ALPINE LACE BRANDS INC, 10-K, 1997-03-24

ALPINE LACE BRANDS INC
10-K, 1997-03-24
GROCERIES & RELATED PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended December 31, 1996 Commission file number 0-15584

Alpine Lace Brands, Inc.
(Exact name of registrant as specified in its charter)

Delaware 22-2717823
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)

111 Dunnell Road, Maplewood, NJ 07040
(Address of principal executive office) (Zip Code)

(Registrant's telephone number, including area code) 201-378-8600

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x

State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 11, 1997:

Common stock, $.01 par value: $18,646,451

Indicate the number of shares outstanding of each of registrant's classes of
common stock, as of the close of the period covered by this report:

5,106,536 shares

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the proxy statement to be prepared in connection with the 1997
annual meeting of shareholders are incorporated by reference into Part III.

<PAGE>

PART I
ITEM 1. BUSINESS

General

Alpine Lace Brands, Inc. (the "Company") has two principal businesses. The
Company's branded cheese and deli meat business develops, markets and
distributes nutritionally oriented cheeses and deli meats under its own label
and operates a converting and packaging facility through a wholly-owned
subsidiary, Dakota Farms Cheese, Inc. ("DFC"), formerly known as Marolf Dakota
Farms Cheese, Inc., a Delaware corporation, located in Sturgis, South Dakota.
Through February 17, 1994, the Company packaged and converted cheese under
private labels through the Company's wholly-owned subsidiary, Mountain Farms,
Inc. ("MFI"), a Utah corporation, in which a 65% interest was sold on that date.
The Company's cheese and dairy products trading business is operated through MCT
Dairies, Inc. ("MCT"), a New Jersey corporation and a wholly-owned subsidiary of
the Company.

The Company was incorporated in Delaware on February 14, 1986.

Branded Business

The principal branded cheeses currently marketed by the Company are the Alpine
Lace(R) brand line of cheeses, which are generally lower in sodium and lower in
fat and cholesterol than cheeses made from whole milk, and the Alpine Lace(R)
fat free brand line of fat free cheese products. The Company also develops and
markets deli meats, which are also generally lower in sodium and fat and
cholesterol than other deli meats. The Company generally purchases these
products from independent manufacturers who utilize the Company's proprietary
recipes and markets them throughout the United States under its own trademark.
DFC converts and packages Alpine Lace(R) brand dairy case sliced cheeses for
retail and club store sales and does private-label packaging. As a result of a
restructuring of the Company's operations (See Note F to the Consolidated
Financial Statements) in December of 1994, DFC ceased producing skim milk
cheese, including skim milk cheese used by the Company and terminated its DFC
product line of DFC brand Colby, Cheddar, and Monterey Jack cheeses marketed by
the Company.

The Company's branded cheese and deli meat business (excluding DFC) had revenues
before intercompany eliminations in 1996, 1995, and 1994 of $130,869,866,
$124,933,243, and $117,258,595, respectively. In 1996, 1995, and 1994, DFC had
revenues before intercompany eliminations of $15,319,946, $14,353,026, and
$14,152,399, respectively.

<PAGE>

Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese

Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese, a pasteurized
part-skim milk cheese, is the Company's largest selling product constituting
approximately 50% of its branded cheese sales. The product is offered for sale
to consumers in supermarkets, delicatessens, club stores and specialty food
stores, with most sales made in the delicatessen sections of supermarkets. It is
primarily sold in bulk quantities by the Company and is sliced or cut into
chunks for consumers at the retail store, and in retail packages sold in the
dairy case section of supermarkets, warehouse club stores and grocery stores.

Sales of this product commenced in January, 1984, and the Company currently
sells Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese to
approximately 1,000 customers, primarily supermarket chains, supermarket food
distributors, warehouse club stores and specialty food store distributors.

Alpine Lace(R) Reduced Fat and Reduced Sodium American and Hot Pepper Flavor
Pasteurized Process Cheese Product; and Reduced Sodium Muenster Cheese, Reduced
Fat Mozzarella Cheese, Reduced Fat and Reduced Sodium Cheddar Cheese, Reduced
Fat and Reduced Sodium Provolone Cheese, and Reduced Fat and Reduced Sodium
Colby Cheese.

These products (aside from the American and Hot Pepper Flavor Pasteurized
Process Cheese Product) are natural cheese products. Except for Reduced Fat
Mozzarella Cheese, all have up to 50% less sodium than their typical cheese
counterparts. Aside from the Reduced Sodium Muenster Cheese, all of these
products are lower in cholesterol and lower in fat and calories than their
typical counterparts.

Other Cheeses

Other products introduced in late 1995 include Alpine Lace(R) Reduced Fat Feta
Cheese, which contains 33% less fat than regular Feta, and Alpine Lace(R) Fat
Free Shredded Parmesan, which features 60% less calories, 88% less cholesterol
and 25% less sodium than regular Parmesan cheese.

Alpine Lace(R) Fat Free Cheese Products

The Company introduced Alpine Lace(R) fat free cheese products for the retail
dairy case in the Summer of 1990 and currently sells these products to about 75%
of all major supermarket chains in the U.S. and to a lesser extent into other
trade channels.

<PAGE>

Alpine Lace(R) Fat Free Turkey Breast

Alpine Lace(R) Fat Free Turkey Breast was introduced in May, 1995 and is now
available in about 25% of the nation's supermarkets. Besides the fat free
benefit, this product also contains 63% less sodium than regular turkey breast.

Alpine Lace(R) Deli Hams

The Company now offers two ham products that are sold in the supermarket deli:
Alpine Lace(R) Boneless Cooked Ham and Alpine Lace(R) Honey Ham, which was
introduced in August of 1995. Both products are high quality hams and are 97%
Fat Free and offer sodium reductions of 45% and 33%, respectively.

Manufacturing

In 1995, the Company ceased manufacturing any of its branded cheeses. The
Company either owns or has significant rights to the respective recipes or
manufacturing processes for most of its products, including Alpine Lace(R)
Reduced Fat and Reduced Sodium Swiss Cheese, which are now manufactured by
independent manufacturers.

Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese is manufactured in a
privately owned facility under a contract granting the Company the exclusive
right to purchase the product (with a minor exception). The agreement requires
the manufacturer to supply the Company's requirements of the cheese through
December, 2000, with successive five year renewal periods thereafter, unless
terminated by either party. The Company may purchase, with the reasonable
consent of the manufacturer, up to 10% of its requirements for the product from
another source. As part of the agreement with the primary manufacturer, entered
into in July, 1988, the Company obtained an exclusive license to use such
manufacturer's Reduced Fat and Reduced Sodium Swiss Cheese recipe for the
production of this cheese (subject to paying license fees based on volume
produced) if the manufacturer elects not to renew the agreement, breaches the
agreement, or undergoes a change in control. The Company also has a limited
exclusive license to produce this cheese to cover certain shortfalls in the
manufacturer's production.

At present, there are adequate supplies of raw materials, primarily milk, used
by the Company's suppliers in manufacturing the Company's products. The average
relevant commodity market prices were at record high levels in 1996. The Company
expects these commodity market prices to decrease in 1997.

<PAGE>

Gamay Technology Acquisition

In May, 1990, the Company acquired all patents pending and technology for fat
free and low fat cheese and cultured dairy products as well as certain assets,
rights and technologies from Gamay Foods, Inc. for approximately $1.85 million
in cash and the issuance of restricted special stock warrants to purchase 75,000
shares of the Company's common stock at the stock market price at the time of
the warrants' issuance. Additionally, the Company has agreed to pay a royalty to
Gamay on future sales of products associated with the acquisition. On February
24, 1995, the Company and Gamay modified their royalty agreement (See Note J to
the Consolidated Financial Statements). The Company has applied this technology
to create its Alpine Lace(R) fat free line of cheeses.

Marketing and Advertising

Alpine Lace(R) Reduced Fat and Reduced Sodium Swiss Cheese was sold in all 70
U.S. geographic markets at the end of 1996 and was available, according to the
Company's estimates, in approximately 45,000 retail stores in those markets.
Other Alpine Lace(R) brand cheeses and deli meats were sold in approximately
30,000 stores nationwide. The Company's marketing program places substantial
emphasis upon advertising and promotion, primarily television advertising, as
well as point of sale merchandising and cooperative retailer promotions and
advertisements.

The Company received Kosher certification for its line of fat free cream cheeses
and spreads and its Reduced Fat and Reduced Sodium Swiss Cheese, which
represents over 50% of the Company's delicatessen business. Packages bearing the
kosher symbol in the deli case include: Alpine Lace(R) Reduced Fat and Reduced
Sodium Swiss Cheese, Fat Free Cream Cheese with Garden Vegetables, Fat Free
Cream Cheese with Garlic and Herbs and Fat Free Mexican Nacho Cheese Spread.

The Company also received Kosher approval from the Union of Orthodox Jewish
Congregations of America for industrial use of its full line of Fat Free
Cheeses. These products bearing the "O-U" label include: Alpine Lace(R) Fat Free
Cheddar, Mozzarella, Swiss and Parmesan flavor skim milk cheeses.

The Company has been actively selling its products to the food service and club
store industries. Where appropriate, special sized packs of Alpine Lace(R) brand
cheese products have been developed.

Distribution

The largest single customer of the Company's branded cheese and deli meat
business accounted for approximately 5% of the 1996 branded cheese and deli meat
sales revenues, and the eight largest customers accounted for approximately 27%
of such sales revenues. Sales, whether to supermarket chains, distributors, or
others, are typically made through independent sales agency firms (food
brokers), which may also deal with cheeses and deli meats manufactured or
distributed by other

<PAGE>

companies. These sales agency firms also participate in local promotional
activities and in-store merchandising for the Company's products.

Cheese Converting, Packaging and Manufacturing Operations

On February 17, 1994, the Company sold 65% of the outstanding shares of common
stock of its then wholly owned MFI cheese converting and packaging subsidiary.
At December 31, 1994, the Company recorded a charge of $1,517,757 to write-down
to zero the carrying value of its investment and related assets and expenses in
MFI. In addition, the Company recorded a charge of $1,070,700 relating to the
cancellation of its supply agreement with MFI which was payable over twenty- six
monthly installments ending February, 1997. Beginning in February 1995, the
Company moved its converting and packaging requirements from MFI to an outside
supplier (See Note E to the Consolidated Financial Statements).

In connection with the Company's restructuring plan approved in December 1994,
the Company closed its skim milk cheese production facility at DFC in January
1995. In addition, DFC cheese products were discontinued in December 1994. DFC
continues to convert and package the Company's warehouse club store and dairy
case sliced cheeses sold under the Alpine Lace(R) brand and does private-label
packaging.

Cheese and Dairy Products Trading Business

The Company's cheese and dairy products trading activities are performed by its
wholly owned subsidiary, MCT Dairies, Inc. This business purchases, almost
always as principal, bulk packaged quantities of domestic and imported cheese
and dairy products. The size of purchases ranges generally from 3,000 to 42,000
pounds. Substantially all of the products purchased and then sold are bulk
cheese, butter, whey, nonfat dry milk powder, animal feed, dairy flavorings,
casein and caseinates, and buttermilk. MCT generally purchases cheese and dairy
products to fill purchase orders received from its customers, although it will
buy limited amounts of product without specific sales commitments, to be held in
inventory for future sale (and stored in public warehouses, if necessary).

MCT also exports cheese and dairy products either directly or under the auspices
of various U.S. government assisted programs. In 1992, MCT became active in
world market trading of non-cheese dairy products. From time to time MCT will
act as a broker and receive a commission, although to date commissions have not
been significant.

In 1996, MCT sold to approximately 32 manufacturers/processors, 78 distributors,
and approximately 31 cheese and dairy products trading firms. The largest two
customers each accounted for approximately 20% of the Company's cheese and dairy
products trading revenues in 1996.

In 1996, 1995, and 1994, MCT had revenues before intercompany eliminations of
$50,994,974, $41,931,335, and $34,864,953, respectively.

<PAGE>

Government Regulation

The Company and its suppliers are subject to extensive regulation by various
government agencies which, pursuant to statutes, rules and regulations,
prescribe quality, purity, manufacturing, advertising and labeling requirements.
Food products are often subject to "standard of identity" requirements, which
are promulgated at both the Federal and state level, that set forth the
permissible qualitative and quantitative ingredient content of foods, and
information that must be provided on food product labels. The Federal Food and
Drug Administration ("FDA"), United States Department of Agriculture ("USDA"),
Federal Trade Commission and many states review product labels and advertising.

The Company's branded cheese products and deli meats meet the current applicable
FDA, USDA, and state requirements and its advertising and labels accurately
describe its products. The Company has made changes in its advertising and
labeling in response to the new labeling laws.

Food manufacturing, processing and packaging facilities of the Company and its
suppliers are subject to inspection by various Federal and state regulatory
authorities and must comply with various health and safety regulations.

Trademarks and Patents

Product identification is important in marketing the Company's products, and the
Company seeks to protect the brand identification it has developed. The Company
and its subsidiaries own a number of registered trademarks including the
Company's primary trademark, ALPINE LACE(R).

Since 1992, the Company has been issued five U.S. patents for the manufacture of
fat free and low fat cheese and cheese products. The Company has also obtained
similar patent protection in New Zealand. Additionally, the Company either owns
or has significant rights to the recipes and manufacturing processes of
substantially all of its Alpine Lace(R) reduced fat and fat free products.

Competition

The Company's Alpine Lace branded products compete intensively with many
established domestic and foreign brands which are, in many cases, less expensive
than the Company's products. Many of these products are marketed by companies
with greater financial and other resources than those of the Company. The
Company believes that the Alpine Lace(R) brand is currently one of the five
largest advertised brands of cheese in measured media in the United States. The
Company's primary cheese products have certain health-related characteristics
that the Company believes differentiate them from many other cheeses;
nevertheless, the Company faces significant competition from cheese products
with similar characteristics. The principal competitors with the Company's
products in the reduced sodium, fat free and/or reduced fat cheese fields are
Lorraine(R) cheese, a cheese which the Company

<PAGE>

believes resembles Swiss cheese in some respects, which is produced by Stella
Cheese Co., Inc., Kraft Free(R) and other reduced fat cheese products marketed
by Kraft Foods, Inc. and Healthy Choice(R) marketed by Beatrice Cheese Co.,
Inc., a division of Con Agra.

The Company's cheese and dairy products trading business is subject to intense
competition from cheese and dairy products importers, distributors and
manufacturers, as well as, from other cheese trading companies. In addition,
potential purchasers' internal buyers can serve many of the functions for which
a cheese and dairy products purchaser might otherwise use a cheese and dairy
products trading company. However, cheese and dairy products trading companies
like the Company's offer the advantage of specialization, with its resulting
efficiencies.

Employees

The Company and its subsidiaries currently have 134 employees.

Business Segment Information

The Company's operations consist of two segments: (1) The branded cheese
business which develops, markets, distributes, packages and converts branded
cheeses, deli meats and other specialty food products; and (2) the cheese and
dairy products trading business.

Information about the Company's operations in different industry segments for
the years ended December 31, 1996, 1995, and 1994 is disclosed in Note N to the
Consolidated Financial Statements.

ITEM 2. PROPERTIES

The Company's 7,575 gross square foot administrative offices, located in a
modern office building in Maplewood, New Jersey, are under two leases providing
for annual rentals of $44,460 and $100,048, respectively, and both expiring
April 30, 2000. The Company believes that this present space is sufficient for
its present business operations (excluding DFC) for the foreseeable future.

DFC's facilities are located within the incorporated limits of Sturgis, South
Dakota. DFC owns 2.25 acres of land and two buildings. The buildings consist of
a 1,440 square foot truck garage and a 16,940 square foot packaging and
warehousing building where cheese is cut into consumer packaged products. An
administrative office was built atop of the packaging and warehousing building
due to the sale of the 2,812 square foot administrative office building in 1995.
The 9,370 square foot production building was also sold during 1995 due to the
closing of the skim milk cheese operation.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

During 1996, the Company was joined as a defendant in two separate class actions
pending in the United States District Court for the Eastern District of
Wisconsin. The complaints in these two actions are nearly identical, were filed
by the same plaintiffs' lawyers, and were brought on behalf of the same class.
Both complaints allege conspiracy among the Company, Kraft Food, Inc., Borden,
Inc., and the National Cheese Exchange, Inc. to, among other things, manipulate
cheese prices and unreasonably restrain trade in violation of the Sherman Act.
Both cases also assert state law claims for fraud and misrepresentation, and
breach of contract. Both complaints seek unspecified actual and punitive damages
and injunctive relief.

