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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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Commission File No. 000-24337
Horizon Organic Holding Corporation
(a Delaware Corporation)
I.R.S. Employer Identification Number 84-1405007
6311 Horizon Lane
Longmont, Colorado 80503
(303) 530-2711
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X. No .
As of November 4, 1998, the registrant had outstanding 9,607,086 shares
of its common stock, $.001 par value per share.
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<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Form 10-Q
Table of Contents
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.................................... 3
Consolidated Statements of Operations.......................... 4 - 5
Consolidated Statements of Cash Flows.......................... 6
Notes to Consolidated Financial Statements..................... 7 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 9 - 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 13
SIGNATURE.............................................................. 14
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financials Statements
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of September 30, 1998 (unaudited) and December 31, 1997
(in thousands, except share amounts)
ASSETS
September 30 December 31
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................... $15,457 $ 404
Marketable securities ......................... 8,873 ---
Trade accounts receivable, net................. 4,409 2,393
Inventories.................................... 5,600 4,870
Deferred income tax assets..................... 69 55
Other current assets........................... 421 292
------- -------
Total current assets....................... 34,829 8,014
Property, Equipment and Cattle
Cattle, net.................................... 9,446 7,652
Property and equipment, net.................... 15,086 14,238
------- -------
Total property, equipment and cattle....... 24,532 21,890
Other Assets:
Note receivable from Aurora Dairy Corporation.. 0 250
Intangible assets, net ........................ 8,276 2,205
Other assets, net.............................. 415 378
------- -------
Total other assets......................... 8,691 2,833
======= =======
Total Assets.......................... $68,052 $32,737
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable......................... $ 4,579 $ 3,841
Current portion of long-term debt.............. 475 553
Other accrued expenses......................... 1,973 685
------- -------
Total current liabilities.................. 7,027 5,079
Long-Term Liabilities:
Long-term debt, less current portion........... 5,076 17,960
Deferred income tax liabilities................ 858 812
------- -------
Total long-term liabilities................. 5,934 18,772
------- -------
Total liabilities...................... 12,961 23,851
------- -------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, authorized
2,000,000 shares; no shares issued or
outstanding --- ---
Common stock, $.001 par value, authorized
30,000,000 and 8,000,000 shares, issued
9,606,676 and 5,172,418 and outstanding
9,606,676 and 5,052,418 shares in 1998
and 1997, respectively............ 9 5
Additional paid-in capital...................... 57,554 11,834
Accumulated deficit............................. (2,472) (2,371)
------- -------
Treasury stock, 120,000 shares in 1997,
at cost --- (582)
------- -------
Total stockholders' equity................. 55,091 8,886
======= =======
Total Liabilities and Stockholders' Equity $68,052 $32,737
======= =======
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
<TABLE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended September 30, 1998 and 1997
(in thousands, except per share amounts)
(unaudited)
1998 1997
---- ----
<S>
<C> <C>
Net sales......................................... $12,762 $ 7,648
Cost of sales..................................... 8,155 5,650
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Gross profit................................ 4,607 1,998
------- -------
Operating expenses:
Selling..................................... 2,967 1,527
General and administrative.................. 906 695
------- -------
Total operating expenses................. 3,873 2,222
------- -------
Operating income (loss)........................... 734 (224)
------- -------
Other (income) expense:
Interest (income) expense, net of capitalized
interest of $66 in 1997..................... (142) 308
Other, net.................................. 2 37
------- -------
Total other (income) expense............. (140) 345
------- -------
Income (loss) before income taxes and
extraordinary item....................... 874 (569)
Income tax benefit (expense) ..................... (352) 147
------- -------
Income (loss) before extraordinary item.. 522 (422)
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit of $253.... (414) ---
======= =======
Net income (loss)........................ $ 108 $ (422)
======= =======
Income (loss) per common share - basic and diluted:
Income (loss) before extraordinary item..... $ .05 $ (.08)
Extraordinary item.......................... (.04) ---
------- -------
Net income (loss) per share................. $ .01 $ (.08)
======= =======
Weighted average shares outstanding, basic.. 9,557 5,045
Weighted average shares outstanding, diluted 10,046 5,045
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
<TABLE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1998 and 1997
(in thousands, except per share amounts)
