SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(AMENDED)
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d)
X of the Securities Exchange Act of 1934.
For the fiscal year ended June 30, 1996.
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934.
For the transition period from_______ to _______.
VACU-DRY COMPANY
(Exact name of registrant as specified in its charter)
Commission File Number 01912
California 94-1069729
(State of incorporation) (IRS Employer
Identification Number)
7765 Healdsburg Ave., Sebastopol, California 95472
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707/829-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES: NO: X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A. ( )
On January 10, 1997 nonaffiliates of the Registrant held voting stock with
an aggregate market value of $8,705,673 based upon the average of the high and
low prices of such stock.
As of January 13, 1997, there were 1,638,715 shares of common stock, no par
value, outstanding.
The Proxy Statement for the 1996 Annual Meeting of Shareholders is
incorporated by reference into Part III of this report and is included as
Exhibit 99 to this 10-K/A.
The Exhibit Index is listed after the signature page and prior to the listing
of the exhibits.
<PAGE>
Part I
Item 1. Business
(a) Vacu-dry Company (the Company), incorporated in California in 1946, is
engaged in the business of the development, production and marketing of
fruit products. The Company's products include low moisture and
evaporated fruits, bulk apple juice, apple juice concentrate, private
label drink mixes and low moisture food for the food storage market.
Sales are principally to manufacturers in the United States and Canada.
The Company has been engaged in the production of low moisture fruits
since 1933. Through drying processes, the moisture in apples is reduced
from original levels of 85%-90% to as low as 2%. In addition the Company
purchases other fruits such as apricots, dates, peaches, prunes and
other varieties of fruit which have been partially dried and further
reduces the moisture in these fruits to levels of approximately 3%. The
resultant low moisture products are much lighter in weight and less
bulky than their raw, canned or frozen counterparts. Because of their
extreme dryness, low moisture fruit products require no refrigeration
or other special storage conditions. Other advantages include consistent
product quality, economical packaging and convenience in handling and
use.
As disclosed in Note 1 of the Footnotes to the Financial Statements,
the sales from the Representation Agreement with Confoco terminated
effective July 1, 1996. The Company has another representation agreement
to sell dried fruit products produced by a California company. This
agreement automatically renews at the end of each three year term unless
either party notifies the other six months in advance of the end of the
term. These products will be sold primarily as ingredients to the major
food processors.
(b) The Company competes in a single industry segment within the food
industry, all assets held are supportive of efforts to compete in that
segment.
(c) The low moisture food industry in the United States is very small, with
only a few processors engaged in the dehydration of fruits to low
moisture levels (2% to 5% moisture).
The Company has one major direct competitor in the low moisture and
evaporated business. Numerous processors compete in the business of
producing bulk apple juice and concentrate.
The Company's products are primarily sold through brokers to the major
food processors, bakery, food storage and food service markets and to
federal and state institutions.
In terms of volume, apples represent the major fruit handled by the
Company. The Company's production facility is designed to process fresh
fruit in addition to partially (evaporated) dried fruits or vegetables.
The sources of raw material supply are individual apple growers and in
emergencies by other dried apple processors . The majority of the
Company's raw apple supply comes from California. In some years, due
to crop conditions, the percentage of fruit purchased from out-of-state
sources may increase. In those years, the Company incurs increased costs
due to additional freight. The Company strives to reflect such cost
increases in selling price adjustments but, if unsuccessful, will absorb
such costs.
Other important fruits, including peaches, apricots and prunes, are
obtained principally from dried fruit packing houses in California.
Supplies of fruit are expected to be sufficient to meet the needs of
regular customers. For other supplies, including cans and packaging
materials, the Company draws from a number of vendors and expects that
adequate supplies will be available.
The business of producing evaporated apples, bulk apple juice and
concentrate is seasonal, beginning in August and usually ending in March
or April.
Inventories of fresh and dried apples, packaging materials and finished
goods as of June 30, 1996, were approximately 13% of annual net sales.
The Company experiences a normal seasonal increase in inventories and
related short-term borrowings during the second and third quarters of
the fiscal year.
The Company's three largest customers accounted for approximately 24%
of gross sales in 1996. One of these customers A. Sturm & Sons
accounted for more than 10% of gross sales in 1996. The loss of any one
or more of these customers could have a material adverse effect on the
Company.
The dollar amount of order and contract backlog believed to be firm as
of September 1, 1996, September 1, 1995 and September 1, 1994 is
$8,558,000, $9,913,000 and $7,960,000 respectively. The backlog as of
September 1, 1996 excludes the Confoco orders. Of the backlog for
September 1, 1995 and September 1, 1994, Confoco orders and contracts
represented $1,378,000 and $798,000 of the totals respectively. The
backlog of orders is expected to be filled within the related fiscal
year. The dollar value of backlog varies during the year, with the peak
occurring during the September through December period.
The Company holds the following trademarks: Vacu-dry, Appella, Apple
Munchies, Noah's Ark, Fruit Galaxy, Perma-Pak and Pantri Reserve.
Trademark sales, account for the majority of the Company's total sales.
Vacu-dry and Perma-Pak are the predominant trademarks listed above.
For information on research and development expenditures, see Note 11
to the Financial Statements.
The Company has complied with all governmental regulations regarding
protection of the environment. No material capital expenditures are
anticipated for environmental control facilities during the next fiscal
year.
The Company employs an average of approximately 250 persons. This
number varies throughout each year and increases during periods of high
production. Of the 250 employees, approximately 200 are represented by
the General Truck Drivers, Warehousemen and Helpers Union, Local #624.
The Company is presently in contract negotiations with the Union.
(d) The Company's export sales can vary greatly between years, depending
upon foreign crop conditions and relative exchange rates. The amount
of the Company's export sales for 1996, 1995 and 1994 were $2,498,000,
$1,480,000 and $1,267,000 respectively.
<PAGE>
Item 2. Properties
The principal administrative offices are located in Sebastopol,
California. Approximately 4,130 square feet of office space are leased
through February 1997. At the end of the term of the lease, the Company
has the option to extend the term for an additional twelve months.
The Company owns 15 acres of land and approximately 95,000 square feet
under roof at 1365 Gravenstein Hwy So., Sebastopol, California. This
facility (formerly described as Plant #1) was used for the dehydration
of fruits to low moisture, prior to the consolidation of this operation
into the main processing plant (formerly described as Plant #2), located
at 2064 Gravenstein Hwy No., Sebastopol, California. As of June 30,
1996, the Company has leased approximately 82,000 square feet of this
facility. The Company has leased all of the available space (under
roof), other than the Research & Development area. The Company has no
debt associated with this facility.
The Company owns 64 acres of land and approximately 282,000 square feet
under roof at 2064 Gravenstein Hwy. No., Sebastopol, California. As of
June 30, 1996, this facility is the Company's only active processing
plant. The buildings include facilities to; process fresh apples into
dried products, bulk apple juice and concentrate, in addition to
dehydrating by continuous air drying and vacuum drying of apples and
other fruits, warehouse space, cold storage, and office accommodations.
The Company has leased approximately 42,600 square feet of excess
warehouse space through April 1997 and approximately 20,000 square feet
of land.
The consolidated production operations functioned at approximately 118%
of the single shift capacity.
Item 3. Legal Proceedings
The Company has no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last
quarter of the year ended June 30, 1996.
<PAGE>
Part II
Item 5. Market for the Registrant's Common Stock and Related Security-Holder
Matters
The Company's shares are traded on the Nasdaq National Market. The Company's
Nasdaq symbol is VDRY.
The quarterly high and low prices for the last two fiscal years were as
follows:
Quarter Ending Low Bid High Bid
9/30/94 8-1/2 11
12/31/94 7-3/4 10-3/4
3/31/95 5-1/2 8-1/2
6/30/95 4-1/4 6-1/2
9/30/95 4-5/8 5-3/4
12/31/95 4-5/8 5-3/4
3/31/96 4 6-1/4
6/30/96 4-1/4 5-3/4
The above quotations were obtained from the Nasdaq monthly statistical
reports.
On September 13, 1996, the approximate number of holders of common stock was
775. On that date, the average of the high and low price per share of the
Company's stock was $5.00. This price does not include dealer mark-ups, mark-
downs or commissions.
In the fourth quarter of fiscal 1994 and in the first three quarters of fiscal
1995, the Company declared a $.05 per share dividend. On April 27, 1995, as
a result of the decline in sales and earnings, the Board of Directors
suspended the quarterly dividends. The Company's loan agreement with its bank
includes a Negative Covenant regarding the declaring or paying of a dividend
in cash, stock or any other property. This covenant would need to be changed
prior to the declaration of dividend. At this time the Company does not intend
to reinstate a cash dividend plan.
<PAGE>
Item 6. Selected Financial Data
YEAR ENDED
June 30, June 30, June 30, June 30, June 30,
1996 1995 1994 1993 1992
(In thousands except per share amounts)
Net sales $26,533 $21,438 $27,773 $26,770 $24,307
Earnings before
income taxes $651 $287 $1,887 $1,791 $1,353
Net earnings $434 $195 $1,174 $1,075 $833
Earnings per
common share $.25 $.11 $.70 $.65 $.50
Weighted average common
shares outstanding 1,704 1,701 1,669 1,664 1,664
Total Assets $13,587 $15,335 $14,929 $13,210 $10,760
Long-term debt $ 1,628 $ 2,185 $ 2,505 $ 2,404 $ 1,272
Cash dividends per
common share $ -- $ .15 $ .05 $ -- $ --
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition substantially improved during fiscal 1996.
Some of this improvement is reflected in the increase in the Company's current
ratio, which increased from 1.9 as of fiscal 1995 to 2.6 as of fiscal 1996.
In addition, net working capital increased $361,000 and term debt decreased
$542,000. As a result the Company's debt to equity ratio decreased from .87
as of fiscal 1995 to .56 as of fiscal 1996. The primary reason for the
improvement in the financial condition is the increased cashflow from
operating activities of $2,491,000. Of this increase, $2,067,000 was used to
reduce debt and $462,000 was used for capital expenditures.
Because the Company's operations are subject to seasonality, the Company's
liquid resources fluctuate annually in a manner which changes very little from
year to year. The Company experiences a normal seasonal decrease in
production in April. Inventories and related short-term borrowing are usually
at their peak at this time. The slowdown in production normally extends
through July and corresponds to the availability of raw fruit on an affordable
basis. The Company's inventory ordinarily decreases during the period
beginning in May and ending in October, which creates a corresponding increase
in liquidity.
The Company's largest external source of liquidity is a $3,500,000 revolving
line of credit provided by a bank at the Bank's prime lending rate. As of
June 30, 1996, the Company had $2,674,000 of available funds on this revolving
line of credit. This compares with $1,649,000 of available funds on the
$4,000,000 revolving line of credit as of June 30, 1995. As of June 30, 1996,
the Company was in compliance with all covenants and restrictions related to
its outstanding debt. The Company's loan agreement with its bank includes
a Negative Covenant regarding the declaring or paying of a dividend in cash,
stock or any other property. The most significant internal source of
liquidity is the Company's net working capital.
The Company has established a capital expenditure budget of approximately
$1,520,000 for the 1996-1997 fiscal year. These funds will primarily be used
to purchase new and refurbish existing equipment related to the manufacturing
operations. The Company anticipates financing these expenditures through
internally generated funds and through the use of debt financing. The Company
has a commitment from a financial institution to fund $850,000 of the 1996-
1997 capital expenditure budget. As of June 30, 1996 the Company has not
borrowed any money related to this commitment.
The Company has been successful in leasing all of the idle facility other than
the portion occupied by Product Development. At this time the Company is not
pursuing the sale of this facility. The Company continues to lease a portion
of its operating facility and is in negotiations with the primary tenant to
increase their square footage.
The Company anticipates that profitable operations and debt financing will
satisfy the Company's future liquidity and capital needs. However, the
Company will utilize future private or public financing if interest rates rise
or if the Company's growth prospects require additional funds for operations.
