U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report under Section 13 or 15 (d) of the
---------------------------
Securities Exchange Act of 1934.
---------
For the quarterly period ended March 31, 1996.
Transition Report under Section 13 or 15 (d) of the
Exchange Act.
For the transition period from to .
Commission File Number 000-19318
SPARTA FOODS, INC.
(exact name of small business issuer as specified in its charter)
Minnesota 41-1618240
(state or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2570 Kasota Avenue, St. Paul, MN 55108
(Address of principal executive offices)
(612) 646-1888
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date:
6,662,799 shares of Common Stock at May 3, 1996
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPARTA FOODS, INC.
Condensed Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1996
ASSETS
<S> <C>
Current Assets
Cash $ 27,114
Accounts receivable, less allowance of $39,544 701,755
Inventories:
Finished goods 327,487
Raw materials and packaging 544,803
Prepaid expenses 78,227
Total currents assets 1,679,386
Property and Equipment 5,882,965
Less accumulated depreciation 1,946,684
__________
3,936,281
Other Assets
Goodwill, less accumulated amortization of $91,287 468,603
Covenants not-to-compete, less accumulated amortization
of $211,300 122,200
Property held for resale, less accumulated depreciation of $3,996 936,004
Other 235,700
__________
1,762,507
7,378,174
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Note payable, bank 680,870
Current maturities of long-term debt 600,603
Accounts payable 640,846
Accrued expenses 289,195
__________
Total current liabilities 2,211,514
Long-term Debt, less current maturities 2,336,509
Stockholders Equity
Preferred Stock, authorized 1,000,000 shares, no designated
par value; none issued ---
Common Stock, authorized 15,000,000 shares, $.01 par value;
issued and outstanding 6,662,799 shares 66,628
Additional paid-in capital 4,928,373
Accumulated deficit (2,164,850)
____________
2,830,151
$ 7,378,174
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
March 31 March 31
------------------------------------------------- ---------------------------
1996 1995 1996 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales $ 2,995,452 $ 2,843,315 $ 5,916,077 $ 5,636,255
Cost of sales 2,177,662 2,150,868 4,331,979 4,230,863
--------------------- --------------------- ----------------- ---------------------
Gross profit 817,790 692,447 1,584,098 1,405,392
Selling, general and administrative
expenses 757,706 979,460 1,459,020 1,726,450
--------------------- --------------------- ---------------- ---------------------
Operating income (loss) 60,084 (287,013) 125,078 (321,058)
Other income (expense), net 30,276 41,307 34,387 38,236
Interest expense (109,682) (108,818) (251,183) (229,557)
--------------------- --------------------- ----------------- ---------------------
Loss before income taxes (19,322) (354,524) (91,718) (512,379)
Provision for income tax --- --- --- ---
--------------------- --------------------- ------------------ --------------------
Net loss for the period $ (19,322) $ (354,524) $ (91,718) $ (512,379)
===================== ===================== ====================== ====================
Net loss per common share $ -- $ (.09) $ (.02) $ (.14)
===================== ===================== ====================== =====================
Weighted average number of common
shares outstanding 5,718,183 4,062,799 4,885,968 3,712,141
===================== ===================== ====================== ===================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the six months
ended
March 31
1996 1995
------------------------------- ---------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(91,718) $(512,379)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 262,437 252,226
Changes in assets and liabilities:
Accounts receivable (23,297) 76,137
Inventories 57,779 (13,659)
Prepaid expenses (40,732) (71,096)
Other assets (3,135) (45,830)
Accounts payable and accrued
expenses (630,228) (66,333)
--------- ----------
Net cash used in operating activities (468,894) (380,934)
--------- ----------
Cash Flows From Investing Activities
Purchases of property and equipment (50,457) (357,771)
--------- ----------
Net cash used in investing activities (50,457) (357,771)
--------- ----------
Cash Flows From Financing Activities
Net borrowings (payments) on line of credit (316,851) 395,369
Long-term borrowings (repayments), net (294,604) 374,845
Issuance of Common Stock (excluding stock issued
for conversion of debt), net of cost 1,157,057 (8,522)
--------- ----------
Net cash provided by financing activities 545,602 761,692
--------- ----------
Net increase in cash 26,251 22,987
Cash Balance
Beginning of period 863 4,348
-------- ----------
End of period $ 27,114 $ 27,335
======== ==========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 261,136 $ 351,945
========= ==========
Supplemental Schedule of Noncash Financing Activities
Conversion to Common Stock:
of trade account payable $20,000 $ ---
of long-term debt and trade accounts payable --- 1,137,790
Conversion to long-term debt of accounts payable --- 217,000
Debt forgiven on leased asset --- 12,861
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
March 31, 1996
(unaudited)
NOTE 1. GENERAL
The unaudited condensed consolidated balance sheet at March 31, 1996, the
condensed consolidated statements of operations for the three-month periods and
the six-month periods ended March 31, 1996 and 1995, and the condensed
consolidated statements of cash flows for the six-month periods ended March 31,
1996 and 1995, include all adjustments which in the opinion of management are
necessary in order to make the financial statements not misleading and are not
necessarily indicative of results of operations to be expected for the entire
fiscal year ending September 30, 1996.
The unaudited financial statements should be read in conjunction with the
audited financial statements for the years ended September 30, 1995 and 1994,
contained in Form 10-KSB and Form 10-KSB/A(No.1), and Management's Discussion
and Analysis of Financial Condition and Results of Operations contained herein.
NOTE 2. FINANCING AGREEMENT
The Company has a financing agreement with a bank which involves a line of
credit, term note and capital equipment note. At March 31, 1996, advances under
this agreement are secured by the Company's accounts receivable, inventories and
equipment. Maximum borrowings under the line of credit are determined by an
accounts receivable and inventory borrowing base calculation or $1,200,000,
whichever is less; such borrowings bear interest at prime plus 2 percent (10.25
percent at March 31, 1996). At March 31, 1996, $680,870 was outstanding on the
line of credit. The Company is required to maintain certain minimum net income
and net worth levels. In addition, a maximum debt to net worth ratio is
specified, dividends and capital expenditures are restricted, and compensation
and new options / warrants are also limited. Previously, the Company was in
violation of certain financial covenants of the financing agreement and obtained
a waiver of the covenant violations from the bank. The bank and the Company have
negotiated new covenants based on fiscal 1996 financial projections.
NOTE 3. SALE OF COMMON STOCK
On February 2, 1996, the Company raised $1,280,000 pursuant to a private
offering of 2,560,000 units, each unit consisting of one share of Common Stock
at $0.50 per share, and a warrant to purchase an additional share of Common
Stock at $0.75 per share. The warrants are exercisable for a three-year period.
The Company is in the process of filing a registration statement on Form S-3 to
register the resale by certain shareholders of its Common Stock.
NOTE 4. NET INCOME (LOSS) PER COMMON SHARE
Net income ( loss) per common share is calculated based on the net income
(loss) for the period and the weighted average number of common shares
outstanding during the period. Common Stock equivalents (options and warrants)
are anti-dilutive for both of the three-month and the six-month periods ended
March 31, 1996 and 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
La Canasta of Minnesota, Inc. ("La Canasta"), the Company's predecessor,
and now a wholly-owned subsidiary of the Company, began producing limited
volumes of hand stretched tortillas, corn tortillas and corn tortilla chips
shortly following its organization in 1981, primarily for sale to restaurants.
The Company was organized under the laws of the State of Minnesota in 1988,
originally under the name of "Sparta Corp." for the purposes of raising capital
for the acquisition of, or investment in, a business. In January 1991, the
Company acquired all of the outstanding capital stock of La Canasta. The
shareholders of La Canasta entered into this transaction to obtain capital for
La Canasta and to facilitate La Canasta's plans to expand its product lines,
markets and production capabilities. La Canasta began expanding its product mix
in 1990 when it acquired food processing equipment from SuperValu, Inc. in
Hopkins, Minnesota, and started producing Ken Davis barbecue sauces. This
enabled La Canasta to expand into other tomato-based products, such as Mexican
salsas and picante sauces. In January 1992, the Company continued with this
expansion by acquiring the business of Cruz Distributing, Inc., a distributor of
Cruz brand press flour tortillas to retail establishments and McDonald's
restaurants. In November 1992, the Company acquired from Chapala International,
Inc. the Chapala registered trademarks and trade names, and certain other assets
related to the sale and distribution of Mexican-style foods to wholesalers and
others for retail sale, including product formulas for salsas and customer
lists.
In October 1993, the Company acquired substantially all of the assets of
International Food Products, Inc. ("IFP") of Lakeville, Minnesota, which was
engaged in the manufacture and sale of tortillas and tortilla chips. This
acquisition provided the Company with additional manufacturing capabilities, the
established La Campana Paradiso and Mexitos brand names, and the retail and food
service distribution services of Bradley Distributing, Inc. and Sysco
Corporation, respectively.
The foregoing acquisitions were effected to improve the Company's capacity
to efficiently manufacture a broad line of Mexican-style food products and to
increase sales and market share by developing a broad-based responsive and
capable distribution network. While these acquisitions increased sales, the
Company incurred significant legal, accounting and debt-related expenses to
complete the transactions. As a result, the Company incurred a substantial loss
in fiscal 1994.
