As filed with the Securities and Exchange Commission on September 17, 2001
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Suprema Specialties, Inc.
(Exact name of Registrant as specified in its charter)
New York 11-2662625
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
510 East 35th Street
Paterson, New Jersey 07543
(973) 684-2900
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Mark Cocchiola, President
Suprema Specialties, Inc.
510 East 35th Street
Paterson, New Jersey 07543
(973) 684-2900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
Ethan Seer, Esq. Barry M. Abelson, Esq.
Blank Rome Tenzer Greenblatt LLP Pepper Hamilton LLP
405 Lexington Avenue 3000 Two Logan Square
New York, New York 10174 Eighteenth and Arch Streets
Telephone: (212) 885-5000 Philadelphia, PA 19103-2799
Telecopier: (212) 885-5001 Telephone: (215) 981-4000
Telecopier: (215) 981-4750
----------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered (1) Share (2) Price (2) Registration Fee
--------------------------- -------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(3)...... 4,657,500 $13.03 $60,687,225 $15,171.81
</TABLE>
(1) Includes 607,500 shares that the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) based on the average of the high and low sale
prices for the shares of the registrant's common stock as reported on the
Nasdaq National Market on September 10, 2001
(3) This registration statement also registers an indeterminate number of
common stock purchase rights (the "Rights") pursuant to the terms of a
certain Rights Agreement between the registrant and Continental Stock
Transfer and Trust Company, as Rights Agent. Prior to the occurrence of
certain events, the Rights will not be evidenced separately from
the common stock.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the SEC, acting pursuant to said Section
8(a), may determine.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 2001
4,050,000 Shares
SUPREMA SPECIALTIES, INC.
Common Stock
We are selling 3,500,000 shares of common stock, and certain selling
shareholders named in this prospectus are selling 550,000 shares of common
stock. We will not receive any proceeds from the sale of common stock by the
selling shareholders.
Our common stock is quoted on the Nasdaq National Market under the symbol
"CHEZ". On September 10, 2001, the last reported sale price of our common stock
on the Nasdaq National Market was $13.00 per share.
---------------------
Before investing in our common stock you should review the "Risk Factors"
beginning on page 6.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Per Share Total
---------------- ---------------
<S> <C> <C>
Public offering price......................................... $ $
Underwriting discount......................................... $ $
Proceeds to Suprema, before expenses ......................... $ $
Proceeds to selling shareholders ............................. $ $
</TABLE>
The underwriters have an option to purchase up to an additional 357,500 shares
of common stock from us and 250,000 shares of common stock from the selling
shareholders, for a total of 607,500 additional shares, within 30 days from the
date of this prospectus to cover over-allotments.
The underwriters expect to deliver the shares to purchasers on or about , 2001.
---------------------
JANNEY MONTGOMERY SCOTT LLC
The date of this prospectus is ______________, 2001
[Reserved for Artwork]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary................................................................................................1
Risk Factors......................................................................................................4
Forward-Looking Statements.......................................................................................10
Use of Proceeds..................................................................................................11
Price Range of Common Stock......................................................................................12
Dividend Policy..................................................................................................12
Capitalization...................................................................................................13
Selected Consolidated Financial Information......................................................................14
Management's Discussion and Analysis of Financial Condition and Results of Operations............................15
Business.........................................................................................................22
Management.......................................................................................................31
Description of Securities........................................................................................36
Shares Eligible for Future Sale..................................................................................39
Principal and Selling Shareholders...............................................................................41
Underwriting.....................................................................................................45
Legal Matters....................................................................................................47
Experts..........................................................................................................47
Available Information............................................................................................47
Incorporation of Information by Reference........................................................................47
Index to Consolidated Financial Statements......................................................................F-1
</TABLE>
You should rely only on the information contained in this prospectus.
We have not, nor have the selling shareholders or the underwriters, authorized
any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
are not, nor are the selling shareholders or the underwriters, making any offer
to sell these securities in any jurisdiction where the offer and sale is not
permitted. You should assume that the information appearing in this prospectus
is only accurate as of the date on the front of this prospectus. Our business,
financial condition, results of operation and prospects may have changed since
that date.
----------------------
References in this prospectus, and the documents incorporated by
reference in this prospectus, to "Suprema," "we," "our" and "us" refer to
Suprema Specialties, Inc., a New York corporation, and its wholly owned
subsidiaries Suprema Specialties West, Inc., Suprema Specialties Northeast, Inc.
and Suprema Specialties Northwest Inc.
----------------------
Suprema Specialties, Inc. and the names of our products are tradenames
or trademarks of Suprema. This prospectus also contains trademarks and
tradenames of other companies.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering, including "Risk Factors" and our consolidated financial statements and
notes to those statements appearing elsewhere in this prospectus and
incorporated by reference in this prospectus.
Suprema
Suprema Specialties, Inc. manufactures and markets gourmet all natural
Italian cheeses. Our product lines consist primarily of mozzarella, ricotta,
parmesan, romano and provolone cheeses, which we produce domestically, as well
as parmesan and pecorino romano cheeses, which we import. Certain of our
domestically produced cheeses include "lite" and lower fat versions containing
less fat and fewer calories.
We sell our cheeses through all three channels of distribution in the
food industry: foodservice, food ingredient and retail. Over 95% of our revenue
is derived from the foodservice channel, where we market and sell our bulk
cheeses under the Suprema brand name, as well as under private label, to
national and regional foodservice distributors, which in turn sell our cheeses
to restaurants, hotels, caterers and others. We sell our cheeses to food
manufacturers in the food ingredient channel, who use our cheeses as ingredients
in prepared foods, such as frozen pizza and various pasta dishes. In the retail
distribution channel, we sell our cheeses primarily to supermarket chains,
grocery stores, delicatessens and gourmet shops, including Food Town, Shaw's,
Giant, King Kullen, Stop'N Shop and Krogers.
We market our cheeses under the Suprema and Suprema Di Avellino(R)
brand names, and are increasing our efforts to build Suprema as a nationally
recognized cheese brand by, among other things, increasing our use of
promotional material, participating in trade shows and entering into co-branding
relationships. For example, we recently entered into an exclusive agreement with
Sbarro, Inc. to supply all of its whole milk ricotta and grated romano cheese
needs to its over 800 restaurants in North America. As part of this agreement,
Suprema will have its name and logo displayed within Sbarro stores.
We have experienced significant growth in recent years. Net sales,
income from operations and net earnings grew at compound annual rates of 57.2%,
51.9% and 84.8%, respectively, from the fiscal year ended June 30, 1998 through
the fiscal year ended June 30, 2001. We achieved record results from operations
for our fiscal year ended June 30, 2001, with net sales, income from operations
and net earnings increasing to $420.4 million, $24.8 million and $8.9 million,
respectively, from $278.5 million, $16.7 million and $6.4 million, respectively,
for our fiscal year ended June 30, 2000.
Key elements of our strategy for continuing to increase sales and
profits include:
o Remaining a low-cost producer;
o Further penetrating large distributors in the foodservice channel;
o Continuing to produce a full line of high quality products;
o Strengthening the Suprema brand name; and
o Pursuing potential strategic acquisitions.
1
We manufacture and package cheeses at our three facilities located in
Manteca, California, Blackfoot, Idaho and Ogdensburg, New York. At our Paterson,
New Jersey facility, we shred or grate, and then package, bulk cheeses that we
manufacture or import. Our Paterson facility is also our corporate headquarters.
We were incorporated under the laws of the State of New York in August
1983. Our executive offices are located at 510 East 35th Street, Paterson, New
Jersey 07543, and our telephone number is (973) 684-2900. We maintain a website
at www.supremachez.com. Information contained in our website does not constitute
part of this prospectus.
This Offering
Unless otherwise stated, information included in this prospectus
assumes no exercise by the underwriters of the over-allotment option.
Common stock offered by Suprema.........................3,500,000 shares
Common stock offered by the selling shareholders........550,000 shares
Common stock outstanding after this offering............9,785,112 shares
Use of proceeds.........................................To repay outstanding
indebtedness.
Risk factors............................................You should
read "Risk Factors"
beginning on page 6 for
a discussion of factors
that you should
carefully consider
before deciding to
invest in our common
stock.
Nasdaq National Market symbol...........................CHEZ
The shares being offered by the selling shareholders will be issued
upon the exercise by the selling shareholders of outstanding common stock
options immediately prior to this offering. The common stock outstanding after
this offering is based upon shares issued and outstanding as of the date of this
prospectus and includes shares that will be issued upon the exercise of options
by the selling shareholders. It excludes:
o 1,326,333 shares issuable upon exercise of outstanding options
at a weighted average exercise price of $6.90 per share;
o 23,667 shares reserved for issuance upon the exercise of
options available for future grants under our employee stock
option plans;
o 280,000 shares of common stock reserved for issuance upon
exercise of outstanding warrants at a weighted average
exercise price of $8.78; and
o 607,500 shares reserved for possible issuance upon the sale by
Suprema and the selling shareholders of shares of common stock
to cover over-allotments, if any, by the underwriters.
2
Summary Financial Information
The following table shows summary historical consolidated financial
information of Suprema. The historical financial information as of June 30, 2001
and for each of the three years in the period ended June 30, 2001 has been
derived from our audited consolidated financial statements and related notes
included in this prospectus. You should read this information together with
those financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which is also included in this
prospectus. Summarized historical consolidated financial information of Suprema
for the years ended June 30, 1997 and 1998 has been derived from our audited
consolidated financial statements which do not appear in the documents included
in or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ----- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Net sales.................................................. $88,311 $108,140 $176,281 $278,482 $420,363
Gross margin............................................... 15,048 18,745 29,929 45,549 64,953
Income from operations..................................... 3,692 7,084 11,463 16,742 24,823
Net earnings............................................... 121 1,406 4,208 6,385 8,874
Earnings per share:
Basic .................................................. $ 0.03 $ 0.31 $ 0.93 $ 1.44 $ 1.63
Diluted ................................................ $ 0.02 $ 0.30 $ 0.86 $ 1.23 $ 1.41
Shares used in per share calculations:
Basic................................................... 4,552 4,563 4,537 4,432 5,429
Diluted................................................. 5,040 4,745 4,884 5,186 6,294
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 2001
---------------------------
Actual As Adjusted
------ -----------
(In thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................................................... $ 610 $
Working capital................................................................... 143,990
Total assets...................................................................... 190,412
Total debt (including current portion)............................................ 111,686
Total liabilities................................................................. 147,584
Shareholders' equity.............................................................. 42,828
</TABLE>
The information under "As Adjusted" in the balance sheet data above
reflects our receipt of the estimated net proceeds from our sale of 3,500,000
shares of common stock in this offering, at an assumed public offering price of
$___ per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, and our application of those net
proceeds together with the proceeds we receive from the exercise by the selling
shareholders of their options to acquire the shares to be sold by them in this
offering. A full description of our use of the net proceeds is described in the
section in this prospectus entitled "Use of Proceeds."
3
RISK FACTORS
Investing in our common stock involves risks. You should carefully
consider the risks described below together with all of the other information
included in or incorporated by reference into this prospectus before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. If any of the following risks actually occur, our
business, financial condition or operating results could be harmed. In such
case, the trading price of our common stock could decline, and you could lose
all or part of your investment.
Risks Related to Our Business
We depend on several principal customers, and the loss of one or more of these
customers or our inability to collect accounts receivable from our customers
could materially adversely affect our business.
An increasing portion of our revenue has been derived from a
concentrated customer base. Sales of cheese products to our five largest
customers accounted for approximately 64% of our net sales in fiscal 2001 and
57% of our net sales in fiscal 2000. Each of these customers represented at
least 10% of our annual net sales. Other than our agreement with Sbarro, Inc.,
we generally do not maintain agreements with any of our customers, who otherwise
purchase cheese products from us pursuant to purchase orders placed in the
ordinary course of business. Accordingly, there can be no assurance that any of
our customers will continue to purchase products from us or that their purchases
will be at the same or greater levels than in prior periods. The loss of any of
our principal customers, a reduction in the amount of product our principal
customers order from us or delays in collection or uncollectibility of accounts
receivable from these or other customers could have an adverse effect on our
financial condition, results of operations and liquidity.
Because we are smaller than many of our competitors, we may lack the financial
and other resources needed to capture increased market share in our distribution
channels.
We face significant competition in the marketing and sales of our
products. In the foodservice and food ingredient channels, our products compete
on the basis of price, quality and service. We compete in these distribution
channels with companies, such as Dairy Farmers of America, Beatrice Cheese
Company and Stella Foods, which have significantly greater financial resources,
product development and manufacturing capabilities and regional and national
marketing staffs than we do. In the retail distribution channel, our products
compete for consumer recognition and shelf space with cheese products that have
achieved significant regional and local brand name recognition and consumer
loyalty. Many of our competitors in the retail channel, such as Kraft, Sorrento
and Sargento, have greater financial and other resources than we do, which
enable them to more effectively compete, both generally and in response to
efforts by additional competitors to enter new markets and market new products.
We also compete in all three distribution channels with other importers
of foreign cheese and companies manufacturing substitute cheese products. We
cannot assure you that we will be able to continue to compete successfully,
particularly as we seek to enter into new markets for foodservice, food
ingredient and retail distribution.
Because we depend on foreign sources of supply, we may be unable to obtain
adequate supplies.
A significant portion of our bulk cheese requirements are manufactured
by foreign producers located principally in Europe and South America. These
foreign sources supplied us with 25% of our cheese requirements in each of
fiscal 2001 and fiscal 2000. Accordingly, we are subject to various risks
4
inherent in foreign trade, including economic and political instability,
shipping delays, fluctuations in foreign currency exchange rates, custom duties,
import quotas and other trade restrictions. These factors could have a
significant impact on our operating margins and our ability to obtain supplies
and deliver products on a timely and competitive basis. Parmesan cheese imported
both from Argentina and Italy is currently subject to United States import
quotas and custom duties. Significant increases in the level of custom duties or
import quotas could have an adverse effect on our business.
Fluctuations in the availability of raw materials we use could adversely affect
our operations.
We have a supply agreement with Allied Federated Cooperatives Inc.,
which provides that, subject to specified minimum amounts, we will purchase from
them all of our milk requirements used in the manufacture of cheese products at
our Ogdensburg facility. Allied's failure to provide milk products to us, in the
absence of alternative sources of supply, could have an adverse effect on our
Ogdensburg facility's production and, therefore, our business. We are also
dependent on a limited number of other suppliers for all of our requirements of
raw materials, consisting primarily of milk, used in the manufacture of cheese
at our Manteca, facility. Our three largest suppliers accounted for, in the
aggregate, approximately 34% of our product requirements in fiscal 2001 and 36%
of our product requirements in fiscal 2000, with one milk supplier accounting
for 12% of our requirements in fiscal 2001 and 14% of our requirements in fiscal
2000.
Other than with Allied, we generally purchase raw milk from dairy
cooperatives and other dairy vendors under one-year purchase agreements. Our
purchases of bulk cheese are made pursuant to purchase orders placed in the
ordinary course of business. Failure or delay by principal suppliers in
supplying cheese and milk products to us on favorable terms, or at all, could
result in material interruptions in our operations. Our inability to obtain
adequate supplies as a result of any of the foregoing factors or otherwise could
render us unable to fulfill our obligations to customers, which could adversely
affect our business.
If we are not an efficient producer, our profitability will suffer as a result
of the highly competitive environment in which we operate.
Our success depends in part on our ability to be an efficient producer
in a highly competitive industry. Our ability to reduce costs further is limited
to the extent efficiencies have already been achieved. Our failure to reduce
costs through productivity gains or otherwise or our inability to eliminate
redundant costs resulting from any acquisitions we may make would weaken our
competitive position.
A default under our secured credit arrangements could result in a foreclosure of
our assets by our creditors.
Substantially all of our assets are pledged as collateral to secure
outstanding borrowings under the loan agreements with our primary commercial
lenders. Any default under the documents governing our indebtedness could result
in our indebtedness becoming immediately due and payable and result in a
foreclosure on our assets by our creditors, which would have a significant
adverse effect on the market value of our common stock.
As of June 30, 2001, we had approximately $111.7 million of long-term
indebtedness outstanding of which approximately $99.3 million was outstanding
under our revolving credit facility.
5
We depend on our key personnel, including Mark Cocchiola, and the loss of the
services of Mr. Cocchiola or any other key personnel or the failure to hire
additional key personnel could materially adversely affect our business.
Our success is largely dependent on the personal efforts of Mark
Cocchiola, our Chairman, President and Chief Executive Officer. We believe that
his expertise and knowledge of the natural cheese products industry are critical
factors in our continued growth and success. Although we have entered into an
employment agreement with Mr. Cocchiola, the loss of the services of Mr.
Cocchiola could have a material adverse effect on our business and prospects.
The agreement governing our revolving credit facility provides that the loss of
services of Mr. Cocchiola is deemed an event of default upon which the lenders
may declare the principal amount borrowed under the facility together with
accrued interest and all other payment obligations to be immediately due and
payable. In addition, the agreement governing our subordinated loan provides
that, upon the loss of Mr. Cocchiola, the lenders could require Suprema to
repurchase the principal amount of the subordinated debt.
Our success is also dependent upon our ability to hire and retain
additional qualified marketing, technical and other personnel, and there can be
no assurance that we will be able to do so.
Our co-founder and Executive Vice President, Paul Lauriero, passed away
in August 2001. Mr. Lauriero was primarily responsible for overseeing the
procurement of raw materials for production and the general operations of our
facilities. Mark Cocchiola has assumed these responsibilities on an interim
basis. We are unable, at this time, to determine the impact of the loss of Mr.
Lauriero's services on our operations.
If we cannot successfully negotiate a material union contract, when our current
contracts expire, we may experience work stoppages which would negatively impact
our business.
Approximately 62% of our workforce is represented by a union. Our
contract with union employees at our Manteca facility expires in December 2004,
and our contract with union employees at our Ogdensburg facility expires in
November 2003. Although we have not experienced any significant labor disputes
or work stoppages to date, a work stoppage due to a failure to renegotiate a
union contact, or otherwise, could have a material adverse effect on our
business.
We may make acquisitions which could subject us to a number of operational
risks.
In order to grow our business and maintain our competitive position, we
may, in the future, acquire other businesses or significant assets or product
lines relating to our business. We cannot predict whether or when any
acquisitions will occur. Acquisitions commonly involve certain risks, and we
cannot assure you that any acquired business will be successfully integrated
into our operations or will perform as we expect. Any future acquisitions could
involve certain other risks, including the assumption of additional liabilities,
potentially dilutive issuances of equity securities and diversion of
management's attention from other business concerns. Furthermore, we may issue
equity securities or incur debt to pay for any future acquisitions. If we issue
equity securities, your percentage ownership of our company would be reduced. If
we issue debt, our financial condition may be negatively affected by the
requirement to pay interest and other debt-related costs. In addition, our
operations may be restricted by the covenants associated with this debt.
6
Risks Related To Our Industry
Changing consumer preferences or nutritional and health-related concerns may
adversely affect our business.
We are subject to changing consumer preferences and nutritional and
health-related concerns. Our business could be affected by certain consumer
concerns about dairy products, such as the cholesterol, calorie, sodium, lactose
and fat content of such products, and we could become subject to increased
competition from companies whose products or marketing strategies address these
consumer concerns.
Product liability claims could have an adverse effect on our business.
We, like any other seller of food, face the risk of exposure to product
liability claims in the event that our quality control procedures fail and the
consumption of our products causes injury or illness. With respect to product
liability claims, we believe that we have sufficient primary and excess umbrella
liability insurance. However, this insurance may not continue to be available at
a reasonable cost, or, if available, may not be adequate to cover liabilities.
We generally seek contractual indemnification and insurance coverage from
parties supplying us products, but this indemnification or insurance coverage is
limited, as a practical matter, to the creditworthiness of the indemnifying
party, and their carriers, if any, as well as the insured limits of any
insurance provided by suppliers. If we do not have adequate insurance or
contractual indemnification available, product liability claims relating to
defective products could have a material adverse effect on our financial
condition, results of operations and liquidity.
Government regulation could increase our costs of production and increase our
legal and regulatory expenditures.
We are subject to extensive regulation by the United States Food and
Drug Administration, the United States Department of Agriculture and other state
and local authorities in jurisdictions where our products are manufactured,
processed or sold. Among other things, these regulations govern the
manufacturing, importation, processing, packaging, storage, distribution and
labeling of our 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 as well as general
"Good Manufacturing Practices" with respect to manufacturing and production
processes. Our manufacturing and processing facilities and products are also
subject to periodic compliance inspections by federal, state and local
authorities. We are also subject to environmental regulations governing the
discharge of water and food waste. We believe that we are currently in
substantial compliance with all material governmental laws and regulations and
we maintain all material permits and licenses relating to our material
operations. Amendments to existing statutes and regulations, adoption of new
statutes and regulations, increased production at our existing facilities as
well as our expansion into new operations and jurisdictions will require us to
obtain additional licenses and permits and could require us to adapt or alter
methods of operations at costs which could be substantial. We cannot assure you
that we will be able, for financial or other reasons, to comply with applicable
laws and regulations and licensing requirements. Failure to comply with
applicable laws and regulations could subject us to civil remedies, including
fines, injunctions, recalls or seizures, as well as possible criminal sanctions,
which could have a material adverse effect on our business.
7
We are in a low margin business and our profitability may be negatively impacted
during periods of food price deflation.
The food service distribution industry is characterized by relatively
high inventory turnover with relatively low profit margins. We make a
significant portion of our sales at prices that are based on the cost of
products we sell, plus a percentage markup. As a result, our profit levels may
be negatively impacted during periods of food price deflation. The food service
industry is sensitive to national and economic conditions. Our operating results
also are sensitive to, and may be adversely affected by, other factors that
could affect our operating costs, including unexpected increases in fuel or
other transportation-related costs. There can be no assurance that one or more
of these factors will not adversely affect our future operating results.
Risks Related To This Offering
The market price of our stock could be subject to fluctuations.
The market price of our common stock has been subject to significant
fluctuations during the preceding twelve months. The market price of our common
stock could be subject to further fluctuations in response to factors such as
the following, some of which are beyond our control:
o variations in our operating results;
o operating results that vary from the expectations of securities
analysts and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o announcements by us or our competitors of major business
developments, such as new products, services or technologies
or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o announcements by third parties of significant claims or proceedings
against us;
o future sales of our common stock; and
o general market conditions.
Future sales of our common stock could cause the market price of our common
stock to drop significantly, even if our business is doing well.
After this offering, we will have issued and outstanding 9,785,112
shares of common stock, including the 4,050,000 shares of common stock that we
and the selling shareholders are selling in this offering. Of the outstanding
shares of common stock, 4,997,371 may be resold in the public market immediately
and an additional 737,741 shares will become available for resale 90 days after
the date of this prospectus due to an agreement the holders of these shares have
entered into with the managing underwriter. However, the managing underwriter
can waive this restriction and allow these shareholders to sell their shares at
any time.
8
We also have issued options to purchase 1,876,333 shares of our common
stock under our employee stock option plans. Of these outstanding options,
options to purchase an aggregate of 550,000 shares of our common stock will be
exercised by the selling shareholders named in this prospectus to acquire the
shares to be sold by them in this offering. A significant number of the
remaining shares underlying our outstanding options have previously been
registered and, subject to the applicable vesting requirements, upon exercise of
these options the underlying shares may be resold into the public market. In
addition, we also have reserved 280,000 shares for issuance pursuant to
outstanding warrants issued by us. We have granted registration rights to the
holders of warrants to purchase 120,000 shares of common stock issuable upon
exercise of those warrants. The market price of our common stock could decline
as a result of the sales of these shares or the perception that sales of these
shares could occur.
Provisions in our Charter and Share Purchase Rights Plan and New York law may
prevent an acquisition of Suprema.
Certain provisions of our Certificate of Incorporation and our Share
Purchase Rights Plan could have the effect, either alone or in combination with
each other, of making more difficult, or discouraging an acquisition of our
company deemed undesirable by our Board of Directors. Under our Certificate of
Incorporation, there are approximately 44,000,000 unreserved shares of common
stock and 2,500,000 shares of preferred stock available for future issuance
without shareholder approval. The Share Purchase Rights Plan, commonly known as
a "poison pill," states that, in the event that an individual or entity acquires
15% of the outstanding shares of our company, shareholders other than the
acquiror may purchase additional shares of our common stock for a fixed price.
The existence of authorized but unissued capital stock, together with the
existence of the Share Purchase Rights Plan, could have the effect of
discouraging an acquisition of our company.
In addition, we are subject to certain anti-takeover provisions under
Section 912 of the New York Corporation Law. Section 912 provides that, with
certain exceptions, a New York corporation may not engage in a business
combination with any interested shareholder for a period of five years following
the date such shareholder became an interested shareholder. An interested
shareholder is a person that owns, directly or indirectly, 20% or more of the
outstanding voting stock of a corporation or is an affiliate or associate of a
corporation and was the owner of 20% or more of the outstanding voting stock of
the corporation at any time within the prior five years. These provisions could
have the effect of discouraging, delaying or preventing a takeover of Suprema,
which could otherwise be in the best interest of our shareholders, and have an
adverse effect on the market price for our common stock.
We do not expect to pay dividends.
