U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report under Section 13 or 15 (d) of the
----------- Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1999.
___________ Transition Report under Section 13 or 15 (d) of the
Exchange Act.
For the transition period from _____________ to __________________.
Commission File Number 000-19318
SPARTA FOODS, INC,
(exact name of small business issuer as specified in its charter)
Minnesota 41-1618240
(state or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1565 First Avenue NW, New Brighton, MN 55112
(Address of principal executive offices)
(651) 697-5500
(Issuer's telephone number)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _______
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
10,191,416 of Common Stock at July 30, 1999.
Transitional Small Business Disclosure Format: Yes _____ No X
<PAGE>
SPARTA FOODS, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets
At June 30, 1999 and September 30, 1998 3
Condensed Consolidated Statements of
Operations for the three-month periods
and the nine-month periods ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements of
Cash Flows for the nine-month periods
ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements - June 30, 1999 6
Item 2. Management's Discussion and Analysis or 8
Plan of Operation
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 14
EXHIBIT INDEX 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPARTA FOODS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 September 30
1999 1998
----------------------- ----------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,173,784 $ 1,131,255
Accounts receivable, less allowances of $30,000 986,832 877,752
Deposits receivable 262,152 -
Inventories:
Finished goods 466,479 436,784
Raw materials and packaging 1,008,476 396,396
Prepaid expenses 227,330 198,752
Income tax receivable 2,746 4,746
Deferred tax asset 43,000 43,000
- ------------------------------------------------------------------------------------------------ ----------------------
Total current assets 5,170,799 3,088,685
- ------------------------------------------------------------------------------------------------- ----------------------
Property and Equipment 9,424,536 9,045,342
Less accumulated depreciation 3,397,917 2,788,399
- ------------------------------------------------------------------------------------------------- ----------------------
6,026,619 6,256,943
- ------------------------------------------------------------------------------------------------- ----------------------
Other Assets
Restricted cash 206,239 242,059
Covenants not-to-compete, less accumulated amortization of
$44,419 and $39,424, respectively 55,581 60,576
Goodwill, less accumulated amortization of $95,033 and $85,404,
respectively 418,339 427,968
Deferred financing costs, less accumulated amortization of
$81,907 and $64,778, respectively 116,127 133,256
Deferred tax asset 227,000 227,000
Other 189,865 284,698
- ------------------------------------------------------------------------------------------------- ----------------------
1,213,151 1,375,557
================================================================================================= ======================
$ 12,410,569 $ 10,721,185
================================================================================================= ======================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $391,779 $ 367,377
Accounts payable 517,109 506,874
Accrued expenses 368,455 469,448
- ------------------------------------------------------------------------------------------------- ----------------------
Total current liabilities 1,277,343 1,343,699
- ------------------------------------------------------------------------------------------------- ----------------------
Long-term Debt, less current maturities 2,368,677 2,667,623
- ------------------------------------------------------------------------------------------------- ----------------------
Stockholders Equity
Preferred Stock, authorized 1,000,000 shares, $1,000 par value;
issued and outstanding 2,500 shares 2,500,000 2,500,000
Common Stock, authorized 15,000,000 shares, $0.01 par value; issued and
outstanding 10,191,416 and 7,037,172 shares, respectively 101,914 70,371
Additional paid-in capital 7,100,150 4,977,092
Accumulated deficit (937,515) (837,600)
- ------------------------------------------------------------------------------------------------- ----------------------
8,764,549 6,709,863
================================================================================================= ======================
$ 12,410,569 $ 10,721,185
================================================================================================= ======================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
Ended Ended
June 30 June 30
- ------------------------------------------------ ---------------------- ----------------- --- ---------------- -------------------
1999 1998 1999 1998
- ------------------------------------------------ ---------------------- ----------------- --- ---------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 4,092,284 $ 3,969,986 $ 11,198,174 $ 11,047,646
Cost of sales 2,779,567 2,703,381 7,918,440 7,920,510
- ------------------------------------------------ ---------------------- ------------------- ------------------ -------------------
Gross profit 1,312,717 1,266,605 3,279,734 3,127,136
Selling, general, and administrative expenses 1,199,293 892,002 3,338,253 2,703,439
- ------------------------------------------------ ---------------------- ------------------- ------------------ -------------------
Operating income (loss) 113,424 374,603 (58,519) 423,697
Other income, net 40,163 41,582 109,224 117,574
Interest expense (47,579) (77,957) (146,620) (280,219)
- ------------------------------------------------ ---------------------- ------------------- ------------------ -------------------
Income (loss) before income tax 106,008 338,228 (95,915) 261,052
Provision for income tax 1,000 2,500 4,000 3,500
- ------------------------------------------------ ---------------------- ------------------- ------------------ -------------------
Net income (loss) 105,008 335,728 (99,915) 257,552
Preferred dividends (31,250) (31,250) (93,750) (43,750)
- ------------------------------------------------ ---------------------- ------------------- ------------------ -------------------
Net income (loss) available to common
shareholders
73,758 304,478 (193,665) 213,802
================================================ ====================== =================== ================== ===================
Earnings (loss) per share:
Basic $ .01 $ .04 $ (.02) $ .03
Diluted $ .01 $ .03 $ (.02) $ .02
================================================ ====================== =================== ================== ===================
Weighted average shares:
Basic 10,191,416 6,908,152 9,066,085 6,830,341
Diluted 10,429,758 10,650,892 9,066,085 9,215,017
================================================ ====================== =================== ================== ===================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
SPARTA FOODS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the nine months
ended June 30
-------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (99,915) $ 257,552
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and Amortization 641,795 527,080
(Gain) Loss on the sale of equipment and rental property 1,420 (6,625)
Changes in assets and liabilities:
Accounts receivable (109,080) (120,310)
Deposits receivable (262,152) -
Inventories (641,775) 128,014
Prepaid expenses (28,578) (73,749)
Income tax receivable 2,000 -
Accounts payable and accrued expenses (90,758) (810,535)
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
Net cash used in operating activities (587,043) (98,573)
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
Cash Flows from Investing Activities
Decrease in restricted cash 35,820 1,602,705
Purchases of equipment (381,138) (1,880,972)
Proceeds from the sale of equipment and rental property - 997,095
Change in deposits and other assets 94,833 (42,667)
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
Net cash provided by (used in) investing activities (250,485) 676,161
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
Cash Flows from Financing Activities
Net payments on the line of credit - (834,209)
Net payments on Long-term Debt (274,544) (1,593,392)
Issuance of Common Stock, net of costs 2,154,601 174,484
Issuance of Preferred Stock, net of costs - 2,356,441
Deferred financing costs - (4,812)
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
Net cash provided by financing activities 1,880,057 98,512
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
Net increase in cash 1,042,529 676,100
Cash and cash equivalents
Beginning of period 1,131,255 600
- -------------------------------------------------------------------------------- ----- ------------------- -----------------
End of period $ 2,173,784 $ 676,700
================================================================================ ===== =================== =================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $138,020 $ 306,395
Income taxes 2,000 5,750
================================================================================ ===== =================== =================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
Sparta Foods, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
NOTE 1. GENERAL
The unaudited condensed consolidated balance sheet at June 30, 1999, the
condensed consolidated statements of operations for the three-month and
nine-month periods ended June 30, 1999 and 1998, and the condensed
consolidated statements of cash flows for the nine-month periods ended June
30, 1999 and 1998, include all adjustments which in the opinion of
management are necessary in order to make the financial statements not
misleading and are not necessarily indicative of results of operations to
be expected for the entire fiscal year ending September 30, 1999.
The unaudited financial statements should be read in conjunction with the
audited financial statements for the years ended September 30, 1998 and
1997, contained in Form 10-KSB and Management's Discussion and Analysis or
Plan of Operation contained herein.
NOTE 2. FINANCING AGREEMENTS
The Company has a line of credit (the "Line of Credit") and term loan (the
"Term Loan") with a bank, secured by certain assets. Maximum borrowings
under the Line of Credit are determined by a borrowing base calculation or
$1,200,000, whichever is less. Borrowings bear interest at prime (7.75
percent at June 30, 1999). At June 30, 1999 and September 30, 1998, $0 is
outstanding on the Line of Credit and $1,073,789 and $1,243,333,
respectively, is outstanding on the Term Loan. The Company is to maintain
certain minimum net worth and debt service coverage levels.
The Company has a loan acquired through the State of Minnesota related to a
revenue bond issuance. The loan is due in monthly installments that vary in
accordance with the maturity dates of the related revenue bonds, plus
interest at rates varying from 4.5 to 6.0 percent. At June 30, 1999,
$1,686,667 is outstanding. The Company is to maintain certain net worth and
debt service coverage levels. In addition certain dividend restrictions are
stipulated and a debt service reserve fund has been established. The debt
service reserve fund will remain until all loan obligations have been
satisfied and is reflected on the consolidated balance sheet as restricted
cash.
In 1999, the Company entered into an operating lease agreement for certain
new factory equipment. As of June 30, 1999, deposits totaling $262,152 on
equipment subject to the lease agreement are scheduled to be refunded to
the Company in August 1999. These deposits are reflected on the June 30,
1999 consolidated balance sheet as deposits receivable.
<PAGE>
NOTE 3. INCOME TAX
Deferred taxes are provided on an asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards, net of deferred tax
liabilities for temporary differences. Due to losses and the availability
of tax benefits to offset any regular tax, the provisions for income taxes
are based upon a state minimum income tax.
NOTE 4. PREFERRED STOCK
In February of 1998, the Company issued 2,500 shares of Preferred Stock,
Series 1998. The shares are convertible at any time at the rate of 606.06
shares of Common Stock for each share of Preferred Stock. The holders of
the preferred stock have the right to require the Company to repurchase the
stock in the event of a change in control authorized by the Board of
Directors or if the Company is in default with certain covenants as defined
in the agreement. The holders of the Preferred Stock are entitled to
receive, when, as and if declared by the Company's Board of Directors, cash
dividends at the rate of 5% annually or, at the option of the Company,
dividends of shares of additional Preferred Stock at the rate of 7.5%
annually. Dividends are fully cumulative, accumulate without interest from
the date the Preferred Stock was originally issued, and, if declared by the
Board of Directors, are payable, semi-annually on January 1st and July 1st.
At June 30, 1999, cumulative and undeclared cash dividends totaled $168,250
or $67.30 per share of preferred stock.
NOTE 5. NET INCOME (LOSS) PER COMMON SHARE
The Company is complying with "Statement of Financial Accounting Standards
No. 128, Earnings per Share" (FAS 128). FAS 128 requires the presentation
of basic earnings or losses per share (EPS) and diluted earnings or losses
per share amounts. Basic EPS is the net income or loss related to the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects potential dilution assuming the issuance of common
stock for stock options and warrants exercisable under the treasury stock
method and also considers the potential conversion of convertible preferred
stock.
Diluted EPS for the three-month periods ended June 30, 1999 and 1998
includes 238,342 and 2,227,589, respectively, weighted-average shares
assumed issued upon exercise of outstanding options and warrants. In
addition, for the three-month period ended June 30, 1998, 1,515,151 shares
assumed issued for convertible preferred stock. For the three-month period
ended June 30, 1999, the conversion of preferred stock has not been assumed
due to an antidilutive impact.
Diluted EPS for the nine-month period ended June 30, 1998 includes
2,384,676 weighted-average shares assumed issued for options and warrants.
For the nine-month period ended June 30, 1999, the issuance of shares for
options and warrants has not been assumed due to an antidilutive impact. In
addition, for the nine-month periods ended June 30, 1999 and 1998, the
conversion of preferred stock has not been assumed due to an antidilutive
impact.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Overview
La Canasta of Minnesota, Inc. ("La Canasta"), the predecessor of Sparta
Foods, Inc. (the "Company"), and now a wholly-owned subsidiary of the
Company, began producing limited volumes of hand stretched tortillas, corn
tortillas and corn tortilla chips shortly following its organization in
1981, primarily for sale to restaurants. The Company was organized under
the laws of the State of Minnesota in 1988, originally under the name of
"Sparta Corp." for the purposes of raising capital for the acquisition of,
or investment in, a business. In January 1991, the Company acquired all of
the outstanding capital stock of La Canasta. Since 1991, the Company has
completed acquisitions and secured new broker and distributor relationships
which has expanded its trademark retail brands to include Cruz, Chapala,
Mexitos and La Campana Paradiso, its retail distribution network to include
Crystal Farms Refrigerated Distribution Company and Marigold Foods, Inc.
and its food service customers to include McDonald's, Perkins, Friendly's
and Carlos O'Kelly restaurants.
