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:
[ ] 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 ss.240.14a-11(c) or ss.240.14a-12
Sparta 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>
SPARTA FOODS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held
July 9, 1999
A Special Meeting of Shareholders of Sparta Foods, Inc. will be held at
the office of Fredrikson & Byron, P.A., Suite 1300 International Centre, 900
Second Avenue South, Minneapolis, Minnesota, on Friday, July 9, 1999, at 3:30
p.m. (Central Daylight Time), for the following purposes:
1. To approve a 500,000 share increase in the number of shares
reserved for issuance under the Company's Amended and Restated
Stock Option Plan.
2. To take action upon any other business that may properly come
before the meeting or any adjournment or postponement thereof,
including a proposal to adjourn or postpone the Special
Meeting.
Accompanying this Notice of Annual Meeting is a Proxy Statement and
form of Proxy, which are sent to you by order of the Board of Directors.
Only shareholders of record shown on the books of the Company at the
close of business on May 28, 1999, will be entitled to vote at the meeting or
any adjournment thereof. Each shareholder is entitled to one vote per share on
all matters to be voted on at the meeting.
You are cordially invited to attend the meeting. Whether or not you
plan to attend the meeting, please sign, date and return your Proxy in the
return envelope provided as soon as possible. Your cooperation in promptly
signing and returning the Proxy will help avoid further solicitation expense to
the Company.
A. Merrill Ayers,
Secretary
Dated: June 4, 1999
New Brighton, Minnesota
<PAGE>
SPARTA FOODS, INC.
PROXY STATEMENT
for
Special Meeting of Shareholders
to be held July 9, 1999
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Sparta
Foods, Inc. ("Sparta" or the "Company") in connection with the solicitation by
the Company's Board of Directors of proxies to be voted at the Special Meeting
of Shareholders (the "Special Meeting") to be held on July 9, 1999, and at any
adjournment thereof, for the purposes set forth in the attached Notice of
Special Meeting. The mailing address of the Company's principal executive office
is 1565 First Avenue N.W., New Brighton, Minnesota 55112. This Proxy Statement
and the related Proxy and Notice of Special Meeting is first being mailed to
Sparta shareholders on or about June 4, 1999.
The cost of soliciting Proxies, including preparing, assembling and
mailing the Proxies and soliciting material, will be borne by the Company.
Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit Proxies personally
or by telephone.
Any shareholder of record giving a Proxy may revoke it at any time
prior to its use at the Special Meeting by giving written notice of such
revocation to the Secretary or other officer of the Company or by filing a new
written Proxy with an officer of the Company. Personal attendance at the Special
Meeting is not, by itself, sufficient to revoke a Proxy unless written notice of
the revocation or a subsequent Proxy is delivered to an officer before the
revoked or superseded Proxy is used at the Special Meeting.
The presence at the Special Meeting in person or by proxy of the
holders of a majority of the outstanding shares of Sparta's Common Stock
entitled to vote shall constitute a quorum for the transaction of business.
Proxies not revoked will be voted in accordance with the instructions specified
by shareholders by means of the ballot provided on the Proxy for that purpose.
Proxies which are signed but which lack any such specific instructions with
respect to any proposal will, subject to the following, be voted in favor of the
proposals set forth in the Notice of Special Meeting. If a shareholder abstains
from voting as to any proposal, then the shares held by such shareholder shall
be deemed present at the Special Meeting for purposes of determining a quorum
and for purposes of calculating the vote with respect to such proposal, but
shall not be deemed to have been voted in favor of such proposal. Abstentions as
to any proposal, therefore, will have the same effect as votes against such
proposal. If a broker returns a "non-vote" proxy, indicating a lack of voting
instruction by the beneficial holder of the shares and a lack of discretionary
<PAGE>
authority on the part of the broker to vote on a particular proposal, then the
shares covered by such non-vote proxy shall be deemed present at the Special
Meeting for purposes of determining a quorum, but shall not be deemed to be
represented at the Special Meeting for purposes of calculating the vote required
for approval of such proposal.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed May 28, 1999, as the
record date (the "Record Date") for determining shareholders entitled to vote at
the Special Meeting. Persons who were not shareholders on the Record Date will
not be allowed to vote at the Special Meeting. At the close of business on the
Record Date, 10,191,416 shares of Sparta's Common Stock were issued and
outstanding. The Common Stock is the only outstanding class of voting capital
stock of the Company. Each share of Common Stock is entitled to one vote on each
matter to be voted upon at the Special Meeting.
PRINCIPAL SHAREHOLDERS
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of May 28, 1999, by each person known to the
Company to be the beneficial owner of 5% or more of the Company's Common Stock:
Name and Address of Number of Shares Percent
Shareholder Beneficially Owned(1) of Class(2)
------------------- --------------------- -----------
Cenex Harvest States Cooperatives 1,515,150(3) 12.9%
5500 Cenex Drive
Inver Grove Heights, MN 55077
Carmen S. Abril Lopez 754,480 7.4%
901 West Culver
Phoenix, AZ 85007
Donald R. Brattain 662,000 6.5%
601 Lakeshore Parkway
Minnetonka, MN 55305
- ---------------------
(1) Unless otherwise indicated, the person listed as the beneficial owner
of the shares has sole voting and sole investment power over the
shares.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of May 28, 1999, or within 60 days
of such date are treated as outstanding only when determining the
percent owned by such individual and when determining the percent owned
by the group.
