<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
EARL SCHEIB, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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<PAGE> 2
EARL SCHEIB, INC. LOGO
8737 Wilshire Boulevard
Beverly Hills, California 90211
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of
EARL SCHEIB, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of EARL SCHEIB,
INC. (the "Company") will be held in the Hana Room at the Hotel Nikko located at
465 S. La Cienega Boulevard, Los Angeles, California on September 5, 1997 at
10:00 a.m., for the following purposes:
(1) To elect seven directors, each for a term of one year and until their
successors shall have been duly elected and qualified.
(2) To transact such other business as may properly come before the meeting and
any adjournments thereof.
Only shareholders of record at the close of business on July 16, 1997 are
entitled to notice of and to vote at the Annual Meeting of Shareholders or any
adjournments thereof.
Your attention is called to the Proxy Statement and accompanying Proxy Card. You
are requested, whether or not you plan to be present at the meeting, to sign,
date and return the Proxy Card in the enclosed envelope, to which no postage
need be affixed if mailed in the United States. If you attend the Annual
Meeting, you may withdraw your proxy and vote your own shares at the meeting.
A copy of the 1997 Annual Report of the Company accompanies this Notice but is
not a part of the proxy solicitation material.
By order of the Board of Directors
SIGNATURE
David I. Sunkin
Vice President & General
Counsel, Secretary
Beverly Hills, California
July 28, 1997
IT IS IMPORTANT THAT ALL SHAREHOLDERS BE REPRESENTED AT THE ANNUAL MEETING.
SHAREHOLDERS WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON SHOULD MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD WHICH WILL BE USED AT THE ANNUAL
MEETING. A SELF-ADDRESSED, STAMPED ENVELOPE IS ENCLOSED HEREWITH FOR THAT
PURPOSE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION IS APPRECIATED.
Requests for additional copies of proxy material should be addressed to David I.
Sunkin, Vice President and General Counsel, at the office of the Company, 8737
Wilshire Boulevard, Beverly Hills, California 90211, (310) 652-4880 ext. 60.
Earl Scheib, Inc. is listed and traded on the American Stock Exchange (Symbol
"ESH").
<PAGE> 3
EARL SCHEIB, INC. [LOGO]
8737 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA 90211
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 5, 1997
The accompanying proxy is solicited by the Board of Directors of Earl Scheib,
Inc. (the "Company"), to be used at the Annual Meeting of Shareholders to be
held on September 5, 1997 and any adjournment thereof (the "Meeting"). Shares
represented by valid proxies in the enclosed form will be voted as specified if
executed and received in time for the Meeting. THE PROXY IS REVOCABLE AT ANY
TIME PRIOR TO BEING VOTED BY DELIVERING WRITTEN NOTICE TO THE SECRETARY OF THE
COMPANY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
This Notice of Annual Meeting and Proxy Statement is being mailed to
shareholders on or about July 30, 1997.
VOTING SECURITIES
Only shareholders of record at the close of business on July 16, 1997, are
entitled to notice of and to vote at the Meeting, each share having one vote. In
electing directors, shareholders may vote in favor of all nominees or withhold
their votes as to all nominees or withhold their votes as to specific nominees.
If no specific instructions are given with respect to the matters to be acted
upon, the shares represented by a signed proxy, will be voted FOR the election
of all nominees. Directors will be elected by a plurality of votes cast by
holders of shares of Common Stock voting in person or by proxy at the Meeting.
