<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 March 31, 1997
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 field such reports), and (2) has been subject to such filing
requirements of 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 May 13, 1997
----- ---------------------------
Common Stock, $.01 Par Value 7,862,749
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PART I
FINANCIAL
INFORMATION
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------ ---- ----
(Unaudited)
CURRENT ASSETS:
Cash 608,754 164,118
Accounts receivable, net 3,774,051 4,605,632
Inventories, net 5,499,754 5,974,719
Prepaid expenses and other 849,813 543,709
Deferred tax assets 16,663 16,663
Net assets held for disposal 397,538 188,324
----------- -----------
Total current assets 11,146,573 11,493,165
----------- -----------
NOTE RECEIVABLE 1,270,134 1,315,584
PROPERTY, PLANT AND EQUIPMENT, net 12,073,372 11,829,580
GOODWILL AND OTHER INTANGIBLES, net 13,041,627 13,137,613
----------- -----------
Total assets 37,531,706 37,775,942
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt 8,756,320 8,637,272
Trade accounts payable 7,914,683 8,338,029
Accrued liabilities 2,263,946 2,324,039
Other liabilities 320,792 290,311
----------- -----------
Total current liabilities 19,255,741 19,589,651
----------- -----------
LONG-TERM DEBT, less current maturities 14,589,641 13,442,197
DEFERRED TAX LIABILITIES 16,663 16,663
OTHER 3,588,316 3,587,632
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000
shares authorized 76,866 72,583
Treasury stock (64,652) (64,652)
Warrants 61,563 61,563
Additional paid-in-capital 21,384,419 18,843,454
Accumulated deficit (21,376,851) (17,773,149)
----------- -----------
Total shareholders' equity 81,345 1,139,799
----------- -----------
Total liabilities and shareholders'
equity 37,531,706 37,775,942
----------- -----------
See notes to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
NET SALES 11,818,104 $ 10,059,001
COST OF SALES 8,383,879 6,558,249
------------ ------------
Gross profit 3,434,225 3,500,752
------------ ------------
OPERATING EXPENSES:
General and administrative 2,012,558 1,856,952
Selling and marketing 2,920,199 2,166,642
Depreciation 128,024 84,136
Amortization of goodwill and other intangibles 260,284 304,826
------------ ------------
5,321,065 4,412,556
------------ ------------
OPERATING LOSS (1,886,840) (911,804)
OTHER INCOME (EXPENSE):
Interest (553,313) (306,476)
Accretion of debenture discount (1,150,000) -
Other, net (13,549) (27,712)
------------ ------------
(1,716,862) (334,188)
------------ ------------
LOSS BEFORE INCOME TAXES (3,603,702) (1,245,992)
PROVISION FOR INCOME TAXES - -
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (3,603,702) (1,245,992)
LOSS FROM DISCONTINUED OPERATIONS - (32,000)
------------ ------------
NET LOSS (3,603,702) (1,277,992)
============ ============
LOSS PER COMMON AND
COMMON EQUIVALENT SHARE FROM CONTINUING OPERATIONS $ (0.49) $ (0.20)
LOSS FROM DISCONTINUED OPERATIONS - $ (0.01)
------------ ------------
LOSS PER SHARE (0.49) $ (0.21)
============ ============
See notes to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- ----------------- ADDITIONAL
NUMBER NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT WARRANTS CAPITAL DEFICIT TOTAL
--------- ------ --------- ------ -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 7,258,243 $ 72,583 (26,995) $(64,652) $ 61,563 $18,843,454 $(17,773,149) $ 1,139,799
Issuance of common stock in
connection with debenture
conversion 428,264 4,283 - - - 640,717 - 645,000
Contribution of capital - - - - - 750,248 - 750,248
Accretion of debenture
discount - - - - - 1,150,000 - 1,150,000
Net loss - - - - - - (3,603,702) (3,603,702)
--------- -------- ------- -------- -------- ----------- ------------ -----------
7,686,507 $ 76,866 (26,995) $(64,652) $ 61,563 $21,384,419 $(21,376,851) $ 81,345
========= ======== ======= ======== ======== =========== ============ ===========
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,603,702) $(1,277,992)
------------ -----------
Adjustments to reconcile net loss to cash used in operating activities-
Depreciation and amortization 525,370 457,887
Accretion of debenture discount 1,150,000 -
Change in assets and liabilities, net of effect of acquisitions
Decrease in accounts receivable 831,581 489,349