In December, 1996, a motion for class certification was denied in the first of
these cases, and that case is currently proceeding on behalf of the named
plaintiffs only. In the second case, plaintiffs have filed a motion to dismiss
without prejudice; defendants have opposed dismissal on those terms. The motion
is still pending. The Company intends to continue to vigorously defend these
actions.

In 1995, the Company commenced litigation in the United States District Court
for the District of New Jersey against Kraft Foods, Inc. Borden, Inc., Beatrice
Cheese, Inc., and Schreiber Foods, Inc. alleging infringement of its patent for
the manufacture of low fat cheese. Summary judgment was granted in favor of
Kraft in March, 1996 and partial summary judgment regarding one production
facility was granted in favor of Borden and Schreiber in September, 1996. Both
summary judgment decisions have been appealed to the United States Court of
Appeals for the Federal Circuit and the appeals have been consolidated. A motion
for partial summary judgment by the fourth defendant, Beatrice, was denied in
September, 1996.

In addition, in this litigation, motions have been filed by Kraft to have the
case declared exceptional under Section 285 of the Patent Statute and by Borden
and Schreiber to have the case declared exceptional in part. If the motions are
granted, it is anticipated that the Company would appeal. If the case is
ultimately declared exceptional, the Company may be liable to those parties for
some portion of their reasonable attorneys' fees and expenses.

<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the Symbol: LACE.

The Nasdaq Stock Market quotations set forth in the table reflect inter-dealer
prices, without retail mark-up, mark-down or commission, which may not
necessarily represent actual transactions.

COMMON
HIGH LOW

First Quarter, 1995 7.63 3.50
Second Quarter, 1995 9.31 6.50
Third Quarter, 1995 11.50 7.63
Fourth Quarter, 1995 12.13 9.50

First Quarter, 1996 10.63 6.50
Second Quarter, 1996 6.75 5.13
Third Quarter, 1996 6.25 4.50
Fourth Quarter, 1996 6.47 5.13

First Quarter, 1997 6.50 5.13
(through March 6, 1997)

As of the close of business on March 6, 1997, there were 216 registered holders
of record of the Company's common stock. The Company estimates that there are
over 2,835 beneficial owners of its common stock.

The Company has never declared cash dividends on its common stock and has no
present intention of declaring such cash dividends in the foreseeable future.
Cash dividends are restricted by the Company's bank credit facility agreement;
see Note G to the Consolidated Financial Statements.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA1

Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992

Selected Data from Statement
of Operations:
Net sales ................................ $ 161,896,522 $ 145,043,395 $ 132,354,808 $ 180,745,614 $ 167,306,297
Earnings (Loss) before
cumulative effect
of an accounting
change & extraordinary
item ................................... 1,902,004 3,912,028 (3,122,989) (4,040,254) 8,723
Extraordinary item2 ...................... -- 103,760 -- -- --
Cumulative effect of an
accounting change3 ..................... -- -- -- -- (49,000)
Net earnings (loss) ...................... 1,902,004 4,015,788 (3,122,989) (4,040,254) (40,277)
Preferred stock dividends ................ 168,750 121,513 -- -- --
MCT Dairies, Inc. option ................. 107,751 -- -- -- --
Net earnings (loss)
applicable to common
shareholders ........................... 1,625,503 3,894,275 (3,122,989) (4,040,254) (40,277)
Net earnings (loss) per share
of common stock:
Earnings (Loss)
before cumulative
effect of an accounting
change & extraordinary item ......... .31 .72 (.62) (.81) --4
Extraordinary item .................. -- .02 -- -- --
Cumulative effect of an
accounting change3 .................. -- -- -- -- (.01)
Net earnings (loss) per share ............ .31 .74 (.62) (.81) (.01)

Selected Balance Sheet Data5:
Current assets ......................... 23,045,979 20,422,667 22,916,704 28,619,853 24,008,873
Current liabilities .................... 13,368,157 15,363,586 18,751,765 18,949,907 13,401,972
Working capital ........................ 9,677,822 5,059,081 4,164,939 9,669,946 10,606,901
Total assets ........................... 28,571,335 26,276,701 28,936,515 38,056,602 35,896,521
Long-term liabilities
(less current
maturities) ..................... 7,903,878 5,817,868 10,716,233 16,515,189 15,843,190
Stockholders equity
(deficiency) ........................ 7,299,300 5,095,247 (531,483) 2,591,506 6,651,359
</TABLE>

NOTES TO SELECTED FINANCIAL DATA

1 The comparability of the selected financial data is affected by the Company's
sale of 65% of MFI on February 17, 1994. The operations of MFI were consolidated
with that of the Company through December 31, 1993.

2 On March 27, 1995, the Company redeemed its $3,000,000 subordinated note
payable and common stock purchase warrants for $3,000,150 plus accrued interest
of $42,750. The redemption resulted in a net extraordinary gain of $103,760 to
the Company.

3 Effective January 1, 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." See Note
H to the Consolidated Financial Statements.

4 Rounds to less than one cent earnings per share.

5 The comparability of the selected balance sheet data is affected by the
reclassification of net assets of MFI to Investment in and advances to MFI as of
December 31,1993. See "Business - Cheese Converting, Packaging and Manufacturing
Operations."

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations

1996 versus 1995

The Company's sales increased by $16,853,127 or 11.6% from $145,043,395 in 1995
to $161,896,522 in 1996. Sales in the branded cheese segment increased
$4,910,476 or 4.5% from $108,752,854 in 1995 to $113,663,330 in 1996. The
increase in branded business resulted from increased selling prices partially
offset by a 2.2% volume decrease. The Company's cheese and dairy products
trading business sales for 1996 were $48,233,192, an increase of $11,942,651 or
32.9% from $36,290,541 in 1995 primarily due to increased sales unit volume and
higher average selling prices.

As a percentage of sales, gross profit decreased from 24.7% in 1995 to 21.8% in
1996. This decrease was the result of the increased sales at the Company's
cheese and dairy products trading business, where gross profit as a percent of
sales is lower, and the higher cost to purchase cheese resulting from higher
commodity prices. Gross profit decreased by $599,960 or 1.7% from $35,823,401 in
1995 to $35,223,441 in 1996 primarily due to the higher cost to purchase cheese
resulting from higher commodity prices and decreased volume in the branded
division.

Operating expenses increased by $860,401 from $30,470,848 in 1995 to $31,331,249
in 1996 representing an increase of 2.8%. The major contributors to the selling
expense increase of $893,074 were from promotion and commission expenses.
Administrative expenses decreased $32,673 from $4,854,554 in 1995 to $4,821,881
in 1996.

Interest expense (net) decreased by $155,077 or 15.6% from $995,649 in 1995 to
$840,572 in 1996, as a result of the Company's decreased use of its working
capital credit line and lower interest rates.

The provision for income taxes increased $704,740 from $444,876 in 1995 to
$1,149,616 in 1996. The 1995 effective tax rate of 10.1% included the
utilization of net operating loss carry-forwards generated in prior years. The
1996 effective tax rate is 37.7%.

<PAGE>

1995 versus 1994

The Company's sales increased by $12,688,587 or 9.6% from $132,354,808 in 1994
to $145,043,395 in 1995. Sales in the branded cheese segment increased
$4,748,681 or 4.6% from $104,004,173 in 1994 to $108,752,854 in 1995. The
increase in branded business resulted from increased sales in the Alpine Lace
Branded Division offset by a slight decrease in sales from DFC. The Company's
cheese and dairy products trading business sales for 1995 were $36,290,541, an
increase of $7,939,906 or 28.0% from $28,350,635 in 1994 primarily due to
increased sales of commodity cheddar cheese.

As a percentage of sales, gross profit decreased from 24.8% in 1994 to 24.7% in
1995. Gross profit as a percent of sales decreased principally as a result of
the 28% sales increase in the cheese and dairy products trading business, which
has lower gross profit margins than the branded division. Gross profit increased
by $2,988,544 or 9.1% from $32,834,857 in 1994 to $35,823,401 in 1995 primarily
due to the 9.6% increase in sales, along with the lower cost to purchase cheese
resulting from lower commodity prices and continuing manufacturing efficiencies.

Operating expenses decreased by $3,850,358 from $34,321,206 in 1994 to
$30,470,848 in 1995 representing a decrease of 11.2%. The operating expense
decrease is due to the 1994 restructuring charge of $2,640,238 associated with a
plan to cease production of skim milk cheese at its DFC subsidiary and the
termination of its supply agreement with MFI. In addition, in 1994, the Company
recorded a charge of $1,517,757 to write down the carrying value of its
investment and related assets in MFI and related expenses (See Note E to the
Consolidated Financial Statements). Selling expenses remained the same in 1995
and 1994 at $25,600,000.

Administrative expenses increased by $308,049 or 6.8% from $4,546,505 in 1994 to
$4,854,554 in 1995.

Interest expense (net) decreased by $587,391 or 37.1% from $1,583,040 in 1994 to
$995,649 in 1995, as a result of the Company's decreased use of its working
capital credit line and the redemption of the Company's subordinated note
payable, partially offset by higher interest rates.

<PAGE>

The provision for income taxes increased $391,276 from $53,600 in 1994 to
$444,876 in 1995. The 1994 tax provision included minimal state taxes for MCT
Dairies, Inc. due to the pre-tax loss of $3,069,389. The 1995 tax provision is
due to federal net operating loss carry-forwards utilized in 1995.

Inflation

The Company believes that in 1997 it will be able to pass raw material cost
increases of approximately up to 10% on to its customers, as will its
competitors. However, the Company believes that substantial price increases of
over 10% might have a negative impact on demand for all cheese purchases by
consumers and may be borne in part by the Company, thereby reducing earnings.

Liquidity; Capital Resources

The major uses of cash for 1996 were to fund increased inventory, decreased
accounts payable, increased accounts receivable, and treasury stock purchases.
These expenditures were financed by increased drawings under the Company's
revolving credit facility, net earnings, and proceeds from stock option
exercises.

In October 1996, the Company reduced its revolving credit and equipment credit
facility by a total of $4 million to $13,500,000 for the revolving credit
facility and $1,500,000 for the equipment facility. The term of the agreement
was also extended from March 1998 to March 2000. This amendment resulted in
reduced interest and service charges to the Company. While the Company expects
that this facility will be sufficient to finance currently anticipated working
capital and equipment requirements generally, a temporary increase of $2,000,000
was provided by the lender in early 1997 in order to purchase excess inventory
and will be repaid as the inventory is sold. As of March 13, 1997, the Company
had approximately $3,500,000 available on its $15,500,000 revolving credit
facility (See Note G to the Consolidated Financial Statements).

The major providers of cash for 1995 came from net earnings and the decrease in
accounts receivable. On March 27, 1995, the Company redeemed its subordinated
note payable and common stock purchase warrants for $3,000,150 and accrued
interest of $42,750. The majority of the funds for the redemption came from the
issuance of $2,250,000 of 7.5% cumulative preferred stock on March 22, 1995,
which resulted in net proceeds of approximately $2,000,000. The securities are
convertible into common stock of the Company at a conversion price of $7 3/8 for
five years, at which time the Company must either force a conversion at market
price of the common stock or redeem the preferred stock. On March 27, 1995, the
Company used the proceeds (along with cash made available through the Company's
revolving credit facility) to repurchase $3 million in subordinated debt and
353,895 warrants.
14

<PAGE>

Fixed asset acquisitions for 1995 were $995,196 mainly due to the purchase of a
high-speed slicer at the Company's DFC facility. Proceeds from the sale of fixed
assets were $452,812 due to the sale of equipment and buildings at the DFC
facility in connection with the closing of the skim milk cheese operation.

As a result of the Company's restructuring announced in December, 1994, the
Company was in default under the revolving credit facility. The lender waived
the default as of December 31, 1994, and modified those covenants as of January
1, 1995. The Company has been in compliance since January 1, 1995.

The major providers of cash for 1994 were from the sale of MFI, decreased
inventory, and income tax refunds. On February 17, 1994, the Company sold common
stock representing 65% of the outstanding shares of MFI resulting in net cash
received of $3,530,013. The Company's inventory decreased by $2,105,000
primarily due to tighter control of inventory levels. The Company received
income tax refunds of approximately $1,015,000 due to the federal and state
carry-back claims associated with the 1993 pre-tax loss of $5,163,148. Cash
provided during 1994 decreased the borrowings of the Company by approximately
$9,000,000 in 1994.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ALPINE LACE BRANDS, INC.
INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Certified Public Accountants F-2

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3

Consolidated Statements of Operations
for the Three Years Ended
December 31, 1996, 1995 and 1994 F-5

Consolidated Statement of Stockholders'
Equity (Deficiency) for the Three Years
Ended December 31, 1996, 1995 and 1994 F-6

Consolidated Statements of Cash Flows
for the Three Years Ended
December 31, 1996, 1995 and 1994 F-7

Notes to Consolidated Financial Statements F-9

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors and executive officers of the Company
contained in the Company's Proxy Statement for its Annual Meeting to be held on
May 22, 1997, to be filed within 120 days of December 31, 1996 pursuant to
Regulation 14A under the Securities Act of 1934 (the "Company's 1997 Proxy
Statement") is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information regarding remuneration of and transactions with management in
the Company's 1997 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information regarding ownership of the Company's securities by certain other
beneficial owners and management in the Company's 1997 Proxy Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information regarding relationships and related transactions with management
and others in the Company's 1997 Proxy Statement is incorporated herein by
reference.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND
REPORTS ON FORM 10-K.

(a) Financial Statements:

The following consolidated financial statements of
Alpine Lace Brands, Inc. and Subsidiaries required
by Part II, Item 8, are included in Part IV of this
report.
PAGE

- Report of Independent Certified Public
Accountants. F-2

- Consolidated Balance Sheets as of
December 31, 1996 and 1995. F-3

- Consolidated Statements of Operations
for the Three Years Ended December
31, 1996, 1995 and 1994. F-5

- Consolidated Statement of Stock-holders'
Equity (Deficiency) for the Three Years
Ended December 31, 1996, 1995 and 1994. F-6

- Consolidated Statements of Cash
Flows for the Three Years Ended
December 31, 1996, 1995 and 1994. F-7

- Notes to Consolidated Financial
Statements. F-9

<PAGE>

Schedules other than those listed above have been omitted as not being required
or because the information required to be submitted has been included in the
financial statements or notes thereto.

(b) The Company filed the following Reports on Form 8-K during the last quarter
of 1996:

- - None

(c)Exhibits:

(3.1) Certificate of Incorporation, as amended

(3.2) By-Laws 8

(4.1)(a) Loan and Security Agreement, dated March 3, 1993, among Barclays
Business Credit, Inc., the Company, Market Cheese Traders, Inc., and Mountain
Farms, Inc. 8

(b) $1,000,000 Secured Promissory Note (Term Loan), dated March 3, 1993, from
the Company, Market Cheese Traders, Inc., and Mountain Farms, Inc. to Barclays
Business Credit, Inc. 8

(c) $3,500,000 Secured Promissory Note (Equipment Loan), dated March 3, 1993,
from the Company, Market Cheese Traders, Inc., and Mountain Farms, Inc. to
Barlcays Business Credit, Inc. 8

(d) Amendment to Loan and Security Agreement, dated October 17, 1996, among
Fleet Capital Corporation (successor to Barclays Business Credit, Inc.) and
Alpine Lace Brands, Inc., MCT Dairies, Inc. (formerly Market Cheese Traders,
Inc.) and Marolf Dakota Farms Cheese, Inc. (now Dakota Farms Cheese, Inc.)

(e) Letter Agreement dated February 10, 1997, among Fleet Capital Corporation,
the Company, MCT Dairies, Inc., and Dakota Farms Cheese, Inc.

