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
[x] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SPARTA FOODS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 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>
SPARTA FOODS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
February 22, 1996
The Annual Meeting of Shareholders of Sparta Foods, Inc. will be held at
the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, on Thursday,
February 22, 1996, at 3:30 p.m. (Central Standard Time), for the following
purposes:
1. To set the number of members of the Board of Directors at seven (7).
2. To elect directors of the Company for the ensuing year.
3. To adopt the Sparta Foods, Inc. Amended and Restated Stock Option
Plan, including (i) an increase from 400,000 to 950,000 in the number
of shares reserved for issuance under the Plan and (ii) the addition
of a provision for the automatic grant of certain options to each of
the Company's nonemployee directors.
4. To approve the selection of McGladrey & Pullen LLP as independent
auditors of the Company for the fiscal year ending September 30, 1996.
5. To take action upon any other business that may properly come before
the meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form of
Proxy and the Company's 1995 Annual Report, which are sent to you by order of
the Board of Directors.
Only shareholders of record shown on the books of the Company at the close
of business on January 17, 1996, will be entitled to vote at the meeting or any
adjournment thereof. Each shareholder is entitled to one vote per share on all
matters to be voted on at the meeting.
You are cordially invited to attend the meeting. Whether or not you plan to
attend the meeting, please sign, date and return your Proxy in the return
envelope provided as soon as possible. Your cooperation in promptly signing and
returning the Proxy will help avoid further solicitation expense to the Company.
A. Merrill Ayers,
Secretary
Dated: January 19, 1996
St. Paul, Minnesota
<PAGE>
SPARTA FOODS, INC.
PROXY STATEMENT
for
Annual Meeting of Shareholders
to be held February 22, 1996
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Sparta
Foods, Inc. ("Sparta" or the "Company") in connection with the solicitation by
the Company's Board of Directors of proxies to be voted at the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on February 22, 1996, and at any
adjournment thereof, for the purposes set forth in the attached Notice of Annual
Meeting.
The cost of soliciting Proxies, including preparing, assembling and mailing
the Proxies and soliciting material, will be borne by the Company. Directors,
officers and regular employees of the Company may, without compensation other
than their regular compensation, solicit Proxies personally or by telephone.
Any shareholder giving a Proxy may revoke it at any time prior to its use
at the Annual Meeting by giving written notice of such revocation to the
Secretary or other officer of the Company or by filing a new written Proxy with
an officer of the Company. Personal attendance at the Annual Meeting is not, by
itself, sufficient to revoke a Proxy unless written notice of the revocation or
a subsequent Proxy is delivered to an officer before the revoked or superseded
Proxy is used at the Annual Meeting.
The presence at the Annual Meeting in person or by proxy of the holders of
a majority of the outstanding shares of Sparta's Common Stock entitled to vote
shall constitute a quorum for the transaction of business. Proxies not revoked
will be voted in accordance with the instructions specified by shareholders by
means of the ballot provided on the Proxy for that purpose. Proxies which are
signed but which lack any such specific instructions with respect to any
proposal will, subject to the following, be voted in favor of the proposals set
forth in the Notice of Meeting and in favor of the number and slate of directors
proposed by the Board of Directors and listed herein. If a shareholder abstains
from voting as to any proposal, then the shares held by such shareholder shall
be deemed present at the Annual Meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such proposal, but shall
not be deemed to have been voted in favor of such proposal. Abstentions as to
any proposal, therefore, will have the same effect as votes against such
proposal. If a broker returns a "non-vote" proxy, indicating a lack of voting
instruction by the beneficial holder of the shares and a lack of discretionary
authority on the part of the broker to vote on a particular proposal, then the
shares covered by such non-vote proxy shall be deemed present at the Annual
Meeting for purposes of determining a quorum, but shall not be deemed to be
represented at the Annual Meeting for purposes of calculating the vote required
for approval of such proposal.
<PAGE>
The mailing address of the Company's principal executive office is 2570
Kasota Avenue, St. Paul, Minnesota 55108. This Proxy Statement and the related
Proxy and Notice of Annual Meeting is first being mailed to Sparta shareholders
on or about January 19, 1996.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed January 17, 1996, as the
record date (the "Record Date") for determining shareholders entitled to vote at
the Annual Meeting. Persons who were not shareholders on the Record Date will
not be allowed to vote at the Annual Meeting. At the close of business on the
Record Date, 4,062,799 shares of Sparta's Common Stock were issued and
outstanding. The Common Stock is the only outstanding class of capital stock of
the Company. Each share of Common Stock is entitled to one vote on each matter
to be voted upon at the Annual Meeting. Holders of the Common Stock are not
entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS AND
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of January 17, 1996, by each person known to the
Company to be the beneficial owner of 5% or more of the Company's Common Stock,
by each executive officer of the Company named in the Summary Compensation
Table, by each director and nominee for director and by all directors, nominees
and executive officers (including the named individuals) as a group:
<TABLE>
Name of Shareholder or Number of Shares Percent
Identity of Group Beneficially Owned(1) of Class(2)
<S> <C> <C>
Nicholas G. Grammas ............. 841,639(3) 20.5%
10415 29th Avenue North
Plymouth, MN 55441
Carmen S. Abril-Lopez ........... 808,481(4) 19.8%
901 West Culver
Phoenix, AZ 85007
Fredoon Anvary .................. 442,946(5) 10.3%
P. O. Box 9013
Fargo, ND 58106
Michael J. Kozlak ............... 253,000(6)(10) 5.9%
5049 Green Farms Road
Edina, MN 55436
Joel P. Bachul .................. 141,500(7) 3.4%
2570 Kasota Avenue
St. Paul, MN 55108
Richard H. Leepart .............. 128,000(6)(10) 3.1%
105 5th Ave., Suite 512
Minneapolis, MN 55402
George Masko .................... 127,629(8) 3.1%
16611 Black Oaks Lane
Wayzata, MN 55391
Ronald W. Fish .................. 10,667(9) *
7672 W. 78th Street
Minneapolis, MN 55439
Edward K. Jorgensen ............. 3,000(10) *
5N175 Deerpath Way
St. Charles, IL 60175
R. Dean Nelson .................. 3,000(10) *
18733 East Mescalero
Rio Verde, AZ 85263
Officers and Directors as a group 1,938,074(11) 38.8%
(11 persons)
</TABLE>
- - ---------------------
* Less than 1%
<PAGE>
(1) Unless otherwise indicated, the person listed as the beneficial owner
of the shares has sole voting and sole investment power over the
shares.
(2) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them as of January 17, 1996, or within
sixty days of such date are treated as outstanding only when
determining the percent owned by such individual and when determining
the percent owned by the group.
(3) Includes 47,066 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 17, 1996 or within 60
days of such date.
(4) Includes 754,480 shares held by a trust of which Ms. Abril-Lopez is
trustee and a beneficiary and 20,667 shares which may be purchased upon
exercise of options and warrants which are exercisable as of January
17, 1996 or within 60 days of such date.
(5) Includes (a) 200,000 shares held by the IFP Trust, of which Mr. Anvary
is a trustee and a beneficiary, (b) currently exercisable warrants to
purchase a total of 182,946 shares of common stock, of which 132,373
are held by IFP Trust and 50,573 are held by Mr. Anvary, and (c) 60,000
shares which may be purchased upon exercise of options which are
exercisable as of January 17, 1996 or within 60 days of such date.
<PAGE>
(6) Such shares are not outstanding but may be purchased upon exercise of
options and warrants and conversion of notes which are exercisable or
convertible as of January 17, 1996 or within 60 days of such date.
(7) Includes 137,500 shares which may be purchased upon exercise of options
and warrants and conversion of notes which are exercisable or
convertible as of January 17, 1996 or within 60 days of such date.
(8) Includes 6,667 shares held by a trust of which Mr. Masko is a
beneficiary, (b) 1,050 shares held in Mr. Masko's IRA, (c) 744 shares
held by Mr. Masko's spouse and (d) 110,667 shares at which may be
purchased upon exercise of options which are exercisable as of January
17, 1996 or within 60 days of such date.
(9) Such shares are not outstanding but may be purchased upon exercise of
options which are exercisable as of January 17, 1996 or within 60 days
of such date.
(10) Includes 3,000 shares which will become purchasable on the date of the
Annual Meeting if certain outside director options are approved by the
shareholders (see Proposal #3).
(11) Includes 914,531 shares which may be purchased upon exercise of options
and warrants and conversion of notes which are exercisable or
convertible as of January 17, 1996 or within 60 days of such date and
12,000 shares which will become purchasable on such date if certain
outside director options are approved by the shareholders (see Proposal
#3).
