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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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-12
ESCALADE, INCORPORATED
(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)(1) and 0-11.
(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.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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ESCALADE, INCORPORATED
Notice of Annual Stockholders' Meeting
April 22, 2006
9:00 a.m. Eastern Standard Time
Dear Stockholder:
You are cordially invited to attend our 2006 Annual Stockholders'
Meeting, which will be held at 9:00 a.m. Eastern Standard Time on Saturday,
April 22, 2006 at the Sheraton Indianapolis Hotel & Suites, 8787 Keystone
Crossing, Indianapolis, IN 46240
We are holding the annual meeting for the following purposes:
1. To elect to the Board seven (7) Directors as set forth herein;
2. To approve a special grant of 2,000 stock options to each of the Company's
five non-employee directors elected at the Annual Meeting; and
3. To transact such other business that may properly come before the meeting or
any adjournment thereof.
These items are fully described in the proxy statement, which is part
of this notice. We have not received notice of other matters that may be
properly presented at the annual meeting.
To ensure that your vote is promptly recorded, please vote as soon as
possible, even if you plan to attend the meeting in person. Please sign, mark
and return the Proxy enclosed with this Notice at your earliest convenience.
By order of the Board of Directors
Terry D. Frandsen
V.P. Finance, CFO & Secretary
Wabash, Indiana March 18, 2006
1
PROXY STATEMENT
The Board of Directors of Escalade, Incorporated (hereinafter referred to as
"Escalade" or the "Company"), headquartered at 251 Wedcor Avenue, Wabash,
Indiana 46992 ((260) 569-7208), is soliciting proxies, the form of which is
enclosed, for the Annual Meeting of Stockholders to be held on Saturday, April
22, 2006, at 9:00 a.m. Eastern Standard Time. Each of the 13,011,142 shares of
common stock outstanding on February 21, 2006 is entitled to one vote on all
matters acted upon at the meeting and only Stockholders of record on the books
of the Company at the close of business on February 21, 2006 will be entitled to
vote at the meeting, either in person or by proxy.
The shares represented by all properly executed proxies received by the Company
will be voted as designated and each not designated will be voted affirmatively.
Unless discretionary authority is withheld, all other matters coming before the
meeting will be voted according to the best judgment of the proxies. Any proxy
given by a shareholder of record may be revoked at any time before it is voted,
by written notice to the Company's Secretary, by execution of a later dated
proxy, or by a personal vote at the Annual Meeting. This proxy statement is
being mailed to shareholders on or about March 18, 2006.
The expense of soliciting proxies will be borne by the Company. Proxies will be
solicited principally by mail, but may also be solicited by Directors, Officers,
and other regular employees of the Company, who will receive no compensation in
addition to their regular salaries. Bankers and others who hold stock in trust
will be asked to send proxy materials to the beneficial owners of the stock, and
the Company may reimburse them for their expenses.
The holders of a majority of the Company's outstanding Common Stock must be
present or represented by proxy at the Annual Meeting to constitute a quorum.
The seven (7) nominees receiving the greatest number of votes cast at the Annual
Meeting upon the presence of a quorum will be elected as directors. A properly
executed proxy marked "Withhold Authority to Vote" with respect to the election
of one or more directors will not be voted with respect to the director or
directors indicated, although it will be counted for purposes of determining
whether there is a quorum present at the Annual Meeting. The persons named as
proxies in the enclosed proxy will vote for the election of the nominees named
below unless authority to vote is withheld.
For each other item presented at the Annual Meeting, the affirmative vote of the
holders of a majority of the Company's shares present or represented by proxy at
the Annual Meeting and entitled to vote on the item will be required for
approval. A properly executed proxy marked "Abstain" with respect to any such
matter will not be voted, although it will be counted for purposes of
determining whether there is a quorum present at the Annual Meeting.
Accordingly, an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other nominee, your
broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
The Annual Report of the Company for the year of 2005 is being mailed to you
with this proxy statement, but such report and financial statements are not a
part of this proxy statement.
2
CERTAIN BENEFICIAL OWNERS
Under Rule 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a
security is any person who directly or indirectly has or shares voting power or
investment power over such security. Such beneficial owner under this definition
need not enjoy the economic benefit of such securities. The following table sets
forth certain information regarding beneficial ownership of the Company's Common
Stock by its Executive Officers and by the only stockholders deemed to be
beneficial owners of 5% or more of the Common Stock of the Company as of
February 21, 2006.
Name and Address Amount and Nature Percentage
Title of Class Of Beneficial Owner Of Ownership Of Class
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Executive Officers
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Common Stock Robert E. Griffin 3,320,750 (1) 25.5% (1)
817 Maxwell Avenue
Evansville, Indiana 47717
Common Stock C. W. "Bill" Reed 965,573 (2) 7.4% (2)
251 Wedcor Avenue
Wabash, Indiana 46992
Common Stock Terry D. Frandsen 88,644 (3) 0.7% (3)
251 Wedcor Avenue
Wabash, Indiana 46992
Other 5% Stockholders
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Common Stock Andrew and Charmenz Guagenti 1,072,942 (4) 8.2% (4)
216 Water Street
Newburgh, Indiana 47630
Common Stock Royce & Associates, LLC 701,000 5.4%
1414 Avenue of the Americas
New York, NY 10019
(1) Includes 944,316 shares held by a Family Limited Partnership; 1,800,000
shares held by a Family Limited Liability Corporation; and 67,692
shares held by his children. Mr. Griffin disclaims beneficial ownership
of those shares. Also includes 2,598 shares issuable upon the exercise
of outstanding stock options.
