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 25, 1999
The Annual Meeting of Shareholders of Sparta Foods, Inc. will be held
at the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, on
Thursday, February 25, 1999, 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 amend the Articles of Incorporation to provide that the
Minnesota Control Share Acquisition Act will not apply to the
Company or its shareholders.
4. 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 1998 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 14, 1999, 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 21, 1999
New Brighton, Minnesota
<PAGE>
SPARTA FOODS, INC.
PROXY STATEMENT
for
Annual Meeting of Shareholders
to be held February 25, 1999
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 25, 1999, 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 1565
First Avenue N.W., New Brighton, Minnesota 55112. This Proxy Statement and the
related Proxy and Notice of Annual Meeting is first being mailed to Sparta
shareholders on or about January 21, 1999.
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
<PAGE>
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.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed January 14, 1999, 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, 7,851,416 shares of Sparta's Common Stock were issued and
outstanding. The Common Stock is the only outstanding class of voting 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
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of January 14, 1999, by each person known to
the Company to be the beneficial owner of 5% or more of the Company's Common
Stock:
Name and Address of Number of Shares Percent
Shareholder Beneficially Owned(1) of Class(2)
Cenex Harvest States Cooperatives 1,515,150(3) 16.2%
5500 Cenex Drive
Inver Grove Heights, MN 55077
Carmen S. Abril Lopez 754,480 9.6%
901 West Culver
Phoenix, AZ 85007
Donald R. Brattain 662,000(4) 8.2%
601 Lakeshore Parkway
Minnetonka, MN 55305
Okabena Partnership K 450,000(5) 5.4%
Norwest Center
Minneapolis, MN 55402
- ---------------------
<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 14, 1999, or within 60
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) Such shares are not outstanding but may be issued upon conversion of
convertible Preferred Stock.
(4) Includes 200,000 shares which may be purchased upon exercise of
currently exercisable warrants.
(5) Such shares are not outstanding but may be purchased upon exercise of
currently exercisable warrants.
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of January 14, 1999, 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 and Address of Number of Shares Percent
Shareholder or Identity of Group Beneficially Owned(1) of Class(2)
Larry P. Arnold 374,000(3) 4.7%
3376 Breconwood Circle
Wayzata, MN 55391
Joel P. Bachul 322,750(4) 4.0%
1565 First Ave. N.W.
New Brighton, MN 55112
Michael J. Kozlak 218,000(5) 2.8%
5049 Green Farms Road
Edina, MN 55436
Thomas C. House 174,017(6) 2.2%
1565 First Avenue N.W.
New Brighton, MN 55112
A. Merrill Ayers 147,250(7) 1.8%
1565 First Ave. N.W.
New Brighton, MN 55112
<PAGE>
Name and Address of Number of Shares Percent
Shareholder or Identity of Group Beneficially Owned(1) of Class(2)
R. Dean Nelson 76,000(8) *
18733 East Mescalero
Rio Verde, AZ 85263
Edward K. Jorgensen 56,000(9) *
5N175 Deerpath Way
St. Charles, IL 60175
John D. Johnson (12) 6,000(10) *
1667 N. Snelling
St. Paul, MN 55164
Officers and Directors as a group
(9 persons) 1,396,267(11) 16.1%
- ---------------------
* Less than 1%.
(1) See footnote (1) to preceding table.
(2) See footnote (2) to preceding table.
(3) Includes 116,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within 60
days of such date.
(4) Includes 243,750 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within 60
days of such date.
(5) Includes 68,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within
60 days of such date.
(6) Includes 1,767 shares held by Mr. House's wife and 141,250 shares which
may be purchased upon exercise of options and warrants which are
exercisable as of January 14, 1999 or within 60 days of such date.
(7) Includes 136,250 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within
60 days of such date.
(8) Includes 46,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within
60 days of such date.
(9) Includes 36,000 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within
60 days of such date.
<PAGE>
(10) Such shares are not outstanding but may be purchased upon exercise of
options which are exercisable as of January 14, 1999 or within 60 days
of such date.
(11) Includes 797,500 shares which may be purchased upon exercise of options
and warrants which are exercisable as of January 14, 1999 or within
60 days of such date.
(12) Mr. Johnson is an executive officer of Cenex Harvest States Cooperatives,
which is a shareholder of the Company's preferred stock.
