<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HINES HORTICULTURE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
HINES HORTICULTURE, INC.
12621 Jeffrey Road
Irvine, CA 92620
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------------
Date:May 27, 1999
Time:9:00 a.m., local time
Place: 12621 Jeffrey Road,
Irvine, CA 92620
-----------------------------------
To Our Stockholders:
We invite you to attend our Annual Meeting of Stockholders to consider and
vote upon the following:
1.The election of six directors;
2. The ratification of the appointment of PricewaterhouseCoopers LLP as
independent public accountants for the 1999 fiscal year; and
3.Any other business that may properly come before the meeting.
Your Board of Directors unanimously recommends that you vote to approve each
of these proposals.
If you were a stockholder of record at the close of business on April 15,
1999, you may vote at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting in person, and
regardless of the number of shares you own, please complete, sign, date and
return the enclosed proxy card promptly in the enclosed envelope. This will
ensure that your shares are voted as you wish and that a quorum will be
present.
By order of the Board of Directors,
/s/ Claudia m. Pieropan
Claudia M. Pieropan
Secretary
Irvine, California
April 29, 1999
--------------------------------------------------
Your vote is important!
To vote your shares, please complete, sign, date
and mail the enclosed proxy card.
--------------------------------------------------
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT VOTING......................................... 1
Why did you send me this Proxy Statement?................................ 1
How many votes do I have?................................................ 1
How do I vote?........................................................... 1
How do I vote by proxy?.................................................. 1
How do I vote in person?................................................. 1
If my shares are held in "street name" by my broker, will my broker vote
my shares for me?....................................................... 1
Can I change my vote or revoke my proxy after I have mailed my signed
proxy card?............................................................. 1
Will there by any matters voted upon at the Annual Meeting other than
those specified in the Notice of Annual Meeting?........................ 1
How are votes counted?................................................... 1
How are proxies being solicited and who pays for the solicitation of
proxies?................................................................ 2
WHO CAN HELP ANSWER MY OTHER QUESTIONS?.................................... 2
INFORMATION ABOUT THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS........... 3
Who are the Company's Directors and Executive Officers?.................. 3
Security Ownership of Directors and Executive Officers................... 5
Compensation of Directors and Executive Officers......................... 6
Directors' Compensation.................................................. 6
Executive Officers' Compensation......................................... 6
Summary Compensation Table............................................... 6
Option Grants in Last Fiscal Year........................................ 7
Year-End Option Values................................................... 7
Compensation Committee Report on Executive Compensation.................. 8
Common Stock Performance................................................. 9
Employment Agreements.................................................... 10
About the Board and its Committees....................................... 10
Certain Relationships and Related Party Transactions..................... 10
Section 16(a) Beneficial Ownership Reporting Compliance.................. 12
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD........................... 12
PROPOSAL 1: Election of Directors........................................ 12
PROPOSAL 2: Ratification of Appointment of Independent Public
Accountants............................................................. 12
Other Matters............................................................ 13
INFORMATION ABOUT SUBMITTING STOCKHOLDER PROPOSALS......................... 13
</TABLE>
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT VOTING
Q:Why did you send me this Proxy Statement?
A: This Proxy Statement is being sent to you because Hines' Board of Directors
is soliciting your proxy to vote at the 1999 Annual Meeting of Stockholders.
This Proxy Statement summarizes the information you need to know to vote
intelligently on the matters to be voted on at the Annual Meeting.
Stockholders of record as of the close of business on April 15, 1999 are
entitled to vote. This Proxy Statement is being sent on or about April 29,
1999 to those persons who are entitled to vote at the Annual Meeting.
Q: How many votes do I have?
A: Each share of Hines common stock that you own entitles you to one vote.
Q: How do I vote?
A. You can vote on matters presented at the Annual Meeting in two ways.
1. You can vote by filling out, signing and dating your proxy card and
returning it in the enclosed envelope, OR
2. You can attend the Annual Meeting and vote in person.
Q: How do I vote by proxy?
A: If you properly fill out your proxy card and send it to us in time to vote,
your shares will be voted as you have directed. If you do not specify a
choice on your proxy card, the shares represented by your proxy card will be
voted for the election of all nominees and for the ratification of the
appointment of PricewaterhouseCoopers LLP as Hines' independent public
accountants for the 1999 fiscal year.
Whether or not you plan to attend the Annual Meeting, we urge you to
complete, sign, date and return your proxy card in the enclosed envelope.
Returning the proxy card
will not affect your right to attend the Annual Meeting and vote in person.
Q: How do I vote in person?
A: If you attend the Annual Meeting, we will give you a ballot when you arrive.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares.
Q: Can I change my vote or revoke my proxy after I have mailed my signed proxy
card?
A: You can change your vote at any time before your proxy is voted at the
Annual Meeting. You can do this in one of three ways. First, you can send a
written notice to the Secretary of the Company at the Company's offices
stating that you would like to revoke your proxy. Second, you can complete
and submit a new proxy card. Third, you can attend the Annual Meeting and
vote in person. Simply attending a meeting, however, will not revoke your
proxy. If you have instructed a broker to vote your shares, you must follow
the directions you received from your broker to change your vote.