(Increase) decrease in inventory 474,965 (71,019)
(Increase) decrease in prepaid expenses and other (306,842) 283,891
Increase in assets held for disposal (209,214) -
Decrease in payables and accrued liabilities (483,439) (693,092)
(Increase) decrease in intangibles and other 31,902 (89,207)
------------ -----------
Total adjustments 2,014,323 377,809
------------ -----------
Cash used in operating activities (1,589,379) (900,183)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (627,726) (59,220)
Payments for acquisitions - (1,344,152)
------------ -----------
Cash provided by financing activities (627,726) (1,403,372)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants - 15,845
Borrowings from long-term debt 3,263,709 2,535,998
Payments on notes payable (601,968) (300,750)
------------ -----------
Cash provided by financing activities 2,661,741 2,251,093
------------ -----------
NET INCREASE (DECREASE) IN CASH 444,636 (52,462)
CASH, beginning of period 164,118 128,401
------------ -----------
CASH, end of period $ 608,754 $ 75,939
============ ===========
Non-cash Financing Activities:
Issuance of stock for acquisition $ - $ 600,000
Issuance of stock for debenture conversion 694,293 -
Addition to paid-in-capital for debenture discount accretion 1,150,000 -
Contribution of capital 750,248 -
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for-
Interest $ 253,718 $ 254,822
Income taxes - -
</TABLE>
See notes 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 and Form 10-K as of December 31,
1996. 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, ingredients, raw materials, and
packaging supplies which are stated at the lower of cost (first-in, first-out
basis) or market as follows:
March 31, December 31,
1997 1996
--------- ------------
Raw Materials $2,188,428 $2,348,945
Finished Goods 3,405,722 3,709,774
---------- ----------
5,594,150 6,058,719
Less: Allowance for excess and
obsolete inventory (94,396) (84,000)
---------- ----------
$5,499,754 $5,974,719
========== ==========
3. LOSS PER SHARE:
For the three months ended March 31, 1997 and March 31, 1996, the loss per share
calculation includes the weighted average number of shares outstanding for the
period which were 7,327,740 and 6,105,061 respectively.
In March 1997, Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" was issued. SFAS No. 128 replaces primary earnings per
share with basic earnings per share, and diluted earnings per share with fully
diluted earnings per share. The earnings per share calculations for the three
months ended March 31, 1997 and March 31, 1996 would not change under SFAS No.
128.
<PAGE>
4. SUBSEQUENT EVENT
Subsequent to March 31, 1997, the Company entered into a new credit facility
with a lender which replaced the $5,000,000 acquisition credit line ($5,000,000
outstanding at March 31, 1997). The new facility provides for borrowings up to
$6,000,000. The term of this note is for two years, with interest at 8 1/2%,
payable monthly. Principal payments commence in year two based upon a five year
amortization with a balloon payment at the end of year two.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The continuing operations information excludes the results from operations
of the Company's non-snack tray direct store delivery business located in
southern California. The Company began a direct store delivery business to
accommodate the distribution for certain of its specialty baked goods in the
southern California area in January 1996. No income tax benefit has been
recognized in connection with this discontinued operation due to the Company's
net operating loss carry forward position. The following discussion and analysis
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto. The following table represents, as a percentage of
net sales, certain selected financial data for the Company for the periods
indicated:
THREE MONTHS
ENDED
MARCH 31,
------------
1997 1996
---- ----
Net Sales 100% 100%
Gross Profit 29 35
General and Administrative 17 18
Selling and Marketing 25 22
Depreciation and Amortization of Intangibles 3 4
Operating Loss (16) (9)
Interest and Other 15 3
Net Loss (31) (13)
PERIOD TO PERIOD COMPARISONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED
TO THE THREE MONTHS ENDED MARCH 31, 1996
Net Sales. Consolidated net sales increased 17% from $10,059,000 to $11,818,000.