In response to this loss, the ongoing problems of integrating the Company's
acquisitions and other corporate problems, the Board of Directors adopted a
restructuring plan in October 1994. In the first quarter of fiscal 1995, the
Board of Directors hired Joel Bachul and Merrill Ayers as its new CEO and CFO,
respectively, and they were given the primary responsibility of managing the
restructuring process. The focus of management's efforts to date has been to
complete a comprehensive financial restructuring and effectuate changes in
connection with its products and its production and distribution systems
necessary to attain future profitability. In August 1995, the company relocated
its Lakeville, Minnesota tortilla and tortilla chip production operations to its
St. Paul manufacturing facility. The 45,000 squarefoot Lakeville facility
operated four production lines and employed 33 people. On February 1, 1996, the
Company leased the Lakeville facility for a period of 10 years with a purchase
option.
<PAGE>
Results of Operations
The Company's net sales increased $279,822 (5.0%) for the six months ended
March 31, 1996, as compared to the six months ended March 31, 1995. This
increase primarily resulted from expansion of the Company's existing customer
base in the retail and food service industries as well as expansion into new
territories. Net sales increased $152,137 (5.4%) for the three months ended
March 31, 1996, as compared to the three months ended March 31, 1995.
The Company has historically had higher sales in its third and fourth
fiscal quarters which end June 30 and September 30, respectively, than in its
first and second quarters. Management believes that this is a result of seasonal
consumption patterns with respect to the Company's food products, such as
consumption of higher volumes of tortilla chips, salsas, and barbecue sauces,
during the summer months. This seasonality may cause quarterly results of
operations to fluctuate.
Gross profit, as a percentage of net sales, for the six months ended March
31, 1996 was 26.8% compared to 24.9% for the same period in 1995. Gross profit,
as a percentage of net sales, for the three months ended March 31, 1996, was
27.3% compared to 24.4% for the three months ended March 31, 1995. The higher
percentage reflects increased efficiency and cost savings achieved in the
consolidation of the Company's Lakeville production facility with its St. Paul
production facility which was completed during the fourth quarter of fiscal
1995.
Selling, general and administrative expenses decreased $267,430 or 15% in
the six months ended March 31, 1996, as compared to the same period in 1995.
These expenses decreased $221,754 or 23% in the three months ended March 31,
1996, as compared to the same period in 1995. Selling, general and
administrative expenses, as a percentage of net sales, decreased 6 % to 25 % for
the six months ended March 31, 1996, as compared to the same period in 1995 and
9 % to 25 % for the three months ended March 31, 1996 as compared to the same
period in 1995. These decreases are due primarily to the absence of expenses
associated with the Company's comprehensive financial restructuring that
occurred in the first two quarters of fiscal 1995.
Interest expense increased $21,626 for the six-month period ended March 31,
1996 compared to the same period ended March 31, 1995. Interest expense
increased $864 for the three-month period ended March 31, 1996 compared to the
three months ended March 31, 1995. The six-month increase partially reflects the
effect of increased interest rates and fees from the Company's bank debt.
Expected interest expense rate reductions did not occur earlier in the year due
to the delay in raising additional capital until February 2, 1996. The smaller
increase for the three-month period reflects the effect of interest rate and
debt reductions that occurred for a portion of the period following the
completion of the private stock offering. Both the six-month and three-month
increases reflect the interest from the $400,000 bridge loan outstanding from
October 20, 1995 through February 2, 1996 which was converted into the private
stock offering.
Liquidity and Capital Resources
The Company has financed its activities to date primarily through debt,
cash generated from its operations and the issuance of Common Stock.
Cash used in operating activities during the six months ended March 31,
1996, was $468,894 consisting principally of the decrease of accounts payable
and accrued expenses of $630,228, offset by a positive operating cash flow of
$170,719 (net loss of $91,718 adjusted for non-cash depreciation and
amortization expenses of $262,437). Cash used in investing activities was
$50,457, primarily the result of capitalized costs associated with a new press
tortilla line in fiscal 1995 and the refurbishing of other production equipment.
Cash provided by financing activities was $545,602 due mainly to the issuance of
additional Common Stock for $1,157,057 offset by reductions in bank borrowings
of $611,455.
<PAGE>
The Company estimates that as of March 31, 1996, there is an additional
$205,000 which could be drawn under its bank Line of Credit. The amount
available under this Line of Credit fluctuates daily based upon the Company's
eligible accounts receivable and inventory. The Line of Credit, Bank Term Note
and Bank Capital Note are subject to various financial covenants, the violation
of which could result in termination of the loan agreements which would require
the Company to repay the loans in full. The Company has been in default of the
financial covenants in the past. The bank has waived such defaults, and the bank
and the Company have amended such covenants based on fiscal 1996 financial
projections. It is management's opinion that the Company will be able to meet
the requirements of these new covenants in the future. However, there is no
assurance that the Company will not violate the financial covenants in the
future or that the bank would waive any violations.
At March 31, 1996, the Company had cash of $27,114 and a negative working
capital of $532,128. As of May 10, 1996, none of the Company's creditors have
threatened or instituted formal legal proceedings against the Company.
On February 2, 1996, the Company raised $1,280,000 pursuant to a private
offering of 2,560,000 units, each unit consisting of one share of Common Stock
at $0.50 per share and a warrant, exercisable for three years, to purchase an
additional share of Common Stock at $0.75 per share. The Company granted to
investors in the offering one-time demand and piggy-back registration rights,
which expire on February 1, 1999. The Company is in the process of registering
the resale of shares issued pursuant to the private placement.
The Company believes that the additional capital raised, its bank credit
facilities and cash flow from operations will be sufficient to meet its
operating requirements through fiscal 1996, assuming the following: (i) the
Company's fiscal 1996 sales equal or exceed fiscal 1995 sales; (ii) there are no
significant increases in expenses in fiscal 1996; and (iii) the Company is able
to keep its bank credit facilities operative. With the Company's retail brands
dominant position in the local retail market and the strong growth in the
foodservice sector, management believes that fiscal 1996 sales will exceed 1995
sales. It also believes that the Company will significantly reduce its expenses
in fiscal 1996 with the consolidation and lease of the Lakeville facility. While
the Company believes these assumptions are reasonable, there is no assurance
that the Company will not require additional working capital to be able to
maintain its operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 22, 1996, Sparta Foods, Inc. (the "Registrant") held an annual
meeting of the shareholders, and the persons nominated by management as listed
in the Registrant's proxy statement dated January 19, 1996 (Joel P. Bachul,
Michael J. Kozlak, Edward K. Jorgensen, Richard H. Leepart and R. Dean Nelson)
were elected to the Registrant's Board of Directors in a solicitation of proxies
pursuant to Regulation 14A of the Securities Exchange Act of 1934.
The following matters were also voted upon at the annual meeting and the
number of votes cast for, against or withheld, as well as abstentions and broker
non-votes, with respect to such matters, are set forth below:
<TABLE>
<CAPTION>
Votes Cast Number Number of
Votes Cast Against or of Broker
Matter For Withheld Abstentions Non-votes
<S> <C> <C> <C> <C>
To set the number of members 2,611,322 31,116 10,644 -0-
of the Board of Directors at
seven (7)
To adopt the Sparta Foods, 1,908,036 64,708 18,951 661,387
Inc. Amended and Restated
Stock Option Plan, including
(i) an increase from 400,000 to
950,000 in the number of
shares reserved for issuance
under the Plan and (ii) the
addition of a provision for the
automatic grant of certain
options to each of the
Company's nonemployee
directors.
To approve the selection of 2,647,049 2,533 3,500 -0-
McGladrey & Pullen, LLP as the Registrant's
independent public accountants for
the year ending September 30, 1996
</TABLE>
ITEM 5. OTHER INFORMATION
During the meeting of the Board of Directors on February 22, 1996, the
Board elected Larry P. Arnold a director, bringing the size of the Company's
Board to six members. Mr. Arnold, a Twin Cities-based private investor, was a
founding partner of Wessels, Arnold & Henderson, a Minneapolis-based investment
banking and brokerage firm. He retired from the firm in 1993.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
(a) Exhibits
10.40 Distribution Agreement dated January 2, 1996 between Catalina
Specialty Foods, Inc. and the Company.
10.41 Form of Warrant issued to certain investors who purchased Units,
consisting of Common Stock and Warrants, pursuant to the Company's private
placement dated February 2, 1996.
10.42 Form of Registration Rights Agreement dated February 2, 1996 between
and among the Company and certain shareholders who purchased Units pursuant to
the Company's private placement.
10.43 Third Amendment to Credit Agreement dated April 23, 1996 by and among
Norwest Bank Minnesota, N.A., Sparta Foods, Inc., and La Canasta of Minnesota,
Inc.
27 Financial Data Schedule (filed only in electronic format)
(b) Reports on Form 8-K
A report on Form 8-K dated February 2, 1996 was filed during the quarter
ended March 31, 1996 relating to a private offering of Common Stock. See Note 3
of Notes to Condensed Consolidated Financial Statements in this Quarterly
Report.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPARTA FOODS, INC.
(Registrant)
Dated: May 13, 1996 By:/s/ Joel P. Bachul
Joel P. Bachul,
President and Chief Executive Officer
Dated: May 13, 1996 By: /s/ A. Merrill Ayers
A. Merrill Ayers
Treasurer, Secretary and
Chief Financial Officer
SPARTA FOODS, INC.
Exhibits Index
Exhibit
Number Description
10.40 Distribution Agreement dated January 2, 1996 between
Catalina Specialty Foods, Inc. and the Company.
10.41 Form of Warrant issued to certain investors who
purchased Units, consisting of Common Stock and
Warrants, pursuant to the Company's private placement
dated February 2, 1996.
10.42 Form of Registration Rights Agreement dated February
2,1996 between and among the Company and certain
shareholders who purchased Units pursuant to the
Company's private placement.
