<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
Michael Foods, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
324 PARK NATIONAL BANK BUILDING
5353 WAYZATA BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
March 24, 1995
Dear Stockholder:
You are cordially invited to attend the 1995 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 27,
1995, 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 and
the ratification of the appointment of auditors for the year 1995. 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,
[SIG]
Gregg A. Ostrander
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
MICHAEL FOODS, INC.
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1995
--------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Michael
Foods, Inc., a Delaware 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, April 27, 1995.
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 ratify the appointment of Grant Thornton LLP as independent auditors
for the year ending December 31, 1995.
3. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on March 15, 1995 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.
[SIG]
Minneapolis, Minnesota Jeffrey M. Shapiro
March 24, 1995 EXECUTIVE VICE PRESIDENT AND SECRETARY
<PAGE>
MICHAEL FOODS, INC.
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 1995
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 27, 1995 (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 24, 1995.
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, 1995 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, 1995, the Company had outstanding 19,301,577
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 1994, 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 74 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., 37% 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 42 President and Chief Executive Officer since 1994
January 1994. Chief Operating Officer from
February 1993 to December 1993. President of
Swift-Eckrich Prepared Foods from December 1990 to
February 1993. Senior Vice President of Marketing
of Swift-Eckrich, Inc. from 1986 to 1990.
Richard A. Coonrod 63 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 68 Chairman of the Board of NSU since 1991. President 1988
and Chief Executive Officer of NSU from 1988 to
1990. Mr. Efron is also a director of Employee
Benefit Plans, Inc.
Orville L. Freeman 76 Of counsel with Popham, Haik, Schnobrich & 1989
Kaufman, Ltd., a Minneapolis, Minnesota law firm,
for more than five years. Mr. Freeman is also a
director of Mycogen Corporation.
Arvid C. Knudtson 68 Consultant. Principal in ACK Financial, a 1987
financial services firm serving the agricultural
market, from 1988 to 1993.
Joseph D. Marshburn 66 Senior Vice President of Citrus World, Inc., a 1987
citrus processing and marketing cooperative, since
November 1993. Chief Executive Officer of Citrus
World, Inc. from 1978 to November 1993.
Jeffrey J. Michael 38 President and Chief Executive Officer of NSU since 1990
December 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 61 President and Chief Executive Officer of the 1987
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
1994, 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 administers the Company's Stock Option Plans, 1994 Executive
Incentive Plan and 1994 Executive Performance Stock Award Plan. During 1994, the
Compensation Committee met twice.
During the year ended December 31, 1994, the Board held four regular
meetings and one special meeting. 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 1994 was $180,495.
STOCK TRANSACTION REPORTING
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 of the Company who failed to timely file any
report required to be filed.
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 BONUS(4) OPTIONS(2) COMPENSATION(3)
------------------------------------------------------- ----------- ---------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Gregg A. Ostrander (1) 1994 $ 280,000 $ 203,000 20,000 $ 7,370
President & Chief Executive Officer 1993 224,519 125,000 50,000 100,258
1992 -- -- -- --
Jeffrey M. Shapiro 1994 226,000 163,850 -- 6,676
Executive Vice President & Secretary 1993 216,000 -- 5,000 9,055
1992 206,000 -- -- 8,655
Kevin S. Murphy 1994 176,000 154,000 -- 6,530
Chief Executive Officer, Northern Star Co. 1993 176,000 26,224 5,000 7,378
1992 170,000 -- -- 7,138
James J. Kohler 1994 176,000 154,000 -- 6,242
President, Kohler Mix Specialties, Inc. 1993 176,000 8,800 5,000 9,066
1992 176,000 -- 450 8,728
Norman A. Rodriguez 1994 176,000 140,800 -- 6,242
President, Crystal Farms Refrigerated 1993 176,000 25,819 5,000 7,378
Distribution Co. 1992 176,000 -- -- 7,040
<FN>
------------------------------
(1) Mr. Ostrander joined the Company in 1993.
(2) Number of shares of Common Stock purchaseable under option grants.
(3) Reflects the value of the Company's contributions under the Retirement
Savings Plan and value of life insurance premiums paid by the Company. 1993
figure for Mr. Ostrander includes reimbursement of moving expenses of
$98,464 and the benefit from an interest-free loan provided by the Company
to assist in his relocation of $1,474.
