<PAGE> 1
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 (Amendment No. __)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule14c-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SCHAWK, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state
how it was determined.)
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid
previously. Identify the previous filing by
registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
<PAGE> 2
SCHAWK, INC.
1695 RIVER ROAD
DES PLAINES, ILLINOIS 60018
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
To the Stockholders of SCHAWK, INC.:
Notice is hereby given that the 1997 Annual Meeting of the Stockholders of
Schawk, Inc. will be held at 10:30 a.m. (local time), Wednesday, May 21, 1997,
at Schawk, Inc., 1695 River Road, Des Plaines, Illinois, for the following
purposes:
1. Election of the Board of Directors for Schawk, Inc.
2. Ratification of the sale of the Plastics Group of Schawk, Inc.
3. Ratification of the selection of Ernst & Young LLP as the
independent auditors of Schawk, Inc. for fiscal year 1997.
4. Transaction of such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The close of business on March 24, 1997, has been fixed as the record date for
the determination of stockholders entitled to receive notice of and to vote at
said meeting and any adjournment or adjournments thereof. The stock transfer
books of Schawk, Inc. will not be closed.
By Order of the Board of Directors,
Des Plaines, Illinois A. ALEX SARKISIAN, Esq.
April __, 1997 Secretary
<PAGE> 3
SCHAWK, INC.
1695 RIVER ROAD
DES PLAINES, ILLINOIS 60018
(847) 827-9494
PROXY STATEMENT
FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1997
INTRODUCTION
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Schawk, Inc. ("Schawk" or
the "Company") for use at the 1997 Annual Meeting of Stockholders to be held at
10:30 a.m. (local time), Wednesday, May 21, 1997, at Schawk, Inc., 1695 River
Road, Des Plaines, Illinois, and at any adjournment thereof (the "Annual
Meeting"). This Proxy Statement and the accompanying Proxy are first being
mailed on or about April __, 1997, to stockholders of record at the close of
business on March 24, 1997.
On December 30, 1994, the corporation previously known as Schawk, Inc.
("Old Schawk"), Lincoln Graphics, Inc. ("Lincoln Graphics") and Flexo Graphics,
Inc. ("Flexo Graphics") (collectively the "Old Schawk Companies") were merged
(the "Merger") with and into the Company's predecessor, Filtertek, Inc.
("Filtertek"). Upon consummation of the Merger, Filtertek changed its name to
"Schawk, Inc." After the Merger, the Company's operations consisted of two
segments, its graphics arts business (the "Imaging Group") and its plastics
business (the "Plastics Group"). Effective February 7, 1997, Schawk sold
substantially all of the assets of the Plastics Group to ESCO Electronics
Corporation ("ESCO"). As a result of the sale of the Plastics Group, two
Directors who were officers of the Plastics Group resigned from the Company's
Board of Directors.
PROPOSALS
The purpose of the Annual Meeting is to: (i) elect the Board of Directors
of the Company; (ii) ratify the sale of the Plastics Group to ESCO; (iii)
ratify the appointment of Ernst & Young LLP as the independent auditors of the
Company for fiscal year 1997; and (iv) transact such other business as may
properly come before the meeting or any adjournment or adjournments thereof.
PROXIES AND SOLICITATION
Any person signing and mailing the enclosed proxy may revoke the proxy at
any time prior to its exercise by: (i) executing a subsequent proxy; (ii)
notifying the Secretary of the Company of such revocation in a written notice
received by him at Schawk, Inc., 1695 River Road, Des Plaines, Illinois 60018,
prior to the Annual Meeting; or (iii) attending the Annual Meeting and voting
in person.
The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or facsimile, by Directors of the Company (each a "Director" and
collectively, the "Directors") and executive officers and regular employees of
the Company. The Company does not now expect to pay any compensation for the
solicitation of proxies, but may reimburse brokers and other persons holding
shares in their names or in the names of nominees for their expenses in sending
proxy material to principals and obtaining their proxies. First Chicago Trust
Company of New York, the transfer agent and registrar of the Company's Class A
Common Stock, may aid in the solicitation of proxies and will be reimbursed for
any expenses incurred as a result of any such activity.
<PAGE> 4
Shares of the Company represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in the proxies. Unless otherwise instructed in the
proxy, the agent named in the proxy intends to cast the proxy votes in the
following manner: (i) FOR the election of the nominees for Directors of
Schawk; (ii) FOR the ratification of the sale of the Plastics Group; (iii) FOR
the ratification of Ernst & Young as independent auditors of the Company for
fiscal year 1997; and (iv) in the best judgment of the persons named in the
proxy as agent, upon any other matters which may properly come before the
Annual Meeting.
QUORUM REQUIREMENTS AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
Company's Class A Common Stock outstanding on the record date is required for a
quorum at the Annual Meeting. Abstentions will be treated as shares present
and entitled to vote for purposes of determining whether a quorum is present,
but not voted for purposes of determining the approval of any matter submitted
to the stockholders for a vote. If a proxy returned by a broker indicates that
the broker does not have discretionary authority to vote some or all of the
shares covered thereby for any matter submitted to the stockholders for a vote,
such shares will be considered to be present for purposes of determining
whether a quorum is present, but will not be considered to be present and
entitled to vote at the Annual Meeting.
As to all anticipated votes, each share of Class A Common Stock will have
one (1) vote as to each matter to be voted on at the Annual Meeting.
Stockholders entitled to vote or to execute proxies are stockholders of record
at the close of business on March 24, 1997. The Company had 19,877,461 shares
of Class A Common Stock outstanding on such date. The stock transfer books of
the Company will not be closed.
PROPOSAL 1: ELECTION OF DIRECTORS
At the meeting, eight Directors are to be elected for the Company. The
size of the Company's Board of Directors has been fixed at ten members in
accordance with the Company's By-laws. Two directors, both of whom were
officers of the Plastics Group, resigned in connection with the sale of the
Plastics Group effective February 7, 1997. The Board is presently intending to
fill the vacancies created by such resignations, but has not identified any
candidates to date. Any persons appointed by the Board to fill such vacancies
in accordance with the Company's By-laws during 1997 will be up for election at
the 1998 Annual Meeting.
Each of the Directors elected at the Annual Meeting will hold office for a
term of one year, expiring at the Annual Meeting of Stockholders to be held in
1998, and thereafter until a successor shall be duly elected and qualified.
Unless authority to vote is withheld, proxies received in response to this
solicitation will be voted FOR the election of the nominees named hereafter,
each of whom presently serves as a Director of the Company. It is not
contemplated that any of the nominees will be unable, or will decline to serve;
however, if such situation arises, the shares represented by the proxies being
solicited will be voted FOR the election of a nominee or nominees designated by
the Board of Directors of the Company. Proxies may not be voted for more than
the eight nominees included in this Proxy Statement.
Assuming a quorum is present, an affirmative vote of the holders of a
plurality of the shares, present and voting at the meeting, is required for a
nominee to be elected as a Director. Therefore, abstentions and shares for
which authority to vote is not given will thus have no effect on the election
of directors.
The Board of Directors are responsible for the overall affairs of the
Company. The Board of Directors had five meetings in 1996. Each member of the
Board of Directors attended at least 75% of the aggregate of: (i) the total
number of meetings of the Board of Directors held; and (ii) the total number of
meetings held by all committees of the Board of Directors on which such
Director served.
- - 2 -
<PAGE> 5
The Board of Directors currently has an Executive Committee, an Audit
Committee, a 401(k) Administration Committee and an Option Committee, whose
members are elected by the Board of Directors. The present members of the
Executive Committee are: Clarence W. Schawk, David A. Schawk, A. Alex
Sarkisian and John T. McEnroe. The Executive Committee is authorized to act on
behalf of the Board of Directors in the management of the businesses and the
affairs of the Company and acts as the Compensation Committee for the Board of
Directors. The Executive Committee met once in 1996.
Judith W. McCue, Robert F. Meinken and Hollis W. Rademacher have been
appointed as members of the Audit Committee. The Audit Committee recommends
the selection of the Company's independent public accountants, reviews and
approves their fee arrangements, examines their detailed findings, and reviews
areas of possible conflicts of interest and sensitive payments. The Audit
Committee met three times in 1996.
