<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[X] Filed by the Registrant
[_] 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-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
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing is calculated and state how it was determined):
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------
5) Total fee paid:
--------------------------------------------------------
[X] Fee paid previously by written 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.:
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3) Filing Party:
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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 a.m., Central Time,
on , 2000, at , 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 approximately 0.9% of our
outstanding common stock and 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 , 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.
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.
<PAGE>
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,
/s/ Joel P. Bachul
_________________________
Joel P. Bachul
President and Chief Executive
Officer
, 2000
<PAGE>
SPARTA FOODS, INC.
[SPARTA LOGO]
1565 First Avenue N.W.
New Brighton, MN 55112
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
To be held on , 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 , 2000 at a.m., local time, at . 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 approximately 0.9% of our outstanding
common stock and 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 , 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 , 2000.
<PAGE>
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.
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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 4
PARTIES TO THE MERGER..................................................... 10
Sparta.................................................................. 10
Cenex................................................................... 10
Merger Sub.............................................................. 10
THE SPECIAL MEETING....................................................... 11
Date, Time, Place and Record Date of the Special Meeting................ 11
Matters to be Considered at the Special Meeting......................... 11
Vote Required........................................................... 11
Voting Information...................................................... 11
Solicitation, Revocation and Use of Proxies............................. 12
THE MERGER................................................................ 13
Merger Consideration.................................................... 13
Sources and Amount of Consideration..................................... 13
Special Factors......................................................... 14
Plans for Sparta After the Merger....................................... 14
Background of the Merger................................................ 15
Reasons for the Merger.................................................. 20
Recommendation of the Special Committee and board of directors.......... 21
Opinion of Financial Advisor............................................ 22
Cenex and Merger Sub Believe the Merger is Fair......................... 27
Interests Of Certain Persons In The Merger.............................. 28
Voting and Proxy Agreements............................................. 30
Recent Acquisitions of Sparta Securities by Affiliates.................. 30
Accounting Treatment.................................................... 31
Material Federal Income Tax Consequences................................ 31
RIGHTS OF DISSENTING SHAREHOLDERS......................................... 33
THE MERGER AGREEMENT...................................................... 36
General................................................................. 36
Treatment of Stock Options and Warrants................................. 36
Effective Time.......................................................... 36
Payment for Shares...................................................... 36
Officers, Directors and Governing Documents............................. 37
Representations and Warranties.......................................... 37
Conduct of the Business Pending the Merger.............................. 38
No Solicitation......................................................... 39
Access to Information................................................... 40
Conditions to the Merger................................................ 40
Termination of the Merger Agreement..................................... 41
Termination Fees........................................................ 42
Option to Purchase...................................................... 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 44
Principal Shareholders.................................................. 44
Management Shareholdings................................................ 45
MARKET PRICES OF OUR COMMON STOCK AND DIVIDEND INFORMATION................ 47
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
HISTORICAL SELECTED FINANCIAL DATA.................................. 48
SPARTA MANAGEMENT PROJECTIONS....................................... 49
CENEX OFFICERS AND DIRECTORS........................................ 51
SHAREHOLDER PROPOSALS............................................... 52
OTHER MATTERS....................................................... 52
WHERE YOU CAN FIND MORE INFORMATION................................. 52
Sparta Securities and Exchange Commission Filings................. 53
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
</TABLE>
ii
<PAGE>
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 [ ]
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?
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.
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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.
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.
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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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<PAGE>
SUMMARY
The following is a brief summary of the material 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 (page ) 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
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 (page ) 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, 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 (page ) Merger Sub was organized as a Minnesota
corporation in December 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.
THE SPECIAL MEETING
Time, Place and Date of the The special meeting will be held at a.m.,
Special Meeting (page ) local time, on , , 2000 at .
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 , 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.
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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 (page )
Approval of the merger requires the affirmative
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 and intends to vote its shares in
favor of the merger. Thus, non-affiliated holders
of approximately 35% of our outstanding shares
must vote in favor of the merger in order for the
merger to be approved.
Solicitation of Proxies (page )
We will pay the costs of soliciting proxies from
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 (page Upon completion of the merger:
)
. Merger Sub will be merged with and into us and
we will be the surviving corporation after the
merger;
. Sparta will be 100% owned by Cenex; and
. 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:
. The merger represents an opportunity for our
shareholders to realize a premium over recent
market prices for their shares;
. 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;
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<PAGE>
. We are a small niche producer in our industry
and vulnerable to competitive factors such as
pricing and brand name recognition;
. Our ability to secure supply contracts is
limited which has made it difficult to attain
the growth levels expected by our shareholders;
. Our shares are illiquid and there is no
assurance that our shares will appreciate in
the future;
. We have explored strategic alternatives and
believe that the merger offers a unique
opportunity to maximize the value of our common
stock.
. 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
Special Committee and board The special committee consisting of non-employee
of directors (page ) directors and our board of directors (except
John D. Johnson, President and General Manager of
Cenex 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, including shareholders not
affiliated with Sparta. Your board of directors
unanimously recommends that you approve the
merger agreement.
Opinion of Financial On December 20, 1999, Greene Holcomb & Fisher,
Advisor (page ) LLC, our financial advisor, delivered its written
opinion to the special committee and our board of
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 Our officers and directors have interests in the
Persons in the Merger (page merger as employees and directors that are
) 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.
