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[GARDEN BOTANIKA LOGO]
8624 154TH AVENUE N.E.
REDMOND, WA 98052
(425) 881-9603
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
To the Shareholders of Garden Botanika, Inc.
Notice is hereby given that the 1997 Annual Meeting of the Shareholders of
Garden Botanika, Inc. (the "Company") is scheduled to be held in the Marymoor
Meeting Room at the DoubleTree Hotel Bellevue (formerly, the Bellevue Red Lion
Inn), 300 112th Avenue S.E., Bellevue, Washington on Wednesday, July 2, 1997 at
5:00 p.m. local time for the following purposes:
1. To elect two directors in Class 1 for terms expiring at the 1998
Annual Meeting of Shareholders, two directors in Class 2 for terms expiring
at the 1999 Annual Meeting of Shareholders, and two directors in Class 3
for terms expiring at the 2000 Annual Meeting of Shareholders.
2. To approve an increase in the number of shares authorized to be
issued under the terms of the Company's 1992 Combined Incentive and
Nonqualified Stock Option Plan from 398,217 shares of Common Stock to
1,089,038 shares of Common Stock.
3. To ratify the selection of Arthur Andersen LLP as the independent
public auditors of the Company for the current fiscal year.
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business of May 2, 1997 will be
entitled to notice of, and to vote at, this meeting and any adjournments
thereof.
By order of the Board of Directors
LOGO
Michael W. Luce, President
Redmond, Washington
May 29, 1997
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
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GARDEN BOTANIKA, INC.
8624 154TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(425) 881-9603
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PROXY STATEMENT
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INFORMATION REGARDING PROXIES
This proxy statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies on behalf of the Board of Directors
of Garden Botanika, Inc. ("Garden Botanika" or the "Company") for the Annual
Meeting of Shareholders to be held at 5:00 p.m. local time on Wednesday, July 2,
1997 (the "Annual Meeting") in the Marymoor Meeting Room at the DoubleTree Hotel
Bellevue (formerly, the Bellevue Red Lion Inn), 300 112th Avenue S.E., Bellevue,
Washington. Only shareholders of record at the close of business on May 2, 1997
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
The Company anticipates that it will first mail this proxy statement and the
enclosed proxy, together with its annual report for the fiscal year ended
February 1, 1997, on June 2, 1997, to shareholders entitled to vote at the
Annual Meeting.
When you sign and return the enclosed proxy, the shares represented thereby
will be voted (1) for the nominees for director listed in Class 1, Class 2 and
Class 3; (2) for the proposed increase in the number of shares authorized to be
issued under the terms of the Company's 1992 Combined Incentive and Nonqualified
Stock Option Plan (the "Employee Plan"); and (3) for the approval of auditors,
unless otherwise indicated on the proxy. The enclosed proxy permits you to
withhold authority for one or more nominees, to vote against the increase in the
number of shares authorized under the Employee Plan and against the approval of
auditors. On all matters, shareholders are entitled to one vote per share, and
shareholders do not have the right to cumulate votes in the election of
directors.
Returning your completed proxy will not prevent you from voting in person
at the Annual Meeting should you be present and wish to do so. In addition, you
may revoke your proxy at any time before it is voted by sending notice prior to
the Annual Meeting to ChaseMellon Shareholder Services, 520 Pike Street, Suite
1220, Seattle, Washington 98101. If you submit more than one proxy, each
later-dated proxy will revoke all previous proxies.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The only outstanding voting securities of the Company are shares of common
stock (the "Common Stock"), each of which is entitled to one vote. As of the
Record Date, there were 7,069,098 shares of Common Stock issued and outstanding.
The presence in person or by proxy of holders of a majority of the outstanding
shares of Common Stock is required to constitute a quorum for the transaction of
business at the Annual Meeting.
Under Washington law and the Company's Articles of Incorporation, if a
quorum is present at the Annual Meeting, directors will be elected by a
plurality of the votes cast by the holders of shares represented in person or by
proxy. Approval of Items 2 and 3 each requires the affirmative vote of a
majority of the votes cast at the meeting by the holders of shares represented
in person or by proxy. Abstentions and broker non-votes are counted as shares
present for determination of a quorum but are not counted as affirmative or
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negative votes on any item to be voted upon and are not counted in determining
the amount of shares voted on any item.
ITEM ONE -- ELECTION OF DIRECTORS
Commencing with the Annual Meeting, the Board of Directors will consist of
three classes, as nearly equal in number as possible. At the Annual Meeting, the
directors in Class 1 will be elected for a one-year term, the directors in Class
2 will be elected for a two-year term, and the directors in Class 3 will be
elected for a three-year term. Thereafter, directors elected to succeed those
directors whose terms expire will each be elected for a three-year term of
office, so that directors will hold office for staggered terms of three years
(and until their successors are elected and qualified).
The Company's Board of Directors is authorized to set the number of
directors, so long as the number is not less than three nor more than nine, and
so long as any reduction in the number of members does not have the effect of
shortening the term of an incumbent director. The number of members on the Board
of Directors is now set at six.
Information as to each nominee in Class 1, 2 and 3 is set forth below. The
Board of Directors expects all nominees named below to be available for
election. In case any nominee is not available, the proxy holders may vote for a
substitute. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING
NOMINEES.
NOMINEES FOR DIRECTOR
CLASS 1: TERMS EXPIRING AT 1998 ANNUAL MEETING OF SHAREHOLDERS
Damon H. Ball, age 40, has been a director of the Company since 1995. Mr.
Ball has been a Senior Vice President of Desai Capital Management Incorporated
("DCMI") since December 1993 and, for the five years prior to that, served as a
Vice President of DCMI. DCMI is a specialized equity investment management firm
which manages the assets of various institutional clients, including
Equity-Linked Investors, LP and Equity-Linked Investors II.
Gerald R. Gallagher, age 56, has been a director of the Company since 1991.
Since April 1987, Mr. Gallagher has been a general partner of Oak Investment
Partners, a venture capital partnership. For more than 25 years, he has been
involved with the retail industry, holding positions as a research analyst,
manager and venture capitalist. Before joining Oak Investment Partners, Mr.
Gallagher was Vice Chairman of Dayton Hudson Corporation where, for ten years,
he served in both operating and staff positions. From 1969 to 1977, Mr.
Gallagher was the retail company research analyst at Donaldson, Lufkin &
Jenrette Securities Corporation. Mr. Gallagher is also a director of nine
private retail and restaurant companies.
CLASS 2: TERMS EXPIRING AT 1999 ANNUAL MEETING OF SHAREHOLDERS
William B. Randall, age 76, has been a director of the Company since 1990.
Mr. Randall founded Randall International in 1989 and has been its President and
Chief Executive Officer since its inception. Randall International is engaged in
manufacturing and packaging personal care products for private spas, resorts and
hotels, and manufactures certain products for Garden Botanika in accordance with
the Company's specifications. From 1974 to 1986, Mr. Randall was President of La
Costa Products International, which created and manufactured numerous body care
products under the "La Costa Spa" brand. Prior to that, Mr. Randall was
President and the founder of Renauld Incorporated, a maker of fashion
sunglasses, and Sea and Ski Company, a marketer of sun protection products.
Dale J. Vogel, age 52, has been a director of the Company since 1991. Mr.
Vogel has been a general partner with U.S. Venture Partners since 1990. From
1984 to 1990, Mr. Vogel was a general partner of Norwest Venture Capital and,
from 1980 to 1984, President of K2 Corporation, a privately held ski company.
Mr. Vogel was President of JanSport, a sporting goods apparel manufacturer, from
1979 to 1980. Mr. Vogel is
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also a director of Leeann Chinn, Inc. and Cucina, Cucina, Inc., both of which
are restaurant companies, as well as Chronology Corporation and Portable
Software, Inc.
CLASS 3: TERMS EXPIRING AT 2000 ANNUAL MEETING OF SHAREHOLDERS
Jeffrey H. Brotman, age 54, is a co-founder of the Company and has served
as Chairman of the Board and Secretary since 1990. Mr. Brotman is also a founder
and currently Chairman of the Board of Costco Wholesale, a warehouse-format
discount retailer. In addition, Mr. Brotman is a director of Starbucks
Corporation and The Sweet Factory. Mr. Brotman also serves as a Trustee of the
University of Washington Medical Center, the Seattle Foundation, The Seattle Art
Museum, and The International Council of Shopping Centers. Mr. Brotman also
serves on the Advisory Board of Seafirst Bank.
Michael W. Luce, age 46, is a co-founder of the Company and has served as a
director and its President and Chief Executive Officer since its formation in
1989. Prior to founding Garden Botanika, Mr. Luce was President and Chief
Operating Office of Eddie Bauer Company ("Eddie Bauer"), an outdoor clothing
retailer, until it was acquired by Spiegel, Inc. in 1988. From 1984 to 1988,
before becoming its President, Mr. Luce held various positions in the store and
mail-order divisions of Eddie Bauer, including General Merchandise Manager and
Vice President of Marketing. Prior to joining Eddie Bauer, Mr. Luce was employed
for nine years at the Meier and Frank Company, a Portland, Oregon-based
department store chain and a division of May Company, where, among other
positions, he served as a Divisional Vice President. Mr. Luce graduated from
Harvard University and obtained a Masters of Business Administration degree from
the Amos Tuck School of Dartmouth College.
