SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 13, 1999
Sparta Foods, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
000-19318 41-1618240
(Commission File Number) (I.R.S. Employer Identification Number)
1565 First Avenue N.W.
New Brighton, Minnesota 55112
(Address of Principal Executive Offices) (Zip Code)
(651) 697-5500
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets.
On October 13, 1999, Sparta Foods, Inc. (the "Registrant") acquired all
the assets and assumed certain liabilities of Food Products Corporation
including a facilities lease and approximately $900,000 of debt which the
Registrant paid off on the date of closing. The purchase price consisted of $5.9
million in cash, subject to post-closing adjustments, and a $3 million five-year
subordinated promissory note bearing interest at 8% per annum. The Registrant
funded the cash portion of the purchase price through internally generated cash
and bank financing from Norwest Bank Minnesota, National Association. The bank
financing consisted of a $3.3 million five-year term loan bearing interest at
prime plus 0.25% and a $2 million draw on a $3 million revolving line of credit
bearing interest at prime. Both the term note and the line of credit are secured
by all of the Registrant's assets. The bank financing replaced the Registrant's
then existing line of credit and $1 million term loan.
The facilities lease is for approximately 57,000 square feet of
office/manufacturing space in Phoenix, Arizona. The lease expires on October 31,
2004, but the Registrant has an option to extend the lease through October 31,
2009. The lease calls for annual rental payments of $209,400 subject to increase
based on the Consumer Price Index.
The acquired assets were used by Food Products Corporation to
manufacture and distribute tortillas, tortilla chips and other snack products in
Arizona, California, Nevada, New Mexico, Colorado, Utah and Texas principally
under the Arizona Brand(R) and Spanish Bell(R) labels. The Registrant intends to
continue such use.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired:
It is impracticable to provide, at the time this Report is
being filed, the required financial statements for the
business acquired. Such financial statements will be filed by
amendment to this Report within 60 days of the due date of
this Report.
(b) Pro Forma Financial Information:
It is impracticable to provide, at the time this Report is
being filed, the required pro forma financial information of
the business acquired. Such pro forma financial information
will be filed by amendment to this Report within 60 days of
the due date of this Report.
(c) Exhibits:
2.1 Asset Purchase Agreement dated as of September 27,
1999, by and among Sparta Foods, Inc., Food Products
Corporation, Donald R. Charles, David J. Brennan,
Kenneth E. Charbonneau and Michael J. DePinto.
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Pursuant to Item 601(b)(2) of Regulation S-K, and
subject to claims of confidentiality pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, upon
the request of the Commission the Registrant
undertakes to furnish supplementally to the
Commission a copy of any schedule or exhibit to the
Asset Purchase Agreement described as follows:
Exhibit 1.1(a) Equipment
Exhibit 1.1(b) Assumed Names
Exhibit 1.1(b)(ii) Trademarks
Exhibit 1.1(b)(iii) Technology
Exhibit 1.1(c) Accounts Receivable
Exhibit 1.1(f) Premises Lease
Exhibit 1.1(h) Personal Property Leases
Exhibit 1.1(i) Contracts
Exhibit 1.3(c) Miscellaneous Personal Property
Exhibit 1.4(a)(i) Inventory-Related Accounts Payable
Exhibit 1.4(a)(iii) Capital Leases with Bank of the West
Exhibit 3.1(a)(i) Earnest Money Escrow Agreement
Exhibit 3.1(b) Post Closing Escrow Agreement
Exhibit 3.1(c) Promissory Note
Exhibit 3.3 Allocation of Purchase Price
Exhibit 4.5 Subsidiaries
Exhibit 4.6(a) Financial Statements
Exhibit 4.7(a) Tax Reports and Returns
Exhibit 4.7(b) Tax Payments
Exhibit 4.8 Title to Assets
Exhibit 4.9 Location of Assets
Exhibit 4.10 Tangible Personal Property
Exhibit 4.11 Trademarks
Exhibit 4.12 Technology
Exhibit 4.15 Licenses and Permits
Exhibit 4.19(d) Employee Plans
Exhibit 4.19(e) Employee Benefits
Exhibit 4.19(f) Breach
Exhibit 4.20 Contracts with Related Parties
Exhibit 4.21(a) Employee List
Exhibit 4.21(d) Compliance with Employment Laws
Exhibit 4.22 Predominant Customers
Exhibit 4.23 Change in Customers
Exhibit 4.24 Product Liability Claims
Exhibit 4.25 Insurance
Exhibit 4.26(a) Threatened Litigation
Exhibit 4.26(b) Product Liability Actions
Exhibit 6.6 Litigation
Exhibit 6.8 Tax Reports, Returns and Payment
Exhibit 7.2 Restrictions
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Exhibit 8.1(j) Employment Contracts
Exhibit 8.1(m) Non-Compete Agreements
10.1 Secured Subordinated Promissory Note dated October
13, 1999, by and between the Registrant and Food
Products Corporation.
10.2 Assignment of Lease dated October 13, 1999, by and
between the Registrant and Food Products Corporation
and related Lease Agreement.
10.3 Term Loan and Credit Agreement dated October 13,
1999, by and between Sparta Foods, Inc. and Norwest
Bank Minnesota, National Association.
10.4 Term Note dated October 13, 1999, issued by Sparta
Foods, Inc. to Norwest Bank Minnesota, National
Association.
10.5 Security Agreement dated October 13, 1999, by and
between Sparta Foods, Inc. and Norwest Bank
Minnesota, National Association.
20.1 Press Release dated September 28, 1999.
20.2 Press Release dated October 13, 1999.
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.
Date: October 26, 1999 By /s/ A. Merrill Ayers
A. Merrill Ayers, Chief Financial Officer
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EXHIBIT INDEX
to
October 13, 1999 Form 8-K
Sparta Foods, Inc.
Exhibit Number Exhibit Description
2.1 Asset Purchase Agreement dated as of September 27,
1999, by and among Sparta Foods, Inc., Food Products
Corporation, Donald R. Charles, David J. Brennan
Kenneth E. Charbonneau and Michael J. DePinto.
10.1 Secured Subordinated Promissory Note dated October
13, 1999, by and between the Registrant and Food
Products Corporation.
10.2 Assignment of Lease dated October 13, 1999, by and
between the Registrant and Food Products Corporation
and related Lease Agreement.
10.3 Term Loan and Credit Agreement dated October 13,
1999, by and between Sparta Foods, Inc. and Norwest
Bank Minnesota, National Association.
10.4 Term Note dated October 13, 1999, issued by Sparta
Foods, Inc. to Norwest Bank Minnesota, National
Association.
10.5 Security Agreement dated October 13, 1999, by and
between Sparta Foods, Inc. and Norwest Bank
Minnesota, National Association.
20.1 Press Release dated September 28, 1999.
20.2 Press Release dated October 13, 1999.
Exhibit 2.1
ASSET PURCHASE AGREEMENT
DATE: September 27, 1999
PARTIES: Sparta Foods, Inc.
1565 First Avenue N.W.
New Brighton, MN 55112
("Buyer")
Food Products Corporation
d/b/a Arizona Brand
3121 East Washington Street
Phoenix, AZ 85034
("Seller")
Donald R. Charles
David J. Brennan
Kenneth E. Charbonneau
Michael J. DePinto
(collectively, "Seller's Shareholders")
RECITALS:
A. Seller has been engaged in the business of manufacturing, packaging
and selling tortillas, tortilla chips and related snack products under the
tradenames Arizona Brand, Spanish Bell, Blue Heaven, LaLa, and Wolds Popcorn
(the "Business").
B. Seller leases certain real estate from which it conducts the
Business (the "Premises").
C. Seller's Shareholders own one hundred percent (100%) of all issued
and outstanding stock of the Seller.
D. The parties mutually desire that Seller shall sell to Buyer
substantially all of the assets which Seller uses in the Business upon the terms
and subject to the conditions set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
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ARTICLE 1.
PURCHASE OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES
1.1) Assets Purchased from Seller. Subject to the terms and conditions
hereof, Seller agrees on the Closing Date to assign, sell, transfer, convey, and
deliver to Buyer, and Buyer agrees on the Closing Date to purchase from Seller,
all of the assets and personal property of Seller (excepting only the assets
specifically identified as "Excluded Assets" in Section 1.2 herein) related to
or used in the operation of the Business, wherever the same may be located
(collectively referred to as the "Purchased Assets"), including, without
limitation, the following:
(a) All furniture, equipment, machinery, tooling, trade
fixtures and leasehold improvements reflected on Seller's books and
records for the Business, including those items described in Exhibit
1.1(a) hereto ("Equipment");
(b) All intangible personal property, business records,
customer lists and goodwill (together with all documents, records,
files, computer tapes or discs, or other media on or in which the same
may be evidenced or documented) ("Intangible Property"), including the
following:
(i) The assumed name "Arizona Brand" and all other
assumed names under which it conducts the Business, as
identified on Exhibit 1.1 (b)(i) hereto;
(ii) All tradenames, trademarks or service mark
registrations and applications, common law trademarks,
copyrights and copyright registrations and applications as
identified on Exhibit 1.1(b)(ii) hereto and all goodwill
associated therewith ("Trademarks");
(iii) All technology, know-how, trade secrets,
manufacturing processes, recipes, formulae, drawings, designs
and computer programs related to or used or useful in the
Business, and all documentary evidence thereof, including
without limitation those items listed on Exhibit 1.1(b)(iii)
hereto ("Technology");
(c) All accounts receivable as of the Closing Date including,
without limitation, the accounts set forth on Exhibit 1.1(c) hereto
("Accounts Receivable");
(d) All inventory, including raw materials, supplies, work in
process and finished inventory as of the Closing Date ("Inventory");
(e) All transferable licenses and permits including the
transferable licenses and permits listed on Exhibit 4.15;
(f) All of Seller's contract rights and benefits under its
lease of the Premises ("Premises Lease") as more particularly
identified in Exhibit 1.1(f) hereto;
(g) All rent deposits for the Premises;
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(h) All of Seller's contract rights and benefits under all of
its personal property leases for tangible personal property used in the
Business, including those leases identified in Exhibit 1.1(h) hereto,
subject to the terms and conditions thereof ("Personal Property
Leases"); and
(i) All other contract rights related to or useful in the
Business, including the contract rights set forth in Exhibit 1.1(i),
hereto ("Contracts").
1.2) "Purchased Assets" Defined. The term "Purchased Assets" as used
throughout this Agreement shall mean all assets described in Section 1.1 above.
1.3) Excluded Assets. Notwithstanding anything herein to the contrary,
Buyer does not purchase, and Seller does not sell, any of the following assets
("Excluded Assets"):
(a) All cash or cash equivalents on hand or on deposit at any
bank as of the Closing Date; and
(b) Seller's corporate minute book and corporate records,
including Seller's accounting records and tax files (provided that
Seller will provide copies thereof to Buyer upon request by Buyer for
reasonable business purposes).
(c) Miscellaneous personal property not material to the
Business and listed on Exhibit 1.3(c) hereto.
1.4) Assumed Liabilities; Excluded Liabilities.
(a) Assumed Liabilities. Subject to the terms and conditions
set forth herein, Buyer agrees that, at the Closing, it will assume and
thereafter pay, perform or discharge, as the case may be, only the
following obligations and liabilities (and no other obligations or
liabilities) (the "Assumed Liabilities"):
(i) Seller's inventory-related accounts payable
identified in Exhibit 1.4(a)(i) hereto which accounts payable
shall include transportation charges for transport of raw
materials and inventory to Seller's factory and for the
transport of finished inventory from Seller's factory to
Seller's customers, limited to the extent that the invoices
for the transported goods have not been collected by Seller
from its customers by the Closing Date ("Accounts Payable");
(ii) Indebtedness to First Capital Bank of Arizona
pursuant to the promissory note in the principal amount of
$300,000 dated July 7, 1999 ("Indebtedness");
(iii) Amounts owed under the capital leases with Bank
of the West identified in Exhibit 1.4(a)(iii) hereto (the
"Capital Lease Obligations"); and
(iv) Amounts owed under the Personal Property Leases
identified in Exhibit 1.1(h) hereto.
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(b) Excluded Liabilities. Except for the Assumed Liabilities,
Buyer shall not assume any liabilities, obligations or undertakings of
Seller of any kind or nature whatsoever, whether fixed or contingent,
known or unknown, determined or determinable, due or not yet due, now
existing or hereafter arising. Without limiting the generality of the
foregoing sentence, and except only for such matters as are encompassed
within the Assumed Liabilities, Buyer specifically disclaims assumption
of: (a) any liabilities or obligations with respect to negligence,
strict liability, product liability, or breach of warranty claims
asserted with regard to products sold prior to the Closing Date; (b)
any liabilities and obligations growing out of or relating to
relationships and dealings with manufacturer's representatives,
distributors, licensees, competitors, customers, suppliers, employees,
or any other action or inaction of Seller or its predecessors in
interest; or (c) any liability for sales or use taxes arising out of
sale of any of the Purchased Assets under this Agreement.
1.5) Sales and Use Tax. Seller and Seller's Shareholder shall be
responsible for payment of any sales or use tax assessable with respect to the
transactions herein.
ARTICLE 2.
PURCHASE PRICE
2.1) Purchase Price. The purchase price for the Purchased Assets
("Purchase Price") shall be $8,900,000 plus assumption of the Assumed
Liabilities.
2.2) Post Closing Adjustments. The Purchase Price assumes that as of
the Closing Date Accounts Receivable range from $1,025,000 to $1,075,000,
Inventory ranges from $350,000 to $400,000, and Accounts Payable are no greater
than $250,000, as computed in accordance with generally accepted accounting
principles and procedures (consistently applied with respect to the Business).
Promptly following the Closing Date, the actual amounts of Accounts Receivable,
Inventory and Accounts Payable shall be computed by Buyer's accountants in
consultation with Seller's accountants. Thereafter, Seller and Buyer shall
account to each other on the Post Closing Adjustment Date for amounts that fall
outside of the ranges or exceed the ceiling as provided in Section 3.2.
ARTICLE 3.
PAYMENT OF PURCHASE PRICE
3.1) Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(a) Cash Payment. Buyer shall deliver the total cash sum of
$5,650,000 as follows:
(i) Buyer shall wire to Resource Trust Bank ("Escrow
Agent") the sum of $25,000 contemporaneously with the
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execution hereof as earnest money (the "Earnest Money") to be
held in escrow pursuant to the escrow agreement attached
hereto as Exhibit 3.1(a)(i). Such sum shall only be released
to Seller (i) at Closing, in which case the Earnest Money
shall be credited toward the total Purchase Price and
immediately wired to Seller; or (ii) in accordance with
Section 8.5.
(ii) At the Closing Buyer shall wire to Seller $5,625,000.
(b) Payment into Escrow. At the Closing, Buyer shall wire
$250,000 to Escrow Agent, to be held in escrow (the "Escrow Account")
pursuant to an escrow agreement in the form attached hereto as Exhibit
3.1(b) (the "Escrow Agreement").
(c) Promissory Note. Buyer shall deliver to Seller at the
Closing a promissory note duly executed by Buyer ("Note") in the form
attached hereto as Exhibit 3.1(c), payable to Seller in the principal
amount of $3,000,000, bearing interest at 8% with principal and
interest payments amortized over five years and payable quarterly.
Buyer shall grant Seller a security interest in the Purchased Assets to
secure payment under the Note and shall execute at Closing a UCC-1
financing statement with respect to such security interest.
3.2) Post Closing Adjustment Date. The Post Closing Adjustment Date
shall be ninety (90) days following the Closing Date. On the Post Closing
Adjustment Date, Buyer shall deliver a closing statement setting forth the
actual amount of Accounts Receivable, Inventory and Accounts Payable as of the
Closing Date as computed by Buyer's accountants pursuant to Section 2.2 and
agreed to by Seller's accountants (each, a "Closing Amount"). Buyer shall be
entitled to the dollar amount, if any, by which the Closing Amount of Inventory
is less than $350,000, the Closing Amount of Accounts Receivable is less than
$1,025,000 and the Closing Amount of Accounts Payable is greater than $250,000
plus expenses, if any, owed to Buyer by Seller pursuant to Section 9.5. Seller
shall be entitled to the dollar amount, if any, by which the Closing Amount of
Inventory is greater than $400,000 and the Closing Amount of Accounts Receivable
is greater than $1,075,000 plus expenses, if any, owed to Seller by Buyer
pursuant to Section 9.5. Such amounts, if any, owed to Buyer and Seller shall be
netted, and the net amount shall be paid to the appropriate party. Any such
payment to Buyer shall be paid by the Escrow Agent from the Escrow Account, and,
if such net amount exceeds the balance of the Escrow Account, the remainder
shall be paid by Seller in cash on the Post Closing Adjustment Date. Any such
payment to Seller shall be paid by Buyer in cash on the Post Closing Adjustment
Date. The balance, if any, of the Escrow Account shall be wired to Seller on the
Post Closing Adjustment Date; provided, however, if Buyer has made a claim under
the Escrow Agreement which has not been paid or resolved by such date, the
amount of such claim shall be retained in the Escrow Account to be distributed
according to the terms of the Escrow Agreement when the claim is resolved.
3.3) Allocation of Purchase Price. The Purchase Price is hereby
allocated among the Purchased Assets as set forth in Exhibit 3.3. The parties
agree to report this transaction for federal tax purposes in accordance with the
allocations set forth in Exhibit 3.3.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
OF SELLER'S SHAREHOLDERS AND SELLER
Each of Seller's Shareholders and Seller, jointly and severally, make
the following representations and warranties to Buyer with the intention that
Buyer may rely upon the same and acknowledge that the same shall be true as of
the Closing Date (as if made at the Closing) and shall survive the Closing of
this transaction.
4.1) Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona, has all
requisite power and authority, corporate and otherwise, to own its properties
and assets and conduct.
4.2) Qualification. Seller is qualified to do business and in good
standing as a foreign corporation in all states in which qualification is
required by the nature of the Business.
4.3) Corporate Authority. Seller has all requisite power and authority
to execute, perform and carry out the provisions of this Agreement. Seller has
taken all requisite corporate action authorizing and empowering Seller to enter
into this Agreement and to consummate the transactions contemplated herein.
4.4) Title to Shares of Stock of Seller. Seller's Shareholders own one
hundred percent (100%) of all classes of all stock of Seller which is issued and
outstanding, free and clear from all liens, claims and third party interests
whatsoever. Seller's Shareholders have all requisite power and authority
(without consent or approval of any other person) to enter into and carry out
their obligations under this Agreement and to cause Seller to enter into and
carry out its obligations under this Agreement.
4.5) Subsidiaries, Joint Ventures or Partnerships. Except as disclosed
in Exhibit 4.5 hereto, Seller does not have any subsidiary, and Seller is not a
shareholder, partner or joint venturer with any other person or legal entity.
Any subsidiary disclosed in Exhibit 4.5 is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
as set forth in Exhibit 4.5.
4.6) Financial Statements.
(a) Financial Statements. Seller has furnished Buyer a true
and complete copy of its balance sheets and statements of income for
its fiscal year ended December 31, 1998, (copies of which are attached
hereto as Exhibit 4.6(a)) and has furnished updates thereof as of and
for the period ending July 17, 1999 (collectively the "Financial
Statements"). Except as disclosed in Exhibit 4.6(a), the Financial
Statements have been, and any financial statements delivered to Buyer
for subsequent periods will be, prepared in conformance with generally
accepted accounting principles and procedures applied on a basis
consistent with prior periods, and fairly present and will fairly
present in all material respects the financial condition of Seller as
of the represented dates thereof and the results of Seller's operations
for the periods covered thereby. For purposes of this Agreement, the
Financial Statements shall be deemed to include any notes thereto.
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(b) Accounting Practices and Completeness of Accounting
Records. Seller has used no improper accounting practices which
incorrectly reflect on Seller's financial statements or in Seller's
books of account, or which do not reflect on the Financial Statements,
any of Seller's properties, assets, liabilities, revenues, or expenses;
and the books of account of Seller have been maintained and prepared in
accordance with generally accepted accounting principles and the normal
practices of Seller consistently applied except as disclosed in the
Financial Statements or Seller's financial statements for prior years.
(c) No Adverse Changes. Since July 17, 1999, there has not
occurred or arisen (whether or not in the ordinary course of business):
(i) any material adverse change in the financial condition, prospects,
or operations of the Business, (ii) any change in Seller's accounting
methods or practices, (iii) any sale or transfer of any asset or any
amendment of any agreement of Seller except in the ordinary course of
business, (iv) any loss of or damage to the Purchased Assets due to
abuse, misuse, fire or other casualty, (v) any labor trouble, (vi) any
reasonably foreseeable increase in operating costs of the Business not
commensurate with increased production, (vii) any warranty or product
liability claims or losses, or (viii) any other event or condition
known or suspected by Seller or any of Seller's Shareholders to have
occurred or to exist which, singly or in the aggregate, materially and
adversely affect or may affect the Purchased Assets or the Business.
4.7) Tax Reports, Returns and Payment.
(a) Tax Reports and Returns. Except as disclosed in Exhibit
4.7(a), Seller has timely filed all federal and applicable state,
local, and foreign tax or assessment reports and returns of every kind
required to be filed by Seller with relation to the Business,
including, without limitation, income tax, sales and use tax, real
estate tax, personal property tax and unemployment tax, and has duly
paid all taxes and other charges (including interest and penalties) due
to or claimed to be due by any taxing authorities. True and correct
copies of the reports and returns filed by Seller during the last three
tax years have been made available to Buyer. Where required, timely
estimated payments or installment payments of tax liabilities have been
made to all governmental agencies in amounts sufficient to avoid
underpayment penalties or late payment penalties applicable thereto.
From the date of inception of Seller to the Closing Date, such income
tax returns have not been subjected to any examination or audit by
governmental authorities except as disclosed on Exhibit 4.7(a) hereto.
