<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MONTEREY PASTA COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
Dear Stockholder:
This year's annual meeting of stockholders will be held on Thursday,
September 18, 1997 at 10:00 a.m., local time, at the Hyatt Regency San Francisco
Airport, 1333 Bayshore Highway, Burlingame, California.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describes the formal business to be conducted at the meeting, follows this
letter.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed proxy in the prepaid envelope to ensure that your shares will be
represented. Your shares cannot be voted unless you date, sign, and return the
enclosed proxy or attend the annual meeting in person. Regardless of the number
of shares you own, your careful consideration of, and vote on, the matters
before our stockholders is important.
A copy of the Company's Annual Report to Stockholders has previously been
mailed to you. At the annual meeting we will review Monterey Pasta's activities
over the past year and our plans for the future.
The Board of Directors and management look forward to seeing you at the
annual meeting.
Very truly yours,
/s/ R. LANCE HEWITT
R. LANCE HEWITT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMPORTANT: Please fill in, date, sign and promptly mail the enclosed proxy card
in the accompanying postage-paid envelope to ensure that your shares are
represented at the meeting. If you attend the meeting, you may choose to vote in
person even if you have previously sent in your proxy card.
<PAGE>
MONTEREY PASTA COMPANY
1528 MOFFETT STREET
SALINAS, CALIFORNIA 93905
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 18, 1997
TO THE STOCKHOLDERS:
Please take notice that the annual meeting of the stockholders of Monterey
Pasta Company, a California corporation (the "Company"), will be held on
Thursday, September 18, 1997, at 10:00 a.m., local time, at the Hyatt Regency
San Francisco Airport, 1333 Bayshore Highway, Burlingame, California, for the
following purposes:
1. To elect nine (9) directors to hold office for one-year terms and until
their respective successors are elected and qualified.
2. To consider and vote upon a proposal to ratify the appointment of BDO
Seidman, LLP as the Company's independent public accountants for the fiscal year
ending December 28, 1997.
3. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on August 25, 1997, are
entitled to notice of, and to vote at, this meeting and any adjournment or
postponement thereof. For ten days prior to the meeting, a complete list of the
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose relating to the meeting during ordinary
business hours at the principal office of Monterey Pasta Company.
By order of the Board of Directors
/s/ GEORGE W. HAMMOND
GEORGE W. HAMMOND
Secretary and Plant Controller
Salinas, California
August 27, 1997
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. PROXIES ARE REVOCABLE, AND
ANY STOCKHOLDER MAY WITHDRAW HIS OR HER PROXY PRIOR TO THE TIME IT IS VOTED, OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
MONTEREY PASTA COMPANY
1528 MOFFETT STREET
SALINAS, CALIFORNIA 93905
The accompanying proxy is solicited by the Board of Directors of Monterey
Pasta Company, a Delaware corporation ("Monterey Pasta" or the "Company"), for
use at its annual meeting of stockholders to be held on September 18, 1997, or
any adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The date of this Proxy
Statement is August 27, 1997, the approximate date on which this Proxy Statement
and the accompanying form of proxy were first sent or given to stockholders.
SOLICITATION AND VOTING OF PROXIES
This solicitation of proxies is made on behalf of the Board of Directors of
the Company and the cost of soliciting proxies will be borne by the Company. In
addition to soliciting stockholders by mail through its regular employees, the
Company will request banks and brokers, and other custodians, nominees and
fiduciaries, to solicit their customers who have stock of the Company registered
in the names of such persons and will reimburse them for their reasonable,
out-of-pocket costs. The Company may use the services of its officers,
directors, and others to solicit proxies, personally or by telephone, without
additional compensation.
On August 25, 1997, the Company had outstanding 10,876,133 shares of its
Common Stock, $.001 par value, all of which are entitled to vote with respect to
all matters to be acted upon at the annual meeting. Each stockholder of record
as of that date is entitled to one vote for each share of Common Stock held by
him or her on the proposals presented in this Proxy Statement. The Company's
Bylaws provide that a majority of all of the shares of the stock entitled to
vote, whether present in person or represented by proxy, shall constitute a
quorum for the transaction of business at the meeting.
All valid proxies received before the meeting will be exercised. All shares
represented by a proxy will be voted, and where a stockholder specifies by means
of his or her proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so made. If no choice
is indicated on the proxy, the shares will be voted in favor of the proposal. A
stockholder giving a proxy has the power to revoke his or her proxy at any time
before the time it is exercised by delivering to the Secretary of the Company a
written instrument revoking the proxy or a duly executed proxy with a later
date, or by attending the meeting and voting in person.
