<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 Section 240.14a-11(c) or Section
240.14a-2
DISC GRAPHICS, 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
0-12.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid 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 paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
DISC GRAPHICS, INC.
10 GILPIN AVENUE
HAUPPAUGE, NEW YORK 11788
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Disc
Graphics, Inc. (the "Company") will be held at the Watermill, 711 Route 347,
Smithtown, New York, on Wednesday, June 10, 1998, at 9:30 A.M., New York time,
for the following purposes:
1. To elect two Class II Directors;
2. To approve of the appointment of KPMG Peat Marwick LLP as
independent auditors for 1998; and
3. To transact such other business as may properly come before the
meeting, or any adjournment thereof.
Only Stockholders of record on the books of the Company at the close of
business on April 24, 1998 are entitled to notice of and to vote at the Annual
Meeting or at any adjournment thereof.
By Order of the Board of Directors,
Stephen Frey
Secretary
Hauppauge, New York
April 27, 1998
Please date, sign and mail the accompanying form of proxy as promptly as
possible in the enclosed envelope.
<PAGE> 3
DISC GRAPHICS, INC.
April 27, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Disc Graphics, Inc. to be held at 9:30 A.M., on Wednesday, June 10, 1998, at the
Watermill, 711 Route 347, Smithtown, New York (the "Annual Meeting"). Your Board
of Directors looks forward to greeting personally those stockholders able to be
present.
At the Annual Meeting, you will be asked to elect two Class II Directors
and to approve of the appointment of KPMG Peat Marwick LLP as independent
auditors for 1998. Your Board of Directors unanimously recommends that you vote
FOR the election of the Class II Directors who have been nominated and FOR the
approval of KPMG Peat Marwick LLP as independent auditors for 1998.
Regardless of the number of shares you may own, it is important that they
are represented and voted. Therefore, please sign, date and mail the enclosed
proxy in the return envelope provided.
Your cooperation is appreciated.
Sincerely,
DONALD SINKIN
President and Chief Executive Officer
<PAGE> 4
DISC GRAPHICS, INC.
10 GILPIN AVENUE
HAUPPAUGE, NEW YORK 11788
------------------------
PROXY STATEMENT
------------------------
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Disc Graphics, Inc. (the "Company") for use at its Annual Meeting
of Stockholders to be held at the Watermill, 711 Route 347, Smithtown, New York,
on Wednesday, June 10, 1998, at 9:30 A.M., New York time, and any adjournments
thereof (the "Annual Meeting"). Stockholders of record on the books of the
Company at the close of business on April 24, 1998 (the "Record Date"), will be
entitled to vote at the Annual Meeting or at any adjournment thereof. The
approximate date on which this Proxy Statement and the enclosed Proxy are being
first mailed to stockholders is April 27, 1998.
The cost of solicitation will be borne by Disc Graphics, Inc. The Board of
Directors may use the services of Disc Graphics, Inc.'s Directors, officers and
other regular employees to solicit proxies personally or by telephone.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to forward solicitation material to the beneficial owners of the
shares held of record by such persons, and Disc Graphics, Inc. will reimburse
them for reasonable expenses incurred by them in so doing.
The shares represented by the accompanying proxy will be voted as directed
with respect to the election of Directors and with respect to Proposal 2, or if
no direction is indicated, will be voted in favor of the election as Directors
of the nominees listed herein and in favor of Proposal 2. Each proxy executed
and returned by a stockholder may be revoked at any time thereafter by giving
written notice of such revocation to the Secretary of Disc Graphics, Inc. or by
attending the Annual Meeting and electing to vote in person, except as to any
matter or matters upon which, prior to such revocation, a vote shall have been
cast pursuant to the authority conferred by such proxy.
If voting by proxy with respect to the election of Directors, stockholders
may vote in favor of all nominees, withhold their votes as to all nominees or
withhold their votes as to specific nominees. With respect to each other
proposal that comes before the stockholders at the Annual Meeting, stockholders
may vote for the proposal, vote against the proposal or abstain from voting with
respect to the proposal. Assuming a quorum is present, the affirmative vote of a
majority of the votes cast by the holders of shares of common stock, $.01 par
value per share ("Common Stock"), entitled to vote will be required for approval
of each matter to be submitted to a vote of the stockholders. Abstentions and
broker non-votes (when a nominee holding shares for a beneficial owner has not
received voting instructions from the beneficial owner with respect to a
particular matter and such nominee does not possess or choose to exercise
discretionary authority with respect thereto) will be included in the
determination of the number of shares of Common Stock present at the meeting for
quorum purposes. Abstentions and broker non-votes will not be included, however,
in the tabulations of votes cast on proposals presented to stockholders for
purposes of determining whether proposals have received a majority vote. See
"Security Ownership of Certain Beneficial Owners and Management -- Voting
Agreement".
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
At the close of business on April 15, 1998, the Company had outstanding
5,440,256 shares of Common Stock, each of which entitles the holder to one vote
at the Annual Meeting of Stockholders.