(b) Tax Payments. Except as disclosed in Exhibit 4.7(b), the
provisions for taxes shown in the Financial Statements are and will be
adequate to cover the aggregate liability of Seller as of the Closing
Date for all taxes, duties and charges based on the income, purchases,
sales, business, real estate ownership, capital stock or surplus, or
assets of Seller; and Seller has incurred or will incur no liability
for any income taxes, with relation to the Business, for the period
from July 17, 1999, through the Closing Date except those which arise
in the ordinary course of the Business. No unexpired waivers executed
by or with respect to the liability of Seller of the statute of
limitations with respect to any taxes, duties or charges are in effect,
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nor has Seller otherwise agreed to any extension of time with respect
to an assessment of deficiency with respect to such taxes, duties or
charges. Seller is not a party to any pending action or proceeding by
any governmental agency for assessment or collection of taxes relating
to the Business, and no claim, proposed assessment or assessment for
collection of taxes relating to the Business have been asserted or, to
the knowledge of Seller and Seller's Shareholders, threatened. Seller
confirms Seller's responsibility for, and agreement to pay when due,
any and all taxes, duties or charges based on the Purchased Assets,
Seller's income or sales, or otherwise, incurred or accrued on or prior
to the Closing.
4.8) Title to Assets. The Purchased Assets constitute all property
necessary for the conduct of the Business as now conducted. Seller is the owner
of the assets described in Section 1.1. Seller holds title to such assets free
and clear of all liens, charges, encumbrances or third party claims or interests
of any kind whatsoever, except as disclosed in Exhibit 4.8 hereto. No repairs or
improvements on any real estate owned or leased by Seller are presently in
process, and no such repairs or improvements have been completed less than
thirty (30) days prior to the Closing Date unless payment in full therefor has
been made. All lienable utility payments on any real estate owned or leased by
Seller have been and will be paid in full when due and payable.
4.9) Location of Assets. All Purchased Assets are located on the
Premises of Seller, and no Purchased Assets are under consignment or are in
storage outside of the Premises of Seller except as disclosed in Exhibit 4.9
hereto.
4.10) Tangible Personal Property. All assets described in Section
1.1(a) are in good repair and operating condition (except as stated in Exhibit
4.10 hereto) and will be maintained in good repair and operating condition,
ordinary wear and tear excepted, from the date hereof until the Closing Date.
Seller hereby assigns to Buyer as of the Closing Date any and all warranties
covering such property existing as of the Closing Date.
4.11) Trademarks. Except as disclosed in Exhibit 4.11 hereto, Seller
has good title to, and the full and unrestricted right to use, the assumed names
and the Trademarks listed on Exhibits 1.1(b)(i) and 1.1(b)(ii), free and clear
of all liens, charges, encumbrances, or third party claims or interests of any
kind whatsoever. Except as disclosed in Exhibit 4.11 hereto, the use of such
Trademarks does not infringe on any rights of any other person or entity; such
Trademarks are not licensed to or licensed from any other person or entity; and
there have been no claims of any infringement regarding such Trademarks or
Seller's use thereof.
4.12) Technology. Section 1.1(b)(iii) and the exhibits therein
referenced contain a true and complete description of all of the Technology
related to or used or useful in connection with the Business. The Seller has
good title thereto, and the full and unrestricted right to use the same. Such
rights are free and clear of all liens, charges, encumbrances or third party
claims or interests of any kind whatsoever. To the knowledge of Seller and
Seller's Shareholders, the nature of the practice of the Technology do not
infringe on any rights of any other person or entity, and there have been no
claims by any person of such infringement. None of such rights is licensed to or
licensed from any other person or entity except as disclosed in Exhibit 4.12
hereto. None of Seller's Shareholders own or have any rights as an individual in
or to any patents, inventions, ideas or technology, which relate materially to
the Business.
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4.13) Accounts Receivables. All accounts receivable of Seller have been
collected or are substantially current and will be collected within 90 days
after the Closing Date at the aggregate face amounts of such receivables
recorded on Seller's books. All such accounts, notes or other receivables are
valid, legal, and binding obligations owing to Seller, enforceable against the
parties to be charged, and, in the case of any note, in accordance with its
terms, not subject to any defenses or set-offs.
4.14) Inventory. The Inventory described in Exhibit 1.1(d) represents
the normal supplies and stock in trade of Seller on hand as of the close of
business on the Closing Date. The Inventory is and will be fresh, good,
merchantable and saleable in the ordinary course of business and is and will be
of a quality, quantity and mix consistent with Seller's past business practices
and the demands of its customers.
4.15) Licenses and Permits. To the knowledge of Seller and Seller's
Shareholders, Seller possesses all necessary permits, licenses and approvals
("Licenses and Permits'), governmental or otherwise, without which it could not
conduct the Business in its present form and at its present location all of
which are listed on Exhibit 4.15. To the knowledge of Seller and Seller's
Shareholders, all of the Licenses and Permits are valid and in good standing and
Seller has not received any notice that the Licenses and Permits will lapse or
be terminated by action of any governmental authority or otherwise. Except as
disclosed in Exhibit 4.15, all of the Licenses and Permits are freely assignable
and transferable to Buyer at the Closing and will continue to be in full force
and effect after such transfer.
4.16) Real Property. Exhibit 1.1(f) is an accurate and complete list of
all real property owned, leased or subject to option, or beneficially owned by
Seller, or otherwise used by Seller in conducting the Business, which list
states the ownership status and a brief description of all buildings and
structures located on such real property. Seller has not received any formal or
informal notice of the initiation of any condemnation proceeding with respect to
such real property, or offer of sale in lieu thereof.
4.17) Leases. Exhibit 1.1(h) contains an accurate and complete list of
all leases of personal property related to or used in the operation of the
Business. Seller has not breached, nor has it received in writing any claim or
threat that it has breached, any of the terms or conditions of the Premises
Lease or of any of the Personal Property Leases. The Premises Lease and each
Personal Property Lease is in full force and effect and is not subject to any
material default thereunder by any party obligated to Seller pursuant thereto.
Seller has not received any notice of default under any of such Leases and to
the best of Seller's and Seller's Shareholders' knowledge there is no event
existing which, with notice or lapse of time, or both, would constitute a
default under any such lease. There are no provisions of, or developments
materially affecting, any of such Leases which might prevent Seller from
realizing the benefits thereof or which might prevent Buyer from realizing such
benefits following completion of this transaction.
4.18) Environmental Compliance. To the knowledge of Seller and Seller's
Shareholders, (i) Seller has operated all real property controlled by Seller in
compliance with all applicable federal, state and local environmental laws,
ordinances, rules and regulations, relating to the handling, storage and
disposal of hazardous, toxic or contaminating wastes or substances, (ii) Seller
has not used or stored hazardous, toxic or contaminating wastes or substances on
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any real property nor has Seller discharged or released any such substances upon
any real property, including, but not limited to, underground injection of such
substances, in violation of any federal, state or local environmental law,
ordinance, rule or regulation, (iii) Seller has received no notice that any
other party has engaged in any such use, storage, discharge or release on real
property owned or controlled by Seller, and (iv) all real property owned,
operated or controlled by Seller is free of any (a) asbestos, petroleum
products, or underground storage tanks which present an environmental hazard,
(b) unused storage tanks, or (c) unused uncapped wells.
4.19) Agreements, Contracts and Commitments.
(a) Material Contracts. Except as disclosed on Exhibit 1.1(i),
Seller is not a party to or bound by any written or oral:
(i) broker, dealer, agent, distributorship, sales
agent or similar agreements or arrangements, excluding
purchase orders for sales of products in the ordinary course
of business (and in compliance with this Agreement);
(ii) advertising contracts;
(iii) contract commitments, or arrangements for
capital expenditures having a remaining balance in excess of
$10,000;
(iv) leases with respect to any property, real or
personal, whether as lessor or lessee, except for any leases
having a term of one year or less or aggregate rents payable
of $5,000 or less;
(v) contracts, commitments, or arrangements
containing covenants by Seller not to compete in any lines of
business or with any person or business entity;
(vi) franchise agreements, rights, or other similar
arrangements;
(vii) loans, credits, financing agreements,
promissory notes or other evidences of indebtedness, including
all agreements for any commitments for future loans, credit,
or financing;
(viii) guarantees;
(ix) agreements, contracts or commitments for the
purchase of any services, raw materials, supplies or
equipment, exclusive of purchase orders for the purchase of
products or services required in the ordinary course of
business (and in compliance with this Agreement), involving
payments of more than $5,000 per annum or an aggregate of more
than $10,000;
(x) agreements, contracts or commitments for the sale
of assets, products or services, excluding purchase orders for
the sale of products in the ordinary course of business (and
in compliance with this Agreement), but including contracts
for provision of service warranties, sales credits, product
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returns, or discounts, advertising allowances or promotional
services, which is in any way not yet performed, involving a
value estimated at more than $5,000; or
(xi) any other material contracts, commitments, or
arrangements of any kind. The provisions of any and all such
contracts, commitments or arrangements comply in all materials
respects with the laws of relevant jurisdictions.
Except as specifically set forth in Exhibit 1.1(i), each
contract, commitment, or arrangement referred to in such Exhibit is terminable
without penalty, cost, or liability (whether express, implied, or by operation
of law) on notice not exceeding thirty (30) days. All such contracts,
commitments or other arrangements are assignable without consent of any person
other than as listed in Exhibit 1.1(i) and such consents, if any, as are
required shall be obtained by Seller prior to the Closing.
(b) Customer Orders. All customer orders in existence as of
the Closing Date are valid and binding upon the parties thereto in
accordance with the terms thereof. No provision thereof prohibits
assignment of the same to Buyer or Buyer's performance thereof and
collection of payment with respect thereto.
(c) Distributor Contracts. Exhibit 1.1(i) hereto lists all
distributor contracts in force as of the date hereof, together with the
expiration dates thereof. All of such contracts shall be furnished to
Buyer for review prior to the Closing Date.
(d) Employee Plans. Seller does not maintain any "Employee
Plans" except as set forth in the employee policy manual attached as
Exhibit 4.19(d) hereto. "Employee Plans" mean any pension, retirement,
disability, medical, dental, or other health insurance plan, life
insurance or other death benefit plan, profit sharing deferred
compensation, stock option, bonus or other incentive plan, vacation
benefit plan, severance plan, or other employee benefit plan or
arrangement including, without limitation, any "pension plan" as
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and any "welfare plan" as defined in
Section 3(l) of ERISA, whether or not any of the foregoing is funded,
(i) to which Seller is a party or by which it is bound, or (ii) with
respect to which Seller has made any payments or contributions may
otherwise have any liability (including any such plan or other
arrangement formerly maintained by Seller).
(e) Union and Employment Contracts and Other Employment
Matters. Seller is not a party to any collective bargaining agreement
or any other written employment agreement, nor is Seller a party to any
other contract or understanding (oral or written) that contains any
severance pay liabilities or obligations, except for accrued, unused
vacation pay or accrued and unused sick leave pay. All of Seller's
employee benefits are outlined in the employee manual attached as
Exhibit 4.19(e).
(f) Breach. Except as disclosed in Exhibit 4.19(f) hereto,
Seller has performed all obligations required to be performed by Seller
to date under any material contract, commitment, or arrangement of any
kind to which Seller is a party or by which Seller is bound; and
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neither Seller nor any other party is in default under any material
contract, commitment, or arrangement of any kind to which Seller is a
party or by which Seller is bound. Except as disclosed in Exhibit
4.19(f) no event has occurred which after the giving of notice or the
lapse of time or otherwise would constitute a default under, or result
in a breach of by Seller or any other party, any contract, commitment,
or arrangement to which Seller is a party or by which Seller is bound.
(g) Copies of Contracts; Terms and Binding Effect. True,
complete and correct copies of all written contracts, commitments,
understandings, and other documents referred to in the Exhibits have
been delivered to Buyer or attached to the Schedules where required by
this Agreement; there are no amendments to or modifications of, or
agreements of the parties relating to, any such contracts, commitments,
and understandings which have not been delivered to Buyer; and each
such contract, commitment, or understanding, as amended, is considered
valid and binding on the parties to it in accordance with its
respective terms, and the transaction contemplated by this Agreement
will not result in the violation or breach of any such material
contract, commitment, or understanding.
4.20) Contracts with Related Parties. Except as disclosed in Exhibit
4.20 hereto, there are no agreements or contracts between Seller and any of its
employees, agents, officers, directors or shareholders.
4.21) Employee Information.
(a) Employee List. Exhibit 4.21(a) hereto is an accurate and
complete list of the names of all directors and officers of Seller and
the names, positions, titles, and salary rates for all employees of
Seller whose annual compensation (including salary, commissions, bonus
or other benefits) exceeded $50,000 during 1998, or is presently
expected to exceed $50,000 in 1999 together with summary of the
bonuses, additional compensation and other employee benefits, if any,
paid or payable to such persons as of the date of this Agreement.
(b) Terminated Employees. No claims have been made or
threatened against Seller by any former or present employee based on
employment discrimination, wrongful discharge, or any other
circumstance relating to or arising from the employment relationship
with Seller.
(c) Employee Expenses. All amounts due to the employees of the
Seller through the Closing Date for commissions, salary, wages, fringe
benefits (other than vacation), and pension benefits, including cash
bonuses accrued through the Closing Date and all employment taxes
incurred thereon, will be paid in full as of the Closing.
(d) Compliance with Employment Laws. Except as disclosed in
Exhibit 4.21(d):
(i) Proper and accurate amounts have been withheld by
Seller from the compensation of all of Seller's employees for
all periods in full and complete compliance with the tax
withholding provisions of any applicable laws;
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(ii) Proper and accurate returns have been filed by
Seller for all periods for which returns were due with respect
to employee income tax and social security withholding and
FICA and unemployment taxes, and the amounts shown on such
returns to be due and payable have been paid in full or
adequate provisions for payment of such amounts have been
included in the Financial Statements;
(iii) Hours worked by, and payments made to,
employees of Seller have not been in violation of the Fair
Labor Standards Act or any applicable laws dealing with such
matters;
(iv) All payments due from Seller on account of
employee health and welfare insurance have been accrued as a
liability in the Financial Statements; and
(v) All severance payments which are or were due
under the terms of any agreement, oral or written, have been
accrued as a liability in the Financial Statements.
4.22) Predominant Customers. Except as disclosed in Exhibit 4.22
hereto, no single customer of Seller accounted for over five percent (5%) of
Seller's revenues during the fiscal year ending prior to the date of this
Agreement.
4.23) Change In Customers. Except as disclosed in Exhibit 4.23 hereof,
neither Seller nor any of Seller's Shareholders has any information indicating
that any significant customers intend to cease doing business with Seller or
materially alter the amount of business they do with Seller.
4.24) Product Liability Claims. All products which Seller has sold have
been merchantable, free from material defects in material or workmanship, and
suitable for the purpose for which they were sold. Since its inception, Seller
has never received a claim based upon alleged breach of product warranty, strict
liability in tort, negligent manufacture of product, or any other allegation of
liability arising from Seller's manufacture or sale of its products (hereafter
collectively referred to as "Product Liability Claims"), any of which Product
Liability Claims exceeds $5,000. All liability from any actual and potential
Product Liability Claims, whether or not asserted on or before the Closing Date,
are fully covered including all costs of defense and investigation, by Seller's
product liability insurance policies. During the two (2) years prior to the
Closing Date there have been no Product Liability Claims whatsoever received by
Seller except as set forth in Exhibit 4.24, which Exhibit describes such claims
and the disposition thereof. Neither Seller nor Seller's Shareholders have any
reasonable grounds to believe that future Product Liability Claims with respect
to products of Seller sold prior to the Closing Date will be different from
Seller's past experience with respect thereto as set forth herein.
4.25) Insurance. Seller has maintained and will continue to maintain
until the Closing Date the insurance described in Exhibit 4.25, including
insurance on Seller's tangible real and personal property and assets, whether
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owned or leased, against loss or damage by fire or other casualty, in amounts
equal to or in excess of one hundred percent (100%) of the replacement value
thereof. All such insurance is in full force on the date of this Agreement and
is carried with reputable insurers. Seller has promptly and adequately notified
Seller's insurance carriers of any and all claims known to Seller with respect
to the operations or products of Seller for which Seller is insured. At the
Closing, Seller shall have in effect the product liability insurance policy
described in Exhibit 4.24.
4.26) Litigation and Related Matters.
(a) Except as disclosed on Exhibit 4.26(a) hereto, there is no
pending or, to the knowledge of Seller and Seller's Shareholders,
threatened litigation, proceeding, or investigation (including any
environmental, building or safety investigation) against Seller or
Seller's Shareholders, or the Purchased Assets, nor is Seller or
Seller's Shareholders subject to any existing judgment, order, decree,
or other action affecting the operation of the Business or the
Purchased Assets or which would prevent, impede, or make illegal the
consummation of the transactions contemplated in this Agreement, or
which would have a material adverse effect on Seller or Seller's
Shareholders, or on the Business or any of the Purchased Assets.
(b) Exhibit 4.26(b) sets forth all legal actions commenced
against Seller setting forth a Product Liability Claim as defined in
Section 4.24 above.
4.27) Laws and Regulations. Seller has complied, and is in compliance,
with applicable laws, statutes, orders, rules, regulations and requirements
promulgated by governmental or other authorities relating to the Business, the
Purchased Assets or the operation of the Business, including, without
limitation, any relating to wages, hours, hiring, promotion, retirement, working
conditions, air, water, solid or liquid waste pollution, nondiscrimination,
health, safety, pensions, benefits, the production, processing, advertising or
sale of products, trade regulation, antikickback, export licensing, antitrust,
antiboycott, warranties, or control of foreign exchange; and Seller has not
received any notice of any sort of alleged violation of any such statute, order,
rule, regulation or requirement. The Purchased Assets and their uses conform in
all material respects to all applicable zoning and building laws.
4.28) Breaches of Contracts; Required Consents. Neither the execution
and delivery of this Agreement by Seller or Seller's Shareholders, nor
compliance by Seller or Seller's Shareholders with the terms and provisions of
this Agreement will:
(a) Conflict with or result in a breach of (i) any of the
terms, conditions or provisions of the Articles of Incorporation,
Bylaws or other governing instruments of Seller, (ii) any judgment,
order, decree or ruling to which the Seller or any of Seller's
Shareholders is a party, (iii) any injunction of any court or
governmental authority to which any of them is subject, or (iv) any
agreement, contract or commitment which is material to the Business or
to Seller's financial condition; or
(b) Except as disclosed in Exhibit 4.28(b) hereto, require the
affirmative consent or approval of any third party.
4.29) Binding Obligation. This Agreement constitutes the legal, valid
and binding obligation of Seller and Seller's Shareholders in accordance with
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the terms hereof. Neither Seller nor any of Seller's Shareholders is subject to
any charter, mortgage, lien, lease, agreement, contract, instrument, law, rule,
regulation, order, judgment or decree, or any other restriction of any kind or
character, which would prevent the consummation of the transactions contemplated
in this Agreement.
4.30) Laws and Rules Concerning Safety and Occupational Hazards. All of
Seller's manufacturing process and all materials which have been sold by Seller
up to and including the Closing Date were in compliance (as of the time of such
manufacture or sale) with applicable U.S. and state laws and rules concerning
safety, environmental and occupational hazards.
4.31) Absence of Certain Payments. To the knowledge of Seller and
Seller's Shareholders, neither Seller, any of Seller's Shareholders, nor any
director, officer, agent, employee or other person associated with or acting on
behalf of Seller, has used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
or made any direct or indirect unlawful payments to government officials or
employees from corporate funds, or established or maintained any unlawful or
unrecorded funds.
4.32) Business and Marketing Plans. Seller has made available to Buyer
and will continue to make available to Buyer before and after the date of this
Agreement, all material methods, plans or marketing programs employed by Seller
in connection with the Business which Buyer may request.
4.33) Minute Books. The copies of the articles of incorporation of
Seller and all amendments thereto, certified as of a recent date by the
Secretary of State of Arizona, and of the Bylaws of Seller, certified by the
Secretary or an Assistant Secretary of Seller, which have been, or will be
delivered to Buyer at the Closing, are as of the date of this Agreement and will
be on the Closing Date, complete and correct.
4.34) Copies of Documents. Seller will make available for inspection
and copying by Buyer true and correct copies of all documents referred to in
this Article 4 or in any exhibit delivered by Seller to Buyer in connection with
this Agreement.
4.35) Completeness of Disclosures. To the knowledge of Seller and
Seller's Shareholders, none of the representations or warranties made by Seller
and Seller's Shareholders in this Agreement or the Exhibits, and no written
statement, certificate or Exhibit furnished or to be furnished by or on behalf
of Seller or Seller's Shareholders, to Buyer or its agents pursuant hereto, or
in connection with the transaction contemplated by this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact the omission of which would be misleading. The Exhibits to this
Agreement, where provided by or on behalf of Seller, completely and correctly
present, in all material respects, the information required by this Agreement to
be set forth in them.
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ARTICLE 5.
COVENANTS AND AGREEMENTS OF SELLER
AND SELLER'S SHAREHOLDERS
Seller and each of Seller's Shareholders, jointly and severally,
covenant and agree as follows:
5.1) Consents. All consents necessary for the valid and effective
consummation of the transactions contemplated in this Agreement will be obtained
as of the Closing Date.
5.2) Insurance. All insurance policies in effect as of the date of this
Agreement will be kept in full force and effect without any decrease or changes
in coverage through the Closing Date.
5.3) Payment of Liabilities. Except for the Assumed Liabilities, Seller
shall pay within 60 days of the Closing Date all liabilities and obligations
whatsoever outstanding or accrued with respect to operations of the Business
through the Closing Date, including sales taxes, employment and withholding
taxes, payroll and employee expenses (excluding vacation obligations), rent and
utilities, except as to amounts which Seller contests in good faith and for
which it maintains an adequate reserve.
