<PAGE> 1
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SYLVAN 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
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------
(5) Total fee paid:
------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
----------------------------------------------------
<PAGE> 2
[SYLVAN Logo]
828 SOUTH PIKE ROAD, SARVER, PA 16055
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 1997
------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Sylvan
Inc. will be held at The Drake Hotel, 440 Park Avenue, New York, New York, on
Wednesday, May 14, 1997, at 11:00 a.m. (local time) for the following purposes:
1. To elect directors to hold office for the term of one year or until
their successors are elected and qualified; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed March 21, 1997 as the record date for the
determination of the shareholders entitled to notice of and to vote at the
meeting or any adjournment thereof and only shareholders of record at the close
of business on that date are entitled to notice of and to vote at the meeting.
You are cordially invited to attend the meeting. If you plan to do so,
please mark the box provided on your proxy card. However, whether or not you
plan to attend the meeting, it is important that your shares be represented.
Accordingly, please complete, date and sign the enclosed proxy and return it
promptly. Sending in your proxy will not prevent you from voting in person at
the meeting.
By Order of the Board of
Directors
FRED Y. BENNITT
Secretary
March 27, 1997
<PAGE> 3
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
WEDNESDAY, MAY 14, 1997
------------------
This Proxy Statement and accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of Sylvan
Inc., a Nevada corporation ("Sylvan" or "the Company"), 828 South Pike Road,
Sarver, Pennsylvania 16055, for use at the Annual Meeting ("the Meeting") of
Shareholders to be held on May 14, 1997 at 11:00 a.m. (local time) at The Drake
Hotel, 440 Park Avenue, New York, New York, or any adjournment thereof. It is
anticipated that this Proxy Statement and the accompanying proxy card will be
mailed on or about April 16, 1997 to shareholders of record as of the close of
business on the Record Date.
VOTING BY PROXY
A proxy in the accompanying form, which is properly executed, duly returned
to the Board of Directors and not revoked, will be voted in accordance with the
instructions contained in the proxy. If no instructions are given with respect
to any matter specified in the Notice of Annual Meeting to be acted upon at the
Meeting, the persons named as proxies will vote the shares represented thereby
in favor of the proposal set forth in the Notice of Annual Meeting and in
accordance with their best judgment on any other matters which may properly come
before the Meeting. Each shareholder who has executed a proxy and returned it to
the Board of Directors may revoke the proxy by notice in writing to the
Secretary of the Company at any time prior to the voting of the proxy. Presence
at the Meeting does not itself revoke the proxy.
VOTING AT THE MEETING
The Board of Directors has fixed the close of business on March 21, 1997 as
the Record Date for determining the shareholders entitled to notice of and to
vote at the Meeting. On March 21, 1997, there were 6,392,200 shares of Common
Stock, par value $.001 per share ("Common Stock"), issued and outstanding and
entitled to vote. Each share of Common Stock entitles the holder thereof to one
vote. A majority of the shares of Common Stock issued and outstanding and
entitled to vote constitutes a quorum. Abstentions and broker nonvotes are
counted as present in determining whether the quorum requirement is satisfied.
The nominees for election as directors who receive a plurality of the votes cast
for each director position at the Meeting by the shares present in person or
represented by proxy shall be elected directors. Any other matters submitted to
a vote of the shareholders must be approved by the majority of shares present in
person or represented by proxy. Abstentions and broker nonvotes will not be
included in the vote total in the election of directors and will have no effect
on the outcome of the vote. An abstention from voting will have the practical
effect of voting against any of any other matters since it is one less vote for
approval.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information available to the Board of
Directors as of March 21, 1997 concerning beneficial ownership, direct or
indirect, of Common Stock by owners of more than five percent of the Company's
Common Stock and, with respect to each director and nominee, each of the
executive officers named in the Summary Compensation Table and all directors and
executive officers as a group. The information in the table concerning
beneficial ownership is based upon information furnished to the Company by or on
behalf of the persons named in the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
(IF APPLICABLE) OF BENEFICIAL OWNER OWNERSHIP(A) COMMON STOCK(N)
-------------------------------------------- ------------------- ----------------
<S> <C> <C>
Dennis C. Zensen............................ 784,128(b) 12.3%
Sylvan Inc.
