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 ss. 240.14a-11(c) or ss. 240.14a-12
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
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(Name of Registrant as Specified In Its Charter)
N/A
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(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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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:
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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>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
10 Edison Street East
Amityville, New York 11701
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
June 29, 1998
To the Stockholders of TECHNOLOGY FLAVORS & FRAGRANCES, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the
"Annual Meeting") of Technology Flavors & Fragrances, Inc., a Delaware
corporation (the "Company"), will be held at the Melville Marriott, 1350 Old
Walt Whitman Road, Melville, New York 11747, on June 29, 1998, at 11:00 a.m.,
local time, or any adjournment or postponement thereof, for the following
purposes, all as more fully described in the attached Proxy Statement:
I. To elect seven directors to serve for a term of one year and until
their respective successors are duly elected and qualified.
II. To ratify the appointment by the Company's Board of Directors of Ernst
& Young LLP as independent auditors of the Company for the year ending December
31, 1998, and to authorize the Board of Directors to fix their remuneration.
III. To transact such other business as may properly come before the
Annual Meeting and any and all adjournments thereof.
Only stockholders of record at the close of business on May 26, 1998 shall
be entitled to notice of and to vote at the Annual Meeting. A copy of the
Company's Annual Report for the year ended December 31, 1997 is enclosed.
The Board of Directors appreciates and welcomes stockholder participation
in the Company's affairs. You are earnestly requested to complete, sign, date
and return the accompanying form of proxy in the enclosed envelope provided for
that purpose (to which no postage need be affixed if mailed in the United
States), whether or not you expect to attend the Annual Meeting in person. The
proxy is revocable by you at any time prior to its exercise and will not affect
your right to vote in person in the event you attend the Annual Meeting. The
prompt return of the proxy will be of assistance in preparing for the Annual
Meeting and your cooperation in this respect will be greatly appreciated.
By Order of the Board of Directors
Paul E. Hoffmann
Secretary
Amityville, New York
May 29, 1998
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YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
10 Edison Street East
Amityville, New York 11701
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Proxy Statement
For The
Annual Meeting of Stockholders
To Be Held on June 29, 1998
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INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to the
stockholders of Technology Flavors & Fragrances, Inc., a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use in voting at the Annual Meeting of Stockholders
to be held at the Melville Marriott, 1350 Old Walt Whitman Road, Melville, New
York 11747, on June 29, 1998 at 11:00 a.m. (together with any and all
adjournments or postponements thereof, the "Annual Meeting"). This Notice of
Annual Meeting and Proxy Statement, together with the accompanying proxy and
Annual Report to Stockholders of the Company for the year ended December 31,
1997 (including the financial statements contained therein), are first being
mailed or delivered to stockholders of the Company on or about May 29, 1998.
At the Annual Meeting, the holders of outstanding shares of common stock,
par value $.01 per share, of the Company (the "Common Stock") will be asked to
consider and vote upon (i) the election of seven directors to serve for a term
of one year and until their respective successors are duly elected and qualified
("Proposal I"); (ii) the appointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1998 ("Proposal II");
and (iii) such other proposals as may properly be presented for the Annual
Meeting. Only stockholders of record as of the close of business on May 26, 1998
(the "Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting. Each share of Common Stock entitles the holder thereof to one vote on
each proposal.
The Board of Directors knows of no other matters that are to be brought
before the Annual Meeting other than as set forth in the Notice of Meeting. If
any other matters properly come before the Annual Meeting, the persons named in
the enclosed form of proxy or their substitutes will vote in accordance with
their best judgment on such matters.
Approval of Proposal I requires the affirmative vote of a plurality of the
shares of Common Stock, represented in person or by proxy at the Annual Meeting.
Approval of Proposal II requires the affirmative vote of holders representing a
majority of the shares of Common Stock represented in person or by proxy at the
Annual Meeting.
The enclosed proxy provides that each stockholder may specify that his or
her shares be voted "for," "against" or "as abstaining from voting" with respect
to each proposal. If the enclosed proxy is properly executed and returned to the
Company, then your shares will be voted in accordance with the instructions
contained therein. If the enclosed proxy is signed and returned without specific
instructions, then your shares will be voted FOR Proposal I, Proposal II and any
other proposal to come before the Annual Meeting.
Proxies marked as "abstaining" will be treated as present for the purpose
of determining whether there is a quorum for the Annual Meeting, but will not be
counted as voting for or against on any matter as to which such abstinence is
indicated. Thus, an abstaining vote in the election of directors will have no
legal effect on the outcome, however, an abstention as to any other matter will
have the same legal effect as a vote against such matter. Proxies returned by
brokers as "non-votes" on behalf of shares held in street name because
discretion has been withheld as
<PAGE>
to one or more matters on the agenda for the Annual Meeting will not be treated
as present for purposes of determining whether there is a quorum for the Annual
Meeting unless the broker is given discretion to vote on at least one matter on
the agenda.
A proxy will not be valid unless the completed form of proxy is received
by the Company at its principal executive offices located at 10 Edison Street
East, Amityville, New York 11701 at least 48 hours (excluding Saturdays, Sundays
and holidays) prior to commencement of the Annual Meeting. Any stockholder who
executes and returns a proxy may revoke it at any time before it is voted at the
Annual Meeting by: (i) delivering written notice of such revocation to the
Company (attention: Corporate Secretary) prior to the commencement of the Annual
Meeting; (ii) submitting a duly executed proxy bearing a later date which
relates to the same shares; or (iii) attending and voting such shares at the
Annual Meeting. Mere attendance at the Annual Meeting will not, in and of
itself, revoke an otherwise valid proxy.
A representative of Ernst & Young LLP, independent auditors of the
Company, is expected to attend the Annual Meeting and be available to respond to
appropriate questions. Such representative will also be given the opportunity,
if desired, to make a statement to the stockholders.
Whether or not you attend the Annual Meeting, your vote is important.
Accordingly, you are urged to sign and return the accompanying proxy regardless
of the number of shares you own. Shares can be voted at the Annual Meeting only
if the holder is present or represented by proxy.
VOTING RIGHTS AND VOTING SECURITIES
Voting at the Annual Meeting
The Board of Directors has fixed the close of business on May 26, 1998 as
the Record Date for the determination of stockholders entitled to notice of, and
to vote at, the Annual Meeting. Only stockholders of record at the close of
business on the Record Date will be entitled to vote at the Annual Meeting. As
of May 26, 1998, there were 12,374,623 shares of Common Stock issued and
outstanding. The Common Stock is the only class of outstanding voting securities
of the Company. Each holder of Common Stock will be entitled to one vote per
share, either in person or by proxy, on each matter presented at the Annual
Meeting. The holders of a majority of all of the outstanding shares of Common
Stock entitled to vote at the Annual Meeting will constitute a quorum at the
Annual Meeting. The affirmative vote of the holders of a plurality of the shares
of Common Stock represented in person or by proxy at the Annual Meeting is
required to approve Proposal I. The affirmative vote of the holders representing
a majority of the shares of Common Stock represented in person or by proxy at
the Annual Meeting is required to approve Proposal II.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of May 26, 1998
regarding the beneficial ownership of Common Stock by (A) each person known by
the Company to own beneficially more than five percent of the Common Stock, (B)
each director and director nominee of the Company, (C) each of the "Named
Executive Officers" (as defined in "Executive Compensation--Summary Compensation
Table"), and (D) all executive officers, directors and director nominees of the
Company as a group.