The 401(k) Administration Committee is composed of David A. Schawk, Marie
Meisenbach Graul, and A. Alex Sarkisian. The 401(k) Administration Committee
reviews and selects the agent managing the 401(k) plan and evaluates the
participative values. The 401(k) Administration Committee met twice in 1996.
The Option Committee members are Judith W. McCue, Robert F. Meinken, John
T. McEnroe and Hollis W. Rademacher. The Option Committee evaluates the
performance of key personnel and makes incentive rewards in the form of future
exercisable options. The Option Committee met once in 1996.
The following is a list of the nominees for election as Directors of the
Company followed by a brief biographic statement of each nominee:
NOMINEES FOR ELECTION AS DIRECTORS
OF THE COMPANY
CLARENCE W. SCHAWK
DAVID A. SCHAWK
A. ALEX SARKISIAN, ESQ.
MARIE MEISENBACH GRAUL
JUDITH W. MCCUE, ESQ.
ROBERT F. MEINKEN
JOHN T. MCENROE, ESQ.
HOLLIS W. RADEMACHER
Clarence W. Schawk has been Chairman of the Board of the Company since
September 1992, when he was also appointed to the Executive Committee. He
served as Chief Executive Officer of Filtertek from September 1992 until
February 1993. Clarence W. Schawk also served as Chairman of the Board of Old
Schawk from 1953 until the Merger and served as Chief Executive Officer until
June 1994. He is the father of David A. Schawk, President and Chief Executive
Officer of the Company. Clarence W. Schawk previously served as President and
a Director of the International Prepress Association. Mr. Schawk also served
as a Director of Old Schawk until the Merger. Age: 71
David A. Schawk was appointed Chief Operating Officer of the Company in
September 1992, and elected Chief Executive Officer and President in February
1993. He was appointed to the Board of Directors in September 1992. David A.
Schawk served as the President of Old Schawk from 1987 until the Merger and was
appointed Chief Executive Officer in June 1994. David A. Schawk serves on the
Company's Executive and 401(k) Administration Committees. David A. Schawk is
the son of Clarence W. Schawk. David A. Schawk currently serves as a Director
of the International Prepress Association. Mr. Schawk also served as a
Director of Old Schawk until the Merger. Age: 41
- 3 -
<PAGE> 6
A. Alex Sarkisian, Esq., was appointed to the Company's Board of Directors
and as Corporate Secretary in September 1992 and, in 1994, was appointed
Executive Vice President. Mr. Sarkisian was the Executive Vice President and
Secretary of Old Schawk and has held such positions since 1988 and 1986,
respectively. Mr. Sarkisian also served as a Director of Old Schawk until the
Merger. He is a member of the Executive and 401(k) Administration Committees.
Age: 45
Marie Meisenbach Graul was appointed Treasurer, Public Information Officer
and Director of the Company in September 1992 and was appointed Chief Financial
Officer in 1994. Ms. Graul was also the Chief Financial Officer and Treasurer
of Old Schawk from 1989 until the Merger. Prior thereto, Ms. Graul was Vice
President and Financial Analyst from 1987 to 1989 for J & W Seligman and
Company, a money management firm in New York, New York. Ms. Graul is a member
of the 401(k) Administration Committee. Age: 41
Judith W. McCue has been a partner with McDermott, Will & Emery since
1995. Prior thereto, Ms. McCue was a partner with Keck, Mahin & Cate where she
practiced from 1972 to 1995. Ms. McCue was appointed Director of the Company
in September 1992 and is a member of the Audit and Option Committees. Age: 48
Robert F. Meinken has been a retired private investor and businessman
since 1988 after an extensive career in sales and marketing. Mr. Meinken was
appointed Director of the Company in September 1992 and is a member of the
Audit and Option Committees. Age: 71
John T. McEnroe, Esq., has been a partner with the law firm of Vedder,
Price, Kaufman & Kammholz, counsel to the Company, since May 1992. Prior to
this position, he was a partner with the law firm of Keck, Mahin & Cate where
he practiced from 1976 to 1992. Mr. McEnroe was appointed a Director of the
Company in September 1992 and is a member of the Executive and Option
Committees. Mr. McEnroe also served as a Director of Old Schawk until the
Merger. Age: 45
Hollis W. Rademacher held various positions with Continental Bank, N.A.,
Chicago, Illinois, from 1957 to 1993 and was Chief Financial Officer of
Continental Bank Corporation, Chicago, Illinois, from 1988 to 1993. Mr.
Rademacher is currently self-employed in the fields of consulting and
investments in Chicago, Illinois. Mr. Rademacher is a member of the Audit and
Option Committees. Age: 61
Currently, all Directors who are not employees of the Company (except for
Mr. McEnroe) receive a $500 fee for attendance at each regularly scheduled or
special board or committee meeting. All non employee Directors are also
reimbursed for ordinary and necessary expenses incurred in attending Board or
committee meetings. In addition, certain of the Directors have received
options under the Company's 1991 Outside Directors' Formula Stock Option Plan
(the "Outside Directors' Plan"). See "Executive Compensation -- Stock Option
Plans -- 1991 Outside Directors' Formula Stock Option Plan."
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<PAGE> 7
EXECUTIVE COMPENSATION
The table below sets forth certain information for fiscal years 1996, 1995
and 1994 with respect to the annual and other compensation paid by the Company
to: (i) the Chairman of the Board of Directors; (ii) the President and Chief
Executive Officer; and (iii) the other executive officers of the Company who
were most highly compensated in 1996 (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- --------------
Name and
Principal Other Annual All Other
Position Year Salary Bonus Compensation Options/SARs Compensation (6)
- ------------ ---- ---------- ------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Clarence W. 1996 $ 176,014 $ 0 $ 0 0 $3,000
Schawk, 1995 273,450(2) 0 0 0 7,500
Chairman(1) 1994 223,349(2) 2,325,000(2)(3) 0 30,030(4) 7,500
David A. 1996 325,000 0 11,401 0 3,000
Schawk, 1995 356,250(2) 0 12,239(2) 0 7,500
President 1994 146,772(2) 1,300,000(2)(3) 12,999(2) 30,030(4) 7,500
and CEO(1)
A. Alex 1996 150,000 200,000 8,086 25,000 3,000
Sarkisian, 1995 150,000(2) 57,000(2) 8,086(2) 0 7,500
Executive 1994 135,000(2) 225,000(2) 8,086(2) 13,013(5) 7,500
Vice
President
and
Secretary
Marie 1996 100,000 60,000 0 15,000 2,502
Meisenbach 1995 96,667(2) 20,000(2) 0 0 7,500
Graul, 1994 95,000(2) 85,000(2) 0 11,011(5) 4,750
Chief
Financial
Officer,
Treasurer
and Public
Information
Officer
Ronald J. Kay, 1996 180,250 0 0 15,000 3,000
President, 1995 171,628 0 0 11,000 3,000
Plastics 1994 160,550 32,000 0 13,813 867
Group(1)
</TABLE>
__________
(1)
Clarence W. Schawk became Chairman of the Board and Chief Executive Officer
of the Company in September 1992, when Old Schawk effectively acquired 61.0%
of Filtertek. David A. Schawk became Chief Operating Officer in September
1992, and Chief Executive Officer and President in February 1993. Ronald J.
Kay was appointed President, Plastics Group North American Operations in
February 1993.
(2)
Prior to the Merger, which was effective December 30, 1994, Clarence W.
Schawk, David A. Schawk, A. Alex Sarkisian and Marie Meisenbach Graul
received no cash compensation from Filtertek, but were compensated by Old
Schawk for services provided to Old Schawk, including management of its
investment in Filtertek. These individuals were compensated directly by the
Company for 1995.
(3)
Represents bonus payment which includes S Corporation tax payments relating
to the Merger.
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<PAGE> 8
(4)
Clarence W. Schawk and David A. Schawk were each granted options for 5,005
shares under the Outside Directors' Plan and 25,025 shares under the 1988
Equity Option Plan.
(5)
A. Alex Sarkisian and Marie Meisenbach Graul were each granted options for
5,005 shares under the Outside Directors' Plan. The remaining shares were
granted under the 1988 Equity Option Plan.
