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:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] 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):
[ ] No fee required
[X] 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:
Common stock, $0.01 par value
2) Aggregate number of securities to which transaction applies:
10,278,916
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): $1.41
4) Proposed maximum aggregate value of transaction: $14,914,615
5) Total fee paid: $2,983
[ ] 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:
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SPARTA FOODS, INC.
[Sparta logo]
1565 First Avenue N.W.
New Brighton, MN 55112
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on ______________, 2000
To the shareholders of Sparta Foods, Inc.:
Notice is hereby given that a special meeting of the shareholders of
Sparta Foods, Inc., a Minnesota corporation, will be held at [Time] a.m.,
Central Time, on [Date], 2000, at [Location], for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement of
Merger dated December 31, 1999, by and among Sparta, Cenex Harvest
States Cooperatives, a Minnesota corporation ("Cenex"), and SF
Acquisition Corp., a Minnesota corporation ("Merger Sub") that is
a wholly-owned subsidiary of Cenex. In connection with the merger,
Merger Sub will be merged into Sparta, and Sparta will be the
surviving corporation owned by Cenex, and each issued and
outstanding share of our common stock (other than shares of common
stock with respect to which dissenters' rights have been properly
exercised), will be converted into the right to receive $1.41 in
cash, without interest. Cenex is a principal shareholder of Sparta
and Mr. John D. Johnson, who serves on our board of directors,
also serves as President and General Manager of Cenex. Cenex owns
100% of our outstanding preferred stock.
(2) To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
The merger and other related matters are described in more detail in
the attached proxy statement and its appendices. A summary of certain provisions
of Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act (the
"MBCA") pertaining to the rights of dissenting shareholders if the merger is
consummated is included in the accompanying proxy statement under the heading
"RIGHTS OF DISSENTING SHAREHOLDERS," and copies of Sections 302A.471 and
302A.473 of the MBCA are set forth in Appendix C to the attached proxy
statement.
Only those persons who were holders of record of our common stock at
the close of business on [record date], will be entitled to notice of, and to
vote at, the special meeting and any adjournment or postponement of the special
meeting. We cannot complete the merger unless a majority of our shareholders
vote for the merger.
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YOUR VOTE IS IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK
THAT YOU OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED PRE-ADDRESSED POSTAGE-PAID ENVELOPE. FAILURE TO RETURN
A PROPERLY EXECUTED PROXY CARD OR VOTE AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. In the event
the merger is consummated, you will be sent instructions regarding the
procedures for exchanging your existing stock certificates for a cash payment.
By Order of the Board of Directors,
Joel P. Bachul
President and Chief Executive Officer
___________, 2000
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SPARTA FOODS, INC.
[Sparta logo]
1565 First Avenue N.W.
New Brighton, MN 55112
-------------------
PROXY STATEMENT
-------------------
SPECIAL MEETING OF SHAREHOLDERS
To be held on [Date], 2000
This proxy statement is being furnished to the shareholders of Sparta
Foods, Inc., a Minnesota corporation, in connection with a special meeting of
our shareholders to be held on [Date], 2000 at [Time] a.m., local time, at
[Location]. The accompanying proxy is being solicited by your board of directors
from the holders of issued and outstanding shares of our common stock, for use
at the special meeting or at any adjournments or postponements thereof.
At the special meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement of Merger dated December 31, 1999, by and among
Sparta, Cenex Harvest States Cooperatives, a Minnesota corporation ("Cenex"),
and SF Acquisition Corp., a Minnesota corporation ("Merger Sub") that is a
wholly-owned subsidiary of Cenex. In connection with the merger, Merger Sub will
be merged into Sparta, and we will be the surviving corporation owned by Cenex,
and each issued and outstanding share of our common stock (other than shares of
common stock with respect to which dissenters' rights have been properly
exercised), will be converted into the right to receive $1.41 in cash, without
interest. Cenex is a principal shareholder of Sparta and John D. Johnson, who
serves on our board of directors, also serves as President and General Manager
of Cenex. Cenex owns 100% of our outstanding preferred stock.
A special committee of your board of directors consisting of all the
non-employee directors of Sparta, except John D. Johnson, and the full board of
directors, except Mr. Johnson, have each unanimously determined that the terms
of the merger are fair to, and in the best interests of, Sparta and our
shareholders and unanimously recommend that you vote to approve the merger
agreement.
Only those persons who were holders of record of our common stock at
the close of business on [record date], will be entitled to notice of, and to
vote at, the special meeting and any adjournment or postponement of the special
meeting. We cannot complete the merger unless a majority of our shareholders
vote for the merger.
This proxy statement and the accompanying notice of special meeting and
proxy are first being mailed to our shareholders on or about [Mailing date],
2000.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
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A SUMMARY OF CERTAIN PROVISIONS OF SECTIONS 302A.471 AND 302A.473 OF
THE MINNESOTA BUSINESS CORPORATION ACT (THE "MBCA") PERTAINING TO THE RIGHTS OF
DISSENTING SHAREHOLDERS IF THE MERGER IS CONSUMMATED IS INCLUDED IN THIS PROXY
STATEMENT UNDER THE HEADING "RIGHTS OF DISSENTING SHAREHOLDERS," AND COPIES OF
SECTIONS 302A.471 AND 302A.473 OF THE MBCA ARE SET FORTH IN APPENDIX C TO THIS
PROXY STATEMENT.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SPARTA.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SPARTA OR CENEX SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
The date of this proxy statement is February __, 2000.
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TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................1
SUMMARY..................................................................4
PARTIES TO THE MERGER...................................................11
Sparta...............................................................11
Cenex................................................................11
Merger Sub...........................................................11
THE SPECIAL MEETING.....................................................12
Date, Time, Place and Record Date of the Special Meeting.............12
Matters to be Considered at the Special Meeting......................12
Vote Required........................................................12
Voting Information...................................................13
Solicitation, Revocation and Use of Proxies..........................13
THE MERGER..............................................................15
Merger Consideration.................................................15
Source and Amount of Consideration...................................15
Purpose and Effects of the Merger....................................16
Plans for Sparta After the Merger....................................16
Background of the Merger.............................................17
Reasons for the Merger...............................................22
Recommendation of the Special Committee and Board of Directors.......23
Opinion of Financial Advisor.........................................23
Cenex and Merger Sub Believe the Merger is Fair......................30
Interests Of Certain Persons In The Merger...........................31
Voting and Proxy Agreements..........................................33
Accounting Treatment.................................................34
Material Federal Income Tax Consequences.............................34
RIGHTS OF DISSENTING SHAREHOLDERS.......................................36
THE MERGER AGREEMENT....................................................39
General..............................................................39
Treatment of Stock Options and Warrants..............................40
Effective Time.......................................................40
Payment for Shares...................................................40
Officers, Directors and Governing Documents..........................41
Representations and Warranties.......................................41
Conduct of the Business Pending the Merger...........................42
No Solicitation......................................................43
Access to Information................................................44
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Conditions to the Merger.............................................44
Termination of the Merger Agreement..................................46
Termination Fees.....................................................46
Option to Purchase...................................................47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........49
Principal Shareholders...............................................49
Management Shareholdings.............................................50
MARKET PRICES OF OUR COMMON STOCK AND DIVIDEND INFORMATION.............52
HISTORICAL SELECTED FINANCIAL DATA......................................53
SPARTA MANAGEMENT PROJECTIONS...........................................53
CENEX OFFICERS AND DIRECTORS............................................56
SHAREHOLDER PROPOSALS...................................................58
OTHER MATTERS...........................................................58
WHERE YOU CAN FIND MORE INFORMATION.....................................58
Sparta Securities and Exchange Commission Filings....................59
APPENDICES:
Appendix A: Agreement of Merger
Appendix B: Opinion of Greene Holcomb & Fisher, LLC
Appendix C: Sections 302A.471 and 302A.473 of Minnesota Business
Corporation Act, Regarding Rights of Dissenting
Shareholders
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly
some commonly asked questions regarding the merger. These questions and answers
may not address all questions that may be important to you as a Sparta
shareholder. Please refer to the more detailed information contained elsewhere
in this proxy statement, the appendices to this proxy statement and the
documents referred to or incorporated by reference in this proxy statement.
Q. WHAT AM I BEING ASKED TO VOTE UPON?
A. Your board of directors is asking you to vote to approve or disapprove a
merger agreement which provides that Cenex will acquire Sparta by merging an
entity owned by Cenex into Sparta, with Sparta being the surviving corporation
in the merger.
Q. WHY IS THE SPARTA BOARD OF DIRECTORS RECOMMENDING THE MERGER?
A. We believe the merger represents a unique opportunity for our shareholders to
realize a fair price for their shares; approximately a 61.1% premium over the
$.875 closing price on November 11, 1999, the last day of trading prior to our
announcement of our exclusive negotiation agreement with Cenex. Our common stock
is thinly traded and is not likely to attract the attention of research analysts
and investment banks that would improve the liquidity of our stock or improve
the value of our shares. We are competing against larger and better capitalized
companies and our future growth opportunities are limited by our lack of
available working capital to grow the business. Our board of directors believes
that the merger is fair to, and in the best interests of, Sparta and its
shareholders. Our board of directors has received an opinion from Greene Holcomb
& Fisher, LLC that, as of December 20, 1999, the $1.41 per share in cash to be
received by our shareholders pursuant to the merger agreement is fair from a
financial point of view to Sparta and our shareholders. To review our board of
directors' reasons for recommending the merger, see pages __ through __. In
addition, the members of our board of directors have interests in the merger
which may create possible conflicts of interest as discussed on page __.
Q. IF THE MERGER IS COMPLETED, WHAT WILL I RECEIVE FOR MY SPARTA COMMON STOCK?
A. If the merger is completed and you do not dissent to the merger, you will
receive $1.41 in cash, without interest, for each share of our common stock you
own.
Q. WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A. Holders of record of our common stock as of the close of business on [record
date] are entitled to vote at the special meeting. Each shareholder has one vote
for each share of our common stock owned.
Q. WHAT VOTE IS REQUIRED FOR THE SPARTA SHAREHOLDERS TO APPROVE THE MERGER?
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A. In order for the merger to be approved, holders of a majority of our
outstanding common stock must vote for the merger.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
proxy statement, please vote your shares of our common stock as soon as
possible. You may vote your shares (1) by returning the enclosed proxy or (2) by
appearing at the special meeting of shareholders and personally voting your
shares. Your proxy materials include detailed information on how to vote.
Q. IF MY SHARES ARE HELD FOR ME BY MY BROKER, WILL MY BROKER VOTE THOSE
SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should instruct your broker on how to vote your
shares, using the instructions which will be provided to you by your broker
prior to the special meeting.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You may revoke your proxy by notifying our Secretary in writing
or by submitting a new proxy, in each case, dated after the date of the proxy
being revoked. In addition, your proxy may be revoked by attending the special
meeting and voting in person. However, simply attending the special meeting will
not revoke your proxy. If you have instructed a broker to vote your shares, you
must follow the instructions received from your broker to change your vote.
Q. DO I NEED TO ATTEND THE SPECIAL MEETING IN PERSON?
A. No. It is not necessary for you to attend the special meeting in order to
vote your shares, although you are welcome to attend.
Q. WILL I HAVE THE RIGHT TO HAVE MY SHARES APPRAISED IF I DISSENT FROM THE
MERGER?
A. Yes. You will have dissenter's rights. If you wish to exercise your
dissenter's rights you must not vote in favor of the merger and you must
strictly follow the requirements of Minnesota law. A summary describing the
requirements you must meet in order to exercise your appraisal rights is
provided in the section entitled "RIGHTS OF DISSENTING SHAREHOLDERS" on pages __
through __ of this proxy statement.
Q. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A. We are working toward completing the merger as quickly as possible. The
merger cannot be completed until a number of conditions are satisfied. The most
important condition is approval of the merger by Sparta shareholders at the
special meeting.
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Q. SHOULD I SEND IN MY SPARTA STOCK CERTIFICATES NOW?
A. No. After the merger is completed, Cenex will send you written instructions
for exchanging your stock certificates. You must return your stock certificate
as described in the instructions. You will receive your cash payment as soon as
practicable upon receipt of your stock certificates, together with the documents
requested in the instructions.
Q. WILL I OWE TAXES AS A RESULT OF THE MERGER?
A. The merger will be a taxable transaction for all holders of our common stock.
As a result, the cash you receive in the merger for your shares of common stock
and any cash you receive from exercising your dissenter's rights will be subject
to United States federal income tax and also may be taxed under applicable
state, local and other tax laws. In general, you will recognize gain or loss
equal to the difference between (1) the amount of cash you receive and (2) the
tax basis of your shares of Sparta common stock. Refer to the section entitled
"THE MERGER AGREEMENT -- Certain Tax Consequences to Shareholders" on page __ of
this proxy statement for a more detailed explanation of the tax consequences of
the merger. You should consult your tax advisor on how specific tax consequences
of the merger apply to you.
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A. We do not expect to ask shareholders to vote on any other matter at the
special meeting.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT SPARTA?
A. We file periodic reports and other information with the Securities and
Exchange Commission. You may read and copy this information at the Commission's
public reference facilities. Please call the Commission at 1-800-SEC-0330 for
information about these facilities. This information is also available at the
Internet site maintained by the Commission at http://www.sec.gov and at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. For a
more detailed description of the information available, please see page __.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have questions about the merger after reading this proxy statement,
you should contact A. Merrill Ayers, our Chief Financial Officer, at (651)
697-5502.
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SUMMARY
The following is a brief summary of certain information relating to the merger
contained elsewhere in this Proxy Statement and in the documents incorporated
herein by reference. This summary is qualified in its entirety by the more
detailed information contained elsewhere in this Proxy Statement and the
Appendices hereto. Capitalized terms not otherwise defined below have the
meanings ascribed to them elsewhere in this Proxy Statement. Shareholders are
urged to read this Proxy Statement and the Appendices hereto in their entirety.
PARTIES TO THE MERGER
Sparta We manufacture and distribute a broad line of Mexican food
(page ______) products which include corn and flour tortillas and stone
ground and corn flour tortilla chips. We also distribute, under
our brand names, salsas and picante sauces. Our common stock is
traded on the Nasdaq SmallCap Market under the symbol "SPFO."
Our corporate headquarters are located at 1565 First Avenue
N.W., New Brighton, Minnesota 55112.
Cenex Cenex is an agricultural cooperative organized for the mutual
(page ______) benefit of its members. Members of Cenex are located primarily
throughout the Midwest and Northwest regions of the United
States. Primary businesses of Cenex include petroleum refining
and marketing, wholesale and retail agronomy product marketing,
grain marketing, and wheat milling and soybean processing and
refining. In addition, Cenex offers a variety of agricultural
services to its members. Cenex is an affiliate of Sparta and
John D. Johnson, Cenex's President and General Manager, serves
on our board of directors. As of the date of this proxy, Cenex
owned 92,500 shares of our common stock, or approximately 0.9%
of our outstanding shares. Cenex also owns 100% of our
outstanding preferred stock. Upon consummation of the merger,
Cenex will own 100% of the outstanding stock of Sparta.
Merger Sub Merger Sub was organized as a Minnesota corporation in December
(page ______) 1999, for the purpose of effecting the merger. To date, Merger
Sub has not conducted any business other than in connection
with its formation and capitalization and the transactions
contemplated by the merger agreement.
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THE SPECIAL MEETING
Time, Place and Date of the The special meeting will be held at [time] a.m.,
Special Meeting local time, on ____________, [date], 2000 at
(page ______) [Location].
Record Date and You are entitled to vote at the special meeting
Shareholders Entitled to if you owned shares of our common stock at the
Vote (page ______) close of business on [record date], the record
date for the special meeting. You will have one
vote for each share of our common stock you owned
on the record date. There are __________ shares
of Sparta common stock entitled to be voted held
by ______ shareholders of record.
Purpose of the Meeting You will be asked to consider and vote upon a
(page ______) proposal to approve the merger agreement. The
persons named in the accompanying proxy also will
have discretionary authority to vote upon
other business, if any, that properly comes before
the special meeting and any adjournments or
postponements of the special meeting, including
any adjournments or postponements for the
purpose of soliciting additional proxies to
approve the merger.
Vote Required Approval of the merger requires the affirmative
(page ______) vote of the holders of a majority of our
outstanding shares of common stock. Our directors,
officers and a principal shareholder, who
combined own approximately 14.6% of our
currently outstanding shares, have executed and
delivered voting and proxy agreements to Cenex
whereby they agree to vote their shares in favor
of the merger, and they have granted Cenex an
irrevocable proxy to vote all their shares in
favor of the merger. Cenex owns approximately 0.9%
of our currently outstanding shares of common
stock.
Solicitation of Proxies We will pay the costs of soliciting proxies from
(page ______) our shareholders. In addition to soliciting
proxies by mail, our directors, officers and
employees, without receiving additional
compensation, may solicit proxies by telephone,
by telegram or in person. Arrangements will also
be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation
materials to the beneficial owners of shares held
of record by such persons, and we will reimburse
such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses
incurred by them.
Effect of the Merger Upon completion of the merger:
(page ______)
o Merger Sub will be merged with and into us and
we will be the surviving corporation after the
merger;
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o Sparta will be owned by Cenex; and
o each share of our common stock issued and
outstanding immediately prior to the effective
time of the merger (other than shares as to
which dissenters' rights are perfected) will be
converted into the right to receive $1.41 in
cash, without interest.
Reasons for the Merger In arriving at our determination that the merger
(page ______) is fair to, and in the best interests of, our
shareholders, the special committee and board of
directors considered a number of factors,
including, without limitation, the following:
o The merger represents an opportunity for our
shareholders to realize a premium over recent
market prices for their shares;
o In the opinion of our financial advisor, the
price per share of common stock to be received
by you is fair from a financial point of view;
o We are a small niche producer in our industry
and vulnerable to competitive factors such as
pricing and brand name recognition;
o Our ability to secure supply contracts is
limited which has made it difficult to attain
the growth levels expected by our shareholders;
o Our shares are illiquid and there is no
assurance that our shares will appreciate in
the future;
o We have explored strategic alternatives and
believe that the merger offers a unique
opportunity to maximize the value of our common
stock.
o Since November 12, the date we announced Cenex's
interest in acquiring Sparta, there has been no
communication of any kind from other companies
evidencing an interest in commencing acquisition
discussions with us.
Recommendations of the The special committee consisting of non-employee
Special Committee and directors and our board of directors (except John
Board of Directors D. Johnson, President and General Manager of Cenex
(page ______) who did not serve on the special committee or
participate with the board on this matter) have
unanimously approved the merger agreement, and
have determined that the terms of the merger
are fair to, and in the best interests of, our
shareholders. Your board of directors unanimously
recommends that you approve the merger agreement.
Opinion of Financial On December 20, 1999, Greene Holcomb & Fisher,
Advisor LLC, our financial advisor, delivered its written
(page ______) opinion to the special committee and our board of
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directors that, as of the date of such opinion,
the consideration to be received by our
shareholders in the merger is fair from a
financial point of view. The full text of the
written opinion of Greene Holcomb & Fisher, LLC
which set forth the assumptions made, general
procedures followed, matters considered and
limitations on the review undertaken in connection
with the opinion, is attached hereto as Appendix
B. You should read this opinion carefully and
in its entirety.
Interests of Certain Persons Our officers and directors have interests in
in the Merger the merger as employees and directors that are
(page ______) different from,or in addition to, your interests
as shareholders.
Our officers and directors own stock options that
will be fully vested as of the closing of the
merger and each will receive a cash payment for
each option equal to the excess of $1.41 over the
exercise price of their option.
Joel P. Bachul, Sparta's President and Chief
Executive Officer and a Director of Sparta, and
Craig S. Cram, Executive Vice President, Sales
and Operations, entered into employment agreements
with Cenex that become effective when the merger
is completed. Mr. Bachul will be paid a base
salary of $169,500 annually and will be eligible
to receive incentive compensation of up to 50% of
his base salary. Mr. Cram will be paid a base
salary of $116,000 annually and will be eligible
to receive incentive compensation of up to 50% of
his base salary. In lieu of Cenex's obligation to
pay Mr. Bachul and Mr. Cram their salaries
and bonuses for the next two years pursuant to
the contractual requirements of their respective
salary continuation agreements, within five
days after the merger, Mr. Bachul will be paid
a lump sum of $405,000 and Mr. Cram will be paid
a lump sum of $272,000.
A. Merrill Ayers, Sparta's Chief Financial
Officer, entered into a Separation and General
Release that takes effect when the merger is
completed. In lieu of Cenex's obligation to pay
Mr. Ayers his salary and bonuses for the next two
years pursuant to the contractual requirements of
his salary continuation agreement, within five
days after the merger, Mr. Ayers will be paid
$329,160 plus a pro rata share of the bonus, if
any, that he would be entitled to receive under
Sparta's cash bonus plan, plus unused vacation.
THE MERGER AGREEMENT
Effective Time of the The merger will become effective upon the filing
Merger (page ______) of Articles of Merger with the Secretary of State
of the State of Minnesota. The filing is expected
to occur promptly after approval of the merger
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agreement by our shareholders at the special
meeting and satisfaction or waiver of the other
conditions to the merger contained in the merger
agreement. We cannot assure you that all
conditions to the merger contained in the merger
agreement will be satisfied or waived.
Representations and The merger agreement contains various customary
Warranties; Conduct of representations and warranties made by each of the
Business Pending the parties to the merger agreement. The merger
Merger (page ______) agreement also contains various customary
covenants, including a covenant that during the
period from the date of the merger agreement
until consummation of the merger we will conduct
our business in the usual and ordinary course.
Conditions to The merger is subject to various closing
Consummation of the conditions, including the requisite approval
The Merger (page ______) by our shareholders and that no more than 5% of
the outstanding shares of our common stock
dissent.
No Solicitation Subject to certain exceptions, we cannot, directly
(page ______) or indirectly:
o solicit, initiate or encourage the submission of
inquiries, proposals or offers from any person,
corporation or group other than Cenex or its
affiliates that relate to or may reasonably be
expected to lead to an Acquisition Proposal (as
defined in the merger agreement);
o enter into any agreement for or relating to a
Third-Party Transaction (as defined in the
merger agreement); or
o enter into any agreement or negotiations with
or furnish non-public information to, any
person in connection with any Acquisition
Proposal, provided we may respond to an
unsolicited bona fide Superior Proposal (as
defined in the merger agreement) to the
extent necessary in order for our board of
directors to comply with its fiduciary duties
to our shareholders.
Termination of Merger The merger agreement may be terminated and
Agreement (page______) the merger abandoned at any time prior to the
filing of Articles of Merger with the Minnesota
Secretary of State, notwithstanding the approval
of the merger agreement by our shareholders, by
written mutual consent of Cenex and us. In
addition, the merger agreement may be terminated
and the merger abandoned at any time by either
Cenex or us if certain other conditions or
events occur or exist. If the merger is
terminated, we have agreed, in some instances,
to pay a termination fee of $1.0 million, in
some instances, to grant Cenex an option to
acquire up to 2,045,504 shares of Sparta common
stock at $1.41 per share, and, in some
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instances, to pay a termination fee of $1.0
million and grant Cenex an option to acquire
up to 2,045,504 shares of Sparta common stock
at $1.41 per share.
Certain Tax Consequences The merger will be a taxable transaction to you.
to Shareholders For United States federal income tax purposes,
(page ______) you will generally recognize gain or loss in the
merger in an amount determined by the difference
between the cash you receive and your tax basis
in our common stock. Because determining the
tax consequences of the merger can be
complicated, you should consult your own tax
advisor in order to understand fully how the
merger will affect you.
Accounting Treatment The merger will be accounted for as a "purchase"
(page ______) in accordance with generally accepted
accounting principles. Consequently, the
aggregate consideration paid by Cenex in
connection with the merger will be allocated
to Sparta assets and liabilities based upon
their fair values, with any excess being treated
as goodwill.
Rights of Dissenting Under Minnesota law, our shareholders who do
Shareholders not vote for approval of the merger, who file
(page ______) with Sparta before the vote on the merger a
written notice of intent to demand the fair
value of their shares and who comply with the
other statutory requirements of the Minnesota
Business Corporation Act may elect to receive,
in cash, the judicially determined fair value of
their shares of stock in lieu of the $1.41 per
share merger consideration. There is no
assurance that the fair value per share will
exceed $1.41 per share.
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Recent Prices of Sparta Our Common Stock is traded in the over-the-
Common Stock counter market with prices quoted on the
(page ______) Nasdaq SmallCap Market under the symbol "SPFO."
On November 11, 1999, the last trading day
prior to the public announcement of our
agreement with Cenex to allow Cenex the
exclusive right to negotiate an acquisition
agreement with us, the high and low bid prices
of our common stock were $0.938 and $0.625 per
share, respectively. On December 30, 1999, the
last trading day prior to the public
announcement that we had entered into a merger
agreement with Cenex, the high and low bid
prices of our common stock were $1.375 and
$1.313 per share, respectively. On
____________, 2000, the last full trading day
prior to the printing of this Proxy Statement,
the closing price of our common stock was
$________ per share. You are urged to obtain
current market quotations for Sparta's common
stock.
Selected Financial Data Certain selected historical financial data are
(page ______) set forth under "SELECTED FINANCIAL DATA." You
should read that data in conjunction with the
financial statements and related notes
incorporated by reference in this proxy
statement.
Management Ownership As of [date], our directors and executive
(page ______) officers own, in the aggregate, 845,000 shares
of our outstanding common stock, representing
an aggregate of approximately 8.2% of our
outstanding shares. All of our directors and
executive officers have agreed to vote their
shares in favor of the merger and have granted
Cenex irrevocable proxies to vote all their
shares in favor of the merger.
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PARTIES TO THE MERGER
Sparta
We manufacture and distribute a broad line of Mexican food products
which include corn and flour tortillas and stone ground and corn flour tortilla
chips. We also distribute, under our brand names, salsas and picante sauces. Our
brand names and products include Arizona Brand, Cruz, La Campana, Paradiso, La
Canasta, La La's and Spanish Bell tortillas, Arizona Brand, Blue Heaven, and La
Canasta tortilla chips and La Canasta and Chapala salsas and picante sauces.
Our branded retail products are sold in supermarkets and general
merchandise retailers located primarily in the Midwestern and Southwestern
United States. We also produce retail products for food distributors, including
Crystal Farms Refrigerated Distribution Company which distributes its products
to retail stores in 28 states and Marigold Foods, Inc. which distributes its
products in 7 states. In addition, we supply our products to restaurants and
other food service establishments through distributors that include Catalina
Specialty Foods, Inc., Alliant Food Service, Inc., Sysco Corporation and U.S.
Food Service, Inc. We place significant emphasis on the development of the food
service market and we are currently an approved supplier to such restaurants as
McDonald's, Chili's, Perkins, Friendly's and Carlos O'Kelly.
Our corporate headquarters are located at 1565 First Avenue N.W., New
Brighton, Minnesota 55112, and our phone number is (651) 697-5500. For a more
detailed description of our business and properties, see the descriptions set
forth in our Form 10-KSB for the fiscal year ended September 30, 1999, which is
incorporated herein by reference.
Cenex
Cenex is an agricultural cooperative organized for the mutual benefit
of its members. Members of Cenex are located primarily throughout the Midwest
and Northwest regions of the United States. Primary businesses of Cenex include
petroleum refining and marketing, wholesale and retail agronomy product
marketing, grain marketing, wheat milling and soybean processing and refining.
In addition, Cenex offers a variety of agricultural services to its members.
The principal executive offices of Cenex are located at 5500 Cenex
Drive, Inver Grove Heights, Minnesota 55077. Cenex's telephone number at its
principal executive office is (651) 451-5151.
Merger Sub
Merger Sub is a newly formed Minnesota corporation owned by Cenex.
Merger Sub was organized for the sole purpose of entering into the merger
agreement and consummating the transactions contemplated thereby. To date,
Merger Sub has not conducted any business other than in connection with its
formation and capitalization and the transactions contemplated by the merger
agreement.