<TABLE>
<CAPTION>
Percentage
Number of Shares Beneficially
Name Beneficially Owned(1) Owned
- ---- --------------------- -----
<S> <C> <C>
Philip Rosner**(2)................................................... 2,283,709(3)(4) 18.3%
A. Gary Frumberg**(2)................................................ 1,442,199(3) 11.6%
Richard R. Higgins**(2).............................................. 929,500 7.5%
Stanley Altschuler................................................... 887,280(5) 6.8%
Richard E. Cooper.................................................... 787,500(6) 6.1%
Ronald J. Dintemann.................................................. 149,111(7) 1.2%
Sydney Stein+(2)..................................................... 100,000(8) *
Harvey Farber(2)..................................................... 44,732(9) *
Scott Cunningham+(2)................................................. 20,000(10) *
Duncan Shirreff+(2).................................................. 1,000(11) *
Sean Deson**(2)...................................................... 0(12) *
Bruce S. Foerster**(2)............................................... 0(13) *
Werner F. Hiller**(2)................................................ 0(13) *
Irwin D. Simon**(2).................................................. 0(13) *
All directors, director nominees and executive officers as a group
(14 persons)....................................................... 5,241,144 40.8%
</TABLE>
- --------------------------
* Less than 1%.
** Denotes nominee for election as director.
+ Denotes director who is not standing for re-election at the Annual
Meeting.
(1) As used in this table, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship or otherwise has or shares (i) the power to
vote, or direct the voting of, such security or (ii) investment power
which includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days of the date shown above.
(2) The business address of each of Messrs. Rosner, Frumberg, Dintemann and
Farber is c/o Technology Flavors & Fragrances, Inc., 10 Edison Street
East, Amityville, New York 11701. The business address of Mr. Higgins is
c/o Technology Flavors & Fragrances, Inc., 999 Tech Drive, Milford, Ohio
45150. The business address of Mr. Cunningham is c/o W.R. Berkley Corp.,
165 Mason Street, Greenwich, Connecticut 06830. The business address of
Mr. Shirreff is c/o Taurus Capital Markets Limited, Suite 3000, Scotia
Plaza, 40 King Street West, Toronto, Canada M4N 1P1. The business address
of Mr. Stein is c/o Kaytel Video Distributors, 5579 Pare, Town of Mount
Royal, Quebec, Canada H4P 1P7. The business address of Mr. Deson is c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York
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<PAGE>
10172. The business address of Mr. Foerster is c/o South Beach Capital
Markets Advisory Corporation, 4045 Sheridan Avenue, Suite 432, Miami
Beach, Florida 33140. The business address of Mr. Hiller is 55 Dugway,
Watchung, New Jersey 07060. The business address of Mr. Simon is c/o The
Hain Food Group, Inc., 50 Charles Lindbergh Boulevard, Uniondale, New York
11553.
(3) Includes (a) 100,000 shares of Common Stock issuable upon the exercise of
options granted on April 8, 1994 to each of Messrs. Rosner and Frumberg
and (b) 647,123 and 428,400 shares of Common Stock owned by Messrs. Rosner
and Frumberg, respectively, which are held in escrow until October 26,
1998 pursuant to requirements imposed in connection with the Company's
initial public offering in Canada under the Ontario Securities Act. The
shares held in escrow generally may not be sold, transferred or pledged
without the consent of the Ontario Securities Commission. See "--Escrowed
Shares."
(4) Includes 36,438 shares of Common Stock owned by Mr. Rosner's wife. Mr.
Rosner disclaims beneficial ownership of the shares owned by his wife.
(5) Includes 287,280 shares of Common Stock personally owned by Mr.
Altschuler. Also includes 600,000 shares of Common Stock issuable upon the
exercise of warrants (the "SGI Warrants") held by Strategic Growth
International, Inc. ("SGI"), of which Mr. Altschuler is a 50% stockholder.
See "--Note 6." Accordingly, Mr. Altschuler may be deemed to own the
600,000 shares of Common Stock underlying the SGI Warrants, which are
currently exercisable. Mr. Altschuler may therefore be deemed to
beneficially own an aggregate of 887,280 shares of Common Stock. Mr.
Altschuler has sole voting and dispositive power over the 287,280 shares
of Common Stock which he personally owns. Mr. Altschuler shares
dispositive power over the SGI Warrants and, upon the exercise of such
warrants, would share voting power over the shares of Common Stock
underlying such warrants. See "Executive Compensation--Consulting
Agreement."
(6) Includes 187,500 shares of Common Stock personally owned by Mr. Cooper.
Also includes 600,000 shares of Common Stock issuable upon the exercise of
the SGI Warrants by SGI, of which Mr. Cooper is a 50% stockholder. See
"--Note 5." Accordingly, Mr. Cooper may be deemed to own the 600,000
shares of Common Stock underlying the SGI Warrants, which are currently
exercisable. Mr. Cooper may therefore be deemed to beneficially own an
aggregate of 787,500 shares of Common Stock. Mr. Cooper has sole voting
and dispositive power over the 187,500 shares of Common Stock which he
personally owns. Mr. Cooper shares dispositive power over the SGI Warrants
and, upon exercise of such warrants, would share voting power over the
shares of Common Stock underlying such warrants. See "Executive
Compensation--Consulting Agreement."
(7) Includes ten-year options to purchase 75,000 shares of Common Stock
granted to Mr. Dintemann on April 8, 1994.
(8) Represents ten-year options to purchase 100,000 shares of Common Stock
granted to Mr. Stein on April 8, 1994, at an exercise price of $0.58 per
share. Upon his resignation from the Board of Directors following the
Annual Meeting, Mr. Stein will have twelve months to exercise such options
or they will expire.
(9) Includes 15,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Farber, and excludes options to purchase an
additional 45,000 shares that have not yet vested.
(10) Represents the vested portion of a 100,000 option grant under the 1996
Stock Option Plan. Such options were granted to Mr. Cunningham upon his
election to the Board of Directors on February 19, 1997, at an exercise
price of $1.62 per share. Such options were to have vested in equal
increments over a period of five years from the date of the grant, and
were to have expired ten years from the date of the grant. Pursuant to the
terms of the 1996 Stock Option Plan, upon his resignation from the Board
of Directors following the Annual Meeting, Mr. Cunningham will have three
months to exercise such options or they will expire.
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<PAGE>
(11) Does not include options to purchase 100,000 shares of Common Stock which
are not vested and which were granted under the 1996 Stock Option Plan at
an exercise price of $1.4375 per share. Such options were granted to Mr.
Shirreff on November 5, 1997, in consideration of Mr. Shirreff's service
as a director of the Company. Such options were to have vested in equal
increments over a period of five years from the date of the grant, and
were to have expired ten years from the date of the grant. Mr. Shirreff
and the Company have agreed to cancel these options, effective upon Mr.
Shirreff's resignation from the Board of Directors following the Annual
Meeting. In exchange therefor, Mr. Shirreff will receive non-plan options,
subject to stockholder and regulatory approval, to purchase 100,000 shares
of Common Stock at an exercise price equal to the closing bid price of the
Common Stock on the Nasdaq OTC Bulletin Board (the "Bulletin Board") on
the effective date of Mr. Shirreff's resignation. Such options will be
immediately exercisable following the date stockholder and regulatory
approval is obtained, and all such options, or any portion thereof, shall
expire eighteen months from the date of the grant to the extent not
exercised by such date.
(12) Does not include non-plan options to purchase 200,000 shares of Common
Stock which shall be granted to Mr. Deson, subject to stockholder and
Toronto Stock Exchange (the "TSE") approval, if he is elected to the Board
of Directors at the Annual Meeting. Such options will have an exercise
price equal to the closing bid price of the Common Stock on the Bulletin
Board on the date of the Annual Meeting, and will vest in equal increments
over a period of five years from the date of the grant. Such options will
expire ten years from the date of the grant.
(13) Does not include non-plan options to purchase 100,000 shares of Common
Stock which shall be granted to such director nominee, subject to
stockholder and TSE approval, if such person is elected to the Board of
Directors at the Annual Meeting. Such options will have an exercise price
equal to the closing bid price of the Common Stock on the Bulletin Board
on the date of the Annual Meeting, and will vest in equal increments over
a period of five years from the date of the grant. Such options will
expire ten years from the date of the grant.