<PAGE>

(4.2) Registration Rights Agreement, dated March 21, 1995, between the Company
and the holders designated therein 10

(10.1)(a) Agreement, dated July 18, 1988, regarding supply of Alpine Lace(R)
Reduced Fat Swiss Cheese 1

(b) Amendment to Agreement, dated March 1, 1994 regarding supply of Alpine
Lace(R) Reduced Fat Swiss Cheese 9

(10.2) Employment Agreement, dated January 4, 1993, between the Company and Carl
T. Wolf 8

(10.3)(a) Employment Agreement, dated February 24, 1986, between the Company and
Kenneth E. Meyers 8

(b) Amendment, dated December 10, 1986, between the Company and Kenneth E.
Meyers amending the terms of Exhibit 10.3(a) 8

(c) Second Amendment, dated as of January 1, 1988, between the Company and
Kenneth E. Meyers extending the term of Exhibits 10.3(a) and 10.3(b) 2

(d) Third Amendment dated December 5, 1989, between the Company and Kenneth E.
Meyers extending and amending the terms of Exhibits 10.3(a), 10.3(b) and
10.3(c) 5

(e) Amendment, dated November 8, 1991, between the Company and Kenneth E. Meyers
extending the term of Exhibit 10.3(a), 10.3(b), 10.3(c) and 10.3(d) 7

(f) Employment Agreement, dated January 1, 1995, between the Company and Kenneth
E. Meyers 11

(g) Amendment to Employment Agreement, dated March 27, 1996, between the Company
and Kenneth E. Meyers

(h) Royalty Agreement, dated January 9, 1997, between the Company and Kenneth E.
Meyers

<PAGE>

(10.4)(a) Employment Agreement, dated January 4, 1993, between the Company and
George Wenger 8

(b) Employment Agreement, dated January 4, 1993, between the Company and Marion
F. Wolf

(10.5)(a) Lease and Lease Modification, both dated November 1, 1988, between
Dunnell Associates and First World Cheese, Inc. 4

(b) Lease dated July 31, 1990, between Dunnell Associates and First World
Cheese, Inc. 5

(c) Lease Modification, dated December 30, 1992, between Dunnell Associates and
Alpine Lace Brands, Inc. (Formerly First World Cheese, Inc.) 8

(d) Lease Modification, dated March 23, 1995, between Dunnell Associates, and
Alpine Lace Brands, Inc. 11

(10.6) 1987 Stock Option Plan (As Amended)

(10.7) Stock Purchase Agreement, dated as of November 7, 1989, among Marolf
Dakota Farms Cheese, Inc., and Michael F. Marolf, plus First Amendment to Stock
Purchase Agreement, dated as of November 27, 1989 3

(10.8)(a) Asset Purchase Agreement dated April 16, 1990, as amended by First
Amendment dated May 21, 1990, between the Company, Gamay Foods, Inc. and Dr. Aly
Gamay 5

(b) Restricted Special Stock Warrant dated May 21, 1990, from the Company to
Gamay Foods, Inc. 5

<PAGE>

(d) Independent Consulting Agreement, dated May 21, 1990, between the Company
and Dr. Aly Gamay 5

(e) Modification Agreements, dated May 14, 1993, between the Company and Dr. Aly
Gamay 9

(10.9) Restricted Special Stock Warrant, dated May 28, 1991, from the Company to
Pleasant View Cheeses Corporation (amended and restated) 6

(10.10)(a) Stock Purchase Agreement, dated January 20, 1994, between the Company
and Simplot Dairy Products, Inc. 9

(b) First Option to Purchase Stock, dated February 17, 1994, between the Company
and Simplot Dairy Products, Inc. 9

(10.11) Securities Purchase Agreement, dated March 24, 1995, between the Company
and RFE Investment Partner IV L.P. 10

(11) Computation of Earnings (Loss) per Share of Common Stock

(21) Subsidiaries of Registrant

(23) Consent of Independent Certified Public Accountants

1. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of Post-Effective Amendment No. 2 to the Registration Statement on Form
S-18 of the Company, Registration No. 33-4622-NY.

2. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the Annual Report on Form 10-K of the Company, for the fiscal year
ended December 31, 1988.

3. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the Current Report on Form 8-K of the Company, dated January 10,
1990.

<PAGE>

4. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the Annual Report on Form 10-K of the Company, for the fiscal year
ended December 31, 1989.

5. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the Annual Report on Form 10-K of the Company, for the fiscal year
ended December 31, 1990.

6. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the Quarterly Report on Form 10-Q of the Company for the quarter
ended June 30, 1991.

7. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the annual report on form 10-K of the Company, for the fiscal year
ended December 31, 1991.

8. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the annual report on form 10-K of the Company, for the fiscal year
ended December 31, 1992.

9. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the annual report on form 10-K of the Company, for the fiscal year
ended December 31, 1993.

10. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the annual report on form 10-K of the Company, for the fiscal year
ended December 31, 1994.

11. Indicates that the exhibit is incorporated by reference to the indicated
exhibit of the Quarterly Report on Form 10-Q of the Company for the quarter
ended March 31, 1995.

<PAGE>

This page left blank intentionally.

F-1

<PAGE>

REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Alpine Lace Brands, Inc.

We have audited the accompanying consolidated balance sheets of Alpine Lace
Brands, Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders
equity and cash flows for each of the three years in the period ended December
31, 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 consolidated financial position of Alpine Lace
Brands, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

/s/Grant Thornton LLP
GRANT THORNTON LLP

New York, New York
February 7, 1997

F-2

<PAGE>

Alpine Lace Brands, Inc.

CONSOLIDATED BALANCE SHEETS

December 31,

ASSETS 1996 1995

CURRENT ASSETS
Cash and cash equivalents .............................. $ 393,173 $ 459,610
Accounts receivable - net .............................. 13,431,641 13,068,356
Inventories ............................................ 8,502,197 6,213,256
Prepaid expenses and other current assets .............. 689,385 681,445
Deferred tax asset ..................................... 29,583

Total current assets ............................ 23,045,979 20,422,667

PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation and amortization ......... 2,250,086 2,335,654

OTHER ASSETS
Note receivable - Mountain Farms, Inc. ................. 1,675,948 1,675,948
Trademarks, trade names and technology, less accumulated
amortization of $1,019,739 and $865,061 in 1996
and 1995, respectively ............................... 1,421,882 1,556,240
Other .................................................. 177,440 286,192

3,275,270 3,518,380

$28,571,335 $26,276,701
</TABLE>

The accompanying notes are an integral part of these statements.

F-3

<PAGE>

Alpine Lace Brands, Inc.

CONSOLIDATED BALANCE SHEETS

December 31,

LIABILITIES AND STOCKHOLDERS EQUITY 1996 1995

CURRENT LIABILITIES
Current maturities of obligations under capital leases .... $ 147,519 $ 143,083
Accounts payable .......................................... 11,685,587 12,844,895
Accrued expenses and other ................................ 1,328,328 1,995,784
Income taxes payable ...................................... 206,723 379,824

Total current liabilities .......................... 13,368,157 15,363,586

LONG-TERM LIABILITIES, less current maturities
Long-term debt ............................................ 7,521,566 5,325,945
Obligations under capital leases .......................... 281,847 409,561
Deferred tax liability .................................... 100,465
Other long-term liability ................................. 82,362

7,903,878 5,817,868

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS EQUITY
Preferred stock, par value $.01 per share; authorized
1,000,000 shares; 45,000 shares issued and outstanding;
at liquidation amount of $50 per share ................ 2,250,000 2,250,000
Common stock, par value $.01 per share; authorized
10,000,000 shares; issued and outstanding,
5,176,636 shares in 1996 and 5,050,136 shares in 1995 . 51,767 50,501
Additional paid-in capital ............................... 3,602,141 2,611,966
Retained earnings ........................................ 1,916,034 182,780

7,819,942 5,095,247
Less
Common stock in treasury - at cost at December 31, 1996 .. 387,290
Unearned compensation .................................... 133,352

7,299,300 5,095,247

$28,571,335 $26,276,701
</TABLE>

The accompanying notes are an integral part of these statements.

F-4

<PAGE>

Alpine Lace Brands, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31,

1996 1995 1994

Net sales ................................................ $ 161,896,522 $ 145,043,395 $ 132,354,808
Cost of goods sold ....................................... 126,673,081 109,219,994 99,519,951

Gross profit ................................... 35,223,441 35,823,401 32,834,857

Operating expenses
Selling ............................................... 26,509,368 25,616,294 25,616,706
Administrative ........................................ 4,821,881 4,854,554 4,546,505
Restructuring charge .................................. 2,640,238
Write-down of Mountain Farms, Inc. .................... 1,517,757
31,331,249 30,470,848 34,321,206
Operating profit (loss) ........................ 3,892,192 5,352,553 (1,486,349)
Interest expense - net ................................... 840,572 995,649 1,583,040
Earnings (loss) before income tax provision
and extraordinary item ...................... 3,051,620 4,356,904 (3,069,389)
Income tax provision ..................................... 1,149,616 444,876 53,600
Earnings (loss) before extraordinary item ...... 1,902,004 3,912,028 (3,122,989)
Extraordinary item
Gain from extinguishment of debt, net of income
taxes of $7,451 .................................... 103,760

NET EARNINGS (LOSS) ............................ 1,902,004 4,015,788 (3,122,989)

Preferred stock dividends ................................ 168,750 121,513
MCT Dairies, Inc. option ................................. 107,751

Net earnings (loss) applicable to common shareholders $ 1,625,503 $ 3,894,275 $ (3,122,989)

Earnings (loss) per share of common stock
Earnings (loss) before extraordinary item ............. $ .31 $ .72 $ (.62)
Extraordinary item .................................... -- .02 --

Net earnings (loss) per share .................. $ .31 $ .74 $ (.62)

Weighted average number of common and common
equivalent shares outstanding ........................ 5,239,417 5,289,275 5,012,419
</TABLE>

The accompanying notes are an integral part of these statements.

F-5

<PAGE>

Alpine Lace Brands, Inc.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

Years ended December 31, 1996, 1995 and 1994
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Additional Retained Unearned Treasury
Preferred Common stock paid-in earnings compen- stock -
stock Shares Amount capital (deficit) sation at cost Total

Balance at December 31, 1993 .................. 5012419 $ 50124 $ 3129888 $ (588506) $ 2591506
Net loss for the year ended December 31, 1994 . (3122989) (3122989)
Balance at December 31, 1994 .................. 5012419 50124 3129888 (3711495) (531483)
Proceeds from preferred stock offering, net
of offering costs of $234,768 .............. $ 2250000 (234768) 2015232
Warrants received on debt repurchase .......... (212337) (212337)
Reduction in nonemployee stock option ......... (275386) (275386)
Exercise of stock options, including income
tax benefit of $29,000 .................... 37717 377 204569 204946
Preferred stock dividends ..................... (121513) (121513)
Net earnings for the year ended December 31,
1995 4015788 4015788
Balance at December 31, 1995 .................. 2250000 5050136 50501 2611966 182780 5095247
Purchase of treasury stock .................... $(387290) (387290)
Unearned compensation ......................... $(133352) (133352)
Exercise of stock options, including income
tax benefit of $236,359 ................... 126500 1266 990175 991441
Preferred stock dividends ..................... (168750) (168750)
Net earnings for the year ended December 31,
1996 1902004 1902004
Balance at December 31, 1996 .................. $ 2250000 5176636 $ 51767 $ 3602141 $ 1916034 $(133352) $(387290) $ 7299300
</TABLE>

The accompanying notes are an integral part of this statement.

F-6

<PAGE>

Alpine Lace Brands, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,

1996 1995 1994

Cash flows from operating activities
Net earnings (loss) .................................... $ 1,902,004 $ 4,015,788 $(3,122,989)
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities
Write-down of Marolf Dakota Farms fixed assets ... -- -- 1,251,618
Write-down of investment in Mountain Farms, Inc. . -- -- 1,333,696
Write-down of Marolf Dakota Farms trademark ...... -- -- 243,680
Extraordinary item ............................... -- (103,760) --
Depreciation and amortization .................... 625,133 566,251 824,369
Provision for losses on accounts receivable ...... 66,194 200,884 150,956
Other ............................................ 105,455 -- --
(Gain) loss on sale of fixed assets .............. -- 24,233 (3,718)
Changes in operating assets and liabilities
Accounts receivable ......................... (429,479) 2,959,544 (1,107,663)
Inventories ................................. (2,288,941) (765,754) 2,104,792
Prepaid expenses and other current assets ... (7,940) 120,559 112,546
Refundable income taxes ..................... -- -- 1,014,795
Other assets ................................ 92,717 139,452 184,425
Accounts payable ............................ (1,159,308) (1,765,957) 1,519,095
Accrued expenses and other .................. (667,456) (570,018) 1,139,589
Income taxes payable ........................ 63,258 369,374 30,430
Other long-term liability ................... (82,362) (494,169) 576,531

(3,682,729) 680,639 9,375,141

Net cash (used in) provided by operating activities . (1,780,725) 4,696,427 6,252,152

Cash flows from investing activities
Proceeds from notes receivable .......................... 16,035 14,385 12,907
Proceeds from sale of Mountain Farms, Inc. .............. -- -- 3,530,013
Purchase of property, plant and equipment ............... (384,887) (995,196) (275,701)
Payments for trademarks, trade names
and technology ........................................ (20,320) (2,047) (56,281)
Proceeds from sale of fixed assets ...................... -- 452,812 --

Net cash (used in) provided by investing activities . (389,172) (530,046) 3,210,938

</TABLE>

F-7

<PAGE>

Alpine Lace Brands, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Year ended December 31,

<TABLE>
<S> <C> <C> <C>
1996 1995 1994

Cash flows from financing activities
Payment of obligations under capital leases - net ...... $ (123,278) $ (218,292) $ (191,943)
Costs from issuance or reduction of common stock,
options and warrants ................................. (275,386)
Preferred stock dividends .............................. (168,750) (121,513)
Purchase of treasury stock ............................. (387,290)
Net proceeds (payments) of notes payable ............... 2,195,621 (5,721,172) (9,071,670)
Proceeds from exercise of stock options ................ 587,157 175,946
Net proceeds from issuance of preferred stock .......... 2,015,232

Net cash (used in) provided by financing activities . 2,103,460 (4,145,185) (9,263,613)

NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ................................. (66,437) 21,196 199,477

Cash and cash equivalents at beginning of year ............. 459,610 438,414 238,937

Cash and cash equivalents at end of year ................... $ 393,173 $ 459,610 $ 438,414

Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest ............................................. $ 842,619 $ 1,177,079 $ 1,602,511

Income taxes ......................................... $ 1,056,321 $ 59,549 $ 103,246
</TABLE>

In connection with the sale of 65% of the outstanding shares of Mountain Farms,
Inc. in February 1994, the Company has a note receivable in the amount of
$1,675,948 (Note E).

The accompanying notes are an integral part of these statements.

F-8

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1996 and 1995

NOTE A - SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:

1. Business and Principles of Consolidation

The consolidated financial statements include the accounts of Alpine Lace
Brands, Inc. (the "Company") and its wholly-owned subsidiaries, MCT Dairies,
Inc. ("MCT") and Dakota Farms Cheese, Inc. ("DFC"), formerly Marolf Dakota Farms
Cheese, Inc. All material intercompany accounts and transactions have been
eliminated.

The Company is engaged in the development, marketing and distribution of branded
cheeses and deli meats and other specialty food products. Sales of these
products are primarily to supermarket chains, food distributors and
delicatessens located throughout the United States. MCT is engaged in cheese and
dairy products commodity trading. DFC currently converts and packages Alpine
Lace(R) brand dairy case sliced cheeses. Prior to 1995, DFC produced skim milk
cheese used by the Company in its product line. In addition, DFC converted and
packaged DFC brand Colby, Cheddar, and Monterey Jack cheeses marketed by the
Company.

2. Revenue Recognition

Sales and related cost of sales are recognized upon shipment of products.
Promotional allowances are charged to selling expense.

3. Inventories

Inventories consisting primarily of bulk cheese, cheese products held for
resale, raw materials and packaging supplies are stated at the lower of cost or
market. Cost is determined using the first-in, first- out method.

4. Property, Plant and Equipment

Property, plant and equipment are depreciated over periods sufficient to relate
the cost of such assets to operations over the following estimated service
lives:

Building and improvements 25-31 years
Leasehold improvements 3-20 years
Furniture, fixtures and equipment 3-10 years

F-9

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE A (continued)

The straight-line method of depreciation is followed for substantially all
assets for financial reporting purposes; but accelerated methods are generally
used for tax purposes.

5. Earnings Per Share of Common Stock

Earnings per share of common stock was computed by dividing net earnings after
deducting preferred dividend requirements and earnings applicable to MCT option
(see Note M) by the weighted average number of shares of common stock and common
equivalent shares outstanding during the period, including the dilutive effect
of warrants and stock options outstanding, if applicable.

6. Income Taxes

The Company and its wholly-owned subsidiaries file a consolidated Federal income
tax return. Deferred income taxes are recognized in the accompanying financial
statements due to differences between financial and tax reporting.

7. Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.

8. Other Assets

The costs of patents, trademarks, trade names and technology acquired are
amortized by the straight-line method over their estimated useful lives, up to
20 years. On an ongoing basis, management reviews the valuation and amortization
of intangibles to determine possible impairment by comparing the carrying value
to the undiscounted cash flows of the related assets. Should the Company
determine that the intangibles are impaired, it would adjust the intangibles to
reflect the fair value at that time.

9. Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

F-10

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE A (continued)

10. Fair Value of Financial Instruments

Based on rates currently available to the Company for bank loans and deposits
with similar terms and maturities, the fair value of the company's long-term
debt and notes receivable approximate the carrying value. Furthermore, the
carrying value of all other financial instruments potentially subject to
valuation risk (principally consisting of cash and cash equivalents, accounts
receivable, and accounts payable) also approximate fair value.

