Schedule 14A Information
Proxy Statement Pursuant to
Section 14 (a) of the Securities
Exchange Act of 1934
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 Section 240.14a-
11(c) or
Section 240.14a-12
Innovo Group Inc.
____________________
(Name of Registrant as Specified In Its Charter)
N/A
____________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-
6(i)(1), 14a-6(j)(2) or item 22(a)(2) of Schedule
14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1. Title of each class of securities to which
transaction applies:
N/A
____________________
2. Aggregate number of securities to which
transaction applies:
N/A
____________________<PAGE>
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:
N/A
____________________
4. Proposed maximum aggregate value of
transaction:
N/A
____________________
5. Total fee paid:
N/A
____________________
[ ] 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:
N/A
____________________
2. Form, Schedule or Registration Statement No.:
N/A
____________________
3. Filing Party:
N/A
____________________
4. Date Filed:
____________________
<PAGE>
Introductory Note
Innovo Group Inc. ("the Company") meets the definition of a "small
business issuer" of Rule 12b-2 under the Securities Exchange Act of 1934.
Accordingly, notwithstanding the Company's use of Form 10-K and Form 10-Q (in
lieu of Form 10-KSB and Form 10-QSB), the Company's proxy statement has been
prepared in accordance with the disclosure items in Regulation S-B, pursuant
to introductory Note F of Schedule 14A.
<PAGE>
INNOVO GROUP INC.
27 North Main Street
Springfield, Tennessee 37172
March 5, 1997
Dear Stockholders:
You are cordially invited to attend the 1997 annual stockholders'
meeting for Innovo Group Inc., which will be held at 9:00 a.m. Central Time,
on Friday, April 4, 1997 at the Company's offices at 27 North Main Street,
Springfield, Tennessee, 37172. At the annual meeting you will have a report
on the Company's activities for the last year, and you will be asked to vote
on the matters listed in the accompanying notice and proxy statement.
Whether or not you plan to attend the annual meeting, it is important
that your shares be represented. Therefore, you are urged to complete the
enclosed proxy and return it in time that your shares may be voted at the
annual meeting on April 4, 1997. Completing and returning the enclosed proxy
will not affect your right to vote your shares in person should you later
decide to attend the annual meeting.
For the Board of Directors,
Schren L. Head
Secretary
<PAGE>
INNOVO GROUP INC.
Notice of Annual Meeting of
Stockholders to be held
on April 4, 1997
Notice is hereby given that the annual meeting of the stockholders of
Innovo Group Inc. will be held at 9:00 a.m. central time, on Friday, April 4,
1997 at 27 North Main Street, Springfield, Tennessee 37172, for the
following purposes:
(1). To elect six members of the board of directors.
(2). To consider and act upon a proposal to amend the
Company's Certificate of Incorporation to increase
the authorized common stock of the Company from
30,000,000 shares, par value $.01, to 70,000,000 shares,
par value $.01.
Stockholders are being asked to vote on and approve only the
authorization of the additional shares of common stock. Except as discussed in
the accompanying proxy statement, there are presently no plans or commitments
for any transactions that would involve the issuance of any material number of
shares of common stock; the accompanying proxy statement discusses certain
outstanding common stock warrants, options, and conversion rights as for which
shares would be reserved. However, Proposal 2 would, if approved, allow the
board of directors to issue the additional shares of common stock without
further stockholder approval.
(3). To ratify the adoption of the Innovo Group Inc. 1997
Stock Option Plan (the "1997 Stock Option Plan").
(4). To consider and act upon a proposal to amend the
Company's Certificate of Incorporation to create a
class of preferred stock ("the preferred stock") and
authorize the Company to issue up to 10,000,000
shares of the preferred stock, in one or more
series, from time to time.
(5). To transact such other business as may properly come
before the meeting.
Proposals 3 and 4 would, if approved, allow the board of directors
to, respectively, issue stock options and awards under the 1997 Stock Option
Plan, and issue shares of preferred stock, without further stockholder approval.
The board of directors has set February 15, 1997 as the record date for
the annual meeting. Stockholders of record at the close of business on that
date will be entitled to vote at the meeting.
By order of the Board of Directors,
Schren L. Head
Secretary
<PAGE>
CONTENTS
Solicitation of Proxies 1
Voting Securities and Beneficial Ownership 2
Election of Directors 4
Compensation of Executive Officers 7
Proposal to Amend Certificate of Incorporation
to Increase Number of Common Shares Authorized 11
Proposal to Ratify the Adoption of the 1997
1997 Stock Option Plan 15
Proposal to Amend Certificate of Incorporation to Create
a Class of Preferred Stock 18
Relationships with Independent Public Accountants 20
Stockholder Proposals 20
Other Business 20
Appendix A: Form of Amended and Restated
Certificate of Incorporation A-1
Appendix B: Innovo Group Inc. 1997 Stock
Option Plan B-1
<PAGE>
INNOVO GROUP INC.
Proxy Statement for Annual
Meeting of Stockholders
to be held April 4, 1997
Solicitation of Proxies
This Proxy Statement is furnished to stockholders of Innovo Group Inc.
("Innovo" or "the Company") in connection with the solicitation by the board
of directors of proxies to be used at the annual meeting of the stockholders
to be held at 9:00 a.m. central time, on Friday, April 4, 1997 at 27 North
Main Street, Springfield, Tennessee 37172 ("the Annual Meeting").
Execution and return of the proxy in the form enclosed will not in any
way affect a stockholder's right to attend the meeting and vote in person.
A stockholder giving a proxy may revoke it at any time before it is exercised
by giving notice to the Chairman of the Board of the Company in writing or in
open meeting or by submitting to the Chairman of the Board a duly executed
proxy bearing a later date. Proxies executed and returned in the form
enclosed, unless previously revoked, will be voted at the Annual Meeting as
set forth herein and in the proxies.
The cost of the solicitation of proxies, including the cost of
reimbursing expenses of brokers and other custodians, nominees or fiduciaries
for forwarding proxy statements and proxies to their principals and obtaining
their proxies, will be borne by the Company. In addition to the use of the
mails, proxies may be solicited personally, or by telephone or telegraph, by
a few regular employees of the Company without additional compensation.
Officers and directors of the Company, or other affiliates, that own, or
have the authority to vote, an aggregate of 10.2% of the shares of common
stock eligible to vote have indicated that they intend to vote for each of
the nominees for the board of directors, for the approval of the proposal to
increase the number of authorized shares of common stock for the ratification
of the adoption of the 1997 Stock Option Plan, and for the approval of the
proposal to create a class of preferred stock.
This Proxy Statement is being mailed to stockholders of record as of
February 15, 1997, on or about March 5, 1997, together with a copy of the
Company's Annual Report on Form 10-K for the year ended November 30, 1996.
Copies of such Form 10-K will also be available for stockholders attending
the Annual Meeting.
<PAGE>
Voting Securities and Beneficial Ownership
The board of directors has set February 15, 1997 as the record date for
the annual meeting. As of that date, the Company had outstanding 28,763,990
shares of common stock, par value $.01 per share. Stockholders are entitled
to one vote for each full share of common stock registered in their names at
the close of business on February 15, 1997. There are no cumulative voting
rights. Votes cast at the meeting and submitted by proxy are counted by the
inspector of the meeting, who is appointed by the Company.
The following table sets forth information with respect to the
beneficial ownership of the Company's common stock on February 15, 1997 by
(i) each of the Company's executive officers and directors, (ii) each person
known to the Company to be the beneficial owner of more than five percent of
the outstanding shares of the common stock, and (iii) all directors, nominees
for director and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
_____________________________
Name Number (1) Percent
__________________________________________________________________________________________
</CAPTION>
<S> <C> <C>
Patricia Anderson-Lasko 363,440 (2) 1.3%
27 North Main Street
Springfield, TN 37172
Scott Parliament - -
27 North Main Street
Springfield, TN 37172
Alexander K. Miller - -
27 North Main Street
Springfield, TN 37172
Terrance Bond 1,000 (3) *
27 North Main Street
Springfield, TN 37172
Felix Lee 1,050 (4) *
27 North Main Street
Springfield, TN 37172
Reino C. Lanto, Jr. 61,286 (5) *
235 North Garrard St.
Rantoul, IL 61866
Marvin M. Williamson 2,000 *
53 Fitch Lane
New Canaan, CT 06840
Eleanor and Philip Schwartz 1,665,745 (6) 5.8%
23362 Water Circle
Boca Raton, FL 33486
All Executive Officers 2,928,521 (2) (3) (4) (5) 10.2%
and Directors as a Group (6) (7)
(6 persons)
</TABLE>
_________________
* Less than 1%.
(1) Pursuant to the rules of the Securities and Exchange Commission,
certain shares of the Company's common stock that a beneficial owner set
forth in this table has a right to acquire within 60 days of the date hereof
pursuant to the exercise of options or warrants for the purchase of shares of
common stock are deemed to be outstanding for the purpose of computing the
percentage ownership of that owner but are not deemed outstanding for the
purpose of computing percentage ownership of any other beneficial owner shown
in the table. Shares outstanding and eligible to vote exclude (i) 213,625
shares held by trusts established under the Plan of Reorganization of Spirco,
Inc. (see Note 4 of Notes to Consolidated Financial Statements) and (ii)
200,000 shares held as an appeal bond for the Company's appeal of the Tedesco
litigation (see Note 9 of Notes to Consolidated Financial Statements). Under
the terms of the trusts and the bond, such shares are not eligible to vote.
(2) Includes 79,432 shares owned by DWL International, a corporation in
which Ms. Anderson-Lasko's spouse, Donald W. Lasko, holds a controlling
interest.
(3) Consists of 1,000 shares subject to options exercisable by Mr. Bond.
