As filed with the Securities and Exchange Commission on November 6, 2001
Registration No. 333-69514
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SUPREMA SPECIALTIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
New York 11-2662625
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
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:
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<S> <C>
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
</TABLE>
----------------
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. |_|
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 November 6, 2001
4,050,000 Shares
[Company Logo]
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 November 5, 2001, the last reported sale price of our common stock on
the Nasdaq National Market was $13.55 per share.
--------------------------
Before investing in our common stock you should review the "Risk Factors"
beginning on page 4.
--------------------------
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.
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<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
PACIFIC GROWTH EQUITIES, INC.
ROTH CAPITAL PARTNERS, LLC
The date of this prospectus is , 2001
[Company Logo]
[Picture of Various Company Products]
TABLE OF CONTENTS
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Page
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Prospectus Summary ...................................................... 1
Risk Factors ............................................................ 4
Forward-Looking Statements .............................................. 9
Use of Proceeds ......................................................... 10
Price Range of Common Stock ............................................. 11
Dividend Policy ......................................................... 11
Capitalization .......................................................... 12
Selected Consolidated Financial Information ............................. 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
Business ................................................................ 20
Management .............................................................. 27
Description of Securities ............................................... 31
Shares Eligible for Future Sale ......................................... 33
Principal and Selling Shareholders ...................................... 35
Underwriting ............................................................ 38
Legal Matters ........................................................... 39
Experts ................................................................. 40
Available Information ................................................... 40
Incorporation of Information by Reference ............................... 40
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 a one-year
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.
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.
1
THIS OFFERING
Unless otherwise stated, information included in this prospectus assumes no
exercise by the underwriters of the over-allotment option.
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<S> <C>
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 ...... 9,792,538 shares
Use of proceeds ................................... To repay outstanding indebtedness.
Risk factors ...................................... You should read "Risk Factors" beginning on page 4 for a
discussion of factors that you should carefully consider before
deciding to invest in our common stock.
Nasdaq National Market symbol ..................... CHEZ
</TABLE>
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, after deducting the underwriting discounts,
commissions and non-accountable expense allowance, as well as the 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 year 2001 and 57% of our net
sales in fiscal year 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 year
2001 and fiscal year 2000. Accordingly, we are subject to various risks 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.
4
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 year 2001 and
36% of our product requirements in fiscal year 2000, with one milk supplier
accounting for 12% of our requirements in fiscal year 2001 and 14% of our
requirements in fiscal year 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.
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.
5
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 the primary responsibilities on an
interim basis, and other responsibilities have been assumed by other members of
senior management. We are considering employing an individual to assume some or
all of the responsibilities previously performed by Mr. Lauriero. However we
have not entered into any negotiations or agreements at this time. 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.
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.
6
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.
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.
7
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 9,792,538 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, 4,999,718 may be resold in the public market immediately and an
additional 742,820 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 underwriters. However, the underwriters can waive this
restriction and allow these shareholders to sell their shares at any time.
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, which rights have been waived in connection with this offering. 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.
8
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.
9
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, after deducting the underwriting discounts,
commissions and non-accountable expense allowance, as well as the 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 $1,989,167 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 approximately $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.
10
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 common 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............................................... $17.54 $6.90
Second Quarter (through November 5, 2001)................... $15.00 $9.92
</TABLE>
The closing price of our common stock on November 5, 2001, the last trading
day prior to the date of this prospectus, was $13.55. As of the date of this
prospectus, we had 5,742,538 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.
11
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, after deducting the underwriting discounts, commissions
and non-accountable expense allowance, as well as the 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; 9,792,538 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.
12
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 and shipping expenses............................................ 9,176 8,025 14,045 21,893 31,360
General and administrative expenses...................................... 2,180 3,636 4,421 6,914 8,770
-------- -------- -------- -------- --------
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............................................. 201 4,167 7,134 10,822 14,790
Income taxes............................................................. 81 1,750 2,926 4,437 5,916
-------- -------- -------- -------- --------
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
<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.
13
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 Paterson, 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. The prices for elements of our cheeses, other
than milk, are fixed or relatively fixed. 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% 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.
14
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 our foodservice products,
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
to strengthen the Suprema brand name, 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 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.
15
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 the 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 to strengthen the Suprema brand name,
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.
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 the fiscal year ended June 30, 2000 from approximately $4,208,000
in the fiscal year ended June 30, 1999 due to the reasons discussed above.
16
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 and
shipping expenses 5,123 5,486 6,265 5,019 6,836 6,740 8,663 9,121
General and
administrative
expenses......... 1,248 1,680 1,491 2,495 1,619 1,871 2,082 3,198
------- ------- ------- ------- ------- ------- -------- --------
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 and
shipping expenses 8.3 8.4 8.3 6.6 7.7 7.3 8.0 7.0
General and
administrative
expenses......... 2.1 2.6 2.0 3.3 1.8 2.0 1.9 2.5
----- ----- ----- ----- ----- ----- ----- -----
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 borrowings
of $33,378,000 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 $36,958,000 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
17
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.
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 loan is payable in
18
three installments of the principal amount of $3,500,000, together with accrued
and unpaid interest thereon, 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 and Security 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 flow 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 141, Business Combinations, and SFAS 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 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.
19
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 a one-year 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. As part
of 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.
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
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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
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:
21
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 State 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
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 one-year 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,
22
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 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 our foodservice and food ingredient
customers 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 channels 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.
23
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.
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. As of June 30, 2001, these five customers
represented 20%, 20%, 15%, 13% and 13%, respectively, of our net accounts
receivable.
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, 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
24
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.
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.
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.
25
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 that 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.
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.
26
MANAGEMENT
Our current directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Mark Cocchiola ..................... 45 Chairman of the Board, Chief Executive Officer and President
Steven Venechanos .................. 42 Chief Financial Officer, Secretary and Director
Thomas Egan ........................ 60 Senior Vice President
Anthony Distinti ................... 82 Vice President
Marco Cocchiola .................... 76 Director
Dr. Rudolph Acosta, Jr. ............ 46 Director
Paul DeSocio ....................... 59 Director
Barry Rutcofsky .................... 44 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 Rutcofsky has been a director of Suprema since February 2001. He has
served as an Executive Vice-President of Take-Two Interactive Software, Inc., a
developer, publisher and distributor of interactive software games since May
2001. He was Co-Chairman of the Board of Take Two Interactive Software, Inc.
from July 2000 to May 2001 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.
Paul Lauriero, a director and Executive Vice President and a co-founder of
Suprema 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 the primary
responsibilities on an interim basis, and other responsibilities have been
assumed by other members of senior management. We are considering employing an
individual to assume some or all of the responsibilities previously performed by
Mr. Lauriero. However, we have not entered into any negotiations or agreements
at this time. We cannot, at this time, determine the impact of the loss of Mr.
Lauriero's services on our
27
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.
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.
28
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Number of
Annual Compensation Securities
--------------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
--------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Mark Cocchiola.................................................... 2001 $250,000 $706,984 100,000 $17,716
Chairman of the Board, Chief 2000 250,000 508,594 100,000 15,615
Chairman of the President 1999 252,700 324,201 50,000 15,010
Paul Lauriero..................................................... 2001 250,000 706,984 100,000 16,616
Executive Vice President(2) 2000 250,000 508,594 100,000 13,679
1999 252,700 324,201 50,000 12,648
Thomas Egan....................................................... 2001 164,903 -- 10,000 6,000
Senior Vice President 2000 153,750 -- 15,000 9,196
1999 133,077 -- 30,000 6,000
Steven Venechanos................................................. 2001 154,807 60,000 92,000 6,000
Chief Financial Officer and Secretary 2000 153,750 -- 25,000 13,500
1999 120,000 -- 30,000 6,000
Anthony Distinti.................................................. 2001 125,000 20,000 -- --
Vice President 2000 119,731 -- -- --
1999 96,500 -- -- --
</TABLE>
---------------
(1) Consists of automobile allowance, medical insurance premium reimbursement
and compensation paid in lieu of vacation.
(2) Mr. Lauriero passed away in August 2001. Mark Cocchiola has assumed the
primary responsibilities previously performed by Mr. Lauriero, on an interim
basis, and other responsibilities have been assumed by other members of
senior management.
Option Grants in Last Fiscal Year. The following table discloses information
concerning options granted in fiscal year 2001 to the Named Executives. The
options granted to Mark Cocchiola and Mr. Lauriero were exercisable in full from
the date of grant. The options granted to Mr. Egan and Mr. Venechanos vest in
three annual installments commencing one year from the original date of grant of
the options.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Potential Realizable
Number of Percent of Value At Assumed
Securities Total Options Annual
Underlying Granted to Exercise Rates of Stock Price
Options Employees in Price Expiration Appreciation for
Name Granted Fiscal Year ($/Sh) Date Option 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 2.5 7.50 01/02/11 47,167 119,531
Steven Venechanos ................................. 92,000 23.2 7.50 01/02/11 433,937 1,099,682
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.
29
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 $14.75 per share.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at June 30, 2001 at June 30, 2001($)
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.
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.
30
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 5,742,538 shares of common
stock and no shares of preferred stock issued and outstanding.
Common Stock
The holders of our 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 to 23,667
shares of our common stock may be granted in the future under our 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.
31
Warrants
In connection with our 1996 public offering, we issued the underwriter
warrants to purchase 150,000 shares of common stock, exercisable until June 30,
2002, 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 otherwise
entitled to notice of the registration and to include their shares of common
stock in the registration. The holders of the warrants, however, have waived
their registration rights in connection with this offering.
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 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
32
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.
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 9,792,538 shares of our common stock issued
and outstanding. This amount does not include 224,877 treasury shares. A total
of 9,049,718 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 742,820 of our outstanding shares, representing 7.6% 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, a member of our Board and representatives of
33
the estate of our former Executive Vice President and director, who collectively
own 90.7% 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, which rights have been waived in
connection with this offering.
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
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.
34
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 5,742,538 shares of common stock outstanding as
of the date of this prospectus and 9,792,538 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 has been our Chief Executive
Officer and President and Chairman of our Board during the last three years.
Steven Venechanos has been our Chief Financial Officer and Secretary during the
last three years and was appointed a director in September 2001. Paul Lauriero
is recently deceased and, prior to his death, officer and director of
Suprema during the last three years.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Prior to this Shares of After this Offering
Offering (3) Common (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 .................................... 1,103,968(12) 17.4 193,423(13) 910,545 8.9 154,386(14)
Steven 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 ................................... 61,745(18) 1.1 -- 61,745 * --
Anthony Distinti .................................. 10,000(15) * -- 10,000 * --
Dr. Rudolph Acosta ................................ 6,666(19) * -- 5,000 * --
Paul DeSocio ...................................... 6,666(15) * -- 5,000 * --
Barry Rutcofsky ................................... -- -- -- -- -- --
All directors and executive officers as a group (8
persons)......................................... 1,423,711(20) 21.4 246,360(21) 1,177,351 11.3 217,857(22)
</TABLE>
---------------
* Less than one percent.
(foonotes continued on next page)
35
(foonotes continued from previous page)
(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.
(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 417,500 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 advisor to Special Fund III, and
(ii) AWM Investment Company, Inc., a Delaware corporation, 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) 11,666 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.
(foonotes continued on next page)
36
(foonotes continued from previous page)
(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.
(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 901,330 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 who are directors
and executive officers.
(22) Represents the aggregate number of shares underlying exercisable options
held by the selling shareholders who are directors and executive officers,
which may be sold by such selling shareholders to cover over-allotments.
37
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, Pacific Growth Equities, Inc. and Roth Capital Partners, LLC are the
representatives 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.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Janney Montgomery Scott LLC .................................
Pacific Growth Equities, Inc. ..............................
Roth Capital Partners, LLC ..................................
----------------
Total ....................................................... 4,050,000
================
</TABLE>
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.
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. The underwriting discounts and
commissions are equal to the public offering price per share less the amount
paid to Suprema and the selling shareholders. 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, and a non-accountable expense allowance of $200,000 to be paid to
certain representatives of the underwriters, are estimated to be approximately
$380,000 and will be paid by us. These expenses include the SEC filing fee,
printing expenses, transfer agent and registration and other miscellaneous fees.
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
38
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.
We have agreed that for a period of 90 days after the date of this prospectus
we will not offer, sell, contract to sell or otherwise dispose of any shares of
our common stock or securities convertible into or exchangeable for any shares
of our common stock or grant options to purchase any shares of our common stock,
without the prior written consent of Janney Montgomery Scott LLC, except (i)
issuances pursuant to the exercise of options and warrants outstanding on the
date of this prospectus and (ii) grants of employee stock options pursuant to
the terms of a plan in effect on the date of this prospectus and issuances
pursuant to the exercise of such options.
In connection with this offering and in compliance with applicable securities
laws, Janney Montgomery Scott LLC, Pacific Growth Equities, Inc. and Roth
Capital Partners, 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, Pacific Growth Equities, Inc. or Roth Capital Partners,
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.
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.
39
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, 2001, as
filed with the SEC on September 28, 2001; and
o Our Current Report on Form 8-K, as filed with the SEC on October 22, 2001.
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 prospectus 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
40
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
</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 assets:
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
------------ ------------
Total assets ............................... $124,959,716 $190,412,289
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
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
------------ ------------
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
------------ ------------ ------------
Total operating expenses ................................... 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) (230,560)
Prepaid income taxes........................................................ 235,348 -- --
Other assets................................................................ (371,770) (1,072,541) (149,627)
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) (36,958,006)
------------ ------------- -------------
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.
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.
F-7
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies -- (Continued)
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.
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
F-8
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies -- (Continued)
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:
<TABLE>
<CAPTION>
June 30,
-------------------------
2000 2001
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
Note 4 -- Property, plant and equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
2000 2001
---------- -----------
<S> <C> <C>
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
========== ===========
</TABLE>
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 an
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.
F-9
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
-------------------------------------
1999 2000 2001
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The following reconciles income taxes at the U.S. statutory rate to the
provision for income taxes:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
-------------------------------------
1999 2000 2001
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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
F-10
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-Term Debt -- (Continued)
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 the principal amount of
$3,500,000, together with accrued and unpaid interest thereon, 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.
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:
<TABLE>
<S> <C>
2001 ..................................................... $ 57,785
2002 ..................................................... 62,650
2003 ..................................................... 67,748
2004 ..................................................... 102,837,587
2005 ..................................................... 4,053,070
Thereafter ............................................... 3,500,000
</TABLE>
F-11
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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:
<TABLE>
<S> <C>
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
==========
</TABLE>
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.