The following table provides information at April 15, 1998, with respect to
(i) any person known to the Company to be the beneficial owner of five percent
or more of the Common Stock of the Company based upon filings with the
Securities and Exchange Commission, (ii) all Directors of the Company, (iii) the
chief executive officer and each of the three other most highly compensated
executive officers, and (iv) all Directors and executive officers as a group.
For the purpose of computing the percentage of the Common Stock owned by each
person or group listed in this table, any shares not outstanding which are
subject to options exercisable within 60 days of the Record Date have been
deemed to be outstanding and owned by such person or group, but have not been
deemed to be outstanding for the purpose of computing the percentage of the
Common Stock owned by any other person.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
------------------- ------------------------ ----------------
<S> <C> <C>
Allen & Company Incorporated....................... 760,327(2) 12.8%
Holding Capital Management Corp.................... 427,634(3) 7.8%
Directors, Nominees and Executive Officers:
Donald Sinkin...................................... 1,720,066(4) 29.6%
Stephen Frey....................................... 650,979(5) 11.7%
John Rebecchi...................................... 616,186(6) 11.0%
Daniel A. Levinson................................. 259,856(7) 4.7%
Seymour W. Zises................................... 183,747(8) 3.4%
Mark L. Friedman................................... 165,920(9) 3.0%
Margaret Krumholz.................................. 40,600(10) *
All Directors and executive officers as a group (7
persons)......................................... 3,637,354 58.3%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, beneficial ownership represents sole voting and
investment power and only includes options and warrants exercisable within
the next 60 days.
(2) Information is from a Schedule 13G/A filed by Allen & Company Incorporated
and Allen Holding Inc., dated February 11, 1998. The address for Allen &
Company Incorporated is 711 Fifth Avenue, New York, New York 10022.
Includes shares of Common Stock owned by Allen & Company Incorporated.
Includes 409,500 Class A Warrants and Merger Warrants to purchase an
aggregate of 85,912 shares of Common Stock at exercise prices ranging from
$7.00 per share to $10.00 per share.
(3) Includes Merger Warrants to purchase an aggregate of 103,092 shares of
Common Stock at exercise prices ranging from $7.00 per share to $10.00 per
share. The address for Holding Capital Management Corp. is 685 Fifth
Avenue, New York, New York 10022.
(4) Includes Merger Warrants to purchase an aggregate of 335,240 shares of
Common Stock at exercise prices ranging from $7.00 per share to $10.00 per
share. Includes 158,044 shares of Common Stock and Merger Warrants to
purchase an aggregate of 45,128 shares of Common Stock at exercise prices
ranging from $7.00 per share to $10.00 per share held by Spring Hollow
Holding LLC and 7,557 shares of Common Stock owned by his wife.
(5) Includes Merger Warrants to purchase an aggregate of 99,464 shares of
Common Stock at exercise prices ranging from $7.00 per share to $10.00 per
share. Includes 158,044 shares of Common Stock and Merger Warrants to
purchase an aggregate of 45,128 shares of Common Stock at exercise prices
ranging from $7.00 per share to $10.00 per share held by Stephen Ashley
LLC.
(6) Includes Merger Warrants to purchase an aggregate of 91,736 shares of
Common Stock at exercise prices ranging from $7.00 per share to $10.00 per
share. Includes 158,044 shares of Common Stock and
2
<PAGE> 6
Merger Warrants to purchase an aggregate of 45,128 shares of Common Stock
at exercise prices ranging from $7.00 per share to $10.00 per share held by
Tin Box Holding LLC.
(7) Includes Merger Warrants to purchase an aggregate of 28,636 shares of
Common Stock at exercise prices ranging from $7.00 per share to $10.00 per
share. Includes 100,292 shares of Common Stock and Merger Warrants to
purchase an aggregate of 28,636 shares of Common Stock at exercise prices
ranging from $7.00 per share to $10.00 per share held by the Jo Levinson
1989 Trust. Includes options to purchase 2,000 shares of Common Stock.
Excludes options to purchase 1,000 shares of Common Stock which become
exercisable July 1, 1998.
(8) Includes 28,827 shares of Common Stock held by Z Four Partners, LLC.
Includes options to purchase 25,000 shares of Common Stock.
(9) Includes options to purchase 26,000 shares of Common Stock. Excludes
options to purchase 1,000 shares of Common Stock which become exercisable
July 1, 1998.
(10) Includes options to purchase 25,000 shares of Common Stock, 12,600 shares
of Common Stock owned by her husband and 3,000 shares of Common Stock owned
by her minor children.