Approval of all other proposals, if any, will require the affirmative vote of
the holders of a majority of shares of Common Stock voting in person or by proxy
at the Meeting. Broker non-votes will not be included in vote totals and will
have no effect on the outcome of the vote. On the record date, the Company had
issued an outstanding 4,589,478 shares of Common Stock, par value $1.00.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates the number of shares of the Company's Common Stock
beneficially owned as of June 15, 1997, by (i) all persons known to the Company
to own more that 5% thereof, (ii) all directors and nominees for director of the
Company, and (iii) all directors, nominees for director and officers of the
Company as a group:
<TABLE>
<CAPTION>
PERCENT OF
NAME OF AMOUNT AND NATURE OUTSTANDING
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(a) SHARES
- ---------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
Dimensional Fund Advisors, Inc............................ 291,500(b) 6.35%
1229 Ocean Avenue, Suite 650
Santa Monica, CA 90401
Gabelli Funds, Inc. and affiliates........................ 1,001,360(c) 21.82%
One Corporate Center
Rye, NY 10580
Orion Capital Corp........................................ 246,800 5.38%
30 Rockefeller Plaza
New York, NY 10112
Christian K. Bement....................................... 243,000(d) 5.29%
Stuart D. Buchalter....................................... 1,069,684(e)(i) 23.31%
Philip Wm. Colburn........................................ 17,000(f) *
Alexander L. Kyman........................................ 13,500(g) *
Daniel A. Seigel.......................................... 510,000(h) 11.11%
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
PERCENT OF
NAME OF AMOUNT AND NATURE OUTSTANDING
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(a) SHARES
- ---------------------------------------------------------- -------------------------- -----------
<S> <C> <C>
Donald R. Scheib.......................................... 1,069,684(i) 23.31%
Robert L. Spencer......................................... 11,000(j) *
Robert Wilkinson.......................................... 7,500(k) *
All directors, nominees for director and officers as a 2,042,116(l) 44.5%
group (12 persons)......................................
</TABLE>
- ---------------
* Indicates ownership of less than 1% of the Company's Common Stock
(a) Except as noted below, each of such beneficial owners exercises sole voting
and investment power over all shares shown. Amounts include shares owned
outright plus shares which could be acquired on or before August 15, 1997.
(b) According to a Securities and Exchange Commission Schedule 13G, dated
February 5, 1997. Dimensional Fund Advisors, Inc. ("Dimensional") a
registered investment advisor, is deemed to have beneficial ownership of
all 291,500 shares, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company,
or in series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional
serves as investment manager. Dimensional disclaims beneficial ownership of
all such shares.
(c) According to a Securities and Exchange Commission Schedule 13D, dated April
1, 1997, Gabelli Funds, Inc. and its affiliates hold all such shares for
the benefit of their clients. Gabelli Funds, Inc. claims beneficial
ownership of all 1,001,360 shares except for 9,460 shares owned by Mario J.
Gabelli as an individual.
(d) Includes 43,000 shares owned outright and 200,000 shares which may be
acquired upon the exercise of stock options which are presently
exercisable.
(e) Includes 30,000 shares owned outright.
(f) Includes 4,500 shares owned outright and 12,500 shares which may be
acquired upon the exercise of directors stock options which are presently
exercisable or which will become exercisable on or before August 15, 1997.
(g) Includes 3,500 shares owned by a trust of which Mr. Kyman is one of two
trustees and 10,000 of which may be acquired upon the exercise of directors
stock options which are presently exercisable or which will become
exercisable on or before August 15, 1997.
(h) Includes 110,000 shares owned outright and 400,000 shares which may be
acquired upon the exercise of stock options which are presently
exercisable.
(i) Mr. Scheib and Mr. Buchalter are successor co-executors of the estate of
Earl A. Scheib (the "Estate") which owns, as of May 20, 1997, 1,039,684
shares over which Mr. Scheib and Mr. Buchalter share investment and voting
power. For Mr. Scheib, the amount also includes 30,000 shares which may be
acquired upon the exercise of stock options which are presently exercisable
or which will become exercisable on or before August 15, 1997.
(j) Includes 3,500 shares owned outright and 7,500 shares which may be acquired
upon the exercise of directors stock options which are presently
exercisable or which will become exercisable on or before August 15, 1997.
(k) Includes 2,500 shares owned outright and 5,000 shares which may be acquired
upon the exercise of directors stock options which are presently
exercisable or will become exercisable on or before August 15, 1997.
(l) Includes shares which may be acquired upon the exercise of stock options
which are presently exercisable or which will become exercisable on or
before August 15, 1997.
2
<PAGE> 5
ELECTION OF DIRECTORS
Seven persons are to be elected to the Board of Directors, each for a term of
one year, commencing on the date of the Meeting and continuing until the Annual
Meeting of Shareholders to be held in 1998 and until their successors have been
duly elected and qualified. The nominees named below will be nominated to serve
until the 1998 Annual Meeting of Shareholders and until their respective
successors are duly elected and qualified. Of the seven nominees, Donald R.
