As filed with the Securities and Exchange Commission on February 26, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RONNYBROOK FARM DAIRY, INC.
(Exact Name of Registrant as Specified in Its Charter)
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New York 2026 22-3071022
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Identification Number)
of Incorporation or Classification Code
Organization) Number)
Prospect Hill Road
Ancramdale, New York 12503
(518) 398-MILK
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Executive Offices)
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RICHARD A. OSOFSKY
President and Chief Executive Officer
RONNYBROOK FARM DAIRY, INC.
Prospect Hill Road
Ancramdale, New York 12503
(518) 398-MILK
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code
of Agent for Service)
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with a copy to:
JONATHAN D. MORSE SPENCER G. FELDMAN
Morse, Zelnick, Rose & Lander, Greenberg Traurig Hoffman
LLP Lipoff Rosen & Quentel
450 Park Avenue 200 Park Avenue, 15th Floor
New York, New York 10022 New York, New York 10166
(212) 838-1177 (212) 801-9200
(212) 838-9190 (Fax) (212) 801-6400 (Fax)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount Proposed Proposed Amount of
Securities to be Registered Being Maximum Maximum Registration
Registered Offering Aggregate Fee
Price Offering
Per Share (1) Price (1)
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Common Shares, par value
$0.001 per share (2) 690,000 $7.00 $4,830,000 $1,424.85
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Underwriter's Warrants 60,000 $0.001 $60 (3)
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Common Shares issuable upon
exercise of Underwriter's 60,000 $8.40 $504,000 $148.68
Warrants(4)
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Total Registration Fee $1,573.53
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes 90,000 Common Shares issuable upon exercise of the Underwriter's
over-allotment option.
(3) No registration fee required pursuant to Rule 457 under the Securities Act.
(4) Pursuant to Rule 416 of the Securities Act, there are also being registered
hereby such additional indeterminate number of Common Shares as may become
issuable pursuant to the anti-dilution provisions of the Underwriter's
Warrants.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
2
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 26, 1998
PROSPECTUS
600,000 Shares
RONNYBROOK FARM DAIRY, INC.
Common Stock
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This Prospectus relates to the offering (the "Offering") of 600,000 shares
of common stock (the "Shares"), par value $.001 per share (the "Common Shares"),
of Ronnybrook Farm Dairy, Inc., a New York corporation (the "Company"). Prior to
this Offering, there has been no public market for the Common Shares.
Application has been made to list the Common Shares for quotation on the Nasdaq
Stock Market's OTC Bulletin Board (the "Bulletin Board") under the symbol
"RONY." Even if the Common Shares are quoted on the Bulletin Board, there can be
no assurance that an active and liquid trading market will develop or, if
developed, that it will be sustained. It is currently anticipated that the
initial public offering price will be $ per Share. For a discussion of the
factors considered in determining the initial public offering price of the
Shares, see "Underwriting."
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 5 AND "DILUTION."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds to
Price to Public Discount (1) Company (2)
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Per Share ......... $ $ $
Total (3) ......... $ $ $
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(1) Does not include a non-accountable expense allowance payable by the Company
to National Securities Corporation, the underwriter (the "Underwriter"),
equal to 3% of the gross proceeds of the Offering, and the value of
five-year warrants (the "Underwriter's Warrants") to purchase up to an
aggregate of 60,000 Common Shares, at an exercise price of $ per share
(120% of the initial public offering price). The Company has agreed to
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $430,000, including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriter the option, exercisable within 45
days after the date of this Prospectus, to purchase from the Company up to
an aggregate of 90,000 additional Common Shares, on the same terms as set
forth above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------------------------
The Shares are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, and subject to certain
other conditions, including the right of the Underwriter to reject orders in
whole or in part. It is expected that delivery of the Shares will be made
against payment therefor at the office of the Underwriter in Seattle, Washington
on or about , 1998.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1998
<PAGE>
[ARTWORK TO BE FILED BY AMENDMENT]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABLILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE COMMON SHARES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACITVITIES, SEE "UNDERWRITING."
Ronnybrook(R) is a registered trademark of the Company.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus (i) assumes that the Over-Allotment
Option has not been exercised and (ii) reflects a 6,000-for-one split of each
outstanding Common Share prior to the completion of this Offering. See
"Capitalization - Recapitalization and Stock Split." The Shares offered hereby
involve a high degree of risk and investors should carefully consider the
information set forth under "Risk Factors" prior to making an investment in the
Shares.
The Company
Ronnybrook Farm Dairy, Inc. (the "Company") manufactures and markets
premium quality dairy products from farm-fresh raw milk under the Ronnybrook(R)
brand name in the New York metropolitan area, eastern Long Island, northern New
Jersey and in Columbia, Dutchess, Ulster, Rockland and Westchester counties, New
York. The Company's products include Creamline(R) whole milk and skim milk,
heavy cream and half-and-half packaged in traditional glass bottles, butter, ice
cream, yogurt and creme fraiche, and on a limited basis, assorted cheeses,
including mozzarella, farmer's cheese, cottage cheese and fromage blanc. During
the holiday season, the Company also produces eggnog. The Company sells its
products to (i) more than 150 supermarkets, specialty food stores and gourmet
delis, (ii) approximately 50 food service clients, including several of the most
highly-rated restaurants in New York City, (iii) the Culinary Institute of
America, and (iv) directly to the public at outdoor green markets, including the
Union Square green market in New York City, and at the Company's distribution
center at Chelsea Market in New York City.
The Company's business is based on management's belief that a growing
appreciation for freshness and concern over the purity and safety of food among
consumers has created a place in the agricultural landscape for local farm
dairies employing production techniques designed to yield high quality, better
tasting products which are distributed "fresh" to market. Ronnybrook dairy
products arrive to consumers in the Company's marketing area fresher than most
other dairy products. The raw milk used in Ronnybrook products is supplied on an
exclusive basis to the Company by Ronnybrook Farms in Ancramdale, New York, a
local dairy farm owned and operated by members of the Osofsky family since its
founding in 1941 (the "Osofsky Farm"). The brothers "Rick," "Sid" and "Ronny"
(the "Osofsky Brothers") are executive officers, directors and principal
shareholders of the Company. Most milk and other dairy products commercially
available in the Company's core market and throughout the United States are mass
produced by large regional dairies which purchase raw milk principally from
large farms and distribution cooperatives on a regional basis. The Company
believes that its Ronnybrook products are higher in quality than most other
commercially available dairy products because of the farming techniques used in
producing the raw milk it purchases, its production methods and the freshness of
its products when brought to market.
The Company's products routinely receive favorable reviews from local and
national newspapers and magazines. The New York Times (the "Times") described
Ronnybrook skim milk as "particularly rich-tasting" (July 24, 1991). Ronnybrook
whole chocolate flavored milk, described by the Times as the "Dom Perignon" of
chocolate flavored milk, was the only chocolate milk given the
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<PAGE>
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highest rating of "excellent" in a Times survey of ready-to-drink chocolate
flavored milk (September 8, 1993). The Times, in addition, described Ronnybrook
coffee milk as tasting like "melted coffee ice cream" (May 26, 1993) and
Ronnybrook half-and-half as having a "richer fresh cream flavor" than most other
brands without containing the additives contained in many brands (August 2,
1995). The Times labeled Ronnybrook eggnog a "rich, sumptuous indulgence" and
"one of the best commercial eggnogs" available. Ronnybrook sweet butter was
described by the Times as "very delicate" and Ronnybrook creme fraiche as "thick
and mildly tangy" (March 1, 1995). In March 1997, the Company introduced its ice
cream, which was selected by the New York Press as the best ice cream available
in New York City in its 1997 "Best of Manhattan" issue.
The Company believes that Ronnybrook products enjoy a reputation, among
those people who are familiar with its products, for being of the highest
quality and arriving to consumers "fresh-off-the-farm." The Company believes
that this reputation has spread principally by word-of-mouth and also as a
result of favorable press coverage, as marketing efforts to date have been very
limited. Pursuant to its proposed marketing plan, the Company will seek to build
upon the reputation of Ronnybrook products and create a strong brand identity,
making its products more widely recognizable.
The Company's initial goal is to increase its sales to specialty food
stores and gourmet deli's, through outdoor green markets, and to restaurants and
other food service customers in the Company's existing markets through
implementation of its marketing plan, and then to extend its distribution to
contiguous markets with high population concentrations, such as the Boston,
Philadelphia and Hartford areas, with a view to becoming the principal supplier
of premium quality dairy products to both consumers and food service customers
in the Northeast. If the Company can successfully implement its growth strategy
in the Northeast, the Company will seek to enter other markets through joint
venture, licensing or other arrangements with local dairy farms which the
Company believes would benefit significantly from selling their raw milk to
newly established local dairies that will produce and sell Ronnybrook(R) brand
milk products in their local markets. The key elements of the Company's growth
strategy to reach its goal include:
o Broaden Customer Base. The Company seeks to broaden its customer base by
offering Ronnybrook fluid milk products for sale in no-return containers
designed to evoke the Ronnybrook signature glass bottles (which are
returnable for a $1.00 refund).
o Increase Sales of Solid Milk Products. The Company seeks to increase its
sales of solid milk products, such as yogurt, ice cream and cheese, which
have greater profit margins, significantly longer shelf life and are more
cost effective to distribute than fluid milk products.
o Emphasize Local Production and Distribution. The Company's marketing
efforts will emphasize the local production and distribution of Ronnybrook
products, which begins with raising the milking herd on the Osofsky Farm
and results in premium quality products through the efforts of the Osofsky
Brothers. A significant portion of the proceeds of this Offering will be
used to fund the Company's marketing efforts.
The Company was incorporated in New York in October 1990. The Company's
principal executive offices and dairy are located at Prospect Hill Road,
Ancramdale, New York 12503, and its telephone number is (518) 398-MILK.
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<PAGE>
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The Offering
Shares Offered......................... 600,000 Shares
Offering Price......................... $ per Share
Common Shares Outstanding:
Before the Offering.............. 600,000 Common Shares
After the Offering............... 1,200,000 Common Shares (1)
Use of Proceeds........................ Development of no-return containers
for fluid dairy products; product
marketing, sales and distribution;
purchase of dairy plant equipment;
plant improvements; repayment of
certain indebtedness; development of a
signature store and free-standing
kiosk to be located in Grand Central
Terminal in New York City; and the
balance for working capital and
general corporate purposes. See "Use
of Proceeds."
Risk Factors and Dilution.............. The purchase of the Shares offered
hereby involves a high degree of risk
and immediate and substantial
dilution. See "Risk Factors" and
"Dilution."
Proposed Bulletin Board Symbol for
the Common Shares................ RONY
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(1) Does not include (i) 60,000 Common Shares reserved for issuance upon
exercise of the Underwriter's Warrants and (ii) 420,000 Common Shares
reserved for issuance pursuant to the Company's Stock Option Plan, of which
300,000 shares are issuable upon the exercise of options granted as of the
effective date of this Offering at exercise prices ranging from the initial
public offering price per Share to 140% thereof. See "Management - Stock
Option Plan."
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3
<PAGE>
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Summary Financial Data
The summary statement of operations data for the years ended December 31,
1997 and 1996, and the balance sheet data as of December 31, 1997 are derived
from the Financial Statements of the Company included elsewhere in this
Prospectus, which have been audited by Arthur Andersen LLP, independent public
accountants. The summary balance sheet data as of December 31, 1996 is derived
from the financial statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants, but which is not included in this
Prospectus. The summary statement of operations data for the year ended December
31, 1995, is derived from the Company's unaudited financial statements, which
include all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the results of operations
for the year then ended. The results of operations for the year ended December
31, 1997 are not necessarily indicative of the results that may be expected for
any future period. The financial data set forth below is qualified by reference
to, and should be read in conjunction with, the Company's Financial Statements
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this Prospectus.
Statements of Operations Data: Years Ended December 31,
----------------------------------------
1995 1996 1997
(unaudited) (audited) (audited)
------------ ------------ ------------
Net Sales........................... $933,646 $838,751 $842,734
Cost of sales....................... 589,135 497,354 522,168
------------ ------------ ------------
Gross Profit........................ 344,511 341,397 320,566
Operating expenses.................. 351,385 400,843 407,956
------------ ------------ ------------
Operating loss...................... (6,874) (59,446) (87,390)
Other income (expense).............. (8,430) (4,177) (27,782)
Loss from continuing operations..... (15,304) (63,623) (115,172)
Benefit for income taxes (1)........ -- -- --
------------ ------------ ------------
Net loss............................ $(15,304) $(63,623) $(115,172)
============ ============ ============
Basic net loss per share (3)........ $(0.03) $(0.11) $(0.19)
============ ============ ============
Weighted average Common Shares
outstanding......................... 600,000 600,000 600,000
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4
<PAGE>
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Balance Sheet Data: December 31, 1997
----------------------------------
Actual As Adjusted(2)
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Cash........................................ $ 285,581 $3,220,581
Working capital............................. 219,550 3,154,550
Total assets................................ 701,455 3,636,455
Total debt.................................. 670,705 255,705
Total shareholders' equity (deficit)........ (180,575) 3,169,425
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(1) Does not give pro forma effect to the Company's change in tax status from a
subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering as the Company is not entitled to the future
benefit of losses incurred prior to this election.
(2) Gives effect to the sale of 600,000 Shares offered hereby and the
application of the estimated net proceeds thereof (assuming an initial
public offering price of $7.00 per Share and after deducting the
underwriting discount and estimated expenses of this Offering). See "Use of
Proceeds."
(3) See Note 2 to the Company's Financial Statements.
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5
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby is speculative and involves a
high degree of risk. In addition to the other information contained in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Shares offered
hereby. Prospective investors should be in a position to risk the loss of their
entire investment.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, results of operations and
financial position. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements pursuant to the safe harbor
established in the Private Securities Litigation Reform Act of 1995. Prospective
investors are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
in this section and elsewhere in this Prospectus.
Limited Operating History and Operating Losses; Retained Deficit;
Shareholders' Deficit. The Company has not yet commenced significant marketing
of its products and, accordingly, its operating history provides only a limited
basis upon which to evaluate its prospects. The Company's prospects must be
considered in light of the risks, expenses, difficulties and problems frequently
encountered in establishing a new business in an industry characterized by
intense competition. Since the dairy commenced operations in 1991, the Company
has had only limited sales. During the years ended December 31, 1996 and 1997,
the Company had sales of $838,751 and $842,734, respectively. The Company's net
losses for the years ended December 31, 1996 and 1997 were $63,623 and $115,172,
respectively. There can be no assurance that the Company will operate profitably
in the future. Inasmuch as the Company intends to incur marketing and
promotional expenditures following consummation of this Offering, which will be
expensed as incurred, the Company's losses may increase and the Company will
continue to incur losses until such time, if ever, as product sales are
sufficient to offset the Company's operating costs, including the costs of
marketing and promotion. The Company believes that the generation of significant
additional revenues is dependent upon, among other things, the Company's ability
to market its products effectively in its existing markets and certain
contiguous expansion markets. There can be no assurance that the Company will be
able to implement its marketing strategy successfully to generate increased
revenues or achieve profitable operations. At December 31, 1997, the Company had
a retained deficit of $208,575 and a total shareholders' deficit of $180,575.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and "Consolidated Financial Statements."
Significant Liquidity Requirements; Dependence on Proceeds of this
Offering; Possible Need for Additional Financing. The Company's liquidity
requirements have been and will continue to be significant. The Company intends
to use approximately $750,000 (22%) of the net proceeds of this Offering for its
proposed marketing and promotional campaign, including the introduction of
no-return containers for its fluid milk products, and is dependent upon the
proceeds of this Offering to launch such campaign. The Company anticipates,
based on management's assumptions relating to its operations (including the
schedule of, and costs associated with, its proposed marketing and promotional
campaign), that the net proceeds of this Offering will be sufficient to satisfy
the
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<PAGE>
Company's contemplated cash requirements for at least 12 months following the
consummation of this Offering. In the event that the Company's plans or
assumptions change, its assumptions prove to be inaccurate, or if the proceeds
of this Offering, other capital resources and cash flow otherwise prove to be
insufficient to fund operations (due to the possible lack of market acceptance,
other unanticipated expenses, delays, problems or otherwise), the Company would
be required to seek additional financing or may be required to curtail its
activities. The Company has no current arrangements with respect to, or sources
of, additional financing and there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. Any
inability to obtain additional financing could have a material adverse effect on
the Company, including requiring the Company to postpone, limit or cancel future
marketing activities or curtail or cease its operations. To the extent that any
such financing involves the sale of the Company's equity securities, the
interests of the Company's then existing shareholders could be substantially
diluted. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Limited Market; Uncertainty of Market Acceptance. The Company is currently
selling its products principally in the New York metropolitan area, eastern Long
Island, northern New Jersey and in Westchester, Dutchess, Rockland, Ulster, and
Columbia counties, New York. Achieving market acceptance for the Company's
products, particularly in new markets, will require substantial marketing
efforts and the expenditure of significant funds. There is substantial risk that
the marketplace may not accept or be receptive to the Company's products. Market
acceptance of the Company's current and proposed products will depend, in large
part, upon the ability of the Company to inform potential customers that the
distinctive characteristics of its products make them superior to competitive
products and justify their premium pricing. There can be no assurance that the
Company's current and proposed products will be accepted by consumers or that
any of the Company's current or proposed products will be able to compete
effectively against other premium or non-premium dairy products. Lack of market
acceptance of the Company's products will have a material adverse effect on the
Company. See "Business-Competition" and "Brand Development and Marketing
Strategy."
Introduction of No-Return Containers. There is no assurance that the
Company will be able to successfully design or develop no-return containers for
packaging its fluid milk products on a timely or cost effective basis, if at
all. The Company believes that the introduction of no-return containers will
broaden its customer base and result in increased sales of its products, but
there is no assurance that this will be the case. Poor public reception of the
containers could adversely effect the Company's image and brand identity and
jeopardize the overall success of the Company's proposed marketing plan. See
"Business-Brand Development and Marketing Strategy."
Changing Consumer Preferences. As is the case with other companies
marketing dairy products, the Company is subject to changing consumer
preferences and nutritional and health-related concerns. The Company believes
that minimal processing and the absence of preservatives, additives, artificial
sweeteners or artificial flavorings increases the attractiveness of its products
to consumers. The Company has not, however, sought to certify its products as
organic. The Company's business could be affected by certain consumer concerns
about dairy products, such as the fat, cholesterol, calorie, sodium and lactose
content of such products, as well as by a desire of certain consumers to
purchase certified organic products. The Company could become subject to
increased competition from companies whose products or marketing strategies
address these consumer concerns. See "Business-Products" and "Competition."
Effect of Adverse Medical Research Relating to Milk and Demand for Milk.
Periodically, medical and other studies are released and announcements by
medical and other groups are made
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which raise concerns over the healthfulness of cow's milk in the human diet. To
date, the Company does not believe that any such study has had a material effect
on milk consumption rates. However, a study may be published or an announcement
made concerning the healthfulness of cow's milk which may result in a decrease
in demand for the Company's dairy products. Notwithstanding the aforementioned,
the Company believes, and certain studies suggest, that non-homogenized milk,
such as Ronnybrook Creamline milk, does not exhibit the unhealthful qualities
sometimes attributed to homogenized milk, including contribution to elevated
levels of cholesterol. See "Business-Production" and "-Products."
Limited Production Capacity. There is no assurance that the Company will
be able to increase its production capacity to a level sufficient to meet
anticipated increased demand for its products associated with its marketing and
promotional efforts. The Company currently manufactures dairy products at a rate
which utilizes approximately 15,000 pounds of raw milk per week. The Company
believes that it currently has the capacity, based on an assumed mix of
products, to manufacture dairy products at a rate which utilizes approximately
80,000 pounds of raw milk per week. Using the proceeds of this Offering, the
Company plans to purchase equipment and make improvements to its dairy plant
which, it believes, should increase its capacity to manufacture products to a
rate which utilizes approximately 250,000 pounds of raw milk per week. There is
no assurance, however, that the Company's contemplated improvements to its dairy
plant will increase production capacity to the level anticipated or that
production can be increased at a rate sufficient to meet anticipated increased
demand for its products. There can be no assurance, further, that the product
mix which the Company anticipates achieving and, therefore, which it has used in
determining the equipment requirements of its dairy plant will prove to be
accurate, making uncertain the future capacity of the dairy plant. Failure to
meet possible increased demand for its products, on a timely basis, could have a
material adverse effect on the Company's, business, operations and finances. See
"Business-Production."
Impact of Growth on Quality of Dairy Products. The Company's dairy
products are manufactured in small batches with milk from the Osofsky Farm. The
Company believes that the small batch production methods it employs and the
quality of the raw milk it uses contributes to the high quality of its dairy
products. There can be no assurance that the quality of the Company's dairy
products will be maintained at increased levels of production. Increased
production levels may cause the Company to modify its current manufacturing
methods and will necessitate the use of milk from sources other than the Osofsky
Farm. A decline in the quality of the Company's products could have a material
adverse effect on the Company's business, operations and finances. See "- Supply
of Raw Milk" and "Business-Production."
Risks Associated with Perishable Food Production. Dairy products are
highly perishable and must be transported timely and efficiently within a
precise temperature range. As a result, the Company is always subject to risk of
spoilage or contamination of its dairy products. In addition, food producers,
such as the Company, may be subject to claims for damages if contaminated food
causes injury to consumers. See "- Potential Product liability." In addition,
the delivery of contaminated food could adversely effect the Company's
reputation and have an adverse material effect on the Company's business,
operations and finances.
The Company's dairy products have a limited shelf life. Because it is not
practicable to hold excess inventory of perishable products, the Company's
results of operations are partly dependent on its ability to accurately forecast
its near-term sales in order to adjust its supply of products accordingly.
Failure to accurately forecast product demand could result in the Company either
being unable to meet higher than anticipated demand or producing excess
inventory that cannot be profitably sold. The
8
<PAGE>
inability of the Company to meet higher than anticipated demand or excess
production could have a material adverse effect on the Company's business,
operations and finances.
Limited Sales Force. The Company employs only one sales person, Ronny
Osofsky, who only devotes part of his time to the affairs of the Company and
also manages the Osofsky Farm. The Company anticipates hiring additional sales
people. There is no assurance that such hirings will result in increased sales.
The Company anticipates using independent dairy distributors to sell and
distribute its products in new contiguous expansion markets. The Company cannot
predict whether it will be able to obtain and maintain satisfactory sales and
distribution arrangements and the failure to do so could have a material adverse
effect on the Company's business, operations and finances "Business-Sales and
Distribution."
Limited Delivery Capacity; Delays in Delivery of Products. If sales
increase, there is no assurance that the Company will be able to deliver
increased product volumes on a timely and efficient basis. The Company currently
has two trucks for local deliveries in New York City (Manhattan and Brooklyn)
and on Long Island and anticipates purchasing additional trucks for distribution
in this area. Further, there can be no assurance that the Company will be able
to deliver its products "fresh" to customers on a consistent basis, especially
with increased product volumes, and a failure to do so could have a material
adverse effect on the Company's business, operations and finances. See "Business
- - Risks Associated with Perishable Food Production" and "Business-Sales and
Distribution."
Supply of Raw Milk. The raw milk used in Ronnybrook products is supplied
exclusively to the Company by the Osofsky Farm under an exclusive output
contract. The Company is currently purchasing raw milk from the Osofsky Farm at
an annual rate of approximately 800,000 pounds. The Company believes that the
Osofsky Farm can more than double its production of raw milk to an annual rate
of approximately 1.75 million pounds. The Company further believes, however,
that this supply may not be sufficient to meet increased demand for its products
associated with its proposed marketing efforts. The Company has obtained
non-binding letters of intent with two neighboring family farms which
contemplate that the Company will be able to acquire the milk output of these
farms estimated at 5,000,000 pounds a year. See "Business - Supply of Raw Milk."
The Company believes that the combined supply of raw milk from the Osofsky Farm
and these two neighboring farms should satisfy the Company's requirements for
raw milk for at least the next 12 months. Though the Company has obtained
letters of intent with these two farms, such letters are not legally binding and
there is no assurance that the Company will be able to enter into definitive
agreements or that the terms of such agreements, including the price to be paid
for raw milk, will be as favorable as those contained in the Company's agreement
with the Osofsky Farm. Though the Company believes that approximately 50,000,000
pounds of additional raw milk is available locally, if needed, there is no
assurance that the Company will be able to enter into arrangements with the
producers of such milk on terms acceptable to the Company, if at all. An
inadequate supply of raw milk will have a material adverse effect on the
Company's business, operations and finances. See "- Impact of Growth on Quality
of Dairy Products" and "Business - Supply of Raw Milk."
Possible Volatility of Raw Milk Costs. U.S. dairy policy since the
mid-1980s has focused on gradually reducing federal government involvement in
the dairy industry and moving the industry in a more market oriented direction.
In order to accomplish these goals, the federal government has targeted the
federal milk marketing order system and the milk price support program for
reform. These reforms have resulted in the potential for greater price
volatility relative to past periods, as prices are more responsive to the
fundamental supply and demand of the market. These changes in U.S. dairy policy
could increase the risk of price volatility in the dairy industry. There can be
no
9
<PAGE>
assurance that a material volatility in milk prices will not occur or that
any such volatility would not have a material adverse effect on the Company's
business, operations and finances. See "Business-Government Regulation."
Geographic Concentration; Fluctuations in Regional Economic Conditions.
Nearly all of the Company's sales are concentrated in the New York metropolitan
area, eastern Long Island, northern New Jersey and in Westchester, Rockland,
Ulster, Dutchess and Columbia counties, New York. Accordingly, the Company is
susceptible to fluctuations in its business caused by adverse economic
conditions in this region. The Company's products are priced higher than
non-premium quality dairy products. Although the Company believes that the
quality, freshness, flavor and absence of artificial ingredients of Ronnybrook
products compensate for this price differential, there can be no assurance that
consumers will be willing to pay more for such products in unfavorable economic
conditions, or at all. Difficult economic conditions in other geographic areas
into which the Company may expand may also adversely effect the Company's
business, operations and finances.
Dependence on Founders. The Company is highly dependent on the services of
Rick, Ronny and Sid Osofsky, and the loss of their services would have a
material adverse impact on the operations of the Company. The Osofsky Brothers
have been responsible for the development of the Company and the development and
marketing of its products. The Company has applied for key-man life insurance on
the lives of each of the Osofsky Brothers in the amount of $1,000,000.
Competition. The food business is highly competitive and, therefore, the
Company faces substantial competition in connection with the marketing and sale
of its products. In general, food products are price sensitive and affected by
many factors beyond the control of the Company, including changes in consumer
tastes, fluctuating commodity prices and changes in supply due to weather,
production, feed costs and natural disasters. The Company's products compete
with other premium quality dairy brands as well as less expensive, non-premium
brands. Ronnybrook milk faces competition from non-premium milk producers
distributing milk in the Company's marketing area; other milk producers
packaging their milk in glass bottles, including Meadowbrook, Chrone Dairy and
Juniper Farms, which serve portions of the Company's marketing area; and
certified organic milk producers, including the Organic Cow, based in Vermont,
and Horizon Organic Dairy, a national purveyor of organic milk and other dairy
products. Ronnybrook ice cream faces competition from Haagen-Dazs and Ben and
Jerry's, among other premium and non-premium brands. Ronnybrook yogurt faces
competition from Stonyfield Farms, Brown Cow and Horizon Dairy, among other
brands. Most of the Company's competitors are well established, have
substantially greater financial, marketing, personnel and other resources, have
been in business for longer periods of time than the Company, and have products
that have gained wide customer acceptance in the marketplace. The greater
financial resources of such competitors will permit them to procure supermarket
shelf space and to implement extensive marketing and promotional programs, both
generally and in direct response to advertising claims by the Company. The food
industry is also characterized by the frequent introduction of new products,
accompanied by substantial promotional campaigns. There can be no assurance that
the Company will be able to compete successfully or that competitors will not
develop products which will have superior qualities or which will gain wider
market acceptance than the Company's products. See "Business - Competition."
Consolidation of Dairy Industry. The Company established its dairy at a
time when local dairies were being consolidated into large regional dairies due
to excess capacity in the dairy industry. This consolidation trend is continuing
and the forces responsible for it, including increased efficiencies
10
<PAGE>
and economies of scale that are present in large regional dairies, may put the
Company at a competitive disadvantage.
Potential Product Liability Associated with Perishable Food Products. The
Company faces the risk of liability in connection with the sale and consumption
of Ronnybrook products should the consumption of such products cause injury,
illness or death. Such risks may be particularly great in a company undergoing
rapid and significant growth. The Company currently maintains product liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the
aggregate for any year, and has applied to increase this coverage to $5,000,000
per occurrence and $10,000,000 in the aggregate for any year. The Company also
maintains an umbrella policy in the amount of $1,000,000 per occurrence and
$1,000,000 in the aggregate for any year over and above the base product
liability coverage. There can be no assurance that such insurance will be
sufficient to cover potential claims or that the present level of coverage
maintained by the Company will be available in the future at a reasonable cost.
A partially or completely uninsured successful claim against the Company could
have a material adverse effect on the Company.
Government Regulation. The Company is subject to extensive regulation by
the United States Food and Drug Administration, the United States Department of
Agriculture, and by other state and local authorities in jurisdictions in which
the Company's products are processed or sold, regarding the processing,
packaging, storage, distribution and labeling of the Company's products.
Applicable statutes and regulations governing the Company's products include
nutritional labeling and serving size requirements; and general "Good
Manufacturing Practices" with respect to production processes. The Company's
processing facility and products are subject to periodic inspection by federal,
state and local authorities. The Company believes that it is currently in
substantial compliance with all material governmental laws and regulations and
maintains all material permits and licenses relating to its operations.
Nevertheless, there can be no assurance that the Company will continue to be in
substantial compliance with current laws and regulations, or whether the Company
will be able to comply with any future laws and regulations. To the extent that
new regulations are adopted, the Company will be required to conform its
activities in order to comply with such regulations. Failure by the Company to
comply with applicable laws and regulations could subject the Company to civil
remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions, which could have a material adverse effect on the
Company's business, operations and finances. See "Business-Government
Regulation."
Limited Trademark Protection. The Company has obtained trademark
registrations for the use of its oval logo with respect to its white milk,
chocolate milk and yogurt and for the use of "Creamline(R)" with respect to its
non-homogenized milk. The Company has applied to the United States Patent and
Trademark Office to expand the coverage of the trademark relating to its logo to
cover its use with respect to the Company's other products. The Company believes
these trademarks are important to the establishment of consumer recognition of
its products. However, there can be no assurance as to the breadth or degree of
protection that the trademarks may offer the Company, that the Company will have
the financial resources to defend the trademarks against any infringement, or
that such defense will be successful. Moreover, any events or conditions that
negatively impact the Company's trademarks could have a material adverse effect
on the Company's business, operations and finances.
Proprietary Knowledge and Absence of Patent Protection. The Company has no
patents covering its products or production processes and expects to rely
principally on know-how and the confidentiality of its formulae and production
processes for its products and its flavoring formulae in
11
<PAGE>
producing a competitive product line. There is no assurance that any of these
factors can be maintained or that they will afford the Company a meaningful
competitive advantage.
Continued Control by Management. Upon completion of this Offering the
directors and executive officers of the Company will beneficially own
approximately 33% of the Company's outstanding shares (46.8% if we were to
assume the exercise by the Osofsky Brothers of the options granted to them as of
the effective date of this Offering exercisable at prices ranging from the
initial public offering price to 140% thereof) and, accordingly, will be in a
position to effectively elect all of the Company's directors and control the
affairs of the Company. See "Principal Shareholders," "Description of Common
Shares" and "Management - Option Grants."
Immediate Substantial Dilution. Purchasers of the Common Shares offered
hereby will experience immediate and substantial dilution in net tangible book
value of $4.36 (62.3%) per Common Share from the assumed initial public offering
price of $7.00 per share. See "Dilution."
Absence of Dividends. The Company does not expect to pay cash or stock
dividends on its Common Shares in the foreseeable future. See "Dividend Policy."
No Prior Public Market; Listing on Electronic Bulletin Board;
Determination of Offering Price; Possible Volatility of Share Price. Prior to
this Offering, there has been no public trading market for the Common Shares.
Consequently, the initial public offering price of the Common Shares has been
determined by negotiations between the Company and the Underwriter. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Shares will be quoted on the OTC
Bulletin Board (the "Bulletin Board"), a Nasdaq sponsored and operated
inter-dealer automated quotation system for equity securities. The Bulletin
Board was introduced seven years ago as an alternative to the NQB Pink Sheets
published by the National Quotation Bureau Incorporated for the trading of
over-the-counter securities. There can be no assurance that the Bulletin Board
will be recognized by the brokerage community as an acceptable alternative to
quotation on Nasdaq or in the NQB Pink Sheets. In the absence of such
recognition, the liquidity and price of the Shares in the secondary market may
be adversely affected, and there can be no assurance that a public market for
the Shares will develop or, if developed, that it will be sustained. The market
price of the Company's securities following this Offering also may be highly
volatile. There have been periods of extreme fluctuation in the stock market
that, in many cases, were unrelated to the operating performance of, or
announcements concerning, the issuers of the affected securities. Securities of
issuers having relatively limited capitalization or securities recently issued
in a public offering are particularly susceptible to fluctuation based on
short-term trading strategies of certain investors. Although the initial public
offering price of the Common Shares reflects the Company's and the Underwriter's
assessment of current market conditions, there can be no assurance that the
price of the Company's Common Shares will be maintained following the Offering.
See "Underwriting."
Shares Eligible for Future Sale. Sale of a substantial number of the
Company's Common Shares in the public market after this Offering or the
perception that such sales may occur could adversely affect the market price of
the Common Shares. The 600,000 Common Shares presently outstanding are
"restricted" securities within the meaning of Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"), and may be sold under the conditions
of such rule, including satisfaction of certain holding period requirements.
Holders of these shares have executed or are expected to execute agreements
pursuant to which they may not sell or otherwise dispose of their shares for a
period of 13 months after the date of this Prospectus without the prior written
consent of the Underwriter (the "Lock-Up Agreements"). Without considering the
Lock-Up Agreements,
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<PAGE>
475,800 of the Common Shares presently outstanding will become eligible for sale
in the public market in reliance on Rule 144 beginning 90 days after the date of
this Prospectus. The sale or availability for sale of significant quantities of
Common Shares could adversely affect the market price of the Common Shares. See
"Shares Eligible for Future Sale."
Issuance of Common Shares without Shareholder Approval. Following this
Offering, the Company will have 10,000,000 authorized Common Shares, of which
1,200,000 will be issued and outstanding. Management will have broad discretion
with respect to the issuance of the 8,800,000 authorized but unissued shares,
including discretion to issue such shares in compensatory and acquisition
transactions.
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability
of Common Shares. The Commission has adopted regulations which generally define
"penny stock" to be any equity security that has a market price (as defined) of
less than $5.00 per share, subject to certain exceptions. Accordingly, the
Shares offered hereby may become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such Shares to persons other
than established customers and accredited investors (generally, those persons
with assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse). For transactions covered by these rules,
the broker-dealer must make a special suitability determination for the purchase
of the Shares and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
"penny stock", unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the Commission relating
to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the "penny stock" held in the account
and information on the limited market in "penny stocks." Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
Shares, severely limit the market price of the Shares and may affect the ability
of purchasers in this Offering to sell the Shares in the secondary market.
Stock Options Outstanding. Upon completion of this Offering, the Company
will have outstanding stock options to purchase an aggregate of 300,000 Common
Shares at exercise prices ranging from the initial public offering price to 140%
thereof. These options are likely to be exercised, if at all, at a time when the
Company otherwise could obtain a price for the sale of Common Shares which is
higher than the option exercise price per share. Such exercise or the
possibility of such exercise may impede the Company if it later seeks financing
through the sale of additional securities.