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The principal executive offices of Merger Sub are located at 5500 Cenex
Drive, Inver Grove Heights, Minnesota 55077. Merger Sub's telephone number at
its principal executive office is (651) 451-5151.
THE SPECIAL MEETING
Date, Time, Place and Record Date of the Special Meeting
The special meeting of shareholders of Sparta will be held on [Date],
2000, [Time], a.m., Central Time, at [Location], Minnesota ______. This Proxy
Statement and accompanying proxy is being furnished to you in connection with
the solicitation of proxies by our board of directors for use at the special
meeting or any adjournments or postponements thereof. The holders of record of
our common stock as of the close of business on [record date] are entitled to
receive notice of, and to vote at, the special meeting. At the close of business
on February __, 2000, there were __________ shares of common stock outstanding
with _____ record holders.
Matters to be Considered at the Special Meeting
At the special meeting, you will be asked to consider and vote upon a
proposal to approve the merger agreement. The special committee and our Board of
Directors, other than John D. Johnson who serves as President and General
Manager of Cenex, have unanimously determined that the merger agreement and
merger are fair to and in the best interests of Sparta and our shareholders and
each, except Mr. Johnson, has unanimously approved the merger. ACCORDINGLY, OUR
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER. See
"Background of the Merger" and "Reasons for the Merger."
You may be asked to consider other matters that may properly come
before the special meeting and any postponements or adjournments thereof. It is
not anticipated that any other matters will be brought before the special
meeting. However, if other matters should properly come before the special
meeting, the holders of proxies solicited hereby will vote on such matters in
their discretion, unless you withhold such authority.
Vote Required
The affirmative vote of the holders of the majority of our outstanding
shares as of the record date is required to approve the merger. All our officers
and directors, who own an aggregate of 845,000 or approximately 8.2% of our
currently outstanding shares and Donald R. Brattain, a principal shareholder who
owns 662,000 or approximately 6.4% of our currently outstanding shares have
executed and delivered voting and proxy agreements to Cenex whereby they agree
to vote their shares in favor of the merger, and they have granted Cenex an
irrevocable proxy to vote their shares in favor of the merger. Cenex, without
giving effect to the conversion of the outstanding preferred stock it holds into
common stock or the exercise of outstanding options or other rights to acquire
shares of our common stock, owns approximately 0.9% of our currently outstanding
shares of common stock. The preferred stock held by Cenex will not vote in the
merger. As a result, the requisite vote will be satisfied if an additional 34.6%
of our outstanding shares of common stock vote in favor of the merger.
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Voting Information
Each outstanding share of our common stock is entitled to one vote. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of our common stock entitled to vote at the special meeting is necessary
to constitute a quorum for the transaction of business at the special meeting.
Abstentions are counted for purposes of determining whether a quorum exists at
the special meeting. However, proxies that reflect abstentions and proxies that
are not returned will have the same effect as a vote against approval of the
merger agreement, because the affirmative vote of the holders of a majority of
the outstanding shares of our common stock is required to approve the merger
agreement.
Brokers who hold shares in street name for customers have the authority
to vote on "routine" proposals when they have not received instructions from
beneficial owners; however, brokers are precluded from exercising their voting
discretion with respect to the approval of non-routine matters such as the
merger proposal and thus, absent specific instructions from the beneficial owner
of such shares, brokers are not empowered to vote such shares with respect to
the approval of non-routine proposals (i.e., "broker non-votes"). Abstentions
and properly executed broker non-votes will be treated as shares that are
present and entitled to vote at the special meeting for purposes of determining
whether a quorum exists and will have the same effect as votes against approval
of the merger proposal.
Shareholders on the record date who do not vote in favor of approving
the merger, who file with Sparta before the vote on the merger a written notice
of intent to demand the fair value of their shares and comply with the other
statutory requirements of Sections 302A.471 and 302A.473 of the Minnesota
Business Corporation Act, a copy of which is attached to this Proxy Statement as
Appendix C, will be entitled to dissenter's rights under Minnesota law. If you
vote in favor of approving the merger, you will waive your dissenter's rights.
See "Dissenter's Rights."
Solicitation, Revocation and Use of Proxies
We will pay the costs of soliciting proxies from our shareholders and
the costs of reporting and mailing this proxy statement, the enclosed proxy and
any other material furnished to our shareholders in connection with the special
meeting. In addition to the solicitation of proxies by mail, certain of our
directors, officers and employees may solicit proxies by telephone, telecopy and
personal contact, without separate compensation for such activities. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of common stock, and such
persons will be reimbursed for their reasonable out-of-pocket expenses.
You may revoke your proxy at any time before voting your proxy at the
special meeting. A proxy may be revoked prior to the vote at the special meeting
by submitting a written revocation to our Secretary at 1565 First Avenue N.W.,
New Brighton, Minnesota 55112; Attention: A. Merrill Ayers, or by submitting a
new proxy, in either case, dated after the date of the proxy that is being
revoked. In addition, a proxy may also be revoked by voting in person at the
special meeting. However, simply attending the special meeting will not result
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in the revocation of your proxy. All valid proxies will be voted at the meeting
in accordance with the instructions given. If no instructions are given, the
shares represented by the proxy will be voted at the special meeting for
approval and adoption of the merger agreement and in accordance with this proxy
statement on any other business that may properly come before the special
meeting and any postponements or adjournments thereof.
Our board of directors is not currently aware of any other business to
be brought before the special meeting. If, however, other matters are properly
brought before the special meeting or any adjournment or postponement of the
special meeting, the persons appointed as proxies will have discretionary
authority to vote the shares represented by duly executed proxies in accordance
with their discretion and judgment.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME. In the
event the merger is consummated, you will be sent instructions regarding the
procedures for exchanging your existing stock certificates for a cash payment.
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THE MERGER
Merger Consideration
Conversion of Our Common Stock
Pursuant to the merger agreement, at the effective time of the merger:
o each share of our common stock (other than shares held by any
holder who perfects dissenters' rights under Minnesota law or
shares held by Cenex or its affiliates) will be converted into
the right to receive $1.41 in cash;
o Merger Sub will be merged into Sparta, which will be the
surviving corporation in the Merger; and
o Cenex will become the sole shareholder of Sparta.
Treatment of Stock Options and Warrants
In connection with the merger, our board of directors moved to
accelerate the vesting of all outstanding stock options requirements, pursuant
to its discretionary authority to do so under Sparta's Amended and Restated
Stock Option Plan. Upon consummation of the merger, all holders of our stock
options will be entitled to receive an amount in cash equal to: (i) the excess
of $1.41 over the exercise price per share of such option times (ii) the number
of shares subject to the option. Options that are exercisable at a price greater
than $1.41 will be cancelled without payment of any consideration. See "THE
MERGER - Interest of Certain Persons in the Merger."
We have warrants outstanding to purchase 80,000 shares of our common
stock. In connection with the merger, each warrant will be converted into the
right to receive (i) the excess of $1.41 over the exercise price of the warrant
times (ii) the number of shares subject to the warrant.
Source and Amount of Consideration
Cenex estimates that it will spend approximately $15,920,757 to
complete the merger. A breakdown of the total amount of consideration to be used
to consummate the merger is as follows:
Acquire 100% of the outstanding shares: $14,493,272
Payments to Warrantholders: $ 42,670
Payments to Optionholders: $ 378,654
Payments to Executive Officers (in lieu of
entitled change of control payments) $ 1,006,160
===========
TOTAL $15,920,756
===========
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The following expenses are estimated to be incurred by Sparta in
connection with the merger and have been paid or are expected to be paid by
Sparta:
Description Amount
Legal fees - Sparta $200,000
Financial Printer $ 50,000
Financial Advisor - Green Holcomb $597,235
Transfer Agent Fees $ 2,000
========
TOTAL $849,235
Cenex intends to use available cash, derived from its operations, to
provide the funds necessary to complete the merger.
Purpose and Effects of the Merger
The purpose of the merger is to enable Cenex to obtain ownership of
100% of the equity of Sparta and to allow you to obtain cash for your shares.
Upon completion of the merger you will no longer be entitled to participate in
the business of Sparta as a shareholder or to vote on corporate matters of
Sparta. All our common and preferred stock will be owned by Cenex and it will
have a 100% interest in our net book value and earnings. Sparta will therefore
become a private company, and the public trading of our common stock will cease.
As a result, our shares will no longer be traded on the Nasdaq SmallCap Market
and we will cease filing periodic and annual reports under the Securities
Exchange Act of 1934. You will incur a taxable gain for federal income tax
purposes as a result of the receipt of cash in exchange for common stock if the
basis in the shares of common stock you own is less than $1.41. See "THE
MERGER--Federal Income Tax Consequences." In proposing the merger, Cenex did not
consider any alternative to the merger to accomplish its purposes. Cenex
proposed the merger at this time after evaluating its interest in Sparta for
almost two years in order to integrate food production from producer to
consumer.
At the effective time of the merger, the directors of Merger Sub will
become Sparta's directors, and the officers of Sparta, except Mr. Ayers, will
remain Sparta's officers. The Articles of Incorporation of Sparta will remain in
effect until thereafter amended as provided by applicable law, and the Bylaws of
Merger Sub will be Sparta's Bylaws.
Plans for Sparta After the Merger
After the merger, Cenex anticipates that it will continue its review of
Sparta and its assets, businesses, operations, properties, policies, corporate
structure and management and consider whether any changes would be desirable in
light of the circumstances then existing. Effective upon the completion of the
merger the directors of Merger Sub will be the initial directors of Sparta and
the officers of Sparta, with the exception of Mr. Ayers, will remain Sparta's
officers.
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After completion of the merger, Sparta will continue to conduct its
business as a manufacturer and distributor of tortillas and value-added tortilla
products to the retail and foodservice industries. Cenex plans to grow the
business internally and through acquisition.
As owner of 100% of Sparta's common stock following the merger, Cenex
will be able to enjoy the benefits of Sparta's cash flow and earnings, if any,
and will be able to exercise full voting control over Sparta. Sparta's current
shareholders will no longer have the opportunity to continue their interest in
an ongoing company with potential for future growth or any of the benefits
discussed above. Any and all appreciation in the value of Sparta will accrue
solely to the benefit of Cenex.
Background of the Merger
Two of our key officers, Joel Bachul, our President and Chief Executive
Officer, and A. Merrill Ayers, our Chief Financial Officer, joined us in 1994.
At that time, we were experiencing significant cash flow and margin problems,
had negative working capital, and were having difficulty remaining competitive.
We needed to quickly improve our operations and raise additional equity in order
to remain a going concern. We decided to concentrate our manufacturing resources
on tortillas and chips, which are Sparta's strengths, and outsource the
production of sauces and salsas, where the margins were unsatisfactory.
Additional funding to strengthen a weak balance sheet was obtained in 1996
through a $1.25 million private placement.
In fiscal 1994, our net sales and net loss were $11,180,913 and
$1,193,177, respectively. By fiscal 1996, net sales had increased to $12,662,819
and our net income was $105,307. While we had made significant progress during
this two-year period, and our financial position had been stabilized, we were
still undercapitalized and having difficulty attaining our sales objectives. The
board of directors concluded that our lack of size in a competitive market
characterized by vertically integrated large food product companies, our
susceptibility to the loss of a significant customer and our continued capital
deficiencies dictated that it review strategic alternatives.
As a result of this review, the board of directors in the summer of
1996 decided to consider various strategic alternatives, including alliances
with strategic partners, potential acquisitions and a sale of Sparta. The board
of directors began a search for a qualified financial advisor to assist the
board of directors in identifying strategic alternatives. The board of directors
solicited proposals from a number of reputable investment banking firms. Many of
those solicited were not interested in an engagement by Sparta because Sparta
was too small, and others proposed fees that the board of directors believed to
be excessive.
On August 15, 1996, the board of directors were able to engage Greene
Holcomb & Fisher LLC ("Greene Holcomb") to act as its financial advisor in the
process of reviewing its strategic alternatives and identifying strategic
partner candidates. Greene Holcomb was selected because it had significant
experience and expertise in representing small companies, including food
manufacturers, and in the opinion of the board of directors Greene Holcomb's
proposed fee structure was reasonable. From late 1996 through 1998, Greene
Holcomb, at the request of the board of directors, contacted 56 parties. Greene
Holcomb provided financial statements, monthly operating reports and detailed
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product information to the parties that requested additional information
concerning Sparta. During this same period, Sparta's management and
representatives of Greene Holcomb met with representatives of several of these
parties to explore possible strategic alternatives. None of these discussions
resulted in a purchase offer, although a few of these parties have remained in
contact with Sparta. One of these parties was Harvest States Cooperatives, a
predecessor of Cenex Harvest States Cooperatives ("Cenex"). Harvest States
advised Greene Holcomb on August 19, 1997 that it may be interested in acquiring
Sparta.
On August 22, 1997, Harvest States executed a Confidentiality
Agreement, on which date Harvest States was mailed a confidential memorandum
describing Sparta's operations. Following receipt of Sparta's confidential
information, Cenex investigated the possibility of acquiring Sparta, but decided
not to proceed with an acquisition at the present time because of its
involvement in the completion of a proposed merger with Cenex. Sparta then
inquired as to Harvest State's interest in making an equity investment in
Sparta. Harvest States indicated that it was willing to investigate the
possibility of making such an investment. On December 17, 1997, Sparta engaged
Greene Holcomb to assist Sparta in negotiating the terms of Harvest States'
equity investment. On February 18, 1998, A. Merrill Ayers, Chief Financial
Officer of Sparta Foods, representatives of Greene Holcomb, and Sparta's legal
counsel met with Harvest States' legal counsel to negotiate the terms of Harvest
States' equity investment.
On February 24, 1998, we entered into a stock purchase agreement with
Harvest States Cooperatives. Pursuant to this agreement, we issued 2,500 shares
of Preferred Stock, Series 1998, par value $1,000 per share, for an aggregate
purchase price of $2,500,000. The Preferred Stock is convertible into 1,515,150
shares of our common stock, at a conversion price of $1.65 per share, which
currently represents approximately 12.8% of our outstanding common stock on an
as converted basis. As part of this agreement, Harvest States had the
contractual right to appoint one person to serve on Sparta's Board of directors,
and selected John Johnson, its President and General Manager, to serve in this
position. Although Mr. Johnson continues to serve on our Board, he did not
participate in any board of directors meetings or discussions with Sparta
directors regarding the purchase of Sparta by Cenex. Mr. Johnson attended
regular board meetings until November 22, 1999, the last board meeting held
prior to the board's review of Cenex's merger offer. In connection with Harvest
States' initial equity investment in Sparta, Harvest States filed a Schedule 13D
with the SEC in which Harvest States stated that it considers Sparta a potential
acquisition candidate, and that any acquisition would take place in the next
three years.
Our stock purchase agreement with Harvest States required us to
recommend to our shareholders an amendment to our Articles of Incorporations to
opt out of Section 302A.671 of the Minnesota Business Corporations Act; (the
"Control Share Acquisition Act"). Generally, the Control Share Acquisition Act
has the effect of restricting voting rights of any person who acquires stock of
a public corporation providing that person with a new range of voting power in
one of three stock ownership ranges, beginning with 20%, unless the acquisition
of the stock is first approved by the public company's shareholders. This
amendment permitted Cenex or any other person to acquire an ownership interest
in our stock in excess of 20% and to exercise all of its voting rights in such
shares. The amendment also allowed Cenex to obtain an agreement from our
officers and directors and a 5% shareholder to vote for the agreement. Since
February 25, 1998, Cenex has acquired 92,500 shares of our common stock.
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In May 1999, James Tibbetts, Cenex's Executive Vice President,
contacted Joel Bachul, Sparta's President and Chief Executive Officer, to
discuss Cenex's possible acquisition of Sparta. Mr. Tibbetts informed Mr. Bachul
that Cenex would be conducting an internal analysis of the acquisition.
Later in May 1999, Keith Warner and Greg Loeschke of Cenex met with
Craig Cram for a tour of the New Brighton plant. Messrs. Warner and Loeschke
were given an overview of the production facilities and received some
statistical information on Sparta's business. The parties met again in early
June. At that time, the representatives of Cenex were given additional
information on Sparta's sales, marketing and financial performance.
On August 20, 1999, Joel Bachul met with James Tibbetts and Greg
Loeschke of Cenex to discuss possible acquisition terms that might be acceptable
to both Sparta and Cenex. Mr. Bachul informed Messrs. Tibbetts and Loeschke that
Sparta was nearing completion of an acquisition of another tortilla manufacturer
in another market but did not disclose the identify of that manufacturer.
In late September 1999 and into early November 1999, representatives of
Cenex continued discussions with Joel Bachul regarding the possibility of Cenex
acquiring Sparta. In early November, Mr. Bachul informed Sparta's directors that
he thought Cenex would be submitting an indication of interest in acquiring
Sparta. A previously formed special committee of the board of directors,
comprised of all non-employee directors, excluding Mr. Johnson, was reconvened
to consider and act upon any firm proposals made by Cenex. The directors serving
on this special committee were Larry Arnold, Thomas Baker, William Benzick,
Edward Jorgensen and Michael Kozlak.
In early November 1999, Cenex determined that, subject to negotiation
of an acceptable purchase agreement, it would like to acquire Sparta. After
considering possible approaches, Cenex determined that it would like to enter
into an exclusivity agreement with Sparta, in which it would be given the
exclusive right, for a limited period of time, to negotiate an acceptable
acquisition agreement with Sparta. On November 10 a representative of Cenex
suggested the exclusivity agreement to a representative of Greene Holcomb, and a
draft of such an agreement was provided by Cenex on November 11. After some
discussion, an exclusivity agreement providing for an exclusive period through
December 31 was entered into on November 12 and Sparta issued a press release
announcing the exclusivity agreement.
Between November 12, 1999 and November 22, 1999, several meetings were
held between Greene Holcomb and Cenex and between representatives of both
companies. On November 15, 1999, Joel Bachul and Merrill Ayers, along with
representatives of Greene Holcomb, met with James Tibbetts, Pat Kluempke, Jodi
Heller and Greg Loeschke of Cenex to discuss the negotiation process and a
possible timeline for the acquisition. Mr. Bachul gave the group an update on
recent Sparta activities. On November 17, 1999, representatives of Cenex and
representatives of Lingate and Associates met with Merrill Ayers and
representatives of Greene Holcomb at Sparta to discuss Sparta's sales
projections, sales compensation plans and distribution agreements. Lingate and
Associates was retained by Cenex to assist Cenex in facilitating the merger
negotiations, conducting a due diligence review of Sparta and help Cenex
understand the various financial aspects of the merger. On November 18, 1999,
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Greg Loeschke toured Sparta's recently acquired Phoenix, Arizona facility and
met with Ken Charbonneau and Mike DePinto, our two senior managers at the
Phoenix facility. At a meeting held on November 19, 1999 between James Tibbetts
and Joel Bachul, Mr. Tibbetts advised Mr. Bachul that the Cenex board of
directors had approved the acquisition and said Sparta would receive a price
proposal on December 1, 1999. On November 22, 1999, Mr. Tibbetts and Mr. Bachul
discussed employment and personnel issues.
Between November 22, 1999 and December 1, 1999, there were various
meetings between James Tibbetts and Joel Bachul and between representatives of
Lingate and Associates and Greene Holcomb to discuss the pricing of the proposed
merger and other merger matters.
On November 30, 1999, Lingate and Associates met with Greene Holcomb to
discuss the merger process and pricing. Lingate and Associates conveyed to
Greene Holcomb that Cenex was considering an offer for Sparta that might be
slightly more than $1.00 per share. Lingate and Associates informed Greene
Holcomb that a price greater than $1.25 was a high price to pay, but Cenex was
still discussing what premium, if any, should be paid for a platform company
that would allow Cenex to enter into a branded food industry market with
experienced management in place. Greene Holcomb advised Lingate and Associates
why this offer was not acceptable, and why Cenex could pay significantly more
for Sparta. After this meeting, during the afternoon of November 30, there were
numerous telephone conferences between James Tibbetts, Joel Bachul, Greene
Holcomb and Lingate and Associates discussing rationales for different merger
prices.
On December 1, 1999, at a breakfast meeting, James Tibbetts met with
Joel Bachul to advise him verbally that Cenex was prepared to offer our
shareholders a price of $1.41 per share.
At a meeting of the special committee and the board of directors on
December 1, 1999, Joel Bachul and representatives of Greene Holcomb advised the
special committee that the Cenex offer was $1.41 per share. The special
committee deliberated the offer and then authorized management to try to seek a
greater price per share and to continue the price negotiations.
During the period from December 1, 1999 through December 14, 1999, Mr.
Bachul and representatives of Greene Holcomb met and spoke several times with
Cenex management and representatives of Lingate and Associates for the purpose
of seeking an increase in the offer. On December 10, 1999, Lingate and
Associates, on behalf of Cenex, communicated to us in writing Cenex's offer of
$1.41 per share. On December 14, 1999, James Tibbetts advised Greene Holcomb
that Cenex believed the offer of $1.41 per share was fair and would not be able
to increase the offer. At a meeting of the special committee and the board of
directors on December 14, 1999, the directors again reviewed the reasons for
proceeding with the merger, as described under "the Merger--Reasons for the
Merger," and the financial fairness of the offer. Greene Holcomb advised the
special committee and the board of directors that Greene Holcomb would be able
to provide to the special committee and the board of directors an opinion that
the price of $1.41 per share was fair from a financial point of view. After a
comprehensive discussion, the consensus of the special committee and the board
of directors was to proceed with the merger. The special committee and the board
of directors authorized management to convey to Cenex that the $1.41 per share
was acceptable, subject: (i) to obtaining an opinion of Greene Holcomb that this
price per share was fair, from a financial point of view, to Sparta and its
shareholders; and (ii) to the execution of a definitive agreement. The special
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committee and board of directors authorized management and Fredrikson & Byron to
commence negotiation of the terms of a definitive merger agreement.
On December 14, 1999, Greene Holcomb sent James Tibbetts a letter
confirming their belief that, pending a definitive agreement and final Sparta
Board approval, a Cenex/Sparta transaction at $1.41 per share was acceptable.
Cenex and its representatives then began the drafting of the merger
agreement and continued with the conduct of its legal, business and accounting
due diligence of Sparta. On December 17, 1999, Cenex provided Sparta with the
first draft of the merger agreement.
On December 20, 1999, the special committee and the board of directors
held a special meeting at the offices of Fredrikson & Byron to consider the
draft of the merger agreement and the transactions contemplated thereby. Members
of our senior management and representatives of Greene Holcomb made
presentations to the special committee and the board of directors and discussed
with the special committee and the board of directors their views and analysis.
Greene Holcomb delivered to the special committee and the board of directors its
opinion which stated that, subject to the limitations and qualifications in
their opinion, the per share consideration was fair to the holders of common
stock, from a financial viewpoint. The special committee and the board of
directors again reviewed the reasons for the merger and the material terms and
conditions of the merger agreement. The special committee concluded that, in
general, the merger agreement presented no material objections. There were,
however, certain terms and conditions in the merger agreement which required
revision. Each of the special committee and the board of directors then
unanimously approved and adopted the merger agreement and the transactions
contemplated thereby, subject to the renegotiation of certain terms of the
merger agreement acceptable in their reasonable judgment to management,
Fredrikson & Byron and Greene Holcomb. The special committee and the board of
directors each unanimously resolved that the terms of the merger were fair to,
and in the best interest of, Sparta's shareholders, and unanimously resolved to
recommend that the shareholders vote to approve and adopt the merger agreement
(subject to execution of the final merger agreement).
Between December 20 and December 30, 1999, representatives of Cenex and
Sparta and their respective advisors continued to discuss and negotiate certain
due diligence matters and specific terms of the merger agreement. Throughout
this period, Joel Bachul informed the members of the special committee of the
status of these discussions.
On December 30, 1999, Cenex completed its due diligence investigation
and Cenex and Sparta, and their respective legal advisors, agreed on the terms
and conditions of the merger agreement and certain related agreements. In the
evening of December 30, 1999, the merger agreement was executed and delivered by
Cenex, SF Acquisition Corp. and Sparta to be effective as of December 31, 1999.
A press release announcing the execution of the Merger Agreement was
issued on the morning of December 31, 1999.
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Reasons for the Merger
In arriving at the determination that the merger is fair to and in the
best interests of our shareholders, the board of directors and the special
committee considered a number of factors, including, without limitation, the
following:
o The $1.41 per share purchase price represents a 61% premium over the
closing price per share of $.875 on November 11, 1999 (the last day of
trading prior to our announcement of the exclusive negotiation period). As
a small cap stock with no analysts' coverage, and based on historical
market prices over the past three years, we cannot assure our shareholders
that even if we meet our aggressive revenue growth projections, the stock
market will satisfactorily recognize our performance.
o A presentation was made by Greene Holcomb to us (including the assumptions
and methodologies underlying) containing their opinion that the price per
share of common stock to be received by you is fair, from a financial point
of view.
o We operate as a small niche producer in an industry dominated by large,
vertically integrated food product companies and, as such, we are
particularly vulnerable to competitive factors such as pricing and brand
name recognition.
o Because of our relatively small revenue base and balance sheet, our ability
to secure supply contracts has been restricted which, in turn, has made it
difficult to attain the growth levels expected by our shareholders.
o Many of our shareholders have been investors in Sparta for three years or
more with little or no ability to trade their Sparta stock, and there is
no prospect that the liquidity in the small cap Sparta stock will change
appreciably in the future. On September 8, 1999, the Company was notified
by the National Association of Securities Dealers (Nasdaq) that it would
be delisted by Nasdaq unless by December 8, 1999 the daily closing price
of the Company's stock was $1.00 or more for ten successive trading days.
We do believe that without the announcement on November 12, 1999 of our
agreement to grant Cenex an exclusive period to negotiate an acquisition
agreement with us, we would not have been able to comply with this
listing requirement. Without Nasdaq listing, Sparta's stock would have
become even more illiquid.
o Since 1996, we and our financial advisors have conducted a lengthy and
ongoing review of available strategic alternatives, and we believe that the
merger offered the best opportunity to maximize shareholder value. We took
into account the fact that our financial advisors had contacted a
substantial number of companies in a thorough process designed to elicit
third party proposals to enter into a strategic relationship with us or
potentially acquire us. While a few of these parties indicated they were
considering a relationship with Sparta, these parties were afforded ample
opportunity to submit proposals to us and did not do so.
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o From November 12, 1999, the date we announced Cenex's interest in acquiring
Sparta, there has been no communication of any kind from other companies
evidencing an interest in commencing acquisition discussions with us.
The foregoing discussion addressed the material information and factors
considered by the special committee and the board of directors in its
consideration of the merger, including factors that support the merger as well
as those that may weigh against it. In view of the variety of factors and the
amount of information considered, the special committee and the board of
directors did not find it practicable to and did not specifically make
assessments of, quantify or otherwise assign relative weights to the various
factors and analyses considered in reaching its determination. The special
committee of the board of directors did, however, give special consideration to
the premium to be paid by Cenex over Sparta's closing price per share in
relation to current and historical market prices of Sparta stock. During the
period from June 30, 1998 through September 30, 1999, the high and low bid
prices of Sparta's common stock were $1.50 and $0.750, respectively. Although
the merger price was significantly in excess of current book value, the special
committee and the board of directors did not consider this factor particularly
relevant. Neither did the special committee or the board of directors take into
account Sparta's liquidation value since the valuation of Sparta was as a going
concern. While the determination to approve the merger was made after
consideration of all the factors as a whole, the special committee and the board
of directors considered carefully the lengthy and exhaustive process, initially
undertaken by Sparta in 1996, to identify strategic alternatives which maximized
shareholder value.
Recommendation of the Special Committee and Board of Directors
The special committee and board of directors, neither of which Mr.
Johnson participated in with respect to either the discussion or vote on the
merger, has unanimously approved the merger agreement and the transactions
contemplated thereby, including the merger. The special committee has
unanimously determined that the terms of the merger are fair to, and in the best
interests of, Sparta's shareholders and unanimously recommends that you vote to
approve the merger agreement. The board of directors has unanimously determined
that the terms of the merger are fair to, and in the best interests of, Sparta's
shareholders and unanimously recommends that you vote to approve the merger
agreement.