ELECTION OF DIRECTORS
(Proposals #1 and #2)
General Information
The Company's Bylaws provide that the number of directors, which shall be
not less than two (2), shall be the number set by a majority vote of the
shareholders or by the Board of Directors. The Board of Directors unanimously
recommends that the number of directors be set at seven (7) and that five
directors be elected at the Annual Meeting. George Masko, Carmen S. Abril-Lopez,
Ronald W. Fish and Fredoon Anvary, current members of the Board of Directors,
will not stand for reelection. The Board has nominated the remaining two Board
members and R. Dean Nelson, Richard H. Leepart and Edward K. Jorgensen as the
slate recommended for election at the Annual Meeting. The Board is in the
process of selecting two additional nominees but does not expect the selection
process to be completed before the Annual Meeting.
Vote Required THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE SETTING THE NUMBER OF DIRECTORS AT SEVEN AND VOTE "FOR" EACH OF THE
MANAGEMENT NOMINEES LISTED BELOW. Under applicable Minnesota law, approval of
the proposal to set the number of directors requires the affirmative vote of the
holders of the greater of (1) a majority of the voting power of the shares
represented in person or by proxy at the Annual Meeting with authority to vote
on such matter, or (2) a majority of the voting power of the minimum number of
shares that would constitute a quorum for the transaction of business at the
Annual Meeting. The election of each nominee requires the affirmative vote of a
majority of the shares represented in person or by proxy of the Annual Meeting.
<PAGE>
In the absence of other instructions, the Proxies will be voted for each of
the individuals named below. If elected, such persons shall serve until the next
annual meeting of shareholders and until their successors are duly elected and
qualified. If any of the nominees should be unable to serve as a director by
reason of death, incapacity or other unexpected occurrence, the Proxies
solicited by the Board of Directors shall be voted by the proxy representatives
for such substitute nominee(s) as is selected by the Board of Directors or, in
the absence of such selection, for such fewer number of directors as results
from such death, incapacity or other unexpected occurrence.
The following table provides certain information with respect to the
Company's nominees for director.
Name Age Position with Company
Joel P. Bachul 53 President, Chief Executive
Officer and Director
Michael J. Kozlak 42 Director
Edward K. Jorgensen 56 Director Nominee
Richard H. Leepart 48 Director Nominee
R. Dean Nelson 71 Director Nominee
Joel P. Bachul, has been the Chief Executive Officer and President of the
Company, and its wholly-owned subsidiary, La Canasta of Minnesota, Inc. ("La
Canasta"), since December 1, 1994 and a director of the Company since March
1995. From August 1991 until July 1994, Mr. Bachul served as the Executive Vice
President and Chief Operating Officer of Old Home Foods, Inc., a food processing
and distribution concern. From July 1990 until July 1991, Mr. Bachul was the
Executive Vice President and Chief Operating Officer of Bell Cold Storage, which
provides public and cold storage services. Mr. Bachul served as Senior Vice
President of J.P. Foodservice, a foodservice distributor, from July 1989 through
February 1990. From 1980 until July 1989, Mr. Bachul served as Vice President,
Senior Vice President and Chief Operating Officer of PYA/Monarch, also a
foodservice distributor.
Michael J. Kozlak, a director since March 1995, has been Senior Executive
Vice President of PNC Mortgage Corporation of America, a mortgage banking
company, since January 1996. From January 1994 through November 1995 he was a
consultant with Kozlak Associates, a firm which provides consulting services to
the banking and mortgage banking industries. From March 1985 until December
1993, Mr. Kozlak served as President and Chief Executive Officer of First Bank
Mortgage, a wholly-owned mortgage banking subsidiary of First Bank, N.A. In
addition to his position at First Bank Mortgage, Mr. Kozlak assumed the
responsibility for the Financial Services Division within First Bank System. Mr.
Kozlak has served as a member of various senior level committees at First Bank
System, including its Retail Banking Task Force, Senior Asset and Liability
Committee and Consumer Credit Committee.
<PAGE>
Edward K. Jorgensen, a director nominee, has been President of Nordex
International, a food distribution company, since September 1994. Effective
August 31, 1994, Mr. Jorgensen retired as Vice President of Trade Relations for
CPC Foodservice, an international food manufacturer, with whom he had been
associated since January 1993. For 27 years prior thereto, he served as Senior
Vice President of Foodservice for the Kellogg Company.
R. Dean Nelson, a director nominee, was employed by Kraft General Foods for
36 years prior to his retirement in 1989. He was named Group Vice President and
President of the Kraft Foodservice Group in 1982, a position he held until his
retirement.
Richard H. Leepart, a director nominee, is President of Perception
Communication Corporation ("PCC"), a company he founded in 1971. PCC works with
product manufacturers to develop strategic marketing plans and advertising
campaigns.
Compensation of Directors
General Policy. Directors of the Company may be reimbursed for expenses
incurred in attending meetings of the Board of Directors.
Stock Options. Under the Company's Amended and Restated Stock Option Plan
which shareholders are being asked to approve at the Annual Meeting, each person
who becomes a nonemployee director of the Company on or after the date of
amendment of the Plan by the Board of Directors will automatically be granted a
nonqualified option exercisable for 15,000 shares of Common Stock, and each
nonemployee director who is re-elected to the Board of Directors will thereafter
receive a nonqualified option for 2,000 shares. During fiscal 1995, Mr. Kozlak
received an option, subject to shareholder approval, to purchase 15,000 shares
at an option price of $0.88 per share. If approved by the shareholders, as of
the date of the 1996 Annual Meeting Messrs. Jorgensen, Leepart and Nelson will
each receive an option for 15,000 shares. See Proposal #3 below for a more
complete description of the Amended and Restated Stock Option Plan.
Consulting Arrangements. George Masko, a director of the Company not
standing for re-election, received cash compensation of $35,417 in consulting
fees during the fiscal year ended September 30, 1995 pursuant to a Consulting
Agreement with the Company dated August 15, 1994, obligating him to provide
executive management and other business services to the Company over the period
of August 15, 1994 through February 28, 1995 in exchange for a consulting fee of
$8,333 per month. The Consulting Agreement terminated in February 1995. As an
inducement to Mr. Masko to enter into the Consulting Agreement, the Company
granted a stock option to Mr. Masko for the purchase of 100,000 shares of the
Company's Common Stock at an exercise price of $2.00 per share exercisable from
February 1, 1995 through September 14, 1999, subject to certain specified
conditions. In addition, Mr. Masko received 1,378 shares of the Company's Common
Stock in December 1994 for business consulting services rendered from June 1993
through August 1993 which were valued at $7,500.
<PAGE>
Committee and Board Meetings
The Board of Directors has a Compensation Committee, which provides
recommendations concerning salaries and incentive compensation for employees of
the Company, a Stock Option Committee which awards qualified and non-qualified
options to various employees and non-employees, and an Audit Committee, which
reviews the results and scope of the audit and other services provided by the
Company's independent auditors.
During fiscal 1995, the Stock Option Committee (which consisted of Messrs.
Fish and Masko) met four times, the Compensation Committee (which consisted of
Ms. Abril-Lopez and Messrs. Fish and Masko) met once, the Audit Committee (which
consisted of Ms. Abril-Lopez and Messrs. Fish, Kozlak and Masko) met once and
the Board held eleven meetings. Directors and Committee members frequently take
formal action by unanimous written consent, in accordance with Minnesota law,
rather than hold formal Board and Committee meetings. During fiscal 1995, each
director attended 75% or more of the total number of meetings of the Board or of
Committees of which he or she was a member.
CERTAIN TRANSACTIONS
Acquisition of IFP
On October 28, 1993, the Company, through its subsidiary, La Canasta of
Minnesota, Inc., acquired substantially all of the assets and business (the
"Assets") of International Food Products, Inc. ("IFP"). Fredoon Anvary, a
director of the Company not standing for re-election, was the principal
shareholder and President of IFP. The acquisition was effected under the terms
of an Asset Purchase Agreement (the "Purchase Agreement") dated as of September
30, 1993, and the transaction was consummated as if it took place on October 1,
1993.
Mr. Anvary and the IFP Trust have agreed, pursuant to an Agreement
Modifying Subordinated Mortgage Notes and Security Agreement dated December 9,
1994, to modify the payment terms of their respective mortgage notes issued in
the transaction, to provide that interest only, at the reference rate of Norwest
Bank Minnesota, N.A., plus 4%, shall be payable in monthly installments for 36
months from and after December 9, 1994, and commencing January 1, 1998, interest
and principal shall be payable in 60 equal monthly installments. In addition,
Mr. Anvary and the IFP Trust agreed to subordinate their respective mortgage
notes to the Company's indebtedness owing to Norwest Bank Minnesota, N.A. In
consideration of the modification of the terms of the mortgage notes by Mr.