VOTING AGREEMENT
In October 1995, Disc Graphics, Inc., a New York corporation ("Old Disc"),
merged with and into RCL Capital Corp. ("RCL") and RCL changed its name to Disc
Graphics, Inc. (the "Merger"). Pursuant to the Merger, the Company, Donald
Sinkin, Stephen Frey, John Rebecchi, Sheldon Simon, Sal Maisano, Harold M. Wit,
Allen & Company Incorporated, Holding Capital Management Corp., the Jessand
Corp. Profit Sharing Plan and Trust, H. Sean Mathis, Mark L. Friedman, Seymour
W. Zises and Z Four Partners, LLC entered into a voting and registration rights
agreement dated as of October 30, 1995 (the "Voting Agreement") relating to the
control and operation of the Company, and to restrict the transfer of their
shares of Common Stock. In connection with the Merger, the former Old Disc
stockholders received Warrants to purchase shares of Common Stock of the Company
at exercise prices ranging from $7.00 to $10.00 per share ("Merger Warrants").
The parties to the voting agreement have agreed, among other things, to use
their best efforts, for a four year period beginning on October 30, 1995, (i) to
secure the nomination of and to vote all shares of Common Stock which such
stockholders beneficially own in favor of the election and continuation in
office of four nominees designated by the former Old Disc stockholders and two
nominees designated by the RCL stockholders, (ii) to vote all shares of Common
Stock which such stockholders beneficially own against, and to use such
stockholders' best efforts to cause the nominees on the Board of Directors
designated by such stockholders' group, subject to such nominees' fulfillment of
their fiduciary duties to the stockholders of the Company, to vote against any
amendment to the Articles of Incorporation or the By-laws which would have the
effect of increasing the number of persons constituting the whole Board of
Directors of the Company to more than six. In addition, for such period the RCL
Stockholders shall use their best efforts to cause each of their nominees to the
Board of Directors, subject to fulfillment by such persons of their fiduciary
duties to the stockholders of the Company, to nominate and vote in favor of the
election and continuation in office of Donald Sinkin as President and Chief
Executive Officer, John Rebecchi as Vice President and Stephen Frey as Vice
President, or such other persons nominated by the Old Disc stockholders,
provided that such person is, at the time of such nomination and election,
employed by the Company or any subsidiary.
3
<PAGE> 7
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and Bylaws provide for a Board
of Directors which is divided into three Classes whose terms of office expire in
successive years. At the Annual Meeting, the stockholders will elect two Class
II Directors for a term of three years which expire in 2001. If no direction to
the contrary is given, all proxies received by the Board of Directors will be
voted "FOR" the election as Directors of Donald Sinkin and Daniel A. Levinson.
The Board of Directors knows of no reason to anticipate that this will occur.
The Company's Board of Directors consists of six directors as set forth below.
<TABLE>
<CAPTION>
CLASS II CLASS III CLASS I
(TO SERVE UNTIL THE (TO SERVE UNTIL THE (TO SERVE UNTIL THE
ANNUAL MEETING OF ANNUAL MEETING OF ANNUAL MEETING OF
STOCKHOLDERS IN 2001) STOCKHOLDERS IN 2000) STOCKHOLDERS IN 1999)
- --------------------------- --------------------- ----------------------
<S> <C> <C>
Donald Sinkin(1)(4) Stephen Frey(1) Seymour W. Zises(1)(4)
Daniel A. Levinson(2)(3)(4) John Rebecchi(2) Mark L. Friedman(2)(3)
</TABLE>
- ---------------
(1) Member of Executive Committee
(2) Member of Audit Committee.
(3) Member of Incentive Stock Option Committee.
(4) Member of the Compensation Committee.
Donald Sinkin and Daniel A. Levinson, directors in Class II, are to be
elected to hold office until the Annual Meeting of Stockholders in 2001 or until
their successors are chosen and qualified. Shares represented by executed
proxies in the form enclosed will be voted, if authority to do so is not
withheld, for the election as directors of the aforesaid nominees unless any
such nominee shall be unavailable, in which case such shares will be voted for a
substitute nominee designated by the Board of Directors. The Board of Directors
has no reason to believe that any of the nominees will be unavailable or, if
elected, will decline to serve.
Directors who are not employees of the Company receive an annual fee of
$2,500, plus a fee of $1,000 for each Board of Directors and Committee meeting
attended. In addition, each Director who serves as member of the Stock Option
Committee receives, on January 1 of each year, options to purchase 1,000 shares
of Common Stock of the Company at the market price on such date. All shares
awarded to such Directors vest six months from the date of grant. In 1997, an
aggregate of 2,000 shares were granted to Directors under this plan.
PRINCIPAL OCCUPATIONS OF DIRECTORS
The following is a brief account of the business experience for the past
five years of the Company's directors:
DONALD SINKIN (50 years of age) has been President, Chief Executive Officer
and Chairman of the Board of the Company and its predecessor since 1986.
STEPHEN FREY (44 years of age) has been Vice President of Operations and a
Director of the Company and its predecessor since 1986.
