SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
MANCHESTER EQUIPMENT CO., INC.
- --------------------------------------------------------------------------------
(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.
|_| 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 previous filing by registration number, or the form or
schedule and the date of its filing.
MANCHESTER EQUIPMENT CO., INC.
160 Oser Avenue
Hauppauge, New York 11788
(631) 434-8700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on January 17, 2001
Dear Shareholder:
We cordially invite you to attend the 2001 Annual Meeting of Shareholders
of Manchester Equipment Co., Inc. The meeting will be held at the Smithtown
Sheraton, 110 Motor Parkway, Smithtown, New York, on Wednesday, January 17, 2001
at 10:15 a.m., local time. At the meeting we will:
1. Elect six (6) Directors to serve until the 2002 Annual Meeting of
Shareholders;
2. Vote on an amendment to our Certificate of Incorporation to change our name
to "Manchester Technologies, Inc.";
3. Vote on an amendment to our Amended and Restated 1996 Incentive and
Non-Incentive Stock Option Plan to increase the number of shares of Common
Stock reserved for issuance under the Plan from 1,100,000 shares to
2,600,000 shares;
4. Vote on a proposal to approve the Company's Executive Incentive Plan;
5. Vote on the ratification of the reappointment of KPMG LLP as independent
auditors of the Company for the year ending July 31, 2001; and
6. Transact such other business as may properly come before the meeting or any
adjournment or postponement of the meeting.
A proxy statement describing the matters to be considered at the meeting is
attached to this notice. Only holders of record of our common stock at the close
of business on November 28, 2000 may attend and vote at the meeting. If you
cannot attend the meeting, you may vote by mailing the enclosed proxy card in
the enclosed postage-paid envelope. Any shareholder attending the meeting may
vote in person, even though he or she has already returned a proxy card.
We look forward to seeing you at the meeting.
By Order of the Board of Directors,
Joel G. Stemple, Secretary
Hauppauge, New York
December 14, 2000
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING
ARE REQUESTED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
Manchester Equipment Co., Inc.
160 Oser Avenue
Hauppauge, New York 11788
(631) 434-8700
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held On January 17, 2001
INTRODUCTION
Information Concerning Solicitation and Voting
Our Board of Directors is soliciting proxies for the 2001 Annual
Meeting of Shareholders to be held on Wednesday, January 17, 2001 at 10:15 a.m.
(New York time) at the Smithtown Sheraton, 110 Motor Parkway, Smithtown, New
York, and at any adjournments or postponements of the meeting. This proxy
statement contains important information for you to consider when deciding how
to vote on the matters brought before the meeting. Please read it carefully.
Manchester will pay the costs of soliciting proxies from shareholders.
Directors, officers and regular employees may solicit proxies on behalf of
Manchester, without additional compensation, personally or by telephone, mail,
or telecopy. Banks, brokerage houses and other institutions, nominees and
fiduciaries will be requested to forward the soliciting material to their
principals and to obtain authorizations for the execution of proxy cards and,
upon request, will be reimbursed by Manchester for their reasonable expenses.
Voting materials, which include the proxy statement, proxy card and 2000 Annual
Report (which contains Manchester's financial statements for its fiscal year
ended July 31, 2000), were first mailed to holders our common stock on or about
December 14, 2000.
In this Proxy Statement, the terms "Manchester," the "Company," "we," "us,"
and "our" refer to Manchester Equipment Co., Inc.
Questions and Answers
Q: Who can vote at the meeting?
A: Persons who were holders of our common stock on November 28, 2000, the
record date, are entitled to vote at the meeting. On that date, there
were 8,013,815 shares outstanding and entitled to vote at the annual
meeting. Each eligible shareholder is entitled to one vote per share.
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Q: What matters am I voting on?
A: You are being asked to vote on the following matters:
o The election of six directors;
o A proposal to amend our Certificate of Incorporation to change
our name to "Manchester Technologies, Inc.";
o A proposal to amend our Amended and Restated 1996 Incentive
and Non-Incentive Stock Option Plan to increase the number of
shares of Common Stock reserved for issuance under the Plan
from 1,100,000 shares to 2,600,000 shares;
o A proposal to approve the Company's Executive Incentive Bonus
Plan;
o To ratify the reappointment of KPMG LLP as our independent
auditors for the year ending July 31, 2001.
Q: How do I cast my vote?
A. If you hold your shares as a shareholder of record, you can vote in
person at the annual meeting by delivering your proxy card in person or
filling out and returning a ballot that will be supplied to you, or you
can vote by mail by signing and returning the enclosed proxy card. If
you are a street-name shareholder, you will receive instructions from
your bank, broker or other nominee describing how to vote your shares.
The enclosed proxy card contains instructions for voting by mail.
Please follow these instructions carefully. The proxies identified on
the back of the proxy card will vote the shares of which you are the
shareholder of record in accordance with your instructions. If you sign
and return your proxy card without giving specific voting instructions,
the proxies will vote those shares as follows:
o FOR the election of the nominees listed below under Proposal 1;
o FOR the amendment to the Certificate of Incorporation described
under Proposal 2;
o FOR the amendment to the Stock Option Plan described under
Proposal 3;
o FOR the approval of the Executive Incentive Bonus Plan described
under Proposal 4; and
o FOR the ratification of the reappointment of KPMG LLP described
under Proposal 5.
Q: How will the proxies vote on any other business brought up at the meeting?
A. By submitting your proxy card, you authorize the proxies to use their
judgment to determine how to vote on any other matter properly brought
before the meeting. We do not know of any other business to be considered
at the meeting.
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The proxies' authority to vote according to their judgment applies only
to shares you own as a shareholder of record.
Q: Can I revoke my proxy?
A: Yes. You can revoke your proxy before it is voted by:
o Submitting a new proxy card;
o Giving written notice before the meeting to our Secretary at
the address set forth on the cover of this proxy statement
stating that you are revoking your proxy; or
o Attending the meeting and voting your shares in person. Please
note that your attendance at the meeting will not alone serve
to revoke your proxy.
Q: What is a "quorum"?
A. A quorum is the number of shares that must be present to hold the
meeting. The quorum requirement for the meeting is a majority of the
outstanding shares as of the record date, present in person or
represented by proxy. A proxy submitted by a shareholder may indicate
that all or a portion of the shares represented by the proxy are not
being voted ("shareholder withholding") with respect to a particular
matter. Proxies that are marked "abstain" and proxies relating to
"street name" shares that are returned to the Company but marked by
brokers as "not voted" ("broker non-votes") and proxies reflecting
shares subject to shareholder withholding will be treated as shares
present for purposes of determining the presence of a quorum on all
matters unless authority to vote is completely withheld on the proxy.
Q: Will broker non-votes or abstentions affect the voting results?
A. No, broker non-votes and abstentions will not count as votes "FOR" or
"AGAINST" any director or proposal being voted on. However, because
the amendment to the Company's Certificate of Incorporation requires
the affirmative vote of a majority of the outstanding shares (see
"Proposal 2 - Amendment of Our Certificate of Incorporation" below),
abstentions and broker non-votes with respect to Proposal 2 will have
the same practical effect as a vote "AGAINST" that proposal.
Q. What is a "broker non-vote"?
A. A "broker non-vote" occurs when a broker submits a proxy that states
that the broker does not vote for some of the proposals because the
broker has not received instructions from the beneficial owners on how
to vote on such proposals and does not have discretionary authority to
vote in the absence of instructions.
Q: What does it mean if I get more than one proxy card?
A. Your shares are probably registered in more than one account. You
should vote each proxy card you receive. We encourage you to
consolidate all your accounts by registering them in the same name,
social security number and address.
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Q: How does the Board recommend I vote on the proposals?
A. The Board recommends you vote "FOR" each of the nominees to the Board
of Directors, "FOR" the amendments to the Certificate of Incorporation
and the Stock Option Plan, and "FOR" the approval of the Executive
Incentive Bonus Plan and the ratification of the reappointment of KPMG
LLP.
Q. How many votes are needed for approval of each matter?
o The election of directors requires a plurality vote of the
votes cast at the meeting. "Plurality" means that the
individuals receiving the highest number of "FOR" votes will
be elected to the Board of Directors. Consequently, any shares
not voted "FOR" a particular nominee (whether as a result of a
direction of the shareholder to withhold authority,
abstentions or a broker non-vote) will not be counted in such
nominee's favor.
o The approval of the amendment to the Stock Option Plan, the
approval of the Executive Incentive Bonus Plan and the
ratification of the reappointment of KPMG LLP, each require
the affirmative "FOR" vote of a majority of the votes cast at
the meeting. Abstentions from voting and shares which are
subject to shareholder withholding or broker non-vote are not
counted as "votes cast" with respect to such proposals and
therefore will have no effect on such votes.
o The approval of the amendment to the Certificate of
Incorporation requires the affirmative "FOR" vote of a
majority of the Company's outstanding shares. Accordingly,
abstentions and shares which are subject to shareholder
withholding or broker non-vote with respect to this proposal
will have the same practical effect as a vote against the
proposal.
Q: Where can I find the voting results of the meeting?
A. The preliminary voting results will be announced at the meeting. The
final results will be published in our quarterly report on Form 10-Q
for the second quarter of fiscal 2001.
Voting by Manchester's Principal Shareholder
Barry R. Steinberg is Manchester's largest shareholder, beneficially
owning 58.5% of the Common Stock. See "Security Ownership of Certain Beneficial
Owners and Management." The Company understands that Mr. Steinberg intends to
vote all shares of Common Stock beneficially owned by him at the annual meeting,
or any adjournment or postponement thereof, for the election of the persons
nominated as directors, for the amendments to the Certificate of Incorporation
and the Stock Option Plan, and for the approval of the Executive Incentive Bonus
Plan and the ratification of the reappointment of the independent auditors. Mr.
Steinberg beneficially owns, without acquiring any additional shares of Common
Stock, shares of Common Stock in an amount sufficient to permit him to control
the outcome of any shareholder vote on these matters.
