Monterey Gourmet Foods DEF 14A 2005
June 13, 2005
This years annual meeting of stockholders will be held on Thursday, July 28, 2005 at 10:00 a.m., Pacific Daylight time, at the Embassy Suites Hotel Monterey Bay-Seaside, 1441 Canyon Del Rey, Seaside, California, 93955. You are cordially invited to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which describes the formal business to be conducted at the meeting, follows this letter.
After reading the Proxy Statement, please promptly complete, sign, and return the enclosed proxy in the prepaid envelope to ensure that your shares will be represented. Your shares cannot be voted unless you date, sign, and return the enclosed proxy or attend the annual meeting in person. Regardless of the number of shares you own, your careful consideration of, and vote on, the matters before our stockholders are important.
A copy of the Companys Annual Report to Stockholders is enclosed for your review. At the annual meeting we will review Monterey Gourmet Foods activities over the past year and our plans for the future.
The Board of Directors and management look forward to seeing you at the annual meeting.
IMPORTANT: Pleasecomplete, date, sign and promptly mail the enclosed proxy card in the accompanying postage-paid envelope to ensure that your shares are represented at the meeting. If you attend the meeting, you may choose to vote in person even if you have previously sent in your proxy card.
MONTEREY GOURMET FOODS, INC.
1528 Moffett Street
Salinas, California 93905
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 28, 2005
TO THE STOCKHOLDERS:
Please take notice that the annual meeting of the stockholders of Monterey Gourmet Foods, Inc., a Delaware corporation (the Company), will be held on Thursday, July 28, 2005, at 10:00 a.m., local time, at the Embassy Suites Hotel Monterey Bay-Seaside, 1441 Canyon Del Rey, Seaside, California, 93955, for the following purposes:
1. To elect nine (9) directors to hold office for one-year terms and until their respective successors are elected and qualified.
2. To consider a proposal to ratify the appointment of BDO Seidman, LLP as the Companys independent certified public accountants for the fiscal year ending December 25, 2005.
3. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on June 10, 2005, are entitled to notice of, and to vote at, this meeting and any adjournment or postponement thereof. For ten days prior to the meeting, a complete list of the stockholders entitled to vote at the meeting will be available for examination by any stockholder for any purpose relating to the meeting during ordinary business hours at the principal office of the Company.
June 13, 2005
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. PROXIES ARE REVOCABLE, AND ANY STOCKHOLDER MAY WITHDRAW HIS OR HER PROXY PRIOR TO THE TIME IT IS VOTED, OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
Your execution of the accompanying proxy is solicited by the Board of Directors of Monterey Gourmet Foods, Inc. a Delaware corporation, for use at its annual meeting of stockholders to be held on July 28, 2005, or any adjournment or postponement thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. This proxy statement and the enclosed proxy are being mailed to stockholders on or about June 13, 2005.
SOLICITATION AND VOTING
Voting Securities. Only stockholders of record as of the close of business on June 10, 2005 will be entitled to vote at the meeting and any adjournment thereof. As of that time, we had 14,459,051 shares of Common Stock outstanding, all of which are entitled to vote with respect to all matters to be acted upon at the annual meeting. Each stockholder of record as of that date is entitled to one vote for each share of Common Stock held by him or her. Our Bylaws provide that a majority of all of the shares of the stock entitled to vote, whether present in person or represented by proxy, shall constitute a quorum for the transaction of business at the meeting. Unless otherwise noted below, votes for and against, abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum.
Broker Non-Votes. A broker non-vote occurs when a broker submits a proxy card with respect to shares held in a fiduciary capacity (typically referred to as being held in street name) but declines to vote on a particular matter because the broker has not received voting instructions from the beneficial owner. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters, but not on non-routine matters. Routine matters include the election of directors, increases in authorized common stock for general corporate purposes and ratification of auditors. Non-routine matters include amendments to stock plans.
Solicitation of Proxies. We will bear the cost of soliciting proxies. In addition to soliciting stockholders by mail through our employees, we will request banks, brokers and other custodians, nominees and fiduciaries to solicit customers for whom they hold our stock and will reimburse them for their reasonable, out-of-pocket costs. We may use the services of our officers, directors and others to solicit proxies, personally or by telephone, without additional compensation.
Voting of Proxies. All valid proxies received before the meeting will be exercised. All shares represented by a proxy will be voted, and where a proxy specifies a stockholders choice with respect to any matter to be acted upon, the shares will be voted in accordance with that specification. If no choice is indicated on the proxy, the shares will be voted in favor of the proposal. A stockholder giving a proxy has the power to revoke his or her proxy at any time before it is exercised by delivering to the Secretary of Monterey Gourmet Foods a written instrument revoking the proxy or a duly executed proxy with a later date, or by attending the meeting and voting in person.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Companys Bylaws authorize up to a nine member Board of Directors and management has nominated nine directors for election. At each Annual Meeting of Stockholders, directors are elected for a full term of one year to succeed those directors whose terms expire on such Annual Meeting date.
