SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-KSB/A (No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
Commission File No.: 000-19318
SPARTA FOODS, INC.
(Name of Small Business Issuer as specified in its charter)
Minnesota 41-1618240
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1565 First Avenue N.W., New Brighton, Minnesota 55112
(Address of principal executive offices)(Zip Code)
Issuer's telephone number, including area code: (651) 697-5500
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.0l par value per share
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $15,748,588
The aggregate market value of the common stock held by nonaffiliates of the
Registrant as of December 15, 1999 was approximately $9,855,045 based upon the
average high and low bid prices of the Registrant's common stock on such date.
There were 10,218,016 shares of common stock, $.0l par value, outstanding as of
December 15, 1999.
-------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference pursuant to Rule 12b-23: None.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [ X ]
<PAGE>
PART III
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The following table sets forth the number of shares of our common stock
beneficially owned as of January 1, 2000, by each person known to us to be the
beneficial owner of 5% or more of our common stock:
Name and Address of Number of Shares Percent
Shareholder Beneficially Owned(1) of Class(2)
-------------------- --------------------- -----------
Cenex Harvest States Cooperatives 5,169,156(3) 37.3%
5500 Cenex Drive
Inver Grove Heights, MN 55077
Carmen S. Abril Lopez 591,696 5.8%
901 West Culver
Phoenix, AZ 85007
Donald R. Brattain 662,000 6.4%
601 Lakeshore Parkway
Minnetonka, MN 55305
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(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 1, 2000, 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) Includes: (i) 92,500 shares which are outstanding; (ii) 1,515,150
shares which are not outstanding but which may be issued upon
conversion of convertible Preferred Stock; (iii) 2,045,504 shares which
are not outstanding that may be purchased pursuant to the merger
agreement if the merger is terminated; (iv) 9,000 shares, not
outstanding, issuable upon exercise of vested stock options held by
John D. Johnson, President and General Manager of Cenex; and (v)
1,507,000 shares, outstanding, subject to voting and proxy agreements
granted by Sparta officers and directors and a principal shareholder.
2
<PAGE>
Management Shareholdings
The following table sets forth the number of shares of our common stock
beneficially owned as of January 1, 2000, by each of our executive officers
named in the Summary Compensation Table, by each director and by all directors
and current executive officers 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 379,000(3) 3.7%
3376 Breconwood Circle
Wayzata, MN 55391
Joel P. Bachul 365,250(4) 3.5%
1565 First Ave. N.W.
New Brighton, MN 55112
Michael J. Kozlak 273,000(5) 2.6%
5049 Green Farms Road
Edina, MN 55436
A. Merrill Ayers 189,125(6) 1.8%
1565 First Ave. N.W.
New Brighton, MN 55112
Thomas C. House 90,900(7) *
1483 Arden Oak Drive
Arden Hills, MN 55112
Edward K. Jorgensen 61,000(3) *
5N175 Deerpath Way
St. Charles, IL 60175
Craig S. Cram 33,250(7) *
1565 First Ave. N.W.
New Brighton, MN 55112
John D. Johnson (8) 11,000(9) *
1667 N. Snelling
St. Paul, MN 55164
Thomas F. Baker 23,000(10) *
1573 Lone Oak Road
Eagan, MN 55121
William J. Benzick 3,000(9) *
4137 Brigadoon Drive
Shorview, MN 55126
3
<PAGE>
Name and Address of Number of Shares Percent
Shareholder or Identity of Group Beneficially Owned(1) of Class(2)
-------------------------------- --------------------- -----------
Current Officers and Directors as a group 1,337,625(11) 12.4%
(9 persons)
- ---------------------
* Less than 1%.
(1) See footnote (1) to preceding table.
(2) See footnote (2) to preceding table.
(3) Includes 21,000 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
(4) Includes 231,250 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
(5) Includes 23,000 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
(6) Includes 163,125 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
(7) Includes 16,250 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
(8) Such shares are not outstanding but may be purchased upon exercise of
options which are exercisable as of January 1, 2000 or within 60 days
of such date.
(9) Mr. Johnson is an executive officer of Cenex Harvest States
Cooperatives, which is one of our shareholders.
(10) Includes 3,000 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
(11) Includes 492,625 shares which may be purchased upon exercise of options
which are exercisable as of January 1, 2000 or within 60 days of such
date.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4
<PAGE>
Exhibits are numbered in accordance with Item 601 of
Regulation S-B. See "Exhibit Index" immediately following the
signature page of this Form 10-KSB.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by us during the fourth
quarter of the fiscal year ending September 30, 1999. A report
on Form 8-K was filed on October 26, 1999 reporting under Item
2 our acquisition of Food Products Corporation, and a Form 8-K
was filed on November 17, 1999 reporting under Item 5 our
agreement to grant Cenex Harvest States Cooperatives the
exclusive right to negotiate an acquisition of us.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPARTA FOODS, INC.
By: /s/ Joel P. Bachul
Joel P. Bachul, President
Date: February 4, 2000
5
<PAGE>
SPARTA FOODS, INC.