(4) Includes 50 shares currently held by Mr. Lee and 1,000 shares subject
to options exercisable by Mr. Lee.
(5) Consists of 32,735 shares owned by Jeanene Lanto, the wife of Mr.
Lanto, and 28,551 shares owned by a trust for the benefit of Jeanene Lanto of
which Mr. Lanto is the trustee, as to all of which Mr. Lanto disclaims any
beneficial ownership.
(6) Pursuant to a voting agreement between Lee Schwartz, Eleanor Schwartz
and Philip Schwartz, Lee Schwartz and Philip Schwartz have granted to Eleanor
Schwartz the power to vote any shares owned by the for so long as Eleanor
Schwartz is a member of the Company's board of directors, including 553,000
shares, owned by Lee Schwartz, that Eleanor Schwartz has the power to vote
pursuant to such voting agreement.
(7) Includes 834,000 shares held by Matthew Mulhern. Pursuant to an
agreement between the Company and Mr. Mulhern, Mr. Mulhern has agreed to vote
in accordance with the recommendations of the Company's board of directors.
<PAGE>
Election of Directors
Nominations
The Bylaws of the Company provide for the election of not less than
three members of the board of directors. Each of the Company's directors
serves until the next annual meeting of the stockholders or until his
successor has been elected and qualified.
Set forth below is information concerning the six individuals who have
been nominated for election to the board of directors.
Unless otherwise directed by a stockholder's proxy, the persons named
as proxy voters in the accompanying proxy will vote for the nominees named
below. In the event any of such nominees shall become unavailable, which is
not anticipated, the board of directors in its discretion may designate
substitute nominees, in which event the enclosed proxy will be voted for such
substituted nominees. Proxies cannot be voted for a greater number of
persons than the number of nominees named.
A plurality of the votes cast at the meeting is required to elect the
nominees as directors of the Company. As such, the six individuals who
receive the largest number of votes cast at the meeting will be elected as
directors. Shares not voted at the meeting, whether by abstention, broker
nonvote, or otherwise, will not be treated as votes cast at the meeting. The
board of directors recommends a vote FOR the election of all the persons
nominated by the board.
Nominees for Directors
<TABLE>
<CAPTION>
Name Age Director
Since
_____ ___ _____
</CAPTION>
<S> <C> <C>
Patricia Anderson-Lasko 37 1990
Alexander K. Miller 51 1991
Reino C. Lanto, Jr. 54 1990
Eleanor V. Schwartz 64 1996
Marvin M. Williamson 58 1990
Scott Parliament 39 -
</TABLE>
Patricia Anderson-Lasko has been Chairman, President, Chief Executive
Officer and a director of the Company since August 1990, and President of
Innovo, Inc. since her founding of that company in 1987.
Alexander K. Miller has been a director of the Company since December
1991. From June 1993 to December 1994, Mr. Miller also served as the Vice
President of Administration of the Company, and in May, 1996 Mr. Miller
rejoined the Company as Manager of Investor Relations. Prior to June, 1993,
and between January, 1995 and May, 1995, Mr. Miller served the Company on a
consulting basis, during which periods Mr. Miller was self-employed as a
management and marketing consultant. From 1986 to 1993, he was a member of
the faculty of California State Polytechnic University in San Luis Obispo,
California, where he taught business administration.
Reino C. Lanto, Jr. has been Secretary and a director of the Company
since August 1990. He is an attorney licensed to practice in Illinois and
has been a partner in the law firm of Wilson & Lanto since November 1982.
Eleanor V. Schwartz became a director of the Company in April, 1996,
upon the completion of the Company's acquisition of Thimble Square, Inc.
("Thimble Square"). Mrs. Schwartz, together with her husband Philip
Schwartz, founded Thimble Square in 1985, and since that time has been a
director of Thimble Square and its principal designer. Mrs. Schwartz has
over 35 years of experience in buying, design and marketing of ladies
apparel.
Marvin M. Williamson has been a director of the Company since August
1990. From April 1982 to June 1987, he was a Vice President and Mortgage
Sales Manager for First Boston Corp. in New York City. From June 1987
through August 1990 he was Vice President of Mortgage Sales for Greenwich
Capital, Greenwich, Connecticut. From August 1990 to April 1991 Mr.
Williamson was a Senior Vice President with Alliance Funding Co. in Montvale,
New Jersey. In April 1991 he left Alliance Funding Co. to establish his own
business, Marvin Williamson Associates, a mortgage investment brokerage and
consulting firm in New Canaan, Connecticut. Mr. Williamson is currently a
registered representative of First Sentinel Securities Ltd., a member firm of
the National Association of Securities Dealers, Inc.
Scott Parliament, a nominee for director, joined the Company as Senior
Vice-President and chief operating officer in October, 1996. From November,
1993 until October, 1996, Mr. Parliament was a principal of Parlon Ventures,
Ltd., a privately held consulting and investment firm. From March, 1990
until he joined Parlon Ventures, Ltd. Mr. Parliament held various positions
with National Steel Service Center, Inc.
Felix Lee, the Vice President of Manufacturing of Innovo, Inc., has not
been nominated to stand for reelection as a director.
Compensation of Directors
Directors who are not employees of the Company receive no compensation.
All directors receive reimbursement of expenses, if any, incurred in
attending board of director and committee meetings.
Meetings and Committees
During fiscal 1996, the board of directors held 13 meetings. The
committees of the board of directors have meetings as needed. Each director
attended at least 75% of the total number of meetings of the board of
directors and meetings of committees on which they serve.
The Audit Committee, comprised of Ms. Anderson-Lasko and Messrs. Lanto
and Williamson, met on one occasion in fiscal 1996. Its primary duties and
responsibilities include: (1) annually recommending to the board of
directors the independent public accounting firm to be appointed auditors of
the Company and its subsidiaries; and (2) a review of the scope of and fees
for the audit and a review of all reports received from the independent
public accountants.
The Executive Compensation Committee met one time during fiscal 1996.
It is comprised of Messrs. Miller, Lanto and Williamson. Its primary duty is
to make recommendations to the board of directors concerning its salaries,
benefits and other terms of employment of the Company's Executive officers
and other key employees.
Compensation of Executive Officers
Executive Officers
The following sets forth contains information concerning the identity
and background of the executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
____ ___ ________
</CAPTION>
<S> <C> <S>
Patricia Anderson-Lasko 37 Chairman of the Board,
President and Chief
Executive Officer
Scott Parliament 39 Senior Vice President;
Chief Operating Officer
Felix Lee 47 Vice President of
Manufacturing of Innovo,
Inc.
Terrance Bond 39 Controller
</TABLE>
Felix Lee has been a director of the Company since August 1990 and Vice
President of Manufacturing of Innovo, Inc. since June 1989. From July 1981
through May 1989, Mr. Lee was plant manager at Industria Nacional De
Artefactes, S.A., a luggage manufacturer in Panama City, Republic of Panama,
where his responsibilities included production and manufacturing.
Terrance Bond joined the Company as Controller in April 1993. From
November 1988 until he joined Innovo Group, Mr. Bond was Director of
Corporate Accounting at United Merchants and Manufacturers, Inc.
Executive officers of the Company are elected annually and serve at the
discretion of the board of directors.
Executive Compensation
The following table sets forth the summary information concerning
compensation paid or accrued by or on behalf of the Company's chief executive
officer, and of the one other executive officer who is compensated at an
annual rate of $100,000 or higher.<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
______________________
Annual Compensation Awards Payouts
___________________ ______ _______
Other
Annual Restricted LTIP All Other
Compen- Stock Compen-
Name and Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) (1) (#) ($) ($)
________ ____ _________ ________ _______ _______ ________ _______ ________
</CAPTION>
<S> <C> <C> <S> <C> <C> <C> <C> <S>
Patricia Anderson- 1996 $171,354(2) - $1,346(3) 0 0 0 -
Lasko 1995 175,000(2) - 1,346(3) 0 0 0 -
President, Chief 1994 175,000(2) - 2,791(3) 0 0 0 -
Executive Officer,
and Chairman of the
Board
Scott Parliament 1996 16,900(4) - - 0 0 0 -
Senior Vice-President
and Chief Operating
Officer
</TABLE>
(1) No named executive officer received or held restricted stock awards
during or at the end of fiscal 1996, 1995 or 1994, or received, exercised or
held stock options during or at the end of fiscal 1996, 1995 or 1994.
(2) At the request of the Company Ms. Anderson-Lasko deferred the payment
of $51,000 of her fiscal 1995 salary until fiscal 1996.
(3) During fiscal 1996, 1995 and 1994 Ms. Anderson-Lasko received life
insurance benefits in the aggregate amount of $1,346, $1,346 and $2,019,
respectively. During fiscal 1994 Ms. Anderson-Lasko received health
insurance benefits in the aggregate amount of $772.
(4) Represents salary paid to Mr. Parliament from October, 1996, the
commencement of his employment, through November 30, 1996. Mr. Parliament is
compensated at the rate of $120,000 annually.
Employment Agreements
In September, 1993 the Company entered into a revised employment
agreement with Patricia Anderson-Lasko. The agreement expires in October
1997, but provides that its terms may be extended for additional one-year
periods, starting in October 1995, at the election of the parties. The
employment agreement provides that Ms. Anderson-Lasko shall be employed as
the Chief Executive Officer of the Company at an annual base salary of
$175,000 and shall be eligible for such increases in salary, other bonuses
and payments as the board of directors shall direct. In January, 1997, Ms.
Anderson-Lasko's employment contract was amended to eliminate provisions
entiling her to a $100,000 mortgage loan from the Company. Ms. Anderson-Lasko
had not taken the loan.