VOTING SECURITIES AND PRINCIPAL HOLDERS
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS:
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 10, 1997 by each director
and nominee; by the following group of individuals, who are collectively
referred to as "the Named Officers": (i) all individuals serving as the
Company's Chief Executive Officer or acting in a similar capacity during the
fiscal year ending February 1, 1997 and (ii) the four most highly paid executive
officers of the Company other than the Chief Executive Officer who were serving
as executive officers at the end of the year ending February 1, 1997; and by all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF
NAME BENEFICIAL OWNERSHIP PERCENTAGE
---------------------------------------------------------- -------------------- ----------
<S> <C> <C>
Damon H. Ball(1).......................................... 855 *
Jeffrey H. Brotman(2)..................................... 161,442 2.23%
Gerald R. Gallagher(3).................................... 422,191 5.64%
Michael W. Luce(4)........................................ 145,552 2.02%
William B. Randall(5)..................................... 12,299 *
Dale J. Vogel(6).......................................... 40,497 *
C. Michael Fisher(7)...................................... 35,074 *
Arlee J. Jensen(8)........................................ 53,858 *
Myron E. Kirkpatrick(9)................................... 8,492 *
Jeffrey C. Mason(10)...................................... 5,718 *
All directors and executive officers as a group (13
persons)................................................ 785,465 11.11%
</TABLE>
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* Less than one percent.
(1) Represents shares of Common Stock that are issuable upon the exercise of
currently exercisable options.
(2) Includes 22,336 shares of Common Stock held by Mr. Brotman's spouse; 28,564
shares held by the 1991 Brotman's Children's Trust, John Meisenbach TTE as
to which Mr. Brotman disclaims beneficial ownership; and 10 shares held by
Mr. Brotman's minor son as to which Mr. Brotman also disclaims
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beneficial ownership. Also includes 5,271 shares of Common Stock that are
issuable upon the exercise of currently exercisable options.
(3) Represents 402,638 shares of Common Stock held by Oak Investment Partners
IV, Limited Partnership, and 15,808 shares of Common Stock held by Oak IV
Affiliates Fund, Limited Partnership. Mr. Gallagher is a managing member of
Oak Associates IV, L.L.C., which is the general partner of Oak Investment
Partners IV, Limited Partnership. Mr. Gallagher has shared voting and
investment power with respect to such shares but disclaims beneficial
ownership. Also includes 3,745 shares of Common Stock that are issuable
upon the exercise of currently exercisable options.
(4) Includes 5,084 shares of Common Stock held by certain family members of Mr.
Luce for which Mr. Luce may be deemed a beneficial owner. Also includes
12,711 shares of Common Stock that are issuable upon the exercise of
currently exercisable options.
(5) Includes 1,063 shares of Common Stock held by Southwest Securities, Inc.
FBO William Randall IRA and 500 shares of Common Stock held by Mr.
Randall's spouse. Also includes 5,271 shares of Common Stock that are
issuable upon the exercise of currently exercisable options.
(6) Represents 32,233 shares of Common Stock held by U.S. Venture Partners III,
a California Limited Partnership; 336 shares of Common Stock held by U.S.V.
Entrepreneur Partners, a California limited partnership; and 1,007 shares
of Common Stock held by Second Ventures Limited Partnership. Mr. Vogel is a
partner of U.S. Venture Partners III and disclaims beneficial ownership of
such shares. Also includes 667 shares of Common Stock held by Mr. Vogel's
spouse and 4,254 shares of Common Stock that are issuable upon the exercise
of currently exercisable options.
(7) Includes 33,682 shares of Common Stock that are issuable upon the exercise
of currently exercisable options and 1,059 shares of Common Stock that are
issuable upon the exercise of options exercisable within 60 days.
(8) Includes 200 shares of Common Stock held by Ms. Jensen's spouse for the
benefit of a minor child and 25,738 shares of Common Stock that are
issuable upon the exercise of currently exercisable options.
(9) Includes 1,000 shares held in an IRA account; 50 shares held by Mr.
Kirkpatrick's spouse as to which Mr. Kirkpatrick disclaims beneficial
ownership; and 37 shares held by Mr. Kirkpatrick's unadopted stepdaughter,
as to which Mr. Kirkpatrick also disclaims beneficial ownership. Also
includes 6,355 shares of Common Stock that are issuable upon the exercise
of currently exercisable options.
(10) Represents 5,400 shares of Common Stock that are issuable upon the exercise
of currently exercisable options and 318 shares of Common Stock that are
issuable upon the exercise of options exercisable within 60 days.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS(1):
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 10, 1997 by each person
known by the Company to be the beneficial owner of more than five percent of the
Company's Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK/AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------- ------------------------------ ----------
<S> <C> <C>
BankAmerica Ventures(2)................................ 759,232 10.7%
950 Tower Lane, Suite 700
Foster City, CA 94104
Equity-Linked Investors, LP(3)......................... 522,306 7.4%
540 Madison Avenue, 36th Floor
New York, NY 10022
Oak Investment Partners IV, Limited Partnership(4)..... 425,115 6.0%
c/o Oak Investment Partners
4550 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Weiss, Peck & Greer, L.L.C.(5)......................... 382,500 5.4%
One New York Plaza
New York, NY 10004
Olympus Private Placement Fund, L.P.................... 378,577 5.4%
One Station Place
Stanford, CT 06902
</TABLE>
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(1) This table is based upon information supplied by officers, directors,
principal shareholders and Schedules 13G filed with the Securities and
Exchange Commission (the "Commission"). The Schedules 13G received by the
Company were dated as early as February 5, 1997 and as late as February 14,
1997.
(2) Does not include 30,000 shares over which BankAmerica Corporation ("BAC"),
the ultimate parent corporation of BankAmerica Ventures, has shared voting
power due to the corporate relationships of lower-tier BAC subsidiaries.
(3) Includes 261,153 shares of Common Stock held by Equity-Linked Investors II,
a related New York limited partnership. The general partners and the
managing general partner of these partnerships, together with the sole
stockholder of the managing general partner, may be deemed to have shared
voting and/or dispositive power over such shares.
(4) Consists of 409,017 shares and options for shares of Common Stock held by
Oak Investment Partners IV, Limited Partnership, and 16,098 shares and
options for shares of Common Stock held by Oak IV Affiliates Fund, Limited
Partnership, over which common owners may be deemed to have shared voting
and dispositive power.
(5) Consists of 382,500 shares of Common Stock over which Weiss, Peck & Grier
("WP&G") has shared voting and dispositive power. The shares are held in
various discretionary accounts of certain clients for whom WP&G acts as a
broker-dealer and/or investment manager.
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors held six meetings during fiscal year 1996. The
Company has established two standing committees of the Board of Directors, an
Audit Committee and a Compensation Committee, and does not have a standing
Nominating Committee.
The purpose of the Audit Committee is to review the functions of the
Company's management and independent auditors pertaining to the Company's
financial statements and perform such other related duties and functions as are
deemed appropriate by the Audit Committee and the Board of Directors. The Audit
Committee held four meetings during fiscal year 1996. Messrs. Ball and Vogel are
the members of the Audit Committee.
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The purpose of the Compensation Committee is to determine officer and
director compensation and administer the Company's Employee Plan. The
Compensation Committee held one meeting during fiscal year 1996. Messrs.
Brotman, Gallagher and Vogel are the members of the Compensation Committee.
All directors attended 75% or more of the aggregate number of meetings of
the Board and committees on which they served.
DIRECTORS' COMPENSATION AND BENEFITS
Nonemployee directors of the Company are reimbursed for reasonable
out-of-pocket expenses in connection with their travel to and attendance at
Board of Directors meetings. Starting in fiscal 1997, under the terms of the
1996 Directors' Nonqualified Stock Option Plan (the "Directors Plan"), each
nonemployee director will receive an automatic grant of an option to purchase
1,271 shares of Common Stock upon his or her election or appointment to the
Board of Directors and thereafter at each Annual Meeting of the Board of
Directors for as long as the individual continues to serve as a director of the
Company. The exercise price of options granted under the Directors' Plan must
equal the fair market value of the Common Stock on the date of grant. Options
will vest at the rate of one-twelfth per month so that each year's options are
fully vested at the end of one year.