We have not paid any cash dividends on our common stock to date and do
not expect to pay dividends for the foreseeable future. Under existing loan
agreements with our principal lender, we are not permitted to pay dividends
without the lender's consent.
9
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend the forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements in these sections. All statements regarding our expected financial
position and operating results, our business strategy and our plans are
forward-looking statements. These statements can sometimes be identified by our
use of words such as "may," "anticipate," "expect," "intend," "estimate" or
similar expressions. Our expectations in any forward-looking statements may not
turn out to be correct. Our actual results could be materially different from
those discussed in or implied by these statements, and you may consider these
differences important to your investment decision. Important factors that could
cause our actual results to be materially different include those discussed
under "Risk Factors." You should not place undue reliance on the forward-looking
statements, which speak only as of the date the statements were made.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors described
in the preceding pages, as well as any cautionary language in this prospectus,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could materially and adversely affect our business,
operating results and financial condition.
10
USE OF PROCEEDS
The net proceeds we will receive from the sale by us of 3,500,000
shares of our common stock in this offering, at an assumed offering price of
$___ per share, and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, are estimated to be $________, or
$_________ if the portion of the underwriter's over-allotment option granted by
us is exercised in full. We will not receive any proceeds from the sale of
shares by the selling shareholders.
We will receive aggregate proceeds of approximately $1,990,380 from the
exercise by the selling shareholders of their options to acquire the shares to
be sold by them in this offering. If the underwriters exercise their
over-allotment option in full, we will receive additional aggregate proceeds of
approximately $1,276,694 from the exercise by the selling shareholders of
options to acquire shares to be sold by them to the underwriters to cover the
exercise of the underwriters' over-allotment option.
We expect to use all of the net proceeds received by us from our sale
of shares in this offering as well as the proceeds we receive from the exercise
by the selling shareholders of their options in connection with this offering,
to repay amounts outstanding under our revolving credit facility.
Borrowings under our revolving credit facility were $99.3 million at
June 30, 2001. The credit facility matures on February 15, 2004 and borrowings
under the credit facility bear interest per annum at 175 basis points above the
London inter-bank offering rate, or LIBOR. The interest rate on the credit
facility was 7.50% per annum at June 30, 2001. The proceeds from our borrowings
under the credit facility were used primarily for working capital and general
corporate purposes.
11
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the over-the-counter market under the
symbol "CHEZ" on April 25, 1991. On March 22, 1993, our stock commenced trading
on the Nasdaq National Market System. The following table sets forth the high
and low sale prices of our common stock for the periods indicated below.
<TABLE>
<CAPTION>
High Low
------ ----
<S> <C> <C>
Fiscal Year Ended June 30, 2000
First Quarter............................................. $ 9.13 $ 6.88
Second Quarter............................................ 9.75 7.00
Third Quarter ............................................ 10.50 7.75
Fourth Quarter ........................................... 10.50 7.94
Fiscal Year Ended June 30, 2001
First Quarter............................................. $10.63 $ 7.69
Second Quarter............................................ 8.56 7.38
Third Quarter............................................. 10.25 7.50
Fourth Quarter............................................ 14.99 8.06
Fiscal Year Ended June 30, 2002
First Quarter (through September 10, 2001)................ $17.37 $10.63
</TABLE>
The closing price of our common stock on September 10, 2001, the last
trading day prior to the date of this prospectus, was $13.00. As of the date of
this prospectus, we had 5,735,112 shares of common stock outstanding, which were
held by 67 record holders. We believe that this number does not include an
estimated 1,000 beneficial owners of our common stock who currently hold such
securities in the name of depository institutions.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock.
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon our earnings, capital requirements,
financial condition and other relevant factors. We presently intend to retain
all earnings to finance the growth and development of our business and do not
expect to declare or pay any cash dividends in the foreseeable future. Our
agreement with our lending institutions currently prohibits the payment of cash
dividends, other than dividends on shares of preferred stock whose issuance is
permitted under the loan agreement.
12
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2001,
on an actual basis and as adjusted to give effect to our receipt of estimated
net proceeds of $___________ from the sale of the 3,500,000 shares of common
stock by us in this offering, at an assumed offering price of $_____________,
after deducting underwriting discounts and commissions and estimated offering
expenses payable by us, and our application of those net proceeds, together with
the proceeds we receive from the exercise by the selling shareholders of their
options to acquire the shares to be sold by them in this offering. A full
description of our use of the net proceeds is described in the section in this
prospectus entitled "Use of Proceeds." You should read this table together with
the consolidated financial statements and the related notes included in this
prospectus.
<TABLE>
<CAPTION>
As of June 30, 2001
-----------------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Total debt (including current portion)...................................... $111,686,344 $
------------ -----------
Shareholders' equity:
Preferred stock, $0.01 par value; 2,500,000 shares authorized:
Series A redeemable convertible preferred stock; 500,000 shares
designated; none issued and outstanding..............................
Common stock, $0.01 par value; 50,000,000 shares authorized;
5,867,920 issued and outstanding; 9,785,112 issued and
outstanding, as adjusted............................................. 58,679
Additional paid-in capital.............................................. 19,444,319
Retained earnings....................................................... 24,872,451
Treasury stock, at cost, 224,877 shares issued.......................... (1,547,620)
------------ -----------
Shareholders' equity.................................................... 42,827,829
------------ -----------
Total capitalization........................................................ $154,514,173 $
============ ===========
</TABLE>
The above table excludes the following shares:
o 1,326,333 shares issuable upon exercise of outstanding
options at a weighted average exercise price of $6.90;
o 23,667 shares reserved for issuance upon exercise of options
available for future grants under our employee stock option
plans;
o 280,000 shares of common stock reserved for issuance upon
exercise of outstanding warrants at a weighted average
exercise price of $8.78; and
o 607,500 shares reserved for possible issuance upon the sale by
Suprema and the selling shareholders of shares of common stock
to cover over-allotments, if any, by the underwriters.
13
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table shows selected historical consolidated financial
information of Suprema as of June 30, 2000 and 2001 and for each of the three
years in the period ended June 30, 2001. We have derived this information from
our audited consolidated financial statements and related notes included in this
prospectus. You should read this information together with those financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" which is also included in this prospectus. We derived the
selected historical consolidated financial information as of June 30, 1997, 1998
and 1999 and for the years ended June 30, 1997 and 1998 from our audited
consolidated financial statements which do not appear in the documents included
in or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
--------------------------------------------------------------
1997(1) 1998(2) 1999 2000 2001
------- ------- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings Data:
Net sales.............................. $ 88,311 $ 108,140 $ 176,281 $ 278,482 $ 420,363
Cost of sales.......................... 73,263 89,395 146,352 232,933 355,410
--------- --------- --------- --------- ---------
Gross margin........................... 15,048 18,745 29,929 45,549 64,953
Selling, shipping and general and
administrative expenses.............. 11,356 11,661 18,467 28,807 40,131
--------- --------- --------- --------- ---------
Income from operations................. 3,692 7,084 11,463 16,742 24,823
Interest expense....................... (2,232) (2,917) (4,329) (5,921) (10,033)
Other.................................. (1,259) -- -- -- --
--------- --------- --------- --------- ---------
Earnings before income taxes and
extraordinary item................... 201 4,167 7,134 10,822 14,790
Income taxes........................... 81 1,750 2,926 4,437 5,916
--------- --------- --------- --------- ---------
Earnings before extraordinary loss on
extinguishment of debt............... 121 2,417 4,208 6,385 8,874
Net earnings .......................... $ 121 $ 1,406 $ 4,208 $ 6,385 $ 8,874
========= ========= ========= ========= =========
Earnings per share:
Basic................................ $ 0.03 $ 0.31 $ 0.93 $ 1.44 $ 1.63
Diluted.............................. $ 0.02 $ 0.30 $ 0.86 $ 1.23 $ 1.41
Shares used in per share calculations:
Basic................................ 4,552 4,563 4,537 4,432 5,429
Diluted.............................. 5,040 4,745 4,884 5,186 6,294
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.............. $ 480 $ 490 $ 358 $ 950 $ 610
Working capital........................ 32,546 43,872 56,266 95,816 143,990
Total assets........................... 47,043 62,081 81,999 124,960 190,412
Total debt (including current portion). 23,772 35,494 44,125 78,971 111,686
Total liabilities...................... 31,754 45,387 61,488 98,992 147,584
Shareholders' equity................... 15,289 16,695 20,511 25,968 42,828
</TABLE>
-------------------
(1) The statement of earnings data for the fiscal year ended June 30,
1997 gives effect to a write-off of approximately $944,000 of costs related to
marketing service agreements and a charge of approximately $1,259,000 associated
with a loss we incurred on a sale leaseback transaction which was completed
during the fourth quarter of our fiscal year ended June 30, 1997.
(2) The statement of earnings data for the fiscal year ended June 30,
1998 gives effect to our incurring an extraordinary loss on extinguishment of
debt of approximately $1,773,000 ($1,011,000, net of tax) resulting from our
early retirement of subordinated debt and repurchase of warrants attached to the
subordinated debt.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
We manufacture and market gourmet all natural Italian cheeses. Our
product lines consist primarily of mozzarella, ricotta, parmesan, romano and
provolone cheeses, which we produce domestically, as well as parmesan and
pecorino romano cheeses, which we import. Certain of our domestically produced
cheeses include "lite" and lower fat versions containing less fat and fewer
calories. In the fiscal years 1999, 2000 and 2001, aggregate sales of parmesan
and romano cheese, which are classified as "hard" cheese, accounted for 37%, 52%
and 62%, respectively, of our revenue. For the fiscal years 1999, 2000 and 2001,
sales of mozzarella cheese, which is classified as "soft" cheese, accounted for
approximately 48%, 29% and 22%, respectively, of our revenue.
We sell our cheeses through three channels of distribution in the food
industry: foodservice, food ingredient and retail. For fiscal years 1999, 2000
and 2001, sales of our cheeses to foodservice companies accounted for
approximately 91%, 91% and 97%, respectively, of our revenue; sales of our
cheeses to food ingredient companies accounted for approximately 6%, 7% and 2%,
respectively, of our revenue; and sales of our cheeses to retailers accounted
for 3%, 2% and 1%, respectively, of our revenue.
We maintain four facilities located in Manteca, California, Ogdensburg,
New York, Blackfoot, Idaho and Patterson, New Jersey. Our cheese production
facilities are located in key milk shed regions, allowing us to minimize
transportation costs for our raw milk supplies and maintain a low cost
infrastructure. Historically, a majority of our cost of goods sold has consisted
of the price we pay for raw milk. We generally purchase raw milk from dairy
cooperatives and other dairy vendors under one-year purchase arrangements. The
price we pay for raw milk under these arrangements is indexed to the CME Block
Cheddar Market, the commodity index on which our bulk cheese prices are based.
As a result, our gross profit margin is largely insulated from fluctuations in
the price of raw milk. However, as the CME Block Cheddar Market index decreases,
reducing the price we receive for our products, our gross margin also decreases
due to the proportionately larger impact of those elements of our cost of goods
sold, the prices of which are fixed or relatively fixed in nature. Conversely,
as the CME Block Cheddar Market increases, our gross margin increases. Over the
past three years ended June 30, 2001, our gross margin as a percentage of sales
has decreased from approximately 17.0% to 15%.
We record revenue when our products are shipped to customers. Our
customers generally do not have the right to return products that have been
shipped.
15
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net sales represented by certain items reflected in
our consolidated statement of earnings.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
--------------------------------------------
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0%
Cost of sales................................ 83.0 83.6 84.5
----- ----- -----
Gross margin................................. 17.0 16.4 15.5
Selling and shipping expenses................ 8.0 7.9 7.5
General and administrative expenses.......... 2.5 2.5 2.1
----- ----- -----
Income from operations....................... 6.5 6.0 5.9
Interest expense, net........................ 2.5 2.1 2.4
----- ----- -----
Earnings before income taxes................. 4.0 3.9 3.5
Income taxes................................. 1.6 1.6 1.4
----- ----- -----
Net earnings................................. 2.4% 2.3% 2.1%
===== ===== =====
</TABLE>
Fiscal Year Ended June 30, 2001 Compared to Fiscal Year Ended June 30, 2000.
Net sales for the fiscal year ended June 30, 2001 were approximately
$420,363,000 as compared to approximately $278,482,000 for the fiscal year ended
June 30, 2000, an increase of approximately $141,881,000 or 50.9%. This increase
reflects an increase primarily in sales volume for foodservice products
manufactured by us, most of which represented sales to existing customers,
partially offset by the lower average selling price for cheese to our customers,
as a result of the lower average CME Block Cheddar Market.
Our gross margin increased by approximately $19,404,000, from
approximately $45,549,000 for the fiscal year ended June 30, 2000 to
approximately $64,953,000 for the fiscal year ended June 30, 2001, primarily as
a result of the increase in sales volume.
Our gross margin as a percentage of sales decreased from 16.4% in the
fiscal year ended June 30, 2000 to 15.5% for the comparable fiscal year in 2001.
The decrease in gross margin as a percentage of sales was primarily due to the
lower average selling price for cheese to our customers due to the lower average
CME Block Cheddar Market during the fiscal year ended June 30, 2001. The
decrease in gross margin as a percentage of sales was also due to the shift
toward lower margin sales associated with the foodservice markets.
Selling and shipping expenses increased by approximately $9,467,000
from approximately $21,893,000 for the fiscal year ended June 30, 2000 to
approximately $31,360,000 for the fiscal year ended June 30, 2001. The increase
in selling and shipping expenses was primarily due to increases in advertising,
commission expenses and shipping expenses in support of our revenue growth. As a
percentage of sales, selling and shipping expenses decreased from 7.9% in the
fiscal year ended June 30, 2000 to 7.5% in the fiscal year ended June 30, 2001.
The decrease in selling and shipping expenses as a percentage of sales
principally reflects economies of scale realized with additional sales volume,
partially offset by the increases in advertising, commission expenses and
shipping expenses in support of our revenue growth.
General and administrative expenses increased by approximately
$1,857,000 from approximately $6,914,000 for the fiscal year ended June 30, 2000
to approximately $8,771,000 for the fiscal year ended June 30, 2001. The
increase in general and administrative expenses was primarily a result of an
increase
16
in personnel and other administrative expenses associated with our revenue
growth. As a percentage of sales, general and administrative expenses decreased
to 2.1% for the fiscal year ended June 30, 2001, from 2.5% for fiscal 2000,
primarily due to the increase in our revenue, which was partially offset by an
increase in personnel and other administrative expenses associated with our
revenue growth.
Net interest expense increased to approximately $10,033,000 for the
fiscal year ended June 30, 2001 from approximately $5,921,000 for the fiscal
year ended June 30, 2000. The increase was primarily the result of our expanded
borrowing requirements necessary for working capital needs.
The provision for income taxes for the fiscal year ended June 30, 2001,
increased by approximately $1,479,000 as compared to the fiscal year ended June
30, 2000 primarily as a result of increased taxable income.
Net earnings increased by approximately $2,489,000 to approximately
$8,874,000 for the fiscal year ended June 30, 2001, from approximately
$6,385,000 for the fiscal year ended June 30, 2000, due to the reasons discussed
above.
Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30, 1999
Net sales for the fiscal year ended June 30, 2000 were approximately
$278,482,000, as compared to approximately $176,281,000 for the fiscal year
ended June 30, 1999, an increase of approximately $102,201,000, or 58.0%. This
increase reflects an increase primarily in sales volume for foodservice products
manufactured by us, most of which represented sales to existing customers.
Our gross margin increased by approximately $15,620,000, from
approximately $29,929,000 for the fiscal year ended June 30, 1999 to
approximately $45,549,000 for the fiscal year ended June 30, 2000, primarily as
a result of the increased sales volume. Our gross margin as a percentage of
sales decreased slightly from 17.0% in the fiscal year ended June 30, 1999 to
16.4% in the fiscal year ended June 30, 2000. The decrease in gross margin as a
percentage of net sales was primarily due to the lower average selling price for
cheese to our customers (as a result of the lower average CME Block Cheddar
Market) during fiscal year ended June 30, 2000, and to a lesser extent, the
shift toward lower margin sales associated with the foodservice markets.
Selling and shipping expenses increased by approximately $7,847,000
from approximately $14,046,000 during the fiscal year ended June 30, 1999 to
approximately $21,893,000 during the fiscal year ended June 30, 2000. The
increase in selling and shipping expenses was primarily due to increases in
advertising and promotional allowances, commission expense and shipping expenses
in support of our revenue growth. As a percentage of sales, selling and shipping
expenses decreased slightly from 8.0% for the fiscal year ended June 30, 1999 to
7.9% for the fiscal year ended June 30, 2000. The decrease in selling and
shipping expenses as a percentage of sales was primarily due to the increase in
our revenue growth, which was partially offset by the increases in advertising
and promotional allowances, commission expense and shipping expenses in support
of our revenue growth.
General and administrative expenses increased by approximately
$2,493,000, from approximately $4,421,000 for the fiscal year ended June 30,
1999 to approximately $6,914,000 for the fiscal year ended June 30, 2000. The
increase in general and administrative expenses was primarily due to an increase
in personnel and other administrative expenses associated with our revenue
growth. As a percentage of sales, general and administrative expenses remained
constant at 2.5% for both the fiscal year ended June 30, 1999 and June 30, 2000.
17
Net interest expense increased to approximately $5,921,000 for the
fiscal year ended June 30, 2000 from approximately $4,329,000 for the fiscal
year ended June 30, 1999. The increase in interest expense was primarily the
result of our expanded borrowing requirements necessary to finance working
capital needs.
The provision for income taxes for the fiscal year ended June 30, 2000
increased by approximately $1,511,000 compared to fiscal year ended June 30,
1999 primarily as a result of increased taxable income.
Net earnings increased by approximately $2,177,000 to approximately
$6,385,000 in fiscal year ended June 30, 2000 from approximately $4,208,000 in
fiscal year ended June 30, 1999 due to the reasons discussed above.
Quarterly Results of Operations
The following table sets forth in thousands, except per share data
certain unaudited quarterly financial information:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30,
1999 1999 2000 2000 2000 2000 2001 2001
------------- ------------ --------- -------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 61,381 $ 65,323 $ 75,564 $ 76,214 $ 88,948 $ 92,742 $108,636 $130,037
Cost of sales ........... 51,397 54,152 63,472 63,912 74,919 78,373 91,998 110,120
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin ............ 9,984 11,171 12,092 12,302 14,029 14,369 16,638 19,917
Selling, shipping,
general and
administrative
expenses............... 6,371 7,166 7,756 7,514 8,455 8,611 10,745 12,319
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations .. 3,613 4,005 4,336 4,788 5,574 5,758 5,893 7,598
Interest expense, net ... 1,260 1,418 1,582 1,660 2,262 2,424 2,118 3,229
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before income
taxes ................... 2,353 2,587 2,754 3,128 3,311 3,334 3,775 4,370
Income tax expense ...... 940 1,083 1,132 1,282 1,324 1,266 1,579 1,747
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings ............ $ 1,413 $ 1,504 $ 1,622 $ 1,846 $ 1,987 $ 2,068 $ 2,196 2,623
======== ======== ======== ======== ======== ======== ======== ========
Earnings per share:
Basic ................ $ 0.31 $ 0.34 $ 0.37 $ 0.35 $ 0.41 $ 0.37 $ 0.39 $ 0.46
Diluted .............. $ 0.27 $ 0.29 $ 0.31 $ 0.35 $ 0.36 $ 0.33 $ 0.34 $ 0.38
</TABLE>
The following table sets forth, as a percentage of net sales, certain
unaudited quarterly financial information:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30,
1999 1999 2000 2000 2000 2000 2001 2001
------------- ------------ --------- -------- ------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ........... 83.7 82.9 84.0 83.9 84.2 84.5 84.7 84.7
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin ............ 16.3 17.1 16.0 16.1 15.8 15.5 15.3 15.3
Selling, shipping,
general and
administrative expenses.. 10.4 11.0 10.3 9.9 9.5 9.3 9.9 9.5
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations .. 5.9 6.1 5.7 6.3 6.3 6.2 5.4 5.8
Interest expense ........ 2.1 2.2 2.1 2.2 2.6 2.6 2.0 2.5
-------- -------- -------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. 3.8 3.9 3.6 4.1 3.7 3.6 3.4 3.3
Income tax expense ...... 1.5 1.6 1.6 1.7 1.5 1.4 1.4 1.3
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings ............ 2.3% 2.3% 2.1% 2.4% 2.2% 2.2% 2.0% 2.0%
======== ======== ======== ======== ========== ======== ======== ========
</TABLE>
Our diluted earnings per share for the fiscal year 2000 quarters do
not, in the aggregate, equal our fiscal year 2000 earnings per share due to the
effects of options and warrants in certain quarters.
Liquidity and Capital Resources
At June 30, 2001, we had working capital of approximately $143,990,000
as compared to approximately $95,816,000 at June 30, 2000, an increase of
approximately $48,004,000. The increase in working capital is primarily due to
our improved operating results as well as the proceeds from long term
18
borrowings of $36,617,000 used to support our increased accounts receivable and
inventory levels in support of our increased sales volume.
Net cash used in operating activities in the fiscal year ended June 30,
2001 was approximately $36,617,000 as compared to $32,649,000 in the fiscal year
ended June 30, 2000 and $7,704,000 in the fiscal year ended June 30, 1999. The
increase in the use of cash in operations was primarily the result of increases
in accounts receivable and inventories in support of our increased sales volume,
as well as increases in prepaid expenses and other current assets, partially
offset by net earnings and, for the fiscal year ended June 30, 2001, increases
in accounts payable. The percentage increase of our accounts receivable was
greater than the percentage increase of our revenue primarily as a result of
extended payment terms that we grant to certain of our significant customers to
which sales increased at a greater rate than our aggregate sales. We have not,
however, experienced any material bad debt write-offs and we do not, generally,
issue our customers a right of a return with respect to delivered products. The
percentage increase in our inventory, which increased primarily as a result of
our increase in sales volume, was less than the percentage increase in our
revenue. The cash used in operations was financed through cash flow from
financing activities, primarily proceeds from existing credit facilities and for
the fiscal year ended June 30, 2001, our underwritten public offering which we
completed in August and September 2000. Net cash used in investing activities in
the fiscal year ended June 30, 2001 was approximately $4,084,000, as compared to
$677,000 in the fiscal year ended June 30, 2000 and $667,000 in the fiscal year
ended June 30, 1999. Our investing activities during the fiscal year ended June
30, 2001 related to continued expenditures for fixed assets, including the
purchase from Snake River Cheese, L.L.C. of land and the building located in
Blackfoot, Idaho, and capital equipment utilized in our California and New York
manufacturing facilities. Investing activities during the fiscal year ended June
30, 2000 related to continued expenditures for fixed assets, including capital
equipment for our Manteca and Ogdensburg manufacturing facilities. We intend to
finance any additional significant capital expenditures through operating
leases. As a result, at June 30, 2001, we had cash of approximately $610,000 as
compared to approximately $950,000 at June 30, 2000 and $358,000 at June 30,
1999.
We have a revolving credit facility with several commercial banks. In
September 2001, the line of credit under this facility was increased to
$130,000,000 through February 15, 2004. The rate of interest on amounts borrowed
under the revolving credit facility is the adjusted LIBOR plus 175 basis points.
The interest rate as of June 30, 2001 was 7.5% per annum. The facility is
collateralized by substantially all existing and acquired assets as defined in
the credit facility, and is guaranteed by our subsidiaries, and the pledge of
all of the stock of our subsidiaries. Advances under this credit facility are
limited to 85.0% of eligible accounts receivable and 60.0% of most inventory, as
defined in the agreement. The credit facility agreement contains restrictive
covenants, including the maintenance of consolidated net worth and the
maintenance of leverage and fixed charge ratios, as defined in the agreement,
and a restriction on dividends to common shareholders. As of June 30, 2001, we
were in compliance with these covenants. The credit facility agreement further
provides that the loss of services of Mark Cocchiola may be deemed an event of
default upon which the principal amount borrowed under the facility together
with accrued interest and all other payment obligations may become immediately
due and payable. At June 30, 2001, our total outstanding debt to the banks was
approximately $99,265,000.
In August 2000, we completed an underwritten public offering for shares
of our common stock of which 1,100,000 shares were sold by us and 100,000 shares
were sold by certain selling shareholders at a public offering price of $8.00
per share. Gross proceeds of the shares we sold were $8,800,000, and we received
net proceeds of approximately $7,404,000. We received no proceeds from the
shares sold by selling shareholders. In addition, in association with the public
offering, the underwriters were granted an option to purchase up to an
additional 80,000 shares of common stock from us and 100,000 shares of common
stock from the selling shareholders to cover over-allotments.
19
On September 15, 2000, the underwriters exercised their over-allotment
option. Gross proceeds of the over-allotment shares we sold were $640,000 and we
received net proceeds of $570,000. We received no proceeds from the shares sold
by selling shareholders.
In May 1999, our Board of Directors approved a stock repurchase program
to acquire up to $3,200,000 of our common stock. As of June 30, 2001, we have
repurchased 224,877 shares of our common stock for a cost of approximately
$1,548,000.
