other expert services unrelated to the audit. The
Committee may delegate to one or more of its members
pre-approval authority of non-audit services in accordance
with applicable law and the Charter.
4. Review the arrangements, scope, staffing, timing, cost and
results of periodic audits and non-audit engagements conducted
by the independent auditors.
5. Review with management and the independent auditors any
management letter provided by the auditors and the Company's
response to that letter.
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6. Receive and review from the independent auditors at least
annually a report regarding the internal quality control
procedures of the independent auditors including any material
issues raised within the preceding five years by any internal
quality review or peer review of the firm, or by any inquiry
or investigation by environmental or professional authorities,
as well as describing the steps the firm has taken to deal
with any reported problems.
7. Review and approve the annual and quarterly plans for internal
audit, including staffing/ appointments, and major projects
undertaken by internal audit outside of the plan.
8. Review the scope, status and results of examinations conducted
by the Company's internal auditors.
9. Review the budget, program, changes in program, activities,
strategies, organizational structure and qualifications of the
Internal Audit Department, as needed, it being understood that
the Internal Audit Department functionally reports directly to
the Committee. Evaluate whether the Internal Audit Department
operation and structure permits unrestricted access by
internal auditors to records, personnel, and physical
properties relevant to the performance of its responsibilities
and to top management, the Committee and the Board. Assess the
appropriateness of the resources allocated to internal
auditing. Evaluate the effectiveness of the internal audit
function with the independent auditors and compliance with the
Institute of Internal Auditor's Standards for the Professional
Practice of Internal Auditing.
10. Review the appointment, performance and replacement of the
chief internal auditor. Decisions regarding hiring or
termination of the chief internal auditor require endorsement
by the Committee. The chairperson of the Committee will also
be involved in performance evaluation and compensation
decisions related to the chief internal auditor.
11. Set clear hiring policies for employees or former employees of
the independent auditors who participated in any capacity in
the audit of the Company.
C. Reporting Requirements:
1. The Audit Committee shall prepare the report required by the
Securities and Exchange Committee to be included in the
Company's annual proxy statement. The Committee will also
disclose in the Annual Report and proxy statement the Audit
Committee's preapproval policies and procedures and fees paid
to the independent accountants in accordance with Securities
and Exchange Commission regulations.
2. The Audit Committee shall review and reassess the adequacy of
the Audit Committee Charter on an annual basis and any changes
thereto shall be submitted to the Board for approval. The
Audit Committee shall have the Charter published at least
every third year in the Company's proxy statement in
accordance with Securities and Exchange Commission
regulations.
3. The Audit Committee shall assess its performance at least
annually and report the results to the Board.
4. On an annual basis or upon changes to the composition of the
Audit Committee, the Company must provide the New York Stock
Exchange written confirmation regarding:
a. The determination made by the Board regarding Audit
Committee member independence.
b. The financial literacy of Audit Committee members.
c. The determination that at least one Audit Committee
member has accounting
C-5
or financial management expertise including the name of
any designated Audit Committee financial expert under
Securities and Exchange Commission regulation.
d. The review and reassessment of the adequacy of this
Charter on an annual basis including describing and
reporting to the shareholders the Committee's
composition, responsibilities and how they were
discharged, and any other information required by rule,
including approval of non-audit services.
D. Perform any other duties or responsibilities expressly delegated to
the Committee by the Board including any duties or responsibilities
as set forth in the Corporate Governance Guidelines.
E. While the Audit Committee has the duties and responsibilities set
forth in this Charter, it is not the duty or responsibility of the
Audit Committee to plan or conduct audits or to determine that the
Company's financial statements are complete and accurate and are
prepared in accordance with generally accepted accounting
principles. These duties and responsibilities rest with management
and the independent auditors.
MEETINGS
The Audit Committee will meet quarterly and at such other times as may be deemed
necessary or appropriate in the judgment of its Chairman to accomplish the
Committee's responsibilities. In lieu of a meeting, the Committee may also act
by unanimous written consent resolution. Committee meeting procedures include
the following guidelines:
1. A majority of the Committee members will be deemed a quorum for the
transaction of business.
2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.
3. The CFO will be the management liaison to the Committee.
4. The Chairperson of the Audit Committee shall select the meeting
dates after consultation with other members of the Committee.
5. The Committee Chairperson shall prepare and/or approve an agenda in
advance of each meeting.
6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting
as practicable.
7. If the Chairperson is not available for a meeting, the other members
of the Committee may appoint a temporary Chairperson for such
meeting.