(2) Includes 160,000 shares issuable upon the exercise of outstanding stock
options and 7,857 shares held by his children. Mr. Reed disclaims
beneficial ownership of those shares.
(3) Includes 85,000 shares issuable upon exercise of outstanding stock
options.
(4) Includes 416,930 shares held by Mr. Guagenti, in his name, in his
directed IRA, or as Trustee, and 656,012 shares owned by Mrs. Guagenti
directly, in her directed IRA, or as Trustee. Mr. and Mrs. Guagenti
each disclaim beneficial ownership of the shares held by the other.
ITEM NO. 1
ELECTION OF DIRECTORS
The Board of Directors voted to set the size of the Board at seven (7) members.
Keith P. Williams, currently serving as a Director, has elected, for personal
reasons, to retire at the end of his current term and is not standing for
reelection. The nominees presented for election include six individuals who are
current directors and one new independent candidate. Those persons whose names
are set forth below are standing for election. The term of office of the
Directors standing for election at the Annual Meeting will be until the next
annual meeting of the stockholders and until their successors are elected and
qualified.
Director candidates are nominated by the independent members of the Board of
Directors, as the Company does not believe that it is necessary to have a
separate Nominating Committee given the small size of the Board. The Board has
determined that a potential candidate to be nominated to serve as a director
3
should have the following primary attributes: high achievement expectations with
regard to increasing shareholder value; uncompromising position on maintaining
ethics; conservative attitude towards financial accounting and disclosure; and
should be a shareholder of the Company to bring the perspective of a shareholder
to the Board. To date, the Board has not deemed it necessary to engage a third
party search firm to assist in identifying suitable candidates for directors,
but has the authority to do so in the future. No fees were paid to any such
search firm in connection with the nominees for directors named in this proxy
statement. The Board believes that the existing Board members and executive
management of the Company have sufficient networks of business contacts that
will likely form the candidate pool from which nominees will be identified. Once
a candidate is identified, as many members of the Board as feasible will meet
with such candidate and the Board as a whole subsequently will evaluate the
candidates using the criteria outlined above. The independent Board members will
then make the final determination of whether or not to nominate the candidate.
In selecting a nominee for director to fill the Board seat being vacated by Mr.
Keith Williams at the Annual Meeting, the Board followed the process described
in the preceding paragraph. Mr. Edward Williams, a current independent Director
of the Company, identified Mr. Richard F. Baalman, Jr. as a nominee who was then
evaluated by all members of the Board prior to being nominated.
The Company does not have a formal process by which stockholders can propose
nominees to serve as directors. If any stockholder would desire to submit the
names and qualifications of potential candidates for directors, the Board would
evaluate the possible nominee according to the above criteria and would consider
such person in comparison to all other candidates and the number of directors
then constituting the Board. The Company has not received any such proposals for
this Annual Meeting. Accordingly, the Board has made no rejections or refusals
of such candidates.
Information with respect to each of the nominees for the Board of Directors is
set forth as follows:
Shares of Common Stock of
the Company Beneficially
owned on February 21, 2006
--------------------------------
Name and Principal Occupation Director Percent of
During the Past Five Years Since (1) Age Number Class
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Robert E. Griffin - Chairman since May, 1999, Previously 1973 71 3,320,750 (1) 25.5% (1)
Chairman and Chief Executive Officer of the Company since
February 1994, Previously President and Chief Executive
Officer since 1976
Blaine E. Matthews, Jr. - Director and Corporate Secretary 1965 68 346,833 (2) 2.7% (2)
of Matthews 1812 House, Inc. since 1979, a mail order
supplier of cakes and food gifts
C. W. "Bill" Reed - President and Chief Executive Officer 1997 59 965,573 (3) 7.4% (3)
since May, 1999, Previously President and Chief Operating
Officer of the Company since February, 1994 and President
of Martin Yale Industries, Inc. since 1980
Edward E. (Ned) Williams - Founder and President of 2004 45 385,359 (4) 3.0% (4)
Ballast Tools, Incorporated, a manufacturer of industrial
equipment and supplies used for railway track maintenance.
Mr. Edward Williams is also Vice President of Good Earth
Tools, Inc. (4)
George Savitsky - Founder and managing partner of 2004 67 17,609 (6) 0.1% (6)
Savitsky, Satin & Company, a business management
company specializing in managing the financial affairs of
people in the entertainment industry. Mr. Savitsky is a
certified public accountant
4
Richard D. White - Mr. White is currently a Managing Director 2004 52 15,315 (5) 0.1% (5)
at Oppenheimer & Co. Inc. and head of its Private Equity
Investment Department. From 2003 until mid 2004 Mr. White was
the founder and president of Aeolus Capital Group LLC, an
investment management group focused on small capitalization
valued oriented investments in public companies and control
oriented private equity investments. From 1985 until 2002,
Mr. White served as a Managing Director of CIBC Capital
Partners as well as a Managing Director and General Partner of
its predecessor by acquisition, Oppenheimer and Co., Inc.
Mr. White also serves as a director of ActivIdentity Corp.
and G-III Apparel Group, Ltd. Mr. White is a certified public
accountant and holds an undergraduate degree in Economics from
Tufts University in Medford, Massachusetts and an M.B.A. in
Finance and Accounting from the Wharton Graduate School of the
University of Pennsylvania in Philadelphia, Pennsylvania.
