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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 12, 1998
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SILVERADO FOODS, INC.
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(Exact name of registrant as specified in its charter)
Oklahoma 1-13260 73-1369218
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(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
6846 South Canton, Suite 110, Tulsa, Oklahoma 74136
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 496-2400
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Not applicable
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
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On June 12, 1998, the Registrant disposed of its bagel bar business
and related manufacturing assets located in Santa Ana, California to
Gourmet Specialty Bakers, Inc. Gourmet Specialty Bakers, Inc.
manufactures a variety of bakery products for sale into club stores,
commercial grocery and food service channels. The transaction
included certain inventories and manufacturing equipment as well as
the assumption of certain liabilities by Gourmet Specialty Bakers,
Inc., including accounts payable in the amount of $257,994. The
Registrant's California plant produced its bagel bar product lines as
well as Mom's Best pound cakes and total revenues from this business
in 1997 were $8.7 million (37% of total Registrant revenues). The
total consideration from the sale is $3.75 million, including $2.5
million in the form of a note receivable due on or before November
30, 1998, and $1.25 million in the form of an earn-out agreement
based on product sales and new distribution achievement in 1998.
Pursuant to this earn-out agreement, Gourmet Specialty Bakers, Inc.,
will pay the Registrant $500,000 if sales reach $5.1 million, or
$1,000,000 if sales reach $6.3 million. The additional cash payment
rises proportionately once sales reach $3.9 million. If such sales
are less than $3 million, the Registrant will be required to pay
$500,000 to Gourmet Specialty Bakers, Inc. In addition, Gourmet
Specialty Bakers, Inc. is required to pay a royalty of up to
$250,000 on the sale of certain new products.
There is no material relationship among Registrant, its affiliates,
and directors or officers of the Registrant and Gourmet Specialty
Bakers, Inc.
Item 7. Financial Statements and Exhibits.
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Pro forma condensed consolidated financial statements of the
Registrant required pursuant to Article 11 of Regulation S-X, which
present the pro forma effects of the transactions described in Item 2
above, assuming such transactions had occurred as of the dates set
forth in the accompanying notes, are included herein as Exhibit 99.1.
The following is a list of all exhibits filed as a part of this Form
8-K.
Exhibit No. Description of Exhibit
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10.1 Asset Purchase Agreement
99.1 Pro Forma Financial Statements
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SILVERADO FOODS, INC.
By: /s/ Dorvin D. Lively
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Dorvin D. Lively
Vice President & Chief Financial Officer
Date: June 29, 1998
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EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
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THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of the 12th day
of June, 1998, is by and among GOURMET SPECIALTY BAKERS, INC., a California
corporation ("Buyer"), and SILVERADO FOODS, INC., an Oklahoma corporation
("Seller").
Recitals
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Seller desires to sell and transfer to Buyer and Buyer desires to purchase
and acquire from Seller, on the terms and conditions hereinafter set forth, the
assets of Seller which constitute Seller's bagel and bagel bar production
business located in Santa Ana, California (the "Business"), which are
specifically described in Section 1.1 below.
Agreement
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IN CONSIDERATION of the mutual promises and covenants herein contained, the
parties agree as follows:
1. Purchase and Sale.
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1.1 Purchase and Sale of the Assets. Subject to the terms and
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conditions herein set forth, upon the Closing Date (as hereinafter defined)
Seller shall sell, assign, transfer, and deliver to Buyer and Buyer shall
purchase from Seller all of Seller's right, title and interest in and to
the following assets (the "Assets"):
(a) the product lines related to the Business which are described
in Exhibit 1.1(a) attached hereto and made a part hereof (the "Product
Lines");
(b) the purchase orders related to the Business (the "Purchase
Orders");
(c) the contracts which are described in Exhibit 1.1(c) attached
hereto and made a part hereof (the "Contracts");
(d) the building, office, and equipment leases which are
described in Exhibit 1.1(d) attached hereto and made a part hereof
(the "Leases");
(e) the art work, plates, dies, customer lists, files, marketing
information, sales literature, mailing lists, books, and records
related to the Business;
(f) the trademarks which are described in Exhibit 1.1(f) attached
hereto and made a part hereof;
(g) all inventories of Seller related to the Business, including
without limitation finished goods, work-in-progress, and raw
materials; and
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(h) the equipment, supplies, furniture, fixtures, and displays
related to the Business which are described in Exhibit 1.1(h) attached
hereto and made a part hereof.
2. Consideration.
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2.1 Payment at Closing. At the Closing (as hereinafter defined):
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(a) Buyer agrees to deliver to Seller a promissory note in the
principal amount of $2,500,000.00 and in substantially the form and
under the terms of the promissory note attached hereto as Exhibit
2.1(a) (the "Buyer's Note"); and
(b) As security for the Buyer's Note, Buyer shall execute and
deliver to Seller a Security Agreement granting a first priority
security interest in the Assets (together with accounts receivable
generated after the Closing Date which are derived from sales of
products included within the Product Lines) and a security interest in
Buyer's other assets in substantially the form as attached hereto as
Exhibit 2.1(b)(i) (the "Security Agreement").
(c) The amount of the Buyer's Note shall be adjusted based on the
amount of Net Working Capital (as defined below) (i) upward on a
dollar-for-dollar basis by the amount by which Net Working Capital
exceeds $0, and (ii) downward on a dollar-for-dollar basis by the
amount by which Net Working Capital is less that $0. "Net Working
Capital" is defined as the amount equal to the value of the inventory
included within the Assets as reflected on Exhibit 2.1 (c) attached
hereto and made a part hereof, less the amount of the accounts payable
included within the Assumed Liabilities. The amount of the Net
Working Capital shall be determined at the Closing.
2.2 Assumption of Liabilities. At the Closing, Buyer shall assume
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the following liabilities of Seller (the "Assumed Liabilities") and shall
agree to discharge and perform Seller's duties and obligations on account
thereof: (i) the Purchase Orders, (ii) the Leases, (iii) the Contracts,
and (iv) the accounts payable listed in Exhibit 2.2 attached hereto and
made a part hereof.
2.3 1998 Product Sales.
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(a) No later than February 15, 1999, Buyer shall deliver to
Seller a statement (the "Sales Statement") which shall report net
sales by Buyer during the period from July 1, 1998, through December
31, 1998, of all products included within the Product Lines and
variations or derivations thereof (including, without limitation, all
bagel bars and pound cakes), whether sold under one of the existing
trademarks of the Business, under the brand "Mr. Bitts," or under any
other brand
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name ("1998 Product Sales"). For purposes hereof, "net sales" shall be
defined as gross sales, less returns and discounts. If 1998 Product
Sales are between $3,900,000 and $5,100,000, Buyer shall pay to Seller
an amount equal to $500,000 multiplied by a fraction, the numerator
which is the 1998 Product Sales and the denominator is $5,100,000. If
1998 Product Sales exceed $5,100,000, Buyer shall pay to Seller (i)
$500,000 plus (ii) an additional amount equal to $500,000 multiplied
by a fraction, the numerator which is the 1998 Product Sales and the
denominator is $6,300,000. Any such payment by Buyer relating to 1998
Product Sales shall be paid to Seller in cash at the time of the
delivery of the Sales Statement.
(b) If 1998 Product Sales are less than $3,000,000, Seller shall
pay to Buyer the amount of $500,000. Any such payment by Seller
relating to 1998 Product Sales shall be paid to Buyer in cash within
30 days of the date of delivery of the Sales Statement; provided,
however, if the Buyer's Note has not yet been paid in full at such
time, said amount shall not be payable by Seller in cash, but instead
shall be applied as a reduction of Buyer's indebtedness under the
Buyer's Note. To the extent the amount then due under the Buyer's
Note is less than $500,000, the difference between $500,000 and such
amount due under the Buyer's Note shall be payable to Buyer in cash.
(c) Buyer shall use its reasonable commercial efforts to achieve
the highest possible amount of 1998 Product Sales. Buyer shall devote
sufficient resources to achieve the highest possible amount of sales,
including in the areas of marketing and production. Buyer shall not
take any action reasonably calculated to diminish the amount of 1998
Product Sales; provided, however, that Buyer shall not be required to
devote resources in excess of those currently being expended by Seller
in the Business. Notwithstanding the foregoing, it is understood that
Buyer cannot assure continued purchases by any customer.
(d) Within 30 days after the receipt of the Sales Statement,
Seller shall advise Buyer if Seller disagrees with the information set
forth in the Sales Statement. If any disagreement is not resolved by
Seller and Buyer, Seller may, at its expense, engage an independent
certified public accountant to review the calculations and the
underlying books and records to the extent necessary to determine
compliance with the provisions set forth in this Agreement.
