<PAGE>
Notice of
1997 Annual Meeting
of Stockholders
and
Proxy Statement
LOGO
<PAGE>
ERO, INC.
585 SLAWIN COURT
MOUNT PROSPECT, ILLINOIS 60056
March 10, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
which will be held on Thursday, April 17, 1997, at 10:00 a.m., local time, at
ERO, Inc.'s corporate headquarters, 585 Slawin Court, Mount Prospect, Illinois
60056.
The Notice of Meeting, Proxy Statement and Proxy are included with this
letter. The matters listed in the Notice of Meeting are more fully described
in the Proxy Statement.
It is important that your shares are represented and voted at the Annual
Meeting, regardless of the size of your holdings. Accordingly, please mark,
sign and date the enclosed Proxy and return it promptly in the enclosed
envelope. If you attend the Annual Meeting, you may, of course, withdraw your
Proxy should you wish to vote in person.
Sincerely,
/s/ D. Richard Ryan, Jr.
D. Richard Ryan, Jr.
Chairman, President and Chief
Executive Officer
<PAGE>
ERO, INC.
585 SLAWIN COURT
MOUNT PROSPECT, ILLINOIS 60056
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
The 1997 annual meeting (the "Annual Meeting") of stockholders of ERO, Inc.
(the "Corporation") will be held on Thursday, April 17, 1997, at 10:00 a.m.,
local time, at the Corporation's headquarters, 585 Slawin Court, Mount
Prospect, Illinois 60056, to consider and take action with respect to the
following matters:
1. The election of three directors for three-year terms or until their
successors are duly elected and qualified.
2. The ratification of the appointment of Price Waterhouse LLP as
independent public accountants for the year ending December 31, 1997.
3. The transaction of such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
Holders of record of the Corporation's Common Stock at the close of business
on March 3, 1997, are entitled to receive notice of and to vote on all matters
presented at the Annual Meeting and at any adjournments or postponements
thereof.
By order of the Board of Directors
/s/ Mark D. Renfree
Mark D. Renfree
Secretary
March 10, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON AND REGARDLESS
OF THE NUMBER OF SHARES YOU OWN, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES WILL
BE REPRESENTED. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE ANNUAL
MEETING.
<PAGE>
ERO, INC.
585 SLAWIN COURT
MOUNT PROSPECT, ILLINOIS 60056
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 17, 1997
----------------
This proxy statement (the "Proxy Statement") is being furnished to the
holders of common stock, par value $0.01 per share (the "Common Stock"), of
ERO, Inc. (the "Corporation") in connection with the solicitation of proxies
on behalf of the Board of Directors of the Corporation (the "Board of
Directors" or "Board") for the annual meeting (the "Annual Meeting") of
stockholders to be held on April 17, 1997 at the Corporation's headquarters,
585 Slawin Court, Mount Prospect, Illinois 60056, and at any adjournments or
postponements thereof. Proxy Statements and proxies are being mailed to
stockholders on or about March 17, 1997.
When you sign and return the enclosed proxy, the shares represented thereby
will be voted FOR the slate of directors described herein, FOR the proposal
set forth in Item 2 in the Notice of Meeting and as to any other business as
may properly be brought before the Annual Meeting and any adjournments or
postponements thereof, in accordance with the judgment of the person or
persons voting on such matter or matters.
Returning your completed proxy will not prevent you from voting in person at
the Annual Meeting should you be present and wish to do so. In addition, you
may revoke your proxy any time before it is voted by written notice to the
Secretary of the Corporation prior to the Annual Meeting or by submission of a
later-dated proxy.
Each outstanding share of Common Stock entitles the holder thereof to one
vote. On March 3, 1997, the record date, there were 10,266,300 shares of
Common Stock outstanding. The presence in person or by proxy of a majority of
such shares of Common Stock shall constitute a quorum. Under Delaware law,
abstentions are treated as present and entitled to vote and therefore have the
effect of a vote against the matter. A broker non-vote on a matter is
considered not entitled to vote on that matter and thus is not counted in
determining whether a matter requiring approval of a majority of the shares
present and entitled to vote has been approved.