The Annual Meeting of the Board of Directors for fiscal 1997 is scheduled
to be held following the Annual Meeting of Shareholders on July 2, 1997, at
which time the Company expects options to purchase an aggregate of 7,626 shares
will be granted to current directors. To date, no options have been granted
under the Directors' Plan.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation information for
the Named Officers for the indicated calendar years.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- ------------------------------------- ---- --------- -------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Michael W. Luce...................... 1996 $ 253,076 -- 120,580 $ 4,125(1)
President and Chief Executive 1995 $ 216,923 $30,000 31,780 $ 2,032(1)
Officer 1994 $ 183,531 -- -- --
C. Michael Fisher.................... 1996 $ 180,750 $17,079 40,700
Senior Vice President -- 1995 $ 174,423 $40,820 19,067 $ 240(1)
Operations 1994 $ 153,591 $ 5,000 6,355
Arlee J. Jensen...................... 1996 $ 178,272 $15,132 40,000 $ 2,527(1)
Senior Vice President -- 1995 $ 170,192 $36,094 19,067 $ 1,286(1)
Merchandising and Marketing 1994 $ 131,808 $ 5,000 6,355
Myron E. Kirkpatrick................. 1996 $ 155,290 $ 7,207 22,200 --
Vice President -- Finance and 1995(2) $ 117,115 -- 15,889
Chief Financial Officer 1994 -- -- -- --
Jeffrey C. Mason..................... 1996 $ 161,660 $10,363 23,400 --
Vice President -- Real Estate and 1995(2) $ 148,846 -- 12,710 $ 25,243(3)
Construction 1994 -- -- -- --
</TABLE>
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(1) Represents term life insurance and medical insurance premiums.
(2) Messrs. Kirkpatrick and Mason joined the Company during fiscal 1995. If
Messrs. Kirkpatrick and Mason had been employed by the Company during the
entire fiscal year at the same annual base salary rate, their annual
salaries would have been $145,000 and $150,000, respectively.
(3) Represents relocation and related expenses.
STOCK OPTIONS
OPTION GRANTS IN FISCAL YEAR 1996
The following table provides information on option grants to the Named
Officers in fiscal 1996. Individual grants are listed separately for each Named
Officer. In addition, this table shows the potential gain that could be realized
if the fair market value of the Company's Common Stock were to appreciate at
either a 5% or 10% annual rate for the period of the option term.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED ANNUAL
---------------------------------------------------- RATES OF STOCK PRICE
% OF TOTAL APPRECIATION FOR OPTION
SECURITIES GRANTED TO TERM(3)
UNDERLYING EMPLOYEES EXERCISE -----------------------
NAME OPTIONS(#) IN 1996(2) PRICE EXPIRATION DATE 5% 10%
- --------------------------- ---------- ---------- -------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Luce............ 120,580 25.4% $8.625 10/16/06 $654,052 $1,657,496
C. Michael Fisher.......... 40,700 8.6% $8.625 10/16/06 $220,766 $ 559,463
Arlee J. Jensen............ 40,000 8.4% $8.625 10/16/06 $216,969 $ 549,841
Myron E. Kirkpatrick....... 22,200 4.7% $8.625 10/16/06 $120,418 $ 305,162
Jeffrey C. Mason........... 23,400 4.9% $8.625 10/16/06 $126,927 $ 321,657
</TABLE>
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(1) All options were granted at fair market value at the date of grant. All
options vest annually over a four-year period and expire after ten years and
two days. See also "Employment Agreements and Change in Control
Arrangements."
(2) Based on an aggregate of 474,635 shares subject to options granted to
employees in the fiscal year ended February 1, 1997.
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(3) The assumed rates of growth are prescribed by the Commission for
illustrative purposes only and are not intended to predict or forecast
future stock prices, nor do they reflect the Company's estimate of future
stock price growth.
1996 FISCAL YEAR-END OPTION VALUES
The following table shows the value of option grants outstanding as of
February 1, 1997 for each Named Officer. None of the Named Officers exercised
options in 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS(1)
UNDERLYING OPTIONS -----------------------------
--------------------------------- EXERCISABLE UNEXERCISABLE
NAME EXERCISABLE(#) UNEXERCISABLE(#) ($ VALUE) ($ VALUE)
- --------------------------------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael W. Luce........................ 6,355 146,005 -- --
C. Michael Fisher...................... 27,009 70,893 -- --
Arlee J. Jensen........................ 20,654 59,068 $23,360 --
Myron E. Kirkpatrick................... 3,177 34,912 -- --
Jeffrey C. Mason....................... 4,447 31,663 -- --
</TABLE>
- ---------------
(1) Calculation based on the spread between the closing sale price of $9.50 per
share of Common Stock on the last trading day before February 1, 1997 and
the exercise price of the grants.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into an employment agreement with Mr. Luce which
provides for an annual base salary of $150,000 and pursuant to which the Company
agreed, among other things, to review the level of Mr. Luce's compensation every
six months and, with the proceeds of insurance (if any) on the life of Mr. Luce
obtained by the Company, to repurchase Company stock owned by his estate in the
event of his death at the "fair market value" of such stock, as determined by an
appraisal. In addition, Mr. Luce agreed not to participate, while an employee of
the Company and for a period of two years thereafter, in a business or
enterprise that competes with the Company.
In the event that Mr. Luce is terminated for any reason other than for
cause, including termination in connection with a change of control of the
Company, he is entitled to one year's salary, any benefits that would have
accrued during such one-year period and any reimbursable out-of-pocket expenses
incurred prior to termination. Mr. Luce forfeits such termination benefits in
the event he breaches either the noncompete or confidentiality provisions of his
employment agreement.
The Company has entered into an Option and Severance Agreement with Mr.
John A. Garruto, the Company's Vice President of Research and Product
Development, which provides for an annual base salary of $130,000. In addition,
Mr. Garruto received stock options to purchase 25,424 shares of Common Stock at
$1.97 per share, which options vest monthly over a five-year period for as long
as Mr. Garruto is employed by the Company. These options were not granted under
the Company's Employee Plan. In the event Mr. Garruto is terminated without
cause (as determined by the Company's Board of Directors), he will be entitled
to severance payments equal to his then-current salary for nine months following
the effective date of termination.
The Company has also entered into an agreement with Mr. Kirkpatrick, who
has announced his retirement, which provides that he will continue as the
Company's Chief Financial Officer until the earlier of October 31, 1997 or
thirty days following the appointment of a successor to his position. After that
time, for a period of six months, Mr. Kirkpatrick will continue to serve the
Company as a consultant for a fee of $5,000 per month. At the end of the
six-month period, the Company has agreed to cause options for 5,000 shares of
the Company's Common Stock with the lowest exercise price then held by Mr.
Kirkpatrick (or, if lower, then held by any employee granted options subsequent
to his retirement announcement) to vest as of such date and to remain
exercisable for three years.
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In addition, the Company has entered into a Stock Option Agreement and
Payment Obligation with Mr. Mason, which includes the grant of options to
purchase 9,533 shares of Common Stock at $9.83 per share, which options vest
monthly over a five-year period (the "Option Period"). The agreement with Mr.
Mason obligates the Company at the end of the Option Period to pay him the
difference, if any, between the value of all options granted and Common Stock
issued to Mr. Mason prior to such date and $1.0 million, except that, if and to
the extent the value of such options and Common Stock shall have exceeded
$670,000 at any time during the Option Period, the Company's obligation shall be
reduced. The Company, which records a liability for this agreement on a
quarterly basis during the Option Period, recorded a liability of $206,500 for
fiscal 1996 and has accrued a total liability of $399,000 through February 1,
1997. The payment obligation will vary, depending on the extent of future option
grants, if any, and the value of Mr. Mason's options. The obligation may be
satisfied by accelerating existing options, granting additional options or
making a cash payment. The Company has a similar obligation in the event of a
change of control of the Company. In addition, in the event he is not employed
throughout the Option Period and has not been terminated for cause, Mr. Mason is
entitled to vested options, upon termination of employment, for shares with a
value of $200,000 for each year or part of a year in which he has worked for the
Company. The Company has also entered into an employment agreement with Mr.
Mason which provides a base annual salary of $150,000.
Under the Employee Plan, outstanding options vest, at the discretion of the
Compensation Committee, upon the occurrence of certain transactions, including
certain mergers and other business combinations involving the Company.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the Company
determined and administered the compensation of the Company's executive officers
during fiscal 1996.
COMPENSATION PRINCIPLES
The Compensation Committee believes that a significant portion of executive
compensation should be at risk, that performance should be rewarded, that the
financial interests of executive officers should be aligned with shareholders
through stock ownership, and that compensation should be competitive with others
in the personal care products industry. We have structured executive
compensation at Garden Botanika to meet these criteria.
The Company's executive compensation program consists of three components:
(i) base salaries, (ii) short-term incentives in the form of annual cash
bonuses, and (iii) long-term incentives in the form of stock options. At higher
management levels, the mixture of components is weighted more heavily toward
variable performance-based incentives. In developing its compensation program
and setting compensation levels, the Company has consulted with compensation
experts and reviewed prior years' compensation levels among comparable
executives.
Base salary levels are vital to the Company's ability to attract and retain
qualified key officers. Increases in salary, if appropriate, are made on the
basis of an annual performance rating of the individual. In formulating a
performance rating, the Compensation Committee considers an individual's
contribution to sales increases, operating efficiency, expense control, earnings
and expansion. Qualitative factors, such as leadership ability, are also
recognized.