Q: Will there by any matters voted upon at the Annual Meeting other than those
specified in the Notice of Annual Meeting?
A: Hines' management does not know of any matters other than those discussed in
this Proxy Statement that will be presented at the Annual Meeting. If other
matters are properly brought before the meeting and the Company does not
have notice of these matters a reasonable time prior to the Annual Meeting,
all proxies will be voted in accordance with the recommendations of Hines'
management.
Q: How are votes counted?
A: Stockholders of record of Hines' common stock as of the close of business on
April 15, 1999 are entitled to vote at the Annual Meeting. As
1
<PAGE>
of April 15, 1999, there were 22,072,549 shares of common stock issued and
outstanding. The presence in person or by proxy of a majority of the shares
of common stock outstanding will constitute a quorum for the transaction of
business. Each share of common stock is entitled to one vote on each matter
to come before the Annual Meeting.
Under Delaware law, if you have returned a valid proxy or attend the meeting
in person, but abstain from voting, your stock will nevertheless be treated
as present and entitled to vote. Your stock therefore will be counted in
determining the existence of a quorum and, even though you have abstained
from voting, will have the effect of a vote against any matter requiring the
affirmative vote of a majority of the shares present and entitled to vote at
the Annual Meeting, such as the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent public accountants
for 1999.
Under Delaware law, broker "non-votes" are also counted for purposes of
determining whether a quorum is present, but are not counted in determining
whether a matter requiring a majority of the shares present and entitled to
vote has been approved or whether a plurality of the vote of the shares
present and entitled vote has been cast.
Q: How are proxies being solicited and who pays for the solicitation of
proxies?
A: Initially, the Company will solicit proxies by mail. The Company's
directors, officers and employees may also solicit proxies in person or by
telephone without additional compensation. In addition, certain banking
institutions, brokerage firms, custodians, trustees, nominees and
fiduciaries may solicit proxies by mailing material to or otherwise
communicating with the beneficial owners of shares of Hines' common stock.
Hines has also engaged Corporate Investor Communications, Inc. to assist in
communicating with these institutions and forwarding solicitation materials
for a fee of $4,500 plus the reimbursement of expenses. Hines will pay all
expenses of solicitation of proxies.
WHO CAN HELP ANSWER MY OTHER QUESTIONS?
If you have more questions about voting or wish to obtain another a proxy
card, you should contact:
Corporate Investor Communications, Inc.
Toll Free
1-888-976-2663
2
<PAGE>
INFORMATION ABOUT THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
Who are the Company's Directors and Executive Officers?
Directors are elected at the Annual Meeting of Stockholders to serve during
the ensuing year or until a successor is duly elected and qualified. Executive
officers are elected annually by the Board and serve at the discretion of the
Board. The following sets forth certain information concerning each of the
Company's directors, each of whom is a nominee for election to the Board of
Directors, and the Company's executive officers:
Douglas D. Allen Age: 56
Mr. Allen has served as Chairman of the Board of the Company since June 1998
and as Vice President of the Company from August 1995 until June 1998. Mr.
Allen has also served as Chairman of the Board of Hines Nurseries, Inc., a
wholly owned subsidiary of the Company through which the Company conducts its
nursery operations ("Hines Nurseries"), since September 1995. Prior to that
time, Mr. Allen served as President of Hines Nurseries from 1984 to August
1995. He has been a director of Hines Nurseries since 1990. Previously, Mr.
Allen held positions within Weyerhaeuser's Paper Division as a General Manager
from 1975 to 1984 and as a Sales Manager from 1971 to 1975. Mr. Allen serves on
the board of directors of several private companies.
Claudia M. Pieropan Age: 43
Ms. Pieropan has served as Chief Financial Officer of the Company since
January 1996, as Secretary and Treasurer of the Company since June 1998 and as
Vice President of Finance and Administration of Sun Gro Horticulture Inc., a
wholly owned subsidiary of the Company through which the Company conducts its
peat-based products division ("SunGro"), from October 1991 until December 1995.
Prior to that time, Ms. Pieropan spent 14 years with PricewaterhouseCoopers LLP
in Montreal, Toronto and Vancouver.
Ronald A. Pierre Age: 56
Mr. Pierre has served as a director of the Company since October 1998. Mr.
Pierre is currently the President and a director of Express Seed Company and
the Vice President and a director of Green Circle Growers Inc., both of which
are based in Oberlin, Ohio. Mr. Pierre also serves on the board of managers of
Regal Plants LLC, based in Anniston, Alabama, and on the board of director of
Double Harvest, based in Haiti, and Sheperds Ministries, based in Union Grove,
Wisconsin, both of which are non-profit organizations.
Thomas R. Reusche Age: 44
Mr. Reusche has served as a director of the Company since August 1995. Mr.
Reusche has also served as Assistant Secretary of the Company since June 1998
and as Secretary and Treasurer of the Company from August 1995 until June 1998.
