U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X
------------------- Quarterly Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 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)
_________(612) 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:
6,798,637 shares of Common Stock at April 23, 1998.
Transitional Small Business Disclosure Format: Yes _____ No ___X___
<PAGE>
SPARTA FOODS, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements 3
Condensed Consolidated Balance Sheets at March 31,
1998 and September 30, 1997 3
Condensed Consolidated Statements of Operations for
the three-month periods and the six-month periods
ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the six-month periods ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements -
March 31, 1998 6
Item 2 Management's Discussion and Analysis or 8
Plan of Operation
PART II. OTHER INFORMATION
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
March 31 September 30
1998 1997
-------------------- -------------------
(unaudited)
ASSETS
Current Assets
Cash $949,884 $ 600
Accounts receivable, less allowance of
$29,500 and $49,500, respectively 769,461 833,467
Inventories:
Finished goods 406,403 566,212
Raw materials and packaging 552,452 531,358
Prepaid expenses 220,211 156,466
- ----------------------------------------------------- -----------------------
Total current assets 2,898,411 2,088,103
- ----------------------------------------------------- -----------------------
Property and Equipment 9,129,134 7,488,786
Less accumulated depreciation 2,566,877 2,371,131
- ----------------------------------------------------- -----------------------
6,562,257 5,117,655
- ----------------------------------------------------- -----------------------
Other Assets
Restricted cash 299,900 1,893,967
Goodwill, less accumulated amortization
of $78,984 and $72,564, respectively 434,389 440,808
Covenants not-to-compete, less
accumulated amortization of $45,098
and $40,772, respectively 64,902 69,228
Rental property held for resale, less
accumulated depreciation of $51,914
and $38,728, respectively 901,369 906,422
Other 429,674 381,162
- ------------------------------------------------------------- ---------------
2,130,234 3,691,587
============================================================= ===============
$11,590,902 $10,897,345
============================================================= ===============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Note payable, bank $ - $ 834,209
Current maturities of long-term debt 729,907 700,388
Accounts payable:
Trade 547,959 861,120
Construction 29,925 428,315
Accrued expenses 304,091 536,033
- ------------------------------------------------------- ---------------------
Total current liabilities 1,611,882 3,360,065
- ------------------------------------------------------- ---------------------
Long-term Debt, less current maturities 4,203,924 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 6,798,637
and 6,765,758 shares, respectively 67,986 67,657
Additional paid-in capital 4,817,382 4,950,507
Accumulated deficit (1,610,272) (1,532,096)
- ------------------------------------------------------------------------------
5,775,096 3,486,068
==============================================================================
$11,590,902 $10,897,345
==============================================================================
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
March 31 March 31
------------------------------------ ------------------------------------
1998 1997 1998 1997
- --------------------------------------------- ------------------ ----------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 3,265,503 $ 3,193,399 $ 7,077,660 $ 6,304,621
Cost of sales 2,453,627 2,278,650 5,217,129 4,469,771
- --------------------------------------------- ------------------- ------------------ ------------------- ------------------
Gross profit 811,876 914,749 1,860,531 1,834,850
Selling, general, and administrative expenses 807,362 781,150 1,811,437 1,538,435
- --------------------------------------------- ------------------- ------------------ ------------------- ------------------
Operating income 4,514 133,599 49,094 296,415
Other income net 37,760 21,098 75,992 53,135
Interest expense (110,580) (81,161) (202,262) (165,628)
- --------------------------------------------- ------------------- ------------------ ------------------- ------------------
Income (Loss) before income tax (68,306) 71,536 (77,176) 183,922
Provision for income tax 50 1,250 1,000 2,500
- --------------------------------------------- ------------------- ------------------ ------------------- ------------------
Net Income (Loss) $ (68,356) $ 70,286 $ (78,176) $ 181,422
============================================= =================== ================== =================== ==================
Net Income (Loss) per common share
Basic Earnings (Loss) per share $ (.01) $ .01 $ (.01) $ .03
============================================= =================== ================== =================== ==================
Weighted average number of common shares
outstanding 6,798,637 6,685,049 6,791,435 6,682,379
============================================= =================== ================== =================== ==================
Diluted earnings per share $ - $ .01 $ - $ .02
============================================= =================== ================== =================== ==================
Weighted average number of common
and common equivalent shares - 8,209,339 - 8,324,004
============================================= =================== ================== =================== ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the six months
ended March 31
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (78,176) $ 181,422
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and Amortization 302,475 282,068
(Gain) Loss on Sale of Equipment (512) 15,940
Changes in assets and liabilities:
Accounts receivable 64,006 (100,919)
Inventories 138,715 (57,071)
Prepaid expenses (63,745) (103,971)
Accounts payable and accrued expenses (943,493) (209,115)
- ------------------------------------------------------------------------------ ----------- -----------
Net cash provided by (used in)
operating activities (580,730) 8,354
- ------------------------------------------------------------------------------ ----------- -----------
Cash Flows from Investing Activities
Decrease in restricted cash 1,594,067 --
Purchases of equipment (1,734,309) (289,524)
Proceeds from the sale of equipment 11,675 205,030
Increase in deposits and other assets (51,833) --
- ------------------------------------------------------------------------------ ----------- -----------
Net cash used in investing activities (180,400) (84,494)
- ------------------------------------------------------------------------------ ----------- -----------
Cash Flows from Financing Activities
Net borrowings (payments) on line of credit (834,209) 516,530
Long-term (repayments) borrowings, net 182,231 (339,258)
Issuance of Common Stock, net of costs 10,763 2,450
Issuance of Preferred Stock, net of costs 2,356,441 --
Deferred financing costs (4,812) --
- ------------------------------------------------------------------------------ ----------- -----------
Net cash provided by financing activities 1,710,414 179,722
- ------------------------------------------------------------------------------ ----------- -----------
Net increase in cash 949,284 103,582
Cash Balance
Beginning of period 600 600
============================================================================== =========== ===========
End of period $ 949,884 $ 104,182
============================================================================== =========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 208,280 $ 166,124
Income taxes 4,500 2,500
============================================================================== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Sparta Foods, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(unaudited)
NOTE 1. GENERAL
The unaudited condensed consolidated balance sheet at March 31, 1998, the
condensed consolidated statements of operations for the three-month and
six-month periods ended March 31, 1998 and 1997, and the condensed
consolidated statements of cash flows for the six-month periods ended March
31, 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 plus 0.25
percent (8.75 percent at March 31, 1998). On March 12, 1998, the Term Loan
was amended and increased by $1,000,000 to eliminate a temporary revolving
credit line. 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, dividends and capital expenses are restricted, and compensation
and new options and warrants are also limited.
