<PAGE> 1
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:
<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 Rule 14a-11(c) or Rule 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 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:
* No fee required
<PAGE> 2
333 MAIN STREET, SAXONBURG, PA 16056
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 6, 1998
------------------
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 6, 1998, 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 11, 1998 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 23, 1998
<PAGE> 3
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
WEDNESDAY, MAY 6, 1998
------------------
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"), 333 Main Street,
Saxonburg, Pennsylvania, for use at the annual meeting ("the Meeting") of
shareholders to be held on May 6, 1998 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 March 30, 1998 to shareholders of record as of the close of
business on the March 11, 1998 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 11, 1998 as
the record date for determining the shareholders entitled to notice of and to
vote at the Meeting. On March 11, 1998, there were 6,454,244 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 11, 1998 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>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
(IF APPLICABLE) OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(A) COMMON STOCK(P)
----------------------------------- ----------------------- ---------------
<S> <C> <C>
Dennis C. Zensen.............................. 784,128(b) 12.1%
Sylvan Inc.
333 Main Street
Saxonburg, PA 16056
FMR Corp...................................... 619,400(c) 9.6%
82 Devonshire Street
Boston, MA 02109
T. Rowe Price Associates, Inc................. 550,000(d) 8.5%
100 East Pratt Street
Baltimore, MD 21202
Dimensional Fund Advisors Inc................. 464,476(e) 7.2%
1299 Ocean Avenue
Santa Monica, CA 90401
Goldman, Sachs & Co........................... 435,498(f) 6.7%
85 Broad Street
New York, NY 10004
The Chase Manhattan Corporation............... 320,650(g) 5.0%
270 Park Avenue
New York, NY 10017
William L. Bennett............................ 17,902(h) *
Monir K. Elzalaki............................. 31,806(i) *
Virgil H. Jurgensmeyer........................ 25,000(j) *
Richard F. Lazzarini, Jr...................... 125,917(k) 2.0%
William P. Mooney............................. 108,000(l) 1.7%
Donald T. Pascal.............................. 22,000(m) *
Michael A. Walton............................. 28,333(n) *
All directors and executive officers of
Sylvan...................................... 1,146,068(o) 17.8%
as a group (9 persons including those named)
</TABLE>
- ---------
* Less than 1%
<TABLE>
<C> <S>
(a) Under Regulations of the Securities and Exchange Commission
("SEC"), a person who directly or indirectly 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) 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,
1998, 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 619,400 shares, or 9.6%,
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
</TABLE>
2
<PAGE> 5
<TABLE>
<C> <S>
Low-Priced Stock Fund. Fidelity Low-Priced Stock Fund has
its principal business office at 82 Devonshire Street,
Boston, Massachusetts 02109. Edward C. Johnson 3rd; FMR
Corp.; through its control of Fidelity, and the Fund each
has sole power to dispose of the 619,400 shares owned by the
Fund. Neither FMR Corp. nor Edward C. Johnson 3rd, 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 Funds' boards of trustees.
Fidelity carries out the voting of the shares under written
guidelines established by the Funds' boards of trustees.
Members of the Edward C. Johnson 3rd 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 shareholders' 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 shareholders' 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 12,
1998, 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
8.2% 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 February 9, 1998,
Dimensional Fund Advisors Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership
of the indicated shares as of December 31, 1997, all of
which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and
DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(f) According to a Schedule 13G dated February 14, 1998, The
Goldman Sachs Group, L.P. ("GS Group") and Goldman, Sachs &
Co, ("Goldman Sachs") each disclaims beneficial ownership of
the indicated shares beneficially owned by (i) managed
accounts and (ii) certain investment limited partnerships,
of which a subsidiary of GS Group or Goldman Sachs is the
general partner or managing general partner, to the extent
partnership interests in such partnerships are held by
persons other than GS Group, Goldman Sachs or their
affiliates.
(g) A Schedule 13G, dated February 12, 1998, was filed on behalf
of both The Chase Manhattan Corporation and The Chase
Manhattan Bank. According to the Schedule 13G, the
beneficial interest reported has been acquired through
fiduciary relationships. Beneficial ownership of the shares
reported is shared with unaffiliated persons, none of whose
beneficial ownership in the shares exceeds five percent of
Sylvan's outstanding shares.
(h) Includes 12,000 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.
(i) Includes 18,334 shares subject to options exercisable within
60 days of the record date.
(j) Includes 15,000 shares subject to options exercisable within
60 days of the record date.
(k) Includes 8,338 shares subject to options exercisable within
60 days of the record date.
(l) Includes 100,000 shares subject to options exercisable
within 60 days of the record date.
(m) Includes 15,000 shares subject to options exercisable within
60 days of the record date.
(n) Represents shares subject to options exercisable within 60
days of the record date.