Richard F. Baalmann, Jr. - President (1988 to present) of Bamm Nominee 46 None 0.0%
Inc. and related companies, which operate ACE Hardware stores
in the St. Louis, Missouri area. Mr. Baalmann serves on the
ACE Hardware Corporation Board of Directors (1999 to present)
and is currently Chairman of the Audit Committee of same.
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All Directors and Executive Officers as a Group (8
Individuals) 5,140,083 39.5%
(1) See note (1) under "Certain Beneficial Owners".
(2) Includes 83,000 shares held by his spouse and 2,000 shares held by his
children. Mr. Blaine Matthews disclaims beneficial ownership of those
shares. Also includes 5,434 shares issuable upon the exercise of
outstanding stock options.
(3) See note (2) under "Certain Beneficial Owners".
(4) Includes 37,038 shares owned by Good Earth Tools, Inc., of which Mr.
Edward Williams owns 33% of the outstanding voting stock and is an
executive officer and 337,302 shares owned by KPW Family Limited
Partnership, of which Mr. Williams is one of three partners. Mr.
Williams disclaims beneficial ownership of these shares. Also includes
536 shares issuable upon the exercise of outstanding stock options.
(5) Includes 536 shares issuable upon the exercise of outstanding stock
options.
(6) Includes 536 shares issuable upon the exercise of outstanding stock
options.
While there is no reason to believe that any of the persons nominated will,
prior to the date of the meeting, refuse or be unable to accept the nomination,
should any person nominated so refuse or become unable to accept, it is the
intention of the persons named in the proxy to vote for such other person or
persons as the Directors recommend.
The Board does not have a formal policy regarding director attendance at the
Annual Meeting. Typically, the Board holds its annual organizational meeting
directly following the Annual Meeting, which results in most directors being
able to attend the Annual Meeting. In 2005, all seven directors elected at the
Annual Meeting were in attendance at that meeting.
The Board has determined that all of the above named incumbent directors and
nominee for director have met the independence standards of Rule 4200(a)(15) of
the National Association of Securities Dealers listing standards, with the
exceptions of Messrs. Griffin and Reed who are executive officers of the
Company.
5
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the names and ages of all of the executive
officers of the Company indicating all positions and offices held by each such
person as of the date of this Report. Mr. Griffin and Mr. Reed have served the
Company in various executive capacities throughout the past five years. Mr.
Frandsen joined the company in October 2002 as Vice President of Finance. He was
named Chief Financial Officer in September 2003. Prior to joining the Company,
Mr. Frandsen served as the Chief Operating Officer of Seiko Instruments USA,
Inc. from 1998. All such persons have been elected to serve until the next
annual election of officers and their successors are elected, or until their
earlier resignation or removal.
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First Elected as
Name Age as of February 21 2006 Offices and Positions Held Officer
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Robert E. Griffin 71 Chairman 12/1976
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C. W. "Bill" Reed 59 CEO and President 2/1994
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Terry D. Frandsen 48 V.P. Finance, CFO, Secretary 10/2002
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BOARD OF DIRECTORS, ITS COMMITTEES, MEETINGS, AND FUNCTIONS
The Board of Directors of the Company currently consists of two members who are
executive officers (Robert E. Griffin and C.W. ("Bill") Reed) and five
independent members (Blaine E. Matthews, Jr., Keith P. Williams, Edward E.
Williams, Richard D. White and George Savitsky).
During 2005, all Directors attended 100% of all meetings of the Board of
Directors and the committees on which they serve, except for Keith P. Williams
who attended 71% of all such meetings. The Board of Directors had four meetings,
of which Mr. Williams missed two meetings for health reasons. The independent
directors held regular executive sessions at each of the four Board Meetings.
The Board has designated Mr. Blaine Mathews as a lead or presiding director to
chair those executive sessions.
The Company has a standing Audit Committee of the Board of Directors composed of
Blaine E. Matthews, Jr., Edward E. Williams and George Savitsky. Each of these
members meets the requirements for independence set forth in the Listing
Standards of the National Association of Securities Dealers, Inc. The Board has
also determined that Blaine E. Matthews, Jr. is an audit committee financial
expert. The Audit Committee as a whole held four meetings in 2005. At three
meetings the committee met with the independent auditors and management to
review the interim financial information contained in each quarterly earnings
announcement. The main functions performed by the Audit Committee are to (1)
review with the independent auditors their observations on internal controls of
the Company and the competency of financial accounting personnel, (2) review
with the chief accounting officer and independent auditors, the accounting for
specific items or transactions as well as alternative accounting treatments and
their effects on earnings, (3) engage the firm of independent certified public
accountants to be hired by the Company and review that firm's independence, and
(4) approve all audit and non-audit services performed by the Company's
independent auditors. The Board of Directors has adopted a written charter for
the Audit Committee which can be found on the Company's website at:
www.escaladeinc.com/OVERVIEW/Governance/Audit_Committee_Charter.pdf
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The Board of Directors has a Compensation Committee comprised entirely of
independent directors; Richard D. White, Keith P. Williams and George Savitsky.
This committee met two times in 2005 to review salaries and compensation levels
within the Company. This committee also is responsible for awards of stock
options and met one time in 2005 to review the granting of options.
As discussed above, the Board of Directors has no nominating committee.