JOHN REBECCHI (43 years of age) has been the Company's Vice President of
Sales and a Director since October 1995 and was Chief Financial Officer from
October 1995 to January 1996. Prior to October 1995, Mr. Rebecchi was Vice
President of Marketing and Chief Financial Officer of the Company's predecessor
since 1988.
DANIEL A. LEVINSON (37 years of age) has been a Director of the Company and
its predecessor since October 1991. In 1998, Mr. Levinson founded Colt Capital
Group, a niche provider of investment capital, resources and support to small
and mid-size growing companies. Prior thereto, Mr. Levinson was a group
executive of Holding Capital Group from 1988 to 1998.
SEYMOUR W. ZISES (44 years of age) has been a Director of the Company since
August 1992 and was a Vice President and Treasurer from August 1992 until
October 1995. He is currently President and Chief
4
<PAGE> 8
Executive Officer of Family Management Corporation, a registered investment
advisory firm in New York City which he established in 1989. Mr. Zises also
serves as President and Chief Executive Officer of Forest Hill Capital
Corporation, a merchant banking concern. Mr. Zises is also a Director of
Specialty Retail Group, Inc. Prior to his founding Family Management Corporation
and Forest Hill Capital Corporation, he was an independent financial services
representative licensed with Integrated Resources Equity Corporation, a broker
dealer. Mr. Zises is one of several individual general partners or an officer or
shareholder of a general partner of six (6) real estate limited partnerships
which filed petitions for bankruptcy under Chapter 11 of the United States
Bankruptcy Code between 1990 and February 1993.
MARK L. FRIEDMAN (50 years of age) has been a Director of the Company since
April 1996 and was a Vice President, Secretary and a Director of the Company
from August 1992 until October 1995. He has been counsel to the law firm of Baer
Marks & Upham LLP since February 1995. From January 1993 through January 1995 he
was counsel to the law firm of Proskauer Rose LLP. From 1982 through 1992 he was
(individually or through a professional corporation) a partner of the law firm
of Shea & Gould. From July 1996 to July 1997, Mr. Friedman served as corporate
secretary of a private company which subsequently filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code.
No family relationships exist among any of the named Directors or executive
officers. The election of Directors and the appointment of certain of the
executive officers of the Company are subject to the Voting Agreement described
under "Security Ownership of Beneficial Owners and Management-Voting Agreement."
As of April 15, 1998, the parties to the Voting Agreement owned in excess of 51%
of the outstanding Common Stock of the Company, and could therefore, without the
vote of any other stockholder, elect all of the Directors of the Company.
Messrs. Sinkin, Frey, Rebecchi, Levinson, Friedman and Zises are parties to the
Voting Agreement and were or are nominated as Directors pursuant thereto.
Messrs. Sinkin, Frey and Rebecchi were elected executive officers pursuant to
the Voting Agreement. The Company does not vote any of its shares of Common
Stock.
BOARD AND COMMITTEE MEETINGS
During fiscal 1997, there were three meetings of the Board of Directors.
During 1997, each Director attended more than 75% of each of the meetings of the
Board held while he was a Director, except for Daniel Levinson.
The Audit Committee held two meetings during fiscal 1997. The Audit
Committee reviews and evaluates the results and scope of the audit and other
services provided by the Company's independent accountants, as well as the
Company's accounting principles and system of internal accounting controls.
The Compensation Committee held one meeting during fiscal 1997. The
Compensation Committee reviews management recommendations regarding compensation
of employees above a certain salary level and compensation to Directors.
The Executive Committee held no meetings during fiscal 1997. The Executive
Committee has all the powers of the Board when the Board is not in session,
except as limited by statute.
The Incentive Stock Option Committee also held no meetings during fiscal
1997. The Incentive Stock Option Committee reviews and approves or disapproves
of recommendations concerning incentive stock options and awards stock options
pursuant to the 1995 Incentive Stock Option Plan. The Board of Directors has no
standing Nominating Committee.
5
<PAGE> 9
MANAGEMENT
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME OFFICE HELD
---- -----------
<S> <C>
Donald Sinkin.............. Chairman of the Board, President and Chief Executive Officer
Stephen Frey............... Vice President of Operations
John Rebecchi.............. Vice President of Sales
Margaret Krumholz.......... Chief Financial Officer
</TABLE>
Ms. Margaret Krumholz (38 years of age) has been Chief Financial Officer of
the Company since January 1996. From October 1994 through December 1995, Ms.
Krumholz served as Controller of the Company. Prior to joining the Company, from
October 1987 to October 1994, Ms. Krumholz was employed in various financial and
accounting positions, including Corporate Finance Manager, for General Foods
Baking Company.