(o) Includes 197,005 shares subject to options exercisable
within 60 days of the record date.
(p) Based on 6,454,244 shares of the Company's common stock
issued and outstanding on the record date.
</TABLE>
3
<PAGE> 6
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 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 March 16, 1998.
<TABLE>
<CAPTION>
PRESENT POSITION PRINCIPAL OCCUPATION OR DIRECTOR
NAME AND AGE WITH SYLVAN EMPLOYMENT, IF DIFFERENT SINCE
------------ ----------- ------------------------ -----
<S> <C> <C> <C>
Dennis C. Zensen (59) Chairman, President and April 1989
Chief Executive Officer of
Sylvan Inc.
William L. Bennett (48) Director Vice-Chairman and July 1994
Director of HealthPlan
Services Corporation
Virgil H. Jurgensmeyer (68) Director Chairman of J-M Farms, Inc. and June 1992
J-M Foods, Inc.
Richard F. Lazzarini, Jr. (47) Director, President of July 1990
Quincy Corporation
Donald T. Pascal (38) Director Managing Director of November 1991
Victory Ventures LLC
</TABLE>
Dennis C. Zensen was elected chairman of Sylvan's board 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,
the Company's Florida-based mushroom farm subsidiary, ("Quincy") from 1982
through July 1990. He is chairman of the board's Executive Committee.
William L. Bennett has served as a director since July 1994 and is
vice-chairman and director 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 holding
company 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 served as chairman of the
board and chief executive officer of Noel from April 1988 until November 1991
and as co-chairman and chief executive officer of Noel from November 1991 until
July 1994. Mr. Bennett is also a director of Allegheny Energy Inc. (an electric
utility holding company). 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 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 Mid-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. (a retailer of personal computer hardware, software and services).
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 July 1990. He
joined Quincy in February 1988 as general manager and served as an executive
vice president and chief operating officer of Quincy from April 1989 until July
1990, when he was elected Quincy's president.
Donald T. Pascal has served as a director since November 1991. Mr. Pascal
is a managing director of Victory Ventures LLC (a venture capital fund). He is a
director of Connectivity Technologies Inc. (a manufacturer and distributor of
specialty wire and cable products) and served as its chairman between
4
<PAGE> 7
May 1996 and September 1997. He served as a managing director of Noel and as a
vice-president of The Prospect Group between 1986 and 1997 (Prospect is a
holding company which conducts its major operations through subsidiaries
acquired in management buyout transactions). 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.
BOARD AND COMMITTEE MEETINGS
The board of directors of the Company held five meetings during 1997. The
Audit Committee met two times during 1997. The Stock Option and Compensation
Committee met four times during 1997. The Executive Committee met once during
1997. All but one of Sylvan's directors attended all of the meetings of the
board of directors and committees on which they served during 1997. One director
was unable to attend one meeting of the board, but attended all of the other
meetings of the board and committees on which he served.
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 chief
executive officer, 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 1997, the directors as a group were paid $57,000 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
5
<PAGE> 8
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(sm).
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 1997, various mushroom business interests of Mr. Jurgensmeyer, a
member of the Company's board of directors, purchased spawn and compost
supplements at fair value totaling approximately $568,000, purchased mushrooms
at fair value totaling approximately $14,000 and sold mushrooms at fair value
totaling approximately $111,000 in trading with the Company's subsidiaries.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Securities
and Exchange Commission 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.
Except for the April 1997 late reporting by Mr. Elzalaki of his disposition
of 778 shares in February 1996, the Company believes that all filing
requirements applicable to its officers and directors were complied with in
1997. 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 11 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") administers
the 1990 Stock Option Plan and 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.
COMPENSATION STRUCTURE AND ADMINISTRATION
The executive compensation program is composed of salary, cash bonuses and
stock options utilized through an integrated and managed approach. In
administering the program during 1997, the Committee sought to:
- Support a pay-for-performance policy that differentiated compensation
based on corporate, business unit and individual performance;
- Motivate senior officers to achieve strategic business initiatives and
reward them for their accomplishments; and
- Align the interests of the Company's key employees with the long-term
interests of shareholders through award opportunities that resulted in
ownership of the Company's common stock.
The Committee utilized several measures of corporate and individual
performance in applying the following process for establishing compensation for
the individuals whose compensation determination is the Committee's
responsibility.
6
<PAGE> 9
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 and the
contributions to the Company which each officer made and is expected to make in
the future.
Cash Bonuses: Cash bonuses were based substantially, but not exclusively,
upon an executive officer's performance as measured against the Company's
progress in globally expanding its businesses and aggressively introducing new
products and services to its customers.
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 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 four meetings with the chief executive
officer. During the first meeting, performance goals for each individual were
established and, during the remaining meetings, performance evaluations were
reviewed and updated.