Underwriter's Warrants. Following completion of this Offering, the
Underwriter will hold Underwriter's Warrants to purchase 60,000 Common Shares.
The existence of the Underwriter's Warrants may prove to be a hindrance to
future financing by the Company. Further, the holders of such warrants may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company and have the
opportunity to benefit from increases in the price of Common Shares without risk
of an equity investment. The Company has agreed to register under federal and
state securities laws the Common Shares underlying the Underwriter's Warrants
for resale at the request of the Underwriter at any time during the period in
which the Underwriter's Warrants are exercisable. Such registration rights could
involve substantial
13
<PAGE>
expense to the Company at a time when it could not afford such expenditures and
may adversely affect the terms upon which the Company may obtain additional
financing. See "Underwriting."
Underwriter Influence on the Market. A significant number of the Common
Shares offered hereby may be sold to customers of the Underwriter. Such
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriter. Although it has no obligation
to do so, the Underwriter intends to make a market in the Company's Common
Shares and may otherwise effect transactions in such securities. If it
participates in such market, the Underwriter may exert a dominating influence on
the market, if one develops, for the Common Shares. Such market-making activity
may be discontinued at any time. Moreover, if the Underwriter exercises the
Underwriter's Warrants, it may be required under the Securities Exchange Act of
1934, as amended, to temporarily suspend its market-making activities. The price
and liquidity of the Common Shares may be significantly affected by the degree,
if any, of the Underwriter's participation in such market. See "Underwriting."
Limitation of Liability of Officers and Directors. The Company's
Certificate of Incorporation includes provisions to eliminate, to the full
extent permitted by the New York Business Corporation Law as in effect from time
to time, the personal liability of directors of the Company for monetary damages
arising form a breach of their fiduciary duties as directors. The Certificate of
Incorporation also includes provisions to the effect that the Company shall, to
the maximum extent permitted from time to time under the law of the State of New
York, indemnify any director or officer to the extent that such indemnification
is permitted under such law, as it may from time to time be in effect.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 600,000 Shares
offered hereby, based upon an assumed initial public offering price of $7.00 per
share, after deduction of the estimated underwriting discount of $420,000 and
estimated offering expenses of $430,000, are estimated to be approximately
$3,350,000 ($3,917,000 if the Over-Allotment Option is exercised in full). The
Company intends to apply the net proceeds as follows:
Amount Percentage
------------ ------------
Purchase of dairy product manufacturing equipment $ 610,000 18.2%
Marketing, sales and distribution activities.... 600,000 17.9%
Repayment of indebtedness....................... 415,000 12.4%
Plant improvements.............................. 175,000 5.2%
Development of no-return milk containers........ 150,000 4.5%
Development of signature store and free-standing 100,000 3.0%
kiosk in Grand
Central Terminal and improvement of Chelsea
Market facility.................................
General corporate purposes and working capital.. 1,300,000 38.8%
============ ============
$ 3,350,000 100.0%
============ ============
Dairy product manufacturing equipment includes holding vats, pasteurizers,
yogurt fillers and a continuous fill freezer for manufacturing ice cream.
Further, the Company intends to expand its dairy plant building in order to
house the additional equipment.
Marketing activities include redesigning packaging of non-fluid products
to better promote the Ronnybrook premium quality image, developing trade
materials, including four-color trade sell sheets and brochures, retail
advertising, including print and other media, and focused public relations
activities.
Sales and distribution activities include hiring additional sales people
for the greater New York metropolitan area and acquiring additional delivery
trucks to distribute products in this region, as well as contracting with dairy
distributors to sell and distribute products in new markets contiguous to the
Company's current markets.
Net proceeds of $400,000 will be used to repay the outstanding principal
balance on a 12% unsecured promissory note issued in November 1997 to FAI
Overseas Investments PTY Limited, an unaffiliated entity. The promissory note
matures on the earlier of (a) three days after the completion of this Offering
or (b) April 30, 1999. Interest on the note, estimated to be approximately
$15,000 at the anticipated time of repayment, is payable semiannually. The
proceeds of this note provided funds for the purchase of dairy product
manufacturing equipment, a delivery truck and working capital.
The development of no-return milk containers involves either identifying
existing quart, pint and one-half pint sized containers suitable for use by the
Company and/or designing and manufacturing customized containers in these sizes.
The Company is evaluating containers made of glass, plastic and paperboard. If
the Company identifies existing containers, it would need to design appropriate
labeling which may either be printed on the containers or on a label which may
be affixed to the containers. Designing customized no-return glass or plastic
containers would involve having unit cavities fabricated for initial evaluation
and testing of the designs, having production-ready injection molds fabricated
and tooling production equipment.
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<PAGE>
The development of a signature store and free-standing kiosk at Grand
Central Terminal involves designing such facilities, including their signage,
and equipping the store. Improvement of the Chelsea Market facility includes
expansion and reconfiguration of the retail sales area as well as the
installation of a freezer.
The Company believes that the estimated net proceeds to be received by the
Company from this Offering will be sufficient to meet the Company's contemplated
cash requirements for a period of at least 12 months following the date of this
Prospectus. Thereafter, if the Company has insufficient funds for its needs,
there can be no assurance that additional funds can be obtained on acceptable
terms, if at all. If necessary funds are not available, the Company's business
would be materially and adversely affected.
Pending such uses as are described above, the net proceeds will be
invested in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Shares and does not anticipate paying any such dividends in the foreseeable
future. The Company intends to retain future earnings, if any, to fund ongoing
operations and future capital requirements of its business.
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<PAGE>
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalization of the Company as of December 31, 1997 (i) on an actual basis and
(ii) as adjusted, giving effect to the sale of 600,000 Shares offered hereby at
an assumed initial public offering price of $7.00 per Share (after deduction of
the underwriting discount and estimated expenses of the Offering) and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." This table should be read in conjunction with the Company's financial
statements and the notes thereto, included elsewhere in this Prospectus.
December 31, 1997
---------------------------------
Actual As Adjusted
--------------- ---------------
Current portion of long-term debt (1).... $ 49,747 $ 49,747
=============== ===============
Long-term debt (less current portion).... $ 620,958 $ 205,958
Shareholders' equity (deficiency):
Common Shares, $.001, par value;
10,000,000 shares authorized;
600,000 issued and outstanding
and 1,200,000 issued and
outstanding, as adjusted (2)........ 600 1,200
Additional paid-in capital............ 27,400 3,376,800
Retained deficit...................... (208,575) (208,575)
--------------- ---------------
Total shareholders' equity
(deficit)...................... (180,575) 3,169,425
--------------- ---------------
Total capitalization...... $440,383 $3,375,383
=============== ===============
- -------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" and Note 4 to the Company's
Financial Statements.
(2) Does not include (i) 60,000 Common Shares reserved for issuance upon
exercise of the Underwriter's Warrants and (ii) 420,000 Common Shares
reserved for issuance pursuant to the Company's Stock Option Plan of which
300,000 shares are issuable upon the exercise of options granted as of the
effective date of this Offering at exercise prices ranging from the initial
public offering price per Share to 140% thereof. See "Management-Stock
Option Plan" and "Underwriting."
Recapitalization and Stock Split
On January 1, 1998 the shareholders approved an amendment to the Company's
Certificate of Incorporation increasing the Company's authorized capital stock
to 10,000,000 Common Shares, par value $.001 per share, and reclassifying and
changing each previously outstanding Common Share into 6,000 Common Shares. The
Company's Amended and Restated Certificate of Incorporation, which reflects such
authorized capital stock, will be filed prior to the closing of this Offering.
Unless otherwise indicated, all references to historical earnings per share, and
number and class of shares outstanding, are as adjusted for the aforesaid
recapitalization and stock split of the Company's capital stock.
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<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1997, was
approximately $(180,575) or $(.30) per Common Share. Net tangible book value per
share is equal to the Company's total tangible assets less total liabilities,
divided by the total number of Common Shares outstanding. After giving effect to
the sale of 600,000 Shares offered hereby at an assumed initial public offering
price of $7.00 per Share (after deducting the underwriting discount and
estimated expenses of this Offering), the pro forma net tangible book value of
the Company as of December 31, 1997 would have been approximately $3,169,425 or
$2.64 per share. This represents an immediate increase in pro forma net tangible
book value of $2.94 per share to existing shareholders and an immediate dilution
of $4.36 per share (62.3%) to new investors. Dilution is determined by
subtracting (i) pro forma net tangible book value per share after this Offering
from (ii) the amount of cash paid by a new investor for a Common Share. The
following table illustrates this per share dilution:
Proposed public offering price per Common Share.... $7.00
Net tangible book value per share before Offering $(.30)
Increase in net tangible book value per share
attributable $2.94
--------
to new investors.............................
Pro forma net tangible book value per share after $2.64
--------
Offering (1).......................................
Dilution to new investors.......................... $4.36
========
- ---------------------
(1) Does not give effect to the issuance of (i) 420,000 Common Shares reserved
for issuance pursuant to the Company's Stock Option Plan, of which 300,000
shares are issuable upon the exercise of options granted as of the effective
date of this Offering at exercise prices equal to or exceeding the initial
public offering price per share; and (ii) 60,000 Common Shares issuable upon
exercise of the Underwriter's Warrants. See "Management - Stock Option Plan"
and "Underwriting."
The following table sets forth as of December 31, 1997, the number and
percentage of shares purchased, and the amount and percentage of consideration
paid, by existing shareholders for Common Shares purchased from the Company for
cash and by new investors at the assumed initial public offering price of $7.00
per share (before deduction of the underwriting discount and estimated offering
expenses):
Shares Purchased Total Consideration
---------------- ------------------- Average
Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
Existing Shareholders (1).. 600,000 50.0% $ 28,000 0.7% $ 0.05
Public Investors (1)....... 600,000 50.0% 4,200,000 99.3% $ 7.00
--------- ------- ----------- -------
Total................... 1,200,000 100.0% $4,228,000 100.0%
========= ======= =========== =======
- -----------------
(1) Does not give effect to the exercise of the options and warrants described
in footnote 1 to the immediately preceding table.
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<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data for the years ended December 31,
1997 and 1996, and the balance sheet data as of December 31, 1997 are derived
from the Financial Statements of the Company included elsewhere in this
Prospectus, which have been audited by Arthur Andersen LLP, independent public
accountants. The selected balance sheet data as of December 31, 1996 is derived
from the financial statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants, but which is not included in this
Prospectus. The selected statement of operations data for the year ended
December 31, 1995, is derived from the Company's unaudited financial statements,
which include all adjustments, consisting of normal recurring adjustments, which
the Company considers necessary for a fair presentation of the results of
operations for the year then ended. The results of operations for the year ended
December 31, 1997 are not necessarily indicative of the results that may be
expected for any future period. The financial data set forth below is qualified
by reference to, and should be read in conjunction with, the Company's Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
Prospectus.
Statements of Operations Data: Years Ended December 31,
-------------------------------------------
1995 1996 1997
(unaudited) (audited) (audited)
------------- -------------- ------------
Net Sales........................ $933,646 $ 838,751 $ 842,734
Cost of sales.................... 589,135 497,354 522,168
------------- -------------- ------------
Gross Profit..................... 344,511 341,397 320,566
Operating expenses............... 351,385 400,843 407,956
------------- -------------- ------------
Operating loss................... (6,874) (59,446) (87,390)
Other income (expense)........... (8,430) (4,177) (27,782)
------------- -------------- ------------
Loss from continuing operations.. (15,304) (63,623) (115,172)
Benefit for income taxes(1)...... -- -- --
------------- -------------- ------------
Net Loss......................... $(15,304) $ (63,623) $(115,172)
============= ============== ============
Basic net loss per share(3)...... $ (0.03) $ (0.11) $ (0.19)
============= ============== ============
Weighted average Common
Shares outstanding............ 600,000 600,000 600,000
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Balance Sheet Data: At December 31,
-----------------------------------------
1996 1997
----------- ----------------------------
As
Actual Actual Adjusted(2)
----------- ------------- -------------
Cash.................................. $ 1,118 $ 285,581 $3,220,581
Working capital (deficit)............. (84,311) 219,550 3,154,550
Total assets.......................... 216,668 701,455 3,636,455
Total debt............................ 122,569 670,705 255,705
Total shareholders' equity (deficit).. (65,403) (180,575) 3,169,425
(1) Does not give pro forma effect to the Company's change in tax status from a
subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering as the Company is not entitled to the future
benefit of losses incurred prior to this election.
(2) Gives effect to the sale of 600,000 Shares offered hereby and the
application of the estimated net proceeds thereof (assuming an initial
public offering price of $7.00 per Share and after deducting the
underwriting discount and estimated expenses of this Offering). See "Use of
Proceeds."
(3) See Note 2 to the Company's Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this Prospectus.
In addition to the historical information contained herein, the discussion in
this Prospectus contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as applicable to all forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section and
in "Risk Factors."
Overview
The Company manufactures and markets premium quality dairy products from
farm-fresh raw milk under the Ronnybrook(R) brand name in the New York
metropolitan area, eastern Long Island, northern New Jersey and in Columbia,
Ulster, Rockland and Dutchess counties, New York. The Company's products include
Creamline(R) whole milk and skim milk, heavy cream and half-and-half packaged in
traditional glass bottles, butter, ice cream, yogurt and creme fraiche, and, on
a limited basis, assorted cheeses, including mozzarella, farmer's cheese,
cottage cheese and fromage blanc. During the holiday season, the Company also
produces eggnog. The Company sells its products to (i) more than 150
supermarkets, specialty food stores and gourmet delis, (ii) approximately 50
food service clients, including several of the most highly-rated restaurants in
New York City, (iii) the Culinary Institute of America, and (iv) directly to the
public at outdoor green markets, including the Union Square green market in New
York City, and at the Company's distribution center and retail outlet at Chelsea
Market in New York City.
Revenue on sales of bottled milk and other products is recognized upon
delivery to customers.
Results of Operations
Year ended December 31, 1997 Compared to Year ended December 31, 1996
Net Sales
Net sales for the year ended December 31, 1997 were $842,734, a slight
increase over the net sales for the year ended December 31, 1996 of $838,751.
The mix of products sold shifted as the sale of fluid milk declined from 80.5%
of net sales in 1996 to 70.4% for 1997. The sale of ice cream rose from 2.8% of
net sales in 1996 to 9.7% in 1997. The sale of yogurt also increased from 0.5%
of net sales in 1996 to 3.2% in 1997. This shift in mix is consistent with the
Company's objective to increase its sales of solid milk products, which have
greater profit margins, significantly longer shelf life and are more cost
effective to distribute than its fluid milk products.
Cost of Goods Sold
Cost of goods sold as a percent of net sales increased from 59.3% in 1996
to 62.0% in 1997. Most of the additional costs were incurred in the rental of
additional facilities and hiring of additional labor to increase ice cream
production. In 1996, the Company began to implement its strategy of
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increasing sales of higher margin solid milk products. The Company decided to
increase its sales of ice cream as the first of such products. During 1997, the
Company was in transition with regard to its ice cream business, having added
the required facilities and labor, but not yet having achieved the requisite
sales volume to generate the Company's targeted gross profit margin, which
contributed to the Company's increased cost of goods as a percentage of sales
for that year.
Operating Expenses
The Company's operating expenses increased from 47.8% of net sales in 1996
to 48.4% of net sales in 1997. Most of the increase was due to increases in
compensation and advertising and promotion expenses related to the Company's
objective to increase its sales of ice cream. Increased compensation was for a
sales person and for a manager at the Company's facility at Chelsea Market in
New York City. Other operating expenses were approximately the same as in the
prior year.
Operating Loss
The Company's operating loss increased from $59,446 or 7.1% of net sales
in 1996, to $87,390 or 10.4% of net sales in 1997. This increase resulted
primarily from the increases in cost of goods sold and operating expenses due to
the Company's investment in additional facilities and staff to support its
efforts to introduce its ice cream line.
Other Income (Expenses)
Other income of $5,479 in 1996 was derived primarily from subletting space
in the Company's rented ice cream production facility. This rental income will
not recur as the Company requires the space for ice cream production. Interest
expense increased from 1.2% of net sales in 1996 to 3.3% of net sales in 1997,
due to additional borrowing principally for working capital.
Net Income (Loss)
The Company reported a net loss of $63,623 or 7.6% of net sales in 1996,
and a net loss of $115,172 or 13.7% of net sales for 1997. This increase was
primarily due to the additional expenses related to the Company's efforts to
introduce its ice cream line.
Liquidity and Capital Resources
As of December 31, 1997, the Company had a negative net worth of $180,575
and total indebtedness of $654,405 consisting of long term debt and the current
portion of long term debt. At the effective date of this Offering, $415,000 of
the long term debt will be repaid leaving a balance of $255,705, including the
current portion. See Note 4 in the Notes to Financial Statements for a detailed
schedule of long-term debt.
Historically, the working capital needs of the Company have been met with
cash flow from operations along with capital and borrowings from the principal
shareholders and others. Net cash provided by operations was $22,373 in 1996.
For the year ended December 31, 1997, net cash used in operations was $187,182.
Investment in plant and equipment was $27,348 in 1996 and $76,491 in 1997. Cash
flow from financing activities increased from $3,678 in 1996 to $548,136 in
1997, due to increased borrowings.
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The Company believes that the net proceeds of $3,350,000 to be received
from this Offering, will be sufficient to satisfy the Company's contemplated
cash requirements for a period of at least 12 months. See also Notes 1 and 8 to
the Company's Financial Statements.
Although the Company incurred losses from operations for the three years
ended December 31, 1997, since the Company's tax status during those years was
that of a subchapter "S" corporation, the Company is not entitled to the future
tax benefit of such losses.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology for the Year 2000 compliance. The Company does not expect that the
cost to modify its information technology infrastructure to be Year 2000
compliant will be material to its financial condition or results of operations.
The Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
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<PAGE>
BUSINESS
Overview
The Company manufactures and markets premium quality dairy products from
farm-fresh raw milk under the Ronnybrook(R) brand name in the New York
metropolitan area, eastern Long Island, northern New Jersey and in Columbia,
Ulster, Rockland and Dutchess counties, New York. The Company's products include
Creamline(R) whole milk and skim milk, heavy cream and half-and-half packaged in
traditional glass bottles, butter, ice cream, yogurt and creme fraiche, and, on
a limited basis, assorted cheeses, including mozzarella, farmer's cheese,
cottage cheese and fromage blanc. During the holiday season, the Company also
produces eggnog. The Company sells its products to (i) more than 150
supermarkets, specialty food stores and gourmet delis, (ii) approximately 50
food service clients, including several of the most highly-rated restaurants in
New York City, (iii) the Culinary Institute of America, and (iv) directly to the
public at outdoor green markets, including the Union Square green market in New
York City, and at the Company's distribution center and retail outlet at Chelsea
Market in New York City.
The Company's business is based on management's belief that a growing
appreciation for freshness and concern over the purity and safety of food among
consumers has created a place in the agricultural landscape for local farm
dairies employing production techniques designed to yield high quality, better
tasting products which are distributed "fresh" to market. Ronnybrook dairy
products arrive to consumers in the Company's marketing area fresher than most
other dairy products. The raw milk used in Ronnybrook products is supplied on an
exclusive basis to the Company by Ronnybrook Farms in Ancramdale, New York, a
local dairy farm owned and operated by members of the Osofsky family since its
founding in 1941 (the "Osofsky Farm"). The brothers "Rick," "Sid" and "Ronny"
(the "Osofsky Brothers") are executive officers, directors and principal
shareholders of the Company. See "Management" and "Principal Shareholders." Most
milk and other dairy products commercially available in the Company's core
market and throughout the United States are mass produced by large regional
dairies which purchase raw milk principally from large farms and distribution
cooperatives on a regional basis. The Company believes that its Ronnybrook
products are higher in quality than most other commercially available dairy
products because of the farming techniques used in producing its raw milk, its
small batch production methods and the freshness of its products when brought to
market.
History and Philosophy of the Company
The Company opened its dairy and began manufacturing and selling its
Ronnybrook dairy products made with raw milk from the Osofsky Farm in 1991. The
Company commenced operations at a time when local dairies were being
consolidated into large regional dairies which obtained their milk principally
from large farms and milk cooperatives, often located at considerable distances
from the markets served by these regional dairies. In the past 15 years,
according to the Massachusetts Department of Food and Agricultural, the number
of dairy farms in New York State has halved, from 18,000 in 1983 to 9,000 today
(Newsday, February 9, 1998). As a result of these dairy closures, the Osofsky
Farm, as most dairy farms in New York State do today, sold its raw milk in bulk
to milk distribution cooperatives which then processed it for sale to large
regional dairies. As a result of this consolidation trend, most milk consumed in
the greater New York metropolitan area contains milk produced on farms located
throughout New York State, Pennsylvania and New Jersey. When prices paid for raw
milk by distribution cooperatives declined to levels which threatened the
viability of the Osofsky Farm, the Osofsky Brothers decided to open their own
dairy. They believed that the dairy's success would be driven by consumers'
growing appreciation for freshness and concern over the purity
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and safety of food which, in turn, creates an opportunity in the agricultural
landscape for local farm dairies using production techniques designed to yield
high quality products which are distributed "fresh" to market. See "The Premium
Quality Dairy Product Market."
The Premium Quality Dairy Industry
Natural Foods. The Company's products are "natural foods." Natural foods
are foods which are minimally processed, free of artificial ingredients,
preservatives and other non-naturally occurring chemicals, and are as near to
their whole, natural state as possible. Retail sales in the natural products
market were estimated by Natural Foods Merchandiser at $11.5 billion in 1996
(including vitamin and mineral supplements, grocery products, produce and health
and beauty aids). The Company believes that this market is sustained by several
factors, including (i) consumer concern over the purity and safety of foods due
to the prevalence of artificial ingredients and other chemicals, (ii) consumer
awareness of the link between diet and health, and (iii) consumer awareness of
environmental issues. Independent research reveals that 62% of all adults are
highly concerned about food content and that 58% of all adults purchased at
least one natural food item in the last year. According to ACNielsen, natural
food consumers are generally better educated and more affluent than average
consumers, as well as brand-loyal. The proliferation of natural food
supermarkets, including Whole Foods and Wild Oats, are helping to fuel industry
growth.
Super Premium Ice Cream Market. The super premium ice cream segment of the
frozen dessert market has shown strong growth in recent years despite diet
conscious consumers. According to figures from the International Ice Cream
Association's Ice Cream Research Project, retail ice cream sales for the year
ended September 27, 1997 rose 7.8% to $2.6 billion and accounted for 83.5% of
the frozen dairy product market. Super premium ice cream showed the strongest
growth among ice cream price segments for the 52 weeks ended October 12, 1997,
with its market share growing to 9.35% of ice cream sales, an increase of 15.9%.
Super premium ice cream is generally characterized by a greater richness
and density than other kinds of ice cream. It has a butter fat content of at
least 16% and a volume which does not exceed the volume of ice cream mix used by
more than 50% ("overrun"). Super premium ice cream is generally sold at retail
for prices ranging from $2.90 to $4.50 per packaged pint. This category of ice
cream was created in 1959 by Haagen-Dazs and later expanded by Ben & Jerry's.
According to available information, Haagen-Dazs had annual sales in 1994
exceeding $900 million with Ben & Jerry's reporting sales in 1996 in excess of
$167 million.
Super premium ice cream is generally marketed by emphasizing quality,
flavor selection, texture and brand image. Other types of ice cream are largely
marketed on the basis of price.
Growth Strategy
The Company believes that Ronnybrook products enjoy a reputation, among
those people who are familiar with its products, for being of the highest
quality and arriving to consumers "fresh-off-the-farm." The Company believes
that this reputation has spread principally by word-of-mouth and also as a
result of favorable press coverage, as marketing efforts to date have been very
limited. Pursuant to its proposed marketing plan, the Company will seek to build
upon the reputation of Ronnybrook products and create a strong brand identity,
making its products more widely recognizable.
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<PAGE>
The Company's initial goal is to increase its sales to specialty food
stores and gourmet deli's, through outdoor green markets, and to restaurants and
other food service customers in the Company's existing markets through
implementation of its marketing plan, and then to extend its distribution to
contiguous markets with high population concentrations, such as the Boston,
Philadelphia and Hartford areas, with a view to becoming the principal supplier
of premium quality dairy products to both consumers and food service customers
in the Northeast. If the Company can successfully implement its growth strategy
in the Northeast, the Company will seek to enter other markets through joint
venture, licensing or other arrangements with local dairy farms which the
Company believes would benefit significantly from selling their raw milk to
newly established local dairies that will produce and sell Ronnybrook(R) brand
milk products in their local markets. The key elements of the Company's growth
strategy to reach its goal include:
o Broaden Customer Base. The Company seeks to broaden its customer base by
offering Ronnybrook fluid milk products for sale in no-return containers
designed to evoke the Ronnybrook signature glass bottles (which are
returnable for a $1.00 refund).
o Increase Sales of Solid Milk Products. The Company seeks to increase its
sales of solid milk products, such as yogurt, ice cream and cheese, which
have greater profit margins, significantly longer shelf life and are more
cost effective to distribute than fluid milk products.
o Emphasize Local Production and Distribution. The Company's marketing
efforts will emphasize the local production and distribution of Ronnybrook
products, which begins with raising the milking herd on the Osofsky Farm
and results in premium quality products through the efforts of the Osofsky
Brothers.
See "Business-History and Philosophy of the Company," "Production" and "Brand
Development and Marketing Strategy." A significant portion of the proceeds of
this Offering will be used to fund the Company's marketing efforts. See "Use of
Proceeds."
Dairy Products
Product Mix. Milk sales account for the Company's single greatest source
of revenue. For the year ended December 31, 1997, approximately 75%+ of the
Company's revenues were derived from the sale of milk packaged in glass bottles.
The following table sets forth the revenues derived from the Company's products
for the year ended December 31, 1997:
Product Percentage of Revenues
Fluid milk 75%+
Ice cream 10%
Butter 7%
Yogurt 3%
Eggnog 2%
Creme fraiche 2%
Soft cheeses *
Heavy cream *
- ---------
+ Includes revenues derived from unreturned glass bottles accounting for
approximately 9% of the Company's revenues in 1997.
* Less than 1%.
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Creamline Milk. Ronnybrook Creamline milk is whole milk produced the "old
fashioned" way, pasteurized but not homogenized, so that the cream slowly rises
to the top. Studies have suggested that milk which is not homogenized is better
for one's health than homogenized milk. Homogenization breaks down the fat in
whole milk so that the cream does not separate out. The smaller fat particles,
however, are believed to be more readily absorbed than fat in non-homogenized
products and therefore may contribute to elevated levels of cholesterol.
Ronnybrook Creamline milk is packaged in quart and one-half liter sized
returnable glass bottles which are sold at retail for an average price of $1.95
and $1.50, respectively, plus $1 for the bottle.
Skim Milk. Ronnybrook skim milk is simply non-homogenized Creamline milk
with all the cream removed. The Times has described it as "particularly rich
tasting" and consumers have said that it tastes more like higher fat-content
milk. Ronnybrook skim milk is packaged in quart and one-half liter sized
returnable glass bottles which are sold at retail for an average price of $1.95
and $1.50, respectively, plus $1 for the bottle.
Chocolate Milk. Ronnybrook chocolate milk has been described by the Times
as the Dom Perignon of chocolate milk and was the only chocolate milk to receive
the highest rating of "excellent" in a Times survey of ready-to-drink chocolate
milk. Ronnybrook chocolate milk, the Company believes, is the only all-natural
ready-to-drink chocolate milk available on the market. It is made with natural
cocoa (not processed with alkali), sugar, vanilla and carrageenan, which is made
from seaweed. Ronnybrook chocolate milk is available as both a whole Creamline
and as a skim milk product. It is packaged in quart and one-half liter sized
returnable glass bottles which are sold at retail for an average price of $3.50
and $1.65, respectively, plus $1 for the bottle.
Coffee Milk. Ronnybrook coffee milk tastes more like melted coffee ice
cream than iced coffee, reports the Times. It is made from decaffeinated
Brazilian roast coffee, sucannat (which is an unrefined sugar) and chicory root
extract. It is made both with whole Creamline milk and skim milk. Ronnybrook
coffee milk is packaged in quart and one-half liter sized returnable glass
bottles which are sold at retail for an average price of $3.80 and $2.75,
respectively, plus $1 for the bottle.
Eggnog. During the holiday season, the Company offers for sale Ronnybrook
eggnog, which is made from Ronnybrook Creamline whole milk and other natural
ingredients. It is packaged in quart sized returnable glass bottles which are
sold at retail at prices ranging from $4.00 to $7.00 plus $1 for the bottle.
Heavy Cream. Ronnybrook heavy cream is separated from Ronnybrook Creamline
milk. The fat content of Ronnybrook heavy cream is approximately 43%, while that
of most commercial brands averages approximately 38-40%. It is packaged in
one-half liter sized returnable glass bottles which are sold at retail at prices
ranging from $3.75 to $5.00 plus $1 for the bottle.
Half-And-Half. The Times described Ronnybrook half-and-half, which is made
with a combination of milk and cream with 10 percent butterfat, as having a
"richer fresh cream flavor" than most other brands without containing the
additives contained in many brands. Ronnybrook half-and-half is packaged in
one-half liter sized returnable glass bottles which are sold at retail for an
average price of $2.75 plus $1 for the bottle.
Butter. Ronnybrook sweet butter was described by the Times as "very
delicate." In addition to sweet butter, the Company makes lightly salted butter
(which, the Times remarked, takes "lightly"
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to heart), garlic butter and honey butter. Numerous top chefs in New York City
purchase Ronnybrook butter because it has a high butterfat content (it is made
from Ronnybrook cream), which, in addition to contributing to its taste, enables
it to be heated to higher temperatures without burning. Ronnybrook butter is
packaged for retail sale in eight ounce tubs which are sold for an average price
of $3.00.
Yogurt. Ronnybrook yogurt is European in style. It is made from whole
Creamline milk and a blend of four imported active yogurt cultures which
contribute to its authentic taste and texture. It is available in plain, vanilla
and vanilla maple flavors. The Company plans to offer a non-fat version of its
yogurt made from Ronnybrook skim milk. Ronnybrook yogurt is packaged in eight
ounce cups which are sold at retail for an average price of $1.25.
Creme Fraiche. Ronnybrook creme fraiche is made with cultured Ronnybrook
heavy cream. It is similar to sour cream in both appearance and texture. It is
packaged in eight ounce containers which are sold at retail at prices ranging
from $3.00 to $4.00.
Assorted Cheeses. The Company currently produces, on a limited basis, soft
cheeses including mozzarella cheese, farmer's cheese, and cottage cheese. After
completion of this Offering and the application of a portion of the proceeds to
purchase certain dairy manufacturing equipment, the Company plans to increase
production of its soft cheeses.
Super Premium Ice Cream. Super premium ice cream is generally
characterized by a greater richness and density than other kinds of ice cream
with a butter fat content of at least 16% and overrun no greater than 50%.
Ronnybrook super premium ice cream has a butterfat content ranging from 16% to
18% and overrun of 40%. Each flavor is made separately from scratch and not from
a vanilla base like most other ice creams and has a butterfat content tailored
to produce a better tasting product. Ronnybrook ice cream was selected by the
New York Press as the best ice cream available in New York City in its "Best of
Manhattan" issue. The "regular" flavors listed below are always available, while
feature flavors, often made with seasonal ingredients, are available on a
limited basis. The Company regularly introduces new flavors. Ronnybrook ice
cream is packaged in pint sized containers which are sold at retail for prices
ranging from $2.90 to $5.50.
Regular Flavors Feature Flavors
- ---------------------------- ---------------------------------------------------
Hudson Valley Vanilla Butter Pecan Millbrook Mocha
Columbia County Coffee Chocolate Raspberry Truffle Peach Melba
Coconut Crunch Coconut Mint Chocolate Chip Pumpkin Creme Brulee
Lola's Mint Chocolate Lace Eggnog Rum Raisin
Ronnyberry Ginger Creme Brulee Toasted Hazelnut Crunch
Sid's Chocolate Silk Ginger Snap Vanilla Chocolate Chip
Raspberry Honeydew Melon Vanilla Chocolate Lace
Butterscotch Pistachio
Sweet Cream Strawberry
Anticipated Low Fat Products. The Company anticipates, as part of its new
product development, to introduce low fat varieties of many of its dairy
products, including low fat mozzarella cheese, low fat ice cream and non fat
yogurt, during 1998.
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Customers
The Company currently sells Ronnybrook dairy products throughout a
north/south corridor extending from Columbia County, New York in the north to
New York City in the south and from the New/York Connecticut border in the east
to Ulster and Rockland Counties in the west. The Company also sells its products
on eastern Long Island and in northern New Jersey. About 40% of its sales are
within 40 miles of the dairy and another 40% are in New York City. The remaining
sales are distributed almost equally throughout the balance of this market area.
The Company sells its products to (i) more than 150 different supermarkets,
specialty food stores and gourmet deli's; (ii) approximately 50 food service
clients, including several of the most highly-rated restaurants in New York
City; (iii) the Culinary Institute of America, and (iv) directly to the public
at outdoor green markets, including the Union Square green market in New York
City, and at the Company's distribution center and retail outlet at Chelsea
Market in New York City. Approximately 70% of the Company's product sales are
based on standing orders from retail outlets and food service clients. These
customers are generally contacted by the dairy on a weekly basis to confirm the
content and timing of their orders.
During 1997, product sales made directly to consumers at the Union Square
green market and Chelsea Market, both in New York City, accounted for
approximately 20% and 8% of the Company's revenues, respectively. The balance of
product sales during this period were made to retail outlets and food service
clients. During such period, no customer accounted for 5% or more of the
Company's revenues from product sales.
Production
All aspects of production of Ronnybrook products, from raising the dairy
herd to crafting the finished products, are based on traditional practices
designed to yield premium quality, wholesome and superior tasting foods.
Cattle Raising. Ronnybrook dairy products begin with the raw milk supplied
by the Osofsky Farm's herd of award winning Holsteins. The farming techniques
used on the Osofsky Farm and the care given to the milking herd, the Company
believes, contribute to the quality and taste of Ronnybrook milk. Ronny Osofsky
manages the Osofsky Farm. To promote their healthy development, Ronny keeps the
cows out-of-doors for as many hours during the day as possible, allowing them to
roam free and graze upon the farm's lush and hilly pastures. Cows at many
commercial dairies, in contrast, spend their entire lives standing on concrete
floors. The cows are brought indoors overnight and for milking and feeding.
Indoors, they are kept in separate "comfort" stalls and receive individual
attention. Most larger farms house cows in group stalls. While in their stalls,
each cow is fed a total mix ration, comprised of chopped corn, chopped grass and
ear corn, with an individually tailored top dress including natural sources of
minerals and proteins. The cows are also fed freshly baled hay which the cows
use in the production of cud, essential for the healthy functioning of a cow's
digestive tract. Many larger farms no longer feed their cows baled hay. The
cows, in addition, are regularly groomed and rubbed down to maintain their
health and comfort. The cows, further, produce their milk naturally, without the
aid of production enhancing hormones or chemicals. When cows are ill and being
treated with antibiotics, they are removed from the milking herd and their milk
is not utilized. Only when a cow has fully recovered and all antibiotics have
been flushed from its system, is the cow re-introduced into the herd.
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The Company anticipates that the supply of raw milk from the Osofsky Farm
will not be sufficient to meet anticipated increased demand for Ronnybrook dairy
products resulting from its marketing, sales and distribution efforts. See
"Brand Development and Marketing Strategy" and "Sales and Distribution." To meet
this demand, the Company has signed non-binding letters of intent with two
neighboring family farms, which contemplate that the Company will be able to
acquire the milk output of these farms. The letters contemplate, further, that
the farms, if necessary to insure quality, will adjust their production
techniques to conform to those employed by the Osofsky Farm. The Company
anticipates that all raw milk to be used by the dairy as it grows will be
produced by small, local, family run farms which employ traditional farming
techniques similar to those used on the Osofsky Farm. The Company believes that
the milk to be obtained from these family farms is of similar quality to that
produced on the Osofsky Farm and will not adversely effect the quality of
Ronnybrook products. See "Risk Factors - Impact of Growth on Quality of Dairy
Products." See also "Business - Supply of Raw Milk" and "Risk Factors - Supply
of Raw Milk."
