<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-13260
SILVERADO FOODS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1369218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6846 SOUTH CANTON, SUITE 110, TULSA, OKLAHOMA 74136
(Address of principal executive offices)
(918) 496-2400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at November 11, 1996
----- --------------------------------
Common Stock, $.01 Par Value 6,191,663
<PAGE>
PART I
FINANCIAL
INFORMATION
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
---- ----
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 61,733 $ 128,401
Accounts receivable, net of allowance 5,101,567 3,173,138
Inventories, net (Note 2) 6,496,870 5,005,431
Prepaid expenses and other 777,914 750,077
Deferred tax assets 16,663 16,663
----------------- ---------------
Total current assets 12,454,747 9,073,710
----------------- ---------------
NOTE RECEIVABLE (Note 4) 1,338,734 -
PROPERTY, PLANT AND EQUIPMENT, net 12,307,309 2,716,635
GOODWILL AND OTHER INTANGIBLES, net 13,629,200 10,846,661
----------------- ---------------
Total Assets $39,729,990 $ 22,637,006
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,691,400 $ 1,449,716
Trade accounts payable 9,556,928 5,916,024
Accrued liabilities 1,580,918 1,534,760
Other liabilities 59,635 113,538
----------------- ---------------
Total current liabilities 20,888,881 9,014,038
----------------- ---------------
LONG-TERM DEBT, less current maturities 15,506,215 8,293,992
----------------- ---------------
DEFERRED TAX LIABILITIES 16,663 16,663
----------------- ---------------
OTHER - 94,025
----------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 share 69,528 59,831
Treasury Stock (64,652) (64,652)
Warrants 46,549 77,408
Additional paid-in-capital 18,111,871 15,459,850
Deficit (14,845,065) (10,314,149)
----------------- ---------------
Total shareholders' equity 3,318,231 5,218,288
----------------- ---------------
Total liabilities and shareholders $39,729,990 $ 22,637,006
================= ===============
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $13,477,841 $ 9,425,739 $35,215,886 $29,480,945
COST OF SALES 9,663,018 6,591,478 23,878,313 19,427,794
------------ ------------ ------------ ------------
Gross Profit 3,814,823 2,834,261 11,337,573 10,053,151
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 1,960,020 2,221,677 5,676,927 5,333,606
Selling and marketing 3,037,603 1,919,193 7,730,881 6,110,995
Depreciation 71,600 75,325 223,439 187,420
Amortization of goodwill and other intangibles 378,399 207,819 1,025,429 615,100
------------ ------------ ------------ ------------
5,447,622 4,424,014 14,656,676 12,247,121
------------ ------------ ------------ ------------
OPERATING LOSS (1,632,799) (1,589,753) (3,319,103) (2,193,970)
OTHER INCOME (EXPENSE):
Interest (381,182) (190,773) (1,012,722) (518,399)
Other, net (23,777) 6,947 (67,841) 20,852
------------ ------------ ------------ ------------
(404,858) (183,826) (1,080,563) (497,547)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (2,037,758) (1,773,579) (4,399,666) (2,691,517)
PROVISION FOR INCOME TAXES - - - -
------------ ------------ ------------ ------------
NET LOSS (2,037,758) (1,773,579) (4,399,666) (2,691,517)
Accretion of common stock subject to price
guarantee or put option - - (131,250) -
------------ ------------ ------------ ------------
LOSS APPLICATION TO COMMON SHAREHOLDERS $(2,037,758) $(1,773,579) $(4,530,916) $(2,691,517)
============ ============ ============ ============
LOSS PER COMMON AND
COMMON EQUIVALENT SHARE (SEE NOTE 3) $ (0.33) $ (0.30) $ (0.73) $ (0.47)
============ ============ ============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC.AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- -------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT WARRANTS
--------- ------ --------- ------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 5,980,009 $ 59,831 (26,995) $(64,652) $ 77,408
Accretion of common stock
subject to price guarantee - - - - -
Exercise of warrants 69,774 697 - - (30,859)
Issuance of stock in connection
with acquisition 200,000 2,000 - - -
Stock Issued for Buyout of -
Royalty 700,000 7,000 - - -
Net loss (unaudited) - - - - -
--------- --------- --------- -------- --------
Balance, September 30, 1996 6,952,783 $ 69,528 (26,995) $(64,652) $ 46,549
========= ========= ========= ======== ========
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------- ------- -----
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 15,459,850 $ (10,314,149) $5,218,288
Accretion of common stock
subject to price guarantee - (131,250) (131,250)
Exercise of warrants 61,021 - 30,859
Issuance of stock in connection
with acquisition 598,000 - 600,000
Stock Issued for Buyout of
Royalty 1,993,000 - 2,000,000
Net loss (unaudited) - (4,399,666) (4,399,666)
------------ ----------- ----------
BALANCE, SEPTEMBER 30, 1996 $ 18,111,871 $ (14,845,065) $3,318,231
============ ============== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,339,666) $ (2,691,517)
--------------- --------------
<S> <C> <C>
Adjustments to reconcile net loss to cash to cash used in operating activities--
Depreciation and amortization 1,480,561 1,005,293
Change in assets and liabilities, net of effect of acquisitions:
Decrease in accounts receivable (1,784,429) 697,470
Decrease in inventory (878,886) (592,879)
Increase in prepaid expenses and other (143,411) 75,685
Increase in accounts payable and accrued liabilities 3,217,201 1,171,289
Increase in other intangibles (709,123) (372,868)
--------------- --------------
Total adjustments 1,181,913 1,983,990
--------------- --------------
Cash used in operating activities (3,217,753) (707,527)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,876,398) (509,418)
Payments for acquisitions (4,361,505) (1,729,395)
--------------- --------------
Cash used in investing activities (7,237,903) (2,238,813)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 30,859 139,620
Borrowings from long-term debt 2,475,201 6,567,407
Principal payments on long-term debt (887,058) (3,827,419)
Borrowing on note payable 8,769,986 -
--------------- --------------
Cash provided by financing activities 10,388,988 2,879,608
=============== ==============
NET INCREASE (DECREASE) IN CASH (66,668) (66,732)
CASH, beginning of period 128,401 558,210
CASH, end of period $ 61,733 $ 491,478
=============== ==============
Non-Cash Financing Activities:
Issuance of Stock for Acquisition $ 600,000 $ -
Capitalized Lease Obligations 5,115,153 -
Stock issued for Buyout of Royalty 2,000,000
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for-
Interest $ 677,073 $ 340,581
Income taxes - -
</TABLE>
See note to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
--------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. GENERAL:
The accompanying consolidated financial statements have been prepared by
Silverado Foods, Inc. (the "Company") without audit and should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1995. The foregoing financial statements include only normal
recurring accruals and all adjustments which the Company considers necessary for
a fair presentation.
2. DETAILS TO CONSOLIDATED BALANCE SHEETS:
Inventories consist primarily of finished goods and packaging supplies which are
stated at the lower of cost (first-in, first-out basis) or market as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Raw Materials $2,881,217 $2,010,577
Finished Goods 3,647,237 3,023,927
---------- ----------
6,528,454 5,034,504
Less: Allowance for excess and
obsolete inventory (31,584) (29,073)
---------- ----------
$6,496,870 $5,005,431
========== ==========
- --------------------------------------------------------------------
</TABLE>
3. LOSS PER SHARE:
For the three months ended September 30, 1996 and September 30, 1995, the loss
per share calculation includes the weighted average number of shares outstanding
for the period which were 6,233,395 and 5,859,485, respectively. For the nine
months ended September 30, 1996 and September 30, 1995, the loss per share
calculation includes the weighted average number of shares outstanding for the
period which were 6,210,914 and 5,783,247, respectively.
4. NOTE RECEIVABLE
In April 1996, the Company sold its Gift and Gourmet division in consideration
for a note receivable of $1,370,000 bearing interest at 11% retaining a security
interest in the related tangible and intangible assets. The amount reflected on
the accompanying balance sheet of
<PAGE>
$1,338,734 represents the carrying value of the assets sold. The terms of the
note receivable call for interest only for the first two years and principal and
interest over the remaining four years. No gain or loss was recognized on this
transaction.
5. PRO FORMA
On August 7, 1996, the Company acquired certain assets from The Bagel Place,
Inc. for approximately $2,780,000. Below are pro forma results of operations for
the nine month period ending September 30, 1996 and September 30, 1995. The pro
forma results of operations below give effect to certain adjustments as if the
acquisition had occured on January 1, 1995.
<TABLE>
<CAPTION>
September 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $42,371,260 $42,011,539
Net Loss (6,079,690) (2,926,674)
Loss per Share (.98) (.51)
</TABLE>
6. SUBSEQUENT EVENTS
On October 22, 1996, the Company signed a non-binding letter of intent to
complete a Regulation S offering for $3 million in convertible debentures
bearing interest at 8%. This offering is to be completed within a 90 day
period. Amounts received from the Regulation S offering will be used to reduce
a portion of the accounts payable that are past due. To date, the Company has
issued $300,000 of such debentures. These convertible debentures may be
converted, after 45 days and at the option of the holder, into Common Stock of
the Company at a conversion price for each share at the lower of (a) 70% of the
closing price of the Common Stock for the day immediately preceding the
conversion date or (b) 70% of the average of the closing prices of the Common
Stock for the five business days immediately preceding the date of subscription
by the holder. In addition, during the third quarter, the Company issued, in a
private placement, $3,550,000 in principal amount of its 9% Convertible
Subordinated Notes. $150,000 of these notes are convertible at $2.50 per share
and $3,400,000 are convertible at $3.25 per share. $3,000,000 in principal
amount of such notes have been purchased by the Company's Chief Executive
Officer, who has agreed to exchange up to $3 million in principal amount of such
Notes for new Notes with a conversion price set at a level which, when averaged
with the debentures issued in the Regulation S offering, would result in an
average conversion price of $3.25 per share. Amounts received from this debt
financing were used to finance the Company's purchase of certain assets of the
Bagel Place, Inc. and to reduce accounts payable which were past due.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and notes thereto. The
following table presents, as a percentage of net sales, certain selected
financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30
-------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales 100% 100% 100% 100%
Gross Profit 28 30 32 34
General and Administrative 15 24 16 18
Selling and Marketing 22 20 22 21
Depreciation and Amortization of Intangibles 3 3 4 3
Operating Loss (12) (17) (10) (7)
Interest & Other 3 2 3 2
Net Loss (15) (19) (13) (9)
</TABLE>
PERIOD TO PERIOD COMPARISONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1995
Net Sales. Net sales increased 43% from $9,426,000 to $13,478,000. The
snack tray segment's net sales were $6,911,000 and accounted for 51% of total
company sales for the quarter ended September 30, 1996 compared to 48% or
$4,509,000 for the same period of 1995, an increase of 53%. A portion of this
increase was due to five acquisitions in the snack tray segment occurring
subsequent to September 30, 1995 which accounted for revenues of $835,000. The
remaining sales increase was in the snack tray segment which experienced a 9%
internal growth rate in the existing snack tray operations over the prior year.
This increase is attributed to enhancements to existing routes in the base snack
tray business and expansion into two cities, Los Angeles, California and Long
Island, New York. Sales in the specialty baked goods segment increased
$1,649,000 due to increases from the acquisition of the assets of The Bagel
Place, Inc. as of August 7, 1996, and from increases in sales of the biscotti
product line.
Gross Profit. Gross profit for the three months ended September 30, 1996 was
$3,815,000, a 35% increase over the comparable period in 1995 of $2,834,000.
Gross profit as a percentage of
<PAGE>
net sales decreased from 30% to 28%. Gross profit in the snack tray segment was
$2,687,000 an increase of 42% over the prior year quarter but decreased as a
percentage of net sales from 42% to 38%. The lower gross margin was a result of
higher product cost when compared to the same period of 1995. In the specialty
baked goods segment, gross profit decreased from $1,918,000 to $1,131,000, a
decrease of 41%. This decrease is primarily attributable to higher start-up and
transition costs at the Company's Santa Ana, California facility, start-up costs
at the new production facilities in Tulsa, and the higher volume of products
sold through the direct store delivery distribution channels in Los Angeles,
California and Long Island, New York which have a lower profit margin.
General and Administrative. General and administrative expenses decreased
from $2,222,000 to $1,960,000 a decrease of 12% and decreased as a percentage of
net sales from 24% to 15%. The decrease is a result of higher sales and the
Company's continued efforts to centralize certain general and administrative
functions.
Selling and Marketing. Selling and marketing expenses increased from
$1,919,000 to $3,038,000 an increase of 58% over the comparable period of 1995
and increased as a percentage of net sales from 20% to 22%. This increase
occurred as the snack tray segment expanded its snack tray account base through
both internal growth and acquisitions since September 30, 1995. In addition,
sales growth from the Company's bagel bar product line and sales acquired
through the acquisition of the assets of The Bagel Place, Inc. have required a
higher level of support through in-store demonstrations of its products to
potential consumers.
Depreciation and Amortization of Intangibles. Depreciation and amortization
of goodwill and other intangibles increased from $283,000 to $450,000, an
increase of 59% over the same period of 1995. This increase was due to
depreciation and amortization for the additional snack tray segment operations
that were not included in the results of operations for the third quarter of
1995 and for the amortization related to the acquisition of Marveloaf in 1996.
Of the total, $72,000 and $75,000 represented depreciation for the three months
ended September 30, 1996 and 1995, respectively. In addition, there was an
additional $93,000 and $64,000 of depreciation included in cost of goods sold
for the three months ended September 30, 1996 and 1995, respectively.
Operating Loss. Operating losses increased from $1,590,000 to $1,633,000, an
increase of $43,000. This increase came from both the snack tray segment and
the specialty baked goods segment and was due to higher operating expenses from
both segments as discussed above as compared to the previous period of 1995.
Interest and Other. Interest and other expense increased from $184,000 to
$405,000, or 120%. This increase was due to increased debt outstanding due to
acquisitions and funding of working capital requirements.
Net Loss. The Company's net loss increased from $1,774,000 to $2,038,000, an
increase of $264,000 over the comparable period for 1995.
<PAGE>
PERIOD TO PERIOD COMPARISONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Net Sales. Net sales increased 19% from $29,481,000 to $35,216,000. Sales
in the snack tray segment increased by $6,017,000 or 46% and sales in the
specialty baked goods segment decreased by $44,000. Acquisitions in the snack
tray segment subsequent to the third quarter of 1995 contributed $2,772,000
towards that segment's increase in sales with the remaining increase due to
internal growth in the base snack tray operations. The decrease in the
specialty baked goods segment was due to lower sales from the segment's vending
product lines and the sale of the gift and gourmet division that occurred May
1996, which were offset by increased sales for bagel products and from increased
sales in connection with the biscotti product line.
Gross Profit. Gross profit increased from $10,053,000 to $11,338,000, an
increase of 13%. Gross profit as a percentage of net sales decreased from 34%
to 32%. A portion of this increase in gross profit was due to acquisitions in
the snack tray segment ($1,071,000) and from internal growth in the base snack
tray operations through expanded routes in existing markets and entries into new
markets (Los Angeles, California and Long Island, New York). The decrease in
gross profit as a percentage of net sales was due to lower margin sales from
warehouse clubs, lower margins on direct store delivery revenues, and higher
product costs in the snack tray operations.
General and Administrative. General and administrative expenses increased
from $5,334,000 to $5,677,000 an increase of 6% and decreased as a percentage of
net sales from 18% to 16%. The increase was due to higher general and
administrative expenses from the snack tray segment due to acquisitions and
internal growth into new cities discussed above. The specialty baked goods
segment's general and administrative expenses decreased while corporate expenses
increased as certain functions were centralized.
Selling and Marketing. Selling and marketing expenses increased from
$6,111,000 to $7,731,000 an increase of 27% and increased slightly as a
percentage of net sales from 21% to 22% of sales. The increase in selling and
marketing expenses was due to expansion efforts in the snack tray segment as the
segment experienced internal growth of 9% by new accounts and additional routes.
Depreciation and Amortization of Intangibles. Amortization of goodwill and
other intangibles increased by $446,000, an increase of 56%. The majority of
this increase was in the snack tray segment where the Company made five
acquisitions subsequent to the third quarter of 1995. The remaining increase
was in the existing operations of the specialty baked goods segment where the
Company made one acquisition subsequent to September 30, 1995.
Operating Loss. Operating losses increased from $2,194,000 to $3,319,000, an
increase of $1,125,000. This increase was due to higher operating expenses in
general and administrative expenses, higher sales and marketing expenses and
higher depreciation and amortization expenses as discussed above.
<PAGE>
Interest and Other. Interest and other expenses increased from $498,000 to
$1,081,000, an increase of $583,000. The increase was due to the higher
interest costs associated with the Company's debt used to finance acquisitions
and working capital needs.
Net Loss. The Company's net loss increased from $2,692,000 to $4,400,000, an
increase of $1,708,000.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $3,218,000 for the nine months ended
September 30, 1996 compared to $708,000 for the nine months ended September 30,
1995. Net cash used in investing activities was $7,238,000 compared to
$2,239,000 for the comparable period. Net cash generated from financing
activities during the first nine months ended September 30, 1996 totaled
$10,389,000 primarily from net borrowings on long term debt for acquisitions and
working capital needs.
During the third quarter, the Company amended its revolving credit facility with
a bank and thereby increased the total amount available under such facility to
$7 million, of which $6.2 million was drawn as of September 30, 1996, which was
the full amount of the borrowing base at that time. The borrowing base is
calculated upon 80% of eligible accounts receivable and 50% of eligible
inventory. Such loan is due in April 1998 with interest at prime payable
monthly.
In addition, the Company also amended the terms of its $5 million acquisition
line of credit with the same bank and increased borrowings outstanding to $5
million as of September 30, 1996. Monthly payments of principal and interest on
this line will commence on April 1, 1997, with the final payment being due on
June 1, 2000. This line of credit bears interest at prime.
The Company is subject to various covenants associated with its revolving line
of credit and acquisition line of credit, such as limitations on payments of
dividends and on the sale of a substantial portion of assets and on future
indebtedness. Borrowings under these facilities are guaranteed as to repayment
of principal and interest by the Company's Chief Executive Officer and his
spouse.
On October 22, 1996, the Company signed a non-binding letter of intent to
complete a Regulation S offering for $3 million in convertible debentures
bearing interest at 8%. This offering is to be completed within a 90 day
period. Amounts received from the Regulation S offering will be used to reduce
a portion of the accounts payable that are past due. To date, the Company has
issued $300,000 of such debentures. These convertible debentures may be
converted, after 45 days and at the option of the holder, into Common Stock of
the Company at a conversion price for each share at the lower of (a) 70% of the
closing price of the Common Stock for the day immediately preceding the
conversion date or (b) 70% of the average of the closing prices of the Common
Stock for the five business days immediately preceding the date of subscription
by the holder. In addition, during the third quarter, the Company issued, in a
private placement, $3,550,000 in principal amount of its 9% Convertible
Subordinated Notes. $150,000 of these notes are convertible at $2.50 per share
and $3,400,000 are convertible at $3.25 per share. $3,000,000 in principal
amount of such notes have been purchased by the Company's Chief Executive
Officer, who has agreed to exchange up to $3 million in principal amount of such
Notes for new Notes with a conversion price set at a level which, when averaged
with the debentures issued in the Regulation S offering, would result in an
average conversion price of $3.25 per share. Amounts received from this debt
financing were used to finance the Company's purchase of certain assets of the
Bagel Place, Inc. and to reduce accounts payable which were past due. The
Company is also seeking additional funds from the sale and leaseback of certain
equipment and from
<PAGE>
borrowings from a bank to fund capital additions at its Tulsa manufacturing
facility, but there can be no assurance that such funds will be available. The
Company believes that current cash flows from operations when combined with the
existing credit facilities and the proceeds received from the Regulation S
offering will be sufficient to meet current cash flow requirements.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Private Placement of 9% Convertible Subordinated Notes
------------------------------------------------------
The Company has recently conducted a private placement of 9%
Convertible Subordinated Notes (the "Notes") in reliance upon
Regulation D promulgated under the Securities Act of 1933, as amended.
