STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
February 23, 1998, between SPARTA FOODS, INC., a Minnesota corporation (the
"Company"), and HARVEST STATES COOPERATIVES, a Minnesota corporation ("Harvest
States").
WHEREAS, the Company wishes to raise additional capital for its general
corporate purposes; and
WHEREAS, the Company has 1,000,000 authorized shares of undesignated
preferred stock; and
WHEREAS, Harvest States desires to purchase shares of a series of the
Company s preferred stock having the characteristics described herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Authorization of Securities. The Company proposes to authorize,
issue and sell an aggregate of 2,500 shares of a series of its preferred stock
designated Preferred Stock, Series 1998 of the par value $1,000.00 per share
(the "Preferred Stock") and having the relative rights and preferences set forth
in Exhibit A. On or before the closing date, the Company shall cause a statement
of designations in the form of Exhibit A to be filed with the Secretary of State
of the State of Minnesota.
2. Purchase of Preferred Stock. Subject to the terms and conditions of
this Agreement, the Company agrees to sell to Harvest States, and Harvest States
agrees to purchase from the Company, 2,500 shares of the Preferred Stock at a
purchase price equal to $1,000.00 per share (an aggregate purchase price of
$2,500,000).
3. Closing. The closing of the purchase and sale of the Preferred Stock
hereunder (the "Closing") will be held at the offices of Xxxxxx & Xxxxxxx LLP,
000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000 on February 24, 1998 or at
such other place and at such time and date as the Company and Harvest States may
agree (the "Closing Date").
4. Conditions to Closing.
(a) Conditions to Harvest States' Obligations. The obligation of
Harvest States to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions on or before the Closing
Date:
(i) The representations and warranties set forth in Section 5 hereof
shall be true and correct in all material respects at and as of the Closing Date
as though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties, except
that any such representation or warranty made as of a specified date (other than
the date hereof) shall only need to have been true on and as of such date;
(ii) The Company shall have performed in all material respects all of
the covenants and agreements required to be performed and complied with by it
under this Agreement prior to the Closing;
(iii) The Company shall have filed with the Secretary of State of the
State of Minnesota a certificate of designations describing the rights and
preferences of the Preferred Stock purchased by the Company pursuant to this
Agreement;
(iv) Harvest States shall have received from counsel for the Company a
written opinion, dated as of the Closing Date, addressed to Harvest States and
satisfactory to Harvest States's counsel, in form and substance substantially as
set forth in Exhibit B;
(v) On the Closing Date, the Company shall have delivered to Harvest
States all of the following:
(1) certificates of the officers of the Company or other
persons satisfactory to Harvest States, dated the Closing Date, stating that the
conditions precedent set forth in subsections (i) and (ii) above have been
satisfied;
(2) a duly issued certificate dated the Closing Date and
registered in the Company s name representing the Preferred Stock.
(vi) Such other certificates, documents and instruments as Harvest
States reasonably requests related to the transactions contemplated hereby.
(b) Conditions to the Company's Obligations. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions on or before the Closing
Date:
(i) The representations and warranties set forth in Section 6 hereof
will be true and correct in all material respects at and as of the Closing as
though then made and as though the Closing Date had been substituted for the
date of this Agreement throughout such representations and warranties, except
that any such representation or warranty made as of a specified date (other than
the date hereof) shall only need to have been true on and as of such date;
(ii) Harvest States shall have performed in all material respects all
the covenants and agreements required to be performed by it under this Agreement
prior to the Closing;
(iii) Harvest States will pay to the Company an aggregate purchase
price of $2,500,000 by certified check or wire transfer.
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Harvest States:
(a) Organization, Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota, is qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where it is required to be qualified and has
all requisite corporate power and authority to carry on its business as now
conducted, to own, lease and operate its properties and to authorize, issue and
sell the Preferred Stock as contemplated by this Agreement and to enter into and
carry out the provisions of this Agreement.
(b) Minnesota Business Corporation Act. As contemplated by Minnesota
Statutes, Section 302A.673, the Company has formed a committee composed of all
of the Board's disinterested directors, which Committee has approved the
acquisition of Preferred Stock to be made pursuant to this Agreement on the
Closing Date and thereafter, and accordingly, such Section does not impose any
limitation on a business combination or other transaction contemplated thereby
with Harvest States.
(c) Subsidiaries, Etc. The Company owns all of the outstanding shares
of capital stock of La Canasta of Minnesota, Inc. ("La Canasta"). As of the date
hereof, the Company does not have any direct or indirect ownership interest in
any other corporation, partnership, joint venture, association or other business
enterprise. Each of the representations and warranties set forth in this Xxxxxxx
0, xxxxxxxxxx (x), (x), (x), (x), (x), (x), (x), (x), (x), (x) and (y) are made
with respect to La Canasta.
(d) Corporate Authorization. This Agreement has been authorized by all
necessary corporate action, has been duly and validly executed and delivered by
the Company and is a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms. All corporate action necessary
to the authorization, creation, issuance and delivery of the Preferred Stock has
been taken by the Company. The Preferred Stock, when issued and paid for
pursuant to the terms of this Agreement, will be duly authorized, validly issued
and outstanding, fully paid and nonassessable, free from preemptive rights and
shall be free from any pledge, lien, encumbrance or restriction known to or
caused or created by the Company other than restrictions on transfer under state
and/or federal securities laws and issued in compliance with all state and
federal securities laws. Upon conversion of the Preferred Stock into common
stock, $.01 par value per share, of the Company (the "Common Stock") in
accordance with the terms of the Preferred Stock, the Common Stock will be duly
authorized, validly issued and outstanding, fully paid and nonassessable and
free from any pledge, lien, encumbrance or restriction known to or caused or
created by the Company other than state and/or federal securities laws.
(e) Consents; Approvals. The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby by the Company require no action by, notices to or filing with any
governmental body, agency, official or authority or any third party.
(f) Non-Contravention. The authorization, issuance and sale of the
Preferred Stock and the execution, delivery and performance by the Company of
this Agreement does not and will not (i) contravene or conflict with the
articles of incorporation or bylaws of the Company, (ii) contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company
or any of its properties or assets, (iii) constitute a default under or give
rise to a right of termination, cancellation, restriction or acceleration of any
right or obligation of the Company or to a loss of any benefit to which the
Company is entitled under any provision of any agreement, contract or other
instrument binding upon or applicable to the Company or any of its properties or
assets or any license, franchise or permit or other similar authorization held
by or applicable to the Company or (iv) result in the creation of imposition of
any Lien on any asset of the Company. For purposes of this Agreement, Lien
means, with respect to any asset, any mortgage, lien, pledge, charge, security
interest, encumbrance or restriction of any kind in respect of such asset.
(g) Capitalization. The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock of which 6,798,637 shares are
issued and outstanding as of the date hereof (without giving effect to this
Agreement and the transactions contemplated thereby) and 1,000,000 shares of
undesignated preferred stock, 2,500 shares of which are designated Preferred
Stock, Series 1998, none of which are outstanding as of the date hereof. As of
the date hereof, 266,333 shares of Common Stock are reserved for issuance
pursuant to the Company s Amended and Restated Stock Option Plan (the "Plan"),
pursuant to which options to purchase 1,033,667 shares of Common Stock are
outstanding. In addition, options to purchase 70,000 shares of Common Stock are
outstanding but not issued pursuant to a plan. As of the date hereof, 3,634,208
shares of Common Stock are reserved for issuance pursuant to the exercise of
outstanding warrants. All applicable provisions of such warrants are contained
in exhibits as incorporated by reference to the Company s annual report on Form
10-KSB for its fiscal year ended September 30, 1997 ("1997 10-KSB"), and, except
for the options not issued under the Plan, all outstanding stock options are in
the form contained in Exhibit 10-1 to the 1997 10-KSB. All outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and nonassessable,
are free from preemptive rights and were issued in compliance with all state and
federal securities laws. Except as set forth in this section, there are
outstanding (i) no other shares of capital or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company and (iii) no other
options or other rights to stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company (the
items in clauses (i), (ii) and (iii) being referred to collectively as the
"Company Securities"). There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any Company Securities.
(h) Outstanding Debt. Except for borrowings of $5,925,093 outstanding
as of February 23, 1998 incurred in the ordinary course of business, the Company
does not have any indebtedness incurred as the result of a direct borrowing of
money. The Company is not in default in the payment of the principal of or
interest or premium on any such indebtedness, and no event has occurred or is
continuing under the provisions of any instrument, document or agreement
evidencing or relating to any such indebtedness which with the lapse of time or
the giving of notice, or both, would constitute an event of default thereunder.
(i) SEC Filings.
(a) The Company has filed all reports, schedules, forms, statements and
other documents required to be filed by the Company with the Securities and
Exchange Commission (the "SEC") since October 1, 1994. The Company has delivered
to Harvest States true and correct copies of (i) its 1997 10-KSB, (ii) its
quarterly report on Form 10-QSB for the three-month period ended December 31,
1997, (iii) its proxy statement for the next regular meeting of shareholders,
(iv) its last annual report to shareholders and (v) all of its other reports,
statements, schedules and registration statements filed by the Company with the
SEC since September 30, 1997 (including all exhibits filed therewith or
incorporated by reference therein, except exhibits 11, 23, 24 and 27)
(collectively, "SEC Reports").
(b) Except to the extent that information contained in any SEC Report
has been revised or superseded by a later-filed SEC Report, as of the date of
this Agreement, none of the SEC Reports contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the SEC Reports complied as to form in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Reports.
(j) Financial Statements. Except to the extent that information
contained in any SEC Report has been revised or superseded by a later-filed SEC
Report, the audited financial statements and unaudited interim financial
statements of the Company included in its annual reports on Form 10-KSB and the
quarterly reports on 10-QSB are true and correct and fairly present, in
conformity with generally accepted accounting principles (except that the
unaudited interim financial statements may not contain all notes), applied on a
consistent basis (except as may be indicated on the notes thereto), the
financial position of the Company as of the dates thereof and results of
operations and cash flows for the periods then ended (subject to non-material
normal year-end adjustments in the case of any interim financial statements).