Results of Operations
The Company's net sales of $11,198,174 increased $150,528 (1.4%) for the
nine months ended June 30, 1999, as compared to the nine months ended June
30, 1998. Net sales of $4,092,284 increased $122,298 (3.1%) for the three
months ended June 30, 1999, as compared to the three months ended June 30,
1998. These increases are caused by a growth in sales to established and
new customers. This growth is offset by the loss of a significant private
label barbecue sauce customer. Net sales to the lost customer totaled
approximately $0 and $370,000 (3.3%) for the nine-month periods ended June
30, 1999 and 1998, respectively. [Trend in Growth - Not meet 20%]
Gross profit, as a percentage of net sales, for the nine months ended June
30, 1999, was 29.3% compared to 28.3% for the nine months ended June 30,
1998. Gross profit, as a percentage of net sales, for the three months
ended June 30, 1999, was 32.1% compared to 31.9% for the three months ended
June 30, 1998. These increases are primarily due to more favorable
operating efficiencies.
Selling, general and administrative expenses increased by $634,814 or 23.5%
during the nine months ended June 30, 1999, as compared to the nine months
ended June 30, 1998. These expenses increased by $307,291 or 34.4% during
the three months ended June 30, 1999, as compared to the three months ended
June 30, 1998. These increases are due mainly to the hiring of additional
sales personnel and consultants to implement the Company's long-term sales
growth objectives. In addition, increased advertising and promotional
expenses have been incurred on new and existing products in an effort to
penetrate new markets and increase market share in existing markets.
Interest expense decreased by $133,599 (47.7%) for the nine months ended
June 30, 1999 compared to the nine months ended June 30, 1998. Interest
expense decreased by $30,378 (39.0%) for the three months ended June 30,
1999 compared to the three months ended June 30, 1998. These decreases are
due to significant debt reductions as a result of the use of proceeds from
the issuance of preferred stock and the sale of rental property in fiscal
1998.
<PAGE>
Due to a net loss for the nine-month period ended June 30, 1999 and the
availability of tax benefits to offset any regular tax for the nine-month
period ended June 30, 1998, the Company has recorded provisions for income
taxes equal to a state minimum income tax.
For the reasons discussed above, the net loss for the nine months ended
June 30, 1999 was $99,915 compared to a net income of $257,552 for the same
period in 1998. The net income for the three months ended June 30, 1999 was
$105,008 compared to a net income of $335,728 for the same period in 1998.
Liquidity and Capital Resources
The Company financed its current activities primarily through cash
generated from the issuance of common stock resulting from the exercise of
warrants.
Cash used in operating activities during the nine months ended June 30,
1999 was $587,043 consisting principally of a net loss of $99,915, an
increase in accounts receivable and prepaid expenses of $137,658, an
increase in deposits receivable of $262,152 and an increase in inventories
of $641,775, primarily caused by advance purchases of raw materials and
packaging for anticipated production of a new retail product, offset by
depreciation and amortization of $641,795. Cash used in investing
activities was $250,485 consisting principally of the purchase of equipment
of $381,138 offset by the utilization of restricted cash of $35,820 and a
decrease in deposits and other assets of $94,833. Cash provided by
financing activities was $1,880,057 consisting of $2,154,601 in net
proceeds from the issuance of common stock upon exercise of outstanding
warrants offset by a $274,544 reduction in long-term debt.
At June 30, 1999, the Company had cash and cash equivalents of $2,173,784
and working capital of $3,893,456. The Company believes that its available
cash, cash equivalents, cash flow from operations and existing bank credit
facilities will be sufficient to meet its operating requirements through
fiscal 1999.
Seasonality
The Company has historically had higher sales in its third and fourth
fiscal quarters which end June 30, and September 30, respectively, than in
its first and second quarters. Management believes that this is a result of
seasonal consumption patterns with respect to the Company's food products,
such as consumption of higher volumes of tortilla chips and salsa during
the summer months. This seasonality may cause quarterly results of
operations to fluctuate.
Raw Material Cost Fluctuations
The Company does not enter into futures contracts as defined by SFAS 80. It
does, however, enter into purchase orders for delayed delivery of raw
materials, generally 30 days for raw materials other than flour and corn.
The Company enters into purchase orders for delayed delivery of flour and
corn for a period of 2-18 months, depending on current pricing, to ensure
the availability of the type of flour and corn best suited for the
Company's products. These purchase orders are placed directly with the
suppliers.
<PAGE>
Outlook
The Company's plan in fiscal 1999 is to grow the business by increasing
sales and expanding its presence in new geographic territories. The Company
plans to grow the business internally as well as through joint ventures
and/or acquisitions and through the development of new distribution
relationships.
The Company anticipates that net sales for the fiscal year 1999 will exceed
sales for fiscal year 1998, but will fall far short of the Company's
previously announced 20% sales growth target. The Company attributes
its failure to meet its growth target on the inability of its sales
personnel to reach their sales targets for fiscal year 1999 and the
slower than expected market introduction of the Company's Banditos snack
product. Net sales of the Banditos snack product will fall short of the
Company's projected sales of $3 to $4 million in fiscal year 1999.
However, the Company believes that a 20% growth in net sales can be
achieved in fiscal year 2000.
The Company relies on computer software and hardware systems to manage its
information and portions of its manufacturing. The Company is aware of the
computer software and hardware issues associated with the programming code
in existing computer software programs and non-information technology such
as micro-controllers found in computer hardware. The issue is whether
systems will properly recognize date sensitive information. Much of the
computer software and hardware in use today are unable to recognize a year
that begins with "20" instead of "19." Many computers will be unable to
recognize the Year 2000 and, as a result, could generate erroneous data or
cause a computer to fail. Some computer systems may begin to operate
improperly sooner for failure to read other dates.
The Company has completed an assessment of its exposure to the Year 2000
issue by evaluating its software and hardware systems. The Company's
assessment revealed that its exposure to the Year 2000 issue is nominal,
and it has upgraded its software and hardware systems to make such systems
Year 2000 compliant. Costs associated with the upgrade were immaterial. In
addition to evaluating its own systems, the Company has inquired of its
major customers and suppliers as to their exposure to the Year 2000 issue
to determine the extent to which the Company is indirectly vulnerable to
the Year 2000 issues from such customers and suppliers. Many of the
Company's customers and suppliers have responded that they believe they are
or will be Year 2000 compliant. The Company plans to continue to assess its
exposure to the Year 2000 issue and develop plans to address any
developments associated with the Year 2000 issue that could have an adverse
effect on the Company and its operations.
The foregoing statements contained in this Outlook section of Management's
Discussion and Analysis or Plan of Operation and those relating to the
Company's operating requirements through fiscal 1999 contained in
Management's Discussion and Analysis or Plan of Operation are forward
looking statements that involve a number of risks and uncertainties. Some
additional factors that could cause actual results to differ materially
include but are not limited to (i) seasonality of its sales and raw
materials cost fluctuations, which are discussed above; (ii) a decline
in international sales growth of tortillas; (iii) a loss of any of its
significant customers and distributors; (iv) the failure of the Company's
sales force to achieve its sales targets; (v) the lack of consumer demand
for the Banditos snack product; and (vi) the inability of the Company
to grow its tortilla business due to competitive forces, including the
following:
<PAGE>
Reliance on Principal Customers. During 1998, sales to Crystal Farms
Refrigerated Distribution Company ("Crystal Farms") and Catalina Specialty
Foods, Inc. accounted for approximately 25% and 12%, respectively, of the
Company's sales. For the nine-month period ended June 30, 1999, Crystal
Farms and Catalina Specialty Foods, Inc. accounted for approximately 25%
and 13%, respectively, of the Company's sales. Crystal Farms is the
Company's largest single distributor of its retail products and has a
significant impact on the Company's growth in the retail market. Although
the Company and Crystal Farms operate under a distribution agreement, the
loss of Crystal Farms as a customer would have a material and adverse
effect on the Company's sales and profitability and future growth.
Competition. The Mexican-style food manufacturing and distribution industry
is highly competitive. The Company is in competition with a number of
manufacturers and distributors of Mexican-style food products and, to a
limited extent, manufacturers of "snack foods," many of which are better
capitalized than the Company. The Company will also be subject to future
competition from other manufacturers, distributors and retailers who enter
into the Mexican-style food and distribution industry. In the retail
market, many of these competitors engage in extensive local and national
advertising and marketing, and the brand names for products distributed by
those competitors are significantly more recognizable to the consumer than
the Company's brand names. In addition, competition for shelf space in
retail grocery stores is intense. In the food service market, the Company
is competing with a number of regional and national producers of
Mexican-style food products. Many of these competitors are better
capitalized than the Company and have established sales organizations. No
assurance can be given that the Company will be able to compete as it
expands its markets.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the quarter ended June 30, 1999, the Company sold no unregistered
securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 9, 1999, Sparta Foods, Inc. (the "Registrant") held a special meeting of
its shareholders at which shareholders approved a 500,000 shares increase in the
number of shares reserved for issuance under its stock option plan. The number
of votes cast for, against or withheld, as well as abstentions and non-votes are
set forth below:
Votes casted for 6,024,239
Votes cast against or withheld 2,412,173
Number of abstentions 47,883
Number of broker non-votes 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment dated March 5, 1999 to the Term Loan and Credit
Agreement dated June 1998 between the Company and Norwest Bank
Minnesota, National Association.
10.2 Second Amendment dated May 28, 1999 to the Term Loan and Credit
Agreement dated June 1998 between the Company and Norwest Bank
Minnesota, National Association.
10.3 Second Amendment dated June 3, 1999 to the Industrial Building Lease
Agreement dated September 1, 1997 between the Company and First
Industrial, LP
10.4 Supply Agreement dated January 14, 1999 between the Company and Rupari
Food Services, Inc.
10.5 Change of Control Executive Severance Pay Agreement dated April 1,
1999 between the Company and Craig S. Cram.
10.6 First Amendment dated April 1, 1999 to the Salary Continuation
Agreement dated August 1995 between the Company and Joel P. Bachul.
<PAGE>
10.7 First Amendment dated April 1, 1999 to the Salary Continuation
Agreement dated August 1995 between the Company and A. Merrill Ayers.
10.8 Revised License Agreement dated January 1, 1999 between the Company and
Atlas International Food and Equipment Corporation.
11 Computation of Earnings (Loss) Per Common Share.
27 Financial Data Schedule (filed only in electronic format).
(b) Reports on Form 8-K
A report on Form 8-K was not filed during the quarter ended June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPARTA FOODS, INC.
(Registrant)
Dated: July 30, 1999 By: /s/ Joel P. Bachul
Joel P. Bachul,
President and Chief Executive Officer
Dated: July 30, 1999 By: /s/ A. Merrill Ayers
A. Merrill Ayers
Treasurer, Secretary and
Chief Financial Officer
Exhibit 10.1
FIRST AMENDMENT TO TERM LOAN
AND CREDIT AGREEMENT
THIS FIRST AMENDMENT is made as of the 5th day of March, 1999, and is by and
between LA CANASTA OF MINNESOTA, INC. (the "Borrower") and NORWEST BANK
MINNESOTA, NATIONAL ASSSOCIATION (the "Bank").
BACKGROUND
The Borrower and the Bank entered into a Term Loan and Credit Agreement dated
June 24, 1998 (the "Agreement"), pursuant to which the Bank extended to the
Borrower a (i) a $1,200,000.00 conditional revolving line of credit; and (ii) a
$1,293,352.84 term loan.
The Borrower has requested the Bank allow the Borrower to incur certain purchase
money indebtedness and grant a security interest in or lien on the property it
purchases to secure said purchase money indebtedness. The Bank is willing to
grant the Borrower's request, subject to the terms and conditions of this First
Amendment. Capitalized terms not otherwise defined in this First Amendment shall
have the meaning ascribed in the Agreement.
In consideration of the premises, the Bank and the Borrower agree that the
Agreement is hereby amended as follows:
1. Section 1.6 of the Agreement is hereby deleted in its entirety and restated
as follows:
"1.6 "Borrowed Money" shall mean funds obtained by incurring
contractual indebtedness, but shall not include (i) trade accounts
payable; (ii) money borrowed from the Bank; or (iii) purchase money
indebtedness (including capitalized leases) for business purposes which
does not exceed a total principal amount of $1,500,000.00."