5.4) Release of Liens. At or prior to the Closing, Seller shall obtain
a release from any person claiming a lien or security interest on any of the
Purchased Assets other than with respect to the Assumed Liabilities.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Seller and
Seller's Shareholders, with the intention that Seller and Seller's Shareholders
may rely upon the same, and acknowledges that the same shall be true as of the
Closing Date (as if made at the Closing) and shall survive the Closing of this
transaction.
6.1) Organization. Buyer is a corporation, duly organized, validly
existing in good standing under the laws of the State of Minnesota, and has all
requisite power and authority, corporate and otherwise, to own its properties
and conduct the business in which it is presently engaged.
6.2) Corporate Authority. Buyer has all requisite power and authority
to execute, perform and carry out the provisions of this Agreement. Buyer has
taken all requisite corporate action authorizing and empowering Buyer to enter
into this Agreement and to consummate the transactions contemplated herein.
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6.3) Breaches of Contracts; Required Consents. Neither the execution
and delivery of this Agreement by Buyer, nor compliance by Buyer with the terms
and provisions of this Agreement, will:
(a) Conflict with or result in a breach of: (i) any of the
terms, conditions or provisions of the Articles of Incorporation,
Bylaws or other governing instruments of Buyer, (ii) any judgment,
order, decree or ruling to which the Buyer is a party, (iii) any
injunction of any court or governmental authority to which it is
subject, or (iv) any agreement, contract or commitment listed on any
Exhibit hereto and which is material to the financial condition of
Buyer; or
(b) Require the affirmative consent or approval of any third
party.
6.4) Binding Obligation. This Agreement constitutes the legal, valid
and binding obligation of Buyer in accordance with the terms hereof. Buyer is
not subject to any charter, mortgage, lien, lease, agreement, contract,
instrument, law, rule, regulation, order, judgment or decree, or any other
restriction of any kind or character, which would prevent the consummation of
the transactions contemplated in this Agreement.
6.5) Financial Statements. Buyer has delivered to Seller and Seller's
Shareholders Buyer's Form 10-KSB for the fiscal year ended September 30, 1998
and Form 10-QSB for the fiscal quarter ended June 30, 1999 which include Buyer's
balance sheets and statements of income as of and for its fiscal year ended
September 30, 1998 and Buyer's balance sheets and statements of income as of and
for its fiscal quarter ended June 30, 1999 (collectively, "Buyer's Financial
Statements"). Buyer's Financial Statements have been prepared in conformance
with generally accepted accounting principles and procedures applied on a basis
consistent with prior periods, and fairly present in all material respects the
financial condition of Buyer as of the represented dates thereof and the results
of Buyer's operations for the periods covered thereby.
6.6) Litigation. Except as disclosed on Exhibit 6.6 hereto, there is no
pending or threatened litigation, proceeding, or investigation (including any
environmental, building or safety investigation) against Buyer, nor is Buyer
subject to any existing judgment, order, decree, or other action affecting the
operation of its business which would prevent, impede, or make illegal the
consummation of the transactions contemplated in this Agreement, or which would
have a material adverse effect on Buyer or on Buyer's business.
6.7) Laws and Regulations. Buyer has complied, and is in compliance,
with applicable laws, statutes, orders, rules, regulations and requirements
promulgated by governmental or other authorities relating to Buyer and the
operation of Buyer's business, including, without limitation, any relating to
wages, hours, hiring, promotion, retirement, working conditions, air, water,
solid or liquid waste pollution, nondiscrimination, health, safety, pensions,
benefits, the production, processing, advertising or sale of products, trade
regulation, antikickback, export licensing, antitrust, antiboycott, warranties,
or control of foreign exchange; and Buyer has not received any notice of any
sort of alleged violation of any such statute, order, rule, regulation or
requirement.
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6.8) Tax Reports, Returns and Payment. Except as disclosed in Exhibit
6.8, to Buyer's knowledge, Buyer has timely filed all federal and applicable
state, local, and foreign tax or assessment reports and returns of every kind
required to be filed by Buyer with relation to its business including, without
limitation, income tax, sales and use tax, real estate tax, personal property
tax and unemployment tax, and has duly paid all taxes and other charges
(including interest and penalties) due to or claimed to be due by any taxing
authorities.
ARTICLE 7.
CONDUCT OF BUSINESS PRIOR TO CLOSING
7.1) Access to Information. During the period prior to the Closing,
Seller shall give to Buyer and its attorneys, accountants or other authorized
representatives, full access to all of the property, books, contracts,
commitments and records of Seller and shall furnish to Buyer during such period
all such information concerning the Business and the Purchased Assets as Buyer
reasonably may request. Buyer shall be allowed to contact Seller's employees and
others connected with the Purchased Assets and with past and present customers
and suppliers of Seller.
7.2) Restrictions. Except as disclosed in Exhibit 7.2, Seller and each
of Seller's Shareholders represent and warrant that since July 17, 1999, and
during the period from the date of this Agreement to the Closing Date, they have
not and will not have (except as Buyer otherwise has consented in writing):
(a) created or incurred any liability (absolute or contingent)
except (i) unsecured current liabilities incurred for other than money
borrowed, (ii) renewals of existing borrowings, and (iii) liabilities
under insurance and other contracts entered into in the ordinary course
of business (and in compliance with this Agreement);
(b) granted any new mortgage, pledge, or lien upon, or
otherwise encumbered, any of the Purchased Assets, tangible or
intangible, except pursuant to Seller's existing working capital line
of credit in the ordinary course of business;
(c) waived or cancelled any rights or debt to Seller in excess
of $1,000 in value in the aggregate;
(d) made any capital expenditures or capital additions or
betterments, which individually exceeded $10,000 in value;
(e) sold or otherwise disposed of any of the Purchased Assets,
tangible or intangible, except inventory in the ordinary course of
business at regular prices;
(f) declared or paid any dividends or made any other
distribution or payment on or in respect of, or directly or indirectly
purchased, retired, redeemed, or otherwise acquired, any shares of its
capital stock other than for cash;
(g) made or become a party to any contract, commitment, or
other arrangement or renewed, extended, amended, or modified any
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contract, commitment, or other arrangement which in any one case
involved an amount in excess of $5,000, except in the ordinary course
of business (and in compliance with this Agreement);
(h) paid or agreed to pay, conditionally or otherwise, any
bonus, additional compensation, pension, or severance pay to any of its
present or former directors or officers or to employees whose annual
base compensation (including bonuses and commissions), whether under
any existing profit sharing, pension, or other plan or otherwise;
(i) increased the rate of compensation (including salaries,
fees, commission rates, bonuses, profit sharing, incentive, pension,
retirement, or other similar payments) being paid at the date of this
Agreement to any of Seller's present or former directors or officers or
to employees;
(j) made or suffered any material change in the Purchased
Assets;
(k) sold or otherwise disposed of any leases pertaining to the
Purchased Assets, or entered into any renewals or extensions of
existing leases or entered into any new leases other than in the
ordinary course of business;
(l) permitted any amendment or termination of any material
contract, license, franchise or other agreement;
(m) altered or revised its accounting principles, procedures,
methods or practices;
(n) removed, or permitted to be removed, from any building,
facility or real property, any machinery, equipment, fixture, vehicle,
or other personal property or parts thereof, except in the ordinary
course of business (and in compliance with this Agreement);
(o) changed its credit policy as to sales of inventories or
collection of receivables;
(p) granted or committed to grant any options, warrants or
other rights to subscribe for or purchase or otherwise acquire any
shares of Seller's capital stock or other securities or other ownership
interests in Seller;
(q) issued or sold or committed to issue or sell any shares of
Seller's capital stock or other securities or other ownership interests
in Seller; or
(r) received any communication from any customer which
accounted for more than two percent (2%) of Seller's revenues for the
Business during the last full fiscal year to the effect that such
customer does not intend to continue to purchase merchandise from
Seller.
7.3) Risk of Loss. Prior to completion of the Closing, the risk of loss
or destruction to any of Seller's assets shall be that of Seller. In the event
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of damage or destruction of any of the Purchased Assets, Seller shall replace
such damaged or destroyed Purchased Assets with similar assets of equal value
and shall use any insurance proceeds received for such damage to make such
replacements.
7.4) Preserve Accuracy of Representations and Warranties. Seller and
each of Seller's Shareholders shall refrain from taking any action, except with
the prior written consent of Buyer, which would render any representation,
warranty or agreement of Seller or any of Seller's Shareholders in this
Agreement inaccurate or breached as of the Closing. At all times prior to the
Closing, Seller and Seller's Shareholders will promptly inform Buyer in writing
with respect to any matters that arise after the date of this Agreement which,
if existing or occurring at the date of this Agreement, would have been required
to be set forth or described in the Exhibits. Seller and each of Seller's
Shareholders promptly will notify Buyer in writing of all lawsuits, claims,
proceedings and investigations that may be threatened, brought, asserted or
commenced against Seller or Seller's officers or directors involving the
transaction contemplated by this Agreement or which might have a material
adverse impact on the Purchased Assets.
7.5) No Solicitation of Other Offers. Seller and Seller's Shareholders
agree that, prior to Closing Date or the termination of this Agreement pursuant
to Section 8.3 neither Seller nor any of Seller's representatives will solicit
from any other person any offer, inquiry or proposal with respect to the sale,
merger or other acquisition of Seller or of all or any portion of the Purchased
Assets. Seller and Seller's Shareholders will promptly notify Buyer of any such
offer, inquiry or proposal received by Seller or Seller's representatives.
ARTICLE 8.
CONDITIONS OF CLOSING; ABANDONMENT OF TRANSACTION
8.1) Conditions to Obligations of Buyer to Proceed on the Closing Date.
The obligations of Buyer to proceed on the Closing Date shall be subject (at its
discretion) to the satisfaction, on or prior to the Closing, of all of the
following conditions:
(a) Truth of Representations and Warranties and Compliance
with Obligations. The representations and warranties of Seller and each
of Seller's Shareholders herein shall be true in all material respects
on the Closing Date with the same effect as though made at such time.
Seller and Seller's Shareholders shall have performed all material
obligations and complied with all material covenants and conditions
prior to or as of the Closing Date. Seller shall have delivered to
Buyer a certificate of Seller in form and substance satisfactory to
Buyer dated as of the Closing Date and executed by the President and
Chief Executive Officer of Seller to all such effects.
(b) Opinion of Counsel. Buyer shall have received a duly
executed opinion letter from Seller's legal counsel dated as of the
Closing Date, in form and substance reasonably satisfactory to Buyer
and its counsel, to the effect that:
(i) Seller is a corporation duly organized and
validly existing and in good standing in the State of Arizona,
has all necessary corporate power to own the property it now
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owns and to operate its business as it is now operated; and is
qualified to do business in all states in which qualification
is required by the nature of the Business.
(ii) This Agreement and all collateral documents have
been duly and validly authorized, executed and delivered by
Seller and Seller's Shareholders, constitute the valid and
binding obligations of Seller and each of Seller's
Shareholders, and are enforceable in accordance with their
terms, except as limited by bankruptcy and insolvency laws and
by other laws affecting the rights of creditors generally, and
are sufficient to convey and vest in Buyer all right, title
and interest in the Purchased Assets;
(iii) Seller's Shareholders own one hundred percent
(100%) of the Common Stock of the Seller which is issued and
outstanding; such Common Stock is the only capital stock
authorized for issue by the Seller; and Seller's Shareholders
have all requisite power and authority (without consent or
approval of any other party) to cause Seller to execute and to
carry out its obligations under this Agreement;
(iv) To the best of such counsel's actual knowledge,
no suit, action, arbitration, legal or administrative
proceeding, or any governmental investigation, is pending or
threatened against Seller or any of Seller's Shareholders, or
any of their businesses or properties;
(v) Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions
contemplated in this Agreement, will constitute:
(1) A violation of Seller's Articles of
Incorporation or Bylaws, or, to the best of such
counsel's actual knowledge, a default (or an event
which with notice or lapse of time or both will
constitute a default) under, or violation or breach
of, any material indenture, license, lease, mortgage,
instrument, or other agreement to which Seller is a
party, or by which its properties may be bound;
(2) Require the affirmative consent or
approval of any third party except as disclosed in
Exhibit 4.28(b); or
(3) An event which would result in the
creation or imposition of any lien, charge, or
encumbrance on any of the Purchased Assets; and
(vi) To the best of such counsel's actual knowledge,
Seller has good and marketable title to the Purchased Assets
free and clear of all liens, encumbrances, charges, and
third-party claims or interests whatsoever;
(vii) Seller has corporate power and authority and,
to the best of such counsel's actual knowledge, all necessary
permits, licenses and other material authorizations, to
operate the Business as presently operated; and
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(viii) To the best of such counsel's actual
knowledge, Seller's and Seller's Shareholders representations,
warranties and agreements contained in Article 4 are true and
correct and have not been breached.
In giving such opinion, such counsel may rely, as to matters
of fact, upon certificates of officers of Seller or public officials,
and as to matters of law upon opinions of other counsel satisfactory to
Buyer and Buyer's counsel, provided that Seller's counsel shall state
that such counsel believes that such counsel is justified in relying
upon such certificates and opinions and shall deliver copies of them to
Buyer prior to the Closing Date.
(c) Assignments. Seller shall have executed and delivered to
Buyer documents assigning all of its right, title and interest in the
Purchased Assets to Buyer, free and clear of all liens, encumbrances
and third-party claims or interests of any kind whatsoever except those
related to the Assumed Liabilities.
(d) Premises Lease. The Premises Lease shall have been
extended through October 31, 2004 and shall have been amended to
provide for extension at the option of Buyer through October 31, 2009
but with all other terms and conditions remaining unchanged.
(e) Escrow Agreement. The Escrow Agreement shall have been
duly executed and delivered by Seller.
(f) Required Consents. Seller and each of Seller's
Shareholders shall have obtained the consent or approval of each person
whose consent or approval Buyer reasonably believes is required in
connection with this Agreement; including, without limitation, consent
of all parties required to assign the Premises Lease.
(g) Delivery of Documents. Seller and Seller's Shareholders
shall have delivered all documents required to be delivered at Closing
pursuant to Section 9.2 hereof.
(h) Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transaction contemplated by this Agreement, and no
investigation that may result in any such suit, action or other
proceeding shall be pending or threatened.
(i) Legislation. No statute, rule, regulation or order shall
have been enacted, entered or deemed applicable by any domestic or
foreign government or governmental or administrative agency or court
which would make the transaction contemplated by this Agreement illegal
or otherwise materially adversely affect the Purchased Assets or the
use and operation of the Business in the hands of Buyer.
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(j) Employment Contracts. Employment contracts shall have been
entered into with Ken Charbonneau and Mike DePinto in the forms
attached hereto as Exhibit 8.1(j).
(k) Review of Material Contracts. Buyer shall have had the
opportunity prior to the Closing Date to review all contracts deemed by
Buyer to be material in the continued operation of the Business. Buyer
shall be satisfied after such review that the representations made by
Seller and Seller's Shareholders with respect to such material
contracts prior to the execution of this Agreement are true and correct
and that such contracts have been performed in a business-like manner
consistent with the specifications applicable to such contracts.
(l) Outstanding Indebtedness. The principal amount outstanding
on the Indebtedness shall be no greater than $287,500.
(m) Non-Compete Agreements. Each of Seller's Shareholders
shall have executed a five-year non-compete agreement in the form
attached hereto as Exhibit 8.1(m) in exchange for $25,000 each.
8.2) Conditions to Obligation of Seller and Seller's Shareholders to
Proceed on the Closing Date. The obligation of Seller and Seller's Shareholders
to proceed on the Closing Date shall be subject (at its discretion) to the
satisfaction, on or before the Closing, of the following conditions:
(a) Truth of Representations and Warranties and Compliance
with Obligations. The representations and warranties of Buyer herein
contained shall be true in all material respects on the Closing Date
with the same effect as though made at such time. Buyer shall have
performed all material obligations and complied with all material
covenants and conditions prior to or as of the Closing Date.
(b) Opinion of Counsel. Seller shall have received a duly
executed opinion letter from Buyer's legal counsel dated as of the
Closing Date, in form and substance reasonably satisfactory to Seller
and its counsel, to the effect that:
(i) Buyer is a corporation duly organized and
validly existing and in good standing in the State of
Minnesota;
(ii) This Agreement and all collateral documents have
been duly and validly authorized, executed and delivered by
Buyer, constitute the valid and binding obligations of Buyer,
and are enforceable in accordance with their terms, except as
limited by bankruptcy and insolvency laws and by other laws
affecting the rights of creditors generally; and
(iii) Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions
contemplated in this Agreement, will, constitute a violation
of Buyer's Articles of Incorporation or Bylaws.
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In giving such opinion, such counsel may rely, as to matters
of fact, upon certificates of officers of Buyer or public officials
and, as to matters of law, upon the opinions of other counsel
satisfactory to Seller's counsel, provided that Buyer's counsel shall
state that such counsel believes that such counsel is justified in
relying upon such certificates and opinions and deliver copies of them
to Seller prior to the Closing Date.
(c) Delivery of Documents. Buyer shall have delivered all
documents required to be delivered at Closing pursuant to Section 9.3
hereof.
(d) Litigation Affecting Closing. No suit, action or other
proceeding shall be pending or threatened by or before any court or
governmental agency in which it is sought to restrain or prohibit or to
obtain damages or other relief in connection with this Agreement or the
consummation of the transaction contemplated by this Agreement, and no
investigation that might eventuate in any such suit, action or other
proceeding shall be pending or threatened.
(e) Legislation. No statute, rule, regulation or other shall
have been enacted, entered or deemed applicable by any domestic or
foreign government or governmental or administrative agency or court
which would make the transaction contemplated by this Agreement
illegal.
(f) Release of Guarantees. Each of Donald R. Charles and David
J. Brennan shall be released from his personal guarantee of the
Indebtedness and the Capital Lease Obligations or Buyer shall pay-off
the Indebtedness and Capital Lease Obligations at Closing.
8.3) Absence of Exhibits. The parties hereby acknowledge that as of the
date of execution of this Agreement certain exhibits required hereunder are not
attached hereto. Seller acknowledges that Buyer, in executing this Agreement, is
relying on the absence of any materially adverse information which may be
disclosed upon completion and delivery of any of the required exhibits or any
documents referenced therein. Seller shall complete and furnish all of such
exhibits within seven (7) days of the execution hereof. Buyer reserves the right
to cancel this Agreement if (i) such condition is not satisfied; or (ii) prior
to the Closing Date Buyer reasonably determines that the exhibits or any
documents referenced therein contain materially adverse information.
8.4 Termination of Agreement. This Agreement and the transactions
contemplated herein may be terminated at or prior to the Closing, only as
follows:
(a) By mutual written consent of all parties.
(b) By Buyer pursuant to written notice delivered at or prior
to the Closing if all of the conditions to Closing set forth in Section
8.1 have not been satisfied.
(c) By Seller or Seller's Shareholders pursuant to written
notice delivered at the Closing if all the conditions set forth in
Section 8.2 have not been satisfied.
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(d) By either party pursuant to written notice delivered at or
prior to the Closing if the Closing shall have not occurred by November
1, 1999, for any reason other than the refusal or failure of the
terminating party to meet its obligations under this Agreement.
8.5) Consequences of Termination. In the event Seller or Seller's
Shareholders terminate this Agreement other than in compliance with Section
8.4(c) or if Buyer terminates this Agreement in compliance with Section 8.3(i),
8.4(b) (unless such termination is solely a result of a failure of a condition
specified in Section 8.1(i) or 8.1(k)) or 8.4(d), Seller shall promptly pay
Buyer $25,000 and Buyer may pursue any remedies available at law or equity. In
the event this Agreement is terminated pursuant to 8.4(a) no party shall have
any liability to any other party hereunder and Buyer shall be entitled to return
of the Earnest Money. In the event that Buyer terminates this Agreement, Seller
shall be entitled to the Earnest Money.
ARTICLE 9.
CLOSING
9.1) Closing. The closing of the transaction contemplated by this
Agreement ("Closing") shall be held at the offices of Schmitt, Schneck, Fisher
Smyth & Herrod, P.L.C. in Phoenix, Arizona on October 12, 1999, at 10:00 a.m.,
or at such other date or time as the parties may mutually agree upon in writing.
The Closing shall be deemed to have occurred at 12:00 midnight on October 9,
1999, or at such later date as the parties may mutually agree upon in writing.
Such deemed date of closing shall be referred to herein as the Closing Date.
9.2) Documents to be Delivered by Seller and Seller's Shareholders.
Seller and Seller's Shareholders agree to deliver the following documents, duly
executed as appropriate, to Buyer at the Closing:
(a) All certificates, schedules, exhibits, and attachments in
completed form and specifying the information required by the
provisions of this Agreement.
(b) Articles of Incorporation of Seller certified by the
Arizona Secretary of State.
(c) Bylaws of Seller certified by the Seller's Secretary.
(d) Certificate of Good Standing for Seller dated no earlier
than five (5) days prior to the Closing Date.
(e) Certified copies of corporate resolutions of Seller
authorizing it to enter into the transactions contemplated herein.
(f) A Bill of Sale and instruments of assignment and transfer
for the sale of the Purchased Assets.
(g) Escrow Agreement as required under Section 3.1(b).
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(h) Certificate of Seller's President regarding
representations and warranties as required under Section 8.1(a).
(i) Opinion of Seller's Counsel as required under Section
8.1(b).
(j) Appropriate assignment documents, in form reasonably
required by Buyer assigning Seller's title and interest in certain
assets as required under Section 8.1(c).
(k) Documentation of receipts of all consents required in
connection with this Agreement, as required under Section 8.1(f).
(l) Employment contracts as required under Section 8.1(j).
(m) Non-compete agreements as required under Section 8.1(n).
(n) Such other documents as Buyer may reasonably request for
the purpose of assigning, transferring, granting, conveying, and
confirming to Buyer or reducing to its possession, any and all assets,
property and rights to be conveyed and transferred by this Agreement.