Managements nominees for election to the Board of Directors, and certain information with respect to their age and background, are set forth below. If elected, the nominees will serve as directors until the Companys Annual Meeting of Stockholders in 2006, and until their successors are elected and qualified. Management knows of no reason why any nominee should be unable or unwilling to serve. However, if any nominee declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election, the proxies may be voted for such substitute nominees as management may designate.
Nine directors are to be elected to the Companys Board of Directors at the 2005 Annual Meeting of Stockholders. The Board of Directors continues to evaluate prospective candidates. Managements nominees for election are Charles B. Bonner, R. Lance Hewitt, F. Christopher Cruger, Van Tunstall, Michael P. Schall, James Wong, Walter L. Henning, James M. Williams, and Scott S. Wheeler.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
If a quorum is present and voting, the nine nominees for director receiving the highest number of votes will be elected. Abstentions and broker non-votes will be counted as present for purposes of determining if a quorum is present. However, abstentions and broker non-votes will have no effect on the outcome of the vote.
The Board of Directors recommends a vote FOR the nominees named above.
The following table sets forth, for our current directors, including the nominees to be elected at this meeting, information with respect to their ages and background.
Charles B. Bonner. Mr. Bonner served as a Director of the Company from 1993 through January 1995, and was reappointed as a Director effective September 1995. Mr. Bonner is Principal and Founder of Pacific Resources, Inc., a mergers and acquisitions advisory firm, a position he has held since September 1989. From 1975 to 1988 he was president of Bonner Packing Co., an $80MM dried fruit processing and marketing company which was sold to Dole Food Company in 1988. Mr. Bonner also serves as a director for Everything Metal Imaginable, Inc., and Scrip Advantage, Inc.
F. Christopher Cruger. Mr. Cruger was elected to the Board of Directors in December of 2001. He is a retired investor and former senior manager or executive of several consumer product companies. Mr. Cruger joined McCormick and Company, a maker of spices and seasonings, in 1995 and served until 1999 as Vice-President and General Manager of the Food Service Group and as Chairman of McCormicks Global Food Service Council.
Mr. Cruger was president and CEO of Tone Brothers, Inc., a spice producer, from 1985 to 1995. He is a Director of Kemin Industries, Inc
James M. Williams. Mr. Williams joined the Company as President on October 1, 2002 and was elected to the Board of Directors on October 29, 2002. On January 3, 2003 Mr. Williams was promoted to Chief Executive Officer. Prior to his employment with the Company, Mr. Williams served as President and CEO of Bongrain Cheese-USA, a division of the French company Bongrain SA, a world-wide public company focusing on specialty cheeses, from 1990 to 2002. Previously he held executive, sales and marketing positions with the Hillshire Farm division of Sara Lee Corporation, a global consumer products company.
R. Lance Hewitt. Mr. Hewitt joined the Company in June 1997 as President and Director and was named Chief Executive Officer in August 1997. Mr. Hewitt served in this capacity until he retired from day-to-day activities and assumed the position of Chairman of the Board of Directors effective January 2003. Mr. Hewitt was President of Carriage House Fruit Company, a food manufacturing company, from 1995 to 1997. He was Chief Operating Officer of Ingro Mexican Foods from 1988 to 1995. Hewitt also served as Vice President of Marketing and Sales for the Lawrys Foods division of Thomas J. Lipton, Inc., a subsidiary of Unilever, an international food manufacturer, and spent fifteen years with McCormick Schilling, Inc., a spice company, in various executive capacities.
Michael P. Schall. Mr. Schall was elected to the Board of Directors in December of 2001. Mr. Schall is currently President of Strategic Marketing Methods, a consulting and advisory firm providing sales and marketing, business development advisory and new product expertise to the food and foodservice industries. Mr. Schall served as Senior Vice President of Sales, Marketing, and Direct Store Delivery for Wise Foods, a snack food company, from January 2002 until March 2003. From 2000 until January of 2002 he was President and CEO of The B. Manischewitz Company, LLC, one of the nations largest kosher food companies. Prior to that Mr. Schall was President and CEO of Guiltless Gourmet, a food manufacturing company, from 1994 until its acquisition by Manischewitz. Mr. Schall held executive or senior management positions with Carnation Company, now Nestle S.A. and Lawrys Foods Inc., a division of Unilever U.S., and Prepared Products Co.