828 South Pike Road
Sarver, PA 16055
FMR Corp. .................................. 669,400(c) 10.5%
82 Devonshire Street
Boston, MA 02109
T. Rowe Price Associates, Inc. ............. 567,000(d) 8.9%
100 East Pratt Street
Baltimore, MD 21202
Granahan Investment Management, Inc......... 321,500(e) 5.0%
275 Wyman Street, Suite 270
Waltham, MA 02154
William L. Bennett.......................... 16,902(f) *
Monir K. Elzalaki........................... 38,283(g) *
Virgil H. Jurgensmeyer...................... 24,000(h) *
Richard F. Lazzarini, Jr. .................. 156,912(i) 2.5%
William P. Mooney........................... 99,667(j) 1.6%
Donald T. Pascal............................ 21,000(k) *
Gary D. Walker.............................. 35,000(l) *
All directors and executive officers of
Sylvan.................................... 1,198,892(m) 18.8%
as a group (10 persons including those
named)
</TABLE>
- ---------
* Less than 1%
<TABLE>
<S> <C>
(a) Under Regulations of the Securities and Exchange Commission ("SEC"), a person who has
or shares voting or investment power with respect to a security is considered a
beneficial owner of the security. Voting power is the power to vote or direct the
voting of shares; investment power is the power to dispose of or direct the disposition
of shares. Unless otherwise indicated in these footnotes, each person has sole voting
and investment power as to all shares listed opposite his name.
(b) According to a Schedule 13G Amendment, dated February 15, 1997, filed with the SEC by
Mr. Zensen and Carol A. Zensen, his wife, the indicated number of shares consists of
512,610 shares directly owned by Mr. and Mrs. Zensen as joint tenants, and 271,518
shares held directly by Mr. Zensen.
(c) According to a Schedule 13G Amendment dated February 14, 1997, Fidelity Management &
Research Company ("Fidelity"), 82 Devonshire Street, Boston, Massachusetts 02109, a
wholly owned subsidiary of FMR Corp. and an investment advisor registered under Section
203 of the Investment Advisors Act of 1940, is the beneficial owner of 631,900 shares,
or 9.9%, of the Company's Common Stock as a result of acting as investment advisor to
various investment companies registered under Section 8 of the Investment Company Act
of 1940. All of the shares are owned by one investment company--Fidelity Low-Priced
Stock Fund. Fidelity Low-Priced Stock Fund has its principal business office at 82
Devonshire Street, Boston, Massachusetts 02109. Edward C. Johnson III; FMR Corp.;
through its control of Fidelity, and the Funds each has sole power to dispose of the
631,900 shares owned by the Funds. Neither FMR Corp. nor Edward C. Johnson III,
Chairman of FMR Corp., has the sole power to vote or direct the voting of the shares
owned directly by the Fidelity Funds, which power resides with the
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
Funds' Boards of Trustees. Fidelity carries out the voting of the shares under written
guidelines established by the Funds' Boards of Trustees. Fidelity Management & Trust
Company, 82 Devonshire Street, Boston, Massachusetts 02109, a wholly owned subsidiary
of FMR Corp. and a bank as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, is the beneficial owner of 37,500 shares, or 0.6%, of the Common Stock
outstanding of the Company as a result of its serving as investment manager of the
institutional account(s). Edward C. Johnson III and FMR Corp., through its control of
Fidelity Management Trust Company, have sole voting and dispositive power over 37,500
shares of Common Stock owned by the institutional account(s) as reported above. Members
of the Edward C. Johnson III family and trusts for their benefit are the predominant
owners of Class B shares of Common Stock of FMR Corp., representing approximately 49.0%
of the voting power of FMR Corp. Mr. Johnson owns 12.0% and Abigail P. Johnson owns
24.5% of the aggregate outstanding voting stock of FMR Corp. Mr. Johnson is Chairman of
FMR Corp. and Abigail P. Johnson is a Director of FMR Corp. The Johnson family group
and all other Class B shareholders have entered into a shareholder's voting agreement
under which all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting Common Stock and the
execution of the shareholder's voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling group with
respect to FMR Corp.
(d) According to a Schedule 13G Amendment dated February 14, 1997, filed with the SEC by
the shareholder, these securities are owned by various individual and institutional
investors, including T. Rowe Price Small Cap Value Fund, Inc. (which owns 530,000
shares, representing 8.3% of the shares outstanding), to which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment advisor with power to direct
investments and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities. However, Price Associates expressly disclaims that
it is, in fact, the beneficial owner of such securities.
(e) According to a Schedule 13G dated January 31, 1997, filed with the SEC by the
shareholder, Granahan Investment Management, Inc. is an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940.
(f) Includes 11,000 shares subject to options exercisable within 60 days of the Record Date
as well as 2,000 shares held in Mr. Bennett's 401(k) account and 240 shares held by
trusts for the benefit of Mr. Bennett's minor children, with respect to which he
disclaims beneficial ownership.
(g) Includes 26,033 shares subject to options exercisable within 60 days of the Record
Date.
(h) Includes 14,000 shares subject to options exercisable within 60 days of the Record
Date.
(i) Includes 28,333 shares subject to options exercisable within 60 days of the Record
Date.
(j) Includes 91,667 shares subject to options exercisable within 60 days of the Record
Date.
(k) Includes 14,000 shares subject to options exercisable within 60 days of the Record
Date.
