OMB APPROVAL
--------------------------
OMB Number: 3235-0059
Expires: February 28, 2006
Estimated average burden
hours per response...12.75
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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)(4) 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:
--------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
(HANDLEMAN COMPANY LOGO)
Handleman Company
500 Kirts Boulevard
Troy, Michigan 48084
Notice of 2006
Annual Meeting of Shareholders
and Proxy Statement
(HANDLEMAN COMPANY LOGO)
Stephen Strome
Chairman and Chief Executive Officer
Handleman Company
500 Kirts Boulevard
Troy, MI 48084
August 3, 2006
Dear Shareholders:
It is my pleasure to invite you to Handleman Company's 2006 Annual Meeting of
Shareholders. We will hold the meeting on Wednesday, September 6, 2006, 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 Handleman Company's business operations. There will also be time
devoted to respond to shareholder questions.
We hope you will be able to attend the Annual Meeting. Please vote your shares
regardless of whether you plan to attend in person. We are pleased to offer
multiple options for voting your shares. As detailed in the "Questions and
Answers" section of the Proxy Statement (Appendix A) you can vote using any of
the following methods: sign and date the proxy card or voting instruction card
and return it in the prepaid envelope; vote by telephone or the Internet; or
vote in person at the meeting.
Thank you for your continued support of Handleman Company.
Sincerely,
/s/ Stephen Strome
----------------------------------------
Stephen Strome
Chairman and Chief Executive Officer
TABLE OF CONTENTS
PAGE
----
Notice of the 2006 Annual Meeting of Shareholders ....................... 1
General Information ..................................................... 2
Voting Securities ....................................................... 2
I. Election of Directors ........................................... 3
- Board Nominees ............................................. 3
- Directors Whose Terms Expire in 2007 ....................... 4
- Directors Whose Terms Expire in 2008 ....................... 4
Board Information ............................................... 5
- Board Meetings ............................................. 5
- Director Independence ...................................... 5
- Board Committees ........................................... 5
- Audit Committee ........................................ 5
- Corporate Governance and Nominating Committee ........... 5
- Corporate Governance and Nominating Committee Process
for Identifying and Evaluating Nominees .............. 6
- Compensation Committee .................................. 6
- Presiding Director ......................................... 7
- Communications with the Board .............................. 7
- Director Education ........................................ 7
- Board Compensation ......................................... 9
- Retainer and Fees ....................................... 9
- Certain Relationships and Related Transactions .......... 9
- Section 16(a) Beneficial Ownership Reporting
Compliance ........................................... 10
- Compensation Committee Interlocks and Insider
Participation ........................................ 10
Compensation Committee Report.................................... 10
Audit Committee Report .......................................... 13
Performance Graph ............................................... 15
Executive Compensation .......................................... 16
Long-Term Incentive Plan - Awards in Last Fiscal Year ........... 17
Option Grants in Last Fiscal Year................................ 17
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values ....................................... 18
Pension Plan Table .............................................. 19
Supplemental Executive Retirement Plan Table .................... 20
Change in Control Agreements .................................... 20
Security Ownership of Certain Beneficial Owners and Management .. 21
II. Ratification of Appointment of Independent Registered
Public Accounting Firm ....................................... 23
- Independent Registered Public Accounting Firm Fees ......... 23
III. Other Matters ................................................... 24
- Other Proposals ............................................ 24
- Shareholder Proposals for the 2007 Annual Meeting .......... 24
Appendix A - Questions and Answers about the Annual Meeting and Voting .. A-1
Appendix B - Corporate Governance Guidelines ............................ B-1
Appendix C - Audit Committee Charter .................................... C-1
HANDLEMAN COMPANY
NOTICE OF THE 2006
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 6, 2006
The Annual Meeting of Shareholders of Handleman Company (the "Company") will be
held on Wednesday, September 6, 2006 at 2:00 p.m. Eastern Daylight Time, at the
Somerset Inn, 2601 West Big Beaver Road, Troy, Michigan 48084. The proposals to
be voted on at the Annual Meeting are as follows:
1. The election of three Directors for terms expiring in 2009. Nominees
are:
James B. Nicholson
Lloyd E. Reuss
Stephen Strome
2. To ratify the Handleman Company Board of Director's Audit Committee
appointment of PricewaterhouseCoopers LLP as the Company's independent
registered public accounting firm for the fiscal year ending April 28,
2007, and
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITS NOMINEES FOR DIRECTORS AND
"FOR" THE RATIFICATION OF THE AUDIT COMMITTEE'S APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING APRIL 28, 2007. THE BOARD OR PROXY
HOLDERS WILL USE THEIR DISCRETION ON OTHER MATTERS THAT MAY ARISE AT THE ANNUAL
MEETING.
The record date for determination of the shareholders entitled to notice of, and
to vote at, the Annual Meeting, or any adjournment thereof, was July 10, 2006.
If you have any questions about the Annual Meeting, please contact:
Corporate Secretary
Handleman Company
500 Kirts Boulevard
Troy, MI 48084
248-362-4400
BY ORDER OF THE HANDLEMAN COMPANY BOARD OF DIRECTORS
1
HANDLEMAN COMPANY
500 KIRTS BOULEVARD
TROY, MICHIGAN 48084
----------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 6, 2006
GENERAL INFORMATION
The approximate mailing date for this Proxy Statement and the proxy is August 3,
2006. A copy of the Annual Report of the Company for the fiscal year ended April
29, 2006 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. Expenses incurred in connection with the solicitation of proxies
will be paid by the Company and may include requests by mail and personal
contact by its directors, officers and employees. In addition, the Company has
retained Mellon Investor Services LLC, 480 Washington Boulevard - 27th Floor,
Jersey City, NJ 07310 to aid in the solicitation of proxies from brokers, banks,
other nominees and institutional holders at a fee not to exceed $5,000 plus
out-of-pocket expenses. The Company will reimburse brokers or other nominees for
their expenses in forwarding proxy materials to shareholders. Any person giving
a proxy has the power to revoke it at any time before it is voted.
For additional information regarding voting your shares, see "Questions and
Answers," which is attached as Appendix A.
VOTING SECURITIES
Only holders of record of shares of $.01 par value common stock (the "Common
Stock") at the close of business on July 10, 2006 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 July 10, 2006, the date of record, the Company had
issued and outstanding 20,228,703 shares of Common Stock.
2
I. ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. At each Annual Meeting,
the term of one class expires. Directors in each class serve for three-year
terms, or until the Director's retirement. Three Nominees for Director are to be
elected by shareholders at the Annual Meeting. The nominees for Director: James
B. Nicholson, Lloyd E. Reuss and Stephen Strome, are to be elected for
three-year terms expiring in 2009.
Following each Director's name is (1) the year he or she was first elected a
Director, (2) his or her age as of the date of the Annual Meeting, and (3) a
brief account of the Director's business experience.
BOARD NOMINEES:
JAMES B. NICHOLSON Director since 1991
Age 63
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 and
the non-executive Chairman of the Board of LaSalle Bank Midwest Corporation.
LLOYD E. REUSS Director since 1993
Age 69
Mr. Reuss served as General Motors Corporation's Executive Vice President of New
Vehicles and Systems from April 6, 1992 through his retirement on January 1,
1993. Mr. Reuss served as President of General Motors Corporation from August 1,
1990 through April 5, 1992. Mr. Reuss is also a director of International
Speedway Corporation.
STEPHEN STROME Director since 1989
Age 61
Mr. Strome has served as Chairman of the Board and Chief Executive Officer of
the Company since January 12, 2001. From May 1, 1991 through January 11, 2001,
Mr. Strome served as President and Chief Executive Officer of the Company. Mr.
Strome is also a director of AmerUs Group.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ITS NOMINEES
3
CONTINUING DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE AT THE 2007 ANNUAL MEETING:
ELIZABETH A. CHAPPELL Director since 1999
Age 48
Ms. Chappell has served as President and Chief Executive Officer of the Detroit
Economic Club since April 15, 2002. From January 4, 2001 through April 14, 2002,
Ms. Chappell served as a business consultant in private practice. Ms. Chappell
served as Executive Vice President - Corporate Communications and Investor
Relations of Compuware Corporation from January 3, 2000 to January 3, 2001. Ms.
Chappell was formerly President and Chief Executive Officer of The Chappell
Group Inc., a consulting firm she founded in 1995 that specialized in strategic
planning, organizational development and sales and marketing strategies. Ms.
Chappell is also a director of American Axle and Manufacturing.
RALPH J. SZYGENDA Director since 2003
Age 58
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.
THOMAS S. WILSON Director since 2004
Age 56
Mr. Wilson has served as President and Chief Executive Officer of Palace Sports
and Entertainment, Inc., since 1993, overseeing the operations of the Detroit
Pistons, Detroit Shock and Tampa Bay Lightning, and such entertainment venues as
The Palace, DTE Energy Music Theatre and Meadow Brook Music Festival in Michigan
and the St. Pete Forum in Florida.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2008 ANNUAL MEETING:
EUGENE A. MILLER Director since 2002
Age 68
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 also a
director of DTE Energy, Inc.
P. DANIEL MILLER Director since 2005
Age 58
Mr. P. Daniel Miller has served as Executive Vice President of Kimball
International and as President of Kimball International Furniture since August
14, 2000. Mr. Miller's prior experience includes executive management positions,
sales and marketing, manufacturing operations and multi-billion branded sales
and distribution strategies, both domestically and internationally, at
International Knife and Saw, Overhead Door Corporation and Whirlpool
Corporation.
IRVIN D. REID Director since 2002
Age 65
Dr. Reid has served as President of Wayne State University since November 24,
1997. From August 1, 1989 through November 23, 1997, Dr. Reid served as
President of Montclair State University. Dr. Reid is also a director of
Mack-Cali Real Estate Investment Trust.
4
BOARD INFORMATION
BOARD MEETINGS:
During the fiscal year ended April 29, 2006, the Handleman Company Board of
Directors (the "Board") held a total of nine meetings. During fiscal 2006, each
Director of the Company attended at least 75% of the aggregate number of
meetings of the Board and of all committees of the Board on which such Director
served, during the time each such Director was a member of the Board. The annual
meeting of shareholders is held in conjunction with a regularly scheduled Board
meeting, and Directors are expected to attend. Eight of the nine Directors
attended the September 7, 2005 Annual Meeting.
Handleman Company's independent Directors met without the Chief Executive
Officer six times during the fiscal year ended April 29, 2006.
DIRECTOR INDEPENDENCE:
New York Stock Exchange (the "Exchange") independence standards for companies
listed on the Exchange, including the Company, require a majority of the Board
to be independent and every member of each of the Audit Committee, Compensation
Committee, and Nominating and Corporate Governance Committee to be independent
from the Company. A director is considered independent only if the Board
"affirmatively determines that the director has no material relationship with
the listed company (directly or as a partner, shareholder or officer of an
organization that has a relationship with the company)," in accordance with the
listing standards of the Exchange. In connection with this standard, the Board
has affirmatively determined that all of the Directors (other than Mr. Strome)
are independent of the Company and its management under the standards set forth
by the Exchange.
BOARD COMMITTEES:
AUDIT COMMITTEE: The Audit Committee is appointed by the Board of Directors of
the Company to provide assistance to the Board of Directors in fulfilling its
oversight responsibility relating to the Company's financial statements and
financial reporting processes; the systems of internal accounting and financial
controls; the internal audit function; the annual independent audit of the
Company's financial statements; any financially-related legal compliance or
ethics programs as established by the Board; and any other areas specified by
the Board of potential significant financial risk to the Company.
All members of the Audit Committee are financially literate, as the Company's
Board has interpreted such qualification in its business judgment. The Board of
Directors has determined that Eugene A. Miller satisfies the standard for "audit
committee financial expert" in compliance with the Sarbanes-Oxley Act of 2002
and has accounting or related financial management expertise as required by the
New York Stock Exchange.
The functions of the Audit Committee are listed in the Audit Committee Charter,
which is attached as Appendix C to this Proxy Statement.
The Audit Committee held nine meetings during the fiscal year ended April 29,
2006. Members: Mr. Eugene A. Miller, Chairman, Ms. Elizabeth A. Chappell, Dr.
Irvin D. Reid and Mr. Ralph J. Szygenda.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE: The Corporate Governance and
Nominating Committee considers the performance of incumbent Directors and makes
recommendations to the Board for nominees for election as Directors. The
Corporate Governance and Nominating Committee also considers nominees for
Directors recommended by shareholders. Recommendations for the 2007 Annual
Meeting of Shareholders should be submitted to the attention of the Chairman of
the Corporate Governance and Nominating Committee at the Company's executive
offices by no later than May 9, 2007. The Board of Directors has adopted
corporate governance guidelines recommended by the Committee. The guidelines are
reviewed annually and are monitored by the Committee.