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Table of Contents
Page
Proposals
Election of Directors...................................................... 6
Amendment of our Certificate of Incorporation.............................. 9
Amendment of our Amended and Restated Stock Option Plan.................... 10
Approval of the Executive Incentive Bonus Plan . . . . . . . . . . . . . . 15
Ratification of Reappointment of Independent Auditors...................... 18
Other Information
Security Ownership of Certain Beneficial
Owners and Management.................................................... 18
Executive Officers......................................................... 19
Executive Compensation..................................................... 20
Report of the Board of Directors and the Compensation Committee
on Executive Compensation................................................ 23
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . 25
Stock Performance Graph.................................................... 25
Compensation Committee Interlocks and Insider Participation.................. 26
Certain Relationships and Related Transactions............................... 27
Section 16(a) Beneficial Ownership Reporting Compliance...................... 27
Other Business............................................................... 27
Shareholder Proposals........................................................ 27
Appendices
Appendix A - Audit Committee Charter . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Executive Incentive Bonus Plan. . . . . . . . . . . . . . . . .B-1
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Proposal 1
ELECTION OF DIRECTORS
General
Six directors are to be elected at the meeting. Each director is to
hold office until the next annual meeting of shareholders or until his successor
is elected and qualified, unless his office is earlier vacated by resignation or
other cause. Unless otherwise specifically directed by shareholders executing
proxies, it is intended that all proxies in the accompanying form received in
time for the annual meeting will be voted at the meeting FOR the election of the
six nominees named below. If any nominee should become unavailable for election,
the proxy may be voted for a substitute nominee selected by the persons named in
the proxy or the Board may be reduced accordingly. The Board of Directors is not
aware of any circumstances likely to render any nominee unavailable.
Nominees
The six persons listed below are currently directors of Manchester
and have been selected by the Board of Directors as nominees for election as
directors at the annual meeting. Certain information regarding the nominees is
set forth below:
Year First
Served as
Name Age* a Director Position with the Company
---- ---- ----------- --------------------------
Barry R. Steinberg (1) 59 1973 Chairman of the Board, President,
Chief Executive Officer and Director
Joel G. Stemple (1) 58 1982 Executive Vice President,
Secretary and Director
Joel Rothlein (1)(2) 71 1996 Director
Bert Rudofsky (2)(3) 67 1998 Director
Michael E. Russell (3) 54 1998 Director
Julian Sandler (2)(3) 56 1996 Director
* - As of January 17, 2001
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Barry R. Steinberg, Manchester's founder, has served as its Chairman of the
Board, President and Chief Executive Officer and as a director since its
formation in 1973. Mr. Steinberg previously served as a systems analyst for
Sleepwater, Inc. and Henry Glass and Co.
Joel G. Stemple has served as Executive Vice President since September 1996
and as Vice President and as a director since August 1982. Mr. Stemple
previously performed consulting services for Manchester and, from 1966 to 1982,
served as Assistant and Associate Professor of Mathematics at Queens College,
City University of New York.
Joel Rothlein, Esq. has been a director of the Company since October 1996.
Mr. Rothlein is a partner in the law firm of Kressel Rothlein & Roth, Esqs.,
Massapequa, New York, where he has practiced law since 1955. Kressel Rothlein &
Roth, Esqs. and its predecessor firms have acted as outside general counsel to
the
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Company since the Company's inception.
Bert Rudofsky became a director on July 15, 1998. Mr. Rudofsky is the
founder and president of Bert Rudofsky and Associates, a management consulting
firm specializing in the computer industry. Mr. Rudofsky was a founder of MTI
Systems Corp., a leading edge, technical, value-added distribution company
specializing in computer and data communications products. Mr. Rudofsky was CEO
of MTI from 1968 until MTI was sold in 1990.
Michael E. Russell became a director on July 15, 1998. Mr. Russell is
presently a senior vice president at Prudential Securities Incorporated and has
held several distinguished positions as a member of the business community, as a
member of the New York State Metropolitan Transportation Authority (1987- 1989),
as commissioner of the New York State Commission on Cable Television (1989-1991)
and as Special Assistant to the New York State Senate Majority Leader
(1991-1994).
Julian Sandler became a director on December 2, 1996. Mr. Sandler is Chief
Executive Officer of Rent-a-PC, Inc., a full-service provider of short-term
computer rentals, which Mr. Sandler founded in 1984. Mr. Sandler is also the
founder and was the President from 1974 to 1993 of Brookvale Associates, a
national organization specializing in the remarketing of hardware manufactured
by Digital Equipment Corporation. Mr. Sandler also co-founded and from 1970 to
1973 was Vice President of Periphonics Corporation, a developer and manufacturer
of voice response systems.
Required Vote
In accordance with the Company's By-Laws, directors are elected by a
plurality of the votes of shares represented and entitled to vote at the
meeting.
Recommendation of the Board
The Board of Directors recommends that shareholders vote FOR the election
of the nominees named above (Proposal No. 1 on the Proxy Card).
Meetings and Committees
During the fiscal year ended July 31, 2000, there were four regular
meetings and two special meeting of the Board of Directors, and, with the
exception of Michael Russell, who missed one Audit Committee meeting, all
directors attended 75% or more of the aggregate number of meetings of the Board
of Directors and of meetings of all committees of the Board on which they
served. On one occasion in fiscal 2000 the Board took action by unanimous
written consent without a meeting.
The Board of Directors has standing executive, audit, and compensation
committees, as described below. The Company does not have a standing nominating
committee.
Executive Committee. The Executive Committee consists of Barry R.
Steinberg, Joel G. Stemple and Joel Rothlein. The function of the Executive
Committee is to exercise the authority of the Board of Directors in the
management of the Company between meetings of the Board, subject to the
provisions of the Company's By-Laws. In addition, the Board of Directors
delegated to the Executive Committee the authority to determine when, and at
what prices, the Company would make stock repurchases pursuant to the stock
repurchase program in effect during fiscal 2000. The Executive Committee met 12
times during fiscal 2000 to vote on stock repurchases, but did not meet for any
other purpose.
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Audit Committee. The Audit Committee consists of Bert Rudofsky, Chairman,
Michael Russell and Julian Sandler. Each member of the Audit Committee is
"independent" of the management of the Company under the current listing
standards of the National Association of Securities Dealers ("NASD"). All Audit
Committee members are also financially literate and have accounting or related
financial management expertise in accordance with NASD standards. The Audit
Committee acts pursuant to the Audit Committee Charter adopted by the Board of
Directors on April 12, 2000, which is attached as Annex A to this Proxy
Statement, and met three times in fiscal 2000. To fulfill its responsibilities
to the stockholders and the investment community, this Committee:
- reviews the corporate accounting and financial reporting practices of
the Company and the quality and integrity of the financial reports of
the Company;
- recommends to the Board of Directors the accounting firm to act as
independent auditors for the upcoming fiscal year and meets with the
independent auditors, as appropriate, to discuss scope, staffing, and
procedures of their audit plan, the proposed fee for the audit, and
the results of their audit (including their comments or
recommendations arising therefrom);
- reviews the Company's financial accounting policies and decisions and
reports thereon to the Board prior to the issuance of annual financial
statements; and
- reviews any non-audit services to be performed by the independent
auditors and considers the possible effects of such services on the
auditors' independence.
Compensation Committee. The Compensation Committee consists of Joel
Rothlein, Chairman, Bert Rudofsky and Julian Sandler. The Committee establishes
compensation policies and determines compensation for the executive officers of
the Corporation. The Board itself administers the Company's Amended and Restated
1996 Incentive and Non-Incentive Stock Option Plan (provided that option grants
to Messrs. Steinberg and Stemple must first be recommended by the Compensation
Committee). The Compensation Committee met eight times during fiscal 2000.
Compensation of Directors
On July 15, 1998, the Board of Directors adopted the following program
with respect to non- employee director compensation (directors who are employees
of the Company receive no fees for their services as a Director or as a
committee member), which program became effective on August 1, 1998:
a) Each such director is paid a fixed annual stipend of $5,000, in four
quarterly installments.
b) Each such director is paid a fee of $1,500 per Board meeting attended.
c) Each such director is paid a fee of $500 for each committee meeting
attended, and the Chairman of each committee is paid a fixed annual
stipend of $1,000, in four quarterly installments.
d) On each August 1, each such director who served on the Board since the
prior August 1, is granted non-incentive options under the Plan to
purchase 5,000 shares at an exercise price equal to the fair market
value of the Common Stock on the date of such grant. Such options are
for a term of five years and are exercisable immediately.
Effective July 12, 2000, the Board voted to change the non-employee
director's compensation plan. Starting August 1, 2000, all non-employee
directors will receive a $20,000 annual, all inclusive, stipend payable in four
quarterly installments. In addition, on each August 1, each non-employee
director who has served on the Board since the preceding August 1 will be
granted a non-incentive option to purchase 10,000 shares at an exercise price
equal to the Fair Market Value on August 1 of each year. Such options will be
for a term of five years and will be exercisable immediately upon such grant.
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On August 1, 1999, pursuant to and in accordance with the directors
compensation program described above, the Board of Directors granted to each of
Joel Rothlein, Bert Rudofsky, Michael E. Russell and Julian Sandler, each of
whom is a non-employee director, non-incentive options under the Plan to
purchase 5,000 shares at an exercise price of $2.75 per share (being the fair
market value of the Common Stock on August 2, 1999). In addition, on August 1,
2000 pursuant to and in accordance with the directors compensation program
described above, the Board of Directors granted to each of Joel Rothlein, Bert
Rudofsky, Michael E. Russell and Julian Sandler, who are non-employee directors,
non-incentive options under the Plan to Purchase 10,000 shares at an exercise
price of $4.625 per share (the fair market value of the Common Stock on August
1, 2000.)
On October 19, 1998, the Board of Directors appointed a Special
Committee ("Special Committee") consisting of Bert Rudofsky, Michael Russell and
Julian Sandler to explore possible strategies and methods of enhancing
shareholder value. As compensation for their work on the Special Committee
through July 31, 2000, each member of the Committee was paid $10,000 on February
1, 1999 and $10,000 on August 1, 1999.
Proposal 2
AMENDMENT OF OUR CERTIFICATE OF INCORPORATION
General
We are asking shareholders to approve an amendment to our Certificate
of Incorporation to change the name of the Company from Manchester Equipment
Co., Inc. to "Manchester Technologies, Inc." The Board of Directors approved
this amendment on October 25, 2000, subject to ratification by the shareholders.
The objective of the amendment is to more accurately communicate the direction
and focus of our business. The change of name will not affect in any way the
validity or transferability of stock certificates outstanding, the capital
structure of the Company, the listing of the Common Stock on the Nasdaq National
Market, or our trading symbol, which will remain "MANC." If shareholder approval
of Proposal 2 is obtained, shareholders with certificated shares may continue to
hold their existing certificates or receive new certificates reflecting the name
change upon tendering of their old certificates to the Company's transfer agent.
Required Vote
Approval of the amendment to our Certificate of Incorporation will
require the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock.
Recommendation of the Board
The Board of Directors recommends that shareholders vote FOR the
amendment to the Certificate of Incorporation (Proposal No. 2 on the Proxy
Card).