(3) Such shares are not outstanding but may be issued upon conversion of
convertible Preferred Stock.
<PAGE>
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of May 28, 1999, by each executive officer of
the Company named in the Summary Compensation Table, by each director and by all
directors and current executive officers (including the named individuals) as a
group:
Name and Address of Number of Shares Percent
Shareholder or Identity of Group Beneficially Owned(1) of Class(2)
-------------------------------- --------------------- -----------
Larry P. Arnold 376,000(3) 3.7%
3376 Breconwood Circle
Wayzata, MN 55391
Joel P. Bachul 359,000(4) 3.4%
1565 First Ave. N.W.
New Brighton, MN 55112
Michael J. Kozlak 273,000(5) 2.7%
5049 Green Farms Road
Edina, MN 55436
Thomas C. House 192,500(6) 1.9%
1565 First Avenue N.W.
New Brighton, MN 55112
A. Merrill Ayers 173,500(7) 1.7%
1565 First Ave. N.W.
New Brighton, MN 55112
Edward K. Jorgensen 58,000(3) *
5N175 Deerpath Way
St. Charles, IL 60175
John D. Johnson (8) 8,000(9) *
1667 N. Snelling
St. Paul, MN 55164
Thomas F. Baker 3,000(10) *
1573 Lone Oak Road
Eagan, MN 55121
William J. Benzick 3,000(10) *
4137 Brigadoon Drive
Shoreview, MN 55126
Current Officers and Directors as a 1,292,750(11) 12.1%
group (10 persons)
- ---------------------
* Less than 1%.
<PAGE>
(1) See footnote (1) to preceding table.
(2) See footnote (2) to preceding table.
(3) Includes 18,000 shares which may be purchased upon exercise of options
which are exercisable as of May 28, 1999 or within 60 days of such
date.
(4) Includes 225,000 shares which may be purchased upon exercise of options
which are exercisable as of May 28, 1999 or within 60 days of such
date.
(5) Includes 23,000 shares which may be purchased upon exercise of options
which are exercisable as of May 28, 1999 or within 60 days of such
date.
(6) Includes 132,500 shares which may be purchased upon exercise of options
which are exercisable as of May 28, 1999 or within 60 days of such
date.
(7) Includes 147,500 shares which may be purchased upon exercise of options
which are exercisable as of May 28, 1999 or within 60 days of such
date.
(8) Mr. Johnson is an executive officer of Cenex Harvest States
Cooperatives, which is a shareholder of the Company's preferred stock.
(9) Such shares are not outstanding but may be purchased upon exercise of
options which are exercisable as of May 28, 1999 or within 60 days of
such date.
(10) Such shares are not outstanding but will become purchasable within 60
days of May 28, 1999 if the increase in shares for the Stock Option
Plan is approved by the shareholders.
(11) Includes 451,750 shares which may be purchased upon exercise of options
which are exercisable as of May 28, 1999 or within 60 days of such
date.
EXECUTIVE COMPENSATION
Summary Compensation Table
Set forth in the table below is the compensation paid by the Company
during each of the last three fiscal years to the Company's Chief Executive
Officer and each other executive officer whose total salary and bonus for fiscal
1998 exceeded $100,000.
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------- ------------
Awards
------
Securities
Other Annual Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation Options (#)
- --------------------------- ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Joel P. Bachul 1998 155,000 51,500 None 50,000
President and Chief Executive Officer 1997 139,231 31,250 None 100,000
1996 114,634 20,000 None 50,000
A. Merrill Ayers 1998 130,000 35,000 None 35,000
Senior Vice President and Chief Financial 1997 114,231 25,000 None 75,000
Officer 1996 93,750 20,000 None 35,000
Thomas C. House 1998 110,000 30,000 None 35,000
Former Vice President of Corporate Planning 1997 96,038 21,250 None 75,000
1996 80,833 10,000 None 35,000
</TABLE>
No other current executive officer of the Company received a salary and
bonus from the Company in excess of $100,000 during the last fiscal year.
Change in Control Arrangements
The Company has entered into Salary Continuation Agreements with Joel
P. Bachul, President and Chief Executive Officer, A. Merrill Ayers, Chief
Financial Officer and Craig S. Cram, Executive Vice President of Sales and
Operations. Such Agreements provide that in the event that the officer's
employment is terminated without cause or the officer terminates his employment
with the Company for any reason following a sale or merger of the Company, such
officer will be entitled to receive severance payments for 24 months equal to
his base compensation at the time of termination. The Agreements also provide
that any outstanding stock option held by such officers will vest immediately
prior to the effective date of a change of control. The Company has a similar
agreement with Thomas C. House, former Vice President of Operations, which
terminates on September 30, 1999.
Option/SAR Grants During 1998 Fiscal Year
The following table sets forth the options that have been granted to
the executive officers listed in the Summary Compensation Table during the
Company's last fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
---- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
Joel P. Bachul 50,000(1) 21.7% $1.5625 11/10/02
A. Merrill Ayers 35,000(1) 15.2% $1.5625 11/10/02
Thomas C. House 35,000(1) 15.2% $1.5625 11/10/02
</TABLE>
<PAGE>
(1) Such option is exercisable as to 25% of the total number of shares per
year for four years beginning November 10, 1998.