Opinion of Financial Advisor
Fairness Opinion With Respect to the Merger
Greene Holcomb was retained by Sparta in an engagement letter dated May
20, 1998 to review and advise Sparta on strategic alternatives and serve as
financial advisor to Sparta's board of directors. In connection with Greene
Holcomb's engagement, it was asked to render an opinion to the board of
directors as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of Sparta pursuant to the
merger agreement. On December 20, 1999, Greene Holcomb delivered its opinion to
the Sparta board of directors that, as of that date, and based on and subject to
the assumptions, limitations and qualifications set forth in its opinion, the
consideration to be received pursuant to the merger agreement is fair to the
shareholders of Sparta from a financial point of view.
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Opinion of Greene Holcomb & Fisher
General. Greene Holcomb delivered a written opinion to the Sparta board
of directors that, as of the date of the opinion, the consideration proposed to
be paid to the shareholders of Sparta pursuant to the merger agreement was fair
to the shareholders from a financial point of view. The full text of the written
opinion of Greene Holcomb, which sets forth the assumptions made, matters
considered and limitations on the review undertaken in connection with the
opinion, is attached as Appendix C to this Proxy Statement. The summary below is
qualified in its entirety by reference to the full text of the opinion.
Shareholders are urged to read the opinion in its entirety.
Greene Holcomb is a recognized investment banking firm and, as part of
its investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions and
similar activities. Greene Holcomb was selected by the Sparta board of directors
on the basis of its experience and expertise in advising small public companies
and because in the opinion of the Sparta board of directors its fees were
reasonable. Greene Holcomb has acted as investment banker for Sparta in the
merger and will be paid a cash fee of $537,235 on successful completion of the
merger. Greene Holcomb has rendered investment banking and other financial
services to Sparta in the past. None of such investment banking services in
connection with the merger or past services relate to or were a condition of
Greene Holcomb's opinion regarding the fairness of the consideration to be paid
to Sparta shareholders in the merger.
Greene Holcomb was engaged by the Sparta board of directors to render
its written fairness opinion. Separately, Greene Holcomb also participated on
behalf of Sparta in negotiations with Cenex and considered and evaluated other
strategic alternatives. Greene Holcomb did not recommend a specific per share
price to be paid for Sparta's common stock pursuant to the merger The fairness
opinion relates only to the fairness of the consideration to be received by the
shareholders of Sparta from a financial point of view. The opinion does not
address the merits of the underlying decision of Sparta to engage in the merger
and does not constitute a recommendation to any Sparta shareholder as to how
such shareholder should vote on the proposed merger. Greene Holcomb does not
admit that it is an expert, or that its opinion constitutes a report or
valuation as described by the Securities Act. The opinion is necessarily based
on information available, and financial, stock market, economic and other
conditions and circumstances as they existed and could be calculated as of the
date of the opinion. Although subsequent developments may affect the opinion,
Greene Holcomb does not have any obligation to update, revise or reaffirm the
opinion. Greene Holcomb will receive a fee from Sparta for its services. In
addition, Sparta has agreed to indemnify Greene Holcomb for certain liabilities
arising out of its engagement.
See "Fees Payable to Greene Holcomb" below.
Materials and Information Considered with Respect to the Merger. No
restrictions or limitations were imposed on Greene Holcomb by either the Sparta
board of directors or the special committee with respect to the investigations
made or the procedures followed by Greene Holcomb in rendering its opinion. In
arriving at its opinion, Greene Holcomb reviewed financial and other information
that was publicly available or furnished to it by Sparta, including information
provided during discussions with its management. In addition, Greene Holcomb:
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o reviewed the historical stock prices and trading volumes of Sparta
common stock;
o compared certain financial and securities data of Sparta with such data
of selected companies whose securities are traded in public markets;
o reviewed prices and premiums paid in certain other selected business
combinations; and
o performed a discounted cash flow analysis of Sparta.
Greene Holcomb also discussed the past and current operations,
financial condition and prospects of Sparta with management of Sparta and
received financial projections for Sparta from its management. Sparta provided
Greene Holcomb with projected financial statements for the fiscal years ended
September 2000 through 2004, using assumptions consistent with its current
business plan. Greene Holcomb also conducted such other financial studies,
analyses and investigations as Greene Holcomb deemed appropriate for purposes of
rendering its opinion and reviewed the merger agreement in connection with its
analysis.
In rendering its opinion, Greene Holcomb relied upon and assumed the
accuracy, completeness and fairness of all of the financial and other
information that was available to it from public sources, that was provided to
Greene Holcomb by Sparta or its representatives or that was otherwise reviewed
by Greene Holcomb. With respect to the financial projections supplied to Greene
Holcomb, Greene Holcomb has assumed that they were reasonably prepared and
reflected the best currently available estimates and judgements of the
management of Sparta as to the future operating and financial performance of
Sparta. Greene Holcomb did not assume any responsibility for making and did not
make any independent evaluation of Sparta's assets or liabilities or any
independent verification of any of the information reviewed by Greene Holcomb.
Greene Holcomb did not express any opinion with respect to legal matters
relating to the merger.
Greene Holcomb performed a number of financial analyses to compare the
value of the Cenex offer to the valuations implied by such analyses. The
valuation methodologies used by Greene Holcomb are those generally used by
investment bankers in valuation exercises. No individual methodology was
conclusive. Rather, Greene Holcomb reviewed the results of its analyses taking
into account the basis for the underlying data and circumstances particular to
Sparta.
Certain of the methodologies used resulted in per share valuations
above the level of the Offer before adjustments to account for differences
between, for example, the underlying companies or transaction structures and the
operations of Sparta. Greene Holcomb then developed a range of valuations based
on data and companies, which in its judgement, were comparable to Sparta and the
Offer. Greene Holcomb's opinion was ultimately based on a review of all of the
valuation analyses, Sparta's business plan and prospects and competitive and
market conditions.
The following is a summary of the material factors considered and
principal financial analyses performed by Greene Holcomb in connection with
rendering the Greene Holcomb opinion. The analysis provides the resulting ranges
of implied share prices of common stock based on Greene Holcomb's analyses and
compares these ranges with the $1.41 per share purchase price to be received by
Sparta shareholders pursuant to the merger agreement. For a detailed description
of each of Greene Holcomb's analyses, see the individual analyses discussions in
the following paragraphs.
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Stock Trading History. To provide contextual data and comparative
market data, Greene Holcomb reviewed the daily closing prices during the period
from December 15, 1998 to December 16, 1999 and compared the closing stock
prices during such period with the S&P 500 Index. In addition, Greene Holcomb
analyzed the consideration to be received by the shareholders pursuant to the
merger agreement in relation to the market price of Sparta's common stock at
various dates before the announcement of the merger. Such analysis indicated
that the $1.41 per share to be received by the shareholders pursuant to the
merger agreement represents a premium of 61.1% to the closing price of $0.875
per share on November 11, 1999 (1 day prior to the announcement of exclusive
negotiations with Cenex), a premium of 88.0% to the closing price of $0.75 per
share on November 4, 1999 (1 week prior to the announcement of exclusive
negotiations with Cenex) and a premium of 73.5% to the closing price of $0.8125
per share on October 14, 1999 (4 weeks prior to the announcement of exclusive
negotiations with Cenex).
Analysis Of Certain Publicly Traded Companies. Greene Holcomb compared
the consideration to be received to the range of values of common stock implied
by the relative valuation multiples of the following publicly traded food
companies:
o Universal Foods Corp;
o Ralcorp Holdings, Inc.;
o J.M. Smucker Co.;
o Lance, Inc.;
o John B. Sanfilippo & Sons;
o J&J Snack Foods Corp.;
o Hain Food Group, Inc.;
o Tasty Baking Co.;
o Bridgford Foods Corp.;
o Golden Enterprises; and
o Poore Brothers, Inc.
Greene Holcomb analyzed the value of each of the above companies, using
market valuations as of December 16, 1999 as a multiple of selected financial
data, including (a) revenues for the last twelve months, (b) operating income
for the last twelve months, (c) estimated calendar 2000 earnings per share and
(d) tangible common equity for the most recently reported quarter. Earnings per
share for the last twelve months and estimated calendar 1999 earnings per share
were not considered as part of Greene Holcomb's analysis because Sparta was only
slightly profitable over the last twelve months and projected a loss for
calendar 1999. The 2000 estimated earnings per share for the peer companies were
provided by First Call. Based on this analysis, Greene Holcomb developed the
following ranges of valuation multiples:
o 0.2x - 2.1x, with a mean of 0.9x and a median of 0.7x, for last twelve
months revenues compared to 1.0x for the merger;
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o 4.9x - 35.3x, with a mean of 13.1x and a median of 9.9x, for last
twelve months operating income compared to 33.0x for the merger;
o 7.5x - 24.5x, with a mean of 12.9x and a median of 11.0x, for estimated
calendar 2000 earnings per share compared to 12.8x for the merger; and
o 0.4x - 7.8x, with a mean of 2.6x and a median of 2.0x, for the most
recent quarter's tangible book value compared to 6.2x for the merger.
These mean and median valuation multiples were then applied to Sparta's
actual last twelve months revenue and operating income, management's estimates
for calendar 2000 earnings and September 30, 1999 tangible book value to
determine the range of implied equity values of Sparta. This analysis resulted
in the following ranges of implied Sparta value per share:
o $0.57 - $1.04, based on last twelve months revenues;
o <$0 - <$0, based on last twelve months operating income;
o $1.01 - $1.18, based on estimated calendar 2000 earnings per share; and
o $0.45- $0.59, based on September 30, 1999 tangible book value.
Transaction Analysis. Greene Holcomb compared the consideration to be
received by Sparta shareholders pursuant to the merger agreement to the range of
values of common stock implied by the relative purchase price multiples
generated from 33 selected acquisitions of food companies that have occurred
since January 1, 1997. Greene Holcomb analyzed the equity value of each of the
acquired companies, measured as a multiple of selected financial data, including
(a) last twelve months revenues, (b) last twelve months operating income, (c)
last twelve months net income and (d) tangible book value as of the most
recently reported quarter prior to the acquisition date. Based on this analysis,
Greene Holcomb developed the following ranges of acquisition multiples:
o 0.2x -3.0x, with a mean of 0.8x and a median of 0.7x, for last twelve
months revenues compared to 1.0x for the merger;
o 3.0x - 50.3x, with a mean of 16.3x and a median of 13.9x, for last
twelve months operating income compared to 33.0x for the merger;
o 8.1x - 66.2x, with a mean of 24.7x and a median of 21.0x, for last
twelve months net income compared to 83.3x for the merger; and
o 0.3x - 10.6x, with a mean of 3.3x and a median of 2.3x, for the most
recently reported quarter's tangible book value compared to 6.2x for
the merger.
These acquisition multiples were then compared with the corresponding
multiples based on Sparta's actual last twelve months revenues, operating income
and net income and September 30, 1999 tangible book value to determine the range
of implied equity values of Sparta. This analysis resulted in the following
ranges of implied Sparta value per share:
o $0.60 - $0.84, based on last twelve months revenues as of September 30,
1999;
o <$0 - $0.07, based on last twelve months operating income as of
September 30, 1999;
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o $0.40 - $0.46, based on last twelve months net income as of September
30, 1999; and
o $0.52 - $0.75, based on September 30, 1999 tangible book value.
Premiums Paid Analysis. Greene Holcomb compared the consideration to be
received by Sparta's shareholders pursuant to the merger agreement to the range
of values of the common stock implied by the relative premiums paid over current
market prices in selected recent acquisitions. Greene Holcomb analyzed 189
selected acquisitions of publicly traded companies that have occurred since
January 1, 1998. Greene Holcomb analyzed the equity value of each of the
acquired companies, measured as a percentage premium paid over the acquired
companies' common stock closing prices for the following periods: (a) one day
prior, (b) one week prior and (c) four weeks prior to the announcement of the
transaction. Based on this analysis, Greene Holcomb developed the following
ranges of premiums paid percentages:
o (39.0)% - 145.7%, with a mean of 32.0% and a median of 29.7%, over the
closing price one day prior to the announcement compared to 61.1% for
the merger;
o (29.0)% - 188.9%, with a mean of 40.9% and a median of 32.0%, over the
closing price one week prior to the announcement compared to 88.0% for
the merger; and
o (53.8)% - 181.1%, with a mean of 45.2% and a median of 36.7%, over the
closing price four weeks prior to the announcement compared to 73.5%
for the merger.
No company or transaction used in the Transaction Analysis, the
Analysis of Certain Publicly Traded Companies or Premiums Paid Analysis
described above was directly comparable to Sparta or the merger. Accordingly, an
analysis of the results of the foregoing was not simply mathematical nor
conclusive; rather, it involved complex considerations and judgements concerning
differences in financial and operating characteristics of companies, the form of
consideration and the date of the respective transaction and other factors that
could affect the transaction values and trading prices. For example, many
qualitative factors are involved in valuing a company or analyzing a transaction
in the food industry, including assessments of the quality of management, the
attractiveness of the company's target market, the economics of the products
being sold and the company's market position relative to its competitors. Other
factors that could affect the transaction values or trading prices include
differences in distribution, products, geographic or demographic customer
concentration, size and other factors. These factors may affect transaction
values or trading prices in each case by affecting in varying degrees investors'
expectations of such factors as the company's risk and future operating
profitability.
Discounted Cash Flow Analysis. Greene Holcomb performed a discounted
cash flow analysis of Sparta. Greene Holcomb relied on cash flows as projected
by Sparta management. The discounted cash flow analysis was based on discount
rates ranging from 18% to 22% and terminal multiples of operating income ranging
from 5.0x to 7.0x. Greene Holcomb relied on its understanding of required equity
returns in the food business and the inherent riskiness of Sparta's financial
projections to derive discount rates and on the public equity market analysis of
selected food companies and selected merger and acquisition transactions to
derive the multiples used to calculate terminal values. Based on a discounted
cash flow analysis, Greene Holcomb developed the following range of implied
values per share of Sparta's common stock:
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o $0.98 - $1.85, based on a multiple of operating income ranging from
5.0x to 7.0x and discount rates ranging from 18% to 22%.
The information set forth above does not purport to be a complete
description of the analyses performed by Greene Holcomb. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. The preparation of a fairness opinion does
not involve a mathematical evaluation or weighing of the results of the
individual analyses performed, but requires Greene Holcomb to exercise its
professional judgement, based on its experience and expertise, in considering a
wide variety of analyses taken as a whole. Each of the analyses conducted by
Greene Holcomb was carried out in order to provide a different perspective on
the transaction and add to the total mix of information available. Greene
Holcomb did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to
fairness. Rather, in reaching its conclusion, Greene Holcomb considered the
results of the analyses in light of each other and did not place particular
reliance or weight on any individual analysis and ultimately reached its opinion
based on the results of all analyses taken as a whole. Accordingly,
notwithstanding the separate factors summarized above, Greene Holcomb believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and the factors considered by it, without considering all analyses
and factors, may create an incomplete view of the evaluation process underlying
its opinion. In performing its analyses, Greene Holcomb made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. These assumptions include, but are not limited to,
assumptions regarding: (a) macro-economic business conditions and (b)
competitive dynamics and general trends in the food industry. The analyses
performed by Greene Holcomb are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses.
Fees Payable To Greene Holcomb. The Sparta board of directors selected
Greene Holcomb as its financial advisor because it is a recognized investment
banking firm that has experience in transactions similar to the merger, it is
familiar with Sparta, its businesses and the food industry and because in the
opinion of the Sparta board of directors its fees were reasonable. Greene
Holcomb was initially engaged by Sparta on August 15, 1996, to assist Sparta in
reviewing strategic alternatives, including the possible sale of Sparta. Greene
Holcomb also served as financial advisor to Sparta in connection with the
issuance of preferred stock to Cenex in February, 1998. For those engagements,
Greene Holcomb received fees totaling $171,147.
Pursuant to the terms of an engagement letter dated May 20, 1998
between Sparta and Greene Holcomb, Sparta paid Greene Holcomb a fee of $60,000
for the Greene Holcomb opinion. Sparta also agreed to reimburse Greene Holcomb
for all out-of-pocket expenses (including the reasonable fees and out-of-pocket
expenses of counsel) incurred by Greene Holcomb in connection with its
engagement and to indemnify Greene Holcomb and certain related persons against
certain liabilities in connection with its engagement, including liabilities
under the federal securities laws. In addition, Sparta has agreed to pay Greene
Holcomb a fee of $537,235 for acting as investment banker for Sparta in
connection with the merger. The terms of the fee arrangement with Greene
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Holcomb, which Greene Holcomb and Sparta believe are customary in transactions
of this nature, were negotiated at arm's length between Sparta and Greene
Holcomb.
Cenex and Merger Sub Believe the Merger is Fair
Cenex and Merger Sub believe that the merger is fair to Sparta
shareholders other than Cenex. Cenex and Merger Sub base this belief on the
following material factors:
o The factors cited by the board of directors in determining that the
merger is fair to the Sparta shareholders.
o The $1.41 per share purchase price resulted from arm's length
negotiations between Sparta's board of directors, acting through
independent financial and legal advisors. The Cenex designee on the
Sparta board of directors did not participate in the board of
directors' deliberations.
o The receipt of the opinion of Greene Holcomb that the merger was fair
from a financial point of view.
o Sparta's board of directors (excluding John D. Johnson) and the special
committee unanimously approved the merger agreement and determined that
the terms of the merger are fair to, and in the best interests of, the
shareholders.
o The $1.41 per share price payable in the merger represents a
significant premium over trading prices of Sparta stock prior to
announcement of the exclusivity agreement.
o From 1996 to 1998 Sparta engaged Greene Holcomb to identify and review
strategic proposals from other parties, and during that time, none of
the discussions resulted in a purchase offer. After the announcement of
the exclusivity agreement, Sparta received no other indications of
interest.
o The $1.41 per share price exceeds the $1.35 purchase price of 92,500
shares of Sparta common stock purchased by Cenex on the open market on
March 22, 1999. While the $1.41 is less than the conversion price of
the Preferred Stock owned by Cenex, the conversion price of convertible
securities normally exceeds market values when issued. The trading
price of Sparta common stock was $1.31 on February 24, 1998, the date
that Cenex agreed to purchase the Preferred Stock.
o While the $1.41 per share price is less than the common stock has
traded at in the past (see "Market Prices of our Common Stock and
Dividend Information") Sparta's recent financial results and prospects
have resulted in the decline in trading prices.
o The $1.41 per price share far exceeded the price Cenex initially
offered.
Cenex and the Merger Sub did not find it practicable to, and did not,
weight any of these factors. Cenex and the Merger Sub did not attempt to
quantify Sparta's going concern value and liquidation value, and believe that
neither these values nor the net book value is a useful indicator of the value
of a company such as Sparta.
While the completion of the merger does not require the approval of a
majority of the unaffiliated shareholders of Sparta and Sparta did not retain an
unaffiliated representative to act solely on behalf of the unaffiliated
shareholders of Sparta for the purpose of negotiating the merger or preparing a
report concerning the fairness of the merger, Cenex and Merger Sub believe that
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the merger is procedurally fair to Sparta shareholders. Cenex and Merger Sub
base this belief on the following factors:
o The merger was negotiated on an arm's-length basis under the direction
of the special committee, comprised of the directors who were not
employees of Sparta and excluding John D. Johnson.
o The merger requires the approval of a majority of the holders of Sparta
common stock, the Preferred Stock held by Cenex will not vote on the
merger and Sparta's common stock owned by Cenex represents less than 1%
of the outstanding common stock.
o Unaffiliated shareholders of Sparta who object to the merger may obtain
"fair value" for their shares if they exercise and perfect their
dissenters' rights under the MBCA.
While Cenex and the Merger Sub believe that the merger as negotiated is
fair to Sparta and its shareholders (other than Cenex) Cenex attempted to
negotiate the terms of a transaction that would be most favorable to it, and not
to Sparta and its shareholders and, accordingly, did not negotiate the
transaction with a goal of obtaining terms that were fair to Sparta and its
shareholders other than Cenex.
Interests Of Certain Persons In The Merger
In considering the recommendations of the special committee and board
of directors with respect to the merger, you should be aware that our directors
and executive officers have certain interests in the merger that may be
different from, or in addition to, our shareholders. Our special committee and
board of directors were aware of these interests and considered them, among
other factors, in approving the merger agreement. These interests are summarized
below.
Stock Options
On December 30, 1999, prior to execution of the merger agreement, our
executive officers and directors held options to purchase an aggregate of
606,500 shares of Sparta common stock of which 477,375 were exercisable as of
this date or within 60 days of this date. In connection with the merger, our
board of directors accelerated the vesting requirements, pursuant to the Amended
and Restated Stock Option Plan, thereby increasing the number of options that
are exercisable at the time of the merger to 606,500 shares. Upon completion of
the merger, all stock option holders will be entitled to receive an amount in
cash equal to: (i) the excess of $1.41 over the exercise price of the option,
times (ii) the number of shares of common stock previously subject to such
option. Upon completion of the merger, our officers and directors will receive
the following cash payments related to their respective stock options:
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Officer/Director Cash Payment
Joel P. Bachul .............................$ 138,437
A. Merrill Ayers ...........................$ 96,368
Craig S. Cram ..............................$ 26,118
Larry P. Arnold ............................$ 1,102
Thomas F. Baker ............................$ 4,275
William J. Benzick .........................$ 4,275
John D. Johnson ............................$ 7
Edward K. Jorgensen ........................$ 1,102
Michael J. Kozlak ..........................$ 8,602
------
Total: $ 280,290
Continued Employment
As a condition to Cenex's obligation to complete the merger, Cenex has
required that Joel P. Bachul continue his employment with Sparta. On December
31, 1999, Mr. Bachul entered into an employment agreement with Sparta that takes
effect when the merger is completed. This agreement will supersede and
extinguish the Salary Continuation Agreement and its Amendment previously
entered into between Mr. Bachul and Sparta. According to Mr. Bachul's Change of
Control Agreement, upon a change of control of Sparta, Mr. Bachul would have had
the right, if terminated, to receive an amount equal to two years of his base
salary and benefits. The employment agreement provides that Mr. Bachul will be
employed as Vice President, Consumer Products Group, for a period of one year
after the effective date of the merger. Mr. Bachul will receive an initial base
salary at a rate of $169,500 per year and be eligible to receive incentive
compensation equal to 50% of his base salary and to participate in all of
Cenex's employee benefit plans. The employment agreement also requires that Mr.
Bachul not disclose confidential information regarding Sparta and not compete
with Sparta throughout his employment and for a period of 18 months after
termination of his employment. In addition, in lieu of Cenex's obligation to pay
Mr. Bachul his salary and bonuses for the next two years pursuant to the
contractual requirements of his Salary Continuation Agreement, within five days
after the merger, Mr. Bachul will be paid a lump sum of $405,000.
As a condition to Cenex's obligations to complete the merger, Cenex has
required that Craig Cram continue his employment with Sparta. On December 31,
1999, Mr. Cram entered into an employment agreement with Sparta that takes
effect when the merger is completed. This agreement will supersede and
extinguish the Change in Control Executive Severance Pay Agreement previously
entered into by Mr. Cram and Sparta. According to Mr. Cram's Severance
Agreement, upon a change of control of Sparta followed by his termination from
Sparta, Mr. Cram had the right to receive an amount equal to two years of his
base salary and benefits. Mr. Cram's employment agreement provides that Mr. Cram
will continue to be employed by Sparta for a period of one year following the
merger. Mr. Cram will receive an initial base salary at a rate of $116,000 per
year and will be eligible to receive incentive compensation equal to 50% of his
base salary and to participate in all of Cenex's employee benefit plans. The
employment agreement also requires that Mr. Cram not disclose confidential
information regarding Sparta and not compete with Sparta throughout his
employment and for a period of 18 months after the termination of his
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employment. In addition, in lieu of Cenex's obligation to pay Mr. Cram his
salary and bonuses for the next two years pursuant to the contractual
requirements of his Change of Control Executive Severance Pay Agreement, within
five days after the merger, Mr. Cram will be paid a lump sum of $272,000.
Executive Severance and Separation Agreement
On December 31, 1999, A. Merrill Ayers entered into a Separation
Agreement and General Release with Sparta that takes effect when the merger is
completed. According to the terms of the Separation Agreement and General
Release, Mr. Ayers' employment with Sparta will terminate when the merger is
completed and Sparta has agreed to provide Mr. Ayers outplacement services, not
to exceed $9,000. The Separation Agreement and General Release also requires
that Mr. Ayers not disclose confidential information regarding Sparta and not
compete with Sparta for one year after the merger. In addition, the Separation
Agreement and General Release provides that Mr. Ayers release Sparta of claims
Mr. Ayers may have against Sparta as a result of his employment with Sparta. In
lieu of Cenex's obligation to pay Mr. Ayers his salary and bonuses for the next
two years pursuant to the contractual requirements of his Salary Continuation
Agreement, within five days after the merger, Mr. Ayers will be paid a lump sum
of $329,160 plus a pro rata share of the bonus, if any, that he would be
entitled to receive under Sparta's cash bonus plan, plus unused vacation.
Voting and Proxy Agreements
In order for Cenex to execute the merger agreement, our officers and
directors and a principal shareholder were required to execute and issue to
Cenex voting and proxy agreements. Pursuant to these agreements, our officers
and directors, and the principal shareholder, agreed to vote their shares in
favor of the merger and against any competing third party transaction (as
defined in the Merger Agreement). They also granted Cenex an irrevocable proxy
to vote all their shares in favor of the merger. As of January 1, 2000, our
officers and directors beneficially owned (assuming no exercise of vested
options) an aggregate of 845,000 shares of common stock or approximately 8.2% of
our currently outstanding shares, and the principal shareholder owns 662,000
shares or approximately 6.4% of our outstanding shares.
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Recent Acquisitions of Sparta Securities by Affiliates
On February 24, 1998, Sparta issued 2,500 shares of Preferred Stock,
Series 1998, $1,000 par value, to Cenex for an aggregate purchase price of
$2,500,000 pursuant to a stock purchase agreement. The Preferred Stock is
convertible into 1,515,150 shares of Common Stock. In addition, Sparta's
officers and directors purchased 165,000 shares of common stock at $.50 per
share upon exercise of outstanding warrants during the quarterly period ended on
December 31, 1998 and 280,000 shares of common stock at $.75 per share upon
exercise of outstanding warrants during the quarterly period ended March 31,
1999. Cenex purchased 92,500 shares of common stock at $1.35 per share during
the quarterly period ended March 31, 1999. Sparta affiliates purchased 20,000
shares at prices ranging from $1.0625 to $1.1875 per share during the quarterly
ended June 30, 1999 at a weighted average price of $1.11866 per share.
Sparta did not issue, repurchase or redeem any shares of common stock
during the past 60 days. Sparta, pursuant to Sparta Amended and Restated Stock
Option Plan, granted options to purchase an aggregate of 75,580 shares of common
stock at an exercise price of $1.50 per share:
Exercise
Date Name Options Issued Price
- --------- ----------------- -------------- ---------
11/19/99 A. Merrill Ayers 22,580 $1.50
11/19/99 Joel P. Bachul 33,000 $1.50
11/19/99 Craig S. Cram 20,000 $1.50
On December 29, 1999, Thomas House, a former officer of Sparta whose
employment with Sparta terminated on September 30, 1999, exercised options to
purchase 50,000 shares of common stock at $0.50 per share and options to
purchase 10,900 shares at $1.0625 per share. The options would have expired on
December 31, 1999.
Accounting Treatment
The merger will be accounted for as a "purchase" in accordance with
generally accepted accounting principles. Consequently, the aggregate
consideration paid by Cenex in connection with the merger will be allocated to
Sparta's assets and liabilities based upon their fair values, with any excess
being treated as goodwill.
Material Federal Income Tax Consequences
The following describes the principal federal income tax consequences
of the merger, assuming that the merger is consummated as contemplated herein.