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Proposal 3
AMENDMENT OF OUR AMENDED AND RESTATED STOCK OPTION PLAN
General
We are asking shareholders to approve an amendment to our Amended and
Restated 1996 Incentive and Non-Incentive Stock Option Plan, to increase the
aggregate number of shares of Common Stock reserved for issuance upon exercise
of options granted thereunder from 1,100,000 to 2,600,000. The Board of
Directors approved this amendment on July 12, 2000, subject to ratification by
the shareholders. The full text of the Amendment will be furnished to any
shareholder upon written request made to the Secretary of the Company.
The purpose of the Option Plan is to further the growth and development
of the Company and its direct and indirect subsidiaries (collectively,
"Subsidiaries" and each, singly, a "Subsidiary") by encouraging selected
employees, directors and other persons who contribute and are expected to
contribute materially to the Company's success to obtain a proprietary interest
in the Company through the ownership of stock, thereby providing such persons
with an added incentive to promote the best interests of the Company and
affording the Company a means of attracting to its service persons of
outstanding ability.
As of November 28, 2000, the record date for the annual meeting,
options to purchase an aggregate of 1,015,100 shares have been granted under the
Option Plan (excluding options that have been cancelled), of which options to
purchase an aggregate of 904,184 shares are currently outstanding and options to
purchase an aggregate of 110,916 shares have been exercised, resulting in 84,900
shares remain reserved for issuance under the Option Plan.
On December 8, 2000, the most recent practical date prior to the
printing of this Proxy Statement, the closing sale price of the Common Stock was
$2.375 per share, as reported by The Nasdaq National Market.
Proposed Amendment
The amendment to the Option Plan provides for the increase in the
number of shares of Common Stock reserved for issuance under the Option Plan
from 1,100,000 shares to 2,600,000 shares.
Explanation of Amendment
Presently, the Option Plan provides for a total of 1,100,000 shares of
Common Stock to be issued upon the exercise of incentive stock options (each an
"ISO") and stock options not so qualified (each a "NQSO") that may be granted
from time to time to persons eligible to receive such options pursuant to the
Option Plan. As noted above, as of November 28, 2000, 84,900 shares remain
reserved for issuance under the Option Plan for ISOs and NQSOs subsequently
granted thereunder.
To ensure that the number of shares reserved under the Option Plan is
adequate to attract, hire and retain qualified personnel, the Board of Directors
believes it is necessary that further shares of Common Stock be reserved for
issuance under the Option Plan. The Board believes that an additional 1,500,000
shares of Common Stock should be sufficient for this purpose for the foreseeable
future.
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Summary of the Option Plan
The essential features of the Option Plan are outlined below.
Administration of the Option Plan
The Board of Directors administers the Option Plan.
Eligibility
ISOs may be granted to employees (including officers) of the Company or
any Subsidiary, and NQSOs may be granted to employees (including employees who
have been granted ISOs), directors, consultants, agents, independent contractors
and other persons whom the Board determines will contribute to the Company's
success. A director of the Company or any Subsidiary who is not an employee of
the Company or of one of its Subsidiaries is not eligible to receive ISOs.
Grant of Options
The Board selects persons to be granted options (collectively, the
"Optionees" or individually, an "Optionee") and determines (i) whether the
respective option is to be an ISO or a NQSO, (ii) the number of shares of Common
Stock purchasable under the option, (iii) the time or times when the option
becomes exercisable, (iv) the exercise price, which for NQSOs cannot be less
than eighty-five percent (85%) of the fair market value of the Common Stock on
the date of grant, (100% of such fair market value for ISOs), and (v) the
duration of the option, which cannot exceed ten years. Notwithstanding the
foregoing, ISOs may not be granted to any person who, at the time the ISO is
granted, owns or is considered as owning more than 10% of the total combined
voting powers of all classes of stock of the Company or any Subsidiary, unless
at the time the ISO is granted to such person, the option price is at least 110%
of the fair market value of the Common Stock subject thereto and such ISO by its
terms is not exercisable subsequent to five years from the date of grant.
For purposes of the Option Plan, the "fair market value" of the shares
shall be deemed to be, if the shares are traded on The Nasdaq Stock Market,
National Market or on a national securities exchange, the closing sales price of
the shares on The Nasdaq Stock Market, National Market or such national
securities exchange on the business day immediately preceding the day as of
which the determination is being made or on the next preceding day on which the
shares were traded if no shares were traded on such day.
The aggregate fair market value (determined as of the time an option is
granted) of stock with respect to which ISOs are exercisable for the first time
by an Optionee during any calendar year (under the Option Plan or under any
other incentive stock option plan of the Company or any Parent or Subsidiary of
the Company) may not exceed $100,000.
Each option granted under the Option Plan is evidenced by a written
stock option grant, in substantially the form attached to the Option Plan, which
grant will comply with and be subject to the terms and conditions of the Option
Plan. The date of grant of an option is the date on which the Board makes the
determination to grant such option. The maximum aggregate number of shares of
Common Stock with respect to which options, whether ISOs or NQSOs, that may be
granted to any person or entity eligible under the Option Plan within any one
calendar year is 200,000 shares.
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At the discretion of the Board, the Company may reserve to itself or
its assignee(s) in the grant (a) a right of first refusal to purchase any shares
that an Optionee (or a subsequent transferee) may propose to transfer to a third
party, and (b) a right to repurchase any or all shares held by an Optionee upon
the Optionee's termination of employment or service with the Company or a
Subsidiary of the Company for any reason within a specified time as determined
by the Board at the time of grant at (i) the Optionee's original purchase price,
(ii) the fair market value of such shares as determined by the Committee in good
faith, or (iii) a price determined by a provision set forth in the grant.
Exercise of Options
Options are exercisable within the times or upon the events determined
by the Board as set forth in the grant. Payment for the shares may be made (i)
in cash or by check payable to the order of the Company, (ii) by surrender of
shares of Common Stock of the Company having a fair market value equal to the
exercise price of the option, or (iii) by any combination of the foregoing where
approved by the Board in its sole discretion; provided, however, in the event of
payment of shares of Common Stock by method (ii) above, the shares so
surrendered, if originally issued to the Optionee upon exercise of an option(s)
granted by the Company, must have been held by the Optionee for more than six
months.
Whenever under the Option Plan shares are to be issued in satisfaction
of the exercise of options granted thereunder, the Company has the right to
require the recipient to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such shares.
If an ISO Optionee ceases to be employed by the Company for any reason
(other than death or disability), all ISOs held by the Optionee will terminate
on the earlier of three months following such termination or the expiration of
the term of the ISO. If an ISO Optionee dies or becomes disabled, all ISOs held
by the Optionee will terminate and lapse on the earlier of twelve months
following the Optionee's death or disability or the expiration of the term of
the ISO.
Ability to Exercise Incentive Stock Options
During the lifetime of the Optionee, an ISO may only be exercised by
the Optionee.
Option Adjustments
The Option Plan contains a customary anti-dilution provision that
provides that if at any time after the date of grant of an option, the Company
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation or otherwise, changes its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by such option and the price per
share thereof will be proportionately adjusted for any such change by the Board,
whose determination will be conclusive. If a fraction of a share results from
the foregoing adjustment, the fraction will be eliminated and the price per
share of the remaining shares subject to the Option adjusted accordingly.
Amendments to the Option Plan
The Board may at any time terminate, amend or modify the Option Plan in
any respect (including, but not limited to, any form of grant, agreement or
instrument to be executed pursuant to the Option Plan); provided, however, that
shareholder approval is required to be obtained by the Company if required to
12
comply with the Incentive Option provisions of Section 162(m) of the Code, or
listed company requirements of The Nasdaq National Market or of a national
securities exchange on which the shares of Common Stock are traded, or other
applicable provisions of state or federal law or self-regulatory agencies;
provided, further, that no termination, amendment or modification of the Option
Plan may adversely materially affect the rights of an Optionee without his or
her written consent.
Transferability of Options
No ISO may be transferred other than by will or by the laws of descent
and distribution.
Termination of the Option Plan
No options may be granted under the Option Plan on or after September
30, 2006, but options granted before may extend beyond that date and the terms
of the Option Plan will continue to apply to such options and to any shares
acquired upon exercise thereof. The Option Plan may be sooner terminated at the
discretion of the Board.
Federal Income Tax Consequences
The following is based upon federal tax laws and regulations as
presently in effect and does not purport to be a complete description of the
federal income tax aspects of the Option Plan. Also, the specific state tax
consequences to each participant under the Option Plan may vary, depending upon
the laws of the various states and the individual circumstances of each
participant.
Incentive Stock Options
No taxable income is recognized by the Optionee upon the grant of an
ISO under the Option Plan. Further, no taxable income will be recognized by the
Optionee upon exercise of an ISO granted under the Option Plan and no business
expense deduction will be available to the Company. Generally, if the Optionee
holds shares acquired upon the exercise of ISOs for at least two years from the
date of grant of the option and for at least one year from the date of exercise,
any gain on a subsequent sale of such shares will be considered as long-term
capital gain. The gain recognized upon the sale of the shares is equal to the
excess of the selling price of the shares over the exercise price. Therefore,
the net federal income tax effect on the holders of ISOs who meet the required
holding period provisions is to defer, until the shares are sold, taxation of
any increase in the value of the shares from the date of grant and to treat such
gain, at the time of sale, as capital gain rather than ordinary income.
However, in general, if the Optionee sells the shares prior to
expiration of either the two-year or one-year period, referred to as a
"disqualifying disposition," the Optionee will recognize taxable income at
ordinary tax rates in an amount equal to the lesser of (i) the value of the
shares on the date of exercise, less the exercise price; or (ii) the amount
realized on the date of sale, less the exercise price, and the Company will
receive a corresponding business expense deduction. The balance of the gain
recognized on the disqualifying disposition will be long-term or short-term
capital gain depending upon the holding period of the optioned shares. The
two-year and one-year holding period rules do not apply to optioned shares which
are disposed of by the Optionee's estate or a person who acquired such shares by
reason of the death of the Optionee.
Under Section 162(m) of the Code, certain compensation payments in
excess of $1 million are subject to a limitation on deductibility for the
Company. The limitation on deductibility applies with respect
13
to that portion of a compensation payment for a taxable year in excess of $1
million to either the Company's Chief Executive Officer or any one of the
Company's other four most highly compensated executive officers. Certain
performance-based compensation is not subject to the limitation on
deductibility. Options can qualify for this performance-based exception, but
only if they are granted at fair market value, the total number of shares that
can be granted to an executive for a specified period is stated in the Option
Plan, and shareholder and Board approval of the Option Plan is obtained. The
Option Plan has been drafted to allow compliance with those performance-based
criteria that relate to ISOs.