Escrowed Shares
In connection with the Company's initial public offering in March 1994 of
4,670,000 shares of Common Stock in Canada and pursuant to the requirements of
the Ontario Securities Act and the Toronto Stock Exchange (the "TSE"), Messrs.
Rosner and Frumberg placed 2,157,077 and 1,427,999 shares of Common Stock,
respectively, in escrow with the Montreal Trust Company of Canada. While in
escrow, the shares may not be sold, transferred or pledged without the consent
of the Ontario Securities Commission except upon the death or bankruptcy of the
stockholder. Pursuant to the escrow agreement, 10% of the shares were released
from escrow on October 26, 1994 and 20% were released on each of October 26,
1995, October 26, 1996 and October 26, 1997. The remaining 30% will be released
on October 26, 1998.
PROPOSAL I: ELECTION OF DIRECTORS
Directors of the Company are elected annually at the annual meeting of
stockholders. Their respective terms of office continue until their successors
have been duly elected and qualified in accordance with the Company's By-laws.
The Company's Board of Directors currently consists of six directors. The Board
has increased to seven the number of directors to serve on the Board. At the
Annual Meeting, seven directors are to be elected to serve for a term of one
year and until their respective successors are duly elected and qualified. Three
of the seven nominees (Messrs. Rosner, Frumberg and Higgins) are currently
members of the Board of Directors, and three other current directors (Messrs.
Stein, Shirreff and Cunningham) will resign from the Board of Directors upon the
election of new directors at the Annual Meeting. The director nominees are
Messrs. Rosner, Frumberg, Higgins, Deson, Foerster, Hiller and Simon.
The designated representatives named in the enclosed proxy intend to vote
for the election to the Board of Directors of each of the nominees listed below,
unless the proxy is marked to expressly indicate otherwise. Should
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<PAGE>
any of such nominees be unable or unwilling to accept such election (which the
Board of Directors does not anticipate), then the designated representatives
named in the enclosed proxy will vote for the election of such other persons as
the Board of Directors may recommend. Proxies cannot be voted for a greater
number of persons than the number of nominees named.
Vote Required
Approval of Proposal I to elect seven directors requires the affirmative
vote of a plurality of the shares of Common Stock represented in person or by
proxy at the Annual Meeting. The Board of Directors recommends that stockholders
vote FOR each of the seven nominees listed below.
Information Concerning Director Nominees and Executive Officers
The following table sets forth information regarding the directors, the
director nominees and the executive officers of the Company as of May 26, 1998.
<TABLE>
<CAPTION>
Name Age Positions with the Company
- ----------------------------- -------- ----------------------------------------------------
<S> <C> <C>
Philip Rosner(1)(2).......... 62 Chairman of the Board of Directors and President
A. Gary Frumberg(1)(2)....... 64 Director and Executive Vice President
Richard R. Higgins(1)(2).... 59 Director and Executive Vice President
Scott Cunningham(3).......... 63 Director
Duncan Shirreff(3)........... 46 Director
Sydney Stein(3).............. 62 Director
Joseph A. Gemmo.............. 52 Vice President, Chief Financial Officer and
Assistant Secretary
Harvey Farber................ 57 Senior Vice President--Flavor Division
Ronald J. Dintemann.......... 54 Vice President--Operations
Paul E. Hoffmann............. 51 Secretary and Treasurer
Sean Deson(1)................ 34 Director Nominee
Bruce S. Foerster(1)......... 57 Director Nominee
Werner F. Hiller(1).......... 61 Director Nominee
Irwin D. Simon(1)............ 38 Director Nominee
</TABLE>
- ---------------------
(1) Indicates director nominee.
(2) Indicates current member of the Board of Directors standing for
re-election.
(3) Indicates current member of the Board of Directors not standing for
re-election.
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<PAGE>
The business experience of each of the persons listed above for at least
the last five years is as follows:
Philip Rosner has been the Chairman of the Board of Directors and
President of the Company since 1989. Mr. Rosner has been engaged in the flavor
and fragrance industry for over forty-five years. Prior to 1989, Mr. Rosner was
President of Globe Extracts, Inc., and for fifteen years before that, was
President of Felton Worldwide, Inc., both of which produced and marketed flavors
and fragrances.
A. Gary Frumberg has been a Director and an Executive Vice President of
the Company since 1989. Prior to 1989, Mr. Frumberg served as Vice
President--International Sales of Felton Worldwide, Inc.
Richard R. Higgins has been a Director of the Company since June 1996 and
an Executive Vice President of the Company and President of the Company's
Seasoning Division since December 1995. Prior to that, Mr. Higgins was President
of Seafla, Inc. ("Seafla") from 1980 until that business was acquired by the
Company in December 1995 (the "Seafla Acquisition").
Scott Cunningham has been a Director of the Company since February 1997.
Since 1993, Dr. Cunningham has been President of Stonehouse Development Co., a
food technology company, and since 1986 he has been a Managing Director of
Interlaken Capital, Inc., a management consulting firm specializing in the food
and other industries.
Duncan Shirreff has been a Director of the Company since 1994. Since
February 1998, Mr. Shirreff has served as a Director of Taurus Capital Markets
Limited. From 1994 through February 1998, Mr. Shirreff was the Resident Director
of the Toronto Branch of the Canadian merchant banking firm of CM Oliver &
Company Limited in charge of corporate finance and European capital markets.
From 1991 to 1994, Mr. Shirreff was an independent financial consultant to
various corporations. Prior to 1991, Mr. Shirreff served as a Director of, and
in senior executive positions with, Scotia McLeod, Inc., a Toronto merchant
banking firm.
Sydney Stein has been a Director of the Company since 1993. Since 1974,
Mr. Stein has been President of Syco Holdings Ltd., a Montreal-based retail
chain. In addition, from March 1991 to May 1994, Mr. Stein was President of
Kasyco, Inc., a Montreal-based wholesaler.
Joseph A. Gemmo has been Vice President and Chief Financial Officer of the
Company since August 1996 and Assistant Secretary since October 1997. From
January 1994 to April 1996, Mr. Gemmo was the Chief Financial Officer of
Bio-Botanica, Inc., a developer and manufacturer of herbal extracts. From 1989
to 1994, Mr. Gemmo was the Chief Financial Officer of General Aerospace
Materials Corp.
Harvey Farber has been Senior Vice President--Flavor Division of the
Company since October 1997. From October 1995 through October 1997, Mr. Farber
was Senior Vice President--Flavor Development of the Company. Before Mr. Farber
joined the Company, he was the Vice President--Flavor Development at J.
Manheimer Inc. for twelve years.
Ronald J. Dintemann has been Vice President--Operations of the Company
since May 1989 after serving as Vice President--Operations of Globe Extracts,
Inc. for two years.
Paul E. Hoffmann has been the Secretary and Treasurer of the Company since
1990 and was a Director of the Company until June 1996. Before he joined the
Company, Mr. Hoffmann was Vice President--Finance of Globe Extracts, Inc. for
more than eight years.
Sean Deson is a Senior Vice President of the Investment Banking Division
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). Mr. Deson has
served in various capacities at DLJ since 1990, primarily as an
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<PAGE>
advisor, financier and investor focusing on the chemical industry. Mr. Deson
also serves as a member of the Board of Directors of SpecChem International
Holdings, L.L.C., an international specialty chemicals producer.
Bruce S. Foerster is the President of South Beach Capital Markets Advisory
Corporation, which he founded in January 1995 and which offers advice in capital
markets and corporate finance. From June 1992 to December 1994, Mr. Foerster was
the Managing Director in Equity Syndicate at Lehman Brothers and has over
twenty-six years of investment banking experience. Mr. Foerster is also a
director/trustee of the Pilgrim America Mutual Funds, a Governor of the
Philadelphia Stock Exchange, and a director of 2Connect Express, Inc. and Aurora
Capital, Inc.
