SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Section 240.14a-12
HANDLEMAN COMPANY
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
[HANDLEMAN COMPANY LOGO]
Handleman Company
500 Kirts Boulevard
Troy, Michigan 48084-4142
Notice of 2003
Annual Meeting
and Proxy Statement
[HANDLEMAN COMPANY LOGO]
Stephen Strome
Handleman Company
Chairman and Chief Executive Officer
500 Kirts Boulevard
Troy, MI 48084-4142
September 15, 2003
Dear Shareholders:
It is my pleasure to invite you to Handleman Company's 2003 Annual Meeting of
Shareholders. We will hold the meeting on Tuesday, October 14, 2003, at 2:00
p.m., Eastern Daylight Time, at the Somerset Inn, 2601 West Big Beaver, 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 to
respond to 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 24), you can vote
using any of the following methods: vote by telephone or 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
TABLE OF CONTENTS
PAGE
----
Notice of the 2003 Annual Meeting of Shareholders .................................. 1
General Information ................................................................ 3
Voting Securities .................................................................. 3
Election of Directors .............................................................. 5
- Board Nominees for Terms to Expire at the 2006 Annual Meeting ............ 5
- Continuing Directors Whose Terms Expire at the 2004 Annual Meeting ....... 6
- Continuing Directors Whose Terms Expire at the 2005 Annual Meeting ....... 6
Board Information .................................................................. 7
- Board Meetings ........................................................... 7
Board Committees ................................................... 7
Audit Committee .................................................... 7
Compensation and Stock Option Committee ............................ 8
- Corporate Governance and Nominating Committee ............................ 8
- Presiding Director ....................................................... 9
Board Compensation ................................................................. 9
Compensation and Stock Option Committee Report ..................................... 10
Audit Committee Report ............................................................. 13
Performance Graph .................................................................. 14
Executive Compensation ............................................................. 15
Option Grants in Last Fiscal Year .................................................. 16
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values... 17
Pension Plan Table ................................................................. 18
Supplemental Executive Retirement Plan Table ....................................... 19
Change in Control Agreements ....................................................... 19
Security Ownership of Certain Beneficial Owners and Management ..................... 20
Other Matters ...................................................................... 23
- Relationship with Independent Public Auditor ............................. 23
- Independent Public Auditor Fees .......................................... 23
- Other Proposals .......................................................... 23
Questions and Answers about the Annual Meeting and Voting .......................... 24
What is a proxy? ................................................................... 24
What is a proxy statement? ......................................................... 24
Who can vote? ...................................................................... 24
What is the quorum requirement of the Annual Meeting? .............................. 24
What am I voting on? ............................................................... 24
What are the voting recommendations of the Board? .................................. 24
What vote is required to elect the Directors? ...................................... 24
What shares are covered by my proxy card? .......................................... 25
What is the difference between holding shares as a shareholder of record
and as a beneficial owner? ...................................................... 25
How do I vote? ..................................................................... 25
What is the effect of not voting? .................................................. 26
What can I do if I change my mind after I vote my shares? .......................... 26
How do participants in the Handleman Company 401(k) Plan vote their shares? ........ 26
i
PAGE
----
How do shareholders of record vote their shares if they are also participants
in the Handleman Company 401(k) Plan? ..................................... 27
What does it mean if I get more than one proxy card? ......................... 27
Will there be a management presentation at the Annual Meeting? ............... 27
Who can attend the Annual Meeting? ........................................... 27
What do I need to attend the Annual Meeting? ................................. 28
Can I bring a guest? ......................................................... 28
Who will count the vote? ..................................................... 28
How much did this proxy solicitation cost? ................................... 28
How do I recommend someone to be a Director for the 2004 Annual Meeting? ..... 28
When are shareholder proposals due for the 2004 Annual Meeting? .............. 28
Where can I find the Corporate Governance Guidelines for Handleman Company? .. 29
Can I access the proxy statement and 2003 annual report on the Internet
instead of receiving paper copies? ........................................ 29
How do I obtain more information about Handleman Company? .................... 29
Appendix A - Audit Committee Charter ......................................... A-1
Appendix B - Corporate Governance Guidelines ................................. B-1
ii
HANDLEMAN COMPANY
NOTICE OF THE 2003
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 14, 2003
The Annual Meeting of Shareholders of Handleman Company will be held on Tuesday,
October 14, 2003 at 2:00 p.m. Eastern Daylight Time, at the Somerset Inn, 2601
West Big Beaver Road, Troy, Michigan 48084, for the following purposes:
1. The election of three Directors. Nominees are:
James B. Nicholson
Lloyd E. Reuss
Stephen Strome
2. To transact such other business as may properly come before the meeting.
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.
If you were a shareholder of record at the close of business on August 25, 2003,
you are entitled to vote at the Annual Meeting.
If you have any questions about the Annual Meeting, please contact:
Office of the 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 OCTOBER 14, 2003
GENERAL INFORMATION
The approximate mailing date for this proxy statement and the proxy is September
15, 2003. A copy of the annual report of the Company for the fiscal year ended
May 3, 2003 accompanies this Notice.
It is important that your shares be represented at the meeting. We encourage you
to read the proxy statement and vote your shares as soon as possible. The proxy
is solicited by the Board of Directors of the Company. The shares represented by
valid proxies in the enclosed form will be voted if received in time for the
Annual Meeting. The expenses in connection with the solicitation of proxies will
be borne by the Company and may include requests by mail and personal contact by
its Directors, Officers and employees. In addition, the Company has retained
Georgeson Shareholder, 17 State Street, New York, NY 10004 to aid in the
solicitation of proxies from brokers, banks, other nominees and institutional
holders at a fee not to exceed $5,500 plus out-of-pocket expenses. The Company
will reimburse brokers or other nominees for their expenses in forwarding proxy
materials to principals. Any person giving a proxy has the power to revoke it at
any time before it is voted.
For additional information regarding voting your shares, see the "Questions and
Answers" section of this proxy statement (beginning on page 24).
VOTING SECURITIES
Only holders of record of shares of $.01 par value common stock (the "Common
Stock") at the close of business on August 25, 2003 are entitled to notice of,
and to vote at, the meeting or at any adjournment or adjournments thereof, each
share having one vote. As of August 25, 2003, the date of record, the Company
had issued and outstanding 24,831,246 shares of Common Stock.
3
(This page intentionally left blank)
4
I. ELECTION OF DIRECTORS
The Board of Directors consists of nine members. The Directors are 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.
Three Directors are to be elected by shareholders at the Annual Meeting for
three-year terms expiring in 2006. The Board's nominees are Messrs. James B.
Nicholson, Lloyd E. Reuss and Stephen Strome.
Following each Director's name is (1) the year he or she was first elected a
Director (2) age and (3) a brief account of the Director's business experience
during the past five years.