The Company does not believe the termination of the Confoco representation
agreement will have an immediate adverse effect on liquidity. The Company
believes its existing revolving line of credit is sufficient to meet its
working capital requirements.<PAGE>
RESULTS OF OPERATIONS:
Net sales: The Company's sales are dictated by the competitive environment,
customer demands and consumer preferences. Sales volume between years can be
affected by one or more of these factors. Net sales for fiscal 1996 increased
$5,095,000 or 24%. This increase was primarily a result of higher volume
sales(67%) combined with an increase in the average unit price(33%). The unit
price increases were a direct result of the increased raw material costs.
Evaporated and low moisture fruit categories increased substantially while
sales of banana flakes and other Confoco products decreased $973,000. As
disclosed in Note 1 of the Footnotes to the Financial Statements, the sales
from the Confoco representation agreement terminated effective July 1, 1996.
In fiscal 1995 the Company's net sales decreased $6,335,000 or 23%. This
decline was a result of substantially lower sales to one of the Company's
major customers in addition to lower sales volume to other significant
customers. The competitive environment contributed to the sales decline in
fiscal 1995. The net sales for 1994 increased $1,003,000 or 4%. This increase
was a result of sales of banana products while apple sales actually decreased
$850,000, mainly as a result of the competitive environment.
Other revenue: During fiscal 1996 this category increased $430,000 or 169%
principally as a result of the receipt of two non-recurring items totalling
$313,000. Net rental income also increased an additional $134,000. In prior
years this revenue category has been comprised mainly of net rental income and
has been relatively constant at $250,000 to $300,000 per year.
Cost of sales: As a percentage of net sales, cost of sales increased slightly
in fiscal 1996 to 91% as compared to 90% in 1995 and 85% in 1994. This
increase was a direct result of the small worldwide apple crop and the
resultant higher raw material costs. For the second consecutive year we have
experienced depressed gross margins as a result of the continued competitive
pressure spurred by customer cost reduction programs. As disclosed in
Footnote 2 to the Financial Statements, the liquidation of certain LIFO
inventories in fiscal 1996 resulted in a reduction of cost of sales of
$642,000. In fiscal 1995, the increase in the cost of sales percentage was
predominantly due to the lower production volume as a result of the decreased
sales volume and the resultant decrease in overhead absorption. Cost of sales
increased slightly in fiscal 1994 due to slightly lower margins, along with
inefficiencies incurred during the start-up phase of the consolidation of
operations.
Selling, general and administrative expenses: In fiscal 1996 these expenses
increased $376,000 or 21%. The reason for the increase between years is
primarily due to the lower than normal expenses in fiscal 1995 as a result of
the reduction in the expenses from the receipt of workers compensation
dividends of $257,000 and a $96,000 credit from the reduction in the SAR
liability (as a result of the lower stock price). Included in the fiscal 1994
expenses is $346,000 of bonus and profit sharing expense which did not occur
in either fiscal 1995 or 1996.
Interest expense: The decline in fiscal 1996 interest expense of 23% is a
result of lower total borrowing( term debt decreased $542,000 and average
borrowings under the line of credit decreased $518,000). In contrast, in
fiscal 1995 interest expense increased $144,000 or 60% as a result of the
increased level of borrowing on the line of credit. In 1994 interest expense
increased $31,000 as a result of the increase in the prime lending rate by the
Company's bank and the larger balance owing to the bank on the consolidation
related financing during fiscal 1994 versus 1993.<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
See Index at Item 14 for information required by this item.
Item 9. Disagreements on Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this item is contained in the Registrant's
1996 Proxy Statement under the heading "Election of Directors," which
information is incorporated by reference. The 1996 Proxy Statement is
included as an exhibit to this filing.
Executive Officers of the Registrant
The following table sets forth certain information concerning the
executive officers of the Company as of September 13, 1996:
Name Age Position
Gary L. Hess 44 President and Chief
Executive Officer
Esther K. Castain 58 Secretary and Manager
of Employee Relations
Thomas R. Eakin 42 Vice President, Finance
Ralph A. Sceales 58 Vice President, Operations
Mr. Hess joined the Company as of May 1, 1996 as President and Chief
Executive Officer. Prior thereto he was a Senior Vice President of Dole
Food Company, Inc.(fresh and processed fruit)(1993-1996); President of
Cadence Enterprises, Inc.(water conservation products) and The Marketing
Partnership (1992-1993); and Director of Marketing, E & J Gallo Winery
(wine and distilled spirits) (1987-1992).
Ms. Castain joined the Company in 1976. She has been Secretary of the
Company since 1990. Prior thereto she was Manager of Employee
Relations.
Mr. Eakin joined the Company in 1983. For the past nine years he has
been Vice President, Finance, and Chief Financial Officer.
Mr. Sceales joined the Company in 1975. He has been Vice President,
Operations, since August 1990. For more than six years prior thereto
he was Director of Operations of the Company.
Items 11, 12 and 13
The information required by items 11, 12 and 13 is included in the
definitive Proxy Statement for Registrant's 1996 Annual Meeting of
Shareholders and is included in the exhibits to this filing.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a)
1. Financial Statements:
Reports of Independent Public Accountants.
Statements of Earnings for the Years Ended June 30, 1996,
June 30, 1995 and June 30, 1994.
Balance Sheets -- June 30, 1996 and June 30, 1995.
Statements of Changes in Shareholders Equity for the
Years Ended June 30, 1996, June 30, 1995 & June 30, 1994.
Statements of Cash Flows for the Years Ended June 30, 1996,
June 30, 1995 and June 30, 1994.
Notes to Financial Statements.
Financial statements and schedules not included herein have been
omitted because of the absence of conditions under which they are
required or because the required information, where material, is
shown in the financial statements or notes thereto.
3. Exhibits:
Exhibit No.
3. a. Articles of Incorporation (2)
c. By-laws of Vacu-dry Company (4)
10. e. Employment Agreement, Gary L. Hess March 14, 1996 (5)
j. Stock Appreciation Rights Plan (4)
k. 1996 Stock Option Plan ( Incorporated by reference to
the 1996 Definitive Proxy Statement, included as an
exhibit to this filing). (6)
23. i. Consent of Independent Public Accountants (5)
99. 1996 Definitive Proxy Statement(6)
These exhibits are incorporated by reference to the Registrant's
Annual Report, filed pursuant to Section 13 of the Securities
Exchange Act of 1934:
(2) On Form 10-K for the year ended June 30, 1988.
(4) On Form 10-K for the year ended June 30, 1992.
(5) On Form 10-K for the year ended June 30, 1996
(6) On Form 10-K/A for the year ended June 30, 1996
(b) No reports on Form 8-K were filed during the last quarter
of the year ended June 30, 1996.
<PAGE>
VACU-DRY COMPANY
FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Vacu-dry Company:
We have audited the accompanying balance sheets of Vacu-dry
Company (a California corporation) as of June 30, 1996 and
1995, and the related statements of earnings, changes in
shareholders' equity and cash flows for each of the three years
in the period ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Vacu-dry Company as of June 30, 1996 and 1995, and
the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
San Francisco, California,
August 9, 1996
<PAGE>
VACU-DRY COMPANY
BALANCE SHEETS--JUNE 30, 1996 AND 1995
1996 1995
ASSETS
CURRENT ASSETS:
Cash $ 214,000 $ 187,000
Accounts receivable, less allowances
for uncollectible accounts of $61,000
and $45,000 in 1996 and 1995,
respectively 2,684,000 1,679,000
Income tax refund receivable - 155,000
Inventories, less LIFO reserves of
$2,114,000 and $1,334,000 in 1996
and 1995, respectively 3,430,000 5,414,000
Prepaid expenses 116,000 176,000
Current deferred income taxes 225,000 303,000
----------- -----------
Total current assets 6,669,000 7,914,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 231,000 227,000
Buildings and improvements 6,455,000 6,416,000
Machinery and equipment 10,118,000 10,135,000
Construction in progress 245,000 32,000
----------- -----------
Total property, plant and equipment 17,049,000 16,810,000
Accumulated depreciation (10,131,000) (9,389,000)
----------- -----------
Net property, plant and equipment 6,918,000 7,421,000
----------- -----------
Total assets $13,587,000 $15,335,000
=========== ===========
<PAGE>
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $ 826,000 $ 2,351,000
Current maturities of long-term debt 415,000 480,000
Accounts payable 678,000 393,000
Accrued payroll and related liabilities 476,000 524,000
Accrued expenses 106,000 391,000
Income tax payable 32,000 -
----------- -----------
Total current liabilities 2,533,000 4,139,000
----------- -----------
LONG-TERM DEBT, net of current
maturities 1,628,000 2,105,000
----------- -----------
DEFERRED INCOME TAXES 748,000 912,000
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock- 2,500,000 shares
authorized; no shares outstanding - -
Capital stock- common stock, 5,000,000
shares authorized, no par value;
1,713,354 and 1,698,030 shares
outstanding in 1996 and 1995,
respectively 4,001,000 3,936,000
Retained earnings 4,677,000 4,243,000
----------- -----------
Total shareholders' equity 8,678,000 8,179,000
----------- -----------
Total liabilities and shareholders'
equity $13,587,000 $15,335,000
=========== ===========
The accompanying notes are an integral part of these
statements.
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
REVENUE:
Net sales $26,533,000 $21,438,000 $27,773,000
Other 685,000 255,000 248,000
----------- ----------- -----------
Total revenue 27,218,000 21,693,000 28,021,000
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 24,142,000 19,270,000 23,521,000
Selling, general and
administrative 2,127,000 1,751,000 2,372,000
Interest 298,000 385,000 241,000
----------- ----------- -----------
Total costs and expenses 26,567,000 21,406,000 26,134,000
----------- ----------- -----------
Earnings before provision
for income taxes 651,000 287,000 1,887,000
PROVISION FOR INCOME TAXES 217,000 92,000 713,000
----------- ----------- -----------
Net earnings $ 434,000 $ 195,000 $ 1,174,000
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENTS 1,703,968 1,700,912 1,669,122
========= ========= =========
EARNINGS PER COMMON SHARE $.25 $.11 $.70
==== ==== ====
The accompanying notes are an integral part of these statements.
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
Common Stock
---------------------
Total
Number Retained Shareholders'
of Shares Amount Earnings Equity
BALANCE,
JUNE 30, 1993 1,664,029 $3,615,000 $3,212,000 $6,827,000
Net earnings - - 1,174,000 1,174,000
Dividends - - (83,000) (83,000)
Issuance of
common stock 35,543 318,000 - 318,000
--------- ---------- ---------- ----------
BALANCE,
JUNE 30, 1994 1,699,572 3,933,000 4,303,000 8,236,000
Net earnings - - 195,000 195,000
Dividends - - (255,000) (255,000)
Issuance of
common stock 13,658 99,000 - 99,000
Repurchase of
common stock (15,200) (96,000) - (96,000)
--------- ---------- ---------- ----------
BALANCE,
JUNE 30,1995 1,698,030 3,936,000 4,243,000 8,179,000
Net earnings - - 434,000 434,000
Issuance of
common stock 15,324 65,000 - 65,000
--------- ---------- ---------- ----------
BALANCE,
JUNE 30,1996 1,713,354 $4,001,000 $4,677,000 $8,678,000
========= ========== ========== ==========
The accompanying notes are an integral part of these statements.