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
F-12
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Commitments and Contingencies -- (Continued)
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 $8,000,000. The Company received no
proceeds from the shares issued during the offering from those shares offered by
the selling shareholders.
Stock Option Plan
On February 11, 1991, the Company adopted the 1991 Stock Option Plan. In
December 1998, the Company adopted the 1998 Stock Option Plan. In February 2001,
the Company adopted the 1999 stock option plan (collectively, the "Plans").
Under the Plans, officers, directors and key employees of the Company are
eligible to receive up to 900,000, 500,000, and 500,000 incentive and/or
non-qualified stock options, respectively. The Plans, which expire in February
2001, November 2008, and February 2011, respectively, are administered by the
board of directors. The selection of participants, allotment of shares,
determination of price and other conditions of the grant of options are
determined by the board of directors at its sole discretion in order to attract
and retain persons instrumental to the success of the Company. Incentive stock
options granted under the Plans vest evenly over the first three years and are
exercisable for a period of up to ten years from the date of grant at an
exercise price which is not less than the fair market value of the common stock
on the date of grant, except that the term of an incentive stock option granted
under the Plan to a shareholder owning more than 10% of the outstanding common
stock may not exceed five years and its exercise price may not be less than 110%
of the fair market value of the common stock on the date of the grant.
F-13
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Shareholders' Equity -- (Continued)
Stock option transactions under the Plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average 1991
Exercise Plan
Price Per Share ($) Shares
------------------- -------
<S> <C> <C>
Outstanding at June 30, 1998 .................. $3.58 751,500
Granted ...................................... 3.17 134,250
Exercised or forfeited ....................... 2.50 (1,667)
----- -------
Outstanding at June 30, 1999 .................. 3.52 884,083
Granted ...................................... -- --
Exercised or forfeited ....................... 5.46 (26,917)
----- -------
Outstanding at June 30, 2000 .................. 4.97 857,166
Granted ...................................... -- --
Exercised or forfeited ....................... 7.50 (30,000)
----- -------
Outstanding at June 30, 2001 .................. 3.25 827,166
===== =======
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average 1998
Exercise Plan
Price Per Share ($) Shares
------------------- -------
<S> <C> <C>
Outstanding at June 30, 1998 .................. -- --
Granted ...................................... $4.63 143,000
Exercised or forfeited ....................... -- --
----- -------
Outstanding at June 30, 1999 .................. 4.63 143,000
Granted ...................................... 7.66 356,000
Exercised or forfeited ....................... -- --
----- -------
Outstanding at June 30, 2000 .................. 4.63 499,000
Granted ...................................... 7.50 30,000
Exercised or forfeited ....................... 4.63 (31,833)
----- -------
Outstanding at June 30, 2001 .................. 6.68 497,167
===== =======
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average 1999
Exercise Plan
Price Per Share ($) Shares
------------------- -------
<S> <C> <C>
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)
Note 9 -- Shareholders' Equity -- (Continued)
The weighted average fair value of options granted under all plans during:
<TABLE>
<S> <C>
1999................................................................... $1.79
2000................................................................... $4.39
2001................................................................... $4.71
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 2001:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Weighted-
Average
Range of Number of Remaining
Exercise Options Contractual Weighted-Average Number Weighted-Average
Prices Outstanding Life (Years) Exercise Price($) 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 June 30, 2002 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
F-15
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Shareholders' Equity -- (Continued)
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.
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-16
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 12 -- Major Customers -- (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
In August 2001, the Company's Executive Vice President passed away. 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 of the former Executive Vice President and
anticipates receiving the proceeds from this policy.
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>
Quarter Ended
----------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ --------- --------
<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-17
[Company Logo]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table indicates expenses (other than the underwriting
discounts, commissions and non-accountable expense allowance) 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 other than underwriting discounts and commissions. All amounts are
estimated (except for the SEC and NASD filing fees) as follows:
<TABLE>
<S> <C>
SEC filing fee.................................................... $ 14,984.50
NASD filing fee................................................... 6,569.00
Nasdaq listing fee................................................ 22,500.00
Printing.......................................................... 75,000.00
Accounting fees and expenses...................................... 55,000.00
Legal fees and expenses........................................... 165,000.00
Transfer Agent fees............................................... 3,500.00
Miscellaneous expenses............................................ 37,446.50
-----------
Total.......................................................... $380,000.00
===========
</TABLE>
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 10 of the Underwriting Agreement filed as
Exhibit 1.1 to this registration statement.
II-1
Item 16. Exhibits
<TABLE>
<S> <C>
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. (16)
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)
</TABLE>
II-2
<TABLE>
<S> <C>
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).*
</TABLE>
---------------
* Previously filed.
(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 filed 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.
II-3
(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.
(16) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC File No. 333-3862.
+ 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 Amendment No. 2 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the city of Paterson, State of New Jersey on
November 5, 2001.
SUPREMA SPECIALTIES, INC.
By: /s/ MARK COCCHIOLA
--------------------------------
Mark Cocchiola, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the 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 COCCHIOLA Chairman of the Board, President, Chief November 5, 2001
----------------------------------------------- Executive Officer and Director (Principal
Mark Cocchiola Executive Officer)
/s/ STEVEN VENECHANOS Chief Financial Officer, Secretary and November 5, 2001
----------------------------------------------- Director (Principal Financial and Accounting
Steven Venechanos Officer)
* Director November 5, 2001
-----------------------------------------------
Marco Cocchiola
/s/ RUDOLPH ACOSTA Director November 5, 2001
-----------------------------------------------
Rudolph Acosta
/s/ PAUL DESOCIO Director November 5, 2001
-----------------------------------------------
Paul DeSocio
* Director November 5, 2001
-----------------------------------------------
Barry Rutcofsky
*By: /s/ MARK COCCHIOLA
------------------------------------------
Mark Cocchiola
Attorney-in-fact
</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 Registration 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
BDO Seidman, LLP
Woodbridge, New Jersey
August 7, 2001
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
<TABLE>
<CAPTION>
Exhibits
--------
<S> <C>
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. (16)
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)
</TABLE>
<TABLE>
<S> <C>
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).*
</TABLE>
---------------
* Previously filed.
(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 filed 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.
(16) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-2, SEC File No. 333-3862.
+ Denotes management contract, plan or arrangement.
Exhibit 1.1
4,050,000 SHARES
SUPREMA SPECIALTIES, INC.
COMMON STOCK
---------------------
UNDERWRITING AGREEMENT
---------------------
November ___, 2001
JANNEY MONTGOMERY SCOTT LLC
PACIFIC GROWTH EQUITIES, INC.
ROTH CAPITAL PARTNERS, LLC
Representatives of the Several
Underwriters Named in Schedule I hereto
c/o Janney Montgomery Scott LLC
1801 Market Street
Philadelphia, PA 19103
Ladies and Gentlemen:
Suprema Specialties, Inc., a New York corporation (the "Company"),
proposes to sell to Janney Montgomery Scott LLC, Pacific Growth Equities, Inc.
and Roth Capital Partners LLC (the "Representatives") and the several other
underwriters named in Schedule I hereto (together with the Representatives, the
"Underwriters") 3,500,000 shares (the "Company Firm Shares") of common stock,
$0.01 par value, of the Company (the "Common Stock"); and each of the persons
named in Schedule II hereto (each a "Selling Shareholder" and collectively, the
"Selling Shareholders") proposes to sell to the Underwriters the number of
shares of Common Stock set forth opposite his name on such schedule, for an
aggregate of 550,000 shares of Common Stock to be sold by the Selling
Shareholders (the "Selling Shareholder Firm Shares"). The Company Firm Shares
and the Selling Shareholder Firm Shares to be sold to the Underwriters by the
Company and the Selling Shareholders, respectively, are referred to herein
collectively as the "Firm Shares." The respective amounts of the Firm Shares to
be purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Firm Shares shall be offered to the public at a public
offering price of $[____] per Firm Share (the "Offering Price").
In order to cover over-allotments in the sale of the Firm Shares, the
Underwriters may purchase for the Underwriters' own accounts, ratably in
proportion to the amounts set forth opposite their respective names in Schedule
I hereto, up to (i) 357,500 additional shares (the "Company Optional Shares") of
Common Stock from the Company and (ii) such number of shares of Common Stock set
forth opposite each Selling Shareholder's name on Schedule II hereto, for an
aggregate of 250,000 additional shares (the "Selling Shareholder Optional
Shares" and, together with the Company Optional Shares, the "Optional Shares")
of Common Stock to be sold by the Selling Shareholders. The Firm Shares and the
Optional Shares are referred to herein collectively as the "Offered Shares." If
any Optional Shares are purchased, the Optional Shares shall be purchased for
offering to the public at the Offering Price and in accordance with the terms
and conditions set forth herein.
The Company and the Selling Shareholders, intending to be legally
bound, hereby confirm their agreement with the Underwriters as follows:
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) The Company has prepared, in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Regulations") of the Securities and Exchange Commission (the
"SEC") under the Act in effect at all applicable times, and has filed with the
SEC a registration statement on Form S-2 (File No. 333-69514) and one or more
amendments thereto for the purpose of registering the Offered Shares (or a
portion of the Offered Shares if a "Rule 462(b) Registration Statement," as
defined below, has been or is to be filed) under the Act. The Company similarly
may have prepared or may prepare an additional registration statement on Form
S-2 with respect to a portion of the Offered Shares pursuant to Rule 462(b) of
the Regulations, and if so prepared or if to be so prepared, such additional
registration statement has been or will be filed pursuant to Rule 462(b) of the
Regulations. The term "Rule 462(b) Registration Statement" means such additional
registration statement, if any, filed pursuant to Rule 462(b) of the
Regulations, including, without limitation, all exhibits thereto, the contents
of the earlier registration statement incorporated therein by reference, and any
price-related information included therein, but omitted from the earlier
registration statement in reliance on Rule 430A of the Regulations. Copies of
all such registration statements (or the form thereof in the case of a Rule
462(b) Registration Statement that has not yet been filed) and any amendments
thereto, and all forms of the related prospectus contained therein, will be
delivered to the Representatives. Any preliminary prospectus included in such
registration statement or filed with the SEC pursuant to Rule 424(a) of the
Regulations is hereinafter called a "Preliminary Prospectus." The various parts
of such registration statement, including all exhibits thereto and the
information contained in the form of final prospectus filed with the SEC
pursuant to Rule 424(b) of the Regulations in accordance with Section 6(a) of
this Agreement and deemed by virtue of Rule 424 of the Regulations to be part of
the registration statement at the time it was declared effective, each as
amended at the time the registration statement became effective, including the
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A of the Regulations, are hereinafter
collectively called the "Registration Statement." The final prospectus in the
form included in the Registration Statement or first filed with the SEC pursuant
to Rule 424(b) of the Regulations and any amendments or supplements thereto,
including the information (if any) deemed to be part of that prospectus at the
time of effectiveness pursuant to Rule 430A of the Regulations, is hereinafter
called the "Prospectus." All references to the Registration Statement, the
Preliminary Prospectus and the Prospectus include all documents incorporated
therein by reference. If the Company files a Rule 462(b) Registration Statement,
then any reference herein to the term "Registration Statement" shall be deemed
to include such Rule 462(b) Registration Statement.
(b) The Registration Statement has become effective under the Act,
and the SEC has not issued any stop order suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the Preliminary
Prospectus, nor has the SEC instituted or threatened to institute proceedings
with respect to such an order. No stop order suspending the sale of the Offered
Shares in any jurisdiction designated by the Representatives as provided for in
Section 6(f) hereof has been issued, and no proceedings for that purpose have
been instituted or threatened. The Company has complied with all requests of the
SEC, or requests of which the Company has been advised of any state or foreign
securities commission in a state or foreign jurisdiction designated by the
Representatives as provided for in Section 6(f) hereof, for additional
information to be included in the Registration Statement, any Preliminary
Prospectus or the Prospectus. Each Preliminary Prospectus conformed to all the
requirements of the Act and the Regulations as of its date and the Preliminary
Prospectus dated October 12, 2001 did not as of its date contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except the foregoing
shall not apply to statements in any Preliminary Prospectus in reliance upon and
in conformity with information supplied to the Company in writing by or on
behalf of any Underwriter expressly for use therein. The Registration Statement,
on the date on which it was declared effective by the SEC (the "Effective Date")
and when any post-effective amendment thereof shall become effective, and the
Prospectus, at the time it is filed with the SEC including, if applicable,
pursuant to Rule 424(b), and on the Closing Date (as defined in Section 4
hereof) and any Option Closing Date (as defined in Section 5(b) hereof),
conformed and will conform to all the requirements of the Act and the
Regulations, and did not and will not, on any of such dates, include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in the
Registration Statement or the Prospectus made in reliance upon and in conformity
-2-
with information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use therein or the omission of any information
regarding the Underwriters.
(c) There is no document or contract of a character required to be
described in the Prospectus or to be filed as an exhibit to the Registration
Statement which is not so described or filed as required. The documents
incorporated by reference into the Prospectus pursuant to Item 12 of Form S-2
under the Act, at the time they were filed with the SEC, complied in all
material respects with the requirements of the Act or the Securities Exchange
Act of 1934, as amended ("Exchange Act"), as the case may be, and the Rules and
Regulations of the Act and the Exchange Act, at the time such documents were
filed with the SEC. In addition, any documents filed with the SEC and
incorporated by reference subsequent to the Effective Date of the Registration
Statement shall, when so filed, conform with the requirements of the Act and the
Exchange Act, as applicable, and the rules and regulations thereof. No documents
incorporated by reference into the Prospectus, when filed (or if amendments to
such documents, when such amendment was filed), contained any untrue statement
of material fact or omitted to state any material fact required to be stated
therein, or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(d) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York, with all necessary
power and authority, corporate and otherwise, and all required licenses,
permits, certifications, registrations, approvals, consents and franchises to
own or lease and operate its properties and to conduct its current business as
described in the Prospectus, except where the failure to obtain such licenses,
permits, certifications, registrations, approvals, consents and franchises would
not have a Material Adverse Effect, and to execute, deliver and perform this
Agreement. Each of Suprema Specialties West, Inc., a California corporation
("Suprema West"), Suprema Specialties Northwest, Inc., a Delaware corporation
("Suprema Northwest") and Suprema Specialties Northeast, Inc., a New York
corporation ("Suprema Northeast" and, together with Suprema West and Suprema
Northwest, the "Subsidiaries"), is a wholly-owned subsidiary of the Company. The
Company does not have any subsidiaries other than the Subsidiaries and does not
own any interest in any entity other than the Subsidiaries. Each Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction in which it was incorporated, with all necessary power
and authority, corporate and otherwise, and all required licenses, permits,
certifications, registrations, approvals, consent and franchises to own or lease
and operate its properties and conduct its current business. The Company and
each Subsidiary is duly qualified to do business as foreign corporations, and
are in good standing, in all jurisdictions in which such qualification is
required, except where any such failure to be so qualified or in good standing
could not reasonably be expected to have a material adverse effect on the
business and financial condition or results of operations of the Company and the
Subsidiaries taken as a whole (a "Material Adverse Effect").