At the date of this Proxy Statement, long-term capital gain is taxed to
individuals at a maximum preferential rate of 20%, and items of ordinary income
are currently taxed to individuals at a maximum rate of 39.6%. An employee may
be subject to an alternative minimum tax upon exercise of an ISO since the
excess of the fair market value of the optioned stock at the date of exercise
over the exercise price must be included in alternative minimum taxable income,
unless the acquired shares are disposed of in the same year that the option was
exercised.
Non-Qualified Stock Options
As in the case of ISOs, the grant of NQSOs will not result in any
taxable income to the Optionee. However, unlike ISOs, generally the Optionee
will recognize ordinary income in the year in which the option is exercised in
the amount by which the fair market value of the purchased shares on the date of
exercise exceeds the exercise price.
The fair market value of the shares on the date income is required to
be recognized will constitute the tax basis thereof for computing gain or loss
on any subsequent sale. Any gain or loss recognized by the Optionee upon the
subsequent disposition of the shares will be treated as capital gain or loss and
will qualify as long-term capital gain or loss if the shares are held for more
than twelve months prior to disposition.
Generally, the Company will be entitled to a business expense deduction
equal to the amount of ordinary income recognized by the Optionee at the date of
exercise. The income recognized by the Optionee will be treated as compensation
income and will be subject to income tax withholding by the Company. Under
Section 162(m) of the Code, certain compensation payments in excess of $1
million are subject to a limitation on deductibility for the Company. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either the
Company's Chief Executive Officer or any one of the Company's other four most
highly compensated executive officers.
Certain performance-based compensation is not subject to the limitation
on deductibility. Options can qualify for this performance-based exception, but
only if they are granted at fair market value, the total number of shares that
can be granted to an executive for a specified period is stated in the Option
Plan, and shareholder and Board approval of the Option Plan is obtained. The
Option Plan has been drafted to allow compliance with those performance-based
criteria that relate to NQSOs, except that NQSOs granted with an exercise price
less than the fair market value of the Common Stock on the date of the grant
will not meet such performance-based criteria and, accordingly, the compensation
attributable to such options will be subject to the deductibility limitations
contained in Section 162(m) of the Code.
Required Vote
Approval of the amendment to the Option Plan will require the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present in person or represented by proxy at the annual meeting and
entitled to vote.
14
Recommendation of the Board
The Board of Directors recommends that shareholders vote FOR the
amendment to the Option Plan (Proposal No. 3 on the Proxy Card).
Proposal 4
APPROVAL OF THE EXECUTIVE INCENTIVE BONUS PLAN
General
In October 2000, the Board of Directors, upon recommendation of the
Compensation Committee, unanimously approved and adopted a new Executive
Incentive Bonus Plan (the "Bonus Plan") to govern the award and payment of cash
bonuses to certain of the Company's executive officers and directed that the
Bonus Plan be submitted to the Company's stockholders for approval so that
payments thereunder will be deductible by the Company for federal income tax
purposes.
Summary of the Bonus Plan
The essential features of the Bonus Plan are outlined below. This
summary is qualified in its entirety by reference to the complete text of the
Bonus Plan, which is set forth in Annex B. Terms used below with their initial
letters capitalized have the meanings given to them in the Bonus Plan.
Purpose. The purpose of the Bonus Plan is to enhance the Company's ability to
attract and retain highly qualified executives and to provide additional
financial incentives to those executives to promote the success of the Company.
The Bonus Plan is also intended to satisfy the requirements for "performance-
based compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, although there can be no assurance that awards under the Bonus Plan will
satisfy the requirements for deductibility under Section 162(m).
Performance Goal. The Board has established the achievement of Earnings Before
Taxes at least equal to the Earnings Before Taxes for the prior fiscal year as
the performance goal necessary for the payment of bonuses under the Bonus Plan.
For purposes of the Bonus Plan, "Earnings Before Taxes" means, for any fiscal
quarter or fiscal year, the income before provision for income taxes as reported
in the Company's quarterly or annual consolidated statements of income included
in the applicable Quarterly Report on Form 10-Q (in the case of a fiscal
quarter) or Annual Report on Form 10-K (in the case of a fiscal year).
Administration. The Bonus Plan will be administered by the Compensation
Committee of the Board or another committee (consisting of at least two
directors, each of whom shall be an "outside director" within the meaning of
Section 162(m)) appointed by the Board. In administering the Bonus Plan, the
committee will have full power and authority to interpret the terms and
provisions of the Bonus Plan and to establish, adjust, pay or decline to pay
bonuses under the Bonus Plan.
Eligible Executives. Participation in the Bonus Plan will be limited to
"Eligible Executives," which is defined as the Company's Chief Executive
Officer, any other executive officer of the Company designated by the Committee,
and any employee of the Company serving in a senior management position as
determined by the Committee. Membership on the Board does not make an Eligible
Executive ineligible for an award under the Bonus Plan. Currently, there are six
employees (including our five executive officers)
15
who are eligible to participate in the Bonus Plan. No non-employee director of
the Company will be entitled to participate in, or otherwise receive benefits
under, the Bonus Plan.
Establishment of Target Bonuses. Within 90 days after the end of each fiscal
year, the Committee will designate those Eligible Executives who are to be
participants in the Bonus Plan for that fiscal year and will specify the terms
and conditions for the determination and payment of an "Incentive Bonus" to each
of those participants. The maximum Incentive Bonus that may be payable to any
Eligible Executive for any fiscal year will be the greater of (x) $1,000,000;
and (y) 10% of the Earnings Before Taxes for such fiscal year. The Committee may
condition the payment of an Incentive Bonus upon the satisfaction of such
objective or subjective standards that the Committee determines to be
appropriate. The Bonus Plan contains special provisions for designating
additional Eligible Executives for participation in the Bonus Plan after such
90- day period and determining the amount of their maximum Incentive Bonuses.
Committee Certification and Determination of Incentive Bonuses. As soon as
practicable after the end of each fiscal year, the Committee will certify in
writing whether the stated performance goal has been met and will determine the
amount of the Incentive Bonus to be paid to each Bonus Plan participant. In
determining that amount, the Committee will consider the target bonuses
established at the beginning of the year, the degree to which the established
standards were satisfied and any other objective or subjective factors it deems
appropriate and may reduce the amount of, or eliminate altogether, any Incentive
Bonus that would otherwise be payable.
Payment of Incentive Bonuses. Following the Committee's determination of the
Incentive Bonuses to be paid, those Incentive Bonuses will be paid in cash
(subject to any election made by an Eligible Executive with respect to the
deferral of all or a portion of his or her Incentive Bonus).
Bonus Plan Not Exclusive. The adoption of the Bonus Plan will not prevent the
Company from adopting, continuing, amending or terminating such additional
compensation arrangements as it deems desirable for participants under this Plan
or other employees of the Company. Additional compensation arrangements could
include generally any additional bonus, equity incentive or retirement plans.
Awards to covered executives under any additional compensation arrangements may
or may not qualify as performance-based compensation under section 162(m) of the
Internal Revenue Code.
Duration and Amendment. If the Bonus Plan is approved by the Company's
shareholders, it will be effective for fiscal 2000 (the fiscal year of the
Company that commenced on August 1, 1999) and will continue in effect until the
fifth anniversary of the date of such approval. The Board, however, may suspend
or terminate the Bonus Plan at any time. In addition, the Board may amend the
Bonus Plan from time to time as it deems advisable, except that, without the
approval of the Company's stockholders, the Board may not amend the Bonus Plan
to (a) increase the maximum amount of Incentive Bonus that may be paid or
otherwise materially increase the benefits accruing to any Eligible Executive
under the Bonus Plan, (b) materially modify the eligibility requirements for
participation in the Bonus Plan or (c) change the material terms of the stated
performance goal.
Federal Income Tax Consequences
The following is based upon federal tax laws and regulations as
presently in effect and does not purport to be a complete description of the
federal income tax aspects of the Bonus Plan. Also, the specific state tax
consequences to each participant under the Bonus Plan may vary, depending upon
the laws of the various states and the individual circumstances of each
participant.
16
Under present federal income tax law, a Bonus Plan participant will be
taxed at ordinary income rates on the cash portion of the bonus in the year in
which such cash was received. If a participant elects to defer a portion of the
bonus, the participant will also be entitled to defer the recognition of income.
Generally, and subject to the provisions of Section 162(m), the Company will
receive a federal income tax deduction corresponding to the amount of income
recognized by the Bonus Plan participants.
Bonus Plan Benefits
The Incentive Bonuses, if any, that will be paid to Bonus Plan
participants for any fiscal year are subject to the discretion of the Committee,
based on objective or subjective factors that the Committee considers
appropriate. The amount of the Incentive Bonuses payable under the Plan for
fiscal 2000 total $808,747. See "Executive Compensation" below for the amount of
the bonuses paid under the Plan to each of Messrs. Steinberg, Stemple and
Looney. However, due to the discretionary nature of the Bonus Plan, it is not
possible to determine or estimate the amount of any Incentive Bonus that would
have been paid in any prior fiscal year had the Bonus Plan then been in effect.
As noted above, the maximum Incentive Bonus that may be paid under the Bonus
Plan to any participant for any fiscal year is the greater of (x) $1,000,000;
and (y) 10% of the Earnings Before Taxes for such fiscal year.
Reasons for Proposal.
Generally, Section 162(m) of the Internal Revenue Code prevents a
company from receiving a federal income tax deduction for compensation paid to a
"Named Executive Officer" (see below) in excess of $1 million for any year,
unless that compensation is performance-based. One of the requirements of
"performance-based" compensation for purposes of Section 162(m) is that the
compensation be paid pursuant to a plan that has been approved by the Company's
stockholders. The Board believes that it is desirable and in the best interests
of the Company and its stockholders that the cash bonuses to be paid to the
Company's executive officers be deductible for federal income tax purposes and,
accordingly, has structured the Bonus Plan to satisfy the requirements of
Section 162(m) for "performance-based" compensation. The Board also believes
that the Bonus Plan serves the Company's interests by focusing management's
attention on the achievement of those goals that the Board, through the
Committee, determines to be strategically and operationally important for the
Company.
If the Bonus Plan is not approved by the Company's stockholders, it is
currently contemplated that any bonuses for fiscal 2001 and subsequent years for
executive officers would be discretionary and that such bonuses, and the bonuses
payable to the Chief Executive Officer with respect to fiscal 2000, would not be
deductible under Section 162(m) to the extent that (when combined with other
non-exempt compensation) they exceed the limit set forth therein.
Required Vote
Approval of the Bonus Plan will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the annual meeting and entitled to vote.
Recommendation of the Board
The Board of Directors recommends that shareholders vote FOR the
approval of the Executive Incentive Bonus Plan (Proposal No. 4 on the Proxy
Card).