Werner F. Hiller has been a consultant to ConAgra, Inc. ("ConAgra") since
1996 and previously served as the President of General Spice Companies, a
division of ConAgra, from 1990 to 1996. From 1965 to 1990, Mr. Hiller was the
founder, co-owner and Executive Vice President and Treasurer of General Spice
Companies.
Irwin D. Simon has been the President and Chief Executive Officer of The
Hain Food Group, Inc., a natural and specialty foods company listed on Nasdaq,
since 1993. Prior to 1993, Mr. Simon spent fifteen years in various sales and
marketing positions, including Vice President of Marketing of Slim-Fast Foods
Company, and Eastern Regional Director of Haagen-Dazs Shops, a division of Grand
Metropolitan, PLC.
All directors of the Company serve until the next annual meeting of
stockholders or until their respective successors are duly elected and
qualified. Officers serve at the discretion of the Board of Directors, subject
to rights, if any, under their contracts of employment. There are no family
relationships among the directors and executive officers of the Company. See
"--Director Compensation" and "Executive Compensation."
Meetings of the Board of Directors and Committees
The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board are informed about the Company's
affairs through presentations, reports and documents distributed to them,
through operating and financial reports routinely presented at meetings of the
Board of Directors and committee meetings, and through other means. In addition,
directors of the Company discharge their duties throughout the year not only by
attending meetings of the Board of Directors but also through personal meetings
and other communications, including telephone contact with management and others
regarding matters of interest and concern to the Company.
During 1997, the Company's Board of Directors held three meetings and
acted by unanimous written consent three times. Each director attended at least
75% of the Board meetings and committee meetings, if applicable, held during
1997.
In February 1997, the Board of Directors approved an increase in the
number of directors constituting the whole Board from five to seven and
appointed Scott Cunningham as director to fill one of the resulting vacancies.
In May 1997, the Board approved a decrease in the number of directors
constituting the whole Board from seven to six. In May 1998, the Board approved
an increase in the number of directors constituting the whole Board from six to
seven. There are currently no vacancies on the Board. Three current members of
the Board will, however, resign upon the election of new directors at the Annual
Meeting.
Board Committees
The Board of Directors has a standing Audit Committee, which met each time
the full Board met in 1997. The Company does not currently have either a
compensation or nominating committee, however, a Compensation Committee is
expected to be established subsequent to the Annual Meeting. The members of the
Audit Committee are appointed by the Board of Directors.
8
<PAGE>
Audit Committee. The Audit Committee recommends to the Board of Directors
the firm to be selected each year as independent auditors of the Company's
financial statements and to perform services related to such audit. The Audit
Committee also has responsibility for (i) reviewing the scope and results of the
audit with the independent auditors, (ii) reviewing the Company's financial
condition and results of operations with management, (iii) considering the
adequacy of the internal accounting, bookkeeping and control procedures of the
Company, and (iv) reviewing any non-audit services and special engagements to be
performed by the independent auditors and considering the effect of such
performance on the auditors' independence. The current members of the Audit
Committee are Messrs. Stein, Shirreff and Rosner. A new Audit Committee will be
elected by the Board of Directors after the Annual Meeting.
The Company has not established a nominating committee and/or a corporate
governance committee as recommended by the TSE Report (as defined herein). The
Company believes that the nomination of directors and other issues normally
considered by these committees can be effectively managed by the Board of
Directors due to its relatively small size, or by the Audit Committee which is
composed substantially of "unrelated directors." See "--Statement of Corporate
Governance Practices."
Director Compensation
Each outside director of the Company receives a $10,000 annual fee, plus
$500 for each formal meeting attended. For the year ended December 31, 1997, the
Company's outside directors waived their annual fees. Directors are also
reimbursed for reasonable expenses actually incurred in connection with
attending each formal meeting of the Board of Directors or any committee
thereof. The Company's outside directors are currently Messrs. Cunningham,
Shirreff and Stein.
In the event Messrs. Foerster, Hiller and Simon are elected to serve as
directors of the Company at the Annual Meeting, each will receive a grant of
non-plan options to purchase 100,000 shares of Common Stock, subject to
stockholder and TSE approval. In the event Mr. Deson is elected to serve as a
director of the Company at the Annual Meeting, he will be granted non-plan
options to purchase 200,000 shares of Common Stock, subject to stockholder and
TSE approval. All of such options shall have an exercise price equal to the
closing bid price of the Common Stock on the Nasdaq OTC Bulletin Board (the
"Bulletin Board") on the date of the grant. These options will have a term of
ten years and will vest in equal increments over a period of five years from the
date of the grant.
Advisory Committee
After the Annual Meeting, the Company intends to establish an Advisory
Committee (the "Committee") composed of individuals with expertise in corporate
finance and the flavor and fragrance industry, including product development,
sales and regulatory affairs. The Company anticipates that additional persons
may in the future join the Committee. Members of the Committee are expected to
meet with management and key employees of the Company on an ad hoc basis.
Committee members are expected to assist the Company in matters of corporate
finance and in identifying product development, sales and potential acquisition
opportunities, reviewing with management the progress of the Company's specific
projects and recruiting and evaluating the Company's staff.
In connection with their services as members of the Committee, the Company
will grant to each initial Committee member non-plan options, subject to
stockholder and TSE approval, to purchase 100,000 shares of Common Stock at an
exercise price equal to the closing bid price on the Bulletin Board on the date
of the grant. Such options will have a ten-year term and will vest in equal
increments over a period of five years from the date of the grant.
The Company will require Committee members to execute proprietary
information and invention assignment agreements upon their appointment to the
Committee. These agreements provide that all confidential information
9
<PAGE>
developed or made known to the Committee members during the course of their
relationship with the Company must be kept confidential except in specified
circumstances.
Although the Company expects to receive guidance from members of the
Committee, all Committee members have substantial commitments to third parties,
which commitments may conflict or compete with their obligations to the Company.
Accordingly, such persons will be able to devote only a small portion of their
time to matters related to the Company.
The initial members of the Committee will include Andrew M. Brown, Daniel
P. DeClark and Bruce G. Seitz, whose biographies appear below.
Andrew M. Brown is the President and Chief Investment Officer of
CounterPoint Capital Management ("CounterPoint"). Prior to forming CounterPoint,
Mr. Brown was co-founder and a Managing Director of High View Capital
Corporation ("High View") from 1995 to 1997 and was Chief Investment Officer of
Perennial Partners from 1994 to 1995. From 1992 to 1994, Mr. Brown was an
analyst at Morgan Stanley and was a consultant with Kenneth Leventhal & Co. from
1990 to 1992. Mr. Brown currently serves on the board of directors of Prolux
Corporation and Moneylink, Inc. See "Certain Relationships and Related
Transactions--Transactions with Member of Advisory Committee to be Formed."
Daniel P. DeClark has since 1993 been the owner and developer of two
beverage companies, Beverage Flavors, Inc. and Bahia Company. From 1990 to 1993,
Mr. DeClark was a consultant to the beverage industry. In 1970, Mr. DeClark
founded Continental Flavors & Fragrances, Inc., and developed the company into a
leading supplier of flavors to the beverage industry and a pioneer and leader in
the New Age beverage category until it was sold to Sanofi Bio Industries in
1990.
Bruce G. Seitz has been a marketing, sales and business development
consultant since 1992 and has held senior management positions with major
consumer products companies. Mr. Seitz has extensive experience in the hair,
skin and personal care, and food and beverage industries. From 1991 to 1992, Mr.