Milk Processing. The Company believes that through purchasing raw milk
locally and employing minimal processing techniques, it is able to preserve the
fresh taste of milk. The Company's dairy processes raw milk from the Osofsky
Farm within 24 to 36 hours after milking. Most large regional dairies, the
Company believes, process raw milk which is three to four days old. Milk
processed by conventional farms for sale to regional dairies is typically stored
at the farm for a minimum of two days, commonly spends a full day in transit to
the dairy facility, and is only processed the following day. Ronnybrook
Creamline milk is not homogenized. During homogenization, pressurized milk is
forced through openings smaller than the size of the fat globules present in
milk, breaking them into smaller particles. Thus treated, the milk fat remains
suspended and does not separate out in the form of cream. The Company believes
that this process adversely affects the taste and feel of milk. In addition,
Ronnybrook milk is pasteurized at the lowest temperatures allowed by law to
avoid imparting to the milk a cooked flavor. When the milk is clarified and the
butterfat removed to yield cream and skim milk, a process of cold separation is
used, rather than the more commonly employed hot separation which the Company
believes adversely affects the flavor of the milk.
Dairy Product Processing. Ronnybrook products are made in small batches
using minimal processing techniques to maintain freshness and allow maximum
flavor and nutrition retention. They are made with wholesome ingredients, many
of which are produced on the Osofsky Farm. No chemicals or additives are
employed. Because they are produced locally, Ronnybrook dairy products arrive to
consumers in the Company's marketing area sooner after production than most
other dairy products. See "Risk Factors - Limited Delivery Capacity; Delays in
Delivery of Products." To assure product quality, the beginning of each
production run is sampled for flavor, aroma, texture and appearance. In
addition, New York State conducts unannounced monthly spot-checks for bacteria
and butterfat content in the Company's products, as well as sanitary conditions
in the Company's dairy. See " Government Regulation." The Company, further, on a
bi-weekly basis, conducts similar tests.
Facilities. All of the equipment used in the Company's dairy plant is
standard dairy equipment and can be adapted to produce most dairy products. Milk
processing involves two principal pieces of equipment (i) a separator, which is
used for both clarifying whole raw milk and for separating out cream and (ii) a
pasteurizer, which heats the milk to kill bacteria. With the exception of ice
cream, the Company's products are manufactured in the Company's dairy facility.
The Company manufactures ice cream mix in its dairy, but it is frozen and
finished at a rented off-site facility operated by the Company located 10 miles
from the dairy. After completion of this Offering, the Company intends to
purchase a continuous fill freezer for manufacturing ice cream which it will
locate at its dairy facility
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and discontinue the rental of the off-site ice cream facility. See
"Business-Property." The Company's dairy currently processes approximately
15,000 pounds of raw milk per week. The Company believes that it currently has
the capacity, based on an assumed mix of products, to manufacture dairy products
at a rate which would utilize 80,000 pounds of raw milk per week. The Company
believes that purchasing additional milk processing equipment, including a
second pasteurizing unit with greater capacity, a milk filler, additional
holding vats, yogurt filling machines, and a continuous fill freezer for
manufacturing ice cream on site, should increase its capacity to manufacture
products to a rate which utilizes approximately 250,000 pounds of raw milk per
week. The Company intends to purchase this equipment with the proceeds of this
Offering. See "Risk Factors - Limitation in Production Capacity" and "Use of
Proceeds."
Development of No-Return Milk Containers. The development of no-return
milk containers, to complement the Company's line of traditional glass bottles,
involves either identifying existing quart, pint and one-half pint sized
containers suitable for use by the Company and/or designing and manufacturing
customized containers in these sizes. The Company is evaluating containers made
of glass, plastic and paperboard. If the Company identifies existing containers,
it would need to design appropriate labeling which may either be printed on the
containers or on a label which may be affixed to the containers. Designing
customized no-return glass or plastic containers would involve having unit
cavities fabricated for initial evaluation and testing of the designs, having
production-ready injection molds fabricated and tooling production equipment.
See "-Brand Development and Marketing."
Supply of Raw Milk
The raw milk used in Ronnybrook products is supplied exclusively to the
Company by the Osofsky Farm pursuant to an Exclusive Output Agreement. Pursuant
to the Agreement, the Company purchases the raw milk it requires from the
Osofsky Farm at a base price of $16 per hundredweight in 1997 and 1998, $18 per
hundredweight in 1999 and $20 per hundredweight for the remainder of the
Agreement term and any renewal term. In addition, the price paid for raw milk is
adjusted monthly, but never below the applicable base price, to reflect
increases in the monthly blend price for raw milk established by the Federal
milk order which fixes minimum prices paid by producers to dairy farmers for raw
milk. The Agreement is not assignable by the Osofsky Farm without the prior
written consent of the Company and the Company has the right of first refusal to
purchase the Farm's Assets (defined therein) prior to any sale to a third party.
Under the Agreement, the Company also has the right to approve the farming,
herding and milking techniques employed by the Osofsky Farm in order to insure
the quality of raw milk. The Agreement is for a term of 10 years and is
renewable, at the option of the Company, for two additional 10-year terms. The
Company believes that the terms of the Agreement are no less favorable than
those that could be obtained from unaffiliated parties. See "Certain
Transactions."
The Company currently purchases raw milk from the Osofsky Farm at an
annual rate of approximately 800,000 pounds. The Osofsky Farm can more than
double production of raw milk to an annual rate of approximately 1.75 million
pounds. The Company recognizes, however, that this supply will not be sufficient
to meet the level of increased demand which the Company anticipates will develop
for its products as a result of its proposed marketing efforts. The Company has
signed letters of intent with two neighboring family farms which contemplate
that the Company will be able to acquire the milk output of these farms, which
is approximately 5,000,000 pounds a year. These farms currently employ
traditional production techniques similar to those used by the Osofsky Farm and
the letters of intent contemplate that the farms, if necessary to insure
quality, will modify their production techniques to conform to those employed by
the Osofsky Farm. See "Production - Raw Milk." The
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Company is also speaking with other local farms in an effort to source
additional raw milk as it is needed. See "Risk Factors - Supply of Raw Milk."
32
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Brand Development and Marketing
Brand Identity. The Company believes that Ronnybrook products enjoy a
reputation, among people who are familiar with its products, for being of the
highest quality and arriving to consumers "fresh-off-the-farm." The Company
believes that this reputation has spread principally by word-of-mouth and also
as a result of favorable press coverage, as marketing efforts to date have been
very limited. The Company's proposed marketing plan is designed to build upon
the reputation of Ronnybrook products, strengthen their brand identity and make
Ronnybrook products more widely available to by customers.
The Company's marketing will emphasize the local production and
distribution of Ronnybrook products, which begins with the dairy herd on the
Osofsky Farm and results in premium quality products through the efforts of the
Osofsky Brothers (the "Ronnybrook Story"). See "History and Philosophy of the
Company" and "Production." The Company believes that the Ronnybrook Story adds
legitimacy to its marketing claim that it produces farm fresh products and helps
to instill confidence in consumers as to the purity and wholesomeness of
Ronnybrook products.
The Company has sought to convey the Ronnybrook Story primarily through
the packaging it uses for its products. The Company believes that packaging its
fluid products in old-fashioned glass bottles has helped to identify Ronnybrook
products in the eyes of consumers as being of premium quality. Further, text on
packaging describes the Ronnybrook Story. Ronnybrook products have also received
marketing benefits from a considerable volume of favorable press in the Times
and other publications of mass circulation, including Gourmet Magazine and two
New York City oriented weekly events guides which have rated Ronnybrook products
highly. See "Products."
The Company's marketing and promotional efforts will include:
o Redesigning packaging of non-fluid products to promote a premium
quality image.
o Refining and targeting the Company's message, which to date has
largely been the product of word of mouth and product reviews.
o Developing trade material, including four-color trade sell sheets and
brochures.
o Further distinguishing Ronnybrook products from other dairy products.
o Commencing retail advertising, including print advertising and focused
public relations.
In addition, for the purpose of building brand recognition, the Company
anticipates opening in the summer of 1998 a signature store and free-standing
ice cream kiosk in a food court being developed in Grand Central Terminal in New
York City. The store will seek to convey the Ronnybrook Story through mounted
photographs of the Osofsky Brothers and the Osofsky Farm, as well as through
informative text. Over 500,000 people pass through Grand Central Terminal every
day. The Company has received proposed lease terms and a draft lease for these
premises and will attempt to finalize a commitment subject to the completion of
this Offering.
Broaden Customer Base through Introduction of No-Return Containers for
Fluid Products. The Company is developing design specifications and prospective
sources for no-return containers in quart, pint, and one-half pint sizes as
alternate packaging for its fluid products to complement its line of returnable
glass bottles. The Company believes that it can broaden the customer base for
and increase sales of its fluid products by offering them for sale in
non-returnable containers. Increased sales of fluid products should also result
in higher incremental sales of its solid milk products, as most customers who
purchase milk purchase other Ronnybrook products as well. See "- Focus Marketing
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on Value Added Products." The Company believes that offering its fluid products
exclusively in returnable glass bottles has limited its market penetration in
its current markets and creates barriers to entry in new markets. The Company
has experienced that many consumers do not buy the Company's fluid products
because they do not want to pay $1.00 for the bottle or have the inconvenience
of returning the bottle for a $1.00 refund. Further, it has been the Company's
experience that many stores will not carry its fluid products because they do
not want the inconvenience of collecting and storing returned bottles. The
Company estimates that the introduction of no-return containers will result in
increased product sales in retail stores which currently sell Ronnybrook
products as well as an increase in the number of retail stores which carry
Ronnybrook products. Further, the Company believes that the introduction of
one-half pint single serving sized containers will increase its sales of
chocolate and coffee flavored milk. See "Risk Factors - Introduction of
No-Return Containers."
Focus Marketing on Value Added Products. The Company plans to focus its
marketing and sales efforts on its solid milk products, such as ice cream,
yogurt and cheese. The modest incremental processing required for these products
adds significant resale value above that of fluid products and, accordingly,
provides greater profit margins. Such non-fluid products also have significantly
longer shelf life and are more cost effective to distribute than bottled milk.
Sales and Distribution
Ronny Osofsky is currently the Company's sole sales person and has
established most of the relationships with the Company's retail store and food
service clients. See "Risk Factors - Limited Sales Force." The Company also
meets prospective food service clients at its New York City distribution center
at Chelsea Market, which features a pedestrian shopping concourse frequented by
retail and wholesale food buyers. See "Property." Tenants at Chelsea Market
serve over 600 restaurants, hotels and stores. The Company delivers Ronnybrook
products using three delivery trucks which it owns. The Company delivers
Ronnybrook products in Columbia, Dutchess, Ulster, Rockland and Westchester
counties, New York and northern New Jersey from the dairy in Ancramdale, New
York and in New York City and Long Island from Chelsea Market.
Increase Sales and Distribution Capacity in New York Metropolitan Area.
The Company intends to hire additional sales personnel and purchase additional
delivery trucks to increase sales of Ronnybrook products in the New York
metropolitan area. See "Use of Proceeds."
Engage Dairy Distributors in New Markets. The Company intends to contract
with food product distributors to sell and deliver Ronnybrook products in
markets contiguous to its current markets, including the Boston, Philadelphia
and Hartford areas. The Boston and Hartford areas are each under a three hours'
drive from the Company's dairy and the drive to the Philadelphia area is under
five hours.
Establish Additional Local Dairies. The Company's initial goal is to
become the principal supplier of premium quality dairy products to both
consumers and food service customers in the Northeast. If the Company achieves
this goal, it will look to enter new, densely populated markets -probably
initially in the Midwest -- by establishing local dairies which will purchase
raw milk from local dairy farms. The Company will seek to enter these markets
through joint venture, licensing or other arrangements with local dairy farms
which have experienced the same economic pressures as the Osofsky Farm and,
therefore, can benefit by adopting the Company's approach of producing and
marketing premium branded milk products directly to local markets. In order to
insure the quality of the raw milk it purchases, the Company, as a condition of
entering into a supply contract with a dairy
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farm, would require that the farming methods used conform to those employed by
the Osofsky Farm. See "Production." The Company believes that these arrangements
will be very attractive to dairy farms because the Company believes that it will
be in a position to pay more for raw milk than large regional dairies or dairy
cooperatives because of the premium pricing received for Ronnybrook products.
See "Government Regulation."
Competition
General. The food business is highly competitive and, therefore, the
Company faces substantial competition in connection with the marketing and sale
of its products. The Company's products are positioned as premium products and,
accordingly, are generally priced higher than certain similar competitive
products. The Company believes that the principal competitive factors in
marketing its products are quality, taste, freshness, price and product
recognition. While the Company believes that it competes favorably in terms of
quality, taste and freshness, its products are more expensive and less well
known than other brands. The Company's premium products may be considered in
competition with non-premium quality dairy products for discretionary food
dollars. See "Risk Factors - Competition."
Fluid Dairy Products. Due to the perishability concerns and costs
associated with transporting fresh milk, competition in the dairy business with
respect to fluid products tends to be regional rather than national, with strong
brand identity, price, freshness and quality as the primary competitive factors.
The Company competes primarily on the basis of quality, taste and freshness. It
faces competition from non-premium milk producers distributing milk in the
Company's marketing area; other milk producers packaging their milk in glass
bottles, including Meadowbrook, Chrone Dairy and Juniper Farms, which serve
portions of the Company's marketing area; and certified organic milk producers,
including the Organic Cow, based in Vermont, and Horizon Organic Dairy, a
national purveyor of organic milk and other dairy products.
Super premium ice cream. The super-premium ice cream market is highly
competitive and the Company faces substantial competition in connection with the
marketing and sales of its Ronnybrook ice cream. Among its competitors are
Haagen-Dazs, owned by the Pillsbury Company, Ben & Jerry's and numerous regional
ice cream companies. Many of these competitors are well established and have
substantially greater financial and other resources than the Company.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expense of a marketing program and the limitations on available
space in the freezer compartments of retailers. The Company's ice cream may be
considered in competition with all ice cream and other frozen desserts for
discretionary food dollars.
Yogurt. Ronnybrook yogurt faces competition from Stonyfield Farms, Brown
Cow and Horizon Dairy, among other brands.
Government Regulation
The Company is extensively regulated under both federal and state law. The
following information summarizes certain aspects of those regulations applicable
to the Company and is qualified in its entirety by reference to all particular
statutory or regulatory provisions.
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Regulation at the federal, state and local levels is subject to change. To
date, compliance with governmental regulations has not had a material impact on
the Company's level of capital expenditures, earnings or competitive position,
but, because of the evolving nature of such regulations, management is unable to
predict the impact such regulation may have in the foreseeable future.
Public Health. As a manufacturer and distributor of food products, the
Company is subject to the Federal Food, Drug and Cosmetic Act and regulations
promulgated thereunder by the FDA. This comprehensive regulatory scheme governs
the manufacture (including composition and ingredients), labeling, packaging and
safety of food. The FDA regulates manufacturing practices, including quality
assurance programs, for foods through its current good manufacturing practices
regulations, specifies the standards of identity for certain foods, including
many of the products sold by the Company, prescribes the format and content of
certain nutrition information required to appear on food product labels and
approves and regulates claims of health benefits of food products.
In addition, the FDA enforces the Public Health Service Act and
regulations issued thereunder, which authorize regulatory activity necessary to
prevent the introduction, transmission or spread of communicable diseases. These
regulations require, for example, pasteurization of milk and milk products. The
Company and its products are also subject to state and local regulation through
such measures as the licensing of dairy manufacturing facilities, enforcement by
state and local health agencies of state standards for the Company's products,
inspection of the Company's facilities and regulation of the Company's trade
practices in connection with the sale of dairy products.
Employee Safety Regulations. The Company is subject to certain health and
safety regulations, including regulations issued pursuant to the Occupational
Safety and Health Act. These regulations require the Company to comply with
certain manufacturing, health and safety standards.
Environmental Regulations. The Company is subject to certain federal,
state and local environmental regulations. These laws include, but are not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act,
as amended; the Federal Water Pollution Control Act, as amended; the Toxic
Substances control Act; the Clear Air Act; the Safe Drinking Water Act; the Oil
Pollution Act of 1990; the Occupational Safety and Health Act of 1970, as
amended; and their state and local counterparts and equivalents.
The Company maintains above-ground or underground petroleum storage tanks
at its dairy facility. These tanks are periodically inspected to determine
compliance with applicable regulations. The Company may be required to make
expenditures from time to time in order to remain in compliance with such
regulations. No such expenditure is expected to be material.
U.S. Dairy Support Program. The minimum price paid to farmers for milk in
the United States is established by federal milk marketing orders promulgated
under the Agriculture Marketing and Agreement Act of 1937. Under these marketing
orders, a Market Administrator fixes minimum prices for milk based on how it is
used. Each month the Market Administrator reviews the books of all processors
and ensures that farmers receive minimum prices. However, dairies often pay more
than the minimum price. Congress has recently passed legislation designed to
phase out support prices over a specified period.
Under the federal milk price support program, based on how raw milk is
used by a dairy, whether for the production of fluid or non-fluid milk products,
minimum pricing is enforced, in part,
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through the remittance or receipt by non-farm dairies of "equalization" payments
to or from a fund (the "pool fund") administered by the Market Administrator. As
a farm-dairy, the Company has not been subject to these federal minimum price
regulations and has not been required to make payments to the pool fund. Once
the Company is unable to satisfy its raw milk requirements from the Osofsky Farm
and commences purchasing milk from other local dairy farms, the Company's status
under these regulations may change so that the Company may become subject to
minimum pricing and may be required to remit (or be entitled to receive)
equalization payments from the pool fund. The prices the Company currently pays
the Osofsky Farm for raw milk are higher than those set forth in the applicable
federal milk marketing order fixing minimum raw milk prices. The Company
anticipates that the prices for raw milk that it will pay to farms from which it
may purchase raw milk in the future to meet its anticipated supply requirements
will also be higher than those set forth in any applicable federal milk
marketing order. Had the Company been subject to these federal minimum price
regulations in 1996 and 1997, the Company's equalization payment obligation to
the pool fund would have been approximately $7,000 per annum. See "Risk Factors
- - Possible Volatility of Raw Milk Costs."
Insurance
The Company maintains $290,000 of property insurance to cover the
Company's Dairy and Chelsea Market Facility. See "Business-Properties." The
Company currently maintains product liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 in the aggregate for any year, and has
applied to increase this coverage to $5,000,000 per occurrence and $10,000,000
in the aggregate for any year. The Company also maintains an umbrella policy in
the amount of $1,000,000 per occurrence and $1,000,000 in the aggregate for any
year over and above the base product liability coverage. There can be no
assurance that such insurance will be sufficient to cover potential claims or
that the present level of coverage maintained by the Company will be available
in the future at a reasonable cost. See "Risk Factors - Potential Product
Liability."
Trademarks
The Company has obtained trademark registrations for the use of its oval
logo with respect to its white milk, chocolate milk and yogurt and for the use
of "Creamline" with respect to its non-homogenized milk. The Company has applied
to the United States Patent and Trademark Office to expand the coverage of the
trademark relating to its logo to cover its use with respect to the Company's
other products. See "Risk Factors -- Limited Trademark Protection."
Employees
As of December 31, 1997, the Company employed 11 people on a full-time
basis, two of whom are in management positions, and 20 people on a part-time
basis. Of the Company's full time employees, three work in production, two work
in the Company's executive offices, two load trucks and deliver products, one
manages the Company's facility at Chelsea Market and one manages the Company's
sales activities at green markets. Of the Company's part-time employees, 11 work
in production, one works in the Company's executive offices, two load trucks and
deliver products, three are retail clerks at Chelsea Market and three assist in
the Company's sales activities at green markets. None of the Company's employees
is covered by a collective bargaining agreement. The Company believes its
relationship with its employees is good.
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Properties
The Company's dairy facility and executive offices occupy approximately
1,200 square feet in a cinderblock building located on property contiguous to
the Osofsky Farm, Prospect Hill Road, Ancramdale, New York 12503. The Company
leases the building from Prospect Hill Associates, a partnership among the
Osofsky Brothers and their cousin, Joel Osofsky, for an initial term expiring
December 31, 2008 at a current annual rent of $20,000. Pursuant to the terms of
the lease, the annual rent for the facility increases $15,000 per year during
the years 1999 through 2001. The lease is renewable, at the option of the
Company, for two additional 10-year terms at an annual rent of $65,000. The
Company also leases a 1,200 square foot facility in Amenia, New York,
approximately 10 miles from the Company's dairy, and uses 800 square feet of
such facility for freezing and packaging its ice cream. The lease is for a term
expiring August 1998 at a current annual rent, which includes the use by the
Company of ice cream freezing equipment, of $20,400. The Company also leases a
2,400 square foot distribution and retail facility at Chelsea Market, 88 Ninth
Avenue in New York City. The lease for this facility is for a term expiring
September 14, 2016 at a current annual rent of $13,680. The rent will increase
periodically through September 15, 2011, at which time the annual rent will
equal $47,979.
The Company intends to use part of the proceeds of this Offering to expand
its dairy facility to house additional dairy processing equipment. The Company
also intends to purchase a continuous fill freezer for manufacturing ice cream
which it will locate at its dairy facility and discontinue the rental of the ice
cream facility in Amenia, New York. See "Use of Proceeds" and "Business -
Production."
Legal Proceedings
The Company is not involved in any pending or threatened legal proceedings
that could have a material impact on the Company's financial statements.
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MANAGEMENT
Directors and Executive Officers
The Company's executive officers and directors, and their ages as of
February 1, 1998, are as follows:
Name Age Position
- ---------------------- ------- ---------------------------------------------
Richard A. Osofsky 53 President, Chief Executive Officer, Chief
Financial Officer and Director
R. Sidney Osofsky 52 Vice President - Production, Chief Operating
Officer, Treasurer and Director
Ronald N. Osofsky 56 Vice President - Sales and Distribution,
Secretary and Director
Kenneth W. Rothstein* 43 Vice President - Marketing
- -----------------
* Mr. Rothstein will take office upon the closing of this Offering or, at his
election, within 30 days thereafter.
Richard A. Osofsky (Rick), a co-founder of the Company, was elected
President, Chief Executive Officer, Chief Financial Officer and a director on
January 1, 1998. For more than five years prior thereto, while devoting time to
the business and affairs of the Company, Rick practiced law and maintained law
offices in Pine Plains, New York, approximately three miles from the Osofsky
Farm and the Company's dairy. Rick has been involved in all aspects of the
Osofsky Farm for over 25 years and the Company's business since its inception.
He is a graduate of Wesleyan University and New York University School of Law.
Upon the closing of this Offering, Rick will devote his full time to the
Company's business.
R. Sidney Osofsky (Sid), a co-founder of the Company, has devoted his full
time to the Company since its inception. On January 1, 1998, Sid was elected
Vice President - Production, Chief Operating Officer, Treasurer and a director.
Sid is principally responsible for plant operations and new product development.
He is a graduate of Tufts University and has a Masters in Business
Administration from New York University.
Ronald N. Osofsky (Ronny), a co-founder of the Company, has divided his
time between the Company, since its inception, and managing the Osofsky Farm. On
January 1, 1998, Ronny was elected Vice President - Sales and Distribution,
Secretary and a director of the Company. Ronny is the Company's sole salesperson
and has forged most of the relationships with the Company's retail store and
food service clients. Ronny has managed the Osofsky Farm since 1962 and has
raised and marketed some of the most highly regarded Holstein dairy cows in the
dairy industry. Ronny will continue to divide his time after the completion of
this Offering between the Osofsky Farm and the Company. Ronny is a graduate of
the University of Rhode Island School of Agriculture.
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Kenneth W. Rothstein will become Vice President - Marketing of the Company
upon the closing of this Offering or, at his election, within 30 days
thereafter. From 1991 until January 1997, Mr. Rothstein was Director of
Marketing for Shorewood Packaging Corporation, a designer and manufacturer of
paperboard packaging for consumer goods. Since leaving Shorewood, Mr. Rothstein
has acted as a marketing consultant to the Company.
The Company intends to identify two individuals who will serve as
independent outside directors to take office upon completion of this Offering.
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.
Committees of the Board of Directors
Following the completion of this Offering, the Company's Board of
Directors will appoint an Audit Committee to be comprised of _______, ______ and
_____________ Osofsky. The Audit Committee will recommend to the Board of
Directors the appointment of independent auditors, review and approve the scope
of the annual audit of the Company's financial statement reviews and approve any
non-audit services performed by the independent auditors and periodically review
and approve major accounting policies and significant internal accounting
control procedures.
Following the completion of this Offering, the Company's Board of
Directors will appoint a Compensation Committee to be comprised of
______________, ________________ and _________________ Osofsky. The Compensation
Committee will review and recommend to the Board of Directors compensation
arrangements for officers and directors, administer stock option plans and
review major personnel matters.
Director Compensation
Independent directors will be granted five-year options to purchase 7,500
Common Shares exercisable ratably over three years. The per share exercise price
of such options will be equal to the fair market value of a Common Share on the
date of grant.
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Executive Compensation
No executive officer of the Company earned more than $100,000 in
compensation during the last completed fiscal year. The following table
summarizes the compensation earned for the years ended December 31, 1995, 1996
and 1997 by the Company's then President for services rendered in all capacities
to the Company .
Summary Compensation Table
Name and
Principal Position Year Annual Compensation
- ---------------------- ------------ ---------------------------------------
Other
Annual
Salary ($) Bonus ($) Compensation
----------- ----------- -------------
Ronald N. Osofsky* 1997 $10,400 0 0
1996 $10,400 0 0
1995 $10,400 0 0
- -----------
* On January 1, 1998, Ronald Osofsky stepped down as President of the Company
and became its Vice President - Sales and Distribution, and Richard Osofsky
was elected the Company's President and Chief Executive Officer.
Employment Agreements
On January 1, 1998, the Company entered into an employment agreement with
Richard Osofsky, providing for his employment as President and Chief Executive
Officer for a three-year term expiring on December 31, 2000. The agreement
provides for a base salary at the annual rate of $30,000, commencing on the
closing date of this Offering through December 31, 1998, $75,000 for 1999 and
$100,000 for 2000. The agreement also provides for participation in all employee
benefit plans, the use of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with
R. Sidney Osofsky, providing for his employment as Vice President Production,
Chief Operating Officer and Treasurer for a three-year term expiring on December
31, 2000. The agreement provides for a base salary at the annual rate of $9,360
prior to the close of this Offering, $30,000 commencing on the close of this
Offering through December 31, 1998, $75,000 for 1999 and $100,000 for 2000. The
agreement also provides for participation in all employee benefit plans, the use
of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with
Ronald Osofsky, providing for his employment as Vice President - Sales and
Distribution and Secretary for a three-year term expiring on December 31, 2001.
The agreement provides for a base salary at the annual rate of $9,360 prior to
the close of this Offering, $30,000 commencing on the close of this Offering
through December 31, 1998, $75,000 for 1999 and $100,000 for 2000. The agreement
also provides for participation in all employee benefit plans, the use of an
automobile and certain other fringe benefits.
On December 15, 1997, the Company entered into an employment agreement
with Kenneth Rothstein, providing for his employment as Vice President Marketing
for a one year term. Pursuant
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to the terms of the agreement, Mr. Rothstein's employment will commence upon the
closing of this Offering or, at his election, within 30 days thereafter. The
agreement provides for a base salary at the annual rate of $70,000 and for
participation in all employee benefit plans and certain other fringe benefits.
Stock Option Plan
In January 1998, in order to attract and retain qualified personnel
necessary for the success of the Company, the Company adopted a Stock Option
Plan (the "Stock Option Plan") covering up to 420,000 of the Company's Common
Shares, pursuant to which officers, directors and key employees of the Company
and consultants to the Company are eligible to receive incentive stock options
and non-qualified stock options. The Stock Option Plan, which expires on
December 31, 2007, is currently administered by the entire Board of Directors.
Upon the appointment of a Compensation Committee, the Stock Option Plan will be
administered by the Compensation Committee. The selection of participants, grant
of options, determination of price and other conditions relating to the exercise
of options is determined by the entire Board of Directors, and will be
determined by the Compensation Committee upon its appointment. The selection of
participants, grant of options, determination of price and other conditions
relating to the exercise of options is determined by the entire Board of
Directors, in its sole discretion, and will be determined by of the Compensation
Committee, in its sole discretion, upon its appointment. Incentive stock options
granted under the Stock Option Plan are exercisable for a period of up to 10
years from the date of grant at an exercise price which is not less than the
fair market value of the Common Shares on the date of the grant, except that the
term of an incentive stock option granted under the Stock Option Plan to a
shareholder owning more than 10% of the outstanding Common Shares may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Common Shares on the date of the grant.
Option Grants
In January 1998, the Board of Directors approved the grant, to be made on
the effective date of this Offering, of 100,000 stock options under the Stock
Option Plan to each of the Osofsky Brothers, exercisable one-third at the
initial public offering price per share, one-third at 120% of the initial public
offering price per share and one-third at 140% of the initial public offering
price per share. No other options have been granted under the Stock Option Plan
as of the date of this Prospectus.
Limitation of Directors' Liability and Indemnification
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through negligent
or grossly negligent conduct, to satisfy their duty of care, which requires them
to exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of the individual director's duty
of loyalty to the Company, a failure to act in good faith, intentional
misconduct, a knowing violation of the law, an improper personal benefit or an
illegal dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the New York Business Corporation Law, against all expense, liability and loss
(including attorneys fees, judgments, fines, Employee Retirement Income Security
Act excise
42
<PAGE>
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of February 1, 1998
with respect to the beneficial ownership of the Company's Common Shares by each
shareholder known by the Company to be the beneficial owner of more than 5% of
its outstanding shares, by each director of the Company, by the executive
officer named in the Summary Compensation Table and by the directors and
executive officers as a group and after the Offering to reflect the issuance and
sale by the Company of the Shares offered hereby.
Percentage of Class
Common Shares -------------------
Beneficially Before After
Name and Address (1) Owned the Offering the Offering
-------------------- ----- ------------ ------------
Richard A. Osofsky.............. 124,200 20.70% 17.25%(2)
R. Sidney Osofsky............... 124,200 20.70% 17.25%(2)
Ronald N. Osofsky............... 124,200 20.70% 17.25%(2)
Kenneth W. Rothstein (3)........ 29,400 4.90% 2.45%
Steven M. Rabinovici............ 82,380 13.73% 6.86%
David R. Jacaruso............... 59,400 9.90% 4.95%
All Officers and Directors as
a Group (4).................. 402,000 67.00% 46.80%(5)
- --------------------
(1) The addresses of the persons named in this table are: Messrs. Richard A.
Osofsky, R. Sidney Osofsky and Ronald N. Osofsky, c/o Ronnybrook Farm
Dairy, Inc., Prospect Hill Road, Ancramdale, New York 12503; Steven M.
Rabinovici and David R. Jacaruso, c/o Complete Management Inc., 254 West
31st Street, New York, New York 10001.
(2) Includes 100,000 shares subject to stock options granted as of the
effective date of this Offering (at prices equal to or exceeding the
initial public offering price per share) and exercisable within sixty (60)
days of such date. See "Management-Option Grants."
(3) Kenneth W. Rothstein will take office upon the closing of this Offering
or, at his election, within 30 days thereafter.
(4) Includes Kenneth W. Rothstein.
(5) Includes 300,000 shares subject to stock options exercisable within sixty
(60) days of the effective date of this Offering.
43
<PAGE>
CERTAIN TRANSACTIONS
Since the Company commenced operations in 1991, it has purchased raw milk
for its dairy products from the Osofsky Farm. The Osofsky Farm is owned by a
partnership among the Osofsky Brothers, each of whom is a founder, executive
officer and principal shareholder of the Company. During 1996 and 1997, the
Company paid the Osofsky Farm $16 per hundredweight for its raw milk. On
September 30, 1997, the Company entered into an Exclusive Output Agreement with
the Osofsky Farm pursuant to which the Company purchases the raw milk it
requires from the Osofsky Farm at a base price of $16 per hundredweight in 1997
and 1998, $18 per hundredweight in 1999 and $20 per hundredweight for the
remainder of the Agreement term and any renewal term. In addition, the price
paid for raw milk is adjusted monthly, but never below the applicable base
price, to reflect increases in the monthly blend price for raw milk established
by the Federal milk order which fixes minimum prices paid by producers to dairy
farmers for raw milk. The Agreement is not assignable by the Osofsky Farm
without the prior written consent of the Company and the Company has the right
of first refusal to purchase the Farm's Assets (defined therein) prior to any
sale to a third party. Under the Agreement, the Company also has the right to
approve the farming, herding and milking techniques employed by the Osofsky Farm
in order to insure the quality of raw milk. The Agreement is for a term of 10
years and is renewable, at the option of the Company, for two additional 10-year
terms. The Company believes that the terms of the Agreement are no less
favorable than those that could be obtained from unaffiliated parties.
The Company rents the building in which its dairy facility and principal
executive offices are located from Prospect Hill Associates, a partnership among
the Osofsky Brothers and Joel Osofsky, their cousin. Pursuant to a 10-year lease
dated January 1, 1998, the annual rent for the building in 1998 is $20,000 and
will increase in $15,000 increments in each of the years 1999 through 2001. The
lease is renewable, at the option of the Company, for two additional 10-year
terms at a rental of $65,000 per annum. An earlier lease for these facilities
expired in November 1997, under which the annual rent in 1996 and 1997 was
$12,000.
During 1997, the Company borrowed approximately $66,000 from Richard
Osofsky, who was appointed President, Chief Executive Officer and Chief
Financial Officer of the Company in January 1998. This indebtedness is evidenced
by the Company's promissory note dated September 30, 1997, which provides for
interest at the rate of 8% per year and is due June 30, 1999.
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the New York Business Corporation Law, against all expense, liability and loss
reasonably incurred or suffered by such person in connection therewith. See
"Management - Limitation of Directors' Liability and Indemnification."
Future transactions with affiliated parties will be approved by the
Company's Board of Directors only after the interest of any director or
affiliate is fully disclosed to the Board and it is established that such
transaction is fair and reasonable to the Company and is on terms no less
favorable than those that could be obtained from unaffiliated parties.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Shares
The Company's authorized capitalization consists of 10,000,000 Common
Shares, par value $.001 per share, of which 600,000 shares are issued and
outstanding. All Common Shares are, and the Shares offered hereby when issued
will be, legally issued, fully paid and non-assessable. Holders of Common Shares
are entitled to one vote per share in the election of directors. The Common
Shares have no redemption, preemptive or sinking fund rights. Holders of the
Common Shares are entitled to dividends as and when declared by the Board of
Directors. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, holders of the Common Shares are entitled to share
ratably in all the remaining assets of the Company after satisfaction of the
liabilities of the Company.
Upon completion of this Offering, and without giving effect to the
exercise of the Underwriter's Warrants, the directors and executive officers of
the Company will beneficially own approximately 31% of the Company's outstanding
shares and accordingly will be in a position to effectively elect all of the
Company's directors and control the affairs of the Company.