(l) Includes 25,000 shares subject to options exercisable within 60 days of the Record
Date.
(m) Includes 230,033 shares subject to options exercisable within 60 days of the Record
Date.
(n) Based on 6,392,200 shares of the Company's Common Stock issued and outstanding on the
Record Date, exclusive of 106,225 shares held by the Company as treasury shares.
</TABLE>
ELECTION OF DIRECTORS
Five directors have been nominated by the Board of Directors for election
at the Meeting.
The directors will serve until the next annual meeting of shareholders or
until each individual's successor is duly elected or appointed and qualified. No
family relationship exists between any director, executive officer or person
nominated to become a director.
Unless otherwise specified, the enclosed proxy will be voted in favor of
the persons named below, all of whom are now directors of Sylvan. In the event
that any of the individuals should become unavailable for election for any
reason, at present unknown, it is intended that votes will be cast pursuant to
the accompanying
3
<PAGE> 6
proxy for such substitute nominees, if any, as the Board of Directors may
designate. The following table sets forth certain information regarding the
nominees as of April 9, 1997.
<TABLE>
<CAPTION>
PRESENT POSITION PRINCIPAL OCCUPATION OR DIRECTOR
NAME AND AGE WITH SYLVAN EMPLOYMENT, IF DIFFERENT SINCE
- ------------------------------- ------------------------------------------------------- --------------
<S> <C> <C> <C>
Dennis C. Zensen (58) Chairman, President and April 1989
Chief Executive Officer of
Sylvan Inc.
William L. Bennett (47) Director Chairman of HealthPlan July 1994
Services Corporation
Virgil H. Jurgensmeyer (67) Director Chairman of J-M Farms, Inc. June 1992
and J-M Foods, Inc.
Richard F. Lazzarini, Jr. (46) President of Quincy July 1990
Corporation
Donald T. Pascal (37) Director Chairman of Connectivity November 1991
Technologies Inc.
</TABLE>
Dennis C. Zensen was elected Chairman of Sylvan in July 1990 and has served
as a director, President and Chief Executive Officer of Sylvan since April 1989.
He was President and Chief Executive Officer of Quincy Corporation ("Quincy")
from 1982 through July 1990. He is Chairman of the Board's Executive Committee.
William L. Bennett has served as a director since 1994 and is Chairman of
HealthPlan Services Corporation, a leading provider of managed health care
services. Until March 1995, he served as Chairman and Chief Executive Officer of
Noel Group, Inc. ("Noel") (a firm which conducts its principal operations
through small-sized and medium-sized operating companies in which it holds
controlling or other significant equity interests). Previously, Mr. Bennett was
Chairman of the Board and Chief Executive Officer of Noel from April 1988 until
November 1991 and Co-Chairman and Chief Executive Officer of Noel from November
1991 until July 1994. Mr. Bennett is a director of Belding Heminway Company,
Inc. (a manufacturer and distributor of high technology threads and a
distributor of buttons), Allegheny Power System, Inc. (an electric utility
holding company) and Noel. Mr. Bennett is Chairman of Sylvan's Audit Committee
and a member of its Stock Option and Compensation Committee.
Virgil H. Jurgensmeyer was elected to the Board of Directors in June of
1992. He has served as Chairman of the Board of J-M Farms, Inc. (a grower and
marketer of fresh mushrooms) since April 1989 and as Chairman of the Board of
J-M Foods, Inc. (a producer and marketer of fresh-cut salads) since January
1991. Mr. Jurgensmeyer is part owner and a director of Ohio Valley Mushroom
Farm, Inc. (a grower and marketer of fresh mushrooms) and serves as a director
of Mi-West Custom Mixing Co. (a mixer of rubber compounds); Miami Industrial
Supply and Manufacturing Co. (a manufacturer of mushroom production equipment)
and Miken Computer Co. He is also a member of the Board of Directors of the
Department of Agriculture of the State of Oklahoma. He is Chairman of Sylvan's
Stock Option and Compensation Committee and a member of its Audit Committee and
Executive Committee.
Richard F. Lazzarini, Jr. has served as a director since 1990. He joined
Quincy in February 1988 as General Manager and served as Executive Vice
President and Chief Operating Officer of Quincy from April 1989 until July 24,
1990, when he was elected Quincy's president. From 1982 until February 1988, Mr.
Lazzarini was General Manager of Spawn Mate, Inc. (a mushroom compost supplement
producer).
Donald T. Pascal has served as a director since 1991. Mr. Pascal is
Chairman of Connectivity Technologies Inc. (a manufacturer and distributor of
specialty wire and cable products). He served as a director of Noel from October
1989 until November 1991 and as a Vice President and Secretary of Noel from May
1988 until November 1991, when he became a Managing Director. He is a member of
the Executive Committee of Sylvan's Board.