Seitz served as Vice President--Marketing Services of Revlon, where he directed
marketing services for the Beauty Care Group. From 1990 to 1991, Mr. Seitz was
Vice President of Marketing of The Wella Corporation, and from 1986 to 1990, he
was Vice President--Marketing and Sales of Faberge USA, Inc. Mr. Seitz has also
served in various management positions for Conair Corporation, Clairol, Inc.,
Sara Lee and Lever Brothers Company.
Statement of Corporate Governance Practices
The Company's Common Stock is listed on the Toronto Stock Exchange. The
by-laws of the TSE require listed companies to disclose their approach to
corporate governance on an annual basis and within the context of certain
guidelines proposed in the December 1994 report issued by The Toronto Stock
Exchange Committee on Corporate Governance in Canada (the "TSE Report"). The
report's focus is on the importance of each company addressing the governance
issue in its own context and the receipt by the company's stockholders of an
explanation for each company's approach to governance. There is no requirement
for the Company to comply with the guidelines in the TSE Report, and the report
itself recognizes that each company should have the flexibility to develop its
own approach to corporate governance.
Of particular significance is the fact that the Company is organized under
the laws of the State of Delaware, and therefore is subject to that State's laws
and principles of corporate governance. The Company is of the opinion that its
approach to corporate governance is in compliance with Delaware law and the
principles of the TSE Report.
10
<PAGE>
Unrelated Directors
Much of the discussion in the TSE Report focuses on the composition of a
company's board of directors and, in particular, the number of "unrelated
directors." In the TSE Report, an "unrelated director" is a director who is free
from any interest and any business or other relationship which could, or could
reasonably be perceived to, materially interfere with that director's ability to
act with a view to the best interests of the Company, other than an interest
arising from such director's status as a stockholder. The TSE Report also
focuses on the importance of having an appropriate portion of the board of
directors which is free from any interest or relationship with a "significant
shareholder" of the company (i.e., a shareholder controlling more than 50% of
the company's common stock). The Company does not have a "significant
shareholder" within the meaning of the TSE Report.
The Company believes that three (i.e., Messrs. Cunningham, Shirreff and
Stein) of its current six directors and four (Messrs. Deson, Foerster, Hiller
and Simon) of its director nominees are "unrelated" within the meaning of the
TSE Report.
The Board of Directors has no formal policy setting out which specific
matters must be brought by the President and management to the Board of
Directors for approval, although generally all material transactions are
presented by management for approval by the Board of Directors.
Response to Stockholders
Management is available to stockholders to respond to questions and
concerns on a prompt basis. The Board of Directors believes that the Company is
generally responsive to the inquiries of stockholders and others interested in
the Company.
Expectations of Management
The Board of Directors works closely with members of management. The
Board's access to information relating to the operations of the Company, through
membership on the Board of several key members of management and, as necessary,
attendance by other members of management at the request of the Board, are key
elements to the effective and informed functioning of the Board of Directors.
The Board of Directors expects the Company's management to take the
initiative in identifying opportunities and risks affecting the Company's
business and to finding means to deal with such opportunities and risks for the
benefit of the Company. The Board of Directors is confident that the Company's
management responds ably to this expectation.
Limitation of Personal Liability and Indemnification
The General Corporation Law of Delaware permits a corporation, through its
certificate of incorporation, to eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, with certain exceptions. The exceptions include
a breach of fiduciary duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, improper
declarations of dividends and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation, as
amended, exonerates its directors from monetary liability to the fullest extent
permitted by this statutory provision but does not restrict the availability of
non-monetary and other equitable relief.
The Company's Certificate of Incorporation, as amended, and By-laws
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by Delaware law.
11
<PAGE>
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who beneficially own
more than 10% of the Company's Common Stock (collectively, the "Reporting
Persons") to file with the Securities and Exchange Commission (the "Commission")
(and, if such security is listed on a national securities exchange, with such
exchange), various reports as to ownership of such Common Stock. Such Reporting
Persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. Based solely upon a review of
copies of Section 16(a) reports and representations received by the Company from
Reporting Persons, and without conducting any independent investigation of its
own, the Company believes that no Reporting Person failed to timely file Forms
3, 4 and 5 with the Commission during 1997.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table sets forth the aggregate
compensation paid to or earned by the Chairman of the Board of Directors and
President of the Company and the four most highly compensated executive officers
of the Company (other than the Chairman of the Board and President) whose total
annual salaries and bonuses exceeded $100,000 for the year ended December 31,
1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
------------------ --------------------- ------------------
Securities Underlying All Other
Name and Principal Position Year Salary($) Options/SARs Compensation(2)
- ------------------------------------ ---------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
Philip Rosner..................... 1997 $225,962 -- $16,820
Chairman of the Board and 1996 235,000 100,000(3) 17,216
President 1995 200,000 -- 16,001
A. Gary Frumberg.................. 1997 192,308 -- 17,761
Executive Vice President 1996 199,903 100,000(3) 17,010
1995 164,000 -- 12,305
Richard R. Higgins................ 1997 158,164 -- 16,805
Executive Vice President 1996 150,000 -- 16,757
1995 5,769 -- 1,261
Harvey Farber..................... 1997 163,461 75,000(4) 10,436
Senior Vice President--Flavor 1996 161,509 10,000 8,429
Division 1995 36,821 -- 1,850
Ronald J. Dintemann............... 1997 129,808 25,000(5) 15,500
Vice President--Operations 1996 134,085 75,000(3) 22,580
1995 97,176 -- 10,909
</TABLE>
- ---------------------------
(1) Effective January 1, 1998, each executive officer named above received a
salary increase of 4% of his then-effective base salary. See "--Employment
Agreements."
(2) Represents Company-reimbursed automobile expenses of such executive.
(3) Represents stock options granted in 1994 under the Company's 1993 Stock
Option Plan, including options granted to Messrs. Rosner, Frumberg and
Dintemann, and options granted in April 1994 to certain of the Company's
directors, executive officers and employees. The exercise prices of such
options were reduced
12
<PAGE>
in October 1995 by the Board of Directors and approved by the Company's
stockholders in October 1996. See "--1993 Stock Option Plan."
(4) Includes (a) 25,000 shares of Common Stock granted to Mr. Farber as
additional compensation pursuant to his amended employment agreement and
(b) 50,000 shares of Common Stock issuable to Mr. Farber pursuant to stock
options granted under the 1996 Stock Option Plan. See "--Employment
Agreements."
(5) Represents 25,000 shares of Common Stock issuable to Mr. Dintemann
pursuant to stock options granted under 1996 Stock Option Plan.
Option Grants in 1997
The following table sets forth certain information concerning individual
option grants during the year ended December 31, 1997 to each of the Named
Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term(1)
Options Employees in Exercise Price Expiration -----------------------------
Name Granted Fiscal Year Per Share Date 5%($) 10%($)
- ---- ----------- ------------ ----------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip Rosner................. -- -- -- -- -- --
A. Gary Frumberg.............. -- -- -- -- -- --
Richard R. Higgins............ -- -- -- -- -- --
Harvey Farber................. 50,000 14.0% $1.31 2/27/07 $41,193 $104,390
Ronald J. Dintemann........... 25,000 7.0% $1.6875 6/25/07 $26,531 $67,235
</TABLE>
- ---------------------------
(1) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the Commission and do not represent the Company's estimate
or projection of future price of its Common Stock.
