<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
WORTHINGTON FOODS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(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: ...........................................................
================================================================================
<PAGE> 2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
[LOGO](R)
WORTHINGTON FOODS, INC.
900 PROPRIETORS ROAD
WORTHINGTON, OHIO 43085
(614) 885-9511
Worthington, Ohio
March 17, 1999
To the Shareholders of
Worthington Foods, Inc.:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of the Shareholders
(the "Annual Meeting") of Worthington Foods, Inc. (the "Company") will be held
at The Radisson Hotel Columbus North, 4900 Sinclair Road, Columbus, Ohio 43229
on Tuesday, April 20, 1999, at 11:00 a.m., local time, for the following
purposes:
1. To elect three directors to serve for terms of three years each.
2. To consider and vote upon a proposal to approve the Amended and
Restated Worthington Foods, Inc. 1995 Stock Option Plan.
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment(s) thereof.
Shareholders of record at the close of business on March 1, 1999 will
be entitled to receive notice of and to vote at the Annual Meeting and any
adjournment(s) thereof.
You are cordially invited to attend the Annual Meeting. The vote of
each shareholder is important, whatever the number of common shares held.
Whether or not you plan to attend the Annual Meeting, please sign, date and
return your proxy promptly in the enclosed envelope. Should you attend the
Annual Meeting, you may revoke your proxy and vote in person. ATTENDANCE AT THE
ANNUAL MEETING WILL NOT, IN AND OF ITSELF, CONSTITUTE REVOCATION OF A PROXY.
By Order of the Board of Directors,
/s/ Ronald L. McDermott
Ronald L. McDermott, Secretary
<PAGE> 3
[WORTHINGTON FOODS LOGO](R)
900 PROPRIETORS ROAD
WORTHINGTON, OHIO 43085
(614) 885-9511
PROXY STATEMENT
This Proxy Statement and the accompanying proxy are being mailed to
shareholders of Worthington Foods, Inc., an Ohio corporation (the "Company"), on
or about March 15, 1999 in connection with the solicitation of proxies by the
Board of Directors of the Company for use at the 1999 Annual Meeting of
Shareholders of the Company (the "Annual Meeting") called to be held on Tuesday,
April 20, 1999, or at any adjournment(s) thereof. The Annual Meeting will be
held at 11:00 a.m., local time, at The Radisson Hotel Columbus North, 4900
Sinclair Road, Columbus, Ohio 43229.
A proxy for use at the Annual Meeting accompanies this Proxy Statement
and is solicited by the Board of Directors of the Company. A shareholder of the
Company may use his proxy if he is unable to attend the Annual Meeting in person
or wishes to have his common shares voted by proxy even if he does attend the
Annual Meeting. Without affecting any vote previously taken, any shareholder
executing a proxy may revoke it at any time before it is voted by filing with
the Secretary of the Company, at the address of the Company set forth on the
cover page of this Proxy Statement, written notice of such revocation; by
executing a later-dated proxy which is received by the Company prior to the
Annual Meeting; or by attending the Annual Meeting and giving notice of such
revocation in person. ATTENDANCE AT THE ANNUAL MEETING WILL NOT, IN AND OF
ITSELF, CONSTITUTE REVOCATION OF A PROXY.
Only shareholders of the Company of record at the close of business on
March 1, 1999 are entitled to receive notice of and to vote at the Annual
Meeting and any adjournment(s) thereof. At the close of business on March 1,
1999, 12,373,745 common shares were outstanding and entitled to vote. Each
common share of the Company entitles the holder thereof to one vote on each
matter to be submitted to shareholders at the Annual Meeting.
A quorum for the Annual Meeting is a majority of the outstanding common
shares.
Common shares represented by signed proxies that are returned to the
Company will be counted toward the quorum in all matters even though they are
marked as "Abstain", "Against" or "Withhold Authority" on one or more or all
matters or they are not marked at all. Broker/dealers who hold their customers'
common shares in street name may, under the applicable rules of the
self-regulating organizations of which the broker/dealers are members, sign and
submit proxies for those common shares and may vote them on routine matters,
which, under such rules, typically include the election of directors, but
broker/dealers may not vote the common shares on other matters, which typically
include the approval of certain compensation plans, without specific
instructions from the customer who owns the common shares. Proxies signed and
submitted by broker/dealers which have not been voted on certain matters as
described in the previous sentence are referred to as broker non-votes. Broker
non-votes will be counted for quorum purposes.
The Company will bear the costs of preparing and mailing this Proxy
Statement, the accompanying proxy and any other related materials and all other
costs incurred in connection with the solicitation of proxies on behalf of the
Board of Directors. Proxies will be solicited by mail and may be further
solicited, for no additional compensation, by officers, directors, or employees
of the Company by further mailing, by telephone, or by personal contact. The
Company will also pay the standard charges and expenses of brokerage houses,
voting trustees, banks, associations and other custodians, nominees, and
fiduciaries, who are record holders of common shares not beneficially owned by
them, for forwarding such materials to and obtaining proxies from the beneficial
owners of such common shares.
The Annual Report to the Shareholders of the Company for the fiscal
year ended December 31, 1998 is enclosed herewith.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 1, 1999, certain
information with respect to the Company's common shares beneficially owned by
the only person known by the Company to beneficially own more than 5% of the
outstanding common shares of the Company:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
--------------------- ---------------------- ------------
<S> <C> <C>
The Huntington National Bank 826,421(2) 6.7%
41 South High Street
Columbus, Ohio 43215
</TABLE>
(1) The percent of class is based upon 12,373,745 common shares outstanding
on March 1, 1999.
(2) Includes 741,927 common shares held by the Worthington Foods, Inc.
Employee Stock Ownership Plan (the "ESOP"). The Huntington National
Bank, as trustee, has sole dispositive power and the Compensation
Committee of the Board of Directors has sole investment power with
respect to the common shares held by the ESOP and each participant in
the ESOP has sole voting power with respect to the common shares held
by the ESOP which are allocated to such participant's account in the
ESOP. Included are an aggregate of 60,955 common shares held in the
ESOP for the accounts of executive officers of the Company as to which
such executive officers have sole voting power but no
investment/dispositive power.
SECURITY OWNERSHIP OF CERTAIN OFFICERS AND DIRECTORS
The following table sets forth, as of March 1, 1999, certain
information with respect to the Company's common shares owned beneficially by
each director, by each nominee for election as a director, by each of the
executive officers named in the Summary Compensation Table and by all current
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS (2)
- -------------------------- -------------------------- ------------
<S> <C> <C>
Allan R. Buller (3)(4)................................................... 268,445 (5) 2.2%
Dale E. Twomley (3)(4)................................................... 292,176 (6)(7) 2.3
William T. Kirkwood (4).................................................. 115,272 (6)(8) (9)
Donald B. Burke (10)..................................................... 17,558 (10) (9)
Ronald L. McDermott (4).................................................. 64,835 (6) (9)
Jay L. Robertson (4)..................................................... 102,057 (6)(11) (9)
Roger D. Blackwell (3)................................................... 34,442 (6)(12) (9)
Emil J. Brolick (3)...................................................... 7,332 (6) (9)
Janice D. Buller (13).................................................... 21,798 (14) (9)
George T. Harding, IV (3)................................................ 371,455 (15) 3.0
Donald G. Orrick (3)..................................................... 214,441 (6)(16) 1.7
William D. Parker (3)(13)................................................ 23,998 (6) (9)
Francisco J. Perez (3)................................................... 9,366 (6) (9)
David R. Rowe (13)....................................................... -- (9)
Donald B. Shackelford (3)................................................ 55,332 (6) (9)
All current executive officers and directors as a group
(12 individuals)...................................................... 1,559,151 (6) 12.3%
</TABLE>
(1) Unless otherwise noted, the beneficial owner has sole voting,
investment and dispositive power with respect to all of the common
shares shown to be owned by such person in the table.
(2) The percent of class is based upon 12,373,745 common shares outstanding
on March 1, 1999 and the number of common shares, if any, as to which
the named person has the right to acquire beneficial ownership upon the
exercise of stock options exercisable within 60 days of March 1, 1999.
2
<PAGE> 5
(3) Director of the Company.
(4) Executive officer of the Company.
(5) Includes 195,956 common shares held in trust established by Mr. Buller
as to which Mr. Buller and his spouse act as joint trustees and have
shared voting and investment/dispositive power. Also includes 70,998
common shares held in trust established by Mr. Buller's spouse as to
which she and Mr. Buller act as joint trustees and have shared voting
and investment/dispositive power.
(6) The common share ownership information for Messrs. Twomley, Kirkwood,
McDermott and Robertson and for all executive officers as a group
includes 24,208; 20,427; 5,380; 10,940 and 60,955 common shares,
respectively, held for the accounts of such persons in the ESOP as to
which common shares such persons have sole voting power but no
investment power. The common share ownership for Messrs. Twomley,
Kirkwood, McDermott and Robertson and all executive officers as a group
includes 117,778; 57,868; 35,851; 38,188; 249,685 and 236,484 common
shares, respectively, that are subject to options exercisable within 60
days following March 1, 1999. The common share ownership for each of
Messrs. Blackwell, Brolick, Orrick, Parker, Perez and Shackelford
includes 3,333; 6,666; 3,333; 22,221; 6,666 and 6,666 common shares,
respectively, that are subject to an option exercisable within 60 days
following March 1, 1999.
(7) Includes 47,829 common shares held by Mr. Twomley's spouse as to which
she has sole voting and investment/dispositive power and as to which
Mr. Twomley disclaims beneficial ownership. Also includes 2,444 common
shares held in an IRA trust for the benefit of Mr. Twomley as to which
Mr. Twomley has sole voting and investment/dispositive power. Also
includes 4,442 common shares held by Mr. Twomley's children.
(8) Includes 1,000 common shares held by Mr. Kirkwood's spouse as to which
she has sole voting and investment/dispositive power and as to which
Mr. Kirkwood disclaims beneficial ownership. Also includes 1,049 common
shares held by Mr. Kirkwood's children and step-children as to which
Mr. Kirkwood disclaims beneficial ownership.
(9) Reflects ownership of less than 1% of the outstanding common shares of
the Company.
(10) Mr. Burke, the former Executive Vice President of Marketing and Sales,
terminated his employment on November 5, 1998. Mr. Burke's common
shares total includes 1,171 common shares held for his behalf in the
ESOP as to which Mr. Burke has sole voting power but no investment
power.
(11) Includes 30,394 common shares held jointly by Mr. Robertson and his
spouse as to which Mr. Robertson shares voting and
investment/dispositive power.
