<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. __ )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Celestial Seasonings, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------
3) Per-unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated
and state how it was determined):
------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------
5) Total fee paid:
------------------------------------------------
[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------
3) Filing Party:
------------------------------------------------
4) Date Filed:
------------------------------------------------
<PAGE>
[LOGO OF CELESTIAL SEASONINGS]
CELESTIAL SEASONINGS, INC.
4600 SLEEPYTIME DRIVE
BOULDER, COLORADO 80301
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 11, 1999
----------------
To the Stockholders of Celestial Seasonings, Inc.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders (the
"Meeting") of Celestial Seasonings, Inc., a Delaware corporation (the
"Company"), will be held on Thursday, February 11, 1999, at 2:30 p.m., (MST),
at Celestial Seasonings, Inc., 4600 Sleepytime Drive, Boulder, Colorado 80301,
for the following purposes:
1) To elect three Class II directors to serve until the 2002 Annual
Meeting of Stockholders, and until their successors are duly elected
and qualified; and
2) To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending September 30, 1999; and
3) To transact such other business as may properly come before the
meeting or any adjournments thereof.
These matters are more fully described in the accompanying Proxy Statement.
The Board of Directors of the Company fixed the close of business on December
18, 1998, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting. Only holders of the Company's common
stock, $.01 par value per share, at the close of business on the record date
are entitled to notice of, and to vote at, the Meeting. A complete list of
stockholders entitled to vote at the Meeting will be available during normal
business hours for examination by any stockholder, for purposes related to the
Meeting, for a period of ten days prior to the Meeting, at the Company's
corporate offices located at 4600 Sleepytime Drive, Boulder, Colorado 80301.
You are cordially invited to attend the Meeting. Whether or not you plan to
attend the Meeting in person, please complete, date and sign the accompanying
proxy card and return it promptly in the enclosed envelope to ensure that your
shares, regardless of the size of your holdings, are represented and voted in
accordance with your wishes. If you choose, you may still vote in person at
the Meeting even though you previously submitted your proxy.
By order of the Board of Directors
Darrell F. Askey,
_____________________________________
Vice President--Finance and
Chief Financial Officer
Boulder, Colorado
January 15, 1999
<PAGE>
[LOGO OF CELESTIAL SEASONINGS]
CELESTIAL SEASONINGS, INC.
4600 SLEEPYTIME DRIVE
BOULDER, COLORADO 80301
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 11, 1999
----------------
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies by and on behalf of the Board of
Directors (the "Board of Directors") of Celestial Seasonings, Inc., a Delaware
corporation, to be used at the 1999 Annual Meeting of Stockholders of the
Company to be held on Thursday, February 11, 1999, at 2:30 p.m. (MST), at
Celestial Seasonings, Inc., 4600 Sleepytime Drive, Boulder, Colorado 80301,
and at any adjournment or postponement thereof. This Proxy Statement and the
accompanying proxy card are first being mailed to the holders of the Company's
common stock, $.01 par value per share (the "Common Stock"), on or about
January 15, 1999.
Stockholders of the Company represented at the Meeting will consider and
vote upon (i) the election of three Class II directors, to serve until the
2002 annual meeting of stockholders, and until their successors are duly
elected and qualified, (ii) the ratification of the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the year ending September
30, 1999, and (iii) such other business as may properly come before the
Meeting and as to which notice has not been received by the Company on or
prior to January 25, 1999. The Company is not aware of any other business to
be presented for consideration at the Meeting.
VOTING AND SOLICITATION OF PROXIES
Only holders of record of the Common Stock at the close of business on
December 18, 1998 (the "Record Date") will be entitled to notice of, and to
vote at, the Meeting. As of the Record Date, there were 8,325,896 shares of
Common Stock outstanding. Each stockholder is entitled to one vote for each
share held on the Record Date on all matters which may come before the
Meeting. The presence, in person or by proxy, of the holders of a majority of
the shares of Common Stock entitled to vote at the Meeting is necessary to
constitute a quorum for the conduct of business at the Meeting.
Any proxy given pursuant to this solicitation is revocable at any time
prior to being voted at the Meeting. A written revocation must be mailed to
the Secretary of the Company and received prior to the Meeting. Any record
holder who attends the Meeting may vote in person, thereby revoking any
previously executed proxy. All shares represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted at the
Meeting in accordance with the directions on the proxies. If no direction is
indicated, the shares will be voted in favor of the Board of Directors'
nominees for director, and for the ratification of Deloitte & Touche LLP as
independent auditors as listed in this Proxy Statement. The persons named in
the proxies will have discretionary authority to vote all proxies with respect
to additional matters that are properly presented for action at the Meeting.
