ARTISTIC GREETINGS INCORPORATED
ONE KOMER CENTER, ELMIRA, NEW YORK 14902
STUART KOMER
Chairman of the Board
JOSEPH A. CALABRO
Chief Executive Officer and President
March 28, 1997
Dear Fellow Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of
Stockholders which will be held at 9:00 a.m. on Thursday, May 1, 1997 at our
corporate headquarters at the corner of Main and Water Streets, One Komer
Center, Elmira, New York.
The enclosed Notice and Proxy Statement contain information about matters
to be considered at the Annual Meeting, at which the business and operations of
Artistic Greetings Incorporated will also be reviewed. Discussions at our
Annual Meeting have generally been interesting and useful, and we hope that you
can attend.
Whether or not you plan to attend, we urge you to complete, sign and
return the enclosed proxy card so that your shares will be represented and
voted at the Annual Meeting.
Sincerely yours,
Stuart Komer Joseph A. Calabro
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 1, 1997
The Annual Meeting of Stockholders (the "Meeting") of ARTISTIC GREETINGS
INCORPORATED ("Artistic" or the "Company") will be held at the Company's
corporate headquarters at the corner of Main and Water Streets, One Komer
Center, Elmira, New York on Thursday, May 1, 1997 at 9:00 a.m. for the
following purposes:
1. To elect members of the Board of Directors of the Company
("Directors") to serve until the next Annual Meeting of Stockholders
and until the election and qualification of their successors;
2. To take action on a proposal to ratify the selection of Arthur
Andersen LLP as auditors of the books and financial records of the
Company for its fiscal year ending December 31, 1997; and
3. To transact such other business as may properly come before the
Meeting.
The Board of Directors (the "Board") has fixed the close of business on
March 21, 1997, as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Meeting.
By Order of the Board of Directors
MARIE B. BELT
Secretary
March 28, 1997
ENCLOSED IS A PROXY FORM. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, THE BOARD URGES YOU TO MARK, DATE, SIGN AND RETURN THE PROXY, WHICH YOU
MAY REVOKE AT ANY TIME PRIOR TO ITS USE. A SELF-ADDRESSED PREPAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE IN RETURNING THE SIGNED PROXY.
<PAGE>
ARTISTIC GREETINGS INCORPORATED
One Komer Center, Elmira, New York 14902
Telephone (607) 733-5541
PROXY STATEMENT
GENERAL
The enclosed proxy is solicited by the Board for use at the Meeting to be
held at the Company's corporate headquarters at the corner of Main and Water
Streets, One Komer Center, Elmira, New York on Thursday, May 1, 1997 at 9:00
a.m. The mailing of this proxy statement and the enclosed proxy to
stockholders of record on March 21, 1997 (each a "Stockholder" and
collectively, the "Stockholders"), will commence on or about March 28, 1997.
Any proxy properly given and received prior to the commencement of the
Meeting will be voted with respect to all shares represented by it and will be
voted in accordance with the instructions, if any, given therein. If no
contrary instructions are given, the proxy will be voted (1) FOR the election
of the Directors named herein; (2) FOR the ratification of the Board's
selection of the firm of Arthur Andersen LLP, Certified Public Accountants, as
the Company's independent auditors for its fiscal year ending December 31,
1997; and (3) in accordance with the proxyholder's best judgment on any other
matters which may properly come before the Meeting (each, if any, a "Proposal"
and collectively, the "Proposals"). A Stockholder giving a proxy has the right
to revoke it by a duly executed proxy bearing a later date, by attending the
Meeting and voting in person, or by otherwise notifying the Company in writing
prior to the Meeting.
Under Delaware law, the total votes received, including abstentions and
votes by brokers holding shares in "street name" or other fiduciary capacity on
"routine" matters, are counted in determining the presence of a quorum at the
Meeting. With respect to the election of the Directors, votes may be cast for
or withheld from voting with respect to any or all of the Directors. Votes
that are withheld will have no effect on the election of the Directors.
Abstentions may be specified on all Proposals other than the election of the
Directors and will be counted as present for purposes of the matter with
respect to which the abstention is noted. Under the Company's Certificate of
Incorporation, Directors are elected by a plurality of the votes cast, while
the approval of Proposal 2 will require the affirmative vote of a majority of
the shares present, in person or by proxy, and entitled to vote. Therefore,
under the Company's Certificate of Incorporation and under Delaware law,
assuming the presence of a quorum at the Meeting, non-votes by brokers will
have no effect on either the election of Directors or Proposal 2. However,
abstentions would have the effect of "no" votes with respect to Proposal 2.
Only Stockholders of record at the close of business on the Record Date
are entitled to vote at the Meeting. The total number of shares of common
stock of the Company ("Common Stock") outstanding as of that date was
6,344,146. Each share of Common Stock is entitled to one vote at the Meeting.
For a description of the principal holders of the Company's Common Stock and
any voting arrangements among them, see the discussion under "PRINCIPAL HOLDERS
OF COMMON STOCK."
A copy of the Company's 1996 Annual Report containing financial statements
for the fiscal year ended December 31, 1996, is enclosed with this proxy
statement.
The cost of solicitation of proxies will be borne by the Company. In
addition to this solicitation by mail, Directors, officers and employees of the
Company may solicit proxies by telephone, mail, fax or personal interviews, and
arrangements will be made with banks, brokerage firms and others to forward
proxy material to their principals. The Company will bear the expense of any
such additional solicitations.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Meeting, seven Directors, making up the entire membership of the
Board as designated by the Board, are to be elected to hold office until the
next Annual Meeting of Stockholders and/or until the election and qualification
of their respective successors. Unless authority is withheld with respect to
any individual nominee or all of the nominees, the shares represented by the
proxies received as a result of this solicitation will be voted in favor of the
nominees listed below. In the event any nominee declines or is unable to
serve, proxies will be voted for the election of the others so named and may be
voted for substitute nominees. The Board does not anticipate that any nominee
will decline or be unable to serve.
The following sets forth information concerning the principal occupations
and business experience during the past five years of the nominees for election
as the Directors of the Company:
JOSEPH A. CALABRO, 56, has served as the Company's Chief Executive
Officer and President since August 1996. Prior to being named to his current
position Mr. Calabro served as the Company's Senior Vice President of
Manufacturing from January through August 1996 and before that, worked as a
consultant to the Company from August through December 1995. Prior to his
relationship with Artistic, Mr. Calabro served from 1993 through July 1995 as
President and CEO of Calabro and Associates, a Seattle-based consulting
company. For more than five years prior to that, he worked at Prism Group,
Inc./MicroDisk Services, a leading software manufacturing facility, in
Woodinville, Washington where he held the positions of Vice President, COO and
Director, Prism Group, Inc. and President and CEO, MicroDisk Services. Mr.
Calabro was elected to the Board in August 1996.
NORMAN S. EDELCUP, 61, serves as Chairman and Chief Executive Officer of
Item Processing of America, a data processing center for financial institutions
located in Miami, Florida, a position he has held since July 1987. Since 1975,
Mr. Edelcup has been a Director of Valhi, Inc. and since 1987 he has served as
a Trustee of Baron Asset Fund. Mr. Edelcup has been a Director of the Company
since 1985.
LYNDON E. GOODRIDGE, 56, is Dean of the Whittemore School of Business and
Economics, University of New Hampshire, Durham, New Hampshire and has held this
post since July 1990. Mr. Goodridge has been a Director since 1985.
STUART KOMER, 71, has served as a Director and as the Company's Chairman
of the Board since 1966. He also served as its President from 1966 through
July 1994 and from September 1995 through August 1996, and as its Chief
Executive Officer from July 1994 until Joseph A. Calabro was elected to these
posts in August 1996. Mr. Komer is the stepfather of Thomas C. Wyckoff, the
Company's Senior Vice President Administration/Corporate Development, General
Counsel and Assistant Secretary.
ALAN SCHULTZ, 38, was elected to the Board in June 1995 as the
representative of Valcheck Company ("Valcheck"), a subsidiary of Valassis
Communications, Inc. ("Valassis") pursuant to the terms of the purchase
agreement under which the Company purchased the assets of Valcheck's mail-order
check business in May 1995 (the "Purchase Agreement") and discussed further
under "PRINCIPAL HOLDERS OF COMMON STOCK." In connection with the transaction,
Valcheck also received 500,000 shares of the Company's Common Stock, as
discussed further under "PRINCIPAL HOLDERS OF COMMON STOCK." Mr. Schultz is
the Chief Operating Officer and Executive Vice President of Valassis and has
held various other positions in operations, finance and sales management since
joining Valassis in 1984.