In March 1998, we entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and the Equitable Life Assurance Society of
the United States as the lenders, pursuant to which $10,500,000 was loaned to
us. The loan is unsecured and is subordinated to the revolving credit facility
discussed above. The loan bears interest at 16.5% per annum. Interest is payable
monthly at a rate of 12.0% per annum with the balance deferred until February 1,
2003 when it is due in full. The principal amount of the loan is payable in
three installments of $3,500,000 on each March 1, beginning in the year 2004.
The Loan and Security Agreement provides that, upon the loss of Mark Cocchiola,
the lenders could require Suprema to repurchase the principal amount of the
subordinated loan. In addition, in connection with the execution and delivery of
the Loan Agreement, we delivered to the lender a warrant to purchase 105,000
shares of our common stock at $4.125 per share, the market price at the date of
the agreement. The warrant was exercised pursuant to a cashless exercise in July
2001.
In March 1996, we purchased our Paterson, New Jersey production
facility which we 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 purchase price for the facility. The balance of the
proceeds was used to complete the expansion of a 7,800 square foot refrigerated
storage facility. The five year note which bore interest at 8.51% per annum was
being amortized at a fifteen year rate and required a balloon payment at the end
of year five of approximately $840,000. On March 29, 1999, we refinanced the
mortgage on our Paterson facility for the principal amount of $929,573. The
seven year note which bears interest at 7.85% per annum, is being amortized at a
fifteen year rate and requires a balloon payment at the end of year seven of
approximately $501,000. At June 30, 2001, we had outstanding obligations of
approximately $815,000 under the mortgage for the Paterson facility.
We believe that cash flows from operating activities and borrowings
available under our revolving credit facility will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures until at
least June 30, 2002. Thereafter, we may need to raise additional funds to fund
our operations and potential acquisitions, if any. Any such additional
financing, if needed, might not be available on reasonable terms or at all.
Foreign Currency
We are 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
our ability to obtain supplies and deliver finished products on a timely and
competitive basis. We have no material hedged monetary assets, liabilities or
commitments denominated in currencies other than the United States dollar.
Effect of New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 standardizes accounting and
reporting for derivative instruments and for hedging activities. This statement
was adopted for our 2001 fiscal year. SFAS 133 did not have any significant
effect on our financial statements.
In July 2001, SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and other Intangible Assets were issued. SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
142 requires, among other things, that companies no longer amortize goodwill,
but instead test goodwill for impairment at least annually. SFAS 142 is required
to be applied for fiscal years beginning after December 15, 2001. Currently, we
have not recorded any
20
goodwill and we intend to assess how the adoption of SFAS 141 and SFAS 142 will
impact our financial position and results of operations with respect to any
future acquisition we may make.
Quantitative and Qualitative Disclosures About Market Risk
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value because of the current nature of these instruments. The
carrying amounts reported for revolving credit and long-term debt approximate
fair value because the interest rates on these instruments are subject to
changes with market interest rates.
21
BUSINESS
General
We manufacture and market gourmet all natural Italian cheeses. Our
product lines consist primarily of mozzarella, ricotta, parmesan, romano and
provolone cheeses, which we produce domestically, as well as parmesan and
pecorino romano cheeses, which we import. Certain of our domestically produced
cheeses include "lite" and lower fat versions containing less fat and fewer
calories.
We sell our cheeses through three channels of distribution in the food
industry: foodservice, food ingredient and retail. Over 95% of our revenue is
derived from the food service channel, where we market and sell our bulk cheeses
under the Suprema brand name, as well as under private label, to national and
regional foodservice distributors, which in turn sell our cheeses to
restaurants, hotels, caterers, and others. We sell our cheeses to food
manufacturers in the food ingredient channel, who use our cheeses as ingredients
in prepared foods, such as frozen pizza and various pasta dishes. In the retail
distribution channel, we sell our cheeses principally in the Northeast and
Mid-Atlantic regional markets, as well as Florida and the Chicago Metropolitan
area, primarily to supermarket chains, grocery stores, delicatessens and gourmet
shops, including Food Town, Shaw's, Giant, King Kullen, Stop'N Shop and Krogers.
We market our cheeses under the Suprema and Suprema Di Avellino brand
names, and are increasing our efforts to build Suprema as a nationally
recognized cheese brand by, among other things, increasing our use of
promotional materials, participating in trade shows and entering into
co-branding relationships. For example, we recently entered into an exclusive
agreement with Sbarro, Inc. to supply all of its whole milk ricotta and grated
romano cheese needs to its over 800 Sbarro restaurants in North America. With
this agreement, Suprema will have its name and logo displayed within Sbarro
stores.
Industry Overview
According to a report published by Business Trend Analysts, Inc., the
U.S. cheese market had $19.9 billion of sales in 1998, which are projected to
grow to approximately $29.8 billion in 2008. Natural cheese products, which are
non-processed and do not contain any preservatives, additives, sweeteners,
dehydrated fillers or artificial flavors, represent a significant sub-category
of the overall cheese market. The U.S. market for natural cheese products had
sales of $11.8 billion in 1998, which are projected to grow to approximately
$18.6 billion in 2008. Production of Italian cheeses, which are natural cheese
products, accounted for approximately 38% of U.S. cheese produced in 1998, and
is projected to increase to 42% of U.S. cheese production in 2008. Approximately
3.1 billion pounds of Italian cheese were produced in the United States in 1998,
which is projected to increase 68% to 5.2 billion pounds by 2008.
Consumer trends have shown an increase in dining away from home and/or
purchasing prepared meals for home consumption. These trends, together with an
increase in the number of fast-food establishments, which use various types of
cheeses in many of their product offerings, have contributed to the rise in
sales of specialty Italian and other ethnic cheeses. According to Business Trend
Analysts, Inc., Italian cheese is gaining market share through increased
distribution in the foodservice industry. Over the past twenty years,
consumption of mozzarella cheese has more than tripled while consumption of
parmesan, ricotta and provolone has doubled. Business Trend Analysts, Inc.
estimates that per capita consumption of Italian cheese will grow at an average
of 4.5% per year, while growth in per capita American cheese consumption will
average only about 0.9% per year.
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Natural cheese products are mainly sold through three channels of
distribution: foodservice, food ingredient and retail. The foodservice channel
encompasses all providers of prepared meals including, among others,
restaurants, hotels and caterers. The food ingredient channel produces frozen
foods such as pizzas and various pasta dishes, food toppings and desserts. The
retail channel includes supermarket chains, grocery stores, delicatessens,
gourmet shops and other retail outlets. According to a recent McKinsey &
Company, Inc. report of the foodservice industry, the foodservice and food
ingredient channels are expected to comprise $87.0 billion of the $140 billion
in new food spending, representing 61.0% of total growth, between 2000 and 2010.
Over the same ten year period, the retail channel is expected to comprise $53.0
billion, or 39%, of this incremental growth. The report indicates that this
expected growth in food spending will be fueled by social changes that have
altered the nations eating habits. For example:
o As generations age, they are more likely to spend
significantly more dollars away from home on food;
o As the number of households earning over $50,000 increases to
30% of total households, the amount of money spent on food
prepared outside the home will also rise; and
o As dual income families consume their time in the workforce
they tend to rely more on foods prepared away from home.
The foodservice channel is also experiencing increasing consolidation.
According to the McKinsey report, the top ten foodservice manufacturers
increased their share of total revenue from 29% in 1990 to an estimated 36% in
2000. In addition, the top ten distributors held 28% of the market share in
2000, representing an increase from 17% in 1990.
Competitive Strengths
We are a Low Cost Producer. All of our production facilities are
located in key milk shed regions of the United States including New York,
California, the leading milk producing state, and Idaho, which is one of the
fastest growing milk producing states. By locating in areas where there is an
abundant supply of milk at competitive price levels we are able to minimize
transportation costs for our raw milk supplies and maintain a low cost
infrastructure. In addition, we invest in our production facilities, employ
certain production techniques and maintain an ongoing maintenance program to
ensure that our facilities run efficiently.
We Have Established Relationships with National Accounts. We have
established ourselves as a reliable supplier of consistently high quality
products with major national accounts such as Sysco, Multifoods Distribution and
Lisanti Foods. We believe that our developed relationships will enable us to
further penetrate these customers and their affiliates. Our focus on customer
satisfaction and our geographic diversity allows us to service our national
foodservice and food ingredient customers across the United States.
We Produce High Quality and Consistent Products. We maintain rigorous
quality control programs in all of our production facilities. We design these
programs so that our products meet or exceed our stringent quality control
measures, ensuring that our customers receive high quality cheese with
consistent taste and performance characteristics. We believe that our focus on
the quality and
23
consistency of our products has been a primary factor in our ability to achieve
significant and increasing sales growth over the last three fiscal years.
We Produce A Full Line of Gourmet All Natural Italian Cheeses. We
produce a full line of gourmet all natural Italian cheeses consisting of
mozzarella, ricotta, parmesan, romano and provolone, including "lite" and lower
fat versions of certain of these cheeses. By offering a broad range of products,
we can service customers in the three primary food industry distribution
channels: foodservice, food ingredient and retail. Our broad product offering
also enables us to be the single source provider of our customers' Italian
cheese needs.
We Have an Experienced Management Team. We have an experienced
management team committed to achieving our goals. Our President and Chief
Executive Officer is a founder of Suprema and has been involved in the cheese
manufacturing business since 1975. In addition, our Vice Presidents have
significant experience in the food production and marketing industry. We feel
that this team has emphasized quality in the execution of our business plan,
particularly in the areas of customer relations, productivity and employee
excellence.
Business Strategy
Our business goal is to increase sales and profits by continuing to
provide high quality cheeses while expanding our distribution channels. Key
elements of our strategy for achieving this goal include:
Remaining a Low Cost Producer. The geographic location of our
production facilities in close proximity to areas of abundant supplies of milk
assists us in controlling the transportation component of our production costs.
Moreover, we believe that our production capacity, as increased by the recent
addition of our third production facility, provides us with increased purchasing
leverage for raw materials and supplies through increased volume discounts. We
intend to continue to invest in our facilities to enable us to decrease costs
and increase operating efficiencies. By maximizing our operating efficiencies we
believe that we will maintain our competitive pricing structure and further
leverage our continued sales growth.
Further Penetrating Large Foodservice Distributors in the Foodservice
Industry. Similar to the cheese industry, the foodservice industry is highly
fragmented. In recent years, as part of the consolidation of the foodservice
industry, many of the larger foodservice distributors acquired smaller
distributors. Many of the divisions of these foodservice distributors make
individual purchasing decisions, creating what we believe is an opportunity for
suppliers such as ourselves to further penetrate these large distributors. Many
of the largest foodservice distributors and food ingredient manufacturers are
currently clients. With our broad line of high quality all natural Italian
cheeses, we believe we can increase sales to these clients.
Continuing to Produce a Full Line of High Quality Products. We believe
that we have maintained a working environment that stresses excellence and
quality. We have been recognized by our industry for our high quality products,
including: the award for Best Hard Cheese at the 2001 California State Fair
Commercial Cheese Competition; the award for Best of Division for our provolone
cheese, gold medals for our provolone and mozzarella cheeses and a bronze medal
for our skim milk ricotta cheese in the California State Fair Commercial Cheese
Competition in July 2001; and six gold medals, four silver medals and one bronze
medal for our mozzarella and provolone cheeses and the "Agriculture 2000 Open
Class Cheese Award of Excellence" from the New York Sate Fair in October 1999.
We believe that the quality and consistency of our products and our high level
of customer service and satisfaction are each key elements in our ability to
maintain and expand existing customer relationships and establish strong
relationships with new customers. We intend to continue to invest in training
24
and use compensation tools such as employee stock options to continue to
motivate our employees.
Strengthening the Suprema Brand Name. We intend to increase recognition
of the Suprema brand name in the foodservice and food ingredient channels
through the use of promotional material such as brochures, circulars, and stand
alone displays, as well as through various co-op advertising programs and
co-branding opportunities such as our recently signed exclusive agreement with
Sbarro, Inc. under which we will supply its whole milk ricotta and grated romano
cheese needs to its over 800 restaurants in North America. As part of the
agreement, Sbarro has agreed to display the Suprema logo within Sbarro stores.
Pursuing Potential Strategic Acquisitions. The cheese industry is
highly fragmented and regionalized, and we believe that there are potential
acquisition opportunities for Suprema. In December 2000, we acquired our
Blackfoot, Idaho production facility. We intend to continue to pursue strategic
acquisitions of facilities and/or businesses that are complementary to our
business or that enable us to expand our production capacity or distribution
channels. In addition, certain strategic acquisitions may enable us to expand
our product lines to other specialty cheeses and to increase our brand
recognition.
Products, Production Process and Packaging
We domestically produce mozzarella, ricotta, provolone and grated and
shredded parmesan and romano cheeses, including "lite" and lower fat versions of
certain of these products which contain less fat and fewer calories. We also
import parmesan and pecorino (sheep's milk) romano cheeses for production and
resale. Foreign producers, located principally in Europe and South America,
supplied us with 25% of our bulk cheese requirements in each of fiscal year 2000
and fiscal year 2001. Our cheeses are natural and do not contain any
preservatives, additives, sweeteners, dehydrated fillers or artificial
flavorings. Our cheese products are premium quality all natural cheeses that
meet or exceed all federal and industry standards for purity, freshness, taste,
appearance and texture.
The flavor, aroma and texture of cheese is heavily dependent on the
ingredients and cultures used in the manufacturing process and the period of
time during which the cheese is aged. However, all natural cheeses go through a
similar production process. The basic ingredient of cheese is milk, usually
derived from cows, sheep or goats. First, milk is separated and standardized to
obtain the desired fat content for the cheese. It is then pasteurized and
transferred to tanks where starter culture and rennet, an enzyme usually
obtained from the stomach of calves, reacts with proteins in the milk to convert
it into curd, the main element of cheese. This curd also contains a large
proportion of whey, a watery substance full of sugar.
Once the milk has sufficiently coagulated, the remaining whey is
drained off. If only a little whey is drained, the cheese will be a soft cheese;
if all of the whey is removed from the curds, the cheese will be a hard cheese.
Cheese producers vary the curd-whey ratio to produce a variety of cheese
textures.
Once the curd consistency has been determined, the mixture is heated,
squeezed, twisted, pulled or kneaded to refine the cheese's texture. Provolone,
for example, is stretched and kneaded to give it its more elastic texture.
Mozzarella curds are chopped and shredded, cooked in hot water, kneaded and
stretched, cooked in hot water once again, then shaped and placed in cold water
for preservation. When the cheese producer has achieved the desired consistency,
the curds are patted into cheese molds and salted. Salt plays an important role
in the formation of the cheese's rind or outer coating.
The most important stage in cheese production is the ripening stage.
Once the cheese has settled into molds, it is left in controlled environments
with constant temperature to age. Some cheeses take only
25
two weeks to mature and others can take as long as seven years. During this
time, natural microbes begin to hatch within the cheese, giving it its
particular flavors.
Once aged, cheeses are packaged and shipped to consumers. Today, most
types of cheeses are made in commercial factories, where state-of-the-art
equipment and technology prevent contamination and an overgrowth of bacteria. We
use various techniques to preserve the freshness of our products, including,
controlled atmosphere, heat sealed packaging and a moisture reduction process
which extends the shelf-life of our grated and shredded cheeses.
We offer many of our products to the foodservice and food ingredient
groups in shrink-wrapped plastic packaging and in plastic pillow packs which
ensure continued freshness and gourmet quality. In addition to standard sizes,
we also package our products in customized sizes, which can range from five
pound to 40 pound blocks, in order to meet the specific needs of our foodservice
distributors and food manufacturer customers. We market and sell our products to
the foodservice and food ingredient groups under the Suprema brand name as well
under private label.
We offer most of our retail products in convenient, resealable,
tamper-resistant, clear plastic cups and shakers in order to maximize both
freshness and taste as well as to promote visual appeal. We believe that our
packaging enhances the gourmet quality and image of our cheeses. We offer our
cheeses in a wide variety of retail package sizes, ranging from 6 ounces to 3
pounds. We market and sell our products to retail groups under the Suprema Di
Avellino brand name as well as under private label.
Sales and Marketing
We employ regional sales representatives to market our products as well
as a national account representative who is responsible for sales to our
customers who have national operations. Senior management is responsible for
planning and coordinating our marketing programs and maintains a hands-on
relationship with select key accounts. In addition, we engage independent
commissioned food brokers throughout the United States for marketing to our
customers. To achieve greater market penetration, we intend to continue to
strengthen and expand our sales force and food broker network.
We believe that product recognition by customers, consumers and food
brokers is an important factor in the marketing of our products. We market our
products and brand name by participating in trade shows, establishing
co-branding relationships, through the use of promotional materials, including
full color product brochures, circulars, free standing product displays,
newspaper inserts and through various co-op advertisement programs. Our Vice
President of Sales is responsible for overseeing our marketing efforts and for
managing and coordinating our sales efforts and supervising our regional sales
representatives and brokers.
Customers
We sell our cheeses nationally to foodservice industry distributors and
food manufacturers, principally in bulk. For the years ended June 30, 1999, 2000
and 2001, sales of cheese products to foodservice distributors accounted for
approximately 91%, 91% and 97%, respectively, of our net sales. Sales to food
manufacturers accounted for approximately 6%, 7% and 2%, respectively, of our
net sales.
Our retail products are sold to supermarket chains, grocery stores,
delicatessens and gourmet shops. Our customers include well known chain stores,
such as Food Town, Shaw's, Giant, King Kullen, Stop'N Shop, and Krogers. For the
years ended June 30, 1999, 2000 and 2001, sales of cheese products to retailers
accounted for approximately 3%, 2% and 1%, respectively, of our net sales.
26
We generally sell our cheeses upon receipt of customer purchase orders
and fill orders within approximately seven days. Other than our agreement with
Sbarro, Inc., we generally do not have long term purchase agreements with our
customers. For the fiscal year ended June 30, 2000, A&J Foods, Inc., Tricon
Commodities International, Inc. and Noble J.G. Cheese Company accounted for
approximately 15%, 13% and 12%, respectively, of our net sales. For the fiscal
year ended June 30, 2001, A&J Foods, Inc., Tricon Commodities International,
Inc., Battaglia and Company, Noble J.G. Cheese Company and California Goldfield
Cheese Traders accounted for approximately 17%, 15%, 12%, 10% and 10%,
respectively, of our net sales.
Production Facilities
We manufacture our all natural cheeses at our West Coast facility in
Manteca, California, our Northeast facility in Ogdensburg, New York and our
facility in Blackfoot, Idaho.
Our Manteca facility consists of approximately 110,000 square feet,
which we operate pursuant to a ten year lease that expires in August 2005 and
that may be extended at our option for two additional five-year periods. At our
Manteca facility, raw milk is purchased from milk cooperatives and, through our
state-of-the-art equipment and our proprietary techniques, produced into cheese.
The Manteca facility, which has shredding capabilities, whey processing
equipment and storage and shipping facilities, manufactures the full line of our
products, including mozzarella, provolone, ricotta, and domestic parmesan and
romano.
Our Ogdensburg facility consists of an aggregate of approximately
72,000 square feet and contains a cheese manufacturing operation, as well as
storage and shipping facilities and whey processing equipment. We manufacture
mozzarella and provolone cheeses at this facility. We lease this facility
pursuant to a lease which expires in July 2017, which we may elect to terminate
on each fifth year anniversary of its commencement.
We purchased our Blackfoot facility in December 2000. We manufacture
mozzarella, monterey jack and cheddar cheese at this facility. This facility
consists of approximately 37,000 square feet and contains a cheese manufacturing
operation, as well as storage and shipping facilities and whey processing
equipment.
We also maintain an East Coast facility in Paterson, New Jersey which
we own, subject to a mortgage, and which consists of approximately 32,000 square
feet. This facility contains production, storage and shipping facilities,
including state-of-the-art equipment for grating, shredding and packaging our
products, and has been further expanded to include a refrigerated/freezer
storage facility. At this facility, bulk cheese from our three manufacturing
facilities, as well as imported bulk cheese, is shredded or grated, packaged and
distributed. Our Paterson facility also serves as our corporate headquarters.
Each of our facilities serves as a distribution point for various
geographic markets throughout the United States. Our Manteca and Ogdensburg
facilities are operating at approximately 80% of production capacity. Our
Paterson facility is operating at approximately 67% of production capacity and
our Blackfoot facility is operating at approximately 20% of production capacity.
We employ a Director of Operations at each facility who makes
pre-production inspections and monitors critical manufacturing and processing
functions. We also employ a Director of Quality Control who oversees the Quality
Control Departments at each of our facilities. Our Quality Control Departments
are responsible for testing raw ingredients to ensure that they are free of
contaminants, inspecting production equipment and testing finished products to
ensure both quality and compliance with customer specifications. In addition, we
regularly send random samples of each product to outside laboratories, which
perform routine physical, chemical and micro-biological tests.
27
We believe that our current facilities are adequate to handle our
current sales volume and subsequent growth.
Suppliers
Our principal ingredient is raw milk. We have a supplier agreement with
Allied Federated Cooperatives Inc. that runs through 2017, which provides that,
subject to specified minimum amounts, we will purchase from them all of our milk
requirements used in the manufacture of cheese products at our Ogdensburg, New
York facility. We are also dependent on a limited number of other suppliers for
all of our requirements of raw materials, primarily milk used in the manufacture
of cheese at our Manteca, California facility. We believe that there are
numerous alternative sources of supply available to us, including for raw milk
which is currently provided by our suppliers. For our fiscal year 2000 and
fiscal year 2001, our three largest suppliers accounted for, in the aggregate,
approximately 34% and 36%, respectively, of our product requirements, with one
milk supplier accounting for 14% and 12%, respectively, of our requirements.
Other than our agreement with Allied Federated Cooperatives Inc., we generally
purchase raw milk from diary cooperatives and other dairy vendors under one-year
purchase agreements.
Our purchases of bulk cheese are made pursuant to purchase orders
placed in the ordinary course of business. We import certain of our bulk cheeses
directly from Europe and, to a lesser extent, South America. We purchase cheese
supplies in large quantities in order to obtain volume discounts and place
orders for imported bulk cheese approximately four to six months in advance of
anticipated production requirements. For the fiscal years ended June 30, 1999,
2000 and 2001, approximately 18%, 25% and 25%, respectively, of our supply
requirements were imported.
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Trademarks
In September 1992, we registered the name Suprema Di Avellino with the
United States Patent and Trademark Office. We have received Notices of Allowance
from the United States Patent Office with respect to the trademarks "Chez" and
"Pizza Chez."
Government Regulation
We are subject to extensive regulation by the United States Food and
Drug Administration, the United States Department of Agriculture, and other
state and local authorities in jurisdictions in which our products are
manufactured, processed or sold, regarding the importation, manufacturing,
processing, packaging, storage, distribution and labeling of our 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 as well as general "Good Manufacturing Practices"
with respect to manufacturing and production processes. Our manufacturing and
processing facilities and products are subject to compliance with federal and
state regulations regarding work safety and environmental matters as well as
periodic inspection by federal, state and local authorities. We believe that we
are currently in substantial compliance with all material governmental laws and
regulations and maintain all material permits and licenses relating to our
material operations. Amendments to existing statutes and regulations, adoption
of new statutes and regulations as well as our expansion into new operations and
jurisdictions will require us to obtain additional licenses and permits and
could require us to adapt or alter methods of operations at costs which could be
substantial.
Advertising relating to our products is subject to review of the
Federal Trade Commission and state agencies to monitor and prevent unfair or
deceptive trade practices.
Competition
We face significant competition in the marketing and sales of our
products. Our foodservice and food ingredient products compete on the basis of
price, quality and service with products of companies such as Dairy Farmers of
America, Beatrice Cheese Company and Stella Foods. Our retail products compete
for brand recognition and shelf space with products of companies which have
achieved significant consumer loyalty, such as Kraft, Sorrento and Sargento, as
well as private label. Many of these companies have greater financial and other
resources than we do which enables them to procure supermarket shelf space and
to implement extensive advertising and promotional programs. We also compete in
all three distribution channels with importers of foreign cheese and companies
manufacturing substitute cheese products.
We believe the principal competitive factors in the marketing of
cheeses are price, quality, freshness, brand recognition and packaging
convenience. Because our current products are positioned as all natural and
gourmet, we generally price them at a premium to certain competitive products.
We are subject to evolving consumer preferences, nutritional and
health-related concerns. We believe that the absence of preservatives,
additives, sweeteners, dehydrated fillers or artificial flavorings increases the
appeal of our products to consumers. In addition, in response to certain
consumer concerns we have certain all natural "lite" and lower fat cheese
products which contain less fat and fewer calories. We expect to see increased
competition from other companies whose products or marketing strategies address
these consumer concerns.
29
Employees
As of the date of this prospectus, we had 286 full-time employees, of
which 16 are employed in executive capacities and management positions, 28 are
engaged in sales and marketing and administrative capacities and 242 are engaged
in production and operations. Approximately 62% of our total workforce is
represented by a union. We have entered into a contract with our union employees
in Manteca, California which expires in December 2004. We have entered into a
contract with our union employees in Ogdensburg, New York which expires in
November 2003. We consider relations with our employees to be satisfactory.
Legal Proceedings
We are a party to certain litigation arising in the ordinary course of
business. While any litigation has an element of uncertainty, we believe that
the final resolution of any of these matters will not have a material effect on
our operations.