(6)
Reflects matching contributions made pursuant to the Company's 401(k) plans
to the accounts of such individuals.
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<PAGE> 9
The table below sets forth certain information with respect to stock
options granted during fiscal year 1996 to the Named Executive Officers.
Option/SAR Grants in 1996
<TABLE>
<CAPTION>
Potential Realizable Value
Number of at Assumed Annual Rates of
Shares of Percentage of Stock Price Appreciation for
Class A Total Option Term (1)
Common Stock Options/SARs ---------------------------
Underlying Granted to Exercise
Options/SARs Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarence W. Schawk -- -- -- -- -- --
David A.Schawk -- -- -- -- -- --
A. Alex Sarkisian 25,000(2) 15.2% $7.00 1/02/06 $110,057 $278,905
Marie M. Graul 15,000(2) 9.1 7.00 1/02/06 66,034 167,343
Ronald J Kay 15,000(2) 9.1 7.00 1/02/06 66,034 167,343
</TABLE>
_________________
(1) The amounts set forth represent the value that would be received by
the Named Executive Officers upon exercise of the option on the date
before the expiration date of the option based upon assumed annual
growth rates in the market value of the Company's shares of 5% and
10%, rates prescribed by applicable SEC rules. Actual gains, if any,
on stock option exercises are dependent on the future performance of
the Company's shares and other factors such as the general condition
of the stock markets and the timing of the exercise of the options.
(2) Represents shares granted under the 1988 Equity Option Plan.
The table below sets forth certain information with respect to options and
SARs exercised by the Named Executive Officers during fiscal year 1996 and
with respect to options and SARs held by the Named Executive Officers at the
end of fiscal year 1996. The value realized upon exercise of options and
SARs is based upon the closing price of the Company's shares on the respective
exercise dates as reported on the NYSE. The value of unexercised options and
SARs at the end of fiscal 1996 is based on the closing price of $8.750
reported on the NYSE on December 31, 1996, the last trading day of fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
December 31, 1996 at December 31, 1996
----------------- ---------------------
Shares
Aquiredd on Value
Name Exercised(#) Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarence W. Schawk -- -- 60,060 -- $ 626 --
David A. Schawk -- -- 60,060 -- 626 --
A. Alex Sarkisian -- -- 42,526 8,500 29,501 $14,875
Marie M. Graul -- -- 31,922 5,100 17,951 8,925
Ronald J. Kay 43,435 8,840 24,585 12,665
</TABLE>
<PAGE> 10
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
In January 1991, Old Schawk entered into employment agreements with
Clarence W. Schawk and David A. Schawk to serve as executive officers. These
agreements, upon review of comparable base salaries for executives of similarly
situated companies, have been amended and restated effective October 1, 1994,
and were assumed by the Company by operation of law as a result of the Merger
after approval by the Board of Directors of the Company (David A. Schawk and
Clarence W. Schawk abstaining from such vote). Each employment agreement, as
amended and restated in October 1994, provides for an initial term of 10 years
(through December 31, 2004), with one-year extensions thereafter unless
terminated by either the Company or the executive. Each employment agreement
provides for payment of a base salary, adjustable annually by the Board of
Directors based upon a merit review and to account for inflation, as well as an
annual bonus consisting of short- and long-term incentives. Clarence W.
Schawk's employment agreement provided for a base salary of $540,000 for the
calendar year 1996, and David A. Schawk's employment agreement provides for a
base salary of $432,000 for the calendar year 1996.
The short-term bonus plan contemplates cash payments of 5.0% and 3.0% of
the excess of "adjusted net income" over $10.0 million with respect to Clarence
W. Schawk and David A. Schawk, respectively. "Adjusted net income" means
annual net income after taxes, but before bonuses to the Chairman and the
President of the Company and amortization of goodwill resulting from
acquisitions of the Company consummated after January 1, 1995. The amounts of
such cash payments are subject to adjustment based upon the Company's financial
performance during the relevant fiscal year. The long-term plan contemplates a
non cash distribution of options calculated to equal 5.0% and 3.0% of the
excess of "adjusted net income" over $10.0 million for Clarence W. Schawk and
David A. Schawk, respectively. The employment agreements contain
non competition provisions which are effective during the term of the
agreements and for two years after termination and are intended to provide for
severance payments for 48 months following termination of employment without
cause. The employment agreements further provide that, following a "change in
control" (as defined in the agreements), the Company may not terminate the
executive's employment without cause.
There were no short-term plan cash bonus payments made or long-term stock
plan options granted during 1996 to either Clarence W. Schawk or David A.
Schawk.
STOCK OPTION PLANS
1988 Equity Option Plan
On March 25, 1988, the Company adopted the 1988 Equity Option Plan ("Stock
Incentive Plan") pursuant to which 2,252,250 shares of Class A Common Stock are
reserved for issuance pursuant to options and other benefits which may be
granted to officers, key employees and non affiliated directors. The Committee
of the Board of Directors will administer the Stock Incentive Plan. Under the
Stock Incentive Plan, the Committee is authorized to determine the officers and
other key employees to whom, and the times at which, options and other benefits
are to be granted, the number of shares subject to each award, its term and any
applicable vesting provisions.
The Option Committee may award non qualified stock options ("NSOs") or
incentive stock options ("ISOs") shares of restricted stock or stock
appreciation rights under the Stock Incentive Plan. The exercise price with
respect to any ISOs may not be less than the fair market value of the Class A
Common Stock on the date of grant and the exercise price with respect to any
NSOs may not be less than eighty-five percent (85%) of the fair market value of
the Class A Common Stock on the date of grant. "Fair market value" will be
determined by averaging the highest and lowest sales prices for the Class A
Common Stock reported on the NYSE on the date of the grant.
Shares of Class A Common Stock granted as restricted stock under the Stock
Incentive Plan will be restricted as to transfer and subject to forfeiture
prior to the expiration of the restriction period determined by the Option
Committee. The expiration of the restriction period may be tied to the
attainment of certain performance objectives or based upon a period of
continued employment. To the extent that the restriction period expires, the
- 8 -
<PAGE> 11
shares of Class A Common Stock will be released to the award recipient free of
all restrictions. If the performance objectives are not met in the required
time period or if the recipient's employment terminates prior to completing the
required service period, the recipient's right to the shares will be forfeited.
Stock appreciation rights may be granted alone or with respect to options
granted concurrently or previously under the Stock Incentive Plan. Each stock
appreciation right permits the recipient thereof to receive a cash payment
equal to the difference between the fair market value of the Class A Common
Stock on the date the stock appreciation right is exercised and such fair
market value on the date the stock appreciation right was awarded. To the
extent that a stock appreciation right was awarded with respect to an option,
exercise of the stock appreciation right will result in a pro rata
extinguishment of such option.
NSOs or ISOs may be granted to officers and other key employees of the
Company. The right of the recipient to exercise the options will be subject to
such vesting and forfeiture requirements and provisions as determined by the
Option Committee and must be exercised within 10 years of the date of grant.
1991 Outside Directors' Formula Stock Option Plan
The Company's Outside Directors' Plan, as amended, provides that each
"Outside Director" (defined in the Outside Directors' Plan as any Director who
is not a compensated employee of the Company) receive a nonqualified stock
option to purchase 5,000 shares upon his or her election, and subsequent
reelection, to the Board of Directors at an exercise price equal to the fair
value of such shares on the date of election or reelection as a Director. Only
the number of shares specified by such formula is eligible for grant under the
Outside Directors' Plan. Options granted under the Outside Directors' Plan are
exercisable for a term of 10 years from the date of grant and vest in one-third
increments on the date of grant and on the first and second anniversaries of
the date of grant. In 1993, options to purchase 5,005 shares (as adjusted to
reflect the conversion of paired shares of the Company to shares of Class A
Common Stock) were granted under this plan to each of Clarence W. Schawk, David
A. Schawk, A. Alex Sarkisian, Marie Meisenbach Graul, John T. McEnroe, Judith
W. McCue and Robert F. Meinken at a per share exercise price of $8.625, and in
1994 each of such Directors received additional options to purchase 5,005
shares (as adjusted) at a per share exercise price of $9.750. In 1995 and
1996, Mr. McEnroe, Ms. McCue, Mr. Meinken and Mr. Rademacher each received
options to purchase 5,000 shares at a per share exercise price of $8.625 and
$8.250, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding the cash compensation paid to Clarence W. Schawk,
David A. Schawk, Mr. Sarkisian and Ms. Graul were made by the Board of
Directors for fiscal year 1996. Messrs. Clarence W. Schawk, David A. Schawk
and Sarkisian and Ms. Graul are, and were during all of fiscal 1996, Directors
of the Company. All decisions regarding the cash compensation of the Company's
executive officers prior to 1996 were made by the Executive Committee of the
Board of Directors. Awards under the Stock Incentive Plan are administered by
the Option Committee. The members of the Executive Committee are Clarence W.