The purpose of annual cash bonus awards, which are paid after the fiscal
year-end, is to provide a direct linkage between executive compensation and the
Company's overall annual performance. At the beginning of each fiscal year, the
Compensation Committee and the Board of Directors establish target annual
financial performance levels for the Company. At the end of each fiscal year,
the Compensation Committee and the Board of Directors rate the Company's prior
year's performance based, in part, on its financial achievements (in relation to
the target performance levels for that year) and, in part, on a variety of
qualitative assessments. For awards made in 1996, based on the prior fiscal
year's performance, the cash awards reflected a
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<PAGE> 11
combination of the Company's overall rating and an individual's performance
rating. Based on the disappointing results produced by the Company in 1996, no
executive cash bonuses will be paid for that year.
Stock option grants to executives constitute the long-term equity incentive
component of the Company's compensation program, the purpose of which is to
strengthen the link between the executive's compensation and the Company's
long-term stock performance. Stock options are granted at the fair market value
of the Company's Common Stock on the date of grant and expire after ten years
and two days. The Compensation Committee determines the vesting schedule, which
is generally in equal increments annually over the course of four or five years.
In determining stock option awards, the Compensation Committee considers the
executive's expected contributions toward meeting the Company's long-term
strategic goals and grants of options in prior years.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1996, Garden Botanika's most highly compensated officer was
Michael W. Luce, President and Chief Executive Officer of the Company since its
inception in 1989. Mr. Luce's 1995 performance, which was the basis for setting
the level of his compensation for fiscal 1996, was reviewed by the Compensation
Committee and discussed with the Board of Directors and Mr. Luce. In addition,
the Committee relied on information developed with the assistance of an
independent executive compensation consulting firm, Watson Wyatt Worldwide.
Based upon market studies of pay levels for chief executive officers at
comparable retailers and companies producing personal care products, the
Compensation Committee determined that Mr. Luce's base salary had been somewhat
below the competitive average for his position.
The Committee noted that, during fiscal 1995, the Company had approximately
doubled its sales volume and opened 66 stores, increasing its store base by
approximately 77%. This growth in new stores was accomplished while maintaining
comparable store sales growth of approximately 16%. In addition, the Company's
mail order division became instrumental in driving store sales, and the
Company's store division achieved profitability for the first time. In fiscal
1995, the Compensation Committee noted that Garden Botanika had joined The Body
Shop and Bath and Body Works as a nationally recognized specialty retailer of
personal care products, and had positioned itself for the registration and
initial public offering of its Common Stock. The Compensation Committee also
noted, however, that the Company needed to improve its performance in meeting
certain financial targets, such as overall sales and store contribution margins.
Against this background, Mr. Luce's annual salary for fiscal 1996 was increased
to $253,076 (or approximately 17%), but no annual cash bonus for the year was
awarded.
The Compensation Committee also determined that equity-based incentive
compensation should increase as a significant portion of Mr. Luce's total
compensation so that the value ultimately realized by Mr. Luce would depend
directly on the long-term performance of the Company and would be commensurate
with the value realized by shareholders. In fiscal 1996, the Committee granted
Mr. Luce a nonqualified stock option to purchase 120,580 shares of Common Stock
which, if an amendment to the Company's Employee Plan is approved by
shareholders, would be governed by the terms of that plan.
INTERNAL REVENUE CODE SECTION 162
Under Section 162 of the Internal Revenue Code of 1986, as amended (the
"Code"), the federal income tax deduction for compensation paid to the Chief
Executive Officer and the four most highly compensated other executive officers
of publicly held corporations is limited to $1 million per officer per fiscal
year, unless the compensation qualifies as "performance-based compensation"
under Section 162(m) of the Code. The Compensation Committee is aware of this
limitation and believes that no compensation paid by the Company during 1997
will exceed the $1 million limitation.
Compensation Committee
Jeffrey H. Brotman
Gerald R. Gallagher
Dale J. Vogel
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<PAGE> 12
STOCK PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return on the
Common Stock for the period beginning on May 22, 1996, the date the Company's
shares began trading on the Nasdaq National Market, and ending on February 1,
1997, the last day of the Company's 1996 fiscal year, with the cumulative total
return on the Nasdaq Stock Market (U.S.) Index and the Nasdaq Retail Trade
Stocks Index over the same period. The comparison assumes $100 was invested on
May 22, 1996 in the Common Stock and in each of the indices and assumes
reinvestment of dividends, if any, since that date. The Company has not paid
cash dividends on the Common Stock. Historic stock price is not indicative of
future stock performance.
LOGO
(1) Assumes $100 investment on May 22, 1996.
ITEM 2 -- INCREASE IN SHARES AUTHORIZED UNDER THE EMPLOYEE PLAN
In May 1993, the Company's shareholders approved the Company's 1992
Combined Incentive and Nonqualified Stock Option Plan (the "Employee Plan"). The
Company is currently authorized to issue 398,217 shares of Common Stock upon the
exercise of options granted under the Employee Plan.
At the Annual Meeting, the shareholders will be asked to approve an
amendment to the Employee Plan that would increase the number of shares
authorized to be issued under its terms from 398,217 shares to 1,089,038 shares.
The Company believes that the increase is necessary and appropriate in order to
accommodate executive officers and other employees who were granted options in
fiscal 1996 (as the "1995 Performance Awards") and to enable Garden Botanika to
continue to attract and retain experienced employees in the future.
In October 1995, the Company's shareholders last approved an increase in
the number of shares authorized for issuance under the Employee Plan to 398,217
shares (after giving effect to a reverse stock split). At that time, the Company
believed that this number would be adequate to support annual employee
performance awards in the near term, as well as to provide an option pool for
use in attracting new employees. Since that time, the Company's Compensation
Committee solicited and obtained the report of an independent executive
compensation consulting firm, Watson Wyatt Worldwide, that recommended, among
other things, that a significant percentage of the compensation of key
executives be tied to the Company's long-term stock performance. In making the
Company's 1995 Performance Awards, the Compensation Committee thus
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<PAGE> 13
granted options for a total of 449,635 shares of Common Stock to the Company's
executive officers and key employees. However, because that amount exceeded the
total number of shares of Common Stock authorized and remaining to be issued
under the Employee Plan, the Compensation Committee, under the authority of the
Board of Directors, did not make the grant under the terms of that plan. To
allow the approximately 130 holders of 1995 Performance Awards to have the full
benefits of participation in the Employee Plan, the Board of Directors now
recommends that shareholders approve an increase in the total number of shares
authorized to be issued under its terms.
In addition to authorizing enough shares to accommodate the 1995
Performance Awards, the Board of Directors also recommends reserving additional
shares to accommodate awards for more recent employee performance and as an
inducement to attract qualified new employees. To determine an appropriate
amount for the increase, the Board of Directors requested and received from its
investment bankers a survey showing the number of shares reserved for issuance
under the stock option plans of comparable public companies. Based on the
results of that survey, the Board of Directors concluded that the 1,089,038
shares proposed to be reserved for issuance under the Employee Plan, when added
to all other shares of Common Stock reserved for issuance under all other
authorized options and outstanding warrants, would be consistent with the
actions of comparable public companies. The Board thus concluded that the
proposed increase represents an appropriate amount to submit to shareholders for
their approval.
The affirmative vote of at least a majority of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote on the proposal is required for approval of the amendment to the Employee
Plan. Unless instructed otherwise, it is the intention of the persons named in
the accompanying form of proxy to vote shares represented by properly executed
proxies in favor of the proposed amendment to the Employee Plan. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE INCREASE IN THE NUMBER OF
SHARES AUTHORIZED TO BE ISSUED UNDER THE TERMS OF THE EMPLOYEE PLAN.
DESCRIPTION OF THE EMPLOYEE PLAN
The following description of the Employee Plan is qualified in its entirety
by reference to the full text of such plan, a copy of which may be obtained by
shareholders of the Company upon written request directed to the Company's
General Counsel at the address listed on the first page of this proxy statement.
General. The Employee Plan provides for the grant of incentive stock
options ("ISOs") within the meaning of section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and nonqualified stock options ("NQSOs") (see
"Federal Income Tax Effects of Participation in the Employee Plan" below for
information concerning the tax treatment of ISOs and NQSOs). The Employee Plan
was effective as of July 21, 1992, and options may be granted under its terms
from time to time until July 21, 2002. Termination of the Employee Plan will not
terminate any option granted before termination.
As of May 15, 1997, options to purchase an aggregate of 262,874 shares of
Common stock were outstanding under the Employee Plan (net of forfeitures by
employees who subsequently terminated their employment with the Company) at
exercise prices ranging from $7.87 to $13.77 per share, with a weighted average
exercise price of $11.19 per share. At that date, 127,796 shares of Common Stock
were available for grant under the Employee Plan. Options for 2,156 shares were
exercised during 1996 for a net realizable value by optionees of $1,874. The
total number of shares reserved for issuance under the Employee Plan will be
adjusted in the event of certain changes to the Company's capital structure,
such as stock dividends, stock splits or other recapitalizations.
