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__ No fee required
___ $125 per Exchange Act Rules O-11(c)(1)(ii),14a-6(i)(2) or Item 22(a)(2) of
Schdule 14A.
___ Fee computed on table below per Exchange 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:
-----------------------------------------------------
___ Fee paid previously by written pelimianry materials.
___ 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:_________________________________________
<PAGE>
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
--------------------------
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND PROXY STATEMENT
October 23, 1997
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 Thursday, October 23, 1997 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 consider and vote upon a proposal to amend the
Company's 1996 Stock Option Plan to increase the
number of shares available for issuance under the
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 8,
1997, 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
Secretary
Sebastopol, California
September 26, 1997
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING
IN PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE
MEETING, YOU ARE URGED TO VOTE, SIGN, AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE
ENCLOSED FOR THAT PURPOSE.
<PAGE>
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
--------------------------
PROXY STATEMENT
For Annual Meeting of Shareholders
October 23, 1997 10:00a.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 Thursday, October 23, 1997 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 shares in person. This mailing of
Proxy Statements and Proxy cards commenced approximately September 26, 1997.
Voting
The Board of Directors has fixed the close of business on September 8,
1997, 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 8, 1997, 1,642,757 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.
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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 1998 annual meeting of Shareholders must be received by the Company no
later than June 1, 1998 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 8, 1997 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)
<TABLE>
<CAPTION>
Amount of Direct Common Percent
Name and Address of Beneficial Owner Stock Beneficial Ownership of Class(b)
<S> <C> <C>
Catherine D. Boothe(c) 170,000 10.4%
33 San Carlos
Sausalito, CA 94965
Craig R. Stapleton(d) 271,866 16.7%
135 East Putnam Avenue
Greenwich, CT 06830
</TABLE>
(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 8, 1997 1,642,757 shares of Common Stock were
issued and outstanding. (c) Includes 20,000 shares owned by the
estate of D. P. Boothe, Jr., of which Mrs. Boothe is a co-executor.
(d) Includes 136,866 shares owned by Mr. Stapleton or trusts for the
benefit of Mr. Stapleton , 45,100
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shares as trustee of a trust of which Mr. Stapleton is a residual
beneficiary, 29,400 as trustee of a trust for the benefit of his
children and certain other relatives 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 18,000 shares owned by a
foundation of which Mr. Stapleton's mother is trustee and 21,000 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, Named Executive Officers and all directors and executive officers as
a group as of September 8, 1997.
Amount of Common Shares
Name of Beneficial Owner Beneficially Owned (a) Percent of Class (b)
Kenneth P. Gill 45,100(c) 2.7%
Gary L. Hess 67,736(d) 4.1%
Edward Koplovsky 37,866 2.3%
Roger S. Mertz 51,516(e) 3.1%
Craig R. Stapleton 271, 866(f) 16.7%
Donal Sugrue 28,790(g) 1.8%
All directors and executive 517,510 31.5%
officers as a group (9 persons)
(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 1,642,757 shares of Common Stock outstanding as of
September 8, 1997.
(c) 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.
(d) Includes 23,000 shares owned directly and 44,736 shares that are
exercisable as of September 8, 1997 or that will become exercisable
within 60 days thereafter.
(e) 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 to which Mr. Mertz disclaims
any beneficial interest.
(f) Includes 135,866 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 certain other relatives 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 18,000
shares owned by a foundation of which Mr. Stapleton's mother is trustee
and 21,000 shares owned directly and beneficially by Mr.
Stapleton's mother.
(g) Includes 28,790 shares held by the Sugrue 1992 Family Trust, of which
Mr. Sugrue is a trustee.
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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 1996 Annual Meeting.
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.
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.
<TABLE>
<S> <C> <C>
Name, Position and Background Age Director Since
<S> <C> <C>
Kenneth P. Gill, Director. Mr. Gill is retired. Formerly he was Assistant to 71 1972
the Chairman (July - December 1990) and President and Chief Executive
Officer of the Company (1972-1990).
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Gary L. Hess, President and Chief Executive Officer and Director. Mr. Hess 45 1996
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).
Edward Koplovsky, Director. Mr. Koplovsky is Chairman and Chief 58 1993
Executive Officer of Clermont, Inc., a specialty fruit processing concern.
Roger S. Mertz, Director. Mr. Mertz is an attorney-at-law. He is a member 53 1993
of the San Francisco, California law firm of Severson & Werson.
Craig R. Stapleton, Director. Mr. Stapleton is President of Marsh & 52 1995
McLennan, Real Estate Advisors, Inc. (real estate management). Mr.