Schawk, David A. Schawk, A. Alex Sarkisian and John T. McEnroe. Mr. McEnroe
does not receive cash compensation from the Company. The Option Committee is
comprised of the Company's Outside Directors. Messrs. Clarence W. Schawk,
David A. Schawk and Sarkisian participated in the deliberations of the
Executive Committee with regard to the compensation of executive officers other
than themselves.
In connection with the Merger in 1994, Filtertek and Clarence W. Schawk,
David A. Schawk and other members of their immediate families (the "Schawk
Family") entered into a certain Registration Rights Agreement as of December
30, 1994, pursuant to which the Company has agreed, upon the request of the
Schawk Family, to register, at any time after January 1, 1996, all or a portion
of the shares of Class A Common Stock received by the Schawk Family in the
Merger. The costs of such registration shall be borne by the Company exclusive
of underwriting discounts and commissions.
VPKK-002/116738.V4 03/28/97 - 9 -
<PAGE> 12
JOINT REPORT ON EXECUTIVE COMPENSATION
Under the supervision of the Executive Committee and the Option Committee,
the Company has developed and implemented compensation policies, plans and
programs which seek to enhance the profitability of the Company, and thus
stockholder value, by aligning the financial interests of the Company's
executive officers with those of its stockholders. In furtherance of these
goals, annual base salaries are generally set at or below competitive levels.
The Company relies to a large degree on annual bonus, if any, and stock option
incentives to attract and retain executive officers and other key employees of
outstanding ability, and to motivate them to perform to the full extent of
their abilities. Both types of incentive compensation are closely tied to the
performance of the Company and the individual in a manner that encourages a
sharp and continuing focus on building profitability and stockholder value.
During 1993, the Executive Committee reviewed, reevaluated and approved an
annual salary plan for the Company. This salary plan was developed based on
industry, peer group and market surveys, and performance judgments as to the
past and expected future contributions of the individual executive officer
targeting the salaries to the median level of such comparable companies. These
plans were updated in 1996.
Individual bonus arrangements can be established for certain key executive
officers to attain a particular or group of particular goals or levels of
performance. The Company entered into a bonus plan with Mr. Kay and Mr. Larkin
and five other executive officers pursuant to which they are entitled to
receive bonus amounts ranging from 20% to 50% of their annual salary based on
the Company attaining 100% to 140% of certain specified pretax profit levels.
The cash compensation paid to Clarence W. Schawk, David A. Schawk, Mr.
Sarkisian and Ms. Graul was determined by the Board of Directors of the Company
for fiscal year 1996.
As a consequence of the Merger, the Company assumed employment agreements
entered into by Old Schawk and Clarence W. Schawk and David A. Schawk,
respectively, after approval by the Board of Directors (Clarence W. Schawk and
David A. Schawk abstaining from such vote). These agreements were amended and
restated effective October 1, 1994, after a review by the board of directors of
Old Schawk of comparable base salaries for executives of similarly situated
companies. The agreements provide for base salary, and annual bonuses based on
formula performance measures. The Board of Directors can adjust the base
salary annually based upon merit review. See "Executive Compensation --
Employment and Non-Competition Agreements."
During each fiscal year the Option Committee considers the desirability of
granting executive officers and other key employees of the Company stock
options under the 1988 Equity Option Plan. The granting of stock options is
based upon the overall performance of the Company and the performance of the
particular employee. The Option Committee considers such performance and the
recommendations of management in determining the amounts recommended to be
granted. The Option Committee believes its pattern of grants has successfully
focused the Company's executive officers and other key employees on building
profitability and stockholder value. For fiscal 1996, options were granted to
executive officers in furtherance of this philosophy. The number of options
granted to the respective executive officers reflects the Option Committee's
assessment of the particular officer's level of responsibility and its desire
to match the award level with the executive's responsibility level. The
purpose of these awards is to reward such officers for their performance with
respect to the Company and to give such officers a stake in the Company's
future, which is directly aligned with the creation of stockholder value.
The Executive Committee does not believe that the provisions of the
Revenue Reconciliation Act of 1993 will limit the deductibility of compensation
expected to be paid by the Company; however, the Executive Committee will
continue to evaluate the impact of such provisions and take such actions as it
deems appropriate.
VPKK-002/116738.V4 03/28/97 - 10 -
<PAGE> 13
This report is submitted by the members of the Company's Executive
Committee and Option Committee.
Executive Committee: Option Committee:
Clarence W. Schawk Judith W. McCue
A. Alex Sarkisian Robert F. Meinken
David A. Schawk John T. McEnroe
John T. McEnroe Hollis W. Rademacher
VPKK-002/116738.V4 03/28/97 - 11 -
<PAGE> 14
PERFORMANCE GRAPH
The graph below sets forth a comparison of the yearly percentage change in
the cumulative total return for the five-year period beginning December 31,
1991, on the Company's Class A Common Stock, the RUSSELL 2000 Small Stock Index
("RUSSELL 2000"), a broad-based market index, and a peer group of common stocks
of 10 companies (the "Peer Group"), which the Company selected based on the
comparable businesses of these companies to the businesses of the Imaging Group
and the Plastics Group.
The relative performance of the Company's Class A Common Stock, the
RUSSELL 2000, the Peer Group and Value Line Chemicals: Diversified Index is as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name 1991 1992 1993 1994 1995 1996
- ----------------- ------ ---- ---- ---- ---- -----
Schawk, Inc. 100.00 114.33 114.26 134.82 87.1 118.97
Russell 2000 100.00 118.41 140.80 138.01 177.26 206.48
Index
Peer Group 100.00 106.14 106.83 125.66 173.95 164.27
</TABLE>
For calendar year ending December 31, 1997, the Company intends to change
its peer group to a group of companies reflecting the Company's continuing
business, the Imaging Group. However, the Company's performance over the past
five years should be compared to the current peer group which is comprised of
businesses comparable to both the Plastics Group and the Imaging Group. The
Plastics Group was not sold until February 7, 1997.
The Joint Report on Executive Compensation and the Performance Graph shall
not be deemed incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
- 12 -
<PAGE> 15
PROPOSAL 2: RATIFICATION OF THE SALE OF
THE PLASTICS GROUP
During 1996, the Board of Directors of the Company adopted a plan to
discontinue the operations of its Plastic Group. On December 19, 1996, the
Company announced the sale of the Plastics Group to ESCO Electronics
Corporation ("ESCO"), of St. Louis, Missouri, pursuant to an Acquisition
Agreement dated December 18, 1996 between the Company and ESCO, as amended by
the First Amendment to the Acquisition Agreement dated February 6, 1997 (the
"Agreement"). The sale transaction closed on February 7, 1997.
The Company, based on the advice of its legal counsel, does not consider
it necessary under the Delaware General Corporation Law, or otherwise, that the
Company submit the sale of the Plastics Group pursuant to the Agreement to the
vote of stockholders. However, the Board of Directors of the Company has
determined to submit the sale of the Plastics Group to the stockholders for
ratification. The Board will require the affirmative vote of the holders of
not less than a majority of the outstanding shares of Schawk entitled to vote
at the Annual Meeting for ratification. Abstentions and broker nonvotes will
be counted as votes against Proposal 2.
