THE OHIO ART COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 1998
----------------------
Bryan, Ohio
April 9, 1998
To the Shareholders of
The Ohio Art Company
NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders
of THE OHIO ART COMPANY will be held at the Sycamore Hills Golf Club,
11836 Covington Road, Fort Wayne, Indiana, on Tuesday, May 5, 1998 at
10:00 AM local time for the following purposes:
1. To elect three directors to serve for a term of two years.
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 27,
1998 are entitled to notice of and to vote at the meeting.
William C. Killgallon
Chairman of the Board
IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES, IT IS IMPORTANT THAT YOUR STOCK BE
REPRESENTED AT THIS MEETING; THEREFORE, PLEASE FILL IN, DATE, AND SIGN
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE.
NO STAMP IS NECESSARY IF MAILED IN THE U.S.
THE OHIO ART COMPANY
One Toy Street
Bryan, OH 43506
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PROXY STATEMENT
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Annual Meeting of Shareholders, May 5, 1998
The accompanying proxy is solicited on behalf of the Board of
Directors for use at the annual meeting of shareholders to be held on
May 5, 1998. The proxy and this proxy statement are being mailed to
shareholders on or about April 9, 1998. The expense of this
solicitation is to be borne by the Company, and the Company may also
reimburse persons holding shares in their names or in the names of their
nominees for their reasonable expenses in sending proxies and proxy
material to their principals.
Unless authority is withheld, proxies in the accompanying form
which are properly executed and duly returned to the Company will be
voted at the meeting. Each proxy granted is revocable and may be
revoked either by executing a later dated proxy or by giving notice to
the Company in writing or in open meeting before any vote is taken.
Abstentions will be treated as votes cast on a particular matter as
well as shares present for purposes of establishing a quorum. Where
nominee record holders do not vote on specific issues because they did
not receive specific instructions on those issues from the beneficial
owners of the shares (broker "non-votes"), those broker non-votes will
not be treated as either votes cast or shares present or represented for
purposes of establishing a quorum.
As of March 27, 1998, the record date, the Company had outstanding
and entitled to vote at the meeting or at any adjournments thereof
891,784 shares of Common Stock. Each shareholder of record on the
record date is entitled to one vote for each share held.
INFORMATION WITH RESPECT TO DIRECTORS AND NOMINEES
The Board of Directors of the Company is divided into two classes,
with one class being elected each year for a two-year term. The
Company's Code of Regulations provides that the Board of Directors shall
consist of seven directors or such other number as may be fixed at a
meeting of shareholders. Shareholders are being asked to elect three
directors to serve for a term of two years or until their respective
successors are elected and qualified. Proxies given to the Board of
Directors will be voted in accordance with the direction of the
shareholders.It is expected that shares held by the Killgallon Family
(as defined below) will be voted to elect the three nominees set forth
in the following tabulation. Directors will be elected by a plurality
of the votes cast by the shareholders present in person or by proxy and
entitled to vote at the meeting.
If any nominee named herein shall be unable to serve, the proxies
will be voted for a substitute nominee and for the other nominees. The
Company has no reason to believe that any listed nominee will be unable
to serve.
1
Position with the Company
or Other Principal Occupation Director
Name and Age and Other Directorships Since
------------ ----------------------------- --------
NOMINEES TO SERVE UNTIL 2000
Neil H. Borden, Jr. (66)......Professor of Business 1988
Administration, Darden Graduate
School of Business Administration,
University of Virginia, 1963 to
present.
William C. Killgallon (59)....Chairman of the Board since June 1965
1989, President 1978-1989. Also
Director of Columbia Ventures.
Wayne E. Shaffer (75).........Senior Partner of Newcomer, 1996
Shaffer & Spangler (a law firm).
DIRECTORS CONTINUING TO SERVE UNTIL 1999
W. C. Killgallon (85).........Chairman, Executive Committee 1955
of the Board and Consultant to
the Company.
Martin L. Killgallon II (50)..President since June 1989; 1981
Executive Vice President 1987
to 1989.
Frank L. Gallucci (73)........Attorney;Managing Director of 1995
Devonshire Limited (an investment
company).Previously served as
Senior Partner of Gallucci,
Hopkins & Theisen (a law firm)
from 1976 to 1993 and as a director
for Lincoln Bank/Norwest Bank during
the same time period.