<PAGE>
This proxy solicitation is made by and on behalf of the Board of Directors.
Solicitation of proxies for use at the Meeting may be made in person or by
mail, telephone or telegram, by directors, officers and regular employees of
the Company. Such persons will receive no additional compensation for any
solicitation activities. The Company will request banks and brokers to solicit
their customers who beneficially own shares listed of record in names of
nominees, and will reimburse those banks and brokers for their reasonable out-
of-pocket expenses in connection with such solicitation. The Company will bear
all expenses of this Proxy Statement, the enclosed form of proxy, and of
soliciting proxies.
ELECTION OF DIRECTORS
At the Meeting, stockholders will elect three Class II directors, who will
serve until the Company's 2002 annual meeting, or until the director's
respective successor has been elected and qualified or until the director's
earlier resignation or removal. The shares represented by the proxy card will
be voted in favor of the election of the nominees listed below unless
authorization to do so is withheld. In the event that any of the nominees
should be unavailable to serve as director, which is not presently
anticipated, it is the intention of the persons named in the proxy card to
select and cast the shares represented by proxies for the election of such
other person or persons as the Board of Directors may designate.
Directors of the Company are elected by a plurality of the shares voting in
the election of directors. Thus, the three nominees receiving the highest
number of votes will be elected. Abstentions and broker non-votes will have no
effect on the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES IDENTIFIED BELOW.
INFORMATION CONCERNING THE NOMINEES
Set forth below is the name of each nominee for election to the Board of
Directors, his age, his principal occupation for at least the past five years,
and the period during which he has served as a director. Each nominee is
currently a director of the Company.
Nominees for Class II directors (terms expiring in 2002)
Ronald V. Davis, 51, has served as a director of the Company since 1993.
Mr. Davis is Chairman of Davis Capital, LLC, a private investment firm.
From 1992 to 1994 he was Chairman of Perrier Group of America, Inc., a
leading beverage manufacturer and distributor, and from 1980 to 1992 he was
President and Chief Executive Officer of Perrier America.
John D. Howard, 46, has served as a director of the Company since 1988.
Since 1997, Mr. Howard has been a Senior Managing Director and head of
Merchant Banking at Bear, Stearns & Co., Inc., an investment banking firm.
From 1990 to 1996 he was Co-Chief Executive Officer of Vestar Capital
Partners, Inc. ("Vestar"), a private investment firm. Prior to joining
Vestar in 1990, he had been, since 1985, a Senior Vice President of Wesray
Capital Corporation, a private investment firm. Mr. Howard is a director of
Safety-First Corporation, Dyersburg Fabrics, Inc., M.S.S. Delaware and
Nice-Pak Products, Inc.
Gregg A. Ostrander, 45, has served as a director of the Company since
1998. Mr. Ostrander is Chief Executive Officer of Michael Foods, Inc., a
food processor, a position he has held since 1994. During 1993 he was Chief
Operating Officer of Michael Foods. Mr. Ostrander was President of Armour
Swift-Eckrich Inc., a Division of Con-Agra, Inc., a diversified food
products company, from 1990 to 1993. From 1985 to 1990 Mr. Ostrander held
the positions of Vice President--Marketing and Senior Vice President--
Marketing at Armour Swift-Eckrich, Inc. Mr. Ostrander is a director of
Arctic Cat, Inc.
2
<PAGE>
Incumbent Class III directors (terms expiring in 2000)
James P. Kelley, 44, has served as a director of the Company since 1988.
Mr. Kelley is a Managing Director of Vestar. Prior to the founding of
Vestar in 1988, he was a Vice President of The First Boston Corporation, an
investment banking firm. Mr. Kelley is a director of the Westinghouse Air
Brake Company and Reid Plastics, Inc.
Mo Siegel, 49, has served as a director of the Company since 1988 and as
Chairman of the Board since 1991. He founded Celestial Seasonings in 1970
and was President and Chairman of the Board until 1986. From 1986 until
1990, Mr. Siegel was involved in private investments and not-for-profit
activities, and from 1990 until 1991 was a founder and Chief Executive
Officer of Earth Wise, Inc., a marketer of environmentally friendly
products. He served as Chief Executive Officer of the Company from 1991 to
1997. Mr. Siegel is a director of Corporate Express, Inc., Wild Oats
Markets, Inc., and several privately-held companies and foundations.
Incumbent Class I directors (terms expiring in 2001)
Marina Hahn, 41, has served as a director of the Company since 1994.
