===============================================================================
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CENTRAL GARDEN & PET COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
[LOGO] CG LOGO
CENTRAL GARDEN & PET COMPANY
3697 Mt. Diablo Boulevard
Lafayette, California 94549
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Monday, February 11, 2002, 10:30 A.M.
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of Central
Garden & Pet Company will be held at the LAFAYETTE PARK HOTEL, 3287 Mt. Diablo
Boulevard, Lafayette, California, on Monday, February 11, 2002, at 10:30 A.M.
for the following purposes:
(1) To elect seven directors.
(2) To approve the amendment of the Nonemployee Director Equity Incentive
Plan to increase the number of shares authorized for issuance thereunder
to 200,000 and to revise the annual grants thereunder to nonemployee
directors to provide for an option to purchase $100,000 of the Company's
common stock and a restricted stock grant for $10,000 of the Company's
common stock.
(3) To transact such other business as may properly come before the meeting.
Only stockholders of record on the books of the Company as of 5:00 P.M.,
January 4, 2002, will be entitled to vote at the meeting and any adjournment
thereof. A complete list of the Company's stockholders entitled to vote at the
meeting will be available for examination by any stockholder for ten days prior
to the meeting during normal business hours at the Company's offices at 3697
Mt. Diablo Boulevard, Lafayette, California.
Dated: January 7, 2002
By Order of the Board of Directors
Lee D. Hines, Jr., Secretary
STOCKHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE.
CENTRAL GARDEN & PET COMPANY
3697 Mt. Diablo Boulevard
Lafayette, California 94549
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Central Garden
& Pet Company (the "Company") to be used at the Annual Meeting of Stockholders
on February 11, 2002 (the "Annual Meeting"), for the purposes set forth in the
foregoing notice. This proxy statement and the enclosed form of proxy were
first sent to stockholders on or about January 10, 2002.
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted as recommended by
the Board of Directors. Any stockholder signing a proxy in the form
accompanying this Proxy Statement has the power to revoke it prior to or at the
Annual Meeting. A proxy may be revoked by a writing delivered to the Secretary
of the Company stating that the proxy is revoked, by a subsequent proxy signed
by the person who signed the earlier proxy, or by attendance at the Annual
Meeting and voting in person.
VOTING SECURITIES
Only stockholders of record on the books of the Company as of 5:00 P.M.,
January 4, 2002, will be entitled to vote at the Annual Meeting.
As of the close of business on January 4, 2002, there were outstanding
16,790,623 shares of Common Stock of the Company, entitled to one vote per
share, and 1,655,462 shares of Class B Stock of the Company, entitled to the
lesser of ten votes per share or 49% of the total votes cast. Holders of Common
Stock and Class B Stock will vote together on all matters presented to the
stockholders for their vote or approval at the meeting, including the election
of directors. The holders of a majority of the outstanding shares of the stock
of the Company, present in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting or any adjournment thereof.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions and
broker non-votes as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders for a
vote. With regard to the election of directors, votes may be cast "For" or
"Withhold Authority" for each nominee; votes that are withheld will be excluded
entirely from the vote and will have no effect. The proposal to amend the
Company's Nonemployee Director Equity Incentive Plan requires the affirmative
vote of a majority of shares present in person or by proxy and entitled to
vote. Accordingly, abstentions on the proposal to amend the Nonemployee
Director Equity Incentive Option Plan will have the effect of a negative vote
on this item. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with
respect to that matter. Therefore, a broker non-vote will have no effect on the
proposal to amend the Nonemployee Director Equity Incentive Plan, which
requires the affirmative vote of a majority of the shares represented at the
Annual Meeting and entitled to vote thereon.
1
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
Annual Meeting of Stockholders and until their successors shall have been
elected. The nominees constitute the present Board of Directors. In the absence
of instructions to the contrary, shares represented by the proxy will be voted
and the proxies will vote for the election of all such nominees to the Board of
Directors. If any of such persons is unable or unwilling to be a candidate for
the office of director at the date of the Annual Meeting, or any adjournment
thereof, the proxies will vote for such substitute nominee as shall be
designated by the proxies. Management has no reason to believe that any of such
nominees will be unable or unwilling to serve if elected a director. Set forth
below is certain information concerning the nominees which is based on data
furnished by them.
Served as
Director
Nominees for Director Age Business Experience During Past Five Years and Other Information Since
- --------------------- --- ---------------------------------------------------------------- ---------
William E. Brown........ 1980
60
Chairman of the Board and Chief Executive Officer
since 1980.
Glenn W. Novotny........ 1990
54
President since June 1990. Prior to June 1990,
Mr. Novotny was with Weyerhaeuser Corporation in a
variety of capacities.
Brooks M. Pennington III 1998
47
Chief Executive Officer of Pennington Seed Inc., a
business which was acquired by the Company in February
1998, since June 1994.