(e) The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and, except as disclosed in the Prospectus, are owned by the
Company free and clear of all liens, encumbrances and security interests; and no
options, warrants or other rights to purchase, agreements or other obligations
to issue, or other rights to convert any obligations into, shares of capital
stock or ownership interests in the Subsidiaries or securities convertible into
or exchangeable for capital stock of, or other ownership interests in, the
Subsidiaries are outstanding except as disclosed in the Prospectus. Neither the
Company nor any of the Subsidiaries owns any stock or other interest whatsoever,
whether equity or debt, in any corporation, partnership or other entity other
than the Company's ownership of the Subsidiaries.
(f) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws relating to or affecting
creditors' rights generally or by general principles of equity and rules of law
governing specific performance, estoppel, waiver, injunctive relief and other
equitable remedies (regardless of whether enforcement is sought in a proceeding
at law or in equity) and except, as to this Agreement, as rights to indemnity
and contribution may be limited by federal and state securities laws or
principles of public policy.
(g) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated herein, do not and
will not, with or without the giving of notice or the lapse of time, or both,
-3-
(i) conflict with any term or provision of the Company's and each of the
Subsidiaries' Articles or Certificate of Incorporation or Bylaws; (ii) result in
a breach of, constitute a default under, result in the termination or
modification of, result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties of the Company or the
Subsidiaries or require any payment by the Company or the Subsidiaries or impose
any liability on the Company or the Subsidiaries pursuant to, any contract,
indenture, mortgage, deed of trust, commitment or other agreement or instrument
to which the Company or the Subsidiaries is a party or by which any of their
properties are bound or affected other than this Agreement, except where such
breach, default, modification, termination, lien, security interest, charge,
encumbrance, payment or liability could not reasonably be expected to have a
Material Adverse Effect; (iii) assuming compliance with Blue Sky laws and the
rules of the National Association of Securities Dealers, Inc. (the "NASD")
applicable to the offer and sale of the Offered Shares, violate any law, rule,
regulation, judgment, order or decree of any government or governmental agency,
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or the Subsidiaries or any of its respective properties or businesses
except where such violation could not reasonably be expected to have a Material
Adverse Effect; or (iv) result in a breach, termination or lapse of the
Company's or the Subsidiaries' corporate power and authority to own or lease and
operate its respective properties and conduct their respective businesses except
where such breach, termination or lapse could not reasonably be expected to have
a Material Adverse Effect.
(h) At the date or dates indicated in the Prospectus, the Company had
the duly authorized and outstanding capitalization set forth in the Prospectus
under the heading "Capitalization" and will have, upon the issuance of the Firm
Shares on the Closing Date, the as adjusted capitalization set forth therein as
of the date indicated in the Prospectus, except to the extent that the Company
issues shares of Common Stock upon exercises of options and/or other rights to
acquire securities between such dates indicated in the Prospectus and the
Closing Date or Option Closing Date. On the Effective Date, the Closing Date and
any Option Closing Date, there will be no options or warrants or other
outstanding rights to purchase, agreements or obligations to issue or agreements
or other rights to convert or exchange any obligation or security into, capital
stock of the Company or securities convertible into or exchangeable for capital
stock of the Company, except as described in or contemplated by the Prospectus.
The information in the Prospectus, insofar as it relates to all outstanding
options and other rights to acquire securities of the Company as of the
Effective Date and immediately prior to the Closing Date and any Option Closing
Date, is true and correct, except to the extent that any such options and/or
other equity rights are exercised, are terminated or expire prior to the Closing
Date or any Option Closing Date.
(i) The currently outstanding shares of the Company's capital stock,
including the Offered Shares to be purchased by the Underwriters from the
Selling Shareholders, have been duly authorized and are validly issued, fully
paid and non-assessable, and none of such outstanding shares of the Company's
capital stock has been issued in violation of any preemptive rights of any
security holder of the Company. The holders of the outstanding shares of the
Company's capital stock are not subject to personal liability solely by reason
of being such holders. All previous offers and sales of the outstanding shares
of the Company's capital stock, whether described in the Registration Statement
or otherwise, were made in conformity with applicable federal, state and foreign
securities laws. The authorized capital stock of the Company, including, without
limitation, the outstanding Common Stock, the Offered Shares being issued and
the outstanding options to purchase shares of Common Stock and the outstanding
warrants to purchase Common Stock conform in all material respects with the
descriptions thereof in the Prospectus, to the extent set forth therein, and
such descriptions conform in all material respects with the instruments defining
the same.
(j) When the Offered Shares have been duly delivered against payment
therefor as contemplated by this Agreement, the Offered Shares will be validly
issued, fully paid and non-assessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The
certificates representing the Offered Shares (to the extent certificates are
issued) and when duly delivered against payment therefor as contemplated herein,
will be in proper legal form under, and conform in all respects to the
requirements of, the New York Business Corporation law, as amended (the
"NYBCL"). Neither the filing of the Registration Statement nor the offering or
sale of Offered Shares as contemplated by this Agreement gives any security
holder of the Company any rights for or relating to the registration of any
Common Stock or any other capital stock of the Company (except as to rights
which have been exercised, satisfied or waived) or any rights to convert or have
redeemed or otherwise receive from the Company anything of value with respect to
any other security of the Company owned by such holder.
-4-
(k) No consent, approval, authorization, order, registration, license
or permit of, or filing or registration (other than those which have been
obtained) with, any court, government, governmental agency, instrumentality or
other regulatory body or official having jurisdiction over the Company and its
Subsidiaries is required for the valid and legal execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby, except such as may be required for the
registration of the Offered Shares under the Act, the Exchange Act, and for
compliance with the applicable state securities or Blue Sky laws or the Bylaws,
rules and other pronouncements of the NASD.
(l) The Common Stock (including the Offered Shares) is registered
pursuant to Section 12(g) of the Exchange Act. The issued and outstanding shares
of Common Stock are included for quotation on the Nasdaq National Market.
Neither the Company nor, to the Company's knowledge, any other person has taken
any action designed to cause, or likely to result in, the termination of the
registration of the Common Stock under the Exchange Act. The Company has not
received any notification from the SEC or the Nasdaq National Market that it is
contemplating terminating such registration or inclusion.
(m) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to contracts, agreements or
other documents, are accurate and present or summarize fairly the information
required to be disclosed under the Act or the Regulations, and there are no
contracts, agreements or other documents, instruments or transactions of any
character required to be described or referred to in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations that have not been so described, referred to or filed, as
required.
(n) Each contract or other instrument (however characterized or
described) to which the Company or the Subsidiaries is a party or by which any
of its respective properties or businesses is bound or affected has been duly
and validly executed by the Company and, to the Company's knowledge, by the
other parties thereto. Each such contract or other instrument is in full force
and effect in all material respects and is enforceable against the Company in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency or other similar laws relating to or affecting creditors' rights
generally or by general principles of equity and rules of law governing specific
performance, estoppel, waiver, injunctive relief and other equitable remedies
(regardless of whether enforcement is sought in a proceeding at law or in
equity) , and neither the Company nor the Subsidiaries are, and to the knowledge
of the Company, no other party is, in default thereunder, except where such
default would not have a Material Adverse Effect, and no event has occurred
that, with the lapse of time or the giving of notice, or both, would constitute
a default by the Company under any such contract or other instrument. All
necessary consents required by the Company under such contracts or other
instruments to the disclosure in the Prospectus with respect thereto have been
obtained.
(o) The consolidated financial statements of the Company (including
the notes thereto) filed as part of the Preliminary Prospectus dated October 12,
2001, the Prospectus and the Registration Statement present fairly the financial
position of the Company as of the respective dates thereof, and the results of
operations and cash flows of the Company for the periods indicated therein, all
in conformity with generally accepted accounting principles consistently applied
("GAAP"). The supporting notes and schedules included in the Registration
Statement fairly present, in all material respects, the information required to
be stated therein in relation to the financial statements taken as a whole. The
financial information included in the Prospectus under the captions "Summary
Financial Information" and "Selected Consolidated Financial Information"
presents fairly the information shown therein and has been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement. The adjustments to financial information included in the
Prospectus have been properly applied to the historical amounts in the
compilation of that information to reflect the sale by the Company and the
Selling Shareholders of 4,050,000 shares of Common Stock offered thereby at the
actual price set forth in the Prospectus and the application of the estimated
net proceeds therefrom.
(p) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, there has not been (i) any material adverse change (including, whether
or not insured against, any loss or damage to any material assets), or
development involving a prospective material adverse change, in the properties,
condition (financial or otherwise), results of operations, stockholders' equity,
-5-
business or prospects (collectively, the "Business Condition") of the Company
and the Subsidiaries taken as a whole; (ii) any adverse change, loss, reduction,
termination or non-renewal of any contract to which the Company or the
Subsidiaries is a party which would have a Material Adverse Effect; (iii) any
material transaction entered into by the Company or any of the Subsidiaries not
in the ordinary course of its business; (iv) any dividend or distribution of any
kind declared, paid or made by the Company or the Subsidiaries on its capital
stock, except for and to the extent described in the Prospectus; (v) any
liabilities or obligations, direct or indirect, incurred by the Company or the
Subsidiaries that are material to the Company and the Subsidiaries taken as a
whole; (vi) any change in the capitalization of the Company or the Subsidiaries,
except for the exercise, termination or expiration of options and/or other
rights to acquire securities of the Company; or (vii) any change in the
indebtedness of the Company or the Subsidiaries that is material to the Company
and the Subsidiaries taken as a whole. Neither the Company nor any of the
Subsidiaries have any contingent liabilities or obligations that are material
and that are not expressly disclosed in the Prospectus.
(q) The Company has not distributed, and will not distribute, any
offering material in connection with the offering and sale of the Offered Shares
other than the Registration Statement, a Preliminary Prospectus, the Prospectus
and other material, if any, permitted by the Act and the Regulations. Neither
the Company nor any of its officers, directors or affiliates has taken, nor
shall the Company or any such persons take, any action designed to, or that
might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Common Stock.
(r) The Company and the Subsidiaries have filed with the appropriate
federal, state and local governmental agencies, and all appropriate foreign
countries and political subdivisions thereof, all tax returns that are required
to be filed or have duly obtained extensions of time for the filing thereof and
have paid all taxes shown on such returns or otherwise due and all material
assessments received by them to the extent that the same have become due.
Neither the Company nor any of the Subsidiaries have executed or filed with any
taxing authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income or other tax, and neither the Company nor
any of the Subsidiaries is a party to any pending action or proceeding by any
foreign or domestic governmental agency for the assessment or collection of
taxes which could reasonably be expected to have a Material Adverse Effect, and
no claims for assessment or collection of taxes have been asserted against the
Company or the Subsidiaries which could reasonably be expected to have a
Material Adverse Effect.
(s) BDO Seidman, LLP, which has given its report(s) on certain
financial statements included as part of the Registration Statement, is a firm
of independent certified public accountants as required by the Act and the
Regulations with respect to the Company.
(t) Neither the Company nor any of the Subsidiaries are in violation
of, or in default under, any of the terms or provisions of (i) its Articles or
Certificate of Incorporation or Bylaws or similar governing instruments, (ii)
any indenture, mortgage, deed of trust, contract, commitment or other agreement
or instrument to which it is a party or by which it or any of its assets or
properties is bound or affected, except where such default or violation could
not reasonably be expected to have a Material Adverse Effect, (iii) any law,
rule, regulation, judgment, order or decree of any government or governmental
agency, instrumentality or court, domestic or foreign, having jurisdiction over
it or any of its properties or business except where such default or violation
could not reasonably be expected to have a Material Adverse Effect, or (iv) any
applicable license, permit, certification, registration, approval, consent or
franchise except where such default or violation could not reasonably be
expected to have a Material Adverse Effect.
(u) There are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries pending before, or, to the knowledge of the Company,
threatened or contemplated by, any governmental agency, instrumentality, court
or tribunal, domestic or foreign, or before any private arbitration tribunal to
which the Company or the Subsidiaries are or may be made a party that could
reasonably be expected to affect the validity of any of the outstanding Common
Stock or the Subsidiaries, or that, if determined adversely to the Company or
the Subsidiaries would, in any case or in the aggregate, have a Material Adverse
Effect nor, to the Company's knowledge, is there any reasonable basis for any
such claim, action, suit, protest, proceeding, arbitration, investigation or
inquiry. To the knowledge of the Company, there are no outstanding orders,
judgments or decrees of any court, governmental agency, instrumentality or other
tribunal enjoining the Company or the Subsidiaries from, or requiring the
Company or the Subsidiaries to, take or refrain from taking, any action, or to
which the Company or the Subsidiaries or their properties, assets or businesses
are bound or subject, except for such orders, judgments or decrees that would
not individually or in the aggregate have a Material Adverse Effect.
-6-
(v) The Company and each Subsidiary owns, or possesses adequate
rights to use, all patents, patent applications, trademarks, trademark
registrations, applications for trademark registration, trade names, service
marks, licenses, inventions, copyrights, know-how (including any unpatented
and/or unpatentable proprietary or confidential technology, information,
systems, design methodologies and devices or procedures developed or derived
from or for the Company's business), trade secrets, confidential information,
processes and formulations and other proprietary information necessary for, used
in, or proposed to be used in, the conduct of the business of the Company and
the Subsidiaries as described in the Prospectus (collectively, the "Intellectual
Property"), except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any of the
Subsidiaries have infringed, are infringing or have received any notice of
conflict with, the asserted rights of others with respect to the Intellectual
Property that, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could have a Material Adverse Effect,
and the Company knows of no reasonable basis therefor. To the knowledge of the
Company, no other parties have infringed upon or are in conflict with any
Intellectual Property to the extent such infringement would have a Material
Adverse Effect. Neither the Company nor any of the Subsidiaries is a party to,
or bound by, any agreement, material to the conduct of the Company's and the
Subsidiaries' business, pursuant to which royalties, honorariums or fees are
payable by the Company or the Subsidiaries to any person by reason of the
ownership or use of any Intellectual Property.