Currently, Ms. Hahn is Head, Corporate Advisory Group--East Coast for the
William Morris Agency, Inc., a talent and literary agency. During 1996 she
was a Marketing/Advertising Consultant. During 1994 and 1995, Ms. Hahn was
Vice President of Advertising of Sony Electronics, Inc., a consumer
electronics manufacturer. From 1989 until joining Sony, she was the
Director of Advertising of Pepsi-Cola Company, a beverage company. From
1979 to 1989 she was employed by DDB Needham Worldwide, Inc., an
advertising agency.
Stephen B. Hughes, 44, has served as a director of the Company since
1997. He joined the Company in 1997 as President and Chief Executive
Officer. From 1992 until 1997 he held various positions including Executive
Vice President and General Manager of Marketing and Sales, and Executive
Vice President and General Manager, USA for Tropicana Dole Beverages North
America, a beverage company. Prior to Tropicana Dole, Mr. Hughes was
Executive Vice President and General Manager at Healthy Choice, a Division
of ConAgra, Inc., a diversified food products company, from 1988 until
1992.
Leonard Lieberman, 69, has served as a director of the Company since
1988. Mr. Lieberman is a retired Chairman, President and Chief Executive
Officer of Supermarkets General Corporation, one of the largest supermarket
companies in the United States and operator of Pathmark Supermarkets. Mr.
Lieberman is a director of Sonic Corporation, Republic New York
Corporation, Nice-Pak Products, Inc., Reid Plastics, Inc., and several
privately-held companies.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held four meetings during fiscal 1998. Each of the
directors attended at least 75% of the total number of such meetings and
committee meetings on which he or she served that were held during fiscal
1998.
The Board of Directors has established the following standing committees:
Compensation Committee. The principal responsibilities of the Compensation
Committee are to establish policies and periodically review matters involving
executive compensation, recommend changes in employee benefit programs, grant
stock options under the 1993 Long-Term Incentive Plan ("Incentive Plan"), and
provide counsel on key personnel selection, effective succession planning and
development programs for all corporate officers. The current members of the
Compensation Committee are Messrs. Davis (Chairman), Howard and Lieberman.
Audit Committee. The principal responsibilities of the Audit Committee are
to review the plan, scope and results of the independent audit and report to
the Board of Directors on whether financial information is fairly
3
<PAGE>
presented and whether generally accepted accounting principles are followed,
monitor the internal accounting and financial functions of the Company to
assure quality of staff and proper internal controls, and investigate
conflicts of interest, ethics and compliance with laws and regulations. The
current members of the Audit Committee are Ms. Hahn and Messrs. Kelley and
Lieberman (Chairman).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's directors, executive officers and persons who
beneficially own greater than 10% 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 (the "Commission"). Based solely upon
its review of copies of the Section 16 reports the Company has received and
representations from certain reporting persons, the Company believes that
during its year ended September 30, 1998, all of its directors, executive
officers and greater than 10% beneficial owners were in compliance with their
filing requirements, although Ms. Hahn's monthly report on Form 4 reporting
one sale transaction was filed late.
EXECUTIVE OFFICERS
Set forth below is certain information relating to the current executive
officers of the Company. Biographical information with respect to Mo Siegel
and Stephen B. Hughes is set forth under "Election of Directors" above.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Mo Siegel 49 Chairman of the Board
Stephen B. Hughes 44 Chief Executive Officer and President
Darrell F. Askey 42 Vice President--Finance and Chief Financial Officer
William Atchinson 42 General Manager--Supplements
Marie A. Gambon 46 Vice President--Human Resources
Richard Karl 38 Vice President--Operations
</TABLE>
Mr. Askey has been the Vice President--Finance since December 1995 and
Chief Financial Officer since September 1997. He joined the Company in January
1994 as Corporate Controller. Prior to joining the Company, from 1991 to 1993
he was Director of Finance at Synergen, Inc., a biotechnology company. Mr.
Askey served as Controller from 1989 to 1991 for Cholestech, Inc., a medical
diagnostics products company.
Mr. Atchinson joined the Company as General Manager--Supplements in
December 1997. Prior to joining the Company, from 1995 to 1997 he was a
Managing Partner at Business Development Network, a marketing consulting
group. From 1993 to 1995 Mr. Atchinson was Regional Brand Director at Miller
Brewing Company, an alcoholic beverages manufacturer. Prior to Miller Brewing,
Mr. Atchinson held various marketing positions at ConAgra, Inc., a diversified
food products company, Dial Corp., a consumer products company and General
Foods Corp., a food products company, over a 13 year period.
