<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
Michael Foods, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
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:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
324 PARK NATIONAL BANK BUILDING
5353 WAYZATA BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
March 25, 1994
Dear Stockholder:
You are cordially invited to attend the 1994 Annual Meeting of Stockholders
of Michael Foods, Inc. to be held in the Auditorium of the Lutheran Brotherhood
Building, 625 Fourth Avenue South, Minneapolis, Minnesota on Thursday, April 28,
1994, 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, stockholders will be given the opportunity to ask
appropriate questions.
The items requiring stockholder approval are the election of directors,
approval of the establishment of the Michael Foods, Inc. 1994 Executive
Performance Stock Award Plan and the ratification of the appointment of auditors
for the year 1994. 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,
Gregg A. Ostrander
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
MICHAEL FOODS, INC.
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 1994
--------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Michael
Foods, Inc., a Delaware Corporation (the "Company"), 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, April 28, 1994.
This meeting is being held for the following purposes:
1. To elect nine persons to serve as directors until the next annual
election and until their successors are duly elected and qualified.
2. To approve the establishment of the Michael Foods, Inc. 1994 Executive
Performance Stock Award Plan.
3. To ratify the appointment of Grant Thornton as independent auditors for
the year ending December 31, 1994.
4. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 15, 1994, 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.
<TABLE>
<S> <C>
Minneapolis, Minnesota Jeffrey M. Shapiro
March 25, 1994 EXECUTIVE VICE PRESIDENT AND SECRETARY
</TABLE>
<PAGE>
MICHAEL FOODS, INC.
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1994
This Proxy Statement is furnished to stockholders of Michael Foods, 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 Stockholders
of the Company to be held on April 28, 1994 (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 March 25, 1994.
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 $8,000 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
stockholder 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 March 15, 1994 was fixed by the Board as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting. On February 15, 1994, the Company had outstanding 19,316,139
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 stockholder 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 1993, 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 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 stockholders and until
their successors are elected and qualified. All of the nominees are members of
the present Board. If for any reason 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.
<PAGE>
The nine 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 THE
NAME AGE BIOGRAPHICAL SUMMARY COMPANY
- -------------------- --- -------------------------------------------------- ------------
<S> <C> <C> <C>
James H. Michael 73 Chairman of the Board since 1987. Chairman of the 1987
Executive Committee of the Board of Directors of
North Star Universal, Inc. ("NSU") since 1988.
Chairman of the Board of NSU from 1981 to 1991.
NSU is a holding company owning 38% of the Common
Stock of Michael Foods, Inc., 40% of the common
stock of CorVel Corporation, and businesses
engaged in voice and data communications products
and services, as well as mainframe computer
features, parts and services for the secondary
market. Real estate owner and developer.
Gregg A. Ostrander 41 President and Chief Executive Officer since 1994
January 1, 1994. Chief Operating Officer from
February to December 1993. President of
Swift-Eckrich Prepared Foods from December 1990 to
February 1993. Senior Vice President -- Marketing
of Swift-Eckrich Prepared Foods from 1986 to 1990.
Richard A. Coonrod 62 President of Coonrod Agriproduction Corporation, a 1993
food and agribusiness consulting and investment
firm, since 1985. President of St. Louis Ship,
Inc., a marine equipment manufacturer, from 1988
to 1991. 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 67 Chairman of the Board of NSU. President and Chief 1988
Executive Officer of NSU from 1988 to 1990. Mr.
Efron is also a director of Employee Benefit
Plans, Inc.
Orville L. Freeman 75 Senior attorney with Popham, Haik, Schnobrich & 1989
Kaufman, LTD., a Washington, D.C. law firm, for
more than five years. Mr. Freeman is also a
director of Mycogen Corporation.
Arvid C. Knudtson 67 Retired consultant. Principal in ACK Financial, a 1987
financial services firm serving the agricultural
market, from 1988 to 1993.
Joseph D. Marshburn 65 Senior Vice President of Citrus World, Inc., an 1987
agricultural processing and marketing cooperative,
since November 1993. Chief Executive Officer of
Citrus World, Inc. from 1978 to November 1993.
Jeffrey J. Michael 37 President and Chief Executive Officer of NSU since 1990
December 31, 1990. Vice President -- Finance of
NSU from 1987 to 1990. Mr. Michael is also a
director of NSU and CorVel Corporation, and is the
son of Mr. James H. Michael.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRST BECAME
A DIRECTOR
OF THE
NAME AGE BIOGRAPHICAL SUMMARY COMPANY
- -------------------- --- -------------------------------------------------- ------------
<S> <C> <C> <C>
Richard G. Olson 60 Retired President and Chief Executive Officer of 1987
the Company. President and Chief Executive Officer
of the Company from 1987 to 1993. Chairman of
Fil-Mor Express, Inc., a Minnesota-based trucking
company, since 1982.
</TABLE>
CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES
AUDIT COMMITTEE. The Company has a standing Audit Committee which currently
consists of Mr. Knudtson as Chairman, Mr. Marshburn and Mr. Jeffrey J. Michael.
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
1993, the Audit Committee held three meetings.
COMPENSATION COMMITTEE. The Company has a standing Compensation Committee
which currently consists of Mr. Efron as Chairman, Mr. Freeman 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 serves as the stock option committee for the Company's Stock
Option Plans. During 1993, the Compensation Committee met twice.
During the year ended December 31, 1993, the Board held four regular
meetings and one special meeting. All directors other than Mr. Freeman 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 1993 was $147,437.
STOCK TRANSACTION REPORTING
The rules of the Securities and Exchange Commission require disclosure of
late Section 16 filings by Company directors and executive officers. In January
1994, James J. Kohler, subsidiary president, inadvertently understated the
number of shares purchased by him in December 1993 as reported on Form 4. A
remedial filing on Form 5 was made. Based on the information provided to the
Company, the Company is not aware of any other executive officer or director of
the Company who failed to timely file any report required to be filed.
RELATED PARTY TRANSACTIONS
During 1993, the Company loaned to Mr. Ostrander $236,000 interest-free for
a period of approximately five weeks. The promissory note proceeds were used by
Mr. Ostrander to facilitate the securing of housing upon his relocation after
joining the Company. Also during 1993, the Company loaned to William L. Goucher,
President of M.G. Waldbaum Company ("Waldbaum"), $160,000 interest-free for a
period of approximately seven weeks. The promissory note proceeds were used by
Mr. Goucher to facilitate the securing of housing upon his relocation after
joining the Company. Both notes were paid in-full in 1993.
