UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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The Hain Food Group, Inc.
(Name of Registrant as Specified In Its Charter)
-----------------
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THE HAIN FOOD GROUP, INC.
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
November 9, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
The Hain Food Group, Inc., scheduled to be held on Tuesday, December 8, 1998 at
the conference center, located in the lower lobby, at 50 Charles Lindbergh
Boulevard, Uniondale, New York 11553, commencing at 11:00 A.M., Eastern Standard
Time. Your Board of Directors and management look forward to greeting personally
those stockholders able to attend.
Details of business to be conducted at the annual meeting are provided in
the enclosed Notice of Annual Meeting of Stockholders and Proxy Statement. Also
enclosed for your information is a copy of our Annual Report for 1998.
It is important that your shares are represented at the meeting whether or
not you plan to attend. Accordingly, we request your cooperation by promptly
signing, dating and mailing the enclosed Proxy in the envelope provided for your
convenience.
Sincerely,
Irwin D. Simon
President and Chief Executive
Officer
THE HAIN FOOD GROUP, INC.
50 Charles Lindbergh Boulevard
Uniondale, New York 11553
--------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
--------------------------
To the Stockholders of
THE HAIN FOOD GROUP, INC.:
The Annual Meeting of Stockholders of The Hain Food Group, Inc. (the
"Company") will be held on Tuesday, December 8, 1998 at 11:00 A.M., Eastern
Standard Time, at the conference center, located in the lower lobby, 50 Charles
Lindbergh Boulevard, Uniondale, New York 11553, for the following purposes:
(i) To elect a Board of Directors to serve until the next Annual Meeting
of stockholders and until their successors are duly elected and
qualified;
(ii) To approve amendments to the Company's 1994 Long Term Incentive and
Stock Award Plan to (a) increase the number of shares issuable over
the term of the plan by 1,200,000 shares to 2,400,000 shares in the
aggregate and (b) increase the upper limit on the number of shares for
which options or stock appreciation rights may be granted to any
participant under the plan during any calendar year to 500,000 shares;
(iii) To approve amendments to the Company's 1996 Directors Stock Option
Plan to (a) increase the number of shares issuable over the term of
the Plan by 200,000 shares to 500,000 shares in the aggregate and (b)
allow for discretionary option grants thereunder;
(iv) To ratify the appointment of Ernst & Young LLP as independent auditors
for fiscal 1999; and
(v) To transact such other business as may properly come before the
meeting.
Your vote is important. If you do not expect to be present at the meeting
and wish your stock to be voted, please sign and date the enclosed Proxy and
mail it promptly in the enclosed reply envelope addressed to Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
1
SOLICITATION AND REVOCATION OF PROXIES
Proxies are being solicited on behalf of the Board of Directors of the
Company, and the Company will bear the cost of such solicitation. It is expected
that the solicitation of Proxies will be primarily by mail. Proxies may also be
solicited by officers and employees of the Company at no additional cost to the
Company, in person or by telephone, telegram or other means of communication.
The Company may reimburse custodians, nominees and fiduciaries holding Common
Stock (as defined below) for their reasonable expenses in sending proxy material
to principals and obtaining their Proxy. Any stockholder giving a Proxy may
revoke it at any time before it is exercised by written notice to the Secretary
of the Company or by voting in person at the meeting.
It is expected that this Notice of Annual Meeting of Stockholders and Proxy
Statement will first be mailed to stockholders on or about November 9, 1998.
STOCKHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
Only stockholders of record at the close of business on November 6, 1998
will be entitled to vote at the Annual Meeting. On that date, there were
13,430,640 shares of the Common Stock, par value $.01 per share, of the Company
("Common Stock") outstanding and entitled to be voted at the Annual Meeting.
Each such share is entitled to one vote. Proxies marked as abstaining (including
proxies containing broker non-votes) on any matter to be acted upon by
stockholders will be treated as present at the meeting for purposes of
determining a quorum but will not be counted as votes cast on such matters.
2
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 26, 1998 for
(i) each person who is known by the Company to beneficially own more than 5.0%
of the outstanding shares of Common Stock, (ii) each executive officer of the
Company, (iii) each director of the Company and (iv) all executive officers and
directors of the Company as a group. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, and does not necessarily bear on the economic incidents of ownership or
the right to transfer such shares.
------------- ---------------
Number of Percentage of
Shares Common Stock
------------- ---------------
Irwin D. Simon(1)............................ 1,531,405 10.7%
Andrew R. Heyer(2)........................... 286,975 2.1%
Gary M. Jacobs(3)............................ 25,000 *
Jack Kaufman(3).............................. 105,000 *
Benjamin Brecher(3).......................... 102,097 *
Ellen Deutsch(3)............................. 41,500 *
Andrew Jacobson(3)........................... 60,000 *
Beth L. Bronner(4)(5)........................ 66,667 *
William J. Fox(4)(6)......................... 32,500 *
Jack Futterman(4)(6)......................... 23,500 *
James S. Gold(4)(7).......................... 21,000 *
Kenneth J. Daley (8)......................... 0 *
Arthur Rubinfeld (8)......................... 0 *
Jay R. Bloom(9).............................. 706,539 5.0%
Dean C. Kehler(9)............................ 807,496 5.7%
White Rock Capital Management, L.P.(10)...... 2,694,500 20.1%
White Rock Capital, Inc. (10)................ 2,694,500 20.1%
Thomas U. Barton(10)......................... 2,749,500 20.5%
Joseph U. Barton(10)......................... 2,719,500 20.2%
Soros Fund Management LLC(11)................ 1,326,000 9.9%
George Soros(11)............................. 1,326,000 9.9%
Stanley F. Druckenmiller(11)................. 1,326,000 9.9%
All executive officers and directors as a
group (thirteen persons)(12)............... 2,295,644 15.7%
- - ---------------------
* Indicates less than 1%.
(1) Includes 600,000 shares of Common Stock issuable upon the exercise of
options under the Company's 1993 Executive Stock Option Plan (the "1993
Plan") and 170,000 shares of Common Stock issuable upon the exercise of
options under the Company's 1994 Long Term Incentive and Stock Award Plan
(the "1994 Plan"). Mr. Simon is President, Chief Executive Officer and
Director of the Company.
(2) Includes 30,000 shares of Common Stock issuable upon the exercise of
options under the Company's 1996 Directors Stock Option Plan (the
"Directors Plan") and 135,356 shares issuable upon the exercise of Warrants
held by Argosy-Hain Warrant Holdings, L.P. ("AHWH") for which Mr. Heyer may
be deemed to be the beneficial owner as a limited partner of AHWH. The
changes in Mr. Heyer's beneficial ownership from previous reports reflect
Mr. Heyer's resignation as officer and director of Argosy Investment Corp.
("AIC"), as reported in an amendment to Schedule 13D dated October 28,
1998. Mr. Heyer is Chairman of the Board of Directors of the Company.
(3) Includes 25,000 shares for Mr. Jacobs, 100,000 shares for Mr. Brecher,
100,000 shares for Mr. Kaufman, 36,500 shares for Ms. Deutsch and 60,000
shares for Mr. Jacobson of Common Stock issuable upon exercise of options
under the 1994 Plan. Mr. Jacobs, Mr. Brecher, Mr. Kaufman, Ms. Deutsch and
Mr. Jacobson are executive officers of the Company.
3
(4) Director of the Company. Mr. Fox is Vice-Chairman of the Board of
Directors.
(5) Includes 30,000 shares of Common Stock issuable upon the exercise of
options under the Directors Plan.
(6) Includes 22,500 shares of Common Stock issuable upon the exercise of
options under the Directors Plan.
(7) Includes 15,000 shares of Common Stock issuable upon the exercise of
options under the Directors Plan.
(8) Nominated to the Board of Directors for the first time.
(9) As the officers and directors of AIC, which is the general partner of AHWH,
Mr. Bloom and Mr. Kehler may be deemed to be the beneficial owner of the
522,717 shares of Common Stock to be issued upon the exercise of Warrants
held by AHWH and 100,000 shares of Common Stock to be issued upon the
exercise of Warrants by AIC (the "AIC Warrants").
