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 June 30, 1998.
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)
1565 First Avenue NW, New Brighton, MN 55112 (Address of
principal executive offices)
_________(651) 697-5500_________
(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:
7,037,172 of Common Stock at July 28, 1998.
Transitional Small Business Disclosure Format: Yes _____ No X
<PAGE>
SPARTA FOODS, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets
at June 30, 1998 and September 30, 1997 3
Condensed Consolidated Statements of
Operations for the three-month periods
and the nine-month periods ended
June 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows for the nine-month periods
ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1998 6
Item 2. Management's Discussion and Analysis or 8
Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPARTA FOODS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
June 30 September 30
1998 1997
----------------------- -----------------
(unaudited)
ASSETS
Current Assets
Cash $ 676,700 $ 600
Accounts receivable, less allowance of $29,500 and $49,500, respectively 953,777 833,467
Inventories:
Finished goods 476,114 566,212
Raw materials and packaging 493,442 531,358
Prepaid expenses 230,215 156,466
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 2,830,248 2,088,103
- -----------------------------------------------------------------------------------------------------------------------------
Property and Equipment 9,180,275 7,488,786
Less accumulated depreciation 2,700,746 2,371,131
- -----------------------------------------------------------------------------------------------------------------------------
6,479,529 5,117,655
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets
Restricted cash 291,262 1,893,967
Goodwill, less accumulated amortization of $82,194 and $72,564, respectively
431,179 440,808
Covenants not-to-compete, less accumulated amortization of
$47,261 and $40,772, respectively 62,739 69,228
Rental property held for resale - 906,422
Other 352,729 381,162
- -----------------------------------------------------------------------------------------------------------------------------
1,137,909 3,691,587
=============================================================================================================================
$ 10,447,686 $ 10,897,345
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Note payable, bank $ - $ 834,209
Current maturities of long-term debt 356,387 700,388
Accounts payable:
Trade 581,520 861,120
Construction 29,925 428,315
Accrued expenses 403,488 536,033
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,371,320 3,360,065
- -----------------------------------------------------------------------------------------------------------------------------
Long-term Debt, less current maturities 2,801,821 4,051,212
- -----------------------------------------------------------------------------------------------------------------------------
Stockholders Equity
Convertible Preferred Stock, 5% cumulative, $1000 par value; non
participating; authorized 1,000,000 shares; issued and
outstanding 2,500 and 0 shares, respectively 2,500,000 -
Common Stock, $.01 par value; authorized 15,000,000 shares; issued and
outstanding 7,035,922 and 6,765,758 shares, respectively 70,359 67,657
Additional paid-in capital 4,978,730 4,950,507
Accumulated deficit (1,274,544) (1,532,096)
- -----------------------------------------------------------------------------------------------------------------------------
6,274,545 3,486,068
=============================================================================================================================
$ 10,447,686 $ 10,897,345
=============================================================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the three months For the nine months
ended ended
June 30 June 30
------------------------------------ ------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------- ------------------ ----------------- ---------------- -------------------
Net sales $ 3,969,986 $ 3,810,107 $ 11,047,646 $ 10,114,728
Cost of sales 2,703,381 2,558,433 7,920,510 7,028,204
- ----------------------------------------------------- ------------------- ------------------ ------------------- ------------------
Gross profit 1,266,605 1,251,674 3,127,136 3,086,524
Selling, general, and administrative expenses 892,002 791,552 2,703,439 2,329,987
- ----------------------------------------------------- ------------------- ------------------ ------------------- ------------------
Operating income 374,603 460,122 423,697 756,537
Other income net 41,582 35,086 117,574 88,221
Interest expense (77,957) (74,502) (280,219) (240,130)
- ----------------------------------------------------- ------------------- ------------------ ------------------- ------------------
Income before income tax 338,228 420,706 261,052 604,628
Provision for income tax 2,500 13,587 3,500 16,087
- ----------------------------------------------------- ------------------- ------------------ ------------------- ------------------
Net Income $ 335,728 $ 407,119 $ 257,552 $ 588,541
===================================================== =================== ================== =================== ==================
Net Income per common share
Basic Earnings per share $ .04 $ .06 $ .03 $ .09
===================================================== =================== ================== =================== ==================
Weighted average number of common shares
outstanding 6,908,152 6,685,049 6,830,341 6,683,269
===================================================== =================== ================== =================== ==================
Diluted earnings per share $ .03 $ .05 $ .02 $ .07
===================================================== =================== ================== =================== ==================
Weighted average number of common
and common equivalent shares 10,650,892 8,253,102 9,215,017 8,289,050
===================================================== =================== ================== =================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For the nine months
ended June 30
1998 1997
Cash Flows from Operating Activities
Net income $ 257,552 $ 588,541
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and Amortization 527,080 421,152
(Gain) Loss on sale of equipment and rental property (6,625) 15,940
Changes in assets and liabilities:
Accounts receivable (120,310) (209,944)
Inventories 128,014 (231,607)
Prepaid expenses (73,749) (147,282)
Accounts payable and accrued expenses (810,535) 124,318
- ------------------------------------------------------------------------------ ------- ---------------- ---------------
Net cash provided by (used in) operating activities (98,573) 561,118
- ------------------------------------------------------------------------------ ------- ---------------- ---------------
Cash Flows from Investing Activities
Decrease in restricted cash 1,602,705 -
Purchases of equipment (1,880,972) (472,696)
Net Proceeds from the sale of equipment and rental property 997,095 205,030
Increase in deposits and other assets (42,667) (302,107)
- ------------------------------------------------------------------------------ ------- ---------------- ---------------
Net cash provided by (used in) investing activities 676,161 (569,773)
- ------------------------------------------------------------------------------ ------- ---------------- ---------------
Cash Flows from Financing Activities
Net borrowings (payments) on line of credit (834,209) 496,363
Repayment of Long-Term Debt, net (1,593,392) (460,191)
Issuance of Common Stock, net of costs 174,484 2,450
Issuance of Preferred Stock, net of costs 2,356,441 -
Deferred financing costs (4,812) -
- ------------------------------------------------------------------------------ ------- ---------------- ---------------
Net cash provided by financing activities 98,512 38,622
- ------------------------------------------------------------------------------ ------- ---------------- ---------------
Net increase in cash 676,100 29,967
Cash Balance
Beginning of period 600 600
============================================================================== ======= ================ ===============
End of period $ 676,700 $ 30,567
============================================================================== ======= ================ ===============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 306,395 $ 242,569
Income taxes 5,750 3,750
============================================================================== ======= ================ ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Sparta Foods, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(unaudited)
NOTE 1. GENERAL
The unaudited condensed consolidated balance sheet at June 30, 1998, the
condensed consolidated statements of operations for the three-month and
nine-month periods ended June 30, 1998 and 1997, and the condensed
consolidated statements of cash flows for the nine-month periods ended June
30, 1998 and 1997, 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, 1998.
The unaudited financial statements should be read in conjunction with the
audited financial statements for the years ended September 30, 1997 and
1996, contained in Form 10-KSB and Management's Discussion and Analysis or
Plan of Operation contained herein.
NOTE 2. FINANCING AGREEMENTS
The Company has a line of credit (the "Line of Credit") and term loan (the
"Term Loan") with a bank, secured by certain assets. Maximum borrowings
under the Line of Credit are determined by a borrowing base calculation or
$1,200,000, whichever is less. Borrowings bear interest at prime (8.5
percent at June 30, 1998). The Company is to maintain certain minimum net
worth and debt service coverage levels. In addition, a maximum debt to net
worth ratio is specified.
The Company has a loan acquired through the State of Minnesota related to a
revenue bond issuance. The loan is due in monthly installments which vary
in accordance with the maturity dates of the related revenue bonds, plus
interest at rates varying from 4.5 to 6.0 percent. At June 30, 1998,
$1,826,250 is outstanding. The Company is to maintain certain net worth and
debt service coverage levels. In addition a debt service reserve fund and a
construction fund have been established. The debt service reserve fund will
remain until all loan obligations have been satisfied. The construction
fund represents undisbursed loan proceeds that are available for approved
equipment expenditures. These fund amounts have been reflected on the
consolidated balance sheet as restricted cash.
NOTE 3. INCOME TAX
The provisions for income tax are based upon a minimum state tax. The
availability of tax benefits from prior years offsets any regular taxes.
<PAGE>
NOTE 4. CONVERTIBLE PREFERRED STOCK
On February 24, 1998, the Company issued 2,500 shares of Preferred Stock,
Series 1998. The shares are convertible at any time at the rate of 606.06
shares of Common Stock for each share of Preferred Stock. The holders of
the Preferred Stock are entitled to receive, when, as and if declared by
the Company's Board of Directors, cash dividends at the rate of 5% annually
or, at the option of the Company, dividends of shares of additional
Preferred Stock at the rate of 7.5% annually. Dividends are fully
cumulative, accumulate without interest from the date the Preferred Stock
was originally issued, and, if declared by the Board of Directors, are
payable, semi-annually on January 1st and July 1st. At June 30, 1998,
cumulative and undeclared cash dividends totaled $43,750.
NOTE 5. NET INCOME PER COMMON SHARE
The Company has adopted "Statement of Financial Accounting Standards No.
128, Earnings per Share" (FAS 128). FAS 128 requires the presentation of
basic earnings per share (EPS) and diluted earnings per share amounts.
Basic EPS is the Net Income related to the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects potential
dilution assuming the issuance of Common Stock for stock options, warrants,
and convertible preferred stock exercisable under the treasury stock
method. Presentation of EPS of prior periods has been restated for
comparative purposes.
Diluted EPS for the three-month periods ended June 30, 1998 and 1997
include 2,227,589 and 1,568,053, respectively, and for the nine-month
periods ended June 30, 1998 and 1997 include 2,384,676 and 1,605,781,
respectively, weighted-average shares assumed issued for options and
warrants. In addition, for the three-month period ended June 30, 1998,
diluted EPS includes 1,515,151 shares assumed issued for convertible
preferred stock. For the nine-month period ended June 30, 1998, the
conversion of preferred stock has not been assumed due to an antidilutive
impact.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Overview
La Canasta of Minnesota, Inc. ("La Canasta"), the predecessor of Sparta
Foods, Inc. (the "Company"), 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. During the period 1991 through
1993 the Company completed acquisitions which expanded its trademark retail
brands to include Cruz, Chapala, Mexitos and La Campana Paradiso, its food
service customers to include McDonald's restaurants and its retail
distribution network to include Bradley Distributing, Inc.
Results of Operations
The Company's net sales of $11,047,646 increased $932,918 (9%) for the nine
months ended June 30, 1998, as compared to the nine months ended June 30,
1997. Net sales of $3,969,986 increased $159,879 (4%) for the three months
ended June 30, 1998, as compared to the three months ended June 30, 1997.
These increases primarily resulted from sales to new customers in the food
service industry and sales to the Company's primary retail distributors,
Crystal Farms Refrigerated Distribution Company and Marigold Foods, Inc.
Gross profit, as a percentage of net sales, for the nine months ended June
30, 1998, was 28.3% compared to 30.5% for the nine months ended June 30,
1997. Gross profit, as a percentage of net sales, for the three months
ended June 30, 1998, was 31.9% compared to 32.9% for the three months ended
June 30, 1997. The lower percentages reflect additional manufacturing costs
associated with maintaining two operating locations during the first
quarter and lower operating efficiencies during the second and third
quarters resulting from the installation and operation of new tortilla
manufacturing equipment.
Selling, general and administrative expenses of $2,703,439 increased
$373,452 or 16% in the nine months ended June 30, 1998, as compared to the
nine months ended June 30, 1997. These expenses increased $100,450 or 13%
in the three months ended June 30, 1998, as compared to the three months
ended June 30, 1997. These increases are the result of the net sales
increase and reflect some additional expense incurred in advertising and
promoting the Company's line of Cruz products in the retail market.