3
<PAGE>
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 Company's last three
fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
---------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY(2) BONUS OPTIONS(3) COMPENSATION(4)
- ------------------------------------------------------- ----------- ---------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Gregg A. Ostrander 1993 $ 224,519 $ 125,000 50,000 $ 100,258
President & Chief Executive Officer(1) 1992 -- -- -- --
1991 -- -- -- --
Richard G. Olson 1993 281,000 -- 66,347 431,034(5)
Retired President & Chief Executive Officer 1992 281,000 -- 14,570 9,268
1991 275,000 -- 46,261 --
William L. Goucher 1993 116,962 75,000 20,000 67,418
President, Waldbaum 1992 -- -- -- --
1991 -- -- -- --
Jeffrey M. Shapiro 1993 216,000 -- 5,000 9,055
Executive Vice President & Secretary 1992 206,000 -- -- 8,655
1991 190,000 -- 10,093 --
Kevin S. Murphy 1993 176,000 26,224 5,000 7,378
Chief Executive Officer, Northern Star Co. 1992 170,000 -- -- 7,138
1991 173,269 -- 8,410 --
<FN>
- ------------------------------
(1) Mr. Ostrander was named President and Chief Executive Officer January 1,
1994.
(2) Includes adjustment for elimination of car allowances in 1992 for Messrs.
Olson and Shapiro. Messrs. Ostrander and Goucher joined the Company in
1993.
(3) Number of shares of Common Stock purchaseable under option grants.
(4) Reflects the value of the Company's contributions under the Retirement
Savings Plan and value of life insurance premiums paid by the Company.
Figures for Messrs. Ostrander and Goucher include reimbursement of moving
expenses of $98,464 and $65,880, respectively, as well as the benefit from
interest-free loans provided by the Company to assist in their relocations
(see "Related Party Transactions") of $1,474 and $1,394, respectively.
Information for 1991 is not required to be disclosed.
(5) $9,534 paid in 1993; balance accrued by the Company in 1993, but payable
to Mr. Olson in 1994 and 1995 pursuant to his retirement and consulting
agreement (see "Executive Compensation -- Olson Retirement and Consulting
Agreement").
</TABLE>
OSTRANDER EMPLOYMENT AGREEMENT
Effective January 1, 1994, the Company entered into a three-year employment
agreement with Mr. Ostrander in connection with his appointment as President and
Chief Executive Officer. The agreement provides for an annual base salary of
$280,000 and entitles Mr. Ostrander to participate in the Michael Foods, Inc.
1994 Executive Incentive Plan and other fringe benefit plans established by the
Company for its executive officers. The agreement also provides 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.
This 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 is entitled to receive an
amount equal to the remaining base salary due under this agreement, but in any
event not less than two year's base salary, plus 50% of 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. If Mr. Ostrander's employment is terminated on thirty days' written
notice by Mr. Ostrander, he is entitled to
4
<PAGE>
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. In the case of 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 shall
become fully vested.
OLSON EMPLOYMENT AGREEMENT
Effective January 1, 1990, the Company entered into a five-year employment
agreement with Mr. Olson. The agreement provided for an annual base salary of
$275,000 and entitled Mr. Olson to participate in the Company's Annual Incentive
Compensation Plan and other fringe benefit plans established by the Company for
its executive officers. In addition to a fully-vested, non-qualified stock
option to purchase 30,000 shares of Common Stock with an exercise price of $9.33
granted to Mr. Olson on January 2, 1990, the agreement provided for the annual
grant of non-qualified stock options. The number of shares purchasable upon
exercise of said options was determined by dividing Mr. Olson's base salary and
Incentive Compensation for the calendar year of the grant by the option exercise
price on the date of grant. Any such stock option granted was exercisable, in
whole or in part, only if Mr. Olson continued to provide services to the Company
for one year after the date of grant.
The agreement provided that in the event Mr. Olson's employment was
terminated by agreement, death or ninety days' written notice by Mr. Olson, Mr.
Olson would be entitled to receive an amount equal to one year's base salary,
plus any earned but unpaid Incentive Compensation for the year preceding
termination. If Mr. Olson's employment were terminated for cause, Mr. Olson
would receive only amounts due through the last day of service and Mr. Olson
would not be deemed to have earned any Incentive Compensation or options for the
year of termination. If Mr. Olson were terminated without cause (which is
defined to include termination after a change in control), Mr. Olson would be
entitled to receive two years' base salary, plus 50% of such amount, as
termination pay.
OLSON RETIREMENT AND CONSULTING AGREEMENT
In the fourth quarter of 1993, Mr. Olson notified the Compensation Committee
of his intention to retire effective December 31, 1993. Effective December 23,
1993 the Company entered into an agreement with Mr. Olson, which replaced Mr.
Olson's employment agreement (see "Olson Employment Agreement") effective
December 31, 1993. The agreement provides that Mr. Olson will provide consulting
services to the Company for two years and receive a consulting fee of $281,000
for the calendar year 1994 and $140,500 for the calendar year 1995. If Mr. Olson
should die or become disabled during 1994, he or his estate, will be paid the
remaining balance of the 1994 consulting fee. If Mr. Olson should die or become
disabled during 1995, he or his estate, will receive that portion of the
consulting fee for 1995 which becomes due and payable through the end of the
month in which death or disability occurs.
The agreement also provides for full vesting of all stock options previously
granted to Mr. Olson effective January 1, 1994. Furthermore, Mr. Olson received
on December 31, 1993 a fully vested, non-qualified stock option to purchase
35,125 shares of Common Stock at $8.00 per share exercisable through December
31, 2004, which option would have been provided under his employment agreement
had his employment continued through January 1, 1994.
GOUCHER COMPENSATION ARRANGEMENT
Effective March 8, 1993, the Company and Mr. Goucher agreed to a
compensation arrangement which provides for an annual base salary of $150,000
and a first year guaranteed bonus of $75,000. Mr. Goucher also participates in
the Company's Annual Incentive Compensation Plan, other fringe benefit plans
established by the Company for its executive officers and the Severance Plan for
Eligible Employees of Michael Foods, Inc. and its Subsidiaries (see "Change in
Control Arrangements"). The arrangement with Mr. Goucher also provided for the
issuance of a non-qualified stock option to purchase 20,000 shares of Common
Stock on April 1, 1993 at an exercise price of $8.00. This option vests ratably
over five years and
5
<PAGE>
expires April 1, 2003. In the event Mr. Goucher's employment is terminated for
reasons other than cause within his first twelve months of employment, he is
entitled to receive an amount equal to one year's base salary.
SHAPIRO EMPLOYMENT AGREEMENT
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 participates in the Company's Annual
Incentive Compensation Plan and other fringe benefit plans established by the
Company for 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. In the event Mr. Shapiro's employment is terminated by
agreement, death or ninety days' written notice by Mr. Shapiro, Mr. Shapiro is
entitled to receive an amount equal to one year's base salary, plus any earned
but unpaid Incentive Compensation for the year preceding termination. If Mr.