5
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 Board believes that it is important that
the Company's stakeholders and others are able to review its corporate
governance practices. Accordingly, the Company's Corporate Governance Guidelines
and Code of Business Conduct and Ethics are published on the Company's website,
www.handleman.com, under Investor Relations/Corporate Governance.
The functions of the Corporate Governance and Nominating Committee are listed in
the Corporate Governance and Nominating Committee Charter. The Corporate
Governance and Nominating Committee Charter is available on the Company's
website, www.handleman.com, under Investor Relations/Corporate Governance.
The Corporate Governance and Nominating Committee held two meetings during the
fiscal year ended April 29, 2006. Members: Mr. Lloyd E. Reuss, Chairman, Mr.
Eugene A. Miller, Mr. James B. Nicholson, Dr. Irvin D. Reid and Mr. P. Daniel
Miller.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE PROCESS FOR IDENTIFYING AND
EVALUATING NOMINEES:
The Directors and the Corporate Governance and Nominating Committee (the
"Committee") are responsible for recommending candidates for membership on the
Board. In assessing potential new Directors, the Committee considers individuals
from various disciplines and diverse backgrounds. The selection of qualified
directors is complex and crucial to Handleman's long-term success. Board
candidates are considered based upon various criteria, such as their broad-based
business skills and experiences, a global business and social perspective,
concern for the long-term interests of the shareholders, and personal integrity
and judgment. In addition, Directors must have time available to devote to Board
activities and to enhance their knowledge of Handleman Company and the music
industry. To assist in the identification and evaluation of qualified director
candidates the Company has, on occasion, engaged the services of a search firm.
COMPENSATION COMMITTEE: The duties of the Compensation Committee are:
recommending to the Board of Directors the remuneration arrangements for senior
management; recommending to the Board of Directors compensation plans in which
officers are eligible to participate; recommending to the Board of Directors
director compensation programs; and granting stock options, performance shares,
performance units and restricted stock awards under the Company's Stock Plans.
The functions of the Compensation Committee are listed in the Compensation
Committee Charter. The Compensation Committee Charter is available on the
Company's website, www.handleman.com, under Investor Relations/Corporate
Governance.
The Compensation Committee held four meetings during the fiscal year ended April
29, 2006. Members: Mr. James B. Nicholson, Chairman, Ms. Elizabeth A. Chappell,
Mr. Lloyd E. Reuss and Mr. Thomas S. Wilson.
6
PRESIDING DIRECTOR:
The Board designates annually an independent, non-employee Director to serve as
Presiding Director. Duties and responsibilities of the Presiding Director
include:
- presiding over executive sessions of the independent Board members;
- advising the Chief Executive Officer of appropriate feedback from
executive sessions, including any actions to be taken as well as any
issues or concerns raised by the independent Directors;
- advising on the agenda for the Board meetings;
- meeting with senior officers, if deemed appropriate, to discuss the
business and issues facing the Company;
- working with the Chairman of the Corporate Governance and Nominating
Committee in the selection of the Committee Chairs; and
- meeting with shareholders, if appropriate, to discuss their concerns.
The Chairs of the Compensation Committee, Audit Committee and Corporate
Governance and Nominating Committee rotate annually in the position of Presiding
Director.
Effective April 30, 2006, the Presiding Director is Mr. Lloyd E. Reuss.
COMMUNICATIONS WITH THE BOARD:
Shareholders may communicate with the Presiding Director or with the
non-employee Directors as a group by sending a letter by regular or express mail
addressed to the Corporate Secretary, Handleman Company, 500 Kirts Blvd., Troy,
MI 48084, Attention: Presiding Director or Non-Employee Directors. All such
correspondence sent to that address will be delivered to those Directors on a
quarterly basis, unless management determines by individual case that it should
be sent more promptly. All correspondence to Directors will be acknowledged by
the Corporate Secretary and may also be forwarded within Handleman Company to
the subject matter expert for an investigation.
DIRECTOR EDUCATION:
One of Handleman Company's core values is "Continuous Learning and Improvement."
The Company encourages and supports this value throughout all levels within the
organization. The Board members also believe continuous learning is important to
ensure the ongoing effectiveness of the Board. Accordingly, the Board has
established guidelines for ongoing continuing education for Directors. See
guideline 36 of Handleman Company's Corporate Governance Guidelines attached as
Appendix B. Following are fiscal 2006 activities and upcoming programs:
MS. ELIZABETH CHAPPELL attended the "Directors' College," a course presented by
the Stanford Law School, Stanford, CA from June 19 to 21, 2005. The purpose of
the course was to provide the latest information on critical issues facing
boards today - Sarbanes-Oxley compliance, compensation and audit committee best
practices, litigation, D&O insurance coverage, and ethical concerns - with
perspectives on best practices. This course was accredited by Institutional
Shareholder Services ("ISS").
7
MR. EUGENE A. MILLER attended "The KPMG Audit Roundtable" on May 10, 2005 in
Dearborn, Michigan. The roundtable focused on enhancing oversight of internal
control over financial reporting. Roundtable participants included members of
audit committees and directors who rely on audit committees. Participants
considered lessons learned from Sarbanes Oxley 404 and explored how audit
committees can improve their oversight of the financial reporting process.
MR. JAMES B. NICHOLSON attended the "Fortune Boardroom Forum" which focused on
the following topics.
- How board members can best safeguard their companies from the five types of
risk: strategic, financial, operational, reputational and
regulatory/compliance.
- What is the board's role in ensuring that America remains competitive into
the 21st century?
- Should directors who have been taking a more active role in shaping
business strategy also become involved in policy issues that impact their
company's performance?
- Chief Executive Officer succession.
- Director activism as it relates to Compensation, Succession, Audit and
Strategic Planning. The course was held on June 27 to 28, 2005 in Chicago,
Illinois.
DIRECTOR IN-HOUSE EDUCATION:
The Company has scheduled a special meeting of the Board of Directors in October
2006, at which an Institutional Shareholder Services accredited education
session will be conducted. It is expected that all Directors will attend.
8
BOARD COMPENSATION:
RETAINER AND FEES:
Officers of the Company who are Directors do not receive additional compensation
for services as a Director.
During fiscal 2006, non-employee Directors received an annual cash retainer of
$25,000 payable in four quarterly installments of $6,250.
During fiscal 2006 each Director received meeting fees of $1,500 for each Board
of Directors meeting attended. In addition, each member on a Committee was paid
at the rate of $1,500 for each Committee meeting attended, with the exception of
the Audit Committee Chairman who received Audit Committee meeting fees of $2,500
for each meeting attended and the Compensation Committee Chairman who received
Compensation Committee meeting fees of $2,000 for each meeting attended.
Non-committee member Directors who are requested in advance to participate in
any Committee meeting are also paid the committee meeting fee. In addition, the
Chief Executive Officer has the discretion to approve payments up to $500 to
independent Directors for incremental services.
During fiscal year 2006, each Committee Chairman received an annual fee of
$3,500. Directors are reimbursed for travel and other expenses related to
attendance at Board and Committee meetings.
In addition, during fiscal year 2006 the Presiding Director received an annual
fee of $6,000.
The 2004 Stock Plan allows restricted stock grants to non-employee Directors. In
September 2005, each non-employee Director received a 2,000 share grant of
restricted Handleman Company stock. These shares vest in equal increments over
three years. In addition, non-employee Directors receive a one-time stock grant
of 500 shares when first joining the Board. This grant vests 100% three years
from the date the Director first joins the Board.
Under resolutions of the Board of Directors presently in effect, if certain
Corporate, Division or Subsidiary Officers should die while serving in such
capacity, the Company will pay to the surviving spouse, or if there is no
surviving spouse then to the decedent's estate, the equivalent of one year's
salary (excluding bonuses) based upon the amount being received by the decedent
at the time of his or her death, in 24 equal monthly installments commencing one
month after death. In the event a Director should die while serving the Company
in such position, the Company shall pay to the 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 deceased Director's
outstanding restricted stock grants shall immediately vest.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
There are no matters relating to certain relationships and related transactions
that Handleman Company is required to disclose under applicable rules and
regulations.
9
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE:
Federal securities law requires that Directors and Executive Officers of the
Company must report to the Securities and Exchange Commission and the Company,
within certain periods, the number of shares of the Corporation's equity
securities they own and any changes in such ownership. Based upon information
furnished by the Directors and Executive Officers, all required Section 16(a)
filings for fiscal year 2006 have been made in a timely manner.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION:
No member of the Compensation Committee is a current or former officer or
employee of the Company.
COMPENSATION COMMITTEE REPORT
THE COMPENSATION COMMITTEE:
The Compensation Committee (the "Committee") is composed only of independent
Directors as defined by the requirements of the New York Stock Exchange and the
Company's Corporate Governance Guidelines. The Committee exercises the Board's
powers in designing and approving compensation programs for the Company. The
Committee works to ensure 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 long-term incentive awards of each of the Executive
Officers including the Chief Executive Officer. The Committee administers the
2004 Stock Plan and prior stock plans.
OVERALL OBJECTIVES:
The Company's compensation objectives reflect its philosophy that the
compensation of its key employees (including Executive Officers) should:
- provide performance-based total compensation at market-competitive
levels to attract and retain key executives critical to the long-term
success of the Company;
- reward executives for long-term strategic management and the
enhancement of shareholder value;
- provide a compensation program that motivates key employees to achieve
their strategic goals by tying compensation to the performance of the
Company and applicable business units, as well as to individual
performance; and
- align the interests of its key employees with the long-term interests
of the Company's shareholders through long-term incentive awards.
The compensation packages offered to key employees are based on a review of
compensation surveys, pay practices among comparable companies, and the advice
of independent compensation consultants. In assessing compensation levels from a
comparability standpoint, the Committee refers to compensation data from
similarly-sized companies that are viewed as business and labor market
competitors of the Company.
10
BASE SALARIES:
Compensation depends on many factors, including individual performance and
responsibilities and an employee's longer-term potential. In addition, the
Company's financial performance and the compensation levels at comparable
companies are important in determining base salaries.
Factors considered in establishing base salaries are:
- analysis and evaluation of each salaried position with a comparison of
compensation levels to similar positions based upon the competitive
marketplace on both a regional and national basis. Salary levels are
reviewed annually and are subject to adjustment based on the general
movement in salaries in the job market, as well as the individual's
job performance and contributions to the Company;
- prior year salary;
- changes in individual job responsibilities; and
- past performance of individuals.
BONUSES:
The Company's bonus program is intended to encourage and reward the achievement
of corporate objectives. The named Executive Officers, as well as other officers
of the Company, participate in the bonus program. Awards under the bonus program
are based on the Company attaining certain levels of operating performance and
net income and personal objectives. In fiscal 2006, no bonuses were paid based
on operating performance and net income because the overall net income objective
of the Company was not met. In fiscal 2006, Messrs. Albrecht and Wilson received
bonuses of $26,388 and $19,940, respectively, based on the achievement of
personal objectives. Mr. Braum received a discretionary bonus of $33,750 based
on his personal performance. Mr. Lund received a bonus of $18,667 based on the
achievement of personal objectives and a discretionary bonus of $6,333 based on
his personal performance.
STOCK PLANS:
The Company's shareholders approved the adoption of the Handleman Company 2004
Stock Plan (the "Plan") that authorizes the granting of stock options,
performance shares, performance units and restricted stock.
The Committee believes that stock ownership by 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.
The Committee reviewed long-term incentives from the perspective of market
competitiveness and value and 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 use of performance shares and performance units. Performance shares and
performance units provide a link between pay and performance.
In fiscal 2006, performance shares and performance units were awarded to
Executive Officers in amounts reflecting each participant's position and ability
to influence the Company's overall performance. The number of shares and units
that the Executive Officers will receive from the fiscal 2006 performance share
grant will be based on certain free cash flow targets being achieved during the
May 1, 2005 through May 3, 2008 performance period.
11
STOCK OWNERSHIP PROGRAM:
Handleman Company has adopted certain minimum ownership guidelines for key
management and Directors. For the Chief Executive Officer, it is expected that
he will own shares having a value equal to five times base salary. For other
Executive Officers the value of shares that they are expected to own is based
upon a multiple of base salary and a share price established by the Committee.
