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 January 19, 2000
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 Wednesday,
January 19, 2000 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 2001 Annual Meeting of
Shareholders.
2. To ratify the reappointment of KPMG LLP as independent auditors of the
Company for the year ending July 31, 2000.
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 December 6, 1999, 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
December 7, 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 January 19, 2000
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 Wednesday, January 19, 2000, 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 December 10, 1999. The Company's 1999 Annual Report, a copy of which is
also enclosed herewith, contains the Company's financial statements for its
fiscal year ended July 31, 1999.
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, 2000.
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
December 6, 1999 (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 8,041,800 shares of Common Stock issued and
outstanding.
15
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 (4,020,901 shares of the 8,041,800 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,
2000 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 58.3% 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.................................................... 4
Executive Compensation................................................... 7
Report of the Board of Directors and the Compensation Committee
on Executive Compensation.............................................. 10
Stock Performance Graph.................................................. 12
Compensation Committee Interlocks and Insider Participation.............. 13
Certain Relationships and Related Transactions........................... 13
Section 16(a) Beneficial Ownership Reporting Compliance.................. 14
Ratification of Reappointment of Independent Auditors.................... 14
Other Business........................................................... 15
Shareholder Proposals.................................................... 15
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 7
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) 4,690,201 57.9%
Joel G. Stemple (2) 626,263 7.7
Joseph Looney (4) 29,700 *
Joel Rothlein (5) 41,500 *
Bert Rudofsky (6) 5,000 *
Michael E. Russell (6) 5,000 *
Julian Sandler (7) 13,500 *
All executive officers and directors
as a group (7 persons) (8) 5,411,164 66.8%
* 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, 8,099,300 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 15,000 shares of Common
Stock, and options to acquire 10,000 shares of Common Stock exercisable
within 60 days from the Record Date.
(5) Consists of currently exercisable options to acquire 10,000 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 Kressel Rothlein & Roth Profit Sharing Plan, except to
the extent of his beneficial interest in such plan.
(6) Includes currently exercisable options to acquire 5,000 shares of Common
Stock.
(7) Includes currently exercisable options to acquire 12,500 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) 58 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) 70 1996 Director
Bert Rudofsky (2)(3) 66 1998 Director
Michael E. Russell (3) 53 1998 Director
Julian Sandler (2)(3) 55 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 (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.
Meetings and Committees
During the fiscal year ended July 31, 1999 there were four regular meetings
and one special meeting of the Board of Directors. Except as set forth in the
following sentence, during fiscal 1999, 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. During fiscal 1999, Bert
Rudofsky attended all of the meetings of the Board of Directors and three of the
ten meetings of the Compensation Committee. On two occasions in fiscal 1999 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. The Executive Committee did not meet during
fiscal 1999.
Audit Committee. The Audit Committee consists of Bert Rudofsky, Chairman,
Michael Russell and Julian Sandler. 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
1999.
Compensation Committee. The Compensation Committee consists of Joel
Rothlein, 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 effective July
15, 1998, option grants to Messrs. Steinberg and Stemple must first be
recommended by the Compensation Committee). The Compensation Committee met ten
times during fiscal 1999.
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 and Assistant Secretary
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 42, has served as the Company's Chief Financial
Officer since May 1996 and as its Assistant Secretary since April 15, 1999.
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, 1999, 1998 and
1997 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..... 1999 $650,000 - $23,806(2) - -
President and CEO 1998 $550,000 - $37,031(2) - -
1997 $550,000 - $59,210(2) - -
Joel G. Stemple........ 1999 $450,000 - $13,881(3) - -
Executive VP and 1998 $450,000 - $22,194(3) - -
Secretary 1997 $450,000 - $33,050(3) - -
Joseph Looney.......... 1999 $200,000 $15,000 $15,061(4) - -
Chief Financial 1998 $140,394 $40,000 $13,677(4) 70,000(5) -
Officer and Ass't Sec'y 1997 $125,489 $47,500 $7,610 70,000(5) -
- ---------------
(1) Includes employer matching contributions to the Company's defined
contribution plan of $4,800, $4,800, and $4,960 in fiscal 1999, $4,950,
$4,800, and $3,477 in fiscal 1998, and $6,252, $6,675, and $2,510 in
fiscal 1997, for Messrs. Steinberg, Stemple and Looney, respectively.
(2) Includes $15,399 in 1999, $32,081 in 1998 and $50,000 in 1997 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 $7,606 in 1999, $17,394 in 1998 and $25,000 in 1997 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 1999 and 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) The grant of 70,000 options during fiscal 1998 represents a repricing of
the 70,000 options granted to Mr. Looney during fiscal 1997.
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, 1999.
Option/SAR Grants Table
No stock options were granted to the Named Executive Officers during
the fiscal year ended July 31, 1999. No stock appreciation rights have been
granted by the Company.
Aggregated Options/SAR Exercises and Fiscal Year-end Options/SAR Value Table
No stock options were exercised by the Named Executive Officers during
the fiscal year ended July 31, 1999, and no stock appreciation rights have been
granted by the Company. The following table sets forth the number of exercisable
and unexercisable options granted to the Named Executive Officers as of July 31,
1999, none of which were in-the-money at such date.