EXHIBIT INDEX TO FORM 10-KSB
Exhibit
Number Description
3.1 Articles of Incorporation, as amended to date.
3.2 By-Laws, as amended to date. (Incorporated by reference to 3.2 to our
Form 10-KSB for the fiscal year ended September 30, 1998).*
4.1 Form of Certificate for common stock of Sparta Foods, Inc.
(Incorporated by reference to our Form 10-QSB for the quarter ended
March 31, 1994.)*
10.1** Amended and Restated Stock Option Plan. (Incorporated by reference to
Exhibit 10.2 to our Annual Report on Form 10-KSB for the period ended
September 30, 1996.)*
10.2 Concurrent Ownership and Usage Agreement dated November 16, 1990,
between La Canasta Mexican Food Products, Inc. and La Canasta of
Minnesota, Inc. (Reg. No. 1,560,808). (Incorporated by reference to our
Form 10-K for the period ended December 31, 1990.) *
10.3 Concurrent Ownership and Usage Agreement dated November 16, 1990,
between La Canasta Mexican Food Products, Inc. and La Canasta of
Minnesota, Inc. (Reg. No. 1,341,156). (Incorporated by reference to our
Form 10-K for the period ended December 31, 1990.)*
10.4 Concurrent Ownership and Usage Agreement dated November 16, 1990,
between La Canasta Mexican Food Products, Inc. and La Canasta of
Minnesota, Inc. (Reg. No. 1,434,854). (Incorporated by reference to our
Form 10-K for the period ended December 31, 1990.)*
10.5 Distributorship Agreement dated January 21, 1994 between Crystal Farms
Refrigerated Distribution Company and Sparta Foods, Inc. (Incorporated
by reference to our Amendment No. 2 on Form 10-KSB/A to the Form 10-KSB
for the period ended September 30, 1993.)*
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* Incorporated by reference - Commission File No. 000-19318 unless otherwise
indicated.
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB.
*** Filed with Form 10-KSB for fiscal year ended September 30, 1999.
<PAGE>
Exhibit
Number Description
10.6 Addendum No. 1 to Distributor Agreement dated July 20, 1995 between
Crystal Farms Refrigerated Distribution Company and Sparta Foods, Inc.
(Incorporated by reference to our Form 10-QSB for the quarterly period
ended June 30, 1995.)*
10.7 Distributor Agreement dated January 2, 1996, between Catalina Specialty
Foods, Inc. and us. (Incorporated by reference to Exhibit 10.40 to our
Form 10-QSB for the period ended March 31, 1996.)*
10.8** Salary Continuation Agreement dated August 1995 between us and Joel P.
Bachul. (Incorporated by reference to Exhibit 10.39 to our Form 10-KSB
for the year ended September 30, 1996).*
10.9** First Amendment dated April 1, 1999 to Salary Continuation Agreement
dated August 1995 between us and Joel Bachul. (Incorporated by
reference to Exhibit 10.6 to our Form 10-QSB for the quarterly period
ended June 30, 1999).*
10.10** Salary Continuation Agreement dated August 1995 between us and A.
Merrill Ayers. (Incorporated by reference to Exhibit 10.40 to our Form
10-KSB for the quarterly year ended September 30, 1996).*
10.11** First Amendment dated April 1, 1999 to Salary Continuation Agreement
dated August 1995 between us and A. Merrill Ayers. (Incorporated by
reference to Exhibit 10.7 to our Form 10-QSB for the quarterly period
ended June 30, 1999).*
10.12** Change of Control Executive Severance Pay Agreement dated April 1, 1999
between Company and Craig S. Cram. (Incorporated by reference to
Exhibit 10.5 to our Form 10-QSB for the quarterly period ended June 30,
1999).*
10.13 Distribution Agreement dated February 14, 1997 between us and Marigold
Foods, Inc. (Incorporated by reference to Exhibit 10.45 to our Form
10-QSB for the quarterly period ended March 31, 1997.*
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* Incorporated by reference - Commission File No. 000-19318 unless otherwise
indicated.
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB.
*** Filed with Form 10-KSB for fiscal year ended September 30, 1999.
<PAGE>
Exhibit
Number Description
10.14 Commercial Lease between First Industrial L.P. and Sparta Foods, Inc.,
effective September 1, 1997 for a 15-year period. (Incorporated by
reference to Exhibit 10.46 to our Form 10-QSB for the quarterly period
ended June 30, 1997).*
10.15 Second Amendment dated June 3, 1999 to the Industrial Building Lease
Agreement dated September 1, 1997 between us and First Industrial, LP.
(Incorporated by reference to Exhibit 10.3 to our Form 10-QSB for the
quarterly period ended June 30, 1999).*
10.16 Supply Agreement dated January 14, 1999 between us and Rupari Food
Services, Inc. (Incorporated by reference to Exhibit 10.4 to our Form
10-QSB for the quarterly period ended June 30, 1999).*
10.17 Loan Agreement dated as of July 1, 1997 between us and Minnesota
Agricultural and Economic Development Board. (Incorporated by reference
to Exhibit 10.40 to our Form 10-KSB for the period ended September 30,
1997.)*
10.18 Stock Purchase Agreement dated February 23, 1998 between us and Harvest
States Cooperatives. (Incorporated by reference to Exhibit 10.40 to our
Form 8-K dated February 24, 1998.)*
10.19 Equipment Lease Agreement dated March 5, 1999 between us and Firstar
Equipment Finance Corporation. (Incorporated by reference to Exhibit
10.1 to our Form 10-QSB for the quarterly period ended March 31,
1999).*
10.20 Revised License Agreement dated January 1, 1999 between us and Atlas
International Food and Equipment. (Incorporated by reference to Exhibit
10.8 to our Form 10-QSB for the quarterly period ended June 30, 1999).*
10.21 Secured Subordinated Promissory Note dated October 13, 1999 by and
between us and Food Products Corporation. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated October 13,
1999).*
10.22 Assignment of Lease dated October 13, 1999 by and between us and Food
Products Corporation and related Lease Agreement. (Incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K dated
October 13, 1999).*
- ------------------------------
* Incorporated by reference - Commission File No. 000-19318 unless otherwise
indicated.
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB.
*** Filed with Form 10-KSB for fiscal year ended September 30, 1999.
<PAGE>
10.23 Term Loan and Credit Agreement dated October 13, 1999 by and between us
and Norwest Bank Minnesota, National Association. (Incorporated by
reference to Exhibit 10.3 to our Current Report on Form 8-K dated
October 13, 1999).*
10.24 Term Note dated October 13, 1999, issued by Sparta Foods, Inc. to
Norwest Bank Minnesota, National Association. (Incorporated by
reference to Exhibit 10.4 to our Current Report on Form 8-K dated
October 13, 1999).*
10.25 Security Agreement dated October 13, 1999 by and between us and Norwest
Bank Minnesota, National Association. (Incorporated by reference to
Exhibit 10.5 to our Current Report on Form 8-K dated October 13,
1999).*
11 Sparta Foods, Inc. Computation of Earnings (loss) Per Common Share.***
21 Subsidiaries of Registrant. (Incorporated by reference to Exhibit 21 to
our Form 8-K dated February 24, 1998.)*
23 Consent of independent public accountant.***
24 Power of Attorney (included on signature page of this Form 10-KSB)
27 Financial Data Schedule (filed in electronic format only)***
- ------------------------------
* Incorporated by reference - Commission File No. 000-19318 unless otherwise
indicated.
** Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB.
*** Filed with Form 10-KSB for fiscal year ended September 30, 1999.
Exhibit 3.1
AMENDMENT OF ARTICLES OF INCORPORATION
OF
SPARTA FOODS, INC.
Article VI of the Articles of Incorporation of Sparta Foods, Inc. has
been 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."
I certify that I am authorized to execute this Amendment and I further
certify that I understand that by signing this Amendment I am subject to the
penalties of perjury as set forth in Minnesota Statutes, Section 609.48, as if I
had signed this Amendment under oath.
Dated: March 2, 1999.
/s/ A. Merrill Ayers
A. Merrill Ayers
Senior Vice President and Secretary
<PAGE>
ARTICLES OF INCORPORATION
OF
SPARTA CORP.
The undersigned, for the purpose of forming a corporation under and
pursuant to the provisions of Chapter 302A, Minnesota Statutes, and laws
amendatory thereof and supplementary thereto, hereby adopts the following
Articles of Incorporation.
ARTICLE I
The name of this corporation shall be Sparta Foods, Inc.
ARTICLE II
The registered office of this corporation in the State of Minnesota
shall be 6700 Excelsior Boulevard, Suite 200, Minneapolis, Minnesota 55426.
ARTICLE III
3.1 This corporation shall have the authority to issue an aggregate of
fifteen million (15,000,000) shares of Common Stock, each with $.01 par value.
Such shares shall be designated as this corporation's "Common Stock."
3.2 This corporation shall have the authority to issue an aggregate of
one million (1,000,000) shares of Preferred Stock, which may be issued in one or
more series as determined from time to time by the Board of Directors. Such
shares shall be designated as the "Preferred Stock, Series ________________."
The shares of Preferred Stock of any series authorized for issuance by the Board
of Directors shall be senior to the Common Stock with respect to any
distribution (as such term is defined in Section 302A.011, Subd. 10, Minnesota
Statutes) if so designated by the Board of Directors upon issuance of the shares
of that series. The Board of Directors is hereby granted the express authority
to fix by resolution any other designations, powers, preferences, rights,
qualifications, limitations or restrictions with respect to any particular
series of Preferred Stock prior to issuance thereof.
3.3 Except as otherwise required by law, the holders of the shares of
Common Stock shall have the sole voting rights of this corporation.
3.4 There shall be no cumulative voting by the holders of the Common
Stock.
3.5 The shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of the shares represented and voting
at a duly held meeting, except where the affirmative vote of a greater number of
the affirmative vote of a majority of the voting power of all voting shares is
required by statute and except where the holders of a class or series are
<PAGE>
entitled by statute to vote as a class or series whether or not such holders are
otherwise entitled to vote.
3.6 The shareholders of this corporation shall have no preemptive
rights to subscribe for or otherwise acquire any new or additional shares of
stock of this corporation of any class whether now authorized or authorized
hereafter, or any options or warrants to purchase, subscribe for or otherwise
acquire any such new or additional shares of any class, or any shares, bonds,
notes, debentures, or other securities convertible into or carrying options or
warrants to purchase, subscribe for, or otherwise acquire any such new or
additional shares of any class.
ARTICLE IV
In addition to, and not by way of limitation of, the powers granted to
the Board of Directors by Chapter 302A, Minnesota Statutes, the Board of
Directors of this corporation shall have the following powers and authority:
4.1 To fix by resolution any designation, power, preference, right,
qualification, limitation or restriction with respect to the issue of any series
of the Preferred Stock of this corporation authorized by these Articles of
Incorporation.
4.2 To issue shares of class or series to holder of shares of another
class or series to effectuate share dividends, splits, or conversion of its
outstanding shares.
4.3 To fix the terms, provisions and conditions of and to authorize the
issuance, sale, pledge or exchange of bonds, debentures, notes, or other
evidences of indebtedness of this corporation.
4.4 To adopt, amend or repeal all or any of the Bylaws of this
corporation by the vote of a majority of its members present at a duly held
meeting, subject to the power of the shareholders to adopt, amend or repeal such
Bylaws.
4.5 As to any member of the Board, to give advance written consent or
opposition to a resolution stating an action to be taken by the Board. If such
member is not present at the meeting at which action is taken upon such
resolution, such consent or opposition does not constitute presence for purposes
of determining the existence of a quorum, but shall be counted as a vote in
favor of or against the resolution and shall be entered in the minutes or other
record of action taken by the Board at the meeting if the resolution acted upon
by the Board at the meeting is substantially the same or has substantially the
same effect as the resolution to which the member of the Board has consented or
objected.
4.6 To adopt an indemnity plan and to purchase and maintain insurance
for officers, directors, employees and agents against liability asserted against
them and incurred in any such capacity or arising out of their status as such to
the fullest extent permissible under the provisions of Chapter 302A, Minnesota
Statutes. Except as expressly provided in Section 302A.251, Subd. 4, Minnesota
Statutes, a member of the Board of Directors of this corporation shall have no
personal liability to this corporation or to the shareholders for monetary
damages for breach of fiduciary duty as a member of the Board of Directors.
<PAGE>
4.7 To take any action required or permitted to be taken at a meeting
of the Board by written action signed by the number of directors that would be
required to take same action at a meeting of the Board at which all directors
were present, including action requiring shareholder approval, provided, that
any action taken in writing which requires shareholder approval shall be signed
by all directors.