17
Proposal 5
RATIFICATION OF REAPPOINTMENT OF INDEPENDENT AUDITORS
General
Subject to ratification by the shareholders, the Board of Directors has
reappointed KPMG LLP as independent auditors for the year ending July 31, 2001.
Representatives of KPMG LLP are expected to be present at the annual meeting,
who will have the opportunity to make a statement and are expected to be
available to respond to appropriate questions. If the shareholders do not elect
to ratify the appointment of KPMG LLP, the selection of independent auditors
will be reconsidered by the Audit Committee.
Required Vote
Ratification of the reappointment of KPMG LLP as independent auditors
will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock present in person or represented by proxy at
the annual meeting and entitled to vote.
Recommendation of the Board
The Board of Directors recommends that shareholders vote FOR the
reappointment of KPMG LLP as independent auditors for the year ending July 31,
2001 (Proposal No. 5 on the Proxy Card).
OTHER INFORMATION
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 8, 2000, certain
information with respect to the beneficial ownership of the Common Stock by each
person known by us to beneficially own five percent or more of the outstanding
Common Stock (together with their respective addresses), each director and
nominee for election as director, each executive officer named in the Summary
Compensation Table on page 20 of this Proxy Statement, and all executive
officers and directors of the Company as a group.
Shares Percent of
Beneficially Outstanding
Name and Address Owned (1) Shares Owned (1)
---------------- --------- --------------
Barry R. Steinberg (2)(3) 4,690,201 57.6%
Joel G. Stemple (2) 626,263 7.7%
Dimensional Fund Advisors Inc. (4) 583,000 7.6%
Joel Rothlein (5) 51,500 *
Joseph Looney (6) 44,700 *
Julian Sandler (7) 23,500 *
Laura Fontana (8) 20,000 *
Bert Rudofsky (9) 15,000 *
Michael E. Russell (9) 15,000 *
Mark Glerum -- *
All executive officers and directors
as a group (9 persons) (10) 5,486,164 67.3%
18
* Less than 1%
(1) For purposes of determining the aggregate amount and percentage of shares
deemed beneficially owned by directors and executive officers of the
Company individually and by all directors, nominees and executive officers
as a group, (i) exercise of all currently exercisable options listed in
the footnotes hereto is assumed; and (ii) options that may be exercised
within 60 days from the Record Date are deemed to be currently
exercisable. For such purposes, 8,146,315 shares of Common Stock are
deemed to be outstanding.
(2) Address is 160 Oser Avenue, Hauppauge, New York 11788.
(3) Excludes 59,500 shares owned by Ilene Steinberg and 59,000 shares owned by
Sheryl Steinberg, daughters of Mr. Steinberg, which shares were purchased
with the proceeds of a loan from Mr. Steinberg. As reported on Schedule
13D filed on March 24, 1997, as amended, Mr. Steinberg, Ilene Steinberg,
and Sheryl Steinberg each disclaim beneficial ownership of the common
stock owned by the others.
(4) Address is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401. Share
ownership is as of September 30, 2000. The information contained in the
table above concerning Dimensional Fund Advisors Inc. ("Dimensional") and
in this footnote is based in part upon a Schedule 13G filed with the
Securities and Exchange Commission on February 3, 2000, by Dimensional.
Dimensional, an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other commingled group trusts
and separate accounts. These investment companies, trusts and accounts are
called "Funds". In its role as investment adviser or manager, Dimensional
possesses voting and/or investment power over the securities of the
Company described in the Schedule 13G that are owned the Funds. All
securities reported in the Schedule 13G are owned by the Funds, no one of
which to the knowledge of Dimensional owns more than 5% of the Company's
Common Stock. Dimensional disclaims beneficial ownership of such
securities.
(5) Consists of currently exercisable options to acquire 20,000 shares of
Common Stock and 31,500 shares held by the Kressel Rothlein & Roth Profit
Sharing Plan. Mr. Rothlein disclaims beneficial ownership of the Common
Stock owned by the such plan, except to the extent of his beneficial
interest therein.
(6) Includes currently exercisable options to acquire 30,000 shares of Common
Stock, and options to acquire 10,000 shares of Common Stock exercisable
within 60 days from the Record Date.
(7) Includes currently exercisable options to acquire 22,500 shares of Common
Stock.
(8) Includes currently exercisable options to acquire 10,000 shares of Common
Stock, and options to acquire 10,000 shares of Common Stock exercisable
within 60 days from the Record Date.
(9) Includes currently exercisable options to acquire 15,000 shares of Common
Stock.
(10) See notes 1, 2, 3 and 5 through 9 above.
Executive Officers
Our executive officers serve at the pleasure of the Board of Directors and
are subject to annual appointment by the Board at its first meeting following
the annual meeting of shareholders. Our executive officers are:
Name Position with the Company
Barry R. Steinberg Chairman of the Board, President,
Chief Executive Officer
Joel G. Stemple Executive Vice President and Secretary
Joseph Looney Vice President-Finance, Chief Financial
Officer and Assistant Secretary
Laura Fontana Vice President-Technical Services
Mark Glerum Vice President-Sales
Biographical information regarding Messrs. Steinberg and Stemple is set
forth above under the caption "Directors." Biographical information with respect
to our other executive officers is set forth below. All ages are as of January
17, 2001.
19
Joseph Looney, age 43, has served as our Chief Financial Officer since
May 1996, as our Assistant Secretary since April 1999, and as our Vice
President-Finance since January 2000. From 1984 until he joined the Company, Mr.
Looney served in various positions with KPMG LLP, including Senior Audit Manager
at the end of his tenure with such firm. Mr. Looney is a Certified Public
Accountant, a member of the American Institute of Certified Public Accountants,
the New York State Society of Certified Public Accountants and the Institute of
Internal Auditors.
Laura Fontana, age 45, has served as our Vice President-Technical
Services since January 2000 and as Director of Technical Services since January
1999. A twenty-year Manchester veteran, Ms. Fontana had previously managed our
sales organization and is largely responsible for the design of our sales,
product information, and automated order-processing systems. Ms. Fontana
received her Bachelor of Arts degree from Dowling College.
Mark Glerum, age 42, has served as our Vice President-Sales since January
2000. Mr. Glerum joined the Company in January 1999 as Manager of our New York
City sales office, and became National Sales Manager in September 1999. Prior to
joining Manchester, Mr. Glerum spent twelve years at Toshiba America, Inc., most
recently as Regional Sales Manager. Mr. Glerum received his Bachelor's Degree in
Business Administration from Alfred University.
Executive Compensation
Summary Compensation Table
The following table provides information concerning compensation paid or
accrued during the fiscal years ended July 31, 2000, 1999 and 1998 to our Chief
Executive Officer and each of our other executive officers whose compensation
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Common Stock
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(1) Options Compensation
- ------------------ ---- ------ ----- --------------- ------- ------------
Barry R. Steinberg.....2000 $650,000 $485,248 $58,707 (2) - -
President and CEO 1999 $650,000 - $23,806 (2) - -
1998 $550,000 - $37,031 (2) - -
Joel G. Stemple........2000 $450,000 $242,624 $31,375(3) - -
Executive VP and 1999 $450,000 - $13,881(3) - -
Secretary 1998 $450,000 - $22,194(3) - -
Joseph Looney..........2000 $220,000 $80,875 $11,025(4) - -
VP-Finance, Chief 1999 $200,000 $15,000 $15,061(4) - -
Financial Officer and 1998 $140,394 $40,000 $13,677(4) 70,000(6) -
Ass't Sec'y
Laura Fontana. . . . . 2000. . $169,254 $38,683 $17,848(5) - -
VP-Technical Services
Mark Glerum . . . . . .2000 . $128,830 $35,866 $6,675 9,000(7) -
VP-Sales
(1) Includes in fiscal 2000 employer matching contributions to the Company's
defined contribution plan of $5,100, $5,100, $5,100, and $5,048 for Mr.
Steinberg, Mr. Stemple, Mr. Looney, and Ms. Fontana, respectively, in
fiscal 1999 employer matching contributions to the Company's defined
contribution plan of $4,800, $4,800, and $4,960 for Messrs. Steinberg,
Stemple and Looney, respectively, and in fiscal 1998 employer matching
contributions of $4,950, $4,800, and $3,477 for Messrs. Steinberg, Stemple
and Looney, respectively.
(2) Includes $50,000 in fiscal 2000, $15,399 in fiscal 1999 and $32,081 in
fiscal 1998 of premiums paid by the Company for a whole life insurance
policy in Mr. Steinberg's name having a face value of $2,600,000 and under
which his daughters, on the one hand, and the Company, on the other hand,
are beneficiaries and share equally in the death benefits.
(3) Includes $25,000 in fiscal 2000, $7,606 in fiscal 1999 and $17,394 in
fiscal 1998 of premiums paid by the Company for a whole life insurance
policy in Mr. Stemple's name having a face value of $1,300,000 and under
which his spouse and the Company are beneficiaries and are entitled to
$600,000 and $700,000, respectively, of the death benefits.
(4) Includes $5,000 in each of fiscal 2000, fiscal 1999, and fiscal 1998 of
premiums paid by the Company for a whole life insurance policy in Mr.
Looney's name having a face value of $345,000 and under which his spouse
and the Company are beneficiaries and are entitled to $100,000 and
$245,000, respectively, of the death benefits.
(5) Includes $5,000 in fiscal 2000 of premiums paid by the Company for a whole
life insurance policy in Ms. Fontana's name having a face value of
$589,000 and under which her minor child and the Company are beneficiaries
and are entitled to $200,000 and $389,000, respectively, of the death
benefits.
(6) The grant of 70,000 options during fiscal 1998 represents a repricing of
the 70,000 options granted to Mr. Looney during fiscal 1997.
(7) See "Option Grants" below for the exercise price and vesting terms of the
options granted to Mr. Glerum.
No restricted stock awards, stock appreciation rights or long-term
incentive plan awards (all as defined in the proxy regulations promulgated by
the Securities and Exchange Commission) were awarded to, earned by, or paid to
the Named Executive Officers during the fiscal year ended July 31, 2000.
Option Grants
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the fiscal year ended July 31,
2000. No stock appreciation rights have been granted by the Company.
Option Grants During the Fiscal Year Ended July 31, 2000
Potential Realizable Value at
Assumed Annual Rates of
Number of % of Total Stock Price Appreciation for
Securities Options Option Term(2)
Underlying Granted to Exercise --------------
Options Employees in Price Expiration
Name Granted(1) Fiscal Year Per Share Date 5% 10%
- ------------------- ------------ -------------- ----------- ------------- ---------- ---------
Mark Glerum 9,000 4.0% $3.75 10/27/09 $21,240 $53,820
- -------------------
(1) Grant consists of ten-year ISOs granted under the Option Plan,
exercisable cumulatively at the annual rate of one third of the number
of underlying shares, generally commencing two years from the date of
grant.