(12) Includes 20,888 common shares held in an IRA trust for the benefit of
Mr. Blackwell as to which Mr. Blackwell has sole voting and
investment/dispositive power.
(13) Nominee for election as a director of the Company.
(14) Includes 9,333 common shares held jointly by Ms. Buller and her spouse
as to which Ms. Buller shares voting and investment/dispositive power.
(15) Includes 62,370 common shares held by Dr. Harding's spouse as to which
she has sole voting and investment/dispositive power and as to which
Dr. Harding disclaims beneficial ownership. Also included are 103,198
common shares held in an IRA trust for the benefit of Dr. Harding as to
which Dr. Harding has sole voting and investment/dispositive power.
(16) Includes 2,621 common shares held by Dr. Orrick's spouse as to which
she has sole voting and investment/dispositive power and as to which
Dr. Orrick disclaims beneficial ownership. Also includes 186,266 common
shares held in an IRA trust for the benefit of Dr. Orrick as to which
Dr. Orrick has sole voting and investment/dispositive power.
3
<PAGE> 6
ELECTION OF DIRECTORS
(Item 1 on Proxy)
In accordance with Section 2.02 of the Amended Regulations of the
Company, three directors are to be elected at the Annual Meeting for terms of
three years each and until their respective successors are elected and
qualified. It is the intention of the persons named in the accompanying proxy to
vote the common shares represented by the proxies received pursuant to this
solicitation for the nominees named below who have been designated by the Board
of Directors, unless otherwise instructed on the proxy.
The following table gives certain information concerning each nominee
for election as a director of the Company. Unless otherwise indicated, each
person has had his or her principal occupation for more than five years.
<TABLE>
<CAPTION>
Director of Nominee
Position(s) Held with the Company for Term
the Company and Continuously Expiring
Nominee Age Principal Occupation(s) Since In
- ------- --- ----------------------- ------------ --------
<S> <C> <C> <C> <C>
Janice D. Buller...................... 51 Senior Associates, Booz, Allen
& Hamilton, a worldwide management
and technology consulting firm -- 2002
William D. Parker..................... 61 Retired since January, 1998;
prior thereto, he was President of
the Kroger Columbus, Ohio Marketing
Area, a division of The Kroger Company,
a multi-state super-market chain 1996 2002
David R. Rowe......................... 34 Director of Marketing - Oregon &
California for Intel Online Solutions,
a division of Intel Corporation since 1998;
prior thereto, he was Director of Marketing -
Utah for the Systems Management
Division of Intel Corporation -- 2002
</TABLE>
While it is contemplated that all nominees will stand for election, if
one or more of the nominees at the time of the Annual Meeting should be
unavailable or unable to serve as a candidate for election as a director of the
Company, the proxies reserve full discretion to vote the common shares
represented by the proxies for the election of the remaining nominees and for
the election of any substitute nominee or nominees designated by the Board of
Directors. The Board of Directors knows of no reason why any of the
above-mentioned persons will be unavailable or unable to serve if elected to the
Board.
Under Ohio law and the Company's Regulations, the three nominees
receiving the greatest number of votes will be elected as directors. Common
shares as to which the authority to vote is withheld and broker non-votes will
not be counted toward the election of directors or toward the election of the
individual nominees specified on the form of proxy.
4
<PAGE> 7
The following table gives certain information concerning the current
directors whose terms will continue after the Annual Meeting. Unless otherwise
indicated, each person has had his principal occupation for more than five
years.
<TABLE>
<CAPTION>
Director of
Position(s) Held with the Company Term
the Company and Continuously Expires
Name Age Principal Occupation(s) Since In
- ---- --- ----------------------- ------------ -------
<S> <C> <C> <C> <C>
Emil J. Brolick....................... 51 Senior Vice President, Strategic Planning,
Research & New Product Marketing,
Wendy's International, Inc. 1998 2000
Francisco J. Perez.................... 55 President and Chief Executive Officer
of Kettering Medical Center,
Kettering, Ohio 1998 2000
Donald B. Shackelford................. 66 Chairman of Fifth Third Bank of Columbus,
a division of Fifth Third Bancorp since 1998;
prior thereto, he was Chairman of
State Savings Bank, a state chartered
savings bank based in Columbus, Ohio (1) 1991 2000
Roger D. Blackwell.................... 58 Professor of Marketing at The
Ohio State University, Columbus, Ohio;
self-employed as a business consultant (2) 1992 2001
Donald G. Orrick...................... 70 Retired since 1992; prior thereto,
Dr. Orrick was in the private practice
of dentistry in the Columbus, Ohio
metropolitan area 1983 2001
Dale E. Twomley....................... 59 President and Chief Executive Officer
of the Company 1985 2001
</TABLE>
- --------------
(1) Mr. Shackelford is also a director of The Limited, Inc., Intimate
Brands, Inc., The Progressive Corporation and Fifth Third Bancorp.
(2) Mr. Blackwell is also a director of Max & Erma's Restaurants, Inc.,
Checkpoint Systems, Inc., Intimate Brands, Inc., AirNet Systems, Inc.,
Flex-Funds, Applied Industrial Technologies, Inc. and Cheryl & Co.
There are no family relationships among any of the directors, nominees
for election as directors and executive officers of the Company, except for
Janice D. Buller, who is the daughter of Allan R. Buller. (Mr. Buller is
retiring from the Board of Directors as of April 20, 1999.)
Each non-employee director who is newly elected or re-elected to the
Board of Directors is granted, effective on the third business day following
election to the Board, a non-qualified stock option to purchase 10,000 common
shares of the Company at the fair market value of the common shares on the date
the option is granted. Individuals appointed to fill vacancies in the Board are
granted options for a prorated number of common shares based upon the period of
time remaining in the term filled. Each option has a term of five years and
becomes exercisable with respect to one-third of the common shares on each
anniversary of the grant date. Non-employee directors who were elected prior to
April 22, 1997 were granted a non-qualified stock option, after their election
or appointment as a director, to purchase 22,221 common shares (as adjusted for
stock splits) at the fair market value of the common shares on the date of the
grant. These options also have a term of five years.
The Board of Directors of the Company held a total of five meetings
during the Company's 1998 fiscal year. Each incumbent director attended 75% or
more of the aggregate of the total number of meetings held by the Board of
Directors during the period he served as a director and the total number of
meetings held by all committees of the Board of Directors on which he served
during the period he served.
5
<PAGE> 8
The Company's Board of Directors has standing Audit, Compensation and
Nominating Committees.
The Audit Committee consists of Donald B. Shackelford (Chair), George
T. Harding, IV, Francisco J. Perez and William D. Parker. The function of the
Audit Committee is to review the adequacy of the Company's system of internal
controls, to investigate the scope and adequacy of the work of the Company's
independent public accountants and to recommend to the Board of Directors a firm
of accountants to serve as the Company's independent public accountants. The
Audit Committee met twice during the 1998 fiscal year.
The Compensation Committee consists of Roger D. Blackwell (Chair), Emil
J. Brolick and Donald G. Orrick. The function of the Compensation Committee is
to review and supervise the operation of the Company's compensation plans, to
select those employees who may participate in each plan (where selection is
required), to prescribe the terms of any stock options granted under the
Company's stock option plan for employees and to approve the compensation of the
Company's executive officers. The Compensation Committee met once during the
1998 fiscal year.
The Nominating Committee consists of George T. Harding, IV (Chair),
Donald B. Shackelford and Dale E. Twomley and met once during 1998. The
functions of the Nominating Committee include the consideration of the size and
composition of the Board, review and recommendation of individuals for election
as directors or officers of the Company, and review of the criteria for
selecting directors. In carrying out its responsibilities for recommending
candidates to fill vacancies on the Board and in recommending a slate of
directors for election by the shareholders at the Annual Meeting, the Committee
will consider candidates suggested by other directors, employees and
shareholders. Suggestions for candidates, accompanied by biographical material
for evaluation, may be sent to the Secretary of the Company at its Corporate
Headquarters. Individuals suggested as candidates should have high level
management experience in a relatively complex organization or have experience
dealing with complex problems. A candidate also must include a willingness to
attend scheduled Board and Committee meetings.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The compensation paid to the Company's executive officers is evaluated
and approved by the Compensation Committee of the Company's Board of Directors.
The Compensation Committee consists of three directors, all of whom are outside
directors.
All decisions of the Compensation Committee are reviewed by the full
Board of Directors. During 1998, none of the compensation decisions of the
Compensation Committee was modified or rejected in any material way by the full
Board.
COMPENSATION PROGRAM FOR EXECUTIVE OFFICERS
The Company's compensation program for its executive officers is based
on the following objectives:
- Total compensation of the executive officers should be linked
to the financial performance of the Company.
- The compensation paid to the executive officers of the Company
should compare favorably with executive compensation levels of
other similarly-sized companies so that the Company can
continue to attract and retain outstanding executives.
- The compensation program should reward outstanding individual
performance and contributions as well as experience.
The Company's executive compensation program consists of annual cash
compensation and longer-term incentive compensation. Historically, annual cash
compensation has been comprised of base salary and an annual incentive award.
6
<PAGE> 9
In determining executive compensation, the Compensation Committee
wishes to maintain competitive salaries for the officers by targeting
compensation within the competitive ranges of data compiled by the Company's
executive compensation consulting firm. The Compensation Committee believes that
the emphasis should be on performance linked rewards, so that compensation for
key executives improves in line with improvements in return to the shareholders.
Base salaries are targeted at adequate minimum total cash compensation in a year
when no bonus is earned.
Base salaries awarded in 1998 by the Compensation Committee to each
executive officer, other than the Chief Executive Officer, were based upon a
recommendation to the Compensation Committee made by Mr. Twomley, the Company's
Chief Executive Officer. Mr. Twomley makes his recommendations after considering
the individual performance, duties, responsibilities, experience and tenure of
each executive officer, general current economic conditions, the recent
financial performance of the Company and other factors, none of which is given a
specific weighting. The Compensation Committee approves the base salary of each
of these executive officers after meeting with Mr. Twomley and discussing with
him his salary recommendations and the basis for his recommendations. The
Compensation Committee determines Mr. Twomley's base salary on the basis of the
same factors.
The Company also has an annual incentive program for its executive
officers, including the Chief Executive Officer. Annual incentive awards are
based on the extent to which the Company achieves or exceeds annual financial
performance goals established by the Board on an annual basis. The actual amount
of the bonus that an executive officer will receive at various performance
levels is approved by the Compensation Committee at the beginning of each year
and is based upon the position, duties and responsibilities of each such
executive officer. No bonuses were paid under the annual incentive program for
1998.