2. Section 1.19 of the Agreement is hereby amended by inserting the
following as new subsection D immediately after subsection C:
"D. Liens which secure purchase money indebtedness allowed under this
Agreement."
3. The Borrower hereby represents and warrants to the Bank as follows:
A. The Agreement, as amended by this First Amendment,
constitutes valid, legal and binding obligations owed by the
Borrower to the Bank, subject to no counterclaim, defense,
offset, abatement or recoupment.
<PAGE>
B. As of the date first written above, (i) all of the
representations and warranties contained in the Agreement
are true, and (ii) there exists no event of default
described in the Agreement, nor does there exist any event
which, with the giving of notice or the passage of time, or
both, could become such an event of default.
C. The execution, delivery and performance of this First
Amendment by the Borrower are within its corporate powers,
have been duly authorized, and are not in contravention of
law or the terms of the 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.
D. The audited financial statements of the Borrower dated
September 30, 1998, and the unaudited interim financial
statements of the Borrower dated December 31, 1998, fairly
represent the financial condition of the Borrower as of said
respective dates, and have been prepared in accordance with
generally accepted accounting principles consistently
applied, and there have been no materially adverse changes
in the financial condition of the Borrower since
December 31, 1998.
4. Except as expressly modified by this First Amendment, the Agreement
remains unchanged and in full force and effect.
IN WITNESS WHEREOF, the Borrower and the Bank have executed this First Amendment
on the date first written above.
LA CANASTA OF NORWEST BANK MINNESOTA,
MINNESOTA, INC. NATIONAL ASSOCIATION
By: /s/ A. Merrill Ayers By: /s/ Paul G. Rebholz
Its: Senior Vice President Its: Vice President
ACKNOWLEDGMENT
Sparta Foods, Inc. hereby consents to the foregoing First Amendment and
acknowledges that its guaranty dated June 24, 1998 remains in full force
and effect.
March 5, 1999 SPARTA FOODS, INC.
By: /s/ A. Merrill Ayers
Its: Senior Vice President
Exhibit 10.2
SECOND AMENDMENT TO TERM LOAN
AND CREDIT AGREEMENT
THIS SECOND AMENDMENT dated to be effective as of May 28, 1999, is between LA
CANASTA OF MINNESOTA, INC. (the "Borrower") and NORWEST BANK MINNESOTA, NATIONAL
ASSSOCIATION (the "Bank").
BACKGROUND
The Borrower and the Bank entered into a Term Loan and Credit Agreement dated
June 24, 1998, which was amended by a First Amendment dated March 5, 1999 (as
amended, the "Agreement"), pursuant to which the Bank extended to the Borrower a
(i) a $1,200,000.00 conditional revolving line of credit; and (ii) a
$1,293,352.84 term loan.
In consideration of the premises, the Bank and the Borrower agree that the
Agreement is hereby amended as of the date of this Second Amendment as follows:
1. Section 1.23 of the Agreement is hereby deleted in its entirety and restated
as follows:
"1.23 "Termination Date" shall mean August 31, 1999."
2. The Borrower hereby represents and warrants to the Bank as follows:
A. The Agreement, as amended by this Second Amendment,
constitutes valid, legal and binding obligations owed by the
Borrower to the Bank, subject to no counterclaim, defense,
offset, abatement or recoupment.
B. As of the date first written above, (i) all of the
representations and warranties contained in the Agreement
are true, and (ii) there exists no event of default
described in the Agreement, nor does there exist any event
which, with the giving of notice or the passage of time, or
both, could become such an event of default.
C. The execution, delivery and performance of this Second
Amendment by the Borrower are within its corporate powers,
have been duly authorized, and are not in contravention of
law or the terms of the 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.
3. Except as expressly modified by this Second Amendment, the Agreement
remains unchanged and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have executed this Second
Amendment to be effective as of the date and year first above written.
Dated: June 22, 1999
LA CANASTA OF NORWEST BANK MINNESOTA,
MINNESOTA, INC. NATIONAL ASSOCIATION
By: /s/ A. Merrill Ayers By: /s/ Paul G. Rebholz
Its: Senior Vice President and CFO Its: Vice President
ACKNOWLEDGMENT
Sparta Foods, Inc. hereby consents to the foregoing Second Amendment and
acknowledges that its guaranty dated June 24, 1998 remains in full force and
effect.
June 22, 1999 SPARTA FOODS, INC.
By: /s/ A. Merrill Ayers
Its: Senior Vice President and CFO
Exhibit 10.3
Revised
May 28,1999
SECOND AMENDMENT TO INDUSTRIAL BUILDING LEASE
THIS SECOND AMENDMENT TO INDUSTRIAL BUILDING LEASE ("Second Amendment")
is made this 3rd day of June 1999, by and between First Industrial, L.P., a
Delaware limited partnership ("Landlord") and Sparta Foods, Inc., a Minnesota
corporation ("Tenant").
WITNESSETH THAT:
WHEREAS, Landlord and Tenant entered into that certain Industrial
Building Lease dated May 29, 1997, as was amended on October 2, 1997, pertaining
to 112,082 square feet within the building located at 1565 First Avenue N.W.,
New Brighton, Minnesota (the "Building Lease").
WHEREAS, Landlord and Tenant desire to amend the Lease upon the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
1. Capitalized terms used but not defined here shall have the same meanings as
are respectively ascribed to those terms in the Building Lease.
2. In accordance with Lease Exhibit F of the Building Lease (attached Exhibit
"A") the Landlord has contracted to have the roof of the building replaced
at a cost of Three Hundred Six Thousand Seven Hundred Fourteen and 00/100
dollars ($306,714.00).
3. In accordance with Lease Exhibit F (attached Exhibit "A") the cost of
replacement has been amortized over 20 years at eleven (11%) percent
interest and a portion of such cost is payable by Tenant ( the Replacement
Cost) over the balance of the term of the Lease. Landlord and tenant agree
to incorporate the Replacement Cost into the Base Rent. By this Second
Amendment, Lease Exhibit B of the Building Lease is hereby deleted and the
term "Base Rent" is hereby defined to incorporate the Replacement Cost. The
Base Rent shall be payable by the Tenant on the following dates in the
indicated amounts.
<PAGE>
May 28, 1999
Sparta Amendment
page two
July 1, 1999 -
August 31, 2002 Four Hundred Eighty-Six Thousand Three Hundred
Eighteen and 40/100 Dollars ($486,318.40), payable
annually, in advance, in equal monthly installments
of Forty Thousand Five Hundred Twenty-Six and
53/100 Dollars($40,526.53).
September 1, 2002-
August 31, 2007 Five Hundred Thirty-One Thousand One Hundred
Fifty-One and 20/100 Dollars ($531,151.20), payable
annually, in advance, in equal monthly installments
of Forty Four Thousand Two Hundred Sixty-Two and
60/100 Dollars ($44,262.60).
September 1, 2007-
August 31, 2012 Five Hundred Eighty Thousand Four Hundred
Sixty-Seven and 28/100 Dollars ($580,467.28),
payable annually, in advance, in equal monthly
installments of Forty Eight Thousand Three
Hundred Seventy-Two and 72/100 Dollars ($48,372.27).
4. The parties acknowledge that the amounts set forth herein represent Tenant's
entire responsibility for Base Rent and the cost to replace the roof and
Tenant's responsibility to pay such rent and costs expires upon the expiration
of the Lease.
5.. Section 25.2. Notices, of the Lease is hereby amended to reflect the
Landlord's address for notices as:
First Industrial, L.P.
311 South Wacker Drive, Suite 4000
Chicago, IL 60606
With copies to: Barrack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker Drive
Suite 2700
Chicago, IL 60606
Attn: Howard Nagelberg and Suzanne Bessette-Smith
<PAGE>
May 28, 1999
Sparta Amendment
page three
First Industrial Realty Trust, Inc.
7615 Golden Triangle Drive
Suite N
Eden Prairie, MN 55344
Attn: Asset Manager
6. Except as amended herein, all other terms and conditions of the Lease shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Industrial Building Lease as of the day and year first above
written.
LANDLORD: TENANT:
FIRST INDUSTRIAL, L.P. SPARTA FOODS, INC.
A Delaware limited partnership
By: First Industrial Realty Trust, Inc.
a Maryland corporation, its general
partner
By: /s/ Arne Cook /s/ A. Merrill Ayers
Its: Regional Director Its: Chief Executive Officer
<PAGE>
LEASE EXHIBIT "A"
LEASE EXHIBIT F
(1565 First Avenue NW/Sparta Foods, Inc.)
RIDER TO INDUSTRIAL BUILDING LEASE
A. LOCK BOX: Landlord may from time to time designate a lock box collection
agent for the collection of rents or other charges due Landlord. In such event,
the payment made by Tenant to the lock box shall be deemed to have been made by
Tenant as of the date of receipt by the lock box collection agent of such
payment (or the date of collection of any such sum if payment is made in the
form of a negotiable instrument thereafter dishonored upon presentment);
however, for the purpose of this Lease, no such payment or collection shall be
deemed a waiver by Landlord of any breach by Tenant of any term, covenant or
condition of this Lease nor a waiver of any of Landlord's rights or remedies and
any payments of amounts other than that deemed due and proper by Landlord shall
not prejudice Landlord in any manner nor constitute a waiver and Landlord shall
hereby be authorized to retain the proceeds of any payments by Tenant, whether
destructively endorsed or otherwise, and apply same to the amounts due and
payable from Tenant under this Lease without waiver.
B. PRIOR PROPOSALS: All prior proposals in respect to this Lease are hereby
terminated.
C. NOTIFICATION TO TENANT: Landlord hereby notifies Tenant that the person(s)
authorized to manage the Premises is First Industrial Realty Trust, Inc., which
corporation has been appointed to act as the agent in leasing, management and
operation of the Building for the owner of the Building which is First
Industrial, L.P. First Industrial Trust, Inc., with its office at 7615 Golden
Triangle Drive, Suite N, Eden Prairie, MN 55344, is authorized to accept service
of process and receive and give receipts for notices and demands on behalf of
said owner.
D. SIGNAGE: Notwithstanding anything contained in Section 4.2 ("Signage") hereof
to the contrary, provided Tenant receives all necessary governmental and
quasi-governmental approvals therefor, Landlord shall allow Tenant to erect a
sign on the exterior of the Building. Such sign shall be Tenant's "name", shall
be subordinate in size to Landlord's building designation sign if applicable and
shall be subject to the reasonable approval of Landlord as to location, size,
graphics, color(s), and style. Tenant shall pay all costs of installation and
maintenance of such sign and shall keep such sign in good condition, order and
repair at its sole costs and expense during the term of this Lease, shall remove
such sign prior to termination of the term of this Lease and shall repair and
restore any damage to the Building caused by such installation and/or removal.
Any such sign shall be subject to the terms of any restrictive covenants
recorded in connection with the Property and all applicable laws, ordinances and
regulations.
E. EARLY OCCUPANCY: Tenant shall have the right to enter the Premises prior to
the commencement date of the Lease, for the purpose of leasehold improvement
construction; provided, however, that Tenant is subject to all of the terms,
conditions and covenants of this Lease, including specifically Lease Exhibit D
<PAGE>
("Required Insurance") and gas, electric and water utilities, except for the
obligations for the payments of Net Base Rent and Additional Rent; provided,
however, Tenant's entering the Premises prior to the commencement date of the
Lease shall not interfere with Landlord's construction in the Premises.
F. ROOF: Landlord shall not be obligated to replace the roof within the first
Lease year and not until such time that Tenant reasonably determines that
replacement is necessary. Landlord will provide and pay for a new roof at that
time and Tenant shall reimburse Landlord over the remainder of the term for such
replacement cost over a useful life of 20 years at eleven (11%) percent
interest.
G. LEASE ASSUMPTION: Landlord hereby agrees to sublease space from Tenant at
2570 Kasota Avenue, St. Paul, Minnesota. Pursuant to such sublease (see
attached), Landlord shall assume all of Tenant's obligations under such Lease
except the obligation to reimburse Landlord for Tenant Improvements and
obligation to repair damage caused by Tenant and removal of fixtures at the
expiration of the lease term.