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 434,000 $ 195,000 $ 1,174,000
------------ ----------- -----------
Adjustments to reconcile net
earnings to net cash provided by
(used for)operating activities-
Depreciation expense 947,000 884,000 777,000
Loss on sale of assets 20,000 6,000 9,000
Deferred taxes (86,000) 308,000 16,000
Changes in certain assets and
liabilities-
Decrease (increase)in accounts
receivable, net (1,005,000) (9,000) 148,000
Decrease (increase)in
inventories 1,984,000 (637,000) (1,376,000)
Decrease (increase)in
prepaid expenses 60,000 (110,000) (83,000)
Decrease (increase)in income
tax refund receivable 155,000 (117,000) 431,000
Increase (decrease) in
accounts payable 285,000 (767,000) 394,000
Increase (decrease) in
accrued liabilities (335,000) (475,000) 74,000
Decrease (increase)in income
taxes payable 32,000 - -
------------ ----------- -----------
Total adjustments 2,057,000 (917,000) 390,000
------------ ----------- -----------
Net cash provided by (used for)
operating activities 2,491,000 (722,000) 1,564,000
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (470,000) (867,000) (1,111,000)
Proceeds from the sale
of assets 8,000 13,000 -
------------ ----------- -----------
Net cash used for investing
activities (462,000) (854,000) (1,111,000)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under
the line of credit 11,002,000 11,324,000 8,974,000
Payments on line of credit(12,527,000) (9,253,000) (9,876,000)
Borrowings under
consolidation term loan - - 640,000
Principal payments of
long-term debt (542,000) (475,000) (334,000)
<PAGE>
VACU-DRY COMPANY
STATEMENTS OF CASH FLOWS(continued)
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
1996 1995 1994
Dividends paid - (255,000) (83,000)
Repurchase of common stock - (96,000) -
Issuance of common stock 65,000 99,000 318,000
----------- --------- -----------
Net cash provided by (used for)
financing activities (2,002,000) 1,344,000 (361,000)
------------ --------- -----------
NET INCREASE (DECREASE)
IN CASH 27,000 (232,000) 92,000
CASH AT BEGINNING OF YEAR 187,000 419,000 327,000
------------ --------- -----------
CASH AT END OF YEAR $ 214,000 $ 187,000 $ 419,000
============ ========== ===========
SUPPLEMENTAL DATA:
Cash paid for-
Interest $ 309,000 $ 371,000 $ 238,000
Income taxes 316,000 158,000 581,000
The accompanying notes are an integral part of these statements.
<PAGE>
VACU-DRY COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Vacu-dry Company (the Company) is engaged in the business of
the development, production and marketing of fruit. The
Company's products include low-moisture fruits, bulk apple
juice, apple juice concentrate, private label drink mixes and
low-moisture food, which are sold to manufacturers principally
in the United States and Canada.
The Company competes in a single industry segment within the
food industry. The low moisture food industry in the United
States is comparatively small with only a few organizations
engaged in the dehydration of fruits to low moisture levels.
The Company has one major direct competitors in the low
moisture and evaporated business. Numerous processors compete in
the business of bulk apple juice and concentrate.
Effective July 1, 1996, the representation agreement with
Confoco, Inc. (Confoco) for the sale of low-moisture banana and
pumpkin flakes terminated. Confoco has decided to consolidate
the sales and marketing of its products internally. For the
years ended June 30, 1996, 1995 and 1994, the Company recorded
gross profit on Confoco products of $368,000, $562,000 and
$278,000, respectively. The Company intends to put significant
effort into replacing these lost sales. However, there is no
assurance that such sales can be replaced, or if they can be
replaced, that the same gross profit will be realized. If
these sales and related gross profit are not replaced, the
resulting decline will have a material impact upon the
Company's earnings. Under the Company's agreement with
Confoco, for two years from the date of termination, the
Company is prohibited from distributing banana products to
those customers in the United States, Canada and Mexico that
currently purchase Confoco's products from the Company.
The Company's three largest customers, none of which are
Confoco, accounted for approximately 24 percent of net sales in
1996.
Inventories
Inventories are stated at the lower of cost, using the last-in,
first-out (LIFO) method, or market (Note 2).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is computed by the straight-line method based upon the
estimated useful lives of the assets as follows:
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 15 years
Improvements that extend the life of the asset are capitalized;
other maintenance and repairs are expensed. The cost of
maintenance and repairs was $856,000 in 1996, $982,000 in 1995
and $909,000 in 1994.
Income Taxes
The Company records income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires the Company to
compute deferred taxes based upon the amount of taxes payable
in future years after considering changes in tax rates and
other statutory provisions that will be in effect in those
years.
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and
available tax credit carryforwards.
Earnings per Common Share
Earnings per common share are computed by dividing net earnings
by the weighted average number of shares of common stock
outstanding during the period, including the dilutive effects
of stock options using the treasury stock method.
Common Stock
The Company has no par value common stock. The financial
statements reflect no par value.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based
Compensation" (the Statement). The Statement encourages a fair
value-based method of accounting for an employee stock option
or similar equity instrument. However, the Statement also
allows an entity to continue to account for stock-based
employee compensation using the intrinsic value-based method in
APB Opinion No. 25. The Statement also applies to transactions
in which an entity issues its equity instruments to acquire
goods or services from nonemployees. Entities that elect to
follow the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, as if the
fair value-based method of accounting had been applied.
The Company has adopted the accounting requirements of the
Statement for nonemployee transactions entered into after
December 15, 1995. The fair value-based method of accounting
for employee stock-based compensation may be adopted upon
issuance. The disclosure requirements are effective for
financial statements for fiscal years beginning after December
15, 1995, or earlier if the accounting requirements are early
adopted. The Company has not decided whether it will adopt the
new standard for employee stock-based compensation, or if it
will continue using the intrinsic value-based method in APB
Opinion No. 25.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Certain 1995 and 1994 amounts were reclassified to conform to
the 1996 presentation.
2. INVENTORIES:
Inventories at June 30, 1996 and 1995, consist of the following
(LIFO cost):
1996 1995
Finished goods $2,757,000 $4,926,000
Work in process 233,000 239,000
Raw material and containers 440,000 249,000
---------- ----------
Total $3,430,000 $5,414,000
========== ==========
During 1996, the Company liquidated certain LIFO inventories
that were carried at lower costs prevailing in prior years.
The effect of this liquidation was to increase earnings before
income taxes by $642,000 ($384,000 increase in net earnings, or
an increase of $.23 per share).
3. BORROWINGS UNDER LINE OF CREDIT:
Borrowings under the line of credit are secured by inventory
and accounts receivable. Interest accrues monthly at the
bank's prime lending rate. The line of credit is renewed
annually on November 1.
1996 1995
Balance at June 30 $ 826,000 $2,351,000
Maximum amount available under
the line of credit $3,500,000 $4,000,000
Average borrowings $1,096,000 $1,614,000
Maximum borrowings $2,351,000 $2,996,000
Interest rate at June 30 8.25% 9.00%
Weighted average interest rate 8.52% 8.60%
Per the covenants of the revolving line of credit note with the
Company's bank, the Company will not, without prior written
consent of the bank, declare or pay any dividend or
distribution either in cash, stock or any other property on the
Company's stock now or hereafter outstanding with the exception
of a $.05 per share quarterly dividend declared in fiscal 1994
and paid in fiscal 1994 and 1995. No dividends have been
declared for fiscal 1996.
Among the restrictions under the line of credit are provisions
that require the Company to maintain certain financial ratios.
The Company was in compliance with these financial
restrictions.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
1996 1995
Note payable- five-year consolidation
note, interest at prime (8.25 percent
at June 30, 1996) plus 0.375 percent,
interest and principal due monthly,
maturing in September 1998, secured
by accounts receivable, inventory,
equipment and fixtures $ 467,000 $ 667,000
Note payable- seven-year consolidation
note, interest at prime (8.25 percent
at June 30, 1996) plus 0.375 percent,
interest and principal due monthly,
maturing in September 2000, secured
by accounts receivable, inventory,
equipment and fixtures 1,576,000 1,792,000
Industrial revenue bonds, interest at a
weighted average rate (5.25 percent)
and payable in installments
through 1996 - 126,000
---------- ----------
Total 2,043,000 2,585,000
Less- Current maturities (415,000) (480,000)
---------- ---------
Long-term debt $1,628,000 $2,105,000
========== ==========
Maturities of long-term debt are as follows:
Year Ending June 30
1997 $ 415,000
1998 415,000
1999 282,000
2000 215,000
2001 716,000
----------
Total $2,043,000
==========
5. INCOME TAXES:
The following is a summary of the Company's provision for
income taxes:
1996 1995 1994
Current-
Federal $259,000 $(155,000) $530,000
State 44,000 - 161,000
Deferred (86,000) 247,000 22,000
-------- --------- --------
Provision $217,000 $ 92,000 $713,000
======== ========= ========
A reconciliation of the income tax provision to the expected
provision at the federal statutory income tax rate is as
follows:
1996 % 1995 % 1994 %
Provision at federal
statutory rate $221,000 34% $ 98,000 34% $642,000 34%
State taxes, less
federal tax benefit 41,000 6 17,000 6 113,000 6
Tax credits (45,000) (7) (23,000) (8) (27,000) (1)
Other - - - - (15,000) (1)
-------- -- -------- -- -------- --
Total provision $217,000 33% $ 92,000 32% $713,000 38%
======== == ======== == ======== ==
Temporary differences that gave rise to a significant portion
of deferred tax assets and liabilities for 1996 and 1995 were
as follows:
1996 1995
Deferred tax assets-
Employee benefit accruals $ 139,000 $ 155,000
Tax credit carryforwards 127,000 -
Unicap and inventory reserves 106,000 119,000
State income taxes 15,000 2,000
Other 11,000 41,000
--------- ----------
Total deferred tax assets 398,000 317,000
--------- ----------
Deferred tax liabilities-
Depreciation (875,000) (880,000)
Property taxes (46,000) (46,000)
--------- ---------
Total deferred tax liabilities (921,000) (926,000)
--------- ---------
$(523,000) $(609,000)
========= =========
The Company has tax credit carryforwards of $62,000 and $99,000
available to offset future federal and state taxable income,
respectively, at June 30, 1996.
6. STOCK APPRECIATION RIGHTS PLAN:
The Company has a stock appreciation rights (SAR) plan as an
incentive for key employees. Under the SAR plan, key employees
are granted rights entitling them to market price increases in
the Company's stock. At June 30, 1996 and 1995, 100,000 SARs
were authorized. A summary of the outstanding SARs is as
follows:
Rights Outstanding
at June 30
------------------
Price per Right 1996 1995
$ 3.75 1,600 1,600
5.63 200 200
2.69 5,350 5,750
4.31 1,500 1,500
4.63 13,400 18,400
9.63 3,000 3,000
10.88 - 2,500
8.88 4,500 5,500
------ ------
29,550 38,450
====== ======
The individual rights vest from the grant date as follows:
Year 1 0% Year 4 60%
2 20 5 80
3 40 6 100
All rights are granted at fair market value at the date of
grant. Rights generally vest over a period from the second to
the sixth anniversary date of the grant. The SAR liability and
expense or credit recorded annually is based on the market
price of the Company's stock as of the balance sheet date. In
1996 and 1995, the Company decreased selling, general and
administrative expenses by $1,000 and $96,000, respectively, in
order to reflect the lower SAR liability. In 1994, the Company
increased selling, general and administrative expenses by
$26,000 in order to reflect the higher SAR liability.
7. EMPLOYEE STOCK PURCHASE PLAN:
The Employee Stock Purchase Plan enables substantially all
employees to purchase shares of the Company's common stock at
85 percent of the market value on the first or last business
day of the quarterly offering period, whichever is lower. A
maximum of 100,000 shares are authorized for issuance over the
ten-year term of the plan. The plan term began on January 1,
1994. The following shares were issued under the term of the
plan:
Shares Average Price
Issued per Share
1996 15,324 $4.25
1995 13,658 7.25
1994 4,774 7.44
8. EMPLOYEE STOCK OPTION PLAN:
During 1996, the Board of Directors approved a stock option
plan (the Plan) for employees and nonemployee consultants
covering 90,000 shares of common stock. The Plan is subject to
shareholder approval. Under the terms of the Plan, the
purchase price of shares subject to each option granted will
not be less than the fair market value of the Company's common
shares at the date of grant. Options granted are exercisable
for ten years from the date of grant, and options are
exercisable at the rate of at least 25 percent per year over
four years from the date the option is granted. Each option
granted under the Plan may be exercised for 25 percent on the
first anniversary of the grant, and an additional 25 percent
may be exercised for the next three anniversaries.
At June 30, 1996, 526 shares were available for granting
further options, and options for 89,474 shares were outstanding
at $5.00 per share, of which no options were exercisable.
<PAGE>
9. OPERATING LEASES:
The Company leases office space and equipment. At June 30,
1996, future minimum rental payments are as follows:
Year Ending
June 30
1997 $207,000
1998 178,000
-------
Total $385,000
========
Rental expense under these leases was $249,000 in 1996,
$235,000 in 1995 and $233,000 in 1994.