Option/SAR Exercises During Fiscal 1998
and Fiscal Year-End Option/SAR Values
The following table provides certain information regarding the exercise
of stock options to purchase shares of the Company's Common Stock during the
year ended September 30, 1998, by the officers named in the Summary Compensation
Table and the fiscal year-end value of unexercised stock options held by such
officers.
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Shares Value Number of Unexercised the-Money Options at
Acquired on Realized Options at Fiscal Year End Fiscal Year End ($)
Name Exercise ($) (exercisable/unexercisable) (exercisable/unexercisable)(1)
---- -------- --- --------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Bachul None 0 143,750 181,250 31,641 10,547
A. Merrill Ayers None 0 92,500 127,500 21,094 7,031
Thomas C. House None 0 83,750 121,250 21,094 7,031
</TABLE>
(1) Based on a fiscal year-end of September 30, 1998 and a Common Stock
price of $1.0625 per share, which is the last sale price of the
Company's Common Stock on September 30, 1998. The value of in-the-money
options is calculated as the difference between the fair market value
of the Common Stock underlying the options and the exercise price of
the options at fiscal year end. Exercisable options refer to those
options that are exercisable as of September 30, 1998, while
unexercisable options refer to those options that are not exercisable
as of September 30, 1998, but which will become exercisable at various
times in the future.
Compensation of Directors
General Policy. Each director who is not an employee of the Company
receives $500 for each Board meeting attended. Directors may be reimbursed for
expenses incurred in attending meetings of the Board of Directors.
Stock Options. Under the Company's Amended and Restated Stock Option
Plan, each person who becomes a nonemployee director of the Company is
automatically granted a nonqualified option exercisable for 15,000 shares of
Common Stock, and each nonemployee director who is reelected to the Board of
Directors will thereafter receive a nonqualified option for 2,000 shares. On
February 26, 1998, the date of the 1998 annual meeting of shareholders, Messrs.
Arnold, Jorgensen and Kozlak each received an option to purchase 2,000 shares at
an exercise price of $1.4375, which was the fair market value of the Company's
Common Stock on such date, and Mr. Johnson was granted an option to purchase
15,000 shares at an exercise price of $1.4375 upon his election to the Board on
February 26, 1998. On February 25, 1999, the date of the 1999 Annual Meeting,
Messrs. Arnold, Johnson, Jorgensen and Kozlak each received an option to
purchase 2,000 shares at an option price of $1.40625, the fair market value of
the Company's stock on such date. Messrs. Thomas F. Baker and William J.
Benzick, who were elected to the Board in May 1999, will receive their 15,000
share options if shareholders approve the requested increase in the number of
shares reserved for the Plan.
<PAGE>
INCREASE IN SHARES RESERVED UNDER SPARTA FOODS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
Proposal to Increase Shares
The Board of Directors has, subject to shareholder approval, increased
by 500,000 the number of shares reserved for issuance under the Company's
Amended and Restated Stock Option Plan (the "Plan"). There were initially
400,000 shares reserved for issuance under the Plan, which number was increased
to 1,300,000 by the shareholders at the 1996 and 1997 annual meetings. There
have been 88,284 shares issued under the Plan and 1,282,250 shares are subject
to currently outstanding options. In order to provide sufficient shares for
grants to employees, directors and others, shareholders are being asked to
approve the reservation of 500,000 additional shares under the Plan.
Description of Plan
A general description of the Plan, as amended and restated, is set
forth below, but such description is qualified in its entirety by reference to
the full text of the Plan, a copy of which may be obtained without charge upon
written request to the Company's Chief Financial Officer.
Purpose. The purpose of the Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and other employees upon whose
efforts the success of the Company will depend to a large degree.
Term. The term of the Plan expires December 16, 2000, ten years from
the date the Plan was adopted by the Board of Directors; provided, however, the
Board may terminate the Plan earlier in the event of a sale by the Company of
substantially all of its assets or in the event of a merger, exchange or
liquidation of the Company.
Administration. The Plan is administered by the Compensation and Stock
Option Committee of the Board of Directors (the "Committee"). The Plan gives
broad powers to the Committee to administer and interpret the Plan, including
the authority to select the individuals to be granted options and to prescribe
the particular form and conditions of each option granted.
Eligibility. All employees of the Company or of any subsidiary are
eligible to receive incentive stock options pursuant to the Plan. All employees,
officers and directors of and consultants and advisors to the Company or of any
subsidiary are eligible to receive nonqualified stock options. As of May 28,
1999, the Company had approximately 155 employees, including four officers, and
six outside directors.
Options. When an option is granted under the Plan, the Committee, at
its discretion, specifies the option price, the type of option (either
"incentive" or nonqualified) to be granted, and the number of shares of Common
Stock which may be purchased upon exercise of the option. The exercise price of
an incentive stock option may not be less than 100% of the fair market value of
<PAGE>
the Company's Common Stock, as that term is defined in the Plan, and, unless
otherwise determined by the Committee, the exercise price of a nonqualified
stock option may not be less than 100% of the fair market value on the date of
grant. The closing market price of the Company's Common Stock was $1.1875 on May
28, 1999. The period during which an option may be exercised and whether the
option will be exercisable immediately, in stages or otherwise is set by the
Committee, but in no event may an incentive stock option be exercisable more
than ten (10) years from the date of grant. Optionees may pay for shares upon
exercise of options with cash, certified check or Common Stock of the Company
valued at the stock's then "fair market value" as defined in the Plan. Each
option granted under the Plan is nontransferable during the lifetime of the
optionee.