On July 1, 1997, the Minnesota Agricultural and Economic Development Board
issued $1,950,000 in Series 1997D tax-exempt Bonds, the proceeds were
loaned to the Company to finance new equipment. The underlying loan from
the state 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. The effective rate of interest to the Company is
5.79 percent per annum. At March 31, 1998, $1,860,000 is outstanding. The
Company is to maintain net worth and debt service coverage levels, and a
debt service reserve fund and a construction fund. 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 improvement and equipment expenditures. These 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.
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, 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 and payable
semi-annually on January 1st and July 1st.
<PAGE>
NOTE 5. NET INCOME (LOSS) 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 per share amounts. Basic EPS is
the Net Income (Loss) 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 and warrants
exercisable under the treasury stock method. Presentation of EPS of prior
periods have been restated for comparative purposes.
A computation of diluted EPS for the current three-month and six-month
periods would be antidilutive. Diluted EPS for the three-month and
six-month periods ended March 31, 1997 included 1,524,290 and 1,641,625,
respectively, weighed-average shares assumed issued for options and
warrants.
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. In 1995 the
Company relocated its Lakeville, Minnesota production operations to its St.
Paul manufacturing facility. The Company leased the Lakeville facility in
1996 for a period of 10 years. Effective September 1, 1997 the Company
signed a 15-year lease to relocate all operations to an office and
manufacturing facility in New Brighton, Minnesota. The current facility in
St. Paul has been sublet for the remainder of its lease term.
Results of Operations
The Company's net sales of $7,077,660 increased $773,039 (12.3%) for the
six months ended March 31, 1998, as compared to the six months ended March
31, 1997. Net sales of $3,265,503 increased $72,104 (2.3%) for the three
months ended March 31, 1998, as compared to the three months ended March
31, 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 six months ended March
31, 1998, was 26.3% compared to 29.1% for the six months ended March 31,
1997. Gross profit, as a percentage of net sales, for the three months
ended March 31, 1998, was 24.9% compared to 28.6% for the three months
ended March 31, 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
quarter resulting from the installation and operation of new tortilla
manufacturing equipment.
Selling, general and administrative expenses increased $273,002 or 18% in
the six months ended March 31, 1998, as compared to the six months ended
March 31, 1997. These expenses increased $26,212 or 3% in the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997.
This increase is the result of the net sales increase for the period and
reflects some additional expense incurred, primarily in the first quarter,
in advertising and promoting the Company's new line of Cruz flavored
tortillas in the retail market. Interest expense increased $36,634 for the
six months ended March 31, 1998 compared to the six months ended March 31,
1997. Interest expense increased $29,419 for the three months ended March
31, 1998 compared to the three months ended March 31, 1997. Both are due
primarily to higher levels of bank borrowings to finance the costs of
installing new manufacturing equipment and utilization of proceeds from
debt financing through the Minnesota Department of Trade and Economic
Development to purchase new manufacturing equipment.
<PAGE>
Net Loss for the six-months ended March 31, 1998 was $78,176 compared to
Net Income of $181,422 for the same period in 1997. Net Loss for the
three-months ended March 31, 1998 was $68,356 compared to Net Income of
$70,286 for the same period in 1997.
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 six months ended March 31,
1998 was $580,730 consisting principally of the net loss of $78,176 and a
decrease in accounts payable and accrued expenses of $943,493. This was
offset by a decrease in inventories of $138,715 and depreciation and
amortization of $302,475. Cash used in investing activities was $180,400,
primarily the result of the purchase and installation of new equipment in
the Company's new manufacturing facility offset by the reduction of
restricted cash associated with the Minnesota Department of Trade and
Economic Development term credit facility. Cash provided by financing
activities was $1,710,414 due mainly to the issuance of preferred stock
offset by repayment of short-term borrowings under the Company's Line of
Credit.
On February 24, 1998 the Company completed a private placement of 2,500
shares for $2,500,000 of convertible preferred stock with Harvest States
Cooperatives, St. Paul, Minnesota. The shares are convertible at the rate
of 606.06 share of Common Stock for each share of Preferred Stock. Proceeds
were used to reduce bank debt and for working capital purposes.
On March 12, 1998 the Company's credit agreement with its bank was amended
to convert revolving credit borrowings and temporary overadvances into a
new term loan and combine the new term loan with the existing term loan
(together the "Bank Term Loan"). At March 31, 1998 $2,317,640 was
outstanding under the Bank Term Loan. In addition, the bank extends a Line
of Credit to the Company which was not utilized at March 31, 1998. The
Company estimates that $960,000 was available under the Line of Credit. The
amount available under the Line of Credit fluctuates daily based upon the
Company's eligible accounts receivable and inventory. The Line of Credit
and Bank 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.