(2) Amounts reported in this column represent hypothetical values that may
be realized upon exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation of the common stock over the term of the options. These
numbers are calculated based on rules promulgated by the Securities and
Exchange Commission. Actual gains, if any, in option exercises are
dependent on the time of such exercise and the future performance of
the common stock.
20
Aggregated Options Exercises and Fiscal Year-end Options Value Table
The following table sets forth certain information concerning the
number and value realized of options exercised during fiscal 2000, and the
number and value of exercisable and unexercisable options granted to the Named
Executive Officers as of July 31, 2000.
Aggregated Option Exercises in 2000 and Option Values at July 31, 2000
----------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
July 31, 2000 July 31, 2000(1)
Shares ----------------- -----------------
Acquired on
Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------- -------- -------------- ----------- ------------- ----------- -------------
Joseph Looney......... -- -- 30,000 40,000 $24,375 $32,500
Laura Fontana ......... 20,000 $65,003 10,000 40,000 $ 8,125 $32,500
Mark Glerum ........... -- -- -- 9,000 $ -- $7,875
--------------
(1) Based on the closing sale price of the common stock as of July 31, 2000
($4.625 per share) minus the applicable exercise price.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
In connection with the Company's initial public offering, Barry R.
Steinberg entered into an employment agreement with the Company, pursuant to
which his annual base salary for services rendered to the Company in his
positions as President and Chief Executive Officer was $550,000 in each of the
fiscal years ending July 31, 1997 and 1998. Under this agreement, Mr. Steinberg
was not eligible to receive any bonus in fiscal 1997, and any bonus payable for
fiscal 1998 required the approval of a majority of the independent directors of
the Company. No bonus was paid to Mr. Steinberg with respect to fiscal 1998 or
1999, and a bonus of $485,248 was paid to Mr. Steinberg with respect to fiscal
2000. Since the expiration of this agreement, Mr. Steinberg has not been a party
to an employment agreement with the Company. The Company has made available, and
continues to make available to him, the car allowance and deferred compensation
benefits that he has historically received. Mr. Steinberg is also eligible to
participate in other benefits that the Company makes generally available to its
employees, such as medical and other insurance, and is eligible to participate
under the Company's stock option plan. If Mr. Steinberg's employment with the
Company terminates, he would not be precluded from competing with the Company.
In addition, in connection with the Company's initial public offering,
the Company entered into an employment agreement with Joel G. Stemple, the
Company's Executive Vice President and Secretary, under which Mr. Stemple was
paid a base salary of $450,000 in each of the fiscal years ending July 31, 1997
and 1998. Under this agreement, Mr. Stemple was not eligible to receive any
bonus in fiscal 1997 and any bonus payable to Mr. Stemple for fiscal 1998
required the approval of a majority of the independent directors of the Company.
No bonus was paid to Mr. Stemple with respect to fiscal 1998 or 1999, and a
bonus of $242,624 was paid to Mr. Stemple with respect to fiscal 2000. Under the
employment agreement, the Company provides Mr. Stemple with an automobile and
certain deferred compensation benefits and provides Mr. Stemple with medical and
other benefits generally offered by the Company to its employees. Mr. Stemple
also is eligible to participate in the Company's stock option plan. The
employment agreement is terminable by either party on 90 days' prior notice. If
the Company so terminates Mr. Stemple's employment, or the Company elects not to
renew his employment agreement, he is entitled to severance equal to 12 months
of his then current base salary, payable in accordance with the Company's
customary
21
payroll practices. Under the employment agreement, if Mr. Stemple terminates his
employment, or the Company terminates his employment for cause, Mr. Stemple is
prohibited, for a two-year period from termination, from competing with the
Company in the eastern half of the United States.
Our other executive officers are employed at will.
Report of the Board of Directors and the Compensation Committee on Executive
Compensation
The following is provided to shareholders by the Board of Directors
and by the Compensation Committee of the Board:
Introduction
The Board of Directors and the Compensation Committee are responsible
for the administration of the Company's compensation programs. These programs
include base salary and cash bonuses for executive officers, which are
determined by the Compensation Committee, and long-term incentive compensation
programs, which are administered by the Board of Directors (provided that grants
of stock options to either Mr. Steinberg or Mr. Stemple must first be
recommended by the Compensation Committee).
Compensation Philosophy
The primary goal of the Company is to align compensation with the
Company's business objectives and performance. In addition, the Company aims to
attract, retain, and reward executive officers and other key employees who
contribute to the long-term shareholder value with a total compensation package
that the Company considers to be competitive yet reasonable. To establish the
relationship between executive compensation and the creation of shareholder
value, the Board and the Compensation Committee utilize a compensation package
comprised of base salary, cash bonuses and stock option awards. Through stock
option awards for executives and other key employees, the Company attempts to
ensure that individuals are motivated over the long term to respond to the
Company's business challenges and opportunities as owners and not just as
employees.
Compensation Program
The Company's executive compensation program has three major
components, each of which are intended to attract, retain and motivate executive
officers consistent with the philosophy set forth above. The Board and the
Compensation Committee consider these components of compensation individually,
as well as collectively, in determining total compensation for executive
officers. In making compensation determinations, the Board and the Compensation
Committee have not historically attributed specific values or weights to any
particular performance factors, and have made their decisions primarily on a
subjective basis, although in doing so, the Compensation Committee has taken
into consideration the financial status of the Company and salaries paid to
executives of similarly sized companies.. The particular elements of the
compensation program for executive officers are explained below:
1. Base salary. The base salaries of the Company's Named Executive
Officers for fiscal 2000 were established by the Compensation Committee on
January 19, 2000, based primarily on the contributions made by such persons
during fiscal 1999 and expected future contributions. In reviewing the
individual performance of the Messrs. Looney and Glerum and Ms. Fontana, the
Compensation Committee met with, and took into account the views of, the
Company's Chief Executive Officer and its Executive Vice President.
22
2. Annual incentive compensation. For fiscal 2000, incentive
compensation was governed by the Bonus Plan, which provides our executive
officers with direct financial incentives in the form of cash bonuses to achieve
corporate performance goals and is administered by a subcommittee of the
Compensation Committee. The bonuses paid to Ms. Fontana and Mr. Glerum for
fiscal 2000 were determined based on compensation arrangements implemented prior
to their becoming officers of the Company, and were not based on the Bonus Plan.
It is anticipated that Ms. Fontana and Mr. Glerum will not participate in the
Bonus Plan in the future due to the fact that while the bonuses payable under
the Bonus Plan are based on the performance of the Company and its subsidiaries,
the responsibilities of these officers are solely with respect to the Company.
3. Equity-based incentive compensation. In line with the Company's
philosophy to motivate individuals as owners, the Company's current long-term
incentive program consists of its stock option plan. The Board has utilized five
and six year vesting periods with respect to the options granted to its
executive officers, with a waiting period prior to commencement of vesting, to
encourage them to continue in the employ of the Company. Through option grants,
executives receive significant equity incentives to build long-term shareholder
value. The exercise price of options granted under the stock option plan is
fixed at no less than 100% of the fair market value of the underlying stock on
the date of grant with respect to incentive stock options, and no less than 85%
of such fair market value with respect to non-incentive stock options. To date,
all grants of stock options have provided for exercise prices of not less than
100% of the fair market value of the underlying stock on the date of grant.
Accordingly, employees receive value from these grants only if the Common Stock
appreciates over the long term.
Chief Executive Officer Compensation
Mr. Steinberg's compensation for the fiscal year ended July 31, 2000
was determined by the Compensation Committee, based primarily on a subjective
analysis of his experience, performance, level of responsibility and
contribution to the Company. Effective August 1, 1999, based upon the
recommendation of the Compensation Committee, Mr. Steinberg's annual base salary
was fixed at $650,000, which was the same base salary as the Company paid Mr.
Steinberg for the prior fiscal year. Mr. Steinberg also received an incentive
bonus as a result of the Company's increase in earnings before taxes. The
Company continues to make available to Mr. Steinberg the car allowance and
deferred compensation benefits that he has historically received. Mr. Steinberg
also participates in other benefits that the Company makes generally available
to its employees, such as medical and other insurance, and is eligible to
participate under the Company's stock option plan. See "Executive Compensation."
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a
deduction for any publicly-held corporation for individual compensation
exceeding $1 million in any taxable year for any of the named executive
officers, unless compensation is performance-based. The Board and the
Compensation Committee believe that maintaining the discretion to evaluate the
performance of the Company's management is an important part of its
responsibilities and benefits the Company's stockholders. The Board and the
Compensation Committee intend to take into account the potential application of
Section 162(m) with respect to incentive compensation awards and other
compensation decisions made by them in the future, and, assuming the approval of
the Bonus Plan, do not currently anticipate that Section 162(m) will limit the
deductibility of any compensation paid by the Company to its executive officers
during 2001. However, the Company may from time to time pay compensation to its
executive officers that is not be deductible.
23
The Board of Directors The Compensation Committee
---------------------- --------------------------
Barry R. Steinberg, Chairman Joel Rothlein, Chairman
Joel G. Stemple, Joel Rothlein Bert Rudofsky
Bert Rudofsky, Michael E. Russell, Julian Sandler Julian Sandler
Report of the Audit Committee
The following is provided to shareholders by the Audit Committee of the
Board:
As more fully described above under "Meetings and Committees", above,
the Audit Committee reviews the corporate accounting and financial reporting
practices of the Company and the quality and integrity of the financial reports
of the Company. As part of its duties, the Audit Committee:
(1) reviewed and discussed with management Manchester's audited financial
statements as of and for the fiscal year ended July 31, 2000;
(2) discussed with the independent auditors for Manchester the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants;
(3) received the written disclosures and the letter from the independent
auditors for Manchester required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and discussed with the independent auditors the independent auditors'
independence from management and Manchester; and
(4) based on the review and discussions referred to above, recommended to
the Board of Directors that the audited financial statements be included in
Manchester's Annual Report on Form 10-K for the fiscal year ended July 31, 2000
for filing with the SEC.
The Audit Committee
Bert Rudofsky, Chairman
Michael Russell, Julian Sandler
Stock Performance Graph
The graph on the next page show a comparison of cumulative total
shareholder returns for the Company's Common Stock, the NASDAQ Stock Market
Index for U.S. companies, and groups consisting of the Company's peer
corporations on a line-of-business basis, through July 31, 2000. The
corporations making up the peer group are Allstar Systems, Inc. (effective July
8, 1997, the date its Common Stock commenced trading), Alphanet Solutions, Inc.,
CompuCom Systems, Inc., Elcom International, Inc., and Pomeroy Computer
Resources, Inc. The graph assumes (i) the reinvestment of dividends, if any, and
(ii) the investment of $100 on November 26, 1996 (the date our Common Stock
commenced trading) in our Common Stock, the NASDAQ Stock Market Index and the
Peer Group Index.