Ms. Gambon joined the Company as Vice President--Human Resources in March
1994. Prior to joining the Company, from 1992 to 1994 she was Executive
Director--Leadership and Learning of U.S. West, a telephone company. From 1991
to 1992 she was Director of the Leadership Center of U.S. West. Prior to her
employment with U.S. West, Ms. Gambon was employed by International Business
Machines, a computer hardware and software manufacturer, for 17 years.
Mr. Karl joined the Company as Vice President--Operations in April 1998.
Prior to joining the Company, from 1995 to 1998 he was Divisional Director and
General Manager at the Recreational Vehicle Division of Fleetwood Enterprises,
Inc., a producer of manufactured housing and recreational vehicles. From 1989
to 1994 Mr. Karl held various plant management positions at the Household
Products Division of The Clorox Company, a household consumer products
company.
4
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
During fiscal 1998, non-employee directors received an annual directors'
fee of $10,000, a fee of $2,000 for each meeting of the Board of Directors or
Board committee attended, and $500 for each special meeting attended, as well
as reimbursement for their costs of attending such meetings. The annual
directors' fee is paid in cash. Meeting fees are paid, at the election of the
director, in cash or Common Stock in accordance with the provisions of the
Director Plan. During 1998, all non-employee directors elected to receive
compensation for meeting fees in stock. In addition, in 1998 non-employee
directors received an option to purchase 10,000 shares of Common Stock,
reduced by any previous options received from the Director Plan. Mr. Ostrander
will receive the initial grant of an option to purchase 10,000 shares in 1999.
Commencing in 1999, non-employee directors will receive an annual grant of an
option to purchase 4,000 shares of Common Stock. Mr. Siegel, Chairman of the
Board, and Mr. Hughes, Chief Executive Officer, receive no annual fees,
meeting fees or option grants for services as directors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded by the Company to
its Chief Executive Officer and its four other most highly compensated
executive officers for services rendered during the three years ended
September 30, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING
NAME AND ------------------------- STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OTHER AWARD($) AWARDED(#) COMPENSATION(7)
------------------ ---- -------- -------- ------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mo Siegel
Chairman of the Board.. 1998 $248,482 $ -- $ -- $ -- -- $9,437
1997 212,000 70,493 -- -- -- 8,945
1996 212,000 69,030 -- -- -- 8,541
Stephen B. Hughes
President and Chief
Executive 1998 309,000 157,936 42,336(3) -- -- 7,224
Officer................ 1997(1) 69,495 40,054 11,540(3) 322,500(6) 430,000 --
Darrell F. Askey
Vice President--Finance
and Chief 1998 144,406 54,256 3,542(4) -- 20,000 8,341
Financial Officer...... 1997 126,919 41,008 2,858(4) -- -- 6,911
1996 107,196 44,339 1,721(4) -- 24,104 5,376
William Atchinson
General Manager--
Supplements........... 1998(2) 126,153 60,025 31,886(5) -- 30,000 1,054
Marie A. Gambon
Vice President--Human
Resources............. 1998 115,510 43,403 -- -- 20,000 7,359
1997 109,754 31,928 -- -- -- 6,284
1996 104,990 22,325 -- -- -- 5,669
</TABLE>
- --------
(1) Mr. Hughes' employment with the Company commenced during the Company's
third quarter in 1997.
(2) Mr. Atchinson's employment with the Company commenced during the Company's
first quarter in 1998.
(3) Consists of reimbursement of relocation expenses (1998--$37,515; 1997--
$10,561) and benefits related to the Company's provision of a leased car
(1998--$4,821; 1997--$979).
(4) Consists of benefits related to the Company's provision of a leased car.
(5) Consists of reimbursement of temporary living expenses.
(6) Consists of 30,000 shares granted on June 16, 1997, with a value of
$538,125 as of September 30, 1998. The shares vest over a five year period
as follows: 20% one year from date of grant and 1-2/3% per month
thereafter. The Company has not declared any dividends in the past;
however, if a dividend were declared Mr. Hughes has the right to receive
such dividend.