8. The Committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.
9. All Directors shall be invited to all Audit Committee meetings.
10. The Chairperson of the Audit Committee may call a meeting of the
full Board at the request of and for the purpose of meeting with the
Company's independent auditors and may call a meeting of the full
Board to consider any other matters within the purview of the Audit
Committee.
11. Minutes of any Audit Committee meetings shall be provided to all
Directors following the Audit Committee meeting and shall be
submitted for the next Board meeting, at which time the Chairperson
of the Audit Committee will provide additional comments, as
appropriate.
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APPENDIX D
CHARTER OF THE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE OF THE
BOARD OF DIRECTORS OF HANDLEMAN COMPANY
This Charter sets forth the duties and responsibilities of the Corporate
Governance and Nominating Committee (the "Committee") of the Board of Directors
(the "Board") of Handleman Company (the "Company").
MISSION STATEMENT
The Corporate Governance and Nominating Committee's mission is to ensure that
the Board's corporate governance system operates effectively and fulfills the
requirements of sound corporate governance practices. The Committee shall (i)
identify individuals qualified to serve as Board members, consistent with
criteria approved by the Board; (ii) recommend to the Board the Director
nominees for election; (iii) develop and recommend to the Board corporate
governance practices applicable to the Company; (iv) oversee the annual Board
self evaluation process; and (v) annually evaluate the performance of the
Committee.
COMPOSITION
The Committee is established by the Board and will consist of three or more
members, with the exact number being determined by the Board. All members must
be independent of the management of the Company, and free of any relationship
that would interfere with their exercise of independent judgment as a Committee
member. Each of the members of the Committee will be (i) an "independent"
Director as defined under the rules of the New York Stock Exchange, as may be
amended from time to time (ii) a "Non-Employee Director" as defined in Rule
16b-3 promulgated under Section 16 of the Securities and Exchange Act of 1934,
as amended, and (iii) an "outside" Director under Regulation Section 1.162-27
promulgated under Section 162(m) of the Internal Revenue Code of 1986, as
amended.
In addition, in order to be deemed independent of management of the Company, a
member of the Committee cannot have engaged in any transaction or have been
involved in any business relationship or otherwise that is described or set
forth in Item 404 of Regulation S-K promulgated by the Securities and Exchange
Commission.
The Presiding Director, with the assistance of the Chairman of the Board, will
recommend the annual appointment of the Committee Chair. The Chairman of the
Corporate Governance and Nominating Committee, with the assistance of the
Presiding Director and the Chairman of the Board, will recommend the annual
appointment of the Committee members. The Committee membership, including the
Chair, will be ratified by the entire Board of Directors.
The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.
All members of the Committee serve at the discretion of the Board.
PRINCIPAL FUNCTIONS
The Committee's principle functions are to recommend to the Board qualified
individuals to become Board members; to advise on the composition of the Board
and its committees; to assess Board effectiveness, and to establish sound
corporate governance practices for the Company.
D-1
The Committee shall:
a. Recommend the size and composition of the Board;
b. Develop guidelines and identify qualifications for new Directors;
c. Recommend nominees for Directors to the Board;
d. Consider shareholder nominated candidates for election as Directors;
e. Recommend committees, committee structure and committee membership
for the Board;
f. Recommend performance criteria for the Board and oversee review of
Board performance;
g. Review and recommend corporate governance practices and policies of
the Company;
h. Review conflicts of interest that may affect Directors; and
i. Report Committee activities to the Board on a periodic basis.
The Committee may be assisted on projects from time to time by independent
outside experts, consultants and various members of the Company's staff. Further
the Committee shall consult with the CEO and other members of senior management,
as necessary.
DUTIES AND RESPONSIBILITIES
The principal duties and responsibilities of the Committee in carrying out its
responsibilities are set forth below. These duties and responsibilities are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate and may establish policies and procedures from time to time that
the Committee deems necessary or advisable in fulfilling its responsibilities.
The Committee shall:
1. Develop and recommend to the Board a set of corporate
governance/nominating policies, practices, and guidelines (the
"Guidelines") appropriate to the Company and review these Guidelines
at least annually and recommend changes as necessary. The Guidelines
must comply with New York Stock Exchange listing requirements.
2. Recommend to the Board the appropriate size of the Board and the
structure and operations of the various committees of the Board.
3. Lead the search for individuals qualified to become members of the
Board and to recommend Director nominees to be presented for
shareholder approval at the Annual Meeting of Shareholders. The
Committee shall solicit nominations for new Directors and screen the
list of potential new Directors submitted to it by other Directors
or any other sources.