Joseph A. Bockerstette (40)...President, Seyfert Foods, Inc. 1997
Previously President of Mullinix
Packaging in 1993 and 1994.
W. C. Killgallon is the father of William C. Killgallon and Martin
L. Killgallon, II. The Messrs. Killgallon are "control" persons at the
Company, as such term is defined by regulations of the Securities and
Exchange Commission.
2
SECURITIES BENEFICIALLY OWNED BY PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
Under regulations of the Securities and Exchange Commission,
persons who have power to vote or dispose of shares of the Company,
either alone or jointly with others, are deemed to be beneficial owners
of such shares.
Set forth in the following table are the beneficial holdings on the
basis described above as of March 27, 1998 of: (a) each person known by
the Company to own beneficially more than 5% of its outstanding stock,
(b) directors or nominees not listed in (a), and (c) officers and
directors as a group and certain members of the Killgallon family, the
owners in each case having the sole voting and investment power, except
as otherwise noted.
% OF
NAME SHARES CLASS
----------------------- ------ -----
(a) W. C. Killgallon* .................... 80,662 (1)(2) 9.0%
P.O. Box 111
Bryan, Ohio 43506
William C. Killgallon* ............... 240,700 (1)(2)(3)(4) 27.0%
P.O. Box 111
Bryan, Ohio 43506
Martin L. Killgallon,II* ............. 297,796 (1)(2)(4)(5) 33.4%
P.O. Box 111
Bryan, Ohio 43506
Ruth K. Gilbert ...................... 33,392 (1)(6) 3.7%
P.O. Box 111
Bryan, Ohio 43506
Katherine K. Michelsen ............... 28,498 (1)(8) 3.2%
P.O. Box 111
Bryan, Ohio 43506
William C. Killgallon and Martin
L. Killgallon,II as Trustees of
the Company's Employee Stock
Ownership Plan ....................... 88,890 (4) 10.0%
P.O. Box 111
Bryan, Ohio 43506
(b) Joseph A Bockerstette ................ 0
Neil H. Borden, Jr ................... 600 **
Frank L. Gallucci .................... 1,000 **
Wayne E. Shaffer ..................... 1,000 **
(c) Officers and Directors as a Group .... 521,108 (7) 58.4%
(12 Persons)
* A director
** Less than 1%
3
(1) W. C. Killgallon is the father of William C. Killgallon, Martin L.
Killgallon,II, Ruth K. Gilbert, and Katherine K. Michelsen. The
total number of shares beneficially owned by members of the
Killgallon Family listed above and their spouses and children (the
"Killgallon Family"), excluding duplications, is 550,611 or
approximately 62% of the number outstanding. Beneficial ownership
of shares held by spouses and children is disclaimed.
(2) Includes 6,200 shares held by the Killgallon Foundation, of which
W. C. Killgallon, William C. Killgallon, and Martin L. Killgallon,II
are officers and directors, and as to which beneficial ownership is
disclaimed.
(3) Includes 11,300 shares held for a child of William C. Killgallon,
as to which beneficial ownership is disclaimed, but does not include
4,125 shares owned by his wife or 55,600 shares held by his wife as
trustee for the benefit of children. Also includes 11,654 shares
held in a revocable trust for the benefit of Ruth K. Gilbert.
William C. Killgallon is a trustee of this trust and disclaims any
beneficial ownership to the shares held by the trust.
(4) Includes 88,890 shares which reflect allocated and unallocated
shares held in the ESOP (as defined below) as to which William C.
Killgallon and Martin L. Killgallon,II, as trustees and members of
the ESOP's Plan Committee have shared investment power. Of these
88,890 shares, 21,738 shares reflect shares that have not been
allocated to participants' accounts and to which William C.
Killgallon and Martin L. Killgallon,II, as trustees and members of
the Plan Committee have shared voting power. Of the 67,152
allocated shares, 5,357 and 5,186 shares have been allocated to the
accounts of William C. Killgallon and Martin L. Killgallon,II,
respectively, as to which they have sole voting power. Messrs.
Killgallon have no voting power with respect to the remaining
56,609 shares in the ESOP. Messrs. Killgallon disclaim beneficial
ownership of all the shares held in the ESOP other than those
allocated to their respective accounts.