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, 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 of 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.
<PAGE>
The following table provides certain information with respect to the
Company's nominees for director.
Name Age Position with Company
Joel P. Bachul 56 President, Chief Executive Officer and Director
Larry P. Arnold 55 Director
John D. Johnson 50 Director
Edward K. Jorgensen 59 Director
Michael J. Kozlak 45 Director
R. Dean Nelson 74 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.
John D. Johnson, a director since February 1998, has been President and
General Manager of Cenex Harvest States Cooperatives, an agricultural
cooperative, since June 1998. Prior to the merger of CENEX, Inc. and Harvest
States Cooperatives on June 1, 1998, Mr. Johnson served as President and Chief
Executive Officer (from 1995 to 1998) and as Group Vice President (from 1992 to
1995) of Harvest States Cooperatives. Mr. Johnson was appointed to Sparta's
Board of Directors in February 1998 in connection with that certain Stock
Purchase Agreement dated February 23, 1998 between the Company and Cenex Harvest
States Cooperatives (f/k/a Harvest States Cooperatives). Sparta issued 2,500
shares of Preferred Stock, Series 1998 to Cenex Harvest States in consideration
for $2,500,000. Pursuant to the Company's agreement with Cenex Harvest States,
the Company agreed to use its best efforts to nominate as a director and elect
Cenex Harvest States' nominee as a director so long as Cenex Harvest States owns
no less than 10% of the outstanding Preferred Stock, Series 1998. Mr. Johnson is
Cenex Harvest States' nominee for director.
<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 Managing
Director of GMAC/RFC, a mortgage banking company, since October 1998. From
January 1998 to October 1998, Mr. Kozlak served as a consultant with Kozlak
Associates, a firm which provides consulting services to the banking and
mortgage banking industries. He served as Senior Executive Vice President of PNC
Mortgage Corporation of America, a mortgage banking company, from January 1996
to December 1997, and as a consultant with Kozlak Associates from January 1994
through November 1995. 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.
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. Each director who is not an employee of the Company
receives $500 for each Board meeting attended. Directors 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. On
February 26, 1998, the date of the 1998 annual meeting of shareholders, Messrs.
Arnold, Jorgensen, Kozlak and Nelson each received an option to purchase 2,000
shares at an exercise price of $1.4375, which was the fair market value of the
Company's Common Stock on such date, and Mr. Johnson was granted an option to
purchase 15,000 shares at an exercise price of $1.4375 upon his election to the
Board on February 26, 1998. If re-elected at the Annual Meeting, each director
will be granted an option as of February 25, 1999 to purchase 2,000 shares at
the fair market value of the Company's stock on such date.
<PAGE>
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 provided by the Company's
independent auditors. During fiscal 1998, the Compensation and Stock Option
Committee (whose members are Messrs. Kozlak, Arnold and Nelson) met twice and
the Audit Committee (whose members are Messrs. Arnold, Jorgensen and Johnson)
met twice. During fiscal 1998 the Board held five 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 1998, each incumbent director attended 75% or more of
the total number of meetings of the Board or of Committees of which he was a
member.
CERTAIN TRANSACTIONS
The Company retained Perception Communications Corporation, a company
controlled by former director Richard Leepart, to provide marketing and
advertising services to the Company from October 1997 to February 1998. The
Company paid approximately $87,000 for these services.
EXECUTIVE COMPENSATION
Summary Compensation Table
Set forth in the table below is the compensation paid by the Company
during each of the last three fiscal years to the Company's Chief Executive
Officer and each other executive officer whose total salary and bonus for fiscal
1998 exceeded $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Awards
Securities
Other Annual Underlying
Name and Principal Position Year Salary ($) Bonus ($) Compensation Options (#)
- --------------------------- ---- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Joel P. Bachul 1998 155,000 51,500 None 50,000
President and Chief Executive Officer 1997 139,231 31,250 None 100,000
1996 114,634 20,000 None 50,000
A. Merrill Ayers 1998 130,000 35,000 None 35,000
Senior Vice President and Chief Financial 1997 114,231 25,000 None 75,000
Officer 1996 93,750 20,000 None 35,000
Thomas C. House 1998 110,000 30,000 None 35,000
Vice President of Corporate Planning 1997 96,038 21,250 None 75,000
1996 80,833 10,000 None 35,000
</TABLE>
No other current executive officer of the Company received a salary and
bonus from the Company in excess of $100,000 during the last fiscal year.