Shapiro's employment is terminated for cause, Mr. Shapiro would receive only
amounts due through the last day of service and Mr. Shapiro would not be deemed
to have earned any Incentive Compensation for the year of termination. If Mr.
Shapiro is terminated without cause (which is defined to include termination
after a change in control), Mr. Shapiro is entitled to two year's base salary,
plus 25% of such amount, as termination pay.
INCENTIVE COMPENSATION PLAN
The Company established on January 1, 1988, the Michael Foods, Inc. Annual
Incentive Compensation Plan (the "1988 Incentive Plan"). The 1988 Incentive Plan
is described in more detail 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 change of 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 Company's Board or purchases all or substantially all of the properties and
assets of the Company; provided, however, that a change of control does not
include certain acquisitions pursuant to a merger, consolidation or sale of
properties and assets. Under the Severance Plan, certain key employees
including, Messrs. Goucher and Murphy, 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 and
Shapiro are contained in their respective employment agreements (see "Ostrander
Employment Agreement" and "Shapiro Employment Agreement") that are effective
upon termination of employment without cause, which includes termination after a
change in control of the Company. Additionally, and separate from the Severance
Plan, in the event of a change in control of the Company, all outstanding stock
options become immediately fully vested and exercisable.
DESCRIPTION OF STOCK OPTION PLANS -- 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"). These plans provide for the grant of options to purchase shares of
Common Stock of the Company to key employees of the Company and its subsidiaries
as determined by the
6
<PAGE>
Compensation Committee of the Company's Board of Directors (the "Committee").
The aggregate number of shares of Common Stock as to which options may be
awarded under both plans currently is 2,332,700. The maximum aggregate number of
shares of Common Stock as to which options may be granted under the Stock Option
Plans to any one employee is 337,500 shares. The Stock Option Plans play 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 provides 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, an option granted under the
Incentive Stock Option Plan cannot, in general, be exercised during the first 12
months after the date of its grant, and thereafter will become exercisable
ratably over five years. Options granted under the plan expire not later than 10
years after grant. The Non-Qualified Stock Option Plan provides for the granting
of options which do not qualify as "incentive stock options" within the meaning
of Section 422A of the Code. Although the Committee has not done so, the
Non-Qualified Stock Option Plan permits the Committee to grant, in its
discretion, new options to replace options surrendered for cancellation, but the
new option grants must meet all Non-Qualified Stock Option Plan requirements. 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, will 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 is 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 are subject
to amendment by the Committee subject to the restriction that, in general, the
Committee may not increase the number of shares of Common Stock which may be
issued under the plans or the class of employees eligible to be granted options.
DESCRIPTION OF STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
In 1992 the Board of Directors approved a Stock Option Plan for Non-Employee
Directors (the "Director Plan"), which was subsequently approved by the
Company's stockholders at the 1993 Annual Meeting of the Stockholders of Michael
Foods, Inc. 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 also memorializes the Company's practice since
inception of granting stock options 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 the
Company's 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 the Company's Common Stock upon each director's subsequent five
year anniversary of participation on the Board of Directors. The options become
exercisable in full one year after the date of grant and expire ten years from
the date of grant. The Board of Directors currently has eight non-employee
directors and 48,750 shares of Common Stock are currently subject to options
granted to non-employee directors under the Director Plan.
101,250 shares of the Company's Common Stock remain available for issuance
under the Director Plan. 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 Company's Common Stock.
The Board of Directors of the Company 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 of Directors may not amend the Director Plan to
change: (i) the total number of shares 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
7
<PAGE>
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 of Directors. The Board of Directors may terminate the
Director Plan without stockholder approval.
OPTION GRANTS IN LAST YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL EXERCISE OR APPRECIATION FOR
UNDERLYING OPTIONS GRANTED BASE PRICE OPTION TERM(4)
OPTIONS GRANTED TO EMPLOYEES IN PER SHARE EXPIRATION --------------------
NAME (#)(1) LAST YEAR ($/SH)(2) DATE(3) 5% ($) 10% ($)
- ------------------------------------ --------------- --------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gregg A. Ostrander 50,000 22.0% 8.875 03/01/03 279,072 707,223
Richard G. Olson 31,222 13.8 9.000 02/23/03 176,718 447,838
35,125 15.5 8.000 12/31/03 176,719 447,842
William L. Goucher 20,000 8.8 8.000 04/01/03 100,623 254,999
Jeffrey M. Shapiro 5,000 2.2 10.125 01/11/03 31,838 80,683
Kevin S. Murphy 5,000 2.2 10.125 01/11/03 31,838 80,683
<FN>
- ------------------------
(1) All options granted in 1993 are exercisable in cumulative 20% installments
commencing one year from date of grant, with full vesting occurring on the
fifth anniversary date, except for Mr. Olson's options which vested 100%
effective January 1, 1994 and December 31, 1993, respectively, as provided
under his Retirement and Consulting Agreement. Vesting may be accelerated
in certain events relating to change of the Company's ownership.
(2) All options were granted at the market value of the Company's Common Stock
based upon the last reported price on date of grant. The exercise price
and tax withholding obligations related to exercise may be paid by
delivery of already owned shares or 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 OPTIONHOLDERS' CONTINUED
EMPLOYMENT THROUGH THE VESTING PERIOD. THE AMOUNTS REFLECTED IN THIS TABLE
MAY NOT NECESSARILY BE ACHIEVED.
</TABLE>
OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
There were no option exercises by the named executive officers in 1993. The
following table provides information related to the number and value of options
held at December 31, 1993 by the named executive officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT YEAR-END YEAR-END ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gregg A. Ostrander -- 50,000 -- --
Richard G. Olson 325,928 -- 100,000 --
William L. Goucher -- 20,000 -- --
Jeffrey M. Shapiro 75,288 11,055 50,000 --
Kevin S. Murphy 46,116 23,544 -- --
<FN>
- ------------------------
(1) The closing price for the Company's Common Stock on December 31, 1993 was
$8.00. Value is calculated on the basis of the difference between the
option exercise price and $8.00 multiplied by the number of shares of
Common Stock underlying the options.
</TABLE>
8
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation of the Company's executive officers is based on three
components -- base salary, incentive bonus and periodic stock option awards.
Base salary is fixed by contract in the case of the Chief Executive Officer, the
Executive Vice President and certain other executive officers. Additionally, the
1993 salary of the former Chief Executive Officer was fixed under a contract
that was terminated on December 31, 1993. The employment agreements between the
Company and Mr. Olson, the Company and Mr. Ostrander, the Company and Mr.