Lee D. Hines, Jr........ 1992
55
Vice President, Chief Financial Officer and Secretary
since January 2000. Mr. Hines was a self-employed
consultant from June 1993 until January 2000. From April
1991 until June 1993, Mr. Hines was Executive Vice
President and Chief Financial Officer of the Company.
John B. Balousek........ 2001
56
Mr. Balousek was Executive Vice President and a founder
of PhotoAlley.com, a San Francisco-based start-up
company providing electronic commerce services from
1998 through 1999. From March through June 1996,
Mr. Balousek was Chairman and Chief Executive Officer
of True North Technologies, a digital and interactive
services company and an affiliate of Foote, Cone &
Belding Communications (FCB), an agency network and
subsidiary of True North Communications. From 1991
until 1996, he served as President and Chief Operating
Officer of FCB. He also serves as a director of Aptimus,
Inc., Geoworks Corporation and Interland, Inc.
Daniel P. Hogan, Jr..... 1993
73
Self-employed consultant. Prior to his retirement in 1987,
Mr. Hogan was a Vice President of Chevron Chemical
Company and General Manager of its Ortho Consumer
Products Division.
Bruce A. Westphal....... 1999
61
Chairman of Bay Alarm Company, a security systems
company since 1984. Mr. Westphal is also Chairman of
InReach Internet, a provider of internet services, and
President of Balco Properties, a real estate development
and management company. Mr. Westphal was also
Chairman of PacWest Telecom from 1994 to 1998.
2
In February 1998, the Company acquired Pennington Seed, Inc. ("PSI").
Pursuant to the acquisition agreement, Brooks M. Pennington III was appointed
to the Company's Board of Directors. William E. Brown, the Company's Chairman
and Chief Executive Officer, entered into a voting agreement with the former
stockholders of PSI whereby Mr. Brown agreed to vote his shares of the
Company's stock for the election to the Company's Board of Directors of the
nominee appointed by the former stockholders of PSI. The voting agreement will
terminate on the earlier of (i) February 27, 2002 and (ii) the date the former
stockholders of PSI own of record less than 33% of the shares of the Company's
Common Stock issued to them pursuant to the acquisition agreement.
FURTHER INFORMATION CONCERNING
THE BOARD OF DIRECTORS
Committees of the Board
During fiscal 2001, the Board of Directors held eight meetings and acted by
unanimous written consent on a number of occasions. In 1993, after consummation
of its initial public offering, the Company established an Audit and
Compensation Committee. The Company does not have a Nominating Committee.
The members of the Audit and Compensation Committee are Bruce A. Westphal
(Chairman), John B. Balousek and Daniel P. Hogan, Jr. Among the functions
performed by this committee in its capacity as an Audit Committee are to make
recommendations to the Board of Directors with respect to the engagement or
discharge of independent auditors, to review with the independent auditors the
plan and results of the auditing engagement, to review the Company's system of
internal financial and accounting controls and to make inquiries into matters
within the scope of its functions. Among the functions performed by this
committee in its capacity as a Compensation Committee are to review and make
recommendations to the Board of Directors concerning the compensation of the
key management employees of the Company and to administer the Company's equity
incentive plan. The Audit and Compensation Committee held eight meetings during
fiscal 2001.
Attendance at Meetings
During fiscal 2001, there were no members of the Board of Directors who
attended fewer than seventy-five percent of the meetings of the Board of
Directors and all committees of the Board on which they served.
Compensation of Directors
During fiscal 2001, Directors who were not employees of the Company were
paid directors fees consisting of $20,000 per year and $1,000 for each Board
meeting attended. Directors who attend meetings of the Audit and Compensation
Committee receive an additional $1,000 for each meeting not held on the same
day as a Board meeting. Under the Nonemployee Director Equity Incentive Plan,
Messrs. Westphal and Hogan were each granted at the 2001 Annual Meeting of
Stockholders options to purchase the number of shares of Common Stock
determined by dividing $25,000 by the fair market value of a share of Common
Stock on the date of the 2001 Annual Meeting. In June 2001, the Board of
Directors amended the Nonemployee Director Equity Incentive Plan, subject to
stockholder ratification at the Annual Meeting, to provide that each
nonemployee director be granted at the Annual Meeting and at each subsequent
annual meeting options to purchase the number of shares of Common Stock
determined by dividing $100,000 by the fair market value of a share of Common
Stock on the date of the Annual Meeting and a restricted stock grant with a
market value of $10,000. In June 2001, each of Messrs. Westphal, Balousek and
Hogan were granted an option to purchase 7,000 shares of Common Stock and 1,000
shares of restricted stock outside the Nonemployee Director Equity Incentive
Plan.