30
MANAGEMENT
Our current directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Mark Cocchiola 44 Chairman of the Board, Chief Executive Officer and President
Steven Venechanos 41 Chief Financial Officer, Secretary and Director
Thomas Egan 59 Senior Vice President
Anthony Distinti 81 Vice President
Marco Cocchiola 76 Director
Dr. Rudolph Acosta, Jr. 45 Director
Paul DeSocio 58 Director
Barry S. Rutcofsky 43 Director
</TABLE>
Mark Cocchiola has been President and a director of Suprema since our
inception in 1983 and Chairman of the Board and Chief Executive Officer since
February 1991. Mark Cocchiola is the son of Marco Cocchiola.
Steven Venechanos has been employed by Suprema since April 1994 and
became Chief Financial Officer and Secretary of Suprema in April 1995. He was
appointed a director of Suprema in September 2001. From June 1990 until joining
Suprema, he was employed in a variety of positions at Breed Technologies, a
manufacturer of airbag sensors.
Thomas Egan has been Vice President of Suprema since May 1993 and
Senior Vice President since June 1995. From May 1992 through May 1993, he was
Sales Manager of Blue Ridge Farms, a salad manufacturer. From October 1990
through May 1992, Mr. Egan was President of TEF Sales Corp., a sales and
marketing consulting firm specializing in the cheese importing business.
Anthony Distinti has been Vice President of Human Resources of Suprema
since November 1997. Mr. Distinti has been employed in the food industry most of
his life in various capacities and has more than forty years experience in human
resources.
Marco Cocchiola has been a director of Suprema since February 1991 and
Operations Manager since our inception in 1983. Mr. Cocchiola was Secretary of
Suprema from February 1991 to June 1993. Marco Cocchiola is the father of Mark
Cocchiola.
Rudolph Acosta, Jr., M.D. has been a director of Suprema since August
1993. He has been engaged in the private practice of medicine since August 1986.
Paul DeSocio has been a director of Suprema since August 1993. He has
been the President and a director of Autoprod, Inc., a manufacturer of food
packaging machinery since May 1989. From 1980 through May 1989, Mr. DeSocio was
a Vice President of Autoprod, Inc.
Barry S. Rutcofsky has been a director of Suprema since February 2001.
He has served as the Co-Chairman of the Board of Directors of Take-Two
Interactive Software, Inc., a developer, publisher and distributor of
interactive software games since July 2000 and was President of Take-Two
Interactive from August 1999 to July 2000. Prior to joining Take-Two, Mr.
Rutcofsky was a partner of the New York law firm of Tenzer Greenblatt LLP (now
known as Blank Rome Tenzer Greenblatt LLP). Mr. Rutcofsky joined Tenzer
Greenblatt LLP in April 1987.
31
Paul Lauriero, a director and Executive Vice President and a co-founder
of Suprema passed away on August 27, 2001. Mr. Lauriero was primarily
responsible for overseeing the procurement of raw materials for production and
the general operations of our facilities. Mark Cocchiola has assumed these
responsibilities on an interim basis. We cannot, at this time, determine the
impact of the loss of Mr. Lauriero's services on our operations. We are the
beneficiary of a key-man life insurance policy we had obtained on the life of
Mr. Lauriero in the amount of $1.0 million and we anticipate receiving the
proceeds from this policy.
Our directors are elected at the annual meeting of shareholders to hold
office until the annual meeting of shareholders for the ensuing year or until
their successors have been duly elected and qualified.
Officers are elected annually by our directors and serve at the
discretion of the Board.
Compensation of Directors
Non-employee directors receive compensation in the amount of $500 for
each meeting attended in person and $250 for each meeting attended by telephone
conference call for serving on the Board. Directors are reimbursed for all
out-of-pocket expenses incurred in attending Board meetings.
In addition, under our 1991 and 1998 stock option plans and 1999 stock
incentive plan, non-employee directors, other than directors who become members
of a stock option committee appointed by our Board pursuant to a stock option or
incentive plan, are eligible to be granted non-qualified stock options.
Directors who are employees, and are not members of a stock option committee,
are eligible to be granted incentive stock options and non-qualified stock
options under our stock option plans. Our Board or the compensation committee of
the Board has discretion to determine the number of shares subject to each
incentive stock option, the exercise price and other terms and conditions
thereof, but their discretion as to the exercise price, the term of each
incentive stock option and the number of incentive stock options that may vest
in any year, is limited by the terms of the stock option or incentive plans and
the Internal Revenue Code of 1986, as amended. In addition, the 1999 stock
incentive plan provides for the grant of other stock-based awards as may be
determined by our Board or the compensation committee.
Board Committees
We have established a compensation committee that is currently composed
of Dr. Rudolph Acosta and Mr. Paul DeSocio. The function of the compensation
committee is to evaluate and determine the compensation of our executive
officers pursuant to recommendations made by Mark Cocchiola, our Chief Executive
Officer.
We have established an audit committee that is currently composed of
Messrs. DeSocio and Rutcofsky and Dr. Acosta. The function of the audit
committee is to review and monitor our corporate financial reporting, external
audits, internal control functions and compliance with laws and regulations that
could have a significant effect on our financial condition or results of
operations. In addition, the audit committee has the responsibility to consider
and recommend the appointment of, and to review fee arrangements with, our
independent auditors.
32
Executive Compensation
Summary Compensation. The following table discloses compensation
awarded by Suprema for the fiscal years ended June 30, 2001, 2000 and 1999, to
our Chief Executive Officer, Executive Vice President, Senior Vice President,
Chief Financial Officer and Vice President, the "Named Executives," who are the
only executive officers whose salary and bonus exceeded $100,000 during the
fiscal year ended June 30, 2001.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------------------------ -------------
Number of
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
--------------------------- ---- ------ ----- ------------- --------------
<S> <C> <C> <C> <C> <C>
Mark Cocchiola, Chairman of the 2001 $250,000 $706,984 100,000 $17,716
Board, Chief Executive Officer and 2000 250,000 508,594 100,000 15,615
President 1999 252,700 324,201 50,000 15,010
Paul Lauriero, Executive Vice 2001 250,000 706,984 100,000 16,616
President(2) 2000 250,000 508,594 100,000 13,679
1999 252,700 324,201 50,000 12,648
Thomas Egan, Senior Vice President 2001 164,903 -- 10,000 6,000
2000 153,750 -- 15,000 9,196
1999 133,077 -- 30,000 6,000
Steven Venechanos, Chief Financial 2001 154,807 60,000 92,000 6,000
Officer and Secretary 2000 153,750 -- 25,000 13,500
1999 120,000 -- 30,000 6,000
Anthony Distinti, Vice President 2001 125,000 20,000 -- --
2000 119,731 -- -- --
1999 96,500 -- -- --
</TABLE>
------------------
(1) Consists of automobile allowance, medical insurance premium reimbursement
and compensation paid in lieu of vacation.
(2) Mr. Lauriero passed away on August 27, 2001. Mark Cocchiola has assumed the
duties previously performed by Mr. Lauriero, on an interium basis.
33
Option Grants in Last Fiscal Year. The following table discloses
information concerning options granted in fiscal year 2001 to the Named
Executives. The options granted to Mark Cocchiola and Mr. Lauriero were
exercisable in full from the date of grant. The options granted to Mr. Egan and
Mr. Venechanos vest in three annual installments commencing one year from the
original date of grant of the options.
Rates
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------
Number of Percent of Potential Realizable
Securities Total Options Value At Assumed Annual
Underlying Granted to Exercise Rates of Stock Price
Options Employees in Price Expiration Appreciation for Option
Name Granted Fiscal Year ($/Sh) Date Term
----------------- ---------- -------------- --------- ---------- -----------------------
5% 10%
-------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark Cocchiola 100,000 25.2% $7.50 01/02/11 $471,671 $1,195,307
Paul Lauriero 100,000 25.2 7.50 01/02/11 471,671 1,195,307
Thomas Egan 10,000 2.6 7.50 01/02/11 47,167 119,531
Steven Venechanos 92,000 23.2 7.50 01/02/11 198,101 1,099,685
Anthony Distinti -- -- -- -- -- --
</TABLE>
Amounts reported in the "potential realizable value" columns above are
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, calculated assuming
appreciation at the indicated annual rate compounded annually for the entire
term of the option (ten years). The 5% and 10% assumed rates of appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock price. The gains
shown are net of the option exercise price, but do not include deductions for
taxes or other expenses associated with the exercise of the option or the sale
of the underlying shares.
Aggregated Option Exercises and Fiscal Year-End Option Values. The
following table sets forth information concerning the number of options owned by
the Named Executives and the value of unexercised stock options held by the
Named Executives as of June 30, 2001. No stock options were exercised by the
Named Executives during fiscal year 2001. The year-end values in the table
represents the difference between the exercise price of such options and the
fiscal year-end fair market value of our common stock. The last sale price, or
fair market value, of our common stock on June 29, 2001, the last trading day
prior to June 30, 2001, was $14.75 per share.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at June 30, 2001 at June 30, 2001($)
------------------------ -----------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------ ------------ ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark Cocchiola(1) -- -- 475,000 -- $4,603,853 --
Paul Lauriero(1) -- -- 455,000 -- 4,373,313 --
Thomas Egan -- -- 90,000 30,000 1,005,760 $ 331,631
Steven Venechanos(1) -- -- 131,334 118,666 1,466,663 1,082,140
Anthony Distinti -- -- 10,000 -- 115,000 --
</TABLE>
------------------
(1) The Shares being offered by Mr. Cocchiola, Mr. Lauriero's estate and Mr.
Venechanos in this offering will be issued upon the exercise of a portion of
these options sufficient to purchase 193,423, 303,640 and 52,937 shares of
common stock, respectively, immediately prior to this offering.
34
Employment Agreements
Mark Cocchiola has entered into an employment agreement with us that
currently expires in May 2006 and which may be automatically extended for
one-year periods after the initial term. The agreement provides for the
full-time employment of Mr. Cocchiola at an annual salary of $250,000 and an
annual bonus equal to 5% of our pre-tax profits in excess of $650,000 for the
preceding year. Mr. Cocchiola received a bonus of $324,201 in fiscal year 1999,
$508,574 in fiscal year 2000 and $706,984 in fiscal year 2001. The agreement
provides that Mr. Cocchiola will not compete with Suprema during the term of his
employment and for a period of one year following termination by either us or
Mr. Cocchiola for any reason. The agreement also provides that if Mr.
Cocchiola's employment is terminated under certain circumstances, including a
"change of control," he will be entitled to receive severance pay equal to the
higher of (i) $1,250,000 or (ii) five times the total compensation paid to him
by Suprema (including salary, bonus, perquisites and the value of options
granted to Mr. Cocchiola) during the 12 month period prior to the date of
termination.
35
DESCRIPTION OF SECURITIES
Suprema is authorized to issue 50,000,000 shares of common stock, par
value $.01 per share and 2,500,000 shares of preferred stock, par value $.01 per
share. As of the date of this prospectus, there were 5,735,112 shares of common
stock and no shares of preferred stock issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voting for the election of
directors can elect all of the directors. The holders of common stock are
entitled to receive dividends when, as and if declared by the Board in its
discretion out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of Suprema, the holders of common stock
are entitled to ratably share the assets of Suprema, if any, legally available
for distribution to them after payment of the debts and liabilities of Suprema
and after provision has been made for each class of stock, if any, having
preference over the common stock. Holders of shares of common stock have no
conversion, preemptive or other subscription rights, and there are no redemption
or sinking fund provisions applicable to the common stock. All of the
outstanding shares of common stock are, and the shares of common stock offered
hereby will be, when issued upon payment of the consideration set forth in this
prospectus, fully paid and non-assessable.
Preferred Stock
We are authorized to issue 2,500,000 shares of preferred stock. The
preferred stock can be issued from time to time in one or more series which may
rank senior to the common stock with respect to the payment of dividends and in
the event of liquidation, dissolution or winding-up of our company. Our Board
has the power, without shareholder approval, to issue shares of one or more
series of preferred stock, at any time, and for such consideration and with such
relative rights, privileges, preferences and other terms as the Board may
determine, including terms, relating to dividend and redemption rates,
liquidation preferences and conversion or other rights. The rights and terms of
any new series of preferred stock could adversely affect the voting power or
other rights of the holders of the common stock or could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of our company.
Our Board has previously designated a class of 500,000 shares of Series
A redeemable convertible preferred stock whose terms provide that it may be
converted at the rate of one share of common stock for each share of preferred
stock at any time prior to redemption at a conversion price of $3.00 per share.
The preferred stock is redeemable at our option at any time after the first
anniversary of issuance, provided that the daily average of the high and low
price of our common stock equals or exceeds $5.00 per share for ten consecutive
days. The redemption price would be $3.00 per share, plus accrued and unpaid
dividends. Quarterly dividends are payable in cash at an annual dividend rate of
10% and are cumulative. The preferred stock has a preference on liquidation of
$3.00 per share plus accumulated but unpaid dividends. The preferred stock is
non-voting stock, unless we fail to pay dividends on the preferred stock for
four consecutive quarters, in which case the holders of the preferred stock
would be entitled to vote as a class to elect an additional director to the
Board.
Options
As of the date of this prospectus, options to purchase a total of
1,876,333 shares of our common stock were outstanding and options to acquire up
36
to 23,667 shares of our common stock may be granted in the future under or
existing stock option plans. Of the outstanding options, an aggregate of 550,000
options will be exercised by the selling shareholders named in this prospectus
to acquire the shares to be sold by them in this offering.
Warrants
In connection with our 1996 public offering, we issued the underwriter
warrants to purchase 150,000 shares of common stock, exercisable until September
30, 2001, at an exercise price of $6.875 per share. All of these warrants are
outstanding as of the date of this prospectus.
In connection with our 2000 public offering, we issued the underwriter
warrants to purchase 120,000 shares of common stock, exercisable until August
24, 2005, at an exercise price of $11.20 per share. All of these warrants are
outstanding as of the date of this prospectus.
In March 2001, we issued, to our public relations firm, warrants to
purchase 10,000 shares of common stock at an exercise price of $8.25 per share.
These warrants will become exercisable in March 2002 and will expire in March
2011.
Registration Rights
Holders of 120,000 shares of our common stock issuable upon the
exercise of outstanding warrants are entitled to certain rights with respect to
the registration of these shares under the Securities Act.
If we register any of our common stock, either for our own account or
for the account of other security holders, the holders of warrants are entitled
to notice of the registration and to include their shares of common stock in the
registration.
In all cases, a holder's right to include shares in a registration is
subject to the ability of the underwriters to limit the number of shares
included in this offering. All fees, costs and expenses of all of these
registrations will be paid by us, and all selling expenses will be paid by the
holders of the securities being registered. Sales of these shares could have an
adverse effect on the trading price of our common stock.
Anti-takeover Effects of Certain Provisions of Our By-Laws and Shareholders
Rights Plan
Certain By-Law provisions. Our By-Laws contain provisions that could
make more difficult the acquisition of control of Suprema by various means, such
as a tender offer, open market purchases, a proxy contest or otherwise. For
instance, special meetings of the shareholders may only be called by our
President and our By-Laws establish advance notice procedures with regard to
shareholder proposals for annual or special meetings. The effect of these
provisions may be to discourage certain types of transactions which may involve
an actual or threatened change of control of Suprema and to encourage persons
seeking to acquire control of Suprema to consult first with our Board to
negotiate the terms of any proposed business combination or offer.
Shareholders Rights Plan. In March 1996, we adopted a Shareholders
Rights Plan and declared a dividend of one purchase right (a "Right") for each
outstanding share of our common stock. The dividend was paid to holders of
record of our common stock as of the close of business on March 18, 1996. Each
Right entitles the registered holder to purchase from us one share of our common
stock at a price of $20.00 per share (the "Purchase Price"), subject to
adjustment in certain circumstances. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between Suprema and
Continental Stock Transfer & Trust Company, as Rights Agent. A copy of the
Rights Agreement, which includes as Exhibit B the form of Rights Certificate and
as Exhibit C the Summary of Rights to
37
Purchase Common Stock, is an exhibit to the registration statement of which this
prospectus forms a part.
Rights are evidenced by and are transferable only in connection with
the common stock certificates outstanding prior to the Distribution Date (as
defined below). As soon as practical following the earlier to occur of (i) ten
days after a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") have acquired or obtained the right
to acquire beneficial ownership of 15% or more of our outstanding common stock
or (ii) ten business days after the commencement of, or public announcement of
an intention of a person or group to commence, a tender or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of our outstanding common stock (the "Distribution Date"),
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of our common stock as of the close of business on
the Distribution Date and such separate Right Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date and will
expire on March 17, 2006, unless extended or unless the Rights are earlier
redeemed or exchanged by us, as described below. The Rights, the Purchase Price,
and the number of shares or other securities or property issuable upon exercise
of the Rights are subject to adjustment from time to time to prevent dilution.
In the event that following the Distribution Date, (i) Suprema is the
surviving corporation in a merger or consolidation with an Acquiring Person and
the common stock is not changed or exchanged, (ii) a person becomes the
beneficial owner of 25% or more of the then outstanding shares of our common
stock (except pursuant to an all-cash tender offer for all outstanding shares of
our common stock), (iii) an Acquiring Person engages in one or more
"self-dealing" transactions as set forth in the Rights Agreement, or (iv) during
such time as there is an Acquiring Person, an event set forth in the Rights
Agreement occurs which results in such Acquiring Person's percentage ownership
of any class of equity securities of Suprema or its subsidiaries being increased
by more than 1% (e.g., a reverse stock split), the Rights Agreement provides
that a proper provision shall be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof, common stock
(or, in certain circumstances, cash, property or other securities of Suprema)
having a value equal to two times the exercise price of the Right. However,
Rights are not exercisable following the occurrence of any of the events set
forth above until such time as the Rights are no longer redeemable by Suprema.
In the event that, at any time following the Stock Acquisition Date, as
defined in the Rights Agreement, (i) Suprema is acquired in a merger or
consolidation in which Suprema is not the continuing or surviving corporation,
(ii) Suprema is acquired in a merger or consolidation in which Suprema is the
continuing or surviving corporation and Suprema's common stock is changed into
or exchanged for other securities or property, or (iii) 50% or more of Suprema's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which have previously been voided as provided in the Rights Agreement)
shall have the right to receive, upon exercise of the Right, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
Listing
Our common stock is quoted on the Nasdaq National Market under the
trading symbol "CHEZ."
Transfer Agent
The transfer agent for our common stock is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004.
38
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
after this offering, or the perception that such sales may occur, could
materially and adversely affect prevailing market prices of our common stock and
our ability to raise equity capital in the future.
After this offering, we will have 9,785,112 shares of our common stock
issued and outstanding. This amount does not include 224,877 treasury shares. A
total of 9,047,371 of our outstanding shares, including the shares sold by us
and the selling shareholders in this offering, will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our affiliates, as that term is defined in Rule 144, may
generally only be sold in compliance with the limitations of Rule 144, which is
summarized below.
The remaining 737,741 of our outstanding shares, representing 7.5% of
our total shares of common stock to be issued and outstanding after this
offering, are restricted securities under the terms of the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or other
applicable exemption promulgated under the Securities Act. Our Chairman of the
Board, Chief Executive Officer and President and representatives of the estate
of our former Executive Vice President director, who collectively own 90.6% of
these restricted securities, have agreed that they will not, directly or
indirectly, sell or otherwise dispose of their shares of common stock, as
discussed below in "Underwriting."
We have issued options to purchase 1,876,333 shares of common stock
under our employee stock option plans. Options to purchase 550,000 shares of
common stock will be exercised by the selling shareholders named in this
prospectus to acquire shares to be sold in this offering. A significant number
of the remaining shares underlying these options have previously been registered
for resale and, subject to the applicable vesting requirements, upon exercise of
those options the underlying shares may be resold into public market. In
addition, we also have reserved 280,000 shares for issuance pursuant to
outstanding warrants previously issued by us. We have granted registration
rights to the holders of warrants to purchase 120,000 shares of common stock
issuable upon exercise of those warrants.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
o 1% of the number of shares of our common stock then outstanding; or
o the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar week preceding the filing of
a notice on Form 144 with the SEC concerning that sale.
Sales under Rule 144 are also subject to specific manner-of-sale
provisions, notice requirements and to the availability of current public
information about us.
Under Rule 144(k) as currently in effect, a person who is not one of
our affiliates at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than one of our
39
affiliates, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon completion of this offering.
We are unable to predict the effect that sales made under Rule 144,
pursuant to future registration statements, or otherwise, may have on any then
prevailing market price for shares of the common stock. Nevertheless, sales of a
substantial amount of common stock in the public market, or the perception that
such sales could occur, could adversely affect market prices.
We have also agreed with the underwriters not to sell any shares of
common stock or securities exercisable for shares of our common stock for a
period of 90 days after commencement of this offering without the underwriters'
prior written consent. However, even without such consent, we may issue stock
upon exercise of the warrants or the stock options described above.
40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table shows information regarding the beneficial
ownership of our common stock as of the date of this prospectus and as adjusted
to reflect our sale and the sale by the selling shareholders of shares offered
by this prospectus for:
o each person or entity known by us to beneficially own more than 5% of
our common stock;
o each of our named executive officers;
o each of our directors;
o all of our directors and executive officers as a group; and
o selling shareholders under this prospectus.
The percentage of beneficial ownership in the table below both prior to
and after this offering is based on 5,735,112 shares of common stock outstanding
as of the date of this prospectus and 9,785,112 shares of common stock
outstanding after completion of this offering assuming no exercise of the
underwriters' over-allotment option.
All of the shares of common stock to be sold by the selling
shareholders are included in this offering. The selling shareholders have also
granted the underwriters an option to purchase up to 250,000 shares of common
stock to cover over-allotments, if any. The shares being offered by the selling
shareholders in this offering, including in connection with sales upon the
exercise of the underwriters' option to purchase shares from the selling
shareholders to cover over-allotments, will be issued upon the exercise by the
selling shareholders of outstanding common stock options. Mark Cocchiola and
Steven Venechanos are currently, and have been during the last three years,
officers and directors of Suprema. Paul Lauriero is recently deceased and, prior
to his death, was an officer and director of Suprema during the last three
years.
41
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares of Shares Beneficially Owned
Prior to this offering (3) Common After this offering (3)
------------------------- Stock ------------------------- Shares Offered in
Name and Address (1)(2) Number Percent To Be Sold Number Percent Over-allotment
---------------------------------- ------------------------- ----------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Five Percent Shareholders:
Estate of Paul Lauriero (4)........... 675,619 (5) 10.9% 303,640 (6) 371,979 3.7% 32,143 (7)
FMR Corp (8).......................... 506,100 8.8 -- 506,100 5.2 --
Wellington Management Company, LLP (9) 417,500 7.3 -- 417,500 4.3 --
Oberweis Asset Management, Inc.
James D. Oberweis (10).............. 316,000 5.5 -- 316,000 3.2 --
Special Situations Fund III, L.P.
Special Situations Cayman Fund, L.P.
Austin W. Marxe and
David Greenhouse (11)............... 371,451 6.5 -- 371,451 3.8 --
Directors and Executive Officers:
Mark Cocchiola........................ 1,100,635 (12) 17.4 193,423 (13) 907,212 8.9 154,386 (14)
Steve Venechanos...................... 138,000 (15) 2.3 52,937 (16) 85,063 * 63,471 (17)
Thomas Egan........................... 96,666 (15) 1.7 -- 96,666 * --
Marco Cocchiola....................... 56,666 (18) 1.5 -- 56,666 * --
Anthony Distinti...................... 50,000 (15) * -- 10,000 * --
Dr. Rudolph Acosta.................... 5,000 (19) * -- 5,000 * --
Paul DeSocio.......................... 5,000 (15) * -- 5,000 * --
Barry S. Rutcofsky.................... -- -- -- -- -- --
All directors and executive
officers as a group (8 persons)....... 2,117,586 (20) 29.9 550,000 (21) 1,567,586 14.8 250,000 (22)
</TABLE>
--------------------
*Less than one percent.
(1) The address of each beneficial owner, unless otherwise noted, is in care
of Suprema, 510 East 35th Street, Paterson, New Jersey 07543
(2) Unless otherwise noted, we believe that all persons referred to in the
table have sole voting and investment power with respect to all shares of
our common stock reflected as beneficially owned by them.
(3) Options to purchase our common stock which are currently exercisable or
become exercisable by the listed person within 60 days are included in the
number of shares beneficially owned by the listed person and that person's
percentage ownership calculation.
(4) Paul Lauriero, formerly an officer and director of Suprema passed away on
August 27, 2001. The shares of our common stock previously beneficially
owned by Mr. Lauriero are currently owned and administered by his estate.
(5) Includes (i) 455,000 shares that may be purchased upon the exercise of
exercisable options, (ii) 22,539 shares held of record by Mr. Lauriero's
wife and (iii) 45,079 shares held of record by Mr. Lauriero's children.
(6) Represents shares underlying options which are currently exercisable at
prices ranging from $3.06 to $7.50 per share.
42
(7) Represents shares underlying options which are currently exercisable at a
price of $7.50 per share.