Scheib and Stuart D. Buchalter, as the successor co-executors for the estate of
Earl A. Scheib, and Daniel A. Seigel may be deemed "controlling persons" of the
Company.
All of the nominees except Mr. Buchalter and Mr. Bement are currently serving as
directors of the Company. In the event that any nominee for director would
become unavailable, it is intended that votes will be cast, pursuant to the
enclosed proxy, for such substitute nominee as may be nominated by the Board of
Directors. The Board of Directors has no present knowledge that any of the
persons named will be unavailable to serve.
INFORMATION CONCERNING DIRECTORS AND NOMINEES TO BOARD OF DIRECTORS
The following table sets forth the principal occupation or employment and
principal business of the employer, if any, of each director and nominee for
director of the Company, as well as his age, business experience, other
directorships held by him and the period during which he has previously served
as director of the Company:
<TABLE>
<CAPTION>
NAME, AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS;
AND PRESENT POSITION OTHER DIRECTORSHIPS; BUSINESS EXPERIENCE
- ---------------------------------------------------------------------------------------------
<S> <C>
Daniel A. Seigel, 55 A director since November 1994 when Mr. Seigel was employed
President and Chief as the Company's President and Chief Executive Officer. From
Executive Officer, Director March 1993 through 1994, Mr. Seigel was President and Chief
and Nominee Executive Officer of Thrifty Corporation (retail drug stores
and sporting goods). Prior to that and since March 1990, Mr.
Seigel served as the President of Thrifty Corporation. Prior
to joining Thrifty Corporation and since 1986, Mr. Seigel
served as President, Chief Executive Officer and a director
of Pacific Energy, an alternative energy subsidiary of
Pacific Enterprises. Mr. Seigel is a director of Gart Sports
(sporting goods retailers).
Philip Wm. Colburn, 68 A director since June 1992, Mr. Colburn has more than 30
Director and Nominee years experience in the automotive industry. Since March
1988, Mr. Colburn has served as the Chairman of the Board of
Allen Telecom, Inc. (NYSE), which is a manufacturer of
telecommunications products. From March 1988 to January
1992, Mr. Colburn also served as the Chief Executive Officer
of Allen Telecom, Inc. Mr. Colburn is also a Director of
Superior Industries International (custom auto accessories),
Transpro, Inc.(manufacturer and supplier of automotive
components and systems) and Spinnaker Industries, Inc.
(specialty adhesive-backed materials). Mr. Colburn is a
member of the Company's Audit Committee and is Chairman of
the Compensation Committee.
Alexander L. Kyman, 67 A director since August 1994, Mr. Kyman from 1984 to 1992
Director and Nominee was President of City National Bank (commercial bank). From
1992 through 1993, Mr. Kyman was Vice Chairman of City
National Bank. Mr. Kyman is a Director of DEP Corporation
(personal care products). Currently, Mr. Kyman is a business
and financial consultant. Mr. Kyman is a member of the
Company's Audit Committee and Compensation Committee.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME, AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS;
AND PRESENT POSITION OTHER DIRECTORSHIPS; BUSINESS EXPERIENCE
- ---------------------------------------------------------------------------------------------
<S> <C>
Donald R. Scheib, 61 A director since 1966, Mr. Scheib was the President and
Chairman of the Board Chief Executive Office of the Company from 1992 through
and Nominee 1994. For more than five years prior thereto, Mr. Scheib
served the Company as its Vice President, in charge of the
Western Region.
Robert L. Spencer, 79 A director since 1990, Mr. Spencer has been for more than
Director and Nominee the last five years self-employed with Spencer Associates
which is engaged in merger and acquisition and financial
services consultation. Mr. Spencer is Chairman of the
Company's Audit Committee.
Robert F. Wilkinson, 63 A director since 1994, Mr. Wilkinson is currently President
Director of Ameron, Inc., of Hawaii. From 1990 through 1995, Mr.
Wilkinson was President and Chief Executive Officer of
Sinclair Paint Co. (paint manufacturer and distributor).
