HORIZON ORGANIC HOLDING CORP, 424B4, 1998-07-06

HORIZON ORGANIC HOLDING CORP
424B4, 1998-07-06
DAIRY PRODUCTS

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Filed Pursuant to Rule 424(b) (4)
Registration No. 333-51465

PROSPECTUS

3,000,000 SHARES

[LOGO OF HORIZON ORGANIC HOLDING CORPORATION APPEARS HERE]

COMMON STOCK

All of the 3,000,000 shares of Common Stock offered hereby are being sold by
Horizon Organic Holding Corporation ("Horizon" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
See "Underwriting" for a discussion of the factors considered in determining
the initial public offering price. Of the 3,000,000 shares to be sold in this
offering, the Company has reserved 210,000 shares to offer directly to persons
having a relationship with the Company. All such sales shall be made on the
same terms and conditions available to the public. See "Underwriting." The
Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol HCOW.

Immediately following, and dependent upon, the sale of the shares offered
hereby, the Company will sell to Suiza Foods Corporation ("Suiza") an
additional 1,100,000 shares of Common Stock in a private placement (the
"Concurrent Placement") at a price of $11.00 per share.

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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 7.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share................................. $11.00 $0.77 $10.23
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Total (3)................................. $33,000,000 $2,310,000 $30,690,000
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $37,950,000,
$2,656,500 and $35,293,500 respectively. See "Underwriting".

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The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about July 8, 1998, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.

HAMBRECHT & QUIST
PIPER JAFFRAY INC.
HANIFEN, IMHOFF INC.
July 2, 1998
<PAGE>

[PHOTOGRAPH OF A REFRIGERATED DAIRY CASE CONTAINING ALL 43 SKUS OF THE HORIZON
FAMILY OF PRODUCTS]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

THE HORIZON LOGO AND "JOIN THE MOOOOVEMENT" ARE REGISTERED TRADEMARKS OF THE
COMPANY. THIS PROSPECTUS ALSO CONTAINS THE TRADEMARKS OF OTHER COMPANIES.

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[Gatefold containing the following copy and photographs: Caption across
entire gatefold "Horizon(R) Organic, Providing delicious organic milk and
dairy products made with no pesticides, hormones or antibiotics." The caption
"Organic Dairy Farms" over the caption "Horizon Organic Idaho Dairy Farm"
(aerial photograph of the Horizon Idaho Dairy Farm) over the caption
"Horizon's Idaho and Maryland dairy farms together span over 4,200 acres. The
dairies practice sustainable agriculture by recycling manure into compost and
fertilizing approximately 2,000 acres on which Horizon grows organic crops
used to feed the cows." Over the caption "Horizon Organic Maryland Dairy Farm"
(photograph depicting several cows and farm hands at the Maryland dairy farm).
Under the caption "Organic Cows" (photograph of hay) over the caption "Horizon
supplements its feed supply from purchases from family-owned farms across the
nation." (photograph of farm hand feeding cows) over the caption "Horizon
strives to maintain a healthy herd using organic farm practices as well as
through milk parlor and farm cleanliness, close animal observation, preventive
care and the use of natural and homeopathic medications. Horizon's practices
emphasize access to fresh air and exercise and prohibit injecting cows with
growth hormones." Under the caption "Organic Processing" (photograph of a
tanker truck with the Horizon logo) over the caption "Horizon uses a number of
milk transporters, such as Idaho Milk Transport, to move milk from the farm to
processing plants. Idaho Milk Transport tankers display the Horizon Happy
Cow(TM) logo. Horizon has become the only dairy to offer nationwide
distribution of organic fluid milk." (photograph depicting a milk processing
line) over the caption "Horizon's network of third-party certified organic
processors manufacture and package the organic fluid milk and organic dairy
products, including yogurt, sour cream, cottage cheese, butter and cheese."]
<PAGE>

[Continuation of the gatefold. Under the caption "Distribution" (photograph
of processor testing laboratory) with the caption in a smaller font "Reprinted
with the permission of Dairy Field Magazine." over the caption "Quality
assurance professionals at each processing plant conduct a variety of
laboratory tests after production runs, to test that all products meet
Horizon's strict organic standards." (photograph of panel truck with the
Horizon logo) Over the caption "Third party distributors, such as Stonecrest,
transport Horizon products and other goods to Horizon's customers.
Stonecrest's trucks carry the Happy Cow(TM) logo." Under the caption "Juniper
Valley Joins The Horizon Family" (photograph of 10 SKUs of Juniper Valley
products) over the caption "In April 1998, Horizon acquired the New York-based
Juniper Valley Farms brand of organic milk and other organic products. Juniper
Valley Farms is the leading brand of organic dairy products in the metro New
York market, the largest mass market for organic fluid milk sales in the
United States." Under the caption "Our Customers" (photograph of a supermarket
store clerk holding products) over the caption "An increasing number of
supermarkets have begun to offer their customers a choice of organic foods.
The Company estimates that it is currently selling its products in
approximately 5,000 conventional supermarkets and natural food stores
nationwide." Under the caption "Our Consumers" (photograph of a mother and
child with Horizon product) over the caption "The Company believes that its
consumers, particularly mothers with children, are concerned about food
safety, the environment, animal welfare and health and nutrition for
themselves and for their families. Horizon seeks to meet the needs of its
consumers by providing organic milk and other dairy products without the use
of antibiotics, hormones or pesticides." (Horizon logo)]
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."

THE COMPANY

Horizon Organic Holding Corporation ("Horizon" or the "Company") produces,
processes and markets the leading brand of certified organic fluid milk and a
full line of refrigerated certified organic dairy products. Horizon has become
the only dairy to offer nationwide distribution of organic fluid milk by
establishing a national network of organic farm milk producers and processors
and by building a nationwide customer base. From its position as the market
leader in organic fluid milk sales, Horizon has leveraged its brand to create a
full line of refrigerated organic dairy products. Approximately 70% of
Horizon's total net sales in 1997 were from sales of organic fluid milk
products. The Company's next largest product lines include its organic yogurt
products, which comprised approximately 13% of its total net sales and its
organic butter products which comprised approximately 5.5% of its total net
sales for the same period. See "Business--Products". Horizon currently offers
43 stock keeping units ("SKUs") of premium-priced organic products under the
Horizon brand. Horizon estimates that it is currently selling its organic
products in over 5,000 retail locations, including conventional and natural
foods supermarkets, specialty retailers and natural foods stores.

The Company believes that consumers are attracted to Horizon's premium-
priced, organic products because of their high quality and their image as
healthy, environmentally-responsible and animal-friendly products. The Company
believes that its distinctive, brightly-colored flying cow and earth logo
appeals to a broad audience of consumers, particularly mothers and children,
and is extendible to additional organic product categories. Horizon intends to
leverage its strong national brand, its vertically-integrated production,
processing and distribution system and its commitment to the highest organic
standards to continue to capitalize on the growing demand for organic products.

Horizon believes that the trends driving the growth of the organic dairy
category are consistent with the trends driving the growth of all organic
foods. The Natural Foods Merchandiser reported that sales of organic foods in
the United States increased to approximately $3.5 billion in 1996 from $2.9
billion in 1995, reflecting a continuation of the double-digit compound annual
growth rates which the organic foods industry has experienced since the mid
1980's. Horizon is committed to driving the continued growth of the organic
dairy category by producing and selling high-quality organic products that
address consumer concerns regarding food safety, environmental responsibility
and animal welfare. The Company believes that its organic standards meet or
exceed all currently existing and proposed governmental certification
standards, as well as all significant private organic certification standards.
See "Business--Horizon Organic Dairy Standards".

Horizon has built its national presence by establishing an extensive,
vertically-integrated production, processing and distribution system. This
system includes two Company-owned organic dairy farms, strategically-located
organic farm milk producers, a Company-owned farm milk separator and a network
of geographically-dispersed dairy processors. The majority of Horizon's organic
farm milk is produced on the Company's organic dairy farm in Southern Idaho
(the "Idaho Dairy"), the largest organic dairy in the country, with over 4,000
certified organic cows. Horizon recently completed construction of its second
organic dairy farm in Maryland (the "Maryland Dairy"), which has over 500
certified organic cows, from which Horizon supplies farm milk for products sold
in the Eastern United States. Horizon sources the remainder of its organic farm
milk supply through supply arrangements with independent dairy cooperatives and
farmers located throughout the United States.

Horizon's goal is to strengthen its position as the leading brand of organic
dairy products and to continue to drive the growth of the organic dairy market.
The key elements of Horizon's growth strategy include: building awareness of
the Horizon brand; expanding the distribution of Horizon's organic fluid milk
in the

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mass market; extending Horizon's brand identity; optimizing the logistics of
its supply chain; increasing its organic farm milk supply; optimizing its use
of organic farm milk components; and entering new distribution channels.

Horizon's sales of organic fluid milk products comprised over 70% of its
total net sales with $20.8 million, $12.3 million and $5.1 million in sales in
fiscal 1997, 1996 and 1995, respectively.

Horizon recently completed the acquisition of the Juniper Valley Farms brand,
the leading brand of organic dairy products in the metro New York market, the
largest mass market for organic fluid milk sales in the United States. The
Company believes that the acquisition will enable the Company to increase its
market penetration in the Northeastern United States and lower the cost of its
organic dairy products through access to a complementary production and
distribution system. The Company intends to transition the Juniper Valley Farms
branded products to the Horizon brand over the next 12 months.

In June 1998, Horizon entered into agreements with Suiza Foods Corporation
("Suiza"), a leading manufacturer and distributor of fresh milk and related
dairy products, shelf-stable and refrigerated food and beverage products,
frozen food products, coffee and plastic containers. The Company believes that
its relationship with Suiza will provide it with opportunities to enhance the
Company's market penetration in a number of key markets nationally. Suiza
processes and distributes fluid milk and related dairy products from 46 dairy
processing facilities located across the United States and Puerto Rico. The
Company's relationship with Suiza will consist of an investment by Suiza in the
Company pursuant to a stock purchase agreement and processing and distribution
agreements with certain of Suiza's subsidiaries pursuant to which such
subsidiaries will process and distribute organic fluid milk for Horizon.

The Company is incorporated in Delaware and its principal offices are located
at 6311 Horizon Lane, Longmont, Colorado 80503. The Company's telephone number
is (303) 530-2711.

RISK FACTORS

In addition to the other information contained in this Prospectus, the
discussion of Risk Factors on pages 7 to 16 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
of investing in the Common Stock include, but are not limited to, the following
factors:

. History of Operating Losses; No Assurances as to Future Profitability

. Risks Related to Organic Farm Milk Cost and Supply

. Risks Related to Organic Feed Cost and Supply

. Risks Related to the Implementation of the Proposed Federal Organic
Certification Regulations

. Risks Related to Difficulties of Managing Growth

. Risks Associated with Changes in Consumer Preferences

THE OFFERING

Common Stock offered by the Company....... 3,000,000 shares

Common Stock offered in Concurrent
Placement................................. 1,100,000 shares(1)

Common Stock to be outstanding after the
offering and the Concurrent Placement.... 9,156,341 shares(2)

Use of proceeds........................... To repay certain promissory notes
and bank debt, finance possible
expansion of the Company's dairy
facilities, acquisitions and for
working capital and general
corporate purposes. See "Use of
Proceeds".

Nasdaq National Market symbol............. HCOW

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------- --------------------
DEC. 31, DEC. 28, DEC. 31, MAR. 31, MAR. 31,
1995 1996 1997 1997 1998
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(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales................................ $7,246 $15,986 $29,565 $ 6,134 $ 10,102
Gross profit(3)(4)....................... 1,729 4,561 6,926 1,021 3,047
Operating income (loss).................. (524) 225 (1,114) (525) 334
Net income (loss)........................ $ (509) $ 27 $(1,022) $ (43) $ (115)
Basic and diluted net income (loss) per
share(5)................................ $ (.18) $ .01 $ (.23) $ (.01) $ (.02)
Weighted average shares outstanding:
Basic.................................. 2,791 3,264 4,488 3,659 5,056
Diluted................................ 2,791 3,283 4,488 3,659 5,056
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
DEC. 31, ----------------------
1997 ACTUAL AS ADJUSTED(6)
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(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 404 $ 811 $28,112
Working capital............................... 2,935 2,520 29,821
Total assets.................................. 32,737 34,501 61,803
Long-term debt................................ 17,960 18,970 4,969
Total stockholders' equity.................... 8,886 8,796 50,302
</TABLE>
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(1) Immediately following the offering, the Company will sell to Suiza an
additional 1,100,000 shares of Common Stock in a private placement (the
"Concurrent Placement") at a price of $11.00 per share. See "--Recent
Events".
(2) Based on the number of shares outstanding as of March 31, 1998. Assumes
issuance of 1,100,000 shares in the Concurrent Placement. Excludes, as of
March 31, 1998, 567,768 shares of Common Stock issuable upon exercise of
options outstanding under the Company's stock option plans and 69,118
shares of Common Stock reserved for issuance upon exercise of certain
warrants. As of March 31, 1998, the weighted average exercise prices of the
Company's stock options and warrants were $3.44 and $5.34 per share,
respectively. See "Capitalization," "Management--Stock Option Plans" and
Notes to the Company's Consolidated Financial Statements.
(3) Includes losses of organic premiums in connection with milk supply
contracts of approximately $198,000 and $73,000 in fiscal 1995 and 1996.
Losses of organic premiums relate to the Company's commitment to purchase
minimum amounts of organic farm milk. When organic farm milk is sold as
conventional milk, the difference between the organic and conventional
prices is recorded as a loss of organic premium.
(4) Prior to fiscal 1997, the Company recorded its share of losses of Sunrise
Organic Farms, Inc. ("Sunrise") in other income (expense), net. As a result
of the acquisition of the remainder of Sunrise in May 1997, losses of $1.3
million and $627,000 are included in cost of sales for fiscal 1997 and the
three months ended March 31, 1997, respectively.
(5) Net income (loss) per share is computed using the weighted average number
of common shares (basic) and common and common equivalent shares (diluted)
outstanding during the period. See Note 2 to the Company's Consolidated
Financial Statements.
(6) As adjusted to reflect the sale of 3,000,000 shares of Common Stock at the
initial public offering price of $11.00 per share, the sale of 1,100,000
shares in the Concurrent Placement at a price of $11.00 per share and the
application of the net proceeds therefrom. See "Use of Proceeds",
"Capitalization" and Note 2 to the Company's Consolidated Financial
Statements.

--------------------

Except as otherwise noted, all information in this Prospectus assumes (i) the
issuance of 1,100,000 shares of Common Stock to Suiza in the Concurrent
Placement and (ii) no exercise of the Underwriters' over-allotment option. See
"Description of Capital Stock" and "Underwriting." References to "Horizon" and
the "Company" include Horizon Organic Holding Corporation and each of its
consolidated subsidiaries, Horizon Organic Dairy, Inc.; Horizon Organic Dairy,
Idaho Farm, Inc. and Horizon Organic Dairy, Maryland Farm, Inc., and
predecessor companies, unless the context indicates otherwise.

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<PAGE>

RECENT EVENTS

Processing and Distribution Agreements. Horizon's relationship with Suiza
will initially include five-year processing and distribution agreements with
two of Suiza's subsidiaries: Model Dairy, a fluid milk processor located in
Reno, Nevada which currently processes organic fluid milk for Horizon; and
Garelick Farms, a fluid milk processor and distributor with several locations
in the Northeastern United States. The processing and distribution agreements
will generally provide that Model Dairy will process organic fluid milk for
Horizon's distribution or sale in the Western United States and that Garelick
Farms will have an option to become Horizon's processor of organic fluid milk
in certain states in New England. Both Model Dairy and Garelick Farms will
distribute all SKUs of Horizon's organic fluid milk products which are
available for sale in their respective territories. Horizon and Suiza intend to
enter into other agreements pursuant to which Suiza and its affiliates will
process and/or distribute Horizon organic fluid milk and other Horizon organic
dairy products. In particular, Horizon and Suiza intend to enter into an
agreement for a Suiza subsidiary to process and distribute certain organic
dairy products for Horizon on a national basis.

Concurrent Placement. Pursuant to a stock purchase agreement (the "Stock
Purchase Agreement"), Horizon has agreed to sell Suiza 1,100,000 shares of
Common Stock upon the closing of the Concurrent Placement, which is scheduled
to close immediately after the closing of the offering. Suiza will purchase
shares in the Concurrent Placement at a price of $11.00 per share. Pursuant to
the Stock Purchase Agreement, Suiza agreed to purchase shares in the Concurrent
Placement at the Price to Public less 3 1/2% (one-half of the Underwriting
Discount); provided that the price would not be less than $11.00 nor more than
$15.00, and further provided that to the extent the net price to Suiza was in
excess of $13.54, the number of shares in the Concurrent Placement would be
reduced so that the aggregate Suiza investment in the Concurrent Placement
would not exceed $14,900,000. The Concurrent Placement is subject to the
closing of the offering at a minimum Price to Public of $9.00 per share.

Stockholder Rights. In connection with the Concurrent Placement, the Company
also entered into a stockholder agreement with Suiza (the "Stockholder
Agreement") and certain of the Company's principal stockholders entered into an
agreement with Suiza (the "Major Stockholder Agreement") providing for, (i) an
exclusive period during which Suiza will not introduce its own brand of organic
white fluid milk, (ii) preemptive rights, (iii) the right to designate one
member of the Company's board of directors, (iv) standstill and stock transfer
restrictions, (v) "drag-along" obligations, (vi) right of first refusal on
sales of stock to certain competitors of Suiza, (vii) rights of first
negotiation for a sale of the Company and (viii) registration rights for shares
purchased in the Concurrent Placement. See "Management--Executive Officers and
Directors" and "Description of Capital Stock--Concurrent Placement".

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RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following principal risk
factors should be considered carefully in addition to the other information
contained in this Prospectus before purchasing the Common Stock offered
hereby.

HISTORY OF OPERATING LOSSES; NO ASSURANCES AS TO FUTURE PROFITABILITY. The
Company commenced operations in 1991, and has incurred cumulative operating
losses since inception of approximately $1.4 million as of March 31, 1998. The
Company's net sales have increased from approximately $7.2 million in fiscal
1995 to $16.0 million in fiscal 1996 and to $29.6 million in fiscal 1997, but
the Company incurred operating losses of $524,000 in fiscal 1995 and $1.1
million in fiscal 1997 and a net loss of $115,000 for the three months ended
March 31, 1998. Although the Company achieved operating income of $334,000 for
the three months ended March 31, 1998, there can be no assurance that the
Company will be able to sustain its revenue growth or to operate profitably in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".

RISKS RELATED TO ORGANIC FARM MILK COST AND SUPPLY. More than half of the
Company's current milk supply originates at its Idaho Dairy and Maryland
Dairy. The balance of the Company's farm milk is sourced from third parties.
The Company cannot maintain any significant inventory of its farm milk or
fluid milk finished goods because they are highly perishable and have a very
short shelf life. In the event that production at or transportation from the
Idaho Dairy or the Maryland Dairy were interrupted by fire, floods or other
natural disasters, disease, work stoppages, regulatory actions or other
causes, the Company would be unable to continue to produce its products at
such facilities. An interruption in operations due to any of the foregoing
could materially and adversely affect the Company's business, financial
condition and results of operations.

As with most agricultural products, the supply of the organic farm milk used
by the Company can be affected by a number of factors beyond the Company's
control, including various livestock diseases and other acts of nature. The
Company is particularly susceptible to these factors because there are
relatively few qualified suppliers and because of the long lead time required
to convert conventional dairy farms to organic. Should the Company be unable
to obtain a sufficient supply of organic milk from its existing suppliers, it
may be difficult to procure alternative sources of supply. The inability of
the Company to procure sufficient quantities of organic milk on acceptable
terms would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Production and
Processing".

RISKS RELATED TO ORGANIC FEED COST AND SUPPLY. The Company requires a
substantial amount of organic feed to supply the Idaho Dairy and the Maryland
Dairy, which together produce more than half of the Company's organic farm
milk requirements. The cost of organic feed accounts for a material portion of
the Company's cost of production. Although the Company produces a significant
portion of its organic feed requirements at the Idaho Dairy, the Company
currently purchases the majority of its organic feed requirements from third
party organic farms and expects to continue to do so in the future. As with
most agricultural products, the cost and supply of the organic feed used by
the Company can be affected by a number of factors beyond the Company's
control, including various adverse weather conditions, various plant diseases,
pests and other acts of nature. In addition, because of the three-year lead
time required to convert conventional farms to organic, alternative sources of
supply may not be immediately available. To be certified as organic, feed must
be grown on land that has been free of synthetic fertilizers, pesticides and
herbicides for at least three years. The inability of the Company to procure
sufficient quantities of organic feed on acceptable terms would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Production and Processing".

RISKS RELATED TO THE IMPLEMENTATION OF THE PROPOSED FEDERAL ORGANIC
CERTIFICATION REGULATIONS. Currently, there is a wide range of organic
standards which are applied by a variety of state agencies and private
certification organizations. In December 1997, the federal government
published

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proposed national regulations to standardize organic certification
requirements as part of the Organic Foods Production Act of 1990 (the "Organic
Foods Production Act") which was enacted as part of the 1990 United States
Farm Bill. Horizon believes that these regulations, if adopted in their
initially proposed form, would permit competitors to sell fluid milk and other
dairy products labeled "organic" which would not satisfy Horizon's own organic
standards. Horizon incurs significant costs to produce organic products that
adhere to its rigorous standards, and competitors whose "organic" practices
are not as rigorous may be able to compete with Horizon on the basis of price
by producing lower cost "organic" milk. Horizon does not intend to lower its
organic standards and intends to continue to compete on the basis of the
quality and consistency of its products. There can be no assurance that
Horizon will be able to compete successfully against lower cost competitors in
any of its markets, and the failure to compete successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations. In order to adhere to its philosophy and maintain its
rigorous standards, the Company may make operational decisions that are
inconsistent with maximizing short term profits, which may result in a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Competition" and "Business--Horizon Organic
Dairy Standards".

RISKS RELATED TO DIFFICULTIES OF MANAGING GROWTH. To date, the Company has
experienced substantial growth in its revenues, operations and employee base,
and has undergone substantial changes in its business that have placed
significant demands on the Company's management, working capital and financial
and management control systems. The Company's growth also may place a
significant strain on the Company's management, working capital, financial and
management control systems and its supply, production and distribution
systems. There can be no assurance that the Company's existing systems or that
any new systems it acquires will be adequate to meet the Company's future
needs. In addition, any future growth also will impose significant added
responsibilities on senior management, including the need to identify, recruit
and integrate new members of management. There can be no assurance that such
additional qualified management will be identified and retained by the
Company. To the extent that the Company is unable to manage its growth
effectively, or is unable to attract and retain additional qualified
management, the Company's business, financial condition and results of
operations may be materially adversely affected. The Company's results of
operations also will be adversely affected if revenues do not increase
sufficiently to compensate for the increase in operating expenses resulting
from any expansion. See "Business--Sales and Distribution," "--Production and
Processing" and "--Acquisitions".

RISKS ASSOCIATED WITH CHANGES IN CONSUMER PREFERENCES. The market for
organic food products, including the Company's products, is subject to
changing consumer trends, demands and preferences. Trends within the organic
and natural foods industry are constantly evolving, and the failure of the
Company to anticipate, identify or react to changes in these trends could lead
to, among other things, reduced demand and price reductions, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company's success depends, in part, on its ability
to anticipate the tastes and dietary habits of consumers and to offer products
that appeal to their preferences on a timely and affordable basis. The Company
believes that its growth to date has been due, in large part, to increased
awareness as to food safety issues and a growing consumer preference for a
healthy lifestyle. All of the Company's current and planned future products
are organic. The Company's business, financial condition and results of
operations would be materially adversely affected if consumer interest in
organic foods were to decline. See "Business--The Organic Dairy Opportunity".

RISKS ASSOCIATED WITH TRADE AND CONSUMER ACCEPTANCE IN DISTRIBUTION
CHANNELS. The Company's growth will depend on its ability to continue to
expand its distribution in conventional supermarkets without significant
impact on other current channels. The conventional supermarket channel of
distribution has presented, and will continue to present, competitive and
marketing challenges, risks and marketing and distribution costs that are
different from those faced by the Company in the natural foods market. In
addition, the Company's expansion in the conventional supermarket channel of
distribution will

8
<PAGE>

require it to attract consumers in broader demographic and geographic markets.
There can be no assurance that the Company will be successful in attracting
consumers in new distribution channels or in other demographic and geographic
markets. The inability to achieve trade and consumer acceptance in new markets
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, premium-priced products,
such as the Company's, are sensitive to national and regional economic
conditions, and demand for products supplied by the Company may be adversely
affected from time to time by economic downturns. See "Business--The Organic
Dairy Opportunity".

RISKS RELATED TO INTERNAL GROWTH STRATEGY AND POSSIBLE ACQUISITIONS. The
Company's continued growth depends in part upon its ability to expand into new
geographic areas, either through internal growth or by acquisition. There can
be no assurance that the Company will be successful in such expansion or that
such expansion can be accomplished on a profitable basis. The Company's
ability to increase net sales of its existing business and the net sales of
any subsequently acquired businesses will be affected by various factors,
including demand for its products, the availability of farm milk, the cost of
expanding and upgrading its facilities, managing its supply and distribution
logistics, the Company's ability to expand the range of products offered to
customers, its success in implementing strategies necessary to attract new
customers and attract and retain necessary personnel and its ability to obtain
necessary financing. Many of these factors are beyond the Company's control,
and there can be no assurance that the Company's operating and internal growth
strategies will be successful or that the Company will be able to generate
cash flows adequate for its operations and sufficient to support internal
growth.

The Company may seek to expand its operations through future acquisitions of
organic dairies, processing facilities or other complementary businesses or
operations. There can be no assurance that the Company will be able to
identify or acquire additional businesses, or to successfully integrate and
profitably manage acquired businesses. In addition, increased competition for
acquisition candidates may develop, in which event there may be fewer
acquisition opportunities available to the Company as well as higher
acquisition prices. Further, acquisitions involve a number of special risks,
including possible adverse effects on the Company's operating results,
diversion of management's attention, risks related to having adequate
corporate and financial controls and procedures to manage and monitor the
Company's operations as they expand, risks associated with unanticipated
events or liabilities and amortization of acquired intangible assets, some or
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations, particularly in the fiscal
quarters immediately following the consummation of such transactions. Customer
dissatisfaction or performance problems at a single acquired company could
also have an adverse effect on the reputation of the Company. There also can
be no assurance that businesses acquired in the future will achieve
anticipated revenues and earnings. In addition, margins may be negatively
impacted to the extent that margins on acquired product lines are lower than
Horizon's average margins. There can be no assurance that acquisitions can be
consummated on acceptable terms, that any acquired companies can be integrated
successfully into the Company's operations, or that any such acquisitions will
not have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Acquisitions".

POTENTIAL DIFFICULTIES OF INTEGRATING JUNIPER VALLEY FARMS OPERATIONS. In
April 1998, the Company acquired the Juniper Valley Farms brand of organic
fluid milk and dairy products from Worcester Creameries Corp. ("Worcester"),
an affiliate of Elmhurst Dairy (a large regional conventional dairy). The
Company believes that the acquisition of Juniper Valley Farms will enable the
Company to increase the Company's market penetration in the Northeastern
United States through access to a complementary production, processing and
distribution system, and to lower the processing cost of its organic dairy
products by directing an increased volume of organic farm milk to the Juniper
Valley Farms processors. However, there can be no assurance that the
acquisition of Juniper Valley Farms will increase the Company's market
penetration in the Northeast, or in any other market, or that the Company will
be successful in achieving anticipated improvements in its production,
processing and distribution systems. In connection with the acquisition,
Horizon acquired supply agreements with a network of organic dairy farmers in
New York, acquired the Juniper Valley Farms brand and entered into a
processing agreement with Worcester. There can be no

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assurance that any of these agreements will be honored, or if honored, that
they will materially improve the Company's supply of organic dairy products or
processing capabilities. In addition, Worcester's customers are not obligated
to continue purchasing the Company's products under any agreement entered into
with Worcester. There can be no assurance that the Company will be successful
in converting any of Worcester's accounts to accounts of the Company. The
failure to convert a significant number of Worcester's accounts to the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company will be able to complete effectively the integration of the Juniper
Valley Farms operations with the Company's operations, to achieve the
Company's operating and growth strategies with respect to this acquisition, or
to obtain increased revenue opportunities as a result of the anticipated
synergies created by additional distribution channels. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview--Juniper Valley Acquisition" and "Business--Acquisitions".

RISKS RELATED TO THE COMPANY'S RELATIONSHIP WITH SUIZA FOODS
CORPORATION. Horizon's relationship with Suiza will include five-year
processing and distribution agreements with Model Dairy and Garelick Farms to
be executed at the closing of the Concurrent Placement. Horizon and Suiza
intend to enter into additional agreements after the closing of the Concurrent
Placement pursuant to which Suiza and its affiliates will process and/or
distribute Horizon organic fluid milk and other Horizon organic dairy products
from some of Suiza's 46 dairy processing facilities located across the United
States and Puerto Rico. There can be no assurance that Horizon will be able to
enter into such additional processing and distribution agreements with Suiza
and its subsidiaries on favorable terms, if at all. The processing and
distribution agreements also will require that the organic fluid milk
processors distribute all SKUs of the Company's organic fluid milk which are
available in their respective territories. However, there can be no assurance
that Suiza or its subsidiaries who undertake the distribution of Horizon
products will be successful in increasing market penetration and sales of
Horizon products in their territories. In addition, the Company is unable to
predict what effect, if any, its relationship with Suiza will have on its
existing relationships with processors and distributors, some of whom may be
affiliated with Suiza's competitors. See "Prospectus Summary--Recent Events".

Pursuant to the Stockholder Agreement with the Company and the Major
Stockholder Agreement with certain of the Company's principal stockholders,
Suiza will have certain preemptive rights, registration rights, board of
directors representation rights, rights of first negotiation to acquire the
Company and rights of first refusal on certain transfers. See "Management--
Executive Officers and Directors" and "Description of Capital Stock--
Concurrent Placement". Such provisions could interfere with the Company's
ability to raise additional capital or enter into business combinations or
strategic alliances with other business entities. The Stockholder Agreement
contains a variety of provisions designed to delay, deter or prevent a hostile
takeover of the Company by Suiza arising out of Suiza's stock ownership
position, including standstill provisions and transfer restrictions. These
negotiated provisions are, however, subject to various exceptions and time
limitations, and there can be no assurance that these provisions would prevent
Suiza from participating in a takeover attempt of the Company, or facilitating
a third-party takeover attempt at some time in the future. See "Prospectus
Summary--Recent Events" and "Description of Capital Stock--Concurrent
Placement".

POSSIBILITY OF ADVERSE EFFECTS RESULTING FROM UNITED STATES DAIRY SUPPORT
PROGRAM AND FEDERAL MILK MARKETING ORDERS. The federal government regulates
minimum farm milk pricing through federal market orders and price support
programs, and state governments can regulate farm milk pricing by establishing
their own market order programs or by forming compacts that establish minimum
prices for farm milk. In addition, several states in New England have
established, and certain other states are in the process of attempting to
form, regional milk price compacts designed to ensure that cheaper milk from
other regions does not undercut local producers' prices. As a result of these
regulations, the Company must pay "pooling charges" and "compact over-order
charges" under the support programs and administrative assessments for
government mandated marketing programs. These pooling, compact and
administrative assessment charges are assessed retroactively on a monthly
basis and are not known or predictable in advance. Should the amount

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<PAGE>

of such charges increase to levels higher than anticipated by the Company, or
should the Company become obligated to pay charges under other state programs,
as it does in New England, its business, financial condition and results of
operations may be materially adversely affected. For fiscal 1997, the Company
paid over $500,000 for pooling, compact and administrative assessment charges.
See "Business--Government Regulation--United States Dairy Support Program and
Federal Milk Marketing Orders".

In November 1997, a federal district judge issued a ruling enjoining the
United States Department of Agriculture (USDA) from collecting any pooling
charges. The order was stayed pending review by the U.S. Court of Appeals. In
addition, the USDA is currently considering several proposed regulations in an
attempt to reform the federal milk marketing order system. Neither the outcome
of the court proceedings, the final form of any new federal regulations or
existence or location of state compacts nor the effect of such matters on the
Company can be predicted with any certainty. The implementation of new federal
or state regulations, or the creation of new regional milk price compacts,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Government
Regulation".

POSSIBILITY OF ADVERSE EFFECTS DUE TO PUBLIC HEALTH, SAFETY AND
ENVIRONMENTAL REGULATIONS. Horizon is extensively regulated under federal,
state and local laws. Regulation at the federal, state and local levels is
subject to change. Compliance with existing or new regulations may require the
Company to make significant capital expenditures and otherwise to incur higher
costs, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company may be subject to additional laws or regulations administered by the
USDA or other federal, state, foreign or local regulatory authorities, the
repeal of laws or regulations, or more stringent interpretations of current
laws or regulations, from time to time in the future. The Company cannot
predict the nature of such future laws, regulations, interpretations, or
applications, nor can it predict what effect additional government regulations
or administrative orders, when and if promulgated, would have on its business
in the future. Such laws could, however, require the reconfiguration of
production, processing and transportation methods of the Company's products,
including, but not limited to, more onerous food safety, labeling and
packaging requirements; increased compliance regulations for waste management;
increases in transportation costs; higher costs under the Federal Milk
Marketing Order System or similar state programs; and greater uncertainty in
production and sourcing estimates. Any or all such government actions could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Government Regulation".

RISKS ASSOCIATED WITH DEPENDENCE ON KEY PERSONNEL. The Company's future
prospects depend to a significant extent upon the continued service of Marcus
Peperzak, its Chairman, Barnet Feinblum, its Chief Executive Officer, Mark
Retzloff, its Vice President of Sales, and, until his currently scheduled
retirement, Paul Repetto, its Vice President of Marketing. The loss of any of
such key executives (in Mr. Repetto's case, prior to his currently scheduled
retirement) could have a material adverse effect on the Company's business,
financial condition or results of operations. Furthermore, the Company's
continued growth depends on its ability to identify, recruit and retain key
management personnel. The competition for such employees is intense, and there
can be no assurance the Company will be successful in such efforts. The
Company is also dependent on its ability to continue to attract, retain and
motivate its sourcing, production, distribution, sales, marketing and other
personnel, of which there can be no assurance. See "Management".

COMPETITION. The dairy business is highly competitive. It consists of a
range of competitors, including large, conventional dairies, large food
companies with well-established dairy product brands and retailers with
private-label fluid milk and other dairy products, which together occupy a
significant portion of the available shelf space in Horizon's target retail
markets. Most of these competitors have greater financial, operational and
marketing resources than Horizon. Horizon believes that the proposed
regulations under the Organic Foods Production Act, if adopted in the form
initially proposed, would permit competitors to sell fluid milk and other
dairy products labeled as "organic," which would not satisfy Horizon's own
organic standards.

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<PAGE>

Competitors that produce "organic" products to less rigorous standards may
have lower production costs than Horizon and thus be able to undercut
Horizon's prices.

The Company's principal competitors in the market for organic fluid milk
vary by region and include Organic Valley/CROPP Cooperatives (which is
marketed by Coulee Region Organic Produce Pool, a Wisconsin agricultural
cooperative ("CROPP")), a dairy cooperative located in Wisconsin which
supplies the Company with organic fluid milk), Organic Cow of Vermont, Inc. (a
regional organic dairy affiliated with H.P. Hood and located in New England),
Alta Dena Certified Dairy (a regional dairy located in Southern California)
and Straus Family Creamery (a regional organic dairy located in Northern
California). Many of these competitors also sell other organic dairy products
in competition with Horizon on a national basis.