4. In soliciting nominations for new Directors the Committee shall
decide whether the assistance of a search firm is needed, and, if
so, the Committee shall have the sole authority to retain and
terminate any search firm. The Committee shall have the authority to
approve the fees and terms of such advisors at the expense of the
Company.
5. After reviewing potential Board candidates, and consulting with the
Presiding Director and the Chairman of the Board, the Committee
shall designate which candidates are to be interviewed. Candidates
at a minimum shall be interviewed by the Chairman of the Corporate
Governance and Nominating Committee, the Presiding Director, and the
Chairman of the Board, and may be interviewed by other Directors as
well.
6. Recommend for Board approval any new Directors to be nominated.
Prior to the final vote of the Board on the nomination of a new
Director, arrange for all remaining Directors not involved in the
interview process to meet the selected candidate, if desired.
D-2
7. With the assistance of the Chairman of the Board, design and ensure
new Director orientation and continuing education programs. Monitor
Director participation in the continuing education program.
8. Recommend if existing Board members should be re-nominated, after
considering the appropriate skills and characteristics required on
the Board, the current makeup of the Board and the desire of
existing Board members to be re-nominated.
9. Recommend committees, committee assignments, and committee chairs,
to the Board for approval. This process will include soliciting
input from the Presiding Director and Chairman of the Board and
will, to the extent possible, take into consideration the desires of
individual Board members.
10. Manage the process whereby the full Board annually assesses its
performance, and then report the results of this evaluation to the
Board along with any recommendations for improvements.
11. Manage the process whereby Board members are evaluated at the time
they are considered for re-nomination.
12. Review annually the Company's Corporate Governance Guidelines and
recommend any changes to the Board.
13. Review this Charter annually and recommend any appropriate changes
to the Board and annually provide a self-evaluation of the
Committee's performance to the Board.
14. Perform any other duties or responsibilities expressly delegated to
the Committee by the Board including any duties or responsibilities
as set forth in the Corporate Governance Guidelines.
MEETINGS
The Corporate Governance and Nominating Committee will meet at least two times
per year and at such other times as may be deemed necessary or appropriate in
the judgment of its Chairman to accomplish the Committee's responsibilities. In
lieu of a meeting, the Committee may also act by written consent resolution.
Committee meeting procedures include the following guidelines:
1. A majority of the Committee members will be deemed a quorum for the
transaction of business.
2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.
3. The Committee Secretary will keep minutes of all Committee meetings,
which will be distributed to Board members.
4. The Chairman of the Board will be the management liaison to the
Committee.
5. The Chairman of the Board will prepare a preliminary agenda to be
reviewed with the Committee Chairman who will make the final
decision regarding the agenda.
6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting
as practicable.
7. The Committee Chair is responsible for reporting all activities and
decisions of the Committee to the Board.
The Chairman of the Board should coordinate all mailings to the Committee
members, to the extent practicable.
D-3
APPENDIX E
CHARTER OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY
This Charter sets forth the duties and responsibilities of the Compensation
Committee (the "Committee") of the Board of Directors (the "Board") of Handleman
Company (the "Company").
MISSION STATEMENT
The Compensation Committee's mission is to discharge the Board's duties and
responsibilities with respect to approving all forms of compensation and
benefits for the Company's executive officers, other key employees and
Directors. The Committee shall communicate to shareholders the Company's
compensation policies and practices as required by the Securities and Exchange
Commission (the "SEC").
COMPOSITION
The Committee is established by the Board and will consist of three or more
members, with the exact number being determined by the Corporate Governance and
Nominating Committee. All members must be independent of the management of the
Company, and free of any relationship that would interfere with their exercise
of independent judgment as a Committee member. Each of the members of the
Committee will be (i) an "independent director" as defined under the rules of
the New York Stock Exchange, as may be amended from time to time (ii) a
"Non-Employee Director", as defined in Rule 16b-3 promulgated under Section 16
of the Securities and Exchange Act of 1934, as amended, and (iii) an "outside
director" under Regulation Section 1.162-27 promulgated under Section 162(m) of
the Internal Revenue Code of 1986, as amended.
In addition, in order to be deemed independent of management of the Company, a
member of the Committee cannot have engaged in any transaction or have been
involved in any business relationship or otherwise that is described or set
forth in Item 404 of Regulation S-K promulgated by the Securities and Exchange
Commission.