Stapleton is a Director of Allegheny Properties, Inc. (real estate investments)
and T.B. Woods Corporation (industrial power transmission products).
Donal Sugrue, Director. Mr. Sugrue is retired. Formerly he was President 66 1982
and Chief Executive Officer of the Company (1990-1996).
</TABLE>
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 1997
all filing requirements applicable to its executive officers, directors, and
greater than ten-percent beneficial owners were complied with except that Mr.
Sugrue filed late one Form 4.
Board Committees and Meetings
The Board of Directors met six times during the fiscal year ending June
30, 1997. The Company's Board of Directors has authorized three 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 and Retirement Plan Committee. The functions of the
Compensation and Retirement Plan Committee are to develop and recommend to the
full Board compensation arrangements, including bonuses, stock options, and
stock appreciation rights, for Executive Officers and other key employees; to
advise the chief executive officer on policy matters concerning officers'
compensation, to direct the management of the Company's Retirement, Savings and
Profit Sharing Plan and to administer the 1996 Stock Option Plan. The
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members of the committee are Messrs. Gill (Chairman), Koplovsky and Sugrue.
The Compensation and Retirement Plan Committee held three meetings 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 members of the committee are
Messrs. Mertz (Chairman), Stapleton and Sugrue. The Audit Committee held one
meeting during the fiscal year.
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 the Chief Executive Officer 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 any such executive officer did not exceed
$100,000 for services rendered in all capacities during fiscal year 1997.
Compensation data is shown for the fiscal years ended June 30, 1997, 1996 and
1995. This information includes the dollar value of base salaries, bonus awards,
the number of SARs granted, and certain other compensation, if any, whether paid
or deferred.
<TABLE>
<CAPTION>
Summary Compensation Table(a)
=======================================================================================================================
<S> <C> <C>
Long Term All Other
Annual Compensation Compensation Compensation(b)
Awards
<S> <C> <C> <C> <C> <C>
Name and Principal Position Year Salary($) Bonus($) Options/SARs (#) ($)
Gary L. Hess(c) 1997 150,000 47,500 3,589(b)
President and Chief Executive 1996 25,000 -0- 89,474 -0-
Officer 1995 -0- -0- -0- -0-
</TABLE>
(a) Amounts shown include cash and non-cash compensation earned with
respect to the year shown above.
(b) All other Compensation includes $3,375 contributed by the Company with
respect to Mr. Hess to the Company's 401(k) plan and Life Insurance
payment of $214 which calculated as compensation by multiplying the
portion of benefit payable to Mr. Hess' estate by the premium paid in
the fiscal year.
(c) Mr. Hess was appointed President and Chief Executive Officer
on May 1, 1996.
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Incentive and Remuneration Plans
Stock Appreciation Rights Plan. In 1985 the Shareholders of the Company
approved the adoption of a Stock Appreciation Rights Plan (the "SAR Plan"). The
SAR Plan was adopted to reward participants for past services and to encourage
them to remain in the Company's service by offering participants an opportunity
to participate in any appreciation in the market value of the Company's Common
Stock.
Employee Bonus Plan. The Company maintains a Bonus Plan as an incentive
to key employees of the Company. The bonus an employee receives is dependent on
individual performance and level of responsibility as well as the achievement by
the Company of a threshold level of return on shareholders' equity. In fiscal
1997 the Company did not achieve the minimum threshold and no bonuses were
earned or paid under the plan.
Stock Participation and Option Plans
1994 Employee Stock Purchase Plan. In 1994 the Shareholders 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 15% from the market price of the shares. The
maximum aggregate number of shares to be offered under the Plan is 100,000
shares of the Company's Common Stock. As of June 30, 1997, 43,159 shares of the
Company's Common Stock have been issued under the Plan.
1996 Stock Option Plan. The Company's 1996 Stock Option Plan, which was
approved by the Shareholders at the 1996 Annual Meeting (the "Option Plan"), is
intended to advance the interests of the Company by inducing persons of
outstanding ability and potential to join and remain with the Company by
enabling them to acquire proprietary interest in 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. No options were granted under the Plan in Fiscal 1997. As of September 8,
1997, options to purchase 89,474 of the 90,000 authorized shares have been
issued under the Option Plan.
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
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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.
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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.
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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.
Compensation of Directors
Outside Directors receive $300 per month for serving as Directors, $600
for each Board meeting attended, $400 for each telephone call Board meeting
($200 if less than 30 minutes), and $400 for each committee meeting attended.
Directors' fees paid by the Company during fiscal year 1997 totaled $43,800.
Executive Officers of the Company who also serve on the Board of Directors are
not specifically compensated for duties as directors.