The Company has been informed that the Schawk Family, who collectively own
__% of the issued and outstanding Class A Common Stock (see "Security Ownership
of Certain Beneficial Owners and Management"), have given to Vedder, Price,
Kaufman & Kammholz ("Vedder Price"), the Company's legal counsel, an
irrevocable proxy instructing Vedder Price to vote all shares of Class A Common
Stock owned by the Schawk Family in favor of ratifying the sale of the Plastics
Group. The approval of Proposal 2 is therefore assured and it will not be
necessary for any other stockholder of the Company to vote in favor of Proposal
2 in order for Proposal 2 to be adopted.
BACKGROUND OF THE SALE OF THE PLASTICS GROUP
In the spring of 1996, the Company began exploring the possibility of
selling or otherwise divesting the Plastics Group in order to focus its
management resources and capital on the Imaging Group. The Company believed
that it had greater management expertise in the Imaging Group and that the
Imaging Group had greater potential for growth and profitability.
In June 1996, the Company retained Coopers & Lybrand Securities L.L.P.
("Coopers & Lybrand") to advise it on the potential divestiture of all or a
portion of the Plastics Group. In July 1996, Coopers & Lybrand recommended
that the Company attempt to sell all of the assets and business of the Plastics
Group.
Coopers & Lybrand drafted a confidential memorandum concerning the sale of
Plastics Group and, in September 1996, began contacting potential buyers. As a
result of the Company's and Coopers & Lybrand's efforts, the Company received
three bids for the entire Plastics Group, three bids for the Plastic Group
filter business separately, and two bids for the Plastics Group packaging
business.
The Company's Board of Directors evaluated the bids and concluded that the
offer submitted by ESCO in the amount of $92,000,000 plus cash and certain
other assets plus or minus changes in working capital from $13,895,000 and plus
the assumption of certain liabilities totalling approximately $9,700,000, was
the highest and in the best interests of the Corporation to accept.
The sale of the Plastics Group to ESCO was closed in accordance with the
terms of the Agreement on February 7, 1997.
VPKK-002/116738.V4 03/28/97 - 13 -
<PAGE> 16
PURCHASE PRICE
Pursuant to the terms of the Agreement, on February 7, 1997, the Company
sold to ESCO all of the operating assets of the Plastics Group in consideration
of $92,000,000 plus cash and certain other assets plus or minus changes in
working capital from $13,895,000 and plus the assumption by ESCO of certain
liabilities associated with the Plastics Group totalling approximately
$9,700,000.
BUSINESS SOLD
Pursuant to the Agreement, the Company transferred to ESCO all of the
operating assets of the Plastics Group, including accounts receivable,
inventory, all contracts with suppliers or customers, machinery and equipment,
real property, intellectual property and other assets associated with the
business of the Plastics Group, subject to the assumed liabilities. As of
December 31, 1996, the assets of the Plastics Group constituted approximately
52% of the Company's total assets. The Company derived approximately 46% of
its revenues and 31% of its net income for the year ended December 31, 1996,
from the Plastics Group.
The Plastics Group included Filtertek and Tek Packaging Group, Inc. The
business of the Plastics Group consisted primarily of the design, manufacture
and sale of specialty plastic insert injected filtration devices, custom
injection molded components and thermoform packaging for automotive,
healthcare, consumer industrial and other markets. The Plastics Group also
provided visual packaging products, including blister packaging.
CONTINUING BUSINESS OF THE COMPANY
Upon the sale of the Plastics Group, the Company's continuing operations
consist of the Imaging Group. The Imaging Group is a leading producer of color
prepress imaging arts services for the consumer products packaging industry in
the United States, particularly for food and beverage producers. The Imaging
Group provides comprehensive prepress products and services, including but not
limited to conventional, electronic and desktop color separations, electronic
production design, film preparation, platemaking and press proofs for the three
main printing processes: lithography, flexography and gravure.
INTERESTS OF MANAGEMENT IN THE TRANSACTION
None of the present Directors or executive officers of the Company
obtained any direct financial benefit as a result of the sale of the Plastics
Group to ESCO. Proceeds received by the Company from the sale of the Plastics
Group has been applied to retire certain indebtedness of the Company owed to
certain of the Principal Stockholders, which include certain directors and
executive officers of the Company. See "--Application of Sale Proceeds."
In connection with the closing of the sale, Ronald J. Kay, President,
Plastics Group, and Larry Larkin, Executive Vice President, Plastics Group,
resigned from the Schawk Board of Directors.
APPLICATION OF SALE PROCEEDS
Proceeds to the Company in connection with the sale of the Plastics Group
were approximately $92,000,000, plus working capital adjustments. After
accrual of applicable transactional expenses (including taxes), net proceeds
are estimated to be approximately $70,000,000.
The cash proceeds received by the Company from the sale have been used as
follows: (i) approximately $26 million was applied to the reduction of debt;
(ii) $6 million was applied to the reduction of notes payable to Principal
Stockholders; and (iii) $62 million was invested and will be used for working
capital and general corporate purposes including acquisitions.
VPKK-002/116738.V4 03/28/97 - 14 -
<PAGE> 17
The excess cash generated by the sale of the Plastics Group is expected to
be deployed by the Company as it pursues its business strategy of enhancing its
leadership positions in imaging markets. The Company's strategy includes an
acquisition program identifying attractive complementary acquisitions of
companies serving targeted markets, outsourcing of Company personnel and
equipment to customer facilities, and the opening of additional operational
offices in new geographical areas. Pending the use of the excess cash proceeds
as described, the Company intends to invest the proceeds in money market funds,
U.S. Government securities, bond funds and/or equity index funds.
REGULATORY APPROVAL
Under the Hart-Scott-Rodino Act (the "HSR Act"), and the rules promulgated
thereunder by the Federal Trade Commission (the "FTC"), the sale of the
Plastics Group could not be consummated until notifications were given and
certain information furnished to the FTC and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and specified waiting period
requirements were satisfied. The Company and ESCO each filed notification and
report forms under the HSR Act with the FTC and the Antitrust Division on
December 26, 1996. The required waiting period under the HSR Act expired on
January 8, 1997.
TAX CONSEQUENCES TO THE COMPANY
The sale of the Plastics Group by the Company was a taxable transaction to
the Company. The Company has recognized a gain on the sale of the Plastics
Group measured by the difference between the amount realized from the sale of
the assets and the Company's adjusted tax basis in such assets. The
transaction resulted in a taxable gain of approximately $42 million.
NO DISSENTERS RIGHTS
No dissenters rights arose in connection with the sale of the Plastics
Group to ESCO under the Delaware General Corporation Law.
OPINION OF FINANCIAL ADVISOR
The Company retained Coopers & Lybrand to render to the Board of Directors
its opinion as to the fairness, from a financial point of view, to the Company
of the consideration to be received by the Company in the sale of the Plastics
Group. Coopers & Lybrand rendered a written opinion dated February 6, 1997, to
the Company's Board of Directors to the effect that, as of such date, the
$92,000,000 to be received by the Company for the Plastics Group is fair to the
Company from a financial point of view. The full text of the written opinion
of Coopers & Lybrand is attached as Appendix A hereto, and is incorporated
herein by reference. Such opinion should be read in its entirety for
description of the matters considered, assumptions made, and limits of review
by Coopers & Lybrand in arriving at its opinion.
For its services in rendering its written opinion referred to above, the
Company paid Coopers & Lybrand a fee of $150,000.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors unanimously determined that the terms of
the sale of the Plastics Group were fair and in the best interests of the
Company and its Stockholders and recommends a vote in favor of the ratification
of the sale of the Plastics Group pursuant to the Agreement. In the course of
reaching its decision to approve the sale of the Plastics Group, the Board
consulted with its legal and financial advisors as well as the Company's
management and considered the following factors:
VPKK-002/116738.V4 03/28/97 - 15 -
<PAGE> 18
(1) The oral and written presentation of Coopers & Lybrand that the
purchase price was fair to the Company from a financial point of
view;
(2) The historical financial and operating results and future prospects
of the Company, the Imaging Group, and the Plastics Group;
(3) The utilization of the Company's resources, and the contributions to
earnings and cash flow, by the Plastics Group relative to the Imaging
Group;
(4) The anticipated long-term benefit of the sale with respect to
achieving the Company's performance goals implementing the strategic
initiatives for the Imaging Group and the Company as a whole;
(5) The effect of the sale of the Plastics Group on the Company's balance
sheet, working capital and liquidity; and
(6) The determination by the Board that the ESCO transaction represented
the highest value among the bids received for the Plastics Group.