3
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The compensation paid to the Company's Chief Executive Officer and the only
other executive officers who received compensation in excess of $100,000 for
services in all capacities to the Company and its subsidiaries during fiscal
1999, 2000 and 2001 is set forth below.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------------------- -------------------
Other Annual Restricted Securities All Other
Compensation Stock Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) Awards($) Options(#) ($)
- --------------------------- ---- --------- -------- ------------ ---------- ---------- ------------
William E. Brown........... 2001 410,000 -- -- -- -- 2,625(2)
Chairman and Chief 2000 410,000 -- -- -- -- --
Executive Officer 1999 410,000 -- -- -- -- --
Glenn W. Novotny........... 2001 420,000 200,000 -- -- 15,000 2,625(2)
President 2000 370,000 100,000 -- -- -- 2,400(2)
1999 357,101 -- -- -- 175,000(3) 2,400(2)
Lee D. Hines, Jr........... 2001 225,000 -- -- -- 5,000 909(2)
Vice President and Chief 2000 225,000 -- -- -- 40,000 --
Financial Officer(4)
Brooks M. Pennington III... 2001 325,277 28,221 -- -- 15,000 9,468(5)
Chief Executive Officer of 2000 313,727 65,000 -- -- 15,000 7,397(6)
Pennington Seed Inc. 1999 303,750 54,000 -- -- 40,000 18,016(7)
- --------
(1) While the named executive officers enjoy certain perquisites, for fiscal
years 1999, 2000 and 2001 these did not exceed the lesser of $50,000 or 10%
of each officer's salary and bonus.
(2) Represents the matching contribution which the Company made on behalf of
the executive officer to the Company's 401(k) Plan.
(3) In December 1998, the Company cancelled Mr. Novotny's options granted in
fiscal 1998 and issued new options for 100,000 shares.
(4) Mr. Hines became Vice President and Chief Financial Officer in January 2000.
(5) Includes a $2,625 matching contribution which the Company made on behalf of
the executive officer to PSI's 401(k) Plan and $6,843 paid under PSI's
profit sharing plan.
(6) Includes a $2,625 matching contribution which the Company made on behalf of
the executive officer to PSI's 401(k) Plan and $4,772 paid under PSI's
profit sharing plan.
(7) Includes a $2,500 matching contribution which the Company made on behalf of
the executive officer to PSI's 401(k) Plan and $15,516 paid under PSI's
profit sharing plan.
4
The following table sets forth certain information regarding stock options
granted during fiscal 2001 to the executive officers named in the foregoing
Summary Compensation Table. None of such persons received awards of stock
appreciation rights during fiscal 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(3)
-------------------------------------------------- ----------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted(#)(1) Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- ---- ------------- ------------- ----------- ---------- ------ ------
William E. Brown.................. -- -- -- -- -- --
Glenn W. Novotny.................. 15,000 2.6 6.81 07/02/04 19,022 40,448
Lee D. Hines, Jr.................. 5,000 0.9 6.81 07/02/04 6,341 13,483
Brooks M. Pennington III.......... 15,000 2.6 6.81 07/02/04 19,022 40,448
- --------
(1) The options granted to each of Messrs. Novotny, Hines and Pennington vest
in full on July 2, 2003. Under the terms of the Company's stock option
plan, the Audit and Compensation Committee retains discretion, subject to
plan limits, to modify the terms of outstanding options.
(2) All options were granted at fair market value at date of grant.
(3) Realizable values are reported net of the option exercise price. The dollar
amounts under these columns are the result of calculations at the 5% and
10% rates (determined from the price at the date of grant, not the stock's
current market value) set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock as
well as the optionholder's continued employment through the vesting period.
The potential realizable value calculation assumes that the optionholder
waits until the end of the option term to exercise the option.
The following table sets forth certain information with respect to stock
options exercised during fiscal 2001 and stock options held by each of the
Company's executive officers as of September 29, 2001. The closing price of the
Company's Common Stock on the last trading day of the fiscal year was $8.30 per
share.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUE
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End(#) at FY-End($)
Shares ---------------------- --------------------
Acquired On Value Exercisable/ Exercisable/
Exercise(#) Realized($) Unexercisable Unexercisable
----------- ----------- ---------------------- --------------------
William E. Brown.................. -- -- 270,000/60,000 0/0
Glenn W. Novotny.................. -- -- 157,000/118,000 124,750/22,350
Lee D. Hines, Jr.................. -- -- 1,380/47,224 0/11,850
Brooks M. Pennington III.......... -- -- 0/76,000 0/24,000
5
Employment Agreements
The Company entered into an employment agreement with Brooks M. Pennington
III in February 1998 in connection with the acquisition of Pennington Seed,
Inc. ("PSI"). The agreement provides that Mr. Pennington will serve as
President and Chief Executive Officer of PSI at an annual minimum salary of
$300,000. The agreement terminates in February 2003, unless terminated earlier
for his dismissal with cause, death or disability.
Audit and Compensation Committee Interlocks and Insider Participation
Messrs. Westphal, Balousek and Hogan served as members of the Audit and
Compensation Committee during fiscal 2001. They have no relationship with the
Company other than as directors and stockholders. During fiscal 2001, no
executive officer of the Company served as a director, or as a member of any
compensation committee, of any other for-profit entity.