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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
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
Business Pending the Merger the parties to the merger agreement. The 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 Consummation The merger is subject to various closing
of the Merger (page ) conditions, including the requisite approval by
our shareholders and that no more than 5% of the
outstanding shares of our common stock dissent.
No Solicitation (page ) Subject to certain exceptions, we cannot,
directly or indirectly:
. 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);
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<PAGE>
. enter into any agreement for or relating to a
Third-Party Transaction (as defined in the
merger agreement); or
. 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.
A Superior Proposal is any Acquisition Proposal,
including a merger, sale of assets or other
extraordinary transaction, that Sparta determines
to be more favorable to our shareholders than the
merger and is already financed or readily
financeable.
Termination of Merger The merger agreement may be terminated and the
Agreement (page ) 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 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 to The merger will be a taxable transaction to you.
Shareholders (page ) For United States federal income tax purposes,
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.
Accounting Treatment (page )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 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 not
Shareholders (page ) vote for approval of 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 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.
8
<PAGE>
Recent Prices of Sparta Our Common Stock is traded in the over-the-
Common Stock (page ) counter market with prices quoted on the 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 (page As of , our directors and executive 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.
9
<PAGE>
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.
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.
10
<PAGE>
THE SPECIAL MEETING
Date, Time, Place and Record Date of the Special Meeting
The special meeting of shareholders of Sparta will be held on [ ], 2000,
[ ], a.m., Central Time, at [ ], 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 [ ] 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.
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
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<PAGE>
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 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.
12
<PAGE>
THE MERGER
Merger Consideration
Conversion of Our Common Stock
Pursuant to the merger agreement, at the effective time of the merger:
. 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;
. Merger Sub will be merged into Sparta, which will be the surviving
corporation in the Merger; and
. 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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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:
<TABLE>
<CAPTION>
Description Amount
----------- --------
<S> <C>
Legal fees--Sparta................................................. $200,000
Financial Printer.................................................. $ 50,000
Financial Advisor--Greene Holcomb.................................. $597,235
Transfer Agent Fees................................................ $ 2,000
--------
TOTAL............................................................ $849,235
========
</TABLE>
Cenex intends to use available cash, derived from its operations, to provide
the funds necessary to complete the merger.
13
<PAGE>
Special Factors
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. Cenex and
we did not consider any alternative means to accomplish this purpose. Cenex's
purpose in pursuing the merger is to develop and/or acquire grain-based
businesses. Cenex is an agricultural producer owned cooperative having as its
corporate mission "To grow value by linking producers to consumers" by
establishing sustainable retail markets for products grown and produced by its
owner members. Cenex engages in various lines of business from crop inputs to
grain processing. In May, 1999 Cenex began studying the current state of the
tortilla industry, and analyzed the position that Sparta held in that industry.
In early November, 1999 Cenex determined that it was time for it to pursue the
acquisition of Sparta. Cenex believed the acquisition of Sparta represented an
ideal opportunity to enter the tortilla and tortilla products industry given
the regional ties shared by Sparta and Cenex operations, and the existing
market that Sparta would provide for Cenex's wheat flour, vegetable oil and
shortening products produced by other Cenex businesses. We decided to pursue
the merger with Cenex at this time, in part, because of Cenex's interest in
acquiring us at this time and due to the opportunity to sell the business at a
price per share that is fair to our unaffiliated shareholders.
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.
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.
Fairness of the Merger and Opinion of Financial Advisor
The special committee and board of directors determined that the merger is
fair to and in the best interests of our shareholders, including shareholders
not affiliated with Sparta. Please see the more detailed discussion regarding
the special committee and board of directors analysis of the merger on page
under the heading "Reasons for the Merger."
The board of directors and the special committee considered a number of
factors in determining that the merger is fair, including an opinion delivered
to them by Greene Holcomb, that the merger is fair, from a financial point of
view, to the unaffiliated shareholders, which opinion was adopted by the
special committee and board of directors. Please see the more detailed
discussion of Greene Holcomb's analysis of the merger beginning on page
under the heading "Opinion of Financial Advisor." In addition, Greene Holcomb's
opinion is attached to this Proxy Statement as Appendix B.
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
14
<PAGE>
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.
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 was 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. The board of directors at this time believed that
because of our balance sheet weakness, Greene Holcomb should concentrate its
efforts to seek an acquiror for Sparta. However, the board also advised Greene
Holcomb and Joel Bachul to listen to any offers from companies who might be
interested in entering into a distribution agreement with us or making an
investment in us. 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 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 five of these parties to explore
possible strategic alternatives. Mr. Bachul personally met with two of these
companies who were large food companies to discuss a strategic relationship,
but was advised by both of these companies that we
15
<PAGE>
were too small. None of these discussions resulted in a purchase offer, or an
offer to enter into a strategic partnership although two of these parties asked
to remain in contact with Sparta.
One of these parties was Harvest States, a predecessor of Cenex Harvest
States Cooperatives ("Cenex"). Joel Bachul had been a long-time acquaintance of
Thomas Baker, who was at that time the Vice President of Finance of Harvest
States. (Mr. Baker retired from Cenex in May 1998 and was appointed to Sparta's
board of directors in February of 1999.) In the summer of 1997, Mr. Baker
advised Mr. Bachul that Harvest States was in the process of organizing
consumer food groups: an oil products group and a grain products group. Mr.