At March 31, 1998, the Company had cash of $949,884 and working capital of
$1,286,529. 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 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.
<PAGE>
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:
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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.43 Sixth Amendment to the Credit and Security Agreement dated
March 12, 1998 between the Company and Norwest Bank Minnesota,
National Association.
11 Computation of Earnings (Loss) Per Common Share.
27 Financial Data Schedule (filed only in electronic format).
(b) Reports on Form 8-K
Form 8-K filed on February 24, 1998 regarding the issuance of 2,500
shares of Preferred Stock, Series 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: April 23, 1998 By: /s/ Joel P. Bachul
Joel P. Bachul,
President and Chief Executive Officer
Dated: April 23, 1998 By: /s/ A. Merrill Ayers
A. Merrill Ayers
Treasurer, Secretary and
Chief Financial Officer
EXHIBIT 10.43
SIXTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND
FIRST AMENDMENT TO COLLATERAL ACCOUNT AGREEMENT
This Sixth Amendment, dated as of March 12, 1998, is made by and among
LaCANASTA OF MINNESOTA, INC., a Minnesota corporation (the "Borrower"), SPARTA
FOODS, INC., a Minnesota corporation ("Sparta") and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association (the "Lender").
Recitals
The Borrower, Sparta and the Lender are parties to the Credit and
Security Agreement dated as of December 9, 1994, as supplemented by the First
Supplement to Credit Agreement dated as of December 13, 1994, as amended by a
First Amendment to Credit Agreement dated as of April 14, 1995, a Second
Amendment to Credit Agreement dated as of September 21, 1995, a Third Amendment
to Credit Agreement dated as of April 23, 1996, a Fourth Amendment to Credit and
Security Agreement dated as of December 20, 1996, a Fifth Amendment to Credit
and Security Agreement dated as of July 1, 1997, a letter amendment to Credit
and Security Agreement dated as of October 22, 1997, a letter amendment to
Credit and Security Agreement dated as of December 30, 1997, and a letter
amendment dated as of February 17, 1998 (as amended, the "Credit Agreement").
All capitalized terms used in these Recitals shall have the meanings given to
them in the Credit Agreement.
Pursuant to the Credit Agreement, the Lender has made Advances, a Term
Loan A, a Term Loan B and a Capital Expenditure Loan to the Borrower. The
Borrower's obligations to pay the Advances is presently evidenced by the
Revolving Note of the Borrower dated July 7, 1997, payable to the order of the
Lender in the original principal amount of $2,000,000. The Borrower's
obligations to pay the Term Loan A is presently evidenced by the Term Loan A
Note of the Borrower dated December 9, 1994, payable to the order of the Lender
in the original principal amount of $1,784,800. The Borrower's obligations to
pay the Term Loan B is presently evidenced by the Term Loan B Note of the
Borrower dated July 1, 1997, payable to the order of the Lender in the original
principal amount of $750,000. The Borrower's obligations to pay the Capital
Expenditure Loan is presently evidenced by the Capital Expenditure Loan Note of
the Borrower dated December 20, 1996, payable to the order of the Lender in the
original principal amount of $473,333. As of March 11, 1998, outstanding
principal balance of the Revolving Note was $0. As of March 11, 1998,
outstanding principal balance of the Term Loan A Note, the Term Loan B Note and
the Capital Expenditure Loan Note was $1,289,639.58. The Advances, the Term Loan
A, the Term Loan B and the Capital Expenditure Loan and all other obligations of
the Borrower owing to the Lender are secured, among other things, pursuant to
the Credit and Security Agreement of the Borrower dated as of December 9, 1994.
The Borrower has requested, that the Term Loan A, the Term Loan B and
the Capital Expenditure Loan be consolidated into one term loan facility, and
that the definition of Borrowing Base be amended, among other things. The Lender
is willing to grant the Borrower's request subject to the terms of this Sixth
Amendment.
Accordingly, the Borrower and the Lender hereby agree as follows:
1. Defined Terms. Terms used in this Sixth Amendment which are defined
in the Credit Agreement shall have the same meanings as defined therein, unless
otherwise defined herein. In addition, the definitions of Term Loan A, Term Loan
A Note, Term Loan B, Term Loan B Note, Term Loan Notes, Capital Expenditure
Loan, and Capital Expenditure Loan Note are deleted. In addition, Section 1.01
of the Credit Agreement is amended by adding or amending, as the case may be,
the following new definitions:
"`Borrowing Base' means, at any time and subject to change from time to
time in the Lender's sole discretion, the lessor of:
(a) The Revolving Credit Facility Maximum Amount, or
(b) the sum of (1) up to eighty-two percent (82%) of Eligible
Accounts, plus (2) up to fifty percent (50%) of Eligible Inventory,
less (3) the amount of any deductible with respect to any insurance
coverage insuring the Accounts in effect from time to time (which
deductible is $15,000 as of the date of the Sixth Amendment)."
"`Revolving Credit Facility Maximum Amount' shall mean $1,200,000."
<PAGE>
"`Revolving Loan Spread' means the percentage set forth below opposite
the range of Leverage Ratio in which the Borrower's Leverage Ratio falls.
