SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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 Rule 14a-11(c) or Rule 14a-12
STEINWAY MUSICAL INSTRUMENTS, INC.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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STEINWAY MUSICAL INSTRUMENTS, INC.
800 SOUTH STREET
SUITE 425
WALTHAM, MASSACHUSETTS 02154
(617) 894-9770
May 28, 1997
Dear Stockholders:
Our Annual Meeting of Stockholders will be held on June 27, 1997, at 10:00
a.m., at the Sheraton Needham Hotel, 100 Cabot Street, Needham, Massachusetts
02194. We urge you to attend this meeting to give us an opportunity to meet you
personally, to allow us to introduce to you the key personnel responsible for
management of your Company and to cover any questions you may have.
The formal Notice of Meeting, the Proxy Statement and the proxy card are
enclosed. A copy of the Annual Report to Stockholders describing the Company's
operations during the year ended December 31, 1996 is also enclosed.
Messrs. Kirkland and Messina, who own 100% of the Class A Common Stock, have
advised the Company that they intend to vote their shares of Class A Common
Stock consistent with the recommendations of the Board of Directors set forth in
the attached Proxy Statement. The Class A Common Stock presently represents 84%
of the combined voting power of the Class A Common Stock and the Ordinary Common
Stock. Therefore, stockholder approval in accordance with the Board of
Directors' recommendations is assured.
We hope that you will be able to attend the meeting in person. Whether or
not you plan to attend the meeting, please sign and return the enclosed proxy
card promptly. A prepaid return envelope is provided for this purpose. Your
shares will be voted at the meeting in accordance with your proxy.
If you have shares in more than one name or if your stock is registered in
more than one way, you may receive more than one copy of the proxy material. If
so, please sign and return each of the proxy cards you receive so that all of
your shares may be voted. We look forward to meeting you at the Annual Meeting
of Stockholders.
Very truly yours,
Dana D. Messina
CHIEF EXECUTIVE OFFICER
STEINWAY MUSICAL INSTRUMENTS, INC.
800 SOUTH STREET
SUITE 425
WALTHAM, MASSACHUSETTS 02154
(617) 894-9770
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 27, 1997
------------------------
The Annual Meeting of Steinway Musical Instruments, Inc. (the "Company")
will be held on June 27, 1997, at 10:00 a.m., at the Sheraton Needham Hotel, 100
Cabot Street, Needham, Massachusetts 02194.
1. To elect five (5) directors to hold office until the next annual meeting
of stockholders and until their successors are elected; and
2. To ratify the appointment of Deloitte & Touche LLP as independent public
accountants for the fiscal year ending December 31, 1997; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on May 23, 1997 will be
entitled to vote at the Annual Meeting or any adjournment or postponement
thereof. All stockholders are urged to attend the meeting in person or by proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED PREPAID RETURN ENVELOPE.
The Proxy is revocable and will not affect your right to vote in person in the
event you attend the meeting.
By Order of the Board of Directors
Dennis M. Hanson
SECRETARY
Waltham, Massachusetts
May 28, 1997
STEINWAY MUSICAL INSTRUMENTS, INC.
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
SOLICITATION AND REVOCATION OF PROXIES
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of Steinway Musical Instruments, Inc. (the "Company") for use in connection with
the Annual Meeting of Stockholders to be held on the 27th day of June, 1997 at
10:00 a.m. (the "Annual Meeting") and at any and all adjournments thereof.
The persons named as proxies were designated by the Board of Directors and
are officers and/or directors of the Company. Any Proxy may be revoked or
superseded by executing a proxy bearing a later date or by giving notice of
revocation in writing prior to, or at, the Annual Meeting, or by attending the
Annual Meeting and voting in person. All proxies which are properly completed,
signed and returned to the Company prior to the meeting, and not revoked, will
be voted in accordance with the instructions given in the Proxy. If a choice is
not specified in the Proxy, the Proxy will be voted FOR the election of the
director nominees listed below and FOR the ratification of the appointment of
Deloitte & Touche LLP as independent public accountans for the Company.
This Proxy Statement and the accompanying Proxy are being mailed to
stockholders on or about May 28, 1997. The entire cost of the solicitation of
proxies will be borne by the Company. Expenses will also include reimbursements
paid to brokerage firms and others for their reasonable expenses incurred in
forwarding solicitation material regarding the meeting to beneficial owners of
the Company's common stock. It is contemplated that this solicitation will be
primarily by mail. In addition, some of the officers, directors and employees of
the Company may solicit proxies personally or by telephone, telegraph or cable.
Messrs. Kirkland and Messina have advised the Company that they intend to
vote all of their shares of Class A Common Stock in favor of the election of the
five nominees recommended by the Board of Directors and the appointment of
Deloitte & Touche LLP to serve as the Company's independent public accountants
to audit the Company's financial statements for 1997; such action by Messrs.
Kirkland and Messina is sufficient to elect such directors and to appoint the
independent public accountants without any action on the part of any other
holder of common stock.
VOTING AT THE MEETING
Only stockholders of record at the close of business on May 23, 1997 will be
entitled to vote at the Annual Meeting or any adjournment or postponement
thereof. The Company's Restated Certificate of Incorporation (the "Certificate
of Incorporation") authorizes two classes of common stock, designated as
Ordinary Common Stock and Class A Common Stock. Each share of Ordinary Common
Stock and Class A Common Stock entitles the record holder to one vote and 98
votes, respectively, on any action to be taken at the Annual Meeting, unless
Delaware law provides otherwise. As of April 30, 1997, there were 8,944,984 and
477,953 shares of Ordinary Common Stock and Class A Common Stock, respectively,
issued and outstanding. As of that date, all shares of Class A Common Stock were
owned by Kyle R. Kirkland and Dana D. Messina, Chairman of the Board and Chief
Executive Officer of the Company, respectively, representing 84% of the combined
voting power of the Class A Common Stock and Ordinary Common Stock. Neither the
holders of the Ordinary Common Stock nor the holders of Class A Common Stock
have cumulative voting rights.
1
The stockholders of the Company have no dissenters or appraisal rights in
connection with any of the items scheduled to be presented to the stockholders
at the Annual Meeting.
VOTE REQUIRED
The election of director nominees requires a plurality of the votes cast in
person or by proxy at the Annual Meeting. Under Delaware law, the Certificate of
Incorporation and the Company's Bylaws, shares as to which a stockholder
abstains or withholds from voting on the election of directors and shares as to
which a broker indicates that it does not have discretionary authority to vote
("broker non-votes") on the election of directors will not be counted as voting
thereon and therefore will not affect the election of the nominees receiving a
plurality of the votes cast.
Ratification of the appointment of Deloitte & Touche LLP as independent
public accountants of the Company for the 1997 fiscal year requires the
affirmative vote of the holders of at least a majority of the aggregate votes
cast at the meeting. Under Delaware law, the Certificate of Incorporation and
the Company's Bylaws, shares as to which a stockholder abstains or withholds
from voting on the ratification of independent public accountants and broker
non-votes have the same effect as a vote against such ratification.
ELECTION OF DIRECTORS
The Certificate of Incorporation fixes the number of directors at not less
than three and not more than nine, with the exact number to be set by resolution
of the Board of Directors. The Board of Directors has set the authorized number
of directors at five and proposes the election of five directors to hold office
until the next annual meeting of stockholders and until their successors are
duly elected and qualified. Unless the authority to vote for directors has been
withheld in the proxy, the persons named in the enclosed proxy intend to vote at
the Annual Meeting for the election of the five nominees presented below. Except
as set forth below, persons named as proxies may not vote for the election of
any person to the office of director for which a bona fide nominee is not named
in the Proxy Statement. All nominees have consented to serve as a director for
the ensuing year and have previously served as directors of the Company.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if any nominee withdraws or otherwise becomes
unavailable to serve, the persons named in the enclosed proxy will vote for any
substitute nominee designated by the Board of Directors.
INFORMATION REGARDING THE NOMINEES
Set forth below are the names, ages, positions and offices held and a brief
account of the business experience for each of the persons to be nominated as a
director by the Board of Directors at the Annual Meeting.