IRVING I. STONE, 87, was elected a Director in June 1990, as one of two
directors designated by American Greetings Corporation ("American") under the
terms of a Standstill Agreement between the Company and American, executed in
connection with American's purchase of 2,250,000 shares of the Company's Common
Stock in May 1990 (the "Original Standstill Agreement") and discussed further
under "PRINCIPAL HOLDERS OF COMMON STOCK." Mr. Stone now serves as Founder-
Chairman and as a member of the Board of Directors of American, headquartered
in Cleveland, Ohio and for a number of years prior to 1992, served as its
Chairman.
MORRY WEISS, 56, was elected a Director in September 1991. Mr. Weiss is
one of the two Directors designated by American under the Original Standstill
Agreement. In March 1992, Mr. Weiss was named Chairman and Chief Executive
Officer of American. For more than five years prior thereto, he had served as
President of American. He is also a Director of National City Bank, Cleveland,
Ohio and of Barnett, Inc., Jacksonville, Florida. Mr. Weiss is the son-in-law
of Irving I. Stone.
EXECUTIVE OFFICERS
The Company benefits from a highly experienced management team led by
Stuart Komer, its Chairman of the Board, and Joseph A. Calabro, its Chief
Executive Officer and President. The background of the Company's other
executive officers, in addition to Messrs. Komer and Calabro (collectively, the
"Executive Officers"), is set forth below:
MARIE B. BELT, 53, has served as the Company's Senior Vice President and
Assistant to the Chairman since October 1996, and as Secretary since January
1996. She formerly served as Senior Vice President Administration from January
through October 1996, as Vice President Administration from June 1992 through
December 1995, and as Assistant Secretary from April 1990 through December
1995. Ms. Belt has served in a number of key supervisory and managerial
capacities with the Company, including order processing, customer service,
quality control and telemarketing, since 1976.
MICHELLE CRANE, 28, has served as Vice President Manufacturing since
August 1996. From January through August 1996, she served as Vice President
Catalogs and Mass Media and prior to that as Vice President Catalog Division
from September through December 1995. Ms. Crane has served in numerous
managerial positions with the Company, including international sales, retail
sales and data entry, since 1988.
WILLIAM F. INGRAM, 52, has served as the Company's Vice President and
Chief Information Officer since October 1996. Prior to this, he served as the
Company's Manager of Materials/Warehouse since joining the Company in September
1995. Previously, Mr. Ingram served as Vice President Material Management with
Okuma Machine Tools, Charlotte, North Carolina, from August 1993 to May 1995.
From November 1985 through May 1992, he held senior management positions in
both information services and sales and marketing at Hardinge Brothers, Inc.,
in Elmira, New York.
ROBERT E. JOHNSON, 45, has served as the Company's Senior Vice President
Finance and Chief Financial Officer since October 1995. From October 1994 to
October 1995, Mr. Johnson was engaged in financial and general management
consulting. From April 1991 to April 1994, Mr. Johnson was Vice President
Finance of ABB Traction Inc., a subsidiary of Asea Brown Boveri Ltd.
ROBERT T. MCDONOUGH, 48, has served as the Company's Senior Vice President
Marketing/ Sales since January 1996 and formerly served as Vice President of
General Merchandise from February through December 1995. For more than five
years prior thereto, Mr. McDonough served first as the Company's Catalog
Manager and then as its Manager of Domestic Mass Media Sales.
THOMAS C. WYCKOFF, 30, has served as the Company's Senior Vice President
Administration/Corporate Development, General Counsel and Assistant Secretary
since October 1996. Prior to that, he served as Senior Vice President, General
Counsel and Assistant Secretary of the Company from January through October
1996 and as the Company's General Counsel from July through December 1995.
From September 1991 through July 1995, Mr. Wyckoff was associated with Cahill
Gordon & Reindel, a law firm headquartered in New York, New York where his
practice focused on corporate securities and transactional law.
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of March 1, 1997, by
(1) each beneficial owner of more than 5% of the outstanding Common Stock of
the Company, (2) each nominee for Director of the Company, (3) the Executive
Officers of the Company named in the compensation tables that appears hereafter
in this proxy statement, and (4) all Directors and Executive Officers of the
Company as a group. The Company believes that each of the following persons
has sole investment and voting power in respect of his/her/its shares owned
except as otherwise noted.
<PAGE>
NUMBER OF SHARES OF PERCENTAGE OWNERSHIP OF
NAME COMMON STOCK COMMON STOCK{1}
American Greetings Corporation 2,250,000 {2} 35.5
One American Road
Cleveland, OH 44144
Stuart Komer 542,746 {3} 8.4
One Komer Center
Elmira, NY 14902
Valcheck Company 500,000 {4} 7.9
c/o Valassis Communications, Inc.
36111 Schoolcraft Road
Livonia, MI 48150
Joseph A. Calabro 17,000 {5} *
Norman S. Edelcup 8,000 *
Lyndon E. Goodridge 7,000 *
Alan F. Schultz - 0 - {6} *
Irving I. Stone 1,500 {7,8} *
Morry Weiss 3,364 {8} *
Robert E. Johnson 9,100 {9} *
Thomas C. Wyckoff 35,740 {10} *
Robert T. McDonough 13,850 {11} *
All Directors and Executive Officers
of the Company as a group (13 persons) 664,950 {3,5,6,7,8, 10.2
9,10,11,12}
________________________________
* Indicates less than 1% of the Company's issued and outstanding shares.
1 Percentages have been calculated assuming, in the case of each person,
the exercise of all options that are currently or will become exercisable
within the next 60 days by each such person, but not the exercise of any
options owned by any other person listed. The calculation of percentage
ownership for all Directors and Executive Officers as a group assumes the
exercise of all options that are currently or will become exercisable
within the next 60 days by each such person.
2 For a description of certain arrangements between the Company and
American, see "PRINCIPAL HOLDERS OF COMMON STOCK."
3 Includes options to purchase 126,960 shares that are currently or will
become exercisable by Mr. Komer within the next 60 days and 4,000 shares
owned by Mr. Komer's wife.
4 For a description of certain arrangements between the Company and
Valcheck, see "PRINCIPAL HOLDERS OF COMMON STOCK."
5 Includes options to purchase 12,000 shares that are currently or will
become exercisable by Mr. Calabro within the next 60 days.
6 Does not include the 500,000 shares of Common Stock owned by Valassis
discussed further under "PRINCIPAL HOLDERS OF COMMON STOCK."
7 These shares are held in the Judith Stone Weiss Trust for the benefit of
Mr. Stone, who has sole voting and investment power with respect to these
shares.
8 Does not include the 2,250,000 shares of Common Stock owned by American
discussed further under "PRINCIPAL HOLDERS OF COMMON STOCK."
9 Includes options to purchase 4,100 shares that are currently or will
become exercisable by Mr. Johnson within the next 60 days.
10 Includes options to purchase 6,400 shares that are currently or will
become exercisable by Mr. Wyckoff within the next 60 days and 640 shares
owned by Mr. Wyckoff's wife.
11 Includes options to purchase 12,800 shares that are currently or will
become exercisable by Mr. McDonough within the next 60 days.
12 Includes all shares referred to above and an aggregate of 23,400 shares
that are currently or will become exercisable by three other Executive
Officers of the Company, in addition to those named above, within the
next 60 days.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Executive Officers, Directors and persons who own more than ten percent of the
Common Stock (each a "reporting person" and collectively, "reporting persons"),
to file reports of their ownership of and changes in ownership of shares of
Common Stock with the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers, Inc. ("NASD"), and to furnish the
Company with copies of all such forms (known as Forms 3, 4 and 5).
Based solely on its review of the copies of such forms received by it, or
on written representations received from certain reporting persons that they
were not required to file a Form 5 report with respect to 1996, the Company
believes that, with respect to transactions occurring in 1996, all Form 3, 4
and 5 filing requirements applicable to its reporting persons were complied
with.
BOARD MEETINGS AND COMMITTEES
The Board conducts its business through meetings of the Board and through
the activities of its committees. The Board held seven meetings during 1996.
As its standing committees, the Board currently has a Marketing Committee and
an Audit, Finance and Compensation Committee (the "AFC Committee").
The AFC Committee periodically reviews the Company's auditing practices
and procedures and makes recommendations to the Board with respect to these
matters. It also periodically reviews the compensation and benefits paid to
the Company's executives and administers the Company's Employee Long Term
Incentive Plan ("LTI Plan") in all respects. The members of the AFC Committee
are: Norman S. Edelcup - Chairman, Morry Weiss and Alan F. Schultz. The AFC
Committee met three times during 1996.