Anvary and the IFP Trust, the Company issued to Mr. Anvary and the IFP Trust
warrants to purchase 30,573 and 92,373 shares, respectively, of the Company's
Common Stock, currently exercisable at $0.50 per share and which expire on
October 31, 1998. The warrants contain participatory registration rights with
respect to any registration statement the Company may file prior to October 31,
1998 covering a public offering by the Company of its Common Stock. The warrants
also contain anti-dilution provisions, subject to certain limited exceptions,
that require the Company to reduce the exercise price of the warrants if after
December 31, 1994, the Company sells shares of its Common Stock or any right to
acquire shares of its Common Stock at a price less than the then applicable
exercise price under the warrants, in which case, the exercise price of the
warrants issued to Mr. Anvary and the IFP Trust shall be reduced to the price at
which the Common Stock was sold or at which the right to purchase the Common
Stock is exercisable.
<PAGE>
The Company has also entered into a license agreement that expires December
31, 1999 with Mexican Foods, Inc., an affiliate of Mr. Anvary, pursuant to which
the Company will pay said affiliate 3% of the gross sales price of products sold
using the La Campana Paradiso or Paradiso trade names. The license agreement can
be terminated by the Licensor if the Company fails to sell $500,000 of product
using such trade names in any one year beginning with the 1996 calendar year.
The La Campana Paradiso and Paradiso trade names had been previously licensed by
Mexican Foods, Inc. to IFP. Mexican Foods, Inc. continues to use the Paradiso
trade name in the operation of three Mexican-style restaurants located in North
Dakota. See "Agreements or Arrangements with Directors" below.
Agreements or Arrangements with Directors
Carmen S. Abril-Lopez
In January 1991, the Company entered into a Registration Rights Agreement
with Carmen S. Abril-Lopez, a director of the Company, providing her with the
right to include the shares of Common Stock of the Company received by her in
the acquisition of La Canasta in any registration statement filed with the
Securities and Exchange Commission by the Company on or before January 15, 1996,
at the expense of the Company.
On December 9, 1994, Carmen S. Abril-Lopez converted $50,001 of the
principal amounts due under two promissory notes, each issued by La Canasta, one
in the principal amount of $28,000 dated March 1, 1990, bearing interest at the
rate of 9.5% per annum, and the other in the principal amount of $23,791 dated
January 15, 1991, bearing interest at the rate of 10% per annum, into 33,334
shares of the Company's Common Stock and warrants to purchase 10,000 shares of
the Company's Common Stock. Ms. Abril-Lopez received $7,793.65 as interest for
the period October 1, 1994 through December 9, 1994 as well as the unconverted
principal amount due under her La Canasta promissory notes. The warrants issued
to Ms. Abril- Lopez are currently exercisable at $0.50 per share, expire on
October 31, 1998 and contain participatory registration rights with respect to
any registration statement filed by the Company prior to October 31, 1998 for a
public offering of its Common Stock. In addition, the warrants contain
anti-dilution provisions subject to certain limited exceptions, that require the
Company to reduce the exercise price of the warrants if after December 31, 1994,
the Company sells shares of its Common Stock or any right to acquire shares of
its Common Stock at a price less than the then applicable exercise price under
the warrants, in which case the exercise price of the warrants issued to Ms.
Abril-Lopez shall be reduced to the price at which the Common Stock was sold or
at which the right to purchase the Common Stock is exercisable.
In consideration of the conversion of the La Canasta promissory notes by
Ms. Abril- Lopez, the Company entered into a Registration Rights Agreement with
her, among others, dated December 9, 1994, obligating the Company to file a
registration statement under the Securities Act of 1933 covering the offering
and sale by Ms. Abril-Lopez in a public distribution of the shares of Common
Stock issued to her on December 9, 1994, at the expense of the Company.
In 1990, the Company and La Canasta Mexican Food Products, Inc., an
affiliate of Ms. Abril-Lopez, entered into "Concurrent Ownership and Usage
Agreements", whereby each assigned to the other their respective rights to use
the trade name La Canasta and the related trademarks, provided that the use of
such trade names and trademarks by La Canasta Mexican Food Products, Inc. is
limited to the states of Alaska, Arizona, California, Colorado, Idaho, Montana,
Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming. Ms.
Abril-Lopez is the President and principal shareholder of La Canasta Mexican
Food Products, Inc. The Company does not believe that the foregoing geographical
limitation has had, or will have, any material adverse affect on the Company's
business.
<PAGE>
Fredoon Anvary
On December 9, 1994, the Company entered into a Registration Rights
Agreement with the IFP Trust obligating the Company to file a registration
statement under the Securities Act of 1933 covering the offering and sale by the
IFP Trust in a public distribution of the 200,000 shares of Common Stock issued
in connection with the Company's acquisition of IFP, at the expense of the
Company. The Company entered into the Registration Rights Agreement in
consideration of the modification of the terms of the mortgage notes issued to
Mr. Anvary and the IFP Trust described above. Mr. Anvary is a trustee and one of
six beneficiaries of the IFP Trust.
Agreements or Arrangements with Principal Shareholder
Effective November 1, 1994, the Company entered into a Broker Agreement
with Food Creators International, Inc. ("FCI"). FCI is wholly-owned by Nicholas
G. Grammas, a principal shareholder and former officer and director of the
Company. The Broker Agreement provides that FCI will act as the Company's
exclusive food broker for the solicitation of sales of the Company's food
products with respect to certain designated accounts, including sales made to
Chi Chi's, Chili's restaurants, Perkins, Taco John's, Sam's Club, All American
Bottling, Applebee's & Schwans, on a worldwide basis over a five-year period
commencing November 1, 1994. The Company is obligated to pay a commission on the
net sales price on sales of product effected in the United States and Canada to
such accounts at a rate which is initially equal to five percent and reduces
periodically over the five-year period to a low of two percent and a commission
on the net sales price on sales of product effected outside the United States
and Canada to such accounts at a rate initially equal to ten percent and which
reduces periodically over the five-year period to a low of seven percent. For
purposes of the Broker Agreement, the net sales price means the amount invoiced
to a customer for product less taxes of any kind, allowances, discounts, and
returns. Commissions paid during fiscal 1995 amounted to $4,512.
Sales of the products to the designated accounts may be effected directly
by the Company upon 30 days prior notice to Mr. Grammas, but Mr. Grammas is
entitled to receive commissions on any sales made to the designated accounts so
long as Mr. Grammas is acting as exclusive food broker to such accounts. The
Company may terminate Mr. Grammas' right to act as exclusive food broker to the
designated accounts upon 30 days prior notice upon the failure to achieve
specified minimum sales to the designated accounts.
Pursuant to the terms of the Broker Agreement, Mr. Grammas is prohibited
from competing with the Company throughout the world during the term of the
Broker Agreement and for the one-year period following termination of the Broker
Agreement. The Broker Agreement automatically renews for a period of five years
(after expiration of the initial five-year period) unless either Mr. Grammas or
the Company notifies the other of its intention not to renew the Broker
Agreement at least six months prior to the end of the initial term. The Broker
Agreement may be terminated prior to expiration of its initial or renewed term
upon the occurrence of certain specified events upon 30 days written notice.
<PAGE>
On December 9, 1994, Mr. Grammas converted the entire principal amount due
under a promissory note issued by La Canasta in the amount of $42,000 dated
March 1, 1990, bearing interest at the rate of 9.5% per annum, into 28,000
shares of the Company's Common Stock and warrants to purchase 8,400 shares of
the Company's Common Stock. The warrants issued to Mr. Grammas are currently
exercisable at $0.50 per share, expire on October 31, 1998 and contain
participatory registration rights with respect to any registration statement
filed by the Company prior to October 31, 1998 for a public offering of its
Common Stock. In addition, the warrants contain anti-dilution provisions subject
to certain limited exceptions, that require the Company to reduce the exercise
price of the warrants if after December 31, 1994, the Company sells shares of
its Common Stock or any right to acquire shares of its Common Stock at a price
less than the then applicable exercise price under the warrants, in which case
the exercise price of the warrants issued to Mr. Grammas shall be reduced to the
price at which the Common Stock was sold or at which the right to purchase the
Common Stock is exercisable.
In consideration of the conversion of the promissory note by Mr. Grammas,
the Company entered into a Registration Rights Agreement with him dated December
9, 1994, obligating the Company to file a registration statement under the
Securities Act of 1933 covering the offer and sale by Mr. Grammas in a public
distribution of the shares of Common Stock issued to him on December 9, 1994, at
the expense of the Company.
In September 1994 Mr. Grammas received interest payments under his note in
the amounts of $3,990 for the period October 1, 1993 through September 30, 1994;
and in December 1994, he received $765.21 for the period October 1, 1994 through
December 9, 1994.