(unaudited)
1998 1997
---- ----
<S>
<C> <C>
Net sales........................................... $34,657 $20,522
Cost of sales....................................... 23,218 16,021
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Gross profit.................................. 11,439 4,501
------- -------
Operating expenses:
Selling....................................... 7,537 4,007
General and administrative.................... 2,274 1,564
------- -------
Total operating expenses................... 9,811 5,571
------- -------
Operating income (loss).................... 1,628 (1,070)
------- -------
Other (income) expense:
Interest (income) expense, net of
capitalized interest of $254 in 1997........ 992 684
Other, net.................................... 37 40
------- -------
Total other (income) expense............... 1,029 724
------- -------
Income (loss) before income tax, minority
interest and extraordinary item..... 599 (1,794)
Income tax benefit (expense)........................ (286) 366
Minority interest in loss of subsidiary............. --- 687
------- -------
Income (loss) before extraordinary item....... 313 (741)
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit of $253...... (414) ---
------- -------
Net loss................................... $ (101) $ (741)
======= =======
Income (loss) per common share - basic and diluted:
Income (loss) before extraordinary item....... $ .05 $ (.17)
Extraordinary item............................ (.06) ---
------- -------
Net loss per share............................ $ (.01) $ (.17)
======= =======
Weighted average shares outstanding,
basic and diluted......................... 6,573 4,294
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
<TABLE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1998 and 1997
(in thousands)
(unaudited)
1998 1997
---- ----
<S>
<C> <C>
Net cash provided by (used in) operating activities.......$ 2,025 $ (1,915)
Cash flows from investing activities:
Purchases of marketable securities, net............. (8,873) ---
Purchases of equipment.............................. (1,693) (1,606)
Purchases and costs of cattle ...................... (4,353) (2,516)
Payments for acquisitions, net of cash acquired..... (2,140) (3,566)
Proceeds from equipment sales....................... 184 4
Proceeds from cattle sales.......................... 553 282
Other, net.......................................... (120) 503
-------- --------
Net cash used in investing activities........... (16,442) (6,899)
-------- --------
Cash flows from financing activities:
Change in book overdrafts.......................... --- 953
Borrowings under long-term lines of credit......... 25,691 11,550
Payments on long-term lines of credit.............. (32,644) (13,990)
Proceeds from issuance of term note................ --- 5,939
Payment on notes................................... (4,000) ---
Proceeds from long-term debt, other than lines
of credit...................................... 500 ---
Repayments of long-term debt, other than lines
of credit...................................... (6,603) (149)
Payment on term loan............................... --- (66)
Loan to Aurora Dairy Corporation................... 250 (250)
Proceeds from issuance of common stock, net........ 46,276 4,810
Payments to acquire treasury stock................. --- (582)
-------- --------
Net cash provided by financing activities....... 29,470 8,215
-------- --------
Net increase (decrease) in cash and cash equivalents..... 15,053 (599)
Cash and cash equivalents at beginning of period......... 404 600
Cash and cash equivalents at end of period............... $ 15,457 $ 1
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of
amount capitalized of $254 in 1997............ $ 1,115 $ 1,001
======== ========
Cash paid during the period for income taxes....... $ --- $ 23
======== ========
Non-cash investing and financing activities:
Common stock issued for services................... $ 26 $ ---
======== ========
Common stock issued to outside directors........... $ 5 $ ---
======== ========
Additional capital lease obligations............... $ 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
Cash paid for common stock.................... --- (3,566)
Company stock issued for common stock......... --- (2,378)
-------- --------
Liabilities assumed........................ $ --- $ 17,807
======== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share amounts)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared
by Horizon Organic Holding Corporation (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally accompanying financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. In management's
opinion, all adjustments necessary for a fair presentation of the results of
operations for the periods presented have been made and are of a normal and
recurring nature. Operating results for the period ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
These consolidated financial statements and accompanying notes should
be read in conjunction with the consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's Prospectus dated
July 2, 1998, as filed with the SEC.
2. Marketable Securities
Marketable securities consist of commercial paper and U.S. Treasury
securities maturing within one year. Marketable securities have been categorized
as held-to-maturity. The amortized cost basis at September 30,1998 are as
follows:
Commercial paper $ 5,909
U.S. Treasury 2,964
============
$ 8,873
============
Gross unrealized gains on marketable securities at September 30, 1998 were not
significant.