Generally, under the form of option agreement which the Committee uses
for options granted under the Plan, if the optionee's affiliation with the
Company terminates before expiration of the option for reasons other than death,
the optionee has a right to exercise the option for three months after
termination of such affiliation or until the option's original expiration date,
whichever is earlier. If the termination is because of death, the option
typically is exercisable until its original stated expiration or until the
12-month anniversary of the optionee's death, whichever is earlier. The
Committee may impose additional or alternative conditions and restrictions on
the incentive or nonqualified stock options granted under the Plan; however,
each incentive option must contain such limitations and restrictions upon its
exercise as are necessary to ensure that the option will be an incentive stock
option as defined under the Internal Revenue Code.
Under the Plan, each director of the Company who is not serving as a
full-time officer or employee of the Company (an "Outside Director") will
automatically be granted a nonqualified option (the "Initial Option")
exercisable for 15,000 shares of Common Stock upon the date of his or her
initial election as a director and each Outside Director will be granted a
nonqualified option for 2,000 shares (the "Subsequent Option") upon each
re-election to the Board; provided, that no Subsequent Option will be granted to
any director who received an Initial Option during the preceding 12 months. Each
such option will be exercisable for a period of five years, unless earlier
terminated in accordance with the Plan, at an exercise price per share equal to
100% of the fair market value of the Common Stock on the date of grant. Each
Initial Option will be exercisable to the extent of 3,000 shares on the date of
grant and to the extent of an additional 3,000 shares on each of the first,
second, third and fourth anniversaries of the date of grant.
Subsequent Options will be exercisable immediately on the date of grant.
Amendment. The Board of Directors may form time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment may impair the terms and conditions of any
outstanding option to the material detriment of the optionee without the consent
of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code, or be amended in any manner that will: (i) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events; (ii) change the
designation of the class of employees eligible to receive options; (iii)
decrease the price at which options will be granted; or (iv) materially increase
the benefits accruing to optionees under the Plan.
<PAGE>
The Board of Directors will equitably adjust the maximum number of
shares of Common Stock reserved for issuance under the Plan, the number of
shares covered by each outstanding option and the option price per share in the
event of stock splits or consolidations, stock dividends or other transactions
in which the Company receives no consideration. The Board of Directors may also
provide for the protection of optionees in the event of a merger, liquidation or
reorganization of the Company.
Federal Income Tax Consequences of the Plan
Under present law, an optionee will not realize any taxable income on
the date a nonqualified stock option is granted to the optionee pursuant to the
Plan. Upon exercise of the option, however, the optionee must recognize, in the
year of exercise, ordinary income equal to the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as a capital gain or loss. The Company will receive an income tax
deduction, in its fiscal year in which nonqualified options are exercised, equal
to the amount of ordinary income recognized by those optionees exercising
options, and must withhold income and other employment-related taxes on such
ordinary income.
Incentive stock options granted pursuant to the Plan are intended to
qualify for favorable tax treatment to the optionee under Section 422 of the
Internal Revenue Code. Under Section 422, an optionee realizes no taxable income
when the option is granted. Further, the optionee generally will not recognize
any taxable income when the option is exercised if he or she has at all times
from the date of the option's grant until three months before the date of
exercise been an employee of the Company. The Company ordinarily is not entitled
to any income tax deduction upon the grant or exercise of an incentive stock
option. Certain other favorable tax consequences may be available to the
optionee if he or she does not dispose of the shares acquired upon exercise of
an incentive stock option for a period of two years from the granting of the
option and one year after receipt of the shares.
Plan Benefits. The table below shows the total number of stock options
that have been received by the following individuals and groups under the Plan:
Total Number of
Name and Position/Group Options Received (1)
Joel P. Bachul, President and Chief
Executive Officer 400,000
A. Merrill Ayers, Chief Financial Officer 272,500
Thomas C. House, Former Vice President
of Corporate Planning 256,667
Current Executive Officer Group 772,500 (2)
Current Non-executive Officer Director Group 112,000 (3)
Current Non-executive Officer Employee Group 185,666
-------------
<PAGE>
(1) This table reflects the total stock options granted to date
without taking into account exercises or cancellations.
Because future grants of stock options are subject to the
discretion of the Stock Option and Compensation Committee, the
future benefits that may be received by these individuals or
groups under the Plan cannot be determined at this time,
except for the automatic option grants to nonemployee
directors as described above.
(2) Does not include an option for 25,000 shares granted to an
executive officer outside the Plan.
(3) Includes 15,000 share options which will be granted to Messrs.
Baker and Benzick if the share increase is approved
by the shareholders.
Vote Required. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE INCREASE IN THE NUMBER OF SHARES RESERVED FOR THE AMENDED AND
RESTATED STOCK OPTION PLAN. Approval of the increase requires the affirmative
vote of the greater of (i) a majority of the shares represented at the meeting
with authority to vote on such matter or (ii) a majority of the voting power of
the minimum number of shares that would constitute a quorum for the transaction
of business at the meeting.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 2000 Annual Meeting must be received by the
Company at its offices by September 22, 1999, to be considered for inclusion in
the Company's proxy statement and related proxy for the 2000 Annual Meeting.
Shareholder proposals intended to be presented at the 2000 Annual Meeting but
not included in the Company's proxy statement and proxy will be considered
untimely if received by the Company after December 6, 1999.
