<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
MICHAEL FOODS, INC.
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- - --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
Michael Foods Inc. logo
324 PARK NATIONAL BANK BUILDING
5353 WAYZATA BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
April 25, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Michael Foods, Inc. to be held in the Auditorium of the Lutheran Brotherhood
Building, 625 Fourth Avenue South, Minneapolis, Minnesota on Thursday, June 5,
1997, at 4:00 p.m., local time.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. During the meeting there will
be a report on the operations of the Company. After the business of the meeting
has been concluded, shareholders will be given the opportunity to ask
appropriate questions.
The items requiring shareholder approval are the election of directors,
ratification of the 1997 Stock Incentive Plan and the ratification of the
appointment of auditors for the year 1997. We recommend that you vote FOR these
proposals, which are set forth in more detail in the accompanying Proxy
Statement.
Whether or not you can attend the Annual Meeting, please complete, sign,
date and mail the enclosed proxy card promptly. This action will not limit your
right to revoke your proxy in the manner described in the accompanying Proxy
Statement or to vote in person if you wish to attend the Annual Meeting and vote
personally.
Sincerely,
/s/ Gregg A. Ostrander
Gregg A. Ostrander
President and Chief Executive Officer
<PAGE> 3
MICHAEL FOODS, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 5, 1997
-------------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Michael
Foods, Inc., a Minnesota corporation, will be held in the Auditorium of the
Lutheran Brotherhood Building, 625 Fourth Avenue South, Minneapolis, Minnesota,
at 4:00 p.m., local time, on Thursday, June 5, 1997.
This meeting is being held for the following purposes:
1. To elect nine (9) persons to serve as directors until the next
annual election and until their successors are duly elected and qualified.
2. To ratify the 1997 Stock Incentive Plan of Michael Foods, Inc. and
Affiliated Companies.
3. To ratify the appointment of Grant Thornton LLP as independent
auditors for the year ending December 31, 1997.
4. To transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on April 7, 1997 will
be entitled to notice of or to vote at the meeting. Whether or not you plan to
be present at the meeting, please sign and return the accompanying form of proxy
in the enclosed postage prepaid envelope at your earliest convenience.
/s/Jeffrey Shapiro
Jeffrey M. Shapiro
Executive Vice President and Secretary
Minneapolis, Minnesota
April 25, 1997
<PAGE> 4
MICHAEL FOODS, INC.
-------------------------------
PROXY STATEMENT
-------------------------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 5, 1997
This Proxy Statement is furnished to shareholders of Michael Foods, Inc., a
Minnesota corporation (formerly known as North Star Universal, Inc.), (the
"Company") in connection with the solicitation of proxies on behalf of the Board
of Directors (the "Board") for use at the Annual Meeting of Shareholders of the
Company to be held on June 5, 1997 (the "Annual Meeting"), for the purposes set
forth in the accompanying Notice of Annual Meeting. The mailing date of this
Proxy Statement and enclosed form of proxy is April 25, 1997.
Information in this Proxy Statement reflects the completion of the
reorganization of the Company and Michael Foods, Inc., a Delaware corporation
("MFD"), on February 28, 1997. All historical information relates to the
business of MFD. In connection with the reorganization with MFD, all of the
assets, liabilities and businesses of the Company unrelated to MFD were spun off
to ENStar Inc. Historical information with respect to ENStar Inc. may be found
in the ENStar Inc. Form 10-K for the year ended December 31, 1996 (SEC File No.
333-12301).
The cost of preparing, assembling and mailing the Notice of Annual Meeting,
this Proxy Statement and the form of proxy, including the reimbursement of
banks, brokers and other nominees for forwarding proxy materials to beneficial
owners is estimated at $15,000 and will be borne by the Company. Proxies may
also be solicited personally or by telephone by directors, officers and regular
employees of the Company who will receive no additional compensation. A
shareholder giving a proxy may revoke it at any time prior to the voting of the
proxy by filing with any officer of the Company a written notice of revocation
or another proxy bearing a later date. Unless otherwise noted on the proxy, the
proxies will vote for the proposals set forth herein. Any written notice of
revocation or subsequently dated proxy should be mailed or delivered to Jeffrey
M. Shapiro, Executive Vice President and Secretary, Michael Foods, Inc., 324
Park National Bank Building, 5353 Wayzata Boulevard, Minneapolis, Minnesota
55416.
The close of business on April 7, 1997 was fixed by the Board as the record
date for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting. On April 1, 1997, the Company had outstanding 21,052,322
shares of common stock, $.01 par value per share (the "Common Stock"). The
Common Stock is the Company's only class of voting securities and each share
entitles the holder to one vote on all matters to come before the meeting. There
is no cumulative voting in electing directors.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspector appointed for the meeting. The election inspector will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum, but as unvoted for purposes of
determining the approval of any matter upon which the shareholder has abstained.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
A copy of the Company's Annual Report for the year 1996, including
financial statements, accompanies this Proxy Statement. The Company will also
provide upon request a copy of its Annual Report on Form 10-K filed with the
Securities and Exchange Commission for its most recent fiscal year. Such request
should be made to the Secretary of the Company at the address shown above.
ELECTION OF DIRECTORS
Pursuant to the by-laws of the Company, the Board has fixed at nine (9) the
number of directors to be elected at the Annual Meeting. Unless otherwise
indicated thereon, the proxy holders will vote for the election of the nominees
listed below to serve until the next annual meeting of shareholders and until
their successors
<PAGE> 5
are elected and qualified. All of the nominees are members of the present Board.
If any nominee shall be unavailable for election to the Board, the holders of
proxies will vote for a substitute. Management has no reason to believe that any
of the nominees will be unable to serve if elected to office.
The nine (9) nominees who receive the highest number of votes will be
elected directors of the Company. The Board recommends a vote FOR the election
of each of the nominees listed below.
NOMINEES
The following table sets forth certain information regarding the nominees.
<TABLE>
<CAPTION>
FIRST BECAME
A DIRECTOR OF
NAME AGE BIOGRAPHICAL SUMMARY THE COMPANY
---- --- -------------------- -------------
<S> <C> <C> <C>
Arvid C. Knudtson.............. 70 Chairman of the Board since February, 1997. 1987
Consultant. Principal in ACK Financial, a
financial services firm serving the agricultural
market, from 1988 to 1993.
Gregg A. Ostrander............. 44 President and Chief Executive Officer of the 1994
Company since January 1994. Chief Operating
Officer from February 1993 to December 1993.
President of Swift-Eckrich Prepared Foods from
December 1990 to February 1993. Mr. Ostrander is
also a director of Arctic Cat Inc.
Maureen B. Bellantoni.......... 48 Vice President and Chief Financial Officer of Sara 1996
Lee Meat Group, a division of Sara Lee
Corporation, since 1994. Vice President of Finance
and Chief Financial Officer of PYA Monarch, a
division of Sara Lee Corporation, from 1993 to
1994. Ms. Bellantoni held various positions with
Emerson Electric Company from 1974 to 1993.
Richard A. Coonrod............. 66 President of Coonrod Agriproduction Corporation, a 1993
food and agribusiness consulting and investment
firm, since 1985. General Partner of The Food
Fund, a Minneapolis-based limited partnership
specializing in food-related investments, since
1990. Mr. Coonrod is also a director of Orange-co,
Inc.
Miles E. Efron................. 70 Chairman of the Board of Directors of ENStar Inc. 1988
Held same position with North Star Universal, Inc.
from 1991-1996. Mr. Efron is also a director of
Editek, Inc.
Joseph D. Marshburn............ 68 Senior Vice President of Citrus World, Inc., a 1987
citrus processing and marketing cooperative, since
1993. Chief Executive Officer of Citrus World,
Inc. from 1978 to 1993.
Jeffrey J. Michael............. 40 President and Chief Executive Officer of ENStar 1990
Inc. Held same positions with North Star
Universal, Inc. from 1990-1996. Mr. Michael is
also a director of ENStar Inc. and CorVel
Corporation.
Arthur J. Papetti.............. 32 Vice President of Operations since 1992 of 1997
Papetti's Hygrade Egg Products, Inc. (now a
wholly-owned subsidiary of the Company).
Stephen T. Papetti............. 39 Executive Vice President since 1992 of Papetti's 1997
Hygrade Egg Products, Inc. (now a wholly-owned
subsidiary of the Company).
</TABLE>
2
<PAGE> 6
CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
Audit Committee. The Company has a standing Audit Committee which currently
consists of Mr. Michael as Chairman, Mr. Marshburn and Mr. Knudtson. The Audit
Committee reviews, recommends and reports to the Board on (1) the independent
auditors, (2) the quality and effectiveness of internal controls, (3) engagement
or discharge of the independent auditors, (4) professional services provided by
the independent auditors, and (5) the review and approval of major changes in
the Company's accounting principles and practices. During 1996, the Audit
Committee held eight meetings, including five special meetings related to the
acquisition of Papetti's Hygrade Egg Products, Inc. and affiliated companies.
Compensation Committee. The Company has a standing Compensation Committee
which currently consists of Mr. Efron as Chairman, Ms. Bellantoni and Mr.
Coonrod. The Compensation Committee considers and recommends to the Board salary
schedules and other remuneration for the Company's executive officers. This
committee also administers the Company's 1987 Incentive Stock Option Plan, 1987
Non-Qualified Stock Option Plan, 1994 Executive Incentive Plan and 1994
Executive Performance Stock Award Plan. The Committee will also administer the
1997 Stock Incentive Plan of Michael Foods, Inc. and Affiliated Companies,
pending shareholder ratification. During 1996, the Compensation Committee met
once.
During the year ended December 31, 1996, the Board held four regular
meetings and five special meetings. All directors attended more than 75% of the
meetings of the Board and committees on which they sit.