Sylvan's Bylaws establish an advance notice procedure with respect to
shareholder nomination of candidates for election as directors. In general,
notice regarding shareholder nominations for director must be received by the
Secretary of the Company not less than 30 nor more than 60 days prior to the
annual meeting and must contain certain specified information concerning the
persons to be nominated and the shareholder submitting the nomination. The
presiding officer of the meeting may refuse to acknowledge any director
nomination not made in compliance with such advance notice requirements.
4
<PAGE> 7
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held three meetings during 1996. The
Audit Committee met two times during 1996. The Stock Option and Compensation
Committee met three times during 1996. The Executive Committee had no meetings
during 1996. All of Sylvan's directors, except Mr. Lazzarini, attended all of
the meetings of the Board of Directors and committees on which they served
during 1996. Mr. Lazzarini was unable to attend one of the Board of Directors
meetings.
COMMITTEES
The Executive Committee, Audit Committee and Stock Option and Compensation
Committee are the only standing committees of the Board. There is no formal
nominating committee.
The Executive Committee, which is comprised of Mr. Zensen, Chairman; Mr.
Jurgensmeyer and Mr. Pascal, has all of the powers and authority of the Board in
the management of the business and affairs of the Company between meetings of
the full Board, except the power or authority to amend the certificate of
incorporation, adopt an agreement of merger or consolidation, recommend to the
shareholders the sale, lease or exchange of all or substantially all of the
Company's property and assets, recommend to the shareholders a dissolution of
the Company or a revocation of a dissolution, or amend the Bylaws of the
Company.
The Audit Committee is comprised of Mr. Bennett, Chairman; and Mr.
Jurgensmeyer. The Committee consults with Sylvan's independent public
accountants and such other persons as the members deem appropriate, reviews the
preparations for and scope of the audit of the Company's annual financial
statements, makes recommendations as to the engagement and fees of the
independent auditors, and performs such other duties relating to the financial
statements of the Company as the Board of Directors may assign from time to
time.
The Stock Option and Compensation Committee is comprised of Mr.
Jurgensmeyer, Chairman, and Mr. Bennett. It has all the powers of the Board of
Directors, including the authority to issue stock or other securities of the
Company, in respect of any matters relating to the administration of the
Company's 1990 Stock Option Plan; the compensation of the Company's CEO, four
other most highly compensated executive officers and other persons performing
substantial services for the Company; and the approval of transactions between
the Company and any substantial shareholder, officer, director or affiliate
thereof.
DIRECTOR COMPENSATION
Sylvan paid each nonemployee director an annual retainer of $10,000 and a
fee of $1,000 for each Board meeting attended and for each committee meeting
attended. During 1996, the directors as a group were paid $49,000 on that basis.
Directors are also reimbursed for out-of-pocket expenses incurred in attending
meetings.
In addition, under the terms of the 1993 Stock Option Plan for Nonemployee
Directors, each nonemployee director is automatically granted nonincentive
options to purchase 10,000 shares of Common Stock on the first business day
following the annual meeting which follows the date such individual becomes a
Sylvan nonemployee director. In addition, he or she is automatically granted
nonincentive options to purchase 1,000 shares of Common Stock on the first
business day following the day of each annual meeting of shareholders. The
exercise price per share of the Common Stock of each option granted is the
closing price of the Common Stock on the date of grant as reported on The NASDAQ
Stock Market.
Directors who are employees of the Company or its subsidiaries are eligible
to participate in the Company's 1990 Stock Option Plan. Members of the Stock
Option and Compensation Committee are not eligible to participate in the 1990
Stock Option Plan while they are serving on such Committee.
TRANSACTIONS WITH THE COMPANY
During 1996, various mushroom production business interests of Mr.
Jurgensmeyer, a member of the Company's Board of Directors, purchased spawn for
use by those business interests at prevailing market prices, totaling
approximately $611,000, from the Company's Sylvan America, Inc. subsidiary and
sold fresh mushrooms at fair market value totaling $111,000 to the Company's
Quincy subsidiary.
5
<PAGE> 8
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent shareholders are required by Commission regulation to furnish the
Company with copies of all Section 16(a) forms which they file.
The Company believes that all filing requirements applicable to its
officers and directors were complied with in 1996, except for (i) a Form 5
filing by Mr. Lazzarini on or about February 28, 1996 (due on February 14, 1996)
reflecting his receipt of options to acquire 10,000 shares of the Company's
Common Stock and (ii) a Form 4 filing by Fred Bennitt, an officer of the
Company, on or about October 4, 1996 (due on March 10, 1996) reflecting his
exercise of options to acquire 4,500 shares of the Company's Common Stock. In
making these disclosures, the Company has relied solely on the written and oral
representations of its directors and executive officers and copies of the
reports that they filed with the Commission.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
and Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement in whole or in part, the following report and the
Shareholder Return Performance Graph on page 13 shall not be incorporated by
reference into any such filings.