The Marketing Committee periodically explores new ideas for marketing the
Company's products and services. Its members are: Lyndon E. Goodridge -
Chairman, Alan F. Schultz, Irving I. Stone and Morry Weiss. The Marketing
Committee met once during 1996.
During 1996, the Board also established a search committee (the "Search
Committee"), the purpose of which was to conduct a search for a successor to
Stuart Komer as the Company's Chief Executive Officer and President. The
members of the Search Committee were: Morry Weiss, Alan F. Schultz and Stuart
Komer, with Messrs. Schultz and Komer as Co-Chairmen. The Search Committee met
numerous times during 1996, both formally and informally, and its activities
are discussed in greater detail under "Compensation of Executive Officers and
Directors - Report of the AFC Committee." The Search Committee completed its
work during 1996.
Each of the Directors, except for Mr. Stone, attended at least 75% of the
meetings held during 1996 by the Board and by each committee of which he is a
member.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
In compliance with the SEC's executive compensation disclosure rules, what
follows below is a report of the AFC Committee, a series of tables detailing
certain cash compensation and stock option information, and a five-year total
return stock performance chart, all of which are intended by the SEC to
standardize the reporting of such information by public companies to their
stockholders.
REPORT OF THE AFC COMMITTEE
GENERAL. The compensation of the Executive Officers is made up of three
key components: base salary, performance bonuses and stock option grants under
the LTI Plan.
COMPENSATION OF JOSEPH A. CALABRO, THE COMPANY'S CHIEF EXECUTIVE OFFICER
AND PRESIDENT. In early 1996, the Board and Stuart Komer - then serving as
Chairman of the Board ("Chairman"), Chief Executive Officer ("CEO") and
President - concluded that a successor to Mr. Komer in his role as CEO and
President should be chosen. The reasons for this determination included: (i)
that Mr. Komer had successfully built a competent and able new management team
that led the Company's turnaround efforts and therefore his direct involvement
in the day-to-day operating decisions of the Company were less crucial; (ii)
Mr. Komer's expressed desire to be less involved in future day-to-day activity
of the Company in order to pursue other interests at the appropriate time;
(iii) the terms of Mr. Komer's employment agreement which provide that a choice
of a successor to Mr. Komer be made prior to its expiration in August 1998 (the
"Termination Date"); and (iv) the strong view of the Board and Mr. Komer that a
period of transition (the "Transition") should occur prior to the Termination
Date, during which time Mr. Komer's years of expertise in the business of the
Company would remain available to be passed to his successor.
Accordingly, the Board instituted the Search Committee, which was charged
with identifying (from both internal and external candidates) and selecting the
best successor CEO and President. With the assistance of a professional
executive recruiting firm, the Search Committee identified and interviewed
qualified internal and external candidates for the position. In August 1996,
the Board determined that Joseph A. Calabro, who had been the Company's Senior
Vice President of Manufacturing since January 1996, was the most qualified
candidate to assume this role.
On August 15, 1996, the Board formally elected Mr. Calabro as CEO and
President, and executed a three-year employment agreement with him (the
"Calabro Employment Agreement"). Under the Calabro Employment Agreement, Mr.
Calabro will receive a base salary of $200,000 per year, plus an annual bonus
determined under the Company's executive bonus program, as well as certain
other benefits provided to the other Executive Officers, as further detailed in
footnote (3) to the Summary Compensation Table below.
In determining Mr. Calabro's salary and compensation package, the Board
obtained market survey data of competitors of the Company and of selected
companies of comparable size in certain other industries, while also taking
into account the Company's current executive salary and compensation structure.
The Company's current executive bonus program (the "Bonus Program")
provides for the participation of management in the profitability of the
Company at a percentage of a share unit, which is assigned by the Board each
year, upon the recommendations of the CEO. A profit share (bonus unit) is
equal to the sum of 1/4% of the Net Operating Income (as hereinafter defined)
of the prior year (if Net Operating Income is negative, such number equals
zero) plus 1 1/2% of the increase in Net Operating Income of the current year
over the prior year (a "Share Unit"). Net Operating Income is equal to Net
Income before (i) interest and investment income (expense), (ii) taxes, (iii)
bonuses and (iv) extraordinary items.
Under the Bonus Program, upon being elected CEO in August 1996, Mr.
Calabro was assigned 150% of a Share Unit and received a bonus (pro rated from
August 1996) of approximately $66,000 for 1996. This amount represented
approximately 45% of his aggregate base salary for 1996 and was determined as
appropriate by the AFC Committee in relation to the size of Share Units awarded
to other Executive Officers and measured against information available from
companies comparable to Artistic.
The AFC Committee also awarded Mr. Calabro 25,000 incentive stock options
("ISOs") upon his becoming CEO and President, with the goal of tying a
significant portion of his total compensation to the increase of stockholder
value over the longer term. As it has over the years in respect of Mr. Komer's
compensation, the AFC Committee intends to use grants of stock options to Mr.
Calabro under the LTI Plan as a substantial incentive to tie his compensation
as directly as possible to the financial performance of the Company as
reflected in its stock price. This approach also ensures that his financial
interest in increasing the value of the Company is closely aligned with that of
the stockholders.
COMPENSATION OF STUART KOMER, THE COMPANY'S CHAIRMAN. In recognition of
his many years of service to the Company, upon naming Joseph Calabro CEO and
President in August 1996, the Board reaffirmed that the Company's employment
agreement with Stuart Komer (the "Komer Employment Agreement") would continue
in full force and effect as he continues to serve the Company as its Chairman.
As the AFC Committee previously stated, a key goal of the terms negotiated in
the Komer Employment Agreement was the desire to reward Mr. Komer for his more
than 40 years of dedicated service to the Company in his many capacities. Mr.
Komer at various times took substantial pay reductions, received no pay raises
and placed his personal assets at risk to guaranty the Company's debts.
It is the Board's view that Mr. Komer's minimum $225,000 base salary
established by the Komer Employment Agreement remains appropriate given his
contribution to the Transition and the continued success of the Company. Mr.
Komer is also eligible to receive annual bonuses under the terms of the Komer
Employment Agreement. These bonuses are not discretionary; they are determined
based upon a formula contained in the Komer Employment Agreement. This
arrangement ties Mr. Komer's fortunes directly to the Company's annual
operating performance because it is based upon the Company's net income before
taxes, which the Komer Employment Agreement defines to exclude any
extraordinary, unusual or non-recurring items of loss, expense or income.
Under the terms of this formula, for 1996 Mr. Komer was awarded a bonus of
$273,414.
The AFC Committee also granted 35,000 ISOs to Mr. Komer in 1996 in
recognition of his many years of service to the Company.
COMPENSATION OF OTHER EXECUTIVE OFFICERS. During 1995, the Company's
Human Resources Department undertook an analysis of the compensation paid to
the Company's senior management to determine whether it was competitive with
the marketplace and whether it was sufficient to attract and retain competent
senior management. Based upon the salary survey information obtained from both
the Human Resources Department and from outside consultants, beginning in
January of 1996 the base salaries for certain of the Executive Officers were
adjusted upward, based primarily upon the size of the Company and the
respective level of the executive's responsibilities.
In addition, Executive Officers participate in the Bonus Program at levels
recommended to the Board by the Company's CEO and President. Because the AFC
Committee believes that the incentives provided by the Bonus Program, as
measured by the Company's financial performance, has a significant impact on
the Company's stock price, it intends, by using this measuring device, to link
executive bonuses to both the financial performance of the Company and its
stock price. For 1996, in addition to the bonuses paid to Messrs. Calabro and
Komer, the Company paid an aggregate total of $189,417 in executive bonuses to
its other six Executive Officers.
As with the CEO and President, the AFC Committee uses grants under the
Company's LTI Plan with a similar motivation. Since the LTI Plan was
instituted in 1983, the Committee has generally awarded annual ISO grants to
the Company's executive officers as a further incentive to tie their
compensation as directly as possible to the financial performance of the
Company as reflected in its stock price; this also ensures that their financial
interest in increasing the value of the Company is closely aligned with that of
the stockholders. In determining the size of the ISO grants to individual
executives, the Committee also makes judgments as to how well the individual
executive met or exceeded his or her performance goals during the previous
year, based primarily on consultations with the CEO and President. In
addition to the ISO grants made to Messrs. Calabro and Komer, during 1996, the
AFC Committee granted an aggregate total of approximately 43,500 ISOs to the
Company's other six Executive Officers.