The snack tray segment's net sales were $5,784,000 and accounted for 49% of
total consolidated sales for the quarter ending March 31, 1997 compared to 58%
or $5,789,000 for the same period of 1996. Sales increased in the specialty
baked goods segment and was primarily from the bagel and bagel bar brands which
increased 144%. This increase was driven by both revenue increases from
wholesale club sales and from revenues due to the acquisition in August 1996 of
certain assets of The Bagel Place, Inc. which accounted for $1,217,000 of the
increase. Total sales from other brands in the specialty baked goods segment
were relatively flat. Biscotti sales increased 39% over the prior year quarter
or $660,000. Offsetting this increase was a decline from the snack brands of
$692,000.
Gross Profit. Gross profit for the three months ended March 31, 1997 was
$3,434,000, a slight decrease over the comparable period of 1996 of $3,501,000.
Gross profit as a
<PAGE>
percentage of net sales decreased to 29% from 35%. Gross profit in the snack
tray segment was $2,484,000, an increase of $113,000 and increased as a
percentage of net sales from 41% to 43% over the comparable periods. The higher
gross margin was a result of actions taken by the Company to offset higher
product costs that occurred during the first quarter of 1996 and measures put
into place to improve average exchanges from the snack trays by increasing the
number of products in the tray and lowering the average unit cost for the
product mix. In the specialty baked goods segment, gross profit decreased from
$1,072,000 to $950,000, a decrease of 11%. This consisted of an 18% decrease in
biscotti gross profit, an 83% increase in bagel bar gross profit, and a decrease
in snack brands of 111%. As a percentage of net sales, gross profit decreased
from 25% to 16%. This decrease was due to a number of one-time factors including
close down costs associated with the Orlando bakery facility in January 1997,
and lower gross margins from the biscotti brands at the Tulsa manufacturing
facility in February 1997, as the Company started up production of certain
products previously produced at its Hayward, California facility. In addition,
the Company experienced lower margins from the snack brands.
General and Administrative. General and administrative expenses decreased as a
percentage of net sales from 18% to 17% but increased from $1,857,000 to
$2,013,000. The snack tray segment's general and administrative expenses
increased by $137,000, the specialty baked goods segment general and
administrative expenses declined by $86,000, and corporate general and
administrative expenses increased by $101,000 as the Company consolidated
certain general and administrative functions on a centralized basis.
Selling and Marketing. Selling and marketing expenses increased from $2,167,000
to $2,920,000 over the comparable period of 1996, an increase of 35% and
increased as a percentage of net sales from 22% to 25%. This increase was driven
by increased demonstrations for the bagel bar brands in the wholesale clubs
during the first quarter of 1997 as sales from these brands increased by 144%
over the first quarter of 1996.
Depreciation and Amortization of Intangibles. Depreciation and amortization
of goodwill and other intangibles remained flat at $388,000 for the quarter
ended March 31, 1997 as compared to the same quarter of 1996. Depreciation
included in cost of sales for the quarter ended March 31, 1997 and March 31,
1996 was $137,000 and $69,000, respectively.
Operating Loss. Operating losses increased from $913,000 to $1,887,000, an
increase of $974,000. The majority of this increase came from the specialty
baked goods segment with a slight increase in operating losses from the snack
tray segment and an increase in corporate general and administrative expenses
and sales and marketing expenses. The specialty baked goods segment increase was
due to both lower gross margins during the three months ended March 31, 1997 as
well as higher sales and marketing expenses as discussed above.
Interest and Other. Interest and other expense increased from $334,000 to
$1,717,000, an increase of $1,383,000. The increase was driven primarily from a
charge of $1,150,000 related to the issuance of certain Regulation S debentures
that occurred in the first quarter of 1997 that had a convertible feature at a
discount to the market price of the common stock of the Company. This intrinsic
value associated with the discount must be charged
<PAGE>
to interest expense over the holding period by the debenture holders.
Additionally, the overall increase was also due to increased debt outstanding
from the prior year quarter for funding working capital requirements.
Loss from Discontinued Operations. The loss of $32,000 from discontinued
operations represents the results of the operations of the Company's non-snack
tray direct store delivery business located in southern California for the first
quarter of 1996.
Net Loss. The Company's net loss increased from $1,278,000 to $3,603,000, an
increase of $2,325,000 over the comparable period for 1996. This increase is
attributed to lower gross profits, higher sales and marketing expenses and
higher interest expense as discussed above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $1,589,000 for the three months ended
March 31, 1997 compared to $900,000 for the three months ended March 31, 1996.