STOCK OPTION AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee ("the Committee") exercises
responsibility with respect to the compensation of the Company's chief executive
officer, four other most highly compensated executive officers and other persons
performing substantial services for the Company; the administration of the 1990
Stock Option Plan and the approval of transactions between the Company and any
substantial shareholder, officer, director or affiliate of the Company.
COMPENSATION STRUCTURE AND ADMINISTRATION
The executive compensation program is composed of salary, cash bonuses and
stock options. In administering the program during 1996, the Committee sought
to:
- Support a pay-for-performance policy that differentiated compensation
based on corporate, business unit and individual performance;
- Motivate key senior officers to achieve strategic business initiatives
and reward them for their accomplishments; and
- Align the interests of executives with the long-term interests of
shareholders through award opportunities that resulted in ownership of
the Company's Common Stock.
The Committee utilized the following process for establishing compensation
for the individuals whose compensation determination is the Committee's
responsibility.
Base Salaries: The Committee reviewed the covered officers' base salaries,
paying particular attention to prevailing levels of compensation for qualified
executives, the responsibilities of each individual's position, the
contributions to the Company which each officer makes and is expected to make in
the future and (other than for the chief executive officer) recommendations from
the chief executive officer.
Cash Bonuses: The Committee determined at the beginning of the year the
maximum amount of cash (as a percentage of annual base pay for the covered
officers) which was made available for bonuses. An executive officer's cash
bonus was based substantially, but not exclusively, upon his performance as
measured against the Company's progress in globally expanding its businesses and
aggressively introducing new products and services to its customers. The
Committee also relied upon the recommendations of the chief executive officer.
Stock Options: Stock option grants carry an exercise price equal to the
fair market price of the Company's Common Stock on the date of the grant and
typically do not fully vest until three years following
6
<PAGE> 9
the date of the grant. Awards were based on the attainment of operating goals as
well as progress toward specific long-term quality, profitability and growth
goals.
Measurement Meetings: Measurements of a covered officer's progress toward
the achievement of the goal components of the total compensation package were
made by the Committee in the course of three meetings with the chief executive
officer. During the first meeting, performance goals for each individual were
established and, during subsequent meetings, evaluations of each individual's
performance were conducted.
CORPORATE PERFORMANCE GOALS
The Committee did not undertake a review of total compensation packages of
executives at companies engaged in businesses which are similar to Sylvan's, but
it evaluated several qualitative measures of corporate and individual
performance, including leadership and strategic direction. The Committee felt
that corporate performance was appropriately measured in 1996 by the degree to
which the Company achieved the following operating goals which are intended to
position it for superior long-term success as measured by the creation of
shareholder value.
- Achievement of planned returns on the investments which the Company made
in spawn production facilities in Holland and England;
- Improvement of the cost performance of existing production assets and
spawn marketing resources;
- Negotiation of a favorable settlement of a suit filed by former employees
of Sylvan's former Moonlight Mushrooms, Inc. subsidiary concerning the
Company's obligation to provide postretirement medical benefits;
- Successful reorganization of the Company's international management
structure and enhancement of internal accounting and financial reporting
protocols in step with the evolution of the Company's international
business; and
- Successful startup of the Company's Australian spawn plant and
construction of the Pennsylvania inoculum production facility.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Committee granted Mr. Zensen a base salary increase of $75,000 per year
effective April 1 and, at the end of the year, a performance bonus of $175,000.
The Committee considered that, while the Company did not attain all of its
operating goals for 1996, the CEO's performance toward achieving strategic
objectives of succession planning, growth initiatives, strategic planning, and
the general management of corporate issues exceeded requirements.
COMPENSATION FOR OTHER EXECUTIVE OFFICERS
The Committee granted base salary increases of $30,000 per year to Mr.
Elzalaki and Mr. Mooney effective December 1. The changes were initiated upon
Mr. Zensen's recommendations and were determined by a subjective evaluation of
performance.
All of the executive officers for whom the Committee has compensation
determination authority received year-end cash bonuses. They were based upon the
Committee's assessment of the positive financial performance of the Company as a
whole and upon Mr. Zensen's subjective evaluation of each officer's achievements
and functional responsibilities, including the quality of strategic plans,
organization and management development and special project or idea leadership.
Consistent with the Committee's philosophy of aligning the interests of its
managers with shareholders, options for 78,000 shares of the Company's Common
Stock were granted to eighteen individuals during 1996, of which options for
48,000 shares, or 62%, were granted to employees other than executive officers.
The grants, made at their prevailing market values, were based on a subjective
evaluation of each grantee's ability to influence the Company's long-term growth
and profitability and, with respect to executive officers, the contributions
each individual made toward the achievement of operating goals in 1995 and 1996.