The Company's principal competitors in the market for organic dairy products
also vary by region, and include the competitors who sell organic fluid milk
as well as Stonyfield Farm (a national organic and conventional dairy located
in New Hampshire which sells yogurt and frozen desserts), Springfield Creamery
(a regional organic and conventional dairy located in Oregon which sells
yogurt) and Brown Cow West, Inc. (a regional organic and conventional dairy
located in Northern California which sells yogurt). In addition, Horizon
expects increased competition from both new and existing competitors in its
markets and there can be no assurance that the Company will be able to compete
effectively in the future. See "--Risks Related to the Implementation of the
Proposed Federal Organic Certification Regulations" and "Business--
Competition".

RISKS RELATED TO ESTABLISHING NEW ORGANIC DAIRY FARMS. In fiscal 1997, the
Company undertook two major expansions in its organic dairy farming activities
by acquiring the remainder of the Idaho Dairy and converting it to 100%
organic and by acquiring a large conventional dairy farm in Maryland and
converting it into the organic Maryland Dairy. The Company did not operate a
dairy prior to the 1997 acquisition of Sunrise, however, it had previously
owned organic cows and had held a substantial equity interest in a dairy farm
since 1995. The Company estimates that it has incurred costs of approximately
$1.9 million related to converting the Idaho Dairy and the Maryland Dairy to
organic. There can be no assurance that the Company will realize an increase
in production capacity as a result of this expansion, or that future revenues
from products produced at either the Idaho Dairy or the Maryland Dairy will be
sufficient to recover the Company's investment in the expansion. In addition,
the Company may in the future incur significant environmental clean-up costs
in converting conventional dairies to organic operations. There can be no
assurance that the Company will be able to adjust its production capacity to
reflect future changes in demand for its products or that any future additions
to, expansions of, or new organic facilities will be completed on schedule and
within budget. Any significant delay or cost overrun in the construction or
acquisition of new or expanded organic dairy facilities could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Expansion of dairy operations may be limited or slowed by state and local
regulations. For example, the Company's Maryland Dairy is currently milking
its permitted capacity of 556 cows per day although its milking capacity is
1,000 cows per day. The Company's ability to operate the Maryland Dairy
profitably depends, in part, on its ability to secure operating permits for
additional cows. The Company plans to apply for additional permits over the
next 24 months. The permitting process will require that the Company make
additional capital expenditures at the Maryland Dairy to accommodate the
addition of such cows. There can be no assurance that the Company will be able
to obtain the requisite permits to increase the number of cows at the Maryland
Dairy in a timely manner, if at all. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Horizon
Organic Dairy Standards" and "--Production and Processing".

RISKS ASSOCIATED WITH PERISHABLE PRODUCTS. Although the Company's products
are pasteurized, they are highly perishable and contain certain naturally-
occurring microorganisms. As a result, the Company's dairy products must be
transported in a timely and efficient manner within a precise temperature
range and the

12
<PAGE>

Company is always subject to risk of spoilage or contamination of its dairy
products. In addition, food producers, such as the Company, may be subject to
claims for damages if contaminated food causes injury to consumers. See "--
Product Liability Risks" and "--Risk of Adverse Publicity".

The Company is able to hold farm milk or fluid milk finished goods inventory
for only a limited period of time and must sell its products in a timely
manner or risk having to write the inventory off as outdated. Therefore, the
Company's results of operations are highly dependent on its ability to
accurately forecast its near term sales in order to adjust processing
accordingly. For example, the Company must make an estimate of the approximate
mix of fat free, reduced fat and 2% milk, cheese, butter and other products to
process from each lot of farm milk. Forecasting product demand has been
difficult, and the Company expects it to be an ongoing challenge. Failure to
accurately forecast product demand could result in the Company either being
unable to meet higher than anticipated demand or producing excess inventory
that cannot be sold at a profit or at all. In addition, many retail customers
expect to be able to return any products that are not sold by their expiration
date. There can be no assurance that excess production or product returns will
not have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Production and Processing".

PRODUCT LIABILITY RISKS. The Company has from time to time received
complaints from consumers regarding ill effects allegedly caused by its
products. While such claims have not resulted in any material liability to
date, there can be no assurance that future claims will not be made or that
any such claim will not result in adverse publicity for the Company or
monetary damages, either of which could materially and adversely affect the
Company's business, financial condition and results of operations. The Company
has an umbrella insurance policy and carries product liability insurance. The
Company's umbrella insurance policy supplements the underlying general
liability and product liability insurance. There can be no assurance that this
insurance will be adequate to protect the Company against product liability
claims, or that such insurance will continue to be available to the Company on
reasonable terms. A product recall or a product liability judgment against the
Company (regardless of whether it is covered by insurance) could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Production and Processing".

RISK OF ADVERSE PUBLICITY. The Company is highly dependent upon consumers'
perception of the safety, quality, and possible dietary benefits of its
products. As a result, substantial negative publicity concerning organic
products, one or more of the Company's products, or other organic foods
similar to the Company's products could lead to a loss of consumer confidence
in the Company's products, removal of the Company's products from retailers'
shelves and reduced sales and prices of the Company's products. Any of these
events could have a material adverse effect on the Company's business,
financial condition or results of operations.

RISK OF LOSS OF ORGANIC CERTIFICATION. Horizon relies on its organic
certification to differentiate its products. The Company has built its brand
image on the basis that its organic products are high quality, healthy,
environmentally-responsible and animal-friendly. In order to claim that its
fluid milk and other dairy products are organic, Horizon must be able to
demonstrate that all of the farm milk, processing and transportation steps
involved in the production of the finished goods are certified organic. The
organic status of the Company's products is currently certified by Quality
Assurance International, Oregon Tilth Certified Organic, Organic Growers and
Buyers Association and the Organic Crop Improvement Association. Organic
certification typically includes inspections of farm fields and operations,
processing and distribution facilities; detailed record keeping and periodic
testing of soil and water; and review of the organic producer's comprehensive
"organic plan" which details farm practices, documents product inputs and
discusses all procedures. These procedures are designed to ensure that all
producers, processors and transporters are meeting the applicable organic food
standards. Since Horizon outsources to third parties a significant amount

13
<PAGE>

of the production, substantially all of the processing and all of the
transportation of its organic products, there is a risk that a third party in
this supply and distribution chain could cause the Company to lose its organic
certification with regard to some of the Company's product lots. If Horizon or
any of these third parties lose their organic certification with regard to any
particular product lot consumers could lose confidence in the Company's
products which could adversely impact the integrity of the Company's brand.
Such a loss could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Horizon Organic
Dairy Standards", "--Sales and Distribution" and "--Production and
Processing".

RISKS ASSOCIATED WITH POSSIBLE INCREASES IN TRANSPORTATION
COSTS. Transportation costs have in the past and are expected in the future to
represent a significant portion of Horizon's costs of sales. As a result, the
Company's results of operations are especially sensitive to transportation
costs. Transportation costs include the cost of transporting organic feed to
the Company-owned dairy farms, the cost of transporting organic farm milk from
the Company-owned dairy farms and other producers to processing plants, and
the cost of transporting finished products from the processors to the
distributors and retailers. Because of the Company's national pricing policy,
the Company bears the risk of unanticipated increases in the cost of
transporting finished products to the Company's distributors and retailers.
The cost of transportation has in the past, and is expected in the future, to
be volatile, as a result of many factors that the Company cannot control. For
example, transportation costs have in the past, and may in the future, be
subject to significant upward pressure as a result of labor disturbances or
the cost of petroleum products such as diesel fuel. Petroleum product prices
continue to be subject to unpredictable economic, political and market
factors, and the price and availability of diesel fuel continue to be
unpredictable. Significant increases in diesel fuel costs could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company relies on third parties for all of its
transportation needs. A local, regional or national labor disturbance
affecting the Company's third party transportation providers could disrupt the
Company's ability to supply products. Should such a labor disturbance occur,
there can be no assurance that the Company would be able to secure suitable
alternative transportation services on terms acceptable to the Company, if at
all. Accordingly, a labor disturbance affecting local, regional or national
transportation providers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Sales
and Distribution".

POSSIBLE ADVERSE EFFECT DUE TO FUTURE CAPITAL REQUIREMENTS. In the future,
the Company may require significant amounts of additional capital to fund the
internal expansion of its operations, the acquisition of other businesses and
its working capital requirements. The exact amount of the Company's future
capital requirements will depend upon many factors, including the cost, timing
and extent of any upgrade or expansion of its operations, the Company's
ability to penetrate new markets, regulatory changes, the status of competing
businesses, the magnitude of potential acquisitions and the Company's results
of operations. Variances in these and other factors could cause material
changes in the Company's actual capital requirements. The sale of additional
equity securities or convertible securities would result in dilution to
existing stockholders, and the incurrence of additional indebtedness could
subject the Company to additional or more restrictive financial covenants.
There can be no assurance that additional financing will be available on
acceptable terms or at all. To the extent unplanned expenditures arise or the
Company's estimates of its capital requirements prove to be inaccurate, the
Company may require such additional financing sooner than anticipated and in
amounts greater than current expectations. If such funds are not available or
are available on terms that the Company views as unfavorable, the Company may
be required to limit or abandon certain of its expansion strategies. The delay
or abandonment of some or all of the Company's development and expansion plans
or the incurrence by the Company of additional debt could have a material
adverse effect on the business, financial condition and results of operations
of the Company and on the market price of the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources".

RISKS ASSOCIATED WITH CUSTOMER CONCENTRATION. In fiscal 1997, the Company's
largest account was United Natural Foods, which accounted for approximately
25% of the Company's sales. United Natural Foods

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<PAGE>

is a national distributor comprised of four regional distributors which have
independent purchasing arrangements with the Company. There can be no
assurance that United Natural Foods will not adopt uniform buying practices
and that sales to these accounts will not decrease or that this customer will
not choose to replace the Company's products with those of competitors. The
loss of these accounts or any significant decrease in the volume of products
purchased by these customers or any other large customer would materially and
adversely affect the Company's business, financial condition and results of
operations. Continuity of customer relationships is important, and events that
impact the Company's customers, such as labor disputes, may have an adverse
impact on the Company's results of operations. See "Business--Sales and
Distribution".

RISKS ASSOCIATED WITH RELIANCE ON INTELLECTUAL PROPERTY RIGHTS. The
Company's product packaging and merchandising designs are integral to the
success of the Company, and the Company intends to take action to protect
against imitation of its products and packages and to protect its trademarks
and copyrights as necessary. The Company currently has five registered
trademarks and three trademark applications pending. There can be no assurance
that other third parties will not infringe or misappropriate the Company's
trademarks, trade dress and other proprietary rights.

In addition, Horizon has developed substantial trade secrets and know-how
regarding the operation of organic dairy farms and caring for livestock
without the use of antibiotics or other drugs. However, there can be no
assurance that some or all of the trade secrets and other know-how that
Horizon considers proprietary will not be independently developed, will not
otherwise become known by others or will not be deemed to be in the public
domain.

RISKS ASSOCIATED WITH ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY
OF STOCK PRICE; NO DIVIDENDS. Prior to this offering, there has been no public
market for the Common Stock. There can be no assurance that an active trading
market will develop or, if one develops subsequent to this offering, that it
will be maintained. The initial public offering price of the Common Stock was
established by negotiation among the Company and the representatives of the
Underwriters. See "Underwriting" for factors considered in determining the
initial public offering price. The market price of the shares of Common Stock
could be subject to significant fluctuations in response to the Company's
operating results and other factors, including announcements by its
competitors. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These
fluctuations, as well as a shortfall in sales or earnings compared to public
market analysts' expectations, changes in analysts' recommendations or
projections and general economic and market conditions, may adversely affect
the market price of the Common Stock. The Company has never paid any cash
dividends and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy".

POSSIBILITY OF ADVERSE EFFECT ON THE MARKET PRICE OF THE COMMON STOCK BY
VIRTUE OF PUBLIC SALES OF COMMON STOCK FOLLOWING THIS OFFERING. Sales of
substantial amounts of Common Stock in the public market following this
offering (including shares issued upon the exercise of stock options and
warrants) by current holders of the Common Stock, stock options and warrants,
or the perception that such sales might occur, could adversely affect the
market price of the Common Stock and the Company's ability to raise additional
equity capital. Upon the completion of this offering and the Concurrent
Placement, 9,156,341 shares of Common Stock will be outstanding. The shares of
Common Stock sold in this offering will be freely tradable by persons other
than "affiliates" of the Company without restriction under the Securities Act
of 1933, as amended (the "Securities Act"). All other outstanding shares of
Common Stock are subject to lock-up agreements, pursuant to which such shares
may not be sold or otherwise disposed of for a period of 180 days after the
date of this prospectus (the "Lock-Up Period") without the prior written
consent of Hambrecht & Quist LLC, or are "restricted securities" within the
meaning of Rule 144 under the Securities Act. Such shares consist of an
aggregate of 5,825,418 shares that are subject to lock-up agreements (the
"Lock-Up Agreements") (including the Concurrent Placement shares) with
Hambrecht & Quist LLC, and an aggregate of 330,923 shares which are
"restricted securities" under Rule 144. Hambrecht & Quist LLC may release all

15
<PAGE>

or any portion of the shares subject to the Lock-Up Agreements. After
termination of the Lock-Up Period, all such shares will become eligible for
sale in the public market only in compliance with the registration
requirements of the Securities Act or pursuant to a valid exemption from
registration. See "Principal Stockholders" and "Shares Eligible for Future
Sale".

POSSIBILITY OF ADVERSE EFFECT ON THE MARKET PRICE OF THE COMMON STOCK BY
VIRTUE OF CERTAIN TAKEOVER PROVISIONS. The Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Amended
and Restated Bylaws (the "Bylaws") contain provisions which may have the
effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of the
Common Stock and the voting and other rights of the holders of the Common
Stock. These provisions include, but are not limited to, a classified Board of
Directors and the authority of the Board of Directors to issue up to 5,000,000
shares of preferred stock and to fix the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. The
Company has no present plans to issue shares of preferred stock. In addition,
certain provisions of Delaware law applicable to the Company could have the
effect of discouraging certain attempts to acquire the Company which could
deprive the Company's stockholders of the opportunities to sell their shares
of Common Stock at prices higher than prevailing market prices. See
"Description of Capital Stock".

POSSIBILITY OF ADVERSE EFFECT ON MARKET PRICE OF THE COMMON STOCK DUE TO
CONTROL BY OFFICERS AND DIRECTORS. Following completion of this offering and
the Concurrent Placement, directors, executive officers and principal
stockholders of the Company, and certain of their affiliates, will
beneficially own approximately 41% of the outstanding shares of Common Stock.
Accordingly, these persons, individually and as a group, will be able to
effectively control the Company and direct its affairs and business, including
any determination with respect to the acquisition or disposition of assets by
the Company, future issuances of Common Stock or other securities by the
Company, declaration of dividends on the Common Stock and the election of
directors. Such concentration of ownership may also have the effect of
delaying, deferring or preventing a change in control of the Company. See
"Principal Stockholders".

ADVERSE EFFECT DUE TO DILUTION. The initial public offering price is
substantially higher than the net tangible book value per share of Common
Stock. Investors purchasing shares of Common Stock in this offering will
therefore incur immediate and substantial dilution of $5.74 per share. See
"Dilution".

CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS. This Prospectus
contains certain forward-looking statements, including without limitation,
statements concerning the Company's operations, economic performance and
financial condition, including in particular, statements relating to the
Company's growth strategy. The words "believe", "expect", "anticipate" and
other similar expressions generally identify forward-looking statements.
Investors are cautioned not to place undue reliance on these forward-looking
statements. These forward-looking statements are based largely on the
Company's current expectations and are subject to a number of risks and
uncertainties, including, without limitation, those identified under "Risk
Factors" and elsewhere in this Prospectus. Actual results could differ
materially from these forward-looking statements. In addition, important
factors to consider in evaluating such forward-looking statements include
changes in external market factors, changes in the Company's business or
growth strategy or an inability to execute its strategy due to changes in its
industry or the economy generally, the emergence of new or growing competitors
and various competitive factors. In light of these risks and uncertainties,
there can be no assurance that the matters referred to in the forward-looking
statements contained in this Prospectus will in fact occur.

16
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby and from the Concurrent Placement
of an additional 1,100,000 shares offered by the Company are estimated to be
$42.0 million ($46.6 million if the Underwriters' over-allotment option is
exercised in full).

The net proceeds received by the Company will be used (i) to repay $4.0
million of a non-interest bearing secured promissory note which has a maturity
date of July 8, 1998, issued as partial consideration for the acquisition of
the Juniper Valley Farms brand, (ii) to repay the $2.0 million outstanding
principal amount of a Term Loan from U.S. Bancorp, through its affiliate U.S.
Bancorp Ag Credit, Inc. (collectively, "U.S. Bancorp"), which bears interest
at a variable rate based on U.S. Bancorp's announced reference rate plus 2%
and which has a final maturity date of July 31, 1998 (the "Term Loan"), (iii)
to repay up to $10.0 million of the outstanding principal amount of the
Company's Line of Credit with U.S. Bancorp (the "Line of Credit") which bears
interest at U.S. Bancorp's announced reference rate plus 1.25% and has a final
maturity date of June 30, 1999, (iv) to repay approximately $3.6 million of
unsecured subordinated promissory notes, a portion of which are held by
certain affiliates of the Company, which bear interest at a variable rate
equal to the current prime rate plus 1% which have a final maturity date of
the earlier of (x) March 20, 2002 or (y) the closing of this offering, issued
in connection with the acquisition by the Company of the remaining interest in
Sunrise from Aurora Dairy Corporation ("Aurora") in May 1997, (v) to repay
$3.1 million of senior subordinated promissory notes, a portion of which are
held by certain affiliates of the Company, which bear interest at an annual
rate of 11% and have a final maturity date of the earlier of (x) May 29, 2003
or (y) the closing of this offering, at which time a premium of 3% of the
principal amount of such notes will be due and payable, and (vi) for possible
expansion of the Company's dairy facilities, acquisitions, working capital and
general corporate purposes. The Company has no present commitments or
agreements with respect to any potential acquisitions. The amounts and timing
of actual expenditures will depend upon a number of factors, many of which are
beyond the Company's control, including demand for the Company's products and
the availability of suitable acquisition candidates. Pending such uses, the
net proceeds of this offering will be invested in short-term, interest bearing
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Certain
Transactions".

DIVIDEND POLICY

The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, the future earnings, operations, capital
requirements and financial condition of the Company. In addition, the Line of
Credit and the senior subordinated promissory notes prohibit the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".

17
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of March
31, 1998 (i) on an actual basis and (ii) as adjusted to reflect to the sale of
the 3,000,000 shares of Common Stock offered hereby and 1,100,000 shares
pursuant to the Concurrent Placement and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt......................... $ 575 $ 575
======= =======
Long-term debt, excluding current portion(1).............. $18,970 $ 4,969
------- -------
Stockholders' equity (deficit):
Preferred stock, par value $.001, 2,000,000 shares
authorized; no shares issued and outstanding, actual;
5,000,000 shares authorized; no shares issued and
outstanding, as adjusted............................... -- --
Common stock, par value $.001, 8,000,000 shares
authorized; 5,176,341 shares issued and 5,056,341
shares outstanding, actual; 30,000,000 shares
authorized, 9,156,341 shares issued and outstanding, as
adjusted(2)............................................ 5 9
Additional paid-in capital(3)........................... 11,859 53,264
Accumulated deficit(4).................................. (2,486) (2,971)
Treasury stock(3)....................................... (582) --
------- -------
Total stockholders' equity............................ 8,796 50,302
------- -------
Total capitalization................................. $27,766 $55,271
======= =======
</TABLE>
- ---------------------
(1) Reflects repayment of Line of Credit with U.S. Bancorp, unsecured
subordinated promissory notes and senior subordinated promissory notes.
(2) Based on the number of shares outstanding as of March 31, 1998. Excludes,
as of March 31, 1998, 567,768 shares of Common Stock issuable upon
exercise of options outstanding under the Company's stock option plans and
69,118 shares of Common Stock reserved for issuance upon exercise of
certain warrants. As of March 31, 1998, the weighted average exercise
prices of the Company's stock options and warrants were $3.44 and $5.34
per share, respectively. See "Capitalization," "Management--Stock Option
Plans" and Notes to the Company's Consolidated Financial Statements.
(3) As adjusted Common Stock outstanding also reflects the retirement of
120,000 treasury shares of Common Stock retired as of April 30, 1998.
(4) Reflects an extraordinary loss of $485,000 (net of income tax effect) to
be recorded upon the extinguishment of the senior subordinated promissory
notes with a face amount of $3.1 million. See "Use of Proceeds".

18
<PAGE>

DILUTION

As of March 31, 1998, the Company had a net tangible book value of
approximately $6,630,000 or $1.31 per share. Net tangible book value
represents the amount of total tangible assets less total liabilities divided
by the number of shares of Common Stock outstanding. Without taking into
account any other changes in the net tangible book value after March 31, 1998,
other than to reflect the receipt by the Company of the net proceeds from the
sale of the 3,000,000 shares of Common Stock offered by the Company hereby at
an initial public offering price of $11.00 per share, and from the sale of
1,100,000 shares in the Concurrent Placement at a price of $11.00 per share,
the pro forma net tangible book value of the Company at March 31, 1998 would
have been approximately $48,135,000, or $5.26 per share. This represents an
immediate increase in such net tangible book value of $3.95 per share to
existing stockholders and an immediate dilution of $5.74 per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $11.00
Pro forma net tangible book value per share as of March
31, 1998................................................ $1.31
Increase per share attributable to new investors......... 3.95
-----
Pro forma net tangible book value per share after the offer-
ing and the Concurrent Placement(1)........................ 5.26
------
Dilution per share to new investors......................... $ 5.74
======
</TABLE>

The above table assumes that the sale of 1,100,000 shares in the Concurrent
Placement will be completed immediately following the offering. Should the
Concurrent Placement not be completed, the pro forma net tangible book value
of the Company after the offering would have been $4.47 per share. This would
represent an immediate increase in such net tangible book value of $3.16 per
share to existing stockholders and an immediate dilution of $6.53 per share to
new investors.

The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders, Suiza's investment in the
Concurrent Placement and the investors purchasing shares of Common Stock in
this offering with respect to the number of shares of Common Stock purchased
from the Company, the total consideration paid to the Company and the average
consideration paid per share by the existing investors, Suiza in the
Concurrent Placement and by the investors purchasing shares of Common Stock in
this offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2).. 5,056,341 55.2% $11,283,000 20.0% $ 2.23
Suiza in Concurrent Place-
ment(3).................. 1,100,000 12.0% 12,100,000 21.5% 11.00
New investors in the
offering................. 3,000,000 32.8 33,000,000 58.5 11.00
--------- ----- ----------- -----
Total................... 9,156,341 100.0% $56,383,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------------
(1) Reflects an extraordinary loss of $485,000 (net of income tax effect) to
be recorded upon the extinguishment of senior subordinated promissory
notes with a face amount of $3.1 million.
(2) Based on the number of shares outstanding as of March 31, 1998. Excludes,
as of March 31, 1998, 567,768 shares of Common Stock issuable upon
exercise of options outstanding under the Company's stock option plans and
69,118 shares of Common Stock reserved for issuance upon exercise of
warrants. As of March 31, 1998, the weighted average exercise prices of
the Company's stock options and warrants were $3.44 and $5.34 per share,
respectively. See "Capitalization," "Management--Stock Option Plans" and
Notes to the Company's Consolidated Financial Statements.
(3) Includes the sale of 1,100,000 shares of Common Stock to Suiza in the
Concurrent Placement at a price of $11.00 per share.

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statements of operations data for the
fiscal years ended December 31, 1995, December 28, 1996 and December 31, 1997
and the selected balance sheet data as of December 28, 1996 and December 31,
1997 have been derived from the Consolidated Financial Statements of the
Company, which have been audited by KPMG Peat Marwick LLP, independent
accountants, whose report thereon, which is based partially upon the report of
other auditors, also is included herein. The selected consolidated statement
of operations data for the fiscal years ended December 31, 1993 and 1994, and
the balance sheet data as of December 31, 1993, 1994 and 1995 have been
derived from the audited consolidated financial statements of the Company that
are not included in this Prospectus. The selected consolidated statements of
operations data for the three months ended March 31, 1997 and 1998 are
unaudited but have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all
adjustments, consisting only of normally recurring adjustments, necessary for
a fair presentation of the financial information presented. The selected
consolidated financial data set forth below is not necessarily indicative of
results to be expected for any future period. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in the
Prospectus. The financial statements and notes thereto of Sunrise Organic
Farms, Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.) as of and for the
year ended December 31, 1996 are included elsewhere in this Prospectus as a
significant acquisition purchased by the Company in fiscal 1997.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------------------------- --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 28, DEC. 31, MAR. 31, MAR. 31,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net sales.............. $ 973 $3,436 $7,246 $15,986 $29,565 $ 6,134 $ 10,102
Cost of sales(1)(2).... 659 2,564 5,517 11,425 22,639 5,113 7,055
----- ------ ------ ------- ------- -------- ---------
Gross profit........... 314 872 1,729 4,561 6,926 1,021 3,047
Selling expenses....... 210 478 1,620 3,270 5,656 1,147 2,132
General and
administrative
expenses(3)........... 267 298 633 1,066 2,384 399 581
----- ------ ------ ------- ------- -------- ---------
Operating income
(loss)................ (163) 96 (524) 225 (1,114) (525) 334
Other income (expense),
net(4)................ -- 3 (122) (184) (1,108) (153) (492)
----- ------ ------ ------- ------- -------- ---------
Income (loss) from
continuing operations
before income taxes
and minority
interest.............. (163) 99 (646) 41 (2,222) (678) (158)
Income tax benefit
(expense)............. -- -- 30 (14) 513 64 43
Minority interest in
loss of
subsidiary(5)......... -- -- -- -- 687 571 --
----- ------ ------ ------- ------- -------- ---------
Income (loss) from
continuing
operations............ (163) 99 (616) 27 (1,022) (43) (115)
Income (loss) from
discontinued dairy
operations, net(6).... -- (533) 107 -- -- -- --
----- ------ ------ ------- ------- -------- ---------
Net income (loss)...... $(163) $ (434) $ (509) $ 27 $(1,022) $ (43) $ (115)
===== ====== ====== ======= ======= ======== =========
Basic and diluted net
income (loss) per
share(7).............. $(.14) $ (.20) $ (.18) $ .01 $ (.23) $ (.01) $ (.02)
===== ====== ====== ======= ======= ======== =========
Pro forma basic and
diluted net income
(loss) per share
(unaudited)(8)........ $ (.12) $ .03
======= =========
Weighted average shares
outstanding:
Basic.................. 1,126 2,120 2,791 3,264 4,488 3,659 5,056
Diluted................ 1,126 2,120 2,791 3,283 4,488 3,659 5,056
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
DEC. 31, DEC. 31, DEC. 31, DEC. 28, DEC. 31, MAR. 31,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...... $ 2 $ 41 $ 5 $ 600 $ 404 $ 811
Working capital (deficit)...... (80) (1,109) (1,016) 414 2,935 2,520
Total assets................... 179 4,259 2,414 5,232 32,737 34,501
Long-term debt................. -- 500 -- -- 17,960 18,970
Total stockholders' equity
(deficit)..................... (95) 1,057 798 3,264 8,886 8,796
</TABLE>
- ---------------------
(1) Includes losses of organic premiums in connection with milk supply
contracts of approximately $198,000 and $73,000 in fiscal 1995 and 1996,
respectively. Losses of organic premiums relate to the Company's
commitment to purchase minimum amounts of organic farm milk. When organic
milk is sold as conventional milk, the difference between the organic and
conventional prices is recorded as a loss of organic premium.
(2) Prior to fiscal 1997, the Company recorded its share of the losses of
Sunrise in other income (expense), net. As a result of the acquisition of
the remainder of Sunrise in May 1997, losses of $1.3 million and $627,000
are included in cost of sales for fiscal 1997 and the three months ended
March 31, 1997, respectively.
(3) Includes $448,000 of expenses during fiscal 1997 relating to pre-operating
costs associated with the Maryland Dairy. No pre-operating costs were
incurred at the Maryland Dairy during the three months ended March 31,
1997.
(4) Includes the Company's share of the losses of Sunrise relating to its
minority interest in Sunrise. The Company's shares of these losses were
$85,000 and $158,000 for fiscal 1995 and 1996, respectively, of which
$44,000 and $77,000, respectively, represents the Company's proportionate
equity in losses recognized by Sunrise.
(5) The results of operations of Sunrise have been included in the Company's
consolidated statements of operations from January 1, 1997, with an
offsetting minority interest recorded, covering the period in which
Sunrise was not 100% owned by the Company, of $687,000 and $571,000 during
fiscal 1997 and during the three months ended March 31, 1997,
respectively.
(6) On May 30, 1995, the Company transferred the assets and liabilities of its
dairy operations to Sunrise in exchange for Sunrise common stock. The
Company's dairy operations as well as the gain on the disposal have been
reflected as discontinued operations in the consolidated statements of
operations in fiscal 1994 and fiscal 1995. The loss on the dairy
operations in fiscal 1994 was $533,000 and in fiscal 1995, the loss on the
dairy operations of $406,000 was offset by a gain on disposal of the dairy
operations of $513,000.
(7) Net income (loss) per share is computed using the weighted average number
of common shares (basic) and common and common equivalent shares (diluted)
outstanding during the period. See Note 2 to the Company's Consolidated
Financial Statements.
(8) Pro forma to give effect to the repayment of certain debt with the
proceeds of this offering on basic and diluted net income (loss) per share
as if such debt had been repaid at the beginning of the periods indicated.
See "Use of Proceeds".

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.

OVERVIEW

Horizon produces, processes and markets the leading brand of certified
organic fluid milk and a full-line of refrigerated certified organic dairy
products. Horizon has become the only dairy to offer nationwide distribution
of organic fluid milk by establishing a national network of organic farm milk
producers and processors and by building a nationwide customer base. From its
position as the market leader in organic fluid milk sales, Horizon has
leveraged its brand to create a full line of refrigerated organic dairy
products.

Formation and Structure of the Company. Horizon was founded in Boulder,
Colorado in 1991 and introduced its first products, organic fat free yogurts,
in 1992. The Company introduced organic fluid milk in 1993, and since that
time it has developed and introduced a number of new organic dairy products,
including cottage cheese, hard cheese, butter and sour cream. Since 1995, the
Company has focused its efforts on expanding and integrating a nationwide
production, processing and distribution system.

From 1992 to 1994, the Company contracted for the supply of organic fluid
milk with CROPP, an organic dairy cooperative which during that period was
located only in Wisconsin. In 1994, the Company made a strategic decision to
begin developing its own organic milk supply. Accordingly, the Company began
building a herd of organic cows and developing its own source of organic feed,
and entered into a lease and management agreement with a subsidiary of Aurora
for a dairy farm in Idaho. These facilities became the Company's Idaho Dairy
in fiscal 1997. Aurora is controlled by Marc Peperzak, the Chairman of the
Company's Board of Directors. See "Certain Transactions".

In fiscal 1995, the Company and a subsidiary of Aurora formed a corporation,
Sunrise, to hold certain of the Company's and Aurora's assets which combined
to form the Idaho Dairy. The Company contributed its organic cattle and other
supplies for a 23.8% interest in Sunrise, Aurora contributed the land and
equipment for a majority interest in Sunrise, and certain other investors
provided capital in exchange for a minority interest in Sunrise. The Company
also entered into a contract to purchase a percentage of Sunrise's forecasted
production volume. To the extent that Sunrise produced organic farm milk in
excess of the Company's demands for organic farm milk, the Company sold the
excess as conventional farm milk with the difference being recorded as a loss
of the "organic premium" in cost of sales.

In fiscal 1996, the Company made an additional $350,000 equity investment in
Sunrise (increasing its stake to 26.8%), and made a $650,000 term loan to
Sunrise. In fiscal 1997, the Company acquired the remaining interest in
Sunrise from Aurora and the other Sunrise investors. Accordingly, the
Company's 1997 Consolidated Financial Statements include the results of
operations of Sunrise from January 1, 1997 with a corresponding minority
interest shown separately covering the period in which Sunrise was not 100%
owned by the Company. In connection with the acquisition, the Company recorded
goodwill of approximately $2.3 million which is being amortized on a straight-
line basis over 15 years. In order to develop an organic farm milk supply for
products sold in the Eastern United States, in 1997, the Company began
developing the

22
<PAGE>

Maryland Dairy. Shipments of organic farm milk from the Maryland Dairy began
in the first quarter of 1998. In April 1998, the Company acquired the Juniper
Valley Farms brand, the leading brand of organic dairy products in the metro
New York market.

Customers, Revenue Recognition and Marketing. Horizon's organic products are
sold in conventional and natural foods supermarkets, specialty retailers and
natural foods stores. Horizon's customers include natural foods distributors,
dairy distributors and supermarket chains. Once processed, products are either
delivered to, or picked up by, the customers. Revenue is recognized at the
time of shipment or pick up. Sales to new customers are at times made on a 90-
day guaranteed basis; if the customer is unable to sell all of the Company's
products during the first 90 days after it becomes a Horizon customer, the
Company buys back the excess inventory. Historically, the Company has
experienced a return rate of approximately 1% of sales under this guarantee.
Sales under this provision are not significant. Horizon engages in a range of
consumer and trade marketing activities, and in fiscal 1998, plans to increase
its marketing spending as a percentage of sales.

Internal Production of Milk. In establishing the Idaho Dairy and the
Maryland Dairy, the Company made a substantial investment in organic dairy
herds and in converting the farm land to provide a source of organic feed.
Horizon's animal care and facility maintenance costs are significantly higher
than conventional dairies.

The Company began converting the Idaho Dairy farm land to organic in 1994,
but due to the three-year growing requirement to be certified organic the feed
grown on the farm land was not certified as organic until 1997. The Company
began converting the Maryland Dairy to organic in 1997 and expects that it
will be certified organic beginning in 2000. From 1994 through 1996, the
Company purchased all of its organic feed from third party suppliers, and the
Company continues to purchase a majority of organic feed on the open market.

The Company sells the feed which it cannot certify as organic as
conventional feed at conventional prices. Since the prices of conventional
farm milk and feed historically have been significantly lower than organic,
the Company has experienced, and expects to continue to experience, lower
gross profit during periods when its Company-owned dairy farms are being
converted to organic.

The cost of farm milk from the Idaho Dairy and the Maryland Dairy is
significantly influenced by the Company's ability to operate these dairy farms
at capacity. The Idaho Dairy achieved milking capacity in December 1997, while
the Company's Maryland Dairy is not currently operating at milking capacity.
The Company's ability to operate the Maryland Dairy at capacity will depend,
in part, on its ability to secure operating permits for additional cows. In
Maryland, the Company must obtain from the Maryland Department of Environment
a Waste Water Discharge Permit. There is a three step process to obtain the
permit which process requires the Company to obtain approval of its
agricultural nutrient management and waste management system plans and hold
public hearings. The issuance of the permit is subject to the discretion of
the Maryland Department of Environment. The Company will apply for additional
permits over the next 24 months. The permitting process will require that the
Company make additional capital expenditures at the Maryland Dairy to
accommodate the addition of such cows. There can be no assurance that the
Company will be able to obtain the requisite permits to increase the number of
cows at the Maryland Dairy. See "Risk Factors--Risks Related to Establishing
New Organic Dairy Farms".