The Notes have been sold at face value on the following dates and in
the following amounts:
<TABLE>
<S> <C>
=================================
August 20, 1996 $ 50,000
---------------------------------
August 26, 1996 100,000
---------------------------------
August 26, 1996 250,000
---------------------------------
September 27, 1996 150,000
---------------------------------
September 30, 1996 3,000,000
---------------------------------
Total $3,550,000
=================================
</TABLE>
The Notes have been sold only to accredited investors (as defined in
Regulation D). The Company has not incurred an obligation for the
payment of any commissions or placement fees in connection with the
sale of the Notes.
The Notes are due three years from issuance and bear interest at
the rate of 9% per annum, which interest is payable quarterly. The
Notes are subordinated in right of payment to all indebtedness owed to
banks, insurance companies or other financial institutions or
institutional lenders.
The Notes are convertible into shares of the Company's common
stock, par value $0.01 per share ("Common Stock"), at any time prior
to maturity. The conversion price for the Notes is $3.25 per share as
to $3,400,000 in principal amount of the Notes. As to $150,000 in
principal amount of the Notes, the conversion price is $2.50 per
share. The conversion price is subject to adjustment in the event of
certain changes in the Company's capital stock. A Registration Rights
Agreement was entered into with each purchaser of the Notes pursuant
to which the Company is obligated to register on Form S-3 the shares
of Common Stock issuable in connection with the Notes. $3,000,000 in
principal amount of the Notes have been purchased by the Company's
Chief Executive Officer, who has agreed to exchange up to $3 million
in
<PAGE>
principal amount of the Notes for different notes with a conversion
price at a level which, when averaged with the debentures issued in
the Company's Regulation S offering discussed below, will result in an
average conversion price of $3.25 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Issuance of 8.0% Convertible Debenture Pursuant to Regulation S
---------------------------------------------------------------
On November 6, 1996, the Company issued an 8.0% Convertible
Debenture due November 15, 1997 (the "Debenture"), in the original
principal amount of $300,000. The Debenture was issued at face value
in one offshore transaction pursuant to Regulation S promulgated under
the Securities Act of 1933, as amended. The purchaser was an
accredited investor (as defined in Regulation D promulgated under the
Securities Act of 1933, as amended). In connection with the sale of
the Debenture, the Company paid placement fees of $33,000 to Venture
Guarantee Limited of Warwick, United Kingdom. The Company is also
obligated to issue to said placement agent stock purchase warrants for
the purchase of 5,000 shares of the Company's common stock, par value
$0.01 per share ("Common Stock"). The sale of the Debenture was
pursuant to a non-binding letter of intent which calls for a total
offering of $3 million in separate increments over a 90-day period,
although there can be no assurance that additional funds will be
received pursuant to such offering.
The Debenture is convertible at any time commencing 45 days after
November 6, 1996, into shares of the Company's Common Stock at a
conversion price for each share of Common Stock equal to the lower of
(a) 70% of the closing price of the Common Stock for the day
immediately preceding the conversion date or (b) 70% of the average of
the closing prices of the Common Stock for the five business days
immediately preceding the date of the subscription by the purchaser as
reported by the American Stock Exchange. Assuming that the market
price of the Common Stock at the time of conversion is not less than
the market price at the time of subscription, based on a conversion
price of $1.776 per share, the Debenture would be convertible into
168,895 shares of Common Stock. In the event the conversion price is
such that it would result in an issuance of 20% or more of the issued
and outstanding Common Stock of the Company, the Company may redeem a
sufficient portion of the Debenture so that such conversion would
result in an issuance of less than 20% of the Company's issued and
outstanding Common Stock. The Common Stock issuable on the
<PAGE>
conversion of the Debenture (if not otherwise tradeable without
restriction) is subject to certain registration rights between the
Company and the purchaser of the Debenture.
The Debenture is due on November 15, 1997 and bears interest at
the rate of 8% per annum which is payable quarterly. Interest is
payable in cash or Common Stock at the option of the Company at the
conversion price.
Royalty Termination Agreement
-----------------------------
On November 8, 1996, the Company signed a Royalty Termination
Agreement (the "Termination Agreement") with Nonni's Inc. ("Nonni's"),
Steve Sirianni, Tim Soldati and Rich Martin (collectively, the
"Shareholders"). The Termination Agreement provides for the
termination as of July 22, 1996, of the Company's obligation for the
payment of royalties with respect to the product lines acquired from
Nonni's pursuant to the Asset Purchase Agreement dated December 31,
1993, between the Company and Nonni's. During 1995, the Company's
total royalty obligation to Nonni's was $219,000, based on a royalty
percentage of 3%. As of July 1, 1996, the royalty percentage
increased to 12% of gross sales for a period of four and one-half
years, following which the royalty percentage would reduce down to 7%
for one year and then to 3% for five additional years.
Pursuant to the Termination Agreement, the Company will issue to
the Shareholders 700,000 shares of the Company's Common Stock. Also,
if the Company's sales of the royalty products exceeds $10,000,000
during any of the three 12-month periods beginning July 22, 1996 and
ending July 21, 1999, the Company will issue to the Shareholders an
additional 200,000 shares of Common Stock (the "Contingent Shares").
The Company agreed, under the terms of the Termination Agreement,
to guarantee a stock price of $5.71 per share for any sales by the
Shareholders of the Common Stock issued pursuant to the Termination
Agreement during the period commencing April 1, 1997, and ending on
December 31, 1997 (except, in the case of the Contingent Shares,
during a period of 120 days following the registration of such
shares). The Company also agreed, pursuant to a Registration Rights
Agreement dated as of the date of the Termination Agreement, to
register the shares of Common Stock issued to the Shareholders on Form
S-3 on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Form of Offshore Securities Subscription Agreement
<PAGE>
4.2 Form of 8.0% Convertible Debenture due November 15, 1997
4.3 Form of Note Purchase Agreement
10.1 Royalty Termination Agreement dated November 8, 1996, among
the Company, Nonni's Inc., Steve Sirianni, Tim Soldati and
Rich Martin
10.2 Third Amendment to Loan Agreement dated September 13, 1996,
among the Company, Silverado Marketing Services, Inc., Texas
B & B, Inc., Lawrence D. Field, Cynthia Field and Liberty
Bank and Trust Company of Tulsa, National Association
27.0 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed August 22, 1996, to report under Item 2 the
acquisition on August 7, 1996, of certain assets from The Bagel
Place, Inc. The financial statements required by Item 7 with
respect to such acquisition were filed pursuant to the Form 8-
K/A1 filed October 21, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Silverado Foods, Inc.
---------------------
Registrant
By: /s/Dorvin D. Lively
-------------------
Dorvin D. Lively
Vice President, Chief Financial Officer
and Secretary (Duly Authorized
Officer and Principal
Accounting Officer
Date: November 14, 1996
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-Q.
Those exhibits below incorporated by reference herein are indicated as such by
the information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Sequentially
Numbered
Exhibit No. Description of Exhibit Page
- ---------------------------------- ----
4.1 Form of Offshore Securities Subscription Agreement
4.2 Form of 8.0% Convertible Debenture due November 15, 1997
4.3 Form of Note Purchase Agreement
10.1 Royalty Termination Agreement dated November 8, 1996,
among the Company, Nonni's Inc., Steve Sirianni, Tim Soldati
and Rich Martin
10.2 Third Amendment to Loan Agreement dated September 13,
1996, among the Company, Silverado Marketing Services,
Inc., Texas B & B, Inc., Lawrence D. Field, Cynthia Field
and Liberty Bank and Trust Company of Tulsa, National
Association
27.0 Financial Data Schedule
<PAGE>
EXHIBIT 4.1
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
------------------------------------------
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT dated as of ___________,
1996 (the "Agreement"), is executed in reliance upon the exemption from
registration afforded by Regulation S ("Regulation S") as promulgated by the
Securities and Exchange Commission ("SEC"), under the Securities Act of 1933, as
amended. Capitalized terms used herein and not defined shall have the meanings
given to them in Regulation S.
This Agreement has been executed by the undersigned "Buyer" in connection
with the private placement of 8.0% Convertible Debentures of Silverado Foods,
Inc., a corporation organized under the laws of Oklahoma, with its principal
executive offices located at 6846 South Canton, Suite 110, Tulsa, Oklahoma 74136
(hereinafter referred to as "Seller"). Buyer hereby represents and warrants to,
and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT"), AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S OF THE 1933 ACT) OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S
OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT.
I. Agreement To Subscribe: Purchase Price.
--------------------------------------
(a) Subscription. The undersigned Buyer hereby subscribes for and
agrees to purchase the Sellers 8.0% Convertible Debentures substantially in the
form of the Debentures attached as Exhibit A hereto and having an aggregate
original principal amount of U.S. __________ (singly, a "Debenture," and
collectively, the "Debentures"), at an aggregate purchase price as set forth in
subsection (b) herein.
(b) Payment. The aggregate Purchase Price for the Buyer's portion of
the Debentures shall be __________________________ United States Dollars (U.S.
$___________) (the "Purchase Price"), which shall be payable at each closing
pursuant to paragraph C herein by delivering immediately available funds in
United States Dollars by wire transfer to the designated depository Barry B.
Globerman, Esq. as Escrow Agent ("Escrow Agent") for closing by delivery of
securities versus payment.
(c) Closing. Subject to the satisfaction of the conditions set forth
in Sections 7 and 8 hereof, the closing of the transactions contemplated by this
Agreement shall occur on or before November 15, 1996, or such earlier or later
date as is mutually agreed to in writing by Buyer and Seller.
<PAGE>
II. Buyer Representations and Covenants: Access to Information.
----------------------------------------------------------
Offshore Transaction. In connection with the purchase and sale of the
Debentures, Buyer represents and warrants to, and covenants and agrees with
Seller as follows:
(i) Buyer is not a natural person and is not organized under the laws
of any jurisdiction within the United States, was not formed by a U.S. Person
(as defined in Section 902(o) of Regulation S) for the purpose of investing in
Regulation S securities and is not otherwise a U.S. Person. Buyer is not, and on
the closing date will not be, an affiliate of Seller;
(ii) At the time the buy order was originated, Buyer was outside the
United States and is outside of the United States as of the date of the
execution and delivery of this Agreement;
(iii) No offer to purchase the Debentures or the common stock of
Seller issuable upon conversion of the Debentures (collectively, the
"Securities"), was made by Buyer in the United States;
(iv) Buyer is purchasing the Securities for its own account and Buyer
is qualified to purchase the Securities under the laws of its jurisdiction of
residence, and the offer and sale of the Securities will not violate the
securities or other laws of such jurisdiction;
(v) All offers and sales of any of the Securities by Buyer prior to
the end of the Restricted Period (as hereinafter defined) shall be made in
compliance with any applicable securities laws of any applicable jurisdiction
and in accordance with Rule 903 and 904, as applicable, of Regulation S or
pursuant to registration of securities under the 1933 Act or pursuant to an
exemption from registration. In any case, none of the Securities have been and
will be offered or sold by Buyer to, or for the account or benefit of, a U.S.
Person or within the United States until after the end of the forty (40) day
period commencing on the later of (x) the date of closing of the offering of the
Securities or (y) the date of the first offer of the Securities to persons other
than distributors (the "Restricted Period"), as certified by Buyer to Seller and
thereafter only pursuant to a Registration Statement or an applicable exemption
therefrom;
(vi) The transactions contemplated by this Agreement (a) have not been
and will not be pre-arranged by Buyer with a purchaser located in the United
States or a purchaser which is a U.S. Person, and (b) are not and will not be
part of a plan or scheme by Buyer, to evade the registration provisions of the
1933 Act;
(vii) Buyer understands that the Securities are not registered under
the 1933 Act and are being offered and sold to it in reliance on specific
exclusions from the registration requirements of Federal and State securities
laws, and that Seller is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Buyer set forth herein in order to determine the applicability of such
exclusions and the suitability of Buyer and any purchaser from Buyer to acquire
the Securities;
<PAGE>
(viii) Buyer shall take all reasonable steps to ensure its compliance
with Regulation S and shall promptly send to each purchaser who acts as a
distributor, dealer or a person receiving a selling concession, fee or other
remuneration in respect of any of the Securities, who purchases prior to the
expiration of the Restricted Period referred to in subparagraph (v) above, a
confirmation or other notice to the purchaser stating that the purchaser is
subject to the same restrictions on offers and sales as Buyer pursuant to
Section 901(c)(2)(iv) of Regulation S;
(ix) Buyer has not conducted and shall not conduct any "directed
selling efforts" as that term is defined in Rule 902(b) of Regulation S; nor has
Buyer conducted any general solicitation relating to the offer and sale of any
of the Securities in the United States or elsewhere;
(x) This Agreement has been duly authorized, validly executed and
delivered on behalf of Buyer and is a valid and binding agreement in accordance
with its terms, subject to general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors' rights generally;
(xi) The execution and delivery of this Agreement and the consummation
of the purchase of the Securities, and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Buyer of
any of the terms of provisions of, or constitute a default under, the articles
of incorporation or by-laws (or similar constitutive documents) of Buyer or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Buyer is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule or regulation of the United States
or any State thereof or any applicable decree, judgment or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Buyer or any of its
properties or assets;
(xii) All invitation, offers and sales of or in respect of, any of the
Securities, by Buyer and any distribution by Buyer of any documents relating to
any offer by it of any of the Securities will be in compliance with applicable
laws and regulations and will be made in such a manner that no prospectus need
be filed and no other filing need be made by Seller with any regulatory
authority or stock exchange in any country or any political sub-division of any
country;
(xiii) Buyer will not make any offer or sale of the Securities by any
means which would not comply with the laws and regulations of the territory in
which such offer or sale takes place or to which such offer or sale is subject
or which would in connection with any such offer or sale impose upon Seller any
obligation to satisfy any public filing or registration requirement or provide
or publish any information of any kind whatsoever or otherwise undertake or
become obligated to do any act;
(xiv) Neither the Buyer nor any of its affiliates has entered, has the
intention of entering, or will during the Restricted Period enter into any put
option, short position
<PAGE>
or other similar instrument or position with respect to any of the Securities or
securities of the same class as the Securities;
(xv) the Buyer (or others for whom it is contracting hereunder) has
been advised to consult its own legal and tax advisors with respect to
applicable resale restrictions and applicable tax considerations and it (or
others for whom it is contracting hereunder) is solely responsible (and the
Company is not in any way responsible) for compliance with applicable resale
restrictions and applicable tax legislation;
(xvi) Buyer understands that no Federal or State or foreign government
agency has passed on or made any recommendation or endorsement of the
Securities;
(xvii) Buyer acknowledges that it and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of Seller and all materials relating to the offer and sale of the Securities
which have been requested by Buyer. Buyer further acknowledges that it and its
advisors, if any, have received complete and satisfactory answers to such
inquiries;
(xviii)Buyer acknowledges that the purchase of the Securities involves
a high degree of risk, including the total loss of Buyer's investment. Buyer is
an accredited investor as defined in Regulation D promulgated under the
Securities Act of 1933. Buyer has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
purchasing the Securities; and
(xix) Buyer is not a "10-percent Shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller.
(xx) Buyer is acquiring the securities for investment purposes only,
for its own account, and not with a view to, or for sale in connection with, a
distribution.
III. Seller Representations and Covenants.
------------------------------------
(a) Reporting Company Status. Seller is a "Reporting Issuer" as defined
by Rule 902 of Regulation S. Seller has registered its Common Stock, $0.01 par
value per share (the "Common Stock"), pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Common Stock is
listed and trades on the American Stock Exchange ("AMEX"). Seller has filed all
material required to be filed pursuant to all reporting obligations under either
Section 13(a) or 15(d) of the Exchange Act for a period of at least twelve (12)
months immediately preceding the offer or sale of the Securities (or for such
shorter period that Seller has been required to file such material).
(b) Current Public Information. Seller has furnished Buyer with copies
of its most recent reports, as amended, filed under the Exchange Act and other
publicly available documents requested by Buyer.
<PAGE>
(c) Offshore Transaction. Seller has not offered any of the Securities to
any person in the United States, any identifiable groups of U.S. citizens
abroad, or to any U.S. Person, as such terms are used in Regulation S.
(i) At the time the buy order was originated, Seller and/or its agents
reasonably believe the Buyer was outside of the United States and was not a U.S.
person, based on the representations of Buyer.
(ii) Seller and/or its agents reasonably believe that the transaction
has not been pre-arranged with a buyer in the United States, based on the
representations of Buyer.
(iii) No offer to buy or sell the Securities was or will be made by
Seller to any person in the United States.
(iv) The sale of the Securities by Seller pursuant to this Agreement
will be made in accordance with the provisions and requirements of Regulation S
provided that the representations and warranties of Buyer in Section 2 hereof
are true and correct.
(v) The transactions contemplated by this Agreement (a) have not been
and will not be pre-arranged by Seller with a purchaser located in the United
States or a purchaser which is a U.S. Person, and (b) are not and will not be
part of a plan or scheme by Seller to evade the registration provisions of the
1933 Act.
(d) No Directed Selling Efforts. In regard to this transaction, Seller has
not conducted any "directed selling efforts" as that term is defined in Rule 902
of Regulation S nor has Seller conducted any general solicitation relating to
the offer and sale of any of the Securities in the United States or elsewhere.
(e) Concerning the Securities. The issuance, sale and delivery of the
Debentures have been duly authorized by all required corporate action on the
part of Seller, and when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein, will be
duly and validly issued, fully paid and non-assessable. The Common Stock
issuable upon conversion of the Debenture has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Debentures,
shall be duly and validly issued, fully paid, and non-assessable and will not
subject the holders thereof, if such persons are non-U.S. persons, to personal
liability by reason of being such holders. There are no pre-emptive rights of
any shareholder of Seller.
(f) Subscription Agreement. This Agreement has been duly authorized,
validly executed and delivered on behalf of Seller and is a valid and binding
agreement in accordance with its terms, subject to general principles of equity
and to bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
(g) Non-contravention. The execution and delivery of this Agreement and the
consummation of the issuance of the Securities and the transactions contemplated
by this
<PAGE>
Agreement do not and will not conflict with or result in a breach by Seller of
any of the terms or provisions of, or constitute a default under, the articles
of incorporation or by-laws of Seller, or any indenture, mortgage, deed of
trust, or other material agreement or instrument to which Seller is a party or
by which it or any of its properties or assets are bound, or any existing
applicable law, rule or regulation of the United States or any State thereof or
any applicable decree, judgment or order of any Federal or State court, Federal
or State regulatory body, administrative agency or other United States
governmental body having jurisdiction over Seller or any of its properties or
assets.
(h) Approvals. Seller is not aware of any authorization,
approval or consent of any governmental body which is legally required for the
issuance and sale of the Debentures and the Common Stock issuable upon
conversion thereof to persons who are non-U.S. Persons, as contemplated by this
Agreement.
IV. Exemption; Reliance on Representations. Buyer
--------------------------------------
understands that the offer and sale of the Securities are not being registered
under the 1933 Act. Seller and Buyer are relying on the rules governing offers
and sales made outside the United States pursuant to Regulation S.
V. Transfer Agent Instructions.
---------------------------
(a) Debentures. Upon the conversion of the Debentures, the
holder thereof shall submit such Debenture with a notice of conversion to the
Seller and the Seller shall instruct Seller's transfer agent to issue one or
more Certificates representing that number of shares of Common Stock into which
the Debenture or Debentures are convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller shall act as
Debenture Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Debenture.
(b) Common Stock to be Issued Without Restrictive Legend.
Upon the conversion of any Debenture by a person who is a non-U.S. Person,
Seller shall instruct Seller's transfer agent to issue Stock Certificates
without restrictive legend in the name of Buyer (or its nominee (being a non-
U.S. Person) or such non-U.S. Persons as may be designated by Buyer prior to the
closing) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Seller warrants that no instructions other than these instructions
and instructions to impose a "stop transfer" instruction with respect to the
certificates until the end of the Restricted Period have been given or will be
given to the transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Seller. Nothing in this Section 5,
however, shall affect in any way Buyer's or such nominee's obligations and
agreements to comply with all applicable securities laws upon resale of the
Securities.