The employment agreement of Ms. Anderson-Lasko contains provisions
requiring certain severance payments in the event (i) the Company terminates
Ms. Anderson-Lasko's employment other than for cause, death or disability or
(ii) Ms. Anderson-Lasko terminates the contract after a change in control, or
as the result of a breach of the agreement by the Company, including a change
in Ms. Anderson-Lasko's responsibilities or authorities not provided for in
the contract. In such event, Ms. Anderson-Lasko is entitled to a severance
payment equal to the greater of three times the annual salary in effect at
the date of termination or such annual salary multiplied by the number of
years remaining in the term (including extensions thereof) of the contract.
For purposes of the contracts, a change in control is defined to occur if any
"person" (as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), but excluding the Company, its
existing officers and directors and any other individual, entity or group
whose acquisition of control is approved in advance by the board) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities issued by the Company
representing 30% or more of the combined voting power of the Company's then-
outstanding securities, or if during any period of two consecutive years
during the term of the agreement, individuals who at the beginning of such
period constitute the board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then in office who were directors at the
beginning of the period.
Stock Option Plan
The Company has a stock option plan (the "1991 Plan") pursuant to which
an aggregate of 100,000 shares of common stock had been reserved for issuance
to officers, directors, consultants and employees of the Company and its
subsidiaries upon exercise of non-qualified options and exercise of
"incentive stock options" (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended) issuable under the 1991 Plan. The primary
purpose of the 1991 Plan is to attract and retain capable executives,
consultants and employees by offering them stock ownership in the Company.
The 1991 Plan was originally adopted by the board of directors on December
11, 1991, and amended and ratified by the board of directors on April 10,
1992. The 1991 Plan was approved by the Company's stockholders at the annual
meeting of stockholders on May 28, 1992.
The 1991 Plan is administered by the Stock Option Committee (the
"Committee") appointed by the Company's board of directors. The current
members of the Committee are Messrs. Miller and Williamson. No member of the
Committee is eligible to participate in a grant of options pursuant to the
1991 Plan.
The Committee determines, among other things, the persons to be granted
options, the number of shares subject to each option and the option price.
The exercise price of any incentive stock option granted under the 1991 Plan
to an eligible employee must be equal to the fair market value of the shares
on the date of grant and, with respect to persons owning more than 10% of the
outstanding common stock, the exercise price may not be less than 110% of the
fair market value of the shares underlying such option on the date of grant.
The exercise price for non-qualified options must be at least 50% of the fair
market value of the shares on the date of issue. The Committee determines
the terms of each option and the manner in which it may be exercised. No
option may be exercisable more than ten years after the date of grant, except
for those held by optionee who owns more than 10% of the Company's common
stock, which may not be exercisable more than five years after the date of
grant. Options are not transferable except upon the death of the optionee.
The board of directors may amend the 1991 Plan from time to time;
however, without stockholder approval, the Plan may not be amended to: (i)
increase the aggregate number of shares subject to the Plan; (ii) materially
increase the benefits accruing to participants under the Plan; (iii) change
the class of individuals eligible to receive options under the Plan; or (iv)
extend the term of the Plan.
As of February 15, 1997, the Company had outstanding options to acquire
a total of 3,000 shares of the Company's common stock to officers and other
employees of the Company under the 1991 Plan.
Stock Bonus Plan
The board of directors has authorized and may in the future authorize
the issuance of restricted stock to certain employees of the Company.
Certain Relationships and Related Transactions
In December, 1995, the Company obtained a $300,000 12% short term loan
collateralized by the common stock of NP International from DWL
International. Donald W. Lasko, the husband of Patricia Anderson-Lasko, is
an officer and stockholder of DWL International. $200,000 of the loan was
repaid in fiscal 1996, together with interest of $22,000.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who own more than 10% of the
registered class of the Company's equity securities to file reports of
ownership with the Securities and Exchange Commission. Officers, directors
and greater than 10% stockholders are required by the regulations of the
Securities and Exchange Commission to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the Forms 3, 4 and 5 and amendments thereto
and certain written representations furnished to the Company, the Company
believes that during fiscal 1996, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied
with.
Form 5 is not required to be filed if there are not previously
unreported transactions or holdings to report. Nevertheless, the Company is
required to disclose the name of directors, executives officers and 10%
shareholders who did not file a Form 5, unless the Company has obtained a
written statement that no filing is due. The Company has been advised by
those required to file Form 5 that no filings were due.
<PAGE>
Proposal To Amend Certificate of Incorporation
To Increase Number of Common Shares Authorized
On February 12, 1997, the board of directors approved, subject to
stockholder approval, an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of common stock from
30 million to 70 million. The form of the Amended and Restated Certificate
of Incorporation appears in Appendix A to this Proxy Statement.
The principal reason for the proposal is to give the Company the
ability to use the issuance of shares of its common stock to raise capital,
retire debt, acquire assets, or utilize incentive stock compensation awards
when such methods of financing or compensation are determined by the board of
directors to be appropriate. However, except for certain shares, as discussed
below, that would be reserved for outstanding common stock warrants, options,
or conversion privileges there are presently no plans or commitments for any
transactions that would involve the issuance of any material number of shares of
common stock. There can be no assurance that the outstanding common stock
warrants, options, or conversion privileges will, or will not, be exercised and
that the related shares will, or will not, be issued in the future.
As of February 15, 1997, the 28,763,990 shares of common stock
outstanding, plus those reserved for outstanding warrants and options and those
held as an appeal bond for the Company's appeal of the Tedesco litigation,
utilizes virtually all of the Company's authorization of 30 million shares.
Therefore, without the approval of this proposal, the Company
would currently not have sufficient authorized but unissued shares to utilize
its common stock for any of these financing or compensation purposes. Absent
that ability, the Company might be forced to issue debt, forego business
opportunities, or operate without adequate capital, and would have to incur
additional debt or utilize other sources of cash to repay certain existing debt,
aggregating $475,000, which, with an increase in the number of authorized shares
of common stock, can be repaid through conversion or common stock issuance.
If and when any of the newly authorized shares are issued, in general
they would be issued to raise capital to fund operations or pursue the
expansion of the Company's business, provide incentive compensation to retain
and attract key employees at cash compensation levels that are lower than
would otherwise be possible, or retire indebtedness incurred for these
purposes. Except as described in the next seven paragraphs, there are
currently no plans or commitments for any transaction that would involve the
issuance of any material number of shares of common stock.
In a separate proposal for the Annual Meeting, stockholders are being
asked to ratify the adoption of the 1997 Stock Option Plan. As described
more fully in that proposal, a principal reason for the adoption of the 1997
Stock Option Plan is to provide the Company with the ability to use stock
compensation awards to supplement cash compensation, and thereby incentivize
key employees while allowing the Company to retain and attract such employees
at lower cash compensation levels than would otherwise be possible. In
particular, awards under the 1997 Stock Option Plan, if its adoption is
ratified, would allow the Company to maintain certain reductions in the cash
compensation levels of senior and middle management instituted in fiscal 1996
(see "Proposal for Approval of Innovo Group Inc. 1997 Stock Option Plan").
However, options or other awards under the 1997 Stock Option Plan, if
it is approved, would only be made to the extent the Company has available
authorized, but unissued or otherwise unreserved, shares of common stock. As
discussed above, currently the Company has virtually no authorized but
unissued or otherwise unreserved shares. Accordingly, it is likely that if
stockholders approve this proposal to increase the number of authorized
common shares, any awards under the 1997 Stock Option Plan, if it is
approved, will be made utilizing shares reserved or issued from the newly
authorized shares. However, the proposals are separate, and stockholders may
vote to approve the increase in the number of authorized common shares while
voting not to approve the adoption of the 1997 Stock Option Plan, or vice
versa. If the stockholders approve the adoption of the 1997 Stock Option
Plan, but not the increase in the number of authorized common shares, then
the board of directors may, if it chooses, award options or other awards to
the extent shares become available from the Company's current authorization
of 30 million common shares as the result of repurchases of common stock or
the expiration of outstanding warrants or options.
During the third quarter of fiscal 1996 the Company undertook a private
placement of shares of its common stock together with Class H common stock
purchase warrants (the "Class H Warrants"). A total of 775,758 Class H
warrants were issued, which are exercisable at a price of $.52 per shares
through August, 2001. Additionally, in connection with this private
placement, and the private placement of the 8% Convertible Debentures, the
Company issued to the placement agent 1,220,588 Class I common stock purchase
warrants (the "Class I Warrants"), which are exercisable at a price of $.17
through August, 2001. In January, 1997, the Company issued 500,000 Class J
common stock purchase warrants (the "Class J Warrants") in connection with
the issuance of the 10% Unsecured Convertible Promissory Notes discussed
below. The Class J Warrants are exercisable through January 6, 1998 at a
price of $.34375 per share, except that the exercise price shall be the
lesser of $.125 per share or the then market price if the Class J Warrants
are exercised concurrently with the conversion of the Series I 10% Unsecured
Convertible Promissory Notes. The terms of the Class H, Class I and Class J
warrants provide that until such time as the Company's authorized common
shares is increased to 40 million (i) the Class H, Class I and Class J
warrants shall only be exercisable to the extent of authorized, but unissued
or otherwise unreserved shares, and (ii) the Company shall not be obligated
to reserve shares of common stock for issuance upon any exercise of the Class
H, Class I or Class J warrants. Therefore, the Class H, Class I and Class J
warrants are currently not exercisable; however, if the proposal to increase
the number of authorized common shares is approved, the Company will reserve
2,496,346 shares for issuance upon the exercise, if any, of the Class H, Class I
and Class J warrants. The Company would receive cash proceeds of $403,000 if
all of the Class H warrants are exercised, and cash proceeds of $207,500 if
all of the Class I warrants are exercised. The holders of the Class H, Class
I and Class J warrants have not, as of the date hereof, delivered to the
Company any notice of exercise.