Van Tunstall. Mr. Tunstall was elected to the Board of Directors in February 1997. Since 1997, he has served as President of the Central Coast Group, a strategic consulting and business services firm. Mr. Tunstall has been an independent consultant with a variety of companies since 1997. Mr. Tunstall was a senior executive with Gilroy Foods, Inc., an international manufacturer of various food product ingredients, from 1977 to 1995. He served as President and Chairman of the Board of Gilroy Foods, Inc. from 1991 through 1995. Previously, Mr. Tunstall held several executive positions with McCormick & Company, Inc. Mr. Tunstall also serves on the board of other food companies, including Rudis Organic Bakery, Inc. and Cascade Specialties, Inc.
James Wong. Mr. Wong was elected to the Board of Directors in March 1997. Since 1988, he has worked on five continents as an entrepreneur and management consultant facilitating strategic alliances and technology transfer projects. Mr. Wong is currently Chairman and a Director of Restaurant Connections International, Inc. a company he co-founded in September 1998, which owns and operates a chain of restaurants in Brazil. Until September 2001, Mr. Wong was also President and CEO of Restaurant Connections International. From 2000 to 2002, Mr. Wong served as CEO and a Director of Service Interactive, Inc., a service turnaround manager for PepsiCo and General Motors.
Walter L. Henning. Mr. Henning was elected to the Board of Directors in December 1999. He is currently Plant Manager of the Salinas Plant, McCormick & Company, Inc., a position he has held since early 1999. Mr. Henning began his career with McCormick and Company in 1971 as Manager, Technical Services. He subsequently was promoted several times to other positions in technical and plant management before leaving the company in 1983 to accept the position of Vice President of Operations with Tone Spices. Following the sale of Tone Spices, Mr. Henning returned to a subsidiary of McCormick and Company, Gilroy Foods, Inc. in 1995 as Vice President of Operations. Mr. Henning remained with Gilroy Foods, Inc. in the same capacity after it was purchased by ConAgra Foods Inc., a packaged food company, in 1996, before ultimately returning to McCormick & Company in 1999.
Scott S. Wheeler. Mr. Wheeler was elected to the Board of Directors in May 2005. He joined the company in April 2003 as Corporate Controller, and was promoted to Chief Financial Officer, effective October 27, 2003. His most recent position was Vice President and Financial Officer of KBC Edible Beans Division of ConAgra Foods, Inc. a public company, where he worked for three years. Prior to that he worked for Mallards Food Products both when it
was an independent company and after it was sold to Tyson Foods, Inc, a public company. Prior to joining Mallards, Mr. Wheeler held a variety of positions with Basic American Foods over a thirteen-year period. He is a CPA with an MBA in finance from Golden Gate University in San Francisco, California.
Board Meetings and Committees
The Board of Directors held nine meetings during the fiscal year ended December 26, 2004. The Board of Directors has an Audit Committee, a Compensation Committee, a Corporate Governance Committee, and a Nominating Committee. During the last fiscal year, no director attended fewer than 75% of the total number of meetings of the Board and all of the committees of the Board on which such director served held during that period.
Audit Committee. The members of the Audit Committee are Charles B. Bonner, who acts as Chairman of the Committee, Michael P. Schall and Walter L. Henning. Each of the Audit Committee members are independent for purposes of the Nasdaq Marketplace Rules as they apply to audit committee members. Mr. Bonner is an audit committee financial expert, as defined in the rules of the Securities and Exchange Commission. The Audit Committee held four meetings during the fiscal year ended December 26, 2004. The Committee operates under a written charter adopted by the Board of Directors, a copy of which will be provided free of charge to any stockholder upon written request to Scott Wheeler, Secretary, Monterey Gourmet Foods, Inc. 1528 Moffett Street, Salinas, California 93905. The Audit Committee provides oversight of financial management and the independent auditors and ensuring that management is maintaining an adequate system of internal controls such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with managements policies and procedures. In performing these functions, the Audit Committee meets periodically with the independent auditors and management to review their work and confirm that they are properly discharging their respective responsibilities. In addition, the Audit Committee is responsible for the appointment of the independent auditors.
Compensation Committee. The members of the Compensation Committee are Van Tunstall, who acts as Chairman of the Committee, F. Christopher Cruger, and James Wong. Each of the members of the Compensation Committee is independent for purposes of the Nasdaq Marketplace Rules. The Compensation Committees function is to review and recommend executive compensation, including officer salary levels, incentive compensation programs and stock option grants. The Compensation Committee held four meetings during the fiscal year ended December 26, 2004.
Nominating Committee. The members of the Nominating Committee are Van Tunstall, who acts as Chairman of the Committee, and James Wong. Each of the members of the Nominating Committee is independent for purposes of the Nasdaq Marketplace Rules. The Nominating Committee researches and proposes potential candidates for the Companys Board of Directors and is responsible for executive recruitment matters. The Nominating Committee held four meetings during the fiscal year ended December 26, 2004.