(5) Includes 49,710 shares held for children of Martin L. Killgallon,II
as to which beneficial ownership is disclaimed, but does not include
1,129 shares owned by his wife.
(6) Includes 11,654 shares held in trust as described in Note 3 above.
Includes 44 shares in an IRA. Includes 21,694 shares held for a
child as to which beneficial ownership is disclaimed.
(7) Includes shares held by directors in (a) and (b) above, but excludes
duplications.
(8) Includes 20,304 shares held for children as to which beneficial
ownership is disclaimed.
4
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual compensation for the
Company's Chief Executive Officer and the Chief Operating Officer
as well as the total compensation paid to each individual for the
Company's two previous fiscal years:
ANNUAL COMPENSATION
-----------------------------------------
NAME AND (a) (b)
PRINCIPAL POSITION YEAR SALARY BONUS OTHER
---- -------- -------- -------
William C. Killgallon 1997 $232,259 $ -0- $ -0-
Chairman of the Board 1996 227,858 -0- 95,297
1995 224,375 103,000 -0-
Martin L. Killgallon, II 1997 232,259 -0- -0-
President 1996 227,858 -0- 95,286
1995 224,375 103,000
(a) The bonus figure represents cash bonus for the fiscal year in which
it was earned.
(b) In 1996, both William C. and Martin L. Killgallon received 4,800
shares of Mid-American stock from the Company with a market value of
$86,400 each as an additional bonus for 1995 performance.
For the year ended December 31, 1997, 188 shares were reallocated
to all participants under the ESOP, of which 9 shares were allocated
to William C. Killgallon and 9 shares to Martin L. Killgallon,II. As
of March 27, 1998, the closing price per share on the American Stock
Exchange was $21 1/2. The value of these shares is not included in
compensation above.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of the Company
has furnished the following report on executive compensation:
The fundamental philosophy of the Company's compensation program is
to offer competitive compensation opportunities for all employees, based
primarily on the individual employee's personal performance relative to
their area of responsibility and the contribution to the short-term and
long-term strategic objectives of the Company. The philosophy is
further driven by the concept of paying minimal annual inflationary
increases and, instead, rewarding the employee through a generous
incentive program when the Company is profitable.
The compensation of the executive officers of the Company and its
subsidiaries, and those employees drawing over $75,000 per year is
reviewed annually and recommended by the Compensation Committee to the
Board of Directors for their approval. Unanimous approval of the
recommendation was made by the Directors. The "committee" is
comprised entirely of non-employee directors.
5
The foundation of the Company's executive compensation program is
based upon the promotion of the Company's short-term and long-term
business objectives, the creation of a performance-oriented environment,
and the enhancement of shareholder value through the greatest achievable
profitability.
The elements of the Company's executive compensation program are:
- Base salary
- Annual incentive compensation
Base salary is intended to compensate the executive officers at a
level commensurate with their responsibilities and contribution to the
short- and long-term objectives of the Company. The Committee further
takes into account the local and general economic conditions, future
business prospects, and length of employment with the Company.
Annual incentive compensation is purely short-term performance
based, and is comprised of the Company's Cash Bonus Incentive Plan and
the ESOP Profit Sharing Plan. These plans provide annual incentive
awards, payable in cash and the Company's common stock, respectively,
based upon the profitability of the Company and other considerations.
In its annual review of executive officer compensation for 1997,
and based on interim financial statements available for 1997, the
Committee considered the bonus of the Company's Chief Executive Officer,
William C. Killgallon, and Chief Operating Officer, Martin L.
Killgallon,II, for 1997 and the level of base salary for 1998 in light
of the Company's estimated overall performance for 1997, and the
performance of the CEO and COO relative to the long-term objectives of
the Company. Based on that review, no bonuses were paid for 1997 and
no salary increases were made for 1998. Historically, the Committee
takes into account the success of the Company in meeting its financial
performance objectives for the prior year and the CEO's and COO's length
of service to the Company in determining base salary.
The foregoing report is submitted by the members of the Company's
Compensation Committee.
Wayne E. Shaffer
Neil H. Borden, Jr.