BOARD NOMINEES
NOMINEES FOR TERMS TO EXPIRE AT THE 2006 ANNUAL MEETING:
JAMES B. NICHOLSON Director since 1991
Age 60
Mr. Nicholson has served as President, Chief Executive Officer and Director of
PVS Chemicals, Inc. since 1979. Mr. Nicholson is a Director of LaSalle Bank
Corporation. Mr. Nicholson is also Chairman of the Board of Amerisure Companies.
LLOYD E. REUSS Director since 1993
Age 67
Mr. Reuss served as General Motors Corporation's Executive Vice President of New
Vehicles and Systems from April 6, 1992 through his retirement on January 1,
1993. Mr. Reuss served as President of General Motors Corporation from August 1,
1990 through April 5, 1992. Mr. Reuss is a Director of International Speedway
Corporation and U.S. Sugar Corporation.
STEPHEN STROME Director since 1989
Age 58
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.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ITS NOMINEES
5
CONTINUING DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE AT THE 2004 ANNUAL MEETING:
ELIZABETH A. CHAPPELL Director since 1999
Age 45
Ms. Chappell has served as President 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 the Executive
Vice President Corporate Communications and Investor Relations of Compuware
Corporation from January 3, 2000 to January 3, 2001. Ms. Chappell was formerly
President and Chief Executive Officer of The Chappell Group Inc., a consulting
firm she founded in 1995 that specialized in strategic planning, organizational
development and sales and marketing strategies. Ms. Chappell is a Director of
Compuware Corporation.
PETER J. CLINE Director since 2001
Age 56
Mr. Cline has served as President and Chief Operating Officer of the Company
since January 12, 2001. From May 3, 2000 through January 11, 2001, Mr. Cline
served as Executive Vice President and Chief Operating Officer of the Company
and President of Handleman Entertainment Resources. From April 25, 1994 to May
2, 2000, Mr. Cline served as Executive Vice President and President of Handleman
Entertainment Resources.
RALPH J. SZYGENDA Age 55
Mr. Szygenda was elected to the Board of Directors effective June 10, 2003,
succeeding to the term of John M. Barth, who resigned as a Director. 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 in June 28, 1996 as Vice President and Chief Information
Officer. Mr. Szygenda is a Director of Covisint LLC.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2005 ANNUAL MEETING:
EUGENE A. MILLER Director since 2002
Age 65
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 June 1, 1999, Mr. Miller served as Chairman and Chief Executive
Officer of Comerica Incorporated and Comerica Bank. Mr. Miller is a Director of
DTE Energy, Inc., the Amerisure Companies, Flint Ink Corporation and McKinley
Associates.
SANDRA E. PETERSON Director since 2001
Age 44
Ms. Peterson has served as the Senior Vice President, Health Businesses, Medco
Health Solutions, Inc. since January 1, 1999. From April 8, 1996 through
December 31, 1998, Ms. Peterson served as Executive Vice President of Nabisco
Holding Company. Ms. Peterson is a Director of The Dun & Bradstreet Corporation.
DR. IRVIN D. REID Director since 2002
Age 62
Dr. Reid has served as President of Wayne State University since November 24,
1997. From August 1, 1989 through November 23, 1997, Dr. Reid served as
President of Montclair State University. Dr. Reid is a Director of Mack-Cali
Real Estate Investment Trust.
6
BOARD INFORMATION
BOARD MEETINGS:
During the fiscal year ended May 3, 2003, the Board held a total of 10 meetings.
During fiscal 2003, each Director of the Company attended at least 80% of the
aggregate number of meetings of the Board and the total number of meetings of
all committees of the Board on which such Director served, during the time each
such Director was a member of the Board.
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 the
financial reporting processes; the systems of internal accounting and financial
controls; the internal audit function; the annual independent audit of the
Company's financial statements; any financially-related legal compliance or
ethics programs as established by the Board; and any other areas specified by
the Board of potential significant financial risk to the Company. A copy of the
Audit Committee Charter is attached as Appendix A to this proxy statement.
The primary functions of the Audit Committee are to:
- Appoint the independent auditors;
- Review the appointment and performance of the chief internal
auditor;
- Review the independence and performance of the independent
auditors annually;
- Review and approve the annual and quarterly plans for internal
audit;
- Assess the Company's accounting and financial controls;
- Review the audit plans prepared by internal audit and independent
auditors;
- Establish procedures for confidential reporting of concerns
regarding internal accounting controls, accounting and auditing
matters;
- Review information required to be disclosed by management under
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002;
- Pre-approve all auditing services and permitted non-audit
services to be performed by the Company's independent auditors;
- Review significant issues concerning litigation, tax and
insurance;
- Review consequential management information systems, as required;
- Review and monitor compliance procedures; and
- Report the results or findings of all activities to the Board on
a periodic basis.
The Audit Committee held five meetings last year. All members are independent,
non-employee Directors. Members: Mr. Miller, Chairman, Ms. Peterson and Dr.
Reid.
7
COMPENSATION AND STOCK OPTION COMMITTEE: The duties of the Compensation and
Stock Option 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 and restricted stock awards under the
Company's 2001 Stock Option and Incentive Plan.
The primary functions of the Compensation and Stock Option Committee are to:
- Recommend to the Board the selection and retention of officers
and key employees;
- Recommend salary structures, officer gradings, and salaries for
elected officers;
- Administer and recommend amendments to the executive compensation
plans;
- Review and recommend salary adjustments of the Chief Executive
Officer;
- Recommend to the Board bonus awards, income and other
compensation for executive officers;
- Recommend officer compensation packages and the approval of
disclosure statements;
- Recommend director compensation programs;
- Review the Company's executive compensation programs with outside
consultants;
- Recommend management succession; and
- Report the results or findings of these activities to the Board
on a periodic basis.
The Compensation and Stock Option Committee held four meetings last year. All
members are independent, non-employee Directors. Members: Mr. Nicholson,
Chairman, Ms. Chappell, Mr. Miller and Mr. Reuss.
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 2004 Annual Meeting
of Shareholders should be submitted to the Chairman of the Corporate Governance
and Nominating Committee at the Company's executive offices, no later than March
12, 2004. 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 attached as Appendix B to this proxy statement.
The primary functions of the Corporate Governance and Nominating Committee are
to:
- Recommend to the Board nominees for Directors;
- Consider shareholder nominated candidates for election as
Directors;
- Recommend the size and composition of the Board;
- Develop guidelines and criteria for the qualifications of
Directors;
- Recommend committees and committee structure for the Board;
8
- Recommend performance criteria for the Board and to review its
performance;
- Review and recommend corporate governance practices and policies
of the Company;
- Review conflicts of interest that may affect Directors; and
- Report the results or findings of these activities to the Board
on a periodic basis.
The Corporate Governance and Nominating Committee held four meetings last year.
All members are independent, non-employee Directors. Members: Mr. Reuss,
Chairman, Ms. Peterson, Mr. Nicholson and Dr. Reid.
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
the executive session 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.
Effective May 4, 2003 the Presiding Director is Mr. Reuss.