Since its formation in January 1993, Mr. Reusche has served as a principal of
Madison Dearborn Capital Partners, L.P., the Company's largest stockholder
("MDCP"), and as a Vice President or as a Managing Director of Madison Dearborn
Partners, Inc., MDCP's indirect general partner ("MDP"). Prior to that time,
Mr. Reusche was a senior investment manager at First Chicago Venture Capital,
which comprised the private equity investment activities of First Chicago
Corporation, the holding company parent of First National Bank of Chicago. Mr.
Reusche serves on the board of directors of a number of private companies.
James R. Tennant Age: 46
Mr. Tennant has served as a director of the Company since October 1998. Mr.
Tennant has been Chairman and Chief Executive Officer of Home Products
International since 1994. Home Products International is a manufacturer and
full-service marketer of quality consumer houseware products.
3
<PAGE>
Stephen P. Thigpen Age: 43
Mr. Thigpen has served as President and Chief Executive Officer of the
Company since June 1998 and as a director of the Company since August 1995. Mr.
Thigpen has served as President and Chief Executive Officer of Hines Nurseries
since September 1995 and as Chief Executive Officer of Sun Gro since May 1997.
Prior to that time, Mr. Thigpen served as General Manager of the Northern
California Nursery for Hines Nurseries from 1985 to August 1995 and as
Technical Resource Manager for Hines Nurseries from 1984 to 1985. Previously,
Mr. Thigpen was a Research and Development Program Manager with Weyerhaeuser's
Nursery Products Division from 1982 to 1984. Mr. Thigpen received his B.S. in
Plant & Soil Sciences from the University of Massachusetts in 1977. Mr. Thigpen
received a Ph.D. in Plant Physiology from the University of California at Davis
in 1981.
Paul R. Wood Age: 45
Mr. Wood has served as a director of the Company since August 1995. Mr. Wood
has also served as Assistant Secretary of the Company since June 1998 and as
Chairman of the Board and President of the Company from September 1995 until
June 1998. Since its formation in 1993, Mr. Wood has served as a principal of
MDCP and as a Vice President or as a Managing Director of MDP. Prior to that
time, Mr. Wood served as Vice President of First Chicago Venture Capital. Mr.
Wood serves on the board of directors of Eldorado Bankshares, Inc., a bank
holding company, and a number of private companies.
4
<PAGE>
Security Ownership of Directors and Executive Officers
The following table sets forth certain information with respect to the
beneficial ownership of Hines' Common Stock as of March 1, 1999 by (1) each
stockholder known by the Company to own beneficially more than five percent
(5%) of the outstanding Common Stock, (2) each director and executive officer
of the Company, and (3) all executive officers and directors of the Company as
a group. Beneficial ownership of less than one percent is indicated by an
asterisk. Except as otherwise indicated below, each of the entities and
individuals named in the table has sole voting and investment power with
respect to all shares of Common Stock beneficially owned by such entity or
individual. No effect has been given to shares reserved for issuance under
outstanding stock options except where otherwise indicated.
<TABLE>
<CAPTION>
Number of
Shares Percent of
Beneficially Right to Class
Name of Beneficial Owner Owned Acquire(1) Outstanding(2)
------------------------ ------------ ---------- --------------
<S> <C> <C> <C>
Madison Dearborn Capital Partners, L.P.
(3)................................... 11,785,628 -- 53.4
Three First National Plaza, Suite 3800
Chicago, IL 60602
California State Teachers' Retirement
System (4)............................ 2,520,598 -- 11.4
7667 Folsom Avenue
Sacramento, California 95826
Abbott Capital 1330 Investors I,
LP(5)................................. 1,314,115 -- 6.0
c/o Abbott Capital Management
1330 Avenue of the Americas, Suite
2800
New York, New York 10019
Douglas D. Allen....................... 145,714 -- *
Claudia M. Pieropan.................... 65,632 12,822 0
Ronald A. Pierre....................... -- -- --
Thomas R. Reusche (6).................. 11,785,628 -- 53.4
James R. Tennant....................... 7,000 2,760 *
Stephen P. Thigpen..................... 255,238 74,794 *
Paul R. Wood (6)....................... 11,785,628 -- 53.4
All Executive Officers and Directors
as a Group (7 persons)................ 12,259,212 90,376 --
</TABLE>
- --------
(1) Represents shares that can be acquired through the exercise of stock
options acquired pursuant to the Company's 1998 Long-Term Equity Incentive
Plan (the "1998 Stock Plan") and which are exercisable within 60 days of
March 1, 1999.
(2) Based on 22,072,549 shares of Common Stock outstanding as of March 1,
1999. Shares subject to options exercisable within 60 days of March 1,
1999 are considered for the purpose of determining the percent of the
class held by the holder of such option, but not for the purpose of
computing the percentage held by others.
(3) Based solely on a Schedule 13D/A dated October 14, 1998. MDCP is the
record holder of 10,785,628 shares. Madison Dearborn Capital Partners II,
L.P. ("MDCP II") is the record holder of 1,000,000 shares. Because MDCP
and MDCP II are under common control, MDCP may be deemed to be the
beneficial owner of the shares held by MDCP II.
(4) Based solely on a Schedule 13G dated March 10, 1999.