INFORMATION ABOUT MONTEREY PASTA COMPANY
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 31, 1997
(except as noted in the footnotes to the table), with respect to the beneficial
ownership of the Company's Common Stock by (i) each director and
director-nominee of the Company, (ii) each person who served as the Chief
Executive Officer during the year ended December 29, 1996, and one former
executive officer whose salary and bonus for the year ended December 29, 1996
exceeded $100,000 but who was not an executive officer at December 29, 1996,
(iii) all directors and executive officers of the Company as a group, and (iv)
each person known by
1
<PAGE>
the Company to own more than 5% of the Company's Common Stock. No other
executive officer received total salary and bonus exceeding $100,000 for the
fiscal year ended December 29, 1996.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER (1) (2) PERCENT CLASS (2)
- ----------------------------------------------------------------------- ---------------------- -------------------
<S> <C> <C>
GFL Performance Fund Limited (3) ...................................... 1,714,286 11.9%
C/O Genesee Advisers
12007 Sunrise Valley Drive, Suite 460
Reston, VA 22091
Gruber and McBaine Capital Management (4) ............................. 730,600 5.1%
50 Osgood Place
San Francisco, CA 94133
Norman E. Dean (5)..................................................... -- --
Kenneth A. Steel, Jr. (6).............................................. 585,180 4.1%
Anthony W. Giannini (7)................................................ 60,000 *
Robert F. Steel (8).................................................... 200,000 1.4%
Daniel J. Gallery (9).................................................. 73,000 *
Timothy J. Ryan (10)................................................... 59,000 *
Van Tunstall........................................................... 25,000 *
Floyd R. Hill (11)..................................................... 215,000 1.5%
James Wong............................................................. -- --
Charles B. Bonner (12)................................................. 38,727 *
All Officers and Directors as a group (11 persons) (13)................ 1,261,907 8.7%
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Unless otherwise noted, the address of each named person is: Care of
Monterey Pasta Company, 1528 Moffett Street, Salinas, CA 93905.
(2) Includes shares of Monterey Pasta Company Common Stock underlying the
options and convertible securities outstanding held by the beneficial owners
with respect to whom the calculation is made, but does not include shares of
Common Stock that may not be acquired until more than 60 days after July 31,
1997.
(3) Represents approximately 1,714,286 shares related to convertible preferred
stock (based on five day average closing share price at August 14, 1997).
(4) Jon D. Gruber and J. Patterson McBaine are the only directors of, and hold
all executive offices of, Gruber & McBaine Capital Management ("GMCM"), an
investment advisor. GMCM, together with Messrs. Gruber, McBaine and Thomas
O. Lloyd-Butler, are the general partners of Lagunitas Partners, L.P., a
California limited partnership ("Lagunitas"), which is an investment limited
partnership. Messrs. Gruber and McBaine and GMCM are also the general
partners of GMJ Investment, L.P., a California limited partnership ("GMJ").
As of August 21, 1997, GMCM has shared voting and investment power over
486,600 shares; Mr. Gruber has sole voting and investment power over 90,200
shares and shared voting and investment power over 563,600 shares; Mr.
McBaine has sole voting and investment power over 76,800 shares and shared
voting and investment power over 563,600 shares; Lagunitas has sole voting
and investment power over 293,900 shares; and GMJ has sole voting and
investment power over 10,000 shares.
2
<PAGE>
(5) Mr. Dean served as Chief Executive Officer until October 4, 1996, and was
replaced by Mr. Kenneth Steel. See footnote 6 below.
(6) Includes 100,000 shares subject to a right of repurchase held by the
Company which lapses over time. Mr. Steel served as President and Chief
Executive Officer of the Company until July 1997; he is no longer an
employee of the Company.
(7) Includes 60,000 exercisable options granted under the 1993 Stock Option
Plan. Mr. Giannini is no longer an employee of the Company.
(8) Includes 50,000 exercisable options granted under the 1993 Stock Option
Plan.
(9) Includes 60,000 exercisable options granted under the 1993 Stock Option
Plan.
(10) Includes 59,000 exercisable options granted under the 1993 Stock Option
Plan.
(11) Includes 15,000 exercisable options granted under the 1993 Stock Option
Plan.
(12) Includes 15,000 exercisable options granted under the 1993 Stock Option
Plan.
(13) Includes 100,000 shares subject to a right of repurchase held by the
Company which lapses over time. Includes 259,000 exercisable options granted
under the 1993 Stock Option Plan.