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the Company's
Chief Executive Officer and each of the Company's three other most highly
compensated executive officers. Information provided for 1995 consists of
compensation earned as executive officers of Old Disc until October 30, 1995,
the date of the Merger, and compensation earned as executive officers of the
Company from October 30, 1995 through December 31, 1995. Disclosure is provided
in footnotes of amounts earned by the executive officers as executive officers
of the Company for the period from October 30, 1995 through December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
---------------------------------- NUMBER OF LONG-TERM
OTHER ANNUAL RESTRICTED SHARES INCENTIVE ALL OTHER
FISCAL COMPENSATION STOCK UNDERLYING PLAN COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) (2) AWARDS OPTIONS PAYOUTS (3)
- --------------------------- ------ -------- -------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald Sinkin............. 1997 $262,500 $157,500 -- -- -- -- $21,123
President and Chief 1996 250,000 250,000 -- -- -- -- 3,955
Executive Officer 1995(4) 219,066 191,666 -- -- -- -- 9,147
Stephen Frey.............. 1997 $168,000 $143,425 -- -- -- --
Vice President of 1996 160,000 212,883 -- -- -- -- 6,286
Operations 1995(5) 143,876 87,924 -- -- -- -- 8,982
John Rebecchi............. 1997 $168,000 $145,832 -- -- -- -- $ 8,937
Vice President of 1996 160,000 206,146 -- -- -- -- 6,901
Sales 1995(6) 139,145 132,847 -- -- -- -- 8,651
Margaret Krumholz......... 1997 $131,291 $ 59,062 -- -- -- -- $ 1,273
Chief Financial 1996 119,000 62,500 -- -- 25,000 -- 1,275
Officer 1995 90,000 9,500 -- -- -- -- --
</TABLE>
- ---------------
(1) Represents for Messrs. Sinkin, Frey and Rebecchi incentive compensation
under employment agreements. See "Management -- Employment Agreements."
(2) Other Annual Compensation excludes certain perquisites and other non-cash
benefits provided by the Company since such amounts do not exceed the lesser
of $50,000 or 10% of the total annual base salary and bonus disclosed in
this table for the respective officer.
(3) All Other Compensation in fiscal 1997 includes: (a) $19,812, $5,000 and
$7,000 of premiums paid by the Company in respect of certain split-dollar
life insurance policies on the lives of Messrs. Sinkin, Frey and Rebecchi,
respectively. The Company is the beneficiary to the extent of the premiums
paid; and
6
<PAGE> 10
(b) Company contributions under the Disc Graphic, Inc. 401(k) Retirement
Plan of $1,311, $1,291, $1,937 and 1,273 paid by the Company for Messrs.
Sinkin, Frey, and Rebecchi and Ms. Krumholz, respectively.
(4) Salary, bonus and other annual compensation earned by Mr. Sinkin as an
executive officer of the Company in 1995, after the date of the Merger, were
$41,660, $16,667 and $1,524, respectively.
(5) Salary, bonus and other annual compensation earned by Mr. Frey as an
executive officer of the Company in 1995, after the date of the Merger, were
$26,660, $10,667 and $1,497, respectively.
(6) Salary, bonus and other annual compensation earned by Mr. Rebecchi as an
executive officer of the Company in 1995, after the date of the Merger, were
$26,660, $10,667 and $1,441, respectively.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company received, at the time
he joined the Board of Directors, an at-the-market grant of an option to
purchase 25,000 shares of the Company's Common Stock under the 1995 Incentive
Stock Option Plan. Directors who are members of the Incentive Stock Option
Committee receive an annual at-the-market grant of an option to purchase 1,000
shares of the Company's Common Stock pursuant to the terms of the 1995 Incentive
Stock Option Plan. In either case, the options will vest six months from the
date of the grant. All non-employee members of the Board of Directors receive an
annual fee of $2,500, plus $1,000 for each Board of Directors and Committee
meeting attended.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company is party to employment contracts with each of Messrs. Sinkin,
Frey and Rebecchi with base annual compensation of $275,625, $176,400, and
$176,400, respectively. In addition, each of the employment contracts provides
for bonuses based on the Company achieving specified financial targets. Each of
the employment contracts is for an approximately six year term ending December
31, 2001, and requires the executive to dedicate substantially all of his
business time to the Company's affairs. In addition to such compensation, each
of the employment contracts provides for a car allowance of from $700 to $1,500
per month. Furthermore, the employment agreements of Messrs. Rebecchi and Frey
provide that on or before April 15, 1996, and April 15, 1997, Messrs. Rebecchi
and Frey will each receive additional compensation of up to $29,000 (in 1996) or
$27,000 (in 1997) in connection with the repayment of certain notes payable to
the Company. In 1997, Mr. Rebecchi received $28,000 and Mr. Frey received
$26,000 in accordance with the terms of such agreements.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
No Options were granted to the executive officers named in the "Summary
Compensation Table" during the fiscal year ended December 31, 1997.