NOMINEES FOR DIRECTORS FOR TERMS EXPIRING IN 1998
KYLE R. KIRKLAND, CHAIRMAN OF THE BOARD AND DIRECTOR (AGE 34). Mr. Kirkland
has served as a director of the Company since 1993. Mr. Kirkland has been a
principal of Kirkland Messina, Inc. since 1994. Mr. Kirkland was a Senior Vice
President of a Los Angeles-based investment bank from 1991 to 1994, where he was
responsible for its private placement financing activities. From 1990 to 1991,
Mr. Kirkland was employed by Canyon Partners as a Vice President. From 1988 to
1990 he was employed by Drexel Burnham Lambert in its High Yield Bond
Department. Mr. Kirkland is also a director, at the request of certain
creditors, of International Airline Support Group, Inc.
DANA D. MESSINA, CHIEF EXECUTIVE OFFICER AND DIRECTOR (AGE 35). Mr. Messina
has served as a director of the Company since 1993. Mr. Messina has been a
principal of Kirkland Messina, Inc. since 1994. Mr. Messina was a Senior Vice
President of a Los Angeles-based investment bank from 1990 to 1994,
2
where he was responsible for all of its corporate finance and merchant banking
activities. From 1987 to 1990, he was employed at Drexel Burnham Lambert in its
High Yield Bond Department.
THOMAS T. BURZYCKI, PRESIDENT-SELMER AND DIRECTOR (AGE 53). Mr. Burzycki
has served as a director of the Company since 1993. Mr. Burzycki joined The
Selmer Company, Inc., a wholly-owned subsidiary of the Company ("Selmer"), in
1990 as President. From 1978 to 1990, Mr. Burzycki held various financial and
operational positions with United Musical Instruments, including President from
1985 to 1990.
BRUCE A. STEVENS, PRESIDENT-STEINWAY AND DIRECTOR (AGE 54). Mr. Stevens has
served as a director of the Company since 1995. Mr. Stevens was employed by the
Polaroid Corporation for 18 years. Mr. Stevens held various positions at
Polaroid and in 1980 moved to Tokyo, Japan, where he operated a $100 million
subsidiary of Polaroid, eventually returning to the United States as Director of
Marketing for all of Polaroid's international business. After leaving Polaroid
in 1984, he became the President of Robert Williams, Inc. He joined Steinway
Musical Properties, a wholly-owned subsidiary of the Company ("Steinway"), in
1985 when Steinway was acquired from Columbia Broadcasting System television
network. He has served on numerous industry and music education committees.
PETER MCMILLAN, DIRECTOR (AGE 39). Mr. McMillan has served as a director of
the Company since July 1996. Mr. McMillan is Executive Vice President and Chief
Investment Officer of SunAmerica Investments, Inc. As Chief Investment Officer,
Mr. McMillan has overall investment management responsibility for the major
asset classes in SunAmerica's portfolio, including government securities,
mortgage-backed securities, public and private bonds, and commercial and
residential mortgages. Mr. McMillan joined SunAmerica Investments, Inc. in 1989
after managing the fixed-income portfolio for Aetna Life Insurance and Annuity
Company.
Each director of the Company is elected for a period of one year and serves
until his successor is duly elected and appointed. For information regarding the
beneficial ownership of Ordinary Common Stock and Class A Common Stock by each
nominee, see "Principal Stockholders."
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors took action on seven separate occasions during 1996.
The Board of Directors has standing Audit, Compensation and Option Committees.
The Board of Directors does not have a standing Nominations Committee. None of
the members of the Board of Directors participated in less than 75% of the
meetings of the Board of Directors held or of the total number of meetings held
by all committees of the Board of Directors on which various members served
during the year ended December 31, 1996. The current members of each of the
Board of Directors' committees are listed below.
THE AUDIT COMMITTEE
The current member of the Audit Committee is Mr. McMillan. Under the New
York Stock Exchange, Inc. rules, the Company will be required to appoint a
second outside director to the Audit Committee prior to the first anniversary of
the Company's initial public offering of shares of Ordinary Common Stock, which
occurred on August 1, 1996 (the "IPO"). The Audit Committee assists the Board of
Directors in assuring that the accounting and reporting practices of the Company
are in accordance with all applicable requirements. The Audit Committee did not
meet during 1996.
THE COMPENSATION COMMITTEE
The current members of the Compensation Committee are Messrs. Kirkland and
Messina. The Compensation Committee sets the compensation for the executive
officers of the Company and administers the Company's compensation programs.
Prior to the Company's IPO, the Company's Board of Directors did not have a
compensation committee or other committee performing similar functions. All
3
compensation decisions concerning the Company's executive officers prior to the
IPO were made by the entire Board of Directors. The Compensation Committee did
not meet during 1996.
THE OPTION COMMITTEE
The current members of the Option Committee are Messrs. Kirkland, Messina
and McMillan. The Option Committee was formed prior to the IPO to administer the
Steinway Musical Instruments, Inc. 1996 Stock Plan (the "Stock Plan") and the
Steinway Musical Instruments, Inc. 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). On July 24, 1996 and effective upon the IPO, the Option
Committee authorized the grant of options under the Stock Plan to certain
officers and key employees to purchase an aggregate of 557,500 shares of
Ordinary Common Stock. The Option Committee has taken no action since those
grants.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF EACH OF THE NOMINEES NAMED ABOVE.
4
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Set forth below are the names, ages, positions and offices held and a brief
account of the business experience for each executive officer and director of
the Company.
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
Kyle R. Kirkland........................... 34 Chairman of the Board and Director
Dana D. Messina............................ 35 Chief Executive Officer and Director
Thomas T. Burzycki......................... 53 President--Selmer and Director
Bruce A. Stevens........................... 54 President--Steinway and Director
Dennis M. Hanson........................... 42 Chief Financial Officer and Secretary
Michael R. Vickrey......................... 54 Executive Vice President
Thomas Kurrer.............................. 48 Managing Director, Steinway-Germany
Peter McMillan............................. 39 Director
For biographical information concerning Kyle R. Kirkland, Dana D. Messina,
Thomas T. Burzycki, Bruce A. Stevens and Peter McMillan, see "Nominees for
Directors for Terms Expiring in 1998."
DENNIS M. HANSON, CHIEF FINANCIAL OFFICER AND SECRETARY. Mr. Hanson serves
as the Company's Chief Financial Officer, Secretary and General Counsel. Mr.
Hanson started his career in public accounting at Haskins and Sells in 1976. In
1980, he joined Computervision Corporation, where he held various financial
positions including Vice President of Audit. He joined Steinway in 1988 as Vice
President Finance and assumed duties as General Counsel in 1993.
MICHAEL R. VICKREY, EXECUTIVE VICE PRESIDENT. Mr. Vickrey has been employed
by Selmer since 1970. He has held the positions of Controller, Accounting
Manager, Cost Accounting Manager and Regional Credit Manager. Prior to joining
Selmer, Mr. Vickrey spent seven years in the banking industry, specializing in
commercial finance.
THOMAS KURRER, MANAGING DIRECTOR, STEINWAY-GERMANY. Mr. Kurrer joined
Steinway in 1989 as Managing Director of the Hamburg facility. Mr. Kurrer was
employed by the German-American Chamber of Commerce in New York from 1976 to
1978. Between 1978 and 1989, he held various positions of increasing
responsibility with the Otto Wolff-Group, a conglomerate of steel and machinery
equipment companies. Mr. Kurrer's last position with the Otto Wolff-Group was
Managing Director of Wirth GmbH.
5
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the annual compensation paid and accrued by
the Company for services rendered during the fiscal years ended December 31,
1996, 1995 and 1994 to (i) the Company's Chairman of the Board and the Chief
Executive Officer and (ii) the four other most highly compensated executive
officers of the Company serving at the end of the last completed fiscal year
(each a "Named Executive Officer").