For the purposes of this Agreement, "Balance Sheet" means the Company's balance
sheet as of September 30, 1997, including the notes thereto, as set forth in the
Company's Form 10-KSB and "Balance Sheet Date" means the date of the Balance
Sheet. Except and to the extent set forth in the Balance Sheet, the Company does
not have any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), except for liabilities and obligations incurred after
the Balance Sheet Date in the ordinary course of business.
(k) Tax Returns and Audits. All required federal, state and local tax
returns have been filed, and all federal, state and local taxes required to be
paid with respect to such returns have been paid. The Company is not delinquent
in the payment of any such tax or in the payment of any assessment or
governmental charge. The Company has not received notice of any tax deficiency
proposed or assessed against it, and it has not executed any waiver of any
statute of limitations on the assessment or collection of any tax. None of the
Company s tax returns has been audited by governmental authorities in a manner
to bring such audits to the Company s attention. The Company does not have any
tax liabilities except those reflected on the Balance Sheet or incurred since
the Balance Sheet Date in the ordinary course of business.
(l) Title to Properties and Encumbrances. Except as set forth in the
SEC Reports, the Company has good and marketable title to all of its properties
and assets, except for property disposed of in the ordinary course of business,
and such properties and assets are not subject to any lien, except (a) those
that are shown on the Balance Sheet, (b) liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings or (c) those which do not materially affect the value of or
interfere with the use made of such properties and assets. The Company occupies
leased property under valid and binding leases.
(m) Conditions of Properties. The property, plant and equipment of the
Company have been kept in good condition and repair in the ordinary course of
business.
(n) Intellectual Property. Except as described in the SEC Reports, the
Company (a) owns or has the right to use, free and clear of all liens, all
patents, trademarks, service marks, trade names, copyrights, licenses and rights
with respect to the foregoing, used in the conduct of its business as now
conducted without infringing upon or otherwise acting adversely to the right or
claimed right of any person under or with respect to any of the foregoing, (b)
is not obligated or under any liability whatsoever to make any payments of a
material nature by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any patent, trademark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise, (c) owns or has the unrestricted right to
use all trade secrets, including know-how, customer lists, inventions, designs,
processes, computer programs and technical data necessary to the development,
operation and sale of all products and services sold or proposed to be sold by
it, free and clear of any rights, liens or claims of others, and (d) is not
using any confidential information or trade secrets of others.
(o) Licenses. The Company possesses from the appropriate agency,
commission, board and government body and authority, whether state, local or
federal, all material licenses, permits, authorizations, approvals, franchises
and rights that are necessary for it to engage in the business currently
conducted by it. The Company has no reason to believe that it will not be able
to obtain all licenses, permits, authorizations, approvals, franchises and
rights that may be required for any business the Company proposes to conduct.
(p) Litigation; Governmental Proceedings. There are no legal actions,
suits, arbitrations or other legal, administrative or governmental proceedings
or investigations pending or, to the knowledge of the Company, threatened
against the Company, or its properties or business, and the Company is not aware
of any facts which are likely to result in or form the basis for any such
action, suit or other proceeding, except as described in the SEC Reports. The
Company is not in default with respect to any judgment, order or decree of any
court or any governmental agency or instrumentality. The Company has not been
threatened with any action or proceeding under any business or zoning ordinance,
law or regulation.
(q) Insurance Coverage. There are in full force and effect policies of
insurance issued by insurers of recognized responsibility insuring the Company
and its properties and business against such losses and risks, and in such
amounts, as in the Company s best judgment, after advice from its insurance
broker, are acceptable for the nature and extent of such business and its
resources.
(r) Nasdaq SmallCap Market. The issuance and sale of the Preferred
Stock as contemplated by this Agreement complies with applicable Nasdaq
governance standards.
(s) Waiver of Dividend Prohibition. The Company has obtained written
waivers of any prohibition against the declaration or payment of dividends
contained in any agreement to which it is a party or subject.
(t) No Material Adverse Change. Since the Balance Sheet Date, except as
disclosed in the SEC Reports, there has not been any material adverse change or
any development involving a prospective material adverse change in or affecting
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise), or prospects of the Company, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company, other than transactions in the ordinary
course of business.
(u) Compliance With Other Instruments. The Company is not, and with the
giving of notice or lapse of time or both, would not be, in violation of or in
default under its articles of incorporation or bylaws or under any agreement,
lease, contract, indenture or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound.
(v) Books and Records. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management s general or specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (iii) access to assets is
permitted only in accordance with management s general or specific authorization
and (iv) the recorded accountability for assets is compared with existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(w) ERISA. To the best knowledge of the Company, it is in compliance
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no reportable event (as defined in ERISA) has occurred
with respect to any pension plan (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any pension plan or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each pension plan for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(x) Share Reservation. The Company has reserved 1,515,152 shares of
Common Stock for issuance upon conversion of the Preferred Stock.
(y) Environmental, Health and Safety Laws. To the best knowledge of the
Company, there does not exist any violation by the Company or any applicable
federal, state or local law, rule or regulation or order of any government,
governmental department, board, agency or other instrumentality relating to
environmental, pollution, health or safety matters which will or threatens to
impose a material liability on the Company or which would require a material
expenditure by the Company to cure. The Company has not received any notice to
the effect that any part of its operations or properties is not in material
compliance with any such law, rule, regulation or order or notice that it or its
property is the subject of any governmental investigation evaluating whether any
remedial action is needed to respond to any release of any toxic or hazardous
waste or substance into the environment.
(z) Disclosure. The Company has not knowingly withheld from Harvest
States any material facts relating to the assets, business, operations,
financial condition or prospects of the Company. No representation or warranty
in this Agreement or in any certificate, schedule, statement or other document
furnished or to be furnished to Harvest States pursuant hereto or in connection
with the transactions contemplated hereby contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated herein or therein or necessary to make the statements
herein or therein not misleading.
(aa) No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission of the Company, any right, interest or
valid claim against the Company for any commission, fee or other compensation as
a finder or broker in connection with the transactions contemplated by this
Agreement exceeding $125,000 in the aggregate.
6. Representations and Warranties of Harvest States. Harvest States
hereby makes the following representations and warranties to the Company:
(a) Investment Intent. The Preferred Stock is being purchased for
investment for Harvest States' own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof. Harvest
States understands that the Preferred Stock has not been registered under the
Securities Act or any state securities laws by reason of its contemplated
issuance in transactions exempt from the registration requirements of the
Securities Act and applicable state securities laws, and that the reliance of
the Company and others upon these exemptions is predicated in part upon this
representation by Harvest States. Harvest States further understands that the
Preferred Stock may not be transferred or resold without (i) registration under
the Securities Act and any applicable state securities laws, or (ii) an
exemption from the requirements of the Securities Act and applicable state
securities laws.
(b) Location of Principal Office, Qualification as an Accredited
Investor, Etc. Harvest States' principal office is located is the state of
Minnesota. Harvest States qualifies as an accredited investor for purposes of
Regulation D promulgated under the Securities Act. Harvest States acknowledges
that the Company has made available to it at a reasonable time prior to the
execution of this Agreement the opportunity to ask questions and receive answers
concerning the terms and conditions of the sale of securities contemplated by
this Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as may be
necessary to verify the accuracy of information furnished to it. Harvest States
(a) is able to bear the loss of its entire investment in the Preferred Stock
without any material adverse effect on its business, operations or prospects,
and (b) has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the investment to be made by
it pursuant to this Agreement.
(c) Corporate Acts and Proceedings. This Agreement has been duly
authorized by all necessary corporate action on behalf of Harvest States, has
been duly executed and delivered by Harvest States and is a valid and binding
agreement of Harvest States enforceable against Harvest States in accordance
with its terms.
(d) No Brokers or Finders. No person, firm or corporation has or will
have, as a result of any act or omission by Harvest States, any right, interest
or valid claim against the Company for any commission, fee or other compensation
as a finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement.
7. Covenant of Harvest States. Harvest States agrees that if, contrary
to its intentions set forth in Section 6 above, it should later desire to
dispose of or transfer any of the Preferred Stock in any manner, it will not do
so without first obtaining (i) an opinion of counsel satisfactory to the Company
that such proposed disposition or transfer may be made lawfully without the
registration of such Preferred Stock pursuant to the Securities Act and
applicable state laws or (ii) registration of such Preferred Stock pursuant to
the Securities Act and applicable state laws.
8. Affirmative Covenants of the Company. The Company agrees as follows:
(a) Corporate Existence. The Company will maintain its corporate
existence in good standing, its qualification to do business in requisite
jurisdictions and its rights and privileges and will use its best efforts to
comply with all material laws and regulations of the United States or of any
state or political subdivision thereof and of any government authority
applicable to it.
(b) Books of Account and Reserves. The Company will keep books of
record and account in which full, true and correct entries are made of all of
its dealings, business and affairs, in accordance with generally accepted
accounting principles. The Company will employ certified public accountants
selected by the Board of Directors of the Company who are independent within the
meaning of the accounting regulations of the SEC. The Company will have annual
audits made by such independent public accountants in the course of which such
accountants shall make such examinations, in accordance with generally accepted
auditing standards, as will enable them to give such reports or opinions with
respect to the financial statements of the Company as will satisfy the
requirements of the SEC in effect at such time with respect to reports or
opinions of accountants.