Shapiro and the Company and Mr. Goucher were entered into in 1990, 1993, 1990
and 1993 respectively. Their compensation for 1993 was determined principally by
reference to those agreements. See "Executive Compensation -- Olson Employment
Agreement", "-- Ostrander Employment Agreement," "-- Shapiro Employment
Agreement" and "-- Goucher Compensation Arrangement."
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 Messrs. Olson, Ostrander, Shapiro
and Goucher, the compensation provided for under their compensation arrangements
results principally from arms-length negotiations between the Company and the
individuals. The Compensation 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 December
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 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 these companies are within the S&P Food Group used in the Stock Price
Performance Graph (see "Stock Price Performance Graph"). In early 1993,
executive officers' base salary adjustments were made which aggregated $30,500.
Of this amount, $10,000 was pursuant to Mr. Shapiro's employment agreement (see
"Executive Compensation -- Shapiro Employment Agreement") with the balance paid
to Mr. Murphy and another executive officer to equalize their salaries with
those of other executive officers of the Company with similar responsibilities.
Effective January 1, 1988 the Company adopted an Annual Incentive
Compensation Plan (the "1988 Incentive Plan") to recognize the achievement of
financial and operating objectives of the Company. Executive officers of the
Company, operating company presidents and certain other selected officers and
key employees participate in the 1988 Incentive Plan. Under the 1988 Incentive
Plan, executive officers of the Company and operating company presidents can
receive an incentive cash bonus of up to 100% of base salary if fully diluted
net earnings per share in the case of executive officers of the Company, or
profits before taxes in the case of the respective operating companies, increase
by at least 30.5% over the preceding year. Other officers' maximum bonus is 75%
of base salary and the maximum cash bonus of other participating key employees
is 50% of base salary. No formula provision bonus is earned if the increase in
fully diluted earnings per share or pre-tax profits over the preceding year is
less than 5%. In 1993, no formula provision bonuses were paid to any named
executive officer and only $8,800 was paid to an operating company president as
a bonus under the formula provisions of the 1988 Incentive Plan.
A provision in the 1988 Incentive Plan prevents a formula provision bonus
from being earned as a result of an increase in fully diluted earnings per share
or pre-tax profits when results for the measurement year remain below levels
achieved in a prior year. The 1988 Incentive Plan provides for discretionary
bonuses when no formula provision bonus is earned. Discretionary bonuses are
initially determined by the Chief Executive Officer, subject to approval by the
Compensation Committee, and are limited to situations where improvements have
been made which justify recognition, but where the criteria for a formula
provision bonus under the 1988 Incentive Plan have not been met. For 1993, there
were $97,543 in discretionary bonuses paid to three executive officers,
including Mr. Murphy, under this provision in the 1988 Incentive Plan for
improved 1993 subsidiary financial performance. The bonuses paid to Messrs.
Ostrander and Goucher (see "Executive Compensation -- Summary Compensation
Table") were provided for under their negotiated employment arrangements as new
executive officers for the Company in 1993. Messrs. Olson and Shapiro received
no discretionary bonus for 1993 performance as a result of the Company's loss
for the year.
9
<PAGE>
The 1988 Incentive Plan also provides for the award of stock options to
participating executives and key employees. The stock option awards are intended
to reward key executives for extraordinary performance on the assumption that
improvements in operating profits and fully diluted earnings per share will be
reflected in the market price of the Company's Common Stock. Stock options are
granted beginning with a 20.1% improvement in pre-tax profits in the current
year over the prior year, with the maximum option grant being achieved if
pre-tax profits increase by more than 60% over the prior year's pre-tax profits.
The maximum option grant that can be awarded is that number of shares valued at
the date of grant equal to 100% of base salary in the case of executive officers
of the Company and operating company presidents, 60% of base salary in the case
of other officers and 30% of base salary in the case of other key employees.
There were no stock options granted in 1993 to any named executive officers
under the 1988 Incentive Plan.
In January 1993, the Compensation Committee awarded non-qualified options to
purchase an aggregate of 30,000 shares of Common Stock at an exercise price of
$10.25 per share to certain executive officers, including 10,000 shares granted
to the named executive officers other than Mr. Olson. These grants were made on
a discretionary basis by the Compensation Committee to recognize contributions
by the grantees which the Compensation Committee believes will significantly
impact the long-term performance of the Company. In 1993, Mr. Olson was granted
a non-qualified option to purchase 31,222 shares of Common Stock at an exercise
price of $9.00 per share in February 1993 and a non-qualified option to purchase
35,125 shares of Common Stock at an exercise price of $8.00 per share in
December 1993. These option grants were made pursuant to Mr. Olson's employment
agreement and retirement and consulting agreement, respectively.
The Compensation Committee believes that the 1988 Incentive Plan
appropriately recognized the contributions of its executive officers and key
employees to both the short and long-term performance of the Company through
1993. The 1988 Incentive Plan set objective annual goals for participating
executives that related to each executive's area of responsibility and combined
an immediate recognition of performance through a cash bonus, with stock option
awards focused on long-term results and increases in the market capitalization
of the Company over an extended period of time.
The Company has no policy with respect to Section 162(m) of the Internal
Revenue 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 periodically reviews its compensation criteria
and programs to consider both changing business conditions and the Company's
needs. In recognition of the Company's changing needs, the 1988 Incentive Plan
was terminated as of January 1, 1994 and was replaced by the Michael Foods, Inc.
1994 Executive Incentive Plan (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 Compensation Plan are eligible to earn awards under the first two
components, with cash awards being limited to a maximum of 75% of base salary,
with only certain executive officers qualifying for stock option awards. Similar
to the 1988 Incentive Plan, the 1994 Executive Incentive Plan rewards
participants upon the attainment of specific performance goals -- corporate
executives will be rewarded based upon attainment of the Company's earnings per
share growth targets and operating company executives will be rewarded based
upon individual operating company growth in profit before taxes, as well as
overall corporate earnings per share growth. Awards under the 1994 Executive
Incentive Plan, however, will be dependent upon the attainment of annually
established guidelines, or targets, determined by the Company's Chief Executive
Officer and approved by the Compensation Committee, as opposed to the fixed
percentage formula governing awards under the 1988 Incentive Plan. In addition,
the 1994 Executive Incentive Plan attempts to foster longer-term performance by
tying stock awards to year-over-year performance over a three year period.
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
10
<PAGE>
planning and focusing on long-term earnings growth. To facilitate the granting
of Common Stock awards, the Company is seeking stockholder approval of the
establishment of the Michael Foods, Inc. 1994 Executive Performance Stock Award
Plan as described elsewhere herein.