Considering all of the above factors, the Board concluded that the sale of
the Plastics Group was consistent with the Company's long-term objectives and
that the terms of the Agreement were attractive to the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2 TO RATIFY THE SALE
OF THE PLASTICS GROUP.
VPKK-002/116738.V4 03/28/97 - 16 -
<PAGE> 19
SCHAWK, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ACTUAL PRO FORMA PRO FORMA
BALANCES ADJUSTMENTS BALANCES
-------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash 483 93,500(a) 483
equivalents
(93,500)
(b)
Short-term -- 22,735(a) 22,735
investments
Trade accounts 19,294 -- 19,294
receivable, net
Inventories 3,675 -- 3,675
Other current assets 6,258 -- 6,258
Current assets held 27,495 (27,495) --
for sale (a)
Deferred tax asset 590 -- 590
--- ------ ---
57,795 (4,760) 53,035
Cash and cash -- 40,000(b) 40,000
equivalents -
restricted
Property and 27,453 (48,788) 26,863
equipment - net (b)
Property and 48,788 -- --
equipment held
for sale
Excess of cost over 13,158 -- 13,748
net assets
acquired
Other assets held 9,593 (9,593) --
for sale (a)
Other assets 4,053 -- 4,053
----- ------ -----
Total Assets $160,840 $(23,141) $137,699
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts 4,116 $ -- 4,116
payable
Accrued expenses 7,717 18,705(a) 26,422
Notes payable to 5,765 (5,765) --
stockholders (b)
Current liabilities 7,270 (7,270) --
held for sale (a)
Notes payable to 10,373 (2,500) 7,873
banks (b)
Current maturities 673 -- 673
of debt and ----- -------- -----
capital leases
35,914 3,170 39,084
Long-term debt 62,500 (22,500) 40,000
(b)
Capital lease 5,285 -- 5,285
obligations
Other 1,217 -- 1,217
Deferred income 3,187 -- 3,187
taxes
Deferred income 3,811 (3,811) --
taxes held for (a)
sale
STOCKHOLDERS' EQUITY:
Common stock 168 -- 168
Preferred stock -- -- --
Additional paid in 77,928 -- 77,928
capital
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Retained earnings (26,987) -- (26,987)
Cumulative foreign -- -- --
currency adjustment ------- -------- -------
51,109 -- 51,109
Treasury stock, at cost (1,523) -- (1,523)
Notes receivable from (660) -- (660)
employees
------- -------- --------
48,926 -- 48,926
------ -------- --------
TOTAL LIABILITIES AND $160,840 $(23,141) $137,699
STOCKHOLDERS' EQUITY
======== ======== ========
</TABLE>
VPKK-002/116738.V4 03/28/97 - 18 -
<PAGE> 21
SCHAWK, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED) YEAR ENDED
DECEMBER 31, 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Actual Pro forma Pro forma
Balance Adjustment Balances
------- -------- --------
<S> <C> <C> <C>
Net sales $90,763 -- $90,763
Cost of sales 51,153 -- 51,153
Selling, general, and
administrative expenses 25,187 -- 25,187
Write-off of obsolete equipment 1,050 -- 1,050
------ --- -----
Operating income 13,373 -- 13,373
Other income (expense):
Interest and dividend income 340 -- 340
Interest expense (4,657) (2,726)
Other 1,931(c)
-- --
------ -------
(4,317) 1,931 2,386
Income from continuing operations
before income taxes 9,056 1,931 10,987
Income tax expense 772(c)
-----
3,530 4,302
------ -----
Income from continuing operations 5,526 1,159 6,685
Preferred dividends 1,252 -- 1,252
------ --- -----
Net income from continuing
operations available for
common stock $4,274 -- $ 5,433
====== ======== =========
</TABLE>
VPKK-002/116738.V4 03/28/97 - 19 -
<PAGE> 22
SCHAWK, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED) YEAR ENDED
DECEMBER 31, 1995
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Pro Pro
forma forma
Actual Adjustments Balance
------ ----------- -------
<S> <C> <C> <C>
Net sales 97,204 $-- 87,204
Cost of sales 51,066 -- 51,066
Selling, general, and
administrative expenses 25,116 -- 25,116
------ ------ ------
Operating income 11,022 -- 11,022
Other income (expense):
Interest and dividend income 532 156(c) 688
Interest expense (2,056)(c)
(4,306) (2,250)
Other (156)(c)
----
(5) (161)
----- ------
3,779 2,056 1,723
Income from continuing operations
before income taxes 7,243 2,056 9,299
Income tax expense 2,577 824(c) 3,401
Income tax (credit) for net
operating loss carryforwards (1,632) -- (1,632)
------ -- ------
Income from continuing operations 6,298 1,232 7,530
Preferred dividends 1,360 -- 1,360
----- -- -----
Net income from continuing
operations available for
common stock $4,938 $1,232 $6,170
====== ====== ======
</TABLE>
VPKK-002/116738.V4 03/28/97 - 20 -
<PAGE> 23
NOTES TO SCHAWK, INC. PRO FORMA CONDENSED FINANCIAL STATEMENTS
The Schawk, Inc. Actual column in the pro forma balance sheet as of
December 31, 1996 and the pro forma statements of income for the years ended
December 31, 1996 and 1995 have been restated to delete the Plastics Group and
to reflect only continuing operations balances.
(a) Reflects the elimination of Plastics Group historical balance as of
December 31, 1996 as well as the cash proceeds from the transaction
and the estimated liabilities incurred in connection with the
transaction. Retained earnings reflect an estimated loss of $33
million on the sale.
(b) The cash proceeds are used as follows: approximately $26 million
reduction of debt; $6 million was applied to reduce notes payable to
stockholders; and $62 million was invested.
(c) Reflects reduction in interest expense at assumed average interest
rates of 7.0% for the year ended December 31, 1995 and 6.5% for 1996
related to the long-term debt and 5.0% for both years related to the
notes payable to stockholders. Also reflects the related increase in
income taxes at an assumed rate of 40% for both the years.
Interest income from investment of cash proceeds in excess of those
used to reduce long-term debt is not reflected in the pro forma
statements of income pro forma adjustments column.
The following is a summary of the Plastics business segment historical
results:
<TABLE>
<CAPTION>
1996 1995 1994
------ -------- --------
<S> <C> <C> <C>
Net sales 77,752 85,086 82,256
Operating income 3,572 2,615 3,964
Income taxes 108 209 127
Income from discontinued
operations (net of
minority interest of
$1,717 in 1994) 2,491 638 1,200
</TABLE>
The difference between the income tax expense of the Plastics
Group at the Federal statutory rate and the actual rate is due to nondeductible
amortization and depreciation of purchase accounting adjustments and the lower
tax rates of its Puerto Rico and European divisions.
VPKK-002/116738.V4 03/28/97 - 21 -
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the shares
beneficially owned as of March 24, 1997: (i) by each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of Class
A Common Stock; (ii) by each Director of the Company, including the nominees
for reelection as Directors; and (iii) by all Directors and executive officers
of the Company as a group. All information with respect to beneficial
ownership has been furnished to the Company by the respective stockholders.
<TABLE>
<CAPTION>
Amount of Percentage of
Name of Beneficial Owner Beneficial Class
Ownership(1) Outstanding
- --------------------- ------------ -----------
<S> <C> <C>
Clarence W. Schawk(2) 11,120,847(3) 55.71%
David A. Schawk(2) 2,301,154(4) 11.52
A. Alex Sarkisian 1,314,909(5) 6.60
Marie Meisenbach Graul 36,944(7) *
John T. McEnroe 19,687(8) *
Judith W. McCue 19,461(9) *
Robert F. Meinken 15,160(10) *
Hollis W. Rademacher 10,950(11) *
Cathy Ann Schawk(2)(12) 1,286,552(13) 6.47
Judith Lynn Gallo(2)(14) 1,360,332(15) 6.84
Lisa Beth Stearns(2)(16) 1,423,046(17) 7.16
Executive Officers and Directors
as a group
(10 persons) 14,849,504(18) 74.7
</TABLE>
__________
* Less than 1%
(1) Unless otherwise indicated, beneficial ownership is direct and the
person indicated has sole voting and investment power.