In the event Tenant defaults under the lease at 1565 First Avenue NW, Landlord's
obligation under the subtenancy shall immediately cease.
Tenant shall be responsible for all sublease commissions due to Robert C.
Atkinson, Inc.
H. RIGHT OF FIRST REFUSAL: If during the period from August 1, 1997 through July
31, 2012, Landlord desires to sell the existing building located at 1565 First
Avenue NW in New Brighton, Landlord shall deliver written notifications to
Tenant.
Tenant shall have three (3) working days from receipt of such notice to deliver
to Landlord notice that Tenant desires to negotiate and execute a purchase
agreement for the Building.
If Tenant fails to deliver such notice to Landlord within such three (3) day
period or fails to enter into a purchase agreement within twenty (20) days to
Tenant's notice to Landlord, Landlord may sell the Building to the third party.
The Right of First Refusal shall terminate on July 31, 2012.
Initials:
Landlord:_________
Tenant:___________
Exhibit 10.4
SUPPLY AGREEMENT
EFFECTIVE DATE: January 14, 1999
PARTIES: Sparta Foods, Inc.
1565 First Avenue Northwest
New Brighton, MN 55112 ("Sparta")
Rupari Food Services, Inc.
1208 West Newport Center Drive, Suite 100
Deerfield Beach, FL 33442 ("Rupari")
RECITALS:
A. Sparta manufactures and sells Mexican and other food products under
its own trademarks and brand names and also manufactures food products for other
food companies.
B. Sparta is willing to supply such products for Rupari on the terms
and subject to the conditions of this Agreement.
AGREEMENT:
In consideration of the mutual promises set forth herein and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Supply of Products.
1.1. Specifications. Sparta agrees to supply the products
identified on Exhibit A attached hereto (the "Products") at Sparta's
manufacturing facilities pursuant to the terms and conditions of this
Agreement. Sparta agrees to manufacture the Products in accordance with
the written specifications provided by Sparta in writing to Rupari (the
"Specifications"). Sparta agrees to provide Rupari with thirty (30)
days prior written notice of any proposed changes to the
Specifications. Such proposed changes to the Specifications shall be
subject to Rupari's approval, which approval shall not be unreasonably
withheld or delayed. Rupari acknowledges that the recipes for the
Products and manufacturing methods used for manufacturing of the
Products have been developed by and are owned by Sparta and/or its
subcontractor manufacturers.
1.2. Quality Control. Sparta agrees to maintain records of
production runs of Product manufactured for a period of two (2) years
after such manufacture.
<PAGE>
2. Packaging and Inventory.
2.1. Package Design. Sparta shall package the Products using
the packaging design furnished by Sparta and the trademark designated
by Rupari ("Rupari Trademark"). Rupari shall have the right to approve
the final packaging design including the Rupari Trademark, which
approval shall not be unreasonably withheld or delayed. Rupari shall be
entirely responsible for the development and cost of the packaging
design. If Rupari requests any changes to the packaging design or the
type of packaging material used for the Products, Sparta shall not be
required to ship Products utilizing such new design and/or packaging
material until it is actually available to Sparta in quantities
necessary to economically package the Product and the parties have
agreed upon the adjustment, if any, to the purchase price of the
Product due to such requested change in the packaging design and/or
packaging material.
2.2. Packaging Materials. Sparta will order packaging for the
Products from its suppliers according to the minimum order requirements
of such suppliers. The price of such packaging is included in the
purchase price of the Products. Rupari shall pay Sparta Sparta's actual
cost for any extra charges or assessments incurred by Sparta for
less-than-minimum or other non-standard size packaging orders required
by Rupari. Upon termination of this Agreement for whatever reason,
Rupari shall pay to Sparta Sparta's actual cost for any Product
packaging in Sparta's inventory. In addition, Rupari shall pay Sparta
for any Product packaging purchased by Sparta if such packaging becomes
obsolete because it is discontinued by Rupari for any reason.
3. Exclusivity. During the term of this Agreement, Rupari agrees not to
manufacture, or permit any person other than Sparta to manufacture for Rupari or
any affiliate of Rupari for resale, any Product or any other chip and cheese or
chip and salsa combination product. During the term of this Agreement, Sparta
shall be permitted to manufacture and sell the Product to the customers (the
"Customers") identified on Exhibit B attached hereto, as amended from time to
time by mutual written agreement of the parties, at the prices set forth on
Exhibit A (the "Customer Price"). For each sale to a Customer, Sparta shall pay
Rupari fifty percent (50%) of the excess of the Net Customer Price over the
price for the Product as sold to Rupari and set forth on Exhibit A. The "Net
Customer Price" shall equal the Customer Price less associated expenses for
brokers' commissions, freight, promotional allowances and rebates and less
deductions for returned or damaged goods.
4. Purchase of Products.
4.1. Forecasts. Upon execution of this Agreement, Rupari shall
provide Sparta with a twelve (12) month rolling forecast of the
anticipated purchase orders for each of the Products. Rupari agrees to
update such rolling forecast on a monthly basis. Such forecasts shall
be provided in good faith but shall not be legally binding on either
party.
<PAGE>
4.2. Placement of Orders. Rupari shall place its orders for
the Products by delivery by mail or by fax of a written purchase order
to Sparta or by such other method as approved by Sparta from time to
time. The initial purchase order shall be for at least 2,000,000
packages (166,667 cases). Such purchase orders must identify the
Product to be manufactured, the quantity and package size thereof, the
shipping location and shipping instructions, requested delivery dates
and such other information as Sparta may reasonably request from time
to time. Rupari may cancel or modify a purchase order submitted to
Sparta only with Sparta's prior written consent; provided, however, no
consent is needed if such cancellation or modification is delivered to
Sparta prior to Sparta's acceptance of such order. Orders will be
deemed accepted if Sparta does not given Rupari written notice of
rejection of an order within three (3) business days after receipt of
the written order. Rupari may not return Product unless it receives
prior written consent of Sparta. Return of defective Product, however,
shall be governed by the provisions of Section 7.2. Notwithstanding the
above, Sparta agrees to use commercially reasonable efforts to supply
all Products ordered by Rupari within a commercially reasonable time.
4.3. Terms of Orders. The terms and conditions in this
Agreement shall be the exclusive contract terms between the parties and
Rupari's purchase of the Products. Sparta objects to any terms set
forth in Rupari's orders for the Products which are different from or
additional to the provisions of this Agreement, and no such terms shall
be binding upon Sparta unless both parties specifically agree thereto
in a separate writing.
5. Price and Payment.
5.1. Price. The price for the Products are specified on
Exhibit A attached hereto and are FOB Sparta's location. Sparta may
change such prices by delivery of thirty (30) days prior written notice
to Rupari. Any such price increases shall be based upon actual increase
in Sparta's costs associated with the Products, including, without
limitation, cost of ingredients, packaging, labor and overhead
allocation. Sparta shall provide to Rupari, upon request, reasonable
documentation showing its calculations of and supporting information
for any such price change. Rupari shall pay any and all taxes, fees,
duties or other governmental charges and all shipping and shipping
insurance charges relating to the ordered Products.
5.2. Payment. Rupari shall pay Sparta for any Products ordered
directly by Rupari within ten (10) days after the date of invoice. If
Rupari fails to make any payment for Product ordered by it when due,
and such nonpayment continues for a period of five (5) days after
delivery of written notice by Sparta regarding such nonpayment, Sparta
shall have the right to require Rupari to pay all purchase orders for
the Product in advance, by COD, by letter of credit or by any other
means upon notifying Rupari of the change in credit terms.
<PAGE>
5.3. Late Fees and Collection Costs. Any amounts not paid by
Rupari when due will be subject to a late payment fee computed daily at
a rate equal to the lesser of twelve percent (12%) per annum or the
highest rate permitted under applicable usury law. In addition, Rupari
shall be liable to Sparta for all costs incurred by Sparta in its
collection of any amounts owing by Rupari which are not paid when due,
including, without limitation, collection agency fees or reasonable
attorneys' fees and expenses.
6. Delivery and Inspection.
6.1. Delivery. Sparta will deliver the Products using the
carrier designated in the purchase order, or if not so designated, by a
carrier selected by Sparta. Title to and all risk of loss regarding the
Products shall pass to Rupari when Sparta delivers the Products to such
common carrier for shipment to the location designated in the purchase
order.
6.2. Inspection. Rupari or its customer, if a Product is
shipped directly to the customer, shall inspect all Products promptly
upon receipt and either Rupari or the customer shall notify Sparta
within seven (7) working days after receipt of any shortages, damages
or other non-conformance of the shipped Products which is discoverable
upon a visual inspection. After such time period, Sparta shall not be
liable for any non-conformance of the Products which Rupari and/or its
customer could reasonably have discovered within such time period,
excepting for breach of warranty claims.
7. Warranties; Indemnification; Insurance.
7.1. By Rupari. Rupari represents and warrants that it has
full right and title to the Rupari Trademark and the package design and
agrees that Sparta shall have no liability to Rupari or to any third
party for packaging the Products using the Rupari Trademark and the
package design supplied by Rupari. Rupari agrees to indemnify and hold
Sparta harmless from and against any and all claims (including, without
limitation, infringement claims), liabilities, damages, costs and
expenses (including reasonable attorneys' fees and legal expenses)
which Sparta may suffer or incur relating to or arising out of,
directly or indirectly, (i) use of the Rupari Trademark and/or the
package design supplied by Rupari for the Products, (ii) use or
consumption of any of the Products to the extent arising from any
negligent or intentional act or omission of Rupari.
7.2. By Sparta. Sparta warrants to Rupari that the Products
sold under this Agreement shall be manufactured in accordance with the
Specifications and shall be merchantable in accordance with FDA
standards at the time and point of delivery. The exclusive remedy for
<PAGE>
breach of such warranty shall be, at Sparta's option, to either (i)
replace the defective Product or (ii) refund the purchase price of the
defective Product paid by Rupari. Rupari shall promptly notify Sparta
in writing of any alleged breaches of this warranty. Rupari shall not
return to Sparta any alleged defective Product, or take any credits
against its Product invoices for such alleged defective product,
without the prior written authorization of Sparta. EXCEPT AS EXPRESSLY
PROVIDED ABOVE, SPARTA MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS, WHETHER AS TO
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT,
WARRANTIES ARISING FROM COURSE OR DEALING OR ANY OTHER MATTER. No
employee or representative of Sparta shall have any authority to bind
Sparta to any warranty or representation except as expressly stated
above. Rupari shall be exclusively responsible for any warranty or
representation which Rupari makes to any customer. Notwithstanding the
above disclaimers, Sparta agrees to indemnify and hold Rupari harmless
from and against any and all third party claims (including, without
limitation, infringement claims) and any liabilities, damages, costs
and expenses (including reasonable attorneys' fees and legal expenses)
resulting therefrom which Rupari may suffer or incur relating to or
arising out of, directly or indirectly, (i) use of the Specifications
supplied by Sparta for the Products, or (ii) use or consumption of any
of the Products to the extent arising from (A) a breach of the above
warranty or (B) any other manufacturing defect in the Product or any
negligent or intentional act or omissions of Sparta or its employees.
Nothing in this paragraph shall be interpreted to limit Sparta's
liability as manufacturer of the Products to third party consumers.
7.3. Insurance. Sparta shall maintain products liability
insurance covering the Products in a minimum amount of Two Million
Dollars ($2,000,000). Sparta shall provide Rupari with insurance
certificates evidencing such insurance coverage at the request of
Rupari. Rupari shall be named as loss payee and additional insured
under such policies.
8. Independent Contractor Rupari is and shall remain an independent
contractor. Neither this Agreement nor the relationship between the parties
constitutes a partnership, franchise or joint venture between Sparta and Rupari.
Neither party shall have any authority or right under any circumstances
whatsoever to bind or purport to bind the other party in any manner or thing
whatsoever.