Directors who are not officers or employees of the Company receive an
annual retainer of $20,000. Directors incurring travel expenses to attend
meetings are reimbursed in full. The total directors' fees and travel expense
reimbursements in the year 1996 was $237,842.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require disclosure of
late Section 16 filings by Company directors and executive officers. Based on
the information provided to the Company, the Company is not aware of any
director or executive officer who failed to timely file any report required to
be filed.
3
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
of the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers during each of the last three fiscal
years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
FISCAL ------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
--------------------------- ------ ------ -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Gregg A. Ostrander..................... 1996 $309,000 $ -- 44,500 $6,528
President & Chief Executive Officer 1995 294,000 201,230 40,000 6,410
1994 280,000 203,000 20,000 7,370
Jeffrey M. Shapiro..................... 1996 250,000 -- 3,000 6,696
Executive Vice President & Secretary 1995 238,000 162,850 15,000 6,316
1994 226,000 163,850 -- 6,676
Norman A. Rodriguez.................... 1996 182,730 35,267 3,000 6,726
President, Crystal Farms Refrigerated 1995 176,000 167,200 -- 6,212
Distribution Company 1994 176,000 140,800 -- 6,242
John D. Reedy.......................... 1996 195,000 -- 3,000 6,835
Vice President -- Finance, Chief 1995 185,000 126,618 27,000 6,227
Financial Officer & Treasurer 1994 176,000 127,595 -- 6,971
Bill L. Goucher........................ 1996 188,000 -- 18,000 6,349
President, M. G. Waldbaum Company 1995 179,000 155,919 20,000 6,372
1994 169,500 84,746 -- 5,568
</TABLE>
- - -------------------------
(1) Amounts include Common Stock incentive awards paid under the 1994 Executive
Incentive Plan, as Amended Effective January 1, 1995 and the 1994 Executive
Incentive Plan as follows (1995/1994): Mr. Ostrander $57,750/$34,999; Mr.
Shapiro $46,703/$28,246; Mr. Rodriguez $35,211/$22,005; Mr. Reedy
$36,334/$22,005; Mr. Goucher $35,088/$21,193. Awards for 1995 represent 50%
of the amount earned for 1995 performance under the vesting schedule of the
1994 Executive Incentive Plan, as Amended Effective January 1, 1995, and 30%
of the amount earned for 1994 performance under the vesting schedule of the
1994 Executive Incentive Plan. Awards for 1994 represent 50% of the amount
earned for 1994 performance under the vesting schedule of the 1994 Executive
Incentive Plan (see "Report of Compensation Committee on Executive
Compensation"). 1995 awards were valued using the closing price of the
Common Stock on February 20, 1996 of $11.125 and 1994 awards were valued
using the closing price of the Common Stock on February 22, 1995 of $11.125,
resulting in share awards as follows (1995/1994): Mr. Ostrander 5,191
shares/3,146 shares; Mr. Shapiro 4,198/2,539; Mr. Rodriguez 3,165/1,978; Mr.
Reedy 3,266/1,978; Mr. Goucher 3,154/1,905. There were no Common Stock
incentive awards paid for 1996 performance under the 1994 Executive
Incentive Plan, as Amended Effective January 1, 1996.
(2) Number of shares of Common Stock purchasable under option grants. Pursuant
to the 1994 Executive Incentive Plan, as amended effective January 1, 1995,
stock option awards were made to certain executive officers in February,
1996 based upon 1995 performance. The number of shares of Common Stock
purchasable under such option awards made to named executive officers were:
Mr. Ostrander, 4,500 shares; Mr. Shapiro, 3,000 shares; Mr. Rodriguez, 3,000
shares; Mr. Reedy, 3,000 shares; and Mr. Goucher, 3,000 shares.
(3) Reflects the value of the Company's contributions under the Retirement
Savings Plan and the value of life insurance premiums paid by the Company.
4
<PAGE> 8
OSTRANDER EMPLOYMENT AGREEMENT
Effective January 1, 1994, the Company entered into a three year employment
agreement with Mr. Ostrander (the "Ostrander Employment Agreement") in
connection with his appointment as President and Chief Executive Officer. The
agreement provided for an annual base salary of $280,000 and entitles Mr.
Ostrander to participate in the Michael Foods, Inc. 1994 Executive Incentive
Plan ("1994 Executive Incentive Plan") and other fringe benefit plans
established by the Company for its executive officers. The agreement also
provided for a non-qualified stock option to purchase 20,000 shares of Common
Stock at an exercise price of $8.125, which was granted to Mr. Ostrander on
January 3, 1994. The option vests ratably over five years and expires January 3,
2004. In the event Mr. Ostrander's employment is terminated by incapacity, death
or thirty days' written notice by the Company, Mr. Ostrander will receive a
termination payment equal to the remaining base salary due under this agreement,
but in any event not less than two years' base salary, plus 50% of such base
salary amount in lieu of any incentive compensation or options to purchase
Common Stock for the remaining term of the agreement, plus any incentive
compensation earned for any year prior to the year of termination which is
unpaid at the date of termination. In the case of incapacity or death, or
termination by the Company without cause (which is defined to include
termination after a change in control), all options to purchase Common Stock
granted to Mr. Ostrander become fully vested.
If Mr. Ostrander's employment is terminated by Mr. Ostrander providing the
Company with thirty days' written notice, he is to receive as a termination
payment one year's base salary, plus any incentive compensation earned for any
year prior to the year of termination which is unpaid at the date of
termination. If the Company terminates Mr. Ostrander without notice for cause,
no amount will be paid beyond the last day of service by Mr. Ostrander and he
will not be entitled to any incentive compensation or options to purchase Common
Stock for the year of termination.
Effective January 1, 1995, the Company and Mr. Ostrander agreed to enter
into Amendment No. 1 to the Ostrander Employment Agreement. The amendment
provided for an annual base salary of at least $294,000 effective January 1,
1995. The amendment also provided for a non-qualified stock option to purchase
40,000 shares of Common Stock at an exercise price of $10.00, which was granted
to Mr. Ostrander on January 3, 1995. The option vests ratably over five years
and expires January 3, 2005. The amendment further provided for a non-qualified
stock option to purchase 40,000 shares of Common Stock to be granted on January
2, 1996 at an exercise price equal to the price of the Common Stock as of the
close of business on that date, or $10.00 per share, whichever is greater. This
non-qualified option was awarded January 2, 1996 at an exercise price of
$11.875. The option vests ratably over five years and expires on January 2,
2006.
Amendment No. 1 to the Ostrander Employment Agreement also added an
additional termination provision whereby, if Mr. Ostrander's employment is
terminated by the Company without cause due to a change in control of the
Company and thereafter Mr. Ostrander's duties are substantially reduced or
negatively altered without his prior written consent, Mr. Ostrander will receive
as a termination payment all amounts due under the agreement as base salary, but
in any event not less than two years' base salary, plus 50% of such base salary
amount in lieu of any incentive compensation and options to purchase Common
Stock for the remaining term of the agreement, plus any incentive compensation
earned for any year prior to the year of termination which is unpaid at the date
of termination.
Effective January 1, 1996, the Company and Mr. Ostrander entered into
Amendment No. 2 to the Ostrander Employment Agreement, which extended the
termination date of the agreement one year to December 31, 1997 and established
Mr. Ostrander's annual base salary as being at least $309,000 from January 1,
1996 through December 31, 1997. Effective April 1, 1997, the Company established
Mr. Ostrander's annual base salary as $345,000.
SHAPIRO EMPLOYMENT AGREEMENTS
Effective January 1, 1990, the Company entered into a five year employment
agreement with Mr. Shapiro. The agreement provided for an annual base salary of
$180,000 in 1990, with such amount increasing $10,000 per year for each of the
remaining four years. Mr. Shapiro also participated in the Company's annual
incentive compensation plan and other fringe benefit plans established by the
Company for
5
<PAGE> 9
its executive officers. In addition, the agreement provided for a fully-vested
non-qualified stock option to purchase 15,000 shares of Common Stock with an
exercise price of $9.33, which was granted to Mr. Shapiro on January 2, 1990.
Effective January 1, 1995, the Company and Mr. Shapiro entered into a new
two year employment agreement (the "Shapiro Employment Agreement"). The
agreement provides for an annual base salary of at least $238,000 and entitles
Mr. Shapiro to participate in the 1994 Executive Incentive Plan and other fringe
benefit plans established by the Company for its executive officers. In the
event Mr. Shapiro's employment is terminated by incapacity, death, or by thirty
days' written notice by the Company, Mr. Shapiro will receive as a termination
payment all amounts due under the agreement as base salary, but in any event not
less than one year's base salary, plus 50% of such base salary amount in lieu of
any incentive compensation and options to purchase Common Stock for the
remaining term of the agreement, plus any incentive compensation earned for any
year prior to the year of termination which is unpaid at the date of
termination. In the case of incapacity or death, or termination by the Company
without cause (which is defined to include termination after a change in
control), all options to purchase Common Stock granted to Mr. Shapiro become
fully vested.
If Mr. Shapiro's employment is terminated by Mr. Shapiro, he will receive
no termination payment. However, Mr. Shapiro will be entitled to receive any
incentive compensation earned for any year prior to the year of termination
which is unpaid at the date of termination. If the Company terminates Mr.
Shapiro without notice for cause, no amount will be paid beyond the last day of
service by Mr. Shapiro and he will not be entitled to any incentive compensation
or options to purchase Common Stock for the year of termination.
If Mr. Shapiro's employment is terminated by the Company without cause due
to a change in control of the Company and thereafter Mr. Shapiro's duties are
substantially reduced or negatively altered without his prior written consent,
Mr. Shapiro will receive as a termination payment all amounts due under the
agreement as base salary, but in any event not less than two years' base salary,
plus 50% of such base salary amount in lieu of any incentive compensation and
options to purchase Common Stock for the remaining term of the agreement, plus
any incentive compensation earned for any year prior to the year of termination
which is unpaid at the date of termination.