CORPORATE PERFORMANCE GOALS
The measurement of corporate performance for 1997 was based on the
continued development of the Company's strong global franchise, long-term
shareholder value, annual revenue growth, return on shareholders' equity (ROE)
and earnings per share (EPS). The annual award for the chief executive officer
and the chief financial officer was based on an equal weighting of these factors
as they related to overall corporate performance. The annual award for the other
three most highly compensated executive officers of the Company is also based on
an equal weighting of these factors except that the revenue growth and ROE were
calculated on the performance of the operating division for which each
individual is responsible. In all cases, performance was measured over the four
quarters preceding the granting of the awards.
PERFORMANCE RESULTS
With respect to overall corporate performance, ROE was satisfactory during
the measurement period that ended at the end of the third quarter of 1997, as
was EPS. In addition, overall corporate revenue growth met expectations. With
respect to the three operating divisions, each exhibited positive performance in
spite of a difficult strategic and competitive environment.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Committee granted Mr. Zensen a performance bonus of $175,000 (35% of
base salary) in 1997. The Committee considered that the chief executive
officer's performance toward developing the Company's global franchise, along
with achieving corporate performance goals and the strategic objectives of
succession planning and diversification initiatives, exceeded requirements. Mr.
Zensen's base salary was last adjusted in April 1996.
COMPENSATION FOR OTHER EXECUTIVE OFFICERS
The Committee granted base salary increases during the year to Messrs.
Lazzarini and Walton to reflect increases in job responsibility. In addition,
bonuses were granted in 1997 to Messrs. Mooney, Elzalaki, Walton and Lazzarini.
Mr. Mooney's bonus was based on his contribution toward the achievement of the
corporate performance goals. The bonuses for Messrs. Elzalaki, Walton and
Lazzarini were based on their division's performance. Also contributing to the
size of the awards was Mr. Zensen's evaluation of each officer's functional
responsibility performance, 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 117,000 shares of the Company's common
stock were granted by the Committee to thirty-two employees during 1997, of
which 10,000 shares, or about 9%, were granted to Mr. Lazzarini. None of the
remaining grantees were executive officers. The grants, made at their prevailing
market values, were based on an evaluation of each grantee's ability to
influence the Company's long-term growth and profitability. The Committee
established the number of options granted to each recipient with input from Mr.
Zensen and from operating managers.
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.
/s/ VIRGIL H. JURGENSMEYER, Committee
Chairman
/s/ 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 1997, 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 1997,
1996 and 1995.
The Company has not granted any restricted stock awards or made any
long-term incentive plan pay-outs.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------------------
OTHER NUMBER OF SHARES
ANNUAL UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS GRANTED COMPENSATION(K)
- --------------------------- ---- ------ ----- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dennis C. Zensen 1997 $500,000 $175,000 $ 37,662(a) -- $54,085
President and 1996 481,000 175,000 383,172(b) -- 74,598
Chief Executive Officer 1995 425,000 120,000 310,154(c) -- 23,593
William P. Mooney 1997 220,008 50,000 6,904(a) -- 9,833
Chief Financial Officer 1996 192,508 50,000 133,660(d) -- 8,733
1995 187,500 40,000 68,196(e) 25,000 6,303
Richard F. Lazzarini, Jr. 1997 196,667 40,000 117,823(f) 10,000 9,454
President 1996 190,000 80,000(h) 105,740(g) -- 8,464
Quincy Corporation 1995 187,500 -- 136,318(h) 10,000 7,691
Monir K. Elzalaki 1997 220,000 50,000 92,533(i) -- 9,093
President 1996 192,500 50,000 57,429(j) 10,000 7,105
Sylvan America, Inc. 1995 175,000 40,000 3,867(a) 10,000 6,459
Michael A. Walton 1997 174,783 32,730 -- -- 9,832
Manager 1996 146,334 33,320 -- 20,000 8,780
European Operations 1995 96,738 15,794 -- -- 5,804
</TABLE>
- ---------
(a) Reflects reimbursement for income taxes incurred as a result of
contributions made by the Company on behalf of such officers to its
Nonqualified Target Benefit Annuity Purchase Program.
(b) Consists of Mr. Zensen's recognition of the $331,225 difference between the
exercise and market prices of stock option plan shares which were exercised
in 1993, but 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 his behalf by the Company to its Nonqualified Target Benefit Annuity
Purchase Program.
(c) Consists of Mr. Zensen's recognition of the $293,725 difference between the
exercise and market prices of stock option plan shares which were exercised
in 1993, but 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 his behalf by the Company to its Nonqualified Target Benefit Annuity
Purchase Program.
8
<PAGE> 11
(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 his 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 his behalf by the Company to its Nonqualified Target
Benefit Annuity Purchase Program.