(4) Figures for 1994 include Common Stock incentive awards paid under the 1994
Executive Incentive Plan as follows: Mr. Ostrander $35,000; Mr. Shapiro
$28,250; Mr. Murphy $22,000; Mr. Kohler $22,000; Mr. Rodriguez $22,000.
Awards 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"). Awards were valued
using the closing price of the Common Stock on February 22, 1995 of
$11.125, resulting in share awards as follows: Mr. Ostrander 3,146 shares;
Mr. Shapiro 2,539; Mr. Murphy 1,978; Mr. Kohler 1,978; Mr. Rodriguez 1,978.
</TABLE>
OSTRANDER EMPLOYMENT AGREEMENT, AS AMENDED
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 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. 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 shall receive as termination payment 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 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
4
<PAGE>
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 shall become fully vested.
If Mr. Ostrander's employment is terminated by Mr. Ostrander providing the
Company with thirty days' written notice, he shall 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 shall be paid beyond the last day of service by Mr. Ostrander and he
shall not be deemed to have earned 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. Said amendment
provides for an annual base salary of at least $294,000 effective January 1,
1995. The amendment also provides 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. This option vests ratably over five years
and expires January 3, 2005. The amendment further provides 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.
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 if there is 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 shall
receive as a termination payment all amounts due under the agreement as base
salary, plus 50% of such base salary in lieu of any incentive compensation and
options to purchase Common Stock for the remaining term of the agreement, but in
any event not less than two 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.
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 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 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 shall receive as 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 shall become fully vested.
If Mr. Shapiro's employment is terminated by Mr. Shapiro providing the
Company with thirty days' written notice, he shall 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
5
<PAGE>
termination. If the Company terminates Mr. Shapiro without notice for cause, no
amount shall be paid beyond the last day of service by Mr. Shapiro and he shall
not be deemed to have earned 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 if
there is 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 shall receive as a termination payment all amounts due
under the agreement as base salary, plus 50% of such base salary in lieu of any
incentive compensation and options to purchase Common Stock for the remaining
term of the agreement, but in any event not less than two 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.
MURPHY, KOHLER AND RODRIGUEZ EMPLOYMENT AGREEMENTS
Effective January 1, 1995 the Company entered into two-year employment
agreements with certain executive officers, including Messrs. Murphy, Kohler and
Rodriguez. The agreements for Messrs. Murphy, Kohler and Rodriguez are
substantially identical with the exception of specified annual base salaries,
which are established as at least $185,000 for Mr. Murphy and as at least
$176,000 for Messrs. Kohler and Rodriguez. The agreements provide for the
officer to participate in the 1994 Executive Incentive Plan and other fringe
benefit plans established by the Company for its executive officers. In the
event the officer's employment is terminated by incapacity, death, or by thirty
days' written notice by the Company, the officer shall receive as termination
payment an amount 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 the officer shall become fully vested.
If the officer's employment is terminated by the officer providing the
Company with thirty days' written notice, the officer shall receive no
termination payment. However, the officer 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 the
officer without notice for cause, no amount shall be paid beyond the last day of
service by the officer and the officer shall not be deemed to have earned any
incentive compensation or options to purchase Common Stock for the year of
termination.
If the officer's employment is terminated by the Company without cause if
there is a change in control of the Company and thereafter the officer's duties
are substantially reduced or negatively altered without his prior written
consent, the officer shall receive as a termination payment an amount equal to
two 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. The
employment agreements for Messrs. Murphy, Kohler and Rodriguez had no bearing on
their 1994 compensation.
1994 EXECUTIVE INCENTIVE PLAN
The Company established on January 1, 1994, the 1994 Executive Incentive
Plan. The 1994 Executive 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 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 Company's 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
6
<PAGE>
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, Murphy, Kohler and Rodriguez are contained in their respective
employment agreements (see "Ostrander Employment Agreement, as Amended",
"Shapiro Employment Agreements" and "Murphy, Kohler and Rodriguez Employment
Agreements") that 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 -- 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 Compensation Committee of the Company's Board (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 will become exercisable ratably over the
first 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 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 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 Stock Option Plans or the
class of employees eligible to be granted options.