(c) Furnishing of Financial Statements and Information. The Company
will deliver to Harvest States:
(i) as soon as available, but in any event within 30 days
after the close of each month, an unaudited balance sheet of the Company as of
the end of such month, together with the related statements of consolidated
operations for each such month, which statements of consolidated operations
shall include a comparison of actual results of operations to budget on a
monthly and a year to date basis;
(ii) as soon as available, but in any event within 90 days
after the end of each fiscal year, a balance sheet of the Company, as of the end
of such fiscal year, together with the related statements of operations,
shareholders equity and cash flows for such fiscal year, all in reasonable
detail and duly certified by the Company s independent public accountants, which
accountants shall have given the Company an opinion, unqualified as to the scope
of the audit, regarding such statements;
(iii) within 15 days after the Company learns of the
commencement of any material suit, legal or equitable, or of any material
administrative, arbitration or other proceeding against the Company or its
business, assets or properties, written notice of the nature and extent of such
suit or proceeding;
(iv) promptly after the submission thereof to the Company,
copies of all reports and recommendations submitted by independent public
accountants in connection with any annual or interim audit of the accounts of
the Company made by such accountants;
(v) promptly upon transmission thereof, copies of all reports,
proxy statements, registration statements and notifications filed by it with the
SEC pursuant to any act administered by the SEC or furnished to shareholders of
the Company or to any national securities exchange;
(vi) concurrently with the delivery in each year of the
financial statements referred to in Section 8(c)(ii), a statement and report
signed by the independent public accountants who certified such financial
statements to the effect that they have read this Agreement and that in the
course of the audit upon which such certificate was based they have become aware
of no condition or event which constituted an Event of Default under Section 11
or which, after notice or lapse of time or both, would constitute an Event of
Default or if such accountants did become aware of such condition or event,
specifying the nature and period of existence thereof;
(vii) with reasonable promptness, such other financial data
relating to the business, affairs and financial condition of the Company as is
available to the Company and as from time to time Harvest States may reasonably
request, except for any pricing information or financial data reasonably related
to Harvest States' ongoing customer relationship with the Company.
Any requirement pursuant to this paragraph (c) may be satisfied by delivery of
any filings made with the SEC to the extent such filings contain information
satisfying the requirement of this paragraph.
(d) Inspection. The Company will permit Harvest States, through its
representatives designated by it, to visit and inspect, at Harvest States'
expense, any of the properties of the Company, including its books and records
(and to make photocopies thereof or make extracts therefrom), and to discuss its
affairs, finances and accounts with its officers, lawyers and accountants,
except with respect to engineering data and other technical information that is
not public knowledge, all to such reasonable extent and at such reasonable times
and intervals as Harvest States may reasonably request. Notwithstanding the
foregoing, the Company shall not provide to Harvest States any pricing
information or financial data reasonably related to Harvest States' ongoing
customer relationship with the Company. That certain Confidentiality Agreement
dated August 22, 1997 (the "Confidentiality Agreement") shall be applicable to
all information obtained by Harvest States or its representatives under Section
8(c) or 8(d), except paragraphs 2 and 3 on page 2 and paragraph 1 on page 3 of
the Confidentiality Agreement which, up to the Closing of this Agreement shall
be of no further force and effect. Any information received by designees of
Harvest States or the holders of the Preferred Stock in their capacities as
directors may be disclosed to Harvest State; provided, however, that if the
Company provides to such designees an opinion of counsel that any proposed
disclosure pertaining to any current case or controversy may jeopardize the
attorney-client privilege pertaining thereto, then such designees shall not
disclose such information to Harvest States.
(e) Closing Conditions. The Company shall take no action that would
result in the failure to satisfy a closing condition for the purchase of any
securities and shall use its best efforts to assure that all conditions to the
purchase of any securities hereunder are satisfied.
(f) Shareholder Meeting. At a meeting to be held no later than March
31, 1999, the Company will recommend to its shareholders, and will use its best
efforts to obtain the approval of its shareholders at such meeting for, an
amendment to its articles of incorporation to opt out of Section 302A.671 of the
Minnesota Business Corporation Act. In connection therewith, an appropriate
proxy statement will be prepared by the Company that will comply in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
(g) Listing and Reservation of Shares. As soon as practicable after the
receipt of a written request by Harvest States, the Company will apply for, and
use its best efforts to obtain, listing on the Nasdaq SmallCap Market of all
shares of Common Stock that may be issued upon conversion of the Preferred
Stock. The Company will reserve at all times a sufficient number of shares of
Common Stock for issuance upon conversion of the then outstanding Preferred
Stock.
(h) Sale of Company. In its discretion, the Company may enter into any
discussions or negotiations with, or disclose directly or indirectly any
information concerning its business and properties to, or afford any access to
its properties, books and records to, any corporation, partnership or other
person or group in connection with any possible proposal (an "Acquisition
Proposal") regarding a sale of all or any part of the Company s capital stock or
a merger, consolidation or statutory share exchange involving the Company or any
subsidiary of the Company or sale or spin-off of all or a substantial portion of
the assets of the Company or any subsidiary of the Company which is material to
the Company and its subsidiary taken as a whole, or a liquidation or a
recapitalization of the Company, or any similar transaction provided that the
Company will (i) inform Harvest States in writing of the existence of
discussions or negotiations in connection with an Acquisition Proposal and any
request or inquiry for information about the Company if it reasonably believes
such inquiry or request is in connection with an Acquisition Proposal, (ii)
furnish information or provide access with respect to the Company to such extent
such information is furnished or access is provided to outside parties, (iii) if
requested by Harvest States, negotiate with Harvest States for a period of one
month commencing the day after Harvest States receives written notice pursuant
to clause (i) of any Acquisition Proposal, (iv) give a reasonable opportunity to
Harvest States to make an Acquisition Proposal, (v) not enter into any exclusive
arrangement, lockup or other similar device prior to the expiration of such
one-month period and (vi) keep Harvest States reasonably informed of the status
of any such request, inquiry or Acquisition Proposal.
(i) Company May Consolidate, Etc., Only on Certain Terms. The Company
shall not consolidate with or merge into any other person or convey, transfer or
lease its properties and assets substantially as an entirety to any person, and
the Company shall not permit any person to consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially as
an entirety to the Company, unless:
(i) in case the Company shall consolidate with or merge into
another corporation, trust or entity or convey, transfer or lease its properties
and assets substantially as an entirety to any person, the person formed by such
consolidation or into which the Company is merged or the person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety (the "Acquiror") shall be a trust,
corporation or other entity organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by a supplemental agreement to this Agreement, this Agreement
and in form reasonably satisfactory to Harvest States and its counsel and the
performance of every covenant of this Agreement in the part of the Company to be
performed or observed.
(ii) immediately after giving effect to such transaction, the
Company shall remain in compliance with this Agreement.
Upon any consolidation or merger of the Company with or into any other
corporation, trust or other entity or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any person
in accordance with this Section 8(j), the successor person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Agreement with the
same effect as if such successor person had been named as the Company herein,
and thereafter the predecessor person shall be relieved of all obligations and
covenants under this Agreement.
(j) Insurance. The Company will maintain in force and effect such
property damage, public liability, business interruption, product liability,
product recall, worker s compensation, indemnity bonds and other types of
insurance as the Company, after consultation with an accredited insurance
broker, shall determine to be necessary or appropriate to protect the Company
from the insurable hazards or risks associated with the conduct of the Company s
business.
The Company shall use its best efforts to keep in effect directors and
officers liability insurance on terms substantially as favorable to its
directors as its existing coverage.
All such insurance policies shall be maintained in at least such
amounts and to such extent as shall be determined to be reasonable by the Board
of Directors. All such insurance shall be effected and maintained in force under
a policy or policies issued by insurers of recognized responsibility, except
that the Company or any subsidiary may effect worker s compensation or similar
insurance in respect of operations in any state or other jurisdiction either
through an insurance fund operated by such state or other jurisdiction or by
causing to be maintained a system or systems of self-insurance which is in
accord with applicable laws.
(k) Taxes and Assessments. The Company will pay and discharge and will
cause its subsidiary to pay and discharge, before the same become delinquent and
before penalties accrue thereon, all taxes, assessments and governmental charges
upon or against the Company or its subsidiary, or any of their respective
properties, and all other material liabilities at any time existing, except to
the extent and so long as (i) the same are being contested in good faith and by
appropriate proceedings in such manner as not to cause any material adverse
effect upon the financial condition of the Company or its subsidiaries, or the
loss of any right of redemption from any sale thereunder and (ii) the Company or
its subsidiary shall have set aside on its books adequate reserved with respect
thereto.
(l) Governmental Consents. To the extent not already obtained, the
Company will obtain all consents, approvals, licenses and permits required by
federal, state, local and foreign law to carry on its business.
(m) SEC Reports. So long as the Company is subject to the periodic
reporting requirements under the Exchange Act, the Company shall file all
reports required by the Exchange Act in a timely manner.
(n) Regulation D Filings. The Company will file on a timely basis all
notices of sale required to be filed with the SEC pursuant to Regulation D under
the Securities Act with respect to the transactions contemplated by this
Agreement.
(o) Rule 144. The Company will comply with the current public
information requirements of Rule 144(c)(1) under the Securities Act. At all such
times as Rule 144 is available for use by Harvest States, the Company will
furnish Harvest States upon request with all information within the possession
of the Company required for the preparation and filing of Form 144.
(p) Shareholder Rights Plan. The Company shall not distribute with
respect to the shares of the Common Stock any rights to acquire any other
securities of the Company which may be commonly considered a part of a
shareholder rights or similar plan.
(q) Listing Requirements. The Company will use its best efforts to
preserve the listing of its shares of Common Stock on the Nasdaq SmallCap Market
or another national market or exchange.
(r) Subsidiaries. The Company shall cause its subsidiary corporation to
comply with the covenants set forth in this Xxxxxxx 0, xxxxxxxxxx (x), (x), (x),
(x), (x) and (m).
(s) Right to Appoint One Director. The maximum number of directors has
been increased by the Company s board of directors to eight directors, six
director positions of which will be filled at the annual meeting of shareholders
to be held February 26, 1998 (the "Annual Meeting"). Immediately following the
Annual Meeting, the Company will elect Harvest States' designee as a director.
For so long as Harvest States owns no less than 10% of the outstanding Preferred
Stock, the Company agrees to use its best efforts to nominate as a director and
elect Harvest States' nominee as a director.
