SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. ____)
Filed by the Registrant [ x ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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 27, 1997
The Annual Meeting of Shareholders of Sparta Foods, Inc. will be held at
the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, on Thursday,
February 27, 1997, 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 six (6).
2. To elect directors of the Company for the ensuing year.
3. To approve an increase from 950,000 to 1,300,000 in the number
of shares reserved for issuance under the Company's Amended
and Restated Stock Option Plan.
4. To approve the selection of McGladrey & Pullen LLP as
independent auditors of the Company for the fiscal year ending
September 30, 1997.
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 1996 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 15, 1997, 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 23, 1997
St. Paul, Minnesota
<PAGE>
SPARTA FOODS, INC.
PROXY STATEMENT
for
Annual Meeting of Shareholders
to be held February 27, 1997
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 27, 1997, and at any
adjournment thereof, for the purposes set forth in the attached Notice of Annual
Meeting. 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 23, 1997.
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 of record 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,
<PAGE>
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.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed January 15, 1997, 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, 6,685,049 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 15, 1997, 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:
Name of Shareholder or Number of Shares Percent
Identity of Group Beneficially Owned(1) of Class(2)
Carmen S. Abril-Lopez 808,481(3) 12.1%
901 West Culver
Phoenix, AZ 85007
Nicholas G. Grammas 664,973(4) 9.9%
10415 29th Avenue North
Plymouth, MN 55441
Larry P. Arnold 366,000(5) 5.3%
1545 Hunter Dr.
Wayzata, MN 55391
Michael J. Kozlak 258,000(6) 3.8%
5049 Green Farms Road
Edina, MN 55436
-2-
<PAGE>
Richard H. Leepart 213,000(7) 3.1%
105 5th Ave., Suite 512
Minneapolis, MN 55402
Joel P. Bachul 172,750(8) 2.5%
2570 Kasota Avenue
St. Paul, MN 55108
R. Dean Nelson 68,000(9) 1.0%
18733 East Mescalero
Rio Verde, AZ 85263
Edward K. Jorgensen 48,000(10) *
5N175 Deerpath Way
St. Charles, IL 60175
A. Merrill Ayers 46,000(11) *
2570 Kasota Avenue
St. Paul, MN 55108
Okabena Partnership K 1,090,000(12) 15.0%
Norwest Center
Minneapolis, MN 55402
Donald R. Brattain 662,000(13) 9.4%
601 Lakeshore Parkway
Minnetonka, MN 55305
Officers and Directors as
a group 1,263,518(14) 17.1%
(8 persons)
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* Less than 1%
(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 15, 1997, 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 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
15, 1997 or within 60 days of such date.
(4) Includes 8,400 shares which may be purchased upon exercise of currently
exercisable warrants.
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<PAGE>
(5) Includes 198,000 shares which may be purchased upon exercise of options
which are exercisable as of January 15, 1997 or within 60 days of such
date.
(6) Includes 158,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
(7) Includes 83,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
(8) Includes 118,750 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
(9) Includes 38,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
(10) Includes 28,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
(11) Includes 35,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
(12) Includes 600,000 shares which may be purchased upon exercise of
currently exercisable warrants.
(13) Includes 360,000 shares which may be purchased upon exercise of
currently exercisable warrants.
(14) Includes 718,751 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 15, 1997 or within 60
days of such date.
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 six (6) and that six directors
be elected at the Annual Meeting.
Vote Required THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE SETTING THE NUMBER OF DIRECTORS AT SIX 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,
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<PAGE>
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 at the Annual Meeting.
The persons named below have been nominated for election by management. All
nominees are currently directors or the Company. 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 54 President, Chief Executive
Officer and Director
Larry P. Arnold 53 Director
Edward K. Jorgensen 57 Director
Michael J. Kozlak 43 Director
Richard H. Leepart 49 Director
R. Dean Nelson 72 Director
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.
Larry P. Arnold, a director since February 1996, has been retired since
January 1993. For more than five years prior thereto, he was Managing General
Partner of Wessels, Arnold & Henderson, a Minneapolis-based investment banking
firm. Mr. Arnold is also a director of Van Wagoner Funds.
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<PAGE>
Edward K. Jorgensen, a director since February 1996, 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.
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.
Richard H. Leepart, a director since February 1996, 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.