The Company has also adopted minimum stock ownership guidelines for independent
Directors. Each independent Director is expected to own 5,500 shares of
Handleman Company stock. Outside Directors are expected to meet the share
ownership guidelines within five years after first being elected a Director.
The Chief Executive Officer and all outside Directors with five years of service
had met their ownership requirement as of the Company's fiscal year ended April
29, 2006.
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, that 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 2006 by Stephen Strome, the Company's
Chief Executive Officer, was $691,500. Compensation for the Chief Executive
Officer is determined through a process similar to that discussed for other
Executive Officers. Mr. Strome did not receive a bonus for fiscal 2006 because
the overall net income objective of the Company was not met. In August 2002, Mr.
Strome received an award of performance shares which were to be paid in June
2005 to the extent that the Company met its performance goal relating to free
cash flow for the April 28, 2002 through April 30, 2005 performance period. The
Company achieved the maximum targets during the performance period, and Mr.
Strome received performance share payments valued at $1,415,760 in fiscal 2006.
In fiscal 2006, Mr. Strome received a grant of 26,800 performance shares of the
Company's common stock, and 26,800 performance units, which will be paid in June
2008 if certain free cash flow targets are achieved during the May 1, 2005
through May 3, 2008 performance period. 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 comparable companies based upon review of industry surveys provided by the
Committee's independent consultant, as well as proxy analysis of peer group
companies selected by the Committee, with the advice of its independent
consultant.
BY THE MEMBERS OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
HANDLEMAN COMPANY:
James B. Nicholson, Chairman
Elizabeth A. Chappell
Lloyd E. Reuss
Thomas S. Wilson
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Handleman Company Board of Directors is composed of
four independent Directors. The Audit Committee is governed by the Audit
Committee Charter adopted by the Board of Directors. A copy of the Audit
Committee Charter is attached as Appendix C to this Proxy Statement.
As set forth in the Audit Committee Charter, the Audit Committee (the
"Committee") is appointed by the Board of Directors to, among other duties and
responsibilities, provide assistance to the Board of Directors in fulfilling its
oversight responsibility relating to: the Company's financial statements and the
financial reporting processes; the systems of internal accounting and financial
controls; the internal audit function; the annual independent audit of the
Company's financial statements; the adequacy and effectiveness of the Company's
financially-related legal, regulatory and ethical compliance programs; and any
other areas specified by the Board of Directors of potential significant
financial risk to the Company. The Committee is also responsible for hiring,
retaining and terminating the Company's independent registered public accounting
firm. The Committee reports its activities to the Board of Directors on a
regular basis.
Management has responsibility for the Company's financial statements and
financial reporting processes, including the systems of internal accounting and
financial controls. The independent registered public accounting firm is
responsible for performing an independent audit of the Company's consolidated
financial statements and issuing an opinion on the conformity of those audited
financial statements with United States generally accepted accounting principals
and on the effectiveness of the Company's internal control over financial
reporting and management's assessment of the internal control over financial
reporting.
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 registered public accounting firm.
Management represented to the Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. The Committee has reviewed and discussed the audited
consolidated financial statements for the fiscal year ended April 29, 2006 with
management and the independent registered public accounting firm.
The Committee discussed with the independent registered public accounting firm
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 registered public accounting firm the
auditors' independence from the Company and its management, including the letter
regarding its independence provided to the Committee as required by the
Independence Standards Board Standard Number 1 (Independence Discussions with
Audit Committees).
The Committee also discussed with the Company's internal auditors and
independent registered public accounting firm the overall scope and plans for
their respective audits. The Committee met with the internal auditors and
independent registered public accounting firm, 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
registered public accounting firm the fees paid to the independent registered
public accounting firm.
The Company's Chief Executive Officer and Chief Financial Officer also reviewed
with the Committee the certifications that each such officer will file with the
Securities and Exchange Commission ("SEC") pursuant to the requirements of
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the rules and
regulations issued by the SEC pursuant thereto. Management also reviewed with
the Committee the policies and procedures it has adopted to ensure the accuracy
of such certifications.
13
Based upon, and in reliance upon, the Committee's discussions with management
and the independent registered public accounting firm referred to above, the
Committee's review of the representations of management, the report of the
independent registered public accounting firm, 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 2006 (fiscal year ended April 29, 2006) for filing with the SEC.
BY THE MEMBERS OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF HANDLEMAN
COMPANY:
Eugene A. Miller, Chairman
Elizabeth A. Chappell
Irvin D. Reid
Ralph J. Szygenda
14
PERFORMANCE GRAPH
The line graph below compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return of the Russell 2500
Index and the S & P 500 Index for the past five-year period.
(PERFORMANCE GRAPH)
2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ----
Handleman 100 113 150 201 158 80
Russell 2500 100 105 87 123 133 174
S & P 500 100 87 76 93 99 114
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 2001. 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
because entities that are deemed "peers" are either privately-held companies or
subsidiaries or divisions of larger publicly-held companies. Therefore, the
Company has selected the Russell 2500 Index on the basis of similar market
capitalization.
15
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years ended
April 29, 2006, April 30, 2005 and May 1, 2004, concerning the compensation of
the Company's Chief Executive Officer and each of the Company's other four most
highly compensated Executive Officers as of April 29, 2006 (collectively, the
"named Executive Officers") whose annual salary and bonus exceeded $100,000.
LONG-TERM COMPENSATION AWARDS
------------------------------------------
ANNUAL COMPENSATION (G)
-------------------------- (B) SECURITIES LONG-TERM (H)
(A) OTHER ANNUAL UNDERLYING INCENTIVE PLAN ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS SHARE PAYMENTS COMPENSATION
NAME AND PRINCIPLE POSITION YEAR ($) ($) ($) ($) ($) ($)
--------------------------- ------ ------- ------- ------------ ---------- -------------- ------------
Stephen Strome 2006 691,500 -0- (c) -0- 1,415,760 5,790
Chairman of the Board and 2005 673,385 286,440 (d) 27,000 1,874,760 5,449
Chief Executive Officer 2004 642,300 300,000 -- 27,200 -0- 3,500
Thomas C. Braum, Jr. 2006 293,629 33,750 -- -0- 244,635 5,106
Senior Vice President and 2005 265,577 125,000 -- 10,000 323,948 4,869
Chief Financial Officer 2004 230,800 125,000 -- 6,900 -0- 3,785
Mark J. Albrecht 2006 209,567 26,388 (e) -0- 122,318 4,410
Senior Vice President, 2005 202,037 70,383 -- 7,000 161,974 4,165
Human Resources and 2004 191,900 65,400 -- 4,000 -0- 2,469
Organizational
Development
Ronnie W. Lund 2006 207,308 25,000 -- -0- 54,653 3,861
Senior Vice President, 2005 191,462 85,000 -- 7,000 72,731 3,998
Product Management and 2004 179,077 42,000 -- 4,000 -0- 4,139
Logistics and Business
Processes
Scott A. Wilson 2006 193,704 19,940 (f) -0- 54,653 3,788
Group Vice President, 2005 187,624 68,029 -- 7,000 72,731 3,945
Customer Teams, Marketing 2004 170,487 47,460 -- 2,100 -0- 4,250
and Canadian Operations
(a) Includes salary deferred by the named Executive Officers pursuant to the
Company's Salary Deferral Plan (the "401(k) Plan") as follows:
2006 2005 2004
------- ------- ------
Stephen Strome $11,580 $10,896 $7,000
Thomas C. Braum, Jr. 10,115 10,646 7,569
Mark J. Albrecht 8,819 8,331 4,938
Ronnie W. Lund 7,122 8,595 8,277
Scott A. Wilson 7,577 7,889 8,500
(b) Other annual compensation did not exceed the lesser of $50,000 or 10% of
individual cash compensation.
(c) Does not include a deferred compensation payout of $168,946. Of this amount
$192,481 was included in compensation reported in previous years and
($23,535) represents a loss on deferred amounts paid by a third party.
(d) Does not include a deferred compensation payout of $294,541. Of this amount
$249,230 was included in compensation reported in previous years and
$45,311 represents earnings on deferred amounts paid by a third party.
(e) Does not include a deferred compensation payout of $35,384. Of this amount
$25,966 was included in compensation reported in previous years and $9,418
represents earnings on deferred amounts paid by a third party.
16
(f) Does not include a deferred compensation payout of $75,745. Of this amount
$60,852 was included in compensation reported in previous years and $14,893
represents earnings on deferred amounts paid by a third party.
(g) The amount reported under fiscal 2006 represents the value of an award of
performance shares of Handleman Company common stock originally granted in
August 2002 and received in fiscal 2006 based on having met the maximum
performance goal relating to free cash flow for the April 28, 2002 through
April 30, 2005 performance period. The amount reported under fiscal 2005
represents the value of an award of performance shares of Handleman Company
common stock originally granted in September 2001 and received in fiscal
2005 based on having met the maximum performance goal relating to free cash
flow for the April 29, 2001 through May 1, 2004 performance period.
(h) Represents amounts contributed to the named Executive Officers' 401(k) Plan
accounts for the Company matching of employee contributions.
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
The following table provides details regarding long-term incentive plan
awards granted to the individuals listed in the summary compensation table
in the last fiscal year.
NUMBER OF NUMBER OF ESTIMATED FUTURE PAYOUT (A)
PERFORMANCE PERFORMANCE ----------------------------
NAME SHARES UNITS PERFORMANCE PERIOD UNTIL MATURATION THRESHOLD TARGET MAXIMUM
---- ----------- ----------- ----------------------------------- --------- ------ -------
Stephen Strome 26,800 26,800 May 1, 2005 through May 3, 2008 26,800 53,600 80,400
Thomas C. Braum, Jr. 10,000 10,000 May 1, 2005 through May 3, 2008 10,000 20,000 30,000
Mark J. Albrecht 6,800 6,800 May 1, 2005 through May 3, 2008 6,800 13,600 20,400
Ronnie W. Lund 6,800 6,800 May 1, 2005 through May 3, 2008 6,800 13,600 20,400
Scott A. Wilson 6,800 6,800 May 1, 2005 through May 3, 2008 6,800 13,600 20,400
(a) Represents the total number of performance shares of Handleman Company
common stock and performance units that will be paid if Handleman Company
achieves certain free cash flow targets during the May 1, 2005 through May
3, 2008 performance period.
OPTION GRANTS IN LAST FISCAL YEAR
There were no grants of stock options to Executive Officers (or other employees)
in the fiscal year ended April 29, 2006.
17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock option exercises by
the individuals listed in the summary compensation table in the last fiscal
year, as well as the value of unexercised options held by such persons on April
29, 2006. 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 SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR END ($)
SHARES ACQUIRED (A) EXERCISABLE(E)/ EXERCISABLE(E)/
NAME ON EXERCISE (#) VALUE REALIZED UNEXERCISABLE (U) UNEXERCISABLE (U)
---- --------------- -------------- -------------------------- -----------------------
Stephen Strome -- -- 163,703(E) --(E)
9,000(U) --(U)
Thomas C. Braum, Jr. -- -- 14,934(E) --(E)
3,333(U) --(U)
Mark J. Albrecht 2,068(c) $11,012 7,334(E) --(E)
2,333(U) --(U)
Ronnie W. Lund -- -- 11,367(E) --(E)
2,333(U) --(U)
Scott A. Wilson -- -- 7,667(E) --(E)
2,333(U) --(U)
----------
(a) Values are calculated by subtracting the aggregate exercise price from the
fair market value of the stock as of exercise date.
(b) None of the outstanding options has an exercise price lower than the market
price of the Company's Common Stock as of April 29, 2006 ($8.54 per share).
(c) 1,622 shares of the exercised options were turned into the Company by Mr.
Albrecht in payment of the exercise price and tax liability incident to the
exercise of the options.
18
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 April
29, 2006, 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 that 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 and certain
other tax-favored Company benefit plans, up to a maximum of $220,000 for
calendar year 2006.
The following table illustrates current annual benefits payable under the plan
upon retirement at age 65 to persons in certain compensation and years of
service classifications. The benefits are computed on the basis of a straight
life annuity and are not subject to deductions for social security or other
offset amounts.