Effective January 1, 1996, the Company and Mr. Shapiro agreed to enter into
Amendment No. 1 to the Shapiro Employment Agreement, which extended the
termination date of the agreement one year to December 31, 1997 and established
Mr. Shapiro's annual base salary as being at least $250,000 from January 1, 1996
through December 31, 1997. Effective April 1, 1997, the Company established Mr.
Shapiro's annual base salary as $260,000.
RODRIGUEZ EMPLOYMENT AGREEMENT
Effective January 1, 1995, the Company entered into a two year employment
agreement with Mr. Rodriguez (the "Rodriguez Employment Agreement"). The
agreement provides for an annual base salary of at least $176,000 and entitles
Mr. Rodriguez to participate in the 1994 Executive Incentive Plan and other
fringe benefit plans established by the Company for its executive officers. In
the event Mr. Rodriguez's employment is terminated by incapacity, death, or by
thirty days' written notice by the Company, Mr. Rodriguez will receive a
termination payment equal to one year's base salary, plus any incentive
compensation earned for any year prior to the year of termination which is
unpaid at the date of termination. In the case of incapacity or death, or
termination by the Company without cause (which is defined to include
termination after a change in control), all options to purchase Common Stock
granted to Mr. Rodriguez become fully vested.
If Mr. Rodriguez's employment is terminated by Mr. Rodriquez, he will
receive no termination payment. However, Mr. Rodriguez will be entitled to
receive any incentive compensation earned for any year prior to the year of
termination which is unpaid at the date of termination. If the Company
terminates Mr. Rodriguez without notice for cause, no amount will be paid beyond
the last day of service by Mr. Rodriguez and he will not be entitled to any
incentive compensation or options to purchase Common Stock for the year of
termination.
6
<PAGE> 10
If Mr. Rodriguez's employment is terminated by the Company without cause
due to a change in control of the Company and thereafter Mr. Rodriguez's duties
are substantially reduced or negatively altered without his prior written
consent, Mr. Rodriguez will receive as a termination payment an amount equal to
two years' base salary, plus any incentive compensation earned for any year
prior to the year of termination which is unpaid at the date of termination. The
Rodriguez Employment Agreement had no bearing on Mr. Rodriguez's 1994
compensation.
Effective January 1, 1996, the Company and Mr. Rodriguez agreed to enter
into Amendment No. 1 to the Rodriguez Employment Agreement, which extended the
termination date of the agreement one year to December 31, 1997 and established
Mr. Rodriguez's annual base salary as being at least $183,000 from January 1,
1996 through December 31, 1997. Effective April 1, 1997, the Company established
Mr. Rodriguez's annual base salary as $193,000.
REEDY EMPLOYMENT AGREEMENT
Effective January 1, 1995, the Company and Mr. Reedy entered in a two year
employment agreement (the "Reedy Employment Agreement"). The agreement provides
for an annual base salary of at least $185,000 and entitles Mr. Reedy to
participate in the 1994 Executive Incentive Plan and other fringe benefit plans
established by the Company for its executive officers. In the event Mr. Reedy's
employment is terminated by incapacity, death, or by thirty days' written notice
by the Company, Mr. Reedy will receive as a termination payment all amounts due
under the agreement as base salary, but in any event not less than one year's
base salary, plus 50% of such base salary amount in lieu of any incentive
compensation and options to purchase Common Stock for the remaining term of the
agreement, plus any incentive compensation earned for any year prior to the year
of termination which is unpaid at the date of termination. In the case of
incapacity or death, or termination by the Company without cause (which is
defined to include termination after a change in control), all options to
purchase Common Stock granted to Mr. Reedy become fully vested.
If Mr. Reedy's employment is terminated by Mr. Reedy, he will receive no
termination payment. However, Mr. Reedy will be entitled to receive any
incentive compensation earned for any year prior to the year of termination
which is unpaid at the date of termination. If the Company terminates Mr. Reedy
without notice for cause, no amount will be paid beyond the last day of service
by Mr. Reedy and he will not be entitled to any incentive compensation or
options to purchase Common Stock for the year of termination.
If Mr. Reedy's employment is terminated by the Company without cause due to
a change in control of the Company and thereafter Mr. Reedy's duties are
substantially reduced or negatively altered without his prior written consent,
Mr. Reedy will receive as a termination payment all amounts due under the
agreement as base salary, but in any event not less than two years' base salary,
plus 50% of such base salary amount in lieu of any incentive compensation and
options to purchase Common Stock for the remaining term of the agreement, plus
any incentive compensation earned for any year prior to the year of termination
which is unpaid at the date of termination. The Reedy Employment Agreement had
no bearing on Mr. Reedy's 1994 compensation.
Effective January 1, 1996, the Company and Mr. Reedy agreed to enter into
Amendment No. 1 to the Reedy Employment Agreement, which extended the
termination date of the agreement one year to December 31, 1997 and established
Mr. Reedy's annual base salary as being at least $195,000 from January 1, 1996
through December 31, 1997. Effective April 1, 1997, the Company established Mr.
Reedy's annual base salary as $205,000.
GOUCHER EMPLOYMENT AGREEMENT
Effective January 1, 1996, the Company entered into a two year employment
agreement with Mr. Goucher (the "Goucher Employment Agreement"). The agreement
provides for an annual base salary of at least $188,000 and entitles Mr. Goucher
to participate in the 1994 Executive Incentive Plan and other fringe benefit
plans established by the Company for its executive officers. In the event Mr.
Goucher's employment is terminated by incapacity, death, or by thirty days'
written notice by the Company, Mr. Goucher will receive a termination payment
equal to one year's base salary, plus any incentive
7
<PAGE> 11
compensation earned for any year prior to the year of termination which is
unpaid at the date of termination. In the case of incapacity or death, or
termination by the Company without cause (which is defined to include
termination after a change in control), all options to purchase Common Stock
granted to Mr. Goucher become fully vested.
If Mr. Goucher's employment is terminated by Mr. Goucher, he will receive
no termination payment. However, Mr. Goucher will be entitled to receive any
incentive compensation earned for any year prior to the year of termination
which is unpaid at the date of termination. If the Company terminates Mr.
Goucher without notice for cause, no amount will be paid beyond the last day of
service by Mr. Goucher and he will not be entitled to any incentive compensation
or options to purchase Common Stock for the year of termination.
If Mr. Goucher's employment is terminated by the Company without cause due
to a change in control of the Company and thereafter Mr. Goucher's duties are
substantially reduced or negatively altered without his prior written consent,
Mr. Goucher will receive as a termination payment an amount equal to two years'
base salary, plus any incentive compensation earned for any year prior to the
year of termination which is unpaid at the date of termination. The Goucher
Employment Agreement had no bearing on Mr. Goucher's 1994 or 1995 compensation.
Effective April 1, 1997, the Company established Mr. Goucher's annual base
salary as $200,000.
1994 EXECUTIVE INCENTIVE PLAN
On January 1, 1994, the Company established the 1994 Executive Incentive
Plan. The 1994 Executive Incentive Plan and 1994 Executive Incentive Plan, as
Amended Effective January 1, 1996 are described in the Report of Compensation
Committee on Executive Compensation.
CHANGE IN CONTROL ARRANGEMENTS
Certain key employees of the Company and its subsidiaries are covered under
the Severance Plan for Eligible Employees of Michael Foods, Inc. and its
Subsidiaries (the "Severance Plan") should they be terminated without cause
within 24 months following a change in control. Generally, the Severance Plan
defines a change in control as occurring when a person acquires the power to
elect, appoint or cause the election or appointment of at least a majority of
the Board or purchases all or substantially all of the properties and assets of
the Company; provided, however, that a change in control does not include
certain acquisitions pursuant to a merger, consolidation or sale of properties
and assets. Under the Severance Plan, certain key employees would be entitled to
receive a lump sum payment equal to two times total annual compensation. Annual
compensation is defined as the employee's highest annual rate of salary
(excluding bonuses, benefits, allowances, etc.) within the three calendar year
periods prior to the date of termination of employment; provided, however, that
if the employee has been employed by the Company or a predecessor for less than
three years, total annual compensation means the highest annualized salary
during the period of employment.
The Company's severance compensation agreements with Messrs. Ostrander,
Shapiro, Rodriguez, Reedy and Goucher are contained in their respective
employment agreements (see "-- Ostrander Employment Agreement," "-- Shapiro
Employment Agreements," "-- Rodriguez Employment Agreement," "-- Reedy
Employment Agreement," and "-- Goucher Employment Agreement") and they are
effective upon termination of employment without cause, which includes
termination after a change in control of the Company. In the event of a change
in control of the Company, all options to purchase Common Stock become fully
vested.
DESCRIPTION OF STOCK OPTION PLANS FOR KEY EMPLOYEES
On March 20, 1987, the Company adopted the 1987 Incentive Stock Option Plan
(the "Incentive Stock Option Plan") and the 1987 Non-Qualified Stock Option Plan
(the "Non-Qualified Stock Option Plan") (collectively, the "Stock Option
Plans"). The Stock Option Plans provided for the grant of options to purchase
shares of Common Stock to key employees of the Company and its subsidiaries as
determined by the Compensation Committee of the Board (the "Committee"). The
aggregate number of shares of Common Stock as to which options could be awarded
under the Stock Option Plans was 2,332,700. The maximum
8
<PAGE> 12
aggregate number of shares of Common Stock as to which options could be granted
under the Stock Option Plans to any one employee was 337,500 shares. The Stock
Option Plans played a critical role in the Company's compensation strategy of
providing performance incentives to attract and retain certain key individuals
and to give such individuals a direct financial interest in the future success
and profitability of the Company.