Reductions and increases in the percentage will be determined quarterly upon
receipt of the Borrower's financial statements as required under Section 6.1(b)
of the Credit Agreement, but such reductions and increases will be applied
retroactively to the beginning of the quarter immediately following the quarter
for which the determination was made. From the beginning of each fiscal quarter
until such determination is made with respect to that quarter, the Borrower
shall pay interest as if the percentage were unchanged from the percentage
applicable at the end of the preceding fiscal quarter. If the percentage is
determined to have increased and the Borrower has thus underpaid interest since
the beginning of that fiscal quarter, the Borrower shall pay such deficiency on
demand. If the percentage is determined to have decreased and the Borrower has
thus overpaid interest since the beginning of that fiscal quarter, the Lender
shall credit such overpayment, first, as a prepayment of accrued but unpaid
interest on the Revolving Note, and, second, as a prepayment of interest
thereafter accruing on the Revolving Note. Notwithstanding the foregoing, no
reduction in the percentage will be made if a Default or an Event of Default has
occurred and is continuing at the time that such reduction would otherwise be
made.
Leverage Ratio Percentage
1.01 to 1.00 or more 0.25%
1.00 to 1.00 or below 0.00%
As of the December 31, 1997, the Borrower's Leverage Ratio was 4.45 to 1.00;
however, due to the Borrower's $2,500,000 preferred stock placement in February,
1998, the Lender will hold the Revolving Loan Spread at 0.25% for the period
from January 1, 1998 through March 31, 1998. From April 1, 1998 and thereafter,
the Revolving Loan Spread shall mean the percentage set forth above opposite the
range of Leverage Ratio in which the Borrower's Leverage Ratio falls."
"`Revolving Note' means the $1,200,000 promissory note of the Borrower
to the Lender in substantially the form of Exhibit A to the Sixth Amendment."
"`Sixth Amendment' means the Sixth Amendment to Credit and Security
Agreement and First Amendment to Collateral Account Agreement dated as of March
12, 1998, among the Borrower, Sparta and the Lender."
"`Sixth Amendment Effective Date' means the date that all of the
conditions in Section 11 of Sixth Amendment have been satisfied."
"`Term Loan' has the meaning specified in Section 2.2 hereof."
"`Term Loan Note' means the $2,317,640 promissory note of the Borrower
to the Lender in substantially the form of Exhibit B to the Sixth Amendment."
"`Term Loan Spread' means the percentage set forth below opposite the
range of Leverage Ratio in which the Borrower's Leverage Ratio falls. Reductions
and increases in the percentage will be determined quarterly upon receipt of the
Borrower's financial statements as required under Section 6.1(b) of the Credit
Agreement, but such reductions and increases will be applied retroactively to
the beginning of the quarter immediately following the quarter for which the
determination was made. From the beginning of each fiscal quarter until such
determination is made with respect to that quarter, the Borrower shall pay
interest as if the percentage were unchanged from the percentage applicable at
the end of the preceding fiscal quarter. If the percentage is determined to have
increased and the Borrower has thus underpaid interest since the beginning of
that fiscal quarter, the Borrower shall pay such deficiency on demand. If the
percentage is determined to have decreased and the Borrower has thus overpaid
interest since the beginning of that fiscal quarter, the Lender shall credit
such overpayment, first, as a prepayment of accrued but unpaid interest on the
Term Loan Note, and, second, as a prepayment of interest thereafter accruing on
the Term Loan Note. Notwithstanding the foregoing, no reduction in the
percentage will be made if a Default or an Event of Default has occurred and is
continuing at the time that such reduction would otherwise be made.
<PAGE>
Leverage Ratio Percentage
1.01 to 1.00 or more 0.50%
1.00 to 1.00 or below 0.25%
As of the December 31, 1997, the Borrower's Leverage Ratio was 4.45 to 1.00;
however, due to the Borrower's $2,500,000 preferred stock placement in February,
1998, the Lender will hold the Term Loan Spread at 0.50% for the period from
January 1, 1998 through March 31, 1998. From April 1, 1998 and thereafter, the
Term Loan Spread shall mean the percentage set forth above opposite the range of
Leverage Ratio in which the Borrower's Leverage Ratio falls."
2. Term Loan. The entire Section 2.2 of the Credit Agreement is deleted
in its entirety and replaced with the following new Section 2.2:
"Section 2.2 Term Loan. The Lender has made a term loan to the Borrower
before the date of the Sixth Amendment, the Borrower's obligations to pay which
are evidenced by the promissory note of the Borrower dated December 9, 1994,
payable to the order of the Lender in the original principal amount of
$1,784,800 (the "Prior Term Loan A Note"). The Lender has made a second term
loan to the Borrower before the date of the Sixth Amendment, the Borrower's
obligations to pay which are evidenced by the promissory note of the Borrower
dated July 1, 1997, payable to the order of the Lender in the original principal
amount of $750,000 (the "Prior Term Loan B Note"). The Lender has made a capital
expenditure loan to the Borrower before the date of the Sixth Amendment, the
Borrower's obligations to pay which are evidenced by the promissory note of the
Borrower dated December 20, 1996, payable to the order of the Lender in the
original principal amount of $473,333 (the "Prior Capital Expenditure Loan
Note"). As of March 11, 1998, the outstanding principal balances of the Prior
Term Loan A Note, the Prior Term Loan B Note and the Prior Capital Expenditure
Loan Note was $1,289,639.58. The Lender has committed to consolidate the Prior
Term Loan A Note, the Prior Term Loan B Note and the Prior Capital Expenditure
Loan Note and make a new term loan to the Borrower as of the date of the Sixth
Amendment (the "Term Loan"), the Borrower's obligations to pay which are
evidenced by a promissory note of the Borrower dated March 12, 1998, payable to
the order of the Lender in the original principal amount of $2,317,640 (the
"Term Loan Note"), substantially in the form of Exhibit B to the Sixth Amendment
and shall be secured pursuant to the Credit Agreement and the Security Documents
as therein defined. The principal amount of the Term Loan shall be payable in
sixty (60) consecutive monthly installments of Thirty-Eight Thousand Five
Hundred Dollars ($38,500), commencing on April 1, 1998, with a payment of all
unpaid principal and other obligations on the earliest of termination of the
Revolving Credit Facility, demand by the Lender or the Termination Date."