Transactions with the Company
Brooks M. Pennington III is a minority shareholder and a director of Bio
Plus, Inc., a company that produces granular peanut hulls. During the twelve
months ended September 29, 2001, Bio Plus, Inc.'s total revenues were
approximately $3.1 million of which approximately $2.1 million were sales to
subsidiaries of the Company.
PROPOSAL TO APPROVE AMENDMENT OF
THE NONEMPLOYEE DIRECTOR EQUITY INCENTIVE PLAN
In February 1996, the Board of Directors approved the adoption of the
Nonemployee Director Stock Option Plan (the "Director Plan"), which was
subsequently approved by the Company's stockholders at the annual meeting in
March 1997. In June 2001, the Board of Directors of the Company amended the
Director Plan, subject to stockholder approval at the 2002 Annual Meeting, to
increase the number of shares authorized for issuance under the Director Plan
by an additional 100,000 shares, to revise the awards available under the
Director Plan to provide each director who is not an employee annually with an
option to purchase $100,000 of the Company's common stock (the "Option") and a
restricted stock grant for $10,000 of the Company's common stock (the
"Restricted Stock"). The amendment also changed the name of the Director Plan
to the "Nonemployee Director Equity Incentive Plan."
The reason for this amendment is to ensure that a sufficient number of
shares of the Company's Common Stock is available under the Director Plan and
to provide for appropriate equity incentives for outside directors. As of
December 31, 2001, there were 81,322 shares remaining for awards, which would
increase to 181,322 if the proposal is approved.
Description of the Director Plan
The following summary of the principal features of the amended Director Plan
is qualified in its entirety by the full text of the Director Plan.
Purpose
The purpose of the Director Plan is to promote the success, and enhance the
value, of the Company, by attracting, retaining and motivating members of the
Board of Directors who possess outstanding competence and who are neither
employees of the Company nor of any affiliate of the Company ("Nonemployee
Directors"). The Director Plan also is designed to align the interests of
Nonemployee Directors with the interests of the stockholders of the Company.
6
Eligibility to Participate in the Director Plan
All Nonemployee Directors automatically become participants in the Director
Plan. At present, the Company has three Nonemployee Directors: John B.
Balousek, Daniel P. Hogan, Jr. and Bruce A. Westphal.
Administration, Amendment and Termination
The Director Plan is administered by the Board of Directors. The Board of
Directors has all discretion and authority necessary or appropriate to
administer the Director Plan and to control its operation in accordance with
its terms. The Board of Directors also may amend or terminate the Director Plan
at any time and for any reason.
Number of Shares Available Under the Director Plan
A total of 100,000 shares of Common Stock were originally reserved for
issuance under the Director Plan. The June 2001 amendment, if approved, will
increase the number of authorized shares by 100,000 shares for a total of
200,000 shares. In the event of any stock split, stock dividend or other change
in the capital structure of the Company, the Board of Directors may make such
adjustment, if any, as it deems appropriate in the number and/or class of
shares of Common Stock that are available for grant under the Director Plan and
the number and class of and/or the exercise price of shares of Common Stock
subject to outstanding Options. Shares issued under the Director Plan may be
authorized but unissued shares of Common Stock or treasury shares. If an Option
expires without having been fully exercised or Restricted Stock does not vest,
the shares subject thereto again will be available for grant.
Restricted Stock
Under the amended Director Plan, each Nonemployee Director automatically
will receive, on the date of the Annual Meeting and at each subsequent annual
meeting on which he or she is a Nonemployee Director, a Restricted Stock grant
for such number of shares of Common Stock as determined by dividing $10,000 by
the fair market value of a share of Common Stock on the date of the annual
meeting in question. Any fractional share will be rounded up to the next full
share. For purposes of the Plan, fair market value on any date generally means
the closing selling prices for shares of Common Stock on The Nasdaq Stock
Market on that date.
For example, if the fair market value of a share of Common Stock on the date
of the annual meeting in question is $14.00, then the Nonemployee Director
would receive 715 shares of Restricted Stock (i.e., $10,000 divided by $14.00,
rounded up to the next full share).
The Nonemployee Director will not be required to pay for the Restricted
Stock. The Restricted Stock will vest in six months; provided, however, that if
prior to such date the participant terminates his or her service on the Board
of Directors on account of death or disability, then the Restricted Stock will
become exercisable in full on the date of such termination of service.
Options
Under the amended Director Plan, each Nonemployee Director automatically
will also receive, on the date of the Annual Meeting and at each subsequent
annual meeting on which he or she is a Nonemployee Director, an Option to
purchase such number of shares of Common Stock as determined by dividing
$100,000 by the fair market value of a share of Common Stock on the date of the
annual meeting in question. Any fractional share will be rounded up to the next
full share. For purposes of the Plan, fair market value on any date means the
closing selling price for a share of Common Stock on The Nasdaq Stock Market on
that date.