(5) Based solely on a Schedule 13G dated February 11, 1999. Abbott Capital
1330 Investors I, LP ("Abbott") is the record holder of 1,308,036 shares.
Abbott Co-Investment I, LLC ("LLC") is the record holder of 6,079 shares.
Because Abbott and LLC are affiliated entities, Abbott may be deemed to be
the beneficial owner of the shares held by LLC.
(6) All of such shares are held by MDCP or MDCP II. Messrs. Reusche and Wood
are Managing Directors of MDP, the ultimate general partner of MDCP and
MDCP II, and therefore may be deemed to share voting and investment power
over the shares owned by MDCP and MDCP II, and therefore to beneficially
own such shares. Both Messrs. Reusche and Wood disclaim beneficial
ownership of the shares owned by MDCP and MDCP II. The address of Messrs.
Reusche and Wood is the address of MDCP.
5
<PAGE>
Compensation of Directors and Executive Officers
Directors' Compensation. Hines' inside directors and those directors
affiliated with MDCP do not receive any compensation for their services as
directors. Hines' outside directors receive $2,500 per Board meeting and $500
for each additional committee meeting. All directors are reimbursed for all
travel-related expenses incurred in connection with their activities as
directors. Under the 1998 Stock Plan, the amount of options, if any, granted
to directors and the terms and provisions of any options granted to directors
are in the discretion of the Compensation Committee.
Executive Officers' Compensation.
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the years ended December 31, 1996, 1997
and 1998 by (1) the Company's Chief Executive Officer, (2) the Company's two
next most highly compensated executive officers, and (3) one individual for
whom disclosure would be required but for the fact that such person was not an
executive officer at year end (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------- ------------
Other
Name and Salary Bonus Options Compensation
Principal Position Year ($) ($)(1) Granted (#)(2) ($)(3)
- ----------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen P. Thigpen (4)....... 1998 282,495 312,356 350,000 34,052
Chief Executive 1997 217,851 197,453 -- 6,194
Officer, President 1996 210,135 13,904 -- 5,861
Douglas D. Allen ............ 1998 200,935 236,538 -- 3,116
Chairman of the Board 1997 200,825 146,905 -- 4,746
1996 202,161 -- -- 5,631
Claudia M. Pieropan.......... 1998 169,063 44,473 60,000 22,504
Chief Financial Officer, 1997 159,628 24,484 -- 7,831
Secretary and Treasurer 1996 150,000 -- -- 13,563
Paul R. Wood (5)............. 1998 -- -- -- --
Assistant Secretary 1997 -- -- -- --
1996 -- -- -- --
</TABLE>
- --------
(1) Represents annual incentive compensation paid during the calendar year.
(2) Represents the number of options granted pursuant to the 1998 Stock Plan.
(3) Includes (i) the dollar value of premiums paid by the Company with respect
to health and term life insurance for Messrs. Thigpen and Allen and Ms.
Pieropan in the amounts of $4,052, $3,116 and $2,504 in 1998, $450, $0 and
$0 in 1997 and $259, $864 and $259 in 1996, respectively, (ii)
contributions made by the Company under Sun Gro's 401(k) Plan on behalf of
Ms. Pieropan in the amount of $2,425 in 1996 and (iii) a one-time bonus
paid by the Company to Mr. Thigpen and Ms. Pieropan for services rendered
in connection with the Company's initial public offering in the amounts of
$30,000 and $20,000, respectively.
(4) Mr. Thigpen has served as Chief Executive Officer of the Company since
June 1998.
(5) Mr. Wood resigned as Chief Executive Officer in June 1998.
6
<PAGE>
The following table sets forth information with respect to all options
granted in 1998 to the Named Executive Officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Exercise Price Appreciation
Underlying Granted to or Base for Option Term
Options Employees in Price Expiration ---------------------
Name Granted(/1/) Fiscal Year ($/Sh) Date 5% 10%
- ------------------------ ------------ ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen P. Thigpen...... 350,000 16.8% $11.00 6/22/08 $2,421,244 $6,135,908
Douglas D. Allen........ -- -- -- -- -- --
Claudia M. Pieropan..... 60,000 2.9% $11.00 6/22/08 $ 415,070 $1,051,870
Paul R. Wood............ -- -- -- -- -- --
</TABLE>
- --------
(1) All of the listed options vest daily over the four-year period beginning
on the date of grant. In the event of a reorganization, recapitalization,
stock dividend or stock split, or combination or other change in the
Common Stock, the Compensation Committee or Board may, in order to prevent
the dilution or enlargement of rights under the options, make adjustments
in the exercise price of and the number of shares covered by the options.
The Compensation Committee may, subject to specified limitations, amend
the terms of the options in any manner it deems appropriate, including,
but not limited to, accelerating the date of exercise of any award. The
Compensation Committee may also provide in its discretion for the grant to
an option holder who exercises an option and who pays the exercise price
for such option with shares of Common Stock, an additional option for a
number of shares tendered or withheld in payment of such exercise price or
withheld by the Company to satisfy any tax withholding requirements.