The Incentive Stock Option Plan provided for the granting of "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1986 (the "Code"). Among other restrictions, any option granted under the
Incentive Stock Option Plan could not, in general, be exercised during the first
12 months after the date of its grant, and became exercisable ratably over the
first five years. No options were granted under the Incentive Stock Option Plan,
which expired in March, 1997. The Non-Qualified Stock Option Plan provided for
the granting of options which did not qualify as "incentive stock options"
within the meaning of Section 422A of the Code. As with the Incentive Stock
Option Plan, options granted under the Non-Qualified Stock Option Plan cannot,
in general, be exercised during the first 12 months after the date of grant,
become exercisable ratably over the first five years, and expire not later than
10 years after the grant. The option price per share for options granted under
the Stock Option Plans was not less than the fair market value of a share of
Common Stock on the date of grant. An optionee generally must pay the full
exercise price of an option in cash. The Stock Option Plans expired by their
terms in March, 1997.
DESCRIPTION OF STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
In 1992, the Board approved a Stock Option Plan for Non-Employee Directors
(the "Director Plan"), which was subsequently approved by the Company's
shareholders. The purpose of the Director Plan is to aid the Company in
attracting and retaining non-employee directors by enabling the acquisition of a
financial interest in the Company by non-employee directors through the issuance
of shares of Common Stock with respect to his or her services as a director of
the Company. The Director Plan memorialized the Company's practice of granting
options to purchase Common Stock to non-employee directors upon their election
or appointment as a director.
The Director Plan provides that non-employee directors will receive, upon
their initial election or appointment, an option to purchase 5,000 shares of
Common Stock at the then fair market value of the Common Stock. The Director
Plan also provides for the grant of an option to purchase an additional 5,000
shares of Common Stock upon each director's subsequent five year anniversary of
participation on the Board. The options become exercisable in full one year
after the date of grant and expire 10 years from the date of grant. The Board
currently has six non-employee directors and 40,000 shares of Common Stock are
currently subject to options granted to non-employee directors under the
Director Plan.
The number of shares of Common Stock remaining available for issuance under
the Director Plan is 110,000. This number will be subject to adjustment in the
event of stock splits, reclassifications of shares of Common Stock,
recapitalizations, stock dividends or similar adjustments in the Common Stock.
The Board may amend the Director Plan to conform it to securities laws or
other laws, or to comply with stock exchange rules or requirements. However, the
Board may not amend the Director Plan to change: (i) the total number of shares
of Common Stock as to which options may be granted; (ii) the class of persons
eligible to receive options under the Director Plan; (iii) the manner of
determining option prices; (iv) the period during which the options may be
granted or exercised; or (v) the provisions relating to the administration of
the Director Plan by the Board. The Board may terminate the Director Plan
without shareholder approval.
9
<PAGE> 13
OPTION GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE OR APPRECIATION FOR
UNDERLYING GRANTED TO BASE PRICE OPTION TERM(4)
OPTIONS EMPLOYEES IN PER SHARE --------------------
NAME GRANTED(1) LAST YEAR ($/SH)(2) EXPIRATION DATE(3) 5%($) 10%($)
---- ---------- ------------ ----------- ------------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Gregg A. Ostrander... 44,500 33.1 11.80 01/02/06 & 02/20/06 330,197 836,785
Jeffrey M. Shapiro... 3,000 2.2 11.13 02/20/06 20,985 53,190
Norman A. Rodriguez.. 3,000 2.2 11.13 02/20/06 20,985 53,190
John D. Reedy........ 3,000 2.2 11.13 02/20/06 20,985 53,190
Bill L. Goucher...... 18,000 13.4 11.75 01/02/06 & 02/20/06 133,005 337,065
</TABLE>
- - -------------------------
(1) All options granted are exercisable in cumulative 20% installments
commencing one year from date of grant, with full vesting occurring on the
fifth anniversary date. Vesting may be accelerated in certain events
relating to a change in control of the Company.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or the tax withholding
obligations related to exercises only may also be paid by offset of the
underlying shares, subject to certain conditions.
(3) All options have a ten year term, subject to termination of employment.
(4) Potential gains are reported net of the option exercise price, but before
taxes associated with exercise. THESE AMOUNTS REPRESENT CERTAIN ASSUMED
RATES OF APPRECIATION ONLY. ACTUAL GAINS, IF ANY, ON STOCK OPTION EXERCISES
ARE DEPENDENT ON THE FUTURE PERFORMANCE OF THE COMMON STOCK, OVERALL STOCK
MARKET CONDITIONS, AS WELL AS THE OPTIONHOLDER'S CONTINUED EMPLOYMENT
THROUGH THE VESTING PERIOD. THE AMOUNTS REFLECTED IN THIS TABLE MAY NOT
NECESSARILY BE REALIZED.
OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
There were no option exercises by the named executive officers in 1996. The
following table provides information related to the number and value of options
held at December 31, 1996 by the named executive officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gregg A. Ostrander............................. 46,000 108,500 175,250 263,313
Jeffrey M. Shapiro............................. 87,343 17,000 384,563 43,125
Norman A. Rodriguez............................ 68,782 5,000 7,875 10,125
John D. Reedy.................................. 46,860 26,600 93,038 69,525
Bill L. Goucher................................ 16,000 42,000 68,000 100,000
</TABLE>
- - -------------------------
(1) The closing price for the Common Stock on December 31, 1996 was $12.75. The
value is calculated on the basis of the difference between the option
exercise price and $12.75 multiplied by the number of shares of Common Stock
underlying the options.
10
<PAGE> 14
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation of the Company's executive officers is based on four
components: base salary, incentive cash bonus, incentive Common Stock bonus and
Common Stock option awards. Base salary is fixed by contract in the case of the
Chief Executive Officer and certain other executive officers. The employment
agreements, which specified 1996 base salary levels, between the Company and Mr.
Ostrander, Mr. Shapiro, Mr. Rodriguez and Mr. Reedy were entered into in early
1995 and were subsequently amended, while Mr. Goucher's 1996 base salary was
established in an employment agreement effective as of January 1, 1996. Mr.
Ostrander's original employment agreement was entered into in early 1994. The
named executive officers' compensation for 1996 was determined principally by
reference to those agreements. See "Executive Compensation -- Ostrander
Employment Agreement," "-- Shapiro Employment Agreements," "--Rodriguez
Employment Agreement," "-- Reedy Employment Agreement," and "-- Goucher
Employment Agreement."
The Company has established the base salary for its executive officers,
including the Chief Executive Officer, by reference to competitive salaries of
executives with similar positions and responsibilities. These base salaries are
established through negotiations and are not dependent upon the Company's
performance. As part of this process, the Company has referenced national
executive compensation studies. In the case of the named executive officers, the
compensation provided for under their employment agreements for 1996 was
principally determined by recommendations made by the Chief Executive Officer to
the Committee. The Compensation Committee ("Committee") believes the Company
should provide the Chief Executive Officer and other executive officers with
base salaries that are competitive with those offered by food companies of
comparable size. In late 1993, the Company reviewed a study prepared for it by a
national firm specializing in executive compensation and determined that the
compensation of its executive officers at that time was generally at, or below,
that of persons in similar positions at U. S. food companies of comparable size.
It is unclear whether any of those companies are within the S & P Food Group
used in the Stock Price Performance Graph (see "Stock Price Performance Graph").
In 1996, executive officers' annual base salary adjustments were made which
aggregated approximately $84,000 as compared to the base salary levels which
prevailed as of December 31, 1995. Of this amount, $15,000 was pursuant to Mr.
Ostrander's employment agreement, $12,000 was pursuant to Mr. Shapiro's
employment agreement, $7,000 was pursuant to Mr. Rodriguez's employment
agreement, $10,000 was pursuant to Mr. Reedy's employment agreement, and $9,000
was pursuant to Mr. Goucher's employment agreement, with the balance paid to
other executive officers.
The Committee periodically reviews its compensation criteria and programs
to consider changing business conditions and the Company's needs. In recognition
of the Company's changing needs, the incentive compensation plan which had been
in effect since 1988 was terminated as of January 1, 1994 and was replaced by
the 1994 Executive Incentive Plan. The 1994 Executive Incentive Plan provides
for three incentive components: cash awards, Common Stock awards and Common
Stock option awards. All participants in the 1994 Executive Incentive Plan are
eligible to earn awards under the first two components, with cash awards being
limited to a maximum of 75% of base salary and with Common Stock awards being
limited to a maximum of 25% of base salary. Additionally, certain executive
officers can qualify for Common Stock option awards if a targeted earnings per
share level is met for a given year.
The 1994 Executive Incentive Plan rewards participants upon the attainment
of specific performance goals. Corporate executives are rewarded based upon the
attainment of the Company's earnings per share growth targets and operating
company executives are rewarded partially based upon individual operating
company growth in profit before taxes and partially based upon overall corporate
earnings per share growth. Cash awards under the 1994 Executive Incentive Plan
are dependent upon attainment of annually established guidelines, or targets,
determined by the Chief Executive Officer and approved by the Committee. The
purpose of the 1994 Executive Incentive Plan is to incent and reward the senior
management of the Company for delivering or exceeding their annual operating
plan and to motivate those executives to be planning and focusing on long-term
earnings growth. There is no provision for incentive awards when there is a
decrease in earnings year-over-year at the appropriate business unit level,
except at the discretion of the Chief Executive Officer with the concurrence of
the Committee. In addition, the 1994 Executive Incentive Plan attempts to
11
<PAGE> 15
foster longer-term performance by tying Common Stock awards to year-over-year
earnings per share growth over a three year period.