The Chairman of the Corporate Governance and Nominating Committee, with the
assistance of the Presiding Director and Chairman of the Board, will recommend
the annual appointment of the Committee members, as well as the Committee Chair.
The Committee membership, including the Chair, will be ratified by the entire
Board of Directors.
The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.
All members of the Committee serve at the discretion of the Board.
PRINCIPAL FUNCTIONS
The Committee provides assistance to the Board of Directors in fulfilling its
responsibility to achieve the Company's objective of maximizing the long-term
total return to shareholders by ensuring that executive officers, key employees
and Directors are fairly and appropriately compensated in accordance with the
Company's compensation philosophy, objectives and policies.
The Committee will review and approve compensation and benefits policies,
strategies and pay levels necessary to support the Company's objectives.
E-1
The Committee shall:
a. Review and approve the Company's compensation philosophy;
b. Review and approve the executive compensation programs, plans and
awards;
c. Oversee CEO and other executive officer succession;
d. Oversee the administration of the Company's short- and long-term
incentive plans, including all stock or stock-based plans;
e. Review and approve general employee pension benefit plans of the
Company, as well as all other employee benefit plan arrangements;
and
f. Issue a report annually on executive compensation that is in
accordance with the applicable rules and regulations of the SEC for
inclusion in the Company's annual proxy statement.
The Committee may be assisted on projects from time to time by independent
outside experts, consultants and various members of the Company's staff.
Further, the Committee shall consult with the CEO and other members of senior
management, as necessary.
DUTIES AND RESPONSIBILITIES
The principal duties and responsibilities of the Committee in carrying out its
oversight responsibilities are set forth below. These duties and
responsibilities are set forth as a guide with the understanding that the
Committee may supplement them as appropriate and may establish policies and
procedures from time to time that the Committee deems necessary or advisable in
fulfilling its responsibilities.
1. Oversee and approve the design of a comprehensive executive
compensation policy that (a) supports the Company's overall strategy
and objectives; (b) attracts and retains key executives; (c) links
total compensation to financial performance and the attainment of
strategic objectives; and (d) provides competitive total
compensation opportunities at a reasonable cost while enhancing the
ability to fulfill the Company's objectives.
2. Periodically review and approve new compensation plans to ensure
consistency with the compensation policy, and monitor the
appropriateness and effectiveness of such plans. The Committee will
also review and make recommendations to the Board with respect to
the adoption of, or amendments to, equity-based incentive
compensation.
3. Review and approve the annual base salary, annual incentive
compensation, long-term incentive grants, executive perquisites,
benefits and supplemental benefits of the CEO, executive officers
and other key employees of the Company.
4. Annually evaluate the CEO's and other key executives' incentive
compensation payouts against pre-established, measurable performance
goals and objectives.
5. Annually appraise the performance of the CEO and provide
developmental feedback to the CEO.
6. Assist the Board in the annual review of a succession plan for the
CEO and other executive officers with consideration of the CEO's
recommendations.
7. Review and recommend Director compensation programs, including
retainers, fees and stock grants, for vote by the full Board. Given
the conflict inherent with Directors setting their own pay levels,
these recommendations will be based upon information provided by
outside consultants and/or director compensation surveys.
E-2
8. Retain, as it deems appropriate, compensation consultants, legal
counsel and other advisors to assist the Committee in connection
with its functions. The Committee shall have the sole authority to
approve the fees and other retention terms of such advisors at the
expense of the Company.
9. Review and approve the Company's Share Ownership Guidelines for key
management and Directors, and monitor compliance with such Share
Ownership Guidelines.
10. Review and approve the contents of SEC filings relating to
compensation matters. This includes information included in the
proxy statement, including the Compensation Committee Report, as
well as disclosures in the SEC Form 10-K.
11. Confirm that the compensation program and practices of the Company
are designed with full consideration of all tax, accounting, legal
and regulatory requirements (including Section 162(m)).
12. Keep abreast of current developments in executive compensation and
employee compensation practices.
13. Report the findings and/or recommendations of the Committee to the
Board on a periodic basis.
14. Review this Charter annually and recommend to the Board any changes
it determines are appropriate and annually provide a self-evaluation
of the Committee's performance to the Board.
15. Perform any other duties or responsibilities expressly delegated to
the Committee by the Board including any duties or responsibilities
as set forth in the Corporate Governance Guidelines.
MEETINGS
The Committee will meet at least three times per year and at such other times as
may be requested by its Chairman to accomplish the Compensation Committee's
responsibilities. In lieu of a meeting, the Committee may also act by written
consent resolution. Committee meeting procedures include the following
guidelines:
1. A majority of the Committee members will be deemed a quorum for the
transaction of business.