(10) According to a Schedule 13D dated May 11, 1998 and Amendment No. 2 thereto
dated October 16, 1998: (i) White Rock Capital Management, L.P., a Texas
limited partnership ("White Rock LP"), White Rock Capital, Inc., a Texas
corporation ("White Rock Inc." and together with White Rock LP, "White
Rock"), Thomas U. Barton and Joseph U. Barton may be deemed beneficial
owners of 2,432,500 shares of Common Stock acquired by White Rock on behalf
of certain institutional clients, 240,000 shares of Common Stock held for
the account of White Rock Capital Partners, L.P. and 22,000 shares of
Common Stock held for the account of White Rock LP; (ii) Joseph U. Barton
beneficially owns 25,000 shares of Common Stock acquired for his personal
account; and (iii) Thomas U. Barton beneficially owns 55,000 shares of
Common Stock pursuant to an arrangement providing for the trading of
options to acquire such shares. Thomas U. Barton and Joseph U. Barton are
shareholders of White Rock Inc.
(11) According to a Schedule 13G dated March 6, 1998 and Amendment No. 1 thereto
dated May 11, 1998 (the "Schedule 13G"), Soros Fund Management LLC, a
Delaware limited liability company ("SFM LLC"), George Soros and Stanley F.
Druckenmiller may be deemed beneficial owners of 1,326,000 shares of Common
Stock acquired by White Rock LP on behalf of certain institutional clients
of SFM LLC, on behalf of whom SFM LLC has granted investment discretion
over such shares to White Rock L.P. Mr. Soros is the Chairman of SFM LLC
and Mr. Druckenmiller is the lead portfolio manager and a member of the
management committee of SFM LLC. Accordingly to the Schedule 13G, none of
SFM LLC, Mr. Soros and Mr. Druckenmiller currently exercises voting or
dispositive power over such shares.
(12) Includes 600,000 shares issuable upon the exercise of options under the
1993 Plan, 491,500 shares issuable upon the exercise of options under the
1994 Plan and 120,000 shares issuable upon the exercise of options under
the Directors Plan. See notes 1 through 10.
4
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation paid by the Company for
services rendered during the three fiscal years ended June 30, 1998 to or for
the accounts of the Chief Executive Officer and the other four most highly
compensated officers.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Awards Options Compensation
- - ------------------ ---- ------ ----- ------------ ------ ------- ------------
Irwin D. Simon (1) 1998 $225,000 $60,000 $5,400 -- 125,000(2) --
President, Chief 1997 $200,000 $60,000 $5,400 -- 20,000 --
Executive Officer 1996 $160,000 $52,000 $5,400 -- 25,000 --
and Director
Benjamin Brecher 1998 $140,000 $37,500 $5,400 -- 0 --
Vice President- 1997 $125,000 $37,500 $5,400 -- 250,000(3) --
Operations 1996 $125,000 $37,500 $5,400 -- 10,000 --
Ellen B. Deutsch (4) 1998 $148,000 $22,000 $5,400 -- 0 --
Senior Vice President- 1997 $140,000 $10,000 $5,400 -- 25,000 --
Sales & Marketing 1996 $ 35,000 $1,350 -- 20,000 --
--
Andrew Jacobson (5) 1998 $129,329 $0 $4,050 -- 60,000 --
President - Natural 1997 -- -- -- -- -- --
Foods Division 1996 -- -- -- -- -- --
Jack Kaufman (6) 1998 $118,000 $30,000 $5,400 -- 40,000 --
Chief Financial 1997 $100,000 $30,000 $5,400 -- 50,000 --
Officer, Treasurer and 1996 $100,000 $30,000 $5,400 -- 10,000 --
Assistant Secretary
(1) During fiscal 1998, Mr. Simon was employed pursuant to an employment
agreement (which extended a prior employment agreement) which commenced on
July 1, 1996 at annual base compensation of $200,000, with an increase of
$25,000 on July 1, 1997. See "--Employment Agreements."
(2) Consists of options for 125,000 shares conditionally granted to Mr. Simon
on June 30,1997 at an exercise price of $4.8125 per share pending an
increase to shares eligible for grant under the 1994 Plan that was approved
by stockholders at a meeting held December 9, 1997. The Company will incur
a straight-line non-cash compensation charge ($27,000 for fiscal 1998) over
the 10-year vesting period based on the excess (approximately $461,000) of
the market value of the shares of Common Stock underlying the options
($8.50 per share) on December 9, 1997 compared to $4.8125 per share on the
date of grant.
(3) 20% of such options became exercisable on December 31, 1996, 20% became
exercisable on December 31, 1997 and an additional 20% become exercisable
on December 31 of the next three years, provided Mr. Brecher remains
employed by the Company.
(4) Ms. Deutsch commenced employment on April 1, 1996.
(5) Mr. Jacobson commenced employment on October 14, 1997.
(6) On September 8, 1998, Mr. Kaufman resigned as Chief Financial Officer,
Treasurer and Assistant Secretary and was appointed Senior Vice
President-Business Development and Strategic Planning.
5
Employment Agreements
During fiscal 1998, Irwin D. Simon, President and Chief Executive Officer
of the Company was employed pursuant to a three year employment agreement (which
extended a prior employment agreement) which commenced July 1, 1996, at an
annual base compensation of $200,000 effective July 1, 1996, and provided for
minimum annual increases of $25,000 on each of July 1, 1997 and July 1, 1998.
During fiscal 1999, Mr. Simon's employment agreement was amended and extended
through fiscal 2001 at a minimum annual base compensation of $300,000 for fiscal
1999, $360,000 for fiscal 2000 and $410,000 for fiscal 2001. Mr. Simon's
employment agreement was further amended to provide for a minimum annual bonus
of up to 50% of such annual compensation upon the achievement of certain sales
and profitability objectives as determined by the Compensation Committee and to
provide for a $900,000 termination payment if the Company is sold or Mr. Simon's
employment is terminated during such period. In addition, subject to stockholder
approval of the increase in the number of options available for grant under the
1994 Plan set forth in Proposal No. 2, Mr. Simon's amended employment agreement
provides that he will receive 400,000 options to purchase Common Stock on
December 8, 1998 at the then current market price. In addition, upon the
achievement of certain sales and profitability objectives, Mr. Simon will be
eligible to receive a minimum of 250,000 options to purchase Common Stock for
the fiscal year ending June 30, 1999 at the market price at the date of grant
and a minimum of 250,000 options to purchase Common Stock for the fiscal year
ending June 30, 2000 at the market price at the date of the grant.
In addition, each employee is eligible to receive short-term incentive
bonus compensation, the amount of which, if any, shall be determined by the
Board of Directors based on the employee's performance and contributions to the
Company's success and on the Company's ability to pay such incentive
compensation.
6
Stock Option Grants and Exercises
The tables below set forth information with respect to grants of options
to, and exercise of options by, the Chief Executive Officer and the four other
most highly compensated executive officers of the Company, during the fiscal
year ended June 30, 1998.
Option Grants in Last Fiscal Year
---------------------------------
Individual Grants Potential Realizable
% of Total Value at Assumed
Options Number of Annual Rates of Stock
Granted to Securities Exercise Price Appreciation
Employees Underlying or Base for Option Term
in Fiscal Options Price Expiration
Name Year Granted ($/Sh)(1) Date 5% 10%
- - ---- ----------- ----------- --------- ---------- ---- ---
Irwin D. Simon(2) 125,000 41.9% $4.813 6/2007 $166,201 $367,260
Benjamin Brecher 0 -- -- -- -- --
Ellen B. Deutsch 0 -- -- -- -- --
Andrew Jacobson 60,000 20.1% $8.50 12/2007 $140,904 $311,360
Jack Kaufman 40,000 13.4% $8.50 12/2007 $93,936 $207,573
- - --------------------
(1) Options were granted at exercise prices which were not less than the fair
market value of the Common Stock at the time of grant.