Because the Company's executive compensation levels do not approach the $1
million per year range for any of its most highly paid executives, the AFC
Committee does not believe that it is necessary to take additional measures to
comply with the tax deductibility requirements for executive compensation that
exceeds $1 million per year imposed by the Revenue Reconciliation Act of 1993.
The AFC Committee will continue to monitor this issue and will take further
action as developments warrant.
This report was prepared by the members of the AFC Committee: Norman S.
Edelcup - Chairman, Morry Weiss and Alan F. Schultz.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation and
benefits paid by the Company for all services rendered during 1996, 1995 and
1994 to five individuals: Joseph A. Calabro, who is and was, at December 31,
1996, serving as the Company's CEO and President, and Stuart Komer, who was the
Company's Chief Executive Officer and President through August 15, 1996 and
remains its Chairman, Robert E. Johnson, Thomas C. Wyckoff and Robert T.
McDonough, who were, as of December 31, 1996, the other most highly compensated
Executive Officers whose 1996 salary and bonus exceeded $100,000 in amount
(individually, a "Named Executive" and collectively, the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL
COMPENSATION OTHER
Annual Compensation{1,2} Awards COMPENSATION
<S> <C> <C> <C> <C> <C>
Securities
Name and Underlying
POSITION YEAR SALARY BONUS OPTIONS
Joseph A. Calabro 1996 $ 148,558 $ 66,061 45,000{4} $ 12,968{5}
CEO and President 1995 $ NA $ NA NA $ NA
(3) 1994 $ NA $ NA NA $ NA
Stuart Komer (6) 1996 $ 233,915 $ 273,414 35,000{7} $ 25,194{8}
Chairman 1995 $ 225,547 $ - 0 - - 0 - $ 10,796{8}
1994 $ 233,503 $ - 0 - 25,000{9} $ 9,455{8}
Robert E. Johnson 1996 $ 110,865 $ 56,462 6,500{11} $ 36,623{12}
Senior V.P. Finance 1995 $ 32,712 $ - 0 - 5,000{13} $ - 0 -
and CFO 1994 $ NA $ NA NA $ NA
(10)
Thomas C. Wyckoff 1996 $ 100,825 $ 33,877 8,000{15} $139,649{16}
Sr.V.P. Admin./ 1995 $ 28,276 $ - 0 - 10,000{17} $ 55,807{18}
Corp. Development 1994 $ NA $ NA NA $ NA
and Gen. Counsel
(14)
Robert T. McDonough 1996 $ 90,733 $ 33,877 8,000{20} $ 5,986{21}
Sr. V.P. - 1995 $ 76,138 $ - 0 - - 0 - $ 761{21}
Marketing/Sales 1994 $ 66,423 $ - 0 - 3,000{22} $ 597{21}
(19)
</TABLE>
_________________________
NA Indicates Not Applicable, because the particular Named Executive was
not an Executive Officer of the Company during the year indicated.
1 Under applicable SEC rules, the value of any perquisites or other
personal benefits provided by the Company to any of the Named
Executives need not be separately detailed and described if their
aggregate value does not exceed the lesser of $50,000 or 10% of that
executive's total salary and bonus for the year shown. For the years
indicated, the value of such personal benefits, if any, provided by the
Company to these Named Executives did not exceed such thresholds.
2 Includes all compensation deferred for the years shown under the
Company's 401(k) Plan and/or its Deferred Compensation Plan (the
"401(k) Plan"), as further described under "COMPENSATION PURSUANT TO
PLANS."
3 In August 1996, the Company entered into the three-year Calabro
Employment Agreement with Mr. Calabro providing for: (i) his
employment as the CEO and President under which he will receive a base
salary of $200,000 per year; (ii) an annual bonus determined under the
Bonus Program; (iii) certain other benefits provided to the other
Executive Officers; and (iv) the August 1996 ISO grant detailed in note
(4) below. The Calabro Employment Agreement also provides that, should
he ever be terminated without cause (including in the event of a change
in control of the Company), or if he should elect to terminate his
employment as a result of certain events (including his not being
retained after a change in control of the Company), or if the Company
takes any action that reduces or limits his authority as CEO or reduces
his compensation or benefits, then he will receive (x) a minimum of 18
months' of his then-current salary or if greater, his then-current
salary for the remaining term of the Agreement, (y) automatic vesting
of all unvested options granted under the LTI Plan, and (z) a bonus for
the year in which the termination occurs, pro-rated through the last
day of the calendar month prior to the date on which the termination
occurs, with the value of all such cash compensation payable being
calculated and paid in a lump sum within 30 days following the
occurrence of any such event of termination. In the event of his
disability during the term of the Calabro Employment Agreement, Mr.
Calabro will be entitled to receive all compensation and benefits
payable thereunder for the remainder of its term. In the event of his
death during the term of the Calabro Employment Agreement, Mr.
Calabro's estate will be entitled to receive a lump-sum payment of the
present value of the amount of all compensation and benefits payable
for the remainder of the contract term. The Calabro Employment
Agreement also provides that Mr. Calabro will not compete with the
Company for a five-year period beginning on August 15, 1996.
4 In each of February, May, August and October of 1996, Mr. Calabro was
awarded ISOs, exercisable over a five-year term, to purchase 10,000
shares of Common Stock at an exercise price of $2.62 per share, 5,000
shares of Common Stock at an exercise price of $3.56 per share, 25,000
shares of Common Stock at an exercise price of $3.93 per share and
5,000 shares of Common Stock at an exercise price of $5.00 per share,
respectively.
5 This amount represents the Company's payment of $11,711 in
reimbursement of moving, relocation expenses and closing costs incurred
by Mr. Calabro in relocating from Seattle, Washington area to Elmira,
New York, together with a tax "gross-up" payment of $1,257 on this
amount.
6 In August 1993, the Company entered into the Komer Employment Agreement
with Mr. Komer providing for his employment as Chairman, CEO and/or
President of the Company for a five-year term from August 31, 1993 (the
"Initial Period"). It also provides that, at the end of the Initial
Period, Mr. Komer has the option to elect to serve as a consultant to
the Company for a two-year term ending on August 31, 2000. During the
Initial Period, Mr. Komer will receive a minimum annual base salary of
$225,000 or such greater amount as the Board shall determine and an
annual bonus determined by a formula based upon the Company's annual
pre-tax net income, plus various insurance and other benefits provided
for in the Komer Employment Agreement. At the end of the Initial
Period, Mr. Komer will also receive a lump-sum payment of $400,000 as
consideration for the three years that will then remain on the term of
the non-competition covenant contained in the Komer Employment
Agreement, regardless of whether he elects to serve as a consultant to
the Company for the next two years. At the end of the Initial Period,
should Mr. Komer elect to serve as a consultant to the Company for two
years, his compensation for such services will consist of an annual
bonus determined by a formula based upon the Company's annual pre-tax
net income, plus various insurance and other benefits provided in the
Komer Employment Agreement. In the event that, at any time during the
term of the Komer Employment Agreement, Mr. Komer's employment is
terminated without "Cause" as defined therein or he resigns for "Good
Reason" as defined therein, he shall nevertheless be entitled to
receive all compensation and benefits provided thereunder for the
remainder of its term, with the value of all cash compensation payable
being calculated and paid in a lump sum within 30 days following the
occurrence of any such event of termination. In the event of his
disability during the term of the Komer Employment Agreement, Mr. Komer
will be entitled to receive all compensation and benefits payable
thereunder for the remainder of its term. In the event of his death
during the term of the Komer Employment Agreement, Mr. Komer's estate
will be entitled to receive a lump-sum payment of the present value of
the amount of all compensation and benefits payable for the remainder
of the contract term. In connection with the August 15, 1996 election
of Mr. Calabro as the Company's CEO and President, the Board ratified
that the Komer Employment Agreement remains in full force and effect
with respect to Mr. Komer's continued service as Chairman.
7 In October 1996, Mr. Komer was awarded ISOs to purchase 35,000 shares
of Common Stock at an exercise price of $5.00 per share, exercisable
over a five-year term.
8 The amounts shown represent the Company's matching contributions to Mr.
Komer's account under the 401(k) Plan in the amount of: $590 for 1996;
$98 for 1995; and $92 for 1994; plus its profit-sharing contributions
to his 401(k) account of $10,148 for 1996; plus additional group term
life insurance premiums paid on Mr. Komer's behalf in the amount of:
$6,768 for 1996; $4,014 for 1995; and $2,520 for 1994. The Company
also has insurance policies on Mr. Komer's life as to all of which
policies Mr. Komer's children are the beneficiaries. These are all
split-dollar, whole-life policies whose net cash surrender values will
be paid to the Company upon Mr. Komer's death. The value of the
premiums paid by the Company for Mr. Komer's benefit with respect to
the term life insurance component of these policies was: $7,688 for
1996; $6,684 for 1995; and $6,843 in 1994. These amounts are also
included in the totals shown above.