The San Francisco law firm of Severson & Werson, of which Mr. Mertz is
a member, served as the Company's legal counsel during fiscal 1997 and is
expected to be retained through fiscal 1998.
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. 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.
Compensation and Retirement Plan Committee Report
This report is provided by the Compensation and Retirement Plan
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.
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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. In 1995 the Company implemented a
salary freeze in response to reduced sales and profits which lasted until fiscal
1997.
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.
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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.
1997 Chief Executive Officer Compensation
Mr. Hess' base salary for fiscal 1997 was $150,000. In addition, Mr.
Hess earned aggregate bonuses of $47,500 based on meeting certain Company
objectives. Such bonuses were paid in fiscal 1998. During the fiscal year
ending June 30, 1997, Mr. Hess also received a total of $3,375 as a contribution
to the Company's 401(k) plan. The Committee believes Mr. Hess' total
compensation package is appropriate for Mr. Hess' level of responsibility and is
well within competitive practice.
Compensation Committee:
Kenneth P. Gill
Edward Koplovsky
Donal Sugrue
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 Ampal
American Israel, Class B, H.J. Heinz Co., Odwalla Inc., Seneca Foods Corp. Class
B, J.M. Smucker Co. Class A, Stokeley U.S.A. Inc., Unimark Group, 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, 1992. The total return indices reflect
reinvested dividends and are weighted on a market capitalization basis at the
time of each reported data point.
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Performance Graph
[Space for graph]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year (June 30) 1992 1993 1994 1995 1996 1997
- -------------- ------ ------ ------ ------ ---- ----
Vacu-dry Company $100.00 $135.71 $132.88 $ 82.12 $ 76.64 $ 69.34
NASDAQ Market Index $100.00 $122.76 $134.61 $ 157.88 $198.73 $239.40
Peer Index $100.00 $ 99.05 $ 90.44 $126.89 $134.00 $200.50
</TABLE>
PROPOSAL 2
ADOPTION OF AN AMENDMENT TO THE 1996 STOCK OPTION PLAN
Proposal
The shareholders are being requested to consider and act upon a
proposal to amend Section 4 of the Company's 1996 Stock Option Plan (the "Plan")
to increase the aggregate number of shares of Common Stock for purchase pursuant
to the Plan from 90,000 to 150,000 shares. The Board of Directors of the
Company, at its August 19, 1997 meeting, approved a resolution proposing to
amend the Plan conditioned upon shareholder approval. The affirmative vote of
the holders of a majority of the shares represented and voting at the meeting is
required for approval.
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. For information concerning the
operation of the Plan, see Stock Participation and Option Plans - 1996 Stock
Option Plan, above. Presently there are approximately 51 persons eligible to
participate in the Plan.
If the proposed amendment is approved by the shareholders, 60,000
additional shares of Common Stock may be issued, subject to adjustment for
certain changes in capitalization. As of the date hereof, options to purchase
89,474 shares had been issued under the Plan. The number of units and dollar
value of future grants under the Plan are not determinable.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2
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, 1997, 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 8, 1997.
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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
/s/ Esther K. Castain
Esther K. Castain
Secretary
September 26, 1997
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<PAGE>
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
PROXY
This Proxy is solicited on behalf of the Board of Directors. The
undersigned hereby appoints Gary L. Hess and Roger S. Mertz, or either of them,
with full power of substitution, as Proxies of the undersigned to attend the
Annual Meeting of Shareholders of Vacu-dry Company to be held on Thursday,
October 23, 1997, and any adjournment thereof, and to vote the number of shares
the undersigned would be entitled to vote if personally present as indicated
below.
1. Election of Directors.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
all (except as marked to the contrary below) nominees listed below
(Instructions: To withhold authority to vote for any individual
nominee strike a line through the nominee's name in the list below.)
Kenneth P. Gill; Gary L. Hess, Edward Koplovsky;
Roger S. Mertz; Craig R. Stapleton; Donal Sugrue
2. To approve an amendment to the Company's 1996 Stock Option Plan to
increase the authorized number of shares from 90,000 to 150,000.
[ ] FOR approving the amendment [ ] AGAINST approving the amendment
to the 1996 Stock Option Plan to the 1996 Stock Option Plan
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 and 3.
The undersigned hereby acknowledge receipt of (a) Notice of Annual
Meeting of Shareholders to be held October 23, 1997, (b) the accompanying Proxy
Statement, and (c) the Annual Report of the Company for the fiscal year ended
June 30, 1997.
Please sign exactly as shares are registered. When shares are held by
joint tenants, both should sign. When signed as attorneys, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
Dated: ______________________, 1997 _____________________________
Signature
-----------------------------
Signature (if held jointly)