NOTE B - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows:

1996 1995

Leasehold improvements ....................... $ 121,115 $ 106,176
Furniture, fixtures and equipment ............ 2,731,754 2,389,337
Equipment under capital lease ................ 973,795 973,795
Land, building and improvements .............. 314,418 289,314

4,141,082 3,758,622
Less accumulated depreciation and amortization (1,890,996) (1,422,968)

$ 2,250,086 $ 2,335,654

NOTE C - INVENTORIES

Inventories are summarized as follows:

1996 1995

Cheese inventory.............................. $7,977,847 $5,880,513
Packaging supplies............................ 524,350 332,743

$8,502,197 $6,213,256

F-11

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE C (continued)

In connection with the purchase of cheese for anticipated manufacturing
requirements, the Company purchases cheese futures and options as deemed
appropriate to reduce the risk of future cheese price increases. These futures
and options are accounted for as hedges. Under hedge accounting, gains and
losses are deferred and recognized in the cost of goods sold as part of the
product cost. The Company can be exposed to losses in the event of
nonperformance by the other parties to the futures or options. However, the
Company does not anticipate nonperformance by the parties. At December 31, 1996,
the Company did not own any futures and options contracts.

NOTE D - CAPITALIZED LEASES

The following is a schedule by years of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1996:

Year ended December 31,
1997 ...................................... $177,498
1998 ...................................... 171,875
1999 ...................................... 122,583
2000 ...................................... 9,165

Net minimum lease payments ................ 481,121
Less amount representing interest ......... 51,755

Present value of net minimum lease payments $429,366

Current portion ........................... $147,519
Noncurrent portion ........................ 281,847

$429,366

Equipment under capitalized leases at December 31, 1996 and 1995 of $974,000 is
presented net of accumulated amortization of $544,000 and $421,000,
respectively.

F-12

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE E - MOUNTAIN FARMS, INC.

On February 17, 1994, the Company sold common stock representing 65% of the
outstanding shares of MFI. After the sale, MFI owed the Company $1,675,948,
which is evidenced by an unsecured note payable, due ten years from closing with
accrued interest at LIBOR plus 1/4%. The sales proceeds, net of expenses,
approximated the company's proportionate investment in MFI at December 31, 1993.
In addition, the Company entered into a three-year supply agreement with MFI
whereby MFI was to convert products for the Company in an amount not less than
3,000,000 pounds annually. In December 1994, in connection with a restructuring
of the company's operations (Note F), the Company terminated the supply
agreement with MFI. In addition, based on an evaluation of the recoverability of
its investment in MFI, the Company recorded a charge of $1,517,757 in 1994 to
write down to zero the carrying value of its investment and certain related
assets in MFI and related expenses.

During 1996 and 1995, MFI continued to incur operating losses and the Company
was notified that MFI was closing its production facility and restructuring its
business (including converting cheese at an affiliate of MFI) in an attempt to
improve operations. Although MFI has taken steps that it believes will improve
operations, there can be no assurance that they will be successful and it is
reasonably possible that, in the near term, the Company may incur a loss on the
MFI note of $1,675,948. The Company has not accrued any interest receivable on
this note. The Company is pursuing its alternatives in receiving full value of
the note.

NOTE F - RESTRUCTURING CHARGE

In December 1994, the Company approved a restructuring plan in connection with
the company's cheese production, conversion and packaging operations relating to
its Alpine Lace products. In addition, DFC cheese products converted and
packaged at DFC were discontinued in December 1994. In connection with the
restructuring, the Company, in January 1995, closed its skim milk cheese
production facility at DFC and terminated its supply agreement with MFI, and has
utilized other manufacturers to perform these functions. As a result of the
restructuring, all cheese production is performed at outside suppliers. Included
in the restructuring charge for the year ended December 31, 1994 is a write-down
of the DFC plant and equipment of $1,252,000, the write-down of the DFC
trademark of $244,000, termination pay obligations of $55,000, an accrual of
$1,070,700 relating to the cancellation of the supply agreement with MFI which
is payable in 26 monthly installments ending February 1997 and other items of
$18,000. In 1995, the Company sold the assets of DFC not used at their carrying
value.

F-13

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE G - LONG-TERM DEBT

The Company has a long-term bank credit facility that provides for revolving
credit loans of up to $13,500,000 through March 2000 subject to availability of
eligible accounts receivable and inventory; and the availability of up to
$1,500,000 to purchase equipment subject to certain limitations through March
2000. The credit facility contains certain covenants and restrictions on capital
expenditures, indebtedness, the declaration of future dividends and maintenance
of certain financial ratios, including, adjusted tangible net worth, current
ratio and cash flow. Interest on the revolving credit loan is payable monthly at
the company's option of either LIBOR plus 3% or the banks base rate (8.25% at
December 31, 1996) plus 1/2%, and a facility fee of 3/16% is payable on the
unused balance. The borrowings are collateralized by all assets of the Company
and its subsidiaries. At December 31, 1996 and 1995, the outstanding balance of
the facility was $7,521,566 and $5,325,945, respectively.

On March 27, 1995, the Company redeemed its $3,000,000 subordinated note payable
and common stock purchase warrants for $3,000,150 plus accrued interest of
$42,750. The redemption resulted in a net extraordinary gain of $103,760 to the
Company. A portion of the funds for the redemption came from the issuance of
$2,250,000 of convertible preferred stock (Note M) on March 22, 1995.

NOTE H - INCOME TAXES

Income tax expense for the years ended December 31, 1996, 1995 and 1994 consists
of:

1996 1995 1994

Current
Federal ............. $ 843,438 $ 405,654 $ 10,000
State ............... 235,296 46,673 43,600

1,078,734 452,327 53,600

Deferred income taxes
Federal ............. 82,332
State ............... (11,450)

70,882 -- --

$ 1,149,616 $452,327 (a) $ 53,600

(a) Includes $7,451 net in extraordinary item.

F-14

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE H (continued)

During the year ended December 31, 1995, income tax expense was reduced by
approximately $414,000 resulting from the benefit of utilizing net operating
loss carryforwards.

The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Deferred tax assets and liabilities at December 31, 1996 and 1995 consist of the
following:

1996 1995

Current
Deferred tax assets
Allowance for doubtful accounts ........... $ 9,850 $ 17,210
Inventory ................................. -- 82,663
Capitalized package design costs .......... 63,865 72,328
Alternative minimum tax credit carryforward -- 27,828
Charitable contributions .................. -- 12,768
Cancellation of contract .................. -- 10,063

Total current deferred tax assets .... 73,715 222,860

Deferred tax liabilities
Inventory .................................. (41,238) --
Charitable contributions ................... (2,894) --

Total current deferred tax liabilities (44,132) --

Net current deferred tax asset ........ 29,583 222,860

F-15

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE H (continued)

1996 1995

Noncurrent
Deferred tax assets
Patent amortization .......................... $ 96,058 $ 88,484
State net operating loss carryforwards ....... 1,038 26,602

Total noncurrent deferred tax assets .... 97,096 115,086

Deferred tax liabilities
Depreciation of property, plant and equipment (197,561) (149,156)

Total noncurrent deferred tax liabilities (197,561) (149,156)

Net noncurrent deferred tax liability ... (100,465) (34,070)

Less valuation allowance ..................... -- (188,790)

Net deferred tax liabilities ............ $ (70,882) $ --

During the year ended December 31, 1996, the change in the valuation allowance
was approximately $189,000.

The differences (expressed as a percentage of pretax income) between the
statutory Federal income tax rate and the effective income tax rate as reflected
in the accompanying consolidated statements of earnings are as follows:

1996 1995 1994

Statutory Federal income tax rate ........ 34.0% 34.0% (34.0)%
State income taxes, net of Federal benefit 4.8 .7 .9
Permanent differences .................... 1.0 .6 (1.1)
Write-down of investment in MFI .......... -- -- 16.5
Alternative minimum tax credit ........... -- (1.1) .3
Change in deferred tax valuation allowance (6.2) (22.9) 19.3
Other .................................... 4.1 (1.2) (.2)

Effective tax rate ....................... 37.7% 10.1% 1.7%

F-16

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE I - RELATED PARTY TRANSACTIONS

Market Finders Brokerage, Inc. ("MFBI") is a company 100%-owned by a Director
and Vice President of the Company, who is also the wife of the President and
principal stockholder of the Company. MFBI and the Director introduced the
Company to a broker and receives a percentage commission from the broker
(subject to a specified minimum and maximum) based on commissions generated by
this business.

During the years ended December 31, 1996, 1995 and 1994, the Company made
purchases of $539,181, $126,729 and $181,742, respectively, from MFBI. In
addition, during the years ended December 31, 1995 and 1994, the Company had
sales of, $115,632 and $155,210, respectively, to MFBI. Commissions paid to the
purchaser of MFBIs commission brokerage business amounted to $215,951, $231,370
and $215,258, respectively, during the years ended December 31, 1996, 1995 and
1994.

In December 1991, MCT loaned its current president $65,000 which was repaid over
five years at an interest rate of 11%. As a condition of the loan the president
purchased all the outstanding common stock of Herbloc Inc. ("Herbloc") for
$60,000, and entered into a five-year supply agreement through December 31, 1996
with MCT, which is automatically renewed for an additional five years unless MCT
elects to terminate. MCT did not elect to terminate the agreement at December
31, 1996. The supply agreement guarantees that each year MCT will either
purchase at least 86% of Herblocs "quota share" for cheese and cheese products,
or notify Herbloc by September 15 of such year of the amount of each quota
share which MCT does not yet plan to purchase during such year imported by
Herbloc. MCT has guaranteed Herbloc an aggregate mark-up of $18,000 per year
during the initial five-year term. The Company estimates its purchase commitment
for 1997 amounts to approximately $550,000.

NOTE J - COMMITMENTS AND CONTINGENCIES

The Company leases administrative offices for annual rentals totalling
approximately $144,508 and expiring on April 30, 2000. The lease provides for
escalation charges for operating expenses and real estate property taxes.

The Company has a two-year agreement with a public warehouse to provide
refrigerated warehouse space for a minimum monthly fee of $30,000 which expires
on March 31, 1998.

F-17

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE J (continued)

The Company is a party to an agreement for the manufacture of Alpine Lace(R)
reduced fat swiss cheese. The initial term of the agreement continues to
December 31, 2000, with five-year renewal periods thereafter unless terminated
by either party. The price to be paid by the Company is based on a specified
commodity block market price on the date the product is manufactured plus a
fixed premium (subject to periodic adjustment by mutual agreement). Although the
manufacturer is to be the primary source of supply of this product, the Company
is not obligated to purchase any specific quantities of the product. As part of
the cheese manufacture agreement, the Company made a $300,000 advance to the
manufacturer, which the manufacturer may use at any time to credit the company's
current obligation. The $300,000 advance must be maintained at all times during
the duration of this agreement.

The Company has an employment agreement with its President providing for a
minimum annual base salary of $325,000. The term of the agreement is through
January 3, 2000. The Company has one agreement with an officer that expires in
April 1997 and three agreements with officers that expire in December 1997 and
three agreements with officers that expire in January 1998. The terms of the
agreements provide for minimum salaries totalling $870,800. The agreements
automatically renew at the end of the period, in the absence of specified
advance notice of intention not to renew and automatically renew upon a change
in control of the Company.

The Company is a party to a consulting agreement expiring on November 7, 1999.
The consulting fee is based upon varying rates per pound produced, by or for the
Company or any of its affiliates, of certain of the company's cheese products up
to a maximum of $375,000 per year. The minimum payment required in the agreement
is $132,000 per year.

In connection with the acquisition of certain rights and technology from Gamay
Foods, Inc. ("Gamay"), the Company entered into a consulting agreement with the
principal shareholder of Gamay for an initial term of ten years expiring on May
21, 2000. The consulting fee is $200,000 per year. The Company also pays Gamay a
royalty based on pounds sold of its Fat Free and Low-Fat cheese products. On
February 24, 1995, the Company and Gamay modified this agreement as follows: (i)
the consulting agreement was extended for another four-year term expiring on May
20, 2004 at a fee of $100,000 per year; (ii) the royalty payments were extended
for a four-year term from the original fifteen-year period; (iii) in the event
the Company receives any licensing revenues, the Company shall pay to Gamay a
licensing royalty of 25% of the company's net licensing revenue; and (iv) the
Company has a call option whereby, upon the sale of the company's branded
division, the Company can cancel all agreements with Gamay and the Company shall
pay to Gamay the greater of either 7% of the sales proceeds or a minimum of
$5,000,000 to a maximum of $6,000,000.

F-18

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE J (continued)

During 1996, the Company was joined as a defendant in two separate class actions
pending in the United States District Court for the Eastern District of
Wisconsin. The complaints in these two actions are nearly identical, were filed
by the same plaintiffs lawyers, and were brought on behalf of the same class.
Both complaints allege conspiracy among the Company, Kraft Foods, Inc., Borden,
Inc. and the National Cheese Exchange, Inc. to, among other things, manipulate
cheese prices and unreasonably restrain trade in violation of the Sherman Act.
Both cases also assert state law claims for fraud and misrepresentation, and
breach of contract. Both complaints seek unspecified actual and punitive damages
and injunctive relief.

In December 1996, a motion for class certification was denied in the first of
these cases, and that case is currently proceeding on behalf of the named
plaintiffs only. In the second case, plaintiffs have filed a motion to dismiss
without prejudice; defendants have opposed dismissal on those terms. The motion
is still pending. The Company intends to continue to vigorously defend these
actions.

In 1995, the Company commenced litigation against Kraft Foods, Inc., Borden,
Inc., Beatrice Cheese, Inc. and Schreiber Foods, Inc. alleging infringement of
its patent for the manufacture of low fat cheese. Summary judgment was granted
in favor of Kraft in March 1996 and partial summary judgment regarding one
production facility was granted in favor of Borden and Schreiber in September
1996. Both summary judgment decisions have been appealed to the United States
Court of Appeals for the Federal Circuit and the appeals have been consolidated.
A motion for partial summary judgment by the fourth defendant, Beatrice, was
denied in September 1996.

NOTE K - RETIREMENT PLAN

The Company has a defined contribution 401(k) plan. Eligible participants may
contribute a fixed weekly dollar amount or a percentage of their basic annual
salary as contributions. The Company may contribute to the Plan at the
discretion of the Board of Directors. The Company has not made any contributions
to the Plan.

F-19

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE L - STOCK OPTIONS

The Company has a stock option plan (the "Plan") for its employees and
directors. Under the Plan, 1,000,000 shares of the company's common stock are
reserved for issuance. The options granted to date generally become exercisable
over three years commencing one year after the date of grant and upon the
occurrence of certain corporate transactions the options become immediately
exercisable. The following table summarizes the options granted under the plan:

Weighted
average
Shares price

Outstanding at December 31, 1993 296,650 $ 5.02

Options granted ................ 121,000 3.72
Options expired ................ (53,632) 4.74

Outstanding at December 31, 1994 364,018 4.63

Options granted ................ 179,700 9.94
Options expired ................ (3,200) 3.88
Option exercised ............... (36,717) 4.68

Outstanding at December 31, 1995 503,801 6.53

Options granted ................ 166,500 6.03
Options expired ................ (7,166) 7.51
Options exercised .............. (6,500) 4.29

Outstanding at December 31, 1996 656,635 6.41

Exercisable at December 31, 1996 341,031 $ 5.67

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company accounts for its option plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations and, accordingly, no
compensation cost has been recognized for the stock option plan. Had
compensation cost for the company's stock option plan been determined based on
the fair value at the grant date for awards in 1995 and 1996 consistent with the
provisions of SFAS No. 123, the company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:

F-20

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE L (continued)

1996 1995

Net earnings
As reported ...... $ 1,902,004 $ 4,015,788
Pro forma ........ 1,584,457 3,740,400

Earnings per share
As reported ...... $ .31 $ .74
Pro forma ........ .25 .71

These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1995. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for grants in 1995 and 1996: expected volatility of
40%; weighted average risk-free rate of 6.1%; and weighted average expected life
of 7.09 years.

The weighted average grant date fair value of options granted during 1996 and
1995 was $3.43 and $5.17, respectively.