FINAL AVERAGE TEN YEARS TWENTY YEARS THIRTY YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
------------- ---------- ------------ ------------
$200,000* $24,684 $49,368 $74,053
$220,000* $27,180 $54,360 $81,540
* Compensation that may be considered for any purpose under a qualified
pension plan is limited for calendar year 2006 to $220,000.
The Internal Revenue Code limits the benefits that can be paid from any funded
pension plan that qualifies for federal tax exemption. The amount for calendar
year 2006 is $175,000.
As of April 29, 2006 the credited years of service under the plan for the named
Executive Officers were as follows: 28 for Stephen Strome; 21 for Thomas C.
Braum, Jr.; 7 for Mark J. Albrecht; 11 for Ronnie W. Lund; and 6 for Scott A.
Wilson.
19
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 that 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 with the Company terminates prior to his or her normal
retirement date due to his or her total and permanent disability is entitled to
receive a disability retirement benefit.
The compensation covered by the SERP includes all earnings from the Company as
reported on the employee's W-2 form, for base pay, overtime and bonus payments,
plus salary deferrals. No maximum applies to compensation covered under the
SERP.
The benefit amount calculated under the formula is computed on the basis of a
straight life annuity and is subject to an offset by benefits provided under the
pension plan.
The following table illustrates current annual benefits payable under the SERP
upon normal retirement at age 65 to persons in certain compensation and years of
service classifications. These benefits are in addition to benefits payable
under the Company pension plan.
FINAL AVERAGE TEN YEARS TWENTY YEARS THIRTY YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE
------------- ---------- ------------ ------------
$ 200,000 $ 10,316 $ 20,632 $ 30,947
400,000 44,896 89,792 134,687
600,000 79,896 159,792 239,687
800,000 114,896 229,792 344,687
1,000,000 149,896 299,792 449,687
As of April 29, 2006, the credited years of service under the SERP for the named
Executive Officers were as follows: 28 for Stephen Strome; 21 for Thomas C.
Braum, Jr.; 7 for Mark J. Albrecht; 11 for Ronnie W. Lund; and 6 for Scott A.
Wilson.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Change in Control Agreements (the "Agreements")
with Stephen Strome, Thomas C. Braum, Jr. and Ronnie W. Lund in the event their
employment is terminated as a result of, or in connection with, a change in
control (as defined in the Agreements). The Agreements expire December 31, 2006
and are automatically renewed to December 31 of each subsequent year unless and
until the Company or the named Executive Officer sends a written notice of
termination to the other party by September 1st.
In the event of termination of employment or other specified changes in the
employment relationship within 24 months following a change in control, the
Agreements generally provide for payments of accrued salary and bonus not paid,
plus a severance payment equal to the sum of base salary and the average of the
annual bonus accrued during the three fiscal years prior to the termination date
times 2.99. The Agreements also entitle Messrs. Strome, Braum and Lund to
continue participation in the Company's life and health insurance benefits for
36 months following the termination date.
Based on current salaries and prior bonuses, if Messrs. Strome, Braum or Lund
had terminated their employment as of April 29, 2006 under circumstances
entitling them to severance pay as described above, they would have been
entitled to receive lump sum cash payments of $2,662,540, $1,179,800 and
$779,400, respectively.
20
In addition, all restrictions on any outstanding incentive awards (including
restricted stock and rights to performance shares and performance units) granted
to Messrs. Strome, Braum and Lund under any incentive plan or arrangement shall
lapse and such incentive award shall become 100% vested and all stock options
and stock appreciation rights granted to Messrs. Strome, Braum and Lund under
any incentive plan or arrangement will become 100% vested and immediately
exercisable.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below reflects the number of shares beneficially owned by (1) each
Director of the Company; (2) each Executive Officer of the Company named in the
Summary Compensation Table; (3) all Directors and Executive Officers as a group;
and (4) 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 July 10, 2006 and the beneficial owners exercise
sole voting and/or investment power over their shares.
NAME OF BENEFICIAL OWNER SHARES OWNED PERCENT OF CLASS
------------------------ ------------ ----------------
Stephen Strome ............................... 470,291(a) 2.3%
Thomas C. Braum, Jr .......................... 60,144(a) *
Ronnie W. Lund ............................... 29,116(a) *
Mark J. Albrecht ............................. 27,935(a) *
Elizabeth A. Chappell ........................ 25,049(b) *
James B. Nicholson ........................... 23,214(b) *
Lloyd E. Reuss ............................... 22,482(b) *
Eugene A. Miller ............................. 21,452(b) *
Scott A. Wilson .............................. 19,062(a) *
Irvin D. Reid ................................ 11,452(b) *
Ralph J. Szygenda ............................ 7,972(b) *
Thomas S. Wilson ............................. 4,500 *
P. Daniel Miller ............................. 2,500 *
All Directors, Director Nominees and Executive
Officers as a Group (15 persons) .......... 750,777(c) 3.7%
Third Avenue Management LLC .................. 2,121,919(d) 10.5%
Dimensional Fund Advisors, Inc. .............. 1,720,554(d) 8.5%
NFJ Investment Group, Inc. ................... 1,423,300(d) 7.0%
Cardinal Capital Management, L.L.C ........... 1,305,747(d) 6.5%
LSV Asset Management ......................... 1,224,382(d) 6.1%
Franklin Advisory Services, LLC .............. 1,200,000(d) 5.9%
Van Den Berg Management ...................... 1,163,964(d) 5.8%
Putnam Investment Management, L.L.C .......... 1,129,770(d) 5.6%
Goldman Sachs Asset Management ............... 1,129,220(d) 5.6%
I.A. Michael Investment Council, Ltd. ........ 1,050,000(d) 5.2%
* Less than 1 % of the Company's outstanding shares of Common Stock.
21
(a) The number shown above as beneficially owned by Messrs. Stephen Strome,
Thomas C. Braum, Jr., Ronnie W. Lund, Mark J. Albrecht and Scott A. Wilson
includes 163,703, 14,934, 11,367, 7,334 and 7,667 shares, respectively,
which they have the right to acquire within 60 days of July 10, 2006
pursuant to the Company's stock option plans (assuming, in certain
instances, that the stock price reaches certain levels) and 2,621; 2,292;
829; 2,704 and 753 shares, respectively, which have been credited to each
of Messrs. Stephen Strome, Thomas C. Braum, Jr., Ronnie W. Lund, Mark J.
Albrecht and Scott A. Wilson under the Company's 401(k) Plan.
(b) The number shown above as beneficially owned by Ms. Elizabeth A. Chappell,
Mr. James B. Nicholson, Mr. Lloyd E. Reuss, Mr. Eugene A. Miller, Dr. Irvin
D. Reid and Mr. Ralph J. Szygenda includes 11,500, 10,000, 8,168, 5,000,
2,501 and 2,500 shares, respectively, which they have the right to acquire
within 60 days of July 10, 2006 pursuant to the Company's stock option
plans (assuming, in certain instances that the stock price reaches certain
levels).
(c) All Directors, Director nominees and Executive Officers as a group (15
persons) beneficially owned 750,777 shares (3.7%) of the Company's
outstanding Common Stock as of July 10, 2006, including 250,442 shares
which they have the right to acquire within 60 days of that date pursuant
to the Company's stock option plans and 10,889 shares which have been
credited to them under the Company's 401(k) Plan.
(d) Based on information filed with the Securities and Exchange Commission, (1)
Third Avenue Management LLC, 622 Third Avenue, 32nd Floor, New York, New
York 10017-6715, owns 2,121,919 shares (10.5%) of the Company's outstanding
Common Stock, (2) Dimensional Fund Advisors, Inc., 1299 Ocean Avenue, 11th
floor, Santa Monica, California 90401-1005, owns 1,720,554 shares (8.5%) of
the Company's outstanding Common Stock, (3) NFJ Investment Group, Inc.,
2100 Ross Avenue, Suite 1840, Dallas, Texas 75201-6701, owns 1,423,300
shares (7.0%) of the Company's outstanding Common Stock, (4) Cardinal
Capital Management, L.L.C., One Fawcett Place, Greenwich, Connecticut
06830-6553, owns 1,305,747 shares (6.5%) of the Company's outstanding
Common Stock, (5) LSV Asset Management, 1 North Wacker Drive, Suite 4000,
Chicago, Illinois 60606-2828, owns 1,224,382 shares (6.1%) of the Company's
outstanding Common Stock, (6) Franklin Advisory Services, LLC, 1 Parker
Plaza, 9th Floor, Fort Lee, New Jersey 07024-2938, owns 1,200,000 shares
(5.9%) of the Company's outstanding Common Stock, (7) Van Den Berg
Management, 805 Las Cimas Parkway, Suite 430, Austin, Texas 78746, owns
1,163,964 shares (5.8%) of the Company's outstanding Common Stock, (8)
Putnam Investment Management, L.L.C., One Post Office Square, Boston,
Massachusetts 02109-2106, owns 1,129,770 shares (5.6%) of the Company's
outstanding Common Stock, (9) Goldman Sachs Asset Management, 32 Old Slip,
23rd Floor, New York, New York 10005-3504, owns 1,129,220 shares (5.6%) of
the Company's outstanding Common Stock, and (10) I.A. Michael Investment
Counsel, Ltd., 8 King Street East, Suite 700, Toronto, Canada, M5C 1B5,
owns 1,050,000 shares (5.2%) of the Company's outstanding Common Stock.
Management does not know of any other person who, as of July 10, 2006,
beneficially owned more than 5% of the Company's Common Stock.
22
II. RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP served as the independent registered public
accounting firm for the Company and has reported on the Company's consolidated
financial statements for the fiscal years ended April 29, 2006 and April 30,
2005. For fiscal years 2006 and 2005, the Company's independent registered
public accounting firm was appointed by the Audit Committee. The Board of
Directors concurred with that selection in an advisory capacity.
The Sarbanes-Oxley Act requires that each corporation's audit committee be
directly responsible for appointing the independent registered public accounting
firm. The Audit Committee has selected PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm for the fiscal year
ending April 28, 2007. The Board of Directors has concurred in an advisory
capacity with that selection.
As a matter of good corporate governance, the Audit Committee has elected to
submit its selection of the independent registered public accounting firm to the
shareholders for ratification.
In the event the shareholders do not ratify this appointment, the Audit
Committee will reconsider whether to engage PricewaterhouseCoopers LLP, but may
ultimately determine to engage that firm or another audit firm without
re-submitting the matter to the shareholders.
Even if the appointment is ratified by the shareholders, the Audit Committee, in
its discretion, may appoint a different independent registered public accounting
firm at any time during the year if the Audit Committee determines that such a
change would be in the best interests of the Company and its shareholders.
The Audit Committee considers PricewaterhouseCoopers LLP well qualified, with
offices or affiliates in or near the Company's locations in the U.S. and other
countries where the Company operates.
The lead and concurring partners of PricewaterhouseCoopers LLP assigned to audit
the Company rotate off the engagement after five years, and may not recur on the
engagement for five years.
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.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING APRIL 28, 2007.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES:
The following table presents fees for professional audit services performed by
PricewaterhouseCoopers LLP for the audit of the Company's annual consolidated
financial statements for fiscal years 2006 and 2005 and for the review of the
Company's interim consolidated financial statements for each quarter in fiscal
years 2006 and 2005 and for tax and all other services performed in fiscal years
2006 and 2005:
FISCAL YEAR ENDED FISCAL YEAR ENDED
APRIL 29, 2006 APRIL 30, 2005
----------------- -----------------
Audit Fees (1) ......................... $1,250,850 $1,227,800
Audit-Related Fees (2) ................. 298,012 320,700
Tax Fees (3) ........................... 91,070 85,400
All Other Fees (4) ..................... 2,500 2,000
---------- ----------
Total ............................... $1,642,432 $1,635,900
========== ==========
23
(1) Includes recurring audit of consolidated financial statements including
statutory audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States); services related to SEC
registration statements and financial reporting; and fees related to
Sarbanes-Oxley Section 404.
(2) Audit services related to benefit/pension plans, assistance in financial
due diligence related to mergers and acquisitions, review of impact of new
accounting pronouncements and review of accounting impact of businesses
sold.
(3) Includes tax return review and tax planning services.
(4) Review of actuarial assumptions, reports and retiree benefit calculations.
The Audit Committee's current practice on approval of services performed by the
independent registered public accounting firm is to pre-approve all audit
services and permissible non-audit services to be provided, providing the
opportunity to assess the impact of the service on the auditor's independence.
