<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 1996
OR
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
0-19263
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(Commission File No.)
SUPREMA SPECIALTIES, INC.
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(Exact name of registrant as specified in its charter)
New York 11-2662625
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 East 35th Street, Paterson, New Jersey 07543
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(Address of principal executive offices including zip code)
Registrant's Telephone Number, including area code: (201) 684-2900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 ]
<PAGE>
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of September 5, 1996 was $19,427,000.
As of September 5, 1996, there were 4,525,193 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference:
Suprema Specialties, Inc.'s definitive Proxy Statement for the annual
meeting of shareholders to be held in November 1996 which will be filed
on or before October 28, 1996 is incorporated by reference into Part
III of this Form 10-K Annual Report.
<PAGE>
PART I
Item 1. Business
General
Suprema Specialties, Inc. and its wholly owned subsidiaries
(hereinafter referred to collectively as the "Company") manufactures, processes
and markets a variety of premium, gourmet natural cheese products, using fine
quality imported and domestic cheeses.
The Company purchases bulk cheeses from foreign sources
(primarily from Europe and to a lesser extent, South America) and domestic
sources, and manufactures bulk cheeses at its facility in Manteca, California.
Bulk cheese is repackaged and sold to food service distributors and food
manufacturers under the Suprema Di Avellino(R) name or on a private label basis
or is grated or shredded and packaged by the Company and sold to retail
customers under the Suprema Di Avellino(R) name. The Company packages its
products for retail sale in convenient, easy to use, tamper evident, resealable,
clear plastic cups, bags and shakers.
The Company commenced operations in 1983 and currently markets
and distributes its products nationally.
Products
The Company's product line, which it principally markets under
the Suprema Di Avellino(R) brand name, currently consists primarily of grated
and shredded imported and domestic parmesan and romano cheeses, imported
pecorino (sheep's milk) romano cheese (including "lite" versions of these
products containing less fat and fewer calories), bulk mozzarella, ricotta and
provolone cheese products. Its cheese products are natural, containing no
preservatives, additives, sweeteners, dehydrated fillers or artificial
flavorings. These cheese products are often used as cooking ingredients and as
flavor enhancements and complements to other foods, such as pastas, meat sauces,
soups and salads.
The Company sells its cheese products to food service industry
distributors, which distribute cheese products to restaurants, hotels and
caterers; food manufacturers; and supermarkets and other retail customers,
including grocery stores, delicatessens and gourmet shops. The Company's
supermarket customers include several regional chain stores, such as King
Kullen, Shop-Rite, Alpha-Beta, Food Town, Stop'N Shop, D'Agostino's and
Pathmark. For the years ended June 30, 1995 and June 30, 1996, sales of bulk
cheese products to food service industry distributors and food manufacturers
under the Suprema Di
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Avellino(R) name or on a private label basis accounted for 42% and 43%,
respectively, of the Company's revenues in each period.
The Company packages a significant portion of its products in
resealable tamper-evident transparent plastic cups and eight ounce shakers,
permitting consumers to reseal the package which the Company believes maximizes
freshness and enhances visual appeal. The Company believes that its packaging
promotes a premium, gourmet image of its products and that the convenience and
ease of use of its plastic cups and shakers increase the attractiveness of its
products to consumers, providing a competitive advantage over cheese products in
conventional nonresealable or nontransparent packaging. The Company uses various
packaging techniques, including controlled atmosphere and heat sealed packaging,
which the Company believes extends the shelf life of its grated and shredded
cheese products sold in cups to approximately 120 days. The Company also uses a
moisture reduction process to extend the shelf life of grated cheese sold in
shakers to approximately nine months.
The Company also sells certain of its products in
shrink-wrapped plastic packaging and in plastic pillow packs. These packs range
in size from one to ten pounds or can be packaged in customized sizes for food
service distributors and food manufacturers.
Production
The Company has increasingly emphasized the marketing and sale
of domestic Italian variety cheese products manufactured at its Manteca,
California facility. For the years ended June 30, 1995 and June 30, 1996,
respectively, sales of mozzarella, ricotta and provolone cheese products
manufactured at such facility accounted for approximately 61.8% and 58.9%,
respectively, of the Company's revenues. The Company also processes natural
cheese products, which involves shredding, grating and packaging, at its
facility in Paterson, New Jersey. These facilities serve as distribution points
for various geographic markets throughout the United States.
The Company's East Coast production facility is located in
Paterson, New Jersey and is equipped with state of the art equipment for
grating, shredding and packaging the Company's products. The Company acquired
title to the facility for a purchase price of approximately $681,000 and used
the facility to secure a loan of $1,050,000 from Natwest Bank, N.A., the
proceeds of which were used to finance the purchase and to make certain
improvements to the facility. The Company, which leases substantially all of its
equipment, generally with options to purchase, recently leased additional
equipment to increase operating capacity and efficiencies and further automate
produc-
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tion. The Company currently operates this facility at approximately 63% of
full productive capacity.
In June 1996, the Company, through its wholly owned
subsidiary, Suprema Specialties Northeast, Inc. (Northeast), leased a plant
facility in Ogdensburg, New York which will commence manufacturing cheese from
raw milk in the first half of fiscal year 1997. The production facility is
approximately 72,000 square feet and will ultimately produce a full line of the
Company's products.
The Company employs a Director of Operations at each facility.
The Company's Directors of Operations make preproduction inspections of each
product, and monitor critical manufacturing and processing functions. Random
samples of each product are regularly sent to outside laboratories, which
perform routine physical, chemical and micro-biological tests of products.
Customers
The Company sells its cheese products directly and through
distributors to supermarkets and other retail customers, including grocery
stores, delicatessens and gourmet shops; food service industry distributors,
which distribute the products to, among others, restaurants, hotels and
caterers; and food manufacturers. The Company's products sold to food service
industry distributors and food manufacturers are sold principally in bulk. The
Company's supermarket customers include several regional chain stores, such as
King Kullen, Shop-Rite, Acme, Price Costco, BJ's, Foodtown, Stop'N Shop,
Safeway, D'Agostino's, Von's, Super Valu, Giant, Ralph's, Pathmark and Lucky's.
For the fiscal years ended June 30, 1995 and June 30, 1996,
sales of cheese products to retailers accounted for approximately 19% and 15%,
respectively, of the Company's revenues; sales to food service companies
accounted for approximately 69% and 73%, respectively, of the Company's
revenues; and sales to food manufacturers accounted for approximately 12% and
12% respectively, of the Company's revenues.
For the fiscal year ended June 30, 1996, Lisanti Foods of New
Jersey and A&J Cheese Company accounted for 13% and 12% of the Company's
revenues respectively, and for the fiscal year ended June 30, 1995, Lisanti
Foods of New Jersey accounted for 12% of the Company's revenues.
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Marketing, Sales and Advertising
The Company currently employs regional sales representatives
to market its products to retail customers primarily in New York, New England
and California, and one national representative who is responsible for sales of
the Company's products to the food service industry. In addition, the Company
engages independent food brokers throughout the United States for marketing to
both retail and food service customers. Food brokers, who are paid on a
commission basis, and salaried sales representatives, are generally responsible
in their respective geographic markets for identifying customers, soliciting
customer orders and inspecting merchandise on supermarket shelves. To achieve
greater market penetration, the Company intends to continue to strengthen and
expand its sales force and food broker network, initially targeting those
geographic markets which the Company believes have the best potential for a high
level of sales. The Company also employs a Senior Vice President-Sales, who is
responsible for managing and coordinating the entire sales program. This
includes making sales presentations to food brokers and working with regional
sales representatives and food brokers in the marketing and selling of products
to, and the maintenance of relationships with, retail customers.
The Company is currently attempting to enhance its access to
supermarket shelf space for new and established products through trade
promotional activity and through the payment of product introduction costs. Some
of these costs, commonly known as slotting allowances, are fees paid to
supermarkets, generally on a one-time basis, to enable product marketers to
obtain access to shelf space for their products. After the initial introductory
program for a product, a supermarket typically determines the degree of market
acceptance of the product. The Company will then work with the retailer to
establish ongoing market support programs to promote continued retail support
and customer satisfaction. The payment of a slotting allowance does not assure
that a product will continue to be carried beyond the initial agreed upon
period.
The Company believes that product recognition by customers,
consumers and food brokers is an important factor in the marketing of the
Company's products. Accordingly, the Company promotes its products and brand
name through the use of promotional materials, including full color product
brochures, circulars, free standing product displays and newspaper inserts. The
Company also employs a Vice President of Market Development in an effort to
increase product recognition in various geographic markets.
The Company generally sells its cheese products pursuant to
customer purchase orders and fills orders within approximately seven days of
receipt. Because orders are filled shortly after receipt, backlog is not
material to the Company's
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business. Substantially all of the Company's products are delivered to
customers by independent trucking companies.
Suppliers
For the years ended June 30, 1995 and June 30, 1996,
approximately 16% and 19%, respectively, of the Company's supply requirements
were manufactured by foreign producers in Europe and South America. Currently,
the Company imports certain of its bulk cheese directly from foreign suppliers
and, to a lesser extent, also purchases through domestic importers. The Company
purchases cheese supplies in large quantities in order to obtain volume
discounts and places its orders for import bulk cheese approximately four to six
months in advance of anticipated production requirements.
The Company is subject to various risks inherent in dependence
on foreign sources of supply, including economic or political instability,
shipping delays, fluctuations in foreign currency exchange rates, custom duties
and import quotas and other trade restrictions, all of which could have a
significant impact on the Company's ability to obtain supplies and deliver
finished products on a timely and competitive basis. Cheese imported from
Argentina is currently subject to United States import quotas and custom duties.
There are currently no quotas or custom duties imposed on pecorino romano cheese
imported into the United States from Italy, although there are quotas and duties
imposed on parmesan cheese imported from Italy.
The Company also purchases certain of its cheese requirements
from domestic sources. The Company manufactures certain of its cheese
requirements primarily for sale to the food service industry. For the fiscal
years ended June 30, 1995 and June 30, 1996, approximately 84% and 81%,
respectively, of the Company's supply requirements were manufactured by the
Company or purchased from domestic sources. The Company expects that use of
domestic cheese products will increase as the Company expands its product line.
For the fiscal years ended June 30, 1995 and June 30, 1996,
the Company's largest supplier accounted for approximately 30% and 33%,
respectively, of all purchases. The Company does not usually maintain contracts
with its suppliers. The Company believes that there are numerous alternative
sources of supply available to it, including for products currently provided by
its largest supplier.
The Company purchases other necessary supplies, including
plastic cups, canisters and bags, from numerous suppliers. The Company believes
that these additional supplies are readily available from numerous potential
suppliers.
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Trademarks
In September, 1992, the Company registered the name "Suprema
Di Avellino(R)" with the United States Patent and Trademark Office and is
currently developing other variations of its existing brand name which could be
registered. The variations currently being considered include the addition of
other distinctive names, words or logos to the Suprema name.
Government Regulation
The Company is subject to extensive regulation by the United
States Food and Drug Administration (the "FDA"), the United States Department of
Agriculture, and by other state and local authorities in jurisdictions in which
the Company's products are manufactured, processed or sold, regarding the
importation, manufacturing, processing, packaging, storage, distribution and
labeling of the Company's products. Applicable statutes and regulations
governing cheese products include "standards of identity" for the content of
specific types of cheese; nutritional labeling and serving size requirements;
and general "Good Manufacturing Practices" with respect to production processes.
The Company's manufacturing and processing facilities are subject to compliance
with federal and state regulations regarding work safety and environmental
matters. The Company's manufacturing and processing facilities and products are
subject to periodic inspection by federal, state and local authorities. The
Company believes that it is currently in substantial compliance with all
material governmental laws and regulations and maintains all material permits
and licenses relating to its operations.
Advertising relating to the Company's products is subject to
review of the Federal Trade Commission and state agencies to monitor and prevent
unfair or deceptive trade practices.
Competition
The Company faces significant competition in the marketing and
sales of its products. The Company's products compete for consumer recognition
and shelf space with cheese products which have achieved significant national,
regional and local brand name recognition and consumer loyalty including such
product brands as Kraft, Sorrento, Sargento and Polly-O. The Company also
competes with other importers of foreign cheese and companies manufacturing
substitute cheese products. These products are marketed by companies with
significantly greater financial, manufacturing, marketing, distribution,
personnel and other resources than the Company, thereby permitting such
companies to procure supermarket shelf space and to implement
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extensive advertising and promotional programs, both generally and in response
to efforts by additional competitors to enter into new markets. The food
industry is also characterized by the frequent introduction of new products,
accompanied by substantial promotional campaigns. The Company's products are
positioned as premium, gourmet products and, accordingly, are generally higher
in price than certain similar competitive products. The Company believes the
principal competitive factors in the marketing of cheese products are quality,
freshness, price, product recognition, packaging convenience and ease of use.
As is the case with other companies marketing cheese products,
the Company is subject to evolving consumer preferences and nutritional and
health-related concerns. The Company believes that the absence of preservatives,
additives, sweeteners, dehydrated fillers or artificial flavorings increases the
attractiveness of its products to consumers. In addition, the Company has
introduced certain "lite" cheese products containing less fat and fewer
calories. The Company will continue to endeavor to respond to certain consumer
concerns about dairy products, such as the cholesterol, calories, sodium,
lactose and fat content of such products. The Company expects to see increased
competition from other companies whose products or marketing strategies address
these consumer concerns.
Employees
As of September 5, 1996, the Company had 137 full-time
employees of which 8 are employed in executive capacities and management
positions, 14 are engaged in sales and marketing and administrative capacities
and 115 are engaged in production and operations. None of the Company's
employees are represented by a union. The Company considers its relations with
its employees to be good.
Item 2. Properties
The Company's facility in Paterson, New Jersey, which consists
of an aggregate of approximately 18,000 square feet and contains the Company's
executive offices as well as production, storage and shipping facilities is
currently being expanded to include a refrigerated/freezer storage facility
which will encompass an additional 7,800 square feet. On March 29, 1996, the
Company purchased its Paterson production facility which it previously had
leased. The purchase was financed through a mortgage on the property. Proceeds
of the loan were $1,050,000 of which approximately $647,000 was used to pay the
remaining obligation to the landlord. Approximately $363,750 is currently held
in an escrow account from which the Company will draw to complete its expansion
of the refrigerated/freezer storage
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facility. The five year note bears interest of 8.51% per annum is being
amortized at a fifteen year rate and requires a balloon payment at the end of
year five of approximately $840,000.