(w) The Company and each Subsidiary has good and marketable title to
all property described in the Prospectus as being owned by it, free and clear of
all liens, security interests, charges or encumbrances and the like, except such
as are expressly described or referred to in the Prospectus and other than such
as could not reasonably be expected to have a Material Adverse Effect. The
Company and each Subsidiary, as applicable, has insured its property against
loss or damage by fire or other casualty, in amounts reasonably believed by the
Company to be adequate, and maintains insurance against such other risks as
management of the Company deems appropriate. All real and personal property
leased by the Company as described or referred to in the Prospectus, is held by
the Company under valid leases. The executive offices and other facilities of
the Company or the Subsidiaries (the "Premises"), and all operations conducted
thereon by the Company or the Subsidiaries in compliance with all foreign or
domestic, federal, state and local statutes, ordinances, regulations, rules,
standards and requirements of common law concerning or relating to industrial
hygiene and the protection of health and the environment (collectively, the
"Environmental Laws"), other than such as could not reasonably be expected to
have a Material Adverse Effect. To the Company's knowledge, there are no
conditions on, about, beneath or arising from the Premises, that might give rise
to liability to the Company, the imposition of a statutory lien or require a
"Response," "Removal" or "Remedial Action," each as defined herein, under any of
the Environmental laws, except as described in the Prospectus or except where
such conditions are not reasonably expected to have a Material Adverse Effect.
Except as disclosed in the Prospectus, (i) neither the Company nor any of the
Subsidiaries has received written notice or has knowledge of any claim, demand,
investigation, regulatory action, suit or other action instituted or threatened
against the Company or the Subsidiaries or any portion of the Premises relating
to any of the Environmental Laws, except for any claim, demand, investigation,
regulatory action, suit or other action as would not, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect and (ii)
neither the Company nor any of the Subsidiaries has received any notice of
violation, citation, complaint, order, directive, request for information or
response thereto, notice letter, demand letter or compliance schedule to or from
any governmental or regulatory agency arising out of or in connection with
"hazardous substances" (as defined by applicable Environmental Laws) on, about,
beneath, arising from or generated at the Premises which could reasonably be
expected to have a Material Adverse Effect. As used in this subsection, the
terms "Response," "Removal" and "Remedial Action" shall have the respective
meanings assigned to such terms under Sections 101 (23)-101(25) of the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
9601(23)-9601(25).
(x) The Company and each of the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with GAAP and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
-7-
(y) Except for the plans that are disclosed in the Prospectus,
neither the Company nor any of the Subsidiaries has any employee benefit plan,
profit sharing plan, employee pension benefit plan or employee welfare benefit
plan or deferred compensation arrangements ("Plans") that are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations thereunder ("ERISA"). All Plans that are subject to
ERISA are in compliance with ERISA, and, to the extent required by the Internal
Revenue Code of 1986, as amended (the "Code"), in compliance with the Code.
Neither the Company nor any of the Subsidiaries has any employee pension benefit
plan that is subject to Part 3 of Subtitle B of Title I of ERISA or any defined
benefit plan or multi-employer plan. Neither the Company nor any of the
Subsidiaries has maintained retiree life or retiree health insurance plans that
are employee welfare benefit plans providing for continuing benefits or coverage
for any employee or any beneficiary of any employee after such employee's
termination of employment, except as required by Section 4980B of the Code and
except as disclosed in the Prospectus and except as would not be required to be
disclosed in the Prospectus. No fiduciary or other party in interest with
respect to any of the Plans has caused any of such Plans to engage in a
prohibited transaction as defined in Section 406 of ERISA. As used in this
subsection, the terms "defined benefit plan," "employee benefit plan," "employee
pension benefit plan," "employee welfare benefit plan," "fiduciary" and
"multiemployer plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
(z) No labor dispute exists with any of the Company's or any of the
Subsidiaries' employees, and to the Company's knowledge, no such labor dispute
is threatened. Except as disclosed in the Prospectus, the Company has no
knowledge of any existing or threatened labor disturbance by the employees of
any of the principal suppliers, contractors or customers of the Company or the
Subsidiaries that would materially adversely affect the Business Conditions of
the Company and the Subsidiaries. Except as disclosed in the Prospectus, none of
the Company's employees is covered by a collective bargaining agreement and, to
the knowledge of the Company, no union organizing activity exists with respect
to any of such employees.
(aa) Except as disclosed in the Registration Statement, neither the
Company nor any of its officers or directors is a party to any arrangements or
understandings, whether oral or written, nor has the Company or any such person
made any payments for commissions, finder's fees or similar payments in
connection with the transactions contemplated by this Agreement.
(bb) The conditions for use of Form S-2, set forth in the General
Instructions thereto, have been satisfied.
(cc) The Company is familiar with the Investment Company Act of 1940,
as amended (the "1940 Act"), and the rules and regulations thereunder, and has
in the past conducted, and the Company intends to conduct, its affairs in such a
manner as to ensure that it will not be an "investment company" within the
meaning of the 1940 Act and the rules and regulations thereunder.
(dd) No statement, representation, warranty or covenant made by the
Company in this Agreement or in any certificate or document required by this
Agreement to be delivered to the Representatives is, or as of the Closing Date
or any Option Closing Date will be, inaccurate, untrue or incorrect in any
material respect. No transaction has occurred or is proposed between or among
the Company and any of its respective officers, directors or shareholders or any
affiliate of the foregoing that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(ee) Except as disclosed in the Prospectus, neither the Company nor
any of the Subsidiaries have engaged in any transactions required to be
disclosed in the Prospectus involving the purchase or disposition of property,
the payment or distribution of cash or other property, the lending or borrowing
of money, the guarantying of obligations, the provision of services or any
similar transaction with (i) any shareholder who is known to the Company to
beneficially own 5% or more of the Common Stock or any executive officer or
director of the Company or the Subsidiaries, (ii) any entity in or for which any
of such persons is known to the Company to be an executive officer or director
or (iii) any family member of any of such persons.
(ff) None of the Company, the Subsidiaries or any officer, director,
employee, partner, agent or other person acting on behalf of the Company or the
Subsidiaries has, directly or indirectly, given or agreed to give any money,
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property or similar benefit or consideration to any customer or supplier
(including any employee or agent of any customer or supplier) or official or
employee of any agency or instrumentality of any government (foreign or
domestic) or political party or candidate for office (foreign or domestic) or
any other person who was, is or in the future may be in a position to affect the
business and financial conditions or operations of the Company and the
Subsidiaries or any actual or proposed business transaction of the Company or
the Subsidiaries that (i) could subject the Company or the Subsidiaries to any
liability (including, but not limited to, the payment of monetary damages) or
penalty in any civil, criminal or governmental action or proceeding or (ii) with
respect to the Company or the Subsidiaries or any officer or director thereof,
violates any law, rule or regulation known to the Company to which the Company
or the Subsidiaries is subject.
(gg) No unregistered securities of the Company have been sold by the
Company or on behalf of the Company by any person or persons controlling,
controlled by or under common control with the Company within the three years
prior to the date hereof, except as disclosed in the Registration Statements.
(hh) Any certificate signed by any officer of the Company in such
capacity and delivered to the Representatives or to counsel for the Underwriters
pursuant to this Agreement shall be deemed a representation and warranty by the
Company to the several Underwriters as to the matters covered thereby.
2. Representations and Warranties of the Selling Shareholders.
(a) Each of the Selling Shareholders severally represent and warrant
to, and agree with, each Underwriter that:
(i) Such Selling Shareholder has duly executed and delivered a
Custody Agreement (the "Custody Agreement"), in the form heretofore delivered to
the Representatives, with Continental Stock Transfer & Trust Company as
custodian (the "Custodian"). Such Selling Shareholder has duly executed and
delivered a power of attorney as provided for in the Custody Agreement and in
the form heretofore delivered to the Representatives, (the "Power of Attorney")
appointing Mark Cocchiola and Steven Venechanos as such Selling Shareholder's
attorneys-in- fact (the "Attorneys-in-Fact"). The Attorneys-in-Fact are
authorized to execute, deliver and perform this Agreement on behalf of such
Selling Shareholder, including, without limitation, the authority to determine
the purchase price to be paid to each Selling Shareholder by the Underwriters as
set forth in Section 3 of this Agreement. Certificates in negotiable form
representing the Offered Shares to be sold by each Selling Shareholder hereunder
shall be, following exercise of the warrant pursuant to which such Offered
Shares are issued, deposited with the Custodian pursuant to the Custody
Agreement for the purpose of delivery pursuant to this Agreement. Such Selling
Shareholder agrees that the Offered Shares represented by the certificates to be
on deposit with the Custodian pursuant to the Custody Agreement are held for the
purpose of delivery pursuant to this Agreement. Such Selling Shareholder agrees
that the Offered Shares represented by the certificates to be deposited with the
Custodian are subject to the interests of the Underwriters hereunder, that the
arrangements made for such custody and the appointment of the Attorneys-in-Fact
are to that extent irrevocable, and that the obligations of such Selling
Shareholder hereunder shall not be terminated, except as provided in this
Agreement, by any act of such Selling Shareholder, by operation of law or
otherwise, whether by the dissolution, reorganization, death, incapacity or
other such event should occur before the delivery of the Offered Shares to be
sold by the affected Selling Shareholder hereunder, the certificates for such
Offered Shares shall be delivered by the Custodian in accordance with the terms
and conditions of this Agreement, as if such dissolution, reorganization, death,
incapacity, or other event had not occurred, regardless of whether or not the
Custodian or Attorneys-in-Fact shall have received notice thereof.
(ii) Such Selling Shareholder has all requisite right, power and
authority to enter into this Agreement, the Custody Agreement and the Power of
Attorney and has, or, in the case of shares of Common Stock to be issued upon
exercise of Common Stock options, will have, all requisite right, power and
authority to sell, transfer and deliver the Offered Shares to be sold by such
Selling Shareholder hereunder, and this Agreement, the Custody Agreement and the
Power of Attorney have been duly authorized, executed and delivered by such
Selling Shareholder and constitute the legal, valid and binding obligations of
such Selling Shareholder enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
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reorganization, moratorium, fraudulent conveyance or other similar laws relating
to or affecting creditors' rights generally or by general principles of equity
and rules of law governing specific performance, estoppel, waiver, injunctive
relief and other equitable remedies (regardless of whether enforcement is sought
in a proceeding at law or in equity) and except, as to this Agreement, as rights
to indemnity and contribution may be limited by federal and state securities
laws or principles of public policy.
(iii) The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby and by the
Prospectus, the Custody Agreement and the Power of Attorney do not and shall
not, with or without the giving of notice or lapse of time or both, (i) conflict
with or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage or other agreement or
instrument to which such Selling Shareholder is a party or by which such Selling
Shareholder or any of the Offered Shares to be sold by such Selling Shareholder
is bound, except for any such conflict, breach or violation which could not
interfere with such Selling Shareholders performance under this Agreement and
which would not result in any lien, charge, security interest or encumbrance on
any of the Offered Shares to be sold by such Selling Shareholder, (ii) any
organizational document relating to such Selling Shareholder (including without
limitation, any partnership agreement, articles of incorporation, bylaws or
other governing instruments) or (iii) violate any existing, applicable law,
rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over such
Selling Shareholder or any of the Offered Shares to be sold by such Selling
Shareholder, except for any such conflict or violation which could not interfere
with such Selling Shareholders performance under this Agreement and which would
not result in any lien, charge, security interest or encumbrance of any of the
Offered Shares to be sold by such Selling Shareholder.
(iv) All authorizations, approvals and consents necessary for the
valid execution and delivery by such Selling Shareholder of the Custody
Agreement and the Power of Attorney, the execution and delivery by or on behalf
of such Selling Shareholder of this Agreement, and the sale and delivery of the
shares to be sold by such Selling Shareholder hereunder (other than, at the time
of the execution thereof, the issuance of the order of the Commission declaring
the Registration Statement effective and such authorizations, approvals or
consents as may be necessary under the state securities or Blue Sky laws and the
bylaws, rules and pronouncements of the NASD), have been obtained and are in
full force and effect.
(v) On the Closing Date and any Option Closing Date, such Selling
Shareholder will be the lawful owner of the Offered Shares to be sold by such
Selling Shareholder pursuant to this Agreement. On the Closing Date and any
Option Closing Date, such Selling Shareholder will have good and marketable
title to such Offered Shares, free and clear of all liens, encumbrances,
security interests or other restrictions (other than those created under the
Custody Agreement).
(vi) On the Closing Date and any Option Closing Date, such
Selling Shareholder will have full legal right, power and authorization, and any
approval required by law, to sell, assign, transfer and deliver such Offered
Shares in the manner provided in this Agreement, the Power of Attorney and the
Custody Agreement, and upon delivery of and payment for such Offered Shares
hereunder, the several Underwriters will acquire good and marketable title to
such Offered Shares free and clear of any lien, claim, security interest or
other encumbrance, except any that may be created by the Underwriters' own
action.
(vii) Such Selling Shareholder is not prompted to sell the
Offered Shares to be sold by such Selling Shareholder hereunder by any
information concerning the Company or the Subsidiaries that is not set forth in
the Prospectus.
(viii) To the knowledge of such Selling Shareholder, such parts
of the Registration Statement and the Prospectus under the caption "Principal
and Selling Shareholders" which specifically relate to such Selling Shareholder
do not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made not misleading
and such part of the Preliminary Prospectus does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(ix) Such Selling Shareholder is not a party to any arrangements
or undertakings, whether oral or written, nor has such Selling Shareholder made
any payments for commissions, finder's fees or similar payments in connection
with the transaction contemplated by this Agreement.
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(x) Such Selling Shareholder has not distributed and will not
distribute any offering material in connection with the offering and sale of the
Offered Shares other than the Registration Statement, a Preliminary Prospectus,
the Prospectus and other material, if any, permitted by the Act and the
Regulations. Neither such Selling Shareholder nor any affiliate of such Selling
Shareholder has taken or shall take any action designed, or that might be
reasonably expected, to cause or result in stabilization or manipulation of the
price of the Offered Shares.