BOARD COMPENSATION
RETAINER AND FEES:
Officers of the Company who are Directors do not receive additional compensation
for services as a Director or as a Committee member.
During fiscal 2003, non-employee Directors received annual retainers of $22,000.
To encourage non-employee Directors to own Company shares, they receive a
portion of their retainer in the Company's Common Stock each year. During fiscal
2003, non-employee Directors received annual retainers of $12,000 in restricted
stock with 100% vesting after one year and $10,000 in cash payable in four
quarterly installments of $2,500.
Each Director received meeting fees of $1,500 for each Board of Directors
meeting attended. Each member on a Committee of the Board of Directors was paid
at the rate of $1,000 for each Committee meeting attended. Non-Committee
Directors who are requested in advance to participate in any Committee meeting
were also paid the Committee meeting fee.
In addition, during fiscal year 2003, each Committee Chairman received an annual
retainer for Committee service of $3,000. Directors are reimbursed for travel
and other expenses related to attendance at Board and Committee meetings.
9
The 2001 Stock Option and Incentive Plan allows stock option grants to
non-employee Directors. In September 2002, options for 2,500 shares were awarded
to non-employee Directors with a three-year graded vesting. It is contemplated
that a stock option grant will be awarded annually to non-employee Directors.
The Company has approved a Deferral Plan for Payment of Director fees which
permits members of the Board of Directors to elect to defer to a future date all
or any portion of their Director fees (including retainer fees, attendance fees
and Committee fees), with interest to be added to deferred amounts.
Under resolutions of the Board of Directors presently in effect, if a Corporate,
Division or Subsidiary Officer should die while serving in such capacity, the
Company will pay to the surviving spouse, or if there is no surviving spouse
then to the decedent's estate, the equivalent of one year's salary (excluding
bonuses) based upon the amount being received by the decedent at the time of his
or her death, in 24 equal monthly installments commencing one month after death.
In the event a Director should die while serving the Company in such position,
the Company shall pay to the deceased's surviving spouse, or if there be no
surviving spouse to the deceased's estate, the equivalent of one year's cash
retainer plus any accrued but unpaid Board and Committee meeting fees that the
deceased was entitled to receive for such services from the Company at the time
of his or her death, such amount to be paid in a lump sum one month from the
date of death. In addition, the Director's restricted stock retainer that the
deceased was to receive for services to the Company shall immediately vest, and
the Company will distribute to the deceased's surviving spouse, or if there be
no surviving spouse to the deceased's estate, a certificate for the shares.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT
THE COMPENSATION AND STOCK OPTION COMMITTEE:
The Compensation and Stock Option 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 Company's 2001 Stock Option and Incentive Plan and
prior stock option plans.
OVERALL OBJECTIVES:
The Company's compensation objectives reflect its philosophy that the
compensation of its key employees (including Executive Officers) should:
- 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;
- Provide compensation at levels that are relatively comparable to
those offered by other leading companies in order to attract and
retain talented executives;
- Align the interests of its key employees with the long-term
interests of the Company's shareholders through the award of
stock incentives.
10
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 volume as the Company.
The Committee has not taken into the account the impact of Section 162(m) of the
Internal Revenue Code (which disallows certain deductions for executive
compensation exceeding $1,000,000 per year) in determining the level of
executive compensation.
BASE SALARIES
Compensation depends on many factors, including individual performance and
responsibilities, future challenges, and an employee's longer term potential.
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, contributions to the Company and
changes in job responsibilities.
- 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 participate in the bonus
program. Awards under the bonus program during fiscal 2003 were based on the
Company attaining certain levels of operating performance, net income and cash
flow. In fiscal 2003, Messrs. Cline and Braum received bonuses based on the
overall performance of the Company in terms of net income and return on invested
capital. In fiscal 2003, Messrs. Lopez and Sausa received bonuses based on the
operating performance and return on invested capital of their individual
business units and the consideration of personal objectives.
STOCK PLANS
The Company's shareholders approved the adoption of the Handleman Company 2001
Stock Option and Incentive Plan (the "Plan") which authorizes the granting of
stock options, performance shares and restricted stock.
The Committee believes that stock ownership by key employees (including
Executive Officers) and stock-based performance compensation arrangements foster
an interest in the enhancement of shareholder value and thus align management's
interests with that of the shareholders. In fiscal 2003, stock options and
performance shares were awarded to key employees in amounts reflecting the
participant's position and ability to influence the Company's overall
performance.
The Committee's policy has been to utilize vesting periods to encourage key
employees to continue in the employ of the Company, and to grant options to
provide a long-term incentive. The exercise price of the options is based on the
fair market value of the underlying shares on the date of the grant. Thus, such
options have value only if the price of the underlying shares increases.
11
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 2003 performance share grant will be based on certain free cash flow
targets being achieved by May 1, 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 which is 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 2003 by Stephen Strome, the Company's
Chief Executive Officer, was $617,300. 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 $425,000 in fiscal 2003 based
on the overall performance of the Company in terms of net income and return on
invested capital. In fiscal 2003, Mr. Strome was awarded a nonqualified stock
option grant to purchase 71,100 shares of the Company's stock (see "Option
Grants in the Last Fiscal Year") and a grant of 54,400 performance shares of the
Company's common stock, which would be distributed if certain free cash flow
targets are achieved by May 1, 2005. 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.
BY THE MEMBERS OF THE COMPENSATION AND STOCK OPTION COMMITTEE OF HANDLEMAN
COMPANY:
James B. Nicholson (Chairman)
Elizabeth A. Chappell
Eugene A. Miller
Lloyd E. Reuss
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Handleman Company Board of Directors is composed of
three 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 A 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 system of internal accounting and financial controls; the
internal audit function; the independent auditors' qualifications and
independence; the performance of the Company's internal audit function and
internal auditors; the annual independent audit of the Company's financial
statements; and any other areas specified by the Board of Directors of potential
financial risks to the Company. The Committee is also responsible for hiring,
retaining and terminating the Company's independent auditors.
Management has responsibility for the Company's financial statements and
financial reporting processes, including the system of internal controls. The
independent auditors are responsible for performing an independent audit of the
Company's consolidated financial statements in accordance with generally
accepted auditing standards and issuing a report thereon.
The Committee reviews the Company's financial statements and financial reporting
processes on behalf of the Board of Directors. In fulfilling its
responsibilities, the Committee has met and held discussions with management,
the internal auditors, and the independent auditors. Management represented to
the Committee that the Company's consolidated financial statements were prepared
in accordance with generally accepted accounting principles. The Committee has
reviewed and discussed the audited consolidated financial statements for the
fiscal year ended May 3, 2003, 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
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.
13
Based upon, and in reliance upon, the Committee's discussions with management
and the independent auditors referred to above, the Committee's review of the
representations of management, 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 2003 (fiscal year ended May 3, 2003)
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
Dr. Irvin D. Reid
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.