VI. Registration. If upon conversion of Debentures effected
------------
by the Buyer pursuant to the terms of this Agreement the Company fails to issue
certificates for shares of Common Stock issuable upon such conversion (the
"Underlying Shares") to the Buyer bearing no restrictive legend for any reason
other than the Company's reasonable good faith belief that the representations
and warranties made by the Buyer in this Agreement or the Notice of Conversion
<PAGE>
were untrue when made, or if the restricted period under Regulation S is
extended, then the Company shall be required, at the request of the Buyer and at
the Company's expense, to effect the registration of the Underlying Shares
issuable upon conversion of the Debentures under the Act and relevant Blue Sky
laws as promptly as is practicable. The Company and the Buyer shall cooperate in
good faith in connection with the furnishing of information required for such
registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. The Company shall
file a registration statement within 15 days of Buyer's demand therefor and
shall use its best efforts to cause such registration statement to become
effective as soon as practicable thereafter and in any event within 60 days of
the date of the initial filing thereof. Such best efforts shall include, but not
be limited to, promptly responding to all comments received from the staff of
the Securities and Exchange Commission, providing Buyer's counsel with a
contemporaneous copy of all written communications from and to the staff of the
Securities and Exchange Commission with respect to such registration statement
and promptly preparing and filing amendments to such registration statement
which are responsive to the comments received from the staff of the Securities
and Exchange Commission. Once declared effective by the Securities and Exchange
Commission, the Company shall cause such registration statement to remain
effective until the earlier of (i) the sale by the Buyer of all Underlying
Shares registered or (ii) 120 days after the effective date of such registration
statement. In the event the Company undertakes to file a Registration Statement
on Form S-3 in connection with the Common Stock, upon the effectiveness of such
Registration, Buyer shall have the option to sell the Common Stock pursuant
thereto. The foregoing shall not in any way limit Buyer's rights in connection
with the Common Stock pursuant to Regulation S.
VII. Delivery Instructions. The Debentures being
---------------------
purchased hereunder shall be delivered to the Buyer at such time and place as
shall be mutually agreed by Seller and Buyer.
VIII. Conditions To Seller's Obligation To Sell.
-----------------------------------------
Seller's obligation to sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Buyer of this Agreement as
evidenced by execution of this Agreement by Buyer.
(b) Delivery into the closing depository of good funds by Buyer
as payment in full of the purchase price of the Debentures.
IX. Conditions To Buyer's Obligation To Purchase. Buyer's
--------------------------------------------
obligation to purchase the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement
as evidenced by execution of this Agreement by the duly authorized officer of
Seller.
(b) Delivery of the Debentures as described herein.
X. Offering Materials. All offering materials and documents
------------------
used in connection with offers and sales of the Securities prior to the
expiration of the Restricted Period
<PAGE>
referred to in Section 2(a) hereof shall include statements to the effect that
the Securities have not been registered under the 1933 Act or applicable state
securities laws, and that neither Buyer, nor any direct or indirect purchaser of
the Securities from Buyer, may directly or indirectly offer or sell the
Securities in the United States or to U.S. Persons (other than distributors)
unless that Securities are registered under the 1933 Act any applicable state
securities laws, or any exemption from the registration requirements of the 1933
Act or such state securities laws is available. Such statements shall appear (1)
on the cover of any prospectus or offering circular used in connection with the
offer or sale of the Securities, (2) in the underwriting section of any
prospectus or offering circular used in connection with the offer or sale of the
Securities, and (3) in any advertisement made or issued by Seller, Buyer, any
other distributor, any of their respective affiliates, or any person acting on
behalf of any of the foregoing.
XI. No Shareholder Approval. Seller hereby agrees that from the
-----------------------
Closing Date until the issuance of Common Stock upon the conversion of the
Debentures, Seller will not take any action which would require Seller to seek
shareholder approval of such issuance unless such shareholder approval is
required by law or regulatory body (including but not limited to the American
Stock Exchange as a result of the issuance of the Securities hereunder.
XII. Miscellaneous.
-------------
(a) Except as specifically referenced herein, this Agreement
constitutes the entire contract between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or impled, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
(b) Buyer is an independent contractor, and is not the agent of
Seller. Buyer is not authorized to bind Seller, or to make any representations
or warranties on behalf of Seller.
(c) Seller makes no representations or warranty with respect to
Seller, its finances, assets, business prospects or otherwise. Buyer will advise
each purchaser, if any, and potential purchaser of the Securities, of the
foregoing sentence, and that such purchaser is relying on its own investigation
with respect to all such matters, and that such purchaser will be given access
to any and all documents and Seller personnel as it may reasonably request for
such investigation.
(d) All representations and warranties contained in this Agreement by
Seller and Buyer shall survive the closing of the transactions contemplated by
this Agreement.
(e) This Agreement shall be construed in accordance with the laws of
Oklahoma and shall be binding upon the successors and assigns of each party
hereto.
<PAGE>
Agreement may be executed in counterparts, and the facsimile transmission of an
executed counterpart to this Agreement shall be effective as an original.
(f) Buyer agrees to indemnify and hold Seller harmless from any and
all claims, damages and liabilities arising from Buyer's breach of its
representations and/or covenants set forth herein.
[The remainder of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
Official Signatory of Seller:
----------------------------
Silverado Foods, Inc.
By:
-----------------------------
Title:
--------------------------
Official Signatory of Buyer:
---------------------------
------------------------
By:
-----------------------------
Title:
--------------------------
Address of Buyer:
--------------------------------
--------------------------------
--------------------------------
<PAGE>
Exhibit 4.2
FORM OF DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S
UNDER THE ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS
DEFINED IN REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS.
No. _______ US $__________
SILVERADO FOODS, INC.
8.0% CONVERTIBLE DEBENTURE DUE NOVEMBER 15, 1997
THIS DEBENTURE is one of a duly authorized issue of Debentures of
Silverado Foods, Inc., a corporation duly organized and existing under the laws
of the State of Oklahoma (the "Company") designated as its 8.0% Convertible
Debenture Due November 15, 1997, in an aggregate principal amount not exceeding
Three Million Dollars (U.S. $3,000,000).
FOR VALUE RECEIVED, the Company promises to pay to ____________________
the registered holder hereof and its successors and assigns (the "Holder"), the
principal sum of ______________________ Dollars (US $_________) on November 15,
1997 (the "Maturity Date"), and to pay interest on the principal sum
outstanding, at the rate of 8% per annum due and payable quarterly in arrears.
Accrual of interest shall commence on the date hereof and shall continue until
payment in full of the outstanding principal sum has been made or duly provided
for. The interest so payable will be paid to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the Offshore
Securities Subscription Agreement dated as of __________________ between the
Company and ______________________________________ (the "Subscription
Agreement"). The principal of, and interest on (subject to paragraph 4 hereof),
this Debenture are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder hereof from time to time. The
Company will pay the outstanding principal of and all accrued and unpaid
interest due upon this Debenture on the Maturity Date, less any amounts required
by law to be deducted or withheld, to the record Holder of this Debenture as of
the tenth (10th) day prior to the Maturity Date and addressed to such record
Holder at the last address appearing on the Debenture Register. The forwarding
of such
<PAGE>
check shall constitute a payment of outstanding principal and interest hereunder
and shall satisfy and discharge the liability for principal and interest on this
Debenture to the extent of the sum represented by such check plus any amounts so
deducted.
This Debenture is subject to the following additional provisions:
I. The Debentures are issuable in denominations of Fifty Thousand Dollars
(US$50,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holders surrendering the same but not less
than U.S. $50,000. No service charge will be made for such registration or
transfer or exchange.
II. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax or
other applicable laws at the time of such payments.
III. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected or bound by notice to the
contrary. Any holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), is also required to give the Company (i) written
confirmation that it is not a U.S. Person and the Debenture is not being
converted on behalf of a U.S. Person ("Notice of Conversion") or (ii) an opinion
of U.S. counsel satisfactory to the Company to the effect that the Debenture and
shares of common stock issuable upon conversion thereof have been registered
under the 1933 Act or are exempt from such registration. In the event a Notice
of Conversion or opinion of counsel is not provided the Holder hereof will not
be entitled to exercise the right to convert the Debentures pursuant to Section
4(a) herein.
IV. (a) The Holder of this Debenture is entitled, at its option, at any
time commencing 45 days after issue hereof to convert any or all of the original
principal amount of this Debenture into shares of common stock, $0.01 par value
per share, of the Company (the "Common Stock"), at a conversion price for each
share or Common Stock equal to the lower of (a) 70% of the average closing price
of the Common Stock for the five (5) business days immediately preceding the
conversion date or (b) 70% of the average of the closing price of the Common
Stock for the five (5) business days immediately preceding the date of
Subscription by the Holder as reported by the American Stock Exchange ("AMEX")
(the "Conversion Price"). Such conversion shall be effectuated by surrendering
the Debentures to be converted to the Company with the form of conversion notice
attached hereto as Exhibit I, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
<PAGE>
portion (as above provided) hereof, and accompanied by proper assignment hereof
in blank. Accrued but unpaid interest shall be payable in cash or stock at the
option of the Company at the Conversion Price. No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share, with the fraction
paid in cash at the discretion of the Company. The date on which notice of
conversion is given shall be deemed to be the date on which the Holder has
delivered this Debenture, with the conversion notice duly executed, to the
Escrow Agent or, if earlier, the date set forth in such notice of conversion if
the Debenture is received by the Escrow Agent within five (5) business days
thereafter.
(b) Notwithstanding the provisions of paragraph 4(a) hereof, upon, receipt
of the Notice of Conversion, the Company may redeem such part of the Debentures
after issue hereof to the extent that the conversion of such Debentures by the
Holder would result in the issuance of Common Stock of 20% or more of the issued
and outstanding Common Stock by paying to the holder the product of (1) the
Market price, and (ii) the higher number of shares of Common Stock that would be
issuable for such Debentures pursuant to the calculations in paragraph 4(a).
Such payment shall include accrued interest to such date, and shall be less any
amounts required by law to be deducted or withheld. Such payment shall be made
by delivering immediately available funds in United States Dollars by wire
transfer to the Holder, or if no wiring instructions have been provided to the
company, by cashier's or certified check to the last address of Holder appearing
on the Debenture Register. The wiring of such funds or the forwarding of such
check shall constitute of payment of principal and interest hereunder and shall
satisfy and discharge the liability for principal and interest on this Debenture
to the extent of the sum represented by such wire or check plus any amount so
deducted. Notice of such redemption shall be mailed to the Holder by the Company
within three (3) days of receipt of the Notice of Conversion by the Company and
such payment to be made by the Company within 5 days of receipt of the Notice of
Conversion by the Company from the Investor.
V. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin
currency, herein prescribed.
VI. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, bringing of suit and diligence
in taking any action to collect amounts called for hereunder and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission as or
with respect to the collection of any amount called for hereunder.
7. Upon an Event of Default (as hereinafter defined), The Company agrees to
pay all costs and expenses, including reasonable attorneys' fees, which may be
incurred by the Holder in collecting any amount due under this Debenture.
8. If one or more of the following described "Events of Default" shall
occur:
<PAGE>
(a) The Company shall default in the payment of principal or
interest on this Debenture and such default shall continue
uncured for a period of seven (7) days after notice from Holder
of such default; or
(b) Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in any
certificate or financial or other written statements heretofore
or hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture or
the Subscription Agreement shall be false or misleading in any
material respect at the time made; or
(c) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture and
such failure shall continue uncured for a period of seven (7)
days after notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in
writing its liability to pay its debts generally as they mature;
(3) make an assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) apply for or consent to
the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty
(30) days after such appointment; or
(f) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall
assume custody or control of the whole or any substantial portion
of the properties or assets of the Company and shall not be
dismissed within thirty (30) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or
similar process in excess of One Hundred Thousand ($100,000)
Dollars in the aggregate shall be entered or filed against the
Company or any of its properties or other assets and shall remain
unpaid, unvacated, unbonded or unstayed for a period of fifteen
(15) days or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
<PAGE>
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy
law or any law for the relief of debtors shall be instituted by
or against the Company and, if instituted against the Company,
shall not be dismissed within thirty (30) days after such
instruction of the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed
in any such proceeding; or
(i) The Company shall have its Common Stock delisted from an exchange
or over-the-counter market.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law.
9. This Debenture represents a general unsecured obligation of the
Company. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or of any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
10. The Holder of this Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in a violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
11. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
12. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
<PAGE>
13. This Debenture shall be governed by and construed in accordance
with the laws of Oklahoma.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated:
----------------------------
SILVERADO FOODS, INC.
By:
-----------------------------
Title:
---------------------------
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______________
of the above Debenture No. ___ into Shares of Common Stock of Silverado Foods,
Inc. (the "Company") according to the conditions set forth in such Debenture, as
of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, as amended, and is
not converting the Debenture on behalf of any U.S. Person and the
representations contained in the Subscription Agreement are true.
Date of Conversion*
-------------------------------------------------------------
Applicable Conversion Price
-----------------------------------------------------
Signature
-----------------------------------------------------------------------
[Name]
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
* This original Debenture and Notice of Conversion must be received by
the Company by the fifth business date following the Date of Conversion.
<PAGE>
EXHIBIT 4.3
NOTE PURCHASE AGREEMENT
BETWEEN
SILVERADO FOODS, INC.
AND
---------------------------------
______________ ___, 1996
NOTE PURCHASE AGREEMENT
-----------------------
This Note Purchase Agreement (this "Agreement") is entered into as of
this _____ day of ___________, 1996, by and between Silverado Foods, Inc., an
Oklahoma corporation (the "Company"), and ________________________ (the
"Purchaser").
WITNESSETH:
WHEREAS, the Company desires to obtain funds from the Purchaser in
order to further its business operations; and
WHEREAS, in order to obtain such funds, the Company desires to sell and
issue to the Purchaser a 9% Convertible Subordinated Note of the Company in the
principal amount of $___________ (the "Note").
NOW, THEREFORE, in consideration of the premises and in consideration
of the agreements and benefits set forth herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company and the
Purchaser agree as follows:
SECTION 1. PURCHASE AND SALE OF NOTES.
--------------------------
<PAGE>
1.1 Sale of the Note. Subject to the terms and conditions herein
----------------
stated, the Company agrees to sell, assign, transfer and deliver to the
Purchaser on the Closing Date (as hereinafter defined), and the Purchaser agrees
to purchase from the Company on the Closing Date, the Note.
1.2 Terms. The Note shall have the payment terms, interest rate,
-----
seniority and other rights, terms and conditions as provided in the form of the
Note attached hereto as Exhibit A.
1.3 Purchase Price. In full consideration for the purchase by the
--------------
Purchaser of the Note, the Purchaser shall pay to the Company at Closing the
amount of _______________________________ ($__________) by wire transfer or
cashier's check.
1.4 Closing. The sale referred to in Section 1.1 of this Agreement
-------
shall take place at 10:00 a.m. at the offices of the Company in Tulsa, Oklahoma,
on ___________ ___, 1996, or at such other time or place as the parties hereto
shall by written instrument designate. Such sale is referred to herein as the
"Closing" and the time and date thereof are herein referred to as the "Closing
Date".
SECTION 2. AGREEMENTS AND CLOSING DELIVERIES.
---------------------------------
2.1 Execution of Additional Agreements. The Company and the Purchaser,
----------------------------------
to the extent applicable, agree to execute or cause to be executed and delivered
at Closing, the following:
(a) Note. The Company shall execute and deliver the Note
----
subscribed for hereby dated the date of Closing.
(b) Registration Rights Agreement. The Company and the Purchaser
-----------------------------
agree to execute and deliver or cause to be executed and delivered at
Closing a Registration Rights Agreement (the "Registration Rights
Agreement") in form substantially identical to that attached hereto as
Exhibit B.
---------
2.2 Additional Closing Deliveries. At the Closing, the Company will
-----------------------------
execute and deliver or cause to be executed and delivered all documents,
agreements and instruments otherwise required hereby, and such other
certificates and documents as the Purchaser shall have reasonably requested.
SECTION 3. PURCHASER'S CONDITIONS TO CLOSING. The obligations of the
---------------------------------
Purchaser to consummate the Closing hereunder and to purchase the Note shall be
subject to the satisfaction of the following conditions precedent at or before
the Closing.
<PAGE>
3.1 No Event of Default. On the date of the Closing, no default or
-------------------
Event of Default (as defined in the Note) shall have occurred and be continuing.
3.2 Documents and Proceedings. All documents and instruments to be
-------------------------
delivered by the Company at Closing in accordance with Section 2 and all
---------
corporate and other proceedings of the Company in connection with this
transaction shall have been so delivered and performed and shall be satisfactory
to the Purchaser and its counsel.
3.3 Performance of Agreement. The Company shall have performed all of
------------------------
its covenants and obligations under this Agreement.
3.4 Representations and Warranties Correct. The representations and
--------------------------------------
warranties of the Company contained in Section 5 of this Agreement shall be true
---------
and correct in all material respects when made and shall be deemed repeated at
and as of the Closing.
SECTION 4. COMPANY CONDITIONS TO CLOSING. The obligations of the
-----------------------------
Company to consummate the Closing hereunder and sell the Note shall be subject
to the satisfaction of the following conditions precedent at or before the
Closing.
4.1 Performance of Agreement. The Purchaser shall have performed all
------------------------
of its covenants and obligations under this Agreement.
4.2 Representations and Warranties Correct. The representations and
--------------------------------------
warranties of the Purchaser contained in Section 6 of this Agreement shall be
true and correct in all material respects when made and shall be deemed repeated
at and as of the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants that the following statements are true and correct as of
the date hereof, except as expressly qualified or modified herein or on the
Disclosure Statement (the "Disclosure Statement") attached hereto as Exhibit C.
---------
5.1 Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing, and in good standing under the laws of the State of
Oklahoma and has full corporate power and authority to enter into and perform
its obligations under this Agreement and to own, lease, license and use its
properties and to carry on its business as presently conducted. The Company is
duly qualified to do business and is in good standing as a foreign corporation
in every jurisdiction in which the failure to so qualify would have a material
adverse effect upon the Company.
5.2 Capitalization. The authorized capital stock of the Company
--------------
consists of 20,000,000 shares of common stock, par value $0.01 per share, of
which 6,191,663 shares are issued and outstanding, and 2,000,000 shares of
preferred stock, par value $0.01 per share, of which no shares are issued and
outstanding. All of the presently issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully
<PAGE>
paid and non-assessable, free of preemptive or similar rights. At Closing and
except as set forth in the Disclosure Statement, there will not be outstanding,
nor will the Company be subject to any agreement under which there may become
outstanding, any right to purchase, or security convertible into, or exercisable
for, or exchangeable for, any capital stock of the Company, including, but not
limited to, options, warrants, or rights. Except as set forth in the Disclosure
Statement, the Company is under no obligation (contingent or otherwise) to
purchase or otherwise acquire or retire any of its securities. Except as set
forth herein or in the Disclosure Statement, there are no agreements,
understandings, plans or arrangements in existence which pertain to the dividend
rights, voting, sale or transfer of any capital stock of the Company.
5.3 Financial Statements. The financial statements of the Company
--------------------
attached hereto as Exhibit D (the "Financial Statements") fairly present with
---------
respect to the Company the financial position, the results of operations, and
the other information purported to be shown therein at the respective dates and
for the respective periods to which they apply. Such Financial Statements and
schedules (including the related notes) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved.
5.4 Proceedings. There is no material litigation, arbitration, claim,
-----------
governmental or other proceeding, or investigation by any governmental authority
or agency, pending or, to the Company's knowledge, threatened with respect to
the Company or any of its operations, businesses, properties or assets except as
described in the Disclosure Statement.
5.5 No Violation; Compliance.
------------------------
(a) The Company is not in violation of its Certificate of
Incorporation or Bylaws. The Company is not in default or breach, or
upon the passage of time or the giving of notice or both would not be
in default or breach, with respect to any material agreement or
instrument to which the Company is a party or by which it or any of
its properties is subject, or any statute or any order, rule,
regulation, judgment or decree of any court or governmental agency or
body having jurisdiction over the Company or any of its properties
except as described in the Disclosure Statement or such as in the
aggregate do not now have and could not in the future have a material
adverse effect upon the financial position, results of operations,
properties, business or prospects of the Company; nor is the Company
required to take any action in order to avoid any such breach or
default.