During the years ended September 30, 1994 and 1995, the Company had sales
to entities owned in whole or in part by Mr. Grammas of $1,381 and $250,
respectively. Included in accounts receivable at September 30, 1994 and 1995 are
$12,729 and $7,889, respectively, due from these related entities.
Voting Agreements
On December 11, 1990, Carmen S. Abril-Lopez and Nicholas G. Grammas entered
into a Voting Agreement that provides that they will each vote their shares of
Common Stock of the Company for the election of the other as a member of the
Company's Board of Directors each time the shareholders are presented with a
proposal for the election of directors of the Company. The respective voting
obligations of Ms. Abril-Lopez and Mr. Grammas under the Voting Agreement
continues for so long as the other beneficially owns at least 15% of the
outstanding shares of Common Stock of the Company, subject to certain other
termination provisions.
Conflict of Interest
Carmen S. Abril-Lopez is the President and principal shareholder of La
Canasta Mexican Food Products, Inc. which manufactures tortilla products, and
distributes them to food service and retail establishments in the Phoenix and
Tucson, Arizona metropolitan areas. The Company does not sell or have plans to
sell its tortilla products to food service establishments in the Phoenix
metropolitan area. However, nothing legally prevents La Canasta Mexican Food
Products, Inc. from competing with the Company in the sale of tortilla products
in the retail markets or to food service establishments in the Company's current
or future market areas, and Ms. Abril-Lopez, by reason of her membership on the
Board of Directors, may have access to information which would provide La
Canasta Mexican Food Products, Inc. with an advantage over the Company should
direct competition between the two companies occur in the future.
<PAGE>
Bridge Financing
In October 1995, the Company raised $400,000 in a bridge financing by
issuing Units, each Unit consisting of a $25,000 Convertible Promissory Note
(the "Notes") and a Warrant to purchase 25,000 shares of Common Stock at $0.50
per share (the "Note Warrants") to select accredited investors to raise
additional capital until it completed its private placement. The Note Warrants
expire in October 1998. Holders of the Notes may convert all or any portion of
the principal amount and accrued but unpaid interest into Units offered in the
Company's private placement, at $0.50 per Unit, each Unit consisting of one
share of Common Stock and a Warrant to purchase one share of Common Stock at
$0.75 per share. Michael J. Kozlak, a director, Joel P. Bachul, an officer and
director, and Richard H. Leepart, a director nominee, participated in the bridge
financing by investing $50,000, $25,000 and $25,000, respectively. See
"Principal Shareholders and Management Shareholdings."
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
Set forth in the table below is the compensation paid by the Company
during the past three fiscal years to the persons who served as President and
Chief Executive Officer of the Company during the fiscal year ended September
30, 1995.
<TABLE>
Annual Compensation Long-Term
Compensation
Awards
Securities
Other Annual Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation Options (#)
- - --------------------------- ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Joel P. Bachul(1)
President and Chief Executive Officer 1995 83,333 None None 125,000
George Masko(2)
President and Chief Executive Officer 1995 None None $42,917(3) None
</TABLE>
-----------------
(1) Mr. Bachul served as the Company's President and Chief Executive
Officer since December 1, 1994.
(2) Mr. Masko served as the Company's interim President and Chief
Executive Officer from August 15, 1994 through November 30, 1994.
(3) Mr. Masko was paid consulting fees of $42,917 which included, in lieu
of cash, 1,378 shares of Common Stock valued at $7,500. See
"Consulting Arrangements" above.
No other current executive officer of the Company received a salary and
bonus from the Company in excess of $100,000 during any of the past three fiscal
years.
Option/SAR Grants During 1995 Fiscal Year
The following table sets forth the options that have been granted to the
executive officers listed in the Summary Compensation Table during the Company's
last fiscal year ended September 30, 1995.
<TABLE>
Number of Percent of
Securities Total Options/
Underlying SARs Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
<S> <C> <C> <C> <C>
Joel P. Bachul 50,000(1) 14.7% $1.75 12/1/99
75,000(2) 22.1% $0.50 6/28/00
George Masko None N/A N/A N/A
</TABLE>
(1) Such option is exercisable as to 25% of the total number of shares per
year for four years beginning December 1, 1995.
(2) Such option is exercisable as to 25% of the total number of shares per
year for four years beginning June 28, 1996.
<PAGE>
Option/SAR Exercises During Fiscal 1995
and Fiscal Year-End Option/SAR Values
The following table provides certain information regarding the exercise of
stock options to purchase shares of the Company's Common Stock during the year
ended September 30, 1995, by the persons who served as President and Chief
Executive Officer of the Company during that year and the fiscal year-end value
of unexercised stock options held by such officer.
<TABLE>
Number of Number of Unexercised Value of Unexercised In-
Shares Acquired Value Options at Fiscal Year the-Money Options at
on Realized End Fiscal Year End ($)
Name Exercise ($) (exercisable/unexercisable) (exercisable/unexercisable)(1)
---- ---------- ----- --------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Bachul None 0 0 125,000 0 $28,125
George Masko None 0 105,333 10,667 0 0
</TABLE>
(1) Based on a fiscal year-end of September 30, 1995 and a Common Stock
price of $0.875 per share, which is the last sale price of the
Company's Common Stock on September 26, 1995, the last day during
fiscal 1995 on which the Common Stock traded. The value of in-the-money
options is calculated as the difference between the fair market value
of the Common Stock underlying the options and the exercise price of
the options at fiscal year-end. Exercisable options refer to those
options that are exercisable as of September 30, 1995, while
unexercisable options refer to those options that are not exercisable
as of September 30, 1995, but which will become exercisable at various
times in the future.
ADOPTION OF SPARTA FOODS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
(Proposal #3)
Proposal to Amend and Restate Plan
General. The Board of Directors has, subject to shareholder approval,
amended and restated the Company's existing Stock Option Plan (the "Plan"). The
Plan was amended and restated in order to (1) increase by 550,000 the number of
shares reserved for issuance under the Plan, (2) provide for the automatic grant
of certain options to nonemployee directors, and (3) amend the entire Plan by
"restating" it so as to combine into one document these and all prior amendments
to the Plan and to provide plan terms consistent with those currently contained
in similar types of plans. No changes of substance from the existing Plan would,
in the opinion of management, be effected by the proposed Amended and Restated
Plan except for the increase in the number of reserved shares and the addition
of the automatic option grants to nonemployee directors.
Increase in Shares Reserved Under Plan. There were initially 400,000 shares
reserved for issuance under the Plan, of which 16,034 shares have been issued
and 461,166 shares are subject to currently outstanding options. In order to
provide sufficient shares for future grants to employees, consultants, directors
and others, shareholders are asked to approve the reservation of 550,000
additional shares under the Plan.
Director Automatic Option Grants. The Board of Directors has adopted,
subject to shareholder approval, an amendment to the Plan to provide automatic
option grants to nonemployee directors. If approved by the shareholders, the
Plan will be amended to provide that each nonemployee director will receive a
nonqualified option at the time of his or her election to the Board and at each
annual meeting thereafter. The reason for the addition of the automatic director
option grant provision is to provide an incentive for continued high
performance. See "Description of Plan" below for a more complete discussion of
the director automatic grant provisions.
<PAGE>
Description of Plan
A general description of the Plan, as amended and restated, is set forth
below, but such description is qualified in its entirety by reference to the
full text of the Plan, a copy of which may be obtained without charge upon
written request to the Company's Chief Financial Officer.
Purpose. The purpose of the Plan is to promote the success of the Company
by facilitating the employment and retention of competent personnel and by
furnishing incentive to directors, officers, other employees and consultants and
advisors, upon whose efforts the success of the Company will depend to a large
degree.
Term. The term of the Plan expires December 16, 2000, ten years from the
date the Plan was adopted by the Board of Directors; provided, however, the
Board may terminate the Plan earlier in the event of a sale by the Company of
substantially all of its assets or in the event of a merger, exchange or
liquidation of the Company.
Administration. The Plan is administered by the Board of Directors or a
committee (the "Committee"), all of the members of which are "disinterested
persons" under Rule 16b-3 of the Securities Exchange Act of 1934. The Plan gives
broad powers to the Board or the Committee to administer and interpret the Plan,
including the authority to select the individuals to be granted options and to
prescribe the particular form and conditions of each option granted.
Eligibility. All employees of the Company or of any subsidiary are eligible
to receive incentive stock options pursuant to the Plan. All employees, officers
and directors of and consultants and advisors to the Company or of any
subsidiary are eligible to receive nonqualified stock options. As of January 2,
1996, the Company had approximately 150 officers, directors and consultants.