3. Initial Public Offering
On July 2, 1998, the Company completed its initial public offering
selling 3,450,000 shares of Common Stock at an initial public offering price of
$11.00 per share. Concurrently, the Company sold 1,100,000 shares of Common
Stock to Suiza Foods Corporation in a private placement (the "Concurrent
Placement") at a price of $11.00 per share. A portion of the net proceeds from
the initial public offering were used to repay principal and accrued interest as
follows:
Revolving line of credit $9,310
Unsecured subordinated promissory notes 3,601
Senior subordinated promissory notes 3,196
Non-interest bearing secured promissory note due July 8, 1998 4,000
Term loan due July 31, 1998 2,004
Other liabilities 101
=====================
Total $ 22,212
=====================
The extraordinary item relates to the early extinguishment of the
senior subordinated promissory notes and represents the write-off of unaccreted
discount of $667. The write-off was charged to expense and is classified as the
extraordinary item net of tax benefit of $253 in the accompanying Consolidated
Statements of Operations for the three and nine months ended September 30, 1998.
4. Long term Debt
On October 14, 1998 the Company amended the terms of its revolving line of
credit with U. S. Bancorp. The amended line of credit provides for an aggregate
principal amount of up to $20.0 million, bearing interest at U. S. Bancorp's
announced reference rate less .25% and has a final maturity on June 30, 2000. At
September 30, 1998 the Company had no amounts outstanding under the line of
credit.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This following discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements and accompanying
notes included herein and the Company's Prospectus dated July 2, 1998, as filed
with the SEC. Except for the historical information contained herein, the
discussion in this Quarterly Report on Form 10-Q contains certain
forward-looking statements that involve risks and uncertainties. Future events
may differ materially from those discussed herein, due to a number of factors,
including uncertainties related to the prices the Company is able to obtain when
it sells its excess organic milk at conventional prices, the acceptance of the
Company's products by distributors and customers and the costs related to the
conversion of the Company's dairies to organic production. These factors are
more fully discussed in the Company's Prospectus dated July 2, 1998, as filed
with the SEC, under the headings "Risk Factors - Risks Associated with
Perishable Products", "Risk Factors - Risks Associated with Trade and Consumer
Acceptance in Distribution Channels" and "Risk Factors - Risk Related to
Establishing New Organic Dairy Farms". In addition, the Company's results could
also be affected by a number of other risks and uncertainties which are more
fully discussed under the headings "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
Prospectus dated July 2, 1998. The Company undertakes no obligation to update
any forward-looking statements in order to reflect events or circumstances that
may arise after the date of this Quarterly Report on Form 10-Q.
Results of Operations
Three Months Ended September 30, 1998, Compared to Three Months Ended
September 30, 1997
Net Sales. Net sales for the three months ended September 30, 1998 were
$12.8 million, an increase of $5.2 million, or 67%, from $7.6 million for the
comparable period in 1997. This increase was primarily due to the addition of
new retail accounts, including major conventional supermarket chains, increased
sales to existing accounts, the introduction of several new products, a price
increase, and sales generated under the Juniper Valley Brand.
Gross Profit. Gross profit for the three months ended September 30,
1998 was $4.6 million, an increase of $2.6 million, or 131%, from $2.0 million
for the comparable period in 1997. As a percentage of net sales, gross profit
increased to 36.1% from 26.1%. This increase is due to the Company reaching
capacity and completing organic conversion at the Company's organic dairy farm
in Southern Idaho (the "Idaho Dairy") which contributed income versus losses for
the comparable period in 1997. In addition, the Company experienced a reduction
in the cost of sales due to the sale of excess milk and cream at conventional
prices that were substantially higher than the previous year and is continuing
to experience the benefits from enhancing its national network of processors and
distributors.
Selling Expenses. Selling expenses for the three months ended September
30, 1998 were $3.0 million, an increase of $1.5 million, or 94%, from $1.5
million for the comparable period in 1997. As a percentage of net sales, selling
expenses increased to 23.2% from 20.0%. The increase in selling expenses was
primarily due to increased levels of marketing expenditures, including hiring
additional marketing personnel as well as increased costs for new distribution.
