SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
[X] Filed by Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to s. 240.14a-11(c) or s. 240.14a-12
VACU-DRY COMPANY
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GARY L. HESS, PRESIDENT, VACU-DRY COMPANY
(NAME OF PERSON(S) FILING THE PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computer on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11*: N/A
4) Proposed maximum aggregate value of transaction: N/A
*Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE>
VACU-DRY COMPANY
7765 Healdsburg Avenue
Sebastopol, California 95472
--------------------------
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND PROXY STATEMENT
October 22, 1998
----------------
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 22, 1998 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 amend the By-Laws to provide for a change in the authorized number
of directors.
2. To elect five (5) directors to serve for the ensuing year and until
their successors are elected.
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,
1998, 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 25, 1998
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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 22, 1998 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 22, 1998 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 25, 1998.
Voting
The Board of Directors has fixed the close of business on September 8,
1998, 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, 1998, 1,511,079 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 (five). 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 1999 annual meeting of Shareholders must be received by the Company no
later than June 1, 1999 in order to be included in the proxy statement and proxy
relating to that meeting.
<PAGE>
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, 1998 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)
- ------------------------------------ -------------------------- -----------
Craig R. Stapleton(c) 328,986 21.8%
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 8, 1998 1,511,079 shares of Common Stock were issued
and outstanding.
(c) Includes 193,936 shares owned by Mr. Stapleton or trusts for the
benefit Mr. Stapleton, 45,150 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 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.
<PAGE>
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 August 31, 1998.
Amount of Common Shares
Name of Beneficial Owner Beneficially Owned (a) Percent of Class (b)
Kenneth P. Gill -0- -0-
Gary L. Hess 95,333(c) 6.1%
Edward Koplovsky 7,866 2.5%
Roger S. Mertz 51,516(d) 3.4%
Craig R. Stapleton 328,986(e) 21.8%
Donal Sugrue 28,790(f) 1.9%
All directors and executive
officers as a group (8 persons)
551,982 36.5%
- --------------------------------
* 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 1,511,079 shares of Common Stock outstanding as of
September 8, 1998.
(c) Includes 25,278 shares owned directly and 67,107 vested stock options.
Also includes 2,950 owned by Mr.Hess' wife in trust to which Mr. Hess
disclaims any beneficial interest.
(d) 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.
(e) Includes 193,936 shares owned by Mr. Stapleton or trusts for the
benefit Mr. Stapleton, 45,150 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 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.
(f) Includes 28,790 shares held by the Sugrue 1992 Family Trust, of which Mr.
Sugrue is a trustee.
In Fiscal 1998, the Board approved the repurchase of an aggregate of
45,000 shares of the Company's common stock at a price of $6.00 per share from
two trusts of which Mr. Gill is the trustee. The repurchase consisted of 42,000
shares held by the Kenneth P. Gill and Mary Margaret Gill Revocable Trust of
which Mr. Gill is also a beneficiary, and 3,100 shares held by the Kenneth
and Mary Gill Grandchild Trust. The Company purchased the shares from the two
trusts in exchange for five year subordinated promissory notes at the rate of
interest of eight and one-half percent (8-1/2%) per annum. The notes provide
for the principal to be paid in a single instalment on January 20, 2003.
<PAGE>
PROPOSAL 1
AMENDMENT TO BY-LAWS CHANGING NUMBER OF DIRECTORS
The Shareholders are being requested to consider and act upon a
proposal to amend Article II, Section 2.2 of the Company's By-Laws, which
currently provide for a fixed number of seven (7) Directors. The Company deems
it advisable to make the Board of Directors more immediately responsive to the
stockholder's interest and has determined that it can operate most efficiently
with a minimum of five (5) Directors. The Company will present at the Annual
Meeting a proposal for the adoption by Shareholders of an amendment to its
By-Laws to provide for a minimum of five (5) and a maximum of nine (9)
Directors. The exact number of authorized Directors, within the stated minimum
and maximum, shall be fixed at five (5) until amended by the Board or
Shareholders.
Shareholder approval of this item will allow the Company to pursue the
efficient management of its operations. The approval of Proposal 1 requires the
affirmative vote of a majority of the outstanding shares entitled to vote. If
the Proposal fails to obtain the required number of votes, there will be two
vacancies on the Board of Directors, and 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. The text of Article II, Section 2.2 as proposed to be
amended is as follows:
Section 2.2 Number of Directors. The authorized number of
Directors of the corporation shall be not less than five (5) nor more
than nine (9) until changed by an amendment of the Articles of this
section duly adopted by the Shareholders. The exact number of Directors
shall be fixed, within the limits specified, by the Board or the
Shareholders in the same manner provided for in these Bylaws. The exact
number of Directors shall the five (5) until changed by the Board as
provided in this Section 2.2. No reduction of the authorized number of
Directors shall have the effect of removing any Director before that
Director's term of office expires.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1
<PAGE>
PROPOSAL 2
ELECTION OF DIRECTORS
At the Annual Meeting, five (5) 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 five 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 1997 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 five 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
----------------------------- --- --------------
Gary L. Hess, President and Chief Executive Officer and Director. Mr. Hess was 46 1996
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 Cadace 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 Executive 59 1993
Officer of Clermont, Inc., a specialty fruit processing concern.