Prior to that and for more than twenty years, Mr. Wilkinson
held various senior executive positions with PPG Industries
in its coating and resins division. Mr. Wilkinson is a
member of the Company's Compensation Committee. Mr.
Wilkinson has declined to stand for reelection.
Stuart D. Buchalter, 59 Of counsel, Buchalter, Nemer, Fields & Younger, a
Nominee Professional Corporation, California law firm; Chief
Executive Officer (until January 1995), Chairman of the
Board (until June 1995), The Art Stores, art materials
retailer; Chairman of the Board and Chief Executive Officer,
Standard Brands Paint Company, manufacturer and retailer of
paint, until June 1993; Director, City National Corp.,
(commercial bank holding company); Director, Authentic
Fitness Corp., (athletic apparel).
Christian K. Bement, 55 Mr. Bement has served the Company as its Executive Vice
Executive Vice President President and Chief Operating Officer since February 1995.
and Nominee Prior to that and for over 25 years, Mr. Bement served in
various senior executive positions at Thrifty Corporation,
most recently, from 1990-1994, serving as Executive Vice
President.
</TABLE>
THE BOARD OF DIRECTORS
MEETINGS, ORGANIZATIONS AND REMUNERATION
For their services on the Board during the 1997 fiscal year, non-employee
directors were paid $18,000 as a retainer which includes compensation for all
regular meetings. Non-employee directors receive an additional $1,000 for each
special meeting, if any, attended in person. Members of the Audit Committee, the
Compensation Committee and the Nominating Committee receive $500 for each
meeting attended in person. Each director attended at least 75% of all Board and
applicable committee meetings. During the fiscal year ended April 30,1997, the
Board of Directors met four (4) times.
AUDIT COMMITTEE
The Audit Committee recommends to the Board of Directors a firm of independent
certified public accountants to conduct the annual audit of the Company's books
and records; reviews with such accounting firm the scope and results of the
annual audit; reviews the adequacy of the Company's system of internal
accounting controls with such independent accountants; and reviews fees charged
by the independent accountants for professional services.
The Company's independent public accountants are invited to attend meetings of
the Audit Committee and certain members of management may also be invited to
attend. The Audit Committee consists of
4
<PAGE> 7
three non-employee directors, Messrs. Robert Spencer, who acts as Chairman,
Philip Wm. Colburn and Alexander L. Kyman. The Committee met two (2) times
during the fiscal year ended April 30, 1997.
COMPENSATION COMMITTEE
The Compensation Committee reviews and approves all salary arrangements and
other compensation for officers of the Company. The Compensation Committee
consists of three non-employee directors, Messrs. Philip Wm. Colburn, who acts
as Chairman, Robert Wilkinson and Alexander L. Kyman. The Compensation Committee
formally met one (1) time and took various action by telephone conference and by
unanimous written consent during the fiscal year ended April 30,1997.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
No member of the Compensation Committee was an officer or employee of the
Company or any of its subsidiaries during the year. None of the executive
officers of the Company has served on the board of directors or on the
compensation committee of any other entity, any of whose officers served either
on the Board of Directors or on the Compensation Committee of the Company.
NOMINATING COMMITTEE
The Nominating Committee, composed of Mr. Scheib and Mr. Colburn, is responsible
for soliciting recommendations for candidates for the Board of Directors;
developing and reviewing background information for candidates; and making
recommendations to the Board regarding such candidates. The Nominating Committee
did not meet during the fiscal year ended April 30, 1997.