9. Negative Covenants of the Company.
(a) The Company will not:
(i) amend its Articles of Incorporation or Bylaws in any
manner that adversely affects, directly or indirectly, Harvest States;
(ii) unless approved by the Board of Directors of the Company,
engage in any business other than businesses engaged in by the Company on the
date hereof or businesses similar thereto;
(iii) unless approved by the Board of Directors of the
Company, sell, lease or otherwise dispose of any material assets other than in
the ordinary course of business;
(iv) enter into any new agreement or amend any existing
agreement that by its terms would impair the Company s performance of its
obligations pursuant to this Agreement or any agreement contemplated hereby;
(v) enter into any agreement with any holder or prospective
holder of any securities of the Company granting to such holder preemptive
rights or special voting rights; or
(vi) amend its articles of incorporation and bylaws to
adversely affect the limitation of liability or the indemnification rights now
afforded directors of the Company.
(b) Issuances of Voting Securities.
(i) Other than a bona fide public offering, an acquisition or
similar transaction involving a going concern or pursuant to options and
warrants outstanding on the date hereof, for a period of two years from the date
of this Agreement, the Company shall not issue, grant or sell any Common Stock
or other securities entitled to vote generally for the election of directors
("Voting Securities"), or securities convertible into Voting Securities, or
options, warrants or other rights to acquire Voting Securities ("Rights to
Acquire Voting Securities") in any transaction where the purchaser together with
its affiliates and other persons acting in concert with such purchaser,
including, but not limited to, all members of a group as defined in Section
13(d)(3) of the Exchange Act (a "Group"), other than Harvest States and its
affiliates, would, after the completion of such transaction, own ten percent
(10%) or more, in the aggregate, of all outstanding Voting Securities (assuming
the exercise of all outstanding Rights to Acquire Voting Securities held by such
purchaser, its affiliates and other persons acting in concert with such
purchaser, including, but not limited to, all members of a Group).
(ii) All Voting Securities shall (1) be convertible into
Common Stock at a conversion ratio at the time of issuance of not less than one
share of Common Stock for each share of such Voting Security and (2) not have
more than one vote per share.
(c) Status of Dividends. The Company shall not take any action that
would require or permit, or could reasonably be expected to require or permit,
the Company to treat the dividends on the Common Stock or any part thereof as
deductible interest payments on its books or its federal, state or local income
tax returns and shall take no such action which would require or permit, or
could reasonably be expected to require or permit, the Company to treat the
dividends on the Common Stock or any part thereof as deductible under any
provision of the Code, whether now in effect or hereafter enacted or adopted,
unless, in either case, such action would not result in denial of the dividends
received deduction presently provided by Section 243(a)(1) of the Code (the
"Dividends Received Deduction") or any successor dividends received deduction
provided by a similar successor provision of the Code (a "Successor Dividends
Received Deduction") to any holder of Preferred Stock who would otherwise be
eligible to claim such deduction. In addition, the Company shall not take any
action that could reasonably be expected to cause the Dividends Received
Deduction or a Successor Dividends Received Deduction to be eliminated or
reduced with respect to dividends on the Common Stock. The agreements contained
in this section shall be inapplicable if the Code shall be amended after
delivery of the Preferred Stock in such a manner as to provide that dividends on
the Common Stock may not be treated as dividends for federal income tax purposes
or to permit all or a portion of the dividends on the Preferred Stock to be
deducted by the Company without causing the Dividends Received Deduction or a
Successor Dividends Received Deduction to be unavailable to any holder of
Preferred Stock.
(d) Limitation on Option Grants. During the five years ending September
30, 2002, the Company will not issue options, warrants or similar rights to
purchase more than 200,000 shares of Common Stock or securities convertible into
or exercisable for Common Stock, in any year on a cumulative basis, to
employees, officers, directors or consultants to the Company or its subsidiary,
and any exercise or conversion price shall not be less than fair market value on
the date of grant.
10. Registration Rights.
(a) Demand Registration. If, at any time after the first anniversary of
the Closing Date, the Company receives a written request therefor from the
holders of a majority of the Preferred Stock, the Company shall prepare and file
a registration statement under the Securities Act covering the Preferred Stock
and the shares of Common Stock into which the shares of Preferred Stock are
convertible (the "Purchased Shares") and shall use its best efforts to cause
such registration statement to become effective. The Company shall be obligated
to prepare, file and cause to become effective only one (1) registration
statement pursuant to this Section 10(a). In the event that (i) Harvest States
determines for any reason not to proceed with a registration at any time before
the registration statement has been declared effective by the SEC, and Harvest
States requests the Company to withdraw such registration statement, if
theretofore filed with the SEC, with respect to the Purchased Shares covered
thereby and (ii) Harvest States agrees to reimburse the Company for the expenses
incurred by it attributable to the registration of such Purchased Shares, then
Harvest States shall not be deemed to have exercised its right to require the
Company to register Purchased Shares pursuant to this Section 10(a).
(b) Incidental Registration. Each time the Company shall determine to
proceed with the actual preparation and filing of a registration statement, on
Forms X-0, XX-0 or S-3, excluding post-effective amendments to Company
registration statements currently effective, under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders, the Company will give written notice of
its determination to Harvest States. Upon the written request of Harvest States
given within 30 days after receipt of any such notice from the Company, the
Company will, except as herein provided, cause all such shares of Purchased
Shares, Harvest States has so requested registration thereof, to be included in
such registration statement, all to the extent requisite to permit the sale or
other disposition by Harvest States to be so registered; provided, however, that
(i) nothing herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it and (ii) if the Company
determines not to proceed with a registration after the registration statement
has been filed with the SEC and the Company s decision not to proceed is
primarily based upon the anticipated public offering price of the securities to
be sold by the Company, the Company shall promptly complete the registration for
the benefit of Harvest States if it wishes to proceed with a public offering of
its securities and Harvest States will bear all expenses in excess of $25,000
incurred by the Company as the result of such registration after the Company has
decided not to proceed. If any registration pursuant to this section shall be
underwritten in whole or in part, the Company may require that the Purchased
Shares requested for inclusion pursuant to this section be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. In the event that the Purchased Shares requested
for inclusion pursuant to this section would constitute more than twenty-five
percent (25%) of the total number of shares to be included in a proposed
underwritten public offering, and if in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the Purchased Shares
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares of Purchased
Shares otherwise to be included in the underwritten public offering may be
reduced; provided, however, that after any such required reduction the Purchased
Shares to be included in such offering shall constitute at least twenty-five
percent (25%) of the total number of shares to be included in such offering.
Those shares of Purchased Shares which are thus excluded from the underwritten
public offering shall be withheld from the market by Harvest States thereof for
a period, not to exceed 90 days, which the managing underwriter reasonably
determines is necessary in order to effect the underwritten public offering.
(c) Registration Procedures. If and whenever the Company is required by
the provisions of Section 10(a) or 10(b) to effect the registration of any
Purchased Shares under the Securities Act, the Company shall:
(i) prepare and file with the SEC a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed three
(3) months;
(ii) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed three (3) months;
(iii) furnish to Harvest States and to the underwriters of the
securities being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
Harvest States and underwriters may reasonably request in order to facilitate
the public offering of such securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of the State of Minnesota and five other states, except that
Harvest States may request such other states in which the Company will register
and bear such fees and expenses in connection with such registration, as Harvest
States may reasonably request within 20 days following the original filing of
such registration statement, except that the Company shall not for any purpose
be required to execute a general consent to service of process or to qualify to
do business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(v) notify Harvest States participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
(vi) notify Harvest States promptly of any request by the SEC
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(vii) prepare and file with the SEC, if necessary, promptly
upon the request of Harvest States, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for
Harvest States (and concurred in by counsel for the Company), is required under
the Securities Act or the rules and regulations thereunder in connection with
the distribution of the Purchased Shares by Harvest States;
(viii) prepare and promptly file with the SEC, if necessary,
and promptly notify Harvest States of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;
(ix) advise Harvest States, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(x) not file any amendment or supplement to such registration
statement or prospectus to which Harvest States shall have reasonably objected
on the grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at least
five business days prior to the filing thereof, unless in the opinion of counsel
for the Company the filing of such amendment or supplement is reasonably
necessary to protect the Company from any liabilities under any applicable
federal or state law and such filing will not violate applicable law; and
(xi) at the request of Harvest States, furnish on the
effective date of the registration statement and, if such registration includes
an underwritten public offering, at the closing provided for in the underwriting
agreement: (a) opinions, dated such respective dates, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to Harvest States making, covering such matters as
such underwriters and Harvest States may reasonably request, in which opinion
such counsel shall state (without limiting the generality of the foregoing) that
(1) such registration statement has become effective under the Securities Act;
(2) to the best of such counsel s knowledge no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act; (3) the
registration statement and each amendment or supplement thereto comply as to
form in all material respects with the requirements of the Securities Act and
the applicable rules and regulations of the SEC thereunder (except that such
counsel need express no opinion as to financial statements contained therein);
(4) to the best of the knowledge of such counsel neither the registration
statement nor any amendment nor supplement thereto contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except that
such counsel need express no opinion as to financial statements contained
therein); (5) the description in the registration statement or any amendment or
supplement thereto of legal and governmental proceedings and contracts are
accurate and fairly present the information required to be shown; and (6) such
counsel does not know of any legal or governmental proceedings, pending or
threatened, required to be described in the registration statement or any
amendment or supplement thereto which are not described as required nor of any
contracts or documents or instruments of the character required to be described
in the registration statement or amendment or supplement thereto or to be filed
as exhibits to the registration statement, which are not described or filed as
required; and (b) letters, dated such respective dates, from the independent
certified public accountants of the Company, addressed to the underwriters, if
any, and to Harvest States making such request, covering such matters as such
underwriters and Harvest States may reasonably request, in which letters such
accountants shall state (without limiting the generality of the foregoing) that
they are independent certified public accountants within the meaning of the
Securities Act and that in the opinion of such accountants the financial
statements and other financial data of the Company included in the registration
statement or any amendment or supplement thereto comply in all material respects
with the applicable accounting requirements of the Securities Act.