10.43 Third Amendment to Credit Agreement dated April 23,
1996 by and among Norwest Bank Minnesota, N.A.,
Sparta Foods, Inc., and La Canasta of Minnesota, Inc.
27 Financial Data Schedule (filed on in electronic format)
EXHIBIT 10.40
DISTRIBUTOR AGREEMENT
EFFECTIVE DATE: January 2, 1996
PARTIES:
Sparta Foods, Inc.
2570 Kasota Avenue
St. Paul, MN 55108
Fax No. (612) 646-0711 ("Sparta")
Catalina Specialty Foods, Inc.
2550 Kasota Avenue
St. Paul, MN 55108
Fax No. (612) 647-6855 ("Distributor")
RECITALS:
A. Distributor is a corporation whose majority shareholder is Mary
Catherine Gooch and is a minority owned business.
B. Sparta and Distributor desire to establish a relationship in which
Sparta will sell and Distributor will purchase and resell Sparta's tortilla and
tortilla chip products to certain customers agreed upon between the parties.
C. Sparta and Distributor seek to assure a thorough understanding of the
obligations assumed by each.
AGREEMENT:
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Exclusive Distributor. Subject to the terms and conditions of this
Agreement, Sparta hereby grants Distributor the exclusive right to purchase
tortillas and tortilla chips (the "Products") for resale to the customers agreed
upon between the parties as evidenced in a writing executed by officers of both
parties (the "Customers").
2. Purchase of Products.
a. Purchase of Existing Inventory. Distributor shall purchase Sparta's
inventory of Product produced for the Customers located at Sparta's facility and
at Bell Cold Storage, St. Paul which exists on the effective date of this
Agreement. Distributor shall accept delivery of such inventory of Product within
fourteen (14) days after the effective date of this Agreement. Distributor shall
pay Sparta for such inventory of Product at the prices set forth on Exhibit A on
the date of delivery of the Product. If the existing inventory exceeds 15,000
cases, Sparta agrees to negotiate different payment terms for such excess
inventory. Sparta agrees to deliver to Distributor a bill of sale for the
inventory upon receipt of the purchase price.
b. Rolling Forecasts and Product Orders. Distributor shall submit to Sparta
a written four (4) week rolling forecast of its Product needs one week before
the beginning of each four (4) week period during the term of this Agreement
(the "Forecast"). Distributor shall update the Forecast on a weekly basis.
Distributor shall submit a written purchase order for the ordered Products at
least two (2) days before the requested delivery date.
c. Cancellation of Orders/Return of Product. Distributor shall be required
to accept delivery of Product tendered for delivery by Sparta pursuant to
confirmed purchase orders. Distributor shall not cancel confirmed orders for the
Products or return any Products ordered by it without Sparta's prior written
consent.
d. Terms and Conditions. This Agreement sets forth the exclusive contract
terms between the parties and shall apply to all orders for the Products. Sparta
rejects any terms in any order forms submitted by Distributor or Sparta or other
Distributor or Sparta documents which are different from or additional to the
provisions hereof and no such terms shall be binding upon Sparta or Distributor
notwithstanding Sparta's acceptance and shipment of Products ordered in
Distributor's orders containing such terms or Distributor's acceptance of any
Products ordered or payment of any invoice which order acknowledgment or invoice
form contain such terms.
<PAGE>
3. Prices and Payment.
a. Prices. The prices for the Products payable by Distributor to Sparta are
set forth on Exhibit B attached hereto. Sparta shall have the right to increase
such prices upon delivery of forty-five (45) days written notice to Distributor
to reflect verified increases in the cost to manufacture the Products. Sparta
shall provide to Distributor written verification of its costs for production
and sale of the Product to the extent the Customers require such information as
evidenced in a written request from the Customer. Sparta agrees to reduce the
prices of the Products to the extent that it incurs savings in the production of
the Product due to volume purchases or other cost savings efforts of Distributor
or the Customers. Distributor agrees to pass on all such cost savings to the
Customers.
b. Taxes; Shipping Costs. All prices are F.O.B. Sparta's St. Paul,
Minnesota facility; therefore, Distributor shall pay any and all taxes, fees,
duties or other governmental charges and for any and all shipment and shipping
insurance costs.
c. Payment. Distributor shall make all payments in U.S. dollars at Sparta's
St. Paul, Minnesota facility by the tenth (10th) day after the date of Sparta's
invoice. Invoices shall not be issued prior to the date of delivery. If
Distributor fails to make any payment at the time required pursuant to the terms
of this Agreement or Sparta otherwise has reasonable grounds to be insecure with
regard to payment from Distributor, Sparta shall have the right to revoke or
alter the above credit terms by delivery of written notice to Distributor.
Distributor shall maintain at all times during the term of this Agreement a line
of credit with a reputable bank of not less than Sixty Thousand Dollars
($60,000).
d. Late Payment Fee/Collection Costs. Any amounts not paid by Distributor
when due will be subject to a late payment fee computed daily at a rate equal to
eighteen percent (18%) per annum or at the highest rate permitted under
applicable usury law. In addition, Distributor shall be liable to Sparta for all
costs incurred by Sparta in its collection of any amounts owing by Distributor
which are not paid when due, including reasonable attorneys' fees and expenses,
if Sparta is successful in its collection claim against Distributor.
4. Delivery, Shipment and Inspection.
a. Delivery and Shipment. Sparta shall hold the Products at its St. Paul
facility for pick up by Distributor or Distributor's agent, as specified by
Distributor. Distributor shall pick up all ordered Product within twenty four
(24) hours after Sparta notifies Distributor that such Product is ready for pick
up. Sparta shall use its commercially reasonable efforts to inform Distributor
of any changes in delivery times at least forty-eight (48) hours in advance of
the scheduled delivery date. Title to and all risk of loss regarding the
Products shall pass to Distributor upon delivery of the Products to Distributor
or its designated carrier. Sparta shall not be responsible for delays or damages
during shipment, and any carrier shall be solely the agent of Distributor.
Distributor shall be responsible for all costs for shipping and warehousing the
Products after Sparta tenders delivery of the Product to Distributor.
b. Pallets. Distributor acknowledges that the pallets used for delivery of
the Products are not owned by Distributor. Distributor and Sparta shall develop
a pallet exchange program such that Distributor shall return emptied pallets to
Sparta in a timely fashion so that Sparta maintain sufficient pallets on hand
for delivery of the Products to Distributor. Distributor agrees to use
reasonable care in securing the return of the pallets to Sparta.
c. Inspection. Distributor shall visually inspect all Products immediately
after arrival and shall notify Sparta in writing within two (2) business days
after receipt of any shortages, improper Product mix, breakage or other damage
that is visible upon delivery of the Product pallets. Any such shortages,
nonconformances with the purchase order, or other damages to the Product not
reported within such two (2) day period shall be forever waived by Distributor.
<PAGE>
d. Delivery Dates. Sparta shall use its commercially reasonably efforts to
meet all scheduled delivery dates. However, all delivery dates for the Products
are best estimates based upon prevailing conditions when given and Sparta shall
not be in breach of this Agreement or otherwise liable to Distributor if it
fails to meet any delivery dates.
e. Force Majeure. Sparta shall not be liable to Distributor for any delay
or failure of delivery or other performance caused in whole or in part by any
contingency beyond Sparta's reasonable control, including without limitation,
acts of God, acts of any government or any agency or subdivision thereof or
shortage or inability to secure labor, fuel, energy, raw materials, supplies or
machinery at reasonable prices from regular sources. Sparta shall have the right
to allocate Products between its various distributors and customers during a
period of shortages without incurring any liability whatsoever to Distributor.
Shortages of labor, raw materials, energy and supplies that are a result of
financial difficulties of Sparta are not an event of force majeure.
5. Sparta's Rights and Duties. Sparta agrees to perform the following
duties at its own expense:
a. Permits, Licenses and Quality Control Standards. Sparta shall obtain all
necessary governmental and other permits and licenses which may be required for
Sparta to manufacture and sell the Products to Distributor. Sparta shall pass
and be in compliance with all quality control standards and all inspections for
manufacturing the Products as required by governmental agencies, at Sparta's
expense. Sparta shall provide copies of all reports of such inspections,
including certifications, to Distributor upon Distributor's written request. The
Products shall have been frozen by Sparta to temperatures below 15 degrees
Fahrenheit prior to delivery to Distributor.
b. Warranties. Sparta represents and warrants to Distributor that the
Products:
i. shall meet the written specifications, if any, provided by the Customers
and disclosed by Distributor to Sparta, as amended from time to time;
ii. shall be manufactured in compliance with all applicable federal, state
and local regulations, including FDA regulations; and
iii. shall be merchantable at the time and point of delivery in accordance
with the then current FDA standards and the Hazardous Analysis Critical Control
Point ("HACCP") standards.