(2) Consists of options to purchase 125,000 shares of Common Stock which were
conditionally granted on June 30, 1997 pending an increase to shares
eligible for grant under the 1994 Plan that was approved by stockholders at
a meeting held December 9, 1997. The Company will incur a straight-line
non-cash compensation charge ($27,000 for fiscal 1998) over the 10-year
vesting period based on the excess (approximately $461,000) of the market
value of the shares of Common Stock underlying the options ($8.50 per
share) on December 9, 1997 compared to $4.8125 per share on the date of
grant.
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired Value Held at June 30, 1998 at June 30, 1998(1)
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- -------- ----------- ------------- ----------- -------------
Irwin D. Simon 0 $0 770,000 0 $17,004,428 $0
Benjamin Brecher 30,000 $160,600 115,000 150,000 $ 2,583,125 $3,393,750
Ellen B. Deutsch 0 $0 45,000 0 $ 986,865 $0
Andrew Jacobson 0 $0 60,000 0 $ 1,042,500 $0
Jack Kaufman 50,000 $265,600 100,000 0 $ 1,974,350 $0
- - -----------------------
(1) Based on a price of $25.875 per share, the closing bid price for the Common
Stock on The Nasdaq National Market System for such date. On October 23,
1998 the closing bid price for the Common Stock on the The Nasdaq National
Market System was $18.25 per share.
7
1993 Executive Stock Option Plan
The Company adopted the 1993 Executive Stock Option Plan (the "1993 Plan")
pursuant to which it granted Irwin D. Simon, its founder and Chief Executive
Officer, options to acquire 600,000 shares of the Company's Common Stock. The
exercise price of options designed to qualify as incentive options is $3.58 per
share and the exercise price of non-qualified options is $3.25 per share. None
of Mr. Simon's options have been exercised. The options expire ten years after
date of grant.
1994 Long Term Incentive and Stock Award Plan
In December 1994, the Company adopted the 1994 Long Term Incentive and
Stock Award Plan (the "1994 Plan"), which amended and restated the Company's
prior stock option plan. The 1994 Plan, as amended at a stockholders meeting
held December 9, 1997, provides for the granting of incentive stock options to
employees, directors and consultants to purchase up to an aggregate of 1,200,000
shares of the Company's common stock with a maximum individual limit of 150,000
shares. The 1994 Plan is administered by the Compensation Committee of the Board
of Directors. All of the options granted to date under the 1994 Plan have been
incentive or non-qualified stock options providing for exercise prices
equivalent to the fair market price at date of grant, and expire 10 years after
date of grant. At the discretion of the Compensation Committee, options are
exercisable upon grant or over a five year period. Through June 30, 1997,
options for an aggregate of 855,000 shares were granted (excluding 125,000
shares conditionally granted subject to stockholder approval of the increase to
the shares available for grant under the 1994 Plan) at prices ranging from $2.94
to $4.813 per share. At a meeting of stockholders held on December 9, 1997, the
stockholders of the Company approved an amendment to the 1994 Plan increasing
the number of shares issuable over the term of the 1994 Plan by 345,000 shares
(for a total of 1,200,000 shares) and limiting the number of shares to 150,000
for which options or stock appreciation rights may be granted to any participant
under the 1994 Plan during any calendar year. During fiscal 1998, 298,600
options were granted (including 125,000 options conditionally granted as
described above), 274,400 options were exercised and 47,800 options were
terminated. At June 30, 1998, 831,400 options are outstanding, of which 629,400
are currently exercisable, and 94,000 shares are available for grant. The Board
of Directors has approved, subject to stockholder approval, amendments to the
1994 Plan to (a) increase the number of shares issuable over the term of the
1994 Plan by 1,200,000 shares to 2,400,000 shares in the aggregate and (b)
increase the upper limit on the number of shares for which options or stock
appreciation rights ("SARs") may be granted to any participant under the plan
during any calendar year to 500,000 shares. See "Proposal No. 2 -- Approval of
Amendments to the 1994 Long Term Incentive and Stock Award Plan."
1996 Directors Stock Option Plan
The Company also adopted the 1996 Directors Stock Option Plan (the
"Directors Plan"). The Directors Plan provides for the granting of stock options
to non-employee directors to purchase up to an aggregate of 300,000 shares of
the Company's Common Stock. Through June 30, 1997, options for an aggregate of
157,500 shares were granted at prices ranging from $3.38 to $3.50 and options
for 15,000 shares were exercised by a former director. During fiscal 1998,
options for an aggregate of 67,500 shares were granted at prices ranging from
$8.50 to $19.6875 per share. At June 30, 1998, 210,000 options are outstanding
and 75,000 are available for grant. The Board of Directors has approved, subject
to stockholder approval, amendments to the Directors Plan to (a) increase the
number of shares issuable over the term of the Directors Plan by 200,000 shares
to 500,000 shares in the aggregate and (b) allow for discretionary option grants
thereunder. See "Proposal No. 3 -- Approval of Amendments to the 1996 Directors
Stock Option Plan."
8
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee. The Compensation Committee (the "Compensation
Committee") is responsible for determining the compensation of Company officers
other than the salaries of the four most senior officers of the Company which
are determined by the Board of Directors based upon the Compensation Committee's
recommendation. The Compensation Committee also administers the 1994 Plan and,
if the proposed amendments are adopted, will administer discretionary grants
under the Directors Plan.
The Compensation Committee is currently comprised of Mr. Heyer, Mr.
Futterman and Ms. Bronner. Decisions and recommendations by the Compensation
Committee are made on the basis of an assessment of corporate performance and a
review of supporting data, including historical compensation data of other
companies within the industry. Although actions with respect to various programs
are taken at different times, consideration of each is made in the context of
the overall compensation package provided by the Company.
As of the time of issuing this report the Compensation Committee has not
completed its evaluation of its compensation policies with respect to qualifying
compensation paid to its executive officers for deductibility under Section
162(m) of the Internal Revenue Code. The Compensation Committee believes that
compensation to be paid in fiscal 1999 will not exceed $1.0 million dollars in
non-excluded compensation to any of the named executives.
Compensation Philosophy. The Company's executive compensation program is
designed to provide competitive levels of remuneration and assist the Company in
attracting and retaining qualified executives. The Compensation Committee is
committed to the objectives of linking executive compensation to corporate
performance and providing incentives which align the interests of Company
executives with the interests of its stockholders. This philosophy underlies
executive compensation policies designed to integrate rewards with the
attainment of annual and long-term performance goals, reward significant
corporate performance and recognize individual initiatives and achievements. It
is performance which most significantly influences an individual executive's
compensation level. As a result, actual compensation levels in any particular
year may be above or below those of the Company's competitors, depending upon
the Company's performance. The executive compensation program is comprised of
salary, annual cash incentives and long-term, stock-based incentives. The
following is a discussion of each of the elements of the executive compensation
program along with a description of the decisions and actions taken by the
Compensation Committee with regard to fiscal 1998 compensation:
Base Salary. Salary ranges for each executive position are established
by the Company based on appropriate external comparisons, internal
responsibilities and relationships to other corporate positions. Existing
base salaries and annual escalations for the named executives were
established based on the foregoing factors and in negotiation with each of
the executives in connection with their employment by the Company.
Annual Incentive. The Company may pay annual cash bonuses in any year
to reward significant corporate accomplishments and individual initiatives
which contributed to the attainment of targeted goals relating to product
sales, product margins, return on capital employed, earnings per share and
stockholder return. If the Compensation Committee determines that corporate
results are such that a bonus program is warranted, then each executive's
accomplishments are assessed as to their impact on corporate results.
Contributions must be above and beyond normal expectations. The Chief
Executive Officer meets with the Compensation Committee to review corporate
results, the individual executive's contributions and his recommendations
as to annual incentive payments. The Compensation Committee evaluates the
Chief Executive Officer's contributions.
