Hain Celestial Group DEF 14A 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Filed by a Party other than the Registrant ¨
Check the appropriate box:
THE HAIN CELESTIAL GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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THE HAIN CELESTIAL GROUP, INC.
58 South Service Road
Melville, NY 11747
November 3, 2005
Dear Fellow Stockholder:
Please join me at our Annual Meeting of Stockholders on Thursday, December 1, 2005 at 11:00 AM (local time) in the Amphitheater at 58 South Service Road, Melville, NY 11747.
At our Annual Meeting, we will vote on the election of our Directors, the approval of the Amended and Restated 2002 Long Term Incentive and Stock Award Plan and the ratification of the selection of our registered independent accountants. In addition to these formal items of business, we will review the major developments of the past year and share with you some of our plans for the future. You will have an opportunity to ask questions and express your views to the senior management of The Hain Celestial Group Inc., and members of the Board of Directors will also be present.
Your vote is important. Whether or not you are able to attend the Annual Meeting in person, please submit your vote by completing and returning the enclosed proxy card by mail or, if you are a beneficial owner of shares held in street name, you may vote by telephone or via the Internet. Please vote as soon as possible.
I hope to see you on December 1st.
Irwin D. Simon
President, Chief Executive
Officer and Chairman of the Board
THE HAIN CELESTIAL GROUP, INC.
58 South Service Road
Melville, NY 11747
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
To the Stockholders of THE HAIN CELESTIAL GROUP, INC.:
The Annual Meeting of Stockholders of The Hain Celestial Group, Inc. will be held on Thursday, December 1, 2005 at 11:00 AM (local time) in the Amphitheater located at 58 South Service Road, Melville, NY 11747 for the following purposes:
These matters are more fully described in the attached proxy statement, which is made a part of this notice.
Only stockholders of record as of the close of business on October 20, 2005 will be entitled to vote at the Annual Meeting. For 10 days prior to the Annual Meeting, a list of stockholders entitled to vote will be available for inspection at our principal executive office located at 58 South Service Road, Melville, NY 11747, and will also be available at the Annual Meeting. Your vote is important. Whether or not you expect to attend the Annual Meeting in person, please submit your vote as soon as possible by signing and dating the enclosed proxy and mailing it promptly in the enclosed reply envelope. As an alternative to using the paper proxy card to vote, beneficial owners of shares held in street name, may vote by telephone or via the Internet.
SOLICITATION AND REVOCATION OF PROXIES
This proxy statement is being furnished in connection with the solicitation by the Board of Directors for use at the Annual Meeting of Stockholders to be held on Thursday, December 1, 2005 at 11:00 AM (local time) in the Amphitheater located at 58 South Service Road, Melville, NY 11747. We will bear the cost of such solicitation. We expect that the solicitation of proxies will be primarily by mail. Proxies may also be solicited by our officers and employees at no additional cost to us, in person or by telephone, telegram or other means of communication. We may reimburse custodians, nominees and fiduciaries holding our common stock for their reasonable expenses in sending proxy materials 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 our Corporate Secretary stating that such proxy is being revoked or by voting in person at the meeting.
It is expected that this Notice of Annual Meeting of Stockholders and Proxy Statement, the enclosed proxy card and our Annual Report to Stockholders for the fiscal year ended June 30, 2005 will be mailed to stockholders of record on or about November 3, 2005.
STOCKHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
Only stockholders of record at the close of business on October 20, 2005 will be entitled to vote at the Annual Meeting of Stockholders. As of the close of business on October 20, 2005, there were 37,790,880 shares of our common stock outstanding. Each share of common stock entitles the record holder to one vote on each matter to be voted upon at the Annual Meeting.
The presence, in person or by proxy, of a majority of the shares entitled to vote on the record date will be required for a quorum. Shares of common stock present in person or represented by proxy (including broker non-votes and shares that abstain or do not vote with respect to one or more matters presented for shareholder approval) will be considered present for purposes of determining whether a quorum exists at the Annual Meeting.
If you complete and submit a proxy, the persons named as proxies will vote the shares represented by your proxy in accordance with your instructions. If you submit a proxy but do not complete the voting instructions, the persons named as proxies will vote the shares represented by your proxy FOR the election of all the nominees for directors specified herein, FOR the approval of the Amended and Restated 2002 Long Term Incentive and Stock Award Plan and FOR the ratification of the appointment of Ernst & Young LLP as our registered independent accountants. The persons appointed as proxies will vote in their discretion on any other matter that may properly come before the Annual Meeting of Stockholders or any postponement, adjournment or adjournments thereof, including any vote to postpone or adjourn the Annual Meeting of Stockholders.
Directors will be elected by a plurality of the votes cast. The affirmative vote of the holders of a majority of the shares of common stock, present or represented by proxy, and voting on the matter is required for the approval of the Amended and Restated 2002 Long Term Incentive and Stock Award Plan and the ratification of the appointment of Ernst & Young LLP as our independent registered accountants.
Shares that abstain from voting as to a particular matter, and shares held in street name by brokers who indicate in their proxies that they do not have discretionary authority to vote such shares as to a particular matter, will not be counted as votes in favor of such matter, and will also not be counted as votes cast or shares voting on such matter. Accordingly, abstentions and broker non-votes will have no effect on the voting on a matter that requires the affirmative vote of a certain percentage of the votes cast, although such shares will count for quorum purposes. Shares that abstain from voting for one or more director nominees will result in the respective nominees receiving fewer votes.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of September 1, 2005 (except as otherwise indicated) for (1) each of our directors and nominees for director and each of our executive officers, (2) each person who is known by us to beneficially own more than five percent of the outstanding shares of our common stock and (3) all of our directors and executive officers as a group. Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and does not necessarily bear on the economic incidents of ownership or the right to transfer the shares described below.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our Board of Directors is currently comprised of 12 members, all of whom have agreed to stand for reelection at the Annual Meeting. It is proposed that all 12 incumbent directors be elected to hold office until the next Annual Meeting and until their successors are elected and qualified. The persons named in the enclosed proxy will vote, unless otherwise instructed in such proxy, FOR the election of all of the nominees listed below.
The following information describes the backgrounds and business experience of the nominees for director:
Irwin D. Simon, President, Chief Executive Officer and Chairman of the Board, Age 47
Irwin D. Simon has been our President and Chief Executive Officer and a director since our inception and is our founder. Mr. Simon was appointed Chairman of the Board of Directors in April 2000. Previously, Mr. Simon was employed in various marketing capacities at Slim-Fast Foods Company and The Haagen-Dazs Company, a division of Grand Metropolitan, plc. Mr. Simon serves as lead director of Jarden Corporation, an independent non-executive director of Yeo Hiap Seng Limited and as a director of several privately-held companies. Mr. Simon is the past chapter chairman of YPOGotham Chapter, New York City.
Barry J. Alperin (2)(3), Age 65
Barry J. Alperin has been a director since February 2004 and is the chairperson of our Audit Committee. Mr. Alperin, a consultant, has been a director of Henry Schein, Inc., a provider of healthcare products and services to office-based practitioners in North America and Europe, since May 1996. He served as Vice Chairman of Hasbro, Inc. from 1990 through July 1995 and as Co-Chief Operating Officer of Hasbro, Inc. from 1989 through 1990. Mr. Alperin served as director of Seamans Furniture Company, Inc. from 1992 through February 2001. He also serves as a director of the general partner of KSea Transportation Partners, LP.