9 In April 1994, Mr. Komer was awarded ISOs to purchase 25,000 shares of
Common Stock at an exercise price of $5.50 per share, exercisable over
a five-year term.
10 In November 1996, the Company entered into a two-year employment
agreement with Mr. Johnson providing for his employment as the
Company's Senior Vice President Finance and Chief Financial Officer
under which he will receive a base salary of $125,000 per year, plus an
annual bonus determined under the Bonus Program, plus other benefits
given to the Company's other executives. This agreement also provides
that, should he ever be terminated without cause (including in the
event of a change in control of the Company), or if he should elect to
terminate his employment as a result of certain events (including his
not being retained after a change in control of the Company), or if the
Company reduces his compensation or benefits, then he will receive (i)
a minimum of 12 months' of his then-current salary or if greater, his
then-current salary for the remaining term of the agreement, (ii)
automatic vesting of all unvested options granted under the LTI Plan,
and (iii) a bonus for the year in which the termination occurs, pro-
rated through the last day of the calendar month prior to the date on
which the termination occurs, with the value of all such cash
compensation payable being calculated and paid in a lump sum within 30
days following the occurrence of any such event of termination. In the
event of his disability during the term of the agreement, Mr. Johnson
will be entitled to receive all compensation and benefits payable under
the agreement for the remainder of its term. In the event of his death
during the term of the agreement, Mr. Johnson's estate will be entitled
to receive a lump-sum payment of the present value of the amount of all
compensation and benefits payable for the remainder of the contract
term. The agreement also provides that Mr. Johnson will not compete
with the Company for a three-year period beginning on November 1, 1996.
11 In each of May and October of 1996, Mr. Johnson was awarded ISOs,
exercisable over a five-year term, to purchase 4,000 shares of Common
Stock at an exercise price of $3.56 per share and 2,500 shares of
Common Stock at an exercise price of $5.00 per share, respectively.
12 Of this total, $23,438 represents the fair market value of a one-time
grant of 5,000 shares of Common Stock that was awarded to Mr. Johnson
in November 1995 in connection with his hiring by the Company and
earned by him in November 1996, together with a tax "gross-up" payment
of $13,185 on this amount.
13 In October 1995, Mr. Johnson was awarded ISOs to purchase 5,000 shares
of Common Stock at an exercise price of $3.50 per share, exercisable
over a five-year term.
14 In November 1996, the Company entered into a two-year employment
agreement with Mr. Wyckoff providing for his employment as the
Company's Senior Vice President Administration/Corporate Development
and General Counsel under which he will receive a base salary of
$122,000 per year, plus an annual bonus determined under the Bonus
Program, plus other benefits given to the Company's other executives.
This agreement also provides that, should he ever be terminated without
cause (including in the event of a change in control of the Company),
or if he should elect to terminate his employment as a result of
certain events (including his not being retained after a change in
control of the Company), or if the Company reduces his compensation or
benefits, then he will receive (i) a minimum of 12 months' worth of his
then-current salary or if greater, his then-current salary for the
remaining term of the agreement, (ii) automatic vesting of all unvested
options granted under the LTI Plan, and (iii) a bonus for the year in
which the termination occurs, pro-rated through the last day of the
calendar month prior to the date on which the termination occurs, with
the value of all such cash compensation payable being calculated and
paid in a lump sum within 30 days following the occurrence of any such
event of termination. In the event of his disability during the term
of the agreement, Mr. Wyckoff will be entitled to receive all
compensation and benefits payable under the agreement for the remainder
of its term. In the event of his death during the term of the
Agreement, Mr. Wyckoff's estate will be entitled to receive a lump-sum
payment of the present value of the amount of all compensation and
benefits payable for the remainder of the contract term. The agreement
also provides that Mr. Wyckoff will not compete with the Company for a
three-year period beginning on November 1, 1996.
15 In each of May and October 1996, Mr. Wyckoff was awarded ISOs,
exercisable over a five-year term, to purchase 4,000 shares of Common
Stock at an exercise price of $3.56 per share and 4,000 shares of
Common Stock at an exercise price of $5.00 per share, respectively.
16 Of this total, $39,200 represents the fair market value of a one-time
grant of 10,000 shares of Common Stock that was awarded to Mr. Wyckoff
in August 1995 in connection with his hiring by the Company and earned
by him in August 1996; and $64,285 represents the reimbursement of
moving, relocation expenses and closing costs incurred by Mr. Wyckoff
in relocating from the New York City area to Elmira, New York, together
with a tax "gross-up" payment of $36,164 on this amount.
17 In August 1995, Mr. Wyckoff was awarded ISOs to purchase 10,000 shares
of Common Stock at an exercise price of $3.12 per share, exercisable
over a five-year term.
18 This amount represents the payment of $39,054 in reimbursement of
moving, relocation expenses and closing costs incurred by Mr. Wyckoff
in relocating from the New York City area to Elmira, New York, together
with a tax "gross-up" payment of $16,753 on this amount.
19 Mr. McDonough and the Executive Officers other than Messrs. Calabro,
Johnson and Wyckoff, each have a letter agreement with the Company
providing that, if they are ever terminated without cause through
November 1998, they will receive: (i) 12 months' worth of their then-
current salary, (ii) automatic vesting of all unvested options granted
under the Company's LTI Plan, and (iii) any bonus accrued at the time
at which the termination occurs, with the value of all such cash
compensation to be paid in a lump sum within 30 days following the
occurrence of any such event of termination.
20 In each of May and October 1996, Mr. McDonough was awarded ISOs,
exercisable over a five-year term, to purchase 4,000 shares of Common
Stock at an exercise price of $3.56 per share and 4,000 shares of
Common Stock at an exercise price of $5.00 per share, respectively.
21 The amounts shown represent the Company's matching contributions to Mr.
McDonough's account under the 401(k) Plan in the amount of: $907 for
1996; $761 for 1995; and $597 for 1994; plus its profit-sharing
contribution to his 401(k) account of $5,079 for 1996.
22 In April 1994, Mr. McDonough was awarded ISOs to purchase 3,000 shares
of Common Stock at an exercise price of $5.00 per share, exercisable
over a five-year term.
COMPENSATION OF DIRECTORS
The Company has an Outside Directors' Compensation Plan (the "Director
Plan") which enables all outside Directors to elect to take payment of their
annual retainer fees in shares of Common Stock, in compliance with relevant SEC
rules. Under the Director Plan, outside Directors are paid the following
schedule of fees: an annual retainer of $5,000; an additional annual retainer
of $7,500 to the Chairman of each Board committee; a fee of $800 for each Board
meeting attended; and a fee of $400 per committee meeting attended. The per-
meeting fees are payable only in cash. The annual retainer fees are earned for
a full year of service and are reduced in proportion to the number of Board or
committee meetings from which an outside Director is absent out of the total
number of such meetings held during that year. Each year on the date of the
Board's annual meeting, the outside Directors may elect to receive all or a
portion of their annual retainer fees accrued and payable for the past year of
service in shares of Common Stock. The number of shares payable is then
determined by dividing the amount of such fees to be paid in stock by the
closing price for a share of Common Stock on that date.
The Company also provides between $30,000 and $50,000 in face amount of
term life insurance to each of its Directors, for which the Company pays an
annual premium of between $403 and $672 per Director. Directors are also
compensated at the rate of $350 per day for each day otherwise spent in this
capacity on Company business.
COMPENSATION PURSUANT TO PLANS
COMPENSATION PURSUANT TO THE EMPLOYEE LONG-TERM INCENTIVE PLAN
The LTI Plan provides long-term incentives to key employees as determined
by the AFC Committee. Under the Plan, key employees can be awarded stock
incentive rights ("SIRs") and ISOs.
The LTI Plan is administered by the AFC Committee, whose duties include
selecting the employees who will receive grants and determining the amounts and
types (I.E., ISOs, SIRs or a combination thereof) of grants awarded. In making
its selections and determinations, the AFC Committee has substantial
flexibility and makes its judgments based largely on the functions and
responsibilities of the particular employee, the employee's past and potential
contributions to the Company's profitability and growth, and the value of the
employee's services to the Company. The AFC Committee also interprets and
implements the Plan and the grants made thereunder. The members of the AFC
Committee are all outside Directors and outside Directors are not eligible to
receive grants under the LTI Plan.