3. Interest. Section 2.4(a) of the Credit Agreement is hereby amended
in its entirety to read as follows:
"Section 2.4 Interest. (a) The principal of the Advances outstanding
during any month under the Revolving Credit Facility shall bear interest at the
Revolving Note Rate, and all other Obligations shall bear interest at the Term
Note Rate; provided, however, that from the first day of any month during which
any Default or Event of Default occurs or exists at any time, in the Lender's
discretion and without waiving any of its other rights and remedies, the
principal of the Advances outstanding and the unpaid principal balance of the
Term Loan and any other Obligations outstanding from time to time shall bear
interest at the applicable Default Rate; and provided, further, that in any
event no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law. Interest accruing on the
principal balance of the Advances under the Revolving Credit Facility, the Term
Loan, and any other Obligations outstanding from time to time shall be payable
on the first day of the next succeeding month and on the Termination Date or
earlier demand or prepayment in full. All interest (including interest at the
Default Rate) shall be computed on the basis of actual days elapsed in a three
hundred sixty (360) day year."
<PAGE>
4. Prepayment Penalty. Section 2.6 of the Credit Agreement is amended
in its entirety to read as follows:
"Section 2.6 Voluntary Prepayment; Termination of Agreement by the
Borrower. Except as otherwise provided herein and subject to payment of the
prepayment fees set forth below, the Borrower may, in its discretion, prepay the
Advances in whole at any time or from time to time in part. If the Borrower
desires or decides to terminate this Agreement as of any date prior to December
31, 1999, or to prepay any Obligations with funds not generated solely from
Borrower's operations in the ordinary course of business, the Borrower shall (a)
provide the Lender with thirty (30) days' prior written notice of the Borrower's
intention to do so, and (b) unless the Borrower pays the Obligations (i) in full
with funds from the Lender or an affiliate of Lender, (ii) upon Lender's written
consent thereto with cash received from a stock offering of Sparta's common
stock or (iii) upon the Lender's written consent thereto with cash received from
the sale of the Owned Premises, pay the Lender a prepayment fee of one percent
(1%) of the Revolving Credit Facility Maximum Amount plus the average
outstanding principal balance of the Term Loan over the previous three (3) month
period. Failure to provide the aforesaid notice or to prepay the Obligations in
full, will not relieve the Borrower of its obligation to pay the prepayment fee.
Upon compliance with the foregoing requirements and subject to payment and
performance of all the Borrower's Obligations to the Lender, the Borrower may
obtain any release or termination of the Security Interest to which the Borrower
is otherwise entitled by law."
5. Financial Covenants. Sections 6.12 and 6.13 of the Credit Agreement
are amended in their entirety to read as follows:
"Section 6.12 Minimum Tangible Net Worth. The Borrower, on a
consolidated basis with Sparta, shall maintain at all times during each fiscal
month in each period set forth below (calculated at the end of each fiscal month
during each period set forth below) its Tangible Net Worth at or above the level
set forth below opposite each such period:
- ------------------------------------- ---------------------------
Minimum Tangible
Period Net Worth
- ------------------------------------- ---------------------------
December 1, 1997 through
January 31, 1998 $500,000
- ------------------------------------- ---------------------------
February 1, 1998 through
June 30, 1998 $2,700,000
- ------------------------------------- ---------------------------
July 1, 1998 through
August 31, 1999 $2,900,000
- ------------------------------------- ---------------------------
September 1, 1999 through
December 31, 1999 $3,700,000
- ------------------------------------- ---------------------------
Section 6.13 Maximum Leverage Ratio. The Borrower, on a consolidated
basis with Sparta, shall maintain at all times during each fiscal month in each
period set forth below (calculated at the end of each fiscal month during each
period set forth below) its Leverage Ratio at or below the level set forth below
opposite each such period:
- ------------------------------------- ----------------------
Period Maximum
Leverage Ratio
- ------------------------------------- ----------------------
December 1, 1997 through
January 31, 1998 5.00 to 1.00
- ------------------------------------- ----------------------
February 1, 1998 through
December 31, 1999 1.60 to 1.00
- ------------------------------------- ----------------------
6. Expenditures for Fixed Assets. Section 7.10 of the Credit Agreement
is amended in its entirety to read as follows:
<PAGE>
"Section 7.10 Capital Expenditures. Sparta will not make any Capital
Expenditures. During each period set forth below, the Borrower will not expend
or contract to expend for Capital Expenditures more than the amount set forth
below opposite each such period:
- ----------------------------------- -----------------------------
Maximum
Period Capital Expenditures
- ----------------------------------- -----------------------------
Fiscal year ended
September 30, 1998 $2,500,000
- ----------------------------------- -----------------------------
Fiscal year ended
September 30, 1999 $500,000
- ----------------------------------- -----------------------------
October 1, 1999 through
Termination Date $500,000
- ----------------------------------- -----------------------------
7. Consent to Payment of Subordinated Creditor. The Borrower has
requested that the Lender consent to the Borrower's payment of certain debts
owed to IFP Trust, a subordinated creditor. Such payments are prohibited by a
Subordination Agreement executed by the IFP Trust for the benefit of the Lender,
and acknowledged by the Borrower. The Lender hereby consents to the payment of
subordinated debt by the Borrower to IFP Trust.