Options. When an option is granted under the Plan, the Board or the
Committee, at its discretion, specifies the option price, the type of option
(either "incentive" or nonqualified) to be granted, and the number of shares of
Common Stock which may be purchased upon exercise of the option. The exercise
price of an incentive stock option may not be less than 100% of the fair market
value of the Company's Common Stock, as that term is defined in the Plan, and,
unless otherwise determined by the Board or the Committee, the exercise price of
a nonqualified stock option may not be less than 100% of the fair market value
on the date of grant. The market price of the Company's Common Stock was $0.50
on January 9, 1996. The period during which an option may be exercised and
whether the option will be exercisable immediately, in stages or otherwise is
set by the Board or the Committee, but in no event may an incentive stock option
be exercisable more than ten (10) years from the date of grant. Optionees may
pay for shares upon exercise of options with cash, certified check or Common
Stock of the Company valued at the stock's then "fair market value" as defined
in the Plan. Each option granted under the Plan is nontransferable during the
lifetime of the optionee.
<PAGE>
Generally, under the form of option agreement which the Board or the
Committee intends to use for options granted under the Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death, the optionee has a right to exercise the option for
three months after termination of such affiliation or until the option's
original expiration date, whichever is earlier. If the termination is because of
death, the option typically is exercisable until its original stated expiration
or until the 12-month anniversary of the optionee's death, whichever is earlier.
The Board or the Committee may impose additional or alternative conditions and
restrictions on the incentive or nonqualified stock options granted under the
Plan; however, each incentive option must contain such limitations and
restrictions upon its exercise as are necessary to ensure that the option will
be an incentive stock option as defined under the Internal Revenue Code.
Under the Plan as amended and restated, each director of the Company who is
not serving as a full-time officer or employee of the Company (an "Outside
Director") will automatically be granted a nonqualified option (the "Initial
Option") exercisable for 15,000 shares of Common Stock upon the date of his or
her initial election as a director following approval of such amendment by the
Board, and each Outside Director will be granted a nonqualified option for 2,000
shares (the "Subsequent Option") upon each re-election to the Board following
approval of such amendment by the Board; provided, that no Subsequent Option
will be granted to any director who received an Initial Option during the
preceding 12 months. Each such option will be exercisable for a period of five
years, unless earlier terminated in accordance with the Plan, at an exercise
price per share equal to 100% of the fair market value of the Common Stock on
the date of grant. Each Initial Option will be exercisable to the extent of
3,000 shares on the date of grant and to the extent of an additional 3,000
shares on each of the first, second, third and fourth anniversaries of the date
of grant. Subsequent Options will be exercisable immediately on the date of
grant.
Amendment. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment may impair the terms and conditions of any
outstanding option to the material detriment of the optionee without the consent
of the optionee, except as authorized in the event of a sale, merger,
consolidation or liquidation of the Company. The Plan may not, without the
approval of the stockholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code, or be amended in any manner that will: (i) materially increase the
number of shares subject to the Plan except as provided in the case of stock
splits, consolidations, stock dividends or similar events; (ii) change the
designation of the class of employees eligible to receive options; (iii)
decrease the price at which options will be granted; or (iv) materially increase
the benefits accruing to optionees under the Plan.
The Board of Directors will equitably adjust the maximum number of shares
of Common Stock reserved for issuance under the Plan, the number of shares
covered by each outstanding option and the option price per share in the event
of stock splits or consolidations, stock dividends or other transactions in
which the Company receives no consideration. The Board of Directors may also
provide for the protection of optionees in the event of a merger, liquidation or
reorganization of the Company.
<PAGE>
Federal Income Tax Consequences of the Plan
Under present law, an optionee will not realize any taxable income on the
date a nonqualified stock option is granted to the optionee pursuant to the
Plan. Upon exercise of the option, however, the optionee must recognize, in the
year of exercise, ordinary income equal to the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will receive an income tax
deduction in its fiscal year in which nonqualified options are exercised, equal
to the amount of ordinary income recognized by those optionees exercising
options, and must withhold income and other employment-related taxes on such
ordinary income.
Incentive stock options granted pursuant to the Plan are intended to
qualify for favorable tax treatment to the optionee under Section 422 of the
Internal Revenue Code. Under Section 422, an optionee realizes no taxable income
when the option is granted. Further, the optionee generally will not recognize
any taxable income when the option is exercised if he or she has at all times
from the date of the option's grant until three months before the date of
exercise been an employee of the Company. The Company ordinarily is not entitled
to any income tax deduction upon the grant or exercise of an incentive stock
option. Certain other favorable tax consequences may be available to the
optionee if he or she does not dispose of the shares acquired upon exercise of
an incentive stock option for a period of two years from the granting of the
option and one year after receipt of the shares.
Plan Benefits. The table below shows the total number of stock options that
have been received by the following individuals and groups under the Plan:
<TABLE>
Total Number of
Name and Position/Group Options Received (1)
<S> <C>
George Masko, former President and
Chief Executive Officer 10,000
Joel P. Bachul, President and Chief
Executive Officer 125,000
Current Executive Officer Group (3 persons) 276,667
Current Non-executive Officer Director Group
(5 persons) 45,000(2)
Current Non-executive Officer Employee Group
(142 persons) 171,166
</TABLE>
(1) This table reflects the total stock options granted without taking
into account exercises or cancellations. Because future grants of
stock options are subject to the discretion of the Stock Option
Committee, the future benefits that may be received by these
individuals or groups under the Plan cannot be determined at this
time, except for the automatic option grants to nonemployee directors
as described above.
(2) Includes 15,000 share option previously granted to Michael J. Kozlak
subject to approval of the Amended and Restated Stock Option Plan by
shareholders. Does not include 15,000 share options which will be
granted to Messrs. Jorgensen, Leepart and Nelson as of the date of the
1996 Annual Meeting if such persons are elected to the Board and the
Plan is approved by the shareholders.
<PAGE>
Vote Required THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE AMENDED AND RESTATED STOCK OPTION PLAN. Approval of the Amended and
Restated Plan requires the affirmative vote of the greater of (i) a majority of
the shares represented at the meeting with authority to vote on such matter or
(ii) a majority of the voting power of the minimum number of shares that would
constitute a quorum for the transaction of business at the meeting.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors of the Company, and persons who beneficially own more
than 10 percent of the Company's outstanding shares of Common Stock, to file
initial reports of ownership and reports of changes in ownership of securities
of the Company with the Securities and Exchange Commission. Officers, directors
and greater than 10 percent shareholders are required by Securities and Exchange
Commission Regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on a review of the copies of such reports furnished to or
obtained by the Company or written representations that no other reports were
required, the Company believes that during the fiscal year ended September 30,
1995, all filing requirements applicable to its directors, officers or
beneficial owners or more than 10% of the Company's outstanding shares of Common
Stock were complied with, except that Michael J. Kozlak's Form 3 was filed late
and Carmen S. Abril-Lopez filed late a Form 5 for the 1995 fiscal year covering
one transaction.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(Proposal #4)
The Board of Directors unanimously recommends that the shareholders ratify
the appointment of McGladrey & Pullen, LLP, independent public accountants, as
Sparta's independent public accountants for the fiscal year ending September 30,
1996. Unless otherwise instructed, the Proxies will be so voted. McGladrey &
Pullen, LLP has served as Sparta's independent accountants since October 25,
1994. Representatives of McGladrey & Pullen, LLP are expected to be present at
the Annual Meeting, will be given an opportunity to make a statement regarding
financial and accounting matters of Sparta if they so desire, and will be
available to respond to appropriate questions from Sparta's shareholders.
On October 20, 1994, Deloitte & Touche LLP resigned as the principal
auditors of the Company. The reports of Deloitte & Touche LLP on the financial
statements for the fiscal years ended September 30, 1992 and 1993 included in
the Company's Annual Report on Form 10-KSB for the years ended September 30,
1992 and 1993, did not contain a disclaimer of opinion or an opinion that was
adverse or was qualified or modified for uncertainty, audit scope or accounting
principles. However, the report of Deloitte & Touche LLP on the Company's
financial statements for the fiscal years ended September 30, 1992 and 1993
included in the Company's Registration Statement on Form SB-2 (Registration No.
33-79546) filed with the Securities and Exchange Commission on May 31, 1994 was
reissued and contained an explanatory paragraph concerning substantial doubt
about the Company's ability to continue as a going concern, but otherwise did
not contain a disclaimer of opinion or an opinion that was adverse or was
qualified or modified for uncertainty, audit scope or accounting principles. The
Registration Statement was subsequently withdrawn by the Company on September
12, 1994.
<PAGE>
On August 16, 1994, members of the Board of Directors provided information
to Deloitte & Touche LLP concerning the Company's past practice in reporting
revenue on an interim basis. Specifically, the Company had reported revenue on
products that were not actually shipped by the Company until the first few days
of the subsequent month, contrary to generally accepted accounting principles.