ARTICLE V
The names and post office addresses of the members of the initial Board
of Directors are:
Name Address
William H. Spell 6700 Excelsior Boulevard
Suite 200
Minneapolis, Minnesota 55426
Jeffrey D. Anderson 13403 Caramel Trail
Eden Prairie, Minnesota 55344
Robert D. Schmidt 7200 York Avenue South #506
Edina, Minnesota 55435
David A. Heider 776 Fairmount Avenue
Saint Paul, Minnesota 55105
Nick T. Boosalis 340 Century Plaza
111 Third Avenue South
Minneapolis, Minnesota 55404-1040
ARTICLE VI
Section 302A.671, Minnesota Statutes, shall apply to any control share
acquisition of the capital stock of this corporation.
IN WITNESS WHEREOF, the undersigned incorporator has hereunto set his
signature in Minnesota on this 5th day of July, 1988.
<PAGE>
IN THE PRESENCE OF:
/s/ William H. Spell
William H. Spell
6700 Excelsior Boulevard
Minneapolis, Minnesota 55426
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
On this 5th day of July, 1988, before me personally appeared William H.
Spell, to me known to be the person described in, and who executed, the
foregoing instrument, and acknowledged that he executed the same as his free act
and deed.
/s/ Gerard Miller
Notary Public
<PAGE>
SPARTA FOODS, INC.
CERTIFICATE OF DESIGNATIONS
FOR
PREFERRED STOCK, SERIES 1998
The undersigned, being the Chief Executive Officer of Sparta Foods,
Inc., a Minnesota corporation (the "Company"), in accordance with Minnesota
Statutes, Section 302A.401, Subd. 3(b), certifies that:
Pursuant to the authority vested in the Board of Directors of the
Company by the Articles of Incorporation of the Company, the Board of Directors
on February 11, 1998, in accordance with Minnesota Statutes, Section 302A.401,
Subd. 3, duly adopted the following resolution establishing a series of the
Company s Preferred Stock, to be designated as its Preferred Stock, Series 1998:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company (the "Board of Directors") by the Articles of
Incorporation of the Company, the Board of Directors hereby establishes a series
of Preferred Stock of the Company and hereby states the designation and number
of shares, and fixes the relative rights and preferences, of such series of
shares as follows:
Preferred Stock, Series 1998
Section 1. Designation; Number of Shares. The shares of such series
shall be designated as Preferred Stock, Series 1998 (the "Preferred Stock"), and
the number of shares constituting the Preferred Stock shall be 2,500.
Section 2. Par Value; No Cumulative Voting; No Preemptive Rights. The
Preferred Stock shall have a par value of $1,000.00 per share. As provided in
Article III, Sections 3.4 and 3.6, of the Company s Articles of Incorporation,
holders of Preferred Stock shall not be entitled to cumulate their votes in any
election of directors in which they are entitled to vote and shall not be
entitled to any preemptive rights to acquire shares of any class or series of
capital stock of the Company.
Section 3. Rank. The Preferred Stock shall rank prior to all of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), now
outstanding or hereafter issued, both as to payment of dividends and as to
distributions of assets upon the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary.
Section 4. Dividends and Distributions. The holders of shares of
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for such purpose, cash
<PAGE>
dividends at the rate of 5% per annum per share, or, at the option of the
Company, dividends of shares of Preferred Stock at the rate of 7.5% (based on
the liquidation preference of the Preferred Stock) per annum per share;
provided, however, after a Change of Control (as defined in Section 9) or such
time as there ceases to be a majority of the Board of Directors comprised as
Continuing Directors (as defined in this Section 9) (other than pursuant to an
agreement or arrangement authorized, approved or acquiesced in by the Company's
Board of Directors), the dividend rate shall be 15% per annum, in cash. Such
dividends shall be fully cumulative, shall accumulate without interest from the
date of original issuance of the Preferred Stock and shall be payable
semi-annually in arrears in cash on each January 1 and July 1 commencing July 1,
1998 (provided, that if any such date is a Saturday, Sunday or legal holiday in
the place where such dividend is to be paid, then such dividend shall be payable
without interest on the next day that is not a Saturday, Sunday or legal
holiday) to holders of record as they appear on the stock books of the Company
on such record dates as shall be fixed by the Board of Directors. Such record
dates shall be not more than 60 nor less than 10 days preceding the respective
dividend payment dates. The amount of dividends payable per share of Preferred
Stock for each full semi-annual dividend period shall be computed by dividing
the annual dividend amount by two. The amount of dividends payable for the
initial dividend period and for any other period shorter than a full semi-annual
dividend period shall be computed on the basis of a 360-day year of twelve
30-day months. No dividends or other distributions, other than dividends payable
solely in shares of Common Stock or other capital stock of the Company ranking
junior as to payment of dividends to the Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Dividend
Stock"), shall be paid or set apart for payment on, and no purchase, redemption
or other acquisition shall be made by the Company of, any shares of Junior
Dividend Stock unless and until all accumulated and unpaid dividends on the
Preferred Stock, including the full dividend for the then-current semi-annual
dividend period, shall have been paid or declared and set apart for payment.
No full dividends shall be paid or declared and set apart for payment
on any capital stock of the Company ranking, as to payment of dividends, on a
parity with the Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
been, or contemporaneously are, paid or declared and set apart for payment on
the Preferred Stock for all dividend periods terminating on or prior to the date
of payment of such full cumulative dividends. No full dividends shall be paid or
declared and set apart for payment on the Preferred Stock for any period unless
full cumulative dividends have been, or contemporaneously are, paid or declared
and set apart for payment on any Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such full cumulative
dividends. When dividends are not paid in full upon the Preferred Stock and any
Parity Dividend Stock, all dividends paid or declared and set apart for payment
upon shares of Preferred Stock and Parity Dividend Stock shall be paid or
declared and set apart for payment pro rata, so that the amount of dividends
paid or declared and set apart for payment per share on the Preferred Stock and
the Parity Dividend Stock shall in all cases bear to each other the same ratio
that accumulated and unpaid dividends per share on the shares of Preferred Stock
and Parity Dividend Stock bear to each other.