BOARD OF DIRECTORS
The Company has a Board of Directors consisting of nine directors who will
serve until the Annual Meetings of Stockholders to be held in 1998, and until
their respective successors are duly elected and qualified. At each Annual
Meeting of Stockholders, directors are elected for a full term of one year to
succeed those directors whose terms expire on the Annual Meeting date.
Management's nominees for election at the Annual Meeting of Stockholders to
the Board of Directors are R. Lance Hewitt, Kenneth A. Steel, Jr., Charles B.
Bonner, Daniel J. Gallery, Floyd R. Hill, Timothy J. Ryan, Robert F. Steel, Van
Tunstall and James Wong. If elected, the nominees will serve as directors until
the Company's Annual Meeting of Stockholders in 1998, and until their successors
are elected and qualified. If any nominee declines to serve or becomes
unavailable for any reason, or if a vacancy occurs before the election (although
Management knows of no reason to anticipate that this will occur), the proxies
may be voted for such substitute nominees as Management may designate.
If a quorum is present and voting, the nominees for director receiving the
highest number of votes will be elected as directors. Abstentions and shares
held by brokers that are present, but not voted because the brokers were
prohibited from exercising discretionary authority, i.e., "broker non-votes,"
will be counted as present for the purposes of determining if a quorum is
present.
3
<PAGE>
The table below sets forth for the current directors, including the nominees
to be elected at this meeting, certain information with respect to age and
background.
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
- ---------------------------------------- --- ---------------------------------------- ------
<S> <C> <C> <C>
R. Lance Hewitt......................... 57 Chief Executive Officer and President 1997
Kenneth A. Steel, Jr.................... 39 Director 1996
Charles B. Bonner....................... 55 Director 1995
Daniel J. Gallery....................... 42 Director 1995
Floyd R. Hill........................... 53 Director 1995
Timothy J. Ryan......................... 55 Director 1995
Robert F. Steel......................... 42 Director 1997
Van Tunstall............................ 50 Director 1997
James Wong.............................. 50 Director 1997
</TABLE>
The principal occupations of each director of the Company, for the past five
years, are as follows:
R. LANCE HEWITT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Hewitt was
elected President and Director of the Company in June, 1997. In August, 1997,
Mr. Hewitt was appointed CEO. Until his appointment as President of Monterey
Pasta Company, Mr. Hewitt was President/CEO of Carriage House Fruit Company of
San Jose, California, since 1995. From 1988 to 1995 he was Vice President and
General Manager of Ingro Mexican Foods, Inc., of Carson, California. Prior to
1988, Mr. Hewitt had been with Tootje International, Inc., Lawry's Foods, Inc.,
and McCormick & Company, Inc.
CHARLES B. BONNER, DIRECTOR. Mr. Bonner served as a Director of the Company
from 1993 through January 1995, at which time he resigned as a Director due to
other business commitments. He was reappointed as a Director effective September
1995. Mr. Bonner is president of Pacific Resources, Inc., a merger and
acquisition advisory firm, a position he has held since September 1989. From
1979 to 1989, Mr. Bonner was president of Bonner Packing Company, a
privately-held Fresno, California based dried fruit producer. Mr. Bonner also
serves as a director for the following privately-owned corporations: O.K.
Produce Company, Spencer Fruit Company, Charles Tingey Associates, Organic Food
Products, Daystar Venture Partners, and Multivision, Inc.
DANIEL J. GALLERY, DIRECTOR. Mr. Gallery has been a Director of the Company
since January 1995. In 1984, Mr. Gallery co-founded Denver-based Carts of
Colorado, Inc., a designer and manufacturer of mobile and modular merchandising
equipment. As executive vice president of sales and marketing, Mr. Gallery is
responsible for worldwide sales and marketing for Carts of Colorado. Mr. Gallery
is co-founder and treasurer of Cohabaco Cigar Company and currently a partner in
Directions International Asia Limited Investments in Hong Kong. Mr. Gallery also
serves on the board of directors of New Riders.
FLOYD R. HILL, DIRECTOR. Mr. Hill co-founded the Company in 1989, served as
its Secretary/Treasurer and Chief Executive Officer until 1993, and served as a
Director of the Company from 1989 until 1994. Mr. Hill became a Director again
in January 1995. Mr. Hill served as the Senior Vice President of Production from
August 1993 until November 1995. From 1969 until 1991, Mr. Hill was employed by
Eli Lilly & Co. in various marketing and product development positions. Mr. Hill
is currently the president and chief executive officer of Organic Food Products.