Baker said Harvest States was considering Sparta as a strategic fit with its
grain products group. On August 19, 1997, Harvest States advised us that it
might be interested in acquiring us. Because of the failure of any other party
to consider the acquisition of Sparta or an investment in Sparta, our board of
directors authorized management to begin discussions with Harvest States.
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.
After the closing of the stock purchase agreement on February 24, 1998,
there were no further discussions with Cenex regarding our acquisition until
May 1999 when 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
16
<PAGE>
acquisition. During this period, Greene Holcomb and Joel Bachul had several
discussions with the same parties who had previously expressed some interest in
discussing a strategic relationship with Sparta. Again, the discussions never
evolved into negotiations.
Later in May 1999, Keith Warner and Greg Loeschke of Cenex met with Craig
Cram of Sparta for a tour of the New Brighton manufacturing facilities. During
this tour, Messrs. Warner and Loeschke were provided with various technical
information related to the production capabilities of the New Brighton plant,
including personnel requirements, capacity information such as tortilla
production per hour capability, production cost information, equipment
breakdown frequency statistics and other information related specifically to
our manufacturing process.
On August 20, 1999, Joel Bachul met with James Tibbetts and Greg Loeschke of
Cenex to discuss generally the merger process. Mr. Bachul was advised that
Cenex would complete its due diligence investigation and then make a formal
cash offer, after which the merger agreement would be negotiated. Cenex also
told us that Lingate & Associates would be assisting Cenex in conducting its
due diligence review of Sparta. There was no discussion of price at this time.
Mr. Bachul informed Messrs. Tibbetts and Loeschke that Sparta was nearing
completion of an acquisition of another tortilla manufacturer in another
market, Food Products Corporation, but did not disclose the identify of the
manufacturer to Cenex at that time. On September 28th, we issued a press
release announcing the acquisition of Food Products Corporation.
Following our announcement of our acquisition of Food Products Corporation,
and into early November 1999, Joel Bachul and James Tibbetts continued their
discussions which related primarily to how fast Sparta could increase revenues,
what the acquisition of Food Products Corporation would mean to Sparta's future
and how fast the tortilla industry would grow. In the first part of November,
Mr. Tibbetts informed Mr. Bachul that the Cenex board of directors was meeting
for the purpose of authorizing Cenex to submit a letter to Sparta evidencing
its interest in acquiring Sparta. A previously-formed special committee of
Sparta's 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.
On or about November 9, 1999, Cenex advised us that its board of directors
had authorized management to proceed with the acquisition of Sparta, and
requested of Sparta that it provide Cenex the exclusive right, for a limited
period of time, to negotiate a mutually acceptable merger agreement with us.
Cenex's legal counsel, Dorsey & Whitney, LLP, contacted Greene Holcomb and
advised Greene Holcomb that Cenex wished to enter into an agreement with us for
a exclusive negotiating period, before it proceeded to negotiate the terms of
the merger. Cenex provided a draft of such agreement on November 11, 1999,
which was reviewed by our legal counsel. An agreement providing for an
exclusive negotiating period through December 31, 1999 was entered into on
November 11, and Sparta issued a press release announcing the exclusivity
agreement on November 12.
On November 15, 1999, Joel Bachul and Merrill Ayers, with representatives of
Greene Holcomb, met with James Tibbetts, Pat Kluempke, Jodi Heller and Greg
Loeschke of Cenex to discuss the process for negotiating pricing of the merger
and a possible timeline for the acquisition. Mr. Bachul provided the Cenex
representatives with an update regarding Sparta's operating results which
included preliminary results of Sparta's September 30, 1999 year end. On
November 17, 1999, representatives of Cenex and representatives of Lingate and
Associates met with Merrill Ayers and representatives of Greene Holcomb at
Sparta as part of Cenex's due diligence review of our sales process. Lingate
and Associates had been retained by Cenex to assist Cenex in facilitating the
merger negotiations, conducting a due diligence review of Sparta and assisting
Cenex in analyzing the various aspects of the merger. At this meeting, Mr.
Ayers provided Cenex and its representatives with copies of Sparta's three-year
revenue projections, fiscal 2000 bonus plan for sales representatives and
distribution agreements with Sparta's major customers. On November 18, 1999,
Greg Loeschke toured Sparta's recently acquired Food Products Corporation's
facility in Phoenix, Arizona, and met with Ken Charbonneau and Mike DePintos,
our two senior managers at the Phoenix facility, to discuss the manufacturing
capacity of their facility and to review Food Products Corporation's fiscal
2000 business plan.
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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 met to discuss what
members of Sparta's management team would be offered employment contracts, how
Sparta's management incentive compensation plan would be integrated with the
Cenex compensation plan and other general compensation issues.
On November 30, 1999, Lingate and Associates met with Greene Holcomb to
continue discussions which were related primarily to pricing. Lingate and
Associates conveyed to Greene Holcomb that Cenex was originally considering an
offer for Sparta that might be slightly more than $1.00 per share and would
have great difficulty in offering more than $1.25 per share. Greene Holcomb
argued that because the acquisition of Sparta would allow Cenex to enter into a
branded food industry market with experienced management in place and that with
the acquisition of Food Products it would produce strong financial results in
fiscal 2000, the offer of $1.25 was unacceptable. During the afternoon of
November 30, there were numerous telephone conferences between Greene Holcomb
and Lingate and Associates and James Tibbetts and Joel Bachul regarding
pricing. In its argument for a greater price, Greene Holcomb continued to
emphasize the importance of Sparta to Cenex's development of a new grain-based
consumer goods division and Sparta's projected strong revenue growth in fiscal
2000. Greene Holcomb reiterated our position that the special committee would
not accept an offer of $1.25 per share.