Number of Securities
Underlying Unexercised
Options at
July 31, 1999
Name Exercisable/Unexercisable
---- -------------------------
Joseph Looney 15,000/55,000
Compensation of Directors
On July 15, 1998, the Board 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):
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 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). 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, who are
non-employee directors, non-incentive options under the Plan to purchase 5,000
shares at an exercise price of $2.75 per share (the fair market value of the
Common Stock on August 1, 1999).
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 December 31, 1999, each member of the Committee was paid $10,000 on
February 1, 1999 and $10,000 on August 1, 1999.
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 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. No bonus was paid to Mr. Steinberg with
respect to fiscal 1997, 1998 or 1999. 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 Mr. Steinberg is eligible 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 was not eligible to
receive any bonus in fiscal 1997 and any bonus payable to Mr. Stemple for fiscal
1998 required approval by a majority of the independent directors of the
Company. No bonus was paid to Mr. Stemple with respect to fiscal 1997, 1998 or
1999. 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. 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 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). 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. The base salaries of the Company's Named Executive
Officers for fiscal 1999 were established by the Compensation Committee on
October 19, 1998, based primarily on the contributions made by such officers
during fiscal 1998 and expected future contributions. In reviewing the
individual performance of the Company's Chief Financial 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 1999, 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 $15,000 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, and took into account
the increase in base salary granted to such Officer for fiscal 1999.
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, 1999
was determined by the Compensation Committee, based primarily on a subjective
analysis of his experience, performance, level of responsibility and
contribution to the Company. The Compensation Committee also took into account
the fact that Mr. Steinberg's salary was not increased with respect to fiscal
1998, and that the Company did not pay him a bonus with respect to fiscal 1997
or fiscal 1998. Effective August 1, 1998, based upon the recommendation of the
Compensation Committee, Mr. Steinberg's annual base salary was fixed at
$650,000. No bonus was paid to Mr. Steinberg with respect to fiscal 1999. 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 do not currently
anticipate that Section 162(m) will limit the deductibility of any compensation
paid by the Company to its executive officers during 2000.
The Board of Directors The Compensation Committee
Barry R. Steinberg, Chairman Joel Rothlein
Joel G. Stemple, Joel Rothlein Bert Rudofsky
Bert Rudofsky, Michael E. Russell Julian Sandler
Julian Sandler
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 groups consisting of the Company's peer corporations on a
line-of-business basis, through July 31, 1999. The corporations making up the
"old" peer group are Alphanet Solutions, Inc., CompuCom Systems, Inc., Elcom
International, Inc., and Pomeroy Computer Resources, Inc. The corporations
making up the "new" peer group are Allstar Systems, Inc. (effective July 8,
1997, the date its Common Stock commenced trading), and the members of the "old"
peer group. The "old"peer group formerly included Vanstar Corp., which was
acquired by Inacom Corp. on February 17, 1999. The results of the "old" peer
group have been restated to eliminate 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.
Note: Management cautions that the stock price performance information
shown in the graph above may not be indicative of current stock price levels or
future stock price performance.
The performance graph was plotted using the following data:
OLD NEW
MANCHESTER NASDAQ PEER PEER
EQUIPMENT CO., INC. INDEX GROUP GROUP
------------------- ----- ----- -----
November 26, 1996 $100 $100 $100 $100
July 31, 1997 $ 42 $125 $ 89 $ 89
July 31, 1998 $ 31 $147 $ 69 $ 69
July 31, 1999 $ 26 $210 $ 48 $ 47
The Report of the Board of Directors and the Compensation Committee on
Executive Compensation and the Stock Performance Graph set forth above 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.
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 $213,000, $217,000, and
$655,000 by the Company in the fiscal years ended July 31, 1999, 1998 and 1997,
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,
1999, 1998 and 1997, the Company recorded revenue of approximately $597,000,
$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, 1999, 1998 and 1997, the Company made lease payments of $186,000, $179,000,
and $174,000, 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, 1999, 1998 and 1997, the Company made lease payments
of $271,000, $263,000 and $259,000, 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,
1999, 1998 and 1997, the Company made lease payments of $344,000, $340,000 and
$329,000, 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. received fees of approximately $655,000 from the Company in the
fiscal year ended July 31, 1997, which sum includes fees paid to special counsel
($286,000). During fiscal 1999 and 1998, $213,000 and $217,000 respectively was
paid to such firm for legal fees.
During the year ended July 31, 1999, 1998 and 1997, the Company
recorded revenue of $597,000, $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, 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, 2000.
16
The Board of Directors recommends that shareholders vote FOR the
reappointment of KPMG LLP as independent auditors for the year ending July 31,
2000 (Proposal No. 2 on the Proxy Card).
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.
Representatives of KPMG LLP are expected to be present at the Annual
Meeting. Such representatives will have the opportunity to make a statement if
they so desire, and are expected to be available to respond to appropriate
questions.
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 August 12, 2000, and
must otherwise be in compliance with applicable laws and regulations.
THE MANCHESTER EQUIPMENT CO., INC. BOARD OF DIRECTORS
Dated: December 7, 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 19, 2000, 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 19, 2000
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 six [ ] [ ] Nominees: Barry R. Steinberg
(6) Directors to Joel G. Stemple
serve until the Joel Rothlein
2001 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 LLP
as independent auditors of the Company [ ] [ ] [ ]
for the year ending July 31, 2000.
(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.