Administration. The Employee Plan is administered by the Compensation
Committee, which consists of three members of the Board of Directors who are not
employees of the Company. The Compensation Committee determines the executive
officers and employees to whom options will be granted, the exercise prices, the
number of shares covered by each grant and all other terms and conditions of the
grants. In accordance with the terms of the Employee Plan, the Compensation
Committee has delegated to the Company's President the authority to grant NQSOs
to employees who are not subject to Section 16 of the
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<PAGE> 14
Securities Exchange Act of 1934 (the "Exchange Act") with respect to the
Company's Common Stock. In connection with such grant, the President has the
authority to determine the number of shares of Common Stock subject to such
option (up to a maximum of 1,271 shares), the duration of the option, the
vesting schedule (so long as no option is fully vested until the fourth or fifth
anniversary of the date of grant) and all other terms and conditions of such
option, except that the exercise price of such option may not be less than the
fair market value of the Common Stock on the date of grant.
Starting at the Annual Meeting, the Board of Directors will be classified
into three classes, each of which will be as nearly equal in number as possible.
One class will be elected for a one-year term, one class will be elected for a
two-year term and one class will be elected for a three-year term. Thereafter,
directors will each be elected for staggered three-year terms. The Board of
Directors may remove members of the Compensation Committee at any time.
ERISA. The Employee Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974, as amended, and is not
qualified under section 401(a) of the Code.
Eligibility. NQSOs may be granted under the Employee Plan to any
individual who, at the time the option is granted, is an employee, officer,
director, consultant or independent contractor of the Company or any future
parent or subsidiary corporations. ISOs may be granted only to employees of the
Company. The Company estimates that as of May 15, 1997, approximately 2,700
persons were eligible for the grant of stock options under the Employee Plan.
Option Price. The exercise price of each option is fixed by the
Compensation Committee at whatever price the Compensation Committee determines
in the exercise of its sole discretion, except that ISOs can not be granted at
less than fair market value on the date of the grant. In addition, with respect
to ISOs granted to any person who owns, directly or by attribution, more than
10% of the total combined voting power of all classes of stock of the Company (a
"10% Shareholder"), the exercise price per share must not be less than 110% of
the fair market value per share of the Common Stock at the date of grant.
Exercisability of Options. Unless specified otherwise by the Compensation
Committee, options may be exercised only while the holder is in the employ of
the Company or any future subsidiary of the Company, within 90 days after the
date of termination of employment (unless terminated for cause), or within one
year after the death or disability of the holder. During the optionee's
lifetime, an option is exercisable only by the optionee. Options are not
transferable except upon the death of the optionee or pursuant to a qualified
domestic relations order. Terminated or expired options become available for
future grants.
No option is exercisable until it has vested. The vesting schedule for each
option is specified by the Compensation Committee at the time of the grant of
the option. Notwithstanding any vesting schedule, the Employee Plan permits the
Compensation Committee to accelerate the vesting of one or more outstanding
options at such times and in such amounts as it shall determine in its sole
discretion. At the date of exercise, the optionee may pay the full option price
in cash, cashier's check or in shares of Company stock previously acquired by
the optionee valued at fair market value, or by complying with any other payment
mechanism approved by the Compensation Committee. The use of previously acquired
shares to pay the option price enables the optionee to avoid the need to fund
the entire purchase with cash.
Duration. Options may be granted for varying periods not to exceed ten
years and two days from the date of grant (five years in the case of ISOs
granted to employees who hold more than 10% of the voting power of the Common
Stock).
Liquidation, Reorganization or Merger. In the event of any acquisition of
property or stock as a result of which the shareholders of the Company receive
cash, stock or other property in exchange for their shares of Common Stock, and
in the event of any dissolution, liquidation, reorganization or merger in which
the Company is not the surviving or the resulting corporation and in connection
with which no assumption of or substitution of new options for existing options
is made, each outstanding option shall terminate as of the effective date of
such acquisition, dissolution, liquidation, reorganization or merger; provided,
however, that holders of any outstanding options under the Employee Plan shall
have the right, immediately prior to any
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<PAGE> 15
such acquisition of property or stock, dissolution, liquidation, reorganization
or merger, to exercise his or her options in all or any part, whether or not the
vesting requirements of the options have been satisfied.
Amendment, Modification, or Termination of the Employee Plan. The
Compensation Committee and/or the Board of Directors may, at any time, modify or
amend the Employee Plan and options granted thereunder, except that no amendment
with respect to an outstanding option shall be made over the objection of the
option holder. Notwithstanding the foregoing, shareholder approval is required
for any amendment which increases the number of shares subject to the Employee
Plan (other than in connection with automatic adjustments due to changes in
capitalization or the assumption or substitution of options in connection with
mergers or acquisitions).
FEDERAL INCOME TAX EFFECTS OF PARTICIPATION IN THE EMPLOYEE PLAN
The following summary of federal income tax consequences is based upon
existing statutes, regulations, and interpretations thereof. Because the
applicable rules are complex and because income tax consequences may vary
depending upon the particular circumstances of each optionee, no attempt has
been made to outline the tax consequences to any particular optionee. Each
optionee should consult his or her own tax advisor concerning federal (and any
foreign, state or local) income tax consequences of participation in the
Employee Plan. This proxy statement does not purport to describe foreign, state
or local income tax consequences, which may differ from United States federal
income tax consequences.
Incentive Stock Options. ISOs granted under the Employee Plan are intended
to constitute "incentive stock options" within the meaning of Section 422 of the
Code. ISOs may be granted only to employees of the Company. An optionee will not
have taxable income upon either the grant or exercise of an ISO. However, the
excess of the fair market value of the shares purchased upon exercise over the
option exercise price (the "Option Spread") will be includable in the optionee's
"alternative minimum taxable income" ("AMTI") for purposes of the alternative
minimum tax. The Option Spread will generally be measured on the date of
exercise and will be includable in AMTI in the year of exercise; special rules
regarding the amount and timing of AMTI inclusion may apply for shares subject
to a "substantial risk of forfeiture." In addition, special rules apply to the
payment of the exercise price with the Company's Common Stock.
If an optionee holds the shares acquired upon exercise of an ISO ("ISO
Stock") for at least two years from the date the ISO was granted and for at
least one year from the date the ISO was exercised (together the "Holding
Period"), any gain from a sale of the ISO Stock, other than to the Company,
should be taxable as long-term capital gain. If an optionee disposes of ISO
Stock before the end of the Holding Period (a "Disqualifying Disposition"), the
amount of the Option Spread at the date of exercise (or, if less, the amount of
gain realized upon the sale) will be taxed as ordinary income. Such income will
be subject to information reporting requirements. Gain from a Disqualifying
Disposition in excess of the amount required to be recognized as ordinary income
will be capital gain. Special rules may apply regarding the date the Option
Spread is measured for ISO Stock purchased subject to a "substantial risk of
forfeiture."
Nonqualified Stock Options. An optionee does not have taxable income due
to the grant of an NQSO under the Employee Plan. Upon exercise of the NQSO, the
optionee will have taxable ordinary income equal to the Option Spread. The
optionee's tax basis in the shares will be equal to the fair market value of
such shares on the date of exercise, and the holding period will also begin on
that date. Special rules apply to the payment of the NQSO exercise price with
the Company's Common Stock. In general, shares acquired by exercise of NQSOs
granted under the Employee Plan will not be subject to a "substantial risk of
forfeiture," which includes a right of the Company to repurchase shares at their
purchase price and restrictions on sale of the shares to comply with certain
requirements for "pooling-of-interests" accounting. If shares are subject to
such a restriction and the optionee files an election under Code Section 83(b)
("Section 83(b) Election") within 30 days after the date of purchase, the
optionee will generally receive the tax treatment described above. If the shares
are subject to a substantial risk of forfeiture and no Section 83(b) Election is
filed, the optionee will not be taxable upon exercise, but instead will have
ordinary income, on the date the restrictions lapse, in an amount equal to the
Option Spread as of the date of lapse; in addition, the optionee's holding
period will begin on the date of the lapse.
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<PAGE> 16
Regardless of whether the shares are subject to a substantial risk of
forfeiture, the amount of ordinary income taxable to an optionee who is an
employee at the time of grant will constitute "supplemental wages" subject to
withholding of income and employment taxes by the Company. Upon sale, other than
to the Company, of shares acquired under a NQSO, an optionee generally will have
a capital gain or loss to the extent of the difference between the sale price
and the optionee's tax basis in the shares. Such gain or loss will be long-term
if the optionee has held the shares for more than one year.
Sale of Stock to the Company. If stock is sold to the Company rather than
to a third party, the sale may not produce capital gain or loss. A sale of
shares to the Company will constitute a redemption of such shares, which could
be taxable as a dividend unless the redemption is "not essentially equivalent to
a dividend" within the meaning of the Code.
PERFORMANCE AWARDS AND THE EMPLOYEE PLAN
The following table sets forth certain information regarding options
granted during fiscal 1996 that, if Item 2 is approved by shareholders, would
allow such options to be granted under the terms of the Employee Plan. As of May
15, 1997, the exercise price of these options was higher than the last sale
price of the Common Stock as reported by the Nasdaq National Market, and thus
the options had no determinable market value.