Net cash used in investing activities was $628,000 compared to $1,403,000 for
the comparable period. Net cash generated from financing activities during the
first three months ended March 31, 1997 totaled $2,662,000 from net borrowings
on long term debt.
The Company's revolving credit facility is a $7 million revolving credit
agreement with a bank, of which $7 million was drawn as of March 31, 1997.
Borrowings are based upon 80% of eligible accounts receivable and 50% of
eligible inventories. The term of this revolver expires in 1998. Interest is at
prime and is payable monthly. At March 31, 1997, the borrowings on this line
exceeded the amounts available based upon receivables and inventories by
$1,400,000.
In addition, the Company previously had a $5 million term note payable to a bank
which was refinanced with a different bank in April 1997 and increased to $6
million. At March 31, 1997, $5 million was outstanding. The term of this new
note is for a period of two years with interest at 8 1/2% and payable monthly.
Principal payments commence in year two on a five year amortization with a
balloon payment at the end of year two. This new note is guaranteed by the
Chairman and another member of the Chairman's family.
The Company is subject to various covenants associated with its revolving 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 this
facility are guaranteed as to repayment of principal and interest by the
Company's Chairman and his spouse. In addition, the Company's Chairman has
pledged certain assets with the bank regarding the working capital line of
credit. The term note is also guaranteed by the Company's Chairman and his
spouse and certain fixed assets of the Company are pledged as collateral for
such loan.
Management believes that operations as currently structured will produce
positive cash flow in 1997. In addition, the Company is negotiating with certain
financial institutions to raise sufficient financing to refinance the working
capital line of credit and to reduce a portion of accounts payable that are past
due. In the event that the Company is not able to refinance its existing working
capital line of credit and raise additional necessary funds to fund future
working capital needs, the Company's Chairman has agreed to fund any capital
requirements of the Company.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain statements that may be "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements in this Form 10-Q, other than statements of historical facts, that
address activities, events or developments that the Company expects, believes or
anticipates will or may occur in the
<PAGE>
future are forward-looking statements. Although the Company believes the
expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of its knowledge of its business, such
statements are not guarantees of future performance and actual results or
developments may differ materially from those in the forward looking statements.
Forward-looking statements involve risks and uncertainties including, but not
limited to, general economic trends, continued acceptance of the Company's
product on the marketplace, competitive factors, manufacturing and raw material
costs, the Company's dependence upon third-party suppliers, and other risks
detailed from time to time in the Company's periodic reports filed with the
Securities and Exchange Commission. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was named as a defendant in a lawsuit filed on
April 2, 1997, in the District Court for Tulsa County, Oklahoma, captioned Terry
Minter, et al. v. Economy Co., et al. The principal plaintiff in such lawsuit
alleges that he was an employee of a painting subcontractor and that he was
injured while performing certain construction work at the Company's Tulsa
manufacturing plant. The plaintiffs are seeking an unspecified amount of actual
and punitive damages from the defendants. The Company does not believe that it
has any liability to the plaintiffs for the accident in question and that, even
if liability was established that insurance would be available to cover the
claim. Accordingly, although the Company cannot predict the outcome of this
litigation, the Company does not expect this claim to have a material adverse
impact on the Company's financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 1997, the Company issued at total of 615,276
shares of common stock in connection with the conversion of convertible
debentures previously issued by the Company in transactions effected pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended (the
"Act"). The recipients of such shares of common stock were accredited investors
(as defined in Regulation D promulgated under the Act). The shares of common
stock issued upon such conversion were exempt from registration under the Act
pursuant to Section 3(a)(9) of the Act. No commission or other remuneration was
paid to a broker or placement agent in connection with such conversion. The
dates of the Company's issuance instruction to its transfer agent and the
conversion price per share for each of such conversions is as follows:
DATE SHARES CONVERSION PRICE
- ---- ------ ----------------
January 23, 1997 79,365 1.58
January 23, 1997 101,932 1.62
January 23, 1997 5,715 1.75
March 13, 1997 30,395 1.65
March 13, 1997 250,000 1.40
March 13, 1997 11,429 1.75
March 13, 1997 15,038 1.66
March 19, 1997 94,191 1.59
March 25, 1997 27,211 1.84
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of March 31, 1997, the Company's borrowings on its bank revolving
credit facility exceeded the borrowing base of eligible accounts receivable and
inventories. The principal amount owed by the Company under such revolving
credit facility is $7 million. The Company is current with respect to its
required payments under such facility.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Employment Contract with Timothy G. Bruer
10.2 Restricted Stock Grant Agreement with Timothy G. Bruer
27.0 Financial Data Schedule
(b) Reports on Form 8-K
(i) Form 8-K was filed January 17, 1997 to report under Item 9
the issuance by the Comany of certain convertible debentures
in transactions effected pursuant to Regulation S.