The exclusive remedy for breach of such warranty shall be, at Sparta's sole
option, to either (i) replace the defective Product or (ii) refund to
Distributor of the purchase price of such defective Product. No credits shall be
taken by Distributor against its Product invoices for alleged breaches of this
warranty without the prior written authorization of Sparta. EXCEPT AS EXPRESSLY
PROVIDED IN THIS LIMITED WARRANTY, SPARTA MAKES NO REPRESENTATION OR WARRANTY TO
DISTRIBUTOR OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS,
WHETHER AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, WARRANTIES
ARISING FROM COURSE OF DEALING OR USAGE OR TRADE OR ANY OTHER MATTER. ONLY AS
CORPORATE OFFICER OF SPARTA HAS THE AUTHORITY TO BIND SPARTA TO ANY AFFIRMATION,
REPRESENTATION OR WARRANTY WHICH IS DIFFERENT FROM OR IN ADDITION TO THIS
WRITTEN WARRANTY POLICY.
c. Insurance. Sparta shall maintain products liability insurance covering
the Products in a minimum amount of Two Million Dollars ($2,000,000). Sparta
shall provide Distributor with insurance certificates evidencing such insurance
coverage, which certificates shall name Distributor as an additional insured.
d. Customer Contact. Distributor agrees that Sparta shall have the right to
contact the Customers directly regarding the Products and the potential for the
Customers to purchase additional Sparta products. Sparta agrees to provide
Distributor with prior notice of any such contact.
e. Access To Financial Information. Sparta shall allow Distributor and its
accountants access to Sparta's books and records solely for the purpose of
producing any financial information required to complete Distributor's minority
certification.
<PAGE>
6. Distributor's Duties. Distributor agrees to perform the following duties
at its own expense:
a. Promotion of Products. Distributor agrees to devote its best efforts to
the active promotion and sale of the Products to the Customers. During the term
of this Agreement, Distributor shall retain and maintain the services of Mary
Catherine Gooch. Distributor shall maintain an inventory of Product equal to at
least fifteen (15) days' Product requirements of the Customers. At the time of
execution of this Agreement, such inventory levels shall be a minimum of 7,500
cases of tortillas.
b. Altering Company's Literature or Packaging. Distributor agrees not to
alter, in any way, Sparta's Products, the Product packaging or labeling or any
Product literature without the prior written consent of Sparta.
c. Handling of Products/Delivery and Loading Procedures. Distributor agrees
to maintain the Products at all times at temperatures below 15 degrees
Fahrenheit. Distributor agrees to cooperate with Sparta in establishing
convenient delivery and loading schedules and procedures. Distributor shall
obtain and maintain all necessary delivery trucks or other equipment as may be
necessary (i) to transport and store the Product at temperatures below 15
degrees Fahrenheit and (ii) to handle and store the Products in accordance with
all FDA and HACCP standards.
d. Reports. Distributor agrees to submit to Sparta by Wednesday of each
week a written report of its Product inventory, by pallet type for tortillas.
e. Customer Complaints. Distributor agrees to immediately report to Sparta
any customer complaints and, at Sparta's request, investigate and report on any
complaints concerning the Products sold to the Customers.
f. Product Warranties. Distributor shall not make any warranty or
representation as to the Products or promise any remedies or return policies
relating thereto which is different from or in addition to the warranties,
representations, remedies and return policies contained in Sparta's written
Product literature and Product packaging inserts, as amended from time to time.
g. Permits and Licenses. Distributor shall obtain all necessary
governmental and other permits and licenses which may be required for
Distributor to sell the Products to the Customers.
h. Laws and Regulations. Distributor shall conform to all applicable laws
and regulations and to the highest business ethics in performing its obligations
in accordance with the terms of this Agreement.
i. Product Recall. If Sparta, any governmental agency or other proper
authority issues a product recall of any of the Products, Distributor agrees to
fully cooperate with Sparta in obtaining the removal of all such recalled
Products from Distributor's inventory and the inventory of the Customer and in
disposing of such recalled Product as Sparta so directs. Sparta agrees to
reimburse Distributor for all direct out-of-pocket costs and expenses actually
incurred by Distributor as a result of securing the removal of and disposing of
such recalled Products.
<PAGE>
7. Exclusive Relationship/Noncompete/Rights of First Refusal.
a. Competitive Products. Except as otherwise expressly provided in this
Section 7, Distributor and its shareholders, jointly and severally, agree not to
sell, handle, promote or be involved, directly or indirectly, in the offering
for sale, promotion or manufacture of any Mexican food product which competes
with any Mexican food product sold by Sparta, including the Products. This
covenant not to compete shall be interpreted to prohibit, without limiting the
generality of the foregoing, Distributor and each of its shareholders from
serving as a shareholder, partner, director, officer, employee, agent of or
independent contractor to, any person or entity which manufactures, sells or
promotes any Mexican food product which competes with any Mexican food product
sold by Sparta.
b. Sparta's Prospective Accounts/Distributor's Right of First Refusal.
Sparta agrees to notify Distributor of any prospective account who desires to
purchase any of Sparta's Mexican food products through a minority owned
business. Sparta and Distributor agree to negotiate in good faith to establish
the terms on which Distributor would purchase such products from Sparta and
would act as Sparta's distributor for resale of such products to such
prospective account. If the parties are unable to agree on the terms of such a
distribution relationship within a period of forty five (45) days after Sparta's
delivery of written notice of such prospective account, Sparta shall be entitled
to sell directly or grant a third party the right to sell the Products to such
prospective account, but not on price and/or payment terms more favorable to
such third party than offered by Sparta to Distributor during their failed
negotiation sessions.
c. Distributor's Prospective Accounts/Sparta's Right of First Refusal.
Distributor agrees to notify Sparta of any prospective account who desires to
purchase any Mexican food product which Sparta sells or is capable of selling.
Sparta and Distributor agree to negotiate in good faith to establish the terms
on which Distributor would purchase such products from Sparta and would act as
Sparta's distributor for resale of such products to such prospective account. If
the parties are unable to agree on the terms of such a distribution relationship
within a period of forty five (45) days after Distributor's delivery of written
notice of such prospective account, Distributor shall be entitled to manufacture
and sell its own or to sell a third party's products to such prospective account
(but not on price and/or payment terms more favorable to such third party than
offered by Distributor to Sparta during their failed negotiation sessions),
without being in breach of Distributor's noncompete provisions set forth in
subsection a. above.
d. Sparta's Obligations. During the term of this Agreement, Sparta agrees
to not sell or supply the Products, directly or indirectly, to the Customers or
to the customers of Distributor for which Sparta did not successfully exercise
its right of first refusal under the provisions of Section 7.c. above.
e. Sparta's Failure to Deliver Product. If Sparta is unable to supply
and/or deliver the Products to Distributor in the quantities requested by
Distributor and submitted by Distributor in purchase orders, for whatever
reason, including events of force majeure, Distributor may purchase the same
type of product from a third party for resale to the Customers during the period
Sparta is unable to supply the Products without being in violation of the
noncompete provisions set forth in subsection a. above. Distributor shall
immediately stop purchasing such competing product upon delivery of written
notice from Sparta that Sparta is once again able to supply the Products to
Distributor.
f. Injunctive Relief/Reasonableness. Sparta and Distributor stipulate and
agree that the remedy at law for breach of the covenants contained in this
Section 7 would be inadequate and that both parties shall be entitled to
injunctive relief to enforce these provisions. Sparta and Distributor further
stipulate and agree that the prohibitions contained herein are reasonable as to
time and area, and they specifically waive any objection to the reasonableness
of said prohibitions.
8. Trademarks, Patents and Use of Name. Except as expressly provided in
this Section, Distributor acknowledges that Sparta is not by this Agreement
granting any right or license whatsoever, by implication, estoppel or otherwise,
to Distributor to utilize any information, know-how, proprietary data,
trademarks or patent rights which Sparta may have or may secure in the future
relating to any of the Products. Distributor agrees not to use Sparta's name,
any other similar name, the Cruz(R) trademark or any other trademark of Sparta,
except in letterhead or other media promoting the Products which is approved in
writing by Sparta prior to its use or dissemination. Distributor may not use
Sparta's name, the Cruz(R) trademark or any of Sparta's other trademarks in its
corporate or business name, or in any other manner which Sparta deems adverse to
its interests; provided, however, Distributor shall have the limited right to
continue to use the name "Cruz Distributing, Inc." for transition purposes with
its existing customers and suppliers for a period not longer than ninety (90)
days after the Effective Date of this Agreement.
<PAGE>
9. Confidential Information.
a. Definition. "Confidential Information" means any information or
compilation of information, not generally known, which is proprietary to the
disclosing party including, but not limited to, trade secrets, inventions,
know-how and information contained in or relating to research, development,
product designs, product recipes, manufacturing methods, processes and
techniques, other non-public product information, computer programs, source
codes, purchasing, sales techniques, marketing plans or proposals, accounting
and financial information, existing or potential customer lists and all other
customer information. Information shall be treated as Confidential Information
irrespective of its source and all information which the disclosing party
identifies as being "confidential" or "trade secret" shall be presumed to be
Confidential Information.
b. Nondisclosure. During the term of this Agreement and at all times
thereafter, the receiving party and its shareholders, directors and employees
agrees to hold in strictest confidence and to never disclose, furnish,
communicate, make accessible to any person or use in any way for the receiving
party's own or another's benefit any Confidential Information or permit the same
to be used in competition with the disclosing party. The receiving party agrees
to refrain from such acts and omissions which would reduce the value of the
Confidential Information to the disclosing party.
c. Employees. The receiving party agrees to secure from each of its
employees and shareholders given access to the Confidential Information of the
disclosing party a written confidentiality agreement in a form substantially
similar to the provisions of this Section and in a form reasonably acceptable to
the disclosing party, a copy of which agreement shall be delivered to the
disclosing party prior to any disclosure of the Confidential Information to such
employee or shareholder.