In addition, the Audit Committee has delegated authority to grant certain
pre-approvals to the Audit Committee Chairman. Pre-approvals granted by the
Audit Committee Chairman are reported to the full Audit Committee at its next
regularly scheduled meeting.
In fiscal 2006 all non-audit services were pre-approved by the Audit Committee.
The Audit Committee determined that the non-audit services provided (and the
fees billed for such services) by PricewaterhouseCoopers LLP during fiscal 2006
and 2005 were compatible with maintaining their independence.
III. OTHER MATTERS
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.
SHAREHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING:
A shareholder proposal that is intended to be presented at the 2007 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices by May 9, 2007.
By Order of the Board of Directors,
/s/ Stephen Strome
----------------------------------------
Stephen Strome
Chairman and Chief Executive Officer
Dated: August 3, 2006
PLEASE VOTE. YOUR VOTE IS VERY IMPORTANT.
PROMPTLY RETURNING YOUR PROXY WILL HELP TO REDUCE THE COST OF THIS SOLICITATION.
24
APPENDIX A
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Below are commonly asked questions relating to the purpose of a Proxy Statement
and specific questions relating to Handleman Company's Annual Shareholders'
Meeting. We hope the answers that follow provide you with the information you
need to vote your shares.
NUMBER
------
What is a proxy? ...................................................... 1
What is a Proxy Statement? ............................................ 2
Who can vote? ......................................................... 3
What is the quorum requirement of the Annual Meeting? ................. 4
What am I voting on? .................................................. 5
What are the voting recommendations of the Board? ..................... 6
What if other matters are presented for determination at the Annual
Meeting? ........................................................... 7
What vote is required to elect the Directors? ......................... 8
What shares are covered by my proxy card? ............................. 9
What is the difference between holding shares as a shareholder of
record and as a beneficial owner? ................................. 10
How do I vote? ........................................................ 11
What is the effect of not voting? ..................................... 12
What can I do if I change my mind after I vote my shares? ............. 13
How do participants in the Handleman Company 401(k) Plan vote
their shares? ..................................................... 14
How do shareholders of record vote their shares if they are also
participants in the Handleman Company 401(k) Plan? ................. 15
What does it mean if I get more than one proxy card? .................. 16
Will there be a management presentation at the Annual Meeting? ........ 17
Who can attend the Annual Meeting? .................................... 18
What do I need to attend the Annual Meeting? .......................... 19
Can I bring a guest? .................................................. 20
Who will count the vote? .............................................. 21
How much did this proxy solicitation cost? ............................ 22
How do I recommend someone to be a candidate for election as a Director
at the 2007 Annual Meeting? ........................................ 23
When are shareholder proposals due for the 2007 Annual Meeting? ....... 24
Where can I find the Corporate Governance Guidelines for
Handleman Company? ................................................. 25
Can I access the Proxy Statement and 2006 annual report on the Internet
instead of receiving paper copies? ................................. 26
How do I obtain more information about Handleman Company? ............. 27
A-1
1. 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 is also called a proxy or proxy card.
2. 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 intelligently vote your shares.
3. Q: WHO CAN VOTE?
A: You can vote at the Annual Meeting if you were a shareholder of record
as of the close of business on July 10, 2006. If you own the Company's
Common Stock, then you are entitled to one vote per share.
4. Q: WHAT IS THE QUORUM REQUIREMENT OF THE ANNUAL MEETING?
A: A majority of the outstanding shares on July 10, 2006 constitutes a
quorum for voting at the Annual Meeting. If you vote or attend the
meeting, your shares will be part of the quorum. On the record date,
20,228,703 shares of Handleman Company's Common Stock were
outstanding.
5. Q: WHAT AM I VOTING ON?
A: You are voting on the:
(1) proposal to elect three nominees for Director: James B.
Nicholson, Lloyd E. Reuss and Stephen Strome for three-year terms
expiring in 2009, and
(2) ratification of the appointment PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm.
6. 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 and "FOR" the ratification of
the appointment of PricewaterhouseCoopers LLP as the Company's
independent registered public accounting firm.
A-2
7. Q: WHAT IF OTHER MATTERS ARE PRESENTED FOR DETERMINATION AT THE ANNUAL
MEETING?
A: Other than the proposal to elect three nominees for Director and the
ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm, the Company
does not expect any other matters to be presented for a vote at the
Annual Meeting. If you grant a proxy, the proxy holders (Eugene A.
Miller, P. Daniel Miller and Irvin D. Reid) will use their judgment in
voting your shares on other matters that may arise at the meeting.
8. Q: WHAT VOTE IS REQUIRED TO ELECT THE DIRECTORS?
A: The three individuals who receive the most votes, even if not a
majority, will be elected.
9. Q: WHAT SHARES ARE COVERED BY MY PROXY CARD?
A: The shares covered by your proxy card represent shares of Handleman
Company stock that you own either as a:
- shareholder of record; or
- participant in the Handleman stock fund within the Company's
401(k) Plan; or
- beneficial owner of shares held in street name.
10. 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, 2006 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 2006 annual report have
been forwarded to you by your broker, bank or nominee, which is
considered the shareholder of record. As the beneficial owner, you
have the right to direct your broker, bank or nominee how to vote your
shares by using the voting instruction card included in the mailing or
by following their instructions for voting by telephone or the
Internet.
A-3
11. Q: HOW DO I VOTE?
A: You may vote using any of the following methods:
- proxy card or voting instruction card. Be sure to sign and date
the card and return it in the prepaid envelope. If you are a
shareholder of record and you return your signed proxy card but
do not indicate your voting preferences, the persons named in the
proxy card will vote "FOR" the election of Directors and "FOR"
the ratification of the appointment of PricewaterhouseCoopers LLP
as the Company's independent registered public accounting firm;
or
- 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; or
- 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 inspector of election with your
ballot when you vote at the meeting.
12. 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 and the
ratification of the appointment of the independent registered public
accounting firm are routine matters on which brokers are permitted to
vote on behalf of their clients if no voting instructions are
furnished.
A-4
13. 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 one of the following
actions:
- send written notice of revocation to the Office of the Corporate
Secretary, Handleman Company, 500 Kirts Boulevard, Troy, MI
48084; or
- submit a new proxy by telephone, Internet or paper ballot, after
the date of the revoked proxy; or
- attend the Annual Meeting and vote 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.
14. 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, 2006 annual report and proxy
card from Handleman Company c/o Mellon Investor Services. Mellon
Investor Services will transmit your voting instructions to Fidelity
Management Trust Company who will vote the shares on your behalf.
The shares credited to your account will be voted as directed; if the
proxy card is not received by September 1, 2006 the shares credited to
your account will not be voted.
15. 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,
2006 annual report and proxy card have been sent directly to you by
Handleman Company c/o Mellon Investor Services.
For the shares credited to your 401(k) Plan account, Mellon Investor
Services will transmit your voting instructions to Fidelity Management
Trust Company, who will vote the shares on your behalf. The shares
will be voted as directed; if your proxy card is not received by
September 1, 2006, the shares credited to your 401(k) Plan account
will not be voted.
A-5
16. Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means your shares are in more than one account. You should vote the
shares on all your proxy cards. If you are shareholder of record we
encourage you to have all your shares registered in the same name and
address.
To register all your shares in the same name or if you have other
questions about your stock holdings please contact Mellon Investor
Services by telephone by calling:
U.S. Shareholders: (800) 851-1713
TDD for U.S. Hearing Impaired Shareholders: (800) 231-5469
Foreign Shareholders: (201) 680-6578
TDD for Foreign Hearing Impaired Shareholders: (201) 680-6610
If you wish to communicate with Mellon Investor Services by e-mail you
can do so by contacting them at shrrelations@melloninvestor.com.
Shareholders can view their certificate history or make address
changes on Mellon Investor Services website www.melloninvestor.com/ISD
17. 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 2006 and respond to
appropriate questions from shareholders.
18. Q: WHO CAN ATTEND THE ANNUAL MEETING?
A: All shareholders of record as of the close of business on July 10,
2006 can attend; however, seating is limited. Seating at the Annual
Meeting will be on a first arrival basis.
19. 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; or
- if a broker or other nominee holds your shares, bring proof of
your ownership with you to the Annual Meeting.
20. Q: CAN I BRING A GUEST?
A: Seating availability at the Annual Meeting is limited.
A-6
21. Q: WHO WILL COUNT THE VOTE?
A: A representative of Mellon Investor Services will tabulate the votes
and act as inspector of election at the Annual Meeting.
22. Q: HOW MUCH DID THIS PROXY SOLICITATION COST?
A: The Company will solicit proxies by mail and will cover the expense of
such solicitation. Mellon Investor Services will help us solicit
proxies for all brokers and nominees at a cost of $5,000 plus
expenses. We may reimburse brokers or other nominees for reasonable
expenses they incur in sending these proxy materials to you if you are
a beneficial owner.
23. Q: HOW DO I RECOMMEND SOMEONE TO BE A CANDIDATE FOR ELECTION AS A
DIRECTOR AT THE 2007 ANNUAL MEETING?
A: You may recommend any person to be a Director by writing to the
Corporate Secretary of the Company. The Company's By-laws require that
shareholders send written notice no later than May 9, 2007, in order
to recommend an individual for consideration as a Director at the 2007
Annual Meeting. In accordance with the Company's By-laws, the notice
must set forth (a) as to each person whom the shareholder proposes to
nominate for election (1) the name, age, business, address and
residence address of such person, (2) the principal occupation or
employment of such person, (3) the class and number of shares of the
corporation that 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 that are beneficially owned by
such shareholder.
24. Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2007 ANNUAL MEETING?
A: Shareholder proposals must be presented by May 9, 2007 to be included
in the Company's proxy materials for the 2007 Annual Meeting.
25. 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. The Corporate Governance guidelines are
also posted on the Company's web site, www.handleman.com, under
Investor Relations/Corporate Governance.
A-7
26. Q: CAN I ACCESS THE PROXY STATEMENT AND 2006 ANNUAL REPORT ON THE
INTERNET INSTEAD OF RECEIVING PAPER COPIES?
A: This Proxy Statement and the 2006 annual report are located on
Handleman Company's web site. Shareholders can access future Proxy
Statements and annual reports on the Internet instead of receiving
paper copies in the mail.
If you are a shareholder of record, you can choose this option by
marking the appropriate box on your proxy card or by following the
instructions if you vote by telephone or the Internet. If you choose
to access future Proxy Statements and annual reports on the Internet,
you will receive a proxy card in the mail next year with instructions
containing the Internet address for those materials. Your choice will
remain in effect until you advise Handleman Company otherwise.
If you are a beneficial owner, please refer to the information
provided by your broker, bank or nominee for instructions on how to
elect to access future Proxy Statements and annual reports on the
Internet. Most beneficial owners who elect electronic access will
receive an e-mail message next year containing the Internet address
for access to the Proxy Statement and annual report.
27. Q: HOW DO I OBTAIN MORE INFORMATION ABOUT HANDLEMAN COMPANY?
A: You may obtain additional information about Handleman Company in one
of the following manners:
- contact the Vice President, Investor Relations, at
1-248-362-4400, Extension 211; or
- go to the website at www.handleman.com; or
- write to:
Handleman Company
Attention: Investor Relations
500 Kirts Blvd.
Troy, MI 48084
A-8
APPENDIX B
HANDLEMAN COMPANY
CORPORATE GOVERNANCE GUIDELINES
These Corporate Governance Guidelines, together with the Code of Business
Conduct and Ethics and the Charters of the Audit Committee, Corporate Governance
and Nominating Committee and Compensation Committee provide the framework for
the governance of Handleman Company.
The Guidelines, Code of Business Conduct and Ethics and Committee Charters and
are available on the Company's website, www.handleman.com.
Handleman Company's stakeholders' interests are best served through the
perpetuation of a growing, financially sound business enterprise, which is
committed to sound operating principals and values. The Board is responsible for
determining that the Company is managed in such a way to ensure this result.
This must be an active, as opposed to passive, responsibility. The Board has the
responsibility to ensure that management is capably executing its
responsibilities, and to regularly monitor the effectiveness of management
policies and decisions, including the execution of its strategies.
In addition to fulfilling its obligations for increased shareholder value, the
Board has responsibility to Handleman Company's customers, employees, suppliers
and to the communities where it operates -- all of whom are essential to a
successful business. These responsibilities are best served through the
successful perpetuation of the business.
These guidelines and amendments require the approval of the Board of Directors.