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN AMONG COMPANY,
RUSSELL 2500 AND S&P 500
[LINE GRAPH]
1998 1999 2000 2001 2002 2003
HANDLEMAN 100 132 112 106 115 158
RUSSELL 2500 100 94 117 115 119 99
S&P 500 100 121 133 116 100 86
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 1998. 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 feasible to provide a peer group comparison
since any entities that could conceivably be deemed "peers" are either
privately-held companies or subsidiaries or divisions of larger publicly-held
companies. Therefore, the Company has selected the Russell 2500 Index on the
basis of similar market capitalization.
14
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years ended
May 3, 2003, April 27, 2002 and April 28, 2001 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 May 3, 2003 (collectively, the
"named Executive Officers") whose annual salary and bonus exceeded $100,000.
ANNUAL COMPENSATION (a), (b) LONG-TERM COMPENSATION AWARDS
-------------------------------------------------- ------------------------------------------
(c) OPTIONS/SARS (d)
OTHER ANNUAL PERFORMANCE UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION SHARE GRANTS SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) (#) ($)
---------------------------------------------------------------------------------------------------------------------------------
Stephen Strome 2003 617,300 425,000 -- 54,400 71,100 5,673
Chairman of the Board and 2002 601,308 250,000 -- 54,400 71,100 3,619
Chief Executive Officer 2001 566,923 550,000 -- -- 65,000 1,578
Peter J. Cline 2003 413,846 250,000 -- 19,900 26,000 6,365
President and Chief 2002 392,308 150,000 -- 19,900 26,000 2,818
Operating Officer 2001 384,068 325,000 -- -- 40,000 1,967
Gerardo I. Lopez 2003 318,846 150,000 -- 10,000 15,000 6,143
Senior Vice President and 2002 288,816 116,167 82,684(f) 9,400 12,300 1,231
President of Handleman 2001 263,000(e) 161,750 -- -- 20,000 --
Entertainment Resources
Robert J. Sausa 2003 236,923 108,027 4,700 7,500 5,573
Senior Vice President and 2002 226,927 30,001 -- 4,700 6,200 1,431
Chief Information Officer 2001 216,931 76,574 -- -- 11,000 1,015
Thomas C. Braum, Jr. 2003 205,384 130,000 9,400 11,000 4,202
Senior Vice President and 2002 180,579 60,000 -- 9,400 12,300 3,780
Chief Financial Officer 2001 152,855 59,340 -- -- 8,000 1,537
(a) Salary deferred by the named Executive Officers pursuant to the Company's
Salary Deferral Plan (the "401 (k) Plan") follows:
2003 2002 2001
---------------------------
Stephen Strome $11,346 7,570 $ 6,310
Peter J. Cline 12,731 5,875 7,870
Gerardo I. Lopez 12,287 2,463 --
Robert J. Sausa 11,146 3,115 4,062
Thomas C. Braum, Jr. 8,404 7,738 6,146
(b) Other annual compensation did not exceed the lesser of $50,000 or 10% of
individual cash compensation for any named Executive Officer other than
noted below for Mr. Lopez.
(c) Represents grant of performance shares of Handleman Company common stock,
which would be distributed if certain free cash flow targets are achieved
by May 1, 2004 and May 1, 2005, respectively, for the fiscal 2002 and
fiscal 2003 performance grants, respectively.
(d) Represents amounts contributed to the named Executive Officers' 401 (k)
Plan accounts for the Company matching of employee contributions.
(e) Includes a one-time payment of $20,000 made 60 days after joining the
Company in June 2000.
(f) Includes net payments to or on behalf of Mr. Lopez of $600 for certain life
insurance, $8,750 for automobile benefits, $7,797 for financial consulting
and $65,537 for housing costs.
15
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides details regarding stock options granted to the
named Executive Officers in the last fiscal year.
(a) (d)
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS (b) AT ASSUMED ANNUAL RATES OF
NUMBER OF GRANTED EXERCISE STOCK PRICE APPRECIATION
OPTIONS TO EMPLOYEES PRICE (c) FOR OPTION TERM
NAME GRANTED IN FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
------------------------------------------------------------------------------------------------------------------
Stephen Strome 71,100 16.8% $11.825 June 3, 2012 $528,478 $1,339,951
Peter J. Cline 26,000 6.2 11.825 June 3, 2012 193,354 489,996
Gerardo I. Lopez 15,000 3.6 11.825 June 3, 2012 111,550 282,690
Robert J. Sausa 7,500 1.8 11.825 June 3, 2012 55,775 141,345
Thomas C. Braum, Jr. 11,000 2.6 11.825 June 3, 2012 81,803 207,306
(a) The total number of shares subject to options granted to employees in
fiscal 2003 was 422,200 shares excluding options for 17,500 shares
granted to Directors in fiscal 2003.
(b) The exercise price (which corresponded to the fair market value of the
Common Stock on the date of grant) may be paid in cash, or, with the
consent of the Compensation and Stock Option Committee, in Common
Stock of the Company or in such other manner as the Committee
determines is appropriate in its sole discretion.
(c) The options become exercisable up to 33 1/3% on or after June 4, 2003
and prior to June 3, 2004; up to 66 2/3% on or after June 4, 2004 and
prior to June 3, 2005; up to 100% on or after June 4, 2005.
(d) 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 2003 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.
16
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 named Executive Officers during the fiscal year ended May 3, 2003, as well
as the value of unexercised options held by such persons on May 3, 2003. 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)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED FISCAL YEAR-END (#) AT FISCAL YEAR END ($)
ON EXERCISE (a) EXERCISABLE (E)/ EXERCISABLE (E)/
NAME (#) VALUE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
--------------------------------------------------------------------------------------------------------------
Stephen Strome 162,335 (c) $1,217,996 217,765 (E) $961,086 (E)
71,100 (U) 265,689 (U)
Peter J. Cline 73,668 (c) 271,285 39,334 (E) (d) 150,565 (E) (d)
55,998 (U) 97,150 (U)
Gerardo I. Lopez 0 0 33,204 (E) (d) 165,564 (E) (d)
14,096 (U) 55,037 (U)
Robert J. Sausa 0 0 22,635 (E) 109,039 (E)
7,065 (U) 27,537 (U)
Thomas C. Braum, Jr. 5,337 (c) 32,203 14,534 (E) 45,171 (E)
11,433 (U) 41,588 (U)
(a) Values are calculated by subtracting the exercise price from the fair
market value of the stock as of exercise date.
(b) Assumes, for all unexercised in-the-money options, the difference between
the exercise price and the market price ($16.87 per share) of the Company's
Common Stock as of May 3, 2003.
(c) 111,577; 62,412 and 4,258 shares, respectively, of the exercised options
were turned into the Company by Messrs. Strome, Cline and Braum,
respectively, in payment of the exercise price and tax liability incident
to the exercise of the options.
(d) The number of unexercised options shown above as exercisable by Messrs.
Cline and Lopez includes 21,999, and 25,000 shares, respectively, which
were exercised by Messrs. Cline and Lopez after fiscal year end. The value
of unexercised, in-the-money options shown above as exercisable by Messrs.