SUMMARY COMPENSATION TABLE(1)
LONG-TERM
COMPENSATION
AWARDS(2)
ANNUAL COMPENASTION -------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION OPTIONS (#)
- ---------------------------------------------- ------------- ---------- ---------- ----------------- -------------
Kyle R. Kirkland ............................. 1996 -- -- (3) 70,750
Chairman of the Board 1995 $ 1 -- (3) --
1994 $ 1 -- (3) --
Dana D. Messina............................... 1996 -- -- (3) 70,750
Chief Executive Officer 1995 $ 1 -- (3) --
1994 $ 1 -- (3) --
Thomas T. Burzycki............................ 1996 $ 268,000 $ 367,000 -- 20,000
President--Selmer 1995 $ 268,000 $ 263,000 -- --
1994 $ 268,000 $ 180,000 -- --
Bruce A. Stevens.............................. 1996 $ 353,462 $ 180,945(5) -- 33,000
President--Steinway 1995(4) $ 340,000 $ 70,000 -- --
Dennis M. Hanson.............................. 1996 $ 182,600 $ 153,525(5) -- 26,500
Chief Financial Officer and Secretary....... 1995(4) $ 170,000 $ 100,000 -- --
Thomas Kurrer................................. 1996 $ 265,980 $ 116,292(5) -- 24,500
Managing Director, Steinway-Germany 1995(4) $ 278,300 $ 135,043 -- --
- ------------------------
(1) The table does not include the cost for personal benefits made available by
the Company. However, no executive officer named in the Summary Compensation
Table received such compensation in excess of the lesser of $50,000 or 10%
of such officer's cash compensation, nor did all executive officers together
receive such other compensation in excess of the lesser of $50,000 times the
number of such executive officers or 10% of such officers' aggregate cash
compensation.
(2) The Company did not have a stock option or other long-term incentive plan
based on the performance of the Company before August 1, 1996. Effective as
of that date, the Company adopted the Stock Plan and the Purchase Plan.
(3) Prior to the Company's IPO, Messrs. Kirkland and Messina received
compensation indirectly pursuant to management agreements with subsidiaries
of the Company which allowed, subject to certain performance criteria, the
payment of $400,000 in the aggregate. Effective August 1, 1996, these
management agreements were replaced with agreements which allow for a
payment of $200,000 for each of Messrs. Kirkland and Messina. See
"Employment Contracts" below. In connection with the Company's IPO, Kirkland
Messina, Inc., a company owned by Messrs. Kirkland and Messina, received a
fee of $1.0 million for arranging, negotiating, obtaining bank waivers and
other required consents, financial and market analyses and other similar
consulting and investment banking services. See "Related Party Agreements"
below.
(4) Salary and bonus for 1995 reflect payments made by the Company after the
acquisition of Steinway in May 1995 as well as payments made by Steinway
prior to that date.
(5) Bonus amount includes payments made during 1996 for the July 1 through
December 31, 1995 period as well as amounts earned for the fiscal year ended
December 31, 1996.
6
OPTION GRANTS IN 1996
The following table provides information related to options to purchase the
Company's Ordinary Common Stock granted to the Named Executive Officers during
the year ended December 31, 1996 and the number and value of such options held
as of the end of such year.
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION VALUE(2)
NAME (#)(1) FISCAL YEAR ($/SHARE) DATE ($)
- ------------------------------- ----------- --------------- ----------- ----------- ----------
Kyle R. Kirkland............... 70,750 12.69% $ 19.00 8/2/06 $ 435,325
Dana D. Messina................ 70,750 12.69% $ 19.00 8/2/06 $ 435,325
Thomas T. Burzycki............. 20,000 3.59% $ 19.00 8/2/06 $ 123,060
Bruce A. Stevens............... 33,000 5.92% $ 19.00 8/2/06 $ 203,049
Dennis M. Hanson............... 26,500 4.75% $ 19.00 8/2/06 $ 163,055
Thomas Kurrer.................. 24,500 4.39% $ 19.00 8/2/06 $ 150,749
- ------------------------
(1) Each option reflected in this column was granted under the Stock Plan and
becomes exercisable for 20% of the total grant on each anniversary of August
2, 1996, subject to acceleration upon the occurrence of certain events as
described in the Stock Plan.
(2) The fair value of options on their grant date was $6.15 per option, which is
measured using the Black/ Scholes option pricing model. Key assumptions used
to apply this pricing model in 1996 are as follows: (a) risk-free interest
rate of 6.36%; (b) expected life of option grants of six years; (c) expected
volatility of Ordinary Common Stock 16.4%.
AGGREGATE WARRANT EXERCISES IN 1996 AND YEAR END OPTION VALUES
The following table provides information related to the exercise of certain
warrants to purchase the Company's Ordinary Common Stock by the Named Executive
Officers during 1996 and the number and value of options held by the Named
Executive Officers as of the year ended December 31, 1996. There were no option
exercises during 1996. There were no warrants held by any Named Executive
Officer as of the year ended December 31, 1996.
NUMBER OF
WARRANT EXERCISES UNEXERCISED
------------------------------ OPTIONS AT
SHARES ACQUIRED VALUE FY-END
NAME ON EXERCISE (#) REALIZED ($) (#)(1)(2)
- -------------------------------------------------------------------- --------------- ------------- -----------
Kyle R. Kirkland.................................................... 20,531(3) $ 354,088 70,500
Dana D. Messina..................................................... 20,531(3) $ 354,088 70,500
Thomas T. Burzycki.................................................. 1,157 $ 19,954 20,000
Bruce A. Stevens.................................................... -- -- 33,000
Dennis M. Hanson.................................................... -- -- 26,500
Thomas Kurrer....................................................... -- -- 24,500
- ------------------------
(1) No options reflected in the table were exercisable as of the year ended
December 31, 1996.
(2) No options reflected in the table were in-the-money options based on the
price per share of Ordinary Common Stock as of the year ended December 31,
1996.
(3) Includes 1,132 shares acquired by Kirkland Messina, Inc., which may be
deemed to be beneficially owned by both Kyle R. Kirkland and Dana D.
Messina.
7
EMPLOYMENT CONTRACTS
The Company has entered into an agreement with Kyle R. Kirkland and Kirkland
Messina, Inc. which provides that until December 31, 2006, unless earlier
terminated in accordance with its terms, Mr. Kirkland will serve as Chairman of
the Company. The consideration for such services is an annual payment of
$200,000 subject to an annual cost of living adjustment. In addition, Mr.
Kirkland may be entitled to receive bonuses and certain other employment
benefits as determined by the Board of Directors in its discretion. Mr. Kirkland
is required to devote his time to the Company as may be reasonably required to
discharge his obligations under the agreement and otherwise will be permitted to
render similar services to other companies. Upon a Change of Control (as defined
in the agreement), the contract will terminate.
The Company has entered into an agreement with Dana D. Messina and Kirkland
Messina, Inc. which provides that until December 31, 2006, unless earlier
terminated in accordance with its terms, Mr. Messina will serve as Chief
Executive Officer of the Company. The consideration for such services is an
annual payment of $200,000 subject to an annual cost of living adjustment. In
addition, Mr. Messina may be entitled to receive bonuses and certain other
employment benefits as determined by the Board of Directors in its discretion.
Mr. Messina is required to devote his time to the Company as may be reasonably
required to discharge his obligations under the agreement and otherwise will be
permitted to render similar services to other companies. Upon a Change of
Control (as defined in the agreement), the contract will terminate.
In July 1996, the Company entered into a Noncompete Agreement with each of
Thomas T. Burzycki, Bruce A. Stevens, Dennis M. Hanson and Michael R. Vickrey.
The Noncompete Agreements remain in effect for a period of ten years and bar the
individual parties thereto from competing with the Company in any geographic
region in which the Company then conducts business. Additionally, provided that
the individual party thereto refrains from engaging in certain restricted sales
of Ordinary Common Stock, each Noncompete Agreement commits the Company to renew
the individual party's employment agreement described below for successive
one-year periods over the life of the Noncompete Agreement.
On June 22, 1993, the Company entered into an Employment Agreement with
Thomas T. Burzycki that became effective on August 11, 1993. The agreement
provides that unless affirmatively terminated, Mr. Burzycki will serve as
President of Selmer in consideration of an annual base salary, which may be
increased following the end of each year of service. In addition to a base
salary, Mr. Burzycki is eligible to receive bonuses and certain other employment
benefits. Mr. Burzycki's Employment Agreement provides that, in certain
circumstances, the Company is obligated to pay up to $550,000 to Mr. Burzycki
upon termination of his employment by Selmer.