(8) According to a Schedule 13G filed with the Securities and Exchange
Commission, the shares are owned by Fidelity Low Priced Stock Fund, an
investment company registered under the Investment Company Act of 1940
("Fidelity Fund"). Fidelity Management Research Company ("Fidelity
Management"), a wholly owned subsidiary of FMR Corp. is the investment
adviser to Fidelity Fund. Edward C. Johnson 3d the Chairman of FMR Corp.,
FMR Corp. through its control of Fidelity Management and Fidelity
Management each has sole investment power over the shares. The address for
each of FMR Corp., Fidelity Management and Mr. Johnson is 82 Devonshire
Street, Boston, Massachusetts 02109.
(9) According to a Schedule 13G filed with the Securities and Exchange
Commission, the shares were acquired by and held for the accounts of
Wellington Trust Company, NA, a wholly owned subsidiary of Wellington
Management Company, LLP ("Wellington"). Wellington has shared investment
power with respect to 417,000 shares and shared voting power with respect
to 360,100 shares. The address for Wellington is 75 State Street, Boston,
Massachusetts 02109.
(10) According to a Schedule 13G filed with the Securities and Exchange
Commission, the shares are held by The Oberweis Fund for which Oberweis
Asset Management, Inc. ("OAM"), an investment adviser registered under
Section 203 of the Investment Advisors Act of 1940, acts as investment
advisor. The Oberweis Fund has delegated shared voting and investment
power over the shares to OAM. James D. Oberweis is the principal
shareholder of OAM. The address for OAM and Mr. Oberweis is 951 Ice Cream
Drive, Suite 200, North Aurora, Illinois 60542.
(11) According to a Schedule 13G filed with the Securities and Exchange
Commission, 283,451 shares are owned by Special Situations Fund III, L.P.,
a Delaware limited partnership ("Special Fund III") and 88,000 shares are
owned by Special Situations Cayman Fund, L.P., a Cayman Islands limited
partnership ("Special Cayman Fund"). August W. Marxe and David Greenhouse
serve as officers, directors and members or principal shareholders of (i)
MGP Advisers Limited Partnership, a Delaware limited partnership ("MGP")
and the general partner and investment to Special Fund III, and (ii) AWM
Investment Company, Inc., a Delaware corporation ("AWM"), the general
partner of MGP and the general partner and investment advisor to Special
Cayman Fund. Messrs. Marxe and Greenhouse share voting and investment
power over the shares held by each of Special Fund III and Special Cayman
Fund. Their address is 153 East 53rd Street, New York, New York 10022.
(12) Includes (i) 575,000 shares that may be purchased upon exercise of
exercisable options owned by Mr. Cocchiola, (ii) 8,333 shares that may be
purchased upon exercise of exercisable options owned by Mr. Cocchiola's
wife and (iii) 2,000 shares held of record by Mr. Cocchiola's wife.
(13) Represents shares underlying options which are currently exercisable at
prices ranging from $3.06 to $3.25 per share.
(14) Represents shares underlying options which are currently exercisable at
prices ranging from $3.068 to $7.50 per share.
(15) Represents shares that may be purchased upon exercise of exercisable
options.
(16) Represents shares underlying options which are currently exercisable at
prices ranging from $3.063 to $3.25 per share.
43
(17) Represents shares underlying options which are currently exercisable at
the price of $3.25 per share.
(18) Includes 56,666 shares that may be purchased upon exercise of exercisable
options.
(19) Represents shares that may be purchased upon exercise of exercisable
options. Does not include 800 shares owned by Dr. Acosta's children, with
respect to which Dr. Acosta disclaims any beneficial interest.
(20) Includes an aggregate of 1,349,665 shares issuable upon exercise of
options beneficially owned by Suprema's executive officers and directors.
(21) Represents the aggregate number of shares underlying exercisable options,
to be sold by the selling shareholders in this offering.
(22) Represents the aggregate number of shares underlying exercisable options
held by the selling shareholders, which may be sold by the selling
shareholders to cover over-allotments.
44
UNDERWRITING
We and the selling shareholders are offering the shares of common stock
described in this prospectus through a number of underwriters. Janney Montgomery
Scott LLC is the representative of the underwriters. Subject to the terms and
conditions of the underwriting agreement, we have agreed to sell and the selling
shareholders have agreed to sell to the underwriters, and each underwriter has
agreed to purchase, the number of shares of common stock listed next to its name
below at the public offering prices less the underwriting discount on the cover
page of this prospectus.
Underwriters Number of Shares
------------ ----------------
Janney Montgomery Scott LLC
----------------
Total 4,050,000
================
The underwriting agreement is subject to a number of terms and
conditions and provides that the underwriters must buy all of the shares if they
buy any of them. The underwriters will sell the shares to the public when and if
the underwriters buy the shares from us. The common stock is offered subject to
a number of conditions including:
o receipt and acceptance of the common stock by the underwriters; and
o the right on the part of the underwriters to reject orders in whole
or in part.
The underwriters will initially offer the shares to the public at the
price per share shown on the cover page of this prospectus. The underwriters may
also allow, and any other dealers may reallow, a concession of not more than
$___ per share to certain other dealers. After the public offering of the common
stock is complete, if all of the shares are not sold at the public offering
price, the underwriters may change the public offering price and the other
selling terms. No change in the selling terms will vary the proceeds to be
received by us as specified on the cover page of this prospectus.
45
We have granted the underwriters an option to buy up to 357,500
additional shares of common stock, and the selling shareholders have granted the
underwriters an option to buy up to 250,000 additional shares of common stock at
the same price per share as the public offering price, less the underwriting
discount shown on the cover page of this prospectus. The underwriters may
exercise these options at any time within 30 days after the date of this
prospectus only to cover over-allotments in the sale of the shares of common
stock offered by this prospectus.
The following table shows the per share and total underwriting
discounts and commissions to be paid to the underwriters. These amounts are
shown assuming no exercise and full exercise of the underwriters' overallotment
option to purchase additional shares.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share underwriting discounts and commissions................ $ $
total underwriting discounts and commissions to be
paid by us...................................................... $ $
</TABLE>
The expenses of this offering, not including underwriting discounts and
commissions, are estimated to be approximately $_______ and will be paid by us.
Expenses of this offering, exclusive of underwriting discounts and commissions,
include the SEC filing fee, printing expenses, transfer agent and registration
and other miscellaneous fees.
We and our executive officers and directors have entered into lock-up
agreements with the underwriters. Under these agreements, subject to certain
exceptions, our officers and directors have agreed that they will not, directly
or indirectly, offer, sell, contract to sell, or otherwise dispose of or hedge
any common stock or securities convertible into or exchangeable for shares of
common stock (including any shares issued upon exercise of options) without the
prior written consent of Janney Montgomery Scott LLC. These restrictions will be
in effect for a period of 90 days after the commencement of this offering.
Janney Montgomery Scott LLC may, in its sole discretion and at any time without
notice, release any or all of the securities subject to these lock-up
agreements.
In connection with this offering and in compliance with applicable
securities laws, Janney Montgomery Scott LLC, on behalf of the underwriters, may
purchase and sell shares of common stock in the open market. These transactions
may include over-allotment, syndicate covering transactions and stabilizing
transactions. Over-allotment involves syndicate sales of common stock in excess
of the number of shares to be purchased by the underwriters in this offering,
which creates a syndicate short position. Syndicate covering transactions
involve purchases of the common stock in the open market after the distribution
has been completed in order to cover syndicate short positions. Stabilizing
transactions consist of certain bids or purchases of common stock made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when Janney
Montgomery Scott LLC, in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
46
In addition, in connection with this offering, the underwriters (and
selling group members) may engage in passive market making transactions in the
common stock on the Nasdaq National Market, prior to the pricing and completion
of this offering. Passive market making consists of displaying bids on the
Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than those independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of the common stock to be higher than the price that otherwise would
exist in the open market in the absence of such transactions. If passive market
making is commenced, it may be discontinued at any time.
Suprema and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of any of those liabilities.
LEGAL MATTERS
The legality of the common stock offered hereby has been passed upon
for Suprema by Blank Rome Tenzer Greenblatt LLP, New York, New York. Certain
legal matters will be passed upon for the underwriters by Pepper Hamilton LLP.
EXPERTS
The financial statements and schedules included and incorporated by
reference in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and incorporated herein by reference,
and are included and incorporated herein in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC.
Our SEC filings are available to the public over the Internet at the
SEC's website at www.sec.gov. You may also read and copy any document we file
with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its Public Reference Room.
INCORPORATION OF INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
the information we have previously filed with it. The information incorporated
by reference is an important part of this prospectus. We incorporate by
reference the documents listed below:
o Our Annual Report on Form 10-K for the fiscal year ended June 30,
2000, as filed with the SEC on September 27, 2000
47
o Our Annual Report on Form 10-K/A for the fiscal year ended June 30,
2000, as filed with the SEC on October 27, 2000;
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2000, as filed with the SEC on November 14, 2000;
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 2000, as filed with the SEC on February 13, 2001;
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2001, as filed with the SEC on May 15, 2001; and
o The description of our common stock contained in our Registration
Statements on Form 8-A dated May 3, 1991 as filed with the
Commission, and any amendments thereto.
All documents we subsequently file pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this Registration Statement and to be a part
hereof from the respective date of filing of such documents. Any statement
contained in a document incorporated by reference herein is modified or
superseded for all purposes to the extent that a statement contained in this
Registration Statement or in any other subsequently filed document which is
incorporated by reference modifies or replaces such statement.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Mark Cocchiola, President
Suprema Specialties, Inc.
510 East 35th Street
Paterson, New Jersey 07543
(973) 684-2900
The information in the documents incorporated by reference shall be
deemed superseded to the extent that more current information is included in
this prospectus or any more recent document incorporated herein.
48
Suprema Specialties, Inc. and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants..................................................................... F-2
Consolidated Balance Sheets as of June 30, 2000 and 2001............................................................... F-3
Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1999, 2000 and 2001............................ F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1999, 2000 and 2001................ F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1999, 2000 and 2001.......................... F-6
Notes to Consolidated Financial Statements............................................................................. F-7 - F-19
</TABLE>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc.
Paterson, New Jersey
We have audited the accompanying consolidated balance sheets of Suprema
Specialties, Inc. and Subsidiaries, as of June 30, 2000 and 2001, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended June 30, 2001. 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 auditing standards generally accepted
in the United States of America. 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 Subsidiaries as of June 30, 2000 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2001, in conformity with accounting principles generally accepted in
the United States of America.
/s/ BDO Seidman, LLP
Woodbridge, New Jersey
August 7, 2001
F-2
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
June 30,
------------------------------
2000 2001
------------- -------------
<S> <C> <C>
ASSETS
Current:
Cash $ 950,121 $ 609,527
Accounts receivable, net of allowances of $770,290 at June 30, 2000 and
2001, respectively 62,326,908 101,882,264
Inventories 51,630,343 74,514,662
Prepaid expenses and other current assets 755,067 985,627
Deferred income taxes 89,000 308,000
------------- -------------
TOTAL CURRENT ASSETS 115,751,439 178,300,080
PROPERTY, PLANT AND EQUIPMENT, net 7,181,208 10,560,513
OTHER ASSETS 2,027,069 1,551,696
------------- -------------
$ 124,959,716 $ 190,412,289
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable $ 13,989,065 $ 26,434,121
Current portion of capital leases 609,690 510,155
Mortgage payable - current 53,574 57,785
Income taxes payable 1,539,000 2,587,759
Accrued expenses and other current liabilities 3,743,917 4,720,335
------------- -------------
TOTAL CURRENT LIABILITIES 19,935,246 34,310,155
DEFERRED INCOME TAXES 749,000 780,900
REVOLVING CREDIT LOAN 65,887,000 99,265,262
SUBORDINATED DEBT 10,500,000 10,500,000
LONG-TERM CAPITAL LEASES 1,105,637 595,481
MORTGAGE PAYABLE 814,920 757,661
OTHER LIABILITIES -- 1,375,001
------------- -------------
98,991,803 $ 147,584,460
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,500,000 shares authorized:
Series A redeemable convertible preferred stock; 500,000 shares
designated; none issued and outstanding at June 30, 2000 and 2001 -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 4,655,564
and 5,867,920 shares issued and outstanding at June 30, 2000 and
2001, respectively 46,555 58,679
Additional paid-in capital 11,365,207 19,444,319
Retained earnings 15,998,771 24,872,451
Treasury stock at cost, 213,370 at June 30, 2000 and 224,877 shares at
June 30, 2001 (1,442,620) (1,547,620)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 25,967,913 42,827,829
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 124,959,716 $ 190,412,289
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
================================================================================
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1999 2000 2001
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 176,281,035 $ 278,481,969 $ 420,363,142
Cost of sales 146,351,545 232,932,864 355,409,651
------------- ------------- -------------
Gross margin 29,929,490 45,549,105 64,953,491
------------- ------------- -------------
Expenses:
Selling and shipping expenses 14,045,503 21,892,885 31,360,045
General and administrative expenses 4,421,124 6,913,721 8,770,662
------------- ------------- -------------
18,466,627 28,806,606 40,130,707
------------- ------------- -------------
Income from operations 11,462,863 16,742,499 24,822,784
Interest - net (4,328,838) (5,920,618) (10,033,104)
------------- ------------- -------------
Earnings before income taxes 7,134,025 10,821,881 14,789,680
Income taxes 2,926,000 4,437,000 5,916,000
------------- ------------- -------------
Net earnings $ 4,208,025 $ 6,384,881 $ 8,873,680
============= ============= =============
Basic earnings per share $ 0.93 $ 1.44 $ 1.63
============= ============= =============
Diluted earnings per share $ 0.86 $ 1.23 $ 1.41
============= ============= =============
Basic weighted average shares outstanding 4,536,605 4,431,850 5,429,122
============= ============= =============
Diluted weighted average shares outstanding 4,883,685 5,185,809 6,294,250
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common stock Additional Treasury stock
--------------------------- paid-in --------------------------- Retained
Shares Amount capital Shares Amount earnings
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 4,562,800 $ 45,628 $ 11,243,347 78,370 $ (396,370) $ 5,405,865
Exercise of stock options and warrants 1,667 16 4,151 -- --
Exercise of warrants 34,430 344 (344) -- -- --
Net earnings -- -- -- -- -- 4,208,025
Acquisition of treasury stock -- -- -- 78,370 (396,370) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 1999 4,598,897 45,988 11,247,154 78,370 (396,370) 9,613,890
Exercise of stock options and warrants 26,667 267 118,353 -- -- --
Exercise of warrants 30,000 300 (300) -- -- --
Net earnings -- -- -- -- -- 6,384,881
Acquisition of treasury stock -- -- -- 135,000 (1,046,250) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2000 4,655,564 46,555 11,365,207 213,370 (1,442,620) 15,998,771
Public offering of common stock 1,200,000 12,000 7,962,161 -- -- --
Exercise of stock options and warrants 12,356 124 116,951 -- -- --
Net earnings -- -- -- -- -- 8,873,680
Acquisition of treasury stock -- -- -- 11,507 (105,000) --
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2001 5,867,920 $ 58,679 $ 19,444,319 224,877 $ (1,547,620) $ 24,872,451
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1999 2000 2001
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,208,025 $ 6,384,881 $ 8,873,680
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 876,875 1,431,340 1,330,042
Provision for doubtful accounts 100,000 200,000 --
Deferred income tax provision (recovery) 122,000 (232,000) (187,100)
Changes in operating assets and liabilities:
Accounts receivable (12,867,732) (26,519,366) (39,555,356)
Inventories (7,406,790) (15,711,623) (22,884,319)
Prepaid expenses and other current assets 92,094 (159,044) (514,966)
Prepaid income taxes 235,348 -- --
Other assets (371,770) (1,072,541) (475,373)
Accounts payable 4,653,677 1,865,966 12,445,056
Income taxes payable 1,710,000 (171,000) 1,048,759
Accrued expenses and other current liabilities 944,619 1,334,078 976,418
Other liability -- -- 1,375,001
------------- ------------- -------------
Net cash used in operating activities (7,703,654) (32,649,309) (36,617,412)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (667,270) (676,600) (4,084,347)
------------- ------------- -------------
Net cash used in investing activities (667,270) (676,600) (4,084,347)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan 54,302,599 85,920,000 144,934,999
Repayment of revolving credit loan (45,123,000) (50,474,599) (111,556,737)
Principal payments of mortgage (47,182) (49,194) (53,048)
Principal payments of capital leases (500,966) (550,761) (609,691)
Proceeds from public offering (net) -- -- 7,974,161
Proceeds from exercise of stock options 4,167 118,620 117,075
Acquisition of treasury stock (396,370) (1,046,250) (105,000)
------------- ------------- -------------
Net cash provided by financing activities 8,239,248 33,917,816 40,701,759
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (131,676) 591,907 (340,594)
CASH, beginning of year 489,890 358,214 950,121
------------- ------------- -------------
CASH, end of year $ 358,214 $ 950,121 $ 609,527
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,774,024 $ 5,413,000 $ 9,501,000
============= ============= =============
Income taxes $ 830,000 $ 4,858,000 $ 5,054,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
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 wholly-owned subsidiaries ("Suprema" or the "Company")
manufacture, process and market a variety of premium, gourmet natural Italian
cheese products. The Company operates in a single business segment. The Company
sells its product to food service, food service manufacturers, and retail
customers. Sales to food service customers accounted for approximately 91%, 91%,
and 97% of the Company's sales for the year ended June 30, 1999, 2000 and 2001,
respectively. Sales to food manufacturers accounted for approximately 6%, 7%,
and 2% for the year ended June 30, 1999, 2000, and 2001, respectively. Sales to
retail customers accounted for 3%, 2%, and 1% of net sales for the years ended
June 30, 1999, 2000, and 2001, respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the financial statements of
Suprema Specialties, Inc. and its wholly-owned subsidiaries, Suprema Specialties
West, Inc. ("West"), Suprema Specialties Northeast, Inc. ("Northeast") and
Suprema Specialties Northwest, Inc. ("Northwest"). 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 that are probable of exercise, or
the useful lives of the assets. Equipment under capitalized leases is being
amortized over the useful lives of the assets.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When such impairment exists, the
related assets will be written down to fair value. No impairment losses have
been recorded in each of the three years in the period ended June 30, 2001.
Financing Costs
The Company amortizes the deferred financing costs incurred in connection with
the Company's borrowings over the life of the related indebtedness (3-10 years).
Such net costs amounted to $1,734,494 and $1,209,000 at June 30, 2000 and 2001,
respectively. These amounts are included in other current assets and other
assets.
Revenue Recognition
The Company records revenues when products are shipped. Customers do not have
the right to return products shipped.
F-7
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company adopted Emerging Issue Task Force (EITF) 00-25, "Vendor Income
Statement Characterization of Consideration from a Vendor to a Retailer." The
impact of adopting this policy had an immaterial effect on the Company's net
sales.
Shipping and Handling Costs
During fiscal year 2001, the Company adopted EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs." Shipping and handling costs charged to
customers are included in the Company's net sales. All shipping and handling
costs, which approximated $3,000,000, were charged to selling and shipping
expenses.
Advertising Costs
The Company expenses advertising costs as incurred.
Stock-Based Compensation
The Company accounts for its stock option awards to employees under the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. The Company provides pro
forma disclosures of earnings and earnings per share as if the fair value based
method of accounting had been applied as required by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation".
Income Taxes
Income taxes are recorded using the liability method, which 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 basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
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.
Financial Instruments
The carrying amounts of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, approximate fair value
because of the current nature of these instruments. The carrying amounts
reported for revolving credit and long-term debt approximate fair value because
the interest rates on these instruments are subject to changes with market
interest rates or approximate rates for loans with similar terms and maturities.
F-8
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Computation of Earnings Per Share
Basic earnings per share has been computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share includes the
assumed exercise of stock options and warrants using the treasury stock method
that could potentially dilute earnings per share.
Effect of New Accounting Pronouncements
In June 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133, as amended by SFAS 137, was adopted for the
Company's 2001 fiscal year. The adoption of SFAS 133 did not have any effect on
the Company's financial statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141. Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. SFAS
requires, among other things, that companies no longer amortize goodwill, but
instead test goodwill for impairment at least annually. SFAS 142 is required to
be applied for fiscal years beginning after December 15, 2001. Currently, the
Company has not recorded any goodwill and will assess how the adoption of SFAS
141 and SFAS 142 will impact its financial position and results of operations
in any future acquisitions.
NOTE 3 - INVENTORIES
Inventories consist of the following:
June 30,
---------------------------
2000 2001
----------- -----------
Raw materials $11,872,836 $23,879,855
Finished goods 38,430,322 48,986,084
Packaging 1,327,185 1,648,723
----------- -----------
$51,630,343 $74,514,662
=========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
June 30,
---------------------------
2000 2001
----------- -----------
Property and plant $ 1,577,696 $ 3,220,497
Equipment 5,857,907 7,491,653
Leasehold improvements 1,102,952 1,951,592
Furniture and fixtures 215,015 227,832
Delivery equipment 2,739 2,639
Construction in progress 700,537 646,982
----------- -----------
9,456,846 13,541,195
Less: Accumulated depreciation and amortization 2,275,638 2,980,682
----------- -----------
$ 7,181,208 $10,560,513
=========== ===========
F-9
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In May 1997, the Company entered into a sale-leaseback transaction whereby fixed
assets with a net book value of $10,824,082 were sold for $9,565,000 and leased
back under operating leases. In connection with this transaction, $4,847,382 of
capital leases were paid in full. The Company incurred costs of $1,088,436
primarily related to prepayment penalties on the capital leases. These direct
costs have been included in other assets and are being amortized over eight
years, the life of the operating lease.
In December 2000, the Company entered into a sale-leaseback transaction whereby
production equipment related to the Blackfoot Idaho facility with a net book
value of $4,500,000 was sold for $6,000,000 and leased back under the operating
lease. This transaction resulted in a gain of $1,500,000 which will be
recognized to income in proportion to rental expense over 7 years, the life of
the operating lease. The deferred gain as of June 30, 2001, of $1,375,001, is
included in other liabilities.
Included in property, plant and equipment are plant and equipment acquired under
capital leases with an initial cost of $3,419,067 and accumulated amortization
of $1,125,654 and $1,466,274 as of June 30, 2000 and 2001, respectively.
NOTE 5 - INCOME TAXES
The provision for income taxes consists of the following:
Fiscal Years Ended June 30,
-------------------------------------------
1999 2000 2001
----------- ----------- -----------
Current:
Federal $ 2,243,000 $ 3,735,000 $ 4,883,000
State 561,000 934,000 1,220,000
----------- ----------- -----------
2,804,000 4,669,000 6,103,100
----------- ----------- -----------
Deferred:
Federal 104,000 (213,000) (172,000)
State 18,000 (19,000) (15,100)
----------- ----------- -----------
122,000 (232,000) (187,100)
----------- ----------- -----------
Provision for income taxes $ 2,926,000 $ 4,437,000 $ 5,916,000
=========== =========== ===========
The following reconciles income taxes at the U.S. statutory rate to the
provision for income taxes:
Fiscal Years Ended June 30,
-------------------------------------------
1999 2000 2001
----------- ----------- -----------
Computed tax expense at statutory
rates $ 2,425,600 $ 3,679,000 $ 5,029,000
State taxes, net of federal tax
benefit 382,100 555,000 776,000
Travel and entertainment expenses
not deductible 34,000 43,000 34,000
Officers life insurance not
deductible 5,500 7,000 8,000
Other, net 78,800 153,000 69,000
----------- ----------- -----------
$ 2,926,000 $ 4,437,000 $ 5,916,000
=========== =========== ===========
F-10
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------
2000 2001
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 240,000 $ 225,000
Product introduction costs 46,000 --
Deferred sale leaseback costs 286,000 186,000
Financing fees 396,000 369,900
----------- -----------
Total deferred tax liabilities: 968,000 780,900
----------- -----------
Deferred tax assets:
Accounts receivable reserve (308,000) (308,000)
----------- -----------
$ 660,000 $ 472,900
=========== ===========
</TABLE>
NOTE 6 - LONG-TERM DEBT
Revolving Credit Loan
In January 2001, the long-term revolving credit facility (the "Facility")
between the Company and its commerical banks was amended to increase the
Facility to $125,000,000. The commitment for the revolving credit facility is
through February 15, 2004. The rate of interest on amounts borrowed under the
Facility is the adjusted LIBOR rate, as defined, plus 175 basis points (7.50%
per annum at June 30, 2001). The Facility is collateralized by all existing and
after-acquired assets of the Company, as defined in the Facility agreement, and
is guaranteed by all of the Company's subsidiaries. Advances under this Facility
are limited to 85.0% of eligible accounts receivable and 60.0% of all inventory
except packaging material, as defined in the Facility agreement. The Facility
agreement contains restrictive financial covenants, including the maintenance of
consolidated net worth, and the maintenance of leverage and fixed charge ratios,
as defined in the agreement, and a restriction on dividends to common
shareholders. As of June 30, 2001, the Company was in compliance with the
covenants under the Facility agreement. Borrowings under the facility are
required to be used for working capital purposes.
At June 30, 2001, the Company had approximately $25,700,000 available for
additional borrowings under the Facility.