The Company's longer-term compensation program for its executive
officers consists primarily of stock options, both incentive stock options and
non-qualified stock options. Award opportunities under the stock option program
are determined by the Compensation Committee. The Company grants options based
on its subjective determination of the relative current and future contributions
that each prospective optionee has or may make to the long-term welfare of the
Company. The options granted to each of the named executives officers during the
1998 fiscal year were based upon such subjective determination. Stock options
are granted at 100% of fair market value on the date of grant so that the
holders of the options do not receive a benefit from the stock options unless
and until there is an increase in the market price of the Company's common
shares.
The Company also maintains for its executive officers a supplemental
executive retirement plan, which is a non-qualified plan designed to provide
supplemental retirement benefits to the Company's executive officers. This plan
is designed to provide a retiring executive officer with 30 years of service a
target benefit (after adjustment for other retirement benefits and Social
Security benefits) equal to 50 percent of final salary. The Compensation
Committee views this plan as a valuable tool in hiring and retaining superior
executives.
1998 COMPENSATION OF MR. TWOMLEY
Mr. Twomley's base salary for 1998 was targeted to be within
competitive ranges based upon data compiled by the Company's executive
compensation consulting firm. The Compensation Committee believes that the base
salary for Mr. Twomley should be adequate minimum total cash compensation in a
year when no bonus is earned. Earnings beyond that level should be linked to the
Company's financial performance. Mr. Twomley's base salary for 1998 represented
a 4.2% increase over his prior year's base salary. In setting Mr. Twomley's 1998
base salary, the Compensation Committee gave consideration to Mr. Twomley's many
contributions toward the Company's operations in 1997 in establishing an
adequate minimum compensation for 1998.
No cash bonus was paid to Mr. Twomley for 1998 under the incentive
program described above due to the Company not achieving certain specified net
income goals. The maximum formula-determined
7
<PAGE> 10
bonus that Mr. Twomley could have achieved in 1998 under the incentive program
would have represented 120% of his base salary.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Roger D. Blackwell, Chairman Emil J. Brolick Donald G. Orrick
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the Company's fiscal years ended
December 31, 1998, 1997 and 1996, the cash compensation paid by the Company, as
well as certain other compensation paid or accrued for those years, to the
Company's Chief Executive Officer and to the other executive officers of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ----------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPEN- STOCK OPTIONS/ COMPEN-
SALARY BONUS SATION AWARD SARS SATION
NAME/PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) (#) ($)(3)(4)
----------------------- ---- ------ ----- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dale E. Twomley, ...................... 1998 $249,240 $ -- $ -- -- 15,000 $ 14,468
President and Chief Executive Officer 1997 237,670 -- -- -- -- 13,150
1996 210,870 203,558 9,158 -- 53,333 29,730
William T. Kirkwood, .................. 1998 $162,135 $ -- $ -- -- 10,000 $ 8,000
Executive Vice President and 1997 153,790 -- -- -- -- 7,975
Chief Financial Officer 1996 138,760 100,829 3,387 -- 35,554 13,521
Donald B. Burke, ...................... 1998 $155,102 $ -- $ -- -- 8,000 $157,578
Former Executive Vice President 1997 143,830 -- -- -- -- 6,449
of Marketing and Sales (4) 1996 129,665 93,658 3,357 -- 26,666 12,498
Jay L. Robertson, ..................... 1998 $134,260 $ -- $ -- -- 6,000 $ 6,567
Senior Vice President of Retail Sales 1997 129,180 -- -- -- -- 6,621
1996 118,890 57,254 3,205 -- 17,777 12,725
Ronald L. McDermott, .................. 1998 $121,875 $ -- $ -- -- 6,000 $ 6,094
Vice President of Research 1997 117,060 -- -- -- -- 7,466
and Technology, Secretary 1996 105,500 50,803 2,724 -- 17,777 12,343
</TABLE>
(1) Other Annual Compensation consists of gross-up payments for tax
liabilities related to contributions to the Worthington Foods, Inc.
Supplemental Executive Retirement Plan.
(2) There were no restricted common shares held by the executive officers
named in the Summary Compensation Table at December 31, 1998.
(3) "All Other Compensation" for 1998 includes the following: (a)
contributions of $8,518; $8,000; $6,567; and $6,094 to the Worthington
Foods Tax Savings and Profit Sharing Plan (the "401(k) Plan") on behalf
of Messrs. Twomley, Kirkwood, Robertson and McDermott, respectively, to
match 1998 pre-tax elective deferral contributions made by each to the
401(k) Plan and a discretionary contribution made by the Company; and
(b) $5,950 representing the dollar value of split dollar life insurance
premiums paid for the benefit of Mr. Twomley.
(4) On November 5, 1998, Mr. Burke terminated his employment with the
Company. As part of his termination, he was paid an amount equal to his
annual salary of $152,380 and his unused vacation of $5,198.
8
<PAGE> 11
GRANTS OF STOCK OPTIONS
The following table sets forth certain information concerning options
granted during 1998 to the named executives:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
- -------------------------------------------------------------------------------- -----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) (1) YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dale E. Twomley........ 5,000 2.64% $11.06 2/9/2000 $ 5,670 $11,616
5,000 2.64% 11.06 2/9/2001 8,719 18,308
5,000 2.64% 11.06 2/9/2002 11,920 25,671
------ ---- ------- -------
15,000 7.92% $26,309 $55,595
====== ==== ======= =======
William T. Kirkwood.... 3,333 1.76% $11.06 2/9/2000 $ 3,779 $ 7,743
3,333 1.76% 11.06 2/9/2001 5,812 12,204
3,334 1.76% 11.06 2/9/2002 7,948 17,117
------ ---- ------- -------
10,000 5.28% $17,539 $37,064
====== ==== ======= =======
Donald B. Burke........ 2,666 1.41% $11.06 2/9/2000 $ 3,023 $ 6, 193
2,667 1.41% 11.06 2/9/2001 4,651 9,766
2,667 1.41% 11.06 2/9/2002 6,358 13,693
------ ---- ------- -------
8,000 4.22% $14,032 $ 29,652
====== ==== ======= =======
Jay L. Robertson....... 2,000 1.06% $11.06 2/9/2000 $ 2,268 $ 4,646
2,000 1.06% 11.06 2/9/2001 3,487 7,323
2,000 1.06% 11.06 2/9/2002 4,768 10,268
------ ---- ------- -------
6,000 3.17% $10,523 $ 22,237
====== ==== ======= =======
Ronald L. McDermott.... 2,000 1.06% $11.06 2/9/2000 $ 2,268 $ 4,646
2,000 1.06% 11.06 2/9/2001 3,487 7,323
2,000 1.06% 11.06 2/9/2002 4,768 10,268
------ ---- ------- -------
6,000 3.17% $10,523 $ 22,237
====== ==== ======= =======
</TABLE>
(1) These options were granted on February 9, 1998 and become exercisable
in three equal annual installments beginning on the grant date. Upon
termination of employment for any reason other than death or for
willful, deliberate or gross misconduct, vested options may thereafter
be exercised for a period of three months, subject to the stated terms
of the options. If the option holder dies, the options may thereafter
be exercised in full for a period of twelve months, subject to the
stated terms of the options. The options are immediately forfeited if
the holder's employment is terminated for willful, deliberate or gross
misconduct. In the event of certain defined changes-in-control of the
Company, each outstanding option will become fully exercisable for a
period of fifteen days immediately preceding the scheduled consummation
of the change-in-control event.
(2) The 5% and 10% assumed annual rates of appreciation are set by the
Securities and Exchange Commission and are not intended to forecast
future appreciation, if any, of the company's common shares. If the
Company's common shares do not increase in value, then the option
grants described in table will have no value.
9
<PAGE> 12
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to options
exercised during the 1998 fiscal year by the named executive officers and
unexercised options held as of the end of the 1998 fiscal year by such executive
officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE REALIZED VALUE OF UNEXERCISED
SHARES (FAIR MARKET NUMBER OF UNEXERCISED IN-THE-MONEY
UNDERLYING VALUE AT EXERCISE OPTIONS AT FY-END(#) OPTIONS AT FY-END($)
OPTIONS LESS EXERCISE ----------------------------- -----------------------------
NAME EXERCISED PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale E. Twomley ........ 38,888 $ 420,812 112,778 42,222 $1,320,011 $ 390,733
William T. Kirkwood .... 20,277 224,027 54,535 18,519 574,433 119,789
Donald B. Burke ........ 48,220 477,544 -- -- -- --
Jay L. Robertson ....... 13,055 152,409 36,188 10,089 421,568 66,104
Ronald L. McDermott .... 11,110 127,392 33,851 9,926 384,739 49,309
</TABLE>
SEVERANCE AGREEMENTS
On August 28, 1995, the Company entered into agreements with Dale E.
Twomley, William T. Kirkwood, Jay L. Robertson and Ronald L. McDermott. These
agreements, which are substantially identical, have initial terms that ended on
August 28, 1998 (which were and will be automatically extended for one-year
periods unless either party gives notice of his or its decision not to renew),
and provide that in the event of the executive officer's termination of
employment under certain circumstances during the 36-month period (the
"Effective Period") following a "change in control" of the Company, the
executive officer will be entitled to severance benefits. Prior to a change in
control, the executive officer will remain an employee at will of the Company.
Each agreement will terminate automatically on the death or retirement
of the executive officer to whom it relates, and may be terminated, at the
option of the Company, upon disability of the executive officer or for "cause"
(as that term is defined in the agreement) or, at the option of the executive
officer, for other than "good reason," in all of which cases no additional
severance payments, other than accrued compensation and benefits customarily
paid to employees in such circumstances, will be due the executive officer.
If the executive officer terminates the agreement during the Effective
Period for "good reason," or if the Company terminates the agreement during such
period for any reason other than for "cause" or as a result of the executive
officer's death, retirement or disability, the Company will be obligated to pay
the executive officer his base salary and prorated bonus through the date of
termination and to make a lump-sum payment to the executive officer equal to
2.99 (for Messrs. Twomley and Kirkwood) and 2 times (for Messrs. Robertson and
McDermott) the average annual compensation (including salary and bonus) which
was payable to such executive officer for the five taxable years ending prior to
the date on which the change of control occurred. As of March 1, 1999, the
amount of the lump-sum payment to Messrs. Twomley, Kirkwood, Robertson and
McDermott would have been approximately $1,102,000, $626,000, $331,000 and
$275,000, respectively.