On May 1, 1995, Steinway entered into an Employment Agreement with Bruce A.
Stevens. The agreement provides that Mr. Stevens will serve as President of
Steinway, in consideration of an annual base salary, which may be increased
following the end of each year of service. In addition to a base salary, Mr.
Stevens is eligible to receive bonuses and certain other employment benefits.
Mr. Stevens' Employment Agreement provides that, in certain circumstances, the
Company is obligated to pay up to $340,000, plus the salary for the remainder of
his term, to Mr. Stevens upon termination of his employment. This Agreement was
subsequently assigned from Steinway to the Company and thereafter amended to
extend the termination date to December 31, 1997 subject to automatic renewal
unless affirmatively terminated.
On May 1, 1995, Steinway entered into an Employment Agreement with Dennis M.
Hanson. The agreement provides that Mr. Hanson will serve as Chief Financial
Officer and Secretary in consideration of an annual base salary, which may be
increased following the end of each year of service. In addition to a base
salary, Mr. Hanson is eligible to receive bonuses and certain other employment
benefits. Mr. Hanson's Employment Agreement provides that, in certain
circumstances, the Company is obligated to pay up to $210,000, plus the salary
for the remainder of his term, to Mr. Hanson upon termination of his employment.
This Agreement was subsequently assigned from Steinway to the Company and
thereafter amended to extend the termination date to December 31, 1997 subject
to automatic renewal unless affirmatively terminated.
8
As of May 8, 1989, Steinway entered into an Employment Agreement with Thomas
Kurrer that provides that Mr. Kurrer will serve as Managing Director of
Steinway's German operations in consideration of an annual base salary, which
may be increased following the end of each year of service. In addition to a
base salary, Mr. Kurrer is eligible to receive bonuses and certain other
employment benefits. The agreement automatically renews every three years unless
at least 12 months' notice is given by either party.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of the Company do not receive compensation
for their services as directors. All members of the Board of Directors are
reimbursed for all expenses incurred in connection with their serving on the
Board.
RELATED PARTY AGREEMENTS
Prior to the Company's IPO, Selmer entered into a management agreement (the
"Selmer Management Agreement") with Kirkland Messina, Inc. ("KM"), a company
owned by Messrs. Kirkland and Messina, pursuant to which Selmer agreed to pay KM
an aggregate of $250,000 per year to provide management and consulting services,
monitor the business of Selmer and conduct periodic reviews of such business as
reasonably requested by Selmer's board of directors, assist in developing a
long-term strategic plan and identify, review and analyze merger and acquisition
opportunities. KM is a merchant banking firm founded by Messrs. Kirkland and
Messina in 1994. The firm is a licensed broker-dealer and has participated in
numerous financing, leveraged recapitalization and restructuring transactions.
The Company believes that all of the transactions set forth were made on terms
no less favorable than could otherwise be obtained from unaffiliated persons.
Steinway previously entered into a management agreement (the "Steinway
Management Agreement") with KM, pursuant to which Steinway agreed to pay KM up
to an aggregate of $150,000 per year to provide, among other things, management
and consulting services similar to those provided under the Selmer Management
Agreement.
Effective as of the IPO, both of the Selmer and Steinway Management
Agreements were terminated and replaced with the agreements discussed above
under "Employment Contracts."
In connection with the Company's IPO, KM received a fee of $1.0 million for
arranging, negotiating and obtaining waivers and other required consents and for
providing financial and market analyses and other similar consulting and
investment banking services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kirkland and Messina serve as the Chairman of the Board and Chief
Executive Officer, respectively, of the Company. Each serves on the Compensation
and Option Committees of the Board of Directors. See "Related Party Agreements"
above.
LEGAL PROCEEDINGS INVOLVING DIRECTORS, OFFICERS, AFFILIATES OR BENEFICIAL OWNERS
No director, officer, affiliate or beneficial owner of the Company, or any
associate thereof, is a party adverse to the Company or any of its subsidiaries
in any lawsuit nor has a material adverse interest thereto.
9
INFORMATION CONCERNING STOCK AND PURCHASE PLANS
STOCK PLAN
On June 11, 1996, the Board of Directors (the "Board") adopted the Stock
Plan, which was approved by the Company's stockholders on June 19, 1996 and
became effective on August 1, 1996.
The purpose of the Stock Plan is to further and promote the interests of the
Company, its subsidiaries and its stockholders by enabling the Company and its
subsidiaries to attract, retain and motivate employees or those who will become
employees, to engage consultants or advisors to the Company, and to align the
interests of those individuals and the Company's stockholders. To do this, the
Stock Plan offers equity-based and performance-based incentive awards and
opportunities to provide such employees, consultants and advisors with a
proprietary interest in maximizing the growth, profitability and overall success
of the Company and its subsidiaries.
A summary of the most significant features of the Stock Plan, together with
the general federal income tax consequences to the recipients is set forth
below, which summary is qualified in its entirety by reference to the full text
of the Stock Plan. Copies of the actual plan document may be obtained by any
stockholder upon written request to the Corporate Secretary at the Company's
offices in Waltham, Massachusetts.
TYPES OF INCENTIVE AWARDS AND ANNUAL MAXIMUM LIMITATION. The Stock Plan
provides for the grant of (i) Stock Options, including incentive stock options,
non-qualified stock options, and reload stock options (ii) Stock Appreciation
Rights, (iii) Restricted Shares and (iv) Performance Units (collectively,
"Awards"). All key employees, or those who will become key employees,
consultants and advisors of the Company and its subsidiaries who are responsible
for the management, growth and protection of the business of the Company and its
subsidiaries or whose performance or contribution, in the sole discretion of the
Option Committee, benefits or will benefit the Company and its subsidiaries are
eligible to participate in the plan. As of December 31, 1996, the Awards that
had been granted to employees eligible under the Stock Plan were options which
were granted to certain officers and key employees to purchase an aggregate of
557,500 shares of Ordinary Common Stock at a price per share of $19.00.
Approximately 1,900 persons were eligible to receive Awards under the Stock Plan
as of December 31, 1996.
SHARES SUBJECT TO THE STOCK PLAN. Under the Stock Plan, the Company may
grant Awards with respect to a number of shares of Ordinary Common Stock of up
to 778,250 shares. Shares of Ordinary Common Stock issued under the Stock Plan
may be either newly issued or treasury shares. To the extent an Award expires or
is canceled, terminated or forfeited prior to the issuance of shares of Ordinary
Common Stock subject to such awards, any shares subject to such awards will
again be available for grant under the Stock Plan. The Stock Plan provides for
proportionate adjustments in the number of shares of Ordinary Common Stock
available for grants thereunder, and the number of shares and exercise prices of
outstanding options for subdivisions or a consolidations of, or stock dividends
on, Ordinary Common Stock effected by the Company without the receipt of
consideration.
TERM. The Stock Plan became effective on August 1, 1996, and will terminate
on August 1, 2006, except with respect to Awards then outstanding. No Awards
will be granted under the Stock Plan after it terminates.
ADMINISTRATION. The Stock Plan is intended to comply with Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), so that
the grant of options is exempt from the short-swing profit liability provisions
of Section 16 of the Exchange Act. Relevant portions of the Stock Plan are also
intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). To the extent any provision of the Stock Plan would
disqualify the Stock Plan or would not otherwise permit the Stock Plan to comply
with Section 162(m) as so intended, such provision will be construed and amended
to conform to the requirements or provision of Section 162(m) to the extent
permitted by
10
applicable law and deemed advisable by the Board; provided, however, that no
such construction or amendment will have an adverse economic effect on any
participant with respect to any stock award previously granted under the Stock
Plan.
The Stock Plan will be administered by the Option Committee. The Option
Committee will be appointed from time to time by the Board and will be comprised
of not less than two (2) of the then members of the Board all of whom qualify to
administer the plan as Non-Employee Directors within the meaning of Rule 16b-3
as promulgated under the Exchange Act, or any successor rule or regulation
thereto, as such Rule is amended or applied from time to time, and Section 422
of the Code.