(7) Consists of Company contributions pursuant to the Company's 401(k) defined
contribution plan, Company contributions pursuant to the Company's thrift
retirement plan, Company contributions to fund purchases of Common Stock
for the officer's account under the Company's employee stock ownership
plan, and premiums paid by the Company for the officer's personal term
life insurance policy.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to
the executives named in the Summary Compensation Table above during the year
ended September 30, 1998.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
--------------------------------------------------- RATES OF STOCK
NUMBER OF % OFTOTAL PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE -----------------
NAME GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
---- ----------- ------------ -------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Darrell F. Askey........ 20,000 6.9% $18.81 February 12, 2008 $103,951 $229,704
William Atchinson....... 30,000 10.4% $15.38 February 12, 2008 $127,435 $281,598
Marie Gambon............ 20,000 6.9% $18.81 February 12, 2008 $103,951 $229,704
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises
during the last fiscal year and outstanding options held as of September 30,
1998 by the executives named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
FISCAL OPTIONS AT
YEAR-END (#) FISCAL YEAR-END ($)
SHARES --------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE (1)
---- ------------ ------------ --------------- --------------------
<S> <C> <C> <C> <C>
Mo Siegel............... -- $ -- 227,940/ 0 $2,779,440/ 0
Stephen B. Hughes....... -- -- 107,499/322,501 772,649/2,317,976
Darrell F. Askey........ -- -- 15,282/ 31,522 136,053/ 101,194
William Atchinson....... -- -- 0/ 30,000 0/ 76,875
Marie Gambon............ -- -- 7,500/ 22,500 77,344/ 25,781
</TABLE>
- --------
(1) Amounts are calculated as the difference between the fair market value of
the stock underlying the options ($17.94 per share on the last trading day
of the fiscal year) and the exercise price of the options. The weighted
average exercise price on the last trading day of the fiscal year was
$5.74 for Mr. Siegel's options, $10.75 for Mr. Hughes' options, $13.24 for
Mr. Askey's options, $15.38 for Mr. Atchinson's options and $15.08 for Ms.
Gambon's options.
EMPLOYMENT AGREEMENTS
Pursuant to Mr. Siegel's executive agreement with the Company, he is
entitled to an annual salary of $250,000 and is not eligible to participate in
a bonus program. Mr. Siegel is entitled to participate in the Company's health
and welfare benefit plans, and other plans generally available to executive
officers and employees. The employment agreement provides for severance
compensation equal to two times annual salary of $250,000 if the executive is
terminated by the Company without cause. Mr. Siegel also agreed not to compete
with the Company for a period of four years following termination of
employment and agreed to customary provisions regarding confidentiality and
proprietary rights.
Pursuant to Mr. Hughes' employment agreement with the Company, he was
entitled to an annual base salary of $295,000 during 1997 and $315,000 during
1998, with his salary reviewed annually thereafter. Mr. Hughes is eligible to
participate in a bonus program, with a target bonus equal to 50% of his base
salary and a maximum bonus equal to 100% of his base salary. Mr. Hughes
received nonqualified stock options to purchase 430,000 shares of the
Company's common stock and a grant of 30,000 restricted shares, all of which
vest over a
6
<PAGE>
five year period. Mr. Hughes is entitled to participate in the Company's
health and welfare benefit plans, and other plans generally available to
executive officers and employees. In addition, Mr. Hughes received
reimbursement of certain relocation expenses when he joined the Company, along
with an interest free loan. See "Certain Relationships and Related
Transactions." The employment agreement expires June 16, 1999, with automatic
one year extensions thereafter. The employment agreement provides for
severance compensation equal to two times base salary if Mr. Hughes is
terminated by the Company without cause or if Mr. Hughes resigns for good
reason following a change in control of the Company. Mr. Hughes also agreed
not to compete with the Company for a period of two years following
termination of employment and agreed to customary provisions regarding
confidentiality and proprietary rights.
Messrs. Askey, Atchinson and Karl and Ms. Gambon have entered into
substantially similar employment agreements with the Company pursuant to which
the executive is entitled to an annual base salary, reviewed annually. The
executive also may receive a performance bonus each year with a target equal
to a percentage of his or her base salary. In addition, the executive is
entitled to participate in the Company's health and welfare benefit plans,
incentive stock option and bonus plans, and other plans generally available to
executive officers and employees. The employment agreements provide for
severance compensation equal to a maximum of nine months' base salary if the
executive is terminated by the Company without cause during the first year of
employment and six months' base salary if the executive is terminated by the
Company without cause thereafter. In addition, Messrs. Atchinson and Karl
received reimbursement of certain relocation and temporary living expenses
when they joined the Company.
COMPENSATION COMMITTEE REPORT
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
members of the Committee, none of whom are employees or officers of the
Company, are Ronald Davis, Chairman, John Howard and Leonard Lieberman. The
Committee determines the compensation of all executive officers of the
Company, including compensation of the executives named in the Summary
Compensation Table. In reviewing the compensation of individual executive
officers the Committee considers individual performance, contribution to the
achievement of corporate objectives, the recommendations of the Chief
Executive Officer (other than with respect to his own compensation), published
compensation surveys, and current market conditions. The Committee's
determinations on compensation are reviewed with all non-employee directors.