<PAGE>
Change in Control Arrangements
The Company has entered into Salary Continuation Agreements with Joel
P. Bachul, President and Chief Executive Officer, A. Merrill Ayers, Chief
Financial Officer and Thomas C. House, Vice President of Operations. Such
Agreements provide that in the event that the officer's employment is terminated
without cause in connection with a sale or merger of the Company, such officer
will be entitled to receive severance payments for 24 months equal to his base
compensation at the time of termination. The Agreements also provide that any
outstanding stock option held by such officers will vest immediately prior to
the effective date of a change of control.
Option/SAR Grants During 1998 Fiscal Year
The following table sets forth the options that have been granted to
the executive officers listed in the Summary Compensation Table during the
Company's last fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options/
Underlying SARs Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
---- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
Joel P. Bachul 50,000(1) 21.7% $1.5625 11/10/02
A. Merrill Ayers 35,000(1) 15.2% $1.5625 11/10/02
Thomas C. House 35,000(1) 15.2% $1.5625 11/10/02
</TABLE>
(1) Such option is exercisable as to 25% of the total number of shares per
year for four years beginning November 10, 1998.
Option/SAR Exercises During Fiscal 1998
and Fiscal Year-End Option/SAR Values
The following table provides certain information regarding the exercise
of stock options to purchase shares of the Company's Common Stock during the
year ended September 30, 1998, by the officers named in the Summary Compensation
Table and the fiscal year-end value of unexercised stock options held by such
officers.
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Shares Value Number of Unexercised the-Money Options at
Acquired on Realized Options at Fiscal Year End Fiscal Year End ($)
Name Exercise ($) (exercisable/unexercisable) (exercisable/unexercisable)(1)
---- -------- ----- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joel P. Bachul None 0 143,750 181,250 31,641 10,547
A. Merrill Ayers None 0 92,500 127,500 21,094 7,031
Thomas C. House None 0 83,750 121,250 21,094 7,031
</TABLE>
<PAGE>
(1) Based on a fiscal year-end of September 30, 1998 and a Common Stock
price of $1.0625 per share, which is the last sale price of the
Company's Common Stock on September 30, 1998. 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, 1998, while
unexercisable options refer to those options that are not exercisable
as of September 30, 1998, but which will become exercisable at various
times in the future.
AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO PROVIDE THAT THE
MINNESOTA CONTROL SHARE ACQUISITION ACT WILL NOT APPLY TO THE
COMPANY AND ITS SHAREHOLDERS
(Proposal #3)
The Minnesota Business Corporation Act, Section 302A.671(a copy of
which is attached as Appendix A) commonly referred to as the Minnesota Control
Share Acquisition Act ("MCSAA"), states that, unless a company's articles of
incorporation or bylaws expressly provide otherwise, the MCSAA shall apply to
any issuing public company. The Company's Articles of Incorporation and Bylaws
do not expressly opt out of the MCSAA. The Company's Board of Directors submits
to the Company's shareholders this Proposal #3 to amend the Company's Articles
of Incorporation to expressly provide that the MCSAA shall not apply to the
Company and its shareholders. The proposed amendment is as follows:
RESOLVED, that Article VI of the Articles of Incorporation of Sparta
Foods, Inc. shall be amended in its entirety to read as follows:
"ARTICLE VI
Section 302A.671 of the Minnesota Statutes Annotated (entitled "Control
Share Acquisition Act") or any successor shall not apply to this corporation or
its shareholders."
Background
Pursuant to the Stock Purchase Agreement dated February 23, 1998
between the Company and Cenex Harvest States Cooperatives (f/k/a Harvest States
Cooperatives)("Cenex Harvest States"), Harvest States purchased 2,500 shares of
the Company's Preferred Stock, Series 1998, $1,000 par value, for an aggregate
purchase price of $2,500,000. The 2,500 shares of Preferred Stock, Series 1998
are convertible into approximately 1,515,150 shares of Sparta Common Stock,
representing approximately 16.2% of Sparta Common Stock outstanding following
such conversion. In connection with the Stock Purchase Agreement, Sparta agreed
to recommend to Sparta shareholders an amendment to its Articles of
Incorporation to expressly opt out of the MCSAA. According to a Schedule 13D
filed by Cenex Harvest States with the Securities and Exchange Commission, Cenex
Harvest States considers Sparta a potential acquisition target and any
acquisition of Sparta would occur within three years from the date of the Stock
Purchase Agreement. The Company's Board of Directors recommends that
shareholders approve this proposal.
