As filed with the Securities and Exchange Commission on April 10, 1998
Registration No. 333-46947
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1
TO
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)
-----------
New York 2026 22-3071022
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Identification Number)
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)
-----------
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)
-----------
with a copy to:
JONATHAN D. MORSE SPENCER G. FELDMAN
Morse, Zelnick, Rose & Lander, LLP Greenberg Traurig Hoffman
450 Park Avenue Lipoff Rosen & Quentel
New York, New York 10022 200 Park Avenue, 15th Floor
(212) 838-1177 New York, New York 10166
(212) 838-9190 (Fax) (212) 801-9200
(212) 801-6400 (Fax)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
--------------
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. |_|
================================================================================
<PAGE>
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 APRIL 10, 1998
PROSPECTUS
600,000 Shares
RONNYBROOK FARM DAIRY, INC.
Common Stock
---------------
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 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. 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 6 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)
- --------------------------------------------------------------------------------
Per Share......... $7.00 $.70 $6.30
Total (3)......... $4,200,000 $420,000 $3,780,000
================================================================================
(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 $8.40 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
$4,830,000, $483,000 and $4,347,000, 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>
[Photo of glass bottled milk]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, 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 ACTIVITIES, SEE "UNDERWRITING."
Ronnybrook(R) is a registered trademark of the Company.
<PAGE>
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. The Company believes
that 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 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 (December 23, 1997). Ronnybrook sweet butter
was described by the Times as "very
<PAGE>
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 a high quality
product 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>
The Offering
Shares Offered......................... 600,000 Shares
Offering Price......................... $7.00 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
- ----------
(1) Does not include (i) 60,000 Common Shares reserved for issuance upon
exercise of the Underwriter's Warrants and (ii) 270,000 Common Shares
reserved for issuance pursuant to the Company's Stock Option Plan, of
which 150,000 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."
3
<PAGE>
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
4
<PAGE>
Balance Sheet Data: December 31, 1997
---------------------------------
Actual As Adjusted(2)
---------------- ---------------
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) (4).... (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.
(4) Gives 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. See Note 8 to the Company's Financial
Statements.
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.
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 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
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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 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.
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
7
<PAGE>
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 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 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. See "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
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<PAGE>
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 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
9
<PAGE>
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 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 liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the
aggregate for any year and 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
liability coverage. The Company intends to increase its umbrella policy coverage
to $10,000,000 per occurrence and $10,000,000 in the aggregate for any year. The
cost associated with this increased coverage is anticipated to be $7,750 per
year. 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
10
<PAGE>
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 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.
Broad Discretion by Management in use of a Substantial Portion of
Proceeds. The Company intends to use approximately $1,300,000 or 38.8% of the
estimated net proceeds of the Offering for general corporate purposes, including
working capital. Accordingly, the Company's management will retain broad
discretion as to the use of a substantial portion of the net proceeds of the
Offering. See "Use of Proceeds."
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 (40.9% 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 $4.41 (63%) 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
11
<PAGE>
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, 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.
12
<PAGE>
Stock Options Outstanding. Upon completion of this Offering, the Company
will have outstanding stock options to purchase an aggregate of 150,000 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 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.
13
<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 kiosk in Grand Central Terminal
and improvement of Chelsea Market facility..... 100,000 3.0%
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.
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
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<PAGE>
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.
15
<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 (3)........ 27,400 3,168,225
Retained deficit (3).................. (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) 270,000 Common Shares
reserved for issuance pursuant to the Company's Stock Option Plan of which
150,000 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."
(3) Gives 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. See Note 8 to the Company's Financial
Statements.
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 $(241,410) or $(.40) 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 $3,108,590 or
$2.59 per share. This represents an immediate increase in pro forma net tangible
book value of $2.99 per share to existing shareholders and an immediate dilution
of $4.41 per share (63%) 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 $(.40)
Increase in net tangible book value per share
attributable to new investors.. ................. $2.99
--------
Pro forma net tangible book value per share after
Offering (1)......................................... $2.59
--------
Dilution to new investors............................ $4.41
--------
- ----------
(1) Does not give effect to the issuance of (i) 270,000 Common Shares reserved
for issuance pursuant to the Company's Stock Option Plan, of which 150,000
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):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- -----------------------
Average
-------
Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders (1).. 600,000 50.0% $ 28,000(2) 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%
========= ====== ========== =====
</TABLE>
- ----------
(1) Does not give effect to the exercise of the options and warrants described
in footnote 1 to the immediately preceding table.
(2) See information contained under "Certain Transactions" with respect to the
purchase in October 1997 for $57,350 of an aggregate of 227,400 Common
Shares from the original shareholders of the Company.
17
<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
18
<PAGE>
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) (4)..................... (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.
(4) Gives 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. See Note 8 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 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
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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 total liabilities of $882,030 and
total assets of $701,455, resulting in a negative net worth of $180,575. As of
such date, the Company's liabilities included indebtedness of $654,405,
consisting of $607,900 of long term debt and $46,505 representing 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.
The Company has entered into several agreements which will increase
operating expenses in the future. In January 1998, the Company entered into
employment agreements with each of the Osofsky brothers. The agreement with
Richard Osofsky 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 employment agreements with R. Sidney
and Ronald Osofsky provide for base salaries at the annual rate of $9,360 prior
to the close of this Offering, $30,000 commencing on the
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close of this Offering through December 31, 1998, $75,000 for 1999 and $100,000
for 2000. See "Management--Employment Agreements." In September 1997, the
Company entered into an Exclusive Output Agreement with the Osofsky Farm,
pursuant to which the Company purchases the raw milk it requires at a base price
of $16 per hundredweight through 1998 (the price paid by the Company in
1995-1997), $18 per hundredweight in 1999 and $20 per hundredweight for the
remainder of the Agreement's 10-year term and any renewal term. See
"Business--Supply of Raw Milk." In January 1998, the Company entered into a
10-year lease for the building in which its dairy facility is located, pursuant
to which the annual rent in 1998 is $20,000 and will increase by $15,000 in each
of the years 1999 through 2001. The rent paid by the Company in 1995-1997 was
$12,000 per annum. See "Business--Properties." Unless product sales by the
Company increase sufficiently to offset these incremental expenses, the
Company's operating losses will increase, thereby reducing the Company's capital
resources.
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. Upon confirmation of the change in the Company's tax
status to that of a subchapter "C" corporation, the Company's retained deficit
will be reclassified to additional paid-in capital.
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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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. The Company believes
that 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 and safety of
food which, in turn, creates an opportunity in the agricultural landscape for
local farm
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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 a high quality
product 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
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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%.
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. 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" (July 24, 1991).
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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 (September 8, 1993). 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 (May 26, 1993). 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 (August 2, 1995). 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" (March 1, 1995). In addition to sweet butter, the Company makes
lightly salted butter, 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 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.
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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 1997
"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.
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
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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 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.
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
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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 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,
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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. The Osofsky Farm is located in Columbia county on the
Columbia/Dutchess county border. The Company's dairy facility is located in
Columbia county on land contiguous to the Osofsky Farm. The two neighboring
farms with which the Company has signed letters of intent are located in
Columbia and Dutchess counties, respectively, one within a five minute drive of
the Company's dairy and the other within a 15 minute drive. See "Production -
Raw Milk." The 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."
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 a high
quality product 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 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."
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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
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." The Company believes that
tenants at Chelsea Market serve over 600 restaurants, hotels and stores. The
Company delivers Ronnybrook products
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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 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.
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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.
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
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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, 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 liability insurance in the amount of $1,000,000 per
occurrence and $2,000,000 in the aggregate for any year and 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 liability coverage. The Company intends to
increase its umbrella policy coverage to $10,000,000 per occurrence and
$10,000,000 in the aggregate for any year. The cost associated with this
increased coverage is anticipated to be $7,750 per year. 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
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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.
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.
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.
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Edward D. Anna has been elected to the Board of Directors, to take office
immediately following the completion of this Offering and the exercise or lapse
of the Over-Allotment Option. Upon taking office, Mr. Anna will serve as an
additional member of the Audit and Compensation Committees. Since 1989, Mr. Anna
has been a consultant for DDM Consultants, where he provides business
development services to, among other clients, agricultural communities seeking
to develop agricultural/tourism using value added food manufacturing as a tool
for economic development. Since 1996, Mr. Anna has been the Interim Executive
Director of the Cornell Cooperative Extension, an educational institution
focusing on community development and, in this capacity, has worked closely with
the Hudson Valley agricultural community.
Mr. Anna is 58 years old.
Steven H. Adler has been elected to the Board of Directors, to take office
immediately following the completion of this Offering and the exercise or lapse
of the Over-Allotment Option. Upon taking office, Mr. Adler will serve as an
additional member of the Audit and Compensation Committees. Mr. Adler has been
the president and founder of Vector Index Advisors, Inc., a company that manages
an equity mutual fund, for more than the past five years. He is a member of the
American Society of Pension Actuaries and holds the designations of Certified
Pension Consultant and Certified Investment Management Analyst. Mr. Adler is 60
years old.