As of February 15, 1997, the Company has outstanding (i) $205,000 of
8% Convertible Subordinated Debentures which are convertible into an
aggregate of 1,802,198 shares of common stock, (ii) $175,000 of Series I 10%
Unsecured Convertible Promissory Notes, which will become convertible into an
aggregate of 1.5 million shares of common stock commencing May 1, 1997, and
(iii) $95,000 of Series II 10% Unsecured Convertible Promissory Notes, which
will become convertible into 600,000 shares of common stock commencing April
6, 1997. The terms of the remaining 8% Convertible Subordinated Debentures,
and those of the Series I and Series II 10% Unsecured Convertible Promissory
Notes, provide, however, that such securities do not become convertible until
and unless the number of common shares the Company is authorized to issue is
increased to 40 million, 40 million and 50 million, respectively. Therefore,
if the proposal to increase the number of authorized common shares is
approved, such securities will become convertible as described above, and the
Company will reserve 3,902,198 shares for issuance upon such conversions, if
any. The holders of these securities have not, as of the date hereof, delivered
to the Company notices of conversion.
On February 12, 1997, the board of directors approved the award to
Patricia Anderson-Lasko of a stock purchase right (the "Purchase Right")
entitling Ms. Anderson-Lasko to purchase up to 4 million shares of the
Company's common stock during the period April 30, 1997 to April 30, 2002 at
a per share price equal to the greater of $.28125 per share or the average
closing price for the five days ending April 4, 1997 ("the Exercise Price").
Under the Purchase Right Ms. Anderson-Lasko may pay for any shares purchased by
the delivery of (i) cash, or (ii) a non-recourse promissory note, bearing no
interest, due April 30, 2002. The note, if delivered, would be collateralized
by the shares purchased therewith, which shares would be forfeited to the extent
the note is not paid on or before maturity, and would be payable (including
prepayable), in whole or in part, by the delivery to the Company of (i) cash
payment, or (ii) other shares of the Company's common stock that Ms. Anderson-
Lasko has owned for a period of at least six months, which shares would be
credited against the note on the basis of the closing bid price for the
Company's common stock on the date of delivery. The Purchase Right is fully
vested, and is exercisable, until April 30, 2002, so long as Ms. Anderson-Lasko
remains employed by the Company. The termination of Ms. Anderson-Lasko's
employment would not, however, affect her rights to any shares already purchased
pursuant to the Purchase Right, including the right to vote and receive
dividends or other distributions with respect to those shares, including any
shares collateralizing any unpaid notes, except that any dividends or
distributions made with respect to shares collaterlizing any unpaid note will
be held in the escrow to be established for such shares and note until such
time, if any, as the related note is paid. However, because any shares
purchased by Ms. Anderson-Lasko's delivery of a note will collateralize such
note until it is paid, Ms. Anderson-Lasko will be unable to realize any profit
from the shares until she has paid the Company, by delivery cash or other shares
she owns, Exercise Price of such shares.
In deciding to award the Purchase Right to Ms. Anderson-Lasko, the
board of directors (with Ms. Anderson-Lasko excused from the meeting) noted
that (i) Ms. Anderson-Lasko's services are considered critical to the
Company's future success, and providing her with the ability to own a greater
percentage (than her current 1.3%) of the Company's common stock is a means
of encouraging and incentivizing those continued services, (ii) Ms. Anderson-
Lasko has not received any increase in base salary, or bonus compensation,
over the last five years, despite valuable services to the Company and, in
the opinion of the board of directors improvements in the Company's financial
position and, in fact, Ms. Anderson-Lasko's base salary was decreased in
fiscal 1996, (iii) in December, 1992, Ms. Anderson-Lasko pledged 30,000
shares of common stock (300,000 shares adjusted for the effects of the July,
1995 reverse stock split), having a then market value of approximately $1.8
million, to the IRS to secure Spirco's indebtedness to the IRS and, as a
result of Spirco's subsequent bankruptcy and reorganization, was required to
forfeit those shares to the IRS, and, (iv) Ms. Anderson-Lasko has, and
continues, to personally guarantee certain of the Company's indebtedness,
including its indebtedness on its Tennessee property and its indebtedness to
ICON Cash Flow Partners, L.P. Series D, without being compensated for
providing such guarantees.
The Purchase Right is not subject to stockholder approval. However,
Ms. Anderson-Lasko may only exercise the Purchase Right to the extent the
Company has authorized but unissued or otherwise unreserved shares. As
discussed above, currently the Company has virtually no authorized but
unissued or otherwise unreserved shares. If the stockholders approve this
proposal to increase the number of authorized common shares, shares issuable
upon Ms. Anderson-Lasko's exercise, if any, of the Purchase Right, will be
reserved. If the stockholders do not approve this proposal to increase the
number of authorized shares, the Purchase Right will, nonetheless, be
exercisable to the extent the Company in the future has authorized but
unissued or otherwise unreserved shares of common stock.
Under the Company's by-laws the board of directors may issue authorized
shares of common stock without soliciting additional stockholder approval.
The existence of authorized but unissued shares of the Company's common stock
could tend to discourage or render more difficult the completion of a hostile
merger, tender offer or proxy contest. For example, if in the due exercise
of its fiduciary obligations, the board of directors were to determine that
a takeover proposal was not in the best interests of the Company and its
stockholders, the ability to issue additional shares of stock without further
stockholder approval could have the effect of rendering more difficult or
costly the completion of the takeover transaction, by diluting the voting or
other rights of the proposed acquiror or insurgent stockholder group, by
creating or enlarging a substantial voting block in hands that might support
the position of the board of directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise. As of the date
hereof there exists, to the knowledge of the Company, no planned acquisition
of or tender offer for the Company, nor any planned solicitation of proxies
to vote shares of the Company's common stock, except for the proxy solicited
by means of this Proxy Statement.
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's common stock is required for approval of the
amendment to the certificate of incorporation. The Board of Directors
recommends a vote to APPROVE this amendment to the certificate of
incorporation and the enclosed proxy will be voted in favor thereof unless
the proxy specifically indicates otherwise.
<PAGE>
Proposal for Approval of Innovo Group Inc.
1997 Stock Option Plan
The board of directors is proposing for stockholder approval the
adoption of the 1997 Stock Option Plan. The board of directors has proposed
the adoption of the 1997 Stock Option Plan, to replace the 1991 Plan, in
order to provide it with a sufficient number of shares to offer meaningful
incentive stock compensation, as well as to provide it with more flexibility
in terms of the types of stock inventive compensation awards available and
the ability to award options from a plan that complies with certain changes
to Rule 16b-3 under the Exchange Act that has been promulgated since the
adoption of 1991 Plan.
During the fourth quarter of fiscal 1996 the Company instituted
reductions in the salaries of all senior, and number of middle management,
which averaged 12.3%. Additionally, certain positions were eliminated. The
board of directors believes that the ability to offer meaningful incentive
compensation will increase its ability to retain key employees without having
to reinstate the salary reductions or recreate the eliminated positions.
Additionally, the ability to offer meaningful incentive compensation would
increase the Company's ability to attract new key employees who may be needed
as the Company's business grows at cash compensation levels closer to the low
end of the competitive range, and lower than the Company could otherwise
offer without the ability to combine lower cash compensation with such
incentives Finally, on an overall basis the board of directors wishes to
increase the importance of incentive compensation.
The existing 1991 Plan does not provide the board of directors with
those abilities because of its limit of 100,000 shares. If the adoption of
the 1997 Stock Option Plan is approved, awards under the 1991 Plan will be
discontinued.
The 1997 Stock Option Plan provides for the issuance of options to
purchase a maximum of 5 million shares of the Company's common stock, subject
to adjustment as described below.
The 1997 Stock Option Plan will be administered by the Stock Option
Committee, the composition of which will be intended to satisfy the
provisions of Rule 16B-3 under the Exchange Act. During the 10-year period
ending in 2007, the Committee will have authority, subject to the terms of
the 1997 Stock Option Plan, to determine when and to whom to make grants
under the plan, the number of shares to be covered by the grants, the types
and terms of options and SARs to be granted and the exercise prices of
options and SARs, to interpret and implement the 1997 Stock Option Plan, and
to prescribe, amend and rescind rules and regulations relating to the 1997
Stock Option Plan. The Committee's determinations under the 1997 Stock
Option Plan need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, awards under the 1997 Stock
Option Plan (whether or not such persons are similarly situated).
The Company's board of directors may amend, suspend or discontinue the
1997 Stock Option Plan at any time except that, unless an amendment is
approved (at a meeting held within 12 months before or after the date of such
amendment) by the holders of a majority of the issued and outstanding shares
of common stock entitled to vote, no such amendment may (i) materially
increase the maximum number of shares as to which awards may be granted under
the 1997 Stock Option Plan, except for adjustments to reflect stock dividends
or other recapitalization affecting the number or kind of outstanding shares,
(ii) materially increase the benefits accruing to 1997 Stock Option Plan
participants, (iii) materially change the requirements as to eligibility for
participation in the 1997 Stock Option Plan, (iv) provide for the grant of
options or SARs having an exercise price or appreciation base (as defined in
the 1997 Stock Option Plan) of less than 100% of the fair market value of
common stock on the date of grant, (v) permit an option or unrelated SAR to
be exercisable more than 10 years after the date of grant, or (vi) extend the
term of the 1997 Stock Option Plan beyond the initial 10-year period.