TIMOTHY J. RYAN, DIRECTOR. Mr. Ryan has been a Director of the Company
since September 1995. Mr. Ryan, a consultant with his own firm, Tim Ryan &
Associates, Inc., consulted with the Company during the first quarter of 1995
and was acting Chief Operating Officer of the Company from March 1995 until
October 1995. From 1988 to 1995, Mr. Ryan was employed by Taco Bell, Inc., a
division of PepsiCo,
4
<PAGE>
serving as senior vice president, Full Service Dining from 1993 to 1995 and
senior vice president, Marketing and New Concepts from 1988 to 1993. Mr. Ryan
served as president of Sizzler USA in 1996.
KENNETH A. STEEL, JR., DIRECTOR. Mr. Steel was elected Director of the
Company in October of 1996. Mr. Steel served as Chief Executive Officer of the
Company from October 1996 until July 1997. He is a stockholder of and continues
to serve as executive vice president with K.A. Steel Chemicals, Inc., a position
he has held since 1979. He serves on the board of directors of Organic Food
Products of Morgan Hill, California, M.D. Labs, Inc. of Tempe, Arizona, and
Vitrix Corporation of Scottsdale, Arizona.
ROBERT F. STEEL, DIRECTOR. Mr. Steel, brother of Kenneth A. Steel, Jr., was
elected to the Board in March, 1997. He is president, CEO, and a stockholder of
K.A. Steel Chemicals, Inc., a Chicago based chemical distribution and
manufacturing company, and chairman and owner of Montana Metal Products, a
precision sheet metal fabrication and machining company. Mr. Steel holds
managing director positions with Platinum Venture Partners, Inc., a venture
capital partnership of investors who own and operate their own businesses,
D-Vision Systems, a video editing software company, and Forest Financial
Corporation, an information technology lease finance company. Additionally, Mr.
Steel serves as a director for Affiliated Chemical Group, Ltd., Whittman-Hart,
Flatlander's Brewing Company, and Blue Rhino Corporation.
VAN TUNSTALL, DIRECTOR. Mr. Tunstall was elected to the Board of Directors
in February, 1997. He is currently consulting with a variety of companies. Mr.
Tunstall was a senior executive with McCormick Company, Inc., a spice and
seasoning manufacturer, from 1979 to 1995. He served as president and chairman
of the Board of Gilroy Foods, Inc., a McCormick Company subsidiary from 1991
through 1995. Previously, Mr. Tunstall held various positions with McCormick &
Company, Inc.
JAMES WONG, DIRECTOR. Mr. Wong was elected to the Board of Directors in
March, 1997. He functions as chairman and chief executive officer of Directions
International, a U.S. based management consulting firm which he founded. Mr.
Wong serves as a director on a variety of boards for both profit and not-for-
profit, privately held organizations.
The Company has an Audit Committee and a Compensation/Nominating Committee.
The functions of the Audit Committee include: recommending to the Board, subject
to stockholder approval, the retention of independent public accountants;
reviewing and approving the planned scope, proposed fee arrangements and results
of the Company's annual audit; reviewing the adequacy of accounting and
financial controls; reviewing the independence of the Company's independent
public accountants; approving all assignments to be performed by the Company's
independent public accountants; and instructing the Company's independent public
accountants, as deemed appropriate, to undertake special assignments. The
members of the Audit Committee during fiscal year 1996 were Charles B. Bonner,
Floyd R. Hill and Timothy J. Ryan. The Audit Committee held two meetings during
the fiscal year ended December 29, 1996.
The Compensation/Nominating Committee's function is to review and recommend
executive compensation, including officer salary levels, incentive compensation
programs and stock options grants, and executive recruitment matters. The
members of the Compensation/Nominating Committee from January 1, 1996 until
October 4, 1996 were Daniel J. Gallery, E. Michael Moone, and Christopher G.
Gillam. Upon the resignation of Mssrs. Moon and Gillam, Lance H. Mortensen and
Timothy J. Ryan served with Mr. Gallery for the remainder of the fiscal year.
See "REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION."