(d) Expenses. With respect to any registration, including registrations
pursuant to Form S-3, requested pursuant to section 10(a) (except as otherwise
provided in such section with respect to registrations voluntarily terminated at
the request of Harvest States and except with respect to any underwriter s
expense on any registration using Form S-3 that is underwritten) and with
respect to each inclusion of shares of Purchased Shares in a registration
statement pursuant to section 10(b) (except as otherwise provided in section
10(b) with respect to registrations terminated by the Company), the Company
shall bear the following fees, costs and expenses: all registration, filing and
NASD fees, printing expenses, fees and disbursements of counsel and accountants
for the Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company and/or Harvest States are
required to bear such fees and disbursements), all internal Company expenses,
the premiums and other costs of policies of insurance against liability arising
out of the public offering, and all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified. Fees and disbursements of counsel and accountants for Harvest States,
underwriting discounts and commissions and transfer taxes for Harvest States and
any other expenses incurred by Harvest States not expressly included above shall
be borne by Harvest States.
(e) Indemnification. In the event that any Purchased Shares are
included in a registration statement under sections 10(a) or 10(b):
(i) The Company will indemnify and hold harmless Harvest
States and any underwriter (as defined in the Securities Act) for Harvest States
and each person, if any, who controls Harvest States or such underwriter within
the meaning of the Securities Act, from and against any and all loss, damage,
liability, cost and expense to which Harvest States or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by Harvest States, such
underwriter or such controlling person.
(ii) Harvest States will indemnify and hold harmless the
Company, any controlling person and any underwriter from and against any and all
loss, damage, liability, cost or expense to which the Company or any controlling
person and/or any underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with information furnished by Harvest States.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (a) or (b) of this section of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than
hereunder. In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, if the defendants in any action include both the indemnified
party and the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (a) the indemnified
party shall have employed counsel in accordance with the proviso of the
preceding sentence, (b) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after the notice of the commencement of the action or (c) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party.
(f) Registration Rights of Transferees. The registration rights granted
to Harvest States pursuant to this Section 10 shall also be for the benefit of,
and enforceable by, any subsequent holder of Purchased Shares, whether or not
any express assignment of such rights to any such subsequent holder is made, so
long as such subsequent holder acquires at least twenty percent (20%) of the
Purchased Shares then outstanding.
11. Default.
(a) Events of Default. An Event of Default means a default in the due
and punctual performance or observance of any covenant contained in Sections 8,
9 and 10 of this Agreement continuing for a period of no less than 15 days after
written notice thereof is delivered to the Company by any holder of the
Preferred Stock.
(b) Notice of Defaults. When any default has occurred or exists, the
Company shall give written notice within three business days of such default to
each holder of Preferred Stock. If the holder of any Preferred Stock shall give
any notice or take any other action in respect of a claimed Event of Default,
the Company shall promptly give written notice thereof to all other holders of
Preferred Stock, describing such notice or action and the nature of the claimed
Event of Default.
(c) Suits for Enforcement. In addition to any rights they may have
under the Company s articles of incorporation, in case any one or more Events of
Default shall have occurred and be continuing, unless such Events of Default
shall have been waived in the manner provided in Section 12, the holders of a
majority of the Preferred Stock may proceed to protect and enforce their rights
under this Section 11 by suit in equity or action at law. It is agreed that in
the event the holders of Preferred Stock prevail in such action, such holders of
Preferred Stock shall be entitled to receive all reasonable fees, costs and
expenses incurred, including without limitation such reasonable fees and
expenses of attorneys (whether or not litigation is commenced) and reasonable
fees, costs and expenses of appeals.
(d) Remedies Cumulative. No right, power or remedy conferred upon any
holder of Preferred Stock shall be exclusive, and each such right, power or
remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred hereby or by any such security or now or hereafter
available at law or in equity or by statute or otherwise.
(e) Remedies Not Waived. No course of dealing between the Company or
any holder of the Preferred Stock and no delay in exercising any right, power or
remedy conferred hereby or by any such security or now or hereafter existing at
law or in equity or by statute or otherwise, shall operate as a waiver of or
otherwise prejudice any such right, power or remedy; provided, however, that
this section shall not be construed or applied so as to negate the provisions
and intent of any statute which is otherwise applicable.
12. Miscellaneous.
(a) Entire Agreement. This Agreement and the other documents referenced
herein contain the entire agreement between the parties with respect to the
subject matter hereof and supersede any and all prior arrangements and
understandings, both written and oral, with respect thereto.
(b) Waivers, Amendments and Approvals. With the written consent of a
majority of the holders of the Preferred Stock, the obligations of the Company
under this Agreement may be waived or Harvest States and the Company may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of any supplemental agreement or modifying in any manner the rights and
obligations of Harvest States under the terms of this Agreement; provided,
however, that no such waiver or supplemental agreement shall amend the terms of
the Preferred Stock. Written notice of any such waiver, consent or agreement of
amendment, modification or supplement shall be given pursuant to this Section
14.
(c) Changes, Waivers, Etc. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in Section 12(b).
(d) Survival of Representations and Warranties, Etc. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made by Harvest States
or on its behalf, and the sale and purchase of the Preferred Stock and payment
therefor. All statements contained in any certificate, instrument or other
writing delivered by or on behalf of the Company pursuant to this Agreement
(other than legal opinions) or in connection with or in contemplation of the
transactions herein contemplated shall constitute representations and warranties
by the Company hereunder.
(e) Headings. The headings of the articles and sections of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(f) Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdictions to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(g) Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that except by operation of law and as
permitted by the Company pursuant to Section 8(i) of this Agreement, no party
may assign, delegate or otherwise transfer any of its rights or obligations
under this Agreement without obtaining the prior written consent of the other
party hereto.
(h) Dilution. In the event of a subdivision, split, combination or
reclassification of the Common Stock, the share and price numbers and
calculations set forth in this Agreement shall be appropriately adjusted.
(i) Governing Law. This Agreement shall be construed in accordance with
and governed by the law of the State of Minnesota, without giving effect to the
principles of conflict of laws thereof.
(j) Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereof and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
(k) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt if (i) delivered personally, by
courier or by mail or (ii) transmitted by facsimile, and in each case, addressed
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to the Company, to:
Sparta Foods, Inc.
0000 Xxxxx Xxxxxx X.X.
Xxx Xxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: A. Xxxxxxx Xxxxx
with copies to:
Xxxxxxxxxx & Xxxxx, P.A.
1100 International Centre
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxx
(ii) if to Harvest States, to
Harvest States Cooperatives
0000 Xxxxx Xxxxxxxx Xxxxxx
Xx. Xxxx, Xxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxx
Xxxxx X. Xxxxxxxx
with a copy to
Xxxxxx & Xxxxxxx LLP
000 Xxxxx 0xx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SPARTA FOODS, INC.
By
Its
HARVEST STATES COOPERATIVES
By
Its
Exhibit A
SPARTA FOODS, INC.
CERTIFICATE OF DESIGNATIONS
FOR
PREFERRED STOCK, SERIES 1998
The undersigned, being the Chief Executive Officer of Sparta Foods,
Inc., a Minnesota corporation (the "Company"), in accordance with Minnesota
Statutes, Section 302A.401, Subd. 3(b), certifies that:
Pursuant to the authority vested in the Board of Directors of the
Company by the Articles of Incorporation of the Company, the Board of Directors
on February 11, 1998, in accordance with Minnesota Statutes, Section 302A.401,
Subd. 3, duly adopted the following resolution establishing a series of the
Company s Preferred Stock, to be designated as its Preferred Stock, Series 1998:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company (the "Board of Directors") by the Articles of
Incorporation of the Company, the Board of Directors hereby establishes a series
of Preferred Stock of the Company and hereby states the designation and number
of shares, and fixes the relative rights and preferences, of such series of
shares as follows:
Preferred Stock, Series 1998
Section 1. Designation; Number of Shares. The shares of such series
shall be designated as Preferred Stock, Series 1998 (the "Preferred Stock"), and
the number of shares constituting the Preferred Stock shall be 2,500.
Section 2. Par Value; No Cumulative Voting; No Preemptive Rights. The
Preferred Stock shall have a par value of $1,000.00 per share. As provided in
Article III, Sections 3.4 and 3.6, of the Company s Articles of Incorporation,
holders of Preferred Stock shall not be entitled to cumulate their votes in any
election of directors in which they are entitled to vote and shall not be
entitled to any preemptive rights to acquire shares of any class or series of
capital stock of the Company.
Section 3. Rank. The Preferred Stock shall rank prior to all of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), now
outstanding or hereafter issued, both as to payment of dividends and as to
distributions of assets upon the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary.
Section 4. Dividends and Distributions. The holders of shares of
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for such purpose, cash
dividends at the rate of 5% per annum per share, or, at the option of the
Company, dividends of shares of Preferred Stock at the rate of 7.5% (based on
the liquidation preference of the Preferred Stock) per annum per share;
provided, however, after a Change of Control (as defined in Section 9) or such
time as there ceases to be a majority of the Board of Directors comprised as
Continuing Directors (as defined in this Section 9) (other than pursuant to an
agreement or arrangement authorized, approved or acquiesced in by the Company s
Board of Directors), the dividend rate shall be 15% per annum, in cash. Such
dividends shall be fully cumulative, shall accumulate without interest from the
date of original issuance of the Preferred Stock and shall be payable
semi-annually in arrears in cash on each January 1 and July 1 commencing July 1,
1998 (provided, that if any such date is a Saturday, Sunday or legal holiday in
the place where such dividend is to be paid, then such dividend shall be payable
without interest on the next day that is not a Saturday, Sunday or legal
holiday) to holders of record as they appear on the stock books of the Company
on such record dates as shall be fixed by the Board of Directors. Such record
dates shall be not more than 60 nor less than 10 days preceding the respective
dividend payment dates. The amount of dividends payable per share of Preferred
Stock for each full semi-annual dividend period shall be computed by dividing
the annual dividend amount by two. The amount of dividends payable for the
initial dividend period and for any other period shorter than a full semi-annual
dividend period shall be computed on the basis of a 360-day year of twelve
30-day months. No dividends or other distributions, other than dividends payable
solely in shares of Common Stock or other capital stock of the Company ranking
junior as to payment of dividends to the Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Dividend
Stock"), shall be paid or set apart for payment on, and no purchase, redemption
or other acquisition shall be made by the Company of, any shares of Junior
Dividend Stock unless and until all accumulated and unpaid dividends on the
Preferred Stock, including the full dividend for the then-current semi-annual
dividend period, shall have been paid or declared and set apart for payment.