7
For example, if the fair market value of a share of Common Stock on the date
of the annual meeting in question is $14.00, then the Nonemployee Director
would receive an Option to purchase 7,143 shares (i.e., $100,000 divided by
$14.00, rounded up to the next full share).
The exercise price of the shares subject to each Option will be 100% of the
fair market value of the shares on the date of grant. Each Option will become
exercisable in one-third increments six months, 18 months and 30 months from
the date of grant of the Option; provided, however, that if prior to such date
the participant terminates his or her service on the Board of Directors on
account of death or disability, then the Option will become exercisable in full
on the date of such termination of service. Each Option will terminate 42
months from the date of grant of the Option.
Payment of Exercise Price
The exercise price of each Option must be paid in full in cash at the time
of exercise. Any taxes required to be withheld also must be paid at the time of
exercise.
Restrictions on Share Transferability
If the Board of Directors determines that applicable law or the requirements
of any national securities exchange make it necessary or appropriate to delay
the issuance of any shares of Common Stock under the Director Plan, each
participant will receive his or her shares after the Board of Directors
determines that such legal or other requirements have been satisfied.
Nontransferability of Options
Options may not be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the applicable laws of
descent and distribution. However, if permitted by the Board of Directors (in
its discretion), a participant may designate one or more beneficiaries to
receive any exercisable Options following his or her death.
Tax Aspects
Based on management's understanding of current federal income tax laws, the
tax consequences of the Award of Restricted Stock and Options under the
Director Plan are as follows.
A participant will have taxable ordinary income at the time the Restricted
Stock vests in an amount equal to the fair market value of the shares of Common
Stock on the date of vesting, unless the participant makes a prior election
under Section 83(b) of the Internal Revenue Code. If a participant makes a
Section 83(b) election, the participant will have taxable ordinary income at
the time of the grant. Any gain or loss recognized upon any later sale or other
disposition of the shares of Common Stock generally will be capital gain or
loss.
A participant will not have taxable income at the time of grant of an
Option, but generally will have ordinary income upon the exercise of such
Option in an amount equal to the excess of the fair market value of the shares
of Common Stock on the date of exercise over the exercise price of such shares.
Any gain or loss recognized upon any later sale or other disposition of the
shares of Common Stock generally will be capital gain or loss.
The Company generally will be entitled to a tax deduction in connection with
Restricted Stock and Options granted under the Director Plan in an amount equal
to the ordinary income realized by the participant.
8
New Plan Benefits
The number of shares subject to grants of Options and Restricted Stock under
the Director Plan is not determinable, because this number depends on the fair
market value of a share of Common Stock on the grant date.
The following table sets forth with respect to the fiscal year ended
September 29, 2001 (a) the aggregate number of shares of the Company's Common
Stock subject to Options granted under the Director Plan, and (b) the dollar
value of such Options based on the difference between the exercise price and
$8.30 per share, the closing price for a share of Common Stock on September 29,
2001.
Number of Dollar Value of
Name of Individual or Group Shares Granted(1) Shares Granted
- --------------------------- ----------------- ---------------
William E. Brown, Chairman and Chief Executive Officer................. -- --
Glenn W. Novotny, President and Director............................... -- --
Lee D. Hines, Jr., Vice President, Chief Financial Officer and Director -- --
Brooks M. Pennington III, Chief Executive Officer of PSI and Director.. -- --
All executive officers, as a group..................................... -- --
All employees who are not executive officers, as a group............... -- --
All directors who are not executive officers, as a group............... 6,350 $2,667
- --------
(1) Only directors of the Company who are not employees of the Company or an
affiliate of the Company are eligible to receive awards under the Director
Plan.
Required Vote
The affirmative vote of a majority of the shares of Common Stock and Class B
Stock, voting together as a class, present in person or by proxy at the Annual
Meeting and entitled to vote is required to approve the proposed amendment to
the Director Plan.
The Board of Directors unanimously recommends that stockholders vote "FOR"
the proposal to approve the amendment to the Director Plan.
9
AUDIT AND COMPENSATION COMMITTEE REPORT
ON AUDITED FINANCIAL STATEMENTS
The Audit and Compensation Committee of the Board consists of the directors
whose signatures appear below. Each member of the Audit Committee is
"independent" as defined in the NASD Rules.
The Audit and Compensation Committee's general role as an audit committee is
to assist the Board in monitoring the Company's financial reporting process and
related matters. Its specific responsibilities are set forth in its charter,
which is attached as Appendix A to this proxy statement.
As required by the charter, the Audit and Compensation Committee reviewed
the Company's financial statements for fiscal year 2001 and met with
management, as well as with representatives of Deloitte & Touche LLP, the
Company's independent public accountants, to discuss the financial statements.
The Audit and Compensation Committee also discussed with representatives of
Deloitte & Touche LLP the matters required to be discussed by Statement on
Auditing Standards 61, Communication with Audit Committees.
In addition, the Audit and Compensation Committee discussed with
representatives of Deloitte & Touche LLP their independence from management and
the Company, including the matters in the written disclosures required by
Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees.