MEETINGS OF THE BOARD OF DIRECTORS. During the fiscal year ended December
29, 1996, the Board of Directors of the Company held eight meetings. No director
attended fewer than 75% of the total number of meetings of the Board and all of
the committees of the Board on which such director was serving held during that
period. The Company's Board of Directors has no standing nominating committee.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company as of December 29, 1996, as well as
two former executive officers of the Company, whose total salary and incentive
compensation for the fiscal year ended December 29, 1996 exceeded $100,000, for
services in all capacities to the Company, earned during the fiscal years ended
December 29, 1996, December 29, 1995 and December 30, 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
------------------------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ OTHER $ OPTIONS (#) COMPENSATION
- ------------------------------------ --------- ----------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth A. Steel, Jr. .............. 1996 $ -- (1) $ -- $ -- $ -- (1) $ --
Former Chief 1995 -- -- -- -- --
Executive Officer 1994 -- -- -- -- --
Norman E. Dean ..................... 1996 $167,599(2) $ -- $ 4,850(3) $ -- $ --
Former President and 1995 $ 57,692(2) $ -- $ 1,200(3) $610,000(4) --
Chief Executive Officer 1994 -- -- -- $ 10,000(4) --
Anthony W. Giannini ................ 1996 $ 85,064 $ -- $ 4,150(5) $ 60,000(6) $ 31,125(7)
Former Senior Vice 1995 $107,520 $ 36,950 $ 6,600(5) $ 55,000(6) $ --
President of Sales 1994 $101,124 $ 15,676 $ -- -- $ --
</TABLE>
- ------------------------
Notes:
(1) Mr. Steel was appointed Chief Executive Officer of the Company on October 5,
1996 and served in this position until July 31, 1997. He received no salary
compensation in the fiscal year 1996, but was granted rights to purchase
restricted shares of Common Stock on March 20, 1997. On April 30, 1997, Mr.
Steel purchased 550,000 shares of restricted Common Stock at $1.875 per
share with a full recourse 7% note due December 31, 1997. The shares,
subject to certain time-served and performance requirements, are
repurchaseable by the Company at the issuance price (with cancellation of
any related interest income) if they do not vest under the restrictions. Of
the total, 300,000 shares have fully vested and are no longer subject to
repurchase, and 100,000 have not yet vested. The remaining 150,000 were
forfeited due to a performance condition expiring on June 30, 1997.
(2) Mr. Dean was Chief Executive Officer and President of the Company until
October 4, 1996; he is no longer an employee of the Company.
(3) Mr. Dean received an auto allowance of $400 per month through April 1996 and
$650 per month thereafter.
(4) As a Director, Mr. Dean received stock options totaling 10,000 on March 3,
1994 and 10,000 on January 6, 1995. Fifteen thousand of these shares are
exercisable as of December 29, 1996; the balance expired unvested upon his
resignation. Mr. Dean also received options, as an employee, on 600,000
shares on September 7, 1995, outside the 1993 Stock Option Plan, vesting on
various performance targets, all of which expired unvested upon his
resignation.
(5) Mr. Giannini received an auto allowance of $550 per month through May 1996
and $650 per month thereafter.
(6) Mr. Giannini received stock options on 55,000 shares of common stock which
expired unvested upon his termination; however, he received an option for
60,000 shares of common stock on December 19, 1996 in connection with a
separation agreement.
6
<PAGE>
(7) Subsequent to his termination in July 1996, Mr. Giannini was a consultant to
the Company until March 1997.
STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED DECEMBER 29, 1996.
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock in the fiscal year ended December
29, 1996, to the persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE ON 12/29/96
SECURITIES % OF TOTAL OPTIONS ---------------------
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION ALTERNATIVE GRANT
NAME GRANTED(#)(2) IN FISCAL 1996 PRICE DATE DATE VALUE(1)
- ----------------------------- ------------------- --------------------- ------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
K.A. Steel, Jr............... 0 0 0 0 0
N.E. Dean.................... 0 0 0 0 0
A.W. Giannini................ 60,000 11.9% $ 1.875 12/18/2007 $ 60,796
</TABLE>
- ------------------------
(1) The alternative grant date values are based on the modified Black-Scholes
option pricing model, assuming no dividend yield, expected volatility of
approximately 54%, risk free rate of return of 6%, and expected time of
exercise generally at half of the original contractual life. Actual values
realized on stock options are dependent on actual future performance of the
Company's stock, among other factors. Accordingly, the amounts may not
necessarily be realized.
(2) The 1993 Stock Option Plan provides that upon, among other things, the
dissolution, liquidation, reorganization, merger or consolidation of the
Company or the sale of all or substantially all of the assets of the
Company, or transfer of control (as such term is defined under Section 7.1
of the Plan), all outstanding options under the 1993 Stock Option Plan shall
become immediately exercisable as of the date 30 days prior to the date of
transfer of control if such options would otherwise terminate upon
consummation of the transaction or if the surviving or successor corporation
as the case may be, does not assume the Company's obligations under the 1993
Stock Option Plan or substitute for such outstanding options.
OPTION EXERCISES AND YEAR-END VALUES FOR THE FISCAL YEAR ENDED DECEMBER 29,
1996.