8. New Compliance Certificate. Exhibit D to the Credit Agreement is
hereby amended in its entirety and replaced with Exhibit C to the Sixth
Amendment.
9. Amendment to Collateral Account Agreement. Paragraph 4 of the
Collateral Account Agreement, dated as of December 9, 1994, by and between the
Borrower and the Lender (the "Collateral Account Agreement") is amended by
deleting the reference "two (2) days" as it appears therein and replacing it
with "one (1) day".
10. No Other Changes. Except as explicitly amended by this Sixth
Amendment, all of the terms and conditions of the Credit Agreement and Revolving
Note shall remain in full force and effect and shall apply to any Advance
thereunder.
11. Amendment Fee. The Borrower agrees to pay the Lender a fully
earned, non-refundable fee in the amount of $2,500 in consideration of the
execution by the Lender of this Sixth Amendment, payable upon the execution of
this Sixth Amendment.
12. Conditions Precedent. This Sixth Amendment shall be effective upon
receipt by the Lender of an executed original hereof, together with each of the
following, each in substance and form acceptable to the Lender in its sole
discretion:
(a) The new Revolving Note duly executed by the Borrower.
(b) The new Term Loan Note duly executed by the Borrower.
(c) A Certificate of the Secretary of the Borrower certifying as to (i)
the resolutions of the board of directors of the Borrower approving the
execution and delivery of this Sixth Amendment, the Revolving Note and the Term
Loan Note, (ii) the fact that the Articles of Incorporation and Bylaws of the
Borrower, which were previously delivered to the Lender continue in full force
and effect and have not been amended or otherwise modified except as set forth
in the Certificate to be delivered, and (iii) the incumbency of the officers and
agents of the Borrower authorized to sign and to act on behalf of the Borrower
and setting forth the sample signatures of each of the officers and agents of
the Borrower authorized to execute and deliver this Sixth Amendment, the
Revolving Note and the Term Loan Note and all other documents, agreements and
certificates on behalf of the Borrower.
<PAGE>
(d) Payment of the amendment fee of $2,500.
(e) Such other matters as the Lender may require.
13. Representations and Warranties. The Borrower hereby represents and
warrants to the Lender as follows:
( a) The Borrower has all requisite power and authority to
execute this Sixth Amendment, the Revolving Note and the Term Loan Note
and to perform all of its obligations thereunder, and this Sixth
Amendment has been duly executed and delivered by the Borrower and
constitutes the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
( b) The execution, delivery and performance by the Borrower
of this Sixth Amendment, the Revolving Note and the Term Loan Note have
been duly authorized by all necessary corporate action and do not (i)
require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) violate any provision of any law, rule or
regulation or of any order, writ, injunction or decree presently in
effect, having applicability to the Borrower, or the articles of
incorporation or by-laws of the Borrower, or (iii) result in a breach
of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or
affected.
( c) All of the representations and warranties contained in
Article IV of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
( d) The recitals set forth on the first page hereof are true
and correct.
14. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Mortgage or any Guaranty to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
Upon the satisfaction of each of the conditions set forth in paragraph 11
hereof, the definition of "Revolving Note" and all references thereto in the
Credit Agreement shall be deemed amended to describe the new Revolving Note,
which new Revolving Note shall be issued by the Borrower to the Lender in
replacement, renewal and amendment, but not in repayment, of the Revolving Note.
Further, upon the satisfaction of each of the conditions set forth in paragraph
11 hereof, the definition of "Term Note" and all references thereto in the
Credit Agreement shall be deemed amended to describe the new Term Note, which
new Term Note shall be issued by the Borrower to the Lender in replacement,
renewal and amendment, but not in repayment, of the Prior Term A Note, the Prior
Term B Note and the Prior Capital Expenditure Note.
15. No Waiver. The execution of this Sixth Amendment and acceptance of
the Revolving Note, the Term Note and any documents related hereto shall not be
deemed to be a waiver of any Default or Event of Default under the Credit
Agreement or breach, default or event of default under any Security Document or
other document held by the Lender, whether or not known to the Lender and
whether or not existing on the date of this Sixth Amendment.
16. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Sixth Amendment, whether such claims, demands
and causes of action are matured or unmatured or known or unknown.
<PAGE>
17. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Credit
Agreement and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all fees and disbursements of counsel to the Lender for the services
performed by such counsel in connection with the preparation of this Sixth
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses and the fee
required under paragraph 12 hereof.
18. Miscellaneous. This Sixth Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to be duly executed as of the day and year first above written.
LaCANASTA OF MINNESOTA, INC. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By:____________________________________
By:___________________________ Ronald E. Gockowski
A. Merrill Ayers Its: Vice President
Its: Chief Financial Officer
SPARTA FOODS, INC.