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
stockholders. 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 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
7
<PAGE>
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 ten years
from the date of grant. The Board currently has eight non-employee directors and
42,500 shares of Common Stock are currently subject to options granted to
non-employee directors under the Director Plan.
107,500 shares of 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 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 stockholder approval.
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 EXPIRATION --------------------
NAME GRANTED (#)(1) LAST YEAR ($/SH)(2) DATE(3) 5% ($) 10% ($)
------------------------------------ -------------- ------------ ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gregg A. Ostrander 20,000 33.9% 8.125 01/03/04 102,195 258,983
Jeffrey M. Shapiro -- -- -- -- -- --
Kevin S. Murphy -- -- -- -- -- --
James J. Kohler -- -- -- -- -- --
Norman A. Rodriguez -- -- -- -- -- --
<FN>
------------------------
(1) All options granted in 1994 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 change of the Company's ownership.
(2) All options were granted at fair market value of the 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>
8
<PAGE>
OPTION EXERCISES IN LAST YEAR AND YEAR END OPTION VALUES
There were no option exercises by the named executive officers in 1994. The
following table provides information related to the number and value of options
held at December 31, 1994 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 10,000 60,000 10,000 75,000
Jeffrey M. Shapiro 78,307 8,036 163,594 --
Kevin S. Murphy 55,547 14,113 17,813 3,281
James J. Kohler 58,289 4,840 62,188 --
Norman A. Rodriguez 62,969 7,813 -- --
<FN>
------------------------
(1) The closing price for the Common Stock on December 31, 1994 was $9.875.
Value is calculated on the basis of the difference between the option
exercise price and $9.875 multiplied by the number of shares of Common
Stock underlying the options.
</TABLE>
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 stock bonus and 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. The
employment agreements, which specified 1994 base salary levels, between the
Company and Mr. Ostrander and the Company and Mr. Shapiro were entered into in
1994 and 1990 respectively. Their compensation for 1994 was determined
principally by reference to those agreements. See "Executive Compensation --
Ostrander Employment Agreement, as Amended" and "-- Shapiro Employment
Agreements."
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. Ostrander and Shapiro,
the compensation provided for under their employment agreements 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 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 1994,
executive officers' annual base salary adjustments were made which aggregated
$75,000 as compared to the base salary levels which prevailed as of December 31,
1993. Of this amount, $30,000 was pursuant to Mr. Ostrander's employment
agreement and $10,000 was pursuant to Mr. Shapiro's employment agreement, with
the balance paid to two executive officers to adjust their base salaries to
levels comparable to those of other executive officers of the Company with
similar responsibilities. In early 1995, certain executive officers of the
Company, not previously covered by employment agreements, entered into two year
employment agreements with the Company. These executive officers included
Messrs. Murphy, Kohler and Rodriguez.
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 incentive
compensation plan 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
9
<PAGE>
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 only certain executive officers
qualifying for Common Stock option awards. 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
based upon individual operating company growth in profit before taxes, as well
as 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 Company's Chief Executive Officer and
approved by the Compensation 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 Compensation
Committee. In addition, the 1994 Executive Incentive Plan attempts to foster
longer-term performance by tying Common Stock awards to year-over-year
performance 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, as set
forth in a table contained in the 1994 Executive Incentive Plan document.
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.
For 1994, there were $686,400 in cash incentive awards paid to named
executive officers under the 1994 Executive Incentive Plan, including $168,000
paid to Mr. Ostrander. These awards were determined in accordance with the 1994
Executive Incentive Plan based upon the achieved 1994 profit before bonuses and
taxes as compared to target levels at the respective operating companies in the
case of Messrs. Murphy, Kohler and Rodriguez. Relative to Mr. Ostrander's and
Mr. Shapiro's cash incentive awards, the target level of corporate profits
before bonuses and taxes for 1994 equated to a 14% increase in 1994 earnings per
share as compared to 1993 earnings per share calculated on the same basis. The
Company achieved 103.1% of the target earnings per share figure. Additionally,
the Compensation Committee approved discretionary cash awards to participants
within one division of the Company due to the fact that the division was
negatively affected by unusual industry factors. The Compensation Committee also
considered the proforma performance linked to this division's discretionary
awards in calculating cash incentive awards for participants at the sales,
distribution and corporate levels of the Company. Therefore, the incentive
awards made to Mr. Ostrander and Mr. Shapiro were determined by using the
resultant 106.5% attainment of the target.