NEW PLAN BENEFITS
1992 COMBINED INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO OPTIONS
NAME AND POSITION CURRENTLY GRANTED OUTSIDE OF PLAN
- --------------------------------------------------------------- ------------------------------------
<S> <C>
Michael W. Luce................................................ 120,580
President and Chief Executive Officer
C. Michael Fisher.............................................. 40,700
Senior Vice President -- Operations
Arlee J. Jensen................................................ 40,000
Senior Vice President -- Merchandising and Marketing
Myron E. Kirkpatrick........................................... 22,200
Vice President -- Finance and Chief Financial Officer
Jeffrey C. Mason............................................... 23,400
Vice President -- Real Estate and Construction
All Executive Officers as a Group.............................. 291,180(1)
Non-Executive Director Group................................... 0
All Non-Executive Officer Employees as a Group................. 142,255
</TABLE>
- ---------------
(1) Does not include options for 16,200 shares granted in fiscal 1996 to an
executive officer who no longer works for the Company, which options have
since expired.
ITEM 3 -- APPROVAL OF AUDITORS
Item 3 is the recommendation of the Audit Committee that Arthur Andersen
LLP be appointed auditors for 1997, which is being presented to shareholders for
approval. Representatives of Arthur Andersen LLP will be present at the meeting,
will be available to respond to appropriate questions and may make a statement
if they so desire.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS AUDITORS FOR 1997.
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<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, the following individuals (none of whom was or had been
an employee of the Company) served on the Company's Compensation Committee:
Jeffrey H. Brotman, Gerald R. Gallagher and Dale J. Vogel. There were no
interlocks with other companies within the meaning of the Commission's proxy
rules during fiscal 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since its inception, the Company has acquired through arm's length
transactions a significant portion of its finished personal care products,
particularly in its Aromatics line, from Randall International, the President
and majority shareholder of which, William B. Randall, is a member of the
Company's Board of Directors. The cost of products purchased from Randall
International by the Company in fiscal 1996 was approximately $3.48 million.
These purchases represented approximately 11% of the Company's total purchases
for such year.
OTHER BUSINESS
Management knows of no other business that will be presented for action at
the Annual Meeting. If other business requiring a vote of the shareholders
should come before the meeting, the persons designated as your proxies will vote
or refrain from voting in accordance with their best judgment.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and certain of its officers, and persons who own more than 10% of a
registered class of the Company's equity securities (collectively, "Insiders"),
to file reports of ownership and changes in ownership with the Commission.
Insiders are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representation from certain reporting persons that no Form 5 was
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16(a) filing requirements for fiscal 1996, with the
exception of Ms. Detmer, who filed a late Form 3 to report her becoming an
executive officer of the Company. Ms. Detmer owned no securities of the Company
and had no other transactions to report.
ANNUAL REPORTS
A copy of the 1996 Annual Report to Shareholders (which includes the
Company's Annual Report on Form 10-K) is being mailed to each shareholder of
record together with this proxy statement. The Company has also filed with the
Commission its Annual Report on Form 10-K for the fiscal year ended February 1,
1997. This report contains information concerning the Company and its
operations. A COPY OF THIS REPORT WILL BE FURNISHED TO SHAREHOLDERS WITHOUT
CHARGE UPON REQUEST IN WRITING to Investor Relations, Garden Botanika, 8624
154th Avenue N.E., Redmond, Washington 98052.
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS
Any shareholder who wishes to present a proposal for action at the 1998
Annual Meeting and who wishes to have it set forth in the corresponding proxy
statement and identified in the corresponding form of proxy prepared by
management must notify the Company no later than February 1, 1998 in such form
as required under the rules and regulations promulgated by the Commission.
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<PAGE> 18
SOLICITATION OF PROXIES
Officers and other employees of the Company may solicit proxies by personal
interview, telephone and telegram, in addition to the use of the mails. None of
these individuals will receive special compensation for these services, which
will be performed in addition to their regular duties. The Company has also made
arrangements with brokerage firms, banks, nominees and other fiduciaries to
forward proxy solicitation for shares held of record by them to the beneficial
owners of such shares. The Company will reimburse them for reasonable
out-of-pocket expenses. ChaseMellon Shareholder Services will assist in the
distribution of proxy solicitation materials and collection of proxies. The
Company has also agreed to indemnify ChaseMellon Shareholder Services against
certain liabilities. The Company will pay the cost of all proxy solicitation.
By order of the Board of Directors
LOGO
Michael W. Luce
President
17
<PAGE> 19
GARDEN BOTANIKA, INC.
1992 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
(WITH PROPOSED AMENDMENT FOR 1997 ANNUAL SHAREHOLDERS MEETING)
1. Purpose. The purpose of the 1992 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") is to enable Garden Botanika, Inc. (the "Company") to
attract and retain the services of people with training, experience and ability
and to provide additional incentive to such persons by granting them an
opportunity to participate in the ownership of the Company.
2. Stock Subject to Plan. The stock subject to this Plan shall be the Company's
Common Stock, par value $.01 per share (the "Common Stock"), presently
authorized but unissued or now held or subsequently acquired by the Company as
treasury shares. Subject to adjustment as provided in Section 10, the aggregate
amount of Common Stock reserved for issuance or delivery upon exercise of all
options granted under this Plan shall not exceed 1,089,038 shares of Common
Stock, as constituted on date of adoption of this Plan by the Board of
Directors. If any option granted under this plan shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this Plan.
3. Administration. The Plan shall be administered by the Board of Directors of
the Company, in accordance with the following terms and conditions:
3.1 General Authority. Subject to the express provisions of the Plan,
the board of Directors shall have the authority, in its discretion, to determine
all matters relating to options to be granted under the Plan, including the
selection of individuals to be granted options, the number of shares to be
subject to each option, the exercise price, the term, whether such options shall
be immediately exercisable or shall become exercisable in increments over time,
and all other terms and conditions thereof. Grants under this Plan to persons
eligible need not be identical in any respect, even when made simultaneously.
The Board of Directors may from time to time adopt rules and regulations
relating to the administration of the Plan. The interpretation and construction
by the Board of Directors of any terms or provisions of this Plan or any option
issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties. The Board
of Directors in its sole discretion, may grant incentive stock options
("Incentive Stock Options") as such term is defined in Section 422 of the
Internal Revenue code of 1986, as amended, (the "Code") and/or nonqualified
stock options ("Nonqualified Stock Options"). A Nonqualified Stock Option is a
stock option which is not an Incentive Stock Option. The type of option granted,
whether an Incentive Stock Option or a Nonqualified Stock Option shall be
clearly identified by the Board of Directors when granted. The term option when
used in this Plan refers to Incentive Stock Options and Nonqualified Stock
Options, collectively.
3.2 Directors. A member of the Board of Directors shall be eligible to
participate in or receive or hold options under this Plan; provided, however,
that no member of the Board of
<PAGE> 20
Directors shall vote with respect to the granting of an option hereunder to
himself or herself, as the case may be.
3.3 Delegation to a Committee. Notwithstanding the foregoing, the Board
of Directors, if it so determines, may delegate to a committee of the Board of
Directors any or all authority for the administration of the Plan, and
thereafter references to the Board of Directors in this Plan shall be deemed to
be references to the committee to the extent provided in the resolution
establishing the committee.
3.4 Persons Subject to Section 16(b). Notwithstanding anything in the
Plan to the contrary, the Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to participants who are officers or directors subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, (the "1934
Act") without so restricting, limiting or conditioning the Plan with respect to
other participants.
3.5 Replacement of Options. The Board of Directors, in its absolute
discretion, may grant options subject to the condition that options previously
granted at a higher or lower exercise price under the Plan be canceled or
exchanged in connection with such grant. The number of shares covered by the new
options, the exercise price, the term and the other terms and conditions of the
new option, shall be determined in accordance with the Plan and may be different
from the provisions of the canceled or exchanged options. Alternatively, the
Board of Directors may, with the agreement of the Optionee amend previously
granted options to establish the exercise price at the then current fair market
value of the Company's Common Stock, maintaining existing vesting and expiration
dates.
3.6 Loans to Optionees. The Board of Directors, in its absolute
discretion, may provide that the Company loan to Optionees sufficient funds to
exercise any option granted under the Plan and/or to pay withholding tax due
upon exercise of such option. The Board of Directors shall have the authority to
make such determinations at the time of grant or exercise and shall establish
repayment terms thereof, including installments, maturity and interest rate.
4. Eligibility. Options may be granted only to persons who, at the time the
option is granted, are employees or directors of, or consultants or independent
contractors to, the Company or any of its present or future parent or subsidiary
corporations (as those terms are used in Section 422(a) (2) and (d) (1) and
Section 424(e) and (f) of the Code, hereafter a "Parent" or "Subsidiary"). Any
individual to whom an option is granted under this Plan shall be referred to
hereinafter as "Optionee". Any Optionee may receive one or more grants for
options as the Board of Directors as shall from time to time determine, and such
determinations may be different as to different Optionees and may vary as to
different grants. Optionees who are not employees will only be eligible to
receive Nonqualified Stock Options.