R. Dean Nelson, a director since February 1996, 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.
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,
each person who becomes a nonemployee director of the Company is automatically
granted a nonqualified option exercisable for 15,000 shares of Common Stock, and
each nonemployee director who is reelected to the Board of Directors will
thereafter receive a nonqualified option for 2,000 shares. During fiscal 1996,
Messrs. Arnold, Jorgensen, Leepart and Nelson each received an option to
purchase 15,000 shares at an exercise price of $1.375 and Mr. Kozlak received an
option to purchase 2,000 shares at $1.4375. See Proposal #3 below for a more
complete description of the Amended and Restated Stock Option Plan.
Committee and Board Meetings
The Board of Directors has a Compensation and Stock Option Committee, which
provides recommendations concerning salaries and incentive compensation for
employees of the Company and 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
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<PAGE>
provided by the Company's independent auditors. Since the last annual meeting of
shareholders, when such Committees were appointed, the Compensation and Stock
Option Committee (whose members are Messrs. Kozlak, Arnold and Nelson) and the
Audit Committee (whose members are Messrs. Arnold, Jorgensen and Leepart) each
met once. During fiscal 1996 the Board held six 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 1996, each incumbent director, except Michael Kozlak,
attended 75% or more of the total number of meetings of the Board or of
Committees of which he was a member. During fiscal 1996, Mr. Kozlak attended 8
of 11 meetings of the Board or of Committees of which he was a member.
CERTAIN TRANSACTIONS
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 could 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, exercisable for three years, to purchase
one share of Common Stock at $0.75 per share. Michael J. Kozlak and Richard H.
Leepart, directors, and Joel P. Bachul, an officer and director, participated in
the bridge financing by investing $50,000, $25,000 and $25,000, respectively. On
February 2, 1996, the Company raised $1,280,000 pursuant to a private offering
of 2,560,000 Units. The Company granted to investors in the offering one-time
demand and piggy-back registration rights, which expire on February 1, 1998.
Messrs. Bachul and Leepart converted the principal amount of their Notes into
Units. In addition, Messrs. Nelson, Arnold, Kozlak and Jorgensen, directors of
the Company, and A. Merrill Ayers and Thomas C. House, officers of the Company,
participated in the private placement by investing $15,000 $50,000, $50,000,
$10,000, $5,000 and $15,000, respectively. See "Principal Shareholders and
Management Shareholdings."
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
Set forth in the table below is the compensation paid by the Company during
the past two fiscal years to the persons who served as President and Chief
Executive Officer and Chief Financial Officer of the Company during the fiscal
year ended September 30, 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation
Awards
Securities
Other Annual Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation Options (#)
- --------------------------- ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Joel P. Bachul(1) 1996 114,634 20,000 None 50,000
President and Chief Executive Officer 1995 83,333 None None 125,000
A. Merrill Ayers(1) 1996 93,750 20,000 None 35,000
Chief Financial Officer 1995 83,366 None None 75,000
</TABLE>
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(1) Messrs. Bachul and Ayers have been employed by the Company
since fiscal 1995.
No other current executive officer of the Company received a salary and
bonus from the Company in excess of $100,000 during any of the past three fiscal
years.
Change in Control Arrangements
The Company has entered into Salary Continuation Agreements with Joel P.
Bachul, President and Chief Executive Officer, A. Merrill Ayers, Chief Financial
Officer and Thomas P. House, Vice President of Operations. Such Agreements
provide that in the event that the officer's employment is terminated without
cause in connection with a sale or merger of the Company, such officer will be
entitled to receive severance payments for 24 months equal to his base
compensation at the time of termination. The Agreements also provide that any
outstanding stock option held by such officers will vest immediately prior to
the effective date of a change of control.
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<PAGE>
Option/SAR Grants During 1996 Fiscal Year
The following table sets forth the options that have been granted to the
executive officers listed in the Summary Compensation Table during the Company's
last fiscal year ended September 30, 1996.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
<S> <C> <C> <C> <C>
Joel P. Bachul 50,000(1) 18.1% $1.44 5/10/01
A. Merrill Ayers 35,000(1) 12.6% $1.44 5/10/01
</TABLE>
(1) Such option is exercisable as to 25% of the total number of shares per year
for four years beginning May 10, 1997.
Option/SAR Exercises During Fiscal 1996
and Fiscal Year-End Option/SAR Values
The following table provides certain information regarding the exercise of
stock options to purchase shares of the Company's Common Stock during the year
ended September 30, 1996, by the officers named in the Summary Compensation
Table and the fiscal year-end value of unexercised stock options held by such
officers.