The ISOs granted under the LTI Plan represent rights to purchase shares of
Common Stock within a fixed period of time and at a cash price per share
("exercise price") specified by the AFC Committee on the date of grant. The
exercise price cannot be less than the fair market value of a share of Common
Stock on the date of grant. Options are exercisable during the period fixed by
the AFC Committee, except that no option may be exercised more than ten years
from the date of grant.
SIRs are rights to receive shares of Common Stock without any cash payment
to the Company, conditioned only on continued employment with the Company
throughout a specified four-year period. When awarding SIRs, the Committee has
the discretion to establish a full four-year ("100%") incentive period or a
staggered 25% per year four-year incentive period with regard to the earnout of
an SIR. If the Committee awarded an SIR with a 100% four-year incentive period
requirement, the recipient would have to remain employed by the Company for
four years before receiving the shares subject to the SIR award; earlier
termination of employment, except in the event of death, permanent disability
or normal retirement, would result in the automatic cancellation of the SIR.
If the Committee awarded an SIR with a staggered 25% per year four-year
incentive period, the recipient would be entitled to receive 25% of the total
number of shares subject to the SIR grant at the end of each year of the four
year incentive period, so long as the recipient was still employed by the
Company at the end of each such year, with exceptions made in the event of
death, permanent disability or normal retirement. Should a recipient die,
become permanently disabled or retire during an SIR incentive period, he/she or
his/her estate, as the case may be, would receive a pro-rated number of the
shares underlying the SIR award based upon the ratio that the number of months
since the SIR had been granted bore to the full four-year incentive period,
less any shares already issued in the case of a 25% per year four-year
incentive period.
During an SIR incentive period, should the Company declare any cash
dividends on its Common Stock, the holder of an SIR would be entitled to
receive from the Company cash "dividend equivalent" payments equal to any such
cash dividends that the holder would have received had he/she owned the shares
of Common Stock underlying the SIR. However, the holder of an SIR would not
have any other rights with respect to the shares underlying an SIR award, E.G.,
the right to vote or pledge such shares, until such shares are actually issued
to the holder.
An employee can be awarded both SIRs and ISOs in any combinations that the
AFC Committee may determine. In such an event, an exercise of an ISO would not
in any way affect or cancel any SIRs an employee may have received.
Subject to the provisions of the Plan, the individuals to whom grants of
ISOs and/or SIRs are awarded, the number of shares covered by each award, the
incentive period applicable to each SIR award, the times when options may be
exercised, the term and other provisions of each option are fixed by the AFC
Committee. No ISO may be granted to a person who owns at the time of grant or
would own after full exercise of all options and rights to acquire the
Company's shares, more than 10% of the total combined voting power of the
Common Stock, unless at the time of grant, the ISO price is at least 110% of
the fair market value of the shares subject to the ISO and the ISO is not
exercisable after the expiration of five years from the date of grant.
The following table shows information concerning the stock options granted
under the LTI Plan during 1996 to the Named Executives. To date, the AFC
Committee has not awarded any SIRs under the Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term (1)
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expiration
Granted in Fiscal Price Date
Name # Year ($/Share) 0% ($) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Calabro 10,000 (2) 6.8 2.62 2/29/01 - 0 - 7,239 15,995
5,000 (3) 3.4 3.56 5/1/01 - 0 - 4,918 10,867
25,000 (4) 17.0 3.93 8/15/01 - 0 - 27,145 59,983
5,000 (5) 3.4 5.00 10/23/01 - 0 - 6,907 15,263
Stuart Komer 35,000 (5) 23.8 5.00 10/23/01 - 0 - 48,349 106,839
Robert E. Johnson 4,000 (3) 2.7 3.56 5/1/01 - 0 - 3,934 8,694
2,500 (5) 1.7 5.00 10/23/01 - 0 - 3,454 7,631
Thomas C. Wyckoff 4,000 (3) 2.7 3.56 5/1/01 - 0 - 3,934 8,694
4,000 (5) 2.7 5.00 10/23/01 - 0 - 5,526 12,210
Robert T. McDonough 4,000 (3) 2.7 3.56 5/1/01 - 0 - 3,934 8,694
4,000 (5) 2.7 5.00 10/23/01 - 0 - 5,526 12,210
</TABLE>
______________________________________
(1) These calculations show the potential gain that would be realized if the
ISOs shown were not exercised until the end of their full five-year term,
assuming the compound annual rate of appreciation of the exercise prices
indicated (0%, 5%, and 10%) over the five-year terms of the ISOs shown,
net of the exercise prices paid.
(2) These ISOs were granted on February 29, 1996, for a term of five years,
20% of which first became exercisable on August 29, 1996 and an
additional 20% of which become exercisable on the first, second, third
and fourth anniversaries of the grant date.
(3) These ISOs were granted on May 1, 1996, for a term of five years, 20% of
which first became exercisable on November 1, 1996 and an additional 20%
of which become exercisable on the first, second, third and fourth
anniversaries of the grant date.
(4) These ISOs were granted on August 15, 1996, for a term of five years, 20%
of which first became exercisable on February 15, 1997 and an additional
20% of which become exercisable on the first, second, third and fourth
anniversaries of the grant date.
(5) These ISOs were granted on October 23, 1996, for a term of five years,
20% of which first become exercisable on April 23, 1997 and an additional
20% of which become exercisable on the first, second, third and fourth
anniversaries of the grant date.
During 1996, none of the Named Executives exercised any options under the
LTI Plan. The following table reflects information concerning the number and
value of all unexercised options held by each of the Named Executives at year
end 1996 under the LTI Plan:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End(#) at Fiscal Year-End($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
<S> <C> <C>
Joseph A. Calabro 3,000/42,000 4,340/28,610 (2)
Stuart Komer 109,960/50,000 - 0 - / - 0 - (3)
Robert E. Johnson 2,800/8,700 2,416/5,264 (4)
Thomas C. Wyckoff 4,800/13,200 5,696/10,184 (5)
Robert T. McDonough 10,000/9,000 656/2,624 (6)
</TABLE>
_____________________
(1) For each Named Executive, these values are calculated by subtracting the
per share option exercise price for each tranche of options held on
December 31, 1996, from the closing price of the Company's Common Stock
on that date ($4.38), then multiplying that figure by the number of
options in that tranche, then aggregating the resulting subtotals.
(2) Excludes the value of ISOs to purchase 5,000 shares of Common Stock at an
exercise price of $5.00 per share granted to Mr. Calabro on October 23,
1996 that were not in-the-money on December 31, 1996.
(3) Excludes the value of all of Mr. Komer's ISOs held, as none of them were
in-the-money on December 31, 1996.
(4) Excludes the value of ISOs to purchase 2,500 shares of Common Stock at an
exercise price of $5.00 per share granted to Mr. Johnson on October 23,
1996 that were not in-the-money on December 31, 1996.
(5) Excludes the value of ISOs to purchase 4,000 shares of Common Stock at an
exercise price of $5.00 per share granted to Mr. Wyckoff on October 23,
1996 that were not in-the-money on December 31, 1996.
(6) Excludes the value of ISOs to purchase 5,000 shares of Common Stock at an
exercise price of $6.06 per share, 3,000 shares at an exercise price of
$9.37 per share, 3,000 shares at an exercise price of $5.00 per share,
and 4,000 shares at an exercise price of $5.00 per share granted to Mr.
McDonough on May 1, 1992, April 30, 1993, April 20, 1994 and October 23,
1996, respectively, none of which were in-the-money on December 31, 1996.
As of December 31, 1996, 775,920 shares of the Company's Common Stock were
available for grants under the Plan. As of that date, there were 388,410
options outstanding, with a weighted average exercise price of $5.97 per share.
The expiration dates of these option grants ranged from May 1, 1997 through
October 23, 2001.