<PAGE>
Interest expense of $280,219 increased $40,089 for the nine months ended
June 30, 1998 compared to the nine months ended June 30, 1997 and $3,455
for the three months ended June 30, 1998 compared to the three months ended
June 30, 1997. For the nine months ended June 30, 1998, the increase is due
primarily to higher levels of bank borrowings during the first and second
quarters to finance the costs of installing new manufacturing equipment and
utilization of proceeds from debt financing through the State of Minnesota
to purchase new manufacturing equipment. For the three months ended June
30, 1998, interest expense returned to a level experienced prior to the
installation of the new manufacturing equipment. This is primarily due to
the repayment of a portion of long-term debt (approximately $1,600,000)
using proceeds from the sale of rental property and from the issuance of
preferred stock, offset by the continuing interest expense associated with
the State of Minnesota debt financing.
Liquidity and Capital Resources
The Company financed its current activities primarily through short-term
borrowings, cash generated from its operations, and the issuance of
convertible preferred stock.
Cash used in operating activities during the nine months ended June 30,
1998 was $98,573 consisting principally of a decrease in accounts payable
and accrued expenses of $810,535 offset by a decrease in inventories of
$128,014, depreciation and amortization of $527,080, and net income of
$257,552. Cash provided by investing activities was $676,161 consisting
principally of the utilization of restricted cash associated with the State
of Minnesota revenue bond loan agreement, and the proceeds from the sale of
equipment and rental property offset by the purchase of equipment in the
Company's new manufacturing facility. Cash provided by financing activities
was $98,512 due mainly to the issuance of preferred and common stock offset
by the repayment of short-term and long-term borrowings.
On February 24, 1998, the Company completed a private placement of 2,500
shares of preferred stock to Harvest States Cooperatives, St. Paul,
Minnesota for $2,500,000. The preferred stock is convertible at the rate of
606.06 shares of Common Stock for each share of preferred stock. Proceeds
from the sale of preferred stock were used to reduce bank debt and for
working capital purposes.
On May 12, 1998, the Company completed the sale of its rental property in
Lakeville, Minnesota. Proceeds were used to reduce long-term debt, and the
sale resulted in a capital gain of approximately $7,000.
On June 24, 1998, the Company entered into a new credit agreement with its
bank. Proceeds from the new agreement were used to satisfy an outstanding
balance from a previous credit agreement with the same bank. The new credit
agreement consists of a Line of Credit up to a maximum limit of $1,200,000
and a Term Loan. At June 30, 1998 $1,293,535 was outstanding under the new
Term Loan and the Line of Credit was not utilized. The Line of Credit and
Term Loan 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. It is management's opinion
that the Company will be able to meet the requirements of these 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 such violations.
<PAGE>
At June 30, 1998, the Company had cash of $676,700 and working capital of
$1,458,928. The Company believes that its bank credit facilities and cash
flow from operations will be sufficient to meet its operating requirements
through fiscal 1998.
Seasonality
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 tortillas, tortilla chips, salsa
and barbecue sauces, during the summer months. This seasonality may cause
quarterly results of operations to fluctuate.
Raw Material Cost Fluctuations
The Company does not enter into futures contracts as defined by SFAS 80. It
does, however, enter into purchase orders for delayed delivery of raw
materials, generally 30 days for raw materials other than flour and corn.
The Company enters into purchase orders for delayed delivery of flour and
corn for a period of 2-18 months, depending on current pricing, to ensure
the availability of the type of flour and corn best suited for the
Company's products. These purchase orders are placed directly with the
suppliers.
Outlook
The Company's plan in fiscal 1998 is to continue to take advantage of
strong industry growth patterns. The Company plans to utilize its new
equipment, with improved production capacity, to increase sales and improve
profitability by focusing on new markets and product brand positioning of
tortillas and tortilla chips in the retail and food service markets.
Management believes that its major computer applications which are critical
to the Company's operations are either Year 2000 compliant or require
nonmaterial resources to make them Year 2000 compliant.
The foregoing statements contained in this Outlook section of Management's
Discussion and Analysis or Plan of Operation, including those relating to
the Company's (i) ability to meet its covenant requirements under its bank
credit facilities and (ii) operating requirements through fiscal 1998
contained in Management's Discussion and Analysis or Plan of Operation are
forward looking statements that involve a number of risks and
uncertainties. Some additional factors that could cause actual results to
differ materially include but are not limited to seasonality of its sales
and raw materials cost fluctuations, which are discussed above, and the
following:
<PAGE>
Reliance on Principal Customers. During 1997, sales to Crystal Farms
Refrigerated Distribution Company ("Crystal Farms") and Catalina Specialty
Foods, Inc. accounted for approximately 23% and 12%, respectively, of the
Company's sales, and management expects Crystal Farms to account for a
greater percentage of the Company's sales in the future. Crystal Farms is
the Company's largest single distributor of its retail products and has a
significant impact on the Company's growth in the retail market. Although
the Company and Crystal Farms operate under a distribution agreement, the
loss of Crystal Farms as a customer would have a material and adverse
effect on the Company's sales and profitability and future growth.
Competition. The Mexican-style food manufacturing and distribution industry
is highly competitive. The Company is in competition with a number of
manufacturers and distributors of Mexican-style food products and, to a
limited extent, manufacturers of "snack foods," many of which are better
capitalized than the Company. The Company will also be subject to future
competition from other manufacturers, distributors and retailers who enter
into the Mexican-style food and distribution industry. In the retail
market, many of these competitors engage in extensive local and national
advertising and marketing, and the brand names for products distributed by
those competitors are significantly more recognizable to the consumer than
the Company's brand names. In addition, competition for shelf space in
retail grocery stores is intense. In the food service market, the Company
is competing with a number of regional and national producers of
Mexican-style food products. Many of these competitors are better
capitalized than the Company and have established sales organizations. No
assurance can be given that the Company will be able to compete as it
expands its markets.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended June 30, 1998, the Company sold shares of its Common
Stock without registration under the Securities Act of 1933, as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total
Number Purchase Price Exemption
Date of Shares Purchaser Relied Upon
5/5/98 2,975 Issued upon exercise of warrant $1,488 Section 4(2)
5/14/98 l50,000 Issued upon exercise of warrant $112,500 Section 4(2)
5/18/98 47,508 Issued upon exercise of warrant $23,754 Section 4(2)
6/8/98 10,000 Issued upon exercise of warrant $5,000 Section 4(2)
6/22/98 9,552 Issued upon exercise of warrant $4,776 Section 4(2)
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Term Loan and Credit Agreement, Security Agreement and Guaranty
Agreement dated June 24, 1998 between the Company and Norwest Bank
Minnesota, National Association.
11 Computation of Earnings Per Common Share.
Financial Data Schedule (filed only in electronic format only):
27.1 Nine months ended June 30, 1998
27.2 Fiscal year ended September 30, 1997 (restated)
27.3 Six months ended March 31, 1997 (restated)
27.4 Three months ended December 31, 1996 (restated)
(b) Reports on Form 8-K
A report on Form 8-K was not filed during the quarter ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SPARTA FOODS, INC.
(Registrant)
Dated: July 28,1998 By: /s/ Joel P. Bachul
Joel P. Bachul,
President and Chief Executive Officer
Dated: July 28,1998 By: /s/ A. Merrill Ayers
A. Merrill Ayers
Treasurer, Secretary and
Chief Financial Officer
TERM LOAN AND CREDIT AGREEMENT
THIS TERM LOAN AND CREDIT AGREEMENT is made as of the 24th day of
June, 1998, and is by and between LA CANASTA OF MINNESOTA, INC., a Minnesota
corporation with offices located in New Brighton, Minnesota (the "Borrower"),
and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
with offices located in St. Paul, Minnesota (the "Bank").
RECITALS:
WHEREAS, the Borrower has requested the Bank (i) to establish a
conditional revolving line of credit for the benefit of the Borrower in the
amount of $1,200,000.00, and (ii) to make a term loan to the Borrower in the
amount of $1,293,352.84; and,
WHEREAS, the Bank is willing to grant the Borrower's requests,
subject to the provisions of this Term Loan And Credit Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein, the parties agree as follows:
SECTION 1 Definitions
In addition to those terms defined in the above Recitals, as used
herein:
1.1 "Acceptable Accounts Receivable" shall mean Borrower's accounts receivable
which are: (i) less than 90 days past the invoice date; (ii) not subject to
offset or dispute; (iii) not due from the U.S. Government, foreign entities,
employees, officers, subsidiaries or affiliates of the Borrower; (iv) not due
from an account debtor, 10% or more of whose accounts owed to Borrower are older
than 90 days past the invoice date; (v) not representing booked but unfilled
orders; and (vi) not comprised of cash accounts.
1.2 "Acceptable Inventory" shall mean the Borrower's inventory comprised of raw
materials, unlabeled packaging, and certain finished goods acceptable to the
Bank in its sole discretion.
1.3 "Advances" shall mean direct borrowings made by the Borrower under the
Credit.
1.4 "Agreement" shall mean this Term Loan And Credit Agreement, and all
amendments and supplements hereto which may from time to time become effective
hereafter.
1.5 "Base Rate" shall mean the "base" or "prime" rate of interest established
by the Bank as in effect from time to time.
1.6 "Borrowed Money" shall mean funds obtained by incurring contractual
indebtedness, but shall not include trade accounts payable or money borrowed
from the Bank.
<PAGE>
1.7 "Borrower's Security Agreement" shall mean a security agreement in form and
content acceptable to the Bank, duly executed by the Borrower and delivered to
the Bank pursuant to Section 5.1(H) hereof.
1.8 "Borrowing Base" shall mean the sum of (i) 80% of Acceptable Accounts
Receivable, plus (ii) the lesser of (A) $400,000.00, or (B) 50% of Acceptable
Inventory.
1.9 "Borrowing Base Certificate" shall mean a schedule of Borrower's assets
comprising the Borrowing Base, which certificate is prepared and furnished to
Bank pursuant to Sections 5.1(J) and 7.3(C) hereof, and which is executed by an
authorized officer of Borrower and is in form and content acceptable to the
Bank.
1.10 "Closing Date" shall mean the date on which this Agreement is executed by
the Borrower and delivered to the Bank.
1.11 "Current Note" shall mean the promissory note of the Borrower substantially
in the form of attached Exhibit A, evidencing indebtedness under the Credit.
1.12 "Credit" shall mean a conditional revolving line of credit established by
the Bank for the benefit of the Borrower in the amount of $1,200,000.00.
1.13 "Events of Default" shall mean any and all events of default described in
Section 9 hereof.
1.14 "Guaranty" shall mean a guaranty by corporation in form and content
acceptable to the Bank, duly executed by the Guarantor and delivered to the Bank
pursuant to Section 5.1(K) hereof.
1.15 "Guarantor" shall mean Sparta Foods, Inc., a Minnesota corporation.
1.16 "Guarantor's Security Agreement" shall mean a security agreement/collateral
pledge agreement in form and content acceptable to the Bank, duly executed by
the Guarantor and delivered to the Bank pursuant to Section 5.1(L) hereof.
1.17 "Maturity Date" shall mean May 30, 2000.
1.18 "NBCI" shall mean Norwest Business Credit, Inc., a Minnesota corporation.
1.19 "Permitted Liens" shall mean:
A. Liens in favor of the Bank;
B. Existing liens disclosed to the Bank in writing prior to the date
of this Agreement; and,
<PAGE>
C. Liens for taxes not delinquent or which Borrower is contesting in
good faith.
1.20 "Tangible Net Worth" shall mean the sum of the par or stated value of all
outstanding capital stock, surplus and undivided profits of the relevant
corporation, less any amounts attributable to leasehold improvements, treasury
stock, good will, patents, copyrights, mailing lists, catalogues, trademarks,
bond discount and underwriting expenses, organization expenses and other like
intangibles (not including prepaid expenses classified as current assets or
tangible assets offset by equal related liabilities), all as determined in
accordance with Generally Accepted Accounting Principles.
1.21 "Term Loan" shall have the meaning ascribed to it in Section 3.1 hereof.
1.22 "Term Note" shall mean the promissory note of the Borrower substantially in
the form of attached Exhibit B, evidencing the Term Loan.
1.23 "Termination Date" shall mean May 30, 1999.
1.24 "Total Liabilities" shall mean all actual and contingent liabilities of the
Borrower which, in accordance with Generally Accepted Accounting Principles,
would be shown as liabilities on an audited financial statement of the Borrower.
1.25 "Traditional Cash Flow" shall mean the sum of net profit after taxes, plus
depreciation, amortization, and other non-cash charges.