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. Although Greene Holcomb
advised the special committee that it would be able to provide the special
committee with an opinion that the offer of $1.41 per share was fair, from a
financial point of view, the special committee believed that Cenex should pay
more than $1.41 per share primarily because of Sparta's importance to Cenex's
plans to build a consumer products company. Based on these deliberations, the
special committee authorized management to continue negotiations to seek a
greater price per share.
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. Mr. Tibbetts advised Greene
Holcomb that $1.41 per share was a significant increase from its initial offer
of slightly more than $1.00 per share and represented a figure already in
excess of what Cenex believed Sparta's inherent value to be. 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. The special committee was advised by Greene Holcomb and Joel Bachul that
they did not believe that Cenex would increase its offer. All of the special
committee members determined that the Cenex merger at $1.41 per share was fair
and in the best interests of our shareholders. 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 unaffiliated shareholders; and (ii) to the execution of a definitive
agreement. The special committee and board of directors authorized management
and Fredrikson & Byron to commence negotiation of the terms of a definitive
merger agreement.
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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. Members of
senior management informed the special committee and board of directors that
Cenex had substantially completed its due diligence review of Sparta and that
Greene Holcomb was unable to convince Cenex to raise its price above $1.41 per
share. Greene Holcomb delivered each member of the special committee a written
report analyzing the merger transaction and containing a copy of Greene
Holcomb's proposed fairness opinion. Greene Holcomb discussed the background of
the transaction, including its unsuccessful efforts in identifying strategic
alternatives for the company and the due diligence process that Cenex has
undergone. Greene Holcomb then discussed the various forms of analysis it
undertook in analyzing the merger; including a discounted cash flow analysis,
premium analysis, comparable acquisition analysis and comparable public company
analysis. In addition, Greene Holcomb discussed the market information related
to Sparta common stock. Greene Holcomb presented price/volume charts showing
the per share price and trading volume of our common stock and an analysis of
trading at various prices prior to our announcement on November 12 of our
agreement to negotiate an acquisition proposal with Cenex. Member of the
special committee and board of directors asked representatives of Greene
Holcomb various questions regarding Greene Holcomb's analysis. A complete
summary of Greene Holcomb's report is provided herein beginning on page 26
under the heading "Opinion of Financial Advisor." Following a question and
answer period, 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. The board of
directors and special committee directed management to continue to negotiate
certain terms of the merger agreement, other than price, including: (i) the
termination provisions and termination fee; (ii) the non-solicitation terms;
(iii) our right to accelerate the vesting requirements of options issued under
our stock option plan; (iv) representations and warranties; and (v) the
covenants. 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 unaffiliated 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
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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.
Reasons for the Merger
In arriving at the determination that the merger is fair to and in the best
interests of our shareholders, including shareholders not affiliated with
Sparta, the board of directors and the special committee considered a number of
factors, including, without limitation, the following:
. 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)
and a 7% premium over the closing price per share on December 30, 1999
(the last day of trading prior to our announcement of the signing of the
definitive agreement). 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, which we have failed to do in the past, the
stock market will satisfactorily recognize our performance.
. A determination was made by each member of the special committee and each
member of the board of directors that the per share price of $1.41 was
fair to the unaffiliated shareholders, from a financial point of view,
based in part on the presentation made by Greene Holcomb (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, which was adopted by the special committee and
board of directors.
. We operate as a small niche producer in an industry dominated by large,
vertically integrated food product companies and other small regional
producers, as such, our growth has been and will continue to be
negatively impacted by pricing pressures and our ability to achieve
product brand name recognition. Large vertically integrated food
producers have a competitive advantage due to their large advertising
budgets. In addition, we cannot compete effectively with other regional
producers who can deliver their products within their geographic region
at a lower cost than us.
. Because of our relatively small revenue base and balance sheet, our
ability to obtain supply contracts with larger customers has been
severely limited because those types of customers require the security of
dealing with larger and better financed suppliers. Currently we have only
two customers who would qualify as a large food distributor.
. 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.
. 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. In
1999 we entered into a joint venture with a distributor to distribute our
new Bandito's product, which venture has failed to produce the economic
benefits we had anticipated. Since 1996, we had sought to enter into
strategic partnerships, but the few potential partners who indicated any
interest in discussing such a partnership with us considered us too
small. We reviewed several
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acquisitions of other companies and completed the acquisition of Food
Products Corporation in October 1999. This acquisition, which was
consummated using bank financing, has effectively reduced our ability to
grow our business through additional cash acquisitions. We cannot use our
stock as consideration in acquisitions either since our shares have a
limited trading volume and no analyst coverage. As a result, our
acquisition of Food Products Corporation did not significantly alter our
need to seek an acquiror, and our board of directors directed us to
continue our search. In summary, 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.