(b) The Company has properly filed all reports and other
documents required to be filed with any federal, state, local and
foreign government or subdivision or agency thereof with respect to
which the failure to file could have a material adverse effect on the
Company. The Company has not received any notice not heretofore
complied with in all material respects from any federal, state or
local authority or any insurance or inspection body that any of its
assets or business procedures or practices
<PAGE>
fails to comply with any applicable law, ordinance, regulation,
building or zoning law or requirement of any public authority or body.
5.6 Authorization. The Company has all requisite power and authority
-------------
to execute, issue, deliver, and perform its obligations under each of this
Agreement, the Note and the Registration Rights Agreement (collectively, the
"Documents"). All necessary corporate proceedings of the Company have been duly
taken to authorize the execution, delivery, and performance of the Documents.
Each Document has been duly authorized by the Company and, when executed and
delivered by the Company, will constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
5.7 No Consent.
----------
(a) No consent, authorization, approval, order, license,
certificate or permit of or from, or declaration or filing with, any
federal, state, local or other governmental authority or any court or
any other tribunal is required by the Company in connection with the
execution, delivery or performance by the Company of the Documents or
the issuance, sale, and delivery of the Note (except such filings and
consents as may be required and have been or at the Closing or within
the appropriate time thereafter will have been made or obtained under
federal and state securities laws).
(b) Except as described in the Disclosure Statement, no consent
of any party to any contract, agreement, instrument, lease, license,
arrangement or understanding to which the Company is a party or to
which any of its properties or assets are subject is required for the
execution, delivery, or performance by the Company of any of the
Documents or the issuance, sale, or delivery of the Note.
5.8 No Conflict. The execution, delivery and performance of this
-----------
Agreement and the other Documents and the consummation of actions herein and
therein contemplated, including the issuance of common stock upon conversion of
the Note, will not conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them is bound or to which any of the property of the Company
or any of its subsidiaries is subject, the Certificate of Incorporation or
By-laws of the Company or any of its subsidiaries, or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or its
subsidiaries.
5.9 Reservation of Shares. The Company has reserved shares of its
---------------------
common stock for issuance upon the conversion of the Note. The shares of common
stock issuable upon conversion of the Note have been duly authorized and
reserved for issuance and, when delivered upon conversion of the Note, will have
been validly issued and fully paid and will be non-assessable and free of
preemptive or similar rights.
<PAGE>
5.10 Brokers. No broker's, finder's or similar fees will be payable by
-------
the Company in connection with the transactions contemplated by this Agreement,
except as set forth in the Disclosure Statement.
5.11 1934 Act Reports. The Company has delivered to the Purchaser
----------------
copies of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for its fiscal year ended December 31, 1995, and its
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission
for the fiscal quarters ended March 31, 1996 and June 30, 1996. The Company has
filed all of the reports required to be filed with the Securities and Exchange
Commission under Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
-----------------------------------------------
Purchaser hereby represents and warrants to, and agrees with, the Company as
follows:
6.1 Authorization. The Purchaser has full power and authority to
-------------
enter into this Agreement and the Registration Rights Agreement, and each such
agreement constitutes the Purchaser's valid and binding obligation, enforceable
in accordance with its respective terms. Execution of this Agreement by the
Purchaser shall not be in contravention of or result in a default of any bylaw,
charter, contract, indenture, agreement, judgment, decree, order, law, rule or
regulation to which the Purchaser is a party or by which it is bound. The
Purchaser is duly authorized to execute this Agreement.
6.2 Accredited Investor. The Purchaser is an "Accredited Investor" as
-------------------
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Act").
6.3 Access to Information. The Purchaser has received, read carefully
---------------------
and is familiar with this Agreement. Respecting the Company, its business, plans
and financial condition, the terms of this transaction, and any other matters
relating to this transaction: the Purchaser has received all materials which
have been requested by the Purchaser; has had a reasonable opportunity to ask
questions of the Company and its representatives; and the Company has answered
all inquiries that the Purchaser or the Purchaser's representatives have put to
it. The Purchaser has had access to all additional information necessary to
verify the accuracy of the information set forth in this Agreement and the
Disclosure Statement and any other materials furnished herewith, and has taken
all the steps necessary to evaluate the merits and risks of an investment as
proposed hereunder.
6.4 Experience. The Purchaser or its representative has such
----------
knowledge and experience in finance, securities, investments and other business
matters so as to be able to protect the interest of the Purchaser in connection
with this transaction, and the Purchaser's investment in the Company hereunder
is not material when compared to the Purchaser's total financial capacity.
<PAGE>
6.5 Risks. The Purchaser understands the various risks of an
-----
investment in the Company as proposed herein and can afford to bear such risks,
including, but not limited to, the risks of losing the entire investment.
6.6 No Market. The Purchaser acknowledges that no market for the Note
---------
presently exists and none may develop in the future and that the Purchaser may
find it impossible to liquidate the investment at a time when it may be
desirable to do so, or at any other time.
6.7 No Registration. The Purchaser has been advised by the Company
---------------
that neither of the Note or the shares of common stock of the Company issuable
upon conversion of the Note (collectively, the "Securities") have been
registered under the Act, that the Securities will be issued on the basis of the
statutory exemption provided by Section 4(2) of the Act or Regulation D
promulgated thereunder, or both, relating to transactions by an issuer not
involving any public offering and under similar exemptions under certain state
securities laws, that this transaction has not been reviewed by, passed on or
submitted to any Federal or state agency or self-regulatory organization where
an exemption is being relied upon, and that the Company's reliance thereon is
based in part upon the representations made by the Purchaser in this Agreement.
The Purchaser acknowledges that the Purchaser has been informed by the Company
of, or is otherwise familiar with, the nature of the limitations imposed by the
Act and the rules and regulations thereunder on the transfer of securities. In
particular, the Purchaser agrees that no sale, assignment, or transfer of any of
the Securities shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless (i)
the sale, assignment or transfer of such Securities is registered under the Act,
it being understood that the Securities are not currently registered for sale
and that the Company has no obligation or intention to so register the
Securities except as contemplated in the Registration Rights Agreement or (ii)
such Securities are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule 144 under the Act, it being understood that
Rule 144 is not available at the present time for the sale of the Securities, or
(iii) such sale, assignment or transfer is otherwise exempt from registration
under the Act. The Purchaser further understands that an opinion of counsel and
other documents may be required to transfer the Securities as provided in the
Note. The Purchaser acknowledges that the Securities shall be subject to a stop
transfer order and the certificate or certificates evidencing any Securities
shall bear the following legend or a substantially similar legend or such other
legend as may appear on the forms of Note and such other legends as may be
required by state blue sky laws:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
or any state securities laws and neither such securities nor any
interest therein may be offered, sold, pledged, assigned, or otherwise
transferred unless (1) a registration statement with respect thereto
is effective under the Act and any applicable state securities laws or
(2) the Company receives an opinion of counsel to the holder of such
securities, which counsel and opinion are reasonably satisfactory to
the Company, that such securities may be offered, sold, pledged,
assigned, or
<PAGE>
transferred in the manner contemplated without an effective
registration statement under the Act or applicable state securities
laws."
6.8 Investment Intent. The Purchaser will acquire the Securities for
-----------------
the Purchaser's own account for investment and not with a view to the sale or
distribution thereof or the granting of any participation therein, and has no
present intention of distributing or selling to others any of such interest or
granting any participation therein.
6.9 No Guarantees. It never has been represented, guaranteed or
-------------
warranted by the Company, any of the officers, directors, shareholders,
employees or agents of the Company, or any other persons, whether expressly or
by implication, that:
(a) the Company or the Purchaser will realize any given
percentage of profits and/or amount or type of consideration, profit
or loss as a result of the Company's activities or the Purchaser's
investment in the Company; or
(b) the past performance or experience of the management of the
Company, or of any other person, will in any way indicate the
predictable results of the ownership of the Securities or of the
Company's activities.
6.10 No Other Representations. No oral or written representations have
------------------------
been made other than as stated herein, and no oral or written information
furnished to the Purchaser or the Purchaser's advisor(s) in connection with this
transaction were in any way inconsistent with the information stated herein.
6.11 No Advertisement. The Purchaser is not subscribing for the Note
----------------
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio (and is not aware of the existence of any of the
above), or presented at any seminar or meeting, or any solicitation of a
subscription by a person other than a representative of the Company with which
the Purchaser had a pre-existing relationship in connection with investments in
securities generally.
6.12 Survival. The Purchaser acknowledges that the representations,
--------
warranties and agreements made by the Purchaser herein shall survive the
execution and delivery of this Agreement and the purchase of the Note.
6.13 Blue Sky Legends. The Purchaser understands and agrees that
----------------
certain legends required by various state securities laws may be placed on
certificates representing the Note and shares of stock issued upon conversion of
the Note.
SECTION 7. MISCELLANEOUS.
-------------
<PAGE>
7.1 Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, indemnities and agreements of the Company herein,
or in certificates delivered pursuant hereto, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Purchaser, or by or on behalf of the Company or any of its officers, directors
or any controlling persons of the Company, and shall survive delivery of and
payment for the Note hereunder.
7.2 Notices. Except as otherwise specifically provided herein, any
-------
notice or other communication required or permitted to be given hereunder shall
be in writing and shall be mailed by certified mail, return receipt requested,
or by Federal Express, Express Mail or similar overnight delivery or courier
service or delivered (in person or by telecopy, telex or similar
telecommunications equipment) against receipt to the party to whom it is to be
given,
(i) if to the Company, at:
Silverado Foods, Inc.
6846 South Canton, Suite 110
Tulsa, Oklahoma 74136
Fax: (918) 491-6290
Attention: President
(ii) if to the Purchaser, at:
------------------------
or (iii) in either case, to such other address as the party shall have furnished
in writing in accordance with the provisions of this Section 7.2. Notice to the
-----------
estate of any party shall be sufficient if addressed to the party as provided in
this Section 7.2. Any notice or other communication given by certified mail
-----------
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice given by other means permitted by this Section 7.2 shall be
-----------
deemed given at the time of receipt thereof.
7.3 Agreement Binding on Successors. This Agreement shall be binding
-------------------------------
upon and inure to the benefit of the parties hereto, the successors and assigns
of the Company, and the permitted successors and assigns of the Purchaser
(including permitted transferees of the Securities).
7.4 Headings. The headings in this Agreement are solely for
--------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
<PAGE>
7.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Governing Law. This Agreement has been negotiated and shall be
-------------
consummated in the State of Oklahoma and shall be governed by and construed in
accordance with the laws of the State of Oklahoma, without giving effect to
conflict of laws.
7.7 Third Parties. This Agreement does not create, and shall not be
-------------
construed as creating, any rights enforceable by any person not a party to this
Agreement (except as provided in Section 7.3).
-----------
7.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable laws, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.9 Transferability. Neither this Agreement, nor any interest of the
---------------
Purchaser herein, shall be assignable or transferable by the Purchaser in whole
or in part except by operation of law.
7.10 Entire Agreement. The Documents and the exhibits hereto and
----------------
thereto set forth the entire understanding of the parties with respect to the
subject matter hereof, supersede all existing agreements among them concerning
such subject matter may be modified only by a written instrument duly executed
by the party to be charged.
7.11 Expenses and Attorneys' Fees. Each of the parties hereto shall
----------------------------
bear their own costs and expenses (including legal and accounting fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
IN WITNESS WHEREOF, this Agreement was executed by the parties as of
the date first above written.
SILVERADO FOODS, INC.
By:
Name:
Title:
------------------------
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - 9% Convertible Subordinated Note
Exhibit B - Registration Rights Agreement
Exhibit C - Disclosure Statement
Exhibit D - Financial Statements
<PAGE>
EXHIBIT A
---------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS
NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT
THIS NOTE MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
Silverado Foods, Inc.
9% Convertible Subordinated Note
$__________ No. _____
____________ ___, 1996
Silverado Foods, Inc., an Oklahoma corporation (the "Company"), for
value received, hereby promises to pay to
___________________________________________________, with an address at
__________________________________________________ or registered assigns (the
"Holder"), the principal amount of ______________________________ Dollars
($__________) together with accrued and unpaid interest thereon on the Maturity
Date (as defined below). The unpaid principal balance of this Convertible
Subordinated Note (this "Note") shall bear interest at the Applicable Rate (as
hereinafter defined) (calculated on the basis of a year of 365 or 366 days, as
applicable).
In no event shall any interest to be paid hereunder exceed the maximum
rate permitted by law. In any such event, this Note shall automatically be
deemed amended to permit interest charges at an amount equal to, but no greater
than, the maximum rate permitted by law.
This Note was issued by the Company pursuant to a certain Note Purchase
Agreement dated _____________ ___, 1996 (the "Note Purchase Agreement"), between
the Company and the original Holder hereof. This Note is one of a duly
authorized series of notes of the Company designated as its "9% Convertible
Subordinated Notes," and are referred to hereafter as the "Convertible Notes."
<PAGE>
SECTION 1. DEFINITIONS.
-----------
As used in this Note, the following terms, unless the context otherwise
requires, have the following meaning:
"Applicable Rate" means nine percent (9%) per annum.
---------------
"Business Day" means any day which is not a Saturday or Sunday and is not
------------
a day on which banking institutions are generally authorized or obligated to
close in Tulsa, Oklahoma.
"Capital Stock" means with respect to any person any and all shares,
-------------
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Holder" shall have the meaning set forth in the first paragraph (other
------
than the legend) of this Note and, if the context requires, any person in whose
name a Convertible Note is registered on the Note Register.
"Indebtedness" means with respect to any person (i) any liability (A) for
------------
borrowed money, (B) evidenced by a note, debenture, bond or other instrument of
indebtedness (including, without limitation, a purchase money obligation),
including any given in connection with the acquisition of property, assets or
services, or (C) for the payment of rent or other amounts relating to
capitalized lease obligations; (ii) any liability of others described in the
preceding clause which such person has guaranteed or which is otherwise its
legal liability; and (iii) any modification, renewal, extension, replacement or
refunding of any such liability described in the preceding clauses (i) or (ii);
provided, that Indebtedness does not include any obligation incurred in
connection with the purchase of assets, materials or services in the ordinary
course of business (including, without limitation, trade payables).
"Issuance Date" means __________ ___, 1996.
-------------
"Maturity Date" means __________ ___, 1999.
-------------
"Note Register" means a register of the Convertible Notes and of their
-------------
transfer and exchange.
"person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
<PAGE>
"Representative" means the indenture trustee or other trustee, agent or
--------------
representative for an issue of Senior Indebtedness.
"Senior Indebtedness" means the principal of, premium, if any, and
-------------------
interest on the Indebtedness owed to any bank, insurance company or other
financial institutions or institutional lenders.
"subsidiary" of any person means (i) a corporation a majority of whose
----------
Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person, by one
or more subsidiaries of such person or by such person and one or more
subsidiaries of such person or (ii) any other person (other than a corporation)
in which such person, a subsidiary of such person or such person and a
subsidiary of such person, directly or indirectly, at the date of determination
thereof, has at least a majority ownership interest.
SECTION 2. PAYMENTS; EXCHANGE.
------------------
2.01 Principal and Interest. Principal of, and accrued and unpaid
----------------------
interest on, this Note shall be due and payable in full on the Maturity Date.
Interest on this Note shall accrue from the Issuance Date and shall be payable
in arrears on the _____ day of each November, February, May and August during
the term hereof. All payments on this Note shall be applied first to accrued
interest hereon and the balance to the payment of principal hereof. If the
Maturity Date or any interest payment date would fall on a day that is not a
Business Day, the payment due on the Maturity Date or interest payment date will
be made on the next succeeding Business Day with the same force and effect as if
made on the Maturity Date or interest payment date, as the case may be. If the
Company shall fail to pay in full any amount required to be paid under this
Note, whether principal, interest, or any other amount, or in the event of
acceleration of this Note, then, for so long as such amount or any other payment
is in arrears, such amount shall bear interest at the rate of 12% per annum,
compounded monthly until payment in full of such amount has been made.
2.02 Optional Redemption. This Note is subject to redemption at any time
-------------------
or from time to time, on or after the date hereof, as a whole or in part, at the
election of the Company, at a redemption price of 100% of the unpaid principal
amount thereof, together with accrued interest to the redemption date. Notice
of redemption will be mailed at least 20 but not more than 40 days before the
redemption date to the Holder of this Note to be redeemed in accordance with
Section 7.01, at which time the Company's obligation to redeem this Note shall
be absolute and unconditional. On and after the redemption date interest will
cease to accrue on Notes or portions of them called for redemption.
2.03 Method of Payment. Payments of principal and interest on this Note
-----------------
shall be made by check sent to the Holder's address set forth above or to such
other address as the Holder may designate for such purpose from time to time by
written notice to the
<PAGE>
Company, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts.
2.04 Waiver of Demand, etc. The obligations to make the payments
---------------------
provided for in this Note are absolute and unconditional and not subject to any
defense, set-off, counterclaim, rescission, recoupment, or adjustment
whatsoever. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect any amount
called for hereunder, and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without any notice,
diligence, act, or omission with respect to the collection of any amount called
for hereunder.
SECTION 3. AFFIRMATIVE COVENANTS.
---------------------
From and after the Issuance Date, the Company shall comply with the
covenants and agreements contained in this Section 3 so long as any amount
remains unpaid on this Note. For purposes of this Section 3, the term "Company"
shall be deemed to include the Company and all of its subsidiaries.
3.01 Payment of Notes. The Company shall duly and punctually pay the
----------------
principal of, premium, if any, and interest on this Note at the respective times
and in the manner provided herein.
3.02 Financial Information.
---------------------
(a) The Company will make and keep books, records and accounts, which, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of its assets, and devise and maintain 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 or any other criteria applicable to such
statements 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 the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(b) The Company will furnish the following reports to the Holders at the
times indicated:
(i) As soon as practicable after the end of each fiscal year, and in
any event within 90 days thereafter, a consolidated balance sheet of
the Company as of the end of such fiscal year, and a consolidated
statement of
<PAGE>
income and a consolidated statement of cash flow of the Company for
such year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the
figures of the previous fiscal year, all in reasonable detail,
including all supporting schedules and comments and accompanied by the
opinion of independent public accountants of recognized national
standing, which opinion shall state that such financial statements
were prepared in accordance with generally accepted accounting
principles consistently applied, fairly present the financial
condition of the Company as of the date thereof and the period covered
thereby, and that the audit by such accountants has been made in
accordance with generally accepted auditing standards.
(ii) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company,
and in any event within 45 days thereafter, a consolidated balance
sheet of the Company as of the end of each such quarterly period, and
a consolidated statement of income and a consolidated statement of
cash flow of the Company for such period and for the current fiscal
year to date, prepared in accordance with generally accepted
accounting principles, all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the principal
financial officer of the Company.
SECTION 4. EVENTS OF DEFAULT.
-----------------
The occurrence of any of the following events shall constitute an event
of default (an "Event of Default"):
(a) A default in the payment of the principal or interest on this Note,
when and as the same shall become due and payable, whether at maturity, by
acceleration or otherwise, and continuance of such default for a period of
ten days after receipt of notice from the Holder as to such default.
(b) A default in the performance, or a breach, of any covenant or
agreement of the Company in this Note and continuance of such default or
breach for a period of 30 days after receipt of notice from the Holder as
to such breach or after the Company had or should have had knowledge of
such breach.
<PAGE>
(c) A default occurs and is continuing (without cure or waiver) under any
note, loan agreement, mortgage, indenture or other instrument under which
there may be evidenced or secured any Indebtedness of the Company (other
than this Note), whether such Indebtedness now exists or shall be created
hereafter and (i) such default results from the failure to pay principal of
or interest on such Indebtedness when due, whether at maturity, by
acceleration or otherwise or (ii) the effect of such default is to cause,
or permit the holder or holders of such Indebtedness to cause (determined
without regard to whether any notice or lapse of time is required), any
such Indebtedness to become due prior to its stated maturity, or the
acceleration of such Indebtedness shall have been declared.
(d) Any representation, warranty or certification made by the Company in
or pursuant to this Note, the Registration Rights Agreement between the
Company and the holder and any amendment thereto (the "Registration Rights
Agreement"), or the Note Purchase Agreement, shall prove to have been false
or misleading as of the date made in any material respect.