As described above, all participants are eligible to receive cash awards
and Common Stock awards under the 1994 Executive Incentive Plan. Cash awards are
determined by the relative attainment of target profit amounts using a scale of
increasing percentages, which starts at the attainment of 94% of the target
profit amount, with maximum awards achieved upon the attainment of 110% of the
target profit amount. The calculation of the relative performance level, in
turn, determines the percent of a participant's base salary which can be awarded
under the cash award component of the 1994 Executive Incentive Plan. Maximum
incentive cash awards are: 75% of base salary for corporate executive officers
and operating company presidents, 56.3% of base salary for other officers and
37.5% of base salary for key employees. A modification was made to the 1994
Executive Incentive Plan in 1995, with the minimum threshold of annual earnings
per share growth necessary for the Common Stock option grant component to become
effective, which had been 20%, being established at 15%.
Effective January 1, 1996, the Committee established target levels for 1996
and approved the 1994 Executive Incentive Plan, as Amended Effective January 1,
1996 ("1996 Executive Incentive Plan"). Among modifications made in the 1996
Executive Incentive Plan was an increased weighting of the Company's earnings
per share performance, relative to the target level, in determining the cash
awards operating company participants can achieve. There was also a reduction in
the top of the scale (i.e., determination of the maximum award level) used in
determining the portion of cash incentive awards tied to the relative corporate
earnings per share performance from 110% to 105% of the target earnings per
share amount.
For 1996, there was a $35,267 cash incentive award paid to a named
executive officer (Mr. Rodriguez) under the 1996 Executive Incentive Plan, with
Mr. Ostrander earning no cash incentive award. The award was determined in
accordance with the 1996 Executive Incentive Plan based upon the achieved 1996
profit before bonuses and taxes as compared to the target level at the
executive's operating company.
Common Stock awards are triggered by the Company attaining at least 15%
year-over-year earnings per share growth. Earnings per share for this purpose
are computed on the basis of corporate profits before bonuses and taxes. Common
Stock incentive awards are 25% of base salary for corporate executive officers
and operating company presidents, 18.8% of base salary for other officers and
12.5% of base salary for key employees. When the 15% earnings per share growth
threshold is achieved, participants receive a fixed percentage of their base
salary, as previously described, dependent upon their participation level in the
1996 Executive Incentive Plan. This is an "all or nothing" award. That is, if
the 15% earnings per share growth threshold is not achieved, the Common Stock
incentive award opportunity for that year is forfeited. Fifty percent of the
earned Common Stock award amount vests immediately in the year it is earned,
with 30% vesting the next year if at least 15% earnings per share growth is
achieved in the second year, and the remaining 20% vesting the subsequent year
if at least 15% earnings per share growth is achieved in the third year.
For 1996, there were no Common Stock incentive awards paid to participants
in the 1996 Executive Incentive Plan. Additionally, for 1996, there were no
incentive awards in the form of Common Stock option grants under the 1996
Executive Incentive Plan.
In early 1997, the Committee commissioned a study prepared by a national
firm specializing in executive compensation. The study indicated that the
Company's salary structure and longer-term compensation incentives for its
senior executive officers were generally below those levels prevailing in the
market for companies of similar annual sales and assets, including,
specifically, food companies of comparable size. Based upon these findings, the
Committee revised its base salary determinations for certain executive officers,
including Mr. Ostrander, which were effective as of April 1, 1997. See
"Executive Compensation -- Ostrander Employment Agreement," "-- Shapiro
Employment Agreements," "-- Rodriguez Employment Agreement," "-- Reedy
Employment Agreement," and "-- Goucher Employment Agreement."
12
<PAGE> 16
The Company has no policy with respect to Section 162(m) of the Code, which
precludes a deduction by any publicly-held corporation for certain compensation
paid to any covered employee to the extent that the compensation for the taxable
year exceeds $1,000,000.
The Compensation Committee
Miles E. Efron, Chairman
Maureen B. Bellantoni
Richard A. Coonrod
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Company's Common Stock during the five years
ended December 31, 1996 with the cumulative total return on the S&P 500 Index
and the S&P Food Group Index. The comparison assumes $100 was invested on
December 31, 1991 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD MICHAEL FOODS-500 S&P 500 INDEX
(FISCAL YEAR COVERED) FOODS, INC.
<S> <C> <C> <C>
DEC 91 100 100 100
DEC 92 69.26 99.77 107.62
DEC 93 55.97 91.55 118.46
DEC 94 70.33 102.34 120.03
DEC 95 84.21 130.54 165.13
DEC 96 94.01 154.67 203.05
</TABLE>
13
<PAGE> 17
SECURITY OWNERSHIP
The following table sets forth certain information as of April 1, 1997 with
respect to the beneficial holdings of each person or entity known by the Company
to own beneficially more than 5% of the outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED(1) OF CLASS
---------------- --------------------- --------
<S> <C> <C>
State of Wisconsin Investment Board......................... 1,795,000 8.5%
P.O. Box 7842
Madison, WI 53707
Arthur J. Papetti........................................... 1,597,727 7.6%
480 South Horizon Way
Neshanic Station, NJ 08853
4J2R1C Ltd. Partnership..................................... 1,588,489 7.5%
6479 City West Pkwy.
Eden Prairie, MN 55344
3J2R Ltd. Partnership....................................... 1,459,514 6.9%
6479 City West Pkwy.
Eden Prairie, MN 55344
Sanford C. Bernstein & Co., Inc............................. 1,233,334 5.9%
One State Street Plaza
New York, NY 10004
</TABLE>
- - -------------------------
(1) Owned of record and beneficially, except as otherwise noted.
The following table sets forth certain information as of April 1, 1997 with
respect to the beneficial holdings of each director and nominee, each named
executive officer and all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------------ --------------------- --------
<S> <C> <C>
Directors and Nominees:
Arvid C. Knudtson......................................... 6,000(2) *
Gregg A. Ostrander........................................ 90,237(3) *
Maureen B. Bellantoni..................................... 200 *
Richard A. Coonrod........................................ 6,000(2) *
Miles E. Efron............................................ 245,000(2) 1.2%
Joseph D. Marshburn....................................... 5,000(2) *
Jeffrey J. Michael........................................ 3,063,123(2)(4) 14.6%
Arthur J. Papetti......................................... 1,597,727 7.6%
Stephen T. Papetti........................................ 798,864 3.8%
Executive Officers:
Jeffrey M. Shapiro........................................ 197,330(5) *
Norman A. Rodriguez....................................... 79,649(6) *
John D. Reedy............................................. 69,104(7) *
Bill L. Goucher........................................... 33,659(8) *
All Directors and Executive Officers as a Group: (18
persons)............................................... 6,376,148(9) 29.6%
</TABLE>
- - -------------------------
* Less than 1%
(1) Owned of record and beneficially, except as otherwise noted.
(2) Includes 5,000 shares of Common Stock as to which Messrs. Coonrod, Efron,
Knudtson, Marshburn, and Michael each have the right to acquire beneficial
ownership within 60 days by the exercise of options
14
<PAGE> 18
granted to non-employee directors upon their election or appointment. See
"Description of Stock Option Plan for Non-Employee Directors."
(3) Includes 76,900 shares of Common Stock as to which Mr. Ostrander has the
right to acquire beneficial ownership within 60 days by the exercise of
options granted.
(4) Includes two limited partnership holdings of 1,588,489 and 1,459,514 shares
of Common Stock, respectively, as noted in the above table of holders of 5%
or more of the Common Stock, of which Mr. Michael disclaims beneficial
ownership, except to the extent of his pecuniary interest in the limited
partnerships' assets.
(5) Includes 91,943 shares of Common Stock as to which Mr. Shapiro has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted.
(6) Includes 70,382 shares of Common Stock as to which Mr. Rodriguez has the
right to acquire beneficial ownership within 60 days by the exercise of
options granted and 1,668 shares of Common Stock held in an Individual
Retirement Account.
(7) Includes 53,860 shares of Common Stock as to which Mr. Reedy has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted and 10,000 shares of Common Stock held for his benefit in a Money
Purchase Pension (Keogh) Account.
(8) Includes 27,600 shares of Common Stock as to which Mr. Goucher has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted.
(9) Includes 120 shares and 750 shares of Common Stock held in two executive
officers' Individual Retirement Accounts, 384 shares of Common Stock held in
a Simplified Employee Plan for an executive officer, 144 shares of Common
Stock held by two minor daughters of an executive officer and 488,847 shares
of Common Stock as to which certain executive officers and directors have
the right to acquire beneficial ownership within 60 days by the exercise of
options granted.
RATIFICATION OF THE 1997 STOCK INCENTIVE PLAN
OF MICHAEL FOODS, INC. AND AFFILIATED COMPANIES
Subject to ratification by shareholders at the Annual Meeting, the Board
has adopted the proposed 1997 Stock Incentive Plan of Michael Foods, Inc. and
Affiliated Companies (the "Plan"). The Board believes that the Plan will provide
an incentive for eligible employees to promote the success, and enhance the
value, of the Company by linking the personal interests of such persons to those
of the Company's shareholders. The Board also believes that the Plan will
provide flexibility to the Compensation Committee of the Board (the "Committee")
in its ability to motivate, attract, and retain the services of executives and
other employees and persons upon whose judgment, interest and special effort the
successful conduct of its operation is largely dependent. The Plan is intended
to replace the 1987 Non-Qualified Stock Option Plan and 1987 Incentive Stock
Option Plan, both of which plans were previously approved by the shareholders,
but expired in March, 1997.
The Plan provides the Committee with the discretion to make grants during
the life of the Plan to key employees, officers, consultants or independent
contractors providing services to the Company or its affiliates. Grants can be
in the form of non-qualified stock options, incentive stock options, stock
appreciation rights, restricted stock and restricted stock units, performance
awards and other stock-based awards.
Since the number and identity of persons to whom awards may be granted, and
the form of such awards, are at the discretion of the Committee, and such
decisions have not yet been determined, it is not possible at this time to
provide specific information as to the class of persons who will be eligible to
participate in the Plan, the approximate number of persons in such class or to
state the basis of such participation.