Underwriter's Warrants
In connection with this Offering, the Company has authorized the issuance
of the Underwriter's Warrants and has reserved 60,000 Common Shares for issuance
upon exercise of such warrants. The Underwriter's Warrants will entitle the
holders thereof to acquire 60,000 Common Shares at an exercise price of 120% of
the initial offering price per share of Common Stock ($8.40 per Common Shares
based on the initial public offering price of $7.00 per Common Share). The
Underwriter's Warrants will be exercisable at any time from the first
anniversary of the date of this Prospectus until the fifth anniversary of the
date of this Prospectus. The Underwriter's Warrants contain provisions that
protect the holders against dilution by adjustment of the exercise price. Such
adjustments will occur in the event, among others, that the Company makes
certain distributions to holders of its Common Shares. The Company is not
required to issue fractional shares upon the exercise of the Underwriter's
Warrants. The holders of Underwriter's Warrants will not possess any rights as
shareholders of the Company until a holder exercises the Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof have the
opportunity to profit from a rise in the market price of the Common Shares
without assuming the risk of ownership of the Common Shares issuable upon the
exercise of the Underwriter's Warrants. These warrant holders may be expected to
exercise their warrants at a time when the Company would, in all likelihood, be
able to obtain any needed capital by an offering of Common Shares on terms more
favorable than those provided for by the warrants. Further, the terms on which
the Company could obtain additional capital during the life of the warrants may
be adversely affected.
The Underwriter's Warrants provide certain rights with respect to the
registration under the Securities Act of the 60,000 Common Shares issuable upon
exercise of the Underwriter's Warrants. The Company has agreed that during the
entire period between the first anniversary and fifth anniversary of the date of
this Prospectus it will register the issuance of such shares upon the exercise
of the Underwriter's Warrants (and, if necessary, their resale) so as to permit
their public resale without restriction. The holders of the Underwriter's
Warrants have, for a term of five years from the date of this Prospectus, the
right to demand two registrations by the Company of their shares (one
45
<PAGE>
registration at the expense of the Company and the other at the expense of the
warrant holders) and for a term of seven years from the date of this Prospectus,
an unlimited number of incidental, or "piggyback," registration rights. These
registration rights could result in substantial future expense to the Company
and could adversely affect the Company's ability to complete future equity or
debt financing. Furthermore, the registration and sale of Common Shares of the
Company held by or issuable to the holders of registration rights, or even the
potential of such sales, could have an adverse effect on the market price of the
Shares offered hereby.
Inclusion on the Nasdaq Stock Market's OTC Bulletin Board
Application has been made to list the Common Shares on the Nasdaq Stock
Market's OTC Bulletin Board (the "Bulletin Board"). If the Company fails to meet
listing standards for the Bulletin Board, the Common Shares would be traded on
the Pink Sheets. An investor could find it difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's Common Shares.
Further, if the market price of the Common Shares falls below $5.00 per share,
trading in the Common Shares would be covered by Rule 15g-9 and related rules
promulgated under the Securities Exchange Act of 1934, as amended. Such rules
require additional disclosure by, and other requirements on, broker-dealers in
connection with any trades involving a stock defined as a penny stock. See "Risk
Factors - Penny Stock Regulations May Impose Certain Restrictions on
Marketability of Common Shares." The additional burdens imposed upon
broker-dealers by the additional disclosure may discourage them from effecting
transactions in the Common Shares, which could severely limit the liquidity of
the Common Shares and the ability of purchasers in this Offering to sell the
Common Shares in the secondary market.
Transfer Agent
The transfer agent for the Common Shares is the American Stock Transfer &
Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Shares. The Company cannot predict the effect, if any, that sales of Common
Shares or the availability of such shares for sale will have on the market price
of the Common Shares prevailing from time-to-time. Future sales of substantial
amounts of Common Shares in the public market, including shares issued upon the
exercise of options to be granted pursuant to the Company's Stock Option Plan,
could adversely affect the prevailing market price of the Common Shares.
Upon completion of this Offering, the Company will have 1,200,000 Common
Shares outstanding, of which 600,000 shares will be freely transferable without
restriction under the Securities Act, except for any shares held by an
"affiliate" of the Company (as that term is defined by the rules and regulations
issued under the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. Without considering the
Lock-up Agreements described below, 475,800 of the Common Shares held by current
shareholders will be eligible for sale in the public market in reliance on Rule
144 under the Securities Act commencing 90 days following the Offering.
The Company and all current shareholders have executed or are expected to
execute Lock-up Agreements under which they agree not to offer, sell, contract
to sell or otherwise dispose of any
46
<PAGE>
Common Shares owned by them for a period ending 13 months after the date of this
Prospectus without the consent of the Underwriter.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or persons whose shares are aggregated) who beneficially
owns shares as to which at least one year has elapsed since the date of
acquisition in a transaction not involving a registered public offering is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of one percent of the then outstanding Common Shares
(1,200,000 shares immediately after this Offering) or the average weekly trading
volume of the Common Shares on over-the-counter market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who
beneficially owns shares as to which at least one year has elapsed since the
later of the date of the acquisition of the securities from the Company or from
an affiliate of the Company, would be entitled to sell such shares under Rule
144 without regard to the volume limitations, manner-of-sale provisions, public
information requirements or notice requirements.
47
<PAGE>
UNDERWRITING
National Securities Corporation (the "Underwriter") has agreed, subject to
the terms and conditions of the Underwriting Agreement between the Company and
the Underwriter (the "Underwriting Agreement"), to purchase from the Company,
and the Company has agreed to sell to the Underwriter, the 600,000 Shares
offered hereby at the price set forth on the cover page of this Prospectus under
"Proceeds to Company."
The Underwriting Agreement provides that the obligations of the
Underwriter to purchase the Shares are subject to certain conditions. The
Underwriter is committed to purchase all the Shares offered by this Prospectus,
if any are purchased by the Underwriter.
The Underwriter has advised the Company that it proposes to offer the
Shares to the public at the initial public offering price set forth on the cover
page of this Prospectus, and to selected dealers at such price less a concession
not in excess of $___________ per share, and that the Underwriter and such
dealers may reallow a concession to other dealers, including the Underwriter,
not in excess of $__________ per Share. After the commencement of the Offering,
the public offering price, the concessions to selected dealers and the
reallowance to their dealers may be changed by the Underwriter.
The Company has granted the Underwriter an option, expiring at the close
of business 45 days after the closing of this Offering, to purchase up to an
aggregate of 90,000 additional Common Shares from the Company at the public
offering price set forth on the cover page of this Prospectus, less underwriting
discounts and the 3% non-accountable expense allowance. The Underwriter may
exercise the option (in whole or in part) only to cover over-allotments, if any,
incurred in the sale of the Shares.
The Underwriter has informed the Company that it does not expect to
confirm sales of the Common Shares offered by this Prospectus to any accounts
over which it exercises discretionary authority.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter and its respective controlling persons against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriter may be required to make in respect
thereof. The Company has agreed to pay the Underwriter a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds from the sale of the
Common Shares offered hereby.
The Company has agreed to sell to the Underwriter, for an aggregate of
$60, warrants to purchase from the Company up to 60,000 Common Shares at an
exercise price per share initially equal to 120% of the public offering price.
The Underwriter's Warrants are exercisable beginning one year after the
effective date of this Prospectus, and are not transferable, except to either a
partner or an officer of the Underwriter or by will or operation of law. The
Underwriter's Warrants provide for adjustment in the exercise price of the
Underwriter's Warrants in the event of certain mergers, acquisitions, stock
dividends and capital changes. In addition, the Company has granted rights to
the holders of the Underwriter's Warrants to register the Common Shares
underlying the Underwriter's Warrants under the Securities Act.
The Company and its officers and directors and all shareholders have
agreed with the Underwriter that for a period of 13 months after the closing of
this Offering (the "Lock-up Period"),
48
<PAGE>
neither the Company nor any such persons shall offer, issue, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of any securities
of the Company without the consent of the Underwriter. See "Description of
Common Shares."
Certain persons participating in this Offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may involve the purchase of Common Shares on the Bulletin
Board, or otherwise. Such transactions may stabilize or maintain the market
price of the Common Shares at a level above that which might otherwise prevail
in the open market and, if commenced, may be discontinued at any time.
The offering price set forth on the cover page of this Prospectus should
not be considered an indication of the actual value of the Common Shares. Such a
price is subject to change as a result of market conditions and other factors
and no assurance can be given that the Common Shares can be resold at the
offering price.
Prior to this Offering, there has been no public market for the Common
Shares. Accordingly, the initial public offering price was determined by
negotiations between the Company and the Underwriter. The factors considered in
determining the initial public offering price were the history and the prospects
of the Company and the industry in which it operates, the past and present
operating results of the Company and the trends of such results, the previous
experience of the Company's executive officers and the general condition of the
securities markets at the time of the Offering.
Kenneth W. Rothstein, Vice-President-Marketing elect of the Company, is
the brother of Steven A. Rothstein, the Chairman of the Underwriter.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement, which are filed as exhibits to the registration
statement filed in connection with this Offering.
49
<PAGE>
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon for
the Company by Morse, Zelnick, Rose & Lander, LLP, New York, New York. Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, New York, New York, has acted as counsel
to the Underwriter in connection with this Offering. Partners, associates and
employees of Morse, Zelnick, Rose & Lander, LLP own, in the aggregate, 56,250
Common Shares.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission with respect to the Shares offered hereby.
This Prospectus filed as a part of the Registration Statement does not contain
all of the information contained in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the Shares offered hereby, reference is made to such
Registration Statement including the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents are not necessarily complete, and in each instance, reference is
made to such contract, agreement or other documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and exhibits may be inspected without
charge and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the New York regional office of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
that site is http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent certified public
accountants.
50
<PAGE>
RONNYBROOK FARM DAIRY, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants................................. F-2
Balance Sheet at December 31, 1997....................................... F-3
Statements of Operations for the years ended December 31, 1997 and 1996.. F-4
Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1997 and 1996........................................ F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1996.. F-6
Notes to Financial Statements............................................ F-7
F-1
<PAGE>
After the change in tax status discussed in Note 8 to the Ronnybrook Farm Dairy,
Inc.'s financial statements is effected, we expect to be in a position to render
the following audit report.
ARTHUR ANDERSEN LLP
February 26, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Ronnybrook Farm Dairy, Inc.:
We have audited the accompanying balance sheet of Ronnybrook Farm Dairy, Inc. (a
New York corporation) as of December 31, 1997, and the related statements of
operations, stockholders' deficit and cash flows for the years ended December
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ronnybrook Farm Dairy, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
New York, New York
February 26, 1998 (except for the
matters described in Note 8, as to
which the date is _______________)
F-2
<PAGE>
RONNYBROOK FARM DAIRY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31, 1997
-----------------
<S> <C>
CURRENT ASSETS:
Cash $ 285,581
Accounts receivable, less allowance for doubtful accounts of $7,500 92,904
Related party receivable (Note 6) 45,077
Inventory 28,659
--------------
Total current assets 452,221
--------------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $189,643
(Note 3) 183,765
DEFERRED REGISTRATION COSTS 60,835
OTHER ASSETS 4,634
--------------
TOTAL ASSETS $ 701,455
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 106,902
Accrued expenses 76,022
Current portion of long-term debt (Note 4) 46,505
Current portion of capital lease obligations (Note 5) 3,242
--------------
Total current liabilities 232,671
--------------
LONG-TERM LIABILITIES:
Long-term debt (Note 4) 607,900
Capital lease obligations (Note 5) 13,058
Other liabilities 28,401
--------------
Total long-term liabilities 649,359
--------------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value; 10,000,000 shares authorized; 600,000 shares
issued and outstanding 600
Additional paid-in capital 27,400
Retained deficit (208,575)
--------------
Total stockholders' equity (deficit) (180,575)
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 701,455
--------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
RONNYBROOK FARM DAIRY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
NET SALES $ 842,734 $ 838,751
COST OF GOODS SOLD 522,168 497,354
--------------- ---------------
GROSS PROFIT 320,566 341,397
OPERATING EXPENSES 407,956 400,843
--------------- ---------------
LOSS FROM OPERATIONS (87,390) (59,446)
--------------- ---------------
OTHER INCOME/(EXPENSE):
Other income - 5,479
Interest expense (27,782) (9,656)
--------------- ---------------
(27,782) (4,177)
--------------- ---------------
NET LOSS $ (115,172) $ (63,623)
=============== ===============
PER SHARE INFORMATION:
Basic net loss per common share $ (.19) $ (.11)
--------------- ---------------
Weighted average common shares outstanding 600,000 600,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
RONNYBROOK FARM DAIRY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
---------------------------------
Number of Additional Retained
Shares Par Value Paid-in Capital Deficit Total
------ --------- --------------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 600,000 $ 600 $ 27,400 $ (29,780) $ (1,780)
Net loss - - - (63,623) (63,623)
------------ ------------ ------------- ------------ -------------
BALANCE, December 31, 1996 600,000 600 27,400 (93,403) (65,403)
Net loss - - - (115,172) (115,172)
------------ ------------ ------------- ------------ -------------
BALANCE, December 31, 1997 600,000 $ 600 $ 27,400 $ (208,575) $ (180,575)
============ ============ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
RONNYBROOK FARM DAIRY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (115,172) $ (63,623)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 38,287 41,196
Provision for allowance for doubtful accounts 1,400 (3,900)
Changes in assets and liabilities-
(Increase) decrease in accounts receivable (37,654) 28,367
Increase in related party receivable (45,077) -
Increase in inventory (20,140) (539)
Decrease (increase) in other assets 186 (1,311)
(Increase) in deferred offering costs (60,835) -
Increase in accounts payable and accrued expenses 62,086 34,538
(Increase) in other liabilities (10,263) (12,355)
--------------- --------------
Net cash (used in) provided by operating (187,182) 22,373
--------------- --------------
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (76,491) (27,348)
--------------- --------------
Net cash used in investing activities (76,491) (27,348)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
( Repayment of) proceeds from short-term debt (30,264) 30,264
Repayment of capital lease obligations (3,050) (1,789)
Repayment of long-term debt (80,265) (64,272)
Proceeds from long-term debt 661,715 39,475
--------------- --------------
Net cash provided by financing activities 548,136 3,678
--------------- --------------
NET INCREASE (DECREASE) IN CASH 284,463 (1,297)
CASH, beginning of period 1,118 2,415
--------------- --------------
CASH, end of period $ 285,581 $ 1,118
=============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 14,760 $ 7,235
=============== ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations incurred $ - $ 21,139
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
RONNYBROOK FARM DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS:
Ronnybrook Farm Dairy, Inc. (the "Company"), a New York Corporation,
manufactures premium quality dairy products from farm-fresh raw milk for sale
under the Ronnybrook(R) brand name in the New York metropolitan area, eastern
Long Island, northern New Jersey and in Columbia, Ulster, Rockland, Dutchess and
Westchester counties, New York. The Company's products include Creamline(R)
whole milk and skim milk, heavy cream and half-and-half packaged in traditional
glass bottles, butter, ice cream, yogurt and creme fraiche, and, on a limited
basis, assorted cheeses and eggnog. The Company sells its products to over 150
supermarkets, specialty food stores and gourmet delis and food service clients
and directly to the public at green markets, including the Union Square green
market in New York City, and at the Company's distribution center and retail
outlet at the Chelsea Market in New York City.
The Company has incurred net losses in the current and prior year, respectively,
and has a retained deficit as of December 31, 1997. In addition, the Company's
liquidity requirements have been and will continue to be significant. Management
has developed a detailed plan and taken certain actions in order to achieve
profitability and generate the funding necessary for the Company's operations.
Management plans to develop new products and improve the packaging of its
existing products in order to increase their market share in the highly
competitive market in which it operates. The Company has also hired a new
Vice-President of Marketing (Note 7) in order increase sales of its existing
products and to develop new markets for its products. The Company is also
pursuing an initial public offering of its common stock and in the event such
offering is not concluded, has obtained a real estate collateral agreement in
order to obtain financing, both to provide the necessary funding to continue and
increase its operations (Note 8). Management of the Company believes that these
plans and available collateral will be adequate to fund the Company's operations
at least through March 1999.
The Company's operations are dependent upon the availability of raw milk, which
is needed for its production. This raw milk is currently supplied exclusively to
the Company by Ronnybrook Farms (the "Farm"), which is owned and operated by
several of the Company's shareholders. There is no assurance that the Farm will
be able to supply the Company with the required quantity and quality of raw milk
necessary to meet its future demands; therefore, the Company has entered into
two non-binding letters of intent with other local farms for the supply of raw
milk in the event that the Farm is unable to meet the Company's demands. During
1997, the Company entered into an exclusive output agreement with the Farm for
the purchase of raw milk (Note 7).
F-7
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue on sales of bottled milk and other products is recognized upon delivery
to customers.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables from sales of the Company's
products.
Inventory
Inventory is stated at the lower of cost or market, and cost is determined using
the first-in, first-out method. Inventory is comprised of finished goods and raw
materials.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. The equipment is
depreciated utilizing the straight-line method over the estimated useful lives
of 3 to 15 years. Equipment held under capital leases is amortized utilizing the
straight-line method over the lesser of the term of the lease or estimated
useful life of the asset in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 13 "Accounting for Leases".
Income Taxes
The Company has elected to be treated as an S Corporation for federal and state
income tax purposes and as a result, the earnings of the Company are taxable
directly to the shareholders. The Company remains liable for New York State
Subchapter S and New York City corporate income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled.
F-8
<PAGE>
Net Loss Per Common Share
In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share". This statement establishes standards for computing
and presenting earnings per share ("EPS"), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations. Under
this new standard, Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects potential
dilution from the exercise or conversion of securities into common stock or from
other contracts to issue common stock and is similar to the currently required
fully diluted EPS. SFAS 128 became effective for financial statements issued for
periods ending after December 15, 1997. Upon adoption, the Company was required
to restate its EPS data for all prior periods presented, however, this adoption
had no effect on the Company's basic or diluted net loss per common share.
Basic net loss per common share is computed by dividing the Company's net loss
by the weighted average common shares outstanding for each year presented. The
Company's weighted average common shares outstanding for the years ended
December 31, 1997 and 1996 is equal to the Company's outstanding shares for each
year, as the Company did not issue any common stock during 1997 or 1996,
respectively. Diluted EPS is not presented as there are no outstanding dilutive
securities as of December 31, 1997 and for the years ended December 31, 1997 and
1996, respectively.
Stock Based Compensation
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
entities to adopt a fair value-based method of accounting for stock compensation
costs under pre-existing accounting pronouncements. If the fair value-based
method of accounting is not adopted, SFAS No. 123 requires pro-forma disclosures
of net income (loss) and earnings (loss) per share in the notes to the
consolidated financial statements. The Company has elected to continue the
accounting set forth in Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees" and to provide the necessary pro-forma disclosures.
There were no stock option grants or outstanding stock options as of December
31, 1997 and for the years ended December 31, 1997 and 1996, respectively.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are comprised of the following as of December 31,
1997:
Machinery and equipment $ 151,949
Leasehold improvements 58,580
Vehicles 98,917
Vehicles held under capital leases 21,310
Furniture and fixtures 25,982
Crates and reusable containers 16,670
-----------
373,408
Less: Accumulated depreciation (189,643)
-----------
Property, plant and equipment, net $ 183,765
===========
F-9
<PAGE>
Depreciation aggregated $38,287 and $41,196, respectively, for the years ended
December 31, 1997 and 1996.
4. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 1997:
<TABLE>
<S> <C>
Financing
Loan payable, bearing interest at 12%, interest payable semi-annually,
principal due in full on the earlier of the initial public offering of the
Company's common stock or April 30, 1999. $ 400,000
Bank Financing
Loan payable to Hudson Valley Farm Credit Association, due in monthly
installments of $1,400, including a variable interest rate (9% at
December 31, 1997), secured by a mortgage held by a shareholder 35,041
Various loans payable for vehicles, interest ranging from 9.25%- 12.75%, due
in varying monthly installments, through June 2000 39,023
Related Party Financing
Note payable to shareholder, bearing interest of 8%, principal and interest
due in full in June 1999 66,295
Note payable to related party, bearing interest of 8%, principal and
interest due in full in June 1999 2,456
Non-Related Financing
Note payable to non-related party, bearing interest of 8%, principal and
interest due in full in June 1999 17,249
Note payable to non-related party, bearing interest of 8% payment of
$20,000 due in June 1998 and the remaining principal plus interest due in
June 1999 94,341
---------
Total 654,405
Less: current portion 46,505
---------
Long-term debt $ 607,900
=========
</TABLE>
Maturities of long-term debt outstanding as of the year ended December 31, 1997
are as follows:
1998 $ 46,505
1999 588,273
2000 14,850
2001 4,777
-----------
$ 654,405
===========
As of December 31, 1997, the Company had an available line of credit from a bank
in the amount of $10,000. There were no amounts outstanding on the line of
credit as of December 31, 1997.
F-10
<PAGE>
5. CAPITAL LEASE OBLIGATIONS:
The Company leases a vehicle under a capital lease expiring in 2001. The asset
and liability under the capital lease are recorded at the lower of the present
value of minimum lease payments or the fair market value of the asset. The asset
is depreciated over its estimated useful life. The interest rate on the capital
lease is 15.61%.
Future minimum payments under the lease agreement are as follows:
Years Ended December 31,
1998 $ 5,858
1999 5,858
2000 5,858
2001 5,858
----------
Total minimum lease payments 23,432
Less: Amount representing interest 7,132
----------
Present value of net minimum lease payments $ 16,300
==========
6. RELATED PARTY TRANSACTIONS:
The Company purchases the raw milk used to process its products from the Farm.
Purchases of raw milk from the Farm totaled approximately $213,000 and $194,000,
respectively, for the years ended December 31, 1997 and 1996. The Company is
reimbursed for all raw milk purchased from the Farm that is not used in
production. As of December 31, 1997, the Company had an outstanding receivable
from the Farm of $45,077. During 1997, the Company entered into an exclusive
output agreement with the Farm for the purchase of the raw milk (Note 7).
The Company leases certain land and improvements owned by a related party, on
which the production dairy is located. The lease for this property included
monthly payments of $1,000 with immaterial escalations through the end of the
lease. The lease expired during 1997 and was renewed by the Company and the
related party subsequent to December 31, 1997 (Note 8).
7. COMMITMENTS:
Leases
As of December 31, 1997, the Company has leased certain land and improvements
from a related party (Notes 6 and 8). In addition, the Company also leases
retail space, production space and equipment from other lessors.
Future minimum payments for operating leases at December 31, 1997 are as
follows:
Year Ended December 31,
1998 $ 25,638
1999 22,035
2000 27,918
2001 34,806
2002 and thereafter 665,201
F-11
<PAGE>
Rental expense for the years ended December 31, 1997 and 1996 was approximately
$65,000 and $24,000, respectively.
Exclusive Output Agreement
On September 30, 1997, the Company entered into an Exclusive Output Agreement
(the "Output Agreement") with the Farm. Under the terms of the Output Agreement,
the Farm has agreed to sell all of the raw milk produced by the Farm to the
Company and the Company has agreed to purchase all of the raw milk required to
manufacture its dairy products, for a period of ten years, and renewable, at the
Company's election, for two additional ten-year terms. The Company will pay the
Farm a base price of $16 per hundredweight of raw milk in 1998, $18 per
hundredweight in 1999 and $20 per hundredweight year for the remainder of the
Output Agreement and any renewal term. In addition, the price paid for raw milk
can be adjusted monthly, but never below the applicable base price, by the
amount of any increase in the monthly Federal blend price for raw milk.
Employment Agreement
The Company has entered into an employment agreement with an individual,
providing for his employment as Vice President - Marketing. The agreement
commences on the close of the Company's proposed initial public offering (Note
8), or within thirty days of such close, for a term of one-year at a base salary
of $70,000 plus participation in all employee benefit plans.
8. SUBSEQUENT EVENTS:
Initial Public Offering
The Company is pursuing an initial public offering of its securities. The
offering contemplates the sale of 600,000 shares of common stock at an offering
price of $7.00 per share, before underwriting commissions and offering expenses.
The Company plans to use a portion of the proceeds of this offering to repay
approximately $400,000 of long-term debt (Note 4).
Supplemental pro forma net income for the year ended December 31, 1997 reflects
the tax-effected impact of the reduction of interest expense of $8,000
attributable to debt to be repaid as though this debt was repaid at the
beginning of the year. Supplemental weighted average common shares outstanding
include the pro forma weighted average shares outstanding, as well as the effect
of the issuance of 9,908 shares of common stock, which is the number of
incremental shares that would need to be issued at the proposed initial public
offering price to provide proceeds sufficient to pay the outstanding amounts of
such debt at December 31, 1997. These incremental shares are not and will not be
issued and outstanding for any other purpose and are included in this
calculation solely to illustrate their effect on a supplemental basis.
For the Year Ended
December 31, 1997
------------------
Supplementary earning per share $ (0.18)
=========
Supplementary weighted average common shares outstanding 609,908
=========
F-12
<PAGE>
Stock Split and Recapitalization
In January 1998, the Company approved an increase in the amount of authorized
common stock from 200 to 10,000,000 shares and a change in the common stock par
value from $.00 to $.001. Immediately thereafter, the Company authorized a 6,000
for 1 stock split on all common stock outstanding. All information in the
accompanying financial statements has been retroactively restated to give effect
to the stock split.
Change in Tax Status
Concurrent with this public offering, the Company will no longer qualify as a
subchapter "S" Corporation. The pro-forma effect of the Company's change in tax
status to a subchapter "C" Corporation is not shown in the accompanying
financial statements as the Company is not entitled to the future benefit of
losses incurred prior to this election.
Employment Agreements
On January 1, 1998, the Company entered into an employment agreement with
Richard Osofsky, providing for his employment as President, Chief Executive
Officer and Chief Financial Officer for a three-year term expiring on December
31, 2000. The agreement provides base salaries of $30,000 for the first year of
the term, $75,000 for the second year and $100,000 for the third year of the
term. The agreement also provides for participation of all employee benefit
plans, the use of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with R.
Sidney Osofsky, providing for his employment as Vice President - Production,
Chief Operating Officer and Treasurer for a three-year term expiring on December
31, 2000. The agreement provides base salaries of $30,000 for the first year of
the term, $75,000 for the second year and $100,000 for the third year of the
term. The agreement also provides for participation in all employee benefit
plans, the use of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with Ronald
Osofsky, providing for his employment as Vice President Sales and Distribution
and Secretary for a three-year term expiring on December 31, 2000. The agreement
provides base salaries of $30,000 for the first year of the term, $75,000 for
the second year and $100,000 for the third year of the term. The agreement also
provides for participation in all employee benefit plans, the use of an
automobile and certain other fringe benefits.
F-13
<PAGE>
Stock Option Plan
In January 1998, in order to attract and retain qualified personnel necessary
for the success of the Company, the Company adopted a Stock Option Plan (the
"Stock Option Plan") covering up to 420,000 of the Company's Common Shares,
pursuant to which officers, directors and key employees of the Company and
consultants to the Company are eligible to receive incentive stock options and
non-qualified stock options. The Board of Directors administers the Stock Option
Plan, which expires on December 31, 2007. Upon the appointment of a Compensation
Committee, the Compensation Committee will administer the Stock Option Plan.
Incentive stock options granted under the Stock Option Plan are exercisable for
a period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Shares on the date of the
grant, except that the term of an incentive stock option granted under the Stock
Option Plan to a shareholder owning more than 10% of the outstanding Common
Shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the Common Shares on the date of the grant.
The Company has granted pursuant to the Stock Option Plan, as of the effective
date of the Company's pending initial public offering, 100,000 stock options to
each of three executives, of which one-third of the options granted are
exercisable at the initial public offering price per share, one-third
exercisable at 120% of the initial public offering price per share and one-third
exercisable at 140% of the initial public offering price per share. No other
options have been granted under the Stock Option Plan.
Lease Agreement
On January 1, 1998, the Company entered into a new lease agreement with a
related party for land and improvements. The initial term of the new lease
expires in December 2008 and calls for monthly rent payments of $1,666 in the
first year with annual increases in the monthly rent payments of $1,250 in each
of the following three years. Thereafter, the Company has two ten-year renewal
options at an annual rent of $65,000.
Collateral Agreement
On February 18, 1998, the Company entered into a Real Estate Collateral
Agreement with several of its shareholders, whereby, the shareholders have
agreed to provide certain real estate, which they own, as collateral for any
future financing the Company may require. The agreement terminates on the
earlier of such time as when these shareholders are no longer, in the aggregate,
the majority owners of the Company's outstanding common stock or January 1,
2000. If the Company's proposed initial public offering is successfully
concluded, these shareholders will own less than a majority of the Company's
outstanding common stock and, accordingly, the agreement will terminate.
F-14
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer of any securities other than the
securities to which it relates or an offer to any person in any jurisdiction in
which such an offer would be unlawful. Any material modification of the Offering
will be accomplished by means of an amendment to the registration statement. In
addition, the right is reserved by the Company to cancel any confirmation of
sale prior to the release of funds, if, in the opinion of the Company,
completion of such sale would violate federal or state securities laws or a rule
or policy of the National Association of Securities Dealers, Inc., Washington,
D.C. 20006.
TABLE OF CONTENTS
Page
Prospectus Summary............................. 1
Risk Factors................................... 6
Use of Proceeds................................ 15
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Data........................ 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 21
Business....................................... 24
Management..................................... 39
Principal Shareholders......................... 43
Certain Transactions........................... 44
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 50
Experts........................................ 50
Available Information.......................... 50
Index to Financial Statements................. F-1
Until _____ ____, 1998 (25 days after the date of this Prospectus), all
broker-dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This delivery is in addition to the obligations of dealers to deliver a
Prospectus when acting as underwriters, and with respect to their unsold
allotments or subscriptions.
================================================================================
600,000 Shares
Common Stock
[LOGO]
RONNYBROOK FARM DAIRY, INC.
--------------
PROSPECTUS
--------------
National Securities Corporation
_______ ____, 1998
================================================================================
Draft of 2/25/98
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 722 and 723 of the New York Business Corporation Law grant to the
Company the power to indemnify the officers and directors of the Company as
follows:
(a) A corporation may indemnify any person made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type of
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interest of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
II-1
<PAGE>
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or officer
has met the standard of conduct set forth in section 722 or established pursuant
to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal counsel
that indemnification is proper in the circumstances because the applicable
standard of conduct set forth in such sections has been met by such director or
officer, or
(B) By the shareholders upon a finding that the director or officer has
met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amounts as, and to the extent, required by
paragraph (a) of section 725.
The Company's certificate of incorporation provides as follows:
SIXTH: The personal liability of directors to the corporation or its
shareholders for damages for any breach of duty in such capacity is hereby
eliminated except that such personal liability shall not be eliminated if a
judgment or other final adjudication adverse to such director establishes that
his acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled or that his acts
violated Section 719 of the Business Corporation Law.
II-2
<PAGE>
* * *
EIGHTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may hereafter
be amended (but, in case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorney's fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Business
Corporation Law requires, the payment of such expenses incurred by a director or
officer (in his or her capacity as a director or officer and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in
II-3
<PAGE>
the Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Business Corporation Law.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended.
Item 25. Other Expenses of Issuance and Distribution.
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by the Company. Other than the SEC registration fee
and the NASD filing fees all of such expenses are estimated.
Registration fee..................................................... $ 1,573.53
NASD fee............................................................. $ 1,033.41
Printing expenses.................................................... $ 45,000
Accounting fees and expenses......................................... $ 90,000
Legal fees and expenses.............................................. $ 135,000
State securities law fees and expenses............................... $
Transfer agent and registrar fees and expenses....................... $ 3,000
Miscellaneous........................................................ $28,393.06
Total....................................................... $ 304,000
==========
Item 26. Recent Sales of Unregistered Securities
During the past three years the Registrant has not issued any unregistered
securities.
II-4
<PAGE>
Item 27. Exhibits
(a) Exhibits:
Exhibit
No. Description
- ------- -----------
1.1 Form of Underwriting Agreement
2.1 Form of Amendment to Certificate of Incorporation Authorizing
Stock Split (See Exhibit 3.1)
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Underwriter's Warrant
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Stock Option Plan
10.2 Employment Agreement between the Company and Richard A.
Osofsky
10.3 Employment Agreement between the Company and R. Sidney Osofsky
10.4 Employment Agreement between the Company and Ronald N. Osofsky
10.5 Employment Agreement between the Company and Kenneth Rothstein
10.6 Lease between the Company and Prospect Hill Associates
10.7 Lease between the Company and CMC MIC Holding Company, L.L.C.
for the Chelsea Market Distribution Facility*
10.8 Output Agreement between the Company and the Osofsky Farm
10.9 8% Note Payable to Richard A. Osofsky
10.10 Form of Letter of Intent for the Purchase of Raw Milk
11.1 Supplemental Loss Per Share Calculation
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5.1).
24. Power of Attorney (included in signature page).
- ------------------
* To be filed by amendment.
II-5
<PAGE>
Item 28. Certain Undertakings
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the Securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remain unsold at the termination of the
Offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the Securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being registered, the Registrant will, unless
in the opinion of its counsel
II-6
<PAGE>
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on February 25, 1998.
RONNYBROOK FARM DAIRY, INC.
by: /s/ Richard A. Osofsky
-----------------------------
Richard A. Osofsky, President
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Richard A. Osofsky, R. Sidney Osofsky and Jonathan D.
Morse, or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any one
of them, or their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on February 25, 1998.
Signature Title
--------- -----
/s/ Richard A. Osofsky President, Chief Executive Officer,
- ----------------------------- Chief Financial Officer and Director
Richard A. Osofsky
/s/ R. Sidney Osofsky Director
- -----------------------------
R. Sidney Osofsky
/s/ Ronald N. Osofsky Director
- -----------------------------
Ronald N. Osofsky
II-7
________ Shares of Common Stock
RONNYBROOK FARM DAIRY, INC.
UNDERWRITING AGREEMENT
New York, New York
____________, 1998
NATIONAL SECURITIES CORPORATION
1001 Fourth Avenue, Suite 2200
Seattle, Washington 98154-1100
Ladies and Gentlemen:
Ronnybrook Farm Dairy, Inc., a corporation organized under the laws of the
State of New York (the "Company"), proposes to issue and confirms its agreement
with National Securities Corporation (hereinafter referred to as "you" or the
"Underwriter") with respect to the sale by the Company and the purchase by the
Underwriter of an aggregate of _______________________ (_____________) shares
("Shares") of Common Stock, par value $.001 per share, of the Company ("Common
Stock"). Such Shares are hereinafter referred to as the "Firm Securities." Upon
your request, as provided in Section 2(b) of this Agreement, the Company shall
also sell to the Underwriter up to an additional _______________ (______) shares
of Common Stock, for the purpose of covering over-allotments, if any. Such
shares of Common Stock are hereinafter referred to as the "Option Securities."