Any reference to distribution contained in this Section 4 shall not be
deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
<PAGE>
Section 5. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Preferred Stock shall be entitled to receive out of the assets of the
Company an amount equal to the dividends accumulated and unpaid thereon to the
date of final distribution to such holders, whether or not declared, without
interest, plus a sum equal to $1,000.00 per share, before any payment shall be
made or any assets distributed to the holders of Common Stock or any other
capital stock of the Company ranking junior as to liquidation rights to the
Preferred Stock (such Common Stock and other capital stock being referred to
herein collectively as "Junior Liquidation Stock"). The entire assets of the
Company available for distribution shall be distributed ratably among the
holders of the Preferred Stock as to liquidation rights with the Preferred Stock
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation preference of the shares of the Preferred Stock, the holders of
such shares shall not be entitled to any further participation in any
distribution of assets by the Company. Neither a consolidation or merger of the
Company with another corporation nor a sale or transfer of all or part of the
Company s assets for cash, securities or other property will be deemed a
liquidation, dissolution or winding up of the Company for purposes of this
Section 5.
Section 6. Redemption at Option of the Company. (a) The Company, at its
option, may, on or after February 23, 2001, redeem at any time all, or from time
to time any portion, of the Preferred Stock on any date set by the Board of
Directors, at a cash price equal to $1,100.00 per share plus, in each case, an
amount per share in cash equal to all dividends on the Preferred Stock
accumulated and unpaid on such share, whether or not declared, to the date fixed
for redemption (such sum being hereinafter referred to as the "Redemption
Price").
In case of the redemption of less than all of the then outstanding
Preferred Stock, the Company shall designate by lot, or in such other manner as
the Board of Directors may determine, the shares to be redeemed, or shall effect
such redemption pro rata. Notwithstanding the foregoing, the Company shall not
redeem less than all of the Preferred Stock at any time outstanding until all
dividends accumulated and in arrears upon all Preferred Stock then outstanding
shall have been paid for all past dividend periods.
Not more than 60 nor less than 30 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to the holders of
record of the Preferred Stock to be redeemed, addressed to such shareholders at
their last addresses as shown on the stock books of the Company. Each such
notice of redemption shall specify the date fixed for redemption; the redemption
price; the place or places of payment; the then-effective Conversion Rate (as
defined in Section 7); that the right of holders of Preferred Stock called for
redemption to exercise their conversion right pursuant to Section 7 shall expire
as to such shares at the close of business on the date fixed for redemption
(provided that there is no default in payment of the Redemption Price); that
payment of the Redemption Price will be made upon presentation and surrender of
certificates representing the shares of Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Preferred Stock; and that on and after the redemption
date, dividends will cease to accumulate on such shares.
<PAGE>
(b) In the case of a Change of Control (as defined in Section 9
herein), the Company may redeem not less than all of the Preferred Stock no
earlier than the date on which there is a Change of Control, at a cash price
equal to the Redemption Price (the "Change of Control Redemption") provided that
notice has been given as provided herein.
Not more than 60 nor less than 30 days prior to the date the Company
reasonably believes will be the date upon which a Change of Control will be
effected, notice by first class mail, postage prepaid, shall be given to the
holders of record of the Preferred Stock, addressed to such shareholders at
their last addresses as shown on the stock books of the Company. Each such
notice of redemption shall specify the prospective redemption date; the
redemption price; the place or places of payment; the then-effective Conversion
Rate (as defined in Section 7); that the prospective redemption date may be
canceled at any time with proper notice by the Company (as set forth herein);
that the right of holders of Preferred Stock called for redemption to exercise
their conversion right pursuant to Section 7 shall expire as to such shares on
the redemption date (provided that there is no default in payment of the
Redemption Price); that payment of the Redemption Price will be made upon
presentation and surrender of certificates representing the shares of Preferred
Stock; that accumulated but unpaid dividends to the date fixed for redemption
will be paid on the date fixed for redemption; that accumulated but unpaid
dividends will not be paid in the case of a conversion of Preferred Stock; and
that on and after the redemption date, dividends will cease to accumulate on
such shares. A holder of the Preferred Stock shall be permitted to make a
conversion election conditional on and effective immediately prior to any such
redemption.
If the Company determines that the Change of Control will not be
effected, not more than ten days following such date, notice by first class
mail, postage prepaid, shall be given to the holders of record of the Preferred
Stock to be redeemed, addressed to such shareholders at their last addresses as
shown on the stock books of the Company. Each notice shall state that the
Company cancels its Change of Control Redemption and that the rights and
preferences of the holders of record of the Preferred Stock shall continue with
respect to the Preferred Stock.
(c) Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not a holder of the Preferred Stock
receives such notice; and failure so to give such notice, or any defect in such
notice, to the holders of any shares designated for redemption shall not affect
the validity of the proceedings for the redemption of any other shares of
Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption (other than shares that
have been duly surrendered for conversion at or before the close of business on
the date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Company at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price. If fewer
than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with
<PAGE>
respect to the shares so called shall cease to accumulate on and after the date
fixed for redemption, such shares shall no longer be deemed outstanding, the
holders thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive the
Redemption Price without interest upon surrender of their certificates) shall
terminate.
Section 7. Conversion at Option of Holders. Holders of Preferred Stock
may, at their option upon surrender of the certificates therefor, convert any or
all of their shares of Preferred Stock into fully paid and nonassessable shares
of Common Stock (and such other securities and property as they may be entitled
to, as hereinafter provided) at any time after issuance thereof; provided, that
such conversion right shall expire at the close of business on the date, if any,
fixed for the redemption of Preferred Stock in any notice of redemption given
pursuant to Sectiony6 hereof if there is no default in payment of the Redemption
Price. Each share of Preferred Stock shall be convertible at the office of any
transfer agent for the Preferred Stock, and at such other office or offices, if
any, as the Board of Directors may designate, into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) as shall be equal to the Conversion Rate, determined
as hereinafter provided, in effect at the time of conversion. Each share of
Preferred Stock shall initially be converted into full shares of Common Stock at
the rate of 606.06 shares of Common Stock for each share of Convertible
Preferred Stock, subject to adjustment from time to time as provided in Section
8 (such conversion rate, as so adjusted from time to time, being referred to
herein as the "Conversion Rate"). The Conversion Price means $1,000.00 divided
by the Conversion Rate. Upon conversion, no adjustment or payment shall be made
in respect of accumulated and unpaid dividends on the Preferred Stock
surrendered for conversion.