The Compensation Committee
Miles E. Efron, Chairman
Richard A. Coonrod
Orville L. Freeman
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock during the five years
ended December 31, 1993 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, 1988 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends.
FIVE YEAR TOTAL RETURN GRAPH
TOTAL SHAREHOLDERS RETURN PREPARED FOR
MICHAEL FOODS, INC.
FISCAL YEAR BASIS: DECEMBER
<TABLE>
<CAPTION>
RETURN RETURN RETURN RETURN RETURN
COMPANY/INDEX NAME 1989 1990 1991 1992 1993
- ------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Michael Foods, Inc. -13.17 67.46 0.30 -30.74 -19.19
S&P 500 Comp 31.69 -3.11 30.47 7.62 10.08
S&P Foods 36.43 7.79 45.88 -0.23 -8.23
</TABLE>
INDEXED/CUMULATIVE RETURNS
<TABLE>
<CAPTION>
BASE
PERIOD RETURN RETURN RETURN RETURN RETURN
COMPANY/INDEX NAME 1988 1989 1990 1991 1992 1993
- ------------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Foods, Inc. 100 86.83 145.41 145.85 101.01 81.63
S&P 500 Comp 100 131.69 127.60 166.47 179.15 197.21
S&P Foods 100 136.43 147.06 214.53 214.03 196.41
</TABLE>
This total shareholders return model assumes reinvested dividends.
11
<PAGE>
SECURITY OWNERSHIP
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 15, 1994
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 of the
Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OWNED(1) CLASS
- ------------------------------------------------------- -------------------- ------------
<S> <C> <C>
North Star Universal, Inc. 7,380,187(2) 38.2%
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
State of Wisconsin Investment Board 1,923,000 10.0%
P.O. Box 7842
Madison, Wisconsin 53707
<FN>
- ------------------------
(1) Owned of record and beneficially except as otherwise noted.
(2) Includes 11,550 shares owned of record or beneficially by James H. Michael
and 13,687 shares owned of record or beneficially by Jeffrey J. Michael.
</TABLE>
SECURITIES OWNED BY MANAGEMENT
The following table sets forth certain information as of February 15, 1994
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
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------------------------------------- ---------------- ---------
<S> <C> <C>
Directors and Nominees:
James H. Michael 7,366,500(2)(3) 38.1 %
Gregg A. Ostrander 15,000(4) *
Richard A. Coonrod 1,000 *
Miles E. Efron 7,500(3) *
Orville L. Freeman 11,250(5) *
Arvid C. Knudtson 6,000(6) *
Joseph D. Marshburn 5,000(6) *
Jeffrey J. Michael 7,368,637(2)(3) 38.1 %
Richard G. Olson 336,428(7)(8) 1.7 %
Named Executive Officers:
William L. Goucher 4,000(9) *
Jeffrey M. Shapiro 81,417(10) *
Kevin S. Murphy 58,302(11) *
All Directors and Executive
Officers as a Group: (16 persons) 8,108,973(12) 42.0 %
<FN>
- ------------------------
* Less than 1%
(1) Owned of record and beneficially except as otherwise noted.
(2) Includes 7,354,950 shares of Common Stock owned of record by NSU. Messrs.
James H. Michael and Jeffrey J. Michael directly or beneficially own in the
aggregate approximately 60% of the common stock of NSU. See "Security
Ownership -- Principal Stockholders."
(3) Includes 7,500 shares of Common Stock as to which Messrs. James H. Michael,
Efron and Jeffrey J. Michael each have the right to acquire beneficial
ownership within 60 days by the exercise of options granted to non-employee
directors upon their election or appointment. See "Description of Stock
Option Plan for Non-Employee Directors."
(4) Includes 10,000 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.
(5) Includes 11,250 shares of Common Stock as to which Mr. Freeman has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted to non-employee directors upon their election or appointment. See
"Description of Stock Option Plan for Non-Employee Directors."
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
(6) Includes 5,000 shares of Common Stock as to which Messrs. Knudtson and
Marshburn have the right to acquire beneficial ownership within 60 days by
the exercise of options granted. See "Description of Stock Option Plan for
Non-Employee Directors."
(7) Includes 10,500 shares of Common Stock owned of record by the Martin Olson
Trust of which Mr. Olson is a beneficiary.
(8) Includes 325,928 shares of Common Stock as to which Mr. Olson has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted.
(9) Includes 4,000 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.
(10) Includes 78,307 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.
(11) Includes 55,547 shares of Common Stock as to which Mr. Murphy has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted and 505 shares of Common Stock held in an Individual Retirement
Account.
(12) Includes 7,354,950 shares of Common Stock owned of record by NSU, 10,500
shares of Common Stock owned of record by the Martin Olson Trust of which
Mr. Olson is a beneficiary, 505 shares of Common Stock held in Mr. Murphy's
Individual Retirement Account, 10,000 shares of Common Stock held for the
benefit of an executive officer in a Money Purchase Pension (Keogh) Account,
and 702,146 shares of Common Stock as to which certain executive officers
and directors have a right to acquire within 60 days by the exercise of
options granted.
</TABLE>
PROPOSAL TO APPROVE THE MICHAEL FOODS, INC.
1994 EXECUTIVE PERFORMANCE STOCK AWARD PLAN
The Board adopted the Michael Foods, Inc. 1994 Executive Performance Stock
Award Plan (the "Stock Plan") effective January 1, 1994, subject to the approval
thereof by the Company's stockholders at the Annual Meeting. The Stock Plan
provides for the issuance to approximately 20 executives and key employees of
the Company and its subsidiaries participating in the Michael Foods, Inc. 1994
Executive Incentive Plan of an aggregate of up to 300,000 shares of Common Stock
of the Company (the "Shares"). To date, no awards of Shares have been made under
the Stock Plan and benefits to be received under the Stock Plan (or that would
have been received under the Stock Plan had it been adopted previously) are not
determinable.
The purpose of the Stock Plan is to enable the Company to attract, retain
and reward key executives of the Company, its subsidiaries and affiliates and
strengthen the mutuality of interest between such key executives and the
Company's stockholders by offering such key executives Shares as earned in
accordance with the 1994 Executive Incentive Plan. For more information on the
1994 Executive Incentive Plan see Report of Compensation Committee on Executive
Compensation.
The Company is required under the terms of its listing agreement with the
NASDAQ National Market System to obtain approval of the Stock Plan from the
Company's stockholders. Stockholder approval of the Stock Plan is also required
in order for officers receiving awards of Shares to qualify for certain
protections from the "short swing profit" liability provisions of Section 16(b)
of the Securities Exchange Act of 1934 (i.e. forfeiture of profits realized from
purchases and sales of securities made within six months; "Section 16(b)")
available under Securities and Exchange Commission Rule 16b-3 ("Rule 16b-3") as
currently in effect.
