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 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 filings 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
(516) 434-8700
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 13, 1999
To the Shareholders of
MANCHESTER EQUIPMENT CO., INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Manchester Equipment Co., Inc. (the "Company") will be held
at the Smithtown Sheraton, 110 Motor Parkway, Smithtown, New York, on Tuesday,
April 13, 1999 at 10:00 a.m., local time, to consider and act upon the following
proposals:
1. To elect six (6) Directors to serve until the 2000 Annual Meeting of
Shareholders.
2. To ratify the reappointment of KPMG LLP as independent auditors of
the Company for the year ending July 31, 1999.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only holders of record of the Company's
Common Stock at the close of business on February 22, 1998, the Record Date for
the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Joel G. Stemple
Secretary
Hauppauge, New York
February 23, 1999
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
(516) 434-8700
PROXY STATEMENT
Annual Meeting of Shareholders
To Be Held On April 13, 1999
INTRODUCTION
General
This Proxy Statement is being furnished to holders of Common Stock, par
value $.01 per share (the "Common Stock"), of Manchester Equipment Co., Inc., a
New York corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at its Annual Meeting
of Shareholders to be held on Tuesday, April 13, 1999, at the Smithtown
Sheraton, 110 Motor Parkway, Smithtown, New York, at 10:00 a.m., local time, and
any and all adjournments or postponements thereof (the "Annual Meeting"). The
cost of the solicitation will be borne by the Company. This Proxy Statement and
the enclosed proxy card were first mailed to the Company's shareholders on or
about March 1, 1999. The Company's 1998 Annual Report, a copy of which is also
enclosed herewith, contains the Company's financial statements for its fiscal
year ended July 31, 1998.
Matters to be Considered at the Annual Meeting
At the Annual Meeting, the shareholders will be asked to consider and
vote upon the following proposals:
1. To elect six (6) Directors to serve until the 2000 Annual Meeting of
Shareholders.
2. To ratify the reappointment of KPMG LLP as independent auditors of the
Company for the year ending July 31, 1999.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Voting at the Annual Meeting
Only holders of record of Common Stock at the close of business on
February 22, 1998 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting, each such holder of record being entitled to one vote per
share of Common Stock on each matter to be considered at the Annual Meeting. On
the Record Date, there were 8,096,600 shares of Common Stock issued and
outstanding.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (4,048,301 shares of the 8,096,600 shares outstanding) is
necessary to constitute a quorum at the Annual Meeting. If a quorum is present,
the plurality vote of the total votes cast by the holders of Common Stock is
required to elect the six (6) Directors. The ratification of the reappointment
of KPMG LLP as independent auditors of the Company for the year ending July 31,
1999 will require the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote.
If the enclosed proxy card is properly executed and returned to the
Company prior to voting at the Annual Meeting, the shares represented thereby
will be voted in accordance with the instructions marked thereon. Shares
represented by proxies which are marked "WITHHOLD AUTHORITY" to vote for (i) all
six (6) nominees, or (ii) any individual nominee(s) for election as directors
and are not otherwise marked "FOR" the other nominees, will not be counted in
determining whether a plurality vote has been received for the election of
directors. Similarly, shares represented by proxies which are marked "ABSTAIN"on
any other proposal will not be counted in determining whether the requisite vote
has been received for such proposal. In the absence of instructions, the shares
will be voted FOR all the proposals set forth in the Notice of Annual Meeting.
In instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned proxies (so called "broker
non-votes"), those shares will not be included in the totals.
At any time prior to its exercise, a proxy may be revoked by the holder
of the Common Stock granting it by delivering written notice of revocation or a
duly executed proxy bearing a later date to the Secretary of the Company at the
address of the Company set forth on the first page of this Proxy Statement or by
attending the Annual Meeting and voting in person.
Proxies may be solicited on behalf of the Board by mail, telephone,
telecopy or in person and solicitation costs will be paid by the Company.