<PAGE>
What is the Minnesota Control Share Acquisition Act?
The MCSAA was adopted in 1984 to deal with the problem of the hostile
takeover. Generally, the MCSAA denies voting rights to certain shares acquired
by a person who acquires a substantial percentage of a public company's voting
shares in an attempt to take over the company or otherwise become a substantial
shareholder, unless the public company's shareholders vote to accord voting
rights to such shares.
More specifically, the MCSAA provides that shares of an "issuing public
corporation," such as Sparta, acquired by an "acquiring person" in a "control
share acquisition" that exceed the threshold of voting power of any of the three
ranges identified below will have no voting rights, unless the issuing public
company's shareholders vote to accord such shares the voting rights normally
associated with such shares. A "control share acquisition" is an acquisition,
directly or indirectly, by an "acquiring person" (as defined in the MCSAA) of
beneficial ownership of shares of an issuing public corporation that, but for
the MCSAA, would, when added to all other shares of the issuing public
corporation beneficially owned by the acquiring person, entitle the acquiring
person, immediately after the acquisition, to exercise or direct the exercise of
a new range of voting power of the issuing public corporation within any of the
following three ranges: (i) at least 20 percent but less than 33 1/3 percent;
(ii) at least 33 1/3 percent but less than or equal to 50 percent; and (iii)
over 50 percent. Those shares acquired in a control share acquisition in excess
of any of the three thresholds will have no voting rights, unless voting rights
are accorded such shares by an affirmative vote by the issuing public company's
shareholders.
Delivery of an Information Statement. Upon acquiring or planning to
acquire shares in a control share acquisition, the acquiring person must deliver
an Information Statement to the issuing public company. The Information
Statement must disclose, among other things: (a) the identity and background of
the acquiring person; (b) the number of shares owned by the acquiring person
before the control share acquisition and the number of shares acquired or
planned to be acquired pursuant to the control share acquisition; (c) the terms
of the control share acquisition, specifying the resulting range of voting
power; and (d) any plans or proposals of the acquiring person to: (i) liquidate
the company; (ii) merge or sell all or a substantial part of the assets; (iii)
change the location of its principal place of business; (iv) materially change
management or employment policies; (v) change materially the company's
charitable policies; (vi) change materially its relationship with suppliers or
customers; or (vii) make any other material change to its business.
Shareholder Meeting. If requested by the acquiring person at the time
the Information Statement is delivered to the issuing public company, the
issuing public company will call a special meeting of the shareholders to
consider the voting rights to be accorded the shares acquired or to be acquired
pursuant to the control share acquisition. If the acquiring person does not
request a special meeting, the matter to consider the voting rights of the
shares will be conducted at the company's next annual meeting or special
meeting, provided that the acquiring person delivered the Information Statement
to the company at least 55 days before such meeting.
<PAGE>
Vote Required to Grant Voting Rights to Shares. At the shareholder
meeting, shareholders will be asked to vote on whether the shares acquired in a
control share acquisition, in excess of the threshold, shall have the same
voting rights as other shares of its class. Shareholder approval requires (i)
the affirmative vote of holders of a majority of the voting power of all shares
entitled to vote, including all shares held by the acquiring person and (ii) the
affirmative vote of the holders of a majority of the voting power of all shares
entitled to vote, excluding shares owned by the acquiring person, any officer of
the company and any employees who are directors. If shareholders vote to grant
voting rights to the shares acquired in the control share acquisition, the
control share acquisition must have been completed prior to the time of
shareholder approval or within 180 says after approval, or another shareholder
vote would be required.
Company's Right to Redeem Shares. The issuing public company has an
option to call for redemption all, but not less than all, shares purchased in
the control share acquisition that exceed 20% of the outstanding voting power or
such higher threshold for which shareholder approval has not been obtained at a
price equal to the fair market value of the shares at the time the call is given
if (i) the acquiring person fails to deliver the Information Statement to the
issuing public company by the 10th day after the control share acquisition; or
(ii) shareholders have voted not to accord voting rights to the shares acquired
in the control share acquisition.