The Company has been leasing excess warehouse space, generating
revenues of $441,000 in 1996, $292,000 in 1995 and $195,000 in
1994. These revenues are classified as other income in the
statements of earnings.
10. RETIREMENT PLANS:
The Company has a contributory retirement savings and
profit-sharing plan covering nonunion employees. The Company
contributes one and one-half times the first 3 percent of
employee contributions to the retirement savings plan.
Profit-sharing contributions are derived based upon a specific
formula of Company earnings. Company contributions to the
retirement savings and profit-sharing plan were approximately
$79,000 in 1996, $107,000 in 1995 and $148,000 in 1994 and are
funded currently. The employer's contributions for any fiscal
year may not exceed the amount lawfully deductible by the
Company under the provisions of the Internal Revenue Code.
The Company contributes to a defined contribution plan for
employees covered by collective bargaining agreements. These
contributions, funded currently, were $256,000 in 1996,
$306,000 in 1995 and $356,000 in 1994.
11. RESEARCH AND DEVELOPMENT:
The Company sponsors research activities relating to the
development of new products and the improvement of existing
products. The cost of such activities charged to expense was
$269,000 in 1996, $360,000 in 1995 and $308,000 in 1994.
12. RELATED PARTY TRANSACTIONS:
The Company has entered into an agreement with a member of the
Board of Directors to provide consulting services to the
Company during the 1997 fiscal year. The Company prepaid
$18,000 related to this contract during the 1996 fiscal year.
<PAGE>
13. QUARTERLY RESULTS (Unaudited):
For the Year Ended June 30, 1996
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net sales $6,479,000 $6,772,000 $7,053,000 $6,229,000 $26,533,000
Earnings (loss) before
income taxes 72,000 501,000 240,000 (162,000) 651,000
Net earnings (loss) 43,000 295,000 144,000 (48,000) 434,000
Earnings (loss) per
common share $.03 $.17 $.08 $(.03) $.25
For the Year Ended June 30, 1995
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Net sales $6,224,000 $5,950,000 $4,531,000 $4,733,000 $21,438,000
Earnings (loss) before
income taxes 347,000 340,000 (630,000) 230,000 287,000
Net earnings (loss) 208,000 204,000 (375,000) 158,000 195,000
Earnings (loss) per
common share $.12 $.12 $(.22) $.09 $.11
Form 10-K
Copies of the Company's Form 10-K on file with the Securities
and Exchange Commission may be obtained by writing to:
Esther K. Castain
Vacu-dry Company
P.O. Box 2418
Sebastopol, California 95473-2418
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VACU-DRY COMPANY
(Registrant)
Date: January 14, 1997 By: (Gary L. Hess)
Gary L. Hess, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
President & Chief
(Gary L. Hess) Executive Officer January 14, 1997
Gary L. Hess
Vacu-dry Company
Exhibit Index
For the year ended June 30, 1996
Listed in Order of Attachment
Exhibit 27 Financial Data Schedule
Exhibit 10(e) Employment Agreement - Gary L. Hess
Exhibit 10(k) 1996 Stock Option Plan( Incorporated by Reference in the 1996
Definitive Proxy Statement, included in Exhibit 99)
Exhibit 23(i) Consent of Independent Public Accountants
Exhibit 99 1996 Definitive Proxy Statement
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-K FOR THE YEAR ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 214,000
<SECURITIES> 0
<RECEIVABLES> 2,745,000
<ALLOWANCES> 61,000
<INVENTORY> 3,430,000<F1>
<CURRENT-ASSETS> 6,669,000
<PP&E> 17,049,000
<DEPRECIATION> 10,131,000
<TOTAL-ASSETS> 13,587,000
<CURRENT-LIABILITIES> 2,533,000
<BONDS> 0
0
0
<COMMON> 4,001,000
<OTHER-SE> 4,677,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 13,587,000
<SALES> 26,533,000
<TOTAL-REVENUES> 27,218,000
<CGS> 24,142,000
<TOTAL-COSTS> 24,142,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 37,000
<INTEREST-EXPENSE> 298,000
<INCOME-PRETAX> 651,000
<INCOME-TAX> 217,000
<INCOME-CONTINUING> 434,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434,000
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>NET OF LIFO RESERVE OF $1,334,000
<F2>RETAINED EARNINGS
</FN>
</TABLE>
VACU-DRY COMPANY
COMMISSION FILE NUMBER 01912
For the year ended June 30, 1996
Exhibit 10. (e) March 14, 1996 Gary L. Hess Employment Agreement
The Company entered into an employment agreement with Mr. Hess dated March
14, 1996, pursuant to which Mr. Hess is employed by the Company as its
President and Executive Officer. Under the agreement, Mr. Hess is entitled
to an annual base salary of $150,000, subject to annual review, an
incentive bonus during the first year of $75,000, one-half of which is at
the discretion of the Compensation Committee of the Board of Directors and
one-half of which is based on the Company achieving pre-tax return equal to
at least a 12% return on adjusted shareholders equity and other
requirements as may be agreed. Mr. Hess was granted an option to purchase
89,474 shares of the Company's common stock at $5.00 per share, the fair
market value of a share of the Company's common stock on May 1, 1996. The
options were granted pursuant to the Company's 1996 Stock Option Plan which
the Shareholders are being asked to approve at the Annual Meeting of
Shareholders. Under the agreement Mr. Hess serves at will provided that in
the event of termination of his employment by the Company prior to April
30, 2000 for any reason other than cause, he is entitled to twelve months
continued salary at a rate of $150,000 per year. In addition, Mr. Hess is
entitled to the reimbursement of relocation expenses, temporary living
expense, an automobile allowance and certain other fringe benefits.
VACU-DRY COMPANY
COMMISSION FILE NUMBER 01912
For the year ended June 30, 1996
Exhibit No. 23.(i) Consent of Independent Public Accountants
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously
filed Registration Statement File No. 33-70870.
ARTHUR ANDERSEN LLP
San Francisco, California
September 27, 1996
<PAGE>
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 240.14a-11(c) or 240.14a-12
VACU-DRY COMPANY
______________________________________________________________
(Name of Registrant as Specified in Its Charter)
______________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
_X_ $125 per Exchange Act Rules O-11(c)(1)(ii),14a-6(i)(2) or
Item 22(a)(2) of Schdule 14A.
___ $500 per each party to the controversy pursuant to Exhange
Act Rule 14a-6(i)(3).
___ Fee computed on table below per Echange Act Rules
14a-6(i)(4) and O-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 underlying value of transaction
computed pursuant to Exchange Act Rule O-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:
_____________________________________________________
___ Check box if any part of the fee is offset as provided by
the Exchange Act Rule O-11(a)(2) and identify the filing
for which the offsetting fee paid was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:_____________________________
2) Form Schedule or Registration Statement No.:________
3) Filing Party:_______________________________________
4) Date Filed:_________________________________________
"Since 1933"
N O T I C E
of
Annual Meeting
and
Proxy Statement
VACU-DRY COMPANY
Annual Meeting of
Shareholders
Sebastopol, California
October 30, 1996
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND PROXY STATEMENT
October 30, 1996
To The Shareholders of Vacu-dry Company:
Notice is hereby given that the Annual Meeting of the
Shareholders of Vacu-dry Company (the "Company") will be held
on Wednesday, October 30, 1996 at 10:00 a.m., at the Executive
Room, Fountain Grove Inn, 101 Fountain Grove Parkway,
Santa Rosa, California for the following purposes:
1. To elect six (6) directors to serve for the ensuing year and
until their successors are elected.
2. To approve the Company's 1996 Stock Option Plan.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on
September 13, 1996, as the record date for determining which
Shareholders will be entitled to receive notice of, and to vote
at, the meeting or any adjournment thereof.
By Order of the Board of Directors,
Esther K. Castain
Corporate Secretary
Sebastopol, California
September 30, 1996
<PAGE>
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
PROXY STATEMENT
For Annual Meeting of Shareholders
October 30, 1996, 10:00 a.m.
General
This Proxy Statement is furnished by the Board of Directors of
Vacu-dry Company (the "Company") to solicit
Shareholder Proxies to be voted at the Annual Meeting of
Shareholders to be held on Wednesday, October 30, 1996 at
10:00 a.m., at the Executive Room, Fountain Grove Inn, 101
Fountain Grove Parkway, Santa Rosa, California, and at any
adjournment thereof. Any Shareholder giving a Proxy may revoke
it any time before it is voted by filing with the Secretary
of the Company either a written revocation or another duly
executed Proxy bearing a later date. Proxies may also be
revoked by any Shareholder present at the meeting who expresses
a desire to vote his or her shares in person. This mailing
of Proxy Statements and Proxy cards commenced approximately
September 30, 1996.
Voting
The Board of Directors has fixed the close of business on
September 13, 1996, as the Record Date for the determination
of Shareholders entitled to receive notice of, and to vote at,
the Annual Meeting or any adjournment thereof. As of
September 13, 1996, 1,633,354 shares of common stock were
outstanding, and no shares of any other class of stock were
outstanding.
In all actions taken by Company Shareholders, other than the
election of Directors, each Shareholder is entitled to one
vote for each share held on the record date. In the election of
Directors, however, Shareholders have cumulative voting
rights, which means that each Shareholder is entitled to a
number of votes equal to the number of his or her shares
multiplied by the number of Directors to be elected (six). A
Shareholder may cast all of his or her votes for a single
candidate, or may distribute votes among as many candidates as
he or she may see fit. No Shareholder may cumulate votes
for a candidate, however, unless the name(s) of the
candidate(s) have been placed in nomination prior to the voting
and the Shareholder has given notice at the Meeting, prior to
the voting, of the intention to cumulate votes. If one
Shareholder has already given such a notice, all Shareholders
may cumulate their votes for candidates in nomination without
further notice.
Revocability of Proxies
Any person giving a proxy in the form accompanying this
statement has the power to revoke such proxy at any time
before its exercise. The proxy may be revoked by filing with
the Secretary of the Company at the Company's principal
executive office an instrument of revocation or a duly executed
proxy bearing a later date, or by filing written notice of
revocation with the secretary of the meeting prior to the
voting of the proxy or by voting the shares subject to the
proxy by written ballot.
Solicitation
The Company will bear the entire cost of solicitation,
including preparation, assembly, printing, and mailing of this
proxy statement, the proxy card, and any additional material
furnished to Shareholders. Copies of solicitation material will
be furnished to brokerage houses, fiduciaries, and custodians
holding shares in their names which are beneficially owned by
others to forward to such beneficial owners. In addition, the
Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners.
Original solicitation of proxies by mail may be supplemented
by telephone, telegram, or personal solicitation by directors,
officers, or employees of the Company. No additional
compensation will be paid for any such services. Except as
described above, the Company does not intend to solicit proxies
other than by mail
Shareholder Proposals for Next Annual Meeting
Proposals of Shareholders that are intended to be presented at
the Company's 1997 annual meeting of Shareholders must
be received by the Company no later than June 1, 1997 in order
to be included in the proxy statement and proxy relating to
that meeting.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
A beneficial owner of a security includes any person who
directly or indirectly has or shares voting power and/or
investment power with respect to such security. Voting power is
the power to vote or direct the voting of securities and
investment power is the power to dispose of or direct the
disposition of securities. The following tables, based in part
upon information supplied by officers, directors and principal
Shareholders, set forth certain information regarding the
ownership of the Company's voting securities as of September
13, 1996 by (i) all those known by the Company to be
beneficial owners of more than five percent of any class of the
Company's voting securities; (ii) each director; (iii) each
Named Executive Officer; and (iv) all executive officers and
directors of the Company as a group. Unless otherwise
indicated, each of the Shareholders has sole voting and
investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
Security Ownership of Certain Beneficial Owners(a)
Amount of Direct Common Percent
Name and Address of Beneficial Owner Stock Beneficial Ownership of Class(b)
D. P. Boothe, Jr.(c) 170,000 10.4%
33 San Carlos
Sausalito, CA 94965
Craig R. Stapleton(d) 227,167(d) 13.9%
135 East Putnam Avenue
Greenwich, CT 06830
(a) Security ownership information for beneficial owners is
taken from statements filed with the Securities and Exchange
Commission pursuant to Sections 13(d), (f) and (g) and
information made known to the Company.