SECTION 2 The Credit
2.1 Subject to the other provisions of this Agreement, the Bank may make
Advances to the Borrower from time to time from the effective date hereof until
the Termination Date in an aggregate principal amount not exceeding the lesser
of the Borrowing Base or ONE MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS
($1,200,000.00), at any one time outstanding. Each Advance will be requested in
writing or in person by an authorized officer of the Borrower, or telephonically
by any person reasonably believed by the Bank to be an authorized officer of the
Borrower. Requests for Advances must be received by the Bank no later than 2:00
p.m. on the day of such Advance. Each request shall be deemed a representation
and warranty by the Borrower that the representations and warranties set forth
in Section 6 hereof are true as of the date of such request. Each Advance will
be evidenced by a notation on the Bank's records, which shall be conclusive
evidence of such advance, and by the Current Note. Within the limits of the
Credit and subject to the terms and conditions hereof, the Borrower may borrow,
prepay pursuant to Section 2.5 hereof and reborrow pursuant to this Section 2.1.
<PAGE>
2.2 Interest on the unpaid principal of the Current Note shall accrue at an
annual rate equal to the Base Rate in effect from time to time, and shall change
as and when the Base Rate changes. Interest shall be calculated on the basis of
the actual number of days elapsed in a year of 360 days.
2.3 Interest on the Current Note shall be payable ON DEMAND, but until such
demand is made, interest shall be payable monthly, commencing June 30, 1998, and
continuing on the last day of each succeeding month, and on the Maturity Date.
2.4 The principal of the Current Note shall be repayable on the earlier of
DEMAND or the Maturity Date.
2.5 The Borrower may at any time prepay the Current Note in whole or from time
to time in part without premium or penalty.
2.6 If, at any time and from time to time, the outstanding principal balance of
the Current Note exceeds the Borrowing Base, the Borrower shall immediately make
a prepayment of principal in an amount sufficient to eliminate such excess.
SECTION 3 The Term Loan
3.1 Subject to the other provisions of this Agreement, the Bank shall make a
term loan ("Term Loan") to the Borrower in an amount not exceeding
$1,293,352.84, available in one or more draws on or before June 29, 1998. The
initial draw under the Term Loan shall be used to pay off all term indebtedness
owed by the Borrower to NBCI as of the date of such draw. The Term Loan shall be
non-revolving and evidenced by the Term Note.
3.2 Interest on the unpaid principal of the Term Note shall accrue at an annual
rate equal to the Base Rate in effect from time to time, and shall change as and
when the Base Rate changes. Interest on the Term Note shall be calculated on the
basis of the actual number of days elapsed in a year of 360 days.
3.3 Principal of and interest on the Term Note shall be paid together as
follows:
Fifty-nine (59) installments, each in the amount of $26,535.11,
commencing July 31, 1998 and continuing on the last day of each
consecutive month hereafter through and including May 31, 2003; plus,
one (1) final payment in an amount equal to all then-remaining
outstanding principal of the Term Note, plus accrued but unpaid
interest, shall be due and payable on June 30, 2003.
3.4 All payments received in respect of the Term Note shall first be applied to
accrued but unpaid interest, with the remainder applied to reduction of
principal.
3.5 The Borrower may at any time prepay the Term Note in whole or from time to
time in part without premium or penalty. Prepayments shall be applied to the
principal portion of scheduled installments in inverse order of their
maturities.
SECTION 4 Security
4.1 The payment and performance of the Borrower's obligations under this
Agreement, the Current Note and the Term Note shall be secured by the Borrower's
Security Agreement, pursuant to which the Borrower grants the Bank a security
interest in all personal property assets of the Borrower, whether now owned or
hereafter acquired.
4.2 As additional security for the prompt satisfaction of all obligations of
Borrower under this Agreement, the Current Note, the Term Note and the
Borrower's Security Agreement, the Borrower hereby assigns, transfers and sets
over to the Bank all of its right, title and interest in and to, and grants the
Bank a lien on and a security interest in, all amounts that may be owing from
time to time by the Bank to the Borrower in any capacity, including without
limitation any balance or share belonging to the Borrower of any deposit or
other account with the Bank, which lien and security interest shall be
independent of any right of set-off which the Bank may have.
4.3 The payment and performance of the Borrower's obligations under this
Agreement, the Current Note, the Term Note and the Borrower's Security Agreement
shall be unconditionally guaranteed by the Guarantor, pursuant to the provisions
of the Guaranty.
4.4 The payment and performance of the obligations of the Guarantor under the
Guaranty shall be secured by the Guarantor's Security Agreement, pursuant to
which the Guarantor grants the Bank a first security interest in all shares of
stock in the Borrower, whether now owned or hereafter acquired by the Guarantor.
4.5 At any time requested by the Bank, the Borrower shall execute and deliver,
or cause to be executed and delivered, to the Bank such additional documents as
the Bank may consider to be necessary or desirable to evidence or perfect the
security interests referred to in the Borrower's Security Agreement and the
Guarantor's Security Agreement.
SECTION 5 Conditions Precedent
5.1 On or before the Closing Date, the Borrower shall deliver the following to
the Bank, in form and content acceptable to the Bank:
A. Copies of the Articles of Incorporation of the Borrower and
the Guarantor, and all amendments thereto, certified by the Secretary
of State of Minnesota;
B. Copies of the By-laws of the Borrower and the Guarantor,
certified as true and complete by the corporate secretaries of the
Borrower and the Guarantor;
C. Certificates, as of the most recent date practicable, of the
Secretary of State of Minnesota as to the good standing of the
Borrower and the Guarantor;
D. A Norwest Corporate Certificate Of Authority, duly executed by
the corporate secretary of the Borrower;
E. A Norwest Certificate Of Authority For Guaranty By
Corporation, duly executed by the corporate secretary of the
Guarantor;
F. The Current Note, duly executed by the Borrower;
G. The Term Note, duly executed by the Borrower;
H. The Borrower's Security Agreement, duly executed by the
Borrower;
I. UCC-1 (and upon request, UCC-2) financing statements, duly
executed by the Borrower;
J. A Borrowing Base Certificate, current through the last day of
the month immediately preceding the Closing Date, and duly executed by
the Borrower;
K. The Guaranty, duly executed by the Guarantor; and,
L. The Guarantor's Security Agreement, duly executed by the
Guarantor;
M. Unrestricted stock certificates and stock powers, relating to
the shares of stock in the Borrower which are being pledged by the
Guarantor pursuant to the Guarantor's Security Agreement;
N. A certificate, duly executed by an authorized officer of NBCI,
indicating the principal of and interest on the indebtedness owed by
the Borrower to NBCI which is being paid off with the proceeds of the
Term Loan;
O. UCC-3 termination statements, duly executed by NBCI; and,
P. Certificates of insurance indicating that Borrower is in
compliance with the covenants contained in Section 7.5 hereof.
5.2 The Bank shall not consider any request for an Advance under Section 2.1
hereof, or for a draw under the Term Loan under Section 3.1 hereof, unless:
A. The representations and warranties contained in Section 6
hereof are true and accurate on and as of such date; and,
B. No Event of Default, and no event which might become an Event
of Default after the lapse of time or the giving of notice and the
lapse of time, has occurred and is continuing or will exist upon the
disbursement of such Advance or the funding of such draw under the
Term Loan, as the case may be.
<PAGE>
SECTION 6 Representations and Warranties
To induce the Bank to enter into this Agreement, the Borrower represents
and warrants to the Bank as follows:
6.1 The Borrower is a corporation duly organized, existing and in good standing
under the laws of the State of Minnesota.
6.2 The execution, delivery and performance of this Agreement and the other
documents referred to herein by the Borrower are within its corporate powers,
have been duly authorized, and are not in contravention of law or the terms of
Borrower's Articles of Incorporation or By-laws, or of any undertaking to which
the Borrower is a party or by which it is bound.
6.3 The property of the Borrower is not subject to any lien except Permitted
Liens.
6.4 No litigation or governmental proceeding is pending or, to the knowledge of
the officers of the Borrower, threatened against the Borrower which could have a
material adverse effect on the Borrower's financial condition or business.
6.5 The following is an accurate schedule of the indebtedness owed by the
Borrower to NBCI as of the date of this Agreement:
A. Aggregate revolving principal indebtedness: $0_____________;
B. Accrued but unpaid interest on revolving indebtedness:
$0_______________;
C. Aggregate principal term indebtedness: $1,285,639.00; and,
D. Accrued but unpaid interest on term indebtedness: $7,713.84.
Such indebtedness constitutes legal, valid and binding obligations owed by the
Borrower to NBCI, subject to no defense, counterclaim, offset, abatement or
recoupment.
6.6 All financial statements delivered to Bank by or on behalf of Guarantor,
including any schedules and notes pertaining thereto, have been prepared in
accordance with Generally Accepted Accounting Principles consistently applied,
and fully and fairly present in all material respects the financial condition of
the Guarantor at the dates thereof and the results of operations for the periods
covered thereby, and there have been no material adverse changes in the
consolidated financial condition or business of the Borrower from September 30,
1997 to the date hereof.
6.7 As of the date of this Agreement, there are 40,000 shares of stock in the
Borrower issued and outstanding, of which the Guarantor owns 40,000 shares.
SECTION 7 Affirmative Covenants
The Borrower covenants and agrees that, for so long as the Credit
remains in existence, or any indebtedness remains outstanding under the
Current Note or the Term Note, unless the Bank shall otherwise consent in
writing, it will:
7.1 Pay, when due, all taxes assessed against it or its property, except to the
extent and for so long as contested in good faith.
7.2 Maintain its corporate existence and comply with all laws and regulations
applicable thereto.
7.3 Furnish to the Bank, in form and content acceptable to the Bank:
A. Within 120 days after the end of each fiscal year of the
Guarantor, (i) a detailed report of audit of the Guarantor and its
subsidiaries, prepared on a consolidated and consolidating basis for
such fiscal year, including the balance sheets of the Guarantor and
its subsidiaries as of the end of such fiscal year, and the statements
of profit and loss and surplus of the Guarantor and its subsidiaries
for the fiscal year then ended, prepared by independent certified
public accountants satisfactory to the Bank, (ii) a certificate of
such accountants stating whether, in making their audit, they have
become aware of any Event of Default or of any event which could
become an Event of Default after the giving of notice or the lapse of
time (or both), which has occurred and is then continuing, and if any
such event has occurred and is continuing, specifying the nature and
period of existence thereof, and (iii) insurance certificate
indicating the Borrower's compliance with the covenants set forth in
Section 7.5 hereof.
<PAGE>
B. Within 30 days after the end of each month, (i) the
consolidated balance sheets of the Guarantor and its subsidiaries as
of the end of such month, and (ii) the consolidated statement of
profit and loss and surplus of the Guarantor and its subsidiaries from
the beginning of such fiscal year to the end of such month. All of the
foregoing shall be unaudited, but certified as correct (subject to
year-end adjustments) by an appropriate officer of the Guarantor.
C. Within 30 days after the end of each month which ends with
outstanding indebtedness under the Credit, (i) a Borrowing Base
Certificate as of the end of such month, and (ii) upon request, an
aging of the Borrower's receivables as of the end of such month.
D. Promptly upon knowledge thereof, notice to the Bank in writing
of the occurrence of any event which has or might, after the lapse of
time or the giving of notice and the lapse of time, become an Event of
Default.
E. Promptly, such other information as the Bank may reasonably
request.
7.4 Maintain its inventory, equipment, real estate and other properties in good
condition and repair (normal wear and tear excepted), and will pay and discharge
or cause to be paid and discharged when due, the cost of repairs to or
maintenance of the same, and will pay or cause to be paid all rental or mortgage
payments due on such real estate.
7.5 Cause its properties of an insurable nature to be adequately insured by
reputable and solvent insurance companies against loss or damages customarily
insured against by persons operating similar properties and similarly situated,
and carry such other insurance (including business interruption insurance) as
usually carried by persons engaged in the same or similar businesses and
similarly situated, with the Bank named as loss payee on all such policies of
insurance with respect to the Bank's collateral security.
7.6 Keep true, complete and accurate books, records and accounts in accordance
with Generally Accepted Accounting Principles consistently applied.