The Board of Directors has adopted the Escalade, Incorporated Code of Business
Conduct and Ethics which may be found on the Company's website at:
www.escaladeinc.com/OVERVIEW/Governance/Conduct.htm.
----------------------------------------------------
All employees of the Company, including its chief executive officer and senior
financial officers, are subject to compliance with the Code.
6
Stockholders may communicate directly with the Board of Directors in writing by
sending a letter to the Board at: Escalade, Incorporated, 251 Wedcor Avenue,
Wabash, Indiana 46992. All communications directed to the Board will be received
and processed by the Company's office of the Chief Financial Officer and will be
transmitted to the Chairman of the Audit Committee without any editing or
screening by such office.
Section 16 (a) Beneficial Ownership Reporting Compliance
To the best of the Company's knowledge, all of the Company's directors,
officers and 10% or more shareholders have timely filed with the Securities and
Exchange Commission all reports required to be so filed pursuant to Section 16
of the Securities Exchange Act of 1934 for 2005.
EXECUTIVE COMPENSATION
Summary
The following table is a summary of the compensation paid by the Company to
Messrs. Griffin, Reed and Frandsen, its executive officers, for the last three
years.
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Long Term
Annual Compensation Compensation
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Other Annual
Name and Principal Compensation ($) Stock Options All Other
Position Year Salary ($) Bonus ($) (2) (# Shares) Compensation ($)
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Robert E. Griffin 2003 107,383 -- 64,475 -- 3,214
Chairman of the Board 2004 101,641 -- 70,523 2,598 3,139
2005 87,673 (1) -- 77,139 -- 3,025 (3)
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C. W. "Bill" Reed 2003 239,435 600,869 32,237 30,000 14,825
President & CEO 2004 253,162 482,755 35,261 30,000 13,756
Director 2005 262,716 (1) 512,459 38,569 40,000 14,756 (3)
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Terry D. Frandsen 2003 101,241 200,290 -- 15,000 --
VP Finance, CFO 2004 123,789 160,918 -- 30,000 8,183
Secretary 2005 146,154 170,820 -- 40,000 9,525 (3)
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(1) This amount also includes director fees for Mr. Griffin ($37,500) and Mr.
Reed ($20,500).
(2) The amounts shown are the interest earned pursuant to the Company's
deferred compensation plan.
(3) In 2005, the amounts shown include the Company's following contributions to
the 401K retirement plan: Mr. Griffin ($3,025); Mr. Reed ($14,000); and Mr.
Frandsen ($8,769). The amounts shown also include the dollar value of the
following group term life insurance premiums paid by the Company: Mr. Reed
($756) and Mr. Frandsen ($756).
7
Stock Options
The following table shows information concerning individual grants of options to
purchase the Company's common stock made in 2005 to the Company's executive
officers pursuant to the 1997 Incentive Stock Option Plan.
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INDIVIDUAL GRANTS IN 2005
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Percent of Potential Realized Value
Total Options at Assumed Annual Rates of Stock
Options Granted To Price Appreciation for Option Term
Granted Employees in Exercise Price Expiration (2)
Name (# Shares) Fiscal Year ($/Share) Date -----------------------------------
5%($) 10% ($)
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Robert E.
Griffin -- -- -- -- -- --
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C.W. "Bill"
Reed 40,000 (1) 16.0% $13.40 2/17/10 684,087 (3) 836,603 (3)
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Terry D.
Frandsen 40,000 (1) 16.0% $13.40 2/17/10 684,087 (3) 836,603 (3)
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(1) Options granted pursuant to the Company's 1997 Incentive Stock Option
Plan under the terms of which the right to exercise becomes vested in
equal installments over a 4 year period beginning at the end of the
first year. The exercise price is equal to the market price on day of
grant.
(2) The potential realizable gain equals the product of the number of
shares underlying the stock option grant and the difference between the
assumed stock price and the exercise price of each option.
(3) Calculated based upon assumed stock prices for the Company's common
stock of $17.10 and $21.58 respectively, if 5% and 10% annual rates of
stock appreciation are achieved over the full term of the option.
The following table shows information on the Company's executive officers
exercise of stock options during 2005 and the number of outstanding stock
options held by such persons and the possible value of such options as of
December 31, 2005.
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AGGREGATED OPTION EXERCISES IN 2005 AND YEAR END OPTION VALUES
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Number of Unexercised Value of Unexercised
Shares Acquired Options at 12/31/05 In-The-Money Options at
On Exercise Value Realized Exercisable/ 12/31/05 Exercisable/
Name (#) ($) (1) Unexercisable (#) Unexercisable ($) (2)
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Robert E. Griffin 4,452 44,609 6,616 / -- 32,023 / --
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C.W. "Bill" Reed 45,000 479,250 150,000 / 70,000 685,200 / 112,800
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Terry D. Frandsen -- -- 37,500 / 47,500 35,850 / 35,850
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(1) Value is calculated by determining the difference between the per share
exercise price and the per share fair market value of the common stock
as of the exercise date, multiplied by the number of shares acquired
upon the exercise of the options.
(2) The value of unexercised options is calculated by determining the
difference between $11.77 per share, the last reported sale price of
the common stock on the Nasdaq National Market on December 30, 2005,
and the exercise price of the option as of such date, multiplied by the
number of shares subject to the option. No value is calculated if the
option exercise price is less than the market price.