The following is a summarized description of the Plan. A copy of the Plan
is attached hereto as Appendix A. In the event this summary differs from the
Plan attached hereto, the Plan shall govern.
15
<PAGE> 19
DURATION OF THE PLAN
If approved by the Company's shareholders, the Plan will become effective
as of March 13, 1997 and will remain in effect, subject to the right of the
Board to terminate or amend the Plan, until all shares have been purchased or
acquired, but not after March 12, 2006.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee, which shall have the
authority, among other items to: select persons to whom awards are granted,
determine the size and type of awards, and determine the terms and conditions of
such awards in a manner consistent with the Plan.
SHARES SUBJECT TO THE PLAN
One million (1,000,000) shares of Common Stock will be available under the
Plan. However, in the event any shares covered by an award or to which an award
relates are not purchased or are forfeited, or in the event an award otherwise
terminates without delivery of any shares of Common Stock, or in the event
previously acquired shares of Common Stock are tendered or shares of Common
Stock otherwise issuable are withheld to exercise an option, the related shares
of Common Stock will again be available for grant.
STOCK OPTIONS
Stock options approved by the Committee may be in the form of Non-Qualified
Stock Options ("NQSOs"), Incentive Stock Options ("ISOs"), or a combination
thereof. Grants of ISOs must fulfill the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended. The exercise price per share under
any option will be established by the Committee, but must equal at least one
hundred percent (100%) of the fair market value of a share of Common Stock on
the date of the option grant, and such price may not subsequently be changed by
the Committee except as provided in the Plan. The term of each option will be
fixed by the Committee, but in no event shall an option have a term extending
beyond ten years from the date the option is granted. Options will be subject to
such terms and conditions and will be exercisable at such time or times as
determined by the Committee, but in no event shall an option be exercisable
earlier than one year from the date the option is granted.
Options may be exercised by payment of the exercise price in cash, in
previously acquired shares of Common Stock, by withholding shares of Common
Stock which otherwise would be acquired on exercise, or any combination thereof
as determined by the Committee. The Committee, in its sole discretion, will
establish a participant's rights to exercise a stock option in the event the
participant's employment is terminated, with such rights to be reflected in the
participant's award agreement.
Generally, an option granted under the Plan may not be transferred except
by will or the laws of descent and distribution and, during the lifetime of the
optionee to whom granted, may be exercised only by such optionee. However, the
Committee has the authority to permit options to be transferred to members of
the optionee's immediate family and certain family trusts or partnerships.
Subject to terms and conditions established by the Committee and applicable
law, the Committee may grant "reload" options separately or together with
another option, pursuant to which the participant would be granted a new option
if the Committee authorizes the payment of the exercise price of a previously
granted option by the delivery of shares of Common Stock owned by the
participant, or if the Committee authorizes the tendering or forfeiture of
shares as payment of the amount to be withheld under applicable income tax laws
in connection with the exercise of an option. Any reload option would be an
option to purchase the number of shares not exceeding the sum of (a) the number
of shares of Common Stock provided as consideration upon the exercise of the
previously granted option to which such "reload" option relates, and (b) the
number of shares of Common Stock tendered or forfeited as payment of the amount
to be withheld under applicable income tax laws in connection with the exercise
of the option to which such "reload" option relates. Such "reload" options must
have a per share exercise price equal to the fair market value of the Common
Stock as of the date of grant of the new option.
16
<PAGE> 20
STOCK APPRECIATION RIGHTS
A Stock Appreciation Right ("SAR") entitles the holder to receive, upon
exercise, for each SAR exercised, the difference between the fair market value
of a share of Common Stock on the date of exercise over the grant price of each
SAR, multiplied by the number of shares with respect to which the SAR is
exercised. SARs may be granted independent of any other award, in lieu of a
related option, or in tandem with a related option. Subject to the terms and
conditions of the Plan, SARs may be granted to a participant at any time and
from time to time as determined by the Committee.
The grant price per share of any SAR will be established by the Committee,
but must equal at least one hundred percent (100%) of the fair market value of a
share of Common Stock on the date the SAR is granted. The term of each SAR will
be fixed by the Committee, and it is expected that no SAR will have a term
extending beyond ten years from the date of grant. SARs will be subject to such
terms and conditions and will be exercisable at such time or times as determined
by the Committee.
The value of a SAR may be paid in cash, in shares of Common Stock, or in
some combination, as determined by the Committee. A participant's right to
exercise a SAR, if any, in the event the participant's employment is terminated,
will be established by the Committee in its sole discretion, such rights to be
reflected in the participant's award agreement.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
A restricted stock award consists of a grant of Common Stock to a
participant, which is subject to a substantial risk of forfeiture and the
transfer of which is subject to restrictions which lapse upon the passage of
time, the achievement of performance goals or upon the occurrence of other
events as determined by the Committee. This period of restriction is established
by the Committee at the time of grant. A restricted stock unit consists of the
right to receive a share of Common Stock (or cash payment equal to the fair
market value of such a share) at some future date.
Restricted stock granted under the Plan will be evidenced by the issuance
of a stock certificate or certificates, which will be held by the Company until
the lapse of any period of restriction. In the case of restricted stock units,
no certificates will be issued at the time such awards are granted. Generally, a
participant's rights to receive restricted stock will forfeit in the event a
participant's employment is terminated prior to vesting; provided, however, that
the Company may, when it finds that a waiver would be in the best interest of
the Company, waive in whole or in part any or all remaining restrictions with
respect to shares of restricted stock or restricted stock units.
PERFORMANCE AWARDS
Subject to the terms of the Plan, performance awards may be granted to
participants at any time as determined by the Committee. A Performance Award
granted under the Plan: (i) may be denominated or payable in cash, shares of
Common Stock (including, without limitation, restricted stock), other securities
or awards or other property, and (ii) shall confer upon the holder the right to
receive payments, in whole or in part, upon the achievement of such performance
goals, as established by the Committee, during such performance period as the
Committee may establish. Such awards will be subject to the terms of the Plan
and any applicable award agreement.
OTHER STOCK-BASED AWARDS
Subject to the terms of the Plan, other stock-based awards may be granted
to a participant at any time as determined by the Committee. The Committee has
complete discretion to determine the amount of the award, and such grants may be
denominated or payable in, valued or otherwise based upon or related to, shares
of Common Stock (including without limitation, securities convertible into
shares of Common Stock), as are deemed by the Committee to be consistent with
the purpose of the Plan. The Committee determines the terms and conditions of
such awards, provided, however, that in no event shall the purchase price for
any shares of Common Stock purchasable in connection with any such award be less
than one hundred percent
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(100%) of the fair market value of such shares of Common Stock or other
securities as of the date such purchase right is granted.
CERTAIN ADJUSTMENTS
In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below fair
market value, or other similar corporate event, affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under the Plan, then the Committee shall,
in its sole discretion, and in such manner as the Committee may deem equitable
or appropriate, adjust any or all of: (1) the number and kind of shares (or
other securities or other property) which thereafter may be made the subject of
awards, (2) the number and kind of shares (or other securities or other
property) subject to outstanding awards, and (3) the purchase or exercise price,
with respect to any award; provided, however, the number of shares subject to
any option or award shall always be a whole number.
AMENDMENTS TO AWARDS
The Committee may waive any condition of, or rights of the Company under
any outstanding award, prospectively or retroactively. However, the Committee
may not alter, suspend, discontinue or terminate any outstanding award,
prospectively or retroactively, without the consent of the participant or holder
or beneficiary thereof, except as otherwise provided in the Plan.
AMENDMENT OF PLAN
The Board may amend or terminate the Plan at any time, subject to any
requirement of shareholder approval required by applicable law, rule or
regulation.
FEDERAL INCOME TAX CONSIDERATIONS
Under current law, the federal income tax treatment of awards under the
Plan is summarized below:
NQSOS: The grant of a NQSO has no tax consequences to the Company or
to the participant. The exercise of a NQSO will require a participant to
include in his or her taxable ordinary income the amount by which the fair
market value of the acquired shares of Common Stock on the exercise date
exceeds the option price. Upon a subsequent sale or taxable exchange of
shares of Common Stock acquired upon NQSO exercise, a participant will
recognize long- or short-term capital gain or loss equal to the difference
between the amount realized on the sale and the tax basis of such shares.
Subject to certain requirements imposed by Section 162(m) of the
Internal Revenue Code, the Company will be entitled to a deduction at the
same time and in the same amount as the participant is in receipt of income
in connection with his or her exercise of a NQSO.
ISOS: The grant of an ISO has no tax consequences to the Company or
the participant. If the participant exercises an ISO and does not dispose
of the acquired shares of Common Stock within the later of two years after
the grant of the option and one year after the date of exercise, the
participant will realize no taxable income, the Company will not be
entitled to any tax deduction and any gain or loss that is realized on a
subsequent disposition of such shares will be treated as long-term capital
gain or loss. However, for purposes of computing the participant's
alternative minimum tax (if any), the spread between the option price and
the Common Stock's fair market value on the date of ISO exercise is treated
as income.
If any participant exercises an ISO before the end of the above-stated
holding period, the participant will be treated as having exercised a NQSO
for tax purposes (see above). The Company also will receive NQSO tax
treatment upon exercise.
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SARS: There are no tax consequences to the Company or the participant
upon the grant of a SAR. Upon exercise of the SAR, the participant will be
deemed to have received taxable ordinary income in the amount of any cash
plus the fair market value of any shares of Common Stock issued or
transferred as a result of the exercise. Subject to certain requirements
imposed by Section 162(m) of the Internal Revenue Code, the Company will
receive a tax deduction in the same amount, at the same time.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS: Upon the lapse of
restrictions imposed on restricted stock (i.e., when the stock is no longer
subject to a substantial risk of forfeiture), a participant will recognize
taxable ordinary income equal to the fair market value of the Common Stock
as of the date of vesting. The participant may, however, elect to recognize
taxable income at the time of grant equal to the fair market value of the
Common Stock at that time. Subject to certain requirements imposed by
Section 162(m) of the Internal Revenue Code, the Company will receive a tax
deduction in the same amount, at the same time.