If any portion of the payments and benefits provided for any agreement
would be considered "parachute payments" within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended, so as to be
nondeductible by the Company, then the aggregate present value of all of the
amounts payable to the executive officer to whom such agreement relates will be
reduced at the election of the executive officer to the maximum amount which
would cause all of the payments to be deductible by the Company.
10
<PAGE> 13
For purposes of each agreement, the executive officer to whom it
relates may terminate his employment for "good reason" during the Effective
Period if his title, duties, responsibilities, compensation or benefits are
reduced, if he is required to relocate or if the agreement is breached by the
Company. A "change in control" is defined to include, among other events, the
acquisition by any individual, entity or group of stock entitling such
individual, entity or group to exercise 20% or more of the voting power of the
Company or, as a result of a merger or other business combination, the persons
who were directors of the Company prior to such transaction cease to constitute
a majority of the directors of the surviving company in such transaction.
DIRECTORS' COMPENSATION
Non-employee directors of the Company are paid an annual fee of $8,000,
a fee of $1,000 for each Board of Directors meeting attended and a fee of $500
for each committee meeting attended. Directors who are also employees of the
Company receive no additional compensation from the Company for serving in such
capacity. Directors are reimbursed their expenses in attending meetings of the
Board and Committee meetings. In addition, each non-employee director is granted
non-qualified stock options as described on page 5.
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
WORTHINGTON FOODS, INC., RUSSELL 2000 INDEX AND FOOD PROCESSING
(PERFORMANCE RESULTS THROUGH 12/31/98)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Worthington Foods........... $ 100 $ 111.41 $ 238.36 $ 434.01 $ 426.45 $ 584.47
Russell 2000 Index.......... $ 100 $ 98.02 $ 125.89 $ 146.59 $ 179.13 $ 174.23
Food Processing............. $ 100 $ 108.32 $ 136.70 $ 170.59 $ 253.66 $ 281.45
</TABLE>
Assumes $100 invested at the close of trading on 12/31/93 in
Worthington Foods, Inc. common shares, Russell 2000 Index, and Food
Processing.
*Cumulative total return assumes reinvestment of dividends.
Source: Value Line
11
<PAGE> 14
PROPOSAL TO APPROVE THE AMENDED AND RESTATED WORTHINGTON
FOODS, INC. 1995 STOCK OPTION PLAN
(Item 2 on Proxy)
The Worthington Foods, Inc. 1995 Stock Option Plan (the "Plan") was
originally adopted by the Board of Directors of the Company on February 21,
1995, and was approved by the shareholders of the Company on April 25, 1995. The
Plan authorizes the granting to full-time key employees of the Company and any
subsidiary (the "Key Employees") of (i) incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) other stock options ("NQSOs") (collectively "Options"). The
purpose of the Plan is to encourage Key Employees to acquire or increase and
retain a financial interest in the Company, to remain in the employment of the
Company, to put forth maximum efforts for the success of the Company and to
enable the Company to compete effectively for the services of such employees by
furnishing an additional incentive to join the employment of the Company.
The number of common shares of the Company authorized for issuance
under the Plan is 666,666, subject to adjustment to reflect certain corporate
events, including stock splits and similar transactions. This number does not
include 74,444 common shares which were available for the grant of options under
the Company's 1985 Stock Option Plan (the "1985 Plan") and which were
transferred from the 1985 Plan to the Plan as April 25, 1995. In addition,
common shares as to which options granted under the 1985 Plan lapse, expire,
terminate or are canceled became available for issuance under the Plan.
As of March 1, 1999 (the Record Date for the Annual Meeting), Options
issued under the Plan covering an aggregate of 127,293 common shares had been
exercised; Options issued under the Plan covering an aggregate of 496,530 common
shares were outstanding; and a total of 117,287 common shares were available for
future grants (not including 25,823 common shares available or any additional
common shares that become available under the 1985 Plan.) As of March 1, 1999,
options issued under the 1985 Plan covering an aggregate of 163,663 common
shares were outstanding.
The Board of Directors of the Company believes that the number of
common shares available for the grant of new Options under the Plan is not
sufficient to enable the Company to issue stock option grants which the Company
expects to make over the next several years. The Board also believes that the
term of the Plan should be extended beyond February 21, 2000.
In view of the foregoing, the Board of Directors of the Company has
adopted, effective upon shareholder approval at the Annual Meeting, an Amended
and Restated 1995 Stock Option Plan (the "Amended Plan") in the form attached
hereto in its entirety as Exhibit A and made a part hereof. The material
amendments to the Plan which will result from adoption of the Amended Plan by
the shareholders (the "Amendments") are as follows:
1. The term of the Plan has been extended for an additional five
years, from February 21, 2000 to February 20, 2005.
2. The number of common shares available for Options under the
Plan has been increased by 500,000 common shares to 1,166,666
common shares, not including common shares that may become
available under the 1985 Plan.
3. The maximum number of common shares which may be subject to
options under the Plan to any single employee has been changed
from 166,666 common shares over the term of the plan to 50,000
common shares over any one year period.
The following is a brief summary of the material features of the
Amended Plan. This summary is qualified in its entirety by reference to the full
text of the Amended Plan, attached as Exhibit A.
12
<PAGE> 15
SUMMARY OF OPERATION OF AMENDED PLAN
Administration of the Amended Plan. The Amended Plan will be
administered by a committee of not less than three directors (the "Committee").
The Committee will have the authority to determine, among other things, the
eligible employees to whom Options will be granted under the Plan and the terms
and conditions of such Options. The members of the Committee must qualify as
"non-employee directors" for purposes of the rules promulgated under Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as
outside directors for purposes of section 162(m) of the Code and the regulations
promulgated thereunder. The Plan is currently administered by the Compensation
Committee of the Company's Board of Directors, and it is anticipated that the
Amended Plan will also be administered by the Compensation Committee. Presently
the members of the Compensation Committee are Emil J. Brolick, Roger D.
Blackwell and Donald G. Orrick.
Eligibility. All full time employees of the Company or any subsidiary
are eligible to receive Options under the Plan if selected by the Committee. The
number of optionees and the number of common shares subject to Options granted
to each optionee may vary from year to year. The Company estimates that
approximately 565 employees of the Company and its subsidiaries have been
eligible to receive Options under the Plan, including the Chief Executive
Officer and the other executive officers named in the Summary Compensation
Table.
The following table sets forth the number and average exercise price
per share of Options granted under the Plan to: (i) each of the executive
officers of the Company named in the Summary Compensation Table; (ii) all
current executive officers of the Company as a group; (iii) all current
directors who are not executive officers as a group; (iv) each nominee for
election as a director; and (v) all employees, including all current officers
who are not executive officers of the Company as a group. No options have been
granted to associates of any of the directors, executive officers or nominees
for election as a director of the Company. Other than persons identified in the
following table, no person has received more than 5% of the Options granted
under the Plan.
<TABLE>
<CAPTION>
Number of Common Shares Average Exercise Price per
Name of Individual or Group Subject to Options Received Share of Options Received
- --------------------------- --------------------------- --------------------------
<S> <C> <C>
DALE E. TWOMLEY,
President and Chief Executive Officer (1) ................ 68,333 $12.85
WILLIAM T. KIRKWOOD,
Executive Vice President and
Chief Financial Officer (1) .............................. 45,554 $12.85
DONALD B. BURKE,
Former Executive Vice President of
Marketing and Sales (1) .................................. 34,666 $12.83
JAY L. ROBERTSON,
Senior Vice President of Retail Sales .................... 23,777 $12.78
RONALD L. MCDERMOTT,
Vice President of Research and
Technology, Secretary .................................... 23,777 $12.78
All Current Executive Officers,
as a Group ............................................... 196,107 $12.83
All Current Directors who are not
Executive Officers, as a Group ........................... 0 --
Nominees for Election as a Director:
JANICE D. BULLER ...................................... 0 --
WILLIAM B. PARKER ..................................... 0 --
DAVID R. ROWE ......................................... 0 --
All Employees, including All Current Officers
who are not Executive Officers, as a Group ............... 432,917 $14.20
</TABLE>
- ------------
(1) Messrs. Twomley, Kirkwood and Burke have received more than 5% of the
Options granted thus far under the Plan.
13
<PAGE> 16
Since the granting of future Options under the Amended Plan will be
made by the Committee based upon its subjective determination of the relative
current and future contributions that each Key Employee has or may make to the
long-term welfare of the Company, past grants may not be reflective of future
grants of Options under the Amended Plan.
Term of the Options; Limitations. Options may be granted under the
Amended Plan for terms of up to but not exceeding 10 years from the date of
grant. Any ISO which is granted to an individual who, on the effective date of
the grant, owns of record and beneficially more than 10% of the total combined
voting power of all classes of stock of the Company then outstanding and
entitled to vote, will not be exercisable more than 5 years after it is granted
and will have an exercise price equal to at least one hundred and ten percent
(110%) of the fair market value of a common share on the grant date. No person
may be granted ISOs under the Amended Plan if it would cause the aggregate fair
market value (determined as of the date an ISO is granted) of the common shares
with respect to which ISOs are first exercisable by such Option holder during
any calendar year under the Amended Plan and all other stock option plans
maintained by the Company to exceed $100,000. In addition, during the period in
which the Amended Plan remains in effect, no person may be granted Options under
the Amended Plan covering more than 50,000 common shares, subject to certain
adjustments, during any one-year period. For this purpose, to the extent that
any Option is canceled, the canceled Options will be counted against the maximum
number of common shares for which Options may be granted to any one person under
the Amended Plan. The Plan currently provides that no person may be granted
Options under the Plan covering, in the aggregate, more than 166,666 common
shares (subject to certain adjustments set forth in the Plan) during the term of
the Plan.