8
Compensation of Directors
During 2005, Directors of the Company were compensated as follows:
Annual Retainer Fees
Chairman of the Board 25,000
Chairman of the Audit Committee 2,000
Chairman of the Compensation Committee 2,000
Director 7,000
Meeting Attendance Fees
In-person Board meeting attendance 4,000
Telephonic Board meeting attendance 1,000
Committee meeting attendance 1,000
The Chairman of the Board does not receive a separate retainer as a Director,
but does receive any meeting attendance fees earned.
Directors can elect to receive some or all of these fees in shares of the
Company's common stock pursuant to the 1997 Director Stock Compensation and
Option Plan which was approved by shareholders at the 1997 annual meeting. Those
shares and options will not be issued until April 24, 2006. In 2005 there were
5,539 shares issued and 2,767 stock options issued pursuant to the plan. The
number of shares to be issued will be calculated based on the aggregate director
fees deferred by the director since the 2005 Annual Meeting divided by $13.88,
the closing share price on the first business day following the 2005 Annual
Meeting. Each director who elected to receive shares will also be granted stock
options in an amount equal to one half of the shares issued to the director at
an exercise price equal to the per share market price on April 24, 2006.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors determines executive
compensation and stock option grants. The Compensation Committee is comprised
entirely of independent Directors. Based on the Company's past compensation
practices, the Company does not currently believe that Section 162 (m) of the
Internal Revenue Code, which limits the deductibility of executive compensation
in certain events, will adversely affect the Company's ability to obtain a tax
deduction for compensation paid to its executive officers.
Report of the Compensation Committee
The Company's compensation package for its executive officers consists primarily
of base salary, incentive profit sharing bonuses and stock option grants, all of
which is determined by the Compensation Committee.
In general, base salary levels are set at the beginning of each year at levels
believed by this Committee to be sufficient to attract and retain qualified
executives when considered with the other components of the Company's
compensation structure. The primary considerations in determining whether base
salaries will be adjusted is the Company's income level generated in the
previous year and any changes in level of responsibility. The Committee also
subjectively reviews the individual performance of each executive officer. For
2005, the Committee believed that base salaries for executive officers and most
other management employees should be increased. The increases ranged from about
0% to 20%. The Committee increased Mr. Reed's base salary for 2005 by 5.0%.
This Committee believes that a significant portion of total annual cash
compensation should be subject to the Company's actual performance achieved in
that year. Consequently, the incentive profit sharing bonuses of the Company's
executive officers can be a significant percentage of their overall
compensation. Each of the Company's subsidiaries has in place an incentive
profit sharing plan where the amounts payable there under are based primarily
upon the subsidiary's Earnings Before Interest, Taxes and Amortization ("EBITA")
return on equity and EBITA return on assets. At the beginning of each year, the
Committee reviews, approves and/or modifies target levels suggested by
management for each of these components for each subsidiary.
If the subsidiary meets or exceeds its targets in one or more of the performance
components, a bonus pool is created with respect to such component for payment
to the subsidiary's employees. An additional 20.0% of any amounts payable under
the subsidiary's incentive profit sharing plan is payable to the Company. The
Company in turn distributes the incentive compensation received from each
subsidiary to the Company's executive officers based on a pre-determined
percentage. Accordingly, each executive officer's incentive profit sharing is
directly linked to the performance by each of the Company's operating
9
subsidiaries. This Committee on an annual basis reviews the percentage and
amount attributable to each individual executive officer. This Committee
approved Mr. Reed's portion, under the plan, of $512,459 for 2005.
In 2005, both the sporting goods subsidiary and the office/graphic arts
subsidiary exceeded their target levels for each of the incentive profit sharing
components and a bonus pool was created with respect to those operations.
Therefore, the 2005 bonus amounts paid to Mr. Reed and the Company's other
executive officers were generated from both the Company's sporting goods
subsidiary and office/graphic arts subsidiary. After incentive profit sharing
and taxes the Company's consolidated net income of $11,942,000 generated a
return on assets (on average beginning and ending assets) of 9.2% and a return
on beginning equity of 17.1%.
The Committee also determines annual stock option grants to the Company's
executive officers and other eligible employees. The Committee continues to
believe that stock options are an effective incentive to encourage stock
ownership by officers and key employees of the Company and its subsidiaries so
that those persons acquire or increase their proprietary interest in the success
of the Company. Shareholders approved the 1997 Incentive Stock Option Plan at
the 1997 annual meeting. Pursuant to that plan the committee felt it was
appropriate to grant stock options to certain executive officers of the Company
in 2005. The Committee granted 40,000 options each to Mr. Reed and Mr. Frandsen.
Richard D. White Keith P. Williams George Savitsky
Compensation Committee Interlocks and Insider Participation
In 2005, Messrs. Richard White, Keith Williams and George Savitsky were
independent Directors of the Company and comprised the Company's Compensation
Committee. No other Director or executive officer of the Company serves on any
board of directors or compensation committee of any entity that compensates any
of Messrs. Richard White, Keith Williams and George Savitsky.
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter as adopted by the Board of Directors
("Board"), the Audit Committee of the Board ("Committee") assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and financial reporting practices of Escalade. All of the
Committee members are independent directors as defined under NASDAQ rules.
During fiscal year 2005, the Committee met five times, and discussed the interim
financial information contained in each quarterly earnings announcement with the
Chief Financial Officer and independent auditors prior to public release.