Cline and Lopez includes $131,150 and $156,375, respectively, for the
options that were exercised after fiscal year end.
17
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. The plan provides pension benefits, death benefits
and disability benefits for covered employees. For the fiscal year ended May 3,
2003, employees with five or more years of service were entitled to monthly
pension benefits beginning at normal retirement age (65). The computation of
benefits under the plan is based upon a formula which takes into consideration
retirement age, years of service up to 30 years, average annual compensation
during the highest five consecutive year period within the 10 years preceding
retirement, and the average of the taxable wage base for social security
purposes over the employee's career. The plan permits early retirement at ages
55-64 for employees with 10 or more years of service. A death benefit equal to a
portion of the employee's accrued benefit is paid to the employee's spouse if
the employee dies after becoming vested under the plan. An employee with 10 or
more years of service whose employment by the Company terminates prior to his or
her normal retirement date due to his or her permanent and total disability is
entitled to receive a disability retirement benefit.
The compensation covered by the plan includes all earnings from the Company as
reported on the employee's W-2 form, for base pay plus overtime and bonus
payments only, plus salary deferrals under the Company's 401 (k) Plan, up to a
maximum of $200,000 for calendar year 2003.
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 30 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
---------------------------------------------------------------------
$200,000* $25,142 $50,284 $75,426
*Compensation which may be considered for any purpose under a qualified pension
plan is limited for calendar year 2003 to $200,000.
The Internal Revenue Code limits the benefits which can be paid from any funded
pension plan that qualifies for federal tax exemption. The amount for calendar
year 2003 is $160,000.
As of May 3, 2003, the credited years of service under the plan for the named
Executive Officers were as follows: 25 for Stephen Strome; 9 for Peter J. Cline;
3 for Gerardo I. Lopez; 3 for Robert J. Sausa; and 18 for Thomas C. Braum, Jr.
18
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 compensation covered by the SERP includes all earnings from the Company as
reported on the employee's W-2 form, for base pay, overtime, and bonus payments,
plus salary deferrals. No maximum applies to compensation covered under the
SERP.
The benefit amount calculated under the formula is computed on the basis of a
straight life annuity and is subject to an offset by benefits provided under the
pension plan.
The following table illustrates current annual benefits payable under the SERP
upon normal retirement at age 65 to persons in certain compensation and years of
service classifications. These benefits are in addition to benefits payable
under the Company pension plan.
FINAL AVERAGE 10 YEARS 20 YEARS 30 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
------------------------------------------------------------------
$200,000 $9,858 $19,716 $29,574
400,000 44,858 89,716 134,574
600,000 79,858 159,716 239,574
800,000 114,858 229,716 344,574
1,000,000 149,858 299,716 449,574
As of May 3, 2003, the credited years of service under the SERP for the named
Executive Officers were as follows: 25 for Stephen Strome; 9 for Peter J. Cline;
3 for Gerardo I. Lopez; 3 for Robert J. Sausa; and 18 for Thomas C. Braum, Jr.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Change in Control Agreements (the "Agreements")
with Stephen Strome and Peter J. Cline in the event their employment is
terminated as a result of, or in the connection with, a change in control (as
defined in the Agreements). The Agreements end December 31, 2003 and are
automatically renewed to December 31 of each subsequent year unless and until
the Company or the named Executive Officer sends a written notice of termination
to the other party.
In event of termination of employment or other specified changes in the
employment relationship within 24 months following a change in control, the
Agreements generally provide for payments of accrued salary and bonus not paid
plus a severance payment equal to the sum of base salary and the average of the
annual bonus accrued during the three fiscal years prior to the termination date
times 2.99. The Agreements also entitle Stephen Strome and Peter J. Cline to
continue participation in the Company's life and health insurance benefits for
36 months following the termination date. In addition, all stock options granted
to Stephen Strome and Peter J. Cline under the Company's 2001 Stock Option and
Incentive Plan or any other incentive plan or arrangement will become 100%
vested and immediately exercisable.
19
Based on current salaries and prior bonuses, if Messrs. Strome or Cline had
terminated their employment as of May 3, 2003 under circumstances entitling them
to severance pay as described above, they would have been entitled to receive
lump sum cash payments of $3,090,000 and $1,978,000, 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 5 percent of the outstanding
shares of Handleman Company Common Stock. Unless otherwise noted, the
information is stated as of August 25, 2003 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 ......................................... 15,245 (b) *
Peter J. Cline ................................................ 60,954 (a) *
James B. Nicholson ............................................ 19,139 (b) *
Eugene A. Miller .............................................. 2,481 (b) *
Sandra E. Peterson ............................................ 5,305 (b) *
Dr. Irvin D. Reid ............................................. 2,481 (b) *
Lloyd E. Reuss ................................................ 18,239 (b) *
Stephen Strome ................................................ 370,430 (a) 1.5%
Ralph J. Szygenda ............................................. 668 *
Gerardo I. Lopez .............................................. 14,588 (a) *
Robert J. Sausa ............................................... 26,021 (a) *
Thomas C. Braum, Jr. .......................................... 28,310 (a) *
All Directors and Executive Officers as a Group (13 persons)... 569,345 (c) 2.3%
Barclays Global Investors ..................................... 2,349,344 (d) 9.5%
Goldman Sachs Asset Management ................................ 1,757,533 (d) 7.1%
Elm Ridge Capital Management .................................. 1,648,600 (d) 6.6%
Franklin Templeton Investments ................................ 1,400,000 (d) 5.6%
* Less than 1 % of the Company's outstanding shares of Common Stock.
(a) The number shown above as beneficially owned by Messrs. Strome, Cline,
Lopez, Sausa and Braum includes 217,765; 17,335; 8,204; 22,635 and 14,534
shares, respectively, which they have the right to acquire within 60 days
of August 25, 2003 pursuant to the Company's stock option plans (assuming,
in certain instances that the stock price reaches certain levels) and
1,823; 1,651; 702; 1,227 and 1,564 shares, respectively, which have been
credited to each of Messrs. Strome, Cline, Lopez, Sausa and Braum 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 and Mr. Reuss includes 6,500;
8,000; 833; 2,500; 833 and 8,000 shares respectively, which they have the
right to acquire within 60 days of August 25, 2003 pursuant to the
Company's stock option plans (assuming, in certain instances that the stock
price reaches certain levels).
(c) All Directors and Executive Officers as a group (13 persons) beneficially
owned 569,345 shares (2.3%) of the Company's outstanding Common Stock as of
August 25, 2003, including 309,940 shares which they have the right to
acquire within 60 days of that date pursuant to the Company's stock option
plans and 8,120 shares which have been credited to them under the 401(k)
Plan.