The Company's facility in Manteca, California, which consists
of an aggregate of approximately 75,000 square feet and contains the Company's
cheese manufacturing operation, as well as storage and shipping facilities, is
occupied under a net lease which was renewed in December 1994, and which may be
extended at the option of the Company for two (2) additional five-year period
subject to further extension as set forth below. The basic annual rental
(exclusive of insurance and taxes) is $75,000, subject to adjustment for
increases in the Consumer Price Index during the renewal term. All of the
premises will be subject to an initial term expiring ten years from the date of
the substantial completion of the additional premises. The rent is based on a
formula relating to the Landlord's cost of construction of the additional space.
The Company's facility in Ogdensburg, New York, which consists
of an aggregate of approximately 72,000 square feet and contains a cheese
manufacturing operation, as well as storage and shipping facilities, is occupied
under an operating lease which commenced in August 1996. The term of the lease
is divided into two terms, the short term and the long term. The short term
commenced in August 1996 and expires on July 31, 1997. The long term will
commence August 1, 1997 and expire July 31, 2017. However, at each five year
anniversary; on July 31, 2002, July 31, 2007, and July 31, 2012 the Company may
elect to terminate the lease. There shall be a minimum monthly base rental of
$4,000 and a fee of $.06 per hundred weight of whole milk sold and delivered,
however in no event shall the minimum monthly rent exceed $8,000.
The Company leases, generally with options to purchase,
substantially all of the equipment at these manufacturing and processing
facilities, subject to lease agreements currently providing for annual aggregate
payments of approximately $2,400,000; the Company has entered into additional
equipment lease agreements in connection with the expansion of the Manteca
facility which will have additional aggregate annual payments of approximately
$162,000.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
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Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security
holders during the last quarter of its fiscal year ended June 30, 1996.
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock has been traded in the
over-the-counter market and quoted on the NASDAQ System under the symbol "CHEZ"
since April 25, 1991. On March 22, 1993, the Company's stock commenced trading
on the NASDAQ National Market System. The following table sets forth the high
and low closing bid prices or, as of March 22, 1993, high and low last reported
sale prices of the Company's Common Stock for the periods indicated below. The
following quotes represent inter-dealer quotations without adjustment for retail
markups, markdowns or commissions and may not necessarily represent the prices
of actual transactions.
Common Stock
------------
High Low
---- ---
Fiscal Year ending June 30, 1994
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First Quarter 7 1/4 3 13/16
Second Quarter 4 3/4 3 1/4
Third Quarter 4 5/8 2 1/4
Fourth Quarter 2 3/4 2
Fiscal Year ending June 30, 1995
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First Quarter 2 11/16 2 1/8
Second Quarter 3 3/8 2 3/8
Third Quarter 3 3/4 2 1/2
Fourth Quarter 3 5/8 2 25/32
Fiscal Year ending June 30, 1996
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First Quarter 6 2 13/16
Second Quarter 6 1/4 4 1/4
Third Quarter 6 1/8 4 1/4
Fourth Quarter 6 3/4 5 1/8
The closing price of the Common Stock on September 5, 1996 was 5 1/2.
As of September 4, 1996, the number of record holders of the
Company's Common Stock was 87. The Company believes that this number does not
include an estimated 1,000 beneficial owners of the Company's Common Stock who
currently hold such securities in the name of depository institutions.
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In August 1994, the Company completed a private placement of
500,000 shares of Series A Convertible Preferred Stock at a purchase price of
$3.00 per share with gross proceeds of $1,500,000 and net cash proceeds of
approximately $1,300,000. Each share of Preferred Stock was convertible into one
share of Common Stock. The Preferred Stock bore a cumulative 10% dividend,
payable quarterly. During fiscal year 1996, the Company paid $146,250 of
dividends on the preferred stock. In June 1996 all of the shares of Preferred
Stock were converted into Common Stock.
In June 1996, the Company completed a secondary public
offering for 1,500,000 shares of its common stock of which 1,000,000 shares were
issued by the Company and 500,000 shares were offered by selling shareholders
upon conversion of 500,000 shares of the Company's convertible preferred stock
(see above), at a purchase price of $5.50 per share. Gross proceeds payable to
the Company from the offering was approximately $5,500,000 and net proceeds to
the Company was approximately $4,481,350. The Company received no proceeds from
the shares sold by selling shareholders.
The Company has neither paid nor declared any dividends on its
shares of Common Stock. The Board of Directors of the Company does not presently
anticipate that cash dividends will be paid on its shares of Common Stock in the
foreseeable future. In addition, the Company's agreement with its bank prohibits
the payment of cash dividends (other then dividends on the Preferred Stock). The
Company anticipates that any funds derived from operations in the foreseeable
future will be required to be devoted to the development of the Company's
business.
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Item 6. Selected Financial Data
The following selected consolidated financial information is
derived from, and should be read in connection with, the consolidated financial
statements of the Company contained elsewhere herein.
<TABLE>
<CAPTION>
Years Ended June 30,
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1996 1995 1994 1993 1992
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(In thousands, except per share data)
Earnings Statement
Data:
<S> <C> <C> <C> <C> <C>
Net Sales $65,104 $52,109 $31,996 $27,399 $23,526
Earnings before
cumulative
effect of
accounting
change 1,409 912 504 621 335
Net Earnings 1,409 912 429 621 335
Earnings Per
Share before
cumulative
effect of
accounting
change .40 .32 .23 .28 .16
Earnings per .40 .32 .20 .28 .16
share
Weighed Average 3,195 2,369 2,191 2,213 2,139
Common Shares
Outstanding(1)
June 30,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
Balance Sheet
Data:
Total Assets $41,663 $27,212 $16,746 $12,610 $9,663
Working Capital 19,374 11,209 8,384 2,447 2,031
Long Term 18,482 13,310 7,099 1,776 2,053
Obligations
(including
capital lease
obligations
and amounts
due to
affiliates)
Total 27,577 19,811 11,600 8,296 5,971
Liabilities
Warrants 1,171 - - - -
Stockholders' 14,086 7,401 5,146 4,313 3,692
Equity
</TABLE>
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(1) See Footnote 11 to Notes to Consolidated Financial Statements.
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of revenues represented by certain items reflected in the Company's
Statements of Earnings.
<TABLE>
<CAPTION>
Percentage of Revenues
--------------------------------------------------
Year Year Year
Ended Ended Ended
June 30, June 30, June 30,
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Net Sales................................................ 100.0% 100.0% 100.0%
Cost of sales............................................ 78.9 77.4 77.5
---- ---- ----
Gross margin............................................. 21.1 22.6 22.5
Selling and shipping
expenses................................................. 12.5 15.6 13.9
General and administrative
expenses................................................. 2.8 3.7 5.0
Interest expense......................................... 2.8 1.3 1.4
Other Income............................................. (.6) (1.0) (0.1)
---- ----- -----
Earnings before income
taxes.................................................... 3.7 3.0 2.3
Income taxes............................................. 1.5 1.2 .7
--- --- ---
Earnings before cumulative 2.2 1.8 1.6
effect of accounting change..............................
Cumulative effect of
accounting............................................... -- -- .3
------ ----- --
Net earnings............................................. 2.2% 1.8% 1.3%
==== ==== =====
</TABLE>
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995.
Revenues for the fiscal year ended June 30, 1996 were approximately $65,104,000,
as compared to approximately $52,109,000 for the fiscal year ended June 30,
1995, an increase of approximately $12,995,000, or 24.9%. This increase reflects
higher sales volume for food service and food ingredient products manufactured
by the Company's Manteca California facility.
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The Company's gross margin as a percentage of revenues
decreased from 22.6% in the year ended June 30, 1995 to 21.1% in the year ended
June 30, 1996. The decrease in gross margin as a percentage of net sales was due
to higher than normal costs during the second quarter of fiscal 1996 associated
with the start-up of the mozzarella manufacturing operations in Manteca
accompanied by the continued shift to lower margin sales associated with the
foodservice and food ingredient markets. Also higher raw material costs during
the fourth quarter of fiscal year 1996 which the Company elected to absorb
rather than pass on to customers had a negative impact on the gross profit for
such period.
Selling and shipping expenses decreased by approximately
$8,000 from approximately $8,133,000 during the fiscal year ended June 30, 1995
to approximately $8,125,000 during the fiscal year ended June 30, 1996. As a
percentage of revenues, selling and shipping expenses decreased from 15.6% for
the fiscal year ended June 30, 1995 to 12.5% for the fiscal year ended June 30,
1996. This decrease is primarily due to the Company's increased revenue growth
as well as a decrease in commission expenses.
General and administrative ("G&A") expenses decreased from
approximately $1,911,000 in fiscal 1995 to approximately $1,807,000 in fiscal
1996, or $104,000. As a percentage of sales, G&A expenses decreased from 3.7% in
fiscal 1995 to 2.8% in fiscal 1996. This decrease is primarily due to the
Company's increased revenue growth during the fiscal year ended June 30, 1996.
Net interest expense increased to approximately $1,812,000 for
the year ended June 30, 1996 from approximately $690,000 for the year ended June
30, 1995. The increase was the result of the Company's expanded borrowing and
lease financing requirements necessary to finance working capital needs and
capital expansion for the Manteca manufacturing facility.
Other income decreased from approximately $520,000 in fiscal year
1995 to approximately $412,000 in fiscal year 1996, primarily as a result of
other income associated with the payment in full of the note pertaining to the
licensing agreement during fiscal year 1996 as compared to an approximate
$378,000 gain on the sale of excess production equipment and deferred income of
approximately $105,000 during fiscal year 1995.
The provision for income taxes for the year ended June 30,
1996 increased by approximately $371,000 compared to fiscal year 1995 as a
result of increased taxable income.
Net earnings applicable to common stock increased to
approximately $1,263,000 in fiscal year 1996 from approximately $762,000 in
fiscal year 1995, or approximately $501,000. This
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increase is primarily due to the increase in gross margin, as a result of
increased revenues, and to a lesser extent, decreases in both selling and
shipping charges and general and administrative expenses, partially offset by
increases in net interest expense and a decrease in other income.
Year Ended June 30, 1995 Compared to Year Ended June 30, 1994.
Revenues for the fiscal year ended June, 30, 1995 were approximately
$52,109,000, as compared to approximately $31,996,000 for the fiscal year ended
June 30, 1994, an increase of approximately 20,113,000 or 62.9%. This increase
reflects higher sales volume for food service and food ingredient products
manufactured by the Company's California facility and, to a lessor extent, for
its retail soft cheese products.
The Company's gross margin increased by approximately
$4,564,000 from approximately $7,195,000 in the year ended June 30, 1994 to
approximately $11,759,000 in the year ended June 30, 1995, primarily as a result
of the increased volume in the food service and food ingredient products. The
Company's gross margin as a percentage of sales increased slightly to 22.6% for
the year ended June 30, 1995 versus 22.5% for the comparable period last year.
Selling and shipping expenses increased by approximately
$3,673,000 in fiscal year 1995 from approximately $4,460,000 in fiscal 1994 to
approximately $8,133,000. As a percentage of sales, selling and shipping
expenses increased from 13.9% to 15.6% respectively. This increase is primarily
due to the additional advertising and promotional allowances offered in support
of the Company's increased volumes, increased shipping charges, and to a lessor
extent, the increase in bad debts reserve.
General and administrative expenses increased by approximately
311,000 to approximately $1,911,000 for the year ended June 30, 1995 as compared
to $1,600,000 for the year ended June 30, 1994. This increase is primarily due
to the increased expenses incurred in connection with the Company's increased
sales. As a percentage of sales, however, G&A expenses decreased to 3.7% in
fiscal year 1995 from 5.0% in fiscal year 1994.
Net interest expense increased to approximately $690,000 for
the year ended June 30, 1995 from approximately $433,000 for the year ended June
30, 1994, or an increase of approximately $257,000. The increase was primarily
due to the Company's expanded borrowing to finance working capital as well as
lease financing requirements for it's Manteca expansion.
Other income of approximately $520,000 for fiscal year 1995,
was primarily the result of an approximate $378,000 gain on the sale of excess
production equipment.
-15-
<PAGE>
The provision for income taxes for the year ended June 30,
1995 increased by $398,000 compared to the year ended June 30, 1994, as a result
of increased taxable income. Effective July 1, 1993, the Company adopted the
provisions of Financial Accounting Standard Number 109 (Accounting for Income
Taxes), which resulted in a net charge for the cumulative effect of an
accounting change of $75,000 in the year ended June 30, 1994.
Net earnings applicable to common stock increased to
approximately $762,000 in the year ended June 30, 1995 from approximately
$429,000 in the year ended June 30, 1994, or approximately $333,000. The
increase in net earnings applicable to common stock is due to the increase in
gross margin as a result of increased volume, and other income, partially offset
by the increase in promotional and advertising expenses and for the increase in
the Company's allowance for bad debts reserve, previously mentioned.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of
approximately $19,374,000 as compared with approximately $11,209,000 in June
1995, an increase of approximately $8,165,000. The increase in working capital
is primarily due to increased sales and an increase in other assets as a result
of the two marketing service agreements which have been terminated, and the
pre-payment of the licensing agreement, partially offset by the increase in
accounts payable and other accrued liabilities.
In October 1995, the Company entered into a Loan and Security
Agreement with CoreStates Enterprise Fund (the "Fund"), a division of CoreStates
Bank, N.A. pursuant to which the fund loaned $5,000,000 to the Company. The loan
is secured by a subordinated security interest in substantially all of the
assets of the Company. The loan is subordinated to the loan of the Company's
senior lender, Natwest Bank, N.A. The loan bears interest at 11.75% per annum.
The principal amount of the loan is payable in twelve consecutive quarterly
installments commencing January 1, 1999. In addition, in connection with the
execution and delivery of the Loan and Security agreement, the Company delivered
a Warrant to the fund exercisable for nominal additional consideration, for
354,990 shares of the Company's Common Stock. The warrant is exercisable until
September 30, 2001 and the shares issuable upon exercise of the Warrant are
subject to two demand registration rights on the part of the Fund and piggyback
registration rights. In addition, after October 1, 2000, or upon the occurrence
of certain other events, the Fund has the right to put the Warrant to the
Company on a formula basis. The Warrant was recorded at its relative fair market
value. The corresponding debt discount will be amortized over he life of the
loan on the interest rate method.
-16-
<PAGE>
The Company has a bank revolving credit facility that, in
January 1996, was amended to increase the bank's potential commitment to
$12,000,000 through June 30, 1996 and then to $15,000,000 through October 1997.