10. Independent Contractor.
a. Relationship. Distributor is and shall remain an independent contractor
and is not and shall not be deemed to be an employee, joint venturer, partner or
franchisee of Sparta for any purpose whatsoever. Accordingly, Distributor shall
be exclusively responsible for the manner in which it performs its duties under
this Agreement and for the profitability or lack thereof of its activities under
this Agreement. All financial obligations associated with Distributor's business
are the sole responsibility of Distributor. Distributor does not have, and shall
not represent itself as having, any right or authority to obligate or bind
Sparta in any manner whatsoever.
b. Employee Obligations. Distributor shall be solely responsible to its own
employees for any compensation due them and for compliance with all applicable
laws with respect to workmen's compensation, withholding taxes, unemployment
compensation, social security payments, and any other charges against
compensation imposed by any governmental authority as to Distributor's own
employees. Distributor agrees to provide proof of workmen's compensation
coverage for its employees upon the request of Sparta.
11. Indemnification.
a. By Distributor. Except to the extent of Sparta's indemnification
obligations under Section 11.b., Distributor shall indemnify and hold Sparta
harmless from any and all loss, damage, liability, cost or expense (including,
without limitation, reasonable attorneys' fees and expenses) which Sparta may
incur or suffer as a result of any claim of any kind whatsoever arising after
the Effective Date of this Agreement, out of:
i. any claim for breach of warranty based upon any warranty or
representation for the Products given or purportedly given by Distributor, its
employees, agents or representatives which is different from or in addition to
the written limited warranty set forth in Section 5.b. herein;
ii. any third party claim for personal injury or death caused by or arising
out of a defect in the Products caused by the improper storage, handling or
other act or omission of Distributor, its employees, agents or representatives;
iii. any claim by a Customer for breach of warranty based upon a defect in
the Products caused by any act or omission by Distributor, or its employees,
agents or representatives; or
<PAGE>
iv. any claim or demand arising from the employment or engagement by
Distributor of any person, company or corporation.
b. By Sparta. Except to the extent of Distributor's indemnification
obligations under Section 11.a., Sparta agrees to indemnify and hold Distributor
harmless from and against all claims, liabilities, damages, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
suffered or incurred by Distributor resulting from a third party claim for
personal injury or death caused by or arising out of the consumption of the
Products, except to the extent of Distributor's indemnification liability to
Sparta in subsection a. above.
c. Notification. The above indemnification obligations shall be effective
only if the party claiming the right to indemnification promptly notifies the
indemnifying party of such potential claim, but in no event less than twenty
(20) business days after the indemnified party's receipt of any summons and
complaint relating to such claim.
12. Term. This Agreement shall commence as of the Effective Date set forth
on the first page hereof and shall continue through December 31, 1996, (the
"Initial Term") and shall thereafter automatically renew for successive one (1)
year terms, until terminated under the provisions of Section 13 below
13. Termination. This Agreement may be terminated prior to the expiration
of its term pursuant to any of the following provisions:
a. Without Cause. Either party may terminate this Agreement at any time
with or without cause effective one hundred eighty (180) days after delivery of
written notice to the other party.
b. Breach of Agreement. Either party may terminate this Agreement by
delivery of written notice to the other party if the other party breaches any of
the terms and conditions of this Agreement; provided, however, if the breach is
curable such notice shall not be effective unless and until such breach remains
uncured for a period of thirty (30) days after delivery of such notice. If the
breach is nonpayment by Distributor of monies due to Sparta, the cure period
shall be ten (10) business days not thirty (30) days.
c. Extended Period of Nondelivery. Either party may terminate this
Agreement by delivery of written notice to the other party if an event of force
majeure prevents Sparta from delivering Products to Distributor and continues
such that Sparta is unable to deliver Product to Distributor for a period of
thirty (30) days. Distributor shall have the right to terminate this Agreement
by delivery of written notice to Sparta if Sparta is unable to deliver the
Products for whatever reason for a period of thirty (30) days or routinely fail
to meet scheduled delivery dates for the Products.
d. Change in Management/Minority Certification. Sparta may terminate this
Agreement at any time effective immediately upon delivery of written notice to
Distributor (i) if the general management, ownership, or control of the
Distributor changes in any material way without Sparta's prior written consent,
(ii) if Mary Catherine Gooch is not actively employed by Distributor or, (iii)
if Distributor is unable to secure minority business certification within four
(4) months after the effective date of this Agreement, or thereafter,
Distributor loses its minority business certification.
e. Insolvency. Either party may terminate this Agreement effective
immediately upon delivery of written notice to the other party, if the other
party (i) ceases to actively conduct its business, (ii) files a voluntary
petition for bankruptcy or has filed against it an involuntary petition for
bankruptcy, (iii) becomes unable to pay its debts as they become due, (iv) makes
a general assignment for the benefit of its creditors or (v) applies for the
appointment of a receiver or trustee for substantially all of its property or
assets or permits the appointment of any such receiver or trustee who is not
discharged within thirty (30) days of such appointment.
14. Effect of Termination. Following termination of this Agreement for any
reason, the following provisions shall apply:
a. Return of Confidential Information. Each party shall within ten (10)
days after request by the other party, return to the other party all copies of
materials and documents or copies thereof containing any Confidential
Information of the other party.
b. Payment Obligations. Distributor shall promptly pay when due any amounts
owing to Sparta on orders of the Products accepted by Sparta prior to the
effective date of termination and which have been produced or are work in
process, as of the effective date of termination. Sparta shall credit all
amounts previously invoiced for proven defective Product delivered to
Distributor which has not yet been replaced or credited.
<PAGE>
c. Repurchase of Product Inventory. Sparta shall have the option,
exercisable in its sole discretion, to repurchase from Distributor any current,
undamaged Product inventory. Sparta shall pay to Distributor the original
purchase price paid by Distributor for such Products less all taxes, shipping
and handling costs within ten (10) days after receipt of the purchased
inventory.
d. Sale of Non-purchased Inventory. Distributor shall have the right to
sell any Products in its inventory which are not repurchased by Sparta as
provided in subparagraph c. above.
e. Continuing Obligations. For a period of six (6) months after the
effective date of termination of this Agreement (unless this Agreement is
terminated by Distributor pursuant to the terms of Section 13(b), 13(c) or 13(e)
herein or by Sparta pursuant to Section 13(a)), Distributor and its
shareholders, jointly and severally, agree to not, directly or indirectly,
promote, solicit the sale of or sell to a Customer any product which competes
with any of the Products. In addition such nonsolicitation provisions shall not
apply if Sparta terminates this Agreement based upon Distributor's failure to
obtain minority certification, provided such failure is due to reasons solely
related to the historical operation of Cruz Distributing, Inc. as documented in
writing by the agency or organization engaged by Distributor to provide
certification). The obligations of the parties under Sections 8, 9, 11 and 14
herein shall survive the termination of this Agreement and shall continue in
full force and effect.
15. General Provisions.
a. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed to have been duly delivered: (i) when received if
delivered by hand or telegram; (ii) the same day if delivery by facsimile sent
no later than 4:00 pm (receiver's time) on a business day; (iii) the next
business day if sent by facsimile on a nonbusiness day or after 4:00 pm
(receiver's time) on a business day; (iv) one (1) business day after placement
with a reputable overnight carrier for next morning delivery; or (v) four (4)
business days after depositing if placed in the U.S. mails for delivery by
registered or certified mail, return receipt requested, postage prepaid and
addressed to the appropriate party at the address set forth on the first page of
this Agreement. If a party changes its address or facsimile number, it shall
notify the other party of such different address or facsimile number pursuant to
the provisions of this Section.
b. Entire Agreement. This Agreement, together with the Exhibits A and B,
constitutes the entire agreement between the parties and supersedes any and all
prior and contemporaneous oral or written understandings between the parties
relating to the subject matter hereof, including, without limitation, that
certain Distributor Agreement between Cruz Mexican Foods, Inc., La Canasta of
Minnesota, Inc. and Cruz Distributing, Inc. dated August 2, 1993 and that
certain License Agreement between Cruz Mexican Foods, Inc. and Cruz
Distributing, Inc. dated August 2, 1993.
c. Modification and Waiver. No purported amendment, modification or waiver
of any provision hereof shall be binding unless set forth in a writing signed by
both parties (in the case of amendments and modifications) or by the party to be
charged thereby (in the case of waivers). Any waiver shall be limited to the
circumstance or event specifically referenced in the written waiver document and
shall not be deemed a waiver of any other term of this Agreement or of the same
circumstance or event upon any recurrence thereof.
d. Assignment. Distributor shall not assign, transfer or sell all or any
part of its rights or obligations hereunder, by operation of law or otherwise,
without the prior written consent of Sparta. This Agreement shall be binding
upon and inure to the benefit of any successor or assignee of Sparta and of any
permitted successors and assigns of Distributor as provided above.
e. Severability and Interpretation. In the event that a provision of this
Agreement is held invalid by a court of competent jurisdiction, the remaining
provisions shall nonetheless be enforced in accordance with their terms.
Further, in the event that any provision is held to be overbroad as written,
such provision shall be deemed amended to narrow its application to the extent
necessary to make the provision enforceable according to applicable law and
shall be enforced as amended.
f. Controlling Law. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of Minnesota.