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 Messrs. Anna and
Adler and R, Sidney 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 Messrs. Anna
and Adler and Ronald N. 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 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
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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 270,000 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 and
non-qualified 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 50,000 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. The options are for terms expiring five years after the date of
grant. 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 taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith.
39
<PAGE>
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 Company has been informed
that in the opinion of the Securities and Exchange 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 April 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% 13.94%(2)
R. Sidney Osofsky............... 124,200 20.70% 13.94%(2)
Ronald N. Osofsky............... 124,200 20.70% 13.94%(2)
Kenneth W. Rothstein (3)........ 29,400 4.90% 2.45%
Steven M. Rabinovici............ 82,350 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% 40.89%(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 50,000 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 150,000 shares subject to stock options exercisable within sixty
(60) days of the effective date of this Offering.
40
<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.
In October 1997, Kenneth W. Rothstein, Steven M. Rabinovici and David R.
Jacaruso, principal shareholders of the Company, and members of the law firm of
Morse, Zelnick, Rose & Lander, LLP, counsel for the Company, purchased from the
original shareholders of the Company, including a former shareholder, an
aggregate of 227,400 Common Shares for a total purchase price of $57,530, or
approximately $.25 per share.
41
<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
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
42
<PAGE>
"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 OTC Bulletin Board
Application has been made to list the Common Shares on the 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 OTC Corporate Transfer Service
Co., Hicksville, 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 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
43
<PAGE>
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.
44
<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 completion 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 will be restricted from sale, transfer,
assignment or hypothecation for a period of one year from the effective date of
the Offering, except to officers or partners of the Underwriter and members of
the selling group. 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"), 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."
45
<PAGE>
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.
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.
46
<PAGE>
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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this Prospectus contain forward-looking
statements regarding the plans and objectives of management for future
operations. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
forward-looking statements made in this Prospectus are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the growth and
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements made in this Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements made in
this Prospectus, particularly in view of the Company's early stage of
operations, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
47
<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
April 8, 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 accounts payable and accrued expenses 62,086 34,538
(Increase) in other liabilities (10,263) (12,355)
--------------- --------------
Net cash (used in) provided by operating (126,347) 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:
(Increase) in deferred offering costs (60,835) -
( 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 487,301 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 would be a reclassification of the
Company's retained deficit of ($208,575) to additional paid-in capital in the
accompanying balance sheet and statement of shareholders' deficit as of December
31, 1997. There is no pro forma effect on the accompanying statement of
operations for the year ended December 31, 1997, 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 270,000 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, 50,000 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...........................................38
Principal Shareholders...............................42
Certain Transactions.................................43
Description of Capital Stock.........................44
Shares Eligible for Future Sale......................45
Underwriting.........................................47
Legal Matters........................................48
Experts..............................................48
Available Information................................49
Special Note Regarding
Forward-Looking Statements........................49
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
================================================================================
<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.
(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
II-1
<PAGE>
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.
* * *
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
II-2
<PAGE>
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 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.
II-3
<PAGE>
(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 and edgarization expenses...................................$ 35,000
Accounting fees and expenses.........................................$ 90,000
Legal fees and expenses..............................................$ 135,000
State securities law fees and expenses...............................$ 20,000
Transfer agent and registrar fees and expenses.......................$ 1,000
Miscellaneous........................................................$20,393.06
----------
Total.......................................................$ 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).
99.1 Consents of Persons About to Become Directors*
- ----------
* Filed herewith
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 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.
II-6
<PAGE>
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 April 9, 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 April 9, 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
RONNYBROOK FARM DAIRY, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF NEW YORK
CUSIP 77633R 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
SEE REVERSE FOR
CERTAIN DEFINITIONS
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, PAR VALUE $.001 PER SHARE, OF
RONNYBROOK FARM DAIRY, INC. (hereinafter called the Corporation), transferable
on the books of the Corporation by the holder hereof in person or by duly
authorized attorney, upon surrender of this certificate properly endorsed. This
certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar. Witness the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated
--------------------- ------------------------------------
SECRETARY
------------------------------------
PRESIDENT
COUNTERSIGNED AND REGISTERED:
OTC CORPORATE TRANSFER SERVICE CO.
(HICKSVILLE, NY)
TRANSFER AGENT AND REGISTRAR
BY
---------------------------------
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so requests
a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - Custodian
- ----------------------- ----------------------------------------- ---------
(Cust) (Minor) under Uniform Gifts to Minors Act (State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________ hereby sell, assign and transfer unto
- --------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
Common Shares represented by the within Certificate and do hereby irrevocably
constitute and appoint to transfer the said stock on the books of the within
named Corporation with full power of substitution in the premises.
Dated
-------------------
NOTICE
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
By
--------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
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.
<PAGE>
(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 270,000 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
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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
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STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
(C)Copyright 1982. All rights Reserved.
Reproduction in whole or in part prohibited.
- --------------------------------------------------------------------------------
AGREEMENT OF LEASE, made of this 13th day of September, 1996 Between CMC MIC
HOLDING COMPANY, L.L.C., having an office at 88 Tenth Avenue, New York, New York
10011 party of the first part, hereinafter referred to as "Landlord" or "Owner,"
and RONNYBROOK FARM DAIRY, INC., party of the second part, a New York State
Corporation having an office at Ancramdale, New York, hereinafter referred to as
"Tenant".
WITNESSETH: Owner hereby leases Tenant and Tenant hereby hires from Owner a
portion of the ground floor (the "Demised Premises") as shown on Exhibit A
attached hereto, in the series of buildings comprising the two (2) square blocks
bound to the north by 16th Street, to the south by 15th Street, to the east by
Ninth Avenue and to the west by Eleventh Avenue (but intersected by Tenth
Avenue), which series of buildings is known as Around The Clock Center and by
the street address 75 Ninth Avenue/85 Tenth Avenue, New York, New York (the
"Building") for the term and rental set forth in Articles 41 and 42 hereof.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby convenant
as follows:
Occupancy: 1. Tenant shall pay the rent as above and as hereinafter provided.
Use: 2. Tenant shall use and occupy demised premises for the Permitted Use
provided such use is in accordance with the Certificate of Occupancy for the
building, if any, and for no other purpose.
Alterations: 3. Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant at Tenant's
expense, may make alterations, installations or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved by Owner. Tenant shall, at its expense,
before making any alterations, additions, installations or improvements obtain
all permits, approval and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner. Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the demised premises, or the building of which
the same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this article, the same
shall be discharged by Tenant within thirty days thereafter, at Tenant's
expense, by filing the bond required by law or otherwise. All fixtures and all
paneling, partitions, railings and like installations, installed in the premises
at any time, either by Tenant or by Owner on Tenant's behalf, shall, upon
installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease, elect
to relinquish Owner's right thereto and to have them removed from the demised
premises by Tenant prior to the expiration of the lease, at Tenant's expense.
Nothing in this Article shall be construed to give Owner title to or to prevent
Tenant's removal of trade fixtures, moveable office furniture and equipment, but
upon removal of any
<PAGE>
such from the premises or upon removal of other installations as may be required
by Owner. Tenant shall immediately and its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
premises by Owner, at Tenant's expense.