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence discussions with Audit Committees," discussed with
the auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the auditors' independence. The Audit
Committee also discussed and considered whether the provision of non-audit
services by the Company's auditors is consistent with the auditors'
independence. The Audit Committee has determined that the provisions of such
services are consistent with the auditors' independence. The Committee also
discussed with management, and the independent auditors the quality and adequacy
of Escalade's internal controls. The Committee reviewed with the independent
auditors their audit plan, audit scope and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees," and, with and without
management present, discussed and reviewed the results of the independent
auditors' examination of the financial statements.
The Committee reviewed the audited financial statements of Escalade as of and
for the year ended December 31, 2005, with management and the independent
auditors. Management has the responsibility for the preparation of financial
statements and the independent auditors have the responsibility for the
examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that Escalade's
audited financial statements be included in its Annual Report on Form 10-K for
the year ended December 31, 2005, for filing with the Securities and Exchange
Commission.
Blaine E. Matthews, Jr. Edward E. Williams George Savitsky
10
INDEPENDENT PUBLIC ACCOUNTING FIRM
The independent public accounting firm of BKD LLP (the "Auditors") was engaged
by the Company's Audit Committee to audit the Company's consolidated financial
statements for the year ended December 31, 2005. BKD LLP, formerly known as
Olive LLP, has served as independent auditors for the Company since 1977. Audit
services performed by BKD LLP during the fiscal year most recently completed
included examinations of the financial statements of the Company and its North
American subsidiaries, services related to filings with the Securities and
Exchange Commission, and consultations on matters related to accounting,
financial reporting and filing of federal and state income tax returns.
Representatives of BKD LLP are expected to be present at the Annual Meeting.
They will have the opportunity to make a statement if they desire to do so and
are expected to be available to respond to appropriate questions.
The Company's Audit Committee has not yet appointed a principal independent
accounting firm for fiscal year 2005. The Audit Committee is evaluating how the
Company can most effectively and efficiently continue to satisfy the provisions
of the Sarbanes-Oxley Act of 2002, including compliance with the internal
controls requirements imposed by Section 404 of that law, on an ongoing basis.
As part of that evaluation, the Audit Committee is reexamining the scope and
nature of services that the Company needs to obtain from its independent public
accounting firm. The Company's Audit Committee anticipates that it will select a
principal independent accounting firm for fiscal year 2006 no later than its
next meeting following the 2006 annual Meeting.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to Escalade,
Incorporated for the fiscal years ended December 31, 2005 and December 25, 2004
by the Company's principal accounting firm, BKD LLP.
2005 2004
---------------------------------------------------------
Audit Fees $ 397,802 $ 576,268
Audit-Related Fees -- --
Tax Fees 21,861 119,556
All Other Fees -- --
---------- ----------
Total $ 419,663 $ 695,824
========== ==========
Audit Fees. Fees for audit services consist of:
o Audit of the Company's annual financial statements.
o Audit services associated with Rule 404 of the Sarbanes-Oxley Act of
2002 which requires the independent registered public accounting firm
to audit Management's evaluation of internal controls over financial
reporting as of the end of the fiscal year. The auditor's unqualified
opinion is contained in the 2005 Annual Report under Item 9A -
Controls and Procedures. Fees paid to the principle accounting firm
for this portion of the audit totaled $155,316 in 2005 and $407,867 in
2004.
o Reviews of the Company's quarterly financial statements.
o Statutory and regulatory audits, consents and other services related
to SEC matters.
Audit-Related Fees. Fees for audit-related services consist of financial
accounting and reporting consultation.
Tax Fees. Fees for tax services consist of professional services rendered by BKD
LLP related to corporate income tax return preparation, compliance and advice.
Beginning with 2005, the Company no longer employs BKD LLP to perform tax
compliance services.
The Audit Committee is responsible for pre-approving all auditing services and
permitted non-audit services to be performed by its independent auditors, except
as described below. Pre-approval shall not be required for the provision of
non-audit services if (1) the aggregate amount of all such non-audit services
constitute no more than 5% of the total amount of revenues paid by the Company
to the auditors during the fiscal year in which the non-audit services are
provided, (2) such services were not recognized by the Company at the time of
engagement to be non-audit services, and (3) such services are promptly brought
to the attention of the Audit Committee and approved prior to the completion of
the audit. No services were provided by BKD LLP pursuant to these exceptions.
11
FINANCIAL PERFORMANCE
The following graph compares the Company's cumulative total shareholder return
on Escalade common stock to a broad equity market index and to an industry index
for the past five years, assuming an initial $100 investment. The broad equity
market index is the CRSP Total Return Index for The Nasdaq Stock Market ("Nasdaq
U.S.) that includes all domestic companies traded on the Nasdaq market, as are
the Escalade shares. The published industry index is the Nasdaq Total Return
Industry Index for Nasdaq Non-Financial Stock ("Nasdaq Non-Financial") which is
comprised of all Nasdaq traded companies having the standard industrial
classification (SIC) code of 1 through 59 and 70 and above, which are all of the
non-financial industries SIC codes. The Company's SIC code falls within these
parameters and the Company is not aware of any other single company that is
engaged in both the same industries as Escalade. The information presented was
provided by The Nasdaq Stock Market, Inc. Cumulative total shareholder returns
for Escalade common stock are based on Escalade's fiscal year. Cumulative total
shareholder returns for Nasdaq U.S. and Nasdaq Non-Financial are based on a
calendar year.