PROFIT SHARING 401(K) PLAN
The Company has a Profit Sharing 401(k) Plan, in which employees who are
21 years of age or older and who work at least 1,000 hours during one year of
continuous service are eligible to participate. All contributions to an
electing employee's account are made in accordance with the regulations set
forth under Section 401 of the Internal Revenue Code of 1986, as amended. The
Company's matching contribution is vested at the end of the year in which it
was received by the employee and profit-sharing contributions, as described
below, are forfeitable until a participating employee has three years of
employment with the Company with a minimum of 1,000 hours of service in each of
those years. Under the Plan, participating employees can elect to contribute,
on a tax-deferred basis, up to 15% of their annual compensation, subject to a
ceiling of $9,500 for 1996. The Company makes a matching contribution of 50%
of each employee's contributions to the 401(k) Plan, up to the first 4% of the
employee's compensation deferred each year. Also under the 401(k) Plan, the
Company may make annual, discretionary profit-sharing contributions to the
accounts of participating employees based upon the Company's profitability for
the year. These contributions, when made, are calculated under a formula which
is based upon the percentage that an eligible employee's compensation for the
fiscal year bears to the total compensation of all employees participating in
the 401(k) Plan, after taking into account the Company's contribution to Social
Security.
DEFERRED COMPENSATION PLAN
In October 1996, the Board instituted a Nonqualified Deferred Compensation
Plan, pursuant to which Executive Officers permitted to participate in this
Plan by the Board or the CEO can elect to defer payment of all or a portion of
their compensation to a future date, all in accordance with the terms of this
Plan, and by such deferral, likewise defer the payment of income taxes on such
amounts. There are no Executive Officers currently participating in this Plan.
Any amounts deferred by any Executive Officer under this Plan would be included
for the years shown as earned in the Summary Compensation Table above.
Interest on amounts deferred is accrued annually and is based on the prime rate
as in effect from time to time.
Stuart Komer is the only participant in the Company's 1987 Deferred
Compensation Plan, whereby he can elect to defer payment of all or a portion of
his compensation to a future date, all in accordance with the terms of such
Plan, and by such deferral, likewise defer the payment of income taxes on such
amounts. All amounts deferred by Mr. Komer under this Plan are included for
the years shown in the Summary Compensation Table above. Interest on amounts
deferred under this Plan is accrued monthly and is calculated at the prime rate
as in effect from time to time.
CERTAIN TRANSACTIONS
The Company rents a portion of its facilities located at 406 Academy Place
in Elmira, New York from Stuart Komer, its Chairman, under a lease that is
cancelable at any time by the Company and under which the Company is obligated
to pay Mr. Komer $3,465 per month in rent. For 1996, the Company paid Mr.
Komer a total of $41,580 in rents under this lease.
As further described under "PRINCIPAL HOLDERS OF COMMON STOCK," as a
result of an investment that American made in the Company during 1990, American
and the Company have been exploring joint marketing and sales opportunities for
each other's products. During 1996, these efforts centered on the Company
selling certain American products, primarily greeting cards and gift wraps.
During 1996, the Company purchased approximately $163,400 worth of such
inventory from American to sell through its catalog.
As further described under "PRINCIPAL HOLDERS OF COMMON STOCK," as a
result of the Advertising Agreement described therein, the Company has the
right of first refusal for FSI advertising circulation from Valassis.
Additionally, as a result of the Purchase Agreement in connection therewith and
further described thereunder, Valassis has the right to elect one member of the
Board during the time which it owns shares of Common Stock. During 1996, the
Company purchased approximately $12.5 million worth of such advertising from
Valassis, in addition to the payments described under "PRINCIPAL HOLDERS OF
COMMON STOCK."
STOCKHOLDER RETURN PERFORMANCE INFORMATION
The following graph compares the cumulative total stockholder return on
the Common Stock against the cumulative total return of the CRSP TOTAL RETURN
INDEX FOR THE NASDAQ STOCK MARKET (which includes all U.S. and foreign common
stocks and American Depositary Receipts traded on The Nasdaq Stock Market) and
the NASDAQ RETAIL TRADE TOTAL RETURN INDEX for the five-year period beginning
December 31, 1991 and ending December 31, 1996, assuming the reinvestment of
all dividends throughout the period shown, and assuming the value of the
investment in the Company and in each Index was $100 on December 31, 1991.
Comparison of Five-Year Cumulative Total Returns
Performance Graph for
ARTISTIC GREETINGS INCORPORATED
[Note: Per Regulation S-T, Rule 304(d), this EDGAR submission contains
the tabular numerical data produced by CRSP on which the performance graph
points are plotted in the printed version of this Proxy Statement,
as follows:]
Date Company Market Market Peer Peer
Index Index Count Index Count
12/31/91 100.000 100.000 4187 100.000 143
01/31/92 146.667 105.994 4202 102.361 146
02/28/92 133.333 108.356 4202 104.230 143
03/31/92 110.000 103.340 4220 99.282 147
04/30/92 83.333 98.930 4218 90.017 152
05/29/92 103.333 100.206 4207 88.543 155
06/30/92 86.667 96.331 4187 82.837 155
07/31/92 100.000 99.548 4153 85.540 155
08/31/92 100.000 96.571 4135 80.401 156
09/30/92 81.667 99.976 4133 86.446 157
10/30/92 103.333 103.708 4150 88.770 158
11/30/92 96.667 111.834 4165 92.949 160
12/31/92 120.000 116.035 4190 94.194 163
01/29/93 116.667 119.488 4177 92.389 166
02/26/93 123.333 115.200 4209 87.499 166
03/31/93 150.000 118.674 4239 89.152 168
04/30/93 123.333 113.924 4279 83.806 171
05/28/93 113.667 120.774 4306 88.152 178
06/30/93 93.608 121.551 4347 88.021 181
07/30/93 80.235 121.763 4380 89.664 181
08/31/93 70.487 128.100 4422 94.750 185
09/30/93 62.095 131.692 4463 97.628 185
10/29/93 80.556 134.733 4513 101.537 189
11/30/93 77.535 130.481 4597 97.647 190
12/31/93 75.850 134.321 4676 99.394 200
01/31/94 75.850 138.602 4704 99.115 199
02/28/94 74.164 137.099 4746 97.095 200
03/31/94 67.777 128.695 4802 91.351 204
04/29/94 69.471 127.015 4829 91.543 203
05/31/94 71.505 127.166 4871 89.419 204
06/30/94 76.612 122.156 4890 87.625 204
07/29/94 71.505 125.050 4910 87.768 206
08/31/94 70.143 132.652 4927 94.359 205
09/30/94 66.721 132.468 4933 95.790 207
10/31/94 53.890 134.774 4954 96.959 208
11/30/94 58.167 130.050 4971 93.277 208
12/30/94 41.059 130.278 4980 90.553 205
01/31/95 47.902 130.725 4975 87.382 205
02/28/95 42.770 137.409 4977 89.186 204
03/31/95 35.927 141.712 4970 89.574 209
04/28/95 37.638 146.316 4985 89.084 211
05/31/95 51.324 149.911 4987 91.202 208
06/30/95 47.902 161.989 5010 98.667 202
07/31/95 45.336 173.565 5032 104.027 202
08/31/95 51.324 176.956 5056 103.735 201
09/29/95 49.613 181.284 5055 105.621 200
10/31/95 47.902 179.882 5099 103.758 201
11/30/95 39.348 184.089 5134 103.205 204
12/29/95 34.216 182.959 5182 99.757 208
01/31/96 32.505 184.195 5175 98.761 205
02/29/96 37.638 191.441 5207 105.286 204
03/29/96 38.493 191.849 5252 112.199 205
04/30/96 48.758 207.524 5298 122.342 205
05/31/96 52.179 216.979 5354 125.226 209
06/28/96 48.330 206.736 5420 119.911 208
07/31/96 51.324 188.089 5457 112.620 207
08/30/96 70.143 198.850 5488 120.514 210
09/30/96 74.634 213.758 5495 126.556 209
10/31/96 63.300 211.513 5543 121.332 213
11/29/96 63.300 224.394 5592 124.330 213
12/31/96 59.878 224.056 5597 118.899 215
The index level for all series was set to $100 on 12/31/91.
<PAGE>
PROPOSAL 2
RATIFICATION OF SELECTION OF AUDITORS
Arthur Andersen LLP, independent certified public accountants, has been
selected by the Board to serve as the auditors of the Company's books and
financial records for its current fiscal year. This firm has no material
financial interest in the Company and its only connection with the Company
during the past fiscal year has been in its role as the Company's independent
auditors. Representatives of Arthur Andersen LLP are expected to be present at
the Meeting to make a statement if they wish, and to respond to appropriate
questions from Stockholders.
The Board recommends that the Stockholders vote FOR this proposal to
ratify the selection of Arthur Andersen LLP to serve as the Company's
independent auditors for the Company's fiscal year ending December 31, 1997.
Proxies solicited by the Board will be voted FOR this proposal unless otherwise
indicated.