9. Confidentiality.
9.1. Definition. The term "Confidential Information" as used
in this Agreement means any information or compilation of information
which is proprietary to one of the parties to this Agreement and
<PAGE>
relates to such party's existing or reasonably foreseeable business,
including, without limitation, trade secrets, the Specifications,
information relating to products of the disclosing party, manufacturing
techniques, recipes, data, marketing strategies, product development,
customer information and any other information about the disclosing
party's business which is normally considered confidential or which is
indicated in writing to be confidential or trade secret. Confidential
Information shall not include any information:
i. which is part of the public domain or becomes part
of the public domain through no fault of the receiving party;
or
ii. which was already in the receiving party's
possession, as evidenced by written documentation, prior to
the disclosure of such information to the receiving party by
the disclosing party; or
iii. which is subsequently disclosed to the receiving
party on a non-confidential basis by a third party who is not
under any obligation of confidentiality relating to such
disclosed information; or
iv. which is specifically authorized by the
disclosing party, in writing, to be disclosed; or
v. which is required to be disclosed by applicable
law or order of a court of competent jurisdiction in which
case the receiving party agrees to notify the disclosing party
of such requirement and to cooperate with the disclosing party
in an effort to narrow or avoid disclosure.
9.2. Nondisclosure. During the term of this Agreement and at
all times thereafter, the receiving party agrees to hold in strictest
of confidence and to never disclose, transfer, convey, make assessable
to any person or use in any way Confidential Information of the
disclosing party for its own or another's benefit or permit the same to
be used in competition with the disclosing party. Rupari agrees to
disclose the Specifications to its employees only on a "need to know"
basis. Upon the request of Sparta, Rupari shall require its employees
who are given access to the Specifications to execute confidentiality
agreements regarding the Specifications. Each party agrees to take
reasonable precautions to prevent its employees, representatives,
agents and others from disclosing or appropriating for their own use
any and all of the Confidential Information of the other party.
10. Term and Termination. This Agreement shall begin on the date
inserted on the front page hereof and shall continue for five (5) years or
unless terminated earlier in any manner provided below:
<PAGE>
10.1. Either party may terminate this Agreement if the other
party commits a breach of this Agreement and fails to remedy such
breach within thirty (30) days after delivery of written notice from
the non-breaching party describing the alleged breach.
10.2. Either party may terminate this Agreement effective
immediately upon delivery of written notice to the other party, if the
other party (i) is unable to pay its debts as they mature or admits in
writing its inability topay its debts as they mature, (ii) makes a
general assignment for the benefit of creditors, (iii) files a
voluntary petition for bankruptcy or has filed against it an
involuntary petition for bankruptcy, or (iv) applies for the
appointment of a receiver or trustee for substantially all of its
assets or permits the assignment of any such receiver or trustee who is
not discharged within a period of thirty (30) days after such
appointment.
11. Effect of Termination.
11.1. Return of Confidential Information. Upon termination of
this Agreement, each party shall, within ten (10) days after the
termination of this Agreement (or such earlier time as request by the
other party), return to the other party all copies of materials and
documents or copies thereof containing any Confidential Information of
the other party.
11.2. Payment Obligations. Upon termination or expiration of
this Agreement:
i. Rupari shall pay Sparta Sparta's actual cost for
any Product packaging in Sparta's inventory as provided in
Section 2.2 above.
ii. If the total of cases of Product purchased by
Rupari and sold by Sparta to Customers prior to the effective
date of termination or expiration of this Agreement is less
than Seven Hundred Eight One Thousand (781,000) cases of
Product, Rupari shall pay Sparta Two and 40/100 Dollars
($2.40) times the shortfall (i.e. calculated by taking 781,000
minus (the number of cases purchased by Rupari from Sparta
plus the number of cases of Product sold by Sparta to
Customers). Such amount shall be payable by Rupari within ten
(10) business days after the effective date of termination or
expiration.
iii. Rupari shall also pay Sparta for all Product
ordered by Rupari prior to the effective date of termination
or expiration and delivered by Sparta in accordance with the
payment terms set forth in Section 5.2.
11.3. Surviving Obligations. Any provisions contained in this
Agreement which by their terms are intended to continue after
termination or expiration of this Agreement shall survive such
termination or expiration, including, without limitation, the
provisions of Sections 5, 7, 9, 11, 12 and 13.
<PAGE>
12. General Provisions.
12.1. Nonassignment; Binding Nature. Neither party shall
transfer or assign any of its rights or obligations under this
Agreement without the other party's prior written consent, except as
part of a merger or to a successor who purchases a controlling interest
in the stock of the party or purchases substantially all of the assets
of the party. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their permitted
successors and assigns. Notwithstanding the above provisions, Sparta
shall have the right to sublicense the manufacturing obligations
hereunder to a third party with Rupari's consent, which shall not be
unreasonably withheld. Sparta shall continue to be primarily liable for
performance under this Agreement.
12.2. Force Majeure. No party to this Agreement will be liable
to any other party or be in breach of this Agreement caused in whole or
in part by any event beyond such party's reasonable control, including
without limitation, acts of God, fire, war, strikes, riots, acts of any
government or any agency or subdivision thereof, transportation delays,
or shortage or inability to secure labor, fuel, energy, raw materials,
supplies or machinery at reasonable prices from regular sources.
12.3. Entire Agreement. This Agreement, together with the
Exhibits, contains the entire contract between the parties as to the
subject matter hereof and supersedes any prior or contemporaneous
written or oral agreements between the parties with respect to the
subject matter hereof.
12.4. Modifications and Waivers. No purported amendment,
modification or waiver of any provision of this Agreement shall be
binding unless set forth in a written document signed by all parties
(in the case of amendments and modifications) or by the party to be
charged thereby (in the case of waivers). Any waiver shall be limited
to the circumstance or event specifically referenced in the written
waiver document and shall not be deemed a waiver of any other term or
provision of this Agreement or of the same circumstance or event upon
any recurrence thereof.
<PAGE>
12.6. Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have
been duly delivered (i) when received if delivered by hand, (ii) the
next business day if placed with a reputable overnight carrier for
delivery on the morning of the next business day or (iii) four (4)
business days after deposit, if placed in the mail for delivery by
registered or certified mail, return receipt requested, postage
pre-paid, and addressed to the appropriate party at the addresses set
forth on the first page hereof. All notices to Sparta should be
addressed to the attention of the Chief Financial Officer. All notices
to Rupari should be addressed to the attention of Robert Mintz. If
either party should change its address, such party shall give written
notice of the other party of the new address in the manner set forth
above, but any such notice shall not be effective until received by the
addressee.
12.7. Severability. In the event that any provision, or
portion thereof, is held to be unenforceable by final order of any
court of competent jurisdiction, such provision, or portion thereof,
shall be severed herefrom without effecting the validity or
enforceability of the remaining provisions.
12.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota,
without application of its conflict of laws provisions.
13. Dispute Resolution.
13.1. Sparta and Rupari have entered into this Agreement in
good faith and in the belief that it is mutually advantageous to them.
It is with that same spirit of cooperation that these parties pledge to
attempt to resolve any dispute amicably, without the necessity of
litigation. Accordingly, the parties agree that if any dispute
("Dispute") arises between them concerning this Agreement, other than
an action to enjoin the unauthorized disclosure of confidential or
proprietary information, the parties will make a good faith attempt to
resolve the Dispute by alternative dispute resolution (ADR) prior to
commencing any legal action to interpret or enforce this Agreement. The
ADR procedures set forth in this Article 13 apply strictly to disputes
arising directly out of each party's obligations set forth in this
Agreement.
13.2. Without limiting the scope or method of ADR to be
employed by subsequent mutual agreement, the parties agree and commit
to the following efforts at a minimum:
<PAGE>
i. The party seeking to initiate the ADR (the
"Initiating Party") shall give written notice to the other
party or parties involved in the dispute. The notice must
describe in general terms the nature of the Dispute and the
Initiating Party's claim for relief and identifying one or
more individuals with authority to settle the Dispute on such
party's behalf. The party receiving such notice (the
"Responding Party") shall have ten (10) days within which to
designate one or more individuals with authority to settle the
Dispute on such Party's behalf. (The individuals so designated
shall be known as the "Authorized Individuals").
ii. The Authorized Individuals shall meet promptly,
but in no event later than thirty (30) days from the date of
the Notice of Dispute. If the Dispute has not been resolved
within thirty (30) days from the date of their initial
meeting, the Initiating Party or Responding Party may request
that ADR be ended in which case the parties may then pursue
available legal remedies.
iii. ADR attempts under this Agreement are considered
a compromise negotiation for purposes of the Federal and State
Rules of Evidence and shall constitute privileged
communication. The entire ADR process is confidential and no
stenographic, visual or audio record will be made.
13.3. All conduct, statements, promises offers, views and
opinions, whether oral or written, made in the course of the ADR
process by any party, by their agents, employees, representatives or
other invitees and by the mediator are confidential and shall, in
addition and where appropriate, be deemed to be privileged. Such
conducts, statements, promises, offers, views and opinions shall not be
discoverable or admissible for any purposes including impeachment, in
any litigation or other proceeding involving the parties, and shall not
be disclosed to anyone not an agent, employee, expert, witness or
representative of any of the parties; provided, however, that evidence
otherwise discoverable or admissible shall not be excluded from
discovery or admission as a result of its use in the mediation.
The parties have executed this Agreement, in the manner appropriate to
each, to be effective as of the date on the first page hereof.
SPARTA FOODS, INC. RUPARI FOOD SERVICE, INC.
By /s/ Joel P. Bachul By /s/ Robert Mitz
Its President and CEO Its President
Exhibit 10.5
CHANGE OF CONTROL
EXECUTIVE SEVERANCE PAY AGREEMENT
DATE: April 1, 1999
PARTIES:
Sparta Foods, Inc. ("Sparta")
1565 First Avenue NW
New Brighton, MN 55112
Craig Cram ("Executive")
16829 Toronto Avenue
#103
Prior Lake, MN 55372
RECITALS:
A. Executive has been employed by Sparta since September 4, 1998 as
Executive Vice President of Sales and Operations, has extensive knowledge and
experience relating to Sparta's business and has contributed to Sparta's
success.
B. The general purposes of this Agreement are:
1. To provide Executive with severance pay if a "Termination"
(as defined below) of Executive's employment with Sparta or a successor
of Sparta occurs within twelve (12) months of a "Change of Control" (as
defined below) of Sparta; and
2. To provide security to Executive in order to facilitate
Executive's retention and ensure an orderly transition to a successor
owner.
C. The parties desire to enter into this Agreement.
AGREEMENTS:
In consideration of the mutual covenants set forth herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence on the date set
forth above and shall continue in effect until the first anniversary of the date
<PAGE>
set forth above and shall continue for consecutive one year periods until
terminated by either party pursuant to the terms of this Agreement; provided,
however, that if a Change of Control of Sparta shall occur during the term of
this Agreement, this Agreement shall continue in effect for a period of twelve
(12) months beyond the date of such Change of Control. Any rights and
obligations accruing before the termination or expiration of this Agreement
shall survive to the extent necessary to enforce such rights and obligations.
2. "Change of Control." LaCanasta of Minnesota, Inc. ("LaCanasta") is a
wholly owned subsidiary of Sparta. For purposes of this Agreement, "Change of
Control" shall mean any of the following events occurring after the date of this
Agreement:
A. A merger, consolidation, stock sale, stock exchange, or
other reorganization to which Sparta or LaCanasta is a party if the
individuals and entities who were shareholders of Sparta immediately
prior to the effective date of such merger or consolidation have,
immediately following the effective date of such merger or
consolidation beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) less than fifty percent (50%) of the
total combined voting power of all classes of securities issued by the
surviving corporation for the election of directors of the surviving
corporations;
B. The sale of substantially all the assets of Sparta or
LaCanasta to any person or entity other than a sale to a corporation or
other entity with respect to which a majority of the shareholders of
Sparta immediately prior to such sale own a majority of the combined
voting power of all classes of securities of the purchasing person or
entity for the election of directors of the purchasing person or
entity;
C. The sale of a majority of the outstanding shares of
LaCanasta to any person or entity which is not a wholly-owned
subsidiary of Sparta or LaCanasta;
D. The direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of
Sparta representing, in the aggregate, a majority of the combined
voting power of all classes of Sparta's then issued and outstanding
securities by any person or entity or by a group of associated persons
or entities acting in concert; or
E. A change in the composition of the Board of Directors of
Sparta or LaCanasta at any time during any consecutive twenty-four (24)
month period such that the "Continuity Directors" cease for any reason
to constitute at least a seventy percent (70%) majority of the Board.
For purposes of this event, "Continuity Directors" means those members
of the Board who either:
(1) were directors at the beginning of such consecutive
twenty-four (24) month period; or
<PAGE>
(2) were elected by, or on the nomination or
recommendation of, at least a two thirds (2/3)
majority of the then-existing Board of Directors.