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented at the
meeting. If any other matter does properly come before the meeting, the
appointees named in the Proxies will vote the Proxies in accordance with their
best judgment.
<PAGE>
SPARTA FOODS, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOEL P. BACHUL and A. MERRILL AYERS, or either
of them acting alone, with full power of substitution, as proxies to represent
and vote, as designated below, all shares of Common Stock of Sparta Foods, Inc.
registered in the name of the undersigned, at the Special Meeting of the
Shareholders to be held on Friday, July 9, 1999, at 3:30 p.m., Central Daylight
Time, at the office of Fredrikson & Byron, P.A., Suite 1300 International
Centre, 900 Second Avenue South, Minneapolis, Minnesota, and at all adjournments
of such meeting. The undersigned hereby revokes all proxies previously granted
with respect to such meeting.
The Board of Directors recommends that you vote "FOR" the following proposals:
(1) APPROVE 500,000 SHARE INCREASE IN NUMBER OF SHARES RESERVED FOR
ISSUANCE UNDER STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) OTHER MATTERS. In their discretion, the appointed proxies are
authorized to vote upon such others business as may properly come
before the Meeting or any adjournment or postponement, including a
proposal to adjourn or postpone the Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR PROPOSAL (1).
Date ___________________, 1999. ____________________________________
____________________________________
PLEASE DATE AND SIGN ABOVE exactly
as name appears at the left,
indicating, where appropriate,
official position or representative
capacity. If stock is held in joint
tenancy, each joint owner should sign.
<PAGE>
SPARTA FOODS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
(As Amended Through June 4, 1999)
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliates" shall mean a Parent or Subsidiary of the
Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall mean a Committee of two or more
directors who shall be appointed by and serve at the pleasure of the
Board. In the event the Company's securities are registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, each of
the members of the Committee shall be a "disinterested" person within
the meaning of Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934 as amended. As of the effective date of the Plan,
a "disinterested" person under Rule 16b-3 generally means a person who,
among other things, has not been, at any time within one year prior to
his or her appointment to the Committee (or, if shorter, during the
period beginning with the initial registration of the Company's equity
securities under Section 12 of the Securities Exchange Act of 1934, as
amended, and ending with the director's appointment to the Committee)
and who will not be, while serving on such Committee, granted or
awarded options under the Plan, or under any other plan of the Company
or any of its Affiliates entitling participants to acquire stock, stock
options, stock appreciation rights or similar rights that have an
exercise or conversion privilege or a value derived from equity
securities issued by the Company or its Affiliate, except to the extent
permitted by Rule 16b-3, or any successor provision.
(d) "Common Stock" shall mean common stock of the Company, par
value $0.01 per share.
(e) The "Company" shall mean Sparta Foods, Inc., a Minnesota
corporation.
(f) "Fair Market Value" of the Common Stock as of any
applicable date shall mean: (i) if such stock is reported in the
national market system or is listed upon an established exchange or
exchanges, the reported closing price of such stock in such national
market system or on such stock exchange or exchanges on the date the
option is granted or, if no sale of such stock shall have occurred on
that date, on the preceding day on which there was a sale of stock;
<PAGE>
(ii) if such stock is not so reported in the national market system or
listed upon an exchange, the average of the closing "bid" and "asked"
prices quoted by a recognized specialist in the Common Stock of the
Company on the date the option is granted, or if there are no quoted
"bid" and "asked" prices on such date, on the preceding date for which
there are such quotes; or (iii) if such stock is not publicly traded as
of the date the option is granted, the per share value as determined by
the Board, or the Committee, in its sole discretion by applying
principles of valuation with respect to all such options.
(g) The "Internal Revenue Code" is the Internal Revenue Code
of 1986, as amended from time to time.
(h) "Option Agreement" shall mean a written stock option
agreement evidencing an option granted under the Plan.
(i) "Option Stock" shall mean Common Stock of the Company,
$0.01 par value (subject to adjustment as described in Section 13),
reserved for options pursuant to this Plan.
(j) "Outside Director" shall mean a member of the Board who is
not an employee of the Company or any of its Affiliates.
(k) "Parent" shall mean any corporation which owns, directly
or indirectly in an unbroken chain, fifty percent (50%) or more of the
total voting power of the Company's outstanding stock.
(l) The "Plan" means the Sparta Foods, Inc. Amended and
Restated Stock Option Plan, as amended hereafter from time to time,
including the form of Option Agreements as they may be modified by the
Board from time to time.