The number of options granted to each recipient was determined by the Committee
with input from Mr. Zensen with respect to the Company's executive officers and
from operating managers with respect to other individuals.
7
<PAGE> 10
CONSIDERATION OF INTERNAL REVENUE CODE SECTION 162(M)
The Committee intends to monitor the impact of Section 162(m) of the
Internal Revenue Code in making its compensation decisions. Although it provides
for certain exceptions, this law generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and four other most highly compensated executive officers.
VIRGIL H. JURGENSMEYER, Committee
Chairman
WILLIAM L. BENNETT
STOCK OPTION AND COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the Stock Option and Compensation Committee was composed
of Messrs. Jurgensmeyer and Bennett, neither of whom is an executive officer of
the Company. During 1996, no executive officer of the Company served on a
compensation committee (or other board committee performing equivalent
functions) or board of directors of any entity related to any member of the
Company's Board of Directors.
MANAGEMENT COMPENSATION AND BENEFIT PLANS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
received by the chief executive officer and the four other most highly
compensated executive officers of the Company and its subsidiaries for 1996,
1995 and 1994.
The Company has not granted any restricted stock awards or made any
long-term incentive plan pay-outs.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION OTHER NUMBER OF SHARES
NAME AND PRINCIPAL --------------------- ANNUAL COVERED BY STOCK ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS GRANTED COMPENSATION(K)
- ------------------------- ---- -------- -------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Zensen 1996 $481,250 $175,000 $ 383,172(a) -- $74,598
President and 1995 425,000 120,000 310,154(b) -- 23,593
Chief Executive Officer 1994 350,000 150,000 277,654(c) -- 53,212
William P. Mooney 1996 192,508 50,000 133,660(d) -- 8,733
Chief Financial Officer 1995 187,500 40,000 68,196(e) 25,000 6,303
1994 175,008 40,000 3,065(f) -- 4,365
Richard F. Lazzarini, Jr. 1996 190,000 80,000 105,740(g) -- 9,454
President 1995 187,500 -- 136,318(h) 10,000 8,464
Quincy Corporation 1994 175,008 50,000 4,605(f) 15,000 7,691
Monir K. Elzalaki 1996 192,500 50,000 57,429(i) 10,000 7,105
President 1995 175,000 40,000 3,867(f) 10,000 6,459
Sylvan America, Inc. 1994 161,667 50,000 3,846(f) 15,000 5,478
Gary D. Walker 1996 158,004 30,000 33,123(j) -- --
General Manager - 1995 158,004 20,000 29,373(j) 10,000 --
Bioproducts 1994 158,004 -- 24,073(j) 10,000 --
</TABLE>
- ---------
(a) Consists of Mr. Zensen's recognition of the $331,225 difference between the
exercise and market prices of stock option plan shares which vested and were
acquired by him during the year and $51,947 reimbursement for income taxes
incurred as a result of contributions made on Mr. Zensen's behalf by the
Company to its Nonqualified Target Benefit Annuity Purchase Program.
(b) Consists of Mr. Zensen's recognition of the $293,725 difference between the
exercise and market prices of stock option plan shares which vested and were
acquired by him during the year and $16,429 reimbursement for income taxes
incurred as a result of contributions made on Mr. Zensen's behalf by the
Company to its Nonqualified Target Benefit Annuity Purchase Program.
8
<PAGE> 11
(c) Consists of Mr. Zensen's recognition of the $240,600 difference between the
exercise and market prices of stock option plan shares which vested and were
acquired by him during the year and $37,054 reimbursement for income taxes
incurred as a result of contributions made on Mr. Zensen's behalf by the
Company to its Nonqualified Target Benefit Annuity Purchase Program.
(d) Reflects Mr. Mooney's recognition of the $127,500 difference between the
exercise and market prices of stock options which he exercised during the
year and $6,160 reimbursement for income taxes incurred as a result of
contributions made on Mr. Mooney's behalf by the Company to its Nonqualified
Target Benefit Annuity Purchase Program.
(e) Reflects Mr. Mooney's recognition of the $63,750 difference between the
exercise and market prices of stock options which he exercised during the
year and $4,446 reimbursement for income taxes incurred as a result of
contributions made on Mr. Mooney's behalf by the Company to its Nonqualified
Target Benefit Annuity Purchase Program.
(f) Reflects reimbursement for income taxes incurred as a result of
contributions made by the Company to its Nonqualified Target Benefit
Annuity Purchase Program.
(g) Reflects Mr. Lazzarini's recognition of the $100,080 difference between the
exercise and market prices of stock options which he exercised during the
year and $5,660 reimbursement for income taxes incurred as a result of
contributions made on Mr. Lazzarini's behalf by the Company to its
Nonqualified Target Benefit Annuity Purchase Program.