Aggregate Option Exercises in 1997 and Year-End Option Values
The following table provides certain information regarding stock option
ownership and exercises by the Named Executive Officers, as well as the number
and assumed value of exercisable and unexercisable options held by those persons
at December 31, 1997:
<TABLE>
<CAPTION>
Number of
Shares Acquired Value Number of Securities Underlying Value of Unexercised In-The-
Name On Exercise Realized($) Unexercised Options at 12/31/97 Money Options at 12/31/97($)(1)
- ---- ----------- ----------- -------------------------------- -------------------------------
Exercisable Non-Exercisable Exercisable Non-Exercisable
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Philip Rosner......... -- -- 75,000 25,000 $49,500 $ 16,500
A. Gary Frumberg...... -- -- 75,000 25,000 49,500 16,500
Richard R. Higgins.... -- -- -- -- -- --
Harvey Farber......... -- -- 15,000 45,000 750 750
Ronald J. Dintemann... -- -- 56,250 43,750 40,500 13,500
</TABLE>
- ---------------------------
(1) Value of unexercised "in-the-money" options is equal to the difference
between the closing bid price per share of the Common Stock on the TSE at
December 31, 1997 (U.S. $1.30) and the option exercise price per share
multiplied by the number of shares subject to options.
13
<PAGE>
Employment Agreements
In October 1995, the Company entered into a five-year employment agreement
with Mr. Rosner which provides that he will serve as the President of the
Company. The agreement provides for an annual base salary (adjustable in
accordance with the Consumer Price Index) of $235,000. Effective January 1,
1998, Mr. Rosner's annual base salary was increased by the Company to $244,400
per year. Effective May 1, 1998, Mr. Rosner voluntarily reduced his annual
salary from $244,400 to $200,000 for the remainder of 1998. The agreement
contains, among other things, customary termination and confidentiality
provisions.
In October 1995, the Company entered into a five-year employment agreement
with Mr. Frumberg which provides that he will serve as an Executive Vice
President of the Company. The agreement provides for an annual base salary
(adjustable in accordance with the Consumer Price Index ) of $200,000. Effective
January 1, 1998, Mr. Frumberg's annual base salary was increased by the Company
to $208,000. The agreement contains, among other things, customary termination
and confidentiality provisions.
In October 1995, the Company entered into a three-year employment
agreement with Mr. Farber to serve as the Senior Vice President--Flavor Division
of the Company. Pursuant to his employment agreement, Mr. Farber is entitled to
receive an annual base salary of $160,000. In addition, the employment agreement
provides that Mr. Farber may receive an annual bonus, payable at the sole
discretion of the Company. In December 1997, the employment agreement was
amended to provide that Mr. Farber will receive an annual base salary of
$176,800 commencing January 1, 1998 for the balance of the term of the
agreement. Pursuant to such amendment, in 1997 the Company issued to Mr. Farber
25,000 shares of Common Stock as additional compensation. Mr. Farber's
employment agreement contains, among other things, customary termination and
confidentiality provisions.
In December 1995, the Company entered into a five-year employment
agreement with Mr. Higgins to serve as an Executive Vice President of the
Company and as President of the Company's Seasoning Division. Pursuant to his
employment agreement, Mr. Higgins is entitled to receive an annual base salary
of $150,000, plus an amount each year equal to 2% of the Company's sales
produced but not generated by the Seasoning Division in that year. Effective
January 1, 1998, Mr. Higgins' annual base salary was increased by the Company to
$171,600. Mr. Higgins' annual compensation may not, however, exceed the higher
of Mr. Rosner's annual compensation or $200,000. Pursuant to the Seafla
Acquisition, Mr. Higgins also received an aggregate of 750,000 shares of Common
Stock. Mr. Higgins employment agreement contains, among other things, customary
termination and confidentiality provisions. See "Certain Relationships and
Related Transactions--Transactions with Principal Stockholders."
In January 1996, the Company entered into a five-year employment agreement
with Ronald J. Dintemann to serve as Vice President--Operations of the Company.
Pursuant to his employment agreement, Mr. Dintemann is entitled to receive an
annual base salary (adjustable in accordance with the Consumer Price Index) of
$135,000. Effective January 1, 1998, Mr. Dintemann's annual base salary was
increased by the Company to $140,400. Mr. Dintemann's employment agreement
contains, among other things, customary termination and confidentiality
provisions.
On August 2, 1996, the Company entered into a three-year employment
agreement with Joseph A. Gemmo to serve as the Company's Vice President and
Chief Financial Officer effective August 19, 1996. Pursuant to his employment
agreement, Mr. Gemmo is entitled to receive an annual base salary of $115,000.
Effective August 1997, Mr. Gemmo's annual base salary was increased by the
Company to $130,000. Effective January 1, 1998, Mr. Gemmo's annual base salary
was increased by the Company to $135,200. In addition, Mr. Gemmo received
options to purchase 100,000 shares of Common Stock. Mr. Gemmo's employment
agreement also provides that Mr. Gemmo may receive an annual bonus, payable at
the sole discretion of the Company. On December 1, 1997, the Company's Board of
Directors authorized the Company to reprice the option granted to Mr. Gemmo in
August 1996 to purchase 100,000 shares of Common Stock from $2.0625 to $1.31 per
share, the market price of the Common Stock at the time of repricing, and to pay
Mr. Gemmo a minimum cash bonus of $50,000 in the event
14
<PAGE>
the Company undergoes a "change of control." See "Certain Relationships and
Related Transactions--Transactions with Directors and Executive Officers."
In October 1995, the Company entered into a five-year employment agreement
with Paul E. Hoffmann which provides that he will serve as the Secretary and
Treasurer of the Company. The agreement provides for an annual base salary
(adjustable in accordance with the Consumer Price Index) of $135,000. Effective
August 1996, Mr. Hoffmann's annual base salary was decreased to $100,000.
Effective January 1, 1998, Mr. Hoffmann's annual base salary was increased by
the Company to $104,000. The Agreement contains, among other things, customary
termination and confidentiality provisions.
1993 Stock Option Plan
In November 1993, the Company adopted the 1993 Stock Option Plan (the
"1993 Option Plan") pursuant to which the Company may grant options to its
employees to purchase up to 500,000 shares of Common Stock. The options granted
under the 1993 Option Plan may be exercised during the ten-year period after
they are granted, at an exercise price equal to the mean between the high and
low selling prices of the Common Stock on the TSE on the date of grant. Options
granted to any person who beneficially owns ten percent (10%) or more of the
Common Stock may not be exercised until after the fifth anniversary of the date
of the grant and must be granted at an exercise price equal to 110% of the
market price at the date of the grant.
On October 30, 1995, the Board of Directors reduced the exercise prices of
all outstanding options granted under the 1993 Option Plan from U.S. $1.38 per
share to U.S. $0.58 per share with respect to options granted to employees,
officers or directors of the Company who are not beneficial owners of 10% or
more of the Common Stock, and from U.S. $1.52 per share to U.S. $0.64 per share
with respect to options granted to employees, officers and directors who
beneficially owned 10% or more of the Common Stock. Such reductions were
approved by the Company's stockholders in 1996.
1996 Stock Option Plan
In 1996, the Board of Directors adopted and the stockholders approved the
1996 Stock Option Plan (the "1996 Option Plan"). Under the 1996 Option Plan, the
maximum number of shares of Common Stock that may be subject to options may not
exceed an aggregate of 1,000,000 shares. The maximum number of shares may be
adjusted in certain events, such as a stock split, reorganization or
recapitalization. Employees (including officers and directors who are employees)
of the Company or its subsidiaries are eligible for the grant of incentive
options under the 1996 Option Plan. Directors who are not employees or officers
are not eligible to receive incentive stock options, but may receive
non-qualified options. Options may also be granted to other persons, provided
that such options shall be non-qualified options. In the event of incentive
options, the aggregate fair market value of the Common Stock with respect to
which such options become first exercisable by the holder during any calendar
year cannot exceed $100,000. This limit does not apply to non-qualified options.
To the extent an option that otherwise would be an incentive option exceeds this
$100,000 threshold, it will be treated as a non-qualified option.