1995 LONG TERM INCENTIVE PLAN
The Company has adopted the Disc Graphics, Inc. 1995 Incentive Stock Option
Plan (the "1995 Stock Option Plan") in order to advance the interests of the
Company by encouraging and enabling the acquisition of a larger personal
proprietary interest in the Company by key employees and directors of, and
consultants to, the Company and its subsidiaries upon whose judgment and keen
interest the Company is largely dependent for the successful conduct of its
operations. The 1995 Stock Option Plan provides for the grant of "incentive
stock options" within the meaning of the Section 422 of the Internal Revenue
Code of 1986, as amended, "non-qualified stock options," stock appreciation
rights, restricted stock, performance grants and other types of awards.
The 1995 Stock Option Plan, which is administered by the Incentive Stock
Option Committee of the Board of Directors (currently comprised of Mark L.
Friedman and Daniel Levinson) authorizes the issuance of a maximum of 500,000
shares of Common Stock which may be either newly issued shares, treasury shares,
re-acquired shares, shares purchased in the open market or any combination
thereof. Incentive stock options
7
<PAGE> 11
generally may be granted at an exercise price of not less than the fair market
value of shares of Common Stock on the date of grant, and non-qualified stock
options may be granted at an exercise price determined by the Incentive Stock
Option Committee. If any award under the 1995 Incentive Plan terminates, expires
unexercised, or is canceled, the shares of Common Stock that would otherwise
have been issuable pursuant thereto will be available for issuance pursuant to
the grant of new awards. The Company has an aggregate of 140,645 options to
purchase shares of Common Stock outstanding under the 1995 Stock Option Plan.
Options to purchase 25,000 shares have been granted to each of Margaret
Krumholz, Seymour W. Zises and Mark L. Friedman. Options to purchase 3,000
shares have been granted to Daniel Levinson and options to purchase 2,000 shares
have been granted to Mark L. Friedman. Each of these options is exercisable for
ten years for prices of $2.00 to $4.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to the Merger, Messrs. Sinkin, Frey, Rebecchi and Levinson, who
constituted the Board of Directors of Old Disc, participated in discussions of
executive compensation. By virtue of the Merger, the Company assumed employment
agreements with each of Messrs. Sinkin, Frey and Rebecchi which set forth
compensation to such executive officers for an approximately six year period
ending December 31, 2001.
The Board of Directors has the responsibility for setting the compensation
paid to the Chief Executive Officer and for other executive officers of the
Company. Currently, the Company's executive officers, including the Chief
Executive Officer, other than Margaret Krumholz, are compensated pursuant to
written employment agreements providing for a base salary and bonuses based upon
the Company's achieving specified financial targets. These agreements provide
for annual salary increases intended to maintain the executive's base salary
against increases in the cost of living as measured by the United States
Department of Labor.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation Committee
Report on Executive Compensation" and "Performance Graph" will not be deemed to
be filed or to be proxy soliciting material or incorporated by reference in any
prior or future filings by the Company under the Securities Act of 1933 or the
Securities Exchange Act.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is generally
determined by either the Board of Directors or the Compensation Committee of the
Board of Directors, subject to applicable employment agreements. Each member of
the Compensation Committee, except for Donald Sinkin, is a director who is not
an employee of the Company or any of its affiliates. The following report with
respect to certain compensation paid or awarded to the Company's executive
officers during fiscal 1997 is furnished by the directors who comprised the
Compensation Committee during fiscal 1997.
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company to
attract, motivate, reward and retain the management talent required to achieve
corporate objectives, and thereby increase shareholder value. It is the
Company's policy to provide incentives to its senior management to achieve both
short-term and long-term objectives and to reward exceptional performance and
contributions to the development of the Company's businesses. To attain these
objectives, the Company's executive compensation program includes a competitive
base salary, cash incentive bonuses and stock-based compensation. See "Executive
Compensation -- Employment Agreements".
Stock options are granted to employees, including the Company's executive
officers, by the Compensation Committee under the Company's stock option plans.
The Committee believes that stock options provide an incentive that focuses the
executive's attention on managing the Company from the perspective of an owner
with an equity stake in the business. Options are awarded with an exercise price
equal to the market value of Common Stock on the date of grant, have a maximum
term of ten years and generally become exercisable six
8
<PAGE> 12
months from the date of grant. Among the Company's executive officers, the
number of shares subject to options granted to each individual generally depends
upon the level of that officer's responsibility. The largest grants are awarded
to the most senior officers who, in the view of the Compensation Committee, have
the greatest potential impact on the Company's profitability and growth.
Previous grants of stock options are reviewed but are not considered the most
important factor in determining the size of any executive's stock option award
in a particular year.
RELATIONSHIP OF COMPENSATION TO PERFORMANCE
The Compensation Committee annually establishes, subject to the approval of
the Board of Directors and any applicable employment agreements, the salaries
which will be paid to the Company's executive officers during the coming year.
In setting salaries, the Compensation Committee takes into account several
factors, including competitive compensation data, the extent to which an
individual may participate in the stock plans maintained by the Company, and
qualitative factors bearing on an individual's experience, responsibilities,
management and leadership abilities, and job performance.