The rate of interest on amounts borrowed under the revolving credit facility is
the prime rate of the lending bank plus one-half of one percent. The revolving
credit loan agreement expires on October 31, 1997. Advances under this facility
are initially limited to 80% of eligible accounts receivable, 40% of all
inventory except packaging material, as defined in the agreement. The agreement
contains restrictive covenants, including the maintenance of total debt to
tangible net worth and debt service coverage ratios, minimum levels of tangible
net worth, and capital expenditure limitations. As of September 30, 1996, the
Company is in compliance with these covenants. At June 30, 1996, the Company had
$7,740,000 outstanding under the long-term revolving credit facility.
On March 29, 1996, the Company purchased its Paterson
production facility which it previously had leased financed by a mortgage from
Natwest Bank, N.A. Proceeds of the loan amounted to $1,050,000, of which
$647,000 was used to pay the Company's remaining obligation to the landlord.
Approximately $363,750 is currently held in an escrow account from which the
Company will draw to complete its expansion of a 7,800 square foot refrigerated
storage facility. The five year note which bears interest at 8.51% per annum is
being amortized at a fifteen year rate with a balloon payment of approximately
$840,000 due on March 29, 2001. At June 30, 1996, the Company had obligations of
approximately $1,041,000 under mortgage payable.
In June 1996, the Company completed a public offering for
1,500,000 shares of its $.01 par value common stock of which 1,000,000 shares
were issued by the Company and 500,000 shares were offered by selling
shareholders upon conversion of 500,000 shares of the Company's convertible
preferred stock, at a purchase price of $5.50 per share. Gross proceeds payable
to the Company from the offering was approximately $5,500,000 and net proceeds
to the Company was approximately $4,481,350. The Company received no proceeds
from the shares sold by the selling shareholders.
The Company typically finances equipment purchases through
capital lease financing transactions. At June 30, 1996, the Company had
obligations of approximately $5,640,000 under capital leases, including
approximately $2,156,000 under capital leases entered into in fiscal year 1996.
The increase in lease obligations is due to the capital leases entered into in
connection with the expansion of the Company's production facilities.
-17-
<PAGE>
Management believes that with an increase in its line of
credit facility from $12,000,000 to $15,000,000 the Company has adequate working
capital, including the net cash proceeds of approximately $4,481,000 from the
secondary public offering of the Company's Common Stock, to meet its reasonably
foreseeable cash requirements.
Net cash used by operating activities for the year ended June
30, 1996 was approximately $7,287,000, as compared with approximately $2,062,000
in the prior year. The use of cash in operations was primarily the result of
increases in inventory, and accounts receivable in support of the Company's
increased volume and other assets which were increased due to the payment of a
licensing agreement, which has since been terminated, granting the licensee the
right to manufacture and sell the Company's soft cheese products to the retail
markets, partially offset by net earnings as adjusted for non-cash expenses, and
increases in accounts payable and other accrued liabilities. The cash used in
operations was financed through cash flow from financing activities. Net cash
used in investing activities for the year ended June 30, 1996 was approximately
$1,607,000 as compared with $538,000 (which includes approximately $532,000 from
the sale of excess production equipment) in the prior year. This increase is a
result of continued expenditures for fixed assets (including capital equipment
utilized in the Company's California manufacturing facility). As a result, at
June 30, 1996, the Company had cash of $528,865, as compared to $494,160 for the
prior year.
As of September 5, 1996, the Company has made additional
commitments for capital expenditures of approximately $2,400,000 under five-year
capital leases.
Foreign Currency
The Company is subject to various risks inherent in dependence
on foreign sources of supply, including economic or political instability,
shipping delays, fluctuations in foreign currency exchange rates, custom duties
and import quotas and other trade restrictions, all of which could have a
significant impact on the Company's ability to obtain supplies and deliver
finished products on a timely and competitive basis. The Company has no material
hedged monetary assets, liabilities or commitments denominated in currencies
other than the United States dollar.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data of the Company
are included following Part IV of this report.
-18-
<PAGE>
Item 9. Changes in and Disclosure with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
The information called for by this Item will be reported in
the Company's definitive Proxy Statement for the annual meeting of shareholders
to be held in November 1996 which will be filed on or before October 28, 1996
and is incorporated herein by reference.
Item 11. Executive Compensation
The information called for by this Item will be reported in
the Company's definitive Proxy Statement for the annual meeting of shareholders
to be held in November 1996 which will be filed on or before October 28, 1996
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information called for by this Item will be reported in
the Company's definitive Proxy Statement for the annual meeting of shareholders
to be held in November 1996 which will be filed on or before October 28, 1996
and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by this Item will be reported in
the Company's definitive Proxy Statement for the annual meeting of shareholders
to be held in November 1996 which will be filed on or before October 28, 1996
and is incorporated herein by reference.
-19-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Certified Public Accountants F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets - June 30, 1996 and 1995 F-3
Consolidated Statements of Earnings - For the
Years Ended June 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity -
For the Years Ended June 30, 1996, 1995
and 1994 F-5
Consolidated Statements of Cash Flows - For the
Years Ended June 30, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7 - F-16
(a) 2. Financial Statement Schedules Page
----------------------------- ----
Report of Independent Certified Public Accountants
on Supplemental Schedules F-17
Schedule VIII - Valuation and Qualifying Accounts
and Reserves - For the Years Ended June 30,
1996, 1995 and 1994 F-18
-20-
<PAGE>
(a) 3. Exhibits
3. Articles of Incorporation and By-Laws
3.1 Certificate of Incorporation, as amended*
3.2 By-laws of the Registrant*
3.3 Amendment to Certificate of Incorporation.
10. Material Contracts
4.1 Rights Agreement, dated as of March 6, 1996,
between the Company and Continental Stock
Transfer & Trust Company**
10.1 Stock Option Plan*
10.2 Lease, Option and Assignment to Purchase the
Company's Paterson, New Jersey facility and
amendment thereto.*
10.3 Employment Agreement by and between the
Company and Mark Cocchiola.*
10.4 Employment Agreement by and between the
Company and Paul Lauriero.*
10.6 Form of Equipment Lease dated March 16, 1993
by and between the Company and Gramercy
Leasing Services, Inc.***
10.11 Revolving Loan, Guaranty and Security
Agreement by and among the Company, Suprema
Specialties West, Inc. and National
Westminister Bank NJ dated as of February 15,
1994, as amended****
10.14 Form of Equipment Lease between the Company
and BLT Leasing Corp. dated December 28,
1992.*****
10.16 Amendment to Lease and Purchase Agreement,
dated October 4, 1994 between East 35th
Street Associates and the Company.*****
10.17 Loan and Security Agreement among CoreStates,
Enterprise and the Company and Suprema
Specialties West, Inc. dated October 25,
1995.****
- --------
* Incorporated by reference to the registrant's registration statement on
Form S-18, SEC File No. 33-39076-NY
** Incorporated by reference to the registrant's registration Report on Form
8-K dated March 18, 1996.
*** Incorporated by refrence to the registrant's Annual Report on Form 10-K
for the year ended June 30, 1992.
**** Incorporated by reference to the registrant's Report on Form 10-Q for the
quarter ended December 31, 1995.
***** Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended June 30, 1993.
******Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended June 30, 1994.
-21-
<PAGE>
10.18 Lease between Cape Vincent Milk Producers
Cooperative, Inc., Marble City Bulk Milk
Producers Cooperative, Inc., Northern New
York Bulk Milk Producers Cooperative, Inc.,
Seaway Bulk Milk Producers Cooperative Inc.,
and the Company, dated May 21, 1996.
21. Subsidiaries of the Registrant
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SUPREMA SPECIALTIES, INC.
By:___________________________
Mark Cocchiola, President
Dated: September __, 1996
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.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
_____________________ Chairman of the Board, September __, 1996
Mark Cocchiola President, Chief
Executive Officer and
Director (Principal
Executive Officer)
_____________________ Executive Vice September __, 1996
Paul Lauriero President and Director
_____________________ Chief Financial September __, 1996
Steven Venechanos Officer, and
Secretary
_____________________ Director September __, 1996
Marco Cocchiola
_____________________ Director September __, 1996
Rudolph Acosta
_____________________ Director September __, 1996
Paul DeSocio
_____________________ Director September __, 1996
Michael Golden
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SUPREMA SPECIALTIES, INC.
By: /s/ Mark Cocchiola
-----------------------------
Mark Cocchiola, President
Dated: September , 1996
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.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Mark Cocchiola Chairman of the Board, September , 1996
- ------------------ President, Chief
Mark Cocchiola Executive Officer and
Director (Principal
Executive Officer)
/s/ Paul Lauriero Executive Vice September , 1996
- ------------------ President and Director
Paul Lauriero
/s/ Steven Venechanos Chief Financial September , 1996
- --------------------- Officer and
Steven Venechanos Secretary
/s/ Marco Cocchiola Director September , 1996
- ----------------------
Marco Cocchiola
/s/ Rudolph Acosta Director September , 1996
- ----------------------
Rudolph Acosta
/s/ Paul DeSocio Director September , 1996
- ----------------------
Paul DeSocio
/s/ Michael Golden Director September , 1996
- ----------------------
Michael Golden
</TABLE>
-24-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets - June 30, 1996 and 1995 F-2
Consolidated Statements of Earnings -
For the Years Ended June 30, 1996, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity -
For the Years Ended June 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows -
For the Years Ended June 30, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 - F-16
(a) 2. Financial Statement Schedules
-----------------------------
Report of Independent Certified Public Accountants on
Supplemental Schedule F-17
Schedule II - Valuation and Qualifying Accounts and
Reserves - For the Years Ended June 30, 1996,
1995 and 1994 F-18
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc. and Subsidiary
Paterson, New Jersey
We have audited the accompanying consolidated balance sheets of Suprema
Specialties, Inc. and Subsidiary, as of June 30, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Suprema Specialties,
Inc. and Subsidiary as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 2, during the year ended June 30, 1994 Suprema Specialties,
Inc. and Subsidiary changed their method of accounting for income taxes.
BDO Seidman, LLP
Woodbridge, New Jersey
August 15, 1996
F-1
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------------------
1996 1995
---- ----
ASSETS
Current:
<S> <C> <C>
Cash $ 528,865 $ 494,160
Accounts receivable, net of allowances of
$508,290 and $380,300 at June 30, 1996
and 1995, respectively 8,805,801 5,350,823
Inventories 16,901,355 10,352,976
Current portion of notes receivable - 300,000
Prepaid expenses and other current assets 1,954,589 1,353,558
Deferred income taxes 183,548 328,000
-------- ----------
TOTAL CURRENT ASSETS 28,374,158 18,179,517
PROPERTY, PLANT AND EQUIPMENT, net 11,444,496 8,536,195
NOTES RECEIVABLE - 337,500
OTHER ASSETS 1,843,905 158,967
---------- -----------
$41,662,559 $27,212,179
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable $ 6,504,476 $ 4,740,486
Current portion of capital leases 1,562,953 1,318,109
Mortgage payable - current 36,588 -
Income taxes payable 244,413 535,732
Accrued expenses and other
current liabilities 569,502 341,532
Deferred income taxes 82,154 35,000
------- -------
TOTAL CURRENT LIABILITIES 9,000,086 6,970,859
DEFERRED INCOME TAXES 522,133 436,000
DEFERRED INCOME - 412,500
REVOLVING CREDIT LOAN 7,740,000 7,700,000
SUBORDINATED DEBT 4,061,468 -
LONG-TERM CAPITAL LEASES 4,077,386 4,291,648
MORTGAGE PAYABLE 1,004,745 -
---------- -----------
26,405,818 19,811,007
----------- -----------
WARRANTS (subject to mandatory redemption) 1,171,000 -
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable, convertible preferred stock, $.01 par value, 2,500,000 shares
authorized, 0 and 500,000 issued and outstanding at June 30,
1996 and 1995, respectively - 1,108,977
Common stock, $.01 par value, 10,000,000
shares authorized, 4,300,193 and
2,450,000 shares issued and outstanding at
June 30, 1996 and 1995, respectively 43,002 24,500
Additional paid-in capital 10,163,537 3,651,528
Retained earnings 3,879,202 2,616,167
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 14,085,741 7,401,172
----------- ----------
$41,662,559 $27,212,179
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $65,103,914 $52,109,014 $31,996,150
Cost of sales 51,358,460 40,350,333 24,801,481
----------- ----------- -----------
Gross margin 13,745,454 11,758,681 7,194,669
----------- ----------- ----------
Expenses:
Selling and shipping expenses 8,125,052 8,133,382 4,459,621
General and administrative expenses 1,807,275 1,910,899 1,599,616
---------- ---------- ----------
9,932,327 10,044,281 6,059,237
---------- ----------- ----------
Income from operations 3,813,127 1,714,400 1,135,432
Other income (expense):
Interest - net (1,812,342) (690,026) (433,494)
Other 412,500 520,165 37,500
---------- ----------- ----------
(1,399,842) (169,861) (395,994)
---------- ----------- ----------
Earnings before income taxes 2,413,285 1,544,539 739,438
Income taxes 1,004,000 633,000 235,000
---------- -------- --------
Earnings before cumulative effect of
accounting change 1,409,285 911,539 504,438
Cumulative effect of accounting change - - 75,000
---------- ----------- ----------
Net earnings $1,409,285 $ 911,539 $ 429,438
========== ========= =========
Preferred Stock Dividends (146,250) (150,000) -
Net earnings applicable to common stock 1,263,035 761,539 429,438
Earnings per share applicable to common
stockholders before cumulative effect of
accounting change $ .40 $ .32 $ .23
Cumulative effect of accounting change per share - - .03
---------- ----------- ----------
Net earnings per share applicable to common
stockholders $ .40 $ .32 $ .20
========== ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING USED
TO COMPUTE NET EARNINGS PER SHARE $ 3,195,358 2,369,093 2,191,113
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Additional
Preferred stock Common stock paid-in Retained
Shares Amount Shares Amount capital earnings
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 ......... -- $ -- 2,150,000 $ 21,500 $ 2,866,650 $ 1,425,190
Issuance of shares in
satisfaction of
trade payables .............. -- -- 100,000 1,000 202,878 --
Net proceeds from
preferred stock ............. 89,468 199,171 -- -- -- --
Net earnings ................... -- -- -- -- -- 429,438
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1994 ......... 89,468 199,171 2,250,000 22,500 3,069,528 1,854,628
Issuance of shares in
satisfaction of
trade payables .............. -- -- 200,000 2,000 582,000 --
Net proceeds from
preferred stock ............. 410,532 909,806 -- -- -- --
Dividends on
preferred stock ............. -- -- -- -- -- (150,000)
Net earnings ................... -- -- -- -- -- 911,539
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1995 ......... 500,000 1,108,977 2,450,000 24,500 3,651,528 2,616,167
Issuance of shares on
conversion of
marketing service
agreements .................. -- -- 306,900 3,070 937,114 --
Issuance of shares on
cashless exercise
of warrants ................. -- -- 43,293 432 (432) --
Dividends on
preferred stock ............. -- -- -- -- -- (146,250)
Net proceeds from
shares issued
during secondary
offering .................... -- -- 1,000,000 10,000 4,471,350 --
Conversion of Series
"A" convertible
preferred stock
into common stock ........... (500,000) (1,108,977) 500,000 5,000 1,103,977 --
Net earnings ................... -- -- -- -- -- 1,409,285
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1996 ......... -- -- 4,300,193 $ 43,002 $ 10,163,537 $ 3,879,202
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,409,285 $ 911,539 $ 429,438
Adjustments to reconcile net earnings to
net cash used in operating activities:
Other income (412,500) (150,000) (37,500)
Depreciation and amortization 1,086,949 485,452 394,259
Provision for doubtful accounts 82,030 680,500 30,500
(Gain) loss on disposal of property and equipment - (370,608) -
Deferred income taxes 301,000 (268,000) (122,000)
(Increase) decrease in assets:
Accounts receivable (3,537,008) (1,378,275) (900,097)
Other receivables - - 400,000
Inventories (6,548,379) (4,567,988) (2,783,076)
Prepaid expenses and other current assets 124,788 (259,880) (551,941)
Prepaid income taxes - - 59,780
Due from officers - - 2,670
Other assets (1,470,571) 43,812 (38,031)
Increase (decrease) in liabilities:
Accounts payable 1,763,990 2,351,973 459,692
Income taxes payable (291,319) 276,469 317,263
Accrued expenses and other current
liabilities 204,690 183,198 (35,106)
---------- ---------- ----------
Net cash used in operating activities (7,287,045) (2,061,808) (2,374,149)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - 531,679 -
Payments for purchase of
property and equipment (1,606,755) (1,070,062) (205,356)
---------- ---------- ----------
Net cash used in investing activities (1,606,755) (538,383) (205,356)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan 18,175,000 3,775,000 5,450,000
Repayment of revolving credit loan (18,135,000) (1,525,000) (3,100,000)
Proceeds from subordinated loan 5,000,000 - -
Proceeds from mortgage 1,050,000 - -
Proceeds from secondary offering 4,481,350 - -
Principal payments of mortgage (8,667) - -
Principal payments of capital leases (2,125,428) (808,595) (567,146)
Proceeds from note receivable 637,500 337,500 600,000
Payment of preferred dividend (146,250) (150,000) -
Proceeds from preferred stock - 1,036,600 268,400
-- ---------- --------
Net cash provided by financing activities 8,928,505 2,665,505 2,651,254
---------- ---------- ----------
NET INCREASE IN CASH 34,705 65,314 71,749
CASH, beginning of period 494,160 428,846 357,097
-------- -------- --------
CASH, end of period $ 528,865 $ 494,160 $ 428,846
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized of $51,996
in 1996, $253,000 in 1995 and $0 in 1994) $1,900,630 $ 744,797 $ 467,207
Income taxes 1,019,439 693,817 93,489
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases 2,156,010 4,769,609 439,661
Satisfaction of accounts payable through the
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
issuance of common stock - 584,000 203,878
Decrease in prepaid expenses related to place-
ment of preferred stock - 161,685 -
Decrease in accrued expenses related to place-
ment of preferred stock - 34,338 -
Issuance of common stock upon conversion of
marketing service agreements 940,184 - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS DESCRIPTION
Suprema Specialties, Inc., a New York corporation incorporated on August 15,
1983 and its subsidiary (the "Company") manufactures, processes and markets a
variety of premium, gourmet natural cheese products.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the financial statements of
Suprema Specialties, Inc. and its wholly-owned subsidiary, Suprema Specialties
West, Inc. All intercompany transactions and balances have been eliminated in
consolidation.