General and Administrative Expenses. General and administrative
expenses for the three months ended September 30, 1998 were $.9 million, an
increase of $.2 million, or 30%, from $.7 million during the comparable period
in 1997. As a percentage of net sales, general and administrative expenses
decreased to 7.1% from 9.1% due to a larger sales base.
Other (Income) Expense, Net. Other (income) expense, net for the three
months ended September 30, 1998 was income of $.1 million, an increase of $.4
million from $.3 million of expense during the comparable period in 1997. This
decrease is primarily attributable to the reduction in interest expense due to
the repayment of $22 million of indebtedness combined with earnings from
investments.
Extraordinary Item. The extraordinary item relates to the early
extinguishment of the senior subordinated promissory notes and is comprised of
the write off of unaccreted discount of $.7 million. The write off was charged
to expense and is classified as an extraordinary item net of tax benefit of $.3
million in the accompanying Consolidated Statement of Operation for the three
months ended September 30, 1998.
<PAGE>
Nine Months Ended September 30, 1998, Compared to Nine Months Ended
September 30, 1997
Net Sales. Net sales for the nine months ended September 30, 1998 were
$34.7 million, an increase of $14.2 million, or 69%, from $20.56 million for the
comparable period in 1997. This increase was primarily due to the addition of
new retail accounts, including major conventional supermarket chains, increased
sales to existing accounts, the introduction of several new products, a price
increase, and sales generated under the Juniper Valley Brand.
Gross Profit. Gross profit for the nine months ended September 30, 1998
was $11.4 million, an increase of $6.9 million, or 154%, from $4.5 million for
the comparable period in 1997. As a percentage of net sales, gross profit
increased to 33% from 21.9%. This increase is due primarily to the Company
reaching capacity and completing organic conversion at the Company's Idaho Dairy
which contributed income versus losses for the comparable period in 1997. In
addition, the Company is experiencing the benefits from enhancing its national
network of processors and distributors.
Selling Expenses. Selling expenses for the nine months ended September
30, 1998 were $7.5 million, an increase of $3.5 million, or 88%, from $4.0
million for the comparable period in 1997. As a percentage of net sales, selling
expenses increased to 21.7% from 19.5%. The increase in selling expenses was
primarily due to increased levels of marketing expenditures, including hiring
additional marketing personnel as well as increased costs for new distribution.
General and Administrative Expenses. General and administrative
expenses for the nine months ended September 30, 1998 were $2.3 million, an
increase of $.7 million, or 45%, from $1.6 million during the comparable period
in 1997. As a percentage of net sales, general and administrative expenses
decreased to 6.6% from 7.6% due to a larger sales base.
Other (Income) Expense, Net. Other (income) expense, net for the nine
months ended September 30, 1998 was $1.0 million, an increase of $.3 million
from $.7 million during the comparable period in 1997. This increase is
primarily attributable to higher levels of indebtedness incurred to acquire the
remaining interest in the Idaho Dairy, to finance the acquisition and
development of the Company's organic dairy farm in Maryland (the "Maryland
Dairy") and to finance the acquisition of the Juniper Valley Farms brand offset
by the repayment of indebtedness and interest earnings in the third quarter of
1998.
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 Organic Farms, Inc. in the second quarter of fiscal
1997. Minority interest in loss of subsidiary was $.7 million for the nine
months ended September 30, 1997. In 1998 the operations of the Idaho Dairy are
reflected in the Company's Consolidated Financial Statements.
Extraordinary Item. The extraordinary item relates to the early
extinguishment of the senior subordinated promissory notes and is comprised of
the write off of unaccreted discount of $.7 million. The write off was charged
to expense and is classified as an extraordinary item net of tax benefit of $.3
million in the accompanying Consolidated Statement of Operations for the nine
months ended September 30, 1998.
<PAGE>
Liquidity and Capital Resources
Cash from Operations. Cash provided by operations during the nine
months ended September 30, 1998 was $2.0 million, an increase of $3.9 million
from cash used in operations of $1.9 million during the comparable period in
1997. The increase in cash provided by operations was due primarily to reduced
losses and increased non-cash charges associated with depreciation and
amortization and the loss on disposal of cattle combined with cash provided by
inventories and an increase in other accrued expenses offset by an increase in
trade accounts receivable.