The discussion assumes that a Sparta shareholder holds his or her common stock
as a capital asset (i.e., generally for investment). This discussion is based on
current laws and interpretations thereof, and there can be no assurance that
future legislation, regulations, administrative rulings, or court decisions will
not adversely affect the accuracy of the statements contained herein. The
discussion does not take into account rules that may apply to shareholders that
are subject to special treatment under federal income tax laws (including,
without limitation, trusts, S corporations, taxpayers subject to alternative
minimum tax, insurance companies, dealers in securities, certain retirement
plans, financial institutions, tax exempt organizations, holders who are not
United States citizens or residents, Sparta shareholders who acquired Sparta
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common stock pursuant to the exercise of employee stock options or rights or
otherwise as compensation and persons in special situations, including persons
who hold shares of Sparta common stock as part of a straddle). No rulings have
been requested or received from the Internal Revenue Service (the "IRS") as to
the matters discussed herein and there is no intent to seek any such rulings.
Accordingly, no assurance can be given that the IRS will not challenge the tax
treatment of certain matters discussed in this summary or, if it does challenge
the tax treatment, that it will not be successful.
The discussion below does not address state, local or foreign tax
consequences of the merger and the specific tax consequences to each Sparta
shareholder may differ. Consequently, you should consult your own tax advisor as
to the specific tax consequences, including the applicable federal, state, local
and foreign tax consequences to you, of the merger.
The merger will be a taxable transaction to you for federal income tax
purposes and you will be treated as if, at the effective time of the merger, you
had sold your common stock for cash. You will recognize capital gain or loss
equal to the difference between (x) your tax basis in the common stock
surrendered and (y) any cash you receive for the common stock.
The gain or loss recognized as a result of the merger will be treated
as a capital gain or loss, provided that Sparta is not treated for federal
income tax purposes as a "collapsible corporation." The board of directors
believes that Sparta is not a collapsible corporation for federal income tax
purposes. The gain or loss so recognized will be long-term with respect to
shares of Sparta common stock held for more than one year and will be short-term
with respect to shares held for one year or less. For federal income tax
purposes capital losses are generally deductible only against capital gains and
not against ordinary income. A limited exception permits individual taxpayers to
deduct up to $3,000 of net capital loss from ordinary income.
Under the federal income tax backup withholding rules, unless an
exemption applies, withholding will be required of 31% of all payments to which
you are entitled pursuant to the merger, unless you provide or have provided a
tax identification number (social security number, in the case of an
individual). You should complete and sign any substitute Form W-9 which may be
included as part of the letter of transmittal to be returned to Sparta in order
to provide the information and certification necessary to avoid backup
withholding, unless an applicable exception exists and is proved in a
satisfactory manner or unless Sparta already has such tax identification number
in its possession. The exceptions provide that certain holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. Any amounts withheld will
be allowed as a credit against your federal income tax liability for such year.
The federal income tax discussion set forth above is included for
general information only. Such discussion does not address the tax consequences
to Sparta officers and directors associated with receipt of cash payments for
outstanding options or the payments under their employment and severance
agreements. Shareholders should note that the parties have not obtained, and
will not obtain, a ruling from the IRS or an opinion of counsel regarding the
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matters described herein. You are urged to consult your tax advisor with respect
to the tax consequences to you of the proposed transactions, including federal,
state, local and foreign tax consequences.
RIGHTS OF DISSENTING SHAREHOLDERS
Sections 302A.471 and 302A.473 of the MBCA provide to each shareholder
the right to dissent from the merger, and obtain payment in cash for the "fair
value" of such shareholder's shares following the consummation of the merger.
The following summary of the applicable provisions of Sections 302A.471
and 302A.473 of the MBCA is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to such sections, the
full texts of which are attached as Appendix C to this proxy statement. These
sections should be reviewed carefully by any shareholder who wishes to exercise
dissenters' rights or who wishes to preserve the right to do so, since failure
to comply fully with the procedures set forth herein or therein will result in
the loss of dissenters' rights.
Under the MBCA, holders of common stock will have the right, by fully
complying with the applicable provisions of Sections 302A.471 and 302A.473, to
dissent with respect to the merger and to receive from the Surviving Corporation
payment in cash of the "fair value" of their shares of common stock after the
merger is completed. The term "fair value" means the value of the shares of
common stock immediately before the Effective Time.
All references in Sections 302A.471 and 302A.473 and in this summary to
a "shareholder" are to a record holder of the shares of common stock as to which
dissenters' rights are asserted. A person having beneficial ownership of shares
of common stock that are held of record in the name of another person, such as a
broker, nominee, trustee or custodian, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner in
order to perfect whatever dissenters' rights such beneficial owner may have.
Shareholders of record who desire to exercise their dissenters' rights
must satisfy all of the following conditions. A written notice of intent to
demand fair value for shares must be delivered to the executive offices of
Sparta before the taking of the shareholder vote on the merger. This written
demand must be in addition to and separate from any proxy or vote against the
merger. Voting against, abstaining from voting or failing to vote on the merger
does not by itself constitute a notice of intent to demand fair value within the
meaning of the MBCA.
Shareholders electing to exercise their dissenters' rights under the
MBCA must not vote for approval of the merger agreement. A shareholder's failure
to vote against the merger agreement will not constitute a waiver of dissenters'
rights. However, if a shareholder returns a signed proxy but does not specify a
vote against adoption of the merger agreement or direction to abstain, the proxy
will be voted for approval of the merger agreement, which will have the effect
of waiving that shareholder's dissenters' rights.
A Sparta shareholder may not assert dissenters' rights as to less than
all of the shares registered in such holder's name except where certain shares
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are beneficially owned by another person but registered in such holder's name.
If a record owner, such as a broker, nominee, trustee or custodian, wishes to
dissent with respect to shares beneficially owned by another person, such
shareholder must dissent with respect to all of such shares and must disclose
the name and address of the beneficial owner on whose behalf the dissent is
made. A beneficial owner of shares of common stock who is not the record owner
of such shares may assert dissenters' rights as to shares held on such person's
behalf, provided that such beneficial owner submits a written consent of the
record owner to Sparta at or before the time such rights are asserted.
A shareholder who elects to exercise dissenters' rights must send his
or her written demand, before the taking of the vote on the merger agreement, to
Sparta, Inc., 1565 First Avenue N.W., New Brighton, Minnesota 55112; Attention:
A. Merrill Ayers. The written demand should specify the shareholder's name and
mailing address, the number of shares owned and that the shareholder intends to
demand the fair value of his or her shares.
If the merger agreement is approved by the shareholders of Sparta at
the special meeting, the Surviving Corporation will send a written notice to
each shareholder who filed a written demand for dissenters' rights and did not
vote for approval of the merger agreement. The notice will contain the address
to which the shareholder shall send a demand for payment and the stock
certificates representing the dissenting shares in order to obtain payment and
the date by which they must be received, a form to be used in connection
therewith and other related information.
In order to receive fair value, a dissenting shareholder must, within
30 days after the date such notice was given (for which purpose notice by the
Surviving Corporation is deemed to have been given under Minnesota law when
deposited in the U.S. mail), demand the payment of fair value for his or her
shares, and deposit his or her stock certificates with the Surviving Corporation
at the address specified in such notice. A dissenting shareholder will retain
all rights as a shareholder until the Effective Time. After a valid demand for
payment and the related stock certificates are received, or after the Effective
Time, whichever is later, the Surviving Corporation will remit to each
dissenting shareholder who has complied with statutory requirements the amount
that the Surviving Corporation estimates to be the fair value of such
shareholder's shares, with interest commencing five days after the Effective
Time at a rate prescribed by statute (currently 4%). Remittance will be
accompanied by the Surviving Corporation's closing balance sheet and statement
of income for a fiscal year ending not more than 16 months before the Effective
Time, together with the Surviving Corporation's latest available interim
financial data, an estimate of the fair value of the shareholder's shares and a
brief description of the method used to reach the estimate, a brief description
of the procedure to be followed if such holder is demanding supplemental payment
and copies of Sections 302A.471 and 302A.473 of the MBCA.
If the dissenting shareholder believes that the amount remitted by the
Surviving Corporation is less than the fair value of such holder's shares, plus
interest, the shareholder may give written notice to the Surviving Corporation
of such holder's own estimate of the fair value of the shares, plus interest,
within 30 days after the mailing date of the remittance and demand payment of
the difference. Such notice must be given at the executive offices of Sparta at
the address set forth above. A shareholder who fails to give such written notice
within this time period is entitled only to the amount remitted by the Surviving
Corporation.
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Within 60 days after receipt of a demand for supplemental payment, the
Surviving Corporation must either pay the shareholder the amount demanded or
agreed to by such shareholder after discussion with the Surviving Corporation or
petition a court in Ramsey County, Minnesota for the determination of the fair
value of the shares, plus interest. The petition shall name as parties all
shareholders who have demanded supplemental payment and have not reached an
agreement with the Surviving Corporation. The court, after determining that the
shareholder or shareholders in question have complied with all statutory
requirements, may use any valuation method or combination of methods it deems
appropriate to use, whether or not used by the Surviving Corporation or the
dissenting shareholder, and may appoint appraisers to recommend the amount of
the fair value of the shares. The court's determination will be binding on all
Sparta shareholders who properly exercised dissenters' rights and did not agree
with the Surviving Corporation as to the fair value of the shares. Dissenting
shareholders are entitled to judgment in cash for the amount by which the
court-determined fair value per share, plus interest, exceeds the amount per
share, plus interest, remitted to the shareholders by the Surviving Corporation.
The shareholders shall not be liable to the Surviving Corporation for any
amounts paid by the Surviving Corporation which exceed the fair value of the
shares as determined by the court, plus interest. The costs and expenses of such
a proceeding, including the expenses and compensation of any appraisers, will be
determined by the court and assessed against the Surviving Corporation, except
that the court may, in its discretion, assess part or all of those costs and
expenses against any shareholder whose action in demanding supplemental payment
is found to be arbitrary, vexatious or not in good faith. The court may award
fees and expenses to an attorney for the dissenting shareholders out of the
amount, if any, awarded to such shareholders. If the court finds that the
Surviving Corporation has failed to comply substantially with Section 302A.473,
the court may assess against the Surviving Corporation such fees or expenses of
experts or attorneys as the court deems equitable. Fees and expenses of experts
or attorneys may also be assessed against any person who acted arbitrarily,
vexatiously or not in good faith in bringing the proceeding.
The Surviving Corporation may withhold the remittance of the estimated
fair value, plus interest, for any shares owned by any person who was not a
shareholder, or who is dissenting on behalf of a person who was not a beneficial
owner, on December 31, 1999, the date on which the proposed merger was first
announced to the public (the "Public Announcement Date"). The Surviving
Corporation will forward to any such dissenting shareholder who has complied
with all requirements in exercising dissenters' rights the notice and all other
materials sent after shareholder approval of the merger to all shareholders who
have properly exercised dissenters' rights, together with a statement of the
reason for withholding the remittance and an offer to pay the dissenting
shareholder the amount listed in the materials if the shareholder agrees to
accept that amount in full satisfaction. The shareholder may decline this offer
and demand payment by following the same procedure as that described for demand
of supplemental payment by shareholders who owned their shares as of the Public
Announcement Date. Any shareholder who did not own shares on the Public
Announcement Date and who fails properly to demand payment will be entitled only
to the amount offered by the Surviving Corporation. Upon proper demand by any
such shareholder, rules and procedures applicable in connection with receipt by
the Surviving Corporation of the demand for supplemental payment given by a
dissenting shareholder who owned shares on the Public Announcement Date will
also apply to any shareholder properly giving a demand but who did not own
shares of record or beneficially on the Public Announcement Date, except that
any such shareholder is not entitled to receive any remittance from the
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Surviving Corporation until the fair value of the shares, plus interest, has
been determined pursuant to such rules and procedures.
Shareholders considering exercising dissenters' rights should bear in
mind that the fair value of their shares determined under Sections 302A.471 and
302A.473 of the MBCA could be more than, the same as or, in certain
circumstances, less than the consideration they would have received pursuant to
the merger agreement if they have not exercised dissenters' rights with respect
to their shares, and that the opinion of any investment banking firm as to
fairness, from a financial point of view, is not an opinion as to fair value
under Sections 302A.471 and 302A.473. Under Section 302A.471 of the MBCA, a
shareholder has no right at law or equity to set aside the adoption of the
merger agreement or the consummation of the merger, except if such adoption or
consummation is fraudulent with respect to such shareholder or Sparta. Cash
received pursuant to the exercise of dissenters' rights would be subject to
federal or state income tax. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
IF YOU FAIL TO COMPLY FULLY WITH THE STATUTORY PROCEDURE SUMMARIZED
ABOVE YOU WILL FORFEIT YOUR RIGHT OF DISSENT AND WILL RECEIVE THE MERGER
CONSIDERATION FOR YOUR SHARES. SEE APPENDIX C.
THE MERGER AGREEMENT
Set forth below is a description of all material terms of the merger
agreement and related matters. For additional information, you should review the
merger agreement, which is attached hereto as Appendix A and incorporated herein
by reference. Capitalized terms not otherwise defined below have the meanings
ascribed to them elsewhere in this Proxy Statement. Shareholders are urged to
read the merger agreement in its entirety.
General
If the merger agreement is approved by a majority of the shareholders
entitled to vote on such matters:
o Merger Sub will be merged with and into Sparta, with Sparta being the
Surviving Corporation after the merger;
o each share of common stock outstanding immediately prior to the
effective time of the merger (other than shares as to which dissenters'
rights are perfected) will be converted into the right to receive $1.41
in cash, without interest; and
o Cenex will own Sparta.
See "THE MERGER AGREEMENT--Payment for Shares." Our shares of common stock will
no longer be quoted on The Nasdaq SmallCap Market, and the registration of the
common stock under the Exchange Act will be terminated. Dissenting shares will
be converted to cash in the manner described under the caption "THE MERGER -
Rights of Dissenting Shareholders."
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Treatment of Stock Options and Warrants
Under the terms of the merger agreement, each outstanding option to
purchase Sparta common stock will be converted into the right to receive, for
each share of Sparta common stock subject to the option, $1.41 in cash less the
per share exercise price of each option, subject to applicable withholdings, if
any.
We have warrants outstanding to purchase 80,000 shares of our common
stock. In connection with the merger, each warrant will be converted into the
right to receive (i) the excess of $1.41 over the exercise price of the warrant
times (ii) the number of shares subject to the warrant.
Effective Time
The merger will become effective upon the filing of Articles of Merger
with the Secretary of State of the State of Minnesota in accordance with
Minnesota law. The filing is expected to occur promptly after approval of the
merger agreement by our shareholders at the special meeting and satisfaction or
waiver of the other conditions to the merger contained in the merger agreement.
We cannot assure you that all conditions to the merger contained in the merger
agreement will be satisfied or waived. See "THE MERGER AGREEMENT - Conditions to
the Merger."
Payment for Shares
A bank or trust company designated by Cenex will act as the paying
agent (the "Paying Agent") for the payment of the merger consideration to the
holders of our common stock. Cenex will from time to time make available to the
Paying Agent funds in amounts and at the times necessary for the payment of the
merger consideration to Sparta shareholders and option and warrant holders.
Instructions with regard to the surrender of certificates formerly
representing shares of common stock, together with the letter of transmittal to
be used for that purpose, will be mailed to you as soon as practicable after the
effective time of the merger. You should not surrender certificates until you
receive the letter of transmittal. As soon as practicable following the receipt
by the Paying Agent of your certificate(s) formerly representing Sparta common
stock, a duly completed and validly executed letter of transmittal and any other
item specified by the letter of transmittal, the Paying Agent will pay such
amount equal to the product of the merger consideration multiplied by the number
of shares of common stock represented by such certificate(s) to such shareholder
by check or draft less any amount required to be withheld under applicable
federal income tax regulations. All certificates formerly representing our
common stock will then be canceled.
After the effective time of the merger, holders of certificates
formerly representing our common stock will cease to have any rights as
shareholders of Sparta, except as provided in the merger agreement or under
Minnesota law, and such holders' sole right will be to receive the merger
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consideration with respect to such shares (or, in the case of dissenting shares,
the statutorily determined "fair value"). Sparta, as the surviving corporation,
shall pay all service charges, brokerage commissions and transfer taxes in
connection with the shareholders' surrender of their shares of common stock in
exchange for cash, except if payment is to be made to a person other than the
person in whose name the surrendered certificate is registered. In such case, it
will be a condition of payment that the person requesting such payment pay any
transfer and other taxes required by reason of such payment or establish to the
satisfaction of Sparta and the Paying Agent that such taxes have been paid or
are not applicable. At the effective time of the merger, our stock transfer
books will be closed and there will not be any registration of transfers of
shares of common stock thereafter on the records of Sparta.
To the extent permitted by law, the appointment of the Paying Agent may
be terminated six months following the effective time. Any portion of the merger
consideration remaining undistributed upon termination of the Paying Agent's
appointment will be returned to Sparta, and any holders of certificates formerly
representing shares of common stock may thereafter surrender to Sparta such
certificates and (subject to abandoned property, escheat or similar laws)
receive in exchange the merger consideration to which they are entitled, but
shall have no greater rights against Sparta than may be accorded to general
creditors of Sparta under relevant law. In no event will former holders of
shares of our common stock be entitled to receive payment of any interest on the
merger consideration. The total amount of funds required by Cenex to complete
the merger is estimated to be approximately $15.9 million. Cenex intends to use
available cash, derived from its operations, to provide the necessary funds to
complete the merger.
Officers, Directors and Governing Documents
At the effective time of the merger, the directors of Merger Sub will
become Sparta's directors, and the officers of Sparta, except Mr. Ayers, will
remain Sparta's officers. The Articles of Incorporation of Sparta will remain in
effect until thereafter amended as provided by applicable law, and the Bylaws of
Merger Sub will be Sparta's Bylaws.
Representations and Warranties
The merger agreement contains various representations and warranties
made by Sparta, including representations and warranties relating to:
o capitalization;
o due organization, valid existence and good standing;
o the authorization, execution, delivery and enforceability of the merger
agreement;
o the absence of any conflicts under Sparta's Articles of Incorporation
and Bylaws, any applicable law or any material contract of Sparta;
o subsidiaries and other interests;
o financial statements;
o tax matters;
o title to properties;
o inventories;
o accounts receivable;
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o leases;
o facilities and equipment;
o insurance;
o employment and benefit matters;
o material contracts;
o officers and directors;
o corporate documents;
o claims and litigation;
o compliance with instruments, orders and legal requirements;
o permits;
o intellectual property;
o capital expenditures;
o environmental matters;
o illegal payments;
o the adequacy of filings with the SEC;
o the board of directors' approval of the merger agreement and the
transactions associated with it and the receipt of an opinion of Greene
Holcomb;
o the accuracy of the representations and warranties in this proxy
statement; and
o employment agreements.
The merger agreement contains various representations and warranties
made by Cenex, including representations and warranties relating to:
o due organization, power, authority and good standing of Cenex and
Merger Sub;
o the authorization, execution, delivery and enforceability of the merger
agreement by Cenex and Merger Sub;
o the absence of claims, actions and other proceedings; and
o the financing required to consummate the merger.
Conduct of the Business Pending the Merger
Under the merger agreement, we have agreed that, prior to the effective
time of the merger, our business will be conducted in accordance with certain
restrictions set forth in the merger agreement. Among other things, we have
agreed that we will operate only in the usual, regular and ordinary course and
consistent with past practice; and that we will not:
o merge or consolidate with or agree to merge or consolidate with, or
sell or agree to sell all or substantially of our property to, or
purchase or agree to purchase all of substantially of the property of,
any person;
o amend our Articles of Incorporation or Bylaws or comparable governing
instruments;
o make any changes in its accounting methods, principles or practices,
except as required by generally accepted accounting principles;
o sell, consume or otherwise dispose of any property, except in the
ordinary course of business consistent with past practices;
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o authorize for issuance, issue, sell or deliver any additional shares of
our capital stock of any class or any securities or obligations
convertible into shares of our capital stock, or issue or grant any
option, warrant or other right to purchase any shares of our capital
stock of any class;
o declare any dividend on, make any distribution with respect to, or
redeem or repurchase, our capital stock;
o amend the terms of our employee benefit plans (including, the
acceleration of vesting of any stock options), except as may be
required by law or by agreement;
o increase or agree to increase the compensation payable or to become
payable to our officers or, other than increases in accordance with
past practice which are not material, to our employees, grant any
severance or termination pay to any employee or enter into any
collective bargaining agreement;
o enter into a contract requiring our commitment of in excess of $50,000;
o agree to take any of the actions described above; or
o settle any litigation.
No Solicitation
Pursuant to the merger agreement, we have agreed to cease and cause our
advisors, agents and other intermediaries to cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal (as defined in the merger agreement).
Subject to the following paragraph, neither Sparta nor any of its subsidiaries
will, nor shall take any action to, directly or indirectly:
o solicit, initiate or encourage the submission of any Acquisition
Proposal or any inquiries with respect thereto;
o enter into any agreement for or relating to a Third-Party Transaction
(as defined in the merger agreement); or
o participate in any way in any discussions or negotiations with, or
furnish any non-public information to, any Person in connection with
any Acquisition Proposal.
Notwithstanding the foregoing, the board of directors of Sparta may,
prior to the approval of our shareholders, terminate the merger agreement in
order to simultaneously enter into a binding agreement with respect to a
Third-Party Transaction (as defined in the merger agreement) that constitutes a
Superior Proposal (as defined in the merger agreement), if and only to the
extent that both (i) Cenex has been given at least five days written notice of
Sparta's intent to terminate, and (ii) our board of directors has determined in
good faith, after receiving the advice of its outside counsel, that such action
is necessary in order for our board of directors to comply with its fiduciary
duties to you under applicable law.
An "Acquisition Proposal" means any:
o merger, consolidation or similar transaction involving Sparta;
o sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of any assets of Sparta or
its subsidiaries representing 15% or more of the consolidated assets of
Sparta and its subsidiaries;
43
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o issue, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
(or options, rights or warrants to purchase, or securities convertible
into, such securities) representing 15% or more of the votes attached
to the outstanding securities of Sparta;
o transaction in which any person shall acquire beneficial ownership or
the right to acquire beneficial ownership, or any group shall have been
formed which has beneficial ownership or has the right to acquire
beneficial ownership, of 15% or more of the outstanding shares of
common stock of Sparta;
o recapitalization, restructuring, liquidation, dissolution or other
similar type of transaction with respect to Sparta or any of its
subsidiaries; or
o transaction which is similar in form, substance or purpose to any of
the foregoing transactions.
Access to Information
We agreed to allow Cenex, its counsel, accountants, business
consultants and other representatives and the financial institutions (and their
counsel and representatives) providing financing in connection with the merger
agreement, during regular business hours upon reasonable notice, to make such
reasonable inspection of our assets, facilities, business and operations,
including, without limitation, the performance of environmental site
assessments. We also agreed to allow such parties to inspect and make copies of
contracts, books and records and all other documents and information reasonably
requested by Cenex and related to our operations and business including, without
limitation, historical financial information concerning our business and to meet
with our employees and officers. We further agreed to furnish to Cenex promptly
upon request all additional documents and information with respect to our
affairs relating to our businesses and access to our employees and to our
accountants and counsel as Cenex, or its counsel or accountants, may from time
to time reasonably request.
Conditions to the Merger
All Parties. The respective obligations of each party to effect the
merger are subject to the merger agreement having been approved and adopted by
our shareholders in accordance with the MBCA and there being no law or
regulation and no judgment, order, decree or injunction that prohibits or
enjoins the consummation of the merger.
Sparta. Our obligation to effect the merger is subject to the
satisfaction or waiver of the following
conditions:
o all representations and warranties of Merger Sub and Cenex contained in
the merger agreement shall be true and correct in all material respects
at and as of the dates specified in the merger agreement;
o the receipt of a certificate executed by an officer or member of Cenex
certifying that the representations and warranties of Cenex are true in
all material respects;
o Merger Sub and Cenex shall have each performed in all material respects
all obligations arising under the agreements and covenants required by
the merger agreement to be performed by them prior to or on the
effective date; and
44
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o all corporate and other proceedings on the part of Cenex and Merger Sub
and all documents and instruments relating to the merger are reasonably
satisfactory to Sparta.
Cenex and Merger Sub. The obligations of Cenex and Merger Sub to effect
the merger are subject to the satisfaction or waiver of the following
conditions, among others:
o all representations and warranties of Sparta contained in the merger
agreement shall be true and correct in all material respects at and as
of the dates specified in the merger agreement;
o the proxy statement complies in all material respects with the
applicable requirements of the Exchange Act and does not contain any
untrue statement of material fact or omit to state any material fact
required to be stated;
o the receipt of a certificate executed by an officer of Sparta that the
representations and warranties of Sparta made in the merger agreement
are true and the information contained in the proxy statement conforms
with the requirements of the Exchange Act;
o the performance of and compliance with the covenants contained in the
merger agreement;
o dissenting shares shall constitute not more than five percent (5%) of
the shares of common stock outstanding immediately prior to the
Effective Time;
o all consents, approvals and licenses of any governmental authority or
any third party required shall have been obtained;
o the receipt of an opinion from Fredrikson & Byron, P.A., counsel to
Sparta;
o from the date of the merger agreement until the closing date, certain
events shall not have occurred without the consent of Cenex;
o Sparta's key employees shall have indicated to Cenex their intention to
continue their employment with Sparta on their current terms;
o all issued and outstanding warrants of Sparta shall have been exercised
and/or canceled for an amount not to exceed the number of shares of
common stock subject thereto times the excess, if any, of the
Consideration over the per-share exercise price stated therein;
o the agreements with Messrs. Bachul, Ayers and Cram are in full force
and effect;
o the legal fees and transactional expenses incurred by Sparta have been
disclosed to Cenex and Cenex has not reasonably objected to such fees
and expenses;
o all corporate and other proceedings on the part of Sparta and all
documents and instruments relating to the merger are reasonably
satisfactory to Cenex; and
o since September 30, 1999, there have not been any material adverse
changes with respect to Sparta.
If any of the foregoing conditions are not met, the party whose
obligation to proceed is subject to such conditions may refuse to proceed with
the merger. Alternatively, any of the foregoing conditions may be waived at any
time prior to the merger by the parties to the Merger Agreement, except for the
MBCA Required Approval and compliance with all statutory requirements for the
valid consummation of the merger.
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Sparta will not waive any conditions to the merger that the board of
directors determines, after consultation with counsel to Sparta, are material to
the shareholders of the Company, without first resoliciting a vote of the
shareholders in connection therewith.
Termination of the Merger Agreement
The merger agreement may be terminated and the merger abandoned at any
time prior to the Effective Time, whether before or after the approval of our
shareholders, by mutual written consent of Cenex, Merger Sub and Sparta, or
under the following conditions:
Cenex. Cenex may terminate the merger agreement and abandon the merger
if:
o any of the conditions to our obligation to consummate the transactions
contemplated in the merger agreement shall not have occurred on or
before June 30, 2000, provided that Cenex is not then in breach in any
material respect of any of its obligations under the merger agreement;
o the merger is not approved by the Sparta shareholders at the special
meeting; or
o it has not received letter agreements by January 14, 2000 (1) from the
holders of all outstanding warrants agreeing that such warrants may be
cashed out for the number of shares of Sparta common stock subject
thereto times the excess, if any, of merger consideration over the
per-share exercise price stated therein, and (2) from the landlords of
real property consenting to the merger without the payment of
additional consideration.
Sparta. The merger agreement provides that we may terminate the merger
agreement and abandon the merger if:
o in good faith, based upon written advice from outside counsel and in
order to prevent the board of directors from breaching its fiduciary
duty, we enter into a Third-Party Transaction, if, simultaneously with
such consummation, we pay Cenex a $1 million termination fee; or
o any of the conditions to Cenex's obligation to consummate the
transactions contemplated in the merger agreement shall not have
occurred on or before June 30, 2000, provided that we are not then in
breach in any material respect of any of our obligations under the
merger agreement.