The Company will receive no monetary consideration for the grant of
options under the 1996 Option Plan. In the case of an incentive option, the
exercise price cannot be less than the fair market value (as defined in the 1996
Option Plan) of the Common Stock on the date the option is granted and, if an
optionee is a stockholder who beneficially owns 10% or more of the outstanding
Common Stock, the exercise price of incentive options may not be less than 110%
of the fair market value of the Common Stock. The term of an option cannot
exceed ten years and, in the case of an optionee who owns 10% or more of the
outstanding Common Stock, cannot exceed five years.
The 1996 Option Plan will terminate automatically and no options may be
granted more than ten years after the date the 1996 Option Plan was approved by
the Board of Directors. The 1996 Option Plan may be terminated at any prior time
by the Board of Directors. Termination of the 1996 Option Plan will not affect
options that were granted prior to the termination date.
15
<PAGE>
As of May 26, 1998, options to purchase an aggregate of approximately
1,101,000 shares of Common Stock were outstanding under the 1993 and 1996 Option
Plans. In addition, as of May 26, 1998, non-plan options to purchase 100,000
shares of Common Stock were also outstanding.
Consulting Agreement
In October 1995, the Company entered into a one-year consulting agreement
with Strategic Growth International, Inc. ("SGI"), pursuant to which SGI, on
behalf of the Company, agreed to (i) arrange and conduct meetings with the
professional investment community and investor groups, (ii) develop and
implement a comprehensive investor relations program, and (iii) provide
professional staff services to assist the Company in carrying out its programs
and objectives (the "Consulting Agreement"). Stanley Altschuler and Richard E.
Cooper, beneficial owners of 6.8% and 6.1% of the Company's Common Stock,
respectively, are each 50% stockholders of SGI. Under the Consulting Agreement,
the Company paid SGI a retainer fee of $8,000 per month plus reasonable expenses
and issued to SGI warrants (the "SGI Warrants") to purchase an aggregate of
600,000 shares of Common Stock at an initial exercise price of $0.56, the market
price of the Common Stock on the TSE on the date of issuance, subject to
adjustment in certain circumstances pursuant to the terms and conditions set
forth in that certain Warrant Agreement dated as of October 25, 1995, as amended
(the "Warrant Agreement"). The Warrant Agreement expires on October 24, 2000.
See "Voting Rights and Voting Securities--Security Ownership of Certain
Beneficial Owners and Management."
In October 1996, the consulting agreement expired by its terms. The
Company continued to engage SGI for its services under the Consulting Agreement
pursuant to its terms on a month to month basis up until October 1997, at which
time the arrangement was terminated by the Company. In February 1998, SGI
commenced an action against the Company in the Supreme Court of the State of New
York, County of Nassau, seeking damages for the Company's alleged failure to
perform its obligations under the consulting agreement. SGI is seeking damages
in the amount of $124,950. On April 3, 1998, the Company filed an Answer and
Counterclaim denying the allegations in the complaint. The Company intends to
vigorously contest the action, and believes it to be without merit. Although
there can be no assurance, management is of the opinion that the resolution of
this matter will not have a significant impact on the Company's financial
position, results of operations or cash flows.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Principal Stockholders
On December 6, 1995, the Company consummated the Seafla Acquisition. As
consideration in such transaction, the Company paid $3,000,000 in cash and
issued a promissory note in the principal amount of $888,019 (the "Seafla
Note"). The Company funded the cash portion of the Seafla purchase price through
a term loan in the amount of $3,500,000 with interest payable monthly at one and
one-half percent above the bank's prime rate. According to the terms of the
Seafla Note, $177,604 was to be payable on January 1, 1997 and the remaining
four installments were to be payable on each January 1 thereafter through 2001.
In March 1997 and in March 1998, the Seafla Note was amended in order to extend
the Company's obligation to pay the first principal installment. Pursuant to the
March 1998 amendment, payment of the first installment of $177,604 was extended
to January 1, 2000. The remaining four installments are due on January 1 of each
year through January 2004. Outstanding amounts under the Seafla Note bear
interest at a rate of 12% per annum. The Company is required to pay monthly
interest installments equal to $10,000 per month against all accrued and unpaid
interest commencing February 15, 1998 until all accrued and unpaid interest
under the Seafla Note has been fully paid. Concurrently with the closing of the
acquisition, the Company entered into a five-year employment agreement with Mr.
Higgins, then the President of Seafla, to be an Executive Vice President of the
Company and the President of the Company's Seasoning Division. See "Executive
Compensation--Employment Agreements."
16
<PAGE>
In connection with the Seafla Acquisition, the Company assumed the lease
of Seafla's 37,000 square foot facility in Milford, Ohio, with a term expiring
in 2014. The owner of this leased facility is a partnership in which Mr. Higgins
is a partner. The annual rental paid by the Company in respect of this facility
is $192,000. In connection with the Seafla Acquisition, the Company obtained a
report of an independent appraisal firm which concluded that the rental paid by
the Company is at or very close to market value.
Transactions with Directors and Executive Officers
In 1997, the Company's executive officers were granted salary increases of
4% of their then-effective base salaries. In addition, in 1997 the Company
repriced certain stock options previously granted to one of its executive
officers. See "Executive Compensation--Employment Agreements."
Pursuant to an agreement between Mr. Shirreff and the Company, upon Mr.
Shirreff's resignation from the Board of Directors following the Annual Meeting,
the Company will cancel options granted to Mr. Shirreff to purchase 100,000
shares of Common Stock. Such options were granted to Mr. Shirreff on November 5,
1997 in consideration of his service as a director to the Company under the 1996
Option Plan at an exercise price of $1.4375 per share. Such options, which have
not vested, were to have vested in equal increments over a period of five years
from the date of the grant, and were to have expired ten years from the date of
the grant. Pursuant to the agreement between Mr. Shirreff and the Company,
effective upon his resignation from the Board of Directors following the Annual
Meeting, the Company will cancel such options and grant to Mr. Shirreff non-plan
options, subject to stockholder and regulatory approval, to purchase 100,000
shares of Common Stock at an exercise price equal to the closing bid price of
the Common Stock on the Bulletin Board on the date of the grant. Such options
will be immediately exercisable following the date stockholder and regulatory
approval is obtained, and all such options, or any portion thereof, shall expire
eighteen months from the date of the grant to the extent not exercised by such
date. See "Voting Rights and Voting Securities--Security Ownership of Certain
Beneficial Owners and Management."
The following table sets forth certain information regarding loans made by
the Company to certain of its directors and executive officers which were
outstanding as of the end of the year ended December 31, 1997 (collectively, the
"Loans"). As of May 15, 1998, the aggregate indebtedness owed to the Company
pursuant to the Loans was $273,032, including accrued interest thereon. The
Loans are unsecured, bear interest at the rate of 8% per annum and are due in
installments of principal and interest through December 31, 1999.
Table of Indebtedness of Directors
and Executive Officers of the Company
<TABLE>
<CAPTION>
Amount
Outstanding as of Amount
Involvement of December 31, Outstanding as of
Name and Principal Position Issuer 1997(1) May 15, 1998(1)
------------------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
Philip Rosner................ Lender $195,096 $190,691
A. Gary Frumberg............. Lender $ 84,424 $ 82,341
(1) Includes accrued interest.
</TABLE>
Transactions with Member of Advisory Committee to be Formed
In 1996, in connection with a $1,500,000 financing, the Company sold
$1,150,000 principal amount of its 9% Convertible Subordinated Notes due 1998
(the "Notes") to High View and its affiliates (High View and its affiliates
collectively, the "High View Purchasers"). The Company intends to form an
Advisory Committee following the Annual Meeting. Andrew M. Brown, who is
expected to become a member of the Advisory
17
<PAGE>
Committee, was co-founder and a Managing Director of High View from 1995 to
1997. In addition, and in connection with the sale of the Notes to the High View
Purchasers, the Company issued to the High View Purchasers Class A Warrants to
purchase an aggregate of 344,970 shares of Common Stock at an exercise price of
$2.40 per share (subject to adjustment), and Class B Warrants to purchase an
aggregate of 119,782 shares of Common Stock at an exercise price of $2.70 per
share (subject to adjustment). On October 16, 1997, the Company redeemed the
Notes by prepaying half of the outstanding balance thereon in cash and by
converting the remaining half into shares of Common Stock. The number of shares
of Common Stock issuable upon conversion of half of the outstanding Note balance
was based upon the weighted average share price during the ten trading days
preceding October 16, 1997. In connection with the conversion portion of such
redemption, the High View Purchasers received 297,202 shares of Common Stock.