For fiscal 1997, pursuant to the terms of their employment agreements with
the Company, Donald Sinkin, the Company's Chairman of the Board, President and
Chief Executive Officer, Stephen Frey, the Company's Vice President of
Operations, and John Rebecchi, the Company's Vice President of Sales, each
received a base salary and a cash incentive bonus based on the Company's pre-tax
income. See "Management -- Employment Agreements." In light of these employment
agreements, the Compensation Committee/Board of Directors was not required to
make any decision regarding the cash compensation of Messrs. Sinkin, Frey and
Rebecchi. Ms. Margaret Krumholz, the Company's Chief Financial Officer, received
a base salary and a cash bonus. The Compensation Committee determined that this
base salary and bonus were appropriate given the Company's financial
performance, the substantial contribution made by Ms. Krumholz to such
performance and the compensation levels of executives at companies competitive
with the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For fiscal 1997, pursuant to the terms of his employment agreement with the
Company, Mr. Donald Sinkin, the Company's Chairman of the Board, President and
Chief Executive Officer, received a base salary and a cash incentive bonus based
on the Company's pre-tax income. See "Management -- Employment Agreements". In
light of this employment agreement, the Compensation Committee was not required
to make any decision regarding the cash compensation of Mr. Sinkin.
The Compensation Committee
Seymour W. Zises
Daniel Levinson
Donald Sinkin
9
<PAGE> 13
BENEFICIAL OWNERSHIP REPORTS
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers, Directors and persons who own more than 10% of
a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the Nasdaq Stock Market. Officers, Directors and greater than ten-percent
stockholders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all such reports they file.
Based solely on a review of the copies of such reports furnished to the
Company, or written representations that no other reports were required, the
Company believes that during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, Directors and
greater than ten-percent beneficial owners were complied with, except that
Daniel Levinson and Seymour Zises each reported late on Form 5 a grant to him of
certain options in fiscal 1996 and Mr. Levinson also reported late on Form 4 a
purchase of common stock in January 1998.
10
<PAGE> 14
PERFORMANCE GRAPH
Set forth below is a graph comparing the total stockholder returns
(assuming reinvestment of dividends, if any) of the Company from November 1993
through December 1997, to (1) an index of all United States companies listed on
the Nasdaq Stock Market ("NASDAQ"), and (2) an index of all United States
Companies in the printing, publishing and allied industries listed on NASDAQ.
The graph assumes $100 invested in November 1993 in the Company and each of the
other indices.
The Company's Common Stock began trading on the OTC Bulletin Board on
November 19, 1993, and the average of the bid and ask price on such date was
$4.375. This price was used as the initial share price. Except for the line
representing the Company's Common Stock, which was prepared by the Company from
information provided by the OTC Bulletin Board and the American Stock Exchange,
the graph was prepared from data supplied by the Center for Research in Security
Prices of the University of Chicago Graduate School of Business.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR DISC GRAPHICS, INC.
Prepared by the Center for Research in Security Prices
Produced on 04/20/98 including data to 12/31/97
<TABLE>
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
Disc Graphics, Inc. 76.5 48.5 105.9
Nasdaq Stock Market
(US Companies) 63.9 73.3 71.7 101.4 124.7 153.1
NASDAQ Stocks (SIC 2700-2799 66.6 80.0 75.3 114.8 111.8 124.7
US Companies) Printing,
publishing, and
allied industries
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/30/95.
11
<PAGE> 15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases a 55,000 square foot building in Hauppauge, New York
from Horizon Equities L.P. ("Horizon"). In addition, the Company leased three
pieces of equipment from Horizon, which leases were assigned to the Company in
connection with the Merger. Horizon Equities, Inc., the corporate general
partner of Horizon, is owned by Messrs. Sinkin, Frey and Rebecchi, executive
officers and Directors of the Company, and two other employees of the Company.
The limited partners of Horizon are Holding Capital Management Corp., a more
than five percent beneficial stockholder of the Company, Timothy F. Healy, an
affiliate of Holding Capital Management Corp., Jessand Corp., an affiliate of
James W. Donaghy, and Investment Services Corp. ("ISC"), an affiliate of Mr.
Levinson. The aggregate payments by the Company in 1997 for rental of the
building and the equipment were $348,000. The Company believes that the terms of
the building lease are at least as favorable to the Company as the terms for an
equivalent lease which could have been obtained from unaffiliated third parties.
The Company is party to consulting agreements with each of Timothy F. Healy
& Co., Inc. ("TFH&C"), Holding Services Corp. ("HSC") and ISC. TFH&C and HSC are
affiliates of Timothy F. Healy and Holding Capital Management Corp.,
respectively. The aggregate payments under the consulting agreements were
$112,000 in 1997. The Company believes that the terms of these consulting
agreements are at least as favorable to the Company as the terms for equivalent
consulting agreements which could have been obtained from unaffiliated third
parties.