No full dividends shall be paid or declared and set apart for payment
on any capital stock of the Company ranking, as to payment of dividends, on a
parity with the Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
been, or contemporaneously are, paid or declared and set apart for payment on
the Preferred Stock for all dividend periods terminating on or prior to the date
of payment of such full cumulative dividends. No full dividends shall be paid or
declared and set apart for payment on the Preferred Stock for any period unless
full cumulative dividends have been, or contemporaneously are, paid or declared
and set apart for payment on any Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such full cumulative
dividends. When dividends are not paid in full upon the Preferred Stock and any
Parity Dividend Stock, all dividends paid or declared and set apart for payment
upon shares of Preferred Stock and Parity Dividend Stock shall be paid or
declared and set apart for payment pro rata, so that the amount of dividends
paid or declared and set apart for payment per share on the Preferred Stock and
the Parity Dividend Stock shall in all cases bear to each other the same ratio
that accumulated and unpaid dividends per share on the shares of Preferred Stock
and Parity Dividend Stock bear to each other.
Any reference to distribution contained in this Section 4 shall not be
deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Preferred Stock shall be entitled to receive out of the assets of the
Company an amount equal to the dividends accumulated and unpaid thereon to the
date of final distribution to such holders, whether or not declared, without
interest, plus a sum equal to $1,000.00 per share, before any payment shall be
made or any assets distributed to the holders of Common Stock or any other
capital stock of the Company ranking junior as to liquidation rights to the
Preferred Stock (such Common Stock and other capital stock being referred to
herein collectively as "Junior Liquidation Stock"). The entire assets of the
Company available for distribution shall be distributed ratably among the
holders of the Preferred Stock as to liquidation rights with the Preferred Stock
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation preference of the shares of the Preferred Stock, the holders of
such shares shall not be entitled to any further participation in any
distribution of assets by the Company. Neither a consolidation or merger of the
Company with another corporation nor a sale or transfer of all or part of the
Company s assets for cash, securities or other property will be deemed a
liquidation, dissolution or winding up of the Company for purposes of this
Section 5.
Section 6. Redemption at Option of the Company. (a) The Company, at its
option, may, on or after February 23, 2001, redeem at any time all, or from time
to time any portion, of the Preferred Stock on any date set by the Board of
Directors, at a cash price equal to $1,100.00 per share plus, in each case, an
amount per share in cash equal to all dividends on the Preferred Stock
accumulated and unpaid on such share, whether or not declared, to the date fixed
for redemption (such sum being hereinafter referred to as the "Redemption
Price").
In case of the redemption of less than all of the then outstanding
Preferred Stock, the Company shall designate by lot, or in such other manner as
the Board of Directors may determine, the shares to be redeemed, or shall effect
such redemption pro rata. Notwithstanding the foregoing, the Company shall not
redeem less than all of the Preferred Stock at any time outstanding until all
dividends accumulated and in arrears upon all Preferred Stock then outstanding
shall have been paid for all past dividend periods.
Not more than 60 nor less than 30 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to the holders of
record of the Preferred Stock to be redeemed, addressed to such shareholders at
their last addresses as shown on the stock books of the Company. Each such
notice of redemption shall specify the date fixed for redemption; the redemption
price; the place or places of payment; the then-effective Conversion Rate (as
defined in Section 7); that the right of holders of Preferred Stock called for
redemption to exercise their conversion right pursuant to Section 7 shall expire
as to such shares at the close of business on the date fixed for redemption
(provided that there is no default in payment of the Redemption Price); that
payment of the Redemption Price will be made upon presentation and surrender of
certificates representing the shares of Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Preferred Stock; and that on and after the redemption
date, dividends will cease to accumulate on such shares.
(b) In the case of a Change of Control (as defined in Section 9
herein), the Company may redeem not less than all of the Preferred Stock no
earlier than the date on which there is a Change of Control, at a cash price
equal to the Redemption Price (the "Change of Control Redemption") provided that
notice has been given as provided herein.
Not more than 60 nor less than 30 days prior to the date the Company
reasonably believes will be the date upon which a Change of Control will be
effected, notice by first class mail, postage prepaid, shall be given to the
holders of record of the Preferred Stock, addressed to such shareholders at
their last addresses as shown on the stock books of the Company. Each such
notice of redemption shall specify the prospective redemption date; the
redemption price; the place or places of payment; the then-effective Conversion
Rate (as defined in Section 7); that the prospective redemption date may be
canceled at any time with proper notice by the Company (as set forth herein);
that the right of holders of Preferred Stock called for redemption to exercise
their conversion right pursuant to Section 7 shall expire as to such shares on
the redemption date (provided that there is no default in payment of the
Redemption Price); that payment of the Redemption Price will be made upon
presentation and surrender of certificates representing the shares of Preferred
Stock; that accumulated but unpaid dividends to the date fixed for redemption
will be paid on the date fixed for redemption; that accumulated but unpaid
dividends will not be paid in the case of a conversion of Preferred Stock; and
that on and after the redemption date, dividends will cease to accumulate on
such shares. A holder of the Preferred Stock shall be permitted to make a
conversion election conditional on and effective immediately prior to any such
redemption.
If the Company determines that the Change of Control will not be
effected, not more than ten days following such date, notice by first class
mail, postage prepaid, shall be given to the holders of record of the Preferred
Stock to be redeemed, addressed to such shareholders at their last addresses as
shown on the stock books of the Company. Each notice shall state that the
Company cancels its Change of Control Redemption and that the rights and
preferences of the holders of record of the Preferred Stock shall continue with
respect to the Preferred Stock.
(c) Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not a holder of the Preferred Stock
receives such notice; and failure so to give such notice, or any defect in such
notice, to the holders of any shares designated for redemption shall not affect
the validity of the proceedings for the redemption of any other shares of
Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption (other than shares that
have been duly surrendered for conversion at or before the close of business on
the date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Company at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price. If fewer
than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with
respect to the shares so called shall cease to accumulate on and after the date
fixed for redemption, such shares shall no longer be deemed outstanding, the
holders thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive the
Redemption Price without interest upon surrender of their certificates) shall
terminate.
Section 7. Conversion at Option of Holders. Holders of Preferred Stock
may, at their option upon surrender of the certificates therefor, convert any or
all of their shares of Preferred Stock into fully paid and nonassessable shares
of Common Stock (and such other securities and property as they may be entitled
to, as hereinafter provided) at any time after issuance thereof; provided, that
such conversion right shall expire at the close of business on the date, if any,
fixed for the redemption of Preferred Stock in any notice of redemption given
pursuant to Sectiony6 hereof if there is no default in payment of the Redemption
Price. Each share of Preferred Stock shall be convertible at the office of any
transfer agent for the Preferred Stock, and at such other office or offices, if
any, as the Board of Directors may designate, into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) as shall be equal to the Conversion Rate, determined
as hereinafter provided, in effect at the time of conversion. Each share of
Preferred Stock shall initially be converted into full shares of Common Stock at
the rate of 606.06 shares of Common Stock for each share of Convertible
Preferred Stock, subject to adjustment from time to time as provided in Section
8 (such conversion rate, as so adjusted from time to time, being referred to
herein as the "Conversion Rate"). The Conversion Price means $1,000.00 divided
by the Conversion Rate. Upon conversion, no adjustment or payment shall be made
in respect of accumulated and unpaid dividends on the Preferred Stock
surrendered for conversion.
The right of holders of Preferred Stock to convert their shares shall
be exercised by surrendering for such purpose to the Company or its agent, as
provided above, certificates representing shares to be converted, duly endorsed
in blank or accompanied by proper instruments of transfer. The Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of Common Stock or other securities or
property upon conversion of Preferred Stock in a name other than that of the
holder of the shares of Preferred Stock being converted, nor shall the Company
shall be required to issue or deliver any such shares or other securities or
property unless and until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Preferred Stock outstanding upon
the basis hereinbefore provided shall at all times be reserved by the Company,
free from preemptive rights, for such conversion, subject to the provisions of
the next paragraph. If the Company shall issue any securities or make any change
in its capital structure that would change the number of shares of Common Stock
into which each share of the Preferred Stock shall be convertible as herein
provided, the Company shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Preferred Stock on the new basis.
Upon the surrender of certificates representing shares of Preferred
Stock to be converted, duly endorsed or accompanied by proper instruments of
transfer as provided above, the person converting such shares shall be deemed to
be the holder of record of the Common Stock issuable upon such conversion, and
all rights with respect to the shares surrendered shall forthwith terminate
except the right to receive the Common Stock or other securities, cash or other
assets as herein provided.
No fractional shares of Common Stock shall be issued upon conversion of
Preferred Stock but, in lieu of any fraction of a share of Common Stock which
would otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Company shall pay
in cash an amount equal to the product of (a) the Closing Price of a share of
Common Stock (as defined in the next sentence) on the last trading day before
the conversion date and (b) such fraction of a share. The Closing Price for each
day shall be the last reported sale price regular way or, in case no sale takes
place on such day, the average of the closing bid and asked prices regular way
on such day, in either case as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, on the NASDAQ National
Market System, or, if the Common Stock is not admitted for quotation on the
NASDAQ National Market System, the average of the high bid and low asked prices
on such day as recorded by the National Association of Securities Dealers, Inc.
through NASDAQ, or, if the National Association of Securities Dealers, Inc.
through NASDAQ shall not have reported any bid and asked prices for the Common
Stock on such day, the average of the bid and asked prices for such day as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company for such purpose, or, if no such bid and asked prices can be
obtained from any such firm, the fair market value of one share of the Common
Stock on such day as determined in good faith by the Board of Directors of the
Company.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject to
the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Company with any
other corporation (other than a wholly owned subsidiary of the Company), or in
case of any sale or transfer of all or substantially all of the assets of the
Company, or in case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Company shall, prior to or at the time of such transaction, make
appropriate provision or cause appropriate provision to be made so that holders
of each share of Preferred Stock then outstanding shall have the right
thereafter to convert such share of Preferred Stock into the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such share of Preferred Stock could
have been converted immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange. If in connection with
any such consolidation, merger, sale, transfer or share exchange, each holder of
shares of Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Company shall provide
or cause to be provided to each holder of Preferred Stock the right to elect the
securities, cash or other assets into which the Preferred Stock held by such
holder shall be convertible after completion of any such transaction on the same
terms and subject to the same conditions applicable to holders of the Common
Stock (including, without limitation, notice of the right to elect, limitations
on the period in which such election shall be made and the effect of failing to
exercise the election).