9.3) Documents Delivered by Buyer. Buyer agrees to provide the
following, duly executed as appropriate, to Seller at the Closing:
(a) Articles of Incorporation of Buyer certified by the
Minnesota Secretary of State.
(b) Bylaws of Buyer certified by Buyer's Secretary.
(c) Certificate of Good Standing of Buyer dated no earlier
than five (5) days prior to the Closing Date.
(d) Certified copies of corporate resolutions of Buyer
authorizing it to enter into the transactions contemplated herein.
(e) Wire transfer of funds to Seller in the amount of
$5,650,000.
(f) Wire transfer of funds to Escrow Agent in the amount of
$250,000.
(g) Wire transfer of funds to each of Seller's Shareholders in
the amount of $25,000.
(h) Assumption Agreement pursuant to which Buyer assumes the
Assumed Liabilities in accordance with Section 1.5(a).
(i) Escrow Agreement as specified in Section 3.1(b).
(j) Note in the amount of $3,000,000 as specified in Section
3.1(c).
(k) Opinion of Buyer's counsel as specified in Section 8.2(b).
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(l) Such other documents as Seller or Seller's Shareholders
reasonably may request to carry out the transactions contemplated under
this Agreement.
9.4) Assignment and Assumption of Certain Contracts. Effective upon
consummation of all transactions herein on the Closing Date, Seller hereby
assigns to Buyer all of Seller's rights, title and benefit under the Premises
Lease, the Personal Property Leases described in Exhibit 1.1(h), and the
Contracts, and Buyer assumes all liabilities or obligations with respect thereto
arising on and following the Closing Date. Seller and Seller's Shareholders
shall indemnify and hold Buyer harmless under Article 12 below for all claims,
obligations or liabilities with respect to such Leases and Contracts arising
prior to the Closing Date and shall execute such forms of assignment and provide
such other reasonable cooperation as may be necessary to effect the assignments
herein.
9.5) Prorations. At or before the Closing, Seller shall pay all
employees of Seller for all wages, benefits (excluding unused vacation) or other
sums earned or accrued through the Closing Date and shall pay Buyer the amount
of any unpaid employment taxes relating to the period up to the Closing Date.
The parties shall account to each other for all lease, utility, personal
property tax (which shall be prorated for calendar 1999) and other continuing
obligation and operating expenses to the end that Seller shall be responsible
for all such expenses attributable to the period up to and including the Closing
Date and Buyer shall be responsible for all such expenses following the Closing
Date. Unused vacation of Seller's employees hired by Buyer in connection with
this transaction shall be carried forward to Buyer. Buyer shall be compensated
for such vacation carry forward and for expenses owed by Seller pursuant to this
Section from the Escrow Account as provided in the Escrow Agreement.
ARTICLE 10.
POST CLOSING OBLIGATIONS
10.1) Further Documents and Assurances. At any time and from time to
time after the Closing Date, each party shall, upon request of another party,
execute, acknowledge and deliver all such further and other assurances and
documents, and will take such action consistent with the terms of this
Agreement, as may be reasonably requested to carry out the transactions
contemplated herein and to permit each party to enjoy its rights and benefits
hereunder.
10.2) Payment of Debts and Liabilities. Seller shall pay all of its
liabilities and debts which have arisen on or prior to the Closing Date as they
become due and payable, except for amounts which Seller contests in good faith
and to which it maintains an adequate reserve.
10.3) Use of Office. Buyer shall provide each of Donald R. Charles and
David J. Brennan access to and use of an office on the Premises at no charge
until 90 days after the Closing Date.
10.4) Employees. Buyer shall hire substantially all employees of Seller
related to the Business.
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10.5) Vacation. Buyer shall either grant the vacation to Seller's
employees or shall compensate Seller's employees for such vacation for which
Buyer has been compensated for by Seller pursuant to Section 9.5.
ARTICLE 11.
BULK TRANSFER ACT
11.1) Waiver of Compliance. The parties hereby waive compliance with
the provisions of the Bulk Transfer Act, Arizona Statutes Section 47-6101, et
seq.
ARTICLE 12.
INDEMNIFICATION
12.1) Indemnification by Seller and Seller's Shareholders. Subject to
the limitations set forth in Section 12.2, Seller and Seller's Shareholders,
jointly and severally, shall indemnify and hold Buyer harmless at all times from
and after the date of this Agreement, against and in respect of all damages,
losses, costs and expenses (including reasonable attorney fees) which Buyer may
suffer or incur in connection with any of the following matters:
(a) Any claim, demand, action or proceeding asserted by a
creditor of Seller under the provisions of any applicable Bulk Transfer
Act or asserted by any other person respecting any liabilities of
Seller or Seller's Shareholders (including without limitation "Product
Liability Claims" as defined in Section 4.24 hereof) which are not
expressly assumed under this Agreement.
(b) The breach by Seller or Seller's Shareholders of any of
their respective representations, warranties or covenants in this
Agreement.
12.2) Indemnification by Buyer. Buyer shall indemnify and hold Seller
and Seller's Shareholders harmless at all times from and after the date of this
Agreement, against and in respect of all losses, damages, costs and expenses
(including reasonable attorney fees) which Seller or Seller's Shareholders may
suffer or incur in connection with breach by Buyer of any of its respective
warranties or covenants in this Agreement.
ARTICLE 13.
GENERAL
13.1) Exhibits. Each Exhibit delivered pursuant to the terms of this
Agreement shall be in writing, and shall constitute a part of the Agreement.
13.2) Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given, when
received, if personally delivered, and, when deposited, if placed in the U.S.
mails for delivery by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
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Seller Food Products Corporation
d/b/a Arizona Brand Inc.
3121 East Washington Street
Phoenix, AZ 85034
Attention: Donald R. Charles
Seller's
Shareholders: Donald R. Charles
c/o Mark C. Schmitt
Schmitt, Schneck, Fisher Smyth & Herrod, P.L.C.
1221 East Osborn Road, Suite 105
Phoenix, AZ 85014
David J. Brennan
4430 East Sunset
Phoenix, AZ 85028
Kenneth E. Charbonneau
2712 East Saddle Mountain Road
Desert Hills, AZ 85086
Michael J. DePinto
c/o Dorothy DePinto
6702 East Lewis
Scottsdale, AZ 85257
with a copy to: Schmitt, Schneck, Fisher Smyth & Herrod, P.L.C.
1221 East Osborn Road, Suite 105
Phoenix, AZ 85014
Attention: Mark C. Schmitt
Buyer Sparta Foods, Inc.
1565 First Avenue N.W.
New Brighton, MN 55112
Attention: Chief Financial Officer
with a copy to: Fredrikson & Byron, P.A.
900 Second Avenue South
1100 International Centre
Minneapolis, MN 55402
Attention: Daniel A. Yarano
Addresses may be changed by written notice given pursuant to this Section,
however any such notice shall not be effective, if mailed, until three (3)
working days after depositing in the U.S. mails or when actually received,
whichever occurs first.
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13.3) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their successors or
assigns, provided that the rights of Seller under this Agreement may not be
assigned and the rights of Buyer may only be assigned to its parent corporation
or a subsidiary of its parent or to such other business organization which shall
succeed to substantially all the assets and business of Buyer or its parent.
13.4) Headings. The descriptive headings of the several Articles and
Sections of this Agreement and of the several Exhibits to this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
13.5) Expenses. Except as otherwise provided herein, each party hereto
shall each bear and pay for its own costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereby, including,
without limitation, all fees and disbursements of lawyers, accountants and
financial consultants incurred through the Closing Date. All such expenses
incurred by Seller at any time prior to the Closing Date shall be solely
Seller's responsibility.
13.6) Brokers' Commissions. Seller and Buyer each represent and warrant
to the other that it has not engaged any broker or finder in connection with the
transaction described herein. Each party agrees to indemnify and hold the other
party harmless for any breach of this representation and warranty.
13.7) Entire Agreement; Modification and Waiver. This Agreement,
together with the Exhibits and the related written agreements specifically
referred to herein, represents the only agreement among the parties concerning
the subject matter hereof and supersedes all prior agreements whether written or
oral, relating thereto. No purported amendment, modification or waiver of any
provision hereof shall be binding unless set forth in a written document signed
by all parties (in the case of amendments or modifications) or by the party to
be charged thereby (in the case of waivers). Any waiver shall be limited to the
provision hereof and the circumstance or event specifically made subject thereto
and shall not be deemed a waiver of any other term hereof or of the same
circumstance or event upon any recurrence thereof.
13.8) Counterparts. This Agreement may be executed in counterparts and
by different parties on different counterparts with the same effect as if the
signatures thereto were on the same instrument.
13.9) Publicity. Seller and Buyer each represent and warrant to the
other that it will make no announcement to public officials or the press in any
way relating to the transaction described herein or identifying Buyer without
the prior written consent of the other party, which consent shall not be
unreasonably withheld, and Seller's Shareholders will not do so without the
consent of Buyer.
13.10) Jurisdiction. The parties agree that the forum for any
controversy arising under this Agreement shall be in the State of Arizona.
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13.11) Governing Law. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of Arizona without regard to its choice of law provisions.
13.12) Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained in this Agreement shall
survive the Closing and remain in full force and effect.
13.13) Knowledge. Knowledge, as used in this Agreement or the
instruments, certificates or other documents required under this Agreement,
means actual knowledge of a fact or constructive knowledge if a reasonably
prudent person in a like position would have known, or should have known, the
fact.
13.14) Benefit. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties to this Agreement or
their respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed in the manner appropriate to each, all as of
the day and year first above written.
SPARTA FOODS, INC.
"Buyer"
By /s/ Joel P. Bachul
Its Chief Executive Officer
FOOD PRODUCTS CORPORATION
"Seller"
By /s/ Donald R. Charles
Its Secretary
/s/ Donald R. Charles
Donald R. Charles
/s/ David J. Brennan
David J. Brennan
/s/ Kenneth E. Charbonneau
Kenneth E. Charbonneau
/s/ Michael J. DePinto
Michael J. DePinto
Exhibit 10.1
SECURED SUBORDINATED PROMISSORY NOTE
$3,000,000.00 Dated: October 13, 1999
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned SPARTA FOODS, INC., a Minnesota
corporation ("Maker"), promises to pay to FOOD PRODUCTS CORPORATION, an Arizona
corporation ("Holder"), the principal sum of Three Million Dollars
($3,000,000.00), together with interest on the unpaid principal balance at an
annual rate of interest of eight percent (8%) from October 10, 1999. This Note
has been issued pursuant to an Asset Purchase Agreement dated September 27,
1999, by and among Maker, Holder and the shareholders of Holder (the "Asset
Purchase Agreement"). Terms used in this Note, if not defined herein, have the
meanings ascribed thereto in the Asset Purchase Agreement.
This Note shall be due and payable in 20 equal consecutive quarterly
installments of principal and interest each in the amount of $183,470.15, such
payments to commence January 10, 2000, and to continue thereafter until (and
including) October 10, 2004. All payments hereunder shall be made in lawful
money of the United States. Interest hereunder shall be computed on the basis of
a 365 day year for the actual number of days in any period for which such
computation is made. Maker may, at its option, at any time, prepay this Note
without premium in whole or in part.
To secure the debt evidenced by this Note, Maker hereby grants Holder a
security interest in all the assets of Maker, whether now owned or hereafter
acquired (the "Security Interest"). Holder agrees that this Note is subordinated
to all of Maker's indebtedness ("Bank Indebtedness") pursuant to that certain
Term Loan and Credit Agreement of even date herewith by and between Maker and
Norwest Bank Minnesota, N.A., as such agreement may be amended from time to
time. Holder acknowledges that this Note is subject to the terms and conditions
of that certain Subordination Agreement dated as of even date herewith, by and
among Maker, Holder and Norwest, as such agreement may be amended from time to
time (the "Subordination Agreement"). The Security Interest is hereby expressly
subordinated to any security interest granted by Maker in connection with Bank
Indebtedness.
The occurrence of any of the following events shall constitute an Event
of Default under this Note: (i) the failure to make any payment of principal or
interest when and as the same becomes due and payable hereunder and such failure
continues for a period of ten (10) days after notice; (ii) the insolvency,
dissolution, or liquidation of Maker; (iii) any appointment of a receiver,
trustee or similar officer of any property of Maker; (iv) any assignment for the
benefit of creditors of Maker; (v) any commencement of any proceeding under any
bankruptcy, insolvency, receivership, dissolution, liquidation or similar law by
or against Maker; (vi) the sale of all or substantially all of the Purchased
Assets; or (vii) the occurrence of an event of default under the Premises Lease.
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Subject to the terms and conditions of the Subordination Agreement,
upon the occurrence of an Event of Default and at any time thereafter, Holder
may, at its option, declare this Note to be immediately due and payable and
thereupon this Note shall become due and payable for the entire unpaid principal
balance of this Note plus accrued interest and other charges, fees and expenses
under this Note without any presentment, demand, protest or other notice of any
kind. If an Event of Default under this Note shall occur and be continuing, and
at the option of the Holder hereof, interest shall thereafter be payable on the
whole of the unpaid principal sum at fifteen percent (15%) per year whether or
not Holder has exercised its option to accelerate the maturity hereof and
declare the entire unpaid principal indebtedness due and payable.
This Note may not be negotiated, transferred, pledged or assigned
except to Seller's Shareholders without the express written consent of Maker.
SPARTA FOODS, INC.
By: /s/ Joel P. Bachul
Its: Chief Executive Officer
FOOD PRODUCTS CORPORATION
By: /s/ Donald R. Charles
Its: Secretary
Exhibit 10.2
LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT is made as of October 13, 1999, by and between FOOD
PRODUCTS CORPORATION, an Arizona corporation ("FPC") and SPARTA FOODS, INC., a
Minnesota corporation ("Buyer").
WHEREAS, FPC is the tenant of certain facilities located at 3121 East
Washington, Phoenix, Arizona and at 3046 E. Madison, Phoenix, Arizona pursuant
to a certain Lease Agreement dated November 1, 1994 (the "Lease") the right,
title and interest in of which was assigned to FPC pursuant to an Assignment of
Lease dated May 9, 1997.
WHEREAS, FPC and Buyer have entered into an Asset Purchase Agreement
dated September 27, 1999 (the "Asset Purchase Agreement") pursuant to which
Buyer will purchase substantially all of the assets of FPC effective as of the
Closing Date under the Asset Purchase Agreement.
WHEREAS, FPC desires to assign the Lease to Buyer and Buyer desires to
receive an assignment of, and assume FPC's obligations pursuant to, the Lease.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Assignment. FPC hereby sells, assigns and transfers to Buyer all of
FPC's right, title and interest in and to the Lease, effective as of the Closing
Date.
2. Assumption. Buyer hereby assumes and agrees to perform all of the
obligations of FPC pursuant to the Lease, from and after the Closing Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first appearing above.
FOOD PRODUCTS, INC. SPARTA FOODS, INC.
By: /s/ Donald R. Charles By: /s/ Joel P. Bachul
Its: Secretary Its: Chief Executive Officer
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LEASE AGREEMENT
BETWEEN
BRENNAN & WHEELER LIMITED PARTNERSHIP
AND
SBL ACQUISITIONS CORP., a Delaware corporation
DATED
NOVEMBER 1, 1994
<PAGE>
INDEX
Section
1. PREMISES......................................................1
2. TERM 1
2.1 Original Term...................................1
2.2 Extended Term...................................1
2.3 Acceptance of the Premises......................2
2.4 Zoning, Permits and Access......................2
3. RENT 2
3.1 Rent............................................2
3.2 CPI Rent Adjustment.............................2
3.3 Where Paid......................................3
3.4 Triple Net Lease................................3
3.5 Roof Repair.....................................3
3.6 Impoundments....................................3
3.7 Past-due Obligations............................3
4. FIXTURES......................................................4
5. USE OF PREMISES...............................................4
6. PAYMENT OF TAXES AND INSURANCE................................4
6.1 Payment by Tenant...............................4
6.2 Right to Contest Taxes or Assessments...........5
6.3 Charges and Fees................................5
6.4 Rent Tax, Etc...................................5
7. DAMAGE TO PREMISES............................................5
7.1 Damage and Rebuilding...........................5
7.2 Repairs Greater than $150,000...................5
7.3 Uninsured Damage................................6
7.4 No Surrender....................................6
8. INSURANCE AND INDEMNIFICATION.................................6
8.1 Insurance.......................................6
8.2 Indemnification.................................7
8.3 Notice and Right to Defend......................8
8.4 Certificates of Insurance.......................8
8.5 No Contributing Insurance.......................8
8.6 Exemption from Liability........................8
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9. EXERCISE OF EMINENT DOMAIN....................................8
9.1 Taking..........................................8
9.2 Partial Taking..................................9
9.3 Claims by Tenant................................9
10. UTILITIES....................................................9
11. COVENANTS AGAINST LIENS.....................................10
12. ASSIGNMENT AND SUBLETTING...................................10
12.1 Restrictions on Assignment and Subletting......10
12.2 No Release of Tenant...........................10
12.3 No Waiver......................................10
13. NOTICES.....................................................10
14. RIGHT TO GO UPON PREMISES...................................11
15. MAINTENANCE.................................................12
15.1 Maintenance....................................12
15.2 Landlord's Right to Cure.......................12
15.3 Reconveyance to Landlord.......................12
16. DEFAULT.....................................................12
16.1 Events of Default..............................12
16.2 Remedies.......................................13
16.3 Non-exclusion Remedies.........................13
16.4 Landlord Default...............................13
16.5 Landlord's Right to Cure.......................14
17. SIGNS.......................................................14
18. ATTORNEY'S FEES.............................................14
19. SUBORDINATION AND ATTORNMENT................................14
19.1 Subordination..................................14
19.2 Non-Disturbance................................15
20. HOLDING OVER................................................15
21. ESTOPPEL CERTIFICATES.......................................15
22. SUCCESSORS IN INTEREST......................................15
23. RECORDING INDENTURE.........................................16
24. REMEDIES ARE CUMULATIVE.....................................16
25. QUIET POSSESSION............................................16
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26. ALTERATIONS AND ADDITIONS...................................16
26.1 Alteration.....................................16
26.2 Plans..........................................16
26.3 Lien...........................................16
26.4 End of Term....................................17
26.5 Government Order...............................17
27. PARTIAL INVALIDITY..........................................17
28. ENVIRONMENTAL MATTERS.......................................17
29. VENUE.......................................................18
30. GENERAL CONDITIONS..........................................18
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made as of this 1st day of November, 1994, by
and between, BRENNAN & WHEELER LIMITED PARTNERSHIP, an Arizona limited
partnership, hereinafter called "Landlord," and SBL ACQUISITION CORP., a
Delaware corporation, hereinafter called "Tenant."
RECITALS:
Landlord is the owner of certain real property in the County of
Maricopa, State of Arizona located at 3121 East Washington, Phoenix, Arizona
(the "Washington Property") more particularly described in Exhibit A attached
hereto and incorporated herein by this reference and located at 3046 E. Madison,
Phoenix, Arizona (the "Madison Property") described on Exhibit B attached hereto
and incorporated herein by this reference. The Washington Property and the
Madison Property are collectively referred to as the "Property". Landlord has
constructed certain improvements on both the Madison Property and the Washington
Property (collectively, the "Improvements").
The parties hereto agree as follows:
AGREEMENTS:
1. PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the Term, at the Rental and upon all of the conditions set forth
herein, that portion of the Property which consists of 57,212 square feet of
floor space in the Improvements (34,775 square feet of which are located in the
portion of the Improvements located on the Washington Property, and 22,437
square feet of which are located in the portion of the Improvements located on
the Madison Property), together with a non-exclusive right to use the Property
parking lot for parking vehicles of Tenant's employees, customers and licensees
in the ordinary course of Tenant's business (collectively, the "Demised
Premises").
Landlord leases the Demised Premises, and Tenant takes the Demised
Premises, subject to all covenants, conditions and restrictions, easements and
rights-of-way, taxes, assessments and all zoning and building codes.
2. TERM
2.1 Original Term. The original term of this Lease shall commence on
November 1, 1994, and shall end on October 31, 1999.
2.2 Extended Term. Provided that Tenant is not in default beyond any
applicable cure period under the terms of this Lease at the time of giving of
Tenant's notice to extend the term hereof or at the expiration of the then
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expiring term, Tenant may extend the original term of this Lease for an extended
term of five (5) years by giving Landlord written notice of its intention so to
do at least one hundred eighty (180) days prior to the expiration of the
original term. Such extended term shall be upon all of the terms and conditions
hereof, except that after the expiration of the extended term, if any, there
shall be no further options to extend. As used in this Lease, "original term"
means the original term hereinabove in this Section 2 specified; "extended term"
means the term of the extension of the original term of this Lease pursuant to
this Section 2, and "term," "Lease term" and "term of this Lease" embrace both
the original term and the extended term.
2.3 Acceptance of the Premises. Tenant acknowledges it has examined the
Property, the Improvements and the Demised Premises prior to its occupancy
thereof and takes the same in an "as is" condition, subject to Landlord's
obligations with respect to roof repair pursuant to Section 3.5 below. Tenant
further acknowledges that Landlord has made no representations or warranties
concerning the Demised Premises and Tenant shall not cancel this Lease, offset
rent, assert a claim for damages or otherwise based on a claim for breach of
express or implied warranty, failure to deliver possession in accordance with
the terms of this Lease, or constructive eviction by Landlord or others.
2.4 Zoning, Permits and Access. Tenant acknowledges that it has
determined to its own satisfaction that the Property is zoned for Tenant's
intended purposes, that Tenant is able to obtain any permit or license necessary
for it to carry on its business on the Demised Premises and that access adequate
for Tenant's intended purposes exists in to and out of the Property.