If Seller's independent certified public accountant is in
disagreement with respect to the calculation or amounts set forth on
the Sales Statement, such independent certified public accountant
shall submit the controversy to Buyer's independent certified public
accountant. If the two firms cannot agree on a resolution within 15
days from the date the controversy is submitted, they shall jointly
agree on a third firm of independent certified public accountants to
specify the resolution. Such resolution by such third firm shall be
binding, and the costs
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of the third firm shall be borne equally by Seller and Buyer. Buyer
shall provide Seller and its agents reasonable access to the books and
records relating to the matter at issue during normal business hours
upon reasonable notice for the purpose of determining whether there
has been compliance with the provisions of Section 2.3 of this
Agreement. All calculations shall be made in accordance with generally
accepted accounting principles.
(e) For the purpose of verifying the amounts of 1998 Product
Sales and any royalties due to Seller under Section 2.4 hereof or
under Buyer's Note, Buyer shall provide to Seller monthly statements
of sales by Buyer of all of its products, which statements shall
include such detail as is reasonably required by Seller for such
purpose. Such monthly statements shall be provided no later than the
15th day of the next month with respect to the months of July of 1998
through February of 1999, and thereafter as long as any royalty is due
to Seller. Buyer shall provide to Seller and its representatives
access to Buyer's books and records during normal business hours for
the purpose of such verification.
2.4 New Distribution. If prior to December 31, 1998, Buyer receives
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orders from one or more customers for the purchase of its frozen filled products
in a cumulative amount of $25,000 or more, and prior to March 31, 1999, Buyer
receives two subsequent orders for such products from the same buyer or buyers,
Buyer shall pay to Seller (i) $45,000 in cash within 30 days after receipt of
the third order, and (ii) a royalty on sales of frozen filled products in the
amount of 2.5% of net sales (as defined in Section 2.3(a), which royalty shall
commence on January 1, 1999, and continue for a period of five years or until
$205,000 is paid to Seller pursuant to said royalty, whichever first occurs.
Such royalty shall be payable monthly no later than the end of the month
following the month in which sales occur.
3. Closing. The closing of the transactions provided for in this
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Agreement (the "Closing") shall take place at 10:00 a.m. at Seller's office in
Tulsa, Oklahoma, on June 12, 1998, or at such other date, time, or place as
Buyer and Seller shall mutually agree upon. The date and time at which the
Closing takes place is referred to herein as the "Closing Date."
4. Representations and Warranties of Seller. Seller represents,
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warrants, and covenants to Buyer as follows:
4.1 Organization. Seller is a corporation duly organized, validly
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existing and in good standing under the laws of the State of Oklahoma.
Seller is duly qualified and authorized to conduct business in the State of
Oklahoma and each other jurisdiction where the nature of its business
requires such qualification and authorization and where the failure to do
so would have a material adverse effect on the financial condition or
business of Seller.
4.2 Authorization of Agreement. This Agreement constitutes the
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valid and binding agreement of Seller, enforceable against Seller in
accordance with its terms, and
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all instruments required hereunder to be executed by Seller at the Closing
shall constitute valid and binding agreements and instruments of Seller,
enforceable against Seller in accordance with their terms.
4.3 No Conflicts. Seller has good right and lawful authority to sell
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and assign the Assets to Buyer as contemplated by this Agreement. The
execution and performance of the transactions contemplated by this
Agreement and compliance with its provisions will not violate any provision
of applicable law and will not conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute a default under,
Seller's articles/certificate of incorporation or bylaws or any indenture,
lease, agreement, or other instrument to which Seller is bound.
4.4 The Assets. Seller has good and valid title to the Assets free
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and clear of all liens, security interests, encumbrances, restrictions,
adverse claims and other burdens, except for the security interest in the
Assets held by Bank of Oklahoma, N.A. (the "BOK Security Interest").
Seller shall sell, assign, transfer and deliver the Assets to Buyer at the
Closing free and clear of any liens, security interests, encumbrances,
restrictions, adverse claims and other burdens, except that the Assets
shall remain subject to the BOK Security Interest until such time as the
Buyer's Note is paid in full.
4.5 Financial Information. Exhibit 4.5 to this Agreement sets forth
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certain financial information regarding the Business. The Financial
Information has been prepared from the books and records of the Company and
fairly presents the results of operations of the Company for the periods
indicated in all material respects.
4.6 Liabilities. Except as set forth in the Financial Information,
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Seller has no material liabilities arising from the Business of a nature
required by generally accepted accounting principles to be shown on a
balance sheet.
4.7 Tax Returns and Audits. To Seller's knowledge, within the times
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and in the manner prescribed by law, Seller has filed all federal, state
and local tax returns required by law relating to the Business and has paid
all taxes, assessments and penalties due and payable. There are no present
disputes about taxes relating to the Business of any nature payable by
Seller.
4.8 Tangible Personal Property. Except as stated in Exhibit 1.1(d),
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no personal property used by Seller in connection with the Business is held
under any lease, security agreement, conditional sales contact, or other
title retention or security arrangement, or is other than in the possession
and under the control of Seller.
4.9 Customers and Sales. To Seller's knowledge, Exhibit 4.9 to this
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Agreement contains a correct and current list of all customers of the
Business, together with summaries of the sales made to each customer during
the most recent two fiscal years, and for the period from January 1, 1998
to April 30, 1998.
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4.10 Employment Contracts and Benefits. Except as set forth on
---------------------------------
Exhibit 4.10, there are no employment contracts, collective bargaining
agreements, or pension, bonus, profit sharing, stock option or other
agreements providing for employee remuneration or benefits with respect to
the Business.
4.11 Insurance Policies. To Seller's knowledge, Exhibit 4.11 to this
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Agreement contains a description of all insurance policies held by Seller
on the Business and the Assets. All these policies are in the respective
principal amounts set forth in Exhibit 4.11. Seller is not in default with
respect to payment of premiums on any such policy. No claims are pending
under any such policy.
4.12 Other Contracts. Except for this Agreement and the contracts
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included in the Assumed Liabilities, there are no other contracts or leases
to which Seller is a party directly affecting Seller's operation of the
Business in any material respect.
4.13 Litigation. Except as set forth in Exhibit 4.13 to this
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Agreement, there is no pending, or to the best knowledge of Seller,
threatened suit, action, arbitration or legal, administrative or other
proceeding, or governmental investigation against Seller with respect to
the Assets or the Business. Seller has furnished or made available to
Buyer copies of all relevant court papers and other documents relating to
any matters set forth on Exhibit 4.13. Seller is not in default with
respect to any order, writ, injunction or decree of any federal, state,
local or foreign court, department, agents or instrumentality.
4.14 Interest in Customers, Suppliers and Competitors. Except with
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respect to Silverado Marketing Services, Inc., neither Seller nor any
shareholder, officer, director or employee of Seller, nor any spouse or
child of any of them, has any direct or indirect interest in any
competitor, supplier or customer of the Business.
4.15 Personnel. Exhibit 4.15 to this Agreement contains a list of
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the names of all employees, agents and sales representatives of Seller
involved in the conduct of the Business, stating the rates of compensation
payable to each.
5. Representations and Warranties of Buyer. Buyer represents, warrants
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and covenants to Seller as follows:
5.1 Organization. Buyer is a corporation duly organized, validly
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existing and in good standing under the laws of the State of California.
Buyer is duly qualified and authorized to conduct business in each
jurisdiction where the nature of its business requires such qualification
and authorization and where failure to do so would have a material adverse
effect on the financial condition or business of Buyer.
5.2 Authorization of Agreement. This Agreement constitutes the valid
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and binding agreement of Buyer, enforceable against Buyer in accordance
with its terms, and all instruments required hereunder to be executed by
Buyer at the Closing shall constitute
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valid and binding agreements and instruments of Buyer, enforceable against
Buyer in accordance with their terms.
5.3 No Conflicts. Buyer has good right and lawful authority to
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purchase the Assets from Seller as contemplated by this Agreement. The
execution and performance of the transactions contemplated by this
Agreement and compliance with its provisions will not violate any provision
of applicable law and will not conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute a default under,
Buyer's articles/certificate of incorporation or bylaws or any indenture,
lease, agreement, or other instrument to which Buyer is bound.
5.4 Financial Statements - Liabilities. Buyer has furnished to
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Seller the financial statements which are attached hereto as Exhibit 5.4
and made a part hereof ("Buyer's Financial Statements"). Buyer's Financial
Statements fairly present the financial condition and the results of
operations of Buyer and its predecessor entity for the period described
therein. Buyer's Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently applied. Buyer
has no material liabilities or obligations, whether accrued, absolute,
contingent or otherwise, which have not been reflected in Buyer's Financial
Statements or otherwise disclosed herein.
5.5 Litigation. There is no claim, suit, action or legal,
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administrative, arbitration or other proceeding or governmental
investigation pending or to the knowledge of Buyer threatened against
Buyer. There is no decree or judgment of any kind in existence, or any
action threatened to the knowledge of Buyer, enjoining or restraining Buyer
or any of its officers or directors from taking any action relating to the
business of Buyer or from taking any action required or contemplated by
this Agreement.