The Company also proposes to issue and sell to you warrants (the "Underwriter's
Warrants") pursuant to the Underwriter's Warrant Agreement, dated as of
____________, 1998, between the Company and the Underwriter (the "Underwriter's
Warrant Agreement") for the purchase of an additional _________________ (______)
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Underwriter's Warrants are hereinafter referred to as the "Underwriter's
Securities." The Firm Securities, the Option Securities, the Underwriter's
Warrants and the Underwriter's Securities (hereinafter collectively referred to
as the "Securities") are more fully described in the Registration Statement and
the Prospectus referred to below. The Company confirms the agreements made by it
with the Underwriter with respect to the Securities and related matters as
follows:
1. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Underwriter as of the date hereof, and
as of the Closing Date (as hereinafter defined) and the Option Closing
Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-_____),
including each related preliminary prospectus included therein prior
to the time such registration statement becomes effective
("Preliminary Prospectus"), for the registration of the Firm
Securities and the Option Securities under the Securities Act of
1933, as
<PAGE>
amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the
requirements of the Act, and the rules and regulations of the
Commission under the Act. The Company will promptly file a further
amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment
thereto to which the Underwriter shall have objected in writing
after having been furnished with a copy thereof. Except as the
context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration
statement becomes effective, including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to
those documents or information incorporated by reference therein)
and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430(A) of the Regulations, is
hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations, is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act
or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor, to the best of the Company's knowledge,
any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been
instituted or are pending or threatened. Each of the Preliminary
Prospectus, the Registration Statement and Prospectus at the time of
filing thereof conformed with the requirements of the Act and the
Rules and Regulations, and none of the Preliminary Prospectus, the
Registration Statement or Prospectus at the time of filing thereof
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein and necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, except that this
representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriter by or on behalf of
the Underwriter expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and
the Option Closing Date (as defined herein), if any, and during such
longer period as the Prospectus may be required to be delivered in
connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance
with the Act and the Rules and
2
<PAGE>
Regulations, and will conform to the requirements of the Act and the
Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that this
representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of
the Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New
York. Except as set forth in the Prospectus, the Company does not
own an interest in any corporation, partnership, trust, joint
venture or other business entity. The Company is duly qualified and
licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or
the character of its operations require such qualification or
licensing. The Company has all requisite power and authority
(corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, State and/or
other food and drug regulatory authorities and those having
jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local
and foreign laws, rules and regulations; and neither the Company nor
any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval,
order, license, certificate, franchise, or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company or any
Subsidiary. The disclosures in the Registration Statement concerning
the effects of federal, state, local, and foreign laws, rules and
regulations on each of the Company's and any Subsidiary's businesses
as currently conducted and as contemplated are correct in all
respects and do not omit to state a material fact necessary to make
the statements contained therein not misleading in light of the
circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under
"Capitalization" and "Description of Common Shares" and will have
the adjusted capitalization set forth therein on the Closing Date
and on the Option Closing Date, if any, based upon the assumptions
set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue
any capital stock, rights, warrants,
3
<PAGE>
options or other securities, except for this Agreement, the
Underwriter's Warrant Agreement and as described in the Prospectus.
The Securities and all other securities issued or issuable by the
Company conform or, when issued and paid for, will conform, in all
respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable and the holders
thereof have no rights of rescission with respect thereto, and are
not subject to personal liability by reason of being such holders;
and none of such securities was issued in violation of the
preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company. The Securities
are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and will
conform to the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as such
holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities will
be in due and proper form. Upon the issuance and delivery pursuant
to the terms hereof of the Securities to be sold by the Company
hereunder, the Underwriter will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restrictions
or equities of any kind whatsoever (collectively, "Liens").
(f) The financial statements of the Company together with the related
notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus comply in all
material respects with the requirements of the Act and fairly
present the financial position, income, changes in cash flow,
changes in stockholders' equity and the results of operations of the
Company at the respective dates and for the respective periods to
which they apply and such financial statements have been prepared in
conformity with the Rules and Regulations and with generally
accepted accounting principles consistently applied throughout the
periods involved ("GAAP"), and such financial statements have been
examined by Arthur Andersen LLP, who are independent certified
public accountants within the meaning of the Act and the Rules and
Regulations. The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the
Registration Statement and the Prospectus, if any, (i) present
fairly, in all material respects, the information shown therein,
(ii) have been prepared, in all material respects, in accordance
with the applicable requirements of Rule 11.02 of Regulation S-X
promulgated under the Exchange Act, (iii) have been prepared in
accordance with the Commission's rules and guidelines with respect
to pro forma financial statements, and (iv) have been properly
compiled on the bases described therein, and the assumptions used in
the preparation of the pro forma financial statements and other pro
forma financial information and included in the Registration
4
<PAGE>
Statement and the Prospectus are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein. There has been no adverse change
or development involving a prospective change in the condition,
financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operation of
the Company whether or not arising in the ordinary course of
business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt,
the property, both tangible and intangible, and the businesses of
the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
Financial information (including, without limitation, any pro forma
financial information) set forth in the Prospectus under the
headings "Summary Financial Data," "Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," fairly present, on
the basis stated in the Prospectus, the information set forth
therein, and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in
the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
The amounts shown as accrued for current and deferred income and
other taxes in such financial statements are sufficient for the
payment of all accrued and unpaid federal, state, local and foreign
income taxes, interest, penalties, assessments or deficiencies
applicable to the Company, whether disputed or not, for the
applicable period then ended and periods prior thereto; adequate
allowance for doubtful accounts has been provided for unindemnified
losses due to the operations of the Company; and the statements of
income do not contain any items of special or nonrecurring income
not earned in the ordinary course of business, except as specified
in the notes thereto.
(g) The Company (i) has filed with the appropriate federal, state and
local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including franchise tax
returns, which are required to be filed and all such tax returns are
correct and complete in all material respects, (ii) has paid all
federal, state, local, and foreign taxes for which it is liable,
including, but not limited to, withholding taxes and amounts payable
under Chapters 21 through 24 of the Internal Revenue Code of 1986
(the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (iii) has established
adequate reserves for such taxes which are not due and payable, (iv)
does not have any tax deficiency or claims outstanding, proposed or
assessed against it, and (v) has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any taxes and is not a party
to any proceeding or action by any foreign or domestic governmental
agency for assessment or collection of taxes.
5
<PAGE>
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriter in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriter of
the Firm Securities and the Option Securities, if any, and the
purchase by the Underwriter of the Underwriter's Warrants from the
Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, or (iv) resales of the Securities
in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not limited
to, general and product liability, environmental and property
insurance, which insures the Company and its employees, against such
losses and risks generally insured against by comparable businesses.
The Company (i) has not failed to give notice or present any
insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (ii)
does not have any disputes or claims against any underwriter of such
insurance policies or surety bonds and has not failed to pay any
premiums due and payable thereunder, (iii) has not failed to comply
with all conditions contained in its insurance policies and surety
bonds or (iv) does not have any reason to believe that it will not
be able to renew its existing insurance coverage as and when such
coverage expires. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of
its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against
(or circumstances that may give rise to the same), or involving the
properties or business of the Company which (i) questions the
validity of the capital stock of the Company, this Agreement, the
Underwriter's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with this
Agreement or the Underwriter's Warrant Agreement, (ii) is required
to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects),
or (iii) might materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or
results of operations of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, to enter into this Agreement
and the Underwriter's Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and
the Underwriter's Warrant Agreement have each been duly and properly
authorized, executed and delivered by the Company. Each of this
Agreement and the Underwriter's Warrant Agreement constitutes a
legal,
6
<PAGE>
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, and none of the Company's
issue and sale of the Securities, or the execution or delivery of
this Agreement or the Underwriter's Warrant Agreement by the
Company, the performance hereunder and thereunder by the Company,
the consummation of the transactions contemplated herein and therein
by the Company or the conduct of the Company's business as described
in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results
or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any Liens of any kind
whatsoever upon, any property or assets (tangible or intangible) of
the Company pursuant to the terms of (i) the articles of
incorporation or by-laws of the Company, (ii) any license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which
it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness,
or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective activities or
properties.
(l) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance and sale of the
Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement and the Underwriter's
Warrant Agreement and the transactions contemplated hereby and
thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Securities, except such as have
been or may be obtained under the Act or may be required under state
securities or blue sky laws (collectively, "Blue Sky") in connection
with the Underwriter's purchase and distribution of the Firm
Securities and the Option Securities, if any, and the Underwriter's
Warrants to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company is a party or by
which it may be bound or to which any of its assets, properties or
businesses may be subject, have been duly and validly authorized,
executed and delivered by the Company and constitute the legal,
valid and binding agreements of the Company enforceable against the
Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required
to be shown with respect thereto by
7
<PAGE>
Form SB-2, and there are no contracts or other documents which are
required by the Act or the Rules and Regulations to be described in
the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of
the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as
may otherwise be indicated or contemplated herein or therein, the
Company has not (i) issued any securities or incurred any liability
or obligation, direct or contingent, for borrowed money, (ii)
entered into any transaction other than in the ordinary course of
business, or (iii) declared or paid any dividend or made any other
stock of any class, and there has not been any change in the capital
stock or any change in the debt (long or short term) or liabilities
or material adverse change in or affecting the general affairs,
management, financial operations, stockholders' equity or results of
operations of the Company.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders' agreement, partnership agreement, note,
loan or credit agreement, purchase order, or any other material
agreement or instrument evidencing an obligation for borrowed money,
or any other material agreement or instrument to which the Company
is a party or by which the Company may be bound or to which the
property or assets (tangible or intangible) of the Company is
subject or affected.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations
involving the Company by the U.S. Department of Labor, or any other
foreign or domestic governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and
regulations. There is no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations
Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or
any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company. No grievance
or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute
with the employees of the Company exists, or, to its knowledge, is
imminent.
(q) The Company does not maintain, sponsor or contribute to any program
or arrangement that is an "employee pension benefit plan," an
"employee welfare
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<PAGE>
benefit plan," or a "multiemployer plan" as such terms are defined
in Sections (2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (the
foregoing are collectively, "ERISA Plans"). The Company does not
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan
(or any trust created thereunder), if any, has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA
or Section 4975 of the Code, which could subject the Company to any
tax penalty on prohibited transactions and which has not adequately
been corrected. Each ERISA Plan, if any, is in compliance with all
material reporting, disclosure and other requirements of the Code
and ERISA as they relate to any such ERISA Plan. Determination
letters have been received from the Internal Plan which is intended
to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never
completely or partially withdrawn from a "multiemployer plan."
(r) None of the Company nor any of its employees, directors,
stockholders, partners, or affiliates of any of the foregoing
(within the meaning of the Rules and Regulations) has taken or will
take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under
the Exchange Act, or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or
resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, trademarks, service marks, trade names and copyrights, and
applications with respect thereto, and licenses and rights to the
foregoing presently owned or held by the Company are in dispute so
far as known by the Company or, are in any conflict with the right
of any other person or entity. The Company (i) owns or has the right
to use, free and clear of all Liens of any kind whatsoever, all
patents, trademarks, service marks, trade names and copyrights,
technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any person, corporation or other
entity under or with respect to any of the foregoing and (ii) except
as set disclosed in the Prospectus, is not obligated nor under any
liability whatsoever to make any payment by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any
patent, trademark, service mark, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or
otherwise.
(t) The Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information
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(collectively herein "Intellectual Property") that are material to
the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company, free and clear
of and without violating any right, Lien, or claim of others,
including without limitation, former employers of its employees.
(u) The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all its Intellectual Property.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it free
and clear of all Liens, of any kind whatsoever, other than those
referred to in the Prospectus and Liens for taxes not yet due and
payable.
(w) Arthur Andersen LLP, whose report is filed with the Commission as a
part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(x) On or before the effective date of the Registration Statement, the
Company shall provide to the Underwriter, legally binding and
enforceable agreements, in form and substance satisfactory to the
Underwriter ("Lock-up Agreements") pursuant to which each of the
Company's officers and directors, all holders of five percent (5%)
or more of the shares of Common Stock, and all holders of securities
exchangeable or exercisable for or convertible into shares of Common
Stock, agrees (i) not to, directly or indirectly, issue, offer,
offer to sell, sell, grant any option for the sale or purchase of,
assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period of not less
than thirteen (13) months following the effective date of the
Registration Statement without the prior written consent of the
Representative and the Company and (ii) to waive all rights to
request or demand the registration pursuant to the Act of any
securities of the Company which are registered in the name of or
beneficially owned by any such holder. During the 13-month period
commencing on the effective date of the Registration Statement, the
Company shall not, without the prior written consent of the
Representative, sell, contract or offer to sell, issue, transfer,
assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock. The Company
will cause the Transfer Agent (as hereinafter defined) to mark an
appropriate legend on the face of stock certificates representing
all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
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(y) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature
of a finder's, consulting or origination fee with respect to the
sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuance with respect to the
Company or any of its respective officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriter's
compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(z) The Firm Securities and the Option Securities have been approved for
inclusion and quotation on the Nasdaq Stock Market's OTC Bulletin
Board ("Bulletin Board").
(aa) Neither the Company nor any of their respective officers, employees,
agents or any other person acting on behalf of the Company has,
directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in
the ordinary course of business) to any customer, supplier, employee
or agent of a customer or supplier, or official or employee of any
governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is, or may
be in a position to help or hinder the business of the Company (or
assist the Company in connection with any actual or proposed
transaction) which (i) might subject the Company or any other such
person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material adverse effect on
the assets, business or operations of the Company, or (iii) if not
continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's
internal accounting controls are sufficient to cause the Company to
comply with the Foreign Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated
under the Rules and Regulations) of any of the foregoing persons or
entities has or has had, either directly or indirectly (i) an
interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to
be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the
Company is a party or by which it may be bound or affected. Except
as set forth in the Prospectus under "Certain Transactions," there
are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings
or transactions, between or among the Company and any officer,
director, all holders of five percent (5%) or more of the Common
Stock of the Company, or any partner, affiliate or associate of any
of the foregoing persons or entities.
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<PAGE>
(cc) Any certificate signed by any officer of the Company, and delivered
to the Underwriter or to Underwriter's Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
(dd) The minute books of the Company have been made available to the
Underwriter and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company, since the
time of its incorporation, and reflects all transactions referred to
in such minutes accurately and fairly in all respects.
(ee) Except and to the extent described in the Prospectus, no holders of
any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right
to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the
Act and no person or entity holds any anti-dilution rights with
respect to any securities of the Company.
(ff) As of the effective date of the Registration Statement, the Company
maintains term key-man insurance on the life of _________ in the
amount of $_____________, which policy names the Company as the sole
beneficiary thereof.
(gg) The Company is not now, and upon the issuance and sale of the Firm
Securities, the Option Securities, if any, and the Underwriter's
Warrants hereunder and the application of the net proceeds from such
sale as described under the caption "Use of Proceeds" in the
Prospectus will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of such
terms under the Investment Company Act of 1940, as amended, and the
rules and regulations of the Commission thereunder.
(hh) The Company (i) makes and keeps accurate books and records and (ii)
maintains a system of internal accounting controls which provide
reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets, (C)
access to its assets is permitted only in accordance with
management's general or specific authorization and (D) the recorded
accountability for its assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(ii) The Company is in compliance with all federal, state, local or
foreign laws, common law, rules, codes, administrative orders or
regulations relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface
12
<PAGE>
strata) or wildlife, including without limitation all laws, common
law, rules, codes, administrative orders and regulations relating to
the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively "Environmental Laws") and (B) there are no
events or circumstances that could form the basis of an order for
clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting
the Company relating to any Hazardous Materials or the violation of
any Environmental Laws. The company has no reason to believe that it
will not receive all necessary and required approvals,
authorizations, validations and certifications from applicable
regulatory authorities to enable the Company to commence full
operations as contemplated in the Registration Statement and the
Prospectus.
(jj) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties owned or managed by the Company in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such
review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the Company.
(kk) As of the date hereof, the Company does not have more than _______
shares of Common Stock issued and outstanding (including securities
with equivalent rights as the Common Stock and shares of Common
Stock, or such equivalent securities, issuable upon exercise of any
all options, warrants and other contract rights and securities
convertible directly or indirectly into shares of Common Stock or
such equivalent securities, but excluding up to ________ shares of
Common Stock issuable upon the exercise of options granted under the
Company's Stock Option Plan at prices not less than the initial
public offering price per share).
2. Purchase, Sale and Delivery of the Securities and Underwriter's Warrants.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase the Firm
Securities from the Company at a price of $_____ per share of Common
Stock [90% of the public offering price].
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<PAGE>
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option
to the Underwriter to purchase from the Company all or any part of
the Option Securities at a price of $______ per share of Common
Stock [90% of the public offering price]. The option granted hereby
will expire forty-five (45) days after (i) the date the Registration
Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A
under the Rules and Regulations, and may be exercised in whole or in
part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering
and distribution of the Firm Securities upon notice by the
Underwriter to the Company setting forth the number of Option
Securities as to which the Underwriter is then exercising the option
and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Underwriter, but shall not be
later than three (3) full business days after the exercise of said
option, nor in any event prior to the Closing Date, as hereinafter
defined, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to
make any over-allotments. No Option Securities shall be delivered
unless the Firm Securities shall be simultaneously delivered or
shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of the Underwriter
at 1001 Fourth Avenue, Suite 2200, Seattle, Washington, 98154 or at
such other place as shall be agreed upon by the Underwriter and the
Company. Such delivery and payment shall be made at 10:00 a.m. (New
York City time) on ____________, 1998 or at such other time and date
as shall be agreed upon by the Underwriter and the Company, but not
less than three (3) nor more than five (5) full business days after
the effective date of the Registration Statement (such time and date
of payment and delivery being herein called "Closing Date");
provided, however, that the failure of the Underwriters to make
payment of the purchase price for such Firm Securities on such
Closing Date shall not constitute a default under this Agreement if
the Underwriter provides the Company with a promissory note for the
balance of the purchase price for the Firm Securities not paid at
the Closing Date, which promissory note shall be due and payable
only as the Underwriter receives payment of the purchase price for
the Firm Securities but in no event later than ten (10) days after
the date of this Agreement. In addition, in the event that any or
all of the Option Securities are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for,
such Option Securities shall be made at the above-mentioned office
of the Underwriter or at such other place as shall be agreed upon by
the Underwriter and the Company on each Option Closing Date as
specified in the notice from the Underwriter to the Company.
Delivery of the certificates for the Firm Securities and the Option
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<PAGE>
Securities, if any, shall be made to the Underwriter against payment
by the Underwriter of the purchase price for the Firm Securities and
the Option Securities, if any, to the order of the Company by New
York Clearing House funds, subject in each case to such adjustments
as the Underwriter in its discretion shall make to eliminate any
sales or purchases of fractional shares; provided, however, that the
failure of the Underwriters to make payment of the purchase price
for the Firm Securities on the closing Date shall not constitute a
default under this Agreement if the Underwriter provides the Company
with a promissory note for the balance of the purchase price for the
Firm Securities not paid at the Closing Date, which promissory note
shall be due and payable only as the Underwriter receives payment of
the purchase price for the Firm Securities but in no event later
than ten (10) days after the date of this Agreement. Certificates
for the Firm Securities and the Option Securities, if any, shall be
in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such
names as the Underwriter may request in writing at least two (2)
business days prior to the Closing Date or the relevant Option
Closing Date, as the case may be. The certificates for the Firm
Securities and the Option Securities, if any, shall be made
available to the Underwriter at such office or such other place as
the Underwriter may designate for inspection, checking and packaging
no later than 9:30 a.m. on the last business day prior to the
Closing Date or the relevant Option Closing Date, as the case may
be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter, the Underwriter's Warrants at a purchase price of
$.001 per warrant, which warrants shall entitle the holder(s)
thereof to purchase an aggregate of _____ shares of Common Stock.
The Underwriter's Warrants shall be exercisable for a period of four
(4) years commencing one (1) year from the effective date of the
Registration Statement at an exercise price of $____ per share of
Common Stock [one hundred twenty percent (120%) of the public
offering price of the Firm Securities]. The Underwriter's Warrant
Agreement and form of Warrant Certificate shall be substantially in
the form filed as Exhibit 4.2 to the Registration Statement. Payment
for the Underwriter's Warrants shall be made on the Closing Date.
3. Public Offering of the Shares.
As soon after the Registration Statement becomes effective as the
Underwriter deems advisable, the Underwriter shall make a public offering
of the Firm Securities (other than to residents of or in any jurisdiction
in which qualification of the Firm Securities is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price and increase or decrease concessions and discounts
to dealers after distribution of the Firm Securities has been completed to
such extent as the Underwriter, in its sole discretion deems advisable.
The Underwriter may enter into one of more
15
<PAGE>
agreements as the Underwriter, in its sole discretion deems advisable,
with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. Covenants and Agreements of the Company. The Company covenants and agrees
with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly
as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to
the Registration Statement or supplement to the Prospectus or file
any document under the Act or Exchange Act before termination of the
offering of the Firm Securities by the Underwriter of which the
Underwriter shall not previously have been advised and furnished
with a copy, or to which the Underwriter shall have objected or
which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriter and confirm the notice in
writing (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act
will be relied upon, when the Prospectus has been filed in
accordance with said Rule 430A and when any post-effective amendment
to the Registration Statement becomes effective, (ii) of the
issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceeding, suspending the effectiveness
of the Registration Statement or any order preventing or suspending
the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of proceedings
for that purpose, (iii) of the issuance by the Commission, or by any
state securities commission of any proceedings for the suspension of
the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments
from the Commission, and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the
Commission or any state securities commission authority shall enter
a stop order or suspend such qualification at any time, the Company
will use its best efforts to obtain promptly the lifting of such
order or suspension.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission
pursuant to Rule 424(b)(1) (or, if applicable and if consented to by
the Underwriter, pursuant to Rule 424(b)(4)) not later than the
Commission's close of business on the earlier of (i) the second
business day following the execution and delivery of this Agreement,
and (ii) the fifth business day after the effective date of the
Registration Statement.
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<PAGE>
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus which
the Company proposes for use by the Underwriter in connection with
the offering of the Securities which differs from the corresponding
prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Underwriter with copies of any
such amendment or supplement a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file
any such prospectus to which the Underwriter or Greenberg Traurig
Hoffman Lipoff Rosen & Quentel ("Underwriter's Counsel") shall
object.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Underwriter
may designate to permit the continuance of sales and dealings
therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service
of process in any such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the
Underwriter agrees that such action is not at the time necessary or
advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such
qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with
all requirements imposed upon it by the Act and the Exchange Act, as
now and hereafter amended and by the Rules and Regulations, as from
time to time in force, so far as necessary to permit the continuance
of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to
the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the reasonable opinion
of counsel for the Company or Underwriter's Counsel, the Prospectus,
as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the
Underwriter promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of
the Act, each such amendment or supplement to be reasonably
satisfactory to Underwriter's Counsel and the Company will furnish
to the Underwriter copies of such amendment or
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<PAGE>
supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (ninety (90)
days in the event that the end of such fiscal quarter is the end of
the Company's fiscal year), the Company shall make generally
available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an
earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11 (a) of the Act
and Rule 158(a) of the Rules and Regulations, which statement need
not be audited unless required by the Act, covering a period of at
least twelve (12) consecutive months after the effective date of the
Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by
independent public accountants) and unaudited quarterly reports of
earnings, and will deliver to the Underwriter:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders
and certified by the Company's principal financial or
accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of
the preceding fiscal year, together with statements of
operations, stockholders equity, and cash flows of the Company
for such fiscal year, accompanied by a copy of the certificate
thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the
Commission, the NASD or any securities exchange;
(v) every press release and every material news item or article of
interest to the financial community in respect of the Company,
or its affairs which was released or prepared by or on behalf
of the Company (or any future subsidiaries); and
(vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which
the Underwriter may request.
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During such seven-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a
consolidated basis to the extent that the accounts of the Company
and any of its subsidiaries are consolidated and will be accompanied
by similar financial statements for any significant subsidiary which
is not so consolidated.
(i) The Company will maintain a transfer agent and warrant agent (the
"Transfer Agent") and, if necessary under the jurisdiction of
incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock, each of which
shall be satisfactory to the Underwriter.
(j) The Company will furnish or cause to be furnished to the
Underwriter, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto
(two of which copies will be manually signed and will include all
financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in
each case as soon as available and in such quantities as the
Underwriter may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Underwriter with true original copies of
the duly executed, legally binding and enforceable Lock-up
Agreements pursuant to which for a period of thirteen (13) months
from the effective date of the Registration Statement, each of the
Company's officers and directors and all holders of five percent
(5%) or more of the shares of Common Stock and all holders of
securities exchangeable or exercisable for or convertible into
Common Stock has agreed that it or he or she will not, directly or
indirectly, issue, offer to sell, sell, make a short sale (including
without limitation short against the box), grant an option for the
sale of, assign, transfer, pledge, hypothecate or otherwise encumber
or dispose of any shares of Common Stock or securities convertible
into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either
pursuant to Rule 144 of the Rules and Regulations or otherwise),
dispose of any beneficial interest therein without the prior consent
of the Underwriter, enter into any swap or other agreement that
transfers in whole or in part any of the economic consequences or
ownership of the Common Stock, whether any such transactions were to
be settled by delivery of Common Stock, other securities, cash or
otherwise, without the prior written consent of the Underwriter
(collectively, the "Lock-up Agreements"). In addition, during the
thirteen (13) month period commencing with the effective date of the
Registration Statement, the Company shall not, without the prior
written consent of the Underwriter, sell, contract or offer to sell,
issue, transfer, assign, pledge, distribute or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for shares of Common
Stock. On or before the Closing Date, the Company shall deliver
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<PAGE>
instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities
subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's stock ledgers.
(l) Neither the Company nor any of its officers, directors,
stockholders, nor any of its affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action
designed to, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the Firm
Securities and the Option Securities, if any, in the manner, and
subject to the conditions, set forth under "Use of Proceeds" in the
Prospectus. No portion of the net proceeds will be used, directly or
indirectly, to acquire any securities issued by the Company or any
of its Affiliates (as defined herein).
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a
report as may be required pursuant to Rule 463 of the Regulations)
from time to time, under the Act, the Exchange Act, and the Rules
and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Underwriter as early as practicable
prior to each of the Closing Date and each Option Closing Date, if
any, but no later than two (2) full business days prior thereto, a
copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than
thirty (30) days prior to the date of the Registration Statement)
which have been read by the Company's independent public accountants
as stated in their letters to be furnished pursuant to Section 6(l)
and 6(m) hereof.
(p) The Company shall cause the Securities to be quoted on the Bulletin
Board or listed on a comparable national securities exchange and for
a period of seven (7) years from the date hereof, use its best
efforts to maintain the Bulletin Board quotation or other such
exchange listing of the Securities to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Underwriter at the Company's sole expense (i)
daily consolidated transfer sheets relating to the Common Stock,
(ii) the list of holders of all of the Company's securities and
(iii) a Blue Sky "Trading Survey" for secondary sales of the
Company's securities prepared by counsel to the Company.
(r) As soon as practicable (i) but in no event more than five (5)
business days before the effective date of the Registration
Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the
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Securities, and (ii) but in no event more than thirty (30) days from
the effective date of the Registration Statement, take all necessary
and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(s) The Company hereby agrees that it will not, without the prior
written consent of the Underwriter, for a period of thirteen (13)
months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or arrangement permitting
(i) the grant, issue, sale or entry into any agreement to grant,
issue or sell any option, warrant or other contract right (x) at an
exercise price that is less than the greater of the public offering
price of the Firm Securities set forth herein and the fair market
value on the date of grant or sale or (y) to any of its executive
officers or directors or to any holder of five percent (5%) or more
of the shares of Common Stock, except as provided in subsection (ii)
of this subparagraph; and (ii) the maximum number of shares of
Common Stock or other securities of the Company purchasable at any
time pursuant to options or warrants issued by the Company to exceed
________ shares reserved for issuance under the Company's Stock
Option Plan; (iii) the payment for such securities with any form of
consideration other than cash, or (iv) the existence of stock
appreciation rights, phantom options or similar arrangements.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the
Underwriter and Underwriter's Counsel, issue, directly or indirectly
any press release or other communication or hold any press
conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in
the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which
may prevent or disqualify the Company's use of Form SB-2 (or other
appropriate form) for the registration under the Act of the
Underwriter's Securities. The Company further agrees to use its best
efforts to file such post-effective amendments to the Registration
Statement, as may be necessary, in order to maintain its
effectiveness and to keep such Registration Statement effective
while any of the Representative's Warrants remain outstanding.
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<PAGE>
(v) The Company will not, and will not permit any of its future
subsidiaries to, directly or indirectly, enter into any transaction
or series of related transactions (including, but not limited to,)
the sale, purchase, exchange, lese, transfer or other disposition of
any properties, assets or services to, or the purchase of any
property, assets or services from, or the entry into any contract,
agreement, undertaking, loan, advance or guarantee) with, or for the
benefit of, an Affiliate (an "Affiliate Transaction"), or extend,
renew, waive or otherwise modify the terms of any Affiliate
Transaction entered into prior to the date of issuance of the
Securities unless (i) such Affiliate Transaction is between or among
the Company and its wholly-owned subsidiaries, or (ii) the terms of
such Affiliate Transaction are fair and reasonable and at least as
favorable to the Company or such subsidiary, as the case may be, as
those that could have been obtained in a comparable arm's length
transaction by the Company or such subsidiary with an unrelated
person, and such Affiliate Transaction is entered into in the
ordinary course of business of the parties thereto; provided,
however, notwithstanding anything to the contrary contained herein,
the Company may issue securities pursuant to the exercise of
outstanding options and warrants on the terms in effect and
described in the Prospectus relating to the Securities. All
Affiliate Transactions must be approved in good faith by the Board
of Directors of the Company and a minimum of three disinterested and
independent outside directors thereof, and such approval evidenced
by a Board Resolution that such transaction meets the criterion set
forth in (i) or (ii) above.
5. Payment of Expenses
(a) The Company hereby agrees to pay on each of the Closing Date and the
Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees (other than fees of Underwriter's Counsel, except
as provided in (iv) below) incident to the performance of the
obligations of the Company under this Agreement and the
Underwriter's Warrant Agreement, including, without limitation, (i)
the fees and expenses of accountants and counsel for the Company,
(ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling
charges) filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement, and the
Prospectus and any amendments and supplements thereto and the
printing, mailing (including the payment of postage with respect
thereto) and delivery of this Agreement, the Underwriter's Warrant
Agreement,
22
<PAGE>
selected dealer agreements (if any) and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter and such dealers as the
Underwriter may request, in quantities as herein above stated, (iii)
the printing, engraving, issuance and delivery of the Securities
including, but not limited to (x) the purchase by the Underwriter of
the Securities from the Company and the purchase by the Underwriter
of the Underwriter's Warrants from the Company, (y) the consummation
by the Company of any of its obligations under this Agreement and
the Underwriter's Warrant Agreement, and (z) resale of the Firm
Securities and Option Securities, if any, by the Underwriter in
connection with the distribution contemplated hereby, (iv) the
qualification of the Securities under state or foreign securities or
"Blue Sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum", the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, and
reasonable disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show,"
information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and
expenses in connection with due diligence investigations, including
but not limited to the fees of any independent counsel, expert or
consultant retained, (vii) fees and expenses of the Transfer Agent,
registrar and custodian and all issue and transfer taxes, if any,
(viii) the fees payable to the Commission and the NASD, (ix)
applications for assignment of a rating of the Securities by
qualified rating agencies, and (x) the fees and expenses incurred in
connection with the listing of the Securities on the Bulletin Board
and any other exchange.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 10 or Section 11, the Company shall
reimburse and indemnify the Underwriter for all of its out-of-pocket
expenses' including the fees and disbursements of Underwriter's
Counsel, less any amounts already paid pursuant to Section 5(c)
hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the
Underwriter on the Closing Date by certified or bank cashier's check
or, at the election of the Underwriter, by deduction from the
proceeds of the offering contemplated herein a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds
received by the Company from the sale of the Firm Securities, none
of which has been paid to date. In the event the Underwriter elects
to exercise the over-allotment option described in Section 2(b)
hereof, the Company agrees to pay to the Underwriter on the Option
Closing Date (by certified or bank cashier's check or, at the
Underwriter's election, by deduction from the proceeds of the
offering) a non-accountable expense allowance equal to three percent
(3%)
23
<PAGE>
of the gross proceeds received by the Company from the sale of the
Option Securities.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof
and as of the Closing Date and each Option Closing Date, if any, as if
they had been or have made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing
Date or Option Closing Date, if any, of the statements of officers of the
Company (where applicable) made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 noon, New York time, on the date of this Agreement or
such later date and time as shall be consented to in writing by the
Underwriter, and, at the Closing Date and each Option Closing Date,
if any, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with
to the satisfaction of Underwriter's Counsel. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Shares and any price related information previously
omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period and, prior to the Closing Date, the Company
shall have provided evidence satisfactory to the Underwriter of such
timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and
Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material,
or omits to state a fact which, in the Underwriter's opinion, is
material and is required to be stated therein or is necessary to
make the statements therein not misleading, or that the Prospectus,
or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material, or omits to state
a fact which, in the Underwriter's opinion, is material and is
required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(c) At the Closing Date, the Underwriter shall have received the
favorable opinion of Morse, Zelnick, Rose & Lander, LLP, New York,
New York, counsel to the
24
<PAGE>
Company dated the Closing Date, addressed to the Underwriter and in
form and substance satisfactory to Underwriter and Underwriter's
Counsel to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of
its jurisdiction, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the
character of its operations requires such qualification or
license and (C) has all requisite power and authority
(corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or
regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct
its respective business as described in the Prospectus; the
Company is and has been doing business in compliance with all
such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state
and local laws, rules and regulations; and, the Company has
not received any notice of proceedings relating to the
revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would adversely
affect the business, operations, condition, financial or
otherwise, or the earnings, business affairs, position,
prospects, value, operation, properties, business or results
of operations of the Company. The disclosures in the
Registration Statement concerning the effects of foreign,
federal, state and local laws, rules and regulations on the
Company's business as currently conducted and as contemplated
are correct in all respects and do not omit to state a fact
necessary to make the statements contained therein not
misleading in light of the circumstances in which they were
made;
(ii) the Company does not own an interest in any other corporation,
partnership, joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any
amendment or supplement thereto, under "Capitalization," and
the Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities,
except for this Agreement and the Underwriter's Warrant
Agreement and as described in the Prospectus. The Securities
and all other securities issued or issuable by the Company
conform in all material respects to all statements with
respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding
25
<PAGE>
securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof
have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and
none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or any similar
rights granted by the Company. The Securities to be sold by the
Company hereunder and under the Underwriter's Warrant Agreement are
not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken;
and the certificates representing the Securities and the
Underwriter's Securities are in due and proper form. The
Underwriter's Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called
for thereby. Upon the issuance and delivery pursuant to this
Agreement of the Securities to be sold by the Company, the
Underwriter will acquire good and marketable title to the Securities
free and clear of any Lien of any kind whatsoever. No transfer tax
or duty is payable by or on behalf of the Underwriter in connection
with (A) the issuance by the Company of the Securities, (B) the
purchase by the Underwriter of the Securities from the Company, (C)
the consummation by the Company of any of its obligations under this
Agreement or the Underwriter's Warrant Agreement, or (D) resales of
the Securities in connection with the distribution contemplated
hereby;
(iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop
order suspending the use of the Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any
thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to the best of such
counsel's knowledge after due inquiry, threatened or
contemplated under the Act, by the Commission;
(v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or
supplements thereto (other than the financial statements and
other financial and statistical data included therein, as to
which no opinion need be rendered) comply as to form in
26
<PAGE>
all material respects with the requirements of the Act and the
Rules and Regulations;
(vi) (A) there are no agreements, contracts or other documents
required by the Act to be described in the Registration
Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) and the Prospectus
and documents filed as exhibits thereto, and the exhibits
which have been filed are correct copies of the documents of
which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which
the Company is a party or by which it is bound, including any
document to which the Company is a party or by which it is
bound, are accurate and fairly represent the information
required to be shown by Form SB-2; (C) there is not pending or
threatened against the Company any action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving
the properties or business of the Company which (x) is
required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all
respects) or (y) questions the validity of the capital stock
of the Company or this Agreement or the Underwriter's Warrant
Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the
Prospectus is not described as required; and (E) there is no
action, suit or proceeding pending or threatened against or
affecting the Company before any court or arbitrator or
governmental body, agency or official (or any basis thereof
known to such counsel) in which there is a reasonable
possibility of a decision which may result in a material
adverse change in the condition, financial or otherwise, or
the earnings, position, prospects, stockholders equity, value,
operation, properties, business or results of operations of
the Company, which could adversely affect the present or
prospective ability of the Company to perform its obligations
under this Agreement or the Underwriter's Warrant Agreement or
which in any manner draws into question the validity or
enforceability of this Agreement or the Underwriter's Warrant
Agreement;
(vii) the Company has full legal right, power and authority to enter
into each of this Agreement and the Underwriter's Warrant
Agreement, and to
27
<PAGE>
consummate the transactions provided for therein; and each of
this Agreement and the Underwriter's Warrant Agreement has
been duly authorized, executed and delivered by the Company.