7.7 Permit any of Bank's duly authorized employees or agents the right,
following reasonable notice, to visit and inspect the properties of Borrower and
to examine and take abstracts from its books and records, with the expenses of
all the foregoing to be borne by the Borrower; provided, however, that the
liability of the Borrower to reimburse the Bank for semi-annual collateral
audits shall not exceed $1,000.00 per fiscal year.
7.8 Continue to conduct the same general type of business as is now being
carried on in compliance with all applicable statutes, laws, rules and
regulations.
SECTION 8 Negative Covenants
Without the Bank's written consent, for so long as the Credit remains in
existence, or any indebtedness remains outstanding under the Current Note or the
Term Note, the Borrower will not:
8.1 Permit any lien, including without limitation any pledge, assignment,
mortgage, title retaining contract or other type of security interest, to exist
on any of its real or personal property, except Permitted Liens.
8.2 Permit its Tangible Net Worth to be less than $3,000,000.00 as of the end of
any fiscal year, commencing September 30, 1998.
8.3 Permit its ratio of Total Liabilities to Tangible Net Worth to be greater
than 2.0 to 1.0 as of the end of any fiscal year, commencing September 30, 1998.
<PAGE>
8.4 Permit its net profit after taxes to be less than $100,000.00 for any fiscal
year, commencing with the fiscal year ending September 30, 1998.
8.5 Permit its ratio of Traditional Cash Flow to current maturities of long-term
debt to be less than 1.50 to 1.0 for any fiscal year, commencing with the fiscal
year ending September 30, 1998.
8.6 Purchase or otherwise acquire all or substantially all of the assets of any
legal entity.
8.7 Create, incur, assume or suffer to exist, contingently or otherwise,
indebtedness for Borrowed Money.
8.8 Become or remain a guarantor or surety, or pledge its credit or become
liable in any manner (except by endorsement for deposit in the ordinary course
of business) on the other undertakings of another.
8.9 Enter into any transaction of merger or consolidation, or sell, assign,
lease or otherwise dispose of all or a substantial part of its properties or
assets, or any of its notes or accounts receivable, or any stock or indebtedness
of any subsidiary, or any assets or properties necessary or desirable for the
proper conduct of its business, or change the nature of its business or its
accounting procedures, or wind up, liquidate or dissolve, or agree to do any of
the foregoing, or permit any subsidiary to do any of the foregoing; provided,
however, that the provisions of this Section 8.9 shall not prohibit the Borrower
from selling assets in an aggregate amount not exceeding $250,000.00 per fiscal
year.
SECTION 9 Events of Default
9.1 Upon the occurrence of any of the following Events of Default:
A. Default in any payment of interest or of principal on the
Current Note or the Term Note when due, and continuance thereof for 10
calendar days;
B. Default in the observance or performance of any one or more of
the covenants set forth in Sections 2.6 or 7.3(C) hereof, and
continuance thereof for 3 calendar days;
C. Default in the observance or performance of any covenant set
forth in Section 8 hereof;
D. Default in the observance or performance of any other
agreement of the Borrower set forth herein (i.e., other than those
addressed in Sections 9.1(A), 9.1(B) or 9.1(C) hereof), and
continuance thereof for 30 calendar days;
E. The occurrence of an event of default under the Borrower's
Security Agreement or the Guarantor's Security Agreement;
F. Default by the Borrower in the payment of any other
indebtedness for Borrowed Money or in the observance or performance of
any term, covenant or agreement of the Borrower in any agreement
relating to any indebtedness of the Borrower, the effect of which
default is to permit the holder of such indebtedness to declare the
same due prior to the date fixed for its payment under the terms
thereof;
G. Any representation or warranty made by the Borrower herein, or
in any statement or certificate furnished by the Borrower or the
Guarantor hereunder, is untrue in any material respect;
<PAGE>
H. The recission of the Guaranty; or,
I. The Guarantor becomes insolvent or bankrupt, or makes an
appointment for the benefit of creditors, or consents to the
appointment of a custodian, trustee or receiver for itself or for the
greater part of its properties; or a custodian, trustee or receiver is
appointed for the Guarantor or for the greater part of its properties
without its consent, and is not discharged within 60 calendar days; or
bankruptcy, reorganization or liquidation proceedings are instituted
by or against the Guarantor and, if instituted against it, are
consented to by it or remain undismissed for 60 calendar days;
then, or at any time thereafter, unless such Event of Default is remedied, the
Bank may, by notice in writing to the Borrower, terminate the Credit and declare
the Current Note and the Term Note to be due and payable, or any or all of the
foregoing, whereupon the Credit shall terminate forthwith, and the Current Note
and the Term Note shall immediately become due and payable, or any or all of the
foregoing, as the case may be.
9.2 Upon the occurrence of any of the following Events of Default:
The Borrower becomes insolvent or bankrupt, or makes an appointment
for the benefit of creditors, or consents to the appointment of a
custodian, trustee or receiver for itself or for the greater part of
its properties; or a custodian, trustee or receiver is appointed for
the Borrower or for the greater part of its properties without its
consent, and is not discharged within 30 calendar days; or bankruptcy,
reorganization or liquidation proceedings are instituted by or against
the Borrower and, if instituted against it, are consented to by it or
remain undismissed for 30 calendar days;
then the Credit shall automatically terminate and the Current Note and the Term
Note shall automatically become immediately due and payable, without notice or
demand.
SECTION 10 Arbitration
10.1 Except for "Core Proceedings" under the United States Bankruptcy Code, the
Bank and the Borrower agree to submit to binding arbitration all claims,
disputes and controversies between or among them (and their respective
employees, officers, directors, attorneys, and other agents), whether in tort,
contract or otherwise, arising out of or relating to in any way (i) the Credit,
the Term Loan, the Current Note, the Term Note, and related loan and security
documents, including all negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination, or (ii) requests for additional
credit. Any arbitration proceeding will (i) proceed in St. Paul, Minnesota, (ii)
be governed by the Federal Arbitration Act (Title 9 of the United States Code),
and (iii) be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association ("AAA").
The arbitration provisions contained in this Section 10 do not limit the right
of either party (i) to foreclose against real or personal property collateral,
(ii) to exercise self-help remedies relating to collateral or proceeds of
collateral such as setoff or repossession, or (iii) to obtain provisional
ancillary remedies such as replevin, injunctive relief, attachment or the
appointment of a receiver, before during or after the pendency of any
arbitration proceeding. This exclusion does not constitute a waiver of the right
or obligation of either party to submit any dispute to arbitration, including
those arising from the exercise of the actions detailed in clauses (i), (ii) and
(iii) of this paragraph. Notwithstanding any provision to the contrary herein,
any party may apply to any court having jurisdiction hereof and seek injunctive
relief so as to maintain the status quo until such time as the arbitration award
is rendered or the controversy is otherwise resolved.
Any arbitration proceeding will be before a single arbitrator selected according
to the Commercial Arbitration Rules of the AAA. The arbitrator will be a neutral
attorney or retired judge who has practiced in the area of commercial law for a
minimum of ten years. The arbitrator will determine whether or not an issue is
arbitratable, and will give effect to the statutes of limitation in determining
any claim. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction.
10.2 In any arbitration proceeding the arbitrator will decide (by documents only
or with a hearing at the arbitrator's discretion) any pre-hearing motions which
are similar to motions to dismiss for failure to state a claim or motions for
summary adjudication.
<PAGE>
10.3 In any arbitration proceeding, discovery will be permitted and will be
governed by the Minnesota Rules of Civil Procedure. All discovery must be
completed no later than 20 days before the hearing date and within 180 days of
the commencement of arbitration proceedings. Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
10.4 The arbitrator shall award costs and expenses of the arbitration proceeding
in accordance with the provisions of this Agreement.
SECTION 11 Miscellaneous
11.1 The provisions of this Agreement shall be in addition to those of any
guaranty, pledge or security agreement, note or other evidence of liability held
by the Bank, all of which shall be construed as complementary to each other.
Nothing herein contained shall prevent the Bank from enforcing any or all of the
rights and remedies available to it at law, in equity or by agreement.
11.2 From time to time, the Borrower will execute and deliver to the Bank such
additional documents and will provide such additional information as the Bank
may reasonably require to carry out the terms of this Agreement and be informed
of the Borrower's status and affairs. All documentation executed in connection
with this Agreement, whether before, on or after the Closing date, shall be in
form and content acceptable to the Bank.
11.3 The Borrower will pay all expenses, including the reasonable fees and
expenses of legal counsel for the Bank, incurred in connection with the
preparation, administration, amendment, modification or enforcement of this
Agreement and the other documents referred to herein.
11.4 All notices or consents required or permitted by this Agreement shall be in
writing and shall be deemed delivered if delivered in person or if sent by
United States mail, postage prepaid, or telegraph or telex, as follows, unless
such address is changed by written notice hereunder:
A. If to the Borrower:
La Canasta of Minnesota, Inc.
1565 1st Avenue NW
New Brighton, Minnesota 55112
Attention: A. Merrill Ayers, CFO
B. If to the Bank:
Norwest Bank Minnesota, National Association
St. Paul Office
55 East Fifth Street
St. Paul, Minnesota 55101
Attention: Paul G. Rebholz
11.5 The Bank shall have the right at all times to enforce the provisions of
this Agreement and the other documents referred to herein in strict accordance
with the terms hereof and thereof, notwithstanding any conduct or custom on the
part of the Bank in refraining from so doing at any time or times. The failure
of the Bank at any time or times to enforce its rights under such provisions,
strictly in accordance with the same, shall not be construed as having created a
custom in any way or manner contrary to specific provisions of this Agreement or
as having in any way or manner modified or waived the same. All rights and
remedies of the Bank are cumulative and concurrent, and the exercise of one
right or remedy shall not be deemed a waiver or release of any other right or
remedy.
11.6 This Agreement shall inure to the benefit of, and shall be binding upon,
the respective successors and permitted assigns of the parties hereto. The
Borrower has no right to assign any of its rights or obligations hereunder
without the prior written consent of the Bank. This Agreement, and the documents
executed and delivered pursuant hereto or in connection herewith, constitute the
entire agreement between the parties, and may be amended only by a writing
signed on behalf of each party.
11.7 If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision of this
Agreement that can be given effect without the invalid provision, and, to this
end, the provisions hereof are severable.
<PAGE>
11.8 NONE OF THE PROVISIONS OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE
PROVISIONS OF SECTION 9, SHALL BE DEEMED TO DIMINISH OR ABROGATE THE BANK'S
RIGHT TO DEMAND IMMEDIATE REPAYMENT OF THE CURRENT NOTE AT ANY TIME.
11.9 NONE OF THE PROVISIONS OF THIS AGREEMENT SHALL BE DEEMED TO DIMINISH OR
ABROGATE THE BANK'S RIGHT TO DECLINE TO MAKE AN ADVANCE UNDER THE CREDIT AT ANY
TIME.
11.10 The substantive laws of the State of Minnesota shall govern the
construction of this Agreement and the rights and remedies of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
LA CANASTA OF MINNESOTA, INC.
By:______________________________
Its:_____________________________
By:______________________________
Its:_____________________________
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:______________________________
Paul G. Rebholz,
Assistant Vice President
<PAGE>
PROMISSORY NOTE
$1,200,000.00 June 24th, 1998
FOR VALUE RECEIVED, the undersigned, La Canasta Of Minnesota, Inc., a
Minnesota corporation with offices in New Brighton, Minnesota, promises to pay
on the earlier of DEMAND or May 30, 2000 to the order of Norwest Bank Minnesota,
National Association (the "Bank") at the Bank's St. Paul Office or at any other
place designated at any time by the holder hereof, in lawful money of the United
States of America, the principal sum of ONE MILLION TWO HUNDRED THOUSAND AND
NO/100 DOLLARS ($1,200,000.00), or so much thereof as is disbursed and remains
outstanding hereunder as shown by the Bank's liability record on the dates
payments are due hereunder, together with interest on the unpaid balance hereof
from the date hereof until this Note is fully paid at an annual rate equal to
the rate of interest established from time to time by the Bank as its Base Rate.
The interest rate of this Note shall change simultaneously with each change in
the Base Rate. Interest shall be calculated on the basis of actual number of
days elapsed in a 360-day year.
Interest on this Note is payable ON DEMAND, but until such demand is made,
interest shall be payable monthly, commencing June 30, 1998, and continuing on
the last day of each succeeding month, and upon maturity.