Deloitte & Touche LLP informed the Company that this information made Deloitte &
Touche LLP unwilling to rely on management's representations concerning past
financial statements prepared by management of the Company. Deloitte & Touche
LLP further informed the Company that it concluded that information produced by
a further investigation might materially impact upon the fairness or reliability
of the financial statements prepared by management for the fiscal years ended
September 30, 1992 and 1993, and for periods subsequent to September 30, 1993,
which impact could not be fully ascertained or qualified without a special
investigation into the matter by qualified legal counsel acting on behalf of the
Company's Board of Directors. Such a special investigation had not been
completed prior to the resignation of Deloitte & Touche LLP.
The Board of Directors of the Company discussed the principal issues
described above with Deloitte & Touche LLP at various times after August 20,
1994. Subsequent to the discovery of the revenue reporting procedure referred to
above, the Company amended its quarterly reports on Form 10-QSB for the quarters
ended December 31, 1993 and March 31, 1994 on October 14, 1994, and for the
quarter ended June 30, 1994 on September 22, 1994 (collectively referred to as
the "Amended Quarterly Reports") to correct the revenue reported therein as well
as all financial information derived from, or related to, revenue.
The Company also retained the law firm of Fredrikson & Byron, P.A., located
in Minneapolis, Minnesota, to conduct a special investigation into the Company's
financial reporting practices, which investigation was completed on or about
November 4, 1994. As of the date of this proxy statement, nothing has come to
the attention of the Company or otherwise that the financial statements of the
Company as of and for the years ended September 30, 1992 and September 30, 1993,
or for the quarterly periods ended December 31, 1993, March 31, 1994 and June
30, 1994, as amended, were materially false or misleading.
From August 15, 1994 through November 30, 1994, George Masko, a member of
the Board of Directors, acted as Chief Executive Officer of the Company, and on
October 17, 1994, the Company employed a new accountant whom the Company
appointed as Chief Financial Officer as of November 9, 1994. On December 1,
1994, Joel P. Bachul was appointed President and Chief Executive officer of the
Company.
In the opinion of current management of the Company, all adjustments
necessary to present fairly the financial position of the Company and the
results of operations and cash flow for the periods presented in the Amended
Quarterly Reports have been made.
<PAGE>
As a result of adjustments made in the Amended Quarterly Report for the
quarter ended December 31, 1993, among other changes, sales for the quarter
decreased $139,009 to $2,384,922, net income for the quarter decreased $12,959
to $11,049 and net income per common share decreased $0.01 per share to $0.00
per share. As a result of adjustments in the Amended Quarterly Report for the
quarter ended March 31, 1994, sales for the three months ended March 31, 1994
increased $44,544 to $2,851,227 while sales for the six months ended March 31,
1994 decreased $2,189 and $15,147, respectively, to $7,323 and $18,372,
respectively, and there was no change to net income per common share for the
three months and six months ended March 31, 1994. As a result of adjustments in
the Amended Quarterly Report for the quarter ended June 30, 1994, among other
changes, sales for the three months and the nine months ended June 30, 1994
decreased $14,748 and $108,823, respectively, to $3,071,152 and $8,307,301,
respectively. Net loss for the three months ended June 30, 1994 decreased $3,455
to a net loss of $17,986, the net income for the nine months ended June 30,
1994, decreased $11,695 to $386. There was no change to the net income (loss)
per common share for the three months and nine months ended June 30, 1994.
Deloitte & Touche LLP subsequently informed the Company that the Amended
Quarterly Reports were improper with respect to generally accepted accounting
principles in that they did not indicate that the financial statements therein
were being restated and the reasons for such restatement. On November 2, 1994,
the Company amended the quarterly reports on Form 10- QSB/A for the quarters
ended December 31, 1993, March 31, 1994 and June 30, 1994 to indicate that the
financial statements therein were restated and the reasons for such restatement.
During the 1992 and 1993 fiscal years and the subsequent interim period
from October 1, 1994 to October 20, 1994, other than the statement of Deloitte &
Touche LLP to the Company that the Amended Quarterly Reports were improper as
discussed above, the Company believes that there were no disagreements with
Deloitte & Touche LLP on matters of accounting principle or practice, financial
statement disclosure, or audit scope procedure that, if not resolved to their
satisfaction would have caused Deloitte & Touche LLP to refer to the subject
matter of the disagreement in their report. The Company authorized Deloitte &
Touche LLP to respond fully to the inquiries of the Company's successor auditors
at such time as successor auditors were selected by the Board of Directors.
On October 25, 1994, the Company engaged McGladrey & Pullen, LLP to serve
as its principal auditors in the place and stead of Deloitte & Touche LLP.
McGladrey & Pullen, LLP also assisted Fredrikson & Byron, P.A. in conducting the
special investigation referred to above. The Board desires that the selection of
such auditors for the current fiscal year be submitted to the shareholders for
approval. If the selection is not approved, the Board of Directors will
reconsider its decision.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1997 Annual Meeting must be received by the
Company at its offices by September 20, 1996, to be considered for inclusion in
the Company's proxy statement and related proxy for the 1997 Annual Meeting.
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other matters to be presented at the
meeting. If any other matter does properly come before the meeting, the
appointees named in the Proxies will vote the Proxies in accordance with their
best judgment.
ANNUAL REPORT
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended September 30, 1995, including financial statements, accompanies this
Notice of Annual Meeting and Proxy Statement. No portion of the Annual Report is
incorporated herein or is to be considered proxy soliciting material.
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-KSB FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, TO ANY SHAREHOLDER OF THE
COMPANY UPON WRITTEN REQUEST. REQUESTS SHOULD BE SENT TO A. MERRILL AYERS, CHIEF
FINANCIAL OFFICER, SPARTA FOODS, INC., 2570 KASOTA AVENUE, ST. PAUL, MINNESOTA
55708.
Dated: January 19, 1996
St. Paul, Minnesota
<PAGE>
SPARTA FOODS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOEL P. BACHUL and A. MERRILL AYERS, or either
of them acting alone, with full power of substitution, as proxies to represent
and vote, as designated below, all shares of Common Stock of Sparta Foods, Inc.
registered in the name of the undersigned, at the Annual Meeting of the
Shareholders to be held on Thursday, February 22, 1996, at 3:30 p.m., Central
Standard Time, at the Marquette Hotel, 710 Marquette Avenue, Minneapolis,
Minnesota 55402, and at all adjournments of such meeting. The undersigned hereby
revokes all proxies previously granted with respect to such meeting.
The Board of Directors recommends that you vote "FOR" the following proposals:
(1) SET NUMBER OF DIRECTORS AT SEVEN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) ELECT DIRECTORS: Nominees: Joel P. Bachul, Michael J. Kozlak, Edward
K. Jorgensen, Richard H. Leepart and R. Dean Nelson.
[ ] FOR all Nominees listed above [ ] WITHOUT AUTHORITY
(except those whose names have to vote for all nominees
been written on the line below) listed above
(To withhold authority to vote for any nominee, write that nominee's name
on the line below.)
_______________________________________________________________________________
(3) ADOPT AMENDED AND RESTATED STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) APPROVE SELECTION OF MCGLADREY & PULLEN, LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) OTHER MATTERS. In their discretion, the appointed proxies are
authorized to vote upon such others business as may properly come
before the Meeting or any adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL.
Date ________________, 1996. _______________________________________
_______________________________________
PLEASE DATE AND SIGN ABOVE exactly as
name appears at the left,
indicating, where appropriate, official
position or representative capacity. If
stock is held in joint tenancy, each
joint owner should sign.
<PAGE>
SPARTA FOODS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliates" shall mean a Parent or Subsidiary of the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Committee" shall mean a Committee of two or more directors who shall
be appointed by and serve at the pleasure of the Board. In the event
the Company's securities are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, each of the members of
the Committee shall be a "disinterested" person within the meaning of
Rule 16b-3, or any successor provision, as then in effect, of the
General Rules and Regulations under the Securities Exchange Act of
1934 as amended. As of the effective date of the Plan, a
"disinterested" person under Rule 16b-3 general ly means a person who,
among other things, has not been, at any time within one year prior to
his or her appointment to the Committee (or, if shorter, during the
period beginning with the initial registration of the Company's equity
securities under Section 12 of the Securities Exchange Act of 1934, as
amended, and ending with the director's appointment to the Committee)
and who will not be, while serving on such Committee, granted or
awarded options under the Plan, or under any other plan of the Company
or any of its Affiliates entitling participants to acquire stock,
stock options, stock appreciation rights or similar rights that have
an exercise or conversion privilege or a value derived from equity
securities issued by the Company or its Affiliate, except to the
extent permitted by Rule 16b-3, or any successor provision.
(d) "Common Stock" shall mean common stock of the Company, par value $0.01
per share.