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in the fiscal year ended
December 29, 1996, and unexercised options held as of December 29, 1996 by the
persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 29, 1996 AT DECEMBER 29, 1996
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
K.A. Steel, Jr................ 0 0 0 0 0 0
N.E. Dean..................... 0 0 15,000 0 0 0
A.W. Giannini................. 0 0 60,000 0 $ 3,750 0
</TABLE>
7
<PAGE>
COMPENSATION OF DIRECTORS
At the Company's Annual Meeting of Shareholders held on JANUARY 6, 1995, the
Company's shareholders approved an amendment to the Company's First Amended and
Restated 1993 Stock Option Plan (the "1993 Stock Option Plan") to provide for
the grant of nonstatutory stock options for 10,000 shares each to non-employee
directors of the Company on October 19, 1994, the effective date of the 1993
Stock Option Plan, if such non-employee director was serving at such time or
upon appointment or election as a director of the Company at an exercise price
per share equal to the fair market value of a share of the Company's Common
Stock on the date of grant.
Each non-employee director will thereafter receive automatic grants of
nonstatutory stock options to purchase 10,000 shares of the Company's Common
Stock on each anniversary of his or her anniversary date (defined to mean (i)
October 19, 1994 for an outside director who was granted an outside director
option on such date or (ii) the date upon which any other outside director was
first granted an outside director option under the 1993 Stock Option Plan).
During the fiscal year ended December 29, 1996, the following Directors are
entitled to stock options to purchase shares of the Company's Common Stock under
the plan; Messrs. Gallery, Ryan, Bonner, and Hill.
Options granted to a director who is also an employee of the Company (or to
any other employee eligible under the 1993 Stock Option Plan) are subject to
different terms under the 1993 Stock Option Plan than those of the non-employee
director options. A director who becomes an employee of the Company is no longer
eligible for non-employee directors options. Under the 1993 Stock Option Plan,
the Board determines for each employee option, among other things, the number of
shares of stock underlying the option, the timing and terms of and vesting of
its sole discretion, but which shall not be less than the fair market value of a
share of Common Stock on the date of grant. The option vests in two
approximately equal annual installments commencing one year after the date of
grant of the option, provided that the director has continuously served as
director from the date of grant.
Certain directors are also reimbursed for out-of-pocket travel expenses
related to Board Meetings.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Company leased office space from a partnership in which Mr. Lance
Mortensen is a limited partner. Mr. Mortensen is a stockholder, former Director,
former President and former Chairman of the Board of the Company. Rent expense
under this lease in 1996 was $150,108. The Company vacated this space in
February 1996, and paid $65,000 plus 5,323 shares of its common stock in
settlement of the lease obligation.
In April 1996, the Company's restaurant subsidiary Upscale Food Outlets,
Inc. (UFO), was sold to Upscale Acquisitions, Inc. (Upscale), which is
wholly-owned by Mr. Lance Mortensen. The purchase price for the shares of UFO
sold to Upscale was $1,000 cash plus a note executed by Upscale for $2,500,000.
In addition, under the agreement, the Company advanced $350,000 to UFO
subsequent to the purchase. The purchase note is accounted for under the cost
recovery method which defers recognition of income (or reduction of loss) until
payments are received. The cash advances are not accounted for under the cost
recovery method, but have been fully reserved as possibly uncollectible. During
1996, the Company sold $62,350 in food products to UFO. Of this amount, $18,738
is uncollected and is fully reserved at December 29, 1996.
During 1996, the Company purchased certain office furniture and equipment
under a prior agreement from the stockholder referred to above for $100,000.
Certain of the furniture purchased was reduced to its estimated fair value at
the end of 1996, resulting in a writedown of $55,000.
Mr. Kenneth A. Steel, Jr., the Company's Chief Executive Officer, who is
also a Director and stockholder, is a director and stockholder of Organic Food
Products, Inc., from whom the Company contracted certain co-packing service and
obtained raw materials. Mr. Floyd R. Hill, who is another
8
<PAGE>
director, stockholder and chief executive officer of Organic Food Products,
Inc., is also a Co-founder, Director and stockholder of the Company. Payments to
the related entity were $186,513 during 1996. These arrangements were
discontinued in early 1997.
During 1996, the Company made payments of $137,252 in connection with
purchases of carts and kiosks from Carts of Colorado, Inc. A $222,000 loss was
recorded in the third quarter of 1996, reducing the related assets (including
prior purchases, upgrades and additions purchased from other vendors) to their
estimated fair values. Mr. Daniel Gallery, co-founder, director and executive
vice president of Carts of Colorado, Inc. is also a Director of the Company.