Inventory
Inventories are valued at the lower of cost (determined by the first-in,
first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is being provided
by use of the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the shorter of the
term of the lease, including renewal options, or the useful lives of the assets.
Equipment under capitalized leases is being amortized over the useful lives of
the assets.
Product Introduction Costs
Certain product introduction costs, included in prepaid expenses and other
current assets, are capitalized and amortized over the stated program period,
generally ranging from one to twelve months.
Advertising Cost
The Company expenses advertising costs as incurred and cooperative advertising
costs when related revenue is recognized. Advertising costs amounted to
$3,431,408, $2,662,000 and $950,000 in 1996, 1995 and 1994, respectively.
Income Taxes
Effective July 1, 1993, the Company adopted SFAS No. 109 and as such, recorded a
net tax charge of $75,000 or $.03 per share, which amount represents the net
increase to the deferred tax liability as of that date. 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. Such amount has been reflected in
the consolidated statement of earnings as the cumulative effect of an accounting
change.
F-7
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Effect of New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting For
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of."
The Company believes that this pronouncement will not have a material impact on
the Company's results of operations and financial condition. In October 1995,
the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation." The
Company is currently studying SFAS No. 123, but does not currently plan to adopt
the fair value based method of accounting for stock options or similar equity
instruments. Accordingly, the adoption of SFAS No. 123 is not expected to have a
material impact on the Company's results of operations or financial condition.
NOTE 3 - INVENTORIES
Inventories consist of the following:
June 30,
--------------------------------
1996 1995
---------- -----------
Raw materials $ 2,497,204 $ 2,695,134
Finished goods 13,582,636 7,101,025
Packaging 821,515 556,817
-------- --------
$16,901,355 $10,352,976
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
June 30,
--------------------------------
1996 1995
---------- -----------
Property and plant $ 936,370 $ 936,370
Equipment 10,257,875 5,285,497
Leasehold improvements 839,589 812,936
Furniture and fixtures 357,757 345,829
Delivery equipment 48,179 48,179
Construction in progress 1,875,931 3,124,109
---------- ----------
14,315,701 10,552,920
Less: Accumulated depreciation and
amortization 2,871,205 2,016,725
---------- ----------
F-8
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$11,444,496 $ 8,536,195
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT (continued)
Included in property, plant and equipment are plant and equipment acquired under
capital leases with an initial cost of $9,409,403 and $8,053,393 and accumulated
amortization of $1,914,210 and $1,421,531 as of June 30, 1996 and 1995,
respectively.
NOTE 5 - NOTES RECEIVABLE
On March 1, 1993, the Company entered into an agreement with an unrelated third
party (the "Licensee"), licensing the right to manufacture, market, sell and
distribute the Company's retail soft cheese product line. The Company received a
non-refundable fee of $1,250,000, payable in installments over a fifteen year
period, commencing April 1, 1993. In addition, the Company was to receive
royalty payments in years three through fifteen, based on specified sales
levels. On October 5, 1993, the notes received in connection with the sale of
the license and the royalty stream were sold for $500,000 in cash and $450,000
in notes to an unrelated third party (the "Purchaser"). These notes, at an
interest rate of prime plus 1 1/2%, were payable in twelve equal quarterly
installments beginning December 31, 1993. The sale of the license was included
as other income in the statement of earnings for the year ended June 30, 1993.
The balance of the notes receivable at June 30, 1995 was $187,500. In December
1995, this note was collected in full.
In the third quarter of fiscal 1994, the Company was advised that the Licensee
was discontinuing production of the retail soft cheese product line. As a result
the Purchaser acquired the Licensee's rights and assumed the obligations under
the March 1, 1993 license agreement. During the fourth quarter of fiscal 1994
the Company reached an agreement in principle to sub-license the rights to
produce the retail soft cheese products from the Purchaser over a four year
period commencing July 1, 1994 in exchange for a royalty based on specified
sales levels of the related products. As an inducement to have the Company enter
into the sub-license arrangement the Purchaser promised to pay the Company
$600,000 in equal quarterly installments over four years evidenced by a 6%
promissory note effective April 1, 1994 in an equal amount. The note receivable
and deferred income were reflected in the accompanying balance sheets and the
related deferred income was being amortized on a straight-line basis over the
term of the agreement. The balance of the notes receivable and deferred income
at June 30, 1995 were $450,000 and $412,500, respectively. In December 1995, the
agreement was terminated, the notes were paid in full and the associated income
was recognized.
NOTE 6 - MARKETING SERVICE AGREEMENTS
The Company entered into marketing service agreements with unaffiliated third
parties expiring at various dates through June 1998, pursuant to which the
Company was provided with certain marketing and program support services,
including the payment of advertising promotional expenditures by such parties
(no amounts were provided during 1994 through 1996) in exchange for commissions
based on Company sales of specified products. The Company was required to pay
these commissions without any set-off, notwithstanding any termination of the
agreements. In addition, two of the agreements provided that after an initial
period (as defined in the agreements) under certain conditions, the Company or
the providers of the marketing services have the
F-9
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
right to convert some or all of the remaining estimated commissions to common
stock of the Company at the market price at the time of conversion. Such
conversion right was limited to no more than 10% and 2 1/2%, as specified in
each of the agreements, of the Company's common stock issued and outstanding at
the time of the conversion. For the years ended June 30, 1996, 1995 and 1994,
commission expenses related to the marketing agree-ments, were approximately
$598,100, $743,500 and $730,000, respectively.
NOTE 6 - MARKETING SERVICE AGREEMENTS (continued)
On August 14, 1995, two of these providers informed the Company they were
exercising their conversion feature in the agreements. As a result, the Company
issued 306,900 shares of common stock in September 1995. The shares were
recorded at approximate fair value at the date the notice of conversion was
received. The corresponding amount has been reflected in other assets and is
being amortized over the remaining term of the related agreements, as the
applicable sales revenue is recorded.
During fiscal 1994 the Company made payments under the marketing services
agreements leading to a prepaid position of $430,000 which is included in other
current assets. The balance at June 30, 1995 amounted to $622,500. In December
1995, an additional $300,000 was prepaid as final settlement of the remaining
agreements. This amount will be charged to expense over the remaining three
years of the related agreements as the applicable sales revenue is recorded. In
connection with the amendment of two of its Marketing Service Agreements the
Company granted warrants to purchase 50,000 shares of the Company's common stock
in September 1994. The warrants are exercisable at $3.00 per share and terminate
on June 30, 1998.
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
June 30,
-------------------------------------------
1996 1995 1994
---------- --------- ---------
Current taxes:
Federal $ 555,000 $ 698,000 $ 348,000
State 148,000 203,000 84,000
-------- -------- -------
703,000 901,000 432,000
Deferred taxes 301,000 (268,000) (197,000)
-------- --------- ---------
$1,004,000 $ 633,000 $ 235,000
========== ========= =========
The following reconciles income taxes at the U.S. statutory rate to the
provision for income taxes:
June 30,
----------------------------------
1996 1995 1994
--------- --------- ---------
Computed tax expense at statutory rates $ 821,000 $525,000 $243,000
State taxes, net of federal tax benefit 109,000 97,000 44,000
Net operating loss carryforward - - (61,000)
Travel and entertainment expenses not
deductible 67,000 8,000 6,000
F-10
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Officers life insurance not deductible 7,000 3,000 3,000
---------- -------- --------
$1,004,000 $633,000 $235,000
========== ======== ========
Deferred income taxes arise from the difference between book and tax accounting
for depreciation, the write-offs of uncollectible accounts receivable and
product introduction costs.
F-11
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES (continued)
The deferred tax liabilities are comprised of the following components as of
June 30, 1996 and 1995:
June 30,
-------------------------------
1996 1995
--------- ---------
Depreciation $ 522,000 $ 436,000
Product introduction costs 82,000 35,000
--------- ---------
604,000 471,000
Accounts receivable reserve (183,000) (328,000)
--------- ---------
$ 421,000 $ 143,000
========= =========
NOTE 8 - LONG-TERM DEBT
Revolving Credit Loan
In January 1996, the long-term revolving credit facility (the "Facility")
between the Company and a bank was amended to increase the line for up to
$12,000,000 through June 30, 1996 and then to $15,000,000 through October 31,
1997. The rate of interest on amounts borrowed under the Facility is the prime
rate of the lending bank plus 1/2 of 1% (8 3/4% as of June 30, 1996). The
Facility is colla-teralized by all existing and acquired assets of the Company,
as defined in the Facility agreement, and is guaranteed by Suprema Specialties
West, Inc. In connection with obtaining the Facility, the Company paid a $5,000
origination fee, and has agreed to pay a commitment fee on the average daily
unused portion of the Facility, equal to 1/4 of 1% per annum. Advances under
this Facility are limited to 85% of eligible accounts receivable, 50% of all
inventory except packaging material, and 30% of packaging material, as defined
in the Facility agreement. The Facility agreement contains three restrictive
financial covenants, including the maintenance of specified total debt to net
worth ratios, minimum levels of tangible net worth, and debt service coverage
ratios, as defined and a restriction on dividends to common shareholders. As of
June 30, 1996, the Company was in compliance with these covenants.
At June 30, 1996, the Company had approximately $4,260,000 available for
borrowing under the Facility.
Subordinated Debt Facility
In October 1995, the Company entered into a Loan and Security Agreement with
CoreStates Enterprise Fund (the "Fund"), a division of CoreStates Bank, N.A.,
pursuant to which the Fund loaned $5,000,000 to the Company. The loan is secured
by a subordinated security interest in substantially all of the assets of the
Company. The loan is subordinated to the loan of the Company's senior lender,
Natwest Bank, N.A. The loan bears interest at 11 3/4% per annum. The principal
amount of the loan is payable in 12 consecutive quarterly installments
commencing September 30, 1998. In addition, in connection with the execution and
delivery of the Loan Agreement, the Company delivered a Warrant to the Fund
exercisable for nominal additional consideration for 354,990 shares of the
Company's Common Stock. The Warrant is exercisable until September 30, 2001 and
the shares issuable upon exercise of the Warrant are
F-12
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
subject to two demand registration rights on the part of the Fund and piggyback
registration rights. In addition, after October 1, 2000, or upon the occurrence
of certain other rights, the Fund has the right to put the Warrant to the
Company on a formula basis. The Warrant was recorded at its relative fair value
at date of issue, $1,100,000. The corresponding debt discount will be amortized
over the life of the loan on the interest rate method. At June 30, 1996, the
value of the put option was $1,400,000. The difference between this calculated
value and the recorded value is being accreted over the life of the put option.