The Corporate Governance and Nominating Committee ("Committee") of the Board has
been empowered by its charter to review and recommend corporate governance
practices and policies of Handleman Company, which may include comparing the
corporate governance practices of Handleman Company to those of other public
companies and to make recommendations to the Board to assure the Company's
leadership in this area. In this regard, the Committee reviews guidelines or
practices adopted by other leading public companies, surveys and trend
information. The Committee will report its findings and recommendations for
action by the entire Board.
1. SELECTION OF CHAIRMAN AND CEO; PRESIDING DIRECTOR: Currently, the Chairman of
the Board is the Chief Executive Officer (CEO) of Handleman Company. If the
Board does not designate the Chairman of the Board as the CEO, then the
President by virtue of his office is the CEO.
The Board has no policy respecting the need to separate or combine the offices
of Chairman and CEO. The Board believes that this issue is part of the
succession planning process and that it is in the best interests of the Company
to make a determination whenever it elects a new CEO.
The Board will designate an independent Director to serve as Presiding Director.
Duties and responsibilities of the Presiding Director include:
a. presiding over executive sessions of the independent Board members;
b. advising the CEO of appropriate feedback from the executive session
including any actions to be taken, as well as any issues or concerns raised
by the independent Directors;
c. advising on the agenda for the Board meetings;
d. meeting with senior officers, if deemed appropriate, to discuss the
business and issues facing the Company;
e. working with the Chairman of the Corporate Governance and Nominating
Committee in the selection of the Committee Chairs; and
f. meeting with shareholders, if appropriate, to discuss their concerns.
The Chairs of the Compensation Committee, Audit Committee and Corporate
Governance and Nominating Committee rotate annually in the position of Presiding
Director.
B-1
2. MEETING WITHOUT CEO: In those instances where the independent Directors meet
without the Chairman and CEO, the Presiding Director will chair the meeting.
3. NUMBER OF COMMITTEES: The Board has the following committees: Audit
Committee, Compensation Committee and Corporate Governance and Nominating
Committee. The Board has the flexibility to form a new committee or disband a
current committee. It is the policy of the Board that only independent Directors
serve on the Audit Committee, Compensation Committee and Corporate Governance
and Nominating Committee.
4. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS: The Chairman of the Corporate
Governance and Nominating Committee, with the assistance of the Presiding
Director, recommends the appointment of members to the committees, the
composition of which is discussed and ratified by the entire Board, taking into
account the desires and suggestions of individual Directors. It is the belief of
the Board that committee rotation is a desirable principle, but should not be
mandated as a policy since there may be reasons at a given point in time to
maintain an individual Director's committee membership for a longer period or to
shorten the period. The learning time to become an active contributor on a
particular committee is also a factor.
5. COMMITTEE INDEPENDENCE: The Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee are to be comprised entirely of
independent Directors.
6. COMMITTEE STRUCTURE: The Audit, Compensation, and Corporate Governance and
Nominating Committees will adopt written charters, which specify each
Committee's responsibilities and duties.
7. FREQUENCY AND LENGTH OF COMMITTEE MEETINGS: The Chair of each committee, in
consultation with its members, determines the frequency and length of the
meetings of the committee.
8. COMMITTEE AGENDA: The Chair of each committee, in consultation with the
appropriate Officers, will develop the committee's agenda. At the beginning of
the Board year (from annual shareholders meeting to annual meeting), each
committee will establish a schedule of agenda subjects to be discussed during
the year (to the extent these can be foreseen); the schedule for each committee
will be furnished to all Directors. The agenda for each meeting will be
distributed to all Directors in advance and suggestions for changes or additions
will be solicited.
9. SELECTION OF AGENDA ITEMS FOR BOARD MEETINGS: At the beginning of the Board
year, the Chairman will establish a schedule of agenda subjects to be discussed
during the year (to the extent these can be foreseen). The Chairman will also
establish the agenda for each Board meeting. The agenda for each meeting will be
distributed to the Presiding Director in advance and suggestions for changes or
additions will be solicited. Each Board member is free to suggest the inclusion
of items on the agenda. The agenda will include reports from each committee that
has held a meeting. At least one Board meeting each year will be a Board
"retreat," the principal purpose of which will be a Board review of long-term
strategic plans and the principal issues that Handleman Company will face in the
future. The Board will have a minimum of six scheduled meetings per Board year
and will be on call for additional meetings as needed.
10. BOARD MATERIALS: Information and data that are important to the Board's
understanding of the business will be distributed in writing to the Board the
week before the scheduled Board meeting. The Officers will strive to make the
information concise yet comprehensive, and will make an ongoing effort to
solicit suggestions from independent Directors on how to best meet their
information needs. Interim financial and operational reports will be sent to the
Directors monthly.
11. RETENTION OF CONSULTANTS: The Board has full authority to retain such
financial, legal, or other consultants, as it deems appropriate. The necessary
funds will be made available to pay for such services.
12. DIRECTOR RESPONSIBILITIES: Directors are expected to use their best efforts
to attend all Board and committee meetings on which such Director serves, and
the Annual Shareholders' Meeting. Attendance by phone is acceptable if a
Director cannot attend meetings due to travel problems, schedule conflicts or
similar causes.
B-2
13. REGULAR ATTENDANCE OF NON-DIRECTORS AT BOARD MEETINGS: The Chairman and CEO
will invite Senior Officers to attend the meeting when their presence is
expected to significantly enhance the quality of Board decisions. Generally,
attendance of non-Directors will take place when their expertise is required or
where attendance is encouraged as noted in Item 15 (e.g., at the Board retreat).
14. EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS: The independent Directors will
meet in executive session during each scheduled Board meeting. The Presiding
Director will preside over the executive session and will report to the Chairman
and CEO on the nature of the discussion immediately following the Board meeting.
If the Presiding Director is unavailable to preside over an executive session,
the Director designated to follow in the rotation as Presiding Director shall
serve as Presiding Director for that meeting.
15. BOARD ACCESS TO SENIOR MANAGEMENT: The Presiding Director will have complete
access to the Company's Officers and counsel and will communicate issues brought
up by management with the other outside Directors. It is assumed that the
Presiding Director will use appropriate judgment to be sure that this contact is
not distracting to the business operation of the Company and that such contact,
if in writing, be copied to the Chairman and CEO under normal circumstances.
Furthermore, the Board encourages the Chairman and CEO, from time to time, to
bring executives into Board meetings who: (a) can provide additional insight
into the items being discussed because of personal involvement in these areas,
or (b) represent executives with future potential that the Chairman and CEO
believes should be given exposure to the Board. The Board may retain outside
counsel of its choice with respect to any issue relating to its activities. The
Chairman and CEO will be advised on each such occasion of the law firm selected
and the issues to be addressed by it on behalf of the Board.
16. BOARD COMPENSATION REVIEW: Only non-employee Directors receive payment for
serving on the Board. The Compensation Committee is responsible for annually
evaluating and recommending Director compensation programs, including retainers,
fees and stock grants, for discussion and concurrence by the full Board. Given
the conflict inherent with Directors setting their own pay levels, these
recommendations will be based upon information in relation to other comparable
U.S. companies and in consideration of the most current best practices provided
by outside consultants and/or director compensation surveys.
17. SIZE OF THE BOARD: It is the opinion of the Board that the optimal size of
the Board under normal circumstances is 8 to 10 members. This size permits both
a diversity of skills and views available to contribute to the duties of the
Board and its Committees, as well as the coordination and participation of all
Directors in Board deliberations. However, the Board would be willing to go to a
somewhat larger size in order to accommodate the availability of an outstanding
candidate.
18. MIX OF INSIDE AND OUTSIDE DIRECTORS: The Board believes that, as a matter of
policy, there should be a majority of independent Directors on the Handleman
Board
19. DEFINITION OF INDEPENDENT DIRECTOR: The Company has adopted the following
definition of an independent Director: one who (a) is not and has not been
employed by the Company or its subsidiaries in an executive capacity; (b) is not
an advisor or consultant to the Company; (c) is not affiliated with a
significant customer or supplier of the Company; (d) does not have a personal
services contract or arrangement with the Company; (e) is not affiliated with a
tax-exempt entity that receives significant contributions from the Company; and
(f) is not a spouse, parent, sibling or child of a Board member or senior
executive of the Company. The Board believes that all present outside Directors
are independent. Compliance with the definition of independence is reviewed
annually by the Corporate Governance and Nominating Committee.
The Board will establish and maintain standards used to determine which
directors are independent. These standards shall consider the definition of (i)
an "independent director" as defined under the rules of the New York Stock
Exchange, as may be amended from time to time (ii) a "Non-Employee Director", as
defined in Rule 16b-3 promulgated under Section 16 of the Securities and
Exchange Act of 1934, as amended, and (iii) an "outside director" under
Regulation Section 1.162-27 promulgated under Section 162(m) of the Internal
Revenue Code of 1986, as amended.
B-3
In addition, in order to be deemed independent of management of the Company, a
Board member cannot have engaged in any transaction or have been involved in any
business relationship or otherwise that is described or set forth in Item 404 of
Regulation S-K promulgated by the Securities and Exchange Commission.
Each independent Director shall notify the Chairman and CEO and the Chairman of
the Corporate Governance and Nominating Committee, as soon as practical, of any
event, situation or condition that may affect the Board's evaluation of his or
her independence.
20. STOCK OWNERSHIP OF OUTSIDE DIRECTORS: The ownership of stock in the Company
by outside Directors is required. The Board's policy is that each outside
Director should, within five years of first election to the Board, own 5,500
shares of Handleman Company stock.
21. LOANS TO DIRECTORS AND EXECUTIVE OFFICERS: It is the policy of the Company
not to make any personal loans to its Directors and Executive Officers.
22. FORMER CHIEF EXECUTIVE OFFICER'S BOARD MEMBERSHIP: The Board believes this
is a matter to be decided in each individual instance. It is assumed that when
the Chief Executive Officer resigns from that position, he/she should offer
his/her resignation from the Board at the same time. Whether the individual
continues to serve on the Board is a matter for discussion at that time with the
new CEO and the Board.
23. BOARD MEMBERSHIP CRITERIA: The Corporate Governance and Nominating Committee
is responsible for reviewing with the Board periodically the appropriate skills
and characteristics required of Board members in the context of the current
make-up of the Board. This assessment should include issues of diversity, age,
skills such as understanding of marketing, finance, regulation and public
policy, international background, other time demands (including service on other
boards), commitment to Handleman's shared values, etc. -- all in the context of
an assessment of the perceived needs of the Company and the Board at that point
in time.
In order to optimize Directors ability to represent the interest of the
Company's shareholders and other constituencies, the Board has established a
guideline whereby individuals nominated to serve as a Director of the Company
can serve as a director on a maximum of five other public company boards.
Directors should advise the Chairman and CEO and the Chairman of the Corporate
Governance and Nominating Committee in advance of accepting an invitation to
serve on another Board.
24. IDENTIFYING NEW DIRECTOR CANDIDATES/EXTENDING INVITATIONS TO BOARD: The
Board itself should be responsible, in fact as well as procedure, for soliciting
input from shareholders or others, for identifying new members and for
recommending them for election by the shareholders. The Board delegates the
screening process involved to the Corporate Governance and Nominating Committee
and the Presiding Director with direct input from the Chairman and CEO. The
Corporate Governance and Nominating Committee is responsible for evaluating and
recommending criteria for Board membership. The invitation to join the Board
should be extended by the Chairman and CEO and the Chair of the Corporate
Governance and Nominating Committee.
25. ASSESSING THE BOARD'S PERFORMANCE: The Board commits to participate in a
process of self-evaluation annually, led by the Corporate Governance and
Nominating Committee. This will be discussed annually with the full Board. This
assessment should be of the Board's contribution as a whole and should
specifically review areas in which the Corporate Governance and Nominating
Committee or the Chairman and CEO believes a better contribution could be made.
Its purpose is to increase the effectiveness of the Board. The purpose of the
evaluation will be to discover if there are changes to the Board's structure and
operations, which will maximize the value that the Board adds to the Company.
B-4
26. DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY: It is the sense of
the Board that individual Directors who change in a substantial way the business
responsibility they held when they were elected to the Board, or who develop a
conflict as a Director of the Company with the person's position in, or role
with, another entity should inform the Chairman and CEO and the Chair of the
Corporate Governance and Nominating Committee of the change. In addition, they
must volunteer to resign from the Board. It is not the sense of the Board that
the Directors who retire from or change substantially the position they held
when they became a Director should necessarily leave the Board. There should,
however, be an opportunity of the Board via the Corporate Governance and
Nominating Committee to review the continued appropriateness of Board membership
under these circumstances.