None of the Named Executive Officers exercised any options in 1998. The
following table sets forth information with respect to the year-end value of
unexercised options held by the Named Executive Officers.
Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
Name Exercisable/Unexercisable (#) Exercisable/Unexercisable ($)
- ------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Stephen P. Thigpen...... 46,027/ 303,973 -0- / -0-
Douglas D. Allen........ -- --
Claudia M. Pieropan..... 7,890/ 52,110 -0- / -0-
Paul R. Wood............ -- --
</TABLE>
7
<PAGE>
Compensation Committee Report on Executive Compensation
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that we specifically incorporate this information by
reference, and shall not otherwise be deemed filed under such Acts.
The following report has been submitted by the Compensation Committee of the
Board:
The Compensation Committee was established by the Board in June 1998 in
connection with the Company's initial public offering (the "IPO"), and did not
hold any meetings during 1998. The Compensation Committee is currently
comprised of Messrs. Allen, Reusche and Wood.
The Compensation Committee is responsible (1) for reviewing the
recommendations of the Company's Chief Executive Officer with respect to
compensation levels of all other officers of the Company and (2) for adopting
and changing compensation policies and practices of the Company and reporting
its recommendations to the full Board. In addition, the Compensation Committee
is responsible for the administration of the Company's 1998 Stock Plan. In
reviewing the Company's compensation programs, the Compensation Committee
intends to adhere to a compensation philosophy that (1) attracts and retains
qualified executives who will add to the long-term success of the Company, (2)
relates to the achievement of operational and strategic objectives and (3) is
commensurate with each executive's performance, level of responsibility and
overall contribution to the success of the Company. In making its
recommendations to the full Board concerning adjustments to compensation
levels, the Compensation Committee intends to consider the financial condition
and operational performance of the Company during the prior year. The
Compensation Committee expects the Company's executive compensation program to
consist of three principal components: (1) base salary; (2) annual bonus; and
(3) long-term equity incentives. Although the Compensation Committee did not
participate in determining the compensation for the Company's executive
officers for 1998, the Committee has set forth below a discussion as to how
such compensation was determined in 1998.
Base Salary. The base salary for Mr. Allen in 1998 was established pursuant
to his employment agreement with the Company, which was determined through
arms-length negotiations with representatives of MDCP. See "Information About
the Company's Directors and Executive Officers--Employment Agreements." The
base salary for Ms. Pieropan for 1998 was determined by the Chief Executive
Officer based on the factors described above. The base salary for Mr. Thigpen
in 1998 was determined through arms-length negotiations with MDCP. The base
salary for each of the other officers of the Company was determined based on
the expected level of responsibility of each and competitive market
conditions. These salaries were initially established by the Chief Executive
Officer.
Annual Bonus. Each of the Company's officers (with the exception of Mr.
Allen and Mr. Wood) participated in the Hines Horticulture Nursery Division
Management Vision 2000 Variable Compensation Plan (the "Hines Bonus Plan")
and/or the Sun Gro Division Management Variable Compensation Plan (the "Sun
Gro Bonus Plan"), which enabled them to earn an annual bonus based upon the
Company's operating cash flows (defined as earnings before interest, taxes,
depreciation and amortization and after maintenance capital expenditures and
certain changes in working capital). Bonuses under these plans are designed to
be a significant portion of the management team's compensation. The level of
bonus payment received by each officer in 1998 was determined by the Chief
Executive Officer and, in the case of the Chief Executive Officer, through
arms-length negotiation with MDCP. Bonus payments were awarded under the Hines
Bonus Plan and the Sun Gro Bonus Plan for 1998. The Hines Bonus Plan provides
for a compensation pool equivalent to 7.75% of operating cash flows of Hines
Nurseries for each fiscal year and 6.82% of operating cash flows of Sun Gro
for each fiscal year. Mr. Allen received a bonus pursuant to the terms of his
employment agreement. See "Information About the Company's Directors and
Executive Officers--Employment Agreements."
8
<PAGE>
Long-Term Equity Incentives. Each of Messrs. Allen and Thigpen and Ms.
Pieropan participated in the recapitalization of the Company by MDCP and the
Company's management in 1995 and maintained a continuing equity interest in
the Company following the recapitalization. As a result of their equity
ownership, their interests are aligned with those of the Company's
stockholders, since the value of management's holdings is tied directly to the
market price of the Company's Common Stock.
Prior to the completion of its IPO, Hines adopted the 1998 Stock Plan. Under
the 1998 Stock Plan, the Board and the Compensation Committee were granted
broad authority to award equity-based compensation arrangements to any
eligible employee, director, consultant or advisor of the Company. An
aggregate of approximately 2.6 million shares of Common Stock were reserved
for issuance upon the exercise of awards granted to eligible participants
under the 1998 Stock Plan. Since the ultimate value of stock options bear a
direct relationship to market price of the Common Stock, the Committee
believes that awards under the 1998 Stock Plan are an effective incentive for
the Company's management to create value for the Company's stockholders. As of
December 31, 1998, the Board had awarded options to purchase an aggregate of
approximately 2.1 million shares of Common Stock under the 1998 Stock Plan.