Mortgage Payable
On March 29, 1996, the Company purchased its Paterson production facility which
it previously had leased. The purchase was financed through a mortgage on the
property. Proceeds of the loan were $1,050,000, of which $686,250 was used to
pay the remaining obligation to the landlord. The balance of the proceeds,
$363,750 is currently held in an escrow account (included in other assets on the
balance sheet) from which the Company will draw to complete its expansion of a
7,800 square foot refrigerated storage facility. The five year note which bears
interest at 8.51% per annum is being amortized at a fifteen year rate and
requires a balloon payment at the end of year five of approximately $840,000.
Principal payments on long-term debt over the next five years and thereafter are
as follows:
1997 $ 36,588
1998 8,613,208
1999 1,710,124
2000 1,714,028
2001 1,707,385
-----------
Total principal payments 13,781,333
Less: Discount on suborinated debt 938,532
-----------
$12,842,801
===========
The fair value of the long-term debt and capital leases approximates the
recorded value based on borrowing rates currently available for loans with
similar terms and maturities.
NOTE 9 - CAPITAL LEASES
There are various equipment and furniture and fixtures financed under capital
leases. These leases have interest rates ranging from 6.7% to 11.5%. At June 30,
1996, the Company's future minimum lease payments under capital leases are as
follows:
1997 $2,110,510
1998 1,767,851
1999 1,691,260
2000 992,232
2001 188,588
Thereafter 161,699
--------
Total minimum lease payments 6,912,140
Less: amount representing interest 1,271,801
----------
Present value of minimum lease payments 5,640,339
F-13
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Less: current portion 1,562,953
----------
Long-term portion of capital leases $4,077,386
==========
NOTE 10 - LEASE COMMITMENTS
The Company rents warehouse space and certain equipment under lease arrangements
classified as operating leases. The lease for the production facilities in
Manteca, which was renewed in December 1994, expires 10 years from the date of
completion of construction of each segment of the facility with two five year
renewal options. Rent expense was $731,875, $362,703 and $214,703 for the years
ended June 30, 1996, 1995 and 1994, respectively. Future minimum rental payments
under non-cancelable operating leases are: 1997 - $540,698; 1998 - $614,814;
1999 - $777,871; 2000 - $807,517; 2001 - $807,517 and thereafter - $3,230,068.
NOTE 11 - STOCKHOLDERS' EQUITY
Stock Issuance
In March 1994, the Company issued 100,000 shares of its $0.01 par value common
stock to a supplier. The net proceeds from the sale of these shares, which
amounted to $203,878, were used in partial satisfaction of the accounts payable
due to the supplier.
In December 1994, the Company issued 200,000 shares of its $0.01 par value,
common stock to a supplier. The net proceeds from the sale of these shares,
which amounted to $584,000, were used in partial satisfaction of the accounts
payable due to the supplier.
In June 1996, the Company completed a public offering for 1,500,000 shares of
its $.01 par value common stock of which 1,000,000 shares were issued by the
company and 500,000 shares were offered by selling shareholders upon conversion
of 500,000 shares of the Company's convertible preferred stock at a purchase
price of $5.50 per share. Net proceeds from the offering was approximately
$4,481,350. The Company received no proceeds from the shares issued during the
offering from those shares offered by the selling shareholders.
Issuance of Preferred Stock
In August 1994 the Company completed a private placement of 500,000 shares of
Series A convertible preferred stock (the "Preferred Stock") for gross proceeds
of $1,500,000 or $3.00 per share. Costs and expenses related to the offering
totalled $391,023 of which $156,423 was incurred and included in prepaid
expenses as of June 30, 1994. Each share of Preferred Stock was convertible into
one share of common stock at any time prior to redemption at a conversion price
of $3.00 per share. The Preferred Stock was redeemable at the Company's option
any time after the first anniversary of the closing provided the daily average
of the high and low price of the Company's common stock equals or exceeds $5 per
share for 10 consecutive days. Such redemption would be at $3.00 per share plus
accrued and unpaid dividends. Quarterly dividends were payable in cash which
commenced September 30, 1994 at an annual dividend rate of 10% and are
cumulative.
As of June 30, 1994 the Company received gross proceeds from the private
placement of $268,400 on subscriptions for 89,468 shares which was presented as
a component of stockholders' equity in the accompanying financial
F-14
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements, net of a proportional amount of related expenses totalling $69,229.
The remaining proceeds amounting to $909,806 for 410,532 shares was received in
July and August 1994 net of related expenses totaling $321,794.
In June 1996, these shares were converted into common stock.
NOTE 11 - STOCKHOLDERS' EQUITY (continued)
Stock Option Plan
On February 11, 1991, the Company adopted the 1991 Stock Option Plan (the
"Plan") pursuant to which officers, directors and key employees of the Company
are eligible to receive incentive and/or non-qualified stock options. The Plan,
which expires in February 2001, is administered by the board of directors. The
selection of participants, allotment of shares, determination of price and other
conditions of the grant of options is determined by the board at its sole
discretion in order to attract and retain persons instrumental to the success of
the Company. Incentive stock options granted under the Plan are exercisable for
a period of up to ten years from the date of grant at an exercise price which is
not less than the fair market value of the common stock on the date of grant,
except that the term of an incentive stock option granted under the Plan to a
shareholder owning more than 10% of the outstanding common stock may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the common stock on the date of the grant.
In November 1995, the Company amended this 1991 Stock Option Plan (the "Plan")
to increase the maximum number of shares as to which options may be granted
under the Plan from 350,000 to 450,000. Stock option transactions under the Plan
are summarized as follows:
Number of Option price
shares per share
------ ---------
Outstanding at June 30, 1993 110,000 $2.750 - $4.125
Granted 78,500 $2.375 - $5.625
Forfeited (80,000) $2.750 - $4.125
Exercised -
-------
Outstanding at June 30, 1994 108,500 $2.375 - $5.625
Granted 154,000 $2.500 - $3.250
Forfeited (13,500) $2.375 - $5.625
Exercised -------
--
Outstanding at June 30, 1995 249,000 $2.375 - $5.625
Granted 105,000 $4.250 - $5.500
Forfeited (8,000) $3.060 - $3.060
Exercised -
-------
Outstanding at June 30, 1996 346,000
At June 30, 1996, options to acquire 182,339 shares of common stock were
exercisable at a price of $2.38 - $5.63 per share.
At June 30, 1995, options to acquire 190,000 shares of common stock were
exercisable at a price of $3.06 - $3.50 per share.
Warrants
F-15
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with entering into a consulting agreement with the investment
banker which acted as sales agent for the private placement of Preferred Stock
discussed above, on April 28, 1994 and June 30, 1994, the investment banker was
granted two warrants to purchase 45,000 and 40,000 shares, respectively, of the
Company's $0.01 par value common stock. Each warrant terminates 5 years from its
issue date, and carries a $3.00 exercise price.
NOTE 11 - STOCKHOLDERS' EQUITY (continued)
As of June 30, 1994 and 1993, a total of 260,000 and 175,000 warrants,
respectively, have been issued to unaffiliated parties at exercise prices
ranging from $3.00 to $5.08 per share. At June 30, 1996, these warrants are
exercisable at prices ranging from $3.00 to $5.08 per share.
As discussed in Notes 6 and 8, in September 1994 and October 1995, the Company
granted warrants to purchase 50,000 and 354,990 shares of common stock
exercisable at $3.00 and $.01 per share through June 30, 1998 and September
2001, respectively.
NOTE 12 - EARNINGS PER SHARE
The earnings per share were computed by dividing the net earnings applicable to
common stockholders by the weighted average number of shares outstanding during
each period. Fully diluted earnings per share computations have not been
disclosed because the effect is antidilutive.
The earnings per share computation for the year ended June 30, 1994 was based
upon 2,150,000 shares outstanding at the beginning of the year, plus 100,000
shares arising from the issuance of common stock in partial satisfaction of a
trade payable, and includes the assumed conversion of all outstanding options
and warrants using the treasury stock method.
The earnings per share computation for the year ended June 30, 1995 was based
upon 2,250,000 shares outstanding at the beginning of the year, plus 200,000
shares arising from the issuance of common stock in partial satisfaction of a
trade payable and includes the assumed conversion of all outstanding options and
warrants using the treasury stock method.
The earnings per share computation for the year ended June 30, 1996 was based
upon the 2,450,000 shares outstanding at the beginning of the year plus a
proration of the 306,900 shares issued in connection with the conversion of the
two marketing service agreements, a proration of 43,293 shares issued in
connection with the cashless option exercise pertaining to underwriters warrants
and a proration of 1,500,000 shares issued in the Company's secondary public
offering.
F-16
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - OTHER COMMITMENTS
On November 21, 1994, the board of directors of the Company revised and extended
the President and Executive Vice President employment agreement through June 30,
1997. Each agreement provides for an annual salary of $250,000, subject to a
cost of living increase, and an annual bonus equal to 5% of the Company's
pre-tax profits in excess of $650,000. Both of the employment agreements provide
for employment on a full-time basis and contain a provision that the employee
will not compete with the Company during the term of his employment or for a
period of one year following termination by either party for any reason. Both
agreements also provide that if the employee's employment is terminated under
certain circumstances, including a change of control, the employee will be
entitled to receive severance pay equal to the highest of (i) $250,000 ($450,000
in the event of a change of control) or (ii) the total compensation received
from the Company during the one-year period (three-year period in the event of a
change of control) prior to the date of termination. For the years ended June
30, 1996 and 1995, the President and Executive Vice President waived the annual
bonus.
F-17
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the 1996, 1995
and 1994 fiscal years (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales 14,899 15,329 16,302 18,574
Gross profit 3,160 3,063 3,662 3,861
Income from operations 678 775 1,123 1,237
Net Earnings 257 431 367 355
Net earnings per share .08 .13 .10 .09
1995
Net sales 12,058 13,671 13,331 13,049
Gross profit 2,397 3,119 3,016 3,227
Income from operations 434 277 358 645
Net Earnings 194 212 234 272
Net earnings per share .07 .08 .08 .09
</TABLE>
NOTE 15 - CONCENTRATION OF CREDIT RISK
The Company provides credit to customers on an unsecured basis after evaluating
customer credit worthiness. Since the Company sells to a broad range of
customers concentrations of credit risk are very limited. The Company also
provides a reserve for bad debts for accounts receivable where there is a
possibility for loss.
The Company maintains demand deposits with major banks. At June 30, 1996 and
1995, approximately 98% of the Company's cash was held in one major bank.
F-18
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - MAJOR CUSTOMER
During the fiscal year ended June 30, 1996, the Company had sales to two major
customers of $8,394,000 and 7,982,000 representing approximately 13% and 12% of
net sales, respectively.
During the fiscal year ended June 30, 1995 and 1994, the Company had sales to
different major customers of $6,117,000 and $3,501,000 representing
approximately 12% and 11% of net sales, respectively.
NOTE 17 - SUBSEQUENT EVENT
Subsequent to year end the Company has entered into agreements for the capital
lease of equipment in connection with further improvements in their Manteca
facility. Through August 1996, such leases involve commitments of $2,400,000,
which will be recorded as capital lease obligations with corresponding additions
to property and equipment. Annual payments under these leases total
approximately $162,000.
On July 2, 1996 the underwriter of the Company's secondary public offering
elected to exercise its over allotment of 225,000 shares of the Company's .01
par value common stock. Net proceeds received from the issuance amounted to
$1,089,000.
F-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc. and Subsidiary
Paterson, New Jersey
The audits referred to in our report dated August 15, 1996 relating to the
consolidated financial statements of Suprema Specialties, Inc. and Subsidiary,
which is contained in Item 8 of this Form 10-K, included the audits of the June
30, 1996, 1995 and 1994 financial statement schedule listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Woodbridge, New Jersey
August 15, 1996
F-20
<PAGE>
Schedule II
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Balance @ Charged to Charged to Balance
Beginning of Costs and Other @ End of
Description Period Expenses (1) Accounts Deductions (2) Period
- --------------------------- ----------------- -------------- -------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Accounts receivable
allowance $227,000 $ 30,500 $- $117,000 $140,500
YEAR ENDED JUNE 30, 1995
Accounts receivable
allowance 140,500 680,500 - 440,710 380,290
YEAR ENDED JUNE 30, 1996
Accounts receivable
allowance 380,290 128,000 - -- 508,290
</TABLE>
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
F-21
<PAGE>
September 18, 1996
Redstone Securities, Inc.
101 Fairchild Avenue
Plainview, New York 11803
Re: Registration of Shares of Common Stock
Dear Sirs:
This letter is to confirm that the undersigned agree that, for good and
valuable consideration the receipt of which is hereby acknowledged, they will
not, for a period of one year from the date hereof, without the prior written
consent of Redstone Securities, Inc., register more than 10% of the shares of
common stock of Synergistic Holdings Corp. which are owned by each of Salvatore
Crimi, the Salvatore Crimi Family Limited Partnership, Jeffrey Dickson, Richard
Morgan and Pershing Sun; provided further that each of the undersigned will not
sell any shares permitted to be registered hereunder for a period of 90 days
from the date hereof.
____________________________ ____________________________
Jeffrey Dickson Salvatore Crimi
____________________________ ____________________________
Pershing Sun Richard Morgan
THE SALVATORE CRIMI FAMILY LIMITED PARTNERSHIP
By: ___________________________________
Name:
Title:
LEASE AGREEMENT
THIS AGREEMENT is made and entered into this 21st day Of May, 1996, by and
between CAPE VINCENT MILK PRODUCERS COOPERATIVE, INC., a New York cooperative
corporation having its principal place of business at Cape Vincent, New York,
MARBLE CITY BULK MILK PRODUCERS COOPERATIVE, INC., a New York cooperative
corporation having its principal place of business at Gouverneur, New York,
NORTHERN NEW YORK BULK MILK PRODUCERS COOPERATIVE, INC., a New York cooperative
corporation having its principal place of business at Canton, New York, SEAWAY
BULK MILK PRODUCERS COOPERATIVE, INC., a New York cooperative corporation having
its principal place of business at Madrid, New York (hereinafter collectively-
referred to as "Lessor"), and SUPREMA SPECIALTIES, INC, a New York corporation
having its principal place of business at Paterson, New Jersey (hereinafter
referred to as "Lessee").