3. RENT
3.1 Rent. Tenant agrees to pay to Landlord rent of One Hundred
Sixty-five Thousand Eight Hundred and Forty-five Dollars ($165,845.00) per annum
(as such annual rent may increase after each year during the term of this Lease
as provided herein) for the Demised Premises during the term hereof. Such rent
is to be paid in equal monthly installments, without demand, in advance on the
first day of each and every calendar month of the term hereof. If the term
commences on a day other than the first day of the month, the fixed rent for the
initial fractional month shall be prorated and paid with the rent paid for the
first full calendar month of the term. Rent is initially calculated at the rate
of $.12 per square foot per month of floor area of the Improvements located on
the Madison Property and $.32 per square foot per month of floor area of the
Improvements located on the Washington Property.
3.2 CPI Rent Adjustment. The rent payable for each year of the term of
this Lease after the initial year including the years applicable to any
extension pursuant to Section 2.2 above, shall be increased based on increases
in the Consumer Price Index as follows:
(a) Procedure for Adjustment. On November 1 of each year, rent for the
succeeding year of the term of this Lease (November 1 through October 31) shall
increase by the same percentage as the percentage increase in the United States
Consumer Price Index - All Items - U.S. City Average, All Urban Consumers (the
base year reference period is 1982-1984 = 100) ("CPI"), as published by the
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Bureau of Labor Statistics of the U.S. Department of Labor, during the preceding
year of the term hereof (or for the immediately preceding 12 months for which
information is then available from the Bureau of Labor Statistics of the U.S.
Department of Labor if such information is not then published). In no event
shall rent decrease because of any CPI calculation.
(b) Comparable Index. In the event of discontinuance of the CPI as
currently reported, the most closely comparable index of price changes as
compiled by the Bureau of Labor Statistics or comparable federal agency shall be
substituted.
3.3 Where Paid. Payments of rental shall be made to Landlord at the
first address specified in Section 13 hereof, or at such other place as Landlord
may from time to time in writing direct.
3.4 Triple Net Lease. It is mutually intended and understood that the
rent is net of all taxes, utilities, insurance, casualty, internal and external
maintenance costs, including but not limited to HVAC, electrical, mechanical and
structural maintenance costs, and other charges, assessments and expenses
attributable to the Demised Premises and shall be paid by Tenant in addition to
the rent. All monetary obligations of Tenant contained herein are additional
rent.
3.5 Roof Repair. In connection with the execution of this Lease, as
soon as is reasonably possible but in no event later than fifteen (15) days
after Tenant has given Landlord notice of completion of Tenant's mechanical
repairs to the Demised Premises, Landlord shall commence the process of
repairing the roof of the Improvements located on the Washington Property, said
repair to put the Washington Property roof into good working order (the "Roof
Repair"). Tenant will reimburse Landlord as additional rent for costs associated
with the Roof Repair by paying to Landlord, each month throughout the term of
this Lease, $400.00, said amount to be paid on or before the first day of each
and every calendar month, said payment to be in addition to any other amounts
payable by Tenant hereunder.
3.6 Impoundments. Landlord may, at its option, require Tenant to
pay to Landlord, in addition to any other payments required under this Lease, a
monthly advance installment, payable at the same time as each monthly
installment of rent, as reasonably estimated by Landlord, for real property
taxes on the Demised Premises, in which event Landlord shall timely pay such
real property taxes. Landlord shall provide Tenant with copies of the most
recent tax bills which are the basis of such additional payment. Such fund shall
be established to insure payment when due of any or all such real property
taxes. If the amounts paid to Landlord by Tenant under the provisions of this
paragraph are insufficient to discharge the obligations of Tenant to pay such
real property taxes as the same become due, Tenant shall pay to Landlord such
additional sums as additional rent. All moneys paid to Landlord under this
paragraph shall be deposited in a separate interest bearing trust account and
such interest shall accrue to the benefit of Tenant and be remitted annually to
the Tenant.
3.7 Past-due Obligations. Any amount due to Landlord not paid when due
shall bear interest at an annual rate of four percent (4%) in excess of the
prime rate of interest as announced by Bank One, Arizona, NA (the "Bank"), as
the same may change from time to time, from the date due until paid. In
addition, Tenant shall pay $50.00 per day as liquidated damages on any amount
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due to Landlord not paid when due which shall accrue from the due date until
paid. Payment of such interest and liquidated damages shall not excuse or cure
any default by Tenant under this Lease.
4. FIXTURES
Tenant at its own expense shall provide, install and maintain all trade
fixtures and equipment reasonably required (and may substitute for and alter the
same) to enable it to conduct its business in the Demised Premises in a good and
businesslike manner. Such fixtures and equipment shall remain the property of
Tenant and Tenant may remove the same or any part thereof at any time prior to
the expiration or earlier termination of this Lease. Tenant shall repair at its
own expense any damage to the Demised Premises caused by the removal of said
fixtures or equipment by the Tenant. Any furniture, fixtures and equipment
remaining after termination of this Lease shall be deemed abandoned by Tenant
and shall become the property of the Landlord.
5. USE OF PREMISES
Tenant shall use the Demised Premises solely for the purpose of storage
and production of food products and such other materials used in food
production, storage of related supplies and uses incidental thereto and with the
prior written consent of Landlord which consent shall not be unreasonably
withheld, such other uses as the parties hereto may agree. Tenant shall conduct
its business on the Demised Premises in a lawful manner and in strict compliance
with all covenants, conditions and restrictions now or hereafter recorded
against the Demised Premises and all governmental laws, rules, regulations and
orders applicable to the business of Tenant conducted in and upon the Demised
Premises. Without limiting the foregoing, Tenant shall use and operate the
Demised Premises in strict accordance with any and all applicable rules and
regulations promulgated by the Occupational Safety and Health Administration and
the Americans with Disabilities Act. Any costs and liabilities associated with
compliance with this Section 5 shall be the sole responsibility of Tenant.
6. PAYMENT OF TAXES AND INSURANCE
6.1 Payment by Tenant. Tenant shall pay before delinquency all
insurance premiums relating to insurance coverage required by this Lease and any
and all taxes and assessments, and other governmental impositions or charges of
every nature, levied or assessed upon the Demised Premises, Tenant's property
located upon the Demised Premises, together with all interest and penalties
thereon. Tenant shall, within ten (10) days of Landlord's written request,
furnish Landlord with written evidence of such payment. Notwithstanding the
foregoing, Landlord, at its option, shall have the right to estimate the amount
of taxes next due and to collect and impound from Tenant on a monthly basis the
amount of Tenant's estimated tax obligation as provided in Section 3.5. All
taxes and assessments for the year in which this Lease commences or terminates
shall be apportioned and adjusted. The term "taxes and assessments" as used
herein shall not include personal income taxes, personal property taxes,
inheritance taxes or franchise taxes levied against Landlord.
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6.2 Right to Contest Taxes or Assessments. Tenant shall have the right
to contest in good faith any tax or assessment levied on or against the Demised
Premises or Property if Tenant fully pays any such tax or assessment before
delinquency and prior to contesting the same. Tenant, with respect to contesting
any tax or assessment, shall indemnify and hold Landlord harmless for any loss
or damage arising therefrom.
6.3 Charges and Fees. Tenant shall be responsible for obtaining all
permits respecting Tenant's use and occupancy of the Demised Premises, and shall
pay all privilege charges, occupancy permit fees, license fees or other charges
or taxes which are imposed on or with respect to the Demised Premises or the use
and occupancy thereof.
6.4 Rent Tax, Etc. Tenant shall pay to Landlord, in addition to and
along with the rentals otherwise payable hereunder, a sum equal to the aggregate
of any rental, occupancy, use or transaction privilege taxes or like taxes now
or hereafter levied or imposed by any federal, state, county, municipal or other
governmental authority, or any subdivision thereof, during the term hereof or
any extension or renewal thereof, against or on account of any and all amounts
payable hereunder by Tenant or the receipt thereof by landlord (excluding
Landlord's income taxes) which shall be paid monthly together with the rent as
provided in Section 3.
7. DAMAGE TO PREMISES
7.1 Damage and Rebuilding. In the event that the Demised Premises
should be damaged or destroyed during the term of this Lease, from any cause
whatsoever, Tenant shall, except as hereinafter provided, forthwith and
diligently repair or rebuild the same on the same plans and design as existed
immediately prior to such damage. During the period of restoration or repair,
there shall be no reduction, abatement or termination of the rent or other
charges due under this Lease. Tenant may use the insurance proceeds, if any, for
restoration and repair of the Demised Premises. Tenant shall cooperate with
Landlord in connection with the collection of any insurance monies and, in the
event that Tenant shall fail or neglect so to cooperate or to execute,
acknowledge and deliver any such instrument, Landlord may as the agent or
attorney-in-fact of Tenant execute and deliver any proofs of loss or any other
instruments as may seem appropriate to Landlord for the collection of such
insurance monies, and Tenant hereby irrevocably nominates, constitutes and
appoints Landlord as Tenant's proper and legal attorney-in-fact for such
purposes. All insurance monies, if any, paid on account of such damage or
destruction, less the actual costs, fees and expenses, if any, incurred in
connection with adjustment of the loss, shall be adjusted by and paid to Tenant
if the loss amounts to less than One Hundred Fifty Thousand Dollars ($150,000),
but shall be adjusted by Landlord and Tenant and shall be paid to Landlord as
provided below if the loss amounts to One Hundred Fifty Thousand Dollars
($150,000) or more. If the Demised Premises shall be substantially damaged or
destroyed during the last year of the original term or the extended term, Tenant
may terminate this Lease by giving written notice of such election, in which
event Landlord shall be entitled to receive any insurance monies payable on
account of such damage or destruction.
7.2 Repairs Greater than $150,000. The insurance proceeds which are
payable to Tenant shall be used by Tenant to repair or rebuild the Demised
Premises as provided above. The insurance proceeds which are payable to Landlord
5
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shall be held by Landlord to pay for the costs of the restoration. Prior to the
making of any repairs that cost in excess of One Hundred Fifty Thousand Dollars
($150,000), Tenant shall furnish Landlord with an estimate of the cost of such
work prepared by a licensed architect or registered professional engineer, whose
selection shall be subject to prior written approval by Landlord, which approval
shall not be unreasonably withheld or delayed. Upon repair or rebuilding of the
Demised Premises by Tenant, the insurance proceeds held by or on behalf of
Landlord shall be paid from time to time to Tenant in draws for reimbursement
for the work and materials actually incorporated in the Demised Premises, less
five percent (5%) of the installment to be paid, upon the presentment of an
application and certificate for payment (AIA Form G702 or equivalent), a
certificate for payment issued by the architect and lien waivers by Tenant and
all subcontractors, materialmen and suppliers for all work for which Tenant is
seeking payment. If any mechanics' or materialmen's lien is filed against or
upon the Demised Premises, Tenant shall not be entitled to receive any further
draws until such lien is satisfied, bonded or otherwise discharged. The term
"labor and material," as used herein shall include the cost of architectural and
supervisory services, insurance and all other costs which may be involved in the
repair or rebuilding of the Demised Premises. A final payment representing the
five percent (5%) withheld by Landlord, up to the full balance of the insurance
proceeds received by Landlord, shall be paid to Tenant within thirty (30) days
after its lien-free completion of the repair and issuance of a final Certificate
of Occupancy. If the insurance proceeds shall be insufficient for the complete
repair of the Demised Premises in a workmanlike manner, Tenant shall be
responsible for the deficiency. If the amount of such insurance proceeds shall
be in excess of the cost of such repairs, such excess shall be retained by
Tenant.
7.3 Uninsured Damage. If such damage or destruction shall not have been
covered by collectible insurance, or if the insurance proceeds are insufficient
to cover the cost of the restoration, Tenant shall, prior to commencing the
restoration, deposit with Landlord an amount equal to the estimated cost of the
restoration, or the amount of the deficiency, as the case may be, and said sum
shall be disbursed in the same manner as insurance proceeds are required to be
disbursed under Section 7.2 above. If Landlord and Tenant cannot agree upon such
amount within fifteen (15) days following the damage or destruction, such amount
shall be determined by arbitration.
7.4 No Surrender. Except as otherwise provided herein, no destruction
of or damage to the Demised Premises or any part thereof by fire or any other
casualty, irrespective of whether such destruction or damage may occur on or
after the date of the commencement of the term of this Lease, shall permit
Tenant to surrender this Lease or shall relieve Tenant from its liability to pay
the full rent, and other charges payable under this Lease. Lessee waives the
provisions of any statutes which relate to termination of leases when the thing
leased is destroyed and agrees that such event shall be governed by the terms of
this Lease.
8. INSURANCE AND INDEMNIFICATION
8.1 Insurance. During the term hereof, Tenant shall, at its own
expense, carry the following insurance:
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(a) Building Coverage (including the so-called "All Risks
Endorsement") in an amount of 100% of full replacement value of the Improvements
and appurtenances and naming Landlord as an additional named insured, as its
interests may appear.
(b) Umbrella Liability Coverage in the amount of $3,000,000.00
and naming Landlord as an additional named insured, as its interests may appear.
(c) Statutory Workmen's Compensation (including employer's
liability) in the amount required by law.
(d) Commercial General Liability Coverage (including premises
liability, products and completed operations, premises medical, broad form drive
other car auto coverage, personal injury (including employees acting within the
scope of their employment), contractual liability, independent contractor's
coverage and employee benefit (liability)) in the amount of $500,000.00 and
naming Landlord as an additional named insured, as its interests may appear.
(e) Boiler and Machinery Coverage.
(f) Loss of Rents, Business Interruption and Gross Earnings
Coverage in the amount of 100% coverage for a period of 12 months (special form,
subject only to standard exclusions) and naming Landlord as an additional named
insured, as its interests may appear.
All insurance to be obtained hereunder shall be in a company or companies
licensed to do business in the State of Arizona and rated A or better in the
latest Best's Insurance Guide of Property - Casualty Insurance Companies or
highest available rating in the event no insurance carrier in this class will
provide such insurance. All insurance proceeds payable to Tenant and/or Landlord
shall be paid as provided in this Lease, and, if applicable, made available to
Tenant to repair or rebuild the demised premises as provided herein.
8.2 Indemnification. Tenant, with respect to its use and occupancy of
the demised premises, agrees, at the option of Landlord to defend Landlord, its
agents, servants and employees, against any, all and every demand, claim,
assertion of liability, or action arising or alleged to have arisen out of any
act or omission of Tenant, its agents, servants, employees, and occupants of the
Demised Premises, whether such demand, claim, assertion of liability, obligation
of payment or action be for damages, injury to person or property, including the
property of Landlord, or death of any person, made by any person, group or
organization, whether employed by either of the parties hereto, an occupant of
the Demised Premises or otherwise, and agrees to assume legal liability for,
indemnify and hold free and harmless Landlord, and its agents, servants and
employees, from any and all loss, damages, liability, reasonable costs or
expenses (including, but not limited to, reasonable attorneys' fees, reasonable
investigative and discovery costs and court costs) and all other sums which
Landlord, its agents, servants, employees and partners may reasonably pay or
become obligated to pay on account of any, all and every demand, claim,
assertion of liability or action arising or alleged to have arisen out of any
act or omission of Tenant, its agents, servants, employees, or occupants of the
Demised Premises, whether such claim, demand, assertion of liability or action
be for damages, injury to person or property, including the property of
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Landlord, or death of any person, made by any person, group or organization,
whether employed by either of the parties hereto, an occupant of the Demised
Premises or otherwise.
8.3 Notice and Right to Defend. Landlord agrees that, upon receipt of a
claim in respect of which indemnity may be sought under Section 8.2 above,
Landlord shall give written notice within 10 days of such claim (the "Notice of
Claim") to Tenant. No indemnification under Section 8.2 shall be available to
Landlord if it fails to give the required Notice of Claim within 10 days if
Tenant was unaware of the claim and was prejudiced by failure to receive the
Notice of Claim in a timely manner. Tenant shall be entitled at its own expense
to participate in the defense of any claim or action against Landlord. Tenant
shall have the right to assume the entire defense of such claim provided that
(i) Tenant gives written notice of its desire to defend such claim (the "Notice
of Defense") to Landlord within 15 days after Tenant's receipt of the Notice of
Claim; (ii) Tenant's defense of such claim shall be without cost to Landlord or
prejudice to Landlord's rights under Section 8.2; (iii) counsel chosen by Tenant
to defend such claims shall be reasonably acceptable to Landlord; (iv) Tenant
shall bear all costs and expenses in connection with the defense of such claim;
and (v) Landlord shall have the right, at Landlord's expense, to have Landlord's
counsel participate in the defense of such claim.
8.4 Certificates of Insurance. Tenant agrees to deliver to Landlord
certificates of insurance evidencing the existence in force of the policies of
insurance hereinabove provided for. Each of such certificates shall provide that
such insurance shall not be canceled or amended in any manner unless twenty (20)
days' prior written notice of such cancellation or amendment is given to
Landlord.
8.5 No Contributing Insurance. Tenant shall not carry separate
insurance that is concurrent in coverage and contributing in the event of a loss
to insurance to be carried under this Section, if the effect of such separate
insurance would reduce the amount of insurance proceeds available to the parties
hereto.
8.6 Exemption from Liability. Except for the intentional or negligent
acts or omissions of Landlord, Landlord shall not be liable for (i) injury to
Tenant's business or any loss of income therefrom or for damage to the
furniture, fixtures and equipment, or other property of Tenant, Tenant's
employees, occupants of the Demised Premises, invitees, customers, or any other
person in or about the Demised Premises, (ii) injury to the person of Tenant,
Tenant's employees, agents, contractors, or occupants of the Demised Premises,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Demised Premises, or
from other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant.
9. EXERCISE OF EMINENT DOMAIN
9.1 Taking. An appropriation or taking under the power of eminent
domain of all, or a portion, of the Demised Premises, or the sale by private
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sale of all or a portion of the Demised Premises in lieu thereof, are sometimes
hereinafter called a "taking." If fifty percent (50%) or more of the
Improvements constituting a portion of the Demised Premises shall be taken, this
Lease shall terminate and expire as of the date of taking of actual physical
possession of the Improvements constituting a portion of the Demised Premises by
the condemnor or purchaser, and the parties hereto shall thereupon be released
from any and all further liability hereunder. Tenant shall have no right, title
or interest in or to any amounts received by Landlord in connection with any
taking. Nothing in this Section 9 shall be construed as a waiver by Landlord or
Tenant of any rights vested in it by law to recover damages from a condemnor for
the taking of its right, title, or interest in the Property.
9.2 Partial Taking. In the event of the taking of less than fifty
percent (50%) of the Improvements or the Demised Premises, then, if in Tenant's
reasonable judgment such taking renders the Demised Premises wholly unsuitable
for the operation of its business, Tenant may terminate this Lease upon written
notice to Landlord, and the parties hereto shall thereupon be released from any
and all further liability hereunder. In the event that the Tenant does not elect
to terminate this Lease as provided in this Section 9.2, Landlord shall as soon
as is reasonably possible, to the extent condemnation award proceeds are
available, make all repairs and alterations to the Improvements constituting a
portion of the Demised Premises necessitated by such taking or sale, and Tenant
shall repair, alter, remove or replace its fixtures in the Improvements
constituting a portion of the Demised Premises necessitated by such taking or
sale. In such event, Tenant shall continue to utilize the Demised Premises for
the operation of its business to the extent that it may be practicable to do so
from the standpoint of good business. If Tenant continues doing business in the
Demised Premises prior to the completion of repair and restoration work by
Landlord, the rent payable by Tenant shall be equitably abated in the proportion
that the unusable part of the Demised Premises bears to the whole thereof. Rent
payable after the time Tenant resumes business in the Demised Premises as
diminished by any taking or sale shall be equitably reduced in the proportion
which the area taken or sold bears to the total area of the Demised Premises.
9.3 Claims by Tenant. Tenant shall have the right to claim and recover
such compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of damage to Tenant's business or leasehold
interest by reason of a complete or partial taking and for or on account of any
cost or loss which Tenant might incur in removing Tenant's merchandise, personal
property, trade fixtures, leasehold improvements and equipment.
10. UTILITIES
Tenant shall pay during the term hereof all electric, water, sewer,
gas, telephone and other public utility charges in connection with its occupancy
and use of the Demised Premises, including all costs of operating and
maintaining all equipment therein, all business licenses and similar permit
fees. Any such costs paid by Landlord on behalf of Tenant shall be reimbursed to
Landlord within ten (10) days of presentation to Tenant of a statement showing
in reasonable detail the amounts paid by Landlord. Landlord shall not be liable
to Tenant for damages because of an interruption in utility services, and Tenant
shall not be entitled to claim a constructive eviction due to such interruption.
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11. COVENANTS AGAINST LIENS
Tenant covenants and agrees that it shall not, during the term hereof,
suffer or permit any lien to be attached to or upon the Demised Premises or any
part thereof by reason of any act or omission on the part of Tenant, and hereby
agrees to save and hold harmless Landlord from or against any such lien or claim
of lien. In the event that any such lien does so attach, and is not released
within thirty (30) days after notice to Tenant thereof, or if Tenant has not
indemnified Landlord against such lien within said thirty (30) day period,
Landlord, in its sole discretion, may pay and discharge the same and relieve the
Demised Premises therefrom, and Tenant agrees to repay and reimburse Landlord
upon demand for the amount so paid by Landlord. Notwithstanding anything to the
contrary contained herein, Tenant shall be entitled to grant security interests
in and to Tenant's personal property and equipment located in the Demised
Premises, upon an instrument previously approved by Landlord, such approval
shall not be unreasonably withheld or delayed.
12. ASSIGNMENT AND SUBLETTING
12.1 Restrictions on Assignment and Subletting. Tenant shall not assign
this lease or sublease all or any part of the Demised Premises, including any
assignment by operation of law, merger or reorganization, nor permit other
persons to occupy or conduct business in said Demised Premises or any part
thereof, nor grant any license, management contract or franchise for all or any
part of the Demised Premises without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Any assignment by
operation of law, attachment or assignment for the benefit of creditors shall,
at Landlord's option, be inoperative. Notwithstanding anything to the contrary
contained in this Section 12.1 Tenant may assign this Lease as collateral
security or grant a leasehold mortgage to Tenant's lenders upon an instrument
previously approved by Landlord, such approval shall not be unreasonably
withheld or delayed.