The Company follows generally accepted accounting principles for farm
accounting. Cows are depreciated using the straight-line method over five
years commencing with their first milking. The capitalized cost of each cow is
based on the purchase price plus pre-production costs. The Idaho Dairy and the
Maryland Dairy sell organic farm milk to Horizon at an inter-company transfer
price which the Company believes approximates fair market value. All inter-
company sales have been eliminated in the Company's consolidated financial
statements.

23
<PAGE>

Purchase of Organic Milk From Third Party Producers. In order to augment its
internal supply of organic farm milk, the Company contracts with various
organic farmers and cooperatives throughout the United States. Except for the
contract with CROPP which extends through December 2001, these contracts are
for twelve months or less and are renewable upon agreement by the Company and
the producer. All production contracts require that the Company purchase
minimum quantities of organic farm milk. If the Company cannot use the minimum
amount as organic fluid milk or other organic products, the Company sells the
organic milk as conventional milk and records a loss of organic premium in
cost of sales. In fiscal 1997, the Company incurred no loss of organic
premiums.

The prices which the Company pays many of its third party producers are
based on a fixed mark-up from the price for conventional farm milk. Changes in
the price of conventional farm milk and the availability of organic farm milk
directly affect the Company's cost of organic farm milk.

Milk Processing. Horizon has a national network of 17 dairy processors which
process the Company's organic farm milk into refrigerated organic fluid milk
and other organic dairy products. The costs associated with processing
arrangements are included in the cost of sales. These costs include the cost
of processing as well as payments which Horizon makes to processors which are
then paid into the Federal Milk Market Order System. The Company's product
sales mix affects its overall gross margin since processing costs vary by
product. Although the Company has a long-term processing agreement with
Worcester and will enter into processing and distribution agreements with
certain Suiza subsidiaries, it does not have written agreements with its other
processors.

Sales. Horizon's sales of organic fluid milk products comprised
approximately 70% of its total net sales with $20.8 million, $12.3 million and
$5.1 million in sales in fiscal 1997, 1996 and 1995, respectively. The
Company's next largest product line, its organic yogurt products, has been
declining as a percentage of total net sales as the Company has introduced
additional organic dairy products. Horizon's sales of organic yogurt products
comprised approximately 14%, 17% and 30% of its net sales with $4 million,
$2.7 million and $2.2 million in sales in fiscal 1997, 1996 and 1995,
respectively. Horizon's sales of organic butter products comprised
approximately 5.5% of its total net sales with $1.7 million in fiscal 1997, up
from $671,000 in fiscal 1996 when it was introduced. The remainder of the
Company's total net sales includes sales of its cheeses, cottage cheese, cream
cheese, sour cream and immaterial sales of non-dairy products such as eggs and
orange juice. Although the Company anticipates that its product mix will
change over time as it introduces other organic dairy products in accordance
with its business strategy, the Company does not believe that the product mix
will change materially in the near term. See "Business--Products".

Government Regulation of Milk Pricing. The Federal Milk Market Order System
was developed to ensure the availability of farm milk for certain products
such as fluid milk and to provide minimum prices for farm milk regardless of
how the farm milk is actually used (i.e., whether it is used for a high value
product like fluid milk or a lower value product like non-fat dry milk
powder). The processor is responsible for paying fees to the Federal Milk
Market Order System. Dairy processors pass through these "pooling" charges to
dairies, like the Company, through their prices for processing farm milk.
These payments are determined by the Federal Milk Market Order System
Administrators on a monthly basis, are billed to the Company in the month
after they are determined, are generally related to conventional farm milk
prices and can vary materially from period to period.

In addition, states in New England have established, and certain other
states are in the process of attempting to form, regional milk price compacts
designed to provide farmers within the compact states with a minimum price
which will result in higher milk prices than the federally mandated minimum
prices. For example, the Northeast Interstate Dairy Compact has resulted in
farm milk prices higher than federal order minimum prices. These charges are
assessed as "compact over-order charges". As with the federal milk market
orders, these charges are not known or predictable in advance and may increase
the Company's costs. For fiscal 1997, the Company paid over $500,000 for
pooling, compact and administrative assessment charges. See "Risk Factors--
Possibility of Adverse Effects Resulting from United States Dairy Support
Program and Federal Milk Marketing Orders".

24
<PAGE>

Juniper Valley Acquisition. On April 8, 1998, the Company completed the
acquisition of the Juniper Valley Farms brand of organic dairy products from
Worcester. As a result of the acquisition, the Company recognized
approximately $6.3 million of goodwill and other intangibles which will be
amortized over 15 years.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain selected
statements of operations data expressed as a percentage of net sales:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------------------------
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------- ----------------------
DEC. 31, DEC. 28, DEC. 31, MAR. 31, MAR. 31,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 76.1 71.5 76.6 83.4 69.8
----- ----- ----- --------- ---------
Gross profit.............. 23.9 28.5 23.4 16.6 30.2
Selling expenses.......... 22.4 20.4 19.1 18.7 21.1
General and administrative
expenses................. 8.7 6.7 8.1 6.5 5.8
----- ----- ----- --------- ---------
Operating income (loss)... (7.2) 1.4 (3.8) (8.6) 3.3
Other income (expense),
net...................... (1.7) (1.2) (3.7) (2.5) (4.9)
----- ----- ----- --------- ---------
Income (loss) from
continuing operations
before income taxes and
minority interest........ (8.9) 0.2 (7.5) (11.1) (1.6)
Income tax benefit
(expense)................ 0.4 -- 1.7 1.0 0.5
Minority interest in loss
of subsidiary............ -- -- 2.3 9.4 --
----- ----- ----- --------- ---------
Income (loss) from
continuing operations.... (8.5) 0.2 (3.5) (0.7) (1.1)
Income from discontinued
dairy operations......... 1.5 -- -- -- --
----- ----- ----- --------- ---------
Net income (loss)......... (7.0)% 0.2% (3.5)% (0.7)% (1.1)%
===== ===== ===== ========= =========
</TABLE>

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997

Net Sales. Net sales includes product sales, royalties and consulting
revenue, less returns and allowances. Net sales increased 65% to $10.1 million
in the first quarter of fiscal 1998 from $6.1 million in the first quarter of
fiscal 1997. This increase is primarily due to: the development of new retail
accounts, including a major conventional supermarket chain; increased sales
with existing accounts; the introduction of several new products, including
organic chocolate milk and cottage cheese; and a price increase.

Gross Profit. Gross profit consists of net sales, less cost of sales (which
includes the cost of raw materials, processing fees, inbound freight, pooling
charges and losses of organic premiums). Gross profit increased 198% to $3.0
million in the first quarter of fiscal 1998 from $1.0 million in the first
quarter of fiscal 1997. As a percentage of sales, gross profit increased to
30.2% in the first quarter of fiscal 1998 from 16.6% in the first quarter of
fiscal 1997. This increase is primarily due to significantly lower losses
resulting from the Company reaching capacity at the Idaho Dairy. Prior to
fiscal 1997, the Company recorded its share of the losses of Sunrise as other
income (expense), net. Due to the acquisition of the remainder of Sunrise
during fiscal 1997, the three months ended March 31, 1997 includes losses of
$627,000 in cost of sales.

Selling Expenses. Selling expenses include direct selling, marketing and
distribution costs. Selling expenses increased 86% to $2.1 million in the
first quarter of fiscal 1998 from $1.1 million in the first quarter of fiscal
1997. As a percentage of sales, selling expenses increased to 21.1% in the
first quarter of fiscal 1998 from 18.7% in the first quarter of fiscal 1997,
primarily due to increased levels of marketing expenses, including hiring
marketing executives and staff.

General and Administrative Expenses. General and administrative expenses
include operations and corporate support, and increased 46% to $581,000 in the
first quarter of fiscal 1998 from $399,000 in the first quarter of fiscal
1997. As a percentage of sales, general and administrative expenses decreased
to 5.8% in the

25
<PAGE>

first quarter of fiscal 1998 from 6.5% in the first quarter of fiscal 1997 due
to increased leverage of general and administrative expenses over a larger
sales base.

Other Income (Expense), Net. Other income (expense), net increased to
$492,000 in the first quarter of fiscal 1998 from $153,000 in the first
quarter of fiscal 1997, primarily as a result of higher levels of indebtedness
incurred to acquire the remaining interest in the Idaho Dairy, and to finance
the acquisition and development of the Maryland Dairy.

Minority Interest in Loss of Subsidiary. Minority interest in loss of
subsidiary includes the minority stockholders' share of the losses from
operations of the Idaho Dairy for the period prior to the Company's
acquisition of the remainder of Sunrise in the second quarter of fiscal 1997.
Minority interest in loss of subsidiary was $571,000 in the first quarter of
fiscal 1997. In the first quarter of fiscal 1998, the operations of the Idaho
Dairy are reflected in the Company's cost of sales.

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 28, 1996

Net Sales. Net sales increased 85% to $29.6 million in fiscal 1997 from
$16.0 million in fiscal 1996. This increase was primarily due to: development
of new retail accounts, particularly as a result of the Company's expansion
into conventional supermarkets; increased sales to existing accounts; and the
introduction of several new products including hard cheeses, cottage cheese,
eggs and new SKUs of yogurt and fluid milk. Also included in the increase was
$879,000 from the sale of conventional milk from the Idaho Dairy prior to the
conversion to 100% organic.

Gross Profit. Gross profit increased 52% to $6.9 million in fiscal 1997 from
$4.6 million in fiscal 1996. As a percentage of sales, gross profit decreased
to 23.4% in fiscal 1997 from 28.5% in fiscal 1996. Gross profit on organic
fluid milk and other organic dairy products remained relatively flat as a
percentage of sales but was offset by the consolidation of the Idaho Dairy
operations. The operations of the Idaho Dairy in fiscal 1997 reflect the costs
associated with expanding the Idaho Dairy to capacity and completing its
conversion to organic (including costs associated with culling conventional
cows and sourcing organic feed). In addition, the Company recognized losses of
organic premiums of $73,000 in fiscal 1996. In fiscal 1997, the Company also
completed the transition of the Idaho Dairy to 100% organic, which included
the disposition of the balance of the conventional cows. The loss associated
with the disposition of conventional cows was $310,000 and was booked as an
expense in fiscal 1997.

Selling Expenses. Selling expenses increased 73% to $5.7 million in fiscal
1997 from $3.3 million in fiscal 1996. As a percentage of sales, selling
expenses decreased to 19.1% in fiscal 1997 from 20.4% in fiscal 1996 primarily
due to increased leverage of selling expenses over a larger sales base,
partially offset by the increased costs associated with expanding into
conventional supermarkets.

General and Administrative Expenses. General and administrative expenses
increased 124% to $2.4 million in fiscal 1997 from $1.1 million in fiscal
1996. As a percentage of sales, general and administrative expenses increased
to 8.1% in fiscal 1997 from 6.7% in fiscal 1996 primarily due to $448,000 in
pre-operating costs associated with the Maryland Dairy.

Other Income (Expense), Net. Other income (expense), net increased to $1.1
million in fiscal 1997 from $184,000 in fiscal 1996 primarily as a result of
increased indebtedness related to both the purchase of Sunrise and a debt
financing. Other expense included $158,000 loss in fiscal 1996 as a result of
the Company's ownership of a minority interest in Sunrise. A similar expense
did not occur in fiscal 1997 because the Company's acquisition of the
remainder of Sunrise resulted in the consolidation of those operations with
the Company's beginning January 1, 1997.

Minority Interest in Loss of Subsidiary. The Company recognized Sunrise as
an investment during fiscal 1996 due to its less than 50% ownership during
that year. The minority interest in loss of subsidiary was $687,000 in fiscal
1997 to recognize minority stockholders' proportionate share of losses prior
to 100% ownership by the Company in May 1997.

26
<PAGE>

COMPARISON OF FISCAL YEARS ENDED DECEMBER 28, 1996 AND DECEMBER 31, 1995

Net Sales. Net sales increased 121% to $16.0 million in fiscal 1996 from
$7.2 million in fiscal 1995. This increase was primarily due to: development
of new accounts; increased sales to existing accounts; and the introduction of
several new products, including butter, non-fat dry milk powder, cheese, half
and half and additional SKUs of fluid milk. The Company also attributes the
increase in net sales in fiscal 1996 in part to the development of the
Company's regional sales force and the appointment of mass market brokers.

Gross Profit. Gross profit increased 164% to $4.6 million in fiscal 1996
from $1.7 million in fiscal 1995. As a percentage of sales, gross profit
increased to 28.5% in fiscal 1996 from 23.9% in fiscal 1995. This increase is
primarily due to the introduction of several new organic dairy products with
higher profit margins than organic fluid milk, the implementation of the
Company's national pricing policy along with a price increase in the third
quarter of fiscal 1995, as well as a slightly improved profit margin on fluid
milk due to a full year of milk production at the Idaho Dairy and the
appointment of fluid milk processors in the western region of the United
States to process farm milk from the Idaho Dairy. In addition, in fiscal 1995,
the Company recognized losses of organic premiums of $198,000.

Selling Expenses. Selling expenses increased 102% to $3.3 million in fiscal
1996 from $1.6 million in fiscal 1995. As a percentage of sales, selling
expenses decreased to 20.4% in fiscal 1996 from 22.4% in fiscal 1995 primarily
due to increased leverage of selling expenses over a larger sales base,
partially offset by increased expenses associated with the development of the
Company's sales force infrastructure, including hiring regional sales
managers.

General and Administrative Expenses. General and administrative expenses
increased 68% to $1.1 million in fiscal 1996 from $633,000 in fiscal 1995. As
a percentage of sales, general and administrative expenses decreased to 6.7%
in fiscal 1996 from 8.7% in fiscal 1995 due to increased leverage of general
and administrative expenses over a larger sales base.

Other Income (Expense), Net. Other income (expense), net increased to
$184,000 in fiscal 1996 from $122,000 in fiscal 1995, primarily as a result of
increased other expense in fiscal 1996 partially offset by interest income on
excess cash in fiscal 1996. Other expense includes $158,000 in fiscal 1996 and
$85,000 in fiscal 1995 as a result of the Company's ownership of a minority
interest in Sunrise. This increase was primarily due to increased costs at the
farm related to the continued conversion of the Idaho Dairy to organic as well
as the Company's purchase of an additional 3% of Sunrise in fiscal 1996.

Income from Discontinued Dairy Operations. Income from discontinued dairy
operations in fiscal 1995 reflects the gain on the sale of the Company's
assets to Sunrise of $513,000 in connection with the formation of Sunrise,
which more than offset the Company's losses on the operations of those assets
of $406,000 during the five months prior to the sale.

27
<PAGE>

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated statements of
operations data for the five quarters ended March 31, 1998, as well as such
data expressed as a percentage of the Company's net sales for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of such information when read in conjunction with the Company's
annual consolidated financial statements and notes thereto.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
FISCAL 1997 FISCAL 1998
--------------------------------------- -----------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
-------- -------- --------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................. $6,134 $6,740 $7,648 $9,043 $10,102
Cost of sales(1)(2)....... 5,113 5,286 5,693 6,547 7,055
------ ------ ------ ------ -------
Gross profit.............. 1,021 1,454 1,955 2,496 3,047
Selling expenses.......... 1,147 1,333 1,527 1,649 2,132
General and administrative
expenses(3).............. 399 442 652 891 581
------ ------ ------ ------ -------
Operating income (loss)... (525) (321) (224) (44) 334
Other income (expense),
net...................... (153) (226) (345) (384) (492)
------ ------ ------ ------ -------
Loss before income taxes
and minority interest.... (678) (547) (569) (428) (158)
Income tax benefit........ 64 155 147 147 43
Minority interest in loss
of subsidiary(4)......... 571 116 -- -- --
------ ------ ------ ------ -------
Net loss.................. $ (43) $ (276) $ (422) $ (281) $ (115)
====== ====== ====== ====== =======
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 83.4 78.4 74.4 72.4 69.8
------ ------ ------ ------ -------
Gross profit.............. 16.6 21.6 25.6 27.6 30.2
Selling expenses.......... 18.7 19.8 20.0 18.2 21.1
General and administrative
expenses................. 6.5 6.6 8.5 9.9 5.8
------ ------ ------ ------ -------
Operating income (loss)... (8.6) (4.8) (2.9) (0.5) 3.3
Other income (expense),
net...................... (2.5) (3.3) (4.5) (4.2) (4.9)
------ ------ ------ ------ -------
Loss before income taxes
and minority interest.... (11.1) (8.1) (7.4) (4.7) (1.6)
Income tax benefit........ 1.0 2.3 1.9 1.6 0.5
Minority interest in loss
of subsidiary............ 9.4 1.7 -- -- --
------ ------ ------ ------ -------
Net loss.................. (0.7)% (4.1)% (5.5)% (3.1)% (1.1)%
====== ====== ====== ====== =======
</TABLE>
- ---------------------
(1) As a result of the acquisition of the remainder of Sunrise in May 1997,
operating losses of $627,000, $341,000, $202,000 and $165,000 and
operating income of $184,000 are included in cost of sales for the
quarters ended March 31, 1997, June 30, 1997, September 30, 1997, December
31, 1997 and March 31, 1998, respectively.
(2) Includes $271,000 in start-up costs associated with the Maryland Dairy in
the quarter ended March 31, 1998.
(3) Includes pre-operating costs associated with the Maryland Dairy of
$13,000, $174,000 and $262,000 for the quarters ended June 30, 1997,
September 30, 1997 and December 31, 1997, respectively.
(4) The results of operations of Sunrise have been included in the Company's
consolidated statement of operations from January 1, 1997, with an
offsetting minority interest recorded, covering the period in which
Sunrise was not 100% owned by the Company, of $571,000 and $116,000 during
the quarters ended March 31, 1997 and June 30, 1997, respectively.

The Company's results of operations may fluctuate significantly from period
to period. The Company's quarterly results may fluctuate as a result of a
variety of factors, including: the number, timing and mix of

28
<PAGE>

trade promotions; the mix of product sales; factors affecting farm
profitability, including natural disasters and economic downturns; additional
sales and expenses as a result of acquisitions, hiring and training of
additional personnel; the timing of inventory writedowns; competition; the
incurrence of unexpected operating costs; and other factors beyond the
Company's control. Accordingly, the results of operations in any quarter will
not necessarily be indicative of the results that may be achieved for a full
fiscal year or any future quarter.

In part as a result of the Company's limited operating history, the Company
may be unable to accurately forecast its revenues. The Company's current and
future expense levels are based predominantly on its operating plans and
estimates of future revenues. The Company may be unable to adjust spending in
a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall in revenues would likely have an
immediate material adverse effect on the Company's business, financial
condition and results of operations. Further, the Company currently intends to
substantially increase its operating expenses in a number of areas, including
increased marketing efforts. To the extent such expenses precede or are not
subsequently followed by increased revenues, the Company's operating results
may fluctuate significantly.

Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will
not meet the expectations of security analysts or investors. In such event,
the price of the Company's Common Stock would likely be materially and
adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

Horizon's primary sources of capital have been cash flows from operations,
trade payables, bank indebtedness and the sale of debt and equity securities.
Primary uses of cash have been the financing of the Idaho Dairy and Maryland
Dairy operations and acquisitions. The following table presents a summary of
the Company's cash flows for fiscal 1995, 1996 and 1997 and the first quarter
of fiscal 1998:

<TABLE>
<CAPTION>
FISCAL YEAR
------------------------ MARCH 31,
1995 1996 1997 1998
----- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................... $ 38 $ (477) $ (257) $ 1,642
Net cash used in investing activities..... (335) (1,191) (10,003) (2,197)
Net cash provided by financing activi-
ties..................................... 261 2,263 10,064 962
----- ------- -------- -------
Net increase (decrease) in cash and cash
equivalents.............................. $ (36) $ 595 $ (196) $ 407
===== ======= ======== =======
</TABLE>

Although net income decreased in fiscal 1997, net cash used in operations
decreased by $220,000 primarily due to non-cash charges associated with
depreciation and amortization and the disposal of cattle combined with an
increase in trade accounts payable and collection of trade accounts
receivable, offset by purchases of inventories. Cash flows provided by
operations increased in the first quarter of fiscal 1998 as a result of non-
cash charges associated with depreciation and amortization and the disposal of
cattle combined with cash provided by inventories and an increase in trade
accounts payable and other accrued expenses, partially offset by an increase
in trade accounts receivable.

Net cash used in investing activities was $335,000, $1.2 million and $10.0
million in fiscal 1995, 1996 and 1997, respectively, and $2.2 million in the
first quarter of fiscal 1998. The expenditures in fiscal 1996 and 1997 related
primarily to the investment in and acquisition of Sunrise and purchases of
equipment. The expenditures in the first quarter of fiscal 1998 relate
primarily to the purchase of property and equipment at the Maryland Dairy and
the purchases and costs of raising cattle at the Maryland Dairy and the Idaho
Dairy.

Net cash provided by financing activities was $261,000, $2.3 million and
$10.1 million in fiscal 1995, 1996 and 1997, respectively, and $962,000 in the
first quarter of fiscal 1998. In fiscal 1995, the Company received net
proceeds of $125,000 from the sale of Common Stock and $136,000 from increased
borrowings net of

29
<PAGE>

repayment of debt. In fiscal 1996, the Company received net proceeds of $2.3
million from the sale of Common Stock, and $775,000 from the issuance of
bridge notes resulting in a net increase in borrowings, net of repayment of
debt, of $22,000. In fiscal 1997, the Company received net proceeds of $4.3
million (net of treasury stock acquired) from the sale of common stock and
$6.0 million (net of repayments) from the proceeds of the issuance of long-
term debt and the restructuring of the Company's credit lines, most of which
relate to the acquisition of Sunrise.

In fiscal 1995, the Company entered into a Note and Loan Agreement (the
"Note and Loan Agreement") with Farm Credit Services ("Farm Credit") in an
aggregate principal amount of $4.3 million. The Note and Loan Agreement bears
interest at an adjustable rate, with an initial interest rate of 7.79% per
annum, provided that the interest rate cannot exceed 13.79% per annum. The
Note and Loan Agreement has a final maturity of July 1, 2010. At March 31,
1998, the Company owed $3.8 million under the Note and Loan Agreement. The
Note and Loan Agreement contains certain material covenants, which (i)
prohibit the Company from selling or further encumbering Farm Credit's loan
security without written consent and from exceeding a ratio of total debt to
stockholders' equity of 5 to 1 and (ii) require the Company to maintain a
ratio of current assets to current liabilities of at least 1.25 to 1, maintain
a ratio of current assets and intermediate assets to current liabilities and
intermediate liabilities, respectively, of at least 1.15 to 1, maintain a
minimum stockholders' equity of at least $1.5 million, and maintain its cost
basis balance sheet, adjusted to reflect fair market value, so that owners'
equity is at least 40%.

In fiscal 1997, the Company entered into the Line of Credit which provides a
revolving line of credit with an aggregate principal amount of up to $10.0
million, as determined pursuant to a borrowing base formula. The Line of
Credit bears interest at U.S. Bancorp's announced reference rate plus 1.25%
and has a final maturity of June 30, 1999. At March 31, 1998, the Company had
borrowings outstanding under the Line of Credit of approximately $8.0 million.
The Company intends to use a portion of the net proceeds from this offering to
repay amounts outstanding on the Line of Credit. Following this offering the
Company will have approximately $10.0 million of available borrowing capacity,
subject to certain covenants and other restrictions applicable to the Line of
Credit. Further, in April 1998, the Company received a commitment from U.S.
Bancorp for an additional Term Loan of $2.0 million at the lender's announced
reference rate plus 2%. This $2.0 million Term Loan (which proceeds were used
as a partial payment for the Juniper Valley Farms brand acquisition on April
8, 1998) is to be paid back to U.S. Bancorp out of the proceeds of this
offering. The Company's ability to borrow under the Line of Credit is
contingent upon its compliance with certain material covenants, which (i),
subject to certain exceptions, prohibit the Company from further encumbering
U.S. Bancorp's collateral, incurring additional indebtedness, guaranteeing the
obligations of any other party, redeeming any shares of capital stock,
declaring dividends, prepaying any other debt, or from issuing stock to a
party which would result in such party becoming a 10% stockholder of the
Company, (ii) require the Company to maintain a tangible net worth of at least
$5.0 million plus an amount equal to 60% of the Company's cumulative annual
positive net income, a working capital ratio of at least 1.15 to 1 and minimum
working capital of at least $3.5 million through the end of fiscal 1998 and
$4.0 million thereafter, and (iii) permit the Company to purchase, in any
fiscal year, real estate, equipment or fixed assets in an amount equal to
$500,000, subject to increase in certain circumstances. The Line of Credit
also imposes certain borrowing base requirements.

In April 1998, the Company issued a non-interest bearing secured promissory
note with a principal amount of $4.0 million which matures on July 8, 1998.
The non-interest bearing secured promissory note will be repaid with a portion
of the proceeds of this offering. See "Use of Proceeds".

The Company anticipates that it will spend approximately $800,000 in the
last three quarters of fiscal 1998 for fixed asset additions at both the Idaho
Dairy and the Maryland Dairy as well as $1.7 million for replacement cows. The
Company plans to increase its marketing and advertising spending by an
additional 1.8 percentage points as a percentage of net sales. The Company
believes that it will be able to fund such additional costs through the
reduction of sales and distribution expenses as a percentage of net sales. The
Company believes that the farm milk supplies which it added in 1998 (including
the Maryland Dairy and

30
<PAGE>

through the Juniper Valley Farms brand acquisition) will enable it to decrease
distribution costs as a percentage of net sales. In addition, the Company
believes that its fixed sales costs will decrease as a percentage of sales due
to a higher volume of sales. The Company believes that these cost reductions
will offset the planned increases in marketing and advertising spending.

The Company believes that the net proceeds of this offering and the
Concurrent Placement, together with cash generated from operations and funds
available under the Line of Credit, will be sufficient to satisfy its cash
requirements through fiscal 2000.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per
share (EPS) and applies to all entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary
EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Similar to fully diluted EPS, diluted EPS
reflects the potential dilution of securities that could share in the
earnings. This statement is effective for the Company's consolidated financial
statements for the year ended December 31, 1997 and has been adopted,
resulting in the restatement of earnings per share for all prior periods.
Details regarding earnings per share are disclosed in Note 2 to the Company's
Consolidated Financial Statements.

In June 1997, FASB issued Statement of Financial Accounting Standards, No.
130, Reporting Comprehensive Income (Statement No. 130), effective for years
beginning after December 15, 1997. Statement No. 130 establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. The Company has not yet adopted
Statement No. 130. The Company will comply with the reporting and display
requirements under this statement when required.

In June 1997, FASB issued Statement of Financial Accounting Standards, No.
131, Disclosures About Segments of an Enterprise and Related Information
(Statement No. 131), effective for years beginning after December 15, 1997.
Statement No. 131 establishes standards for reporting information about
operating segments and the methods by which such segments were determined. The
Company has not yet adopted Statement No. 131. The Company will comply with
the reporting requirements under this statement when required.

In February 1998, FASB issued Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits (Statement No. 132), effective for fiscal years beginning after
December 15, 1997. Statement No. 132 revises disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. Statement No. 132 standardizes the disclosure
requirements and suggests combined formats for presentations of such
disclosures. The Company has not yet adopted Statement No. 132. The Company
will comply with the reporting requirements under this statement when
required.

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP) Reporting on the Costs of Start-Up
Activities, effective for fiscal years beginning after December 15, 1998 and
encouraging earlier adoption. The SOP broadly defines start-up activities as
those one time activities related to, among other things, opening a new
facility. In general, the SOP requires the Company to expense as incurred
those costs. Currently, the Company expenses such costs.

YEAR 2000 COMPLIANCE

Certain management information systems use two digit data fields which
recognize dates using the assumption that the first two digits are "19" (i.e.,
the number 98 is recognized as the year 1998). Although the

31
<PAGE>

Company has not conducted any testing or expended any funds in response to
year 2000 issues, the Company believes that all of its major software and
hardware systems are year 2000 compliant and will recognize data fields beyond
1999. The Company intends to test its systems for year 2000 compliance and is
in the process of verifying whether its major suppliers, service providers,
and financial institutions are year 2000 compliant. The Company will make any
necessary investments in its software and hardware systems and applications to
ensure that they are year 2000 compliant. The Company does not expect the
amount of such investments to be material to the Company's business, operating
results and financial condition. However, there can be no assurance that the
systems or networks of its key suppliers and customers will not be affected by
year 2000 issues, which could have a material adverse effect on the Company's
business, operating results and financial condition.

32
<PAGE>

BUSINESS

OVERVIEW

Horizon produces, processes and markets the leading brand of certified
organic fluid milk and a full line of refrigerated certified organic dairy
products. Horizon has become the only dairy to offer nationwide distribution
of organic fluid milk by establishing a national network of organic farm milk
producers and processors and by building a nationwide customer base. From its
position as the market leader in organic fluid milk sales, Horizon has
leveraged its brand to create a full line of refrigerated organic dairy
products. Approximately 70% of Horizon's total net sales in fiscal 1997 were
from sales of organic fluid milk products. The Company's next largest product
line, organic yogurt products, comprised approximately 13% of its total net
sales and its organic butter products which comprised approximately 5.5% of
its total net sales.See "--Products". The Company believes that consumers are
attracted to Horizon's premium-priced, organic products because of their high
quality and their image as healthy, environmentally-responsible and animal-
friendly products. The Company believes that its distinctive, brightly-colored
flying cow and earth logo appeals to a broad audience of consumers,
particularly mothers and children, and is extendible to additional organic
product categories. Horizon intends to leverage its strong national brand, its
vertically-integrated production, processing and distribution system and its
commitment to the highest organic standards to continue to capitalize on the
growing demand for organic products.

Horizon is committed to driving the continued growth of the organic dairy
category by producing and selling high-quality organic products that address
consumer concerns regarding food safety, environmental responsibility and
animal welfare. The Company believes that its organic standards meet or exceed
all currently existing and proposed governmental certification standards, as
well as all significant private organic certification standards. Horizon's
farm milk is produced by cows that have not been treated with antibiotics or
synthetic growth hormones, such as recombinant bovine growth hormone ("rBGH"),
and which are fed organic feed. To be certified as organic, feed must be grown
on land that has been free of synthetic fertilizers, pesticides and herbicides
for at least three years.

Horizon's sales and distribution strategy is focused on building the Horizon
brand nationwide in conventional supermarkets while maintaining its leading
position in natural foods stores. Horizon currently offers 43 SKUs of premium-
priced organic products under the Horizon brand. Horizon estimates that it is
currently selling its organic products in over 5,000 retail locations,
including conventional and natural foods supermarkets, specialty retailers
(which carry limited or special product lines) and natural foods stores (which
carry more extensive product lines). Approximately 59% of the Company's sales
in 1997 were to supermarkets, a nine percentage point increase from the
Company's supermarket sales in 1996. Horizon distributes its products to these
retailers across the United States through natural foods distributors, dairy
distributors and directly to certain supermarket chains using a team of
regional sales managers who manage a network of natural and conventional food
brokers. Although Horizon's products initially were sold primarily through
natural foods supermarkets and other natural foods stores, a significant part
of Horizon's sales growth has occurred through the Company's increasing
penetration of conventional supermarkets. According to SPINS/A.C. Nielsen, a
food industry data service, for the four weeks ended February 1998, Horizon
was the leading brand of organic fluid milk sold in conventional supermarkets,
with a market share, or share of the total sales of a particular product
category, of 64% and a combined market share of 73%, including the Juniper
Valley Farms brand which the Company recently acquired. Additionally, for the
same period Horizon achieved 20% all commodity volume ("ACV") distribution of
its organic fluid milk, up eight percentage points from the prior year. ACV
represents the presence of the Company's products in stores which sell a
certain percentage of the total grocery products sold in the United States.

33
<PAGE>

Idaho Dairy, the Company's organic dairy farm in Southern Idaho, where the
Company also grows a significant amount of organic feed and performs first
stage farm milk processing with its own farm milk separator. The Idaho Dairy
is the largest organic dairy in the country, with over 4,000 certified organic
cows. Horizon recently completed construction of the Maryland Dairy, its
second organic dairy farm, which has over 500 certified organic cows, from
which Horizon supplies farm milk for products sold in the Eastern United
States. Horizon sources the remainder of its organic farm milk supply through
supply arrangements with independent dairy cooperatives and farmers located
throughout the United States. Horizon's network of third-party, certified
organic processors manufacture and package the organic fluid milk and organic
dairy products, including yogurt, sour cream, butter and cheese.

The Company's sales of organic fluid milk products comprised over 70% of its
total net sales with $20.8 million, $12.3 million and $5.1 million in sales in
fiscal 1997, 1996 and 1995, respectively.

Horizon recently completed the acquisition of the Juniper Valley Farms brand
of organic fluid milk and organic dairy products from Worcester, an affiliate
of Elmhurst Dairy (a large regional conventional dairy). Juniper Valley Farms
is the leading brand of organic fluid milk in the metro New York market, the
largest mass market for organic fluid milk sales in the United States. In
connection with this acquisition, Horizon also acquired Worcester's supply
agreements with its network of organic dairy farmers in New York and entered
into a long-term processing agreement with Worcester. The Company believes
that this acquisition will enable the Company to increase its market
penetration in the Northeastern United States through access to a
complementary production, processing and distribution system and to lower the
processing cost of its organic dairy products by directing an increased volume
of organic farm milk to Worcester and its affiliated processors. The Company
intends to transition Juniper Valley Farms branded products to the Horizon
brand over the next 12 months.

THE ORGANIC DAIRY OPPORTUNITY

The dairy category represents approximately 10% of the overall $447 billion
United States retail food market, of which 0.3% of the dairy category are
organic products, and includes fluid milk and other dairy products such as
butter, cheese and yogurt. The $9 billion retail market for fluid milk, much
of which is consumed by children, is characterized mainly by regional brands
and supermarket private-label brands. The organic dairy category represents
approximately 0.4% of the $9 billion retail market for fluid milk, and is
growing as a segment of the overall dairy market. According to SPINS/A.C.
Nielsen, as of the four weeks ended February 21, 1998, sales of organic fluid
milk in conventional supermarkets increased 73% in 1998 from 1997. The Company
believes that this growth is driven by increasing consumer concerns regarding
the permitted use of antibiotics and synthetic growth hormones, such as rBGH,
in conventional cows and the permitted use of synthetic fertilizers,
pesticides, herbicides and genetic engineering in conventional livestock feed.
In December 1997, the federal government published proposed national
regulations to standardize organic certification requirements as part of the
Organic Foods Production Act, which was enacted as part of the 1990 United
States Farm Bill. The final regulations are expected to be implemented in
1999. Horizon believes that the proposed regulations under the Organic Foods
Production Act, if adopted in the form initially proposed, would permit
competitors to sell fluid milk and other dairy products labeled as "organic"
which would not satisfy Horizon's internal organic standards. See "Risk
Factors--Risks Related to the Implementation of the Proposed Federal Organic
Certification Regulations" and "--Horizon Organic Dairy Standards" for further
discussion of the possible negative effects of the proposed regulations on
organic products.

34
<PAGE>

Horizon believes that the trends driving the growth of the organic dairy
category are consistent with the trends driving growth of all organic foods.
The Natural Foods Merchandiser reported that sales of organic foods in the
United States grew to approximately $3.5 billion in 1996 from $2.9 billion in
1995, reflecting a continuation of the double-digit compound annual growth
rates which the organic foods industry has experienced since the mid 1980's.
Horizon believes that a number of long-term trends are significantly
contributing to this growth. According to the New Hope/Hartman Study,
increasing consumer awareness and concerns about food freshness, purity and
safety, and health and nutrition issues among mainstream consumers is driving
the continued growth in demand for organic products in mainstream grocery
distribution channels. In addition, these trends have also supported a shift
in the distribution of natural foods products reflected by the growth in the
number of large natural foods supermarkets such as Whole Foods Markets and
Wild Oats Markets. Horizon believes that these trends will continue to grow as
the large "baby boom" generation continues to mature and raise families.
According to the Nutrition Business Journal, an industry publication, sales of
organic foods may represent less than one percent of total food sales,
providing significant growth potential.