Subordinated Debt Facility
In March 1998, the Company entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and The Equitable Life Assurance Society of
the United States (collectively, the "Funds") pursuant to which the Funds loaned
$10,500,000 to the Company. The loan is unsecured and is subordinated to the
loan of the Company's senior lender. The loan bears interest at 16.50% per
annum. Interest is payable monthly at the rate of 12.0% per annum with the
balance deferred until February 1, 2003 when it is due in full. The principal
amount of the loan is payable in three installments of $3,500,000 on each March
1, beginning in the year 2004. In addition, in connection with the execution and
delivery of the Loan Agreement, the Company delivered to the Funds, a Warrant to
purchase 105,000 shares of the Company's common stock exercisable at $4.125 (the
market price at the date of the agreement). The values ascribed to such warrants
and the related amortization expense were not material. The warrant is
exercisable through March 1, 2008.
F-11
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Mortgage Payable
On March 29, 1996, the Company purchased its Paterson, New Jersey 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 was used to complete the expansion of a 7,800 square foot
refrigerated storage facility. The five year note bore interest at 8.51% per
annum. On March 29, 1999, the Company refinanced the mortgage for the principal
amount of $929,573. The seven year note, which bears interest at 7.85% per annum
is being amortized at a fifteen year rate and requires a balloon payment at the
end of year seven of approximately $501,000.
Debt Maturities
Principal payments on long-term debt over the next five years ended June 30, and
thereafter are as follows:
2001 $ 57,785
2002 62,650
2003 67,748
2004 102,837,587
2005 4,053,070
Thereafter 3,500,000
NOTE 7 - CAPITAL LEASES
There are various equipment and furniture and fixtures financed under capital
leases. These leases have interest rates ranging from 6.70% to 11.50% per annum.
At June 30, 2001, the Company's future minimum lease payments under capital
leases are as follows:
2002 $ 642,431
2003 590,629
2004 91,701
----------
Total minimum lease payments 1,324,761
Less: amount representing interest 219,125
----------
Present value of minimum lease payments 1,105,636
Less: current portion 510,155
----------
Long-term portion of capital leases $ 595,481
==========
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leases
The Company rents certain production facilities and equipment under lease
arrangements classified as operating leases. The lease for the production
facilities in Manteca, California, which was renewed in December 1994, expires
ten years from the date of completion of construction of each segment of the
facility with two five year renewal options. The Company also leases its
Ogdensburg, New York facility. The lease is for 17 years with options to
terminate the lease each five years at the Company's option. Rent expense was
approximately $2,971,000, $4,107,000 and $5,182,000 for the years ended June 30,
1999, 2000 and 2001, respectively. Future minimum rental payments under
non-cancelable operating leases are approximately: 2002 - $5,792,000; 2003 -
$5,792,000; 2004 - $5,792,000; 2005 - $4,857,000; 2006 - $3,410,000 and
thereafter $3,415,000.
F-12
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Employment Agreements
The Company has entered into an employment agreement with Mark Cocchiola, its
President and CEO, that currently expires in May 2006. The agreement provides
for the full-time employment of Mr. Cocchiola at an annual salary of $250,000,
and an annual bonus equal to 5% of pre-tax profits in excess of $650,000. The
agreement also provides that if employment is terminated under certain
circumstances, including a "change of control," he will be entitled to receive
severance pay equal to the higher of (i) $1,250,000 or (ii) five times the total
compensation paid to him by the Company (including salary, bonus, perquisites
and the value of options granted to Mr. Cocchiola) during the 12 month period
prior to the date of termination.
Contingencies
On or about April 26, 2001, an employee at the Manteca facility filed an
Application before the Workers' Compensation Appeals Board for the State of
California against the Company alleging "serious and willful misconduct" on the
Company's part in its alleged failure to accommodate his limited ability to work
as a result of his alleged injury arising out of employment. Thereafter, on or
about August 2, 2001, a second employee at the Manteca facility filed an
Application before the same Workers' Compensation Appeals Board against the
Company claiming injuries sustained while employed. The second employee alleges
"serious and willful misconduct" while employed. If the Applications are
granted, the employees will be entitled to receive additional benefits
consisting of one-half of the compensation otherwise recoverable under the
Workers' Compensation laws. Management believes that it has valid defenses to
the Applications and will vigorously defend the claims made by the employees.
The Company is a party to legal proceedings arising in the normal conduct of
business. Management believes that the final outcome of these proceedings,
including the proceedings discussed in the paragraph immediately above, will not
have a material adverse effect on the Company's financial position, results of
operations, and cash flows.
NOTE 9 - SHAREHOLDERS' EQUITY
Stock Offering
In August 2000, the Company completed a public offering for 1,200,000 shares of
its $.01 par value common stock of which 1,100,000 shares were issued by the
Company and 10,000 shares were offered by selling shareholders. Gross proceeds
from the offering were approximately $8,000,000. The Company received no
proceeds from the shares issued during the offering from those shares offered by
the selling shareholders.
Stock Option Plan
On February 11, 1991, the Company adopted the 1991 Stock Option Plan. In
December 1998, the Company adopted the 1998 Stock Option Plan. In February 2001,
the Company adopted the 1999 stock option plan (collectively, the "Plans").
Under the Plans, officers, directors and key employees of the Company are
eligible to receive up to 900,000, 500,000, and 500,000 incentive and/or
non-qualified stock options, respectively. The Plans, which expire in February
2001, November 2008, and February 2011, respectively, are administered by the
board of directors. The selection of participants, allotment of shares,
determination of price and other conditions of the grant of options are
determined by the board of directors at its sole discretion in order to attract
and retain persons instrumental to the success of the Company. Incentive stock
options granted under the Plans vest evenly over the first three years and are
exercisable for a period of up to ten years from the date of grant at an
F-13
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
exercise price which is not less than the fair market value of the common stock
on the date of grant, except that the term of an incentive stock option granted
under the Plan to a shareholder owning more than 10% of the outstanding common
stock may not exceed five years and its exercise price may not be less than 110%
of the fair market value of the common stock on the date of the grant.
Stock option transactions under the Plan are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average 1991
Exercise Plan
Price Per Share ($) Shares
------------------- -------
<S> <C> <C>
Outstanding at June 30, 1998 $3.58 751,500
Granted 3.17 134,250
Exercised or forfeited 2.50 (1,667)
---- -------
Outstanding at June 30, 1999 3.52 884,083
Granted 7.66 356,000
Exercised or forfeited 5.46 (26,917)
---- -------
Outstanding at June 30, 2000 4.97 857,166
==== =======
Granted - -
Exercised or forfeited 7.50 (30,000)
---- -------
Outstanding at June 30, 2001 3.25 827,166
==== =======
<CAPTION>
Weighted
Average 1998
Exercise Plan
Price Per Share ($) Shares
------------------- -------
<S> <C> <C>
Outstanding at June 30, 1998 - -
Granted $4.63 143,000
Exercised or forfeited - -
---- -------
Outstanding at June 30, 1999 4.63 143,000
Granted - -
Exercised or forfeited - -
---- -------
Outstanding at June 30, 2000 4.63 499,000
==== =======
Granted 7.50 30,000
Exercised or forfeited 4.63 (31,833)
---- --------
Outstanding at June 30, 2001 6.68 497,167
==== =======
Weighted
Average 1999
Exercise Plan
Price Per Share ($) Shares
------------------- -------
Outstanding at June 30, 1998 - -
Granted - -
Exercised or forfeited - -
---- -------
Outstanding at June 30, 1999 - -
Granted - -
Exercised or forfeited - -
---- -------
Outstanding at June 30, 2000 - -
==== =======
Granted $7.50 367,000
Exercised or forfeited 7.50 -
---- -------
Outstanding at June 30, 2001 7.50 367,000
==== =======
</TABLE>
F-14
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The weighted average fair value of options granted under all plans during:
1999 $1.79
2000 4.39
2001 4.71
F-15
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes information about stock options outstanding
at June 30, 2001:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ----------------------------------
Weighted-
Average
Range of Number of Remaining
Exercise Options Contractual Weighted-Average Number Weighted-Average
Prices ($) Outstanding Life (Years) Exercise Price ($) Exercisable Exercise price
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1991 Plan:
2.50 to 3.50 827,166 5.40 years $3.21 787,206 $3.22
1998 Plan:
4.63 to 7.00 111,000 7.75 years $5.96 74,037 $5.96
7.00 to 9.00 386,167 8.50 years $7.64 121,097 $7.66
-----------------------------------------------------------------------------------------------------------------------
4.63 to 9.00 497,167 8.30 years $6.68 195,134 $7.01
1999 Plan:
7.50 367,000 9.50 years $7.50 200,000 $7.50
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the accounting provisions of SFAS 123, the Company's net earnings and
earnings per share would have been:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
-------------------------------------------
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Earnings:
- as reported $4,208,025 $6,384,881 $8,873,680
- pro forma 3,999,219 5,997,267 8,378,291
Basic earnings per share:
- as reported $0.93 $1.44 $1.63
- pro forma 0.88 1.35 1.54
Diluted earnings per share:
- as reported $0.86 $1.23 $1.41
- pro forma 0.82 1.16 1.33
</TABLE>
The pro forma effect on net earnings and earnings per share for fiscal years
2001, 2000 and 1999 may not be representative of the pro forma effect in future
years because it includes compensation cost on a straight-line basis over the
vesting periods of the grants and does not take into consideration the pro forma
compensation costs for grants made prior to 1996. The fair market value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants:
expected volatility of 44% in 2001, 46% in 2000 and 44% in 1999; risk free
interest rate of 5.2% in 2001, 6.4% in 2000 and 5.0% in 1999; expected lives of
10 years; and no dividend yield.
Warrants
In connection with the Company's 1999 public offering, the Company issued the
underwriter warrants to purchase 150,000 shares of common stock exercisable
until September 30, 2001 at an exercise price of $6.875 per share. In connection
with the Company's August 2000 public offering, the Company issued warrants to
the underwriters of such offering to purchase 120,000 shares of common stock;
exercisable at $11.20 per share through August 2010. In March 2001, the Company
issued warrants to purchase 10,000 shares of common stock to its public
relations firm, at an exercise price of $8.25 per share, exercisable from March
2002 through March 2011. The exercise price of all of the foregoing warrants was
no less than the fair market value of the common stock on the date of their
respective issuance.
F-16
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Repurchase Program
In May 1999, the Board of Directors approved a stock repurchase program to
acquire up to $3,200,000 of the Company's common stock. As of June 30, 2001, the
Company has repurchased 224,877 shares of its common stock for a cost of
approximately $1,548,000.
Treasury Stock
During the fiscal years ended June 30, 2001 and 2000, the Company, pursuant with
its stock repurchase plan, purchased 11,507 and 135,000 shares of its common
stock at a cost of $105,000 and $1,046,250, respectively.
NOTE 10 - EARNINGS PER SHARE
Basic and diluted earnings per share for each of the three years ended June 30,
1999, 2000 and 2001 are calculated as follows:
<TABLE>
<CAPTION>
Net Earnings Shares Per share
(Numerator) (Denominator) Amount
----------------------------------------------------------------------
<S> <C> <C> <C>
For the year ended June 30, 1999:
Basic earnings per share $4,208,025 4,536,605 $0.93
Effect of assumed conversion of employee stock
options - 347,080 (0.07)
----------------------------------------------------------------------
Diluted earnings per share $4,208,025 4,883,685 $.86
======================================================================
For the year ended June 30, 2000:
Basic earnings per share $6,384,881 4,431,850 $1.44
Effect of assumed conversion of employee stock
options and warrants - 753,959 (0.21)
---------------------- --------------------- ---------------------
Diluted earnings per share $6,384,881 5,185,809 $1.23
====================== ===================== =====================
For the year ended June 30, 2001:
Basic earnings per share $8,873,680 5,429,122 $1.63
Effect of assumed conversion of employee stock
options and warrants - 865,128 (0.22)
---------------------- --------------------- ---------------------
Diluted earnings per share $8,873,680 6,294,250 $1.41
====================== ===================== =====================
</TABLE>
NOTE 11 - CONCENTRATION OF CREDIT RISK
The Company provides credit to customers on an unsecured basis after evaluating
customer creditworthiness. The Company grants extended payment terms to its
largest customers.
The Company also provides an allowance for bad debts for accounts receivable
where there is a possibility for loss.
The Company maintains demand deposits with major banks. At June 30, 2000 and
2001, all of the Company's cash was held with these major banks.
NOTE 12 - MAJOR CUSTOMERS
During the fiscal year ended June 30, 1999, the Company had sales to A&J Foods,
Inc. representing approximately 18% of net sales.
F-17
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During the fiscal year ended June 30, 2000, the Company had sales to A&J Foods,
Inc., Tricon Commodities International, Inc. and Noble J.G. Cheese Company
representing approximately 15%, 13% and 12% of net sales, respectively.
During the fiscal year ended June 30, 2001, the Company had sales to A&J Foods,
Inc., Tricon Commodities International, Inc., Battaglia and Company, Noble J.G.
Cheese Company, and California Goldfield Cheese Traders of approximately 17%,
15%, 12%, 10%, and 10% of net sales, respectively. At June 30, 2001, these five
customers represented 20%, 20%, 15%, 13% and 13% of net accounts receivable,
respectively.
NOTE 13 - EMPLOYEE BENEFITS
In July 1998, the Company instituted a 401(k) plan for all employees who are not
covered under the collective bargaining agreement. Under the plan, the Company
matches each eligible employees' contribution up to 25% of the employee's first
8% of contributions. Contributions made by the Company during the year amounted
to approximately $40,000 for each of the years ended June 30, 1999, 2000 and
2001.
NOTE 14 - SUBSEQUENT EVENT
The Company's Executive Vice President passed away on August 27, 2001. The
Company has not been able to determine the impact of the loss of his services on
operations. The Company is the beneficiary of a $1,000,000 key man life
insurance policy on the life at the former Executive Vice President and
anticipates receiving the proceeds from this policy to the Company.
F-18
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the 2001 and
2000 fiscal years (in thousands of dollars except per share data):
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
2000
Net sales $61,381 $65,323 $75,564 $76,214
Gross profit 9,984 11,171 12,092 12,302
Income from operations 3,613 4,005 4,336 4,788
Net earnings 1,413 1,504 1,622 1,846
Basic earnings per share 0.31 0.34 0.37 0.42
Diluted earnings per share 0.27 0.29 0.31 0.35
=======================================================================================================================
2001
-----------------------------------------------------------------------------------------------------------------------
Net sales $88,948 $92,742 $108,636 $130,038
Gross profit 14,028 14,369 16,638 19,918
Income from operations 5,573 5,758 5,893 7,598
Net earnings 1,987 2,068 2,196 2,623
Basic earnings per share 0.41 0.37 0.39 0.46
Diluted earnings per share 0.36 0.33 0.34 0.38
======================================================================================================================
</TABLE>
F-19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table indicates expenses payable by the registrant in
connection with the issuance and distribution of the securities being
registered. The selling shareholders will not be responsible for any expenses in
connection with the offering described in this registration statement. All
amounts are estimated (except for the SEC and NASD filing fees) as follows:
SEC filing fee ...................................... $14,984.50
NASD filing fee...................................... 6,569.00
Nasdaq listing fee................................... *
Printing ............................................ *
Accounting fees and expenses......................... *
Legal fees and expenses.............................. *
Blue Sky fees and expenses........................... *
Transfer Agent fees.................................. *
Miscellaneous expenses............................... *
----------
Total....................................... $ *
==========
----------
* To be provided by amendment
Item 15. Indemnification of Directors and Officers.
Section 722 of the New York Business Corporation Law which governs the
indemnification of directors, officers, employees and agents of a corporation is
hereby incorporated herein by reference. Section 402 of the New York Business
Corporation Law which provides that a corporation's certificate of incorporation
may provide that a director or officer shall have limited liability to the
corporation or to its shareholders, with certain exceptions, is hereby
incorporated herein by reference. Reference is made to Articles 7 and 8 of
Suprema's Certificate of Incorporation, as amended, which provides for
indemnification and limitations on liability in the manner and to the fullest
extent permitted by New York law. The general effect of these provisions may
make it more difficult for shareholders to obtain monetary damages in connection
with suits that seek redress for actions taken by directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Suprema
pursuant to the foregoing provisions, Suprema has been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Reference is also made to Section ___ of the Underwriting Agreement
filed as Exhibit 1.1 to this registration statement.
Item 16. Exhibits
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation as amended in February 1991. (1)
3.2 Amendment to Certificate of Incorporation. (6)
3.3 Amendment to Certificate of Incorporation.
3.4 Amended and Restated By-Laws.
4.1 Rights Agreement dated as of March 6, 1996, between the Company and
Continental Stock Transfer & Trust Company. (7)
5.1 Opinion of Blank Rome Tenzer Greenblatt LLP.*
10.1 1991 Stock Option Plan. (1)+
10.2 Amended and Restated Employment Agreement by and between the Company
and Mark Cocchiola. +
10.3 Revolving Loan, Guaranty and Security Agreement by and among the
Company, Suprema Specialties West, Inc. and National Westminster Bank
NJ dated as of February 15, 1994, as amended. (9)
10.4 Lease between DeGroot & Sons, a California partnership and the Company
dated as of December 13, 1994.*
10.5 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. (5)
10.6 Master Equipment Lease Agreement No. 32399 between Fleet Capital
Corporation and the Company dated May 29, 1997. (4)
10.7 Securities Purchase Agreement, dated as of March 9, 1998, between the
Company and Alliance Capital Management, L.P. (without exhibits). (3)
10.8 Note Agreement, dated as of March 9, 1998, between the Company and each
of Albion Alliance Mezzanine Fund, L.P. and The Equitable Life
Assurance Society of the United States. (3)
10.9 Warrant Agreement, dated as of March 9, 1998, between the Company and
Albion Alliance Mezzanine Fund, L.P. and the Equitable Life Assurance
Society of the United States. (3)
10.10 Second Amended and Restated Revolving Loan, Guaranty and Security
Agreement among the Company, Fleet Bank, N.A. (as successor to Natwest
Bank N.A. and National Westminster Bank, NJ), Sovereign Bank, Suprema
Specialties West, Inc. and Suprema Northeast, Inc., dated as of
December 16, 1998. (2)
10.11 Mortgage and Security Agreement by the Company to Fleet Bank, N.A., as
agent, dated December 16, 1998. (2)
10.12 Third Modification Agreement between the Company and Fleet Bank, N.A.
(formerly known as Natwest Bank N.A.), dated December 16, 1998. (2)
10.13 First Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated May 28, 1999. (2)
10.14 Second Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated June 30, 1999. (2)
II-2
10.15 Third Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated July 22, 1999. (2)
10.16 Third Amended and Restated Revolving Loan, Guaranty and Security
Agreement among the Company, Fleet Bank, N.A. (as successor to Natwest
Bank N.A. and National Westminster Bank NJ), Sovereign Bank, Mellon
Bank, N.A., Suprema Specialties West, Inc., and Suprema Specialties
Northeast, Inc., dated as of September 23, 1999. (11)
10.17 Amendment No. 1 and Assignment Agreement dated as of March 10, 2000 to
Third Amended and Restated Revolving Loan, Guaranty and Security
Agreement among Fleet Bank, National Association, Sovereign Bank,
Mellon Bank, N.A., European American Bank, PNC Bank, National
Association, National City Bank, Suprema Specialties, Inc., Suprema
Specialties West, Inc. and Suprema Specialties Northeast, Inc. (10)
10.18 1998 Stock Option Plan. (13)+
10.19 1999 Stock Option Plan. (14)+
10.20 Pledge Agreement between the Company and Fleet Bank, N.A. dated May 31,
2000. (15)
10.21 Increase Supplement dated as of February 15, 2001 to Third Amended and
Restated Revolving Loan, Guaranty and Security Agreement among Fleet
Bank, N.A., Sovereign Bank, Mellon Bank, N.A., European American Bank,
N.A., PNC Bank, N.A., National City Bank, Suprema Specialties
Northeast, Inc., and Suprema Specialties Northwest, Inc. (8)
10.22 Amendment No. 2 to Third Amendment and Restated Revolving Loan,
Guaranty and Security Agreement among Fleet Bank, N.A., Sovereign Bank,
Mellon Bank, N.A., European American Bank, N.A., PNC Bank, N.A.,
National City Bank, Suprema Specialties Northeast, Inc., and Suprema
Specialties Northwest, Inc. (9)
10.23 Asset Purchase Agreement dated as of November 27, 2000 by and among
Snake River Cheese, L.L.C. and Suprema Specialties Northwest, Inc. (9)
10.24 Master Lease Agreement dated December 28, 2000 by and between PNC
Leasing and Suprema Specialties Northwest, Inc. and supplement. (9)
10.25 Amendment No. 3 and Assignment Agreement to Third Amended and Restated
Revolving Loan, Guaranty and Security Agreement among Fleet National
Bank, Sovereign Bank, Mellon Bank, N.A., Citibank, N.A., PNC Bank
National Association, First Pioneer Farm Credit, ACA, National Bank of
Canada, National City Bank, the Company, Suprema Specialities West,
Inc., Suprema Specialities Northeast, Inc. and Suprema Securities
Northwest, Inc.
21 Subsidiaries of the Company.
23.1 Consent of Blank Rome Tenzer Greenblatt LLP (included in Exhibit 5.1).
23.2 Consent of BDO Seidman, LLP.
24.1 Power of Attorney (included in signature page to the registration
statement).
---------
* To be filed by amendment.
(1) Incorporated by reference to the exhibit filed with the Company's
registration statement on Form S-18, SEC File No. 33-39076-NY.
(2) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1999.
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K, as amended, for the year ended June 30,
1998.
(4) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1997.
II-3
(5) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
(6) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1994.
(7) Incorporated by reference to the exhibit filed with the Company's
registration Current Report on Form 8-K dated March 18, 1996.
(8) Incorporated by reference to the exhibit files with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(9) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 2000.
(10) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
(11) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(12) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
(13) Incorporated by reference to Exhibit A filed with the Company's
Definitive Proxy Statement dated December 30, 1998.
(14) Incorporated by reference to Exhibit A filed with the Company's
Definitive Proxy Statement dated October 22, 1999.
(15) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC File no. 333-36716.
+ Denotes management contract, plan or arrangement.
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Paterson, state of New Jersey on September 17, 2001.
SUPREMA SPECIALTIES, INC.
By: /s/ Mark Cochiola
-------------------------------
Mark Cocchiola, President
Each person whose signature appears below hereby authorizes each of
Mark Cocchiola and Steven Venechanos or either of them as his true and lawful
attorney-in-fact with full power of substitution to execute in the name and on
behalf of each person, individually and in each capacity stated below, and to
file, any and all amendments to this Registration Statement, including any and
all post-effective amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
------------------------ ----------------------------------------------- ------------------
<S> <C> <C>
/s/ Mark Cochiola Chairman of the Board, President, Chief
------------------------ Executive Officer and Director (Principal September 17, 2001
Mark Cocchiola Executive Officer)
/s/ Steven Venechanos Chief Financial Officer, Secretary and Director
------------------------ (Principal Financial and Accounting Officer) September 17, 2001
Steven Venechanos
/s/ Marco Cocchiola Director
------------------------
Marco Cocchiola September 17, 2001
Director
-------------------------
Rudolph Acosta
Director
-------------------------
Paul DeSocio
/s/ Barry Rutcofsky Director
-------------------------
Barry Rutcofsky September 17, 2001
</TABLE>
II-5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Suprema Specialties, Inc.
Paterson, New Jersey
The audits referred to in our report dated August 7, 2001 relating to the
accompanying consolidated financial statements of Suprema Specialties, Inc. and
Subsidiaries, which are contained in this Registrative Statement included the
audits of the June 30, 2001, 2000 and 1999 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.
/s/ BDO Seidman, LLP
Woodbridge, New Jersey
S-1
Schedule II
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 2001, 2000 AND 1999
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Costs and Charged to Balance at End
Description Period Expenses (1) Other Accounts Deductions (2) of Period
----------------------------------- --------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1999
Accounts receivable allowance $470,290 $100,000 $ - $ - $570,290
=============== ================ ================ ================ ================
FISCAL YEAR ENDED JUNE 30, 2000
Accounts receivable allowance $570,290 $200,000 $ - $ - $770,290
=============== ================ ================ ================ ================
FISCAL YEAR ENDED JUNE 30, 2001
Accounts receivable allowance $770,290 $ - $ - $ - $770,290
=============== ================ ================ ================ ================
</TABLE>
(1) To increase accounts receivable allowance.
(2) Uncollectible accounts written off, net of recoveries.