(b) As of September 13, 1996, 1,633,354 shares of Common Stock
were issued and outstanding.
(c) Mr. D. P. Boothe, Jr. died on September 11, 1996. Includes
50,000 shares held by Catherine Boothe, Mr. Boothe's
widow, and 100,000 shares held jointly by Mr. and Mrs. Boothe.
(d) Includes 92,117 shares owned by Mr. Stapleton or trusts
for the benefit of Mr. Stapleton, 45,100 shares as trustee of a
trust of which Mr. Stapleton is a residual beneficiary, 29,440
as trustee of a trust for the benefit of his children and to
which Mr. Stapleton disclaims any beneficial interest, and
60,500 shares owned by Mr. Stapleton's wife and children to
which Mr. Stapleton disclaims any beneficial interest. Does not
include 41,100 shares owned by a foundation of which
Mr. Stapleton's mother is trustee and 13,500 shares owned
directly and beneficially by Mr. Stapleton's mother.
Security Ownership of Directors and Executive Officers
The table below presents the security ownership of the
Company's Directors, Nominees, Named Executive Officers and
all directors and executive officers as a group as of September
13, 1996:
Amount of Common Shares
Name of Beneficial Owner Beneficially Owned(a) Percent of Class(b)
D. P. Boothe, Jr.(c) 170,000(d) 10.4%
Kenneth P. Gill 45,100(e) 2.8%
Gary L. Hess 14,800 *
Edward Koplovsky 37,866 2.3%
Roger S. Mertz 52,766(f) 3.2%
Craig R. Stapleton 227,167(g) 13.9%
Donal Sugrue 28,790(h) 1.8%
Joseph G. Tonascia(c) 2,700 *
All directors and executive 591,393 36.2%
officers as a group (11 persons)
* Does not exceed 1% of the referenced class of securities.
(a) Shares listed in this column include all shares held by
the named individuals and all directors and executive officers
as a group in their own names and in street name and also
includes all shares allocated to the accounts of the named
individuals and all directors and executive officers as a group
under the Company's Employee Stock Purchase Plan.
(b) Calculation based on 1,633,354 shares of Common Stock
outstanding as of September 13, 1996.
(c) Mr. D. P. Boothe, Jr. died on September 11, 1996. Mr.
Joseph G. Tonascia has determined not to seek reelection to the
Board of Directors.
(d) Includes 50,000 shares held by Catherine Boothe, Mr.
Boothe's widow, and 100,000 shares held jointly by Mr. and
Mrs. Boothe.
(e) Includes 42,000 shares held by the Kenneth P. Gill and
Mary Margaret Gill Revocable Trust of which Mr. Gill is the
trustee and 3,100 shares held by the Kenneth and Mary Gill
Grandchild Trust of which Mr. Gill is the trustee.
(f) Includes 6,000 shares held by Mr. Mertz as trustee and to
which Mr. Mertz disclaims any beneficial interest. Also
includes 2,250 shares held as custodian for a child of Mr.
Mertz and 3,500 shares held by a son of Mr. Mertz and to
each of which Mr. Mertz disclaims any beneficial interest.
(g) Includes 92,117 shares owned by Mr. Stapleton or trusts
for the benefit of Mr. Stapleton, 45,100 shares as trustee of a
trust of which Mr. Stapleton is a residual beneficiary, 29,440
as trustee of a trust for the benefit of his children and to
which Mr. Stapleton disclaims any beneficial interest, and
60,500 shares owned by Mr. Stapleton's wife and children to
which Mr. Stapleton disclaims any beneficial interest. Does not
include 41,100 shares owned by a foundation of which
Mr. Stapleton's mother is trustee and 13,500 shares owned
directly and beneficially by Mr. Stapleton's mother.
(h) Includes 26,760 shares held by the Sugrue 1992 Family
Trust of which Mr. Sugrue is a Trustee
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, six (6) Directors are to be elected by
the Shareholders to serve until the next Annual Meeting or
until the election and qualification of their successors. The
Board's proxy holders (named on the enclosed Proxy card)
intend to vote all shares for which Proxies are granted to
elect the following six nominees selected by the Company's
Board of Directors, and intend to vote such shares cumulatively
if necessary to elect some or all of such nominees. All of
the Board's nominees for Director were elected Directors by the
Shareholders at the 1995 Annual Meeting, except for Mr.
Hess who was elected to the Board on August 14, 1996.
If any of the Board's nominees refuses or is unable to serve as
a Director (which is not now anticipated), the Board's
Proxy holders intend to nominate and vote for such other
person(s) as they believe will best serve the interests of the
Company. Any Shareholder may nominate a candidate for Director
from the floor at the Meeting. Such nominee must consent to
serve, if elected, prior to voting on his name. The Board of
Directors has no reason to believe that any substitute
nominee or nominees will be required.
The six nominees for Director who receive the most affirmative
votes will be elected Directors. Votes against a candidate and
votes withheld shall have no effect on the election result,
though applicable securities laws and regulations may require
that the number of such votes subsequently be disclosed to the
Company's Shareholders under certain circumstances.
<PAGE>
MANAGEMENT RECOMMENDS A VOTE FOR EACH
OF THE NOMINEES FOR DIRECTOR NAMED BELOW
Nominees
The table below indicates the respective nominee's position
with the Company, age, and year in which he first became a
director.
Director
Name, Position and Background Age Since
70 1972
Kenneth P. Gill, Director. Mr. Gill is retired. Formerly he
was Assistant to the Chairman (July - December 1990) and
President and Chief Executive Officer of the Company
(1972-1990).
44 1996
Gary L. Hess, President and Chief Executive Officer and
Director. Mr. Hess was elected President and Chief
Executive Officer of the Company on May 1, 1996. Prior
thereto he was a Senior Vice President of Dole Food
Company, Inc. (fresh and processed fruit) (1993-1996);
President of Cadence Enterprises, Inc. (water conservation
products) and The Marketing Partnership 1992-1993; and
Director of Marketing, E. & J. Gallo Winery (wine and
distilled spirits (1987-1992).
57 1993
Edward Koplovsky, Director. Mr. Koplovsky is Chairman and
Chief Executive Officer of Clermont, Inc., a specialty fruit
processing concern.
52 1993
Roger S. Mertz, Director. Mr. Mertz is an attorney-at-law. He
is a member of the San Francisco, California law firm of
Severson & Werson, counsel to the Company
51 1995
Craig R. Stapleton, Director. Mr. Stapleton is President of
Marsh & McLennan, Real Estate Advisors, Inc. (real estate
management). Mr. Stapleton is a director of Allegheny
Properties, Inc. (real estate investments), and a director of
T.B. Woods, Incorporated (industrial power transmission
products).
65 1982
Donal Sugrue, Director. Mr. Sugrue serves as a Consultant to
the Company and prior to May 1, 1996 was President and
Chief Executive Officer.
Except as noted, the above persons have been engaged in the
principal occupations identified above for more than the past
five years.
Filings by Directors, Executive Officers and Ten Percent
Holders
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's executive officers, directors, and persons
who own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten-
percent shareholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the
Company believes that, during fiscal year 1996 all filing
requirements applicable to its executive officers, directors,
and greater than ten-percent beneficial owners were complied
with.
Board Committees and Meetings
The Board of Directors met five times during the fiscal year
ending June 30, 1996. The Company's Board of Directors
has authorized four standing committees.
Executive Committee. As prescribed by the bylaws of the
Company, the executive committee has the authority of the
Board of Directors for the management of the business and
affairs of the Company between meetings of the Board of
Directors. The members of the committee are Messrs. Hess,
Koplovsky, Mertz, and Stapleton. The Executive Committee
held three meetings during the fiscal year.
Compensation Committee. The function of the compensation
committee is to develop and recommend to the full Board
compensation arrangements, including bonuses, Stock
Appreciation Rights and Stock Options for Executive Officers
and other key employees and to advise the chief executive
officer on policy matters concerning officers' compensation.
The members of the committee are Messrs. Gill (Chairman),
Koplovsky and Tonascia. The Compensation Committee held one
meeting during the fiscal year.
Audit Committee. The function of the audit committee is to
recommend to the full Board the accounting firm to be
retained as the Company's independent auditors and the price to
be paid to the firm, and to consult with the auditors
regarding the plan of audit, the results of the audit and the
audit report, and the adequacy of internal accounting controls.
The current members of the committee are Messrs. Mertz
(Chairman), Sugrue and Tonascia. The Audit Committee held one
meeting during the fiscal year.
Retirement Savings Committee. The function of the retirement
savings committee is to direct the management of the
Company's Retirement, Savings and Profit Sharing Plan. The
committee met once during the year. The members of the
Committee are Messrs. Tonascia (Chairman), Mertz and Koplovsky.
Effective October 30, 1996, the Retirement Savings
Committee will be combined with the Compensation Committee.
The full Board acts as the nominating committee for the
Directors of the Company
EXECUTIVE COMPENSATION
Summary Compensation of Named Executives
The Summary Compensation Table shows certain compensation
information for each person who served as Chief Executive
Officer during the fiscal year and the Company's most highly
paid executive officers (collectively referred to as
the "Named Executive Officers"). Compensation data for other
executive officers is not presented in the charts because
aggregate compensation for such executive officers did not
exceed $100,000 for services rendered in all capacities during
fiscal year 1996. Compensation data is shown for the fiscal
years ended June 30, 1996, 1995 and 1994. This information
includes the dollar value of base salaries, bonus awards, the
number of SARs granted, and certain other compensation, if
any, whether paid or deferred.
Summary Compensation Table(a)
Long Term All Other
Annual Compensation Compensation Compensation(b)
Awards
Name and Principal Position Year Salary($)(c) Bonus($) Options/SARs(#) ($)
Gary L. Hess(d) 1996 25,000 -0- 89,474 856
President and CEO 1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
Donal Sugrue(d) 1996 147,607 -0- -0- 11,190
President, Chief Executive 1995 140,802 -0- -0- 7,604
Officer and Director 1994 165,091 29,100 -0- 30,142
(a) Amounts shown include cash and non-cash compensation
earned with respect to the year shown above.
(b) All other Compensation is described below. Life insurance
premium payments are calculated as compensation by
multiplying the proportion of benefits payable to the
employee's estate by the total premiums paid in the fiscal
year. Also includes Value Realized from SARs of $13,500 for Mr.
Sugrue in 1994 and $3,187.50 in 1996.
(c) 1995 amounts include $6,423 and 1996 amounts include
$16,940 with respect to Mr. Sugrue representing payments in
lieu of vacation not taken and under the Company's Wellness
Time Plan.
(d) Mr. Hess was appointed President and Chief Executive
Officer on May 1, 1996 upon Mr. Sugrue's retirement.
Retirement and
Exec. Officer Year Profit Sharing Plan Base 401k Bonus 401k Life Ins.
Prem.
G. Hess 1996 -0- -0- -0- 214
1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
D. Sugrue 1996 -0- 5,838 -0- 2,164
1995 -0- 5,440 -0- 2,164
1994 5,739 7,429 1,310 2,164
SAR Exercises in Last Fiscal Year and Year-End SAR Values
The following table summarizes for the Named Executive Officers
the number of SARs, if any, exercised during the
fiscal year ended June 30, 1996, the aggregate dollar value
realized upon exercise, the total number of unexercised SARs
held at June 30, 1996 and the aggregate dollar value of
in-the-money, unexercised SARs held at June 30,1996. Value
realized upon exercise is the difference between the fair
market value of the underlying stock on the exercise date and
the exercise price of the SAR. Value of unexercised,
in-the-money SARs at fiscal year-end is the difference between
the exercise price and the fair market value of the underlying
stock on June 30, 1996, which was $5.00 per share.