The text of the Stock Plan is attached as Exhibit A. The discussion under
this section of the Proxy Statement, "Proposal to Approve the Michael Foods,
Inc. 1994 Executive Performance Stock Award Plan," does not purport to be
complete and is qualified in its entirety by reference to Exhibit A.
ADMINISTRATION
The Board has appointed the Compensation Committee to administer the Stock
Plan. In the absence of any contrary action by the Board, actions taken by the
Compensation Committee are final. The Stock Plan requires that the Compensation
Committee, in making any decision under the Stock Plan with respect to any
employee who is subject to Section 16(b) (a "Section 16 Person"), be constituted
so that such decision complies with the "disinterested administration"
requirements of Rule 16b-3, as then in effect. The Stock Plan limits the Board's
and the Compensation Committee's liability and requires indemnification of any
claims or liabilities in connection with administration of the Stock Plan.
Under the Stock Plan and to the extent not inconsistent with the 1994
Executive Incentive Plan and the then applicable requirements of Rule 16b-3, the
Committee will determine the eligibility of executives to be issued Shares and
determine the time, or times at which, and the number of Shares granted to them.
13
<PAGE>
CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued unless the issuance and delivery of such Shares
pursuant thereto shall comply with all applicable securities law requirements
and all other applicable provisions of law, including, without limitation, any
applicable state "blue sky" laws, securities laws and the rules and regulations
promulgated under any of such laws, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
As a condition to the issuance of Shares, the Company may require the
executive to whom such Shares are to be issued to make such representations and
warranties to the Company as may be required, in the opinion of counsel for the
Company, by any of the aforementioned securities law requirements and other
laws, which may include, without limitation, representations and warranties that
the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares.
ADJUSTMENTS UPON CHANGE IN CAPITALIZATION AND CERTAIN OTHER EVENTS
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation or any other change in
the corporate structure of the Company affecting the Shares, the Compensation
Committee shall make appropriate adjustment in the number or kind of shares
authorized by the Stock Plan, as it determines appropriate in the circumstances,
in its sole discretion.
DURATION OF THE STOCK PLAN; AMENDMENTS
Subject to stockholder approval thereof, the Stock Plan will remain in
effect until: (i) terminated by resolution; or (ii) no further Shares remain
available for issuance. If the Stock Plan is not approved by the stockholders by
the vote discussed above at the Annual Meeting, the Stock Plan will
automatically terminate. The Compensation Committee with Board approval may,
from time to time, amend the Stock Plan in such respects as it may, in its
discretion, deem advisable provided that any amendment must be approved by the
Company's stockholders if such approval is required in order for the Stock Plan
to continue to qualify under Rule 16b-3, as then in effect, or to comply with
any other applicable requirements of law or any securities market on which the
Shares are listed or included for trading.
WITHHOLDING OF TAX
The Compensation Committee may permit an executive to elect to satisfy any
federal, state, and local tax withholding requirements relating to the issuance
of Shares under the Stock Plan by having the Company deliver to the executive
cash in lieu of Shares in an amount up to forty percent (40%) of the value of
Shares awarded under the Stock Plan. The use and availability of the election to
receive cash in lieu of Shares to satisfy withholding requirements is subject in
general, and in particular instances, to the then applicable requirements of
Rule 16b-3, the Compensation Committee's complete discretion and such rules and
procedures as the Compensation Committee may adopt.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the treatment under the federal income
tax laws, as currently in effect, of the issuance of Shares under the Stock
Plan. Such summary does not purport to be an exhaustive analysis of the effects
of federal income taxation upon executives and the Company with respect to
transactions involving issuance of Shares under the Stock Plan. In addition to
the federal income tax consequences summarized below, the acquisition, ownership
and disposition of Shares issued under the Stock Plan may have federal estate
tax consequences as well as tax consequences under the laws of the municipality
or state in which an executive may reside.
Upon issuance of Shares under the Stock Plan, an executive will recognize
ordinary income equal to the then fair market value of the Shares, less any
amount paid for such Shares. An executive subject to the restrictions of Section
16(b) will recognize ordinary income in the same amount once such restrictions
lapse unless the executive elects, under Section 83(b) of the Internal Revenue
Code, within 30 days of the issuance of the Shares to recognize taxable ordinary
income on the date of the issuance equal to the excess of the fair market value
of the Shares (determined without regard to the restrictions) over the purchase
price of the Shares.
14
<PAGE>
An executive's basis for determining gain or loss on a subsequent sale of
the Shares will equal the fair market value of the Shares on the date of
issuance, or at such time as any restrictions lapse, plus any amount paid for
the Shares. This date also marks the beginning of the holding period for capital
gains purposes. If an executive makes an election under Section 83(b), the
holding period will commence on the date of issuance and the tax basis will be
equal to the fair market value of the Shares on such date (determined without
regard to restrictions).
On February 15, 1994, the last reported sale price of the Company's Common
Stock as reported in the NASDAQ National Market System was $10.125 per share.
VOTE REQUIRED
The NASDAQ National Market System stockholder approval requirement, the most
stringent of the two stockholder approval requirements noted above, requires
that the Stock Plan be approved by the favorable vote of the holders of a
majority of the Common Stock present or represented by proxy at the Annual
Meeting and voting on the proposal, provided that the total vote cast on the
proposal represents over fifty percent (50%) of the issued and outstanding
Common Stock. Approval by such a vote will also satisfy the remaining
stockholder approval requirement applicable to the Stock Plan.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE MICHAEL FOODS, INC. 1994
EXECUTIVE PERFORMANCE STOCK AWARD PLAN WHICH IS DESIGNATED IN THE PROXY AS
PROPOSAL 2.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board recommends that the stockholders ratify the Board's appointment of
Grant Thornton as independent auditors for the Company for the year ending
December 31, 1994. Grant Thornton has served as the Company's principal auditors
since the formation of the Company in 1987.
Representatives of Grant Thornton 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.
STOCKHOLDER PROPOSALS FOR THE
1995 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder who wishes to present a proposal for action at the next
Annual Meeting of Stockholders 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 Company
by December 15, 1994. 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,
Jeffrey M. Shapiro
EXECUTIVE VICE PRESIDENT AND SECRETARY
March 25, 1994
15
<PAGE>
EXHIBIT A
MICHAEL FOODS, INC. 1994 EXECUTIVE PERFORMANCE
STOCK AWARD PLAN
1. PURPOSE OF THE PLAN
The purpose of this Plan is to enable the Company to attract, retain and
reward key executives of the Company and its subsidiaries and affiliates and
strengthen the mutuality of interest between such key executives and the
Company's stockholders by awarding such key executives shares of Common Stock as
earned in accordance with the Michael Foods' 1994 Executive Incentive Plan.