ELECTION OF DIRECTORS
The Board of Directors is currently comprised of six directors divided into
three classes. The term of each class expires in different years. The three
nominees for election to the Board of Directors this year to serve for three-
year terms or until their successors are duly elected and qualified are: D.
Richard Ryan, Jr., Robert J. Lipsig and Arthur S. Nicholas. Mr. Ryan is
currently Chairman of the Board of Directors and is President and Chief
Executive Officer of the Corporation. Messrs. Lipsig and Nicholas are
currently directors of the Corporation. The Board of Directors expects all
nominees named herein to be available for election. In case any nominee is not
available, the proxy holders may vote for a substitute, unless the Board of
Directors reduces the number of directors.
Directors will be elected at the Annual Meeting by a majority of the votes
cast at the Annual Meeting by the holders of shares represented in person or
by proxy. There is no right to cumulate voting as to any matter, including the
election of directors.
The following sets forth information as to each director and nominee for
director, including age, as of March 3, 1997, principal occupation and
employment during the past five years, directorships in other publicly held
companies, membership on committees of the Board of Directors and period of
service as a director of the Corporation.
1
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RE-ELECTION OF MESSRS.
RYAN, LIPSIG AND NICHOLAS TO THE BOARD OF DIRECTORS.
NOMINEES FOR BOARD OF DIRECTORS
D. Richard Ryan, Jr., 57, joined the Corporation in 1993, was elected to the
Board of Directors in 1994 and currently serves as Chairman, President and
Chief Executive Officer. Prior to joining the Corporation, Mr. Ryan was
President and Chief Executive Officer of Dansk International Designs, Ltd.
from November of 1985 through August of 1991, President and Chief Executive
Officer of Marley Holdings, Inc. from 1981 through 1985 and President of
General Housewares Corp.'s Cookware Group from 1974 through 1981.
Robert J. Lipsig, 54, has served as a director of the Corporation since 1988
and was Chairman from 1992 through April of 1994. Mr. Lipsig has been a
Principal of Core Financial Corporation, a private investment and business
development firm, since April of 1994. Mr. Lipsig joined the Corporation as
Senior Vice President in 1978 and served as the Corporation's President from
1985 through October of 1993. Mr. Lipsig is also a director of Elek-Tek, Inc.
Mr. Lipsig also serves on the Corporation's Compensation Committee.
Arthur S. Nicholas, 66, has served as a director of the Corporation since
1988. Mr. Nicholas served as President of Nicholas, Feder & Jaffe, an
investment firm, from 1987 to 1992 and is currently President of The Antech
Group, a private investment and business development firm. Mr. Nicholas also
serves on the Corporation's Audit and Compensation Committees.
CURRENT DIRECTORS
Thomas M. Gasner, 51, joined the Corporation in 1981 and currently serves as
Executive Vice President of Operations where his responsibilities include
production, inventory control and purchasing. Mr. Gasner has been a member of
the Board of Directors since 1988.
Bruce V. Rauner, 41, has served as a director of the Corporation since 1988.
Mr. Rauner has been a Principal of Golder, Thoma, Cressey, Rauner, Inc., an
investment firm, since 1984. Mr. Rauner is also a general partner of Golder,
Thoma, Cressey & Rauner, L.P., which is the general partner of GTC Fund III,
the Corporation's largest stockholder. Mr. Rauner is also a director of
COREStaff, Inc., Coinmach Laundry Corporation, Polymer Group, Inc. and Lason
Systems, Inc., Mr. Rauner also serves on the Corporation's Compensation and
Audit Committees.
Lee M. Mitchell, 53, has served as a director of the Corporation since
October of 1996. Mr. Mitchell has been a principal of Golder, Thoma, Cressey,
Rauner, Inc., an investment firm, since May of 1994. From May of 1992 through
May of 1994, Mr. Mitchell served as a director of numerous corporations. Mr.
Mitchell was President and Chief Executive Officer of The Field Corporation
until May of 1992. Mr. Mitchell is also a director of American Medserve Corp.,
Washington National Corporation and Paging Network, Inc.