Repairs: 4. Owner shall maintain and repair the exterior of and the public
portions of the building. Tenant shall, throughout the term of this lease, take
good care of the demised premises including the bathrooms and lavatory
facilities (if the demised premises encompass the entire floor of the building)
and the windows and window frames and, the fixtures and appurtenances therein
and at Tenant's sole cost and expense promptly make all repairs thereto and to
the building, whether structural or non-structural in nature, caused by or
resulting from the carelessness, omission, neglect or improper conduct of
Tenant, Tenant's servants, employees, invitees, or licensees, and whether or not
arising from such Tenant conduct or omission, when required by other provisions
of this lease, including Article 6. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesaid repairs shall be of quality or class
equal to the original work or construction. If Tenant fails, after ten days
notice, to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by the Owner at the expense of Tenant, and the
expenses thereof incurred by Owner shall be collectible, as additional rent,
after rendition of a bill or statement therefor. If the demised premises be or
become infested with vermin, Tenant shall, at its expense, cause the same to be
exterminated. Tenant shall give Owner prompt notice of any defective condition
in any plumbing, heating system or electrical lines located in the demised
premises and following such notice, Owner shall remedy the condition with due
diligence, but at the expense of Tenant, if repairs are necessitated by damage
or injury attributable to Tenant, Tenant's servants, agents, employees, invitees
or licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. The provisions of this
Article 4 with respect to making of repairs shall not apply in the case of fire
or other casualty with regard to which Article 9 hereof shall apply.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the New York State Labor Law or any other applicable law or of
the Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements Of Law, Fire Insurance, Floor Loads: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times thereafter,
Tenant shall, at Tenant's sole cost and expense, promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of the
New York Board of Fire Underwriters, or the Insurance Services Office, or any
similar body which shall impose any violation, order or duty upon Owner or
Tenant with respect to the demised premises, whether or not arising out of
Tenant's
<PAGE>
use or manner of use thereof, or, with respect to the building, if
arising out of Tenant's use or manner of use of the demised premises or the
building (including the use permitted under the lease). Except as provided in
Article 30 hereof, nothing herein shall require Tenant to make structural
repairs or alterations unless Tenant has, by its manner of use of the demised
premises or method or operation therein, violated any such laws, ordinances,
orders, rules, regulations or requirements with respect thereto. Tenant shall
not do or permit any act or thing to be done in or to the demised premises which
is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premise except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates applicable to said premises shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position of
all safes, business machines and mechanical equipment. Such installations shall
be placed and maintained by Tenant, at Tenant's expense, in settings sufficient,
in Owner's judgment, to absorb and prevent vibration, noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
Property - Loss, Damage, Reimbursement, Indemnity: 8. Owner or its Agents shall
not be liable for any damage to property of Tenant or of others entrusted to
employees of the building, nor for loss of or damage to any property of Tenant
by theft or otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or due to the
negligence of Owner, its agents, servants or employees; Owner or its agents
shall not be liable for any damage caused by other tenants or persons in, upon
or about said building or caused by operations in connection of any private,
public or quasi public work. If at any time any windows of the demised premises
are temporarily closed, darkened or bricked up (or permanently closed, darkened
or bricked up, if required by law) for any reason whatsoever including, but not
limited to Owner's own acts, Owner shall not be liable for any damage
<PAGE>
Tenant may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorney's fees, paid, suffered or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant or condition of this lease,
or the carelessness, negligence or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees or licensees. Tenant's liability under
this lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
Destruction Fire and Other Casualty: 9. (a) If the demised Premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent, until
such repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent shall be proportionately paid up to the
time of the casualty and thenceforth shall cease until the date when the
premises shall have been repaired and restored by Owner, subject to Owner's
right to elect not to restore the same as hereinafter provided. (d) If the
demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, specifying a date for the
expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Owner's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a termination
notice as provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable expedition,
subject to delays due to adjustment of insurance claims, labor troubles and
causes beyond Owner's control. After any such casualty, Tenant shall cooperate
with Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice from Owner that the premises are substantially ready
for Tenant's occupancy. (c) Nothing contained hereinabove shall relieve Tenant
from liability that may exist as a result of damage from fire or other casualty,
and to the extent that such insurance is in force and collectible and to the
extent permitted by law, Owner and Tenant each hereby releases and waives all
right of recovery against the other or any one claiming through or under each of
them by way of subrogation or otherwise. The
<PAGE>
foregoing release and waiver shall be in force only if both releasors' insurance
policies contain a clause providing that such a release or waiver shall not
invalidate the insurance. If, and to the extent, that such waiver can be
obtained only by the payment of additional premiums, then the party benefiting
from the waiver shall pay such premium within ten days after written demand or
shall be deemed to have agreed that the party obtaining insurance coverage shall
be free of any further obligation under the provisions hereof with respect to
waiver of subrogation. Tenant acknowledges that Owner will not carry insurance
on Tenant's furniture and/or furnishings or any fixtures or equipment,
improvements, or appurtenances removable by Tenant and agrees that Owner will
not be obligated to repair any damage thereto or replace the same. (d) Tenant
hereby waives the provisions of Section 227 of the Real Property Law and agrees
that the provisions of this article shall govern and control in lieu thereof.
Eminent Domain: 10. If the whole or any part of the demised Premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease.
Assignment Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant shall be
deemed an assignment. If this lease be assigned, or if the demised premises or
any part thereof be underlet or occupied by anybody other than Tenant, Owner
may, after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
Electric Current: 12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing leeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this lease, or for the purpose of complying
with laws, regulations and other directions of governmental authorities. Tenant
shall permit Owner to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits therein
provided, wherever possible, they are within walls or
<PAGE>
otherwise concealed. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term hereof Owner shall have the
right to enter the demised premises at reasonable hours for the purpose of
showing the same to prospective tenants and may, during said six months period,
place upon the premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the premises, Owner or Owner's agents
may enter the same whenever such entry may be necessary or permissible by master
key or forcibly and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom, Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
Vault, Vault 14. No Vaults, vault Space or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the contrary notwithstanding,
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authorities for such vault or area shall be paid by
Tenant, if used by Tenant, whether or not specifically leased hereunder.
Occupancy: 15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under Tenant,
or by reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
<PAGE>
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the demised premises for
the period for which such installment was payable shall be discounted to the
date of termination at the rate of four (4%) per annum. If such premises or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the amount
of the difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease including the covenants for payment of rent or additional rent; or if the
demised premises becomes vacant or deserted "or if this lease be rejected under
ss. 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if Tenant shall make default with respect to any other lease between Owner and
Tenant; or if Tenant shall have failed, after ten (10) days written notice, to
redeposit with Owner any portion of the security deposited hereunder which Owner
has applied to the payment of any rent and additional rent due and payable
hereunder or failed to move into or take possession of the premises within
fifteen (15) days after the commencement of the term of this lease, of which
fact Owner shall be the sole judge; then in any one or more of such events, upon
Owner serving a written ten (10) days notice upon Tenant specifying the nature
of said default and upon the expiration of said ten (10) days, if Tenant shall
have failed to comply with or remedy such default, or if the said default or
omission complained of shall be of a nature that the same cannot be completely
cured or remedied within ten (10) day period, and if Tenant shall not have
diligently commenced during such default within such ten (10) day period, and
shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written five (5) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said five (5) day period were the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remain liable as
hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid; then and in any of such events Owner may
without notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end. If Tenant shall make default hereunder prior to
the date fixed as the commencement of any renewal or extension of this lease,
<PAGE>
Owner may cancel and terminate such renewal or extension agreement by written
notice.
Remedies of Owner and Waiver such of Redemption: 18. In case of any default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a)
the rent, and additional rent, shall become due thereupon and be paid up to the
time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the
premises or any part or parts thereof, either in the name of Owner or otherwise,
for a term or terms, which may at Owner's option be less than or exceed the
period which would otherwise have constituted the balance of the term of this
lease and may grant concessions or free rent or charge a higher rental than that
in this lease, (c) Tenant or the legal representatives of Tenant shall also pay
Owner as liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and or covenanted to be paid and the net amount, if any, of the rents
collected on account of the subsequent lease or leases of the demised premises
for each month of the period which would otherwise have constituted the balance
of the term of this lease. The failure of Owner to re-let the premises or any
part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Owner may incur in connection with re-letting, such
as legal expenses, attorney's fees, brokerage, advertising and for keeping the
demised premises in good order or for preparing the same for re-letting. Any
such liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount of
the deficiency for any month shall not prejudice in any way the rights of Owner
to collect the deficiency for any subsequent month by a similar proceeding.
Owner, in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
Fees and Expenses: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, Owner may immediately or at
any time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with any
default by Tenant in the covenant to pay rent hereunder, makes any expenditures
or incurs any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any action or
proceedings, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional
<PAGE>
rent hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
Building Alterations And Management: 20. Owner shall have the right at any time
without the same constituting an eviction and without incurring liability to
Tenant therefor to change the arrangement and or location of public entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets or other
public parts of the building and to change the name, number or designation by
which the building may be known. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or other
Tenant making any repairs in the building or any such alterations, additions and
improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of any controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem necessary
for the security of the building and its occupants.
No Representations by Owner: 21. Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation or any other matter or thing affecting or related
to the demised premises or the building except as herein expressly set forth and
no rights, easement or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the provisions of this lease. Tenant
has inspected the building and the demised premises and is thoroughly acquainted
with their condition and agrees to take the same "as is" on the date possession
is tendered and acknowledged that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
End of Term: 22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property from the demised premises. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of this lease. If the last day of the term of this Lease or any
renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised without molestation
or disturbance by the Landlord, subject, nevertheless, to the terms and
conditions of this lease including, but not limited to, Article 34 hereof and to
the ground leases,
<PAGE>
underlying leases and mortgages hereinbefore mentioned.
Failure To Give Possession: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or if Owner has not completed any work required
to be performed by Owner, or for any other reason, Owner shall not be subject to
any liability for failure to give possession on said date and the validity of
the lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession or complete any work required) until after Owner
shall have given Tenant notice that the premises are substantially ready for
Tenant's occupancy. If permission is given to Tenant to enter into the
possession of the demised premises or to occupy premises other than the demised
premises prior to the date specified as the commencement of the term of this
lease, Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this lease, except
as to the covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
any of the Rules or Regulations, set forth hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. All checks tendered to Owner as and for the
rent of the demised premises be deemed payments for the account of Tenant.
Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to
operate as an assignment or subletting by Tenant of the demised premises to such
payor, or as a modification of the provisions of this lease. No act or thing
done by Owner or Owner's agents during the term hereby demised shall be deemed
an acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the keys of said premises prior
to the termination of the lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises.
Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of parties
hereto against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other
<PAGE>
statutory remedy. It is further mutually agreed that in the event Owner
commences any summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding.
Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or excused
because Owner is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Owner is prevented or delayed from so doing by reason
of strike or labor troubles or any cause whatsoever beyond Owner's sole control
including, but not limited to, government preemption in connection with a
National Emergency or by reason of any rule, order or regulation of any
department or subdivision thereof of any government agency or by reason of the
conditions of supply and demand which have been or are affected by war or other
emergency
Bills and Notices: 28. Except as otherwise in this lease provided a bill,
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered it, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant, and the time of the
rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by Tenant
to Owner must be served by registered or certified mail addressed to Owner at
the address first hereinabove given or at such other address as Owner shall
designate by written notice.
Water Charges: 29. If Tenant requires, uses or consumes water for any purpose
(of which fact Tenant constitutes Owner to be the sole judge) Owner may install
a water meter and thereby measure Tenant's water consumption for all purposes.
Tenant shall pay Owner for the cost of the meter and the cost of the
installation, thereof and throughout the duration of Tenant's occupancy Tenant
shall keep said meter and installation equipment in good working order and
repair at Tenant's own cost and expense in default of which Owner may cause such
meter and equipment to be replaced or repaired and collect the cost thereof from
Tenant, as additional rent. Tenant agrees to pay for water consumed, as shown on
said meter as and when bills are rendered, and on default in making such payment
Owner may pay such charges and collect the same from Tenant, as additional rent.
Tenant covenants and agrees to pay, as additional rent the sewer rent, charge or
any other tax, rent, levy or charge which now or hereafter is assessed, imposed
or a lien upon the demised premises or the realty of which they are part
pursuant to law, order or regulation made or issued in connection with the use,
consumption, maintenance or supply of water, water system or sewage or sewage
connection or system. If the building or the demised premises or any part
thereof is supplied with water through a meter through which water is also
supplied to other premises Tenant shall pay to Owner, as additional rent, on the
first day of each month, _________% ($________) of the total meter charges as
Tenant's portion. Independently of and in addition to any of the remedies
reserved to Owner hereinabove or elsewhere in this lease. Owner may sue for and
collect any monies to be paid by Tenant or paid by Owner for any of the reasons
or purposes hereinabove set forth.
Sprinklers: 30. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city government recommend or require the installation of a sprinkler system
or that any changes, modifications, alterations, or additional sprinkler heads
or other equipment be made or supplied in an existing sprinkler system by reason
of
<PAGE>
Tenant's business, or the location of partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, modifications, alterations, additional sprinkler
heads or other such equipment, become necessary to prevent the imposition of a
penalty or charge against the full allowance for a sprinkler system in the fire
insurance rate set by any said Exchange or by any fire insurance company, Tenant
shall, at Tenant's expense, promptly make such sprinkler system installations,
changes, modifications, alterations, and supply additional sprinkler heads or
other equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
of $____________, on the first day of each month during the term of this lease,
as Tenant's portion of the contract price for sprinkler supervisory service.
Elevators, Heat, Cleaning: 31. As long as Tenant is not in default under any of
the covenants of this lease Owner shall:
(a) furnish heat through the existing facilities serving the Demised
Premises, water and other services supplied by Owner to the demised premises,
when and as required by law, on business days from 8 a.m. to 6 p.m. and on
Saturdays from 8 a.m. to 1 p.m.; (b) clean the public halls and public portions
of the building which are used in common by all tenants. Tenant shall, at
Tenant's expense, keep the demised premises, including windows, clean and in
order, to satisfaction of Owner, and for that purpose shall employ the person or
persons, or corporation approved by Owner. Tenant shall pay the cost of removal
of any of Tenant's refuse and rubbish from the building. Tenant shall
independently contract for the removal of such refuse and rubbish. The removal
of such refuse and rubbish by others shall be subject to such rules and
regulations as, in the judgment of Owner, are necessary for the proper operation
of the building. Owner reserves the right to stop service of the heating,
elevator, plumbing and electric systems, when necessary, by reason of accident,
or emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder, provided that
the same shall be done with the minimum amount of inconvenience to Tenant, and
Owner pursues with due diligence the completion of the alterations.
Security: 32. [Deleted]
Captions: 33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision hereof.
Definitions: 34. The term "Owner" as used in this lease means only the owner of
the fee or of the leasehold of the building, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the building
or of the land and building) of which the demised premises form a part, so that
in the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental whether so-expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums which
shall be due to new Owner from Tenant under this lease, in addition to the
annual rental rate. The term "business days" as used in this lease, shall
exclude Saturdays (except such portion thereof as is covered by specific hours
in Article 31 hereof), Sundays and all days observed by the State or Federal
Government as legal holidays
<PAGE>
and those designated as holidays by the applicable building service union
employees service contract or by the applicable Operating Engineers contract
with respect to HVAC service.
Adjacent Excavation- 35. If an excavation shall be made upon land adjacent to
the demised premises, or shall be authorized to made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
Rules and Regulations: 36. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply with, the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of such Rule or Regulation
hereafter for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
Glass: 37. Owner shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
Estoppel Certificate: 38. Tenant, at any time, and from time to time, upon at
least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this Lease is unmodified in full force and effect for,
(or, if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
Directory Board Listing: 39. If, at the request of and as accommodation to
Tenant, Owner shall place upon the directory board in the lobby of the building,
one or more names of persons other than Tenant, such directory board listing
shall not be construed as the consent by Owner to an assignment or subletting by
Tenant to such person or persons.
Successors and Assigns: 40. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
See Escalation and Supplemental Riders Attached
hereto and made a part hereof
<PAGE>
In Witness Whereof, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
LANDLORD: CMC MIC HOLDING COMPANY, L.L.C.
By: /s/ Irwin B. Cohen
----------------------------------
Witness for Owner: By: MC Holdings Company. L.L.C., Mgr.
By /s/ Arik Kislin, Member
- ----------------------------- ----------------------------------
Witness for Tenant: TENANT: RONNYBROOK FARM DAIRY, INC.
By: /s/ Ronald Osofsky
- ----------------------------- ----------------------------------
<PAGE>
Rider No. 1, attached to and made a part of Lease dated
Between CMC MIC HOLDING COMPANY, L.L.C.
As Owner and
RONNYBROOK FARM DAIRY, INC.
As Tenant
A. TAXES. Tenant agrees to pay as additional rent Tenant's Proportionate Share
of any and all increases in Real Estate Taxes above the Real Estate Taxes for
the "Base Tax Year") imposed on the Property with respect to every Tax Year or
part thereof during the term of this lease, whether any such increase results
from a higher tax rate or an increase in the assessed valuation of the property,
or both. "Property" shall mean the land and building including any "air rights",
of which the demised premises are a part. "Real Estate Taxes" shall mean taxes
and assessments imposed upon the Property including any special assessment
imposed thereon for any purpose whatsoever and also including taxes payable by
Owner to a ground lessor with respect thereto, and unmetered water taxes and
sewer rents. If due to a change in the method of taxation any franchise, income,
profit, or other tax, however designated, shall be levied against Owner's
interest in the property in whole or in part for or in lieu of any tax which
would otherwise constitute Real Estate Taxes such change in method of taxation
shall be included in the term "Real Estate Taxes" for purposes hereof. "Tax
year" shall mean each period of twelve months commencing on the first day of
July subsequent to the Base Tax Year, in which occurs any part of the term of
this lease or such other period of twelve months occurring during the term of
this lease as hereafter may be duly adopted as the fiscal year for real estate
tax purposes of the City of New York. All such payments shall be appropriately
pro-rated for any partial Tax Years occurring during the first and last years of
the term of this lease. A copy of the Tax Bill of the City of New York shall be
sufficient evidence of the amount of Real Estate Taxes and for calculation of
the amount to be paid by Tenant.
Only Owner shall be eligible to institute tax reduction or other
proceedings to reduce the assessed valuation. Should Owner be successful in any
such reduction proceedings and obtain a rebate for periods during which Tenant
has paid Tenant's share of increases, Owner shall, after deducting Owner's
expenses in connection therewith including without limitation attorney's fees
and disbursements, return to Tenant tenant's pro-rata share of such rebate
except that Tenant may not obtain any portion of the benefits which may accrue
to Owner from any reduction in Real Estate Taxes for any Tax Year below those
imposed in the Base Tax year.