Each of this Agreement and the Underwriter's Warrant
Agreement, assuming due authorization, execution and delivery
by each other party thereto, constitutes a legal, valid and
binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law),
and none of the Company's execution or delivery of this
Agreement or the Underwriter's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of
its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result
in any breach or violation of any of the terms or provisions
of, or constitutes or will constitute a default under, or
result in the creation or imposition of any Lien, of any kind
whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the
certificate of Incorporation or By-laws, as applicable, of the
Company, (B) any license, contract, indenture, mortgage, deed
of trust, voting trust agreement, stockholder's agreement,
note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which any of
them is or may be bound or to which any of their respective
properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment,
decree, order, rule or regulation applicable to the Company of
any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including,
without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective
activities or properties;
(viii) no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws,
as to which no opinion need be rendered) is required in
connection with the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the issuance of the
Warrants, the performance of this Agreement, the Underwriter's
Warrant Agreement, and the transactions contemplated hereby
and thereby;
28
<PAGE>
(ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has
good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, in each
case free and clear of all Liens of any kind whatsoever, other
than those referred to in the Prospectus and Liens for taxes
not yet due and payable;
(x) the Company is not in breach of, or in default under, any term
or provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party
or by which either of the Company may be bound or to which the
property or assets (tangible or intangible) of any of the
Company is subject or affected; and the Company is not in
violation of any term or provision of its certificate of
incorporation or by laws or in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or
regulation;
(xi) the statements in the Prospectus under "The Company,"
"Business," "Management," "Executive Compensation," "Principal
Shareholders," "Certain Transactions," "Description of Common
Shares," "Shares Eligible For Future Sale" and "Risk Factors"
have been reviewed by such counsel and insofar as they refer
to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all
material respects;
(xii) the Firm Securities and the Option Securities have been
accepted for inclusion and quotation by the Bulletin Board;
(xiii) the Company owns or possesses, free and clear of all Liens
and rights thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks,
copyrights, service names, trade names, patents, patent
applications and licenses necessary to conduct its business
(including, without limitation any such licenses or rights
described in the Prospectus as being owned or possessed by the
Company), and there is no claim or action by any person
pertaining to, or proceeding, pending, or threatened, which
challenges the exclusive rights of the Company with respect to
any trademarks, service marks, copyrights, service names,
trade names, patents, patent applications and licenses used in
the conduct of the Company's business (including, without
limitation, any such licenses or rights described in the
29
<PAGE>
Prospectus as being owned or possessed by the Company); the
Company's current products, services and processes do not and
will not infringe on the patents currently held by third
parties; and no product, service or process of any third party
infringes on any patent currently held by the Company;
(xiv) the persons listed under the caption "Principal Shareholders"
in the Prospectus are the respective "beneficial owners" (as
such phrase is defined in Rule 13d-3 under the Rules and
Regulations) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
(xv) no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any
securities of the Company in the Registration Statement,
require the Company to file any registration statement or, if
filed, to include any security in such registration statement;
(xvi) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD;
(xvii) assuming due execution by the parties thereto other than the
Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the
parties and any subsequent holder(s) of the securities subject
thereto in accordance with their terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law);
(xviii) except as described in the Prospectus, the Company does not
(A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA,
and (C) has never completely or partially withdrawn from a
"multiemployer plan";
(xix) the choice of law provision set forth in Section 14 of this
Agreement is legal, valid and binding and such counsel knows
of no reason why the courts of any jurisdiction would not give
effect to the choice of New
30
<PAGE>
York law as the proper law of this Agreement or the
Underwriter's Warrant Agreement;
(xx) except as described in the Prospectus, no holders of
securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the
right to have such securities registered under the
Registration Statement and no person or entity holds any
anti-dilution rights with respect to any securities of the
Company;
(xxi) there is no New York City, New York State, or other stamp,
duty, value-added tax or any other tax, fee or duty, payable
by or on behalf of the Underwriters or the Company in
connection with the authorization, issuance, sale and delivery
of the Firm Securities, the Option Securities, the
Underwriter's Warrants and the Underwriter's Securities
contemplated hereby;
(xxii) the Company is not now, and upon the issuance and sale of the
Securities as herein contemplated and the application of the
proceeds from such sale as described under the caption "Use of
Proceeds" in the Prospectus will not be an "investment
company" or a company "controlled by" an "investment company"
as such terms are defined in the Investment Company Act of
1940, as amended;
(xxiii) neither the Company, nor any of its respective employees,
directors, stockholders, partners, or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or
indirectly, any action designed to or which has constituted or
which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of
the price of any security of the Company to facilitate the
sale or resale of the Securities or otherwise;
(xxiv) neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give
any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business)
to any customer, supplier, employee or agent, governmental
agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who
was, is, or may be in a position to help or hinder the
business of the Company (or assist the Company in connection
with any actual or proposed transaction) which (i) might
subject the Company or any other such person to any damage or
penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (ii) if not given in the
past, might have had an
31
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adverse effect on the assets, business or operations of the
Company, or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects
of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended;
(xxv) except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly
or indirectly (i) an interest in any person or entity which
(A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to
the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there
are no existing agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company,
and any officer, director, all holders of five percent (5%) or
more of the shares of Common Stock) of the Company, or any
partner, "affiliate" or "associate" of any of the foregoing
persons or entities;
(xxvi) the minute books of the Company have been made available to
the Underwriter and contain a complete summary of all meetings
and actions of the directors and stockholders of the Company
since the time of its incorporation, and reflects all
transactions referred to in such minutes accurately and fairly
in all respects;
(xxvii) the Company is not a Passive Foreign Investment Company
("PFIC") within the meaning of Section 1296 of the United
States Internal Revenue Code of 1986, as amended;
(xxviii) the Company is in compliance with all Environmental Laws.
There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic
wastes, medical wastes, hazardous wastes or hazardous
substances by the Company (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or
from any of the property now or previously owned or leased by
the Company in violation of any Environmental Laws, judgment,
decree or permit which would require remedial action or
clean-up or which could form the basis for an action, suit or
proceeding by any private party or governmental body or
agency, against or affecting the Company; there has been no
material spill, discharge, leak, emission,
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injection, escape, dumping or release of any kind in violation
of Environmental Laws onto such property or into the
environment surrounding such property of any toxic wastes,
medical wastes, solid wastes, hazardous wastes or hazardous
substances due to or caused by the Company or with respect to
which the Company has knowledge; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical
wastes" shall have the meaning specified in any applicable
local, state, federal and foreign laws or regulations with
respect to environmental protection;
(xxix) the Company (including any of its predecessors) (i) has filed
with the appropriate federal, state and local governmental
agencies, and all foreign countries and political subdivisions
thereof, all tax returns, including franchise tax returns,
which are required to be filed and all such tax returns are
correct and complete in all material respects, (ii) has paid
all federal, state, local, and foreign taxes for which it is
liable, including, but not limited to, withholding taxes and
amounts payable under Chapters 21 through 24 of the Internal
Revenue Code of 1986 (the "Code"), and has furnished all
information returns it is required to furnish pursuant to the
Code, (iii) has established adequate reserves for such taxes
which are not due and payable, (iv) does not have any tax
deficiency or claims outstanding, proposed or assessed against
it, and (v) has not executed or filed with any taxing
authority, foreign or domestic, any agreement extending the
period for assessment or collection of any taxes and is not a
party to any proceeding or action by any foreign or domestic
governmental agency for assessment or collection of taxes.
(xxx) the Company has obtained all necessary and required approvals,
authorizations, franchises, licenses, orders, permits,
validations and certifications from regulatory authorities to
permit the commencement of its commercial operations as
contemplated in the Prospectus, and none of such approvals,
authorizations, franchises, licenses, orders, permits,
validations and certifications have been revoked, restricted
or limited in any manner and all of such approvals,
authorizations, franchises, licenses, orders, permits,
validations and certifications are in full force and effect;
and
(xxxi) there is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding, domestic or foreign,
pending or threatened (or circumstances that may give rise to
the same) involving the Company's production, use, testing,
manufacturing or marketing of any products or services, which
(i) questions the authority of the Company to produce, use,
test, manufacture or market any products or services as
described in the Prospectus, (ii) questions the completeness
or accuracy of data generated by any trials, tests or studies
being conducted by or on behalf
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of the Company, (iii) is required to be disclosed in the
Prospectus which is not so disclosed, or (iv) might materially
and adversely affect the condition, financial or otherwise, or
the earnings, prospects, value, operations or business of the
Company.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company,
and representatives of the independent public accountants for the
Company, at which conferences such counsel made inquiries of such
officers, representatives and accountants and discussed the contents
of the Preliminary Prospectus, the Registration Statement, the
Prospectus, and related matters and, although such counsel is not
passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in
the Preliminary Prospectus, the Registration Statement and
Prospectus, on the basis of the foregoing (relying as to materiality
to a large extent upon the opinions of directors, officers and other
representatives of the Company), no facts have come to the attention
of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such
Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement
thereto as of the date of such opinion contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the
Prospectus). Such counsel shall further state that its opinions may
be relied upon by Underwriter's Counsel in rendering its opinion to
the Underwriter.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriter's Counsel) of other counsel
acceptable to Underwriter's Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company,
provided that copies of any such statements certificates shall be
delivered to Underwriter's Counsel, if requested. The opinion of
such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and that
the Underwriter and they are justified in relying thereon. Any
opinion of counsel for the Company shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document
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relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991) or any
comparable state accord.
(d) At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Morse, Zelnick, Rose & Lander,
LLP, dated each Option Closing Date, addressed to the Underwriter
and in form and substance satisfactory to Underwriter and
Underwriter's Counsel confirming as of each Option Closing Date the
statements made by Morse, Zelnick, Rose & Lander, LLP in its opinion
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Option Closing Date,
if any, Underwriter's Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require
for the purpose of enabling them to review or pass upon the matters
referred to in subsection (c) of this Section 7, or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company, or herein
contained.
(f) Prior to each of the Closing Date and each Option Closing Date, if
any (i) there shall have been no adverse change or development
involving a prospective change in the condition, financial or
otherwise, prospects, stockholders equity or the business activities
of the Company, whether or not in the ordinary course of business
consistent with past practice, from the latest dates as of which
such condition is set forth in the Registration Statement and
Prospectus; (ii) there shall have been no transaction, not in the
ordinary course of business, consistent with past practice, entered
into by the Company, from the latest date as of which the financial
condition of the Company as set forth in the Registration Statement
and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in default under any provision of any
instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the
Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there
has not been any change in the capital stock or any change in the
debt (long or short term) or liabilities or obligations of the
Company (contingent or otherwise); (v) no material amount of the
assets of the Company shall have been pledged or mortgaged, except
as set forth in the Registration Statement and Prospectus; (vi) no
action, suit or proceeding, at law or in equity, shall have been
pending or threatened (or circumstances giving rise to same) against
the Company, or affecting any of its respective properties or
businesses before or by any Court or federal, state or foreign
commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the
business, operations, prospects or financial condition or income of
the Company's ability to continue to function in connection with the
business operations of the Company, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall
have been issued under the Act and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission.
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(g) At each of the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the Company
signed by the principal executive officer and by the chief financial
or chief accounting officer of the Company, dated the Closing Date
or Option Closing Date, as the case may be, to the effect that each
of such persons has carefully examined the Registration Statement,
the Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the
Closing Date or the Option Closing Date, as the case may be,
and the Company has complied with all agreements and covenants
and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to the
Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of each of such persons knowledge
after due inquiry, are contemplated or threatened under the
Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus nor any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a)
the Company has not incurred up to and including the Closing
Date or the Option Closing Date, as the case may be, other
than in the ordinary course of its business consistent with
past practice, any material liabilities or obligations, direct
or contingent; (b) the Company has not paid or declared any
dividends or other distributions on its capital stock; (c) the
Company has not entered into any transactions not in the
ordinary course of business consistent with past practice; (d)
there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings
(other than any increase in the short-term borrowings in the
ordinary course of business consistent with past practice) of
the Company; (e) the Company has not sustained any loss or
damage to its
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property or assets, whether or not insured; (f) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliated
party of the Company which is required to be set forth in an
amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not
been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at
the date of such certificate.
(h) The Underwriter shall have received a signed letter, dated the date
of this Agreement, from each of the stockholders listed in Schedule
A to the effect that such persons shall not sell, contract to sell,
grant any option to sell, transfer or otherwise dispose of, directly
or indirectly, any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or warrants or other rights to
purchase Common Stock (a "Distribution") for a period of thirteen
(13) months from the date of the Prospectus without the prior
written consent of the Underwriter; provided, that in the event any
such shareholder requests the Underwriter to consent to a
Distribution to any partner, shareholder, family member or trust for
the benefit of a family member, or affiliate of such shareholder (a
"Distributee"), the Underwriter agrees to grant such consent if (i)
each Distributee receiving a Distribution prior to the Distribution
executes a lockup agreement, substantially in the form of the
lock-up agreement executed by such stockholder, for a period of
thirteen (13) months after the date of the Prospectus and (ii) no
consideration is received by such stockholder for the Distribution.
(i) The Company shall have performed such of its obligations under this
Agreement as are to be performed by the terms hereof at or before
the time of purchase and at or before the additional time of
purchase, as the case may be.
(j) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable
to the Underwriter, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated the date hereof, addressed to the
Underwriter in form and substance satisfactory (including the
non-material nature of the changes or decreases, if any, referred to
in clause (iii) below) in all respects to the Underwriter and
Underwriter's Counsel:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of
the Act and the applicable Rules and Regulations;
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(ii) stating that it is their opinion that the financial statements
and supporting schedules of the Company included in the
Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations thereunder and that the
Underwriter may rely upon the opinion of Arthur Andersen LLP
with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review which included
a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of
the latest available unaudited interim financial statements),
a reading of the latest available minutes of the stockholders
and board of directors and the various committees of the
boards of directors of the Company, consultations with
officers and other employees of the Company responsible for
financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention
which would lead them to believe that (A) the pro forma
financial information contained in the Registration Statement
and Prospectus, if any, does not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or is not fairly
presented in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
audited financial statements of the Company or the unaudited
pro forma financial information included in the Registration
Statement, if any, (B) the unaudited financial statements and
supporting schedules of the Company included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited consolidated financial statements of the
Company included in the Registration Statement, or (C) at a
specified date not more than five (5) days prior to the
effective date of the Registration Statement, there has been
any change in the capital stock or long-term debt of the
Company, or any decrease in the stockholders' equity or net
current assets or net assets of the Company as compared with
amounts shown in the balance sheet included in the
Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such
change or decrease, and (D) during the period from September
30, 1997 to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was
any decrease in net revenues, net revenues, net earnings or
increase in net earnings per common share of the Company and
the Subsidiaries, in each case as compared with the
corresponding period beginning September 30, 1997 other than
as set forth in or
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contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
(iv) setting forth at a date not later than five (5) days prior to
the date of the Registration Statement, the amount of
liabilities of the Company (including a break-down of
commercial paper and notes payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the
Company set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and
information may be derived from the general accounting
records, including work sheets, of the Company and excluding
any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards in the United States),
set forth in the letter and found them to be in agreement;
(vi) stating that they have not during the immediately preceding
five (5) year period brought to the attention of any of the
Company's management any "weakness", as defined in Statement
of Auditing Standard No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the
Company's internal controls;
(vii) stating that they have in addition carried out certain
specified procedures, not constituting an audit, with respect
to certain pro forma financial information which is included
in the Registration Statement and the Prospectus, if any, and
that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro
forma financial information, if any, does not comply in form
in all respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X or that the pro forma
adjustments, if any, have not been properly applied to the
historical amounts in the compilation of that information; and
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may
request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from Arthur Andersen LLP, a letter,
dated as of the Closing Date or the Option Closing Date, as the case
may be, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (k) of this Section, except
that the specified date referred to shall be a date not more than
five (5) days
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prior to Closing Date or the Option Closing Date, as the case may
be, and, if the Company has elected to rely on Rule 430A of the
Rules and Regulations, to the further effect that they have carried
out procedures as specified in clause (v) of subsection (k) of this
Section with respect to certain amounts, percentages and financial
information as specified by the Underwriter and deemed to be a part
of the Registration Statement pursuant to Rule 430A(b) and have
found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (v).
(m) On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Underwriter for the
Underwriter's account, the appropriate number of Securities.
(n) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section
4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose
shall have been instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall have executed and
delivered to the Underwriter (i) the Underwriter's Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration
Statement in final form and substance satisfactory to the
Underwriter, and (ii) the Underwriter's Warrants in such
denominations and to such designees as shall have been provided to
the Company.
(p) On or before the Closing Date, the shares shall have been duly
approved for inclusion and quotation on the Bulletin Board, subject
to official notice of issuance.
(q) On or before the Closing Date, there shall have been delivered to
the Underwriter all of the duly executed Lock-up Agreements, in form
and substance satisfactory to Underwriter's Counsel.
If any representation or accounting of the Company herein shall not be
true and correct, or if any other condition to the Underwriter's
obligations hereunder to be fulfilled prior to or at the Closing Date or
the relevant Option Closing Date, as the case may be, is not so fulfilled,
the Underwriter may terminate this Agreement or, if the Underwriter so
elects, it may waive any such conditions which have not been fulfilled or
extend the time for their fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter
(for purposes of this Section 7, "Underwriter" shall include the
officers, directors, stockholders, partners, employees, agents and
counsel of the Underwriter), and each person, if any, who controls
the Underwriter (a "controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from
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and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof),
whatsoever (including but not limited to any and all expenses
whatsoever incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever),
as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of
foreign countries, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any post
effective amendment or amendments or any new registration statement
and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company
or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities
laws thereof or filed with the Commission, any state securities
commission or agency, the Bulletin Board or any other securities
exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus, in
the light of the circumstances under which made), unless such
statement or omission was made exclusively in reliance upon and in
conformity with written information furnished to the Company with
respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition
to any liability which the Company may have at common law or
otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the
Registration Statement, and each other person, if any, who controls
the Company within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Underwriter but only
with respect to statements or omissions, if any, made in any
Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any application
made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter
by the Underwriter expressly for use in such Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such
written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or Prospectus
directly relating to the transactions effected by the Underwriter in
connection with this Offering. The Company acknowledges that the
statements with respect to the public offering of
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the Securities set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the
Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter
for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this Section,
notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it
may have under this Section 7 except to the extent that it has been
prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is
brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate
therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties
shall have the right to employ its or their own counsel in any such
case but the fees and expenses of such counsel shall be at the
expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by
the indemnifying party in connection with the defense of such action
at the expense of such indemnifying party, (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action
within a reasonable period of time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to
one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense
of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses of additional counsel
shall be borne by the indemnifying parties. Anything in this Section
7 to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without
its written consent; provided, however, that such consent was not
unreasonably withheld or delayed.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the
entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express
provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be
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required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result
of such losses, claims, damages, expenses or liabilities (or actions
in respect thereof) (A) in such proportion as is appropriate to
reflect the relative benefits received by each of the contributing
parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also
the relative fault of each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, in
connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any
other relevant equitable considerations. In any case where the
Company is a contributing party and the Underwriter is the
indemnified party, the relative benefits received by the Company on
the one hand, and the Underwriter on the other, shall be deemed to
be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bears to the
total underwriting discounts received by the Underwriter hereunder,
in each case as set forth in the table on the cover page of the
Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, or by
the Underwriter, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in
this subdivision (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified any such action or
claim. Notwithstanding the provisions of this subdivision (d), the
Underwriter shall not be required to contribute any amount in excess
of the underwriting discount applicable to the Firm Securities and
Options Securities purchased by the Underwriter hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 7, each person, if any, who controls the
Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company,
subject in each case to this subdivision (d). Any party entitled to
contribution will, promptly after receipt of notice of claim of any
action, suit or proceeding against such party in respect to which a
claim for contribution may be made against another party or parties
under this subdivision (d), notify such party or parties from whom
contribution may be sought, but the omission so to notify such party
or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have
hereunder or otherwise than under this subdivision (d), or to the
extent that such party or parties were not adversely affected by
such omission. The contribution agreement set forth above
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<PAGE>
shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall
be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company, and the
indemnity agreements of the Company contained in Section 7 hereof, shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter, the Company, or any
controlling person of the Underwriter or the Company, and shall survive
termination of this Agreement or the issuance and delivery of the
Securities to the Underwriter, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof,
or at such earlier time after the Registration Statement becomes effective
as the Underwriter, in its discretion, shall release the Firm Securities
and Option Securities for the sale to the public; provided, however, that
the provisions of Sections 5, 7 and 10 of this Agreement shall at all
times be effective. For purposes of this Section 9, the Firm Securities
and the Option Securities to be purchased hereunder shall be deemed to
have been so released upon the earlier of dispatch by the Underwriter of
telegrams to securities dealers releasing such shares for offering or the
release by the Underwriter for publication of the first newspaper
advertisement which is subsequently published relating to the Firm
Securities and the Options Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Underwriter shall
have the right to terminate this Agreement if (i) any domestic or
international event or act or occurrence has disrupted, or in the
Underwriter's opinion will in the immediate future disrupt the
financial markets; or (ii) any material adverse change in the
financial markets shall have occurred; or (iii) trading on the New
York Stock Exchange, the American Stock Exchange, Nasdaq Stock
Market or in the over-the-counter market shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on
the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; or
(iv) the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an
existing war or major hostilities or a national emergency shall have
been declared in the United States; or (v) a banking moratorium has
been declared by any state or by federal authority; or (vi) the
Company shall have sustained a loss material or substantial to the
Company by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act which, whether or not
such loss shall have been insured, will, in the Underwriter's
opinion, make it inadvisable to proceed with the delivery of the
Firm Securities and the
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<PAGE>
Option Securities, if any; or (vii) there shall have been such a
material adverse change in the conditions or prospects of the
Company, or such material adverse change in the general market,
political or economic conditions, in the United States or elsewhere
as in the Underwriter's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Firm
Securities and Option Securities; if any.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 10(a), the Company shall promptly
reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriter (less amounts previously paid pursuant
to Section 5(c) above). Notwithstanding any contrary provision
contained in this Agreement, if this Agreement shall not be carried
out within the time specified herein, or any extension thereof
granted to the Underwriter, by reason of any failure on the part of
the Company to perform any undertaking or satisfy any condition of
this Agreement by it to be performed or satisfied (including,
without limitation, pursuant to Section 6 or Section 11) then, the
Company shall promptly reimburse and indemnify the Underwriter for
all of its actual out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriter (less amounts
previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and
expenses and Blue Sky filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, and 11 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 and
Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement
hereof.
11. Default by the Company. If the Company shall fail at the Closing Date or
any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it or he is obligated to sell hereunder on such date,
then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Securities to be purchased on an Option Closing
Date, the Underwriter may, at the Underwriter's option by notice from the
Underwriter to the Company, terminate the Underwriter's obligation to
purchase Option Securities without any liability on the part of any
non-defaulting party). No action taken pursuant to this Section shall
relieve the Company from liability, if any, in respect of such default.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter at National Securities
Corporation, Attention: Mr. Gregg D. Pollack, Managing Director, with a
copy to Greenberg Traurig Hoffman Lipoff Rosen & Quentel, 200 Park Avenue,
15th Floor, New York, New York 10166, Attention: Spencer G. Feldman, Esq.
Notice to the Company shall be directed to the Company in care of the
Company, at Prospect Hill Road, Ancramdale, New York 12503, Attention:
Richard A. Osofsky, President and Chief Executive Officer, with a copy to
Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue
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<PAGE>
New York, New York 10022, Attention: Jonathan D. Morse, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, Company, and the controlling persons,
directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or
any provisions herein contained. No purchaser of Securities from the
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without
giving effect to its choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement and the Underwriter's
Warrant Agreement constitute the entire agreement of the parties hereto
and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
not be amended except in a writing, signed by the Underwriter and the
Company.
<PAGE>
If the foregoing correctly sets forth the understanding among the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Underwriter and the Company.
Very truly yours,
RONNYBROOK FARM DAIRY, INC.
By:_________________________________
Name:
Title:
CONFIRMED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
NATIONAL SECURITIES CORPORATION
By:____________________________________
Name:
Title:
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<PAGE>
SCHEDULE A
STOCKHOLDERS WHO HAVE EXECUTED LOCK-UP AGREEMENTS
Richard A. Osofsky
R. Sidney Osofsky
Ronald N. Osofsky
Kenneth W. Rothstein
Steven M. Rabinovici
David R. Jacaruso
A-1
RESTATED CERTIFICATE OF INCORPORATION
OF
RONNYBROOK FARM DAIRY, INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
--------------
FIRST: The name of the corporation is RONNYBROOK FARM DAIRY, INC.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on October 3, 1990.
THIRD: The certificate of incorporation is hereby amended or changed to
effect one or more of the amendments or changes authorized by the Business
Corporation Law, to wit: (a) to change 100 authorized shares without par value
of the corporation, all of which are issued, into 600,000 issued shares of a par
value of $.001 each, the terms of the change being at the rate of 6,000 issued
shares of a par value of $.001 each for each issued share without par value,
and, in that connection, to reduce the stated capital of the corporation in
respect of each issued share without par value to $.001 in respect of each
resulting issued share of a par value of $.001 so that the aggregate stated
capital of the corporation is reduced from $28,000 to $600; and to change 100
authorized shares without par value of the corporation, none of which are
issued, into 600,000 unissued shares of a par value of $.001 each, the terms of
the change being at the rate of 6,000 unissued shares of a par value of $.001
each for each unissued share without par value; (b) to increase the aggregate
number of shares which the corporation shall have authority to issue by
authorizing 8,800,000 additional shares with a par value of $.001 per share of
the same class as the presently authorized shares so that the aggregate number
of shares which the corporation shall have authority to issue shall be
10,000,000 shares, $.001 par value per share; (c) to specify the duration of the
corporation; (d) to provide for action by the unanimous consent of members of
the Board of Directors or of any committee thereof; (e) to deny preemptive
rights; (f) to provide a more detailed provision addressing the personal
liability of directors which sets forth the standard of care to be observed by
directors in carrying out their duties; and (g) to provide an indemnification
provision.
FOURTH: To accomplish the foregoing amendments, Articles FOURTH and SIXTH
of the certificate of incorporation of the corporation, relating to the
corporation's capitalization and the personal liability of directors,
respectively, are
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hereby amended to read as set forth in the same numbered articles of the
certificate of incorporation as hereinafter restated and Article SEVENTH, a new
article relating to the duration of the corporation, Article EIGHTH, a new
article providing for action by the unanimous consent of members of the Board of
Directors or of any committee thereof, Article NINTH, a new article denying
preemptive rights and Article TENTH, a new article providing an indemnification
provision are added as set forth in the certificate of incorporation of the
corporation as hereinafter restated:
"FOURTH: The aggregate number of shares which the corporation shall
have authority to issue is 10,000,000, all of which are of a par value $.001
each, and all of which are of the same class.
"SIXTH: A director of the corporation shall not be personally liable
to the corporation or its shareholders for damages for any breach of duty in
such capacity, except for the liability of any director if a judgment or other
final adjudication adverse to him establishes that his acts or omissions were in
bad faith or involved intentional misconduct or a knowing violation of law or
that he personally gained in fact a financial profit or other advantage to which
he was not legally entitled or that his acts violated Section 719 of the New
York Business Corporation Law.
"SEVENTH: The duration of the corporation is to be perpetual.
"EIGHTH: Any action required or permitted to be taken by the Board
of Directors of the corporation or of any committee thereof may be taken without
a meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
Any one or more members of the Board of Directors or of any
committee thereof may participate in a meeting of said Board or of any such
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time, and participation by such means shall constitute presence in person at the
meeting.
"NINTH: No holder of any of the shares of any class of the
corporation shall be entitled as of right to subscribe for, purchase, or
otherwise acquire any shares of any class of the corporation which the
corporation proposes to issue or any rights or options which the corporation
proposes to grant for the purchase of shares of any class of the corporation or
for the purchase of shares, bonds, securities, or obligations of the corporation
which are convertible into or exchangeable for, or which carry any rights to
subscribe for, purchase, or otherwise acquire shares of any class of the
corporation; and any and all of such shares, bonds, securities, or obligations
of the corporation, whether now or hereafter authorized or created, may be
issued, or may be reissued or transferred if the same have been reacquired and
have treasury status, and any and all of such rights and options may be granted
by the Board of Directors to such persons, firms, corporations, and
associations, and for such lawful consideration, and
2
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on such terms, as the Board of Directors in its discretion may determine,
without first offering the same, or any thereof, to any said holder. Without
limiting the generality of the foregoing stated denial of any and all preemptive
rights, no holder of shares of any class of the corporation shall have any
preemptive rights in respect of the matters, proceedings, or transactions
specified in subparagraphs (1) to (6), inclusive, of paragraph (e) of Section
622 of the Business Corporation Law.
"TENTH: The corporation shall, to the fullest extent permitted by
Article 7 of the Business Corporation Law of the State of New York, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said Article from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
Article, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which any person may be entitled under any
By-Law, resolution of shareholders, resolution of directors, agreement, or
otherwise, as permitted by said Article, as to action in any capacity in which
he served at the request of corporation."
FIFTH: The restatement of the certificate of incorporation of the
corporation herein provided for was authorized by the unanimous written consent
of the holders of all of the outstanding shares of the corporation entitled to
vote on the restatement of the certificate of incorporation.
SIXTH: The text of the certificate of incorporation of the corporation is
hereby restated as further amended or changed herein to read as follows:
"FIRST: The name of the corporation is: RONNYBROOK FARM DAIRY, INC.
"SECOND: The purpose or purposes for which it is formed are:
To engage in any lawful act or activity for which a corporation may
be organized under the Business Corporation Law, provided that the
corporation is not formed to engage in any act or activity requiring
the consent or approval of any state official, department, board,
agency or other body without such approval or consent first being
obtained.
"THIRD: The office of the corporation in the State of New York shall
be located in the County of Columbia.
"FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is 10,000,000, all of which are of a par value $.001
each, and all of which are of the same class.
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<PAGE>
"FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served. The post
office address to which the Secretary of State shall mail a copy of any process
against the corporation served upon him or her is c/o The Corporation, Prospect
Hill Road, Ancramdale, New York 12503.
"SIXTH: A director of the Corporation shall not be personally liable
to the Corporation or its shareholders for damages for any breach of duty in
such capacity, except for the liability of any director if a judgment or other
final adjudication adverse to him establishes that his acts or omissions were in
bad faith or involved intentional misconduct or a knowing violation of law or
that he personally gained in fact a financial profit or other advantage to which
he was not legally entitled or that his acts violated Section 719 of the New
York Business Corporation Law.
"SEVENTH: The duration of the corporation is to be perpetual.
"EIGHTH: Any action required or permitted to be taken by the Board
of Directors of the corporation or of any committee thereof may be taken without
a meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
Any one or more members of the Board of Directors or of any
committee thereof may participate in a meeting of said Board or of any such
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time, and participation by such means shall constitute presence in person at the
meeting.
"NINTH: No holder of any of the shares of any class of the
corporation shall be entitled as of right to subscribe for, purchase, or
otherwise acquire any shares of any class of the corporation which the
corporation proposes to issue or any rights or options which the corporation
proposes to grant for the purchase of shares of any class of the corporation or
for the purchase of shares, bonds, securities, or obligations of the corporation
which are convertible into or exchangeable for, or which carry any rights to
subscribe for, purchase, or otherwise acquire shares of any class of the
corporation; and any and all of such shares, bonds, securities, or obligations
of the corporation, whether now or hereafter authorized or created, may be
issued, or may be reissued or transferred if the same have been reacquired and
have treasury status, and any and all of such rights and options may be granted
by the Board of Directors to such persons, firms, corporations, and
associations, and for such lawful consideration, and on such terms, as the Board
of Directors in its discretion may determine, without first offering the same,
or any thereof, to any said holder. Without limiting the generality of the
foregoing stated denial of any and all preemptive rights, no holder of shares of
any class of the corporation shall have any preemptive rights in respect of the
matters, proceedings, or transactions specified in subparagraphs (1) to (6),
inclusive, of paragraph (e) of Section 622 of the Business Corporation Law.
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<PAGE>
"TENTH: The corporation shall, to the fullest extent permitted by
Article 7 of the Business Corporation Law of the State of New York, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said Article from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
Article, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which any person may be entitled under any
By-Law, resolution of shareholders, resolution of directors, agreement, or
otherwise, as permitted by said Article, as to action in any capacity in which
he served at the request of corporation."
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Dated: February ___, 1998
/s/ Richard Osofsky
------------------------------
Richard Osofsky, President
/s/ Ronald Osofsky
------------------------------
Ronald Osofsky, Secretary
5
B Y - L A W S
of
RONNYBROOK FARM DAIRY, INC.
ARTICLE I
OFFICES
Section 1. Principal Office - The principal office of the Corporation
shall be as set forth in its Certificate of Incorporation.
Section 2. Additional Offices - The Corporation may have such additional
offices at such other place within or without the State of New York as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
SHAREHOLDERS' MEETING
Section 1. Annual Meeting - An annual meeting of shareholders shall be
held on the second Thursday in June in each year (or if said day shall be a
legal holiday, then the next succeeding business day) at the time and place
(either within or without the State of New York) as shall be fixed by the Board
of Directors and specified in the notice of meeting for the purpose of electing
directors and transacting such other business as may properly be brought before
the meeting.
Section 2. Special Meeting - A special meeting of shareholders may be
called at any time by the President and shall be called by the President at the
request in writing of a majority of the Board of Directors then in office or at
the request in writing filed with the Secretary by the holders of a majority of
the issued and outstanding shares of the capital stock of the Corporation
entitled to vote at such meeting. Any such request shall state the purpose or
purposes of the proposed meeting. Special meetings shall be held at such time
and place (either within or without the State of New York) as shall be specified
in the notice thereof. Business transacted at any special meeting of
shareholders shall be confined to the purposes set forth in the notice thereof.
Section 3. Notice of Meetings - Written notice of the time, and place and
purpose of every meeting of shareholders (and, if other than an annual meeting,
indicating the person or persons at whose discretion the meeting is being
convoked), shall be given by the President, a Vice-President or by the Secretary
to each shareholder of record entitled to vote at such meeting and to each
shareholder who, by reason of any action proposed at such meeting, would be
entitled to have his stock appraised if such action were taken, not less than
ten nor more than fifty days prior to the date set for the meeting, either
personally or by mailing said notice by first class mail to each shareholder at
his address appearing on the stock book of the Corporation or at such other
address supplied by him in writing to the Secretary of the Corporation for the
purpose of receiving notice. Notice by mail shall be deemed to be given when
deposited, postage prepaid, in a post office or official depository under the
exclusive care and custody of the United States Post Office Department. The
record date for determining the shareholders entitled to such notice shall be
determined by the Board of Directors in accordance with Section 6 of ARTICLE
SIXTH of these By-Laws.
If the directors shall adopt, amend or repeal a by-law regulating an
impending election of directors, the notice of the next meeting of shareholders
for the election of directors shall set forth the by-law so adopted, amended or
repealed together with a concise statement of the
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changes made as required by Section 601(b) of the Business Corporation Law. If
any action is proposed to be taken which would, if taken, entitle shareholders
to receive payment for their shares, the notice of meeting shall include a
statement to such effect.
A written waiver of notice setting forth the purposes of the meeting for
which notice is waived, signed by the person or persons entitled to such notice,
whether before or after the time of the meeting stated therein, shall be deemed
equivalent to the giving of such notice. The attendance by a shareholder at a
meeting either in person or by proxy without protesting the lack of notice
thereof shall constitute a waiver of notice of such shareholder.