This Note constitutes the Current Note issued pursuant to the provisions
of that certain Term Loan And Credit Agreement of even date herewith (the
"Credit Agreement") made between the undersigned and the Bank. Reference is
hereby made to the Credit Agreement for statements of the terms pursuant to
which the indebtedness evidenced hereby was created, is secured, may be prepaid
voluntarily, may be subject to mandatory prepayment, may be reborrowed and may
be accelerated; PROVIDED, HOWEVER, that none of the provisions of the Credit
Agreement shall be deemed to diminish or abrogate the right of the Bank to
demand at any time immediate payment of all indebtedness evidenced by this Note.
Unless prohibited by law, the undersigned agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof may
change any terms of payment of this Note, including extensions of time and
renewals, and release any security for, or any party to, this Note, without
notifying or releasing any accommodation maker, endorser or guarantor from
liability in connection with this Note. Presentment or other demand for payment,
notice of dishonor and protest are hereby waived by the undersigned and each
endorser or guarantor.
This Note shall be governed by the substantive laws of the State of Minnesota.
LA CANASTA OF MINNESOTA, INC.
By:_________________________________
Its:________________________________
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$1,200,000.00 June ____, 1998
FOR VALUE RECEIVED, the undersigned, La Canasta Of Minnesota, Inc., a
Minnesota corporation with offices in New Brighton, Minnesota, promises to pay
on the earlier of DEMAND or May 30, 2000 to the order of Norwest Bank Minnesota,
National Association (the "Bank") at the Bank's St. Paul Office or at any other
place designated at any time by the holder hereof, in lawful money of the United
States of America, the principal sum of ONE MILLION TWO HUNDRED THOUSAND AND
NO/100 DOLLARS ($1,200,000.00), or so much thereof as is disbursed and remains
outstanding hereunder as shown by the Bank's liability record on the dates
payments are due hereunder, together with interest on the unpaid balance hereof
from the date hereof until this Note is fully paid at an annual rate equal to
the rate of interest established from time to time by the Bank as its Base Rate.
The interest rate of this Note shall change simultaneously with each change in
the Base Rate. Interest shall be calculated on the basis of actual number of
days elapsed in a 360-day year.
Interest on this Note is payable ON DEMAND, but until such demand is made,
interest shall be payable monthly, commencing June 30, 1998, and continuing on
the last day of each succeeding month, and upon maturity.
This Note constitutes the Current Note issued pursuant to the provisions
of that certain Term Loan And Credit Agreement of even date herewith (the
"Credit Agreement") made between the undersigned and the Bank. Reference is
hereby made to the Credit Agreement for statements of the terms pursuant to
which the indebtedness evidenced hereby was created, is secured, may be prepaid
voluntarily, may be subject to mandatory prepayment, may be reborrowed and may
be accelerated; PROVIDED, HOWEVER, that none of the provisions of the Credit
Agreement shall be deemed to diminish or abrogate the right of the Bank to
demand at any time immediate payment of all indebtedness evidenced by this Note.
Unless prohibited by law, the undersigned agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof may
change any terms of payment of this Note, including extensions of time and
renewals, and release any security for, or any party to, this Note, without
notifying or releasing any accommodation maker, endorser or guarantor from
liability in connection with this Note. Presentment or other demand for payment,
notice of dishonor and protest are hereby waived by the undersigned and each
endorser or guarantor.
This Note shall be governed by the substantive laws of the State of Minnesota.
LA CANASTA OF MINNESOTA, INC.
By:_________________________________
Its:________________________________
<PAGE>
PROMISSORY NOTE
$1,293,352.84 June 24th, 1998
FOR VALUE RECEIVED, the undersigned, La Canasta Of Minnesota, Inc., a
Minnesota corporation with offices in New Brighton, Minnesota, promises to pay
to the order of Norwest Bank Minnesota, National Association (the "Bank") at the
Bank's St. Paul Office or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America, the principal
sum of ONE MILLION TWO HUNDRED NINETY THREE THOUSAND THREE HUNDRED FIFTY TWO AND
84/100 DOLLARS ($1,293,352.84), together with interest on the unpaid balance
hereof from the date hereof until this Note is fully paid at an annual rate
equal to the rate of interest established from time to time by the Bank as its
Base Rate. The interest rate of this Note shall change simultaneously with each
change in the Base Rate. Interest shall be calculated on the basis of actual
number of days elapsed in a 360-day year.
Principal of and interest on this Note shall be paid together as follows:
Fifty-nine (59) installments, each in the amount of $26,535.11,
commencing July 31, 1998 and continuing on the last day of each
consecutive month hereafter through and including May 31, 2003;
plus one (1) final payment in an amount equal to all
then-remaining outstanding principal of this Note, plus accrued
but unpaid interest, shall be due and payable on June 30, 2003.
This Note constitutes the Term Note issued pursuant to the provisions of
that certain Term Loan And Credit Agreement of even date herewith (the "Credit
Agreement") made between the undersigned and the Bank. Reference is hereby made
to the Credit Agreement for statements of the terms pursuant to which the
indebtedness evidenced hereby was created, is secured, may be prepaid
voluntarily, and may be accelerated.
Unless prohibited by law, the undersigned agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof may
change any terms of payment of this Note, including extensions of time and
renewals, and release any security for, or any party to, this Note, without
notifying or releasing any accommodation maker, endorser or guarantor from
liability in connection with this Note. Presentment or other demand for payment,
notice of dishonor and protest are hereby waived by the undersigned and each
endorser or guarantor.
This Note shall be governed by the substantive laws of the State of Minnesota.
LA CANASTA OF MINNESOTA, INC.
By:_________________________________
Its:________________________________
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$1,293,352.84 June ____, 1998
FOR VALUE RECEIVED, the undersigned, La Canasta Of Minnesota, Inc., a
Minnesota corporation with offices in New Brighton, Minnesota, promises to pay
to the order of Norwest Bank Minnesota, National Association (the "Bank") at the
Bank's St. Paul Office or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America, the principal
sum of ONE MILLION TWO HUNDRED NINETY THREE THOUSAND THREE HUNDRED FIFTY TWO AND
84/100 DOLLARS ($1,293,352.84), together with interest on the unpaid balance
hereof from the date hereof until this Note is fully paid at an annual rate
equal to the rate of interest established from time to time by the Bank as its
Base Rate. The interest rate of this Note shall change simultaneously with each
change in the Base Rate. Interest shall be calculated on the basis of actual
number of days elapsed in a 360-day year.
Principal of and interest on this Note shall be paid together as follows:
Fifty-nine (59) installments, each in the amount of $26,535.11,
commencing July 31, 1998 and continuing on the last day of each
consecutive month hereafter through and including May 31, 2003;
plus one (1) final payment in an amount equal to all
then-remaining outstanding principal of this Note, plus accrued
but unpaid interest, shall be due and payable on June 30, 2003.
This Note constitutes the Term Note issued pursuant to the provisions of
that certain Term Loan And Credit Agreement of even date herewith (the "Credit
Agreement") made between the undersigned and the Bank. Reference is hereby made
to the Credit Agreement for statements of the terms pursuant to which the
indebtedness evidenced hereby was created, is secured, may be prepaid
voluntarily, and may be accelerated.
Unless prohibited by law, the undersigned agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof may
change any terms of payment of this Note, including extensions of time and
renewals, and release any security for, or any party to, this Note, without
notifying or releasing any accommodation maker, endorser or guarantor from
liability in connection with this Note. Presentment or other demand for payment,
notice of dishonor and protest are hereby waived by the undersigned and each
endorser or guarantor. This Note shall be governed by the substantive laws of
the State of Minnesota.
LA CANASTA OF MINNESOTA, INC.
By:_________________________________
Its:________________________________
<PAGE>
SECURITY AGREEMENT
DATE: June 24, 1998
DEBTOR: SECURED PARTY:
LaCanasta Of Minnesota, Inc. Norwest Bank Minnesota,
1565 1st Avenue North West National Association
New Brighton, Minnesota 55112 55 East Fifth Street
St. Paul, Minnesota 55101
1. Security Interest and Collateral. To secure the payment and performance of
each and every debt, liability and obligation of every type and description
which Debtor may now or at any time hereafter owe to Secured Party (whether such
debt, liability or obligation now exists or is hereafter created or incurred,
whether it is currently contemplated by the Debtor and Secured Party, whether
any documents evidencing it refer to this Security Agreement, whether it arises
with or without any documents (e.g. obligations to Secured Party created by
checking overdrafts), and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several; all such debts,
liabilities and obligations being herein collectively referred to as the
"Obligations"), Debtor hereby grants Secured Party a security interest (herein
called the "Security Interest") in the following property (herein called the
"Collateral") (check applicable boxes and complete information):
(a) INVENTORY:
|X| All inventory of Debtor, whether now owned or
hereafter acquired and wherever located;
(b) EQUIPMENT, FARM PRODUCTS AND CONSUMER GOODS:
|X| All Equipment of Debtor, whether now owned or
hereafter acquired, including but not limited to all
present and future machinery, vehicles, furniture,
appliances, fixtures, manufacturing and processing
equipment, farm machinery and equipment, shop
equipment, office and recordkeeping equipment,
computer hardware and software, parts and tools,
goods, and types of goods of every kind and
description.
<PAGE>
|_| All farm products of Debtor, whether now owned or
hereafter acquired, including but not limited
to (i) all poultry and livestock and their young,
products thereof and produce thereof, all holding
marks and brands and branding irons of Debtor that at
any time cover any such livestock, and, if the
livestock includes sheep, all wool pulled, clipped
or shorn therefrom, (ii) all crops, whether annual
or perennial, and the products thereof, (iii) all
feed, seed, fertilizer, medicines and other supplies
used or produced by Debtor in farming operations,
and (iv) all crop insurance payments and storage
payments and all rights to payment and payments under
any government agricultural diversion, assistance or
support program, Farm Services Agency program and
any other such government agricultural program
including, without limitation, any diversion or
deficiency payments. The real estate concerned with
the above described crops growing or to be grown
is:__________________________________________________
_____________________________________________________
_____________________________________________________
and the name of the record owner is:_________________
_____________________________________________________
|_| The following goods or types of goods:_______________
_____________________________________________________
_____________________________________________________
(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:
|X| Accounts and each and every right of Debtor to the
payment of money, whether such right to payment now
exists or hereafter arises, whether such right to
payment arises out of a sale, lease or other
disposition of goods or other property by Debtor,
out of a rendering of services by Debtor, out of a
loan by Debtor, out of the overpayment of taxes or
other liabilities of Debtor, or otherwise arises
under any contract or agreement, whether such right
to payment is or is not already earned by
performance, and howsoever such right to payment
may be evidenced, together with all other rights
and interests (including all liens and security
interests) which Debtor may at any time have by law
or agreement against any account debtor or other
obligor obligated to make any such payment or against
any of the property of such account debtor or other
obligor; all including but not limited to all present
and future debt instruments, chattel papers,
accounts, contract rights, loans and obligations
receivable, tax refunds, unearned insurance premiums,
rebates, and negotiable documents.
<PAGE>
|-| _____________________________________________________
_____________________________________________________
_____________________________________________________
(d) GENERAL INTANGIBLES:
|X| All general intangibles of Debtor, whether now owned
or hereafter acquired, including, but not limited to,
certificates of deposit, applications for patents,
patents, copyrights, trademarks, trade secrets, good
will, tradenames, customers' lists, permits and
franchises, and the right to use Debtor's name,
together with all other intangible property rights
such as the right to redeem or accept payment under
an annuity contract or a non-negotiable certificate
of deposit issued by a bank.
together with all substitutions and replacements for and products of any of the
foregoing property not constituting consumer goods and together with proceeds of
any and all of the foregoing property including without limitation insurance
proceeds and any rights of subrogation resulting from the damage or destruction
thereof, and, in the case of all tangible Collateral, together with all
accessions and, except in the case of consumer goods, together with (i) all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any such goods, and (ii) all warehouse
receipts, bills of lading and other documents of title now or hereafter covering
such goods.
2. Representations, Warranties and Agreements. Debtor represents, warrants and
agrees that:
(a) Debtor is |_| an individual, |_| a partnership, |X| a
corporation |_| _____________________________.