W I T N E S S E T H
WHEREAS, Lessor is the owner of certain improved real property and personal
property located in Ogdensburg, New York (hereinafter referred to as "Property")
as described in the legal description annexed hereto as Exhibit "A" and as shown
in the site plan annexed hereto as Exhibit "B"; and
WHEREAS, Lessee desires to lease the Property provided Lessee is able to
obtain an assured continuous supply of whole milk. As an inducement to enter
into this lease, Lessee and Allied Federated Co-ops, Inc. ("Allied") will
<PAGE>
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enter into a milk supply agreement (Lessee's Milk Supply Agreement). Lessor is a
member of Allied. Lessee shall be making commitments to its customers for the
sale of cheese and other products produced by Lessee at the Property. A failure
of Allied to deliver the volumes of whole milk required by Lessee in the
operation of the Property would be a detriment to Lessee. Lessor is willing and
able to lease the Property to Lessee, and Lessee is willing to occupy the
Property, all upon the terms, covenants and conditions in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and other good and valuable consideration, the Lessor and
Lessee covenant and agree as follows:
I. LEASE OF PROPERTY
A. Lessor hereby leases to Lessee, and Lessee hereby takes and hires
from Lessor, the Property, consisting of land, buildings and equipment known as
the Ogdensburg Milk Plant. A list of personal property comprising the Property
are attached hereto as an Exhibits C and made a part hereof.
B. Lessee acknowledges and agrees that it has had the right to inspect
the building and equipment and that it is satisfied with the condition of the
building and equipment. Lessee acknowledges and agrees that, except as expressly
set forth in this lease, it takes the Property in "as is" condition as of the
commencement of the term hereof.
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II. TERM
This lease and the obligations of Lessee hereunder shall not become
effective until such time as all of the following conditions have been
satisfied:
(a) Lessee shall have received
(i) a milk dealer's license from the State of New York
Department of Agriculture and Markets, and
(ii) all necessary permits and licenses for lessee to
operate a cheese manufacturing plant at Ogdensberg, New York; and
(iii) Written consent to this lease and to the Milk Supply
Agreement by NatWest Bank, and
(iv) Written results acceptable to Lessee in its sole
discretion from engineers/consultants retained by Lessee relating
to environmental factors affecting the Property (including, but
not limited to, sewer discharge) and physical condition of the
Property (including, but not limited to, equipment and personal
property); and
(v) Evidence satisfactory to Lessee in its sole discretion
that Lessor has unencumbered fee title to the portion of the
Property designated as "Old Canal" on Exhibit B, or acceptance by
Lessee in its sole discretion of Property of Lessor demised in
lieu of said O1d Canal; and
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(vi) Title report and/or policy and survey of the Property
acceptable to Lessee in its sole discretion indicating that title
to the Property is subject only to such exceptions as may be
acceptable to Lessee and which otherwise confirms the legal
description of the Property; and
(vii) Approval of this Lease by Lessee's Board of Directors.
Lessee may waive any of the above conditions (if Allied not
working.)
(b) Lessee shall have entered into a Milk Supply Agreement
satisfactory to it with Allied. All these contingencies are to be met by July 1,
1996.
The term of this lease shall consist of a " short term" and a "long
term".
The short term shall commence on the satisfaction of the above
conditions and expire at 11:50 p.m. on July 31, 1997. At the expiration of the
short term, Lessee may elect to extend the term to the long term.
The long term shall commence at 12:01 a.m. August 1, 1997 and expire
at 11:50 p.m. July 31, 2017. However, at each five year anniversary; that is, on
July 31, 2002; July 31, 2007; and July 31, 2012 Lessee may elect to terminate
the lease (and the term thereof). If Lessee elects to terminate the lease on an
anniversary date, it shall give at least 60 days written notice to Lessor of
such intent.
<PAGE>
-5-
III. RENT
A. Lessee covenants and agrees to pay as rent, all real estate taxes
and assessments, water and sewer and sanitary service charges, all operating
expenses, structural as well as nonstructural repairs and maintenance (other
than ordinary wear and tear and insured losses or a taking (or sale under threat
of) by eminent domain), insurance premiums and other expenses and obligations of
every name and nature in connection with or allocable to the Property, whether
ordinary or extraordinary, whether foreseeable or not, which may arise or become
due during, and are applicable to and for, the Term of this Lease, excepting
only any Federal or New York State or local income, franchise, transfer or
corporation taxes payab1e on the income of the Lessor or ground lease or
mortgage payments and any increases in real estate taxes attributable to a sale
or financing of the Property . In the event any taxes or assessments are levied
against the 1eased Property which may be payable in installlments, the Lessee
may request the taxing authority to list such assessments on the tax rolls in
the maximum installments permitted by law. The Lessee shall be responsible only
for those installments accruing during the term of this lease, fractional years
(if any) to be prorated accordingly. The Lessor shall promptly deliver to the
Lessee any and all tax statements, communications, notices or assessments which
it may receive relating to the Property. Lessee shall pay such expenses
<PAGE>
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directly; provided that if Lessee fails to do so after thirty (30) days written
notice from Lessor, Lessor may, unless Lessee in good faith is disputing the
same, pay such expenses as they are incurred and bill them to Lessee monthly,
whereupon Lessee shall make prompt remittance of the full amount of such
expenses to Lessor. Lessor shall pay all taxes for the period prior to the
commencement of this Lease, failing which Lessee may pay the same and offset the
amount paid against the rent due Lessor.
B. The Lessee shall have the right to contest the legality, amount, or
validity of any of the taxes, assessments or other impositions herein provided
to be paid by it, and/or may elect to pay the same over the maximum period
allowed by law, but no such contest shall be carried on or maintained by it
after the time limited for the payment of any such taxes, assessment or other
impositions unless the Lessee, at its option, (i) shall pay the amount involved
under protest; or (ii) shall procure and maintain a stay of all proceedings to
enforce any collection of such taxes, assessments or other impositions, together
with all penalties, interest, costs and expenses, or (iii) by a deposit of a
sufficient sum of money or (iv) by such undertaking as may be required or
permitted by law to accomplish such stay. In the event any such contest is made
by the Lessee, then within thirty (30) days after any final determination
thereof, it shall fully pay and discharge the amount involved in or
<PAGE>
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affected by any such contest, together with all penalties, fines, interest,
costs or expenses that may have accrued thereon or that may result from any such
action by the Lessee, whereupon all amounts (if any) deposited by the Lessee in
accordance with the provisions hereof shall be returned to the Lessee.
C. Lessee expressly acknowledges that the purpose and intent of the
parties to this Lease is that, except as expressly set forth in this lease, the
payments due to Lessor under subparagraph A and B of this paragraph III shall be
absolutely net to it.
D. As indicated in this Lease, the Lessee shall enter into a separate
Milk Supply Agreement with Allied. Pursuant to that Milk Supply Agreement,
Lessee shall pay to Lessor an amount equal to Six Cents ($.06) per hunderweight
of whole milk sold and delivered during the term of the Lease to Lessee at the
property by the Northco Division of Allied. There shall be a minimum monthly
payment (called Minimum Rent) of Four Thousand Dollars ($4,000.00) per month
regardless of the amount of milk delivered unless Allied is in default under the
Milk Supply Agreement. The maximum monthly payment which Lessee shall be
obligated to pay under this calculation is Eight Thousand Dollars ($8,000.00)
per month. The monthly rental payment shall be paid to Lessor by the 1st day of
the month following delivery of the milk. The rental payment for the first month
shall be in the amount of Four Thousand Dollars ($4,000.00) and shall be due
when Lessee takes pos-
<PAGE>
-8-
session. Succeeding months rent shall be based on the previous month's milk
volume. Lessor shall bill Lessee for each month's rent.
E. The term "Rent" as hereinafter used shall mean and include all of
the amount payable by Lessee under subparagraphs A, B, and D of this
Paragraph-III.
IV. USE AND SUBLETTING
A. Lessee represents and covenants to Lessor that it shall use the
Property for the operation of a milk plant, and ancillary functions related
thereto, and for any other lawful purpose.
B. Lessee shall not make or permit any waste in, to or about the
Property. Lessee may make any additions, alteration, or improvements to the
Property without the prior written consent of Lessor, except, however, the
consent of the Lessor shall be required for structural changes or demolition of
any material part of the Property, which consent on the part of Lessor shall not
be unreasonably withheld or delayed.
C. Lessee covenants and agrees to comply with all laws, ordinances,
rules and regulations of all governmental authorities or agencies, to the extent
that the same are applicable to the Property and to the manner of business
conducted thereupon by Lessee, and are attributable to a period during the term.
D. The Property may be sublet by Lessee in whole or in part and this
Lease may be assigned by Lessee without
<PAGE>
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prior written consent of Lessor. Any such subletting or assignment shall be
expressly subject to all the terms, covenants, and conditions of this Agreement
and shall not release and/or discharge Lessee from any of its obligations
hereunder, except that Lessee shall be released from all obligations upon
assignment to a subsidiary or wholly owned corporation provided that Suprema
Specalities, Inc. shall guarantee that upon termination or surrender of the
Lease the premises shall be delivered (environmentally and otherwise) in the
condition required by the Lease.
V. INSURANCE AND PROPERTY
A. Lessee covenants and agrees that it will, during the term hereof,
obtain and maintain at its sole cost and expense fire and extended coverage
insurance on the property in an amount not less than $5,000,000.00, together
with such other coverages as Lessee generally maintains for like property owned
or leased by it. Both Lessor and Lessee shall be named as insured that in case
of loss or damage the proceeds shall be paid to Lessee to be held and disbursed
as provided in paragraph VIII. The Lessee shall furnish to the Lessor
certificates or other evidence indicating that such insurance is in effect. In
the event of any loss or damage to the Property by fire or any other perils
insured customarily under extended coverage portions of fire insurance policies,
regardless of the cause thereof, and whether or not the same be caused by the
carelessness or negligence of the Lessee or Lessor, the insurance carrier shall
not have any
<PAGE>
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right of subrogation over against the Lessee or Lessor, for any such damage or
loss so sustained. Lessee shall have the sole right to adjust any claims with
such insurers .
B. Lessee further covenants and agrees that it will, during the term
hereof, obtain and maintain at its sole cost and expense one or more policies of
comprehensive general liability insurance, naming Lessor (as an additional
insured) and Lessee (as the insured) in an amount of at least $7,000,000.00.
C. Lessee further covenants and agrees that it will, during the Term
hereof, obtain and maintain at its sole cost and expense, insurance against the
loss of or damage to, or destruction of, any personal property belonging to
Lessor and located upon the Property (including, without limitation, any raw
materials or inventory of Lessor.
D. With respect to the insurance coverages specified in subparagraphs
A, B and C above, such coverages may be a part of Lessee's master blanket or
umbrella policies and Lessee shall cause the insurance carrier(s) to issue a
Certificate of Insurance to Lessor, naming Lessor as an additional insured, and
requiring such insurance carrier to give Lessor ten (10) days of written notice
of any cancellation of such insurance coverage.
VI. LIABILITY OF LESSOR
Lessor shall not be liable for any loss of property from the Property
or from any building or structure thereon, or for damage to persons or property
caused or resulting from
<PAGE>
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falling plaster, or from the roof, or from any other part of any building or
structure on the Property, or from the pipes, appliances, equipment or plumbing
works of the same, or from the street or subsurface or from any other place, or
caused by operations in construction of any public or quasi-public work, or from
any cause whatever, neither shall Lessor be liable for interference with light
or other incorporeal hereditaments by anybody other than Lessor, or for any
defects whatsoever in any equipment, building or structure on the Property, and
the Lessor shall not be liable for any damage caused to the boiler or to any
other machinery that may be in the Property, or for any interruption in Lessee's
business resulting from the same. The provisions of this paragraph shall not
apply to any loss or damage incurred by the Lessor due to the acts or omissions
of Lessor, its agents, servants or employees.
VII . INDEMNITY BY LESSEE
Lessee shall indemnify and keep and hold Lessor harmless from and
against any and all damages, costs, expenses (including, without limitation,
reasonable legal fees), and liabilities for anything and everything whatsoever
arising out of the occupancy of the Property by, or under, Lessee, Lessee's
agents or employees, and from any loss or damage arising from any acts of or
negligence by Lessee. The provisions of this paragraph shall not apply to any
loss or damage incurred by the Lessor due to the acts or omissions of
<PAGE>
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Lessor, it agents, servants or employees, or resulting from a condition which
existed prior to the commencement of the term.
VIII. FIRE
In the event that the Property shall be damaged or destroyed by fire
or other insured casualty or insured hazard at any time during the Term hereof,
Lessee shall forthwith cause the damage to be repaired or the equipment or
building to be reconstructed with all reasonable dispatch to the extent of
insurance proceeds received by it. Lessee shall be entitled to all insurance
proceeds from any insurance carriers and be entitled to obtain from Lessor (if
not received by Lessee directly from any insurance carriers) any sum received as
insurance proceeds for such damage, as and if it is paid over to Lessor. Any
surplus proceeds of insurance remaining after reconstruction shall be paid to
Lessee. In the event substantially all or a portion of the Property is destroyed
such that the Property cannot be used by the Lessee in the ordinary course of
its business, Lessee may elect to terminate this Lease.
IX . CONDEMNATION
A. If all of the Property shall be taken for any public or
quasi-public purpose under any statute or by right of eminent domain or by
private purchase in lieu thereof, all compensation awarded or paid shall be
apportioned between the parties hereto by agreement, or if they are unable to so
<PAGE>
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agree, all of such compensation awarded or paid shall be the property of Lessor
and Lessee, respectively, in accordance with the laws of the State of New York;
provided, however, all such compensation relating to Lessee's property and trade
fixtures and reasonable relocation expenses and the unamortized portion of
leasehold improvements by Lessee shall belong and be paid over to Lessee.