B. OPERATING EXPENSES For purposes of this article only, the following words and
terms have the following meaning:
(1) "BASE OPERATION YEAR" shall have the meaning provided in Article 41.
(2) "OPERATION YEAR" shall mean each calendar year in which occurs any part of
the term of this lease. If the lease term shall commence or terminate on a date
other than January 1, or December 31 of an Operation Year, any increase or
decrease in additional rent by reason hereof shall be appointed.
(3) "OPERATING EXPENSES" shall mean any or all of the following incurred by
Owner with respect to the building of which the demised premises form a part:
salaries, wages, hospitalization, medical, surgical and general welfare benefits
(including group insurance) and pension payments of employees of Owner engaged
in the operation and maintenance of the building of which the demised premises
are a part, payroll taxes, workmen's compensation insurance, gas, oil, or other
fuel, electricity, steam, together with any taxes thereon, utility taxes, water,
(including sewer rental), rent, casualty and liability and other insurance
covering Owner, Owner's agent, mortgagee and any portion of Owner's property,
repairs and maintenance, building and cleaning supplies, uniforms and dry
cleaning window cleaning, management fees, service contracts with independent
contractors, telephone,
<PAGE>
telegraph, stationery, advertising, and all other expenses paid in connection
with the operation of said premises properly chargeable against income,
including but not limited to accounting expenses for all statements with respect
to Owner's Property, including statements required under this Article and any
work in connection with any governmental entity, and attorney's fees and fees to
professionals for services rendered in connection with the maintenance, repair
and operation of Owner's Property and in respect of real estate taxes payable on
Owner's Property; dues and fees for trade and Industry associations and costs of
their related activities, all relating to Owner's Property; and home office
administration costs for the proportionate share of any salaries of Owner's
employees engaged in Property management and for bookkeeping and telephone.
Owner's Operating Expenses shall not include any item otherwise properly
constituting an operating expense to the extent payment of reimbursement
therefore is actually received by Owner from space occupants for services
rendered or performed directly for the account of such space occupants and for
which Owner makes a separate charge, or for electrical energy for which Tenant's
pay under an electrical rent inclusion or submetering plans provided, however,
that the foregoing exclusion shall be only to the extent of the actual cost to
Owner of the services rendered to each space occupant, nor real estate taxes,
mortgage interest and amortization, brokerage or other costs in connection with
leasing or mortgages, rent under a superior lease, depreciation, nor the cost of
any item required under good accounting and tax practice to be capitalized
(Other than those which under generally applied real estate practice are expense
or regarded as deferred expenses and other than capital expenditures made by
reason of legal requirements or insurance requirements, in any of which cases
the cost thereof shall be included in Operating Expenses for the Operational
Year in which the costs are incurred and subsequent Operational Years, amortized
on a straight-line basis over an appropriate period not exceeding fifteen years,
including interest at the prime interest rate changed by Owner's first
institutional mortgagee at the time of Owner's having made such expenditure or
in the absence thereof by Citibank, N.A.) If Owner shall eliminate the payment
of any of the salaries, wages, benefits or other payments to employees and the
payroll taxes and workmen's compensation insurance premiums relating thereto as
the result of the installation of labor-saving devices or by other means, in
computing the additional rent payable under this paragraph (B), the
corresponding items of said salaries, wages, benefits and other payments to
employees and of said taxes and premiums relating thereto in the base year and
there shall be included in Operating Costs the cost and expense of such
labor-saving device as amortized over the useful life thereof, or the amount of
the reduction in Operating costs, whichever is the lesser.
(4) In the event that the Operating Expenses incurred by Owner during any
Operation Year shall be greater than the Operating Expenses incurred by Owner
during the Base Operation Year, Tenant shall pay to Owner as additional rent for
the Operation Year in question an amount equal to Tenant's Proportionate Share
of the Increase.
The amounts due under subdivision A. "TAXES" and B. "OPERATING EXPENSE"
hereunder shall be collected as additional rent without set off or deduction,
and shall be paid in the following manner.
(A) Any adjustment in rent occurring by reason of subdivision A "TAXES" shall be
effective as of the first day of the Tax Year concerned and, after Owner shall
have furnished Tenant with a statement setting forth the Real Estate Taxes for
the Base Tax Year and the Real Estate Taxes for the Tax Year concerned, all
monthly installments of rent shall reflect 1/12th of the annual amount of such
adjustment until a new adjustment becomes effective pursuant to the provisions
of said subdivision A. Any adjustments in rent payable pursuant to this Rider by
reason of changes in the Real Estate Taxes for the Base Year or any Tax Year
prior to the then current Tax Year, if any, shall be paid by Tenant to Owner
within thirty (30) days after the statement covering such period is delivered to
Tenant or a credit given by Owner towards the next ensuing rent installments
until the credit is exhausted, as the case may be.
<PAGE>
B) For the first Operation Year and each subsequent Operation Year Owner shall
furnish Tenant with an operating expense statement, Tenant shall pay the amount
of additional rent shown thereon, if any, within thirty days (30) after
rendition of such statement. Tenant shall be given a credit on such statement
for payments made during the Operating Year on account of the amount due and in
case of an overpayment Tenant shall receive a credit. In order to provide for
current payment of additional rent which may be payable upon the rendering of
the next Operating Expense Statement, all monthly installments of rent following
the rendition of any such statements shall reflect one-twelfth of the annualized
amount of the additional rent shown on the most recent statement and 1/12th of
the amount, if any, by which the amount due under such most recent statement
increased over the most previous statement without respect to credits for
advanced payments. In all events Tenant's tax escalation payments shall be made
so that they are due and payable at least thirty (30) days prior to the date
payments are due either to the taxing authority or to any first institutional
mortgagee under a real estate tax escrow requirement.
The statements of Operating Expenses to be furnished by Owner hereunder
shall be prepared in reasonable detail by a Certified Public Accountant (who may
be a CPA employed by Owner for the audit of Owner's accounts). Said CPA may rely
on Owner's allocations and estimates provided such CPA determines that there is
a reasonable basis for such allocations and estimates. The statements thus
furnished to Tenant shall constitute the final determination as between Owner
and Tenant of the Operating Expenses for the period covered thereby. If any such
Tax or Operating Expenses for the statement is furnished to Tenant after the
commencement of the effective date of any such adjustment, there shall be
promptly paid by Tenant to Owner an amount equal to the portion of such
adjustment allocable to that part of the Operation of Tax Year, as the case may
be, which shall have elapsed prior to the first day of the calendar month next
succeeding the calendar month in which said statement was furnished to Tenant.
Owner's failure during the lease term to prepare and deliver any of the
foregoing tax bills, statements or bills, or Owner's failure to make a demand,
shall not in any way waive or cause Owner to forfeit or surrender Owner's rights
to collect any of the foregoing items of additional rent which may have become
due during the term of this lease. Tenant's liability for the amounts due under
this article shall survive the expiration of the term.
In no event shall any rent adjustment hereunder result in a decrease in the
fixed annual rent.
INIITIAL HERE
---------------
Owner Tenant
IBC RO
<PAGE>
SUPPLEMENTAL RIDER TO LEASE
DATED AS OF SEPTEMBER ___, 1996 BETWEEN
CMC MIC HOLDING COMPANY, L.L.C., LANDLORD, AND
RONNYBROOK FARM DAIRY INC., TENANT.
41. Definitions: The following terms, wherever used in this lease, shall have
the meanings herein specified.. Where the meaning of any term is defined as
"None", the provisions of this lease utilizing such term shall be disregarded
and of no force or effect.
"Base Operation Year": the 1996 calendar year.
"Base Tax Year": the fiscal year from July 1, 1996, to June 30, 1996,
both dates inclusive.
"Commencement Date": September 15, 1996.
"Demised Premises": a portion of the ground floor of the Building,
as shown on Exhibit A attached hereto and made
apart hereof.
"Expiration Date": September 14, 2016, or such earlier date upon which the
term of this lease may expire or be cancelled or
terminated pursuant to any of the provisions, conditions
or covenants of this lease or pursuant to law.
"Fixed Rental": (i) Commencement Date through September 14, 1997, both
dates inclusive: $13,680.00 per year ($1,140.00
per month);
(ii) September 15, 1997 through September 14, 1998,
both dates inclusive: $15,048.00 per year
($1,254.00 per month);
(iii) September 15, 1998 through September 14, 1999,
both dates inclusive: $16,416.00 per year
($1,368.00 per month);
(iv) September 15, 1999 through September 14, 2000,
both dates inclusive: $17,784.00 per year
($1,482.00 per month);
(v) September 15, 2000 through September 14, 2001,
both dates inclusive: $19,152.00 per year
($1,596.00 per month);
(vi) September 15, 2001 through September 14, 2006,
both dates inclusive: $21,888.00 per year
($1,824.00 per month);
(vii) September 15, 2006 through September 14, 2011,
both dates inclusive: $24,624.00 per year
($2,052.00 per month); and
(viii) September 15, 2011 through the remainder of the
term of this lease: $27,360.00 per year ($2,280.00
per month).