The foregoing report has been approved by all members of the Compensation
Committee.
Douglas D. Allen
Thomas R. Reusche
Paul R. Wood
Common Stock Performance
The graph shown below compares the cumulative total stockholder return since
Hines' Common Stock became publicly traded on June 23, 1998 with The Nasdaq
Stock Market (U.S.) Index and the Russell 2000 Index.
<TABLE>
<CAPTION>
COMPARISON OF TOTAL RETURN AMONG
HINES, THE NASDAQ STOCK MARKET (U.S.) INDEX AND THE RUSSELL 2000 INDEX
CUMULATIVE TOTAL RETURN
6/23/98 6/30/98 7/31/98 8/31/98 9/30/98 10/31/98 11/30/98 12/31/98
------- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hines........................ 100 100 91 65 75 68 75 81
The Nasdap Stock Market...... 100 107 106 85 97 101 111 125
(U.S.) Index
The Russell 2000 Index....... 100 100 92 74 80 83 88 93
</TABLE>
9
<PAGE>
Employment Agreements
Hines and each of Messrs. Allen and Thigpen and Ms. Pieropan are parties to
employment/severance agreements (the "Employment Agreements"). The Employment
Agreements provide that the executives shall devote full time (half-time in
the case of Mr. Allen) attention, skill and ability to discharge the duties
assigned to them and to use their best efforts to promote and protect the
interests of the Company. Except for the Employment Agreement with Mr. Allen
which is terminable "at will" by Mr. Allen but not by the Company, the
Employment Agreements are terminable by each of the respective parties thereto
at any time, for any reason and with or without cause, upon 30 days' advance
written notice. The Employment Agreements provide, among other things, for an
annual base salary, an annual cash bonus in an amount determined by the Board
of Directors and certain other benefits. If any such executive's employment is
terminated for any reason, other than for cause, death or the executive's
voluntary "at-will" termination, the executive will receive the following: (1)
in the case of Mr. Allen, an amount equal to his annual base salary multiplied
by 230%, plus a pro rata share of his bonus for the fiscal year in which such
termination occurs, and (2) in the case of Mr. Thigpen and Ms. Pieropan, an
amount equal to their annual base salary multiplied by 200%, plus a pro rata
share of their bonus for the fiscal year in which such termination occurs.
About the Board and its Committees
Meetings of the Board and its Committees. The Board met four times during
the 1998 fiscal year. The Board has two standing committees: the Audit
Committee and the Compensation Committee. All directors attended at least 75%
of the aggregate of the total number of meetings of the Board and the total
number of meetings of all committees on which they served.
The Audit Committee. The Audit Committee makes recommendations to the Board
regarding the selection, retention and termination of the Company's
independent auditors and reviews the annual financial statements of the
Company and the Company's internal controls. The Audit Committee is currently
comprised of Messrs. Allen, Pierre and Tennant. Messrs. Pierre and Tennant
replaced Messrs. Reusche and Woods on the Audit Committee beginning in October
1998. The Audit Committee met two times during 1998.
The Compensation Committee. The Compensation Committee recommends action to
the Board of Directors regarding the salaries and incentive compensation of
elected officers of the Company and administers the Company's bonus plans and
the 1998 Stock Plan. The Compensation Committee is currently comprised of
Messrs. Allen, Reusche and Wood and did not meet during 1998.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee is currently comprised of Messrs. Allen, Reusche and
Wood, all of whom are officers of the Company. Messrs. Reusche and Wood are
each Managing Directors of MDP.
Certain Relationships and Related Party Transactions
Private Issuance of Equity Securities. Prior to the Company's IPO, Hines
issued and sold to Abbott on December 16, 1997 and April 2, 1998 an aggregate
of (1) 4,500 shares of 12% Cumulative Redeemable Senior Preferred Stock
("Preferred Stock"), at a price $970.21 per share, and (2) presently
exercisable warrants to purchase 98,507 shares of Common Stock, with an
exercise price of $.01 per share, at a price of $1.36 for each warrant to
purchase one share of Common Stock. The purchase price was paid in cash. In
connection with these issuances, Hines paid Abbott an aggregate of
approximately $90,000 in transaction fees and reimbursed Abbott for its out-
of-pocket expenses and legal fees of approximately $25,000. Abbott exercised
all of its warrants immediately prior to the IPO. All of Hines' outstanding
Preferred Stock was converted into Common Stock in connection with the IPO.
On February 5, 1998, Hines issued to MDCP an additional 2,000 shares of
Preferred Stock, having an aggregate liquidation value of $2,000,000, for
$2,000,000 in cash.
10
<PAGE>
MDCP Registration Rights Agreement. Hines and MDCP are parties to a
Registration Rights Agreement, pursuant to which MDCP has the right, subject
to certain restrictions, to cause the Company to register its shares of Common
Stock for sale under the Securities Act of 1933, as amended, on Form S-1 or,
if available, Form S-2, Form S-3 or any similar short-form registration
statement.