27. DIRECTOR TENURE: The Board comprises three classes of Directors, with
approximatly one-third of the Directors assigned to each class. The members of
each class are elected for a term of three years.
The Board does not believe that it should establish term limits. While term
limits could help ensure that there are fresh ideas and viewpoints available to
the Board, they hold the disadvantage of losing the contribution of Directors
who have been able to develop, over a period of time, increasing insight into
the Company and its operations and, therefore, provide an increasing
contribution to the Board as a whole. As an alternative to strict term limits,
the Directors and Corporate Governance Committee, in conjunction with the
Chairman and CEO, reviews each Director's continuation on the Board at the
expiration of his or her term. This also allows each Director the opportunity to
confirm his/her desire to continue as a member of the Board.
28. RETIREMENT AGE: Directors will submit a written resignation to the Board not
later than the annual meeting of shareholders that follows their seventy-second
birthday. Directors may stand for reelection even though the Board's retirement
policy would prevent them from completing a full three year term. 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.
29. VOTING FOR DIRECTORS: In an uncontested election, any nominee for Director
who receives a greater number of votes "withheld" from his or her election than
votes "for" such election (a "Majority Withheld Vote") shall promptly tender his
or her resignation following certification of the shareholder vote.
The Corporate Governance and Nominating Committee shall consider the resignation
and recommend to the Board whether to accept it. The Board will act on the
Committee' recommendation within 90 days following the shareholder meeting.
Board action on the matter will require the approval of a majority of the
independent Directors.
The Company will disclose the Board's decision on a Form 8-K furnished to the
Securities and Exchange Commission within four business days after the decision
was reached and, if applicable, the reasons why the Board rejected the
Directors' resignation.
Any Director who tenders his or her resignation pursuant to this provision shall
not participate in the Corporate Governance and Nominating Committee's
deliberations regarding whether to accept the resignation offer.
If each member of the Corporate Governance and Nominating Committee receives a
Majority Withheld Vote at the same election, then the independent Directors who
do not receive a Majority Withheld Vote shall appoint a committee amongst
themselves to consider the resignations and recommend to the Board whether to
accept them.
30. FORMAL EVALUATION OF THE CEO: At the beginning of each fiscal year, the CEO
will set forth in writing to the Chair of the Compensation Committee the CEO's
personal goals for the performance of his duties and responsibilities during
such fiscal year. The independent Directors should make this evaluation
annually, and it should be communicated to the CEO by the Chair of the
Compensation Committee. The evaluation should be based on objective criteria,
including comparison of the CEO's goals for the year against actual results,
performance of the business, accomplishment of long-term strategic objectives,
management development, and the like. The evaluation will be used by the
Compensation Committee in the course of its deliberations when considering the
compensation of the CEO.
B-5
31. SUCCESSION PLANNING: There will be an annual report by the CEO to the Board
on succession planning. There should also be available, on a continuing basis,
the CEO's recommendations as to a successor should the CEO be unexpectedly
disabled.
32. 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.
33. BOARD INTERACTION WITH INSTITUTIONAL INVESTORS, THE PRESS, CUSTOMERS, ETC.:
The Board believes that, in general, it is optimal for the appropriate Officers
to speak for the Company and to communicate such feedback to the Board. The
Presiding Director and individual outside Board members may, from time to time,
meet or otherwise communicate with various constituencies that are involved with
the Company, including investors. It is expected that Board members would do
this with the knowledge of the Chairman and CEO and absent unusual
circumstances, only at the request of the Chairman and CEO.
Shareholders wishing to communicate with the Presiding Director or with the
non-employee Directors as a group may send a letter by regular or express mail
addressed to: Corporate Secretary, Handleman Company, 500 Kirts Blvd., Troy, MI
48084, Attention: Presiding Director or Non-Employee Directors. All
correspondence sent to that address will be delivered to those Directors on a
quarterly basis, unless management determines by individual case that it should
be sent more promptly. All correspondence to Directors will be acknowledged by
the Corporate Secretary and may also be forwarded within Handleman Company to
the subject matter expert for an investigation.
34. ADHERENCE TO CODE OF BUSINESS CONDUCT AND ETHICS: Each Director shall be
familiar with and adhere to the Company's Code of Business Conduct and Ethics.
The Directors shall annually acknowledge in writing that the Director has
complied with the Code of Business Conduct and Ethics as it applies to the
Director. If an actual or potential conflict arises for a Director, the Director
shall promptly inform the Presiding Director and Chairman of the Audit
Committee. If a significant conflict exists and cannot be resolved, the Director
will submit a letter of resignation.
Additionally, a Financial Integrity and Controls Hotline will be maintained for
employees to report questionable accounting policies or practices, on an
anonymous basis. Management will report all such reports directly to the Audit
Committee.
35. BOARD ORIENTATION: Each new Director will participate in an orientation
program to be acquainted with the business, the financial position, compliance
policies, and other policies relevant to Directors. In addition a "Director
Information Book" is distributed to each Director, which contains information on
director compensation, indemnification, meeting schedules, Company SEC filings
and corporate By-laws.
36. CONTINUING EDUCATION FOR DIRECTORS: One of Handleman Company's core values
is continuous learning and improvement. The Company encourages and supports this
value throughout all levels of the organization. Board members also believe
continuous learning is important to ensure the ongoing effectiveness of the
Board. The Board encourages each Director to participate in at least one
continuing education program during each Board term. Annually, management will
provide the Board a list of certified continuing education programs available
during the calendar year.
37. TRANSPARENCY: The Board believes that it is important that the Company's
stakeholders and others are able to review its corporate governance practices.
Accordingly, the Company's Corporate Governance Guidelines, Code of Business
Conduct and Ethics and Committee Charters will be published on the Company's
website.
B-6
APPENDIX C
AUDIT COMMITTEE CHARTER
OF THE BOARD OF DIRECTORS OF HANDLEMAN COMPANY
This Charter sets forth the duties and responsibilities of the Audit Committee
(the "Committee") of the Board of Directors (the "Board") of Handleman Company
(the "Company").
MISSION STATEMENT:
The Audit Committee's mission is to assist the Board in fulfilling its oversight
responsibility relating to the Company's financial statements and the financial
reporting processes; the systems of internal accounting and financial controls;
the internal audit function; the annual independent audit of the Company's
financial statements; the adequacy and effectiveness of the Company's
financially-related legal, regulatory, and ethical compliance programs; and any
other areas specified by the Board of potential significant financial risk to
the Company.
COMPOSITION:
The Committee is established by the Board and will consist of three or more
members, with the exact number being recommended by the Corporate Governance and
Nominating Committee. All members must be independent of the management of the
Company, and free of any relationship that would interfere with their exercise
of independent judgment as a Committee member. Each of the members of the
Committee will be (i) an "independent director" as defined under the rules of
the New York Stock Exchange, as may be amended from time to time (ii) a
"Non-Employee Director" as defined in Rule 16b-3 promulgated under Section 16 of
the Securities and Exchange Act of 1934, as amended, and (iii) an "outside
director" under Regulation Section 1.162-27 promulgated under Section 162(m) of
the Internal Revenue Code of 1986, as amended.
In addition, in order to be deemed independent of management of the Company,
unless the Board of Directors determines otherwise, a member of the Committee
cannot have engaged in any transaction or have been involved in any business
relationship or otherwise that is described or set forth in Item 404 of
Regulation S-K promulgated by the Securities and Exchange Commission.
Each member shall also be financially literate as such qualification is
interpreted by the Board in its business judgment, or must become financially
literate within a reasonable period of time after the member's appointment to
the Audit Committee. At least one member must have accounting or related
financial management expertise as the Board interprets such qualification in its
business judgment.
Committee members may not simultaneously serve on audit committees of more than
three public companies without Board determination and disclosure in the annual
Proxy Statement that such service would not impair the ability of such member to
serve on the Company's Audit Committee.
The Chairman of the Corporate Governance and Nominating Committee, with the
assistance of the Presiding Director and Chairman of the Board, will recommend
the annual appointment of the Committee members, as well as the Committee Chair.
The Committee membership, including the Chair, will be determined by the entire
Board of Directors.
The Committee Chair is responsible for reporting all activities and decisions of
the Committee to the Board.
All members of the Committee serve at the discretion of the Board.
In the event a Director becomes disqualified from membership on the Audit
Committee, such Director shall be removed as soon as practicable from service on
the Audit Committee by the Board. In the event removal, resignation, retirement,
death or other termination of a Director from service on the Audit Committee
results in the Audit committee comprising less than three members, the Board
shall appoint a new qualified Director to the Audit Committee as soon as
practicable.
C-1
PRINCIPAL FUNCTIONS:
The Committee provides assistance to the Board of Directors in fulfilling its
oversight responsibilities for the financial reporting process, the systems of
internal control, the audit process, and the Company's process for monitoring
compliance with laws and regulations and the Company's Code of Business Conduct
and Ethics.
The Committee shall:
a. review with management and the independent registered public
accounting firm the status of the annual audit prior to releasing the
unaudited year-end earnings, as well as the audited financial
statements to be included in the Company's annual report on Form 10-K;
b. review quarterly unaudited financial statements, including the related
earnings press release and any financial information or earnings
guidance provided to the analysts or ratings agencies along with the
quarterly unaudited financial statements;
c. review significant accounting and reporting issues, including complex
or unusual transactions and highly judgmental areas of potential
significance;
d. obtain assurance from the independent and internal auditors of the
adequacy of the Company's accounting and financial controls;
e. review significant legal matters with the Company's legal counsel;
f. review management's monitoring of compliance with the Company's Code
of Business Conduct and Ethics;
g. establish procedures for the receipt, treatment and retention of
complaints regarding accounting, internal accounting controls or
auditing matters;
h. appoint, approve compensation for, and oversee the work of the
independent registered public accounting firm annually, including a
review of the auditor's independence, performance and results of
periodic audit and non-audit engagements;
i. review the budget, staffing, activities, performance and results of
examinations of the Internal Audit Department;
j. prepare a report annually that is in accordance with the applicable
rules and regulations of the SEC for inclusion in the Company's annual
Proxy Statement; and
k. report Committee activities to the Board on a periodic basis.
DUTIES AND RESPONSIBILITIES:
The principle duties and responsibilities of the Committee in carrying out its
oversight responsibilities are set forth below. The duties and responsibilities
are set forth as a guide with the understanding that the Committee may
supplement them as appropriate and may establish policies and procedures from
time to time that the Committee deems necessary or advisable in fulfilling its
responsibilities.
A. Financial Reporting Process and Internal Control:
1. Review with management and the independent registered public
accounting firm 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.
C-2
2. Review with management and the independent registered public
accounting firm: the audited financial statements to be included
in the Company's Annual Report on Form 10-K and disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations;" qualitative judgments of the independent
registered public accounting firm about the appropriateness, not
just the acceptability, of the Company's accounting principles,
and the clarity of the financial statements; assurance from the
independent registered public accounting firm that Section 10A of
the Securities Exchange Act of 1934 has not been implicated; and
major issues regarding auditing principles and practices as well
as the adequacy of internal controls that could significantly
affect the Company's financial statements. After such review and
discussions, recommend to the Board of Directors that the audited
financial statements be included in the Form 10-K for such year
to be filed with the Securities and Exchange Commission.
3. Review periodically with the independent registered public
accounting firm their judgments about the quality, not just the
acceptability, of the Company's accounting principles as applied
in its financial reporting, including such issues as the
reasonableness of significant judgments and the clarity of the
Company's financial disclosures and whether the choices of
accounting principles and underlying estimates and other
significant decisions made by management in preparing the
financial statements are conservative, moderate or aggressive
from the perspective of income, asset, revenue and liability
recognition and whether those principles, estimates and
disclosures are common practices or are minority practices.
4. Review with management and the independent registered public
accounting firm quarterly unaudited financial statements,
including the related earnings press release and any financial
information or earnings guidance provided to the analysts or
ratings agencies; discuss with the independent registered public
accounting firm the results of their review performed in
accordance with SAS No. 100 for unaudited financial statements.
These discussions may be general, and the Committee will
determine if it will discuss each earnings report or piece of
earnings guidance in advance of its release. In addition, the
Committee's focus may be on the types of information to be
disclosed and the type of presentations to be made. The Committee
may be represented by the Chair or a subcommittee to review the
earnings announcements and other public disclosure documents.