<PAGE>
"Permitted Use": As used herein, the "Permitted Use" of the Demised
Premises shall mean wholesale and retail sale of milk,
fermented milk products, frozen dairy desserts and
cheese.
"Tenant's Proportionate
Share": .0931%
"Security Deposit": "NONE"
42. TERM AND RENTAL:
42.01 The term of this lease shall commence on the Commencement Date and
end on the Expiration Date, both dates inclusive.
42.02 Tenant covenants to pay to Landlord, at the address hereinabove set
forth or at such other address as Landlord shall designate, the following sums:
(a) the Fixed Rental set forth in Article 41 hereof, which shall be
payable in equal monthly installments, in advance, without previous demand
therefor and without any setoff or deduction whatsoever, on the first day of
each and every calendar month throughout the term of this lease, except that the
first monthly installment of Fixed Rental shall be paid upon the execution and
delivery of this lease by Tenant; and
(b) "Additional Rental", consisting of all such other sums of money
as shall become due from and payable by Tenant to Landlord (for default in
payment of which Landlord shall have the same remedies as for a default in the
payment of Fixed Rental).
42.03 Tenant shall pay the Fixed Rental and Additional Rental herein
reserved promptly as and when the same shall become due and payable, without
demand therefor and without any abatement, deduction or setoff whatsoever except
as expressly provided in this lease.
42.04 If the Commencement Date occurs on a day other than the first day of
a calendar month or the Expiration Date occurs on a day other than the last day
of a calendar month, the Fixed Rental for such calendar month shall be prorated
based upon the number of days remaining in said month divided by thirty (30) and
with respect to the first month, the balance of the first month's Fixed Rental
theretofore paid shall be credited against the next monthly installment of Fixed
Rental then due under this Lease.
43. AS-IS POSSESSION:
43.01 Tenant acknowledges that it has made a full and complete inspection
of the Demised Premises. Tenant agrees to accept same on the Commencement Date
in its then "as is" condition. Tenant acknowledges that neither Landlord,
Landlord's agent or any broker, has made any representations or promises in
regard to the Demised Premises for the term herein demised. The taking of
possession of the Demised Premises by Tenant shall be conclusive evidence that
the Demised Premises complied with the condition in which the Demised Premises
were to be delivered to Tenant under this lease.
43.02 All installations, materials or work which may be necessary or
desirable to prepare, equip, decorate or furnish the Demised Premises for
Tenant's occupancy (hereinafter referred to as "Tenant's Work") shall be
performed by Tenant, at its sole cost and expense, in accordance with all the
terms, covenants and conditions of this lease, including without limitation,
Article 3 hereof.
43.03 All lighting, electrical, heating, ventilating, air-conditioning and
plumbing equipment, installations and fixtures now or hereafter installed or
located at or in the Demised Premises by or on behalf of Tenant shall, upon
installation, become the property of Landlord and shall remain upon and be
surrendered to Landlord upon the expiration or termination of
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this lease, subject to Landlord's right to require Tenant to remove the same as
provided in Article 3.
44. UTILITIES AND SERVICES:
44.01 Tenant agrees to make its own arrangements with the public utility
company servicing the Demised Premises for the furnishing of, and payment of all
charges for electricity, water (hot and cold), gas and all other utilities
consumed by Tenant in the Demised Premises. In no event shall Landlord be
responsible for charges for electricity, water (hot or cold), gas or any other
utilities or for the furnishing of any heat, water (hot or cold),
air-conditioning or any other services. All meters at the Demised Premises for
the purpose of measuring Tenant's consumption and demand of the respective
utilities (electricity, gas, water, etc.) shall be installed by Tenant, at its
sole cost and expense, prior to opening for business in the Demised Premises (or
if Landlord so elects, shall, be installed by Landlord at Tenant's expense to be
reimbursed to Landlord upon demand) and shall thereafter be maintained by
Tenant, at Tenant's sole cost and expense, in good working order and condition.
45. ADDENDUM TO ARTICLE 6:
45.01 Without limiting the generality of the provisions of Article 6,
Tenant shall comply in all respects with all "Environmental Laws" relating to
Tenant's conduct of its business at the Demised Premises. For the purpose of
this paragraph, the term "Environmental Laws" shall mean any federal, state or
local laws, statutes, ordinances, rules, regulations or any judicial or
administrative decisions now in effect or hereinafter enacted relating to
hazardous materials, health and safety or pollution or protection of the
environment insofar as the aforesaid relate to Tenant, Tenant's operations or
Tenant's use of the Demised Premises.
45.02 Tenant will not use or suffer or permit any person to use the
Demised Premises for any unlawful purpose and Tenant, at its sole cost and
expense, will obtain and maintain all licenses and permits from any and all
governmental authorities having jurisdiction over either the Demised Premises or
the conduct of Tenant's business therein to the extent necessary for the conduct
of Tenant's business in the Demised Premises, including without limitation, the
Permitted Use.
45.03 In the event that any repair, alteration, addition or improvement
proposed to be performed by Tenant in or to the Demised Premises shall trigger
any requirement of any federal, state, county, municipal or other law, order,
rule or regulation that any other repair, alteration, addition or improvement be
performed in or to the Demised Premises or other part of the Building in which
the Demised Premises are located (herein, the "Triggered Requirement"), whether
or not such Triggered Requirement results from any pre-existing condition in the
Demised Premises or Building, then Tenant, at its sole cost and expense, shall
cause the Triggered Requirement to be compiled with as part of Tenant's proposed
repair, alteration, addition or improvement and deliver to Landlord evidence of
Tenant's satisfaction of the Triggered Requirement.
46. PLEDGE OF TENANT'S FIXTURES
46.01 Tenant hereby grants to Landlord a first security interest in all of
"Tenant's Fixtures" (as hereinafter defined) as security for the full and
faithful performance and observance by Tenant of all of the terms, agreements,
covenants and conditions of this lease, including the payment of all of the
rents herein reserved. Landlord shall be entitled to all of the rights and
remedies of a "secured party" under the Uniform Commercial Code of the State of
New York with respect to such security interest. This Section 46.01 is intended
by the parties to constitute a "security agreement" for all purposes of the
Uniform Commercial Code. Tenant agrees that it shall own all of Tenant's
Fixtures in fee simple absolute, free of all leases, pledges, mortgages,
encumbrances, grants or any other further security interests in all or any part
of Tenant's Fixtures, whether superior or subordinate to Landlord's interest. At
all times Landlord's security interest shall be a valid and perfected first
security interest in Tenant's Fixtures. Tenant, at its sole cost and expense,
shall indemnify and hold Landlord harmless from all claims, damages, costs and
expenses from any party asserting any leasehold interest
3
<PAGE>
(whether as lessor or lessee), pledge, mortgage, encumbrance or security
interest in Tenant's Fixtures, whether superior or subordinate to Landlord's
interest, and Tenant shall take such further actions to perfect and preserve
Landlord's interest as a valid and perfected first security interest. As used
herein, the term "Tenant's Fixtures" shall mean all lighting, electrical,
heating, ventilating, air-conditioning and plumbing equipment, installations and
fixtures now or hereafter installed or located at the Demised Premises by or on
behalf of Tenant, any replacements thereof and all rents, issues, profits and
proceeds of any of the foregoing, irrespective of whether any such property
shall be affixed to the realty.
46.02 Tenant shall, from time to time, within ten (10) days after
Landlord's written request therefor, execute and deliver to Landlord any
financing statements, financing continuation statements, security agreements
and/or any other documents that Landlord shall consider necessary or desirable
under the Uniform Commercial Code to create, confirm the creation of, perfect,
renew, re-perfect, or renew the perfection of Landlord's security interest. To
the fullest extent permitted by the Uniform Commercial Code, Tenant hereby
authorizes Landlord to sign and file, from time to time, without the necessity
of obtaining the signature of Tenant thereon, any financing statement(s) and/or
financing continuation statement(s) that Landlord shall consider necessary or
desirable in connection therewith. Further, Landlord may, from time to time,
search the public records to determine if any further security interests have
been filed against Tenant's Fixtures. Tenant shall reimburse Landlord within ten
(10) days of demand, as Additional Rental, for the cost of all filings and
searches referred to in this Section 46.02.
47. INDEMNITY-LIABILITY INSURANCE:
47.01 Tenant covenants and agrees to indemnify and save Landlord harmless
from and against any and all claims for damages or injuries to goods, wares,
merchandise and property and/or for any personal injury or loss of life in, upon
or about the Demised Premises and, to the extent arising from the acts or
negligence of Tenant or its agents, employees, contractors or invitees, the
Building, as well as the sidewalks adjoining the Demised Premises.