The right of holders of Preferred Stock to convert their shares shall
be exercised by surrendering for such purpose to the Company or its agent, as
provided above, certificates representing shares to be converted, duly endorsed
in blank or accompanied by proper instruments of transfer. The Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of Common Stock or other securities or
property upon conversion of Preferred Stock in a name other than that of the
holder of the shares of Preferred Stock being converted, nor shall the Company
shall be required to issue or deliver any such shares or other securities or
property unless and until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Preferred Stock outstanding upon
the basis hereinbefore provided shall at all times be reserved by the Company,
free from preemptive rights, for such conversion, subject to the provisions of
the next paragraph. If the Company shall issue any securities or make any change
in its capital structure that would change the number of shares of Common Stock
into which each share of the Preferred Stock shall be convertible as herein
provided, the Company shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Preferred Stock on the new basis.
<PAGE>
Upon the surrender of certificates representing shares of Preferred
Stock to be converted, duly endorsed or accompanied by proper instruments of
transfer as provided above, the person converting such shares shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, and
all rights with respect to the shares surrendered shall forthwith terminate
except the right to receive the Common Stock or other securities, cash or other
assets as herein provided.
No fractional shares of Common Stock shall be issued upon conversion of
Preferred Stock but, in lieu of any fraction of a share of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Company shall pay
in cash an amount equal to the product of (a) the Closing Price of a share of
Common Stock (as defined in the next sentence) on the last trading day before
the conversion date and (b) such fraction of a share. The Closing Price for each
day shall be the last reported sale price regular way or, in case no sale takes
place on such day, the average of the closing bid and asked prices regular way
on such day, in either case as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, on the NASDAQ National
Market System, or, if the Common Stock is not admitted for quotation on the
NASDAQ National Market System, the average of the high bid and low asked prices
on such day as recorded by the National Association of Securities Dealers, Inc.
through NASDAQ, or, if the National Association of Securities Dealers, Inc.
through NASDAQ shall not have reported any bid and asked prices for the Common
Stock on such day, the average of the bid and asked prices for such day as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company for such purpose, or, if no such bid and asked prices can be
obtained from any such firm, the fair market value of one share of the Common
Stock on such day as determined in good faith by the Board of Directors of the
Company.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject to
the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Company with any
other corporation (other than a wholly owned subsidiary of the Company), or in
case of any sale or transfer of all or substantially all of the assets of the
Company, or in case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Company shall, prior to or at the time of such transaction, make
appropriate provision or cause appropriate provision to be made so that holders
<PAGE>
of each share of Preferred Stock then outstanding shall have the right
thereafter to convert such share of Preferred Stock into the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such share of Preferred Stock could
have been converted immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange. If in connection with
any such consolidation, merger, sale, transfer or share exchange, each holder of
shares of Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Company shall provide
or cause to be provided to each holder of Preferred Stock the right to elect the
securities, cash or other assets into which the Preferred Stock held by such
holder shall be convertible after completion of any such transaction on the same
terms and subject to the same conditions applicable to holders of the Common
Stock (including, without limitation, notice of the right to elect, limitations
on the period in which such election shall be made and the effect of failing to
exercise the election).
(b) In case the Company shall (i) pay a dividend or make a distribution
on its Common Stock in shares of its capital stock, (ii) subdivide its
outstanding Common Stock into a greater number of shares, (iii) combine the
shares of its outstanding Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its Common Stock any shares of its capital stock,
then in each such case the Conversion Rate in effect immediately prior thereto
shall be proportionately adjusted so that the holder of any Preferred Stock
thereafter surrendered for conversion shall be entitled to receive, to the
extent permitted by applicable law, the number and kind of shares of capital
stock of the Company which such holder would have owned or have been entitled to
receive after the happening of such event had such Preferred Stock been
converted immediately prior to the record date for such event (or if no record
date is established in connection with such event, the effective date for such
action). An adjustment pursuant to this subparagraph (b) shall become effective
immediately after the record date in the case of a stock dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(c) In case the Company shall at any time prior to February 23, 2001
(i) except pursuant to (A) 1,103,667 options and 3,634,208 warrants outstanding
as of the date hereof or (B) securities issued in compliance with Section 9(d)
of the Stock Purchase Agreement, dated February 24, 1998, between the Company
and Harvest States Cooperatives (the "Stock Purchase Agreement"), issue or sell
any shares of its Common Stock for a consideration per share less than the
Conversion Price in effect immediately prior to the time of such issuance or
sale, (ii), except for securities issued in compliance with Section 9(d) of the
Stock Purchase Agreement, issue or sell any warrants, options or other rights to
acquire shares of its Common Stock at a purchase price less than the Conversion
Price in effect immediately prior to the time of such issuance or sale, or (iii)
issue or sell any other securities that are convertible into shares of Common
Stock for a purchase or exchange price less than the Conversion Price in effect
immediately prior to the time of such issuance or sale then, upon such issuance
or sale, the Conversion Rate shall be increased by reducing the Conversion Price
to the price at which such shares of Common Stock are being issued or sold by
the Company or the price at which such other securities are exercisable or
convertible into shares of the Company's Common Stock, and then adjusting the
Conversion Rate to $1,000.00 divided by the new Conversion Price.