(b) The Collateral will be used primarily for |_| personal, family
or household purposes; |_| agricultural purposes; |X| business
purposes.
(c) |_| If any part or all of the tangible Collateral will become
so related to particular real estate as to become a fixture,
the real estate concerned is:_________________________________
______________________________________________________________
______________________________________________________________
_________________________ and the name of the record owner is:
______________________________________________________________
______________________________________________________________
(d) Debtor's chief executive office is located at:________________
______________________________________________________________
or, if left blank, at the address of Debtor shown at the
beginning of this Agreement. If Debtor is an individual, the
Debtor's residence is at the address of Debtor shown at the
beginning of this Agreement.
3. Additional Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:
(a) Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral free and
clear of all security interests, liens and encumbrances, except the Security
Interest, and any other security interest permitted under the terms of the term
loan and credit agreement, and will defend the Collateral against all claims or
demands of all persons other than Secured Party. Debtor will not sell or
otherwise dispose of the Collateral or any interest therein without the prior
written consent of Secured Party, except that, until the occurrence of an Event
of Default and the revocation by Secured Party of Debtor's right to do so,
Debtor may sell any inventory constituting Collateral to buyers in the ordinary
course of business and use and consume any farm products constituting Collateral
in Debtor's farming operation. If Debtor is not an individual, this Agreement
has been duly and validly authorized by all necessary action of the Debtor's
governing body.
<PAGE>
(b) Debtor will not permit any tangible Collateral to be located in any
state (and, if county filing is required, in any county) in which a financing
statement covering such Collateral is required to be, but has not in fact been,
filed in order to perfect the Security Interest.
(c) Each account and right to payment and each instrument, document,
chattel paper and other agreement constituting or evidencing Collateral is (or
will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than those
arising in the ordinary course of business) of the account debtor or other
obligor named therein or in Debtor's records pertaining thereto as being
obligated to pay such obligation. Debtor will neither agree to any material
modification or amendment nor agree to any cancellation of any such obligation
without Secured Party's prior written consent, and will not subordinate any such
right to payment to claims of other creditors of such account debtor or other
obligor.
(d) Debtor will (i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and will, from time
to time, replace any worn, broken or defective parts thereof; (ii) promptly pay,
when due, all taxes and other governmental charges levied or assessed upon or
against any Collateral or upon or against the creation, perfection or
continuance of the Security Interest; (iii) keep all Collateral free and clear
of all security interests, liens and encumbrances except the Security Interest;
(iv) at all reasonable times, following notice, permit Secured Party or its
representatives to examine or inspect any Collateral, wherever located, and to
examine, inspect and copy Debtor's books and records pertaining to the
Collateral and its business and financial condition and to discuss with account
debtors and other obligors requests for verifications of amounts owed to Debtor;
(v) keep accurate and complete records pertaining to the Collateral and
pertaining to Debtor's business and financial condition and submit to Secured
Party such periodic reports concerning the Collateral and Debtor's business and
financial condition as Secured Party may from time to time reasonably request;
(vi) promptly notify Secured Party of any loss of or material damage to any
Collateral or of any adverse change, known to Debtor, in the prospect of payment
of any sums due on or under any instrument, chattel paper, or account
constituting Collateral; (vii) if Secured Party at any time so requests (whether
the request is made before or after the occurrence of an Event of Default),
promptly deliver to Secured Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by Debtor; (viii) at all
times keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (in case of Collateral consisting
of motor vehicles) and such other risks and in such amounts as Secured Party may
reasonably request, with any loss payable to Secured Party to the extent of its
interest and with the commitment of the issuer to notify Secured Party before
cancellation; (ix) from time to time execute such financing statements and
effective financing statements, and furnish lists of potential buyers of farm
products as Secured Party may reasonably require in order to perfect the
Security Interest and, if any Collateral consists of a motor vehicle, execute
such documents as may be required to have the Security Interest properly noted
on a certificate of title; (x) pay when due or reimburse Secured Party on demand
for all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including in each case all reasonable attorney's fees)
incurred by Secured Party in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the Security Interest or the
creation, continuance, protection, defense or enforcement of this Agreement or
any or all of the Obligations, including expenses incurred in any litigation or
bankruptcy, receivership or insolvency proceedings; (xi) execute, deliver or
endorse any and all instruments, documents, assignments, security agreements and
other agreements and writings which Secured Party may at any time reasonably
request in order to secure, protect, perfect or enforce the Security Interest
and Secured Party's rights under this Agreement; (xii) not use the Collateral
<PAGE>
for hire, use or keep any Collateral, or permit it to be used or kept, for any
unlawful purpose or in violation of any federal, state or local law, statute,
ordinance, or insurance policy; (xiii) permit Secured Party at any time and from
time to time to send request (both before and after the occurrence of an Event
of Default) to account debtors or other obligors for verification of amounts
owed to Debtor; (xiv) not permit any tangible Collateral to become part of or to
be affixed to any real property without first assuring to the reasonable
satisfaction of Secured Party that the Security Interest will be prior and
senior to any interest or lien then held or thereafter acquired by any mortgagee
of such real property or the owner or purchaser of any interest therein; (xv)
upon Secured Party's request, obtain a waiver or consent from the owner and any
mortgagee of any real property where the Collateral may be located that provides
that the Security Interest will at all times be senior to any such interest or
lien; and (xvi) if any Collateral consists of farm products, if applicable,
sell, cosign or transfer the Collateral only to those persons whose names and
addresses have been furnished to Secured Party as potential buyers of farm
products. If Debtor at any time fails to perform or observe any agreement
contained in this Section 3(d), and if such failure shall continue for a period
of ten calendar days after Secured Party gives Debtor written notice thereof
(or, in the case of the agreements contained in clauses (viii) and (ix) of this
Section 3(d), immediately upon the occurrence of such failure, without notice or
lapse of time), Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of Debtor (or, at Secured
Party's option, in Secured Party's own name) and may (but need not) take any and
all other actions which Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of security interests, liens, or encumbrances, the performance of
obligations under contracts or agreements with account debtors or other
obligors, the procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and the procurement of
repairs, transportation or insurance); and, except to the extent that the effect
of such payment would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law. Debtor shall thereupon pay Secured
Party on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys' fees) incurred by Secured Party in connection
with or as a result of Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date expended or
incurred by Secured Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by Secured Party of
such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment
is coupled with an interest) Secured Party, or its delegate, as the
attorney-in-fact of Debtor with the right (but not the duty) from time to time
to create, prepare, complete, execute, deliver, endorse or file, in the name and
on behalf of Debtor, any and all instruments, documents, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by Debtor under this Section 3 and
Section 4. Unless not permitted by applicable law, Debtor hereby irrevocably
authorizes Secured Party to create, prepare, complete, execute and file, in the
name and on behalf of Debtor, such financing statements as may be required to
perfect the Security Interest.
<PAGE>
4. Lock Box, Collateral Account. If Secured Party so requests at any time
(whether before or after the occurrence of an Event of Default), Debtor will
direct each of its account debtors to make payments due under the relevant
account or chattel paper directly to a special lock box to be under the control
of Secured Party. Debtor hereby authorizes and directs Secured Party to deposit
into a special collateral account to be established and maintained with Secured
Party all checks, drafts and cash payments, received in said lock box. All
deposits in said collateral account shall constitute proceeds of Collateral and
shall not constitute payment of any Obligation. At its option, Secured Party
may, at any time, apply finally collected funds on deposit in said collateral
account to the payment of the Obligations in such order of application as
Secured Party may determine, or permit Debtor to withdraw all or any part of the
balance on deposit in said collateral account. If a collateral account is so
established, Debtor agrees that it will promptly deliver to Secured Party, for
deposit into said collateral account, all payments on accounts and chattel paper
received by it. All such payments shall be delivered to Secured Party in the
form received (except for Debtor's endorsement where necessary). Until so
deposited, all payments on accounts and chattel paper received by Debtor shall
be held in trust by Debtor for and as the property of Secured Party and shall
not be commingled with any funds or property of Debtor.
5. Collection Rights of Secured Party. Notwithstanding Secured Party's rights
under Section 4 with respect to any and all debt instruments, chattel papers,
accounts, and other rights to payment constituting Collateral (including
proceeds), Secured Party may, at any time (both before and after the occurrence
of an Event of Default) notify any account debtor, or any other person obligated
to pay any amount due, that such chattel paper, account, or other right to
payment has been assigned or transferred to Secured Party for security and shall
be paid directly to Secured Party. If Secured Party so requests at any time,
Debtor will so notify such account debtors and other obligors in writing and
will indicate on all invoices to such account debtors or other obligors that the
amount due is payable directly to Secured Party. At any time after Secured Party
or Debtor gives such notice to an account debtor or other obligor, Secured Party
may (but need not), in its own name or in Debtor's name, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such chattel paper, account, or other right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor.
6. Assignment of Insurance. Debtor hereby assigns to Secured Party, as
additional security for the payment of the Obligations, any and all moneys
(including but not limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Debtor under or
with respect to, any and all policies of insurance covering the Collateral, and
Debtor hereby directs the issuer of any such policy to pay any such moneys
directly to Secured Party. Both before and after the occurrence of an Event of
Default, Secured Party may (but need not), in its own name or in Debtor's name,
execute and deliver proofs of claim, receive all such moneys, endorse checks and
other instruments representing payment of such moneys, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
7. Events of Default. Each of the following occurrences shall constitute an
event of default under this Agreement (herein called "Event of Default"): (i)
Debtor shall fail to pay any or all of the Obligations when due or (if payable
on demand) on demand, or shall fail to observe or perform any covenant or
agreement binding on it; (ii) any representation or warranty by Debtor set forth
in this Agreement or otherwise made to Secured Party, including without
limitation in any financial statements or reports submitted to Secured Party, by
or on behalf of Debtor, shall prove materially false or misleading; (iii) a
garnishment, summons or a writ of attachment shall be issued against or served
upon the Secured Party for the attachment of any property of the Debtor or any
indebtedness owing to Debtor; (iv) Debtor or any guarantor of any Obligation
shall (A) be or become insolvent (however defined); or (B) voluntarily file, or
have filed against it involuntarily, a petition under the United Stated
Bankruptcy Code; or (C) if a corporation, partnership, or organization, be
dissolved or liquidated or, if a partnership, suffer the death of a partner or,
if an individual, die; or (D) go out of business; or (v) Secured Party shall in
good faith believe that the prospect of due and punctual payment of any or all
of the Obligations is impaired.
<PAGE>
8. Remedies upon Event of Default. Upon the occurrence of an Event of Default
under Section 7 and at any time thereafter, Secured Party may exercise any one
or more of the following rights and remedies: (i) declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon be
immediately due and payable, without presentment or other notice or demand; (ii)
exercise and enforce any or all rights and remedies available upon default to a
secured party under the Uniform Commercial Code, including but not limited to
the right to take possession of any Collateral, proceeding without judicial
process or by judicial process (without a prior hearing or notice thereof, which
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, Secured
Party may require Debtor to make the Collateral available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient to both
parties, and if notice to Debtor of any intended disposition of Collateral or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 10) at least 10 calendar days prior to the date of intended
disposition or other action; (iii) exercise or enforce any or all other rights
or remedies available to Secured Party by law or agreement against the
Collateral, against Debtor or against any other person or property. Upon the
occurrence of the Event of Default described in Section 7(iv)(B), all
Obligations shall be immediately due and payable without demand or notice
thereof. Secured Party is hereby granted a nonexclusive, worldwide and
royalty-free license to use or otherwise exploit all trademarks, trade secrets,
franchises, copyrights and patents of Debtor that Secured Party deems necessary
or appropriate to the disposition of any Collateral.
9. Other Personal Property. Unless at the time Secured Party takes possession of
any tangible Collateral, or within seven days thereafter, Debtor gives written
notice to Secured Party of the existence of any goods, papers or other property
of Debtor, not affixed to or constituting a part of such Collateral, but which
are located or found upon or within such Collateral, describing such property.
Secured Party shall not be responsible or liable to Debtor for any action taken
or omitted by or on behalf of Secured Party with respect to such property
without actual knowledge of the existence of any such property or without actual
knowledge that it was located or to be found upon or within such Collateral.
