THE OHIO ART COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 7, 1996
----------------------
Bryan, Ohio
April 10, 1996
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 7, 1996 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 28,
1996 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.
<PAGE>
THE OHIO ART COMPANY
One Toy Street
Bryan, OH 43506
---------------
PROXY STATEMENT
---------------
Annual Meeting of Shareholders, May 7, 1996
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 7, 1996. The proxy and this proxy statement are being mailed to
shareholders on or about April 10, 1996. 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 28, 1996, the record date, the Company had outstanding
and entitled to vote at the meeting or at any adjournments thereof
470,761 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.
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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.
Position with the Company
or Other Principal Occupation Director
Name and Age and Other Directorships Since
------------ ----------------------------- --------
NOMINEES TO SERVE UNTIL 1998
Neil H. Borden, Jr. (64)......Professor of Business 1988
Administration, Darden Graduate
School of Business Administration,
University of Virginia, 1963 to
present.
William C. Killgallon (57)....Chairman of the Board since June 1965
1989, President 1978-1989. Also
Director of Columbia Ventures.
Wayne E. Shaffer (73).........Of Counsel, Newcomer Shaffer --
Bird & Spangler (a law firm).
DIRECTORS CONTINUING TO SERVE UNTIL 1997
W. C. Killgallon (83).........Chairman, Executive Committee 1955
of the Board and Consultant to
the Company.
Martin L. Killgallon II (48)..President since June 1989; 1981
Executive Vice President 1987
to 1989; Senior Vice President
Marketing 1983 to 1987.
E. J. Wright (70).............Financial Consultant since 1980; 1974
Chairman and President, The
Huntington National Bank, Toledo
Office, prior thereto.
Frank L. Gallucci (71).......Senior Partner/President of 1995
Gallucci, Hopkins & Theisen (a law
firm). Previously served as a
director for Lincoln Bank/Norwest
Bank from 1976 to 1993.
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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.
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 28, 1996 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, the owners in each case having the sole voting
and investment power, except as otherwise noted.
% OF
NAME SHARES CLASS
----------------------- ------ -----
(a) W. C. Killgallon* .................... 47,431 (1)(2) 10.1%
P.O. Box 111
Bryan, Ohio 43506
William C. Killgallon* ............... 132,244 (1)(2)(3)(4) 28.1%
P.O. Box 111
Bryan, Ohio 43506
Martin L. Killgallon,II* ............. 152,192 (1)(2)(4)(5) 32.3%
P.O. Box 111
Bryan, Ohio 43506
Ruth K. Gilbert ...................... 24,446 (1)(6) 5.2%
P.O. Box 111
Bryan, Ohio 43506
Katherine K. Michelsen ............... 23,749 (1)(8) 5.0%
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 ....................... 48,489 (4) 10.3%
P.O. Box 111
Bryan, Ohio 43506
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% OF
NAME SHARES CLASS
----------------------- ------ -----
(b) Neil H. Borden, Jr ................... 300 **
Wayne E. Shaffer ..................... 0
E. J. Wright ......................... 600 **
Frank L. Gallucci .................... 500 **
(c) Officers and Directors as a Group .... 279,728 (7)
(12 Persons)
* A director
** Less than 1%
(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 298,490 or
approximately 63% of the number outstanding. Beneficial ownership
of shares held by spouses and children is disclaimed.
(2) Includes 3,200 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 5,650 shares held for children of William C. Killgallon, as
to which beneficial ownership is disclaimed, but does not include
1,525 shares owned by his wife or 28,100 shares held by his wife as
trustee for the benefit of children. Also includes 13,577 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 48,489 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
48,489 shares, 10,869 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 37,620
allocated shares, 2,672 and 2,586 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
32,362 shares in the ESOP.
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Messrs. Killgallon disclaim beneficial ownership of all the shares
held in the ESOP other than those allocated to their respective
accounts.
(5) Includes 24,005 shares held for children of Martin L. Killgallon,II
as to which beneficial ownership is disclaimed, but does not include
500 shares owned by his wife.
(6) Includes 13,577 shares held in trust as described in Note 3 above.
Includes 22 shares in an IRA. Includes 10,847 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 10,152 shares held for children as to which beneficial
ownership is disclaimed.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual compensation for the
Company's Chief Executive Officer and the four highest paid executive
officers, as well as the total compensation paid to each individual for
the Company's two previous fiscal years:
ANNUAL COMPENSATION
----------------------------------------
NAME AND (a)
PRINCIPAL POSITION YEAR SALARY BONUS OTHER
---- -------- -------- -----
William C. Killgallon 1995 $224,375 $103,000 (b)
Chairman of the Board 1994 220,579 25,000
1993 219,892 -0-
Martin L. Killgallon, II 1995 224,375 103,000 (b)
President 1994 220,579 25,000
1993 217,702 -0-
L. T. Wilson 1995 76,551 50,000 (b)
V.P.-Diversified Product 1994 71,651 15,000
1993 71,300 -0-
P. R. McCusty 1995 66,909 40,000 (b)
V.P.-Finance 1994 64,631 13,000
1993 60,400 -0-
C. G. Dahl 1995 90,314 15,000 (b)
V.P.-Marketing 1994 88,863 11,000
1993 88,470 -0-
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(a) The bonus figure represents cash bonus for the fiscal year in which
it was earned.