6. Additional Agreements of the Parties.
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6.1 Indemnification of Buyer. Seller shall indemnify and hold Buyer
------------------------
harmless from, against, and in respect of (i) all liabilities of Seller of
any nature (other than the Assumed Liabilities), whether accrued, absolute,
contingent, or otherwise, (ii) all losses or deficiencies resulting from
any misrepresentation, nonfulfillment, or breach by Seller of any
representation or warranty contained in this Agreement or from any
misrepresentation in or omission from a certificate or other instrument
furnished to Buyer under this Agreement, or failure to observe any covenant
of Seller contained in this Agreement, and (iii) all actions, suits,
proceedings, demands, assessments, judgments, costs, and expenses,
including but not limited to reasonable attorneys' fees, and all other
damages, incident to any of the foregoing. Notwithstanding anything to the
contrary contained herein, the indemnification provisions of this section
shall be subject to the following:
(a) The maximum amount recoverable by Buyer pursuant to this
section shall be an amount equal to the total amount of the
consideration paid by Buyer to
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Seller pursuant to this Agreement, except that, in the case of fraud
or deceit on the part of Seller, such recovery shall not be subject to
such limitation.
(b) There shall be no obligation by Seller to indemnify Buyer
pursuant to this section until the aggregate claims against Seller
exceed the total amount of $20,000, and then only for the amount by
which such claims exceed $20,000.
6.2 Indemnification of Seller. Buyer shall indemnify and hold Seller
-------------------------
harmless from, against, and in respect of (i) any loss, damage, cost,
charge, or expense resulting from Buyer's failure to discharge the Assumed
Liabilities described in Section 2.2 hereof, (ii) all losses or
deficiencies resulting from any misrepresentation, nonfulfillment, or
breach by Buyer of any representation or warranty contained in this
Agreement or from any misrepresentation in or omission from a certificate
or other instrument furnished to Seller under this Agreement, or failure to
observe any covenant contained in this Agreement, and (iii) all actions,
suits, proceedings, demands, assessments, judgments, costs, and expenses,
including but not limited to reasonable attorneys' fees, and all other
damages, incident to any of the foregoing. Notwithstanding anything to the
contrary contained herein, the indemnification provisions of this section
shall be subject to the following:
(a) The maximum amount recoverable by Seller pursuant to this
section shall be an amount equal to the amounts payable under Section
2 of this Agreement, except that, in the case of fraud or deceit on
the part of Buyer, such recovery shall not be subject to such
limitation.
(b) There shall be no obligation by Buyer to indemnify Seller
pursuant to this section until the aggregate claims against Buyer
exceed the total amount of $20,000, and then only for the amount by
which such claims exceed $20,000.
The limitations on Buyer's indemnification obligations described in (a) and
(b) immediately above shall in no manner limit Buyer's obligations for full
payment and performance of the requirements of Section 2 of this Agreement,
the Buyer's Note or otherwise under this Agreement.
6.3 Bulk Sales. Buyer hereby waives compliance by Seller with the
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bulk sales provisions of the Uniform Commercial Code or other statutes
having a similar purpose and Seller warrants and agrees to pay and
discharge when due all claims of creditors which could be asserted against
Buyer by reason of such non-compliance. Seller hereby indemnifies and
agrees to hold Buyer harmless from, against and in respect of (and shall on
demand reimburse Purchaser for) any loss, liability, cost or expense,
including, without limitation, attorneys' fees, incurred by Buyer by reason
of the failure of Seller to pay or discharge such claims.
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6.4 Disclaimers. To the extent required by applicable law to be
-----------
operative, the disclaimers of certain warranties contained in this Section
6.4 are "conspicuous disclaimers" for purposes of any applicable law, rule,
or order. EXCEPT AS OTHERWISE PROVIDED HEREIN, BUYER AGREES THAT SELLER IS
CONVEYING THE ASSETS WITHOUT REPRESENTATION OR WARRANTY, EITHER EXPRESSED,
IMPLIED AT COMMON LAW, BY STATUTE, OR OTHERWISE (ALL OF WHICH SELLER HEREBY
DISCLAIMS), RELATING TO (i) MERCHANTABILITY, DESIGN, OR QUALITY, (ii)
FITNESS FOR ANY PARTICULAR PURPOSE, (iii) COMPLIANCE WITH SPECIFICATIONS OR
CONDITIONS REGARDING OPERATION, (iv) ABSENCE OF LATENT DEFECTS, OR (v) ANY
OTHER MATTER WHATSOEVER.
6.5 Buyer's Noncompetition Agreement. Buyer covenants and agrees
--------------------------------
that it will not for a period of two (2) years following the Closing Date,
either directly or indirectly, whether as agent or principal, or on its
own, or with any other person, firm or company, or in any other capacity,
in any manner engage within the State of California or any other state in
any business which involves the production, sale or distribution of
biscotti or any substantially similar product.
6.6 Seller's Noncompetition Agreement. Seller covenants and agrees
---------------------------------
that it will not for a period of two (2) years following the Closing Date,
either directly or indirectly, whether as agent or principal, or on its
own, or with any other person, firm or company, or in any other capacity,
in any manner engage within the State of California or any other state, in
any business which involves the production, sale or distribution of (i)
rugala, (ii) products which are the same as or similar to the products
covered by the Product Lines, or (iii) frozen filled products.
Notwithstanding the foregoing, in the event that the remedy provided for in
Section 4.3(b) of the Security Agreement is utilized, this provision shall
thereafter not apply to (i) products which are the same as or similar to
the products covered by the Product Lines, or (ii) frozen filled products.
Also notwithstanding the foregoing, in no event shall this noncompetition
agreement be binding upon any entity other than Seller which operates
Seller's biscotti business, including, without limitation, any entity which
acquires Seller's biscotti business pursuant to the letter of intent dated
April 6, 1998, between Seller and LF Capital Partners, LLC.
7. Transactions at Closing; Procedure.
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7.1 Closing Date Procedure. At or prior to the Closing, the
----------------------
appropriate parties shall exchange applicable documents required to be
delivered at the Closing under the terms of this Agreement and shall cause
all other acts to be done as may be required to make the sale of the Assets
effective under applicable law.
7.2 Closing Documents. At or before the Closing, each of the parties
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shall deliver to the other such instruments and documents as are necessary
or desirable in order to carry out the purpose of this Agreement, such
instruments and documents to be in form
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and substance reasonably satisfactory to counsel for the other. Seller will
deliver or cause to be delivered to Buyer a bill of sale and assignment
sufficient to transfer title to the Assets to Buyer substantially in the
form of Exhibit 7.2 attached hereto and made a part hereof. At the Closing,
Buyer shall assume the Assumed Liabilities in accordance with Section 2.2
above.
8. Buyer's Covenants.
-----------------
From and after the Closing Date, and for so long as any amount remains
unpaid on the Buyer's Note, Buyer shall comply with the covenants and agreements
contained in this Section 8, unless Seller consents in writing to noncompliance:
8.1 Limitation on Indebtedness. Buyer shall not create, incur, or
--------------------------
suffer to exist any indebtedness for borrowed money except (i) the Buyer's
Note, (ii) the indebtedness reflected in Buyer's Financial Statements, and
(iii) additional indebtedness of Buyer not to exceed $1,000,000 in
aggregate principal amount at any one time outstanding.
8.2 Limitation on Liens. Buyer shall not create, incur, or suffer to
-------------------
exist any mortgage, lien, pledge, security interest or other encumbrance of
any nature (a "Lien") on any of the Assets, except (i) Liens existing on
the Closing Date which are properly described in Exhibit 8.2 and renewals
and extensions thereof, (ii) Liens for taxes not yet due or contested in
good faith with appropriate reserves maintained on the books of Buyer,
(iii) carriers, warehouse men, mechanics, and similar liens arising in the
ordinary course of business which are not overdue for more than 90 days or
are being contested in good faith, and (iv) the Lien securing the Buyer's
Note.
8.3 Subsidiaries. Buyer will not create, own or hold any subsidiary.
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8.4 Limitation on Dividends. Buyer shall not, either directly or
-----------------------
indirectly, pay or declare any dividend or make any distribution on, or
purchase, redeem, or retire, any shares of the capital stock of Buyer, or
any warrants, options, or other rights to acquire any such shares.
8.5 Limitation on Disposition of Assets. Buyer shall not sell,
-----------------------------------
lease, convey or otherwise dispose of any assets, whether owned on the
Closing Date or subsequently acquired, in any transaction or related series
of transactions not in the ordinary course of business.
8.6 Limitation on Merger, etc. Buyer shall not (i) enter into any
-------------------------
merger or consolidation, (ii) liquidate, wind up its affairs or dissolve,
or (iii) convey, sell, lease, transfer, or otherwise dispose of all or
substantially all of the assets of Buyer.
8.7 Compensation.
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(a) Buyer shall not, directly or indirectly, enter into any
employment agreement or other arrangement, with or for the benefit of
an officer, director or employee of Buyer, other than reasonable
compensation, consistent with this Section 8.7, for services as an
officer, director, or employee.