(b) Each of Mark Cocchiola and Steven Venechanos (each a "Management
Selling Shareholder" and collectively, the "Management Selling Shareholders")
severally represent and warrant to, and agree with each Underwriter that, to the
knowledge of each Management Selling Shareholder, each of the Registration
Statement and Prospectus does not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and to the knowledge of such Management Selling
Shareholder, the Preliminary Prospectus does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3. Purchase and Sale of Firm Shares. On the basis of the
representations, warranties, covenants and agreements contained herein, but
subject to the terms and conditions set forth herein: (a) the Company shall sell
the Company Firm Shares to the several Underwriters at the Offering Price, less
the underwriting discount shown on the cover page of the Prospectus, and the
Underwriters, severally and not jointly, shall purchase from the Company on a
firm commitment basis, at the Offering Price less the underwriting discount
shown on the cover page of the Prospectus, the respective amounts of the Company
Firm Shares set forth opposite their names on Schedule I hereto; and (b) the
Selling Shareholders shall sell to the several Underwriters at the Offering
Price, less the underwriting discount shown on the cover page of the Prospectus,
the respective amounts of the Selling Shareholder Firm Shares set forth opposite
their names on Schedule II hereto, and the Underwriters, severally and not
jointly, shall purchase from the Selling Shareholders on a firm commitment
basis, at the Offering Price less the underwriting discount shown on the cover
page of the Prospectus, the respective amounts of the Selling Shareholder Firm
Shares set forth opposite their names on Schedule I hereto. In making this
Agreement, each Underwriter is contracting severally and not jointly, and except
as provided in Sections 5 and 14 hereof, the agreement of each Underwriter is to
purchase only that number of Offered Shares specified with respect to that
Underwriter in Schedule I hereto. The Underwriters shall offer the Offered
Shares to the public as set forth in the Prospectus.
4. Payment and Delivery. Payment for the Firm Shares shall be made by
certified or official bank check or checks payable to the order of the Company,
with respect to the Company Firm Shares sold by it, and the Custodian, with
respect to the Selling Shareholder Firm Shares sold by the Selling Shareholders,
in New York Clearing House (next day) funds, at the offices of Janney Montgomery
Scott LLC, 1801 Market Street, Philadelphia, Pennsylvania, or at the Company's
or the Custodian's option, as the case may be, in immediately available funds
wired to such accounts as the Company or the Custodian may specify, against
delivery of the Firm Shares to the Representatives at the offices of Janney
Montgomery Scott LLC, 1801 Market Street, Philadelphia, Pennsylvania for the
respective accounts of the Underwriters. Such payment and delivery will be made
at 10:00 a.m., Philadelphia, Pennsylvania time, on the third business day after
the date of this Agreement, or at such other time on the same or such other
date, not later than seven business days thereafter as shall be designated in
writing by the Representatives. Such time and date are referred to herein as the
"Closing Date." The certificates representing the Firm Shares to be sold and
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the
Closing Date, and, if certificated, will be made available to the
Representatives for inspection, checking and packaging at the Philadelphia
correspondent office of the Company's transfer agent not less than one full
business day prior to the Closing Date.
5. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Prospectus, on
the basis of the representations, warranties, covenants and agreements contained
herein, but subject to the terms and conditions set forth herein, the several
Underwriters are hereby granted an option, to be exercised pro rata, (i) by the
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Company to purchase all or any part of the Company Optional Shares and (ii) by
the Selling Shareholders to purchase all or any portion of the Selling
Shareholders Optional Shares, pro rata as among the Selling Shareholder Optional
Shares from each Selling Shareholder as set forth on Schedule II hereto
(collectively, the "Over-allotment Option"). The purchase price to be paid for
the Optional Shares shall be the Offering Price less the underwriting discount
shown on the cover page of the Prospectus. The Over-allotment Option granted
hereby may be exercised by the Representatives on behalf of the several
Underwriters as to all or any part of the Optional Shares at any time and from
time to time within 30 days after the date of the Prospectus. No Underwriter
shall be under any obligation to purchase any Optional Shares prior to an
exercise of the Over-allotment Option.
(b) The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters by giving notice to the
Company by a letter sent by registered or certified mail, postage prepaid,
telex, telegraph, telegram or facsimile (such notice to be effective when
received), addressed as provided in Section 16 hereof, setting forth the number
of Optional Shares to be purchased, the date and time for delivery of and
payment for the Optional Shares and stating that the Optional Shares referred to
therein are to be used for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Shares. If such notice is given on or
at least two full business days prior to the Closing Date, the date set forth
therein for such delivery and payment shall be not earlier than the Closing
Date. If such notice is given after two full business days prior to the Closing
Date, the date set forth therein for such delivery and payment shall be a date
selected by the Representatives that is at least three full business days after
the exercise of the Over-allotment Option. The date and time set forth in such a
notice is referred to herein as an "Option Closing Date," and a closing held
pursuant to such a notice is referred to herein as an "Option Closing." Upon
each exercise of the Over-allotment Option, and on the basis of the
representations, warranties, covenants and agreements herein contained, and
subject to the terms and conditions herein set forth, the several Underwriters
shall become severally, but not jointly, obligated to purchase from the Company
and the Selling Shareholders the number of Optional Shares specified in each
notice of exercise of the Over-allotment Option (allocated among them in
accordance with Section 5(c) hereof).
(c) The number of Optional Shares to be purchased by each Underwriter
pursuant to each exercise of the Over-allotment Option shall be the number that
bears the same ratio to the aggregate number of Optional Shares being purchased
through such Over-allotment Option exercise as the number of Firm Shares
opposite the name of such Underwriter in Schedule I hereto bears to the total
number of all Firm Shares. Notwithstanding the foregoing, the number of Optional
Shares purchased and sold pursuant to each exercise of the Over-allotment Option
shall be subject to such adjustment as the Representatives may approve to
eliminate fractional shares and subject to the provisions for the allocation of
Optional Shares purchased for the purpose of covering over-allotments set forth
in the agreement entered into by and among the Underwriters in connection
herewith (the "Agreement Among Underwriters").
(d) Payment for the Optional Shares shall be made to the Company with
respect to the Company Optional Shares sold by the Company and to the Custodian
with respect to the Selling Shareholder Optional Shares sold by the Selling
Shareholders by certified or official bank check payable to the order of the
Company or the Custodian, as applicable, in New York Clearing House (next day)
funds, at the offices of Janney Montgomery Scott LLC, 1801 Market Street,
Philadelphia, Pennsylvania, or such other place as shall be agreed upon by the
Company and the Representatives, or at the option of the Company or the
Custodian, as the case may be, in immediately available funds wired to such
accounts as the Company and the Custodian may specify, against delivery of the
Optional Shares to the Representatives at the offices of Janney Montgomery Scott
LLC, 1801 Market Street, Philadelphia, Pennsylvania, for the respective accounts
of the Underwriters. The certificates representing the Optional Shares to be
issued and delivered will be in such denominations and registered in such names
as the Representatives request upon reasonable notice prior to such Option
Closing Date, and, if certificated, will be made available to the
Representatives for inspection, checking and packaging at a reasonable time in
advance of such Option Closing Date.
6. Certain Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters as follows:
(a) If Rule 430A of the Regulations is employed, the Company will
timely file the Prospectus pursuant to and in compliance with Rule 424(b) of the
Regulations and will advise the Representatives of the time and manner of such
filing.
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(b) The Company will not file or publish any amendment or supplement
to the Registration Statement, Preliminary Prospectus or Prospectus at any time
before the completion (in the opinion of the Underwriters' counsel) of the
distribution of the Offered Shares by the Underwriters that is not (i) in
compliance with the Regulations and (ii) approved by the Representatives (such
approval not to be unreasonably withheld or delayed).
(c) The Company will advise the Representatives immediately, and
confirm such advice in writing, (i) when any post-effective amendment to the
Registration Statement is filed with the SEC under Rule 462(c) under the Act or
otherwise, (ii) any Rule 462(b) Registration Statement is filed, (iii) of the
receipt of any comments from the SEC concerning the Registration Statement, (iv)
when any post-effective amendment to the Registration Statement becomes
effective, or when any supplement to the Prospectus or any amended Prospectus
has been filed, (v) of any request of the SEC for amendment or supplementation
of the Registration Statement or Prospectus or for additional information, (vi)
during the period when the Prospectus is required to be delivered under the Act
and Regulations, of the happening of any event as a result of which the
Registration Statement or the Prospectus would include an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, (vii) during the period noted in clause (vi) above, of
the need to amend the Registration Statement or supplement the Prospectus to
comply with the Act, (viii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
and (ix) of the suspension of the qualification of any of the Offered Shares for
offering or sale in any jurisdiction in which the Underwriters intend to make
such offers or sales, or the initiation or threatening of any proceedings for
any of such purposes known to the Company. The Company will use its best efforts
to prevent the issuance of any such stop order or of any order preventing or
suspending such use, and if any such order is issued, to obtain as soon as
possible the lifting thereof.
(d) The Company has delivered to the Representatives, without charge,
as many copies of each Preliminary Prospectus as the Representatives have
reasonably requested. The Company will deliver to the Representatives, without
charge, from time to time during the period when delivery of the Prospectus is
required under the Act, such number of copies of the Prospectus (as supplemented
or amended) as the Representatives may reasonably request. The Company hereby
consents to the use of such copies of the Preliminary Prospectus and the
Prospectus for purposes permitted by the Act, the Regulations and the securities
or Blue Sky laws of the states or foreign jurisdictions in which the Offered
Shares are offered by the several Underwriters and by all dealers to whom
Offered Shares may be sold, both in connection with the offering and sale of the
Offered Shares and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or dealer. The Company has furnished or will furnish to the Representatives at
least one original signed copy of the Registration Statement as originally filed
and of all amendments and supplements thereto, whether filed before or after the
Effective Date, at least one copy of all exhibits filed therewith and of all
consents and certificates of experts, and will deliver to the Representatives
such number of conformed copies of the Registration Statement, including
financial statements and exhibits, and all amendments thereto, as the
Representatives may reasonably request.
(e) The Company will comply with the Act, the Regulations, the
Exchange Act and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Offered Shares for as long as may be
necessary to complete the distribution of the Offered Shares as contemplated
hereby.
(f) The Company will furnish such information and pay such filing
fees and other expenses as may be required, and otherwise cooperate in the
registration or qualification of the Offered Shares, or exemption therefrom, for
offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions in which the Representatives
determine to offer the Offered Shares, after consultation with the Company, and
will file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided,
however, that no such qualification shall be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to taxation or
qualification as a foreign corporation doing business in such jurisdiction where
it is not now so qualified or to take any action which would subject it to
service of process in suits, other than those arising out of the offering or
sale of the Offered Shares, in any jurisdiction where it is not now so subject.
The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect for
so long a period as is required under the laws of such jurisdictions for such
offering and sale of the Offered Shares. The Company will furnish such
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information and pay such filing fees and other expenses as may be required, and
otherwise cooperate in the listing of the Offered Shares on the Nasdaq National
Market.
(g) Subject to Section 6(b) hereof, in case of any event (occurring
at any time within the period during which, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered under the Act or the
Regulations), as a result of which the Prospectus, as then amended or
supplemented, would contain, in the opinion of counsel for the Underwriters, an
untrue statement of a material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or, if it is necessary at any time
to amend the Prospectus to comply with the Act or the Regulations or any
applicable securities or Blue Sky laws, the Company promptly will prepare and
file with the SEC, and any applicable state and foreign securities commission,
an amendment, supplement or document that will correct such statement or
omission or effect such compliance and will furnish to the several Underwriters
such number of copies of such amendments, supplements or documents (in form and
substance satisfactory to the Representatives and counsel for the Underwriters)
as the Representatives may reasonably request. For purposes of this Section
6(g), the Company will provide such information to the Representatives, the
Underwriters' counsel and counsel to the Company as shall be necessary to enable
such persons to consult with the Company with respect to the need to amend or
supplement the Registration Statement, Preliminary Prospectus or Prospectus or
file any document, and shall furnish to the Representatives and the
Underwriters' counsel such further information as each may from time to time
reasonably request.
(h) The Company will make generally available to its security holders
not later than 45 days after the end of the period covered thereby, an earnings
statement of the Company (which need not be audited unless required by the Act
or the Regulations) that shall comply with Section 11(a) of the Act and Rule 158
thereunder and cover a period of at least 12 consecutive months beginning not
later than the first day of the Company's fiscal quarter next following the
Effective Date (or, if later, the effective date of the Rule 462(b) Registration
Statement).
(i) For a period of twelve months from the Effective Date, the
Company will deliver to the Representatives and, upon request, to each of the
Underwriters: (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-K and 10-Q filed with the SEC on the dates
required and (or such similar forms as may be designated by the SEC),
registration statements and any exhibits thereto, filed or furnished to the SEC
or any securities exchange or the NASD, on the date each such report or document
is so filed or furnished; (ii) as soon as practicable, copies of any reports or
communications (financial or other) of the Company mailed to its security
holders; and (iii) every material press release in respect of the Company or its
affairs that is released or prepared by the Company.
(j) For a period of twelve months from the Effective Date, the
Company will deliver to the Representatives, subject to execution of an
appropriate confidentiality agreement, such additional information concerning
the business and financial condition of the Company as the Representatives may
from time to time reasonably request in writing, and which can be prepared or
obtained by the Company without unreasonable effort or expense.
(k) During the course of the distribution of the Offered Shares, the
Company will not take, directly or indirectly, any action designed to, or that
could reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Stock.
(l) The Company has caused each person listed on Schedule III hereto
to execute an agreement (a "Lock-up Agreement") in form and substance
satisfactory to the Representatives and the Underwriters' counsel which provides
that for a period of 90 days after the Effective Date such persons will not,
without the prior written consent of Janney Montgomery Scott LLC, directly or
indirectly, sell, offer or contract to sell or grant any option to purchase or
otherwise dispose of any shares of Common Stock (or any securities convertible
into or exercisable or exchangeable for any shares of Common Stock), other than
the Offered Shares being offered by the Selling Shareholders. The Company has
delivered such agreements to the Representatives prior to the date of this
Agreement. Appropriate stop transfer instructions will be issued by the Company
to the transfer agent for the Common Stock, and a copy of such instructions will
be delivered to the Representatives.