Directors, officers and regular employees of the Company may solicit proxies by
such methods without additional compensation. 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 the Company
for their reasonable expenses.
Voting by the Company's Principal Shareholder
Barry R. Steinberg is the Company's largest shareholder, beneficially
owning 57.7% 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 and for the ratification of the reappointment of the
independent accountants. 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.
Table of Contents
- ----------------------------------------------
Page
Security Ownership of Certain Beneficial
Owners and Management.......................................... 4
Election of Directors............................................ 5
Executive Compensation........................................... 7
Report of the Board of Directors and the Compensation Committee
on Executive Compensation..................................... 12
Stock Performance Graph......................................... 14
Compensation Committee Interlocks and Insider Participation.... 15
Certain Relationships and Related Transactions................. 16
Section 16(a) Beneficial Ownership Reporting Compliance....... 17
Ratification of Reappointment of Independent Auditors......... 17
Other Business................................................ 17
Shareholder Proposals......................................... 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date, information with
respect to the beneficial ownership of the Common Stock by (i) each person who
is known to the Company to beneficially own five percent or more of the
outstanding Common Stock, together with their respective addresses, (ii) each
director and nominee for election as director, (iii) each executive officer
named in the Summary Compensation Table under "Executive Compensation" on page 8
of this Proxy Statement and (iv) all executive officers and directors of the
Company as a group.
Shares Percent of
Beneficially Outstanding
Name and Address Owned (1) Shares Owned
---------------- --------- ------------
Barry R. Steinberg (2)(3) 4,674,101 57.6%
Joel G. Stemple (2) 626,263 7.7
Joseph Looney (4) 14,700 *
William F. Scheibel, Jr. (5) - -
Joel Rothlein (6) 36,500 *
Bert Rudofsky - -
Michael E. Russell - -
Julian Sandler (7) 8,500 *
All executive officers and
directors as a group
(8 persons) (8) 5,360,064 66.0%
- ---------------
* 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, exercise of all currently exercisable options listed in the
footnotes hereto is assumed. For such purpose, 8,119,100 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) Includes currently exercisable options to acquire 10,000 shares of Common
Stock.
(5) Mr. Scheibel's employment with the Company terminated on April 10, 1998.
(6) Consists of currently exercisable options to acquire 5,000 shares of
Common Stock, 3,000 shares held by Kressel Rothlein & Roth, Esqs., in
which Mr. Rothlein is a partner, and 28,500 shares held by the Kressel
Rothlein & Roth Profit Sharing Plan. Mr. Rothlein disclaims beneficial
ownership of the Common Stock owned by Kressel Rothlein & Roth, Esqs.,
except to the extent of his equitable interest in the firm, and of the
Common Stock owned by the Kressel Rothlein & Roth Profit Sharing Plan,
except to the extent of his beneficial interest in such plan.
(7) Includes currently exercisable options to acquire 7,500 shares of Common
Stock.
(8) See notes 1 through 7 above.
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company provides that the
Board of Directors shall consist of such number of members, with a minimum of
three and a maximum of fifteen, as the Board of Directors determines from time
to time. The six (6) persons listed below are currently directors of the Company
and have been selected by the Board of Directors as nominees for election as
directors at the Annual Meeting. Each director elected at this Meeting will hold
office until the next Annual Meeting or until his successor is elected or
appointed, unless his office is earlier vacated by resignation or other cause.
Directors whose terms expire are eligible for renomination.
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 Annual Meeting FOR the election of the
six (6) nominees named below, all of whom are currently directors of the
Company. In the event any nominee should become unavailable for election for any
presently unforeseen reason, it is intended that the proxies will be voted for
such substitute nominee as may be designated by the present Board of Directors.
If a quorum is present, a plurality vote of the total votes cast by the holders
of Common Stock is required to elect the six (6) Directors.
The Board of Directors recommends that shareholders vote FOR the election
of the nominees named below (Proposal No. 1 on the
Proxy Card).