The Report of the Board of Directors and the Compensation Committee on Executive
Compensation and the Stock Performance Graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or the Securities Exchange Act of 1934,
as amended, except to the extent the Company specifically incorporates it by
reference into such filing.
24
[CHART]
Note: Management cautions that the stock price performance information shown in
the graph may not be indicative of current stock price levels or future stock
price performance.
The performance graph was plotted using the following data:
Cumulative Total Return
11/26/96 7/31/97 7/31/98 7/31/99 7/31/00
-------- ------- ------- ------- -------
Manchester Equipment Co, Inc. $100 $ 42 $ 31 $ 26 $ 46
NASDQ Index $100 $125 $147 $210 $299
Peer Group $100 $ 89 $69 $ 47 $ 45
Compensation Committee Interlocks and Insider Participation
The members of the Company's Compensation Committee are Joel Rothlein,
Esq., Bert Rudofsky and Julian Sandler. Mr. Rothlein is a partner of Kressel
Rothlein & Roth, Esqs., which, with its predecessor firms, has acted as outside
general counsel to the Company since the Company's inception. Kressel Rothlein &
Roth, Esqs. was paid legal fees of approximately $177,000, $213,000, and
$217,000 by the Company in fiscal 2000, 1999 and 1998, respectively. In
addition, during fiscal 2000, 1999 and 1998, the Company recorded revenue of
approximately $272,000, $597,000 and $177,000, respectively, in connection with
the sale of computer equipment to a company controlled by Mr. Sandler.
The Company's Stock Option Plan is administered by the Board of Directors.
Barry R. Steinberg is President and Chief Executive Officer and Joel G. Stemple
is Executive Vice President of the Company. In these capacities, as members of
the Board, they could vote on executive compensation issues before the
25
Board pertaining to the granting of stock options. Although the issue has not
arisen to date, each of Messrs. Steinberg and Stemple has agreed to abstain from
voting on the grant of stock options to himself or to the other of them and,
effective July 15, 1998, the granting of stock options to either of Mr.
Steinberg or Mr. Stemple will first have to be recommended to the Board by the
Compensation Committee.
Certain Relationships and Related Transactions
Three of the Company's four Hauppauge, New York facilities are leased
from entities affiliated with certain of the Company's executive officers,
directors or principal shareholders. The property located at 40 Marcus
Boulevard, Hauppauge, New York is leased from a limited liability company owned
70% by Mr. Steinberg and his relatives, 20% by Joel G. Stemple, and 10% by
Michael Bivona, a former officer and director of the Company. During the fiscal
years ended July 31, 2000, 1999 and 1998, the Company made lease payments of
$190,000, $186,000, and $179,000, respectively, to such entity. The Company's
offices at 160 Oser Avenue, Hauppauge, New York are leased from a limited
liability company owned 65% by Mr. Steinberg, 17.5% by Mr. Stemple and 17.5% by
Mr. Bivona. During fiscal 2000, 1999 and 1998, the Company made lease payments
of $279,000, $271,000 and $263,000, respectively, to such entity. The property
located at 50 Marcus Boulevard, Hauppauge, New York is leased from Mr. Steinberg
doing business in the name of Marcus Realty. During fiscal 2000, 1999 and 1998,
the Company made lease payments of $360,000, $344,000 and $340,000,
respectively, to such entity.
Joel Rothlein, Esq., a director of the Company, is a partner of Kressel
Rothlein & Roth, Esqs., which, with its predecessor firms, has acted as outside
general counsel to the Company since the Company's inception. During fiscal
2000, 1999 and 1998, $177,000, $213,000 and $217,000, respectively, was paid to
such firm for legal fees. During fiscal 2000, 1999 and 1998, the Company
recorded revenue of $273,000, $597,000 and $177,000, respectively, in connection
with the sale of computer equipment to a company controlled by Julian Sandler, a
director of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires
our officers and directors, and holders of more than 10% of our Common Stock to
file reports of their trading in our equity securities with the Securities and
Exchange Commission. Based on a review of Section 16 forms filed by the
reporting persons during the last fiscal year and written representations that
no other reports were required, we believe that the reporting persons timely
complied with all applicable Section 16 filing requirements.
Other Matters
Management does not know of any matter to be brought before the Annual
Meeting other than as described above. In the event any other matter properly
comes before the Annual Meeting, the persons named in the accompanying form of
proxy have discretionary authority to vote on such matters.
Shareholder Proposals
Any shareholder proposal to be considered for inclusion in the
Company's proxy soliciting material for the next Annual Meeting of Shareholders
must be received by the Company at its principal office by August 9, 2001, and
must otherwise be in compliance with applicable laws and regulations.
Dated: December 14, 2000 THE MANCHESTER EQUIPMENT CO., INC. BOARD OF
DIRECTORS
26
ANNEX A
MANCHESTER EQUIPMENT CO., INC.
Charter of the Audit Committee of the Board of Directors
as adopted on April 12, 2000
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist
the Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
o Monitor the independence and performance of the Company's independent
auditors.
o Provide an avenue of communication among the independent auditors,
management, and the Board of the Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. Audit Committee Composition and Meetings
The composition of the Audit Committee shall meet the requirements of
the Nasdaq Stock Market. Without limiting the generality of the foregoing, the
Audit Committee shall be comprised of three or more directors as determined by
the Board, each of whom shall be independent non-executive directors, free from
any relationship that would interfere with the exercise of his or her
independent judgment. All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board on
recommendation of the Nominating Committee. If an Audit Committee Chair is not
designated or present, the members of the Committee may designate a Chair by
majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee Chair shall prepare
and/or approve an agenda in advance of each meeting. The Committee should meet
privately in separate executive session at least annually with management, the
independent auditors, and as a committee to discuss any matters that the
Committee or each of these groups believe should be discussed. In addition, the
Committee, or at least its Chair, should communicate with management and the
independent auditors quarterly to review the Company's financial statements and
significant findings based upon the auditors limited review procedures.
A-1
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least
annually. Submit the charter to the Board of Directors for
approval and have the document included with the Company's
Proxy Statement at least every three years in accordance with
Nasdaq regulations.
2. Review the Company's annual audited financial statements prior
to filing or distribution. Review should include discussion
with management and independent auditors of significant issues
regarding accounting principles, practices, and judgments.
3. In consultation with the management and the independent
auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant
financial risk exposures and the steps management has taken to
monitor, control, and report such exposures. Review
significant findings prepared by the independent auditors
together with management's responses.
4. Review with financial management and the independent auditors
the Company's quarterly financial results prior the release of
earnings and/or the Company's quarterly financial statements
prior to filing or distribution. Discuss any significant
changes to the Company's accounting principles and any items
required to be communicated by the independent auditors in
accordance with SAS 61 (see item 9). The Chair of the
Committee may represent the entire Audit Committee for
purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the
Audit Committee and the Board of Directors. The Audit
Committee shall review the independence and performance of the
auditors and annually recommend to the Board of Directors the
appointment of the independent auditors or approve any
discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid
to the independent auditors.
7. On an annual basis, the Committee shall ensure that it
receives from the independent auditors a formal written
statement delineating all relationships between them and the
Company, consistent with Independence Standards Board Standard
1. The Committee shall be responsible for actively engaging in
a dialogue with the auditors with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the auditors and for taking, or recommending
that the full Board take, appropriate action to oversee the
independence of the independent auditors.
8. Review the independent auditors' audit plan - discuss scope,
staffing, locations, reliance upon management, and internal
audit and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results
of the audit with the independent auditors. Discuss certain
matters required to be communicated to audit committees in
accordance with AICPA SAS 61.
A-2
10. Consider the independent auditors' judgments about the quality
and appropriateness of the Company's accounting principles as
applied in its financial reporting.
Legal Compliance
11. On at least an annual basis, review with the Company's counsel
any legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance
with applicable laws and regulations, and inquiries received from
regulators or government agencies.
Other Audit Committee Responsibilities
12. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report shall be included
in the Company's annual proxy statement.
13. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the
Board deems necessary or appropriate.
14. Maintain minutes of meetings and periodically report to the Board
of Directors on significant results of the foregoing activities.
Other Optional Charter Disclosures
15. Periodically perform self-assessment of audit committee
performance.
16. Review financial and accounting personnel succession planning
within the Company.
17. Annually review policies and procedures as well as audit results
associated with directors' and officers expense accounts and
perquisites. Annually review a summary of director and officers'
related party transactions and potential conflicts of interest.
A-3
ANNEX B
MANCHESTER EQUIPMENT CO., INC.
EXECUTIVE INCENTIVE BONUS PLAN
Manchester Equipment Co., Inc., a New York corporation (the "Company")
adopts this Executive Incentive Bonus Plan (the "Plan") for the purpose
enhancing the Company's ability to attract and retain highly qualified
executives and to provide additional financial incentives to such executives to
promote the success of the Company and its subsidiaries.
Remuneration payable under the Plan is intended to constitute "qualified
performance-based compensation" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and Section 1.162-27 of the Treasury
Regulations promulgated thereunder, and the Plan shall be construed consistently
with such intention. The "performance goal" necessary for the payment of
remuneration under the Plan will be the achievement of Earnings Before Taxes (as
defined below) at least equal to the Earnings Before Taxes for the prior fiscal
year.
1. Definitions. As used herein, the following terms have the respective
meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended, or
the corresponding provisions of any subsequent federal internal
revenue law.
(c) "Committee" means the Compensation Committee of the Board or such
other committee appointed by the Board to administer the Plan;
provided, however, that in any event the Committee shall be
comprised of not less than two directors of the Company, each of
whom shall qualify in all respects as an "outside director" for
purposes of Section 162(m) of the Code and Section 1.162-27(e)(3)
of the Regulations.
(d) "Company" means Manchester Equipment Co., Inc., a New York
corporation.
(e) "Earnings Before Taxes" means, for any fiscal quarter or fiscal
year, the income before provision for income taxes as reported in
the Company's quarterly or annual consolidated statements of
income included in the applicable Quarterly Report on Form 10-Q
(in the case of a fiscal quarter) or Annual Report on Form 10-K
(in the case of a fiscal year), as filed with the Securities
Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, in either case restated to eliminate the effect
of any Incentive Bonus paid with respect to such fiscal quarter
or fiscal year, as the case may be, pursuant to this Plan.