Messrs. Rebecchi and Frey, current executive officers and Directors of the
Company, each have outstanding notes payable to the Company evidencing personal
loans. The notes bear interest at a rate of 9.0% per annum. The largest
aggregate amounts outstanding under these notes for Messrs. Rebecchi and Frey
since October 30, 1995 were $48,312 and $51,040, respectively. The notes were
payable in five equal annual installments on May 1 of each year from 1993 to
1997 and were paid in full on April 15, 1997. On April 15, 1996 and April 15,
1997, Messrs. Rebecchi and Frey each received additional compensation of $28,000
and $26,000, respectively, in connection with the repayment of such notes.
CHANGE IN THE COMPANY'S CERTIFYING ACCOUNTANT
On November 10, 1995, the Board of Directors voted to terminate Price
Waterhouse LLP as regular auditors for the Company and to retain KPMG Peat
Marwick LLP as the regular auditors for the Company. KPMG Peat Marwick LLP had
been the regular auditors for Old Disc prior to the Merger and the Board cited
their experience and knowledge of Old Disc in deciding to retain them.
The reports of Price Waterhouse LLP on the financial statements for years
ended March 31, 1994 and 1995 did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During the years ended March 31, 1994 and 1995, and the
period ended November 10, 1995, there were no disagreements with Price
Waterhouse LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Price Waterhouse LLP, would have caused it
to make reference to the subject matter of the disagreement in connection with
this report.
12
<PAGE> 16
PROPOSAL NO. 2
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP,
which has audited the account of the Company since November 1995 and the
accounts of Old Disc since 1991, as independent auditors for the year 1998. The
stockholders are requested to signify their approval or disapproval of the
appointment.
It is expected that a representative of KPMG Peat Marwick LLP will be
present at the Annual Meeting. The representative will have an opportunity to
make a statement and is expected to be available to respond to appropriate
questions.
MANAGEMENT RECOMMENDS A VOTE FOR APPROVAL OF THE APPOINTMENT OF KPMG PEAT
MARWICK LLP AS THE COMPANY'S AUDITORS FOR 1998.
OTHER BUSINESS
As of the date of this Proxy Statement, the only business which the Board
of Directors intends to present, and knows that others will present, at the
meeting is that set forth herein. If any other matter or matters are properly
brought before the meeting or any adjournments thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their judgment.
Proposals of stockholders intended to be presented at the Company's next
Annual Meeting of Stockholders must be received by the Company on or prior to
December 17, 1998 to be eligible for inclusion in the Company's Proxy Statement
and form of proxy to be used in connection with that Annual Meeting.
An Annual Report to Stockholders for the fiscal year ended December 31,
1997, including financial statements, accompanies this Proxy Statement.
Stockholders are referred to the report for financial and other information
about the Company, but such report is not incorporated in this Proxy Statement
and is not a part of the proxy soliciting material.
By Order of the Board of Directors,
Stephen Frey
Secretary
Hauppauge, New York
April 27, 1998
COPIES OF THE EXHIBITS TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
PERIOD ENDED DECEMBER 31, 1997 MAY BE OBTAINED BY STOCKHOLDERS SOLICITED HEREBY,
WITHOUT CHARGE, UPON WRITTEN REQUEST SENT TO MARGARET KRUMHOLZ, CHIEF FINANCIAL
OFFICER, DISC GRAPHICS, INC., 10 GILPIN AVENUE, HAUPPAUGE, NEW YORK 11788.
13
<PAGE> 17
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING
MAY 16, 1997
The undersigned hereby appoints Donald Sinkin and Margaret Krumholz, or either
of them, attorneys and Proxies with full power of substitution in each of them,
in the name and stead of the undersigned to vote as Proxy all the stock of the
undersigned in Disc Graphics, Inc., a Delaware corporation, at the Annual
Meeting of Stockholders scheduled to be held on May 16, 1997 and any
adjournments thereof.
(Continued and to be signed on reverse side)
SEE REVERSE SIDE
The Board of Directors recommends a vote FOR the following proposals:
1. Election of the following nominees, as set forth in the proxy statement:
Stephen Frey and John Rebecchi
[ ] FOR all nominees listed above [ ] WITHHOLD authority to vote
[INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THE NOMINEE'S NAME ON THE LINE PROVIDED BELOW]
- ------------------------------------------------
2. Proposal to approve or disapprove the appointment of KPMG Peat Marwick LLP
as independent auditors for 1997:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Upon such other business as may properly come before the meeting or any
adjournment thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED BY PROXIES, AND EACH OF THEM, AS
SPECIFIED AND, IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING. STOCKHOLDERS MAY WITHHOLD THE VOTE FOR ONE OR MORE
NOMINEE(S) BY WRITING THE NOMINEE(S) NAME(S) IN THE BLANK SPACE PROVIDED ON THE
REVERSE HEREOF. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR
PROPOSALS AS SET FORTH ON THE REVERSE HEREOF.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
[L.S.] [L.S.]
- ------------------------------ ------------------------------
DATED: , 1997
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