The following table summarizes information about the stock options outstanding
at December 31, 1996:
<TABLE>
<S> <C> <C> <C> <C> <C>

Options outstanding Options exercisable

Number Weighted Number
outstanding average Weighted exercisable Weighted
at remaining average at average
December 31, contractual exercise December 31, exercise
Range of exercise prices 1996 life price 1996 price

$0.00 - $ 4.00 127,001 6.57 $ 3.30 91,516 $ 3.21
$4.01 - $ 8.00 359,934 7.44 5.75 192,934 5.53
$8.01 - $12.00 169,700 8.90 10.14 56,581 10.14

656,635 341,031

</TABLE>

NOTE M - STOCKHOLDERS EQUITY

During the years ended December 31, 1996, 1995 and 1994, warrants and
nonemployee stock options to purchase 102,500 shares, 30,500 shares, and 5,000
shares of common stock at an average of $5.25, $7.47 and $4.50 per share,
respectively, were issued, subject to customary terms and conditions. The
102,500 stock options issued in 1996 were in connection with certain purchase
arrangements for inventory and as sales incentives to food brokers.

F-21

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE M (continued)

The options generally become exercisable over three years commencing one year
after the date of grant and have a term of ten years. The fair value of each
option is estimated on the date of grant using the Black-Scholes option pricing
model. The Company recorded an increase in additional paid-in capital and
unearned compensation of $167,925 which will be amortized over three years. The
Company recorded expense in 1996 of $34,573 in connection with these options.
During 1995, the 160,000 nonemployee stock options were reduced by 40,000, and
the Company made a payment of $240,000 which was recorded as a reduction of
additional paid-in capital.

The following table summarizes shares of common stock reserved for issuance in
connection with the warrants and nonemployee options at December 31, 1996:

Number of shares issuable 228,152

Weighted average price $6.97

Exercisable 178,152

The warrants have varying expiration dates through August 1, 2006.

On January 1, 1995, the President of MCT obtained an option to purchase 20% of
MCT for approximately $97,000. Thirty percent of the option vested immediately
and the remaining seventy percent vests over three and one-half years. Upon a
change in control (as defined), the President of MCT will have the option to put
the shares back to the Company at a premium of approximately $257,644 at
December 31, 1996.

On March 22, 1995, the Company completed a private placement of $2,250,000 of
7.5% cumulative convertible preferred stock, resulting in net proceeds to the
Company of approximately $2 million. The securities are convertible into common
stock of the Company at a conversion price of $7-3/8 for five years, at which
time the Company must either force a conversion at market price of the common
stock or redeem the preferred stock. In the event of a change in control (as
defined), the Company is required to make an offer to purchase the convertible
preferred stock.

NOTE N - BUSINESS SEGMENT INFORMATION

The company's operations consist of two segments: (1) the marketing,
distributing, packaging, and converting of branded cheeses and other specialty
food products and (2) cheese and dairy products trading.

F-22

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE N (continued)

Operating profit is total revenue less operating costs and expenses related to
each segment net of certain unallocated corporate expenses. Identifiable assets
are those used in each segment. For consolidated purchases, two suppliers
accounted for 40%, 52% and 37% of total purchases in 1996, 1995 and 1994,
respectively.

During 1996, 1995 and 1994, cheese and dairy products trading had inter-segment
sales of $2,761,782, $5,640,794 and $6,483,344 to cheese marketing,
distributing, packaging and converting of branded cheeses and other specialty
food products. During 1996, 1995 and 1994, cheese marketing, distributing,
packaging and converting of branded cheese and other specialty food products had
intersegment sales of $251,831, $108,729 and $ 172,131 to cheese and dairy
products trading, respectively.

Information about the company's operations in different business segments for
the years ended December 31, 1996, 1995and 1994 is as follows:

1996 1995 1994

Net sales
Marketing, distributing, packaging
and converting of branded cheeses
and other specialty food products $ 113,915,161 $ 108,861,583 $ 104,145,329
Cheese and dairy products
trading ......................... 50,994,974 41,931,335 34,864,953
Elimination of intersegment
sales ........................... (3,013,613) (5,749,523) (6,655,474)

Total net sales ............. $ 161,896,522 $ 145,043,395 $ 132,354,808
</TABLE>

F-23
<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE N (continued)
<TABLE>
<S> <C> <C> <C>

1996 1995 1994

Operating profit (loss)
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products . $ 3,508,068 $ 5,805,840 $ (1,195,974)
Cheese and dairy products
trading ........................... 1,182,163 275,615 359,350

Operating profit (loss) ....... 4,690,231 6,081,455 (836,624)

Corporate expenses ...................... (798,039) (728,902) (649,725)
Interest income ......................... 1,117 2,122 8,406
Interest expense ........................ (841,689) (997,771) (1,591,446)

Earnings (loss) before income
taxes and extraordinary item $ 3,051,620 $ 4,356,904 $ (3,069,389)

Identifiable assets
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products . $ 22,109,642 $ 21,828,300 $ 21,783,851
Cheese and dairy products
trading ........................... 6,461,693 4,448,401 7,152,664

Total assets .................. $ 28,571,335 $ 26,276,701 $ 28,936,515
</TABLE>

F-24

<PAGE>

Alpine Lace Brands, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 1996 and 1995

NOTE N (continued)

<TABLE>
<S> <C> <C> <C>
1996 1995 1994

Depreciation and amortization
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products $ 625,133 $ 566,251 $ 824,369

Capital expenditures
Marketing, distributing, packaging,
and converting of branded cheeses
and other specialty food products $ 384,887 $ 995,196 $ 317,917
</TABLE>

NOTE O - INTEREST EXPENSE - NET
<TABLE>
<S> <C> <C> <C>

1996 1995 1994

Interest expense - net
Interest expense ................... $ 841,689 $ 997,771 $ 1,591,446
Interest income .................... (1,117) (2,122) (8,406)

$ 840,572 $ 995,649 $ 1,583,040

</TABLE>

F-25

<PAGE>

Exhibit 4.1(d)
AMENDMENT TO
LOAN AND SECURITY AGREEMENT

THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement") is made and
executed this day of October, 1996, by and among FLEET CAPITAL CORPORATION
("Lender"), a Rhode Island corporation with an office at 200 Glastonbury
Boulevard, Glastonbury, Connecticut 06033 (as successor by assignment from
Barclays Business Credit, Inc.), and ALPINE LACE BRANDS, INC. ("ALB"), a
Delaware corporation with its chief executive office and principal place of
business at 111 Dunnell Road, Maplewood, New Jersey 07040, MCT DAIRIES, INC.
("MCT"), a New Jersey corporation with its chief executive office and principal
place of business at 111 Dunnell Road, Maplewood, New Jersey 07040 (formerly
known as Market Cheese Traders, Inc.), and MAROLF DAKOTA FARMS CHEESE, INC.
("MDFC"), a Delaware corporation with its chief executive office and principal
place of business at 2350 Main Street, Sturgis, South Dakota 57785.

R E C I T A L S:

1. Lender, ALB and MCT are parties to that certain Loan and Security Agreement
(as amended from time to time, the "Loan Agreement") dated March 3, 1993.

2. Pursuant to the terms of the Loan Agreement, Lender has made available to ALB
and MCT a credit facility in the total amount of $20,000,000.00.

3. Lender, ALB, MCT and MDFC have agreed to amend the Loan Agreement for
purposes of, among other things, (a) reducing the amount of credit facility
established thereunder, (b) modifying certain terms and conditions thereof, and
(c) adding MDFC as a borrower in connection therewith.

A G R E E M E N T S:

Now therefore, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender, ALB, MCT and MDFC agree as follows:

1. MDFC is hereby made a party to the Loan Agreement and all references
contained therein and herein to the term "Borrower" shall be deemed to include
MDFC in all respects. All terms and conditions set forth in the Loan Agreement
shall be binding upon and inure to the benefit of MDFC with full force and
effect as though MDFC were an original signatory to the Loan Agreement. In
addition, but without limiting the generality of the foregoing, the provisions
of Section 2.7 of the Loan Agreement are hereby acknowledged to be for the
benefit of, and binding upon, MDFC as though MDFC was specifically named
therein.

<PAGE>

2. Mountain Farms, Inc. ("MFI"), a Utah corporation with its chief executive
office and principal place of business at 915 East Karcher Road, Nampa, Idaho
83687, is hereby deleted as a party to the Loan Agreement. All references in the
Loan Agreement and in this Agreement to the term "Borrower" shall be deemed to
exclude MFI in all respects.

3. Capitalized terms used but not defined herein shall have the meanings given
to them in the Loan Agreement.

4. Section 1.1 of the Loan Agreement is hereby amended as follows:

(a) The definition of the term "Bank" is hereby deleted in its entirety and
replaced by the following:

"Bank - Fleet National Bank."

(b) The definition of the term "Borrowing Base" is hereby deleted in its
entirety and replaced by the following:

"Borrowing Base - as at any date of determination thereof, an amount equal to
the lesser of:

(a) $13,500,000.00; or

(b) an amount equal to:

(i) Eighty-five percent (85%), or such lesser percentage as Lender may in its
reasonable credit judgment determine from time to time, of the net amount of
Eligible Accounts of ALB and MDFC outstanding at such date;

PLUS

(ii) Ninety percent (90%), or such lesser percentage as Lender may in its
reasonable credit judgment determine from time to time, of the Eligible Accounts
of MCT outstanding at such date;

PLUS

(iii) the lesser of (A) $6,500,000.00 or (B) seventy percent (70%), or such
lesser percentage as Lender may in its reasonable credit judgement determine
from time to time,of the value of Eligible Inventory at such date consisting of
raw

<PAGE>

materials or finished goods, calculated on the basis of the lower of cost or
market with the cost of raw materials and finished goods calculated on a
first-in, first- out basis, provided, however, that at no time shall the amount
advanced or to be advanced in respect of Eligible Inventory consisting of
consigned Inventory exceed the aggregate outstanding amount of $500,000.00, and
provided, further that at no time shall the amount advanced or to be advanced in
respect of Eligible Inventory consisting of trimmings exceed the aggregate
outstanding amount of $750,000.00;

MINUS (subtract from the sum of clause (i), (ii) and (iii) above.

(iv) an amount equal to the sum of (A) the face amount (or such other amount as
Lender may in its reasonable credit judgment determine) of all LC Guaranties and
Letters of Credit issued by Lender or Affiliates of Lender and outstanding at
such date, (B) the amount of any mandatory prepayment paid pursuant to Section
2.2(c) and applied by Lender to the Revolving Credit Loans outstanding, and (C)
any amounts which Lender will be obligated to pay in the future for the account
of Borrower.

For purposes hereof, the net amount of Eligible Accounts at any time shall be
the face amount of such Eligible Accounts less any and all returns, rebates,
discounts (which may, at Lender's option, be calculated on shortest terms),
credits, allowances or excise taxes of any nature at any time issued, owing,
claimed by Account Debtors, granted, outstanding or payable in connection with
such Accounts at such time."

(d) The definition of the term "Term Loan" is hereby deleted in its entirety. In
addition, all references to the term "Term Loan" contained in the Loan Agreement
are hereby deleted in their entirety.

(e) The definition of the term "Term Note" is hereby deleted in its entirety. In
addition, all references to the term "Term Note" contained in the Loan Agreement
are hereby deleted in their entirety.

5. Section 1.1 of the Loan Agreement is further amended by adding thereto the
following definitions, each in its appropriate alphabetical order:

<PAGE>

"Libor - the rate per annum established by Bank each day in respect of United
States Dollar deposits in immediately available funds in the London interbank
eurodollar market for a period of thirty (30) days."

6. Section 2 of the Loan Agreement is hereby amended by deleting therefrom the
words and figure "Twenty Million and No/100 Dollars ($20,000,000.00)" and
inserting in place thereof the words and figure "Fifteen Million Dollars
($15,000,000.00)."

7. Section 2.2(A) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(A) Intentionally Omitted."

8. Section 2.2(B) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(B) Equipment Loans. Lender shall from time to time, from and after the Closing
Date through March 2, 2000, make Loans to Borrower to finance Borrower's
purchase of Equipment for use in Borrower's business. All such Equipment Loans
shall be in such amounts as may be mutually agreed upon, but in no event to
exceed in the aggregate One Million Five Hundred Thousand Dollars
($1,500,000.00), shall be secured by the Collateral, and shall be repaid in
accordance with the terms of the Equipment Note. Each such Equipment Loan shall
be in an amount of not less than $500,000.00, but no such Equipment Loan shall
exceed eighty percent (80%) of the purchase price (exclusive of freight, taxes
and installation costs) of the subject Equipment."

9. Section 3.1(A) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(A) Interest. Interest shall accrue on the Equipment Loans in accordance with
the terms of the Equipment Note. Interest (calculated on the actual number of
days elapsed over a year of 360 days) shall accrue on the principal amount of
the Revolving Credit Loans outstanding at the end of each day at a fluctuating
rate per annum equal to either (i) one half of one percent (0.5%) plus the Base
Rate, or (ii) three percent (3.0%) plus LIBOR, as either such rate is selected
at Borrower's option. Borrower shall notify Lender of the rate selected two (2)
days prior to the effective date of such selection, provided, however, that no
such selection shall be effective retroactively. After the date hereof, the
applicable rate of interest shall be increased or decreased, as the case may be,
by an amount equal to any

<PAGE>

increase or decrease in the Base Rate or LIBOR, as applicable, with such
adjustments to be effective as of the opening of business on the day that any
such change in the Base Rate or LIBOR, as applicable, becomes effective."

10. Section 3.1(B) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(B) Default Rate of Interest. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the principal amount of the
Obligations shall bear interest, calculated daily (computed on the actual number
of days elapsed over a year of 360 days), at a fluctuating rate per annum equal
to two and one half percent (2.5%) above the Base Rate with respect to Revolving
Credit Loans and three and one quarter percent (3.25%) above the Base Rate with
respect to the Equipment Loans (collectively, the "Default Rate")."

11. Section 3.3 of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"3.3 Term of Agreement. Subject to Lender's right to cease making Loans to
Borrower at any time upon or after the occurrence of a Default or an Event of
Default, this Agreement shall be in effect for the period commencing on the date
hereof and ending on March 2, 2000 (the "Original Term"), and this Agreement
shall automatically renew itself for one (1) year periods thereafter (each a
"Renewal Term"), unless terminated as provided in Section 3.4 hereof."

12. Section 3.4(B) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(B) At the effective date of termination of this Agreement for any reason,
Borrower shall pay to Lender (in addition to the then outstanding principal,
accrued interest and other charges owing under the terms of this Agreement and
any of the other Loan Documents including prepayment premiums under any
promissory note from Borrower to Lender), as liquidated damages for the loss of
the bargain and not as a penalty, an amount equal to three-quarters of one
percent (0.75%) of the highest of the Average Monthly Loan Balances outstanding
pursuant to Section 2.1 during the six (6) months prior to termination if
termination occurs during the period from October , 1996 through March 2, 1997,
one half of one percent (0.50%) of the highest of the Average Monthly Loan
Balances outstanding pursuant to Section 2.1 during the six (6) months prior to
termination if termination occurs during the period from March 3, 1997 through
March 2, 1998, and one quarter of one percent (0.25%) of the highest of the

<PAGE>

Average Monthly Loan Balances outstanding pursuant to Section 2.1 during the six
(6) months prior to termination if termination occurs during the period from
March 3, 1998 through March 2, 1999. The termination charge for amounts
outstanding on the Equipment Loan shall be computed in accordance with the
provisions of the Equipment Note."

13. Section 9.3(A) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(A) Intentionally Omitted."

14. Section 9.3(B) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(B) Minimum Adjusted Tangible Net Worth. Maintain at all times a Consolidated
Adjusted Tangible Net Worth of not less than the amount shown below for the
period corresponding thereto:

Period Amount

Borrower's fiscal year $1,250,000.00
ending December 31, 1996

Each of Borrower's fiscal $500,000.00 above the amount
years ending on each required for Borrower's
December 31 thereafter immediately preceding fiscal
year."

15. Section 9.3(C) of the Loan Agreement is hereby deleted in its entirety and
replaced by the following:

"(C) Current Ratio. Maintain at all times a ratio of Consolidated Current Assets
to Consolidated Current Liabilities of not less than the ratio shown below for
the period corresponding thereto:

Period Ratio

October 17, 1996 through 0.95 to 1.00
November 30, 1997

December 1, 1997 and at 1.00 to 1.00."
all times thereafter.

<PAGE>

16. Exhibit H to the Loan Agreement is hereby deleted in its entirety and
replaced by a new Exhibit H in the form of Annex 1 attached hereto.

17. Exhibit N to the Loan Agreement is hereby deleted in its entirety and
replaced by a new Exhibit N in the form of Annex 2 attached hereto. Borrower
represents and warrants to Lender that such Annex 2 sets forth a complete and
accurate listing of all warehouse and other locations where Borrower's Inventory
is kept as of the date thereof.