5. Terms and Conditions of Options. Options granted under this Plan shall be
evidenced by written agreements which shall contain such terms, conditions,
limitations and restrictions as the Board of Directors shall deem advisable and
which are not inconsistent with this Plan. Each option granted hereunder shall
clearly indicate whether it is an Incentive Stock Option or Nonqualified Stock
Option. Notwithstanding the foregoing, all such options shall include or
incorporate by reference the following terms and conditions:
2
<PAGE> 21
5.1 Number of Shares; Price. The maximum number of shares that may be
purchased pursuant to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price") shall be as established
by the Board of Directors, provided that the exercise price of Incentive Stock
Options shall not be less than the fair market value per share of the common
Stock at the time the option is granted, as determined in good faith by the
Board of Directors. The exercise price of Nonqualified Stock Options may be
greater or less than the fair market value per share of the Common Stock at the
time the option is granted.
5.2 Duration of Options. Subject to the restrictions contained in
Section 9, the term of each option shall be established by the Board of
Directors and, if not so established, shall be ten years from the date it is
granted, but in no event shall the term of any Incentive Stock Option exceed ten
years.
5.3 Exercisability. Each option shall prescribe the installments, if
any, in which an option granted under the Plan shall become exercisable. The
Board of Directors, in its absolute discretion, may waive or accelerate any
installment requirement contained in outstanding options. In no case may an
option be exercised as to less than 100 shares at any one time (or the remaining
shares covered by the option if less than 100) during the term of the option.
Only whole shares shall be issued pursuant to the exercise of any option.
5.4 Incentive Stock Option. Any option which is issued as an Incentive
Stock Option under this Plan, shall, notwithstanding any other provisions of
this Plan or the option terms to the contrary, contain all of the terms,
conditions, restrictions, rights and limitations required to be an Incentive
Stock Option, and any provision to the contrary shall be disregarded.
6. Nontransferability of Options. Options granted under this Plan and the rights
and privileges conferred hereby may not be transferred, assigned, pledged or
hypothecated in any manner (whether by options of law or otherwise) other than
by will or the applicable laws of descent and distribution, and shall not be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any option under
this Plan or any right or privilege conferred hereby contrary to the provisions
hereof, or upon the sale or levy or any attachment or similar process, such
option thereupon shall terminate and become null and void. During an Optionee's
lifetime, any options granted under this Plan are personal to him or her and are
exercisable solely by such Optionee.
7. Certain Limitations Regarding Incentive Stock Options. The grant of Incentive
Stock Options shall be subject to the following special limitations:
7.1 Limitation on Amount of Grants. In no event shall any Optionee be
granted Incentive Stock Options that in the aggregate (together with all other
Incentive Stock Options granted by the Company or any Parents or Subsidiaries)
entitle the Optionee to purchase, in any calendar year during which such options
first become exercisable, stock of the Company, any Parent or any Subsidiary
having a fair market value (determined as of the time such options are granted)
in excess of $100,000. No limitation shall apply to Nonqualified Stock Options.
3
<PAGE> 22
7.2 Grants to 10% Shareholders. Incentive Stock Options may be granted
a person owning more than 10% of the total combined voting power of all classes
of stock of the Company and any Parent or Subsidiary only if (i) the exercise
price is at least 110% of the fair market value of the stock at the time of
grant, and (ii) the option is not exercisable after the expiration of five years
from the date of grant.
8. Exercise of Options. Options shall be exercised in accordance with the
following terms and conditions:
8.1 Procedure. Options shall be exercised by delivery to the Company of
written notice of the number of shares with respect to which the option is
exercised.
8.2 Payment. Payment of the option price shall be made in full within 5
business days of the notice of exercise of the option and shall be in cash or
bank-certified or cashier's checks, or personal check if permitted by the Board
of Directors. To the extent permitted by applicable laws and regulations
(including but not limited to, federal tax and securities laws and regulations),
an option may be exercised by delivery of shares of Common Stock of the company
held by the Optionee having a fair market value equal to the exercise price,
such fair market value to be determined in good faith by the Board of Directors.
Such payment in stock may occur in the context of a single exercise of an option
or successive and simultaneous exercises, sometimes referred to as "pyramiding",
which provides that, rather than physically exchanging certificates for a series
of exercises, bookkeeping entries will be made pursuant to which the Optionee is
permitted to retain his existing stock certificate and a new stock certificate
is issued for the net shares.
8.3 Federal Withholding Tax Requirements. Upon exercise of an option,
the Optionee shall, upon notification of the amount due and prior to or
concurrently with the delivery of the certificates representing the shares, pay
to the Company amounts necessary to satisfy any applicable federal, state and
local withholding tax requirements or shall otherwise make arrangements
satisfactory to the Company for such requirements. Such arrangements may include
payment of the appropriate withholding tax in shares of stock of the Company
having a fair market value equal to such withholding tax, either through
delivery of shares held by the Optionee or by reduction in the number of shares
to be delivered to the Optionee upon exercise of such option.
9. Termination of Employment, Disability and Death.
9.1 General. If the employment of the Optionee by the Company, a Parent
or a Subsidiary shall terminate by retirement or for any reason other than
death, disability or cause as hereinafter provided, the option may be exercised
by the Optionee at any time prior to the expiration of three months after the
date of such termination of employment (unless by its terms the option sooner
terminates or expires), but only if, and to the extent the Optionee was entitled
to exercise the option at the date of such termination.
9.2 Disability. If the employment of the Optionee by the Company, a
Parent or a Subsidiary is terminated because of the Optionee's disability (as
herein defined), the option may be exercised by the Optionee at any time prior
to the expiration of one year after the date of such
4
<PAGE> 23
termination (unless by its terms the option sooner terminates or expires), but
only if, and to the extent the Optionee was entitled to exercise the Option at
the date of such termination. For purposes of this section, an Optionee will be
considered to be disabled if the Optionee is unable to engage in any substantial
gainful activity by reason of any medically determinable mental or physical
impairment which can be expected to result in death or which has lasted or can
be expected to last a continuous period of not less than 12 months.
9.3 Death. In the event of the death of an Optionee while in the employ
of the Company, a Parent or a Subsidiary, the option shall be exercisable on or
prior to the expiration of one year after the date of such death (unless by its
terms the option sooner terminates and expires), but only if and to the extent
the Optionee was entitled to exercise the option at date of such death and only
by the Optionee's personal representative if then subject to administration as
part of the Optionee's estate, or by the person or persons to whom such
Optionee's rights under the option shall have passed by the Optionee's will or
by the applicable laws of descent and distribution.
9.4 Termination for Cause. If the Optionee's employment with the
company, a Parent or a Subsidiary is terminated for cause, any option granted
hereunder shall automatically terminate as of the first advice or discussion
thereof, and such Optionee shall thereupon have no right to purchase any shares
pursuant to such option. "Termination for Cause" shall mean dismissal for
dishonesty, conviction or confession of a crime punishable by law (except minor
violations) intoxication while at work, fraud, misconduct or disclosure of
confidential information.
9.5 Waiver or Extension of Time Periods. The Board of Directors shall
have the authority, prior to or within the times specified in this Section 9 for
the exercise of any such option, to extend such time period or waive in its
entirety any such time period to the extent that such time period expires prior
to the expiration of the term of such option. In addition, the Board of
Directors may grant, pursuant to a specific resolution adopted at the time of
grant, modify or eliminate the time periods specified in this Section 9.
However, no Incentive Stock Option may be exercised after the expiration of ten
years from the date such option is granted. If an Optionee holding an Incentive
Stock Option exercises such option, by permission, after the expiration of the
time period specified in this Section 9, the option will no longer be treated as
an Incentive Stock Option under the Code and shall automatically be converted
into a Nonqualified Stock Option.
9.6 Termination of Options. To the extent that the option of any
deceased Optionee or of any Optionee whose employment is terminated shall not
have been exercised within the limited periods prescribed in this Section 9, all
further rights to purchase shares pursuant to such option shall cease and
terminate at the expiration of such period. No Incentive Stock Option may be
exercised after the expiration of ten (10) years from the date such option is
granted, notwithstanding any provision to the contrary.
9.7 Non-Employee Optionees. Options granted to Optionees who are not
employees of the Company, a Parent or a Subsidiary at the time of grant shall
not be subject to the provisions of this Section 9, except as specifically
provided in the option.
5
<PAGE> 24
10. Option Adjustments.
10.1 Adjustments Upon Changes in Capitalization. The aggregate number
and class of shares on which options may be granted under this Plan, the number
and class shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and all such options, shall each be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend,
or any other increase or decrease in the number of shares of Common stock of the
Company without the receipt of consideration by the Company.
10.2 Effect of Certain Transactions. Except as provided in subsection
10.3, upon a merger, consolidation, acquisition of property or stock
reorganization or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for their shares of Common Stock, any option granted hereunder shall terminate,
provided that the Optionee shall have the right immediately prior to any such
merger consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise his or her option in whole or in part
whether or not the vesting requirements set forth in the option agreement have
been satisfied.
10.3 Conversion of Options on Stock for Stock Exchange. If the
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger, consolidation, acquisition of property or stock
or reorganization, all options granted hereunder shall terminate in accordance
with the provision of subsection 10.2 unless the Board of Directors and the
corporation issuing the Exchange Stock, in their sole discretion and subject to
any required action by the share-holders of the company and such corporation,
agree that all such options granted hereunder are converted into options to
purchase shares of Exchange Stock. The amount and price of the such options
granted shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the number of
shares of Exchange Stock the holders of the Common Stock receive in such merger,
consolidation, acquisition of property or stock, separation or reorganization.