12.2 No Release of Tenant. Regardless of Landlord's consent, no
assignment or subletting shall release Tenant of its obligations hereunder or
alter the primary liability of Tenant to pay the rent and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from a subtenant shall not be deemed to be a waiver by Landlord of any
provision hereof.
12.3 No Waiver. If Landlord at any time consents in writing to any
assignment or sublease pursuant to paragraph 12.1, Tenant and any such assignee
or subtenant shall not make any further assignment or sublease contrary to the
provisions of paragraph 12.1. The consent of Landlord to any assignment or
sublease shall not be a waiver of Tenant's or a subtenant's duty to obtain
Landlord's prior written consent for a subsequent assignment or sublease.
13. NOTICES
Any notices required to be given hereunder, or which either party
hereto may desire to give to the other, shall be in writing. Such notice may be
given by mailing the same by United States mail, registered or certified, return
receipt requested, postage prepaid, addressed as follows:
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If to Landlord: Brennan & Wheeler Limited Partnership
6211 East Huntress
Paradise Valley, Arizona 85253
Attention: David Brennan
With a required copy to:
Scott W. Ruby, Esq.
Gust Rosenfeld
201 North Central Avenue, Suite 3300
Phoenix, Arizona 85073
If to Tenant: SBL Acquisitions Corp.
3121 East Washington
Phoenix, Arizona 85034
Attention: Anthony Collura
With a required copy to:
Gary G. Keltner, Esq.
Jennings, Strouss & Salmon
Two North Central, Suite 1600
Phoenix, Arizona 85004
Signature Brands Limited
122 Cauricu Drive
Etobicoke, Ontario
Canada M9W 5Rl
Attention: Carl Pahapill
or to such other address as the respective parties may from time to time
designate by notice given in the manner provided in this Section, and shall be
deemed complete upon delivery if personally delivered or 7 days after mailing if
mailed.
14. RIGHT TO GO UPON PREMISES
Landlord hereby reserves the right for itself or its duly authorized
agents and representatives at all reasonable times during business hours of
Tenant during the term hereof upon prior notice to Tenant (except in the event
of an emergency no prior notice shall be required) to enter upon the Demised
Premises for the purpose of inspecting the same and of showing the same to any
prospective purchaser or encumbrancer.
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15. MAINTENANCE
15.1 Maintenance. Subject to Section 3.5 above, Tenant shall, at its
own expense, maintain the entire Demised Premises in good order, condition and
repair, including, without limiting the generality of the foregoing, the roof
and its supporting members, roof covering, foundations, interior and exterior
walls, floor coverings, structural aspects of the floor, heating, ventilation,
air conditioning systems ("HVAC systems"), plumbing, sewage lines, electrical
and lighting facilities, fixtures, ceilings, windows, doors, plate glass, and
all landscaping, driveways, sidewalks, parking areas, fences and signs located
on the Demised Premises.
15.2 Landlord's Right to Cure. If Tenant fails to maintain the Demised
Premises pursuant to paragraph 15.1, Landlord may, at its option, enter upon the
Demised Premises after ten (10) days' written notice (except in an emergency, in
which event no notice is necessary), perform such obligations on Tenant's behalf
and put the Demised Premises in good order, condition and repair, and the cost
thereof, together with interest thereon, from the date of expenditure until
paid, at an annual rate of four percent (4%) in excess of the Bank's prime rate
of interest, as the same may change from time to time, shall be due and payable
as additional rent with Tenant's next monthly rental payment.
15.3 Reconveyance to Landlord. At the end of the lease term or sooner
termination of this Lease, whether by operation of law, or for failure to comply
with the provisions hereof, or otherwise, Tenant shall deliver up the Demised
Premises in the same order, condition and repair as when received by Tenant,
depreciation caused by ordinary wear and tear excepted.
16. DEFAULT
16.1 Events of Default. The occurrence of any of the following events
shall be deemed to constitute an event of default on the part of Tenant
hereunder:
(a) In the event that a voluntary petition shall be filed by
Tenant, under the United States or Canadian federal bankruptcy law or under the
law of any state in the United States or province in Canada, to be adjudicated a
bankrupt or for any arrangement or other debtor's relief; or any such petition
shall be filed against Tenant by any other party and not dismissed within sixty
(60) days after the filing thereof; or a permanent receiver, trustee or
liquidator shall be appointed for Tenant, or any of the property of Tenant, and
such receiver, trustee or liquidator is not discharged within sixty (60) days
after the date of his appointment;
(b) In the event Tenant shall default in the payment of any
monetary obligations required to be paid by Tenant hereunder and such default
shall continue for more than five (5) days;
(c) In the event Tenant shall default in the performance of
any other covenant or agreement herein (other than the payment of a monetary
obligation) and such default shall continue for twenty (20) days after written
notice thereof from Landlord to Tenant, or if such default is not of the type
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which could reasonably be cured within twenty (20) days, if Tenant has not
commenced to cure such default within said twenty (20) day period and does not
thereafter diligently prosecute the curing of such default to completion;
(d) Except as provided in this Lease, if Tenant creates,
incurs, assumes or suffers to exist any mortgage, pledge, lien, charge,
encumbrance, or security interest upon or in any of the Demised Premises; and
(e) Any default by Signature Brands Limited, a Canadian
corporation ("Guarantor") under that certain Guaranty Agreement dated November
1, 1994, executed by Guarantor in favor of Landlord attached hereto as Exhibit
C.
16.2 Remedies. In the event of the occurrence of any event of default
specified above in Section 16.1 hereof, Landlord may, so long as such default
continues:
(a) Terminate Tenant's right to possession and reenter the
Demised Premises, or any part thereof, and expel or remove therefrom Tenant and
any other persons occupying the same, using such force as may be necessary to do
so. Such reentry shall not limit Tenant's obligations to pay any amounts due
hereunder. Such reentry shall not act as an acceptance by the Landlord of
Tenant's surrender of the Demised Premises or as a termination of the Lease,
except if so agreed by Landlord in writing;
(b) Maintain Tenant's right to possession in which case this
Lease shall continue in effect whether or not Tenant shall have abandoned the
Demised Premises;
(c) Terminate this Lease and Tenant's right to possession;
(d) In all events Landlord shall be entitled to recover from
Tenant all damages incurred by Landlord by reason of Tenant's default including,
but not limited to, the cost of recovering possession of the Demised Premises,
expense of reletting (including renovation of the Demised Premises reasonably
necessary in connection with reletting the Demised Premises), reasonable
attorneys' fees and costs, real estate commissions, repairs, advertising, costs
of care, costs of removing and storing Tenant's property, the worth at the time
of the award by the court having jurisdiction of the amount by which unpaid rent
for the balance of the term exceeds the amount of such rental loss for the same
time period that Tenant proves could be reasonably avoided; and
(e) Pursue any other rights or remedies available at law or
equity.
16.3 Non-exclusion Remedies. The remedies of Landlord provided by this
Section 16 are nonexclusive. No surrender of the Demised Premises by Tenant
shall be effective unless such surrender is accepted in writing by the Landlord.
16.4 Landlord Default. Should Landlord default in the performance of
any covenant or agreement herein, and such default continues for thirty (30)
days after receipt by Landlord of written notice thereof from Tenant, or if the
default of Landlord is of a type which is not reasonably possible to cure within
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thirty (30) days, if Landlord has not commenced to cure said default within said
thirty (30) day period and does not thereafter diligently prosecute the curing
of said default to completion, Tenant may take such action reasonably necessary
to cure such default, and Tenant shall be reimbursed by Landlord upon demand by
Tenant for the reasonable costs actually incurred by Tenant in so performing or
curing.
16.5 Landlord's Right to Cure. If Tenant fails to perform any covenant
or agreement set forth herein or in any way defaults under or breaches any
provision or term of this Lease and such failure, default or breach continues
for five (5) days after written notice thereof, then in addition to any other
right or remedy hereunder or under the laws of this State, Landlord may, but
shall not be obligated to, perform such covenant or agreement or cure such
default or breach and do all necessary work and make all necessary payments in
connection therewith, including without limitation, attorneys' fees and
disbursements, for the account, and at the expense of, Tenant. The amount of all
cost and expense incurred or paid by Landlord in so performing or curing shall
be paid by Tenant to Landlord upon demand, together with interest at the annual
rate of four percent (4%) in excess of the Bank's prime rate of interest, as the
same may change from time to time.
17. SIGNS
All of Tenant's signs visible from the exterior of the Demised Premises
shall require the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Tenant shall not install, erect or maintain
any sign in violation of any applicable law, ordinance or use permit of any
governmental authority. Tenant may remove any such sign at any time during the
term of this Lease, and shall remove the same upon the expiration thereof or
sooner termination of this Lease, and Tenant at its own expense shall repair any
damage caused by the removal thereof by the Tenant.
18. ATTORNEY'S FEES
If either party hereto incurs attorney's fees and related expenses in
enforcing any provision of this Lease, the prevailing party shall be entitled to
its reasonable attorneys' fees, expenses and costs, whether or not suit is
brought.
19. SUBORDINATION AND ATTORNMENT
19.1 Subordination. Provided Tenant receives the non-disturbance
agreements referred to in Section 19.2, Tenant agrees that: (a) this Lease is,
and all of Tenant's rights hereunder are and shall always be, subject and
subordinate to (1) any mortgages, deeds of trust or security instruments
(sometimes hereinafter "Mortgage"), which now exist or may hereafter be placed
upon the Demised Premises or any part thereof and to all advances made or to be
made thereunder and to the interest thereon and all renewals, replacements,
modifications, consolidations or extensions thereof, (2) all ground or
underlying Leases or subleases, including without limitation, sale-leaseback or
lease-leaseback leases (sometimes hereinafter "Underlying Leases"), to which
Landlord is or may become a party as tenant or subtenant thereunder, (3) the
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right of any mortgagee under a mortgage to unilaterally subordinate the mortgage
to this Lease by a written instrument recorded in the records of Maricopa
County, Arizona Recorder's Office and specifically causing such subordination to
occur; and (b) if the holder of any such Mortgage, or if the purchaser at any
foreclosure sale or at any sale under a power of sale contained in any Mortgage,
or the lessor under any Underlying Lease, at its sole option so requests, Tenant
will attorn to and recognize such mortgagee, purchaser or lessor as Landlord
under this Lease, subject to all of the terms of this Lease; and (c) the
aforesaid provision shall be self-operative and no further instrument or
document shall be necessary unless required by such mortgagee, purchaser or
lessor. Tenant, upon written request, shall execute and deliver to Landlord,
without charge, and in form satisfactory to Tenant and Landlord, all instruments
and documents that may be requested to acknowledge such subordination.
19.2 Non-Disturbance. Notwithstanding such subordination, Tenant's
right to quiet possession of the Demised Premises shall not be disturbed so long
as Tenant is not in default beyond any applicable grace period and pays the rent
and observes and performs all of the terms and conditions of this Lease, unless
this Lease otherwise is terminated pursuant to its terms. Landlord shall obtain
from each holder of a Mortgage and from each lessor of an Underlying Lease a
non-disturbance agreement in such form that protects Tenant's rights of
non-disturbance as set forth in the preceding sentence.
20. HOLDING OVER
If Tenant continues to occupy the Demised Premises after the expiration
of the term of this Lease and Landlord accepts rent thereafter, a monthly
tenancy terminable by either party on one month's notice shall be created, which
shall be upon the same rental, terms and conditions as those herein specified,
except that rent payable hereunder shall be increased to 125% of the rent
payable hereunder for the last full calendar month of the Lease term or
applicable renewal, and Tenant shall not have the option to extend the term
hereof. Nothing contained herein shall be deemed the consent of Landlord to any
such holding over.
21. ESTOPPEL CERTIFICATES
Each party hereto shall, at any time during the term of this Lease,
within thirty (30) days after written notice from the other, execute and deliver
to the other a statement in writing certifying that this Lease is unmodified and
in full force and effect, or if modified, stating the nature of such
modification. Such party's statement shall include other details reasonably
requested by the other party hereto such as the date to which rent and other
charges are paid, such party's knowledge concerning any uncured defaults with
respect to the other party's hereto obligations under this Lease and the nature
of such defaults if they are claimed. Any such statement may be relied upon
conclusively by any prospective purchaser or encumbrancer of the Property.
22. SUCCESSORS IN INTEREST
Each and all of the covenants, agreements, obligations, conditions and
provisions of this Lease shall inure to the benefit of and shall bind the
successors and assigns of the respective parties hereto. If Landlord sells the
Property (or conveys its interest in the Property) (a) Landlord shall thereupon
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be released and discharged from any and all further obligations at or after the
sale as landlord under this Lease, except for such obligations, if any, as
pertain to any portion of the Property as to which Landlord does not convey its
interest concurrently with its conveyance of the Property or which relate to
events or conditions occurring prior to the date of such transfer; and (b) the
transferee shall assume all of the obligations of Landlord hereunder from and
after the date of such transfer.
23. RECORDING INDENTURE
It is agreed that no indenture of this Lease shall be recorded. Tenant
may record a memorandum of this Lease.
24. REMEDIES ARE CUMULATIVE
Remedies conferred by this Lease upon the respective parties are not
intended to be exclusive, but are cumulative and in addition to remedies
otherwise afforded by the law.
25. QUIET POSSESSION
Landlord covenants that Tenant shall have quiet and peaceful possession
thereof as against any adverse claim of any party so long as Tenant is not in
default beyond any applicable cure period under the terms, covenants and
conditions hereof.
26. ALTERATIONS AND ADDITIONS
26.1 Alteration. Tenant shall not make any structural alterations,
improvements or additions in, on or about the Demised Premises without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed. Landlord may require Tenant to provide Landlord, at
Tenant's own expense, a lien and completion bond in an amount equal to the
estimated cost of such improvements, to insure Landlord against any liability
for mechanics' and materialmen's liens and to insure completion of the work.
Should Tenant make any alterations, improvements or additions without the prior
written approval of Landlord, Landlord may require that Tenant remove any or all
of the same.
26.2 Plans. Any alterations, improvements or additions in, on or about
the Demised Premises that Tenant shall desire to make shall be presented to
Landlord in written form, together with detailed plans and specifications of
Tenant's proposed work. If Landlord shall give its written consent, which
consent shall not be unreasonably withheld or delayed, the consent shall be
deemed conditioned upon Tenant acquiring all permits from all governmental
agencies having jurisdiction over the Demised Premises or Tenant's use and
occupancy thereof, the furnishing of a copy thereof to Landlord prior to the
commencement of the work and the compliance by Tenant of all conditions of said
permit.
26.3 Lien. Tenant shall pay when due all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Demised Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Demised Premises or any interest therein. Tenant
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shall give Landlord not less than twenty (20) days' notice prior to the
commencement of any work in the premises, and Landlord shall have the right to
post notices of nonresponsibility in or on the Demised Premises as provided by
law.
26.4 End of Term. Except as otherwise set forth in Section 4 hereof,
all alterations, improvements and additions which may be made on the Demised
Premises, shall become the property of Landlord and remain upon and be
surrendered with the Demised Premises at the expiration of the lease term.
26.5 Government Order. Any alterations, improvements or additions in,
on or about the Demised Premises (collectively "Alterations"), that may be
necessary or required by reason of any law, rule, regulation or order, now
existing, promulgated by a governmental authority having jurisdiction over the
Demised Premises or Tenant's use and occupancy thereof, including but not
limited to those required pursuant to the Americans with Disability Act, shall
be at the sole cost and expense of Tenant, and Tenant shall make the same in an
expeditious fashion. In addition, Tenant, at Tenant's sole cost and expense,
shall make any Alterations which are legally required pursuant to any law, rule,
regulation or order, or amendment to the same, promulgated by a governmental
authority, after the date hereof, having jurisdiction over the Demised Premises
or Tenant's use or occupancy thereof, but only to the extent that such
Alterations are required by such law, rule, regulation or order based upon
Tenant's use of the Demised Premises or as a result of structural alterations,
improvements or additions undertaken by Tenant pursuant to Section 26.1 above.
27. PARTIAL INVALIDITY
If any term, covenant or condition of this Lease or the application
thereof to any party or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease or the application of such term,
covenant or condition to parties or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and every
other term, covenant or condition of this Lease shall be valid and be enforced
to the fullest extent permitted by law.
28. ENVIRONMENTAL MATTERS
Tenant hereby warrants and covenants that at no time shall it allow any
Hazardous Material, as hereafter defined, to be used or stored upon the Demised
Premises.
As used herein, "Hazardous Material" means and includes, without
limitation: (i) "hazardous substances", or "toxic substances" as those terms are
defined by the Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"), 42 U.S.C. ss. 96001 et seq.; the Arizona Environmental Quality
Act, A.R.S. ss.ss. 49-101 et seq.; or the Hazardous Materials Transportation
Act, 49 U.S.C. ss. 1802, all as amended and hereafter amended; (ii) "hazardous
wastes", as that term is defined by the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. ss. 6902 et seq., as amended and hereafter amended; (iii)
any pollutant or contaminant or hazardous, dangerous or toxic chemicals,
materials, or substances within the meaning of any other applicable federal,
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state or local law, regulation, ordinance, or requirement (including consent
decrees and administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous waste
substance or material, all as amended or hereafter amended; (iv) petroleum
products, including, but not limited to, crude oil or any fraction thereof which
is liquid at standard conditions of temperature and pressure (60 degrees
Fahrenheit and 14.7 pounds per square inch absolute) and substances containing
hydrocarbons (other than petroleum products which are normally contained in
motor vehicles, to the extent that said petroleum products are not released from
said motor vehicles); (v) any radioactive material, including any source,
special nuclear or by-product material as defined as 42 U.S.C. ss. 2001 et seq.,
as amended or hereafter amended (collectively, the "Statutes"); (vi) asbestos in
any form or condition; and (vii) polychlorinated biphenyls ("PCB") or substances
or compounds containing PCBs.
Tenant hereby agrees, unconditionally, absolutely and irrevocably to
indemnify, defend and hold Landlord, its successors and assigns, partners and
employees from and against any loss, liability, cost, injury, expense or damage
of any and every kind whatsoever (including but not limited to court costs and
attorneys' fees and expenses) which at any time or from time to time, during the
Term of this Lease or Tenant's possession of the Demised Premises, may be
suffered or incurred in connection with any inquiry, charge, claim, cause of
action, demand or lien made or arising directly or indirectly or in connection
with, with respect to, or as a direct or indirect result of the presence on or
under, or the escape, seepage, leakage, spillage, discharge, invasion or release
from or onto the Demised Premises of any Hazardous Material, unless such
condition is caused by Landlord, its partners, agents, servants or employees.
The provisions of this Section 28 shall survive the termination of this Lease.
The indemnification set forth herein shall be subject to the notice and right to
defend provisions as set forth in Section 8.3 above.
29. VENUE
Tenant agrees that all actions or proceedings arising directly,
indirectly or otherwise in connection with, out of, related to or from this
Lease shall be litigated, at Landlord's sole discretion and election, only in
courts having a situs within the County of Maricopa, State of Arizona. Tenant
hereby consents and submits to the jurisdiction of any local, state or federal
court located within said county and state. Tenant hereby irrevocably appoints
and designates Gary G. Keltner, whose address is Two North Central, Suite 1600,
Phoenix, Arizona 85004, as its duly authorized agent for service of legal
process and agrees that service of such process upon such party shall constitute
personal service of process upon Tenant. In the event service is undeliverable
because such agent moves, Tenant shall, within ten (10) days after Landlord's
request, appoint a substitute agent (in Phoenix, Arizona) on its behalf and
within such period notify Landlord of such appointment. If such substitute agent
is not timely appointed, Landlord shall, in its sole discretion, have the right
to designate a substitute agent upon five (5) days notice to Tenant. Tenant
hereby waives any right it may have to transfer or change the venue of any
litigation brought against it by Landlord on this Lease in accordance with this
paragraph.
30. GENERAL CONDITIONS
Time is of the essence of this Lease. All amounts payable by Tenant
hereunder shall be deemed additional rental for the purposes of this Lease. This
Lease has been executed and delivered in the State of Arizona, and shall be
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governed and construed in accordance with Arizona law without regard to
conflicts of law principles. No waiver of any breach of the covenants,
agreements, obligations and conditions of this Lease to be kept or performed by
either party hereto shall be effective unless in writing and signed by the
waiving party, and no such waiver by either party shall be construed to be a
waiver of any succeeding breach of the same or any other covenant, agreement,
obligation, condition or provision hereof. The use herein of any gender or
number shall not be deemed to make inapplicable the provision should the gender
or number be inappropriate to the party referenced. Landlord and Tenant have
negotiated this Lease, have had the opportunity to be advised respecting the
provisions contained herein and have had the right to approve each and every
provision hereof; therefore, this Lease shall not be construed against either
Landlord or Tenant as a result of the preparation of this Lease by or on behalf
of either party. Landlord shall in no event be construed, held or considered in
any way or for any purpose to be a partner, associate or joint venturer of
Tenant or of any party associated with Tenant in the conduct of its business by
virtue of the terms and provisions of this Lease or Landlord's execution hereof.
This Lease is the entire agreement between the parties, and it supersedes and
replaces all prior agreements and understandings, whether written or oral.
IN WITNESS WHEREOF, upon the day and year first hereinabove written,
the respective parties hereto have executed this Lease Agreement, consisting of:
Sections 1 through 30 and Exhibits A, B and C, personally or by officers or
agents thereunto duly authorized.
BRENNAN & WHEELER LIMITED
PARTNERSHIP, an Arizona limited
partnership
Fed. Taxpayer I.D. # 86-0346635
By /s/ David J. Brennan
David J. Brennan
Its General Partner
[Landlord]
SBL ACQUISITIONS CORP., a Delaware
corporation
Fed. Taxpayer I.D. # 86-0772775
By /s/ Anthony J. Collura, Jr.