There are no family relationships among the foregoing persons.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held five meetings (exclusive of committee meetings)
during the preceding fiscal year. The Board of Directors has established the
following committees, the functions and current members of which are noted
below. Each current director, except Mr. Rauner who did not attend two
meetings and Mr. Mitchell who was not appointed to the Board of Directors
until October 17, 1996, attended 75% or more of the number of meetings held
during the preceding fiscal year of the Board of Directors and any committees
on which such director served.
Compensation Committee. The Compensation Committee of the Board of Directors
consists of Messrs. Lipsig, Nicholas and Rauner. The Compensation Committee
reviews and makes recommendations to the Board of Directors regarding
salaries, compensation and benefits of executive officers and key employees of
the Corporation and grants options to purchase Common Stock of the
Corporation. The Compensation Committee met twice during the preceding fiscal
year.
2
<PAGE>
Audit Committee. The Audit Committee of the Board of Directors consists of
Messrs. Nicholas and Rauner. The Audit Committee, among other duties, reviews
the internal and external financial reporting of the Corporation, reviews the
scope of the independent audit and considers comments by the auditors
regarding internal controls and accounting procedures and management's
response to those comments. The Audit Committee met once during the preceding
fiscal year.
The Corporation does not have a nominating committee.
COMPENSATION OF DIRECTORS
Management directors are not entitled to receive any fees for their service
on the Board of Directors. Non-management directors are eligible to receive
grants of options to purchase shares of Common Stock pursuant to the
Corporation's 1992 Directors' Stock Option Plan and are also reimbursed for
out-of-pocket expenses incurred in connection with attending meetings. In
addition, all non-management directors received $1,000 per meeting attended
for service on the Board of Directors during 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Corporation's officers, directors and persons
who beneficially own more than ten percent of a registered class of the
Corporation's equity securities to file reports of securities ownership and
changes in such ownership with the Securities and Exchange Commission (the
"SEC"). Officers, directors and greater than ten-percent beneficial owners
also are required by rules promulgated by the SEC to furnish the Corporation
with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Corporation, or written representations that no Form 5 filings were required,
the Corporation believes that during the period from January 1, 1996 through
December 31, 1996 all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were
complied with except that Barry J. Ryan, President of ERO Industries, Inc.,
filed two Form 4s late.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation by the Audit Committee, has
appointed Price Waterhouse LLP as independent public accountants to examine
the financial statements of the Corporation for the year ending December 31,
1997 and to perform other appropriate accounting services.
A proposal will be presented at the Annual Meeting to ratify the appointment
of Price Waterhouse LLP as the Corporation's independent public accountants.
One or more members of that firm are expected to be present at the Annual
Meeting to respond to questions and to make a statement if they desire to do
so. If the stockholders do not ratify this appointment by the affirmative vote
of a majority of the shares represented in person or by proxy at the Annual
Meeting, other independent public accountants will be considered by the Board
of Directors upon recommendation by the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS THE CORPORATION'S INDEPENDENT PUBLIC
ACCOUNTANTS.
OTHER BUSINESS
At the date of this Proxy Statement, the Corporation has no knowledge of any
business other than that described above that will be presented at the Annual
Meeting. If any other business should come before the Annual Meeting, the
proxies will be voted in the discretion of the proxy holders.