Termination Fees
Under the following circumstances, termination of the merger agreement
will result in us paying Merger Sub a termination fee of $1 million in cash (the
"Termination Fee"):
A. The merger agreement is terminated by Cenex because:
o prior to receiving approval from the Sparta shareholders at the special
meeting, the board of directors enter into a binding Third-Party
Transaction that constitutes a Superior Proposal, upon granting Cenex
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<PAGE>
at least five days notice of such transaction, and determining, in good
faith, after receiving the advice of outside counsel, that such action
is necessary in order for the board of directors to comply with its
fiduciary duties to the Sparta shareholders; or
o Sparta's shareholders do not approve the merger, and a Third-Party
Transaction is announced within 18 months after the merger agreement is
terminated which is thereafter consummated (or is consummated within
such 18-month period, regardless of any announcement);
B. The merger agreement is terminated by us because the board of
directors, in good faith based upon written advice from
outside counsel and in order not to breach its fiduciary duty,
withdraws, modifies or amends, in a manner adverse to Merger
Sub or Cenex, our recommendation that you approve the merger
agreement in order to permit us to execute a definitive
agreement providing for the acquisition of Sparta or in order
to approve a tender or exchange offer for any or all of our
common stock, in either case that is determined by your board
of directors to be on financial terms more favorable to you
than the merger.
C. The board of directors announces a Third-Party Transaction
within 12 months after the merger agreement is terminated
which is thereafter consummated (or is consummated within such
12-month period, regardless of any announcement), and merger
agreement is terminated:
o by either party prior to the Effective Time after June 30, 2000,
without the payment of a termination fee other than a termination after
Cenex is in material breach of the merger agreement; or
o by Cenex, due to a material breach by Sparta.
Option to Purchase
We granted Cenex the right, at Cenex's option, to purchase from Sparta
up to 2,045,504 (subject to adjustment as provided in the merger agreement)
shares in the aggregate at the exercise price of $1.41 per share, subject to
adjustment as provided in the merger agreement, but only in connection with or
after the first to occur of the following events:
o Sparta terminates the merger agreement pursuant to Superior Proposal;
or
o the merger is not approved by Sparta's stockholders and a Third-Party
Transaction is announced within 18 months after such termination which
is thereafter consummated (or is consummated within such 18-month
period, irrespective of any announcement); or
o (A) The merger agreement is terminated (x) by any party prior to the
effective time after June 30, 2000 other than a termination after Cenex
is in material breach of this Agreement, or (y) by Cenex due to a
material breach by Sparta, and (B) a Third-Party Transaction is
announced within 12 months after such termination which is thereafter
consummated (or is consummated within such 12-month period,
irrespective of any announcement); or
47
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o any person other than an affiliate of Cenex commences a tender offer
for 15% or more of Sparta's outstanding shares.
48
<PAGE>
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
- ---------------------
(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.
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<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
189,125(6) 1.8%
A. Merrill Ayers
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) *
5N 275 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) *
5500 Cenex Drive,
Inver Grove Heights, MN 55077
Thomas F. Baker 23,000(10) *
1573 Lone Oak Road
Eagan, MN 55121
William J. Benzick 3,000(9) *
4137 Brigadoon Drive
Shoreview, MN 55126
Current Officers and Directors as a
group (9 persons) 1,337,625(11) 12.4%
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- ---------------------
* 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) Mr. Johnson is an executive officer of Cenex Harvest States
Cooperatives, which is one of our shareholders.
(9) 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.
(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.
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<PAGE>
MARKET PRICES OF OUR COMMON STOCK
AND
DIVIDEND INFORMATION
Our common stock is traded in the over-the-counter market with prices
quoted on the Nasdaq SmallCap Market under the symbol "SPFO." Quotations in the
following table represent inter-dealer prices, without retail markup, markdown
or commission, and do not necessarily represent actual transactions.
Common Stock
-------------------------------------------------------
Fiscal Quarter Ended High Bid Low Bid
- --------------------------------------------------- ---------------------------
December 31, 1997 $1.938 $1.500
March 31, 1998 1.719 1.125
June 30, 1998 1.657 1.375
September 30, 1998 1.500 1.000
December 31, 1998 $1.500 $0.875
March 31, 1999 1.500 1.000
June 30, 1999 1.500 0.875
September 30, 1999 1.125 0.750
December 31, 1999 1.688 0.625
At January __, 2000 the published high and low bid price for our common
stock was $____ per share. At January ____, 2000, there were issued and
outstanding 10,278,916 shares of common stock held by 201 shareholders of
record. Record ownership includes ownership by nominees who may hold for
multiple owners.
We have not paid a dividend on our common stock and do not anticipate
paying any such dividends in the foreseeable future. Our credit agreement
precludes us from declaring or paying dividends on our common stock without the
creditor's approval.
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SPARTA FOODS, INC.
HISTORICAL SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------ ----------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Data
Net sales $15,748,588 $14,963,157 $14,077,841 $12,662,819 $11,991,988
Income(loss) before income tax 24,842 429,496 457,729 110,307 (989,156)
Net income (loss) 9,842 694,496 435,729 105,307 (943,778)
Net income(loss)per common share:
Basic $ (.01) $ .09 $ .07 $ .02 $ (.24)
Diluted (.01) .08 .05 .01 (.24)
Weighted average number of common
And common equivalent shares:
Basic 9,347,958 6,882,453 6,692,100 5,778,550 3,887,950
Diluted 9,347,958 7,851,349 7,922,780 7,170,873 3,887,950
Balance Sheet Data
Total assets $12,792,833 $10,721,185 $10,897,345 $ 7,007,013 $ 7,554,518
Long-term debt 1,475,760 2,667,623 4,051,212 2,063,613 2,636,913
Stockholders' equity 8,874,306 6,709,863 3,486,068 3,010,035 1,744,812
</TABLE>
SPARTA MANAGEMENT PROJECTIONS
Sparta as a matter of course does not make public forecasts or
projections as to future revenues or results of operations. However, during
Cenex's due diligence investigation and analysis of the merger, Sparta's
management prepared three-year projections through the period ended on September
30, 2002, and furnished these projections to Cenex. These projections were used
by Cenex's management and board of directors to analyze the merger and
understand Sparta's forecasted future results of operations. In addition, Sparta
made the projections available to Greene Holcomb along with projections for 2003
and 2004. Greene Holcomb used and relied on the projections in preparing a
portion of its fairness opinion. The projections were not prepared with a view
toward public disclosure or compliance with either the published guidelines of
the SEC regarding projections or forecasts or the American Institute of
Certified Public Accountants' Guide for Prospective Financial Statements.
The projections were not audited or reviewed by independent accountants.
The projections were prepared to present what Sparta's statements of
operations might look like in the future. Projections, which includes Sparta's
recent acquisition of Arizona Brands, for 2000 through 2004 are shown below.
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Sparta Foods, Inc.(1)
Projected Income Statements and Other Data
Years Ended September 30
($ in 000's, except share and per share figures)
<TABLE>
<CAPTION>
- --------------------------------------- ------------ ------------ ------------ ------------ ------------
2000 2001 2002 2003 2004
- --------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues 30,366 35,535 42,642 51,170 61,404
Cost of Goods Sold 19,797 22,690 26,801 32,161 38,605
Gross Profit 10,569 12,845 15,840 19,008 22,799
Gross Margin % 34.8% 36.1% 37.1% 37.1% 37.1%
Selling, General and 8,174 9,424 11,038 13,150 15,800
Administrative Expenses
Amortization of Goodwill 241 241 241 241 241
Operating Income (Loss) 2,154 3,180 4,560 5,617 6,758
Operating Margin % 7.1% 8.9% 10.7% 11.0% 11.0%
Interest Expense 616 465 475 225 200
Other Income (Expense) Net 23 0 0 0 0
Pretax Income 1,560 2,714 4,085 5,392 6,558
Income Tax Expense 592 950 1,430 1,887 2,295
Tax Rate % 38.0% 35.0% 35.0% 35.0% 35.0%
Net Income 968 1,764 2,656 3,505 4,263
Net Margin % 3.2% 5.0% 6.2% 6.8% 6.9%
Balance Sheet Information:
Capital Expenditures 750.0 750.0 750.0 750.0 750.0
Depreciation & Amortization 1,641.0 1,641.0 1,641.0 1,641.0 1,641.0
(1) Projections include the recently acquired Arizona Brands.
</TABLE>
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Sparta Foods, Inc.(1)
Projected Balance Sheets
Years Ended September 30
($ in 000's, except share and per share figures)
<TABLE>
<CAPTION>
- ------------------------------------------------ -----------------------------------------------------------
September 30,
- ------------------------------------------------ ----------- ----------- ----------- ----------- -----------
2000 2001 2002 2003 2004
- ------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash 175 578 2,144 4,250 6,682
Accounts Receivable 2,419 2,646 2,930 3,515 4,218
Inventories 1,800 2,063 2,436 2,905 3,462
Prepaid Expenses 338 389 467 560 672
Total Current Assets 4,732 5,675 7,977 11,230 15,035
Property and Equipment, net: 8,011 7,361 6,711 6,061 5,411
Other Assets:
Restricted Cash 195 195 195 195 195
Other Assets 680 794 953 1,143 1,372
Goodwill & Covenants Not to Compete, Net 6,119 5,853 5,586 5,345 5,104
Property Held For Resale 0 0 0 0 0
=========== =========== =========== =========== ===========
Total Assets 19,736 19,878 21,422 23,974 27,117
=========== =========== =========== =========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Note Payable Bank 500 0 0 0 0
Current Maturities of Long-term Debt 1,524 1,524 1,524 1,524 398
Accounts Payable 1,273 1,457 1,721 2,054 2,450
Accrued Expenses 850 992 1,191 1,429 1,715
Total Current Liabilities 4,147 3,973 4,436 5,007 4,563
Total Long Term Debt 5,748 4,174 2,600 1,076 400
=========== =========== =========== =========== ===========
Total Liabilities 9,895 8,147 7,036 6,083 4,963
=========== =========== =========== =========== ===========
Stockholders' Equity:
Preferred Stock(2) 0 0 0 0 0
Common Stock 102 102 102 102 102
Additional Paid-in Capital 9,600 9,725 9,725 9,725 9,725
Retained Earnings 139 1,903 4,559 8,064 12,327
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity 9,841 11,730 14,386 17,891 22,154
=========== =========== =========== =========== ===========
Total Liabilities & Stockholders' Equity
19,736 19,878 21,422 23,974 27,117
=========== =========== =========== =========== ===========
(1) Projections include the recently acquired Arizona Brands.
(2) Assumes that outstanding Preferred Stock is converted to Common Stock.
</TABLE>
55
<PAGE>
CENEX OFFICERS AND DIRECTORS
Board of Directors
The following table below lists the directors of Cenex as of January 17,
2000.
Director Name and Address Age District Since
Bruce Anderson 47 3 1995
13500 42nd St NE
Glenburn, ND 58740-9564
Robert Bass 45 5 1994
S 2276 Highway K
Reedsburg WI 53959
Steven Burnet 59 6 1983
94699 Monkland Lane
Moro, OR 97039-9705
Curt Eischens 47 1 1990
RR 1 Box 59
Minneota, MN 56264
Robert Elliott 49 8 1996
324 Hillcrest
Alliance NE 69301
Robert Grabarski 50 5 1999
1770 Highway 21
Arkdale, WI 54164
Jerry Hasnedl 53 1 1995
RR 1, Box 39
St. Hilaire, MN 56754
Glen Keppy 52 7 1999
21316 - 155th Avenue
Davenport, IA 52804
James Kile 51 6 1992
508 W Bell Lane
St John WA 99171
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<PAGE>
Gerald Kuster 64 3 1979
780 First Ave. N.E.
Reynolds, ND 58275-9742
Leonard Larsen 63 3 1993
5128-11th Ave. N.
Granville, ND 58741-9595
Richard Owen 45 2 1999
P.O. Box 129
Geraldine, MT 59446
Duane Stenzel 53 1 1993
RR 2, Box 173
Wells, MN 56097
Michael Toelle 37 1 1992
RR 1 Box 190
Browns Valley MN 56219
Richard Traphagen 54 4 1983
39555 124th Street
Columbia SD 57433
Merlin Van Walleghen 63 4 1993
24106-408th Avenue
Letcher, SD 57359-6021
Elroy Webster 66 1 1982
Route 2 Box 123
Nicollet MN 56074
Executive Officers
The table below lists the executive officers of Cenex as of January 17,
2000. All have the following business address:
5500 Cenex Drive
Inver Grove Heights, MN 55077
Name Age Position
Noel K. Estenson 60 Chief Executive Officer
John D. Johnson 51 President and General Manager
57
<PAGE>
Michael H. Bergeland 55 Executive Vice President --
Grain & Agri Services
James D. Tibbetts 49 Executive Vice President --
Consumer Products
Leon E. Westbrock 52 Executive Vice President --
Energy & Crop Inputs
SHAREHOLDER PROPOSALS
If the merger is not consummated, because the date of the next annual
meeting cannot currently be determined, you will be informed (by press release
or other means determined reasonable by us) of the date by which shareholder
proposals must be received by us for inclusion in the proxy materials relating
to such annual meeting, which proposals must comply with the rules and
regulations of the SEC then in effect.
OTHER MATTERS
Our board of directors does not presently know of any matters to be
presented for consideration at the special meeting other than matters described
in the notice of special meeting mailed together with this proxy statement, but,
if other matters are presented, the persons named in the accompanying proxy to
vote on such matters will have discretionary authority to vote in accordance
with their best judgment.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act,
and, in accordance therewith, file reports and other information with the SEC.
Reports, proxy statements and other information filed by us can be obtained,
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the SEC: Citicorp Center, 5600 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. Shareholders may call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on public
reference rooms. Sparta's Exchange Act filings are also available to the public
from commercial document retrieval services and at the SEC'S web site address,
http://www.sec.gov. The common stock is listed and traded on The Nasdaq SmallCap
Market; reports, proxy statements and other information concerning us may be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
Cenex is an Exchange Act reporting company and its periodic reports and
filings can be obtained from the same sources and in the same manner as
Sparta's. Merger Sub is not subject to the informational requirements of the
Exchange Act.
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Sparta Securities and Exchange Commission Filings (File No. 00019318)
Form of Report Period
Report on Form 10-KSB Year ended September 30, 1999
Current Report on Form 8-K and Dated October 13, 1999, amended
related form 8-K/A Dated October 13, December 20, 1999
Transaction Statement on Schedule 13E-3 Filed January 21, 2000
SPARTA IS ALSO HEREBY INCORPORATING BY REFERENCE ADDITIONAL DOCUMENTS
THAT IT FILES WITH THE SECURITIES AND EXCHANGE COMMISSION BETWEEN THE DATE OF
THIS PROXY STATEMENT AND THE DATE OF THE SPECIAL MEETING.
Cenex has supplied all information contained or incorporated by
reference in this Proxy Statement relating to themselves and Merger Sub, and
Sparta has supplied all such information relating to Sparta.
Sparta is sending to Sparta shareholders, together with this Proxy
Statement, its Form 10-KSB for the year ended September 30, 1999 which is
referred to above and shareholders can obtain any of the documents listed above
through Sparta or the Securities and Exchange Commission. Documents incorporated
by reference are available from Sparta without charge, excluding all exhibits
unless Sparta has specifically incorporated by reference an exhibit in this
Proxy Statement. Shareholders may obtain documents incorporated by reference in
this Proxy Statement by requesting them in writing at the following address:
Sparta Foods, Inc.
1565 First Avenue N.W.
New Brighton, MN 55112
Attention: A. Merrill Ayers
Telephone: (651) 697-5502
If you would like to request documents from Sparta, please do so by
February ____, 2000 to receive them before the Special Meeting.
Shareholders should rely only on the information contained or
incorporated by reference in this Proxy Statement to vote their shares at the
Special Meeting. Sparta has not authorized anyone to provide you with
information that is different from what is contained in this Proxy Statement.
This Proxy Statement is dated January ____, 2000 and is first being mailed to
shareholders on or about __________, 2000. Shareholders should not assume that
the information contained in the Proxy Statement is accurate as of any date
other than such date, and the mailing of this Proxy Statement to shareholders
will not create any implication to the contrary.
59
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Appendix A
AGREEMENT OF MERGER
DATED DECEMBER 31, 1999
AMONG
CENEX HARVEST STATES COOPERATIVES,
SF ACQUISITION CORP.
AND
SPARTA FOODS, INC.
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TABLE OF CONTENTS
Page
SECTION 1 --THE MERGER......................................................1
1.1 Closing.......................................................1
1.2 Effective Date of Merger......................................1
1.3 Effects of Merger.............................................1
SECTION 2-- REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................1
2.1 Capital Stock.................................................1
2.2 Organization; Good Standing...................................2
2.3 Authority; Enforceability.....................................2
2.4 No Violation..................................................3
2.5 Subsidiaries, Other Interests.................................3
2.6 Financial Statements..........................................3
2.7 Taxes.........................................................5
2.8 Title to Properties...........................................6
2.9 Inventories...................................................6
2.10 Accounts Receivable...........................................6
2.11 Leases........................................................7
2.12 Facilities, Equipment.........................................7
2.13 Insurance.....................................................7
2.14 Employment and Benefit Matters................................7
2.15 Contracts.....................................................9
2.16 Officers and Directors........................................9
2.17 Corporate Documents..........................................10
2.18 Legal Proceedings............................................10
2.19 Compliance with Instruments, Orders and Legal Requirements...10
2.20 Permits......................................................10
2.21 Intellectual Property........................................10
2.22 Capital Expenditures.........................................11
2.23 Environmental Matters........................................11
2.24 Illegal Payments.............................................11
2.25 SEC Information..............................................11
2.26 Board of Directors Approval; Fairness Opinion................11
2.27 Representations..............................................12
2.28 Employment Arrangements......................................12
SECTION 3 --REPRESENTATIONS AND WARRANTIES OF BUYER........................12
3.1 Organization, Standing of Buyer and Buyer Subsidiary.........12
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3.2 Authority; Enforceability....................................12
3.3 Litigation...................................................13
3.4 Financing....................................................13
SECTION 4 --CONDITIONS TO OBLIGATIONS OF BUYER AND BUYER
SUBSIDIARY AT CLOSING.............................................13
4.1 Representations and Warranties...............................13
4.2 Proxy Statement..............................................13
4.3 Closing Certificate..........................................13
4.4 Performance..................................................13
4.5 Stockholder Approval, Dissenting Notices.....................13
4.6 Third-Party Action...........................................14
4.7 Opinion of Counsel...........................................14
4.8 Transactional Litigation.....................................14
4.9 Interim Events...............................................14
4.10 Management Changes, Employees................................14
4.11 Warrants.....................................................14
4.12 Employment and Noncompetition Agreements.....................14
4.13 Transaction Expenses.........................................14
4.14 Corporate and Other Proceedings..............................14
4.15 Material Adverse Change......................................14
SECTION 5 --CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING.................15
5.1 Representations and Warranties...............................15
5.2 Closing Certificate..........................................15
5.3 Performance..................................................15
5.4 Stockholder Approval.........................................15
5.5 Transactional Litigation.....................................15
5.6 Corporate and Other Proceedings..............................15
SECTION 6 --COVENANTS OF COMPANY, SUBSIDIARY AND BUYER.....................15
6.1 Non-Disclosure...............................................15
6.2 Nonsurvival of Representations and Warranties................16
6.3 Termination of this Agreement; Termination Fees..............16
6.4 Best Efforts, No Inconsistent Action.........................17
6.4 Access.......................................................17
6.6 No Solicitation or Negotiation...............................17
6.7 Interim Financial Information................................19
6.8 Interim Conduct of Business..................................19
6.9 Section 338 Election; Tax Status.............................20
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6.10 Option to Purchase...........................................20
6.11 SEC Reports..................................................23
6.12 Stock Option Plan; Benefits..................................23
6.13 Notice of Certain Events.....................................24
6.14 Takeover Statutes............................................24
6.15 Pay-Off......................................................24
6.16 Update.......................................................24
6.17 Directors and Officers.......................................25
SECTION 7 --MISCELLANEOUS..................................................25
7.1 No Brokers, Finders..........................................25
7.2 Expenses.....................................................25
7.3 Complete Agreement; Waiver and Modification; No Third
Party Beneficiaries...............................................25
7.4 Notices......................................................26
7.5 Law Governing................................................27
7.6 Headings; References;........................................27
7.7 Successors and Assigns.......................................27
7.8 Counterparts, Separate Signature Pages.......................27
7.9 Severability..................................................27
SECTION 8 --GLOSSARY.......................................................28
SIGNATURES.................................................................32
Exhibits
Exhibit A--Plan of Merger
Exhibit B--Opinion of Company's Counsel
Schedules
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A-9
AGREEMENT OF MERGER
This AGREEMENT OF MERGER dated December 31, 1999 is entered into by
CENEX HARVEST STATES COOPERATIVES, a Minnesota corporation (the "Buyer"), SF
ACQUISITION CORP., a Minnesota corporation and wholly owned subsidiary of the
Buyer ("Buyer Subsidiary"), and SPARTA FOODS, INC., a Minnesota corporation (the
"Company"). Capitalized terms used herein have the meanings stated in Section 8.
The Buyer and the Company desire that the Buyer acquire the Company
through a merger of Buyer Subsidiary with and into the Company (the "Merger"),
and the Company desires to consummate the Merger, under the terms of this
Agreement.
Therefore, in consideration of the mutual agreements contained herein,
the parties hereby agree as follows:
SECTION 1
THE MERGER
1.1 Closing. The closing (the "Closing") under this Agreement shall
take place at the offices of Dorsey & Whitney LLP within three business days
after the satisfaction (or waiver by the party entitled to waive) of all
conditions stated in Sections 4 and 5, or at such other place or on such other
date as the parties may agree in writing.
1.2 Effective Date of Merger. The Merger shall take effect upon filing
of articles of merger with respect to the Plan of Merger in the form attached as
Exhibit A (the "Plan of Merger") with the Minnesota Secretary of State in
accordance with Minnesota law (the "Effective Time").
1.3 Effects of Merger. The effects of the Merger are set forth in the
Plan of Merger.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Capital Stock.
(a) The authorized and outstanding capital stock of the Company, as of
December 31, 1999, is as follows:
Shares Shares
Designation of Class Authorized Outstanding
Common Stock, par value $.01 per share......... 15,000,000 10,278,916
Preferred Stock................................ 2,500 2,500
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There is no capital stock of the Company authorized or outstanding except as
stated in this Section 2.1(a). The outstanding Stock Rights of the Company, as
of December 31, 1999, are as follows:
Designation of Shares Subject to
Stock Right Class of Stock Stock Right
-------------- -------------- ------------------
Options.......... Common 80,000
Warrants......... Common 1,135,580
There are no Stock Rights outstanding with respect to the Company except as set
forth in this Section 2.1(a), and the terms of such Stock Rights are as set
forth in Schedule 2.1. The Board of Directors of the Company has taken all
necessary action to assure that all unvested options immediately prior to the
Effective Time are accelerated. Except as disclosed in Schedule 2.1, the Company
is not a party to any stockholders agreement, registration rights agreement,
repurchase agreement or other Contract with respect to capital stock or Stock
Right issued or to be issued by it.
(b) All of the issued and outstanding capital stock of the Company has
been duly and validly authorized and issued and is fully paid and
non-assessable, and has not been issued in violation of any preemptive or
similar rights of any stockholder or any applicable securities law. Except as
disclosed in Schedule 2.1, no Person has any right to require the Company to
redeem, purchase or otherwise reacquire any capital stock issued by the Company
or any Stock Rights with respect to any capital stock issued by the Company.
There are no preemptive or similar rights in respect of any capital stock of the
Company except as set forth in Schedule 2.1.
(c) The Company has never declared or paid any dividend or made any
distribution in respect of any of its capital stock or any Stock Rights with
respect thereto. Except as set forth in Schedule 2.1, the Company has not
directly or indirectly redeemed, purchased or otherwise acquired any of the
capital stock issued by it or any Stock Rights with respect thereto.
2.2 Organization; Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Minnesota and
has all requisite corporate power and authority to own, lease and operate its
Properties and to conduct its business as currently conducted. Schedule 2.2 sets
forth (i) each jurisdiction in which the Company is qualified to do business as
a foreign corporation, (ii) the jurisdiction of incorporation of each Subsidiary
and (iii) each jurisdiction in which a Subsidiary is qualified to do business as
a foreign corporation. Except as set forth in Schedule 2.2, the Company and each
Subsidiary is in good standing in each jurisdiction shown in Schedule 2.2, and
neither the Company nor any Subsidiary is required to qualify to do business as
a foreign corporation in any other jurisdiction in which the failure to so
qualify would have a Material Adverse Effect. Neither the Company nor any
Subsidiary is a partner in any general or limited partnership or a member in any
limited liability company.
2.3 Authority; Enforceability. The Company has all requisite power and
authority under applicable corporate law to execute and deliver this Agreement
and to perform the transactions contemplated hereby and, subject to approval of
the Plan of Merger by the stockholders of the Company as contemplated hereby
(the "Stockholder Approval"), to consummate the Merger. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part
of the Company (subject to the Stockholder Approval), and no other approval on
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the part of the Company is necessary under applicable corporate law for the
execution, delivery and performance of this Agreement. This Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to general limitations on the availability of
equitable remedies and the effect of bankruptcy, insolvency, reorganization and
other laws of general application affecting the enforcement of creditors'
rights.
2.4 No Violation. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will not violate
or conflict with the articles of incorporation or by-laws of the Company or any
Subsidiary, or violate any Legal Requirement or Order applicable to the Company
or any Subsidiary. Except as shown on Schedule 2.4, the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
do not and will not require any Third-Party Action with respect to the Company
or any Subsidiary under, or conflict with or constitute a default under, or
result in the acceleration or right of acceleration of any obligations, or any
termination or right of termination under, as of the date hereof or as of the
Effective Time, any Contract. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
result in the creation or imposition of any material Lien, claim, charge,
restriction, equity or encumbrance of any kind upon or give any Person any
interest or right in or with respect to any of the Properties, assets, business
or Contracts of the Company or any Subsidiary.
2.5 Subsidiaries, Other Interests. Except as set forth in Schedule 2.5,
neither the Company nor any Subsidiary beneficially owns, directly or
indirectly, any Equity Interest in or debt obligation (except as a creditor in
the ordinary course of business and except for debt obligations of the Company
or a Subsidiary as specified in Schedule 2.5) of, any Person. The owner shown in
Schedule 2.5 owns the interest shown free and clear of all Third-Party Rights.
2.6 Financial Statements.
(a) Financial Statements. Except as set forth in Schedule 2.6(a), the
audited consolidated balance sheets and consolidated statements of operations
and retained earnings and of cash flows for the Company at and for each of the
years ended September 30, 1999 (the "Last Fiscal Year-End"), September 30, 1998
and September 30, 1997 (the "Audited Statements") and the unaudited consolidated
balance sheets and consolidated statements of operations and cash flows for the
Company at and for the period ended November 30, 1999 (the "Interim Statements"
and, together with the Audited Statements, the "Financial Statements") fairly
present the consolidated financial condition of the Company at the dates
indicated and the consolidated results of operations and cash flows of the
Company for the periods indicated in accordance with GAAP consistently applied
throughout the periods indicated (except as stated therein and, in the case of
the Interim Statements, the omission of certain footnote disclosures and subject
to normal year-end adjustments).
(b) Certain Indebtedness. Schedule 2.6(b) sets forth all obligations of
the Company and its Subsidiaries with respect to borrowed money, debt
securities, capitalized leases and the deferred payment of the purchase price of
property or services and the Property of the Company, if any, subject to a Lien
to secure any of such obligations.
(c) Absence of Certain Liabilities. Neither the Company nor any
Subsidiary has any liability or obligation of any nature, whether absolute,
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accrued, contingent or otherwise, arising out of acts or omissions heretofore
occurring, or circumstances currently or heretofore existing, except: (i) as
accrued in the balance sheet included in the Interim Statements (the "Interim
Balance Sheet"); (ii) for liabilities and obligations incurred since the date of
the Interim Balance Sheet in the ordinary course of business consistent in
nature and amount with past practice; (iii) liabilities and obligations of a
kind not required to be accrued in a balance sheet at the date hereof prepared
in accordance with GAAP which individually (or in the aggregate for related
events, transactions, defects or circumstances) will not subject the Company or
any Subsidiary to obligations in excess of $50,000 or (iv) as shown on Schedule
2.6(c).