The Company believes that, to date, the relative penetration of organic
dairy products in the total dairy industry has been less than the penetration
of other organic food products in their respective categories. The Company
believes that this is due, in part, to the difficulty of managing the supply,
production and distribution chain for perishable, refrigerated products. The
recent development of organic dairies, like the Company, is in response to
growing consumer demand for organic dairy products.

STRATEGY

Horizon's goal is to strengthen its position as the leading brand of organic
dairy products and to continue to drive the growth of the organic dairy
market. The key elements of Horizon's growth strategy include the following:

Build Brand Awareness. The Company believes that building the Horizon brand
and consumer loyalty will enable it to grow the organic dairy market and
capture the majority of that growth. The Company believes that its distinctive
product packaging, which stands out in crowded refrigerated dairy cases, is a
key element to its branding strategy. Horizon intends to build additional
brand awareness by continuing to educate consumers about the value of organic
products, conducting consumer and trade promotions and by increasing its
marketing spending as a percentage of sales. Horizon plans to focus its
marketing efforts initially in highly-developed mass markets which have
demonstrated market acceptance of organic products, such as Los Angeles, San
Francisco, Denver and New York City.

Expand Organic Fluid Milk Distribution in Mass Market. The Company has
focused its resources on penetrating conventional supermarkets with organic
fluid milk, which is a staple item for consumers with a high turnover rate for
food retailers. The Company believes that introducing organic fluid milk as
its initial product enables it to capture shelf space and gain credibility
with retailers while creating consumer awareness of the Horizon brand. As
demand for Horizon's organic fluid milk products develops in each conventional
supermarket, Horizon is then able to introduce other organic dairy products,
such as yogurt, cheese and butter.

Extend Brand Identity. The Company believes that it can continue to grow the
market for organic products through the introduction of additional organic
dairy and non-dairy products. The Company believes that its distinctive,
brightly-colored flying cow and earth logo appeals to a broad audience of
consumers, particularly mothers and children, and is extendible to additional
organic product categories. The Company intends to continue to build its
family of products both through the internal development of organic dairy
products which further leverage the Company's vertically-integrated
production, processing and distribution system as well as through
acquisitions, licensing and co-branding arrangements for other complementary
organic products. For example, Horizon recently acquired the Juniper Valley
Farms brand which includes new product categories such as organic orange
juice. The Company currently licenses its brand to Glenwood Foods, L.L.C. for
use in connection with the sale of organic eggs. In addition, the Company will
consider

35
<PAGE>

other licensing and co-branding arrangements where the Company's organic dairy
products can be used as ingredients in other organic products, such as cheese
on pizza.

Optimize Supply Chain Logistics. The Company intends to continue to focus on
improving the logistics of producing and processing organic fluid milk and
other organic dairy products, including reducing the transportation costs and
delivery time for organic farm milk and finished goods. Horizon began
operations with a single source of organic farm milk located in Wisconsin and
a fluid milk processor located in Iowa which provided the Company's organic
fluid milk to customers nationwide. Horizon has improved the efficiency of its
supply chain by adding geographically-dispersed organic farm milk producers
and processors. Horizon currently sources organic farm milk from producers in
six regions across the United States and uses five fluid milk processors.

Increase Organic Farm Milk Supply. Horizon believes that a strategically-
located, proprietary organic farm milk supply is a significant competitive
advantage in the organic dairy market. Horizon has established a proprietary
supply through its ownership of two organic dairy farms combined with a long-
term organic farm milk supply arrangement. In addition, with the recent
acquisition of the Juniper Valley Farms brand, the Company has acquired a
significant network of farm milk producers located in New York. The Company
intends to continue to expand its organic farm milk supply, both through
supply arrangements with dairy cooperatives and independent farmers as well as
through the possible establishment of additional Company-owned organic dairy
farms.

Optimize Use of Organic Farm Milk Components. Horizon believes that its
ability to sell all of the components of its organic farm milk at a premium
price is a key to increasing profitability and maximizing the value of the
Horizon brand. To achieve that objective, the Company has developed a full
line of organic dairy products which use all components of the organic farm
milk and a farm milk separator to capture excess butterfat, or "cream", which
is then used to make value added organic dairy products such as organic butter
and cream cheese. The separator also enables the Company to inventory for
later sale the organic premium of the components of the organic farm milk in
products such as cheese and non-fat dry milk powder.

Enter New Distribution Channels. Horizon believes that there is an
opportunity for growing the organic dairy market in additional distribution
channels such as food service, food ingredients and international markets. In
that regard, Horizon has entered into a technical services agreement to assist
Takanashi Milk Products, Ltd., a Japanese dairy, in establishing an organic
dairy in Japan to produce and market organic dairy products under the Horizon
brand.

COMPANY VALUES/PHILOSOPHY

Horizon was founded by Mark Retzloff and Paul Repetto out of their desire to
build an organic food business which could serve as a model for the production
of healthy foods using sustainable farm practices, and to apply their skills
and experience in the natural foods industry in a socially responsible manner.
Mark and Paul combined their efforts with the Company's current Chairman, Marc
Peperzak, owner of several of the largest dairy farms in the United States,
whose experience in the conventional dairy business, interest in organic dairy
farm practices and access to resources helped build the Company's Idaho Dairy.
Mark, Paul and Marc have developed a senior management team led by Barney
Feinblum, a natural foods industry veteran. Each member of the senior
management team has at least 20 years experience in the food industry, shares
the founders' vision and is committed to growing the Company.

36
<PAGE>

Horizon's commitment to conducting business in a socially responsible manner
includes producing the highest quality organic dairy products while supporting
sustainable agriculture principles and employing ethical business practices in
its dealing with all of its stakeholders. Horizon's Belief Statement is as
follows:

[Graphic including the caption Horizon(R) Beliefs with the following text
and the Horizon logo: We believe that organic agricultural practices are a
proven and sustainable method to produce food without environmental pollution
and resource degradation.

We believe that producing food using organic agricultural practices results
in products which are not only flavorful, but are safe, healthy and wholesome
as well.

We believe that food can and should be produced in harmony with nature, and
that animals used for food production should be raised and nurtured with
respect for their natural patterns.

We believe that for Horizon to prosper, we must conduct our business with
integrity and in a consistently ethical manner concerning relationships with
our employees, our suppliers, our consumers and the society at large.

We believe that Horizon's success depends on our ability to serve those who
buy our products. We seek to provide a climate of confidence, credibility and
satisfaction with our consumers and our customers by producing quality organic
dairy foods and services that cultivate repeat business.

We believe that a proper measure of Horizon's success is profitability,
because profits assure our ability to provide employment opportunities,
attract the capital required to grow, and serve as a validation of our beliefs
and practices.]

Horizon believes that organic products offer the following benefits:

Food Safety. The proliferation of organic foods and the growth of the
natural foods industry has been driven primarily by consumer concern with food
safety. Horizon's organic standards, which meet or exceed all currently
existing or proposed governmental certification standards, as well as all
significant private organic certification standards, prohibit the use of
antibiotics, growth hormones, synthetic pesticides and other farm chemicals
and genetic engineering.

Environmental Responsibility. According to industry reports, agriculture is
a significant contributor to the contamination of community water supplies as
a result of synthetic fertilizer and pesticide runoff.

37
<PAGE>

Moreover, there is increasing concern about the health of farm workers exposed
to agricultural chemicals. The Horizon organic dairy farm model forbids the
use of synthetic fertilizers, pesticides and herbicides and includes
comprehensive waste recycling and composting.

Animal Welfare. Organic farm practices emphasize access to fresh air and
exercise and prohibit injecting cows with growth hormones. Horizon strives to
maintain a healthy herd using these standard organic farm practices as well as
through milk parlor and farm cleanliness, close animal observation,
preventative care and the use of natural and homeopathic medications. The
Company does not treat its cows with antibiotics for any reason, including
disease treatment. Horizon believes that a clean-living cow makes a good glass
of milk.

Preserving Family Farms and Rural Communities. According to industry
reports, a significant percentage of small, family-owned farms cease
operations every year due to intense competition. The impact of this loss in
the rural communities in which these family farms predominate can be profound.
Horizon believes that the demand for organic products, organic feed and
organic farm milk in particular, has created a new market which is well-served
by small, family-owned farms. Horizon supplements its internal supply of
organic farm milk with purchases from dairy cooperatives and independent dairy
farms which consist of an aggregate of over 125 family-owned dairy farms. In
addition, over 500 other family-owned farms supply Horizon with organic
livestock feed and other organic ingredients for Horizon's organic products.

HORIZON ORGANIC DAIRY STANDARDS

Currently, there is a wide range of organic standards which are applied by a
variety of state agencies and private certification organizations. Organic
certification typically includes inspections of farm fields and operations,
processing and distribution facilities; detailed record-keeping and periodic
testing of soil and water; and review of the organic producer's comprehensive
"organic plan" which details farm practices, documents product inputs and
discusses all procedures. These procedures are designed to ensure that all
producers, processors and transporters are meeting the applicable organic food
standards. However, since some of these functions are outsourced, there is a
risk that a third party could cause the Company to lose its organic
certification with regard to some of the Company's product lots. See "Risk
Factors--Risk of Loss of Organic Certification".

The Company believes that its organic standards meet or exceed all currently
existing and proposed governmental certification standards, as well as all
significant private organic certification standards. The farm milk which
Horizon sources from certified organic dairy farms is produced by cows which
have not been treated with antibiotics or synthetic growth hormones, such as
rBGH, and which are fed 100% organic feed. The farm milk which Horizon sources
from newly-converted, certified organic dairy farms is produced by cows which
have not been treated with antibiotics or synthetic growth hormones, and which
are fed at least 65% organic feed for the first nine of the 12 months
preceding their first milking and 100% organic feed for the 90 days preceding
their first milking and thereafter. To be certified as organic, feed must be
grown on land that has been free of synthetic fertilizers, pesticides and
herbicides for at least three years. Furthermore, Horizon's organic farm milk
must be isolated from contact with conventional milk residue throughout the
production and distribution process, from milking, through transporting,
processing and packaging. All of Horizon's third party producers, processors
and milk transporters currently are meeting the applicable organic food
standards.

In December 1997, the federal government published proposed national
regulations to standardize organic certification requirements as part of the
Organic Foods Production Act which was enacted as part of the 1990 United
States Farm Bill. This law will provide for a minimum federal standard that
all organic producers will have to follow in order to be "certified" organic,
and will include a seal to provide consumers with assurance that products sold
as "organic" meet these minimum standards. The USDA comment period is
scheduled to end May 1, 1998 and Horizon, along with other organic dairy
producers, has been lobbying to bring the proposed standards in line with more
rigorous existing standards. The Organic Trade Association anticipates that
the final regulations will be implemented in 1999.

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<PAGE>

Horizon believes that the proposed regulations under the Organic Foods
Production Act, if adopted in the form initially proposed, would permit
competitors to sell fluid milk and other dairy products labeled as "organic"
which would not satisfy Horizon's internal organic standards. Horizon incurs
significant costs to produce organic products which adhere to its rigorous
standards, and competitors whose "organic" practices are not as rigorous may
be able to compete with Horizon on the basis of price by producing lower cost
"organic" milk and selling it at prices which undercut Horizon's prices.
Horizon does not intend to lower its organic standards and intends to continue
to compete on the basis of the quality and consistency of its products. There
can be no assurance that Horizon will be able to compete successfully against
lower cost competitors in any of its markets. In order to adhere to its
philosophy and maintain its rigorous standards, the Company may make
operational decisions that are inconsistent with maximizing short term
profits. However, the Company believes that such operational decisions will
result in long-term benefits to the Company and its stockholders by
maintaining the quality and reputation of the Company's products. See "Risk
Factors--Risks Related to the Implementation of the Proposed Federal Organic
Certification Regulations".

Horizon's fluid milk and dairy products are primarily certified organic by
Quality Assurance International, Inc., an accredited international private
certification firm which performs inspection and organic certification for a
variety of companies including Smuckers Beverage (a division of The J.M.
Smucker Company) and Ventura Coastal Corp. The Company selected Quality
Assurance International to certify its organic products because the Company
believes Quality Assurance International is one of the leading accredited
third-party certification groups in the United States. See "Risk Factors--Risk
of Loss of Organic Certification".

PRODUCTS

Approximately 70% of Horizon's total net sales in fiscal 1997 were from
sales of organic fluid milk products. The Company's next largest product line
was its organic yogurt, which comprised approximately 13% of its total net
sales and its organic butter products which comprised approximately 5.5% of
its total net sales for the same period. The Company believes that introducing
organic fluid milk as its initial product enables it to capture shelf space
and gain credibility with retailers while creating consumer awareness of the
Horizon brand. As demand for Horizon's organic fluid milk products develops in
each conventional supermarket, Horizon is then able to introduce other organic
dairy products, such as yogurt, cheese and butter. Although the Company
anticipates that its product mix will change over time as it introduces other
organic dairy products in accordance with this business strategy, the Company
does not believe that the product mix will change materially in the near term.

Organic Fluid Milk Products. Horizon currently markets eight SKUs of fluid
milk under the Horizon brand. Horizon recently acquired the Juniper Valley
Farms brand of organic products, which includes 22 SKUs of organic fluid milk.
The Company intends to transition the Juniper Valley Farms branded products to
the Horizon brand over the next 12 months.

The Horizon brand organic fluid milk products are made by processing organic
farm milk sourced from either the Company-owned dairy farms or other
strategically-located organic farm milk producers. The Company's processors
use standard dairy industry homogenization and pasteurization methods. See "--
Production and Processing".

The Horizon brand organic fluid milk products have distinct product
packaging consistent with the Company's trade dress theme. See "--Marketing".
The Company's sales and distribution strategy for its organic fluid milk
products includes a network of natural foods distributors, dairy distributors
and direct sales to supermarket chains. See "--Sales and Distribution".

Other Organic Dairy Products. Horizon currently markets 31 SKUs of other
(non-fluid milk) dairy products such as cheese, yogurt, butter, sour cream,
cottage cheese and eggs. Following organic fluid milk, the Company's next
largest product line, organic yogurt, has declined as a percentage of total
net sales as the Company has introduced additional organic dairy products.
Horizon's sales of organic yogurt products comprised approximately 13% of its
net sales with $4 million, $2.7 million and $2.1 million in sales

39
<PAGE>

in fiscal 1997, 1996 and 1995, respectively. Horizon's sales of organic butter
products comprised approximately 5.5% of its total net sales with $1.7 million
in fiscal 1997, up from $671,000 in fiscal 1996 when it was introduced. The
remainder of the Company's total net sales includes sales of its cheeses,
cottage cheese, cream cheese, sour cream and immaterial sales of non-dairy
products such as eggs and orange juice. Although the Company anticipates that
its product mix will change over time as it introduces other organic dairy
products in accordance with its business strategy, the Company does not
believe that the product mix will change materially in the near term.

YOGURT. Organic yogurt was the first product which the Company introduced
when it was founded. The Company currently sells 13 SKUs of organic yogurt in
a variety of flavors. Horizon is the leading brand of organic yogurt in
conventional supermarkets. Horizon's organic yogurts are made by a dairy
processor located in Wisconsin that combines the Company's organic skim milk
with an organic "yogurt base" sourced from other certified organic producers,
along with the Company's organic nonfat dry milk powder. The organic yogurt
base includes a certified organic enzyme, fruit (or other flavoring, as
applicable), and sugar. The Company's processor uses standard yogurt blending
and pasteurization methods. See "--Production and Processing". Although the
Company has chosen to use a single source for processing its organic yogurt
products, the Company believes that there are alternative sources available
which the Company could use without a material disruption to its business.

The Horizon brand organic yogurt products each carry the Horizon brightly-
colored flying cow and earth logo and bright colors, including, for certain
flavors, the red, yellow and blue colors which are part of the Company's trade
dress theme. See "--Marketing". The Company's sales and distribution strategy
for its organic yogurt products involves a network of natural foods
distributors, dairy distributors and direct sales to supermarket chains.
Because of its relatively long shelf life, the Company's yogurt is typically
stored at public warehouses located in San Francisco and Chicago and at a
warehouse located outside of New York City. See "--Sales and Distribution."

BUTTER. The Company introduced butter in 1996 and currently sells two SKUs,
salted and unsalted. Horizon's organic butters are made by a dairy processor
located in California that uses a standard churning process on the "cream"
which the Company produces at its Idaho Dairy and separates using its farm
milk separator. See "--Production and Processing--Processing". The organic
cream is mixed with an enzyme during the churning process. Although the
Company has chosen to use a single source for processing its organic butter
products, the Company believes that there are alternative sources available
which the Company could engage without a material disruption to its business.
See "--Production and Processing".

The Horizon brand butter products each carry the Horizon brightly-colored
flying cow and earth logo and bright colors as well as the red, yellow and
blue colors which are part of the Company's trade dress theme. See "--
Marketing". The Company's sales and distribution strategy for its organic
butter products involves a network of natural foods distributors, dairy
distributors and direct sales to supermarket chains. Because of its relatively
long shelf life, the Company's butter is typically stored at public warehouses
located in San Francisco and Chicago and at a warehouse located outside of New
York City. See "--Sales and Distribution'.

HARD CHEESE, COTTAGE CHEESE, CREAM CHEESE AND SOUR CREAM. The Company
currently sells 16 SKUs of cheese and sour cream, including block cheeses and
shredded cheeses. Horizon's organic cheese are made by several dairy
processors in Wisconsin that use standard cheese processing methods. All
cheese is made by combining 3% organic fluid milk with enzymes. The specific
enzyme used determines the flavor of the cheese. The process involves
curdling, followed by drying. A longer drying process produces a harder
finished cheese. For example, cottage cheese is harvested immediately after
the curdling process, prior to drying. Hard cheddar cheese is harvested after
being dried for an extended period of time. The Company's sour cream is
processed using the same method, but different enzymes and with no drying. The
Company's shredded cheeses are cut by the dairy processor. See "--Production
and Processing--Processing".

The Horizon brand cheese products each carry the Horizon brightly-colored
flying cow and earth logo and bright colors as well as the bright red, yellow
and blue colors which are part of the Company's trade dress

40
<PAGE>

theme. See "--Marketing". The Company's sales and distribution strategy for its
organic butter products includes a network of natural foods distributors, dairy
distributors and direct sales to supermarket chains. Because of its relatively
long shelf life, the Company's cheese and sour cream are stored at public
warehouses located in San Francisco and Chicago and at a warehouse located
outside of New York City. See "--Sales and Distribution."

The following table sets forth the Horizon organic product line:

THE HORIZON FAMILY OF ORGANIC PRODUCTS

FLUID MILK CHEESE YOGURT
<S> <C> <C>
Whole Milk, half gallon Mozzarella Cheese (8 oz.) Plain Fat Free Yogurt (48
(64 oz.) Shredded Mozzarella Cheese oz., 24 oz. and 6 oz.)
2% Reduced Fat Milk, (6 oz.) Vanilla Fat Free Yogurt (24
half gallon (64 oz.) Mozzarella Stick Cheese oz. and 6 oz.)
and quart (32 oz.) (6 oz.) Peach Fat Free Yogurt
1% Low Fat Milk, half Monterey Jack Cheese (6 oz.)
gallon (64 oz.) (8 oz.) Strawberry Banana Fat Free
Fat Free Milk, half Shredded Monterey Jack Yogurt (6 oz.)
gallon (64 oz.) and Cheese (6 oz.) Strawberry Fat Free Yogurt
quart (32 oz.) Sharp Cheddar Cheese (6 oz.)
1% Low Fat Chocolate (8 oz.) Apricot Mango Fat Free Yogurt
Milk, quart (32 oz.) Shredded Sharp Cheddar (6 oz.)
Half & Half, pint (6 oz.) Raspberry Fat Free Yogurt
(16 oz.) Reduced Fat Cheddar (6 oz.)
(8 oz.) Cappuccino Fat Free Yogurt
Shredded Reduced Fat (6 oz.)
Cheddar (6 oz.) Cherry Fat Free Yogurt
Grated Parmesan Cheese (6 oz.)
(3.5 oz.) Blueberry Fat Free Yogurt
(6 oz.)
</TABLE>
<TABLE>
<CAPTION>

OTHER DAIRY PRODUCTS NON-DAIRY PRODUCTS
<S> <C>
Butter, salted and unsalted (1 lb.) Extra Large White Eggs, dozen*
Small Curd Cottage Cheese (16 oz.) Large White Eggs, dozen*
Low Fat, Small Curd Cottage Cheese Jumbo White Eggs, dozen*
(16 oz.) Medium White Eggs, dozen*
Cream Cheese (8 oz.)
Neufchatel Cheese (8 oz.)
Low Fat Sour Cream (12 oz.)
Sour Cream (12 oz.)
</TABLE>
-------------------
* Designates products sold by Glenwood Foods, L.L.C. under license from
Horizon.

ORGANIC PRODUCTS CURRENTLY SOLD UNDER THE JUNIPER VALLEY FARMS BRAND

FLUID MILK NON-HOMOGENIZED FLUID MILK

Whole Milk, half gallon (64 oz.) and Whole Milk, half gallon (64 oz.)
quart (32 oz.) and quart (32 oz.)
2% Reduced Fat Milk, half gallon (64 1% Low fat Milk, half gallon (64
oz.) and quart (32 oz.) oz.) and quart (32 oz.)
1% Low Fat Milk, half gallon (64 oz.) Fat Free Milk, half gallon (64
and quart (32 oz.) oz.) and quart (32 oz.)
Fat Free Milk, half gallon (64 oz.)
and quart (32 oz.)
Half & Half, pint (16 oz.)
Heavy Cream, pint (16 oz.)

ASEPTIC MILK NON-DAIRY PRODUCTS

Whole Milk, quart (32 oz.) Orange Juice, half gallon (64 oz.)
2% Reduced Fat Milk, quart (32 oz.) and quart (32 oz.)
Fat Free Milk, quart (32 oz.)
2% Chocolate Milk, quart (32 oz. and
cup (8 oz.)
Lactose Free Fat Free Milk, quart
(32 oz.)

MARKETING

Horizon's marketing strategy is designed to continue to build awareness of
the Horizon brand and generate consumer loyalty. The Company believes that its
distinctive product packaging, which stands out in crowded refrigerated cases,
is a key element to its branding strategy. All of the Company's organic fluid
milk and other dairy products carry the Company's distinctive, brightly-colored
flying cow and earth logo. In

41
<PAGE>

addition, all of the Company's organic fluid milk products and certain of the
Company's other organic dairy products are packaged using the bright red,
yellow and blue colors which are part of the Company's trade dress theme. In
addition, the Company uses its packaging to carry educational information
about the value of organic products. For example, the Company's half gallon
fluid milk product packaging recently carried information about the Organic
Foods Production Act, including the Company's position on the Act and the
USDA's address to which consumers could send comments.

Horizon also engages in other traditional consumer and trade marketing
activities, including public relations activities, consumer coupons, product
sampling and trade promotions. Horizon plans to increase its marketing
spending as a percentage of sales as part of its strategy to increase consumer
awareness of the Horizon brand and the value of organic products through
additional consumer-oriented marketing activities, such as consumer promotions
and advertising. Horizon plans to focus these efforts initially in highly-
developed mass markets which have demonstrated market acceptance of organic
products, such as Los Angeles, San Francisco, Denver and New York City.

Horizon's marketing strategy also includes leveraging the Company's
increasingly well-known brand by extending it to new product categories. For
example, the Company currently licenses its brand to Glenwood Foods, L.L.C.
for use in connection with the sale of organic eggs. In addition, the Company
will consider other licensing and co-branding arrangements where the Company's
organic dairy products can be used as ingredients in other organic products,
such as cheese on pizza.

SALES AND DISTRIBUTION

Horizon's sales and distribution strategy is focused on building the Horizon
brand nationwide in conventional supermarkets while maintaining its leading
position in natural foods stores. Horizon's sales and distribution strategy is
similar for both its organic fluid milk products and its other organic dairy
products. Horizon currently offers 43 SKUs of premium-priced organic products
under the Horizon brand. Horizon estimates that it is currently selling its
organic products in over 5,000 retail locations, including conventional and
natural foods supermarkets, specialty retailers and natural foods stores.
Horizon distributes its products to retailers across the United States through
natural foods distributors, dairy distributors and directly to supermarket
chains. Horizon's sales team includes regional sales managers who are
responsible for all selling activities and customer relationships as well as
managing a network of food brokers to facilitate selling and distribution to,
and in-store merchandising for, retailers. The field sales personnel work
closely with Horizon's internal customer service team to meet the daily order
and logistic needs of the Company's customers. In addition, Horizon runs
national marketing programs with the two largest natural foods retailers,
Whole Foods Markets and Wild Oats Markets.

Although Horizon's primary markets were initially natural foods supermarkets
and other natural foods stores, a significant part of Horizon's sales growth
has occurred through the Company's increasing penetration of conventional
supermarkets. According to SPINS/A.C. Nielsen, for the four weeks ending
February 28, 1998, Horizon was the leading brand of organic fluid milk sold in
conventional supermarkets, with a market share of 64% and a combined market
share of 73%, including the Juniper Valley Farms brand which the Company
recently acquired. Additionally, for the same period, Horizon achieved 20% ACV
distribution of its organic fluid milk, up eight percentage points from the
prior year.

The Company believes it must continue to optimize efficiencies in its
distribution channels and manage supply chain logistics nationwide in order to
maximize profitability. The Company provides next-day delivery to most of its
retail customers of its organic fluid milk products because its organic fluid
milk processors are located within one day's drive of the Company's major mass
markets, permitting delivery of finished goods with maximum shelf life.
Finished products with longer shelf lives, such as cheese and yogurt, are
currently stored at public warehouses located in San Francisco and Chicago and
at a warehouse located outside of New York City, and are shipped nationally
through third-party trucking companies as orders are received from customers.
See "--Products".

In order to support its national distribution objectives, Horizon has
established a national delivered pricing policy with three pricing zones
across the United States. The pricing zones are determined by delivery

42
<PAGE>

distance from the Company's regional fluid milk processor or warehouse. In
addition, the Company offers allowances to customers who pick up products.

Horizon's distributors generally deliver the Company's products directly to
the retail stores. Horizon's retail supermarket chain customers typically take
delivery of Horizon's products at the customer's distribution warehouse. In
fiscal 1997, the Company's largest account was United Natural Foods, a
national distributor which is comprised of four regional distributors who have
independent purchasing arrangements with the Company. For such period, these
four regional distributors accounted for approximately 25% of the Company's
sales.

In June 1998, Horizon entered into agreements with Suiza, a leading
manufacturer and distributor of fresh milk and related dairy products, shelf-
stable and refrigerated food and beverage products, frozen food products,
coffee and plastic containers. The Company believes that its relationship with
Suiza will provide it with opportunities to enhance the Company's market
penetration in a number of key markets nationally. The Company's arrangement
with Suiza includes processing and distribution agreements with certain of
Suiza's subsidiaries. Horizon's relationship with Suiza will initially include
five-year processing and distribution agreements with two of Suiza's
subsidiaries: Model Dairy, a fluid milk processor located in Reno, Nevada,
which currently processes organic fluid milk for Horizon; and Garelick Farms,
a fluid milk processor and distributor with several locations in the
Northeastern United States. The processing and distribution agreements will
generally provide that both Model Dairy and Garelick Farms will distribute all
SKUs of Horizon's organic fluid milk products which are available for sale in
their respective territories. Horizon and Suiza intend to enter into other
agreements pursuant to which Suiza and its affiliates will process and/or
distribute Horizon organic fluid milk and other Horizon organic dairy
products. In particular, Horizon and Suiza intend to enter into an agreement
for a Suiza subsidiary to process and distribute certain organic dairy
products for Horizon on a national basis. See "Prospectus Summary--Recent
Events" and "Risks Factors--Risks Related to the Company's Relationship with
Suiza Foods Corporation".

PRODUCTION AND PROCESSING

Horizon believes that one of its most significant competitive advantages is
its strategically-located, proprietary organic farm milk supply and its
ability to maximize the use of all components of the organic farm milk.
Horizon established an extensive, vertically-integrated production, processing
and distribution system, which includes two Company-owned organic dairy farms,
relationships with strategically-located organic farm milk producers, a
Company-owned farm milk separator and a network of geographically-dispersed
dairy processors.

Since 1995, Horizon has focused its resources on improving this vertically-
integrated system to continuously reduce the cost of producing, processing and
transporting organic fluid milk to retail stores and to improve product shelf
life. Horizon began operations with a single source of organic farm milk
located in Wisconsin and a fluid milk processor located in Iowa which
delivered the Company's organic fluid milk to customers nationwide. Horizon
has improved the efficiency of its supply chain by adding geographically-
dispersed organic farm milk producers and processors. Horizon currently
sources organic farm milk from producers in six regions across the United
States and uses five fluid milk processors.

Organic Milk Supply. The Company uses its organic farm milk supply in the
production of all of its organic dairy products, including its organic fluid
milk products as well as its other organic dairy products. See "--Products".
The majority of Horizon's organic farm milk is produced at the Company's Idaho
Dairy, where the Company also grows a significant amount of organic feed and
performs first stage farm milk processing. The Idaho Dairy is the largest
organic dairy in the country, with over 4,000 certified organic cows. The
Idaho Dairy encompasses over 3,800 acres, including almost 2,000 acres of
certified organic crop land. In fiscal 1997, the Idaho Dairy provided over 75%
of Horizon's requirements for organic farm milk. The Company uses a farm milk
separator at its Idaho Dairy to capture excess butterfat, or "cream", which is
then used to make value added organic dairy products such as butter and cream
cheese. The separator also enables the Company to inventory for later sale the
organic premium of the organic farm milk in products such as cheese and non-
fat dry milk powder.

43
<PAGE>

Horizon recently completed construction of the Maryland Dairy, a
strategically-located milk supply, from which Horizon supplies farm milk for
products sold in the Eastern United States. The Maryland Dairy encompasses
over 450 acres, which the Company anticipates will be able to produce
certified organic feed on the farm land in the third quarter of 2000. The
Maryland Dairy began milking its first certified organic cows in March 1998.
The Company currently has a permit to maintain 556 certified organic cows at
the Maryland Dairy, while the milk parlor is designed to milk 1,000 cows per
day. The Company's ability to operate the Maryland Dairy profitably depends,
in part, on its ability to secure operating permits for additional cows. The
Company plans to apply for additional permits over the next 24 months. The
permitting process will require that the Company make additional capital
expenditures at the Maryland Dairy to accommodate the addition of such cows.
There can be no assurance that the Company will be able to obtain the
requisite permits to increase the number of cows at the Maryland Dairy. See
"Risk Factors--Risks Related to Establishing New Organic Dairy Farms".

The Company sources the remainder of its farm milk supply from small
independent farmers and dairy cooperatives, including CROPP, a dairy
cooperative consisting of over 100 independent dairy farmers located
principally in Wisconsin. CROPP sells organic fluid milk and other dairy
products in competition with the Company under the Organic Valley brand. In
connection with the Juniper Valley Farms brand acquisition, Horizon acquired
supply agreements with a network of certified organic dairy farmers in New
York. Horizon intends to supply products to markets in the Northeastern United
States sourced from these organic dairy farmers.

As with most agricultural products, the supply of organic farm milk used by
the Company can be affected by a number of factors beyond the Company's
control. The Company is particularly susceptible to these factors because
there are relatively few qualified suppliers and because more than half of the
Company's current milk supply originates from the Company's dairy farms. See
"Risk Factors--Risks Related To Organic Farm Milk Cost and Supply".

Processing. Organic fluid milk is produced to order and must be shipped
immediately so that it arrives at retail stores with the maximum shelf life.
Deliveries of organic farm milk to dairy processors must be timed to arrive
when the dairy processors have cleaned their equipment of all conventional
milk residue. The Company's other organic dairy products have longer shelf
lives and therefore do not have the same timing requirements as the Company's
organic fluid milk products, however processors must be located within a
reasonable distance from the Company's sources of organic farm milk. To
address processing logistics, Horizon has a strategically-located, nationwide
network of processors who manufacture and package the organic fluid milk and
other organic dairy products for distribution to Horizon's customers. See "--
Products".

Horizon has a national network of 17 dairy processors across the United
States. The dairy processors include five fluid milk processing locations and
twelve dairy product processors which process the Company's organic farm milk
into chocolate milk, aseptic milk, yogurt, butter, cheese and sour cream. The
Company also uses three refrigerated warehouses (two public warehouses and one
customer warehouse) where it inventories organic dairy products. As part of
the acquisition of the Juniper Valley Farms brand, Horizon entered into a
long-term processing agreement with Worcester as a result of which Horizon
believes that it will be able to lower the cost of its organic dairy products
by directing an increased volume of organic farm milk to Worcester and its
affiliated processors.

44
<PAGE>

or sale in the Western United States and that Garelick Farms will have an
option to become Horizon's processor of organic fluid milk in certain states
in New England. Horizon and Suiza intend to enter into other agreements
pursuant to which Suiza and its affiliates will process and/or distribute
Horizon organic fluid milk and other Horizon organic dairy products. In
particular, Horizon and Suiza intend to enter into an agreement for a Suiza
subsidiary to process and distribute certain organic dairy products for
Horizon on a national basis. See "Prospectus Summary--Recent Events" and "Risk
Factors--Risks Related to the Company's Relationship with Suiza Foods
Corporation".

Transportation. Transportation costs represent a significant portion of
Horizon's costs of sales. Horizon outsources all of the inbound and outbound
transportation of organic farm milk from the producers to the processing
plants as well as the transportation of finished goods from the processing
plants to the point of distribution. Horizon continuously strives to reduce
transportation costs by strategically locating producers and processors as
close as possible to customers.

ACQUISITIONS

Horizon recently completed the acquisition of the Juniper Valley Farms brand
from Worcester. Juniper Valley Farms is the leading brand of organic fluid
milk in the metro New York market, the largest mass market for organic fluid
milk sales in the United States. In connection with the acquisition of the
Juniper Valley Farms brand, Horizon also acquired supply agreements with a
significant network of organic dairy farmers in New York and entered into a
long-term processing agreement with Worcester. The Company believes that the
acquisition will enable the Company to increase its market penetration in the
Northeastern United States through access to a complementary production and
distribution system. The Company intends to transition the Juniper Valley
Farms branded products to the Horizon brand over the next 12 months. See "Risk
Factors--Potential Difficulties of Integrating Juniper Valley Farms
Operations".

The Company may supplement its internal growth through additional strategic
acquisitions of organic dairy businesses. The Company is not currently
pursuing any specific acquisitions. See "Risk Factors--Risks Related to
Internal Growth Strategy and Possible Acquisitions".

COMPETITION

The dairy business is highly competitive. It consists of a range of
competitors, including large, conventional dairies, large food companies with
well-established dairy product brands and retailers with private-labeled fluid
milk and other products which together occupy a significant portion of the
available shelf space in Horizon's target retail markets. Most of these
competitors have greater financial, operational and marketing resources than
Horizon. Horizon believes that the proposed regulations under the Organic
Foods Production Act, if adopted in the form initially proposed would permit
competitors to sell fluid milk and other dairy products labeled as "organic",
which would not satisfy Horizon's own organic standards. Competitors that
produce "organic" products to less rigorous standards may have lower
production costs than Horizon and thus be able to undercut Horizon's prices.