(2) Each is a member of the Schawk Family. The address for each of the
Schawk Family members is 1695 River Road, Des Plaines, Illinois
60018.
(3) Includes currently exercisable options to purchase 84,810 shares,
600,954 shares held directly by Mr. Schawk's wife, and 8,471,702
shares held by SGK Investments Limited Partnership ("SGK"), a family
limited partnership, with respect to which Mr. Schawk or Mr.
Schawk's wife has voting power. Mr Schawk and Mr. Schawk's wife are
general partners of SGK. Does not include shares beneficially owned
by Clarence W. Schawk's son David A. Schawk, or shares beneficially
owned by Clarence W. Schawk's daughters Cathy Ann Schawk, Judith Lynn
Gallo and Lisa Beth Stearns, or held in family trusts for the benefit
of certain of his grandchildren. Mr. Schawk does not share voting
power over shares of the Company held by or on behalf of his children
or grandchildren.
(4) Includes currently exercisable options to purchase 93,060 shares
and 91,673 shares held by SGK with respect to which Mr. Schawk has
voting power. Mr. Schawk is a general partner of SGK. Includes
412,133 shares held in trust for the benefit of David A. Schawk's
children and 217,125 shares held by SGK in trust for the benefit of
David A. Schawk's children. Does not include shares beneficially
owned by David A. Schawk's father, Clarence W. Schawk, or an
aggregate of shares beneficially owned by or held in family
trusts for the benefit of David A. Schawk's sisters Cathy Ann Schawk,
Judith Lynn Gallo and Lisa Beth Stearns, and certain of Clarence W.
Schawk's grandchildren. Includes 350 shares held in joint tenancy
and as custodian for minors gifted to David A. Schawk's friends.
(5) Includes currently exercisable options to purchase 45,826 shares.
- 22 -
<PAGE> 25
(6) Includes 800,649 shares held by various Schawk Family trusts for the
benefit of certain of Clarence W. Schawk's grandchildren, and 465,777
shares held by SGK with respect to which Mr. Sarkisian has voting
power as trustee for Clarence W. Schawk's grandchildren.
(7) Includes currently exercisable options to purchase 35,222 shares.
(8) Includes currently exercisable options to purchase 14,960 shares and
3,726 shares owned indirectly by Mrs. McEnroe.
(9) Includes currently exercisable options to purchase 14,960 shares and
the indirect ownership of 1,001 shares placed in a retirement trust
account.
(10) Includes currently exercisable options to purchase 14,960 shares.
(11) Includes currently exercisable options to purchase 9,950 shares.
(12) Ms. Schawk is the daughter of Clarence W. Schawk and sister of David
A. Schawk, Judith Lynn Gallo and Lisa Beth Stearns.
(13) Includes 289,500 shares held by SGK, with respect to which Ms.
Schawk has voting power.
(14) Ms. Gallo is the daughter of Clarence W. Schawk and the sister of
David A. Schawk, Cathy Ann Schawk and Lisa Beth Stearns.
(15) Includes 134,744 shares held in trust for the benefit of Ms. Gallo's
child. Includes 156,000 shares held by SGK with respect to which Ms.
Gallo has voting power and 133,500 shares held by SGK in trust for
the benefit of Ms. Gallo's child.
(16) Ms. Stearns is the daughter of Clarence W. Schawk and the sister of
David A. Schawk, Cathy Ann Schawk and Judith Lynn Gallo.
(17) Includes 174,348 shares held by SGK with respect to which Ms.
Stearns has voting power. Includes 253,772 shares held in trusts for
the benefit of Ms. Stearns's children and 115,152 shares held by SGK
in trusts for the benefit of Ms. Stearns's children.
(18) Includes currently exercisable options to purchase an aggregate of
320,843 shares held by certain executive officers and Directors.
In addition to the shares of Class A Common Stock reflected in the above
table, members of the Schawk Family beneficially own 17,600 shares of Series A
Preferred Stock of the Company and 5,207 shares of Series B Preferred Stock of
the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Exchange Act, the Company's officers,
directors, and holders of more than ten percent of the Company's Class A Common
Stock are required to file reports of their trading in equity securities of the
Company with the Commission, the Company and the New York Stock Exchange.
Based solely on its review of the copies of such reports received by it, the
Company believes that during 1996 all filing requirements applicable to its
officers, directors, and more than ten percent stockholders were complied with,
except that Mr. David A. Schawk did not timely file a Form 4. An appropriate
form was subsequently filed late with the Commission.
- 23 -
<PAGE> 26
CERTAIN TRANSACTIONS
Clarence W. Schawk owns Geneva Waterfront, Inc., a Wisconsin corporation
that owns The Geneva Inn, a hotel in Geneva, Wisconsin. Prior to the Merger,
Geneva Waterfront, Inc. employees were eligible to participate in Old Schawk's
health plan and such persons continue to be eligible to participate in the
Company's health plan. Old Schawk was reimbursed for the full costs of such
insurance in the past. Old Schawk believed that this arrangement benefitted
the company because it enhanced Old Schawk's bargaining power with its health
insurance providers. The arrangement is beneficial to Geneva Waterfront, Inc.
because it enables Geneva Waterfront, Inc. to purchase health insurance for its
employees at a lower cost than it would be able to obtain independently. In
1996, the Company received $233,591 in insurance premium reimbursements from
Geneva Waterfront, Inc.
The Imaging Group facilities at 1200 West Monroe Street, Chicago, Illinois
are leased from The Clarence W. Schawk 1979 Children's Trust, a trust
established for the benefit of the children of Clarence W. Schawk, including
David A. Schawk. Based on third-party appraisals, management believes that the
gross rent and other terms and conditions of this lease are comparable to those
that would have been obtained in an arm's-length transaction. The amount paid
by the Company in 1996 under this lease was $380,000.
The Imaging Group facility at 1600 East Sherwin Avenue, Des Plaines,
Illinois is leased from C.W. Properties, Chicago, a group consisting of a
Missouri corporation and certain individuals, all of whom are unrelated to the
Schawk Family. The lease provides for an option to purchase the building and
the adjoining property at 70% of the fair market value. The option is held by
Graphics IV, Ltd., an Illinois limited partnership ("Graphics IV"). The
limited partners of Graphics IV are David A. Schawk and the daughters of
Clarence W. Schawk, all of whom were beneficial owners of Old Schawk. Based on
third-party appraisals, management believes that the gross rent and other terms
and conditions of this lease are comparable to those that would have been
obtained in an arm's-length transaction. The amount paid by the Company in
1996 under this lease was $679,347.
The Schawk Family entered into a certain Registration Rights Agreement
dated as of December 30, 1994, pursuant to which the Company has agreed, upon
the request of the Schawk Family, to register all or a portion of the shares of
Class A Common Stock received by the Schawk Family in the Merger. The costs of
such registration shall be borne by the Company exclusive of underwriting
discounts and commissions.
VPKK-002/116738.V4 03/28/97 - 24 -
<PAGE> 27
MARKET PRICE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange. The
following table sets forth, for the period indicated, the high and low closing
trading prices as requested by the New York Stock Exchange.
QUARTER ENDED: 1996 HIGH/LOW 1995 HIGH/LOW
March 31 9 1/4 - 7 11 - 8 1/4
June 30 9 1/8 - 7 5/8 9 1/8 - 7 3/8
September 30 8 3/4 - 7 1/4 8 3/4 - 7 1/8
December 31 8 3/4 - 6 3/4 7 3/4 - 5 7/8
As of December 18, 1996, the date before the public announcement of the
sale of the Plastics Group, the closing sale price of the Company's Common
Stock, as reported by the New York Stock, was $7.500. As of March 21, 1997,
the closing sale price of the Company's Common Stock, as reported by the New
York Stock Exchange, was $8.250. As of March 24, 1997, the Company had
approximately 2140 stockholders of record.