Its President
[Tenant]
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State of Arizona
County of Maricopa
The foregoing instrument was acknowledged before me this 14th day of
November, 1994, by David J. Brennan, as general partner of Brennan & Wheeler
Limited Partnership, an Arizona limited partnership, on behalf of the
partnership.
(Seal and Expiration Date)
/s/ Illegible
Notary Public
State of Arizona
County of Maricopa
The foregoing instrument was acknowledged before me this 8th day of
November, 1994, by Anthony J. Collura, Jr., the President, of SBL Acquisitions
Corp., a Delaware corporation, on behalf of the corporation.
(Seal and Expiration Date)
/s/ Illegible
Notary Public
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EXHIBIT A
The North half of Lot 6, according to plat of the East half of the
Northeast quarter of Section 11, Township 1 North, Range 3 East of the Gila and
Salt River Base and Meridian, according to Book 1 of Maps, page 45, records of
Maricopa County, Arizona.
<PAGE>
EXHIBIT B
PARCEL I
The West one-fourth of the South 264 feet of Lot 6 of the Subdivision
of the East half of the Northeast quarter of Section 11, Township 1
North, Range 3 East of the Gila and Salt River Base and Meridian,
according to Book 1 of Maps, page 45, records of Maricopa County
Recorder, Arizona;
EXCEPT that portion, if any, lying within the North 66 feet of the
South half of said Lot 6.
PARCEL II
The South 132 feet of the East half of the East half of the West half
of Lot 6, according to the plat of the East half of the Northeast
quarter of Section 11, Township 1 North, Range 3 East of the Gila and
Salt River Base and Meridian, in Book 1 of Maps, page 45, records of
Maricopa County Recorder, Arizona.
PARCEL III
That portion of Lot 6, as shown on plat of the East half of the
Northeast quarter of Section 11, Township 1 North, Range 3 East of the
Gila and Salt River Base and Meridian, according to the plat of record
in the office of the Maricopa County Recorder in Book 1 of Maps, page
45, described as follows:
BEGINNING at the Northwest corner of the South half of said
Lot 6;
thence Easterly along the North line of the South half of
said Lot 6 123.86 feet;
thence Southerly on a straight line to a point on a line 66
feet Southerly of and parallel with said North line of the
South half of said Lot 6, said point being 123.90 feet
Easterly along said parallel line from the West boundary
line of Lot 6;
thence Westerly along said parallel line 123.90 feet to its
intersection with the West boundary line of Lot 6;
thence Northerly along said West boundary line of Lot 6,
a distance of 66 feet to the point of beginning.
PARCEL IV
The West half of the East half of the West half of the South half of
Lot 6, as shown on plat of the East half of the Northeast quarter of
<PAGE>
Section 11, Township 1 North, Range 3 East of the Gila and Salt River
Base and Meridian, according to the plat of record in the office of the
Maricopa County Recorder in Book 1 of Maps, page 45;
Except the North 66 feet thereof.
Together with all easements, improvements and appurtenances
appertaining thereto.
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<PAGE>
EXHIBIT C
LEASE GUARANTY
1. FOR VALUE RECEIVED, and in consideration for, and as an inducement
to Landlord, BRENNAN & WHEELER LIMITED PARTNERSHIP, an Arizona limited
partnership, to enter into that certain Lease Agreement dated November 1, 1994,
by and between Landlord and SBL ACQUISITIONS CORP., a Delaware corporation,
Tenant (the "Lease") incorporated herein by this reference, the undersigned,
SIGNATURE BRANDS LIMITED, a Canadian corporation (hereinafter "Guarantor"),
hereby absolutely and unconditionally guarantees the full performance and
observance of all the covenants, duties and obligations (including, without
limitation, the obligation to pay all rent and other sums and to perform under
all indemnitees, environmental or otherwise) therein provided to be performed
and observed by Tenant, Tenant's successors and assigns (the phrase "successors
and assigns" not altering any of the provisions of said Lease Contract relating
to assignment or subletting); and Guarantor hereby makes itself fully liable for
such performance.
2. Guarantor expressly agrees that the validity of this Lease Guaranty
and its obligations hereunder shall in no wise be terminated, affected or
impaired by reason of the assertion by Landlord against Tenant of any of the
rights or remedies reserved to Landlord by said Lease. Guarantor further
covenants and agrees that this Lease Guaranty and the full liability of
Guarantor hereunder shall remain and continue in full force and effect
notwithstanding the occurrence of any one or more of the following types of
transactions (whether or not Guarantor shall have received any notice of or
consented to any such transaction): (i) any renewal, extension, modification or
amendment of said Lease; (ii) any assignment or transfer by Landlord; (iii) any
assignment or transfer or subletting by Tenant; (iv) any dissolution of Tenant;
or (v) the fact that Tenant may be a party to any merger, consolidation or
reorganization; provided however, if Tenant is a disappearing party in any such
merger, consolidation or reorganization, then Guarantor shall thereupon
automatically become primarily liable for the performance of all the covenants,
duties and obligations (including, without limitation, the obligation to pay all
rent and other sums and to perform under all indemnitees, environmental or
otherwise) of Tenant under said Lease Agreement.
3. Failure of Landlord to insist upon strict performance or observance
of any of the terms, provisions or covenants of said Lease or to exercise of any
right therein contained shall not be construed as a waiver or relinquishment for
the future of any such term, provision, covenant or right, but the same shall
continue and remain in full force and effect. Receipt by Landlord of rent (or
any other monetary sum or acceptance of performance of any obligation of Tenant
under said Lease) with knowledge of the breach of any provision of said Lease
shall not be deemed a waiver of such breach. Waiver by Landlord of any right of
Landlord against Tenant under said Lease shall not constitute a waiver as
against Guarantor or in any other way inure to the benefit of Guarantor (unless
Landlord agrees in writing that the liability of Guarantor under this Lease
Guaranty is thereby affected).
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4. Guarantor further agrees to indemnify and hold harmless Landlord
from all loss, damage, cost and expense (including, without limitation, costs of
court and reasonable attorneys' fees incurred by Landlord) in the event of any
default by Tenant under such Lease.
5. Guarantor further agrees that in any right of action which shall
accrue to Landlord under said Lease, Landlord may, at its option, proceed
against Tenant alone (without having made any prior demand upon Guarantor or
having commenced any action against Guarantor or having obtained or having
attempted to satisfy any judgment against Guarantor) or may proceed against
Guarantor and Tenant, jointly or severally, or may proceed against Guarantor
alone (without having made any prior demand upon Tenant or having commenced any
action against Tenant or having obtained or having attempted to satisfy any
judgment against Tenant). With the exception only of the defense of prior
payment or prior performance by Tenant (of the obligation which Guarantor is
called upon to pay or perform) or the defense that Landlord's claim against
Guarantor hereunder is barred by the applicable statute of limitations, all
defenses of the law of guaranty, indemnification and suretyship, including
without limitation, substantive defenses and procedural defenses, are hereby
waived and released by Guarantor. Except as provided in the preceding sentence,
under no circumstances shall the liability of Guarantor under this Lease
Guaranty be terminated either with respect to any period of time when the
liability of Tenant under said Lease continues or with respect to any
circumstances as to which the liability of Tenant has not been fully discharged
by payment or performance.
6. All of the covenants, duties and obligations of Guarantor under this
Lease Guaranty shall be performed in the State of Arizona; and all matters
relating to this Lease Guaranty and the covenants, duties and obligations of
Guarantor under this Lease Guaranty shall be governed by the laws of the State
of Arizona, without regard to conflicts of law principles.
7. Guarantor agrees that all actions or proceedings arising directly,
indirectly or otherwise in connection with, out of, related to or from this
Lease Guaranty shall be litigated, at Landlord's sole discretion and election,
only in courts having a situs within the County of Maricopa, State of Arizona.
Guarantor hereby consents and submits to the jurisdiction of any local, state or
federal court located within said county and state. Guarantor hereby irrevocably
appoints and designates Gary G. Keltner, whose address is c/o Jennings, Strouss
& Salmon, Two North Central, Phoenix, Arizona 85004, as its duly authorized
agent for service of legal process and agrees that service of such process upon
such party shall constitute personal service of process upon Guarantor. In the
event service is undeliverable because such agent moves, Guarantor shall, within
ten (10) days after Landlord's request, appoint a substitute agent (in Phoenix,
Arizona) on its behalf and within such period notify Landlord of such
appointment. if such substitute agent is not timely appointed, Landlord shall,
in its sole discretion, have the right to designate a substitute agent upon five
(5) days notice to Guarantor. Guarantor hereby waives any right it may have to
transfer or change the venue of any litigation brought against it by Landlord on
this Lease Guaranty in accordance with this paragraph.
8. Guarantor specifically waives any notice of acceptance of this Lease
Guaranty by Landlord, and furthermore, Guarantor hereby waives the benefits of
A.R.S., Section 12-1641 et seq., as may be amended.
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<PAGE>
9. If any obligation of Tenant under said Lease is secured, in whole or
in part, by collateral of any type Landlord may, from time to time, at its
discretion and with or without valuable consideration, allow substitution or
withdrawal of all or any part of such collateral or subordinate or waive any of
its lien rights with respect to all or any part of such collateral or release
all or any part of such collateral, without notice to or consent of Guarantor
and without in any wise impairing, diminishing or releasing the liability of
Guarantor under this Lease Guaranty. Under no circumstances shall Landlord be
required to first resort to any collateral for any obligation of Tenant as any
nature of prerequisite or precondition to invoking or enforcing the liability of
Guarantor under this Lease Guaranty.
10. Guarantor acknowledges and represents to Landlord that Tenant
executed said Lease and Guarantor executed this Lease Guaranty prior to the time
that Landlord executed said Lease; and Guarantor acknowledges and agrees that
the execution and delivery of this Lease Guaranty by Guarantor to Landlord has
served as a material inducement to Landlord to itself execute and deliver said
Lease; and Guarantor further acknowledges and agrees that but for the execution
and delivery of this Lease Guaranty by Guarantor, Landlord would not have
executed and delivered said Lease.
11. Guarantor acknowledges and agrees that this Lease Guaranty may
reasonably be expected to benefit, directly or indirectly, Guarantor. Guarantor
warrants and represents that the execution and delivery of this Lease Guaranty
by the undersigned officer acting for Guarantor has been duly authorized by
Guarantor and that this Lease Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor. Guarantor further acknowledges and agrees
that the making of this Lease Guaranty did not result from any fraud on the
Guarantor. Guarantor further warrants and represents (and acknowledges that
Landlord has relied upon such warranty and representation in entering into said
Lease) that the execution and delivery of this Lease Guaranty is not in
contravention of Guarantor's Articles of Incorporation or Charter or By-Laws or
in contravention of any contractual or other legal limitation (statutory or
otherwise) binding on Guarantor; and that execution and delivery of this Lease
Guaranty has been properly authorized.
12. Guarantor agrees that in the event that Tenant shall become
insolvent or shall be adjudicated a bankrupt, or shall file a petition for
reorganization, arrangement or other relief under any present or future
provisions of United States federal or state law or Canadian Federal or
provincial law applicable to insolvency, or if a petition for
bankruptcy/reorganization be filed by creditors of said Tenant, or if Tenant
shall seek a judicial readjustment of the rights of its creditors under any
present or future United States Federal or state law or Canadian Federal or
provincial law or if a receiver of all or part of its property and assets is
appointed by any United States state or Federal court or Canadian Federal or
Provincial court, no such proceeding or action taken therein shall modify,
diminish or in any way affect the liability of Guarantor under this Lease
Guaranty and the liability of Guarantor with respect to such Lease shall be of
the same scope as if Guarantor had itself executed said Lease as the named
tenant thereunder and no "rejection" and/or "termination" of such Lease in any
of the proceedings referred to in this paragraph shall be effective to release
and/or terminate the continuing liability of Guarantor to Landlord under this
Lease Guaranty with respect to such Lease for the remainder of the lease term
stated therein unaffected by any such "rejection" and/or "termination" in said
proceedings.
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<PAGE>
13. In the event of the dissolution of Guarantor while this Lease
Guaranty is in force, and without regard to whether Tenant shall be in default
under said Lease, no distribution or disposition of the assets of Guarantor
shall be made without first making provision acceptable to Landlord for the
payment or satisfaction of Guarantor's obligations (and contingent obligations)
hereunder.
14. All rights of Guarantor against Tenant arising by way of
subrogation on account of Guarantor's having performed some covenant, duty or
obligation of Tenant under said Lease shall be subject and subordinate to all of
the rights of Landlord against Tenant with respect to such Lease; and Guarantor
shall not exercise any such right of Guarantor against Tenant until all of the
covenants, duties and obligations of Tenant under such Lease shall have been
fully performed.
15. If enforcement of the rights of Landlord under this Lease Guaranty
is placed in the hands of an attorney on account of any default of Guarantor
under this Lease Guaranty, Landlord shall, in addition to the other rights of
Landlord hereunder, be permitted to recover Landlord's attorney's fees from
Guarantor.
16. The stated rights of Landlord under this Lease Guaranty shall be
understood as not excluding any other legal or equitable rights of Landlord
against Guarantor not expressly set forth herein, but shall be understood as
being cumulative to all such other legal and equitable rights of Landlord not
expressly stated herein.
17. Should any portion of this Lease Guaranty ever be held legally
invalid or unenforceable, the balance of this Lease Guaranty shall not thereby
be affected, but shall remain in full force and effect in accordance with its
terms and provisions.
18. Notwithstanding anything to the contrary contained hereinabove, the
obligations of Guarantor as stated in this Lease Guaranty shall be limited to
those obligations of Tenant which accrue during the term provided, however,
Guarantor's obligation applicable to indemnitees, environmental and otherwise,
as stated in this Lease Guaranty shall survive the termination of the Lease.
19. All terms and provisions hereof shall inure to the benefit of the
assigns and successors of Landlord and shall be binding upon the successors and
assigns of Guarantor.
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LEASE AMENDMENT AGREEMENT
THIS LEASE AMENDMENT AGREEMENT (the "Agreement") is entered into
effective October 13, 1999 by and between BRENNAN & WHEELER LIMITED PARTNERSHIP,
an Arizona limited partnership ("Landlord"), and Sparta Foods, Inc., a Minnesota
corporation ("Tenant").
WHEREAS, Landlord is a party to a certain Lease Agreement dated
November 1, 1994 with respect to certain facilities located at 3121 East
Washington, Phoenix, Arizona and at 3046 E. Madison, Phoenix, Arizona (the
"Lease");
WHEREAS, all right, title and interest in the Lease was assigned to
Tenant on even date herewith which assignment was consented to by Landlord;
WHEREAS, Landlord and Tenant desire to amend the Lease pursuant to the
terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledge, the parties hereby agree as follows:
1. Extension of Lease Term. Landlord and Tenant agree that Section 2.1
of the Lease is hereby amended in its entirety to read as follows: "The original
term of this Lease shall commence on November 1, 1994, and shall end on October
31, 2004."
2. Other Lease Provisions. All other provisions of the Lease not
specifically amended by this Agreement shall remain in full force and effect.
3. Entire Agreement. The Lease, as amended by this Agreement,
constitutes the entire agreement of the parties as to the subject matter hereof.
This Agreement shall not be modified, amended, rescinded, canceled or waived, in
whole or in part, except by written amendment signed by an officer of each
party.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as
of the date first appearing above.
BRENNAN & WHEELER LIMITED PARTNERSHIP
By /s/ David J. Brennan
David J. Brennan, General Partner
SPARTA FOODS, INC.
By: /s/ Joel P. Bachul
Its: Chief Executive Officer
Exhibit 10.4
TERM LOAN AND CREDIT AGREEMENT
THIS TERM LOAN AND CREDIT AGREEMENT is made as of the 12th day of
October, 1999, and is by and between SPARTA FOODS, 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 Bank is the holder of that certain Promissory Note dated
June 24, 1998 (the "Old Revolving Note") made by La Canasta of Minnesota, Inc.
("LCM") in the face amount of $1,200,000.00 payable to the Bank; and,
WHEREAS, the Old Revolving Note evidences indebtedness under a conditional
revolving line of credit (the "LCM Credit") established by the Bank for the
benefit of LCM in the amount of $1,200,000.00; and,
WHEREAS, the Bank is also the holder of that certain Promissory Note
dated June 24, 1998 (the "Old Term Note") made by the LCM in the face amount of
$1,400,000.00 evidencing a non-revolving term loan payable to the Bank; and,
WHEREAS, as of the date first written above, there is no outstanding
indebtedness under the Old Revolving Note, and the outstanding principal balance
of the Old Term Note is $1,035,418.00; and,
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 $3,000,000.00, which would replace the LCM Credit, and (ii) to make a
non-revolving term loan to the Borrower in the amount of $3,300,000.00, portions
of which would be used to refinance the indebtedness evidenced by the Old Term
Note, to pay off indebtedness owed to third party lenders, and to acquire
certain assets currently owned by Food Products Corporation ("FPC"); 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:
<PAGE>
1.1 "Acceptable Accounts Receivable" shall mean the Borrower and LCM'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 or
LCM; (iv) not due from an account debtor, 10% or more of whose accounts owed to
Borrower or LCM are older than 90 days past the invoice date; (v) not
representing booked but unfilled orders; and (vi) not due from an account debtor
which is a debtor in a bankruptcy proceeding under the United States Bankruptcy
Code.
1.2 "Acceptable Inventory" shall mean the net book value of the Borrower and
LCM's non-obsolete raw materials, packaging materials and finished goods
inventory located in the States of Minnesota and Arizona.
1.3 "Acquisition" shall mean the acquisition of personal property assets by the
Borrower from FPC.
1.4 "Advances" shall mean direct borrowings made by the Borrower under the
Credit.
1.5 "Agreement" shall mean this Term Loan And Credit Agreement, and all
amendments and supplements hereto which may from time to time become effective
hereafter.
1.6 "Base Rate" shall mean the "base" or "prime" rate of interest established by
the Bank (or its successor) as in effect from time to time.
1.7 "Borrowed Money" shall mean funds obtained by incurring contractual
indebtedness, but shall not include trade accounts payable or money borrowed
from the Bank.
1.8 "Borrower's Security Agreement" shall mean a security agreement, duly
executed by the Borrower and delivered to the Bank pursuant to Section 5.1(H)
hereof.
1.9 "Borrowing Base" shall mean the sum of 80% of Acceptable Accounts
Receivable, plus 50% of Acceptable Inventory.
1.10 "Borrowing Base Certificate" shall mean a schedule of Borrower's assets
comprising the Borrowing Base, which certificate is substantially in the form of
attached Exhibit A, is prepared and furnished to Bank pursuant to Sections
5.1(J) and 7.3(B) hereof, and which is executed by an authorized officer of
Borrower.
1.11 "Cash Flow Coverage Ratio" shall mean the ratio of Traditional Cash Flow to
current maturities of long-term debt and capital leases.
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<PAGE>
1.12 "Closing Date" shall mean the date on which this Agreement is executed by
the Borrower and delivered to the Bank.
1.13 "Credit" shall mean a conditional revolving line of credit established by
the Bank for the benefit of the Borrower in the amount of $3,000,000.00.
1.14 "Current Note" shall mean the promissory note of the Borrower in the face
amount of $3,000,000.00, evidencing indebtedness under the Credit.
1.15 "Events of Default" shall mean any and all events of default described in
Section 9 hereof.
1.16 "Guaranty" shall mean the secured guaranty by corporation, duly executed by
LCM and delivered to the Bank pursuant to Section 5.1(U) hereof.
1.17 "LCM Security Agreement" shall mean that certain Security Agreement dated
June 24, 1998 executed by LCM for the benefit of the Bank.
1.18 "Leverage Ratio" shall mean the ratio of Senior Debt to the sum of Tangible
Net Worth plus Subordinated Debt.
1.19 "Notes" shall mean the Current Note and the Term Note.
1.20 "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,
C. Liens for taxes not delinquent or which Borrower is
contesting in good faith.
1.21 "Security Documents" shall mean the Borrower's Security Agreement and the
LCM Security Agreement.
1.22 "Senior Debt" shall mean the difference of Total Liabilities minus
Subordinated Debt.
1.23 "Subordinated Debt" shall mean indebtedness now or hereafter owed by the
Borrower to a third party creditor (including without limitation, FPC), which
indebtedness is subject to a Subordination Agreement.
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<PAGE>
1.24 "Subordination Agreements" shall mean all debt subordination agreements now
or hereafter executed by the Borrower and a third party creditor (including
without limitation, FPC) for the benefit of the Bank.
1.25 "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, amounts due from officers or affiliates
of the relevant corporation, 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.
1.26 "Term Loan" shall have the meaning ascribed to it in Section 3.1 hereof.
1.27 "Term Loan Borrowing Base" shall mean 60% of the fair market appraised
value of equipment (other than equipment which is subject to a purchase money
security interest in favor of a third party creditor) (i) owned by the Borrower
prior to the Acquisition, and (ii) to be purchased by the Borrower via the
Acquisition.
1.28 "Term Note" shall mean the promissory note of the Borrower in the face
amount of $3,300,000.00, evidencing the Term Loan.
1.29 "Termination Date" shall mean September 30, 2000.
1.30 "Total Liabilities" shall mean all actual and contingent liabilities of the
relevant corporation which, in accordance with Generally Accepted Accounting
Principles, would be shown as liabilities on an audited financial statement of
such corporation.
1.31 "Traditional Cash Flow" shall mean net income after taxes and dividends,
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 under the Credit 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 THREE MILLION AND NO/100 DOLLARS
($3,000,000.00), 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
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<PAGE>
in Section 6 hereof are true as of the date of such request. EACH ADVANCE WILL
BE MADE AT THE SOLE DISCRETION OF THE BANK and, if made, will be evidenced by a
notation on the Bank's records, which shall be conclusive evidence of such
advance, and by the Current Note. The proceeds of the initial Advance shall be
used exclusively by the Borrower to pay a portion of the amount owed by the
Borrower to FPC in connection with the Acquisition. 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.