Example
Jane Doe acquires shares of Sparta's Common Stock which increases Jane
Doe's ownership from 16% to 28%. Her acquisition is a "control share
acquisition" because Jane Doe, but for the restriction imposed by the MCSAA, can
now exercise a new range of voting power that moved from 16% across the 20%
threshold to 28%. Jane Doe can only exercise voting power over those shares
representing less than 20% of Sparta's outstanding shares. Jane Doe can not
exercise voting power over those shares at and above the 20% threshold until
Sparta's shareholders approve a resolution to accord such shares voting rights.
Even if Sparta's' shareholders approve a control share acquisition that
would increase Jane Doe's beneficial ownership from 16% to 28%, the MCSAA
requires another similar shareholder vote to approve a subsequent control share
acquisition by Jane Doe if she increases her beneficial ownership of shares from
28% across the 33.33%. Similarly, such a votes would be required if Jane Doe
increased her beneficial ownership above 50%.
What is the impact on the Company if you approve Proposal #3 and elect to opt
out of the MCSAA?
A vote to approve this proposal to amend Sparta's Articles of
Incorporation to opt out of the MCSAA will allow an acquiring person to increase
its beneficial ownership of Sparta's shares without triggering the voting
requirement and other provisions of the MCSAA. For example, if Jane Doe makes a
control share acquisition to increase her beneficial ownership of Sparta Foods'
shares from 16% to 28%, and the MCSAA does not apply, Jane Doe would not have to
comply with the disclosure requirements of the MCSAA or seek shareholder
approval in order to exercise voting power over that number of shares
representing more than 20% of Sparta's outstanding shares.
<PAGE>
Proponents of the MCSAA argue that its provisions give corporations
more time to respond to an acquisition proposal and to consider alternative
proposals and to protect the corporation against unsolicited takeover attempts
by a third party. The Board of Directors believes, however, that the MCSAA may
discourage investors from purchasing the Company's stock or pursuing a business
combination with the Company, and that such provisions could, therefore, affect
adversely the price of the Company's Common Stock in the market.
Vote Required. The Company's Board of Directors recommends a vote in
favor of the proposed amendment. Adoption of the proposal to amend the Articles
of Incorporation requires an affirmative vote of the holders of the greater of
(1) a majority of the voting power of the shares present 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.
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,
1998, 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 John D. Johnson was late filing a Form 3
and a Form 5 to report an option grant.
INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP served as Sparta's independent accountants for
fiscal 1998. 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.
<PAGE>
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 2000 Annual Meeting must be received by the
Company at its offices by September 22, 1999, to be considered for inclusion in
the Company's proxy statement and related proxy for the 2000 Annual Meeting.
Shareholder proposals intended to be presented at the 2000 Annual Meeting but
not included in the Company's proxy statement and proxy will be considered
untimely if received by the Company after December 6, 1999.
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, 1998, 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, 1997, TO ANY SHAREHOLDER OF
THE COMPANY UPON WRITTEN REQUEST. REQUESTS SHOULD BE SENT TO A. MERRILL AYERS,
CHIEF FINANCIAL OFFICER, SPARTA FOODS, INC., 1565 FIRST AVENUE N.W., NEW
BRIGHTON, MINNESOTA 55112.
Dated: January 21, 1999
New Brighton, Minnesota
<PAGE>
APPENDIX A
MINNESOTA BUSINESS CORPORATION ACT
MINNESOTA CONTROL SHARE ACQUISITION ACT
302A.671. Control share acquisitions
Subdivision 1. Application. (a) Unless otherwise expressly provided in
the articles or in bylaws approved by the shareholders of an issuing public
corporation, this section applies to a control share acquisition.
(b) The shares of an issuing public corporation acquired by an
acquiring person in a control share acquisition that exceed the threshold of
voting power of any of the ranges specified in subdivision 2, paragraph (d),
shall have only the voting rights as shall be accorded to them pursuant to
subdivision 4a.