18. MDFC warrants, represents and covenants to Lender the following:

(a) MDFC is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware,

(b) MDFC's federal tax identification number is 35-1386386, and

(c) as of the date of this Agreement, all representations and warranties of
Borrower set forth in the Loan Agreement are true as to MDFC, except as
expressly set forth herein.

19. The effectiveness of this Agreement is expressly condition upon satisfaction
of each of the following conditions precedent:

(a) Borrower shall have duly executed and delivered to Lender an original
counterpart of this Agreement;

(b) Borrower shall have duly executed and delivered to Lender an Amended and
Restated Secured Promissory Note (Equipment Loan) substantially in the form of
Exhibit "A" attached hereto;

(c) MDFC shall have executed and delivered to Lender such UCC-1 financing
statements provided for by the Code or otherwise together with any and all other
instruments, assignments or documents and shall take such other action as may be
required to perfect or to continue the perfection of Lender's security interest
in the Collateral, including, without limitation, the execution at Lender's
request of all documents deemed necessary by Lender to cause Lender's Lien to be
noted on any motor vehicle title certificates for motor vehicles forming a part
of the Collateral.

20. Lender hereby acknowledges that it has been kept apprised of Borrower's
business and changes thereto since the date of the Loan Agreement. Lender agrees
that, except as set forth in this Agreement, further modification or amendment
of the Loan Agreement or the exhibits and schedules thereto for the purpose of
describing the changes to date in Borrower's business is presently unnecessary,
provided, however, that nothing contained

<PAGE>

herein shall be construed to amend or limit any requirement set forth in the
Loan Agreement that Lender be notified of changes in Borrower's business.

21. Borrower represents and warrants to Lender that Borrower has duly
authorized, by all necessary corporate action, the execution and delivery of,
and performance under, the Loan Agreement as amended hereby and each document
and instrument executed and delivered in connection herewith.

22. The provisions of this Agreement shall be severable and the illegality,
unenforceability or invalidity of any provision of this Agreement shall not
affect or impair the remaining provisions hereof, and each provision of this
Agreement shall be construed to be valid and enforceable to the fullest extent
permitted by law.

23. This Agreement may be executed in any number of counterparts each of which
shall constitute an original, but all of which when taken together shall
constitute one and the same agreement.

24. Except as expressly set forth in this Agreement, all terms and conditions
set forth in the Loan Agreement shall remain in full force and effect without
amendment, modification, waiver or limitation of any kind.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
in their corporate names by their duly authorized corporate officers on the day
and year first above written.

ALPINE LACE BRANDS, INC.

By:/s/ Arthur Karmel
VP-Finance

MCT DAIRIES, INC.

By:/s/ Arthur Karmel
Treasurer

MAROLF DAKOTA FARMS CHEESE, INC.

By:/s/ Arthur Karmel
Treasurer
[Signatures Continued on Next Page]

<PAGE>

FLEET CAPITAL CORPORATION

By:/s/ Howard Handman
Vice-President

<PAGE>

EXHIBIT H

LITIGATION

The only pending or threatened litigation (other than collection type matters in
the ordinary course of business) of which Borrower is aware and to which
Borrower is a party is as follows:

Alpine Lace Brands, Inc. v. Kraft Foods, Inc. et al. Civil No. 95-1131-JWB
U.S. District Court, District of New Jersey
Alpine Lace Brand, Inc. commenced litigation in 1995 against Kraft Foods, Inc.,
Borden, Inc., Beatrice Cheese, Inc. and Schreiber Foods, Inc. alleging
infringement of its patent for the manufacture of low fat cheese. Summary
judgment was granted in favor of Kraft in March, 1996 and partial summary
judgment regarding one production facility was granted in favor of Borden and
Schreiber in September 1996. The decision in favor of Kraft is being appealed to
the U. S. District Court for the Federal Circuit and it is anticipated that the
decision in favor of Borden and Schreiber will also be appealed. A motion for
partial summary judgment by the fourth defendant Beatrice was denied in
September 1996.

Proceedings are continuing in the District Court as to Borden, Schreiber and
Beatrice and in relation to the motion by Kraft to have the case declared
exceptional under Section 285 of the Patent Statute.

Stuart, et al. v. Kraft Foods, Inc., Case No. 96-C-391 U.S. District Court,
Eastern District of Wisconsin
Alpine Lace was joined as a defendant in this class action in July 1996. The
complaint alleges conspiracy among Alpine Lace, Kraft Food, Inc., Borden, Inc.
and the National Cheese Exchange, Inc. to, among other things, manipulate cheese
prices and unreasonably restrain trade in violation of the Sherman Act, fraud
and misrepresentation, and breach of contract. The complaint seeks unspecified
actual and punitive damages and injunctive relief. A motion to transfer venue
and motions to dismiss are pending. To counter the transfer motion, the same
plaintiff's lawyer recently filed and served a nearly identical complaint on
behalf of the same class naming Wisconsin plaintiffs as class representatives.
Their stated intent is to consolidate the two cases and try to keep them from
being transferred to Illinois

Alpine Lace Brands, Inc. v. New Horizon Warehouse & Distribution Center, Inc.,
No. 95 CV 4345, U.S. District Court, Northern District of Illinois, Eastern
Division
Alpine Lace commenced this action in 1995 to recover damages sustained as the
result of a breach of a warehouse agreement. Discovery is proceeding.

<PAGE>

PREPARED
ALPINE LACE BRANDS, INC. LMF 12/4/96
WAREHOUSES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
WHS NAME STREET CITY ST ZIP CONTACT COUNTY
000 GREAT LAKES 11 INDUSTRIAL ROAD HAMMOND IN 46320 LAKE
007 MONROE CHEESE 112 PRATT ROAD MONTICELLO WI 53570 GREEN
008 TAYLOR CHEESE CORP 508 NORTH MILL ROAD WEYAWEGA WI 54983 WAUPECA
018 PORT JERSEY DIST. 2 COLONY ROAD, BLD. #2 JERSEY CITY NJ 07305 HUDSON
019 PRICE CLUB RIVERSIDE 2321 THIRD STREET RIVERSIDE CA 92501 FRESNO
022 MARATHON CHEESE CORP. 304 EAST STREET MARATHON WI 54448 MARATHON
023 WOHLT CHEESE CORP. 508 NORTHMILL STREET WEYAWEGA WI 54983 WAUPACA
025 SAM'S ATLANTA/UNITED REF.SERV. 1740A WESTGATE PKWY ATLANTA. GA 30336 FULTON
026 ATLAS COLD STORAGE 1731 MORROW GREEN BAY WI 54302 LARRY JONES BROWN
028 DAIRYLAND SALES 1700 CAMPBELL RUN ROAD PITTSBURG PA 15205 PETE DURKIN ALLEGHENY
034 PFS COSTCO 6030 E. SHEILA STREET CITY OF COMMERCE CA 90091 LOS ANGELES
039 PRICE CLUB-FEDERALSBURG RT. 313 NORTH, P.O. BOX 340 FEDERALSBURG MD 21632 CAROLINE
040 GLACIER TRANSIT & STORAGE 128 APPLETON STREET PLYMOUTH WI 53073 SHEBOYGEN
044 COSTCO-FLORIDA PROF.FOOD SYST. 501 NE 183RD STREET, P.O. BOX 640352MIAMI FL 33269 DADE
045 SAMS INDIANAPOLIS-UNTD.MON.REF. 3320 SOUTH ARLINGTON AVENUE INDIANAPOLIS IN 46203 LAKE
048 GAMAY FLAVORS 2770 S. 171 STREET NEW BERLIN WI 53151 WAUKESHA
052 EXPORT TRANSPORT(LUKAL) 2260 D EGYPT ST ELIZABETH NJ 07201 UNION
054 WASHINGTON WHOLESALE 999 MONTAGUE EXPRESSWAY MILPITAS CA 95035 SANTA CLARA
055 SAM'S-DALLAS /US COLD STORAGE 3300 EAST PARK ROW-PO BOX 3424 ARLINGTON TX 76010 TARRANT
058 SAFEWAY FOODS 2200 ENTERPRISE AVENUE LACROSSE WI 54603 LACROSSE
059 US COLD STORAGE 33400 DOWE AVENUE/PO BOXW 1106 UNION CITY CA 94587 ALAMEDA
061 FOREMOST COLD STORAGE 220 ELLISON STREET PATTERSON NJ 07501 PASSIAC
063 COGNATI/CONCORDE 414 13TH STREET UNION CITY NJ 07087 HUDSON
064 COSTCO-NORTHWEST/K&N MEATS 601 S.W. SENECE RENTON WA 98005 KING
065 SAMS' LEESPORT, PA/DAYMARK CO UTD RD #2 ORCHARD LANE LEESPORT PA 19533 BERKS
069 CURRANS CHEESE PLANT HWY 83 MILES SOUTH HWY 11 BROWTOWN WI 53522 GREEN
071 C&S WHOLESALE 95 NORTH HATFIELD ROAD HATFIELD MA 01862 HATFIELD
072 CONCORD MARKETING 8 EMPIRE BOULEVARD MOONACHIE NJ BERGEN
074 COSTCO NORTHEAST-COLUMBIA FARMS 16 SUTTON ROAD WORCESTER MA 01570 WORCESTER
075 SAMS-ILLINOIS WISCOLD, ROCHELLE COLD 60 WISCOLD DRIVE ROCHELLE IL 61608 OGLE
079 RASKAS P.O. OX 952176 ST. LOUIS MO 63195 ST. LOUIS
083 LEMKE CHEESE & PKG CO P.O. BOX 688 WAUSAU WI 54402 MARATHON
085 SAMS-LAS VEGAS-HENDERSON COLD 830 HORIZON DRIVE HENDERSON NV 89014 CLARK
096 CSW-MADISON 4309 COLLEGE GROVE ROAD POBOX 70 MADISON WI 53707 DANE
105 SAMS ORLANDO/DAYMARK ORLANDO 2292 SAND LAKE ROAD ORLANDO FL 32809 ORANGE
123 WOHLT CHEESE CORP 508 NORTHMILL STREET WEYAUWEGA WI 54983 WAUPACA
128 DAIRYLAND SALES 4700 CAMPBELL RUN ROAD PITTSBURG PA 15205 ALLEGHANY
706 GREAT LAKES/LIQUIDATION 11 INDUATRIAL ROAD HAMMOND IN 46320 LAKE
708 GREAT LAKES QUALITY ISSUES 11 INDUSTRIAL ROAD HAMMOND IN 46320 LAKE
714 GREAT LAKES PACKAGING 11 INDUSTRIAL ROAD HAMMOND IN 46320 LAKE
</TABLE>

MCT DAIRIES, INC.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WHS NAME STREET CITY ST ZIP CONTACT COUNTY
026 ATLAS COLD STORAGE 1731 MORROW GREEN BAY WI 54302 LARRYJONES BROWN
028 DAIRYLAND SALES 4700 CAPMBELL'S RUN ROAD PITTSBURGH PA 15205 PETE DURKIN ALLEGHANY
211 LEMKE CHEESE & PKG CO P.O. BOX 688 WAUSAU WI 54402 MARATHON
211 GREEN BAY CHEESE 13190 VELP AVE., P.O. BOX 11766 GREEN BAY WI 54307 BROWN
213 CAINE WAREHOUSING LTD. P.O. BOX 402 REESEVILLE WI DODGE
217 MARSHFIELD COLD STORAGE 15 N CENTRAL AVE MARSHFIELD WI 54449 WOOD
219 EXPORT TRANSPORT(LUKAL) 2260 D EGYPT ST ELIZABETH NJ 72019 UNION
223 ARMOUR DAIRY STORAGE 149 NEW DUTCH LANE FAIRFIELD NJ ESSEX
234 NEW CASTLE COLD STORAGE FREW MILL RD & CASCADE ST NEW CASTLE PA 16107 LAWRENCE
240 CURRAN'S WAREHOUSE W-8098 COUNTY B BROWNTOWN WI 53522 SHORTY GREEN
242 TRIPLE SEVEN WAREHOUSING P.O. BOX 13657 PHILADELPHIA PA 19101 PHILADELPHIA
248 NARDONE BROTHERS 123 HAZLE AVE. WILKES-BARRE PA 18702 LUZERNE
249 NEW ULM COLD STORAGE ROUTE 1, BOX 1542 NEW ULM MN 56073 BROWN
250 FORRESTON CHEESE 307 S. WABASH AVENUE FORRESTON IL 61030 MIKE HOWARD OOGLE
252 SPENCER COLD STORAGE 113 LOUIZA STREET SPENCER WI 54479 DOUGLAS MARATHON
254 MOSINEE COLD STORAGE 751 MAPPLE RIDGE RD. MOSINEE WI 54455 MARATHON
255 FORRESTON CHEESE COMPANY 307 S. WABASH AVENUE FORRESTON IL 61030 OOGLE
</TABLE>
<PAGE>

AMENDED AND RESTATED
SECURED PROMISSORY NOTE
(Equipment Loan)

$1,500,000.00 October , 1996

FOR VALUE RECEIVED, the undersigned (hereinafter collectively referred to as
"Borrower"), hereby jointly and severally promise to pay to the order of FLEET
CAPITAL CORPORATION, a Rhode Island corporation (hereinafter "Lender") successor
by assignment from Barclays Business Credit, Inc., in such coin or currency of
the United States which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, the principal sum of One Million
Five Hundred Thousand and No/100 Dollars ($1,500,000.00) or so much thereof as
may be advanced by Lender to Borrower, together with interest from and after the
date hereof on the unpaid principal balance outstanding at a variable rate per
annum equal to either (i) one and one quarter percent (1.25%) plus the Base
Rate, or (ii) three and three quarters percent (3.75%) plus LIBOR, as either
such rate is selected at Borrower's option. Borrower shall notify Lender of the
rate selected two (2) days prior to the effective date of such selection,
provided, however, that no such selection shall be effective retroactively.

This Amended and Restated Secured Promissory Note (the "Note") is the Equipment
Note referred to in, and is issued pursuant to, that certain Loan and Security
Agreement between Borrower and Lender dated March 3, 1993 (hereinafter, as
amended from time to time, the "Loan Agreement"), and is entitled to all of the
benefits and security of the Loan Agreement. All of the terms, covenants and
conditions of the Loan Agreement and all other instruments evidencing or
securing the indebtedness hereunder (including, without limitation, the
"Security Documents" as defined in the Loan Agreement) are hereby made a part of
this Note and are deemed incorporated herein in full. All capitalized terms used
herein, unless otherwise specifically defined in this Note, shall have the
meanings ascribed to them in the Loan Agreement.

After the date hereof, the applicable rate of interest in effect hereunder shall
be increased or decreased, as the case may be, by an amount equal to any
increase or decrease in the Base Rate or LIBOR, as applicable, with such
adjustments to be effective as of the opening of business on the date that any
such change in the Base Rate or LIBOR, as applicable, becomes effective.

In no contingency or event whatsoever, whether by reason of advancement of the
proceeds hereof or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of money advanced hereunder exceed
the highest lawful rate permissible under any law which a court of competent
jurisdiction may deem applicable hereto. In the event that such a court
determines that Lender has charged or received interest hereunder in excess of
the highest applicable rate, such rate shall automatically be reduced to the
maximum rate permitted by applicable law and Lender shall promptly refund to
Borrower any interest received by Lender in excess of the maximum lawful rate
or, if so requested by Borrower, shall apply such excess to the principal
balance of this Note. It is the intent hereof that Borrower not pay or contract
to pay, and that Lender not receive or contract to receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may be
paid by Borrower under applicable law.

<PAGE>

For so long as no Event of Default shall have occurred under the Loan Agreement,
the principal amount and accrued interest of this Note shall be due and payable
on the dates and in the manner hereinafter set forth:

(a) Interest shall be due and payable monthly, in arrears, on the first day of
each month, commencing on November 1, 1996, and continuing until such time as
the full principal balance, together with all other amounts owing hereunder,
shall have been paid in full;

(b) Commencing on November 1, 1996, and continuing on the first day of each
month thereafter to and including the first day of March, 2000, principal
payments each in an amount equal to one eighty-fourth (1/84) of the outstanding
principal amount of this Note;

(c) On March 2, 2000, a final principal payment equal to the entire unpaid
principal balance hereof, together with any and all other amounts due hereunder.

Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Loan Agreement pursuant to Section 3.4 thereof.

This Note shall be subject to mandatory prepayment in accordance with the
provisions of Section 2.2(C) of the Loan Agreement. Borrower may prepay this
Note in whole at any time or in part from time to time upon ninety (90) days'
prior written notice to Lender, provided that each such prepayment shall be made
together with accrued interest on the principal amount so prepaid at the
prepayment date plus a premium at the applicable percentage set forth below of
the principal amount prepaid:

If Prepayment is Made Between
the Following Dates, Inclusive: The Premium Shall Be:

October, 1996 and 0.75% of principal
March 2, 1997 amount prepaid

March 3, 1997 and 0.50% of principal
March 2, 1998 amount prepaid

March 3, 1998 and 0.25% of the
principal amount
prepaid

All partial prepayments, whether mandatory or voluntary, shall be applied to
installment of principal in the inverse order of their maturities.