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 Accrued interest on the Current Note shall be payable ON DEMAND, but until
such demand is made, interest shall be payable on the last day of each
consecutive month, commencing October 31, 1999, and on the Termination Date.
2.4 The principal of the Current Note shall be repayable on the earlier of
DEMAND or the Termination 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 the lesser of
the Term Loan Borrowing Base or $3,300,000.00, available in one or more draws on
or before October 12, 1999. The proceeds of the Term Loan shall be used
exclusively by the Borrower to pay a portion of the amount owed by the Borrower
to FPC in connection with the Acquisition, to retire all indebtedness evidenced
by the Old Term Note, and to pay off all indebtedness owed by FPC to Bank of the
West and First Capital Bank. 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 one-quarter of one percent (0.25%) in excess of 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.
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<PAGE>
3.3 Accrued interest on the Term Note shall be payable ON DEMAND, but until such
demand is made, interest shall be payable on the last day of each consecutive
month, commencing October 31, 1999, and upon maturity.
3.4 Principal of the Term Note shall be repaid as follows:
Fifty-nine (59) installments, each in the amount of
$55,000.00, commencing October 31, 1999 and continuing on the last
day of each consecutive month thereafter through and including
August 31, 2004; plus, one (1) final payment in an amount equal to
all then-remaining outstanding principal of the Term Note shall be
due and payable on September 30, 2004.
3.5 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.
3.6 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
scheduled installments of principal in inverse order of their maturities.
3.7 If, at any time and from time to time, the outstanding principal balance of
the Term Note exceeds the Term Loan Borrowing Base, the Borrower shall
immediately make a prepayment of principal in an amount sufficient to eliminate
such excess.
SECTION 4 Security
4.1 The payment and performance of the Borrower's obligations under this
Agreement and the Notes shall be secured by the Borrower's Security Agreement,
pursuant to which the Borrower shall grant the Bank a first 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 Notes 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 Notes and the Borrower's Security Agreement shall be
unconditionally guaranteed by LCM, pursuant to the provisions of the Guaranty.
4.4 The payment and performance of the obligations of LCM under the Guaranty
shall be secured by the LCM Security Agreement, which remains in full force and
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<PAGE>
effect. Pursuant to the provisions of the LCM Security Agreement, LCM has
granted the Bank a first security interest in all personal property assets of
LCM, whether now owned or hereafter acquired.
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 Security Documents.
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. A copy of the Articles of Incorporation of the Borrower,
and all amendments thereto, certified as of the most recent date
practicable by the Secretary of State of Minnesota;
B. A copy of the By-laws of the Borrower, certified as true
and complete by the corporate secretary of the Borrower;
C. A certificate, as of the most recent date practicable, of
the Secretary of State of Minnesota as to the good standing of the
Borrower;
D. A certificate, as of the most recent date practicable, of
the Secretary of State of Arizona as to the authority of the Borrower
to transact business in the State of Arizona;
E. A Norwest Corporate Certificate Of Authority, duly executed
by the corporate secretary of the Borrower;
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 financing statements for Minnesota and Arizona, duly
executed by the Borrower, and UCC termination statements, including but
not limited to, UCC termination statements duly executed by Bank of the
West, First Capital Bank of Arizona and Arizona Brand Food Corp. c/o
Signature Brands Limited;
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J. A Borrowing Base Certificate as of the Closing Date, duly
executed by the Borrower;
K. A copy of the Purchase Agreement relating to the
Acquisition, duly executed by the Borrower and FPC;
L. A copy of the Bill of Sale, duly executed by FPC, relative
to the assets which are being purchased by the Borrower in connection
with the Acquisition;
M. Copies of lease agreements for any premises not owned by
the Borrower or LCM in which any of the Bank's collateral security is
located;
N. Landlord's disclaimers, duly executed by the landlords of
the premises referred to in Section 5.1(M) hereof;
O. Payoff certificates addressed to the Bank and duly executed
by appropriate officers of Bank of the West and First Capital Bank,
indicating indebtedness owed by FPC to said lenders;
P. A certificate of authority, duly executed by the corporate
secretary of FPC, certifying the authority and incumbency of the
officer of FPC who is signing the Subordination Agreement;
Q. A Subordination Agreement, duly executed by the Borrower
and FPC;
R. A photocopy of the promissory note which is subject to the
Subordination Agreement, and which note contains a legend indicating
that it is subject to the Subordination Agreement;
S. A security interest subordination agreement, duly executed
by FPC, subordinating its security interest in the assets being
purchased by the Borrower via the Acquisition to the security interest
of the Bank;
T. A Norwest Certificate Of Authority For Guaranty By
Corporation, duly executed by the corporate secretary of LCM;
U. The Guaranty, duly executed by LCM;
V. Certificates of insurance indicating that Borrower and LCM
are in compliance with the covenants contained in Section 7.5 hereof;
and,
W. An origination and documentation fee in the amount of
$15,000.00, which the Borrower acknowledges as having been fully earned
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<PAGE>
by the Bank as of the Closing Date. Said fee shall be deemed
reimbursement to the Bank for fees and expenses incurred by the Bank
only in calendar year 1999, including without limitation legal fees,
collateral audits and equipment appraisals.
5.2 The Bank shall not consider any request for an Advance under Section 2.1
hereof, or for any funding of 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 the Term Loan, as
the case may be.
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 Borrower is authorized to transact business in the State of Arizona.
6.3 The execution, delivery and performance by the Borrower of this Agreement
and the other documents referred to herein are within the Borrower's 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.
6.4 The property of the Borrower is not subject to any lien except Permitted
Liens.
6.5 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.
6.6 All financial statements delivered to Bank by or on behalf of Borrower,
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 Borrower at the dates thereof and the results of operations for the periods
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covered thereby, and there have been no material adverse changes in the
consolidated financial condition or business of the Borrower from August 31,
1999 to the date hereof.
6.7 As of the date of this Agreement, the Borrower owns 100% of all issued and
outstanding shares of stock in LCM.
6.8 As of the date of this Agreement, the outstanding principal balances of the
Old Revolving Note and the Old Term Note are $0.00 and $1,035,418.00,
respectively, and accrued but unpaid interest thereon equals $0.00 and
$3,026.83, respectively. Such indebtedness constitutes legal, valid and binding
obligations owed by LCM to the Bank, subject to no defense, counterclaim,
offset, abatement or recoupment.
6.9 As of date of this Agreement, (i) the aggregate outstanding indebtedness
owed by FPC to Bank of the West is $547,534.08 including accrued but unpaid
interest, and (ii) the aggregate outstanding principal indebtedness owed by FPC
to First Capital Bank is $281,250.00, and accrued but unpaid interest thereon
equals $1,115.75.
6.10 The attached Exhibit B is a true and complete listing of all locations on
which the Bank's collateral security (pledged pursuant to the Security
Documents) is located.
6.11 The Borrower has provided the Bank with a true and complete copy of the
Asset Purchase Agreement and the Bill of Sale relating to the Acquisition.
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 either of
the Notes, unless the Bank shall otherwise consent in writing, it will:
7.1 Pay when due (and cause LCM to 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 (and cause LCM to 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
Borrower, (i) a detailed, consolidated report of audit of the
Borrower and LCM, prepared on a consolidated and consolidating
basis, for such fiscal year, including the consolidated balance
sheet of the Borrower and LCM, as of the end of such fiscal year,
and the consolidated statement of profit and loss and surplus of
the Borrower and LCM for the fiscal year then ended, prepared by
McGladrey & Pullen, LLP or other 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
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<PAGE>
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 in continuing, specifying the
nature and period of existence thereof, and (iii) insurance
certificates indicating the Borrower's compliance with the
covenants set forth in Section 7.5 hereof.
B. Within 30 days after the end of each month, (i) the
consolidated balance sheet of the Borrower and LCM as of the end
of such month, (ii) the consolidated statement of profit and loss
and surplus of the Borrower and LCM from the beginning of such
fiscal year to the end of such month, (iii) a Borrowing Base
Certificate as of the end of such month, (iv) agings and listings
of the accounts receivable of the Borrower and LCM as of the end
of such month, and (v) a certificate of compliance as to the
Borrower's compliance with certain covenants set forth in this
Agreement. All of the foregoing shall be unaudited, but certified
as correct (subject to year-end adjustments) by an appropriate
officer of the Borrower.
C. 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.
D. Promptly, such other information as the Bank may
reasonably request.
7.4 Maintain (and cause LCM to maintain) its inventory, equipment, real estate
and other properties in good condition and repair (normal wear and tear
excepted), and will pay and discharge (and cause LCM to pay and discharge) when
due, the cost of repairs to or maintenance of the same, and will pay (and cause
LCM to pay) all rental or mortgage payments due on such real estate.
7.5 Cause its properties (and the properties of LCM) of an insurable nature to
be adequately insured for amounts acceptable to the Bank, by reputable and
solvent insurance companies against loss or damages customarily insured against
by persons operating similar properties and similarly situated, and carry (and
cause LCM to 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 (and cause LCM to keep) true, complete and accurate books, records and
accounts in accordance with Generally Accepted Accounting Principles
consistently applied.
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7.7 Permit (and cause LCM to permit) any of Bank's duly authorized employees or
agents the right, at any reasonable time and from time to time, to visit and
inspect the properties of the Borrower and LCM, and to examine and take
abstracts from their books and records, with the expenses of all the foregoing
to be borne by the Borrower; provided, however, that the expenses of all the
foregoing incurred during calendar year 1999 shall be borne by the Bank.
7.8 Continue to conduct (and cause LCM to 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.
7.9 Maintain (and cause LCM to maintain) its primary depository accounts with
the Bank.
SECTION 8 Negative Covenants
Without the Bank's prior written consent, for so long as the Credit
remains in existence, or any indebtedness remains outstanding under either of
the Notes, 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 Subject to the provisions of Section 11.7 hereof, permit its consolidated
net income after taxes (determined in accordance with Generally Accepted
Accounting Principles) to be less than (i) $1.00 for the three-month period
ending December 31, 1999, (ii) $100,000.00 for the six-month period ending March
31, 2000, (iii) $350,000.00 for the nine-month period ending June 30, 2000, and
(iv) $600,000.00 for the fiscal year ending September 30, 2000, and for each
fiscal year thereafter.
8.3 Subject to the provisions of Section 11.7 hereof, permit its consolidated
sum of Tangible Net Worth plus Subordinated Debt to be less than (i)
$3,500,000.00 as of October 1, 1999, (ii) $3,300,000.00 as of December 31, 1999,
(iii) $3,300,000.00 as of March 31, 2000, (iv) $3,400,000.00 as of June 30,
2000, and (v) $3,500,000.00 as of September 30, 2000 and as of each fiscal year
end thereafter.
8.4 Subject to the provisions of Section 11.7 hereof, permit its consolidated
Leverage Ratio to be greater than 2.85 to 1.0 at any time.
8.5 Subject to the provisions of Section 11.7 hereof, permit its consolidated
Cash Flow Coverage Ratio to be less than (i) 1.15 to 1.0 as of October 31, 1999,
November 30, 1999, and December 31, 1999, (ii) 1.25 to 1.0 as of January 31,
2000, February 29, 2000, and March 31, 2000, (iii) 1.35 to 1.0 as of April 30,
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<PAGE>
2000, May 31, 2000, June 30, 2000, July 31, 2000 and August 31, 2000, and (iv)
1.50 to 1.0 for the fiscal year ending September 30, 2000 and as of the end of
each month thereafter.
8.6 Subject to the provisions of said Section 11.7 hereof, permit the aggregate
amount of its capital expenditures (excluding those which were a part of the
Acquisition, but including both capital leases and operating leases) to be
greater than (i) $500,000.00 for the fiscal year ending September 30, 2000, and
(ii) $750,000.00 for the fiscal year ending September 30, 2001.
8.7 Permit its net income after taxes to be less than $1.00 for any month,
commencing with the month ending January 31, 2000.
8.8 Create, incur, assume or suffer to exist, contingently or otherwise,
indebtedness for Borrowed Money.
8.9 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.
8.10 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 LCM to do any of the foregoing; provided, however, that
the provisions of this Section 8.10 shall not prohibit the Borrower and LCM from
selling assets in an aggregate amount not exceeding $250,000.00 per fiscal year.
8.11 Purchase or otherwise acquire all or substantially all of the assets of any
entity, excluding the Acquisition.
8.12 Conduct business under any assumed or trade name other than "Arizona
Brand".
8.13 Amend repayment schedule of Subordinated Debt.
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
either of the Notes when due, and continuance thereof for 10 calendar
days;
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B. Default in the observance or performance of any one or more
of the covenants set forth in Section 2.6 or in clause (iii) of Section
7.3(B) hereof, and continuance thereof for 5 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 any one or more
of the Security Documents;
F. The breach of any covenant set forth in any Subordination
Agreement;
G. 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;
H. Any representation or warranty made by the Borrower herein,
or in any statement or certificate furnished by the Borrower or LCM
hereunder, is untrue in any material respect;
I. The recission of the Guaranty; or,
J. LCM becomes insolvent or bankrupt, or makes an assignment
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
LCM 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
LCM 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 Notes to be due and payable, or any or all of the foregoing, whereupon the
Credit shall terminate forthwith, and the Notes shall immediately become due and
payable, or any or all of the foregoing, as the case may be.
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<PAGE>
9.2 Upon the occurrence of any of the following Events of Default:
The Borrower becomes insolvent or bankrupt, or makes an assignment
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 60
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 60 calendar days;
then the Credit shall automatically terminate and the Notes 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), arising out of or
relating to in any way (i) to a breach of the Credit, the Term Loan, the Notes,
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
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<PAGE>
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.
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
administration, 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 via facsimile, as follows, unless such
address is changed by written notice hereunder:
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A. If to the Borrower:
Sparta Foods, Inc.
1565 First Avenue NW
New Brighton, Minnesota 55112
Attention: A. Merrill Ayers
B. If to the Bank:
Norwest Bank Minnesota , National Association
St. Paul Office
MAC Code N9101-041
55 East Fifth Street
St. Paul, Minnesota 55101
Fax: (651) 205-8537
Attention: Paul G. Rebholz, Vice President
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 For purposes of calculating compliance with the covenants set forth in
Sections 8.2 through 8.6 hereof, consolidated data of the Borrower and LCM shall
be used.
11.8 Upon execution and delivery of this Agreement, the Current Note and the
Term Note, the LCM Credit shall be deemed terminated and all outstanding
indebtedness evidenced by the Old Term Note shall be retired.
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<PAGE>
11.9 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.
11.10 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 DECLINE TO MAKE AN ADVANCE UNDER THE CREDIT AT ANY TIME.
11.11 NONE OF THE PROVISIONS OF THIS AGREEMENT SHALL BE DEEMED TO DIMINISH OR
ABROGATE THE RIGHT OF THE BANK TO DEMAND IMMEDIATE PAYMENT OF ALL INDEBTEDNESS
EVIDENCED BY THE CURRENT NOTE AT ANY TIME.
11.12 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.
SPARTA FOODS, INC.
By:_____________________________________
Its:____________________________________
By:_____________________________________
Its:____________________________________
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:_____________________________________
Paul G. Rebholz,
Vice President
Exhibit 10.4
PROMISSORY NOTE
$3,300,000.00 October 12, 1999
FOR VALUE RECEIVED, the undersigned, Sparta Foods, 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
THREE MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,300,000.00),
together with interest on the unpaid balance hereof from the date hereof until
this Note is fully paid at an annual rate equal to one-quarter of one percent
(0.25%) in excess of the rate of interest established from time to time by the
Bank (or its successor) 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 on the last day of each consecutive month, commencing
October 31, 1999, and upon maturity.
Principal of this Note shall be repaid as follows:
Fifty-nine (59) installments, each in the amount of $55,000.00,
commencing October 31, 1999 and continuing on the last day of each consecutive
month thereafter through and including August 31, 2004; plus one (1) final
payment in an amount equal to all then-remaining outstanding principal of this
Note shall be due and payable on September 30, 2004.
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.
SPARTA FOODS, INC.
By:________________________________________
Its:_______________________________________
By:________________________________________
Its:_______________________________________
Exhibit 10.5
SECURITY AGREEMENT
DATE: October 12, 1999
DEBTOR: SECURED PARTY:
Sparta Foods, Inc. Norwest Bank Minnesota,
1565 First Avenue NW 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.
[ ] 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
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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.
| | __________________________________________________
__________________________________________________
__________________________________________________
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(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.
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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 dated the date hereof, 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.
(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
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 and any other
security interest permitted under the terms of the Term Loan and Credit
Agreement dated the date hereof; (iv) at all reasonable times, 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
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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
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
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<PAGE>
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.
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, 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),
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<PAGE>
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; or (iv) the occurrence of an event of default
under the Term Loan and Credit Agreement dated on or about October 12, 1999 (as
may be amended or replaced from time to time) made by and between the Debtor and
the Secured Party.
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
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<PAGE>
Collateral, against Debtor or against any other person or property. 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
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
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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, SPARTA FOODS, INC.
NATIONAL ASSOCIATION
By:____________________________ By:________________________________
Paul Rebholz,
Vice President Title:_____________________________
By:________________________________
Title:_____________________________
Exhibit 20.1
Tuesday September 28, 3:28 pm Eastern Time
Sparta Foods buying Arizona tortilla firm
ST. PAUL, Sept 28 (Reuters) - Sparta Foods Inc. said Tuesday it has agreed to
acquire substantially all of the assets of Food Products Corp., a tortilla
manufacturer in Phoenix, Ariz., for cash and notes.
The exact terms were not disclosed.
Sparta said with the addition of new products under the name Arizona Brand and
Spanish Bell, its sales should exceed $30 million for the fiscal year ending
Sept. 30, 2000. Revenues in 1998 were about $9 million.
"This agreement marks another major step, and our first acquisition, toward
achieving our strategic objective of becoming a national tortilla supplier,"
said Sparta president and chief executive officer Joel Bachul in a statement.
Food Products manufactures and distributes tortillas, tortilla chips and other
snack products in Arizona, California, Nevada, New Mexico, Colorado, Utah and
Texas.
Ken Charbonneau, former president and co-owner of Arizona Brand, will continue
as president of the new division of Sparta Foods. Also remaining is Michael
DePinto, former vice president of operations and co-owner of Arizona Brand.
Stock of Sparta Foods was halted on Nasdaq pending release of the news.
Wednesday October 13, 6:05 pm Eastern Time
Company Press Release
SOURCE: Sparta Foods, Inc.
Sparta Foods Completes Acquisition of Arizona Tortilla Manufacturer; Company
Reports Net Sales in Its Fourth Quarter Increased 16 Percent
ST. PAUL, Minn., Oct. 13/PRNewswire/ -- Sparta Foods, Inc. (Nasdaq: SPFO -
news), announced today that it has completed its previously disclosed
acquisition of Food Products Corporation, Phoenix, Ariz. The $10 million
acquisition was funded through $2.6 million cash paid by Sparta Foods, $3
million in a seller subordinated note and bank financing. Bank financing was
provided by Norwest Bank Minnesota, N.A., consisting of a $3.3 million five-year
term loan and $2 million of a $3 million revolving line of credit. This
financing also replaces the Company's existing line of credit and $1 million
term loan.
Sparta Foods also reported preliminary net sales of $4,550,000 for its fourth
quarter ended Sept. 30, 1999, an increase of 16.2 percent over the fourth
quarter of last year.
Joel P. Bachul, Sparta Foods' president and chief executive officer, said "We
are pleased to complete the Arizona Brands acquisition and, as previously
announced, are poised to exceed $30 million in sales during our fiscal year
ending Sept. 30, 2000, on a combined basis.
"We are also very pleased with our fourth quarter sales increase which reflects
the level of growth we expected as the result of additional sales expense
incurred during the past year," Bachul said.
Sparta Foods expects to report complete results for the fourth quarter in
November.
Sparta Foods, Inc., is a regional market leader in the production and
distribution of tortillas and value-added tortilla products to the food service
and retail foods industries. The Company's product lines include tortillas,
tortilla chips, picante and other salsas. Sparta Foods distributes its food
products to retail grocery chains principally under the Cruz(R), La Campana
Paradiso(R), and La Canasta(R) labels. Foodservice customers include Perkins
Family Restaurants, Friendly's Restaurants and other nationally-known
restaurants and distributors. For more information about Sparta Foods, please
visit http://www.spartafoods.com
Food Products Corporation, known as Arizona Brand, manufactures and distributes
tortillas, tortilla chips and other snack products in Arizona, California,
Nevada, New Mexico, Colorado, Utah and Texas principally under the Arizona
Brand(R) and Spanish Bell(R) labels. Retail distribution of Arizona Brand's
products are through major regional supermarket chains, including Fry's, Safeway
and Albertson's, and general merchandise retailers, including Costco and SAM's
Club, in the southwest.
<PAGE>
The Company's statement regarding Sparta's expectation of combined sales
exceeding $30 million in fiscal year 2000 is a forward-looking statement. There
are risks and uncertainties regarding this forward-looking statement that could
cause actual results of Sparta to differ materially from this forward-looking
statement. Such risks and uncertainties include, but are not limited to: (i) a
loss of any of their significant customers and distributors; (ii) the failure of
Sparta's and Arizona Brand's sales forces to achieve their annual sales targets;
(iii) the failure of the Company to establish synergies with the Arizona Brand
operation; and (iv) the inability of the Company or Arizona Brand to grow its
tortilla business due to competitive forces.
For more information, please contact Doug Ewing of Swenson NHB Investor
Relations, 612-371-0000, for Sparta Foods, Inc., or A. Merrill Ayers, CFO of
Sparta Foods, Inc., 651-697-5500.