Beth L. Bronner (1), Age 54
Beth L. Bronner has been a director since November 1993, and is the chairperson of our Compensation Committee. Ms. Bronner has served as Senior Vice President and Chief Marketing Officer for Jim Beam Brands Worldwide, Inc., since September 2003. From May 2001 to September 2003, Ms. Bronner served as a private consultant and president of a private realty company. In addition, she served as President and Chief Operating Officer of Advo Inc. from August 2000 until May 2001. Ms. Bronner also serves as a director of Assurant, Inc. (formerly Fortis, Inc.), Reddy Ice Holdings, Inc. and Cool Brands, Inc.
Jack Futterman (3), Age 72
Jack Futterman has been a director since December 1996, and is the chairperson of our Corporate Governance and Nominating Committee. Mr. Futterman served as Chairman and Chief Executive Officer of Party City Stores, Inc. from June 1999 through December 1999. Mr. Futterman retired as Chairman and Chief Executive Officer of Pathmark Stores, Inc. in March 1996. He joined Pathmark in 1973 as Vice President of its drugstore and 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.
Daniel R. Glickman (3), Age 60
Daniel R. Glickman, who served as U.S. Secretary of Agriculture from March 1995 until January 2001, has been a director since July 2002. Secretary Glickman is currently Chairman and Chief Executive Officer of the Motion Picture Association of America, Inc. From August 2002 through August 2004, Secretary Glickman served as the Director of the Institute of Politics at the John F. Kennedy School of Government at Harvard University. From January 2001 to August 2002, Secretary Glickman was a partner in the public law and policy
practice group of Akin, Gump, Strauss, Hauer & Feld, L.L.P. and continues to be a senior advisor to the law firm. Prior to his appointment as Secretary of Agriculture, Secretary Glickman served for 18 years in the U.S. House of Representatives, where he served as a member of the House Agriculture Committee. Secretary Glickman also serves as a director of the Chicago Mercantile Exchange.
Marina Hahn (1), Age 48
Marina Hahn has been a director since May 2000. Prior to that, she had served as a director of Celestial Seasonings since 1994. Currently, Ms. Hahn is a marketing consultant with Marina Hahn and Associates. From 1998 to 2001, Ms. Hahn served as Executive Vice President of J. Walter Thompson Company, an advertising agency. Previously, Ms. Hahn was employed in various capacities by the William Morris Agency, Inc., Sony Electronics, Inc., Pepsi-Cola Company and DDB Needham Worldwide, Inc.
Andrew R. Heyer (1)(3), Age 47
Andrew R. Heyer has been a director since November 1993. Mr. Heyer is a founder of Trimaran Capital Partners, a private asset management firm with over $3 billion under management. Mr. Heyer is also a Vice Chairman of CIBC World Markets Corp. and co-head of CIBC Argosy Merchant Banking Funds. Prior to joining CIBC in 1995, Mr. Heyer was a founder and managing director of The Argosy Group L.P. Mr. Heyer serves as a director of Niagara Corporation, Reddy Ice Holdings, Inc. and also serves as a director of several privately-held companies.
Roger Meltzer, Age 54
Roger Meltzer has been a director since December 2000. Mr. Meltzer is a partner and a member of the executive committee of the law firm Cahill Gordon & Reindel LLP, New York, New York, where he practices corporate law. Cahill Gordon & Reindel llp has represented us in various matters since 1994.
Mitchell A. Ring, Age 54
Mitchell A. Ring has been a director since February 2004. Mr. Ring is Senior Vice President Business Development of the H.J. Heinz Company, and previously served as a member of its Management Committee, commencing in 1996. Mr. Ring joined Heinz in 1991 after 17 years in marketing and finance positions in the consumer products and banking industries. Mr. Ring serves on our Board of Directors as a designee of HJH One, L.L.C.
Lewis D. Schiliro (2), Age 56
Lewis D. Schiliro has been a director since February 2004. In April 2005, Mr. Schiliro retired as Senior Executive Vice President of MBNA America. Prior to joining MBNA in 2000, Mr. Schiliro spent 25 years with the Federal Bureau of Investigation (FBI) in New York. In 1998, Mr. Schiliro was appointed the Assistant Director in Charge of the FBIs New York office. Mr. Schiliro has taught courses as an adjunct professor at both the University of Delaware and Wilmington College.
D. Edward I. Smyth, Age 55
D. Edward I. Smyth has been a director since February 2004. Mr. Smyth has served as Senior Vice PresidentCorporate and Government Affairs and Chief Administrative Officer of the H.J. Heinz Company and as a member of its Management Committee since 2001. Mr. Smyth joined Heinz in March 1988, following 15 years in the diplomatic service of Ireland. Mr. Smyth is a trustee of the H. J. Heinz Company Foundation and is a member of the Government Affairs Council of the Grocery Manufacturers of America. Mr. Smyth serves on our Board of Directors as our joint designee with HJH One, L.L.C.
Larry S. Zilavy (2), Age 54
Larry S. Zilavy has been a director since November 2002. Mr. Zilavy is currently a consultant. Mr. Zilavy retired as Executive Vice President, Corporate Finance and Strategic Planning for Barnes & Noble, Inc. in November 2004 and had served in this capacity since May 2003. Mr. Zilavy was Chief Financial Officer of Barnes & Noble, Inc. from June 2002 through April 2003. Prior to that, he was executive vice president of IBJ Whitehall Bank and Trust Company, where he worked since 1992. Mr. Zilavy is a director of GameStop Corp. and of a privately-held company, as well as a trustee of St. Francis College in New York City.
BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE
Board of Directors
The primary responsibility of the Board of Directors is to foster our long-term success, consistent with its fiduciary duty to our stockholders. In addition, the Board has responsibility for establishing broad corporate policies and overseeing our direction, affairs and management.
Non-management directors meet in executive session several times a year without any members of management being present. In addition, independent directors meet separately several times a year. Mr. Futterman, as chairperson of the Corporate Governance and Nominating Committee, presides over meetings of non-management directors and of independent directors.
During our fiscal year ended June 30, 2005, we did not pay any direct compensation to directors, other than reimbursement of out-of-pocket expenses incurred in connection with attendance at the Board of Directors meetings. Under our director stock option plans, during fiscal 2005 we granted each of Mr. Alperin, Ms. Bronner, Mr. Futterman, Mr. Glickman, Ms. Hahn, Mr. Heyer, Mr. Meltzer, Mr. Schiliro and Mr. Zilavy options to purchase 7,500 shares of our common stock for his or her services as a director, in each case at an exercise price equal to the fair market value of the common stock at the time of grant. In addition to potential future equity grants, beginning with fiscal year 2006, each non-management director (other than those directors serving pursuant to our contractual agreement with H.J. Heinz Company) will receive cash compensation equal to $6,250 each quarter.
We have implemented various changes to our corporate governance practices in response to the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and the changes to the corporate governance listing standards of the NASDAQ Stock Market, Inc. (NASDAQ). The following highlights some of the corporate governance initiatives taken by us and the Board, in response to Sarbanes-Oxley, NASDAQ rules and otherwise:
Director Elections. All directors stand for election annually. Voting is not cumulative.