During fiscal 1998 the Committee met three times.
Overall Policy
The Company's compensation programs are tied directly to Company
performance, which the Board of Directors believes contributes to increases in
shareholder value. The Company's compensation programs are aimed at enabling
the Company to attract and retain the best possible executive talent, and
rewarding those executives commensurate with their ability and performance and
the Company's performance.
Each year, the Committee requires a comprehensive review of the Company's
executive compensation programs. The purpose of the review is to assure that
the Company's executive compensation programs remain competitive and that the
programs meet their objective of creation of shareholder value. In its review,
the Committee considers data provided by management and by one or more leading
compensation consulting groups.
Compensation Programs
The Company's compensation programs consist of base salary, a short-term
cash incentive program (the "Annual Plan"), annual profit sharing (known in
the Company as "Gainsharing"), and a long-term incentive stock option program.
At the executive officer level, compensation includes a significant amount of
performance-based compensation (short-term and long-term incentive programs).
7
<PAGE>
Base Salary
Base salaries for executive officers are determined in the same manner as
that of other salaried employees. Salary guidelines are established by
comparing the responsibilities of the individual's position in relation to
similar positions in other manufacturing companies of comparable size and
lines of business both within and outside the Rocky Mountain region. Increases
in individual salaries are determined considering the person's performance
against personal objectives for the year, as well as the Company's performance
against certain corporate objectives.
Annual Incentive
The Company's officers are eligible to receive an annual cash incentive
award under the Annual Plan. In addition to the executive officers,
approximately 60 key employees participated in the Annual Plan in 1998. Under
the Annual Plan, individual target bonuses are established based on position
level. Participants may receive the target bonus, or more or less than the
target bonus depending upon the Company's performance as compared to plan, and
the participants' performance against individual objectives established at the
start of the year. The 1998 Annual Plan for executive management had 90% of
their award tied to earnings per share and operating cash flow objectives and
10% tied to strategic objectives. Such strategic objectives were specific to
each executive manager.
Gainsharing
The Company believes that employee participation in profitability is a
cornerstone to increased productivity and a successful organization.
Therefore, each employee of the company receives a pro rata portion of a
profit sharing pool based on operating cash flow results as measured against
the annual plan. The pro rata amount paid to each employee is based on a
formula incorporating length of service and compensation earned for the year.
The compensation portion of the formula is subject to a ceiling substantially
lower than the annual salary of any of the executives named in the Summary
Compensation Table, resulting in payments being spread more evenly among all
employees of the Company. In 1998, the executive officers of the Company
waived their participation rights in order to increase the pool available to
non-executive employees.
Long-Term Incentive
The Company believes in the importance of stock ownership by management and
other employees. Consequently, the Company's long-term incentive plans are
stock-based. The primary long-term incentive vehicle is the Incentive Plan, in
which nearly all employees are eligible to participate. Participants are
considered for awards of stock options, based upon an assessment of job level,
performance, potential, and competitive practice. Stock options for executive
management become exercisable (vest) over a four or five year period and have
terms of from six to ten years. Under this plan, approximately 225,000 options
were issued to approximately 60 employees in 1998. Options generally were, and
historically have been, granted at fair market value at the date of the grant.
Chief Executive Officer Compensation
In 1998, Mr. Hughes acted as the Company's Chief Executive Officer and
President. In determining Mr. Hughes' compensation, the Committee considered
financial and non-financial performance, as well as how the Chief Executive
Officer's compensation compares to that of chief executive officers in
comparable companies.
The Company's key internal financial measurements are performance against
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
earnings per share ("EPS") targets. For 1998, the Company's EBITDA increased
16%, and EPS increased 13%. Revenue growth, another measure of Company
performance, increased 29% in 1998.
8
<PAGE>
Other accomplishments of the Company in 1998 included the hiring of several
key executives, introducing several new products, the acquisition of the
Mountain Chai Company and the launch of a new line of herbal supplements under
the Celestial Seasonings brand which contributed nearly $19 million in
revenue.
The Committee considered that Mr. Hughes leadership was key in achieving
the Company's level of performance in 1998. In recognition of this
performance, the Committee approved an Annual Plan award of $157,500 for 1998.
MEMBERS OF THE COMMITTEE
Ronald V. Davis, Chairman
John D. Howard
Leonard Lieberman
9
<PAGE>
PERFORMANCE GRAPH
The following graph provides a comparison of the cumulative total return*
for the Standard & Poor's Foods Index, the Standard & Poor's Beverage-Soft
Drink Index, the Wilshire 5000 Index, the Russell 2000 Index and the Company
since the Company's initial public offering on July 12, 1993.