(h) Reflects Mr. Lazzarini's recognition of the $131,250 difference between the
exercise and market prices of stock options which he exercised during the
year and $5,068 reimbursement for income taxes incurred as a result of
contributions made on Mr. Lazzarini's behalf by the Company to its
Nonqualified Target Benefit Annuity Purchase Program.
(i) Reflects Mr. Elzalaki's recognition of the $53,175 difference between the
exercise and market prices of stock options which he exercised during the
year and $4,254 reimbursement for income taxes incurred as a result of
contributions made on Mr. Elzalaki's behalf by the Company to its
Nonqualified Target Benefit Annuity Purchase Program.
(j) Reflects Mr. Walker's recognition of the difference between the exercise and
market prices of stock options which vested and were acquired by him during
the year.
(k) Reflects income imputed to each individual as a result of contributions made
by the Company to its Nonqualified Target Benefit Annuity Purchase Program.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 29, 1996
The following table sets forth as to the persons named in the Summary
Compensation Table information with respect to the stock options granted during
the Company's last fiscal year under the 1990 Stock Option Plan, including the
potential realizable value from the stock options assuming they are exercised at
the end of the option term and assuming 5% and 10% annual rates of stock price
appreciation during the option term.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
NUMBER OF GRANTED TO EXERCISE FOR OPTION TERM (C)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR(B) (PER SHARE) DATE 5% 10%
- ----------------------- --------- ---------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Zensen -- -- -- -- -- --
William P. Mooney -- -- -- -- -- --
Richard F. Lazzarini, Jr. -- -- -- -- -- --
Monir K. Elzalaki 10,000(a) 12.8% $ 10.31 08-17-06 $ 64,839 $164,315
Gary D. Walker -- -- -- -- -- --
</TABLE>
- ---------
(a) The options become exercisable over a three-year period in increments of 33%
per year beginning with the first anniversary of the date of the grant.
(b) The Company granted options representing 78,000 shares to employees.
(c) Based on the closing sales price of the Company's Common Stock as reported
on The Nasdaq Stock Market on the date immediately prior to the date of the
grant.
9
<PAGE> 12
AGGREGATED OPTION EXERCISES FOR THE YEAR ENDED DECEMBER 29, 1996
The following table sets forth as to the persons named in the Summary
Compensation Table, information with respect to (i) the stock options exercised
during the Company's last fiscal year, (ii) the net value of any shares received
or cash realized upon such exercise, (iii) the number of shares covered by
unexercised stock options held at December 29, 1996 and (iv) the value of such
stock options at December 29, 1996.
<TABLE>
<CAPTION>
NO. OF SHARES COVERED VALUE OF UNEXERCISED
NUMBER OF BY UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT 12/29/96 AT 12/29/96
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED(*) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. C. Zensen -- -- -- -- -- --
W. P. Mooney 20,000 $ 127,500 83,333 16,667 $ 1,083,329 $ 216,671
R. F. Lazzarini, Jr. 20,000 100,080 28,333 11,667 368,329 151,671
M. K. Elzalaki 16,300 53,175 26,033 21,667 338,429 281,671
G. D. Walker -- -- 25,000 10,000 325,000 130,000
</TABLE>
- ---------
(*) Market value on the date of exercise less the option price.
QUALIFIED RETIREMENT BENEFIT PLAN
Sylvan has a defined benefit pension plan covering eligible salaried
employees of its Sylvan America, Inc. and Sylvan Foods, Inc. subsidiaries, and
former salaried employees of its Moonlight Mushrooms, Inc. subsidiary ("Pension
Plan"). The Pension Plan is funded solely by employer contributions, but the
Company ceased accruing benefits for the Pension Plan as of January 3, 1993.
Annual pension benefits under the Pension Plan are determined by multiplying
1.25% times the employee's average salary as reported on such employee's Form
W-2, or equivalent, over the five highest earnings years of service prior to
January 3, 1993, times the employee's number of years of service prior to
January 3, 1993. Pension benefits are not subject to deductions for Social
Security benefits. Mr. Elzalaki and Mr. Walker are the only persons named in the
Summary Compensation Table who participated in the Pension Plan. Mr. Elzalaki
has two years of credited service as of January 3, 1993 and an accrued benefit
of approximately $324 per month at age 65. Mr. Walker has six months of credited
service and an accrued benefit of approximately $95 per month at age 65.