Board Meetings and Attendance. All directors are expected to attend our annual meeting of stockholders. Nine directors attended our 2004 annual meeting of stockholders.
The Board typically holds regular meetings once every quarter and holds special meetings when necessary. During the 2005 fiscal year, the Board held five meetings. We expect directors to attend Board meetings, the Annual Meeting of Stockholders, and meetings of the Committees on which they serve. All nominees for directors who served as directors during the fiscal year ended June 30, 2005 attended at least 75% of the aggregate number of meetings of the Board and all Committees of the Board on which he or she served that were held during such fiscal year, except for Mr. Heyer.
Corporate Governance Guidelines. The Board has adopted Corporate Governance Guidelines, which are available on our website at www.hain-celestial.com. The information on our website is not, and shall not be deemed to be, a part of this proxy statement or incorporated into any of our other filings made with the Securities and Exchange Commission (SEC).
Director Independence. A majority of the Board, consisting of Mses. Bronner and Hahn, and Messrs. Alperin, Futterman, Glickman, Heyer, Schiliro, and Zilavy, are independent directors as defined in the listing standards of NASDAQ.
Code of Ethics. We have adopted a Code of Ethics as defined in the regulations of the SEC. This code applies to all of our employees, including our principal executive officer and principal financial officer and is available on our website at www.hain-celestial.com.
Committees of the Board.
The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. The Board of Directors has adopted a written charter for each of these committees, a current copy of which is available on our website at www.hain-celestial.com.
Audit Committee. The Audit Committees principal duties include recommending to our Board of Directors the selection, retention and termination of our registered independent accountants, evaluating the independence of the registered independent accountants, including whether they provide any consulting services to us, reviewing with the registered independent accountants their report as well as making any recommendations with respect to our financial statements, accounting policies, procedures and internal controls. In addition, the Audit Committee is charged with determining whether there are any conflicts of interest in financial or business matters between us and any of our officers or employees. The Audit Committee shall also function as the qualified legal compliance committee, as defined under applicable SEC rules and regulations.
Our Audit Committee is currently comprised of three directors, Messrs. Alperin, Schiliro and Zilavy, with Mr. Alperin acting as chairperson. The Board has determined that each member of the Audit Committee (1) is independent as defined by applicable SEC rules and the listing standards of NASDAQ, (2) has not participated in the preparation of our financial statements or those of any of our current subsidiaries at any time during the past three years, and (3) is able to read and understand fundamental financial statements, including a companys balance sheet, income statement, and cash flow statement. In addition, the Board has determined that Mr. Zilavy is an audit committee financial expert as defined by applicable SEC rules. Audit Committee members are not permitted to serve on the audit committees of more than two other public companies.
During fiscal 2005, our Audit Committee held eight meetings. See Report of the Audit Committee.
Compensation Committee. The Compensation Committees duties include reviewing our compensation strategy on an annual basis to ensure that such strategy supports our objectives and stockholder interests and that executive officers are rewarded in a manner consistent with such strategy. The Compensation Committee is also responsible for administering our employee stock option plans, reviewing and approving corporate goals and financial objectives relevant to executive officer compensation, evaluating the performance of the executive officers in light of these goals and objectives and making recommendations to the Board regarding the compensation of our executive officers.
Our Compensation Committee is currently comprised of Mses. Bronner and Hahn and Mr. Heyer, with Ms. Bronner acting as chairperson. The Board has determined that each member of the Compensation Committee is independent as defined by the listing standards of NASDAQ. During fiscal 2005, the Compensation Committee held two meetings. See Report of the Compensation Committee on Executive Compensation.
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committees purpose is to identify individuals qualified to serve on the Board of Directors, recommend to the Board of Directors persons to be nominated for election as directors at the annual meeting of the stockholders or to be appointed by the Board of Directors to fill an existing or newly created vacancy on the Board of Directors,
identify and recommend members of the Board of Directors to serve on each Board committee and to serve as chairman thereof, develop and recommend to the Board of Directors corporate governance guidelines and the review and revision of such guidelines, and oversee the evaluation by the Board of Directors of itself and its committees.
Our Corporate Governance and Nominating Committee is currently comprised of Messrs. Alperin, Futterman, Glickman and Heyer, with Mr. Futterman acting as chairperson. The Board has determined that each member of the Corporate Governance and Nominating Committee is independent as defined in the listing standards of NASDAQ. During fiscal 2005, the Corporate Governance and Nominating Committee held two meetings.
The Corporate Governance and Nominating Committees charter provides that the Committee shall consider written proposals for director nominees from stockholders in accordance with the Corporate Governance Guidelines, which have been adopted since our last Annual Meeting of Stockholders, and our By-Laws. The Corporate Governance and Nominating Committee considers these policies sufficient, since we have never received a recommendation of a director nominee with reasonably adequate qualifications from any of our stockholders. The Committee will consider candidates recommended by stockholders, and a stockholder wishing to submit a recommendation should send a letter to our Corporate Secretary at The Hain Celestial Group, Inc., 58 South Service Road, Melville, NY 11747. The mailing envelope must contain a clear notation indicating that the enclosed letter is a Director Nominee Recommendation and, in order to be considered for the 2006 Annual Meeting of Stockholders, must be received by us no later than July 6, 2006. The letter must identify the author as a stockholder, demonstrate evidence of ownership, provide a complete listing of the candidates qualifications to serve on the Board, the candidates current principal occupation, most recent five-year employment history, current directorships and a statement that the proposed nominee has consented to the nomination, as well as contact information for both the candidate and the author of the letter. For more information regarding stockholder communications with our Board of Directors, see the Stockholder Proposals and Other Communications section of this proxy statement.
When considering potential director nominees, the Corporate Governance and Nominating Committee reviews desired experience, skills and other qualities to assure appropriate Board composition, taking into account the current Board members and the specific needs of the Company and the Board. To be considered by the Corporate Governance and Nominating Committee, a director nominee must have experience as a board member or senior officer of a company in the natural food or other related industries or have a strong financial background and be a leading participant in another field relative to our business or have achieved national prominence in a relevant field as a faculty member, professional or government official. In addition to these minimum requirements, the Corporate Governance and Nominating Committee seeks director candidates based on a number of qualifications, including their displayed high ethical standards, integrity, sound business judgment, independence, knowledge, judgment, leadership skills, education, experience, financial literacy, standing in the community, a willingness to devote adequate time to Board duties and ability to foster a diversity of backgrounds and views and complement the Board of Directors existing strengths.
The Board of Directors and the Corporate Governance and Nominating Committee begin the process of identifying and evaluating director nominees by seeking recommendations from a wide variety of contacts, including current executive officers and directors, and industry, academic and community leaders. The Board or the Committee may retain a search firm to identify and screen candidates, conduct reference checks, prepare biographies for review by the Committee and the Board and assist in setting up interviews. The Committee and one or more of our other directors will interview candidates, and the Committee selects nominees that best suit our needs.
Pursuant to our contractual agreement with H.J. Heinz Company, HJH One, L.L.C., an affiliate of H.J. Heinz Company, designated Mr. Ring to serve on our Board and we and HJH One, L.L.C. jointly designated Mr. Smyth to serve on our Board.
The following information describes the background and business experience of our executive officer other than Mr. Simon.