(f) "Eligible Executive" means (i) the Company's Chief Executive
Officer; (ii) each other executive officer of the Company that
the Committee determines, in its discretion, is or may be a
"covered employee" of the Company within the meaning Section
162(m) of the Code and Section 1.162-27(c)(2) of the Regulations;
and (iii) any other employee of the Company serving in a senior
management position as determined by the Committee, in its
discretion.
(g) "Incentive Bonus" means, for each Eligible Executive, an annual
bonus opportunity amount determined by the Committee pursuant to
Section 3 below.
B-1
(h) "Participant" means any Eligible Executive who is selected by the
Committee to participate in the Plan for a specified period.
(i) "Regulations" means the Treasury Regulations promulgated under
the Code, as amended from time to time.
2. Administration of the Plan. The Plan shall be administered by the
Committee, which shall have full power and authority to construe, interpret,
administer and establish rules for the administration of the Plan and shall have
the exclusive right to establish, adjust, pay or decline to pay the Incentive
Bonus for each Eligible Executive. Such power and authority shall include the
right to exercise discretion to reduce by any amount the Incentive Bonus payable
to any Participant; provided, however, that the exercise of such discretion with
respect to any Participant shall not have the effect of increasing the Incentive
Bonus that is payable to any other Participant. All Committee actions under the
Plan shall be taken in accordance with the applicable provisions of the
Company's By-laws and the Committee's Charter. In making any determinations
under or referred to in the Plan, the Committee shall be entitled to rely on
opinions, reports or statements of officers or employees of the Company and its
affiliates, and of counsel, public accountants and other professionals or
experts.
3. Eligibility. Eligibility under this Plan is limited to Eligible
Executives designated by the Committee in its sole and absolute discretion.
Designation as a Participant for any fiscal period shall not entitle any
Eligible Executive to the right to be designated as a Participant for any other
fiscal period. An Eligible Executive is not rendered ineligible to be a
Participant by reason of being a member of the Board.
4. Awards.
------
(a) Not later than the 90th day of each fiscal year of the
Company, the Committee, in its sole and absolute discretion, shall select one or
more Eligible Executives to be participants in the Plan for such fiscal year and
shall specify the terms and conditions for the determination and payment of an
Incentive Bonus to each Participant for such fiscal year. After the end of such
90-day period, the Committee may designate additional Participants so long as,
within 30 days following each such additional designation, the Committee
specifies the terms and conditions for the determination and payment of an
Incentive Bonus to such additional Participant.
(b) The Committee may condition the payment of an Incentive Bonus
upon the satisfaction of such objective or subjective standards as the Committee
shall determine to be appropriate, in its sole and absolute discretion, and
shall retain the discretion to reduce the amount of any Incentive Bonus that
would otherwise be payable to a Participant (including a reduction in such
amount to zero).
(c) The Incentive Bonus payable to a Participant with respect to
any fiscal year shall not exceed the greater of (x) $1,000,000; and (y) 10% of
the Earnings Before Taxes for such fiscal year; provided, however, that the
maximum Incentive Bonus payable to any individual who becomes an Eligible
Executive after the end of the 90-day period referred to in subsection (a) of
this Section shall not exceed the greater of (i) $1,000,000 pro-rated for the
number of complete fiscal quarters during such fiscal year during which such
individual was an Eligible Executive; and (ii) 10% of the Earnings Before Taxes
for the fiscal quarters after the fiscal quarter in which such individual became
an Eligible Executive.
5. Committee Certification. As soon as reasonably practicable after the end
of each fiscal year of the Company, and prior to the payment of any Incentive
Bonus, the Committee shall determine whether the
B-2
stated performance goal has been achieved and the amount of the Incentive Bonus
to be paid to each Participant for such fiscal year and shall certify such
determinations in writing.
6. Payment of Incentive Bonuses. Subject to any election duly and
validly made by a Participant with respect to the deferral of all or a portion
of his or her Incentive Bonus, Incentive Bonuses shall be paid in cash at such
times and on such terms as are determined by the Committee in its sole and
absolute discretion.
7. No Right to Bonus or Continued Employment. Neither the
establishment of the Plan, the provision for or payment of any amounts hereunder
nor any action of the Company, the Board or the Committee with respect to the
Plan shall be held or construed to confer upon any person (a) any legal right to
receive, or any interest in, an Incentive Bonus or any other benefit under the
Plan or (b) any legal right to continue to serve as an officer or employee of
the Company or any subsidiary or affiliate of the Company. There is no
obligation for uniformity of treatment of Participants under the Plan. The
Company expressly reserves any and all rights to discharge any Eligible
Executive without incurring liability to any person under the Plan or otherwise.
Notwithstanding any other provision hereof and notwithstanding the fact that the
stated performance goal has been achieved or the individual Incentive Bonus
amounts have been determined, the Company shall have no obligation to pay any
Incentive Bonus hereunder unless the Committee otherwise expressly provides by
written contract or other written commitment.
8. Plan Not Exclusive. This Plan is not intended to and shall not
preclude the Board and the Committee from adopting, continuing, amending or
terminating such additional compensation arrangements as it deems desirable for
Eligible Executives, including any thrift, savings, investments, stock purchase,
stock option, profit-sharing, pension, retirement, insurance, bonus or other
incentive plan.
9. Withholding. The Company shall have the right to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable federal, state, local or foreign withholding tax requirements
imposed with respect to the payment of any Incentive Bonus.
10. Nontransferability. Except as expressly provided by the Committee, the
rights and benefits under the Plan are personal to an Eligible Executive and
shall not be subject to any voluntary or involuntary alienation, assignment,
pledge, transfer or other disposition.
11. Unfunded Plan. The Company shall have no obligation to reserve or
otherwise fund in advance any amounts that are or may in the future become
payable under the Plan. Any funds that the Company, acting in its sole and
absolute discretion, determines to reserve for future payments under the Plan
may be commingled with other funds of the Company and need not in any way be
segregated from other assets or funds held by the Company. A Participant's
rights to payment under the Plan shall be limited to those of a general creditor
of the Company.
12. Designation of Beneficiaries. A Participant may designate one or
more beneficiaries to receive all or part of the Incentive Bonus which may be
made to the Participant, or may be payable, after such Participant's death. A
designation of beneficiary may be replaced by a new designation or may be
revoked by the Participant at any time. A designation or revocation shall be on
a form to be provided for this purpose and shall be signed by the Participant
and delivered to the Company prior to the Participant's death. In case of the
Participant's death, an Incentive Bonus with respect to which a designation of
beneficiary has been made (to the extent it is valid and enforceable under
applicable law) shall be paid to the designated beneficiaries at the time such
Incentive Bonus would have been paid to Participant, if Participant were still
alive. Any Incentive Bonus granted or payable to a Participant who is deceased
and not subject to such a
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designation shall be distributed to the Participant's estate at the time such
Incentive Bonus would have been paid to Participant, if Participant were still
alive. If there shall be any question as to the legal right of any beneficiary
to receive an Incentive Bonus under the Plan, the amount in question may be paid
to the estate of the Participant, in which event the Company shall have no
further liability to anyone with respect to such amount.
13. Adoption, Amendment, Suspension and Termination of the Plan.
-----------------------------------------------------------
(a) Subject to the approval of the Plan by the holders of a
majority of the Company common stock represented and voting on the proposal at
the annual meeting of Company stockholders to be held on January 17, 2001 (or
any adjournment thereof), the Plan shall be effective for the fiscal year of the
Company commencing August 1, 1999 and shall continue in effect until the fifth
anniversary of the date of such stockholder approval, unless earlier terminated
as provided below. Upon such approval of the Plan by the Company's stockholders,
all Incentive Bonuses awarded under the Plan on or after August 1, 1999 shall be
fully effective as if the stockholders had approved the Plan on or before August
1, 1999.
(b) Subject to the limitations set forth in this subsection, the
Board may at any time suspend or terminate the Plan and may amend it from time
to time in such respects as the Board may deem advisable; provided, however,
that the Board shall not amend the Plan in any of the following respects without
the approval of stockholders then sufficient to approve the Plan in the first
instance:
(1) To increase the maximum amount of Incentive Bonus that may be paid
under the Plan or otherwise materially increase the benefits accruing
to any Eligible Executive under the Plan;
(2) To materially modify the requirements as to eligibility for
participation in the Plan;
(3) To change the material terms of the stated performance goal.
(c) No Incentive Bonus may be awarded during any suspension or
after termination of the Plan, and no amendment, suspension or termination of
the Plan shall, without the consent of the person affected thereby, alter or
impair any rights or obligations under any Incentive Bonus previously awarded
under the Plan.
14. Governing Law. The validity, interpretation and effect of the Plan, and
the rights of all persons hereunder, shall be governed by and determined in
accordance with the laws of the State of New York, other than the choice of law
rules thereof.
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PROXY
MANCHESTER EQUIPMENT CO., INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Barry R. Steinberg and Joel G. Stemple,
and each of them, proxies, each with the power of substitution, to vote the
shares of the undersigned at the Annual Meeting of Shareholders of Manchester
Equipment Co., Inc. on January 17, 2001, and any adjournments and postponements
thereof, upon all matters as may properly come before the Annual Meeting.
Without otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein.
Please promptly complete, date and sign on the reverse side and mail
in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1), (2), (3), (4) AND (5)
LISTED BELOW, TO COME BEFORE THE ANNUAL MEETING:
- --------------------------------------------------------------------------------
(1) Election of six FOR WITHHELD
(6) Directors ( ) ( )
to serve until Nominees: Barry R. Steinberg
the 2002 Annual Joel G. Stemple
Meeting of Shareholders: Joel Rothlein
Bert Rudofsky
For, except withheld from the following Michael E. Russell
nominees: Julian Sandler
- -------------------------------------------
(2) To approve the amendment of the Certificate of (2) To approve the
amendment of the Certificate of Incorporation of the Company to change the
name of the Company to "Manchester Technologies, Inc."
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) To approve the amendment of the Company's Amended and (3) To approve
the amendment of the Company's Amended and Restated Incentive and
Non-Incentive Stock Option Plan to increase the number of shares
reserved for issuance thereunder from 1,100,000 shares to 2,600,000
shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) To approve the Company's Executive Incentive Bonus Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(5) To ratify the reappointment of KPMG LLP as independent auditors of the
Company for the year ending July 31, 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(6) Upon any and all other business that may come before the Annual
Meeting.
This Proxy will be voted FOR the matters described in paragraphs (1), (2),
(3), (4) and (5) unless the shareholder specifies otherwise, in which case it
will be voted as specified.
SIGNATURE(S): DATE:
----------------------------- -------------------------------
Note: Executors, Administrators, Trustees, Etc. should give full title.
- ----------------------------- --------------------------------------------------
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