. 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. The special committee and board of directors did
not consider any negative consequence to the merger. The only potential
negative consequence to the merger was the price paid per share. However, this
potential consequence was eliminated when the special committee and board of
directors were able to obtain $1.41 per share, which they concluded to be
fair, from a financial point of view, to the unaffiliated shareholders. 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 and the board of directors took note
of the fact that the book value per share of Sparta stock was approximately
$0.88 and the liquidation value was substantially less than the book value per
share, but did not give either factor consideration in its determination of
fairness. 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. The Special Committee and board of directors placed some
consideration on the fact that our common stock traded at a price greater than
$1.41 approximately 18 times from July 20, 1998 to the date we announced our
exclusive agreement with Cenex on November 12, 1999. The Special Committee and
board of directors considered this fact to support, in part, its rationale in
trying to obtain a higher price per share from Cenex.
The special committee and board of directors believes that it followed a
process that was fair to the unaffiliated shareholders, and a process that
would maximize shareholder value. The merger was investigated and reviewed by
a special committee authorized by law to represent the unaffiliated
shareholders. The special committee received the outside assistance of a
competent financial advisor, who provided the special committee and board of
directors an opinion that the merger is fair, from a financial point of view,
to our unaffiliated shareholders. The special committee unanimously approved
the merger. Although, the merger was not structured so that approval of at
least a majority of unaffiliated security holders is required to approve the
merger, the special committee and board of directors believe that Cenex's
right to vote its less than 1% of the outstanding shares it owns in favor of
the merger does not effect the fairness of the transaction to unaffiliated
shareholders.
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, including shareholders not
affiliated with Sparta and unanimously recommends that you
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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, including shareholders not affiliated with Sparta
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.
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, including negotiations in
connection with Harvest States Cooperative 1998 purchase of preferred stock.
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. Sparta's agreement to indemnify Greene Holcomb
against liabilities under the federal securities laws may be unenforceable as
against public policy. See "Fees Payable to Greene Holcomb" below.
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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:
. reviewed the historical stock prices and trading volumes of Sparta common
stock;
. compared certain financial and securities data of Sparta with such data
of selected companies whose securities are traded in public markets;
. reviewed prices and premiums paid in certain other selected business
combinations; and
. 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 the
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:
. Universal Foods Corp;
. Ralcorp Holdings, Inc.;
. J.M. Smucker Co.;
. Lance, Inc.;
. John B. Sanfilippo & Sons;
. J&J Snack Foods Corp.;
. Hain Food Group, Inc.;
. Tasty Baking Co.;
. Bridgford Foods Corp.;
. Golden Enterprises; and
. 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:
. 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;
. 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;
. 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
. 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.
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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:
. $0.57-$1.04, based on last twelve months revenues;
. <$0-<$0, based on last twelve months operating income;
. $1.01-$1.18, based on estimated calendar 2000 earnings per share; and
. $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:
. 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;
. 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;
. 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
. 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:
. $0.60-$0.84, based on last twelve months revenues as of September 30,
1999;
. <$0-$0.07, based on last twelve months operating income as of September
30, 1999;
. $0.40-$0.46, based on last twelve months net income as of September 30,
1999; and
. $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. Greene Holcomb examined premiums paid for publicly traded
companies acquired between January 1, 1998 and December 14, 1999 in which the
purchase price was $50.0 million or less. Such analysis produced a wide range
of premiums. Greene Holcomb and the special committee and board of directors
did not give any consideration to the wide range of
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premiums but focused on the median and mean multiples and compared the premium
our shareholder would receive in the merger to such mean and median results.
Based on this analysis, Greene Holcomb developed the following ranges of
premiums paid percentages:
. (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;
. (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
. (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. To conduct its Transaction
Analysis, Greene Holcomb examined comparable merger and acquisition
transactions involving food related transactions completed during the last two
years, and to prepare its Analysis of Certain Publicly Traded Companies, Greene
Holcomb identified public companies with revenues of less than $1.0 billion
that operate in the bread and bakery, cookies and crackers, potato chips and
similar snacks and food preparation business. Greene Holcomb selected 21
comparable companies from this group based upon their food operations similar
in size and scope to Sparta's. 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:
. $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%.
Greene Holcomb selected the discount rates ranging from 18% to 22% based
upon the industry average of 13% to 22% and the aggressive projected growth we
anticipated for the company compared to our historical growth rate.
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
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<PAGE>
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
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,
including unaffiliated shareholders, other than Cenex. Cenex and Merger Sub
base this belief on the following material factors:
. The factors cited by the board of directors in determining that the
merger is fair to the Sparta shareholders, which were adopted by Cenex.
. The $1.41 per share purchase price resulted from what we believe to be
arm's length negotiations between Sparta's board of directors, acting
through independent financial and legal advisors. While the parties
attempted to structure the negotiations as arm's length, there is no
assurance that the negotiations were at arm's length. The Cenex designee
on the Sparta board of directors did not participate in the board of
directors' deliberations.
. The receipt of the opinion of Greene Holcomb that the merger was fair
from a financial point of view.
. 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.
. 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.
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<PAGE>
. 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.
. 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. Hence, the $1.41 per share
price exceeds the values of the Sparta common stock contemporaneous with
Cenex's prior purchases.
. While the $1.41 per price share is less than the $1.50 closing price of
Sparta common stock on March 24, 1999 (the last day that the Sparta
common stock closing price exceeded the $1.41 per price share prior to
November 12, 1999, the date that Sparta announced Cenex's interest in
acquiring Sparta), Sparta's financial results of the past two years have
resulted in the overall decline in trading prices. Sparta's net income
was a loss of $0.01 per share for the year ended September 30, 1999,
compared to a $0.09 gain in the prior year. The $1.41 per share price
exceeds the trading prices since March 24, 1999. Hence, the $1.41 per
share price exceeds recent trading prices for the stock.