Ira J. Lamel, Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary, Age 58
Mr. Lamel was appointed Executive Vice President, Chief Financial Officer and Treasurer on October 1, 2001, and has served as Corporate Secretary since January 2003. Prior to his appointment, Mr. Lamel, a certified public accountant, was a partner at Ernst & Young LLP where he served in various capacities from June 1973 to September 2001. Ernst & Young LLP serves as our registered independent accountants, and Mr. Lamel was responsible for all services provided to us, including the audits of our financial statements, from fiscal 1994 through fiscal 2000. Mr. Lamel serves as a director of Excel Technology, Inc. and Harvey Electronics, Inc.
PROPOSAL NO. 2
APPROVAL OF THE AMENDED AND RESTATED
2002 LONG TERM INCENTIVE AND STOCK AWARD PLAN
Our Board of Directors has adopted, subject to stockholder approval, the Amended and Restated 2002 Long Term Incentive and Stock Award Plan (the Amended 2002 Plan), which contains the following material amendments to the existing 2002 Long Term Incentive and Stock Award Plan:
In order to address potential shareholder concerns regarding the number of options, SARs or stock awards we intend to grant in a given year, we commit to our stockholders that, for the next three fiscal years (commencing July 1, 2005), we will limit the number of stock-based awards to employees or non-employee directors (whether under the Amended 2002 Plan or any other plan,) to less than an average of 2% of the number of shares of our common stock that we expect will be outstanding over such three year period. For purposes of calculating the number of shares granted in a year, stock awards will count as equivalent to (1) one and a half option shares, if our annual stock price volatility is 53% or higher, (2) two option shares if our annual stock price volatility is between 25% and 52%, and (3) four option shares if our annual stock price volatility is less than 25%.
In addition with respect to those options previously granted, we have consistently followed a balanced approach in the issuance of stock options, as it is our belief that more benefits are derived from the granting of incentives to a broad employee base, rather than to only executive officer and management level employees. As of June 30, 2005, of the total number of stock options issued and outstanding, 36.2% were held by directors and named executive officers, 33.0% were held by management level employees and 30.8% were held by the remaining employees. Furthermore, as of June 30, 2005, there were, in the aggregate, 8,098,104 stock options outstanding and unexercised pursuant to all of the plans set forth below, of which only 5,066,901, or 62.6%, were in-the-money as of such date. Accordingly, of the total number of stock options outstanding and unexercised, 3,031,203, or 37.4%, were under and of-the-money.
The material terms of the Amended 2002 Plan are summarized below. This summary does not purport to be a complete description of the Amended 2002 Plan and is qualified in its entirety by reference to the full text of the Amended 2002 Plan, a copy of which is attached as Annex 1 to this proxy statement.
The Amended 2002 Plan is designed to attract, retain and motivate qualified employees in order to achieve our long-term growth and profitability objectives, provide competitive levels of remuneration, recognize individual initiatives and achievements, link compensation to corporate performance and align the interests of our employees with the interests of our stockholders. The grants under the Amended 2002 Plan would be the principal method for long-term incentive compensation and are designed to promote the convergence of long-term interests between our key employees and our stockholders,
The Amended 2002 Plan provides for the grant to eligible employees, consultants and directors of stock options, SARs, restricted shares, restricted share units, performance shares, performance units, dividend equivalents and other share-based awards (the Awards). Each Award (other than a stock option or SAR) granted shall be deemed to equal 2.4 stock options.
The existing 2002 Plan was approved by our stockholders at our Annual Meeting of Stockholders held on November 12, 2002 and amended to increase the number of authorized shares available under the plan to 3,100,000 at our Annual Meeting of Stockholders held on December 4, 2003. Currently, there are an aggregate of 3,100,000 shares of common stock reserved for issuance under the existing 2002 Plan, of which only 92,200 shares are available for grant. Under the Amended 2002 Plan, the number of shares available for grant would be increased by 750,000 to 3,850,000, thereby increasing the 92,200 shares available for grant to 842,200 shares. As of June 30, 2005, options to purchase an aggregate of 2,441,095 shares were outstanding under the existing 2002 Plan. Shares issued pursuant to the Amended 2002 Plan will be either authorized but unissued shares or treasury shares.
Eligibility and Administration
Officers and other employees of The Hain Celestial Group, Inc. and its subsidiaries and affiliates, as well as consultants and directors of The Hain Celestial Group, Inc. are eligible to be granted Awards under the Amended 2002 Plan. The Amended 2002 Plan is administered by the Compensation Committee or such other committee (or the entire Board of Directors) as may be designated by the Board of Directors (the Committee). Unless otherwise determined by the Board of Directors, the Committee will consist of two or more non-employee directors with the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (the Exchange Act), each of whom is an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code). The Committee determines which eligible employees, consultants and directors receive Awards, the types of Awards to be received and the terms and conditions thereof. The Committee has the authority to waive conditions relating to an Award or accelerate vesting of Awards.
The Committee is permitted to delegate to officers or other directors of The Hain Celestial Group, Inc. the authority to perform administrative functions for the Amended 2002 Plan and, with respect to Awards granted to persons not subject to Section 16 of the Exchange Act, to perform such other functions as the Committee may determine to the extent permitted under Rule 16b-3 of the Exchange Act and applicable law.
If an Award is intended to be qualified as performance-based compensation under Section 162(m) of the Code, the Committee may not increase the amount of compensation payable if it would disqualify the Award under Section 162(m) of the Code. Awards may be granted alone or in tandem with any other Award.
Incentive stock options (ISOs) intended to qualify for special tax treatment in accordance with the Code and nonqualified stock options (NQSOs, and together with ISOs, referred to as Options) not intended to qualify for special tax treatment under the Code may be granted for such number of shares of common stock as the Committee determines, subject to the limitations set forth in the Amended 2002 Plan. The Committee is authorized to set the terms relating to an Option, including exercise price, which shall not be less than 100% of the fair market value on the date of grant, and the time and method of exercise. The term of an Option shall not exceed seven years from the date of grant. ISOs may only be granted to employees of The Hain Celestial Group, Inc. or its subsidiaries.
A SAR entitles the holder thereof to receive, with respect to each share subject thereto, an amount equal to the excess of the fair market value of one share of common stock on the date of exercise (or, if the Committee so determines, at any time during a specified period before or after the date of exercise) over the exercise price of the SAR set by the Committee as of the date of grant, which shall not be less than fair market value. Payment with respect to SARs may be made in cash or shares of common stock as determined by the Committee.
Awards of restricted shares are subject to such restrictions on transferability and other restrictions, if any, as the Committee may impose. Such restrictions will lapse under circumstances as the Committee may determine, including upon the achievement of performance criteria referred to below. Restricted shares shall have a minimum vesting period of one (1) year from the date of grant, subject to certain exclusions set forth in the Amended 2002 Plan. Except as otherwise determined by the Committee, eligible employees granted restricted shares will have all of the rights of a stockholder, including the right to vote restricted shares and receive dividends thereon, and unvested restricted shares will be forfeited upon termination of service during the applicable restriction period.
A restricted share unit entitles the holder thereof to receive shares of common stock or cash at the end of a specified deferral period. Restricted share units also are subject to such restrictions as the Committee may impose. Such restrictions will lapse under circumstances as the Committee may determine, including upon the achievement of performance criteria referred to below. Except as otherwise determined by the Committee, restricted share units subject to deferral or restriction will be forfeited upon termination of employment during any applicable deferral or restriction period. Restricted share units shall have a minimum vesting period of one (1) year from the date of grant, subject to certain exclusions set forth in the Amended 2002 Plan.