Exercise of Options; Expiration and Termination. Except as otherwise
provided in the Amended Plan, an optionee's Options are exercisable only by the
optionee and are exercisable only when the optionee is in the employment of the
Company. If exercisable by their terms at the time an optionee ceases to be in
the employment of the Company, Options must be exercised on or before the
earlier of three months after the date of termination of employment or the fixed
expiration date, except in the case of termination for willful, deliberate or
gross misconduct, permanent disability, death or retirement. In the case of
termination of an optionee's employment for willful, deliberate or gross
misconduct, each of the optionee's unexercised Options will expire immediately
upon such termination. In the event of the death of an optionee while in the
employment of the Company or within three months after his or her termination
other than for willful, deliberate or gross misconduct, each of the optionee's
unexercised Options will become immediately exercisable by the Option holder's
estate and will expire on the earlier of the fixed expiration date or twelve
months after the date of death. In the case of retirement or permanent
disability, an optionee's unexercised Options will become immediately
exercisable. The optionee's ISO's will expire on the earlier of (1) the fixed
expiration date of the ISO or (2)(a) three months after the termination of
employment (in the case of retirement) or (b) twelve months after the
termination of employment (in the case of permanent disability). The optionee's
NQSO's will expire on the earlier of (1) the fixed expiration date or (2) twelve
months after the date of termination of employment. In addition, in the event
that the Company or its shareholders enter into one or more agreements to
dispose of all or substantially all of the assets of the Company or 50% or more
of the outstanding capital stock of the Company by means of a sale (whether as a
result of a tender offer or otherwise), merger, reorganization or liquidation in
one or a series of related transactions, an optionee's right to exercise Options
may be accelerated under certain circumstances.
Option Exercise Price. The exercise price of each NQSO will be
determined by the Committee and may not be less than $1.00 per share. The
exercise price of each ISO may not be less than the fair market value of a
common share on the grant date. For purposes of the Amended Plan, the fair
market value of the common shares on a particular date will be the last reported
closing sale price of the common shares as shown on The NASDAQ National Market
System on that date. On March 1, 1999, the fair market value of the common
shares was $13.4375 per common share.
Payment of Exercise Price. Payment of the exercise price may be made in
cash or by check and, if permitted by the Committee, in common shares having a
fair market value equal to the exercise price of the Option, or a combination of
common shares and cash or check, equal in the aggregate to the exercise price.
14
<PAGE> 17
Adjustments Upon Changes in Capitalization. The Amended Plan authorizes
the granting of Options with respect to 1,166,666 common shares (not including
common shares that may become available under the 1985 Plan.) The number of
common shares available for Options under the Amended Plan and subject to
outstanding Options will be adjusted upward or downward, as the case may be, in
the event of any merger, consolidation, recapitalization, reclassification,
split-up, combination of shares, stock dividend or other similar transaction
affecting common shares. The exercise price of an outstanding Option may also be
adjusted in the event of any such transaction. If any Option or a portion
thereof is terminated without having been exercised, the common shares subject
to the portion of such Option not so exercised will be available for subsequent
grants under the Amended Plan.
Amendment and Termination. The Board of Directors may terminate, amend
or alter the Amended Plan at any time; provided that no such termination,
amendment or alteration can be made without shareholder approval if such
approval is necessary to comply with any tax or regulatory requirement. The
committee may amend the Amended Plan, subject to any shareholder approval
required under Rule 16b-3 of the Exchange Act, in such manner as may be
necessary to conform the Amended Plan with local rules and regulations in any
jurisdiction outside the United States. Further, subject to the provisions of
the Amended Plan, the Committee may waive any conditions or rights under, amend
any terms of, or alter, suspend, discontinue, cancel or terminate any Option
granted, prospectively or retroactively; provided that any such waiver,
amendment, alteration, suspension, discontinuance, cancellation or termination
that would impair the rights of any holder or any beneficiary of any Option
granted shall not to that extent be effective without the consent of the
affected holder or beneficiary.
Term of the Amended Plan. The Amended Plan will terminate on the
earlier of (i) February 20, 2005, (ii) the date on which all common shares
available for issuance under the Amended Plan have been issued pursuant to the
exercise of Options granted under the Amended Plan or (iii) the determination by
the Board of Directors of the Company to terminate the Amended Plan. Options
granted and outstanding on the date of termination of the Amended Plan will
continue in effect until they expire in accordance with their terms.
FEDERAL INCOME TAX MATTERS
Based on current provisions of the Code and the existing regulations
thereunder, the anticipated federal income tax consequences in respect of
Options granted under the Amended Plan are as described below. The following
discussion is not intended to be a complete statement of applicable law and is
based upon the federal income tax laws as in effect on the date hereof.
ISOs
An optionee who is granted an ISO does not recognize taxable income
either on the date of grant or on the date of exercise. However, upon the
exercise of an ISO, the difference between the fair market value of the common
shares received and the exercise price is a tax preference item potentially
subject to the alternative minimum tax. However, on the later sale or other
disposition of the common shares, generally only the difference between the fair
market value of the common shares on the exercise date and the amount realized
on the sale or disposition is includable in alternative minimum taxable income.
Upon disposition of common shares acquired upon the exercise of an ISO,
capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the optionee disposes of the common shares within
two years of the date of grant or within one year from the date of the issuance
of the common shares to the optionee (a "Disqualifying Disposition"), then the
optionee will recognize ordinary income, as opposed to capital gain, at the time
of disposition. In general, the amount of ordinary income recognized will be
equal to the lesser of (i) the amount of gain realized on the disposition, or
(ii) the difference between the fair market value of the common shares received
on the date of exercise and the exercise price. Any remaining gain or loss is
treated as a short-term, mid-term or long-term capital gain or loss, depending
upon the period of time the common shares have been held.
15
<PAGE> 18
The Company is not entitled to a tax deduction upon either the exercise
of an ISO or the disposition of common shares acquired pursuant to such
exercise, except to the extent that an optionee recognizes ordinary income in a
Disqualifying Disposition. Ordinary income from a Disqualifying Disposition will
constitute compensation but will not be subject to tax withholding, nor will it
be considered wages for payroll tax purposes.
If the holder of an ISO pays the exercise price, in whole or in part,
with already-owned common shares, the exchange should not affect the ISO tax
treatment of the exercise. Upon such exchange, and except for Disqualifying
Dispositions, no gain or loss is recognized by the optionee upon delivering
already-owned common shares to the Company for payment of the exercise price.
The common shares received by the optionee, equal in number to the already-owned
common shares exchanged therefor, will have the same basis and holding period
for capital gain purposes as the already-owned common shares. The optionee,
however, will not be able to use the prior holding period for the purpose of
satisfying the ISO statutory holding period requirements. Common shares received
by the optionee in excess of the number of already-owned common shares will have
a basis of zero and a holding period which commences as of the date the common
shares are issued to the optionee upon exercise of the ISO. If the exercise of
an ISO is effected using common shares previously acquired through the exercise
of an ISO, the exchange of such already-owned common shares will be considered a
disposition of such common shares for the purpose of determining whether a
Disqualifying Disposition has occurred.
NQSOs
An optionee receiving an NQSO does not recognize taxable income on the
date of grant of the NQSO, provided that the NQSO does not have a readily
ascertainable fair market value at the time it is granted. In general, the
optionee must recognize ordinary income at the time of exercise of the NQSO in
the amount of the difference between the fair market value of the common shares
on the date of exercise and the exercise price. The ordinary income recognized
will constitute compensation for which tax withholding generally will be
required. The amount of ordinary income recognized by an optionee will be
deductible by the Company in the year that the optionee recognizes the income if
the Company complies with the applicable withholding requirement.
If the sale of the common shares could subject the optionee to
liability under Section 16(b) of the Exchange Act, the optionee generally will
recognize ordinary income only on the date that the optionee is no longer
subject to such liability in an amount equal to the fair market value of the
common shares on that date less the exercise price. Nevertheless, the optionee
may elect under Section 83(b) of the Code within 30 days of the date of exercise
to recognize ordinary income as of the date of exercise, without regards to the
restriction of Section 16(b).
Common shares acquired upon exercise of an NQSO will have a tax basis
equal to their fair market value on the exercise date or other relevant date on
which ordinary income is recognized, and the holding period for the common
shares generally will begin on the date of exercise or such other relevant date.
Upon subsequent disposition of the common shares, the optionee will recognize
long-term capital gain or loss if the optionee has held the common shares for
more than 18 months prior to disposition, mid-term capital gain or loss if the
optionee has held the common shares for at least one year but less than 18
months, or short-term capital gain or loss if the optionee has held the common
shares for one year or less.
If an holder of an NQSO pays the exercise price, in whole or in part,
with already-owned common shares, the optionee will recognize ordinary income in
the amount by which the fair market value of the common shares received exceeds
the exercise price. The optionee will not recognize gain or loss upon delivering
such already-owned common shares to the Company. Common shares received by an
optionee, equal in number to the already-owned common shares exchanged therefor,
will have the same basis and holding period as such already-owned common shares.
Common shares received by an optionee in excess of the number of such
already-owned common shares will have a basis equal to the fair market value of
such additional common shares as of the date ordinary income is recognized. The
holding period for such additional common shares will commence as of the date of
exercise or such other relevant date.
16
<PAGE> 19
Other Matters
The Amended Plan is intended to comply with Section 162(m) of the Code
with respect to Options granted thereunder. Section 162(m) of the Code prohibits
a publicly-held corporation, such as the Company, from claiming a deduction on
its federal income tax return for compensation in excess of $1 million paid for
a given fiscal year to the chief executive officer (or person acting in that
capacity) at the close of the corporation's fiscal year and the four most highly
compensated officers of the corporation, other than the chief executive officer,
at the end of the corporation's fiscal year. The $1 million compensation
deduction limitation does not apply to "performance-based compensation." The
Internal Revenue Service has issued regulations under Section 162(m) which set
forth a number of provisions which compensatory plans must contain if the
compensation paid thereunder is to qualify as "performance-based" for purposes
of Section 162(m). The Company is seeking shareholder approval of the Amended
Plan in a good faith effort to qualify compensation received thereunder as
"performance-based" for purposes of Section 162(m).
RECOMMENDATION AND VOTE REQUIRED
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE AMENDED PLAN. UNLESS OTHERWISE
DIRECTED, THE PERSONS NAMED IN THE ENCLOSED PROXY WILL VOTE THE COMMON SHARES
REPRESENTED BY ALL PROXIES RECEIVED PRIOR TO THE ANNUAL MEETING, AND NOT
PROPERLY REVOKED, IN FAVOR OF THE PROPOSAL TO APPROVE THE AMENDED PLAN.
The affirmative vote of the holders of a majority of the common shares
represented in person or by proxy at the meeting is necessary to approve the
Amended Plan. The effect of an abstention or broker non-vote is the same as a
"no" vote.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company engaged Ernst & Young LLP as its independent public
accountants to audit its financial statements for the year ended December 31,
1998. Ernst & Young LLP has served as independent public accountants for the
Company since 1989. The Company's Audit Committee will make its selection of the
Company's independent public accountants for the 1999 fiscal year in July, 1999.