Aggregated SAR Exercises in Last Fiscal Year
and Fiscal Year-End SAR Values Table
Number of Value of
Unexercised Unexercised
SARs at Fiscal In-The-Money SARs
Year End (#) at Fiscal Year
End ($)
Shares Subject Value Exercisable/ Exercisable/
Name to SARs (#) Realized ($) Unexercisable Unexercisable
Gary L. Hess -0- $-0- -0- -0-
Donal Sugrue 4,500 $3,187.50 -0- -0-
Option Grants Last Year
The following table shows information regarding grants of stock
options made to the Named Executive Officers under
the Company's 1996 Stock Option Plan during the fiscal year
ended June 30, 1996. The amounts shown for each Named
Executive Officer as potential realizable values are based on
the arbitrarily assumed annualized rates of stock appreciation
of 0, 5 and 10 percent over the term of the options, which
would result in stock prices of approximately $5.00, $8.14 and
$12.97. No gain to the optionee is possible without an increase
in stock price which will benefit all shareholders
proportionately.
Potential Realizable Value
Individual Grants at Assumed Annual Rates
of Stock Price
Appreciation for Option Term
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
% Of Total
Options Options Granted Exercise or
Granted to Employees Base Price Market Expiration
Name (#) in Fiscal Year ($/Sh) Price Date 0%($) 5%($)(a) 10%($)(a)
Gary H. Hess 89,474 100% $5.00 $5.00 5/1/2006 -0- $281,421 $713,176
</TABLE>
(a) Based on 10-year option term and annual compounding,
results in total appreciation of 62.9% (at 5% per year) and
159.4% (at 10% per year)
Compensation of Directors
Outside Directors receive $300 per month for serving as
Directors and are paid $600 for each Board meeting attended
and $400 for each committee meeting attended. Directors' fees
paid by the Company during fiscal year 1996 totaled
$52,000. Executive Officers of the Company who also serve on
the Board of Directors are not specifically compensated
for duties as directors.
Mr. Mertz, a member of the San Francisco law firm of Severson &
Werson, served as the Company's legal counsel
during fiscal 1996 and is expected to be retained through
fiscal 1997.
Employment Contracts
The Company entered into an employment agreement with Mr. Hess
dated March 14, 1996, pursuant to which Mr. Hess
is employed by the Company as its President and Executive
Officer. Under the agreement, Mr. Hess is entitled to an annual
base salary of $150,000, subject to annual review, an incentive
bonus during the first year of $75,000, one-half of which is
at the discretion of the Compensation Committee of the Board of
Directors and one-half of which is based on the Company
achieving pre-tax return equal to at least a 12% return on
adjusted shareholders' equity and other requirements as may be
agreed. Mr. Hess was granted an option to purchase 89,474
shares of the Company's common stock at $5.00 per share, the
fair market value of a share of the Company's common stock on
May 1, 1996. The options were granted pursuant to the
Company's 1996 Stock Option Plan which the Shareholders are
being asked to approve at the Annual Meeting of
Shareholders. Under the agreement Mr. Hess serves at will
provided that in the event of termination of his employment by
the Company prior to April 30, 2000 for any reason other than
cause, he is entitled to twelve months continued salary at a
rate of $150,000 per year. In addition, Mr. Hess is entitled to
the reimbursement of relocation expenses, temporary living
expense, an automobile allowance and certain other fringe
benefits.
During the fiscal year Mr. Sugrue was employed by the Company
pursuant to an Employment Agreement dated February
8, 1983. The agreement terminated on September 26, 1995, the
date on which Mr. Sugrue reached age 65.
Compensation Committee Report
This report is provided by the Compensation Committee of the
Board of Directors (the "Committee") to assist
stockholders in understanding the Committee's objectives and
procedures in establishing the compensation of Vacu-dry
Company's Chief Executive Officer and other executive officers.
The Committee, made up of non-employee Directors, is
responsible for establishing and administering the Company's
executive compensation program. None of the members of
the Committee is eligible to receive awards under the Company's
incentive compensation programs.
Vacu-dry's executive compensation program is designed to
motivate, reward, and retain the management talent needed to
achieve its business objectives and maintain its
competitiveness in the food processing industry. It does this
by utilizing competitive base salaries that recognize a
philosophy of career continuity and by rewarding exceptional
performance and accomplishments that contribute to the
Company's success.
Compensation Philosophy and Objective
The philosophical basis of the compensation program is to pay
for performance and the level of responsibility of an
individual's position. The Committee finds greatest value in
executives who possess the ability to implement the
Company's business plans as well as to react to unanticipated
external factors that can have a significant impact on
corporate performance. Compensation decisions for all
executives, including the Named Executive Officers, are based
on the same criteria. These include quantitative factors that
reflect improvements in the Company's short and long-term
financial performance, as well as qualitative factors which
reflect the strength of the Company over the long term, such as
demonstrated leadership skills and the ability to deal quickly
and effectively with difficulties which sometimes arise.
The Committee believes that compensation of Vacu-dry's key
executives should:
1. Link rewards to business results and stockholder returns;
2. Encourage creation of stockholder value and achievement of
strategic objectives;
3. Maintain an appropriate balance between base salary and
short-and long-term incentive opportunity;
4. Attract and retain, on a long-term basis, highly qualified
executive personnel; and
5. Provide total compensation opportunity that is competitive
with that provided by competitors in the food processing
industry, taking into account relative company size and
performance as well as individual responsibilities and
performance.
Key Elements of Executive Compensation
Vacu-dry's executive compensation program consists of three
elements: Base Salary, Short-Term Incentives and Long-
Term Incentives. Payout of short-term incentives depends on
corporate performance. Payout of the long-term incentives
depends on performance of Vacu-dry stock.
Base Salary
A competitive base salary is crucial to support the philosophy
of management development and career orientation of
executives. Salaries are targeted to pay levels of the
Company's competitors and companies having similar
capitalization, revenues, etc. Executive salaries are reviewed
annually. Assessment of an individual's relative performance is
made annually based on a number of quantitative factors such as
stock price, earnings and revenues, as well as qualitative
factors which include initiative, business judgment, technical
expertise, and management skills.
Short-Term Incentive
Short-term awards to executives are made in cash to recognize
contributions to the Company's business during the past
year. The Company maintains a Bonus Plan as an incentive for
executive officers of the Company. The bonus an executive
receives is dependent on individual performance and level of
responsibility
Long-Term Incentive
Long-term incentive awards provided by shareholder-approved
compensation programs are designed to develop and
maintain strong management through share appreciation awards.
The Company's 1985 Stock Appreciation Rights Plan
creates incentives for executives and other key employees by
providing them with an opportunity to indirectly participate in
the appreciation in the market value of the Company's common
stock.
In 1993 the directors approved the adoption of the 1994
Employee Stock Purchase Plan (the "Plan"). All employees,
including executive officers, may purchase shares of the
Company's Common Stock at a discount of 85% of the market
value on the first or last business day of the quarterly
offering period, whichever is lower. The plan became effective
January 1, 1994.
In 1996 the directors approved the 1996 Stock Option Plan
authorizing the issuance of 90,000 shares of the Company's
Common Stock to aid the Company in attracting and retaining key
employees and non-employee consultants. For information
concerning the plan, see Proposal 2, Approval of 1996 Stock
Option Plan.
1996 Chief Executive Officer Compensation
Mr. Sugrue's base salary for fiscal 1996 was $136,080. During
the fiscal year ending June 30, 1996, Mr. Sugrue also
received a total of $5,838 as contributions to his Base 401K.
The Committee believes Mr. Sugrue's total compensation
package is appropriate for Mr. Sugrue's level of responsibility
and is well within competitive practice.
Mr. Hess' compensation during the 1996 fiscal year was based on
an annual salary of $150,000 per year. The committee
believes such salary and the other terms of Mr. Hess'
compensation package is appropriate to his level of experience
and responsibility and was necessary in order to recruit him to
serve as the Company's President and Chief Executive Officer.
Compensation Committee:
Kenneth P. Gill
Edward Koplovsky
Joseph G. Tonascia
Share Investment Performance
The following graphs compare the total return performance of
the Company for the periods indicated with the performance of
the NASDAQ Market Index and the performance of a Peer Index
comprised of companies having the same Standard Industrial
Classification ("SIC") number as the Company. The Company's
shares are traded over-the-counter on the NASDAQ National
Market under the symbol "VDRY". The Peer Index includes the
publicly traded stocks of Curtice-Burns Foods Inc., H.J. Heinz
Co., Seneca Foods Corp., J.M. Smucker Co. Class A, J.M. Smucker
Class B, Stokely U.S.A. Inc. and Vacu-dry Company. The NASDAQ
Index includes only shares of companies traded on the NASDAQ
National Market System or over-the-counter, which have been
publicly traded continuously since June 30, 1991. The total
return indices reflect reinvested dividends and are weighted on
a market capitalization basis at the time of each reported data
point.
Performance Graph
Year (June 30) 1991 1992 1993 1994 1995 1996
Vacu-dry Company $100.00 $175.00 $237.50 $232.53 $143.70 $134.12
NASDAQ Market Index $100.00 $107.75 $132.27 $145.04 $170.11 $214.14
Peer Index $100.00 $105.75 $104.74 $ 95.65 $134.20 $141.70
PROPOSAL 2
APPROVAL OF 1996 STOCK OPTION PLAN
During 1996, the Board of Directors approved the 1996 Stock
Option Plan (the "Plan") authorizing the issuance of
90,000 shares of the Company's Common Stock to aid the Company
in attracting and retaining key employees and non-
employee consultants by providing them a proprietary interest
in the success of the Company. The Plan was adopted for the
principal purpose of assisting the Company in recruiting a new
President and Chief Executive Officer of the Company. Mr.
Gary L. Hess, who was appointed the Company's President and
Chief Executive Officer on May 1, 1996, has been granted
substantially all of the options presently authorized under the
Plan. The Compensation Committee of the Board of Directors is
presently evaluating all of the Company's executive
compensation programs. In the future, the Board of
Directors, subject to shareholder approval, may increase the
number of shares authorized under the Plan, but no decision in
this regard has been made.
The following is a summary of the material features of the
Plan. The full text of the Plan is attached as Exhibit A, and
the following summary is qualified in its entirety by reference
to it.
Proposal
The shareholders are being requested to consider and approve
the Plan. The affirmative vote of the holders of a majority
of the shares represented and voting at the meeting is required
for approval.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2
General
The Plan provides for the granting of two types of options:
"incentive stock options" and "nonqualified stock options."
The incentive stock options only are intended to qualify as
"incentive stock options" as defined in Section 422 of the
Internal Revenue Code of 1986, as amended. The Plan is not
qualified under Section 401(a) of the Internal Revenue Code
nor is it subject to the provisions of ERISA.
Eligibility
Options may be granted under the Plan to all key employees,
including officers and directors, and to non-employee
consultants of the Company; provided however that incentive
stock options may only be granted to employees, and not to
any non-employee consultants.
Administration
Administration of the Plan is by a Stock Option Plan Committee
comprised of at least three members of the Board, each
of whom must be disinterested as defined in the regulations
under the Securities Exchange Act of 1934. Under the Plan, the
Committee has the power, subject to the provisions of the Plan,
to do the following: grant options; determine the option
price and term of each option, the persons to whom and the time
or times at which options shall be granted, and the number
of shares to be subject to each option; interpret the Plan;
prescribe rules and regulations relating to the Plan; and make
all other determinations deemed necessary or advisable for the
administration of the Plan. Members of the Committee will
receive no compensation for their services in connection with
the administration of the Plan
Option Terms
The maximum term of each option is ten years except that, in
the case of a participant who owns stock possessing more
than ten percent of the voting rights of the Company's
outstanding capital stock (a "10% Holder"), the maximum term of
an incentive stock option is five years. Options granted under
the Plan must vest at a rate no less that 25% each year over
four years from the grant date, although the vesting schedule
may be more rapid. Options granted under the Plan are not
transferable other than by will or the laws of descent and
distribution, and during an optionee's life are exercisable
only by the optionee. Options granted under the Plan generally
terminate three months after the optionee ceases to be employed
by the Company, a parent or subsidiary, except if termination
is due to the employee's permanent and total disability, in
which event the option may be exercised within a year of
termination. In the event of the employee's death, the
employee's estate has 12 months to exercise the option.