Under the terms of the 1997 Stock Option Plan, "incentive stock
options" ("ISOs") within the meaning of section 422 of the Internal Revenue
Code of 1986 (the "Code"), "non-qualified stock options" ("NQSOs") and SARs
may be granted of officers, certain directors, key employees and consultants
of the Company and any of its affiliates (as defined in the 1997 Stock Option
Plan), except that ISOs may be granted only to employees of the Company and
its subsidiaries. The Company estimates that approximately 50 individuals
would be eligible to receive awards under the 1997 Stock Option Plan, if
adopted. The 1997 Stock Option Plan contains no limitations upon the number
of shares with respect to which options or SARs may be granted to an
individual over the term of the 1997 Stock Option Plan.
To the extent that the aggregate fair market value (as defined in the
1997 Stock Option Plan), determined as of the date of grant of an ISO, of
common stock with respect to which ISOs granted under the 1997 Stock Option
Plan and all other option plans of the Company, its subsidiaries or the
relevant affiliate of the Company exercisable for the first time by an
individual during any calendar year exceeds $100,000, such options shall be
treated as options which are not ISOs. The foregoing limitation does not
apply to NQSOs.
Initially, each ISO will be exercisable over a period, determined by
the Committee in its discretion but not to exceed 10 years from the date of
grant, as required by the Code. In addition, in the case of an ISO granted
to an individual who, at the time such ISO is granted, owns shares possessing
10% or more of the total combined voting power of all classes of stock of the
Company or its subsidiary corporations (a "10% stockholder"), the exercise
period for an ISO may not exceed five years from the date of grant. In the
case of NQSO's the exercise period, not to exceed 10 years from the date of
grant, shall in all cases be determined by the Committee. Options may be
exercisable during the option period at such times, in such amounts, in
accordance with such terms and conditions, and subject to such restrictions,
as are set forth in the option agreement evidencing the grant of such
options. The Committee may, in its discretion, with the grantee's consent,
cancel any award of options or SARs and issue anew award in substitution
thereof or accelerate the exercisability of any award granted under the 1997
Stock Option Plan or extend the scheduled expiration of an award.
The exercise price of an ISO or an NQSO (the "Option Price") may not
be less than the fair market value of the shares of the Common Stock on the
date of grant, except that, in the case of an ISO granted to a 10%
stockholder, the option price may not be less than 110% of such fair market
value. The option price of, and the number of shares covered by, each option
will not change during the life of the option, except for adjustments to
reflect stock dividends, splits, other recapitalization or reclassifications
or changes affecting the number or kind of outstanding shares.
The shares purchased upon the exercise of an option are to be paid for
in cash or, with the Committee's consent, in its discretion, by delivery of
the optionee's promissory note, upon such terms and conditions as the
Committee may prescribe, or, if so provided in the applicable option
agreement, by delivery of previously acquired shares of Common Stock with a
fair market value equal to the total Option Price, or in a combination of
such methods.
Options and SARs may be transferred by an optionee or grantee only by
will or by the laws of descent and distribution, and may be exercise only by
the optionee or grantee during his lifetime. Except as otherwise provided in
the applicable plan agreement, all of an optionee's or a grantee's
outstanding awards shall terminate upon his termination of employment or
service for any reason.
The committee may grant SARs either along ("unrelated SARs") or in
conjunction with all or part of an option ("related SARs"). Upon the
exercise of a SAR, a holder will generally be entitled, without payment to
the Company, to receive cash, shares of common stock or any combination
thereof, as determined by the Committee, in an amount equal to the excess of
the fair market value of one share of common stock on the exercise date over
the fair market value of one share of common stock on the grant date of (i)
the related option (in the case of a related SAR) or (ii) the SAR (in the
case of an unrelated SAR), multiplied by the number of shares in respect of
which the SAR is exercised.
The affirmative vote of a majority of the votes cast at the meeting is
required to approve the adoption of the 1997 Stock Option Plan. Unless
otherwise directed by a stockholder's proxy, the persons named as proxy
voters in the accompanying proxy will vote for the approval of the 1997 Stock
Option Plan. The Board of Directors recommends a vote FOR the approval of
the 1997 Stock Option Plan.
<PAGE>
Proposal to Amend Certificate of Incorporation
to Authorize Class of Preferred Stock
On February 12, 1997, the board of directors approved, subject to
stockholder approval, an amendment to the Company's Certificate of
Incorporation to authorize the issuance of up to 10,000,000 shares of
preferred stock, par value $.01, in one or more series on terms and
conditions to be established by the board of directors from time to time. A
copy of the Amended and Restated Certificate of Incorporation appears as
Appendix A to this Proxy Statement.
The principal reason for this proposal is to give the Company
additional flexibility when considering the capital needs of the Company's
business. Presently, because the Company does not have an authorized class
of preferred stock, it is limited to issuing debt securities in situations
where it desires or needs to raise additional capital, or acquire assets or
businesses, but, due to market conditions or other factors, it is inadvisable
or impractical to issue common stock. The board of directors believes that
it is in the best interests of the Company, and its stockholders, that the
Company have this flexibility. However, there are currently no plans or
commitments for any transaction that would involve the issuance of any
preferred stock.
The preferred stock will constitute what is commonly referred to as
"blank check" preferred stock because the amendment to the Certificate of
Incorporation creating this class of preferred stock will authorize the board
of directors, from time to time, to divide the preferred stock into series,
to designate each series, to issue shares of any series, and to fix and
determine separately for each series any one or more of the following
relative rights and preferences: (i) the rate of dividends; (ii) the price at
and the terms and conditions on which shares may be redeemed; (iii) the
amount payable upon shares in the event of involuntary liquidation; (iv) the
amount payable upon shares in the event of voluntary liquidation; (v) sinking
fund provisions for the redemption or purchase of shares; (vi) the terms and
conditions on which shares may be converted if the shares of any series are
issued with the privilege of conversion; and (vii) voting rights. Dividends
on shares of preferred stock, when and as declared by the board of directors
out of any funds legally available therefor, may be cumulative and may have
a preference over the Company's common stock as to the payment of such
dividends. The provisions of a particular series, as designated by the board
of directors, may include restrictions on the ability of the Company to
purchase shares of the Company's common stock or restrictions or obligations
relating to the redemption of a particular series of preferred stock.
Depending upon the voting rights granted to any series of preferred stock
issuance thereof could result in a reduction in the power of the holders of
the Company's common stock. In the event of any dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, the holders of
each series of the then outstanding preferred stock may be entitled to
receive, prior to the distribution of any assets or funds to the holders of
the Company's common stock, a liquidation preference established by the board
of directors, together with all accumulated and unpaid dividends. Depending
upon the consideration paid for preferred stock its issuance could result in
a reduction in the assets available for distribution to the holders of the
Company's common stock in the event of liquidation of the Company. Holders
of preferred stock will not have preemptive rights to acquire any additional
securities issued by the Company.
Once a series has been designated and shares of that series are
outstanding, the rights of holders of that series may not be modified
adversely except by a vote of at least a majority of the outstanding shares
constituting such series or by such other vote as may be required by the
certificate designating such series.
The board of directors may, if this proposal is approved, issued shares
of its preferred stock without soliciting additional stockholder approval.
The existence of authorized but unissued shares of the Company's preferred
stock could tend to discourage or render more difficult the completion of a
hostile merger, tender offer or proxy contest. For example, if in the due
exercise of its fiduciary obligations, the board of directors were to
determine that a takeover proposal was not in the best interests of the
Company and its stockholders, the ability to issue additional shares of stock
without further stockholder approval could have the effect of rendering more
difficult or costly the completion of the takeover transaction, by diluting
the voting or other rights of the proposed acquiror or insurgent stockholder
group, by creating or enlarging a substantial voting block in hands that
might support the position of the board of directors, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise. As
of the date hereof there exists, to the knowledge of the Company, no planned
acquisition of or tender offer for the Company, nor any planned solicitation
of proxies to vote shares of the Company's common stock, except for the proxy
solicited by means of this Proxy Statement.
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's common stock is required for approval of this
amendment to the certificate of incorporation. The board of directors
recommends a vote to APPROVE this amendment to the certificate of
incorporation and the enclosed proxy will be voted in favor thereof unless
the proxy specifically indicates otherwise.
<PAGE>
Relationship With Independent Public Accountants
The financial statements of the Company for the year ended November 30,
1996, have been audited by BDO Seidman, LLP, independent certified public
accountants. A representative of BDO Seidman, LLP will be at the Annual
Meeting and will have an opportunity to make a statement and will be
available to answer appropriate questions. BDO Seidman, LLP has been
reappointed by the board of directors as the independent public accountants
of the Company and its subsidiaries for the year ending November 30, 1997.
Stockholder Proposals
Any stockholder proposal to be considered by the Company for inclusion
in the 1998 Annual Meeting of Stockholders proxy material must be received by
the Company no later than December 1, 1997.
Other Business
The board of directors is not aware of any matter to be presented for
action at the meeting, other than the matters set forth herein. If any other
business should come before the meeting, the proxy will be voted in respect
thereof in accordance with the best judgment of the persons authorized
therein, and discretionary authority to do so is included in the proxy.
Stockholders are urged to sign and return the enclosed proxy in the
enclosed envelope. A prompt response will be helpful and appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
Schren L. Head
Secretary
March 5, 1997
FORM OF PROXY
INNOVO GROUP INC.
27 NORTH MAIN STREET
SPRINGFIELD, TENNESSEE 37172
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
The undersigned hereby appoints Patricia Anderson-Lasko and Terrance J.
Bond, or their duly appointed substitute, as Proxy, and hereby authorizes them
to represent and to vote, as designated below, all of the shares of common stock
of Innovo Group Inc. held of record by the undersigned on February 15, 1997 at
the Annual Meeting of Stockholders to be held on April 4, 1997 or any
adjournment thereof.