2. DEFINITIONS
In addition to other capitalized terms defined elsewhere in this Plan, the
following terms shall have the respective meanings set forth below:
2.01 "Act" means the Securities Exchange Act of 1934, as amended from time
to time.
2.02 "Affiliate" means any entity in which the Company has a substantial
direct or indirect equity interest, as determined by the Committee in its sole
discretion.
2.03 "Board" means the Board of Directors of the Company.
2.04 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.05 "Commission" means the United States Securities and Exchange
Commission.
2.06 "Committee" means the Committee appointed by the Board in accordance
with Section 4, if a Committee is appointed. If no Committee has been appointed,
any reference to the Committee shall be deemed a reference to the Board.
2.07 "Common Stock" means the Common Stock, par value $.01 per share, of
the Company or such other class of equity securities or other securities as may
be applicable under Section 7.
2.08 "Company" means Michael Foods, Inc., a Delaware corporation or any
successor to substantially all of its business.
2.09 "Executive" means any officer of the Company or any Subsidiary or
Affiliate that participates in the Company's 1994 Executive Incentive Plan. The
Committee is empowered to determine whether any person qualifies as an
"Executive" for purposes of the Plan.
2.10 "Plan" means this Michael Foods, Inc. 1994 Executive Performance Stock
Award Plan.
2.11 "Rule 16b-3" means Rule 16b-3 promulgated by the Commission under the
Act or any successor regulation exempting certain transactions involving
stock-based compensation arrangements from the liability provisions of Section
16 of the Act, as adopted and amended from time to time and as interpreted by
formal or informal opinions of, and releases published or other interpretive
advice provided by, the staff of the Commission.
2.12 "Section 16 Person" means an Executive who at the time an award of
shares is made pursuant to this Plan is subject to Section 16 of the Act, as
interpreted by the rules and regulations promulgated by the Commission
thereunder, as adopted and amended from time to time, and by formal or informal
opinions of, and releases published or other interpretive advice provided by,
the staff of the Commission.
2.13 "Securities Law Requirements" means the Act and the rules and
regulations promulgated by the Commission thereunder, as adopted and amended
from time to time, including but not limited to Rule 16b-3, and as interpreted
by formal or informal opinions of, and releases published or other interpretive
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advice provided by, the staff of the Commission; other applicable Federal and
State securities laws and regulations promulgated thereunder, as adopted and
amended from time to time; and the requirements of any stock exchange, automated
inter-dealer quotation system or other recognized securities market on which the
Common Stock is listed or traded or in which the Common Stock is included, as
adopted and amended from time to time and as interpreted by formal or informal
opinions of, and other interpretive advice, provided by the representatives of
such stock exchange, quotation system or other securities market.
2.14 "Shares" means shares of Common Stock of the Company.
2.15 "Subsidiary" means any business association (including a corporation,
partnership or a joint venture, other than the Company) in an unbroken chain of
such associations beginning with the Company if each of the associations other
than the last association in the unbroken chain owns equity interests (including
stock or partnership or joint venture interests) possessing fifty percent (50%)
or more of the total combined voting power of all classes of equity interests in
one of the other associations in such chain.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 7, the total number of Shares
available for issuance under the Plan shall be 300,000 Shares.
4. ADMINISTRATION OF THE PLAN
4.01 PROCEDURE. The Plan shall be administered by the Board or the Board
may, in its discretion, appoint a Committee to administer the Plan subject to
such terms and conditions of the Company's 1994 Executive Incentive Plan or, as
the Board may prescribe; provided that neither the Board nor any such Committee
shall make any decision concerning the Plan with respect to any Section 16
Person unless the Board or such Committee making such decision is constituted so
that such decision complies with the then applicable requirements of Rule 16b-3.
Once appointed, the Committee shall continue to serve until otherwise directed
by the Board. From time to time the Board may increase the size of the Committee
and may appoint additional members thereof, remove members (with or without
cause), fill vacancies however caused and remove all members of the Committee
and thereafter directly administer the Plan. As to the selection of and grants
of Shares to Executives who are not Section 16 Persons, the Committee may
delegate any or all of its responsibilities to members of the Company's
management.
4.02 POWERS OF THE COMMITTEE. To the extent not inconsistent with this
Plan, the Company's 1994 Executive Incentive Plan and the then applicable
requirements of Rule 16b-3, the Committee shall have the authority, in its sole
discretion:
(a) To determine the eligibility of Executives to be issued Shares;
(b) To determine whether and to what extent Shares are to be issued to
eligible Executives;
(c) To determine the number of Shares to be issued under the Plan;
(d) To determine the terms and conditions of any Shares, if any;
(e) To determine whether, to what extent and under what circumstances
issuances of Shares are to be made and operate on a tandem basis with
respect to other awards made outside of the Plan, or on a cumulative basis;
and
(f) To adopt, alter and repeal such rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to
interpret the terms and provisions of the Plan; and otherwise supervise the
administration of the Plan.
4.03 EFFECT OF BOARD AND COMMITTEE DECISIONS. In the absence of contrary
action by the Board, any decision, determination or action taken by the
Committee or by the Board in connection with the construction, interpretation,
administration, application, operation and implementation of the Plan shall be
final,
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conclusive and binding on the Company, its stockholders and Subsidiaries, all
Executives and the respective legal representatives, heirs, successors and
assigns of all of the foregoing and all other persons claiming under or through
any of them.
4.04 EXCULPATION AND INDEMNIFICATION. No member of the Board or the
Committee, and no Executive or other agent acting on behalf of the Board or the
Committee, shall be personally liable for any decision, determination or action
made or taken, or failed to be made or taken, with respect to this Plan or the
issuance of Shares hereunder, and the Company shall fully protect each such
person in respect of any such decision, determination or action and shall
indemnify each such person against any and all claims, losses, damages, expenses
and liabilities arising from or in connection with any such decision,
determination or action.
5. ELIGIBILITY
Shares may be issued under this Plan to any Executive that participates in
the Company's 1994 Executive Incentive Plan.
6. ISSUANCE OF SHARES
Within five business days following the date that the Company's financial
statements for the prior fiscal year are first publicly released, the Committee
shall determine the number of Shares of Common Stock to be granted to an
Executive under the Company's 1994 Executive Incentive Plan and, subject to any
requirements, rules and procedures established under Section 13 hereof, the
Committee shall direct that a certificate representing the number of Shares of
Common Stock be issued to the Executive with the Executive as the registered
owner. Unless action has been taken to register the Shares of Common Stock
subject to the Plan with the Commission, the certificate representing such
Shares shall be legended so as to provide notice of the restrictions on the
subsequent transfer thereof in order to comply with applicable Securities Law
Requirements.