3. Termination. For purposes of this Agreement, "Termination" shall
mean any of the following events occurring within twelve (12) months after a
Change of Control occurring during the term of this Agreement:
A. The termination of Executive's employment by Sparta for any
reason other than "Good Cause." Executive will not be deemed to have
been terminated for "Good Cause" under this paragraph 3.A. unless and
until Sparta's Chairman of the Board or his designee provides Executive
written notice stating that, in his good faith judgment, Executive has
engaged in conduct constituting "Good Cause" for termination and
setting forth a brief statement of the underlying conduct leading to
that conclusion. Notice shall be deemed to have been given when
delivered personally to Executive or Executive's last known address.
For purposes of this Agreement, Good Cause shall include, but not be
limited to, the following:
i. Conduct by Executive that is materially
detrimental to Sparta's business reputation or goodwill;
ii. Any dishonesty in dealing between Executive and
Sparta or between Executive and Sparta's vendors, advisors,
other employees, or customers;
iii. Executive's active use of alcohol or controlled
substances in a manner which impairs Executive's ability to
perform his duties;
iv. Executive's refusal to comply with Sparta's
directives, rules, regulations, or policies;
v. Executive's violation of any material provision of
this Agreement;
vi. If Executive is convicted, pleads guilty, or
enters a plea of nolo contendere of any crime punishable as a
felony or any other crime involving moral turpitude or immoral
conduct; and
vii. Employee's failure to substantially perform his
material duties, which failure is not cured within sixty (60)
days after Employee's receipt of written notice from Sparta's
Chairman of the Board of Directors specifying the
non-performance.
B. The termination of employment with Sparta by Executive for
Any Reason. Such termination shall be accomplished by, and be
effective upon, Executive giving written notice to Sparta of
his decision to terminate.
<PAGE>
4. Compensation and Benefits. Subject to the limitations contained in
Paragraph 6 below, upon a Termination, Executive shall be entitled to the
following compensation and benefits:
A. Sparta shall pay to Executive:
i. All salary and other compensation including
vacation and bonus earned by Executive through the date of the
Termination at the rate in effect immediately prior to such
Termination;
ii. All other amounts which Executive may be entitled
to receive under any compensation plan maintained by Sparta,
subject to any distribution requirements contained in such
compensation plans;
iii. A severance payment determined as follows:
(a) If such Termination occurs after a
Change of Control, such severance payment shall be
equal to two (2) times Executive's base annual salary
(excluding any amounts earned or paid under any
long-term incentive compensation plan) in effect
immediately prior to termination. By illustration, if
the annual base salary in effect on the termination
date is $60,000, Executive will be entitled to
$120,000. Executive shall also receive payment for
any unpaid reimbursements of Executive's
out-of-pocket business expenses incurred by Executive
during the regular performance of his duties upon
providing receipts or other written verification of
such business expenses to Sparta;
(b) Sparta shall pay Executive his severance
payment bi-weekly in 52 payments; and
(iv) All bonuses and incentive compensation, which
Executive was receiving or entitled to receive immediately
prior to Termination, for two years from the date of the
Termination and payable on the date in which such bonuses or
other compensation was schedule to be paid to Executive.
B. Sparta shall continue to provide Executive with coverage
under life, health, dental or disability benefit plans at a level
comparable to the benefits which Executive was receiving or entitled to
receive immediately prior to the Termination or, if greater, at a level
comparable to the benefits which Executive was receiving immediately
prior to Termination. Such coverage shall continue for twenty four (24)
months following such Termination or, if earlier, until Executive is
eligible to be covered for such benefits through his employment with
another employer. Sparta may, in its sole discretion, provide such
coverage through the purchase of individual insurance contracts for
Executive.
<PAGE>
C. All Sparta stock options granted to Executive shall
immediately vest immediately prior to the effective date of a Change of
Control.
5. Acknowledgments. Sparta and Executive agree, understand and
acknowledge that: (i) Sparta informed Executive, as part of the offer of this
Agreement, that confidentiality provisions would be required as part of the
terms and conditions of this Agreement; (ii) that Sparta has a legitimate and
proprietary interest in protecting its customer goodwill and proprietary
information; (iii) proprietary interests; and (iv) there is no adequate remedy
at law that will adequately compensate Sparta in the event Executive breach the
provisions of this Paragraph 5.
A. Confidentiality. "Confidential Information" as used in this
Agreement means any information or compilation of information about
Sparta's existing or reasonably foreseeable business that is not
generally known or readily ascertainable by proper means by Sparta's
competitors or the general public, including but not limited to, trade
secrets and financial information. Sparta's Confidential Information
also includes the identities of actual or potential customers and the
fact that they are working or considering doing business with Sparta,
the nature of the business with or by Sparta for the actual or
potential customer, and any other information about any actual or
potential customer of Sparta. During the period of Executive's
employment and during the two year period following receipt of a
severance payment upon Termination as defined in this Agreement,
Executive agrees to hold in strictest confidence and not to disclose
Sparta's Confidential Information to any person or entity or to use
Sparta's Confidential Information for Executive's own benefit or for
the benefit of another except as necessary in the execution of
Executive's official duties as an Executive of Sparta or as required by
law.
B. Return of Property. Upon termination of Executive's
employment for any reason, Executive agrees to promptly deliver to
Sparta all of Sparta's property, including but not limited to all
equipment, originals and copies of documents and software, customer
lists, financial information, and all other material in Executive's
possession or control which belongs to Sparta or contains Sparta's
Confidential Information.
C. Enforcement and Remedies. Sparta and Executive acknowledge
and agree that if Executive breaches the terms of this Paragraph 5
Sparta, in addition to any other remedies available at law or equity,
shall be entitled, as a matter of right, to injunctive relief in any
court of competent jurisdiction, plus reasonable attorneys' fees and
all costs and expenses for securing such relief.
6. Limitation on Change of Control Payments. It is the intention of
Sparta and Executive that payments of severance under this Agreement will not be
treated as "parachute payments" within the meaning of Sections 280G(b)(2) and
280G(b)(5) of the Internal Revenue Code of 1986, as amended ("the Code").
Amounts otherwise payable under Paragraph 4.A.iii. of this Agreement are
conditioned upon:
<PAGE>
A. Satisfying the requirements for the compensation deduction
under Section 280G of the Code.
7. Withholding Taxes. Sparta shall be entitled to deduct from all
payments or benefits provided for under this Agreement any federal, state or
local income and employment-related taxes required by law to be withheld with
respect to such payments or benefits.
8. Successors and Assigns. Executive's right to receive payments or
benefits under this Agreement shall not be assignable or transferable, whether
by pledge, creation of a security interest or otherwise, other than a transfer
by will or by the laws of descent of distribution. In the event of any attempted
assignment or transfer by Executive contrary to this Paragraph 8, Sparta shall
have no liability to pay any amount so attempted to be assigned or transferred.
This Agreement shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall be binding upon and
inure to the benefit of Sparta, and its successors and assigns including,
without limitation, any company into or with which Sparta may merge or
consolidate. Reference to Chairman in this Agreement shall apply equally to the
Chairman, or chief executive officer in absence of a chairman, to any successor
entity to Sparta.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the last known address of the other party. All notices to Sparta
shall be directed to the attention of the Board of Directors of Sparta.
10. Captions. The headings or captions set forth in this Agreement are
for convenience only and shall not affect the meaning or interpretation of this
Agreement.
11. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Minnesota except to the extent federal law controls.
12. Construction. Wherever possible, each term and provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. If any term or provision of this Agreement is invalid or
unenforceable under applicable law, (a) the remaining terms and provisions shall
be unimpaired, and (b) the invalid or unenforceable term or provision shall be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the unenforceable term or
provision.
13. Amendment; Waivers. This Agreement may not be modified, amended,
waived or discharged in any manner except by an instrument in writing signed by
both parties hereto. The waiver by either party of compliance with any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any other provision of this Agreement, or of any subsequent breach by
such party of a provision of this Agreement.
<PAGE>
14. Employment-at-Will. Executive acknowledges and agrees,
notwithstanding this Agreement, that Executive's employment with Sparta
continues to be in the status of employment-at-will and subject to the policies
and practices otherwise applicable to Sparta's employees. Executive understands
that this Agreement does not give him any rights to, or impose any obligations
on him with respect to, continued employment with Sparta. Executive further
understands and agrees that his employment with Sparta shall terminate as
follows:
A. Sparta may immediately terminate his employment for Good
Cause upon written notice to Executive and, in that event, Sparta shall
only be obligated to pay Executive his base salary through the date of
termination. If terminated for Good Cause, Executive understands and
agrees that he shall not be entitled to any severance pay pursuant to
this Agreement or otherwise, and he shall not be entitled to payment of
any short-term incentive compensation as may have otherwise been agreed
upon between the parties.
B. In addition, either Executive or Sparta may terminate
Executive's employment for any reason upon ninety (90) days' written
notice to the other. In the event Sparta terminates Executive's
employment pursuant to this paragraph, Executive shall be entitled to
any applicable severance pay pursuant to this Agreement and shall be
entitled to a pro-rata share of any short-term or long-term incentive
compensation as may have otherwise been agreed upon between the
parties.
15. Entire Agreement. This Agreement supersedes all prior or
contemporaneous negotiations, commitments, agreements (written or oral) and
writings between Sparta and Executive with respect to the subject matter hereof
and constitutes the entire agreement and understanding between the parties
hereto. All such other negotiations, commitments, agreements and writings will
have no further force or effect, and the parties to any such other negotiation,
commitment, agreement or writing will have no further rights or obligations
thereunder.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
17. Arbitration. Any dispute arising out of or relating to this
Agreement, except as relates to Section 5, or the alleged breach of it, or the
making of this Agreement, including claims of fraud in the inducement, shall be
discussed between the disputing parties in a good faith effort to arrive at a
mutual settlement of any such controversy. If, notwithstanding, such dispute
cannot be resolved, such dispute shall be settled by binding arbitration.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or federal
judge or an attorney who has practiced corporate or business litigation for at
least 10 years. If the parties cannot agree on an arbitrator within 20 days, any
party may request that the chief judge of the District Court for Hennepin
County, Minnesota, select an arbitrator. Arbitration will be conducted pursuant
to the provisions of this Agreement, and the commercial arbitration rules of the
American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement. Limited civil discovery shall be permitted for the
production of documents and taking of depositions. Unresolved discovery disputes
<PAGE>
may be brought to the attention of the arbitrator who may dispose of such
dispute. The arbitrator shall have the authority to award any remedy or relief
that a court of this state could order or grant; provided, however, that
punitive or exemplary damages shall not be awarded. The arbitrator may award to
the prevailing party, if any, as determined by the arbitrator, all of its costs
and fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SPARTA FOODS, INC.
By: /s/ Michael Kozlak
Its Chairman of the Board
EXECUTIVE
/s/ Craig Cram
Craig Cram
Exhibit 10.6
SALARY CONTINUATION AGREEMENT
AMENDMENT NO.1
This amendment No. 1 to the Salary Continuation Agreement (the "Amended
Agreement") is dated and effective as of April 1, 1999 by and between Sparta
Foods, Inc. ("Sparta") and Joel P. Bachul ("Employee")
RECITALS
Sparta and Employee entered into a Salary Continuation Agreement dated
August 16, 1995 (the "Agreement")
Sparta and Employee desire to amend the Agreement to replace the
definition of "Change of Control" in order to broaden such definition to cover
the variety of forms a change of control of Sparta may occur and provide
Employee with the benefits the Agreement is intended to provide;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
All capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Agreement.