10. Miscellaneous. This Agreement does not contemplate a sale of accounts, or
chattel paper. Debtor agrees that each provision whose box is checked is part of
this Agreement. This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose given. Mere
delay or failure to act shall not preclude the exercise or enforcement of any of
Secured Party's rights or remedies. All rights and remedies of Secured Party
shall be cumulative and may be exercised singularly or concurrently, at Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to Debtor shall be deemed sufficiently given if
delivered or mailed by registered or certified mail, postage prepaid, to Debtor
at its address set forth above or at the most recent address shown on Secured
Party's records. Secured Party's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safekeeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or care
for any Collateral. Secured Party shall not be obligated to preserve any rights
Debtor may have against prior parties, to realize on the Collateral at all or in
any particular manner or order, or to apply any cash proceeds of Collateral in
any particular order of application. This Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Party, and Debtor waives notice of Secured
Party's acceptance hereof. Secured Party may execute this Agreement if
<PAGE>
appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or effectiveness
of this Agreement. A carbon, photographic or other reproduction of this
Agreement or of any financing statement signed by the Debtor shall have the same
force and effects as the original for all purposes of a financing statement.
Except to the extent otherwise required by law, this Agreement shall be governed
by the internal laws of the state named as part of Secured Party's address
above. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. If this Agreement is signed by more than one person
as Debtor, the term "Debtor" shall refer to each of them separately and to both
or all of them jointly; all such persons shall be bound both severally and
jointly with the other(s); and the Obligations shall include all debts,
liabilities and obligations owed to Secured Party by any Debtor solely or by
both or several or all Debtors jointly or jointly and severally, and all
property described in Section 1 shall be included as part of the Collateral,
whether it is owned jointly or by both or all Debtors or is owned in whole or in
part by one (or more) of them.
NORWEST BANK MINNESOTA, LACANASTA OF MINNESOTA, INC.
NATIONAL ASSOCIATION
By:______________________ By:________________________
Paul Rebholz,
Assistant Vice President Title:_____________________
By:_______________________
Title:____________________
<PAGE>
GUARANTY
City State Date
St. Paul Minnesota June 24, 1998
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce Norwest Bank Minnesota, National
Association (herein, with its participants, successors and assigns, called
"Bank"), at its option, at any time or from time to time to make loans or extend
other accommodations to or for the account of LaCanasta Of Minnesota, Inc.
(herein called "Borrower") or to engage in any other transactions with Borrower,
the undersigned a Minnesota corporation hereby absolutely and unconditionally
guarantees to the Bank the full and prompt payment when due, whether at maturity
or earlier by reason of acceleration or otherwise, of the debts, liabilities and
obligations described as follows:
A. If this |X| is checked, the undersigned guarantees to Bank the
payment and performance of each and every debt, liability and obligation of
every type and description which Borrower may now or any time hereafter owe to
Bank (whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, joint, several, or joint and several; all such debts, liabilities
and obligations being hereinafter collectively referred to as the
"Indebtedness").
B. If this |_| is checked, the undersigned guarantees to Bank the payment
and performance of the debt, liability or obligation of Borrower to Bank
evidenced by or arising out of the following:___________________________________
________________________________________________________________________________
___________________ and any extensions, renewals or replacements
thereof(hereinafter referred to as the "Indebtedness").
The undersigned further acknowledges and agrees with Bank that:
1. No act or thing need occur to establish the liability of the
undersigned hereunder, and no act or thing, except full payment and discharge of
all the Indebtedness, shall in any way exonerate the undersigned or modify,
reduce, limit or release the liability of the undersigned hereunder.
2. If paragraph A is checked, this is an absolute, unconditional and
continuing guaranty of payment of the Indebtedness and shall continue to be in
force and be binding upon the undersigned, whether or not all Indebtedness is
paid in full, until this Guaranty is revoked prospectively as to future
transactions, by written notice actually received by the Bank, and such
revocation shall not be effective as to Indebtedness existing or committed for
at the time of actual receipt of such notice by the Bank, or as to any renewals,
extensions and refinancings thereof. The undersigned represents and warrants to
the Bank that the undersigned has a direct and substantial economic interest in
Borrower and expects to derive substantial benefits therefrom and from any loans
and financial accommodations resulting in the creation of Indebtedness
guaranteed hereby, and that this Guaranty is given for a purpose that directly
benefits the undersigned. The undersigned agrees to rely exclusively on the
right to revoke this Guaranty prospectively as to future transactions, in
accordance with this paragraph, if at any time, in the opinion of the authorized
representatives of the undersigned, the benefits to the undersigned then being
received by the undersigned in connection with this Guaranty are not sufficient
to warrant the continuance of this Guaranty as to future Indebtedness.
Accordingly, so long as this Guaranty is not revoked prospectively in accordance
with this paragraph, the Bank may rely conclusively on a continuing warranty,
hereby made, that the undersigned continues to be benefited by this Guaranty and
the Bank shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Bank
without regard to the receipt, nature or value of any such benefits.
<PAGE>
3. If the undersigned shall be dissolved or shall be or become
insolvent (however defined) then the Bank shall have the right to declare
immediately due and payable, and the undersigned will forthwith pay to the Bank,
the full amount of all Indebtedness, whether due and payable or unmatured. If
the undersigned voluntarily commences or there is commenced involuntarily
against the undersigned a case under the United States Bankruptcy Code, the full
amount of all Indebtedness, whether due and payable or unmatured, shall be
immediately due and payable without demand or notice thereof.
4. The liability of the undersigned hereunder shall be limited to a
principal amount of $_______________ (if unlimited or if no amount is stated,
the undersigned shall be liable for all Indebtedness, without any limitation as
to amount), plus accrued interest thereon and all attorneys' fees, collection
costs and enforcement expenses referable thereto, Indebtedness may be created
and continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the undersigned hereunder. The
Bank may apply any sums received by or available to the Bank on account of the
Indebtedness from Borrower or any other person (except the undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect or
impair the liability of the undersigned hereunder. If the liability of the
undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the undersigned under this Guaranty shall be effective to reduce
or discharge such liability only if accompanied by a written transmittal
document, received by the Bank, advising the Bank that such payment is made
under this Guaranty for such purpose.
5. The undersigned will not exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to the
undersigned against any person liable for payment of the Indebtedness, or as to
any collateral security therefor, unless and until all of the Indebtedness shall
have been fully paid and discharged.
<PAGE>
6. The undersigned will pay or reimburse the Bank for all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
the Bank in connection with the protection, defense or enforcement of this
Guaranty in any litigation or bankruptcy or insolvency proceedings.
7. Whether or not any existing relationship between the undersigned and
Borrower has been changed or ended and whether or not this Guaranty has been
revoked, the Bank may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the undersigned and without any notice to the undersigned. The
liability of the undersigned shall not be affected or impaired by any of the
following acts or things (which the Bank is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this Guaranty,
without notice to or approval by the undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all of Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver or indulgence granted to Borrower, any delay or
lack of diligence in the enforcement of Indebtedness, or any failure to
institute proceedings, file a claim, give any required notices or otherwise
protect any Indebtedness; (iv) any full or partial release of, settlement with,
or agreement not to sue, Borrower or any other guarantor or other person liable
in respect of any Indebtedness; (v) any discharge of any evidence of
Indebtedness or the acceptance of any instrument in renewal thereof or
substitution therefor; (vi) any failure to obtain collateral security (including
rights of setoff) for the Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority thereof, or to
protect, insure, or enforce any collateral security; or any modification,
substitution, discharge, impairment, or loss of any collateral security; (vii)
any foreclosure or enforcement of any collateral security; (viii) any transfer
of any Indebtedness or any evidence thereof; (ix) any order of application of
any payments or credits upon Indebtedness; and (x) any election by the Bank
under ss.1111(b)(2) of the United States Bankruptcy Code.
8. The undersigned waives any and all defenses, claims and discharges
of Borrower, or any other obligor, pertaining to Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of the
foregoing, the undersigned will not assert, plead or enforce against the Bank
any defense of waiver, release, discharge in bankruptcy, statute of limitations,
res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity,
minority, usury, illegality or unenforceability which may be available to
Borrower or any other person liable in respect of any Indebtedness, or any
setoff available against the Bank to Borrower or any such other person, whether
or not on account of a related transaction. The undersigned expressly agrees
that the undersigned shall be and remain liable for any deficiency remaining
after foreclosure of any mortgage or security interest securing the
Indebtedness, whether or not the liability of Borrower or any other obligor for
such deficiency is discharged pursuant to statute or judicial decision.
<PAGE>
9. The undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
The Bank shall not be required first to resort for payment of the Indebtedness
to Borrower or other persons or their properties, or first to enforce, realize
upon or exhaust any collateral security for Indebtedness, before enforcing this
Guaranty.
10. If any payment applied by the Bank to Indebtedness is thereafter
set aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this Guaranty be deemed to have continued in
existence, notwithstanding such application, and this Guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
11. The liability of the undersigned under this Guaranty is in addition
to and shall be cumulative with all other liabilities of the undersigned to the
Bank as guarantor or otherwise, without any limitation as to amount, unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
12. The undersigned represents and warrants to the Bank that (i) the
undersigned is duly organized and existing in good standing and has full power
and authority to make and deliver this Guaranty; (ii) the execution, delivery
and performance of this Guaranty by the undersigned have been duly authorized by
all necessary action of its governing body and do not and will not violate the
provisions of, or constitute a default under, any presently applicable law or
its organizational documents or any agreement presently binding on it; (iii)
this Guaranty has been duly executed and delivered by the authorized
representative(s) of the undersigned and constitutes its lawful, binding and
legally enforceable obligation (subject to the United States Bankruptcy Code and
other similar laws generally affecting the enforcement of creditors' rights);
and (iv) the authorization, execution, delivery and performance of this Guaranty
do not require notification to, registration with, or consent or approval by,
any federal, state or local regulatory body or administrative agency.
13. This Guaranty shall be effective upon delivery to the Bank, without
further act, condition or acceptance by the Bank, shall be binding upon the
undersigned and the successors and assigns of the undersigned and shall inure to
the benefit of the Bank and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this Guaranty
shall not affect other lawful provisions and applications hereof, and to this
end the provisions of this Guaranty are declared to be severable. This Guaranty
may not be waived, modified, amended, terminated, released or otherwise changed
except by a writing signed by the undersigned and the Bank. This Guaranty is
issued in the state set forth above and shall be governed by its laws. The
undersigned waives notice of the Bank's acceptance hereof and waives the right
to a trial by jury in any action based on or pertaining to this Guaranty.
This Guaranty is |_| unsecured; |X| secured by a mortgage or security
agreement dated of even date |_| secured by ____________________________________
SPARTA FOODS, INC.
By_______________________________
Title____________________________
By_______________________________
Title____________________________
<PAGE>
SECURITY AGREEMENT
COLLATERAL PLEDGE AGREEMENT
DATE: June 24, 1998
DEBTOR: SECURED PARTY:
Sparta Foods, Inc. Norwest Bank Minnesota,
1565 1st Avenue NW National Association
New Brighton, MN 55112 55 East Fifth Street
St. Paul, Minnesota 55101
1. Security Interest and Collateral.
To secure (check one):
|_| the payment and performance of each and every debt, liability and
obligation of every type and description which Debtor may now or at any
time hereafter owe to Secured Party (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether it
is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several; all such debts, liabilities and obligations
being herein collectively referred to as the "Obligations"),
|X| the debt, liability or obligation of the Debtor to Secured Party evidenced
by the following: Guaranty of even date, and all extensions, renewals or
replacements thereof (herein referred to as the "Obligations"),
Debtor hereby grants Secured Party a security interest (herein called the
"Security Interest") in (check one):
|_| all property of any kind now or at any time hereafter owned by Debtor, or
in which Debtor may now or hereafter have an interest, which may now be or
may at any time hereafter come into possession or control of Secured Party
or into the possession or control of Secured Party's agents or
correspondents, or into the possession or control of a bailee or into the
possession or control of any party that has an agreement with Secured Party
granting Secured Party control whether such possession or control is given
for collateral purposes or for safekeeping, together with all rights in
connection with such property (herein called the "Collateral"). Collateral
includes, but is not limited to:___________________________________________
___________________________________________________________________________
<PAGE>
|X| the property owned by Debtor and held by Secured Party or held by Secured
Party's agents or correspondents or held by a bailee or any party that has
an agreement with Secured Party granting Secured Party control that is
described as follows: all shares of stock in LaCanasta Of Minnesota, Inc.,
whether now owned or hereafter acquired by Debtor, together with all rights
in connection with such property (herein called the "Collateral").