(e) A final judgment or judgments for the payment of money in excess of
$250,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction
against the Company and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof shall
not be procured, within 60 days from the date of entry thereof and the
Company shall not, within such 60-day period, or such longer period during
which execution of the same shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal.
(f) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company, under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, and the continuance of any such decree or
order unstayed and in effect for a period of 60 days; or the commencement
by the Company of a voluntary case under federal bankruptcy law, as now or
hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency, or other similar law, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of
a petition or answer or consent seeking reorganization or relief under
federal bankruptcy law or any other applicable federal or state law, or the
consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official
of the Company or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such
action.
<PAGE>
SECTION 5. REMEDIES UPON DEFAULT.
---------------------
5.01 Acceleration. Upon the occurrence of an Event of Default referred
------------
to in Section 4(f), the principal amount then outstanding of, and the accrued
interest on, this Note shall automatically become immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Company. Upon the occurrence of an
Event of Default other than one referred to in Section 4(f), the Holder, by
notice in writing given to the Company, may declare the entire principal amount
then outstanding of, and the accrued interest on, this Note to be due and
payable immediately, and upon any such declaration the same shall become and be
due and payable immediately, without presentation, demand, protest or other
formalities of any kind, all of which are expressly waived by the Company.
5.02 Institution of Actions. The Holder may institute such actions or
----------------------
proceedings in law or equity as it shall deem expedient for the protection of
its rights and may prosecute and enforce its claims against all assets of the
Company, and in connection with any such action or proceeding shall be entitled
to receive from the Company payment of the principal amount of this Note plus
accrued interest to the date of payment plus reasonable expenses of collection
including, without limitation, attorney's fees and expenses.
SECTION 6. TRANSFER.
--------
6.01 Transfer of Notes. Any Notes issued upon the transfer of this Note
-----------------
shall be numbered and shall be registered in a Note Register as they are issued.
The Company shall be entitled to treat the registered holder of any Note on the
Note Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Note on
the part of any other person, and shall not be liable for any registration or
transfer of Notes which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Note shall be transferable
only on the books of the Company upon delivery thereof duly endorsed by the
Holder or by his duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment, or authority to transfer. In all
cases of transfer by an attorney, executor, administrator, guardian, or other
legal representative, duly authenticated evidence of his or its authority shall
be produced. Upon any registration of transfer, the Company shall deliver a new
Note or Notes to the person entitled thereto. This Note may be exchanged, at
the option of the Holder thereof, for another Note, or other Notes of different
denominations, of like tenor and representing in the aggregate a like principal
amount, upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Notes to be transferred on its books to any person if, in the opinion of counsel
to the
<PAGE>
Company, such transfer does not comply with the provisions of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations thereunder.
6.02 Acknowledgement. The Holder acknowledges that he has been advised
---------------
by the Company that this Note has not been registered under the Act, that this
Note is being or has been issued on the basis of the statutory exemption
provided by Section 4(2) of the Act or Regulation D promulgated thereunder, or
both, relating to transactions by an issuer not involving any public offering,
and that the Company's reliance thereon is based in part upon the
representations made by the original Holder in the Note Purchase Agreement. The
Holder acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Act and the rules
and regulations thereunder on the transfer of securities. In particular, the
Holder agrees that no sale, assignment or transfer of the Note shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment or transfer of the
Note is registered under the Act, it being understood that this Note is not
currently registered for sale and that the Company has no obligation or
intention to so register this Note, or (ii) this Note is sold, assigned or
transferred in accordance with all the requirements and limitations of Rule 144
under the Act, it being understood that Rule 144 is not available at the time of
the original issuance of this Note for the sale of the Note and that there can
be no assurance that Rule 144 sales will be available at any subsequent time, or
(iii) such sale, assignment, or transfer is otherwise exempt from registration
under the Act. The Holder of this Note and each transferee hereof further
agrees that if any sale, assignment or transfer of this Note is proposed to be
made by them otherwise than by delivery of a prospectus meeting the requirements
of Section 10 of the Act, such action shall be taken only after submission to
the Company of an opinion of counsel, which counsel and opinion are reasonably
satisfactory to the Company, to the effect that the proposed distribution will
not be in violation of the Act or of applicable state law.
SECTION 7. MISCELLANEOUS.
-------------
7.01 Notices. Any notice or other communication required or permitted to
-------
be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at 6846 South
Canton, Suite 110, Tulsa, Oklahoma 74136, Attention: Chief Executive Officer,
Fax (918) 491-6290, (ii) if to the Holder,
________________________________________ at its address at _________________
_____________ _____________________________, Fax _______________, or (iii) in
either case, to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 7.01. Notice to the estate of
any party shall be sufficient if addressed to the party as provided in this
Section 7.01. Any notice or other communication given by certified mail shall
be deemed given at the time of certification thereof, except for
<PAGE>
a notice changing a party's address which shall be deemed given at the time of
receipt thereof. Any notice given by other means permitted by this Section 7.01
shall be deemed given at the time of receipt thereof.
7.02 Replacement Note. Upon receipt of evidence satisfactory to the
----------------
Company of the loss, theft, destruction or mutilation of this Note (and upon
surrender of this Note if mutilated), and upon reimbursement of the Company's
reasonable incidental expenses, the Company shall execute and deliver to the
Holder a new Note of like date, tenor and denomination.
7.03 No Waiver, etc. No course of dealing and no delay or omission on
--------------
the part of the Holder in exercising any right or remedy shall operate as a
waiver thereof or otherwise prejudice the Holder's rights, powers or remedies.
No right, power or remedy conferred by this Note upon the Holder shall be
exclusive of any other right, power or remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise, and all such
remedies may be exercised singly or concurrently.
7.04 Waiver and Amendment.
--------------------
(a) The Company may amend or supplement this Note with the written
consent of the Holder. It shall not be necessary for the consent of the
Holder under this Section 7.04 to approve the particular form of any
proposed amendment or supplement, but it shall be sufficient if such
consent approves the substance thereof.
(b) Subject to Section 5.01 and subparagraph (a) above, the Holder by
written notice to the Company may waive any past default or Event of
Default and its consequences. When a default or Event of Default is
waived, it is cured and ceases.
7.05 Choice of Law. This Note has been negotiated and consummated in the
-------------
State of Oklahoma and shall be governed by and construed in accordance with the
laws of the State of Oklahoma, without giving effect to conflict of laws.
SECTION 8. SUBORDINATION.
8.01 Agreement to Subordinate. The Company agrees, and the Holder by
------------------------
accepting this Note agrees, that the indebtedness evidenced by this Note and all
of the Convertible Notes is subordinated in right of payment, to the extent and
in the manner provided in this Section 8, to the prior payment in full of all
Senior Indebtedness, and that such subordination is for the benefit of the
holders of Senior Indebtedness.
8.02 Liquidation; Dissolution; Bankruptcy. Upon any distribution of
------------------------------------
cash, securities or other property to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property:
<PAGE>
(a) holders of Senior Indebtedness shall be entitled to receive payments
in full in cash of the principal of and interest (including interest
accruing after the commencement of any such proceeding) to the date of
payment on the Senior Indebtedness before Holders shall be entitled to
receive any payment of principal of or interest on this Note; and
(b) until the Senior Indebtedness is paid in full in cash, any
distribution to which Holders would be entitled but for this Section shall
be made to holders of Senior Indebtedness as their interests may appear,
except that Holders may receive securities that are subordinated to Senior
Indebtedness to at least the same extent as the Convertible Notes.
8.03 Default on Senior Indebtedness. The Company may not pay principal
------------------------------
of or interest on the Convertible Notes and may not acquire any Convertible
Notes for cash or property other than Capital Stock of the Company if:
(a) a default on Senior Indebtedness occurs and is continuing that
permits holders of such Senior Indebtedness to accelerate its maturity, and
(b) (i) such default is the subject of judicial proceedings or (ii) the
Company receives notice of such defaults. If the Company receives any such
notice (which may be given only by a Representative or a holder of an issue
of Senior Indebtedness that has no Representative), a similar notice
received within 365 days thereafter relating to the same default on the
same issue of Senior Indebtedness shall not be effective for purposes of
this Section.
The Company may resume payment on the Convertible Notes and may acquire
them when:
(1) such default is cured or waived, or
(2) 180 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Section otherwise permits the payment or acquisition at that time.
8.04 Acceleration of Notes. If payment of the Convertible Notes is
---------------------
accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Indebtedness of the acceleration.
8.05 When Distribution Must be Paid Over. If a distribution is made to
-----------------------------------
Holders that because of this Section should not have been made to them, the
Holders who receive the distribution shall hold it in trust for holders of
Senior Indebtedness and pay it over to them as their interests may appear.
<PAGE>
8.06 Subrogation. After all Senior Indebtedness is paid in full and
-----------
until the Convertible Notes are paid in full, Holders shall be subrogated to the
rights of holders of Senior Indebtedness to receive distributions applicable to
Senior Indebtedness to the extent that distributions otherwise payable to the
Holders have been applied to the payment of Senior Indebtedness. A distribution
made under this Section to holders of Senior Indebtedness which otherwise would
have been made to Holders is not, as between the Company and Holders, a payment
by the Company on Senior Indebtedness.
8.07 Relative Rights. This Section defines the relative rights of
---------------
Holders and holders of Senior Indebtedness. Nothing in this Note shall:
(a) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of and
interest on the Convertible Notes in accordance with their terms;
(b) affect the relative rights of Holders and creditors of the Company
other than holders of Senior Indebtedness; or
(c) prevent any Holder from exercising its available remedies upon a
default, subject to the rights of holders of Senior Indebtedness to receive
distributions otherwise payable to Holders.
If the Company fails because of this Section to pay principal of or
interest on a Convertible Note on the due date, the failure is still a default.
8.08 Subordination May Not Be Impaired by Company. No right of any
--------------------------------------------
holder of Senior Indebtedness to enforce the subordination of the indebtedness
evidenced by the Convertible Notes shall be impaired by any act or failure to
act by the Company or by its failure to comply with this Note.
8.09 Distribution or Notice to Representative. Whenever a distribution
----------------------------------------
is to be made or a notice given to holders of Senior Indebtedness, the
distribution may be made and the notice given to their Representative.
SECTION 9. CONVERSION.
----------
9.01 Conversion Privilege; Procedure. The Holder may convert this Note
-------------------------------
into Common Stock of the Company at any time before the close of business on the
Maturity Date. If this Note is called for redemption, the Holder may convert
this Note at any time before the close of business on the redemption date. The
initial conversion price is $_____ per share (the "Conversion Price"), subject
to adjustment as provided herein. To determine the number of shares of Common
Stock issuable upon conversion of this Note (the "Conversion Shares"), divide
the principal amount to be converted by the Conversion Price in effect on the
conversion date.
<PAGE>
Upon conversion of this Note, all accrued and unpaid interest thereon
shall be immediately due and payable in cash .
To convert, a Holder must (1) complete and sign the conversion notice on
the back of this Note, (2) surrender this Note to the Company, (3) furnish
appropriate endorsements and transfer documents if required by the Company, and
(4) pay any transfer or similar tax if required. A Holder may convert a portion
of this Note if the portion is $1,000 or a whole multiple of $1,000. In the
case of any Note which is surrendered for conversion only in part, the Company
shall execute and deliver to the Holder of such Note, without service charge, a
new Note or Notes of any authorized denomination or denominations as requested
by such Holder in aggregate principal amount equal to the unconverted portion of
the principal of the Note so surrendered.
If the last day on which a Note may be converted is not a Business Day,
the Note may be surrendered to the Company on the next succeeding day that is a
Business Day.
9.02 Reservation of Common Stock; Registration Rights.
------------------------------------------------
(a) The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Notes, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon conversion of
Convertible Notes, upon receipt by the Company of the Note surrendered for
conversion, shall be validly issued, fully paid, non assessable, and free
of preemptive rights.
(b) The shares of Common Stock issued upon conversion of this Note shall
be entitled to the registration rights contained in the Registration Rights
Agreement.
9.03 Adjustment for Change in Capital Stock. In case the Company shall
--------------------------------------
at any time after the Issuance Date (i) pay a dividend or make a distribution on
the outstanding Common Stock payable in shares of Common Stock or other shares
of its Capital Stock, (ii) subdivide the outstanding Common Stock into a greater
number of shares, (iii) combine the outstanding Common Stock into a smaller
number of shares, or (iv) issue any shares of its capital stock by
reclassification of the Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then, in each case, the Conversion Price, and the number of
Conversion Shares issuable upon conversion of this Note, in effect immediately
prior to such action shall be adjusted so that the Holder of a Note thereafter
converted may receive the number of shares of Capital Stock of the Company which
such Holder would have owned immediately following such action if such Holder
had converted the Note immediately prior to such action. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of
<PAGE>
a subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
9.04 When Adjustment May Be Deferred. No adjustment in the Conversion
-------------------------------
Price shall be required if such adjustment is less than $.05; provided, however,
-------- -------
that any adjustments which by reason of this Section 9 are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
9.05 Adjustment on a Record Date. In any case in which this Section 9
---------------------------
shall require that an adjustment in the Conversion Price be made effective as of
a record date for a specified event, the Company may elect to defer, until the
occurrence of such event, issuing to the Holder, if the Holder converted this
Note after such record date, the shares of Common Stock, if any, issuable upon
such conversion over and above the shares of Common Stock, if any, issuable upon
such conversion on the basis of the Conversion Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to the Holder a
-------- -------
due bill or other appropriate instrument evidencing the Holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
9.06 Notice of Adjustment. Whenever there shall be an adjustment as
--------------------
provided in this Section 9, the Company shall promptly cause written notice
thereof to be sent by registered mail, postage prepaid, to the Holder, at its
address as it shall appear in the Note Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Conversion
Shares purchasable upon the conversion of this Note and the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment and the computation thereof, which officer's certificate shall
be conclusive evidence of the correctness of any such adjustment absent manifest
error.
9.07 Fractional Shares. The Company shall not be required to issue
-----------------
fractions of shares of Common Stock or other capital stock of the Company upon
the conversion of this Note. If any fraction of a share would be issuable on
the conversion of this Note (or specified portions thereof), the Company will
deliver its check for the value of the fractional share. The value of the
fractional share is determined as follows: multiply the Conversion Price in
effect on the date of conversion of this Note by the fraction. Round the result
to the nearest cent.
9.08 Consolidation; Merger; Reclassification.
---------------------------------------
(a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any
sale, lease, or conveyance to another corporation of the property and
assets of any nature of the Company as an entirety or substantially as an
entirety, such successor, leasing, or purchasing corporation, as the case
may be, shall (i) execute with the Holder an agreement providing that the
Holder shall have the right thereafter to receive upon conversion of this
Note solely the kind and amount of shares of stock and other
<PAGE>
securities, property, cash, or any combination thereof receivable upon such
consolidation, merger, sale, lease, or conveyance by a holder of the number
of shares of Common Stock into which this Note might have been converted
immediately prior to such consolidation, merger, sale, lease, or conveyance
and (ii) make effective provision in its certificate of incorporation or
otherwise, if necessary, to effect such agreement. Such agreement shall
provide for adjustments which shall be as nearly equivalent as practicable
to the adjustments in Section 9.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon conversion of this Note (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two
or more classes or series of shares), or in case of any consolidation or
merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par
value to a specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more
classes or series of shares), the Holder shall have the right thereafter to
receive upon conversion of this Note solely the kind and amount of shares
of stock and other securities, property, cash, or any combination thereof
receivable upon such reclassification, change, consolidation, or merger by
a holder of the number of shares of Common Stock into which this Note might
have been converted immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made
for adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 9.03 above.
(c) The above provisions of this Section 9.08 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
9.09 Notice of Certain Transactions. In case at any time the Company
------------------------------
shall propose
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution to all
holders of Common Stock;
(b) to issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common
Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 9.08; or
<PAGE>
(d) to effect any liquidation, dissolution, or winding-up of the Company;
or
(e) to take any other action which would cause an adjustment to the
Conversion Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Note Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Conversion Price.
9.10 Taxes. The issuance of any shares or other securities upon the
-----
exercise of this Note, and the delivery of certificates or other instruments
representing such shares or other securities, shall be made without charge to
the Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
SILVERADO FOODS, INC.
By:
Name:
Title:
<PAGE>
Election to Convert
To Silverado Foods, Inc.:
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note, or the portion below designated, into shares of
Common Stock of Silverado Foods, Inc. in accordance with the terms of this Note,
and directs that the shares issuable and deliverable upon conversion, together
with any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned registered Holder hereof, unless a different name
has been indicated in the assignment below. If shares are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto.
Dated: _______________
Principal Amount of Note
to be converted ($1,000 or an
integral multiple thereof):
Signature (for conversion only)
If shares of Common Stock are to be issued
and registered otherwise than to the
registered Holder named above, please print
or typewrite name and address, including zip
code, and social security or other taxpayer
identification number.
<PAGE>
Signature Guarantee (if shares of Common Stock are to be issued and registered
otherwise than to the registered Holder):
ASSIGNMENT
----------
For value received, the undersigned owner hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[Please print or typewrite name and address including zip code of assignee.]
this Note and does not hereby irrevocably constitute and appoint
____________________ Attorney to transfer this Note on the books of the Company
with full power of substitution in the premises.
Dated: Signed:
Signature Guarantee
<PAGE>
EXHIBIT B
- ---------
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made as of the _____ day of
__________, 1996, by and among Silverado Foods, Inc., an Oklahoma corporation
(the "Company"), and the persons whose signatures appear on the execution pages
of this Agreement under the heading "Purchasers" (the "Purchasers").
WHEREAS, the Purchasers are purchasing 9% Convertible Subordinated
Notes of the Company (as such notes may be amended or supplemented hereby, the
"Convertible Notes") pursuant to several Note Purchase Agreements between the
Purchasers and the Company dated on or about the date hereof (the "Purchase
Agreements");
WHEREAS, the Convertible Notes are convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"); and
WHEREAS, in order to induce the Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide the Purchasers with the
registration rights set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Demand Registrations by the Purchasers.
--------------------------------------
(a) Requests for Registration. At any time beginning after the
-------------------------
date hereof and ending (subject to Section 7 hereof) on the date five
years from the date hereof, subject to the terms and conditions hereof,
the Purchasers may request registration under the Securities Act of
1933, as amended (the "Securities Act"), of all or part of their
Registrable Securities (as hereinafter defined) on Form S-3. The term
"Registrable Securities" means (i) any Common Stock issued or issuable
to the Purchasers upon conversion of the Convertible Notes, and (ii)
any securities issued or issuable with respect to the Common Stock
referred to in clause (i) by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. Any registration requested
pursuant to this paragraph 1(a) is referred to herein as a "Demand
Registration." The Company shall use its best efforts to be eligible to
use Form S-3. In the event the Company is not eligible to use Form S-3
at any time at which the Purchasers request a Demand Registration, the
period during which the Purchasers may request a Demand Registration
shall be extended by a period of time equal to the amount of time
between the time of said request for a Demand Registration and the time
at which the Company again becomes eligible to use Form S-3.
(b) Demand Registration. The Purchasers will be entitled to
-------------------
require one Demand Registration in which the Company will pay all
Registration Expenses (as hereinafter defined). A registration will not
count as the permitted Demand Registration until it has become
effective (unless such registration has not become effective due solely
to the fault of the Purchasers); provided that in any event the
<PAGE>
Company will pay all Registration Expenses in connection with any
registration initiated as a Demand Registration. Requests for a Demand
Registration may be initiated by the holders of no less than 51% of the
Registrable Securities. The Purchasers collectively shall be entitled
to only one Demand Registration, and any holder of Registrable
Securities who does not request inclusion in a Demand Registration
shall be deemed to have waived its right to participate in such Demand
Registration. A Purchaser shall not be entitled to registration under
this Agreement until after such Purchaser has converted its Convertible
Notes.