Based on these discussions, the financial statement review and other matters
it deemed relevant, the Audit and Compensation Committee recommended to the
Board of Directors (and the Board approved) that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended September 29, 2001.
January 7, 2002
Audit and Compensation Committee
BRUCE A. WESTPHAL, Chairman
JOHN B. BALOUSEK
DANIEL P. HOGAN, JR.
10
REPORT OF THE AUDIT AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
To the Board of Directors:
As members of the Audit and Compensation Committee, it is our duty to
determine the compensation for officers and directors, to administer the
Company's 1993 Omnibus Equity Incentive Plan and to review the Company's
salary, bonus and compensation arrangements generally. In addition, we evaluate
the performance of management and related matters.
As a public company, we utilize three primary tools to assist in
compensating executives. They are base salary, bonus, and stock options.
Together they combine to provide an executive's total compensation package. We
view base salary as a primary indicator of the market value needed to attract
an executive with the skill and expertise to perform the position. We
periodically retain outside assistance to counsel us in determining market
value. We view bonus as a means of rewarding short-term performance which
exceeds established goals and we utilize stock options as a means of linking
our executives' long-term benefits to those received by our stockholders.
In 1997, we retained the services of a compensation consulting firm to
assist in determining the market value compensation for the Chief Executive
Officer, William E. Brown. Survey data, coupled with performance based peer
group evaluations, were utilized to determine competitive short and long-term
awards for Mr. Brown. The data developed indicated that an increase to Mr.
Brown's base salary to $400,000 was warranted. Mr. Brown requested that the
Committee not increase his base pay during fiscal 1997. In fiscal 1998, the
Committee increased Mr. Brown's base salary to $400,000. In fiscal 1999, Mr.
Brown did not receive an increase in base salary other than the cost of living
increase granted to all employees. In fiscal 2001, the Committee chose not to
increase the base salary for Mr. Brown or Mr. Hines. The Committee increased
Mr. Novotny's base salary to $420,000 in fiscal 2001. Mr. Pennington did not
receive an increase in base salary in fiscal 2001 other than the cost of living
increase granted to all employees. These actions are reflected in the summary
compensation table.
Based on the Company's performance in fiscal 2001, the Committee determined
not to pay bonuses in respect of fiscal 2001 to Mr. Brown or any of the
Company's executive officers other than Messrs. Novotny and Pennington. The
Committee did, however, grant options to each of the Company's executive
officers other than Mr. Brown.
As a matter of policy, the Company believes it is important to retain the
flexibility to maximize the Company's tax deductions. Amendments to Section
162(m) of the Internal Revenue Code have eliminated the deductibility of most
compensation over a million dollars in any given year. The Committee believes
that it is highly unlikely that any officer of the Company will receive
compensation in excess of a million dollars per year in the foreseeable future.
However, subject to the foregoing, it will be the policy of the Committee to
consider the impact, if any, of Section 162(m) on the Company and to document
as necessary specific performance goals in order to seek to preserve the
Company's tax deductions.
We continue to subscribe to the philosophy that the Company's overall
performance and its return to stockholders will be the primary areas of
consideration when rewarding the Company's top executives. It is our goal to
ensure that our executives are paid competitively with the market and are
rewarded for performance that benefits the stockholders. In years when the
Company does well, we will reward using the tools described above; in years
when the performance does not meet expectations, the compensation of the top
executives of Central will be reflective of that fact.
January 7, 2002
Audit and Compensation Committee
BRUCE A. WESTPHAL, Chairman
JOHN B. BALOUSEK
DANIEL P. HOGAN, JR.
11
PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's
cumulative total stockholder return on its Common Stock for the period from
September 28, 1996 to September 29, 2001 with the cumulative total return of
the NASDAQ Composite (U.S.) Index and the Dow Jones Non-Durable Household
Products Index, a peer group index consisting of approximately 30 manufacturers
and distributors of household products.
The comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, the possible future performance of the
Company's Common Stock.
[CHART]
Central Garden & Pet Company Dow Jones Nasdaq
9/28/1996 100 100 100
9/27/1997 138.25 136.10 135.92
9/26/1998 87.05 138.59 141.25
9/25/1999 37.58 186.51 228.51
9/30/2000 33.44 145.04 312.59
9/29/2001 40 158.82 128.07
12
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table indicates, as to each director, each named executive
officer and each holder known to the Company to be the beneficial owner of more
than five percent of any class of the Company's voting stock, the number of
shares and percentage of the Company's stock beneficially owned as of December
31, 2001.