Each nominee's name, age, the year first elected as a director, office with
the Company, and certain biographical information are set forth below:
Year First
Name Age Served as a Director Position with the Company
Barry R. Steinberg (1) 57 1973 Chairman of the Board, President, Chief Executive
Officer and
Director
Joel G. Stemple (1) 57 1982 Executive Vice President,
Secretary and Director
Joel Rothlein (1)(2) 69 1996 Director
Bert Rudofsky (2)(3) 65 1998 Director
Michael E. Russell (3) 52 1998 Director
Julian Sandler (2)(3) 54 1996 Director
- --------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Barry R. Steinberg, the founder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer and as a director since
Manchester's 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 the Company 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 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 (1997-1989),
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.
Meetings and Committees
During the fiscal year ended July 31, 1998 there were four regular meetings
and one special meeting of the Board of Directors. Other than George Bagetakos,
no director attended fewer than 75% of the aggregate number of meetings of the
Board held during the period in fiscal 1998 in which he was a director, and the
total number of meetings held by all committees of the Board in which he served
in fiscal 1998 during the period he served on such committees. On one occasion
in fiscal 1998 the Board took action by unanimous written consent without a
meeting. Mr. Bagetakos was absent from three of the four meetings of the Board
of Directors and the single meeting of the Audit Committee held prior to his
resignation on May 26, 1998. The Compensation Committee did not meet during
fiscal 1998 prior to Mr. Bagetakos's resignation.
The Board of Directors has standing executive, audit and compensation
committees, as follows:
Executive Committee. The Executive Committee, which was formed and became
effective on December 18, 1996, 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.
Audit Committee. The Audit Committee, which was formed and became effective
on December 4, 1996, consisted of Joel G. Stemple, Chairman, George Bagetakos
and Julian Sandler through May 26, 1998, when Mr. Bagetakos resigned as a
director of the Company. From July 15, 1998 through January 20, 1999, the Audit
Committee consisted of Joel G. Stemple, Chairman, Michael Russell and Julian
Sandler. Effective January 20, 1999, Bert Rudofsky replaced Mr. Stemple as a
member and as Chairman of the Audit Committee. The Audit Committee reviews the
Company's internal accounting practices and the scope of the work performed by
the Company's independent accountants. The Audit Committee met twice during
fiscal 1998.
Compensation Committee. The Compensation Committee, which was formed and
became effective on December 18, 1996, consisted of George Bagetakos, Joel
Rothlein and Julian Sandler through May 26, 1998, when Mr. Bagetakos resigned as
a director of the Company. Effective July 15, 1998, Bert Rudofsky replaced Mr.
Bagetakos on the Compensation Committee. 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 effective July
15, 1998, option grants to Messrs. Steinberg and Stemple must first be
recommended by the Compensation Committee). The Compensation Committee met six
times during fiscal 1998.
The Company does not have a standing nominating committee.
Executive Officers
The Company has three executive officers elected on an annual basis to
serve at the pleasure of the Board of Directors:
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 Chief Financial Officer
Biographical information regarding Messrs. Steinberg and Stemple is set
forth above under the caption "Directors." Biographical information with respect
to Mr. Looney is set forth below:
Joseph Looney, age 41, has served as the Company's Chief Financial
Officer since May 1996. Prior to joining the Company, from 1984 to 1996, 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 AICPA, the New York State Society of Certified
Public Accountants and the Institute of Internal Auditors.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid or
accrued by the Company during the fiscal years ended July 31, 1998, July 31,
1997 and 1996 to the Company's Chief Executive Officer and the 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.....1998 $550,000 - $37,031(2) - -
President and CEO 1997 $550,000 - $59,252(2) - -
1996 $271,800 $1,816,439 $59,210(2) - -
Joel G. Stemple........1998 $450,000 - $22,194(3) - -
Executive VP and 1997 $450,000 - $33,050(3) - -
Secretary 1996 $251,800 $1,669,193 $29,000(3) - -
Joseph Looney..........1998 $140,394 $40,000 $13,677 70,000(5) -
Chief Financial 1997 $125,489 $47,500 $7,610 70,000(5) -
Officer(4) 1996 $31,250 $10,000 $1,275 - -
William F. Scheibel, 1998 $123,170 - $7,895 70,000(5) -
Jr.....................1997 $128,956 $22,500 $8,266 70,000(5) -
Chief Technology 1996 $96,157 $17,500 $4,250 - -
Officer(6)
- ----------------------
(1) Includes in fiscal 1998 employer matching contributions to the Company's
defined contribution plan of $4,950, $4,800, $3,577 and $4,070 for Messrs.