B. If less than all of the Property shall be taken for any public or
quasi-public purpose under any statute or by right of eminent domain or by
private purchase in lieu thereof, the Lessee shall have the right to terminate
this lease if the Property remaining is such that its continued use for the
purpose for which the same was being used immediately prior to such taking is,
in the sole judgment of Lessee, reasonably impractical or economically
imprudent. Termination shall be as of the date possession is taken or noticed by
the condemnor. The option to terminate herein granted shall be exercised in
writing by the Lessee within sixty (60) days after the later of the date of the
taking of possession by the condemnor or the date set forth in the notice. In
such event, the compensation award shall belong to the Lessor and the Lessee in
accordance with the laws of New York; provided, however, all such compensation
relating to Lessee's property and trade fixtures and reasonable relocation
expenses and the unamortized portion of the leasehold improvements by the Lessee
shall belong and be paid to
<PAGE>
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Lessee. If this lease is not terminated, the Lessor shall, with reasonable
diligence, restore the Property unaffected by the taking, but shall not be
obligated to spend for such restoration any amount in excess of the amount
awarded or paid to it by the condemnor for such purpose. Rent shall abate
during the period of restoration effective from the date possession is taken
through the date the property is restored. Any compensation award not expended
by Lessor for restoration shall become the sole and exclusive Property of the
Lessor except for compensation relating to Lessee's property, trade fixtures and
the unamortized portion of the leasehold improvements made by the Lessee.
X. TRADE FIXTURES
A. The Lessee may during the Term of this Lease install such fixtures,
equipment, appliances and other items of personal property ("Trade Fixtures") as
may be reasonably necessary for the conduct of its business upon the Property
and Lessor shall have no interest, charge or lien thereon.
B. The aforesaid Trade Fixtures may be affixed to the property and the
Lessee may remove the same at will. All damages incurred to the Property as a
result of any affixation or removal hereunder shall be promptly repaired by and
at the sole cost and expense of the Lessee.
C. The term "Trade Fixtures" as used in this paragraph shall mean that
personal property of the Lessee which is installed by the Lessee but does not
constitute any
<PAGE>
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property listed in Exhibit C or any replacements of property listed on Exhibit
C.
XI. EVENTS OF DEFAULT
A. Each of the following shall be deemed a default by Lessee and a
breach on its part of this Lease:
(i)(a) the filing of a petition by or against Lessee for
adjudication as a bankrupt or for a reorganization within the meaning
of the bankruptcy act, or the filing of a petition by or against
Lessee under any future bankruptcy act for the same or similar relief;
(b) the dissolution or the commencement of any action or
proceeding for the dissolution or liquidation of Lessee (other than a
liquidation or dissolution in connection with a sale or disposition of
all or substantially all of its assets or a merger with or into
another corporation), whether instituted by or against Lessee, or for
the appointment of a receiver or trustee of the property of Lessee;
(c) the taking possession of the property of Lessee by any
governmental officer or agency pursuant to statutory authority for the
dissolution or liquidation of Lessee;
(d) the making by Lessee of an assignment for the benefit of
creditors.
<PAGE>
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If either (a), (b), or (c) above shall be involuntary on the part
of Lessee, the event in question shall not be deemed a default within the
meaning of this Lease if removed or cured by Lessee within ninety (90) days.
(ii)(a) a default in the payment of the Rent reserved herein, or
any part thereof, for a period of ten (10) days, provided, however,
that Lessor shall give Lessee written notice by certified mail, return
receipt requested, of any such default, and Lessee shall have ten (10)
days following its receipt of such notice to remedy or cure such
default, and
(b) a default in the performance on Lessee's part of any other
term, covenant or condition of this Lease on Lessee's part to be
performed, for a period of thirty (30) days after service, by
certified mail, return receipt requested, of notice thereof by Lessor
on Lessee unless such default is of such a character as to require
more than thirty (30) days to cure and the Lessee uses due diligence
to cure the same;
B. In the event of any such default by Lessee not cured as above
provided, and at any time thereafter, Lessor may serve written notice by
certified mail, return receipt requested, upon Lessee that Lessor elects to
terminate this Lease upon a specified date not less than thirty (30) days
<PAGE>
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after the date of the serving of such notice, and this Lease shall then expire
on the date so specified with the same force and effect as if the date had
originally been fixed as the expiration date of the Term granted herein. No
faults shall be deemed waived unless in writing and signed by Lessor, except
that a default under subparagraph (ii) of to subparagraph shall be deemed waived
if such default is cured within the times specified in subparagraph (ii).
C. In the event that this Lease shall be terminated as hereinabove
provided, or by summary proceedings or otherwise, or in the event that the
Property, or any substantial part thereof, shall be abandoned by Lessee, during
the Term hereof, then, unless the monthly installments of Minimum Rent (as
called for in paragraph IIID) are being paid:
(i) Lessor, or its agents, servants or representatives, may
immediately or at any time thereafter re-enter and resume possession
of the Property or such part thereof, and remove all persons and
property therefrom, either by summary dispossess proceedings or by
suitable action or proceeding at law, or by force or otherwise,
without being liable for any damages therefor, with no such re-entry
by Lessor to be deemed an acceptance of a surrender of this Lease; and
(ii) Lessor may, in its own name but as agent for Lessee if
the Lease be not terminated, or
<PAGE>
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if the Lease be terminated, then on its own behalf, relet the whole or
any part of the Property for any period equal to or greater or less
than the remainder of the then current five year portion of the Term
of this Lease, for any sum which it may deem reasonable, to any
lessee which it may deem suitable and satisfactory and for any use and
purpose which it may deem appropriate. However, subject to
subparagraph D below, in no event shall Lessor be under any obligation
to relet the Property for any purpose other than that specified in
this Lease, or to any lessee which Lessor in the exercise of
reasonable discretion shall deem objectonable. Lessor shall not in
any event be required to pay Lessee any surplus of any sums received
by Lessor on a reletting of the Property in excess of the Rent
reserved under this Lease, but Lessee shall be liable to Lessor for
any deficiency which from time to time may remain and shall pay said
amount or amounts as said deficiencies occur.
D. It is the intention of the parties that if Lessee defaults under
the terms of this paragraph that Lessee shall pay the Minimum Rent until the end
of the then current five year period or until the Property has been relet as
provided above, whichever event is sooner. Lessor shall use its best efforts to
mitigate damages and relet the premises for use as a cheese making facility.
<PAGE>
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XII. MECHANIC'S LIEN
In the event a notice of mechanic's lien shall be filed against the
Property for, or purporting to be for, work, labor, and services, or materials
furnished or alleged to have been furnished to Lessee during the term, Lessee
covenants and agrees that it will within sixty (60) days after receiving notice
thereof either pay the same or procure the discharge thereof by giving security
or in such other manner as may be permitted by law, or deposit adequate security
if such lien is to be contested by Lessee. In default thereof ( unless such
asserted mechanic's lien is being contested as provided above), Lessor may cause
the same to be paid, discharged or cancelled and the amount so paid by Lessor,
together with interest thereon, shall become due and payable by Lessee as
additional rent with the next installment of rent which shall become due after
the date of such payment of Lessor. Likewise if Lessee shall pay to discharge
any liens attributable to the period of time prior to the Term, then such amount
shall be an offset against the rent.
XIII. ABATEMENT OF RENT
Except as otherwise provided in this Lease Agreement, in the event
that the Property, or any part thereof, shall be damaged, destroyed or injured
by fire, casualty, the elements or any other cause, the Minimum Rent as recited
in paragraph IIID shall be paid as herein provided, without any claim on
Lessee's part for any reduction, abatement or diminution whatsoever.
<PAGE>
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XIV. EXPENDITURES BY LESSOR TO BE ADDITIONAL RENT
If, after giving Lessee notice as provided in Paragraph XI(A)(ii)(b)
supra, Lessor shall pay any sum of money or do any act which shall require the
expenditure of any sums by reason of the failure of Lessee to perform any of the
terms, covenants and conditions of this Lease, Lessee covenants and agrees to
repay such sums to Lessor immediately upon demand, and in default thereof, the
sum so paid by Lessor, together with interest thereon, may be added as
additional rent becoming due on the next rent payment day or any subsequent rent
day. Nothing contained herein shall be construed to postpone the right of
Lessor, immediately upon expending such sums, to collect such sums with interest
by action or otherwise. Likewise, if Lessee, after giving notice to Lessor in a
similar manner, shall pay any sum by reason of Lessor's failure to abide by the
terms of the Lease, such sum may be offset against the rent due by Lessee.
XV. QUIET ENJOYMENT
The Lessor hereby warrants and covenants that it has good and
marketable title to the Property and has full authority to execute this Lease,
free of any rights, claims or demands of any nature of third parties. Lessor
covenants and agrees that so long as Lessee pays the Rent reserved hereunder and
performs and complies with all the terms, covenants and conditions on its part
to be performed and complied with hereunder, Lessee shall and may peaceably
have, hold and enjoy the Property for the Term hereof.
<PAGE>
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XVI. INSPECTION BY LESSOR
Lessor shall, at all reasonable times during normal business hours
upon reasonable advance written notice, have access to the Property in the
presence of an authorized representative of Lessee for the purpose of examining
and inspecting the same, subject to reasonable rules and regulations imposed by
Lessee and provided Lessee's operations are not interfered with.
XVI I . SURRENDER
Lessee covenants and agrees that, upon the expiration of the Term
hereof in accordance with the provisions herein, it shall surrender the Property
along with any additions or improvements thereto other than Lessee's property or
Trade Fixtures, to Lessor in as good condition as it was at the commencement of
the Term hereof, normal wear and tear and damage by fire, casualty, the elements
or any of the insured hazards excepted. It is the intention of the parties that
upon the expiration or termination of the Lease that the building and equipment
shall be left in a condition with normal wear and tear such that without further
expenditure on the part of the Lessor, Lessor would be able to process the same
amount of milk as had been processed by Lessee upon commencement of the initial
Lease. (250,000 pounds of milk per 8 hour period). It is the intention of the
parties that Lessee be allowed to remove only Trade Fixtures and property
installed in addition to and not in substitution for the property listed in
Exhibit C.
<PAGE>
-21A-
XVIII . HOLDOVER
In the event that Lessee shall continue to occupy the Property after
the expiration of the Term hereof, or after a forfeiture incurred, whether such
occupancy is with or against the consent of Lessor, such tenancy shall be from
<PAGE>
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month-to-month and in no event from year-to-year or from term-to-term. Any such
month-to-month tenancy shall be under and subject to all other terms, covenants
and conditions contained in this Agreement.
XIX. SUBORDINATION; MORTGAGE LIMITATIONS
Lessor represents that the Property is not encumbered by any mortgages
or liens.
At the Lessor's option, this Lease squall be subordinated to any new
mortgages which may be placed on the Property from time to time, provided,
however, anything to the contrary contained herein notwithstanding every such
mortgagee and assignee thereof shall inform and substance acceptable to Lessee
recognize the validity of this Lease and Lessee's rights and Lessor's
obligations under this Lease and shall not disturb Lessee's occupancy of the
Property in the event of a foreclosure of the Lessor's interest or otherwise as
long as the Lessee shall not after notice and the expiration of any applicable
grace period, be in default under any of the terms of this Lease.
XX. COVENANTS AND REPRESENTATIONS OF LESSOR AND LESSEE
Each party represents and warrants to the other that it is a
corporation duly organized, validly existing and in good standing under the laws
of their respective States of incorporation and has all requisite corporate
power and authority to own and operate its property, to carry on its business as
now conducted, to enter into this Agreement and
<PAGE>
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to carry out the terms hereof; and that the entering into of this Agreement and
the carrying out of the terms hereof will not result in a violation of or
constitute a default under any agreement, statute, regulation or order or rights
or valid claims of third parties.
XXI. TERMINATION BY LESSEE
Lessee may at its option terminate this Agreement at any time upon
sixty (60) days written notice to Lessor: (a) if Lessee's Milk Supply Agreement
between Lessee and Allied is terminated for any reason or if Allied fails to
supply adequate quantities of milk or otherwise defaults thereunder or (b) if
Lessee is unable by operation of law or otherwise to engage in the manufacture
of cheese or other products Lessee manufactures in the normal course of its
business or (c) Lessee's milk dealer's license is terminated or not renewed;
provided, however, that Lessee shall not be entitled to exercise such option to
terminate if it intentionally or through its negligence in matters under its
reasonable control causes its inability to engage in the manufacture of cheese
or other products as noted in this sentence.
XXII. DISPOSITION OF PROPERTY
A. Lessee shall have the right to remove personal property comprising
part of that property listed in Exhibit C to other of its manufacturing plants
and shall have the further right to sell or dispose of any portion of that
property
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listed in Exhibit C which Lessee determines is not required for its operation,
provided that (i) Lessee shall notify Lessor prior to such removal or sale and
shall obtain Lessor's written consent to such removal or sale and (ii) Lessee
shall notify Lessor of the net proceeds from any such sales or dispositions and
(iii) Lessee shall pall over such net proceeds to Lessor at expiration or
termination of this Lease.
XXIII. NOTICES
All notices or other communications shall be in writing, and shall be
deemed to have been duly given on the date of personal delivery to an officer of
the other party or three days after the date of deposit in the United States
mails, if sent by registered mail, postage prepaid, addressed as follows:
1. If to Lessor:
c/o Allied Federated Co-ops, Inc.
49 Jamison Road
Canton, NY 13617
2. If to Lessee:
Suprema, Inc.,
510 East 35th Street
P.O. Box 280
Park Station
Paterson, NJ 07543-0280
with a copy to Tenzer Greenblatt LlP
405 Lexington Ave
New York, NY 10174
ATTN: Martin Luskin, Esq.
Either party may change its address by written notice to the other.
Notices or other communications made or
<PAGE>
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given to one of the Lessors shall be deemed to have been given to all Lessors.
In lieu of United States mail, notices may be given by a recognized overnight
courier service.
XXIV. INTERPRETATION
This Agreement shall be construed in accordance with and interpreted
under the laws of the State of New York.
XXV. ENTIRE AGREEMENT
This Agreement supersedes all prior agreements, whether oral or
written, between the parties with respect to the subject matter herein and
constitutes the entire agreement of the parties.
XXVI. AMENDMENT
This agreement shall not be changed, modified, or amended, except by
written instrument of like formality and effect, subscribed to by both of the
parties hereto.
XXVII. BINDING EFFECT
This Agreement is intended to, and shall, bind the parties hereto,
their legal representatives and successors.
XXVIII. WAIVER
The waiver by the parties hereto of any term, covenant, agreement, or
condition contained in this Agreement shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant, agreement, or
condition contained in this Agreement, nor shall any custom or practice which
may be established between the parties hereto in the administration of the terms
of this Agreement
<PAGE>
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be construed to waive or lessen the right of the parties to insist on the
performance by the other in strict accordance with the terms of this Agreement.