20
(d) Based on information filed with the Securities and Exchange Commission, a)
Barclays Global Investors, 45 Fremont Street, 17th Floor, San Francisco,
California 94105, owns 2,349,344 shares (9.5%) of the Company's outstanding
Common Stock; b) Goldman Sachs Asset Management, One New York Plaza, 42nd
Floor, New York City, NY 10004-1902, owns 1,757,533 shares (7.1 %) of the
Company's outstanding Common Stock; c) Elm Ridge Capital Management, 747
3rd Avenue, 3rd Floor, New York, New York 10017, owns 1,648,600 shares
(6.6%) of the Company's outstanding Common Stock and d) Franklin Templeton
Investments, One Franklin Parkway, San Mateo, California 94403, owns
1,400,000 shares (5.6%) of the Company's outstanding Common Stock.
Management does not know of any other person who, as of August 25, 2003,
beneficially owned more than 5% of the Company's Common Stock.
21
(This page intentionally left blank)
22
II. OTHER MATTERS
RELATIONSHIP WITH INDEPENDENT PUBLIC AUDITOR
PricewaterhouseCoopers LLP is the independent public auditor for the Company and
has reported on the Company's consolidated financial statements for the fiscal
years ended May 3, 2003 and April 27, 2002. For fiscal years 2003 and 2002, the
Company's independent public auditor was appointed by the Board of Directors
after receiving recommendations from the Audit Committee. PricewaterhouseCoopers
LLP has been reappointed by the Audit Committee for fiscal year 2004.
INDEPENDENT PUBLIC AUDITOR FEES
For the fiscal years ended May 3, 2003 and April 27, 2002, the Company paid
PricewaterhouseCoopers LLP $246,476 and $304,572, respectively, for audit fees;
$9,240 and $0, respectively, for audit-related fees; $154,161 and $202,634,
respectively, for tax fees related to tax compliance, tax advice and tax
planning; and $336,021 and $245,345, respectively, for all other fees. All other
fees are principally comprised of due diligence and employee benefit plan
services. The Audit Committee determined that the non-audit services provided
(and the fees billed for such services) by PricewaterhouseCoopers LLP during
fiscal 2003 and 2002 were compatible with maintaining their independence.
Representatives from PricewaterhouseCoopers LLP will be present at the Annual
Meeting of Shareholders and will be provided the opportunity to make a statement
at the meeting 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 2004 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices by March 12, 2004.
By Order of the Board of Directors,
/s/ Stephen Strome
Stephen Strome
Chairman and Chief Executive Officer
Dated: September 15, 2003
23
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 August 25, 2003. If you hold 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 August 25, 2003, constitutes a
quorum for voting at the Annual Meeting. If you vote, your shares will
be part of the quorum. On the record date, 24,831,246 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 three Directors each
for a term of three years. The nominees are:
James B. Nicholson
Lloyd E. Reuss
Stephen Strome
--------------------------------------------------------------------------------
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 VOTE IS REQUIRED TO ELECT THE DIRECTORS?
A: The three nominees receiving the greatest number of votes will be
elected.
--------------------------------------------------------------------------------
24
Q: WHAT SHARES ARE COVERED BY MY PROXY CARD?
A: The shares covered by your proxy card represent shares Handleman
Company stock of you own either as a:
- Shareholder of record;
- Beneficial owner of shares held in street name; or
- Participant in the Company's 401(k) Plan Handleman
Company Stock Fund.
--------------------------------------------------------------------------------
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, 2003 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 2003 annual report have been
forwarded to you by your broker, bank or nominee who 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.
--------------------------------------------------------------------------------
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 the
nominees for 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.
--------------------------------------------------------------------------------
25
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 will be permitted to vote on behalf of their clients if
no voting instructions are furnished.
--------------------------------------------------------------------------------
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, 2003 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 October 10, 2003 the shares credited to
your account will not be voted.
--------------------------------------------------------------------------------
26
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,
2003 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 October 10,
2003 the shares credited to your 401(k) Plan account will not be
voted.
--------------------------------------------------------------------------------
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: (888)-213-0965
TDD for U.S. Hearing Impaired Shareholders: (800) 231-5469
or (866) 249-2607
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
--------------------------------------------------------------------------------
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 2003 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 August 25,
2003 can attend. Seating, however, is limited. Seating at the Annual
Meeting will be on a first arrival basis.
--------------------------------------------------------------------------------
27
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 of other nominee holds your shares, bring proof of
your ownership with you to the Annual Meeting.
--------------------------------------------------------------------------------
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. Georgeson Shareholder Communications Inc. will help
us solicit proxies for all brokers and nominees at a cost of $5,500
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 DIRECTOR FOR THE 2004 ANNUAL
MEETING?
A: You may recommend any person to be a Director by writing to the
Chairman of the Corporate Governance and Nominating Committee at the
Company's executive offices. The Company's by-laws require that
shareholders send written notice no later than March 12, 2004, in order
to recommend a Director for the 2004 Annual Meeting. The notice is to
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
corporation 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 2004 ANNUAL MEETING?
A: Shareholder proposals must be presented by March 12, 2004 to be
included in the Company's proxy materials for the 2004 Annual Meeting.
--------------------------------------------------------------------------------
28
Q: WHERE CAN I FIND THE CORPORATE GOVERNANCE GUIDELINES FOR HANDLEMAN
COMPANY?
A: A copy of the Corporate Governance Guidelines is attached as Appendix B
to this Proxy Statement.
--------------------------------------------------------------------------------
Q: CAN I ACCESS THE PROXY STATEMENT AND 2003 ANNUAL REPORT ON THE INTERNET
INSTEAD OF RECEIVING PAPER COPIES?
A: This proxy statement and the 2003 annual report are located on
Handleman Company's web site, www.handleman.com. 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 Blvd.
Troy, MI 48084-4142
--------------------------------------------------------------------------------
PLEASE VOTE. YOUR VOTE IS VERY IMPORTANT.
PROMPTLY RETURNING YOUR PROXY WILL HELP TO REDUCE THE COST OF THIS SOLICITATION.
29
(This page intentionally left blank)
30
APPENDIX A
HANDLEMAN COMPANY
AUDIT COMMITTEE CHARTER
I. STATEMENT OF POLICY
The Audit Committee ("Audit Committee" or "Committee") is appointed by the Board
of Directors (the "Board") of Handleman Company (the "Company") to provide
assistance to 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, including the Business Practices
Policy of the Company; and any other areas specified by the Board of potential
significant financial risk to the Company. 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.
II. AUDIT COMMITTEE DUTIES, RESPONSIBILITIES AND PROCESSES
The following shall be the principal duties, responsibilities and recurring
processes of the Audit Committee in carrying out its oversight role. The
processes are set forth as a guide with the understanding that the Committee may
supplement them as necessary or appropriate. As part of oversight
responsibility, the Committee shall:
A. Meetings
1. Meet quarterly or more frequently as circumstances dictate. The
Chairperson of the Audit Committee shall select the meeting dates after
consultation with other members of the Committee.
2. The Committee chairperson shall prepare and/or approve an agenda in
advance of each meeting. If the chairperson is not available for a
meeting, the other members of the Committee may appoint a temporary
chairperson for such meeting.