Performance shares and performance units provide for future issuance of shares or payment of cash, respectively, to the recipient upon the attainment of corporate performance goals established by the Committee over specified performance periods. Except as otherwise determined by the Committee, performance shares and performance units will be forfeited upon termination of service during any applicable performance period. Prior to payment of performance shares or performance units, the Committee will certify that the performance objectives were satisfied. Performance objectives may vary from person to person and will be based upon one or more of the following performance criteria as the Committee may deem appropriate: appreciation in value of the shares; total stockholder return; earnings per share; operating income; net income; pretax earnings; pretax earnings before interest, depreciation and amortization; pro forma net income; return on equity; return on designated assets; return on capital; economic value added; earnings; revenues; expenses; operating profit margin; operating cash flow; free cash flow; cash flow return on investment; operating margin; net profit margin. The Committee may revise performance objectives if significant events occur during the performance period which the Committee expects to have a substantial effect on such objectives.
Dividend equivalents granted under the Amended 2002 Plan entitle the holder thereof to receive cash, shares of common stock or other property equal in value to dividends paid with respect to a specified number of shares of common stock. 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. The Committee is also authorized, subject to limitations under applicable law, to grant such other Awards that may be denominated in, valued in, or otherwise based on, shares of common stock, as deemed by the Committee to be consistent with the purposes of the Amended 2002 Plan.
Awards (except for vested shares) will generally not be transferable by the participant other than by will or the laws of descent and distribution and will be exercisable during the lifetime of the participant only by such participant or his or her guardian or legal representative.
Capital Structure Changes
If the Committee determines that any dividend, recapitalization, share split, reorganization, merger, consolidation, spin-off, repurchase, or other similar corporate transaction or event affects the common stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of eligible participants under the Amended 2002 Plan, then the Committee is authorized to make such equitable changes or adjustments
as it deems appropriate, including adjustments to (i) the number and kind of shares which may thereafter be issued under the Amended 2002 Plan, (ii) the number and kind of shares, other securities or other consideration issued or issuable in respect of outstanding Awards and (iii) the exercise price, grant price or purchase price relating to any Award.
Amendment and Termination
The Amended 2002 Plan may be amended, suspended or terminated by our Board of Directors at any time, in whole or in part. The Board may seek the approval of any amendment or modification by the Companys stockholders to the extent it deems necessary or advisable in its discretion for purposes of compliance with Section 162(m) or Section 422 of the Code, the listing requirements of the applicable exchange or securities market or for any other purpose. Except as may be required to comply with Section 409A of the Code, no amendment or modification of the Plan or any Award shall adversely affect any Award theretofore granted without the consent of the participant or the permitted transferee of the Award.
Effective Date and Term
If approved, the Amended 2002 Plan shall be effective as of December 1, 2005. Notwithstanding the foregoing, the adoption of the Amended 2002 Plan is expressly conditioned upon the approval of our stockholders. Unless earlier terminated, the Amended 2002 Plan will terminate as to future awards on December 1, 2015. If the Amended 2002 Plan is not approved, the existing 2002 Plan shall remain in effect.
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences of the Amended 2002 Plan, based upon current provisions of the Code, the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, and does not address the consequences under any state, local or foreign tax laws.
In general, the grant of an option will not be a taxable event to the recipient and it will not result in a deduction to us. The tax consequences associated with the exercise of an option and the subsequent disposition of shares of common stock acquired on the exercise of such option depend on whether the option is a nonqualified stock option or an ISO.
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. We will generally be entitled to a deduction in an equivalent amount. 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 ISO and no deduction will be available to us, provided the option is exercised while the participant is an employee or within three months following termination of employment (longer, in the case of disability or death). If an ISO granted under the Amended 2002 Plan is exercised after these periods, the exercise will be treated for federal income tax purposes as the exercise of a nonqualified stock option. Also, an ISO granted under the Amended 2002 Plan will be treated as a nonqualified stock option to the extent it (together with other ISOs granted to the participant by us) first becomes exercisable in any 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 after 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, and we will generally be able to claim a deduction, 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. Where 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.
If an option is exercised through the use of shares of common stock previously owned by the participant, such exercise generally will not be considered a taxable disposition of the previously owned shares and, thus, no gain or loss will be recognized with respect to such previously owned shares upon such exercise. The amount of any built-in gain on the previously owned shares generally will not be recognized until the new shares acquired on the option exercise are disposed of in a sale or other taxable transaction.
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 participants alternative minimum taxable income and may result in an alternative minimum tax liability.
A participant who receives shares of restricted stock will generally recognize ordinary income at the time that they vest (i.e., either when they are not subject to a substantial risk of forfeiture or when they are freely transferable). The amount of ordinary income so recognized will generally be the fair market value of the common stock at the time the shares vest, less the amount, if any, paid for the stock. This amount is generally deductible for federal income tax purposes by us. Dividends paid with respect to common stock that is nonvested will be ordinary compensation income to the participant (and generally deductible by us). Any gain or loss upon a subsequent sale or exchange of the shares of common stock, measured by the difference between the sale price and the fair market value on the date the shares vest, will be capital gain or loss, long-term or short-term, depending on the holding period for the shares of common stock. The holding period for this purpose will begin on the date following the date the shares vest.
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 we will generally be entitled to a corresponding deduction. Dividends paid with respect to shares as to which a proper Section 83(b) election has been made will not be deductible to us. 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.
SARs and Other Awards
With respect to SARs, restricted share units, performance shares, performance units dividend equivalents and other Awards under the Amended 2002 Plan not described above, generally, when a participant receives payment with respect to any such Award granted to him or her under the Amended 2002 Plan, the amount of cash and the fair market value of any other property received will be ordinary income to such participant and will be allowed as a deduction for federal income tax purposes to us.
Payment of Withholding Taxes
We may withhold, or require a participant to remit to us, an amount sufficient to satisfy any federal, state or local withholding tax requirements associated with Awards under the Amended 2002 Plan.
Deductibility Limit on Compensation in Excess of $1 Million
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 Amended 2002 Plan) by a public company to a covered employee (i.e., the chief executive officer and our four other most highly compensated executive officers) to no more than $1 million. We currently intend to structure stock options granted and other Awards made under the Amended 2002 Plan to comply with an exception to nondeductibility under Section 162(m) of the Code. See Report of the Compensation Committee on Executive Compensation.
New Plan Benefits
The amount of benefits payable in the future under the Amended 2002 Plan is not currently determinable.
Recommendation of the Board of Directors
The Board of Directors believes that approval of the Amended 2002 Plan is in our best interest, as well as the best interest of our stockholders and employees, because the granting of stock options and other awards promotes the convergence of long-term interests between our key employees and our stockholders, as the value of options and other awards granted will increase or decrease with the value of our common stock. In addition, the ability to grant stock options and other awards will assist us in continuing to attract and retain the services of outstanding management and will enable us to use this type of long-term incentive compensation at levels commensurate with our peers while conserving our cash resources. The Board of Directors unanimously approved the Amended and Restated 2002 Long Term Incentive and Stock Award Plan and recommends a vote FOR approval of the Amended and Restated 2002 Long Term Incentive and Stock Award Plan.