The date of issuance of Shares hereunder shall, for all purposes, be the
date on which the Committee makes the determination granting such Shares. Notice
of such determination shall be given to each Executive to whom Shares are
granted as soon as practicable after the date of such grant.
7. ADJUSTMENTS
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation or any other change in
the corporate structure of the Company affecting the Common Stock, the Board
shall make appropriate adjustment in the number and kind of Shares authorized by
the Plan, as it determines appropriate in the circumstances, in its sole
discretion.
8. AGREEMENTS
As a condition to the issuance of Shares awarded under this Plan, the
Executive shall enter into an agreement in such form as may be prescribed by the
Committee from time to time. Each such agreement shall contain such provisions
as are required to conform to the terms of the Plan and may contain such
additional provisions not inconsistent with the terms of the Plan as the
Committee may from time to time authorize. Each agreement evidencing the
issuance of Shares to a Section 16 Person shall also provide for such minimum
holding period from the date of the grant of the award to the disposition of any
Shares acquired pursuant to the award as may be required by Rule 16b-3.
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued unless the issuance and delivery of such Shares
pursuant thereto shall comply with all applicable Securities Law Requirements
and all other applicable provisions of law, including,
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without limitation, any applicable state "blue sky" laws, securities laws and
the rules and regulations promulgated under any of such laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the issuance of Shares, the Company may require the
Executive to whom such Shares are to be issued to make such representations and
warranties to the Company as may be required, in the opinion of counsel for the
Company, by any of the aforementioned Securities Law Requirements and other
laws, which may include, without limitation, representations and warranties that
the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares.
The Company shall not have any liability to any Executive in respect of any
delay in the issuance of Shares hereunder.
10. RESERVATION OF SHARES
The Company, during the term of this Plan, shall at all times reserve and
keep available for issuance such number of shares of Common Stock as shall be
sufficient to satisfy the requirements of the Plan.
11. EFFECTIVENESS OF PLAN
This Plan was adopted by the Board effective as of January 1, 1994;
provided, however, that no Shares shall be issued hereunder unless and until,
the Plan is approved, by the holders of the outstanding shares of Common Stock
of the Company present and voting, in person or by proxy, at a duly held meeting
of the Company's stockholders or any adjournment thereof and by such percentage
of such quorum of such stockholders as may be required by applicable Securities
Law Requirements. If this Plan is not approved by the Company's stockholders
within one (1) year of the date of adoption of the Plan, this Plan shall
automatically terminate and any issuances of Shares hereunder shall be invalid.
Once so approved by the stockholders of the Company, the Plan shall continue in
full force and effect until: (i) terminated by resolution of the Board; or (ii)
no Shares remain available for the issuance hereunder.
12. AMENDMENT OF PLAN
The Board, may in its sole discretion, amend the Plan from time to time,
provided that any amendment which Rule 16b-3 or any other Securities Law
Requirement requires be approved by the stockholders of the Company shall be
made only with the approval of such stockholders. Amendments to the Plan shall
apply prospectively.
13. WITHHOLDING OF TAX
The Board may permit an Executive to elect to satisfy social security and
federal and state income tax withholding obligations relating to the issuance of
Shares hereunder by having the Company deliver to the Executive cash in lieu of
shares in an amount up to forty percent (40%) of the value of Shares awarded
under the Plan. The use and availability of the election to receive cash in lieu
of Shares to satisfy social security and federal and state income tax
withholding requirements is subject in general, and in particular instances, to
the then applicable requirements of Rule 16b-3, the Board's complete discretion
and such rules and procedures as the Board may adopt.
14. GENERAL PROVISIONS
14.01 NATURE OF BENEFITS. Benefits realized by an Executive under this
Plan shall not be deemed a part of such Executive's regular, recurring
compensation for any purpose and shall not be included in, nor have any effect
on, the determination of benefits under any other employee benefit plan or
similar arrangement provided by the Company or a Subsidiary or Affiliate unless
expressly so provided by such other plan or arrangement, or except where the
Committee expressly determines in its sole discretion that a grant of
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Shares or portion thereof should be so included in order to accurately reflect
competitive compensation practices or to recognize that a grant of Shares has
been granted in lieu of a portion of competitive annual cash compensation.
The existence of this Plan shall not create in any Executive any right to
the issuance of Shares hereunder or under the 1994 Executive Incentive Plan, and
neither the existence of this Plan nor the issuance of Shares to any Executive
hereunder shall confer upon such Executive any right with respect to
continuation of the employment of such Executive by the Company or any
Subsidiary or Affiliate or shall in any way interfere with or limit the right
which such Executive, the Company or any Subsidiary or Affiliate may otherwise
have to terminate such employment at any time with or without cause. Upon the
termination of any Executive's employment with the Company or any Subsidiary or
Affiliate, neither the Company nor any Subsidiary nor Affiliate shall have any
liability or obligation to such Executive under this Plan or any Shares issued
to such Executive hereunder.
14.02 GOVERNING LAWS. To the extent that federal laws (such as the Act or
the Code) or the Delaware General Corporation Law do not otherwise control, this
Plan and all determinations made and actions taken pursuant hereto shall be
governed by the laws of the State of Minnesota and construed accordingly.
14.03 GENDER AND NUMBER. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
14.04 CAPTIONS. The captions contained in this Plan are for convenience of
reference only and do not affect the meaning of any term or provisions hereof.
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MICHAEL FOODS, INC.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
This Proxy is Solicited on Behalf of the Board of Directors.
P
R
O
X
Y
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
March 15, 1994, at the Annual Meeting of Stockholders to be held on April 28,
1994, or any adjournment thereof.
Continued and to be signed on reverse side
See reverse side
<PAGE>
x
3101
Please mark votes as in this example.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this Proxy will be voted
for Proposals 1, 2, and 3.
1. Election of Directors
Nominees: Richard A. Coonrod, Miles E. Efron, Orville L. Freeman, Arvid C.
Knudtson, Joseph D. Marshburn, James H. Michael, Jeffrey J. Michael, Richard G.
Olson, Gregg A. Ostrander
For
Withheld
(Instruction: To withhold authority to vote for any individual nominee(s),
write that nominee's name(s) in the space provided above.)
2. Proposal to approve the establishment of the Michael Foods, Inc. 1994
Executive Performance Stock Award Plan.
For
Against
Abstain
3. Proposal to approve the appointment of Grant Thornton as the independent
auditors of the Corporation for 1994.
For
Against
Abstain
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Mark here for address change and note at left.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title 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
Please Mark, Sign, Date and Return the Proxy Card Promptly using the enclosed
envelope.