The definition of "Change of Control" under "DEFINITION" is hereby
replaced in its entirety with the following definition:
1. Change of Control. LaCanasta of Minnesota, Inc. ("LaCanasta") is a
wholly owned subsidiary of Sparta. "Change of Control" shall mean any of the
following events occurring after the date of the Agreement:
A. A merger, consolidation, stock sale, stock exchange, or
other reorganization to which Sparta or LaCanasta is a party if the
individuals and entities who were shareholders of Sparta immediately
prior to the effective date of such merger or consolidation have,
immediately following the effective date of such merger or
consolidation beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) less than fifty percent (50%) of the
total combined voting power of all classes of securities issued by the
surviving corporation for the election of directors of the surviving
corporations;
<PAGE>
B. The sale of substantially all the assets of Sparta or
LaCanasta to any person or entity other than a sale to a corporation or
other entity with respect to which a majority of the shareholders of
Sparta immediately prior to such sale own a majority of the combined
voting power of all classes of securities of the purchasing person or
entity for the election of directors of the purchasing person or
entity;
C. The sale of a majority of the outstanding shares of
LaCanasta to any person or entity which is not a wholly-owned
subsidiary of Sparta or LaCanasta;
D. The direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of
Sparta representing, in the aggregate, a majority of the combined
voting power of all classes of Sparta's then issued and outstanding
securities by any person or entity or by a group of associated persons
or entities acting in concert; or
E. A change in the composition of the Board of Directors of
Sparta or LaCanasta at any time during any consecutive twenty-four (24)
month period such that the "Continuity Directors" cease for any reason
to constitute at least a seventy percent (70%) majority of the Board.
For purposes of this event, "Continuity Directors" means those members
of the Board who either:
(1) were directors at the beginning of such consecutive
twenty-four (24) month period; or
(2) were elected by, or on the nomination or
recommendation of, at least a two thirds (2/3)
majority of the then-existing Board of Directors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SPARTA FOODS, INC.
By: /s/ Michael Kozlak
Its Chairman of the Board
EMPLOYEE
/s/ Joel P. Bachul
Joel P. Bachul
Exhibit 10.7
SALARY CONTINUATION AGREEMENT
AMENDMENT NO.1
This amendment No. 1 to the Salary Continuation Agreement (the "Amended
Agreement") is dated and effective as of April 1, 1999 by and between Sparta
Foods, Inc. ("Sparta") and A. Merrill Ayers ("Employee")
RECITALS
Sparta and Employee entered into a Salary Continuation Agreement dated
August 16, 1995 (the "Agreement")
Sparta and Employee desire to amend the Agreement to replace the
definition of "Change of Control" in order to broaden such definition to cover
the variety of forms a change of control of Sparta may occur and provide
Employee with the benefits the Agreement is intended to provide;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
All capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Agreement.
The definition of "Change of Control" under "DEFINITION" is hereby
replaced in its entirety with the following definition:
1. Change of Control. LaCanasta of Minnesota, Inc. ("LaCanasta") is a
wholly owned subsidiary of Sparta. "Change of Control" shall mean any of the
following events occurring after the date of the Agreement:
A. A merger, consolidation, stock sale, stock exchange, or
other reorganization to which Sparta or LaCanasta is a party if the
individuals and entities who were shareholders of Sparta immediately
prior to the effective date of such merger or consolidation have,
immediately following the effective date of such merger or
consolidation beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) less than fifty percent (50%) of the
total combined voting power of all classes of securities issued by the
surviving corporation for the election of directors of the surviving
corporations;
<PAGE>
B. The sale of substantially all the assets of Sparta or
LaCanasta to any person or entity other than a sale to a corporation or
other entity with respect to which a majority of the shareholders of
Sparta immediately prior to such sale own a majority of the combined
voting power of all classes of securities of the purchasing person or
entity for the election of directors of the purchasing person or
entity;
C. The sale of a majority of the outstanding shares of
LaCanasta to any person or entity which is not a wholly-owned
subsidiary of Sparta or LaCanasta;
D. The direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of securities of
Sparta representing, in the aggregate, a majority of the combined
voting power of all classes of Sparta's then issued and outstanding
securities by any person or entity or by a group of associated persons
or entities acting in concert; or
E. A change in the composition of the Board of Directors of
Sparta or LaCanasta at any time during any consecutive twenty-four (24)
month period such that the "Continuity Directors" cease for any reason
to constitute at least a seventy percent (70%) majority of the Board.
For purposes of this event, "Continuity Directors" means those members
of the Board who either:
(1) were directors at the beginning of such consecutive
twenty-four (24) month period; or
(2) were elected by, or on the nomination or
recommendation of, at least a two thirds (2/3)
majority of the then-existing Board of Directors.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SPARTA FOODS, INC.
By: /s/ Michael Kozlak
Its Chairman of the Board
EMPLOYEE
/s/ A. Merrill Ayers
A. Merrill Ayers
Exhibit 10.8
REVISED LICENSE AGREEMENT
THIS REVISED LICENSE AGREEMENT (this "Agreement") is made and entered
into the 1st day of January, 1999 by and among Atlas International Food and
Equipment Company, Inc., a corporation organized and operated under the laws of
the State of North Dakota with its principal offices at 3330 Fiechtner Drive,
Fargo, North Dakota (hereinafter referred to as "LICENSOR"); Mexican Foods,
Inc., a corporation organized and operated under the laws of the State of North
Dakota with its principal offices at 3330 Fiechtner Drive, Fargo, North Dakota
(hereinafter referred to as "Mexican Foods"); Sparta Foods, Inc., a corporation
organized and operated under the laws of the State of Minnesota with its
principal offices at 1565 First Avenue NW, New Brighton, Minnesota (hereinafter
referred to as "LICENSEE"); and La Canasta of Minnesota, Inc., a wholly owned
subsidiary of LICENSEE and a corporation organized and operated under the laws
of the State of Minnesota with its principal offices at 1565 First Avenue NW,
New Brighton, Minnesota (hereinafter referred to as "La Canasta").
WHEREAS, LICENSOR is the owner of the federally registered trademark
"La Campana Paradiso(R)" for use with the manufacture and sale of tortilla
shells and chips; the federally registered trademark "Paradiso(R)" for use with
the manufacture and sale of salsa, tortilla chips, flour tortillas, corn
tortillas and wheat tortillas; and the federally registered service mark
"Paradiso(R)" for use in connection with the operation of Mexican-style
restaurants, such federally registered trademarks and service marks being
registered only in the United States; and
WHEREAS, LICENSEE is manufacturing and selling certain food products
under the trademark "La Campana Paradiso(R)" and the tradename "Paradiso"
pursuant to the terms of that certain License Agreement between La Canasta and
Mexican Foods dated October 28, 1993 (the "Prior License Agreement"); and
WHEREAS, LICENSOR and LICENSEE desire to terminate the Prior License
Agreement and enter into a revised license agreement;
IT IS THEREFORE AGREED:
1. The Prior License Agreement is hereby terminated in all respects and
is superceded by this Revised License Agreement. LICENSOR hereby grants to
LICENSEE, except as hereinafter provided, the exclusive right and license in the
United States of America, and non-exclusive worldwide right, to use the
trademarks "La Campana Paradiso(R)" and "Paradiso(R)" and the tradename
"Paradiso" (which trademarks and tradenames are collectively referred to as the
"Trademarks") in connection with the manufacture and/or sale of tortillas (corn
and flour) and fried chips, and in connection with the manufacture and/or sale
of burritos, dips, salsa and other "Mexican Foods" (which for the purposes of
this Agreement shall mean foods associated with the Mexican culture), all for
retail distribution (which such tortillas, fried chips, burritos, dips, salsa,
and other Mexican Foods manufactured and/or sold under the Trademarks are
hereinafter collectively referred to as the "Products").
<PAGE>
Notwithstanding the exclusive license granted hereunder, LICENSOR may
use or license the Trademarks in connection with (a) the manufacture and sale of
Mexican Foods (except packaged tortillas and chips) by LICENSOR or by any
affiliate of LICENSOR to or between restaurants now or in the future owned,
operated or franchised by LICENSOR or by any affiliate of LICENSOR, or from such
restaurants to retail customers; (b) the manufacture and sale of salsa and dip
under the brandnames "La Campana Paradiso(R)" or "Paradiso(R)" in North Dakota
and in the counties of Clay, Becker, Wilkin, Otter Tail, Grant, Douglas and Todd
in the State of Minnesota; and (c) all other purposes except as specifically
granted to LICENSEE in this Agreement.
2. As full consideration for the right and license granted to LICENSEE
hereunder, LICENSEE shall pay to LICENSOR a royalty based upon LICENSEE's "Gross
Sales," which for the purposes of this Agreement shall mean the gross amount
received by LICENSEE in a calendar year from all sales of the Products
calculated on an accrual basis of accounting, less any allowances for cash
discounts and other trade and quantity discounts, credits under warranty,
credits for returns, sales, use and excise taxes, insurance, and freight and
other transportation costs. The amount of the royalty due shall be calculated as
follows: three percent (3%) on the first five million dollars ($5,000,000) of
Gross Sales and two and one-half percent (2.5%) on the amount of Gross Sales
between five million one dollars ($5,000,001) and ten million dollars
($10,000,000) and two percent (2%) on the amount of Gross Sales over ten million
dollars ($10,000,000) (The royalty percentages shall be applied incrementally to
the corresponding range of Gross Sales. For example, if LICENSEE's Gross Sales
were $12,000,000, the royalty paid would be $315,000, calculated as follows:
($5,000,000 x .03) + ($5,000,000 x .025) + $2,000,000 x .02) = $315,000.).
3. LICENSEE shall keep complete and accurate accounting and sales
records for the Products and shall render a statement in writing to LICENSOR
within thirty (30) days after the end of each calendar quarter during the term
of this Agreement, and shall, concurrently with the rendering of such statement,
pay to LICENSOR the amount of the royalties accrued during the corresponding
calendar quarter. If LICENSEE fails to make any royalty payment when due, then
the amount of the unpaid royalty payment shall bear simple interest at one
percent (1%) per month until paid. LICENSEE shall reimburse LICENSOR for all
costs of collection (including court costs and reasonable attorneys' fees)
incurred by LICENSOR in collecting or attempting to collect past due royalties
from LICENSEE.
LICENSOR shall have the right, at its own expense (except as set forth
below), and at all reasonable times during normal working hours, to audit the
books and records of LICENSEE to verify the royalty statements and royalties due
LICENSOR pursuant to this Agreement, provided, however, that such audit shall
extend back no more than the earlier of 1) two years from the date the audit was
started or 2) the Effective Date of this Agreement. If such an audit by LICENSOR
reveals an underpayment between the royalty amount due to LICENSOR and the
royalty amount actually paid to LICENSOR by LICENSEE, upon receipt of
documentation of such underpayment the LICENSEE shall immediately pay to
LICENSOR the deficiency, and accrued interest thereon as provided for herein. If
an audit by LICENSOR reveals that royalties due to LICENSOR were underpaid by
five percent (5%) or more in any calendar quarter, then LICENSEE shall, in
addition to the deficiency and accrued interest, pay LICENSOR all costs and
expenses (including travel, lodging and employee salaries) incurred by LICENSOR
in conducting the audit of LICENSEE's books and records.
<PAGE>
4. LICENSEE shall attain and maintain high standards of quality in the
production, packaging and handling of the Products, including by conforming to
specified formulations approved by LICENSOR in writing, using quality
ingredients, operating sanitary production facilities, and maintaining a quality
control program. LICENSOR shall have the right, at its own expense and at all
reasonable times during normal working hours, to inspect and test the Products
and LICENSEE's manufacturing facilities and processes to ensure that the
Products and processes meet the reasonable quality standards of LICENSOR. If
LICENSEE shall contract for a third party to manufacture the Products, LICENSOR
shall have the right to inspect, at reasonable times during normal working
hours, the third party's facilities used to manufacture such Products. LICENSOR
acknowledges that LICENSEE's production, packaging and handling of the Products
to date have conformed to LICENSOR's standards and agrees that so long as
LICENSEE's production, packaging and handling of the Products (or the
production, packaging or handling of a third party contractor under LICENSEE's
direction) meets or exceeds LICENSEE's practices to date, LICENSOR shall have no
right to object to the quality of LICENSEE's production, packaging or handling
of the Products.
5. LICENSOR represents and warrants to LICENSEE that, notwithstanding
any implication to the contrary in Mexican Foods' 1 August 1996 agreement with
Sun Garden regarding the mark PARADISO: (a) it is the owner of the Trademarks;
(b) it has the right to grant this license to LICENSEE; and (c) any use of the
Trademarks by LICENSEE within the scope of this license would not infringe any
rights of any third party. LICENSOR shall, to the extent allowed by law, file
any renewal applications for the Trademarks necessary to continue the existing
federal trademark registrations of the Trademarks. LICENSEE's obligation to pay
royalties under this Agreement shall automatically terminate upon LICENSOR's
failure to renew the existing federal registrations for any of the Trademarks
which is actively in use at the time such renewal becomes due.