The vesting schedule set forth in the option agreement shall continue to apply
to the options granted for the Exchange Stock.
10.4 Fractional Shares. In the event of any adjustment in the number of
shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
10.5 Determination of Board of Directors to be Final. All such
adjustments shall be made by the Board of Directors and its determination as to
what adjustments shall be made, and the extent thereof, shall be final, binding
and conclusive.
11. Securities Regulations.
11.1 Compliance. Shares shall not be issued with respect to an option
granted under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant
6
<PAGE> 25
thereto shall comply with all relevant provisions of law including, without
limitation, any applicable state securities laws, the Securities Act of 1993, as
amended, the 1934 Act, the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the shares may then be listed, and
shall further be subject to the approval of counsel of the Company with respect
to such compliance. Inability of the Company to obtain from any regulatory body
having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder, shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
11.2 Representations by Optionee. As a condition to the exercise of an
option, the Company may require the Optionee to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such representation is required
by any relevant provision of the laws referred to in Section 11.1. At the option
of the Company, a stop transfer order against any records of the Company, and a
legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel was provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation may be stamped on the stock certificate in order to
assure exemption from registration. The Board of Directors may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. This provision shall not
obligate the Company to undertake registration of options or stock hereunder.
12. Employment Rights. Nothing in this Plan or any option or right granted
pursuant hereto shall confer upon any Optionee any right to be continued in the
employment of the Company, a Parent or any Subsidiary of the Company or to
remain a director, or to interfere in any way with the right of the Company, a
Parent or any Subsidiary, in its sole discretion, to terminate such Optionee's
employment at any time or to remove the Optionee as a director at any time.
13. Amendment and Termination.
13.1 Action by Shareholders. The Plan may be terminated, modified, or
amended by the shareholders of the Company.
13.2 Action by Board of Directors. The Board of Directors may also
terminate the Plan, or modify or amend the Plan in such respects as it shall
deem advisable in order to conform to any changes in law or regulation
applicable thereto, or in other respects; provided, however, that the Board of
Directors may not, without further approval by the shareholders of the Company:
(i) Change the number of shares in the aggregate which may be
sold pursuant to options granted under the Plan;
(ii) Except as provided in Section 9.5, increase the period
during which options may be granted or exercised; or
7
<PAGE> 26
(iii) Change the terms of the Plan which causes the Plan to
lose its qualification as an incentive stock option plan under Section 422 of
the Code.
No termination, suspension or amendment of the Plan may,
without the consent of each Optionee to whom any option shall theretofore have
been granted, adversely affect the rights of such Optionees under such options.
13.3 Automatic Termination. Unless the Plan shall theretofore have been
terminated as herein provided, this Plan shall terminate ten (10) years from the
earlier of: (i) the date on which the Plan is adopted; or (ii) the date on which
this Plan is approved by the shareholders of the Company. No option may be
granted after such termination, or during any suspension of this Plan. The
amendment or termination of this Plan shall not, without the consent of the
Optionee, alter or impair any rights or obligations under any option theretofore
granted under this Plan.
14. Effective Date of the Plan. This Plan shall become effective on the date of
its adoption by the Board of Directors of the Company and options may be granted
immediately thereafter but no option may be exercised under the Plan unless and
until the Plan shall have been approved by the shareholders within 12 months
after the date of adoption of the Plan by the Board of Directors. If such
approval is not obtained within such period the Plan and any options granted
thereunder shall be null and void.
Approved by the Board of Directors on July 21, 1992
Approved by Shareholders at Annual Shareholders' Meeting May
3, 1993
Amended by the Board of Directors July 29, 1993
Amendment Approved by Shareholders at Special Shareholders'
Meeting September 14, 1993
Amended by the Board of Directors January 3, 1995
Amendment Approved by Shareholders at Special Shareholders'
Meeting January 19, 1995
Amended by Board of Directors August 31, 1995 and December 8,
1995
Amendment Approved by Shareholders at Annual Shareholders'
Meeting October 30, 1995
Reflects Reverse Stock Split effective May 21, 1996
Proposed Amendment Approved by Board of Directors May 1, 1997
8
<PAGE> 27
PROXY
GARDEN BOTANIKA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the Notice of Annual Meeting of
Shareholders of Garden Botanika, Inc. (the "Company"), and the related Proxy
Statement dated May 29, 1997, hereby appoints Arlee J. Jensen and Myron E.
Kirkpatrick, and each of them, proxies for the undersigned, with full power of
substitution, and authorizes them to attend the Annual Meeting of Shareholders
of the Company on July 2, 1997, and any adjournments thereof, and to vote all
shares of Common Stock of the Company that the undersigned would be entitled to
vote if personally present, such proxies being instructed to vote as specified
on the reverse side, or, to the extent not specified, to vote FOR the election
as directors of all nominees named on the reverse side and FOR Proposals 2 and
3 and to vote in their discretion on any other matters presented at the meeting
or any adjournments thereof.
PLEASE SIGN AND DATE THIS PROXY CARD AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark your
votes as indicated
in this example. [X]
WITHHOLD
FOR all authority to vote
nominees for all nominees
named below named below
1. ELECTION OF DIRECTORS [ ] [ ]
Damon H. Ball, Gerald R. Gallagher,
William B. Randall, Dale J. Vogel,
Jeffrey H. Brotman and Michael W. Luce
(INSTRUCTION: To vote FOR all nominees, or
to withhold authority to vote FOR all
nominees, check the appropriate box. TO
WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME IN THE LIST ABOVE.)
FOR AGAINST ABSTAIN
2. Approve the increase in the number of shares [ ] [ ] [ ]
authorized to be issued under the Company's
1992 Combined Incentive and Nonqualified
Stock Option Plan from 398,217 shares to
1,089,038 shares of Common Stock.
FOR AGAINST ABSTAIN
3. Ratification of appointment of Arthur Andersen [ ] [ ] [ ]
LLP as the Company's independent auditors for
1997.
This proxy, when properly executed, will be voted in the manner specified by
the undersigned. Except as otherwise specified, this proxy will be voted FOR
the election as directors of all nominees named above, FOR approval of the
increase in the number of shares authorized to be issued under the Employee
Plan, and FOR ratification of the appointment of Arthur Andersen LLP as the
Company's independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ALL OF THE NOMINEES NAMED ABOVE
AND FOR PROPOSALS 2 AND 3.
Signature(s) _________ Signature, if held jointly _________ Dated: _______, 1997
Please sign name exactly as it appears hereon. If shares are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee, or guardian, please give title as such.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 28
Please mark
your vote as
indicated in
this sample. [X]
WITHHOLD
FOR all authority to vote
nominees for all nominees
named below named below
1. ELECTION OF DIRECTORS [ ] [ ]
Damon H. Ball, Gerald R. Gallagher,
William B. Randall, Dale J. Vogel,
Jeffrey H. Brotman and Michael W. Luce
(INSTRUCTION: To vote FOR all nominees, or to WITHHOLD authority
to vote for all nominees, check the appropriate box. TO WITHHOLD
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
FOR AGAINST ABSTAIN
2. Approve the increase in the number of shares [ ] [ ] [ ]
authorized to be issued under the Company's 1992
Combined Incentive and Nonqualified Stock Option
Plan (the "Employee Plan") from 398,217 shares
to 1,089,038 shares of Common Stock.
FOR AGAINST ABSTAIN
3. Ratification of appointment of Arthur Andersen LLP [ ] [ ] [ ]
as the Company's independent auditors for 1997.
This proxy, when properly executed, will be voted in the manner specified by
the undersigned. Except as otherwise specified, this proxy will be voted FOR
the election as directors of all nominees named above. FOR approval of the
increase in the number of shares authorized to be issued under the Employee
Plan, and FOR ratification of the appointment of Arthur Andersen LLP as the
Company's independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
} FOR ALL OF THE NOMINEES NAMED ABOVE
AND FOR PROPOSALS 2 AND 3.
Signature(s)____________________________________________________________________
Signature, if held jointly_______________________________ Dated:__________, 1997
Please sign name exactly as it appears hereon. If shares are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee, or guardian,please give title as such.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
< FOLD AND DETACH HERE >
<PAGE> 29
PROXY
GARDEN BOTANIKA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the Notice of Annual Meeting of Shareholders
of Garden Botanika, Inc. (the "Company"), and the related Proxy Statement dated
May 29, 1997, hereby appoints Arlee J. Jensen and Myron E. Kirkpatrick, and
each of them, proxies for the undersigned, with full power of substitution, and
authorizes them to attend the Annual Meeting of Shareholders of the Company on
July 2, 1997, and any adjournments thereof, and to vote all shares of Common
Stock of the Company that the undersigned would be entitled to vote if
personally present, such proxies being instructed to vote as specified on the
reverse side or, to the extent not specified, to vote FOR the election as
directors of all nominees named on the reverse side and FOR Proposals 2 and 3
and to vote in their discretion on any other matters presented at the meeting
or any adjournments thereof.
PLEASE SIGN AND DATE THIS PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
> FOLD AND DETACH HERE <