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid in the
fiscal year ended April 30, 1997, and the two prior fiscal years to the
Company's Chief Executive Officer and the Company's other executive officers
whose disclosure of compensation is required pursuant to the rules of the
Securities and Exchange Commission (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND FISCAL SALARY BONUS ALL OTHER
PRINCIPAL POSITION YEAR ($)(1) ($) COMPENSATION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel A. Seigel 1997 250,000 0(7)
President & Chief 1996 250,000 120,000
Executive Officer(2) 1995 111,743 0 (6)
Christian K. Bement 1997 170,000 0(7)
Executive Vice President & 1996 170,000 60,000
Chief Operating Officer(3) 1995 42,500 0 (6)
John D. Branch 1997 140,000 0(7)
Senior Vice President &
Chief Financial Officer
John K. Minnihan 1997 114,809 0(7) 11,090(5)
Vice President Finance(4) 1996 161,480 0 28,735
1995 161,480 0 (6)
</TABLE>
- ---------------
(1) The Company maintains a non-qualified Supplement Employee Retirement Plan
("SERP") for selected employees of the Company, including officers. The plan
is voluntarily funded by the Company through life insurance policies on the
participants. Participants contribute a portion of the cost of this plan
through deferred salary compensation agreements with the Company. Of the
5
<PAGE> 8
Named Executives, only Mr. Minnihan is eligible to participate in the SERP
for the 1997 fiscal year and he deferred $4,520 of his salary which was
contributed toward this cost of the SERP.
(2) Mr. Seigel serves the Company pursuant to an employment agreement dated as
of November 18, 1994 which provides for his employment as President and
Chief Executive Officer. Mr. Seigel's annual salary is $250,000 and serves
at the discretion of the Company. Mr. Seigel is entitled to termination
benefits under certain circumstances. Compensation for the 1995 fiscal year
represents 5 1/2 months of service.
(3) Compensation for the 1995 fiscal year represents 3 months of service.
(4) On April 29, 1996, Mr. Minnihan resigned as Chief Financial Officer of the
Company. Mr. Minnihan serves in his current capacity, pursuant to an
agreement dated April 28, 1996, as amended.
(5) Includes $8,090 contributed by the Company to the SERP and $3,000
contributed by the Company for whole life insurance premiums.
(6) Under the Securities and Exchange Commission rules on executive compensation
disclosure, no disclosure regarding items included in this column is
required for the 1995 fiscal year.
(7) The Company estimated and accrued a total of $106,590 (including $52,250 for
Mr. Seigel) for bonuses to the Named Executives at April 30, 1997. The
bonuses result from performance during fiscal 1997, but are not earned and
paid until fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to previously granted
options which were exercised (if any) or which remain outstanding for the Named
Executives.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED OPTIONS UNEXERCISED
AT FY-END (#) IN-THE MONEY OPTIONS(1)
ON EXERCISE VALUE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Seigel 0 0 400,000 0 $ (2) $ (2)
Christian K. Bement 0 0 200,000 0 25,000 (2)
John D. Branch 0 0 33,333 66,667 (2) (2)
John K. Minnihan 0 0 25,650 8,250 15,938 5,313
</TABLE>
- ---------------
(1) Value based upon $5.75 closing price per share of Common Stock on April 30,
1997.
(2) None of the options currently have any value since the exercise price
exceeds the fair market value of the underlying shares as of April 30, 1997.
6
<PAGE> 9
TEN-YEAR OPTION REPRICINGS
The following table discloses the repricing of stock options previously granted
to Mr. Seigel. The repricing occurred in March 1996.
<TABLE>
<CAPTION>
LENGTH OF
MARKET PRICE ORIGINAL
OF STOCK AT EXERCISE PRICE OPTION
NUMBER OF TIME OF AT TIME OF TERM REMAINING
OPTIONS REPRICING OR REPRICING OR NEW AT DATE OR
REPRICED OR AMENDMENT AMENDMENT EXERCISE REPRICING OR
NAME DATE AMENDED(#) ($) ($) PRICE(2) AMENDMENT
- ------------------------ -------- ------------ ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Daniel A. Seigel 03-12-96.. 400,000 6.625 5.50(1) 6.375 44 months
President & Chief
Executive Officer
</TABLE>
- ---------------
(1) Exercise Prices for the options varied depending upon when Mr. Seigel
exercised his options as follows:
<TABLE>
<S> <C> <C>
$5.00/share for the period 11/15/94 - 11/30/95
$5.50/share for the period 12/01/95 - 11/30/96
$6.00/share for the period 12/01/96 - 11/15/97
$6.50/share for the period 11/16/97 - 11/15/98
$7.00/share for the period 11/16/98 - 11/15/99
</TABLE>
(2) Repricing occurred as a result of the recommendation of the Company's
Compensation Committee's independent consultant to "fix" the exercise price
of the options to eliminate the potential of an accounting charge.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") is responsible for administering the executive
compensation plans and programs of the Company and for making recommendations to
the Board of Directors regarding the compensation and benefits provided to the
Chief Executive Officer and the other executive officers. Each member of the
Compensation Committee, whose names are set forth below this report, is an
independent director of the Company.