9
Long-Term Incentives. The 1994 Plan and the 1993 Plan were approved by
stockholders for the purpose of promoting the interests of the Company and
its stockholders by: (i) attracting and retaining executives and other key
employees of outstanding ability; (ii) strengthening the Company's
capability to develop, maintain and direct a competent management team;
(iii) motivating executives and other key employees, by means of
performance-related incentives, to achieve longer-range performance goals;
(iv) providing incentive compensation opportunities which are competitive
with those of other comparably situated corporations; and (v) enabling such
employees to participate in the long-term growth and financial success of
the Company.
The Company adopted the 1993 Plan pursuant to which, in July 1993, it
granted options to purchase an aggregate of 600,000 shares of Common Stock to
the President and Chief Executive Officer of the Company, Irwin D. Simon at an
exercise price for options designed to qualify as incentive options of $3.58 per
share and for options designed to qualify as non-qualified options of $3.25 per
share.
The 1994 Plan provides for the grant of options to acquire the Company's
Common Stock. The granting of stock options is normally considered annually
except when special events or circumstances warrant otherwise. The options are
granted to employees based upon their potential impact on corporate results and
on their performance. The specific terms of each grant of options, including the
vesting thereof, are recommended by the Compensation Committee to the Board of
Directors but are subject to the provisions of the 1994 Plan. Through June 30,
1997, options for an aggregate of 855,000 shares were granted (excluding 125,000
shares conditionally granted subject to stockholder approval of the increase to
the shares available for grant under the 1994 Plan) at prices ranging from $2.94
to $4.813 per share. During fiscal 1998, 298,600 options were granted (including
125,000 options conditionally granted as described above), 274,000 options were
exercised and 47,800 options were terminated. At June 30, 1998, 831,400 options
are outstanding, of which 629,400 are currently exercisable, and 94,000 shares
are available for grant. The Board of Directors has approved, subject to
stockholder approval, amendments to the 1994 Plan to (a) increase the number of
shares issuable over the term of the 1994 Plan by 1,200,000 shares to 2,400,000
shares in the aggregate and (b) increase the upper limit on the number of shares
for which options or SARs may be granted to any participant under the plan
during any calendar year to 500,000 shares. See "Proposal No. 2 -- Approval of
Amendments to the 1994 Long Term Incentive and Stock Award Plan."
Chief Executive Officer Compensation. During fiscal 1998, Irwin D. Simon,
President and Chief Executive Officer of the Company was employed pursuant to a
three year employment agreement (which extended a prior employment agreement)
which commenced July 1, 1996, at an annual base compensation of $200,000
effective July 1, 1996, and provided for minimum annual increases of $25,000 on
each of July 1, 1997 and July 1, 1998. During fiscal 1999, Mr. Simon's
employment agreement was amended and extended through fiscal 2001 at a minimum
annual base compensation of $300,000 for fiscal 1999, $360,000 for fiscal 2000
and $410,000 for fiscal 2001. Mr. Simon's employment agreement was further
amended to provide for a minimum annual bonus of up to 50% of such annual
compensation upon the achievement of certain sales and profitability objectives
as determined by the Compensation Committee and to provide for a $900,000
termination payment if the Company is sold or Mr. Simon's employment is
terminated during such period. In addition, subject to stockholder approval of
the increase in the number of options available for grant under the 1994 Plan
set forth in Proposal No. 2, Mr. Simon's amended employment agreement provides
that he will receive 400,000 options to purchase Common Stock on December 8,
1998 at the then current market price. In addition, upon the achievement of
certain sales and profitability objectives, Mr. Simon will be eligible to
receive a minimum of 250,000 options to purchase Common Stock for the fiscal
year ending June 30, 1999 at the market price at the date of grant and a minimum
of 250,000 options to purchase Common Stock for the fiscal year ending June 30,
2000 at the market price at the date of grant.
Compensation Committee: Andrew R. Heyer, Chairman
Beth L. Bronner
Jack Futterman
10
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the S&P 500 Index and to the Standard & Poor's food group index for the
period from January 21, 1994 (the date the Company's Common Stock began trading
separately from the units issued in the Company's initial public offering)
through June 30, 1998.
The Hain Food
Date Group, Inc. S&P 500 S&P Food Group
01/22/94 100 100 100
06/30/94 179 94 97
06/30/95 159 115 121
06/30/96 123 141 138
06/30/97 175 186 188
06/30/98 940 239 236
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors presently consists of nine members, six of whom are
standing for re-election. In addition, Kenneth J. Daley and Arthur Rubinfeld are
standing for election to the Board of Directors for the first time. Each
director will hold office until the next Annual Meeting of Stockholders and
until his or her successor is elected and qualified. The persons named as
proxies in the accompanying proxy, who have been designated by the Board of
Directors, intend to vote, unless otherwise instructed in such proxy, FOR the
election of all of the nominees listed below.
The following information sets forth the backgrounds and business
experience of the nominees for director:
Irwin D. Simon, President and Chief Executive Officer, Age 39
Mr. Simon has been President and Chief Executive Officer and a Director
since its inception and is its founder. From December 1990 through December
1992, Mr. Simon was employed in various marketing capacities with Slim-Fast
Foods Company ("Slim Fast"), a national marketer of meal replacement and weight
11
loss food supplements with annual revenues in excess of $500 million. His duties
initially involved sales and marketing for the frozen and dairy divisions of
Slim Fast, which included establishing and implementing marketing strategies and
establishing a distribution system throughout the United States. In March 1992,
Mr. Simon became Vice President of Marketing for Slim Fast. From 1986 through
1990, Mr. Simon was employed by The Haagen-Dazs Company, a division of Grand
Metropolitan, plc. Haagen-Dazs is a manufacturer and distributor of premium ice
cream and related products. Mr. Simon held a number of sales and marketing
positions, including Eastern Regional Director of Haagen-Dazs Shops, the entity
managing a majority of the franchisee system and all company-owned retail shops.
Andrew R. Heyer(1), Chairman of the Board, Age 41
Mr. Heyer has been Chairman of the Board of Directors since he became a
Director in November 1993 and a member of the Compensation Committee since 1994.
Mr. Heyer has been a Managing Director of CIBC Oppenheimer Corp., an affiliate
of the Canadian Imperial Bank of Commerce and the successor to the Argosy Group,
L.P. since August 1995. From February 1990 until August 1995, Mr. Heyer was a
Managing Director of the Argosy Group, L.P., an investment banking firm that
specialized in merger, acquisition, divestiture, financing, refinancing and
restructuring transactions. Mr. Heyer also serves as a director of Hayes Wheels
International, Inc. and Niagara Corporations.
William J. Fox(2), Vice-Chairman of the Board, Age 42
Mr. Fox has been a Director since December 1996, a member of the Audit
Committee since December 1996 and was appointed Vice-Chairman of the Board of
Directors in September 1998. Mr. Fox has been President, Strategic and Corporate
Development, Revlon Worldwide, Revlon, Inc. and Revlon Consumer Products
Corporation ("RCPC") (together "Revlon") and Chief Executive Officer, Revlon
Technologies, a division of Revlon, since January 1998. He has been Senior
Executive Vice President since January 1997 and Chief Financial Officer of
Revlon and its predecessor from 1991 to 1997, Executive Vice President from 1991
to 1997, and Vice President from 1987 to 1991. Mr. Fox was elected as a director
in November 1995 of Revlon Inc. and in September 1994 of RCPC. He has been
Senior Vice President of MacAndrews & Forbes Holding Inc. ("MacAndrews") since
August 1990 and was Treasurer from February 1987 to September 1992. From April
1983 to February 1987, he held various positions at MacAndrews or its
affiliates. Prior to April 1983, Mr. Fox was a certified public accountant at
the international auditing firm of Coopers & Lybrand. Mr. Fox is vice chairman
of the board and a director of The Cosmetics Center, Inc.