The Board of Directors expects that representatives of Ernst & Young
LLP will be present at the Annual Meeting, will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 2000 Annual
Meeting of Shareholders must be received by the Company no later than November
16, 1999, to be included in the Company's proxy, notice of meeting and proxy
statement relating to that Annual Meeting. Upon receipt of any proposal, the
Company will determine whether or not to include the proposal in the proxy
statement and proxy in accordance with applicable rules and regulations
promulgated by the SEC. A shareholder who may be interested in submitting such a
proposal is advised to contact legal council familiar with the detailed
requirements of the applicable rules and regulations.
The SEC has promulgated rules relating to the exercise of discretionary
voting authority pursuant to proxies solicited by the Company's Board of
Directors. If a shareholder intends to present a proposal at the 2000 Annual
Meeting of Shareholders and does not notify the Company of the proposal by
January 30, 2000, the proxies solicited by the Company's Board of Directors for
use at the 2000 Annual Meeting may
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be voted on the proposal without discussion of the proposal in the Company's
proxy statement for that Annual Meeting.
In each case, written notice must be given to the Secretary of the
Company, whose name and address are Ronald L. McDermott, Secretary, Worthington
Foods, Inc., 900 Proprietors Road, Worthington, Ohio 43085.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of
no other business to be presented for action by the shareholders at the 1999
Annual Meeting of Shareholders other than as set forth in this Proxy Statement.
However, if any other matter is properly presented at the Annual Meeting, or at
any adjournment(s) thereof, it is intended that the persons named as proxies in
the enclosed proxy may vote the common shares represented by such proxy on such
matters in accordance with their best judgment in light of the conditions then
prevailing.
It is important that proxies be voted and returned promptly; therefore,
shareholders who do not expect to attend the Annual Meeting in person are urged
to fill in, sign and return the enclosed proxy in the self-addressed envelope
furnished herewith.
By Order of the Board of Directors,
/s/ Ronald L. McDermott
Ronald L. McDermott
Secretary
March 17, 1999
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Exhibit A
WORTHINGTON FOODS, INC.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
PART I - GENERAL
1. PURPOSE
The purpose of this Worthington Foods, Inc. Amended and Restated 1995
Stock Option Plan (the "Plan") is to advance the interests of Worthington Foods,
Inc. or any adopting successor thereto (the "Company") and its present and
future subsidiaries and to enhance the value of the shareholders' investment in
the Company by encouraging key employees to acquire or increase and retain a
financial interest in the Company and thereby encourage the key employees to
remain in the employment of the Company and to put forth maximum efforts for the
success of the Company. In addition, the Plan is intended to enable the Company
to compete effectively for the services of potential employees by furnishing an
additional incentive to join the employment of the Company.
2. ADMINISTRATION OF THE PLAN
(a) Committee. The Plan shall be administered by a committee of the
Board of Directors (the "Committee"), designated by the Board of Directors to
administer the Plan which shall satisfy the requirements contained in Section
1.162-27(c)(4) of the Final Regulations. The Committee shall at all times
consist of not less than three (3) members of the Board of Directors of the
Company, each of whom shall (a) be an individual from time to time permitted to
serve as a member of the Committee by the rules promulgated under Section 16 of
the Exchange Act in order for grants of stock options under the Plan to be
exempt transactions under said Section 16; and (b) receive remuneration from the
Company in no other capacity than as a director, except as permitted under
Section 1.162-27(e)(3) of the Final Regulations. The members of the Committee
shall be appointed by, and serve at the pleasure of, the Board of Directors of
the Company.
(b) Authority of the Committee. The Committee shall have full power and
authority in its discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to exercise all the power and
authority specifically granted to it under the Plan or necessary or advisable,
in the sole and absolute discretion of the Committee, to the administration of
the Plan including, without limitation, the authority to: select from among
eligible employees those persons to whom options may be granted pursuant to the
Plan; fix the terms and provisions and restrictions of any option granted under
the Plan; grant options; interpret and construe any provision of the Plan or of
any option granted hereunder; make all required or appropriate determinations
under the Plan or any option granted hereunder; adopt, amend and rescind such
rules and regulations relating to the Plan as the Committee shall determine in
its discretion, subject to the express provisions of the Plan; and make all
other determinations deemed by it necessary or advisable for the administration
of the Plan. All decisions and designations made by the Committee pursuant to
the provisions of the Plan shall be final, binding and conclusive with respect
to all interested parties, unless otherwise determined by the Board of
Directors. Notwithstanding the preceding sentence, the selection of employees of
the Company for participation in the Plan and decisions concerning the timing,
pricing and amount of a grant of options under the Plan shall be made solely by
the Committee.
(c) Vacancies, etc. The Board of Directors shall fill all vacancies,
however caused, in the Committee. The Board of Directors may from time to time
appoint additional members to the Committee, and may at any time remove one or
more Committee members and substitute others. One member of the Committee shall
be selected by the Board of Directors to serve as chairman of the Committee. The
Committee shall hold its meetings at such times and places as it shall deem
advisable.
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All determinations of the Committee shall be made by a majority of its members.
The Committee may appoint a secretary and make such rules and regulations for
the conduct of its business as it shall deem advisable, and shall keep minutes
of its meetings.
(d) Indemnification. Each person who is or shall have been a member of
the Committee or of the Board of Directors shall be indemnified and held
harmless by the Company against and from any loss, cost, liability or expense
that may be imposed upon or reasonably incurred by him or her in connection with
or resulting from any claim, action, suit or proceeding to which he or she may
be a party or in which he or she may be involved by reason of any action taken
or failure to act under the Plan and against and from any and all amounts paid
by him or her in settlement thereof, with the Company's approval, or paid by him
or her in satisfaction of judgment in any such action, suit or proceeding
against him or her; provided that he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such person may be entitled under the Company's Articles of
Incorporation or Regulations, as a matter of law, or otherwise, or any power
that the Company may have to indemnify or hold him or her harmless.
3. ELIGIBILITY
(a) General. All full-time employees of the Company or any subsidiary,
including those who are officers or directors, are eligible to receive options
pursuant to the Plan if selected by the Committee to receive an option;
provided, however, that members of the Committee may not participate in the
Plan. More than one option may be granted to an employee.
(b) Factors. In determining the individuals to whom options are to be
granted under the Plan, the Committee shall take into consideration the
respective duties of the individuals, their present and potential contributions
to the success of the Company and such other factors as the Committee shall deem
relevant in connection with accomplishing the purpose of the Plan.
(c) No Other Rights. Nothing contained in the Plan, nor any option
granted pursuant to the Plan, shall confer upon any employee any right to
continue in the employment of the Company or any subsidiary nor limit in any way
the right of the Company to terminate his or her employment at any time.
4. SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of Section 11 hereof, the shares for
which options may be granted under the Plan shall consist of 1,166,666 common
shares, without par value ("common shares"), of the Company. The common shares
hereby reserved are in addition to the common shares previously reserved under
the Company's 1985 Stock Option Plan (the "Prior Stock Option Plan"). No
additional options shall be granted under the Prior Stock Option Plan. Any
common shares as to which stock options granted under the Prior Stock Option
Plan may lapse, expire, terminate or be canceled (so long as the holder thereof
has not received any benefits of ownership of such common shares), shall also be
reserved and available for issuance in connection with stock options granted
under this Plan. All of such common shares may, but need not, be issued pursuant
to the exercise of Incentive Stock Options.
(b) Common shares subject to the Plan may be, at the discretion of the
Board of Directors, either authorized and unissued common shares or common
shares reacquired by the Company and held as treasury shares.
(c) If any outstanding option under the Plan for any reason expires,
lapses, terminates or is canceled without having been exercised in full, the
common shares allocable to the unexercised portion of such option shall (unless
the Plan shall have been terminated) become available for subsequent grants of
options under the Plan.
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5. TERMINATION OF PLAN
This Plan shall terminate upon the earlier of (i) February 20, 2005; or
(ii) the date on which all common shares available for issuance under the Plan
have been issued pursuant to the exercise of options granted hereunder; or (iii)
the determination of the Board that the Plan shall terminate. No options may be
granted under the Plan after such termination date; provided that the options
granted and outstanding on such date shall continue to have force and effect in
accordance with the provisions of the documents evidencing such options.
6. AMENDMENTS
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act, for which or with which the Board deems it necessary
or desirable to qualify or comply. Notwithstanding anything to the contrary
herein, the Committee may amend the Plan, subject to any shareholder approval
required under Rule 16b-3, in such manner as may be necessary so as to have the
Plan conform with local rules and regulations in any jurisdiction outside the
United States.
(b) Amendments to Options. Subject to the provisions of this Plan, the
Committee may waive any conditions or rights under, amend any terms of, or
alter, suspend, discontinue, cancel or terminate any option theretofore granted,
prospectively or retroactively; provided that any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of any holder or beneficiary of any option theretofore granted
shall not to that extent be effective without the consent of the affected holder
or beneficiary.
7. NOTICES
Each notice relating to this Plan shall be in writing and delivered in
person or by first class or certified mail to the proper addressee. Each notice
shall be deemed to have been given on the date it is received. Each notice to
the Committee shall be addressed as follows:
Worthington Foods, Inc.
900 Proprietors Road
Worthington, Ohio 43085
Attention: President
Each notice to a holder of an option (or other person or persons then
entitled to exercise an option) shall be addressed to the holder (or such other
person or persons), at the holder's address set forth in the Company's current
personnel records. Anyone to whom a notice may be given under this Plan may
designate, in writing, a new address by notice to that effect.
8. DEFINITIONS
(a) The term "Code" where used in this Plan shall mean the Internal
Revenue Code of 1986, as amended.
(b) The term "Exchange Act" where used in this Plan shall mean the
Securities Exchange Act of 1934, as amended.
(c) The term "Final Regulations" where used in this Plan shall mean the
final regulations promulgated by the Internal Revenue Service under Section
162(m) of the Code.
(d) The term "subsidiary" where used in this Plan shall have the
meaning set forth for the term "subsidiary corporation" in Section 424(f) of the
Code.
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PART II - OPTIONS
9. GRANT OF OPTIONS
(a) To the extent not inconsistent with the provisions of this Plan,
the Committee shall fix the terms and provisions and restrictions of options,
including the number of common shares to be subject to each option, the dates on
which options may be fully or partially exercised, the minimum period (if any)
during which the same must be held until exercisable and the expiration dates
thereof. Options granted hereunder shall be evidenced by a written option
agreement (an "Agreement") between the employee and the Company. The Agreement
shall contain such terms, conditions and limitations as provided by the
Committee, but shall also be subject to the provisions of this Section 9 and
other Sections of Part II of this Plan.