<PAGE>
(d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness or assets
(including securities, but excluding any rights or warrants to purchase
securities of the Company referred to in subparagraph (c) above, any dividend or
distribution paid in cash out of the retained earnings of the Company and any
dividend or distribution referred to in subparagraph (b) above), then in each
such case the Conversion Rate then in effect shall be adjusted in accordance
with the formula
C1 = the adjusted Conversion Rate.
C = the current Conversion Rate.
M = the Current Market Price per share of Common Stock
on the record date mentioned below.
F = the amount of such cash dividend and/or the fair
market value on the record date of the assets, securities, rights or warrants
to be distributed divided by the number of shares of Common Stock outstanding
on the record date. The Board of Directors of the Company shall determine in
good faith such fair market value.
Such adjustment shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
(e) All calculations hereunder shall be made to the nearest cent or to
the nearest 1/100 of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph(a) or (b) above, the holder of any Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash or assets other than Common Stock, the number or amount of such
securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted, the Company shall give notice
by mail at the time of, and together with, the next dividend payment to the
holders of record of Preferred Stock, setting forth the adjustment and the new
Conversion Rate. Notwithstanding the foregoing notice provisions, failure by the
Company to give such notice or a defect in such notice shall not affect the
binding nature of such corporate action of the Company.
Whenever the Company shall propose to take any of the actions specified
in subparagraphs (a), (b), (c) or (d) of the first paragraph of this Section 8
which would result in any adjustment in the Conversion Rate, the Company shall
cause a notice to be mailed at least 30 days prior to the date on which the
books of the Company will close or on which a record will be taken for such
action to the holders of record of the outstanding Preferred Stock on the date
<PAGE>
of such notice. Such notice shall specify the action proposed to be taken by the
Company and the date as of which holders of record of the Common Stock shall
participate in any such actions or be entitled to exchange their Common Stock
for securities or other property, as the case may be. Failure by the Company to
give such notice or any defect in such notice shall not affect the validity of
the transaction.
Notwithstanding any other provision of this Section 8, no adjustment in
the Conversion Rate need be made (A) for a change in par value of the Common
Stock not involving a subdivision or combination described in clause (ii) or
(iii) of subparagraph (b) of the first paragraph of this Section 8 or (B) after
the Preferred Stock becomes convertible solely into cash (and no interest shall
accrue on the cash).
Section 9. Preferred Stock Redeemable at Option of Holders. Not later
than 15 days following the occurrence of a Put Event (as defined in this Section
9), the Company shall provide written notice of such occurrence by first class
mail, postage prepaid addressed to each holder of record (at the close of
business on the business day next preceding the day on which the notice is
given) of shares of Preferred Stock (the "Put Event Notice"). At any time
following the delivery of the Put Event Notice, the Preferred Stock shall be
redeemable at the option of the holders of a majority of the then outstanding
shares of Preferred Stock in the manner and on the terms described herein below.
If at any time after the delivery of the Put Event Notice the holders
of a majority of the outstanding shares of Preferred Stock desire to have the
Company redeem the Preferred Stock, then such holders shall deliver to the
Company a written notice requesting redemption properly executed by the holders
of not less than a majority of the outstanding shares of Preferred Stock (the
"Redemption Election Notice"). Upon receipt of the Redemption Election Notice,
the Company shall redeem on the last day of the sixth full month following
receipt of such Redemption Election Notice (the "Required Redemption Date") 100%
of the outstanding shares of Preferred Stock. The redemption price with respect
to each share of Preferred Stock to be redeemed on each Required Redemption Date
shall be an amount equal to $1,000.00 per share plus, in each case, an amount
per share equal to all dividends on the Preferred Stock accumulated and unpaid
on such share, whether or not declared, to such Required Redemption Date (the
"Required Redemption Price").
Not more than 60 nor less than 30 days prior to the Required Redemption
Date, written notice (the "Required Redemption Notice") shall be given by the
Company by first class mail, postage prepaid, addressed to each holder of record
(at the close of business on the business day next preceding the day on which
the notice is given) of shares of Preferred Stock notifying such holder of the
redemption and specifying the Required Redemption Price, the Required Redemption
Date and the place where such Required Redemption Price shall be payable. The
Required Redemption Notice shall be addressed to each holder at such holder s
address as shown by the records of the Company. On or after the Required
Redemption Date, each holder of the shares called for redemption shall surrender
the certificate or certificates evidencing such shares to the Company at the
place designated in such notice and shall thereupon be entitled to receive
payment of the redemption price. Payment of the redemption price will only be
made upon presentation and surrender of certificates representing the shares of
<PAGE>
Preferred Stock. From and after the close of business on the Required Redemption
Date, unless there shall have been a default in the payment of the Required
Redemption Price, all rights of holders of shares being redeemed (except the
right to receive the Required Redemption Price) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Company, or be deemed to be outstanding for any purpose whatsoever.
If on any Required Redemption Date the funds of the Company legally
available for the redemption of shares of Preferred Stock are insufficient to
redeem the total number of outstanding shares subject to redemption, then the
holders of shares of the Preferred Stock shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts that would be payable with respect to the full number of shares owned by
them if all such shares to be redeemed were redeemed in full. The shares of
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter, when additional funds
of the Company are legally available for the redemption of such shares of the
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of such shares, or such portion thereof,
for which funds are then legally available, on the basis set forth above.
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not a holder of the Preferred Stock
receives such notice; and failure so to give such notice, or any defect in such
notice, to the holders of any shares designated for redemption shall not affect
the validity of the proceedings for the redemption of any other shares of
Preferred Stock.
For purposes of this Section 9, Put Event shall mean (i) a Change of
Control (as defined in this Section 9) of the Company or (ii) an Event of
Default as such term is defined in the Stock Purchase Agreement.