Corporate Governance Committee. The members of the Corporate Governance Committee are the Chairman of the Board and Chairmen of the Audit Committee and Compensation Committee. R. Lance Hewitt, acts as Chairman of the Committee, and serves with Van Tunstall and Charles B. Bonner. Two of the three members of the Corporate Governance Committee are independent for purposes of the Nasdaq Marketplace Rules. The Corporate Governance Committee is responsible for overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board of Directors. The Corporate Governance Committee held two meetings during the fiscal year ended December 26, 2004.
The non-employee directors met five times during 2005 in Executive Session without the CEO or any other member of management present.
The Nominating Committee considers candidates for director nominees proposed by directors, the Chief Executive Officer and stockholders. In reviewing potential candidates for the Board, the committee considers individuals who have distinguished records for leadership and success in their area of activity and who will make meaningful contributions to the Board. The committee selects nominees for director on the basis of broad experience, character, integrity, wisdom, ability to make independent analytical inquiries, think strategically, as well as their understanding of the Companys business environment. Further criteria include a candidates personal and professional ethics, integrity and values, as well as the willingness to devote sufficient time to attend meetings and participate effectively on the Board.
Potential candidates are screened and interviewed by the Nominating Committee. All members of the Board may interview the final candidates. The same identifying and evaluating procedures apply to all candidates for director nomination, including candidates submitted by stockholders.
If you would like the Nominating Committee to consider a prospective candidate, in accordance with our Bylaws, please submit the candidates name and qualifications to: Scott Wheeler, Secretary, Monterey Gourmet Foods, 1528 Moffett Street, Salinas, California 93905.
Communications with Directors
The Board of Directors maintains a process for stockholders to communicate with the Board or any Board member. Stockholders who desire to communicate with the Board should send any communication to the Companys Corporate Secretary, c/o Monterey Gourmet Foods, 1528 Moffett Street, Salinas, CA 93905. Any communication must state the number of shares of Common Stock beneficially owned by the stockholder making the communication. The Corporate Secretary will forward such communication to the full Board of Directors or to any individual director or directors whom the communication is directed unless the communication is threatening or illegal, uses inappropriate expletive language or is similarly inappropriate, in which case the Corporate Secretary has the authority to discard the communication or take appropriate legal action regarding the communication.
Director Attendance at Annual Meetings
It has been the longstanding practice of the Company for all directors to attend the Annual Meeting of Stockholders. All directors who were elected to the board at the last Annual Meeting were in attendance.
Committee Charters and Other Corporate Governance Materials
The Board has adopted a charter for each of the committees described above and principles of corporate governance. The Board has also adopted a Code of Business Conduct that applies to all of our employees, officers and directors. A copy of the Code of Business Conduct, which also complies with the definition of a code of ethics under section 406(c) of the Sarbanes-Oxley Act of 2002, is available upon request to any stockholder. Requests should be addressed in writing to Mr. Scott Wheeler, Corporate Secretary, 1528 Moffett Street, Salinas, California 93905.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors of Monterey Gourmet Foods has selected BDO Seidman, LLP as independent registered public accounting firm to audit the consolidated financial statements of Monterey Gourmet Foods for the fiscal year ending December 25, 2005. BDO Seidman, LLP has acted in such capacity since its appointment in fiscal year 1997. A representative of BDO Seidman, LLP is expected to be present at the annual meeting, with the opportunity to make a statement if the representative desires to do so, and is expected to be available to respond to appropriate questions.
Audit and Non-Audit Fees
The following table sets forth the aggregate fees billed to Monterey Gourmet Foods for the fiscal years ended December 26, 2004 and December 28, 2003 by BDO Seidman, LLP:
(1) Audit Fees consist of fees billed for professional services rendered for the audit of the Companys consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by BDO Seidman, LLP in connection with statutory and regulatory filings or engagements.
(2) Audit fees reflect a revision from that which was reported in Form 10-K of $149,100 which was based on a preliminary estimate of 2004 audit billings. The revised fees reflects an increase attributable to April 2005 billings relating to 2004 audit fees incurred subsequent the filing of the Form 10-K
(3) Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Companys consolidated financial statements and are not reported under Audit Fees. This category includes fees related to consultations regarding the proper accounting and reporting considerations for various transactions such as equity awards, business acquisitions and income taxes.
(4) Tax Fees consist of fees billed for professional services rendered for annual compliance filings, ongoing tax planning, and consultation regarding the tax implication of proposed or pending transactions.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee must pre-approve audit and non-audit services provided to the Company by the independent registered public accounting firm (or subsequently approve non-audit services in those circumstances where a subsequent approval is necessary and permissible); in this regard, the Audit Committee shall have the sole authority to approve the hiring and firing of the independent registered public accounting firm, all audit engagement fees, terms and all non-audit engagements, as may be permissible, with the independent registered public accounting firm.