(b) In case the Company shall (i) pay a dividend or make a distribution
on its Common Stock in shares of its capital stock, (ii) subdivide its
outstanding Common Stock into a greater number of shares, (iii) combine the
shares of its outstanding Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its Common Stock any shares of its capital stock,
then in each such case the Conversion Rate in effect immediately prior thereto
shall be proportionately adjusted so that the holder of any Preferred Stock
thereafter surrendered for conversion shall be entitled to receive, to the
extent permitted by applicable law, the number and kind of shares of capital
stock of the Company which such holder would have owned or have been entitled to
receive after the happening of such event had such Preferred Stock been
converted immediately prior to the record date for such event (or if no record
date is established in connection with such event, the effective date for such
action). An adjustment pursuant to this subparagraph (b) shall become effective
immediately after the record date in the case of a stock dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(c) In case the Company shall at any time prior to February 23, 2001
(i) except pursuant to (A) 1,103,667 options and 3,634,208 warrants outstanding
as of the date hereof or (B) securities issued in compliance with Section 9(d)
of the Stock Purchase Agreement, dated February 24, 1998, between the Company
and Harvest States Cooperatives (the "Stock Purchase Agreement"), issue or sell
any shares of its Common Stock for a consideration per share less than the
Conversion Price in effect immediately prior to the time of such issuance or
sale, (ii), except for securities issued in compliance with Section 9(d) of the
Stock Purchase Agreement, issue or sell any warrants, options or other rights to
acquire shares of its Common Stock at a purchase price less than the Conversion
Price in effect immediately prior to the time of such issuance or sale, or (iii)
issue or sell any other securities that are convertible into shares of Common
Stock for a purchase or exchange price less than the Conversion Price in effect
immediately prior to the time of such issuance or sale then, upon such issuance
or sale, the Conversion Rate shall be increased by reducing the Conversion Price
to the price at which such shares of Common Stock are being issued or sold by
the Company or the price at which such other securities are exercisable or
convertible into shares of the Company's Common Stock, and then adjusting the
Conversion Rate to $1,000.00 divided by the new Conversion Price.
(d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness or assets
(including securities, but excluding any rights or warrants to purchase
securities of the Company referred to in subparagraph (c) above, any dividend or
distribution paid in cash out of the retained earnings of the Company and any
dividend or distribution referred to in subparagraph (b) above), then in each
such case the Conversion Rate then in effect shall be adjusted in accordance
with the formula
C1 = the adjusted Conversion Rate.
C = the current Conversion Rate.
M = the Current Market Price per share of Common Stock on the record
date mentioned below.
F = the amount of such cash dividend and/or the fair market value on
the record date of the assets, securities, rights or warrants to be distributed
divided by the number of shares of Common Stock outstanding on the record date.
The Board of Directors of the Company shall determine in good faith such fair
market value.
Such adjustment shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or distribution.
(e) All calculations hereunder shall be made to the nearest cent or to
the nearest 1/100 of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph(a) or (b) above, the holder of any Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash or assets other than Common Stock, the number or amount of such
securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted, the Company shall give notice
by mail at the time of, and together with, the next dividend payment to the
holders of record of Preferred Stock, setting forth the adjustment and the new
Conversion Rate. Notwithstanding the foregoing notice provisions, failure by the
Company to give such notice or a defect in such notice shall not affect the
binding nature of such corporate action of the Company.
Whenever the Company shall propose to take any of the actions specified
in subparagraphs (a), (b), (c) or (d) of the first paragraph of this Section 8
which would result in any adjustment in the Conversion Rate, the Company shall
cause a notice to be mailed at least 30 days prior to the date on which the
books of the Company will close or on which a record will be taken for such
action to the holders of record of the outstanding Preferred Stock on the date
of such notice. Such notice shall specify the action proposed to be taken by the
Company and the date as of which holders of record of the Common Stock shall
participate in any such actions or be entitled to exchange their Common Stock
for securities or other property, as the case may be. Failure by the Company to
give such notice or any defect in such notice shall not affect the validity of
the transaction.
Notwithstanding any other provision of this Section 8, no adjustment in
the Conversion Rate need be made (A) for a change in par value of the Common
Stock not involving a subdivision or combination described in clause (ii) or
(iii) of subparagraph (b) of the first paragraph of this Section 8 or (B) after
the Preferred Stock becomes convertible solely into cash (and no interest shall
accrue on the cash).
Section 9. Preferred Stock Redeemable at Option of Holders. Not later
than 15 days following the occurrence of a Put Event (as defined in this Section
9), the Company shall provide written notice of such occurrence by first class
mail, postage prepaid addressed to each holder of record (at the close of
business on the business day next preceding the day on which the notice is
given) of shares of Preferred Stock (the "Put Event Notice"). At any time
following the delivery of the Put Event Notice, the Preferred Stock shall be
redeemable at the option of the holders of a majority of the then outstanding
shares of Preferred Stock in the manner and on the terms described herein below.
If at any time after the delivery of the Put Event Notice the holders
of a majority of the outstanding shares of Preferred Stock desire to have the
Company redeem the Preferred Stock, then such holders shall deliver to the
Company a written notice requesting redemption properly executed by the holders
of not less than a majority of the outstanding shares of Preferred Stock (the
"Redemption Election Notice"). Upon receipt of the Redemption Election Notice,
the Company shall redeem on the last day of the sixth full month following
receipt of such Redemption Election Notice (the "Required Redemption Date") 100%
of the outstanding shares of Preferred Stock. The redemption price with respect
to each share of Preferred Stock to be redeemed on each Required Redemption Date
shall be an amount equal to $1,000.00 per share plus, in each case, an amount
per share equal to all dividends on the Preferred Stock accumulated and unpaid
on such share, whether or not declared, to such Required Redemption Date (the
"Required Redemption Price").
Not more than 60 nor less than 30 days prior to the Required Redemption
Date, written notice (the "Required Redemption Notice") shall be given by the
Company by first class mail, postage prepaid, addressed to each holder of record
(at the close of business on the business day next preceding the day on which
the notice is given) of shares of Preferred Stock notifying such holder of the
redemption and specifying the Required Redemption Price, the Required Redemption
Date and the place where such Required Redemption Price shall be payable. The
Required Redemption Notice shall be addressed to each holder at such holder s
address as shown by the records of the Company. On or after the Required
Redemption Date, each holder of the shares called for redemption shall surrender
the certificate or certificates evidencing such shares to the Company at the
place designated in such notice and shall thereupon be entitled to receive
payment of the redemption price. Payment of the redemption price will only be
made upon presentation and surrender of certificates representing the shares of
Preferred Stock. From and after the close of business on the Required Redemption
Date, unless there shall have been a default in the payment of the Required
Redemption Price, all rights of holders of shares being redeemed (except the
right to receive the Required Redemption Price) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Company, or be deemed to be outstanding for any purpose whatsoever.
If on any Required Redemption Date the funds of the Company legally
available for the redemption of shares of Preferred Stock are insufficient to
redeem the total number of outstanding shares subject to redemption, then the
holders of shares of the Preferred Stock shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts that would be payable with respect to the full number of shares owned by
them if all such shares to be redeemed were redeemed in full. The shares of
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter, when additional funds
of the Company are legally available for the redemption of such shares of the
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of such shares, or such portion thereof,
for which funds are then legally available, on the basis set forth above.
Any notice that is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not a holder of the Preferred Stock
receives such notice; and failure so to give such notice, or any defect in such
notice, to the holders of any shares designated for redemption shall not affect
the validity of the proceedings for the redemption of any other shares of
Preferred Stock.
For purposes of this Section 9, Put Event shall mean (i) a Change of
Control (as defined in this Section 9) of the Company or (ii) an Event of
Default as such term is defined in the Stock Purchase Agreement.
Change in Control means a change in control of the Company of a nature
that would be required to be reported (assuming such event has not been
previously reported) in response to Item 1(a) of the Current Report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") pursuant to an agreement or
arrangement authorized, approved or acquiesced in by the Company s Board of
Directors; provided, that, without limiting the foregoing, a Change in Control
shall be deemed to have occurred at such time as, pursuant to an agreement or
arrangement authorized, approved or acquiesced in by the Company s Board of
Directors (A) any person is or becomes a beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50 percent or more of
the combined voting power of Corporation s outstanding securities ordinarily
possessing the right to vote for the election of directors (Voting Securities)
or (B) the Company disposes of all or substantially all of its assets. For
purposes of this paragraph, Continuing Directors shall mean individuals who on
the date hereof constituted the Board of Directors and any new director who
subsequently was elected or nominated for election by a Board of Directors the
majority of which were Continuing Directors.
Section 10. No Sinking Fund. The Preferred Stock shall not be subject
to the operation of a purchase, retirement or sinking fund.
Section 11. Voting Rights. The holders of Preferred Stock shall not
have any voting rights except as set forth below or as otherwise from time to
time required by law.
(a) Whenever dividends on the Preferred Stock shall be in arrears in an
amount equal to one semi-annual dividend payment, the holders of the Preferred
Stock (voting separately as a single class) will be entitled to vote for and
elect one director (in addition to any other rights any such holder may have).