3
<PAGE>
SECURITY OWNERSHIP
The following information with respect to the outstanding shares of Common
Stock beneficially owned by each director and nominee for director of the
Corporation, the chief executive officer and the four other most highly
compensated executive officers, all beneficial owners of more than five
percent of the Common Stock known by the Corporation and the directors and
executive officers as a group is furnished as of March 3, 1997, except as
described below.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER OF PERCENT
NAME SHARES(1) OF CLASS(2)
---- --------- -----------
<S> <C> <C>
GTC Fund III(3,4)...................................... 3,940,000 38.4%
D. Richard Ryan, Jr.(5)................................ 180,000 1.8
Barry J. Ryan(5)....................................... 10,000 *
Richard F. Schaub, Jr.(5).............................. 1,000 *
Kenneth E. Litvack(5).................................. 3,000 *
Amos Sochazevski(5).................................... -- --
Bruce V. Rauner(4,6)................................... 3,968,337 38.7
Thomas M. Gasner(4,5).................................. 283,500 2.8
Robert J. Lipsig(4,5).................................. 202,100 2.0
Arthur S. Nicholas(4,5)................................ 38,670 *
Lee M. Mitchell(7)..................................... -- --
T. Rowe Price Associates, Inc.(8)...................... 1,223,800 11.9
Putnam Investments, Inc.(9)............................ 765,100 7.5
Heartland Advisors, Inc.(10)........................... 541,500 5.3
All directors and executive officers as a group
(11 persons)(11)...................................... 4,686,607 45.7
</TABLE>
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(1) Each holder has sole voting and investment power with respect to the
shares listed unless otherwise indicated.
(2) Percentages less than one percent are denoted by an asterisk.
(3) All such shares are held by GTC Fund III, of which Golder, Thoma, Cressey
& Rauner, L.P., is the general partner. The address for GTC Fund III is
c/o Golder, Thoma, Cressey, Rauner, Inc., 6100 Sears Tower, Chicago,
Illinois 60606-6402.
(4) All of these parties have entered into an agreement providing for the
election of directors. Each such party disclaims beneficial ownership of
the shares of Common Stock owned by each other party.
(5) The address for these individuals is c/o ERO, Inc., 585 Slawin Court,
Mount Prospect, Illinois 60056.
(6) Includes 3,940,000 shares held by GTC Fund III, of which Golder, Thoma,
Cressey & Rauner, L.P. is the general partner. Mr. Rauner is a general
partner of Golder, Thoma, Cressey & Rauner, L.P., but disclaims
beneficial ownership of such shares. The address for Mr. Rauner is c/o
Golder, Thoma, Cressey, Rauner, Inc., 6100 Sears Tower, Chicago, Illinois
60606-6402.
(7) The address for Mr. Mitchell is c/o Golder, Thoma, Cressey, Rauner, Inc.,
6100 Sears Tower, Chicago, Illinois 60606-6402.
(8) The information set forth herein is based solely on a Form 13G filed by
such entity for the year ended December 31, 1996. The address for such
entity, as so reported, was 100 E. Pratt Street, Baltimore, MD 21202.
(9) The information set forth herein is based solely on a Form 13G filed by
such entity for the year ended December 31, 1996. The address for such
entity, as so reported, was One Post Office Square, Boston, MA 02109.
(10) The information set forth herein is based solely on a Form 13G filed by
such entity for the year ended December 31, 1996. The address for such
entity, as so reported, was 790 N. Miswaukee St., Milwaukee, WI 53202.
(11) Includes shares held by GTC Fund III.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table specifies the components of the
Corporation's chief executive officer and four other most highly compensated
executive officers (the "named executive officers") compensation packages for
the years ended December 31, 1996, December 31, 1995 and December 31, 1994.
The Corporation does not maintain any long-term compensation plans.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- -----------------------------
NAME AND ALL OTHER
PRINCIPAL SALARY BONUS STOCK RESTRICTED COMPENSATION
POSITION YEAR ($)(1) ($)(2) OPTIONS(#)(3) STOCK AWARDS($) ($)(4)
--------- ---- --------- --------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
D. Richard Ryan, Jr..... 1996 $ 250,000 $ -- -- -- $ 1,350
(Chairman, President and 1995 250,000 25,000 -- -- 1,350
Chief Executive Officer) 1994 247,763 375,000 -- -- 110,044
Barry J. Ryan(5)........ 1996 116,242 16,000 125,000 -- 99,207
(President of ERO 1995 -- -- -- -- --
Industries, Inc.) 1994 -- -- -- -- --
Richard F. Schaub,
Jr.(6)................. 1996 120,000 62,500 -- -- 93
(President of Priss 1995 120,000 -- 12,500 -- 6,741
Prints, Inc.) 1994 25,384 35,000 30,000 -- 20
Kenneth E. Litvack(7)... 1996 140,000 -- -- -- 810
(President of Impact, 1995 143,860 -- 7,500 -- 807
Inc.) 1994 129,051 227,000 40,000 -- 388
Amos Sochaczevski(8).... 1996 147,000 -- 30,000 -- --
(President of Amav 1995 37,000 -- -- -- --
Industries, Inc.) 1994 -- -- -- -- --
</TABLE>
- --------
(1) Includes the following amounts deferred by Messrs. D. Ryan, Schaub and
Litvack, respectively, pursuant to the Company's 401(k) plan for the
following fiscal years: 1996, $9,135, $6,139 and $5,115; 1995, $9,240, $0
and $6,993; and 1994, $0, $0 and $5,308.