By:__________________________________
A. Merrill Ayers
Its: Chief Financial Officer
<PAGE>
Exhibit A to Sixth Amendment to
Credit and Security Agreement
REVOLVING NOTE
$1,200,000 Minneapolis, Minnesota
March 12, 1998
For value received, the undersigned, LaCANASTA OF MINNESOTA, INC., a
Minnesota corporation (the "Borrower"), hereby promises to pay on the
Termination Date, or on such earlier date as provided in the Credit and Security
Agreement (defined below) to the order of NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Lender"), at its main office
in Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of ONE MILLION TWO HUNDRED
THOUSAND DOLLARS ($1,200,000.00) or, if less, the aggregate unpaid principal
amount of all advances made by the Lender to the Borrower hereunder or under the
Revolving Credit Facility, as defined in that certain Credit and Security
Agreement dated as of December 9, 1994, by and among the Lender, the Borrower
and Sparta Foods, Inc. (as amended, the "Credit Agreement") together with
interest on the principal amount hereunder remaining unpaid from time to time,
computed on the basis of the actual number of days elapsed and a three hundred
sixty (360) day year, from the date hereof until this Note is fully paid at the
Revolving Note Rate or Default Rate (if applicable) from time to time in effect.
The principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement. All capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deed
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
This Note is issued in substitution for and replacement of, but not in
satisfaction of, the Revolving Note of the Borrower dated July 1, 1997, payable
to the order of the Lender in the original principal amount of $2,000,000.
LaCANASTA OF MINNESOTA, INC.
By: ___________________________
A. Merrill Ayers
Its Chief Financial Officer
<PAGE>
Exhibit B to Sixth Amendment to
Credit and Security Agreement
TERM LOAN NOTE
$2,317,640 Minneapolis, Minnesota
March 12, 1998
For value received, the undersigned, LaCANASTA OF MINNESOTA, INC., a
Minnesota corporation (the "Borrower"), hereby promises to pay in accordance
with the terms of the Credit Agreement (defined below), to the order of Norwest
Bank Minnesota, National Association, a national banking association (the
"Lender"), at its main office in Minneapolis, Minnesota, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of TWO
MILLION THREE HUNDRED SEVENTEEN THOUSAND SIX HUNDRED FORTY DOLLARS ($2,317,640)
or, if less, the aggregate unpaid principal balance of the Term Loan made by the
Lender to the Borrower under that certain Credit and Security Agreement dated as
of December 9, 1994, by and among the Lender, the Borrower and Sparta Foods,
Inc. (as amended, the "Credit Agreement"), together with interest on the
principal amount hereunder remaining unpaid from time to time, computed on the
basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid, at the Term Note Rate or, if applicable,
the Default Rate, as such terms are defined in the Credit Agreement. The
principal hereof and the interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement. All capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement.
Interest accruing each month shall be due and payable on the first day
of the next succeeding month and otherwise as provided in the Credit Agreement.
Principal hereof shall be paid in monthly installments and otherwise as provided
in Article I and II of the Credit Agreement, and in one final installment on the
Termination Date, when the entire unpaid principal balance hereof shall be due
and payable in full.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Loan Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents, except for the Mortgage, as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses, in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
This Note is issued in substitution for and replacement of, but not in
satisfaction of, (i) the Term Loan A Note of the Borrower dated December 9,
1994, payable to the order of the Lender in the original principal amount of
$1,784,800, (ii) the Term Loan B Note of the Borrower dated July 1, 1997,
payable to the order of the Lender in the original principal amount of $750,000,
and (iii) the Capital Expenditure Loan Note of the Borrower dated December 20,
1996, payable to the order of the Lender in the original principal amount of
$473,333.
LaCANASTA OF MINNESOTA, INC.
By: ____________________________
A. Merrill Ayers
Its: Chief Financial Officer
<PAGE>
Exhibit C to Sixth Amendment to
Credit and Security Agreement
Compliance Certificate
To: John Blau
Norwest Bank Minnesota, National Association
Date: __________________, 199___
Subject: LaCanasta of Minnesota, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of
December 9, 1994, as supplemented by the First Supplement to Credit Agreement
dated as of December 13, 1994, as amended by a First Amendment to Credit
Agreement dated as of April 14, 1995, a Second Amendment to Credit Agreement
dated as of September 21, 1995, a Third Amendment to Credit Agreement dated as
of April 23, 1996, a Fourth Amendment to Credit and Security Agreement dated as
of December 20, 1996, a Fifth Amendment to Credit and Security Agreement dated
as of July 1, 1997, a letter amendment to Credit and Security Agreement dated as
of October 22, 1997, and a Sixth Amendment to Credit and Security Agreement and
First Amendment to Collateral Account Agreement dated as of March __, 1998 (as
amended, the "Credit Agreement"), attached are the financial statements of
LaCanasta of Minnesota, Inc. (the "Borrower") as of and for ________________,
19___ (the "Reporting Date") and the year-to-date period then ended (the
"Current Financials"). All terms used in this certificate have the meanings
given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition and the results of its operations as of the date
thereof.
Events of Default. (Check one):
___ The undersigned does not have knowledge of the occurrence
of a Default or Event of Default under the Credit Agreement.
___ The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect to
thereto.
I hereby certify to the Lender as follows:
___ The Reporting Date does not mark the end of one of the
Borrower's Fiscal Years, hence I am completing only paragraph
__ below.
___ The Reporting Date marks the end of the Borrower's Fiscal
Year, hence I am completing all paragraphs below.