The occurrence of an Event of Default under the Loan Agreement, including,
without limitation, the failure to pay any installment of principal or interest
on this Note in full on, or within ten (10) Business Days of, the due date
thereof in accordance with the terms of this Note, shall constitute an event of
default under this Note and shall entitle Lender, at its option, upon or

<PAGE>

at any time after the occurrence of any such Event of Default to declare the
then outstanding principal balance and accrued interest hereof to be, and the
same shall thereupon become, immediately due and payable without notice to or
demand upon Borrower, all of which Borrower hereby expressly waives. If this
Note is collected by or through an attorney at law, then Borrower shall be
obligated to pay, in addition the principal balance and accrued interest hereof,
reasonable attorney's fees, not to exceed fifteen percent (15%) of such
principal and interest, and court costs.

Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.

Wherever possible, each provision of this Note shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Upon the occurrence of an Event of
Default, Lender, at its option, may enforce its rights against any collateral
securing this Note without enforcing its rights against Borrower, any guarantor
of the indebtedness evidenced hereby or any other property or indebtedness due
or to become due to Borrower. Borrower agrees that, without releasing or
impairing Borrower's liability hereunder, Lender may at any time release,
surrender, substitute or exchange any collateral securing this Note and may at
any time release any party primarily or secondarily liable for the indebtedness
evidenced by this Note.

This Note is executed and delivered as an amendment and restatement of, but not
in repayment of, that certain Secured Promissory Note (Equipment Loan) in the
original principal amount of $3,500,000.00, dated March 3, 1993, made by Alpine
Lace Brands, Inc., Market Cheese Traders, Inc., and Mountain Farms, Inc. in
favor of Lender.
<PAGE>

This Note shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of Connecticut, and is intended to take effect as
an instrument under seal.

IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed, sealed
and delivered as of the date first above written.

ATTEST: ALPINE LACE BRANDS, INC.,
a Delaware corporation

By:
Secretary
[CORPORATE SEAL] Title:

ATTEST: MCT DAIRIES, Inc.,
a New Jersey corporation

By:
Secretary
[CORPORATE SEAL] Title:

ATTEST: MAROLF DAKOTA FARMS CHEESE,
INC., a Delaware corporation

By:
Secretary
[CORPORATE SEAL] Title:

<PAGE>

FED EX

February 10, 1997

Alpine Lace Brands, Inc.
MCT Dairies, Inc.
Dakota Farms Cheese, Inc.
111 Dunnell Road
Maplewood, NJ 07040

Letter Agreement

Ladies and Gentlemen:

Please refer to that certain Loan and Security Agreement (as amended from time
to time, the "Loan Agreement") dated March 3, 1993, by and among Fleet Capital
Corporation ("Lender") and Alpine Lace Brands, Inc., MCT Dairies, Inc. and
Dakota Farms Cheese, Inc., formerly known as Marolf Dakota Farms Cheese, Inc.
(collectively, "Borrower").

Borrower and Lender have agreed to amend certain terms of the Loan Agreement on
a temporary basis as more fully set forth in this Letter Agreement. In
consideration of the mutual benefits to be derived hereby, Borrower and Lender
agree as follows:

1. Capitalized terms used but not defined herein shall have the meanings given
to them in the Loan Agreement.

2. The definition of the term "Borrowing Base" set forth in subsection 1.1 of
the Loan Agreement is hereby amended as follows:

(a) Subpart (a) of such definition is hereby amended by deleting therefrom the
figure "$13,500,000.00" and inserting in place thereof the figure
"$15,500,000.00," and

(b) Subpart (b)(iii)(A) of such definition is hereby amended by deleting
therefrom the figure "$6,500,000.00" and inserting in place thereof the figure
"$8,500,000.00"

3. Section 2 of the Loan Agreement is hereby amended by deleting therefrom the
words and figure "Fifteen Million Dollars ($15,000,000.00)" and inserting in
place thereof the words and figure "Fifteen Million Five Hundred Thousand
Dollars ($15,500,000.00)." In addition, the Equipment Loan provided for in
Section 2.2(B) of the Loan Agreement is hereby reduced dollar for dollar to the
extent that the principal amount that the Revolving Credit Loans provided for in
Section 2.1 exceeds $13,500,000.00.

4. The provisions of this Letter Agreement shall be effective for the period
commencing on the date hereof and continuing until the earlier of (i) the date
that is 90 days after the principal amount outstanding under the Loan Agreement
first exceeds $13,500,000.00, or (ii) May 31, 1997,

<PAGE>

Alpine Lace Brands, Inc.
February10, 1997
Page 2

and for no other period. Not later the earlier of the dates set forth in the
preceding sentence, all sums advanced by Lender to Borrower in reliance upon the
terms of this Letter Agreement shall be repaid in full and may not be reborrowed
thereafter. The failure of Borrower to repay all such sums by May 31, 1997,
shall constitute an Event of Default. The terms of this paragraph 4 shall
survive the expiration or other termination of this Letter Agreement.

5. Borrower represents and warrants to Lender that Borrower has authorized, by
all necessary corporate action, the execution and delivery of, and performance
under, the Loan Agreement as amended hereby.

6. Except as expressly set forth herein, all terms and conditions of the Loan
Agreement shall remain in full force and effect without amendment, modification
or limitation of any kind.

If the foregoing terms are acceptable to Borrower, please so indicate by
executing this Letter Agreement in the space provided below and returning a
fully executed original counterpart hereof to the attention of the undersigned.
This Letter Agreement shall be of no force or effect until such time as Lender
shall have received a fully executed original counterpart hereof.

Very truly yours,

Fleet Capital Corporation

By/s/ Howard I. Handman
Howard I. Handman

Accepted and Agreed:

Alpine Lace Brands, Inc.

By/s/ Arthur Karmel

MCT Dairies, Inc.

By/s/ Arthur Karmel

Dakota Farms Cheese, Inc.

By/s/ Arthur Karmel

<PAGE>
Exhibit 10.3(g)

March 27,1996

Mr. Kenneth E. Meyers
8 Darby Terrace
Livingston, NJ 07039

Dear Ken:

I am writing in reference to the Employment Agreement, dated January 1, 1995,
between you and MCT Dairies, Inc. It has come to our attention that one
provision, which we intended to include in the agrrement, was inadvertently
omitted. Therefore, Section 2 of the agreement hereby is amended to add the
following sentence just before the last sentence of that section:

Notwithstanding anything to the contrary, in the event of a Change in Ownership,
as defined below, of the Company, the term of this Agreement shall re-commence
as of the effective date of such Change of Ownership.

If you agree with this amendment, please sign the enclosed copy of this letter
and return it to me.

Very truly yours,

MCT DAIRIES, INC.

By:/s/ Carl T. Wolf
Carl T. Wolf
Chairman
AGREED:

/s/ Kenneth E. Meyers
Kenneth E. Meyers

<PAGE>
Exhibit 10.3(h)
AGREEMENT

THIS AGREEMENT made as of the 9th day of January, 1997 by and between ALPINE
LACE, INC., a Delaware corporation, having its principal offices at 111 Dunnell
Road, Maplewood, New Jersey 07040 (hereinafter referred to as the "Company") and
KENNETH E. MEYERS residing at 8 Darby Lane, Livingston, New Jersey 07039
(hereinafter referred to as the "Employee").

W I T N E S S E T H:

WHEREAS, the Employee is the President and Chief Operating Officer of the
Company's wholly owned subsidiary MCT Dairies, Inc. ("MCT"), which engages in
the cheese and commodity trading business, pursuant to an Employment Agreement
between the Employee and MCT dated as of January 1, 1995 (the "Employment
Agreement"), and, under the Employment Agreement, the Employee's compensation is
based upon ceratin defined business activity of such subsidiary;

WHEREAS, the Employee has also been managing the Company's pending patent
litigation against four defendants and other matters relating to the Company's
patents and other proprietary matters;

WHEREAS, the extensive time spent by the Employee on such matters has limited
the time he has spent on the business of MCT and has had a negative impact on
MCT's business and on the Employee's compensation.

NOW, THEREFORE, the parties agree a follows:

1. Employment Agreement. The Employment Agreement shall remain in full force and
effect and all of the terms and conditions of the Employee's employment shall be
governed by the terms of the Employment Agreement. This Agreement is not an
employment agreement; it does not constitute a promise of employment or any
additional terms and conditions of employment above and beyond those contained
in the Employment Agreement.

2. Duties.

(a) In consideration of the compensation to be paid to the Employee hereunder,
the Employee agrees to devote all of his business time and effort to the patent
litigation and other matters relating to the Company's patents and other similar
proprietary matters (referred to generally hereinafter as "proprietary matters")
as may be necessary in the best

<PAGE>

interest of the Company including all time and effort that may be necessary to
bring the pending patent litigation to a satisfactory conclusion. The Employee
shall continue to manage proprietary matters to the extent and in a manner
consistent with his past performance and shall also undertake such duties in
relation to proprietary matters as may be reasonably requested by the President
of the Company.

(b) Employee agrees that the duties performed or to be performed under this
Agreement or in relation to proprietary matters generally are duties within the
scope of his employment and that the provisions of the Employment Agreement
(such as, for example, "Non-Disclosure Covenant," " Covenant Not to Compete;
Non-Interference;" "Covenant to Report; Ownership of Trade Secrets, etc." and
the definition of "cause" contained in paragraph 8(c)) are applicable to such
duties.

3. Compensation. In consideration of the time and effort spent by the Employee
on proprietary matters to date and of his continuing time and effort, the
Company shall pay to the Employee an amount equal to five percent (5%) of the
amounts received by the Company in connection with the pending patent litigation
and/or in connection with the other proprietary matters, as set forth below.

(a) For purposes of this Section 3, the "amounts received by the Company" shall
equal:

Net Licensing Revenue as that term is defined in the Modification Agreement,
dated February 24, 1995 to the Asset Purchase Agreement dated April 16, 1990
between the Company and Gamay Foods, Inc. and Dr. Aly Gamay (jointly, "Gamay")
(such agreements referred to hereinafter as the "Modification Agreement").

REDUCED BY

Any "Licensing Royalty," as defined in the Modification Agreement, paid to Gamay
under the Modification Agreement.

(b) Any amounts payable to the Employee hereunder shall be paid within 30 days
after payment is made to, or due to (whichever is sooner), Gamay under the
Modification Agreement.

(c) In the event that the Modification Agreement is subsequently terminated or
is modified or amended in such a manner so as to substantially change the
definitions incorporated by reference herein or so as to substantially reduce
the compensation to the Employee hereunder, the parties agree to renegotiate
this Agreement so as to fulfill the intention of this Agreement and provide the
compensation the Employee is intended to receive hereunder.

<PAGE>

4. Termination.

(a) Except as set forth in sub-paragraph (b) below, all rights of the Employee
to receive payments under this Agreement shall continue in full force and effect
even if the Employee's employment terminates under the Employment Agreement
and/or he is no longer performing the duties set forth in paragraph 2 hereof.

(b) Notwithstanding the provisions of sub-paragraph (a) above, all rights of the
Employee to receive payments under this Agreement shall terminate in the event
that the Employee's employment is terminated under the Employment Agreement for
cause.

5. Waiver of Breach. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate nor be construed as a waiver of any
subsequent breach.

6. Binding Effect. This Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective successors, assigns, heirs
and legal representatives, including any entity with which the Company may merge
or consolidate or to which it may transfer all or substantially all of its
assets. Insofar as the Executive is concerned, the Agreement, being personal,
may not be assigned.

7. Notices. All notices and other communications which are required or may be
given under this Agreement shall be in writing and shall be deemed to have been
duly given when delivered in person, or three (3) days after being mailed by
registered or certified first class mail, postage prepaid, return receipt
request, to the parties hereto at the addresses set forth above (as the same may
be changed from time to time by notice similarly given) or the last known
business or residence address or such parties.

8. Entire Agreement; Amendments. This Agreement (i) contains the entire
agreement between the Employee and the Company with respect to the subject
matter hereof, (ii) supersedes all prior agreements and understandings, oral or
written, with respect to the subject matter hereof, and (iii) may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge is sought.

9. Severability. The invalidity of all or any part of any provision of this
Agreement shall not render invalid the remainder of this Agreement or the
remainder of such provision. If any provision of this Agreement is so broad as
to be unenforceable, such provision shall be interpreted to be only so broad as
is enforceable.

10. Disputes and Arbitration. All disputes concerning this Agreement shall be
settled by arbitration; provided, however, that the Company and the Executive
shall first attempt to settle any dispute arising out of, relating to or in
connection with this Agreement by negotiation and mutual agreement. In the event
a resolution cannot be

<PAGE>

reached within sixty (60) days of written notice reciting this paragraph 10,
then such dispute shall be settled by arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association then in
effect and arbitration shall take place in New York City, New York. The
arbitrator's decision shall be final, binding on the Company and the Executive,
not subject to appeal, and shall deal with the question of costs and expenses of
arbitration, pre-award interest and all matters related thereto. Judgment upon
the award rendered may be entered in any applicable jurisdiction or application
may be made to such court for judicial recognition of the award or any order of
enforcement thereof, as the case may be.

11. Governing Law; Consent to Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
giving effect to the principles of conflicts of law thereof. The Company and the
Employee each hereby submits itself or himself for the sole purpose of this
Agreement and any controversy rising hereunder to the exclusive jurisdiction of
the state courts in the State of New Jersey, and waives any objection (on the
grounds of lack of jurisdiction or forum non conveniens, or otherwise) to the
exercise of such jurisdiction over it or him by any state court in the State of
New Jersey.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first written above.

ATTEST: ALPINE LACE BRANDS, INC.

BY:/s/ Arthur Karmel BY:/s/ Carl T. Wolf
Arthur Karmel, Vice-President Carl T. Wolf, President

WITNESS:

/s/ Stephanie Angelis /s/ Kenneth E. Meyers
Kenneth E. Meyers

<PAGE>
Exhibit 10.4(b)

EMPLOYMENT AGREEMENT

THIS AGREEMENT made as of the 4th day of January 1993 by and between ALPINE LACE
BRANDS, INC., a Delaware corporation having its principal offices located at 111
Dunnell Road, Maplewood, New Jersey 07040 (hereinafter referred to as the
"Company"), and MARION F. WOLF, residing at 627 Inwood Land, South Orange, NJ
07079 (hereinafter referred to as the "Executive").

W I T N E S S E T H:

WHEREAS, the Company is engaged in the development, marketing and distribution
of nutritional cheeses and other specialty food products (the "ALPINE LACE
Business"), and the Company's wholly owned subsidiary, Market Cheese Traders,
Inc., a New Jersey corporation is engaged in cheese commodity trading ("the
Cheese Trading Business");

WHEREAS, the Executive is Vice President Food Service Division of the Company in
connection with its ALPINE LACE Business; and

WHEREAS, the Company desires to employ the Executive as its Vice President Food
Service Division, and the Executive desires to be so employed by the Company,
upon all the terms and conditions hereinafter set forth below.

NOW, THEREFORE, the parties agree as follows:

1. Employment. The Company hereby employs the Executive and the Executive hereby
accepts employment by the Company upon the terms and conditions hereinafter set
forth.

2. Term. Subject to the provisions of Paragraph 8 hereof, the term of
Executive's employment by the Company under this Agreement shall commence on the
date hereof and shall continue for a period of one (1) year; and, thereafter,
the term hereof shall be automatically renewed for successive one (1) year
renewal terms unless, prior to the expiration of the original term or the then
current renewal term hereof, (a) the Executive shall give the Company sixty (60)
days notice of his intention not to renew the term, or (b) the Company shall
give the Executive a minimum six (6) months notice of its intention not to renew
the term. The term of the Executive's employment hereunder, including the
original term and any renewal terms hereof, is hereinafter referred to as the
"Employment Period." Notwithstanding anything to the contrary, in the event of a
change of control of the Company, the term of this Agreement shall re-commence
as of the effective date of such change of control.

<PAGE>

3. Compensation. For all services to be rendered hereunder, the Company shall
pay the following compensation with respect to the initial term and each renewal
term hereof during the Employment Period a salary of $75,000 per year.