(2) Amounts include bonuses accrued during each year but paid shortly
thereafter.
(3) All stock option grants were made pursuant to the Corporation's 1992 Key
Employee Stock Option Plan.
(4) Represents premiums paid by the Corporation under a group term life
insurance plan, the reimbursement of Mr. D. Ryan's relocation expenses in
1994, the reimbursement of Mr. Schaub's relocation expenses in 1995 and
the reimbursement of Mr. B. Ryan's relocation expenses in 1996.
(5) Mr. B. Ryan was named President of ERO Industries, Inc. effective May 1,
1996.
(6) Mr. Schaub was named President of Priss Prints, Inc. effective October 10,
1994.
(7) Impact, Inc. ("Impact") was acquired by the Corporation effective January
1, 1994. Mr. Litvack was named President of Impact on February 11, 1994.
(8) Amav Industries, Inc. ("Amav") was acquired by the Corporation effective
October 1, 1995.
5
<PAGE>
The following tables disclose, for the named executive officers, information
regarding stock options granted or exercised during, or held at the end of,
1996.
OPTION GRANT TABLE
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR OPTION
GRANTED TO EXERCISE TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($)(1) 10%($)(1)
---- ---------- ------------ -------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
D. Richard Ryan, Jr. ... -- -- -- -- -- --
Barry J. Ryan........... 125,000 39.4% $6.375 Aug. 21, 2006 $502,031 $1,267,031
Richard F. Schaub, Jr... -- -- -- -- -- --
Kenneth E. Litvack...... -- -- -- -- -- --
Amos Sochaczevski....... 30,000 9.5% $5.750 Feb. 7, 2006 $ 108,675 $ 274,295
</TABLE>
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(1) Amounts reflect certain assumed rates of appreciation set forth in the
SEC's executive compensation disclosure rules. Actual gains, if any, on
stock option exercises depend on future performance of the Common Stock
and overall stock market conditions. No assurance can be made that the
amounts reflected in these columns will be achieved.
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END($)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(1) REALIZED($)(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- -------------- -------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
D. Richard Ryan, Jr. ... -- -- -- 540,000 -- $1,425,600
Barry J. Ryan........... -- -- 125,000 -- $296,875 --
Richard F. Schaub, Jr... -- -- 28,000 14,500 $ 7,250 $ 29,000
Kenneth E. Litvack...... -- -- 30,000 17,500 $ 48,000 $ 25,750
Amos Sochaczevski....... -- -- 30,000 -- $ 90,000 --
</TABLE>
- --------
(1) None of the options which were granted to the named executives, as
described in footnote 3 to the Summary Compensation Table, has been
exercised.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to employment agreements (the "Employment Agreements") dated
December 14, 1995, the Corporation agreed to employ Amos Sochaczevski as
President of Amav Industries Ltd. ("Amav"), a wholly-owned subsidiary of the
Corporation, and Avi Sochaczevski as Executive Vice President of Amav for a
period of two years with automatic one year renewals unless either party
provides written notice to the other party of his or its intention not to
renew (a) at least 120 days prior to the end of the initial two year term or
(b) at least 90 days prior to the end of any renewal term. The Employment
Agreements provide each party with an annual salary of C$200,000. In addition,
both parties are bound by a non-competition clause for a period of five years
from the date of the agreement.