Exercise Price
The exercise price of all nonstatutory stock options granted
under the Plan must be at least equal to 85% of the fair
market value of the underlying stock on the grant date, or 110%
of fair market value in the case of a 10% Holder. The
exercise price of all incentive stock options granted under the
Plan must be at least equal to the fair market value of the
underlying stock on grant date, or 110% of fair market value in
the case of a 10% Holder. With respect to incentive stock
options, the aggregate fair market value (determined at the
time of grant) of stock which becomes exercisable for the first
time in any year cannot exceed $100,000. The Plan permits the
exercise of options for cash or stock, other consideration
acceptable to the Committee, or pursuant to a deferred payment
arrangement.
Changes in Stock and Effect of Certain Corporate Events
If there is any change in the Common Stock subject to the Plan
or subject to any option granted under the Plan, whether
through merger, consolidation, reorganization,
recapitalization, dividend or otherwise, the Plan provides that
an appropriate adjustment be made by the Committee to the
aggregate number of shares subject to the Plan and the number
of shares and the price per share of stock subject to the
outstanding options.
In the event of dissolution, liquidation or specified types of
merger of the Company, the options granted under the Plan
terminate unless the surviving entity assumes the outstanding
options or substitutes similar options.
Amendment and Termination
The Board of Directors may amend or terminate the Plan at any
time, except that any amendment which would (i) increase the
aggregate number of shares of Common Stock issued under the
Plan, or (ii) materially increase the benefits accruing to
participants, or (iii) materially modify the eligibility
requirements will only be effective if approved by the
Company's shareholders within 12 months before or after
adoption. Unless terminated earlier, the Plan will terminate on
March 15, 2006.
Federal Income Tax Consequences
Incentive stock options granted under the Plan are intended to
be eligible for the favorable income tax treatment
accorded incentive stock options under Section 422 of the
Internal Revenue Code. Nonqualified stock options granted
under the Plan are subject to federal income tax treatment
pursuant to rules governing options that are not incentive
stock options.
Incentive Stock Options. There are generally no federal income
tax consequences to the optionee by reason of the grant
or exercise of an incentive stock option. The exercise of an
incentive stock option may increase the optionee's alternative
minimum tax liability, if any, however.
If an optionee holds stock acquired through exercise of an
incentive stock option for more than two years from the date on
which the option is granted and more than one year from the
date on which the shares are transferred to the optionee upon
exercise of the option, any gain or loss on a disposition of
such stock will be capital gain or loss. Any capital gain or
loss realized by an optionee on a qualifying or disqualifying
(see below) disposition of stock acquired through exercise of
an incentive stock option will be long-term or short-term
depending on whether the stock was held for more than one year.
Generally, if the optionee disposes of the stock before the
expiration of either of the holding periods described above (a
"disqualifying disposition"), at the time of disposition the
optionee will realize taxable ordinary income equal to the
lesser of (i) the excess of the stock's fair market value on
the date of exercise over the optionee's adjusted basis in the
stock, or (ii) the optionee's actual gain, if any, on the
purchase and sale. Any additional gain or any loss upon the
disqualifying disposition will be capital gain or loss.
Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject
to Section 16(b) of the Exchange Act.
There are no federal income tax consequences to the Company by
reason of the grant or exercise of an incentive stock
option. To the extent the optionee recognizes ordinary income
by reason of a disqualifying disposition, the Company will
be entitled (subject to the requirement of reasonableness and,
perhaps, in the future, the satisfaction of its withholding
obligation) to a corresponding business expense deduction in
the tax year in which the disposition occurs.
Nonqualified Stock Options. There are normally no tax
consequences to the optionee or the Company by reason of the
grant of a nonqualified stock option. Upon exercise of a
nonqualified stock option, the optionee normally recognizes
ordinary income in an amount by which the fair market value of
the stock on the date of exercise exceeds the exercise
price. Generally with respect to employees, the Company is
required to withhold from wages an amount based on the
ordinary income realized by the exercise. Subject to the
reasonableness requirement and the satisfaction of its
withholding obligation, the Company will be entitled to a
business expense deduction in the amount of the taxable
ordinary income recognized by the optionee.
Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the
selling price and the sum of the amount paid for such shares
plus any amount recognized as ordinary income upon exercise
of the option. Such gain or loss will be long or short-term
depending on whether the stock was held for more than one year.
Slightly different rules apply to optionees who acquire stock
subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
There are no tax consequences to the Company by reason of the
disposition of stock acquired upon exercise of a nonqualified
option.
Use of Proceeds
All proceeds from the sale of shares pursuant to options
granted under the Plan constitute general funds of the Company.
Indemnification of Committee
Under the terms of the Plan, members of the Committee are
entitled to be indemnified by the Company against costs and
expenses reasonably incurred in connection with any action or
proceeding brought by reason of their action or failure to act
under or in connection with the Plan or any rights granted
thereunder.
NEW PLAN BENEFITS
Vacu-dry Company 1996 Stock Option Plan
Number of Common Shares
Optionee Underlying Stock Options
Gary L. Hess 89,474
President and Chief Executive Officer
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent certified public accountants are
chosen by the Board of Directors based on the recommendation of
its audit committee. The independent certified public
accountants for the Company's fiscal year ended June 30, 1996,
were Arthur Andersen LLP.Arthur Andersen LLP has been
recommended by the audit committee and selected by the Board
for the current fiscal year. Representatives of that firm will
be present at the Annual Meeting, and will have the opportunity
to make a statement and to respond to appropriate questions.
AVAILABILITY OF ADDITIONAL INFORMATION
The Company's Annual Report to Shareholders is being mailed
with the Proxy Statement to Shareholders who were holders of
record on September 13, 1996.
OTHER MATTERS AND SHAREHOLDERS' PROPOSALS
The Board of Directors presently knows of no other matter that
may come before the Annual Meeting. If any other matters should
properly come before the Meeting, however, the Board's proxy
holders intend to vote on such matters in accordance with their
best judgment.
By Order of the Board of Directors
Esther K. Castain
Corporate Secretary
September 30, 1996
EXHIBIT A
VACU-DRY COMPANY
1996 STOCK OPTION PLAN
1. Purpose and Scope. The purposes of this Plan are to induce
persons of outstanding ability and potential to join and
remain with Vacu-dry Company (the "Company"), to provide an
incentive for such employees as well as for non-employee
consultants to expand and improve the profits and prosperity of
the Company by enabling such persons to acquire proprietary
interests in the Company, and to attract and retain key
personnel through the grant of Options to purchase shares of
the Company's Common Stock. Unless otherwise stated herein, the
term "Option" includes both Incentive Stock Options and
Non-qualified Stock Options.
2. Definitions. Each term set forth in this Section 2 shall
have the meaning set forth opposite such term for purposes of
this Plan unless the context otherwise requires, and for the
purposes of such definitions, the singular shall include the
plural and the plural shall include the singular:
(a) "Affiliate" shall mean any parent corporation or
subsidiary corporation of the Company as those terms are
defined in Sections 424(e) and (f) respectively of the Internal
Revenue Code of 1986, as amended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall mean the Stock Option Plan Committee
appointed by the Board, which shall be comprised of at
least three disinterested members of the Board.
(d) "Company" shall mean Vacu-dry Company, a California
corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Fair Market Value" for a share of Stock means the price
that the Board or the Committee acting in good faith
determines, through any reasonable valuation method (including
but not limited to reference to prices existing in
any established market in which the Stock is traded), to be the
price at which a share of Stock might change hands
between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having
reasonable knowledge of the relevant facts.
(g) "Option" shall mean a right to purchase Stock granted
pursuant to the Plan.
(h) "Option Price" shall mean the purchase price for Stock
under an Option, as determined in Sections 7 _ "Incentive
Stock Options" _ and 8 _ "Non-Incentive Stock Options" _ below.
(i) "Participant" shall mean an employee or non-employee
consultant to the Company to whom an Option is granted
under the Plan.
(j) "Plan" shall mean this Vacu-dry Company 1996 Stock Option
Plan.
(k) "Stock" shall mean the no par value Common Stock of the
Company.
(l) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
3. Administration. The Plan shall be administered by the
Board or a designated Committee (each are referred to herein as
the "Board"). Two members of the Board shall constitute a
quorum for the transaction of business. The Committee
shall have full authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to
grant Options, to determine the Option Price and term of each
Option, the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of
Stock to be covered by each Option; to interpret the Plan;
to prescribe, amend, and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of the
option agreements (which need not be identical) entered into
connection with the grant of Options under the Plan; to
unilaterally modify outstanding Options in any respect that is
not adverse to the Participants, including the right to
accelerate the exercisability of Options, and to waive minor
conditions and requirements; and to make all other
determinations deemed necessary or advisable for the
administration of the Plan. The Board may delegate to one or
more of its members, or to one or more agents, such
administrative duties as it may deem advisable, and the Board
or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect
to any responsibility the Board or such person may have under
the Plan. The Board may employ attorneys, consultants,
accountants, or other persons, and the Board shall be entitled
to rely upon the advice, opinions, or valuations of such
persons. All actions taken and all interpretations and
determinations made by the Board in good faith shall be final
and binding upon all Participants, the Company, and all other
interested persons. No member of the Board shall be
personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan; and
all members of the Board shall be fully protected by the
Company in respect of any such action, determination, or
interpretation.
4. Shares Subject to the Plan. Subject to adjustment under
the provisions of Section 14 _ "Effect of Change in Stock
Subject to Plan" _ of the Plan, the maximum number of shares of
Stock that may be optioned or sold under the Plan is
Ninety Thousand (90,000). Such shares may be authorized by
unissued shares of Stock of the Company, or issued
shares of Stock reacquired by the Company, or shares purchased
in the open market expressly for use under the Plan. If
for any reason any shares of Stock as to which an Option has
been granted cease to be subject to purchase thereunder,
then (unless the Plan shall have been terminated) such shares
shall become available for subsequent awards under this
Plan in the discretion of the Board. The Company shall, at all
times while the Plan is in force, reserve such number of
common shares as will be sufficient to satisfy the requirements
of all outstanding Options granted under the Plan.
5. Eligibility; Factors to be Considered in Granting Options.
(a) Incentive Stock Options may be granted to any regular
full-time employee (including officers and directors) of
either the Company or any Affiliate of the Company.
(b) Non-qualified Stock Options may be granted to: (i) any
regular full-time employee (including officers and
directors) of either the Company or any Affiliate of the
Company; and (ii) any non-employee consultant of the
Company, provided that bona fide services shall be rendered by
such consultants and such services must not be in
connection with the offer or sale of securities in a
capital-raising transaction.
(c) In determining to whom options shall be granted and the
number of shares of Stock to be covered by each Option,
the Board shall take into account the nature of the
Participants' duties, their present and potential contributions
to the success of the Company, and such other factors as it
shall deem relevant in connection with accomplishing the
purposes of the Plan. The Board shall also determine the
time(s) of grant, the type and term of Option granted, and
the time(s) of exercise, in whole or part. A Participant who
has been granted an Option under the Plan may be
granted new Options, which may be in addition to prior Options
granted under the Plan or may be in exchange for
the surrender and cancellation of prior Options having a higher
or lower option price and containing such other
terms as the Board may deem appropriate.
6. Terms and Conditions of Options.
(a) General. Options granted pursuant to the Plan shall be
authorized by the Board and shall be evidenced by
agreements ("Option Agreements") in such form as the Board from
time to time shall approve. Such Option Agreements shall comply
with and be subject to the following general terms and
conditions, and shall also comply with and be subject to the
provisions of Section 7 relating to Incentive Stock Options or
Section 8 relating to Non-qualified Stock Options, as
applicable, as well as such other terms and conditions as set
forth in this Plan and as the Board may deem desirable, not
inconsistent with the Plan
(b) Employment Agreement. The Committee may, in its
discretion, include in any Option granted under the
Plan a condition that the Participant shall agree to remain in
the employ of, and/or to render services to, the
Company for a period of time (specified in the Option
Agreement) following the date the Option is granted. No
such Option Agreement shall impose upon the Company any
obligation to employ and/or retain the Participant for
any period of time.