(b) During the period in which this Plan remains in effect, no person
shall be granted options under this Plan covering more than 50,000 common shares
(subject to adjustment pursuant to Section 11) over any one-year period. For
this purpose, to the extent that any option is canceled (as described in Section
1.162-27(e)(2)(vi)(B) of the Final Regulations), such canceled option shall
continue to be counted against the maximum number of common shares for which
options may be granted to an person under this Plan.
(c) It is intended that certain options issued pursuant to this Plan
shall constitute incentive stock options within the meaning of Section 422 of
the Code ("Incentive Stock Options"). Non-qualified stock options may also be
issued under this Plan in accordance with the Plan's terms and conditions. An
eligible employee may be granted Incentive Stock Options, non-qualified stock
options or both, but only on the terms and subject to the restrictions set forth
in this Plan.
(d) Notwithstanding anything in this Plan to the contrary, no person
shall be eligible to receive an Incentive Stock Option if, at the time of grant,
such person owns of record and beneficially more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company then
outstanding and entitled to vote; provided, however, that the foregoing
limitation shall not apply if the option price at the time the option is granted
is at least one hundred ten percent (110%) of the fair market value (as defined
in Section 9(f) of this Plan) of the common shares subject to the option on the
date of grant of the option and the option term is not more than five (5) years.
Further, the aggregate fair market value (determined at the time the option is
granted) of the common shares with respect to which Incentive Stock Options are
exercisable for the first time by any option holder during any calendar year
(under all stock option plans of the Company) shall not exceed One Hundred
Thousand Dollars ($100,000).
(e) Subject to the exception set forth in Section 9(c) of this Plan,
the purchase price of the common shares covered by each Incentive Stock Option
shall not be less than one hundred percent (100%) of the fair market value of
such common shares on the date of grant of such option. The purchase price of
the common shares covered by any other option issued under this Plan shall be as
determined by the Committee; provided, however, that in no event shall the
purchase price be less than $1.00 per share.
(f) The fair market value of common shares on a particular date shall
be the last reported closing price for the Company's common shares on the NASDAQ
National Market System or any securities exchange on which the common shares may
be listed on that date or, if no such sale occurred on that date, then for the
next preceding date on which a sale was made. If the common shares should be no
longer traded on the NASDAQ National Market System or any securities exchange,
the fair market value shall be determined by the Committee. Subject to the
foregoing, the Committee, in fixing the purchase price, shall have full
authority and discretion and be fully protected in doing so.
(g) Any option granted hereunder shall provide as determined by the
Committee for appropriate arrangements for the satisfaction by the Company and
the option holder of all federal, state, local or other income, excise or
employment taxes or tax withholding requirements applicable to the exercise of
the option or the later disposition of the common shares or other property
acquired upon exercise of an option and all such additional taxes or amounts as
determined by the Committee in its discretion, including, without limitation,
the right of the Company to receive transfers of common shares or other
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<PAGE> 25
property from the option holder or to deduct or withhold in the form of cash or
shares from any transfer or payment to an option holder, in such amount or
amounts deemed required or appropriate by the Committee in its sole and absolute
discretion.
(h) The Committee shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holder or option
holders, the cancellation of any or all outstanding options granted under the
Plan and the grant in substitution therefor of new options under the Plan
(subject to the limitations hereof) covering the same or different numbers of
common shares at an option price per share in all events not less than the fair
market value on the new grant date (as determined under Section 9(f)).
10. NOTICE OF GRANT OF OPTION
Upon the granting of any option to an employee, the Committee shall
promptly cause such employee to be notified of the fact of such grant. The date
on which an option shall be granted shall be the date of the Committee's
authorization of such grant or such later date as may be determined by the
Committee at the time such grant is authorized, subject to satisfaction of any
conditions the Committee may place on the effectiveness of the grant.
11. ADJUSTMENTS AND CHANGES IN THE COMMON SHARES
(a) In the event that the common shares as presently constituted shall
be changed into or exchanged for a different kind or number of shares or other
securities of the Company or of another corporation (whether by reason of
merger, consolidation, recapitalization, reclassification, split-up, combination
of shares or otherwise) or if the number of such shares shall be increased
through the payment of a stock dividend, then unless such change results in the
termination of all outstanding options pursuant to the provisions of Section 12
hereof, then the Committee shall proportionately adjust any or all (as
necessary) of (i) the number of common shares or other securities of the Company
(or number and kind of other securities or property) which may be issued under
the Plan; (ii) the number of common shares or other securities of the Company
(or number and kind of other securities or property) subject to outstanding
options; and (iii) the maximum number of common shares subject to options that
may be granted to an employee under Section 9(b). Outstanding options shall also
be appropriately amended as to price and other terms as may be necessary to
reflect the foregoing events. In the event there shall be any other change in
the number or kind of the outstanding shares of the Company, or of any shares or
other securities into which such shares shall have been changed, or for which
they shall have been exchanged, then if the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment in any
option theretofore granted or which may be granted under the Plan, such
adjustment shall be made in accordance with such determination. Fractional
shares resulting from any adjustment in options pursuant to this Section 11
shall be rounded down to the nearest whole number of shares.
(b) Notwithstanding the foregoing, any and all adjustments in
connection with an Incentive Stock Option shall comply in all respects with
Sections 422 and 424 of the Code and the regulations promulgated thereunder.
(c) Notice of any adjustment shall be given by the Company to each
holder of an option which shall have been so adjusted, provided that such
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of the Plan and any instrument or agreement issued thereunder.
12. ACCELERATION OF OPTIONS
(a) In the event that the Company or its shareholders enter into one or
more agreements to dispose of all or substantially all of the assets or 50
percent or more of the outstanding capital stock of the Company by means of sale
(whether as a result of a tender offer or otherwise), merger, reorganization or
liquidation in one or a series of related transactions (each, an "Acceleration
Event"), then each option outstanding under the Plan shall become exercisable
during the fifteen (15) days immediately prior to the scheduled consummation of
the Acceleration Event with respect to the full number of common shares
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for which such option has been granted; provided, however, that no such
Acceleration Event shall occur in the event that (i) the primary purpose of the
transaction is to change the Company's domicile solely within the United States;
(ii) the terms of the agreement(s) require as a prerequisite for the
consummation of the transaction that each such option shall either be assumed by
the successor corporation or parent thereof or be replaced with a comparable
option to purchase shares of capital stock of the successor corporation or
parent thereof; or (iii) the transaction is approved by a majority of the
members of the Board of Directors of the Company who had either been in office
for more than twelve (12) months prior to such transaction or had been elected,
or nominated for election by the Company's shareholders, by the vote of
three-fourths of the directors then still in office who were directors at the
beginning of such twelve-month period; and provided further that any such
exercise of an option during such fifteen (15) day period shall be conditioned
upon the consummation of such transaction and shall be effective only
immediately before such consummation, except to the extent that an option holder
may indicate, in writing, that such exercise is unconditional with regard to all
or part of the unaccelerated portion of the option. Upon consummation of the
Acceleration Event contemplated by said agreement, all outstanding options,
whether or not accelerated, shall terminate and cease to be exercisable, unless
assumed by the successor corporation or parent thereof.
(b) The grant of options under this Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
13. ADDITIONAL PROVISIONS
Any Agreements authorized under the Plan may contain such provisions as
the Committee and the Board of Directors of the Company shall deem advisable
which are not inconsistent with the terms herein stated. All Incentive Stock
Option Agreements shall contain such limitations and restrictions upon the
exercise of the option governed thereby as shall be necessary in order that such
option will be an "incentive stock option" as defined in Section 422 of the
Code, or to conform to any change in the applicable law, rulings or regulations.
In the event this Plan is inconsistent in any respect with an Agreement between
the Company and an option holder, the provisions of the Plan shall control.
14. EXERCISE OF OPTIONS
Each option granted under this Plan shall be exercisable on such date
or dates and during such period and for such number of common shares as shall be
determined by the Committee and as set forth in the Agreement evidencing such
option. An option may be exercised by notice given to the Committee in such form
as the Committee shall require. Notwithstanding the preceding provisions of this
Section 14, no option granted under this Plan may be exercised unless a period
of at least six (6) months has elapsed from the date of grant of such option. No
fractions of a Common Share may be purchased by an option holder upon exercising
his or her option, and to the extent that the use of fractional or percentage
computations would otherwise give rise to the right of the option holder to
purchase a fraction of a Common Share, the total common shares subject to
exercise shall be adjusted down to the nearest whole number.
15. EXERCISE AFTER TERMINATION OF EMPLOYMENT
(a) Except as otherwise provided in the Plan, an option holder's
options under this Plan (i) are exercisable only by the option holder, (ii) are
exercisable only while the option holder is in the employment of the Company and
then only if the options have become exercisable by their terms, and (iii) if
not exercisable by their terms at the time the option holder ceases to be in the
employment of the Company, shall immediately expire on the date of termination
of employment.
(b) Except as provided in this Section 15(b), any option holder's
option which is exercisable by its terms at the time the option holder ceases to
be in the employment of the Company must be exercised
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<PAGE> 27
on or before the earlier of three (3) months after the date of termination of
employment or the fixed expiration date of such option after which period such
option shall expire. If an option holder is terminated for willful, deliberate
or gross misconduct (such as, for example, dishonesty), however, all options
granted to such option holder shall, to the extent not previously exercised,
expire immediately upon such termination. The circumstances under which the
employment of an option holder is terminated (i.e., whether employment is
terminated for willful, deliberate or gross misconduct) shall be decided by the
Committee, whose decision shall be final and binding on all affected parties.
(c) In the event of the death of the option holder while in the
employment of the Company or within three (3) months after his termination of
employment other than for willful, deliberate or gross misconduct, each of that
option holder's unexercised options (whether or not then exercisable by their
terms) shall become immediately exercisable by such option holder's estate for a
period ending on the earlier of the fixed expiration date of such option or
twelve months after the date of death, after which period such option shall
expire. For purposes hereof, the estate of an option holder shall be defined to
include the legal representatives thereof or any person who has acquired the
right to exercise an option by reason of the death of the option holder.
(d) In the case of any options, other than Incentive Stock Options, in
the event of the termination of employment by reason of the permanent disability
(as defined below) of the option holder, each of that option holder's
unexercised options (whether or not then exercisable by their terms) shall
become exercisable for a period ending on the earlier of the fixed expiration
date of such option or twelve months from the date of termination of employment,
after which period such option shall expire. For purposes of this Section 15(d),
"permanent disability" shall be deemed to be the inability of the option holder
to perform the duties of his or her job with the Company because of a physical
or mental disability as evidenced by the opinion of a Company-approved doctor of
medicine licensed to practice medicine in the United States of America.