The Company's principal competitors in the market for organic fluid milk
vary by region and include Organic Valley/CROPP Cooperatives (which is
marketed by CROPP, a dairy cooperative located in Wisconsin which supplies the
Company with organic fluid milk), Organic Cow of Vermont, Inc. (a regional
organic dairy located in New England), Alta Dena Certified Dairy (a regional
organic dairy located in Southern California) and Straus Family Creamery (a
regional organic dairy located in Northern California). Many of these
competitors also sell other organic dairy products in competition with Horizon
on a national basis.

45
<PAGE>

Northern California). In addition, Horizon expects increased competition from
both new and existing competitors in its markets and there can be no assurance
that the Company will be able to compete effectively in the future. See "Risk
Factors--Risks Related to the Implementation of the Proposed Federal Organic
Certification Regulations" and "--Competition".

INTELLECTUAL PROPERTY RIGHTS

The Company's logo and product packaging are integral to the success of the
Company, and the Company intends to take action to protect against imitation
of its logo and packages and to protect its trademarks and copyrights as
necessary. The Company currently has five registered trademarks and three
trademark applications pending. The Company's trademark registrations can be
renewed perpetually provided that the Company files an affidavit with the
United States Patent and Trademark Office between the fifth and sixth year
anniversary of the trademark registration date which states that the Company
has been using the registered trademark on a continual basis in interstate
commerce; and further provided that the Company files a renewal notice at the
end of each ten year anniversary of the trademark registration date. The
Company's five trademark registrations were obtained between 1994 and 1996 and
will be able to be renewed beginning 2004. There can be no assurance that
other third parties will not infringe or misappropriate the Company's
trademarks, trade dress and other proprietary rights.

In addition, Horizon has developed substantial trade secrets and know-how
regarding the operation of organic dairy farms and caring for livestock
without the use of antibiotics or other drugs. In addition, Horizon has
proprietary product formulations and processes and has built up proprietary
sources of organic ingredients. However, there can be no assurance that some
or all of the trade secrets and other know-how that Horizon considers
proprietary could be developed, could otherwise become known by others or
could be deemed to be in the public domain. See "Risk Factors--Risks
Associated with Reliance on Intellectual Property Rights".

GOVERNMENT REGULATION

Organic Certification. The federal government has proposed national
regulations to standardize organic certification requirements as part of the
Organic Foods Production Act which was enacted as part of the 1990 United
States Farm Bill. The final regulations are expected to be implemented in
1999. Horizon believes that its own long-standing rigorous standards exceed
both the existing organic certification requirements and the proposed
regulations under the Organic Foods Production Act. See "--Horizon Organic
Dairy Standards".

United States Dairy Support Program and Federal Milk Marketing Orders. The
Company's primary raw ingredient for its organic dairy products is organic
farm milk. The wholesale price of farm milk purchased from dairy producers by
dairy processors for fluid milk bottling is determined based on a combination
of factors including supply and demand and federal and state regulations. The
federal government regulates minimum farm milk pricing through federal market
orders and price support programs, and state governments can regulate farm
milk pricing by establishing their own market order programs or by forming
compacts that establish minimum prices for farm milk. Organic milk is
presently considered to be the same as farm milk for federal and state minimum
pricing purposes. The Company pays organic dairy producers, on a current
basis, amounts significantly in excess of the minimum prices required by
federal, state or regional authorities. As a result of these regulations, the
Company also must pay "pooling charges" and "compact over-order charges" and
administrative assessments for government mandated marketing programs. These
pooling, compact and administrative assessment charges are assessed
retroactively on a monthly basis, and the pooling and compact charges are not
known or predictable in advance. Should the amount of such charges increase to
levels higher than anticipated by the Company, or should the Company become
obligated to pay charges under other state programs, as it does in New
England, its business, financial condition and results of operations may be
materially adversely affected. For fiscal 1997, the Company paid over $500,000
for pooling, compact and administrative assessment charges.

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<PAGE>

On a monthly basis federal and state market orders determine the minimum
price processors are required to pay for farm milk. Farm milk which is used to
produce fluid milk is categorized as Class I, cultured products and ice cream
as Class II, and butter, powdered milk and hard cheese as Class III and Class
III-A. The market orders set the "basic formula price" per one hundred pounds
of Class III milk, and establish incremental increases in the price for Class
I and Class II milk. Class I differentials are based on the location of the
plant while Class II differentials are the same in all market orders.
Additionally, processors pay a "butterfat differential" based on whether the
milk contains more or less than 3.5% butterfat.

The price actually paid by processors is based on the market order price
discussed above plus administrative and handling fees and premiums that may be
shared by the cooperative or independent producer. Cooperatives also generally
provide a receiving credit to processors which is based on processing plants
receiving deliveries evenly seven days a week. Payments for the market order
price and for the Class I and butterfat differentials are coordinated through
the market order administrator, but payments for premiums and other fees
charged by the producer are made directly to the cooperative or independent
producer. As a result of this pricing mechanism, processors in the same market
order areas pay essentially the same price for farm milk, and there is rarely
any shortage in the amount of farm milk available for Class I or Class II
products. Dairy producers receive a minimum blended price for their farm milk
based upon the total "pool" of dollars paid by processors in a given
geographical region and pursuant to these regulations. This process is known
as "pooling" and the difference between the farmers' blended or uniform price
and the amount actually paid by the processor for the milk is a "pooling
charge".

The Company contracts with milk processors to process fluid milk and is
responsible through those processors for these minimum farm milk prices,
pooling charges, compact charges and administrative assessments, the costs of
which are passed through to the Company by the processors of the organic milk.
As a practical matter, however, the Company pays the organic dairy producers
amounts significantly in excess of the minimum prices required by federal,
state or regional authorities. The "pooling" of minimum price milk proceeds by
these regulatory authorities does affect the actual minimum payments received
by organic dairy producers and can affect the Company's total costs which are
tied through milk supply contracts to the underlying formula prices.

In addition, states in New England have established, and certain other
states are in the process of attempting to form, regional milk-price compacts
designed to provide farmers within the compact states with a minimum price
which will result in higher milk prices than the federally mandated minimum
prices. For example, the Northeast Interstate Dairy Compact has resulted in
farm milk prices higher than federal order minimum prices. These charges are
assessed as "compact over-order charges." As with the federal milk market
orders, these charges are not known or predictable in advance and may increase
the Company's costs.

Federal price support programs set the price the federal government will pay
for certain products such as hard cheese and non-fat dry milk; this support
price program can influence the Class III and Class III-A prices for milk
which in turn can impact the fluid milk price which is derived from the Class
III price. The federal government is phasing out price supports through 1999,
at which time price supports will be replaced with a loan program under which
loans for specified products will be available at the reduced 1999 support
price.

On November 6, 1997, a federal judge in Minnesota enjoined the USDA from
collecting Class I differentials in most federal market orders that establish
the federally mandated minimum price of farm milk, beginning with November
farm milk sales. The USDA has obtained a stay of this ruling pending the
outcome of the USDA's appeal to the U.S. Court of Appeals for the 8th Circuit.
The outcome of this litigation is uncertain. Additionally, the USDA has
proposed new rules for the federal milk marketing program which have been
published for public comment. The comment period expires April 30, 1998. The
USDA has recently rejected a proposal to establish a temporary price floor for
farm milk. The outcome of the USDA's other proposed rules are uncertain.

47
<PAGE>

Since Horizon, as a milk processor, pays significantly more than any
regulated minimum prices, management does not believe that these matters
should have a material adverse effect on the Company's business; however,
neither the outcome of the court proceedings, the final form of any new
federal regulations or existence or location of state compacts, the raw milk
price level, pooling or compact charges, nor the effect of such matters on the
Company can be predicted with any certainty. See "Risk Factors--Possibility of
Adverse Effects Resulting From United States Dairy Support Program and Federal
Milk Marketing Orders".

CAFO Regulations. The United States Environmental Protection Agency (EPA)
and various state environmental agencies regulate Concentrated Animal Feed
Operations (CAFOs) to ensure compliance with animal waste management
limitations. CAFOs with more than 1,000 Animal Units (AUs) or those with more
than 300 AUs discharging directly into the waters of the United States are
required to obtain a National Pollution Discharge Elimination System (NPDES)
permit. CAFOs are required to limit discharge of animal waste through lined
waste water retention structures (i.e., lagoons) and are subject to site
investigation for analysis of compliance. Horizon management believes that
those of its farms which qualify as CAFOs are presently in compliance with
CAFO regulations. These regulations have not had a material impact on the
Company's level of capital expenditures, earnings or competitive position,
but, because of the evolving nature of such regulations, management is unable
to predict the impact such regulations may have in the foreseeable future.

Other Environmental Regulations. The Company is subject to certain federal,
state and local environmental regulations. These laws include, but are not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act,
as amended; the Federal Water Pollution Control Act; and their state and local
counterparts and equivalents.

The Company's facilities discharge biodegradable wastewater into municipal
waste treatment facilities at levels that require the Company to pay monthly
wastewater surcharges to municipal water treatment authorities. These
authorities may, however, require the Company to limit the level of discharges
and construct pre-treatment facilities or take other action to reduce effluent
discharge in the future.

The Company maintains above-ground or underground petroleum storage tanks at
two of its facilities. These tanks are periodically inspected to determine
compliance with applicable regulations. The Company may be required to make
expenditures from time to time in order to remain in compliance with such
regulations.

Public Health Regulations. Horizon is extensively regulated under federal,
state and local laws. Regulation at the federal, state and local levels is
subject to change. As a manufacturer and distributor of food products, the
Company is subject to the Federal Food, Drug and Cosmetic Act and regulations
promulgated thereunder by the Food and Drug Administration (FDA). This
comprehensive regulatory scheme governs manufacturing (including composition
and ingredients), labeling, packaging and food safety. The FDA regulates
manufacturing practices, including quality assurance programs, for foods
through its current good manufacturing practices and regulations. In addition,
the FDA specifies the standards of identity for certain foods, including many
of the products sold by the Company, prescribes the format and content of
certain nutrition information required to appear on food product labels and
approves and regulates claims of health benefits of food products.

In addition, the FDA enforces the Public Health Services Act and regulations
issued thereunder, which authorize regulatory activity necessary to prevent
the introduction, transmission or spread of communicable diseases. These
regulations require, for example, pasteurization of milk and milk products.
The Company and its products are also subject to state and local regulation
through such measures as the licensing of dairy manufacturing facilities,
enforcement by state and local health agencies of state standards for the
Company's products, inspection of the Company's facilities and regulation of
the Company's trade practices in connection with the sale of dairy products.

48
<PAGE>

Each of the Company's processors maintains quality control laboratories to
test milk, other ingredients and finished products, including Horizon's
products. Product quality and freshness are essential to the successful retail
distribution of dairy and refrigerated dairy products. To monitor product
quality at its facilities, the Company maintains quality control programs to
test products during various processing and packaging stages. Each dairy
manufacturing facility has its own staff of technicians who monitor products
to maintain high quality formulations and to protect against contamination.

Employee Safety Regulations. The Company is subject to certain health and
safety regulations, including regulations issued pursuant to the Occupational
Safety and Health Act of 1970, as amended (OSHA). These regulations require
the Company to comply with certain manufacturing, health and safety standards.

Compliance with existing or new regulations may require the Company to make
significant capital expenditures and otherwise to incur higher costs, either
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company may be
subject to additional laws or regulations administered by the USDA or other
federal, state, foreign or local regulatory authorities, the repeal of laws or
regulations, or more stringent interpretations of current laws or regulations,
from time to time in the future. The Company cannot predict the nature of such
future laws, regulations, interpretations, or applications, nor can it predict
what effect additional government regulations or administrative orders, when
and if promulgated, would have on its business in the future. Such laws could,
however, require the reconfiguration of production, processing and
transportation methods of the Company's products, including but not limited to
more onerous food safety, labeling, and packaging requirements; increased
compliance regulations for waste management; increases in transportation
costs; higher costs under the Federal Milk Marketing Order System or similar
state programs; and greater uncertainty in production and sourcing estimates.
Any or all such government actions could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Possibility of Adverse Effects Due to Public Health, Safety and
Environmental Regulations".

EMPLOYEES

As of March 31, 1998, the Company had 121 full-time employees and two part-
time employees. Management believes that the Company's relations with its
employees are good.

PROPERTIES/FACILITIES

Horizon has two production facilities, the Idaho Dairy and the Maryland
Dairy. The Idaho Dairy consists of over 3,800 acres, including 22,755 square
feet of production and office space. Horizon owns this property, which serves
as security for the Idaho Dairy loan with Farm Credit Services and the Term
Loan with U.S. Bancorp. The Maryland Dairy consists of over 450 acres,
including 109,059 square feet of production and office space (including
barns). Horizon owns this property which serves as security for the Term Loan
with U.S. Bancorp and two Term Loans with Peoples Bank of Kent County,
Maryland. Horizon also leases a 13,050 square foot facility in Longmont,
Colorado for its corporate headquarters. The Company believes that its
facilities are suitable for the Company's purposes. See Note 9 to the
Company's Consolidated Financial Statements.

LEGAL PROCEEDINGS

From time to time, the Company may become involved in or subject to various
litigation and legal proceedings incidental to the normal conduct of the
Company's business. The Company is not involved in any material legal
proceedings.

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<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
April 30, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Marcus B. Peperzak(1)........ 49 Chairman of the Board of Directors
President, Chief Executive Officer and
Barnet M. Feinblum(1)........ 50 Director
Vice President, Marketing, and Secretary and
Paul B. Repetto.............. 61 Director
Mark A. Retzloff............. 49 Vice President, Sales and Director
Don J. Gaidano............... 49 Vice President, Finance & Administration,
Chief Financial Officer, Treasurer and
Assistant Secretary
Jay C. Wilson................ 49 Vice President, Operations
J. Thomas Clark(2)........... 49 Director
Clark R. Mandigo II(3)....... 55 Director
Thomas D. McCloskey, Jr.(3).. 51 Director
Richard L. Robinson(2)(3).... 68 Director
</TABLE>
- ---------------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee

Marcus B. Peperzak has served as a director of the Company since April 1994
and Chairman of the Board of Directors since November 1997. Since October
1973, Mr. Peperzak has held the position of Chief Executive Officer of Aurora
and its affiliates, one of the nation's largest production dairy farms. Mr.
Peperzak received a B.S. degree from the University of California at Berkeley
and completed the Harvard Business School Agribusiness Executive Program.

Barnet M. Feinblum has served as the President, Chief Executive Officer and
a director of the Company since May 1995. From July 1993 through March 1995,
Mr. Feinblum was the President of Natural Venture Partners, a private
investment company. From June 1992 until August 1993, Mr Feinblum served as
the Vice Chairman of Celestial Seasonings, Inc., a large herbal tea company
("Celestial"). From August 1976 until June 1992, Mr. Feinblum held various
positions with Celestial, including President, Chief Executive Officer, Chief
Operating Officer, Vice President--Finance and Chairman of the Board of
Directors. Mr. Feinblum received a B.S. degree from Cornell University and a
M.B.A. from the University of Colorado.

Paul B. Repetto, a co-founder of the Company, has served as Secretary and a
director of the Company since December 1991. Mr. Repetto served as the
Company's Vice President, Operations from December 1991 until December 1997
and is currently serving as the Company's Vice President, Marketing. From 1988
to December 1991, Mr. Repetto served as President of Westbrae/Little Bear
Natural Foods, the main unit of Vestro Foods, a public company marketing a
wide variety of food products. Prior to 1988, Mr. Repetto was President of
Natural Protein Products, a natural snack company he acquired. Prior to 1978,
Mr. Repetto held senior positions with private advertising agencies. Mr.
Repetto has served on the Steering Committee of the Organic Foods Alliance and
on the Board of the Organic Foods Production Association of North America, the
predecessor organizations to the Organic Trade Association. Mr. Repetto
received a B.S. degree from the Massachusetts Institute of Technology.

Mark A. Retzloff, a co-founder of the Company, has served as a director of
the Company since December 1991. Mr. Retzloff has held several positions with
the Company, including President and Treasurer from December 1991 to May 1995,
Vice President, Sales and Marketing and Treasurer from May 1995 to May 1997,
and Vice President, Sales since May 1997. Mr Retzloff co-founded Alfalfa's,
Inc., a natural foods supermarket chain, and served as its President and
Chairman of the Board of Directors from July 1978 to June 1990. Mr. Retzloff
also co-founded a national chain of natural foods grocery stores under the
trade name

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<PAGE>

"Rainbow Grocery" with which he was employed from 1974 through 1979. Mr
Retzloff has served on the Board of Directors of the Organic Trade Association
since September 1992 and as its President since September 1996. Mr. Retzloff
received a B.S. degree from the University of Michigan.

Don J. Gaidano has served as Vice President, Finance & Administration, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since May
1997. From April 1994 until April 1997, Mr. Gaidano worked as a private
financial consultant for food manufacturers and distributors. From 1974 until
April 1994, Mr. Gaidano held various positions with Bromar, Inc., a food
brokerage business, including Executive Vice President, Chief Financial
Officer, Controller, Corporate Secretary, Treasurer and a director. Mr.
Gaidano received a B.S. degree from the University of Santa Clara and is a
Certified Public Accountant.

Jay C. Wilson has served as Vice President, Operations of the Company since
March 1998. From April 1996 until March 1998, Mr. Wilson served as Vice
President of Business Development at Dole Foods Hawaii, a division of Dole
Food Company, Inc. From January 1992 until April 1996, Mr. Wilson worked in
two divisions of Borden, Inc., as the Region Operations Manager for Meadow
Gold Dairies Western Region, and as President and General Manager of Meadow
Gold Dairies Hawaii. Mr. Wilson received a B.S. degree and a M.B.A. from the
University of Minnesota.

J. Thomas Clark has served as a director of the Company since April 1994.
Since November 1978, Mr. Clark has served as the President of Clark's Market,
an independent grocery store, and in July 1995, he founded Clark's Natural
Foods, a natural foods store. Mr. Clark received a B.S. degree from the
University of Colorado.

Clark Mandigo II has served as a director of the Company since July 1996.
Since 1991, Mr. Mandigo has been self-employed as a business consultant and
investor and has owned an interest in a Papa John's Pizza franchise since
April 1995. He currently serves as a director of Lone Star Steakhouse & Saloon
Inc., a retail restaurant chain and as a Trustee of Accolade Funds. Mr.
Mandigo received a B.A. and a J.D. degree from the University of Kansas.

Thomas D. McCloskey, Jr. has served as a director of the Company since April
1994 and served as Chairman of the Board of Directors from May 1994 until
November 1997. Mr. McCloskey has served as Chairman of Cornerstone Holdings,
LLC (and predecessor corporation), an investment firm since 1981. Mr.
McCloskey received a B.A. degree from the University of Notre Dame and a
M.B.A. from The Wharton School of the University of Pennsylvania.

Richard L. Robinson has served as a director of the Company since July 1996.
Mr. Robinson has been the Chairman and Chief Executive Officer of Robinson
Dairy, Inc. since 1975. Mr. Robinson serves as a director of Asset Investors,
Inc. and U.S. Exploration, Inc. Mr. Robinson received a B.S. degree from
Colorado State University.

Pursuant to the Stockholder Agreement between the Company and Suiza, Suiza
will be entitled to designate one person for the slate of directors
recommended to the Company's stockholders for election to the Company's Board
of Directors (the "Board") until such time as Suiza owns less than five
percent of the Company's Common Stock based on the issued and outstanding
Common Stock, with certain exceptions. The Company's Board has adopted a
resolution to increase the size of the Board from eight persons to nine
persons effective upon the closing of the Concurrent Placement, which will
occur immediately after the closing of this offering. Suiza is expected to
designate a representative to serve as a Class I director no later than five
days after the closing of the Concurrent Placement. See "Prospectus Summary--
Recent Events" and "Description of Capital Stock--Concurrent Placement".

BOARD OF DIRECTORS

The Company currently has eight authorized directors. In April 1998, the
Company's Board approved, subject to stockholder approval, the amendment and
restatement of the Company's Certificate of

51
<PAGE>

Incorporation to provide for, among other things, a classified Board. In
accordance with the terms of the Company's Certificate of Incorporation, the
terms of office of the Board will be divided into three classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in
1999 and which will initially include Messrs. Retzloff and Clark and the Suiza
designee; Class II, whose term will expire at the annual meeting of
stockholders to be held in 2000 and which will initially include Messrs.
Repetto, Mandigo and Robinson; and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2001 and which will initially
include Messrs. Feinblum, McCloskey and Peperzak. At each annual meeting of
stockholders, beginning with the 1999 annual meeting, the successors to
directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following
election or until their successors have been duly elected and qualified.

COMMITTEES

The Board currently has three standing committees, the Executive Committee,
the Audit Committee and the Compensation Committee.

The Executive Committee consists of Messrs. Peperzak and Feinblum. The
Executive Committee is authorized to make option grants of up to 30,000 shares
per year, hire and terminate officers (other than the Company's Chief
Executive Officer or Chief Financial Officer) and approve certain banking
matters, including authorizing the Company to incur indebtedness.

The Audit Committee consists of Messrs. Clark and Robinson. The Audit
Committee makes recommendations to the Board regarding the engagement of the
Company's independent certified public accountants and reviews the internal
accounting procedures of the Company and the scope and results of the
Company's annual audit.

The Compensation Committee consists of Messrs. Mandigo, McCloskey and
Robinson. The Compensation Committee administers the Company's stock option
plan, including making recommendations to the Board with respect to awards
thereunder, and the Company's stock purchase plan. The Compensation Committee
also determines the compensation of the elected officers of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board was formed in 1997, and
during fiscal 1997, its members were Messrs. Peperzak, Mandigo, McCloskey and
Robinson. Other than Mr. Peperzak, none of the other members of the
Compensation Committee were executive officers of the Company. No executive
officer of the Company serves as a member of the Board of Directors or
Compensation Committee of any entity that has one or more executive officers
serving as a member of the Company's Board or Compensation Committee.
Compensation of Mr. Peperzak was determined by the entire Board with a view to
attracting and retaining talented individuals to serve as directors and
officers of the Company. See "Certain Transactions" for a description of
certain transactions with these board members.

DIRECTORS' COMPENSATION

Each of the Company's non-employee directors is entitled to receive a grant
of options exercisable for 3,000 shares of the Company's Common Stock at the
Company's next annual meeting with an exercise price equal to the fair market
value of the Company's Common Stock as reported on the Nasdaq National Market
on the date of such annual meeting. Each non-employee director is entitled to
a fee of $1,000 for each Board meeting attended and $500 for each Committee
meeting attended and any such fees are to be paid in grants of shares of the
Company's Common Stock, calculated by dividing the relevant amount by the per-
share price, which will be equal to the fair market value of the Company's
Common Stock as reported on the Nasdaq National Market on the date of such
meeting. Each non-employee director elected to serve as a director for the
first time after the offering will receive an option grant exercisable for
3,000 shares of the Company's Common Stock upon his or her appointment to the
Board. Directors also are reimbursed for certain expenses in connection with
attendance at Board and Committee meetings.

52
<PAGE>

Prior to this offering, the Company's non-employee directors received no
compensation other than option grants. On May 15, 1997, Messrs. McCloskey,
Clark, Mandigo and Robinson (the "Non-Employee Directors") and Mr. Peperzak
each received an option to purchase 3,000 shares of the Company's Common Stock
at an exercise price of $4.85 per share. On December 18, 1997, the Non-
Employee Directors each received an option to purchase 3,000 shares of the
Company's Common Stock at an exercise price of $6.50 per share and Mr.
Peperzak received an option to purchase 15,000 shares of the Company's Common
Stock at an exercise price of $6.50 per share. As of November 1997, Mr.
Peperzak receives an annual salary of $72,000 as compensation for his service
as Chairman of the Board.

STOCK OPTION PLANS

Equity Incentive Plan. The Company adopted its stock option plan (the
"Equity Incentive Plan") on October 25, 1995, which was approved by vote of
the stockholders on May 9, 1996. On December 18, 1997, the Board amended the
Equity Incentive Plan to increase from 250,000 to 750,000 the number of shares
of the Company's Common Stock authorized for issuance under the Equity
Incentive Plan, which was approved by a vote of the stockholders on April 30,
1998. As of March 31, 1998, the Company had granted, pursuant to the Equity
Incentive Plan, options for a total of 286,375 shares of Common Stock, none of
which have been exercised and 7,000 of which have been forfeited. The exercise
prices of the options granted pursuant to the Equity Incentive Plan have been
set at the Company's best estimate of the fair market value of the Company's
Common Stock at the date of the option grant. Subsequent to the last option
grant, substantive events have occurred which the Company believes have
increased the fair market value of the Company's Common Stock. These changes
include, but are not limited to, the Juniper Valley Farms brand acquisition,
the proposed Concurrent Placement and the augmentation of the Company's
management team.

On April 14, 1998, the Board approved the amendment and restatement of the
Equity Incentive Plan, which was approved by a vote of the stockholders on
April 30, 1998. As amended, the Equity Incentive Plan permits the granting of
options intended to qualify as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") to employees (including officers and employee
directors), and options that do not so qualify ("Nonstatutory Stock Options",
and collectively with Incentive Stock Options, the "Options") to employees
(including officers and employee directors) and consultants and non-employee
directors. In addition, the Equity Incentive Plan permits the granting of
stock bonuses and the right to acquire restricted stock (options, stock
bonuses and rights to purchase restricted stock are hereinafter referred to as
"Stock Awards"). No person is eligible to be granted Options covering more
than 250,000 shares of the Company's Common Stock in any calendar year. The
Equity Incentive Plan is administered by the Board or a committee appointed by
the Board.

The exercise price of Options granted under the Equity Incentive Plan is
determined by the Board in accordance with the guidelines set forth in the
Equity Incentive Plan. The exercise price of Incentive Stock Options granted
pursuant to the Equity Incentive Plan cannot be less than 100% of the fair
market value of the Common Stock on the date of the grant and the exercise
price of Incentive Stock Options granted to any person who at the time of
grant owns stock representing more than 10% of the total combined voting power
of all classes of the Company's capital stock or any of its affiliates must be
at least 110% of the fair market value of the Company's Common Stock on the
date of grant, and the term of such Incentive Stock Options cannot exceed five
years. The exercise price of a Nonstatutory Stock Option is determined by the
Board. Options granted under the Equity Incentive Plan vest at the rate
specified in the option agreement.

Any stock bonuses or restricted stock purchase awards granted under the
Equity Incentive Plan will be in such form and will contain terms and
conditions as the Board deems appropriate. The purchase price under any
restricted stock purchase agreement will not be less than 85% of the fair
market value of the Company's Common Stock on the date of the award. Stock
bonuses may be awarded for no consideration.

Upon certain changes of control of the Company, all outstanding Stock Awards
under the Equity Incentive Plan must either be assumed or substituted by the
surviving entity. If the surviving entity does not

53
<PAGE>

assume or substitute such Stock Awards, then with respect to Stock Awards held
by persons whose continuous service has not terminated prior to such change of
control event, any Company repurchase option or reacquisition right with
respect to shares acquired by such persons under a Stock Award will lapse
immediately prior to such event, the vesting of options held by such persons
will be accelerated, the time during which such Stock Awards may be exercised
will be accelerated and such Stock Awards will be terminated if not exercised
prior to such change of control event.

Additional Options. The Company has nonstatutory stock options outstanding
covering 288,393 shares of Common Stock (the "NSO Options") which were granted
outside of a written plan. Generally, the NSO Options were granted with
exercise prices equal to or greater than the fair market value of the Common
Stock on the date of grant and expire on the fifth anniversary of the date of
grant. The NSO Options have a weighted average exercise price of $2.39 per
share and 237,393 NSO Options were exercisable as of March 31, 1998.

Employee Stock Purchase Plan. In April 1998, the Board adopted the 1998
Employee Stock Purchase Plan (the "Purchase Plan"), to provide employees of
the Company with an opportunity to purchase Common Stock through payroll
deductions. Under the Purchase Plan, 250,000 shares of Common Stock have been
reserved for issuance. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. The Board
may authorize participation by eligible employees, including officers, in
periodic offerings following the adoption of the Purchase Plan. A new offering
period begins every six months. The Board has currently authorized an offering
commencing on the effectiveness of the initial public offering of the
Company's Common Stock and ending December 31, 1998, with sequential six-month
offerings thereafter.

Employees are eligible to participate in the Purchase Plan if they have been
employed by the Company or a United States affiliate of the Company for at
least three months preceding the beginning of the offering and work at least
twenty hours per week and at least five months per calendar year. Employees
can have up to 10% of their earnings withheld pursuant to the Purchase Plan
and applied on specific purchase dates (currently the last day of each
authorized offering) to the purchase of shares of Common Stock. The price of
Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock on the commencement date of
each offering or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering, and
participation ends automatically on termination of employment. Holders of five
percent or more of the Company's outstanding Common Stock are not eligible to
participate in the Purchase Plan.

In the event of certain changes of control, the Company and the Board have
discretion to provide that each right to purchase Common Stock will be assumed
or an equivalent right substituted by the successor corporation, or the Board
may shorten an offering and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan may be terminated at the Board's discretion.

401(K) PLAN

The Company sponsors a qualified defined contribution retirement plan,
called the Horizon Organic Dairy 401(k) Plan (the "401(k) Plan") under which
eligible employees may elect to defer their current compensation by up to
certain statutorily prescribed annual limits ($10,000 in 1998) and to
contribute such amount to the 401(k) Plan. The 401(k) Plan provides for the
Company to match a participant's contribution in an amount up to 3% of such
participant's compensation. The 401(k) Plan is intended to qualify under
Section 401 of the Code, so that contributions by employees or by the Company
to the 401(k) Plan, and income earned on such contributions, are not taxable
to the employees until withdrawn, and so that contributions by the Company
will be deductible by the Company when made. The trustee for the 401(k) Plan
is American United Life Insurance Company. The 401(k) Plan permits employees
to direct investment of their accounts in the 401(k) Plan among a selection of
mutual funds.

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<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the two other most highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 for services
rendered to the Company during fiscal 1997 (collectively, the "Named Executive
Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($)(1) ($)(1) (#) ($)(2)
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Barnet M. Feinblum.................. $125,000 $44,109 40,000 $3,577
President and Chief Executive
Officer
Paul B. Repetto..................... 115,000 22,310 22,500 3,291
Vice President, Marketing and Sec-
retary
Mark A. Retzloff.................... 115,000 30,878 22,500 3,291
Vice President, Sales
</TABLE>
- ---------------------
(1) Includes amounts, if any, deferred pursuant to Section 401(k) of the Code.
(2) Represents matching contributions made by the Company to the 401(k) Plan.

The following table sets forth each grant of stock options made during
fiscal 1997 to each of the Named Executive Officers:

OPTION GRANTS IN FISCAL 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE APPRECIATION
SHARES UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/SHARE) DATE 5% 10%
---- ----------------- -------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Barnet M. Feinblum...... 20,000 9.34% $4.85 5/13/2002 $ 123,799 $ 156,219
20,000 9.34 6.50 1/10/2003 165,917 209,366
Paul B. Repetto......... 10,000 4.67 4.85 5/13/2002 61,900 78,110
12,500 5.84 6.50 1/10/2003 103,698 130,854
Mark A. Retzloff........ 10,000 4.67 4.85 5/13/2002 61,900 78,110
12,500 5.84 6.50 1/10/2003 103,698 130,854
</TABLE>
- ---------------------
(1) 25% of the options vest and will become exercisable upon the first
anniversary of the grant date and will become exercisable as to the
remainder of the grant in three equal annual installments thereafter.
(2) Based on 214,125 total options granted in fiscal 1997.
(3) The potential realizable value is calculated assuming that the fair market
value of Common Stock on the date of the grant as determined by the Board
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and the Common
Stock received therefor is sold on the last day of the term of the option
for the appreciated price. The 5% and 10% rates of appreciation are
mandated by the rules of the Securities and Exchange Commission (the
"SEC") and do not represent the Company's estimate or projection of future
increases in the price of its Common Stock.

The following table sets forth information with respect to (i) the number of
unexercised options held by the Named Executive Officers as of December 31,
1997 and (ii) the value of unexercised in-the-money options (i.e.,

55
<PAGE>

options for which the fair market value of the Common Stock exceeds the
exercise price as of December 31, 1997). None of the Named Executive Officers
exercised Options during fiscal 1997:

FISCAL YEAR-END OPTION VALUE TABLE

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DEC. 31, 1997 DEC. 31, 1997
(#) ($)
------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Barnet M. Feinblum....... 101,000 109,000 $319,800 $415,550
Paul B. Repetto.......... 17,500 30,000 86,145 38,685
Mark A. Retzloff......... 17,500 30,000 86,145 38,685
</TABLE>
- ---------------------
(1) Based on the estimated fair market value of the Common Stock as of
December 31, 1997 ($6.50 per share, as determined by the Board), minus the
per share exercise price, multiplied by the number of shares underlying
the options.

EMPLOYMENT AGREEMENTS

Messrs. Feinblum, Repetto, Retzloff (each, an "Executive") have entered into
Amended Executive Employment Agreements (collectively, the "Employment
Agreements") with effective dates as of January 1, 1998. The Employment
Agreement with Mr. Feinblum provides that he will receive an annual salary of
$140,000, which may be adjusted annually by the Compensation Committee, and
the Employment Agreements with Messrs. Repetto and Retzloff provide that they
will each receive an annual salary of $120,000, which may be adjusted annually
by the Compensation Committee. Additionally, for the year ended December 31,
1998, each Executive is eligible to receive incentive bonuses in an amount up
to 60% (90% for Mr. Feinblum) of his base salary and the Compensation
Committee may increase such percentages for the year ended December 31, 1999.
The Employment Agreements also provide that each Executive will be entitled to
(i) four weeks paid vacation, (ii) participation in any employee benefit plans
the Company makes available to its other employees, (iii) life insurance in
the minimum amount of $100,000, (iv) disability insurance providing at least
60% of such Executive's base salary or $6,000 per month ($7,000 per month for
Mr. Feinblum), whichever amount is less, and (v) reimbursement of reasonable
business expenses. Mr. Feinblum's Employment Agreement also provides that all
135,000 of the incentive stock options granted to him under the stock option
agreement dated June 1, 1995 are fully vested and exercisable. All of the
Employment Agreements expire on December 31, 2000. Mr. Repetto's Employment
Agreement anticipates that he will retire as an operating officer of the
Company on December 31, 1999. Each Employment Agreement provides that the
Company may terminate the Executive at any time. If the Executive is
terminated without cause or if the Executive terminates his Employment
Agreement for cause, the Company is obligated to pay the Executive's salary
for a period equal to the longer of (i) twelve months after the date of
termination or (ii) the remainder of the employment period. In such case, the
Executive also is entitled to a pro rata incentive bonus for the year in which
termination occurs. The Employment Agreements also contain noncompete
provisions which prohibit the Executives, without the consent of the Company,
for a period of twenty-four months after the termination or expiration of the
Executive's employment with the Company from (i) owning more than 5% of the
outstanding stock of a publicly-traded competitive company; (ii) owning any
stock of a privately held competitive company; (iii) participating in the
financing, operation, management or control of any competitive company; and
(iv) soliciting employees of the Company.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company will indemnify its directors,
officers, employees and agents to the fullest extent permitted by Delaware
law. In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty to
the Company and its stockholders. This provision of the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate

56
<PAGE>

circumstances equitable remedies such as an injunction or other forms of non-
monetary relief would remain available under Delaware law. Each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction
from which the director derived an improper personal benefit, for improper
transactions between the director and the Company and for improper
distributions to stockholders and improper loans to directors and officers.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.

The Company intends to enter into indemnity agreements with each of its
directors and executive officers pursuant to which the Company will indemnify
each director and executive officer against expenses and losses incurred for
claims brought against them by reason of their being a director or executive
officer of the Company, and the Company maintains directors' and officers'
liability insurance.