(c) Manner of Exercise. A Participant may exercise an Option
by giving written notice of such exercise to the
Company at its principal office, attention to the Secretary,
and paying the Option Price either (i) in cash in full at
the time of exercise, or (ii) in the discretion of the Board:
(A) by delivery of other Common Stock of the Company, which
(1) either has been owned by the Participant for more than six
(6) months on the date of surrender or was not acquired
directly or indirectly, from the Company; and (2) has a fair
market value on the date of surrender equal to the Option Price
of the Stock as to which the Option is being exercised,
(B) by an approved deferred payment schedule or other
arrangement, which arrangement shall be contained in
writing in the Option Agreement, in which event an interest
rate will be stated which is not less than the rate
then specified which will prevent any imputation of higher
interest under Section 483 of the Code, or
(C) in any other form of legal consideration acceptable to the
Committee at the time of grant or exercise.
(d) Time of exercise. Promptly after the exercise of an Option
and the payment of the Option Price, either in full or
pursuant to the approved payment schedule, the Participant
shall be entitled to the issuance of a stock certificate
evidencing ownership of the appropriate number of shares of
Stock. A Participant shall have none of the rights of a
shareholder until shares are issued to him/her, and no
adjustment will be made for dividends or other rights for
which the record date has occurred prior to the date such stock
certificate is issued.
(e) Number of shares. Each Option shall state the total number
of shares of Stock to which it pertains.
(f) Option Period, Vesting, and Limitations on Exercise. The
Board may, in its discretion, provide that an Option may
not be exercised in whole or part for any period(s) of time
specified in the Option Agreement, except that: (i) no
Option may be exercised until at least six (6) months have
elapsed from the date the Option is granted; and (ii) the
right to exercise must be at the rate of at least 25% per year
over four (4) years from the date the Option is
granted. Unless otherwise approved by the Committee and set
forth in the Option Agreement, each Option granted
under the Plan may be exercised for 25% on the first
anniversary of the grant, and an additional 25% for the next
three (3) anniversaries. No Option may be exercised after the
expiration of ten years from the grant date. No
Option may be exercised as to less than one hundred (100)
shares at any one time, or the remaining shares covered
by the Option if less than one hundred (100).
7. Incentive Stock Options. The Board may grant Incentive
Stock Options ("ISOs") which meet the requirements of
Section 422 of the Code, as amended from time to time.
(a) ISOs may be granted only to employees of the Company or
its Affiliates.
(b) Each ISO granted under the Plan must be granted within 10
years from the date the Plan is adopted or is approved
by the shareholders of the Company, whichever is earlier.
(c) The purchase price shall not be less than the fair market
value of the common shares at the time of grant, except
that the purchase price shall be 110% of the fair market value
at such time in the case of any person who owns stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or its Affiliates at the
time of grant.
(d) No ISO granted under the Plan shall be exercisable more
than 10 years from the date of grant, except that in the case
of any person who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the
Company or its Affiliates at the time of grant, no ISO shall be
exercisable more than five years from the date of grant.
(e) To the extent that the aggregate fair market value of
Stock (determined at the time of grant) with respect to which
ISOs are exercisable for the first time by any individual
during any calendar year under all plans of the Company
and its subsidiaries exceeds $100,000, such Options shall be
treated as non-qualified stock Options, but only to
the extent of such excess. Should it be determined that an
entire Option or any portion thereof does not qualify for
treatment as an ISO by reason of exceeding such maximum, or for
any other reason, such Option or portion shall be considered a
non-qualified stock Option.
8. Non-qualified Stock Options. The Board may grant
Non-qualified Stock Options ("NSOs") under the Plan in addition
to or in lieu of Incentive Stock Options. NSOs are not intended
to meet the requirements of Section 422 of the Code, and
shall be subject to the following terms and conditions:
(a) NSOs may be granted to any eligible Participant.
(b) The purchase price of the shares shall be determined by
the Board in its absolute discretion, but in no event shall
such purchase price be less than 85% of the fair market value
of the shares at the time of grant. In the case of any
person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or
its Affiliates at the time of grant, the price shall be 110% of
the fair market value, determined at the time of grant.
(c) NSOs shall not be exercisable more than ten years from the
date of grant.
9. Transferability. Options granted under this Plan shall not
be transferable other than by will or by the laws of descent
and distribution, and during a Participant's life shall be
exercisable only by such Participant. Options granted under
this Plan shall not be subject to execution, attachment or
other process. In the event of (i) any attempt by a Participant
to alienate, assign, pledge, hypothecate or otherwise dispose
of an Option granted pursuant to the Plan, except as provided
for herein; or (ii) the levy of any attachment, execution or
similar process upon the rights or interest hereby conferred,
the Company may terminate the Option by notice to the
Participant and it shall thereupon become null and void.
10. Termination of Employment. Options held by employees,
including directors, shall terminate three months after
termination of employment with the Company or Affiliate,
unless:
(a) If termination is due to employee's permanent and total
disability within the meaning of Section 22(e)(3) of the
Code, the Option may be exercised at any time within one year
following termination.
(b) The Option Agreement by its terms specifies whether it
shall terminate later than three (3) months after
termination of employment. If the Option may be exercised later
than three months following termination, any portion exercised
beyond three months shall be a non-qualified stock option. This
paragraph shall not be construed to extend the term of any
Option nor to permit anyone to exercise the Option after
expiration of its term.
(c) Options granted under this Plan shall not be affected by
any change of duties or position of the Participant so long
as Participant continues to be a regular, full-time employee of
the Company. Any Option, or any rules and regulations relating
to the Plan, may contain such provisions as the Board shall
approve with reference to the determination of the date
employment terminates. Nothing in the Plan or in any Option
granted pursuant to the Plan shall confer upon any Participant
any right to continue in the employ of the Company or shall
interfere in any way with the right of the Company to terminate
such employment at its will at any time.
(d) Notwithstanding any other provisions set forth in this
Section 10 or in the Plan, if the Participant shall: (i) commit
any act of malfeasance or wrongdoing affecting the Company or
any Affiliate; (ii) breach any covenant not to compete, or
employment contract, with the Company or any Affiliate; or
(iii) engage in any conduct that would warrant the
Participant's discharge for cause (excluding general
dissatisfaction with the performance of the Participant's
duties, but including any act of disloyalty or any conduct
clearly tending to bring discredit upon the Company or any
Affiliate), any unexercised portion of the Option shall
immediately terminate and be void.
11. Rights in the Event of Death. If an employee dies during
the term of this Option, his/her legal representative or
representatives, or the person or persons entitled to do so
under the employee's last will and testament or under
applicable intestate laws, shall have the right to exercise
this Option, but only for the number of shares as to which the
employee was entitled to exercise this Option on the date of
his death, and such right shall expire and this Option shall
terminate twelve (12) months after the date of Grantee's death
or on the expiration date of this Option, whichever date
is sooner. In all other respects, this option shall terminate
upon such death.
12. Leaves of Absence. For purposes of the Plan, an employee
on approved leave of absence from the Company shall be
considered as currently employed for 90 days following
beginning the leave or for so long as his/her right to
reemployment is guaranteed by statute or contract, whichever is
longer.
13. Effect of Change in Stock Subject to Plan. In the event
that outstanding common shares are hereafter changed by reason
of reorganization, consolidation, recapitalization,
reclassification, stock split, combination of shares, stock
dividends and the like, the Board shall make adjustments as it deems
appropriate in the number and/or kind of shares or securities
for which Options may thereafter be granted under the Plan and
for which Options then outstanding under this Plan may
thereafter be exercised. Any such adjustment in outstanding
Options shall be made without changing the aggregate
exercise price applicable to the unexercised portions of such
Options. Such adjustments shall be made by or under
authority of the Company's Board whose determinations as to
what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
14. Corporate Reorganizations. Following the merger of one or
more corporations into the Company, or any consolidation
of the Company and one or more corporations in which the
Company is the surviving corporation, the exercise of
Options under this Plan shall apply to the surviving
corporation.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a
result of which the outstanding securities of the class then
subject to Options hereunder are changed into or exchanged for
cash or property or securities not of the Company's issue, or
upon a sale of substantially all of the property of the Company
to, or the acquisition of stock representing more than eighty
percent (80%) of the voting power of the stock of the Company
then outstanding by another corporation or person, the Plan
shall terminate, and all Options theretofore granted hereunder
shall terminate, unless provision be made in writing in
connection with such transaction for the continuance of the
Plan and/or for the assumption of Options theretofore granted,
or the substitution for such Options of Options covering the
stock of a successor employer corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices, in which event the Plan
and Options theretofore granted shall continue in the manner
and under the terms so provided. If the Plan and unexercised
Options shall terminate pursuant to the foregoing sentence, all
persons entitled to exercise any unexercised portions of
Options then outstanding shall have the right, at such time
prior to the consummation of the transaction causing such
termination, as the Company shall designate, to exercise the
unexercised portions of their Options, including the portions
thereof which would, but for this paragraph entitled "Corporate
Reorganizations," not yet be exercisable.
15. Agreement and Representation of Employees.
(a) Acquiring Stock for Investment Purposes. As a condition to
the exercise of any Option, the Company may require the person
exercising such Option to represent and warrant at the time of
such exercise that any shares of Stock acquired at exercise are
being acquired only for investment and without any present
intention to sell or distribute such shares if, in the opinion
of Company's counsel, such representation is required or
desirable under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.
(b) Withholding. With respect to the exercise of any Option
granted under this Plan, each Participant shall fully and
completely consent to whatever the Board directs to satisfy the
federal and state tax withholding requirements, if any, which
the Board in its discretion deems applicable to such exercise.
(c) Delivery. The Company is not obligated to deliver any
common shares until there has been qualification under or
compliance with all state or federal laws, rules and
regulations deemed appropriate by the Company. The Company
will use all reasonable efforts to obtain such qualification
and compliance.
16. Financial Assistance. The Company is vested with authority
under the Plan to assist, within the Company's discretion,
any employee to whom an Option is granted hereunder (including
any director or officer of the Company or any of its
Affiliates who is also an employee) in the payment of the
purchase price payable on exercise of that Option by lending
the amount of such purchase price to such employee on such
terms and at such rates of interest and upon such security
(or unsecured) as shall have been authorized by or under
authority of the Board.
17. Amendment and Termination of Plan. The Board, by
resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been
granted; provided however, that any amendment that would: (i)
increase the aggregate number of shares of common stock that
may be issued under the Plan; (ii) materially increase the
benefits accruing to Participants; or (iii) materially modify
the requirements as to eligibility for participation in the
Plan, shall be subject to shareholder approval within 12 months
before or after adoption. It is expressly contemplated
that the Board may amend the Plan in any respect necessary to
provide employees with the maximum benefits available
under and/or to satisfy the requirements of or amendments to
Section 422 of the Code.
No termination, modification or amendment of the Plan may
however, alter or impair the rights conferred by an
Option previously granted in any respect that is adverse to the
Participant without the consent of the Participant to
whom the Option was previously granted.
Unless sooner terminated, the Plan shall remain in effect for a
period of ten years from the date of the Plan's
adoption by the Board.
18. Use of Proceeds. The proceeds from the sale of shares
pursuant to Options granted under the Plan shall constitute
general funds of the Company.
19. Effective Date of Plan. The Effective Date of this Plan is
March 15, 1996, the date it was adopted by the Board, provided
the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. Any Options granted
under this Plan prior to the date of shareholder approval shall
be deemed to be granted subject to such approval. Should
shareholder approval not be obtained within twelve (12) months,
any Options granted pursuant to the Plan shall be null and
void.
20. Indemnification of Committee. In addition to such other
rights of indemnification as they may have and subject to
limitations of applicable law, the members of the Committee
shall be indemnified by the Company against all costs and
expenses reasonably incurred by them in connection with any
action, suit or proceeding to which they or any of them
may be a party by reason of any action taken or failure to act
under or in connection with the Plan or any rights granted
thereunder and against all amounts paid to them in settlement
thereof or paid by them in satisfaction of a judgment of
any such action, suit or proceeding, the Board or Committee
member or members shall notify the Company in writing,
giving the Company an opportunity at its own cost to defend the
same before such Committee member or members undertake to
defend the same on their own behalf.
21. Information Requirements. The Company shall provide each
Participant with annual financial statements.
22. Governing Law. The Plan shall be governed by, and all
questions arising hereunder, shall be determined in accordance
with the laws of State of California as such laws are applied
to agreements between California residents entered into
and to be performed entirely within California.