A. Election of Directors
Nominees: Patricia Anderson-Lasko, Alexander K. Miller, Reino C. Lanto,
Jr., Scott Parliament, Eleanor V. Schwartz and Marvin M. Williamson (mark only
one of the following lines):
[ ] VOTE FOR all nominees listed above, except vote withheld as to
the following nominees (if any):
______________________________
[ ] VOTE WITHHELD
B. Ratify Amendment to Certificate of Incorporation to Increase
Authorized Common Stock
For [ ] Against [ ] Abstain [ ]
C. Ratify the Adoption of the Innovo Group Inc. 1997 Stock Option
Plan
For [ ] Against [ ] Abstain [ ]
D. Ratify Amendment to Certificate of Incorporation to Create a
Class of Preferred Stock
For [ ] Against [ ] Abstain [ ]
E. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR Proposals A, B, C and D.
Please sign exactly as name appears below. When shares are held by
joint tenants, both should sign.
Dated:____________________, 1997
________________________________________
Signature
________________________________________
Signature if held jointly
Please check here if you plan to attend [ ]
APPENDIX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INNOVO GROUP INC.
It is hereby certified that:
1. (a) The present name of the corporation is Innovo Group Inc. (the
"Corporation").
(b) The name under the Corporation was originally incorporated is Elorac
Corporation and the date of filing the original Certificate of Incorporation of
the Corporation with the Secretary of State of the State of Delaware is December
18, 1987.
2. The Certificate of Incorporation of the Corporation is hereby amended
by striking out Articles First, Fourth, Sixth, Seventh, Eighth, Ninth and Tenth
thereof and by substituting in lieu thereof new Articles First, Fourth, Sixth,
Seventh, Eighth, Ninth and Tenth, which are set forth in the Amended and
Restated Certificate of Incorporation hereinafter provided for.
3. The provisions of the Certificate of Incorporation of the corporation
as heretofore amended and/or supplemented, and as herein amended, are hereby
restated and integrated into the single instrument which is hereinafter set
forth, and which is entitled Amended and Restated Certificate of Incorporation
of Innovo Group Inc. without any further amendment other than the amendments
herein certified and without any discrepancy between the provisions of the
Certificate of Incorporation as previously amended and supplemented and the
provisions of the said single instrument hereinafter set forth.
4. The amendments and the restatement of the Certificate of Incorporation
herein certified have been duly adopted in writing by the stockholders in
accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the state of Delaware. Prompt written notice of the adoption
of the amendments and of the restatement of the Certificate of Incorporation
herein certified has been given to those stockholders who have not consented in
writing thereto, as provided in Section 228 of the General Corporation Law of
the state of Delaware.
5. The Certificate of Incorporation of the Corporation, as amended and
restated and restated herein, shall read as follows:
FIRST: The name of the corporation is INNOVO GROUP INC. (the
"Corporation").
SECOND: The address, including street, number, city and
county, of the registered office of the Corporation in the State of Delaware is
32 Lockerman Square, Suite L-100, Dover, Delaware 19901, County of Kent. The
name of the registered agent of the Corporation at such address is The Prentice
- -Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The maximum number of shares, comprising the total
authorized capital stock of the corporation that the Corporation shall have
authority to issue is:
(a) Seventy million (70,000,000) of Common Stock, par value $.01 per
share, all such hares having unlimited voting rights as a class with each share
entitled to one (1) vote per share, and such class of shares being entitled to
receive the remaining net assets of the Corporation upon dissolution subject to
the rights of holders of any Preferred Stock having a liquidation preference
over the Common Stock which may be issued; and
(b) Ten million (10,000,000) shares of Preferred Stock, which shares
shall be entitled to such preferences in the distribution of dividends and
assets, and shall be divided by the Board of Directors of the Corporation into
such series, as determined by the Board of Directors of the Corporation, with
full authority in the Board of Directors to determine the relative voting
powers, designations, rights and preferences or any other matter that lawfully
may be determined by the Board of Directors with respect to the shares of any
such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of Delaware Code order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
(a) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board"
and the phrase "total number of directors" shall be deemed to have the same
meaning, to wit, the total number of directors which the Corporation would have
if there were no vacancies. No election of directors need by written ballot.
(b) The power to adopt, amend, or repeal the Bylaws of
the Corporation may be exercised by the Board of Directors of the Corporation,
provided, however, that the Board of Directors may not amend the Bylaws to take
any action that is reserved exclusively by the Shareholders pursuant to the
Delaware General Corporation Law.
(c) Whenever the Corporation shall be authorized to
issue only one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of stockholders.
Whenever the Corporation shall be authorized to issue more than one class of
stock, no outstanding share of any class of stock which is denied voting power
under the provisions of this Certificate of Incorporation shall be entitle the
holder thereof to the right to vote at any meeting of stockholders except as the
provisions of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require; provided,
that no share of any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase or decrease (but not below
the number of shares thereof outstanding) in the number of authorized shares of
said class.
EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of the
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
NINTH: (a) The Corporation shall, in the manner and to the full
extent permitted by Section 145 of the General Corporation Law of the state of
Delaware, as the same may be amended and supplemented, indemnify any officer or
director (or the estate of any such person) who was or is a party to, or is
threatened, to be made a party to, any threatened, pending or complete action,
suit or proceeding, whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee or employee of another
corporation, partnership, joint venture, trust or other enterprise (an
"indemnitee"). To the full extent permitted by law, the indemnification and
advances provided for herein shall include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement. Notwithstanding the foregoing,
the Corporation shall not indemnify any such indemnitee (1) in any proceeding by
the Corporation against such indemnitee; (2) in the event the board of directors
determines that indemnification is not available under the circumstances because
the officer or director has not met the standard of conduct set forth in Section
145 of the Delaware General Corporation Law; or (3) if a judgment or other final
adjudication adverse to the indemnitee establishes his liability (i) for any
breach of the duty of loyalty to the Corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or (iii) under Section 174 of the Delaware General
Corporation Law.
(b) The right to indemnification conferred in Section (a) of this
Article NINTH shall include the right to be paid by the Corporation the expenses
(including attorneys' fees) incurred in defending any such proceeding in advance
of its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, and advancement
of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking, by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Section (b) or otherwise. The rights to
indemnification and to the advancement of expenses conferred in Sections (a) and
(b) of this Article NINTH shall be contract rights and such rights shall
continue as to an indemnitee who has ceased to be a director or officer and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
(c) The rights to indemnification and to the advancement of
expenses conferred in this Article NINTH shall not be exclusive of any other
right which any indemnitee may have or hereafter acquire under any statute, the
Corporation's Amended and Restated Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in such indemnitee's official capacity and as to action in another
capacity while holding such office.
(d) The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
(e) The Corporation may, to the extent authorized from time
to time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article NINTH with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
TENTH: No amendment to or repeal of Article EIGHT or NINTH of this
Amended and Restated Certificate of Incorporation shall apply to or have any
effect on the rights of any individual referred to in Article EIGHT or NINTH for
or with respect to acts or omissions of such individual occurring prior to such
amendment or repeal.
ELEVENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been executed by its President and attested by its Secretary,
this ______ day of _________________, 1997.
INNOVO GROUP INC.
By:_________________________
President
ATTEST:
_________________________
Secretary
Appendix B
Innovo Group Inc. 1997 Stock Option Plan
Table of Contents
PAGE
ARTICLE I GENERAL 1
1.1 Purpose 1
1.2 Administration 1
1.3 Persons Eligible for Awards 1
1.4 Types of Awards Under Plan 2
1.5 Shares Available for Awards 2
1.6 Definitions of Certain Terms 3
ARTICLE II STOCK OPTIONS; STOCK APPRECIATION RIGHTS 3
2.1 Grant of Stock Options 3
2.2 Grant of Stock Appreciation Rights 4
2.3 Agreements Evidencing Stock Options and Stock
Appreciation Rights 5
2.4 Exercise of Related Stock Appreciation Right Reduces
Shares Subject to Option 6
2.5 Exercisability of Options and Stock
Appreciation Rights 6
2.6 Payment of Option Price 7
2.7 Periods of Employment 7
2.8 Special ISO Requirements 7
ARTICLE III MISCELLANEOUS 8
3.1 Amendment of the Plan; Modification of Awards 8
3.2 Restrictions 9
3.3 Nontransferability 9
3.4 Withholding Taxes 10
3.5 Adjustments Upon Changes in Capitalization 10
3.6 Right of Discharge Reserved 11
3.7 No Rights as a Stockholder 11
3.8 Nature of Payments 11
3.9 Non-Uniform Determinations 12
3.10 Other Payments or Awards 12
3.11 Reorganization 12
3.12 Section Headings 13
3.13 Effective Date and Term of Plan 13
3.14 Governing Law 13
Innovo Group Inc.
1997 Stock Option Plan
Article I
General
1.1 Purpose. The purpose of this Innovo Group Inc. 1997 Stock Option
Plan (the "1997 Plan") is to provide for the officers, certain directors, key
employees and consultants of Innovo Group Inc. (the "Company") and certain of
its Affiliates an incentive to maintain and enhance the long-term performance
and profitability of the Company.
1.2 Administration.
(a) The 1997 Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board"),
which committee shall consist of two or more directors, each of whom is a
"disinterested person" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 or any successor rule thereto ("Rule 16b-3"). The
members of the Committee shall be appointed by, and may be changed at any time
and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the 1997 Plan, (ii) to construe, interpret and
implement the 1997 Plan and any Plan agreements executed pursuant to section
2.3, (iii) to prescribe, amend and rescind rules and regulations relating to the
1997 Plan, (iv) to make all determinations necessary or advisable in
administering the 1997 Plan, and (v) to correct any defect, supply any omission
and reconcile any inconsistency in the 1997 Plan.
(c) The determination of the Committee on all matters relating to the
1997 Plan or any Plan agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the 1997 Plan or any award
hereunder.