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(m) For a period of 90 days after the Effective Date, the Company
will not, without the prior written consent of Janney Montgomery Scott LLC,
offer, sell, contract to sell or otherwise dispose of any Common Stock or any
securities convertible into or exercisable for any Common Stock or grant options
to purchase any Common Stock, except (i) the issuance of Common Stock upon the
exercise of currently outstanding options and warrants as described in the
Prospectus and (ii) the grant of options to purchase Common Stock under the
Company's currently outstanding stock option plans as described in the
Prospectus and the issuance of Common Stock upon the exercise thereof.
(n) For a period of three years from the Effective Date, the Company
will use all reasonable efforts to maintain the listing of the Common Stock
(including, without limitation, the Offered Shares) on the Nasdaq National
Market or on a national securities exchange.
(o) The Company shall, at its sole cost and expense, supply and
deliver to the Representatives and the Underwriters' counsel, within a
reasonable period from the Closing Date, transaction binders in such number and
in such form and content as the Representatives reasonably request.
(p) The Company will use the net proceeds from the sale of the
Offered Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
7. Certain Covenants and Agreements of the Selling Shareholders. Each
Selling Shareholder severally agrees with the several Underwriters as follows:
(a) Each Selling Shareholder will cooperate to the extent reasonably
necessary to cause the Registration Statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) Each Selling Shareholder will pay all Federal and other taxes, if
any, on the transfer or sale of the Offered Shares being sold by the Selling
Shareholder to the Underwriters and will pay any fees and expenses of Selling
Shareholders' counsel and any other fees as are agreed to by the Company and the
Selling Shareholders.
(c) Each Selling Shareholder will do or perform all things reasonably
required to be done or performed by the Selling Shareholder prior to the Closing
Date or any Option Closing Date, as the case may be, to satisfy all conditions
precedent to the delivery of his or its Offered Shares pursuant to this
Agreement.
(d) Except as stated in this Agreement and in the Preliminary
Prospectus and the Prospectus, each Selling Shareholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Offered Shares.
(e) Each Selling Shareholder will advise the Representatives
promptly, and if requested by the Representatives, will confirm such advice in
writing, of any change in information relating to the Selling Shareholder
relating to any matter stated in the Prospectus or any amendment or supplement
thereto which comes to the attention of the Selling Shareholder that suggests
that any statement relating to the Selling Shareholder made in the Registration
Statement or the Prospectus (as then amended or supplemented, if amended or
supplemented) is or may be untrue in any material respect or that the
Registration Statement or Prospectus (as then amended or supplemented, if
amended or supplemented) omits or may omit to state a material fact or a fact
necessary to be stated therein in order to make the statements relating to the
Selling Shareholder therein not misleading in any material respect, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented, if amended or supplemented) in order to comply with the Act or any
other law.
(f) Each Selling Shareholder will comply in all respects with the
Lockup Agreement executed by the Selling Shareholder.
8. Payment of Fees and Expenses.
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(a) Whether or not the transactions contemplated by this Agreement
are consummated and regardless of the reason this Agreement is terminated, the
Company will pay or cause to be paid, and bear or cause to be borne, all costs
and expenses incident to the performance of the obligations of the Company and
the Selling Shareholders under this Agreement, including: (i) the fees and
expenses of the accountants and counsel for the Company incurred in the
preparation of the Registration Statement and any post-effective amendments
thereto (including financial statements and exhibits), Preliminary Prospectuses
and the Prospectus and any amendments or supplements thereto; (ii) printing and
mailing expenses associated with the Registration Statement and any
post-effective amendments thereto, any Preliminary Prospectus, the Prospectus,
this Agreement, the Agreement Among Underwriters and related documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Offered Shares and the Blue Sky Memorandum (and any supplement thereto);
(iii) the costs and expenses (other than fees and expenses of the Underwriters'
counsel, except such fees incurred in connection with Blue Sky and NASD filings
or exemptions to the extent provided herein) incident to the authentication,
issuance, sale and delivery of the Offered Shares to the Underwriters; (iv) the
fees, expenses and all other costs of qualifying the Offered Shares for sale
under the securities or the Blue Sky laws of those states or foreign
jurisdictions in which the Offered Shares are to be offered or sold, including
the reasonable fees and expenses of Underwriter's counsel and such local counsel
as may have been reasonably required and retained for such purposes, not
exceeding $5,000; (v) the fees, expenses and other costs of, or incident to,
securing any review or approvals by or from the NASD, including the reasonable
fees and expenses of the Underwriters' counsel, not exceeding $5,000; (vi) the
filing fees of the SEC; (v) the cost of furnishing to the Underwriters copies of
the Registration Statement, Preliminary Prospectuses and Prospectuses as herein
provided; (vi) the Company's travel expenses in connection with meetings with
the brokerage community and institutional investors; (viii) the costs and
expenses associated with settlement in same day funds (other than interest or
cost of funds expenses), if desired by the Company; (ix) any fees or costs
payable to the Nasdaq National Market as a result of the offering; (x) the cost
of printing certificates for the Offered Shares; (xi) the costs and charges of
any transfer agent; (xii) all taxes, if any, on the issuance, delivery and
transfer of the Offered Shares sold by the Company; and (xiii) all other costs
and expenses reasonably incident to the performance of the Company's and the
Selling Shareholders' obligations hereunder that are not otherwise specifically
provided for in this Section 8(a); provided, however, that except as
specifically set forth in Section 8(b) hereof, the Underwriters shall be
responsible for their out-of-pocket expenses, including those associated with
meetings with the brokerage community and institutional investors, other than
the Company's travel expenses, and the fees and expenses of their counsel,
except with respect to Blue Sky and the NASD matters to the extent the Company
has agreed to pay up to $5,000 of each of such expenses as provided above.
(b) If the sale of the Firm Shares is completed, in order to
reimburse the Janney Montgomery Scott LLC and Pacific Growth Equities, Inc. for
costs and expenses associated with the offering of the Offered Shares, on the
Closing Date, the Company will pay a non-accountable expense allowance of (i)
$125,000 to Janney Montgomery Scott LLC and (ii) $75,000 to Pacific Growth
Equities, Inc.
9. Conditions to Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which it exercises its right to purchase under Section 5 on an
Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date to the continuing accuracy and fulfillment of the
representations and warranties of the Company and the Selling Shareholders, to
the performance by the Company and the Selling Shareholders of their covenants
and obligations hereunder, and to the following additional conditions:
(a) If required by the Regulations, the Prospectus shall have been
filed with the SEC pursuant to Rule 424(b) of the Regulations within the
applicable time period prescribed for such filing by the Regulations. On or
prior to the Closing Date or any Option Closing Date, as the case may be, no
stop order or other order preventing or suspending the effectiveness of the
Registration Statement (including any document incorporated by reference
therein) or the sale of any of the Offered Shares shall have been issued under
the Act or any state or foreign securities law, and no proceedings for that
purpose shall have been initiated or shall be pending or, to the
Representatives' knowledge or the knowledge of the Company, shall be
contemplated by the SEC or by any authority in any jurisdiction designated by
the Representatives pursuant to Section 6(f) hereof. Furthermore, there has been
no challenge to or comment on any document incorporated by reference in the
Prospectus by the SEC. Any request on the part of the SEC or any state or
foreign securities authority for additional information shall have been complied
with to the reasonable satisfaction of counsel for the Underwriters.
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(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Offered Shares and the
form of the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated hereby
shall be satisfactory in all material respects to counsel for the Underwriters.
The options/warrants to be exercised by the Selling Shareholder in connection
with the Selling Shareholders Firm Shares, if any, shall have been exercised and
the Custodian shall have received the certificates representing the Shares
issued to the Selling Shareholders upon exercise of such options/warrants. The
Company and the Selling Shareholders shall have furnished to such counsel all
documents and information that they may have reasonably requested to enable them
to pass upon such matters. The Representatives shall have received from the
Underwriters' counsel, Pepper Hamilton LLP, an opinion, dated as of the Closing
Date and any Option Closing Date, as the case may be, and addressed to the
Representatives, individually and as representatives of the several
Underwriters, which opinion shall be satisfactory in all respects to the
Representatives.
(c) The NASD shall have indicated it has no objection to the
underwriting arrangements pertaining to the sales of any of the Offered Shares.
(d) The Representatives shall have received a copy of an executed
Lock-up Agreement from each person listed on Schedule III hereto.
(e) The Representatives shall have received at or prior to the
Closing Date from the Underwriters' counsel a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Offered Shares under the
securities or Blue Sky laws of such jurisdictions designated by the
Representatives pursuant to Section 6(f) hereof.
(f) On the Closing Date and any Option Closing Date, there shall have
been delivered to the Representatives signed opinions of Blank Rome Tenzer
Greenblatt LLP, counsel to the Company and the Selling Shareholders, dated as of
each such date and addressed to the Representatives, individually and as
representatives of the several Underwriters, to the effect set forth in Exhibits
A and B hereto or to such effect as is otherwise reasonably satisfactory to the
Representatives.
(g) At the Closing Date and any Option Closing Date: (i) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the Act and
the Regulations and in all material respects shall conform to the requirements
of the Act and the Regulations, and neither the Registration Statement nor any
post-effective amendment thereto nor the Prospectus and any amendments or
supplements thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) since the respective dates as
of which information is given in the Registration Statement and any
post-effective amendment thereto and the Prospectus and any amendments or
supplements thereto, except as otherwise stated therein, there shall have been
no material adverse change in the Business Conditions of the Company and the
Subsidiaries from that set forth therein, whether or not arising in the ordinary
course of business; (iii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus or any amendment or
supplement thereto, there shall have been no event or transaction, contract or
agreement entered into by the Company or the Subsidiaries other than in the
ordinary course of business and as set forth in the Registration Statement or
Prospectus, that has not been, but would be required to be, set forth in the
Registration Statement or Prospectus; (iv) since the respective dates as of
which information is given in the Registration Statement and any post-effective
amendment thereto and the Prospectus and any amendments or supplements thereto,
there shall have been no material adverse change, loss, reduction, termination
or non-renewal of any contract to which the Company or the Subsidiaries is a
party, that has not been, but would be required to be set forth in the
Registration Statement or Prospectus; and (v) no action, suit or proceeding at
law or in equity shall be pending or threatened against the Company or the
Subsidiaries that would be required to be set forth in the Prospectus, other
than as set forth therein, and no proceedings shall be pending or threatened
against or directly affecting the Company or the Subsidiaries before or by any
federal, state or other commission, board or administrative agency wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect.
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(h) The Representatives shall have received at the Closing Date and
any Option Closing Date certificates of the Chief Executive Officer and the
Chief Financial Officer of the Company dated as of the date of the Closing Date
or Option Closing Date, as the case may be, and addressed to the
Representatives, individually and as representatives of the several
Underwriters, to the effect that (i) the representations and warranties of the
Company in this Agreement are true and correct, in all material respects, as if
made at and as of the Closing Date or the Option Closing Date, as the case may
be, and that the Company has complied, in all material respects, with all the
agreements, fulfilled all the covenants and satisfied all the conditions on its
part to be performed, fulfilled or satisfied at or prior to the Closing Date or
the Option Closing Date, as the case may be, in all material respects, and (ii)
the signers of the certificate have carefully examined the Registration
Statement and the Prospectus and any amendments or supplements thereto, and the
conditions set forth in Section 9(g) hereof have been satisfied.
(i) The Representatives shall have received at the Closing Date, and
any Option Closing Date, certificates of or on behalf of each Selling
Shareholder or Management Selling Shareholder, as the case may be, dated as of
the date of the Closing Date or Option Closing Date, as the case may be, and
addressed to the Representatives, individually and as representatives of the
several Underwriters, to the effect that (i) such Selling Shareholder has read
this Agreement carefully, and the representations and warranties of such Selling
Shareholder in this Agreement are true and correct, as if made at and as of the
Closing Date or the Option Closing Date, as the case may be, and (ii) the
Management Selling Shareholders have examined the Registration Statement and
Prospectus and any amendment or supplement thereto, and the conditions set forth
in Section 9(g) of this Agreement have been satisfied.
(j) At the time this Agreement is executed and at the Closing Date
and any Option Closing Date the Representatives shall have received a letter,
dated the date of delivery thereof, addressed to the Representatives,
individually and as representatives of the several Underwriters, in form and
substance satisfactory to the Representatives in all respects (including,
without limitation, the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) from BDO Seidman, LLP:
(i) confirming they are independent certified public accountants
within the meaning of the Act and the Regulations, and stating that the section
of the Registration Statement under the caption "Experts" is correct insofar as
it relates to them;
(ii) stating that, in their opinion, the consolidated financial
statements, schedules and notes of the Company and the Subsidiaries audited by
them and included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations;
(iii) stating that, on the basis of the specified procedures,
which included the procedures specified by the American Institute of Certified
Public Accountants for a review of interim financial information, as described
in SAS No. 71, Interim Financial Information (with respect to the latest
available unaudited consolidated financial statements of the Company), a reading
of the latest available unaudited interim consolidated financial statements of
the Company (with an indication of the date of the latest available unaudited
interim financial statements), a reading of the minutes of the meetings of the
shareholders and the Board of Directors of the Company and the Audit and
Compensation Committees of such Boards and inquiries to certain officers and
other employees of the Company responsible for operational, financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention that would cause them to believe that (A) the unaudited
consolidated financial statements of the Company included in the Registration
Statement and related schedules, if any, (1) do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations, or (2) were not fairly presented in conformity with GAAP or
statutory accounting practices on a basis substantially consistent with that of
the audited Consolidated Financial Statements and related schedules included in
the Registration Statement; or (B) at a specified date not more than five
business days prior to the date of such letter, there was any change in the
capital stock (other than the issuance of capital stock upon the exercise of
options granted under plans disclosed in the Prospectus or otherwise outstanding
and disclosed in the Prospectus), increase in long-term debt of the Company or
any decrease in consolidated net current assets or shareholders equity of the
Company as compared with the amounts shown in the June 30, 2001 audited balance
sheets of the Company included the Registration Statement or that for the
periods from June 30, 2001 to the date of the latest available unaudited
financial statements of the Company and to a specified date not more than five
days prior to the date of the letter, there were any decreases, as compared to
the corresponding periods in the prior year, in operating income or total or per
share amounts of net income, except in all instances for changes, decreases or
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increases that the Registration Statement discloses have occurred or may occur
and except for such other changes, decreases or increases which the Underwriters
shall in their sole discretion accept;
(iv) stating that they have compared specific dollar amounts (or
percentages derived from such dollar amounts), numbers of shares and other
numerical data and financial information set forth in the Registration Statement
that have been specified by the Representatives prior to the date of this
Agreement (in each case to the extent that such dollar amounts, percentages and
other information is derived from the general accounting records subject to the
internal controls of the Company's accounting systems, or has been derived
directly from such accounting records by analysis or comparison or has been
derived from other records and analyses maintained or prepared by the Company)
with the results obtained from the application of readings, inquiries and other
appropriate procedures set forth in the letter, and found them to be in
agreement.