Vote Required and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a majority of the votes cast at the annual meeting of stockholders, as well as the presence of a quorum representing a majority of all outstanding shares of Common Stock of Monterey Gourmet Foods, Inc., either in person or by proxy. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but will not have any effect on the outcome of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPOINTMENT OF BDO SEIDMAN, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 25, 2005.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP BY MANAGEMENT
The table below sets forth as of March 31, 2005, except as noted in the footnotes to the table, certain information with respect to the beneficial ownership of the Companys Common Stock by (i) all persons known by the Company to be the beneficial owners of more than 5% of the outstanding Common Stock of the Company, (ii) each director and director-nominee of the Company, (iii) the Chief Executive Officer and (iv) all executive officers and directors of the Company as a group.
* Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within sixty (60) days after April 30, 2005 are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Options granted under the Companys First Amended and Restated 1993 Stock Option Plan (the 1993 Stock Option Plan) generally become exercisable as the underlying shares vest. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Unless otherwise indicated, the address of each of the individuals listed in the table is: c/o Monterey Gourmet Foods, Inc. , 1528 Moffett Street, Salinas, CA 93905.
(2) Calculated on the basis of 14,459,051 shares of Common Stock outstanding as of April 30, 2005, provided that any additional shares of Common Stock that a stockholder has the right to acquire within 60 days after April 30, 2005 are deemed to be outstanding for the purpose of calculating that stockholders percentage ownership.
(3) Jon D. Gruber and J. Patterson McBaine are the only managers of, and hold all executive offices of Gruber and McBaine Capital Management LLC (GMCM), an investment advisor. GMCM is the general partner of Lagunitas Partners, L.P. (Lag), a California investment limited partnership. As of March 31, 2005, GMCM had shared voting and investment power over 2,426,535 shares; Mr. Gruber has sole voting and investment power over 268,250 shares and shared voting and investment power over 2,426,535 shares; Mr. McBaine has sole voting and investment power over 293,950 shares and shared voting and investment power over 2,426,535 shares; Lag has sole voting and investment power over 1,023,085 shares; Mr. Eric Swergold, an investment manager, has shared voting and investment power over 2,426,535 shares, Mr. Lynn Rose, an investment manager, has shared voting and investment power over 2,426,535 shares. Neither Mr. Gruber nor Mr. McBaine participate in the Management of the Company, direct the policies of the company, or serve on the Board of Directors of the Company. In addition, no individual at GMCM serves as an executive officer of the Company.
(4) As of March 31, 2005, FMR Corp. on behalf of certain of its direct and indirect subsidiaries, and Fidelity International Limited on behalf of certain of its direct and indirect subsidiaries (collectively Fidelity), indirectly held 1,408,700 shares of Company stock. The beneficial ownership of PSTA shares arises in the context of passive investment activities only by the various investment accounts managed by Fidelity on a discretionary basis (the Fidelity Accounts). Neither Fidelity nor the Fidelity Accounts participate in the Management of the Company, direct the policies of the company, or serve on the Board of Directors of the Company. In addition, no Fidelity officer serves as an executive officer of the Company.
(5) As of March 31, 2005, T. Rowe Price Associates, Inc (Price Associates) has sole dispositive power for an entire holding of 1,114,100 shares and sole voting power over 283,100 shares. These securities are owned by various individual and institutional investors for which Price Associates serves as investment advisor with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities.
(6) As of March 31, 2005, Dimensional Fund Advisors Inc (Dimensional) an investment advisor registered under Section 203 of the Investment Advisors Act of 1940 which furnishes investment advice to four investment companies registered under the Investment Company Act of 1940 and serves as investment manager to certain other commingled groups trusts and separate accounts directly or indirectly held 1,306,005 shares of Company stock. In its role as investment advisor or manager, Dimensional possesses investment and/or voting power over 1,306,005 shares. However, Dimensional disclaims beneficial ownership of these securities. In addition, no Dimensional officer serves as an executive officer or director of the Company.
(7) As of March 31, 2005, Fifth Third Asset Management. (Fifth Third), in its capacity of investment advisor, may be deemed to have beneficial ownership of 906,500 shares of the common stock of the Company. Fifth Third had voting power and/or dispositive power over 906,500 shares.
(8) As of March 31, 2005, AWM Investment Co., Inc. (AWM), in its capacity of investment advisor, may be deemed to have beneficial ownership of 735,299 shares of the common stock of the Company. Mr. Austin W. Marxe and Mr. David M. Greenhouse are the controlling principals of AWM Investment Company, Inc. AWM had voting power and/or dispositive power over 735,299 shares.