(e) In the case of any options, other than Incentive Stock Options, in
the event of the normal retirement of the option holder, each of that option
holder's unexercised options (whether or not then exercisable by its terms),
granted to that option holder on or before his 65th birthday shall become
immediately exercisable for a period ending on the earlier of the fixed
expiration date of such option or twelve months after the date of retirement,
after which period such option shall expire. Also, in the event of the normal
retirement of the option holder, each of that option holder's unexercised
options, other than Incentive Stock Options (whether or not then exercisable by
its terms) granted to that option holder after his 65th birthday and held for a
period of at least twelve consecutive months of active employment with the
Company after the date of grant shall become immediately exercisable for a
period ending on the earlier of the fixed expiration date of such option or
twelve months after the date of retirement, after which period such option shall
expire. For purposes of this Section 15(e), retirement shall be deemed to be
"normal retirement" if the option holder is at least 65 years of age and has
completed at least five consecutive years of employment with the Company at the
date of retirement.
(f) In the case of Incentive Stock Options, in the event of the
termination of employment by reason of the permanent disability or the normal
retirement of the option holder (as defined in Sections 15(d) and (e),
respectively, above), each Incentive Stock Option then held by the option holder
shall become exercisable and terminate on the earlier of the period ending three
months after the termination of employment or the fixed expiration date of such
option; provided, however, that, if such termination of employment occurs by
reason of "disability" within the meaning of Section 22(e)(3) of the Code, said
three-month period shall be extended to twelve months.
(g) For purposes of this Section 15, employment by the Company shall
also include employment by any subsidiary of the Company.
16. PAYMENT FOR COMMON SHARES
Common shares which are subject to an option shall be issued only upon
exercise of the option in whole or in part and upon full payment of the purchase
price for the common shares as to which the
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option is exercised. The option price shall be payable upon exercise of the
option in United States dollars in cash (including check, bank draft or money
order). If permitted by the Committee, the option price may also be payable (a)
by delivery of common shares of the Company already owned by the option holder,
or (b) by delivery of a combination of common shares and cash. Any common shares
delivered to the Company in payment of the option price shall be valued at their
fair market value (as defined in Section 9(f) of this Plan) on the date of
delivery. An employee to whom an option has been granted shall have none of the
rights of a shareholder with respect to the common shares to be acquired until
such common shares are transferred to him.
17. TERMINATION OF OPTION
Each option shall terminate in any event no later than ten (10) years
from the date of grant except as provided in Section 9(d) of this Plan.
18. ASSIGNABILITY
An option granted under the Plan may not be transferred except by will
or the laws of descent and distribution and, during the lifetime of the employee
to whom granted, may be exercised only by such employee or such employee's
guardian or legal representative.
19. LAWS AND REGULATIONS
(a) The Plan and all options granted pursuant to it are subject to all
laws and regulations of any governmental authority which may be applicable
thereto, and notwithstanding any provisions of this Plan or the options granted,
the holder of an option shall not be entitled to exercise such option, nor shall
the Company be obligated to issue any common shares, if such exercise or
issuance shall constitute a violation by the option holder or the Company of any
provisions of any such law or regulation.
(b) The Company, in its discretion, may postpone the issuance and
delivery of common shares upon any exercise of an option until completion of any
stock exchange listing or registration or other qualification of such common
shares under any state or federal law, rule or regulation as the Company may
consider appropriate; and may require any person exercising an option to make
such representations and furnish such information as it may consider appropriate
in connection with the issuance of the common shares in compliance with
applicable law. Under such circumstances, the Company shall proceed with
reasonable promptness to complete any such listing, registration or other
qualification.
(c) Common shares issued and delivered upon exercise of an option shall
be subject to such restrictions on trading, including appropriate legending of
certificates to that effect, as the Company, in its discretion, shall determine
are necessary to satisfy applicable legal requirements and obligations.
20. USE OF PROCEEDS
The proceeds received by the Company from the sale of common shares
pursuant to the options granted under this Plan shall be used for general
corporate purposes.
21. EXPENSES
The expenses of the Plan shall be borne by the Company.
22. NO RIGHT TO OPTIONS
No employee shall have any claim to be granted an option under this
Plan, and there is no obligation for uniformity of treatment of employees or
holders or beneficiaries of options. The terms and conditions of option grants
need not be the same with respect to each recipient.
26
<PAGE> 29
23. NO RIGHT TO EMPLOYMENT
Eligibility for participation in this Plan or the grant of an option
shall not be construed as giving an employee the right to be retained in the
employ of the Company or any subsidiary of the Company. Further, the Company or
any subsidiary of the Company may at any time dismiss the holder of an option
from employment, free from any liability or claim under the Plan, unless
otherwise expressly provided in the Plan or in any Agreement.
24. NO RIGHTS AS SHAREHOLDERS
Subject to the provisions of the Plan and/or the applicable Agreement,
no holder of an option granted under this Plan shall have any rights as a
shareholder with respect to any common shares to be distributed under this Plan
until he or she has become the holder of such common shares.
25. GOVERNING LAW
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan and any Agreement shall be determined in
accordance with the laws of the State of Ohio.
26. NO TRUST OR FUND CREATED
Neither the Plan nor any option shall create or be construed to create
a trust or separate fund of any kind or a fiduciary relationship between the
Company or any subsidiary of the Company and any option holder or any other
person.
27. RULE 16b-3 COMPLIANCE
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable terms
and conditions of Rule 16b-3 and any successor provisions. To the extent that
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
28. SEVERABILITY
If any provisions of the Plan or any Agreement is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any
person or any option, or would disqualify the Plan or any option under law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the option, such provision shall be stricken
as to such jurisdiction, person or option and the remainder of the Plan and any
such option shall remain in full force and effect.
27
<PAGE> 30
ADDENDUM TO PROXY STATEMENT
---------------------------
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
---------------------------------------
OF WORTHINGTON FOODS, INC.
--------------------------
March 15, 1999
Subsequent to the printing of the Proxy Statement and Proxy card for this year's
Annual Meeting of Shareholders, the Board of Directors learned that Janice D.
Buller is unable to serve as a candidate for election as a director of
Worthington Foods, Inc. as indicated in the Proxy Statement and Proxy card. The
Board of Directors is not naming a nominee for election at the Annual Meeting in
substitution for Ms. Buller, but intends to appoint a qualified person to fill
the vacancy on the Board following the Annual Meeting after a suitable candidate
has been identified by the Board's Nominating Committee. The Proxy card, which
accompanies this Proxy Statement, will not be voted in favor of the election of
Ms. Buller as a director.
<PAGE> 31
Worthington Foods, Inc.
Annual Meeting of Shareholders
April 20, 1999
[MAP] THE RADISSON HOTEL COLUMBUS NORTH 4900 Sinclair Road Columbus, Ohio
43229
FROM NORTH: I-71 South to Morse Road Exit (Exit 116). Ramp ends at
Sinclair Road. Turn right to hotel entrance.
FROM SOUTH: I-71 North to Morse Road Exit (Exit 116). Turn left under
freeway to first street which is Sinclair Road. Turn right, one block
to hotel.
FROM EAST OR WEST: I-70 to I-71 North. Then follow "From South"
directions.
FROM PORT COLUMBUS INTERNATIONAL AIRPORT: Exit airport, take 670 to
I-71 North. Then follow "From South" directions.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 20, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of Worthington Foods,
P Inc. (the "Company") hereby constitutes and appoints Emil J.
Brolick, Francisco J. Perez and Donald B. Shackelford, or any one
R of them, the Proxy or Proxies of the undersigned, with full power
of substitution in each of them, to attend the Annual Meeting of
O Shareholders of the Company (the "Annual Meeting") to be held on
Tuesday, April 20, 1999, at The Radisson Hotel, 4900 Sinclair
X Road, Columbus, Ohio 43229, at 11:00 a.m., local time, and any
adjournment(s) thereof, and to vote all of the common shares of
Y the Company which the undersigned is entitled to vote at such
Annual Meeting or at any adjournment(s) thereof as follows:
1. To elect three directors to serve for terms of three years each.
<TABLE>
<S> <C>
[ ] FOR election as directors of the Company [ ] WITHHOLD AUTHORITY to vote for
of all the nominees listed below (except all nominees listed below.
as marked to the contrary below).*
</TABLE>
JANICE D. BULLER WILLIAM D. PARKER DAVID R. ROWE
*(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list above.)
2. To approve the Amended and Restated Worthington Foods, Inc. 1995 Stock Option
Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting or any adjournment(s)
thereof.
(Continued, and to be executed and dated on the other side.)
<PAGE> 32
[LOGO](R)
We invite you to attend the 1999 Annual Meeting
of Shareholders of Worthington Foods, Inc.
Date: Tuesday, April 20, 1999
Time: 11:00 a.m., eastern standard time
Location: The Radisson Hotel Columbus North
4900 Sinclair Road
Columbus, Ohio 43229
(see map on reverse side)
2
Detach Card
(Continued from the other side.)
WHERE A CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO CHOICE IS
INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED IN ITEM NO. 1 AS DIRECTORS OF THE COMPANY AND
FOR PROPOSAL NO. 2. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT(S) THEREOF OR IF A NOMINEE FOR ELECTION AS A DIRECTOR
NAMED IN THE PROXY STATEMENT IS UNABLE TO SERVE, THE COMMON SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXY OR PROXIES ON SUCH
MATTERS OR FOR SUCH SUBSTITUTE NOMINEES AS THE DIRECTORS MAY RECOMMEND.
All proxies previously given or executed by the undersigned are hereby
revoked. The undersigned acknowledges receipt of the accompanying Notice of
Annual Meeting of Shareholders and Proxy Statement for the April 20, 1999
meeting.
Dated: _______________________, 1999
____________________________________
Signature of Shareholder(s)
____________________________________
Signature of Shareholder(s)
Please sign exactly as your name appears
hereon. When common shares are
registered in two names, both
shareholders should sign. When signing
as executor, administrator, trustee,
guardian, attorney or agent, please give
full title as such. If shareholder is a
corporation, please sign in full
corporate name by President or other
authorized officer. If shareholder is a
partnership, please sign in partnership
name by authorized person. (Please note
any change of address on this proxy.)
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF WORTHINGTON FOODS,
INC. PLEASE FILL IN, DATE AND SIGN AND
RETURN IT PROMPTLY USING THE ENCLOSED
ENVELOPE.