The Corporation has entered into an employment agreement with Kenneth E.
Litvack which guarantees Mr. Litvack a minimum annual salary of $130,000
through December 31, 1998. In addition, the agreement includes a non-
competition clause for a period of two years following Mr. Litvack's
termination from the Corporation.
6
<PAGE>
Barry J. Ryan has entered into an agreement with the Corporation pursuant to
which he is guaranteed an annual minimum bonus of $16,000 through 1998. In
addition, if he is terminated prior to May 1, 1999, he is entitled to
severance amounting to one year of base salary. Finally, the Corporation
agreed to reimburse Mr. Ryan for certain costs incurred during his relocation.
Named Executive Officers have deferred compensation and receive benefits
under the Corporation's Nonqualified Deferred Compensation Plan (the "Plan").
Beginning in 1997, Executives are allowed to defer up to 20% of their
annualized base salary (less any contributions to the Corporation's 401(k)
plan). In addition, the Corporation matches 50% of the Executive's
contribution to the Plan up to 3% of the Executive's Salary (less the
Corporation's contribution to the 401(k) plan). This contribution vests
immediately.
The Corporation has not entered into written employment contracts with any
of its other executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporation's Compensation Committee are Messrs. Lipsig,
Nicholas and Rauner. Mr. Rauner, a director of the Corporation, is also a
general partner of Golder, Thoma, Cressey & Rauner, L.P. Golder, Thoma,
Cressey & Rauner, L.P. is the general partner of GTC Fund III, which owns
38.4% of the Corporation's Common Stock. No officers of the Corporation serve
on the Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
pleased to present its report on executive compensation. The Committee reviews
and makes recommendations to the Board of Directors regarding salaries,
compensation and benefits of executive officers and key employees of the
Corporation and grants options to purchase Common Stock of the Corporation.
This Committee report documents the components of the Corporation's executive
officer compensation programs and describes the bases upon which compensation
will be determined by the Committee with respect to the executive officers of
the Corporation, including the executive officers that are named in the
compensation tables (the "Named Executives").
This Committee report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Exchange Act, except to
the extent that the Corporation specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Compensation Philosophy. The compensation philosophy of the Corporation is
to endeavor to directly link executive compensation to continuous improvements
in corporate performance and increases in shareholder value. The Committee has
adopted the following objectives as guidelines for compensation decisions.
. Display a willingness to pay levels of compensation that are necessary to
attract and retain highly qualified executives.
. Be willing to compensate executive officers in recognition of superior
individual performance, new responsibilities or new positions within the
Corporation.
. Take into account historical levels of executive compensation and the
overall competitiveness of the market for high quality executive talent.
. Implement a balance between short- and long-term compensation to
complement the Corporation's annual and long-term business objectives and
strategy and encourage executive performance in furtherance of the
fulfillment of those objectives.
. Provide variable compensation opportunities based on the performance of
the Corporation, encourage stock ownership by executives and align
executive remuneration with the interests of stockholders.
Compensation Program Components. The Committee regularly reviews the
Corporation's compensation program to ensure that pay levels and incentive
opportunities are competitive with the market and reflect the
7
<PAGE>
performance of the Corporation. The particular elements of the compensation
program for executive officers are further explained below.
Base Salary. The Corporation's base pay levels are largely determined by
evaluating the responsibilities of the position held and the experience of
the individual and by comparing the salary scale with companies of similar
size and complexity. Actual base salaries are kept within a competitive
salary range for each position that is established through job evaluation
and market comparisons and approved by the Committee as reasonable and
necessary. D. Richard Ryan, Jr.'s salary has been set at $250,000 per year,
a level which is equal to his salary last year and comparable to salaries
paid for executives holding positions with comparable responsibilities.