Cash Used in Investing Activities. Cash used in investing activities
during the nine months ended September 30, 1998 totaled $16.4 million, as
compared to $6.9 million for the comparable period in 1997. The increase was
primarily due to the investment in marketable securities with the proceeds from
the initial public offering and Concurrent Placement and the purchases and costs
of raising cattle at the Maryland Dairy and the Idaho Dairy offset partially by
a decrease in payments for acquisitions.
Cash Provided by Financing Activities. Cash provided by financing
activities during the nine months ended September 30, 1998 totaled $29.5million,
as compared to $8.2 million for the comparable period in 1997. This increase is
primarily due to the Company receiving net proceeds of $46.3 million from the
sale of common stock in 1998 through the initial public offering and Concurrent
Placement offset by the repayment of indebtedness.
The Company anticipates that it will spend approximately $.8 million in
the last quarter of 1998 for fixed asset additions at both the Idaho Dairy and
the Maryland Dairy as well as $.5 million for replacement cows. The Company
believes that the net proceeds from the initial public offering and the
Concurrent Placement, together with cash generated from operations and funds
available under a revolving line of credit, will be sufficient to satisfy its
cash requirements through fiscal 2000.
Long-term Debt. On October 14, 1998 the Company amended the terms of its
revolving line of credit with U. S. Bancorp. The amended line of credit provides
for an aggregate principal amount of up to $20.0 million, bearing interest at U.
S. Bancorp's announced reference rate less .25% and has a final maturity on June
30, 2000. At September 30, 1998 the Company had no amounts outstanding under the
line of credit.
On July 8, 1998, with the proceeds from the initial public offering,
the Company repaid principal and accrued interest on: the $4.0 million
non-interest bearing secured promissory note due July 8, 1998; the $2.0 million
term loan due July 31, 1998; $9.3 million outstanding on a revolving line of
credit; $3.6 million in unsecured subordinated promissory notes; and $3.1
million of senior subordinated promissory notes.
Year 2000. The Year 2000 issue refers to the fact that 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). When the year 2000 occurs, these systems could
interpret the year as 1900 versus 2000, which in turn, could result in system
failures or miscalculations causing disruptions of operations of the Company and
its suppliers and customers.
To address this issue, the Company has established a cross-functional
team from across the organization under the sponsorship of the Chief Financial
Officer. This team is implementing a multi-phase plan that includes;
inventorying computer systems, software and equipment to assess the impact of
the Year 2000; contacting third-party suppliers to ascertain their state of
readiness and or compliance; developing solution plans related to upgrading,
modifying or replacing affected systems; testing and certifying results;
developing contingency plans as necessary.
The Company has completed its initial evaluation of computer systems at
the corporate location. The evaluation revealed that the Company's network
hardware and operating systems, e-mail system, and accounting software are the
major resources that are affected by the Year 2000 issue. While these systems
will need to be either replaced or upgraded, the identified systems and or
programs are primarily "off the shelf" products with Year 2000 versions
currently available. The Company expects to have these systems fully compliant
by June 1999. The Company is scheduled to complete its evaluation of the
computer systems at the Idaho Dairy and the Maryland Dairy by January 1999 with
full compliance expected by September 1999.
<PAGE>
The Company relies heavily on third-party suppliers for many products
and services. As part of its Year 2000 plan, the Company has contacted its
significant suppliers to determine the extent to which the systems of such
suppliers are Year 2000 compliant. In addition, the Company is assessing the
extent to which it could be affected by the failure of such third parties to be
Year 2000 compliant. To date approximately thirty-five percent of the entities
contacted have responded with the majority of the respondents in some phase of
addressing Year 2000 issues. The Company will continue to contact its
significant suppliers in an effort to minimize any potential Year 2000
compliance impact, however, it is not possible to guarantee their compliance.
The total cost expended to date for the Year 2000 plan has been
minimal. The Company anticipates spending approximately $.1 million to get all
systems Year 2000 compliant.
Management believes that it has an effective program in place to
adequately address the Year 2000 issue in a timely manner. Nevertheless, failure
of third parties upon whom the Company's business relies could result in
disruption of the Company's supply of product, late, missed or unapplied
payments, temporary disruptions in order processing and other general problems
related to daily operations. In addition, disruptions in the economy generally
resulting from Year 2000 issues could also adversely affect the Company.