3. The Committee may ask members of management or others to attend meetings
and provide pertinent information as necessary.
B. Financial Reporting Process and Internal Control
1. Review with management and the independent auditors the status of the
annual audit prior to releasing the unaudited year-end earnings; discuss
matters required to be communicated to 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.
A-1
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 quarterly unaudited financial statements, including the related
earnings press release with management and the independent auditors;
discuss with the independent auditors the results of their review
performed in accordance with SAS No. 71 for unaudited financial
statements before the earning 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 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.
9. Review with the Company's chief corporate 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 Business Practices
Policy of the Company.
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.
A-2
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.
14. Perform such other oversight functions as requested by the Board.
C. 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 the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible
for reviewing the audit as required by law.
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.
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 Company, or by any inquiry or investigation by environmental or
professional authorities, as well as describing the steps the Company
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.
A-3
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.
III. GENERAL GUIDELINES ON MEMBERSHIP, RELATIONSHIP TO THE BOARD OF DIRECTORS,
AND REPORTS
A. Although the Board of Directors reserves the right at all times to determine
the membership of the Audit Committee, the following are guidelines to be
utilized by the Board in the selection process:
1. The Committee shall be comprised of three or more Directors (including a
chairperson) as appointed annually by the Board, considering the
recommendation of the Company's Corporate Governance and Nominating
Committee, each of whom shall be an independent Director as defined by
the New York Stock Exchange listing standards, and each of whom shall be
free from any relationship that would interfere with the exercise of his
or her independent judgment.
2. 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.
3. 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 the
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 elect a
new qualified Director to the Audit Committee as soon as practicable.
B. All Directors shall be invited to all Audit Committee meetings.
C. The Chairperson of the Audit Committee will 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.
A-4
D. The Chairperson of the Audit Committee shall update the Board on the
activities of the Audit Committee regularly. Minutes of any Audit Committee
meetings shall be provided to all Directors following the Audit Committee
meeting and shall be submitted for the next Board meeting, at which time the
Chairperson of the Audit Committee will provide additional comments as
appropriate.
E. The Audit Committee shall prepare the report required by the Securities and
Exchange Commission 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 auditors in accordance with Securities and Exchange Commission
regulations.
F. The Audit Committee shall review and reassess the adequacy of the Audit
Committee Charter on an annual basis and any changes thereto shall be
submitted to the Board for approval. The Audit Committee shall have the
Charter published at least every third year in the Company's proxy statement
in accordance with Securities and Exchange Commission regulations.
G. On an annual basis or upon changes to the composition of the Audit Committee,
the Company must provide the New York Stock Exchange written confirmation
regarding:
1. The determination made by the Board regarding Audit Committee member
independence.
2. The financial literacy of Audit Committee members.
3. The determination that at least one Audit Committee member has
accounting or financial management expertise including the name of any
designated Audit Committee financial expert under Securities and
Exchange Commission regulation.
4. 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.
H. 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.
A-5
(This page intentionally left blank)
APPENDIX B
HANDLEMAN COMPANY
CORPORATE GOVERANCE GUIDELINES
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; and
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 and Stock Option Committee and Corporate Governance
and Nominating Committee. The Board has the flexibility to form a new
committee or disband a current committee. It is the policy of the Board that
only independent Directors serve on the Audit Committee, Compensation and
Stock Option Committee and Corporate Governance and Nominating Committee.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS: The Chairman 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 the entire Board, taking
into account the desires and suggestions of individual Directors. It is the
belief of the Board that committee rotation is a desirable principle, but
should not be mandated as a policy since there may be reasons at a given
point in time to maintain an individual Director's committee membership for
a longer period or to shorten the period. The learning time to become an
active contributor on a particular committee is also a factor.
5. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS: The Chair of each committee, in
consultation with its members, determines the frequency and length of the
meetings of the committee.
6. COMMITTEE AGENDA: The Chair of each committee, in consultation with the
appropriate Officers, will develop the committee's agenda. At the beginning
of the Board year (from annual shareholders meeting to annual meeting), each
committee will establish a schedule of agenda subjects to be discussed
during the year (to the extent these can be foreseen); the schedule for each
committee will be furnished to all Directors. The agenda for each meeting
will be distributed to all Directors in advance and suggestions for changes
or additions will be solicited.
B-1
7. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS: The Chairman and CEO will
establish the agenda for each Board meeting. At the beginning of the Board
year, the Chairman and CEO will establish a schedule of agenda subjects to
be discussed during the year (to the extent these can be foreseen). The
agenda for each meeting will be distributed to the Presiding Director in
advance and suggestions for changes or additions will be solicited. At least
one Board meeting each year will be a Board "retreat," the principal purpose
of which will be a Board review of long-term strategic plans and the
principal issues that Handleman Company will face in the future. The Board
will have a minimum of six scheduled meetings per Board year and will be on
call for additional meetings as needed.
8. BOARD MATERIALS DISTRIBUTED IN ADVANCE: Information and data that are
important to the Board's understanding of the business will be distributed
in writing to the Board the week before the scheduled Board meeting. The
Officers will strive to make the information concise yet comprehensive, and
will make an ongoing effort to solicit suggestions from independent
Directors on how to best meet their information needs.
9. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS: The Chairman and CEO
will invite Senior Officers to attend the meeting when their presence is
expected to significantly enhance the quality of Board decisions. Generally,
attendance of non-Directors will take place when their expertise is required
or where attendance is encouraged as noted in Item 11.
10. EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS: The independent Directors will
meet in executive session at the conclusion of each scheduled Board meeting.
The Presiding Director will preside over the executive session and will
report to the Chairman and CEO on the nature of the discussion immediately
following the Board meeting.
11. 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.
12. BOARD COMPENSATION REVIEW: It is appropriate for the Officers to report once
a year to the Compensation and Stock Option Committee the status of Board
compensation in relation to other comparable U.S. companies and in
consideration of the most current best practices. Changes in Board
compensation, if any, should come at the suggestion of the Compensation and
Stock Option Committee, but with full discussion and concurrence by the
Board.
13. SIZE OF THE BOARD: It is the opinion of the Board that the optimal size of
the Board under normal circumstances is 8 to 10 members. This size permits
both a diversity of skills and views available to contribute to the duties
of the Board and its Committees as well as the coordination and
participation of all Directors in Board deliberations. However, the Board
would be willing to go to a somewhat larger size in order to accommodate the
availability of an outstanding candidate.
14. MIX OF INSIDE AND OUTSIDE DIRECTORS: The Board believes that, as a matter of
policy, there should be a majority of independent Directors on the Handleman
Board.
B-2
15. 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.
16. 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
Company stock valued at market price equal to three times the annual
retainer.
17. 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.