Steinberg, Stemple, Looney and Scheibel, respectively, and fiscal 1997
employer matching contributions to the Company's defined contribution plan
of $6,252, $6,675, $2,510, and $3,166 for Messrs. Steinberg, Stemple,
Looney and Scheibel, respectively.
(2) Includes $32,081 in 1998 and $50,000 in each of 1997 and 1996 of premiums
paid by the Company for a whole life insurance policy in the name of Mr.
Steinberg 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 payable under the policy.
(3) Includes $17,394 in 1998 and $25,000 in each of 1997 and 1996 of premiums
paid by the Company for a whole life insurance policy in the name of the
executive officer 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 payable under the policy.
(4) Began employment with the Company on May 2, 1996.
(5) The grant of 70,000 options during fiscal 1998 represents a repricing of
the 70,000 options granted to such individuals during fiscal 1997. See
Option Grant Table below for the exercise price and vesting terms of
Messrs. Looney's and Scheibel's options.
(6) Began employment with the Company on September 7, 1995. Employment with
the Company terminated on April 10, 1998.
Other than as set forth above, 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, 1998.
Option Grant Table
The following table sets forth the information with respect to grants
of stock options to purchase the Company's common stock, par value $0.01 per
share (the "Common Stock"), pursuant to the Company's Amended and Restated 1996
Incentive and Non-Incentive Stock Option Plan (the "Plan") granted to the Named
Executive Officers during the fiscal year ended July 31, 1998 and all options
outstanding to the Named Executive Officers as of July 31, 1998.
Individual Grants
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed
Underlying Granted to Annual Rates of Stock
Options Employees in Exercise Expiration Price Appreciation
Granted(1) Fiscal year Price Date For Option Term (2)
---------- ----------- ----- ---- -------------------
Name (#) ($/sh) 5% 10%
---- ---- ------- ---- -----
Joseph Looney 50,000 (3) 6.3% $3.8125 2/03/2007 $105,000 $259,000
20,000 (4) 2.5% $3.8125 3/26/2007 $42,000 $104,000
William F. Scheibel, Jr. 50,000 6.3% $3.8125 (5) $105,000 $259,000
20,000 2.5% $3.8125 (5) $42,000 $104,000
- --------------
(1) Grants to the Named Executive Officers during the fiscal year ended July
31, 1998 represent repricing of options granted to the Named Executive
Officers during the fiscal year ended July 31, 1997. With the exception of
the exercise price thereof, the terms of such options and the number of
underlying securities were unchanged.
(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.
(3) Exercisable cumulatively at the rate of 20% per annum commencing February
3, 1999.
(4) Exercisable cumulatively at the rate of 25% per annum commencing May 5,
1999.
(5) Mr. Scheibel's employment with the Company terminated on April 10, 1998,
prior to the date any of the options granted to him became exercisable.
Accordingly, all options granted to Mr. Scheibel were canceled effective
on the date his employment terminated.
Option Exercises and Value Table
No options outstanding were exercised or exercisable during the fiscal year
ended July 31, 1998 or as of July 31, 1998. There were no in-the-money
exercisable or unexercisable options at July 31, 1998.