The Option Committee will make all determinations necessary or advisable for
the administration of the Stock Plan, including, without limitation: (a)
selecting individuals to receive an Award under the Stock Plan (the
"Participants"), (b) making Awards in such amounts and form as the Option
Committee will determine, (c) imposing such restrictions, terms and conditions
upon such Awards as the Option Committee will deem appropriate and (d)
correcting any technical defect or technical omission, or reconciling any
technical inconsistency, in the Stock Plan and/or any award agreement. Subject
to the terms of the Stock Plan, the Option Committee will also determine the
prices, expiration dates and other material features of the Awards granted under
the Stock Plan.
The Option Committee will have the authority to interpret and construe any
provision of the Stock Plan and to adopt such rules and regulations for
administering the Stock Plan as it deems necessary. All decisions and
determinations of the Option Committee are final and binding on all parties. The
Company will indemnify each member of the Option Committee against any cost,
expenses or liability arising out of any action, omission or determination
relating to the Stock Plan, unless such action, omission or determination was
taken or made in bad faith and without reasonable belief that it was in the best
interest of the Company.
STOCK OPTIONS. The exercise price of each stock option granted under the
Stock Plan is determined by the Option Committee, provided that (a) the exercise
price of an incentive stock option shall not be less than the fair market value
of a share of Ordinary Common Stock on the date on which such option is granted,
and (b) the exercise price of a non-qualified stock option shall not be less
than 85% of the fair market value of a share of Ordinary Common Stock on the
date on which such option is granted. Moreover, no exercise price shall be less
than the par value of the Ordinary Common Stock.
Each option is exercisable for a period not to exceed ten years and becomes
exercisable in 20% increments on each anniversary of the date of the grant;
PROVIDED, the Participant is then employed or engaged by the Company and/or one
of its subsidiaries.
In the event of the death, disability or retirement of the Participant, or
upon the occurrence of a Change of Control (as defined), a stock option shall
become 100% exercisable as to the aggregate number of shares of Ordinary Common
Stock then underlying such stock option. In the event of the termination of the
employment of an optionee for any reason, all options held by such optionee
terminate as of the 90th day after such termination. Options are not
transferable other than by will or by the laws of descent and distribution.
STOCK APPRECIATION RIGHTS. A stock appreciation right ("SAR") is an Award
granted with respect to a specified number of shares of Ordinary Common Stock
entitling a Participant to receive an amount equal to the excess of the fair
market value of a share of Ordinary Common Stock on the date of exercise over
the fair market value of a share of Ordinary Common Stock on the date of grant
of the SAR, multiplied by the number of shares of Ordinary Common Stock with
respect to which the SAR will have been exercised.
Unless otherwise provided in the Participant's employment or award
agreement, a SAR may be exercised by a Participant, in accordance with all of
the procedures established by the Option Committee, in whole or in part at any
time during its specified term. Notwithstanding the preceding sentence, in no
event will a SAR be exercisable (a) prior to the date which is six (6) months
after the date on which the
11
SAR was granted, (b) prior to the exercisability of any non-qualified stock
option with which it is granted in tandem or (c) if the fair market value of the
Ordinary Common Stock on the date of such exercise does not exceed the fair
market value of the Ordinary Common Stock on the date of grant of such SAR. The
Option Committee may also provide, as set forth in the relevant award agreement
and without limitation, that some SARs will be automatically exercised on a date
or dates specified by the Option Committee.
Upon exercise of a SAR, payment may be made in kind in restricted shares or
in shares of unrestricted Ordinary Common Stock, or in any combination thereof,
as the Option Committee may provide in the relevant award agreement.
If a Participant's employment is terminated for any reason prior to the
satisfaction or lapse of the restrictions applicable to a grant of restricted
shares, such restricted shares will immediately be cancelled and the Participant
will forfeit any right in any such restricted shares. Notwithstanding, the
Option Committee, in its sole discretion, may determine, prior to or within
ninety (90) days after the date of such termination, that all or a portion of
any such Participant's restricted shares will not be so cancelled. SARs are not
transferable other than by will or by the laws of descent and distribution.
RESTRICTED SHARES. A grant of restricted shares is an Award of shares of
Ordinary Common Stock granted to a Participant, subject to certain restrictions,
terms and conditions of the Company, including, without limitation (a)
restrictions on the sale, assignment, transfer, hypothecation or other
disposition of such shares, (b) the requirement that the Participant deposit
such shares with the Company while such shares are subject to such restrictions
and (c) the requirement that such shares be forfeited upon termination of
employment for specified reasons within a specified period of time or for other
reasons. Vesting of the shares occurs on a date determined by the Option
Committee as set forth in the relevant award agreement. Prior to the vesting
date, the shares are not transferable by the Participant and are subject to a
substantial risk of forfeiture. If vesting does not occur, shares of restricted
stock are forfeited.
If the employment of a Participant is terminated by the Company for any
reason prior to the satisfaction of the restrictions applicable to a grant of
restricted shares, such restricted shares will immediately be cancelled and the
Participant will forfeit any rights in any such restricted shares.
Notwithstanding the immediately preceding sentence, the Option Committee, in its
sole discretion, may determine, prior to or within ninety (90) days after the
date of such termination, that all or a portion of any such Participant's
restricted shares will not be so cancelled.
On the occurrence of a Change in Control, all restrictions, terms and
conditions applicable to all restricted shares then outstanding shall be deemed
lapsed and satisfied as of the date of the Change of Control.
PERFORMANCE UNIT. A performance unit is an Award of units (with each unit
representing such monetary amount as is designated by the Committee) granted to
a Participant contingent upon the future performance of the Company or any
subsidiary and/or the Participant over a specified performance period. The
Option Committee will establish the relevant performance criteria, subject to
adjustment to reflect unforeseen events or changes. In setting performance goals
and until otherwise determined by the Committee, the performance goal or goals
will be the attainment of one or more of any of total stockholder return, return
on equity, net earnings growth, sales or revenue growth, objective comparisons
to peer companies or cash flow.
Performance units, performance-based restricted shares, and certain other
stock-based awards subject to performance criteria are intended to be "qualified
performance-based compensation" within the meaning of Section 162(m) of the Code
and will be paid solely on account of the attainment of one or more
preestablished, objective performance goals within the meaning of such Section
and the regulations under the Stock Plan.
Payment of an incentive award may be in cash, unrestricted Ordinary Common
Stock, or in restricted shares, or in any combination thereof, as determined by
the Option Committee.
12
A performance award will be cancelled and forfeited if the Participant does
not remain continuously employed by the Company at all times during the
applicable performance period, unless the Option Committee determines otherwise.
Notwithstanding the immediately preceding sentence, the Option Committee, in its
sole discretion, may determine, prior to or within ninety (90) days after the
date of the termination of the Participant that all or a portion of any such
Participant's Performance Units will not be so cancelled and forfeited.
On the occurrence of a Change in Control, the Performance Period shall be
deemed completed and all performance units shall be deemed to have been fully
earned as of the date of the Change of Control.
MERGERS AND OTHER TRANSACTIONS. If the Company enters into or is involved
in any merger, reorganization or other business combination with any person or
entity (such merger, reorganization or other business combination to be referred
to herein as a "Merger Event") and as a result of any such Merger Event the
Company will be or is the surviving corporation, a Participant shall be entitled
to receive, as of the date of the execution of the agreement evidencing the
Merger Event (the "Execution Date") and with respect to both exercisable and
unexercisable stock options and/or SARs (but only to the extent not previously
exercised), substitute stock options and/or stock appreciation rights in respect
of the shares of the surviving corporation on such terms and conditions, as to
the number of shares, pricing and otherwise, which shall substantially preserve
the value, rights and benefits of any affected stock options or SARs granted
under the Plan as of the date of the consummation of the Merger Event.