. The $1.41 per price share far exceeded the price Cenex initially offered.
Hence, the $1.41 per share price was approximately 40% higher than what
Cenex was originally willing to offer.
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. Generally, the net book value is not a good indicator
of value for a business, as a going concern, such as Sparta, because it does
not address the value of market, management structure and other factors.
Further, Sparta's going concern value and liquidation value would be even less
than book value. The $1.41 per price share exceeds Sparta's net book value of
approximately $0.95 per share as of September 30, 1999. Accordingly, these
factors were not considered in determining the fairness of the merger.
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
the merger is procedurally fair to Sparta shareholders. Cenex and Merger Sub
base this belief on the following factors:
. The merger was negotiated on what we believe to be 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. While the
parties attempted to structure the negotiations as arm's length, there is
no assurance that the negotiations were at arm's length.
. 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.
. 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
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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. Notwithstanding
the different interests of our shareholders and certain members of our
management, our directors have fiduciary duties of loyalty and care which
require them to act in the best interests of our shareholders. 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:
<TABLE>
<CAPTION>
Cash
Officer/Director Payment
---------------- --------
<S> <C>
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
========
</TABLE>
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
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<PAGE>
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
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.
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.
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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:
<TABLE>
<CAPTION>
Options Exercise
Date Name Issued Price
---- ---------------- ------- --------
<S> <C> <C> <C>
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
</TABLE>
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
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
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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 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 matters described herein. You are encouraged to consult your own
tax advisor on how the tax consequences of the proposed merger apply
specifically to you.
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<PAGE>
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 material provisions of Sections 302A.471 and
302A.473 of the MBCA 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 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.
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<PAGE>
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.
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.
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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 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.
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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:
. Merger Sub will be merged with and into Sparta, with Sparta being the
Surviving Corporation after the merger;
. 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
. 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."
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
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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 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:
. capitalization;
. due organization, valid existence and good standing;
. the authorization, execution, delivery and enforceability of the merger
agreement;
. the absence of any conflicts under Sparta's Articles of Incorporation
and Bylaws, any applicable law or any material contract of Sparta;
. subsidiaries and other interests;
. financial statements;
. tax matters;
. title to properties;
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. inventories;
. accounts receivable;
. leases;
. facilities and equipment;
. insurance;
. employment and benefit matters;
. material contracts;
. officers and directors;
. corporate documents;
. claims and litigation;
. compliance with instruments, orders and legal requirements;
. permits;
. intellectual property;
. capital expenditures;
. environmental matters;
. illegal payments;
. the adequacy of filings with the SEC;
. the board of directors' approval of the merger agreement and the
transactions associated with it and the receipt of an opinion of Greene
Holcomb;
. the accuracy of the representations and warranties in this proxy
statement; and
. employment agreements.
The merger agreement contains various representations and warranties made by
Cenex, including representations and warranties relating to:
. due organization, power, authority and good standing of Cenex and Merger
Sub;
. the authorization, execution, delivery and enforceability of the merger
agreement by Cenex and Merger Sub;
. the absence of claims, actions and other proceedings; and
. 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:
. 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;
. amend our Articles of Incorporation or Bylaws or comparable governing
instruments;
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. make any changes in its accounting methods, principles or practices,
except as required by generally accepted accounting principles;
. sell, consume or otherwise dispose of any property, except in the
ordinary course of business consistent with past practices;
. 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;
. declare any dividend on, make any distribution with respect to, or
redeem or repurchase, our capital stock;
. 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;
. 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;
. enter into a contract requiring our commitment of in excess of $50,000;
. agree to take any of the actions described above; or
. 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:
. solicit, initiate or encourage the submission of any Acquisition
Proposal or any inquiries with respect thereto;
. enter into any agreement for or relating to a Third-Party Transaction
(as defined in the merger agreement); or
. 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:
. merger, consolidation or similar transaction involving Sparta;
. 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;
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. 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;
. 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;
. recapitalization, restructuring, liquidation, dissolution or other
similar type of transaction with respect to Sparta or any of its
subsidiaries; or
. 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:
. 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;
. 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;
. 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
. 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:
. 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;
. 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;
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. 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;
. the performance of and compliance with the covenants contained in the
merger agreement;
. dissenting shares shall constitute not more than five percent (5%) of
the shares of common stock outstanding immediately prior to the
Effective Time;
. all consents, approvals and licenses of any governmental authority or
any third party required shall have been obtained;
. the receipt of an opinion from Fredrikson & Byron, P.A., counsel to
Sparta;
. from the date of the merger agreement until the closing date, certain
events shall not have occurred without the consent of Cenex;
. Sparta's key employees shall have indicated to Cenex their intention to
continue their employment with Sparta on their current terms;
. 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;
. the agreements with Messrs. Bachul, Ayers and Cram are in full force and
effect;
. 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;
. 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
. 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.
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:
. 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;
. the merger is not approved by the Sparta shareholders at the special
meeting; or
. 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.
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Sparta. The merger agreement provides that we may terminate the merger
agreement and abandon the merger if:
. 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
. 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:
. 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 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
. 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:
. 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
. 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:
. Sparta terminates the merger agreement pursuant to Superior Proposal; or
. 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
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. (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
. any person other than an affiliate of Cenex commences a tender offer for
15% or more of Sparta's outstanding shares.