PROPOSAL NO. 3
RATIFICATION OF THE SELECTION OF REGISTERED INDEPENDENT ACCOUNTANTS
It is the practice of the Board of Directors to designate the accounting firm that will serve as our registered independent accountants. The Audit Committee has recommended that Ernst & Young LLP be selected to audit our financial statements for the fiscal year ending June 30, 2006 and the Board of Directors has approved the selection of Ernst & Young LLP. Ernst & Young LLP has audited our financial statements since 1994.
The Audit Committee reviews and approves the audit and non-audit services to be provided by our registered independent accountants during the year, considers the effect that performing those services might have on audit independence and approves managements engagement of our registered independent accountants to perform those services.
Ernst & Young LLP expects to have a representative at our Annual Meeting of Stockholders who will have the opportunity to make a statement and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR ratification of Ernst & Young LLP as our registered independent accountants for our fiscal year ending June 30, 2006.
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation paid by us for services rendered during the three fiscal years ended June 30, 2005 to or for the accounts of our Chief Executive Officer and our other most highly compensated executive officer.
Summary Compensation Table
Irwin D. Simon
We have entered into an employment agreement with Mr. Simon, our founder, which is effective from July 1, 2003, through June 30, 2007. Mr. Simons employment agreement provides for a minimum annual base salary of $875,000 for the fiscal year ended June 30, 2005, $950,000 for the fiscal year ended June 30, 2006 and $1,050,000 for the fiscal year ending June 30, 2007. The Compensation Committee increased Mr. Simons base salary for the fiscal year ended June 30, 2005 to $980,000, based on Mr. Simons prior performance, and has recommended an increase in his base salary, subject to Board review, to $1,100,000 for the fiscal year ending June 30, 2006. Mr. Simons employment agreement also provides for an annual bonus ranging from 0% to 150% of his annual base salary upon the achievement of sales and profitability objectives to be determined by our Compensation Committee. During the term of the agreement, Mr. Simon is entitled to receive an annual grant of options under our 2002 Plan exercisable for 300,000 shares of our common stock at an exercise price equal to the market price on the date of the grant. Pursuant to this employment agreement, during the 2004 fiscal year Mr. Simon also received an award of 150,000 shares of restricted stock under the 1994 Plan, which will vest equally from the date of award through the end of his contract. As of June 30, 2005, 60,414 shares have vested.
In the event that Mr. Simon is terminated without cause or he resigns for good reason, which will include resignation upon a change of control, he will be entitled to, among other things, three years annual salary and three years average annual bonus, all options and other stock awards previously granted, but unvested, shall become fully vested and he will be entitled to the Black-Scholes value of all options contemplated but not yet granted pursuant to the employment agreement. In addition, if his contract is not renewed at the end of its term, Mr. Simon will be entitled to three years annual salary and three years average annual bonus. Mr. Simon has also agreed not to compete with us during his employment term or for a period of three years thereafter and has agreed to customary provisions regarding confidentiality and proprietary rights.
Change of Control Agreements
We have entered into a change of control agreement with Mr. Lamel and certain other employees that provides that in the event that, following a change of control of The Hain Celestial Group, Inc., the surviving corporation takes certain actions, including a termination without cause, diminution in duties or forced relocation, such employee will be entitled to terminate his or her employment and receive up to three times annual base salary and annual bonus, up to three years benefits continuation, immediate vesting of all outstanding options and other stock awards and reimbursement of certain tax obligations. Mr. Simons employment agreement includes change of control provisions as described in the paragraph above. See Employment AgreementsIrwin D. Simon.
Stock Option Grants and Exercises
The tables below set forth information with respect to the grants of stock options to our named executive officers during our fiscal year ended June 30, 2005 and their unexercised options as of the end of our fiscal year ended June 30, 2005. There were no exercises of stock options by any of our named executive officers during the fiscal year ended June 30, 2005.
Option Grants in Last Fiscal Year
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
1994 Long Term Incentive and Stock Award Plan
In December 1994, we adopted the 1994 Long Term Incentive and Stock Award Plan, which we refer to in this notice of annual meeting as the 1994 Plan. The 1994 Plan, as amended, provides for the granting of incentive stock options and other stock-based awards to employees and directors to purchase up to an aggregate of 6,400,000 shares of our common stock. The 1994 Plan is administered by the Compensation Committee of the Board of Directors, or a subcommittee thereof. All of the awards granted to date under the 1994 Plan have been incentive or non-qualified stock options providing for exercise prices not less than the fair market price at the 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 an extended vesting period. During fiscal 2005, options to purchase 214,500 shares were granted at a price of $16.01 per share, options to purchase 108,478 shares were exercised and options to purchase 67,350 shares were canceled. At June 30, 2005, options to purchase 4,420,493 shares were outstanding. The 1994 Plan terminated as to future awards on October 3, 2004.
2002 Long Term Incentive and Stock Award Plan
In November 2002, we adopted the 2002 Long Term Incentive and Stock Award Plan, which we refer to in this notice of annual meeting as the 2002 Plan. The 2002 Plan currently provides for the granting of incentive stock options and other stock-based awards to employees, directors and consultants to purchase up to an aggregate of 3,100,000 shares of our common stock, of which as of June 30, 2005, 92,200 shares were available for grant under the 2002 Plan. The 2002 Plan imposes a maximum individual limit of 1,000,000 options in any calendar year. The 2002 Plan is administered by the Compensation Committee of the Board of Directors, or a subcommittee thereof. All of the options granted to date under the 2002 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. Options may be exercisable upon grant or over an extended vesting period. During fiscal 2005, 1,545,400 options were granted at prices ranging from $16.01 to $20.57 per share, 231,960 options were exercised and 59,200 options were canceled. At June 30, 2005, 2,441,095 options were outstanding and 92,200 shares were available for grant under the 2002 Plan. The Board of Directors has approved, subject to stockholder approval, the Amended 2002 Plan. See Proposal No. 2Approval of the Amended and Restated 2002 Long Term Incentive and Stock Award Plan.
1996 Directors Stock Option Plan
In December 1995, we adopted the 1996 Directors Stock Option Plan, which we refer to in this notice of annual meeting as the 1996 Directors Plan. The 1996 Directors Plan provides for the granting of stock options to non-employee directors to purchase up to an aggregate of 750,000 shares of our common stock. No options may be granted under the 1996 Directors Plan after December 2000. As of June 30, 2005, options to purchase 322,500 shares were outstanding under the 1996 Directors Plan.
2000 Directors Stock Option Plan
In May 2000, we adopted a new 2000 Directors Stock Option Plan, which we refer to in this notice of annual meeting as the 2000 Directors Plan. The 2000 Directors Plan provides for granting of stock options to non-employee directors to purchase up to an aggregate of 950,000 shares of our common stock. During fiscal 2005, 67,500 options were granted at a price of $18.11 per share and no options were exercised or canceled. At June 30, 2005, options to purchase 585,500 shares were outstanding and 219,500 options were available for grant under the 2000 Directors Plan.
In connection with the merger of Celestial Seasonings, Inc. with and into our wholly owned subsidiary on May 30, 2000, we assumed Celestials 1993 Long-Term Incentive Plan and 1994 Non-Employee Director
Compensation Plan, which we refer to in this notice of annual meeting collectively as the Celestial Plans. Since the consummation of the merger with Celestial, no options to purchase shares of common stock have been granted under the Celestial Plans. During fiscal 2005, options to purchase 4,245 shares were exercised and no options to purchase shares were canceled. As of June 30, 2005, options to purchase 328,516 shares of common stock were outstanding under the Celestial Plans.