Although, the Company believes its Year 2000 plan will adequately address the
Company's internal issues, the overall risks associated with the Year 2000 issue
cannot be fully identified until the Company receives more responses from
significant suppliers. Accordingly, the amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company expects to develop and implement, where necessary, a
contingency plan by the end of April 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 10.19 Loan and Security Agreement, dated July 15, 1997, among FBS
Ag Credit, Inc., the Company, Horizon Organic Dairy, Inc.
("HOD"), Horizon Organic Dairy, Maryland Farm, Inc., and Horizon
Organic Dairy, Idaho Farm, Inc., as amended by the First
Amendment to Loan and Security Agreement dated March 23, 1998, as
amended by the Second Amendment to Loan and Security Agreement
dated April 6, 1998, as amended by the Third Amendment to Loan
and Security Agreement dated October 14, 1998.
Exhibit 11.1 Calculation of Earnings Per Share of Common Stock
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K for the nine month period ended
September 30, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HORIZON ORGANIC HOLDING CORPORATION
Date: November 16, 1998 /s/ Don J. Gaidano
-------------------
Don J. Gaidano
Vice President, Finance and
Administration, Chief Financial
Officer, Treasurer and Assistant
Secretary
(principal financial and accounting
officer of the Company)
Exhibit 11.1
<TABLE>
Horizon Organic Holding Corporation
Calculation of Earnings Per Share of Common Stock
(In thousands, except per share amounts)
Three Months Ended Nine months Ended
------------------------------------------
September September September September
30, 1998 30, 1997 30, 1998 30, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ 522 (422) 313 (741)
Extraordinary item, net of income tax benefit (414) --- (414) ---
Net income (loss) 108 (422) (101) (741)
Common and common equivalent shares outstanding:
Historical common shares outstanding at beginning of period 5,056 5,045 5,052 3,649
Weighted average common equivalent shares issued during period 4,501 --- 1,521 645
Weighted average common shares issued - basic 9,557 5,045 6,573 4,294
Weighted average common equivalent shares issued during period 489 -- -- --
Weighted average common shares issued - diluted 10,046 5,045 6,573 4,294
Earnings per share - basic and diluted
Income (loss) per share .05 (.08) .05 (.17)
Extraordinary item per share (.04) --- (.06) ---
Net income (loss) per share .01 (.08) (.01) (.17)
</TABLE>
THIRD AMENDMENT TO LOAN AND SECURITY
AGREEMENT BETWEEN U.S. BANK
and
HORIZON ORGANIC HOLDING CORPORATION
HORIZON ORGANIC DAIRY, INC.
HORIZON ORGANIC DAIRY, MARYLAND FARM, INC.
HORIZON ORGANIC DAIRY, IDAHO FARM, INC.
DATED JULY 15, 1997
This Third Amendment to Loan and Security Agreement (this "Amendment")
is made as of the 14th day of October, 1998, between Horizon Organic Holding
Corporation, a Delaware corporation; Horizon Organic Dairy, a Colorado
corporation, Horizon Organic Dairy, Maryland Farm, Inc., a Colorado corporation;
Horizon Organic Dairy, Idaho Farm, Inc., a Colorado Corporation (hereinafter
referred to as "Borrower" whether one or more), and U.S. Bank National
Association ( Bank"), successor by assignment to U.S. Bancorp Ag Credit, Inc.
f/k/a FBS Ag Credit, Inc., a Colorado corporation.
RECITAL
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The Borrower has requested that Bank extend the term of the Line of
Credit extended to Borrower under the Loan and Security Agreement between
Borrower and Bank dated July 15, 1997, as amended (the "Loan Agreement"),
together with the Maturity of the Line of Credit Note, from June 30, 1999 to
June 30, 2000 and to otherwise amend the Loan Agreement, and Bank is willing to
do so on the terms and conditions herein contained.
NOW THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in the Loan Agreement and this Amendment, and of any loans
or extensions of credit or other financial accommodations heretofore, now or
hereafter made to or for the benefit of the Borrower by Bank, the Borrower and
Bank agree as follows:
1. All references to FBS Ag Credit or to U.S. Bancorp in the Loan Agreement
or in any of the other Financing Agreements shall be deemed references to Bank.
2. The following definitions under Subsection 1.1 of the Loan Agreement,
General Definitions, shall be added, deleted or amended as follows:
"Borrowing Base" shall be deleted.