PERFORMANCE AWARDS: There are no tax consequences to the Company or
the participant upon the grant of performance awards. Upon payout of the
awards, the participant will recognize taxable ordinary income in the
amount of the payout. Subject to certain requirements imposed by Section
162(m) of the Internal Revenue Code, the Company will receive a tax
deduction in the same amount, at the same time.
OTHER AWARDS: The tax consequences to the participant and the Company
will be considered in the design and implementation of such an award.
TAX WITHHOLDING: With respect to any income tax withholding
requirements imposed upon the occurrence of a taxable event to a
participant, subject to approval by the Committee, a participant may elect
to have the Company withhold shares to satisfy the participant's income tax
withholding obligations.
SECTION 162(M): Under Section 162(m) of the Internal Revenue Code,
compensation paid by the Company in excess of $1 million for any taxable
year to a "Covered Employee" generally is not deductible by the Company or
its affiliates for federal income tax purposes unless it is based on the
performance of the Company as measured by goals established by a
Compensation Committee of "outside directors", is paid pursuant to a plan
approved by shareholders of the Company, and meets certain other
requirements. Generally, Covered Employee under Section 162(m) means the
chief executive officer and four other highest-paid executive officers of
the Company as of the last day of the taxable year. It is presently
intended that the Committee will at all times consist of "outside
directors" as defined for purposes of Section 162(m), and that the
Committee will take the effect of Section 162(m) into consideration in
granting awards under this Plan.
FURTHER INFORMATION
Please see Appendix A, which presents the proposed Plan in its entirety,
for additional information.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of shares of Common Stock present and
entitled to vote at the Annual Meeting at which a quorum is present is required
to ratify the proposed 1997 Stock Incentive Plan of Michael Foods, Inc. and
Affiliated Companies. If approved, the Plan would become effective as of March
13, 1997.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE 1997 STOCK
INCENTIVE PLAN OF MICHAEL FOODS, INC. AND AFFILIATED COMPANIES.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board recommends that the shareholders ratify the Board's appointment
of Grant Thornton LLP as independent auditors of the Company for the year ending
December 31, 1997. Grant Thornton LLP has served as the Company's principal
auditors since the Company's formation in 1987.
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Representatives of Grant Thornton LLP will be present at the Annual Meeting
and will have an opportunity to make a statement if they desire to do so. They
also will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR THE 1998
ANNUAL MEETING OF SHAREHOLDERS
Any shareholder who wishes to present a proposal for action at the next
Annual Meeting of Shareholders and who wishes to have it set forth in the Proxy
Statement and identified in the form of proxy prepared by the Company must
notify the Company in such manner so that such notice is received by the
Secretary by January 1, 1998. Any such proposal must be in the form required
under the rules and regulations promulgated by the Securities and Exchange
Commission.
OTHER MATTERS
The Board knows of no other matters that are intended to be brought before
the Annual Meeting. If other matters, of which the Board is not aware, are
presented for action, it is the intention of the proxies named in the enclosed
form of proxy to vote on such matters in their sole discretion.
By Order of the Board of Directors,
/s/Jeffrey M. Shapiro
Jeffrey M. Shapiro
Executive Vice President and Secretary
April 25, 1997
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<PAGE> 24
APPENDIX A
1997 STOCK INCENTIVE PLAN OF MICHAEL FOODS, INC. AND
AFFILIATED COMPANIES
I. PURPOSE
The purpose of the 1997 Stock Incentive Plan of Michael Foods, Inc. and
Affiliated Companies (the "Plan") is to afford an incentive to key employees of
Michael Foods, Inc. (the "Company") and its affiliates to acquire an equity
interest in the Company, to encourage such employees to increase their efforts
on behalf of the Company and remain in its employ, and to more closely align the
interests of such key employees with those of the Company's shareholders.
II. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
A. "Affiliate" shall mean any entity that, directly or through one or
more intermediaries, is controlled by the Company.
B. "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award or other stock-based award
granted under the Plan.
C. "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
D. "Board of Directors" shall mean the board of directors of the
Company.
E. "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
F. "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan pursuant to Section III. If the Board
fails to appoint a committee, the Committee shall be the Board of
Directors.
G. "Common Stock" shall mean common stock, par value $.01, of the
Company.
H. "Eligible Employee" shall be any key employee, officer, consultant
or independent contractor providing services to the Company or an Affiliate
as determined by the Committee.
I. "Fair Market Value" of Common Stock on any day shall mean the fair
market value of the Common Stock determined by such methods or procedures
as shall be established from time to time by the Committee. Notwithstanding
the foregoing, for purposes of the Plan, the fair market value of the
Common Stock on a given date, if there shall be a public market for the
Common Stock, shall be the closing price of the Common Stock as reported by
any exchange on which the Common Stock is then traded or the closing price
on such date as reported by any generally recognized inter-dealer quotation
system.
J. "Incentive Stock Option" shall mean a stock option granted under
Section VI.A. of the Plan that is intended to meet the requirements of
Section 422 of the Code or any successor provision.
K. "Non-Qualified Stock Option" shall mean a stock option granted
under Section VI.A. which is not intended to be an Incentive Stock Option.
L. "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
M. "Optionee" shall mean a Participant who is granted an Option.
N. "Participant" shall mean an Eligible Employee who has been granted
an Option or other Award under the Plan.
O. "Performance Award" shall mean any right granted under Section
VI.D. of the Plan.
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P. "Restricted Stock" shall mean any Share granted under Section VI.C.
of the Plan.
Q. "Restricted Stock Unit" shall mean any unit granted under Section
VI.C. of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
R. "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934.
S. "Shares" shall mean shares of Common Stock.
T. "Stock Appreciation Right" shall mean any right granted under
Section VI.B. of the Plan.
III. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the terms of
the Plan and applicable law, the Committee shall have full power and authority
to: (i) designate Participants; (ii) determine the type or types of Awards to be
granted to each Participant under the Plan; (iii) determine the number of Shares
to be covered by (or with respect to which payments, rights or other matters are
to be calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock or Restricted Stock
Units; (vi) determine whether, to what extent and under what circumstances
Awards may be exercised in cash or Shares, or canceled, forfeited or suspended;
(vii) determine whether, to what extent, and under what circumstances cash,
Shares or other Awards or amounts payable with respect to an Award under the
Plan shall be deferred either automatically or at the election of the holder
thereof or the Committee; (viii) interpret and administer the Plan and any
instrument or agreement relating to an Award made under the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint such
agents as it shall deem proper for the administration of the Plan; and (x) make
any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee whose determination
shall be final, conclusive and binding upon any Participant, beneficiary of any
Award and any employee of the Company or any Affiliate.
IV. SHARES AVAILABLE FOR AWARDS
A. SHARES AVAILABLE. Subject to adjustment as provided in Section VII.C.,
1,000,000 Shares shall be available for granting Awards under the Plan. If any
Shares covered by an Award or to which an Award relates are not purchased or are
forfeited, or if an Award otherwise terminates without delivery of any Shares,
then the number of Shares counted against the aggregate number of Shares
available under the Plan with respect to such Award, to the extent of any such
forfeiture or termination, shall again be available for granting Awards under
the Plan. In addition, any Shares that are used by a Participant as full or
partial payment to the Company of the purchase price relating to an Award, or in
connection with the satisfaction of tax obligations relating to an Award in
accordance with the provisions of Section VIII of the Plan, shall again be
available for granting Awards under the Plan.
B. ACCOUNTING FOR AWARDS. For purposes of this Section IV, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available to
granting Awards under the Plan.
V. ELIGIBILITY
Employees eligible to participate in the Plan and receive Options and
Awards under the Plan shall consist of key employees of the Company and
Affiliates as determined by the Committee.
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VI. AWARD
A. OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
1. Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that such
purchase price shall not be less than one hundred percent (100%) of the
Fair Market Value of a Share on the date of grant of such Option.
2. Option Term. The term of each Option shall be fixed by the
Committee, but in no event shall the term exceed ten (10) years from the
date the Option is granted.
3. Time and Method of Exercise. The Committee shall determine the time
or times at which an Option may be exercised in whole or in part and the
method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other awards or other property, or any
combination thereof, having a Fair Market Value on the exercise date equal
to the exercise price) in which, payment of the exercise price with respect
thereto may be made or deemed to have been made, but in no event shall any
Option be exercisable earlier than one year from the date the Option is
granted.
4. Transferability of Options. Except as provided below, an Option may
not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution and,
during the lifetime of the Optionee, may be exercised only by such
Optionee. Notwithstanding the foregoing, the Committee may determine that
an Option may be transferred by the Optionee to one or more members of the
Optionee's immediate family, to a partnership of which the only partners
are members of the Optionee's immediate family, or to a trust established
by the Optionee for the benefit of one or more members of the Optionee's
immediate family. The Optionee's immediate family shall be limited to the
Optionee's spouse, parents, children, grandchildren and the spouses of such
persons. No further transfers of an Option may be made beyond the transfers
permitted above and a transferred Option shall remain subject to the
provisions of the Plan and any Award Agreement evidencing any Award granted
under the Plan.