Equity Compensation Plan Information
The table below sets forth information with respect to our compensation plans as of June 30, 2005.
REPORT OF THE AUDIT COMMITTEE
Our Audit Committee is comprised of three independent directors and operates under a written charter. A copy of the amended and restated Audit Committee charter is available on our website at www.hain-celestial.com. The Audit Committee, in its oversight role over (1) our financial accounting and reporting process, (2) our system of internal controls established by management and (3) the external audit process, has met with management and our registered independent accountants. Discussions about our audited financial statements included our registered independent accountants judgments about the quality, not just the acceptability, of our accounting principles and underlying estimates used in our financial statements, as well as other matters, as required by Statement on Auditing Standards No. 61, Communication with Audit Committees (SAS 61), as amended by Statement on Auditing Standards No. 90, Audit Committee Communications, and by our Audit Committee Charter. In conjunction with the specific activities performed by the Audit Committee in its oversight role, it issued the following report:
Based on the review and discussions referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of Directors, and the board has approved, that the audited financial statements should be included in the companys Annual Report on Form 10-K for the fiscal year ended June 30, 2005 for filing with the Securities and Exchange Commission.
Barry J. Alperin, Chairperson
Lewis D. Schiliro
Larry S. Zilavy
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The aggregate fees billed for each of the 2005 and 2004 fiscal years for professional services rendered by Ernst & Young for the audit of our annual financial statements and our quarterly financial statements, and services that are normally provided by Ernst & Young in connection with statutory and regulatory filings or engagements for those fiscal years were $1,670,900 and $655,010, respectively. The increase in fees billed in 2005 over 2004 is due to additional auditing procedures applied in connection with Sarbanes-Oxley.
Audit-Related Fees. The aggregate fees billed in each of the 2005 and 2004 fiscal years for assurance and related services by Ernst & Young that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the immediately preceding paragraph were $46,125 and $342,323, respectively. The services comprising the fees disclosed under this category were related to due diligence in connection with acquisitions and accounting consultations.
Tax Fees. The aggregate fees billed in each of the 2005 and 2004 fiscal years for professional services rendered by Ernst & Young for tax advice and tax planning were $252,000 and $182,617, respectively.
All Other Fees. There were no fees in each of the 2005 and 2004 fiscal years for all other matters.
The Audit Committee considered whether the provision of the services described above in this section are compatible with maintaining Ernst & Youngs independence.
The Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by our registered independent accountants. Pre-approval is generally provided for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee may also pre-approve particular services on a case-by-case basis. In assessing requests for services by the registered independent accountants, the Audit Committee considers whether such services are consistent with the registered independent accountants independence, whether the registered independent accountants are likely to provide the most effective and efficient service based on their familiarity with us, and whether the service could enhance our ability to manage or control risk or improve audit quality. The Audit Committee has delegated pre-approval authority to its chairman, who must report any decisions to the Audit Committee at its next scheduled meeting.
The recommendation to appoint Ernst & Young and the authorization of the Board of Directors to agree to Ernst & Youngs fee are being submitted to the stockholders at the annual general meeting. If such appointment is not made, the Board of Directors will consider other registered independent accountants for appointment. The Board of Directors recommends a vote FOR the appointment of Ernst & Young as our registered independent accountants for the 2006 fiscal year.
A representative of Ernst & Young is expected to be present at the meeting with an opportunity, if desired, to make a statement and to respond to your questions.
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Committee. Our Compensation Committee is responsible for determining the compensation of our executive officers. The Compensation Committee, or a sub-committee thereof, also administers the 1994 Plan and discretionary grants under our 2000 Directors Plan and the 2002 Plan.
The Compensation Committee is currently comprised of Ms. Bronner, Ms. Hahn and Mr. Heyer, with Ms. Bronner acting as chairperson. 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 our overall compensation package.
Section 162(m) of the Internal Revenue Code generally limits the deductible amount of annual compensation paid to certain individual executive officers (i.e., the chief executive officer and our other most highly compensated executive officers) to no more than $1 million. Considering the current structure of executive officer compensation, the Compensation Committee believes that we will not be denied any significant tax deductions for fiscal 2005. The Compensation Committee will continue to review tax consequences as well as other relevant considerations in connection with compensation decisions.
Compensation Philosophy. Our executive compensation program is designed to attract and retain qualified executives, provide competitive levels of remuneration, recognize individual initiatives and achievements, link executive compensation to corporate performance and align the interests of our executives with the interests of our stockholders. Our executive compensation program is comprised of salary, annual cash incentives and long-term, stock-based incentives. The principal method for long-term incentive compensation is option grants under our 2002 Long Term Incentive and Stock Award Plan. These grants are designed to promote the convergence of long-term interests between our key employees and our stockholders, since the value of options granted will increase or decrease with the value of our common stock. Because performance most significantly influences an individual executives compensation level, compensation levels in any particular year may be above or below those of our competitors, depending upon company and individual performance. 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 2005 compensation:
Base Salary. We establish salary ranges for each of our executive positions based on appropriate external comparisons, internal responsibilities and relationships to other corporate positions. Existing base salaries and any annual merit-based increases for the named executives were established based on the foregoing factors.
Annual Incentive. We 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 executives accomplishments are assessed as to their impact on corporate results. The chief executive officer consults with Compensation Committee members to review corporate results, the individual executives contributions and his recommendations as to annual incentive payments.
Long-Term Incentives. The 2002 Plan and 1994 Plan were approved by stockholders for the purpose of promoting the interests of our stockholders by: (1) attracting and retaining executives and other key employees of outstanding ability; (2) strengthening our capability to develop, maintain and direct a competent management team; (3) motivating executives and other key employees, by means of performance-related incentives, to achieve longer-range performance goals; (4) providing incentive compensation opportunities which are competitive with those of other comparably situated corporations; and (5) enabling such employees to participate in our long-term growth and financial success. During our fiscal year ended June 30, 2005, stock option grants were made broadly within the Company pursuant to the 2002 Plan. In determining award levels, consideration was given to individual performance, potential for future responsibility and promotion and competitive total compensation targets for the individuals position and level of contribution.
Chief Executive Officer Compensation. The Compensation Committee is responsible for determining the appropriate compensation for our chief executive officer based on a variety of criteria, including our performance and the chief executive officers performance, the compensation of the chief executive officers of comparable companies and other market factors. In fiscal 2003, the Compensation Committee worked
with Mr. Simon in the preparation of his employment agreement described above under the heading Executive CompensationEmployment Agreements, then recommended the adoption of the employment agreement to our Board of Directors, which adopted it unanimously. The Compensation Committee increased Mr. Simons base salary for the fiscal year ended June 30, 2005 to $980,000, based on Mr. Simons prior performance, and has recommended an increase in his base salary, subject to Board review, to $1,100,000 for the fiscal year ending June 30, 2006. Pursuant to the terms of his employment agreement, on July 1, 2005, Mr. Simon was entitled to a grant of 300,000 options to purchase common stock of the Company under the 2002 Plan or any substantially similar plan. However, only 92,200 shares remain available for grant under the 2002 Plan. The Compensation Committee also has recommended, subject to Board review, that Mr. Simon receive a cash bonus for fiscal 2005 of $1 million pursuant to his employment agreement. These recommendations were based on the Compensation Committees determination that Mr. Simon successfully increased the Companys revenue and net income while completing a stock keeping unit (SKU) rationalization; successfully implemented two price increases; improved the strength of the senior management team and the organization structure; led the identification, consummation and integration of several acquisitions, including the Companys entry into the personal care products and protein categories; completed the Companys first brand divestiture; and led the creation of a strategic alliance in Asia.