(c) Selection of Underwriters and Registration Form. The
-----------------------------------------------
Company will have the right to select the investment banker(s) and
manager(s), if any, to administer any offering relating hereto and the
form of registration statement utilized for such registration.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to
------------------
register any of its securities under the Securities Act (other than
pursuant to a Demand Registration) and the registration form to be used
may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company will give prompt written notice
to all holders of Registrable Securities of its intention to effect
such a registration and will, subject to subparagraphs (c) and (d)
below, include in such registration all Registrable Securities with
respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's
notice. The registration rights granted pursuant to this Section 2
shall terminate on the date five years from the date hereof (subject to
Section 7 hereof).
(b) Piggyback Expenses. The Registration Expenses of any
------------------
Piggyback Registration under this Paragraph 2 will be paid in
accordance with Section 4(a) hereof.
(c) Priority on Primary Registrations. If a Piggyback
---------------------------------
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing
that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, and (ii) second, such number
of Registrable Securities requested to be included therein, pro rata
among the holders thereof on the basis of the number of shares owned by
such holders.
<PAGE>
(d) Priority on Secondary Registrations. If a Piggyback
-----------------------------------
Registration is an underwritten secondary registration on behalf of
holders of the Company's securities (other than the holders of
Registrable Securities), and the managing underwriters advise the
Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which
can be sold in such offering, the Company will include in such
registration (i) first, such number of securities initially requested
to be included therein by the holders thereof, (ii) second, any
securities the Company proposes to sell, and (iii) third, such number
of Registrable Securities requested to be included therein, pro rata
among the holders thereof on the basis of the number of shares owned by
such holders.
(e) Other Registrations. If the Company has previously filed a
-------------------
registration statement with respect to Registrable Securities pursuant
to Section 1 or pursuant to this Section 2, and if such previous
registration has not been withdrawn or abandoned, the Company will not
be obligated to file or cause to be effected any other registration of
any of its equity securities or securities convertible or exchangeable
into or exercisable for its equity securities under the Securities Act
(except on Form S-8 or any successor form), whether on its own behalf
or at the request of any holder or holders of its securities, until a
period of at least six months has elapsed from the effective date of
such previous registration.
3. Registration Procedures. Whenever the Purchasers have
-----------------------
requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration of
such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective;
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of
not less than six months and comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the intended methods of disposition by the Purchasers set forth in
such registration statement; provided, notwithstanding the foregoing,
the Company shall not be required to keep the registration statement
effective if in the written opinion of the Company's counsel addressed
to the Purchasers, the Registrable Securities may be sold by the
Purchasers without registration or restriction pursuant to Rule 144(k)
under the Act or otherwise.
<PAGE>
(c) furnish to the Purchasers such number of copies of each
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as the Purchasers may
reasonably request in order to facilitate the disposition of the
Registrable Shares owned by the Purchasers;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as the Purchasers reasonably request and do any and
all other acts and things which may be reasonably necessary or
advisable to enable the Purchasers to consummate the disposition in
such jurisdictions of the Registrable Securities (provided that the
Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any
such jurisdiction); and
(e) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company
are then listed.
4. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding
discounts and commissions) and other Persons (as used herein, "Person"
shall be deemed to refer to individuals or entities, as appropriate)
retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this Agreement,
except that the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the
expenses of any annual audit or quarterly review, the expense of any
liability insurance, and the expenses and fees for listing the
securities to be registered on each securities exchange on which
similar securities issued by the Company are registered.
(b) To the extent expenses relating to a registration
hereunder are not required to be paid by the Company, the Purchasers
will pay those expenses allocable to the registration of the
Purchasers' securities so included. Without limiting the foregoing, the
Purchasers shall pay all fees and disbursements of its own counsel and
advisers, all marketing and road show expenses, all stock transfer fees
or expenses and all brokerage discounts, commissions and fees.
<PAGE>
5. Purchasers' Covenants. The Purchasers covenant and agree with
---------------------
the Company that:
(a) The Purchasers will cooperate with the Company in connection
with the preparation of any registration statement relating to a
registration of the Registrable Securities pursuant to this Agreement,
and for so long as the Company is obligated to keep the registration
statement effective, the Purchasers will provide the Company, in
writing, for use in the registration statement, all information
regarding the Purchasers and such other information as may be necessary
to enable the Company to prepare the registration statement and
prospectus covering the Registrable Securities and to maintain the
effectiveness thereof.
(b) The Purchasers shall not take, directly or indirectly, during
the term of this Agreement, any action designed to stabilize (except as
may be permitted by applicable law) or manipulate the price of any
security of the Company.
(c) At least 10 days prior to any distribution of the Registrable
Securities, the Purchasers will advise the Company in writing of the
dates on which the distribution will commence and terminate, the number
of shares to be sold, the name of any agent or broker-dealer to or
through whom such distribution is being made, the selling commission or
other compensation to such agent or broker-dealer and the number of
shares of Common Stock that will be owned beneficially by the selling
Purchaser after giving effect to such sale.
(d) Upon notice from the Company that it requires the suspension
of the distribution of any of the Registrable Securities pursuant to
the provisions of Section 6, then the Purchasers shall cease
distributing the Registrable Securities until such time as the Company
notifies the Purchasers that distribution of the Registrable Securities
may recommence.
(e) The Purchasers shall not sell, transfer or dispose of any of
the Registrable Securities, or enter into any agreements or
understandings with third parties respecting the sale, transfer or
disposition of any of the Registrable Securities, except as described
in the section of the prospectus entitled "Plan of Distribution" so
long as the Company maintains the effectiveness of the registration
statement.
6. Suspension of the Distribution of the Registrable Securities.
------------------------------------------------------------
(a) If the Company determines in good faith that the distribution
of any of the Registrable Securities would interfere with any pending
financing, acquisition, corporate reorganization or any other corporate
development involving the Company or any of its subsidiaries or would
require premature disclosure thereof, and promptly gives the Purchasers
written notice of such determination, the Company shall be entitled to
require the Purchasers to suspend its distribution of the Registrable
Securities for a reasonable period of time which, for purposes of this
Section 6(a), shall
<PAGE>
not exceed 90 days. Such written notice shall contain a general
statement of the reasons for such suspension and an estimate of the
anticipated period of suspension, and the Company shall promptly notify
the Purchasers of the expiration or earlier termination of such
suspension.
(b) If the Company shall file a registration statement (other
than in connection with the registration of securities issuable
pursuant to a continuous "at the market offering" pursuant to Rule
415(a)(4) under the Act, an employee stock option, stock purchase,
dividend reinvestment or similar plan or pursuant to a merger, exchange
offer or transaction of the type specified in Rule 145(a) under the Act
with respect to the Company's Common Stock, and the Company reasonably
determines (in the case of a non-underwritten offering) or the managing
underwriter or underwriters advise the Company (in the case of an
underwritten offering) that a sale or distribution of the Registrable
Securities would adversely affect such offering, then upon written
notice by the Company, the Purchasers shall, to the extent not
inconsistent with applicable law, suspend the distribution of any of
the Registrable Securities or any sale of the Registrable Securities
pursuant to Rule 144 under the Act during the 10-day period prior to
and the 90-day period following the effective date of such registration
statement, with such 90-day period being subject to early termination
by the Company with the approval of the managing underwriter or
underwriters. Without limiting the rights of the Company under Section
6(a), during any suspension period initiated pursuant to this Section
6(b), the Company shall not file or cause to become effective an
additional registration statement of the type for which it would be
entitled to suspend the distribution of the Registrable Securities
pursuant to this Section 6(b).
7. Termination of Registration Rights. The registration rights granted
----------------------------------
pursuant to Sections 1 and 2 of this Agreement shall terminate (if not
previously terminated by the passage of the time periods described in said
sections) as to each holder of Registrable Securities at such time as all
Registrable Securities of such holder may, in the written opinion of counsel to
the Company addressed to such holder, be sold within a three month period
pursuant to Rule 144 or other applicable exemption.
8. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted
by law, the Purchasers, and their officers and directors against all
losses, claims, damages, liabilities and expenses caused by any untrue
or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar furnished
in writing to the Company by the Purchasers expressly for use therein
or by such the Purchasers' failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such holder with a sufficient
number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such
<PAGE>
underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of
the Purchasers.
(b) In connection with any registration statement in which the
Purchasers are participating, the Purchasers will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities and expenses resulting from
any untrue or alleged untrue statement of material fact contained in
the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information
or affidavit so furnished in writing by such holder.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to
such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party will not be
subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be unreasonably
withheld). An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees
and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified
parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by
or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the
transfer of securities. The Company also agrees to make such
provisions, as are reasonably requested by any indemnified party, for
contribution to such party in the event the Company's indemnification
is unavailable for any reason.
9. Miscellaneous.
-------------
(a) Notices. All notices, requests, and demands required or
-------
permitted to be given pursuant to this Agreement shall be in writing
and must be given to or made
<PAGE>
upon the respective parties hereto either by hand delivery or by registered or
certified mail, return receipt requested, or by telegraph, charges prepaid,
addressed as follows:
If to the Company: Silverado Foods, Inc.
6846 South Canton, Suite 110
Tulsa, Oklahoma 74136
Attention: Lawrence D. Field, Chief Executive Officer
If to the Purchasers, to their addresses set forth in the Purchase
Agreements.
Any party may change its address by notice to the other parties given in like
fashion. Any notice so duly sent by mail by one party to another shall be deemed
given two (2) days after deposit in a proper governmental mailing facility. Any
notice sent by telegraph shall be deemed given on the day such notice is
delivered to the telegraph company, charges prepaid.
(b) Descriptive Headings. The descriptive headings herein have been
--------------------
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
(c) Governing Law. This Agreement is made under and shall be governed by
-------------
and interpreted in accordance with the laws of the State of Oklahoma.
(d) Amendment and Waivers. Except as otherwise provided herein, the
---------------------
provisions of this Agreement may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holders of a
majority-in-interest of the Registrable Securities.
(e) Assignment; Successors and Assigns. This Agreement shall be binding
----------------------------------
upon, and inure to the benefit of, the parties and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, by operation of law or
otherwise, by any of the Purchasers without the prior written consent of the
Company. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
(f) Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(g) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed an original, but
all of which together shall constitute one and the same instrument.
<PAGE>
(h) Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event any ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring either party by
virtue of the authorship of any of the provisions of this Agreement.
Any reference in this Agreement to any law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean "including
without limitation".
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
SILVERADO FOODS, INC.
By:
Name:
Title:
PURCHASERS:
------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE>
EXHIBIT C
- ---------
DISCLOSURE STATEMENT
Except as otherwise set forth herein or unless the context requires
otherwise, capitalized terms used below shall have the meanings ascribed to them
in the Note Purchase Agreement to which this Disclosure Statement is attached.
5.2 Capitalization
--------------
(1) The Company has established the Silverado Foods, Inc. 1994 Stock
Option Plan (the "1994 Plan"). The total number of shares of Common
Stock available for issuance under the 1994 Plan is 500,000 shares.
Pursuant to the 1994 Plan, there are currently options for the
purchase of 100,000 shares of Common Stock outstanding. Of such
options, only options for the purchase of 10,000 shares of Common
Stock are vested.
(2) In addition to the options under the 1994 Plan, there are presently
outstanding options and warrants for the purchase of 538,380 shares
of Common Stock.
(3) Pursuant to the Asset Purchase Agreement dated December 15, 1995
(the "Marveloaf Purchase Agreement"), among the Company, The
Marveloaf Corp. and David J. McElroy, the Company has agreed to
issue to the seller shares of Common Stock having a total market
value of up to $1,950,000 in the event certain target sales levels
are achieved during 1996 and 1997. The market value of the Common
Stock for the purpose of the calculation of the number of shares to
be issued will be limited to a maximum of $4.00 per share.
(4) The Amended and Restated Registration Rights Agreement dated August
18, 1993, as amended, among the Company, certain of its
shareholders, and certain holders of rights with respect to the
stock, grants certain demand and piggyback registration rights to
such shareholders and holders of rights.
(5) Pursuant to the Asset Purchase Agreement dated June 2, 1994 (the
"Mom's Purchase Agreement"), among the Company, Mom's Best Cookies,
Inc. and J. Wayne Jones, certain registration rights were granted
to the seller with respect to the shares of Common Stock issuable
by the Company in connection with such transaction.
(6) Pursuant to the Marveloaf Purchase Agreement, certain registration
rights were granted to the seller with respect to the shares of
Common Stock issuable by the Company in connection with such
transaction.
(7) Certain registration rights are attached to the warrant which was
issued to Commonwealth Associates in connection with the Company's
initial public offering.
(8) Pursuant to the Underwriting Agreement dated August 4, 1994,
between the Company and Commonwealth Associates, the Company agreed
to use its best
<PAGE>
efforts to cause a representative of Commonwealth Associates to be
elected to the Company's Board of Directors.
(9) The Company's credit facility with Liberty Bank and Trust Company
of Tulsa, N.A. includes certain restrictions on the Company,
including a restriction on the Company's ability to declare or pay
cash dividends.
(10) Pursuant to the Mom's Purchase Agreement, the Company is currently
obligated to issue 62,571 shares of Common Stock to Mom's Best
Cookies, Inc.
(11) The Company is currently negotiating with Nonni's Inc. ("Nonni's")
for the termination of certain royalty obligations. In connection
therewith, it is contemplated that the Company would issue to the
shareholders of Nonni's 700,000 shares of Common Stock, and that
the Company would issue additional shares if the market price of
the Company's Common Stock is less than $4.00 per share as of
April 1, 1997. In addition, it is contemplated that the Company
would issue an additional 200,000 shares of Common Stock to the
shareholders of Nonni's if sales of the royalty products exceeds
$10,000,000 in 1996 or 1997. Certain registration rights are to be
granted to the Nonni's shareholders in connection with such
matter.
5.4 Proceedings
-----------
The Company is a party to a California worker's compensation proceeding
which is not expected to have a material adverse effect on the
Company's financial condition.
5.5 No Violation; Compliance
------------------------
The Company has received notice of non-payment with respect to a
promissory note owed to The New York Bagel Factory of Santa Barbara in
the principal amount of $350,000.
5.7 No Consent
----------
The Company is required to obtain the consent of Liberty Bank and Trust
Company of Tulsa, N.A. to the transactions contemplated by the Note
Purchase Agreement, in accordance with the terms of the Company's
credit facility with such bank.
5.10 Brokers
-------
The Company has engaged Growth Capital Partners in connection with
certain matters, and the Company will be responsible for any fees owing
to Growth Capital Partners in connection therewith.
<PAGE>
EXHIBIT 10.1
ROYALTY TERMINATION AGREEMENT
THIS AGREEMENT, dated as of the _____ day of November, 1996, is by and
among Silverado Foods, Inc., an Oklahoma corporation ("Silverado"), Nonni's
Inc., a California corporation ("Nonni's"), and Steve Sirianni, Tim Soldati and
Rich Martin (collectively, the "Shareholders").
R E C I T A L S
A. Silverado and Nonni's entered into an Asset Purchase Agreement dated
December 31, 1993 (the "Asset Purchase Agreement"), which provided, in Section
7.7 thereof, for the payment of a royalty with respect to the product lines
acquired from Nonni's pursuant to the Asset Purchase Agreement.
B. Said royalty obligation of Section 7.7 of the Asset Purchase Agreement
was amended pursuant to an agreement dated March 21, 1995 (said royalty
obligation, as amended pursuant to the March 21, 1995 agreement or as otherwise
modified or amended, is hereinafter referred to as the "Royalty").
C. The Shareholders are the owners of all of the issued and outstanding
stock of Nonni's.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Termination of Royalty. The Royalty is hereby terminated as of the
----------------------
22nd day of July, 1996 (the "Termination Date"). Nonni's acknowledges that all
amounts due under the Royalty through the Termination Date have been paid in
full. Nonni's and the Shareholders hereby remise, release and forever discharge
Silverado from any and all claims, demands, obligations or liabilities, whether
known or unknown, with respect to the Royalty.
2. Issuance of Stock. Silverado shall issue to the Shareholders 700,000
-----------------
shares of Silverado's common stock (the "Primary Shares") in the following
proportions (the "Agreed Proportions"):
Steve Sirianni 233,334 shares
Tim Soldati 233,333 shares
Rich Martin 233,333 shares
-------
Total: 700,000 shares
Promptly following the execution of this Agreement, Silverado shall make
application to the American Stock Exchange for the listing of such shares and
deliver instructions to its transfer agent for the issuance of such shares.
3. Contingent Shares. In the event Silverado's net sales (as defined
-----------------
below) of the products which were subject to the Royalty (the "Royalty
Products") exceed $10,000,000 during
<PAGE>
any of the twelve month periods (i) commencing July 22, 1996, and ending July
21, 1997, (ii) commencing July 22, 1997, and ending July 21, 1998, or (iii)
commencing July 22, 1998, and ending July 21, 1999, Silverado shall issue to the
Shareholders (in the Agreed Proportions) an additional 200,000 shares of
Silverado common stock (the "Contingent Shares"). In the event the Contingent
Shares are earned based upon sales during any of said twelve month periods, the
Shareholders will not be entitled to any further shares with respect to sales
during any subsequent period. If earned, the Contingent Shares shall be issued
within 90 days after the end of the month in which the sales level necessary to
earn the Contingent Shares is achieved. Prior to such issuance, Silverado shall
make application to the American Stock Exchange for the listing of such shares
and deliver instructions to its transfer agent for the issuance of such shares.
No right to vote or receive dividends or any other rights as a shareholder of
Silverado shall exist with respect to any of the Contingent Shares,
notwithstanding the Shareholders' rights of issuance thereof, until the issuance
to the Shareholders of stock certificates representing such shares. The
Shareholders acknowledge that there are no assurances that such target sales
level will be achieved and that all decisions regarding sales strategies,
marketing, advertising, product lines and other matters regarding the Royalty
Products shall be in the sole discretion of Silverado. "Net sales" shall be
defined as gross sales, less returns, allowances and bad debts (i.e., debts
which are uncollected after 120 days).
4. Stock Price Guarantee.
---------------------
(a) Silverado shall guarantee the stock price of the Primary Shares as
follows: In the event any of the Shareholders (a "Selling Shareholder")
sells any of the Primary Shares during the period commencing on April 1,
1997, and ending on December 31, 1997, in an Approved Transaction (as
defined below), and the Net Sales Price (as defined below) per share is
less than $5.71 per share, then Silverado shall pay to the Selling
Shareholder within 60 days after the date of such sale an amount equal to
the number of shares sold times the difference between $5.71 and the Net
Sales Price per share received by the Selling Shareholder in such sale. An
"Approved Transaction" shall be defined as (i) a sale through a broker
which is executed on any exchange, (ii) any sale directly to a market
maker, as defined in Section 3(a)(38) of the Securities Exchange Act of
1934, or (iii) any privately negotiated sale, provided that such sale is
approved in writing in advance by Silverado. "Net Sales Price" shall be
defined as the total sales price and all other consideration received by
the Selling Shareholder, less any applicable discounts and commissions,
which discounts and commissions must be reasonable in amount.
(b) If the Contingent Shares are issued, Silverado shall guarantee the
stock price of the Contingent Shares as follows: Silverado shall
guarantee the stock price of the Contingent Shares in the same manner as
with respect to the Primary Shares, except that the period of time in which
sales must occur to be eligible for such guarantee shall commence on the
date of the effectiveness of the registration of the Contingent Shares on
Form S-3 by Silverado and end on the date 120 days after such commencement
date.
-2-
<PAGE>
(c) If Silverado fails to pay any amount under this Section 4 when
due, the Shareholders shall give written notice to Silverado of such
failure to pay. If Silverado does not cure such failure to pay within 15
days after its receipt of such notice, Silverado shall thereupon be deemed
to be in default, and such amount in default shall bear interest from the
end of the 15 day cure period until paid at the rate of 18% per annum.
(d) Notwithstanding anything contained herein to the contrary,
Silverado shall have no obligation to guarantee the stock price of the
Primary Shares or the Contingent Shares unless the Selling Shareholder
notifies Silverado of his intent to sell at least 10 days prior to the date
of the sale of the shares in question. A notice given by the Selling
Shareholder in accordance with Section 3(c) of the Registration Rights
Agreement (as hereinafter defined) shall be deemed to satisfy the notice
requirement of this Section 4(d).