16. Arbitration.
a. Definition of Dispute. Any dispute, claim or controversy arising out of
or relating to this Agreement, including any action in tort, contract or
otherwise, at equity or at law, and any claims of fraud in the inducement (a
"Dispute"), shall be resolved in a manner set forth in this Section 16. If the
Dispute, however, is one of nonpayment by Distributor for Product delivered by
Sparta to Distributor hereunder, Sparta shall be entitled to elect to bring suit
in a court of appropriate jurisdiction rather than resolving such Dispute in the
manner set forth in this Section 16.
b. Negotiations. Either party may initiate negotiation proceedings by
writing a letter to the other party setting forth the particulars of the
Dispute, the terms of the contract that are involved and the suggested
resolution of the Dispute. If the Dispute is not resolved within thirty (30)
days after delivery of the initial written letter setting forth the particulars
of the Dispute, either party may deliver written notice to the other party
demanding submission of such Dispute to binding arbitration conducted pursuant
to the provisions of this Agreement and the commercial arbitration rules of the
American Arbitration Association ("AAA"), except to the extent such AAA rules
are inconsistent with the provisions of this Agreement. Even though the
arbitrator(s) shall apply the AAA rules, the arbitration shall not be conducted
by the AAA.
c. Appointment of Arbitrator(s). The case shall be submitted to a single
arbitrator who shall be a retired state or federal judge or an attorney who has
practiced in the area of business litigation or in the substantive area of law
related to this Agreement, for at least ten (10) years. Each party shall submit
a list of three (3) arbitrators to the other party within ten (10) days after
the initiating party has delivered a written notice to the other party demanding
arbitration of the Dispute. From the combined list, the parties shall mutually
agree on the arbitrator. Should the parties be unable to agree on the choice of
an arbitrator within thirty (30) days after delivery of the written notice
demanding arbitration, the arbitrator shall be selected by the Director of the
Minneapolis office of the American Arbitration Association.
d. Location/Costs. The site of the arbitration shall be in the metropolitan
area of Minneapolis/St. Paul in the state of Minnesota. The exact location
within such metropolitan area shall be designated by the arbitrator(s). The
costs and fees of the arbitrator(s) and the costs and fees of each party
incurred in such arbitration shall be paid by the non-prevailing party.
e. Discovery/Interim Relief. The arbitrator(s) shall allow the parties to
conduct limited discovery. Either party may apply to any court having
jurisdiction hereof seeking injunctive relief so as to maintain the status quo
until such time as the arbitration award is rendered or the Dispute is otherwise
resolved.
f. Final Award. The arbitrational award shall be final and binding upon the
parties and may be entered and enforced at any court having jurisdiction. Each
party hereby submits to personal jurisdiction of the federal courts located in
the State of Minnesota, U.S.A. and consents to the entry of the arbitration
award in such courts and in the appropriate courts located in any other state of
a party's residence.
The parties have executed this Agreement in the manner appropriate to each
to be effective the day and year entered on the first page hereof.
CATALINA SPECIALTY FOODS, INC.
("Distributor")
By /s/ Mary Catherine Gooch
Mary Catherine Gooch, President
SPARTA FOODS, INC.
(the "Company")
By /s/ Joel P. Bachul
Joel P. Bachul, President & CEO
The undersigned do hereby agree to be bound by the provisions of Section
7(a), Section 9 and Section 14(e) of the above Distributor Agreement.
/s/ Mary Catherine Gooch
MARY CATHERINE GOOCH
/s/ Harold E. Gooch
HAROLD E. GOOCH
The undersigned, officers of Sparta Foods, Inc., do hereby agree to be
bound by the provisions of Section 9 of the above Distributor Agreement.
/s/ Joel P. Bachul
JOEL P. BACHUL, President & CEO
EXHIBIT 10.41
WARRANT
To Purchase ______________ Shares of Common Stock
of
SPARTA FOODS, INC.
THIS CERTIFIES THAT, for good and valuable consideration,
____________________ or its registered successors or assigns, is entitled to
subscribe for and purchase from Sparta Foods, Inc., a Minnesota corporation (the
"Company"), at any time up to and including three (3) years from the date of
this Warrant, ________________ (xxxxx.xx) fully paid and nonassessable shares of
the Common Stock of the Company at the price of $0.75 per share (the "Warrant
Exercise Price"), subject to the antidilution provisions of this Warrant. The
shares which may be acquired upon exercise of this Warrant are referred to
herein as the "Warrant Shares." As used herein, the term "Common Stock" means
and includes the Company's presently authorized common stock, par value $.01 per
share, and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; and the term "Convertible Securities"
means any stock or other securities convertible into, or exchangeable for,
Common Stock.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such shares.
(b) This Warrant may not be sold, transferred, assigned, hypothecated or
divided into two or more Warrants of smaller denominations, nor may any Warrant
shares issued pursuant to exercise of this Warrant be transferred, except as
provided in Section 7 hereof.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant. This
Warrant shall be promptly cancelled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay all expenses,
taxes (other than stock transfer taxes), and other charges payable in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
<PAGE>
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws. If registrations are not in effect and
if exemptions are not available when the Holder seeks to exercise the Warrant,
the Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least 30 calendar days from the date the Company delivers to the
Holder written notice of the availability of such registrations or exemptions.
The Holder agrees to execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company, or the registrations made, for the
issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject to
adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a greater
number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification or
otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately
prior to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) above, the Holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment) by
the Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
<PAGE>
(c) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this Section
7, the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares the Company shall promptly give written notice thereof to the Holder, and
the Holder will limit its activities in respect to such as, in the opinion of
both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange or quoted in
the National Association of Securities Dealers, Inc.'s Automated Quotations
System (Nasdaq), or if not listed on a national securities exchange or quoted in
Nasdaq, the average of the last reported closing bid and asked prices as
reported by Metro Data Company, Inc. from quotations by market makers in such
Common Stock on the Minneapolis-St. Paul local over-the-counter market.
<PAGE>
IN WITNESS WHEREOF, Sparta Foods, Inc. has caused this Warrant to be signed
by its duly authorized officer and this Warrant to be dated February 2, 1996.
SPARTA FOODS, INC.
By: /s/ Joel S. Bachul
Its: President and CEO
To: Sparta Foods, Inc.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant
to purchase for cash, _________________ of the shares issuable upon the exercise
of such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
_____________________________________
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (______________) Address:
_____________________________________
_____________________________________
Date:________, 19__ _____________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the
name as written upon the face of the Warrant in every particular without
alteration or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _____________________________ the right to purchase the securities of
_________________________________ to which the within Warrant relates and
appoints _____________, attorney, to transfer said right on the books of
_______________________ with full power of substitution in the premises.
Dated:________________ ___________________________________
(Signature)
Address:
___________________________________
___________________________________
EXHIBIT 10.42
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of February
2, 1996, between SPARTA FOODS, INC., a Minnesota corporation ("Sparta"), and the
shareholders listed in Schedule A hereto (individually referred to herein as the
"Shareholder" and collectively referred to as "Shareholders").
WITNESSETH
WHEREAS, Sparta has offered to sell to selected accredited investors a
maximum of 2,400,000 Units, each Unit consisting of one share of Common Stock
and a Warrant to Purchase one share of Common Stock at $0.75 per share pursuant
to a Private Placement Memorandum dated August 1, 1995, as amended ("Private
Placement").
WHEREAS, pursuant to the Private Placement, Sparta shall grant the
Shareholders listed in Schedule A certain registration rights as described
herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms used in this Agreement shall be
defined as follows:
"Agreement" means this Registration Rights Agreement.
"Common Stock" means the Common Stock, $.01 par value, of Sparta.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Registration Statement" means a registration statement filed by Sparta
with the SEC for a public offering and sale of securities of Sparta (other than
a registration statement on Form S- 8, Form S-4, any successor form thereto, or
any other form covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 1.2.
"Registrable Shares" means the Shareholder's Shares provided, however, that
the Shareholder's Shares shall cease to be Registrable Shares upon any sale
pursuant to a Registration Statement or Rule 144 under the Securities Act or
when any Shareholders Shares may be sold pursuant to Rule 144.
"SEC" means the Securities and Exchange Commission, or any other Federal
agency at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Selling Shareholder(s)" means any shareholder who offers for sale
Registrable Shares in any Registration Statement
"Shareholders" means all the persons listed as shareholders on Schedule A.
<PAGE>
"Shareholder's Shares" means the shares of Common Stock issued to the
Shareholder pursuant to the Private Placement, which closed on February 2, 1996,
or any other shares of Common Stock of Sparta issued in respect of such shares
in connection with any stock split, stock dividend, reclassification,
recapitalization, or similar event.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Registration Rights.
(a) If the Company at any time within two (2) years after closing of the
Private Placement, proposes to register under the 1933 Act any of its
securities, it will give written notice to all Shareholders of its intention to
do so and, on the written request of any such Shareholder given within twenty
(20) days after receipt of any such notice, Sparta will use its best efforts to
cause all such Registrable Shares, the Shareholders of which shall have
requested the registration thereof, to be included in such Registration
Statement proposed to be filed by Sparta.
(b) Further, on a one-time basis only, upon request by the Shareholder, the
Company will use its best efforts to take all necessary steps to register or
qualify, under the 1933 Act and the securities laws of such states as the
Shareholder may reasonably request, these Registrable Shares requested by such
Shareholder in their request to Sparta.