On April 30, 1997, Mr. Steel purchased 550,000 shares of restricted Common
Stock at $1.875 per share with a full recourse 7% note due December 31, 1997.
The shares, subject to certain time-served and performance requirements, are
repurchaseable by the Company at the issuance price (with cancellation of any
related interest income) if they do not vest under the restrictions. Of the
total, 300,000 shares have fully vested and are no longer subject to repurchase,
and 100,000 have not yet vested. The remaining 150,000 were forfeited due to a
performance condition expiring on June 30, 1997.
The terms of these transactions were, when entered into, generally similar
to those that could have been entered into with unrelated parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file with the
SEC initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than 10% beneficial owners are required by SEC regulations to furnish
the Company with copies of all reports they file under Section 16(a). To the
Company's knowledge, based solely on its review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with during the
fiscal year ended December 29, 1996, except that for Messrs. Chris Gillam, a
former Director, Marshall Stevens, a former President, and Ken Steel, the
current Chief Executive Officer, initial reports on Form 3 following their
appointments were filed late. In addition, certain reports on Form 4 for John
Abrams, a former Officer and Director, were filed late.
9
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE FOR
YEAR ENDED DECEMBER 29, 1996
The Compensation Committee is comprised of three non-employee directors of
the Company. The committee is responsible for setting and administering the
policies governing compensation, including cash compensation and stock ownership
programs. The goals of the Company's compensation policy are to attract and
retain executive officers, who contribute to the overall success of the Company
by offering compensation which is competitive in the food processing industry
for companies of the Company's size and to motivate executives to achieve the
Company's business objectives and reward them for their achievements. The
Company uses salary, incentive compensation and stock options to meet these
goals. Meetings of the Committee are scheduled as necessary.
The Company believes that employee equity ownership, through stock options,
provides significant additional motivation to executive officers to maximize
value for the Company's stockholders. Because the stock options will be granted
at the prevailing market price, the stock options will only have value if the
Company's stock price increases over the exercise price. Therefore, the
Compensation Committee believes that stock options will serve to align the
interests of executive officers closely with other stockholders through the
direct benefit executive officers receive through improved stock performance.
The Committee reviews the 1993 Stock Option Plan and the grant of stock options
with the foregoing philosophy. Levels of compensation, particularly bonuses and
incentive compensation, are tied to both the overall performance of the Company
as well as the effectiveness of each individual executive in adding to that
performance.
Kenneth A. Steel, Jr. was appointed Chief Executive Officer of the Company
on October 5, 1996. Due to operating losses incurred by the Company prior to his
appointment and the lack of available cash, the entire board agreed that Mr.
Steel would receive no cash compensation in fiscal year 1996, but would be
granted rights to purchase restricted shares of the Company's Common Stock at a
later date. On March 20, 1997 the entire Board approved an agreement between Mr.
Steel and the Company to purchase shares of restricted Common Stock.
The Committee did not review or consider changes to the compensation paid to
other executive officers of the Company due to the operating losses incurred by
the Company in Fiscal 1996.
THE COMPENSATION COMMITTEE
Daniel J. Gallery
Timothy J. Ryan
Van Tunstall
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COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the cumulative
total return of the Nasdaq Stock Market (U.S.) ("Nasdaq") and peer issuers for
the period commencing on December 7, 1993(1) and ending on December 29, 1996.(2)
COMPARISON OF CUMULATIVE TOTAL RETURN FROM DECEMBER 7, 1993 THROUGH DECEMBER 29,
1996:
MONTEREY PASTA COMPANY, NASDAQ INDUSTRIALS INDEX AND PEER ISSUERS
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MONTEREY PASTA COMPANY NASDAQ STOCK MARKET (U.S.) PEER ISSUERS
<S> <C> <C> <C>
12/7/93 $100.00 $100.00 $100.00
12/31/93 $123.70 $100.90 $105.50
12/30/94 $75.00 $98.60 $81.40
12/29/95 $55.30 $139.50 $106.10
12/31/96 $17.10 $171.50 $109.70
</TABLE>
- ------------------------
(1) The Company's initial public offering commenced on December 7, 1993. For
purposes of this presentation, the Company has assumed that its initial
offering price of $6.00 would have been the closing sales price on December
6, 1993, the day prior to commencement of trading.
(2) Assumes that $100.00 was invested on December 7, 1993 in the Company's
Common Stock at the Company's initial offering price of $6.00 and at the
closing sales price for each index on December 6, 1993, and that all
dividends were reinvested. No dividends have been declared on the Company's
Common Stock. Stockholder returns over the indicated period should not be
considered indicative of future Stockholder returns.