There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

57
<PAGE>

CERTAIN TRANSACTIONS

SUNRISE ORGANIC FARMS, INC.

Related Party Affiliations. Marcus B. Peperzak was the majority stockholder,
Chairman, Chief Executive Officer and President of Sunrise, formerly known as
Aurora Dairy Corporation of Idaho and currently is the Chairman of the Board
and a significant stockholder of the Company and Aurora, Aurora Dairy
Corporation of Colorado ("ADC-Colorado"), Aurora Dairy Corporation of Texas
("ADC-Texas") and United States Dairy Company L.L.C. ("USDC") (collectively,
the "Aurora Affiliates"). Thomas D. McCloskey, Jr. also was a stockholder of
Sunrise and currently is a director of the Company and stockholder of USDC.

Dairy Lease for Idaho Dairy. On April 1, 1994, the Company entered into a
dairy farm lease agreement with Sunrise to lease a portion of the Idaho Dairy
for the purpose of raising cows to produce organic milk through December 31,
1999 (the "Dairy Lease"). During fiscal 1995 and 1994, the Company paid
Sunrise approximately $80,000 and $88,000, respectively, as lease payments
under the Dairy Lease. The Dairy Lease was terminated on May 31, 1995 in
connection with the Asset Exchange (as defined below).

Asset Exchange Transaction. On May 31, 1995, the Company transferred all of
its operating assets in the Idaho Dairy, including cattle and feed inventory
(the "Operating Assets"), to Sunrise (the "Asset Exchange"). As partial
consideration for the Asset Exchange, the Company received 90,373 shares of
Sunrise common stock, which represented a 23.8% equity interest in Sunrise,
based on a price per share of Sunrise common stock of $20.24. As additional
consideration for the Asset Exchange, Sunrise assumed approximately $2.5
million of the Company's liabilities relating to the Idaho Dairy. Concurrent
with the Asset Exchange, the Dairy Lease was terminated, a recapitalization of
Sunrise took place, the Company received an option through December 31, 1999
to purchase all of Mr. Peperzak's Sunrise common stock at an option price of
$20.24 per share, and Mr. McCloskey was appointed to the Sunrise board of
directors as the Company's appointee.

Supply Agreement. In conjunction with the Asset Exchange, the Company and
Sunrise entered into a supply agreement (as amended, the "Supply Agreement")
which provided that the Company would purchase its organic fluid milk
requirements for certain western states from Sunrise, to the extent Sunrise
could supply the Company's volume requirements, and Sunrise agreed to sell its
organic fluid milk only to the Company. In fiscal 1997, 1996 and 1995, the
Company paid Sunrise approximately $1.8 million, $5.1 million and $646,000,
respectively for organic fluid milk. Under the terms of the Supply Agreement,
the Company was required to purchase a percentage of its forecasted volume
(the "Required Minimum Purchase") from Sunrise. The Company paid Sunrise
approximately $23,000 and $114,000 in fiscal 1996 and 1995, respectively, for
failing to make the Required Minimum Purchases. The Supply Agreement was
terminated upon the closing of the Sunrise Acquisition (as defined below).

1996 Promissory Notes. On April 1, 1996, the Company loaned $650,000 to
Sunrise (the "Sunrise Bridge Loan"). Sunrise used the Sunrise Bridge Loan to
convert an additional portion of the Idaho Dairy to organic production and to
purchase additional cows. The Sunrise Bridge Loan was cancelled and replaced
with another promissory note with a principal amount of $650,000 dated July 1,
1996 (the "Sunrise Promissory Note") which had an interest rate of 12.5% per
annum and a final maturity date of December 31, 1999. Sunrise made total
interest payments to the Company in the amount of approximately $19,000 and
$72,000 under the Sunrise Bridge Loan and Sunrise Promissory Note,
respectively. The Sunrise Promissory Note was repaid in connection with the
Sunrise Acquisition (as defined below).

1996 Equity Financing and Repayment of Certain Indebtedness. On April 1,
1996, the Company issued bridge loan promissory notes which had an interest
rate of 15% per annum (the "Bridge Loan Promissory Notes") of which a portion
were to certain affiliates of the Company in order to fund the Sunrise Bridge
Loan. The Bridge Loan Promissory Notes were repaid upon closing of the sale of
approximately $2.3 million of the Company's equity securities (the "1996
Equity Financing"). See "--Related Party Loans". On July 9, 1996, the Company
closed the 1996 Equity Financing. At the same time, the Company purchased
17,293 newly issued shares of Sunrise common stock for $20.24 per share.

58
<PAGE>

Sunrise Acquisition. In fiscal 1997, the Company purchased the shares of
Sunrise's capital stock that it did not already own in two closings (the
"Sunrise Acquisition"). On March 20, 1997, pursuant to the Company's
acquisition agreement with Sunrise (the "Sunrise Acquisition Agreement"), the
Company purchased 176,216 shares of Sunrise common stock from the other
Sunrise stockholders at a purchase price of $20.24 per share in exchange for
the Company's issuance of unsecured subordinated promissory notes in the
aggregate amount of approximately $3.6 million (the "Sunrise Notes"). See "--
Related Party Loans". On May 29, 1997, the Company purchased the remaining
117,478 shares of Sunrise common stock at a price of $20.24 per share of
Sunrise common stock in exchange for (i) the issuance to the other Sunrise
stockholders of an aggregate of 490,245 shares of the Company's Common Stock
at a value of $4.85 per share, (ii) the issuance to the other Sunrise
stockholders warrants exercisable for an aggregate of 69,118 shares of the
Company's Common Stock at an exercise price of $5.34 per share, and (iii) the
cancellation of the Sunrise Promissory Note.

Management Agreement. From 1994 until November 1997, certain of the Aurora
Affiliates managed the Idaho Dairy and the Maryland Dairy pursuant to a
management agreement (as amended and restated, the "Management Agreement")
which provided that the Aurora Affiliates would receive certain management
fees and the reimbursement of reasonable expenses. Pursuant to the Management
Agreement, Sunrise paid the Aurora Affiliates approximately $60,000, $259,000
and $545,000 (of which approximately $446,000 was paid in shares of Sunrise
common stock) during fiscal 1997, 1996 and 1995, respectively. Pursuant to the
Management Agreement, the Company paid the Aurora Affiliates, $210,000 and
$20,000 in fiscal 1997 and 1995, respectively, prior to the consummation of
the Sunrise Acquisition. The Management Agreement was terminated in November
1997.

AURORA AND AFFILIATES

Sublease. The Company subleases approximately 3,600 square feet of its
office space under the office lease to Aurora. The term of the sublease runs
from October 1, 1997 through December 31, 1998. Aurora currently pays
approximately $1,900 per month to the Company for these subleased premises.

Cattle Sales and Exchanges. In fiscal 1995, Sunrise purchased 394 cows from
Aurora for $1,004 per cow. Aurora reimbursed Sunrise $8,000 for animals that
Sunrise culled from such cows. In fiscal 1996, Sunrise sold 148 cows to Aurora
for $1,207 per cow. Also in fiscal 1996, Sunrise (i) exchanged 200 of its
mature cows for 600 of ADC-Colorado's cows and (ii) sold cows to Aurora for
$84,000. In fiscal 1997, the Idaho Dairy (i) paid Aurora $160,000 for cows
Aurora delivered to a third-party organic cattle farm on behalf of Sunrise and
(ii) sold 40 cows to Aurora for approximatley $48,000.

In fiscal 1997, the Idaho Dairy sold 531 conventional cows to ADC-Texas, 521
conventional cows to ADC-Colorado and 614 conventional cows to USDC for an
approximate aggregate net purchase price of $1.7 million, of which $250,000
was financed by the delivery of a subordinated promissory note (the "Cattle
Sale Subordinated Promissory Note") by ADC-Colorado to the Company. The
outstanding principal amount of the Cattle Sale Subordinated Promissory Note
is due upon the earlier of (i) November 24, 1999 or (ii) at such time as the
Company pays all amounts due ADC-Colorado under the Sunrise Acquisition
Agreement. The Cattle Sale Subordinated Promissory Note bears interest at
prime plus one percent.

Hay Sales. In fiscal 1997, the Idaho Dairy sold approximately $78,000 of hay
to ADC-Colorado.

MCCLOSKEY CANYON RANCH

The Company periodically houses and feeds certain of its cattle on a ranch
owned by an entity controlled by Mr. McCloskey. As consideration for such
housing and feeding, the Company paid such entity approximately $155,000 in
fiscal 1997. Sunrise paid such entity $48,500, and $91,000 in fiscal 1997 and
1996, respectively.

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<PAGE>

DIRECTORS' AFFILIATIONS WITH COMPANY PROCESSORS AND CUSTOMERS

Robinson Dairy, which is one of the Company's milk processors, is controlled
by Richard L. Robinson, a director of the Company. The Company paid Robinson
Dairy approximately $660,000, $286,000 and $5,000 in fiscal 1997, 1996 and
1995, respectively, to process organic fluid milk. Clark's Market, which
purchases Horizon products through one of the Company's distributors, is
controlled by J. Thomas Clark, a director of the Company.

RELATED PARTY LOANS

The following table sets forth for the fiscal year indicated certain
information concerning loans made by certain related parties to the Company
and the principal amount of each loan.

<TABLE>
<CAPTION>
RELATED PARTY LENDER 1995(1) 1996(2) 1997(3)
-------------------- -------- -------- ----------
<S> <C> <C> <C>
Thomas D. McCloskey, Jr....................... $125,000
Marcus B. Peperzak............................ 125,000 $2,566,213(4)
J. Thomas Clark............................... 125,000
Julie Feinblum................................ $100,000
Paul B. Repetto............................... 25,000
TPM Investments (affiliate of Mr. McCloskey).. 300,000
Aurora Dairy Pension & Profit Sharing Plan
(Marcus B. Peperzak, trustee)................ 200,000 166,944(4)
Aurora Dairy Corporation...................... 252,988(4)
Aurora Capital Corporation.................... 26,777(4)
McCloskey Trust............................... 500,000(5)
-------- -------- ----------
Total....................................... $375,000 $625,000 $3,512,922
======== ======== ==========
</TABLE>
- ---------------------
(1) Represents such person's interest in a Revolving Line of Credit Note,
dated May 31, 1995, for $375,000, which had an interest rate at prime plus
three percent through December 31, 1995 and an interest rate of prime plus
four percent through December 31, 1996 (the "Revolving Line of Credit
Note").
(2) Bridge Loan Promissory Notes. See "--Sunrise Organic Farms, Inc.--1996
Promissory Notes."
(3) The Sunrise Notes and the Senior Subordinated Promissory Note require
interest payments during the term of such notes with the principal amount
of such notes due at maturity.
(4) The Sunrise Notes bear interest at prime plus one percent. See "--Sunrise
Organic Farms, Inc.--Sunrise Acquisition".
(5) This Senior Subordinated Promissory Note, dated May 29, 1997, bears
interest at a rate equal to 11% per annum.

On May 31, 1995, the Company issued the Revolving Line of Credit Note and
100,000 shares of the Company's Common Stock pro rata to Messrs. McCloskey,
Peperzak and Clark in satisfaction of a previous note from the Company to such
persons which was dated October 4, 1994, had a principal amount of $500,000
and bore interest at prime plus one percent. All principal and interest of
approximately $31,000 on the Revolving Line of Credit Note was paid to Messrs.
McCloskey, Peperzak and Clark by the Company on December 14, 1995.

The holders of Bridge Loan Promissory Notes had the option of converting the
principal amount of their Bridge Loan Promissory Notes into shares of the
Company's Common Stock at a price per share of $3.22. Ms. Feinblum, the wife
of Barnet Feinblum, received $19,500 in cash and 25,000 shares of the
Company's Common Stock in satisfaction of her Bridge Loan Promissory Note. Mr.
Repetto received 10,000 shares of the Company's Common Stock in exchange for
the cancellation of his Bridge Loan Promissory Note and the payment by Mr.
Repetto of $7,200 to the Company. TPM Investments and Aurora Dairy Pension &
Profit Sharing Plan received $300,000 and $200,000 in cash, respectively, in
satisfaction of their Bridge Loan Promissory Notes.

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<PAGE>

The Sunrise Notes and the Senior Subordinated Promissory Note will be repaid
with a portion of the proceeds of the offering. See "Use of Proceeds".

GUARANTEES

Mr. Peperzak has guaranteed certain of the Company's debt obligations as set
forth below:

<TABLE>
<CAPTION>
OUTSTANDING AMOUNT
OF GUARANTEE OR
PRIMARY LIABILITY
TYPE OF OBLIGATION AS OF MARCH 31, 1998
------------------ --------------------
<S> <C>
Idaho Dairy-Farm Credit Services real estate loan...... $3,821,000
Idaho Dairy-Capital Leases............................. $ 662,000
</TABLE>

Under a continuing guarantee agreement, the Company has agreed to pay Mr.
Peperzak a guarantee fee equal to one percent (1%) per annum for all debt he
personally guarantees for the Idaho Dairy. Mr. Peperzak received approximately
$55,000 from the Company in fiscal 1997. Pursuant to a similar arrangement,
Sunrise paid Mr. Peperzak guarantee fees of approximately $214,000 and $94,000
in fiscal 1996 and 1995, respectively. The amount received by Mr. Peperzak in
fiscal 1996 included amounts accrued in fiscal 1995 with relation to such
guarantees and certain amounts prepaid for 1997 with relation to such
guarantees. In fiscal 1997, Mr. Peperzak repaid the Company approximately
$70,000 of the amount he had received in fiscal 1996 as prepayment for the
fiscal 1997 guarantees.

ALTERNATIVE FINANCING

Certain stockholders of the Company have executed irrevocable commitments to
purchase certain securities of the Company if this offering is not completed.
All such commitments were executed prior to the filing of the Registration
Statement of which this Prospectus is a part and the Company will not accept
any additional commitments after such filing. If this offering is completed,
the alternative financing will not be consummated and the Company's
stockholders will be released from their commitments to participate in the
alternative financing.

- ---------------------

Management believes the terms of all of the the foregoing transactions were
fair to the Company and were no less favorable to the Company than would have
been obtained from an unaffiliated third party in arms length negotiations.
All future transactions with affiliates will be subject to the approval of the
Company's disinterested directors and will be on terms believed by such
directors to be no less favorable to the Company than those available from
unaffiliated third parties.

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, as adjusted to
give effect to the sale by the Company of the shares offered hereby (assuming
no exercise of the Underwriters' over-allotment option) and the Concurrent
Placement by (i) each stockholder (or group of affiliated stockholders) known
by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) each Named Executive Officer, (iii) each
director of the Company and (iv) all current directors and executive officers
of the Company as a group.

<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF SHARES -----------------------------------
BENEFICIALLY OWNED PRIOR TO AFTER OFFERING
PRIOR TO OFFERING AND OFFERING AND AND CONCURRENT
BENEFICIAL OWNER(1) CONCURRENT PLACEMENT(2) CONCURRENT PLACEMENT PLACEMENT
------------------- ----------------------- -------------------- --------------
<S> <C> <C> <C>
Thomas D. McCloskey, Jr.(3)...... 972,516 19.1% 10.6%
Marcus B. Peperzak(4)............ 604,498 11.8 6.6
Boulder Ventures II, L.P.(5)..... 559,496 11.1 6.1
1634 Walnut Street, Suite 301
Boulder, CO 80302
Suiza Foods Corporation(6)....... -- * 12.0%
3811 Turtle Creek Blvd,
Suite 1950, LB 50
Dallas, TX 75219
Paul B. Repetto(7)............... 435,000 8.6 4.7
Mark A. Retzloff(8).............. 385,282 7.6 4.2
Barnet M. Feinblum(9)............ 316,843 6.1 3.4
Leonard A. Lauder................ 293,517 5.8 3.2
767 Fifth Avenue
New York, NY 10153
J. Thomas Clark(10).............. 170,333 3.4 1.9
Clark R. Mandigo II(11).......... 85,966 1.7 *
Richard L. Robinson(12).......... 49,824 * *
All executive officers and
directors as a group (10
persons)(13).................... 3,027,262 56.4 32.2
</TABLE>
- ---------------------
* Indicates beneficial ownership of less than one percent.
(1) Unless otherwise set forth, all addresses are c/o the Company, 6311
Horizon Lane, Longmont, Colorado 80503.
(2) This table is based upon information supplied by officers, directors and
principal stockholders. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, the
Company believes that each of the stockholders named in this table has
sole voting and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on 5,056,341 shares
of Common Stock outstanding as of March 31, 1998 and 9,156,341 shares of
Common Stock outstanding after completion of the offering and the
Concurrent Placement, adjusted as required by rules promulgated by the
SEC. All warrants are currently exercisable and share amounts include
stock options exercisable within 60 days of March 31, 1998.
(3) Includes 33,111 shares and warrants to purchase 4,668 shares of Common
Stock held by McCloskey Children's Trust; 25,000 shares held by the
McCloskey Trust, of which Mr. McCloskey is a trustee; 737,457 shares held
by the Thomas D. McCloskey, Jr. and Bonnie P. McCloskey Revocable Trust
1994, of which Mr. McCloskey is a trustee (collectively, the "Trust
Shares"); and 155,280 shares held by McCloskey Ventures LLC, of which Mr.
McCloskey is a manager (the "LLC Shares"). Mr. McCloskey disclaims any
beneficial interest in the Trust Shares and the LLC shares, except to the
extent of his pecuniary interest in the LLC Shares arising from his roles
therein. Also includes 17,000 shares subject to stock options.

62
<PAGE>

(4) Includes 128,688 shares and warrants to purchase 779 shares held by
Aurora Dairy Corporation Pension Plan Trust, of which Mr. Peperzak is
trustee. Also includes warrants to purchase 42,570 shares held by Mr.
Peperzak and 17,000 shares subject to stock options.
(5) Includes 412,372 shares held by Boulder Ventures II, L.P., 139,624 shares
held by Boulder Ventures, L.P. and 7,500 shares held by Boulder
Investors, L.P.
(6) Percentage beneficially owned after the offering and Concurrent Placement
includes 1,100,000 shares of Common Stock to be purchased by Suiza
pursuant to the Concurrent Placement.
(7) Includes 20,000 shares subject to stock options.
(8) Includes 14,000 shares held by his spouse, an aggregate of 42,000 shares
held in trust for his three children and 20,000 shares subject to stock
options.
(9) Includes 29,045 shares held by his spouse, an aggregate of 11,618 shares
held in trust for his two children and 160,000 shares subject to stock
options.
(10) Includes 17,000 shares subject to stock options.
(11) Includes an aggregate of 23,236 shares held in trust for his three
children and 2,000 shares subject to stock options.
(12) Includes 2,000 shares subject to stock options.
(13) Includes 2,742,245 shares (including 23,000 shares purchased by certain
executive officers in the offering), 260,000 shares subject to stock
options and warrants to purchase 48,017 shares held by directors and
executive officers of the Company and entities affiliated with such
persons. See Notes 3, 4 and 7 through 12 above. Although Suiza is
expected to designate a representative on the Board following the closing
of this offering and the Concurrent Placement, the calculation of shares
for all executive and officers as a group does not include the 1,100,000
shares to be issued to Suiza in connection with the Concurrent Placement.

63
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a
summary description only and is qualified in its entirety by the provisions of
the Certificate of Incorporation and Bylaws, which have been filed as exhibits
to the Company's Registration Statement, of which this Prospectus is a part.

Upon the closing of this offering, the Company's authorized capital stock
will consist of 30,000,000 shares of Common Stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share. As of
March 31, 1998 there were 5,056,341 shares of Common Stock outstanding held of
record by 143 stockholders.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding shares of preferred
stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference
of any then outstanding preferred stock. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are, and all shares
of Common Stock to be outstanding upon completion of this offering will be,
fully paid and nonassessable.

WARRANTS

The Company has warrants outstanding to purchase 69,118 shares of the
Company's Common Stock, subject to adjustment in certain circumstances, which
warrants were issued in connection with the Sunrise Acquisition (the "Sunrise
Warrants"). The exercise price of the Sunrise Warrants is $5.34 per share and
such warrants expire on March 20, 1999. Additionally, the Company has warrants
outstanding to purchase 3,500 shares of the Company's Common Stock, subject to
adjustment in certain circumstances, which warrants were issued in connection
with the acquisition of the Juniper Valley Farms brand (the "Juniper Valley
Warrants"). The exercise price of the Juniper Valley Warrants is $8.00 per
share and such warrants expire on April 8, 2000.

PREFERRED STOCK

The Board has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without
any further vote or action by stockholders. The issuance of preferred stock
could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of preferred stock.

CONCURRENT PLACEMENT

Pursuant to the Stock Purchase Agreement, Horizon has agreed to sell to
Suiza 1,100,000 shares of Common Stock upon the closing of the Concurrent
Placement, which is scheduled to close immediately after the closing of the
offering. Suiza will purchase shares in the Concurrent Placement at a price of
$11.00 per

64
<PAGE>

share. See "Recent Events". In connection with the execution of the Stock
Purchase Agreement, the Company also entered into the Stockholder Agreement
with Suiza. The Stockholder Agreement provides the following:

Exclusivity Period. Suiza has agreed that for a five-year period (the
"Exclusivity Period") Suiza will not introduce any organic white fluid milk
products for sale under Suiza's brands. The Exclusivity Period will be
automatically extended for additional one-year terms so long as Suiza or any
of its subsidiaries are processing organic white fluid milk for Horizon,
unless Suiza and Horizon agree otherwise.

Preemptive Rights. So long as Suiza's fully diluted ownership percentage is
at least five percent, Suiza has the right to purchase from the Company
additional shares of capital stock of the Company in connection with any
proposed public or private sale of capital stock by the Company, subject to
certain exceptions. This preemptive right entitles Suiza to purchase a number
of shares equal to the product of(a) the lesser of (i) Suiza's fully diluted
ownership percentage immediately prior to the proposed issuance and (ii)
Suiza's fully diluted ownership percentage immediately after the closing of
the Concurrent Placement, and (b) the number of shares issued in the proposed
issuance.

Right to Designate Board Representative. Suiza will be entitled to designate
one person for election to the Company's Board until such time as Suiza owns
less than five percent of the Company's Common Stock based on the issued and
outstanding Common Stock, with certain exceptions.

Standstill and Transfer Restrictions. Suiza has agreed, with certain
exceptions, that neither it nor its affiliates will acquire any voting
securities if, after such purchase or acquisition, Suiza's Voting Ownership
Percentage (as defined in the Stockholder Agreement) would exceed 25% (the
"Suiza Standstill"). The Suiza Standstill terminates upon the earlier of (i)
the eighteen (18) month anniversary of the termination of the Exclusivity
Period (for a total minimum standstill period of six and one-half years), or
(ii) the date on which the Board, without prior written consent from Suiza,
takes any action to approve a merger or other business combination in which
the holders of the voting securities of Horizon would hold less than 50% of
the voting power of the surviving corporation after the closing of such
transaction. The Stockholder Agreement also prohibits Suiza from soliciting
proxies with respect to any voting securities or participating in any election
contest as defined in the Securities Exchange Act of 1934, as amended. Suiza
also has agreed not to transfer any of its shares in a private transaction,
with certain exceptions, to a person who has not agreed to be bound by the
Stockholder Agreement.

Drag-Along Obligation. Suiza has agreed that it will consent to, and vote
its shares in favor of, any sale of the Company approved by the Company's
Board.

Right of First Refusal on Sale of Stock to Suiza Competitor. Suiza has a
right of first refusal to purchase shares of the Company's Common Stock from
the Company if certain competitors of Suiza make offers to purchase those
shares, except in connection with the sale of stock in connection with a sale
of the Company. This right of first refusal is not subject to the limitations
of the Suiza Standstill.

Right of First Negotiation. Horizon has agreed to give Suiza a right of
first negotiation to acquire the Company in the event that Horizon's Board
determines that it is in the best interest of the Company and its stockholders
to sell the Company. In such event, Suiza has a limited period of exclusivity
to negotiate to acquire Horizon. This right of first negotiation does not
apply to an unsolicited bid by a third party to acquire the Company.

Registration Rights. After the closing of the Concurrent Placement, Suiza
will have certain rights with respect to the registration of its shares of
Common Stock under the Securities Act. If the Company proposes to register any
of its securities under the Securities Act after the offering and the
Concurrent Placement, for

65
<PAGE>

either its own account or the account of other security holders, Suiza is
entitled to receive notice of such registration and, subject to certain
limitations, to include its shares of Common Stock therein. Such registration
rights are subject to the ability of the underwriters of any offering to limit
the number of shares included in such registration. In addition, commencing
with the date that is 180 days after the date of this Prospectus, Suiza may
require the Company, on not more than two occasions within a six-month period,
to register its registrable securities on Form S-3 when such form becomes
available to the Company. Generally, the Company is required to bear all
registration expenses incurred in connection with the first two such
registrations on Form S-3.

In addition, in connection with the closing of the Concurrent Placement,
Suiza is requiring that certain principal stockholders (the "Horizon Major
Stockholders") and their affiliates enter into the Major Stockholder
Agreement, which gives Suiza (i) a right of first negotiation to purchase
certain shares of the Company's Common Stock from the Horizon Major
Stockholders, with certain exceptions, and (ii) a right of first refusal to
purchase shares of the Company's Common Stock from the Horizon Major
Stockholders if certain competitors of Suiza make offers to purchase those
shares from a Horizon Major Stockholder. The Horizon Major Stockholders will
also agree to vote their shares in favor of Suiza's designee to the Company's
Board. See "Management--Executive Officers and Directors".

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock. The
existence of this provision would be expected to have anti-takeover effects
with respect to transactions not approved in advance by the Board, such as
discouraging takeover attempts that might result in a premium over the market
price of the Common Stock.

Upon the closing of this offering, the Company's Certificate of
Incorporation will provide for a Board that is divided into three Classes. The
directors in Class I will hold office until the first annual meeting of
stockholders following this offering, the directors in Class II will hold
office until the second annual meeting of stockholders following this
offering, and the directors in Class III will hold office until the third
annual meeting of stockholders following this offering (or in each case, until
their successors are duly elected and qualified or until their earlier
resignation, removal from office or death), and, after each such election, the
directors in each such class will then serve in succeeding terms of three
years and until their successors are duly elected and qualified. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
the Company and may maintain the incumbency of the Board, as the
classification of the Board generally increases the difficulty of replacing a
majority of the directors.

The Company's Certificate of Incorporation and Bylaws will further provide
that any action required or permitted to be taken by stockholders of the
Company must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. Special meetings
of the stockholders of the Company may be called only by the Board, the
Chairman of the Board or the Chief Executive Officer. The Company's
Certificate of Incorporation also will provide that the authorized number of
directors may be changed only by resolution of the Board, and that, subject to
the rights of the holders of any series of preferred stock, no director can be
removed without cause, and directors can only be removed for cause by a
majority vote of the stockholders. These and other provisions contained in the
Certificate of Incorporation and Bylaws could delay or make more difficult
certain types of transactions involving an actual or potential change in
control of the Company or its management (including transactions in which

66
<PAGE>

stockholders might otherwise receive a premium for their shares over then
current prices) and may limit the ability of stockholders to remove current
management of the Company or approve transactions that stockholders may deem
to be in their best interests and, therefore, could adversely affect the price
of the Company's Common Stock.

LIMITATIONS ON DIRECTOR LIABILITY

The Certificate of Incorporation provides that, to the fullest extent
permitted by the General Corporation Law of the State of Delaware as the same
exists or as may hereafter be amended, directors of the Company will not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty or otherwise.

LISTING

The Common Stock has been approved for listing on the Nasdaq National Market
under the trading symbol HCOW.

TRANSFER AGENT AND REGISTRAR

Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for the Company's Common Stock.

67
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.

Upon completion of this offering and the Concurrent Placement, the Company
will have outstanding an aggregate of 9,156,341 shares of Common Stock,
assuming (i) no exercise of warrants to purchase 72,618 shares of Common
Stock, (ii) no exercise of the Underwriters' over-allotment option, and (iii)
no exercise of options to purchase 567,768 shares of Common Stock outstanding
as of March 31, 1998. Of these shares, the 3,000,000 shares of Common Stock
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act ("Affiliates"). The remaining 5,056,341 shares of Common Stock
held by existing stockholders and the shares issued in the Concurrent
Placement are "restricted securities" as that term is defined in Rule 144
under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or 701 promulgated under the
Securities Act, which rules are summarized below. As a result of the
contractual restrictions described below and the provisions of Rules 144 and
701, additional shares will be available for sale in the public market as
follows: (i) no Restricted Shares will be eligible for immediate sale on the
date of this Prospectus; (ii) 293,048 Restricted Shares (plus 24,143 shares of
Common Stock issuable to employees and consultants pursuant to stock options
that are then vested) will be eligible for sale 90 days after the date of this
Prospectus; (iii) 4,725,418 Restricted Shares will be eligible for sale upon
expiration of the lock-up agreements (the "Lock-Up Agreements") 180 days after
the date of this Prospectus, subject to restrictions on such sales by
Affiliates; (iv) pursuant to a lock-up agreement, Richard L. Robinson, a
director of the Company, has agreed for one year after the date of this
Prospectus not to sell, pledge, transfer or hypothecate the 3,000 shares of
Common Stock of the Company underlying the unexercised option he was granted
in December 1997; and (v) the remainder of the Restricted Shares, including
the shares issued in the Concurrent Placement, will be eligible for sale from
time to time thereafter upon expiration of their respective one-year holding
periods, subject to restrictions on such sales by Affiliates and certain
vesting provisions.

The Company's officers, directors and certain stockholders have agreed,
pursuant to the Lock-Up Agreements, that they will not, without the prior
written consent of Hambrecht & Quist LLC directly or indirectly offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
during the 180-day period commencing on the Effective Date. The Company has
agreed that it will not, without the prior written consent of Hambrecht &
Quist LLC, directly or indirectly offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock during such 180-day period except
for the sale of the shares of Common Stock in this offering, the issuance of
options and shares of Common Stock pursuant to employee benefit plans set
forth in the Prospectus, and the issuance of shares of Common Stock upon
exercise of warrants or options presently outstanding. Any shares subject to
the Lock-Up Agreements may be released at any time without notice by Hambrecht
& Quist LLC.

In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date, an Affiliate of the Company, or person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at
least one year will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Company's Common Stock or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice
of the sale is filed with the SEC. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice, and the

68
<PAGE>

availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
Affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned Restricted Shares for at least two
years is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.

An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares (such shares,
"701 Shares") pursuant to a written compensatory plan or contract is entitled
to rely on the resale provisions of Rule 701 under the Securities Act, which
permits Affiliates and non- Affiliates to sell their Rule 701 Shares without
having to comply with Rule 144's holding period restrictions, in each case
commencing 90 days after the date of this Prospectus. In addition, non-
Affiliates may sell Rule 701 Shares without complying with the public
information, volume and notice provisions of Rule 144.

The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
Equity Incentive Plan and Purchase Plan and shares reserved for issuance
outside of any plan no earlier than 90 days after the date of this Prospectus.
Based on the number of stock options outstanding and options and shares
reserved for issuance at March 31, 1998, such registration statement would
cover approximately 1.3 million shares. Such registration statement is
expected to be filed and to become effective as soon as practicable after the
date hereof. Shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to Affiliates, be available for sale
in the open market, unless such shares are subject to vesting restrictions
with the Company or the Lock-Up Agreements described above. See "Management".

69
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist
LLC, Piper Jaffray Inc. and Hanifen, Imhoff Inc., have severally agreed to
purchase from the Company the following respective number of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC............................................ 975,000
Piper Jaffray Inc................................................ 633,750
Hanifen, Imhoff Inc.............................................. 341,250
BT Alex. Brown Incorporated...................................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation.............. 100,000
NationsBanc Montgomery Securities, Inc........................... 100,000
PaineWebber Incorporated......................................... 100,000
Salomon Smith Barney............................................. 100,000
Charles Schwab & Co., Inc........................................ 100,000
Adams, Harkness & Hill, Inc...................................... 50,000
Blackford Securities Corp........................................ 50,000
Cruttenden Roth Incorporated..................................... 50,000
Dain Rauscher Wessels............................................ 50,000
D. A. Davidson & Co.............................................. 50,000
Raymond James & Associates, Inc.................................. 50,000
Stephens Inc..................................................... 50,000
Sutro & Co. Incorporated......................................... 50,000
WIT Capital Corporation.......................................... 50,000
---------
Total.......................................................... 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.

The Underwriters will offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $.43 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $.10 per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters. The
Representatives have advised the Company that the Underwriters do not intend
to confirm discretionary sales in excess of 5% of the shares of Common Stock
offered hereby.

The Company has granted to the Underwriters an option, exercisable no later
that 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
by it shown in the above table bears to the total number of shares of Common
Stock offered hereby. The Company will be obligated, pursuant to the option,
to sell shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.

70
<PAGE>

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

The Company's officers, directors and certain stockholders of the Company,
who will own in the aggregate 5,825,418 shares of Common Stock after this
offering and the Concurrent Placement, have agreed that they will not, without
the prior written consent of Hambrecht & Quist LLC, offer, sell, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares
of Common Stock or securities exchangeable for or convertible into shares of
Common Stock owned by them during the 180-day period following the date of
this Prospectus. The Company has agreed that it will not, without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any share of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following the date of this Prospectus, except
that the Company may issue shares upon the exercise of options granted and
warrants outstanding prior to the date hereof, and may grant additional
options under the Equity Incentive Plan, provided that, without the prior
written consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.

Piper Jaffray Inc. is affiliated with U.S. Bancorp, which is a lender to the
Company pursuant to the $2.0 million Term Loan and $10.0 million Line of
Credit (see "Use of Proceeds"). As of the date of this Prospectus, U.S.
Bancorp has advanced approximately $2.0 million and $8.7 million to the
Company pursuant to the Term Loan and Line of Credit, respectively. The
Company intends to repay the Term Loan and the outstanding balance on the Line
of Credit with a portion of the proceeds from this offering. The decision of
Piper Jaffray Inc. to underwrite the offering was made independently of U.S.
Bancorp, which had no involvement in determining whether or when to underwrite
the offering or the terms thereof. Piper Jaffray Inc. will not receive any
benefit from this offering other than its respective portion of the
underwriting commission payable by the Company. Since it is anticipated that
more than 10 percent (10%) of the proceeds from this offering (excluding
underwriting commissions) will be received by an affiliate of Piper Jaffray
Inc., this offering has been conducted pursuant to Rule 2710(c)(8) of the NASD
Conduct Rules. In accordance with such rule, Hambrecht & Quist LLC has agreed
to act as a qualified independent underwriter ("QIU") pursuant to the
requirements of Rule 2720(c)(3) of the NASD Conduct Rules. In connection with
Rule 2720(c)(3), the initial public offering price of the Company's Common
Stock was set at a price which is no higher than that recommended by Hambrecht
& Quist LLC, as a QIU. Moreover, Hambrecht & Quist LLC, as a QIU, has
performed due diligence investigations and has reviewed and participated in
the preparation of this Prospectus.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiation among the Company and the Representatives. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, revenues and earnings of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's
management and other factors deemed relevant.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

71
<PAGE>

An aggregate of 210,000 shares of the Common Stock offered hereby have been
reserved for purchase from the Underwriters through a directed share program
by persons having relationships with the Company. Such sales will be at the
initial public offering price. The number of shares of Common Stock available
for sale to the general public in the offering was reduced to the extent such
persons purchase the reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same terms as
the other shares offered hereby. The directed share program was conducted by
the Underwriters in compliance with the NASD Conduct Rule 2110.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward llp, Boulder, Colorado. As of the date
hereof, certain members of Cooley Godward llp beneficially own 4,740 shares of
the Company's Common Stock. Certain legal matters will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California and
Denver, Colorado.