(m) A "Subsidiary" shall mean any corporation of which fifty
percent (50%) or more of the total voting power of outstanding stock is
owned, directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and
its Subsidiaries by facilitating the employment and retention of competent
personnel and by furnishing incentive to officers, directors, employees,
consultants and advisors upon whose efforts the success of the Company and its
Subsidiaries will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
<PAGE>
provision, and through the granting of "non-qualified stock options" pursuant to
Sections 10 and 11 of this Plan. Adoption of this Plan shall be and is expressly
subject to the condition of approval by the shareholders of the Company within
twelve (12) months after the Amendment Date. In no event shall any stock options
granted on or after the Amendment Date be exercisable prior to the date the Plan
is approved by the shareholders of the Company. If shareholder approval of the
Plan is not obtained within twelve (12) months after the Amendment Date, any
stock options previously granted shall be revoked.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan is effective as of January 11, 1996, the date of its adoption
by the Board subject to approval by the shareholders of the Company.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Committee if one is in existence
or if not, by the Board. The Board or the Committee, as the case may be, shall
have all of the powers vested in it under the provisions of the Plan, including
but not limited to exclusive authority (where applicable and within the
limitations described herein) to determine, in its sole discretion, whether an
incentive stock option or nonqualified stock option shall be granted, the
individuals to whom, and the time or times at which, options shall be granted,
the number of shares subject to each option and the option price and terms and
conditions of each option. The Board, or the Committee, shall have full power
and authority to administer and interpret the Plan, to make and amend rules,
regulations and guidelines for administering the Plan, to prescribe the form and
conditions of the respective stock option agreements (which may vary from
optionee to optionee) evidencing each option and to make all other
determinations necessary or advisable for the administration of the Plan. The
Board's or the Committee's interpretation of the Plan and all actions taken and
determinations made by the Board or the Committee pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned. No
member of the Board or the Committee shall be liable for any action taken or
determination made in good faith in connection with the administration of the
Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
<PAGE>
SECTION 5.
PARTICIPANTS
The Board or the Committee, as the case may be, shall from time to
time, at its discretion and without approval of the shareholders, designate
those employees, directors, officers, consultants, and advisors of the Company
or of any Subsidiary to whom nonqualified stock options shall be granted under
this Plan; provided, however, that consultants or advisors shall not be eligible
to receive stock options hereunder unless such consultant or advisor renders
bona fide services to the Company or Subsidiary and such services are not in
connection with the offer or sale of securities in a capital raising
transaction; provided, further, that Outside Directors shall only be eligible to
receive nonqualified stock options pursuant to Section 11; and provided,
further, no director, other than an Outside Director or a director that is also
an employee of the Company, shall be eligible to be granted a stock option under
the Plan. The Board or the Committee, as the case may be, shall, from time to
time, at its discretion and without approval of the shareholders, designate
those employees of the Company or any Subsidiary to whom incentive stock options
shall be granted under this Plan. Except with respect to nonqualified stock
options granted to Outside Directors pursuant to Section 11, the Board or the
Committee may grant additional incentive stock options or nonqualified stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants. In designating
participants, the Board or the Committee shall also determine the number of
shares to be optioned to each such participant. The Board may from time to time
designate individuals as being ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized
but unissued shares of Option Stock. One Million Eight Hundred Thousand
(1,800,000) shares of Option Stock shall be reserved and available for options
under the Plan; provided, however, that the total number of shares of Option
Stock reserved for options under this Plan shall be subject to adjustment as
provided in Section 13 of the Plan. In the event that any outstanding option
under the Plan for any reason expires or is terminated prior to the exercise
thereof, the shares of Option Stock allocable to the unexercised portion of such
option shall continue to be reserved for options under the Plan and may be
optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time
to time during a period of ten (10) years from the effective date as defined in
<PAGE>
Section 3 of the Plan. Nonqualified stock options may be granted pursuant to the
Plan from time to time after the effective date of the Plan and until the Plan
is discontinued or terminated by the Board.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant
to this Plan with cash, certified check, Common Stock of the Company valued at
such stock's then Fair Market Value, or such other form of payment as may be
authorized by the Board or the Committee. The Board or the Committee may, in its
sole discretion, limit the forms of payment available to the optionee and may
exercise such discretion any time prior to the termination of the option granted
to the optionee or upon any exercise of the option by the optionee.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to the Plan shall be
evidenced by an Option Agreement. The Option Agreement shall be in such form as
may be approved from time to time by the Board or Committee and may vary from
optionee to optionee; provided, however, that each inactive stock option granted
under this Plan and each related Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement
shall state the total number of shares covered by the incentive stock
option. To the extent required to qualify the option as an incentive
stock option under Section 422 of the Internal Revenue Code, or any
successor provision, the option price per share shall not be less than
one hundred percent (100%) of the Fair Market Value of the Common Stock
per share on the date the Board or the Committee, as the case may be,
grants the option; provided, however, that if an optionee owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its Parent or any
Subsidiary, the option price per share of an incentive stock option
granted to such optionee shall not be less than one hundred ten percent
(110%) of the Fair Market Value of the Common Stock per share on the
date of the grant of the option. The Board or the Committee, as the
case may be, shall have full authority and discretion in establishing
the option price and shall be fully protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The
term during which any incentive stock option granted under the Plan may
be exercised shall be established in each case by the Board or the
Committee, as the case may be. To the extent required to qualify the
option as an incentive stock option under Section 422 of the Internal
<PAGE>
Revenue Code, or any successor provision, in no event shall any
incentive stock option be exercisable during a term of more than ten
(10) years after the date on which it is granted; provided, however,
that if an optionee owns stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company or of its Parent or any Subsidiary, the incentive stock option
granted to such optionee shall be exercisable during a term of not more
than five (5) years after the date on which it is granted. The Option
Agreement shall state when the incentive stock option becomes
exercisable and shall also state the maximum term during which the
option may be exercised. In the event an incentive stock option is
exercisable immediately, the manner of exercise of the option in the
event it is not exercised in full immediately shall be specified in the
Option Agreement. The Board or the Committee, as the case may be, may
accelerate the exercise date of any incentive stock option granted
hereunder which is not immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under
this Section 9 shall contain such other provisions as the Board or the
Committee, as the case may be, shall deem advisable. Any such Option
Agreement shall contain such limitations and restrictions upon the
exercise of the option as shall be necessary to ensure that such option
will be considered an "incentive stock option" as defined in Section
422 of the Internal Revenue Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to the Plan shall be
evidenced by an Option Agreement. The Option Agreement shall be in such form as
may be approved from time to time by the Board or the Committee and may vary
from optionee to optionee; provided, however, that each nonqualified option
granted under this Section 10 and each related Option Agreement shall comply
with and be subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement
shall state the total number of shares covered by the nonqualified
stock option. Unless otherwise determined by the Board or the
Committee, as the case may be, the option price per share shall be one
hundred percent (100%) of the Fair Market Value of the Common Stock per
share on the date the Board or the Committee grants the option.