1.3 Persons Eligible for Awards. Awards under the 1997 Plan may be
made to such officers, directors and executive, managerial, professional or
other employees and consultants ("key personnel") of the Company or its
Affiliates, as the Committee shall in its sole discretion select.
1.4 Types of Awards Under Plan.
(a) Awards may be made under the 1997 Plan in the form of (i) stock
options ("options"), (ii) stock appreciation rights related to an option
("related stock appreciation rights"), and (iii) stock appreciation rights not
related to any option ("unrelated stock appreciation rights"), all as more fully
set forth in Article II.
(b) Options granted under the 1997 Plan may be either (i)
"nonqualified" stock options subject to the provisions of section 83 of the
Internal Revenue Code of 1986, as amended (the "Code") or (ii) options intended
to qualify for incentive stock option treatment described in Code section 422.
(c) All options when granted are intended to be nonqualified stock
options, unless the applicable Plan agreement explicitly states that an option
is intended to be an incentive stock option. If an option is granted with the
stated intent that it be an incentive stock option, and if for any reason such
option (or any portion thereof) shall not qualify as an incentive stock option,
then, to the extent of such nonqualification, such option (or portion) shall be
regarded as a nonqualified stock option appropriately granted under the 1997
Plan provided that such option (or portion) otherwise satisfies the terms and
conditions of the 1997 Plan relating to nonqualified stock options generally.
1.5 Shares Available for Awards.
(a) Subject to section 3.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which options and unrelated stock appreciation rights may be granted
under the 1997 Plan shall be equal to the excess (if any) of (i) Five million
(5,000,000) shares, over (ii) the sum of (A) the number of shares subject to
outstanding options and outstanding unrelated stock appreciation rights granted
under the 1997 Plan, (B) the number of shares previously transferred pursuant to
the exercise of options granted under the 1997 Plan, and (C) the number of
shares in respect of which stock appreciation rights granted under the 1997 Plan
shall have previously been exercised. In accordance with (and without
limitation upon the preceding sentence, shares of Common Stock covered by
options or unrelated stock appreciation rights granted under the 1997 Plan which
expire or terminate for any reason whatsoever shall again become available for
awards under the 1997 Plan.
(b) Shares of stock that shall be transferable pursuant to the
exercise of options or stock appreciation rights granted under the 1997 Plan
shall be authorized and unissued or treasury shares of Common Stock.
(c) Without limiting the generality of the preceding provisions of
this section 1.5, the Committee may, but solely with the grantee's consent,
agree to cancel any award of options and/or stock appreciation rights under the
1997 Plan and issue a new award in substitution therefor, provided that the
substituted award satisfies all applicable Plan requirements as of the date
such new award is made.
1.6 Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means any person or entity
which, at the time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
the Company.
(b) The term "Common Stock" as used herein means the shares of common
stock of the Company as constituted on the effective date of the 1997 Plan, and
any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(c) The term "fair market value" as used herein as of any date and in
respect of any share of Common Stock means the fair market value of a share of
Common Stock on such date, as determined by the Committee in its sole
discretion. In no event shall the fair market value of any share be less than
its par value.
<PAGE>
Article 2
Stock Options;
Stock Appreciation Rights
2.1 Grant of Stock Options. The Committee may grant options under the
1997 Plan to purchase shares of Common Stock to such key personnel, and in such
amounts and subject to such terms and conditions, as the Committee shall from
time to time determine in its sole discretion, subject to the terms and
provisions of this Plan.
2.2 Grant of Stock Appreciation Rights.
(a) The Committee may grant a related stock appreciation right in
connection with all or any part of an option granted under the 1997 Plan, either
at the time the related option is granted or any time thereafter prior to the
exercise, termination or cancellation of such option, and subject to such terms
and conditions as the Committee shall from time to time determine in its sole
discretion, subject to the terms and provisions of the 1997 Plan. The grantee
of a related stock appreciation right shall, subject to the terms and conditions
of the 1997 Plan and the applicable Plan agreement, have the right to surrender
to the Company for cancellation all or a portion of the related option granted
under the 1997 Plan, but only to the extent that such option is then
exercisable, and to be paid therefor an amount equal to the excess (if any) of
(i) the aggregate fair market value of the shares of Common Stock subject to the
option or portion thereof surrendered (determined as of the date of exercise of
such stock appreciation right), over (ii) the aggregate appreciation base
(determined pursuant to section 2.3(d)) of the shares of Common Stock subject
to the stock appreciation right or portion thereof surrendered.
(b) The Committee may grant an unrelated stock appreciation right to
such key personnel, and in such amount and subject to such terms and conditions,
as the Committee shall from time to time determine in its sole discretion,
subject to the terms and provisions of the 1997 Plan. The grantee of an
unrelated stock appreciation right shall, subject to the terms and conditions
of the 1997 Plan and the applicable Plan agreement, have the right to surrender
to the Company for cancellation all or a portion of such stock appreciation
right, but only to the extent that such stock appreciation right is then
exercisable, and to be paid therefor an amount equal to the excess (if any) of
(i) the aggregate fair market value of the shares of Common Stock subject to the
stock appreciation right or portion thereof surrendered (determined as of the
date of exercise of such stock appreciation right), over (ii) the aggregate
appreciation base (determined pursuant to section 2.3(d)) of the shares of
Common Stock subject to the stock appreciation right or portion thereof
surrendered.
(c) Payment due upon exercise of a stock appreciation right shall be
made (i) in cash, (ii) in Common Stock (valued at the fair market value thereof
as of the date of exercise), or (iii) partly in cash and partly in Common Stock
(valued at the fair market value thereof as of the date of exercise), all as
determined by the Committee in its sole discretion. If the Committee shall
determine to make all of such payments in Common Stock, no fractional shares
shall be issued and no payments shall be made in lieu of fractional shares.
2.3 Agreements Evidencing Stock Options and Stock Appreciation Rights.
(a) Options and stock appreciation rights granted under the 1997 Plan
shall be evidenced by written agreements ("Plan agreements") which shall not be
inconsistent with the terms and provisions of the 1997 Plan, and which shall
contain such provisions as the Committee may in its sole discretion deem
necessary or desirable.
(b) Each Plan agreement with respect to the granting of an option or
an unrelated stock appreciation right shall set forth the number of shares of
Common Stock subject to the option or unrelated stock appreciation right granted
thereby. Each Plan agreement with respect to the granting of a related stock
appreciation right shall set forth the number of shares of Common Stock subject
to the related option which shall also be subject to the related stock
appreciation right granted thereby.
(c) Each Plan agreement with respect to the granting of an option
shall set forth the amount (the "option exercise price") payable by the grantee
to the Company upon exercise of the option evidenced thereby. The option
exercise price per share shall in no event be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
(d) Each Plan agreement with respect to a stock appreciation right
shall set forth the amount (the "appreciation base") over which appreciation
will be measured upon exercise of the stock appreciation right evidenced
thereby. The appreciation base per share of Common Stock subject to a stock
appreciation right shall in no event be less than (i) in the case of an
unrelated stock appreciation right, 100% of the fair market value of a share of
Common Stock on the date the stock appreciation right is granted, or (ii) in the
case of a related stock appreciation right, 100% of the fair market value of a
share of Common Stock on the date the related option was granted.
2.4 Exercise of Related Stock Appreciation Right Reduces Shares
Subject to Option. Upon any exercise of a related stock appreciation right or
any portion thereof, the number of shares of Common Stock subject to the related
option shall be reduced by the number of shares of Common Stock in respect of
which such stock appreciation right shall have been exercised.
2.5 Exercisability of Options and Stock Appreciation Rights. Subject
to the other provisions of this Plan:
(a) Each Plan agreement with respect to an option or stock
appreciation right shall set forth the period during which and the conditions
subject to which the option or stock appreciation right evidenced thereby shall
be exercisable, such periods and conditions to be determined by the Committee
in its discretion.
(b) Notwithstanding the foregoing or any other provision of the Plan,
no Plan agreement shall permit an option or stock appreciation right to be
exercisable more than 10 years after the date of grant.
(c) Subject to any restrictions imposed by the applicable Plan
agreement, a related stock appreciation right shall be exercisable at any time
during the period that the related option may be exercised.
(d) Unless the applicable Plan agreement otherwise provides, an option
or stock appreciation right granted under the Plan may be exercised from time to
time as to all or part of the shares as to which such option or stock
appreciation right shall then be exercisable.
(e) An option or stock appreciation right shall be exercisable by the
filing of a written notice of exercise with the Company, on such form and in
such manner as the Committee shall in its sole discretion prescribe.
2.6 Payment of Option Price. Any written notice of exercise of an
option shall be accompanied by payment of the full purchase price for the shares
being purchased. Such payment shall be made in any combination of the
foregoing: (i) by certified or official bank check payable to the Company
(or the equivalent thereof acceptable to the Committee); (ii) with the consent
of the Committee in its sole discretion, by delivery of the Optionee's
promissory note, upon such terms and conditions as the Committee may prescribe;
and/or (iii) if so provided in the applicable Plan agreement, by delivery of
previously acquired shares of Common Stock having a fair market value
(determined as of the date such option is exercised) equal to the portion of
the option exercise price being paid thereby. As soon as practicable after
receipt of such payment, the Company shall, subject to the provisions of section
3.2, deliver to the grantee a certificate or certificates for the shares of
Common Stock so purchased.
2.7 Periods of Employment.
(a) Except as the 1997 Plan agreement may otherwise provide, all of a
grantee's outstanding awards shall terminate upon his termination of employment
for any reason (including death).