All financial statements and schedules included in material incorporated by
reference into the Prospectus shall be deemed included in the Registration
Statement for purposes of this subsection (j).
(k) There shall have been duly tendered to the Representatives for
the respective accounts of the Underwriters, certificates or uncertificated
shares representing all of the Offered Shares to be purchased by the
Underwriters on the Closing Date or Option Closing Date, as the case may be.
(l) The issuance and sale of the Offered Shares shall be legally
permitted under applicable Blue Sky or state securities laws so long as such
sales are made in accordance with the Blue Sky Memorandum.
(m) The Representatives shall have received copies of the Custody
Agreement and Power of Attorney provided for in Section 2(a) hereof for each
Selling Shareholder, and such documents shall have been approved in form and
substance by the Underwriters' counsel, such approval not to be withheld
unreasonably.
(n) All corporate and other proceedings and other matters incident to
the authorization, form and validity of this Agreement and the form of the
Registration Statement and Prospectus and all other legal matters related to
this Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all respects to counsel to the Underwriters. The Company and the
Selling Shareholder shall have furnished to such counsel all documents and
information that they shall have reasonably requested to enable them to pass
upon such matters.
(o) At the Closing Date and any Option Closing Date, the
Representatives shall have been furnished such additional documents, information
and certificates relating to the Company and the Subsidiaries or the
transactions contemplated by this Agreement as they shall have reasonably
requested.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Representatives and the Underwriters' counsel. The Company and
the Selling Shareholders shall furnish the Representatives with such conformed
copies of such opinions, certificates, letters and other documents as they shall
reasonably request. If any condition to the Underwriters' obligations hereunder
to be fulfilled prior to or at the Closing Date or any Option Closing Date, as
the case may be, is not fulfilled, the Representatives may, on behalf of the
several Underwriters, terminate this Agreement with respect to the Closing Date
or such Option Closing Date, as applicable, or, if they so elect, waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment. Any such termination shall be without liability of the Underwriters
to the Company and the Selling Shareholders.
10. Indemnification and Contribution.
(a) The Company and each Selling Shareholder shall indemnify and hold
harmless each Underwriter, and each person, if any, who controls each
Underwriter within the meaning of the Act, against any and all loss, liability,
claim, damage and expense whatsoever, including, but not limited to, any and all
reasonable expenses incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever or in
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connection with any investigation or inquiry of, or action or proceeding that
may be brought against, the respective indemnified parties, arising out of or
based upon any breach of the Company's or the Selling Shareholders'
representations and warranties made in this Agreement or any untrue statements
or alleged untrue statements of material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, any other document
filed in any jurisdiction in order to qualify all or any part of the Offered
Shares under the securities laws thereof or filed with the SEC or the NASD (in
this Section 10 collectively called "application"), or the omission or alleged
omission from any of the foregoing of a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the foregoing indemnity shall not apply in respect of any
statement or omission made in reliance upon and in conformity with written
information furnished (or not furnished in the case of an omission or an alleged
omission of any information relating to any Underwriter) to the Company by any
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment or supplement thereto, or in any
application or in any communication to the SEC, as the case may be; and further
provided, however, that the indemnification contained in this Section 10(a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) on
account of any such loss, claim, liability or expense arising from the sale of
the Offered Shares by such Underwriter to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time required by
the Act and the Regulations thereunder, and the untrue statement or alleged
untrue statement or omission or alleged omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The obligations
of the Company and the Selling Shareholders under this Section 10(a) will be in
addition to any liability the Company and the Selling Shareholders may otherwise
have. Each Selling Shareholder's aggregate liability under this Section 10 or
otherwise in connection with this Agreement shall be limited to an amount equal
to the gross proceeds, less underwriting discounts and commissions received by
such Selling Shareholder from the sale of such Selling Shareholder's Offered
Shares pursuant to this Agreement.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, each
Selling Shareholder, and each other person, if any, who controls the Company
within the meaning of the Act to the same extent as the foregoing indemnities
from the Company and the Selling Shareholders to the several Underwriters, but
only with respect to any and all loss, liability, claim, damage or expense
resulting from statements or omissions, or alleged statements or omissions, if
any, made in any Preliminary Prospectus, Registration Statement or Prospectus or
any amendment or supplement thereof or any application in reliance upon, and in
conformity with written information furnished (or not furnished in the case of
an omission or an alleged omission of information relating to any Underwriter)
to the Company by any Underwriter through the Representatives expressly for use
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or any application, as the case may be. The
obligations of each Underwriter under this Section 10(b) will be in addition to
any liability which such Underwriter may otherwise have.
(c) If any action, inquiry, investigation or proceeding is brought
against any person in respect of which indemnification may be sought pursuant to
Section 10(a) or (b) hereof, such person (hereinafter called the "indemnified
party") shall, promptly after notification of, or receipt of service of process
for, such action, inquiry, investigation or proceeding, notify in writing the
party or parties against whom indemnification is to be sought (hereinafter
called the "indemnifying party") of the institution of such action, inquiry,
investigation or proceeding. The indemnifying party, upon the request of the
indemnified party, shall assume the defense of such action, inquiry,
investigation or proceeding, including, without limitation, the employment of
counsel (reasonably satisfactory to such indemnified party) and payment of
expenses. No indemnification provided for in this Section 10 shall be available
to any indemnified party who shall fail to give such notice if the indemnifying
party does not have knowledge of such action, inquiry, investigation or
proceeding to the extent that such indemnifying party has been prejudiced by the
failure to give such notice, but the omission to so notify the indemnifying
party shall not relieve the indemnifying party otherwise than under this Section
10. Such indemnified party shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
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the expense of such indemnified party unless the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action or if the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party or if such
indemnified party or parties shall have been advised by counsel that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties or that there may be legal defenses available
to such indemnified party or parties different from or in addition to those
available to the indemnifying party or parties, in any of which events the
indemnified party or parties shall be entitled to select counsel to conduct the
defense to the extent determined by such counsel to be necessary to protect the
interests of the indemnified party or parties, and the reasonable fees and
expenses of such counsel shall be borne by the indemnifying party. The
indemnifying party shall be responsible for the fees and disbursements of only
one such counsel so engaged by the indemnified party or parties. Expenses
covered by the indemnification in this Section 10 shall be paid by the
indemnifying party as they are incurred by the indemnified party. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action and does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party. Anything in this Section 10 to the contrary
notwithstanding an indemnifying party shall not be liable for any settlement of
a claim effected without its written consent, which consent shall not be
unreasonably withheld.
(d) If the indemnification provided for in this Section 10 is
unavailable or insufficient to hold harmless an indemnified party under Section
10(a) or (b) hereof in respect of any losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to therein, except by reason of the failure to give notice as
required in Section 10(c) hereof (provided that the indemnifying party does not
have knowledge of the action, inquiry, investigation or proceeding and to the
extent such party has been prejudiced by the failure to give such notice), then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Offered Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company and/or the Selling Shareholders on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, liabilities, claims or expenses (or actions, inquiries, investigations
or proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and/or the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bears
to the total underwriting discount and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholders on the one hand or the Underwriters on the
other hand and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 10(d)
were determined by pro rata allocation (even if the Selling Shareholders or the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to above in this Section 10(d). The amount paid or payable by an
indemnified party as a result of the losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to above in this Section 10(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 10(d), (i) the provisions of the
Agreement Among Underwriters shall govern contribution among Underwriters, (ii)
no Underwriter (except as provided in the Agreement Among Underwriters) shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Offered Shares purchased by such Underwriter, and (iii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 10(d) to contribute are several in proportion to their individual
underwriting obligations and not joint.
11. Limitations Upon Indemnification. Notwithstanding any provision in
Sections 10 or 12 of this Agreement to the contrary, no Underwriter or other
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indemnified party under Section 10 shall have any right to indemnification under
Section 10 based upon the breach of the representation or warranty by either
Management Selling Shareholder contained in Section 2(b) of this Agreement (a)
unless and until the amount of its claims for such indemnification are in excess
of $750,000 in the aggregate, in which event the indemnification obligations of
the Management Selling Shareholders under Section 10 shall apply only to the
excess of the aggregate amount of all such claims over $750,000, subject to the
limitations set forth in subsection (d) below, (b) unless and until any right of
indemnification against the Company has been exhausted, (c) unless such claim is
brought within six months of the date of this Agreement and (d) in an amount
that exceeds (i) as to Mark Cocchiola, $500,000 ($700,000, if all of his Selling
Shareholder Optional Shares are sold, or such applicable additional pro rata
amount if less than all of his Selling Shareholder Optional Shares are sold) or
(ii) as to Steven Venechanos, $100,000 ($200,000 if all of his Selling
Shareholder Optional Shares are sold, or such applicable additional pro rata
amount if less than all of his Selling Shareholder Optional Shares are sold).
12. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date. All such
representations, warranties and agreements of the Underwriters, the Company and
the Selling Shareholders, including, without limitation, the indemnity and
contribution agreements contained in Section 10 hereof and the agreements
contained in Sections 8, 12, 13 and 16 hereof, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any controlling person, and shall survive delivery of the
Offered Shares and termination of this Agreement, whether before or after the
Closing Date or any Option Closing Date.
13. Effective Date of This Agreement and Termination Hereof.
(a) This Agreement shall become effective at 10:00 a.m.,
Philadelphia, Pennsylvania time, on the first business day following the
Effective Date or at the time of the public offering by the Underwriters of the
Offered Shares, whichever is earlier, except that the provisions of Sections 8,
10, 11, 12 and 13 hereof shall be effective upon execution hereof. The time of
the public offering, for the purpose of this Section 13, shall mean the time
when any of the Offered Shares are first released by the Underwriters for
offering by dealers. The Representatives, the Company and the Selling
Shareholders may prevent the provisions of this Agreement (other than those
contained in Sections 8, 10, 11, 12 and 13) hereof from becoming effective
without liability of any party to any other party, except as noted below, by
giving the notice indicated in Section 13(c) hereof before the time the other
provisions of this Agreement become effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date or any Option Closing Date as
provided in Sections 9 and 14 hereof or if any of the following have occurred:
(i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the Business Conditions of the Company or the Subsidiaries, whether or not
arising in the ordinary course of business, that would, in the Representatives'
opinion, make the offering or delivery of the Offered Shares impracticable;
(ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic, political or financial
market conditions if the effect on the financial markets of the United States of
such outbreak, calamity, crisis or change would, in the Representatives'
opinion, make the offering or delivery of the Offered Shares impracticable;
(iii) any suspension or limitation of trading generally in
securities on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market or any setting of minimum prices for trading or the
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority that in the Representatives' opinion
materially and adversely affects trading on such exchange or the over-
the-counter market;
(iv) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of any court or other
-22-
governmental authority which in the Representatives' opinion materially and
adversely affects or will materially or adversely affect the business or
operations of the Company or the Subsidiaries;
(v) declaration of a banking moratorium by the United States, New
York or Pennsylvania authorities;
(vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in the
Representatives' opinion has a material adverse effect on the securities markets
in the United States; or
(vii) trading in any securities of the Company shall have been
suspended by Nasdaq National Market or the SEC.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
13, the Representatives shall notify the Company and the Selling Shareholders
hereof promptly by telephone, telex, telegraph, telegram or facsimile, confirmed
by letter.
14. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Optional Shares hereunder, and if the Firm
Shares or Optional Shares with respect to which such default relates do not
exceed in the aggregate 10% of the number of Firm Shares or Optional Shares, as
the case may be, that all Underwriters have agreed to purchase on the relevant
Closing Date or Option Closing Date, then the Representatives may make
arrangements satisfactory to the Company for the purchase of such Firm Shares by
other persons, including any of the Underwriters, but if no such arrangements
are made by the relevant Closing Date or Option Closing Date, such Firm Shares
or Optional Shares to which the default relates shall be purchased severally by
the non-defaulting Underwriters in proportion to their respective commitments
hereunder.
(b) If such default relates to more than 10% of the Firm Shares or
Optional Shares, as the case may be, the Representatives may in their discretion
arrange for another party or parties (including a non-defaulting Underwriter) to
purchase such Firm Shares or Optional Shares to which such default relates, on
the terms contained herein. In the event that the Representatives do not arrange
for the purchase of the Firm Shares or Optional Shares to which a default
relates as provided in this Section 14, this Agreement may be terminated by the
Representatives or by the Company without liability on the part of the
non-defaulting several Underwriters (except as provided in Section 10 hereof) or
the Company (except as provided in Sections 8 and 10 hereof); provided that if
such default occurs with respect to Optional Shares after the Closing Date, this
Agreement will not terminate as to the Firm Shares or any Optional Shares
purchased prior to such termination. Nothing herein shall relieve a defaulting
Underwriter of its liability, if any, to the other several Underwriters, to the
Company and to the Selling Shareholders for damages occasioned by its default
hereunder.
(c) If the Firm Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties, the Representatives or the Company shall
have the right to postpone the Closing Date or any Option Closing Date, as the
case may be, for a reasonable period but not in any event exceeding seven days,
in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment to the
Registration Statement or supplement to the Prospectus that in the opinion of
counsel for the Underwriters may thereby be made necessary. The terms
"Underwriters" and "Underwriter" as used in this Agreement shall include any
party substituted under this Section 14 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Shares and/or Optional
Shares.
15. Information Furnished by Underwriters. The identity of the
Underwriters set forth in the first paragraph under the heading "Underwriting,"
the concession and reallowance figures appearing in the third paragraph under
the heading "Underwriting," the representations with respect to discretionary
authority in the ninth paragraph under the heading "Underwriting" and the tenth
-23-
paragraph under the heading "Underwriting" regarding passive market making
constitute the only written information furnished by reference or on behalf of
any Underwriter referred to in Sections 1(b) and 10 hereof.