(b) Buyer shall not in any manner increase the compensation of
its officers, directors or employees from the levels in effect on the
Closing Date other than increases in the ordinary course of business
consistent with past practices.
8.8 No Conflicting Agreements or Actions. Buyer shall not enter into
------------------------------------
any agreement or make any amendment to any agreement or take any other
action which would restrict or adversely affect Buyer's performance of its
obligations to Buyer under the Buyer's Note.
9. Conditions Precedent to Obligations of Buyer. The obligations of
--------------------------------------------
Buyer to purchase the Assets hereunder shall be subject, at its option, to
satisfaction of the following conditions:
9.1 Representations and Warranties of Seller. All representations
----------------------------------------
and warranties of Seller herein were true and correct when made and at and
as of the Closing Date shall be true and correct as if made at and as of
the Closing Date and Seller shall have performed all of its obligations
hereunder to be performed at or prior to the Closing.
9.2 Certificates. Buyer shall have received a certificate dated the
------------
Closing Date, executed by a duly authorized officer of Seller to the effect
that the representations and warranties of Seller herein are true and
correct at and as of the Closing, and that all agreements of Seller
hereunder to be performed at or before the Closing have been performed by
Seller. Buyer shall have received a certificate dated the Closing Date,
executed by a duly authorized officer of Seller, certifying corporate
resolutions authorizing Seller's execution and delivery of this Agreement
and consummation of the transactions contemplated hereby.
9.3 Certificate of Good Standing. Seller shall have delivered to
----------------------------
Buyer a certificate of good standing issued by the Secretary of States of
the States of Oklahoma and California with respect to Seller dated within
30 days of the Closing Date.
9.4 Opinion of Counsel. Buyer shall have received an opinion of
------------------
Conner & Winters, A Professional Corporation, counsel to Seller, in form
and substance reasonably satisfactory to Buyer.
10. Conditions Precedent to Obligations of Seller. The obligations of
---------------------------------------------
Seller to sell the Assets hereunder shall be subject, at its option, to
satisfaction of the following conditions:
-11-
<PAGE>
10.1 Representations and Warranties of Buyer. All representations
---------------------------------------
and warranties of Buyer herein were true and correct when made and at and
as of the Closing Date shall be true and correct as if made at and as of
the Closing Date and Buyer shall have performed all of its obligations
hereunder to be performed at or prior to the Closing.
10.2 Certificates. Seller shall have received a certificate dated
------------
the Closing Date, executed by a duly authorized officer of Buyer to the
effect that the representations and warranties made by Buyer herein are
true and correct at and as of the Closing, and that all agreements of Buyer
hereunder to be performed at or before the Closing have been performed by
Buyer. Seller shall have received a certificate dated the Closing Date,
executed by a duly authorized officer of Buyer, certifying corporate
resolutions authorizing Buyer's execution and delivery of this Agreement
and consummation of the transactions contemplated hereby.
10.3 Certificate of Good Standing. Buyer shall have delivered to
----------------------------
Seller a certificate of good standing issued by the Secretary of State of
the State of California with respect to Buyer dated within 30 days of the
Closing Date.
10.4 Opinion of Counsel. Seller shall have received an opinion of
------------------
Balfour MacDonald & Olmsted, counsel to Buyer, in form and substance
reasonably satisfactory to Seller.
10.5 Security Documents. Seller shall have received the security
------------------
documents described in Section 2.1(b) hereof.
11. Miscellaneous.
-------------
11.1 Remedies. The remedies expressly set forth in this Agreement
--------
following the Closing with respect to any breach of this Agreement are in
addition to, and not preclusive of, any remedies in law or equity;
provided, that, absent actual fraud or deceit, the limitations as to
liability set forth in Sections 6.1 and 6.2 shall apply to any such
remedies.
11.2 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of Seller and Buyer contained in Section 4 and Section 5 of
this Agreement shall survive the Closing, and shall continue in full force
and effect for a period of one year following the Closing.
11.3 Confidentiality. Between the date of this Agreement and the
---------------
Closing Date, Buyer and Seller will maintain in confidence, and will cause
the directors, officers, employees, agents, and advisors of Buyer and
Seller, to maintain in confidence, and not use to the detriment of any
party, any written, oral, or other information obtained in connection with
this Agreement or the transactions contemplated herein, unless (a) such
information becomes publicly available through no fault of such party, (b)
the use of such
-12-
<PAGE>
information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the transactions
contemplated herein, or (c) the furnishing or use of such information is
required by legal proceedings. If the Closing does not occur, each party
will return or destroy as much of such written information as the other
party may reasonably request.
11.4 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed sufficiently
given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, addressed as listed below or to such other
address as the party concerned may substitute by notice to the other in
accordance with the provisions of this paragraph.
If to Seller:
Silverado Foods, Inc.
6846 South Canton, Suite 110
Tulsa, Oklahoma 74136
Attention: Lawrence D. Field, Chairman
If to Buyer:
Gourmet Specialty Bakers, Inc.
1701 East Edinger Avenue
Suite F-5
Santa Ana, California 92701
Attention: Ira Herman
11.5 Broker's Fees. Each of the parties hereto (a) represents and
-------------
warrants that it has not taken and will not take any action that would
cause any other party hereto to have any obligation or liability to any
person for a finder's or broker's fee, and (b) agrees to indemnify the
other parties hereto for breach of the foregoing representation and
warranty, whether or not the Closing occurs.
11.6 Sales and Transfer Taxes. Any sales, use or other transfer tax
------------------------
due on the sale of the Assets shall be paid by Buyer.
11.7 Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding of the parties with respect to the transactions
contemplated hereby. No representation, promise, inducement, or statement
of intention has been made by Seller or Buyer which is not embodied in this
Agreement, and none of Seller or Buyer shall be bound by or liable for any
alleged misrepresentation, promise, inducement, or statement of intention
not so set forth.
-13-
<PAGE>
11.8 Headings. The descriptive headings of the several sections and
--------
paragraphs of this Agreement are inserted for convenience only and shall
not be used in the interpretation of this Agreement.
11.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
shall be considered one and the same agreement.
11.10 Governing Law. This Agreement shall be construed in accordance
-------------
with the laws of the State of Oklahoma without regard to the conflict of
laws provisions thereof.
11.11 Construction. The parties acknowledge that the parties and
------------
their counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of
this Agreement or any exhibits or amendments thereto.
11.12 Binding Effect. The terms of this Agreement shall be binding
--------------
upon and inure to the benefit of the parties hereto and their respective
successors, legal representatives and permitted assigns.
11.13 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.
11.14 Choice of Forum. The parties hereto agree that any suit,
---------------
action or proceeding arising out of or relating to this Agreement or any
agreement or obligation delivered in connection with this Agreement or any
judgment entered by any court in respect thereof shall be brought in the
courts of the State of Oklahoma, County of Tulsa or in the United States
District Court for the Northern District of Oklahoma and each such party
hereby submits to the exclusive jurisdiction of such courts for the purpose
of any such suit, action or proceeding relating to this Agreement or any
related agreement or obligation. Each party hereto hereby irrevocably
waives any objection that it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this
Agreement or any agreement or obligation delivered in connection with this
Agreement, brought in the courts of the State of Oklahoma, County of Tulsa
or the United States District Court for the Northern District of Oklahoma,
and hereby further irrevocably waives any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.
11.15 Reduction of Royalty. Notwithstanding anything contained
--------------------
herein or the Buyer's Note to the contrary, the royalty payable to Seller
pursuant to Section 2.4 hereof and the Buyer's Note each month shall be
reduced by 50% of the full amount due until such time as the total amount
of such reductions equals $52,000.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"SELLER"
SILVERADO FOODS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
"BUYER"
GOURMET SPECIALTY BAKERS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
List of Exhibits
----------------
Exhibit 1.1(a) - Description of the Product Lines
Exhibit 1.1(c) - Description of the Contracts
Exhibit 1.1(d) - Description of the Leases
Exhibit 1.1(f) - Description of Trademarks
Exhibit 1.1(h) - Description of the Equipment
Exhibit 2.1(a) - Form of the Buyer's Note
Exhibit 2.1(b)(i) - Form of Security Agreement
Exhibit 2.1(c) - Value of Inventory
Exhibit 2.2 - Description of Accounts Payable
Exhibit 4.5 - Financial Information
Exhibit 4.9 - Customers and Sales
Exhibit 4.10 - Employment Contracts and Benefits
Exhibit 4.11 - Insurance Policies
Exhibit 4.13 - Pending Litigation
Exhibit 4.15 - Personnel
Exhibit 5.4 - Buyer's Financial Statements
Exhibit 7.2 - Form of Bill of Sale, Assignment, and Assumption
Exhibit 8.2 - Description of Liens
<PAGE>
EXHIBIT 2.1(a)
--------------
PROMISSORY NOTE
$2,500,000.00 June 12, 1998
FOR VALUE RECEIVED, the undersigned, Gourmet Specialty Bakers, Inc., a
California corporation ("Debtor"), promises to pay to Silverado Foods, Inc., an
Oklahoma corporation ("Silverado"), or its assigns, at Tulsa, Oklahoma, or at
such other place as the legal holder hereof may designate in writing, the
principal sum of Two Million Five Hundred Thousand and 00/100 Dollars
($2,500,000.00) in legal U.S. tender. All of said principal amount shall be due
and payable on November 30, 1998; provided, however, that said date for payment
may be extended until March 31, 1999, in the event (i) on or prior to November
30, 1998, Debtor delivers to Silverado a notice in writing requesting such
extension, and (ii) as consideration for such extension, Debtor pays to
Silverado in cash on or prior to November 30, 1998, the amount of $500,000.00
(which payment shall not reduce the indebtedness represented by this Note).