<TABLE>
<CAPTION>
Number of Number of Unexercised Value of Unexercised In-
Shares Acquired Value Options at Fiscal Year the-Money Options at
on Realized End Fiscal Year End ($)
Name Exercise ($) (exercisable/unexercisable) (exercisable/unexercisable)(1)
<S> <C> <C> <C> <C> <C> <C>
Joel P. Bachul None 0 31,250 143,750 15,234 45,703
A. Merrill Ayers None 0 18,750 91,250 10,156 30,469
</TABLE>
(1) Based on a fiscal year-end of September 30, 1996 and a Common Stock
price of $1.3125 per share, which is the last sale price of the
Company's Common Stock on September 30, 1996. 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, 1996, while
unexercisable options refer to those options that are not exercisable
as of September 30, 1996, but which will become exercisable at various
times in the future.
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<PAGE>
INCREASE IN SHARES RESERVED UNDER SPARTA FOODS, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
(Proposal #3)
Proposal to Increase Shares
The Board of Directors has, subject to shareholder approval, increased by
350,000 the number of shares reserved for issuance under the Company's Amended
and Restated Stock Option Plan (the "Plan"). There were initially 400,000 shares
reserved for issuance under the Plan, which number was increased to 950,000 by
the shareholders at the 1996 annual meeting. There have been 27,284 shares
issued under the Plan and 814,418 shares are subject to currently outstanding
options. In order to provide sufficient shares for grants to employees,
consultants, directors and others, shareholders are being asked to approve the
reservation of 350,000 additional shares under the Plan.
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 1,
1997, the Company had approximately 128 employees, officers and directors.
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
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<PAGE>
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 closing market price of the
Company's Common Stock was $1.25 on January 14, 1997. 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.
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 and each Outside Director will be granted a
nonqualified option for 2,000 shares (the "Subsequent Option") upon each
re-election to 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
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<PAGE>
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.
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.
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<PAGE>
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:
Total Number of
Name and Position/Group Options Received (1)
Joel P. Bachul, President and Chief
Executive Officer 275,000
A. Merrill Ayers, Chief Financial
Officer 185,000
Current Executive Officer Group (3 persons) 646,667
Current Non-executive Officer Director Group
(5 persons) 77,000(2)
Current Non-executive Officer Employee Group
(120 persons) 185,666
(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 and Compensation 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) Does not include 2,000 share options which will be granted to
Messrs. Jorgensen, Leepart, Arnold and Nelson as of the date
of the 1997 Annual Meeting if such persons are reelected to
the Board.
Vote Required THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE INCREASE IN THE NUMBER OF SHARES RESERVED FOR THE AMENDED AND
RESTATED STOCK OPTION PLAN. Approval of the increase 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.
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<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
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,
1996, all filing requirements applicable to its directors, officers or
beneficial owners of more than 10% of the Company's outstanding shares of Common
Stock were complied with, except that Messrs. Joel P. Bachul and Michael J.
Kozlak were each late filing one form covering two transactions and Nicholas G.
Grammas was late filing four forms covering nine transactions.
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,
1997. 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.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 Annual Meeting must be received by the
Company at its offices by September 24, 1997, to be considered for inclusion in
the Company's proxy statement and related proxy for the 1998 Annual Meeting.
-14-
<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, 1996, 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, 1996, 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 23, 1997
St. Paul, Minnesota
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<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 27, 1997, at 3:30 p.m., Central
Standard Time, at the Marquette Hotel, 710 Marquette Avenue, Minneapolis,
Minnesota, 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 SIX.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) ELECT DIRECTORS: Nominees: Larry P. Arnold, 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) APPROVE 350,000 SHARE INCREASE IN SHARES RESERVED FOR 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 , 1997.
----------------------------------------
----------------------------------------
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 generally 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
<PAGE>
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.
(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
- 2 -
<PAGE>
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 January 11, 1996, the date of its adoption by
the Board subject to approval by the shareholders of the Company.
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
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<PAGE>
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.
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.
* Increased to 1,300,000 shares by Board of Directors on November 18, 1996
- 4 -
<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
- 5 -
<PAGE>
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.
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
- 6 -
<PAGE>
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.
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 12, 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
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<PAGE>
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).
(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"
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<PAGE>
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.
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.
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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
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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.
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.
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