COMPENSATION POLICIES
Company's executive compensation programs are designed to:
1. Motivate executive officers to enhance the Company's performance for the
benefit of its shareholders;
2. Reward executives for superior individual contributions to the achievement of
the Company's business objectives; and
3. Align the interests of the Company's executive officers and key employees
with the interests of its shareholders through equity and performance based
compensation programs.
For the Fiscal Year ended April 30, 1996 and 1997, the key elements of the
compensation program for executive management were base salary, cash bonuses and
stock option grants. The Compensation Committee reevaluates executive
compensation periodically to institute compensation packages which relate in
part to overall Company performance and are similar to compensation packages
awarded to similar positions in the industry. During fiscal 1996, the
Compensation Committee retained an independent executive compensation consulting
firm, Towers-Perrin, ("Compensation Consultant") to conduct a study ("Study") to
evaluate the competitive position and structure of the Company's executive
compensation plans and programs. The Study's findings were presented to the
Compensation Committee during fiscal 1996. In accordance with the Study's
findings, the Compensation Committee determined that a semi-annual performance
bonus program should be instituted for fiscal 1997.
7
<PAGE> 10
BASE SALARY
Base salary levels generally are determined on the Compensation Committee's
assessment and the Study's findings of prevailing levels among similarly sized
and situated publicly-held companies. The Compensation Committee also considers
other factors, including the Company's financial performance and the depth of
the duties and functions of each of the Named Executives and other benefits
available to the Named Executives. None of the Named Executives received raises
for the 1995, 1996 or 1997 fiscal years. The base salary is deemed to have been
appropriate by the Compensation Committee in view of the value of stock options
previously granted and the prior and expected contributions of the Named
Executives to the Company's development.
DISCRETIONARY ANNUAL BONUSES
Discretionary annual bonuses were the only bonus procedure available during
fiscal 1996 for the Named Executives. For fiscal 1997, the Company adopted a
semi-annual performance bonus program described below. Discretionary annual
bonuses were determined based on the Company's performance during the previous
year, focusing particularly on enhancement of shareholder value, growth in
earnings and individual performance.
SEMI-ANNUAL PERFORMANCE BONUS PLAN
The Company adopted, effective May 1, 1996, a semi-annual performance bonus plan
entitled Management By Objectives ("MBO"). Under the MBO, semi-annual incentives
are established for the Named Executives, all other executives and certain key
employees of the Company. The actual award is based on Company performance and
individual performance, and may be greater or less than the target semi-annual
incentive. If the Company does not meet a threshold level of performance, no
awards may be granted. Generally, an individual's target award is calculated by
assigning various weights to objective performance criteria such as sales
increases, profit growth and individual objectives. No awards were made under
this bonus plan for the first six months of fiscal 1997 to any of the Named
Executives. Bonus payments as a result of individual and Company performance
during the last six months of fiscal 1997 will be earned and made during fiscal
1998. For the Named Executives, such payments are estimated to be $106,590 with
Mr. Seigel estimated to receive $52,250 of such amount.
For fiscal 1998, the MBO will be an annual performance bonus plan.
EQUITY BASED PLAN
Stock options provide executives with the opportunity to buy and maintain an
equity interest in the Company and to share in the appreciation of the value of
the Company's stock. Stock options only have value if the stock price
appreciates in value from the date the options are granted.
In 1994 the shareholders adopted, and in 1996 amended, the Earl Scheib, Inc.
1994 Performance Employee Stock Option Plan (the "1994 Performance Plan"). The
1994 Performance Plan was adopted to better align the interests of the Company's
management and employees with those of the shareholders. Options will be granted
to key employees who have made and are expected to continue to make valuable
contributions to the Company. Options are typically granted at fair market value
or higher on the date of grant and typically vest over a three to four year
period.