(b) Term and Exercisability of Nonqualified Stock Option. The
term during which any nonqualified stock option granted under the Plan
may be exercised shall be established in each case by the Board or the
Committee, as the case may be. The Option Agreement shall state when
the nonqualified stock option becomes exercisable and shall also state
the maximum term during which the option may be exercised. In the event
a nonqualified stock option is exercisable immediately, the manner of
<PAGE>
exercise of the option in the event it is not exercised in full
immediately shall be specified in the stock option agreement. The Board
or the Committee, as the case may be, may accelerate the exercise date
of any nonqualified stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be
entitled to withhold and deduct from future wages of the optionee all
legally required amounts necessary to satisfy any and all federal,
state and local withholding and employment-related taxes attributable
to the optionee's exercise of a nonqualified stock option. In the event
the optionee is required under the Option Agreement to pay the Company,
or make arrangements satisfactory to the Company respecting payment of,
such federal, state and local withholding and employment-related taxes,
the Board or the Committee, as the case may be, may, in its discretion
and pursuant to such rules as it may adopt, permit the optionee to
satisfy such obligation, in whole or in part, by electing to have the
Company withhold shares of Common Stock otherwise issuable to the
optionee as a result of the option's exercise equal to the amount
required to be withheld for tax purposes. Any stock elected to be
withheld shall be valued at its Fair Market Value as of the date the
amount of tax to be withheld is determined under applicable tax law.
The optionee's election to have shares withheld for this purpose shall
be made on or before the date the option is exercised or, if later, the
date that the amount of tax to be withheld is determined under
applicable tax law. Such election shall also comply with such rules as
may be adopted by the Board or the Committee to assure compliance with
Rule 16b-3, or any successor provision, as then in effect, of the
General Rules and Regulations under the Securities Exchange Act of
1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under
this Section 10 shall contain such other provisions as the Board, or
the Committee, as the case may be, shall deem advisable.
SECTION 11
NONQUALIFIED STOCK OPTIONS FOR OUTSIDE DIRECTORS
(a) Grant of Nonqualified Stock Options. All grants of
nonqualified stock options to Outside Directors under this Section 11
shall be evidenced by an Option Agreement. The Option Agreement shall
be in such form as may be approved from time to time by the Board or
Committee and may vary from optionee to optionee; provided, however,
that each nonqualified stock option issued to an Outside Director shall
be automatic and nondiscretionary and shall be made strictly in
accordance with the following provisions:
(1) Automatic Grants. No person shall have
any discretion to select the Outside Directors that shall be
eligible for nonqualified stock options or to determine the
number of shares of Common Stock to be subject to such
options, the option price per share or the date of grant.
<PAGE>
(2) Initial Grant. Each Outside Director who
becomes an Outside Director on or after May 12, 1995 shall be
granted a nonqualified stock option to purchase Fifteen
Thousand (15,000) shares of Common Stock.
(3) Annual Grants. Each Outside Director who
is re-elected as a director of the Company or whose term of
office continues after a meeting of shareholders at which
directors are elected shall, as of the date of such
re-election or shareholders meeting, be granted a nonqualified
stock option to purchase Two Thousand (2,000) shares of Common
Stock so long as such Outside Director continues to serve on
the Board; provided, that an Outside Director who receives an
option pursuant to paragraph (2) above shall not be entitled
to receive an option pursuant to this paragraph (3) until at
least twelve (12) months after the grant of an option pursuant
to paragraph (2); and provided, further, that no Outside
Director shall receive more than one option pursuant to this
paragraph (3) in any one fiscal year.
(b) Option Price. The option price per share for all
nonqualified stock options granted pursuant to Section 11(a) above
shall be one hundred percent (100%) of the Fair Market Value of a share
of Common Stock.
(c) Duration and Exercise of Options.
(1) Duration of Options. Except as
otherwise provided in this Plan, the period during
which any nonqualified stock option granted to
Outside Directors under this Section 11 may be
exercised shall be ten (10) years after the date that
the option is granted.
(2) Exercisability of Nonqualified
Stock Options.
a. In no event shall any
nonqualified stock options granted to
Outside Directors be exercisable prior to
the date that this Section 11 is approved by
the shareholders of the Company. If
shareholder approval of the Plan is not
obtained within twelve (12) months after the
Amendment Date, any nonqualified stock
options previously granted to Outside
Directors shall be revoked.
b. All nonqualified stock
options granted to Outside Directors
pursuant to Section 11(a)(2) shall be
exercisable to the extent of 3,000 shares
immediately and to the extent of an
additional 3,000 shares on each of the
first, second, third and fourth
anniversaries of the date of grant, subject
to the provisions of Section 11(c)(2)(a). If
<PAGE>
the Outside Director does not purchase in
any year the full number of shares which the
Outside Director is entitled to purchase in
that year, the Outside Director shall be
entitled to purchase in any subsequent year
such previously unpurchased shares, subject
to the expiration of such nonqualified stock
option as specified in Section 11(c)(1)
above.
c. All nonqualified stock
options granted to Outside Directors
pursuant to Section 11(a)(3) shall be
immediately exercisable subject to the
provisions of Section 11(c)(2)(a).