In lieu of interest hereon, until such time as this Note is paid in full,
Debtor shall pay to Silverado a royalty of 2.5% of net sales (defined as gross
sales, less returns and allowances) of the products included within the product
lines purchased by Debtor from Silverado pursuant to the Asset Purchase
Agreement dated June 12, 1998, between Silverado and Debtor. Net sales for the
purpose of determining this royalty shall not include sales of frozen filled
products. This obligation for the payment of royalty shall be in addition to
any other royalty obligations owed by Debtor to Silverado. This royalty shall
be payable with respect to sales occurring between the date hereof and the date
on which this Note is paid in full. Such royalty shall be payable by Debtor to
Silverado monthly no later than the end of the month following the month in
which sales occur.
Debtor may voluntarily prepay all or a portion of the indebtedness
hereunder, at any time, without premium or penalty.
If all or any portion of the indebtedness hereby evidenced is not paid when
due and remains unpaid for ten (10) days after written notice to Debtor of such
failure, or in the event of the dissolution, insolvency, bankruptcy or
receivership of the undersigned, or upon the breach by Debtor of any of the
terms of this Note, the holder may, without further notice or demand, declare
this indebtedness to be immediately due and payable. Following any such
default, in addition to any other remedies, the sums due hereunder shall bear
interest until paid at an annual rate of interest of fifteen percent (15%) per
annum.
The undersigned agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection or to defend or enforce any of the holder's
rights hereunder or under any instruments securing payment of this Note, the
undersigned will pay to the holder its reasonable attorney's fees and all court
costs and other expenses incurred in connection therewith.
<PAGE>
The makers, endorsers, sureties, guarantors, and all other persons who may
become liable for all or any part of this obligation severally waive presentment
for payment, protest, and notice of nonpayment. Said parties consent to any
extension of time (whether one or more) of payment hereof, release of all or any
part of the security for the payment hereof and the release of any party liable
for payment of this obligation. Any such extension of time or release may be
made at any time and from time to time without notice to any such party and
without discharging said party's liability hereunder.
This Note is to be construed according to the laws of the State of
Oklahoma. This Note is secured by a Security Agreement of even date herewith.
Enforcement and collection of this Note is limited as provided in said Security
Agreement.
GOURMET SPECIALTY BAKERS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
EXHIBIT 2.1(b)(i)
-----------------
SECURITY AGREEMENT
This SECURITY AGREEMENT is made and executed as of the 12th day of June,
1998, by Gourmet Specialty Bakers, Inc., a California corporation, whose mailing
address is at 1701 East Edinger Avenue, Suite F-5, Santa Ana, California 92701
(hereinafter called the "Debtor"), and Silverado Foods, Inc., an Oklahoma
corporation, whose mailing address and the place where information concerning
the security interest(s) herein created is at 6846 South Canton, Suite 110,
Tulsa, Oklahoma 74136 (hereinafter called the "Secured Party").
WITNESSETH:
In order to secure the due and timely payment of all of the Secured
Indebtedness (as herein defined), including the due and timely performance by
the Debtor of all of the covenants, agreements and undertakings of the Debtor
made herein, the Debtor hereby grants to the Secured Party a continuing security
interest in and to all of the Debtor's right, title and interest, whether now
owned and existing or hereafter acquired or arising, in and to the following:
(a) All of the assets (the "Bagel Assets") acquired by Debtor from
Secured Party pursuant to the Asset Purchase Agreement dated June 12, 1998
(the "Purchase Agreement"), relating to the Secured Party's bagel and bagel
bar production business located in Santa Ana, California (the "Business"),
including the following:
(i) the product lines related to the Business which are
described in Exhibit 1.1(a) attached hereto and made a part hereof
(the "Product Lines");
(ii) the purchase orders related to the Business;
(iii) the contracts which are described in Exhibit 1.1(c)
attached hereto and made a part hereof;
(iv) the building, office, and equipment leases which are
described in Exhibit 1.1(d) attached hereto and made a part hereof;
(v) the art work, plates, dies, customer lists, files,
marketing information, sales literature, mailing lists, books, and
records related to the Business;
(vi) the trademarks which are described in Exhibit 1.1(f);
(vii) all inventories of Seller related to the Business,
including without limitation finished goods, work-in-progress, and raw
materials;
<PAGE>
(viii) the equipment, supplies, furniture, fixtures, and
displays related to the Business which are described in Exhibit 1.1(h)
attached hereto and made a part hereof; and
(b) All accounts receivable arising after the current date relating to
the sale of products included within the Product Lines; and
(c) All assets of Debtor other than the Bagel Assets, including all
accounts receivable, inventory, contracts, trademarks, other general
intangibles, machinery and equipment, whether now owned or hereafter
acquired (the "Other Assets"); provided that Secured Party acknowledges and
agrees that the Other Assets shall be subject to any existing prior lien(s)
of any lender, lessor or other financial institution providing financing to
Debtor or any predecessor owner of the Other Assets, and that Secured Party
agrees, at the request of Debtor, to subordinate Secured Party's interest
in the Other Assets to any lender of Secured Party that requires such
subordination to enable Debtor to obtain or continue financing for its
operations; provided further, notwithstanding the foregoing, the lien held
by Cresent Hermanson Family Limited Partnership in the Other Assets shall
be prior to the lien of Debtor only to the extent of the first $152,000 of
secured indebtedness owed to Cresent Hermanson Family Limited Partnership
and/or Gennie Hermanson, with Secured Party's lien being prior as to any
secured indebtedness in excess of $152,000.
(d) All proceeds and products of the foregoing.
All of the foregoing being referred to herein collectively as the "Collateral."
ARTICLE I
---------
SECURED INDEBTEDNESS
--------------------
1.1 This Security Agreement is made to provide collateral and security for
the payment and performance by the Debtor of all of the following:
(a) The Debtor's promissory note dated as of even date herewith in the
principal sum of $2,500,000.00 payable to the Secured Party with a final
maturity on November 30, 1998 (extendable to March 31, 1999), and any
royalties payable thereunder, such note, together with any and all
extensions, renewals, modifications, rearrangements, substitutions, and
changes in form thereof which may be from time to time and for and upon
such term or terms as may be effected by agreement between the Debtor and
the holder being referred to herein collectively as the "Note";
(b) The obligations and liabilities of Debtor to the Secured Party
pursuant to the Purchase Agreement;
(c) Any and all other indebtedness, royalties, obligations, and
liabilities of the Debtor to the Secured Party arising under the Purchase
Agreement or by promissory notes, drafts, debentures, or other written
undertakings signed by or on behalf of the Debtor in favor of the Secured
Party;
<PAGE>
(d) The amount of all expenditures made and obligations incurred by
the Secured Party in attempting to remedy any default on the part of the
Debtor of this Agreement, as provided in Section 3.12;
(e) The amount of all expenditures reasonably made and obligations
reasonably incurred by the Secured Party in attempting to collect any
Secured Indebtedness or to enforce any right or remedy set forth herein or
otherwise provided under the Uniform Commercial Code; and
(f) Interest on all amounts expended by the Secured Party for any of
the purposes specified in (c) and (d) next hereinabove at the rate of
fifteen percent (15%) per annum.
(All of the foregoing is referred to herein as the "Secured Indebtedness".)
ARTICLE II
----------
REPRESENTATIONS
---------------
To induce the Secured Party to extend such credit to the Debtor as shall be
extended and shall constitute "Secured Indebtedness" as herein defined, the
Debtor represents to the Secured Party as follows:
2.1 Debtor is duly organized and existing under the laws of the State of
California and is duly qualified and in good standing in every other state in
which the nature of its business requires such qualification, except where
failure to qualify would not have a material adverse effect.
2.2 The execution, delivery and performance of this Agreement are within
Debtor's corporate powers, have been duly authorized and are not in
contravention of law or the powers of Debtor's charter, bylaws, or other
incorporation papers or of any indenture agreement or undertaking to which
Debtor is a party or by which it is bound.
2.3 Debtor is or will become the owner of the Collateral and has good
right and authority to grant a security interest in the Collateral.