In addition, the shareholders, in 1994, adopted the Earl Scheib, Inc. 1994 Board
of Directors Stock Option Plan (the "1994 Directors Option Plan") to provide an
equity based incentive to the Company's non-employee directors. The 1994
Directors Option Plan provides that each independent director shall be eligible
for an initial grant of options to purchase 10,000 shares of Common Stock at the
fair market value on the date of grant and vest over a four year period. In
1996, the shareholders approved an amendment to the 1994 Directors Option Plan
to further link the interests of the directors with those of the shareholders by
providing the directors an opportunity to receive a grant of an additional
option to purchase four times the number of shares of Company Common Stock the
director purchases on the open market (up to a maximum of an option to purchase
10,000 shares).
8
<PAGE> 11
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to his employment agreement, Mr. Seigel, the Company's President and
Chief Executive Officer, is paid an annual salary of $250,000 and any bonus
awarded was within the discretion of the Board of Directors.
Mr. Seigel was granted stock options to purchase up to 400,000 shares of Common
Stock in November 1994. All of the options granted were originally granted at
exercise prices both below and above the then-current fair market value of the
Common Stock and vest over a two year period. It was recommended to the
Compensation Committee by the Compensation Consultant and the Company's
independent auditors that the Company and Mr. Seigel amend his Stock Option
Agreement to "fix" the exercise price of the options granted in order to
eliminate the potential of an accounting charge. Mr. Seigel's exercise price, as
described in footnote 2 of the "Ten-Year Option Repricings" table, for all his
options were repriced to $6.375 per share. No other provision of Mr. Seigel's
Stock Option Agreement was amended.
Under the MBO, Mr. Seigel's target award is based solely on Company performance.
As mentioned above, Mr. Seigel will receive a payment under the terms of the MBO
for the Company's performance during the last six months of fiscal 1997, which
is earned and paid during fiscal 1998, such payment is estimated to be $52,250.
During fiscal 1996, Mr. Seigel was awarded a bonus of $120,000 in consideration
of the Company's improving financial performance and the repositioning of the
organizational structure to intensify focus on shop management and customer
service.
Philip Wm. Colburn, Chairman
Alexander L. Kyman
Robert F. Wilkinson
9
<PAGE> 12
PERFORMANCE GRAPH
The Performance Graph below compares total cumulative return on the Company's
Common Stock, the AMEX Index and the Media General Automotive Parts and
Accessories Industry Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) EARL SCHEIB, INC. INDUSTRY INDEX BROAD MARKET
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 64.16 125.21 104.03
1994 43.41 146.85 110.06
1995 62.70 142.35 119.12
1996 70.54 166.73 145.72
1997 55.47 190.29 135.22
</TABLE>
SECTION 16(A) REPORTING DELINQUENCIES
Under federal securities laws and rules of the Securities and Exchange
Commission, directors and executive officers of the Company, as well as persons
holding more than 10% of the Company's outstanding shares of Common Stock, are
required to file reports showing their initial ownership of the Company's Common
Stock and any subsequent changes in that ownership with the Securities and
Exchange Commission and the American Stock Exchange by certain specified due
dates. Based solely on the Company's review of copies of such reports furnished
to the Company and written representations that no other reports were required
to be filed, during fiscal 1997, all such reports that were required were filed
on a timely basis, with the exception of John D. Branch, Senior Vice President
and Chief Financial Officer, who filed a delinquent Form 4 in May, 1997, which
was due on April 10, 1997.
CHANGES IN COMPANY'S CERTIFYING ACCOUNTANT
The Company, effective March 5, 1996, dismissed BDO Seidman, independent
auditors, as its principal independent accountant. The dismissal was recommended
by the Audit Committee and approved by the Board of Directors.
BDO Seidman's report on the Company's financial statements for either of the
past two years prior to its dismissal did not contain an adverse opinion or
disclaimer of opinion, nor was the report qualified or modified as to
uncertainty, audit scope or accounting principles.
10
<PAGE> 13
There were no disagreements between the Company and BDO Seidman of the types
described in Item 304(a)(1)(iv) of Regulation S-K. The Company has complied with
Item 304(a)(3) of Regulation S-K.