Beth L. Bronner(1), Age 47
Ms. Bronner has been a Director since November 1993 and a member of the
Compensation Committee since 1995. Ms. Bronner joined Sunbeam Inc. effective
November 1, 1998 as President - Health Division. Prior to that, she was with
Citibank, N.A. from September 1996 as Senior Vice President and Director of
Marketing for the United States and Europe. From July 1994 to August 1996, Ms.
Bronner was Vice President - Emerging Markets of American Telephone & Telegraph
Company Consumer Communications Services business. Ms. Bronner was President of
the Professional Products Division of Revlon, Inc. from May 1993 until June
1994. From February 1992 to May 1993 she was Executive Vice President of the
Beauty Care and Professional Products Division of Revlon, Inc. Ms. Bronner also
serves as a director of Fortis, Inc. and Oak Industries.
Jack Futterman(1), Age 65
Mr. Futterman has been a Director since December 1996 and a member of the
Compensation Committee since December 1996. Mr. Futterman retired as Chairman
and Chief Executive Officer of the Pathmark Supermarket chain in March 1996. He
joined Pathmark in 1973 as Vice President of its drugstore and
12
general merchandise divisions and occupied a number of positions before becoming
Chairman and Chief Executive Officer. Mr. Futterman is a registered pharmacist
and former Chairman of the National Association of Chain Drugstores. He is a
director of Del Labs, Inc. and Party City, Inc., as well as several
not-for-profit organizations.
James S. Gold(2), Age 47
Mr. Gold has been a Director since March 1998 and will become a member of
the Audit Committee in December 1998. Mr. Gold is a Managing Director in the
Banking Group of Lazard Freres & Co LLC. Since joining Lazard Freres & Co LLC in
1977, Mr. Gold has been involved in a broad range of investment banking
activities, particularly relating to the consumer products and food industries.
Mr. Gold is also a director of Smart & Final Inc.
Kenneth J. Daley, Age 61
Kenneth J. Daley is currently a senior vice president in The Chase
Manhattan Bank's Middle Market Group ("Chase"). Mr. Daley has been with the bank
since 1957 (originally Chemical Banking Corporation prior to the merger with
Chase) serving in various operating capacities throughout New York State and New
England. Mr. Daley recently resigned from his position as division executive at
Chase and has resigned from his senior vice president position effective January
1999. Mr. Daley is currently a trustee of Briarcliffe College and a member of
the Financial Committee of the Long Island Catholic Charities. Mr. Daley is a
former director of the Long Island Association and the Long Island Philharmonic
and a former member of the DNA Learning Center at Cold Spring Harbor. Mr. Daley
is nominated as a Director for the first time.
Arthur Rubinfeld, Age 44
Arthur Rubinfeld is currently a senior vice president of real estate and
store development at Starbucks Coffee Company ("Starbucks"). Mr. Rubinfeld has
been with Starbucks since 1992, where he is responsible for the planning and
execution of Starbucks North American retail growth strategy. From 1986 until
joining Starbucks, Mr. Rubinfeld was a managing partner at Epsteen & Associates,
a commercial real estate company, specializing in retail real estate. Mr.
Rubinfeld is a director of World Wrapps Inc. Restaurants. He is also a member of
the International Council of Shopping Centers and a registered architect
accredited by the National Council of Architectural Review Boards. Mr. Rubinfeld
is nominated as a Director for the first time.
- - -----------------------
(1) Compensation Committee member.
(2) Audit Committee member.
Directors' Compensation, Committees and Meeting Attendance
During the last fiscal year, the Board of Directors held eight meetings.
During the last fiscal year, the Company did not pay any direct
compensation to directors, other than reimbursement of out-of-pocket expenses
incurred in connection with attendance at meetings of the Board of Directors.
Under the Directors Plan, independent directors receive a grant of 15,000
options to purchase shares of Common Stock upon election to the Board of
Directors and 7,500 options to purchase shares of Common Stock upon re-election
at each subsequent annual meeting of stockholders, at exercise prices which are
not less than the fair market value of the Common Stock at the time of grant. In
addition, if Proposal No. 3 is adopted, the Directors Plan will be amended to
allow for discretionary grants of options by the Compensation Committee, at
exercise prices which are not less than the fair market value of the Common
Stock at the time of grant. In addition, the Board of Directors has
conditionally approved, subject to stockholder ap-
13
proval of the amendments to the Directors Plan allowing for discretionary grants
set forth in Proposal No. 3, the grant to Mr. Fox of options for 50,000 shares
on December 8, 1998 at the then current market price in consideration for his
services as Vice-Chairman of the Board of Directors.
The Board has two standing committees: the Compensation Committee and the
Audit Committee. The Compensation Committee administers the 1994 Plan and the
1993 Plan, determines the compensation policies for Company officers, and
recommends to the entire Board of Directors the salaries of the three most
senior officers of the Company. During fiscal 1998, the Compensation Committee
held two meetings.
During fiscal 1998, the Company's Audit Committee held one meeting. The
principal functions of the Audit Committee are: to receive reports prepared by
the Company's finance department; to recommend the selection, retention or
termination of independent auditors; to review arrangements and proposals for
the overall scope of the annual audit with management and the independent
auditors; and to discuss matters of concern to the Audit Committee with the
independent auditors and management relating to the annual financial statements
and results of the audit.
During fiscal 1998, each of the incumbent directors attended at least 75%
of the aggregate of the meetings of the Board of Directors and committees on
which they served, except for Mr. Gold who attended two of the four meeting of
the Board of Directors which were held subsequent to his appointment thereto.
PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO THE
1994 LONG TERM INCENTIVE AND STOCK AWARD PLAN
The Board of Directors has adopted, subject to stockholder approval,
amendments to the 1994 Plan to (a) increase the number of shares of Common Stock
issuable under the 1994 Plan by 1,200,000 shares to 2,400,000 shares and (b)
increase the upper limit on the number of shares from which options or SARs may
be granted to any participant under the plan during any calendar year to 500,000
shares.
The essential features of the 1994 Plan are summarized below. This summary
does not purport to be a complete description of the 1994 Plan. Copies of the
actual plan document may be obtained by contacting the Assistant Secretary of
the Company.
Description of the 1994 Plan
The 1994 Plan is intended to advance the interests of the Company and its
stockholders by providing a means to attract, retain and motivate selected
employees to the Company and its subsidiaries and affiliates ("Employees"). The
1994 Plan is administered by the Compensation Committee. The Compensation
Committee has the full and final authority to select Employees to whom awards
under the 1994 Plan ("Awards") may be granted, to determine the type or types of
Awards to be granted to such Employees and to make all determinations as may be
required for the administration of the 1994 Plan. The Compensation Committee
also would have authority to waive conditions relating to an Award or accelerate
vesting of Awards. The shares of Common Stock distributed under the 1994 Plan
consist of authorized but unissued shares of the Company or treasury shares
including shares reacquired by the Company. Shares of Common Stock subject to
Awards which are forfeited, canceled, exchanged or surrendered (other than
Awards canceled upon exercise of a tandem Award) or which are settled in cash or
otherwise terminated without a distribution of shares of Common Stock, are
available for further Awards except where dividends or dividend equivalents have
been paid and accrued on such Award and are not also forfeited, canceled,
exchanged or surrendered. No Awards will be granted under the 1994 Plan after
October 3, 2004.
14
At a meeting of the Company's stockholders held on December 9, 1997, the
stockholders approved amendments to the 1994 Plan (a) increasing the number of
shares issuable over the term of the 1994 Plan by 345,000 shares from 855,000
shares to 1,200,000 shares in the aggregate and placing an upper limit of
150,000 shares on the number of shares for which options or SARs may be granted
to any participant under the 1994 Plan during any calendar year. The amendment
to limit the number of shares for which options or SARs may be granted to
individuals under the 1994 Plan provides a potential tax benefit to the Company
by allowing options or SARs, if any, granted under the 1994 Plan to qualify
under the "qualified performance-based compensation" exception to the limitation
on deductibility of compensation of certain executives under Section 162(m) of
the Internal Revenue Code. Without this limit, the benefit would not be
available to the Company.