4. Duties. The Executive shall be employed as an Executive of the Company, and
shall have such duties as are assigned or delegated to him by the President of
the Company. The Executive shall also, upon the request of the President of the
Company, perform services for any Affiliate (as hereinafter defined) of the
Company without further compensation; provided, however, that any such services
to be performed for any Affiliate of the Company do not unreasonably interfere
with the services rendered on behalf of the Company so as to materially
adversely affect the Executive's compensation under Section 3. The Executive
shall devote his entire business time, attention and energy exclusively to the
business of the Company and its Affiliates and shall cooperate fully with the
President of the Company in the advancement of the best interests of the Company
and its Affiliates. The Executive will be Vice President -Branded Division.

5. Expenses. Subject to compliance by the Executive with such policies regarding
expenses and expense reimbursement as may be adopted from time to time by the
Company, the Executive is authorized to incur reasonable expenses in the
performance of his duties hereunder in furtherance of the business and affairs
of the Company and its Affiliates,and the Company will reimburse the Executive
for all such reasonable expenses of an extraordinary nature, including, without
limitation, expenses incurred in connection with out-of-pocket business travel
and in all cases upon the presentation by the Executive of an itemized account
satisfactory to the Company in substantiation of such expenses when claiming
reimbursement.

6. Vacation. The Executive shall be entitled to two (2) weeks vacation in
accordance with the Company's vacation policy in effect from time to time. Any
unused vacation days may not be carried over from one period to the next without
the prior written approval of the President or Board of Directors of the
Company.

7. Company Benefits. The Executive shall, during the Employment Period, be
eligible to participate in such pension, profit sharing, bonus, life insurance,
medical and other employee benefit plans of the Company which may be in effect
form time to time, to the extent he is eligible under the terms of those plans,
on the same basis as other executive officers of the Company; provided, however,
that the allocation of benefits under any plan which provides that allocations
thereunder shall be in the discretion of the Board of Directors of the Company
shall be determined from time to time by such Board of Directors.

<PAGE>

8. Termination.

(a) The Employment Period, the Executive's salary and bonus and any and all
rights under this Agreement or otherwise as an employee of the Company shall
terminate (except as to salary accrued prior to such termination): (i) upon the
death of the Executive; (ii) upon the physical or mental disability of the
Executive (as defined in Paragraph 8(b) below); or (iii) for cause (as defined
in Paragraph 8(c) below), immediately upon the giving of written notice thereof
by the Company to the Executive, or at such later time as such notice may
specify.

(b) For purposes of this Agreement, the Executive shall be deemed to be
"physically or mentally disabled" if (i) for medical reasons he has been unable
to perform his duties for forty five (45) consecutive days or seventy five (75)
days in any twelve (12) month period, all as determined in good faith by the
Board of Directors of the Company, and supported by medical evidence, and (ii)
the Company notifies the Executive of the termination of the Employment Period
as a result of such disability.

(c) For purposes of this Agreement, the term "cause" shall be deemed to mean any
reason materially and adversely affecting the best interests of the Company or
any of its Affiliates or such as to make it unreasonable to expect the Company
to continue to employ the Executive, including, without limitation, the
conviction of any crime, the commission or attempted commission of any act of
wilful misconduct or dishonesty, malfeasance or gross negligence, the failure or
neglect by the Executive to perform his duties hereunder or any other breach or
attempted breach of any of the terms or provisions of this Agreement.

9. Non-Disclosure Covenant. The Executive covenants and agrees that he will not,
during his employment with the Company, except in the performance of his duties
hereunder, or at any time after the termination of his employment with the
Company, communicate or disclose to any person (other than the Company or its
Affiliates), or use for his own account or the benefit of any other person,
without the prior written consent of the Company, any Confidential Information
(as hereinafter defined) which was obtained or acquired by the Executive during
the term of his employment with the Employer. The Executive further covenants
and agrees that he shall retain all such Confidential Information in trust for
the sole benefit of the Company and its Affiliates and their successors and
assigns. For purposes of this Agreement, "Confidential Information" shall mean
any and all knowledge and information relating to the business and affairs of
the Company or any of its Affiliates, their products, processes and/or services
and their customers, suppliers, creditors, shareholders, contractors, agents,
consultants and employees (hereinafter referred to as "Related Persons"), which
is or is intended by any of them to be of a confidential nature, including, but
not limited to, any and all knowledge and information relating to research,
development, inventions, manufacture,

<PAGE>

purchasing, accounting, finances, costs, profit margins, patents, copyrights,
trademarks, trade names, marketing, merchandising, selling, customer lists,
customer requirements and personnel, pricing, pricing methods and data
processing and any and all other such knowledge, information and materials,
heretofore or hereafter during the term of this Agreement, conceived, designed,
created, used or developed by or relating to the Company, any of its Affiliates
or any Related Person; provided, however, that Confidential Information shall
not include any information which may be in the public domain or comes into the
public domain not as a result of a breach by the Executive of any of the terms
or provisions of this Agreement.

10. Covenant Not to Compete; Non-Interference.

(a) The Executive covenants and agrees that, during the Employment Period and
for a period of two (2) years thereafter, except in the course of his employment
hereunder, he will not, directly or indirectly, engage in the sale, marketing,
distribution or trading of any Similar Branded Cheese (as hereinafter defined)
within the geographical territories in which the Company at any time during the
Employment Period conducts its business. For purposes hereof, the term "Similar
Branded Cheese" means any cheese or cheese food product having the same or
similar characteristics, in terms of type (e.g., Swiss) or other characteristics
such as sodium, cholesterol and/or fat content, as any Branded Cheese sold,
marketed, distributed or traded by the Company at any time during the one (1)
year period immediately preceding the termination of the Employment Period.

(b) The Executive covenants and agrees that he will not, whether for his own
account or the account of any other person (i) at any time during the Employment
Period and for a period of two (2) years thereafter, solicit, employ or
otherwise engage, as an employee, independent consultant or otherwise, any
person who is or was an employee of or independent consultant to the Company or
any of its Affiliates to terminate his employment with or engagement by the
Company or such Affiliate (as the case may be), or (ii) at any time during or
after the termination of the Employment Period, interfere with the relationship
of the Company or any of its Affiliates with any person, including any person
who at any time during the Employment Period was an employee or a customer or
supplier of, or in the habit of dealing with, the Company or any of its
Affiliates.

(c) It is understood and agreed by and between the parties hereto that the
foregoing covenants by the Executive set forth in this Paragraph 10 are
essential elements of this Agreement and that, but for the agreement of the
Executive to comply with such covenants, the Company would not have entered into
this Agreement.

<PAGE>

11. Covenant to Report; Ownership of Trade Secrets, etc.

(a) The Executive shall promptly communicate and disclose to the Company all
observations made and data obtained by him in the course of his employment with
the Company. All written materials, records and documents made by the executive
or coming materials, records and documents made by the Executive or coming into
his possession during the Employment Period concerning the business or affairs
of the Company of any of its Affiliates shall be the sole property of the
Company and its Affiliates; and upon the termination of the Employment Period or
upon the earlier request of the Company during the Employment Period, the
Executive shall promptly deliver the same to the Company (or its designee). The
Executive agrees to render to the Company or to any of its Affiliates such
reports of the activities undertaken by the Executive or conducted under the
Executive's direction during the Employment Period, as the Company of any such
Affiliate may reasonably request.

(b) The Executive agrees that any trade secret, invention, improvement, patent,
patent application or writing, and any program, system or novel technique
(whether or not capable of being trademarked, copyrighted or patented)
conceived, devised, developed or otherwise obtained by him during the Employment
Period relating to the business, property, methods, suppliers or customers of
the Company or any of its Affiliates shall be and become the property of the
Company and its Affiliates; and the Executive agrees to give the Company prompt
written notice of his conception, invention, authorship, development or
acquisition of any such trade secret, invention, improvement, patent, patent
application, writing, program, system or novel technique and to execute such
instruments of transfer, assignment, conveyance or confirmation and such other
documents and to do all appropriate lawful acts as may be required by the
Company to transfer, assign, confirm and perfect the Company all legally
protectable rights in any such trade secret, invention, improvement, patent,
patent application, writing, program, system or novel technique.

12. Remedies. The Executive acknowledges that the Company will have no adequate
remedy at law if the Executive violates any of the terms of this Agreement. In
such event, the Company shall have the right, in addition to any other rights it
may have, to obtain, in any court of competent jurisdiction, injunctive relief
to restrain any breach or threatened breach hereof or otherwise to specifically
enforce any of the provisions of this Agreement.

13. Definitions.

(a) The term "Affiliate" of another person means any person that directly, or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with such other person.

(b) The term "person" shall mean any individual, corporation, firm, association,
partnership, other legal entity or other form of business organization.

<PAGE>

14. Compliance with Other Agreements. The Executive represents and warrants that
the execution and delivery by him of this Agreement and the performance by him
of his obligations hereunder will not, with or without the giving of notice of
the passage of time, (i) violate any judgement, writ, injunction or order of any
court, arbitrator or governmental agency applicable to him, or (ii) conflict
with, result in the breach of any provisions of or the termination of, or
constitute default under, any agreement to which the Executive is a party or by
which he is or may be bound.

15. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach.

16. Binding Effect; Benefits. This Agreement shall insure to the benefit of, and
shall be binding upon, the parties hereto and their respective successors,
assigns, heirs and legal representatives, including any entity with which the
Company may merge or consolidate or to which it may transfer all or
substantially al of its assets. Insofar as the Executive is concerned, this
Agreement, being personal, may not be assigned.

17. Notices. All notices and other communications which are required or may be
given under this Agreement shall be in writing and shall be deemed to have been
duly given when delivered in person, transmitted by telex or three (3) days
after being mailed by registered or certified first class mail, postage prepaid,
return receipt request, to the parties hereto at the addresses set forth above
(as the same may be changed from time to time by notice similarly given) or the
last known business or residence address of such parties.

18. Entire Agreement; Amendments. This Agreement (i) contains the entire
agreement and supersedes all prior agreements and understanding, oral or
written, with respect to the subject matter hereof, including any agreement or
understanding between the Executive and Alpine Lace and/or any other Affiliate
of the Company, and (ii) may not be changed orally, but only by an agreement in
writing signed by the party against whom any waiver, change, amendment,
modification or discharge is sought.

19. Severability. The invalidity of all or any part of any provision of this
Agreement shall not render invalid the remainder of this Agreement or the
remainder of such provision. If any provision of this Agreement is so broad as
to be unenforceable, such provision shall be interpreted to be only so broad as
is enforceable.

20. Governing Law; Consent to Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Jersey, without
giving effect to the principles of conflicts of law thereof. The Company and the
Executive each hereby submits itself or himself for the sole purpose of this
Agreement and any controversy arising hereunder to the exclusive jurisdiction of
the state courts in the State of New Jersey, and waives any objection (on the
grounds of lack of jurisdiction or forum non conveniens, or otherwise) to the
exercise of such jurisdiction over it or him by any state court in the State of
New Jersey.

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the
date above first written.

ATTEST: ALPINE LACE BRANDS, INC.

BY:/s/ Kenneth E. Meyers BY:/s/ Carl T. Wolf
Kenneth E. Meyers, Secretary Carl T. Wolf, President

WITNESS:

/s/ Neyda L. Parrilla /s/ Marion F. Wolf
Marion F. Wolf

<PAGE>
Exhibit 10.4(c)

EMPLOYMENT AGREEMENT

THIS AGREEMENT made as of the 4th day of January 1993 by and between ALPINE LACE
BRANDS, INC., a Delaware corporation having its principal offices located at 111
Dunnell Road, Maplewood, New Jersey 07040 (hereinafter referred to as the
"Company"), and ARTHUR KARMEL, residing at 4 Gary Drive, Englishtown, NJ 07726
(hereinafter referred to as the "Executive").

W I T N E S S E T H:

WHEREAS, the Executive is Vice President and Controller of the Company in
connection with its ALPINE LACE Business; and

WHEREAS, the Company desires to employ the Executive as its Vice President and
Controller, and the Executive desires to be so employed by the Company, upon all
the terms and conditions hereinafter set forth below.

NOW, THEREFORE, the parties agree as follows:

1. Employment. The Company hereby employs the Executive and the Executive hereby
accepts employment by the Company upon the terms and conditions hereinafter set
forth.

<PAGE>

8. Termination.

<PAGE>

10. Covenant Not to Compete; Non-Interference.

<PAGE>

11. Covenant to Report; Ownership of Trade Secrets, etc.

13. Definitions.

(b) The term "person" shall mean any individual, corporation, firm, association,
partnership, other legal entity or other form of business organization.

<PAGE>

15. Waiver of Breach. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach.

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the
date above first written.

ATTEST: ALPINE LACE BRANDS, INC.

BY:/s/ Kenneth E. Meyers BY:/s/ Carl T. Wolf
Kenneth E. Meyers, Secretary Carl T. Wolf, President

WITNESS:

/s/ Neyda L. Parrilla /s/ Arthur Karmel
Arthur Karmel

<PAGE>

Exhibit 11
ALPINE LACE BRANDS, INC.

COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK

For the Year Ended December 31,
<TABLE>
<S> <C> <C> <C>

1996 1995 1994

Net earnings (loss) for the year
applicable to common stock (1):

Earnings (loss) before extraordinary
item $1,902,004 $3,912,028 $(3,122,989)

Extraordinary item --- $103,760 ---

NET EARNINGS (LOSS) $1,902,004 $4,015,788 $(3,122,989)

Preferred stock dividends $168,750 $121,513 ---

MCT Dairies, Inc. option $107,751 --- ---

Net earnings (loss) applicable to
common shareholders $1,625,503 $3,894,275 $(3,122,989)

Weighted average number of
common shares outstanding:

Issued and outstanding common
shares (2) 5,106,536 5,050,136 5,012,419

Incremental shares attributable to
assumed exercise of stock options
and warrants (3) 132,881 239,139 ---

Weighted average number of common
shares (2) + (3) 5,239,417 5,289,275 5,012,419

Earnings (loss) per common and common
equivalent share $.31 $.74 $(.62)

Earnings (loss) before
extraordinary item $.31 $.72 $(.62)

Extraordinary item --- $.02 ---

NET EARNINGS (LOSS) PER SHARE $.31 $.74 $(.62)
</TABLE>

<PAGE>

Exhibit 21

Subsidiaries of Registrant

(1) MCT Dairies, Inc., a New Jersey corporation

(2) Dakota Farms Cheese, Inc., a Delaware corporation.

<PAGE>
Exhibit 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 7, 1997, accompanying the consolidated
financial statements included in the Annual Report of Alpine Lace Brands, Inc.
on Form 10-K for the year ended December 31, 1996. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Alpine Lace Brands, Inc. on Form S-3 (File No. 33-53942, effective November 18,
1992) and on Form S-8 (as filed with the Securities and Exchange Commission on
May 18, 1993, File No. 33-62948).

/s/ Grant Thornton LLP
GRANT THORNTON LLP

Parsippany, New Jersey
March 20, 1997

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ALPINE LACE BRANDS, INC.

By: /s/ Carl T. Wolf Carl T. Wolf, President and Chairman of the Board

Dated: March 10, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ Carl T. Wolf President and Chairman of the March 10, 1997
Carl T. Wolf Board of Directors (Principal
executive officer)

/s/ Marion F. Wolf Director March 10, 1997
Marion F. Wolf

/s/ Richard Cheney Director March 10, 1997
Richard Cheney

/s/ Richard S. Hickok Director March 10, 1997
Richard S. Hickok

/s/ Howard M. Lorber Director March 10, 1997
Howard Lorber

/s/ Joseph Rosetti Director March 10, 1997
Joseph Rosetti

/s/ Stephen I. Sadove Director March 10, 1997
Stephen I. Sadove

/s/ Marvin Schiller Director March 10, 1997
Marvin Schiller

/s/ Arthur Karmel Vice President - Finance & March 10, 1997
Arthur Karmel Chief Accounting Officer

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 393,173
<SECURITIES> 0
<RECEIVABLES> 13,455,965
<ALLOWANCES> 24,324
<INVENTORY> 8,502,197
<CURRENT-ASSETS> 23,045,979
<PP&E> 4,141,082
<DEPRECIATION> 1,890,996
<TOTAL-ASSETS> 28,571,335
<CURRENT-LIABILITIES> 13,368,157
<BONDS> 7,903,878
<COMMON> 51,767
0
2,250,000
<OTHER-SE> 4,997,533
<TOTAL-LIABILITY-AND-EQUITY> 28,571,335
<SALES> 161,896,522
<TOTAL-REVENUES> 161,896,522
<CGS> 126,673,081
<TOTAL-COSTS> 158,004,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 840,572
<INCOME-PRETAX> 3,051,620
<INCOME-TAX> 1,149,616
<INCOME-CONTINUING> 1,902,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,902,004
<EPS-PRIMARY> .31
<EPS-DILUTED> .31

</TABLE>