2. Representations, Warranties and Covenants.
Debtor represents, warrants and covenants that:
(i) Debtor will execute and deliver or endorse any instruments, documents,
assignments, control agreements, or other agreements and writings which
Secured Party may reasonably request in order to perfect or enforce the
Security Interest and Secured Party's rights under this Agreement and
endorse, in blank, each and every instrument constituting Collateral by
signing on said instrument or by signing a separate document of assignment
or transfer, if required by Secured Party.
(ii) Debtor is the owner of the Collateral and has (or will have at the time it
acquires rights in the Collateral) absolute right to the Collateral free
and clear of all liens, encumbrances, security interests and restrictions,
except the Security Interest and any restrictive legend appearing on any
instrument constituting Collateral and will defend the Collateral against
all claims by any persons other than Secured Party.
(iii)Debtor has filed all federal, state and local tax returns it is required to
file and has paid or made provision for payment of all amounts due
thereunder and will keep the Collateral free and clear of all liens,
encumbrances and security interests, except the Security Interest.
(iv) Debtor will pay, when due, all taxes and other governmental charges levied
or assessed upon or against any Collateral.
(v) At any time, upon request by Secured Party, Debtor will deliver to Secured
Party all notices, financial statements, reports or other communications
received by Debtor as an owner or holder of the Collateral.
(vi) Debtor will upon receipt deliver to Secured Party in pledge as additional
Collateral all securities distributed on account of the Collateral such as
stock dividends and securities resulting from stock splits, reorganizations
and recapitalizations.
<PAGE>
3. Rights of Secured Party.
Debtor agrees that Secured Party may at any time, whether before or after the
occurrence of an Event of Default and without notice or demand of any kind,
(i) notify the obligor on or issuer of any Collateral to make payment to
Secured Party of any amounts due or distributable thereon,
(ii) in Debtor's name or Secured Party's name enforce collection of any
Collateral by suit or otherwise, or surrender, release or exchange all or
any part of it, or compromise, extend or renew for any period any
obligation evidenced by the Collateral,
(iii)take delivery of and receive all proceeds of the Collateral, and,
(iv) hold any increase or profits received from the Collateral as additional
security for the Obligations, except that any money received from the
Collateral shall, at Secured Party's option, be applied in reduction of the
Obligations, in such order of application as Secured Party may determine,
or be remitted to Debtor.
4. Events of Default.
Each of the following occurrences shall constitute an event of default under
this Agreement (herein called "Event of Default"):
(i) Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand, or shall fail to observe or perform any
covenant or agreement herein binding on it;
(ii) Any representation or warranty by Debtor set forth in this Agreement or
otherwise made to Secured Party, including without limitation in any
financial statements or reports submitted to Secured Party, by or on behalf
of Debtor shall prove materially false or misleading;
(iii)A garnishment, summons or a writ of attachment shall be issued against or
served upon the Secured Party for the attachment of any property of the
Debtor or any indebtedness owing to Debtor;
(iv) Debtor shall:
(a) Be or become insolvent (however defined); or
(b) Have a custodian, trustee or receiver appointed for the majority of its
property, voluntarily file, or have filed against it involuntarily, a
petition under the United States Bankruptcy Code; or
<PAGE>
(c) Be dissolved or liquidated; or
(d) Go out of business.
5. Remedies Upon Event of Default.
Upon the occurrence of an Event of Default and at any time thereafter, Secured
Party may exercise any one or more of the following rights and remedies:
(i) declare all unmatured Obligations to be immediately due and payable, and
the same shall thereupon be immediately due and payable, without
presentment or other notice or demand;
(ii) exercise all voting and other rights as a holder of the Collateral;
(iii) take possession of the Collateral and exercise and enforce any or all
rights and remedies available upon default to a secured party under the
Uniform Commercial Code, including the right to offer and sell the
Collateral privately to purchasers who will agree to take the take the
Collateral for investment and not with a view to distribution and who will
agree to the imposition of restrictive legends on the certificates
representing the Collateral, and the right to arrange for a sale which
would otherwise qualify as exempt from the registration under the
Securities Act of 1933; and if notice to Debtor of any intended disposition
of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given at least ten calendar days prior to the date of intended disposition
or other action;
(iv) exercise or enforce any or all other rights or remedies available to
Secured Party by law or agreement against the Collateral, against Debtor or
against any other person or property. Upon the occurrence of the Event of
Default described in Section 4(iv)(b), all Obligations shall be immediately
due and payable without demand or notice thereof.
<PAGE>
6. Miscellaneous.
Any disposition of the Collateral in the manner provided in Section 5 shall be
deemed commercially reasonable. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party's option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise or
enforcement of any other. All notices to be given to Debtor shall be deemed
sufficiently given if delivered or mailed by registered or certified mail,
postage prepaid, to Debtor at its address set forth above or at the most recent
address shown on Secured Party's records. Secured Party's duty of care with
respect to Collateral in its possession (as imposed by law) shall be deemed
fulfilled if Secured Party exercises reasonable care in physically safekeeping
such Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and Secured Party need not otherwise preserve,
protect, insure or care for any collateral. Secured Party shall not be obligated
to preserve any rights Debtor may have against prior parties, to exercise at all
or in any particular manner any voting rights which may be available with
respect to any Collateral, to realize on the Collateral at all or in any
particular manner or order, or to apply any cash proceeds of Collateral in any
particular order of application. Debtor will reimburse Secured Party for all
expenses (including reasonable attorneys' fees and legal expenses) incurred by
Secured Party in the protection, defense or enforcement of the Security
Interest, including expenses incurred in any litigation or bankruptcy or
insolvency proceedings. This Agreement shall be binding upon and inure to the
benefit of Debtor and Secured Party and their respective heirs, representatives,
successors and assigns and shall take effect when signed by Debtor and delivered
to Secured Party, and Debtor waives notice of Secured Party's acceptance hereof.
This Agreement shall be governed by the internal laws of the state named as part
of Secured Party's address above and, unless the context otherwise requires, all
terms used herein which are defined in Articles 1,8, and 9 of the Uniform
Commercial Code, as in effect in said state, shall have the meanings therein
stated. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations. If this Agreement is signed by more than one person
as Debtor, the term "Debtor" shall refer to each of them separately and to both
or all of them jointly; all such persons shall be bound both severally and
jointly with the other(s); and the Obligations shall include all debts,
liabilities and obligations owed to Secured Party by any Debtor solely or by
both or several or all Debtors jointly or jointly and severally, and all
property described in Section 1 shall be included as part of the Collateral,
whether it is owned jointly or by both or all Debtors or is owned in whole or in
part by one (or more) of them.
Debtor's name
SPARTA FOODS, INC.
By________________________ Title________________________
By________________________ Title________________________
Exhibit 11
COMPUTATION OF EARNING PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the three months For the nine months
ended ended
June 30 June 30
------------------------------------ --------------------------
1998 1997 1998 1997
---- ---- ---- ----
Basic Earnings per share:
Net Income $ 335,728 $ 407,119 $ 257,552 $ 588,541
Less Cumulative Preferred Stock
Dividends 31,250 - 43,750 -
-------- -------
Income available to Common
Stockholders 304,478 407,119 213,802 588,541
-------- -------- ------- -------
Weighted-average number of
common shares outstanding 6,908,152 6,685,049 6,830,341 6,683,269
--------- --------- --------- ---------
Basic Earnings per share $ .04 $ .06 $ .03 $ .09
Diluted Earnings per share:
Income available to Common Stock-
holders (from above) 304,478 407,119 213,802 588,541
Add back cumulative preferred
stock dividends 31,250 - Note -
------ ----
Income available to Common and
Common Equivalent Stockholders 335,728 407,119 213,802 588,541
------- ------- ------- -------
Weighted-average number of common
shares outstanding 6,908,152 6,685,049 6,830,341 6,683,269
Excess of shares issuable for the
assumed exercise of options and warrants over
the number of shares possible of repurchase
using the proceeds from the exercise of
such options and warrants at the average
market price (treasury stock method) 2,227,589 1,568,053 2,384,676 1,605,781
Shares issuable for the assumed
conversion of convertible preferred
Stock 1,515,151 - Note -
--------- ----
Weighted-average number of common
and common equivalent shares
outstanding 10,650,892 8,253,102 9,215,017 8,289,050
---------- --------- --------- ---------
Diluted Earnings per share $ .03 $ .05 $ .02 $ .07
- -------------------------- ------- ----------- ----- ---------
</TABLE>
Note: For the nine-month period ended June 30, 1998, the conversion of preferred
stock has not been assumed due to an antidilutive impact on the calculation of
diluted earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB FOR THE QUARTER
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 676,700
<SECURITIES> 0
<RECEIVABLES> 983,277
<ALLOWANCES> 29,500
<INVENTORY> 969,556
<CURRENT-ASSETS> 2,830,248
<PP&E> 9,180,275
<DEPRECIATION> 2,700,746
<TOTAL-ASSETS> 10,447,686
<CURRENT-LIABILITIES> 1,371,320
<BONDS> 2,801,821
<COMMON> 70,359
0
2,500,000
<OTHER-SE> 3,704,186
<TOTAL-LIABILITY-AND-EQUITY> 10,447,686
<SALES> 11,047,646
<TOTAL-REVENUES> 117,574
<CGS> 7,920,510
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,703,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,219
<INCOME-PRETAX> 261,052
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 257,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,552
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 600
<SECURITIES> 0
<RECEIVABLES> 882,967
<ALLOWANCES> (49,500)
<INVENTORY> 1,097,570
<CURRENT-ASSETS> 2,088,103
<PP&E> 7,488,786
<DEPRECIATION> (2,371,131)
<TOTAL-ASSETS> 10,897,345
<CURRENT-LIABILITIES> 3,360,065
<BONDS> 4,051,212
0
0
<COMMON> 67,657
<OTHER-SE> 3,418,411
<TOTAL-LIABILITY-AND-EQUITY> 10,897,345
<SALES> 14,077,841
<TOTAL-REVENUES> 0
<CGS> 9,821,560
<TOTAL-COSTS> 3,209,798
<OTHER-EXPENSES> 268,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320,435
<INCOME-PRETAX> 457,729
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 435,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435,729
<EPS-PRIMARY> .07
<EPS-DILUTED> .05
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB FOR THE QUARTER
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
[/LEGEND]
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 104,182
<SECURITIES> 0
<RECEIVABLES> 790,851
<ALLOWANCES> 50,000
<INVENTORY> 805,544
<CURRENT-ASSETS> 1,825,934
<PP&E> 5,897,282
<DEPRECIATION> 2,323,757
<TOTAL-ASSETS> 7,159,041
<CURRENT-LIABILITIES> 2,123,010
<BONDS> 0
0
0
<COMMON> 66,850
<OTHER-SE> 3,127,056
<TOTAL-LIABILITY-AND-EQUITY> 7,159,041
<SALES> 6,304,621
<TOTAL-REVENUES> 0
<CGS> 4,469,771
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,485,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,628
<INCOME-PRETAX> 183,922
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 181,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,422
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-KSB FOR THE QUARTER
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,223
<SECURITIES> 0
<RECEIVABLES> 771,458
<ALLOWANCES> 53,000
<INVENTORY> 885,936
<CURRENT-ASSETS> 1,704,271
<PP&E> 6,011,707
<DEPRECIATION> 2,229,363
<TOTAL-ASSETS> 7,216,759
<CURRENT-LIABILITIES> 2,141,287
<BONDS> 0
0
0
<COMMON> 66,850
<OTHER-SE> 3,056,769
<TOTAL-LIABILITY-AND-EQUITY> 7,216,759
<SALES> 3,111,222
<TOTAL-REVENUES> 3,111,222
<CGS> 2,191,121
<TOTAL-COSTS> 2,191,121
<OTHER-EXPENSES> 724,248
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 82,467
<INCOME-PRETAX> 112,386
<INCOME-TAX> 1,250
<INCOME-CONTINUING> 111,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,136
<EPS-PRIMARY> .02
<EPS-DILUTED> .01
</TABLE>