5. Reload Options. The Committee may grant "reload" options separately
or together with another Option, pursuant to which, subject to the terms
and conditions established by the Committee and any applicable requirements
of Rule 16b-3 or any other applicable law, the Participant would be granted
a new Option when the payment of the exercise price of a previously granted
Option is made by the delivery of Shares of the Company's Common Stock
owned by the Participant; or when Shares are tendered or forfeited as
payment of the amount to be withheld under applicable income tax laws in
connection with the exercise of an Option, which new Option would be an
Option to purchase the number of Shares not exceeding the sum of (a) the
number of Shares provided as consideration upon the exercise of the
previously granted Option to which such "reload" Option relates; and (b)
the number of Shares tendered or forfeited as payment of the amount to be
withheld under applicable income tax laws in connection with the exercise
of the Option to-which such "reload" Option relates. Such "reload" Options
shall have a per share exercise price equal to the Fair Market Value as of
the date of grant of the new Option.
B. STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of: (i) the Fair Market Value of one (1) Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
be not less than one hundred percent (100%) of the Fair Market Value of one (1)
Share on the date of the grant of the Stock Appreciation Right. Subject to the
terms of the Plan and any applicable Award Agreement, the grant price, term,
methods of exercise, dates of exercise, methods of settlement and any other
terms and conditions of any Stock
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Appreciation Rights shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
C. RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby
authorized to grant Awards of Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
1. Restrictions. Shares of Restricted Stock and Restricted Stock Units
shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto), which restrictions may lapse separately or
in combination at such time or times, in such installments or otherwise as
the Committee may deem appropriate.
2. Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by the issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Company. Such
certificate or certificates shall be registered in the name of the
Participant and shall bear the appropriate legend referring to the
restrictions applicable to such Restricted Stock. In the case of Restricted
Stock Units, no certificates shall be issued at the time such Awards are
granted.
3. Forfeitures; Delivery of Shares. Except as otherwise determined by
the Committee, upon termination of employment (as determined under criteria
established by the Committee), during the applicable restriction period,
all shares of Restricted Stock and all Restricted Stock Units at such time
subject to restriction, shall be forfeited and reacquired by the Company;
provided, however, that the Company may, when it finds that waiver would be
in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock or
Restricted Stock Units. Certificates representing Shares of Restricted
Stock that are no longer subject to restriction shall be delivered to the
holder thereof promptly after the applicable restrictions lapse or are
waived. Upon the lapse or waiver of restrictions and the restricted stock
period relating to Restricted Stock Units evidencing the right to receive
Shares, certificates for such Shares shall be issued and delivered to the
holders of the Restricted Stock Units.
D. PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan: (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities or Awards or other property; and (ii) shall
confer upon the holder the right to receive payments, in whole or in part, upon
the achievement of such performance goals during such performance period as the
Committee may establish.
E. OTHER STOCK BASED AWARDS. The Committee is hereby authorized to grant to
Participants such other Awards that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based upon or related to, Shares
(including without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan; provided,
that if at the time of such grant the Company has a class of securities
registered under the Securities Exchange Act of 1934, such grants must comply
with Rule 16b-3 and applicable laws. The Committee shall determine the terms and
conditions of such Awards. In no event shall the purchase price for any Shares
purchasable in connection with any such Award be less than one hundred percent
(100%) of the Fair Market Value of such Shares or other securities as of the
date such purchase right is granted.
F. GENERAL PROVISIONS.
1. Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted alone or in addition to, in tandem
with or in substitution for any other Award.
2. Form of Payment Under Award. Subject to the terms of the Plan and
of any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise or payment of an Award may
be made in such form or forms as the Committee may determine (including,
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without limitation, cash, Shares, other securities, other Awards or other
property or any combination thereof).
3. Restrictions. All certificates for Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof
shall be subject to such transfer restrictions as the Committee may deem
advisable under the Plan and any applicable federal or state securities
laws, and the Committee may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions.
VII. AMENDMENT AND TERMINATION; ADJUSTMENT
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an award agreement or in the Plan:
A. AMENDMENTS TO THE PLAN. The Board of Directors of the Company may amend,
alter, suspend, discontinue or terminate the Plan at any time; provided,
however, that without the approval of the shareholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made
that, absent such approval: (i) would cause Rule 16b-3 to become unavailable
with respect to the Plan; or (ii) would cause the Company to be unable, under
the Code, to grant Incentive Stock Options under the Plan.
B. AMENDMENTS TO AWARDS. The Committee may waive any condition of, or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not alter, suspend, discontinue or terminate
any outstanding Award, prospectively or retroactively, without the consent of
the Participant or holder or beneficiary thereof, except as otherwise provided
herein.
C. ADJUSTMENTS. In the event that any dividend or other distribution,
whether in the form of cash, Shares, other securities or other property,
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-off, spin-off, combination, repurchase or exchange of
Shares or other securities of the Company or other similar corporate transaction
or event affecting the Shares would be reasonably likely to result in the
diminution or enlargement of any of the benefits or potential benefits intended
to be made available under the Plan or under an Award, the Committee shall, in
such manner as it shall deem equitable or appropriate in order to prevent such
diminution or enlargement of any such benefits or potential benefits, adjust any
or all of: (i) the number and type of Shares (or other securities or other
property) which thereafter may be made the subject of Awards; (ii) the number
and type of Shares (or other securities or other property) subject to
outstanding awards; and (iii) the purchase or exercise price with respect to any
Award; provided, however, that the number of Shares covered by any Award or to
which such Award relates shall always be a whole number.
D. CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
VIII. INCOME TAX WITHHOLDING
In order to comply with applicable federal or state income tax laws or
regulations, the Company may take such action as it deems appropriate to ensure
that all applicable federal or state payroll, withholding, income or other
taxes, which are the sole and absolute responsibility of a Participant, are
withheld or collected from such Participant. In order to assist the Participant
in paying all federal and state taxes to be withheld or collected upon exercise
or receipt of (or the lapse of restrictions relating to) an Award, the Committee
in its discretion and subject to such additional terms and conditions as it may
adopt, may permit the Participant to satisfy such tax obligation by: (i)
electing to have the Company withhold a portion of Shares otherwise to be
delivered upon exercise or receipt of (or the lapse of restrictions relating to)
such Award with a Fair Market Value equal to the amount of such taxes; or (ii)
delivering to the Company Shares other than Shares issuable upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value
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equal to the amount of such taxes. The election, if any, must be made on or
before the date that the amount of tax to be withheld is determined.
IX. GENERAL PROVISIONS
A. NO RIGHT TO AWARD. No employee, Participant, or other person shall have
any claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Employees, Participants or holders or
beneficiaries of Awards under the Plan.
B. DELEGATION. The Committee may delegate to one or more officers of the
Company or a committee of such officers the authority, subject to such terms and
limitations as the Committee shall determine, to grant awards to key employees
who are not officers or directors of the Company for purposes of Section 16 of
the Securities Exchange Act of 1934, as amended.
C. AWARD AGREEMENTS. No Participant shall have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.
D. NO LIMIT ON OTHER COMPENSATION AGREEMENTS. Nothing contained in the Plan
shall prevent the Company from adopting or continuing in effect other or
additional compensation arrangements and such arrangements may be either
generally applicable or applicable only in specific cases.
E. NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed as
giving the Participant the right to be retained in the employ of the Company or
its Affiliates. In addition, the Company or its Affiliates may, at any time,
dismiss a Participant from employment.
F. GOVERNING LAW. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the internal laws of the State of Minnesota without consideration of any
conflict of law rules.
G. NO TRUST FUND CREATED. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company and a Participant or any other person. To the
extent that any person acquires a right to receive payment from the Company
pursuant to an Award, such right shall be no greater than the right of any
unsecured creditor of the Company.
H. NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award.
X. EFFECTIVE DATE AND TERM
Subject to approval by the shareholders of the Company at the regular
meeting of shareholders next following approval of the Plan by the Board of
Directors of the Company, the Plan shall be effective as of the date of its
adoption by the Board of Directors of the Company and shall continue in effect
for a period of ten (10) years thereafter unless earlier terminated as provided
herein.
A-6
<PAGE> 30
DETACH HERE MIC 2
MICHAEL FOODS, INC.
324 PARK NATIONAL BANK BUILDING
5353 WAYZATA BOULEVARD
MINNEAPOLIS, MINNESOTA 55415
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PROXY
The undersigned hereby appoint Gregg A. Ostrander and Jeffrey M. Shapiro as
Proxies, each with the power to appoint his substitute, and hereby authorize
them to represent and to vote, as designated on the reverse side, all the shares
of Common Stock of Michael Foods, Inc. held of record by the undersigned on
April 7, 1997, at the Annual Meeting of Shareholders to be held on June 5, 1997,
or any adjournment thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
<PAGE> 31
DETACH HERE MIC 2
<TABLE>
<CAPTION>
<S> <C>
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. ELECTION OF DIRECTORS 2. PROPOSAL TO RATIFY THE 1997 STOCK INCENTIVE PLAN OF MICHAEL
FOODS, INC. AND AFFILIATED COMPANIES.
NOMINEES: MAUREEN B. BELLANTONI, RICHARD A.
COONROD, MILES E. EFRON, ARVID C. KNUDTSON,
JOSEPH D. MARSHBURN, JEFFREY J. MICHAEL, GREGG A. FOR AGAINST ABSTAIN
OSTRANDER, ARTHUR J. PAPETTI, STEPHEN T. PAPETTI [ ] [ ] [ ]
FOR WITHHELD 3. PROPOSAL TO RATIFY THE APPOINTMENT OF GRANT THORNTON LLP as
[ ] [ ] the independent auditors of the Corporation for the year ending
December 31, 1997.
MARK HERE FOR AGAINST ABSTAIN
[ ]_____________ FOR ADDRESS [ ] [ ] [ ]
For all nominees except CHANGE AND [ ]
as noted above NOTE BELOW
4. 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 shareholder. If no direction
is made, this Proxy will be voted for Proposals 1, 2 and 3.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears at left. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full titles as such.
If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign by authorized
person.
Signature_____________________ Date: ________________ Signature _______________________________ Date: _______________________
</TABLE>