(e) The period of the effectiveness of the stock price guarantees of
the Primary Shares and the Contingent Shares shall be subject to extension
pursuant to Section 4 of the Registration Rights Agreement.
(f) Notwithstanding anything contained herein to the contrary, at
Silverado's discretion, in the event Silverado becomes obligated to a
Selling Shareholder pursuant to the price guarantee provisions of this
Section 4, Silverado may satisfy such obligation by issuing to such Selling
Shareholder, within the time for payment set forth above, shares of
Silverado's common stock having a Market Value (as hereinafter defined)
equal to the amount owed by Silverado in connection with such price
guarantee. As used in this Section 4(f), "Market Value" shall mean the
average of the closing sales price of Silverado's common stock on the
American Stock Exchange (as recorded by The Wall Street Journal or, if not
-----------------------
recorded thereby, by another authoritative source) over the five trading
days comprised of the four trading days immediately preceding the date on
which the Approved Transaction giving rise to the price guarantee occurs
and the trading day on which such Approved Transaction occurs.
5. Registration Rights Agreement. Silverado and the Shareholders shall
-----------------------------
enter into a Registration Rights Agreement (the "Registration Rights Agreement")
in substantially the form attached hereto as Exhibit A and made a part hereof.
6. Investment Representations. The Shareholders and Nonni's represent
--------------------------
and warrant as follows:
(a) Access to Information. Respecting Silverado, its business, plans
---------------------
and financial condition, the terms of this transaction, and any other
matters relating to this transaction: the Shareholders have received all
materials which have been requested by the Shareholders; have had a
reasonable opportunity to ask questions of Silverado and its
representatives; and Silverado has answered all inquiries that the
Shareholders or the Shareholders' representatives have put to it. The
Shareholders have had access to all additional information necessary to
verify the accuracy of the information set forth in this
-3-
<PAGE>
Agreement and any other materials furnished herewith and have taken all the
steps necessary to evaluate the merits and risks of an investment as
proposed hereunder.
(b) Experience. The Shareholders or their representatives have such
----------
knowledge and experience in finance, securities, investments and other
business matters so as to be able to protect the interest of the
Shareholders in connection with this transaction.
(c) Risks. The Shareholders understand the various risks of an
-----
investment in Silverado as proposed herein and can afford to bear such
risks, including, but not limited to, the risks of losing the entire
investment.
(d) No Registration. The Shareholders have been advised by Silverado
---------------
that none of the shares of common stock of Silverado issuable hereunder
(collectively, the "Securities") have been registered under the Act, that
the Securities will be issued on the basis of the statutory exemption
provided by Section 4(2) of the Securities Act of 1933, as amended (the
"Act") or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering and under
similar exemptions under certain state securities laws, that this
transaction has not been reviewed by, passed on or submitted to any Federal
or state agency or self-regulatory organization where an exemption is being
relied upon, and that Silverado's reliance thereon is based in part upon
the representations made by the Shareholders in this Agreement. The
Shareholders acknowledge that the Shareholders have been informed by
Silverado of, or are otherwise familiar with, the nature of the limitations
imposed by the Act and the rules and regulations thereunder on the transfer
of securities. In particular, the Shareholders agree that no sale,
assignment, or transfer of any of the Securities shall be valid or
effective, and Silverado shall not be required to give any effect to any
such sale, assignment or transfer, unless (i) the sale, assignment or
transfer of such Securities is registered under the Act, it being
understood that the Securities are not currently registered for sale and
that Silverado has no obligation or intention to so register the Securities
except as contemplated in the Registration Rights Agreement or (ii) such
Securities are sold, assigned or transferred in accordance with all the
requirements and limitations of Rule 144 under the Act, it being understood
that Rule 144 is not available at the present time for the sale of the
Securities, or (iii) such sale, assignment or transfer is otherwise exempt
from registration under the Act. The Shareholders further understand that
an opinion of counsel and other documents may be required to transfer the
Securities. The Shareholders acknowledge that the Securities shall be
subject to a stop transfer order and the certificate or certificates
evidencing any Securities shall bear the following legend or a
substantially similar legend and such other legends as may be required by
state blue sky laws:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
or any state securities laws and neither such securities nor any
interest therein may be offered, sold, pledged, assigned, or otherwise
transferred unless (1) a
-4-
<PAGE>
registration statement with respect thereto is effective under the Act
and any applicable state securities laws or (2) Silverado receives an
opinion of counsel to the holder of such securities, which counsel and
opinion are reasonably satisfactory to Silverado, that such securities
may be offered, sold, pledged, assigned, or transferred in the manner
contemplated without an effective registration statement under the Act
or applicable state securities laws."
(e) Investment Intent. The Shareholders will acquire the Securities
-----------------
for the Shareholders' own account for investment and not with a view to the
sale or distribution thereof or the granting of any participation therein,
and has no present intention of distributing or selling to others any of
such interest or granting any participation therein.
(f) Blue Sky Legends. The Shareholders understand and agree that
----------------
certain legends required by the laws of the State of California will be
placed on certificates representing the Securities.
(g) Shareholders. The Shareholders are the owners of all of the
------------
issued and outstanding shares of capital stock of Nonni's.
(h) Survival. The Shareholders acknowledge that the representations,
--------
warranties and agreements made by the Shareholders herein shall survive the
execution and delivery of this Agreement and the issuance of the Securities
hereunder.
7. Miscellaneous.
-------------
(a) Notices. All notices and other communications required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given, delivered and received (a) if delivered personally,
or (b) if sent by facsimile, registered or certified mail (return receipt
requested) postage prepaid, or by courier guaranteeing next day delivery,
in each case to the party to whom it is directed at the addresses set forth
below (or at such other address for any party as shall be specified by
notice given in accordance with the provisions hereof, provided that
notices of a change of address shall be effective only upon receipt
thereof). Notices delivered personally shall be effective on the day so
delivered; notices sent by registered or certified mail shall be effective
on the third day after mailing; notices sent by facsimile shall be
effective when receipt is acknowledged; and notices sent by courier
guaranteeing next day delivery shall be effective on the earlier of the
second business day after timely delivery to the courier or the day of
actual delivery by the courier:
(i) if to Silverado:
Silverado Foods, Inc.
6846 South Canton, Suite 110
Tulsa, Oklahoma 74136
-5-
<PAGE>
Fax: (918) 491-6290
Attention: President
(ii) if to Nonni's or the Shareholders:
Nonni's, Inc.
________________________
________________________
Fax: (___) ______________
Attention: _______________
(b) Agreement Binding on Successors. This Agreement shall be binding
-------------------------------
upon and inure to the benefit of the parties hereto and their respective
heirs, successors and assigns.
(c) Headings. The headings in this Agreement are solely for
--------
convenience of reference and shall be given no effect in the construction
or interpretation of this Agreement.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California, without giving
effect to conflict of laws.
(f) Entire Agreement. This Agreement and the exhibits hereto set
----------------
forth the entire understanding of the parties with respect to the subject
matter hereof, supersede all existing agreements among them concerning such
subject matter may be modified only by a written instrument duly executed
by the party to be charged.
(g) Attorneys' Fees. In the event of any litigation arising out of
---------------
this Agreement, the party not prevailing in such proceedings shall pay the
reasonable costs of the prevailing party in connection with such
proceedings, including but not limited to attorneys' fees and expenses,
witness fees and expenses and court costs.
(h) Authority. Silverado's Board of Directors has taken all action
---------
necessary to approve the execution, delivery and performance of this
Agreement, and the person signing below on behalf of Silverado is duly
authorized to execute this Agreement.
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement was executed by the parties as of the
date first above written.
SILVERADO FOODS, INC.
By:______________________________
Name:____________________________
Title:___________________________
NONNI'S INC.
By:______________________________
Name:____________________________
Title:___________________________
_________________________________
Steve Sirianni
_________________________________
Tim Soldati
_________________________________
Rich Martin
-7-
<PAGE>
EXHIBIT A
---------
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of the ___ day
of November, 1996, is between SILVERADO FOODS, INC., an Oklahoma corporation
("Silverado"), and STEVE SIRIANNI, TIM SOLDATI AND RICH MARTIN (the
"Shareholders").
WHEREAS, pursuant to and subject to the terms and conditions of a Royalty
Termination Agreement, dated as of the date hereof (the "Royalty Termination
Agreement"), the Shareholders are receiving 700,000 shares (the "Primary
Shares") of common stock, par value $.01 per share, of Silverado ("Silverado
Common Stock") which are "restricted securities" as defined in Rule 144 under
the Securities Act of 1933, as amended (the "Act"); and
WHEREAS, also pursuant to the Royalty Termination Agreement, the
Shareholders have the ability to earn, upon the occurrence of certain events,
200,000 additional shares (the "Contingent Shares") of Silverado Common Stock
which, if issued, would be "restricted securities" as defined in Rule 144 under
the Act; and
WHEREAS, Silverado has agreed, subject to the terms and conditions stated
herein to execute, deliver and perform this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the parties hereto agree as
follows:
1. Registration.
------------
(a) In consideration of the Shareholders's willingness to accept the
Primary Shares and the Contingent Shares pursuant to the Royalty
Termination Agreement, and subject to the performance by the Shareholders
of its covenants set forth herein, Silverado (i) shall prepare and file,
within 60 days following the date of the Royalty Termination Agreement,
with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-3 with respect to the offering and sale of
the Primary Shares by the Shareholders on a delayed or continuous basis
pursuant to Rule 415 under the Act, (ii) shall prepare and file, within 60
days following the issuance of the Contingent Shares to the Shareholders,
with the Commission a registration statement on Form S-3 with respect to
the offering and sale of Contingent Shares by the Shareholders on a delayed
or continuous basis pursuant to Rule 415 under the Act, and (iii) shall use
its best efforts to cause registration statements to become effective as
soon as possible after the filing thereof so as to permit the secondary
resale of the Shares by the Shareholders. As used herein, the term
"Registration Statement" means either or both of the registration
statements required pursuant to clauses (i) and (ii) of the preceding
A-1
<PAGE>
sentence, as the context requires, including exhibits and financial
statements and schedules and documents incorporated by reference therein,
as amended, when they become effective under the Act and, in the case of
the references to the Registration Statement as of a date subsequent to the
effective date, as amended or supplemented as of such date. As used
herein, the term "Prospectus" means the prospectus included in the
Registration Statement as of the date it becomes effective under the Act
and, in the case of references to the Prospectus as of a date subsequent to
the effective date of the Registration Statement, as amended or
supplemented as of such date, including all documents incorporated by
reference therein, as amended, and each prospectus supplement relating to
the offering and sale of any of the Primary Shares or Contingent Shares.
As used herein, the term "Shares" means the Primary Shares and/or the
Contingent Shares, as the context requires.
(b) Once filed, Silverado will use its best efforts to cause the
Registration Statement to remain effective, and to file with the Commission
such amendments and supplements as may be necessary to keep the Prospectus
current and in compliance in all material respects with the Act, until the
earlier to occur of the following: (i) the date on which restrictions on
sales of the Shares by the Shareholders would otherwise terminate pursuant
to Rule 144(k) under the Act (as such rule or any successor rule shall be
amended from time to time); or (ii) the sale of all of the Shares covered
by the Registration Statement, whether pursuant to the Registration
Statement or otherwise. Notwithstanding the foregoing, Silverado shall not
be required to keep the Registration Statement effective, and the
Shareholders shall not distribute any Shares pursuant thereto if, in the
written opinion of counsel to Silverado addressed to the Shareholders, the
Shares may be sold by the Shareholders without registration or restriction.
(c) Silverado shall furnish to the Shareholders a conformed copy of
the Registration Statement as declared effective by the Commission and of
each post-effective amendment thereto, and such number of copies of the
final Prospectus and of each post-effective amendment or supplement thereto
as may reasonably be required to facilitate the distribution of the Shares.
Promptly after the Registration Statement has been declared effective by
the Commission, Silverado shall so notify the Shareholders. Thereafter, in
the event that any stop order suspending the effectiveness of the
Registration Statement is issued or any proceedings for that purpose are
instituted or threatened by the Commission, Silverado will promptly so
notify the Shareholders.
(d) The Registration Statement shall be prepared by Silverado in
accordance with the Act and the rules and regulations promulgated
thereunder. The section of the Prospectus entitled "Selling Stockholder"
shall be prepared in accordance with the requirements of Item 507 of
Regulation S-K promulgated by the Commission and shall be based upon the
information provided by the Shareholders to Silverado pursuant to Section
3(a).
A-2
<PAGE>
(e) Promptly after having been notified by the Shareholders of their
intention to distribute Shares in a manner described by the Registration
Statement in the section entitled "Plan of Distribution" and after having
received the information required to be delivered to Silverado as provided
in Section 3(c), Silverado will, if necessary, (i) prepare a supplement to
the Prospectus based upon the information so provided and file the same
with the Commission pursuant to Rule 424(b) under the Act and (ii) register
or qualify the Shares to be sold under the securities or blue sky laws of
such jurisdictions in the United States as the Shareholders shall
reasonably request; provided, however, that Silverado shall in no event be
-------- -------
required to qualify to do business as a foreign corporation or as a dealer
in any jurisdiction where it is not so qualified, to conform its
capitalization or the composition of its assets at the time to the
securities or blue sky laws of any such jurisdiction, to execute or file
any general consent to service of process under the laws of any
jurisdiction, to take any action that would subject it to service of
process in suits other than those arising out of the offer and sale of
Shares, or to subject itself to taxation in any jurisdiction where it has
not therefore done so.
2. Expenses of Registration. All expenses in connection with the
------------------------
Registration Statement, any qualification or compliance with federal or state
laws required in connection therewith, and the distribution of the Shares shall,
as between the Shareholders and Silverado, be borne as follows:
(a) Silverado shall pay and be responsible for the registration fee
payable under the Act, blue sky fees and expenses, if applicable (subject
to the limitations set forth in Section 1(e)), all fees and disbursements
of Silverado's counsel and accountants, and the cost of printing or
photocopying the Registration Statement and the Prospectus. Silverado will
not be required to engage the services of a printer with respect to the
Registration Statement or the Prospectus, but may elect to do so.
(b) The Shareholders shall pay all fees and disbursements of its own
counsel and advisers, all stock transfer fees (including the cost of all
transfer tax stamps) or expenses, if any, and all other expenses (including
brokerage discounts, commissions and fees) related to the distribution of
the Shares that have not expressly been assumed by Silverado.
3. The Shareholders' Covenants Regarding the Shares. The Shareholders
------------------------------------------------
covenant and agree with Silverado that:
(a) The Shareholders will cooperate with Silverado in connection
with the preparation of the Registration Statement, and for so long as
Silverado is obligated to keep the Registration Statement effective, the
Shareholders will provide to Silverado, in writing, for use in the
Registration Statement, all information regarding the Shareholders as may
be necessary to enable Silverado to prepare the Registration Statement and
Prospectus covering the Shares and to maintain the effectiveness thereof.
A-3
<PAGE>
(b) During such time as the Shareholders may be engaged in a
distribution of the Shares, the Shareholders will comply with Rules 10b-2,
10b-6 and 10b-7 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and pursuant thereto will, among other things:
(i) not engage in any stabilization activity in connection with the
securities of Silverado in contravention of such Rules; (ii) distribute the
Shares solely in the manner described in the Prospectus; (iii) cause to be
furnished to each agent or broker-dealer to or through whom the Shares may
be offered, or to the offeree if an offer is made directly by the
Shareholders, such copies of the Prospectus (as amended and supplemented to
such date) and documents incorporated by reference therein as may be
required by such agent, broker-dealer or offeree or applicable law; and
(iv) not bid for or purchase any securities of Silverado or attempt to
induce any person to purchase any securities of Silverado other than as
permitted under the Exchange Act.
(c) At least 10 days prior to any distribution of the Shares, the
Shareholders will advise Silverado in writing of the dates on which the
distribution will commence and terminate, the number of the Shares to be
sold, the name of any agent or broker-dealer to or through whom such
distribution is being made, the selling commission or other compensation to
such agent or broker-dealer and the number of Shares of Silverado Common
Stock that will be owned beneficially by the Shareholders after giving
effect to such sale.
(d) Upon notice from Silverado that it requires the suspension of
the distribution of any of the Shares pursuant to the provisions of Section
4, then the Shareholders shall cease distributing the Shares until such
time as Silverado notifies the Shareholders that distribution of the Shares
may recommence.
(e) The Shareholders will not sell, transfer or dispose of any of
the Shares, or enter into any agreements or understandings with third
parties respecting the sale, transfer or disposition of any of the Shares,
except as described in the section of the Prospectus entitled "Plan of
Distribution" so long as Silverado maintains the effectiveness of the
Registration Statement.
(f) The Shareholders will not sell, transfer or dispose of any of
the Shares until on or after January 1, 1997.
4. Suspension of the Distribution of the Shares.
--------------------------------------------
(a) If Silverado determines in good faith that the distribution of
any of the Shares would interfere with any pending financing, acquisition,
corporate reorganization or any other corporate development involving
Silverado or any of its subsidiaries or would require premature disclosure
thereof, and promptly give the Shareholders written notice of such
determination, Silverado shall be entitled to require the Shareholders to
suspend its distribution of the Shares for a reasonable period of time
which, for purposes of this Section 4(a), shall not exceed 90 days;
provided, in the event of such a suspension
A-4
<PAGE>
during the effectiveness of any of the stock price guarantees set forth in
Section 4 of the Royalty Termination Agreement, then the period of the
effectiveness of any stock price guarantee which is so affected shall be
extended by the amount of time of such suspension. Such written notice
shall contain a general statement of the reasons for such suspension and an
estimate of the anticipated period of suspension, and Silverado shall
promptly notify the Shareholders of the expiration or earlier termination
of such suspension.
(b) If Silverado shall file a registration statement (other than in
connection with the registration of securities issuable pursuant to a
continuous "at the market offering" pursuant to Rule 415(a)(4) under the
Act, an employee stock option, stock purchase, dividend reinvestment or
similar plan or pursuant to a merger, exchange offer or transaction of the
type specified in Rule 145(a) under the Act) with respect to Silverado
Common Stock or securities convertible into or exchangeable or exercisable
for Silverado Common Stock, and Silverado reasonably determines (in the
case of a non-underwritten offering) or the managing underwriter or
underwriters advise Silverado (in the case of an underwritten offering)
that a sale or distribution of the Shares would adversely affect such
offering, then upon written notice by Silverado, the Shareholders shall, to
the extent not inconsistent with applicable law, suspend the distribution
of any of the Shares or any sale of the Shares pursuant to Rule 144 under
the Act during the 10-day period prior to and the 90-day period following
the effective date of such registration statement, with such 90-day period
being subject to early termination by Silverado with the approval of the
managing underwriter or underwriters. Without limiting the rights of
Silverado under Section 4(a), during any suspension period initiated
pursuant to this Section 4(b), Silverado shall not file or cause to become
effective an additional registration statement of the type for which it
would be entitled to suspend the distribution of the Shares pursuant to
this Section 4(b). In the event any such suspension pursuant to this
Section 4(b) occurs during the effectiveness of any of the stock price
guarantees set forth in Section 4 of the Royalty Termination Agreement,
then the period of the effectiveness of any stock price guarantee which is
so affected shall be extended by the amount of time of such suspension.
5. Indemnification.
---------------
(a) Silverado will indemnify and hold harmless the Shareholders,
their estate, heirs and personal representatives, and each person (if any)
who controls the Shareholders within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act (collectively, the "Shareholder
Indemnified Parties") from and against any losses, claims, damages or
liabilities, joint or several, to which the Shareholder Indemnified Parties
may become subject, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus, or any 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 under which they
A-5
<PAGE>
were made, not misleading, or upon any violation by Silverado of the Act or
blue sky laws of any state or any rules under those laws, or any other laws
applicable to Silverado in connection with the registration or listing of
the Shares; and, subject to Section 5(c), Silverado will reimburse the
Shareholder Indemnified Parties for any legal or other expense reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage or liability; provided, however, that Silverado will
-------- -------
not indemnify or hold harmless any of the Shareholder Indemnified Party
from or against any such loss, claim, damage, liability or person (i) that
arises out of or is based upon any violation of the Shareholders' covenants
in Section 3 or of any federal or state securities laws, rules or
regulations committed by any of the Shareholder Indemnified Parties (or any
agent, broker-dealer or underwriter engaged by them) or (ii) if the untrue
statement, omission or allegation thereof upon which such losses, claims,
damages, liabilities or expenses are based (x) was made in reliance upon
and in conformity with the information provided by the Shareholders
specifically for use or inclusion in the Registration Statement, or (y) was
made in any Prospectus used after such time as Silverado advised the
Shareholders that the filing of a post-effective amendment or supplement
thereto was required, except the Prospectus as so amended or supplemented,
or (z) was made in any Prospectus used after such time as the obligation of
Silverado hereunder to keep the Registration Statement effective and
current has expired.