Report on Repricing of Options/SARs
BOARD OF DIRECTORS REPORT ON REPRICING OF OPTIONS
On December 18, 1997, the Board approved reducing the exercise price of
options granted prior to such date to a price equal to the market price of the
Common Stock on December 22, 1997. The purpose of the option repricing was to
provide additional incentives to option recipients to maximize shareholder value
and to assist in retaining key personnel. Given that the original exercise
prices of the options granted prior to the repricing exceeded, and, in most
cases, significantly exceeded, current market price in December 1997, the Board
concluded that such options had no value and provided no incentive to their
recipients.
SUBMITTED BY THE BOARD OF DIRECTORS *
Dated: February 22, 1999
Barry R. Steinberg, Chairman
Joel G. Stemple
Joel Rothlein
Julian Sandler
* - George Bagetakos, a member of the Board at the time of the repricing,
resigned from the Board effective May 26, 1998. Bert Rudofsky and Michael E.
Russell became members of the Board effective July 15, 1998, subsequent to the
repricing.
10-YEAR OPTION/SAR REPRICINGS
Number of Length of
Securities Un- Market Original
derlying Op- Price of Exercise Option Term
tions/ Stock At Price At Remaining At
SARs Time Of Time Of New Date Of
Repriced Or Repricing Or Repricing Or Exercise Repricing Or
Name Date Amended Amendment Amendment Price Amendment
- ---- ---- -------- ------------- ---------- -------- ----------
(#) ($/share) ($/share) ($/share)
Joseph Looney 12/22/97 50,000 $10.00 $3.8125 $3.8125 9 years, 1month
Chief Financial 12/22/97 20,000 $ 5.00 $3.8125 $3.8125 9 years, 3months
Officer
William F. Scheibel, Jr. 12/22/97 50,000 $10.00 $3.8125 $3.8125 9 years, 1 month
Chief Technology 12/22/97 20,000 $ 5.00 $3.8125 $3.8125 9 years, 3 months
Officer(1)
- ---------------
(1) Mr. Scheibel's employment with the Company terminated on April 10, 1998,
prior to the date any of the options granted to him became exercisable.
Accordingly, all options granted to Mr. Scheibel were canceled effective on
the date his employment terminated.
--------------------
Employment Agreements
In connection with the Company's initial public offering, Barry R.
Steinberg entered into an employment agreement with the Company, pursuant to
which he agreed that his annual base salary for services rendered to the Company
in his positions as President and Chief Executive Officer would be $550,000 in
each of the fiscal years ending July 31, 1997 and 1998. Mr. Steinberg agreed
that he would not be eligible to receive any bonus in fiscal 1997 and that any
bonus payable for fiscal 1998 would require the approval of a majority of the
independent directors of the Company. The Company has made available, and will
continue to make available to him, the car allowance and deferred compensation
benefits that he is currently receiving. Mr. Steinberg is also able to
participate in other benefits that the Company makes generally available to its
employees, such as medical and other insurance, and Mr. Steinberg is able to
participate under the Company's stock option plan. In the event Mr. Steinberg's
employment with the Company were terminated, 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 agreed to accept
a base salary of $450,000 in each of the fiscal years ending July 31, 1997 and
1998. Under the employment agreement, Mr. Stemple is not eligible to receive any
bonus in fiscal 1997 and any bonus payable to Mr. Stemple for fiscal 1998 must
be approved by a majority of the independent directors of the Company. 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 able to participate in the Company's stock option plan. The employment
agreement is terminable by either party on 90 days' prior notice. In the event
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. This severance will be payable in accordance
with the Company's customary 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 such
termination, from competing with the Company in the eastern half of the United
States.
Mr. Looney is, and Mr. Scheibel was, employed at will.