2.2 Underwriting. In connection with any offering under this Article 2
involving an underwriting, Sparta shall not be required to include any
Registrable Shares in such underwriting unless the Shareholders thereof accept
the terms of the underwriting as agreed upon between Sparta and the underwriters
selected by it. If, in the written opinion of the managing underwriter, the
registration of all, or part of, the Registrable Shares which the Shareholders
have requested to be included in such registration exceed the number of shares
which can be sold without adversely affecting the marketability of the offering,
then Sparta shall be required to include in the underwriting only that number of
Registrable Shares which the managing underwriter believes may, when added to
the number of shares of Common Stock which other Shareholders entitled to
include shares of Common Stock in such registration have requested to be
included therein, be sold without causing such adverse effect. If the number of
Registrable Shares to be included in the underwriting in accordance with the
foregoing is less than the total number of shares which the Shareholders of
Registrable Shares have requested to be included, then the Shareholders of
Registrable Shares who have requested registration and other holders of shares
of Common Stock entitled to include shares of Common Stock in such registration
shall participate in the underwriting pro rata based upon their total ownership
of shares of Common Stock of Sparta. If any Shareholder would thus be entitled
to include more shares than such Shareholder requested to be registered, the
excess shall be allocated among other requesting Shareholders pro rata based
upon their total ownership of Registrable Shares.
2.3. Expenses. With respect to each inclusion of securities in a
Registration Statement pursuant to this Section, Sparta shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for Sparta, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if Sparta is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the Shareholders,
underwriting discounts and commissions, and transfer taxes for Shareholders and
any other expenses relating to the sale of securities by the Shareholders not
expressly included above shall be borne by the Shareholders.
2.4 Indemnification. The Company hereby indemnifies the Shareholders and
the officers and directors, if any, who control such Shareholders, within the
meaning of Section 15 of the 1933 Act, against all losses, claims, damages, and
liabilities caused by (1) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (and as
amended or supplemented if Sparta shall have furnished any amendments thereof or
supplements thereto), any Preliminary Prospectus or any state securities law
filings; (2) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities are
caused by any untrue statement or omission contained in information furnished in
writing to Sparta by such Shareholder expressly for use therein; and each such
Shareholder by its acceptance hereof severally agrees that it will indemnify and
hold harmless Sparta, each of its officers and directors who signs such
Registration Statement, and each person, if any, who controls Sparta, within the
meaning of Section 15 of the 1933 Act, with respect to losses, claims, damages,
or liabilities which are caused by any untrue statement or omission contained in
information furnished in writing to the Company by such Shareholder expressly
for use therein.
<PAGE>
2.5 Registration Procedures. If and whenever Sparta is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable
Shares under the Securities Act, Sparta shall:
(a) file with the SEC a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration Statement
to become and remain effective;
(b) as expeditiously as possible prepare and file with the SEC any
amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for a period of not less than six (6) months
from the effective date;
(c) as expeditiously as possible furnish to the Shareholders who are
selling Registrable Shares pursuant to such registration (the "Selling
Shareholders") such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the Selling Shareholders may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the Selling Shareholders;
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Shareholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Shareholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the Selling Shareholders; provided, however, that Sparta shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction; and
(e) if Sparta has delivered preliminary or final prospectuses to the
Selling Shareholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, promptly notify the Selling
Shareholders and, if requested, the Selling Shareholders shall immediately cease
making offers of Registrable Shares and return all prospectuses to Sparta.
Sparta shall promptly provide the Selling Shareholders with revised prospectuses
and, following receipt of the revised prospectuses, the Selling Shareholders
shall be free to resume making offers of the Registrable Shares.
2.4 Information by Selling Shareholders. Each Selling Shareholder included
in any Registration Statement shall furnish to Sparta such information regarding
such Selling Shareholder and the distribution proposed by such Selling
Shareholder as Sparta may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
2.5 Rule 144 Requirements. So long as Sparta has a class of securities
registered under Section 12 of the Exchange Act, Sparta agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of Sparta under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any Selling Shareholder upon request a written statement by
Sparta as to its compliance with the reporting requirements of said Rule 144 (at
any time after 90 days following the closing of the first sale of securities by
Sparta pursuant to a Registration Statement), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of Sparta,
and such other reports and documents of Sparta as such shareholder may
reasonably request to avail itself of any similar rule or regulation of the SEC
allowing it to sell any such securities without registration.
<PAGE>
2.6 Transfers of Registration Rights. The rights granted to Shareholders of
Registrable Shares pursuant to Article 1 of this Agreement may not be
transferred by such Shareholders to any person or entity, except to related
person or affiliate of such entity.
2.7 Granting of Registration Rights. Sparta may from time to time grant
other holders of Sparta Common Stock registration rights similar or different
than the registration rights herein. Nothing in this Agreement shall prohibit or
restrict Sparta from granting registration rights to any holders of its Common
Stock.
ARTICLE 3
MISCELLANEOUS
3.1 Specific Performance. The parties hereto acknowledge that in the event
of any breach of the provisions of this Agreement, the nonbreaching party would
be irreparably harmed and could not be made whole by monetary damages. It is
accordingly agreed that, in addition to any other remedy to which a party may be
entitled at law or in equity, the obligations of the parties hereunder shall be
specifically enforceable and no party shall take any action to impede the others
from seeking to enforce such right of specific performance.
3.2 Severability. If the final determination of a court of competent
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term of
provision hereof is invalid or unenforceable, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
3.3 Notices. All notice or other communications to a party required or
permitted hereunder shall be in writing and shall be given by hand delivery,
courier service (with acknowledgement of receipt), telecopy (with confirmation
of transmission), or by certified mail, postage prepaid with return receipt
requested, to the following person at the following address:
(a) If to a Shareholder, to such Shareholder's address as provided after
his signature herein.
(b) If to Sparta to:
Sparta Foods, Inc.
2570 Kasota Avenue
St. Paul, Minnesota 55108
Attention: A. Merrill Ayers
(612) 646-1888
with a copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Attention: Daniel A. Yarano, Esq.
Telecopy No.: (612) 347-7149
Any party may change the above-specified recipient and/or mailing address
by notice to all other parties given in the manner herein prescribed. All
notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by telecopy) or on the day shown on the return
receipt (if delivered by mail).
3.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties to this Agreement and their successors or assigns;
provided that, none of the parties may assign its rights or obligations
hereunder without the prior written consent of the other party.
3.5 Headings. The descriptive headings of the several Articles and Sections
of this Agreement and of the several Schedules to this Agreement are inserted
for convenience only and do not constitute a part of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction hereof against the party causing this Agreement to be
drafted.
<PAGE>
3.6 Entire Agreement; Modification and Waiver. This Agreement
represents the only agreement among the parties concerning the subject matter
hereof and supersedes all prior agreements whether written or oral, relating
thereto. No purported amendment, modification or waiver of any provision hereof
shall be binding unless set forth in a written document signed by all parties
(in the case of amendments or modifications) or by the party to be charged
thereby (in the case of waivers). Any waiver shall be limited to the provision
hereof and the circumstance or event specifically made subject thereto and shall
not be deemed a waiver of any other term hereof or of the same circumstance or
event upon any recurrence thereof.
3.7 Publicity. Each of the parties represents and warrants to the other
party that it will make no announcement to public officials or the press in any
way relating to the transaction described herein without the prior written
consent of the other party, except as may be required of Sparta under the 1933
Act and 1934 Act and under the rules of the Nasdaq National Market.
3.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Minnesota without regard to the
conflicts of laws rules thereof.
3.9 Benefit. Nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties or their respective successors or
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
3.10 Survival. All of the representations, warranties, and indemnifications
made in this Agreement, and all terms and provisions hereof intended to be
observed and performed by the parties after the execution of this Agreement or
the termination hereof, shall survive the execution of this Agreement or such
termination and continue thereafter in full force and effect, subject to
applicable statutes of limitations.
3.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have duly executed this Registration Rights
Agreement, as of the day and year first written above.
SPARTA FOODS, INC.
By: /s/ Joel P. Bachul
Joel P. Bachul, President
SHAREHOLDER
_______________________________
Name:
EXHIBIT 10.43
THIRD AMENDMENT TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment") is made as of
the 23 day of April, 1996 by and among LaCANASTA OF MINNESOTA, INC., a Minnesota
corporation (the "Borrower"), SPARTA FOODS, INC., a Minnesota corporation
("Sparta"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association (the "Lender").
Recitals
a. The Borrower, Sparta and the Lender are parties to that certain Credit
and Security Agreement dated as of December 9,1994, as supplemented by that
certain First Supplement to Credit Agreement dated as of December 13, 1994, and
as amended by that certain First Amendment to Credit Agreement dated as of April
14, 1995, and that certain Second Amendment to Credit Agreement dated as of
September 21, 1995 (collectively, the "Credit Agreement").
b. The Borrower and Sparta have requested that certain amendments be made
to the Credit Agreement.
c. The Lender is willing to make the requested amendments as described
below, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Capitalized terms not otherwise defined herein shall have the meanings
set forth in the Credit Agreement.