(ii) Form 8-K was filed February 18, 1997 to report under Item 9
the issuance by the Company of certain convertible
debentures in transactions effected pursuant to Regulation
S.
<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: May 15, 1997
<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.
10.1 Employment Contract with
Timothy G. Bruer
10.2 Restricted Stock Grant Agreement
with Timothy G. Bruer
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.1
[LETTERHEAD OF SILVERADO APPEARS HERE]
Personal and Confidential
Mr. Timothy G. Bruer
939 Descanso Drive
La Canada, CA 91011
Dear Tim:
I have enjoyed the process of getting better acquainted with you over
the past several weeks in both Pasadena and Tulsa. Furthermore, I appreciate all
of the time and thought that you have committed to better understanding
Silverado Foods, Inc. ("the Company" or "Silverado") and to exploring the senior
operating management/leadership role with the Company. My colleagues and I
believe that you possess the skills, experiences and strategic vision required
to lead Silverado to increasing levels of success in the future. As such, I am
pleased to extend you an offer of employment with Silverado under the terms and
conditions outlined below.
I. Title, Responsibilities and Reporting Relationship:
President and Chief Executive Officer
Silverado Foods, Inc.
Reporting directly to me in my capacity as Chairman and working with
members of the Board of Directors as appropriate, you will assume
strategic, operational, and financial management responsibility for the
Company and its performance. Specifically, you will have direct
functional responsibility for developing and implementing the Company's
growth strategies, focusing on both internal and acquisitive growth, as
well as establishing the Company's operating plans, budgets and
performance targets. You will actively seek and develop new product
opportunities and strategies for expanding Silverado's channels of
distribution. In addition, you will maintain a team-oriented working
environment that promotes open discussion of important issues, a high
level of personal commitment and accountability to the business, and a
continued focus on profitability, quality and customer service. You will
be expected to represent the Company, as appropriate, with major
customers, market contacts, regulators, the investment community and
others, and take on such special projects as may be requested by me or
the Board of Directors. It is our expectation that Silverado's brand
equity will grow significantly and consistently in the future under your
leadership, and that this growth in brand equity will be reflected by
corresponding growth in the price of Silverado's common stock.
II. Compensation: We have tailored a compensation program which aligns
your interests and performance targets with those of Silverado's
shareholders, and mirrors Silverado's compensation philosophy and my
expectations relative to your future contributions to the
<PAGE>
Mr. Timothy G. Bruer
Page 2 of 5 February 28, 1997
Company. Your compensation package will include a base salary, performance
bonus, restricted stock and stock options.
A. Base Salary: The annualized amount of $250,000, payable by-monthly.
Performance and salary reviews will be conducted on an annual basis in
accordance with Company policy. Adjustment to your base salary, if any,
will be based upon individual and Company performance and shall be
effective as of the beginning of the calendar year.
B. Performance Bonus: Bonuses at Silverado are completely discretionary.
The Company does not guarantee bonus awards as a matter of corporate
policy. You will be eligible to receive a performance bonus in the range
of zero to seventy-five percent (75%) of your base salary, based upon
individual and Company (operational and financial) performance against
mutually agreed-upon targets. Awards under this program, if any, are
made annually in February for the preceding calendar year. Performance
targets for the following calendar year will be mutually agreed upon at
the close of the preceding calendar year. Your performance bonus for
calendar year 1997 will be calculated as if you had commenced employment
with the Company on the first day of this calendar year.
C. Stock: The Board of Directors and I believe that a significant
portion of the total compensation of our senior executive should include
meaningful awards of equity, thereby linking their rewards to the
performance of the stock and the growth of shareholder wealth. In
accordance with this philosophy and as a demonstration of our commitment
to you, the Company will grant you the following awards of restricted
stock and stock options. These awards have been confirmed by the Board
of Directors.