(f) Reflects Mr. Lazzarini's recognition of the $110,816 difference between the
exercise and market prices of stock options which he exercised during the
year and $7,007 reimbursement for income taxes incurred as a result of
contributions made on his behalf 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 his behalf by the Company to its Nonqualified Target
Benefit Annuity Purchase Program.
(h) Reflects Mr. Lazzarini's recognition of the $131,259 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 his behalf by the Company to its Nonqualified Target
Benefit Annuity Purchase Program.
(i) Reflects Mr. Elzalaki's recognition of the $87,089 difference between the
exercise and market prices of stock options which he exercised during the
year and $5,444 reimbursement for income taxes incurred as a result of
contributions made on his behalf by the Company to its Nonqualified Target
Benefit Annuity Purchase Program.
(j) 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 his behalf by the Company to its Nonqualified Target
Benefit Annuity Purchase Program.
(k) Reflects income imputed to each individual as a result of contributions made
by the Company to its Nonqualified Target Benefit Annuity Purchase Program
or, in Mr. Walton's case, to the Company's U.K. subsidiaries' contributory
pension benefit plan, in which Mr. Walton is a participant.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 28, 1997
The following table sets forth as to the persons named in the Summary
Compensation Table information with respect to the Sylvan stock options granted
during the Company's last fiscal year, 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
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE 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. 10,000(a) 8.3% $12.88 01-11-08 $80,970 205,194
Monir K. Elzalaki -- -- -- -- -- --
Michael A. Walton -- -- -- -- -- --
</TABLE>
- ---------
(a) The options granted to employees become exercisable over a three-year period
in increments of one-third of the total per year beginning with the first
anniversary of the date of the grant. The options granted to nonemployee
directors become exercisable six months after the date of the grant.
(b) The Company granted options representing 117,000 shares to employees and
3,000 shares to its nonemployee directors.
(c) Based on the closing sales price of the Company's common stock as reported
on The Nasdaq Stock Market(sm) on the date immediately prior to the date of
the grant. The actual value realized may be greater than or less than the
potential realizable value set forth in the table.
9
<PAGE> 12
AGGREGATED OPTION EXERCISES FOR THE YEAR ENDED DECEMBER 28, 1997
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 28, 1997 and (iv) the value of such
stock options at December 28, 1997.
<TABLE>
<CAPTION>
NO. OF SHARES UNDERLYING VALUE OF UNEXERCISED
NO. OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT 12/28/97 AT 12/28/97(B)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
D. C. Zensen -- -- -- -- -- --
W. P. Mooney -- -- 91,667 8,333 218,715 12,500
R. F. Lazzarini, Jr. 28,329 110,816 8,338 3,333 17,301 6,666
M. K. Elzalaki 19,366 87,089 18,334 10,000 34,793 24,600
M. A. Walton -- -- 21,667 13,333 57,292 8,333
</TABLE>
- ---------
(a) Market value on the date of exercise less the option price.
(b) The fair market value of the common stock at December 28, 1997 was $13.00
per share.
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 is the only person 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.
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 1993 through 1997 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 Company utilizes the Russell because it
has not been able to construct a peer group which exhibits Sylvan's product and
geographical components. The graph assumes a $100 investment on December 31,
1992 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>
12/31/92 100.00 100.00 100.00
12/31/93 89.47 110.08 117.00
12/31/94 113.81 111.53 113.28
12/31/95 125.00 153.45 142.97
12/31/96 136.84 188.68 164.07
12/31/97 147.37 251.63 197.74
</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 L.L.C. 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 28, 1997. 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 1999, must be received by the Company at 333 Main Street, P. O.
Box 249, Saxonburg, PA 16056-0249 on or before November 30, 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., 333 Main Street, P. O. Box 249, Saxonburg, PA
16056-0249.
By Order of the Board of Directors
FRED Y. BENNITT
Secretary
March 23, 1998
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 6, 1998, 11:00 A.M. (NEW YORK TIME)
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 6,
1998 (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 out 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
Please mark
your votes as [X]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
Election of the following five Directors:
FOR all Nominees Withhold
listed to the right Authority
(except as marked to the to vote for all nominees
contrary) listed to the right
[ ] [ ]
Dennis C. Zensen, Virgil H. Jurgensmeyer, William L. Bennett, Richard F.
Lazzarini, Jr., Donald T. Pascal
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.)
- -------------------------------------------------------------------------------
I PLAN TO ATTEND THE
ANNUAL MEETING. [ ]
Please date and sign exactly as your name appears hereon and return in the
enclosed envelope. If acting as attorney, executor, administrator, guardian or
trustee, please 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____________________________, 1998
______________________________________
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 23, 1998, and hereby ratifies all that the said
proxies may do by virtue hereof.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FOLD AND DETACH HERE