PRINCIPAL HOLDERS OF COMMON STOCK
A table reflecting the security ownership of those persons who are known
to the Company to have been the beneficial owners of more than 5% (317,200
shares) of the Common Stock as of March 1, 1997 appears above under "SECURITY
OWNERSHIP OF CERTAIN PERSONS."
STANDSTILL AGREEMENT
Pursuant to the Original Standstill Agreement, American purchased
2,250,000 shares of the Company's Common Stock (the "American Shares"), for an
aggregate net purchase price of $6,450,000. American acquired its interest in
the Company primarily as an investment. However, in addition, the Company has
agreed to promote certain of American's greeting card products through its
catalogs and American may promote certain of the Company's personalized
products through American's retail outlets.
On June 16, 1992, the Company and American amended the Original Standstill
Agreement (the "Amended Standstill Agreement") governing the control over the
American Shares.
The Amended Standstill Agreement superseded and terminated in their
entirety both the Original Standstill Agreement, which was among the Company,
American and Stuart Komer, the Company's Chairman, and the Voting Trust
Agreement of the same date and among the same parties, under which the American
Shares had been held until that date.
Under the Amended Standstill Agreement, American is generally prohibited
from purchasing any additional shares of Common Stock and has agreed to vote
the American Shares only in accordance with the recommendations made to the
Company's Stockholders by the Board. American retains the right to nominate a
maximum of two Directors to the Board, so long as it owns more than 20% of the
outstanding shares of Common Stock. It can nominate only one Director if its
percentage ownership drops to between 10% and 20% of the outstanding shares of
Common Stock and loses these nomination rights entirely if its percentage
ownership drops below 10%. American also has certain anti-dilution rights to
enable it to maintain its present proportionate ownership of approximately 36%
of the outstanding shares of Common Stock.
Additionally, during the term of the Amended Standstill Agreement American
is permitted to sell any of the American Shares only to the public, either in a
registered offering or under Rule 144 ("Rule 144") of the Securities Act of
1933, as amended (the "Act"), subject, however, to the Company's prior right of
first refusal to purchase any or all of such shares at their then-current
market price. American also has certain "demand" and "piggyback" registration
rights to enable it to have the American Shares registered for public sale.
Under the Amended Standstill Agreement, American can acquire the balance of the
outstanding shares of Common Stock or the Company's assets only in a
transaction approved by the Board (excluding any Directors nominated by
American).
Unless earlier terminated, the Amended Standstill Agreement will expire on
December 31, 2000. However, it can be terminated at any time by American upon
90 days notice to the Company. As of April 30, 1996, the Company can terminate
the Amended Standstill Agreement at any time upon giving one year's notice to
American and under certain other circumstances. The Amended Standstill
Agreement also can be terminated by either party upon notice given within 90
days following any termination of a Marketing Agreement (defined below), and
automatically terminates at such time as American's holdings constitute less
than 5% of the outstanding shares of Common Stock. Within 60 days prior to the
effective date of any termination of the Amended Standstill Agreement, however,
the Company has the right to purchase all or any part of the American Shares at
their then-current market price, and/or to require American to sell all or part
of the American Shares in a registered public offering.
Stuart Komer is not a party to the Amended Standstill Agreement. However,
in a letter to American dated June 16, 1992, he has agreed that, during the
term of the Amended Standstill Agreement, any sales of his Company
shareholdings will only be made through an underwritten public offering or
under Rule 144.
Simultaneously with the signing of the Amended Standstill Agreement, the
Company and American also executed a direct mail agreement (the "Marketing
Agreement") that gives the Company exclusive rights to market and sell by mail
certain paper products based on American's designs through the Company's
catalogs, order fulfillment and other direct mail marketing programs. This
Agreement likewise expires on December 31, 2000, unless earlier terminated upon
nine months advance notice given by either party.
VALCHECK AGREEMENTS
In May 1995, the Company purchased various assets from Valcheck related to
Valcheck's manufacture and direct mail marketing and sale of checks. Under the
terms of a purchase agreement governing this transaction, the Company purchased
Valcheck's customer lists, machinery and equipment, inventory and artwork
related to Valcheck's mail order check business, and assumed the obligation to
fulfill Valcheck's current check orders and check orders received by Valcheck
after closing. In consideration of the assets purchased, the Company: (1)
issued Valcheck 500,000 shares of Common Stock pursuant to the terms of a
related investment agreement between the Company and Valcheck (the "Investment
Agreement"); and (2) agreed to pay Valcheck 20% of the revenues it receives,
less certain adjustments, for both the existing check orders it assumed the
obligation to fulfill for Valcheck as well as for all first-time check orders
Valcheck receives within one year following the closing date of this
transaction.
Under the terms of the Investment Agreement, the Company has granted
Valcheck a put option which calls for the Company, at Valcheck's option, to
repurchase up to all of these shares during a 30-day period beginning on May
31, 1997 at a price of $5.00 per share. The closing price of the Common Stock
in Nasdaq trading on May 31, 1995 was $3.75 per share. The Investment
Agreement also provides that, so long as Valcheck controls at least 300,000
shares, Valcheck will have the right to designate one representative as a
member of the Company's Board and that so long as Valcheck controls any of the
shares, it will vote all such shares in accordance with the recommendations
made by the Board with respect to any matters put before the Company's
stockholders for action. The Company's shares issued to Valassis in this
transaction are "restricted securities" within the meaning of Rule 144 and can
only be disposed of in an offering registered under the Act or in a transaction
exempt from registration thereunder. Alan F. Schultz currently is Valcheck's
representative on the Board.
Additionally, the Company entered into a five-year advertising placement
contract (the "Advertising Agreement") with Valassis. In consideration for the
Company's payment of an annual fee as set forth in the Advertising Agreement,
the Company has an annual right of first refusal to purchase up to a maximum
FSI circulation from Valassis at a cost set forth in the agreement. Under the
Advertising Agreement, the Company paid a fee of $3 million at the closing of
the Valcheck asset acquisition and must pay annual fees of $2 million in each
of 1996, 1997 and 1998, and $1 million in 1999, to preserve its right to place
advertising thereunder. These payments are required to be paid by the Company
regardless of whether any advertising is purchased under the Advertising
Agreement, unless it is terminated.
STOCKHOLDER PROPOSALS
Any proposal which a Stockholder wishes to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company at its executive
offices no later than November 29, 1997.
OTHER MATTERS
It is the intention of the proxyholder named in the proxy card to vote all
proxies received in accordance with his or her best judgment with respect to
ratification of the minutes of the previous Annual Meeting of Stockholders and
on matters incident to the conduct of this Meeting. The Board knows of no
other matters which are likely to come before the Meeting. However, if any
other matters are presented, it is the intention of the person named in the
proxy to vote such proxy in accordance with his best judgment on any such
matters.
Stockholders are urged to mark, date, sign and return promptly the
enclosed proxy in the accompanying envelope, which requires no postage if
mailed in the United States.
By Order of the Board of Directors
MARIE B. BELT
Dated: March 28, 1997 Secretary
<PAGE>
[FORM OF PROXY CARD:]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
ARTISTIC GREETINGS INCORPORATED
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 1, 1997
The undersigned hereby appoints MARIE B. BELT attorney and proxy with full
power of substitution to represent the undersigned at the Annual Meeting of
Stockholders of the Company to be held at the Company's corporate at the corner
of Main and Water Streets, One Komer Center, Elmira, New York at 9:00 A.M. on
Thursday, May 1, 1997, and at all adjournments thereof to vote as authorized
below all of the shares of ARTISTIC GREETINGS INCORPORATED which the
undersigned may be entitled to vote at said Meeting, and in accordance with the
proxyholder's best judgment in connection with such other business as may come
before the Meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED BY YOU. IF NOT OTHERWISE SPECIFIED, THIS
PROXY WILL BE VOTED FOR election of the nominees named below as Directors and
FOR Proposal 2.
1. Nominees for Directors:
Joseph A. Calabro Stuart Komer Norman S. Edelcup
Lyndon E. Goodridge Alan F. Schultz Irving I. Stone
Morry Weiss
[ ] VOTE FOR all nominees listed above.
Instructions: IF YOU WANT TO WITHHOLD YOUR VOTE FOR AN INDIVIDUAL NOMINEE
NAMED ABOVE, DRAW A LINE THROUGH THAT NAME.
[ ] VOTE WITHHELD from all nominees.
2. Proposal to ratify the selection of Arthur Andersen LLP as the Company's
independent auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
________________________________________
________________________________________
Signature of Stockholder(s)
(Name of stockholder should be signed
exactly as it appears on this proxy.)
Dated: ____________________________, 1997