Shares Beneficially Owned as of
December 31, 2001
---------------------------------
Number of Number of
Class B Common
Beneficial Owner Shares Shares Percent(1)
- ---------------- --------- --------- ----------
William E. Brown(2)........................................ 1,603,659 470,000(3) 11.0%
Brooks M. Pennington III(4)................................ -- 1,689,823(5) 9.2
Willow Creek Capital Management(6)......................... -- 1,675,500(7) 9.1
Dimensional Fund Advisors Inc.(8).......................... -- 1,489,900(7) 8.1
Cramer Rosenthal McGlynn, L.L.C.(9)........................ -- 1,282,200(7) 7.0
Wentworth, Hauser & Violich(10)............................ -- 1,012,524(7) 5.5
Special Value Investment Management, LLC(11)............... -- 968,320(12) 5.0
Fuller & Thaler Asset Management Inc.(13).................. -- 855,060(7) 4.6
Glenn W. Novotny........................................... -- 284,695(14) 1.5
Lee D. Hines, Jr........................................... -- 53,117(15) *
John B. Balousek........................................... -- 3,333(16) *
Daniel P. Hogan, Jr........................................ -- 11,450(17) *
Bruce A. Westphal.......................................... -- 15,333(16) *
All directors and officers as a group (seven persons)...... 1,603,659 2,527,751(18) 21.8
- --------
(*) Less than 1%.
(1) Represents the number of shares of Class B Stock and Common Stock
beneficially owned by each stockholder as a percentage of the total number
of shares of Class B Stock and Common Stock outstanding.
(2) The address of Mr. Brown is 3697 Mt. Diablo Boulevard, Lafayette,
California 94549.
(3) Includes 330,000 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001.
(4) The address of Mr. Pennington is 1280 Atlanta Highway, Madison, Georgia
30650.
(5) Includes 13,333 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001; 464,428 shares held as
Trustee under the Agreement of Jacquelyn C. Pennington dated January 29,
2001; 1,033,044 shares held as President of Pennington Management Company
LLC, General Partner of Pennington Partners, L.P.; 41,940 shares held by
minor children; and 6,938 owned by his spouse. Mr. Pennington disclaims
beneficial ownership of the 6,938 shares held by spouse.
(6) The address of Willow Creek Capital Management is 17 East Sir Francis
Drake Blvd., Suite 100, Larkspur, California 94939.
(7) Based on a Schedule 13F filed reflecting beneficial ownership as of
September 30, 2001.
(8) The address of Dimensional Fund Advisors, Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401.
(9) The address of Cramer Rosenthal McGlynn, L.L.C. is 707 Westchester Avenue,
White Plains, New York 10604.
(10) The address of Wentworth, Hauser & Violich is 353 Sacramento Street, Suite
600, San Francisco, California 94111.
(11) The address of Special Value Investment Management, LLC is 11100 Santa
Monica Boulevard, Suite 210, Los Angeles, California 90025.
(12) Based on a Schedule 13G filed October 19, 2001. Represents shares issuable
upon conversion of the Company's subordinated convertible notes.
(13) The address of Fuller & Thaler Asset Management Inc. is 411 Borel Avenue,
Suite 402, San Mateo, California 94402.
13
(14) Includes 192,000 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001.
(15) Includes 2,117 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001.
(16) Includes 2,333 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001.
(17) Includes 4,450 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001.
(18) Includes 546,566 shares issuable upon exercise of outstanding options
exercisable within 60 days of December 31, 2001.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
September 30, 2000 to September 29, 2001 all filing requirements applicable to
its officers, directors, and greater than ten-percent beneficial owners were
complied with, except that Bruce A. Westphal filed an amended Form 5 with
respect to the acquisition of 6,300 shares in July 2001 which was not reported
timely.
AUDITORS
Deloitte & Touche LLP, independent certified public accountants, serves as
the Company's principal accountants. Representatives of Deloitte & Touche LLP
will be present at the Annual Meeting with the opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions.
Audit Fees
The aggregate fees billed for professional services rendered by Deloitte &
Touche LLP for the audit of the Company's annual financial statements for the
fiscal year ended September 29, 2001 and the reviews of the financial
statements included in the Company's Forms 10-Q for that fiscal year were
approximately $1,132,000.
Financial Information Systems Design and Implementation Fees
There were no fees billed for information technology services rendered by
Deloitte & Touche LLP for the fiscal year ended September 29, 2001.
14
All Other Fees
The aggregate fees billed for services rendered by Deloitte & Touche LLP,
other than the services covered in "Audit Fees" and "Financial Information
Systems Design and Implementation Fees" above, for the fiscal year ended
September 29, 2001 were approximately $1,113,000.
The Audit and Compensation Committee of the Board has considered whether the
provision of the non-audit services is compatible with maintaining the
principal accountant's independence.
OTHER MATTERS
As of the date of this Proxy Statement, there are no other matters which
management intends to present or has reason to believe others will present at
the meeting. If other matters properly come before the meeting, those who act
as proxies will vote in accordance with their judgment.