EXPERTS

The consolidated financial statements of the Company as of December 31, 1996
and 1997 and for the fiscal years ended December 31, 1995, December 28, 1996
and December 31, 1997, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

The financial statements of Sunrise Organic Farms, Inc. for the fiscal year
ended December 31, 1996 have been audited by Eide Helmeke PLLP, Fargo, North
Dakota, independent certified public accountants. Such financial statements
have been included herein in reliance upon the report of Eide Helmeke PLLP.
The financial statements as of December 31, 1996 were audited by Eide Helmeke
PLLP, who merged with Charles Bailly & Company PLLP as of May 1, 1998, and
whose report dated April 9, 1997, expressed an unqualified opinion.

The statements in this Prospectus under the captions "Risk Factors--
Possibility of Adverse Effects Resulting from United States Dairy Support
Program and Federal Milk Marketing Orders" and "Business--Government
Regulation", solely insofar as they constitute summaries of USDA and state
dairy regulatory provisions, have been reviewed and approved by Ober, Kaler,
Grimes and Shriver, as experts on such matters, and are included herein in
reliance upon that review and approval.

ADDITIONAL INFORMATION

The Company has filed with the SEC, Washington, D.C., 20549, a Registration
Statement on Form S-1 under the Act, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and the exhibits and schedules filed as
part thereof. Statements contained in this Prospectus as to the contents of
any contract or document filed as an exhibit to the Registration Statement are
qualified by reference to such exhibit as filed. A copy of the Registration
Statement, and the exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the SEC in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the Registration
may be obtained from such offices upon the payment of the fees prescribed by
the SEC. The SEC maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the SEC. The address of the SEC's World Wide Web site
is http://www.sec.gov.

72
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HORIZON ORGANIC HOLDING CORPORATION
Independent Auditors' Report of KPMG Peat Marwick LLP.................... F-2
Independent Auditor's Report of Eide Helmeke PLLP........................ F-3
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Stockholders' Equity.......................... F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-9
SUNRISE ORGANIC FARMS, INC.
Independent Auditor's Report............................................. F-22
Financial Statements:
Balance Sheet............................................................ F-23
Statement of Income...................................................... F-25
Statement of Stockholders' Equity........................................ F-26
Statement of Cash Flows.................................................. F-27
Notes to Financial Statements............................................ F-28
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Horizon Organic Holding Corporation:

We have audited the accompanying consolidated balance sheets of Horizon
Organic Holding Corporation and subsidiaries (Company) as of December 28, 1996
and December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1995, the
52 weeks ended December 28, 1996 and the year ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion in these consolidated
financial statements based on our audits. We did not audit the financial
statements of Sunrise Organic Farms, Inc. (Aurora Dairy Corporation of Idaho,
Inc.) (Sunrise), a 23.78 percent and 26.825 percent owned investee company as
of December 31, 1995 and December 28, 1996, respectively. The Company's
investment in and advances to Sunrise at December 28, 1996 were $2,624,000, of
which $863,000 represents the Company's proportionate share of Sunrise's net
assets. The Company recognized losses from Sunrise of $85,000 and $158,000 for
the year ended December 31, 1995 and the 52 weeks ended December 28, 1996,
respectively, of which $44,000 and $77,000, respectively, represents the
Company's proportionate equity in losses recognized by Sunrise. The financial
statements of Sunrise were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts
included for Sunrise, is based solely on the report of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Horizon Organic Holding
Corporation and subsidiaries as of December 28, 1996 and December 31, 1997 and
the results of their operations and their cash flows for the year ended
December 31, 1995, the 52 weeks ended December 28, 1996 and the year ended
December 31, 1997, in conformity with generally accepted accounting
principles.

/s/ KPMG Peat Marwick LLP

Boulder, Colorado
May 6, 1998

F-2
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)
WESTMINSTER, COLORADO

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1995
WITH INDEPENDENT AUDITOR'S REPORT

INDEPENDENT AUDITOR'S REPORT

The Board of Directors
Sunrise Organic Farms, Inc.
(f/k/a Aurora Dairy Corporation of Idaho, Inc.)
Westminster, Colorado

We have audited the accompanying balance sheet of Sunrise Organic Farms,
Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.) as of December 31, 1995,
and the related statements of operations, stockholders' equity and cash flows
for the year ended 1995. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunrise Organic Farms,
Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.), as of December 31, 1995,
and the results of its operations and its cash flows for the year ended 1995,
in conformity with generally accepted accounting principles.

/s/ Eide Helmeke PLLP
April 9, 1997
Fargo, North Dakota

F-3
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 28, 1996, DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
1996 1997 1998
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 600 404 811
Trade accounts receivable, less allowance for
doubtful accounts of $48 in 1996, $49 in 1997
and $55 in 1998................................. 1,177 2,393 2,749
Inventories...................................... 561 4,870 4,436
Deferred tax assets.............................. -- 55 56
Other current assets............................. 44 292 433
------- ------ ------
Total current assets........................... 2,382 8,014 8,485
------- ------ ------
Property, Equipment and Cattle:
Cattle, net...................................... -- 7,652 8,541
Property and equipment, net...................... 104 14,238 14,670
------- ------ ------
Total property, equipment and cattle........... 104 21,890 23,211
------- ------ ------
Other Assets:
Note receivable from Aurora Dairy Corporation.... -- 250 250
Goodwill, net of accumulated amortization of
$102 in 1997 and $141 in 1998................... -- 2,205 2,166
Other assets, net................................ 122 378 389
Investment in and advances to Sunrise Organic
Farms, Inc...................................... 2,624 -- --
------- ------ ------
Total other assets............................. 2,746 2,833 2,805
------- ------ ------
Total Assets................................. $ 5,232 32,737 34,501
======= ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Cash overdrafts.................................. $ 169 -- --
Trade accounts payable........................... 753 3,841 4,080
Current portion of long-term debt................ -- 553 575
Term loan........................................ 244 -- --
Payable to affiliates............................ 513 -- --
Other accrued expenses........................... 275 685 1,310
Income taxes payable............................. 14 -- --
------- ------ ------
Total current liabilities...................... 1,968 5,079 5,965
------- ------ ------
Long-Term Liabilities:
Long-term debt, less current portion............. -- 17,960 18,970
Deferred income tax liabilities.................. -- 812 770
------- ------ ------
Total long-term liabilities...................... -- 18,772 19,740
------- ------ ------
Total liabilities.............................. 1,968 23,851 25,705
------- ------ ------
Stockholders' Equity (Deficit):
Preferred stock, $.001 par value, authorized
2,000,000 shares; no shares issued or
outstanding..................................... -- -- --
Common stock, $.10 par value; authorized
10,000,000 shares; issued and outstanding
3,648,700 shares in 1996........................ 365 -- --
Common stock, $.001 par value; authorized
8,000,000 shares; issued 5,172,418 and
5,176,341 shares and outstanding 5,052,418 and
5,056,341 shares in 1997 and 1998, respective-
ly.............................................. -- 5 5
Additional paid-in capital....................... 4,248 11,834 11,859
Accumulated deficit.............................. (1,349) (2,371) (2,486)
------- ------ ------
Treasury stock, 120,000 shares in 1997 and
1998, at cost................................. -- (582) (582)
------- ------ ------
Total stockholders' equity..................... 3,264 8,886 8,796
------- ------ ------
Total Liabilities and Stockholders' Equity... $ 5,232 32,737 34,501
======= ====== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

YEAR ENDED DECEMBER 31, 1995, 52 WEEKS ENDED DECEMBER 28, 1996,
YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31,
-------------
1995 1996 1997 1997 1998
------ ------ ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $7,246 15,986 29,565 6,134 10,102
Cost of sales........................... 5,517 11,425 22,639 5,113 7,055
------ ------ ------ ----- ------
Gross profit........................ 1,729 4,561 6,926 1,021 3,047
------ ------ ------ ----- ------
Operating expenses:
Selling............................... 1,620 3,270 5,656 1,147 2,132
General and administrative............ 633 1,066 2,384 399 581
------ ------ ------ ----- ------
Total operating expenses............ 2,253 4,336 8,040 1,546 2,713
------ ------ ------ ----- ------
Operating income (loss)............. (524) 225 (1,114) (525) 334
------ ------ ------ ----- ------
Other income (expense):
Equity in loss of Sunrise Organic
Farms, Inc........................... (85) (158) -- -- --
Interest income....................... -- 68 53 -- --
Interest expense, net of interest
capitalized of $330 during 1997...... (35) (94) (1,126) (153) (492)
Other, net............................ (2) -- (35) -- --
------ ------ ------ ----- ------
Total other expense................. (122) (184) (1,108) (153) (492)
------ ------ ------ ----- ------
Income (loss) from continuing
operations before income taxes and
minority interest.................. (646) 41 (2,222) (678) (158)
------ ------ ------ ----- ------
Income tax benefit (expense)............ 30 (14) 513 64 43
Minority interest in loss of
subsidiary............................. -- -- 687 571 --
------ ------ ------ ----- ------
Income (loss) from continuing
operations......................... (616) 27 (1,022) (43) (115)
------ ------ ------ ----- ------
Discontinued dairy operations:
Loss from operations (net of income
tax benefit of $113)................. (406) -- -- -- --
Gain on disposal (net of income tax
expense of $143)..................... 513 -- -- -- --
------ ------ ------ ----- ------
Income from discontinued
operations......................... 107 -- -- -- --
------ ------ ------ ----- ------
Net income (loss)................... $ (509) 27 (1,022) (43) (115)
====== ====== ====== ===== ======
Net income (loss) per share basic and
diluted:
Continuing operations................. $ (.22) .01 (.23) (.01) (.02)
Operations discontinued and sold...... .04 -- -- -- --
------ ------ ------ ----- ------
Net income (loss) per share........... $ (.18) .01 (.23) (.01) (.02)
====== ====== ====== ===== ======
Weighted average shares outstanding:
Basic................................. 2,791 3,264 4,488 3,659 5,056
Diluted............................... 2,791 3,283 4,488 3,659 5,056
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

YEAR ENDED DECEMBER 31, 1995, 52 WEEKS ENDED DECEMBER 28, 1996,
YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ----------------- PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
---------- ------ --------- ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 2,672,300 $ 267 -- $-- $ 1,657 $ (867) $ -- $1,057
Issuance of common
stock upon conversion
of a portion of a note
payable to
stockholder........... 100,000 10 -- -- 115 -- -- 125
Issuance of common
stock for cash........ 100,000 10 -- -- 115 -- -- 125
Net loss............... -- -- -- -- -- (509) -- (509)
---------- ----- --------- ---- ------- ------- ----- ------
Balance at December 31,
1995................... 2,872,300 287 -- -- 1,887 (1,376) -- 798
Issuance of common
stock upon conversion
of certain director
bridge loans.......... 55,212 6 -- -- 172 -- -- 178
Issuance of common
stock for cash, net of
offering costs........ 721,188 72 -- -- 2,189 -- -- 2,261
Net income............. -- -- -- -- -- 27 -- 27
---------- ----- --------- ---- ------- ------- ----- ------
Balance at December 28,
1996................... 3,648,700 365 -- -- 4,248 (1,349) -- 3,264
Exercise of employee
stock options......... 15,300 1 -- -- 50 -- -- 51
Issuance of common
stock for cash, net of
offering costs........ -- -- 855,423 1 4,005 -- -- 4,006
Acquisition of common
stock................. -- -- (120,000) -- -- -- (582) (582)
Issuance of common
stock for senior
subordinated notes
payable............... -- -- 155,000 -- 752 -- -- 752
Exchange of subsidiary
stock for common
stock................. (3,664,000) (366) 3,664,000 4 362 -- -- --
Exercise of employee
stock options......... -- -- 7,750 -- 39 -- -- 39
Stock issued for
acquisition........... -- -- 490,245 -- 2,378 -- -- 2,378
Net loss............... -- -- -- -- -- (1,022) -- (1,022)
---------- ----- --------- ---- ------- ------- ----- ------
Balance at December 31,
1997................... -- -- 5,052,418 5 11,834 (2,371) (582) 8,886
Issuance of stock for
services (unaudited).. -- -- 3,923 -- 25 -- -- 25
Net loss (unaudited)... -- -- -- -- -- (115) -- (115)
---------- ----- --------- ---- ------- ------- ----- ------
Balance at March 31,
1998 (unaudited)....... -- $ -- 5,056,341 $ 5 $11,859 $(2,486) $(582) $8,796
========== ===== ========= ==== ======= ======= ===== ======
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31, 1995, 52 WEEKS ENDED DECEMBER 28, 1996,
YEAR ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31,
--------------
1995 1996 1997 1997 1998
----- ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $(509) 27 (1,022) (43) (115)
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Provision for doubtful accounts...... 29 19 7 7 7
Depreciation and amortization........ 111 56 1,150 76 551
Equity in loss of Sunrise Organic
Farms, Inc.......................... 85 158 509 209 --
Interest receivable from Sunrise
Organic Farms, Inc.................. -- (39) -- -- --
Loss on sale of cattle and
equipment........................... 80 -- 1,006 -- 402
Accretion on senior subordinated
notes payable....................... -- -- 44 -- 20
Deferred income tax benefit.......... -- -- (513) (64) (43)
Gain on disposal of dairy
operations.......................... (656) -- -- -- --
Minority interest in loss of
subsidiary.......................... -- -- (687) (571) --
Change in operating assets and
liabilities:
Trade accounts receivable........... (277) (634) 523 821 (363)
Accounts receivable from
stockholders....................... 144 -- -- --
Inventories......................... 469 (537) (2,690) 20 434
Other current assets................ (9) (35) (220) (190) (115)
Feed deposits....................... 41 -- -- -- --
Trade accounts payable.............. 238 2 1,996 108 239
Payable to affiliates............... 262 251 (513) (513) --
Other accrued expenses.............. 33 241 167 (5) 625
Income taxes payable................ -- 14 (14) (14) --
Deferred rent payable............... (3) -- -- -- --
----- ------ ------- ------ ------
Net cash provided by (used in)
operating activities.............. 38 (477) (257) (159) 1,642
----- ------ ------- ------ ------
Cash flows from investing activities:
Purchase of Sunrise Organic Farms,
Inc.................................. -- -- (3,566) (3,566) --
Investment in Sunrise Organic Farms,
Inc.................................. -- (350) -- -- --
Advance to Sunrise Organic Farms,
Inc.................................. -- (650) -- -- --
Purchases of equipment................ (33) (145) (3,472) (42) (670)
Proceeds from equipment sales......... 5 1 66 -- 45
Purchases of cattle, including
interest capitalized of $330 in
1997................................. (257) -- (3,595) -- (1,716)
Proceeds from cattle sales............ 34 -- 279 -- 183
Cash transferred in disposal of dairy
operations........................... (66) -- -- -- --
Other assets.......................... (18) (47) 285 3 (39)
----- ------ ------- ------ ------
Net cash used in investing
activities........................ (335) (1,191) (10,003) (3,605) (2,197)
----- ------ ------- ------ ------
</TABLE>

F-7
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)

YEAR ENDED DECEMBER 31, 1995, 52 WEEKS ENDED DECEMBER 28, 1996 YEAR ENDED
DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31,
-----------------
1995 1996 1997 1997 1998
------ ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing
activities:
Increase (decrease) in cash
overdrafts..................... $ 20 149 (642) (169) --
Proceeds from line of credit.... 1,326 6,759 24,411 -- 11,450
Repayments of line of credit.... (835) (6,933) (23,918) -- (10,380)
Repayments of term loan......... (375) (131) (244) (31) --
Proceeds from long-term debt,
other than line of credit...... -- -- 6,881 3,566 --
Repayments of long-term debt,
other than line of credit...... -- -- (440) -- (108)
Loan to Aurora Dairy
Corporation.................... -- -- (250) -- --
Proceeds from director bridge
loans.......................... -- 775 -- -- --
Repayments of director bridge
loans.......................... -- (597) -- -- --
Proceeds from issuance of common
stock, net..................... 125 2,261 4,848 52 --
Payments to acquire treasury
stock.......................... -- -- (582) -- --
Loan origination costs.......... -- (20) -- -- --
------ ------- -------- ------- --------
Net cash provided by
financing activities........ 261 2,263 10,064 3,418 962
------ ------- -------- ------- --------
Net increase (decrease) in cash
and cash equivalents............ (36) 595 (196) 346 407
Cash and cash equivalents at
beginning of year............... 41 5 600 600 404
------ ------- -------- ------- --------
Cash and cash equivalents at end
of year......................... $ 5 600 404 253 811
====== ======= ======== ======= ========
Supplemental disclosure of cash
flow information:
Cash paid during the year for
interest, net of amount
capitalized of $330............ $ 151 97 1,024 8 458
====== ======= ======== ======= ========
Cash paid during the year for
income taxes................... $ -- -- 31 23 --
====== ======= ======== ======= ========
Noncash investing and financing
activities:
Additional capital lease
obligations................... $ -- -- 88 -- 50
====== ======= ======== ======= ========
The Company purchased the
remaining 73.175% of common
stock of Sunrise Organic
Farms, Inc. in connection with
this acquisition, assets
acquired and liabilities were
assumed as follows:
Fair value of assets
acquired..................... $ -- -- 23,751 18,610 --
Cash paid for common stock.... -- -- (3,566) (3,566) --
Company stock issued for
common stock................. -- -- (2,378) -- --
------ ------- -------- ------- --------
Liabilities assumed.......... $ -- -- 17,807 15,044 --
====== ======= ======== ======= ========
Common stock issued for
services........................ $ -- -- -- -- 26
====== ======= ======== ======= ========
Sale of dairy net assets in
exchange for investment in
Sunrise Organic Farms, Inc...... $1,829 -- -- -- --
Issuance of common stock upon
conversion of debt:
Director bridge loans........... -- 178 -- -- --
Long-term debt payable to
stockholder.................... 125 -- -- -- --
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, DECEMBER 28, 1996 AND DECEMBER 31, 1997
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

(1) BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Horizon Organic Holding Corporation (Company) is involved in the production
and marketing of organic milk and other organic dairy products sold to natural
food stores and supermarkets nationwide.

The Company was established in October 1991 and, prior to May 1997, was
involved only in the marketing of organic milk and other organic dairy
products except for a portion of 1994 and 1995 in which the Company produced
conventional milk through a dairy operation which was disposed of May 31,
1995. In March 1997, the Company acquired and began producing organic milk
through a dairy operation located in Idaho from which the Company had
previously purchased milk.

On January 1, 1996, the Company changed its fiscal year end from December 31
to the Saturday nearest to December 31, beginning with the fiscal year ended
December 28, 1996. On June 30, 1997, the Company changed its fiscal year to a
December 31 year end. Accordingly, the accompanying consolidated financial
statements are presented for the year ended December 31, 1995, the 52 weeks
ended December 28, 1996 and the year ended December 31, 1997.

Unaudited Interim Consolidated Financial Statements

The unaudited interim consolidated financial statements as of March 31, 1998
and for the three months ended March 31, 1997 and 1998, are unaudited but, in
the opinion of management, include all adjustments, consisting of normal
recurring adjustments, which are necessary for a fair presentation of
financial condition, results of operations, and cash flows. The operating
results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Prior to 1997, the Company consisted of one entity, Horizon Organic Dairy,
Inc. For the year ended December 31, 1997, the consolidated financial
statements include the accounts of all subsidiaries including Horizon Organic
Dairy, Inc.; Horizon Organic Dairy, Idaho Farm, Inc.; and Horizon Organic
Dairy, Maryland Farm, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments and securities with
original maturities of three months or less at the time of purchase to be cash
equivalents.

Inventories

Inventories are stated at the lower of cost (average cost or first-in,
first-out method) or market.

Property, Equipment and Cattle

Property, equipment and cattle are carried at cost. Property (other than
land) is depreciated using accelerated methods over the estimated useful lives
which range from 20 to 27 years. Equipment and cattle

F-9
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

are depreciated using an accelerated method over the estimated useful lives
which range from five to seven years.

The cost of cattle includes preproduction costs incurred from the time
cattle arrive at the dairy until they enter the milking herd.

Other Assets

Other assets consist principally of loan origination fees and artwork and
plates. The cost of artwork and plates are amortized using the straight-line
method over three years. The loan origination fees are amortized using the
interest method over the term of the respective loan. Accumulated amortization
of loan origination fees, organization costs and artwork at December 28, 1996
and December 31, 1997 totaled $45,000 and $103,000, respectively.

Goodwill

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
period to be benefited of 15 years.

Revenue Recognition

Net sales are recognized at the time of shipment, and provisions are made
for allowances, returns and guarantees. Sales to new customers are at times
made on a 90-day guarantee basis; if the customer is unable to sell all of the
Company's products during the first 90 days after it becomes a customer, the
Company issues a credit for unsold inventory. Estimated returns are recognized
as a reduction to accounts receivable.

Advertising Costs

Advertising costs are expensed in the fiscal year incurred. Advertising
costs, which are included in selling expenses, totaled $260,000, $51,000 and
$33,000 during 1995, 1996 and 1997, respectively.

Income Taxes

The Company operated as an S corporation for federal income tax purposes
through May 31, 1995. On June 1, 1995, the Company terminated its S
corporation election. Since June 1, 1995, the Company has accounted for income
taxes in accordance with Statement of Financial Accounting Standards No. 109
(SFAS No. 109), Accounting for Income Taxes.

Under SFAS No. 109, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the period
that includes the enactment date.

Earnings Per Share

The Company has adopted the requirements for Statement of Financial Account
Standards No. 128, Earnings Per Share (SFAS 128) for all periods presented.
SFAS 128 requires that a disclosure of "basic" earnings per share and
"diluted" earnings per share. Basic earnings per share is computed by dividing
income (loss) available to common stockholders by the weighted average number
of common shares outstanding. Diluted earnings per share is computed by
dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding increased for potentially dilutive
common shares

F-10
<PAGE>

outstanding during the period. The dilutive effect of stock options, warrants,
and their equivalents is calculated using the treasury stock method. The
dilutive effect of the exercise of options and warrants has not been included
in the calculation of diluted earnings per share because the effect in loss
years is antidilutive.

Stock Option Plan and Stock Option Agreements

Prior to January 1, 1996, the Company accounted for its stock option plan
and stock option agreements in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense was
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation, which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income disclosures for employee stock option grants made in 1995 and
thereafter as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures required by SFAS No. 123.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows (without interest costs) expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. The Company has recorded no impairment losses.

Employee Benefit Plan

The Company has a defined contribution retirment plan (Plan) under which
eligible employees may elect to defer current compensation by up to certain
statutorily prescribed annual limits and contribute such amount to the Plan.
The Plan provides for the Company to match an employee's contribution in an
amount up to 3% of such employee's compensation. The Company contributed
$33,000 to the Plan for the year ended December 31, 1997.

Significant Customers

The Company has a distributor which is comprised of four regional
distributors who have independent purchasing arrangements with the Company.
Net sales to these regional distributors, individually, is less than 10% of
total net sales.

Use of Estimates

The preparation of consolidated 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
consolidated financial statements and the reported amounts of sales and
expenses during the reporting period. Actual results could differ
significantly from those estimates.

Reclassifications

Certain reclassifications have been made to the 1995 and 1996 financial
statements to conform with the 1997 presentation.

F-11
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) ACQUISITION OF SUNRISE ORGANIC FARMS, INC.

At December 28, 1996, the Company owned a 26.825% interest in Sunrise
Organic Farms, Inc. (Sunrise). The remaining interest in Sunrise was owned by
certain stockholders and directors of the Company. The Company accounted for
its investment in Sunrise using the equity method. Consistent with a 1995
option agreement with Sunrise, on March 20, 1997 the Company entered into an
agreement with Sunrise to acquire the remaining 73.175% (293,694 shares) of
Sunrise's issued and outstanding common stock. The purchase took place in two
separate closings. At the first closing on March 20, 1997, the Company
purchased 176,216 shares of Sunrise common stock at $20.24 per share for an
aggregate purchase price of $3,566,514. Payment was made with subordinated
promissory term notes. At the second closing on May 29, 1997, the Sunrise
stockholders assigned their remaining 117,478 shares of common stock in
Sunrise valued at $20.24 per share to the Company in exchange for $2,377,688
of the Company's common stock based on the estimated fair value of the common
stock as negotiated between Sunrise and the Company. Also, at the second
closing, the Sunrise stockholders received, on a pro rata basis, warrants to
acquire 69,118 shares of the Company's common stock at an exercise price of
approximately $5.34 or 110% of the per share purchase price paid by the
investors in the private placement for the Company's stock of $4.85 per share.
These warrants expire in March 1999.

The acquisition has been accounted for by the purchase method and the
results of operations of Sunrise have been included in the Company's
consolidated financial statements from January 1, 1997, with a corresponding
minority interest recorded for Sunrise's proportionate share of losses for the
period from January 1, 1997 through May 31, 1997. The excess of the purchase
price over the fair value of the net identifiable assets acquired of
$2,306,736 has been recorded as goodwill.

The following unaudited pro forma financial information presents the
combined results of operations of the Company and Sunrise as if the
acquisition had occurred at the beginning of 1997 and 1996, after giving
effect to certain adjustments, including amortization of goodwill, additional
depreciation expense, increased interest expense on debt related to the
acquisition, and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the Company and Sunrise constituted a single entity during
such periods.

<TABLE>
<CAPTION>
52 WEEKS ENDED YEAR ENDED
DECEMBER 28, DECEMBER 31,
1996 1997
-------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales........................................ $21,921 29,565
======= ======
Net loss......................................... $ (741) (1,974)
======= ======
</TABLE>

(4) INVENTORIES

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Grain and feed..................................... $-- 3,662
Crops growing, fertilizer and other................ -- 325
Finished goods..................................... 475 820
Raw materials...................................... 86 63
---- -----
$561 4,870
==== =====
</TABLE>

F-12
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(5) INVESTMENT IN AND ADVANCES TO SUNRISE ORGANIC FARMS, INC.

The Company's share of Sunrise's undistributed losses prior to the 1997
acquisition totaled $44,000 (23.78%) for the period from June 1, 1995 through
December 31, 1995 and $77,000 (26.825%) for the 52 weeks ended December 28,
1996. The losses recognized by the Company include the amounts stated above
and amortization of intangible assets recognized by the Company in excess of
the Company's proportionate share of Sunrise's net assets as reflected in
Sunrise's financial statements.

In June 1996, the Company advanced $650,000 to Sunrise under the terms of a
note receivable. The note bore interest at a rate of 12.5%. The note was due
and payable in full upon the earlier of December 31, 1999 or upon any
occurrence of an event of default, as defined. Interest was payable monthly,
commencing April 30, 1997, unless Sunrise's audited results do not show a
profit. Accrued interest totaling $39,000 is included in "investment in and
advances to Sunrise" at December 28, 1996. The note receivable was eliminated
through the purchase of Sunrise.

(6) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Land and water rights............................... $ -- 2,799
Dairy and feedlot................................... -- 8,600
Rolling stock, vehicles and farm equipment.......... -- 1,373
Cream separator..................................... 551
Employee housing.................................... -- 930
Intermediate crop life.............................. -- 50
Office equipment and other.......................... 173 477
---- ------
173 14,780
Less accumulated depreciation..................... (69) (542)
---- ------
Total property and equipment...................... $104 14,238
==== ======
</TABLE>

Included in property and equipment is $2,790,000 of purchases of land, dairy
and feedlot, rolling stock, vehicles and farm equipment, and employee housing
for the construction of a dairy in Maryland which began production in 1998.
The Company expects to incur additional costs of approximately $500,000 to
complete the construction of this dairy in 1998.

(7) CATTLE

Cattle consists of the following (dollars in thousands):

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Number of head--milking cows....................... -- 4,566
Number of head--replacement heifers................ -- 1,949
---- -----
Total cattle....................................... -- 6,515
==== =====
Cost--milking cows................................. $-- 6,568
Cost--replacement heifers.......................... -- 1,511
---- -----
-- 8,079
Less accumulated depreciation.................... -- (427)
---- -----
$-- 7,652
==== =====
</TABLE>

F-13
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has reflected its investment in cattle at cost. Cattle are
depreciated using the straight-line method over 5 years to an estimated
salvage value of $325 per head.

(8) LINE OF CREDIT AND TERM LOAN

In November 1995, the Company entered into a credit agreement with a finance
company, providing for two types of advances. The credit agreement, as amended
in October 1996, provided for advances based on 75% of the Company's eligible
trade accounts receivable, up to $2,000,000 (line of credit). The credit
agreement also provided for an additional advance in the form of a term loan
in the amount of $275,000 (term loan). The aggregate amount outstanding on the
line of credit and the term loan could not exceed $2,000,000. Borrowings under
the credit agreement were secured by substantially all assets of the Company.
Amounts outstanding under the line of credit and term loan as of December 28,
1996 were $244,000. The credit agreement was terminated in 1997 and replaced
by the revolving line of credit (note 9).

(9) LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

DECEMBER 31,
-------------
1996 1997
-------------
Subordinated notes payable with interest payable in monthly
installments at prime (8.5% at December 31, 1997) plus 1%,
with the unpaid balance due upon the earlier of March 20,
2002, or the Company completing an initial public offer-
ing....................................................... $ -- 3,566
Senior subordinated notes payable with interest at 11%,
payable in quarterly installments with the unpaid balance
due upon the earlier of May 29, 2003, or the Company com-
pleting an initial public offering........................ -- 2,392
Note payable to Farm Credit Services with interest at
7.79%, payable in monthly installments with the unpaid
balance due July 1, 2010, personally guaranteed by a
stockholder............................................... -- 3,851
Revolving line of credit with U.S. Bancorp Ag Credit, Inc.
with maximum borrowing of $10,000,000 with interest at
prime plus 1.25%, secured by substantially all assets of
the Company, due June 30, 1999............................ -- 6,953
Note payable to 44 Exchange Services with interest at 8%,
payable in monthly installments with the unpaid balance
due October 27, 2002 secured by certain property.......... -- 100
Note payable to Peoples Bank of Kent County, Maryland with
interest at 9%, payable in monthly installments with the
unpaid balance due October 27, 2002 secured by certain
property.................................................. -- 700
Obligations under capital leases with terms from two to
five years with imputed interest rates ranging from 7.42%
to 13.46% secured by related equipment some of which are
personally guaranteed by a stockholder.................... -- 951
----- -------
Total long-term debt..................................... -- 18,513
Less current portion....................................... -- (553)
----- -------
Long-term debt, excluding current portion................ $-- 17,960
===== =======

F-14
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On May 29, 1997, in connection with the senior subordinated notes (Notes)
due May 29, 2003, the Company issued 155,000 shares of its $.001 par value
common stock. Accordingly, the Company recorded the $3,100,000 face amount
notes net of $752,000 which is being accreted using the interest method over
the term of the Notes. Interest expense of $44,000 was recorded in 1997 in
connection with this transaction.

The revolving line of credit, subordinated notes and notes payable contain
certain covenants that, among other things, limit the Company's ability to
incur additional debt, create liens, pay dividends or enter into certain other
transactions, and which require the Company to meet certain financial
provisions.

Aggregate maturities of long-term debt on December 31, 1997 were as follows
(in thousands):

<TABLE>
<S> <C>
December 31:
1998............................................................... $ 553
1999............................................................... 7,206
2000............................................................... 170
2001............................................................... 101
2002............................................................... 4,429
Thereafter......................................................... 6,054
-------
Total............................................................ $18,513
=======
</TABLE>

The aggregate maturities of long-term debt reflect contractual due dates and
do not consider expected payments on long-term debt from the proceeds of a
proposed equity offering.

The Company plans to repay long-term debt with a face amount of
approximately $14.7 million at December 31, 1997 from the proceeds of a
proposed equity offering expected to close in fiscal 1998. The repayment of
debt with a face amount of $3.1 million will result in a loss on
extinguishment. As of December 31, 1997, the loss on extinguishment would have
been approximately $439,000, net of related income tax effects.

(10) INCOME TAXES

Income tax (expense) benefit attributable to income (loss) from continuing
operations consisted of (in thousands):

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1995:
U.S. federal................................... $ 26 -- 26
State.......................................... 4 -- 4
---- --- ---
$ 30 -- 30
==== === ===
52 weeks ended December 28, 1996:
U.S. federal................................... $(11) -- (11)
State.......................................... (3) -- (3)
---- --- ---
$(14) -- (14)
==== === ===
</TABLE>

F-15
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. federal................................... $-- 452 452
State.......................................... -- 61 61
---- --- ---
$-- 513 513
==== === ===
</TABLE>

Income tax (expense) benefit attributable to income (loss) from continuing
operations differed from the amounts computed by applying the U.S. federal
income tax rate of 34% to pretax income (loss) from continuing operations as a
result of the following (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Computed "expected" tax (expense)
benefit............................ $ 220 (14) 755
(Increase) reduction in income taxes
resulting from:
State and local income taxes, net
of federal benefit............... 3 (2) 40
Permanent differences............. (1) (6) (60)
Change in valuation allowance..... (115) (2) 122
Adjustment for partial year S Cor-
poration loss.................... (77) -- --
1997 pre-acquisition losses pur-
chased........................... -- -- (348)
Other, net........................ -- 10 4
----- --- ----
$ 30 (14) 513
===== === ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities are presented below (in thousands):

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Trade accounts receivable, due to allowance for
doubtful accounts............................. $ 18 19
Inventories, due to additional costs
inventoried for tax purposes.................. 4 12
Equipment and cattle depreciation differences.. 3 169
Compensated absences, due to accrual for
financial reporting purposes.................. 6 20
Net operating loss carryforwards............... -- 987
Write off of intangibles in purchase account-
ing........................................... -- 94
Start-up costs capitalized for tax............. -- 170
Investment in Sunrise, due to differences in
basis......................................... 91 --
---- ------
Total gross deferred tax assets.............. 122 1,471
Less valuation allowance for deferred tax as-
sets.......................................... (122) --
---- ------
Net deferred tax assets...................... -- 1,471
Deferred tax liabilities--
step-up of property, equipment and cattle in
acquisition................................... (2,228)
---- ------
Net deferred tax liabilities................. $ -- (757)
==== ======
</TABLE>

F-16
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in
making this assessment. Based upon management's projections of future taxable
income and future taxable income generated from the reversal of deferred tax
liabilities over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize
the benefits of these deductible differences, accordingly, the valuation
allowance of $122,000 in 1996 has been reduced to $-0- in 1997.

At December 31, 1997, the Company has net operating loss carryforwards for
U.S. federal income tax purposes of $2,598,000 which are available to offset
future federal taxable income and expire in the following years (in
thousands):

<TABLE>
<S> <C>
2011.................................................................. $1,870
2012.................................................................. 728
------
Total............................................................... $2,598
======
</TABLE>

(11) DISPOSAL OF DAIRY HERD AND RELATED ASSETS

On May 31, 1995, the Company transferred the assets and liabilities of its
dairy herd and related assets with an estimated fair value of $1,829,000 to
Sunrise (formerly Aurora Dairy Corporation of Idaho, Inc.) (ADCI) in exchange
for 90,373 shares of Sunrise common stock or $20.24 per share as negotiated
between Sunrise and the Company, resulting in a gain of $656,000 on the
disposal of the dairy herd and related assets. In connection with this
transaction, a lease agreement and management agreement with ADCI were
terminated. In 1995, the Company incurred rental expenses totaling $80,000
under the dairy lease and management fees of $20,000. Additionally, the
Company received an option to purchase the shares of Sunrise common stock
currently owned or thereafter acquired by the president of Sunrise (228,141
shares at December 28, 1996 and December 31, 1995) at an option price of
$20.24 per share through December 28, 1996 and December 31, 1999 and at
appraised value beginning January 1, 2000 to December 31, 2005. The president
and affiliates of Sunrise owned approximately 32% and 31% of the common stock
of the Company at December 31, 1997 and 1996, respectively.