Subd. 2. Information statement. An acquiring person shall deliver to
the issuing public corporation at its principal executive office an information
statement containing all of the following:
(a) the identity and background of the acquiring person, including the
identity and background of each member of any partnership, limited partnership,
syndicate, or other group constituting the acquiring person, and the identity
and background of each affiliate and associate of the acquiring person,
including the identity and background of each affiliate and associate of each
member of such partnership, syndicate, or other group; provided, however, that
with respect to a limited partnership, the information need only be given with
respect to a partner who is denominated or functions as a general partner and
each affiliate and associate of the general partner;
(b) a reference that the information statement is made under this
section;
(c) the number and class or series of shares of the issuing public
corporation beneficially owned, directly or indirectly, before the control share
acquisition by each of the persons identified pursuant to paragraph (a);
(d) the number and class or series of shares of the issuing public
corporation acquired or proposed to be acquired pursuant to the control share
acquisition by each of the persons identified pursuant to paragraph (a) and
specification of which of the following ranges of voting power in the election
of directors that, except for this section, resulted or would result from
consummation of the control share acquisition:
(1) at least 20 percent but less than 33-1/3 percent;
(2) at least 33-1/3 percent but less than or equal to 50 percent;
(3) over 50 percent; and
<PAGE>
(e) the terms of the control share acquisition or proposed control
share acquisition, including, but not limited to, the source of funds or other
consideration and the material terms of the financial arrangements for the
control share acquisition; plans or proposals of the acquiring person (including
plans or proposals under consideration) to (1) liquidate or dissolve the issuing
public corporation, (2) sell all or a substantial part of its assets, or merge
it or exchange its shares with any other person, (3) change the location of its
principal place of business or its principal executive office or of a material
portion of its business activities, (4) change materially its management or
policies of employment, (5) change materially its charitable or community
contributions or its policies, programs, or practices relating thereto, (6)
change materially its relationship with suppliers or customers or the
communities in which it operates, or (7) make any other material change in its
business, corporate structure, management or personnel; and other objective
facts as would be substantially likely to affect the decision of a shareholder
with respect to voting on the control share acquisition.
If any material change occurs in the facts set forth in the information
statement, including but not limited to any material increase or decrease in the
number of shares of the issuing public corporation acquired or proposed to be
acquired by the persons identified pursuant to paragraph (a), the acquiring
person shall promptly deliver to the issuing public corporation at its principal
executive office an amendment to the information statement containing
information relating to the material change. An increase or decrease or proposed
increase or decrease equal, in the aggregate for all persons identified pursuant
to paragraph (a), to one percent or more of the total number of outstanding
shares of any class or series of the issuing public corporation shall be deemed
"material" for purposes of this paragraph; an increase or decrease or proposed
increase or decrease of less than this amount may be material, depending upon
the facts and circumstances.
Subd. 3. Meeting of shareholders. If the acquiring person so requests
in writing at the time of delivery of an information statement pursuant to
subdivision 2, and has made, or has made a bona fide written offer to make, a
control share acquisition and gives a written undertaking to pay or reimburse
the issuing public corporation's expenses of a special meeting, except the
expenses of the issuing public corporation in opposing according voting rights
with respect to shares acquired or to be acquired in the control share
acquisition, within ten days after receipt by the issuing public corporation of
the information statement, a special meeting of the shareholders of the issuing
public corporation shall be called pursuant to section 302A.433, subdivision 1,
for the sole purpose of considering the voting rights to be accorded to shares
referred to in subdivision 1, paragraph (b), acquired or to be acquired pursuant
to the control share acquisition. The special meeting shall be held no later
than 55 days after receipt of the information statement and written undertaking
to pay or reimburse the issuing public corporation's expenses of the special
meeting, unless the acquiring person agrees to a later date. If the acquiring
person so requests in writing at the time of delivery of the information
statement, (1) the special meeting shall not be held sooner than 30 days after
receipt by the issuing public corporation of the information statement and (2)
<PAGE>
the record date for the meeting must be at least 30 days prior to the date of
the meeting. If no request for a special meeting is made, consideration of the
voting rights to be accorded to shares referred to in subdivision 1, paragraph
(b), acquired or to be acquired pursuant to the control share acquisition shall
be presented at the next special or annual meeting of the shareholders of which
notice has not been given, unless prior thereto the matter of the voting rights
becomes moot. The issuing public corporation is not required to have the voting
rights to be accorded to shares acquired or to be acquired according to a
control share acquisition considered at the next special or annual meeting of
the shareholders unless it has received the information statement and documents
required by subdivision 4 at least 55 days before the meeting. The notice of the
meeting shall at a minimum be accompanied by a copy of the information statement
(and a copy of any amendment to the information statement previously delivered
to the issuing public corporation) and a statement disclosing that the board of
the issuing public corporation recommends approval of, expresses no opinion and
is remaining neutral toward, recommends rejection of, or is unable to take a
position with respect to according voting rights to shares referred to in
subdivision 1, paragraph (b), acquired or to be acquired in the control share
acquisition. The notice of meeting shall be given at least ten days prior to the
meeting. Any amendments to the information statement received after mailing of
the notice of the meeting must be mailed promptly to the shareholders by the
issuing public corporation.