(e) The "Company" shall mean Sparta Foods, Inc., a Minnesota corporation.
(f) "Fair Market Value" of the Common Stock as of any applicable date
shall mean: (i) if such stock is reported in the national market
system or is listed upon an established exchange or exchanges, the
reported closing price of such stock in such national market system or
on such stock exchange or exchanges on the date the option is granted
or, if no sale of such stock shall have occurred on that date, on the
preceding day on which there was a sale of stock; (ii) if such stock
is not so reported in the national market system or listed upon an
exchange, the average of the closing "bid" and "asked" prices quoted
by a recognized specialist in the Common Stock of the Company on the
date the option is granted, or if there are no quoted "bid" and
"asked" prices on such date, on the preceding date for which there are
such quotes; or (iii) if such stock is not publicly traded as of the
date the option is granted, the per share value as determined by the
Board, or the Committee, in its sole discretion by applying principles
of valuation with respect to all such options.
<PAGE>
(g) The "Internal Revenue Code" is the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Option Agreement" shall mean a written stock option agreement
evidencing an option granted under the Plan.
(i) "Option Stock" shall mean Common Stock of the Company, $0.01 par value
(subject to adjustment as described in Section 13), reserved for
options pursuant to this Plan.
(j) "Outside Director" shall mean a member of the Board who is not an
employee of the Company or any of its Affiliates.
(k) "Parent" shall mean any corporation which owns, directly or indirectly
in an unbroken chain, fifty percent (50%) or more of the total voting
power of the Company's outstanding stock.
(l) The "Plan" means the Sparta Foods, Inc. Amended and Restated Stock
Option Plan, as amended hereafter from time to time, including the
form of Option Agreements as they may be modified by the Board from
time to time.
(m) A "Subsidiary" shall mean any corporation of which fifty percent (50%)
or more of the total voting power of outstanding stock is owned,
directly or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and its
Subsidiaries by facilitating the employment and retention of competent personnel
and by furnishing incentive to officers, directors, employees, consultants and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, and through the granting of "non-qualified stock options" pursuant to
Sections 10 and 11 of this Plan. Adoption of this Plan shall be and is expressly
subject to the condition of approval by the shareholders of the Company within
twelve (12) months after the Amendment Date. In no event shall any stock options
granted on or after the Amendment Date be exercisable prior to the date the Plan
is approved by the shareholders of the Company. If shareholder approval of the
Plan is not obtained within twelve (12) months after the Amendment Date, any
stock options previously granted shall be revoked.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan is effective as of _____________, 1996, the date of its adoption
by the Board subject to approval by the shareholders of the Company.
<PAGE>
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Committee if one is in existence or
if not, by the Board. The Board or the Committee, as the case may be, shall have
all of the powers vested in it under the provisions of the Plan, including but
not limited to exclusive authority (where applicable and within the limitations
described herein) to determine, in its sole discretion, whether an incentive
stock option or nonqualified stock option shall be granted, the individuals to
whom, and the time or times at which, options shall be granted, the number of
shares subject to each option and the option price and terms and conditions of
each option. The Board, or the Committee, shall have full power and authority to
administer and interpret the Plan, to make and amend rules, regulations and
guidelines for administering the Plan, to prescribe the form and conditions of
the respective stock option agreements (which may vary from optionee to
optionee) evidencing each option and to make all other determinations necessary
or advisable for the administration of the Plan. The Board's or the Committee's
interpretation of the Plan and all actions taken and determinations made by the
Board or the Committee pursuant to the power vested in it hereunder, shall be
conclusive and binding on all parties concerned. No member of the Board or the
Committee shall be liable for any action taken or determination made in good
faith in connection with the administration of the Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Board or the Committee, as the case may be, shall from time to time, at
its discretion and without approval of the shareholders, designate those
employees, directors, officers, consultants, and advisors of the Company or of
any Subsidiary to whom nonqualified stock options shall be granted under this
Plan; provided, however, that consultants or advisors shall not be eligible to
receive stock options hereunder unless such consultant or advisor renders bona
fide services to the Company or Subsidiary and such services are not in
connection with the offer or sale of securities in a capital raising
transaction; provided, further, that Outside Directors shall only be eligible to
receive nonqualified stock options pursuant to Section 11; and provided,
further, no director, other than an Outside Director or a director that is also
an employee of the Company, shall be eligible to be granted a stock option under
the Plan. The Board or the Committee, as the case may be, shall, from time to
time, at its discretion and without approval of the shareholders, designate
those employees of the Company or any Subsidiary to whom incentive stock options
shall be granted under this Plan. Except with respect to nonqualified stock
options granted to Outside Directors pursuant to Section 11, the Board or the
Committee may grant additional incentive stock options or nonqualified stock
options under this Plan to some or all participants then holding options or may
grant options solely or partially to new participants. In designating
participants, the Board or the Committee shall also determine the number of
shares to be optioned to each such participant. The Board may from time to time
designate individuals as being ineligible to participate in the Plan.
<PAGE>
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Option Stock. Nine Hundred Thousand (950,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 13
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time to
time during a period of ten (10) years from the effective date as defined in
Section 3 of the Plan. Nonqualified stock options may be granted pursuant to the
Plan from time to time after the effective date of the Plan and until the Plan
is discontinued or terminated by the Board.
<PAGE>
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant to
this Plan with cash, certified check, Common Stock of the Company valued at such
stock's then Fair Market Value, or such other form of payment as may be
authorized by the Board or the Committee. The Board or the Committee may, in its
sole discretion, limit the forms of payment available to the optionee and may
exercise such discretion any time prior to the termination of the option granted
to the optionee or upon any exercise of the option by the optionee.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to the Plan shall be evidenced
by an Option Agreement. The Option Agreement shall be in such form as may be
approved from time to time by the Board or Committee and may vary from optionee
to optionee; provided, however, that each inactive stock option granted under
this Plan and each related Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the incentive stock
option. To the extent required to qualify the option as an
incentive stock option under Section 422 of the Internal Revenue
Code, or any successor provision, the option price per share
shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock per share on the date the Board
or the Committee, as the case may be, grants the option;
provided, however, that if an optionee owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of its Parent or any
Subsidiary, the option price per share of an incentive stock
option granted to such optionee shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Common
Stock per share on the date of the grant of the option. The Board
or the Committee, as the case may be, shall have full authority
and discretion in establishing the option price and shall be
fully protected in so doing.
(b) Term and Exercisability of Incentive Stock Option. The term
during which any incentive stock option granted under the Plan
may be exercised shall be established in each case by the Board
or the Committee, as the case may be. To the extent required to
qualify the option as an incentive stock option under Section 422
of the Internal Revenue Code, or any successor provision, in no
event shall any incentive stock option be exercisable during a
term of more than ten (10) years after the date on which it is
granted; provided, however, that if an optionee owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of its
Parent or any Subsidiary, the incentive stock option granted to
such optionee shall be exercisable during a term of not more than
five (5) years after the date on which it is granted. The Option
Agreement shall state when the incentive stock option becomes
exercisable and shall also state the maximum term during which
the option may be exercised. In the event an incentive stock
option is exercisable immediately, the manner of exercise of the
option in the event it is not exercised in full immediately shall
be specified in the Option Agreement. The Board or the Committee,
as the case may be, may accelerate the exercise date of any
incentive stock option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Board or the
Committee, as the case may be, shall deem advisable. Any such
Option Agreement shall contain such limitations and restrictions
upon the exercise of the option as shall be necessary to ensure
that such option will be considered an "incentive stock option"
as defined in Section 422 of the Internal Revenue Code or to
conform to any change therein.
<PAGE>
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to the Plan shall be
evidenced by an Option Agreement. The Option Agreement shall be in such form as
may be approved from time to time by the Board or the Committee and may vary
from optionee to optionee; provided, however, that each nonqualified option
granted under this Section 10 and each related Option Agreement shall comply
with and be subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the nonqualified
stock option. Unless otherwise determined by the Board or the
Committee, as the case may be, the option price per share shall
be one hundred percent (100%) of the Fair Market Value of the
Common Stock per share on the date the Board or the Committee
grants the option.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the Plan
may be exercised shall be established in each case by the Board
or the Committee, as the case may be. The Option Agreement shall
state when the nonqualified stock option becomes exercisable and
shall also state the maximum term during which the option may be
exercised. In the event a nonqualified stock option is
exercisable immediately, the manner of exercise of the option in
the event it is not exercised in full immediately shall be
specified in the stock option agreement. The Board or the
Committee, as the case may be, may accelerate the exercise date
of any nonqualified stock option granted hereunder which is not
immediately exercisable as of the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the optionee all legally
required amounts necessary to satisfy any and all federal, state
and local withholding and employment-related taxes attributable
to the optionee's exercise of a nonqualified stock option. In the
event the optionee is required under the Option Agreement to pay
the Company, or make arrangements satisfactory to the Company
respecting payment of, such federal, state and local withholding
and employment-related taxes, the Board or the Committee, as the
case may be, may, in its discretion and pursuant to such rules as
it may adopt, permit the optionee to satisfy such obligation, in
whole or in part, by electing to have the Company withhold shares
of Common Stock otherwise issuable to the optionee as a result of
the option's exercise equal to the amount required to be withheld
for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value as of the date the amount of tax
to be withheld is determined under applicable tax law. The
optionee's election to have shares withheld for this purpose
shall be made on or before the date the option is exercised or,
if later, the date that the amount of tax to be withheld is
determined under applicable tax law. Such election shall also
comply with such rules as may be adopted by the Board or the
Committee to assure compliance with Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if
applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Board, or
the Committee, as the case may be, shall deem advisable.