47.02 Tenant covenants to provide on or before the Commencement Date of
the term hereof and to keep in force during the term hereof for the benefit of
Landlord and Tenant: (a) a comprehensive policy of liability insurance
protecting Landlord and Tenant against any liability whatsoever occasioned by
accident on or about the Demised Premises or any appurtenances thereto, with
limits of liability thereunder not less than the amount of Three Million and
00/100 ($3,000,000.00) Dollars of combined single limit comprehensive broad form
coverage on a per occurrence basis; and (b) Fire and extended coverage,
vandalism, malicious mischief, water damage and special extended coverage
insurance in an amount adequate to cover the cost of replacement of all
fixtures, decorations and improvements in the Demised Premises. Such policies
are to be written by good and solvent insurance companies reasonably
satisfactory to Landlord with a Best's rating not less than A-8 and shall name
as additional insureds the Landlord, Landlord's managing agent and such other
parties as Landlord shall notify Tenant in writing. Such insurance may be
carried under a blanket of policy covering the Demised Premises and other
locations of Tenant, if any, provided such blanket policy contains a designated
aggregate limit of liability coverage for the Demised Premises alone of not less
than $3,000,000 and Tenant delivers to Landlord evidence thereof.
47.03 Prior to the time such insurance is first required to be carried by
Tenant and thereafter, at least thirty (30) days prior to the expiration of any
such policy, Tenant agrees to deliver to Landlord either a duplicate original of
the aforesaid policies or a certificate evidencing such insurance, provided said
certificate or policies contain an endorsement that such insurance may not be
cancelled or modified except upon thirty (30) days' notice to Landlord together
with evidence of payment for the policy. Tenant's failure to provide and keep in
force the aforementioned insurance shall be regarded as a material default
hereunder, entitling Landlord to exercise any or all of the remedies as provided
in this lease in the event of Tenant's default.
4
<PAGE>
48. BROKER:
48.01 Tenant covenants, warrants and represents to Landlord that Tenant
has not utilized the services of, been introduced to the Demised Premises or
Building by, nor been represented by any broker or finder in connection with any
of the conversations or negotiations in consummating this lease or the renting
of the Demised Premises. Tenant shall indemnify, defend and hold and save
Landlord harmless against any and all liability from any claims of any broker
claiming to have introduced Tenant to the Demised Premises or the Building or
represent Tenant in connection with the renting of the Demised Premises
(including, without limitation, the cost of counsel fees in connection with the
defense of any such claims in connection with the renting of the Demised
Premises).
49. EXCULPATORY CLAUSE:
49.01 Tenant shall look solely to the estate and property of Landlord in
the Building, for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord
in the event of any default or breach by Landlord with respect to any of the
terms, covenants and conditions of the lease to be observed and/or performed by
Landlord, and no other property or assets of Landlord or any partner, member,
officer or director thereof, disclosed or undisclosed, shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this lease, the relationship of Landlord and
Tenant hereunder, or Tenant's use and occupancy of the Demised Premises. Without
limiting the foregoing, it is further understood that under no event or
circumstance shall Landlord be held responsible for the acts of any third
parties, including without limitation, any other tenants or occupants of the
Building or their guests, employees, agents, contractors or invitees, it being
expressly understood and agreed that Landlord's liability for any default in the
Landlord's obligations under this lease are expressly limited to the acts and
omissions of the Landlord and its agents and employees.
50. OPERATING COVENANTS:
50.01 Cleaning: The entire Demised Premises, including store fronts and
any glass show windows and all sidewalks adjacent to the Demised Premises, are
to be kept clean by Tenant, at its sole cost and expense, in a manner
satisfactory to Landlord. Tenant, at its expense, shall maintain and repair all
damage to the sidewalks or common areas of the building to the extent caused by
the acts or negligence of Tenant or its agents, employees, contractors or
invitees.
50.02 Removal of Garbage: Tenant agrees that it shall independently
contract, at its sole cost and expense, for the removal of all rubbish, refuse
and waste from the Demised Premises, utilizing contractors and subcontractors
approved (in writing, in advance) by Landlord. The removal of such rubbish,
refuse, garbage shall be subject to such rules and regulations as, in the
reasonable judgment of Landlord, are necessary for the proper operation of the
Building. Tenant shall comply with all applicable requirements, if any, of the
Department of Health and Sanitation of the City of New York relating to the
separation and/or treatment of such rubbish prior to its placement for disposal.
Tenant shall accumulate garbage for collection in concealed and enclosed metal
containers located solely in the Demised Premises. Tenant further agrees not to
permit the accumulation (unless in concealed and enclosed metal containers) of
any rubbish or garbage in, on or about any part of the Demised Premises, and not
to permit any garbage or rubbish to be collected or disposed of from the Demised
Premises during the hours of 8:30 a.m. to 12 Midnight, except in strike and
emergency situations.
50.03 Extermination: Tenant, at its expense, shall keep the Demised
Premises and the areas adjacent to the Demised Premises, free from vermin, rats,
mice and insects, and, prior to the opening of the Demised Premises for
business, obtain and maintain at all times during the term of this lease a
service contract, with a person or company approved by Landlord (which approval
shall not be unreasonably withheld or delayed), for the extermination of vermin,
rats,
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mice and insects in and about the Demised Premises, such service contract and
all renewals or replacements thereof to be in form reasonably approved by
Landlord, and a copy thereof to be delivered to Landlord prior to the opening of
the Demised Premises for business or, in the case of renewal or replacement
contracts, prior to the termination or expiration of the prior contract.
50.04 No Obstruction: Tenant shall not encumber or obstruct, or permit to
be encumbered or obstructed, any portion of the sidewalk, entrances or common
and public areas, of the Building adjacent to or abutting upon the Demised
Premises. Tenant shall not use, or permit to be used, any area or space outside
the Demised Premises for the conduct of Tenant's business and shall not permit
Tenant's employees, agents, contractors or invitees to linger, loiter or
assemble outside the Demised Premises.
50.05 Deliveries: Tenant agrees that Tenant's deliveries to the Demised
Premises shall be subject to Landlord's rules and regulations as shall be
promulgated from time to time throughout the term of this lease. Under no
circumstances shall any portion of the lobby of the Building be used for
Tenant's deliveries.
50.06 Continuous Operation: Tenant agrees that, notwithstanding any other
provision of this lease, that it will be open for business not less than seven
(7) days per week except on federal holidays that fifty (50%) percent or more of
the retail operations then in business in the Building jointly agree to close
and during all hours observed by a majority of the retail tenants in the
concourse level of the Building.
50.07 Obnoxious Odors: Tenant will not permit any obnoxious odors to
emanate from the Demised Premises. Tenant will, within three (3) business days
after written notice from Landlord, install or commence to install, at its own
cost and expense, reasonable control devices or procedures to eliminate such
odors, if any, and will complete such installations as expeditiously as possible
thereafter. In the event such condition is not promptly remedied, Landlord may,
at its discretion, cure such condition and thereafter add the cost and expense
incurred by Landlord therefor to the next monthly rental to become due and
Tenant shall pay said amount as Additional Rental.
50.08 Plumbing: Tenant may install and connect all of its utility waste
lines to those now existing in the Building, sidewalk or streets, but agrees not
to use the plumbing for any purpose other than that for which it was constructed
and agrees, further, not to permit any food, waste or other foreign substance to
be thrown or drawn into the pipes. Tenant agrees to maintain the plumbing that
it installs in good order, repair and condition and to repair any damage
resulting from any violation of this Article. Tenant further agrees to make any
repairs to the plumbing of the Building if the damage thereto is caused by
Tenant's use of such plumbing. Notwithstanding anything in this lease to the
contrary, all such repairs shall be conducted by contractors and subcontractors
satisfactory to Landlord in its sole discretion.
50.09 No Excessive Noise: Tenant agrees that it will perform all of its
work required or permitted hereunder and conduct its business in the Demised
Premises throughout the term of this lease in such a manner so as not to create
any excessive noise, which disturbs any of the other tenants or occupants of the
Building.
50.10 Material Inducement: The provisions of this Article 50 are a
material inducement for Landlord to execute and deliver this lease. Any failure
by Tenant to comply with the requirements of this Article 50 shall be deemed a
material breach of this lease, for which Landlord shall be entitled to any and
all of its remedies in accordance with the terms, conditions and covenants of
this lease.
51. ADDENDUM TO ARTICLE 7 (SUBORDINATION):
51.01 If the lessor of a superior lease or the holder of a superior
mortgage shall succeed to the rights of Landlord under this lease, whether
through possession or foreclosure action or delivery of a new lease or deed,
then at the request of such party so succeeding to
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Landlord's rights (hereinafter sometimes referred to as "successor landlord")
and upon successor landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such successor landlord as Tenant's
landlord under this lease, and shall promptly execute and deliver any instrument
that such successor landlord may reasonably request to evidence such attornment.