[PERFORMANCE GRAPH APPEARS HERE]
* $100 invested July 12, 1993 in Common Stock at the initial public offering
price or in the index indicated, including reinvestment of dividends. All
other dates in the graph correspond with the last trading day of the
Company's fiscal periods.
Corresponding index values and Common Stock price values are given below.
<TABLE>
<CAPTION>
07/12/93 09/24/93 09/23/94 09/29/95 09/27/96 09/26/97 09/25/98
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Celestial Seasonings In-
dex $100.00 $153.75 $ 90.00 $ 90.00 $ 95.00 $142.50 $179.40
S&P Foods Index $100.00 $100.22 $107.78 $137.08 $144.02 $187.01 $201.14
S&P Bev.-S.D. Index $100.00 $102.47 $106.34 $157.71 $192.69 $248.00 $219.10
Wilshire 5000 Index $100.00 $102.83 $102.66 $130.47 $151.77 $205.54 $215.17
Russell 2000 Index $100.00 $105.70 $109.27 $136.20 $153.66 $202.97 $168.51
CELESTIAL SEASONINGS
INITIAL PUBLIC OFFERING
PRICE (7/12/93) OR
CLOSING STOCK PRICE (1) $ 10.00 $ 15.38 $ 9.00 $ 9.00 $ 9.50 $ 14.25 $ 17.94
</TABLE>
- --------
(1) The Company declared a two-for-one stock split effected in the form of a
100% common stock dividend during September 1998. All closing prices for
the Company's common stock are adjusted for the stock dividend.
10
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table and notes set forth as of December 1, 1998 the
beneficial ownership, as defined by the regulations of the United States
Securities and Exchange Commission ("the Commission"), of Common Stock held by
(i) each person or group of persons known by the Company to beneficially own
more than five percent (5%) of the outstanding Common Stock, (ii) each
director and nominee for director of the Company, (iii) each executive officer
named in the Summary Compensation Table set forth under "Compensation of
Directors and Executive Officers" and (iv) all executive officers and
directors of the Company as a group. All information is taken from or based
upon ownership filings made by such persons with the Commission or upon
information provided by such persons to the Company. Unless otherwise
indicated, the stockholders listed below have sole voting and investment power
with respect to the shares reported as owned. Except as otherwise indicated,
the address of each person listed below is 4600 Sleepytime Drive, Boulder,
Colorado, 80301.
<TABLE>
<CAPTION>
NAME/ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF CLASS
OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED
-------------------------- -------------------- ------------------
<S> <C> <C>
The Capital Group Companies,
Inc. (1)
333 South Hope Street, 52nd
Floor
Los Angeles, CA 90071......... 520,000 6.25%
Essex Investment Management (2)
125 High Street
South Boston, MA 02110........ 990,520 11.90
FMR Corp. (3)
82 Devonshire Street
Boston, MA 02109.............. 961,200 11.54
Gabelli Funds, Inc. (4)
One Corporate Center
Rye, NY 10580................. 1,005,800 12.08
Mo Siegel (5).................. 522,533 6.11
Ronald V. Davis (6)............ 22,200 *
Marina Hahn (7)................ 6,688 *
John D. Howard................. 81,762 *
Stephen B. Hughes (8).......... 164,027 1.93
James P. Kelley................ 54,354 *
Leonard Lieberman.............. 5,138 *
Darrell F. Askey (9)........... 17,981 *
William Atchinson.............. 3,400 *
Marie Gambon (10).............. 10,203 *
All Officers and Directors as a
Group (12 persons) (11)....... 891,644 10.18%
</TABLE>
--------
*Less than 1%
(1) According to a statement on Schedule 13G filed on July 9, 1998 with the
Commission.
(2) According to an amendment to a statement on Schedule 13G filed on
November 9, 1998 with the Commission, Essex Investment had sole voting
power over 783,930 shares and may be deemed to have beneficial ownership
of an additional 206,590 shares.
(3) According to an amendment to a statement on Schedule 13G filed on August
10, 1998 with the Commission, FMR Corp. had sole voting power over
400,600 shares and may be deemed to have beneficial ownership of an
additional 560,600 shares.
(4) According to an amendment to a statement on Schedule 13D filed on
November 30, 1998 with the Commission, Gabelli Funds had sole voting
power over 322,000 shares and may be deemed to have beneficial ownership
of an additonal 683,800 shares.
(5) Includes 227,940 shares obtainable upon the exercise of presently
exercisable options and 579 shares held in Mr. Siegel's account in the
Company's employee stock ownership plan (the "ESOP").