(9) Includes 42,567 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(10) Includes 113,740 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(11) Includes 43,600 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(12) Includes 68,500 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(13) Includes 253,985 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(14) Includes 161,227 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(15) Includes 105,950 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(16) Includes 18,500 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(17) Includes 6,200 shares held in an IRA account in the name of Teresa A. Henning to which Mr. Henning claims beneficial ownership, and 62,500 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
(18) Includes 751,485 shares subject to options granted under the 1993 Stock Option Plan which are exercisable within sixty (60) days of April 30, 2005.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation earned during the fiscal years 2004, 2003 and 2002 by our Chief Executive Officer and Chief Financial Officer our most highly compensated executive officers whose salary and bonus for the last fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
(1) Includes amounts (if any) deferred at the named executive officers option under Monterey Gourmet Foods 401(k) plan.
(2) Mr. Williams joined Monterey Gourmet Foods, Inc. in October 2002 as President. On December 28, 2002, Mr. Williams was promoted to President and Chief Executive Officer.
(3) Bonuses were based on the Companys performance and other objectives obtained.
(4) Represents the sum of monthly automobile allowances.
(5) Represents relocation expenses and housing allowances paid by the Company.
Stock Options Granted in Fiscal 2004
The following table provides the specified information concerning grants of options to purchase our Common Stock made during the fiscal year ended December 26, 2004 to the persons named in the Summary Compensation Table:
Option Grants in Last Fiscal Year
(1) The option to purchase shares was granted on November 11, 2004 and will vest 50% on November 11, 2005 and 50% on November 11, 2006 conditioned upon continued service with the Company.
(2) All options were granted at fair market value on the date of grant.
(3) The Potential Realizable Value of the options was calculated using a Black-Scholes option pricing model assuming no dividends, a weighted average risk-free interest rate of 3.69% and a weighted-average volatility of 54.9%.
Option Exercises and Fiscal 2004 Year-End Values
There were no exercises of options by any of the officers named in the Summary Compensation Table during the fiscal year ended December 26, 2004. The following table specifies the number and value of unexercised options held as of December 26, 2004, by the persons named in the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
(1) Based on a market value of $3.22 per share, the closing price of our Common Stock on December 26, 2004, the last trading day of our fiscal year, as reported by the NASDAQ National Market.
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
The Companys President and Chief Executive Officer accepted employment with the Company commencing October 1, 2002 pursuant to terms set forth in a letter from the Company. Pursuant to this letter, Mr. Williams is an at will employee with (1) salary payable at the rate of $290,000 per annum and eligibility for an annual bonus up to a maximum of 50% of gross salary based upon achievement of mutually agreed performance standards, (2) options for 200,000 shares of Company common stock vesting over a period of four years, (3) a car allowance of $750 per month, (4) the right to participate in group medical insurance and similar benefits available to all employees, and (5) a severance benefit equal to one years salary in the event his employment is terminated without cause. Pursuant to the letter also, the Company provided Mr. Williams with relocation assistance, including a $20,000 per year housing assistance bonus during the first three years of employment, reimbursement for moving costs, reimbursement for certain costs in connection with sale of a previous home and purchase of a new one, and gross up to alleviate the income tax impact of the additional consideration.
Compensation of Directors
During February 2004, the Compensation Committee reviewed director compensation and compared current compensation with that of 19 peer companies. As a result of the study, effective with the July 2004 Board meeting, non-employee directors received and will receive in future years, an option pursuant to the Companys Third Amended and Restated 1993 Stock Option Plan (the Plan) to purchase 10,000 shares of the Companys Common Stock. The exercise price may not be less than the fair market value of a share of Common Stock on the date of grant and the grant date will be the stockholder annual meeting date. The option vests in two approximately equal annual installments commencing one year after the date of grant of the option, provided that the director has continuously served as director or employee from the date of grant. In addition, outside directors are also reimbursed for out-of-pocket travel expenses related to Board meetings and receive a stipend of $3,000 for each Board meeting attended. Also, the Audit Committee chairperson will receive a stipend of $700 for each Audit Committee meeting chaired and
the Compensation Committee chairperson will receive a stipend of $500 for each committee meeting chaired. Total payments made to all directors in fiscal year 2004 were $50,400, plus travel expenses.
Options granted to a director who is also an employee of the Company (or to any other employee eligible under the Plan) are subject to different terms under the Plan than those of the non-employee director options. The option vests in two approximately equal annual installments commencing one year after the date of grant of the option, provided that the director has continuously served as director or employee from the date of grant. A director who becomes an employee of the Company is no longer eligible for non-employee directors options. Under the Plan, the Board determines for each employee option, among other things, the number of shares of stock underlying the option, the timing and terms of and vesting of such option, in its sole discretion. The exercise price may not be less than the fair market value of a share of Common Stock on the date of grant.