Compensation Review. The Compensation Committee has engaged Mercer Human Resource Consulting to provide a comprehensive review of our compensation policies, including long-term incentives to ensure that they are competitive and appropriately linked to the Companys long term success and the creation of stockholder value. This review is expected to be ongoing through the end of fiscal 2006.
The following graph compares the performance of our common stock to the S&P 500 Index and to the Standard & Poors Packaged Foods and Meats Index (in which we are included) for the period from June 30, 2000 through June 30, 2005. The comparison assumes $100 invested on June 30, 2000.
On September 27, 1999, we announced an agreement with H.J. Heinz Company to form a strategic alliance for the global production and marketing of natural and organic foods and soy-based beverages. In connection with the alliance, we issued 2,837,343 investment shares of our common stock to Boulder, Inc. (formerly known as Earths Best), a wholly owned subsidiary of Heinz, for an aggregate purchase price of $82,383,843. In addition, in a separate transaction, we announced on September 27, 1999 that we had purchased the Earths Best trademarks. In consideration for the trademarks, we paid $4,620,000 in cash and issued 670,234 shares of our common stock to Boulder, Inc. valued at $17,380,000. These shares were subsequently transferred to HJH One, L.L.C., an affiliate of Heinz. In connection with the issuance of these shares, we and Boulder, Inc. (currently HJH One, L.L.C.) entered into an investors agreement that provides for the appointment to our Board of Directors of one member nominated by HJH One, L.L.C., currently Mr. Ring, and one member jointly nominated by HJH One, L.L.C. and us, currently Mr. Smyth. Mr. Ring is Senior Vice PresidentBusiness Development of H.J. Heinz Company. Mr. Smyth is Senior Vice PresidentCorporate and Government Affairs and Chief Administrative Officer of H.J. Heinz Company.
In accordance with the provisions of the investors agreement relating to HJH One, L.L.C.s right to maintain its ownership percentage following certain issuances by us of our common stock, on June 19, 2000, we issued an additional 2,582,774 shares of common stock to HJH One, L.L.C. at an aggregate purchase price of $79,743,147 in connection with the merger with Celestial Seasonings. Under the investors agreement described above, HJH One, L.L.C. has agreed to vote its shares in favor of nominees for directors listed in Proposal No. 1.
In fiscal 2005, we paid to H.J. Heinz Company approximately $2,292,437 in purchases, royalties and profit sharing fees, and they paid us approximately $2,419,894 in purchases.
Mr. Meltzer, who is nominated for re-election as a director, is a partner at the law firm Cahill Gordon & Reindel llp. Cahill Gordon & Reindel LLP acts as our regular outside counsel. In addition, Mr. Simons wife
serves as our Director of International Sales, and Mr. Simons brother-in-law serves as our Vice President-Purchasing and Procurement, and each are paid at competitive rates with employees serving other companies in comparable positions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file initial reports of beneficial ownership and changes in such with the SEC. Such officers, directors and stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us and written representations from our executive officers and directors, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis, except as previously disclosed.
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 our interests.
STOCKHOLDER PROPOSALS AND OTHER COMMUNICATIONS
We will not consider including a stockholders proposal for action, or a stockholders nomination of a person for election as a director, at our 2006 annual meeting of stockholders in the proxy material to be mailed to our stockholders in connection with such meeting unless such proposal or nomination is received at our principal office no later than July 6, 2006.
For all other stockholder communications with the Board of Directors or a particular director, a stockholder may send a letter to our principal office, at 58 South Service Road, Melville, NY 11747, Attention: Corporate Secretary. The mailing envelope must contain a clear notation indicating that the enclosed letter is a Stockholder-Board Communication or Stockholder-Director Communication. The letter must identify the author as a stockholder and clearly state whether the intended recipients are all members of the Board of Directors or just certain specified individual directors.
We have adopted a procedure approved by the Securities and Exchange Commission called householding. Under this procedure, multiple stockholders who share the same last name and address will receive only one copy of the annual proxy materials, unless they notify us that they wish to continue receiving multiple copies. We have undertaken householding to reduce our printing costs and postage fees.
If you wish to opt-out of householding and receive multiple copies of the proxy materials at the same address, you may do so at any time prior to thirty days before the mailing of proxy materials, which typically are mailed in October of each year, by notifying us in writing at: 58 South Service Road, Melville, NY 11747, Attention: Corporate Secretary. You also may request additional copies of the proxy materials by notifying us in writing at the same address.
If you share an address with another stockholder and currently are receiving multiple copies of the proxy materials, you may request householding by notifying us at the above-referenced address.
By order of the Board of Directors,
Ira J. Lamel
Dated: November 3, 2005
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 or, if you are a beneficial owner of shares held in street name, you may vote by telephone or via the internet.
THE HAIN CELESTIAL GROUP, INC.
AMENDED AND RESTATED
2002 LONG TERM INCENTIVE AND STOCK AWARD PLAN
The purposes of the Amended and Restated 2002 Long Term Incentive and Stock Award Plan are to advance the interests of The Hain Celestial Group, Inc. and its stockholders by providing a means to attract, retain, and motivate employees, consultants and directors of the Company upon whose judgment, initiative and efforts the continued success, growth and development of the Company is dependent.
For purposes of the Plan, the following terms shall be defined as set forth below:
4. Shares Subject to the Plan.
5. Specific Terms of Awards.
6. Certain Provisions Applicable to Awards.
7. General Provisions.
THE HAIN CELESTIAL GROUP, INC.
This proxy is solicited on behalf of the Board of Directors of The Hain Celestial Group, Inc. (the Company). The undersigned hereby appoints Irwin D. Simon and Ira J. Lamel, 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 1, 2005, and any postponements or adjournments thereof (including any vote to postpone or adjourn the Annual Meeting of Stockholders), 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, 2 and 3 below, each of said items being more fully described in the accompanying Notice of Annual Meeting and Proxy Statement, receipt of which are hereby acknowledged.
The Board of Directors Recommends You Vote FOR items 1, 2 and 3 below
(Instructions: to withhold authority to vote for an individual nominee, strike a line through the nominees name listed below.)
Irwin D. Simon, Barry J. Alperin, Beth L. Bronner, Jack Futterman, Daniel R. Glickman, Marina Hahn, Andrew R. Heyer, Roger Meltzer, Mitchell A. Ring, Lewis D. Schiliro, D. Edward I. Smyth and Larry S. Zilavy
In their discretion, the proxies named above are authorized to vote upon such other business as may properly come before the Annual Meeting of Stockholders or any postponement, adjournment or adjournments thereof, including any vote to postpone or adjourn the Annual Meeting of Stockholders.
Please Complete All Information Below
Please sign exactly as names appear hereon, indicating official position or representative capacity, if any. If shares are held jointly, both owners should sign.