1. Restricted Stock - You will be awarded 50,000 shares of stock
upon the commencement of your employment. At the same time, you
will also be awarded 50,000 shares of restricted stock. The
restricted stock will vest ratably over a two year period from
the date of award. Subsequent awards of restricted stock, if
any, will be made on a periodic basis based upon my evaluation
of your performance and potential, as confirmed by the Board of
Directors.
2. Stock Options - You will participate in the Company's stock
option program. Awards to you under this program will be made in
January 1998, 1999 and 2000 in the amounts of 100,000, 125,000,
and 150,000 shares, respectively. The stock options awarded
hereunder shall have a strike price set at a slight premium
above the market price of Silverado common shares as of the date
you formally commence your employment. These awards will vest
immediately upon the achievement of mutually agreed-
<PAGE>
Mr. Timothy G. Bruer
Page 3 of 5 February 28, 1997
upon individual and corporate performance targets. You can
expect to receive meaningful stock option awards in
subsequent years, assuming reasonable levels of individual
and Company performance.
III. Signing Bonus/Principal Home Loss Recovery: To reduce the economic
impact of any reasonable loss on the sale of your principal residence in
Southern California (your "Home"), Silverado will protect you against
such loss up to $100,000.00. To that end Silverado shall pay you
$50,000.00 within the first five (5) business days of your employment
with the Company as a non-recoupable advance of the "Recovery Amount."
The "Recovery Amount" shall be measured by the difference between the
adjusted basis of your Home and amount realized upon the sale of your
Home unadjusted by the closing costs, brokerage commissions/fees or
other amounts recoverable by you pursuant to Section V. The amounts
payable to you pursuant to this Section shall be grossed up for income
tax purposes. In no event shall the Recovery Amount and the grossed up
amounts exceed $100,000.00. Other than the non-recoupable advance, the
Recovery Amount shall be paid within the first five (5) business after
you present me with the documentation verifying your calculation of the
Recovery Amount.
IV. Automobile: Silverado will lease and provide you with the use of an
appropriate automobile over the course of your employment, as well as
paying all of the reasonable costs associated with operating that
vehicle. The lease of the automobile should be reviewed and approved in
advance by me.
V. Relocation: A customized relocation package will be offered to you
which shall include, although not be limited to, the benefits listed
below. All expenses in excess of $5,000.00 shall be reviewed and
approved in advance by me. It is our intention that you have an adequate
period of time to select and secure an appropriate residence in Tulsa
for the family and to secure schooling for the children that is
consistent with your standards and wishes.
A. The physical move and storage (if required) of a reasonable
amount of personal/household goods and up to two automobiles
for personal use.
B. Temporary housing in Tulsa and Southern California, as
required.
C. Two house-hunting trips to Tulsa following acceptance of this
offer.
D. Air (coach class) and ground transportation between Southern
California and Tulsa.
E. Reimbursement for the brokerage commissions/fees (closing
costs and other fees) associated with the disposition of your
current principal
<PAGE>
residence in Southern California, as well as the closing costs
associated with the purchase of a suitable residence in Tulsa.
F. Any reasonable expenses not previously referenced as incurred by
you in connection with your relocation.
VI. Announcements: We shall mutually agree upon the press release
announcing your departure from Nestle USA and your acceptance of
Silverado's offer. You shall have the right to review the press release
with Nestle USA prior to giving your approval, provided that your approval
is given within a reasonable period of time.
VII. Benefits: You will be eligible for the full array of benefits awarded
senior executives at Silverado, to include, although not be limited to,
medical and dental insurance, pension, and life insurance. A summary of
these benefits will be provided to you immediately under separate cover.
VIII. Severance: Should you be terminated without cause, you shall be
eligible to receive "severance benefits" for (x) a period of nine (9)
months (beginning on the date you are effectively terminated) or (y) until
you commence equivalent alternative employment, whichever occurs first.
"Severance benefits" shall mean (x) your bi-monthly base salary as
described in Section II, Part A and (y) benefits as described in Section
VII. "Equivalent alternative employment" shall mean a position that is
substantially similar in scope and responsibility to the responsibilities
summarized in Section I.