Annual Incentives. The 1996 Incentive Compensation Plan (the "1996
Incentive Compensation Plan") provides for the granting of cash awards to
certain salaried employees (including the Named Executives) of the
Corporation, approved for participation by the Committee. The objective of
the 1996 Incentive Compensation Plan is to enhance management's
contribution to stockholder returns through increased stock prices by
providing competitive levels of compensation for the attainment of
financial objectives. In particular, the 1996 Incentive Compensation Plan
aims to focus corporate behavior on consistent and steady earnings growth
by examining such performance indicators as (A) a comparison of actual
earnings before interest, taxes, depreciation and amortization ("EBITDA")
to budgeted EBITDA or (B) a comparison of actual sales to budgeted sales.
Targeted awards for the Corporation's employees under the 1996 Incentive
Compensation Plan are intended to be consistent with targeted awards of
companies of similar size and complexity. Actual awards, however, are
subject to decrease or increase on the basis of the Corporation's
performance. As a result of the Corporation's performance in 1996, the
amounts presented in the Executive Compensation table were payable under
the 1996 Incentive Compensation Plan. The Compensation Committee approved a
similar program for 1997.
Stock Option Program. The Committee strongly believes that by providing
those persons who have substantial responsibility over the management and
growth of the Corporation with an opportunity to increase their ownership
of the Corporation's stock, the interests of stockholders and executives
will be closely aligned. Therefore, the Corporation's key employees
(including the Named Executives) are eligible to receive either incentive
stock options or nonqualified stock options as the Committee may determine
from time to time, giving them the right to purchase shares of the
Corporation's Common Stock at an exercise price equal to 100% of the fair
market value of such Common Stock at the date of grant. The number of stock
options granted to executive officers is based on competitive practices.
Currently, the Corporation does not intend to grant any additional stock
options to any Named Executive in the next year, except in recognition of
new responsibilities or positions.
Certain Tax Considerations. Recently enacted Section 162(m) of the Code
generally limits the corporate tax deduction for compensation paid to the
Named Executives to $1,000,000 in any given taxable year, unless certain
requirements are met. The Compensation Committee has carefully considered the
impact of this new tax code provision. The Committee currently intends to
structure compensation plans for the Named Executives as necessary in order to
maximize the Corporation's corporate tax deduction without limiting the
Corporation's ability to attract and retain qualified executives.
Summary. After its review of all existing programs, the Committee continues
to believe that the total compensation program for executives of the
Corporation is focused on increasing values for stockholders and enhancing
corporate performance. The Committee currently believes that the compensation
of executive officers is properly tied to stock appreciation through the 1992
Key Employee Stock Option Plan and through the options granted to Mr. D. Ryan
when he joined the Corporation. The Committee believes that executive
compensation levels at the Corporation are competitive with the compensation
programs provided by other corporations with which the Corporation competes.
The foregoing report has been approved by all members of the Committee.
COMPENSATION COMMITTEE
Robert J. Lipsig
Arthur S. Nicholas
Bruce V. Rauner
8
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Corporation's cumulative total stockholder
return since the Common Stock became publicly traded on April 7, 1992 with the
Nasdaq National Market Index and with a peer group comprised of the following
companies, Acclaim Entertainment, Inc., Empire of Carolina, Inc., Equity
Marketing, Inc., Galoob Toys, Inc., Hasbro, Inc., Mattel, Inc., Russ Berrie and
Company, Inc., The Ohio Art Company, Safety 1st, Inc., Toy Biz, Inc., Tyco
Toys, Inc., and Yes! Entertainment Corporation.(/1/) The Corporation selected
the aforementioned companies to align its peer group with that used by analysts
covering the industry.