All notice given with respect to an original meeting shall extend to any
and all adjournments thereof and such business as might have been transacted at
the original meeting may be transacted at any adjournment thereof; no notice of
any adjourned meeting need be given if an announcement of the time and place of
the adjourned meeting is made at the original meeting.
Section 4. Quorum - The holders of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum at all
meetings of shareholders for the transaction of business except as otherwise
provided by statute or the Certificate of Incorporation. If, however, a quorum
shall not be present or represented at any meeting of shareholders, the
shareholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. When a quorum is once present to organize a
meeting, such quorum is not deemed broken by the subsequent withdrawal of any
shareholders.
Section 5. Voting - Every shareholder entitled to vote at any meeting
shall be entitled to one vote for each share of stock entitled to vote and held
by him of record on the date fixed as the record date for said meeting and may
so vote in person or by proxy. At all elections of directors when a quorum is
present, a plurality of the votes cast by the holders of shares entitled to vote
shall elect and any other corporate action, when a quorum is present, shall be
authorized by a majority of the votes cast by the holders of shares entitled to
vote thereon except as may otherwise be provided by statute or the Certificate
of Incorporation.
Section 6. Proxies - Every proxy must be signed by the shareholder
entitled to vote or by his duly authorized attorney-in-fact and shall be valid
only if filed with the Secretary of the Corporation or with the Secretary of the
meeting prior to the commencement of voting on the matter in regard to which
said proxy is to be voted. No proxy shall be valid after the expiration of
eleven months from the date of its execution unless otherwise expressly provided
in the proxy. Every proxy shall be revocable at the pleasure of the person
executing it except as otherwise provided by Section 609 of the Business
Corporation Law. Unless the proxy by its terms provides for a specific
revocation date and except as otherwise provided by statute, revocation of a
proxy shall not be effective unless and until such revocation is executed in
writing by the shareholder who executed such proxy and the revocation is filed
with the Secretary of the Corporation or with the Secretary of the Meeting prior
to the voting of the proxy.
Section 7. Shareholders' List - A list of shareholders as of the record
date, certified by the Secretary of the Corporation or by a transfer agent
appointed by the Board of Directors shall be prepared for every meeting of
shareholders and shall be produced by the Secretary or some other officer of the
Corporation thereat.
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Section 8. Inspectors at Meetings - In advance of any shareholders'
meeting, the Board of Directors may appoint one or more inspectors to act at the
meeting or at any adjournment thereof and if not so appointed the person
presiding at any such meeting may, and at the request of any shareholder
entitled to vote thereat shall, appoint one or more inspectors. Each inspector,
before entering upon the discharge of his duties as set forth in Section 611 of
the Business Corporation Law, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability.
Section 9. Conduct of Meeting - All meetings of shareholders shall be
presided over by the President, or if he is not present, by a Vice-President, or
if neither the President nor any Vice-President is present, by a chairman
thereby chosen by the shareholders at the meeting. The Secretary of the
Corporation, or in his absence, an Assistant Secretary, shall act as secretary
of every meeting but if neither the Secretary nor the Assistant Secretary is
present, the chairman of the meeting shall appoint any person present to act as
secretary of the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Function and Definition - The business and property of the
Corporation shall be managed by its Board of Directors who may exercise all the
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these By-Laws directed or
required to be exercised or done by the shareholders.
Section 2. Number and Qualification - The number of directors constituting
the entire Board shall be not less than one nor more than nine, as may be fixed
by resolution of the Board of Directors or by the shareholders entitled to vote
for the election of directors, provided that any such action of the Board shall
require the vote of a majority of the entire Board and, provided further, that
the number of directors constituting the entire Board shall not be less than
three unless all the shares of capital stock of the Corporation are owned
beneficially and of record by less than three shareholders, in which event the
number of directors may be less than three but not less than the number of such
shareholders. The phrase "entire Board" as used herein means the total number of
directors which the Corporation would have if there were no vacancies. Unless
and until a different number shall be so fixed within the limits above
specified, the Board shall consist of three directors. The term of any incumbent
director shall not be shortened by any such action by the Board of Directors or
by the shareholders.
Each director shall be at least twenty-one years of age. A director need
not be a shareholder, a citizen of the United States or a resident of the State
of New York.
Section 3. Election Term and Vacancies - Except as otherwise provided in
this Section, all directors shall be elected at the annual meeting of
shareholders and all directors who are so elected or who are elected in the
interim to fill vacancies and newly created directorships, shall hold office
until the next annual meeting of shareholders and until their respective
successors have been elected and qualified.
In the interim between annual meetings of shareholders, newly-created
directorships resulting from an increase in the number of directors or from
vacancies occurring in the Board, but not, except as hereinafter provided, in
the case of a vacancy occurring by reason of removal of a director by the
shareholders, may be filled by the vote of a majority of the directors, then
remaining in office, although less than a quorum may exist.
In the case of a vacancy occurring in the Board of Directors by reason of
the removal of one or more directors by action of the shareholders, such vacancy
may be filled by the shareholders at a special meeting duly called for such
purpose.
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In the event a vacancy is not filled by such election by shareholders,
whether or not the vacancy resulted from the removal of a director with or
without cause, a majority of the directors then remaining in office, although
less than a quorum, may fill any such vacancy.
Section 4. Removal - The Board of Directors may, at any time, with cause,
remove any director.
The shareholders entitled to vote for the election of directors may, at
any time, remove any or all of the directors with cause.
Section 5. Meetings - The annual meeting of the Board of Directors for the
election of officers and the transaction of such other business as may come
before the meeting, shall be held, without notice, immediately following the
annual meeting of shareholders, at the same place at which such shareholders'
meeting is held.
Regular meetings of the Board of Directors shall be held at such time and
place, within or outside the State of New York, as may be fixed by resolution of
the Board, and when so fixed, no further notice thereof need be given. Regular
meetings not fixed by resolution of the Board may be held on notice at such time
and place as shall be determined by the Board.
Special meetings of the Board of Directors may be called on notice at any
time by the President, and shall be called by the President at the written
request of a majority of the directors then in office.
Section 6. Notice of Meetings - No notice shall be required for regular
meetings for which the time and place have been fixed. Written, oral, or any
other mode of notice of the time and place shall be given for special meetings
in sufficient time for the convenient assembly of the directors thereat. Notice
need not be given to any director or to any member of a committee of directors
who submits a written waiver of notice signed by him before or after the time
stated therein. Attendance of any such person at a meeting shall constitute a
waiver of notice of such meeting, except when he attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors need be specified in any written
waiver of notice.
Section 7. Conduct of Meetings - The President, if present, shall preside
at all meetings of directors. At all meetings at which the President is not
present any other director chosen by the Board shall preside.
Section 8. Quorum, Adjournment, Voting - Except as otherwise provided by
the Certificate of Incorporation, a majority of the entire Board shall be
requisite and shall constitute a quorum at all meetings of the Board of
Directors for the transaction of business. Where a vacancy or vacancies prevents
such majority, a majority of the directors then in office shall constitute a
quorum.
A majority of the directors present at any meeting, whether or not a
quorum is present, may adjourn the meeting to another time and place without
further notice other than an announcement at the meeting.
Except as otherwise provided by the Certificate of Incorporation, when a
quorum is present at any meeting, a majority of the directors present shall
decide any questions brought before such meeting and the act of such majority
shall be the act of the Board.
Section 9. Action Without Meeting - Any action required or permitted to be
taken by the Board of Directors or of any committee thereof may be taken without
a meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
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Any one or more members of the Board of Directors or of any committee
thereof may participate in a meeting of said Board or of any such committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
Section 10. Compensation of Directors - Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
any meeting of the Board of Directors or of any committee thereof. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving reasonable compensation
therefor.
Section 11. Committees - The Board of Directors, by resolution of a
majority of the entire Board, may designate from among its members one or more
committees, each consisting of three or more directors, and each of which, to
the extent provided in such resolution, shall have all the authority of the
Board except that no such committee shall have authority as to any of the
following matters:
(a) the submission to stockholders of any action as to which stockholders'
authorization or approval is required by statute, the Certificate of
Incorporation or by these By-Laws;
(b) the filing of vacancies in the Board of Directors or in any committee
thereof;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee thereof;
(d) the amendment or repeal of these By-Laws or the adoption of new
By-Laws; and
(e) the amendment or repeal of any resolution of the Board of Directors
which by its terms shall not be so amendable or repealable.
The Board may designate one or more directors as alternate members of any
such committee who may replace any absent member or members at any meeting of
such committee.
Each such committee shall serve at the pleasure of the Board. The Board of
Directors shall have the power at any time to fill vacancies in, to change the
membership of, or to discharge any such committee. Committees shall keep minutes
of their proceedings and shall report the same to the Board of Directors at the
meeting of the Board next succeeding, and any action by the committee shall be
subject to revision and alteration by the Board of Directors, provided that no
rights of a third party shall be affected in any such revision or alteration.
5
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ARTICLE IV
OFFICES
Section 1. Executive Officers - The Officers of the Corporation shall be a
President, one or more Vice-Presidents, a Treasurer and a Secretary and such
Assistant Treasurers and Assistant Secretaries and other officers as the Board
of Directors may determine. Any two or more offices may be held by the same
person, except the offices of President and Secretary, unless all of the issued
and outstanding shares of capital stock of the Corporation are owned by one
person, in which event such person may hold all or any combination of offices.
Section 2. Election - The President, one or more Vice-Presidents, the
Treasurer and Secretary shall be elected by the Board of Directors to hold
office until the meeting of the Board held immediately following the next annual
meeting of shareholders and shall hold office for the term for which elected and
until their successors have been elected and qualified. The Board of Directors
may from time to time appoint all such other officers as it may determine and
such officers shall hold office from the time of their appointment and
qualifications until the time at which their successors are appointed and
qualified. A vacancy in any office arising from any cause may be filled for the
unexpired portion of the term by the Board of Directors.
Section 3. Removal - Any officer may be removed from office by the Board
at any time with or without cause.
Section 4. Delegation of Powers - The Board of Directors may from time to
time delegate the power or duties of any officer of the Corporation, in the
event of his absence or failure to act otherwise, to any other officer or
director or person whom they may select.
Section 5. Compensation - The compensation of each officer shall be such
as the Board of Directors may from time to time determine.
Section 6. Chief Executive Officer - The Board of Directors shall
designate the President as the chief executive officer of the Corporation who
shall have general charge of the business and affairs of the Corporation,
subject, however, to the right of the Board of Directors to confer specified
powers on officers and subject generally to the direction of the Board.
Unless otherwise ordered by the Board of Directors, the Chief Executive
Officer, or in the event of his inability to act, any other officer designated
by the Board, shall have full power and authority on behalf of the Corporation
to attend and to act and to vote at any meetings of security holders of
corporations in which the Corporation may hold securities, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities, and which, as the owner thereof, the Corporation
might have possessed and exercised, if present. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
Section 7. President The President, if not designated as Chief Executive
Officer, shall have such duties as the Board may prescribe.
Section 8. Vice-President - The Vice-President shall have such powers and
perform such duties as the Board of Directors may from time to time prescribe.
In the absence or inability of the Chief Executive Officer to perform his duties
or exercise his powers, the Vice-President or, if there be more than one, a
Vice-President designated by the Board, shall exercise the powers and perform
the duties of the President subject to the direction of the Board of Directors.
Section 9. Secretary - The Secretary shall keep the minutes of all
meetings and record all votes of shareholders, the Board of Directors and
committees in a book to be kept for that
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purpose. He shall give or cause to be given any required notice of meetings of
shareholders, the Board of Directors or any committee, and shall be responsible
for preparing or obtaining from a transfer agent appointed by the Board, the
list of shareholders required by Article II, Section 7 thereof. He shall be the
custodian of the seal of the Corporation and shall affix or cause to be affixed
the seal to any instrument requiring it and attest the same and exercise the
powers and perform the duties incident to the office of Secretary subject to the
direction of the Board of Directors.
Section 10. Treasurer - Subject to the direction of the Board of
Directors, the Treasurer shall have charge of the general supervision of the
funds and securities of the Corporation and the books of account of the
Corporation and shall exercise the powers and perform the duties incident to the
office of the Treasurer. If required by the Board of Directors, he shall give to
the Corporation a bond in such sum and with such sureties as may be satisfactory
to the Board of Directors for the faithful discharge of his duties.
Section 11. Other Officers - All other officers, if any, shall have such
authority and shall perform such duties as may be specified from time to time by
the Board of Directors.
ARTICLE V
RESIGNATIONS
Any director or officer of the Corporation or any member of any committee
of the Board of Directors of the Corporation, may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Any
such resignation shall take effect at the time specified therein or, if the time
is not specified therein, upon the receipt thereof, irrespective of whether any
such resignation shall have been accepted.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates - Each shareholder shall be entitled to a
certificate or certificates in such form as prescribed by the Business
Corporation Law and by any other applicable statutes, which Certificate shall
represent and certify the number, kind and class of shares owned by him in the
Corporation. The Certificates shall be numbered and registered in the order in
which they are issued and upon issuance the name in which each Certificate has
been issued together with the number of shares represented thereby and the date
of issuance shall be entered in the stock book of the Corporation by the
Secretary or by the transfer agent of the Corporation. Each certificate shall be
signed by the President or a Vice-President and countersigned by the Secretary
or Assistant Secretary and shall be sealed with the Corporate Seal or a
facsimile thereof. The signature of the officers upon a certificate may also be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation itself or an employee of the
Corporation. In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer before the
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if the officer had not ceased to be such at the time of its
issue.
Section 2. Consideration - A certificate representing shares shall not be
issued until the full amount of consideration therefor has been paid to the
Corporation, except if otherwise permitted by Section 504 of the Business
Corporation Law.
Section 3. Lost Certificates - The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation, alleged to have been lost,
mutilated, stolen or destroyed, upon the making of an affidavit of that fact by
the person so claiming and upon delivery to the Corporation, if the Board of
Directors shall so require, of a bond in such form and with such surety or
sureties as
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<PAGE>
the Board may direct, sufficient in amount to indemnify the Corporation and its
transfer agent against any claim which may be made against it or them on account
of the alleged loss, destruction, theft or mutilation of any such certificate or
the issuance of any such new certificate.
Section 4. Fractional Share Interests - The Corporation may issue
certificates for fractions of a share where necessary to effect transactions
authorized by the Business Corporation Law; or it may pay in cash the fair
market value of fractions of a share as of the time when those entitled to
receive such fractions are determined; or it may issue scrip in registered or
bearer form over the manual or facsimile signature of an officer of the
Corporation or of its agent, exchangeable as therein provided for full shares,
but such scrip shall not entitle the holder to any rights of a shareholder
except as therein provided.
Section 5. Share Transfers - Upon compliance with provisions restricting
the transferability of shares, if any, transfers of shares of the Corporation
shall be made only on the share record of the Corporation by the registered
holder thereof, or by his duly authorized attorney, upon the surrender of the
certificate or certificates for such shares properly endorsed with payment of
all taxes thereon.
Section 6. Record Date for Shareholders - For the purpose of determining
the shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof or to express consent or dissent from any proposal
without a meeting, or for the purpose of determining the shareholders entitled
to receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of any meeting nor
more than fifty days prior to any action taken without a meeting, the payment of
any dividend or the allotment of any rights, or any other action. When a
determination of shareholders of record entitled to notice of or to vote at any
meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date under this Section for the adjourned meeting.
Section 7. Shareholders of Record - The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of New York.
ARTICLE VII
STATUTORY NOTICES
The Board of Directors may appoint the Treasurer or any other officer of
the Corporation to cause to be prepared and furnished to shareholders entitled
thereto any special financial notice and/or statement which may be required by
Sections 510, 511, 515, 516, 517, 519 and 520 of the Business Corporation Law or
by any other applicable statute.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change from time to time, by the Board of Directors.
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ARTICLE IX
CORPORATE SEAL
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its incorporation and the words "Corporate Seal" and
"New York" and shall be in such form and contain such other words and/or figures
as the Board of Directors shall determine. The Corporate seal may be used by
printing, engraving, lithographing, stamping or otherwise making, placing or
affixing, or causing to be printed, engraved, lithographed, stamped or otherwise
made, placed or affixed, upon any paper or document, by any process whatsoever,
an impression, facsimile or other reproduction of said Corporate seal.
ARTICLE X
BOOKS AND RECORDS
There shall be maintained at the principal office of the Corporation books
of account of all the Corporation's business and transactions.
There shall be maintained at the principal office of the corporation or at
the office of the Corporation's transfer agent a record containing the names and
addresses of all shareholders, the number and class of shares held by such and
the dates when they respectively became the owners of record thereof.
ARTICLE XI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS
Any person made or threatened to be made a party to an action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate, then is or was a director, officer, employee or agent of
the Corporation, or then serves or has served any other corporation in any
capacity at the request of the Corporation, shall be indemnified by the
Corporation against reasonable expenses, judgments, fines and amounts actually
and necessarily incurred in connection with the defense of such action or
proceeding or in connection with an appeal therein, to the fullest extent
permissible by the laws of the State of New York. Such right of indemnification
shall not be deemed exclusive of any other rights to which such person may be
entitled.
ARTICLE XII
AMENDMENTS
The shareholders entitled at the time to vote in the election of directors
and the Board of Directors by vote of a majority of the entire Board, shall have
the power to amend or repeal these By-Laws and to adopt new By-Laws, provided,
however, that any by-law adopted, amended or repealed by the Board of Directors
may be amended or repealed by the shareholders entitled to vote thereon as
herein provided.
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RONNYBROOK FARM DAIRY, INC.
AND
NATIONAL SECURITIES CORPORATION
----------
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of ___________, 1998
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<PAGE>
UNDERWRITER'S WARRANT AGREEMENT, dated as of __________, 1998, by and
between RONNYBROOK FARM DAIRY, INC., a New York corporation (the "Company"), and
NATIONAL SECURITIES CORPORATION (hereinafter referred to as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter (and/or its
designees) warrants ("Warrants") to purchase up to an aggregate of __________
shares of Common Stock, par value $.001 per share, of the Company at the
exercise price set forth herein; and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement, dated the date hereof (the "Underwriting Agreement"), between the
Underwriter and the Company to act as the Underwriter in connection with the
Company's proposed public offering of _________ shares of Common Stock at an
initial public offering price of $_____ per share (the " Public Offering "); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the Underwriter's compensation in connection with, the Underwriter acting as
the Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of $.001 per Warrant, the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Underwriter (and/or its designees) is hereby granted
Warrants to purchase, at any time from __________, 1999 [one year after the
effective date of the Registration Statement], until 5:30 P.M., New York time,
on __________, 2003 [four years after the effective date of the Registration
Statement] (the "Exercise Period"), up to an aggregate of __________ shares of
Common Stock (the "Shares") at an initial exercise price (subject to adjustment
as provided in Section 8 hereof) of $______ per Share [120% of the initial
public offering price per share of Common Stock], subject to the terms and
conditions of this Agreement. It is expressly understood that this Agreement
entitles the Underwriter to ten percent (10%) of the number of shares of Common
Stock offered to the public in the Public Offering (subject to adjustment as
provided in Section 8 hereof). Except as expressly set forth herein, the Shares
issuable upon exercise of the Warrants are in all respects identical to the
shares of Common Stock being purchased by the Underwriter for resale to the
public pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit
<PAGE>
A attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this
Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per Share set forth in Section 6 hereof, payable by certified or
official bank check in New York Clearing House funds, subject to adjustment as
provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal executive offices in Ancramdale, New York, presently located
at Prospect Hill Road, Ancramdale, New York 12503, the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional Shares underlying
the Warrants). In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of shares of Common Stock equal to the product of (x) the number of
Shares as to which the Warrants are being exercised multiplied by (y) a
fraction, the numerator of which is the aggregate Market Price (as defined
below) of such Shares less the aggregate Exercise Price therefor, and the
denominator of which is the aggregate Market Price of such Shares. Solely for
the purposes of this paragraph, Market Price shall be calculated either (i) on
the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 13 hereof ("Notice Date") or (ii) as the
average of the Market Prices for each of the five trading days preceding the
Notice Date, whichever of (i) or (ii) is greater.
3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be the last reported sale price of the
Common Stock, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the OTC Bulletin Board (the "Bulletin
Board") or the principal securities exchange on which the Common Stock is listed
or admitted to trading, or, if the Common Stock is not listed or admitted to
trading on the Bulletin Board or any national securities exchange or quoted by
The Nasdaq Stock Market ("Nasdaq"), the average closing bid price as furnished
by the National Association of Securities Dealers, Inc. through Nasdaq or
similar organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, as determined in good faith (using
customary
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<PAGE>
valuation methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for the Shares, or other securities, properties or
rights underlying such Warrants, shall be made forthwith (and in any event
within five (5) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
(and/or other securities, property or rights issuable upon exercise of the
Warrants) shall be executed on behalf of the Company by the manual or facsimile
signature of the person(s) authorized therefor by the Company's Board of
Directors under its corporate seal reproduced thereon. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer or in lieu of mutilated, lost,
stolen or destroyed Warrant Certificates. Certificates representing the Shares
shall be dated as of the Notice Date (regardless of when executed or delivered)
and dividend bearing securities so issued shall accrue dividends from the Notice
Date.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Underwriter.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $______ per Share [120% of the initial public offering price per share of
Common Stock]. The adjusted exercise price of each Warrant shall be the price
which shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof. Any
transfer of a Warrant shall constitute an automatic transfer and assignment of
the registration rights set forth in Section 7 hereof with respect to the Shares
or other securities, properties or rights underlying the Warrants.
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<PAGE>
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants and
the Shares issuable upon exercise of the Warrants have been registered under the
Securities Act of 1933, as amended (the "Act"), pursuant to the Company's
Registration Statement on Form SB-2 (Registration No. 333-________) (the
"Registration Statement"). All of the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary Prospectus and Prospectus (as such terms are defined
in the Underwriting Agreement) and made as of the dates provided therein, are
incorporated by reference herein. The Company agrees and covenants promptly to
file post-effective amendments to such Registration Statement as may be
necessary in order to maintain its effectiveness and otherwise to take such
action as may be necessary to maintain the effectiveness of the Registration
Statement as long as any Warrants are outstanding. In the event that, for any
reason whatsoever, the Company shall fail to maintain the effectiveness of the
Registration Statement, the certificates representing the Shares and any other
securities issuable upon exercise of the Warrants (collectively, the "Warrant
Shares") shall bear the following legend:
"The Securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent applicable,
Rule 144 under the Act (or any similar rule under such Act relating
to the disposition of securities), or (iii) an opinion of counsel,
if such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is
available."
7.2 Piggyback Registration. If, at any time commencing after the
date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-4,
Form S-8 or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Underwriter and to all other Holders of the
Warrants and/or the Warrant Shares of its intention to do so. If the Underwriter
or other Holders of the Warrants and/or Warrant Shares notify the Company within
twenty (20) business days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford the Underwriter and such Holders of the Warrants and/or
Warrant Shares the opportunity to have any such Warrant Shares registered under
such registration statement.
If, at any time after giving written notice of its intention to
register securities pursuant to this Section 7.2 but prior to the effective date
of the related registration statement, the
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<PAGE>
Company shall determine for any reason not to register such securities, the
Company shall give, written notice of such determination to the Underwriter and
to each Holder of Warrants and/or Warrant Shares and, thereupon, shall be
relieved of its obligation to register any Warrant Shares in connection with
such registration statement, irrespective of whether a written request for
inclusion of any such securities shall have been made.
7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five
(5) years thereafter, the Holders of the Warrants and/or Warrant Shares
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion only, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Underwriter and Holders, in order to comply with the provisions of the Act, so
as to permit a public offering and sale of their respective Warrant Shares for
nine (9) consecutive months by such Holders and any other Holders of the
Warrants and/or Warrant Shares who notify the Company within ten (10) days after
receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Shares within ten (10)
days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after the date hereof
and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant
Shares shall have the right, exercisable by written request to the Company, to
have the Company prepare and file, on one occasion only, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holder of its Warrant Shares; provided, however,
that the provisions of Section 7.4(b) hereof shall not apply to any such
registration request and the registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
(d) Notwithstanding anything to the contrary contained herein, if
the Company shall not have filed a registration statement for the Warrant Shares
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Shares, the Company may, at its option, upon the written
notice of election of a Majority of the Holders of the Warrants and/or Warrant
Shares requesting such registration, repurchase (i) any and all Warrant Shares
of such Holders at the higher of the Exercise Price or Market Price per Warrant
Share on (x) the date of the notice sent pursuant to Section 7.3(a) or (y) the
expiration of the period specified in Section 7.4(a), and (ii) any and all
Warrants of such Holders at such Market Price less the Exercise Price
-5-
<PAGE>
of such Warrant. Such repurchase shall be in immediately available funds and
shall close within two (2) days after the later of (i) the expiration of the
period specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(d).
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Sections 7.2 or 7.3 hereof, and except as
otherwise provided in this Agreement, the Company covenants and agrees as
follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. The
participating Holder(s) will pay all costs, fees and expenses in connection with
any registration statement filed pursuant to Section 7.3(c). If the Company
shall fail to comply with its obligations under Section 7.4(a), the Underwriter
and the Holder(s) shall be entitled to seek equitable or other relief available.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrant Shares included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify and hold harmless the Holder(s) of
the Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holder(s) within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), from and against any and all loss, claim, damage, expense or
liability (including all expenses incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify the Underwriter contained
in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Shares to be sold pursuant to a
registration statement, and its successors and assigns, shall severally, and not
jointly, indemnify the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses incurred in investigating, preparing or
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<PAGE>
defending against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from information furnished by or
on behalf of such Holder(s), or its successors or assigns, for specific
inclusion in such registration statement to the same extent and with the same
effect as the provisions contained in Section 7 of the Underwriting Agreement
pursuant to which the Underwriter has agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise its Warrants prior to the initial filing of
any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Shares to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof, without the prior written consent of the
Holder(s) of the Warrants and Shares representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) opinion of counsel to the Company, dated the
effective date of such registration stateme6t (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11 (a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below and
to the managing underwriters, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
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<PAGE>
applicable securities laws or the rules and regulations of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(k) In connection with an underwritten offering pursuant to Section
7.3, the Company shall enter into an underwriting agreement with the managing
underwriter(s) selected for such underwriting by Holders holding a Majority of
the Warrant Shares requested to be included in such underwriting, which may be
the Underwriter. Such agreement shall be reasonably satisfactory in form and
substance to the Company, each Holder and such managing underwriter(s), and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriter(s). The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Shares and may, at
their option, require that any or all of the representations, warranties and
covenants of the Company to or for the benefit of such underwriter(s) shall also
be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) In addition to the Warrant Shares, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including, without limitation,
restricted shares of Common Stock, options, warrants or any other securities
convertible into Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference
to the Holders of Warrants or Warrant Shares, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Shares that (i) are
not held by the Company, an affiliate, officer, director, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company shall pay
a dividend in, or make a distribution of, Common Stock or of the Company's
capital stock convertible into Common Stock, the Exercise Price shall forthwith
be proportionately decreased. An adjustment made pursuant to this Section 8.2
shall be made as of the record date for the subject stock dividend or
distribution.
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<PAGE>
8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Shares issuable upon the exercise at the adjusted exercise price of each Warrant
shall be adjusted to the nearest full amount by multiplying a number equal to
the Exercise Price per Share in effect immediately prior to such adjustment by
the number of Shares issuable upon exercise of the Warrants immediately prior to
such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
8.4 Definition of Common Stock For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event that the Company shall after the date hereof issue
securities with greater or superior voting rights than the Common Stock
outstanding as of the date hereof, any Holder, at its option, may receive upon
exercise of any Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
8.5 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding shares of Common Stock), or
in the case of any sale or conveyance to another person, corporation or other
entity of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such consolidation, merger, sale or
conveyance, the Company or such successor or purchasing entity, as the case may
be, shall execute and deliver to the Holder a supplemental warrant agreement
providing that the holder of each Warrant then outstanding or to be outstanding
shall have the right thereafter (until the expiration of such Warrant) to
receive, upon exercise of such Warrant, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation or merger,
by a holder of the number of securities of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 8. The above
provision of this subsection shall similarly apply to successive consolidations,
mergers, sales or conveyances.
8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the Shares
issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two
cents ($.02) per Share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together
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<PAGE>
with any adjustment so carried forward, shall amount to at least two
cents ($.02) per Share.
8.7 Form of Warrant After Adjustments. The form of the Warrant
Certificates need not be changed because of any adjustments in the Exercise
Price or number of Shares, and warrant certificates theretofore or thereafter
issued may continue to express the same Exercise Price and number of Shares as
are stated in the respective Warrant Certificates as initially issued.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant
Certificate, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise, conversion or redemption thereof. The Company
covenants and agrees that, upon exercise of the Warrants and payment of the
Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder or
other person or entity. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all Shares issuable upon the
exercise of the Warrants to be quoted (subject to official notice of issuance)
on the OTC Bulletin Board or listed on securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any
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<PAGE>
time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings or capital surplus (in accordance with applicable
law), as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as
an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company;
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by
notice to the Holders; or
(c) If to the Underwriter, to National Securities Corporation,
1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154,
Attention: General Counsel.
14. Supplements and Amendments. The Company and the Underwriter may from
time to time supplement or amend this Agreement in a writing signed by both
parties without the approval of any Holders of Warrant Certificates (other than
the Underwriter) in order to cure any
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<PAGE>
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriter may deem necessary or desirable and which the Company and
the Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
14. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Underwriter, the
Holders and their respective successors and assigns hereunder.
15. Termination. This Agreement shall terminate at the close of business
on ________, 2005. Notwithstanding the foregoing, the indemnification provisions
of Section 7 shall survive such termination until the close of business on
__________, 2011.
16. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company, the Underwriter and the Holders hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such process
or summons to be served upon any of the Company, the Underwriter and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a copy thereof, by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 13 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company, the Underwriter and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
17. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable by a court of competent jurisdiction, such invalidity
or unenforceability shall not affect any other provision of this Agreement.
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<PAGE>
18. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
19. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Shares any legal or equitable right, remedy or claim under this Agreement; and
this Agreement shall be for the sole benefit of the Company and the Underwriter
and any other registered Holders of Warrant Certificates or Warrant Securities.
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
RONNYBROOK FARM DAIRY, INC.
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
NATIONAL SECURITIES CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2003
No. W-___ Warrants to Purchase
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________, or
registered assigns, is the registered holder of __________ Warrants to purchase
initially, at any time from ________, 1999 [one year after the effective date of
the Registration Statement] until 5:30 p.m., New York time on April 3, 2003
[five years after the effective date of the Registration Statement] ("Expiration
Date"), up to __________ fully-paid and non-assessable shares of common stock,
par value $.001 per share ("Common Stock"), of RONNYBROOK FARM DAIRY, INC., a
New York corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per share of
Common Stock [120% of the initial public offering price] upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the
underwriter's warrant agreement, dated as of ___________, 1998, between the
Company and NATIONAL SECURITIES CORPORATION (the "Warrant Agreement"). Payment
of the Exercise Price shall be made by certified or official bank check in New
York Clearing House funds payable to the order of the Company or by surrender of
this Warrant Certificate.
A-1
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair the rights of the holder
as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants pursuant to
the terms of the Warrant Agreement.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated as of ____________, 1998
RONNYBROOK FARM DAIRY, INC.
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
[SEAL]
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ shares of
Common Stock and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House funds to the order of
RONNYBROOK FARM DAIRY, INC. in the amount of $____________________, all in
accordance with the terms of Section 3.1 of the Underwriter's Warrant Agreement
dated as of __________, 199 between Ronnybrook Farm Dairy, Inc. and National
Securities Corporation. The undersigned requests that a certificate for such
securities be registered in the name of ______________________________________
whose address is _____________________________________________________________
and that such Certificate be delivered to ____________________________________
whose address is _____________________________________________________________.
Dated:
---------------------------------
Signature:
-----------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate.)
- ---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares of Common Stock of
RONNYBROOK FARM DAIRY, INC. in accordance with the terms of Section 3.2 of the
Underwriter's Warrant Agreement dated as of ________, 1998 between Ronnybrook
Farm Dairy, Inc. and National Securities Corporation and herewith tenders in
payment for such securities _________ Warrants. The undersigned requests that a
certificate for such securities be registered in the name of
______________________________________________________ whose address is
_________________________________________________________ and that such
Certificate be delivered to _________________________________________________
whose address is ____________________________________________________________.
Dated:
---------------------------------
Signature:
-----------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate.)
- ---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED ______________________________ hereby sells,
assigns and transfers unto____________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________ Attorney, to
transfer the within Warrant Certificate to the books of the within-named
Company, with full power of substitution.
Dated:
---------------------------------
Signature:
-----------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate.)
- ---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
A-6
FORM OF OPINION
MORSE, ZELNICK, ROSE & LANDER, L.L.P.
LETTER HEAD
____________ ___, 1998
Ronnybrook Farm Dairy, Inc.
Prospect Hill Road
Ancramdale, New York 12503
Dear Sirs:
We have acted as counsel to Ronnybrook Farm Dairy, Inc., a New York
corporation (the "Company"), in connection with the preparation of a
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), to register the offering by the Company of (a) 600,000
Common Shares, $.001 par value per share, (the "Common Shares") (690,000 Common
Shares if the over-allotment option is exercised in full) (b) Common Share
Purchase Warrants to be issued to the underwriter (the "Underwriter's Warrants")
and (c) 60,000 Common Shares underlying the Underwriter's Warrants.
In this regard, we have reviewed the Certificate of Incorporation of the
Company, as amended, resolutions adopted by the Company's Board of Directors,
the Registration Statement, the proposed form of the Underwriter's Warrants, the
other exhibits to the Registration Statement and such other records, documents,
statutes and decisions as we have deemed relevant in rendering this opinion.
Based upon the foregoing, we are of the opinion that:
Each Common Share being offered, the Underwriter's Warrants, and the
Common Shares underlying the Underwriter's Warrants have been duly and validly
authorized for issuance and when issued and sold as contemplated by the
Registration Statement or upon exercise of the Warrants will be legally issued,
fully paid and non-assessable.
Partners, associates and employees of this firm own, in the aggregate,
56,250 Common Shares.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not hereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
MORSE, ZELNICK, ROSE & LANDER, LLP
RONNYBROOK FARM DAIRY, INC.
1998 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan are to attract and retain
qualified personnel for positions of substantial responsibility, to provide
additional incentive to the Employees of the Company or its Subsidiaries, if any
(as defined in Section 2 below), as well as other individuals who perform
services for the Company or its Subsidiaries, and to promote the success of the
Company's business.
Options granted hereunder may be either "incentive stock options", as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options", at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean the Common Stock of the Company (par value
$.001 per share.)
(c) "Company" shall mean Ronnybrook Farm Dairy, Inc., a New York
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Incentive Stock Option" shall mean a stock option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not intended to
qualify as an Incentive Stock Option.
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(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an Option.
(l) "Optionee" shall mean an Employee or other person who receives an
Option.
(m) "Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 425(e) of the Internal Revenue Code of 1986, as
amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Internal Revenue Code of
1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of shares which may be optioned and sold under the Plan is 420,000 shares
of Common Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a Committee to
administer the Plan. The Committee shall consist of not less than three members
of the Board of Directors who shall administer the Plan on behalf of the Board
of Directors, subject to such terms and conditions as the Board of Directors may
prescribe. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors. From time to time the Board of Directors may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause), and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
If a majority of the Board of Directors is eligible to be granted Options
or has been eligible at any time within the preceding year, a Committee must be
appointed to administer the Plan. The Committee must consist of not less than
three members of the Board of Directors, all of whom are "disinterested persons"
as defined in Rule 16b-3 of the General Rules and Regulations promulgated under
the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board,
or the Committee shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, in accordance with Section 422A of the Internal Revenue
Code of 1986, as
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amended, or to grant Non-qualified Stock Options; (ii) to determine, upon review
of relevant information and in accordance with Section 8(b) of the Plan, the
fair market value of the Common Stock; (iii) to determine the exercise price per
share of Options to be granted which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options may be granted to employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
(b) Limitation on Incentive Stock Options. No Incentive Stock Option may
be granted to an Employee if, as the result of such grant, the aggregate fair
market value (determined at the time each option was granted) of the Shares with
respect to which such Incentive Stock Options are exercisable for the first time
by such Employee during any calendar year (under all such plans of the Company
and any Parent and Subsidiary) shall exceed One Hundred Thousand Dollars
($100,000).