Subd. 4. Financing. Notwithstanding anything to the contrary contained
in this chapter, no call of a special meeting of the shareholders of the issuing
public corporation shall be made pursuant to subdivision 3 and no consideration
of the voting rights to be accorded to shares referred to in subdivision 1,
paragraph (b), acquired or to be acquired pursuant to a control share
acquisition shall be presented at any special or annual meeting of the
shareholders of the issuing public corporation unless at the time of delivery of
the information statement pursuant to subdivision 2, the acquired person shall
have entered into, and shall deliver to the issuing public corporation a copy or
copies of, a definitive financing agreement or definitive financing agreements,
with one or more responsible financial institutions or other entities having the
necessary financial capacity, for any financing of the control share acquisition
not to be provided by funds of the acquiring person. A financing agreement is
not deemed not definitive for purposes of this subdivision solely because it
contains conditions or contingencies customarily contained in term loan
agreements with financial institutions.
Subd. 4a. Voting rights. (a) Shares referred to in subdivision 1,
paragraph (b), acquired in a control share acquisition shall have the same
voting rights as other shares of the same class or series only if approved by
resolution of shareholders of the issuing public corporation at a special or
annual meeting of shareholders pursuant to subdivision 3.
(b) The resolution of shareholders must be approved by (1) the
affirmative vote of the holders of a majority of the voting power of all shares
entitled to vote including all shares held by the acquiring person, and (2) the
affirmative vote of the holders of a majority of the voting power of all shares
entitled to vote excluding all interested shares. A class or series of shares of
the issuing public corporation is entitled to vote separately as a class or
series if any provision of the control share acquisition would, if contained in
a proposed amendment to the articles, entitle the class or series to vote
separately as a class or series.
(c) To have the voting rights accorded by approval of a resolution of
shareholders, any proposed control share acquisition not consummated prior to
the time of the shareholder approval must be consummated within 180 days after
the shareholder approval.
<PAGE>
(d) Any shares referred to in subdivision 1, paragraph (b), acquired in
a control share acquisition that do not have voting rights accorded to them by
approval of a resolution of shareholders shall regain their voting rights upon
transfer to a person other than the acquiring person or any affiliate or
associate of the acquiring person unless the acquisition of the shares by the
other person constitutes a control share acquisition, in which case the voting
rights of the shares are subject to the provisions of this section.
Subd. 5. Rights of action. An acquiring person, an issuing public
corporation, and shareholders of an issuing public corporation may sue at law or
in equity to enforce the provisions of this section and section 302A.449,
subdivision 7.
Subd. 6. Redemption. Unless otherwise expressly provided in the
articles or in bylaws approved by the shareholders of an issuing pubic
corporation, the issuing public corporation shall have the option to call for
redemption all but not less than all shares referred to in subdivision 1,
paragraph (b), acquired in a control share acquisition, at a redemption price
equal to the market value of the shares at the time the call for redemption is
given, in the event (1) an information statement has not been delivered to the
issuing public corporation by the acquiring person by the tenth day after the
control share acquisition, or (2) an information statement has been delivered
but the shareholders have voted not to accord voting rights to such shares
pursuant to subdivision 4a, paragraph (b). The call for redemption shall be
given by the issuing public corporation within 30 days after the event giving
the issuing public corporation the option to call the shares for redemption and
the shares shall be redeemed within 60 days after the call is given.
<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 25, 1999, 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, John D. Johnson, Edward K. Jorgensen 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) AMEND ARTICLES OF INCORPORATION to provide that the Minnesota
Control Share Acquisition Act will not apply to the Company or
its shareholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) 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 _____________________, 1999. _______________________________________
_______________________________________
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.