Brokerage Relationship with Express Seed Company. Express Seed Company acts
as a broker for Hines in its purchase of seeds, cuttings and young plants from
third party suppliers. In 1998, Express Seed acted as a broker for Hines in
its purchase of approximately $1.5 million of products from third parties, for
which Express Seed received brokerage commissions not in excess of 10% of the
purchase price for these products. Mr. Pierre, a director of Hines, is also
the President of Express Seed, in which he holds a 50% equity interest.
Bloomingfarm Transactions. On August 4, 1995, Oregon Garden Products
("OGP"), a then wholly-owned subsidiary of Hines Nurseries which was
subsequently merged into Hines Nurseries, acquired the assets of Gales Creek
Nurseries, L.P., a Delaware limited partnership ("Gales Creek"). This
acquisition resulted in Hines Nurseries (on a consolidated basis) owning in
excess of 640 acres of agricultural land potentially eligible to receive
reclamation water. Under applicable federal reclamation water law, however,
Hines Nurseries and its affiliates were eligible to receive federal
reclamation water for only 640 net irrigable acres of owned land. Accordingly,
MDCP and the senior management stockholders of Hines formed Blooming Farm,
Inc., a Delaware corporation ("Blooming Farm"), which is not an affiliate of
Hines Nurseries under applicable federal reclamation water law, to hold title
to approximately 290 acres of the Gales Creek property. The stock of Blooming
Farm held by MDCP and the senior management stockholders of Hines is held in
direct proportion to their stock ownership of Hines at that time.
Simultaneously with the acquisition of the assets of Gales Creek by OGP, OGP
sold to Blooming Farm approximately 290 acres of the agricultural land it
acquired from Gales Creek. As payment in full for such land, Blooming Farm
issued a five-year interest only promissory note to OGP in the amount of
$826,865 secured by a deed of trust on the land. Blooming Farm and OGP then
entered into a five-year agricultural lease ("First Blooming Farm Lease")
pursuant to which Blooming Farm leased the property to Hines Nurseries (as
successor-in-interest to OGP).
In June 1996, Hines Nurseries discovered that an additional approximately 53
acres of land purchased from Gales Creek could be made eligible for
reclamation water although it had not received any reclamation water in the
past. As this additional land caused Hines Nurseries to be over the 640 net
irrigable acre limit for owned land, on June 21, 1996, Hines Nurseries sold
the 53 acres of agricultural land to Blooming Farm in exchange for a five-year
interest only promissory note in the amount of $151,050 secured by a deed of
trust on the land. Blooming Farm and Hines Nurseries then entered into a five-
year agricultural lease ("Second Blooming Farm Lease"), pursuant to which
Blooming Farm leased the property to Hines Nurseries.
In 1998, an aggregate of $68,600 was paid by Hines Nurseries to Blooming
Farm. These amounts were used by Blooming Farm to satisfy its obligations
under the two promissory notes in favor of Hines Nurseries described above.
Since its inception, Blooming Farm has made no distributions and paid no
dividends to any of its stockholders.
In connection with Hines Nurseries' acquisition of certain real property in
Allendale, California, Hines Nurseries designated 128 acres of such property
to receive federal reclamation water. To avoid exceeding the 640 net irrigable
acre limit, Hines Nurseries and Blooming Farm entered into a Section 1031
like-kind exchange on February 28, 1997, pursuant to which Hines Nurseries
transferred to Blooming Farm 128 acres of property then owned by Hines
Nurseries that was receiving federal reclamation water, in exchange for 128
acres of land then owned by Blooming Farm and leased to Hines Nurseries that
was not receiving federal reclamation water.
On June 26, 1998, both the First Blooming Farm Lease and the Second Blooming
Farm Lease were terminated and new leases were entered into between Blooming
Farm and Hines Nurseries covering the same land at the same rent. These new
leases provide for, among other things, ten-year lease terms that expire on
11
<PAGE>
May 31, 2008, options to purchase the land covered by the leases in favor of
Hines Nurseries and rights of first refusal in favor of Hines Nurseries.
Section 16(a) Beneficial Ownership Reporting Compliance
Hines believes that each of its officers, directors and greater than ten-
percent stockholders complied with all Section 16(a) filing requirements
applicable to them during 1998, based on written representations received from
such persons.
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: Election of Directors
The Board has nominated the following six persons for election to the Board
at the Annual Meeting:
<TABLE>
<C> <S>
Douglas D. Allen James R. Tennant
Ronald A. Pierre Stephen P. Thigpen
Thomas R. Reusche Paul R.Wood
</TABLE>
Directors who are elected at the Annual Meeting will serve until the next
Annual Meeting of Stockholders or until their successors are elected and
qualified. The nominees have each indicated that they are willing to be
elected and to serve. In the event that any nominee is unable to serve or is
otherwise unavailable for election, which is not now contemplated, the current
Board may or may not select a substitute nominee. If a substitute nominee is
selected, all proxies will be voted for the person selected. If a substitute
nominee is not selected, all proxies will be voted for the election of the
remaining nominees. Proxies will not be voted for a greater number of persons
than the number of nominees named.