The Company's discontinued dairy herd as well as the gain on disposal have
been reflected as discontinued operations in the Company's 1995 statement of
operations. Such discontinued operations had revenues of $967,000 for the year
ended December 31, 1995.

(12) STOCKHOLDERS' EQUITY

In 1995, the Company's Chief Executive Officer purchased 100,000 shares of
common stock for $125,000 by exercising options.

The Company completed a private offering (Offering) of its $.10 par value
common stock during July 1996 for $2.5 million. The Offering consisted of
776,400 shares of common stock at $3.22 per share. The Company received
proceeds of $2,322,000 which was reduced by net offering costs of $61,000 for
721,188 of

F-17
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the shares in the Offering. The remaining 55,212 shares, also at $3.22 per
share, extinguished $178,000 of director bridge loans. The proceeds were used
to: 1) expand the Company's product line to include cream cheese and other
dairy products; 2) advance funds to Sunrise totaling $650,000; 3) repay
$597,000 of director bridge loans; and 4) provide working capital. The Company
repaid $597,000 of the $775,000 director bridge loans in cash.

The Company completed a private offering (Second Offering) of its $.001 par
value common stock on May 29, 1997. The Second Offering consisted of 855,423
shares of common stock at approximately $4.85 per share. Simultaneously, the
Company exchanged all the common stock of Horizon Organic Dairy, Inc. for
common stock of the Company so that only the Company's common stock was
outstanding as of May 29, 1997. The Company received proceeds of $4,149,000
which was reduced by $143,000. Also on May 29, 1997, the Company acquired
120,000 shares of its $.001 par value common stock at $4.85 per share.

On May 29, 1997, the Company issued 155,000 shares of its $.001 par value
common stock in connection with the issuance of the senior subordinated notes
payable due May 29, 2003 (note 9).

In connection with the acquisition of Sunrise, the Company issued 490,245
shares of its $.001 par value common stock at an estimated value of $2,378,000
for common stock of Sunrise.

(13) STOCK OPTION PLAN AND STOCK OPTION AGREEMENTS

In October 1995, the Company reserved 250,000 shares of its common stock for
an incentive stock option plan (Plan) it implemented for key employees. In
December 1997 the Company reserved an additional 500,000 shares for the Plan.
Options are granted at the discretion of the Board of Directors with an
exercise price equal to the stock's estimated fair market value at date of
grant as determined by the Board of Directors.

In fiscal 1995 a total of 345,000 shares were granted by the Board. 100,000
nonqualified shares were granted to the Company's Chief Executive Officer and
were exercised in 1995. 90,000 nonqualified shares were granted to directors
that vested immediately and expire in 2004. 135,000 nonqualified shares were
granted to the Chief Executive Officer that vest 10% in 1995, 20% in 1996, 30%
in 1997, and 40% in 1998, and expire in 2001. 20,000 qualified shares were
granted to employees that fully vest in five years; 25% per year beginning one
year after the grant date and expire in 2000.

In 1996, 113,943 shares were granted by the Board. 70,000 qualified shares
were granted to employees that fully vest in five years; 25% per year
beginning one year after the grant date and expire in 2001. 25,000
nonqualified shares were granted to directors and vest in five years; 25% per
year beginning one year after grant date and expire in 2001. 2,143
nonqualified shares were granted to an outside consultant that vest
immediately and expire in 1999. 16,800 qualified shares were granted to
employees that vest immediately and expire in 1997.

In fiscal 1997 a total of 214,125 shares were granted by the Board. 4,000
nonqualified shares were granted to outside agents that vest immediately and
expire in 2000. 186,125 qualified shares were granted to employees that fully
vest in five years; 25% per year beginning one year after grant date and
expire in 2002. 9,000 qualified shares were granted to employees that fully
vested on November 1, 1997 and expired on November 30, 1997. 15,000
nonqualified shares were granted to directors that fully vest in five years,
or 25% per year beginning one year after grant date and expire in 2002.

The per share weighted-average fair value of stock options granted during
1995, 1996 and 1997 was $0.26, $0.70 and $1.12, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1995--no expected dividend yield, risk-free
interest rates

F-18
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

ranging from 5.55% to 7.56% depending on the life of the option, and expected
option lives ranging from 5 to 9 years; 1996--no expected dividend yield,
risk-free interest rates ranging from 5.44% to 6.73% depending on the life of
the option, and expected option lives ranging from 3 to 5 years; 1997--no
expected dividend yield, risk-free interest rates ranging from 5.78% to 5.80%
depending on the life of the option, and expected option lives ranging from 3
to 4 years.

The Company applies the principles in APB Opinion No. 25 in accounting for
its Plan and stock option agreements and, accordingly, no compensation cost
has been recognized for its stock options in the accompanying consolidated
financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced, or net loss increased, to the
pro forma amounts indicated below (in thousands):

<TABLE>
<CAPTION>
FOR FISCAL YEAR
------------------
1995 1996 1997
----- ---- ------
<S> <C> <C> <C>
Net income (loss), as reported........................... $(509) 27 (1,022)
===== === ======
Net income (loss), pro forma............................. $(544) 14 (1,037)
===== === ======
</TABLE>

The above pro forma disclosures are not necessarily representative of the
effect on the reported net income (loss) for future periods because options
vest over several years and additional awards are made each year. In addition,
compensation cost for options granted prior to January 1, 1995, has not been
considered.

Stock option activity during the years indicated was as follows:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF RANGE OF AVERAGE
SHARES EXERCISE PRICES EXERCISE PRICE
--------- --------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1994........ --
Granted........................... 345,000 $1.25--$2.10 $1.63
Exercised......................... (100,000) $1.25 $1.25
--------
Balance at December 31, 1995........ 245,000 $1.25--$2.10 $1.78
Granted........................... 113,943 $2.00--$3.50 $3.29
Canceled.......................... (5,000) $2.00 $2.00
--------
Balance at December 28, 1996........ 353,943 $1.25--$3.50 $2.53
Granted........................... 214,125 $4.85--$6.50 $5.60
Exercised......................... (23,050) $3.38--$5.05 $3.94
Canceled.......................... (4,750) $3.38--$5.05 $4.52
--------
Balance at December 31, 1997........ 540,268 $1.25--$6.50 $3.28
========
Number of options exercisable at
December 31,1997................... 188,629 $1.25--$4.85 $1.51
========
</TABLE>

Canceled options are a result of employee terminations or forfeitures.

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE NUMBER WEIGHTED-
NUMBER REMAINING EXERCISABLE AT AVERAGE EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE DECEMBER 31, 1997 PRICE
-------------- ----------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
$1.25........ 225,000 4.7 163,035 $1.25
2.00....... 18,000 3.0 7,500 2.00
3.22--
3.50....... 92,143 3.3 14,094 3.27
4.85--
6.50....... 205,125 4.4 4,000 4.85
------- -------
540,268 3.8 188,629 $3.28
======= === ======= =====
</TABLE>

F-19
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(14) LEASES

The Company has several noncancelable operating leases, primarily for office
space and office equipment, expiring at various dates from 1998 to 2007. These
leases generally require the Company to pay all executory costs such as
maintenance and insurance. Rent expense totaled $38,000 in 1995, $57,000 in
1996 and $151,000 in 1997.

Future minimum lease payments under noncancelable operating and capital
leases (with initial or remaining lease terms in excess of one year) as of
December 31, 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ended December 31:
1998..................................................... $ 416 236
1999..................................................... 416 223
2000..................................................... 276 199
2001..................................................... 160 176
Thereafter............................................... 303 170
----- -----
Total minimum lease payments........................... 1,571 1,004
=====
Less amounts representing interest......................... (620)
-----
Present value of minimum capital lease payments........ 951
Less current portion....................................... (349)
-----
Capital lease obligations, less current portion........ $ 602
=====
</TABLE>

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, trade accounts
receivable, other current assets, other assets, trade accounts payable, cash
overdrafts, payable to affiliates and other accrued expenses approximate fair
value because of the short maturity of these instruments.

The carrying amount of the note receivable approximates fair value because
the interest rate currently offered by the Company approximates rates
currently offered by lending institutions for loans of similar terms to
companies with comparable credit risk and because the interest rate is
variable.

The carrying amounts of long-term debt approximates fair value because the
interest rates are variable at market rates or because the rates are based on
currently offered rates by lending institutions for similar debt instruments
of comparable maturities.

(16) RELATED PARTY TRANSACTIONS

The Company subleases a portion of its office to a company controlled by a
director and stockholder of the Company. The term of the sublease runs from
October 1, 1997 through December 31, 1998. Rental income under the agreement
is approximately $1,900 per month.

F-20
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A director and stockholder of the Company owns a ranch at which the Company
periodically stores and feeds the Company's cattle for $1.60 per day, per cow.
The Company incurred expenses of approximately $155,000 under this informal
agreement in 1997.

One of the Company's milk processors is controlled by a director of the
Company. Payments to this processor for milk processing were $5,000, $286,000
and $660,000 during 1995, 1996 and 1997, respectively.

Since its inception, the Company has relied in part on loans from related
parties to fund its capital needs. These loans bore interest rates consistent
with market rates of interest had the Company obtained these loans from
independent third parties. No amounts under these loans were due as of
December 31, 1995 and December 28, 1996. Amounts due to related parties under
these loans as of December 31, 1997 were $6,667,000.

The Company pays fees to one of its directors for the guarantee of certain
debt at one percent of the amount guaranteed. During 1997, the Company paid
approximately $55,000 to this director in connection with guarantee fees.

The Company paid management fees to a company controlled by one of its
directors for management of its dairy operations. The Company paid
approximately $210,000 in management fees in 1997. The agreement terminated in
November 1997.

(17) PURCHASE COMMITMENTS

The Company has entered into an agreement with an unaffiliated supplier to
purchase certified organic milk through December 31, 1998. The agreement
requires minimum weekly purchases by the Company which are based on forecasted
requirements, not to be less than established minimums. To the extent that the
Company does not make the required minimum purchases it is required to pay
amounts equal to the difference between the selling price of certified organic
milk and the selling price of conventional milk to the supplier for the
supplier's loss of the organic premium it would have received had the Company
made its required purchases. The Company paid for losses of organic premiums
in connection with milk supply contracts in 1995 and 1996 of $198,000 and
$73,000, respectively. The Company did not incur losses of organic premiums in
connection with milk supply contracts in 1997.

(18) SUBSEQUENT EVENT

On April 8, 1998, the Company acquired certain assets including inventory
and the Juniper Valley Farms brand name for $6,000,000. The acquisition was
financed with two new notes payable; $2,000,000 payable to a bank which bears
interest at prime plus 2% and is due July 31, 1998 and $4,000,000 of which is
non-interest bearing and is due July 8, 1998. The Company also issued a
warrant exercisable for 3,500 shares of common stock with an exercise price of
$8.00 per share which expires April 8, 2000.

F-21
<PAGE>

HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)
WESTMINSTER, COLORADO

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1996
WITH INDEPENDENT AUDITOR'S REPORT

INDEPENDENT AUDITOR'S REPORT

The Board of Directors
Sunrise Organic Farms, Inc.
(f/k/a Aurora Dairy Corporation of Idaho, Inc.)
Westminster, Colorado

We have audited the accompanying balance sheet of Sunrise Organic Farms,
Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.), as of December 31, 1996
and the related statements of operations, stockholders' equity and cash flows
for the year ended 1996. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunrise Organic Farms,
Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.), as of December 31, 1996
and the results of its operations and its cash flows for the year ended 1996
in conformity with generally accepted accounting principles.

/s/ Eide Helmeke PLLP

April 9, 1997
Fargo, North Dakota

F-22
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

BALANCE SHEET-ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Current Assets:
Cash............................................................ $ 5,292
Accounts receivable milk........................................ 306,440
Accounts receivable related party (Note 12)..................... 828,349
Accounts receivable other....................................... 27,287
Inventories (Note 3)............................................ 1,338,464
Prepaid expenses................................................ 294,359
-----------
Total current assets.......................................... 2,800,191
-----------
Cattle:
Cattle (Note 4)................................................. 7,766,729
Accumulated depreciation (loss)................................. (960,235)
-----------
Total cattle.................................................. 6,806,494
-----------
Property and Equipment:
Dairy operations................................................ 3,241,674
Farming operations.............................................. 2,652,652
Equipment and vehicles.......................................... 1,314,981
-----------
7,209,307
Accumulated depreciation (loss)................................. (971,600)
-----------
Total property and equipment.................................. 6,237,707
-----------
Other Assets:
Loan fees and origination costs, net of accumulated amortization
of $23,604
(Note 1) ...................................................... 101,898
Goodwill, net of accumulated amortization of $69,454 (Note 2)... 149,985
Investments (Note 1)............................................ 356,000
Capital retainage with cooperatives (Note 1).................... 262,055
Deferred income taxes (Note 8).................................. 520,000
-----------
Total other assets............................................ 1,389,938
-----------
Total Assets................................................ $17,234,330
===========
</TABLE>

See accompanying Notes to Financial Statements

F-23
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

BALANCE SHEET--LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Current Liabilities:
Accounts payable--trade......................................... $ 381,535
Accrued expenses................................................ 179,124
Current portion of deferred income taxes (Note 8)............... --
Current portion of long-term debt (Note 6)...................... 175,506
Current portion of liability under capital leases (Note 7)...... 245,655
-----------
Total current liabilities..................................... 981,820
-----------
Commitments and Contingencies (Note 9)
Long-Term Debt:
Notes payable, net of current portion (Note 6).................. 11,601,518
Liabilities under capital leases, net of current portion (Note
7)............................................................. 482,252
-----------
Total long-term debt.......................................... 12,083,770
-----------
Deferred income taxes, net of current portion (Note 8)............ 520,000
-----------
Total liabilities............................................. 13,585,570
-----------
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Common stock--no stated value; authorized--10,000,000 shares;
issued and outstanding--401,360 shares ........................ 5,814,695
Accumulated deficit............................................. (2,165,955)
-----------
Total stockholders' equity.................................... 3,648,740
-----------
Total Liabilities and Stockholders' Equity.................. $17,234,330
===========
</TABLE>

See accompanying Notes to Financial Statements

F-24
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Income:
Milk sales...................................................... $11,162,181
-----------
11,162,181
-----------
Operating Expenses:
Cattle costs.................................................... 1,834,651
Milk marketing costs............................................ 291,703
Feed costs...................................................... 6,644,959
Operating payroll............................................... 1,223,788
Dairy operating expenses........................................ 1,304,041
General and administrative...................................... 550,725
-----------
Total operating expenses...................................... 11,849,867
-----------
Operating Loss.................................................... (687,686)
-----------
Interest expense................................................ (571,240)
-----------
Net Loss Before Income Taxes...................................... (1,258,926)
Benefit from Income Taxes
Deferred........................................................ 975,000
-----------
Total Benefit from Income Tax................................. 975,000
-----------
Net Loss.................................................... $ (283,926)
===========
</TABLE>

See accompanying Notes to Financial Statements

F-25
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995...... $5,386,979 $ 0 $(1,882,029) $3,504,950
Issuance of 21,132 shares of
common stock.................. 427,716 -- -- 427,716
Net loss....................... -- -- (283,926) (283,926)
---------- --- ----------- ----------
Balance, December 31, 1996...... $5,814,695 $ 0 $(2,165,955) $3,648,740
========== === =========== ==========
</TABLE>

See accompanying Notes to Financial Statements

F-26
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
1996
----------
<S> <C>
Cash Flows from Operating Activities:
Net loss......................................................... $ (283,926)
Non-cash items included in net income:
Depreciation and amortization.................................. 985,007
Loss on sale of property, equipment and cattle................. 999,244
Deferred income taxes.......................................... (975,000)
Changes in working capital items:
Accounts receivable............................................ (190,475)
Inventories.................................................... 132,325
Prepaid expenses............................................... (287,973)
Accounts payable............................................... (459,313)
Accounts expenses.............................................. 62,478
----------
Net cash used in operating activities........................ (17,633)
Cash Flows from Investing Activities:
Purchase of cattle............................................... (3,472,129)
Proceeds from the sale of cattle................................. 1,698,223
Purchase of property and equipment............................... (131,249)
Proceeds from the sale of property and equipment................. 9,000
Disbursement for loan fees....................................... (37,625)
Other assets..................................................... (133,182)
----------
Net cash used in investing activities........................ (2,066,962)
----------
Cash Flow from Financing Activities:
Capital contributions............................................ --
Proceeds from issuance of common stock........................... 427,716
Proceeds from line of credit borrowings.......................... 1,539,113
Proceeds from issuance of long-term debt......................... 1,200,000
Payments on long-term debt....................................... (912,394)
Payments on capital leases....................................... (242,051)
----------
Net cash provided by financing activities.................... 2,012,384
----------
Net decrease in Cash............................................... (72,211)
Cash, Beginning of Year............................................ 77,503
----------
Cash, End of Year.................................................. $ 5,292
==========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest....................................... $ 281,262
==========
Supplemental Schedule of Non-Cash Financing Activities
Capital lease obligations incurred for use of equipment.......... $ 275,961
==========
</TABLE>

See accompanying Notes to Financial Statements

F-27
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Sunrise Organic Farms, Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.)
was formed on April 28, 1993, pursuant to the laws of the state of Colorado.
Sunrise Organic Farms, Inc. (the Company) is primarily involved in the
commercial and organic dairy and farming industry.

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.

Inventories

Harvested and growing crop inventories are stated at the lower of
accumulated cost or market. Purchased grain and feed inventories and other
inventories are stated at the lower of cost (first-in, first-out) or market.

The Company follows a policy of hedging certain feed inventory. These hedges
are made to reduce the price risk of market fluctuations. These futures
contracts qualify as hedges under the criteria established in Statement of
Financial Accounting Standards No. 80 "Accounting for Futures Contracts".
Accordingly gains or losses arising from closed hedging transactions are
included as a cost of the feed inventory and reflected in the statement of
operations when the product is sold.

Cattle, Property and Equipment

Cattle, property and equipment are carried at cost. The Company provides for
depreciation on cattle, property and equipment using the straight-line method
over the estimated useful lives of the property, which range as follows:

<TABLE>
<S> <C>
Cattle........................................................... 5 years
Buildings and improvements....................................... 25-40 years
Milking barns.................................................... 15-25 years
Equipment........................................................ 10-15 years
Vehicles......................................................... 5 years
Intermediate-life plants......................................... 5 years
Soil conversion costs............................................ 4 years
</TABLE>

The cost of cattle includes preproductive costs incurred from the time the
cattle arrive at the dairy until they enter the milking herd.

Intermediate-life plants represent perennial plants that have growth cycles
of more than one year. The Company classifies alfalfa as an intermediate-life
plant.

Soil conversion costs include costs incurred converting the land to be
certified as organic. The conversion process began in 1994 and will be
complete in 1997.

F-28
<PAGE>

The Company computes depreciation on these assets based upon salvage values
ranging from 35% to 80% of cost. Maintenance and repairs of property and
equipment are charged to operations and major improvements are capitalized.
Upon retirement, sale or other disposition of cattle, property and equipment,
the cost and related accumulated depreciation are removed from the appropriate
asset and depreciation accounts and the resulting gain or loss is reflected in
income.

Intangible Assets

Loan fees and origination costs are being amortized using the straight-line
method. Loan fees are amortized over the life of the related loans.
Organization costs are amortized over the estimated useful life of 5 years.
Goodwill relates to the Company's acquisition of certain assets discussed more
fully in Note 2, and is being amortized over the estimated useful life of 5
years.

Investments

Investments consist of Farm Credit Services stock and are stated at cost.
The Farm Credit Services stock is held in conjunction with the bank debt
discussed in Note 6 and will be refunded as the debt is repaid.

Capital Retainage with Cooperatives

Capital retainage with cooperatives represent the Company's ownership
interest in one milk cooperative. The cooperative retains the capital monthly
from the Company's milk sales. According to the bylaws of the cooperative,
capital retained will ultimately be refunded to the Company.

Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment. As discussed in Note 9, upon termination of "S" Corporation status
for income tax purposes, the Company was required to record additional
deferred income taxes during 1995.

NOTE 2: ISSUANCE OF COMMON STOCK FOR NET ASSETS

On May 31, 1995, the Company issued 82 shares of common stock with a value
of $1,829,113 for certain assets, subject to related liabilities, to Natural
Horizons, Inc. (NHI). Prior to May 31, 1995, the Company had contracted with
NHI to lease one half of its Magic Valley, Idaho dairy facilities to NHI and
had contracted to manage and oversee NHI's organic milk production operations.
Effective May 31, 1995, this agreement was terminated upon the Company
acquiring NHI's organic milk production operation.

The excess of the total acquisition cost over the fair value of the net
assets acquired of $219,438 is being amortized over five years by the
straight-line method.

The acquisition has been accounted for as a purchase and results of
operations of NHI since the date of acquisition are included in the financial
statements. The assets acquired and liabilities assumed are summarized as
follows:

<TABLE>
<S> <C>
Current assets.................................................. $ 569,181
Dairy herd and cattle........................................... 3,036,225
Other assets.................................................... 222,057
Current liabilities............................................. (78,913)
Notes payable, Farm Credit...................................... (2,138,875)
-----------
Net assets acquired........................................... $ 1,609,675
===========
</TABLE>

F-29
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Unaudited results of operations for the five months ended May 31, 1995, for
Aurora Dairy Corporation of Idaho, Inc. reflect a net loss of approximately
$1,407,000.

NOTE 3: INVENTORIES

Inventories consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Grain and Feed................................................... $1,182,928
Crops growing/fertilizer/other................................... 155,536
----------
$1,338,464
==========
</TABLE>

NOTE 4: CATTLE

The Company has reflected its investment in cattle at cost. The cattle are
being depreciated using the straight-line method of accounting over 5 years
with an estimated salvage value of approximately $550 per head. The following
information relates to the cattle at December 31:
<TABLE>
<CAPTION>
1996
-----
<S> <C>
Number of Head--milking cows........................................... 4,440
Number of Head--replacement heifers.................................... 990
-----
Total Cattle......................................................... 5,430
=====
</TABLE>

<TABLE>
<CAPTION>
1996
----------
<S> <C>
Cost--milking cows............................................... $6,764,549
Cost--replacement heifers........................................ 1,002,180
----------
7,766,729
Less: Accumulated Depreciation................................. (960,235)
----------
$6,806,494
==========
</TABLE>

Depreciation expense on cattle totaled $774,316 for the year ended December
31, 1996.

NOTE 5: PROPERTY AND EQUIPMENT

Property and equipment includes the following at December 31:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Dairy facility:
Land........................................................... $ 105,200
Milking equipment.............................................. 1,008,068
Milking barns.................................................. 585,216
Corrals and fencing............................................ 1,543,190
----------
3,241,674
----------
Farms, feedlot, mill and homes:
Land........................................................... 199,676
Buildings and improvements..................................... 1,755,373
Mobile homes................................................... 286,504
Construction in progress....................................... 36,424
Intermediate life plants....................................... 94,675
Soil conversion costs.......................................... 280,000
----------
2,652,652
----------
Equipment and vehicles......................................... 1,314,981
----------
7,209,307
Less accumulated depreciation................................ (971,600)
----------
$6,237,707
==========
</TABLE>

F-30
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Depreciation expense on property and equipment totaled $261,246 for the year
ended December 31, 1996.

NOTE 6: LONG-TERM DEBT

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Revolving line of credit........................................ $ 7,100,000
Term loan....................................................... 4,027,024
Fixed rate subordinated debenture (Related Party)............... 650,000
-----------
11,777,024
Less current maturities....................................... (175,506)
-----------
$11,601,518
===========
</TABLE>

The following is a schedule by year of the approximate maturities of the
long-term debt:

<TABLE>
<S> <C>
Years Ending December 31:
1997.......................................................... $ 175,506
1998.......................................................... 7,289,676
1999.......................................................... 854,991
2000.......................................................... 221,543
2001.......................................................... 239,431
Thereafter.................................................... 2,995,877
-----------
$11,777,024
===========
</TABLE>

The Company has a $7,105,265 revolving line-of-credit agreement with a bank.
Advances bear interest, payable monthly, at a variable rate which is subject
to adjustment by the lender from time to time. The Company has the option to
"carve out" any portion of the unpaid loan balance at any time and covert it
to a fixed rate which is based on the yield of certain U.S. Treasury
securities. At December 1996, the revolving line of credit consists of the
following:

F-31
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<S> <C>
8.07%, variable rate.............................................. $2,500,000
7.80%, fixed rate................................................. 4,600,000
----------
$7,100,000
==========
</TABLE>

The agreement contains provisions relating to submission of timely financial
information, maintenance of financial ratios, and restriction of ownership
transfers and transactions with affiliates. The note is collateralized by
accounts receivable, inventories, cattle, equipment and other assets, and is
guaranteed by a major stockholder. Principal is due in full on June 1, 1998.
The Company has approximately $5,265 of additional borrowing available on the
line of credit at December 31, 1996.

The Company has a term loan agreement with a bank which bears interest at a
variable rate based on the yield of certain U.S. Treasury securities, subject
to a maximum rate of 13.79%. The current interest rate (7.79% at December 31,
1996) will remain in effect until July 1, 2000. At that date and on that date
every five years thereafter, the interest rate may change by a maximum of
4.00%. The note is payable at monthly payments of $40,253, including interest
through July 1, 2010. The agreement contains provisions relating to the
submission of timely financial information, maintenance of financial ratios
and restriction of certain transactions. The note is collateralized by real
estate and personal property, and is guaranteed by a major stockholder.

The fixed rate debenture is payable annually plus interest on the earlier of
April 30th of each year or within 10 business days of the completion of
audited financial statements. The annual payment is required only if the
Company reports a profit on the audited financial statements or if the payment
is authorized by Farm Credit Services. If the Company does not meet the annual
payment terms, the principal and interest are accrued until the payment
conditions are met or upon maturity of the debenture on December 31, 1999.

NOTE 7: LEASES

At December 31, 1996, equipment with a net book value of approximately
$1,154,000 is being leased. The equipment and the related liability under the
capital leases have been recorded at the present value of the future payments,
discounted at rates ranging from 7.55% to 8.20%.

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

<TABLE>
<S> <C>
Years Ending December 31:
1997.............................................................. $290,842
1998.............................................................. 288,660
1999.............................................................. 165,998
2000.............................................................. 67,567
--------
Total minimum lease payments.................................... $813,067
Less: amount representing interest.............................. (85,160)
--------
Present value of net minimum lease payments................... $727,907
========
</TABLE>

F-32
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8: INCOME TAX MATTERS

The Company's net deferred tax liabilities consist of the following
components as of December 31:

<TABLE>
<CAPTION>
1996
--------
<S> <C>
Deferred tax asset:
Net operation loss carryforward.................................. $520,000
Deferred tax liabilities:
Deferred income taxes relating to the carrying value of property
and equipment for financial reporting purposes in excess of the
carrying value for income tax purposes resulting from differing
depreciation and cost capitalization policies................... 520,000
--------
Net deferred tax liabilities..................................... $ --
========
</TABLE>

The components giving rise to the net deferred tax liabilities described
above are included in the accompanying balance sheets as of December 31, are
as follows:

<TABLE>
<CAPTION>
1996
--------
<S> <C>
Non-current assets................................................ $520,000
Noncurrent liabilities............................................ (520,000)
--------
$ --
========
</TABLE>

The components of the (provision for) benefit from income tax benefit
consist of the following:

<TABLE>
<CAPTION>
1996
--------
<S> <C>
Currently payable................................................... $ --
Deferred............................................................ 975,000
--------
$975,000
========
</TABLE>

The Company's operating loss carryforwards of approximately $910,000 expire
through the year 2011.

NOTE 9: COMMITMENTS

Leases

The Company leases farm equipment and vehicles under noncancelable operating
leases expiring in various years through September 1997.

Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 1996, for the
remaining terms of the leases and in aggregate are approximately:

<TABLE>
<S> <C>
Year Ending December 31:
1997............................................................... $19,393
1998............................................................... 3,661
</TABLE>

F-33
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The total rental expense included in the income statements for the year
ended December 31, 1996 is approximately $43,800.

Certain operating leases provide for purchase options, and renewal options
at the fair rental value at the time of renewal. In the normal course of
business, operating leases are generally renewed or replaced by other leases.

Retirement Plan

Eligible employees may participate in a pension and profit-sharing plan (the
Plan), which is administered by a stockholder. Participants can elect to defer
up to 15 percent of their annual compensation and have it contributed to the
Plan. The Company may also make an additional employer contribution at the
discretion of the management of the plan sponsor. Company contributions to the
Plan totaled approximately $17,995 in 1996.

Buy-sell Agreement

The Company has entered into a buy/sell agreement with one of its
stockholders. The Company has the option to purchase, in the event of the
termination of employment of the stockholder, all of the shares of stock owned
by such stockholder, for a value as defined in the agreement.

Purchase Commitments

The Company entered into an agreement for the construction and installation
of a milk separator. The costs to complete the separator are estimated to be
$334,100. The separator will be financed by Farm Credit Lease. As of December
31, 1996, the company advanced $80,000 for the separator.

The Company advanced $10,000 in 1996 for the construction of a building. The
cost to complete the building is estimated to be $125,000.

NOTE 10: STOCKHOLDERS' EQUITY

On December 14, 1995, the Company changed the value of its common stock from
$.01 per share to no par value and issued the 379,847,772 additional common
shares necessary to effect a 1,000 for 1 common stock split.

In connection with the assets exchange agreement, discussed in Note 2, the
Company's majority stockholder granted NHI an option to acquire 204,000 shares
of common stock owned by the majority stockholder. The option is exercisable
through December 31, 2005, at exercise prices as specified in the agreement.
The agreement also contains antidilution provisions with respect to the shares
under option.

NOTE 11: CONCENTRATIONS OF CREDIT RISK

The Company sells virtually all of its milk production to two customers. The
agreement with one customer, who is also a stockholder, is described in Note
12.

NOTE 12: RELATED PARTY TRANSACTIONS

The Company has entered into an agreement with NHI which provides that the
Company will sell substantially all of its certified organic milk production
to NHI at prices established by the agreement. The price per hundred weight is
fixed for the period from first production date through December 31, 1996.

F-34
<PAGE>

SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Thereafter the price can be adjusted each six months based on market
conditions. The agreement contains provisions for disposition in excess of
NHI's requirements and remedial provisions for product rejected by NHI in
excess of one load per 30 day period. In the event NHI does not purchase
production as requested, the agreement contains remedial provisions for the
Company. The Company has agreed to take all necessary steps to cause milk
production to qualify as certified organic under standards established by a
certifying agency acceptable to NHI. The agreement is effective through
December 31, 1999, and may be terminated in writing by either party after
December 31, 1997. If terminated after December 31, 1997, the effective date
of termination shall be two years from the day of written notice. The
agreement will automatically renew for successive two year terms after
December 31, 1999, subject only to agreement as to pricing between the Company
and NHI. The above is intended as a summary of the agreement and does not
contain all detailed provisions of the agreement.

Approximately 47% of the Company's milk sales for 1996 were subject to the
agreement.

The Company pays a corporation, which is a stockholder, a monthly fee for
management, accounting and administrative services provided by the
corporation. Payments to this stockholder totaled approximately $259,000 in
1996, which includes $446,125 of management services provided by the
corporation in connection with the event discussed in Note 2.

The Company's major stockholder personally guarantees substantially all of
the Company's indebtedness. In exchange for this guarantee, the Company pays a
guarantee fee, which totaled $114,000 in 1996.

The financial statements include the following balances and transactions
with stockholders:

<TABLE>
<CAPTION>
1996
----------
<S> <C>
Accounts receivable--milk........................................ $ 564,778
Accounts receivable.............................................. 263,572
Long-term debt................................................... 650,000
Accrued interest................................................. 38,733
Milk sales....................................................... 5,227,587
General and administrative....................................... 576,131
Heifer replacement costs......................................... 90,726
Insurance premiums............................................... 41,764
Prepaid expense.................................................. 100,000
</TABLE>

NOTE 13: SUBSEQUENT EVENT

Subsequent to year end, the issued and outstanding stock of Sunrise Organic
Farms, Inc. was purchased by Horizon Organic Dairy, Inc. and Horizon Organic
Holding Corporation. The acquisition was structured into two phases. The first
phase was the purchase by Horizon Organic Dairy, Inc. of 176,216 shares of
Sunrise Organic Farms, Inc. in exchange for promissory notes in the aggregate
amount of $3,566,514. These shares represented 60% of the stock owned by the
Sunrise Organic Farms, Inc. shareholders other than Horizon Organic Dairy,
Inc.

The second phase of the transaction will be the exchange by the Sunrise
Organic Farms, Inc. shareholders of their remaining 117,748 shares of Sunrise
Organic Farms, Inc. for stock in Horizon Organic Holding Corporation worth
$2,377,676 and warrants for 69,118 shares of Horizon Organic Holding
Corporation's stock. The second closing is expected to occur later in 1997 at
or about the same time as Horizon Organic Holding Company completes a private
placement of its common stock.

F-35
<PAGE>

[Under the caption "Horizon(R) Organic National Production and Distribution
Network": (map of the United States with lines to the following locations with
the following captions: Nonfat Dry Milk Powder Processing, McMinnville, OR;
Cottage Cheese Processing, Eugene, OR; Milk Processing, Petaluma, CA; Contract
Dairy Farms, Modesto, CA; Distribution Warehouse, Union City, CA; Butter
Processing, Sacramento, CA; Milk Processing, Reno, NV; Chocolate Milk
Processing, Cedar City, UT; Horizon Organic Headquarters, Boulder, CO; Milk
Processing, Denver, CO; Cheese Processing, Belleville, Cascade, Fond du Lac,
Plain, and Plymouth, WI; Orange Juice Processing, Groveland, FL*; Egg
Licensee, Jetersville, VA; Horizon Organic Maryland Dairy Farm; Contract Dairy
Farms, Lancaster County, PA; Distribution Warehouse, NY, NY*; Milk Processing,
Roxbury, NY*; Contract Dairy Farms, Upstate NY; Aseptic Milk Processing,
Buffalo, NY*; Distribution Warehouse, Chicago, IL; Contract Dairy Farms, La
Farge, WI; Yogurt and Sour Cream Processing, Richland Center, WI; Cream Cheese
Processing, Luana, IA; Milk Processing, Des Moines, IA; Horizon Organic Idaho
Dairy Farm) over "*Juniper Valley locations" and a key with one green box and
the caption "Operations prior to 1995" and one red box and the caption
"Operations added since 1995." The caption "Horizon(R) owns dairy farms in
Idaho and Maryland and is headquartered in the Boulder, Colorado area. Horizon
began operations in 1992 with a single source of organic farm milk and a
yogurt processor located in Wisconsin and added a fluid milk processor located
in Iowa in 1993. Today, Horizon uses farmers, processors and warehouses in 29
locations across the nation." The Horizon logo]
<PAGE>

[LOGO OF HORIZON ORGANIC DAIRY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 33
Management............................................................... 50
Certain Transactions..................................................... 58
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 72
Experts.................................................................. 72
Additional Information................................................... 72
Index to Financial Statements............................................ F-1
</TABLE>

-----------

UNTIL JULY 27, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

3,000,000 SHARES

COMMON STOCK

--------------
PROSPECTUS
--------------

HAMBRECHT & QUIST

PIPER JAFFRAY INC.

HANIFEN, IMHOFF INC.

JULY 2, 1998