6. TERM OF THE PLAN. The Plan shall become effective upon the earlier to occur
of (i) its adoption by the Board of Directors, or (ii) its approval by vote of
the holders of a majority of the outstanding shares of the Company entitled to
vote on the adoption of the Plan. The Plan shall continue in effect until
December 31, 2007 unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from the date
of grant hereof or such shorter term as may be provided in the instrument
evidencing the Option. However, in the case of an Incentive Stock Option granted
to an Employee who, immediately before the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the day of grant thereof or
such shorter time as may be provided in the instrument evidencing the Option.
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8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant to
the exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, immediately before the grant
of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant, as the case may
be;
(B) granted to an Employee not subject to the provisions of
Section 8(a)(i)(A), the per Share exercise price shall be no
less than one hundred percent (100%) of the fair market value
per Share on the date of grant.
(ii) In the case of a Non-qualified Stock Option, the per Share
exercise price shall be no less than one hundred percent (100%) of
the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued upon exercise
of an Option or in payment of any withholding taxes thereon, including the
method of payment, shall be determined by the Board and may consist entirely of
(i) cash, check or promissory note; (ii) other Shares of Common Stock owned by
the Employee having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (iii) other Options owned by the Employee having an aggregate
in-the-money value equal to the aggregate exercise price of the Options being
exercised (Options are in-the-money if the fair market value of the underlying
Shares exceeds the exercise price of the Options),(iv) an assignment by the
Employee of the net proceeds to be received from a registered broker upon the
sale of the Shares or the proceeds of a loan from such broker in such amount; or
(v) any combination of such methods of payment, or such other consideration and
method of payment for the issuance of Shares to the extent permitted under
Delaware Law and meeting rules and regulations of the SEC to plans meeting the
requirements of Section 16(b)(3) of the Exchange Act.
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9. PROCEDURES AND LIMITATIONS ON EXERCISE OF OPTIONS.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and subject to such conditions as
may be determined by the Board, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissable under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms
of the instrument evidencing the Option by the person entitled to exercise
the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of
payment allowable under Section 8(c) of the Plan; it being understood that
the Company shall take such action as may be reasonably required to permit
use of an approved payment method. Until the issuance, which in no event
will be delayed more than thirty (30) days from the date of the exercise
of the Option, (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as
provided in the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) Termination of Status as an Employee. If any Employee ceases to serve
as an Employee, he may, but only within thirty (30) days (or such other period
of time not exceeding three (3) months as is determined by the Board) after the
date he ceases to be an Employee of the Company, exercise his Option to the
extent that he was entitled to exercise it as of the date of such termination.
To the extent that he was not entitled to exercise the Option at the date of
such termination, or if he does not exercise such Option (which he was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of an Employee. Notwithstanding the provisions of Section
9(b) above, in the event an Employee is unable to continue his employment with
the Company as a result of his total and permanent disability (as defined in
Section 105(d)(4) of the Internal Revenue Code of 1986, as amended), he may, but
only within three (3) months (or such other period of time not exceeding twelve
(12) months as is determined by the Board) from the date of disability, exercise
his Option to the extent he was entitled to exercise it at the date of such
disability. To the extent that he was not entitled to exercise the Option at the
date of disability, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death an
Employee of the Company and who shall have been in Continuous Status
as an
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Employee since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date
of death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that would have accrued had the
Optionee continued living one (1) month after the date of death; or
(ii) within thirty (30) days (or such other period of time not exceeding
three (3) months as is determined by the Board) after the
termination of Continuous Status as an Employee, the Option may be
exercised, at any time within three (3) months following the date of
death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of
termination.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, or
in the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided, only
that the excess of the aggregate fair market value of the shares subject to the
Options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such Options immediately before such substitution over the purchase
price thereof, or (ii) upon written notice to an Optionee, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
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12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each person to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) General. The Board may amend or terminate the Plan from time to time
in such respects as the Board may deem advisable; provided, however, that the
following revisions or amendments shall require approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan, other than
in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons eligible to be
granted options; or
(iii) any material increase in the benefits accruing to participants under
the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder approval
under Section 13(a) of the Plan is made, such stockholder approval shall be
solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by, or appropriate
under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability
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in respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in
such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to approval
by the stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted. If such stockholder approval is obtained at a duly
held stockholders' meeting, it may be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. The approval of such stockholders of
the Company shall be (1) solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated thereunder,
or (2) solicited after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning the Plan as that
which would be required by the rules and regulations in effect under Section
14(a) of the Exchange Act at the time such information is furnished.
If such stockholder approval is obtained by written consent in the absence
of a Stockholders' Meeting, it must be obtained by the written consent of all
stockholders of the Company who would have been entitled to cast the minimum
number of votes which would be necessary to authorize such action at a meeting
at which all stockholders entitled to vote thereon were present and voting.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the Plan shall
contain such other provisions, including, without limitation, restrictions upon
the exercise of the Option, as the Board of Directors of the Company's shall
deem advisable. Any Incentive Stock Option Agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Option as
shall be necessary in order that such option will be an Incentive Stock Option
as defined in Section 422 of the Internal Revenue Code of 1986, as amended.
19. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member is liable for negligence or misconduct in the performance of his duties,
provided that within sixty (60) days after institution of any such action, suit
or proceeding a Board member shall, in writing, offer the Company the
opportunity, as its own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
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21. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board.
22. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine gender.
23. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections hereof
are inserted for convenience and reference; they constitute no part of the Plan.
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998 between RICHARD OSOFSKY
(the "Executive") and RONNYBROOK FARM DAIRY, INC., a New York corporation (the
"Company").
WHEREAS, the Executive is presently employed by the Company; and
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term
of employment of the Executive under this Employment Agreement shall be for the
period commencing on January 1, 1998 (the "Commencement Date") and terminating
on December 31, 2000, unless sooner terminated as provided in accordance with
the provisions of Section 6. (Such term of employment is herein sometimes called
the "Employment Term").
2. Employment. As of the Commencement Date, the Company hereby agrees to
employ the Executive as President, Chief Executive Officer and Chief Financial
Officer and the Executive hereby accepts such employment and agrees to perform
his duties and responsibilities hereunder in accordance with the terms and
conditions hereinafter set forth.
3. Duties and Responsibilities. Executive shall be President, Chief
Executive Officer and Chief Financial Officer of the Company during the
Employment
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Term. Executive shall report to and be subject to the direction of the Board of
Directors and shall perform such duties consistent with his title and position
as may be assigned to him from time to time by the Board of Directors. During
the Employment Term, Executive shall devote his full time, skill, energy and
attention to the business of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
4. Compensation. Subject to the closing of the Company's proposed initial
public offering (the "IPO"), the Company shall pay to Executive a salary at the
annual rate of (i) $30,000 commencing on the closing date of the Company's IPO,
(ii) $75,000 commencing on January 1, 1999, and (iii) $100,000 commencing on
January 1, 2000. Salary shall be payable in such manner as the Company shall
determine, but in no event any less often than monthly, less withholding
required by law and other deductions agreed to by Executive.
5. Expenses and Benefits.
(a) The Company shall, consistent with its policy of reporting and
reimbursement of business expenses, reimburse Executive for such ordinary and
necessary business related expenses as shall be incurred by Executive in the
course of the performance of his duties under this Agreement.
(b) Executive shall be eligible to participate to the extent that he
qualifies in all benefit plans, including without limitation, pension, term life
insurance, hospitalization, medical insurance and disability plans as are made
available from time-to-time to executives of the Company.
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(c) Executive shall be entitled to three (3) weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.
6. Termination.
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event Executive suffers
an injury, illness or incapacity of such character as to substantially disable
him from performing his duties hereunder for a period of more one hundred eighty
(180) consecutive days upon the Company giving at last thirty (30) days written
notice of termination; provided, however, that if the Executive is eligible to
receive disability payments pursuant to a disability insurance policy paid for
by the Company, the Executive shall assign such benefits to the Company for all
periods as to which he is receiving full payment under this Agreement.
(b) This Agreement shall terminate upon the death of Executive.
(c) The Company may terminate this Agreement at any time because of
(i) Executive's material breach of any term of this Agreement or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise; provided, in each case, however, that the
Company shall not terminate this Agreement pursuant to this Section 6(c) unless
the Company shall first have delivered to the Executive a notice which
specifically identifies such breach or misconduct and the Executive shall not
have cured the same within fifteen (15) days after receipt of such notice.
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7. Revealing of Trade Secrets, etc. Executive acknowledges the interest of
the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
8. Covenants Not to Compete. During the Employment Term and for a period
of one year thereafter, the Executive shall not, directly or indirectly: (i) in
any manner, engage in any business which competes with any business conducted by
the Company and will not directly or indirectly own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with any corporation, firm or business
that is so engaged, (provided, however, that nothing herein shall prohibit the
Executive from owning not more than three (3%) percent of the outstanding stock
of any publicly held corporation), (ii) persuade or attempt to persuade any
employee of the Company to leave the employ of the Company or to become employed
by any other entity or (iii) persuade or attempt to persuade any current client
or former client with, or to reduce the amount of business it does or intends or
anticipates doing with the Company.
9. Opportunities. During his employment with the Company, and for one year
thereafter, Executive shall not take any action which might divert from the
4
<PAGE>
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. Survival. In the event that this Agreement shall be terminated, then
notwithstanding such termination, the obligations of Executive pursuant to
Sections 7 and 8 of this Agreement shall survive such termination.
11. Contents of Agreement, Parties in Interest, Assignment, etc. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written instrument
duly executed by the parties.
12. Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceabiltiy without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforcable term or provision had not been
contained herein.
13. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by
5
<PAGE>
registered or certified mail, postage prepaid, return receipt requested, to the
party to whom the same is so given or made:
If to the Company
addressed to: Ronnybrook Farm Dairy, Inc.
Prospect Hill Road
Ancramdale, New York 12503
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: Jonathan D. Morse
If to Executive
addressed to: Richard Osofsky
Schultz Hill Road
P. O. Box 533
Pine Plains, New York 12567
or to such other address as the one party shall specify to the other party in
writing.
15. Counterparts and Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
RONNYBROOK FARM DAIRY, INC.
By: /s/ R. Sidney Osofsky
---------------------------
/s/ Richard Osofsky
-------------------------------
Richard Osofsky
6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998 between R. SIDNEY
OSOFSKY (the "Executive") and RONNYBROOK FARM DAIRY, INC., a New York
corporation (the "Company").
WHEREAS, the Executive is presently employed by the Company; and
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term
of employment of the Executive under this Employment Agreement shall be for the
period commencing on January 1, 1998 (the "Commencement Date") and terminating
on December 31, 2000, unless sooner terminated as provided in accordance with
the provisions of Section 6. (Such term of employment is herein sometimes called
the "Employment Term").
2. Employment. As of the Commencement Date, the Company hereby agrees to
employ the Executive as Vice President - Production, Chief Operating Officer and
Treasurer and the Executive hereby accepts such employment and agrees to perform
his duties and responsibilities hereunder in accordance with the terms and
conditions hereinafter set forth.
3. Duties and Responsibilities. Executive shall be Vice President -
Production, Chief Operating Officer and Treasurer of the Company during the
<PAGE>
Employment Term. Executive shall report to and be subject to the direction of
the Board of Directors and shall perform such duties consistent with his title
and position as may be assigned to him from time to time by the Board of
Directors. During the Employment Term, Executive shall devote his full time,
skill, energy and attention to the business of the Company and shall perform his
duties in a diligent, trustworthy, loyal and businesslike manner.
4. Compensation. Commencing January 1, 1998, the Company shall pay to
Executive a salary at the annual rate of $9,360. Subject to the closing of the
Company's proposed initial public offering (the "IPO"), the Company shall pay to
Executive a salary at the annual rate of (i) $30,000 commencing on the closing
date of the Company's IPO, (ii) $75,000 commencing on January 1, 1999, and (iii)
$100,000 commencing on January 1, 2000. Salary shall be payable in such manner
as the Company shall determine, but in no event any less often than monthly,
less withholding required by law and other deductions agreed to by Executive.
5. Expenses and Benefits.
(a) The Company shall, consistent with its policy of reporting and
reimbursement of business expenses, reimburse Executive for such ordinary and
necessary business related expenses as shall be incurred by Executive in the
course of the performance of his duties under this Agreement.
(b) Executive shall be eligible to participate to the extent that he
qualifies in all benefit plans, including without limitation, pension, term life
insurance, hospitalization, medical insurance and disability plans as are made
available from time-to-time to executives of the Company.
2
<PAGE>
(c) Executive shall be entitled to three (3) weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.
6. Termination.
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event Executive suffers
an injury, illness or incapacity of such character as to substantially disable
him from performing his duties hereunder for a period of more one hundred eighty
(180) consecutive days upon the Company giving at last thirty (30) days written
notice of termination; provided, however, that if the Executive is eligible to
receive disability payments pursuant to a disability insurance policy paid for
by the Company, the Executive shall assign such benefits to the Company for all
periods as to which he is receiving full payment under this Agreement.
(b) This Agreement shall terminate upon the death of Executive.
(c) The Company may terminate this Agreement at any time because of
(i) Executive's material breach of any term of this Agreement or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise; provided, in each case, however, that the
Company shall not terminate this Agreement pursuant to this Section 6(c) unless
the Company shall first have delivered to the Executive a notice which
specifically identifies such breach or misconduct and the Executive shall not
have cured the same within fifteen (15) days after receipt of such notice.
3
<PAGE>
7. Revealing of Trade Secrets, etc. Executive acknowledges the interest of
the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
8. Covenants Not to Compete. During the Employment Term and for a period
of one year thereafter, the Executive shall not, directly or indirectly: (i) in
any manner, engage in any business which competes with any business conducted by
the Company and will not directly or indirectly own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with any corporation, firm or business
that is so engaged, (provided, however, that nothing herein shall prohibit the
Executive from owning not more than three (3%) percent of the outstanding stock
of any publicly held corporation), (ii) persuade or attempt to persuade any
employee of the Company to leave the employ of the Company or to become employed
by any other entity or (iii) persuade or attempt to persuade any current client
or former client with, or to reduce the amount of business it does or intends or
anticipates doing with the Company.
9. Opportunities. During his employment with the Company, and for one year
thereafter, Executive shall not take any action which might divert from the
4
<PAGE>
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. Survival. In the event that this Agreement shall be terminated, then
notwithstanding such termination, the obligations of Executive pursuant to
Sections 7 and 8 of this Agreement shall survive such termination.
11. Contents of Agreement, Parties in Interest, Assignment, etc. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written instrument
duly executed by the parties.
12. Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceabiltiy without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforcable term or provision had not been
contained herein.
13. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by
5
<PAGE>
registered or certified mail, postage prepaid, return receipt requested, to the
party to whom the same is so given or made:
If to the Company
addressed to: Ronnybrook Farm Dairy, Inc.
Prospect Hill Road
Ancramdale, New York 12503
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: Jonathan D. Morse
If to Executive
addressed to: R. Sidney Osofsky
Hammertown Road
Pine Plains, NY 12567
or to such other address as the one party shall specify to the other party in
writing.
15. Counterparts and Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
RONNYBROOK FARM DAIRY, INC.
By: /s/ Richard Osofsky
-------------------------------
/s/ R. Sidney Osofsky
-------------------------------
R. Sidney Osofsky
6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998 between RONALD OSOFSKY
(the "Executive") and RONNYBROOK FARM DAIRY, INC., a New York corporation (the
"Company").
WHEREAS, the Executive is presently employed by the Company; and
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term
of employment of the Executive under this Employment Agreement shall be for the
period commencing on January 1, 1998 (the "Commencement Date") and terminating
on December 31, 2000, unless sooner terminated as provided in accordance with
the provisions of Section 6. (Such term of employment is herein sometimes called
the "Employment Term").
2. Employment. As of the Commencement Date, the Company hereby agrees to
employ the Executive as Vice President - Sales and Distribution and Secretary
and the Executive hereby accepts such employment and agrees to perform his
duties and responsibilities hereunder in accordance with the terms and
conditions hereinafter set forth.
3. Duties and Responsibilities. Executive shall be Vice President - Sales
and Distribution and Secretary of the Company during the Employment Term.
<PAGE>
Executive shall report to and be subject to the direction of the Board of
Directors and shall perform such duties consistent with his title and position
as may be assigned to him from time to time by the Board of Directors. During
the Employment Term, Executive shall devote his full time, skill, energy and
attention to the business of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
4. Compensation. Commencing January 1, 1998, the Company shall pay to
Executive a salary at the annual rate of $9,360. Subject to the closing of the
Company's proposed initial public offering (the "IPO"), the Company shall pay to
Executive a salary at the annual rate of (i) $30,000 commencing on the closing
date of the Company's IPO, (ii) $75,000 commencing on January 1, 1999, and (iii)
$100,000 commencing on January 1, 2000. Salary shall be payable in such manner
as the Company shall determine, but in no event any less often than monthly,
less withholding required by law and other deductions agreed to by Executive.
5. Expenses and Benefits.
(a) The Company shall, consistent with its policy of reporting and
reimbursement of business expenses, reimburse Executive for such ordinary and
necessary business related expenses as shall be incurred by Executive in the
course of the performance of his duties under this Agreement.
(b) Executive shall be eligible to participate to the extent that he
qualifies in all benefit plans, including without limitation, pension, term life
insurance, hospitalization, medical insurance and disability plans as are made
available from time-to-time to executives of the Company.
2
<PAGE>
(c) Executive shall be entitled to three (3) weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.
6. Termination.
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event Executive suffers
an injury, illness or incapacity of such character as to substantially disable
him from performing his duties hereunder for a period of more one hundred eighty
(180) consecutive days upon the Company giving at last thirty (30) days written
notice of termination; provided, however, that if the Executive is eligible to
receive disability payments pursuant to a disability insurance policy paid for
by the Company, the Executive shall assign such benefits to the Company for all
periods as to which he is receiving full payment under this Agreement.
(b) This Agreement shall terminate upon the death of Executive.
(c) The Company may terminate this Agreement at any time because of
(i) Executive's material breach of any term of this Agreement or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise; provided, in each case, however, that the
Company shall not terminate this Agreement pursuant to this Section 6(c) unless
the Company shall first have delivered to the Executive a notice which
specifically identifies such breach or misconduct and the Executive shall not
have cured the same within fifteen (15) days after receipt of such notice.
3
<PAGE>
7. Revealing of Trade Secrets, etc. Executive acknowledges the interest of
the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
8. Covenants Not to Compete. During the Employment Term and for a period
of one year thereafter, the Executive shall not, directly or indirectly: (i) in
any manner, engage in any business which competes with any business conducted by
the Company and will not directly or indirectly own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with any corporation, firm or business
that is so engaged, (provided, however, that nothing herein shall prohibit the
Executive from owning not more than three (3%) percent of the outstanding stock
of any publicly held corporation), (ii) persuade or attempt to persuade any
employee of the Company to leave the employ of the Company or to become employed
by any other entity or (iii) persuade or attempt to persuade any current client
or former client with, or to reduce the amount of business it does or intends or
anticipates doing with the Company.
9. Opportunities. During his employment with the Company, and for one year
thereafter, Executive shall not take any action which might divert from the
4
<PAGE>
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. Survival. In the event that this Agreement shall be terminated, then
notwithstanding such termination, the obligations of Executive pursuant to
Sections 7 and 8 of this Agreement shall survive such termination.
11. Contents of Agreement, Parties in Interest, Assignment, etc. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written instrument
duly executed by the parties.
12. Severability. If any term or provision of this Agreement shall be held
to be invalid or unenforceable for any reason, such term or provision shall be
ineffective to the extent of such invalidity or unenforceabiltiy without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforcable term or provision had not been
contained herein.
13. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by
5
<PAGE>
registered or certified mail, postage prepaid, return receipt requested, to the
party to whom the same is so given or made:
If to the Company
addressed to: Ronnybrook Farm Dairy, Inc.
Prospect Hill Road
Ancramdale, New York 12503
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: Jonathan D. Morse
If to Executive
addressed to: Ronald Osofsky
Rural Delivery 1
Box 497
Pine Plains, New York 12567
or to such other address as the one party shall specify to the other party in
writing.
15. Counterparts and Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are inserted
for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
RONNYBROOK FARM DAIRY, INC.
By: /s/ Richard Osofsky
-------------------------------
/s/ Ronald Osofsky
-------------------------------
Ronald Osofsky
6
Ronnybrook Farm Dairy, Inc.
Ancramdale, New York
December 15, 1997
Mr. Kenneth Rothstein
229 Weaver Street
Apt. #7-D
Greenwich, CT 06831
Dear Ken:
As you know, Ronnybrook Farm Dairy, Inc. ("Ronnybrook") is working with
National Securities Corporation, as its investment banker, toward concluding a
minimum $4 million equity financing (the "Financing"). We anticipate that the
Financing will close by April 1, 1998.
Upon closing of the Financing or, at your election, within 30 days
thereafter (the "Commencement Date"), you agree to join Ronnybrook and
Ronnybrook agrees to hire you as a full-time employee. The following terms shall
be applicable to your employment:
1. The term of your employment shall be for a minimum of one year
beginning on the Commencement Date.
2. You will be employed as Vice President - Marketing and will devote
your full time, energy and skill to you employment.
3. As compensation for your services, Ronnybrook will pay you a salary
at the rate of Seventy Thousand ($70,000.00) Dollars per annum.
<PAGE>
Mr. Kenneth Rothstein
December 15, 1997
4. As an employee of Ronnybrook, you shall be entitled to participate, to
the extent you qualify, in all retirement, profit-sharing, insurance (life,
health, etc.), and other employee benefit plans which may be adopted by
Ronnybrook.
5. Ronnybrook will reimburse you for all reasonable business expenses
incurred by you in the course of your employment. In addition, to facilitate
your record keeping, Ronnybrook will provide you with a company credit card and
cellular phone account.
Very truly yours,
Ronnybrook Farm Dairy, Inc.
By: /s/ Ronald Osofsky, President
------------------------------
Ronald Osofsky, President
Accepted and Agreed:
/s/ Kenneth Rothstein
- ---------------------
Kenneth Rothstein
LEASE AGREEMENT
The parties agree as follows:
Date of this Lease: January 1, 1998
Parties to this
Lease and Addresses: Landlord: Prospect Hill Associates
Address: c/o Ronald Osofsky
Route 82
Pine Plains, New York 12567
You, the
Tenant: Ronnybrook Farm Dairy, Inc.
Prospect Hill, Ancramdale, New York 12502
1. Term:
The term of this lease shall be ten years, beginning January 1, 1998 and
ending December 31, 2008 (the "Term"). Such term shall be renewable, at
the Tenant's election, for two additional 10-year terms (each a "Renewal
Term").
2. Premises Rented:
Building known as the dairy of the former DeLaval Research Farm on
Prospect Hill Road, Ancramdale, New York, including office space,
manufacturing plant, storage facilities, bathrooms and utility room all as
more particularly described on a sketch attached hereto and made a part
hereof as Exhibit "A". Tenant shall be entitled to make improvements on
the premises at its expense and will be responsible for maintaining the
premises and al improvements thereon.
3. Rent:
The yearly rent during the Term and any Renewal Term of this lease is as
follows:
1998.................................. $20,000
1999.................................. $35,000
2000.................................. $50,000
2001 through 2008 and
for each year during
any Renewal Term...................... $65,000
You, the Tenant, will pay 1/12th of the applicable yearly rent to the
Landlord on the first day of the Term hereof and on the first day of each
and every month thereafter of the Term and any Renewal Term. The parties
agree that the yearly rent may be
<PAGE>
adjusted upward by a percentage which is equal to any percentage increase
of the U.S. Consumer Price Index.
4. Agreement to lease and pay rent:
Landlord leases the Premises to you, the Tenant, for the Term. You, the
Tenant, agree to pay the Rent and other charges as required in the Lease.
You, the Tenant, agree to do everything required of you in the Lease.
5. Default:
If you, the Tenant, fail to pay the Rent, or any part of the Rent when it
becomes due, the Landlord may sue you for it, or re-enter the Premises, or
use any legal remedy.
6. Taxes, Utilities and Maintenance:
The Landlord agrees to pay all real estate taxes to be assessed on the
Premises during the Term (except for 1998 which shall be paid by the
Tenant) and any Renewal Term. The Tenant agrees to pay all utilities used
in connection with their use of the property.
Tenant shall be responsible for the maintenance of the buildings including
general repairs, painting of the structure as well as maintenance of the
heating system and plumbing fixtures.
7. End of the Term:
You, the Tenant, agree that, at the end of the Term or any Renewal Term,
as the case may be, you will surrender the Premises in as good condition
as now, except for ordinary wear and damage by the elements.
8. Successors:
Unless otherwise stated, the Lease is binding on all parties who lawfully
succeed to the rights or take the place of the Landlord or you, the
Tenant.
9. Changes:
This Lease can be changed only by an agreement in writing signed by the
parties to the Lease.
2
<PAGE>
10. Quiet Enjoyment:
Landlord agrees that if you, the Tenant, pay the rent and are not in
default under this Lease, you, the Tenant, may peaceably and quietly have,
hold and enjoy the premises for the Term and any Renewal Term of this
Lease.
11. Insurance:
Tenant agrees to maintain appropriate insurance:
a. covering potential loss of its personal property, and
b. liability insurance in such amounts as the Landlord may require.
12. Termination:
This Lease may be terminated earlier than as set forth by the Tenant, upon
sixty days notice, in writing, to the Landlord.
Signatures: The parties have signed this Lease as of the date at the top of the
first page.
LANDLORD
PROSPECT HILL ASSOCIATES, a Partnership
By: /s/ R. Sidney Osofsky
--------------------------
R. Sidney Osofsky, General Partner
TENANT
RONNYBROOK FARM DAIRY, INC.
By: /s/ Richard A. Osofsky
--------------------------
Richard A. Osofsky, President
WITNESS:
- ----------------------------
3
EXCLUSIVE OUTPUT AGREEMENT
Exclusive Output Agreement dated as of September 30, 1997 (herein
sometimes referred to as the "Agreement") by and between Ronnybrook Farms, a New
York partnership (the "Farm") and Ronnybrook Farm Dairy, Inc., a New York
corporation (the "Dairy").
WHEREAS, the Dairy has been purchasing, on an exclusive basis, raw milk
produced by the Farm since the Dairy commenced operations in 1991; and
WHEREAS, the Dairy and the Farm wish to continue this relationship and set
forth the specific terms thereof.
NOW, THEREFORE, the parties hereto agree as follows:
(1) The Farm hereby agrees to sell all of the raw milk it produces to the
Dairy.
(2) The Dairy hereby agrees to purchase from the Farm all of the raw milk
the Dairy requires for the manufacture of dairy products, subject to the
provisions of this Agreement.
(3) The Farm hereby agrees that it will continue to produce raw milk at
its current rate of production until such time as the Dairy notifies the Farm of
any change in its requirements for raw milk. The Dairy shall give the Farm at
least 30 days' notice of any material change (increase or decrease) in its raw
milk requirements and the Farm shall use its reasonable best efforts to adjust
its production levels to accommodate the Farm's raw milk requirements.
<PAGE>
(4) The Dairy hereby agrees to pay the Farm $16 per hundredweight for raw
milk in 1997 and 1998, $18 per hundredweight in 1999 and $20 per hundredweight
for the remainder of the term of this Agreement. The parties further agree that
the price paid for raw milk by the Dairy commencing January, 1998, shall be
adjusted monthly by the amount of any increase or decrease in the $14.50 per
hundredweight monthly blend price for milk established in Federal Order No. 1
for milk sold in January, 1998; provided, however, that the price per
hundredweight paid by the Dairy for raw milk shall not be less than the greater
of (a) the applicable price set forth in the previous sentence, and (b) the fair
market value of raw milk based on the average price paid by the three largest
milk cooperatives to dairy farms in the northeast as determined by the Company's
auditors.
(5) The Dairy shall have the right to approve the farming, herding and
milking techniques employed by the Farm and shall have the right to supervise
the operations of the Farm and otherwise exercise the degree of control over the
Farm's operations as are reasonably required to insure the quality of the raw
milk supplied hereunder by the Farm. The Farm shall use its reasonable best
efforts to make any changes in such techniques the Dairy may request in order to
insure the quality of the raw milk.
(6) The Farm hereby covenants that the raw milk it sells to the Dairy
pursuant to this Agreement will meet the standards for raw milk established by
the New York State Department of Agriculture and Markets.
(7) The Dairy may, in its sole discretion, refuse to purchase any raw milk
which it believes does not meet its standards of taste and quality.
(8) The Farm hereby represents that it owns approximately 30 acres of land
located on Prospect Hill Road, Ancramdale, New York and the milking farm, dairy
production plant
2
<PAGE>
and other structures located thereon (collectively the "Assets"). Such Assets
are used to produce all of the milk produced by the Farm.
(9) The Farm hereby grants to the Dairy a right of first refusal to
purchase the Assets. Therefore, if the Farm intends to sell or assign any of the
Assets or any partnership interest in the Farm (except for the assignment of a
partnership interest to a member or members of the Osofsky family) to a bona
fide third-party purchaser, the Farm shall first notify the Dairy and afford the
Dairy a reasonable opportunity to first acquire such Assets or partnership
interest at the same price and on the same terms as offered by the proposed
third-party purchaser.
10) The term of this Agreement shall be ten years and such term shall be
renewable, at the Dairy's election, for two additional 10-year terms.
11) This Agreement and the rights and obligations hereunder are binding
upon and shall inure to the benefit of the parties hereto and their successors
and assigns; provided, however, that neither this Agreement nor any rights of
the Farm hereunder are assignable by the Farm without the prior written consent
of the Dairy.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
RONNYBROOK FARM DAIRY, INC.
By: /s/ R. Sidney Osofsky
----------------------------------
R. Sidney Osofsky, Vice President
RONNYBROOK FARMS
By: /s/ Ronald N. Osofsky
----------------------------------
Ronald N. Osofsky, General Partner
3
PROMISSORY NOTE
$66,295.27 Ancramdale, New York
September 30, 1997
RONNYBROOK FARM DAIRY, INC., a New York corporation (the "Maker"), FOR VALUE
RECEIVED, hereby promises to pay on June 30, 1999 to the order of RICHARD
OSOFSKY (the "Holder"), the principal amount of Sixty Six Thousand Two Hundred
Ninety Five Dollars and Twenty Seven Cents ($66,295.27), plus Nine Thousand Two
Hundred Eighty One Dollars and Thirty Four Cents ($9,281.34), representing
simple interest on such principal amount at 8% per annum from September 30, 1997
to June 30, 1999.
The Maker may prepay this Note at any time without premium or penalty.
All payments made hereunder shall first be applied to accrued and unpaid
interest, if any, and the balance shall be applied to principal.
The Maker waives presentment for payment, demand, notice of nonpayment, notice
of protest and protest of this Note, and all of the notices not expressly
provided for herein in connection with the delivery, acceptance, performance,
default or enforcement of the payment of this Note.
Upon the occurrence of any of the following specified Events of Default (each an
"Event of Default"):
(1) the Maker shall default in the due and punctual payment of the
principal or interest on this Note and such default shall remain uncured for a
period of ten (10) days after written notice by the Holder to the Maker that
such default has occurred and is continuing;
(2) the Maker pursuant to or within the meaning of Title 11, U.S. Code or
any similar federal or state law for the relief of debtors (a "Bankruptcy Law"):
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
<PAGE>
(C) consents to the appointment of a custodian, receiver or other
similar official for it or for all or substantially all of its
property; or
(D) makes a general assignment for the benefit of its creditors;
or
(3) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Maker in an involuntary case or
proceeding;
(B) appoints a custodian, receiver or other similar official for
the Maker or for all or substantially all of its property; or
(C) orders the liquidation of the Maker, and the order or decree
remains unstayed and in effect for 90 days.
THEN, AND IN ANY SUCH EVENT, AND AT ANY TIME THEREAFTER IF ANY EVENT OF DEFAULT
SHALL THEN BE CONTINUING, THE HOLDER BY WRITTEN NOTICE TO THE MAKER, MAY DECLARE
THE PRINCIPAL OF AND ACCRUED INTEREST ON THIS NOTE TO BE DUE, WHEREUPON THE SAME
SHALL FORTHWITH BECOME DUE AND PAYABLE.
This Note has been executed and delivered and shall be construed and enforced in
accordance with the laws of the State of New York, including but not limited to
matters of construction, validity and performance.
RONNYBROOK FARM DAIRY, INC.,
By: /s/ R. Sidney Osofsky
---------------------------------
R. Sidney Osofsky, Vice President
RONNYBROOK FARM DAIRY, INC.
Prospect Hill Road
Ancramdale, New York 12403
February , 1998
Re: Letter of Intent
Dear Sirs:
This letter will confirm our intention to enter into an agreement whereby
Ronnybrook Farm Dairy, Inc. ("Ronnybrook") will purchase the raw milk produced
on your farm and will set forth our mutual understandings relating to such an
arrangement. As you know, Ronnybrook is very concerned about the quality of the
raw milk used in its products, and has approached you with the understanding
that your farm employs methods of production which insure that the milk you
produce is of the highest quality. We also understood that you currently sell
your entire production of raw milk to a dairy cooperative, and that the
cooperative may impose limitations on your sale of raw milk to other customers.
Ronnybrook intends to begin purchasing limited quantities of raw milk which will
not jeopardize your relationship with the cooperative, but hopes that it will
soon be in a position to purchase your farm's entire raw milk production. It is
understood that the approximate price to be paid per hundredweight of raw milk
is $ .
It is understood that this letter merely constitutes a statement of our
mutual understandings and intentions with respect to our purchase of your raw
milk. It does not contain all matters upon which agreement must be reached in
order for a definitive agreement to be entered into and, therefore, does not
constitute a binding commitment.
Please indicate your concurrence with this non-binding statement of mutual
intent by signing in the space provided below.
Very truly yours,
-------------------------------------
Richard A. Osofsky,
Chief Executive Officer and President
Accepted:
- ----------------------------
Exhibit 11.1
RONNYBROOK FARM DAIRY, INC.
SUPPLEMENTAL NET LOSS PER SHARE COMPUTATION
For the Year Ended
December 31, 1997
-----------------
CALCULATION OF SUPPLEMENTAL SHARES OUTSTANDING:
Debt to be repaid by offering proceeds $ 415,000
Proceeds per share 7.00
---------
Additional shares assumed outstanding 59,286
---------
Additional weighted average common shares outstanding 9,908
Weighted average common shares outstanding 600,000
---------
Supplemental weighted average common shares outstanding 609,908
=========
SUPPLEMENTAL NET LOSS PER SHARE:
Net loss $(115,172)
Pro forma impact of use of proceeds on interest expense 8,000
---------
Supplemental net loss (107,172)
Supplemental weighted average common shares outstanding 609,908
---------
Supplemental net loss per share $ (0.18)
=========
EXHIBIT 23.1
After the change in tax status discussed in Note 8 to the Ronnybrook Farm Dairy,
Inc.'s financial statements is effected, we expect to be in a position to render
the following consent.
ARTHUR ANDERSEN LLP
February 26, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 26, 1998 (except for the matters described in Note 8, as to which
the date is __________) and to all references to our Firm included in or made a
part of this registration statement.
New York, New York
______________, 1998