Such right of the holders of Preferred Stock to vote for the election of such
additional director may be exercised at any annual meeting or at any adjournment
thereof, at any special meeting called for such purpose as hereinafter provided
or by unanimous written consent of the holders of the Preferred Stock, until
dividends in default on such outstanding shares of Preferred Stock shall have
been paid in full (or such dividends shall have been declared and funds
sufficient therefor set apart for payment), at which time the term of office of
the director elected pursuant to this Section 11(b) shall terminate
automatically (subject to revesting in the event of each and every subsequent
default of the character specified in the preceding sentence). So long as such
right to vote continues, the Secretary of the Company shall call, upon the
written request of the holders of record of at least 10% of the outstanding
shares of Preferred Stock addressed to him or her at the principal office of the
Company or, if such a request is not made, upon his or her own motion, a special
meeting of the holders of such shares for the election of such additional
director, as provided herein. Such meeting shall be held not less than 45 or
more than 90 days after the accrual of such right, at the place and upon the
notice provided by law and in the by-laws of the Company for the holding of
meetings of shareholders. No such special meeting or adjournment thereof shall
be held on a date less than 30 days before an annual meeting of shareholders or
any special meeting in lieu thereof; provided, that at such annual meeting
appropriate provisions are made to allow the holders of the Preferred Stock to
exercise such right at such meeting. If at any such annual or special meeting or
any adjournment thereof the holders of a majority of the then outstanding shares
of Preferred Stock entitled to vote in such election shall be present or
represented by proxy, then the authorized number of directors of the Company
shall be increased by two, and the holders of Preferred Stock (voting separately
as a single class) shall be entitled to elect such additional director. The
director so elected shall serve until the next annual meeting or until their
successors shall be elected and shall qualify, unless the term of office of the
person so elected as a director shall have terminated by virtue of the payment
in full of all dividends in arrears (or such dividends shall have been declared
and funds sufficient therefor set apart for payment).
(b) If a director elected by the holders of Preferred Stock pursuant to
Section 11(a) shall cease to serve as a director before his or her term shall
expire, the holders of Preferred Stock then outstanding and entitled to vote for
such director may, at a special meeting of such holders called as provided
above, elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
Section 12. Certain Actions Not to be Taken Without Vote of Holders of
Preferred Stock. Without the consent or affirmative vote of the holders of at
least two-thirds of the outstanding shares of Preferred Stock, voting separately
as a class, the Company shall not authorize, create or issue any shares of any
other class or series of capital stock ranking senior to the Preferred Stock as
to dividends or upon liquidation. The affirmative vote or consent of the holders
of at least two-thirds of the outstanding shares of the Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Company's
Articles of Incorporation (including any certificate of designations
establishing any class or series of preferred stock of the Company) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Preferred Stock; provided, however, that any increase in the authorized
preferred stock of the Company or the creation and issuance of any other capital
stock of the Company ranking junior to the Preferred Stock shall not be deemed
to materially affect such powers, preferences or special rights.
Section 13. Outstanding Shares. For purposes of this Certificate of
Designations, all shares of Preferred Stock shall be deemed outstanding except
for (a) shares of Preferred Stock held of record or beneficially by the Company
or any subsidiary of the Company; (b) from the date of surrender of certificates
representing Preferred Stock for conversion pursuant to Section 7, all shares of
Preferred Stock which have been converted into Common Stock or other securities
or property pursuant to Section 7; (c) from the date fixed for redemption
pursuant to Section 6, all shares of Preferred Stock which have been called for
redemption, provided that funds necessary for such redemption are available
therefor and have been irrevocably deposited or set aside for such purpose; and
(d) from the date fixed for redemption pursuant to Section 9, all shares of
Preferred Stock for which the holders have exercised its put option, provided
that funds necessary for such redemption are available therefor and have been
irrevocably deposited or set aside for such purpose.
Section 14. Status of Preferred Stock Upon Retirement. Shares of
Preferred Stock that are acquired or redeemed by the Company or converted
pursuant to Section 7 shall return to the status of authorized and unissued
shares of preferred stock of the Company without designation as to series. Upon
the acquisition or redemption by the Company or conversion pursuant to Section 7
of all outstanding shares of Preferred Stock, all provisions of this Certificate
of Designations shall cease to be of further effect. Upon the occurrence of such
event, the Board of Directors of the Company shall have the power, pursuant to
Minnesota Statutes, Section 302A.135, Subd. 5 or any successor provision and
without shareholder action, to cause restated articles of incorporation of the
Company or other appropriate documents to be prepared and filed with the
Secretary of State of the State of Minnesota which reflect such removal of all
provisions relating to the Preferred Stock and/or the cancellation of this
Certificate of Designations.
IN WITNESS WHEREOF, Sparta Foods, Inc. has caused this certificate to
be signed this 24th day of February, 1998.
SPARTA FOODS, INC.
By
Its
Exhibit B
[FORM OF OPINION LANGUAGE]
1. Each of the Company and La Canasta of Minnesota, Inc. (the
"Subsidiary") is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota, is qualified to do business
and is in good standing as a foreign corporation in each jurisdiction where it
is required to be qualified and has all requisite corporate power and authority
to carry on its business as now conducted, to own, lease and operate its
properties and to authorize, issue and sell the Preferred Stock as contemplated
by the Purchase Agreement and to enter into and carry out the provisions of the
Purchase Agreement.
2. As contemplated by Minnesota Statutes, Section 302A.673, the Company
has formed a committee composed of all of the Board s disinterested directors,
which Committee has approved the acquisition of Preferred Stock to be made
pursuant to the Purchase Agreement on the Closing Date and thereafter, and
accordingly, such Section does not impose any limitation on a business
combination or other transaction contemplated thereby with Harvest States.
3. The Company owns all of the outstanding shares of capital stock of
the Subsidiary. To the best knowledge of such counsel, as of the date hereof,
the Company does not have any direct or indirect ownership interest in any other
corporation, partnership, joint venture, association or other business
enterprise.
4. The Purchase Agreement has been authorized by all necessary
corporate action, has been duly and validly executed and delivered by the
Company and is a valid and binding agreement of the Company enforceable against
the Company in accordance with its terms. All corporate action necessary to the
authorization, creation, issuance and delivery of the Preferred Stock has been
taken by the Company. The Preferred Stock has been duly authorized, validly
issued and outstanding, fully paid and nonassessable, free from preemptive
rights, and is free from any pledge, lien, encumbrance or restriction known to
or caused or created by the Company other than restrictions on transfer under
state and/or federal securities laws and has been issued in compliance with all
state and federal securities laws. Upon conversion of the Preferred Stock into
common stock, $.01 par value per share, of the Company (the "Common Stock") in
accordance with the terms of the Preferred Stock, the Common Stock will be duly
authorized, validly issued and outstanding, fully paid and nonassessable and
free from any pledge, lien, encumbrance or restriction known to or caused or
created by the Company other than state and/or federal securities laws.
5. The execution, delivery and performance by the Company of the
Purchase Agreement and the consummation of the transactions contemplated hereby
by the Company require no action by, notices to or filing with any governmental
body, agency, official or authority or any third party.
6. The authorization, issuance and sale of the Preferred Stock and the
execution, delivery and performance by the Company of the Purchase Agreement
does not and will not (a) contravene or conflict with the articles of
incorporation or bylaws of the Company, (b) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Company or any of
its properties or assets, (c) constitute a default under or give rise to a right
of termination, cancellation, restriction or acceleration of any right or
obligation of the Company or to a loss of any benefit to which the Company is
entitled under any provision of any agreement, contract or other instrument
binding upon or applicable to the Company or any of its properties or assets and
known to such counsel (which shall include all SEC Reports (as defined in the
Purchase Agreement)) or any license, franchise or permit or other similar
authorization held by or applicable to the Company and known to such counsel
(which shall include all SEC Reports) or (d) result in the creation of
imposition of any Lien on any asset of the Company. For purposes of the Purchase
Agreement, Lien means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, encumbrance or restriction of any kind in respect of
such asset.
7. The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock of which 6,798,637 shares are issued and outstanding as
of the date hereof (without giving effect to the Purchase Agreement and the
transactions contemplated thereby) and 1,000,000 shares of undesignated
preferred stock, 2,500 of which are designated Preferred Stock, Series 1998,
none of which are outstanding as of the date hereof. As of the date hereof,
266,333 shares of Common Stock are reserved for issuance pursuant to the Company
s Amended and Restated Stock Option Plan, pursuant to which options for
1,033,667 shares of Common Stock are outstanding. In addition, options for
70,000 shares of Common Stock are outstanding but not issued pursuant to a plan.
As of the date hereof, 3,634,208 shares of Common Stock are reserved for
issuance pursuant to the exercise of outstanding warrants. All outstanding
shares of Common Stock are duly authorized, validly issued, fully paid and
nonassessable, are free from preemptive rights and were issued in compliance
with all state and federal securities laws. Except as set forth above, to the
best knowledge of such counsel, there are outstanding (i) no other shares of
capital or other voting securities of the Company, (ii) no securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company and (iii) no other options or other rights to stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the Company Securities ). To the best
knowledge of such counsel, there are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any Company Securities.
8. To the best knowledge of such counsel, there are no legal actions,
suits, arbitrations or other legal, administrative or governmental proceedings
or investigations pending or, to the knowledge of the Company, threatened
against the Company or the Subsidiary, or its properties or business, and the
Company is not aware of any facts which are likely to result in or form the
basis for any such action, suit or other proceeding, except as described in its
1997 10-KSB (as defined in the Purchase Agreement). To the best knowledge of
such counsel, neither the Company nor the Subsidiary is in default with respect
to any judgment, order or decree of any court or any governmental agency or
instrumentality nor has the Company or the Subsidiary been threatened with any
action or proceeding under any business or zoning ordinance, law or regulation.
9. The issuance and sale of the Preferred Stock as contemplated by the
Purchase Agreement complies with applicable Nasdaq governance standards.