YOUR BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR ELECTION OF ALL NOMINEES AS DIRECTORS
Directors will be elected by a plurality of the shares present and voting at
the meeting. In other words, the six nominees receiving the largest number of
votes will be elected to the board of directors.
PROPOSAL 2: Ratification of Appointment of Independent Public Accountants
The Board recommends that the stockholders ratify the appointment of
PricewaterhouseCoopers LLP as independent public accountants to audit the
Company's consolidated financial statements for the fiscal year ending
December 31, 1999. PricewaterhouseCoopers LLP has audited the consolidated
financial statements of the Company each year since 1996. Representatives of
PricewaterhouseCoopers LLP will be present at the meeting with the opportunity
to make a statement if they desire to do so, and will be available to respond
to appropriate questions. If the stockholders do not ratify the appointment of
PricewaterhouseCoopers LLP, the Board will select other independent
accountants.
Approval of the proposal to ratify the appointment of
PricewaterhouseCoopers, LLP requires the affirmative vote of a majority of the
shares present and entitled to vote at the annual meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
12
<PAGE>
Other Matters
It is not presently expected that any matters other than those discussed
herein will be brought before the Annual Meeting. If, however, other matters
do come to the Company's attention, it is the intention of the persons named
as representatives in the accompanying proxy to vote in accordance with the
recommendation of the Company's management.
INFORMATION ABOUT SUBMITTING STOCKHOLDER PROPOSALS
Stockholders who wish to submit proposals for inclusion in proxy materials
for the Company's 2000 Annual Meeting of Stockholders should address their
proposals to the Corporate Secretary at the Company's principal executive
offices, 12621 Jeffrey Road, Irvine, CA 92620. Such proposals must be received
by the Company on or before December 31, 1999 and should be submitted by
certified mail, return receipt requested.
The Company's Amended and Restated By-Laws (the "By-Laws") provide that a
stockholder wishing to present a nomination for election of a director or to
bring any other matter before an annual meeting of stockholders must give
written notice to the Company's Secretary not less than 60 days nor more than
90 days prior to the first anniversary of the preceding year's annual meeting.
In the event that the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be received no
later than the close of business on the tenth day following the earlier of the
day on which notice of the meeting was mailed or public announcement of the
meeting was made. As a result, a stockholder who intends to present a proposal
at the 2000 annual meeting without inclusion of such proposal in the Company's
proxy materials is required to provide notice of such proposal no later than
March 28, 2000. The Company's proxy related to the 2000 annual meeting will
give discretionary voting authority to the proxy holders to vote with respect
to any such proposal that is received by the Company after such date. Any
stockholder interested in making such a nomination or proposal should obtain a
copy of the provisions of the By-Laws from the Secretary of the Company or
from the Securities and Exchange Commission's Web site at http://www.sec.gov.
13
<PAGE>
<TABLE>
Please Detach and Mail in the Envelope Provided
- ------------------------------------------------------------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example
<S> <C> <C> <C>
FOR all nominees WITHHOLD THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1
listed at right AUTHORITY AND 2 LISTED BELOW.
(except as marked to vote for all
to the contrary below) nominees listed at right
1. Election of [ ] [ ] Nominees: Douglas D. Allen
six (6) directors, Stephen P. Thigpen
to serve until the Paul R. Wood
2000 Annual Meeting of Stockholders. Thomas R. Reusche
James R. Tennant
Ronald A. Pierre
</TABLE>
FOR AGAINST ABSTAIN
2. To ratify the appointment [ ] [ ] [ ]
PricewaterhouseCoopers LLP
as independent public
accountants for the fiscal
year
3. Upon any end all other business that may properly come before the Annual
Meeting.
This Proxy, which is solicited on behalf of the Board of Directors, will be
voted FOR the matters described in paragraphs (1) and (2) unless the shareholder
specifies otherwise, (in which case it will be voted as specified).
SIGNATURE _________________________ DATED ___________________, 1999 SIGNATURE,
IF HELD JOINTLY ____________________, DATED ________, 1999
NOTE: Please sign exactly as name or names appear hereon. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title. If a
corporation please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
partner.
<PAGE>
PROXY PROXY
- ----- -----
HINES HORTICULTURE, INC.
(Solicited on behalf of the Board of Directors)
The undersigned holder of common stock of Hines Horticulture, Inc., hereby
constitutes and appoints the Board of Directors, and each of them Proxies, with
full power of substitution, for and in the name, place and stead of the
undersigned, to vote all of the undersigned's shares of said stock, according to
the number of votes and with all the powers the undersigned would possess if
personally present, at the Annual Meeting of stockholders of Hines Horticulture,
Inc., to be held at the corporate headquarters, 12621 Jeffrey Road, Irvine, CA
92620, Thursday, May 27, 1999, at 9:00 a.m., local time, and at any adjournments
or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting and
Proxy Statement relating to the meeting and hereby revokes any proxy or proxies
heretofore given.
EACH PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE ON THE REVERSE SIDE OF THIS PROXY AND IN THE DISCRETION OF
THE PROXIES ON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING.
WHERE NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR ALL LISTED NOMINEES
TO SERVE AS DIRECTORS AND FOR PROPOSALS 2.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