Comparison of five year cumulative return for Escalade, Nasdaq U.S. index and
Nasdaq Non-Financial index
[GRAPHIC OMITTED]
OTHER SECURITIES FILINGS
The information contained in this Proxy Statement under the headings "Executive
Compensation - Report of the Compensation Committee"; "Report of the Audit
Committee" and "Financial Performance" are not, and should not be deemed to be,
incorporated by reference into any prior filings by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that purport to
incorporate future filings or portions thereof by reference (including this
proxy statement).
ITEM NO. 2
PROPOSAL TO APPROVE SPECIAL STOCK OPTION GRANT TO NON-EMPLOYEE DIRECTORS
Upon review of the Company's compensation program and policies for non-employee
Directors, the Board of Directors approved, subject to stockholder approval, a
special grant of 2,000 stock options (the "Stock Options") to each of the five
non-employee Directors proposed for election at the Annual Meeting: Blaine E.
Matthews, Jr., Edward E. Williams, Richard D. White, George Savitsky and Richard
F. Baalman, Jr. The Board believes that the award of the Stock Options will be
an appropriate element of the 2006 compensation to be paid to the non-employee
Directors in light of the increased time and effort required of Directors under
various new laws, rules and regulations adopted by Congress and the Securities
and Exchange Commission in recent years. The Board further believes that this
special award of the Stock Options will help retain non-employee Directors and
will help to further align the interests of non-employee Directors with those of
the Company's stockholders.
12
All other compensation to the Company's Directors for the one year term
beginning with the Annual Meeting is expected to be as described in this Proxy
Statement under the heading "EXECUTIVE COMPENSATION - Compensation of
Directors." The Board intends to further review the Company's policies for
compensation of Directors during their upcoming term of service and anticipates
that the Company will present for stockholder approval at the 2007 Annual
Meeting a new incentive plan in which the Directors may participate because the
Company's existing 1997 Director Stock Compensation and Option Plan will expire
at such time.
The following is a summary of the material terms regarding the proposed grant of
the Stock Options.
Eligibility and Participation. Each non-employee Director of the Company elected
at the Annual Meeting on April 22, 2006 will receive the special grant of 2,000
non-qualified Stock Options.
Non-Qualified Stock Options. Stock options represent the right to purchase
shares of common stock of a company within a specified period of time at a
specified price, also known as the exercise price. The proposed Stock Options
will not qualify as incentive stock options meeting the requirements of certain
provisions of the Internal Revenue Code and the Directors receiving the Stock
Options will not receive the favorable tax treatment that would accompany
incentive stock options.
Exercise Price. The exercise price for the Stock Options will be the closing
sale price on the NASDAQ Stock Market of the Company's common stock on April 24,
2006, the next business day following the Annual Meeting. If the NASDAQ Stock
Market would not open that day, or if no shares of Company common stock would be
traded on that date, then the exercise price will be the closing sale price on
the NASDAQ Market on the next closest date after April 24, 2006 that the NASDAQ
Market is open and trades of the Company's common stock take place.
Expiration Date. The Stock Options will expire, if not exercised, on the earlier
of April 22, 2011 or within 12 months of the death of the Director or following
retirement from service as a Director of the Company.
Vesting. The Stock Options shall vest in full on April 22, 2007. No Stock
Options may be exercised prior to that date. Once vested, the Stock Options can
be exercised in whole or in part until the expiration of the Stock Option.
Federal Income Tax Consequences. This discussion of does not purport to be
complete, and does not cover, among other things, state and local tax treatment.
The Stock Options are non-qualified stock options for federal income tax
purposes. Therefore, for federal income tax purposes, no income is recognized by
a non-employee Director upon the grant of the Stock Options. Upon exercise, the
non-employee Director will realize ordinary income in an amount equal to the
excess of the fair market value of a share of the Company common stock on the
date of exercise over the exercise price multiplied by the number of shares
received pursuant to the exercise of the Stock Options. A subsequent sale or
exchange of such shares will result in gain or loss measured by the difference
between (a) the exercise price, increased by any compensation reported upon the
participant's exercise of the option and (b) the amount realized on such sale or
exchange. Any gain or loss will be capital in nature if the shares were held as
a capital asset and will be long-term if such shares were held for more than one
year. The Company is entitled to a deduction for compensation paid to a
non-employee Director at the same time and in the same amount as the
non-employee Director realizes compensation upon exercise of the option.
Equity Compensation Plan Information.
Number of Weighted-Average
Securities to be Issued Exercise Price Number of
Upon Exercise of of Outstanding Options, Securities Remaining
Outstanding Options, Warrants Available for Future
Plan Category Warrants and Rights and Rights Issuance
----------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders (1) 730,569 $11.95 924,169
Equity compensation plans not approved
by security holders -- -- --
-------- --------
Total 730,569 924,169
======== ========
(1) These plans are the Company's 1997 Incentive Stock Option Plan and the 1997
Director Stock Compensation and Option Plan.
The form of the award letter for the proposed Stock Options is attached hereto
as Exhibit A. The Board recommends a vote "FOR" this Item No. 2.
13
RESULTS OF THE 2005 ANNUAL MEETING
Approximately 92.6% of the outstanding shares of the Company were voted in
person or by proxy at the 2005 annual meeting that was held April 30, 2005. The
proposal to elect to the Board the seven incumbent Directors nominated for
reelection was approved by the shareholders.
SHAREHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING
Shareholder proposals for shareholder action at the 2007 annual meeting must be
presented in writing at the offices of the Company on or before November 17,
2006. Any shareholder who intends to propose any other matter to be acted upon
at the 2007 annual meeting of shareholders must inform the Company no later than
February 23, 2007. If notice is not provided by that date, the persons named in
the Company's proxy for the 2007 annual meeting will be allowed to exercise
their discretionary authority to vote upon any such proposal without the matter
having been discussed in the proxy statement for the 2007 annual meeting. Only
such proposals as are (1) required by Securities and Exchange Commission Rules,
and are (2) permissible shareholder motions under the Corporation law of the
State of Indiana will be included on the 2007 meeting docket.
OTHER BUSINESS
Management does not know of any other business to be presented to the meeting
and does not intend to bring any other matters before the meeting. No
shareholder has informed the Company of any intention to propose any other
matter to be acted upon at the meeting. Accordingly, the persons named in the
accompanying Proxy are allowed to exercise their discretionary authority to vote
upon any such proposal without the matter having been discussed in this proxy
statement. If any matters properly come before the meeting, it is intended that
the persons named in the accompanying Proxy will vote thereon according to their
best judgment and interest of the Company.
By order of the Board of Directors
Terry D. Frandsen
V.P. Finance, CFO & Secretary
14
Exhibit A
---------
Form of 2006 Special Stock Option Award to Non-Employee Director
ESCALADE, INCORPORATED
Non-Qualified Stock Option
Escalade, Incorporated, an Indiana corporation with its principal executive
offices located in Wabash, Indiana, herby grants to the non-employee Director
named below an option to purchase, in accordance with and subject to the terms
and restrictions set forth in this Certificate, the number of shares of the
Common Stock of Escalade, Incorporated, at the price set forth herein as
follows:
Director Name:
-------------------------------
Number of Shares for which Option is granted: 2,000 Shares of Escalade Common
Stock
Option Price per Share: See Exercise Price below
Date of Grant: April 22, 2006
Exercise Price: The exercise price for the Stock Options will be the
closing sale price on the NASDAQ Stock Market of the
Company's common stock on April 24, 2006, the next business
day following the Company's Annual Meeting of Stockholders
on April 22, 2006. If the NASDAQ Stock Market would not
open that day, or if no shares of Company common stock
would be traded on that date, then the exercise price will
be the closing sale price on the NASDAQ Market on the next
closest date after April 24, 2006 that the NASDAQ Market is
open and trades of the Company's common stock take place.
Expiration Date: The Stock Options will expire, if not exercised, on
the earlier of April 22, 2011 or within 12 months of the
death of the Director or following retirement from service
as a Director of the Company.
Vesting: The Stock Options shall vest in full on April 22, 2007. No
Stock Options may be exercised prior to that date. Once
vested, the Stock Options can be exercised in whole or in
part until the expiration of the Stock Option.
Withholding: The Company shall be entitled to withhold the amount of any
tax attributable to any shares deliverable under this
Certificate after giving the person entitled to receive
such delivery notice as far in advance as practicable and
the Company may defer making delivery, if any such tax is
payable, until indemnified to its satisfaction.
ESCALADE, INCORPORATED
---------------------------------
C. W. (Bill) Reed, President, CEO
Accepted:
---------------------------
Director Signature
---------------------------
Director Printed Name
---------------------------
Date
15
PROXY
ESCALADE, INCORPORATED THIS PROXY IS SOLICITED
251 Wedcor Avenue ON BEHALF OF THE
Wabash, Indiana 46992 BOARD OF DIRECTORS
The undersigned hereby appoints Robert E. Griffin, Blaine E. Matthews, Jr. and
Keith P. Williams, or any of them, each with power of substitution, as Proxies
of the undersigned to attend the Annual Meeting of Shareholders of Escalade,
Incorporated (the "Company") to be held on Saturday, April 22, 2006, at 9:00
a.m., Eastern Standard Time, at the Sheraton Indianapolis Hotel & Suites located
at 8787 Keystone Crossing, Indianapolis, Indiana 46240, and any adjournment or
adjournments thereof, and to vote the number of shares of the Company's Common
Stock which the undersigned would be entitled to vote if personally present on
the following matters:
1. Election of Directors
Vote for Seven (7) Nominees to Serve as Directors of the Company for the
one-year term ending at the 2007 Annual Meeting of Shareholders.
Withhold
Authority
Nominee For to Vote
------- --- -------
Robert E. Griffin [ ] [ ]
Blaine E. Matthews, Jr [ ] [ ]
C.W. "Bill" Reed [ ] [ ]
Edward E. (Ned) Williams [ ] [ ]
Richard D. White [ ] [ ]
George Savitsky [ ] [ ]
Richard Baalmann [ ] [ ]
2. Special Grant of 2,000 stock options to the Company's five non-employee
Directors
Vote to approve the grant of 2,000 stock options to each of the Company's five
non-employee directors elected at the Annual Meeting.
3. 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 HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ALL NOMINEES LISTED IN ITEM 1, "FOR" ITEM 2 AND IN THE DISCRETION OF
THE PROXIES ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
1
[Shareholder's Name and Address as on Record Books]
(Please sign exactly as your name or names appear hereon. When shares are held
by joint tenants, both should sign. If signing as an attorney, executor,
administrator, trustee or guardian, give your full title as such. If signing on
behalf of a corporation, the full name of the corporation should be set forth
accompanied by the signature on its behalf of a duly authorized officer.)
Signature
-----------------------------------------------------
Signature if held jointly
-------------------------------------
Dated , 2006
----------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE ENVELOPE
PROVIDED.
2