<PAGE>
SECTION 11
NONQUALIFIED STOCK OPTIONS FOR OUTSIDE DIRECTORS
(a) Grant of Nonqualified Stock Options. All grants of nonqualified
stock options to Outside Directors under this Section 11 shall be
evidenced by an Option Agreement. The Option Agreement shall be
in such form as may be approved from time to time by the Board or
Committee and may vary from optionee to optionee; provided,
however, that each nonqualified stock option issued to an Outside
Director shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
(1) Automatic Grants. No person shall have any discretion to
select the Outside Directors that shall be eligible for
nonqualified stock options or to determine the number of shares of
Common Stock to be subject to such options, the option price per
share or the date of grant.
(2) Initial Grant. Each Outside Director who becomes an Outside
Director on or after May ___, 1995 shall be granted a nonqualified
stock option to purchase Fifteen Thousand (15,000) shares of
Common Stock.
(3) Annual Grants. Each Outside Director who is re-elected as a
director of the Company or whose term of office continues after a
meeting of shareholders at which directors are elected shall, as
of the date of such re-election or shareholders meeting, be
granted a nonqualified stock option to purchase Two Thousand
(2,000) shares of Common Stock so long as such Outside Director
continues to serve on the Board; provided, that an Outside
Director who receives an option pursuant to paragraph (2) above
shall not be entitled to receive an option pursuant to this
paragraph (3) until at least twelve (12) months after the grant of
an option pursuant to paragraph (2); and provided, further, that
no Outside Director shall receive more than one option pursuant to
this paragraph (3) in any one fiscal year.
(b) Option Price. The option price per share for all nonqualified
stock options granted pursuant to Section 11(a) above shall be
one hundred percent (100%) of the Fair Market Value of a share of
Common Stock.
(c) Duration and Exercise of Options.
(1) Duration of Options. Except as otherwise provided in this
Plan, the period during which any nonqualified stock
option granted to Outside Directors under this Section 11
may be exercised shall be ten (10) years after the date
that the option is granted.
(2) Exercisability of Nonqualified Stock Options.
a. In no event shall any nonqualified stock options
granted to Outside Directors be exercisable prior to
the date that this Section 11 is approved by the
shareholders of the Company. If shareholder approval of
the Plan is not obtained within twelve (12) months
after the Amendment Date, any nonqualified stock
options previously granted to Outside Directors shall
be revoked.
b. All nonqualified stock options granted to Outside
Directors pursuant to Section 11(a)(2) shall be
exercisable to the extent of 3,000 shares immediately
and to the extent of an additional 3,000 shares on each
of the first, second, third and fourth anniversaries of
the date of grant, subject to the provisions of Section
11(c)(2)(a). If the Outside Director does not purchase
in any year the full number of shares which the Outside
Director is entitled to purchase in that year, the
Outside Director shall be entitled to purchase in any
subsequent year such previously unpurchased shares,
subject to the expiration of such nonqualified stock
option as specified in Section 11(c)(1) above.
c. All nonqualified stock options granted to Outside
Directors pursuant to Section 11(a)(3) shall be
immediately exercisable subject to the provisions of
Section 11(c)(2)(a).
<PAGE>
(d) Payment of Option Price. Upon the exercise of any nonqualified
stock option granted to an Outside Director pursuant to this
Section 11, the purchase price for such shares of Common Stock
subject to such option shall be paid in cash or certified check,
by the transfer from the Outside Director to the Company of
previously acquired shares of Common Stock, or any combination
thereof. Any Common Stock so transferred shall be valued at its
fair market value. For purposes of this Section 11(d),
"previously acquired shares of Common Stock" shall include shares
of Common Stock that are already owned by the Outside Director at
the time of exercise.
(e) Compliance with Rule 16b-3. All nonqualified stock options
granted to Outside Directors must comply with the applicable
provisions of Rule 16b-3, or its successor, of the General Rules
and Regulations of the Securities Exchange Act of 1934, as
amended.
(f) Termination of Status as a Director. In the event that an Outside
Director's membership on the Board terminates, the following
provisions shall apply:
(1) If the Outside Director's membership on the Board terminates
for any reason other than the Outside Director's death or
disability, the Outside Director shall be entitled to
exercise any nonqualified stock options granted to such
Outside Director pursuant to this Section 11 which were
exercisable at the time of such termination, until the
earlier of (i) the close of business on the 90th day after
such termination, and (ii) the expiration of the option as
provided in Section 11(c)(1) above. To the extent that the
Outside Director does not exercise such option within the
period specified in this Section 11(g)(1), all rights of the
Outside Director under such option shall be forfeited.
(2) If the Outside Director dies or becomes disabled (i) while a
member of the Board, or (ii) within the 90 day period
following the termination of the Outside Director's
membership on the Board as provided in Section 11(f)(1)
above, any nonqualified stock option granted to such Outside
Director may be exercised by the Outside Director's estate
or any person who acquired the right to exercise any
nonqualified stock option granted to such Outside Director
pursuant to this Section 11 by bequest or inheritance until
earlier of the expiration of the option as provided in
Section 11(c)(1) above or the close of business one year
after the date of the Outside Director's death.
<PAGE>
SECTION 12
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part, by
the optionee other than by will or by the laws of descent and distribution and,
during the optionee's lifetime, the incentive stock option may be exercised only
by the optionee. If the optionee shall attempt any transfer of any incentive
stock option granted under the Plan during the optionee's lifetime, such
transfer shall be void and the incentive stock option, to the extent not fully
exercised, shall terminate.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Option Stock reserved under Section 6 hereof and the number
of shares of Option Stock covered by each outstanding option and the price per
share thereof shall be adjusted by the Board to reflect such change. Additional
shares which may be credited pursuant to such adjustment shall be subject to the
same restrictions as are applicable to the shares with respect to which the
adjustment relates.
Unless otherwise provided in the Option Agreement, in the event of the sale
by the Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, consolidation,
exchange, reorganization, reclassification, extraordinary dividend, divestiture
(including a spin-off) or liquidation of the Company (collectively referred to
as a "transaction"), the Board may, in connection with the Board's adoption of
the plan for such transaction, provide for one or more of the following: (i) the
equitable acceleration of the exercisability of any outstanding options
hereunder; (ii) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the Board (which
date shall give optionees a reasonable period of time in which to exercise the
options prior to the effectiveness of such transaction) and (iii) the
continuance of the Plan with respect to the exercise of options which were
outstanding as of the date of adoption by the Board of such plan for such
transaction and provide to optionees holding such options the right to exercise
their respective options as to an equivalent number of shares of stock of the
corporation succeeding the Company by reason of such transaction. The grant of
an option pursuant to the Plan shall not limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 14.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Option Stock to the optionee, the Board or the Committee may require
the optionee to (a) represent that the shares of Option Stock are being acquired
for investment and not resale and to make such other representations as the
Board, or the Committee, as the case may be, shall deem necessary or appropriate
to qualify the issuance of the shares as exempt from the Securities Act of 1933
and any other applicable securities laws, and (b) represent that the optionee
shall not dispose of the shares of Option Stock in violation of the Securities
Act of 1933 or any other applicable securities laws. The Company reserves the
right to place a legend on any stock certificate issued upon exercise of an
option granted pursuant to the Plan to assure compliance with this Section 14.
<PAGE>
SECTION 15.
RIGHTS AS A SHAREHOLDER
An optionee (or the optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the optionee without
the consent of the optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to optionees under the Plan, unless such revision or amendment is approved by
the shareholders of the Company. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code. In no event shall the Board or the Committee, either directly or
indirectly, amend the provisions of Section 11 relating to nonqualified stock
options that are granted to Outside Directors more frequently than once every
six (6) months, unless such amendment is required to comply with changes in the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereunder, or with the Internal Revenue Code of 1986, and the regulations
thereunder.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee to
exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the optionee
in its employ for any period.