Types of Awards Authorized under the 1994 Plan
Options. Under the 1994 Plan, the Compensation Committee has authority to
grant incentive stock options ("ISOs") and nonqualified stock options. In the
case of ISOs, the terms of such grants would be subject to, and comply with,
Section 422 of the Code. The exercise price per share of options would be
determined by the Compensation Committee, and the Compensation Committee may
without limitations, set an exercise price that is based upon achievement of
performance criteria. Options may be exercised at such time or times as may be
determined by the Compensation Committee, and by payment or arrangement for
payment in such manner as determined by the Compensation Committee (including,
without limitation, broker-assisted exercise arrangements) and by such form of
payment as the Compensation Committee may authorize (including, without
limitations, cash, shares of Common Stock, notes or other property). The ability
to pay the exercise price in shares of Common Stock would, if permitted by the
Compensation Committee, enable the optionee to engage in a series of successive
stock-for-stock exercises and thereby fully exercise any options with little or
no cash investment.
SARs. Under the 1994 Plan, the Compensation Committee has the power to
grant SARs entitling the holder to receive the excess of the fair market value
(calculated as of the exercise date or, if the Compensation Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares of Common Stock over the grant price of
the SAR, with payment to be made in cash, shares of Common Stock or other
property as specified by the Compensation Committee. Any SAR would be
exercisable at such times as the Compensation Committee shall determine. A SAR
is permitted to be granted in tandem with another Award, in addition to another
Award or freestanding and unrelated to another Award. Currently, no SARs have
been granted under the 1994 Plan.
Restricted Shares of Common Stock and Restricted Share Units. Under the
1994 Plan, the Compensation Committee is authorized to grant restricted shares
and restricted share units, subject to such forfeiture conditions and other
restrictions on transfer as the Compensation Committee may determine. Upon
vesting, restricted share units would be paid in shares of Common Stock or cash,
as determined by the Compensation Committee. Unless otherwise provided by the
Compensation Committee, restricted shares and restricted share units would
provide the recipient with the right to receive dividends or dividend
equivalents. Such dividends or dividend equivalents would be subject to
forfeiture as determined by the Compensation Committee. Currently no restricted
shares have been granted under the 1994 Plan.
Performance Shares of Common Stock and Performance Units. The Compensation
Committee is authorized to grant performance shares of Common Stock and
performance units payable to, or exercisable by, such holder upon the
achievement of certain performance objectives during such performance periods
(of one or more years) as the Compensation Committee may determine. If during
the course of a performance period significant events, as determined by the
Compensation Committee, occur which the Compensation Committee expects to have a
substantial effect on a performance objective during the period, the
Compensation Committee is permitted to revise the performance objective.
Performance shares or performance units are permitted to be paid in shares of
Common Stock or cash and in a lump sum or installments following the close of
the relevant performance period. Currently, no performance shares have been
granted under the 1994 Plan.
15
Dividend Equivalents. Dividend equivalents consist of a right to receive
cash, shares of Common Stock or other property equivalent to dividends with
respect to a specified number of shares of Common Stock determined by the
Compensation Committee. Dividend equivalents may be awarded on a free-standing
basis or in connection with another Award, and may be paid currently or on a
deferred basis. In the discretion of the Compensation Committee, such amounts
would be deemed to have been reinvested in additional shares of Common Stock, or
other investment vehicles as the Compensation Committee shall specify. Dividend
equivalents (other than freestanding dividend equivalents) are subject to all
conditions and restrictions of the underlying Awards to which they relate.
Currently, no dividend equivalents have been awarded under the 1994 Plan.
Other Stock Based Awards. The Compensation Committee also has the authority
to grant share-based Awards which consist of rights or Awards other than stock
options, stock appreciation rights, restricted shares of Common Stock or
restricted share units, performance shares of Common Stock or performance units
or dividend equivalents. Such Awards, if granted, would have such terms and
conditions as the Compensation Committee would determine.
Restrictions on Transfer. Awards are not transferable except by will or the
laws of descent and distribution and are exercisable, during the lifetime of the
individual, only by such individual or by such individual's guardian or legal
representative.
Amendments, Suspension or Discontinuance of the 1994 Plan. The Board of
Directors is permitted to amend, suspend or discontinue or terminate the 1994
Plan, provided, however, that approval of the stockholders of the Company within
one year after such Board action must be obtained if such approval is required
by any Delaware or U.S. federal law or regulation (including Rule 16b-3, if
applicable) or the rules of any stock exchange or automated quotation system on
which the shares of Common Stock may then be listed or quoted.
U.S. Federal Income Tax Consequences of the 1994 Plan
The following is a summary of the principal federal income tax consequences
associated with the granting of Awards under the 1994 Plan. This summary is
based on the provisions of the Code, the Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as in
effect as of the date hereof. It does not describe all federal income tax
consequences under the 1994 Plan, nor does it describe foreign, state or local
tax consequences.
Stock Options. In general, the grant of a stock option will not be a
taxable event to the recipient. The tax consequences associated with the
exercise of a stock option and the subsequent disposition of shares of Common
Stock acquired on the exercise of such option depend on whether the option is an
ISO or a nonqualified stock option.
Upon the exercise of a nonqualified stock option, the participant will
recognize ordinary taxable income equal to the excess of the fair market value
of the shares of Common Stock received upon exercise over the exercise price.
Any gain or loss upon a subsequent sale or exchange of the shares of Common
Stock will be capital gain or loss, long-term or short-term, depending on the
holding period for the shares of Common Stock.
Generally, a participant will not recognize ordinary taxable income at the
time of exercise of an incentive stock option and no deduction will be available
to the Company, provided the option is exercised while the participant is an
employee or within three months following termination of employment (longer, in
the case of termination of employment by reason of disability or death). If an
ISO granted under the 1994 Plan is exercised after these periods, the exercise
will be treated for U.S. federal income tax purposes as the exercise of a
nonqualified stock option. In addition, the exercise of an ISO granted under the
1994 Plan will be treated for U.S. Federal Income Tax purposes as the exercise
of a non-qualified option to the extent it (together with any other ISOs granted
after 1986 under other plans of the Company and its subsidiaries) first becomes
exercisable in any
16
calendar year for shares of Common Stock having a fair market value, determined
as of the date of grant, in excess of $100,000.
If shares of Common Stock acquired upon exercise of an ISO are sold or
exchanged more than one year after the date of exercise and more than two years
from the date of grant of the option, any gain or loss will be long-term capital
gain or loss. If shares of Common Stock acquired upon exercise of an ISO are
disposed of prior to the expiration of these one-year or two-year holding
periods (a "Disqualifying Disposition"), the participant will recognize ordinary
income at the time of disposition in an amount equal to the excess of the fair
market value of the shares of Common Stock at the date of exercise over the
exercise price. Any additional gain will be treated as capital gain, long-term
or short-term, depending on how long the shares of Common Stock have been held.
When shares of Common Stock are sold or exchanged in a Disqualifying Disposition
(other than certain related party transactions) for an amount less than their
fair market value at the date of exercise, any ordinary income recognized in
connection with the Disqualifying Disposition will be limited to the amount of
gain, if any, recognized in the sale or exchange, and any loss will be a
long-term or short-term capital loss, depending on how long the shares of Common
Stock have been held. In the event of a Disqualifying Disposition, the Company
generally will be entitled to a deduction equal to the amount of ordinary income
recognized by the participant.
Although the exercise of an ISO as described above would not produce
ordinary taxable income to the participant, it would result in an increase in
the participant's alternative minimum taxable income and may result in an
alternative minimum tax liability.
Restricted Stock. A participant who receives restricted shares of Common
Stock will generally recognize ordinary income at the time the restrictions on
transferability lapse. The amount of ordinary income so recognized will be the
fair market value of the shares of Common Stock at the time the income is
recognized, determined without regard to any restrictions other than
restrictions which by their terms will never lapse. Dividends paid with respect
to shares of Common Stock while such shares are nontransferable will be taxable
as ordinary compensation income to the participant and generally will be
deductible by the Company.