Effective March 6,1996, following the recommendation of the Audit Committee and
Board approval, the Company engaged Deloitte & Touche LLP, independent public
accountants, as its new principal independent accountant to audit the Company's
financial statements. The Company did not consult Deloitte & Touche LLP during
the two fiscal years immediately prior to the engagement of Deloitte & Touche
LLP with regard to any of the matters described in Item 304(a)(2) of Regulation
S-K.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Shareholders of record who wish to have their proposals considered for inclusion
in the company's Proxy Statement for the 1998 Annual Meeting of Shareholders
should deliver such proposals in writing to the Company, addressed as follows:
Earl Scheib, Inc., 8737 Wilshire Boulevard, Beverly Hills, California 90211,
Attention: David I. Sunkin, Vice President and General Counsel. Such proposals
must be received by the Company at the foregoing address no later than March 30,
1998 to be considered for inclusion in the Company's Proxy Statement and form of
Proxy relating to that meeting.
OTHER BUSINESS
The Board of Directors is not aware of any matter which may properly be
presented for action at the Meeting other than the matters set forth herein,
but, should any other matter requiring a vote of the shareholders arise, it is
intended that the proxies in the accompanying form will be voted in respect
thereof in accordance with the best judgment of the person or persons voting the
proxies, discretionary authority to do so being included in the proxy, in the
interests of the Company.
PROXIES AND SOLICITATIONS
Proxies for the Meeting are being solicited by mail directly and through
brokerage and bank institutions. The Company will pay all expenses in connection
with the solicitation of proxies. In addition to the use of the mails, proxies
may be solicited by directors, officers and regular employees of the Company
personally, by telephone, or by telegraph. The Company does not expect to pay
any fees or compensation for the solicitation of proxies but may reimburse
brokers and other persons who hold stock in their names, or in the names of
nominees, for their expenses in sending proxy material to principals and
obtaining their proxies.
AVAILABILITY OF FORM 10-K
The Company's Annual Report on Form 10-K for the fiscal year ended April
30,1997, including the financial statements and schedules thereto, as filed with
the Securities and Exchange Commission, will be furnished to shareholders upon
written request without charge. A copy may be requested by writing to David I.
Sunkin, Vice President and General Counsel, Earl Scheib, Inc., 8737 Wilshire
Boulevard, Beverly Hills, California 90211.
By order of the Board of Directors
SIGNATURE
David I. Sunkin
Vice President & General Counsel,
Secretary
Beverly Hills, California
July 28, 1997
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<PAGE> 14
PROXY EARL SCHEIB, INC.
Solicited on behalf of the Board of Directors of EARL SCHEIB, INC. (the
"Company") for use at the Annual Meeting of Shareholders (the "Meeting) to be
held on September 5, 1997 at 10:00 A.M., at The Hotel Nikko, 465 S. La Cienega
Boulevard, Los Angeles, California.
The undersigned hereby appoints John D. Branch and John K. Minnihan, or
either one of them, as proxies, with full power of substitution, to vote all
shares of Common Stock of the Company held of record by the undersigned on July
16, 1997 at the Meeting or at any adjournments thereof, on the proposal set
forth below and in their discretion upon such other business as may properly
come before the Meeting.
The Board of Directors recommends a vote FOR all nominees listed in
Proposal 1.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for all nominees listed below
</TABLE>
Christian K. Bement Stuart D. Buchalter Philip Wm. Colburn Alexander L.
Kyman Donald R. Scheib Daniel A. Seigel Robert L. Spencer
(INSTRUCTION: To withhold authority for any individual write that nominee's name
on the line provided below)
- --------------------------------------------------------------------------------
(PLEASE SIGN AND DATE ON REVERSE SIDE)
<PAGE> 15
(CONTINUED FROM THE FRONT SIDE OF CARD)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting. This Proxy, when properly
executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1. All proxies heretofore given by the
undersigned are hereby revoked. Receipt of the Proxy Statement dated July 28,
1997 is acknowledged.
Please mark, sign, date and return this Proxy in the accompanying prepaid
envelope.
Date: 1997
(Signature)
(Signature)
Please sign exactly as
your name appears hereon.
When signing as attorney,
executor, administrator,
trustee, guardian or
corporate officer, please
include full title.