(d) Absence of Certain Changes. Since the date of the Interim Balance
Sheet, except as set forth in Schedule 2.6(d):
(i) The Company and each Subsidiary has operated their
consolidated business in the ordinary course.
(ii) There has been no change or changes which, individually
or in the aggregate, has or have had or is or are reasonably likely to
have a Material Adverse Effect.
(iii) There has not been any damage, destruction or
condemnation known to the Company with respect to Property having an
aggregate net book value on the Company's consolidated books in excess
of $50,000, net of any insurance recoveries.
(iv) There has not been any material change in the accounting
methods, practices or principles of the Company.
(v) Neither the Company nor any Subsidiary has sold,
transferred or otherwise disposed of (or agreed or committed to sell,
transfer or otherwise dispose of) any Property other than the sale of
inventory in the ordinary course, or canceled, compromised, released or
assigned any debt or claim in its favor, where the aggregate amount of
such sales, transfers, dispositions, cancellations, compromises,
releases or assignments exceeds $50,000.
(vi) Neither the Company nor any Subsidiary has instituted,
settled or agreed to settle any litigation, action or proceeding before
any Governmental Agency.
(vii) Neither the Company nor any Subsidiary has assumed,
guaranteed, endorsed or otherwise become responsible (or otherwise
agreed to become responsible) for the obligations of any other Person,
except for the endorsement of negotiable instruments in the ordinary
course of business.
(viii) Neither the Company nor any Subsidiary has granted (or
agreed or committed to grant) any increase in compensation or fringe
benefits other than normal salary increases consistent with prior
periods.
(ix) Neither the Company nor any Subsidiary has entered into
any licensing or other Contract with regard to the acquisition or
disposition of any material Intellectual Property other than
non-exclusive licenses granted in the ordinary course of business
consistent with past practice.
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2.7 Taxes.
(a) Except as set forth in Schedule 2.7; the Company and each
Subsidiary has properly completed and filed, within the time and in the manner
prescribed by law, all Tax returns and other documents required to be filed in
respect of all Taxes, and all such returns and other documents are true, correct
and complete. The Company has furnished to the Buyer copies of all income Tax
returns of the Company for the past three years. The Company and each Subsidiary
has, within the time and in the manner prescribed by law, paid all Taxes that
are due and payable. The Company has established reserves on its consolidated
books that are at least equal to those required by GAAP.
(b) Except as set forth in Schedule 2.7,
(i) None of such returns contained a disclosure statement
under Section 6662 of the Code or any similar provision of foreign law;
(ii) The Company has not received written notice from any
federal or foreign taxing authority asserting any deficiency against
the Company or any Subsidiary or claim for additional Taxes in
connection therewith, other than any deficiency or claim which has been
previously settled or for which appropriate reserves are included in
the Interim Statements;
(iii) There is no pending action, audit, proceeding or
investigation with respect to the assessment or collection of federal
or foreign Taxes or a claim for refund made by the Company or any
Subsidiary with respect to federal or foreign Taxes previously paid;
(iv) All amounts that are required to be collected or withheld
by the Company and each Subsidiary with respect to federal or foreign
Taxes have been duly collected or withheld, and all such amounts that
are required to be remitted to any federal or foreign taxing authority
have been duly remitted;
(v) No audit has been conducted of any federal or foreign
income tax return filed by the Company or any Subsidiary. The time
during which such returns remain open for examination has expired in
accordance with applicable statute and regulations, except for those
returns for which the normally applicable statutory/regulatory period
has not yet elapsed;
(vi) Neither the Company nor any Subsidiary has requested nor
been granted any currently effective waiver or extension of any statute
of limitations with respect to the assessment or filing of any federal
or foreign Tax or return with respect thereto;
(vii)No consent has been filed under Section 341(f) of the
Code with respect to the Company or any Subsidiary;
(viii) The Company is not required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar
provisions of foreign laws or regulations) by reason of a change in
accounting method nor does the Company have any knowledge that the
Internal Revenue Service (or other federal or foreign taxing authority)
has proposed, or is considering, any such change in accounting method;
and
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(ix) Neither the Company nor any Subsidiary is a party to or
bound by nor has any continuing obligation under any tax sharing or
similar agreement or arrangement with any Person.
2.8 Title to Properties.
(a) Schedule 2.8(a) is a true and complete list of all terms of real
Property owned by the Company or Subsidiary.
(b) Schedule 2.8(b) is a true and complete summary based on the books
and records of the Company of all items of personal Property owned by the
Company or any Subsidiary.
(c) Except as set forth in Schedule 2.8(c), the Company and each
Subsidiary has good title to all tangible personal Property owned by it, in each
case free and clear of all Third-Party Rights.
(d) The Company and its Subsidiaries, taken together, own all material
items of non-inventory tangible and intangible personal Property that were owned
as of the Last Fiscal Year-End and used in generating the revenue shown in the
audited consolidated statement of operations of the Company for the fiscal year
ending on the Last Fiscal Year-End, subject to any sales or dispositions of
tangible personal Property since the Last Fiscal Year-End in the ordinary course
of business.
2.9 Inventories. Except as set forth in Schedule 2.9, since the Last
Fiscal Year-End, all sales of inventory by the Company and its Subsidiaries have
been made in the ordinary course of business and no inventory has been pledged
as collateral. Except as set forth in Schedule 2.9, all inventories are, subject
to any applicable reserves established in respect thereof on the Interim Balance
Sheet, (A) in good, merchantable and useable condition, (B) of such quality as
to meet the quality control standards of the Company and the quality control
requirements of any applicable Governmental Agency, (C) salable, if they are
finished goods, as current inventories at the current prices thereof in the
ordinary course of business, (D) reflected in the Interim Balance Sheet in
accordance with GAAP and (E) reflected in the books and records of the Company
at the lower of cost or market value on a first-in, first-out basis. None of the
inventories reflected on the Interim Balance Sheet is in a quantity in excess of
amounts that can be used or sold by the Company in the ordinary course of
business. The packaging included in the inventories is adequate in quantity to
enable the Company to continue to package and ship finished goods in accordance
with past practices.
2.10 Accounts Receivable. The consolidated accounts receivable of the
Company and its Subsidiaries (i) are bona fide and arose from valid sales in the
ordinary course of business in material conformity with all applicable Legal
Requirements, (ii) are valid and binding obligations of the debtors requiring no
further performance by the Company or any Subsidiary and (iii) except as shown
on Schedule 2.10, subject to the allowance for doubtful accounts receivable in
the Interim Balance Sheet, are fully collectible and not subject to any offsets
or counterclaims and do not represent guaranteed sale, sell-or-return
transactions or any other similar understanding. Except as shown on Schedule
2.10(b), no accounts receivable have been pledged as collateral to any Person.
The amounts shown for accounts receivable in the Financial Statements reflect an
allowance for doubtful accounts receivable in accordance with GAAP.
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2.11 Leases. Schedule 2.11 lists all leases, rental agreements,
conditional sales contracts and other similar Contracts under which the Company
or any Subsidiary leases (as lessor or lessee) any real or personal Property
with rental payments exceeding $50,000 per year (collectively, the "Disclosable
Leases"). All Disclosable Leases are, in all material respects, valid and
enforceable by the Company in accordance with their terms. Neither the Company
nor any Subsidiary nor, to the knowledge of the Company, any other party to any
Disclosable Lease is in material breach thereof. The Company and each Subsidiary
enjoys peaceable possession of all real estate premises subject to Disclosable
Leases to which it is a party and to all personal Property subject to
Disclosable Leases to which it is a party.
2.12 Facilities, Equipment. The Company owns or leases all material
land, buildings and equipment used in the operation of its business. The Company
has not received any notice of any material violation of any Legal Requirement
or Order relating to the Company's facilities which has not been corrected, and
no facility of the Company is in material violation of any Legal Requirement or
Order.
2.13 Insurance. Schedule 2.13 lists and describes briefly all binders
and policies of liability, theft, life, fire and other forms of insurance and
surety bonds, insuring the Company or any Subsidiary or their respective
Properties, assets and business as of the date hereof. Except as noted in
Schedule 2.13, all listed policies and binders insure on an occurrence, rather
than claims-made, basis. All policies and binders listed in Schedule 2.13 are
valid and in good standing and in full force and effect and the premiums have
been paid when due. Except for any claims set forth in Schedule 2.13, there are
no outstanding unpaid claims under such policy or binder, and, except as set
forth in Schedule 2.13, neither the Company nor any Subsidiary has received any
notice of cancellation, general disclaimer of liability or non-renewal of any
such policy or binder.
2.14 Employment and Benefit Matters.
(a) Schedule 2.14(a) lists each of the following for each employee of
the Company and each Subsidiary: name, hire date and current salary. None of the
employees listed on Schedule 2.14(a) has given the Company or such Subsidiary
notice of his or her intention to resign his or her position with the Company or
such Subsidiary and neither the Company nor such Subsidiary has any present
intention to terminate such employees.
(b) Schedule 2.14(b) lists all of the following items which are
applicable to the Company or any Subsidiary: (i) employment Contracts with any
employee, officer or director; and (ii) Contracts or arrangements with any
Person providing for bonuses, profit sharing payments, deferred compensation,
stock options, stock purchase rights, retainer, consulting, incentive, severance
pay or retirement benefits, life, medical or other insurance, payments triggered
by a change in control or any other employee benefits or any other payments,
"fringe benefits" or perquisites which are not terminable at will without
liability to the Company or any Subsidiary or which are subject to ERISA. The
contracts or arrangements referred to in the foregoing clause (ii) are herein
called "Benefit Plans."
(c) Neither the Company nor any of its ERISA Affiliates has any union
contracts, collective bargaining, union or labor agreements or other Contract
with any group of employees, labor union or employee representative(s), nor has
the Company or any ERISA Affiliate ever participated in or contributed to any
single employer defined benefit plan or multi-employer plan within the meaning
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of ERISA Section 3(37), nor is the Company currently engaged in any labor
negotiations, excepting minor grievances, nor is the Company the subject of any
union organization effort. The Company and each Subsidiary is in material
compliance with applicable Legal Requirements respecting employment and
employment practices and terms and conditions of employment, including without
limitation health and safety and wages and hours. Except as listed on Schedule
2.14(c), no complaint or other proceeding by or on behalf of any current or
former employee or group of employees is pending against the Company or any
Subsidiary before any Governmental Agency, and no claim by any current or former
employee or group of employees that the Company or any Subsidiary is not in
compliance with any Legal Requirement relating to employees or employment or
that any compensation owing has not been paid is pending against the Company or
any Subsidiary. There is no labor dispute, strike, slowdown or work stoppage
pending or threatened against the Company or any Subsidiary.
(d) True and correct copies of each Benefit Plan listed in Schedule
2.14(b) that is subject to ERISA (a "Company ERISA Plan") and related trust
agreements, insurance contracts, and summary descriptions have been delivered or
made available to the Buyer by the Company. The Company has also delivered or
made available to the Buyer a copy of the most recently filed IRS Form 5500,
with attached financial statements and accountant's opinions, if applicable, for
each Company ERISA Plan. The Company has also delivered or made available to the
Buyer a copy of, in the case of each Company ERISA Plan intended to qualify
under Section 401(a) of the Code, the most recent Internal Revenue Service
letter as to its qualification under Section 401(a) of the Code. Nothing has
occurred prior to or since the issuance of such letters to cause the loss of
qualification under the Code of any of such plans.
(e) With respect to each Company ERISA Plan, (i) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, (ii) each Company ERISA Plan has been administered in
accordance with its terms and in material compliance with all Legal Requirements
(including without limitation ERISA and the Code), (iii) the Company (or, as
appropriate, an ERISA Affiliate) has prepared in good faith and timely filed all
requisite governmental reports in true and correct form and has properly and
timely filed and distributed or posted all notices and reports to participants
and beneficiaries required to be filed, distributed or posted, (iv) no suit,
administrative proceeding, action, litigation or claim has been brought or
asserted, or to the knowledge of the Company is threatened, against any Company
ERISA Plan or against the Company with respect to any Company ERISA Plan,
including without limitation any audit or inquiry by the Internal Revenue
Service or United States Department of Labor, (v) the Company and each ERISA
Affiliate have performed all material obligations required to be performed by
them under, and are not in any material respect in default under or in violation
of, and have no knowledge of any material default or violation of, any Company
ERISA Plan, (vi) neither the Company nor any ERISA Affiliate is subject to any
liability or penalty under Sections 4976 through 4980 of the Code or Title I of
ERISA, (vii) all contributions required to be made by the Company or any ERISA
Affiliate have been made on or before their due dates, (viii) no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the 30-day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred, (ix) no Company ERISA Plan is covered by, and neither the
Company nor any ERISA Affiliate has incurred or expects to incur any material
liability under, Title IV of ERISA or Section 412 of the Code, and (x) neither
the Company nor any ERISA Affiliate is a party to, or has made any contribution
to or otherwise incurred any obligation under, any "multi-employer plan" as
defined in Section 3(37) of ERISA.
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(f) The Company has complied in all material respects with (i) the
applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations
thereunder, (ii) the applicable requirements of the Family and Medical Leave Act
of 1993 and the regulations thereunder and (iii) the applicable requirements of
the Health Insurance Portability and Accountability Act of 1996 and the
temporary regulations thereunder. The Company has no material obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder.
(g) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or other ERISA Affiliate
relating to, or change in participation or coverage under, any Benefit Plan
which would materially increase the expense of maintaining such Plan above the
level of expense incurred with respect to that Plan for the most recent fiscal
year included in the Audited Statements.
(h) Schedule 2.14(h) contains a true and correct list of each employee,
former employee, director or consultant who holds any stock option as of
December 31, 1999, together with (i) the number of shares of Company Common
Stock subject thereto, (ii) the date of grant, (iii) the extent to which such
stock option is currently vested and, to the extent such stock option is not
fully vested, the vesting schedule, (iv) the exercise price, (v) whether such
stock option is intended to qualify as an incentive stock option within the
meaning of Section 422(b) of the Code (an "ISO"), and (vi) the expiration date
of such stock option. Schedule 2.14(h) also sets forth the aggregate number of
ISOs and nonqualified stock options outstanding as of the date hereof.
(i) Except as shown on Schedule 2.14(i), neither the Company nor any
Subsidiary is a party to any Contract or plan, including, without limitation,
any stock option plan, stock appreciation right plan or stock purchase plan, as
to which any benefits will be increased, or the vesting of benefits will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any benefits will be calculated on the basis of any of
the transactions contemplated by this Agreement.
(j) Except as disclosed in Schedule 2.14(j), the Company and its ERISA
Affiliates do not maintain any plans providing benefits within the meaning of
Section 3(1) of ERISA (other than group health plan continuation coverage under
Section 601 of ERISA and 4980B(f) of the Code) to former employees or retirees.
2.15 Contracts. Except as shown on Schedules 2.11 and 2.15, and except
for Contracts fully performed or terminable at will without liability to the
Company, neither the Company nor any Subsidiary is a party to any Contract which
contemplates performance by the Company or such Subsidiary during a remaining
period of more than 90 days or involves remaining commitments for sale or
purchase in excess of $50,000. True and complete copies of each Contract
disclosable on Schedule 2.15 (a "Disclosable Contract") have been delivered to
the Buyer. Each Disclosable Contract is, in all material respects, valid and
enforceable by the Company in accordance with its terms. Neither the Company nor
any Subsidiary nor, to the knowledge of the Company, any other party to any
Disclosable Contract is in material breach thereof.
2.16 Officers and Directors. Schedule 2.16 is a true and complete list
of:
(a) the names and addresses of each of the Company's and each
Subsidiaries' officers and directors;
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(b) the name of each bank or other financial institution in
which the Company or any Subsidiary has an account, deposit or safe
deposit box and the names of all persons authorized to draw thereon or
to have access thereto; and
(c) the name of each bank or other financial institution in
which the Company or any Subsidiary has a line of credit or other loan
facility.
2.17 Corporate Documents. The Company has furnished or made available
to the Buyer or its representatives true, correct and complete copies of (i) the
articles of incorporation and by-laws of the Company and each Subsidiary, (ii)
the minute books of the Company and each Subsidiary containing all records
required to be set forth of all proceedings, consents, actions and meetings of
the stockholders and board of directors of the Company or such Subsidiary; and
(iii) all material Permits and Orders with respect to the Company and any
Subsidiary.
2.18 Legal Proceedings. Except as shown on Schedule 2.18, there is no
action, suit, proceeding or investigation pending in any court or before any
arbitrator or before or by any Governmental Agency against the Company or any
Subsidiary or any of their respective Properties or businesses, and to the
knowledge of the Company, there is no such action, suit, proceeding or
investigation threatened.
2.19 Compliance with Instruments, Orders and Legal Requirements.
Neither the Company nor any Subsidiary is in material violation of, or in
default in any material respect with respect to, any term or provision of its
articles of incorporation or bylaws, or, to the knowledge of the Company, any
Order or any Legal Requirement applicable to the Company or such Subsidiary.
2.20 Permits. The Company and each Subsidiary holds all Permits
material to the conduct their consolidated business as and where now conducted.
To the knowledge of the Company, there is not pending nor threatened any
proceedings to terminate, revoke, limit or impair any material Permit.
2.21 Intellectual Property.
(a) Except as shown on Schedule 2.21(a), the Company (a) owns or has
the right to use, free and clear of any rights, liens or claims of others, all
patents, trademarks, service marks, trade names, copyrights, licenses and rights
with respect to the foregoing used in the conduct of its business as now
conducted without infringing upon the right of any person under or with respect
to any of the foregoing, (b) is not obligated or under any liability whatsoever
to make any payments of a material nature by way of royalties, fees or otherwise
to any owner of, licensor of or other claimant to, any patent, trademark, trade
name, copyright or other intangible asset with respect to the use thereof or in
connection with the conduct of its business or otherwise, (c) owns or has the
right to use all trade secrets, including know-how, customer lists, inventions,
designs, processes, computer programs and technical data necessary to the
development, operation and sale of all products and services sold or proposed to
be sold by it, free and clear of any rights, liens or claims of others, and (d)
is not using any confidential information or trade secrets of others.
(b) The Company and each of its Subsidiaries has taken all commercially
reasonable steps to protect and preserve the confidentiality of all confidential
information that is of value to it. All use, disclosure or appropriation of such
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confidential information by or to a third party has been pursuant to the terms
of a written confidentiality or nondisclosure agreement between the Company or
any Subsidiary and such third party. Schedule 2.21(b) lists all such agreements
currently in effect.
2.22 Capital Expenditures. Schedule 2.22 sets forth, by nature and
amount, all budgeted capital expenditures of the Company and its Subsidiaries
for which commitments have been or are budgeted to be made, or for which
payments or current liabilities have been made or incurred or are budgeted to be
made or incurred, after the Last Fiscal Year-End in excess of $50,000.
2.23 Environmental Matters. There are no Hazardous Materials used or
present at any location used by the Company or a Subsidiary or any predecessor
of either in the conduct of its business, except for any Hazardous Materials
constituting normal office supplies. To the knowledge of the Company, no
location currently or previously used by the Company or a Subsidiary or any
predecessor of either is contaminated by any Hazardous Material or was
previously used for any purpose other than its current use. There are no
environmental materials or conditions, including on-site or off-site disposal or
releases of Hazardous Materials that could reasonably be expected to have a
Material Adverse Effect. To the knowledge of the Company, no event has occurred
and no activity has been or is being conducted by the Company, a Subsidiary or
any other Person which has resulted or could reasonably result in contamination
of any location currently or previously used by the Company or a Subsidiary or
any predecessor of either by any Hazardous Material. Neither the Company, any
Subsidiary nor any predecessor of either has received any written communication
from any Governmental Entity alleging that the Company, Subsidiary or
predecessor or any premises currently or previously occupied by any of such
Persons is contaminated by any Hazardous Materials or in violation of any
Environmental Requirement. To the knowledge of the Company, no Government Agency
has commenced any investigation or proceeding with respect to the contamination
of any location currently or previously used by the Company or a Subsidiary or
any predecessor of either by any Hazardous Material.
2.24 Illegal Payments. None of the Company, any Subsidiary or any
director, officer, employee, or agent of the Company or any Subsidiary has,
directly or indirectly, paid or delivered any fee, commission, or other sum of
money or item of property however characterized to any broker, finder, agent,
government official, or other person, in the United States or any other country,
in any manner related to the business or operations of the Company or any
Subsidiary, which the Company, any Subsidiary or any such director, officer,
employee, or agent knows or has reason to believe to have been illegal under any
law.
2.25 SEC Information. As of their respective filing dates (except as
thereafter amended) all documents that the Company has filed with the SEC (the
"Company SEC Documents") have complied in all material respects with the
applicable requirements of the Act or the Exchange Act, and none of the Company
SEC Documents has contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading except to the extent corrected by a subsequently filed
Company SEC Document filed prior to the date hereof.
2.26 Board of Directors Approval; Fairness Opinion.
(a) The Board of Directors of the Company (excluding John D. Johnson)
has unanimously approved this Agreement and the Plan of Merger and unanimously
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recommended this Agreement and the Plan of Merger to the Company's stockholders.
Such approval and recommendation have not been modified or withdrawn and are in
full force and effect on the date hereof. The Company's financial adviser,
Greene Holcomb & Fisher LLC, has rendered its opinion to the Board of Directors
of the Company that the consideration to be received in the Merger is fair to
the Company's stockholders from a financial point of view. Prior to the
Company's entry into this Agreement, each of the Company's officers, directors
and 5% stockholders designated by Buyer has granted the Buyer an irrevocable
proxy to vote all Shares beneficially owned by such officer, director or
stockholder in favor of the Merger.
(b) The transactions contemplated by this Agreement are not subject to
"fair price," "moratorium," "control share acquisition" or other similar statute
(a "Takeover Statute") of any jurisdiction other than the State of Minnesota.
Section 302A.671 of the Minnesota Business Corporation Act is not applicable to
the transactions contemplated by this Agreement. The restriction contained in
Section 302A.673, Subd. 1(a) of such Act does not apply to the transactions
contemplated by this Agreement.
2.27 Representations. No representation or warranty by the Company in
this Agreement (including without limitation the Schedules and Exhibits attached
hereto), or in any document furnished by the Company at the Closing pursuant
hereto contains or will contain any untrue statement of a material fact or omits
to state a fact necessary to make the statements contained in such
representation or warranty not misleading.
2.28 Employment Arrangements. The Company has entered into agreements
in forms acceptable to Buyer with Messrs. Bachul, Ayers and Cram.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer hereby represents and warrants to the Company that, on and as
of the date hereof:
3.1 Organization, Standing of Buyer and Buyer Subsidiary. The Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Minnesota. Buyer Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. The Buyer and Buyer Subsidiary have full power and authority under
applicable corporate law to own, lease and operate their Properties and to carry
on the business in which they are engaged.
3.2 Authority; Enforceability. The Buyer and Buyer Subsidiary have all
necessary power and authority under applicable corporate law to execute, deliver
and perform their obligations under this Agreement. The execution, delivery and
performance of this Agreement by the Buyer and Buyer Subsidiary has been duly
authorized by all necessary action under applicable corporate law. This
Agreement constitutes a legal, valid and binding obligation of the Buyer and
Buyer Subsidiary, enforceable in accordance with its terms, subject to general
limitations on the availability of equitable remedies and the effect of
bankruptcy, insolvency, reorganization and other laws of general application
affecting the enforcement of creditors' rights. The execution, delivery and
performance of this Agreement by the Buyer and Subsidiary and the consummation
by the Buyer and Buyer Subsidiary of all of the transactions contemplated
hereby, (x) do not require any Third-Party Action relating to the Buyer or
Subsidiary, (y) do not violate any Legal Requirement or Order applicable to the
Buyer or Buyer Subsidiary and (z) do not conflict with or constitute a default
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(with or without the giving of notice or the passage of time or both) under, or
result in any acceleration or right of acceleration of any obligations under,
any Contract to which the Buyer or Buyer Subsidiary is a party, where, in each
case, the absence of such Third-Party Action or such violation, conflict,
default or acceleration would in any way adversely affect the transactions
contemplated hereby.
3.3 Litigation. There are no claims, actions, suits or other
proceedings pending, or to the knowledge of the Buyer, threatened, at law or in
equity, by or before any Governmental Agency or any arbitrator against the Buyer
which could reasonably be expected to have an adverse effect on the ability of
the Buyer to perform its obligations under this Agreement.
3.4 Financing. At the Closing Buyer shall have cash available to pay
the Merger Consideration and all fees and expenses associated with the Merger.
SECTION 4
CONDITIONS TO OBLIGATIONS OF BUYER
AND BUYER SUBSIDIARY AT CLOSING
The obligations of the Buyer and Buyer Subsidiary hereunder to be
performed at the Closing are subject to the satisfaction at or prior to the
Closing of the following conditions, except for any condition the Buyer may
waive in writing in accordance with Section 7.3.
4.1 Representations and Warranties. The representations and warranties
contained in Section 2 shall have been true in all material respects on the date
of this Agreement and shall be true in all material respects at and as of
immediately prior to the Closing (provided that those representations or
warranties made as of a particular date need only be true and correct as of such
date) with the same effect as though made at and as of immediately prior to the
Closing.
4.2 Proxy Statement. The Proxy Statement shall comply as to form in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder and shall not, at the time of (i)
first mailing thereof or (ii) the stockholders' meeting to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that this condition shall not apply with respect to
information supplied by the Buyer or any affiliates or representatives of the
Buyer for inclusion in the Proxy Statement.
4.3 Closing Certificate. The Company shall have delivered to the Buyer
its certificate dated the date of the Closing that the conditions specified in
Sections 4.1 and 4.2 are satisfied. Such certificate shall be deemed a
representation and warranty of the Company under Section 2 for all purposes of
this Agreement.
4.4 Performance. The Company shall have performed and complied in all
material respects with all covenants required herein to be performed or complied
with by it on or before the Closing.
4.5 Stockholder Approval, Dissenting Notices. The Stockholder Approval
shall have been given, and notices of intent to dissent under Section 302A.473
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of the Minnesota Business Corporation Act shall not have been filed with respect
to more than 5% of the outstanding Shares immediately before the Effective Time.
4.6 Third-Party Action. All Third-Party Action required in order to
consummate the Closing on the terms hereof shall have been taken.
4.7 Opinion of Counsel. The Buyer shall have received from Fredrikson &
Byron, counsel to the Company, an opinion dated the date of the Closing, in form
and substance substantially as set forth in Exhibit B.
4.8 Transactional Litigation. No action, suit or proceeding before any
Governmental Agency shall have been commenced and not dismissed, and no
investigation by any Governmental Agency shall have been commenced or overtly
threatened, against the Company, the Buyer, Subsidiary, or any of their
respective principals, officers, directors or shareholders seeking to restrain,
prevent or change the transactions contemplated hereby or questioning the
validity or legality of any of such transactions or seeking damages in
connection with any of such transactions.
4.9 Interim Events. None of the events listed in Sections 6.8(a)
through (h) shall have occurred without the Buyer's written consent.
4.10 Management Changes, Employees. The Company's key employees listed
on Schedule 4.10 shall have indicated to the Buyer, in form reasonably
satisfactory to it, their intention to continue their employment with the
Company or the Buyer on their current terms following the Merger.
4.11 Warrants. All issued and outstanding warrants of the Company shall
have been exercised and/or canceled for an amount not to exceed the number of
Shares subject thereto times the excess, if any, of the Merger Consideration (as
defined in the Plan of Merger) over the per-Share exercise price stated therein.
4.12 Employment and Noncompetition Agreements. The agreements referred
to in Section 2.28 shall remain in full force and effect.