STOCKHOLDER PROPOSALS
If any stockholder intends to present a proposal for action at the Company's
annual meeting in 2003 and wishes to have such proposal set forth in
management's proxy statement, such stockholder must forward the proposal to the
Company so that it is received on or before September 9, 2002. Proposals should
be addressed to the Company at 3697 Mt. Diablo Boulevard, Lafayette, California
94549, Attention: Corporate Secretary.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the Company's annual meeting in 2003, which proposal is
not intended to be included in the Company's proxy statement and form of proxy
relating to that meeting, the stockholder should give appropriate notice no
later than November 26, 2002. If such a stockholder fails to submit the
proposal by such date, the Company will not be required to provide any
information about the nature of the proposal in its proxy statement and the
proxy holders will be allowed to use their discretionary voting authority if
the proposal is raised at the Company's annual meeting in 2003.
COST OF SOLICITATION
All expenses in connection with the solicitation of this proxy, including
the charges of brokerage houses and other custodians, nominees or fiduciaries
for forwarding documents to stockholders, will be paid by the Company.
Dated: January 7, 2002.
By Order of the Board of Directors
LEE D. HINES, JR., Secretary
15
APPENDIX A
AUDIT COMMITTEE CHARTER
Central Garden & Pet Company
Organization
There shall be a committee of the board of directors to be known as the
audit committee. The audit committee shall be composed of three directors who
are independent of the management of the corporation and free of any
relationship that, in the opinion of the board of directors, would interfere
with their exercise of independent judgment as a committee member.
Statement of Policy
The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders,
and investment community relating to corporate accounting, reporting practices
of the corporation, and the quality and integrity of the financial reports of
the corporation. In so doing, it is the responsibility of the audit committee
to maintain free and open means of communication between the directors,
independent auditors, and the financial management of the corporation.
Responsibilities
In carrying out its responsibilities, the audit committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices of the corporation are in
accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
. Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the corporation and its
divisions and subsidiaries.
. Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
. Review with independent auditors, and financial and accounting personnel,
the adequacy and effectiveness of the accounting and financial controls of
the corporation, and elicit any recommendations for the improvement of
such internal control procedures or particular areas where new or more
detailed controls or procedures are desirable. Particular emphasis should
be given to the adequacy of such internal controls to expose any payments,
transactions, or procedures that might be deemed illegal, questionable, or
otherwise improper.
. Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Any changes in accounting principals should be reviewed.
. Provide the financial management and the independent auditors sufficient
opportunity to discuss with the audit committee their qualitative
judgments about the appropriateness, not just the acceptability, of
accounting principles and financial disclosure practices used or proposed
to be adopted by the Company and, particularly, about the degree of
aggressiveness or conservatism of its accounting principles and underlying
estimates.
. Review with financial management and the independent auditors the interim
financial report before it is filed with the SEC.
. Prepare a letter for inclusion in the Annual Report on Form 10-K that
describes the audit committee's composition and responsibilities, and how
they were discharged.
. Review and assess the adequacy of the audit committee charter on an annual
basis.
A-1
- --------------------------------------------------------------------------------
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CENTRAL GARDEN & PET COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS February 11, 2002
The undersigned hereby appoints William E. Brown and Glenn W. Novotny, or
either of them, each with power of substitution, as proxies of the undersigned,
to attend the Annual Meeting of Stockholders of CENTRAL GARDEN & PET COMPANY to
be held at the LAFAYETTE PARK HOTEL, 3287 Mt. Diablo Boulevard, Lafayette,
California, on February 11, 2002, at 10:30 A.M., and any adjournment thereof,
and to vote the number of shares the undersigned would be entitled to vote if
personally present on the following:
(Continued, and to be marked, dated and signed, on the reverse side)
- --------------------------------------------------------------------------------
(Continued from other side)
- ------------------------------------------------------------------------------------------------------------------------------------
This proxy will be voted as directed. In the absence of contrary directions, [X] Please mark
this proxy will be voted FOR the election of the directors listed below and FOR your votes
proposal 2. as this
1. ELECTION OF DIRECTORS: FOR AGAINST ABSTAIN
FOR all WITHHOLD 2. To approve the amendment of the [_] [_] [_]
nominees listed authority to vote Nonemployee Director Equity
(except as for all nominees Incentive Plan.
indicated) listed I plan to attend
[_] [_] 3. In their discretion, upon any the meeting
and all such other matters as
may properly come before the [_]
meeting or any adjournment
thereof.
Instruction: To withhold authority to vote for any STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN
individual nominee, strike a line through that AND RETURN THIS PROXY PROMPTLY IN THE ENVELOPE
nominee's name in the list below. PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
01 William E. Brown 05 John B. Balousek
02 Glenn W. Novotny 06 Daniel P. Hogan, Jr.
03 Brooks M. Pennington III 07 Bruce A. Westphal
04 Lee D. Hines, Jr.
Signature(s) Date
----------------------------------------------------------------------------------- --------------------------
The signature should correspond exactly with the name appearing on the certificate evidencing your Common Stock. If more than one
name appears, all should sign. Joint owners should each sign personally
- ------------------------------------------------------------------------------------------------------------------------------------