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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:
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Shareholder Beneficially Owned(1) of Class(2)
------------------------------- --------------------- -----------
<S> <C> <C>
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
</TABLE>
- --------
(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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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:
<TABLE>
<CAPTION>
Name and Address of Shareholder or Identity Number of Shares Percent
of Group Beneficially Owned(1) of Class(2)
------------------------------------------- --------------------- -----------
<S> <C> <C>
Larry P. Arnold............................. 379,000(3) 3.7%
3376 Breconwood Circle
Wayzata, MN 55391
Joel P. Bachul.............................. 365,250(4) 3.5%
1565 First Ave. N.W.
New Brighton, MN 55112
Michael J. Kozlak........................... 273,000(5) 2.6%
5049 Green Farms Road
Edina, MN 55436
A. Merrill Ayers............................ 189,125(6) 1.8%
1565 First Ave. N.W.
New Brighton, MN 55112
Thomas C. House............................. 90,900(7) *
1483 Arden Oak Drive
Arden Hills, MN 55112
Edward K. Jorgensen......................... 61,000(3) *
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%
</TABLE>
- --------
* 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.
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(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.
46
<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.
<TABLE>
<CAPTION>
Common Stock
----------------
Fiscal Quarter Ended High Bid Low Bid
- -------------------- -------- -------
<S> <C> <C>
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
</TABLE>
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.
47
<PAGE>
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>
48
<PAGE>
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.
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
Administrative Expenses......... 8,174 9,424 11,038 13,150 15,800
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
</TABLE>
- --------
(1) Projections include the recently acquired Arizona Brands.
Revenues were projected at a growth rate of 51% for Sparta's existing and
new business during the period and 20% for Food Products Corp.'s growth during
the same period. Both assumptions reflect historical and expected future growth
patterns. Gross margin assumptions reflect continued improvement due to better
plant efficiencies as revenue growth generates better utilization of
manufacturing capacities. Within Selling, General and Administrative Expenses,
Sales expenses increase at the same percentage of sales, and Administrative
Expenses are level (no increase). The tax rate is assumed at 35%, the
approximate current corporate rate. Net income is the result of all the above
factors.
49
<PAGE>
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
====== ====== ====== ====== ======
</TABLE>
- --------
(1) Projections include the recently acquired Arizona Brands.
(2) Assumes that outstanding Preferred Stock is converted to Common Stock.
The balance sheet assumptions utilize the projected income figures to
project expected future levels based on current and historical trends of
accounts receivable, inventory, accounts payable, and prepaid expenses. Capital
expenditures, depreciation and amortization assumptions appear at the bottom of
the income statement projections.
50
<PAGE>
CENEX OFFICERS AND DIRECTORS
Board of Directors
The following table below lists the directors of Cenex as of January 17,
2000.
<TABLE>
<CAPTION>
Director Name and Address Age District Since
------------------------- --- -------- -----
<S> <C> <C> <C>
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
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
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Director Name and Address Age District Since
------------------------- --- -------- -----
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Noel K. Estenson................. 60 Chief Executive Officer
John D. Johnson.................. 51 President and General Manager
Executive Vice President--Grain & Agri
Michael H. Bergeland............. 55 Services
James D. Tibbetts................ 49 Executive Vice President--Consumer Products
Executive Vice President--Energy & Crop
Leon E. Westbrock................ 52 Inputs
</TABLE>
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
52
<PAGE>
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.
Sparta Securities and Exchange Commission Filings (File No. 00019318)
<TABLE>
<CAPTION>
Form of Report Period
-------------- ------
<S> <C>
Report on Form 10-KSB Year ended September 30, 1999
Current Report on Form 8-K and related form Dated October 13, 1999, amended
8-K/A December 20, 1999
Transaction Statement on Schedule 13E-3 Filed January 21, 2000
</TABLE>
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.
53
<PAGE>
Appendix A
AGREEMENT OF MERGER
DATED DECEMBER 31, 1999
AMONG
CENEX HARVEST STATES COOPERATIVES,
SF ACQUISITION CORP.