(d) Payment of Option Price. Upon the exercise of any
nonqualified stock option granted to an Outside Director
pursuant to this Section 11, the purchase price for such
shares of Common Stock subject to such option shall be paid in
cash or certified check, by the transfer from the Outside
Director to the Company of previously acquired shares of
Common Stock, or any combination thereof. Any Common Stock so
transferred shall be valued at its fair market value. For
purposes of this Section 11(d), "previously acquired shares of
Common Stock" shall include shares of Common Stock that are
already owned by the Outside Director at the time of exercise.
(e) Compliance with Rule 16b-3. All nonqualified
stock options granted to Outside Directors must comply with
the applicable provisions of Rule 16b-3, or its successor, of
the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.
(f) Termination of Status as a Director. In the event
that an Outside Director's membership on the Board terminates,
the following provisions shall apply:
(1) If the Outside Director's
membership on the Board terminates for any reason
other than the Outside Director's death or
disability, the Outside Director shall be entitled to
exercise any nonqualified stock options granted to
such Outside Director pursuant to this Section 11
which were exercisable at the time of such
termination, until the earlier of (i) the close of
business on the 90th day after such termination, and
(ii) the expiration of the option as provided in
Section 11(c)(1) above. To the extent that the
Outside Director does not exercise such option within
the period specified in this Section 11(g)(1), all
rights of the Outside Director under such option
shall be forfeited.
(2) If the Outside Director dies or
becomes disabled (i) while a member of the Board, or
(ii) within the 90 day period following the
termination of the Outside Director's membership on
the Board as provided in Section 11(f)(1) above, any
nonqualified stock option granted to such Outside
Director may be exercised by the Outside Director's
estate or any person who acquired the right to
<PAGE>
exercise any nonqualified stock option granted to
such Outside Director pursuant to this Section 11 by
bequest or inheritance until earlier of the
expiration of the option as provided in Section
11(c)(1) above or the close of business one year
after the date of the Outside Director's death.
SECTION 12
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the optionee other than by will or by the laws of descent and distribution
and, during the optionee's lifetime, the incentive stock option may be exercised
only by the optionee. If the optionee shall attempt any transfer of any
incentive stock option granted under the Plan during the optionee's lifetime,
such transfer shall be void and the incentive stock option, to the extent not
fully exercised, shall terminate.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company,
the number of shares of Option Stock reserved under Section 6 hereof and the
number of shares of Option Stock covered by each outstanding option and the
price per share thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment shall be
subject to the same restrictions as are applicable to the shares with respect to
which the adjustment relates.
Unless otherwise provided in the Option Agreement, in the event of the
sale by the Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, consolidation,
exchange, reorganization, reclassification, extraordinary dividend, divestiture
(including a spin-off) or liquidation of the Company (collectively referred to
as a "transaction"), the Board may, in connection with the Board's adoption of
the plan for such transaction, provide for one or more of the following: (i) the
equitable acceleration of the exercisability of any outstanding options
hereunder; (ii) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the Board (which
date shall give optionees a reasonable period of time in which to exercise the
options prior to the effectiveness of such transaction) and (iii) the
continuance of the Plan with respect to the exercise of options which were
outstanding as of the date of adoption by the Board of such plan for such
transaction and provide to optionees holding such options the right to exercise
their respective options as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such transaction. The grant of
an option pursuant to the Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.
<PAGE>
SECTION 14.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's counsel, with
all applicable legal requirements, including without limitation, those relating
to securities laws and stock exchange listing requirements. As a condition to
the issuance of Option Stock to the optionee, the Board or the Committee may
require the optionee to (a) represent that the shares of Option Stock are being
acquired for investment and not resale and to make such other representations as
the Board, or the Committee, as the case may be, shall deem necessary or
appropriate to qualify the issuance of the shares as exempt from the Securities
Act of 1933 and any other applicable securities laws, and (b) represent that the
optionee shall not dispose of the shares of Option Stock in violation of the
Securities Act of 1933 or any other applicable securities laws. The Company
reserves the right to place a legend on any stock certificate issued upon
exercise of an option granted pursuant to the Plan to assure compliance with
this Section 14.
SECTION 15.
RIGHTS AS A SHAREHOLDER
An optionee (or the optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the optionee without
the consent of the optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
<PAGE>
which options may be granted, or (iv) materially increase the benefits accruing
to optionees under the Plan, unless such revision or amendment is approved by
the shareholders of the Company. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code. In no event shall the Board or the Committee, either directly or
indirectly, amend the provisions of Section 11 relating to nonqualified stock
options that are granted to Outside Directors more frequently than once every
six (6) months, unless such amendment is required to comply with changes in the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereunder, or with the Internal Revenue Code of 1986, and the regulations
thereunder.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee
to exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the optionee
in its employ for any period.