4.13 Transaction Expenses. All legal fees and other transaction
expenses incurred by the Company in conjunction with the Merger shall have been
disclosed to the Buyer and the Buyer shall not have reasonably objected thereto.
4.14 Corporate and Other Proceedings. All corporate and other
proceedings on the part of the Company in connection with the transactions to be
consummated at the Closing, and all documents and instruments incident to such
transactions, shall be reasonably satisfactory in substance and form to the
Buyer.
4.15 Material Adverse Change. No Material Adverse Change shall have
occurred after the Last Fiscal Year-End.
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SECTION 5
CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company hereunder to be performed at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions, except for any condition the Company may waive in accordance with
Section 7.3.
5.1 Representations and Warranties. The representations and warranties
of the Buyer contained in Section 3 shall have been true in all material
respects on the date of this Agreement and shall be true in all material
respects at and as of immediately prior to the Closing with the same effect as
though made at and as of immediately prior to the Closing.
5.2 Closing Certificate. The Buyer shall have delivered to the Company
a certificate dated the date of the Closing that the conditions specified in
Section 5.1 are satisfied. Such certificate shall be deemed a representation and
warranty of the Buyer under Section 3 for all purposes of this Agreement.
5.3 Performance. The Buyer shall have performed and complied in all
material respects with all covenants required herein to be performed or complied
with by the Buyer on or before the Closing.
5.4 Stockholder Approval. The Stockholder Approval shall have been
given.
5.5 Transactional Litigation. No action, suit or proceeding before any
Governmental Agency shall have been commenced, and no investigation by any
Governmental Agency shall have been commenced or overtly threatened, against the
Company, the Buyer, Buyer Subsidiary or any of their respective principals,
officers, directors or stockholders seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of any
of such transactions or seeking damages in connection with any of such
transactions.
5.6 Corporate and Other Proceedings. All corporate and other
proceedings on the part of the Buyer and Buyer Subsidiary in connection with the
transactions to be consummated at the Closing, and all documents and instruments
incident to such transactions, shall be reasonably satisfactory in substance and
form to the Company.
SECTION 6
COVENANTS OF COMPANY, SUBSIDIARY AND BUYER
6.1 Non-Disclosure. Each party agrees not to divulge or communicate, or
use for any purpose other than evaluating this transaction or exercising rights
as a party hereto, any information or materials concerning this Agreement, the
negotiation between the parties hereto and the transactions contemplated hereby,
except to the extent that such information (v) is or hereafter becomes lawfully
obtainable from other sources, (w) is independently developed by the party
without use of any of such information, (x) is required to be disclosed to a
Governmental Agency having jurisdiction over the party or its Affiliates, (y) is
otherwise required by law to be disclosed or (z) is disclosed following a waiver
in writing from the other parties. Promptly after the date hereof and after the
Effective Time, the Buyer and the Company will issue a mutually agreeable press
release concerning the transactions contemplated hereby. The parties hereto will
consult and cooperate with each other and agree upon the terms and substance of
all press releases, announcements and public statements with respect to this
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Agreement and the Merger; provided, however, that such consultation and
cooperation shall not interfere with any obligation of either party hereto to
disclose any information as required by applicable law. Any press release or
other announcement by any party with respect to the Merger will be subject to
the consent and approval of the other party, which consent or approval will not
be unreasonably withheld.
6.2 Nonsurvival of Representations and Warranties. The representations
and warranties of the Company set forth in this Agreement will expire at the
Effective Time, and the Surviving Corporation (as defined in the Plan of Merger)
shall have no liability with respect to any representation or warranty and shall
not be subject to any contribution, indemnity or similar claims with respect
thereto by any Person. However, nothing in this Section 6.2 will relieve any
Person from liability for his, her or its knowing personal fraud.
6.3 Termination of this Agreement; Termination Fees.
(a) If any condition of the Closing stated in Section 4 is not
satisfied on or before June 30, 2000, then, provided the Buyer is not in
material default hereunder, the Buyer may at any time thereafter terminate any
further obligations under this Agreement by giving written notice thereof to the
Company. If any condition of the Closing stated in Section 5 is not satisfied on
or before such date, then, provided the Company is not in material default
hereunder, the Company may at any time thereafter terminate any further
obligations under this Agreement by giving written notice thereof to the Buyer.
This Agreement may be so terminated, or terminated by mutual agreement of the
parties upon the authorization of their respective Boards of Directors,
notwithstanding approval of this Agreement by the stockholders of any or all
parties.
(b) The Board of Directors of the Company may terminate this Agreement
pursuant to Section 6.6(d) in the circumstances there specified if,
simultaneously with such termination, the Company pays the Buyer $1,000,000 by
wire transfer of immediately available funds.
(c) In the event the Merger is not approved by the Company's
stockholders and a Third-Party Transaction is announced within 18 months after
such termination which is thereafter consummated (or is consummated within such
18-month period, irrespective of any announcement), the Company will,
simultaneously with such consummation, pay the Buyer $1,000,000 by wire transfer
of immediately available funds.
(d) (i) If this Agreement is terminated (x) by any party prior to the
Effective Time after the date specified in Section 6.3(a) without the payment of
a termination fee other than a termination after Buyer is in material breach of
this Agreement, or (y) by the Buyer due to a material breach hereof by the
Company, and a Third-Party Transaction is announced within 12 months after such
termination which is thereafter consummated (or is consummated within such
12-month period, irrespective of any announcement), the Company will,
simultaneously with such consummation, pay the Buyer $1,000,000 by wire transfer
of immediately available funds.
(e) In the event the Merger is not approved by the Company's
stockholders, the Buyer may, at any time thereafter, at its sole option by
notice given to the Company, terminate any obligation on its or Subsidiary's
part to consummate the Merger. Any such termination will not affect the Buyer's
rights under Sections 6.3(c) or (d), or, in the case of breach by the Company,
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be in lieu of or adversely affect in any way any right or remedy otherwise
available to the Buyer.
(f) The Buyer may terminate this Agreement if the Company has not
received letter agreements by the close of business on January 14, 2000 (1) from
the holders of all outstanding warrants agreeing that such warrants may be
cashed out for the number of Shares subject thereto times the excess, if any, of
the Merger Consideration (as defined in the Plan of Merger) over the per-Share
exercise price stated therein and (2) from the landlords of real property
consenting to the Merger without the payment of additional consideration.
(g) Any termination pursuant to this Section 6.3 will not, however,
terminate or otherwise affect the obligations of the parties under Sections 6.1,
7.1 or 7.2.
6.4 Best Efforts, No Inconsistent Action. Each party will use its best
efforts to cause the conditions over which it has control to be satisfied on or
before the Closing. No party will take any action which will foreseeably result
in the nonsatisfaction of any condition stated in Section 4 or 5 on or before
the Closing.
6.4 Access. Between the date of this Agreement and the Closing or any
earlier termination of this Agreement in accordance with its terms, the Company
will (i) give the Buyer and its authorized representatives access to its books,
records, Properties, officers, attorneys and accountants and permit the Buyer to
make inspections and copies of such books and records, at Buyer's expense, and
(ii) furnish the Buyer with such financial information and operating data and
other information with respect to its business and Properties, and to discuss
with the Buyer and its authorized representative its affairs, all as the Buyer
may from time to time reasonably request for the purposes of this Agreement,
during normal office hours. Any on-site visit shall be subject to reasonable
advance notice and to being accompanied by an officer or designated employee of
the Company. No information furnished to the Buyer pursuant to this Section 6.4
or otherwise known to the Buyer shall affect any representation, warranty or
condition in this Agreement.
6.6 No Solicitation or Negotiation.
(a) Until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, neither the Company nor any Subsidiary nor any
representative of the Company or any Subsidiary shall, directly or indirectly,
take any action to (i) encourage, solicit or initiate the submission of any
Acquisition Proposal or any inquiries with respect thereto, (ii) enter into any
agreement for or relating to a Third-Party Transaction or (iii) participate in
any way in discussions or negotiations with, or furnish any non-public
information to, any Person in connection with any Acquisition Proposal.
Notwithstanding any other provision of this Section 6.6(a), the Company may,
prior to the Stockholder Approval, in response to an unsolicited bona fide
Superior Proposal provide non-public information to or have discussions or
negotiations with such third party, if and only to the extent that the Board of
Directors has determined in good faith, after receiving the advice of its
outside counsel, that such action is necessary in order for the Board of
Directors to comply with its fiduciary duties to the Company's stockholders
under applicable law. The Company will immediately communicate to the Buyer the
receipt of any third party solicitation, proposal or bona fide inquiry that the
Company, any Subsidiary or any representative of the Company or any Subsidiary
may receive in respect of any such transaction, or of any request for such
information, including in each case a copy thereof and all other particulars
thereof, and keep the Buyer fully apprised of all developments therein on a
current basis, and consider in good faith any counterproposals which the Buyer,
in its sole discretion, elects to make.
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(b) "Acquisition Proposal" means any proposed Acquisition Transaction.
"Acquisition Transaction" means any (i) merger, consolidation or similar
transaction involving the Company, (ii) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or otherwise of
any assets of the Company or its subsidiaries representing 15% or more of the
consolidated assets of the Company and its subsidiaries, (iii) issue, sale or
other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 15% or
more of the votes attached to the outstanding securities of the Company, (iv)
transaction in which any person shall acquire Beneficial Ownership or the right
to acquire Beneficial Ownership, or any Group shall have been formed which has
Beneficial Ownership or has the right to acquire Beneficial Ownership, of 15% or
more of the outstanding shares of common stock of the Company, (v)
recapitalization, restructuring, liquidation, dissolution or other similar type
of transaction with respect to the Company or any of its subsidiaries or (vi)
transaction which is similar in form, substance or purpose to any of the
foregoing transactions. "Third-Party Transaction" shall mean an Acquisition
Transaction with a party unrelated to the Buyer. "Beneficial Ownership" and
"Group" shall have the meanings stated in Regulation 13D-G under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) The Company will take all action necessary in accordance with
applicable law and its articles of incorporation and by-laws to convene a
meeting of its stockholders as promptly as practicable to consider and vote upon
the Merger and to secure the Stockholder Approval, including without limitation
the preparation of a proxy statement (the "Proxy Statement," which term shall
include all amendments and supplements thereto). The Proxy Statement shall
comply as to form in all material respects with the applicable requirements of
the Exchange Act and the rules and regulations promulgated thereunder, and shall
not, at the time of (i) first mailing thereof or (ii) such stockholders'
meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that the Company shall not be responsible for information
supplied by the Buyer or any affiliates or representatives of the Buyer for
inclusion in the Proxy Statement. The Company (i) shall promptly prepare and
file with the SEC, use its best efforts to have cleared by the SEC and
thereafter mail to its stockholders as promptly as practicable the Proxy
Statement and all other proxy materials for such meeting, (ii) shall notify the
Buyer of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendments or supplements
thereto or for additional information and shall promptly provide the Buyer
copies of all correspondence between the Company or any representative of the
Company and the SEC and (iii) shall give the Buyer and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give the Buyer and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC.
(d) The Board of Directors of the Company shall recommend and declare
advisable to its stockholders such approval and the Company shall take all
lawful action to solicit, and use all best efforts to obtain, approval of its
stockholders, and neither the Board of Directors of the Company nor any
committee of such Board of Directors shall (i) withdraw or modify the approval
or recommendation by such Board of Directors or such committee of the Merger,
(ii) approve or recommend any Acquisition Proposal other than the Merger or
(iii) cause or allow the Company to enter into any letter of intent, agreement
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in principle, acquisition agreement or other similar agreement with respect to
any Acquisition Proposal other than the Merger. Notwithstanding the foregoing,
the Board of Directors of the Company may, prior to the Stockholder Approval,
terminate this Agreement in order to simultaneously enter into a binding
agreement with respect to a Third-Party Transaction that constitutes a Superior
Proposal, but in each case subject to its compliance with Section 6.3(b) if and
only to the extent that both (i) the Buyer has been given at least five days
written notice of the Company's intent to do so and (ii) the Board of Directors
of the Company has determined in good faith, after receiving the advice of its
outside counsel, that such action is necessary in order for the Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law. A "Superior Proposal" means any bona fide written Acquisition Proposal, the
terms of which the Board of Directors of the Company determines in its good
faith judgment, based on the advice of its financial advisor, to be more
favorable to the Company's stockholders than the Merger and to be already
financed or readily financeable.
(e) Nothing in this Section 6.6 shall prohibit the Company from taking
and disclosing to its stockholders a position as contemplated by SEC Rule
14e-2(a), provided that neither the Company nor its Board of Directors nor any
committee of its Board of Directors shall approve or recommend any Third-Party
Proposal.
6.7 Interim Financial Information. The Company will supply to the Buyer
unaudited consolidated monthly financial statements within 21 business days of
the end of each month ending between the date of the Interim Balance Sheet and
the Closing or any earlier termination of this Agreement in accordance with its
terms, prepared on a basis consistent with the unaudited consolidated financial
statements for the preceding months. For purposes of these statements, employee
bonuses and similar expenses may be accrued based on actual results for the year
to date and budgeted results for the balance of the year.
6.8 Interim Conduct of Business. From the date of this Agreement until
the Closing or any earlier termination of this Agreement in accordance with its
terms, unless approved by the Buyer in writing, the Company will operate its
business consistently with past practice and in the ordinary course of business,
and will not:
(a) merge or consolidate with or agree to merge or consolidate
with, or sell or agree to sell all or substantially all of its Property
to, or purchase or agree to purchase all or substantially all of the
Property of, or otherwise acquire, any other Person or a division
thereof, except as provided in this Agreement;
(b) amend its articles of incorporation or by-laws;
(c) make any changes in its accounting methods, principles or
practices, except as required by GAAP;
(d) sell, consume or otherwise dispose of any Property, except
in the ordinary course of business consistent with past practices;
(e) authorize for issuance, issue, sell or deliver any
additional shares of its capital stock of any class or any securities
or obligations convertible into shares of its capital stock or issue or
grant any option, warrant or other right to purchase any shares of its
capital stock of any class, other than, in each case, the issuance of
Shares pursuant to the exercise of the options and warrants listed in
Section 2.1(a);
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(f) declare any dividend on, make any distribution with
respect to, or redeem or repurchase, its capital stock;
(g) modify, amend or terminate any Benefit Plans (including
the acceleration of vesting of any stock option), except as required
under Legal Requirements or any Disclosable Contract;
(h) enter into a Disclosable Contract;
(i) authorize or enter into an agreement to do any of the
foregoing; or
(j) settle any litigation.
6.9 Section 338 Election; Tax Status. The parties agree that the Buyer
may make an election under Section 338(a) of the Code with respect to the
Merger. Each party has reviewed the income and other Tax aspects of the
structure of the Merger with its own professional advisers, and no party or
representative of a party shall have any obligation or responsibility to any
other party with respect thereto.
6.10 Option to Purchase.
(a) The Company hereby irrevocably grants the Buyer the right (the
"Option"), at the Buyer's option, to purchase from the Company up to 2,045,504
(subject to adjustment as provided in this Section 6.10) Shares in the aggregate
at the exercise price of $1.41 per share, subject to adjustment as provided in
this Section 6.10 (as so adjusted, the "Exercise Price"), as specified by the
Buyer in its notice or notices of exercise from time to time, but only in
connection with or after a Triggering Event. A "Triggering Event" means the
first to occur of the following events:
(i) the Company terminates this Agreement pursuant to
Section 6.6(d), or
(ii) the Merger is not approved by the Company's stockholders
and a Third-Party Transaction is announced within 18 months after such
termination which is thereafter consummated (or is consummated within
such 18-month period, irrespective of any announcement), or
(iii) (A) this Agreement is terminated (x) by any party prior
to the Effective Time after the date specified in Section 6.3(a) other
than a termination after Buyer is in material breach of this Agreement,
or (y) by the Buyer due to a material breach hereof by the Company, and
(B) a Third-Party Transaction is announced within 12 months after such
termination which is thereafter consummated (or is consummated within
such 12-month period, irrespective of any announcement). Such
consummation shall constitute the Triggering Event within the scope of
this Section 6.10(a)(iii).
(iv) any Person other than an Affiliate of the Buyer commences
a tender offer (within the meaning of SEC Rule 14d-2) for 15% of more
of the Company's outstanding Shares.
(b) The Company will give the Buyer notice of any proposed Triggering
Event under Section 6.10(a)(ii), (iii) or (iv) to which it is a party at least
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20 days prior to the proposed consummation thereof, and will give the Buyer
notice of any other such Triggering Event immediately upon receiving knowledge
thereof. The Option may be exercised, at any time and from time to time,
commencing immediately prior to the Triggering Event and continuing thereafter
until 5:00 p.m., Central time, on the 5th anniversary of the date of this
Agreement, if a business day, or on the next succeeding business day if it is
not. To exercise the Option, the Buyer shall deliver written notice to the
Company at its address listed in Section 7.4 specifying the number of Shares as
to which the Option is being exercised, accompanied by the Buyer's check or wire
transfer in payment of the aggregate Exercise Price. Alternatively, the Buyer
may pay the Exercise Price by surrender of this Option with respect to a number
of shares whose aggregate Spread Value equals the aggregate Exercise Price.
"Spread Value" means (i) the excess, if any, of the market value of a Share over
the Exercise Price times (ii) the number of Shares so to be surrendered. For
this purpose, "market value" shall mean the average closing price of Shares for
the three most recent trading days ending with the trading day prior to any such
cashless exercise, if Shares are then traded on a national securities exchange
or the Nasdaq National Market, and will mean the per-Share value of the
transaction associated with the Triggering Event in all other cases.
(c) Upon any exercise of the Option as set forth above, the Buyer shall
immediately be the record owner of all Shares subject to such exercise for all
purposes, without any other action being necessary. Within three trading days
after each exercise of the Option, the Company shall deliver certificates for
the Shares so purchased to the Buyer, but the delivery of such certificates
shall not be required in order for the Buyer to exercise any rights as a holder
of the Shares to be represented thereby. Until its exercise, the Option does not
confer on the Buyer any rights of a stockholder of the Company.
(d) The Company need not issue any fractional shares in connection with
any exercise of the Option. Instead, the Buyer may purchase a whole Share from
the Company at the Exercise Price.
(e) During the term of the Option, the Company shall reserve sufficient
authorized but unissued shares of Common Stock or other securities for the full
exercise of the rights represented by the Option. To the extent required for the
lawful exercise of the Option, the Company will promptly make all filings with
Governmental Agencies, including without limitation a premerger notification
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
requested by the Buyer in connection with an intended exercise of the option.
(f) The Exercise Price and the number of Shares that the Company must
issue upon exercise of the Option are subject to adjustment from time to time as
follows:
(1) If the Company at any time or from time to time after the
date hereof: (1) declares or pays, without consideration, any dividend
on Shares payable in Shares; (2) creates any right to acquire Shares
for no consideration; or (3) subdivides the outstanding Shares (by
stock split, reclassification or otherwise), the Company shall increase
the number of Shares that the Buyer may purchase upon exercising the
Option and decrease the Exercise Price in proportion to the increase in
the number of outstanding Shares that results from any such action.
(2) If the Company combines or consolidates the outstanding
Shares, by reclassification or otherwise, into a lesser number of
Shares, the Company shall decrease the number of Shares that the Buyer
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may purchase upon exercising the Option and increase the Exercise Price
in proportion to the decrease in the number of outstanding Shares that
results from any such combination or consolidation.
(3) If Shares change into shares of any other class or classes
of security or into any other Property for any reason other than a
subdivision or combination of Shares provided for in Section 6.10(f)(1)
or (2), including without limitation any reorganization,
reclassification, merger or consolidation and any sale of substantially
all of the Company's properties and assets, the Company shall make
lawful provision for giving the Buyer the right, by exercising the
Option, to purchase the kind and amount of securities or other Property
receivable upon any such change by the owner of the number of Shares
subject to this Option immediately before the change.
(4) If the Company spins off any Subsidiary by distributing to
the Company's shareholders as a dividend or otherwise any stock or
other securities of the Subsidiary, the Company shall reserve until the
end of the term of the Option enough such shares or other securities
for delivery to the Buyer upon any exercise of the rights represented
by the Option to the same extent as if the Buyer owned of record all
Common Stock or other securities subject to the Option on the record
date for the distribution of the Subsidiary's shares or other
securities.
Upon each adjustment or readjustment required by this Section 6.10(f), the
Company shall promptly compute such adjustment or readjustment and furnish to
the Buyer a certificate setting forth such adjustment or readjustment and
showing in detail the facts giving rise to the adjustment or readjustment. Upon
the Buyer's written request, the Company also shall furnish to the Buyer a
similar certificate setting forth (1) such adjustments and readjustments, (2)
the Option Price in effect on the date of the certificate, and (3) the number of
Shares and the amount of any other property that the Buyer would receive upon
exercising the Option.
(g) The Buyer may not transfer, sell or make any other disposition of
the Option (other than in connection with a succession to or transfer of its
business as a whole), or grant any Lien respecting any of its rights under the
Option, without the Company's prior consent.
(h) By accepting the Option, the Buyer agrees that the Option and the
Shares or other securities issuable upon exercise of the Option may be offered
or sold, only in compliance with the Act and all applicable state and securities
laws. The Buyer hereby agrees to comply with this Section 6.10(h) with respect
to any resale or other disposition of such securities. The Buyer may offer or
sell any such securities only in accordance with (1) an effective registration
statement under the Act; (2) SEC Rule 144; or (3) another exemption from the
registration requirements of the Act and all applicable state securities laws
demonstrated, to the Company's reasonable satisfaction, by an opinion of
securities counsel reasonably acceptable to the Company. The Company may make a
notation on its records, and on the certificates for any Shares or other
securities issued upon the exercise of the Option, to implement the restrictions
set forth in this Section 6.10(h). The Buyer represents and warrants that it is
acquiring the Option, and will acquire the Shares subject thereto, for its own
account and not on behalf of any other Person, and that it is an "accredited
investor," as that term is defined in SEC Regulation D. By accepting the Option,
the Buyer acknowledges that the Company is granting the Option to the Buyer in
reliance on the Buyer's foregoing representations and warranties and the terms
of this Section 6.10(h). Before allowing any transferee of any of the Buyer's
rights under the Option to exercise this Option, the Company may, in its sole
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discretion, require the transferee to execute and deliver representations,
warranties and acknowledgments to the Company substantially similar to those set
forth in this Section 6.10(h).
(i) Notwithstanding anything in this Section 6.10, if an exercise of
the Option would otherwise produce a gain (as measured by the difference between
the Exercise Price and the market value, determined in accordance with Section
6.10(b), multiplied by the number of Shares as to which the Option is exercised)
in excess of (i) $1,000,000 minus (ii) the termination fee, if any, timely paid
by the Company pursuant to Section 6.3 in connection with the Triggering Event
in question, then the exercise of the Option will be effective only as to the
number of Shares which produce a gain (as so measured) equal to such difference
between (i) and (ii).
(j) In the event the Company proposes to consummate a transaction
(however structured, including without limitation a sale of stock or a merger)
to which it is a party and which involves an acquisition of shares or equity
interest in the Company by a third Person, and immediately following such
transaction such Person together with its parents and subsidiaries
(collectively, the "Acquiring Person") owns a majority of both the voting power
and economic interest represented by the outstanding stock of the Company on a
fully diluted basis, then the Company (x) shall give the Buyer at least 20 days
written notice of the proposed consummation, including a summary of the
transaction and a copy of all transaction documents (which summary and documents
shall be kept current by further notices to the Buyer) and (y) if it has
complied with clause (x), may at its option, exercised by notice to the Buyer
not later than five days prior to such consummation, redeem the Option (in whole
and not in part) simultaneously with such consummation for an amount per share,
paid by wire transfer of same-day funds to the account designated by the Buyer,
equal to the excess, if any, of the Redemption Price over the Exercise Price
then in effect. The "Redemption Price" is:
(i) if the equity interest the Acquiring Person is acquiring
in such consummation, together with any equity interest acquired by
such Acquiring Person within 180 days prior to such consummation
constitutes a majority of both the voting power and economic interest
represented by the outstanding stock of the Company on a fully-diluted
basis, the highest price per share paid (or to be paid upon such
consummation) by the Acquiring Person in the course of acquiring such
majority ownership, and
(ii) otherwise, the fair market value of a Share (or the other
Property then subject to the Option) as agreed to by the Company and
the Buyer or, in the absence of such agreement, as determined by an
investment bank of national reputation selected by the Company from a
list of three such banks proposed by the Buyer (on its own initiative
or within 15 days after written request by the Company), which bank
shall not have engaged in a transaction with, or advised with respect
to a transaction, either the Company or the Buyer within the prior
three years. If this clause (ii) is applicable, the Company will not
consummate such transaction unless and until the fair market value has
been agreed or determined pursuant to this clause (ii).
6.11 SEC Reports. From and after the date of this Agreement until the
earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, the Company will timely file all reports required to be filed by
it under the Exchange Act.
6.12 Stock Option Plan; Benefits. Prior to the Effective Time, the
Company will take all actions necessary to give effect to Section 3 of the Plan
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of Merger and to terminate the Company's stock option plans, effective
immediately after the Effective Time. If requested by the Buyer, immediately
prior to the Effective Time, the Company will terminate any or all of its
welfare and benefit plans.
6.13 Notice of Certain Events. The Company shall notify the Buyer, and
the Buyer shall promptly notify the Company, of:
(i) receipt of any notice or other communication from any
Person alleging that the consent of such Person is or may be required
in connection with the transactions contemplated by this Agreement;
(ii) receipt of any notice or other communication from any
Governmental Entity in connection with the transactions contemplated by
this Agreement;
(iii) receipt of notice that any action, suit, claim,
investigation or proceeding has been commenced or, to the knowledge of
the Company, threatened, against or involving the Company, any
Subsidiary or the Buyer, as applicable, which, if pending on the date
of this Agreement, would have been required to have been disclosed
pursuant to Section 2.18 or which relates to the transactions
contemplated by this Agreement;
(iv) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of it (and, in the case of the Buyer, of
Buyer Subsidiary) contained in this Agreement to be untrue or
inaccurate; and
(v) any failure of the Company, the Buyer or Buyer Subsidiary,
as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
The delivery of any notice pursuant to this Section 6.13 shall not limit or
otherwise affect the remedies available to the party receiving such notice.
6.14 Takeover Statutes. If any Takeover Statute is, becomes or may
become applicable to the Merger or any of the transactions contemplated hereby,
each of the Buyer, Buyer Subsidiary and the Company, and their respective Boards
of Directors, shall grant such approvals and take such lawful actions as are
necessary to ensure that the Merger and such transactions may be consummated as
promptly as practicable on the terms contemplated hereby, and to the extent
permitted by law otherwise act to eliminate the effects of such statute and any
regulations promulgated thereunder on the Merger and such transactions or, if
they cannot be eliminated, to minimize them.
6.15 Pay-Off. The Company will, upon the request of the Buyer,
cooperate with the Buyer in arranging the pay-off or refinancing of any
indebtedness of the Company set forth in Schedule 6.15 which the Buyer, in its
business discretion, desires to pay off or refinance in connection with the
consummation of the transactions contemplated hereby.
6.16 Update. The Company, at least one full business day before the
Effective Time, shall prepare and deliver to Buyer updated schedules as of the
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Effective Time for its review in determining whether conditions to the Closing
have been satisfied. Such updated schedules shall not be considered substituted
for the schedules referred to in this Agreement.
6.17 Directors and Officers. For six years from and after the Effective
Time, the Buyer agrees, in the alternative, either to (i) indemnify and hold
harmless all past and present officers and directors of the Company at the
Effective Time to the same extent such persons are indemnified as of the date of
this Agreement by the Company pursuant to the Minnesota Business Corporation Act
for acts or omissions occurring at or prior to the Effective Time, (ii) provide
the past and present directors and officers of the Company at the Effective Time
an insurance and indemnification policy that provides coverage for events
occurring prior to the Effective Time that is substantially similar (with
respect to limits and deductibles) to the Buyer's existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that the annual premiums for such coverage will not
exceed 200% of the annual premiums currently paid by the Company for such
coverage or (iii) provide the past and present directors and officers of the
Company at the Effective Time coverage under the Buyer's indemnification policy
that provides coverage for events occurring prior to the Effective Time.