S-2
Exhibits
--------
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation as amended in February 1991. (1)
3.2 Amendment to Certificate of Incorporation. (6)
3.3 Amendment to Certificate of Incorporation.
3.4 Amended and Restated By-Laws.
4.1 Rights Agreement dated as of March 6, 1996, between the Company and
Continental Stock Transfer & Trust Company. (7)
5.1 Opinion of Blank Rome Tenzer Greenblatt LLP.*
10.1 1991 Stock Option Plan. (1)+
10.2 Amended and Restated Employment Agreement by and between the Company
and Mark Cocchiola. +
10.3 Revolving Loan, Guaranty and Security Agreement by and among the
Company, Suprema Specialties West, Inc. and National Westminster Bank
NJ dated as of February 15, 1994, as amended. (9)
10.4 Lease between DeGroot & Sons, a California partnership and the Company
dated as of December 13, 1994.*
10.5 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. (5)
10.6 Master Equipment Lease Agreement No. 32399 between Fleet Capital
Corporation and the Company dated May 29, 1997. (4)
10.7 Securities Purchase Agreement, dated as of March 9, 1998, between the
Company and Alliance Capital Management, L.P. (without exhibits). (3)
10.8 Note Agreement, dated as of March 9, 1998, between the Company and each
of Albion Alliance Mezzanine Fund, L.P. and The Equitable Life
Assurance Society of the United States. (3)
10.9 Warrant Agreement, dated as of March 9, 1998, between the Company and
Albion Alliance Mezzanine Fund, L.P. and the Equitable Life Assurance
Society of the United States. (3)
10.10 Second Amended and Restated Revolving Loan, Guaranty and Security
Agreement among the Company, Fleet Bank, N.A. (as successor to Natwest
Bank N.A. and National Westminster Bank, NJ), Sovereign Bank, Suprema
Specialties West, Inc. and Suprema Northeast, Inc., dated as of
December 16, 1998. (2)
10.11 Mortgage and Security Agreement by the Company to Fleet Bank, N.A., as
agent, dated December 16, 1998. (2)
10.12 Third Modification Agreement between the Company and Fleet Bank, N.A.
(formerly known as Natwest Bank N.A.), dated December 16, 1998. (2)
10.13 First Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated May 28, 1999. (2)
10.14 Second Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated June 30, 1999. (2)
10.15 Third Amendment to the Second Amended and Restated Revolving Loan,
Guaranty and Security Agreement between the Company, Fleet Bank, N.A.,
Sovereign Bank, Suprema Specialties West, Inc. and Suprema Specialties
Northeast, Inc., dated July 22, 1999. (2)
10.16 Third Amended and Restated Revolving Loan, Guaranty and Security
Agreement among the Company, Fleet Bank, N.A. (as successor to Natwest
Bank N.A. and National Westminster Bank NJ), Sovereign Bank, Mellon
Bank, N.A., Suprema Specialties West, Inc., and Suprema Specialties
Northeast, Inc., dated as of September 23, 1999. (11)
10.17 Amendment No. 1 and Assignment Agreement dated as of March 10, 2000 to
Third Amended and Restated Revolving Loan, Guaranty and Security
Agreement among Fleet Bank, National Association, Sovereign Bank,
Mellon Bank, N.A., European American Bank, PNC Bank, National
Association, National City Bank, Suprema Specialties, Inc., Suprema
Specialties West, Inc. and Suprema Specialties Northeast, Inc. (10)
10.18 1998 Stock Option Plan. (13)+
10.19 1999 Stock Option Plan. (14)+
10.20 Pledge Agreement between the Company and Fleet Bank, N.A. dated May 31,
2000. (15)
10.21 Increase Supplement dated as of February 15, 2001 to Third Amended and
Restated Revolving Loan, Guaranty and Security Agreement among Fleet
Bank, N.A., Sovereign Bank, Mellon Bank, N.A., European American Bank,
N.A., PNC Bank, N.A., National City Bank, Suprema Specialties
Northeast, Inc., and Suprema Specialties Northwest, Inc. (8)
10.22 Amendment No. 2 to Third Amendment and Restated Revolving Loan,
Guaranty and Security Agreement among Fleet Bank, N.A., Sovereign Bank,
Mellon Bank, N.A., European American Bank, N.A., PNC Bank, N.A.,
National City Bank, Suprema Specialties Northeast, Inc., and Suprema
Specialties Northwest, Inc. (9)
10.23 Asset Purchase Agreement dated as of November 27, 2000 by and among
Snake River Cheese, L.L.C. and Suprema Specialties Northwest, Inc. (9)
10.24 Master Lease Agreement dated December 28, 2000 by and between PNC
Leasing and Suprema Specialties Northwest, Inc. and supplement. (9)
10.25 Amendment No. 3 and Assignment Agreement to Third Amended and Restated
Revolving Loan, Guaranty and Security Agreement among Fleet National
Bank, Sovereign Bank, Mellon Bank, N.A., Citibank, N.A., PNC Bank
National Association, First Pioneer Farm Credit, ACA, National Bank of
Canada, National City Bank, the Company, Suprema Specialities West,
Inc., Suprema Specialities Northeast, Inc. and Suprema Securities
Northwest, Inc.
21 Subsidiaries of the Company.
23.1 Consent of Blank Rome Tenzer Greenblatt LLP (included in Exhibit 5.1).
23.2 Consent of BDO Seidman, LLP.
24.1 Power of Attorney (included in signature page to the registration
statement).
---------
* To be filed by amendment.
(1) Incorporated by reference to the exhibit filed with the Company's
registration statement on Form S-18, SEC File No. 33-39076-NY.
(2) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1999.
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K, as amended, for the year ended June 30,
1998.
(4) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1997.
(5) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
(6) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended June 30, 1994.
(7) Incorporated by reference to the exhibit filed with the Company's
registration Current Report on Form 8-K dated March 18, 1996.
(8) Incorporated by reference to the exhibit files with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
(9) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 2000.
(10) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
(11) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(12) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
(13) Incorporated by reference to Exhibit A filed with the Company's
Definitive Proxy Statement dated December 30, 1998.
(14) Incorporated by reference to Exhibit A filed with the Company's
Definitive Proxy Statement dated October 22, 1999.
(15) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC File no. 333-36716.
+ Denotes management contract, plan or arrangement.
EX 3.3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SUPREMA SPECIALTIES, INC.
under Section 805 of the Business Corporation Law
The undersigned, being the President of Suprema Specialties, Inc. (the
"Corporation"), hereby certifies:
1. The name of the Corporation is Suprema Specialties, Inc.
2. The certificate of incorporation was filed by the Department of
State on August 1, 1983.
3. Article 4 of the certificate of incorporation, which refers to the
authorized shares of the Corporation, is hereby amended to increase the
aggregate number of shares of Common Stock which the corporation shall have
authority to issue from 10,000,000 shares of common stock, par value $.01 each,
and 2,500,000 shares of preferred stock, par value $.01 each, to 50,000,000
shares of common stock, par value $.01 each, and 2,500,000 shares of preferred
stock, par value $.01 each.
4. To effectuate the foregoing, the first paragraph of Article 4 of the
certificate of incorporation, which refers to the authorized shares of the
Corporation, is hereby amended in its entirety to read as follows:
"4. The aggregate number of shares which the Corporation shall have the
authority to issue is fifty two million five hundred thousand
(52,500,000) shares, par value $.01 each, of which fifty million
(50,000,000) shares are classified as Common Stock and two million five
hundred thousand (2,500,000) shares are classified as Preferred Stock."
5. The foregoing amendment of the Certificate of Incorporation was
authorized by the unanimous vote of the Board of Directors, followed by the vote
of the holders of a majority of the outstanding shares entitled to vote thereon
at a meeting of the shareholders.
IN WITNESS WHEREOF, I have duly signed this Certificate of Amendment
this 2nd day of May, 2001.
SUPREMA SPECIALTIES, INC.
By: /s/ Mark Cocchiola
----------------------------
Mark Cocchiola, President
EX 3.4
AMENDED AND RESTATED BY-LAWS
OF
SUPREMA SPECIALTIES, INC.
ARTICLE I
OFFICES
SECTION 1. OFFICES. The corporation may have such offices and
places of business, within or without the State of New York, as shall be
determined by the directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the shareholders may
be held at such place or places, within or without the State of New York, as
shall be fixed by the directors and stated in the notice of the meeting.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders
for the election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time as
may be determined from time to time by resolution of the Board of Directors.
SECTION 3. NOTICE OF ANNUAL MEETING. Notice of the annual
meeting shall be given to each shareholder entitled to vote, at least ten days
prior to the meeting.
SECTION 4. SPECIAL MEETINGS. Special meetings of the
shareholders for any purpose or purposes may be called by the President.
SECTION 5. NOTICE OF SPECIAL MEETING. Notice of a special
meeting, stating the time, place and purpose or purposes thereof, shall be given
to each shareholder entitled to vote, at least ten days prior to the meeting.
SECTION 6. QUORUM. At any meeting of the shareholders, the
holders of a majority of the shares of stock then entitled to vote shall
constitute a quorum for all purposes, except as otherwise provided by law or the
Certificate of Incorporation.
SECTION 7. VOTING. Except as otherwise provided by statute or
the Certificate of Incorporation, each shareholder of the corporation shall be
entitled at each meeting of Shareholders to one vote for each share of capital
stock of the corporation standing in his name on the record of shareholders of
the corporation:
(a) on the date fixed pursuant to the provisions of Section 4
of Article V of these By-Laws as the record date for the determination
of the shareholders who shall be entitled to notice of and to vote at
such meeting; or
(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the date on which
notice thereof shall be given, or, if notice is waived, at the close of
business on the date next preceding the day on which the meeting is
held.
Each Shareholder entitled to vote at any meeting of
Shareholders may authorize another person or persons to act for him by a proxy
signed by such Shareholder or his attorney-in-fact, but no proxy shall be voted
after three years from its date, unless the proxy provides for a longer period.
Any such proxy shall be delivered to the secretary of the meeting at or prior to
the time designated in the order of business for so delivering such proxies.
When a quorum is present at any meeting, the vote of the holders of a majority
of the voting power of the issued and outstanding stock of the corporation
entitled to vote thereon, present in person or represented by proxy at the
meeting, shall decide any questions brought before such meeting, unless the
question is one upon which by express provision of statute or of the Certificate
of Incorporation or of these By-Laws, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
SECTION 8. ADJOURNED MEETINGS. Any meeting of shareholders may
be adjourned to a designated time and place by a vote of a majority in interest
of the shareholders present in person or by proxy and entitled to vote, even
though less than a
-2-
quorum is so present. No notice of such an adjourned meeting need be
given, other than by announcement at the meeting, and any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 9. ACTION BY WRITTEN CONSENT OF SHAREHOLDERS.
Whenever, by any provision of statute or of the Certificate of Incorporation or
of these By-Laws, the vote of shareholders at a meeting thereof is required or
permitted to be taken in connection with any corporate action, the meeting and
vote of shareholders may be dispensed with, if the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted shall consent in writing to such corporate action
being taken.
SECTION 10. MATTERS TO BE BROUGHT BEFORE MEETING OF
SHAREHOLDERS. Except as otherwise provided by law, at any annual or special
meeting of the shareholders only such business shall be conducted as shall have
been properly brought before the meeting in accordance with this Section 10.
In order to be properly brought before the meeting, such
business must have either been (i) specified in the written notice of the
meeting (or any supplement thereto) given to the Shareholders of record on the
record date for such meeting by or at the direction of the Board of Directors,
(ii) brought before the meeting at the direction of the Board of Directors or
the officer of the corporation presiding over the meeting, or (iii) specified in
a written notice (a "Shareholder Meeting Notice") given to the corporation by or
on behalf of a shareholder of record on the record date for such meeting
entitled to vote thereat or a duly authorized proxy for such shareholder, in
accordance with all the following requirements.
For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of paragraph
(1) of this Section 10, the shareholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for action by the shareholders. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
120th day nor earlier than the close of business on the 150th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual
-3-
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 150th day prior to such
annual meeting and not later than the close of business on the later of the
120th day prior to such annual meeting or the tenth day following the day on
which the public announcement of the date of such meeting is first made by the
corporation. In no event shall the public announcement of a postponement or
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such shareholder's notice shall set
forth (i) as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the shareholder proposes to bring before the
meeting, the reasons for conducting such business at the meeting at the meeting
and any material interest in such business of such shareholder and of the
beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to
the shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (x) the name and address of such
shareholder, as they appear on the corporation's books, and of such beneficial
owner and (y) the number of shares of each class of stock of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
Any matter brought before a meeting of shareholders upon the
affirmative recommendation of the Board of Directors where such matter is
included in the written notice of the meeting (or any supplement thereto) and
accompanying proxy statement given to shareholders of record on the record date
for such meeting by or at the direction of the Board of Directors is deemed to
be properly before the shareholders for a vote and does not need to be moved or
seconded from the floor of such meeting. No business shall be brought before any
meeting of shareholders of the corporation otherwise than as provided in this
Section 10.
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ARTICLE III
DIRECTORS
SECTION 1. NUMBER. The number of directors of the corporation
shall be one or more as determined from time to time by resolution of the
directors, who shall hold office for the term of one year and until their
successors are duly elected and qualify. Directors need not be shareholders.
SECTION 2. POWERS. The Board of Directors may adopt such rules
and regulations for the conduct of its meetings, the exercise of its powers and
the management of the affairs of the corporation as it may deem proper, not
inconsistent with the laws of the State of New York, the Certificate of
Incorporation or these By-Laws.
In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board of Directors may exercise all such
powers of the corporation and do such lawful acts and things except as are by
statute, the Certificate of Incorporation or these By-Laws directed or required
to be exercised or done by the shareholders.
SECTION 3. MEETING, QUORUM, ACTION WITHOUT MEETING. Meetings
of the Board of Directors may be held at any place, either within or without the
State of New York, provided a quorum be in attendance. Except as may be
otherwise provided by the Certificate of Incorporation or by the Business
Corporation Law, a majority of the directors in office shall constitute a quorum
at any meeting of the Board of Directors and, a quorum being present, the vote
of a majority of the directors present at such meeting shall constitute the act
of the Board of Directors.
The Board of Directors may hold an annual meeting, without
notice, immediately after the annual meeting of shareholders. Regular meetings
of the Board of Directors may be established by a resolution adopted by the
Board of Directors. The Chairman of the Board of Directors (if any) or the
President may call, and at the request of a majority of directors must call, a
special meeting of the Board of Directors, upon at least three days notice which
shall be given by mail or overnight courier, or upon at least 24 hours notice if
given personally or by telephone, to each director.
Any one or more members of the Board of Directors or any
Committee thereof may participate in a meeting of such Board
-5-
of Directors or Committee by means of a conference telephone call or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Any action required or permitted to be taken by the Board of
Directors or any Committee thereof may be taken without a meeting if all members
of the Board of Directors or the Committee consent in writing to the adoption of
a resolution authorizing the action. The resolution and the written consents
thereto by the members of the Board of Directors or Committee shall be filed
with the minutes of the meetings of the Board of Directors or Committee.
SECTION 4. VACANCIES, REMOVAL. Except as otherwise provided in
the Certificate of Incorporation or in the following paragraph, vacancies
occurring in the membership of the Board of Directors, from whatever cause
arising (including vacancies occurring by reason of the removal of directors
without cause and newly created directorships resulting from any increase in the
authorized number of directors), may be filled by a majority vote of the
remaining directors, though less than a quorum, or such vacancies may be filled
by the shareholders.
Except where the Certificate of Incorporation contains
provisions authorizing cumulative voting or the election of one or more
directors by class or their election by holders of bonds, or requires all action
by shareholders to be by a greater vote, any one or more of the directors may be
removed, (a) for cause, at any time, by vote of the shareholders holding a
majority of the outstanding stock of the corporation entitled to vote, present
in person or by proxy, at any special meeting of the shareholders or by written
consent of all of the shareholders entitled to vote, or (b) for cause, by action
of the Board of Directors at any regular or special meeting of the Board of
Directors. A vacancy or vacancies occurring from such removal may be filled at
the special meeting of shareholders or at a regular or special meeting of the
Board of Directors.
SECTION 5. COMMITTEES. The Board of Directors, by resolution
adopted by a majority of the entire Board of Directors, may designate from its
members an Executive Committee or other committee or committees, each consisting
of one or more members, with such powers and authority (to the extent permitted
by law) as may be provided in said resolution. The Board of Directors may
designate one or more directors as alternate
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members of any such committee, who may replace any absent or disqualified member
or members at any meeting of such committee.
ARTICLE IV
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The executive officers of the
corporation shall be a President, one or more Executive Vice Presidents, one or
more Vice-Presidents, a Treasurer and a Secretary, all of whom shall be elected
annually by the Board of Directors, who shall hold office at the pleasure of the
Board of Directors. Any number of offices may be held by the same person. All
vacancies occurring among any of the officers shall be filled by the Board of
Directors. Any officer may be removed at any time by the affirmative majority
(unless the Certificate of Incorporation requires a larger vote) of the
directors present at a special meeting of the Board of Directors called for that
purpose or by the unanimous written consent of the Board of Directors.
SECTION 2. OTHER OFFICERS. The Board of Directors may appoint
such other officers and agents with such powers and duties as it shall deem
necessary.
SECTION 3. THE PRESIDENT. In the absence or non-election of a
Chairman of the Board, the President shall preside at all meetings of the
shareholders and directors. He shall be the chief executive officer and the
chief operating officer and he shall be in charge of the day-to-day operations
of the corporation subject to the direction of the Board of Directors.
SECTION 4. THE EXECUTIVE VICE-PRESIDENT. The Executive
Vice-President, in the absence or disability of the President, shall exercise
the powers and perform the duties of the President, and shall exercise such
other powers and perform such other duties as shall be prescribed by the Board
of Directors.
SECTION 5. THE VICE-PRESIDENT. The Vice-President shall
exercise such powers and perform such other duties as shall be prescribed by the
Board of Directors.
SECTION 6. THE TREASURER. The Treasurer shall have custody of
all funds, securities and evidences of indebtedness of the corporation; he shall
receive and give
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receipts and acquittances for moneys paid in on account of the corporation, and
shall pay out of the funds on hand all bills, payrolls and other just debts of
the corporation, of whatever nature, upon maturity; he shall enter regularly in
books to be kept by him for that purpose, full and accurate accounts of all
moneys received and paid out by him on account of the corporation, and he shall
perform all other duties incident to the office of Treasurer and as may be
prescribed by the Board of Directors.
SECTION 7. THE SECRETARY. The Secretary shall keep the minutes
of all meetings of the Board of Directors and of the shareholders; he shall
attend to the giving and serving of all notices to shareholders and directors or
other notices required by law or by these By-Laws; he shall affix the seal of
the corporation to deeds, contracts and other instruments in writing requiring a
seal, when duly signed or when so ordered by the Board of Directors; he shall
have charge of the certificate books and stock books and such other books and
papers as the Board of Directors may direct, and he shall perform all other
duties incident to the office of Secretary.
SECTION 8. SALARIES. The salaries of all officers shall be
fixed by the Board of Directors or the Compensation Committee, if applicable,
and the fact that any officer is a director shall not preclude him from
receiving a salary as an officer, or from voting upon the resolution providing
the same.
ARTICLE V
CAPITAL STOCK
SECTION 1. FORM AND EXECUTION OF CERTIFICATES. Certificates of
stock shall be in such form as required by the Business Corporation Law of New
York and as shall be adopted by the Board of Directors. They shall be numbered
and registered in the order issued, shall be signed by the Chairman or a
Vice-Chairman of the Board of Directors (if any) or by the President or
Vice-President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer and may be sealed with the corporate seal or a
facsimile thereof. When such a certificate is countersigned by a transfer agent
or registered by a registrar, the signatures of any such officers may be
facsimiles.
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SECTION 2. TRANSFER. Transfer of shares shall be made only
upon the books of the corporation by the registered holder in person or by
attorney, duly authorized, and upon surrender of the certificate or certificates
for such shares properly assigned for transfer.
SECTION 3. LOST OR DESTROYED CERTIFICATES. The holder of any
certificate representing shares of stock of the corporation may notify the
corporation of any loss, theft or destruction thereof, and the Board of
Directors may thereupon, in its discretion, cause a new certificate for the same
number of shares to be issued to such holder upon satisfactory proof of such
loss, theft or destruction, and the deposit of indemnity by way of bond or
otherwise, in such form and amount and with such surety or sureties as the Board
of Directors may require, to indemnify the corporation against any loss or
liability by reason of the issuance of such new certificates.
SECTION 4. RECORD DATE. In lieu of closing the books of the
corporation, the Board of Directors may fix, in advance, a date, not exceeding
sixty days, nor less than ten days, preceding the date fixed for any action, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote, at any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action.
ARTICLE VI
MISCELLANEOUS
SECTION 1. DIVIDENDS. The Board of Directors may declare
dividends from time to time upon the capital stock of the corporation from funds
legally available therefor.
SECTION 2. SEAL. The Board of Directors shall provide a
suitable corporate seal which shall be used as authorized by these By-Laws.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation
shall be determined by the Board of Directors.
SECTION 4. CHECKS, NOTES, ETC. Checks, notes, drafts, bills of
exchange and orders for the payment of money
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shall be signed or endorsed in such manner as shall be determined by the Board
of Directors.
The funds of the corporation shall be deposited in such bank
or trust company, and checks drawn against such funds shall be signed in such
manner, as may be determined from time to time by the Board of Directors.
SECTION 5. NOTICE AND WAIVER OF NOTICE. Any notice required to
be given under these By-Laws may be waived by the person entitled thereto, in
writing, by telegram, cable or radiogram, and the presence of any person at a
meeting shall constitute waiver of notice thereof as to such person.
ARTICLE VII
INDEMNIFICATION AND ADVANCE OF EXPENSES
FOR DIRECTORS AND OFFICERS
SECTION 1. RIGHT TO INDEMNIFICATION. To the maximum extent
permitted by New York law in effect from time to time, the corporation shall
indemnify and, without requiring a preliminary determination of the ultimate
entitlement to indemnification, shall pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to a (a) any individual who is a
present or former director or officer of the corporation or a subsidiary thereof
and who is made a party to the proceeding by reason of his or her service in
that capacity or (b) any individual who, while a director or officer of the
corporation and at the request of the corporation, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is mad a party to the proceeding by reason of his or her service in that
capacity. The corporation may, with the approval of its Board of Directors,
provide such indemnification and advance for expenses to a person who served a
predecessor of the corporation in any of the capacities described in (a) or (b)
above and to any employee or agent of the corporation or a predecessor of the
corporation.
SECTION 2. TIME FOR PAYMENT ENFORCEMENT. Any indemnification,
or payment of expenses in advance of the final disposition of any proceeding,
shall be made promptly, and in any event within 60 days, upon the written
request of the
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director or officer entitled to indemnification (the "Indemnified Party"). The
right to indemnification and advance of expenses hereunder shall be enforceable
by the Indemnified Party in any court of competent jurisdiction, if (i) the
corporation denies such request, in whole or in part, or (ii) no disposition
thereof is made within 60 days. The Indemnified Party's costs and expenses
incurred in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation.
SECTION 3. GENERAL. The indemnification and advance of
expenses provided by this Article VII (a) shall not be deemed exclusive of any
other rights to which a person seeking indemnification or advance of expenses
may be entitled under any law (common or statutory), or any agreement, vote of
shareholders or disinterested directors or other provision that is not contrary
to law, both as to action in his or her official capacity while holding office
or while employed by or acting as agent for the corporation, (b) shall continue
in respect of all events occurring while a person was a director or officer
after such person has ceased to be a director or officer, and (c) shall inure to
the benefit of the estate, heirs, executors and administrators of such person.
All rights to indemnification and advance of expenses hereunder shall be deemed
to be a contract between the corporation and each director or officer of the
corporation who serves or served in such capacity at any time while this Article
VII is in effect.
SECTION 4. EFFECTIVE TIME. This Article VII shall be effective
from and after the date of its adoption and shall apply to all proceedings
arising prior to or after such date, regardless of whether relating to facts or
circumstances occurring prior to or after such date. Neither the amendment nor
repeal of this Article, nor the adoption or amendment of any other provision of
the Charter or Bylaws inconsistent with this Article, shall apply to or affect
in any respect the applicability of this Article with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
SECTION 5. FURTHER ACTION. The Board of Directors may take
such action as is necessary to carry out the provisions of this Article VII and
is expressly empowered to adopt, approve and amend from time to time such
resolutions or contracts implementing such provisions or such further
arrangements for indemnification or advance for expenses as may be permitted by
law.
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ARTICLE VIII
AMENDMENTS
SECTION 1. BY SHAREHOLDERS. These Amended and Restated By-Laws
may be amended at any meeting of the shareholders by vote of the shareholders
holding a majority (unless the Certificate of Incorporation requires a larger
vote) of the outstanding stock having voting power, present either in person or
by proxy, provided notice of the amendment is included in the notice or waiver
of notice of such meeting.
SECTION 2. BY DIRECTORS. The Board of Directors may also amend
these Amended and Restated By-Laws at any regular or special meeting of the
Board by a majority (unless the Certificate of Incorporation requires a larger
vote) vote of the entire Board, but any By-Laws so made by the Board of
Directors may be altered or repealed by the shareholders.
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EX 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of June 1,
2001 between SUPREMA SPECIALTIES, INC., a New York corporation (the "Employer"
or the "Company"), and Mark Cocchiola (the "Employee").
WHEREAS, the Employer and the Employee entered into an
employment agreement (the "Employment Agreement") which terminates on April 1,
2002;
WHEREAS, Employer and Employee wish to amend the Employment
Agreement to extend the initial termination date of the Employee's employment
and to restate such Employment Agreement to include certain additional
amendments reflected below.