In lieu of the treatment described above, a participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
participant will recognize as income the fair market value of the restricted
stock at the time of grant (determined without regard to any restrictions other
than restrictions which by their terms will never lapse), and the Company will
generally be entitled to a corresponding deduction. Dividends paid with respect
to shares of Common Stock as to which a proper Section 83(b) election has been
made will be taxable as ordinary dividend income to the participant and will not
be deductible to the Company. If a Section 83(b) election is made and the
restricted stock is subsequently forfeited, the participant will not be entitled
to any offsetting tax deduction.
Stock Appreciation Rights and Other Awards. With respect to stock
appreciation rights and other awards under the 1994 Plan not described above,
generally, when a participant receives payment with respect to an award granted
to him or her under the 1994 Plan, the amount of cash or other property and the
fair market value of shares of Common Stock received will be ordinary income to
such participant and generally will be deductible by the Company.
Limitation on Deductibility. Section 162(m) of the Code generally limits
the deductible amount of annual compensation paid (including, unless an
exception applies, compensation otherwise deductible in connection with awards
granted under the Plan) by a public company to a "covered employee" (the chief
executive officer and four other most highly compensated executive officers of
the Company) to no more than $1.0 million. The Company may, but is not required
to, structure certain non-qualified stock options and certain other awards made
under the 1994 Plan to comply with an exception to nondeductiblity under Section
162(m) of the Code.
17
Payment of Withholding Taxes. The Company may withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy and
federal, state or local withholding tax requirements associated with awards
under the 1994 Plan.
Special Rules. Special rules may apply to a participant who is subject to
Section 16(b) of the Securities Exchange Act of 1934 (generally directors,
officers and 10% stockholders). Certain additional special rules apply if the
exercise price for an option is paid for with shares of Common Stock previously
owned by the optionee rather than with cash.
Recommendation
At the annual meeting, the Company's stockholders will be asked to approve
amendments to the Company's 1994 Plan to (a) increase the number of shares
issuable over the term of the 1994 Plan by 1,200,000 shares to 2,400,000 shares
in the aggregate and (b) increase the upper limit on the number of shares from
which options or SARs may be granted to any participant under the plan during
any calendar year to 500,000 shares.
The Board of Directors believes that approval of the amendments to the 1994
Plan is in the best interests of the Company and its stockholders and
unanimously recommends a vote FOR approval. Approval of the amendments requires
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Company represented in person or by proxy at the annual meeting and
entitled to vote.
PROPOSAL NO. 3
APPROVAL OF AMENDMENTS TO THE
1996 DIRECTORS STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval,
amendments to the Directors Plan to (a) increase the number of shares issuable
over the term of the Directors Plan by 200,000 shares to 500,000 shares in the
aggregate and (b) allow for discretionary option grants thereunder. The
amendments to the Directors Plan are designed to take advantage of recent
changes in Rule 16b-3 under the Securities Exchange Act of 1934, as amended, to
permit greater flexibility in administration of the Directors Plan. Among other
things, these amendments would permit the Board of Directors to make
discretionary grants of stock options or otherwise administer the Directors Plan
if and to the extent such administration would be consistent with applicable
law.
The Company's Board of Directors believe that these changes are important
to permit the Company to encourage stock ownership by members of the Board of
Directors, to give the Board of Directors flexibility in administering the
Directors Plan, to promote the financial success and progress of the Company and
to induce such persons to continue to serve as members of the Board of Directors
in the future.
The essential features of the Directors Plan are summarized below. This
summary does not purport to be a complete description of the Directors Plan.
Copies of the actual plan document may be obtained by contacting the Assistant
Secretary of the Company.
Description of the Directors Plan
There are currently reserved for issuance under the Directors Plan an
aggregate of up to 300,000 shares of Common Stock. The shares of Common Stock
issuable over the term of the Directors Plan may be available from authorized
and unissued Common Stock and treasury stock (including shares acquired in the
18
open market or other transactions). If Proposal No. 3 is adopted, the number of
shares reserved for issuance under the Directors Plan will be increased by
200,000 shares to 500,000 shares in the aggregate.
Each option granted under the Directors Plan will be immediately
exercisable and shall expire ten (10) years from its date of grant. The exercise
price of each option shall be the fair market value (as determined under the
Directors Plan) of the shares of Common Stock underlying such option on its
grant date.
The Directors Plan will continue in effect until all options granted
thereunder have expired or terminated or upon earlier termination as provided
for in the Directors Plan. No options will be granted after five (5) years from
the date of adoption of the Directors Plan by the Board of Directors.
Eligibility for Participation
Directors who are not full time or part-time employees of the Company will
be eligible for participation under the Directors Plan (each, an "Eligible
Director" and, together, the "Eligible Directors"). At the date of this Proxy
Statement, seven directors of the Company who are standing for re-election are
Eligible Directors and the director nominee will become an Eligible Director
upon his election to the Board of Directors.
Administration
The Directors Plan as proposed will continue to operate automatically but,
in addition, will be amended to provide for discretionary grants of options.
Automatic option grants do not require administration. Discretionary grants,
however, will be administered by the Board of Directors.
Automatic Grants. Under the Directors Plan, Eligible Directors receive a
grant of 15,000 options to purchase shares of Common Stock upon election to the
Board of Directors and 7,500 options to purchase shares of Common Stock upon
re-election at each subsequent annual meeting of stockholders, at exercise
prices which are not less than the fair market value of the Common Stock at the
time of grant. Since it is intended that the Directors Plan provide for grants
of options to non-employee directors of the Company, this function will be
limited to matters of administrative oversight. The Compensation Committee will
no have discretion with respect to the selection of Eligible Director optionees,
the determination of the exercise price of options, the timing of such grants
and the number of shares of Common Stock covered by the options as it relates to
automatic option grants.
Discretionary Grants. The Board of Directors will, however, have discretion
with respect to the selection of Eligible Director optionees, the determination
of the exercise price of options, the timing of such grants and the number of
shares of Common Stock covered by the options as it relates to discretionary
option grants; provided, the exercise price will not be less than the fair
market value of the Common Stock at the time of grant. Decisions and
determinations of the Board of Directors shall be final and binding on all
persons having an interest in the Directors Plan. In addition, the Board of
Directors has conditionally approved, subject to stockholders approval of the
amendments to the Directors Plan allowing for discretionary grants, the grant to
Mr. Fox of options for 50,000 shares on December 8, 1998 at the then current
market price in consideration for his services as Vice-Chairman of the Board of
Directors.
Amendment and Termination
The Board of Directors may, from time to time, amend the Directors Plan;
provided, however, that, except to the extent provided therein, no such
amendment may (i) without approval by the Company's stockholders, increase the
number of shares of Common Stock reserved for options or change the class of
persons eligible to receive options, or involve any other change or modification
requiring stockholder approval under
19
Rule 16b-3 of the Securities Exchange Act of 1934, as amended, (ii) permit the
granting of options that expire beyond the maximum ten (10) year period
described therein, or (iii) extend the termination date of the Directors Plan as
set forth therein; provided, further, that, except to the extent specifically
provided otherwise therein, no amendment or suspension of the Directors Plan
issued thereunder shall substantially impair any option previously granted to
any optionee without the consent of such optionee, except such amendment made to
cause the Directors Plan to qualify for the exemption provided by Rule 16b-3.
The Board of Directors, without further approval of the Company's
stockholders, may at any time terminate or suspend the Directors Plan. Any such
termination or suspension of the Directors Plan shall not affect options already
granted and such options shall remain in full force and effect as if the
Directors Plan had not been terminated or suspended. No options may be granted
while the Directors Plan is suspended or after it is terminated. The rights and
obligations under any option granted to any optionee while the Directors Plan is
in effect shall not be altered or impaired by the suspension or termination of
the Directors Plan without the consent of such optionee.