SECTION 7
MISCELLANEOUS
7.1 No Brokers, Finders.
(a) Company. The Company has not engaged any agent, broker, finder or
investment or commercial banker in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated hereby, other
than Greene Holcomb & Fisher Investment Banking LLC, for whose fees and expenses
the Company will be solely responsible and whose fees and expenses will not
exceed $555,772 if the Merger is consummated. The Company shall indemnify,
defend and hold the Buyer harmless against and in respect of any claim for
brokerage fees or other commissions incurred or owing due to any such engagement
or alleged engagement, including without limitation, any fees and expenses of
counsel incurred by the Buyer in connection with enforcing this Section 7.1(a).
(b) Buyer. The Buyer has not engaged any agent, broker, finder or
investment or commercial banker in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated hereby, other
than Lingate Financial, for those fees and expenses the Buyer will be solely
responsible. The Buyer shall indemnify, defend and hold the Company and its
stockholders harmless against and in respect of any claim for brokerage fees or
other commissions incurred or owing due to any such engagement or alleged
engagement, including without limitation, any fees and expenses of counsel
incurred by the Company or its stockholders in connection with enforcing this
Section 7.1(b).
7.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, the Company and the Buyer shall each pay their own
fees and expenses incident to the negotiation, preparation, execution, delivery
and performance hereof, including, without limitation, the fees and expenses of
their respective counsel, accountants and other experts.
7.3 Complete Agreement; Waiver and Modification; No Third Party
Beneficiaries. This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior and
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contemporaneous agreements and understandings of the parties other than the
Stock Purchase Agreement dated February 23, 1998 between the Buyer and the
Company, which shall continue in effect. There are no representations or
warranties by any party except those expressly stated or provided for herein,
any implied warranties being hereby expressly disclaimed. There are no covenants
or conditions except those expressly stated herein. No amendment, supplement or
termination of or to this Agreement, and no waiver of any of the provisions
hereof, shall be binding on a party unless made in a writing signed by such
party. This Agreement may be modified by mutual agreement of the parties as
authorized by their respective boards of directors, notwithstanding approval
hereof and thereof by the stockholders of the parties. Nothing in this Agreement
shall be construed to give any Person other than the express parties hereto any
rights or remedies.
7.4 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be given by delivery (by
mail or otherwise) or transmitted to the address or facsimile number listed
below, and will be effective (in all cases) upon receipt. Without limiting the
generality of the foregoing, a mail, express, messenger or other receipt signed
by any Person at such address shall conclusively evidence delivery to and
receipt at such address, and any printout showing successful facsimile
transmission of the correct total pages to the correct facsimile number shall
conclusively evidence transmission to and receipt at such facsimile number.
(a) If to the Buyer or Subsidiary:
Cenex Harvest States Cooperatives
5500 Cenex Drive
MS 200
Inver Grove Heights, Minnesota 55077
Attention: James D. Tibbetts
Facsimile: (651) 306-6499
with copies to:
Cenex Harvest States Cooperatives
5500 Cenex Drive
MS 625
Inver Grove Heights, Minnesota 55077
Attention: David A. Kastelic
Facsimile: (651) 451-4554
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: William B. Payne
Facsimile: (612) 340-8738
(b) If to the Company:
Sparta Foods, Inc.
1565 First Avenue NW
New Brighton, Minnesota 55112
Attention: Joel P. Bachul
Facsimile: (651) 697-0600
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with copies to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Thomas R. King
Facsimile: (612) 347-7077
Any party may change its address or facsimile number for purposes of this
Section 7.4 by giving the other party written notice of the new address or
facsimile number in accordance with this Section 7.4, provided it is a normal
street address, or normal operating facsimile number, in the continental United
States.
7.5 Law Governing. This Agreement shall be interpreted in accordance
with and governed by the laws of the State of Minnesota.
7.6 Headings; References; "Hereof;" Interpretation. The Section
headings in this Agreement are provided for convenience only, and shall not be
considered in the interpretation hereof. References herein to Sections, Exhibits
or Schedules refer, unless otherwise specified, to the designated Section of or
Exhibit or Schedule to this Agreement. Terms such as "herein," "hereto" and
"hereof" refer to this Agreement as a whole. This Agreement has been negotiated
at arm's length between parties sophisticated and knowledgeable in the matters
addressed in this Agreement. Each of the parties has been represented by
experienced and knowledgeable legal counsel. Accordingly, any rule of law or
legal decision that would require interpretation of any ambiguities in this
Agreement against the party that has drafted it is not applicable and is waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the purpose of the parties and this Agreement.
7.7 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the heirs, executors, administrators and successors of
the parties hereto, but no right or liability or obligation arising hereunder
may be assigned by any party hereto.
7.8 Counterparts, Separate Signature Pages. This Agreement may be
executed in any number of counterparts, or using separate signature pages. Each
such executed counterpart and each counterpart to which such signature pages are
attached shall be deemed to be an original instrument, but all such counterparts
together shall constitute one and the same instrument.
7.9 Severability. In the event any of the provisions of this Agreement
shall be declared by a court or arbitrator to be void or unenforceable, then
such provision shall be severed from this Agreement without affecting the
validity and enforceability of any of the other provisions hereof, and the
parties shall negotiate in good faith to replace such unenforceable or void
provisions with a similar clause to achieve, to the extent permitted under law,
the purpose and intent of the provisions declared void and unenforceable.
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SECTION 8
GLOSSARY
Acquiring Person--Section 6.10(j).
Acquisition Proposal--Section 6.6(b).
Acquisition Transaction--Section 6.6(b).
Act--the Securities Act of 1933, as amended.
Affiliate--a Person who controls, is controlled by or is under common
control with another Person, or who directly or indirectly owns 10% or more of
the voting power in such other Person, or of whose voting power such other
Person (or a Person holding 10% or more of the voting power in such other
Person) owns 10% or more. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Agreement--this Agreement of Merger, including the Exhibits and
Schedules hereto.
Audited Statements--Section 2.6(a).
Beneficial Ownership--Section 6.6(b).
Benefit Plans--Section 2.14(b).
Buyer--introductory paragraphs.
Buyer Subsidiary--introductory paragraphs.
Closing--Section 1.1.
COBRA--Section 2.14(f).
Code--the Internal Revenue Code of 1986, as amended.
Company--introductory paragraphs.
Company ERISA Plan--Section 2.14(d).
Company SEC Documents--Section 2.25.
Contract--any agreement, written or oral, any license or authorization
by another Person of a contractual nature or any promissory note or other
instrument of a contractual nature, which is intended to be enforceable against
the Person in question or against any Property of such Person. Any Person which
is, or any of whose Property is, subject to enforcement of a Contract shall, for
purposes of this Agreement, be deemed a party to it.
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Disclosable Contract--Section 2.15.
Disclosable Leases--Section 2.11.
Effective Time--Section 1.2.
Environmental Requirement--any Legal Requirement relating to pollution,
waste, disposal, industrial hygiene, land use or the protection of human health,
safety or welfare, plant life or animal life, natural resources, wetlands,
endangered or threatened species or habitat, the environment or property,
including without limitation those pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of Hazardous Materials, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, generation, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Material,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature.
Equity Interest--any common stock, preferred stock, partnership
interest, limited liability company interest or ownership interest in any
Person, and any right to acquire any of the foregoing, whether by exercise of an
option, warrant or other right, by conversion, exchange or subscription or
otherwise.
ERISA--the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
ERISA Affiliate--any company which, as of the relevant measuring date
under ERISA, is or was a member of a controlled group of corporations or trades
or businesses (as defined in Sections 414(b), (c), (m) or (o) of the Code) of
which the Company or any Subsidiary or any predecessor of either is or was a
member.
Exchange Act--Section 6.6(b).
Exercise Price--Section 6.10(a).
Financial Statements--Section 2.6(a).
GAAP--generally accepted accounting principles applied on a consistent
basis, as set forth in authoritative pronouncements which are applicable to the
circumstances as of the date in question. The requirement that such principles
be applied on a "consistent basis" means that accounting principles observed in
the period in question are comparable in all material respects to those applied
in the preceding periods, except as change is permitted or required under or
pursuant to such accounting principles.
Governmental Agency--any agency, department, board, commission,
district or other public organ, whether federal, state, local or foreign.
Group--Section 6.6(b).
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Hazardous Material--all or any of the following: (i) any substance the
presence of which requires investigation or remediation under any applicable law
or regulation; (ii) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as "hazardous
substances," "hazardous materials," "hazardous wastes," "toxic substances," or
any other formulation intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity or "EP toxicity;" (iii) any petroleum
products, explosives or radioactive materials; and (iv) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
Interim Balance Sheet--Section 2.6(c).
Interim Statements--Section 2.6(a).
ISO--Section 2.14(h).
Last Fiscal Year-End--Section 2.6(a).
Legal Requirement--a statute, regulation, ordinance or similar legal
requirement, whether federal, state, local or foreign, or any requirement of a
Permit or other authorization issued by a Governmental Agency.
Lien--any lien, security interest, mortgage, deed of trust, pledge,
hypothecation, capitalized lease or interest or right for security purposes.
Material Adverse Change--a Material Adverse change in the business,
condition, assets, liabilities, operations, financial performance or prospects
of the Company and its subsidiaries taken as a whole.
Material Adverse Effect - a matter will be deemed to have a "Material
Adverse Effect" if such matter would have a material adverse effect on the
business, condition, assets, liabilities, operations, financial performance or
prospects of the Company and its Subsidiaries taken as a whole.
Merger--introductory paragraphs.
Option--Section 6.10(a).
Order--any judgment, injunction, order or similar mandatory direction
of, or stipulation or agreement filed with, a Governmental Agency, court,
judicial body, arbitrator or arbitral body.
Permit--a permit, license, franchise, certificate of authority or
similar instrument issued by a Governmental Agency.
Person-- an individual, or a corporation, partnership, limited
liability company, trust, association or other entity of any nature, or a
Governmental Agency.
Plan of Merger--Section 1.2.
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Property--any interest in any real, personal or mixed property, whether
tangible or intangible.
Proxy Statement--Section 6.6(c).
Rights--Section 2.1(a).
SEC--the Securities and Exchange Commission.
Shares--shares of the Common Stock, $.01 par value, of the Company.
Spread Value--Section 6.10(b).
Stock Right--any right (including without limitation any option or
warrant or subscription right) to acquire any capital stock or any other Stock
Right or any instrument convertible into or exchangeable for any capital stock
or any other Stock Right.
Stockholder Approval--Section 2.3.
Subsidiary--any Person which would be included in consolidated
financial statements of the Company prepared in accordance with GAAP, and any
Person in which the Company holds 50% or more of the voting power or 50% or more
of the equity interests, and any former Subsidiary with respect to any of whose
obligations the Company or any current Subsidiary is liable. In the case of any
representation or warranty relating to events or circumstances in the past, the
term "Subsidiary" also includes any Person that at the relevant time was a
Subsidiary, irrespective of such Person's current status as a Subsidiary.
Superior Proposal--Section 6.6(e).
Takeover Statute--Section 2.26.
Tax--any federal, state, local or foreign tax, assessment, duty, fee
and other governmental charge or imposition of any kind, whether measured by
properties, assets, wages, payroll, purchases, value added, payments, sales,
use, business, capital stock, surplus or income, and any addition, interest,
penalty, deficiency imposed with respect to any Tax.
Third-Party Action--any consent, waiver, approval, license or other
authorization of, or notice to, or filing with, any other Person, whether or not
a Governmental Agency, and the expiration of any associated mandatory waiting
period.
Third-Party Right--any Lien on any Property of the Person in question,
or any right (other than the rights of the Buyer hereunder) (i) to acquire,
lease, use, dispose of, vote or exercise any right or power conferred by any
Property of such Person, or (ii) restricting the Person's right to lease, use,
dispose of, vote or exercise any right or power conferred by any Property of
such Person.
Third-Party Transaction--Section 6.6(b)
Triggering Event--Section 2.10(a).
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IN WITNESS WHEREOF, the parties have executed this Agreement of Merger.
CENEX HARVEST STATES COOPERATIVES
By: /s/James D. Tibbetts
Name: James D. Tibbetts
Title: Executive Vice President
SF ACQUISITION CORP.
By: /s/James D. Tibbetts
Name: James D. Tibbetts
Title: Executive Vice President
SPARTA FOODS, INC.
By: /s/Joel P. Bachul
Name: Joel P. Bachul
Title: President and Chief Executive Officer
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EXHIBIT A
PLAN OF MERGER
This PLAN OF MERGER (this "Plan of Merger") sets forth the terms of the
merger (the "Merger") of SPARTA FOODS, INC., a Minnesota corporation (the
"Company"), with and into SF ACQUISITION CORP., a Minnesota corporation ("Buyer
Subsidiary"), on the terms and conditions set forth herein and in the Agreement
of Merger (the "Merger Agreement") dated the date hereof among the Company,
Buyer Subsidiary and CENEX HARVEST STATES COOPERATIVES, a Minnesota corporation
(the "Buyer"). Buyer Subsidiary is a wholly owned subsidiary of Buyer.
SECTION 1
MERGER
1.1 Merger. Upon the filing of articles of merger with respect to this
Plan of Merger with the Minnesota Secretary of State in accordance with
Minnesota law (the "Effective Time"), Buyer Subsidiary shall be merged with and
into the Company and the separate corporate existence of Buyer Subsidiary shall
cease. The Company shall be the surviving corporation in the Merger (the
"Surviving Corporation") and the separate corporate existence of the Company,
with all its purposes, objects, rights, privileges, powers, immunities and
franchises, shall continue unaffected and unimpaired by the Merger.
1.2 Articles of Incorporation. At the Effective Time, the articles of
incorporation of the Company shall be the articles of incorporation of the
Surviving Corporation, subject always to the right of the Surviving Corporation
to amend its certificate of incorporation after the Effective Time in accordance
with the laws of the State of Minnesota, and shall not be amended by virtue of
the Merger.
1.3 By-Laws. At the Effective Time, the by-laws of Buyer Subsidiary
shall be the by-laws of the Surviving Corporation and shall not be amended by
the Merger.
1.4 Directors and Officers. At the Effective Time, the directors of
Buyer Subsidiary immediately prior to the Effective Time shall be the directors
of the Surviving Corporation, and the officers of the Company immediately prior
to the Effective Time shall be the officers of the Surviving Corporation, in
each case until their successors have been elected and qualified or until
otherwise provided by law.
SECTION 2
EFFECTS ON CAPITAL STOCK
2.1 Capital Stock Owned by Company. At the Effective Time, all of the
shares of capital stock of the Company that are owned directly or indirectly by
the Company or any subsidiary of the Company shall be canceled and no
consideration shall be delivered therefor.
2.2 Shares. At the Effective Time, all of the shares of Common Stock,
$.01 par value per share, of the Company ("Shares"), other than any Shares as to
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which dissenters' rights under Section 302A.473 of the Minnesota Business
Corporation Act are perfected ("Dissenters' Shares") and other than those
referred to in Section 2.1 or 2.3, shall be converted into the right to receive,
in accordance with this Plan of Merger, $1.41 in cash, without interest (the
"Merger Consideration").
2.3 Capital Stock Owned by the Buyer. At the Effective Time (i) all of
the Shares that are owned directly or indirectly by the Buyer or any subsidiary
of the Buyer shall be canceled and no consideration shall be delivered
thereafter and (ii) all of the shares of Preferred Stock shall remain issued and
outstanding.
2.4 Common Stock of Buyer Subsidiary. At the Effective Time, all of the
outstanding shares of Common Stock of Buyer Subsidiary shall be converted into
an equal number of shares of Common Stock of the Surviving Corporation.
SECTION 3
COMPANY STOCK OPTIONS AND WARRANTS
3.1 Stock Options. At the Effective Time, each option outstanding under
the Company's stock option plans (i) will be converted into the right to receive
the Spread Amount or (ii) for which the exercise price exceeds the merger
consideration will be canceled without the payment of any consideration. The
"Spread Amount" is (i) the excess, if any, of the Merger Consideration over the
exercise price of such option times (ii) the number of Shares then subject to
such option (determined, with respect to option holders who are employees of the
Company at the Effective Time, without regard to any vesting or deferred
exercisability provisions), net of applicable withholdings.
3.2 Warrants. At the Effective Time, each warrant for the purchase of
Shares will be converted into the right to receive (i) the excess, if any, of
the Merger Consideration over the exercise price of such warrant times (ii) the
number of Shares then subject to such warrant.
SECTION 4
SURRENDER OF CERTIFICATES
4.1 Paying Agent. Prior to the Effective Time, the Buyer shall
designate a bank or trust company to act as agent for the holders of the Shares
in connection with the Merger (the "Paying Agent") to receive the funds to which
the holders of the Shares shall become entitled pursuant to Section 2.2. The
Buyer shall, from time to time, make available to the Paying Agent funds in
amounts and at times necessary for the payment of the Merger Consideration in
the amounts and at the times provided herein. All interest earned on such funds
shall be paid to the Surviving Corporation.
4.2 Surrender Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"), whose shares were converted
pursuant to Section 2.2 into the right to receive the Merger Consideration (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and shall be in such form and have such other
provisions as the Buyer and the Company may reasonably specify) and (ii)
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instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may by
appointed by the Buyer, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
the Merger Consideration for each Share formerly represented by such Certificate
and the Certificate so surrendered shall forthwith be canceled. If payment of
the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requested in such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable. Until surrendered as contemplated by this Section 4.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration as contemplated by this
Section 4.2. The right of any holder of Shares to receive the Merger
Consideration shall be subject to and reduced by any applicable withholding
obligation.
4.3 Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable law.
4.4 Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. In no event shall the Buyer,
the Surviving Corporation or the Paying Agent shall be liable to any holder of a
Certificate for Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
4.5 Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the registered holder thereof or such holder's duly
authorized attorney-in-fact, the Surviving Corporation may pay, or authorize the
Paying Agent to pay, the Merger Consideration with respect thereto, subject to
Section 4.4 if applicable, provided that the Board of Directors of the Surviving
Corporation may, it its discretion and as a condition precedent to the payment
thereof, require the registered holder(s) and/or beneficial owner(s) of such
Certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation, the Company, the Buyer Subsidiary with respect to the Certificate
alleged to have been lost, stolen or destroyed.
Section 5. Dissenter's Rights.
If any Dissenting Shares shall be entitled to be paid the "fair value"
of such Shares, as provided in Section 302A.473 of the Minnesota Business
Corporation Act, the Company shall give the Buyer and Buyer Subsidiary notice
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thereof and the Buyer and Buyer Subsidiary shall have the right to participate
in all negotiations and proceedings with respect to any such demands. The
Surviving Corporation shall not, except with the prior written consent of the
Buyer or Buyer Subsidiary, voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for payment. If any Dissenting Shares
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, such Dissenting Shares shall thereupon be treated as though such
Dissenting Shares had been converted into the right to receive the Merger
Consideration pursuant to Section 2.2.
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EXHIBIT B
FORM OF OPINION OF COMPANY'S COUNSEL
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of Minnesota and has all requisite corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Company's Form 10-K Annual Report for the year
ended September 30, 1999.
2. The Company has all requisite power and authority under applicable
corporate law to execute and deliver the Agreement of Merger and the Plan of
Merger and to perform the transactions contemplated thereby and to consummate
the Merger. The execution and delivery of the Agreement of Merger and the Plan
of Merger by the Company and the consummation of the transactions contemplated
thereby have been duly authorized by all requisite corporate action on the part
of the Company, including without limitation all necessary action by the
stockholders of the Company. The Agreement of Merger and the Plan of Merger has
each been duly executed and delivered by the Company and (assuming each has been
duly authorized, executed and delivered by the Buyer and the Buyer Subsidiary,
as applicable) is each a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
3. The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock, par value $.01 per share ("Common Stock"), and 1,000,000
shares of Preferred Stock, of which 2,500 have been designated Series 1998. The
Company has shares of Common Stock outstanding, all of which have been duly and
validly authorized and issued and are fully paid and nonassessable. To our
knowledge, there are no outstanding Stock Rights with respect to the Company
except as stated in Section 2.1(a) of the Agreement of Merger.
4. Except as disclosed in the Agreement (including without limitation
the schedules thereto), the execution and delivery of the Agreement of Merger
and the Plan of Merger and the consummation by the Company of the transactions
contemplated thereby does not (a) violate or conflict with the articles of
incorporation or bylaws of the Company or any Subsidiary, (b) violate any Legal
Requirement or Order applicable to the Company or any Subsidiary, (c) require
any Third-Party Action with respect to the Company or any Subsidiary under, or
conflict with or constitute a default under, or result in the acceleration or
right of acceleration of any obligations, or any termination or right of
termination under any Disclosed Contract, and (d) result in the creation or
imposition of any material Lien, claim, charge, restriction, equity or
encumbrance of any kind upon or give any Person any interest or right in or with
respect to any of the Properties, assets, business or Contracts of the Company
or any Subsidiary.
5. The Proxy Statement was duly filed in preliminary and final forms
with the SEC in accordance with the requirements of the Exchange Act.
6. Upon the filing of Articles of Merger with respect to the Plan of
Merger with the Secretary of State of the State of Minnesota in accordance with
the Minnesota Business Corporation Act, the Merger shall be effective under the
Minnesota Business Corporation Act.
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7. To our knowledge, except as disclosed in the Agreement (including
without limitation the schedules thereto), there is no action, suit, proceeding
or investigation pending or threatened in any court or before any arbitrator or
before or by any Governmental Agency against the Company or any Subsidiary.
[Customary exceptions to be included]
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Appendix B
December 20, 1999
Confidential
Board of Directors
Sparta Foods, Inc.
1565 First Avenue NW
New Brighton, MN 55112
Gentlemen:
We understand that Sparta Foods, Inc. ("Sparta") and Cenex Harvest States or an
affiliated entity ("CHS") intend to enter into a merger or a stock purchase
agreement (the "Agreement"), pursuant to which, among other things, CHS will
seek to acquire all the common stock of Sparta in a transaction which will be
characterized as a going private transaction under Section 13(e)-(3) of the
Securities Act of 1933. Pursuant to the terms of the Agreement, CHS will pay
$1.41 per share in cash (the "Consideration") to the holders of all of the
outstanding common equity securities of Sparta, collectively, the "Sparta
Shareholders."
You have requested our opinion as to the fairness, from a financial point of
view, to the Sparta Shareholders other than CHS of the Consideration to be paid
by CHS in the transaction. This opinion is conditioned on the Agreement
incorporating the terms of the transaction of which we have been advised.
Greene Holcomb & Fisher LLC ("GH&F"), as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and valuations for
corporate and other purposes. GH&F has provided other financial advisory and
agency services for Sparta. Those services were not related to this opinion nor
were those services a condition of GH&F rendering this opinion. We are acting as
financial advisor to Sparta in connection with the Agreement and will receive a
fee for our services that is contingent upon the consummation of the transaction
contemplated by the Agreement. For our services in rendering this opinion,
Sparta will pay us a fee which is not contingent upon closing of the transaction
contemplated by the Agreement. Sparta has also agreed to indemnify us against
certain liabilities in connection with our services as financial advisor to
Sparta and in rendering this opinion.
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In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a draft of the agreement, dated December 17,
1999 (which draft, we have assumed, will be identical, in all material respects,
to the Agreement as executed on or after the date hereof), (ii) certain publicly
available financial statements and other information of Sparta, and (iii)
certain internal financial statements and other information of Sparta prepared
by the management of Sparta for financial planning purposes. We have visited
Sparta's facilities in New Brighton, Minnesota and have had discussions with
members of the management of Sparta concerning the financial condition, current
operating results and business outlook for Sparta.
We have analyzed the historical reported market prices and trading activity of
Sparta Common Stock. We have compared certain financial and stock market
information concerning Sparta to similar information for certain publicly traded
companies deemed similar to Sparta. We have also reviewed, to the extent
publicly available, the terms of selected relevant comparable transactions and
performed such other studies and analyses as we considered appropriate.
GH&F does not admit that it is, and concludes that it is not, an "expert" within
the meaning of the Securities Act of 1993 or that its reports or this opinion
constitute a valuation or report within the meaning of Section 11 of the
Securities Act of 1933. However, GH&F consents to the use of its name in the
Schedule 13(e)-(3) in connection with this transaction.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us by Sparta or otherwise
made available to us, and have not attempted independently to verify such
information. We have assumed, in reliance upon the assurances of the management
of Sparta, that the information provided to us by Sparta has been prepared on a
reasonable basis, and, with respect to financial planning data and other
business outlook information, reflects the best currently available estimates
and judgments of the management of Sparta, and that the management of Sparta is
not aware of any information or facts that would make the information provided
to us incomplete or misleading. We have assumed that there have been no material
changes in Sparta's assets, financial condition, results of operations, business
or prospects since the date of the last financial statements of Sparta made
available to us. In arriving at our opinion, we have not performed any
appraisals or valuations of specific assets of Sparta and we express no opinion
regarding the liquidation value of Sparta. On behalf of Sparta, and at its
request, we have made contacts with a number of potential purchasers of Sparta
and assisted in the solicitation of proposals from and negotiations with
interested prospective purchasers. This opinion is based upon the information
available to us as of, and the facts and circumstances as they exist and are
subject to evaluation on, the date hereof.
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This opinion is intended for the information of the Board of Directors of Sparta
only and may be published in its entirety in the materials distributed to the
Sparta Shareholders. Any summary of, excerpt from or reference to this opinion
may only be made with our prior written consent, which consent shall not be
unreasonably withheld. Except as set forth in the immediately preceding two
sentences, this opinion or our name may not be used or referred to or quoted or
disclosed to any person in any manner without our prior written consent. This
opinion is not intended to be and does not constitute a recommendation to any
Sparta Shareholder as to how such Sparta Shareholder should vote.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the consideration to be received by
the Sparta Shareholders other than CHS pursuant to the Agreement is fair, from a
financial point of view, to those Sparta Shareholders as of the date hereof.
Sincerely,
GREENE HOLCOMB & FISHER LLC
R. Hunt Greene
Managing Director
RHG/nb
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Appendix C
MINNESOTA BUSINESS CORPORATION ACT
302A.471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of
the shares to acquire shares, securities other than shares, or rights
to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to vote on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
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Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to receive notice of and to vote
on an action described in subdivision 1, only shareholders as of the date fixed,
and beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1, up
to and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
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upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by
the shareholders, a shareholder who wishes to exercise dissenters' rights must
file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and
a brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
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person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
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may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
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SPARTA FOODS, INC.
Proxy for Special Meeting of Shareholders
March ____, 2000
The undersigned hereby appoints Joel P. Bachul and A. Merrill Ayers, and each of
them, with full power of substitution, as Proxies to represent and vote, as
designated below, all shares of stock of Sparta Foods, Inc. (the "Company")
registered in the name of the undersigned at the Special Meeting of Shareholders
of the Company to be held at [Time] a.m., local time, at [Location],
Minneapolis, Minnesota, on March ____, 2000, and at any adjournment thereof.
The Board of Directors recommends
a vote for proposal #1 below.
1. Approve the Agreement of Merger pursuant to which each issued and
outstanding share of our Common Stock (other than shares of Common
Stock with respect to which dissenter's rights have been properly
exercised), will be converted into the right to receive $1.41 in cash,
without interest, and SF Acquisition Corp. will be merged into Sparta
and Sparta will be the surviving company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Other Matters. In their discretion, the Proxies are . . .
[ ] AUTHORIZED [ ] NOT AUTHORIZED
to vote upon such other business as may properly come before the
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR PROPOSAL 1, AND WILL BE DEEMED TO GRANT AUTHORITY
UNDER PROPOSAL 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Date: ____________________, 2000 ____________________________________
_____________________________________
PLEASE DATE AND SIGN ABOVE exactly
as name(s) are shown on the label
at left. Indicate, where appropriate,
official position or representative
capacity. For stock held in joint
tenancy, each joint owner must sign.