- 25 -
<PAGE> 28
PROPOSAL 3. RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors, based upon the recommendation of the Audit
Committee, has selected Ernst & Young LLP as the independent auditors for the
Company for fiscal year 1997, subject to ratification of such selection by the
stockholders. The affirmative vote of a majority of the outstanding shares of
the Class A Common Stock of the Company present or represented and entitled to
vote at the Annual Meeting is required to ratify the selection of Ernst & Young
LLP. Abstentions will have the effect of voting against Proposal 3. Prior to
the Annual Meeting, the Audit Committee may recommend to the Board of Directors
independent accountants for fiscal 1997. In the event the Board of Directors
selects independent accountants for 1997 before the Annual Meeting, such
selection will be announced at the Annual Meeting.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will be available to respond to any appropriate questions
raised at the meeting and to make a statement if such representatives so wish.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3 TO RATIFY THE
SELECTION OF THE INDEPENDENT AUDITORS.
OTHER MATTERS
The Board of Directors knows of no matters other than those described
above that may come before the Annual Meeting. As to other matters, if any,
that properly may come before the Annual Meeting, the Board of Directors
intends that proxies in the accompanying form will be voted in respect thereof
in accordance with the judgment of the person voting the proxies.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders must be received by the Company not
later than December 5, 1997. The person submitting the proposal must have been
a record or beneficial owner of shares of Class A Common Stock for at least one
year, and the securities so held must have a market value of at least $1,000.
VPKK-002/116738.V4 03/28/97 - 26 -
<PAGE> 29
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Form 10-K for the year ended December 31, 1996 (excluding
exhibits unless specifically incorporated therein) are available without charge
upon request to A. Alex Sarkisian, Esq., Secretary, at Schawk, Inc., 1695 River
Road, Des Plaines, Illinois 60018 (847) 827-9494.
Schawk's Annual Report on Form 10-K for the year ended December 31, 1996,
filed with the Commission is incorporated herein by reference. All documents
filed by Schawk with the Commission pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date hereof and before the date of the
Annual Meeting shall be deemed incorporated by reference herein. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes hereof to
the extent that a statement contained herein or in any other subsequently filed
document which also is, or is deemed to be, incorporated herein by reference
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part hereof.
By Order of the Board of Directors,
Des Plaines, Illinois A. ALEX SARKISIAN, Esq.
April __, 1997 Secretary
VPKK-002/116738.V4 03/28/97 - 27 -
<PAGE> 30
APPENDIX A
[Letterhead of Coopers & Lybrand Securities L.L.C.]
February 6, 1997
The Board of Directors
Schawk, Inc.
c/o Mr. David A. Schawk
1695 River Road
Des Plaines, Illinois 60018-3013
To the Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Schawk, Inc. (the "Company") of the consideration
to be received by the Company in the proposed sale of the assets of the
Plastics Group of Schawk, Inc. (the "Group") to ESCO Electronics Corporation
(the "Acquiror"). The offer letter, dated November 19, 1996 and amended by
letter dated November 23, 1996 (the "Agreement"), between the Company and the
Acquiror, sets forth the principal terms of the sale of the assets of the Group
(the "Transaction"). The Agreement provides among other things, that the
Company will receive $92,000,000 in cash, subject to adjustments for working
capital changes and certain capital expenditures made prior to closing, in
exchange for the operating assets of the Group consisting of Filtertek, Inc.,
the Tek Packaging Group and the stock of certain of their subsidiaries.
In connection with our opinion we have:
(a) reviewed the Agreement.
(b) reviewed certain financial and other information relating to the
Group that was publicly available or furnished to us by the
Company, including financial forecasts.
(c) met with members of the Group's management to discuss the
business, operations, historical financial results and future
prospects of the Group.
(d) considered certain financial and securities data of the Group
and/or the Company and compared that data with similar data for
other publicly-held companies in businesses similar to those of
the Group.
(e) considered the financial terms of certain recent acquisitions of
companies in business similar to those of the Group.
(f) reviewed offers from third parties to acquire an interest in all
or a part of the assets of the Group being offered for sale.
(g) performed a discounted cash flow analysis.
VPKK-002/116738.V4 03/28/97 A-1
<PAGE> 31
Board of Directors
February 6, 1997
Page 2
(h) considered such other information, financial studies, analyses,
and investigations and financial, economic and market criteria
as we deemed relevant and appropriate for purposes of this
opinion.
The opinion expressed below is subject to the following limitations:
(i) In arriving at our opinion, we have relied upon and assumed,
without independent verification, the accuracy and completeness
of all financial and other information that was publicly
available or furnished us by the Company. With respect to the
financial forecasts used by us, we have assumed that they have
been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management as
to the future financial performance of the Group.
(ii) We have not made an independent appraisal of the underlying
plant, property and equipment of the Group, nor have we been
furnished with any such appraisals.
(iii) Our services with respect to the Transaction do not constitute
in any way, a review or audit of, or any other procedures with
respect to, any financial information, nor should such services
be relied upon by any person to disclose weaknesses in internal
controls or financial statement errors or irregularities.
(iv) Our opinion does not address, and should not be construed to
address, either the underlying business decision to effect the
Transaction or whether the consideration to be received by the
Company in the Transaction represents the highest price
obtainable. We express no view as to the federal, state or
local tax consequences of the Transaction.
(v) Our opinion is based upon business, economic, market and other
conditions as they exist as of the date hereof or as of the date
of the information provided to us.
(vi) This opinion is effective as of the date hereof. We have no
obligation to update the opinion unless requested by you in
writing to do so and expressly disclaim any responsibility to do
so in the absence of any such request.
Based upon the subject foregoing, it is our opinion that as of the date hereof,
the $92,000,000 cash consideration to be received by the Company is fair to the
Company from a financial point of view.
We will receive a fee as compensation for our services in rendering this
opinion. We have also acted as financial advisor to the Board of Directors in
connection with the Transaction and will receive a fee for our financial
advisory services.
This letter is for the information of the Board of Directors in connection with
the Transaction described herein. This opinion may not be quoted or referred
to, in whole or in part, filed with or furnished or disclosed to any other
party, or used for any other purpose, without our prior written consent.
Very truly yours,
/s/ Coopers & Lybrand Securities L.L.C.
Coopers & Lybrand Securities L.L.C.
By /s/ Philip J. Clements
VPKK-002/116738.V4 03/28/97 A-2
<PAGE> 32
SCHAWK, INC.
SCHAWK, INC.
1695 RIVER ROAD, DES PLAINES, ILLINOIS 60018
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints A. Alex Sarkisian, Esq. as Proxy, with the power to
appoint his substitute and hereby authorizes him to represent and to vote as
designated below, all the shares of Schawk, Inc. Class A Common Stock held on
record by the undersigned on March 24, 1997, at the Annual Meeting of
Stockholders to be held on May 21, 1997, or any adjournment thereof.
1. FOR the election of the nominees for Director of Schawk.
FOR all nominees listed below (except as withheld in the space provided)
WITHHOLD AUTHORITY to vote for all nominees listed below
<TABLE>
<S> <C>
Clarence W. Schawk Judith W. McCue, Esq.
David A. Schawk Hollis W. Rademacher
A. Alex Sarkisian, Esq. John T. McEnroe, Esq.
Marie Meisenbach Graul
Robert F. Meinken
</TABLE>
_____ FOR _____ WITHHELD FOR ALL
Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name on the lines provided below.
______________________________
______________________________
______________________________
2. FOR ratification of the sale of the Plastics Group of Schawk, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. FOR ratification of the selection of Ernst & Young LLP as independent
auditors of Schawk, Inc. for fiscal year 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
VPKK-002/116738.V4 03/28/97
<PAGE> 33
THE BOARD OF DIRECTORS OF SCHAWK, INC. RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND
3. Please mark, sign, date, and return your proxy without delay in the return
envelope provided for that purpose, which requires no postage if mailed within
the United States or Puerto Rico.
Dated _________________, 1997 _____________________________________________
Signature
_____________________________________________
Signature if held jointly
Please sign exactly as name appears hereon;
joint owners should each sign. When signing
as Attorney, Executor, Administrator, or
Guardian, please give full title as such. If
signer is a corporation, please sign with the
full corporation name by duly authorized
officer or director.