10
<PAGE> 13
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
on the Company's Common Stock for the years 1992 through 1996 against the total
return of Standard and Poor's 500 Stock Index (the "S&P") and the Russell 2000
Small Stock Index (the "Russell"). The graph assumes a $100 investment on
December 31, 1991 in the Company's Common Stock, the S&P stocks and the Russell
stocks, and the cumulative total return assumes the reinvestment of dividends,
if any.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Sylvan Inc. S&P 500 Russell 2000
<S> <C> <C> <C>
12/31/91 100.00 100.00 100.00
12/31/92 105.56 107.62 116.36
12/31/93 94.44 118.47 136.14
12/31/94 120.13 120.03 131.81
12/31/95 131.94 165.14 166.36
12/31/96 144.44 203.06 190.91
</TABLE>
PROXY SOLICITATION AND EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be paid by the Company. In
addition to the solicitation of proxies by the use of the mails, management and
regularly engaged employees of the Company may, without additional compensation
therefor, solicit proxies on behalf of the Company by personal interviews,
telephone, telegraph or other means, as appropriate. The Company has retained
ChaseMellon Shareholder Services to solicit proxies from the shareholders at a
fee of $5,000 plus out-of-pocket expenses. The Company will, upon request,
reimburse brokers and others who are only record holders of the Company's Common
Stock for their reasonable expenses in forwarding proxy material to, and
obtaining voting instructions from, the beneficial owners of such stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors engaged Arthur Andersen LLP, independent public
accountants, to audit the books and records of the Company for the current year
and for the year ended December 29, 1996. Representatives of Arthur Andersen LLP
are expected to be present at the Meeting and, while they are not expected to
make a statement, they will have the opportunity to do so if they desire. They
will also be available to respond to appropriate questions.
11
<PAGE> 14
DEADLINE FOR SHAREHOLDER PROPOSALS
Sylvan's Bylaws require shareholders who wish to make proposals or nominate
directors at an annual meeting to give written notice to the Secretary of Sylvan
not less than 30 days nor more than 60 days prior to the meeting or, if Sylvan
gives less than 40 days notice of the date of the meeting, then not less than
the tenth day after the notice of the date of the meeting was given. Shareholder
proposals intended to be presented at the next annual meeting of shareholders,
to be held in 1998, must be received by the Company at 828 South Pike Road,
Sarver, PA 16055 on or before January 14, 1998 to be included in the proxy
statement and form of proxy relating to that meeting.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, is available to shareholders on request and may be obtained
by writing to: Sylvan Inc., 828 South Pike Road, Sarver, PA 16055.
By order of the Board of Directors
FRED Y. BENNITT
Secretary
March 27, 1997
12
<PAGE> 15
SYLVAN INC.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS
THE DRAKE HOTEL, NEW YORK, NEW YORK
WEDNESDAY, MAY 14, 1997 11:00 A.M.
The undersigned shareholder of Sylvan Inc. (the "Corporation") does hereby
appoint Dennis C. Zensen, William P. Mooney and Fred Y. Bennitt, or a majority
of them who are present at the meeting, as proxies of the undersigned to
vote at the Annual Meeting of Shareholders of the Corporation, to be held
May 14, 1997 (the "Annual Meeting"), and at all adjournments thereof, all the
shares of Common Stock of the Corporation which the undersigned may be entitled
to vote, on the matter set on the reverse side of this card as described in the
Proxy Statement and, at their discretion, on any other business which may
properly come before the Annual Meeting.
The shares represented by this Proxy will be voted as directed by the
shareholder. If no direction is given, such shares will be voted "FOR" the
election of each named individual as Director.
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
FOLD AND DETACH HERE
<PAGE> 16
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING: PLEASE MARK
YOUR VOTE AS [ X ]
INDICATED IN
THIS EXAMPLE
</TABLE>
<TABLE>
<C> <C> <S>
Election of the following five Directors:
FOR all Nominees Withhold Authority Dennis C. Zensen, Virgil H. Jurgensmeyer, William L. Bennett, Richard F.
listed to the right to vote for all Lazzarini, Jr., Donald T. Pascal
(except as marked nominees listed
to the contrary) to the right A vote FOR includes discretionary authority to vote for a substituted
nominee if any of the nominees listed becomes unable to serve or for good
[ ] [ ] cause will not serve.
(To withhold authority to vote for one or more nominees, print such nominee's
or nominees' name(s) on the line below.)
_____________________________________________________________________________
</TABLE>
Please date and sign exactly as your name
appears hereon and return in the enclosed
envelope. If acting as attorney, executor,
I PLAN TO ATTEND THE administrator, guardian or trustee, please
ANNUAL MEETING. [ ] so indicate with your full title when
signing. If a corporation, please sign in
full corporate name, by a duly authorized
officer. If shares are held jointly, each
shareholder named should sign.
Date _______________________________, 1997
__________________________________________
Signature
__________________________________________
Signature
The signer hereby revokes all previous
proxies for the Annual Meeting,
acknowledges receipt of the Notice of
Annual Meeting of Shareholders and
Proxy Statement, both dated March 27,
1997 and hereby ratifies all that the
said proxies may do by virtue hereof.
FOLD AND DETACH HERE