Compensation of Directors
Prior to July 15, 1998, directors who were not full-time employees of the
Company were reimbursed for their expenses and received a fee of $500 per Board
and committee meeting attended. On July 15, 1998, the Board adopted the
following program with respect to non-employee director compensation:
a) Commencing August 1, 1998, each such director will be paid a fixed
annual stipend of $5,000, payable in four
quarterly installments.
b) Commencing with the meeting of July 15, 1998, each such director will
receive a fee of $1,500 per Board meeting attended.
c) Commencing August 1, 1998, each such director will receive a fee of $500
for each committee meeting attended, and the Chairman of each committee will be
paid a fixed annual stipend of $1,000, payable in four quarterly installments.
d) Commencing August 1, 1998, and on each August 1 thereafter, each such
director who has served on the Board since the preceding August 1 will be
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 will be for a term of five years and will be
exercisable immediately upon such grant.
On December 4, 1996, the Board of Directors granted to each of George
Bagetakos and Julian Sandler, who was and is a non-employee director,
respectively, non-incentive options under the Plan to purchase 2,500 shares at
an exercise price of $10.00 per share (the fair market value of the Common Stock
on the Company's Initial Public Offering), which options were and are,
respectively, for a term of five years from the date of grant and exercisable
commencing one year from the date of grant; provided, however, that unless
either of the foregoing directors ceases to be a director of the Company due to
his death, the option, to the extent it is exercisable at such time, terminates
upon the earlier of (x) three months from the date of such event; and (y) five
years from the date of grant. On December 22, 1997, the Board of Directors
reduced the exercise price of all outstanding options, including those granted
to Messrs. Bagetakos and Sandler, to $3.8125 per share, being the closing market
price of the Common Stock on such date. See "Report on Repricing of
Options/SARs." On May 26, 1998, Mr. Bagetakos resigned from the Board, and on
August 26, 1998, the options granted to him terminated without being exercised
in whole or in part.
On August 1, 1998, pursuant to and in accordance with the directors
compensation program described above, the Board of Directors granted to each of
Joel Rothlein and Julian Sandler, who are non-employee directors, non-incentive
options under the Plan to purchase 5,000 shares at an exercise price of $3.25
per share (the fair market value of the Common Stock on August 1, 1998).
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). Although the Compensation Committee
may implement an annual incentive plan in the future, the Company does not
currently offer any such plan.
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. The particular elements of the compensation program for
executive officers are explained below:
1. Base salary. For fiscal 1998, the base salaries of the Company's
Chief Executive Officer and its Executive Vice President were fixed pursuant to
their employment agreements, as discussed below. The base salaries of the
Company's Chief Financial Officer and Chief Technology Officer for fiscal 1998
were determined by the Compensation Committee based primarily on the
contributions made by such officers during fiscal 1997 and expected future
contributions. In reviewing the individual performance of the Company's Chief
Financial Officer and Chief Technology Officer, the Compensation Committee met
with, and took into account the views of, the Company's Chief Executive Officer
and its Executive Vice President.
2. Annual incentive compensation. For fiscal 1998, the Compensation
Committee determined not to pay any cash bonuses to the Company's Chief
Executive Officer and its Executive Vice President, and awarded a discretionary
bonus of $40,000 to the Company's Chief Financial Officer. In the case of the
Company's Chief Financial Officer, the decision was made primarily on the basis
of the assistance and performance of such officer in implementing corporate
objectives within the scope of his area of responsibility.
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. Although the Board did not grant options to any
of the Company's executive officers during fiscal 1998, on December 22, 1997,
the Board of Directors did reprice all outstanding options granted prior to such
date, including those granted to certain of the Company's executive officers.
See "Report on Repricing of Options/SARs Report on Repricing of Options/SARs."
Chief Executive Officer and Executive Vice President Compensation
Pursuant to his employment agreement with the Company, the Company paid
to Barry R. Steinberg, its President and Chief Executive Officer, a base salary
of $550,000 in the fiscal year ending July 31, 1998. Although the employment
agreement permitted Mr. Steinberg to be paid a bonus with respect to fiscal
1998, the Compensation Committee determined not to do so. The Company continues
to make available to Mr. Steinberg the car allowance and deferred compensation
benefits that he historically has 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 able to participate under the Company's
stock option plan. See "Executive Compensation."