Notwithstanding anything to the contrary in this Section, if any Merger Event
occurs, the Company will have the right to pay to each affected Participant an
amount in cash or certified check equal to the excess of the fair market value
of the Ordinary Common Stock underlying any affected unexercised ordinary stock
options or SARs as of the Execution Date over the aggregate exercise price of
such unexercised stock options and/or SARs, as the case may be.
If, in the case of a Merger Event in which the Company will not be, or is
not, the surviving corporation, and the Company determines not to make the cash
or certified check payment described above, the Company will compel and
obligate, as a condition of the consummation of the Merger Event, the surviving
or resulting corporation and/or the other party to the Merger Event, as
necessary, or any parent, subsidiary or acquiring corporation thereof, to grant
substitute stock options or stock appreciation rights in respect of the shares
of common or other capital stock of such surviving or resulting corporation on
such terms and conditions, as to the number of shares, pricing and otherwise,
which will substantially preserve the value, rights and benefits of any affected
stock options and/or SARs previously granted under the Plan as of the date of
the consummation of the Merger Event.
Upon receipt by any affected Participant of any such cash, certified check
or substitute stock options or stock appreciation rights as a result of any such
Merger Event, such Participant's affected stock options and/or SARs for which
such cash, certified check or substitute awards was received will be thereupon
cancelled without the need for obtaining the consent of any such affected
Participant.
AMENDMENT AND TERMINATION. The Stock Plan generally terminates on August 1,
2006. The Board may at any time suspend or discontinue the Stock Plan or revise
or amend it in any respect whatsoever, provided, however, that no such amendment
to the Stock Plan shall, without stockholder approval (a) except as provided in
Section 14 of the Stock Plan, materially increase the number of shares of Common
Stock which may be issued under the Plan, (b) materially modify the requirements
as to eligibility for participation in the Plan, (c) materially increase the
benefits accruing to Participants under the Plan or (d) extend the termination
date of the Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief and general
summary of certain federal income tax consequences applicable to transactions
under the Stock Plan. Of course, the consequences of transactions depend on a
variety of factors, including the Participant's tax status.
13
- INCENTIVE STOCK OPTIONS. A Participant will not realize any income upon
the grant of any incentive stock option or, assuming requirements of the
Stock Plan and the Code are met, upon exercise thereof. If the shares
received are disposed of by the Participant more than two years after the
date of grant of the incentive stock option, and more than one year after
such shares are transferred to the Participant, any gain or loss realized
upon such disposition will be a long-term capital gain or loss, and the
Company will not be entitled to any income tax deduction in respect of the
option or its exercise. If the shares are disposed of by the Participant
within either such period in a taxable transaction, the excess, if any, of
the amount realized (up to the fair market value of such shares on the
exercise date) over the exercise price will be compensation taxable to the
Participant as ordinary income, and the Company will generally be entitled
to a deduction equal to the amount of ordinary income realized by the
Participant. If the amount realized upon the disqualifying disposition
exceeds the fair market value of the shares on the exercise date, the
excess will be a short-term capital gain. If the exercise price exceeds
the amount realized upon such disqualifying disposition, the difference
will be a short-term capital loss.
- NON-QUALIFIED STOCK OPTIONS. Upon the grant of a non-qualified stock
option, a Participant will not realize any income. Generally, at the time
a non-qualified stock option is exercised, the Participant will realize
compensation taxable as ordinary income, and the Company will generally be
entitled to a deduction, in an amount equal to the difference between the
fair market value on the exercise date of the shares of Ordinary Common
Stock acquired pursuant to such exercise and the exercise price. Upon a
subsequent disposition of such shares, the Participant will realize either
long-term or short-term capital gain or loss, depending upon the holding
period of the shares.
- STOCK APPRECIATION RIGHTS. Upon the grant of the SAR, a Participant will
not realize any income. Generally, at the time a SAR is exercised, a
Participant will realize compensation taxable as ordinary income, and the
Company will generally be entitled to a deduction, in an amount equal to
any cash received (before applicable withholding) plus the fair market
value on the exercise date of any shares of SAR Ordinary Common Stock
received.
- RESTRICTED STOCK. A Participant will not realize any income upon the
award of restricted stock. Generally, unless a Participant has made an
election under Section 83(b) of the Code, at the time the terms and
conditions (if any) applicable to restricted stock are satisfied, a
Participant will realize compensation taxable as ordinary income, and the
Company will generally be entitled to a deduction, equal to the then fair
market value of the shares received by the Participant, together with
accrued dividends, if any, and interest thereon, if any.
- PERFORMANCE UNITS. A Participant will recognize ordinary income in the
amount equal to cash paid and/or the fair market value of the Ordinary
Common Stock at the time it is received, with the Company generally
entitled to a deduction in the same amount.
CERTAIN ADDITIONAL TAX MATTERS. The Stock Plan provides that the Company
may require the Participant to remit to the Company cash in an amount sufficient
to satisfy certain federal, state and local income tax withholding requirements
by remitting cash to the Company. In addition, the Company has the right to
withhold from any cash payment required to be made to a Participant with respect
to an incentive award an amount sufficient to satisfy the federal, state and
local withholding tax requirements.
NEW STOCK PLAN BENEFITS. For information concerning grants under the Stock
Plan made during 1996, see "Option Grants in 1996."
PURCHASE PLAN
On July 24, 1996, the Board adopted the Purchase Plan, which became
effective August 1, 1996, pursuant to which 500,000 shares of the Company's
Common Stock are reserved for issuance. The
14
Company's stockholders, acting by written consent, approved the adoption of the
Purchase Plan on April 28, 1997.
PURPOSE. The purposes of the Purchase Plan are (a) to provide an incentive
for Eligible Employees (as defined) to continue devoting their best efforts to
the success of the Company and (b) to afford such employees an opportunity to
obtain a proprietary interest in the continued growth and prosperity of the
Company through ownership of its Ordinary Common Stock acquired in a convenient
fashion.
The Purchase Plan is intended to meet the requirements of an "employee stock
purchase plan" as defined in Section 423 of the Code. This description is also
being given to satisfy the requirements of Rule 16b-3(b)(2) under the Exchange
Act in order to ensure the favorable treatment of Rule 16b-3 for the officers
participating in the Purchase Plan. Rule 16b-3 exempts acquisitions of Ordinary
Common Stock under the Purchase Plan from liability under the federal securities
laws which prohibit short-swing trading by executive officers.
The terms and provisions of the Purchase Plan are summarized below. However,
the summary does not purport to be a complete description of the Purchase Plan.
Copies of the actual plan document may be obtained by any stockholder upon
written request to the Corporate Secretary at the Company's offices in Waltham,
Massachusetts.
ADMINISTRATION. The Purchase Plan will be administered by the Option
Committee. The Option Committee has full authority to administer the Purchase
Plan, including authority to interpret and construe any provision of the
Purchase Plan and to adopt such rules and regulations for administering the
Purchase Plan as it may deem necessary. Decisions of the Option Committee are
final and binding on all parties who have an interest in the Purchase Plan.
SECURITIES SUBJECT TO THE PURCHASE PLAN. The shares of Ordinary Common
Stock issuable under the Purchase Plan may be either shares newly issued by the
Company or shares reacquired by the Company, including shares purchased on the
open market. Each Eligible Employee will be offered an option to purchase that
number of whole shares which has on the date of offering an aggregate purchase
price (determined on the basis of the offering price) equal to any whole
percentage of his or her annual rate of salary in effect for an Eligible
Employee on the date of offering up to a maximum of 5%.
ADJUSTMENTS. In the event that any change is made to the Company's
outstanding Ordinary Common Stock (whether by reason of recapitalization, stock
dividend, stock split, exchange or combination of shares or other change in
corporate structure effected without the Company's receipt of consideration),
appropriate adjustments will be made to the aggregate number and class of shares
available under the Purchase Plan and the number and class of shares under
option but not yet issued under the Purchase Plan, provided, however, that no
adjustment will be made which would result in a modification of the options
granted under the Purchase Plan and thereby disqualify the Purchase Plan as an
employee stock purchase plan under the provisions of Section 423 of the Code.