IX. Change in Control: Upon a "change in control" within two years from the
commencement of your employment with Silverado, you shall immediately vest
in the restricted stock described in Section II, Part C, Subsection 1 and
the stock options described in Section II, Part C, Subsection 2. A "change
in control" shall mean either a change in the beneficial ownership of the
shares which represent voting control of the Board of Directors of the
Company or a sale of substantially all of the assets of the Company.
X. References and Medical Examination: This offer of employment is
contingent upon satisfactory professional and personal references, which
will be conducted on our behalf by Korn/Ferry International, as well as a
satisfactory medical examination. Such an examination should be conducted
by a physician of your choosing, with the costs to be reimbursed by
Silverado.
XI. Start Date: April 21, 1997.
My colleagues and I are delighted by the prospect of working with you in
the coming years to build the premier brands, products and team that we know are
possible for Silverado. We are committed to supporting you fully in the quality
development of the perceived potential of
<PAGE>
Mr. Timothy G. Bruer
Page 5 of 5 February 28, 1997
Silverado, as well as your own personal and professional objectives. On a
personal note, I am excited by the prospect of working together as partners in
the future. Cindy and I look forward to welcoming you, Peg and your children to
Tulsa and to doing whatever we can to make the experience a successful and
satisfying one. Please do not hesitate to contact me or Andy Knox with any
questions you may have about our offer of employment. I will expect your
positive response to this offer no later than March 5, 1997.
Sincerely,
/s/ LAWRENCE D. FIELD
___________________________
Lawrence D. Field
Chairman
Silverado Foods, Inc.
Accepted:
/s/ TIMOTHY G. BRUER
____________________________ Date: 3/2/97
Timothy G. Bruer
<PAGE>
EXHIBIT 10.2
RESTRICTED STOCK GRANT AGREEMENT
THIS AGREEMENT is made and entered into as of May 1, 1997, by and between
SILVERADO FOODS, INC., an Oklahoma corporation (the "Company"), and TIMOTHY G.
BRUER ("Grantee").
WITNESSETH:
In consideration of the presently existing relationship between the Company
and Grantee and services previously rendered by Grantee to the Company, and as
an additional inducement to Grantee to continue his efforts on behalf of the
Company and in order to provide a means for Grantee to acquire a proprietary
interest in the Company, it is agreed between the Company and Grantee as
follows:
1. Restricted Stock Grant. The Company hereby grants to Grantee, subject
to the provisions hereinafter contained, 50,000 shares of the Company's common
stock, par value $0.01 per share (the "Restricted Stock"). Except as otherwise
provided in this Agreement, Grantee shall be entitled to all the rights of
absolute ownership of the Restricted Stock, including the right to vote such
stock and to receive dividends therefrom if, as, and when declared by the
Company's Board of Directors.
2. Possession of Certificates. The company shall issue a certificate for
the Restricted Stock in Grantee's name and shall retain that certificate for the
period during which the restrictions described in Section 3 are in effect.
Grantee shall execute and deliver to the Company a stock power in blank for the
Restricted Stock. Grantee hereby agrees that the Company shall hold the
certificate for the Restricted Stock and the related stock power pursuant to the
terms of this Agreement until such time as the restrictions described in Section
3 lapse and the Restricted Stock becomes vested or the Restricted Stock is
canceled pursuant to the terms of Section 3.
3. Restrictions. The grant of the Restricted Stock shall be subject to
the following terms and conditions:
(a) Restriction on Non-Vested Restricted Stock. Shares of non-vested
Restricted Stock awarded to Grantee may not be sold, transferred, pledged,
hypothecated, encumbered, or otherwise alienated in any manner, whether
voluntarily, by operation of law or otherwise, until Grantee becomes vested
in those shares.
(b) Vesting of Restricted Stock. Grantee's rights to the shares of
Restricted Stock awarded to him shall vest in accordance with the following
schedule:
<PAGE>
========================================
Percentage of
Date Shares Vested
----------------------------------------
August 1, 1997 12.5%
----------------------------------------
November 1, 1997 25%
----------------------------------------
March 1, 1998 37.5%
----------------------------------------
May 1, 1998 50%
----------------------------------------
August 1, 1998 62.5%
----------------------------------------
November 1, 1998 75%
----------------------------------------
March 1, 1999 87.5%
----------------------------------------
May 1, 1999 100%
========================================
(c) Forfeiture. Shares of non-vested Restricted Stock awarded to
Grantee will be forfeited if Grantee's employment with the Company is
terminated for any reason other than Employee's death or permanent
disability which results in a termination of Grantee's employment with the
Company.