11
<PAGE>
ELECTION OF DIRECTORS
Nine (9) directors are to be elected to the Company's Board of Directors at
the 1997 Annual Meeting of Stockholders. Management's nominees for election are
R. Lance Hewitt, Charles B. Bonner, Daniel J. Gallery, Floyd R. Hill, Timothy J.
Ryan, Kenneth A. Steel, Jr., Robert F. Steel, Van Tunstall and James Wong. If
elected, the nominees will serve as directors until the Company's Annual Meeting
of Stockholders in 1998, and until their successors are duly elected and
qualified. If any of the nominees decline to serve or become unavailable for any
reason, or if a vacancy occurs before the election (although management knows of
no reason to anticipate that this will occur), the proxies may be voted for such
substitute nominees as management may designate.
If a quorum is present and voting, the nine (9) nominees for director
receiving the highest number of votes will be elected as directors. Abstentions
and shares held by brokers that are present, but not voted because the brokers
were prohibited from exercising discretionary authority (i.e., "broker
non-votes") will be counted as present for purposes of determining if a quorum
is present.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected BDO Seidman, LLP as the
independent public accountants to audit the financial statements of the Company
for the fiscal year ending December 28, 1997. A representative of BDO Seidman,
LLP is expected to be present at the annual meeting with the opportunity to make
a statement if the representative desires to do so, and is expected to be
available to respond to appropriate questions.
On October 25, 1996, the Company engaged BDO Seidman, LLP to serve as its
independent public accountants, replacing Deloitte & Touche, LLP, who had
previously served in that capacity and resigned on October 18, 1996. This change
in accountants was approved by the Company's Board of Directors. During the past
two (2) fiscal years and the interim period to October 25, 1996, the former
accountants' reports on the financial statements of the Company neither
contained any adverse opinion or disclaimer of opinion nor were qualified or
modified as to uncertainty, audit scope or accounting principles. There were not
any disagreements between the Company and the former accountants on any matters
of accounting principles or practice, financial statement disclosure or auditing
scope or procedure, which if not resolved to the satisfaction of the former
accountants, would have caused them to make reference to the subject matter of
the disagreement in its report.
The affirmative vote of a majority of the votes cast at the annual meeting
of stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and broker non-
votes will each be counted as present for purposes of determining the presence
of a quorum, but will not be counted as having been voted on the proposal. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF BDO
SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 28, 1997.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 1528 Moffett Street, Salinas, California 93905, no later than
April 26, 1998, and satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
proxy statement for that meeting.
12
<PAGE>
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment or postponement thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ GEORGE W. HAMMOND
GEORGE W. HAMMOND
Secretary and Plant Controller
August 27, 1997
13
<PAGE>
MONTEREY PASTA COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Lance Hewitt and George W. Hammond, and
each of them, with full power of substitution to represent the undersigned and
to vote all of the shares of stock in Monterey Pasta Company (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of said Company to be held at the Hyatt Regency San Francisco Airport, 1333
Bayshore Highway, Burlingame, CA on Thursday, September 18, 1997 at 10:00 a.m.,
local time, and at any adjournment thereof (1) as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
Company's Proxy Statement, receipt of which is hereby acknowledged, and (2) in
their discretion upon such other matters as may properly come before the
meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 AND 2.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
A vote FOR the following proposals is recommended by the Board of Directors:
1. Election of Directors
NOMINEES: Charles B. Bonner, Daniel J. Gallery, Floyd R. Hill, Timothy J. Ryan,
Kenneth A. Steel, Jr., Robert F. Steel, Van Tunstall, James Wong and
R. Lance Hewitt.
/ / FOR / / WITHHELD
/ / For all nominees except as noted above
2. To approve the selection of BDO Seidman, LLP as the Company's independent
public accountants for the current fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE
FOR ADDRESS
CHANGE AND / /
NOTE BELOW
Even if you are planning to attend the meeting in person, you are urged to sign
and mail the Proxy in the return envelope so that your stock may be represented
at the meeting.
Sign exactly as your name(s) appears on your stock certificate. If shares of
stock stand on record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign the above Proxy. If shares of stock are held on record by a
corporation, the Proxy should be executed by the President or Vice President and
the Secretary or Assistant Secretary, and the corporate seal should be affixed
thereto. Executors or administrators or other fiduciaries who execute the above
Proxy for a deceased stockholder should give their full title. Please date the
Proxy.
Signature(s)____________________________________________ Date _________________