Roger S. Mertz, Director. Mr. Mertz is an attorney-at-law. He is a member of 54 1993
the San Francisco, California law firm of Severson & Werson.
Craig R. Stapleton, Director. Mr. Stapleton is President of Marsh & McLennan, 53 1995
Real Estate Advisors, Inc. (real estate management). Mr Stapleton is a
director of Allegheny Properties, Inc. (real estate investments), T.B. Woods
Corporation (industrial power transmission products), Cornerstone Properties
(real estate investments), and Cendant Corp. (consumer and business services).
Donal Sugrue, Director. Mr. Sugrue is retired. Formerly he was President 67 1982
and Chief Executive Officer of the Company (1990-1996).
</TABLE>
<PAGE>
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 1998
all filing requirements applicable to its executive officers, directors, and
greater than ten-percent beneficial owners were complied with except that Mr.
Stapleton filed three late Forms 4, Mr. Hess filed late two Forms 4, and Ms.
Castain filed late one Form 4.
Board Committees and Meetings
The Board of Directors met seven times during the fiscal year ending
June 30, 1998. 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 one meeting 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 members of
the committee are Messrs. Gill (Chairman), Koplovsky and Sugrue. The
Compensation and Retirement Plan 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 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.
<PAGE>
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
$100,000 for services rendered in all capacities during fiscal year 1998.
Compensation data is shown for the fiscal years ended June 30, 1998, 1997 and
1996. This information includes the dollar value of base salaries, bonus awards,
the number of SARs granted, and certain other compensation, if any, whether paid
or deferred.
<TABLE>
<CAPTION>
Summary Compensation Table(a)
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<S> <C> <C> <C> <C> <C>
Long Term All Other
Annual Compensation Compensation Awards Compensation
Name and Principal Position Year Salary($) Bonus($) Options/SARs (#) ($)
==================================== ======== ============== ============= ======================= ====================
Gary L. Hess(e) 1998 160,000 80,000 9,627(b)
Presidentand Chief Executive Officer 1997 150,000 47,500 3,375(c)
1996 25,000 -0- 89,474 -0-
Thomas R. Eakin(f) 1998 97,207 9,900 -0- 4,374(d)
Vice President Finance and Chief 1997 90,000 -0- -0- 4,050(d)
Financial Officer 1996 87,219 -0- -0- 3,925(d)
</TABLE>
- ---------------------------
(a) Amounts shown include cash and non-cash compensation earned with respect to
the year shown above.
(b) All other Compensation includes $9,413 contributed by the Company with
respect to Mr. Hess to the Company's 401(k) plan and a Life Insurance
payment of $214 which is calculated as compensation by multiplying the
portion of benefit payable to Mr. Hess' estate by the premium paid in the
fiscal year.
(c) Includes $3,375 contributed by the Company with respect to the Company's
401(k) plan and a Life Insurance payment of $214.
(d) Contributed by the Company with respect to Mr. Eakin to the Company's
401(k) plan.
(e) Mr. Hess was appointed President and Chief Executive Officer on May 1,
1996.
(f) Mr. Eakin was appointed Vice President Finance and Chief Financial Officer
in 1987.
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 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
1998, $206,207 in bonuses were earned 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, 1998, 50,581 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,
1998, 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 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.
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 1998 totaled $41,600.
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 1998 and is
expected to be retained through fiscal 1999.
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 Chief 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.
<PAGE>
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.
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.
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.
1998 Chief Executive Officer Compensation
Mr. Hess' base salary for fiscal 1998 was $160,000. In addition, Mr. Hess
earned aggregate bonuses of $80,000 based on meeting certain company objectives.
Such bonuses will be paid in fiscal 1999. During the fiscal year ending June 30,
1998, Mr. Hess also received a total of $17,964 as a contribution to the
Company's 401(k) plan and Profit Sharing 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
<PAGE>
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, 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.
Performance Graph
[GRAPHIC OMITTED]
Year (June 30) 1993 1994 1995 1996 1997 1998
- -------------- ---- ----- ---- ---- ---- ----
Vacu-dry Company $100.00 $ 97.91 $ 49.74 $ 56.47 $ 48.40 $ 80.66
NASDAQ Stock Market $100.00 $100.96 $134.77 $173.03 $210.38 $277.69
Peer Index $100.00 $ 91.74 $128.91 $136.69 $202.89 $249.13
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, 1998, were Arthur Andersen & Co. Arthur Andersen & Co. 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, 1998.
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
Secretary
September 25, 1998
<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 22, 1998, 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. Proposal to amend the Company's By-Laws to provide for a change in the
authorized number of directors of the Company.
[ ] FOR approving the amendment [ ]AGAINST approving the amendment
to the By-laws to the By-Laws
2. Election of Directors.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominee listed
below
(Instructions: To withhold authority to vote for any individual nominee strike
a line through the nominee's name in the list below.)
Gary L. Hess; Edward Koplovsky; Roger S. Mertz; Craig R. Stapleton; Donal Sugrue
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 22, 1998, (b) the accompanying Proxy
Statement, and (c) the annual report of the Company for the fiscal year ended
June 30, 1998.
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: ______________________, 1998 _____________________________
Signature
-----------------------------
Signature (if held jointly)