(d) Death or Disability. At the time and on the date of Grantee's (i)
death while employed by the Company or (ii) permanent disability resulting
in termination of employment with the Company, and prior to the date
Grantee otherwise becomes fully vested in all the Restricted Stock awarded
to Grantee, 100% of the shares of Restricted Stock awarded to Grantee will
become fully vested and all restrictions of this Section 3 placed on each
share of Restricted Stock shall lapse. Grantee or Grantee's estate,
personal representative or beneficiary, as the case may be, shall have full
rights with respect to such vested Restricted Stock subject to applicable
state and federal laws and regulations.
4. Taxes. Grantee shall pay to the Company upon notification of the
amount due, and prior to or concurrently with the issuance or delivery of a
certificate for shares of Restricted Stock, any amount necessary to satisfy
applicable federal, state or local taxes required to be withheld by the Company.
5. Investment Representation. Grantee hereby represents and warrants
that the shares of Restricted Stock awarded to him are being acquired for
investment purposes only and without any present intention to sell or distribute
such shares. Grantee acknowledges that the issuance of the shares of Restricted
Stock will not be registered under the federal or any applicable state
securities acts and may not be resold or otherwise transferred except pursuant
to a registration statement which has been declared effective under the
Securities Act of 1933, as amended, and any applicable state securities act or
in a transaction which, in the opinion of counsel acceptable to the Company, is
exempt from the
2
<PAGE>
registration requirements of such acts, and Grantee further agrees that the
certificates evidencing such Restricted Stock may bear an appropriate legend to
such effect. The certificate for the Restricted Stock shall also bear a legend
referring to the terms of this Agreement. Any attempt to dispose of the
Restricted Stock in contravention of the terms of this Agreement shall be
ineffective.
6. Anti-Dilution. In the event that (i) the number of outstanding shares
of the common stock of the Company shall be changed by reason of a merger,
consolidation, reorganization, recapitalization, stock dividend, "split-up" or
other change in the corporate structure or capitalization of the Company, or
(ii) the common stock of the Company is converted into or exchanged for other
shares as a result of any merger or consolidation (including a sale of assets)
or other recapitalization, the number of shares of Restricted Stock shall be
subject to appropriate adjustments to reflect such change.
7. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, trustees, successors and assigns.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and Grantee in respect of the subject matter and may not be
amended or modified in any manner except by instrument in writing signed by both
parties hereto.
EXECUTED as of the day and year first above written.
"COMPANY"
SILVERADO FOODS, INC.
By:_______________________
Name:_____________________
Title:____________________
"GRANTEE"
__________________________
Timothy G. Bruer
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 608,754 164,118
<SECURITIES> 0 0
<RECEIVABLES> 3,774,051 4,605,632
<ALLOWANCES> 0 0
<INVENTORY> 5,499,754 5,974,719
<CURRENT-ASSETS> 11,146,573 11,493,165
<PP&E> 13,708,941 13,100,850
<DEPRECIATION> (1,635,568) (1,271,270)
<TOTAL-ASSETS> 37,531,706 37,775,942
<CURRENT-LIABILITIES> 19,255,741 19,589,651
<BONDS> 14,589,641 13,442,197
0 0
0 0
<COMMON> 76,866 72,583
<OTHER-SE> 4,479 1,067,216
<TOTAL-LIABILITY-AND-EQUITY> 37,531,706 37,775,942
<SALES> 11,818,104 10,059,001
<TOTAL-REVENUES> 11,818,104 10,059,001
<CGS> 8,383,879 6,558,249
<TOTAL-COSTS> 13,704,944 10,970,805
<OTHER-EXPENSES> 13,549 27,712
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,703,313 306,476
<INCOME-PRETAX> (3,603,702) (1,245,992)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,603,702) (1,245,992)
<DISCONTINUED> 0 (32,000)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,603,702) (1,277,992)
<EPS-PRIMARY> (.49) (.21)
<EPS-DILUTED> (.49) (.21)
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