2.4 There are no presently outstanding liens, security interests, or
encumbrances in or on the Collateral or the proceeds, nor any financing
statements covering the Collateral or the proceeds thereof, except the financing
statements executed pursuant hereto, and except for the security interest in the
Other Assets granted by Debtor to Union Bank which security interest shall be
senior and prior to the security interest in the Other Assets granted herein,
and the security interest in the Other Assets granted by Debtor to Cresent
Hermanson Family Limited Partnership and/or Gennie Hermanson, which security
interest shall be senior and prior to the security interest in the Other Assets
granted herein to the extent of the first $152,000 of secured indebtedness owed
to Cresent Hermanson Family Limited Partnership, with Secured Party's security
interest being senior and prior as to any secured indebtedness in excess of
$152,000.
<PAGE>
2.5 The address of Debtor's place of business is correctly set forth at
the beginning of this Agreement.
2.6 All balance sheets, earning statements, and other financial data which
have been furnished to Secured Party to induce it to enter into this Agreement
fairly present the financial position of Debtor as of the dates and the results
of its operations for the periods for which the same are furnished, and all
other information, reports, and other papers and data furnished to Secured Party
are, or shall be at the time the same are so furnished, accurate and correct in
all material respects and complete insofar as necessary to give Secured Party a
true and accurate knowledge of the subject matter.
ARTICLE III
-----------
COVENANTS
---------
So long as the Secured Indebtedness or any part thereof remains unpaid,
Debtor, for itself, its successors and assigns, covenants and agrees with
Secured Party, its successors and assigns, as follows:
3.1 Debtor shall make prompt payment, as the same becomes due, of the
Secured Indebtedness in accordance with the terms and provisions of the Note or
other agreements evidencing such indebtedness.
3.2 Debtor shall maintain its corporate existence and pay all necessary
corporate franchise and license taxes, fees, and charges.
3.3 Debtor shall furnish to Secured Party as soon as possible after the
end of each fiscal year financial statements reflecting the financial position
of Debtor as of the date of the statement and reflecting its operations for the
periods covered by the statements. Debtor shall also promptly furnish to
Secured Party such reasonable information as Secured Party may from time to time
at reasonable intervals request concerning Debtor's financial condition and its
operations.
3.4 Debtor shall account fully and faithfully for and, if Secured Party so
elects in its sole discretion, shall promptly pay or turn over to Secured Party
the proceeds in whatever form received in disposition in any manner of any of
the Collateral; provided, however, that so long as no default has occurred
hereunder and is then continuing, the Debtor may continue to sell and dispose of
inventory and to collect the accounts in the ordinary course of business,
without being under any obligation to pay or turn over the proceeds thereof to
the Secured Party.
3.5 Debtor shall reimburse Secured Party for any expenditures, including
reasonable attorneys' fees and legal expenses reasonably incurred by the Secured
Party, in connection with Secured Party's exercise of any of its rights and
remedies under Article IV or Secured Party's protection of the Collateral and
its security interest therein.
3.6 Debtor shall keep accurate and complete records of the Collateral and
its proceeds.
<PAGE>
3.7 At Secured Party's expense, Debtor shall sign and execute alone or
with Secured Party any Financing Statement or other documents necessary to
protect the security interest under this Security Agreement against the rights
or interests of third persons.
3.8 Notwithstanding the security interest in proceeds granted herein,
Debtor shall not sell, lend, rent, lease, or otherwise dispose of any of the
Collateral (other than inventory and accounts as set forth in Section 3.4), or
any interest therein, and Debtor shall keep all of the Collateral free from
unpaid charges, including taxes, and from liens, encumbrances, and security
interests other than that of the Secured Party and will warrant and defend the
Collateral against the claims and demands of all other persons, except the
holders of the security interests described herein.
3.9 Debtor shall pay promptly when due all taxes and assessments upon the
Collateral or for its use or operation.
3.10 Debtor shall insure the equipment and inventory covered hereby with
companies acceptable to Secured Party against such casualties and in such
amounts as is customary in the Debtor's industry. All insurance policies shall
be written for the benefit of Debtor and Secured Party as their interests may
appear, and such policies or certificates evidencing the same shall be furnished
to Secured Party. All policies of insurance shall provide for written notice to
Secured Party at least ten (10) days prior to cancellation.
3.11 The equipment covered hereby will be properly maintained and will not
be misused or abused, wasted or allowed to deteriorate, except for the ordinary
wear and tear.
3.12 If the Debtor shall default in paying when due any tax, assessment, or
charge levied upon the Collateral or any part thereof or if the Debtor shall
default in insuring the Collateral or in delivering the policies or certificates
as above provided, or if the Debtor fails to maintain the Collateral as above
provided, the Secured Party may at its option and without waiver of any right
hereunder, pay such tax, assessment, or charge or effect such insurance and pay
the premiums therefor, or take whatever action is necessary to maintain the
Collateral and in each such case the amount paid in respect thereof shall be
payable to the Secured Party forthwith with interest at the rate of fifteen per
cent (15%) per annum until paid and shall become part of the Secured
Indebtedness secured by this Security Agreement.
3.13 The equipment covered hereby will be used in the business of Debtor
and shall remain in Debtor's possession or control at all times at Debtor's risk
of loss.
ARTICLE IV
----------
REMEDIES IN EVENT OF DEFAULT
----------------------------
4.1 The term "default" as used in this Agreement shall mean the occurrence
of any of the following events:
(a) The failure of Debtor to make due and punctual payment of the
Secured Indebtedness secured hereby, principal or interest or royalty, or
any part thereof, as the
<PAGE>
same shall become due and payable, whether at maturity or when accelerated
pursuant to any power to accelerate held by Secured Party, if such failure
continues for ten (10) days after written notice and demand by Secured
Party for such payment.
(b) The failure of Debtor punctually and properly to observe, keep, or
perform any covenant, agreement or condition of this Agreement or the
Purchase Agreement required to be observed, kept, or performed, if such
failure continues for thirty (30) days after written notice and demand by
Secured Party for the performance of such covenant, agreement or condition.
(c) Any material representation made in this Agreement or the Purchase
Agreement shall prove to be untrue in any material respect.
(d) Any event or occurrence which would, under the provisions of any
agreement or writing to which the Debtor is a party, would entitle any
person or entity to accelerate the maturity of any obligation of the
Debtor.
(e) Debtor declares itself insolvent or is determined to be insolvent
by a court of competent jurisdiction, or makes an assignment for the
benefit of creditors.
(f) A receiver is appointed for all or substantially all of the
properties of Debtor or of the Collateral or any part thereof.
(g) Debtor is adjudicated a bankrupt or requests, either by way of
petition or answer, that Debtor be adjudicated a bankrupt or that Debtor be
allowed or granted any composition, rearrangement, extension,
reorganization or other relief under any bankruptcy law or under any other
law for the relief of debtors now or hereafter existing.
(h) The dissolution or liquidation of Debtor.
4.2 Upon the occurrence of a default and during the continuation thereof,
Secured Party shall have the option, with or without notice, of declaring all
Secured Indebtedness in its entirety to be immediately due and payable.
4.3 Upon the occurrence of a default and during the continuation thereof,
prior to the enforcement of any other remedies conferred by law or this
Agreement, Secured Party shall have the following remedies:
(a) Following the occurrence of a default hereunder and until the
remedy in subparagraph (b) below is invoked by Secured Party, Secured Party
and Debtor shall use their best efforts to sell the assets of Debtor on
terms mutually satisfactory to Secured Party and Debtor. Neither Secured
Party nor Debtor shall unreasonably withhold approval of any such sale, and
in no event shall Secured Party or Debtor withhold approval of a cash sale
of such assets for a purchase price of $6,500,000 or more. The proceeds of
any such sale shall be applied to the Secured Indebtedness, with any excess
proceeds to be retained by Debtor. If such a sale is accomplished, the
proceeds of such sale received by Secured Party shall be in full
satisfaction of the Secured Indebtedness.
<PAGE>
(b) If (i) an offer for the purchase and sale of the assets of Debtor
which the parties desire to accept pursuant to subparagraph (a) above is
not received within ninety (90) days after the occurrence of a default
hereunder, or (ii) a sale of the assets of Debtor is not consummated within
sixty (60) days after the acceptance of any such offer, within forty-five
(45) days after notice from Secured Party, Debtor shall vacate the premises
of its then current business location and deliver to Secured Party (i)
possession of such location, and (ii) good and valid title to all of the
Bagel Assets (excluding inventory). Such assets shall be delivered to
Secured Party in the same condition as delivered by Secured Party to Debtor
pursuant to the Purchase Agreement, reasonable wear and tear excepted.
Secured Party shall not assume any liabilities of Debtor in the event of
such reacquisition, except for obligations under leases and contracts
included in the Bagel Assets which accrue after the date of such
reacquisition. If the remedy provided by this subparagraph (b) is
accomplished, the redelivery of assets provided for herein shall be in full
satisfaction of the Secured Indebtedness.