Upon such attornment this lease shall continue in full force and effect as, or
as if it were, a direct lease between the successor landlord and Tenant upon all
of the terms, conditions and covenants as are set forth in this lease and shall
be applicable after such attornment except that the successor landlord shall
not:
(a) be liable for any previous act or omission of Landlord under
this lease,
(b) be subject to any offset, not expressly provided for in this
lease, which shall have theretofore accrued to Tenant against Landlord,
(c) be bound by any previous modification of this lease, not
expressly provided for in this lease, or by any previous prepayment of more than
one month's Fixed Rental, unless such modification or prepayment shall have been
expressly approved in writing by the lessor of the superior lease or the holder
of the superior mortgage through or by reason of which the successor landlord
shall have succeeded to the rights of Landlord under this lease.
51.02 In the event any provision of this lease shall conflict with the
provisions of Article 7, as supplemented by this Article 51, then the provisions
of Article 7, as hereby supplemented, shall be deemed to be paramount, supersede
such conflicting provisions and shall control.
52. ADDENDUM TO ARTICLE 17 (DEFAULT):
52.01 Any payment made more than ten (10) days after the due date thereof,
shall be subject to a late charge of four (4%) percent of the amount so overdue,
as consideration for the additional expense incurred by the Landlord in the
handling thereof. Such late charges shall be due with any such late payment.
53. PORNOGRAPHIC USE PROHIBITED:
53.01 Without limiting the generality of Articles 2 and 45 hereof, Tenant
agrees that it will not use, or permit the use of, the Demised Premises, or any
portion thereof, for any pornographic or obscene purposes, nor for any
commercial sex establishment, nor for any pornographic, obscene, nude or
semi-nude performances, modeling, materials, activities or sexual conduct in or
thereon. In the event of any violation by Tenant of the provisions of this
Article 53, Tenant shall, immediately upon notice from Landlord, cease the
objectionable, conduct. The parties agree that in such instance, Landlord will
suffer irreparable harm for which money damages will be an insufficient remedy.
For that reason, in the event Tenant fails to cease such objectionable conduct
as aforesaid, Landlord, in addition to any rights otherwise available to it
under this lease and pursuant to law and equity, shall have the right to a court
order granting an injunction against Tenant's objectionable conduct as
aforesaid, application for such injunction to be made without notice.
54. MISCELLANEOUS:
54.01 Conflict of Terms: In the event any term, covenant, condition or
agreement contained in this Rider shall conflict or be inconsistent with any
term, covenant, condition or agreement contained in the printed portion of this
lease, then the parties agree that the Rider provision shall prevail.
54.02 Governing Law: This lease shall be governed in all respects by the
laws of the State of New York.
54.03 Saving Provision: If any provision of this lease, or its application
to any situation shall be invalid or unenforceable to any extent, the remainder
to this lease, or the
7
<PAGE>
application thereof to situations other than that as to which it is invalid or
unenforceable, shall not be affected thereby, and every provision of this lease
shall be valid and enforceable to the fullest extent permitted by law.
54.04 Lease Not Binding Unless Executed: Submission by Landlord of the
within lease for execution by Tenant, shall confer no rights nor impose any
obligations on either party unless and until both Landlord and Tenant shall have
executed this lease and duplicate originals thereof shall have been delivered to
the respective parties.
54.05 No Recording: Neither this lease nor any memorandum hereof shall be
recorded without the Landlord's prior written consent and any attempted
recordation hereof by the Tenant shall be void and shall constitute a material
default by Tenant hereunder.
54.06 Entire Agreement, Successors and Assigns: This lease constitutes and
incorporates the entire agreement between the parties hereto and no earlier
statement or prior written or verbal matter shall have any force or effect, all
of which are superseded in their entirety by this lease. Tenant agrees, that it
is not relying on any representations or agreements other than those contained
in this lease. This agreement shall not be modified or cancelled except by a
written agreement signed by both parties. The covenants, conditions and
agreements contained in this lease shall bind and inure to the benefit of
Landlord and Tenant and their respective heirs, distributees, executors,
administrators, successors and except as otherwise provided in this lease, their
assigns.
IN WITNESS WHEREOF, Landlord and Tenant have executed this lease as of the
day and year first written above.
WITNESS: LANDLORD:
CMC MIC HOLDING COMPANY, L.L.C.
/s/ Faith Ryan By:/s/ Irwin B. Cohen
- -------------------- -----------------------
Name: Irwin B. Cohen
Title: Manager
By: MC HOLDINGS COMPANY, L..C.,
Manager
By: /s/ Arik Kislin
-------------------
Arik Kislin, Member
WITNESS: RONNYBROOK FARM DAIRY, INC.
By: /s/ Ronald Osofsky
----------------------
Name:
Title:
8
<PAGE>
STATE OF NEW YORK )
SS.:
COUNTY OF NEW YORK )
On this ____day of _____________, 1995, before me personally came
_______________________ to me known and known to me did depose and say that
(s)he resides at _________________________________, that (s)he is the
_____________ of ______ and that (s)he signed (her) his. name thereto by order
of the Board of Directors of said corporation.
----------------------------------
Notary Public
9
<PAGE>
ATC MANAGEMENT, INC.
88 Tenth Avenue
New York, New York 10011
MODIFICATION OF LEASE
October 31, 1996
Ronnybrook Farm Dairy, Inc.
Prospect Hill Road
Ancramdale, New York 12503
Dear Sirs:
This letter shall serve to modify the lease agreement dated September 13,
1996 between CMC MIC HOLDING COMPANY, L.L.C. and RONNYBROOK FARM DAIRY, INC.
Anything in this Lease to the contrary notwithstanding, Landlord and Tenant have
agreed that:
1. Commencing October 31, 1996 and expiring on Tenant's Lease Expiration Date,
Tenant's Demised Premises shall be a portion of the ground floor of the
building, as shown on "Modification of Lease Exhibit A" as attached;
2. Tenant's Proportionate Share shall be:
(i) Commencing on Tenant's Lease Commencement Date and expiring on
September 14, 1997:
.0931%
(ii) Commencing September 15, 1997 and expiring on September 14, 1998:
.1281%
(iii) Commencing September 15, 1998 and expiring on Tenant's Lease
Expiration Date:
.1632%
3. Commencing October 31, 1996 and expiring on Tenant's Lease Expiration Date,
Tenant's Fixed Rental shall be:
(i) Commencement Date through September 14, 1997 both dates inclusive:
$13,680.00 per year
($1,140.00 per month);
(ii) September 15, 1997 through September 14, 1998 both dates inclusive:
$13,680.00 per year
($1,140.00 per month);
<PAGE>
(iii) September 15, 1998 through September 14, 1999, both dates inclusive:
$20,712.96 per year
($1,726.08 per month);
(iv) September 15, 1999 through September 14, 2000, both dates inclusive:
$26,000.04 per year
($2,166.67 per month);
(v) September 15, 2000 through September 14, 2001, both dates inclusive:
$33,585.96 per year
($2,798.83 per month);
(vi) September 15, 2001 through September 14, 2005, both dates inclusive:
$38,384.04 per year
($3,198.67 per month);
(vii) September 15, 2005 through September 14, 2006, both dates inclusive:
$42,896.04 per year
($3,574.67 per month);
(viii) September 15, 2006 through September 14, 2011, both dates
inclusive:
$47,694.00 per year
($3,974.50 per month);
(ix) September 15, 2011 through the remainder of the term of this lease:
$47,979.76 per year
($3,998.33 per month).
All other terms and conditions of the Lease shall remain the same.
Agreed to and accepted by:
RONNYBROOK FARM DAIRY, INC.
/s/ Ronald Osofsky
- ----------------------------
Tenant
CMC MIC HOLDING COMPANY, L.L.C.
/s/ Irwin B. Cohen
- ----------------------------
Landlord
2
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.
April 8, 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.
ARTHUR ANDERSEN LLP
New York, New York
______________, 1998
CONSENT
The undersigned hereby consents to act as a director of Ronnybrook Farm
Dairy, Inc. commencing immediately following the completion of its contemplated
initial public offering and the exercise or lapse of the underwriter's
over-allotment option in connection with such offering.
Dated: April 7, 1998
/s/ Edward D. Anna
------------------
Edward D. Anna
<PAGE>
CONSENT
The undersigned hereby consents to act as a director of Ronnybrook Farm
Dairy, Inc. commencing immediately following the completion of its contemplated
initial public offering and the exercise or lapse of the underwriter's
over-allotment option in connection with such offering.
Dated: April 9, 1998
/s/ Steven H. Adler
-------------------
Steven H. Adler