Pursuant to his employment agreement with the Company, the Company paid
to Joel G. Stemple, its Executive Vice President and Secretary, a base salary of
$450,000 in the fiscal year ending July 31, 1998. Although the employment
agreement permitted Mr. Stemple to be paid a bonus with respect to fiscal 1998,
the Compensation Committee determined not to do so. Pursuant to his 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
able to participate in 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 do not currently
anticipate that Section 162(m) will limit the deductibility of any compensation
paid by the Company to its executive officers during 1999.
SUBMITTED BY THE BOARD OF DIRECTORS
AND THE COMPENSATION COMMITTEE OF THE BOARD
Dated: February 22, 1999
The Board of Directors The Compensation Committee
Barry R. Steinberg, Chairman Joel Rothlein
Joel G. Stemple Bert Rudofsky
Joel Rothlein Julian Sandler
Bert Rudofsky
Michael E. Russell
Julian Sandler
The foregoing Report of the Board of Directors and Compensation
Committee and the Stock Performance Graph set forth below 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.
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
returns for the Company's Common Stock, the NASDAQ Stock Market Index for U.S.
companies, and a group consisting of the Company's peer corporations on a
line-of-business basis, through July 31, 1998. The corporations making up the
peer group are Alphanet Solutions, Inc., CompuCom Systems, Inc., Elcom
International, Inc., Pomeroy Computer Resources, Inc. and Vanstar Corp. The
graph assumes (i) the reinvestment of dividends, if any, and (ii) the investment
of $100 on November 26, 1996 (the date the Company's Common Stock commenced
trading) in the Company's Common Stock, the NASDAQ Stock Market Index and the
Peer Group Index.
(GRAPH SHOWING COMPARISON OF 8 MONTH CUMULATIVE TOTAL RETURN)
MANCHESTER NASDAQ PEER
EQUIPMENT CO., INC. INDEX GROUP
November 26, 1996 $100.00 $100.00 $100.00
July 31, 1997 $ 42.50 $124.74 $ 68.84
July 31, 1998 $ 31.25 $147.23 $ 52.64
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Joel Rothlein,
Esq., Julian Sandler and, effective July 15, 1998, Bert Rudofsky. George
Bagetakos was a member of the Compensation Committee until he resigned from the
Board of Directors in May 1998. 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 $217,000, $655,000 and $383,000 by
the Company in the fiscal years ended July 31, 1998, 1997 and 1996,
respectively. Fiscal 1997 fees to Kressel Rothlein & Roth, Esqs. included fees
paid to special counsel of $286,000.In addition, during the years ended July 31,
1998 and 1997, the Company recorded revenue of approximately $177,000 and
$130,000, 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 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
Until August 1994, the Company was affiliated with Electrograph
Systems, Inc. ("Electrograph"),a specialized distributor of microcomputer
peripherals throughout the United States. Barry R. Steinberg, the Company's
President and Chief Executive Officer and its majority shareholder, served as
Electrograph's Chairman of the Board and Chief Financial Officer, and had
beneficial ownership (directly and through shares held by his spouse and certain
trusts, of which his children are beneficiaries) of 35.5% of the outstanding
shares of common stock of Electrograph. During the fiscal years ended July 31,
1993 and 1994, the Company paid approximately $322,000 and $385,000,
respectively, to Electrograph for the purchase of products. In August 1994,
Bitwise Designs, Inc. ("Bitwise"), a publicly-traded company engaged in the
manufacture and distribution of document imaging systems, personal and
industrial computers and related peripherals, acquired Electrograph through a
stock-for-stock merger; Mr. Steinberg acquired beneficial ownership of less than
1% of the outstanding capital stock of Bitwise for the common stock of
Electrograph in which he had a direct or indirect beneficial interest. Mr.