16. Notice. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Janney Montgomery Scott LLC, 1801 Market
Street, Philadelphia, Pennsylvania 19103, Attention: Mr. William Rulon-Miller,
facsimile number (215) 665-6197 with a copy to Pepper Hamilton LLP, 3000 Two
Logan Square, Eighteenth & Arch Streets, Philadelphia, Pennsylvania 19103,
Attention: Barry M. Abelson, Esquire; facsimile number (215) 981-4750 and if
sent to the Company or the Selling Shareholders, shall be mailed, delivered,
telexed, telegrammed, telegraphed or telecopied and confirmed to Suprema
Specialties, Inc., 510 East 35th Street, Paterson, New Jersey 07543, Attention:
Mark Cocchiola, facsimile number (973) 684-6860, with a copy to Blank Rome
Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New York 10174,
Attention: Ethan Seer, Esquire; facsimile number (212) 885-5001.
17. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Company, the Selling
Shareholder and the controlling persons, directors and officers thereof, and
their respective successors, assigns, heirs and legal representatives, and no
other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provision herein contained. The terms "successors" and "assigns" shall not
include any purchaser of the Offered Shares merely because of such purchase. In
all dealings with the Company and the Selling Stockholders under this Agreement,
the Representatives shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by the
Representatives.
18. Definition of Business Day. For purposes of this Agreement, "business
day" means any day on which the Nasdaq National Market is opened for trading.
19. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
20. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within such Commonwealth. All references
herein to the knowledge of the Company shall be deemed to include the knowledge
of each of the Subsidiaries.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-24-
If the foregoing correctly sets forth your understanding of our agreement,
please sign and return to the Company the enclosed duplicate hereof, whereupon
it will become a binding agreement in accordance with its terms.
Very truly yours,
SUPREMA SPECIALTIES, INC.
By:_____________________________
Name: Mark Cocchiola
Title: President
Selling Shareholders named in Schedule II hereto
By:____________________________
Steven Venechanos
Attorney-in-Fact
The foregoing Agreement is hereby confirmed and accepted as of the date First
above written.
JANNEY MONTGOMERY SCOTT LLC
PACIFIC GROWTH EQUITIES, INC.
ROTH CAPITAL PARTNERS, LLC
as Representatives of the Several Underwriters
named in Schedule I hereto
JANNEY MONTGOMERY SCOTT LLC
By:________________________________
Name:
Title:
PACIFIC GROWTH EQUITIES, INC.
By:________________________________
Name:
Title:
ROTH CAPITAL PARTNERS, LLC
By:________________________________
Name:
Title:
-25-
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Number of Selling
Company Firm Shareholder Firm Number of
Shares to be Shares to be Optional Shares
Underwriter Purchased Purchased to be Purchased
----------- ------------- ------------------ ----------------
<S> <C> <C> <C>
Janney Montgomery Scott LLC
Pacific Growth Equities, Inc.
Roth Capital Partners, LLC
Total.............................
</TABLE>
SCHEDULE II
Schedule of Selling Shareholders
<TABLE>
<CAPTION>
Number of Number of
Selling Shareholder Firm Shares Optional Shares
------------------- ----------- ---------------
<S> <C> <C>
Mark Cocchiola 193,423 154,386
Estate of Paul Lauriero 303,640 32,143
Steven Venechanos 52,937 63,471
Total........................................... 550,000 250,000
</TABLE>
SCHEDULE III
Persons Who Are to Deliver Lock-Up Agreements
Lock-Up Agreements are to be delivered by the following persons and
entities prior to the time the SEC declares the Registration Statement
effective:
1. Mark Cocchiola
2. Estate of Paul Lauriero
3. Steven Venechanos
4. Thomas Egan
5. Marco Cocchiola
6. Anthony Distinti
7. Dr. Rudolph Acosta
8. Paul DeSocio
9. Barry S. Rutcofsky
EXHIBIT A
Matters to be Covered in the Opinion of
Blank Rome Tenzer Greenblatt LLP
Counsel for the Company
1. The Company has been duly incorporated and is validly subsisting as a
corporation in good standing under the laws of the State of New York with
corporate power and authority to own its properties and conduct its businesses
as described in the Prospectus; each of the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction in which it was incorporated with corporate power and
authority to own its properties and conduct its businesses as described in the
Prospectus; each of the Company and the Subsidiaries are qualified to transact
business in each jurisdiction in which the conduct of its business or in which
its ownership or leasing of property requires such qualification except where
any such failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect.
2. The Company has all requisite power and authority to enter into this
Agreement, and the Agreement has been duly authorized, executed and delivered by
the Company and constitutes its legal, valid and binding obligation, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by (a) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance moratorium, or similar laws and court decisions relating to or
affecting creditors' rights generally; (b) general principles of equity,
regardless of whether applied in a proceeding at law or in equity; (c) judicial
imposition of an implied covenant of good faith and fair dealing; and (d)
Federal state laws or public policy relating to the enforceability of the
indemnification and contribution provisions contained in the Agreement.
3. The execution, delivery and performance of this Agreement by the
Company does not and will not, with or without the giving of notice or the lapse
of time or both, (A) conflict with any terms or provisions of the Company's
Certificate of Incorporation, as amended, or Bylaws, as amended or any of the
Subsidiaries' Certificates of Incorporation, as amended, or Bylaws, as amended;
(B) result in a breach of, or constitute a default under, result in the
termination or modification of, or result in the creation of imposition of any
lien, security interest, charge or encumbrance upon any of the properties of the
Company and/or the Subsidiaries pursuant to, any indenture, mortgage, deed of
trust, contract, commitment or other agreement or instrument known to such
counsel and to which the Company or the Subsidiaries are a party or by which any
of their properties are bound or affected; (C) violate any law, rule or
regulation which an attorney practicing in the State of New York, exercising
reasonable diligence would recognize as being applicable to the transactions
contemplated by the Underwriting Agreement, or any judgment, order or decree
known to such counsel of any government or governmental agency, instrumentality
or court having jurisdiction over the Company or the Subsidiaries or any of
their respective properties or business.
4. The outstanding shares of capital stock of each of the Subsidiaries
have been duly authorized and validly issued, are fully paid and non-assessable
and, to such counsel's knowledge, are owned by the Company, and to the knowledge
of such counsel, no options,
A-1
warrants or other rights to purchase any shares of capital stock of the
Subsidiaries are outstanding.
5. At the date or dates indicated in the Prospectus, the Company had the
duly authorized capital stock as set forth under the heading "Capitalization" in
the Prospectus and, to the knowledge of such counsel, the outstanding capital
stock as set forth under the heading "Capitalization" in the Prospectus; the
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and non-assessable; the Common Stock issuable upon exercise
of outstanding options, when issued in accordance with the respective terms
thereof, will be duly authorized and validly issued and will be fully paid and
non-assessable; certificates for the Offered Shares (if any) are in proper form
and conform in all respects to the requirements of the New York Business
Corporation Law; the Offered Shares to be sold by the Company pursuant to the
Agreement have been duly authorized and will be validly issued, fully paid and
non-assessable when issued and paid for as contemplated by this Agreement; and
no preemptive rights of shareholders under the New York Business Corporation Law
or by any contract to which the Company is a party and which is known to such
counsel exists with respect to any of the Offered Shares to be sold by the
Company or the issue and sale thereof and, to such counsel's knowledge, neither
the filing of the Registration Statement nor the offering or sale of the Offered
Shares to be sold by the Company as contemplated by this Agreement gives any
security holder of the Company any rights, other than those which have been
satisfied or waived, for or relating to the registration of any Common Stock.
6. To the knowledge of such counsel, the Company is not an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
7. Based solely on requests for acceleration of the effectiveness of the
Registration Statement filed by the Company with the Securities and Exchange
Commission and a telephone calls made to representatives of the Securities and
Exchange Commission on November ___, 2001 and the date hereof, the Registration
Statement has become effective under the Act and, to the knowledge of such
counsel, no stop order proceedings with respect thereto have been instituted or
are pending or threatened under the Act. Any and all filings required to be made
by Rule 424 and Rule 430A under the Act have been made.
8. The statements under the heading "Description of Securities" in the
Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law (except for financial or numerical
information or data as to which we express no view), fairly present in all
material respects the information contained in such documents or such matters of
law.
9. Based solely on advice given to such counsel by a representative of The
Nasdaq Stock Market, Inc., the Common Stock (including the Offered Shares) have
been duly included for quotation on the Nasdaq National Market.
10. The Registration Statement, the Prospectus and each amendment or
supplement thereto and each document filed by the Company with the Securities
and Exchange Commission and incorporated by reference therein, comply as to form
with the requirements of the Act and the Exchange Act, as applicable, and the
applicable rules and regulations thereunder (except that
A-2
such counsel need not express any opinion as to the financial statements, notes
and schedules thereto, and financial data derived therefrom, and other financial
information included or incorporated by reference therein).
11. Such counsel does not know of any contracts or documents required to
be filed as exhibits to, or incorporated by reference in, the Registration
Statement or described in the Registration Statement or the Prospectus which are
not so filed, incorporated by reference or described as required, and such
contracts and documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
12. To such counsel's knowledge, there are no claims, actions, suits
proceedings, arbitrations, investigations or inquiries pending before, or
threatened by, any governmental agency, instrumentality, court or tribunal,
domestic or foreign, or before any private arbitration tribunal, to which the
Company or any of the Subsidiaries is a party or is threatened to be made a
party that, if determined adversely to the Company or any of the Subsidiaries,
would have a Material Adverse Effect or would materially adversely affect the
sale of the Offered Shares.
13. Other than from the Securities and Exchange Commission and Nasdaq, no
approval, consent, order or authorization by any regulatory, administrative or
other governmental body which an attorney practicing in the State of New York,
exercising reasonable diligence would recognize as being applicable to the
transactions contemplated by the Underwriting Agreement, is necessary in
connection with the execution and delivery by the Company of this Agreement and
the consummation of the transactions therein contemplated (other as may be
required by the NASD or by state securities and Blue Sky laws, as to which such
counsel need express no opinion).
14. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that while such counsel is not passing upon
and does not assume any responsibility for the accuracy, adequacy, completeness
or fairness of the statements contained in the Registration Statement or the
Prospectus, and has not conducted any independent investigation to determine the
existence or absence of any factual conditions or circumstances, based upon such
counsel's participation in discussions with representatives of the Company,
representatives of the Representatives and counsel for the Representatives in
connection with the preparation of the Registration Statement and Prospectus,
nothing has come to the attention of such counsel which leads such counsel to
believe that the Registration Statement at the time it became effective and as
of the date hereof, contained or contains any untrue statement of a material
fact or omitted or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, or that the Prospectus on
the Effective Date and as of the date of the Prospectus, as the case may be,
contains any untrue statement of material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading;
except that such counsel need express no opinion with respect to the financial
statements, schedules and the notes thereto, or other financial information
derived therefrom and other financial and statistical information contained in
or omitted therefrom.
A-3
The foregoing opinion may be limited to the laws of the United
States and the New York Business Corporation Law, as amended. Such counsel may
rely as to questions of fact upon the representations of the Company set forth
in this Agreement and upon certificates of officers of the Company and of
government officials, all of which certificates must be satisfactory in form and
scope to counsel for the Underwriters.
A-4
EXHIBIT B
Matters to be Covered in the Opinion of
Blank Rome Tenzer Greenblatt LLP
Counsel for the Selling Shareholders
1. Each Selling Shareholder has duly executed and delivered a Power of
Attorney and Custody Agreement and each such agreement constitutes the valid and
binding agreement of each Selling Shareholder in accordance with their terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and other laws and
court decisions affecting the rights and remedies of creditors generally; (b)
general principles of equity, regardless of whether applied in a proceeding at
law or in equity; (c) judicial imposition of an implied covenant of good faith
and fair dealing; and (d) federal or state laws or public policy relating to the
enforceability of the indemnification and contribution provisions set forth in
this Agreement.
2. To such counsel's knowledge, each individual Selling Shareholder has
the capacity to enter into this Agreement and the Power of Attorney and Custody
Agreement applicable to such Selling Shareholder and to sell, assign, transfer
and deliver in the manner provided in such agreement the Shares sold to the
Underwriters by such Selling Shareholder; this Agreement has been duly
authorized by such Selling Shareholder; this Agreement has been duly executed on
behalf of each Selling Shareholder by the Attorney-in-Fact and delivered by such
Selling Shareholder; and this Agreement is a valid and binding agreement of such
Selling Shareholder, enforceable against such Selling Shareholder in accordance
with its terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and
other laws and court decisions affecting the rights and remedies of creditors
generally; (b) general principles of equity, regardless of whether applied in a
proceeding at law or in equity; (c) judicial imposition of an implied covenant
of good faith and fair dealing; and (d) federal or state laws or public policy
relating to the enforceability of the indemnification and contribution
provisions set forth in this Agreement.
3. Upon the delivery of the Shares to be sold by the Selling Shareholders
and payment therefor in accordance with the terms of this Agreement and,
assuming that each of the Underwriters which has severally purchased such Shares
is a "protected purchaser" within the meaning of Section 8-303 of the Uniform
Commercial Code, the delivery by each Selling Shareholder to the several
Underwriters of certificates for the Shares being sold by such Selling
Shareholder, duly endorsed for transfer by such Selling Shareholder against
payment therefor as provided in this Agreement, will result in the Underwriters'
acquiring all rights of the Selling Shareholders in such Shares, free and clear
of any adverse claim as defined in Section 8-102(a)(1) of the Uniform Commercial
Code.
4. Other than from the Securities and Exchange Commission and Nasdaq, no
approval, consent, order or authorization by any regulatory, administrative or
other governmental body which an attorney practicing in the State of New York,
exercising reasonable diligence would recognize as being applicable to the
transactions contemplated by this Agreement and the Power of Attorney and
Custody Agreement, is necessary in connection with the execution and delivery of
this Agreement and the Power of Attorney and Custody Agreement by the Selling
B-1
Shareholders and the consummation of the transactions contemplated by such
agreements (other as may be required by the NASD or by state securities and Blue
Sky laws, as to which such counsel need express no opinion).
In rendering such opinion, such counsel may rely (a) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to counsel for the
Underwriters) of other counsel reasonably acceptable to counsel for the
Underwriters, familiar with the applicable laws; (b) as to matters of fact, to
the extent they deem proper, on certificates of any Selling Shareholder,
provided that copies of any such statements or certificates shall be delivered
to counsel for the Underwriters, and on the representations and warranties of
the Selling Shareholders contained in this Agreement. The opinion of such
Counsel for the Selling Shareholders shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and, in their opinion, you
and they are justified in relying thereon.
B-2
Exhibit 23.2
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 reference to our firm under the heading "Experts" in the
Registration Statement.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
November 5, 2001