6
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder
return, assuming reinvestment of dividends, to the shareholders of the
Company (OAR) during the five-year period ended December 31, 1997, as
well as an overall stock market index (The Russell 2000 Index) and the
Company's peer group index.
YEAR OAR RUSSELL 2000 PEER GROUP
- ---- --------- ------------ ----------
1992 $100.00 $100.00 $100.00
1993 50.61 118.91 111.44
1994 57.94 116.55 110.18
1995 103.87 149.70 151.46
1996 68.42 174.30 178.16
1997 59.70 213.00 232.48
The Company maintains defined benefit qualified retirement plans
applicable to employees of the Company and its subsidiaries, providing a
pension based on compensation and years of service.
Set forth below are estimated annual benefits payable for the
lifetime of a participant who is in both of the Company's defined
benefit plans on retirement at age 65 in the remuneration and service
class specified. Plan beneficiaries may elect actuarially equivalent
benefits including lump sum benefits under one plan.
ESTIMATED ANNUAL RETIREMENT BENEFITS (1)
Years of Service at Retirement (2)
Average ------------------------------------------
Compensation (3) 10 20 25 30
--------------- ------- ------- ------- -------
$100,000 ............... $13,900 $27,400 $34,100 $40,900
200,000 ............... 26,200 52,000 64,900 77,800
250,000 ............... 32,300 64,300 80,300 96,200
300,000 ............... 38,500 76,600 95,600 114,700
350,000 ............... 44,600 88,900 111,000 133,100
400,000 ............... 50,800 101,200 126,400 151,600
(1) One plan was amended on March 13, 1992 to comply with Tax Reform Act
of 1986. Individuals' benefits are never less than the benefits
based on the provisions of the plan prior to amendment, determined
as of March 31, 1992, or, for certain highly compensated employees,
as of December 30, 1989.
7
(2) Benefits will vary slightly between individuals because benefit rate
increases under one plan apply only to service after the effective
date of the increase. Benefits shown include the maximum benefit
payable for retirements during 1998 under this plan.
(3) Under one plan, based on the average of the highest five consecutive
years of the ten years prior to retirement. The Internal Revenue
Code limits the amount of annual compensation that may be taken into
account in determining an individual's benefit accrued under a
qualified retirement plan. The current maximum amount of annual
compensation is $160,000, and this limit is expected to be adjusted
annually to reflect cost-of-living increases.
The years of credited service for participants listed in the
remuneration table are William C. Killgallon 29 years and Martin L.
Killgallon,II, 19 years. Although current IRS regulations limit
compensation that may be taken into account in determining an
individual's pension to $150,000 per year retroactively, the Company has
a non-qualified supplemental pension plan which will make up the
difference between actual compensation and the IRS limitation. The plan
covers both individuals listed under Compensation of Executive Officers.
Based on the supplemental plan, the current covered compensation for
both of the above individuals is William C. Killgallon $323,861 and
Martin L. Killgallon,II $319,539.
EMPLOYEE STOCK OWNERSHIP PLAN
Under the Company's Employee Stock Ownership Plan (the "ESOP") all
salaried and nonunion hourly paid employees of the Company and certain
of its subsidiaries who have attained age 21 and completed one year of
service are participants in the ESOP. As of the end of each tax year,
the Company may contribute a discretionary amount to the ESOP to be
determined by the Board of Directors. The contribution may be made in
cash or Company Common Stock and the trustees or the Company may borrow
funds to purchase Company Common Stock for the ESOP. The Company's
contribution to the ESOP for each year is allocated to the accounts of
participants who are employed by the Company on the last day of the year
or who have retired at normal retirement or died during the year. The
allocation is made to each participant's account, pro rata, based on the
participant's compensation for the year (but not in excess of $160,000
for the 1997 year).
In 1997, under provisions of a line of credit, the ESOP had an
outstanding loan of $363,000, the proceeds of which had been used to
purchase the Company's common stock. In November of 1997, the Board of
Directors followed the recommendation of the Compensation Committee and
agreed not to fund the ESOP for 1997. Shares purchased by the ESOP
under the loan will not be allocated to the participants' accounts until
the loan is paid off. Shares of Common Stock held by the ESOP will
remain in the ESOP until the participants, for whose account such shares
are held, terminate employment with the Company. The minor increase in
shares for participants' accounts in 1997 was the result of a
redistribution of ESOP shares, which was due to the separation of
participants who had not met the vesting requirements.