PURCHASE PERIODS. Subject to the terms and conditions of the Purchase Plan,
the Board shall make an offering on a specified day during the first 15 days
after the effective date of the Purchase Plan and thereafter an annual offering
on a specified day during the first 15 days of August to Eligible Employees to
purchase Shares under the Purchase Plan; provided, however, that the Board may,
in its discretion, determined to make no offering in any given year.
ELIGIBILITY AND PARTICIPATION. An Eligible Employee is any person employed
by the Company on a date of offering during the term of the Purchase Plan, other
than (1) any employee who has been employed by the Company for less than one
year on such date of offering, (2) any employee who, immediately after the grant
of an option under the Purchase Plan, would own shares possessing 5% or more of
the total combined voting power or value of all classes of the capital stock of
the Company, (3) any employee whose customary employment is 20 hours or less per
week, (4) any employee who customary employment is for
15
not more than five months in any calendar year or (5) any highly compensated
employee (within the meaning of Section 414(q) of the Code) who is a member of
the Board or who is otherwise subject to the provisions of Section 16 of the
Exchange Act. Approximately 1,900 people were eligible to participate in the
Purchase Plan as of December 31, 1996.
In order to participate in the Purchase Plan for a particular purchase
period, the employee must signify his or her election to participate in the
Purchase Plan in the form and manner and by the deadline prescribed by the
Option Committee, provided that in no event may an election be made more than 27
months after the date of offering. Each Eligible Employee shall also authorize
the Company to make payroll deductions to cover the aggregate purchase price of
those shares in respect of which he or she has elected to accept an option.
PURCHASE PRICE. Options will be offered during the first 15 days of each
August during the term of the Purchase Plan or within 15 days after the
effective date of the Purchase Plan (the "date of offering") at the lower of 85%
of the fair market value of shares on the date of offering or the last day of
the purchase period.
The fair market value of the Ordinary Common Stock on any relevant date
under the Purchase Plan will be the simple average, on a given day or, if no
sales of shares were made on that date, the simple average on the next preceding
day on which sales were made, of the high and low prices per share on the
principal national securities exchange on which the shares are then traded.
SPECIAL LIMITATIONS. The Purchase Plan imposes certain limitations upon a
participant's rights to acquire Ordinary Common Stock, including the following
limitations:
- Purchase rights may not be granted to any individual who immediately
thereafter would own stock (including stock purchasable under any
outstanding purchase rights) possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or any of its
affiliates.
- Purchase rights granted to a participant may not accrue at a rate that
exceeds $25,000 in fair market value of the Ordinary Common Stock (valued
at the time each purchase right is granted) during any one calendar year
in which such purchase right is outstanding.
TERMINATION OF PURCHASE RIGHTS. The participant may withdraw from the
Purchase Plan at any time prior to his or her last regular payroll deduction
thereunder. Upon withdrawal, all payroll deductions with respect to that option
will cease.
In the event of death, total and permanent disability, or retirement at or
after the age 65 or earlier with the consent of the Company, the participant, or
his or her legal representative, as applicable, may either (a) cancel his or her
option, in which event the Company will refund in cash, without interest, all
amounts credited to his or her account under all offerings in which he or she is
participating under the Purchase Plan, or (b) elect to receive at the conclusion
of each applicable purchase period that number of whole shares which his or her
payroll deductions actually made are sufficient to purchase, plus the balance of
such payroll deductions, if any, in cash, without interest.
STOCKHOLDER RIGHTS. No participant will have any stockholder rights with
respect to the shares covered by his or her purchase rights until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY. No purchase rights will be assignable or transferable by the
participant, and the purchase rights will be exercisable only by the
participant.
AMENDMENT AND TERMINATION. The Purchase Plan will terminate upon the
earlier of (a) the conclusion of the last purchase period authorized therein or
(b) on the day that Eligible Employees participating
16
in offerings under the Purchase Plan become entitled to purchase a number of
shares equal to or greater than the number of shares remaining available for
purchase.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, take any action that
may (i) increase the number of Shares to be reserved under the Purchase Plan,
(ii) decrease the purchase price per share or (iii) materially increase benefits
under the Purchase Plan within the meaning of Rule 16b-3 under the Exchange Act,
to the extent that rule is applicable.
FEDERAL TAX CONSEQUENCES. The Purchase Plan is intended to be an "employee
stock purchase plan" within the meaning of Section 423 of the Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her entry date into the purchase period in which
such shares were acquired or within one year after the annual purchase date on
which those shares were actually acquired, then the participant will recognize
ordinary income in the year of sale or disposition equal to the amount by which
the fair market value of the shares on the purchase date exceeded the purchase
price paid for those shares, and the Company will be entitled to an income tax
deduction, for the taxable year in which such disposition occurs, equal in
amount to such excess.
If the participant sells or disposes of the purchased shares more than two
years after his or her entry date into the purchase period in which the shares
were acquired and more than one year after the annual purchase date of those
shares, then the participant will recognize ordinary income in the year of sale
or disposition equal to the lesser of (i) the amount by which the fair market
value of the shares on the sale or disposition date exceeded the purchase price
paid for those shares or (ii) 15% of the fair market value of the shares on the
participant's entry date into that purchase period; and any additional gain upon
the disposition will be taxed as a long-term capital gain. The Company will not
be entitled to an income tax deduction with respect to such disposition.
The foregoing is only a summary of the federal income taxation consequences
to the participant and the Company with respect to the shares purchased under
the Purchase Plan. The summary does not discuss the tax consequences of a
participant's death or the income tax laws of any city, state or foreign country
in which the participant may reside.
ACCOUNTING TREATMENT. Under current accounting rules, the issuance of
Ordinary Common Stock under the Purchase Plan will not result in a compensation
expense chargeable against the Company's reported earnings. However, the Company
must disclose, in pro-forma statements to the Company's financial statements,
the impact the purchase rights granted under the Purchase Plan would have upon
the Company's reported earnings were the value of those purchase rights treated
as compensation expense.
NEW PURCHASE PLAN BENEFITS. Since purchase rights are subject to
discretion, including an employee's decision not to participate in the Purchase
Plan, awards under the Purchase Plan for the current fiscal year are not
determinable. 125,000 shares of Ordinary Common Stock have been reserved for
offers under the Purchase Plan. None of Kyle R. Kirkland, Chairman of the Board,
Dana D. Messina, Chief Executive Officer, or the Named Executive Officers is
eligible to participate in the Purchase Plan.
17
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION(1)
COMPENSATION PHILOSOPHY
The Compensation Committee's executive compensation philosophy is to provide
competitive levels of compensation while establishing a strong, explicit link
between executive compensation and the achievement of the Company's annual and
long-term performance goals, rewarding above-average corporate performance,
recognizing individual initiative and achievement, and assisting the Company in
attracting and retaining highly-skilled management. This philosophy has been
adhered to by developing incentive pay programs which provide competitive
compensation that mirrors Company performance. Both short-term and long-term
incentive compensation are based on direct, explicit links to Company
performance and the value received by stockholders.
1996 EXECUTIVE COMPENSATION
Cash compensation includes base salary and annual bonuses. Base salaries are
set at competitive levels, with reference to the responsibilities undertaken by
personnel, their experience and geographic market conditions. Annual salary
adjustments are determined by reference to the Company's and the individual's
performance, as well as the competitive geographic marketplace conditions
generally. Annual bonuses are awarded based primarily on management's ability to
achieve specified earnings levels.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee does not control compensation decisions with
respect to the Chairman of the Board and the Chief Executive Officer. These
decisions are determined by the Board of Directors. Since the Company's IPO, the
Board has taken no action affecting the compensation paid to either the Chairman
of the Board or the Chief Executive Officer.
SUMMARY
After its review of the Company's existing programs, the Compensation
Committee believes that the total compensation program for executives of the
Company is competitive with the compensation programs provided by other
corporations with which the Company competes for management talent. The
Compensation Committee also believes that the annual bonuses provide
opportunities to participants that are consistent with the returns that are
generated on behalf of the Company's stockholders.