EQUITY COMPENSATION PLAN INFORMATION
We currently maintain three compensation plans that provide for the issuance of our Common Stock to officers and other employees, directors and consultants. These consist of the 1993 Stock Option Plan and the 1995 Employee Stock Purchase Plan (the Purchase Plan), which have been approved by stockholders, and the 2001 Nonstatutory Stock Option Plan which has not been approved by stockholders. The following table sets forth information regarding outstanding options and shares reserved for future issuance under the foregoing plans as of December 26, 2004:
(1) Issued under the Monterey Gourmet Foods 1993 Stock Option Plan and the Monterey Gourmet Foods 1995 Employee Stock Purchase Plan
(2) Issued to Company employees under the Monterey Gourmet Foods 2001 Nonstatutory Stock Option Plan (154,200 at $6.55).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 26, 2004, there was not, nor is there any currently proposed transaction or series of similar transactions to which Monterey Gourmet Foods was or is to be a party in which the amount involved exceeds $60,000, and in which any executive officer, director or holder of more than 5% of any class of
voting securities of Monterey Gourmet Foods and members of that persons immediate family had or will have a direct or indirect material interest.
We entered into indemnification agreements with each of the executive officers and directors. Such indemnification agreements require us to indemnify these individuals to the fullest extent permitted by law.
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 beneficially own more than 10% of our Common Stock to file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by such person.
Based solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that all filing requirements applicable to our executive officers, directors and greater-than-10% stockholders were complied with during the fiscal year which ended December 26, 2004.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is comprised of non-employee directors. The members of the Compensation Committee during fiscal 2004 were Van Tunstall, F. Christopher Cruger and James Wong. The Compensation Committee is responsible for setting and administering the policies governing annual compensation of the executive officers of Monterey Gourmet Foods. The Compensation Committee reviews the performance and compensation levels for executive officers and sets salary levels.
The goals of Monterey Gourmet Foods executive officer compensation policies are to attract, retain and reward executive officers who contribute to Monterey Gourmet Foods success, to align executive officer compensation with performance and to motivate executive officers to achieve Monterey Gourmet Foods business objectives. Monterey Gourmet Foods uses salary, bonus compensation and option grants to attain these goals. The Compensation Committee reviews compensation surveys to compare Monterey Gourmet Foods compensation package with that of similarly-sized food companies. In preparing the performance graph set forth in the section entitled Comparison of Stockholder Return, Monterey Gourmet Foods has selected the Nasdaq National Stock Market Index as its published industry index; however, the companies included in Monterey Gourmet Foods salary surveys are not necessarily those included in this index, because companies in the index may not compete with Monterey Gourmet Foods for executive talent, and companies which do compete for executive officers may not be publicly traded.
Base salaries of executive officers are reviewed annually by the Compensation Committee and adjustments are made based on (i) salary recommendations from the Chief Executive Officer, (ii) individual performance of executive officers for the previous fiscal year, (iii) financial results of Monterey Gourmet Foods for the previous year and (iv) reports to the Compensation Committee concerning competitive salaries, scope of responsibilities of the officer position and levels paid by similarly-sized food companies.
The Company believes that employee equity ownership, through stock options, provides significant additional motivation to executive officers to maximize value for the Companys stockholders. Because stock options will be granted at the prevailing market price, they will only have value if the Companys stock price increases over the exercise price. Therefore, the Committee believes that stock options will serve to align the interests of executive officers closely with other stockholders through the direct benefit executive officers receive through improved stock performance. The Committee reviews the 1993 Stock Option Plan and the grant of stock options with the foregoing philosophy. Levels of compensation, particularly bonuses and incentive compensation are tied to both the overall performance of the Company as well as the effectiveness of each individual executive in adding to that performance.
The Committee approved Mr. Williams compensation as President and Chief Executive Officer, including his salary and bonus. The Committee reviewed Mr. Williamss performance based on objectives for net income, large
customer management, new product introductions, product line diversification, acquisitions, and certain other measures. Mr. Williams was eligible to receive a bonus of up to 50% of his annual salary based upon the achievement these goals. A bonus of $16,000 was paid in 2005 based on accomplishments during 2004. The Committee also reviewed Mr. Williams equity compensation in 2004 and granted Mr. Williams additional options. The size and terms of Mr. Williams option grant were based on the responsibilities, expected future contributions of Mr. Williams, the compensation of CEOs at similarly situated companies and the retention value of the grant.
During 2004, Scott S. Wheeler served as Chief Financial Officer. The Compensation Committee in conjunction with the Audit Committee and the CEO, reviewed his compensation package to verify that is was commensurate with his performance, experience and contribution to the Company. In February 2004, the Committee added the title of Vice-President to Mr. Wheelers title. A bonus of $20,000 was paid in 2005 based on accomplishments during 2004.