Adjustments
In the event of any recapitalization, reclassification, split-up or
consolidation of shares of Common Stock, separation (including a spin-off),
dividend on shares of Common Stock payable in capital stock, or other similar
change in capitalization of the Company or a merger or consolidation of the
Company or sale by the Company of all or a portion of its assets or other
similar event, the Board of Directors shall make such appropriate adjustments in
the exercise prices of options, including options then outstanding, in the
number and kind of securities, cash or other property which may be issued
pursuant to options under the Directors Plan, including options then
outstanding, and in the number of shares of Common Stock with respect to which
options may be granted (in the aggregate and to individual participants) as the
Board of Directors deems equitable with a view toward maintaining the
proportionate interest of the directors and preserving the value of the options.
No fractional shares of Common Stock shall be issued. In lieu thereof, the
cash value of such fraction shall be paid.
Without limiting the generality of the foregoing, the existence of
outstanding options granted under the Directors Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the shares of Common
Stock subject to outstanding options; (iv) the dissolution or liquidation of the
Company; (v) the sale, transfer or assignment of all or any part of the assets
or business of the Company; or (vi) any other corporate act or proceeding,
whether of a similar character or otherwise.
Federal Income Tax Consequences of the Directors Plan
The following discussion summarizes the principal federal income tax
consequences of the Directors Plan. This discussion is based on current
provisions of the Code, the Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof as in effect on the date
hereof.
Upon exercise of an option granted under the Directors Plan, the optionee
will recognize ordinary income in an amount equal to the excess of the fair
market value of the shares received over the exercise price of such shares. That
amount increases the optionee's basis in the Common Stock acquired pursuant to
the exercise of the option. Upon a subsequent sale of the shares of Common
Stock, the optionee will incur short-term or long-term capital gain or loss
depending upon his holding period for the shares of Common Stock and
20
upon the shares of Common Stock's subsequent appreciation or depreciation in
value. The Company will be allowed a federal income tax deduction for the amount
recognized as ordinary income by the optionee upon the optionee's exercise of
the option.
Recommendation
At the annual meeting, the Company's stockholders will be asked to approve
amendments to the Directors Plan to (a) increase the number of shares issuable
over the term of the Directors Plan by 200,000 shares to 500,000 shares in the
aggregate and (b) allow for discretionary option grants thereunder.
The Board of Directors believes that approval of the amendments to the
Directors Plan is in the best interests of the Company and its stockholders and
unanimously recommends a vote FOR approval. Approval of the amendments requires
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Company represented in person or by proxy at the annual meeting and
entitled to vote.
PROPOSAL NO. 4
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
It is the practice of the Board of Directors of the Company to designate
the accounting firm that will serve as independent auditors for the Company. The
Audit Committee has recommended that Ernst & Young LLP be selected to audit the
Company's financial statements for the fiscal year ending June 30, 1999 and the
Board of Directors of the Company has approved the selection of Ernst & Young
LLP. Ernst & Young LLP audited the Company's financial statements for the fiscal
years ended June 30, 1994 through June 30, 1998. Unless a contrary vote is
indicated, the Proxies solicited hereby will be voted FOR the ratification of
the selection of Ernst & Young LLP as independent auditors for the fiscal year
ending June 30, 1999.
The Audit Committee reviews and approves the audit and non-audit services
to be provided by the Company's independent auditors during the year, considers
the effect that performing those services might have on audit independence, and
approves management's engagement of the Company's independent auditors to
perform those services.
Ernst & Young LLP expects to have a representative at the 1998 Annual
Meeting of Stockholders who will have the opportunity to make a statement and
will be available to respond to appropriate questions.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Executive Officers and Directors and persons who own more than 10% of a
registered class of the Company's equity securities to file initial reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Such Officers, Directors and stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's Executive Officers and
Directors, all persons subject to the reporting requirements of Section 16(a)
filed the required reports on a timely basis, except for one late filing on
behalf of each of Mr. Brecher, and, with respect to the issuance of the AIC
Warrants, Mr. Heyer, Mr. Bloom and Mr. Kehler.
21
CERTAIN RELATIONSHIPS
Mr. Daley, who is nominated to the Board of Directors for the first time,
is a senior vice president in The Chase Manhattan Bank's Middle Market Group.
The Chase Manhattan Bank is a participant lender under the Company's senior
credit facility, which currently consists of a $60 million term loan and a $15
million revolving credit facility.
Mr. Rubinfeld, who is nominated to the Board of Directors for the first
time, is a senior vice president at Starbucks, a customer of the Company. Sales
to Starbucks by the Company in fiscal 1998 were approximately $550,000.
OTHER MATTERS
Management does not know of any other matters that will come before the
meeting, but should any other matters requiring a vote of stockholders arise,
including any question as to an adjournment of the meeting, the persons named on
the enclosed Proxy will vote thereon according to their best judgment in the
interests of the Company. All shares represented by valid Proxies, unless
otherwise specified, will be voted in the election of directors for the nominees
named above; provided, however, that in the event any of such nominees should
withdraw or otherwise become unavailable for reasons not presently known, the
persons named as Proxies will vote FOR the election of the other persons in
their place.
STOCKHOLDER PROPOSALS
The Company will not consider including a stockholder's proposal for action
at its 1999 Annual Meeting of Stockholders in the proxy material to be mailed to
its stockholders in connection with such meeting unless such proposal is
received at the principal office of the Company no later than July 31, 1999.
By order of the Board of Directors,
BETH L. BRONNER
Corporate Secretary
Dated: November 9, 1998
Your vote is important. Stockholders who do not expect to be present at the
Annual Meeting and who wish to have their stock voted are requested to sign and
date the enclosed proxy and return it in the enclosed envelope. No postage is
required if mailed in the United States.
22
[Form of Proxy Card]
THE HAIN FOOD GROUP, INC.
This Proxy is Solicited on Behalf of the Board of Directors of The Hain
Food Group, Inc. (the "Company"). The undersigned hereby appoints Andrew R.
Heyer, Irwin D. Simon and Gary M. Jacobs, or any of them, proxies, each with
full power of substitution, to vote the shares of the undersigned at the Annual
Meeting of Stockholders of the Company on December 8, 1998, and any adjournments
thereof, upon all matters as may properly come before the meeting. Without
otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein. If no instruction is given the shares
will be voted "FOR" items 1 through 4 below, each of said items being more fully
described in the Notice of such meeting and the accompanying Proxy Statement,
receipt of which are hereby acknowledged.
The Board of Directors Recommends You Vote "FOR" Each of the Items Below
1. Election of Directors
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as marked to the contrary to vote for all nominees
below) listed below
(Instructions: to withhold authority to vote for individual nominees,
strike a line through the nominees name listed below.)
Andrew R. Heyer, Irwin D. Simon, Beth L. Bronner,
James S. Gold, William J. Fox, Jack Futterman,
Kenneth J. Daley, Arthur Rubinfeld
2. To approve amendments to the Company's 1994 Long Term Incentive and Stock
Award Plan to (a) increase the number of shares issuable over the term of
the plan by 1,200,000 shares to 2,400,000 shares in the aggregate and (b)
increase the upper limit on the number of shares for which options or stock
appreciation rights may be granted to any participant under the plan during
any calendar year to 500,000 shares.
For [ ] Against [ ] Abstain [ ]
3. To approve amendments to the Company's 1996 Directors Stock Option Plan to
(a) increase the number of shares issuable over the term of the Plan by
200,000 shares to 500,000 shares in the aggregate and (b) allow for
discretionary option grants thereunder.
For [ ] Against [ ] Abstain [ ]
4. To ratify the appointment of Ernst & Young LLP, to act as independent
auditors of the Company for the fiscal year ending June 30, 1999.
For [ ] Against [ ] Abstain [ ]
-2-
Please Complete All Information Below
Signature: _________________________________
Signature: _________________________________
Dated: _____________________________________ 1998
Please sign exactly as names appear hereon,
indicating official position or representa-
tive capacity, if any. If shares are held
jointly, both owners should sign.