LIMITATION OF TAX DEDUCTION FOR EXECUTIVE COMPENSATION
The Omnibus Budget Reconciliation Act of 1993 (the "Act") prevents publicly
traded companies from receiving a tax deduction on compensation paid to
proxy-named executive officers in excess of $1 million annually, effective for
compensation paid after 1993. Although the Compensation Committee has not
adopted a policy relating to the Act, the Compensation Committee believes that
there will be little, if any, impact from this limitation to the Company.
COMPENSATION COMMITTEE:
Kyle R. Kirkland
Dana D. Messina
- ------------------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Exchange
Act, the Report of the Compensation Committee on Executive Compensation
shall not be incorporated by reference in any such filings.
18
PERFORMANCE GRAPH(1)
The following graph compares the Company's cumulative total stockholder
return on its Ordinary Common Stock for the period from the Company's IPO on
August 1, 1996, to December 31, 1996, with the cumulative total return of the
Standard & Poor's 500 Stock Index ("S&P 500") and the cumulative total return of
a peer group with comparable market capitalization consisting of Baldwin Piano
and Organ Co., Harley-Davidson Inc., Outboard Marine Corp., Boosey & Hawkes PLC
and Fleetwood Enterprises. This peer group was selected by management based on
the status of each as a manufacturer and distributor of luxury goods. The
performance graph assumes a $100 investment on August 1, 1996 in each of the
Company's Ordinary Common Stock, and the S&P 500 common stock of the selected
peer group. The stock price performance shown in this graph is neither
necessarily indicative of nor intended to suggest future stock price
performance.
COMPARISON OF FIVE MONTH CUMULATIVE TOTAL
RETURN AMONG STEINWAY MUSICAL INSTRUMENTS, INC.,
THE S&P 500 INDEX AND A PEER GROUP
[GRAPH]
8/1/96 12/31/96
--------- ---------
Steinway Musical Instruments, Inc....................................... $ 100.00 $ 91.45
The S&P 500 Index....................................................... $ 100.00 $ 115.01
Peer Group.............................................................. $ 100.00 $ 104.65
- ------------------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Exchange
Act, this Performance Graph shall not be incorporated by reference in any
such filings.
19
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of voting securities of the Company as of March 31, 1997 by (i) each
person known by the Company to be the beneficial owner of more than 5% of any
class of the Company's voting securities, (ii) each of the directors and Named
Executive Officers of the Company and (iii) all executive officers and directors
of the Company as a group.
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP
ORDINARY COMMON STOCK(1) PERCENT CLASS A COMMON STOCK(1) PERCENT
------------------------- ----------- ------------------------- -----------
SunAmerica Life Insurance Company ....... 1,653,331 18.5% -- --
1 SunAmerica Center
Los Angeles, CA 90067
John Hancock Mutual Life Insurance
Company ............................... 1,543,553 17.3% -- --
200 Clarendon Street
John Hancock Place, 57th Floor
Boston, MA 02117
Equitable Capital Private Income and
Equity Partnership II, L.P. ........... 614,809 6.9% -- --
c/o Alliance Corporate Finance
Group Incorporated
1345 Avenue of the Americas,
37th Floor
New York, NY 10105
Directors
Kyle R. Kirkland(2).................... 191,886 2.1% 226,949 47.5%
Dana D. Messina(2)..................... 212,571 2.4% 251,004 52.5%
Thomas T. Burzycki..................... 197,179 2.2% -- --
Bruce A. Stevens....................... 86,273 1.0% -- --
Peter McMillan(3)...................... (3) (3) -- --
Other Executive Officers
Dennis M. Hanson....................... 41,601 .5% -- --
Michael R. Vickrey..................... 145,131 1.6% -- --
Thomas Kurrer.......................... 41,601 .5% -- --
All directors and executive officers as a
group (8 persons)(2)(3)................ 915,111 10.2% 477,953 100.0%
- ------------------------
(1) Each share of Class A Common Stock has 98 votes. Each share of Ordinary
Common Stock has one vote.
(2) Includes 1,131 shares owned by Kirkland Messina, Inc., which may be deemed
to be beneficially owned by both Kyle R. Kirkland and Dana D. Messina.
(3) Mr. McMillan is Executive Vice President and Chief Investment Officer of
SunAmerica Investments, Inc. As Chief Investment Officer, Mr. McMillan has
overall investment management responsibility for the major asset classes in
SunAmerica's investment portfolio, including the 1,653,331 shares owned by
SunAmerica Life Insurance Company. Mr. McMillan disclaims beneficial
ownership of such shares.
20
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than 10% of the Company's Ordinary Common Stock to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission (the "Commission"). Executive officers, directors and 10%
stockholders are required by the Commission to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that all its executive officers, directors and
greater than 10% beneficial owners complied with all the filing requirements
applicable to them with respect to transactions during fiscal 1996 with the
following exceptions: Each of John Hancock Mutual Life Insurance Company ("JH")
and Messrs. Kirkland, Messina, Burzycki and Vickrey filed a late report covering
the conversion of warrants into shares of Ordinary Common Stock. JH also filed a
late report covering the conversion of preferred stock into shares of Ordinary
Common Stock.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP to serve as the
Company's independent public accountants to audit the financial statements of
the Company for 1997. Deloitte & Touche LLP served as the Company's independent
public accountants during 1996 and 1995. Representatives of Deloitte & Touche
LLP will attend the Annual Meeting, will be given an opportunity to make a
statement if they desire to do so and will be available to answer appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS, ON THE ADVICE OF ITS AUDIT COMMITTEE,
THAT THE STOCKHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 1997.
Unless a contrary indication is made on the enclosed proxy card, it is the
intention of the persons named in the enclosed form of proxy to vote FOR the
selected accountants.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the Annual Meeting. If any other matters should properly come before the Annual
Meeting, the persons named in the proxy will vote the proxies according to their
best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals, if any, which may be considered for inclusion in the
Company's proxy materials for the 1998 annual stockholders meeting must be
received by the Company at its offices at 800 South Street, Suite 425, Waltham,
Massachusetts 02154 not later than January 29, 1998.
ANNUAL REPORT
The Annual Report to Stockholders for 1996 accompanies this Proxy Statement.
Stockholders may obtain a copy of this report without charge by writing to
Steinway Musical Instruments, Inc., 800 South Street, Suite 425, Waltham,
Massachusetts 02154, Attn: Secretary of the Company, telephone number (617)
894-9770.
21
STEINWAY MUSICAL INSTRUMENTS INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 27, 1997
The undersigned stockholder of Steinway Musical Instruments, Inc. (the
"Company"), hereby appoints each of Dana D. Messina and Dennis M. Hanson
attorneys and proxies of the undersigned, each with full power of substitution,
to vote on behalf of the undersigned at the Annual Meeting of Stockholders of
the Company to be held at the Sheraton Needham Hotel, 100 Cabot Street, Needham,
Massachusetts 02194, on June 27, 1997, at 10:00 a.m., and at any adjournment of
said meeting, all of the shares of Ordinary Common Stock which the undersigned
may be entitled to vote.
The Board of Directors recommends a vote FOR the nominees named on the
reverse side and FOR ratification of the accountants named on the reverse side,
and if no specification is made, the shares will be voted FOR the election of
the nominees named herein, and FOR the ratification of the accountants. The
undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders, the Proxy Statement and the Annual Report furnished herewith.
(please sign on
the reverse side)
Steinway Musical Instruments, Inc.
800 South Street
Suite 425
Waltham, Massachusetts 02154
________________________________________
________________________________________
1. Election of FOR all nominees WITHHOLD AUTHORITY *Exceptions / /
Directors listed to vote for all nominees listed
below / / below / /
Nominees: Kyle R. Kirkland, Dana D. Messina, Thomas T. Burzycki, Bruce A. Stevens, Peter McMillan
(*Instructions: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and strike a line
through that nominee's name.)
2. Ratification of Deloitte & Touche LLP to serve as the Company's independent public accountants to audit the financial
statements of the Company for 1997.
/ / FOR / / AGAINST / / ABSTAIN
3. At their discretion regarding other matters presented at the Annual Meeting.
Dated: ___________________________
__________________________________
(Signature)
__________________________________
(Signature)
PLEASE SIGN, DATE AND RETURN IN THE ENVELOPE PROVIDED.