18. BOARD MEMBERSHIP CRITERIA: The Corporate Governance and Nominating Committee
is responsible for reviewing with the Board periodically the appropriate
skills and characteristics required of Board members in the context of the
current make-up of the Board. This assessment should include issues of
diversity, age, skills such as understanding of marketing, finance,
regulation and public policy, international background, commitment to
Handleman's shared values, etc. -- all in the context of an assessment of
the perceived needs of the Company and the Board at that point in time.
19. SELECTION OF NEW DIRECTOR CANDIDATE/EXTENDING INVITATIONS TO BOARD: The
Board itself should be responsible, in fact as well as procedure, for
selecting its own members. The Board delegates the screening process
involved to the Corporate Governance and Nominating Committee and the
Presiding Director with direct input from the Chairman and CEO. The
invitation to join the Board should be extended by the Chairman and CEO and
the Chair of the Corporate Governance and Nominating Committee.
20. ASSESSING THE BOARD'S PERFORMANCE: The Board commits to participate in a
process of self-evaluation annually, led by the Corporate Governance and
Nominating Committee. This will be discussed with the full Board following
the end of each fiscal year. This assessment should be of the Board's
contribution as a whole and should specifically review areas in which the
Corporate Governance and Nominating Committee or the Chairman and CEO
believes a better contribution could be made. Its purpose is to increase the
effectiveness of the Board. The purpose of the evaluation will be to
discover if there are changes to the Board's structure and operations, which
will maximize the value that the Board adds to the Company.
21. 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.
B-3
22. RETIREMENT AGE: Directors will submit a written resignation to the Board
upon reaching the age of 72. The Corporate Governance and Nominating
Committee will review the desirability of continued service by that Director
in light of the needs of the Company at that time and make a recommendation
to the Board. If continued service is requested, that Director will then
annually submit a written resignation to be considered by the Board.
23. FORMAL EVALUATION OF THE CHAIRMAN AND CEO: At the beginning of each fiscal
year, the Chairman and CEO will set forth in writing to the Chair of the
Compensation and Stock Option Committee the Chairman and CEO's personal
goals for the performance of his duties and responsibilities during such
fiscal year. The independent Directors should make this evaluation annually,
and it should be communicated to the Chairman and CEO by the Chair of the
Compensation and Stock Option Committee. The evaluation should be based on
objective criteria, including comparison of the Chairman and CEO's goals for
the year against actual results, performance of the business, accomplishment
of long-term strategic objectives, management development, and the like. The
evaluation will be used by the Compensation and Stock Option Committee in
the course of its deliberations when considering the compensation of the
Chairman and CEO.
24. SUCCESSION PLANNING: There will be an annual report by the Chairman and CEO
to the Board on succession planning. There should also be available, on a
continuing basis, the Chairman and CEO's recommendations as to a successor
should the Chairman and CEO be unexpectedly disabled.
25. 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.
26. 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. 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.
27. ADHERENCE TO CODE OF BUSINESS PRACTICES: Each Director shall be familiar
with and adhere to the Company's Code of Business Practices. The Directors
shall annually acknowledge in writing that the Director has complied with
the Code of Business Practices as it applies to the Director.
28. 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 continuing education programs
available during the calendar year.
B-4
(This page intentionally left blank)
WWW.HANDLEMAN.COM
[HANDLEMAN COMPANY LOGO]
HANDLEMAN COMPANY
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 14, 2003
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF
HANDLEMAN COMPANY
Elizabeth A. Chappell, Peter J. Cline and Dr. Irvin D. Reid, 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 October 14, 2003, and at any
adjournment thereof.
(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 ACCOUNT ONLINE.
Access your Handleman shareholder account online via Investor ServiceDirect(R)
(ISD).
Mellon Investor Services, now makes it easy and convenient to get current
information on your shareholder account. After a simple and secure process of
establishing a Personal Identification Number (PIN), you are ready to log in and
access your account to:
o View account status o Make address changes
o View certificate history o Establish/change your PIN
VISIT US ON THE WEB AT HTTP://WWW.MELLONINVESTOR.COM
AND FOLLOW THE INSTRUCTIONS SHOWN ON THIS PAGE.
STEP 1: FIRST TIME USERS -- ESTABLISH A PIN
You must first establish a Personal Identification Number (PIN) online by
following the directions provided in the upper right portion of the web screen
as follows. You will also need your Social Security Number (SSN) or Investor ID
available to establish a PIN.
THE CONFIDENTIALITY OF YOUR PERSONAL INFORMATION IS PROTECTED USING SECURE
SOCKET LAYER (SSL) TECHNOLOGY.
o SSN or Investor ID
o Then click on the Establish PIN button
Please be sure to remember your PIN, or maintain it in a secure place for future
reference.
STEP 2: LOG IN FOR ACCOUNT ACCESS
You are now ready to log in. To access your account please enter your:
o SSN or Investor ID
o PIN
o Then click on the Submit button
If you have more than one account, you will now be asked to select the
appropriate account.
STEP 3: ACCOUNT STATUS SCREEN
You are now ready to access your account information. Click on the appropriate
button to view or initiate transactions.
o Certificate History
o Issue Certificate
o Address Change
FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN
9AM-7PM MONDAY-FRIDAY EASTERN TIME
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. Please
IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR Mark Here [ ]
DIRECTORS LISTED BELOW. for Address
Change or
Comments
SEE REVERSE SIDE
THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
1. Election of Directors. 2. In their discretion with respect to any other matters
that may properly come before the meeting.
FOR all nominees WITHHOLD
listed below AUTHORITY
(except as marked to vote for all nominees
to the contrary below) listed below Please disregard if you have previously provided your
[ ] [ ] consent decision.
By checking the box to the right, I consent to future [ ]
delivery of annual reports, proxy statements, prospectuses
and other materials and shareholder communications
electronically via the Internet at a webpage which will be
disclosed to me. SEE FOOTNOTE BELOW *
01 James B. Nicholson, 02 Lloyd E. Reuss, 03 Stephen Strome The undersigned hereby revokes any proxy or proxies heretofore
given to vote such stock, and hereby ratifies and confirms all
(INSTRUCTION: To withhold authority to vote for any individual that said attorneys and proxies, or their substitutes, may do by
nominee, write that nominee's name in the space provided below) 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 2003.
PLEASE PROMPTLY DATE, SIGN, AND MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE
SIGNATURE ________________________________________ SIGNATURE ________________________________________ DATED _______________ , 2003
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 /\
* FOOTNOTE 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 11PM EASTERN TIME
THE DAY PRIOR TO 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
HTTP://WWW.EPROXY.COM/HDL
Use the Internet to vote your proxy. Have your
proxy card in hand when you access the web
site. You will be prompted to enter your
control number, located in the box below, to
create and submit an electronic ballot.
OR
TELEPHONE
1-800-435-6710
Use any touch-tone telephone to vote your
proxy. Have your proxy card in hand when you
call. You will be prompted to enter your
control number, located in the box below, and
then follow the directions given.
OR
MAIL
Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid
envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT WWW.HANDLEMAN.COM
REFERENCE INVESTOR RELATIONS/KEY FINANCIALS