(c) If a sale as provided for in subparagraph (a) above is not
accomplished, and Debtor breaches its obligations provided for in
subparagraph (b) immediately above, Secured Party may then exercise its
right of enforcement under the Uniform Commercial Code in force in the
jurisdiction where such rights are to be asserted at the date of this
Security Agreement, provided, however, that the extent of Secured Party's
recovery against Debtor shall be limited to any loss to Secured Party
resulting from Debtor's failure to perform its obligations set forth in
subparagraph (b) immediately above.
4.4 In all cases, Secured Party may waive any default or remedy without
waiving any other prior or subsequent default. Written notice mailed to Debtor
at its address set forth at the beginning of this Security Agreement ten (10)
days prior to the date of public sale of the Collateral or prior to the date
after which private sale of the Collateral will be made shall constitute
reasonable notice.
4.5 No failure on the part of Secured Party to exercise and no delay in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise by Secured Party of any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any right, power or remedy.
4.6 After the occurrence of a default and during the continuation thereof,
Debtor hereby appoints Secured Party its agent and attorney in fact for the
purpose of carrying out the provisions hereof and taking any action and
executing any instrument which Secured Party may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney in fact is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, Secured Party shall have the right, after the occurrence of a
default and during the continuation thereof, notify account debtors and to
receive, collect and endorse all checks made payable to Debtor or its order
representing any payment on account of any of the Collateral and to give fully
discharge therefor.
4.7 In the event the remedy provided for in Section 4.3(b) above is
utilized by Secured Party, Debtor agrees that it will not for a period of two
(2) years following the date of the redelivery of assets, either directly or
indirectly, engage within the State of California or any other
<PAGE>
state in any business which involves the production, sale or distribution of (i)
products which are the same as or similar to the products covered by the Product
Lines, (ii) frozen filled products, or (iii) biscotti.
ARTICLE V
---------
MISCELLANEOUS
-------------
5.1 When all of the Secured Indebtedness has been paid in full then and in
that case only the security interests evidenced hereby or provided for herein
shall terminate and shall be released by the Secured Party, and the Collateral
then held as such by Secured Party shall become free and clear of such security
interests.
5.2 No modification or waiver of any provision of this Security Agreement
nor consent to any departure by Debtor therefrom shall in any event be effective
unless the same shall be in writing and signed by Secured Party and then such
waiver or consent shall be effective only in the specific instances, for the
purpose for which given and to the extent therein specified. No notice to nor
demand on Debtor in any case shall of itself entitle Debtor to any other or
further notice or demand in similar or other circumstances.
5.3 Secured Party may enter upon Debtor's premises at any reasonable time
during normal business hours and upon reasonable notice to inspect the
Collateral and Debtor's books and records pertaining to the Collateral or its
proceeds, and Debtor shall assist Secured Party in whatever way reasonably
necessary to make any such inspection.
5.4 Secured Party may assign this Security Agreement to any subsequent
holder of the Note so that the assignee shall be entitled to the rights and
remedies of Secured Party hereunder.
5.5 All notices and communications provided for herein shall be delivered
or mailed, certified, postage prepaid, addressed to the parties hereto at their
addresses set forth at the beginning of this Agreement, or such other address as
any party hereto shall hereafter designate by written notice to the other party.
5.6 A determination that any provision of this Security Agreement is
unenforceable or invalid shall not affect the validity or enforceability of any
other provision.
5.7 Unless the context clearly indicates otherwise, "Debtor" and "Secured
Party" as used in this Security Agreement include the respective successors and
assigns of those parties.
5.8 The law governing this secured transaction shall be that of the State
of Oklahoma.
5.9 The parties hereto agree that any suit, action or proceeding arising
out of or relating to this Security Agreement or any agreement or obligation
delivered in connection with this Security Agreement or any judgment entered by
any court in respect thereof shall be brought in the courts of the State of
Oklahoma, County of Tulsa or in the United States District Court for the
Northern District of Oklahoma and each such party hereby submits to the
exclusive jurisdiction of such courts for the purpose of any such suit, action
or proceeding relating to this Security
<PAGE>
Agreement or any related agreement or obligation. Each party hereto hereby
irrevocably waives any objection that it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to this
Security Agreement or any agreement or obligation delivered in connection with
this Security Agreement, brought in the courts of the State of Oklahoma, County
of Tulsa or the United States District Court for the Northern District of
Oklahoma, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
IN WITNESS WHEREOF, this Security Agreement is executed on behalf of the
parties by their respective officers hereunto authorized as of the date first
above written.
"SECURED PARTY"
SILVERADO FOODS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
"DEBTOR"
GOURMET SPECIALTY BAKERS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
EXHIBIT 7.2
-----------
BILL OF SALE, ASSIGNMENT, AND ASSUMPTION
----------------------------------------
KNOW ALL MEN BY THESE PRESENTS:
THAT SILVERADO FOODS, INC., an Oklahoma corporation ("Seller"), for and in
consideration of the sum of Ten Dollars ($10.00) and other good and valuable
consideration paid by GOURMET SPECIALTY BAKERS, INC., a California corporation
("Buyer"), the receipt of which is hereby acknowledged, does hereby sell,
assign, transfer, and deliver to Buyer all of Seller's right, title and interest
in and to the following assets of Seller (the "Assets"):
(i) the product lines related to Seller's bagel and bagel bar
production business located in Santa Ana, California (the "Business"),
which are described in Exhibit 1.1(a) attached hereto and made a part
hereof;
(ii) the purchase orders related to the Business (the "Purchase
Orders");
(iii) the contracts which are described in Exhibit 1.1(c) attached
hereto and made a part hereof (the "Contracts");
(iv) the building, office, and equipment leases which are described
in Exhibit 1.1(d) attached hereto and made a part hereof (the "Leases");
(v) the art work, plates, dies, customer lists, files, marketing
information, sales literature, mailing lists, books, and records related to
the Business;
(vi) the trademarks which are described in Exhibit 1.1(f);
(vii) all inventories of Seller related to the Business, including
without limitation finished goods, work-in-progress, and raw materials; and
(viii) the equipment, supplies, furniture, fixtures, and displays
related to the Business which are described in Exhibit 1.1(h) attached
hereto and made a part hereof.
TO HAVE AND TO HOLD the Assets unto Buyer, its successors and assigns,
forever.
Buyer hereby joins in the execution of this Bill of Sale, Assignment, and
Assumption to evidence its assumption of the following liabilities of Seller and
its agreement to discharge and perform Seller's duties and obligations on
account thereof: (i) the Purchase Orders, (ii) the Leases, (iii) the Contracts,
and (iv) the accounts payable listed in Exhibit 2.2 attached hereto and made a
part hereof.
Seller agrees that it will, at Buyer's request, from time to time after the
date hereof, and without further consideration, do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, assignments, transfers,
<PAGE>
conveyances, and assurances as may be reasonably necessary or proper for the
transfer of title to the Assets.
This Bill of Sale, Assignment, and Assumption is delivered pursuant to the
Asset Purchase Agreement (the "Purchase Agreement") dated June 12, 1998, among
Buyer and Seller, and is subject in all respects to the terms and conditions of
the Purchase Agreement.
DATED as of the 12th day of June, 1998.
SILVERADO FOODS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
GOURMET SPECIALTY BAKERS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
The following exhibits to the Asset Purchase Agreement have been omitted
from this filing. Copies of such exhibits will be furnished supplementally to
the Securities and Exchange Commission upon request.