During the fiscal year ended December 26, 2004, the Committee granted options to all salaried employees and plant supervisors. The Committee reduced the number of employees who are eligible to received options and reviewed the impact of FAS 123R on Company profitability. The Committee also reviewed, changed and approved a bonus plan for all salaried employees and plant work leaders to be paid based on achievement of quarterly and annual net income goals. The Committee studied, reviewed and compared director compensation with other publicly traded companies of comparable size. The Committee recommended changes to director compensation which were approved by the full Board of Directors.
Section 162(m) of the Internal Revenue Code restricts deductibility of executive compensation paid to Monterey Gourmet Foods chief executive officer and each of the four other most highly compensated executive officers holding office at the end of any year to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under Section 162(m) or related regulations. The Committees policy is to qualify its executive compensation for deductibility under applicable tax laws to the extent practicable. Income related to stock options granted under the Option Plan generally qualifies for an exemption from these restrictions imposed by Section 162(m). In the future, the Committee will continue to evaluate the advisability of qualifying its executive compensation for full deductibility.
REPORT OF THE AUDIT COMMITTEE
Information contained in the following Report of the Audit Committee shall not be deemed soliciting material or to be filed with the Commission, nor shall such information be incorporated by reference into any of the Companys filings under the Exchange Act, notwithstanding anything to the contrary set forth in any such filing, except to the extent that the Company specifically incorporates it by reference into such filing.
The Audit Committee oversees Monterey Gourmet Foods financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including internal control systems. Our independent auditor, BDO Seidman, LLP is responsible for expressing an opinion as to the conformity of our audited financial statements with generally accepted accounting principles.
The Audit Committee consists of three directors each of whom, in the judgment of the Board, is an independent director as defined in the listing standards for The Nasdaq Stock Market. The Audit Committee acts pursuant to a written charter that has been adopted by the Board of Directors
The Committee has discussed and reviewed with the auditors all matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Committee has met with BDO Seidman, LLP, with and without management present, to discuss the overall scope of BDO Seidman, LLPs
audit, the results of its examinations, its evaluations of Monterey Gourmet Foods internal controls and the overall quality of its financial reporting.
The Audit Committee has received from the auditors a formal written statement describing all relationships between the auditors and Monterey Gourmet Foods that might bear on the auditors independence consistent with Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), discussed with the auditors any relationships that may impact their objectivity and independence, and satisfied itself as to the auditors independence.
Based on the review and discussions referred to above, the Committee recommended to the Board of Directors that Monterey Gourmet Foods audited financial statements be included in Monterey Gourmet Foods Annual Report on Form 10-K for the fiscal year ended December 26, 2004.
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in the cumulative total return on the Companys Common Stock with the cumulative total return of the Nasdaq Stock Market Index (U.S. Companies) and peer issuers for the period commencing on December 31, 1999(1) and ending on December 23, 2004.
Comparison of Cumulative Total Return From December 31, 1999 through December 23, 2004:
Monterey Gourmet Foods, NASDAQ Stock Market Index (U.S. Companies) and Peer Issuers
(1) The index level for all series was set to $100.00 on 12/31/99, and it was assumed that all dividends were reinvested. No dividends have been declared on the Companys Common Stock. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
STOCKHOLDER PROPOSALS TO BE PRESENTED
Stockholder proposals may be included in our proxy materials for an annual meeting so long as they are provided to us on a timely basis and satisfy the other conditions set forth in applicable SEC rules. For a stockholder proposal to be included in our proxy materials for the 2006 annual meeting, the proposal must be received at our principal executive offices, addressed to the Secretary, not later than February 15, 2006.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the Board of Directors knows of no other business that will be conducted at the 2005 annual meeting other than as described in this Proxy Statement. If any other matter or matters are properly brought before the meeting, or any adjournment or postponement of the meeting, it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with their best judgment.
June 13, 2005
Front Side of Proxy Card
MONTEREY GOURMET FOODS, INC.
for Annual Meeting of Stockholders
The undersigned hereby appoints James M. Williams and Scott S. Wheeler, and each of them, with full power of substitution to represent the undersigned and to vote all of the shares of stock in Monterey Gourmet Foods, Inc. (the Company) which the undersigned is entitled to vote at the Annual Meeting of Stockholders of said Company to be held at the Embassy Suites Hotel Monterey Bay-Seaside, 1441 Canyon Del Rey, Seaside, California, 93955 on Thursday, July 28, 2005 at 10:00 a.m., local time, and at any adjournment thereof (1) as hereinafter specified upon the proposals listed on the reverse side and as more particularly described in the Companys Proxy Statement, receipt of which is hereby acknowledged, and (2) in their discretion upon such other matters as may properly come before the meeting.
The Shares represented hereby shall be voted as specified. If no specification is made, such shares shall be voted for proposals 1, and 2.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Reverse Side of Proxy Card