XXIX. ENVIRONMENTAL COVENANTS
A. Subject to the provisions of Articles XXIX (H) and XXXI Lessee will
at all times comply with, and will not violate in connection with the ownership,
use, maintenance or operation of the premises and the conduct of the business
related thereto, any applicable federal, state, county, or local statutes, laws,
regulations, rules, ordinances, codes, licenses and permits of any governmental
authorities relating to environmental matters, including without limitation (i)
the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Resource
Conservation and Recovery Act of 1976, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, (and any amendments or extensions
thereof), and the Toxic Substances Control Act, and (ii) all other applicable
environmental requirements.
B. Without limiting the generality of the above, and subject to the
representations and covenants of the Lessor and paragraph H and Article XXXI
hereof, Lessee (i) will operate the premises and will at all times receive,
handle, use, store, treat and dispose of all hazardous or toxic substances,
petroleum products and waste in strict compliance with all applicable
environmental, health or safety statutes, ordinances, orders, rules, regulations
or
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- -27-
requirements and (ii) wi11 remove from and off the premises all hazardous or
toxic substances, petroleum products and waste contamination.
C. Subject to Articles XXIX (H) and XXXI Lessee will not cause any
hazardous or toxic materials, substances, pollutants or contaminants to be
released into the environment, or deposited, discharged, placed or disposed of
at, or near, the premises.
D. Lessee shall not install any underground petroleum storage tanks on
the premises without the express written consent of the Lessor which consent is
not to be unreasonably withheld or delayed. If Lessor permits Lessee to install
any underground petroleum storage tanks on the premises, Lessee will comply with
all then applicable requirements of the Department of Environmental Conservation
("DEC") to regulate and monitor such tanks.
E. Lessee will, immediately upon receipt of notice of any violation of
any of the matters referred to in (A) through (D) above relating to the premises
or its use, deliver a copy of same to Lessor.
F. Lessee expressly acknowledges and agrees that it will reimburse,
defend, indemnify and hold Lessor harmless from and against any and all
liabilities, claims, damages, penalties, expenditures, losses or charges
(including but not limited to, all costs of investigation, monitoring, legal
fees, remedial response, removal, restoration or permit
<PAGE>
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acquisition) which may now or in the future, be undertaken, suffered, paid,
awarded, assessed, or otherwise incurred as a result of:
(i) any contamination existing on, above or under the premises at any
time during the term of the Lease; caused by Lessee (and not by Lessor or its
predecessors or other occupants );
(ii) any investigation, monitoring, cleanup, removal, restoration,
remedial response or remedial work undertaken on the premises by or on behalf of
Lessee at any time during the term of the Lease if caused by Lessee (and not by
Lessor or its predecessors or other occupants).
G. Lessee acknowledges and agrees that the termination, or expiration
of the Lease shall not relieve or release Lessee of any legal liability and
responsibility Lessee would otherwise have as the user of the premises whether
by way of damages, penalties, remedial actions or otherwise for any adverse
effects or consequences resulting at any time from any contamination existing
on, above or under the premises identified during or after the term of the Lease
and caused by Lessee or Lessee's agents.
H. Notwithstanding the foregoing provisions of this Article, Lessee
shall not be responsible for the presence, removal or treatment, or required to
take any other action, or to incur any costs or expenses or indemnify Lessor
with respect to any materials installed by Lessor (or by any
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occupant prior to Lessee) in the Premises which are deemed, either at the time
of installation or at any time thereafter to be hazardous or toxic. It is
understood and agreed that Lessee's sole obligation under this Article shall be
with respect to hazardous or toxic materials which are installed or otherwise
brought on the Premises by Lessee or anyone acting, on Lessee's behalf. As to
this subparagraph only, Lessor shall hold Lessee harmless in the same manner as
described in paragraph XXIXF above for any claims or loss suffered by Lessee
(including legal fees, monitoring costs and remediation expenses) for
contamination caused by Lessor, its agents, their predecessors or other
occupants of the Property or by reason of any misrepresentation made in Article
XXXI relating to hazardous or toxic materials or substances or oil or petroleum
products or other wastes.
XXX. REPAIRS AND MAINTENANCE
A. The Lessee shall, at its own expense, make all necessary repairs
and replacements to the Property and to the pipes, heating system, plumbing
system, window glass, fixtures and all other appliances and their appurtenances,
all equipment used in connection with the Property, and the sidewalks, curbs and
vaults appurtenant to the Property. Such repairs and replacements, interior and
exterior, ordinary as well as extraordinary, and structural as well as
nonstructural, shall be made promptly, as and when necessary. All
<PAGE>
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repairs and replacements shall be in quality and class at least equal to the
condition at the commencement of the term (reasonable wear and tear excepted).
The Lessee shall also, at its own expense, put and maintain in thorough repair
and in good and safe condition, and free from dirt, snow, ice, rubbish, and
other obstructions or encumbrances, the sidewalks, areas, shoots, railings,
gutters and curbs in front of and adjacent to the leased property. If, during
the short term, Lessee discovers that structural repairs are required at the
Property, Lessee shall have no obligation to make such repairs provided it does
not elect to extend to the long term.
B. Lessee shall take good care of the interior of the Property and the
fixtures and appurtenances therein and shall, at Lessee's sole cost and expense,
make all repairs to preserve the interior of the Property in good working order
and condition. All such repairs, restoration and replacements shall be in
quality and class equal to the condition at the commencement of the term
(reasonable wear and tear excepted) and shall be done in a good and workmanlike
manner. If Lessee fails to make such repairs, restorations, or replacements
within 30 days after notice, the same may be made by Lessor at the expense of
the Lessee and all reasonable expenses so incurred by Lessor shall be
collectible as additional rent and shall be paid by Lessee within 30 days after
rendition of a statement to Lessee.
<PAGE>
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XXXI. MISCELLANEOUS
A. Lessor's Warranties, Covenants and Representations
(a) Lessor warrants, covenants and represents as follows:
(i) Neither the entry into nor the performance of, or compliance with,
this Lease (A) has resulted or will result, in any violation of or (B) is or
will be in conflict with or (C) has resulted, or will result, in the creation of
or (D) constitutes or will constitute a default under any partnership agreement,
mortgage, contract, permit, judgment, decree, order, statute, rule or regulation
application to Lessor, or to the Property.
(ii) No approval, consent, order or authorization of, or designation,
registration or declaration with, any governmental authority is required in
connection with the valid execution and delivery of, and compliance with, this
Lease by Lessor.
(iii) There is no condemnation proceeding pending with regard to all
or part of the Property and, to Lessor's best knowledge, there is no such
proceeding contemplated by any governmental authority.
(iv) All utilities serving the Property will either enter the Property
through adjoining public streets or if they pass through adjoining private land,
will do so in accordance with valid public easements or perpetual private
easements. On the commencement date, all of said utilities
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will be installed and operating and all installation and connection charges will
have been paid for in full.
(v) To Lessor's knowledge, there is no violation by Lessor of any
restriction, condition or agreement contained in any instrument affecting the
Property.
(vi) There are no charges, complaints, actions, proceedings or
investigations pending against or involving Lessor or the Property except a
lawsuit involving Heuvelton whey and the City of Ogdensburg relating to the "Old
Canal" Property. Lessor hereby indemnifies and holds Lessee harmless from and
against all liabilities, claims, and damages (including legal fees) suffered by
or claimed against Lessee in connection with said lawsuit.
(vii) To Lessor's knowledge, no zoning, building or similar law,
ordinance, subdivision plan, order or regulation is or will be violated by the
maintenance, operation or use contemplated by Lessee as of the commencement
date. To Lessor's knowledge, there are no violations of any federal, state or
municipal laws, ordinances, orders, regulations or requirements affecting any
portion of the Property and no written notice of any such violation has been
issued by any governmental authority.
(viii) No assessments or impact fees for public improvements have been
made or charged against the Property which will remain due and unpaid as of the
commencement date including, without limitation, those for street widenings,
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intersection restructuring, construction of traffic signals, sewer, water, gas
and electric lines and mains, streets, roads, sidewalks or curbs nor is any such
assessment, to Lessor's knowledge, pending. Lessor shall be responsible for the
total of any assessment and/or charges that is made against the Property with
respect to such work.
(ix) To Lessor's knowledge, at no time has the Property been used for
the generation, storage or disposal of hazardous substances or waste or as
landfill or as other waste disposal site and Lessor has no knowledge of the
presence of any hazardous waste, substances or contaminants on the Property or
the common area. There are not now any underground storage tanks on the Property
except as specified on the site plan annexed hereto as Exhibit B and any
underground storage tanks previously on the Property have been removed in
accordance with applicable law. The existing tanks comply with all applicable
laws and regulations and are properly registered with any departments or
agencies having jurisdiction and said tanks are in good condition and do not
leak.
(x) To Lessor's knowledge, the Property is in full compliance with all
environmental laws (including laws pertaining to water and waste discharge) and
Lessor shall comply with all such laws relating to the Property. To Lessor's
knowledge, no event has occurred which, the passage of time or the giving of
notice or both, constitute non-compliance
<PAGE>
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with such laws. To Lessor's knowledge, there are no actions, suits, claims or
proceedings relating to a violation or noncompliance with any environmental laws
pending which may affect the Property or with respect to the disposal, discharge
or release of hazardous substances or waste at or from the Property.
(xi) Except as set forth in attached Exhibit D, to Lessor's knowledge
(i) the Property is not within an area defined by the Secretary of Housing and
Urban Development as an area having special flood hazards and (ii) no portion of
the Property constitutes wetlands which requires any special use or development
permit by the United States Army Corp of Engineers or the State of California.
(xii) Lessor represents that the real estate taxes are $69,950.32 for
the current fiscal year.
B. Lessor Defaults. If Lessor shall default in the performance of any
obligation on its part to be performed, or breaches a representation, Lessee may
perform and/or cure same and shall be entitled to recover all sums expended by
it (together with reasonable counsel fees incurred in connection therewith),
plus interest thereon from the date expended until the date repaid [which shall
be two (2) percentage points above the prime commercial lending rate of
Citibank, N.A. charged to its customers of highest credit standing for ninety
(90) day unsecured loans, in effect from time to time but in no event more than
the highest rate of interest which
<PAGE>
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at such time shall be permitted under the laws of the State of New York] and
Lessee may offset any such sums due against rent to be due.
C. Rights of First Refusal
a. Lessor hereby agrees that Lessor shall not sell, transfer or
otherwise dispose of all or part of Lessor's fee interest in the Property until
Lessor shall have (i) obtained a bona-fide written offer from an unrelated third
party and have (ii) informed Lessee of the name and address of the offerer and
(iii) offered to sell, transfer or otherwise dispose of such fee interest to
Lessee at the same price and upon the same terms and conditions contained in
said bona fide offer. If Lessee shall either reject said offer or fail to give
notice of acceptance of the same with thirty (30) days after the date of receipt
of such offer, Lessor's fee interest may, during the one hundred twenty (120)
days thereafter, be sold, transferred or otherwise disposed of to the original
offerer at the same terms and conditions contained in said bona fide offer.
b. If Lessee shall not exercise its right to purchase the offered fee
interest and Lessor shall sell, transfer or otherwise dispose of the fee
interest offered to Lessee within the time frame set forth above, then the right
of first refusal shall be deemed to terminate and be of no further force and
effect, unless Lessor shall not so sell, transfer or otherwise dispose of its
fee interest to the
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original offerer within the aforesaid one hundred twenty (120) day period, in
which event Lessor shall again be obligated to offer its fee interest to Lessee
in accordance with the provisions of subparagraph (a) above. If required by
Lessor to transfer title to the third party, and if requested by Lessor, Lessee
shall immediately deliver to Lessor a written statement acknowledging Lessor's
compliance with the provisions of this subparagraph and Lessee's intention not
to purchase the Property. Such statement shall be in a form suitable for
recording.
D. Waiver of Lessor's Lien. Lessor within ten (10) days after demand
from Lessee, shall and shall cause any mortgage lender to execute and deliver
any document reasonably required by any supplier, lessor or lender in connection
with the installation in the Property of any of Lessee's fixtures or other
personal property or the storage of inventory. Lessor waives any lien, claim,
interest or other right superior to that of the supplier, lessor or lender.
Anything in this Lease to the contrary not withstanding, Lessor hereby waives
its right, if any, to distrain upon or to secure a lien against the inventory or
fixtures of Lessee or Lessee's nonpayment of rent or other default under this
Lease, or otherwise. The waiver provided for in the preceding sentence is
intended to be, and is, automatic and self operating; provided, however, Lessor
agrees that upon Lessee's request, Lessor shall execute such additional
instruments as are
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reasonably requested by Lessee to further evidence and confirm the same. Lessor
shall be entitled to file under the provisions of UCC a financing statement
covering those items listed in Exhibit C and any replacement of such items.
Nothing in this subparagraph shall prevent Lessor from executing against any
property of Lessee if Lessor obtains a judgment against Lessee.
E. Memorandum of Lease. At the request of either party, the parties
shall execute and acknowledge a memorandum of lease for recording purposes,
which shall be recorded at the expense of the requesting party.
F. No Partnership. Nothing herein contained shall be construed as
creating a partnership, joint venture or any other relationship between Lessor
and Lessee, other than that of Lessor and Lessee.
G. Statements by Lessor and Lessee. Each of the parties hereby agrees
at any time and from time to time, upon not less than ten (10) days' prior
written notice, to execute, acknowledge and deliver to the other party, a
statement in writing certifying that (a) this Lease is unmodified and in full
force and effect (or, if there have been modifications, a statement that this
Lease is in full force and effect as modified and stating the modifications),
(b) the dates to which the rent and any other sums payable hereunder have been
paid, (c) whether or not, to the knowledge of such party, there are then
existing any defaults under this Lease
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or any events which, with the giving of notice or the passage of time, or both,
would constitute a default hereunder (and, if so , specifying the same), and
(d) such other information as the other party may reasonably require.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, and their respective
corporate seal to be hereunto affixed the day, month and year first written
above .
CAPE VINCENT MILK PRODUCERS
COOPERATIVE, INC.
BY /s/ Gary E. Mason Pres
-------------------------------
MARBLE CITY BULK MILK
PRODUCERS COOPERATIVES, INC.
BY /s/ Albert Desourneax Pres
-------------------------------
NORTHERN NEW YORK BULK MILK
PRODUCERS COOPERATIVE, INC .
BY /s/ Neil Jordon Pres
-------------------------------
SEAWAY BULK MILK PRODUCERS
COOPERATIVE, INC .
BY /s/ Reginald F. Chester Pres
-------------------------------
SUPREMA SPECIALTIES, INC
BY /s/ Mark Cocchiola
-------------------------------