By 1 January 2000, LICENSOR shall file, and shall thereafter diligently
prosecute, applications with the United States Trademark Office to federally
register as word marks PARADISO and LA CAMPANA PARADISO, each for use in
connection with at least tortillas, tortilla chips and salsa. LICENSOR shall at
all times keep LICENSEE apprised of the status of such applications, including
promptly providing LICENSEE copies of all correspondence filed with or received
from the United States Trademark Office regarding such applications.
If notice is received by either party charging that sale of any
Product(s) infringes any trademark right of any third party in the United States
of America, the party receiving such notice will promptly notify the other party
to this Agreement. If either party knows or has reason to believe that any third
party is using any Trademark or any mark confusingly similar thereto in
connection with the manufacture or sale of Mexican Foods in the United States of
America, the party possessing such knowledge or belief shall promptly notify the
other party to this Agreement. If, within one hundred eighty (180) days after
<PAGE>
first obtaining such knowledge or belief concerning infringement, LICENSOR fails
to provide LICENSEE with written documentation showing that it has stopped such
third party's activities or initiated judicial proceedings against the third
party, LICENSEE's obligation to pay any royalties which would otherwise be due
LICENSOR under this Agreement will be abated, no such royalties shall accrue for
any sales made and LICENSOR shall have no right to terminate this Agreement
under Section 6(b) for failure to pay any Minimum Annual Royalty, for the term
during which such infringement continues.
6. The license granted under this Agreement shall be from the date
hereof and shall terminate on December 31, 2014, subject to LICENSOR's right to
terminate this Agreement upon giving LICENSEE written notice of termination and
the opportunity and right to cure within thirty (30) days from receipt of
written notice of termination:
(a) If LICENSEE fails to make any payment of royalties to LICENSOR
as herein provided;
(b) If LICENSEE fails to pay a Minimum Annual Royalty to the
LICENSOR, provided that if the royalties calculated under
Section 2 are less than the Minimum Annual Royalty for any
given year, LICENSEE shall have the right, but not the
obligation, to pay the difference between the royalties due
under Section 2 and such Minimum Annual Royalty. The Minimum
Annual Royalties under this Agreement, calculated on the
accrual basis of accounting, are as detailed in the following
schedule:
Calendar Year Ended Minimum Annual Royalty
2000 through 2003 $ 30,000
2004 through 2008 $ 60,000
2009 through 2013 $ 90,000
2014 $150,000;
(c) If one or more of the Products are of such quality as to
disparage the Trademarks;
(d) If LICENSEE's use of the Trademarks is not consistent with at
least one of LICENSOR's federal registrations of the
Trademarks, provided that LICENSOR acknowledges that
LICENSEE's current packaging employs a variant of the stylized
marks of US Trademark Registration No.s 1,621,485 and
1,557,377 (the "Existing Registrations") and that LICENSEE
shall have until 1 December 1999 to exhaust all current
inventory of packaging, promotional literature and the like
before it shall be obligated to begin using either of the
stylized marks listed in the Existing Registrations.
(e) If LICENSEE violates any material provision, term or condition
of this Agreement.
<PAGE>
Notwithstanding the above, LICENSOR may immediately terminate this
Agreement, effective upon written notice to LICENSEE, without providing LICENSEE
any opportunity to cure, if: (a) LICENSEE files a petition in bankruptcy; (b)
LICENSEE is adjudicated a bankrupt; (c) a petition in bankruptcy is filed
against LICENSEE; (d) LICENSEE becomes insolvent or makes an assignment for the
benefit of any of its creditors or an arrangement pursuant to any bankruptcy
law; or (e) a receiver is appointed for LICENSEE or its business; or (f)
LICENSEE discontinues operating its business.
Upon the termination of this Agreement for any reason, LICENSEE shall
immediately discontinue use of the Trademarks on all of its advertising and
other materials and shall cease producing any additional Product, but LICENSEE
shall be allowed to sell off any inventory of Product so long as the Agreement
is not terminated under paragraph (c) above. Termination of this Agreement shall
not relieve LICENSEE of its obligation to pay any royalties due hereunder.
7. Any notice given pursuant to the terms of this Agreement shall be
addressed to the parties hereto at the addresses referred to in the first
paragraph of this Agreement and shall be effectively delivered one (1) business
day after placement with a reputable overnight delivery service for next morning
delivery or four (4) business days after placement with the U.S. mail for
delivery by registered or certified mail, return receipt requested, postage
prepaid.
8. LICENSEE may not assign any of its rights and interests created by
this Agreement to any individual or entity without the written consent of
LICENSOR, which will not be unreasonably withheld. LICENSOR may assign its
rights and interests under this Agreement to any third party upon written notice
to LICENSEE.
9. All rights in and to the Trademarks other than those specifically
granted to LICENSEE under this Agreement are reserved to LICENSOR for its own
use and benefit. LICENSEE does not acquire by virtue of anything in this
Agreement any ownership or rights of any kind in any of the Trademarks, which
shall always be the exclusive property of LICENSOR. LICENSEE's use of the
Trademarks under this Agreement will inure exclusively to the benefit of
LICENSOR. LICENSEE shall use the Trademarks only in the manner specified by this
Agreement.
10. All of the Products bearing a federally registered Trademark shall
reflect the fact that such mark is federally registered.
11. The formulations which have been provided by LICENSOR to LICENSEE
for burritos, dips, salsas and sauces, and all additional formulations for any
Mexican Foods which may in the future be provided by LICENSOR to LICENSEE, are
and will always be the sole and exclusive property of LICENSOR. The formulations
for any Products sold by LICENSEE during the term of this Agreement shall and
will always be the sole and exclusive property of LICENSOR. LICENSEE agrees to
hold all such formulations confidential, shall not disclose any such
formulations to any third party without first apprising the third party of the
obligation to hold such formulations confidential, and shall, upon the
termination or expiration of this Agreement, immediately cease the use of all
such formulations. LICENSOR acknowledges, however, that LICENSEE is entitled to
sell the Products and to include on the packaging such information regarding the
formulation of the Products as LICENSEE deems advisable in light of relevant
federal, state and local laws, regulations, rules and orders.
<PAGE>
12. LICENSEE shall be solely responsible for compliance with the
requirements of all federal, state and local laws, regulations, rules and orders
relating to: (a) the operation of LICENSEE's business; (b) health and
sanitation; (c) environmental compliance; and (d) packaging and labeling.
13. LICENSEE agrees to indemnify, defend and hold harmless LICENSOR
from and against any and all loss, damage (except incidental and consequential
damages), expenses (including court costs, reasonable attorneys' fee, interest
expenses and amounts paid in compromise or settlement), suits, actions, claims,
penalties, liabilities or obligations related to, caused by, arising from or on
account of LICENSEE's manufacture and sale of the Products. It is understood,
however, that such obligation to indemnify, defend and hold harmless LICENSOR
shall not apply to any cause of action based on a claim that LICENSEE's use of
any Trademark infringes the rights of a third party.
LICENSOR agrees to indemnify, defend and hold harmless LICENSEE from
and against any and all loss, damage (except incidental and consequential
damages), expenses (including court costs, reasonable attorneys' fees, interest
expenses and amounts paid in compromise or settlement), suits, actions, claims,
penalties, liabilities or obligations related to, caused by, arising from or on
account of LICENSOR's use of the Trademarks.
14. LICENSEE shall purchase and maintain in full force and effect, at
its sole cost and expense, general liability insurance coverage of at least the
greater of (a) two million dollars ($2,000,000) or (b) the coverage set forth in
LICENSEE's liability insurance policy in effect on the date of this Agreement.
Such policy shall insure LICENSEE, LICENSOR and their respective officers,
directors, agents and employees from and against all loss, liability and claims
whatsoever resulting from or in connection with the operation of LICENSEE's
business and the manufacture, sale and distribution of the Products by LICENSEE,
except that such policy need not extend to insure any loss, liability or claims
related to trademark infringement. LICENSEE shall purchase and maintain, at its
sole cost and expense, all other insurance required by state or federal law. All
insurance policies procured by LICENSEE pursuant to this Article shall name
LICENSOR as an additional insured. Upon the execution of this Agreement,
LICENSEE shall provide LICENSOR with certificates of insurance evidencing the
insurance required hereunder.
15. This Agreement amends and supersedes all prior agreements and
understandings between the parties, both written and oral, including the License
Agreement, concerning the subject matter described herein.
16. None of the terms of this Agreement may be waived or modified by
either party except by a written agreement signed by an officer of both parties
to this Agreement. The failure of either party to enforce, or the delay on the
part of any party in enforcing, any of its rights under this Agreement shall not
be deemed a waiver or a modification, and either party may, within the time
period provided by applicable law, commence appropriate legal proceedings to
enforce any or all such rights.
<PAGE>
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of North Dakota. All litigation, court actions and
other legal proceedings arising under, as a result of, or in connection with
this Agreement will and must be venued exclusively in Fargo, North Dakota in a
court of competent jurisdiction. LICENSEE and LICENSOR hereby submit to personal
jurisdiction in North Dakota for all such litigation, actions and proceedings,
and waive any rights they may have to contest personal jurisdiction or venue in
North Dakota and any claims that such jurisdiction or venue is invalid.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
ATLAS INTERNATIONAL FOOD AND
EQUIPMENT COMPANY, INC. MEXICAN FOODS, INC.
By: /s/ Fredoon Anvary By: /s/ Fredoon Anvary
Fredoon Anvary, President Fredoon Anvary, President
SPARTA FOODS, INC. LA CANASTA OF MINNESOTA, INC.
By: /s/ Joel P. Bachul By: /s/ Joel P. Bachul
Joel P. Bachul, President Joel P. Bachul, President
Exhibit 11
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
Ended Ended
June 30 June 30
-------------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Earnings (Loss) per share:
Net income (Loss) $ 105,008 $ 335,728 $ (99,915) $ 257,552
Less Cumulative Preferred Stock
Dividends 31,250 31,250 93,750 43,750
Income (Loss) available to Common
Stockholders 73,758 304,478 (193,665) 213,802
------ ------- --------- -------
Weighted-average number of
Common shares outstanding 10,191,416 6,908,152 9,066,085 6,830,341
---------- --------- --------- ---------
Basic Earnings (Loss) per share $ .01 $ .04 $ (.02) $ .03
Diluted Earnings (Loss) per share
Income (Loss) available to Common
Stockholders (from above) 73,758 304,478 (193,665) 213,802
Add back cumulative preferred
Stock dividends Note 31,250 Note Note
---- ------ ---- ----
Income (Loss) available to Common and
Common Equivalent Stockholders 73,758 335,728 (193,665) 213,802
------ ------- --------- -------
Weighted-average number of
Common shares outstanding 10,191,416 6,908,152 9,066,085 6,830,341
Excess of shares issuable for
the assumed exercise of options and
warrants over the number of shares
possible of repurchase using the proceeds
from the exercise of such options and
warrants at the average market price
(treasury stock method) 238,342 2,227,589 - 2,384,676
Shares issuable for assumed conversion of
convertible preferred stock Note 1,515,151 Note Note
---- --------- ---- ----
Weighted-average number of common and
common equivalent shares outstanding 10,429,758 10,650,892 9,066,085 9,215,017
---------- ---------- --------- ---------
Diluted Earnings (Loss) per share $ .01 $ .03 $ (.02) $ .02
Note
For the three-month period ended June 30, 1999 and the nine-month periods ended
June 30, 1999 and 1998, diluted EPS does not include the assumed conversion of
preferred stock due to an antidilutive impact.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,173,784
<SECURITIES> 0
<RECEIVABLES> 1,278,984
<ALLOWANCES> 30,000
<INVENTORY> 1,474,955
<CURRENT-ASSETS> 5,170,799
<PP&E> 9,424,536
<DEPRECIATION> 3,397,917
<TOTAL-ASSETS> 12,410,569
<CURRENT-LIABILITIES> 1,277,343
<BONDS> 2,368,677
0
2,500,000
<COMMON> 101,914
<OTHER-SE> 7,100,150
<TOTAL-LIABILITY-AND-EQUITY> 12,410,569
<SALES> 11,198,174
<TOTAL-REVENUES> 11,198,174
<CGS> 7,918,440
<TOTAL-COSTS> 7,918,440
<OTHER-EXPENSES> 3,338,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,620
<INCOME-PRETAX> (95,915)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (99,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,915)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