Change in Control means a change in control of the Company of a nature
that would be required to be reported (assuming such event has not been
previously reported) in response to Item 1(a) of the Current Report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") pursuant to an agreement or
arrangement authorized, approved or acquiesced in by the Company s Board of
Directors; provided, that, without limiting the foregoing, a Change in Control
shall be deemed to have occurred at such time as, pursuant to an agreement or
arrangement authorized, approved or acquiesced in by the Company s Board of
Directors (A) any person is or becomes a beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50 percent or more of
the combined voting power of Corporation s outstanding securities ordinarily
possessing the right to vote for the election of directors (Voting Securities)
or (B) the Company disposes of all or substantially all of its assets. For
purposes of this paragraph, Continuing Directors shall mean individuals who on
the date hereof constituted the Board of Directors and any new director who
subsequently was elected or nominated for election by a Board of Directors the
majority of which were Continuing Directors.
<PAGE>
Section 10. No Sinking Fund. The Preferred Stock shall not be subject
to the operation of a purchase, retirement or sinking fund.
Section 11. Voting Rights. The holders of Preferred Stock shall not
have any voting rights except as set forth below or as otherwise from time to
time required by law.
(a) Whenever dividends on the Preferred Stock shall be in arrears in an
amount equal to one semi-annual dividend payment, the holders of the Preferred
Stock (voting separately as a single class) will be entitled to vote for and
elect one director (in addition to any other rights any such holder may have).
Such right of the holders of Preferred Stock to vote for the election of such
additional director may be exercised at any annual meeting or at any adjournment
thereof, at any special meeting called for such purpose as hereinafter provided
or by unanimous written consent of the holders of the Preferred Stock, until
dividends in default on such outstanding shares of Preferred Stock shall have
been paid in full (or such dividends shall have been declared and funds
sufficient therefor set apart for payment), at which time the term of office of
the director elected pursuant to this Section 11(b) shall terminate
automatically (subject to revesting in the event of each and every subsequent
default of the character specified in the preceding sentence). So long as such
right to vote continues, the Secretary of the Company shall call, upon the
written request of the holders of record of at least 10% of the outstanding
shares of Preferred Stock addressed to him or her at the principal office of the
Company or, if such a request is not made, upon his or her own motion, a special
meeting of the holders of such shares for the election of such additional
director, as provided herein. Such meeting shall be held not less than 45 or
more than 90 days after the accrual of such right, at the place and upon the
notice provided by law and in the by-laws of the Company for the holding of
meetings of shareholders. No such special meeting or adjournment thereof shall
be held on a date less than 30 days before an annual meeting of shareholders or
any special meeting in lieu thereof; provided, that at such annual meeting
appropriate provisions are made to allow the holders of the Preferred Stock to
exercise such right at such meeting. If at any such annual or special meeting or
any adjournment thereof the holders of a majority of the then outstanding shares
of Preferred Stock entitled to vote in such election shall be present or
represented by proxy, then the authorized number of directors of the Company
shall be increased by two, and the holders of Preferred Stock (voting separately
as a single class) shall be entitled to elect such additional director. The
director so elected shall serve until the next annual meeting or until their
successors shall be elected and shall qualify, unless the term of office of the
person so elected as a director shall have terminated by virtue of the payment
in full of all dividends in arrears (or such dividends shall have been declared
and funds sufficient therefor set apart for payment).
(b) If a director elected by the holders of Preferred Stock pursuant to
Section 11(a) shall cease to serve as a director before his or her term shall
expire, the holders of Preferred Stock then outstanding and entitled to vote for
such director may, at a special meeting of such holders called as provided
above, elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
Section 12. Certain Actions Not to be Taken Without Vote of Holders of
Preferred Stock. Without the consent or affirmative vote of the holders of at
<PAGE>
least two-thirds of the outstanding shares of Preferred Stock, voting separately
as a class, the Company shall not authorize, create or issue any shares of any
other class or series of capital stock ranking senior to the Preferred Stock as
to dividends or upon liquidation. The affirmative vote or consent of the holders
of at least two-thirds of the outstanding shares of the Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Company's
Articles of Incorporation (including any certificate of designations
establishing any class or series of preferred stock of the Company) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Preferred Stock; provided, however, that any increase in the authorized
preferred stock of the Company or the creation and issuance of any other capital
stock of the Company ranking junior to the Preferred Stock shall not be deemed
to materially affect such powers, preferences or special rights.
Section 13. Outstanding Shares. For purposes of this Certificate of
Designations, all shares of Preferred Stock shall be deemed outstanding except
for (a) shares of Preferred Stock held of record or beneficially by the Company
or any subsidiary of the Company; (b) from the date of surrender of certificates
representing Preferred Stock for conversion pursuant to Section 7, all shares of
Preferred Stock which have been converted into Common Stock or other securities
or property pursuant to Section 7; (c) from the date fixed for redemption
pursuant to Section 6, all shares of Preferred Stock which have been called for
redemption, provided that funds necessary for such redemption are available
therefor and have been irrevocably deposited or set aside for such purpose; and
(d) from the date fixed for redemption pursuant to Section 9, all shares of
Preferred Stock for which the holders have exercised its put option, provided
that funds necessary for such redemption are available therefor and have been
irrevocably deposited or set aside for such purpose.
Section 14. Status of Preferred Stock Upon Retirement. Shares of
Preferred Stock that are acquired or redeemed by the Company or converted
pursuant to Section 7 shall return to the status of authorized and unissued
shares of preferred stock of the Company without designation as to series. Upon
the acquisition or redemption by the Company or conversion pursuant to Section 7
of all outstanding shares of Preferred Stock, all provisions of this Certificate
of Designations shall cease to be of further effect. Upon the occurrence of such
event, the Board of Directors of the Company shall have the power, pursuant to
Minnesota Statutes, Section 302A.135, Subd. 5 or any successor provision and
without shareholder action, to cause restated articles of incorporation of the
Company or other appropriate documents to be prepared and filed with the
Secretary of State of the State of Minnesota which reflect such removal of all
provisions relating to the Preferred Stock and/or the cancellation of this
Certificate of Designations.
<PAGE>
IN WITNESS WHEREOF, Sparta Foods, Inc. has caused this certificate to
be signed this 24th day of February, 1998.
SPARTA FOODS, INC.
By /s/ Joel P. Bachul
Its President & CEO