NOW, THEREFORE, the Employer and Employee hereby amend and
restate the Employment Agreement to read in its entirety as follows:
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Employer desires to continue to employ the
Employee as its Chairman of the Board, President and Chief Executive Officer and
to be assured of his services as such on the terms and conditions hereinafter
set forth; and
WHEREAS, the Employee is willing to accept such employment on
such terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby, the
Employer and the Employee hereby agree as follows:
1. Term. Employer hereby agrees to employ Employee, and
Employee hereby agrees to serve Employer for a five-year period commencing
effective as of the date of this Agreement (the "Effective Date") (such period
being herein referred to as the "Initial Term," and any year commencing on the
Effective Date or any anniversary of the Effective Date being hereinafter
referred to as an "Employment Year"). After the Initial Term, this Agreement
shall be renewable automatically for successive one year periods (each such
period being referred to as a "Renewal Term"), unless, more than thirty days
prior to the expiration of the Initial Term or any Renewal Term, either the
Employee or the Company give written notice that employment will not be renewed
("Notice of Non-Renewal"), whereupon (i) if the Employee gives the Notice of
Non-Renewal, the term of the Employee's employment shall terminate upon the
expiration of the Initial Term or the then current Renewal Term, as the case may
be, or (ii) if the Company gives the Notice of Non-Renewal or terminates this
Agreement without Cause, the term of the Employee's employment shall be for a
final five (5) year period (the "Final Renewal Term"), commencing effective at
the date of the Notice of Non-Renewal, unless sooner terminated pursuant to
Section 8 hereof.
2. Employee Duties.
A. During the term of this Agreement, the Employee shall
have the duties and responsibilities of Chairman of the Board, President and
Chief Executive Officer of the Employer, reporting directly to the Board of
Directors of the Employer (the "Board"). It is understood that such duties and
responsibilities shall be reasonably related to the Employee's position.
B. The Employee shall devote substantially all of his
business time, attention, knowledge and skills faithfully, diligently and to the
best of his ability, in furtherance of the business and activities of the
Company.
3. Place of Performance. In connection with his employment by
the Company, the Employee shall be based at the Company's principal executive
offices and shall not be required to be absent therefrom on travel status or
otherwise for more than 45 days in any calendar year. The Company shall not,
without the written consent of the Employee, relocate or transfer its principal
executive offices to a location more than thirty miles from the Employee's
principal residence. The Company will promptly pay (or reimburse the Employee
for) all reasonable moving expenses incurred by the Employee relating to a
change of his principal residence in connection with any such relocation of the
Company's principal executive offices to which the Employee has consented, and
will indemnify the Employee against any loss realized in the sale of his
principal residence in connection with any such change of residence.
4. Compensation.
A. During the term of this Agreement, the Employer shall
pay the Employee a base salary (the "Base Salary") at a rate of $250,000 per
annum in respect of each
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Employment Year, payable in advance in installments, and in the same manner as
the other key employees of the Employer are paid, or at such other times as may
mutually be agreed upon between the Employer and the Employee. Such Base Salary
may be increased from time to time at the discretion of the Board.
B. Bonus. In addition to the Employee's Base Salary the
Company shall pay to the Employee an annual bonus (the "Annual Bonus") equal to
5% of the Company's pre-tax profits in excess of $650,000 for the preceding
fiscal year (the Base Salary, as determined pursuant to paragraphs 4.A and 4.B
above, and Annual Bonus, together, referred to as "Base Compensation"). The term
"pre-tax profit" of the Company means the pre-tax profit of the Company's
business excluding extraordinary gains, income, expenses or losses as determined
by the Company's independent public accountants whose determination shall be
final and binding upon the parties hereto. The Annual Bonus shall be payable no
later than 90 days after the end of the Company's fiscal year. In addition to
the foregoing, the Company may, as directed by formal action of its Board of
Directors, formulate and pay additional bonus or discretionary compensation
payments to the Employee, but such additional amounts shall be at the pleasure
of the Board unless pursuant to a written agreement with the Employee.
C. In addition to the foregoing, the Employee shall be
entitled to such other cash bonuses and such other compensation in the form of
stock, stock options or other property or rights as may from time to time be
awarded to him by the Board during or in respect of his employment hereunder.
5. Benefits.
A. During the term of this Agreement, the Employee shall
have the right to receive or participate in all benefits and plans which the
Company may from time to time institute during such period for its employees and
for which the Employee is eligible. Nothing paid to the Employee under any plan
or arrangement presently in effect or made available in the future shall be
deemed to be in lieu of the salary or any other obligation payable to the
Employee pursuant to this Agreement.
B. During the term of this Agreement, the Employee will be
entitled to the number of paid holidays, personal days off, vacation days and
sick leave days in each calendar year as are determined by the Company from time
to time for its senior executive officers, but not less than one month
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in any calendar year (prorated, in any calendar year during which the Employee
is employed under this Agreement for less than the entire such year, in
accordance with the number of days in such calendar year during which he is so
employed) . Such vacation may be taken in the Employee's discretion at such time
or times as are not inconsistent with the reasonable business needs of the
Company.
C. In order to facilitate travel by the Employee in
performance of his duties hereunder, the Company shall provide the Employee,
without cost to him, with a Company-owned, leased automobile, of his choice. The
Company shall pay all expenses of maintaining, insuring and operating said
automobile upon the presentation of appropriate vouchers and/or costs to the
extent that the Company does not pay such expenses.
6. Expenses. During the term of this Agreement, the Company
shall reimburse the Employee for such costs and expenses as the Employee may
reasonably incur in connection with the performance of his duties hereunder,
including, but not limited to, expenses for entertainment, travel and similar
items. The Company will reimburse the Employee for such expenses upon
presentation of expense statements or vouchers or such other supporting
information as the Company may require, in accordance with the policies and
procedures of the Company for the reimbursement of business expenses of its
senior executive officers.
7. Insurability; Right to Insure. During the continuance of
the Employee's employment hereunder, the Company shall have the right to
maintain term life insurance in its own name covering the Employee's life in
such amount as shall be determined by the Company for a term ending on the
termination date of this Agreement. The Employee shall aid in the procuring of
such insurance by submitting to the required medical examinations, if required
by filling out, executing and delivering such applications and other instruments
in writing as may be reasonably required by an insurance company or companies to
which application or applications for insurance may be made by or for the
Company.
8. Termination. Employee's employment under this Agreement may
be terminated without any breach of this Agreement only on the following
circumstances:
8.1. Death. The Employee's employment under this Agreement
shall terminate upon his death.
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8.2. Disability. If, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall have been
absent from his duties under this Agreement for 150 calendar days during any
calendar year, the Employer may terminate the Employee's employment under this
Agreement.
8.3. Cause. The Employer may terminate the Employee's
employment under this Agreement for Cause. For purposes of this Agreement, the
Employer shall have "Cause" to terminate the Employee's employment under this
Agreement upon (a) the willful and continued failure by the Employee to
substantially perform his duties under this Agreement (other than any such
failure resulting from the Employee's incapacity due to physical or mental
illness) after demand for substantial performance is delivered by the Employer,
in writing, specifically identifying the manner in which the Employer believes
the Employee has not substantially performed his duties and the Employee fails
to perform as required within 15 days after such demand is made, (b) the willful
engaging by the Employee in criminal misconduct (including embezzlement and
criminal fraud) which is materially injurious to the Employer, monetarily or
otherwise or (c) the conviction of the Employee of a felony. For purposes of
this paragraph, no act, or failure to act, on the Employee's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Employer.
Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board (other than the Employee) at a meeting of the Board called and held for
such purpose (after reasonable written notice to the Employee and an opportunity
for him, together with his counsel, to be heard before the Board), finding that
in the good faith opinion of the Board, the Employee was guilty of conduct set
forth above in clause (a), (b) or (c), and specifying the particulars thereof in
detail.
8.4. Termination by the Employee for Good Reason, Upon a
Change of Control or Because of Ill Health. The Employee may terminate his
employment under this Agreement (a) for Good Reason (as hereinafter defined),
(b) at any time within six months after a Change of Control, or (c) if his
health should
-5-
become impaired to any extent that makes the continued performance of his duties
under this Agreement hazardous to his physical or mental health or his life,
provided that, in the latter case, the Employee shall have furnished the
Employer with a written statement from a qualified doctor to such effect and
provided, further, that at the Employer's request and expense the Employee shall
submit to an examination by a doctor selected by the Employer and such doctor
shall have concurred in the conclusion of the Employee's doctor.
8.4.1. Good Reason. For purposes of this Agreement,
"Good Reason" shall mean (a) any assignment to the Employee of any duties or
reporting obligations other than those contemplated by, or any limitation of the
powers of the Employee in any respect not contemplated by, this Agreement, (b)
failure by the Employer to comply with its material obligations and agreements
contained in this Agreement, or (c) failure of the Employer to obtain the
assumption of the agreement to perform this Agreement by any successor as
contemplated in Section 11(f) of this Agreement. With respect to the matters set
forth in clauses (a), (b) and (c) of this paragraph, the Employee must give the
Employer 30 days prior written notice of his intent to terminate this Agreement
as a result of any breach or alleged breach of the applicable provision and the
Employer shall have the right to cure any such breach or alleged breach within
such 30 day period.
8.4.2. Change of Control. For purposes of this
Agreement, a "Change of Control" shall be deemed to occur, unless previously
consented to in writing by the Employee, upon (a) individuals who, as of the
date hereof, constitute the Board of Directors of the Employer (the "Incumbent
Board") ceasing for any reason to constitute at least a majority of the Board of
Directors of the Employer (the "Board"); provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Employer's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
person other than the Board; (b) the acquisition of
-6-
beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) of 15% or more of the voting securities of the Employer by any
person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) not affiliated with the Employee or the Employer; provided,
however, that no Change of Control shall be deemed to have occurred for purposes
of this Agreement if such person, entity or group acquires beneficial ownership
of 15% or more of the voting securities of the Employer as a result of a
combination of the Employer or a wholly-owned subsidiary of the Employer with
such person, entity or group or another entity owned or controlled by such
person, entity or group (whether effected by a merger, consolidation, sale of
assets or exchange of stock or otherwise); (c) the commencement of a proxy
contest against the management for the election of a majority of the Board of
the Employer if the group conducting the proxy contest owns, has or gains the
power to vote at least 15% of the voting securities of the Employer; (d) the
consummation of a reorganization, merger or consolidation, or the sale, transfer
or conveyance of all or substantially all of the assets of the Employer to any
person or entity not affiliated with the Employee or the Employer or (e) the
complete liquidation or dissolution of the Employer.
9. Notice of Termination.
Any termination of the Employee's employment by the Employer
or by the Employee (other than termination by reason of the Employee's death)
shall be communicated by written Notice of Termination to the other party of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated.
10. Date of Termination.
The "Date of Termination" shall mean (a) if the Employee's
employment is terminated by his death, the date of his death, (b) if the
Employee's employment is terminated pursuant to Section 8.2 above, the date on
which the Notice of Termination is given, (c) if the Employee's employment is
terminated pursuant to Section 8.3 above, the date specified on the Notice of
Termination after the expiration of any cure periods and (d) if the Employee's
employment is terminated for
-7-
any other reason, the date on which a Notice of Termination is given after the
expiration of any cure periods.
11. Compensation Upon Termination or During Disability.
(a) If the Employee's employment shall be terminated by
reason of his death, the Employer shall pay to such person as he shall designate
in notice filed with the Employer, or if no such person shall be designated, to
his estate as a lump sum benefit, his full Salary to the date of his death in
addition to any payments to the Employee's spouse, beneficiaries or estate may
be entitled to receive pursuant to any pension or employee benefit plan or life
insurance policy or similar plan or policy then maintained by the Employer, and
such payments shall, assuming the Employer is in compliance with the provisions
of this Agreement, fully discharge the Employer's obligations with respect to
Section 4 of this Agreement, but all other obligations of the Employer under
this Agreement, including the obligations to indemnify, defend and hold harmless
the Employee, shall remain in effect.
(b) During any period that the Employee fails to perform
his duties hereunder as a result of incapacity due to physical or mental
illness, the Employee shall continue to receive his Salary until the Employee's
employment is terminated pursuant to Section 8.2 of this Agreement, or until the
Employee terminates his employment pursuant to Section 8.4(a) of this Agreement,
whichever first occurs. After termination, the Employee shall be paid, in equal
monthly installments, 100% of his Base Compensation, at the rate in effect at
the time Notice of Termination is given, for one year, and thereafter for one
additional year at an annual rate equal to 50% of the Base Compensation which
would have been in effect under this Agreement, plus, in each case, any
disability payments otherwise payable by or pursuant to plans provided by the
Employer. To the extent physically and mentally capable of so doing without
potentially impairing or damaging his health, the Employee shall provide
consulting services to the Employer during the period that he is receiving
payments pursuant to this Section 11(b).
(c) If the Employee's employment shall be terminated for
Cause, the Employer shall pay the Employee his full Base Compensation through
the Date of Termination, at the rate in effect at the time Notice of Termination
is given, and the Employer shall, assuming the Employer is in compliance with
the provisions of this Agreement, have no further obligations
-8-
with respect to Section 4 of this Agreement, but all other obligations of the
Employer under this Agreement, including the obligations to indemnify, defend
and hold harmless the Employee, shall remain in effect.
(d) If (A) in breach of this Agreement, the Employer shall
terminate the Employee's employment other than pursuant to Sections 8.2 or 8.3
hereof (it being understood that a purported termination pursuant to Section 8.2
or 8.3 hereof which is disputed and finally determined not to have been proper
shall be a termination by the Employer in breach of this Agreement), including
as a result of a Change of Control, and/or (B) the Employee shall terminate his
employment for Good Reason or at any time within six months after a Change of
Control, then the Employer shall pay to the Employee:
(i) his full Base Compensation through the Date of
Termination at the rate in effect at the time Notice of Termination is given;
(ii) for periods subsequent to the Date of Termination
(in lieu of any further payments pursuant to Section 4 of this Agreement),
severance, payable on the first day following the Date of Termination, in a lump
sum amount equal to the higher of (a) $1,250,000 or (b) the total compensation
(including the value of all perquisites, such as health and life insurance and
car allowance and the value of all stock options granted to Employee by Employer
received or earned by the Employee from the Employer during the twelve months
prior to the Termination Date, multiplied by five (5) ("Severance Pay") and;
(iii) all other damages to which the Employee may be
entitled as result of the termination of his employment under this Agreement,
including all legal fees and expenses incurred by him in contesting or disputing
any such termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
The amount (if any) payable pursuant to this Section 11(d)
(the "Severance Total") shall be increased by an amount (the "Increase")
sufficient so that after the payment by the Employee of (A) any income taxes on
the Increase and (B) any excise tax on the sum of (I) the Severance Total and
(II) the Increase, the Employee shall have received an amount (net of such
taxes) equal to the Severance Total. The Employee shall be entitled to receive
initially the entire Severance Total (together with any such additional payments
required to cover
-9-
any excise and income taxes payable as aforesaid) and shall not be required to
repay to the Employer any amount which is ultimately and finally determined by
the Internal Revenue Service (or an appropriate court) to have been in excess of
the amount permitted to be received without incurring such excise tax, and
Employer agrees to use its best efforts to support the Employee's position that
such amounts are not subject to excise tax in any dispute with the Internal
Revenue Service or in any other administrative or judicial proceedings.
(iv) The value of the stock options described above will
be determined using a Black-Scholes valuation methodology by an investment bank
reasonably acceptable to both Company and Employee. The fees for such valuation
will be paid by the Company.
(e) The Employee shall not be required to mitigate the
amount of any payment provided for in this Section 11 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 11 be reduced by any compensation earned by the Employee as the
result of employment by another employer or business or by profits earned by the
Employee from any other source at any time before and after the Date of
Termination.
(f) The Employer will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Employer, by agreement in
form and substance satisfactory to the Employee, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Employer would be required to perform it if no such succession had taken place.
Failure of the Employer to obtain such Agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Employee to compensation from the Employer in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Employer" shall mean the Employer and
any successor to its business and/or assets which executes the Agreement or
which otherwise becomes bound by the terms and conditions of this Agreement by
operation of law.
(g) (A) Upon the occurrence of a Change of Control, or (B)
if in breach of this Agreement, the Employer
-10-
shall terminate the Employee's employment other than pursuant to Sections 8.2 or
8.3 hereof (it being understood that a purported termination pursuant to Section
8.2 or 8.3 hereof which is disputed and finally determined not to have been
proper shall be a termination by the Employer in breach of this Agreement), or
(C) if the Employee shall terminate his employment for Good Reason at any time,
then notwithstanding the vesting and exercisability schedule in any stock option
agreement between the Employer and Employee, all unvested stock options granted
by the Employer to the Employee pursuant to such agreement shall immediately
vest and become exercisable and shall remain exercisable for not less than 180
days thereafter.
12. Confidentiality; Noncompetition.
(a) The Employer and the Employee acknowledge that the
services to be performed by the Employee under this Agreement are unique and
extraordinary and, as a result of such employment, the Employee will be in
possession of confidential information relating to the business practices of the
Company. The term "confidential information" shall mean any and all information
(verbal and written) relating to the Company or any of its affiliates, or any of
their respective activities, other than such information which can be shown by
the Employee to be in the public domain (such information not being deemed to be
in the public domain merely because it is embraced by more general information
which is in the public domain) other than as the result of breach of the
provisions of this Section 12(a), including, but not limited to, information
relating to: trade secrets, personnel lists, financial information, research
projects, services used, pricing, customers, customer lists and prospects,
product sourcing, marketing and selling and servicing. The Employee agrees that
he will not, during or for a period of two years after the termination of
employment, directly or indirectly, use, communicate, disclose or disseminate to
any person, firm or corporation any confidential information regarding the
clients, customers or business practices of the Company acquired by the Employee
during his employment by Employer, without the prior written consent of
Employer; provided, however, that the Employee understands that Employee will be
prohibited from misappropriating any trade secret at any time during or after
the termination of employment.
(b) The Employee hereby agrees that he shall not, during
the period of his employment and for a period of twelve (12) months following
such employment, directly or
-11-
indirectly, within any county (or adjacent county) in any State within the
United States or territory outside the United States in which the Company is
engaged in business during the period of the Employee's employment or on the
date of termination of the Employee's employment, engage, have an interest in or
render any services to any business (whether as owner, manager, operator,
licensor, licensee, lender, partner, stockholder, joint venturer, employee,
consultant or otherwise) competitive with the Company's business activities.
Notwithstanding the foregoing, the Employer shall be permitted to own not more
than 5% of any class of securities of a competitive business which is publicly
traded and/or is registered on reports under the Securities and Exchange Act of
1934.
(c) The Employee hereby agrees that he shall not, during
the period of his employment and for a period of twelve (12) months following
such employment, directly or indirectly, take any action which constitutes an
interference with or a disruption of any of the Company's business activities
including, without limitation, the solicitations of the Company's customers, or
persons listed on the personnel lists of the Company. At no time during the term
of this Agreement, or thereafter shall the Employee directly or indirectly,
disparage the commercial, business or financial reputation of the Company.
(d) For purposes of clarification, but not of limitation,
the Employee hereby acknowledges and agrees that the provisions of subparagraphs
12(b) and (c) above shall serve as a prohibition against him, during the period
referred to therein, directly or indirectly, hiring, offering to hire, enticing,
soliciting or in any other manner persuading or attempting to persuade any
officer, employee, agent, lessor, lessee, licensor, licensee or customer who has
been previously contacted by either a representative of the Company, including
the Employee, (but only those suppliers existing during the time of the
Employee's employment by the Company, or at the termination of his employment),
to discontinue or alter his, her or its relationship with the Company.
(e) Upon the termination of the Employee's employment for
any reason whatsoever, all documents, records, notebooks, equipment, price
lists, specifications, programs, customer and prospective customer lists and
other materials which refer or relate to any aspect of the business of the
Company which are in the possession of the Employee including all copies
thereof, shall be promptly returned to the Company.
-12-
(f) The parties hereto hereby acknowledge and agree that
(i) the Company would be irreparably injured in the event of a breach by the
Employee of any of his obligations under this Section 12, (ii) monetary damages
would not be an adequate remedy for any such breach, and (iii) the Company shall
be entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach.
(g) Each of the rights and remedies enumerated in Section
12 shall be independent of the other, and shall be severally enforceable, and
all of such rights and remedies shall be in addition to, and not in lieu of, any
other rights and remedies available to the Company under law or in equity.
(h) If any provision contained in this Section 12 is
hereafter construed to be invalid or unenforceable, the same shall not affect
the remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
(i) If any provision contained in this Section 12 is found
to be unenforceable by reason of the extent, duration or scope thereof, or
otherwise, then the court making such determination shall have the right to
reduce such extent, duration, scope or other provision and in its reduced form
any such restriction shall thereafter be enforceable as contemplated hereby.
(j) It is the intent of the parties hereto that the
covenants contained in this Section 12 shall be enforced to the fullest extent
permissible under the laws and public policies of each jurisdiction in which
enforcement is sought (the Employee hereby acknowledging that said restrictions
are reasonably necessary for the protection of the Company). Accordingly, it is
hereby agreed that if any of the provisions of this Section 12 shall be
adjudicated to be invalid or unenforceable for any reason whatsoever, said
provision shall be (only with respect to the operation thereof in the particular
jurisdiction in which such adjudication is made) construed by limiting and
reducing it so as to be enforceable to the extent permissible, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of said provision in any other jurisdiction.
(k) The limitation of Sections 12(a), 12(b) and 12(c) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligation as
-13-
required by Section 11 of this Agreement, however, such termination shall not
affect the rights of the Employee to receive all payments undiminished in any
way, provided by Section 11. The provision of this Section 12(k) shall also
apply during the time the Employee is receiving any payments from the Company as
a result of a termination resulting from disability.
13. Indemnification. The Employer shall indemnify and hold
harmless the Employee against any and all expenses reasonably incurred by him in
connection with or arising out of (a) the defense of any action, suit or
proceeding in which he is a party, or (b) any claim asserted or threatened
against him, in either case by reason of or relating to his being or having been
an employee, officer or director of the Company, whether or not he continues to
be such an employee, officer or director at the time of incurring such expenses,
except insofar as such indemnification is prohibited by law. Such expenses shall
include, without limitation, the fees and disbursements of attorneys, amounts of
judgments and amounts of any settlements, provided that such expenses are agreed
to in advance by the Employer. The foregoing indemnification obligation is
independent of any similar obligation provided in the Employer's Certificate of
Incorporation or Bylaws, and shall apply with respect to any matters
attributable to periods prior to the Effective Date, and to matters attributable
to his employment hereunder, without regard to when asserted. The Employee shall
be entitled to the protection of any liability insurance policies the Company
may elect to maintain for the benefit of its officers and directors. The Company
shall cause to be maintained in effect for not less than six years from a Change
of Control (to the extend available) policies of directors' and officers'
liability insurance.
14. General. This Agreement is further governed by the
following provisions:
(a) Notices. All notices relating to this Agreement shall
be in writing and shall be either personally delivered, sent by telecopy
(receipt confirmed) or mailed by certified mail, return receipt requested, to be
delivered at such address as is indicated below, or at such other address or to
the attention of such other person as the recipient has specified by prior
written notice to the sending party. Notice shall be effective when so
personally delivered, one business day after being sent by telecopy or five days
after being mailed.
-14-
To the Employer:
Suprema Specialties, Inc.
510 East 35th Street
Post Office Box 280, Park Station
Paterson, New Jersey 07543-0280
Attention: President
To the Employee:
Mark Cocchiola
9 Jane Drive
Englewood Cliffs, New Jersey 07632
With, in either case, a copy in the same manner to:
Blank Rome Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Ethan Seer, Esq.
Martin Luskin, Esq.
(b) Parties in Interest. Employee may not delegate his
duties or assign his rights hereunder. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
(c) Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Employer and contains all of
the covenants and agreements between the parties with respect to such employment
in any manner whatsoever. Any modification or termination of this Agreement will
be effective only if it is in writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey. Employee
agrees to and hereby does submit to jurisdiction before any state or federal
court of record in Bergen County, New Jersey, or in the state and county in
which such violation may occur, at Employer's election.
(e) Severability. In the event that any term or condition
in this Agreement shall for any reason be held by a court of competent
jurisdiction to be invalid, illegal or
-15-
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other term or condition of this Agreement, but this
Agreement shall be construed as if such invalid or illegal or unenforceable term
or condition had never been contained herein.
(f) Execution in Counterparts. This Agreement may be
executed by the parties in one or more counterparts, each of which shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement, and shall become effective when one or more counterparts
has been signed by each of the parties hereto and delivered to each of the other
parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
SUPREMA SPECIALTIES, INC.
By: /s/ Steven Venechanos
--------------------------------
Name: Steven Vencchanos
Title: Chief Financial Officer
By: /s/ Mark Cocchiola
--------------------------------
Mark Cocchiola
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Exhibit 21
Subsidiaries of Suprema Specialties, Inc.
Suprema Specialties West, Inc.
Suprema Specialties Northeast, Inc.
Suprema Specialties Northwest Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
Suprema Specialties, Inc.
Paterson, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated August 7, 2001, relating to the
consolidated financial statements of Suprema Specialties, Inc. and Subsidiaries,
which is contained in that Prospectus, and of our report dated August 7, 2001,
relating to the schedule, which is contained in Part II of the Registration
Statement.
We also consent to the incorporation by reference in the Prospectus constituting
a part of this Registration Statement of our reports dated September 18, 2000,
relating to the consolidated financial statements and schedule of Suprema
Specialties, Inc. appearing in the Company's 2000 Annual Report to Stockholders
and in the Company's annual report on Form 10-K and Form 10-KA for the year
ended June 30, 2000.
We also consent to the reference to our firm under the heading "Experts" in the
Registration Statement.
/s/ BDO Seidman, LLP
------------------------------
BDO Seidman, LLP
Woodbridge, New Jersey
September 14, 2001