2. Sections 6.12, 6.13, 6.14 and 6.15 of the Credit Agreement shall be
deleted in their entirety and replaced with the following:
"Section 6.12. Net Income. The Borrower shall at all times during each
period designated below (calculated on a rolling three month basis for the
period ending January 31, 1996, and for each period thereafter, on a fiscal
year-to-date basis at the end of each month set forth below) achieve a Net
Income at or above the amount set forth below opposite such period:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
January 1996 -0-
February 1996 ($140,000.00)
March 1996 ($150,000.00)
April 1996 ($140,000.00)
May 1996 ($125,000.00)
June 1996 ($110,000.00)
July 1996 ($ 90,000.00)
August 1996 ($ 65,000.00)
September 1996 ($ 40,000.00)
October 1996 $ 10,000.00
November 1996 $ 20,000.00
December 1996 $ 30,000.00
January 1997 $ 45,000.00
February 1997 $ 60,000.00
March 1997 $ 75,000.00
</TABLE>
'Section 6.13. Minimum Tangible Net Worth. The Borrower, on a consolidated
basis with Sparta, shall at all times during each period designated below
(calculated at the end of each month during each period set forth below)
maintain its Tangible Net Worth at or above the level set forth below:
<PAGE>
<TABLE>
<CAPTION>
Period Amount
<S> <C>
January 1996 $ 595,000.00
February 1996 $1,200,000.00
March 1996 $1,150,000.00
April 1996 $1,200,000.00
May 1996 $1,250,000.00
June 1996 $1,300,000.00
July 1996 $1,350,000.00
August 1996 $1,400,000.00
September 1996 $1,450,000.00
October 1996 through March 1997 $1,500,000.00
</TABLE>
'Section 6.14. Maximum Leverage Ratio. The Borrower, on a consolidated
basis with Sparta, shall at all times during each period designated below
(calculated at the end of each month during each period set forth below)
maintain a ratio of (a) Debt excluding Subordinated Debt to (b) Tangible Net
Worth plus Subordinated Debt at or below the level set forth below:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
January 1996 4.50 to 1.0
February 1996 2.20 to 1.0
March 1996 2.35 to 1.0
April 1996 2.30 to 1.0
May 1996 1.95 to 1.0
June 1996 1.90 to 1.0
July 1996 1.80 to 1.0
August 1996 1.70 to 1.0
September 1996 1.65 to 1.0
October 1996 through March 1997 1.65 to 1.0
</TABLE>
'Section 6.15. Financial Covenants for Subsequent Periods. All covenants
contained herein with respect to Borrower's Net Income, Tangible Net Worth and
ratio of Debt to Tangible Net Worth, and any other covenants which the Lender
may deem appropriate in the future based upon the financial condition or
performance of the Borrower, for the period commencing April 1, 1997 and
thereafter shall be established by the Lender in its discretion based upon
projections acceptable to the Lender delivered to the Lender pursuant to Section
6.1(d) hereof, but in any event such covenants shall not be any less stringent
than the covenants set forth in Sections 6.12. 6.13 and 6.14 above.
3. Section 7.10 of the Credit Agreement entitled "Capital Expenditures" is
hereby amended by deleting the phrase contained therein which reads "$600,000.00
in fiscal year 1997," and replacing it with the phrase "$500,000.00 in fiscal
year 1997."
4. Except as explicitly amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect and
shall apply to any Advance.
5. This Amendment shall be effective upon receipt by the Lender of an
executed original hereof, together with each of the following, in substance and
form acceptable to the Lender in its sole discretion:
(a) The Acknowledgment and Agreement of the Guarantor set forth at the end
of this Amendment, duly executed by the Guarantor, and of A. Merrill Ayers, and
Joel Bachul.
(b) A certificate of the secretary of the Borrower and Sparta certifying as
to (i) the resolutions of the board of directors of the Borrower and Sparta
approving the execution and delivery of this Amendment, (ii) the fact that the
Articles of Incorporation and Bylaws of the Borrower and Sparta, which were
certified and delivered to the Lender pursuant to the Certificates of the
Borrower's and Sparta's Secretary dated as of December, 1994 in connection with
the execution and delivery of the Credit Agreement and all other documents
executed and delivered by the Borrower or Sparta in connection therewith
continue in full force and effect and have not been amended or otherwise
modified except as set forth in the Certificates to be delivered, and (iii)
certifying that the officers and agents of the Borrower and of Sparta who have
been certified to the Lender, pursuant to the certificate of the Borrower's and
Sparta's Secretary dated as of December, 1994, as being authorized to sign and
to act on behalf of the Borrower and Sparta, as applicable, continue to be so
authorized or setting forth the sample signatures of each of the officers and
agents of the Borrower and of Sparta authorized to execute and deliver this
Amendment and all other documents, agreements and certificates on behalf of the
Borrower and of Sparta.
<PAGE>
(c) Opinion of the Borrower's and Sparta's counsel as to the matters set
forth in paragraphs 6(a) and (b) hereof and as to such other matters as the
Lender shall require.
6. The Borrower and Sparta hereby represent and warrant to the Lender as
follows:
(a) Each of the Borrower and Sparta has all requisite power and authority
to execute this Amendment and to perform all of its obligations hereunder and
thereunder, and this Amendment has been duly executed and delivered by the
Borrower and Sparta, as applicable, and constitutes the legal, valid and binding
obligation of the Borrower and Sparta, as applicable, enforceable in accordance
with its terms.
(b) The execution, delivery and performance by the Borrower and Sparta of
this Amendment has been duly authorized by all necessary corporate action and do
not (i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality, domestic. or
foreign, (ii) violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect, having applicability to
the
Borrower or Sparta, or the articles of incorporation or bylaws of the
Borrower or Sparta, or (iii) result in a breach of or constitute a Default under
any agreement, lease or instrument to which the Borrower or Sparta is a party or
by which either party or its properties may be bound or affected.
(c) All of the representations and warranties contained in the Credit
Agreement are correct on and as of the date hereof as though made on and as of
such date, except to the extent that such representations and warranties relate
solely to an earlier date.
7. All references in the Credit Agreement to "this Agreement" shall be
deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
8. The execution of this Amendment and acceptance of any documents or funds
related hereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement or of any breach, Default or Event of Default
under any Security Document or other document held by the Lender, whether or not
known to the Lender and whether or not existing on the date of this Amendment,
except as specifically provided herein.
9. The Borrower and Sparta hereby absolutely and unconditionally release
and forever discharge the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any Kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower or Sparta has had, now
has or has made claim to have against any such person for or by reason of any
act, omission, matter, cause or thing whatsoever arising from the beginning of
time to and including the date of this Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
10. The Borrower and Sparta hereby reaffirm their joint and several
agreement under the Credit Agreement or other documents to pay or reimburse the
Lender on demand for all costs and expenses incurred by the Lender in connection
with the Credit Agreement, the Security Documents and all other documents
contemplated thereby, including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality of the
foregoing, the Borrower and Sparta specifically agrees to pay all fees and
disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrower and Sparta hereby agrees that
the Lender may, at any time or from time to time in its sole discretion and
without further authorization by the Borrower and Sparta, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
11. This Amendment, the Acknowledgment and Agreement of Guarantor, and the
Acknowledgment and Agreement of A. Merrill Ayers and Joel Bachul may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
BORROWER: LaCANASTA OF MINNESOTA, INC.
By
Its
GUARANTOR: SPARTA FOODS, INC.
By /s/ Joel P. Bachul
Its President and CEO
LENDER: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
Its
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness of LaCANASTA OF MINNESOTA,
INC. (the "Borrower") to NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION (the
"Lender") pursuant to a separate Guaranty dated as of December 9, 1994 (the
"Guaranty"), hereby (i) acknowledges receipt of the foregoing Third Amendment to
Credit Agreement dated as of April 23, 1996; (ii) consents to the terms and
execution thereof; (iii) reaffirms its obligations to the Lender pursuant to the
terms of its Guaranty; and (iv) acknowledges that the Lender may amend, restate,
extend, renew or otherwise modify the Credit Agreement and any indebtedness or
agreement of the Borrower, or enter into any agreement or extend additional or
other credit accommodations, without noting or obtaining the consent of the
undersigned and without impairing the liability of the undersigned under its
Guaranty for all of the present and future indebtedness of the Borrower to the
Lender.
GUARANTOR: SPARTA FOODS, INC.
By /s/ Joel P. Bachul
Its President and CEO
ACKNOWLEDGMENT AND AGREEMENT
OF A. MERRILL AYERS AND JOEL BACHUL
The undersigned, A Merrill Ayers and Joel Bachul, executed and delivered a
certain Performance Agreement dated as of December 9, 1994 and the undersigned
Joel Bachul executed and delivered a certain Performance Agreement dated as of
April 14, 1995 (such performance agreements collectively called the "Agreement")
which are both in favor of Norwest Bank Minnesota, N.A. (the "Lender") with
respect to LaCanasta of Minnesota, Inc. (the "Borrower"), and each of the
undersigned hereby (i) acknowledges receipt of the foregoing Third Amendment to
Credit Agreement dated as of April 23, 1996; (ii) consents to the terms and
execution thereof; (iii) reaffirms his obligations to the Lender pursuant to the
terms of his Agreement; and (iv) acknowledges that the Lender may amend,
restate, extend, renew or otherwise modify the Credit Agreement and any
indebtedness or agreement of the Borrower, or enter into any agreement or extend
additional or other credit accommodations, or release or terminate any
guaranties or other performance agreements, without noting or obtaining the
consent of the undersigned and without impairing the liability of the
undersigned under his Agreement.
/s/ A. Merrill Ayers
A. Merrill Ayers
/s/ Joel Bachul
Joel Bachul
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 27,114
<SECURITIES> 0
<RECEIVABLES> 741,299
<ALLOWANCES> 39,544
<INVENTORY> 872,290
<CURRENT-ASSETS> 1,679,386
<PP&E> 5,882,965
<DEPRECIATION> 1,946,684
<TOTAL-ASSETS> 7,378,174
<CURRENT-LIABILITIES> 2,211,514
<BONDS> 0
0
0
<COMMON> 66,628
<OTHER-SE> 4,928,373
<TOTAL-LIABILITY-AND-EQUITY> 7,378,174
<SALES> 5,916,077
<TOTAL-REVENUES> 0
<CGS> 4,331,979
<TOTAL-COSTS> 5,790,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251,183
<INCOME-PRETAX> (91,718)
<INCOME-TAX> 0
<INCOME-CONTINUING> (91,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,718)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