(6) Includes 20,000 shares obtainable upon the exercise of presently
exercisable options.
(7) Includes 5,000 shares obtainable upon the exercise of presently
exercisable options.
(8) Includes 30,000 restricted shares and 121,833 shares obtainable upon the
exercise of presently exercisable options.
(9) Includes 16,220 shares obtainable upon the exercise of presently
exercisable options and 87 shares held in Mr. Askey's account in the
ESOP.
(10) Includes 8,000 shares obtainable upon the exercise of presently
exercisable options and 86 shares held in Ms. Gambon's account in the
ESOP.
(11) Includes 398,993 shares obtainable upon the exercise of presently
exercisable options and 752 shares held in accounts in the ESOP.
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an Employment Agreement dated June 16, 1997 between the Company
and Stephen B. Hughes, the Company provided an interest free loan of
approximately $910,000 to be used for the purchase of a home. The loan was
payable upon the earlier of the sale of Mr. Hughes' former home or 18 months
after the purchase of a new home. During April 1998 all amounts due from Mr.
Hughes were paid in full.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP served as independent auditors of the
Company for the year ended September 30, 1998 and, upon recommendation of the
Audit Committee, the Board of Directors has appointed Deloitte & Touche LLP to
serve for the year ending September 30, 1999. The Board of Directors is
requesting ratification by the stockholders of Deloitte & Touche LLP's
appointment. Representatives of Deloitte & Touche LLP are expected to attend
the Annual Meeting. They will have an opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
In the event this proposal is defeated, the vote will be considered by the
Board of Directors in selecting auditors for the next year. However, because
of the difficulty and expense of making any substitution of auditors after the
beginning of a year, Deloitte & Touche LLP's appointment for the 1999 year
will stand unless the Board of Directors finds other reasons for making a
change.
Services to be performed by Deloitte & Touche LLP for the 1999 year will
include, among other things, audit of annual financial statements, limited
reviews of quarterly financial information and consultations in connection
with various financial reporting, accounting and tax matters. Ratification of
Deloitte & Touche LLP's appointment requires the affirmative vote of the
holders of a majority of the shares of Common Stock present at the Meeting, in
person or by proxy, and voting. In determining whether the proposal has
received a majority, abstentions will be counted and have the same effect as a
vote against the proposal and broker non-votes will not be considered as
present and voting and therefore will have no effect on the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
12
<PAGE>
PROXY PROXY
CELESTIAL SEASONINGS, INC.
Proxy Solicited on Behalf of The Board of Directors
The undersigned appoints Mo Siegel, Stephen B. Hughes and Darrell F. Askey,
or any of them, the proxies and attorneys-in-fact for the undersigned, with full
power of substitution and revocation, to vote on behalf of the undersigned, at
the 1999 annual meeting of stockholders of Celestial Seasonings, Inc. (The
"Company") to be held at Celestial Seasonings, Inc. 4600 Sleepytime Drive,
Boulder, Colorado 80301 on Thursday, February 11, 1999 at 2:30 p.m. (MST), and
any adjournments thereof, all shares of the common stock, $.01 per value per
share, of the Company standing in the name of the undersigned or which the
undersigned may be entitled to vote as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2
PROPOSED BY THE COMPANY
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CELESTIAL SEASONINGS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
[ ]
For All
(Except those
1. Election of Directors Nominees: For Withheld written to
Ronald V. Davis, John D. Howard, All All the left
and Gregg A. Ostrander [_] [_] [_]
- ----------------------------------
Nominee Exception
2. Ratification of the appointment of Delotte & For Against Abstain
Touche LLP as the Company's Independent auditors [_] [_] [_]
for the year ending September 30, 1999.
[_] Yes, I am planning on attending the meeting.
- ----------------------------------------------------------
AREA BLOCKED OUT FOR ADDRESSING
- ----------------------------------------------------------
The undersigned hereby revokes all previous proxies given by the undersigned to
vote at such meeting or adjournment or postponement thereof
Dated
--------------------
Signatures
-----------------------------------------
- ----------------------------------------------------
Please sign exactly as name appears on the card. When shares are held by joint
tenants both should sign. When signing as attorney, executor, administrator, 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 authorized person
(This proxy when properly executed will be voted in the manner directed herein
by the undersigned. If no direction is made, this proxy will be voted FOR Items
1 and 2. The persons named as proxies on the reverse side of this card will have
discretionary authority to vote this proxy with respect to additional matters
that are properly presented at the meeting. Receipt of the Notice of Annual
Meeting of Stockholders and accompanying Proxy Statement is hereby acknowledged
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