(b) In 1995, Executive Officers received certain benefits, the
incremental cost of which was, in each case, less than the lesser of
$50,000 or 10% of cash remuneration.
For the year ended December 31, 1995, 230 shares were reallocated
to all participants under the ESOP, of which 11 shares were allocated
to William C. Killgallon, 10 shares to Martin L. Killgallon,II, 7 shares
to C. G. Dahl, 7 shares to L. T. Wilson, and 6 shares to P. R. McCusty.
As of March 28, 1996, the closing price per share on the American Stock
Exchange was 49. 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- 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 and established annually by the Compensation Committee of the
Board of Directors (the "Committee"), which is comprised entirely of
non-employee directors.
The foundation of the Company's executive compensation program is
based upon the promotion of the Company's short- 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 compensation
- Annual incentive compensation
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Base salary compensation 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 1995 compensation, based
on the fiscal year 1994, the Committee considered the level of base
salary and bonus of the Company's Chief Executive Officer, William C.
Killgallon, and Chief Operating Officer, Martin L. Killgallon,II, in
light of the Company's overall performance in 1994, and the performance
of the CEO and COO relative to the long-term objectives of the Company.
Historically, the Committee took 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.
The foregoing report is submitted by the members of the Company's
Compensation Committee.
Earl J. Wright
Neil H. Borden, Jr.
<TABLE>
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, 1995, as
well as an overall stock market index (The Russell 2000 Index) and the
Company's peer group index (Value Line's Toys and School Supplies
Industry):
<CAPTION>
Year OAR Russell 2000 Peer Group
- ---- --------- ------------ ----------
<S> <C> <C> <C>
1990 $100.00 $100.00 $100.00
1991 140.48 146.05 176.23
1992 324.06 172.94 186.60
1993 164.02 205.64 188.96
1994 187.76 201.56 185.10
1995 336.61 258.89 249.68
</TABLE>
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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 ............... $13,800 $27,300 $34,000 $40,700
150,000 ............... 20,000 39,600 49,400 59,200
200,000 ............... 26,100 51,900 64,800 77,600
250,000 ............... 32,300 64,200 80,100 96,100
300,000 ............... 38,400 76,500 95,600 114,500
350,000 ............... 44,600 88,800 110,900 133,000
(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.
(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 1996 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 $150,000, 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 27 years, Martin L.
Killgallon,II, 17 years, C. G. Dahl 12 years, P. R. McCusty 12 years,
and L. T. Wilson 21 years.
8
<PAGE>
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 four of the five individuals listed
under Compensation of Executive Officers. Based on the supplemental
plan, the current covered compensation for each of the above individuals
is William C. Killgallon $292,915, Martin L. Killgallon,II $280,957, C.
G. Dahl $161,219, and L. T. Wilson $136,095.
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 such participant's account, pro rata, based
on the participant's compensation for the year (but not in excess of
$150,000 for the 1995 year).
In 1995, 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 stock. In November of 1995, the Board of
Directors followed the recommendation of the Compensation Committee and
agreed not to fund the ESOP for 1995. 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 1995 was the result of a
redistribution of ESOP shares, which was due to the separation of a
participant who had not met the vesting requirements.
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.
9
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BOARD OF DIRECTORS
The Company's Board of Directors had four regular meetings in the
year 1995. Members of the Board who are not otherwise compensated by
the Company, received a fee of $12,000 per year for their services in
1995, 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 four times in 1995. 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 E. J. Wright. In 1995, 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 E. J. Wright and Neil H. Borden, Jr. In 1995, 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.
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SHAREHOLDER PROPOSALS
For inclusion in the Company's 1997 proxy statement, all
shareholder proposals for consideration at the annual meeting of the
shareholders of the Company to be held in 1997 must be received at the
Company's executive offices by December 5, 1996. 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 10, 1996 Chairman of the Board
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Listed below is the proxy card that is sent with the proxy to
shareholders for voting purposes.
Front of proxy card
PROXY SOLICITED BY BOARD OF DIRECTORS
THE OHIO ART COMPANY - MEETING OF SHAREHOLDERS - MAY 7, 1996
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 7, 1996 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)
Back of proxy card
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: _________________________,1996
_____________________________________
(Signature)
_____________________________________
(Signature)
PLEASE DATE, SIGN, AND RETURN THIS PROXY