COMPARISON OF TOTAL RETURN*
ERO, INC., NASDAQ NATIONAL MARKET INDEX AND PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
FISCAL YEAR ENDING
----------------------------------------------------
COMPANY 1992 1992 1993 1994 1995 1996
ERO INC $100 $ 61.19 $ 43.28 $ 49.25 $ 35.82 $ 52.24
PEER GROUP $100 $116.24 $129.77 $119.80 $150.82 $172.67
BROAD MARKET $100 $106.08 $127.25 $133.60 $173.29 $215.34
- --------
(1) This peer group is identical to the peer group referenced in the
Corporation's 1996 Proxy Statement with the following additional
corporations: Acclaim Entertainment, Inc., Empire of Carolina, Inc., Equity
Marketing, Inc., Galoob Toys, Inc., Hasbro, Inc., Mattel, Inc., Russ Berrie
and Company, Inc., The Ohio Art Company, Safety 1st, Inc., ToyBiz, Inc.,
Tyco Toys, Inc. and Yes! Entertainment Corporation. The following
corporations were not included in the peer group this year, but were
included in 1996: Ajay Sports Inc., Aldila, Inc., Anthony Industries, Inc.,
Bell Sports Corporation, Bio-Dyne Corp., Callaway Golf Co., CML Group Inc.,
Coastcast Corporation, Cobra Golf, Incorporated, Discovery Zone, Inc.,
Educational Insights, Inc., Escalade, Inc., First Team Sports, Inc.,
Johnson Worldwide Associates, Lumex, Inc., Marker International, ProGroup
Inc., Raven Industries Inc., Rawlings Sporting Goods Company, Inc.,
Renaissance Golf Products Inc., Riddell Sports Inc., Royal Grip, Inc., Sled
Dogs Co., S2 Golf Inc., Sure Shot International Inc., Swing-N-Slide
Corporation and Technigen Corp.
* Total Return assumes reinvestment of dividends.
9
<PAGE>
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the annual meeting in
1998 must be received by the Secretary of the Corporation, at the address
below, not later than October 28, 1997 to be considered for inclusion in the
Corporation's 1998 proxy materials.
ADDITIONAL INFORMATION
This solicitation is being made by the Corporation. All expenses of the
Corporation in connection with this solicitation will be borne by the
Corporation. In addition to the solicitation by mail, proxies may be solicited
by directors, officers and other employees of the Corporation by telephone,
telex, in person or otherwise, without additional compensation. The
Corporation will request brokerage firms, nominees, custodians and fiduciaries
to forward proxy materials to the beneficial owners of shares held of record
by such persons and will reimburse such persons and the Corporation's transfer
agent for their reasonable out-of-pocket expenses in forwarding such
materials.
The Corporation will furnish without charge to each person whose proxy is
being solicited, upon the written request of any such person, a copy of the
Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as filed with the Securities and Exchange Commission, including the
financial statements and the schedule thereto. Requests for copies of such
Annual Report on Form 10-K should be directed to the Secretary of the
Corporation at the address below.
PLEASE COMPLETE THE ENCLOSED PROXY AND MAIL IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE.
By order of the Board of Directors
/s/ Mark D. Renfree
Mark D. Renfree
Secretary
ERO, Inc.
585 Slawin Court
Mount Prospect, Illinois 60056
March 10, 1997
10
<PAGE>
[_] Please mark your
votes as in this
example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED AND FOR ITEM 2.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
- --------------------------------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election [_] [_] [_] [_] [_]
Directors
(see reverse)
For, except vote withheld from the 2. Ratification of the
following nominee(s): appointment of Price
Waterhouse LLP as
the Company's
Independent public
accountants.
Please sign exactly as name appears of this Proxy. Joint owners should each
sign. Trustees, executors, etc. should indicate the capacity in which they
are signing.
----------------------------------
----------------------------------
SIGNATURE(S) DATE
<PAGE>
PROXY
1997 Annual Meeting of Stockholders
Solicited by the Board of Directors
ERO, INC.
585 Slawin Court
Mount Prospect, Illinois 60056
The undersigned hereby appoints Thomas M. Gasner and Mark D. Renfree, and
each of them, proxies, with power of substitution and revocation, acting by a
majority of those present and voting or if only one is present and voting then
that one, to vote the stock of ERO, Inc. which the undersigned is entitled to
vote, at the 1997 Annual Meeting of Stockholders to be held on April 17, 1997
and at any adjournment or postponements thereof, with all the powers the
undersigned would possess if present, with respect to the following:
Election of directors, Nominees:
D. Richard Ryan, Jr., Robert J. Lipsig, Arthur S. Nicholas
(Continued and to be signed and dated on the reverse side.)