Common Stock awards are triggered by the Company attaining at least 15%
year-over-year earnings per share growth. Earnings per share is 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 1994
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 last 20% vesting the subsequent year if at least 15%
earnings per share growth is achieved in the third year.
For 1994, there were $129,250 in Common Stock incentive awards paid to named
executive officers under the 1994 Executive Incentive Plan, including $35,000
paid to Mr. Ostrander. The amounts paid for
10
<PAGE>
1994 performance represent 50% of the amount earned for 1994 under the three
year vesting schedule as described above. The balance of the Common Stock
incentive earned for 1994 performance has only been earned on a provisional
basis and, therefore, may or may not be paid to the participants, depending upon
whether or not the Company achieves at least 15% earnings per share growth in
1995 and 1996.
For 1994, there were no incentive awards in the form of Common Stock option
grants under the 1994 Executive Incentive Plan. The Company's earnings per share
for 1994 were below the minimum threshold 1994 target of 20% annual growth for
this incentive component. The minimum threshold of annual earnings per share
growth for the Common Stock option grant component under the 1994 Executive
Incentive Plan has been established at 15% beginning in 1995.
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
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, 1994 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, 1989 in the Company's Common Stock and in each of the foregoing
indices and assumes reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MICHAEL FOODS, INC.
<S> <C> <C> <C>
S&P 500 Index S&P Food Group
1989 100 100 100
1990 167.46 96.89 107.79
1991 167.97 126.42 157.25
1992 116.33 136.05 156.88
1993 94.01 149.76 143.97
1994 118.13 151.74 160.92
</TABLE>
11
<PAGE>
SECURITY OWNERSHIP
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 15, 1995
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 1,745,000 9.0%
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, 1995
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
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
------------------------------------------------------- ---------------- ------
<S> <C> <C>
Directors and Nominees:
James H. Michael 7,366,500(2)(3) 38.2%
Gregg A. Ostrander 29,000(4) *
Richard A. Coonrod 6,000(5) *
Miles E. Efron 7,500(3) *
Orville L. Freeman -- --
Arvid C. Knudtson 6,000(5) *
Joseph D. Marshburn 5,000(5) *
Jeffrey J. Michael 7,368,637(2)(3) 38.2%
Richard G. Olson 325,928(6) 1.7%
Named Executive Officers:
Jeffrey M. Shapiro 84,434(7) *
Kevin S. Murphy 67,733(8) *
James J. Kohler 63,838(9) *
Norman A. Rodriguez 67,869(10) *
All Directors and Executive
Officers as a Group: (16 persons) 8,140,995(11) 42.2%
<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 24,000 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.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
(5) Includes 5,000 shares of Common Stock as to which Messrs. Coonrod, 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."
(6) 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.
(7) Includes 81,324 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.
(8) Includes 64,978 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.
(9) Includes 59,663 shares of Common Stock as to which Mr. Kohler has the right
to acquire beneficial ownership within 60 days by the exercise of options
granted.
(10) Includes 63,969 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.
(11) Includes 7,354,950 shares of Common Stock owned of record by NSU, 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 743,668 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.
</TABLE>
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board recommends that the stockholders ratify the Board's appointment of
Grant Thornton LLP as independent auditors for the Company for the year ending
December 31, 1995. Grant Thornton LLP has served as the Company's principal
auditors since the formation of the Company in 1987.
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.
STOCKHOLDER PROPOSALS FOR THE
1996 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, 1995. 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,
[SIG]
Jeffrey M. Shapiro
EXECUTIVE VICE PRESIDENT AND SECRETARY
March 24, 1995
13
<PAGE>
MICHAEL FOODS, INC.
P
R 324 PARK NATIONAL BANK BUILDING
O 5353 WAYZATA BOULEVARD
X MINNEAPOLIS, MINNESOTA 55416
Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
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, 1995, at the Annual Meeting of Stockholders to be
held on April 27, 1995, or any adjournment thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE>
/X/ 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 AND 2.
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) on the space provided above.)
2. PROPOSAL TO APPROVE THE APPOINTMENT OF GRANT THORNTON LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR 1995.
FOR AGAINST ABSTAIN
/ / / / / /
3. 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.