2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.
3. The Committee Secretary will keep minutes of all Committee meetings,
which will be distributed to Board members.
4. The CEO will be the management liaison to the Committee.
5. The CEO will prepare a preliminary agenda to be reviewed with the
Committee Chairman who will make the final decision regarding the
agenda.
6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting
as practicable.
The CEO should coordinate all mailings to the Committee members, to the extent
practicable.
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www.handleman.com
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN Please [ ]
ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. IF NO Mark Here
SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED FOR for Address
THE ELECTION OF THOMAS S. WILSON FOR A TWO YEAR TERM AND Change or
FOR THE ELECTION OF THE OTHER NOMINEES FOR DIRECTOR Comments
LISTED BELOW FOR A THREE YEAR TERM. SEE REVERSE SIDE
THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
1. Election of Directors. FOR all nominees WITHHOLD
listed to the left AUTHORITY
NOMINEES: (except as marked to vote for all nominees
to the contrary below) listed to the left
01 Thomas S. Wilson [ ] [ ]
02 Eugene A. Miller
03 P. Daniel Miller
04 Sandra E. Peterson
05 Irvin D. Reid
2. To transact such other business as may properly come before the Annual
Meeting of Shareholders and at any adjournment thereof.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below)
________________________________________________________________________________
PLEASE DATE, SIGN, AND MAIL THIS PROXY IN THE ENCLOSED ENVELOPE
SIGNATURE___________________ SIGNATURE___________________DATED__________ , 2005
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.
- FOLD AND DETACH HERE -
Choose MLINK(SM) for fast, easy and secure 24/7 online access to your future
proxy materials, investment plan statements, tax documents and more. Simply log
on to INVESTOR SERVICEDIRECT(R) at www.melloninvestor.com/isd where step-by-step
instructions will prompt you through enrollment. I understand that the Company
may no longer distribute printed materials to me for any future shareholder
meeting until such consent is revoked. I understand that I may revoke my consent
at any time by contacting the Company's transfer agent, Mellon Investor Services
LLC, Ridgefield Park, NJ and that costs normally associated with electronic
delivery, such as usage and telephone charges as well as any costs I may incur
in printing documents, will be my responsibility.
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN
TIME THE DAY PRIOR TO THE ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
HTTP://WWW.PROXYVOTING.COM/HDL 1-866-540-5760 Mark, sign and
Use the internet to vote Use any date your proxy
your proxy. Have your proxy OR touch-tone OR card and return
card in hand when you access telephone to it in the
the web site. vote your proxy. enclosed postage
Have your proxy paid envelope.
card in hand
when you call.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE, YOU DO NOT NEED TO MAIL BACK
YOUR PROXY CARD.
IF YOU ARE LOCATED OUTSIDE THE UNITED STATES, THE DELIVERY OF YOUR PROXY MUST BE
VIA THE INTERNET OR MAIL
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT ON THE INTERNET AT
WWW.HANDLEMAN.COM REFERENCE INVESTOR RELATIONS/KEY FINANCIALS
[HANDLEMAN COMPANY LOGO]
HANDLEMAN COMPANY
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 7, 2005
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
HANDLEMAN COMPANY
Elizabeth A. Chappell, 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 7, 2005, and at any
adjournment thereof.
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 2005.
(Continued and to be signed on the other side)
ADDRESS CHANGE/COMMENTS (Mark the corresponding box on the reverse side)
________________________________________________________________________________
- FOLD AND DETACH HERE -
YOU CAN NOW ACCESS YOUR HANDLEMAN COMPANY ACCOUNT ONLINE.
Access your Handleman Company shareholder account online via Investor
ServiceDirect(R) (ISD).
Mellon Investor Services LLC, transfer agent for Handleman Company, now makes it
easy and convenient to get current information on your shareholder account.
- View account status - Make address changes
- View certificate history - Establish/change your PIN
THIS CAN BE DONE BY VISITING THE TRANSFER AGENT'S WEB SITE
HTTP://WWW.MELLONINVESTOR.COM. CLICK ON THE "FOR INVESTORS" BUTTON AND THEN THE
"INVESTOR SERVICEDIRECT" BUTTON. THEN FOLLOW THE INSTRUCTION FOR ACCESSING YOUR
ACCOUNT.
FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN 9AM-7PM
MONDAY-FRIDAY EASTERN TIME