Financial Covenants. I further hereby certify as follows:
<PAGE>
1. Minimum Tangible Net Worth. Pursuant to Section 6.12 of the
Credit Agreement, the Borrower's Tangible Net Worth for the
year-to-date period ending on the Reporting Date, was $____________,
which ___ satisfies ___ does not satisfy the requirement that such
amount be not less than $_____________ during such period as set forth
in table below:
- ------------------------------------- ---------------------------
Minimum Tangible
Period Net Worth
- ------------------------------------- ---------------------------
December 1, 1997 through
January 31, 1998 $500,000
- ------------------------------------- ---------------------------
February 1, 1998 through
June 30, 1998 $2,700,000
- ------------------------------------- ---------------------------
July 1, 1998 through
August 31, 1999 $2,900,000
- ------------------------------------- ---------------------------
September 1, 1999 through
December 31, 1999 $3,700,000
- ------------------------------------- ---------------------------
2. Minimum Leverage Ratio. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date, the Borrower's Leverage
Ratio was _____ to 1.00 which _____ satisfies _____ does not satisfy
the requirement that such ratio be no less than less than _____ to 1.00
during such period as set forth in the table below:
- ------------------------------------- ----------------------
Period Maximum
Leverage Ratio
- ------------------------------------- ----------------------
December 1, 1997 through
January 31, 1998 5.00 to 1.00
- ------------------------------------- ----------------------
February 1, 1998 through
December 31, 1999 1.60 to 1.00
- ------------------------------------- ----------------------
3. Capital Expenditures. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date,
the Borrower has expended or contracted to expend during the Fiscal
Year ended September 30, 199___, for Capital Expenditures,
$___________ in the aggregate which ____ satisfies ____ does not
satisfy the requirement that such expenditures not exceed
$____________ in the aggregate.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
LaCANASTA OF MINNESOTA, INC.
By: __________________________
A. Merrill Ayers
Its: Chief Financial Officer
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTOR
The undersigned, a guarantor of the indebtedness of LaCANASTA OF
MINNESOTA, INC. (the "Borrower") to NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(the "Lender") pursuant to a Guaranty dated as of December 9, 1994 (the
"Guaranty"), hereby (i) acknowledges receipt of the foregoing Sixth Amendment to
Credit and Security Agreement and First Amendment to Collateral Account
Agreement, the Revolving Note and the Term Loan Note each dated March 12, 1998;
(ii) consents to the terms and execution thereof; (iii) reaffirms its
obligations to the Lender pursuant to the terms of its Guaranty; and (iv)
acknowledges that the Lender may amend, restate, extend, renew or otherwise
modify the Credit Agreement and any indebtedness or agreement of the Borrower,
or enter into any agreement or extend additional or other credit accommodations,
without notifying or obtaining the consent of the undersigned and without
impairing the liability of the undersigned under its Guaranty for all of the
present and future indebtedness of the Borrower to the Lender.
SPARTA FOODS, INC.
By: ______________________
A. Merrill Ayers
Its Chief Financial Officer
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT
OF A. MERRILL AYERS AND JOEL BACHUL
The undersigned, A. Merrill Ayers executed and delivered a certain
Performance Agreement dated as of December 9, 1994, and the undersigned Joel
Bachul executed and delivered a certain Performance Agreement dated as of April
14, 1995 (such Performance Agreements collectively called the "Agreement"), in
favor of Norwest Bank Minnesota, N.A. (the "Lender") with respect to LaCanasta
of Minnesota, Inc. (the "Borrower"), and each of the undersigned hereby (i)
acknowledges receipt of the foregoing Sixth Amendment to Credit and Security
Agreement and First Amendment to Collateral Account Agreement, the Revolving
Note and the Term Loan Note each dated March 12, 1998; (ii) consents to the
terms and execution thereof; (iii) reaffirms his obligations to the Lender
pursuant to the terms of his Agreement; and (iv) acknowledges that the Lender
may amend, restate, extend, renew or otherwise modify the Credit Agreement and
any indebtedness or agreement of the Borrower, or enter into any agreement or
extend additional or other credit accommodations, without notifying or obtaining
the consent of the undersigned and without impairing the liability of the
undersigned under his Agreement.
______________________________
A. Merrill Ayers
______________________________
Joel Bachul
Exhibit 11
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
March 31 March 31
----------------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) $ (68,356) $ 70,286 $ (78,176) $ 181,422
Less Cumulative Preferred Stock
Dividends 11,986 -- 11,986 --
Income (Loss) available to Common
Stockholders (80,342) 70,286 (90,162) 181,422
----------- ----------- ----------- -----------
Basic Earnings (Loss) per share
Weighted-average number of
common shares outstanding 6,798,637 6,685,049 6,791,435 6,682,379
----------- ----------- ----------- -----------
Basic Earnings (Loss) per share $ (.01) $.01 $(.01) $.03
----------- ----------- ----------- -----------
Earnings (Loss) per share
Shares:
Weighted-average number of common
shares outstanding Note 6,685,049 Note 6,682,379
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) -- 1,524,290 -- 1,641,625
----------- -----------
Weighted-average number of common
and common equivalent shares
outstanding -- 8,209,339 -- 8,324,004
----------- -----------
Diluted Earnings per share -- $ .01 -- $ .02
----------- -----------
</TABLE>
Note
A computation of diluted earnings (loss)per share for the three-month and
six-month periods ended March 31, 1998 would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 949,884
<SECURITIES> 0
<RECEIVABLES> 798,961
<ALLOWANCES> 29,500
<INVENTORY> 958,855
<CURRENT-ASSETS> 2,898,411
<PP&E> 9,129,134
<DEPRECIATION> 2,566,877
<TOTAL-ASSETS> 11,590,902
<CURRENT-LIABILITIES> 1,611,882
<BONDS> 4,203,924
67,986
0
<COMMON> 2,500,000
<OTHER-SE> 3,207,110
<TOTAL-LIABILITY-AND-EQUITY> 11,590,902
<SALES> 7,077,660
<TOTAL-REVENUES> 75,992
<CGS> 5,217,129
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,811,437
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,262
<INCOME-PRETAX> (77,176)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (78,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78,176)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