See "Proposal I: Election of Directors--Advisory Committee."
PROPOSAL II: SELECTION OF INDEPENDENT AUDITORS
Ernst & Young LLP has acted as the independent auditors of the Company
since 1996, and has acted in such capacity in connection with the preparation of
the Company's audited consolidated financial statements for the year ended
December 31, 1997 and the report contained therein, which is included in the
Company's Annual Report to Stockholders accompanying this Proxy Statement. As
independent auditors for the Company, Ernst & Young LLP is responsible for
auditing the accounts of the Company and providing other audit and accounting
services to the Company in connection with filings with the Commission and the
TSE.
In May 1998, the Board of Directors and the Audit Committee approved
management's appointment of Ernst & Young LLP as the Company's independent
auditors for the year ending December 31, 1998. The stockholders are being asked
to approve the appointment of Ernst & Young LLP as independent auditors for the
year ending December 31, 1998, and to authorize the Board of Directors to fix
their remuneration. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting and available to respond to appropriate questions.
Such representative also will have the opportunity, if desired, to make a
statement to the stockholders.
Required Affirmative Vote
Approval of the appointment of Ernst & Young LLP, as independent auditors
of the Company for the year ending December 31, 1998 requires the affirmative
vote of holders of a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting. The Board of Directors unanimously
recommends that the stockholders vote FOR Proposal II.
1999 STOCKHOLDER PROPOSALS
Stockholder proposals requested to be included in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders must be received by the
Company at its principal executive offices, 10 Edison Street East, Amityville,
New York 11701 (Attn: Corporate Secretary), prior to January 27, 1999. The Board
of Directors will review any stockholder proposals that are received in
accordance herewith and will determine whether such proposals meet applicable
criteria for inclusion in the Company's Proxy Statement for the 1999 Annual
Meeting.
Holders of Common Stock desiring to have proposals submitted for
consideration at any future meeting of stockholders should review the applicable
rules and regulations of the Commission with respect to submitting such
proposals.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for consideration at the Annual Meeting. Should any other matters
properly come before the Annual Meeting, the persons named in
18
<PAGE>
the accompanying proxy or their substitutes will vote such proxy on behalf of
the stockholders they represent in accordance with their best judgment.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Board of Directors.
The Company will bear the costs of preparing and mailing the proxy materials to
its stockholders in connection with the Annual Meeting. The Company will solicit
proxies by mail and the directors and certain officers and employees of the
Company may solicit proxies personally or by telephone or telegraph. These
persons will receive no additional compensation for such services but will be
reimbursed by the Company for reasonable out-of-pocket expenses. The Company
also will request brokers, dealers, banks and their nominees to solicit proxies
from their clients, where appropriate, and will reimburse them for reasonable
out-of-pocket expenses related thereto.
YEAR 2000
The Company has updated its software so that it believes its computer
systems are Year 2000 compliant. However, there can be no assurances that the
Company will not be adversely affected by unanticipated Year 2000 issues. The
costs associated with updating its computer systems to become Year 2000
compliant were not material and were expensed in 1997.
ADDITIONAL INFORMATION
The Company will make available to any stockholder, without charge, upon a
written request therefor, copies of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997. Any such request should be directed to
Technology Flavors & Fragrances, Inc., Attention: Joseph A. Gemmo, Vice
President and Chief Financial Officer, at 10 Edison Street East, Amityville, New
York 11701.
FOR THE BOARD OF DIRECTORS
Paul E. Hoffmann
Secretary
Amityville, New York
May 29, 1998
19
<PAGE>
PROXY
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
Solicited on Behalf of the Board of Directors
Annual Meeting of Stockholders
June 29, 1998
The undersigned hereby appoints Philip Rosner and A. Gary Frumberg (with
full power to act without the other and with power to appoint his substitute),
as the undersigned's proxy to vote all of the undersigned's shares of Common
Stock of TECHNOLOGY FLAVORS & FRAGRANCES, INC., a Delaware corporation (the
"Company"), which the undersigned would be entitled to vote at a Annual Meeting
of Stockholders of the Company (the "Annual Meeting") to be held at the Melville
Marriott, 1350 Old Walt Whitman Road, Melville, New York 11747, on June 29, 1998
at 11:00 a.m., local time, and at any and all adjournments thereof, as follows:
I. ELECTION OF DIRECTORS |_| FOR all nominees listed below (except as
marked to the contrary below)
|_| AGAINST
|_| ABSTAINING
|_| WITHOUT AUTHORITY to vote for all nominees
listed below
PHILIP ROSNER, A. GARY FRUMBERG, RICHARD R. HIGGINS, SEAN DESON, BRUCE S.
FOERSTER, WERNER F. HILLER and IRWIN D. SIMON
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the line set forth below.)
- --------------------------------------------------------------------------------
II. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1998, and to
authorize the Board of Directors to fix their remuneration.
|_| FOR |_| AGAINST |_| ABSTAINING |_| WITHOUT AUTHORITY TO VOTE
- --------------------------------------------------------------------------------
III. In their discretion, to transact such other business as may properly come
before the Annual Meeting and any and all adjournments thereof.
- --------------------------------------------------------------------------------
The shares of Common Stock represented by this Proxy will be voted in
accordance with the foregoing instructions. In the absence of any
instructions, such shares will be voted FOR the election of all the
nominees listed in Item I and FOR the proposal in Item II.
If any amendments or variations to the matters referred to above or to any
other matters identified in the Notice of Annual Meeting are proposed at
the Annual Meeting or any adjournments thereof, or if any other matters
which are not now known to management should properly come before the
Annual Meeting or any adjournments thereof, this Proxy confers
discretionary authority on the person voting the proxy to vote on such
amendments or variations or such other matters in accordance with the best
judgment of such person.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders to be held on June 29, 1998, the Proxy Statement
of the Company, dated May 29, 1998, the accompanying form of Proxy and the
Company's Annual Report to Stockholders for the year ended December 31,
1997, each of which is enclosed herewith.
<PAGE>
The undersigned hereby revokes any proxy to vote shares of Common Stock of
the Company heretofore delivered by the undersigned in connection with the
Annual Meeting.
A STOCKHOLDER HAS THE RIGHT TO APPOINT A PERSON TO
REPRESENT HIM AND TO ATTEND AND ACT FOR HIM ON HIS
BEHALF AT THE ANNUAL MEETING OTHER THAN THE NOMINEES
DESIGNATED ABOVE AND MAY EXERCISE SUCH RIGHT BY
INSERTING THE NAME OF HIS NOMINEE IN THE SPACE PROVIDED
ABOVE FOR THAT PURPOSE.
Dated
-----------------------------------------------
-----------------------------------------------
Signature
-----------------------------------------------
Signature, if held jointly
-----------------------------------------------
Title (if applicable)
Please date, sign exactly as your name appears on this
Proxy and promptly return in the enclosed envelope. In
the case of joint ownership, each joint owner must sign.
When signing as guardian, executor, administrator,
attorney, trustee, custodian, or in any other similar
capacity, please give your full title. In the case of a
corporation, sign in full corporate name by president or
other authorized officer, giving title, and affix
corporate seal. If a partnership, sign in partnership
name by an authorized person.