5. Review disclosures made 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 (a) the adequacy and
effectiveness of the Company's disclosure controls and
procedures; (b) all significant deficiencies and material
weaknesses in the design or operation of internal control over
financial reporting; (c) any fraud involving management or other
employees who have a significant role in the Company's disclosure
controls and procedures and internal controls, and (d) any change
in internal control over financial reporting that occurred during
the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
6. Review audit findings, including any significant issues, audit
problems, scope limitations, disagreements with management,
and/or suggestions for improvements provided to management by the
independent registered public accounting firm and internal
auditors, and obtain management's response to the suggestions
from the independent and internal auditors.
7. Review and discuss with management and the independent registered
public accounting firm management's assessment of the
effectiveness of internal control over financial reporting and
the basis therefore, as well as the independent registered public
accounting firm's attestation of management's assessment, and its
audit of the Company's internal control over financial reporting.
C-3
8. Review with management and the independent registered public
accounting firm 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 legal counsel: (i) any significant
legal matters that could have a material impact on the Company's
financial statements; (ii) legal compliance matters, including
corporate securities trading policies and material notices to or
inquiries received from government agencies; and (iii) reports or
evidence of a material violation of securities laws or breaches
of fiduciary duty.
10. Review management's monitoring of compliance with the Company's
Code of Business Conduct and Ethics.
11. Review policies and procedures with respect to the CEO's and
certain other officers' expense accounts, including their use of
corporate assets.
12. 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 registered public accounting firm 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.
13. 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.
14. Meet periodically with the independent registered public
accounting firm, the director of internal audit and management in
separate executive sessions to discuss any matters that the Audit
Committee or these persons believe should be discussed privately
with the Committee.
B. Auditing Functions:
1. Review the independence and performance of the independent
registered public accounting firm annually. The independent
registered public accounting firm reports directly to the
Committee, and the Committee is directly responsible for the
appointment, retention, termination, compensation and oversight
of the work of the independent registered public accounting firm,
including resolution of disagreements between management and the
independent registered public accounting firm regarding financial
reporting. The Committee requires rotation of the lead and
concurring audit partners in accordance with applicable
requirements.
2. On an annual basis, review and discuss with the independent
registered public accounting firm all significant relationships
they have with the Company that could impair the auditors'
independence and receive the written disclosures and letter from
the independent registered public accounting firm required by
Independence Standards Board No. 1 and the New York Stock
Exchange listing standards.
C-4
3. Approve the engagement letters and the fees to be paid to the
independent registered public accounting firm. Pre-approve all
audit and non-audit services to be provided by the independent
registered public accounting firm 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 registered public accounting firm.
5. Review with management and the independent registered public
accounting firm any management letter provided by the auditors
and the Company's response to that letter.
6. Receive and review from the independent registered public
accounting firm at least annually a report regarding the internal
quality control procedures of the independent registered public
accounting firm including any material issues raised within the
preceding five years by any internal quality review or peer
review of the firm, or by any inquiry or investigation by
environmental or professional authorities, as well as describing
the steps the firm has taken to deal with any reported problems.
7. Review and approve the annual and quarterly plans for internal
audit, including staffing/ appointments, and major projects
undertaken by internal audit outside of the plan.
8. Review the scope, status and results of examinations conducted by
the Company's internal auditors.
9. Review the budget, program, changes in program, activities,
strategies, organizational structure and qualifications of the
Internal Audit Department, as needed, it being understood that
the Internal Audit Department functionally reports directly to
the Committee. Evaluate whether the Internal Audit Department
operation and structure permits unrestricted access by internal
auditors to records, personnel, and physical properties relevant
to the performance of its responsibilities and to top management,
the Committee and the Board. Assess the appropriateness of the
resources allocated to internal auditing. Evaluate the
effectiveness of the internal audit function with the independent
registered public accounting firm 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 registered public accounting firm who
participated in any capacity in the audit of the Company.
C. Reporting Requirements:
1. The Audit Committee shall prepare the report required by the
Securities and Exchange Committee to be included in the Company's
annual Proxy Statement. The Committee will also disclose in the
Annual Report and Proxy Statement the Audit Committee's
pre-approval policies and procedures and fees paid to the
independent accountants in accordance with Securities and
Exchange Commission regulations.
C-5
2. The Audit Committee shall review and reassess the adequacy of the
Audit Committee Charter on an annual basis and any changes
thereto shall be submitted to the Board for approval. The Audit
Committee shall have the Charter published at least every third
year in the Company's Proxy Statement in accordance with
Securities and Exchange Commission regulations.
3. The Audit Committee shall assess its performance at least
annually and report the results to the Board.
4. On an annual basis or upon changes to the composition of the
Audit Committee, the Company must provide the New York Stock
Exchange written confirmation regarding the:
a. determination made by the Board regarding Audit Committee
member independence;
b. financial literacy of Audit Committee members;
c. 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; and the
d. review and reassessment of the adequacy of this Charter on
an annual basis including describing and reporting to the
shareholders the Committee's composition, responsibilities
and how they were discharged, and any other information
required by rule, including approval of non-audit services.
D. Perform any other duties or responsibilities expressly delegated to
the Committee by the Board including any duties or responsibilities as
set forth in the Corporate Governance Guidelines.
E. While the Audit Committee has the duties and responsibilities set
forth in this Charter, it is not the duty or responsibility of the
Audit Committee to plan or conduct audits or to determine that the
Company's financial statements are complete and accurate and are
prepared in accordance with generally accepted accounting principles.
These duties and responsibilities rest with management and the
independent registered public accounting firm.
The duties and responsibilities set forth above are meant to serve as a guide,
with the understanding that the Committee may diverge from the specific duties
enumerated as necessary and appropriate given the circumstances.
COMMITTEE AUTHORITY:
The Committee shall undertake any other action or exercise such other powers,
authority and responsibilities as necessary or appropriate to discharge its
responsibilities and duties as set forth in this Charter or the Company's
By-laws, or otherwise required by the Listing Rules of the New York Stock
Exchange or other applicable laws, rules or regulations, or as shall otherwise
be determined by the Board.
In discharging its responsibilities and duties, the Committee is empowered to
investigate any matter brought to its attention that it determines to be within
the scope of its authority with full access to all books, records, facilities
and personnel of the Company. The Committee has the power to retain outside
counsel or other consultants or experts as the committee may deem appropriate in
its sole discretion, and shall receive funding from the Company to engage such
advisors, and have sole authority to approve related fees and retention terms.
The Committee may delegate authority to individuals or subcommittees when it
deems appropriate.
C-6
MEETINGS:
The Audit Committee will meet quarterly and at such other times as may be deemed
necessary or appropriate in the judgment of its Chairman to accomplish the
Committee's responsibilities. In lieu of a meeting, the Committee may also act
by unanimous written consent resolution. Committee meeting procedures include
the following guidelines:
1. A majority of the Committee members will be deemed a quorum for the
transaction of business. The Chairman may appoint one or more members
of the Board to act at a meeting in place of an absent member or
members, as long as each such member appointed is an independent
director as defined by applicable New York Stock Exchange rules. Such
appointed Director(s) may vote on any matter coming before the Audit
Committee. For purposes of determining a quorum, the size of the
Committee shall not be deemed increased by the appointment of any
replacement member or members.
2. The action of a majority of those present at a meeting at which a
quorum is present will represent an act of the Committee.
3. The CFO will be the management liaison to the Committee.
4. The Chairperson of the Audit Committee shall select the meeting dates
after consultation with other members of the Committee.
5. The Committee Chairperson shall prepare and/or approve an agenda in
advance of each meeting.
6. The agenda and all materials to be reviewed at the meetings will be
provided to the Committee members as far in advance of the meeting as
practicable.
7. If the Chairperson is not available for a meeting, the other members
of the Committee may appoint a temporary Chairperson for such meeting.
8. The Committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.
9. All Directors shall be invited to all Audit Committee meetings.
10. The Chairperson of the Audit Committee may call a meeting of the full
Board at the request of and for the purpose of meeting with the
Company's independent registered public accounting firm and may call a
meeting of the full Board to consider any other matters within the
purview of the Audit Committee.
11. Minutes of any Audit Committee meetings shall be provided to all
Directors following the Audit Committee meeting and shall be submitted
for the next Board meeting, at which time the Chairperson of the Audit
Committee will provide additional comments as appropriate.
C-7
NYSE: HDL www.handleman.com
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED Please Mark [ ]
IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. Here for Address
IF NO SPECIFICATIONS ARE MADE, THIS PROXY WILL BE Change or Comments
VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR SEE REVERSE SIDE
LISTED BELOW IN ITEM 1 AND FOR THE RATIFICATION OF
THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM LISTED BELOW IN ITEM 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1 AND ITEM 2.
1. Election of Directors - Term FOR all nominees WITHHOLD AUTHORITY
expiring 2009. listed to the left to vote for all
(except as marked to nominees listed to
NOMINEES: the contrary below) the left
01 James B. Nicholson [ ] [ ]
02 Lloyd E. Reuss
03 Stephen Strome
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
________________________________________________________________________________
2. To ratify the appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as the Company's
independent registered public accounting firm [ ] [ ] [ ]
for the fiscal year ending April 28, 2007.
3. To transact such other business as may properly come before the Annual
Meeting of Shareholders and at any adjournment thereof.
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
the website noted in the footnote below.
PLEASE DATE, SIGN, AND MAIL THIS PROXY IN THE ENCLOSED ENVELOPE
SIGNATURE SIGNATURE DATED , 2006
---------------- ---------------- ----------
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
Choose MLINK(SM) for fast, easy and secure 24/7 online access to your future
proxy materials, investment plan statements, tax documents and more. Simply log
on to INVESTOR SERVICEDIRECT(R) at www.melloninvestor.com/isd where step-by-step
instructions will prompt you through enrollment. I understand that 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. 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, Jersey City, NJ.
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
THE DAY PRIOR TO THE SEPTEMBER 6, 2006 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 OR TELEPHONE OR MAIL
HTTP://WWW.PROXYVOTING.COM/HDL 1-866-540-5760
Use the internet to Use any touch-tone Mark, sign and date
vote your proxy. telephone to vote your proxy card and
Have your proxy card your proxy. Have return it in the
in hand when you your proxy card in enclosed postage
access the web site. hand when you call. paid envelope.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE, YOU DO NOT NEED TO MAIL BACK
YOUR PROXY CARD.
IF YOU ARE LOCATED OUTSIDE THE UNITED STATES, THE DELIVERY OF YOUR PROXY MUST BE
VIA THE INTERNET OR MAIL
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT WWW.HANDLEMAN.COM
REFERENCE INVESTOR RELATIONS/KEY FINANCIALS
(HANDLEMAN COMPANY LOGO)
HANDLEMAN COMPANY
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 6, 2006
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
HANDLEMAN COMPANY
Eugene A. Miller, P. Daniel Miller and 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 September 6, 2006, and at any
adjournment thereof.
The undersigned hereby revokes any proxy or proxies heretofore given to
vote such stock, and hereby ratifies and confirms all that said attorneys and
proxies, or their substitutes, may do by virtue hereof. If only one attorney and
proxy shall be present and acting, then that one shall have and may exercise all
the powers of said attorneys and proxies.
The undersigned hereby acknowledges receipt of the Notice of said Annual
Meeting of Shareholders, the Proxy Statement relating thereto and the Annual
Report for 2006.
(Continued and to be signed on the other side)
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOU CAN NOW ACCESS YOUR HANDLEMAN COMPANY ACCOUNT ONLINE.
Access your Handleman Company shareholder account online via Investor
ServiceDirect(R) (ISD).
Mellon Investor Services LLC, transfer agent for Handleman Company, now makes it
easy and convenient to get current information on your shareholder account.
- View account status - Make address changes
- View certificate history - Establish/change your PIN
THIS CAN BE DONE BY VISITING THE TRANSFER AGENT'S WEB SITE
HTTP://WWW.MELLONINVESTOR.COM. CLICK ON THE "FOR INVESTORS"
BUTTON AND THEN THE "INVESTOR SERVICEDIRECT" BUTTON. THEN
FOLLOW THE INSTRUCTIONS FOR ACCESSING YOUR ACCOUNT.
FOR TECHNICAL ASSISTANCE CALL 1-877-978-7778 BETWEEN 9AM-7PM
MONDAY-FRIDAY EASTERN TIME