Steinberg served as a director of, and provided consulting services to, Bitwise
from August 1994 through September 17, 1996.
On April 25, 1997, the Company, through a newly formed wholly-owned
subsidiary, acquired from Electrograph substantially all of its assets and
assumed certain of its liabilities. The purchase price and transaction costs
aggregated approximately $2.6 million. The major categories of products
presently distributed by Electrograph include display devices and graphical user
interfaces.
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, the Company's
Executive Vice President and a principal shareholder, and 10% by Michael Bivona,
a former officer and director of the Company. For the fiscal years ended July
31, 1998, 1997 and 1996, the Company made lease payments of $179,000, $174,000
and $216,000, 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. For the
fiscal years ended July 31, 1998, 1997 and 1996, the Company made lease payments
of $263,000, $259,000 and $360,000, 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. For the fiscal years ended July 31,
1998, 1997 and 1996, the Company made lease payments of $340,000, $329,000 and
$435,000, 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. Kressel Rothlein &
Roth, Esqs. was paid approximately $89,000 (exclusive of disbursements) by the
Company for legal fees in the fiscal year ended July 31, 1996 and received fees
of approximately $655,000 from the Company in the fiscal year ended July 31,
1997, which sum included fees paid to special counsel ($286,000). During fiscal
1998, $217,000 was paid to such firm for legal fees.
During the year ended July 31, 1998 and 1997, the Company recorded
revenue of $177,000 and $130,000, 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 (the
"Exchange Act"), requires that officers, directors and holders of more than 10%
of the Common Stock (collectively, "Reporting Persons") file reports of their
trading in the Company's 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, (a) Bert Rudofksy and Michael E. Russell, each
Reporting Persons, filed Form 3 reporting their becoming directors of the
Company approximately one and one-half months late, and (b) Barry R. Steinberg,
a Reporting Person, filed Form 4 reporting the acquisition of additional shares
of the Common Stock approximately three months late. Except as noted, the
Company believes that the Reporting Persons timely complied with all applicable
Section 16 filing requirements.
RATIFICATION OF REAPPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
reappointed KPMG LLP as independent auditors for the year ending July 31, 1999.
The ratification of the reappointment of KPMG LLP will require the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy at the Annual Meeting and entitled to vote.
It is anticipated that a representative of KPMG LLP will be present at
the Annual Meeting to answer appropriate questions within such firm's field of
expertise. Such representative will have the opportunity to make a statement if
he/she desires to do so.
The Board of Directors recommends that shareholders vote FOR the
reappointment of KPMG LLP as independent auditors for the year ending July 31,
1999 (Proposal No. 2 on the Proxy Card).
OTHER BUSINESS
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 October 25, 1999.
Dated: February 23, 1999
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 14, 1998, 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 COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE.
(reverse side of proxy)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
MANCHESTER EQUIPMENT CO., INC.
JANUARY 14, 1998
Please Detach and Mail in the Envelope Provided
[x] Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1) AND (2) LISTED BELOW,
TO COME BEFORE THE ANNUAL MEETING.
FOR WITHHELD
(1) Election of Five [ ] [ ] Nominees: Barry R. Steinberg
(6) Directors to Joel G. Stemple
serve until the Joel Rothlein
2000 Annual Meeting of Shareholders. Bert Rudofsky
Michael E. Russell
For, except withheld from the Julian Sandler
following nominees:
- -------------------------------------
FOR AGAINST ABSTAIN
(2) To ratify the reappointment of KPMG Peat Marwick
LLP as independent auditors of the Company for the [ ] [ ] [ ]
year ending July 31, 1999.
(3) Upon any and all business that may come before the annual meeting
This proxy, which is solicited on behalf of the board of directors, will be
voted FOR the matters described in paragraphs (1) and (2) 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.