(b) The Shareholders will indemnify and hold harmless Silverado, its
directors and officers and each person, if any, who controls Silverado
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act (the "Silverado Indemnified Parties"), from and against any
losses, claims, damages or liabilities, joint or several, to which the
Silverado Indemnified Parties may become subject, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus, or
any 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 under which they were made, not misleading, if the
statement or omission was made in reliance upon and in conformity with the
information provided by the Shareholders specifically for use or inclusion
in the Registration Statement, or (ii) the use of any Prospectus after such
time as Silverado has advised the Shareholders that the filing of a post-
effective amendment or supplement thereto is required, except the
Prospectus as so amended or supplemented, or (iii) the use of any
Prospectus after such time as the obligation of Silverado hereunder to keep
the Registration Statement effective and current has expired, or (iv) any
violation by the Shareholders or any person who controls the Shareholders
within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act (or any agent, broker-dealer or underwriter engaged by the
Shareholders or any such controlling person) of the Shareholders's
covenants in Section 3 or of any federal or state securities law or rule or
regulation thereunder; and, subject to Section 5(c), the Shareholders will
reimburse the Silverado Indemnified Parties for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage or
A-6
<PAGE>
liability. In no event shall the liability of a Shareholder for
indemnification under this Section 5(b) exceed the proceeds received by
such Shareholder from his sale of Shares under the Registration Statement.
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and the Indemnifying Party may participate at its own expense in
the defense, or if it so elects, to assume the defense of any such claim
and any action or proceeding resulting therefrom, including the employment
of counsel and the payment of all expenses. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying
Party from its obligations to indemnify such Indemnified Party, except to
the extent that the Indemnified Party's failure to so notify actually
prejudices the Indemnifying Party's ability to defend against such claim,
action or proceeding; it being understood and agreed that the failure to so
notify the Indemnifying Party prior to the execution of a binding
settlement agreement or the entry of a judgment or issuance of an award
with respect to a claim, action or proceeding shall constitute actual
prejudice to the Indemnifying Party's ability to defend against such claim,
action or proceeding. In the event that the Indemnifying Party elects to
assume the defense in any action or proceeding, the Indemnified Party shall
have the right to employ separate counsel in any such action or proceeding
and to participate in the defense thereof, but the fees and expenses of
such separate counsel shall be such Indemnified Party's expense unless (i)
the Indemnifying Party has agreed to pay such fees and expenses or (ii) the
named parties to any such action or proceeding (including any impleaded
parties) include an Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that there may be a
conflict of interest between such indemnified Party and the Indemnifying
Party in the conduct of the defense of such action (in which case, if such
Indemnified Party notifies the Indemnifying Party that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not assume the defense of such action or proceeding on such
Indemnified Party's behalf, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings arising out of the same general allegations or circumstance,s
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys at any time for all Indemnified Parties, which firm shall
be designated in writing by the Shareholders or Silverado as the case may
be). No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of the Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent or, if there
be a final judgment for the plaintiff in any such action or
A-7
<PAGE>
proceeding, the Indemnifying Party shall indemnify and hold harmless the
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for under this Section 5 is
unavailable to or insufficient to hold the Indemnified Party harmless under
subparagraphs (a) or (b) above in respect of any losses, claims, damages or
liabilities referred to therein for any reason other than as specified
therein, then the Indemnifying Party shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and such
Indemnified Party on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by (or
omitted to be supplied by) Silverado or the Shareholders, the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, the relative benefits
received by each party from the sale of the Shares and any other equitable
considerations appropriate under the circumstances. The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages
or liabilities referred to above in this subsection (d) shall be deemed to
include any legal or other expense reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or
claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
6. No Third-Party Beneficiaries. NOTHING CONTAINED IN THIS AGREEMENT,
----------------------------
EXPRESS OR IMPLIED IS INTENDED TO CONFER UPON ANY PERSON, OTHER THAN THE PARTIES
AND THEIR RESPECTIVE SUCCESSORS, HEIRS AND PERMITTED ASSIGNS, ANY RIGHTS,
REMEDIES OR OBLIGATIONS UNDER, OR BY REASON OF, THIS AGREEMENT.
7. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior understandings and agreements with
respect to the subject matter hereof or thereof.
8. Notices. All notices and other communications under this Agreement
-------
shall be in writing and sent by (i) personal delivery (including courier
service), (ii) telecopier during normal business hours to the number indicated
below, or (iii) first class or registered or certified mail, postage prepaid and
addressed as follows (or to such other addresses and telecopier numbers as
either party may designate by notice to the other party) (any communication
being deemed given upon receipt);
A-8
<PAGE>
If to the Shareholders at:
Steve Sirianni, Tim Soldati and Rich Martin
-----------------------------
-----------------------------
Attention:
-----------------
Telecopier No.:
If to Silverado at:
Silverado Foods, Inc.
6846 South Canton, Suite 110
Tulsa, OK 74136
Attention: Chief Financial Officer
Telecopier No.: (918) 491-6200
9. Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be set forth in an instruction in
writing signed by each party. Each of the parties may waive compliance by such
other party with any agreements of such party or the fulfillment of any of the
conditions to its own obligations set forth herein. Any agreement on the part
of any party to any such waiver shall be valid only if set forth in an
instrument in writing signed by such party. No waiver by either party or any
default, misrepresentation, or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default, misrepresentation,
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence. Neither the failure nor
any delay by any party in exercising any right, power or privilege under this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power or privilege will preclude
any other or further exercise of any other right, power or privilege.
10. Assignment; Successors and Assigns. This Agreement shall be binding
----------------------------------
upon, and inure to the benefit of, the parties and their respective successors
and permitted assigns, but neither this Agreement nor any of the right,s
interests or obligations hereunder shall be assigned, by operation of law or
otherwise, by any party without the prior written consent of the other party.
This Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
11. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
12. Headings. The descriptive headings of the several Sections of this
--------
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
A-9
<PAGE>
13. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of California, without regard to
principles of conflicts of law.
14. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed an original, but
all of which together shall constitute one and the same instrument.
15. Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring either party by virtue of the authorship of
any of the provisions of this Agreement. Any reference in this Agreement to any
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean "including without limitation".
16. Attorneys' Fees. In the event of any litigation arising out of this
---------------
Agreement, the party not prevailing in such proceedings shall pay the reasonable
costs of the prevailing party in connection with such proceedings, including but
not limited to attorneys' fees and expenses, witness fees and expenses and court
costs.
17. Authority. Silverado's Board of Directors has taken all action
---------
necessary to approve the execution, delivery and performance of this Agreement,
and the person signing below on behalf of Silverado is duly authorized to
execute this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
---------------------------------------
Steve Sirianni
---------------------------------------
Tim Soldati
---------------------------------------
Rich Martin
A-10
<PAGE>
SILVERADO FOODS, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
A-11
<PAGE>
EXHIBIT 10.2
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (Third Amendment) executed as of
the 13th day of September, 1996, by and between SILVERADO FOODS, INC., an
Oklahoma corporation (Silverado), SILVERADO MARKETING SERVICES, INC., an
Oklahoma corporation, formerly known as Honor Snack, Inc. (Marketing), TEXAS
B&B, INC., a Texas corporation (TBB), (Silverado, Marketing, and TBB will
sometimes be hereinafter referred to collectively as the Borrower), LAWRENCE D.
FIELD and CYNTHIA FIELD (Guarantors), and LIBERTY BANK AND TRUST COMPANY OF
TULSA, NATIONAL ASSOCIATION (hereinafter sometimes referred to as Bank).
W I T N E S S E T H:
WHEREAS, on April 11, 1995, Bank and Borrower entered into that certain
Loan Agreement whereby Bank provided Borrower with revolving credit and term
loan facilities in an aggregate principal amount of up to $10,000,000.00 (the
Loan Agreement), and the Guarantors executed the Guaranties;
WHEREAS, on November 10, 1995, Bank and Borrower entered into a letter
agreement whereby certain provisions of the Loan Agreement were modified or
waived (the First Amendment);
WHEREAS, on April 18, 1996, Bank and Borrower entered into that certain
Second Amendment to Loan Agreement whereby additional modifications were made to
the Loan Agreement and the First Amendment (the Second Amendment). For
convenience, the Loan Agreement, the First Amendment, and the Second Amendment
will be referred to collectively as the Original Loan Agreement;
WHEREAS, Borrower and Guarantors have requested that Bank make certain
additional amendments to the Original Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, all capitalized
-----------
terms shall have the meaning ascribed to them in the Original Loan
Agreement.
2. The second sentence of Section 1(k) of the Original Loan Agreement is
hereby deleted in its entirety, and the following substituted in its
place:
For the calendar years ending December 31, 1996, and December
31, 1997 only, Cash Flow Ratio shall mean the ratio of the
Borrower's Net Cash Flow for the period under consideration,
annualized where applicable, divided by an amount equal to
<PAGE>
current maturities of long term debt and Capitalized Lease
Obligations for the next ensuing twelve months, calculated in
accordance with GAAP.
3. Section 1(k) of the Original Loan Agreement is amended in part by
adding the following sentence:
<PAGE>
The calculation of the Cash Flow Ratio shall not include
current amounts on Debt owed by Borrower to Guarantors so long
as the terms of such Debt require that any payments made by
Borrower to Guarantors or any Affiliate of Guarantors in
respect of such Debt must receive prior approval by Bank in
writing.
4. The first sentence of Section 1(hh) of the Original Loan Agreement is
amended in part as follows:
(hh) Guaranties. The Second Amended and Restated Guaranty
----------
dated September 13, 1996, in the form attached hereto as
Exhibit A to this Third Amendment.
5. Section 1(ll) of the Original Loan Agreement is hereby amended in part
by adding the following sentences:
The amount of any margin debt (such amount limited to the
lesser of (i) the margin debt, or (ii) the market value of the
Silverado common stock securing the margin debt incurred by
the Guarantors) secured solely by Guarantors' shares of
Silverado common stock shall not be included in liabilities
for purposes of calculating the Liquid Assets Ratio.
6. Section 1(ddd) of the Original Loan Agreement is hereby amended in its
entirety as follows:
(ddd) That certain $7,000,000.00 Amended and Restated
Revolving Note attached as Exhibit B to this Third Amendment
to Loan Agreement.
7. Section 1(ll) of the Original Loan Agreement is amended in part by
adding the following:
(ll) However, as of any date subsequent to the Guarantors'
pledge of Unencumbered Liquid Assets pursuant to section 6(d)
of the Second Amended and Restated Guaranty but prior to any
pledge of Unencumbered Liquid Assets pursuant to section 6(e)
of the Second Amended and Restated Guaranty, the Liquid Assets
Ratio shall refer to a quotient, the numerator of which is
Unencumbered Liquid Assets minus the lesser of $5,000,000.00
or the current market value of the Unencumbered Liquid Assets
<PAGE>
pledged pursuant to section 6(d) of the Second Amended and
Restated Guaranty
and the denominator of which is
the total amount outstanding under this Agreement at any time
minus the lesser of $5,000,000.00 or the current market value
of the Unencumbered Liquid Assets pledged pursuant to section
6(d) of the Second Amended and Restated Guaranty plus all
direct and contingent liabilities incurred by the Guarantors
since December 31, 1994.
As of any date subsequent to the Guarantors' pledge of Unencumbered
Liquid Assets pursuant to section 6(e) of the Second Amended and
Restated Guaranty, the definition of the Liquid Assets Ratio shall be
modified at the Bank's discretion to reflect the coverage requirements
of section 6(e) of the Second Amended and Restated Guaranty.
8. Sections 2(a), 2(d), and 3(a) of the Original Loan Agreement are hereby
amended in part by deleting the amount $5,000,000.00 wherever it
appears, and substituting in its place the amount $7,000,000.00.
9. Section 2(b) of the Original Loan Agreement is amended in part by
deleting the second sentence in its entirety and substituting the
following:
Advances under the Term Loan may be drawn from time to time
by requesting an Advance as provided under Section 2(c)(ii);
provided, however, that the aggregate principal amount of all
Advances under the Term Loan Commitment shall not exceed the
sum of $5,192,307.70, minus amounts transferred pursuant to 2
(bb).
10. Section 2(bb) of the Original Loan Agreement is deleted in its
entirety.
11. Section 3(e)(i) of the Original Loan Agreement is hereby deleted in its
entirety and the following is substituted in its place:
(I) The Borrowers shall pay all accrued interest monthly on
the first day of each and every month.
-2-
<PAGE>
12. Section 3(e)(ii) of the Original Loan Agreement is deleted in its
entirety and the following substituted in its place:
(ii) So long as no Event of Default has occurred, the unpaid
principal balance of the Term Loan Note shall be due and
payable in monthly installments on the first day of each
calendar month commencing April 1997, as follows:
Payment Date Principal Payment
------------------------------------------------------------
April 1, 1997, through and including
January 1, 1998 (10 payments) $115,000.00
February 1, 1998, through and including
January 1, 1999 (12 payments) 125,000.00
February 1, 1999, through and including
January 1, 2000 (12 payments) 135,000.00
February 1, 2000, through and including
June 1, 2000 (5 payments) 146,000.00
The final Maturity Date of the Term Loan Note shall be June 1, 2000.
Borrower has made certain reductions in the principal balance of the
Term Loan and Bank has agreed that Borrower may reborrow Advances under
the Term Loan so long as the total amount of all Advances outstanding
under the Term Loan does not exceed $5,192,307.70. This is a one-time
waiver of the prohibition against reborrowing under the Term Loan and
Borrower and Guarantors each agree that Bank shall have no obligation
to permit any additional reborrowing under the Term Loan.
13. Section 4 of the Second Amendment is hereby deleted in its entirety.
14. Section 12 of the Original Loan Agreement is amended in part by adding
the following as Section 12(s):
12(s) Limitation on Repayment of Debt to Guarantors. Borrower
shall not make any payments on any Debt owed by Borrower to
Guarantors or any Affiliate of Guarantors without the prior
written
-3-
<PAGE>
consent of the Bank unless (i) such payment is accomplished
via application of proceeds of the Subordinated Debt Issuance
(as such term is defined in paragraph 6(e) of the Second
Amended and Restated Guaranty) to the extent that such
proceeds exceed $4,000,000.00 and (ii) no Default or Event of
Default exists or would be created at the time of such
payment.
15. Additional Agreements of Bank. Bank's obligations under this Third
-----------------------------
Amendment are expressly subject to (i) Borrower complying with the
terms of this Third Amendment, (ii) the Guarantors' entering into the
Amended and Restated Guaranties, (iii) Borrower's payment of (x) the
$20,000.00 loan fee provided for in Section 16 of this Third Amendment,
(iv) Guarantors delivering to Lender a completed Liquidity Maintenance
Certificate in the form attached as Schedule 11(p) to the Loan
Agreement for June 30, 1996, showing a Liquid Assets Ratio for the
Guarantors of not less than 1.25:1; and (v) delivery by Guarantors to
Bank of the Pledge Agreement attached hereto as Exhibit C, along with
Unencumbered Liquid Assets in the amount of $5,000,000.00, together
with stock powers or other instruments of assignment or transfer
acceptable to Bank to perfect Bank's security interest therein.
16. Agreements of Borrower.
----------------------
A. Loan Fee. Concurrently with the execution of this Third
--------
Amendment, Borrower will pay Bank the sum of $20,000.00 which
shall encompass Borrower's reimbursement for the cost and
expense incurred by Bank in connection with this Third
Amendment.
B. Corporate Resolutions. Borrower shall provide Bank with
---------------------
appropriate certified corporate resolutions of Borrower
authorizing the transactions contemplated by this Third
Amendment concurrently with the execution hereof. Further, the
Borrower acknowledges and agrees that, until Bank receives a
further certificate of the authorized officers of Borrower
canceling or amending the prior certificate and submitting
signatures of the officers named in such further certificate,
Bank may conclusively rely on certificates previously
submitted by Borrower.
17. Concurrently with the execution hereof, Borrower shall execute and
deliver an Amended and Restated Revolving Note in the form of Exhibit
D.
18. Except as provided herein, the terms and provisions hereof shall in no
manner impair, limit, restrict, or otherwise affect the obligations
-4-
<PAGE>
of Borrower, the Guarantors, or any third party to Bank, as evidenced
by the Loan Documents as previously amended and as amended hereby (the
Revised Loan Documents ). Borrower and Guarantors hereby acknowledge,
agree, and represent that (i) Borrower is indebted to Bank pursuant to
the terms of the Revised Loan Documents; (ii) the liens, security
interests, and assignments created and evidenced by the Loan Documents
are, respectively, valid and subsisting liens, security interests, and
assignments of the respective dignity and priority recited in the
Revised Loan Documents (or, to the extent the priority is not as
stated, it shall not reduce or otherwise limit the extent of Borrower's
or Guarantors' liability under the Revised Loan Documents); (iii) there
are no claims or offsets against, or defenses or counterclaims to, the
terms or provisions of the Revised Loan Documents, and the other
obligations created or evidenced by the Revised Loan Documents; (iv)
neither Borrower nor Guarantors have any claims, offsets, defenses, or
counterclaims arising from any of Bank's acts or omissions with respect
to the Property, the Revised Loan Documents, or Bank's performance
under the Revised Loan Documents or with respect to the Property; (v)
no indulgence or past indulgence by Bank and nothing contained herein
or in any other agreement between Borrower, Guarantors, and Bank, nor
any other action or inaction by Bank, has waived or shall constitute a
waiver of any default or event of default which may exist under the
Revised Loan Documents or an election of remedies by Bank or a waiver
of any of the rights, remedies, or recourse of Bank provided in any of
the Revised Loan Documents or otherwise afforded at law or in equity;
and (vi) Bank is not in default and no event has occurred which, with
the passage of time, giving of notice, or both, would constitute a
default by Bank of Bank's obligations under the terms and provisions of
the Revised Loan Documents.
19. Amendment. Except to the extent amended hereby, the Loan Agreement, as
---------
amended by the First Amendment, the Second Amendment, and this Third
Amendment, shall remain in full force and effect according to its
terms.
BORROWER:
SILVERADO FOODS, INC.,
an Oklahoma corporation
By:
Name: Lawrence D. Field
Title: Chairman
-5-
<PAGE>
SILVERADO MARKETING SERVICES, INC.
(formerly Honor Snack, Inc.),
an Oklahoma corporation
By:
Name: Lawrence D. Field
Title: Chairman
TEXAS B&B, INC.,
a Texas corporation
By:
Name: Lawrence D. Field
Title: Chairman
BANK:
LIBERTY BANK AND TRUST COMPANY OF
TULSA, NATIONAL ASSOCIATION
By:
Name: Lloyd E. Stone
Title: Vice President
GUARANTORS:
LAWRENCE D. FIELD
CYNTHIA FIELD
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 61,733
<SECURITIES> 0
<RECEIVABLES> 5,101,567
<ALLOWANCES> 0
<INVENTORY> 6,496,870
<CURRENT-ASSETS> 12,454,747
<PP&E> 13,409,800
<DEPRECIATION> 1,102,491
<TOTAL-ASSETS> 39,729,990
<CURRENT-LIABILITIES> 20,888,881
<BONDS> 0
0
0
<COMMON> 69,528
<OTHER-SE> 3,248,703
<TOTAL-LIABILITY-AND-EQUITY> 39,729,990
<SALES> 35,215,886
<TOTAL-REVENUES> 35,215,886
<CGS> 23,878,313
<TOTAL-COSTS> 14,656,676
<OTHER-EXPENSES> 67,841
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,012,722
<INCOME-PRETAX> (4,399,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,399,666)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,399,666)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