AND
SPARTA FOODS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 1--The Merger.................................................... A-1
1.1 Closing......................................................... A-1
1.2 Effective Date of Merger........................................ A-1
1.3 Effects of Merger............................................... A-1
Section 2--Representations and Warranties of the Company................. A-1
2.1 Capital Stock................................................... A-1
2.2 Organization; Good Standing..................................... A-2
2.3 Authority; Enforceability....................................... A-2
2.4 No Violation.................................................... A-2
2.5 Subsidiaries, Other Interests................................... A-3
2.6 Financial Statements............................................ A-3
2.7 Taxes........................................................... A-4
2.8 Title to Properties............................................. A-5
2.9 Inventories..................................................... A-5
2.10 Accounts Receivable............................................. A-5
2.11 Leases.......................................................... A-5
2.12 Facilities, Equipment........................................... A-6
2.13 Insurance....................................................... A-6
2.14 Employment and Benefit Matters.................................. A-6
2.15 Contracts....................................................... A-8
2.16 Officers and Directors.......................................... A-8
2.17 Corporate Documents............................................. A-8
2.18 Legal Proceedings............................................... A-8
2.19 Compliance with Instruments, Orders and Legal Requirements...... A-8
2.20 Permits......................................................... A-8
2.21 Intellectual Property........................................... A-8
2.22 Capital Expenditures............................................ A-9
2.23 Environmental Matters........................................... A-9
2.24 Illegal Payments................................................ A-9
2.25 SEC Information................................................. A-9
2.26 Board of Directors Approval; Fairness Opinion................... A-9
2.27 Representations................................................. A-10
2.28 Employment Arrangements......................................... A-10
Section 3--Representations and Warranties of Buyer....................... A-10
3.1 Organization, Standing of Buyer and Buyer Subsidiary............ A-10
3.2 Authority; Enforceability....................................... A-10
3.3 Litigation...................................................... A-10
3.4 Financing....................................................... A-11
Section 4--Conditions to Obligations of Buyer and Buyer Subsidiary at
Closing................................................................. A-11
4.1 Representations and Warranties.................................. A-11
4.2 Proxy Statement................................................. A-11
4.3 Closing Certificate............................................. A-11
4.4 Performance..................................................... A-11
4.5 Stockholder Approval, Dissenting Notices........................ A-11
4.6 Third-Party Action.............................................. A-11
4.7 Opinion of Counsel.............................................. A-11
4.8 Transactional Litigation........................................ A-11
4.9 Interim Events.................................................. A-11
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
4.10 Management Changes, Employees.................................. A-12
4.11 Warrants....................................................... A-12
4.12 Employment and Noncompetition Agreements....................... A-12
4.13 Transaction Expenses........................................... A-12
4.14 Corporate and Other Proceedings................................ A-12
4.15 Material Adverse Change........................................ A-12
Section 5--Conditions to Company's Obligations at Closing............... A-12
5.1 Representations and Warranties................................. A-12
5.2 Closing Certificate............................................ A-12
5.3 Performance.................................................... A-12
5.4 Stockholder Approval........................................... A-12
5.5 Transactional Litigation....................................... A-12
5.6 Corporate and Other Proceedings................................ A-12
Section 6--Covenants of Company, Subsidiary and Buyer................... A-13
6.1 Non-Disclosure................................................. A-13
6.2 Nonsurvival of Representations and Warranties.................. A-13
6.3 Termination of this Agreement; Termination Fees................ A-13
6.4 Best Efforts, No Inconsistent Action........................... A-14
6.5 Access......................................................... A-14
6.6 No Solicitation or Negotiation................................. A-14
6.7 Interim Financial Information.................................. A-16
6.8 Interim Conduct of Business.................................... A-16
6.9 Section 338 Election; Tax Status............................... A-16
6.10 Option to Purchase............................................. A-16
6.11 SEC Reports.................................................... A-19
6.12 Stock Option Plan; Benefits.................................... A-19
6.13 Notice of Certain Events....................................... A-19
6.14 Takeover Statutes.............................................. A-20
6.15 Pay-Off........................................................ A-20
6.16 Update......................................................... A-20
6.17 Directors and Officers......................................... A-20
Section 7--Miscellaneous................................................ A-20
7.1 No Brokers, Finders............................................ A-20
7.2 Expenses....................................................... A-21
Complete Agreement; Waiver and Modification; No Third Party
7.3 Beneficiaries.................................................. A-21
7.4 Notices........................................................ A-21
7.5 Law Governing.................................................. A-22
7.6 Headings; References;.......................................... A-22
7.7 Successors and Assigns......................................... A-22
7.8 Counterparts, Separate Signature Pages......................... A-22
7.9 Severability................................................... A-22
Section 8--Glossary..................................................... A-23
Signatures.............................................................. A-27
</TABLE>
Exhibits
Exhibit A--Plan of Merger
Exhibit B--Opinion of Company's Counsel
Schedules
A-ii
<PAGE>
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:
<TABLE>
<CAPTION>
Shares Shares
Designation of Class Authorized Outstanding
-------------------- ---------- -----------
<S> <C> <C>
Common Stock, par value $.01 per share................ 15,000,000 10,278,916
Preferred Stock....................................... 2,500 2,500
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:
<CAPTION>
Shares
Class of Subject to
Designation of Stock Right Stock Stock Right
-------------------------- ---------- -----------
<S> <C> <C>
Options............................................... Common 80,000
Warrants.............................................. Common 1,135,580
</TABLE>
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
A-1
<PAGE>
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 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.
A-2
<PAGE>
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, 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.
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(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.
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
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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
(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.
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.
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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
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
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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.
(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.
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(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;
(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
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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 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
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
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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
(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.
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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 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.
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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.
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.
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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 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.
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(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, 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.
6.5 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 6.5 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.
(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
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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
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.
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(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);
(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
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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 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.
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(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 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
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Option, the Company may, in its sole 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 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;
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(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
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
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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
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
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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
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
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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.
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.
Disclosable Contract--Section 2.15.
Disclosable Leases--Section 2.11.
Effective Time--Section 1.2.
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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).
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).
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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.
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.
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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
/s/ James D. Tibbetts
By: _________________________________
Name: James D. Tibbetts
Title: Executive Vice President
SF ACQUISITION CORP.
/s/ James D. Tibbetts
By: _________________________________
Name: James D. Tibbetts
Title: Executive Vice President
SPARTA FOODS, INC.
/s/ Joel P. Bachul
By: _________________________________
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
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.
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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) 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.
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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
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.
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.
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.
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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.
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.
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.
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(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
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.
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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 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,
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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 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.
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