(b) Subject to any limitations imposed by the applicable Plan
agreement, references herein to an individual's employment shall include all
periods during which such individual serves as a director of or consultant to
the Company or any Affiliate but is not otherwise a common law employee. An
individual shall be deemed to have terminated employment when he completely
ceases to be employed (including employment within the meaning of the preceding
sentence) by the Company and all of its Affiliates. The Committee may in its
discretion determine (i) whether any leave of absence constitutes a termination
of employment within the meaning of the 1997 Plan and (ii) the impact, if any,
of any such leave of absence on awards under the 1997 Plan theretofore made to a
grantee who takes such leave of absence.
2.8 Special ISO Requirements. If an option granted under the 1997
Plan is intended to be an incentive stock option, and if the grantee, at the
time of grant, owns stock possessing 10 percent or more of the total combined
voting power of all classes of stock of the employer corporation or of its
parent or subsidiary corporation (within the meaning of Code section 424),
then (i) the option exercise price per share shall in no event be less than 110%
of the fair market value of the Common Stock on the date of such grant and (ii)
such option shall not be exercisable after the expiration of the five years
after the date such option is granted.
<PAGE>
Article 3
Miscellaneous
3.1 Amendment of the 1997 Plan; Modification of Awards.
(a) The Board may, without stockholder approval, at any time and from
time to time suspend or discontinue the 1997 Plan or revise or amend it in any
respect whatsoever, except that no such amendment shall impair any rights
under any award theretofore made under the 1997 Plan without the consent of the
person to whom such award was made. Furthermore, except as and to the extent
otherwise permitted by section 3.5 or 3.11, no such amendment shall, without
stockholder approval:
(i) materially increase the benefits accruing to grantees under the
1997 Plan;
(ii) materially increase, beyond the amounts set forth in section 1.5,
the number of shares of Common Stock in respect of which options and unrelated
stock appreciation rights may be issued under the 1997 Plan;
(iii) materially modify the designation in section 1.3 of the class of
persons eligible to receive awards under the 1997 Plan;
(iv) provide for the grant of stock options or stock appreciation
rights having an option exercise price or appreciation base per share of Common
Stock less than 100% of the fair market value of a share of Common Stock on the
date of grant;
(v) permit a stock option or unrelated stock appreciation right to be
exercisable more than 10 years after the date of grant; or
(vi) extend the term of the 1997 Plan beyond the period set forth in
section 3.13.
(b) With the consent of the grantee and subject to the terms and
conditions of the 1997 Plan (including section 3.1 (a)), the Committee may amend
outstanding Plan agreements with such grantee, including, without limitation,
any amendment which would (i) accelerate the time or times at which an award may
be exercised and/or (ii) extend the scheduled expiration date of the award.
3.2 Restrictions.
(a) If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the 1997 Plan, the issuance
or purchase of shares or other rights hereunder or the taking of any other
action hereunder (each such action being hereinafter referred to as a "Plan
Action"), then such Plan Action shall not be taken, in whole or in part, unless
and until such Consent shall have been effected or obtained to the full
satisfaction of the Committee. Without limiting the generality of the
foregoing, in the event that (i) the Committee shall be entitled under the Plan
to make any payment in cash, Common Stock or both, and (ii) the Committee shall
determine that Consent is necessary or desirable as a condition of, or in
connection with, payment in any one or more of such forms, then the Committee
shall be entitled to determine not to make any payment whatsoever until such
Consent shall have been obtained in the manner aforesaid.
(b) The term "Consent" as used herein with respect to any Plan Action
means (i) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (ii) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Committee shall deem necessary or desirable to comply
with the terms of any such listing, registration or qualification or to obtain
an exemption from the requirement that any such listing, qualification or
registration be made and (iii) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory bodies.
3.3 Nontransferability. No right granted to any grantee under the
1997 Plan or under any Plan agreement shall be assignable or transferable by the
grantee other than by will or by the laws of descent and distribution. During
the lifetime of the grantee, all rights granted to the grantee under the Plan or
under any Plan agreement shall be exercisable only by him.
3.4 Withholding Taxes.
(a) Whenever under the 1997 Plan shares of Common Stock are to be
delivered upon exercise of an option or stock appreciation right, the Company
shall be entitled to require as a condition of delivery that the grantee remit
an amount sufficient to satisfy all federal, state and other governmental
withholding tax requirements related thereto. Whenever under the 1997 Plan
cash is to be paid upon exercise of a stock appreciation right (whether upon the
simultaneous exercise of an option or otherwise), the Company shall be entitled
to deduct therefrom an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto or to the delivery of
any shares of Common Stock under the 1997 Plan.
(b) The Committee may in its sole discretion permit a grantee to
satisfy, in whole or in part, the foregoing withholding requirements by delivery
of shares of Common Stock owned by the grantee for at least six months (or such
shorter or longer period as the Committee may approve or require) having a fair
market value (determined as of the date of such delivery by the grantee) equal
to all or part of the amount to be so withheld. Without limiting the generality
of the foregoing: (i) the Committee may require, as a condition of accepting
any such delivery of shares of Common Stock, that the grantee furnish to the
Company an opinion of counsel to the effect that such delivery would not result
in the grantee incurring any liability under Rule 16b; and (ii) the Committee
may permit any such delivery to be made by withholding shares of Common Stock
from the shares otherwise issuable pursuant to the exercise of the award(s)
giving rise to the tax withholding obligation (in which event the date of
delivery shall be deemed the date the award(s) was exercised).
3.5 Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
transferred pursuant to options under the 1997 Plan, the number of shares of
Common Stock subject to options and unrelated stock appreciation rights
theretofore granted under the 1997 Plan, and the option exercise price and
appreciation base of options and stock appreciation rights theretofore granted
under the 1997 Plan may be appropriately adjusted (as the Committee may
determine) for any increase or decrease in the number of issued shares of
Common Stock resulting from the subdivision or combination of shares of Common
Stock or other capital adjustments, or the payment of a stock dividend after
the effective date of this Plan, or other increase or decrease in such shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that any options to purchase or unrelated stock appreciation
rights covering fractional shares of Common Stock resulting from any such
adjustment shall be eliminated, and provided further, that each incentive stock
option granted under the 1997 Plan shall not be adjusted in a manner that
causes such option to fail to continue to qualify as an "incentive stock
option" within the meaning of Code section 422. Adjustments under this Section
shall be made by the Committee, whose determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive.
3.6 Right of Discharge Reserved. Nothing in the 1997 Plan or in any
Plan agreement shall confer upon any officer, director, employee or other person
the right to continue in the employment or service of the Company or any of its
Affiliates or affect any right which the Company or any of its Affiliates may
have to terminate the employment or service of such officer, director, employee
or other person.
3.7 No Rights as a Stockholder. No grantee or other person exercising
an option or stock appreciation right shall have any of the rights of a
stockholder of the Company with respect to shares subject to an option or shares
deliverable upon exercise of a stock appreciation right until the issuance of
a stock certificate to him for such shares. Except as otherwise provided in
section 3.5, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.
3.8 Nature of Payments.
(a) Any and all payments of shares of Common Stock or cash hereunder
shall be granted, transferred or paid in consideration of services performed for
the Company or for its Affiliates by the grantee.
(b) All such grants, issuances and payments shall constitute a special
incentive payment to the grantee and shall not, unless otherwise determined by
the Committee, be taken into account in computing the amount of salary or
compensation of the grantee for the purposes of determining any pension,
retirement, death or other benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate, on the one hand, and the grantee
on the other hand.
3.9 Non-Uniform Determinations. The Committee's determinations under
the 1997 Plan need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, awards under the 1997 Plan
(whether or not such persons are similarly situated). Without limiting the
generality of the foregoing, the Committee shall be entitled, among other things
to make non-uniform and selective determinations, and to enter into non-
uniform and selective Plan agreements, as to (i) the persons to receive awards
under the 1997 Plan, (ii) the terms and provisions of awards under the 1997
Plan, (iii) the exercise by the Committee of its discretion in respect of the
exercise of stock appreciation rights pursuant to the terms of the 1997 Plan,
and (iv) the treatment of leaves of absence pursuant to section 2.7(b).
3.10 Other Payments or Awards. Nothing contained in the 1997 Plan
shall be deemed in any way to limit or restrict the Company, any Affiliate or
the Committee from making any award or payment to any person under any other
plan, arrangement or understanding, whether now existing or hereafter in effect.
3.11 Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion take any or all of the following actions:
(i) by written notice to each grantee, provide that his options and/or
stock appreciation rights will be terminated unless exercised within 30 days (or
such longer period as the Committee shall determine in its sole discretion)
after the date of such notice (without acceleration of the exercisability of
such awards); and/or
(ii) advance the dates upon which any or all outstanding options and/
or stock appreciation rights shall be exercisable.
(b) Whenever deemed appropriate by the Committee, any action referred
to in section 3.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
3.12 Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
3.13 Effective Date and Term of Plan.
(a) This Plan shall be deemed adopted and become effective upon the
approval thereof by the Board; provided that, notwithstanding any other
provision of this Plan, no award made under the 1997 Plan shall be exercisable
unless the 1997 Plan is approved, directly or indirectly, by (i) the express
consent of stockholders holding at least a majority of the Company's voting
stock voting in person or by proxy at a duly held stockholders' meeting, or (ii)
the unanimous written consent of the stockholders of the Company, within 12
months before or after the date the 1997 Plan is adopted.
(b) The 1997 Plan shall terminate 10 years after the earlier of the
date on which it becomes effective or the date on which it is approved by
shareholders, and no awards shall thereafter be made under the 1997 Plan.
Notwithstanding the foregoing, all awards made under the 1997 Plan prior to
such termination date shall remain in effect until such awards have been
satisfied or terminated in accordance with the terms and provisions of the 1997
Plan.
3.14 Governing Law. This 1997 Plan shall be governed by the laws of
the State of Tennessee applicable to agreements made and to be performed
entirely within such State.