Exhibit 1.1(a) - Description of the Product Lines
Exhibit 1.1(c) - Description of the Contracts
Exhibit 1.1(d) - Description of the Leases
Exhibit 1.1(f) - Description of Trademarks
Exhibit 1.1(h) - Description of the Equipment
Exhibit 2.1(c) - Value of Inventory
Exhibit 2.2 - Description of Accounts Payable
Exhibit 4.5 - Financial Information
Exhibit 4.9 - Customers and Sales
Exhibit 4.10 - Employment Contracts and Benefits
Exhibit 4.11 - Insurance Policies
Exhibit 4.13 - Pending Litigation
Exhibit 4.15 - Personnel
Exhibit 5.4 - Buyer's Financial Statements
Exhibit 8.2 - Description of Liens
<PAGE>
Exhibit 99.1
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
1998
(unaudited)
<TABLE>
<CAPTION>
ASSETS
Historical Sale of Bagel Pro Forma
Consolidated Bar Business Consolidated
(a)
------------ ----------- ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 601 $ - $ 601
Accounts receivable, net 2,319,053 - 2,319,053
Inventories, net 1,240,876 (257,994) 982,882
Prepaid expenses and other 435,808 - 435,808
------------ ------------ ------------
Total current assets 3,996,338 (257,994) 3,738,344
------------ ------------ ------------
NET ASSETS HELD FOR SALE 2,108,043 2,108,043
NOTES RECEIVABLE 1,133,582 2,458,750 3,592,332
PROPERTY, PLANT AND EQUIPMENT, net 6,904,595 (2,690,720) 4,213,875
GOODWILL AND OTHER INTANGIBLES, net 3,194,840 (508,362) 2,686,478
------------ ------------ ------------
Total assets $ 17,337,398 $ (998,326) $ 16,339,072
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 14,103,154 $ - $ 14,103,154
Short-term notes payable 475,000 475,000
Trade accounts payable 5,418,622 (257,994) 5,160,628
Accrued liabilities 3,062,910 3,062,910
Other liabilities 290,273 290,273
------------ ------------ ------------
Total current liabilities 23,349,959 (257,994) 23,091,965
------------ ------------ ------------
LONG-TERM DEBT, less current maturities 5,565,032 5,565,032
OTHER 39,110 39,110
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Common stock, $.01 par value, 20,000,000 shares authorized 117,018 117,018
11,701,757 issued, 11,674,762 outstanding
Warrants 51,159 51,159
Additional paid-in-capital 28,910,127 28,910,127
Accumulated deficit (40,630,355) (740,332) (41,370,687)
------------ ------------ ------------
(11,552,051) (740,332) (12,292,383)
Less: Treasury stock (64,652) - (64,652)
------------ ------------ ------------
Total shareholders' deficit (11,616,703) (740,332) (12,357,035)
------------ ------------ ------------
Total liabilities and shareholders' deficit $ 17,337,398 $ (998,326) $ 16,339,072
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-1
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Historical Sale of Bagel Pro Forma Pro Forma
Consolidated Bar Business Adjustments Consolidated
(a) (b)
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 5,179,117 $ 1,484,306 $ - $ 3,694,811
COST OF SALES 3,460,355 998,997 - 2,461,358
----------- ----------- ----------- -------------
Gross profit 1,718,762 485,309 - 1,233,453
----------- ----------- ----------- -------------
OPERATING EXPENSES:
General and administrative 664,181 139,488 524,693
Selling and marketing 996,014 397,917 58,625 539,472
Depreciation 37,193 13,925 23,268
Amortization of goodwill and other intangibles 190,574 65,318 125,256
Loss on adjustment to carrying value 2,125,443 2,125,443 - -
----------- ----------- ----------- -------------
4,013,405 2,742,091 58,625 1,212,689
----------- ----------- ----------- -------------
OPERATING LOSS (2,294,643) (2,256,782) (58,625) 20,764
OTHER INCOME (EXPENSE):
Interest (637,873) (637,873)
Accretion of debenture discount (66,666) (66,666)
Other, net (6,620) (6,620)
----------- ----------- ----------- -------------
(711,159) - - (711,159)
----------- ----------- ----------- -------------
LOSS FROM CONTINUING OPERATIONS (3,005,802) (2,256,782) (58,625) (690,395)
----------- ----------- ----------- -------------
DISCONTINUED OPERATIONS -
Operating Loss (118,727) (118,727)
Loss on Disposal (1,231,013) (1,231,013)
----------- ----------- ----------- -------------
LOSS FROM DISCONTINUED OPERATIONS (1,349,740) - - (1,349,740)
----------- ----------- ----------- -------------
NET LOSS $(4,355,542) (2,256,782) (58,625) (2,040,135)
=========== =========== =========== =============
BASIC LOSS PER SHARE FROM:
CONTINUING OPERATIONS $ (0.20) $ (0.15) $ (0.00) $ (0.05)
DISCONTINUED OPERATIONS (0.01) - - (0.01)
LOSS ON DISPOSAL (0.08) - - (0.08)
----------- ----------- ----------- -------------
NET LOSS PER SHARE $ (0.29) $ (0.15) $ (0.00) $ (0.14)
=========== =========== =========== =============
DILUTED LOSS PER SHARE FROM:
CONTINUING OPERATIONS $ (0.26) $ (0.19) $ (0.01) $ (0.06)
OPERATING LOSS FROM DISCONTINUED OPERATIONS (0.01) - - (0.01)
LOSS ON DISPOSAL (0.11) - - (0.11)
----------- ----------- ----------- -------------
NET LOSS PER SHARE $ (0.38) $ (0.19) $ (0.01) $ (0.18)
=========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Unaudited
---------------------------------------------
Sale of Bagel Pro Forma Pro Forma
Historical Bar Business Adjustments Company
Consolidated (a) (b) Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 23,890,141 $ 8,769,986 $ 15,120,155
COST OF SALES 19,492,693 7,915,008 11,577,685
------------ ------------ ------------ ------------
Gross profit 4,397,448 854,978 - 3,542,470
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 3,942,493 508,409 - 3,434,084
Selling and marketing 4,434,757 1,809,744 435,686 2,189,327
Unusual charges 3,500,000 - 3,500,000
Depreciation 144,502 48,478 - 96,024
Amortization of goodwill and other intangibles 912,279 281,347 - 630,932
------------ ------------ ------------ ------------
12,934,031 2,647,978 435,686 9,850,367
------------ ------------ ------------ ------------
OPERATING LOSS (8,536,583) (1,793,000) (435,686) (6,307,897)
OTHER INCOME (EXPENSE):
Interest (1,939,298) 1,071 (1,940,369)
Accretion of debenture discount (1,150,000) (1,150,000)
Other, net (195,965) (119,015) (76,950)
------------ ------------ ------------ ------------
(3,285,263) (117,944) - (3,167,319)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (11,821,846) (1,910,944) (435,686) (9,475,216)
DISCONTINUED OPERATIONS
Operating Loss (3,458,216) (3,458,216)
Loss on Disposal (3,221,602) (3,221,602)
------------ ------------ ------------ ------------
LOSS FROM DISCONTINUED OPERATIONS (6,679,818) - - (6,679,818)
------------ ------------ ------------ ------------
NET LOSS $(18,501,664) $ (1,910,944) $ (435,686) $(16,155,034)
============ ============ ============ ============
BASIC LOSS PER SHARE FROM:
CONTINUING OPERATIONS $ (1.11) $ (0.18) $ (0.04) $ (0.89)
OPERATING LOSS FROM DISCONTINUED OPERATIONS (0.32) - - (0.32)
LOSS ON DISPOSAL (0.30) - - (0.30)
============ ============ ============ ============
NET LOSS PER SHARE $ (1.73) $ (0.18) $ (0.04) $ (1.51)
============ ============ ============ ============
DILUTED:
CONTINUING OPERATIONS $ (1.36) $ (0.22) $ (0.05) $ (1.09)
OPERATING LOSS FROM DISCONTINUED OPERATIONS (0.39) - - (0.39)
LOSS ON DISPOSAL (0.37) - - (0.37)
------------ ------------ ------------ ------------
NET LOSS PER SHARE $ (2.12) $ (0.22) $ (0.05) $ (1.85)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
SILVERADO FOODS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The pro forma consolidated statements of income for the year ended December 31,
1997 and the three months ended March 31, 1998 have been prepared assuming the
bagel bar business, its related manufacturing facilities and certain inventories
were sold on January 1, 1997. The pro forma consolidated statements of income do
not reflect any non-recurring charges or credits resulting directly from this
transaction. The pro forma consolidated balance sheet at March 31, 1998 has been
prepared assuming this sale occurred on March 31, 1998.
The pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The pro
forma consolidated financial statements do not purport to represent what the
Company's financial position or results of operations actually would have been
had such transactions in fact occurred on the dates indicated. These pro forma
consolidated financial statements and the notes thereto should be read in
conjuction with the Company's 1997 consolidated financial statements and the
notes thereto.
(2) Dispositions
On June 12, 1998, the Company disposed of its bagel bar business, the related
manufacturing facilities and equipment, and certain inventories. The business
was sold to the Gourmet Specialty Bakers, Inc. for total consideration of
$3,750,000, including a note of approximately $2,500,000, the assumption of
certain liabilities of approximately $250,000, and the potential of an
additional earn-out and royalties of approximately $1,250,000 if certain sales
and distribution targets are met. The note receivable is due and payable on
November 30, 1998, and in lieu of interest on such note, a royalty of 2.5% of
net existing sales will be payable to the Company. The note receivable has been
discounted by approximately $41,000 to reflect the difference between interest
imputed at 10% and the expected royalty payments to be made.
<PAGE>
(3) Pro Forma Adjustments- Statements of Income
The following describes the adjustments made to reflect the transactions
described above as of the dates indicated in Note 1.
(a) These adjustments reflect the reduction of the operating revenues and
expenses for the sale of the Bagel Bar business.
(b) The pro forma sales and marketing expenses have been adjusted to reflect the
reduction in customer promotional expenses and corporate marketing expenses
which would have resulted had the Company disposed of the bagel bar business
as of the dates indicated in Note 1.
(4) Pro Forma Adjustments--Balance Sheet
(a) These adjustments reflect the sale of the Bagel Bar Business and the
receipt of the note receivable and assumption of certain liabilities in
consideration for the sale.