8
If an ESOP participant is also a participant in the Company's
defined benefit plans, limitations under the Internal Revenue Code apply
to the combined benefits from the plans. To the extent the
participant's combined benefits from the plans exceed these limits,
benefits under the defined benefit plans will be reduced. The benefits
that are not payable from the defined benefit plans because of the
limitations will be provided through a supplemental benefit plan.
BOARD OF DIRECTORS
The Company's Board of Directors had four regular meetings and one
telephonic meeting in the year 1997. Members of the Board who are not
otherwise compensated by the Company, received a fee of $12,000 for
their services in 1997, and, in addition, were compensated at a rate of
$1,000 for each committee meeting held on a date other than a Board
meeting date and each Board meeting in excess of five per year attended.
Each incumbent director attended at least 75% of the meetings of the
Board and committees of which he was a member.
COMMITTEES
The Company has standing Executive, Audit, and Compensation
Committees, but no Nominating Committee, changes in the Board of
Directors being considered by the whole Board.
Executive Committee. The members of the Executive Committee are
W. C. Killgallon, William C. Killgallon, and Martin L. Killgallon,II.
The Executive Committee met one time in 1997. The Executive Committee
has all of the authority of the Board of Directors (except for action
relating to dividends, stock issuances, and certain fundamental
corporate changes) between Board meetings.
Audit Committee. The members of the Audit Committee are Neil H.
Borden, Jr. and Joseph A. Bockerstette. In 1997, this Committee met
twice. The Committee advised on the appointment of independent auditors
and consulted with management and with the Company's independent
auditors with respect to the scope of the audit performed by such
auditors, reviewed the audit report and management letter received from
the independent auditors and management's response to the letter,
reviewed the system of internal controls, reviewed performance of the
Company personnel responsible for accounting matters, and discussed fees
paid to the independent auditors.
Compensation Committee. The members of the Compensation Committee
are Wayne E. Shaffer and Neil H. Borden, Jr. In 1997, this Committee
met once. This Committee reviews and recommends compensation of those
employees drawing over $75,000 per year.
INDEPENDENT AUDITORS
Ernst & Young LLP, who have been the Company's independent
auditors since 1930, have been selected by the Board of Directors to be
the independent auditors for the current year.
9
SHAREHOLDER PROPOSALS
For inclusion in the Company's 1999 proxy statement, all
shareholder proposals for consideration at the annual meeting of the
shareholders of the Company to be held in 1999 must be received at the
Company's executive offices by December 4, 1998. Such proposals must
also comply with regulations of the Securities and Exchange Commission.
OTHER BUSINESS
The management knows of no other business to be transacted, but if
any other business does come before the meeting, the persons named as
proxies will vote or act with respect to such business in accordance
with their best judgement.
William C. Killgallon
Dated: April 9, 1998 Chairman of the Board
10
PROXY SOLICITED BY BOARD OF DIRECTORS
THE OHIO ART COMPANY - MEETING OF SHAREHOLDERS - MAY 5, 1998
The undersigned hereby appoints Frank L. Gallucci and P. R.
McCusty, and each of them and each with power of substitution to vote
the stock of the undersigned at the annual meeting of shareholders of
THE OHIO ART COMPANY to be held May 5, 1998 or at any adjournment
thereof, with all the powers the undersigned would possess if present.
The proxies are instructed to vote as follows:
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 1. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
(Continued and to be signed and dated on the other side)
Please mark boxes or X in blue or black ink.
1. ___ FOR ___ WITHHOLD AUTHORITY to elect, except as indicated, the
three nominees listed below:
Neil H. Borden, Jr., William C. Killgallon, Wayne E. Shaffer
Instructions: To withhold authority to vote for any nominee, write
the nominee's name on this line:
_____________________________________________________________________
2. In their discretion on all other matters which may properly come
before the meeting.
Please sign name(s) exactly as imprinted.
Executors, administrators, trustees, and
others signing in a representative
capacity should indicate the capacity
in which they sign.
Dated: _________________________,1998
_____________________________________
(Signature)
_____________________________________
(Signature)
PLEASE DATE, SIGN, AND RETURN THIS PROXY