"Borrowing Base Certificate" shall be deleted.
<PAGE>
"Eligible Prepaid Expenses for Feed" shall mean prepayment for feed meeting
the following criteria: (a) when received by the Borrower the feed would be
within the definition of Inventory free of liens or conflicting claims of
ownership, whether such liens or conflicting claims are asserted or could be
asserted by any Person; (b) amounts prepaid to any Person shall not be eligible,
if at that time such Person is more than thirty (30) days delinquent in the
performance of any obligation to Borrower; (c) amounts prepaid to Affiliates
shall not be eligible; (d) amounts prepaid to a Person that is located outside
the United States shall not be eligible unless the performance obligation of
such Person is secured by a letter of credit issued or confirmed by a bank
acceptable to Bank or covered by a performance bond in form and substance
acceptable to Bank; (e) amounts prepaid which may be subject to rights of setoff
or counterclaim by the Person to whom they were paid shall not be eligible; and
(f) amounts prepaid, the performance obligation relating to which, in Bank's
opinion, may be subject to liens or conflicting claims, whether such liens or
conflicting claims are asserted or could be asserted by any Person, or may not
be performed by the Person to which the prepayment was made because of the
financial or operational condition of such Person, shall not be eligible.
"First Bank" shall be deleted.
"Fixed Charge Coverage Ratio" shall be deleted.
"Maryland Dairy" shall be deleted.
Subsection (e), "the amount outstanding under the Line of Credit is in
excess of the Borrowing Base" of the definition of "Matured Default" shall be
deleted.
"Property" shall mean those premises owned or operated by Borrower.
"Reference Rate" shall mean the Reference Rate quoted by Bank as of 12:00
Noon on a given day in Minneapolis, Minnesota, which is a base rate that Bank
from time to time establishes and which serves as a basis upon which effective
rates of interest are calculated for those loans which make reference thereto.
Borrower acknowledges that said Reference Rate is not necessarily the lowest
index rate used or the lowest rate made available to customers by Bank.
<PAGE>
"Revolving Loan Commitment" shall mean at the time any determination
thereof is to be made, the obligation of the Bank to make Line of Credit
Advances and to provide Letters pursuant to Section 2.1 up to, but not exceeding
in the aggregate principal amount at any time of Twenty Million Dollars
($20,000,000).
"Subordinated Debt" shall mean indebtedness of Borrower that is fully and
properly subordinated to the Liabilities as determined by Bank in its reasonable
discretion.
"Tangible Net Worth" shall mean, as of any particular date, the difference
between: (a) Borrower's consolidated total assets as they would normally be
shown on the balance sheet of Borrower, adjusted by deducting: (i) all values
attributable to General Intangibles, except: bank deposit accounts; Margin
Accounts; Eligible Prepaid Expenses for Feed; government subsidy; set aside;
diversion; deficiency or disaster payments receivable which are properly
assigned to Bank; and Commodity Credit Corporation storage agreement or contract
receivables which are properly assigned to Bank, and by deducting (ii) Accounts
due from Affiliates with no further adjustment required for Accounts due from
Affiliates already eliminated in consolidation except Accounts due from
Affiliates which Borrower could legally collect by setoff against Accounts due
to Affiliates; and (b) Borrower's consolidated total liabilities as they would
normally be shown on the balance sheet of Borrower adjusted by adding
Subordinated Debt.
"Unallocated Cash Flow" shall be deleted.
"Working Capital" shall mean, as of any particular date, the amount of
Borrower's consolidated current assets, less Borrower's consolidated current
liabilities, treating all amounts currently owing to Affiliates (except amounts
owing to Affiliates eliminated by consolidation) as current liabilities and
giving no value as assets to any amounts currently owing from Affiliates,
treating all livestock (stated at net value) and Eligible Prepaid Expenses for
Feed as current assets and treating Total Revolving Outstandings as current
liabilities.
"Working Capital Ratio" shall mean, as of any particular date, the ratio of
Borrower's consolidated current assets, to Borrower's consolidated current
liabilities, treating all amounts currently owing to Affiliates (except amounts
owing to Affiliates eliminated by consolidation) as current liabilities and
giving no value as assets to any amounts currently owing from Affiliates,
treating all livestock (stated at net value) and Eligible Prepaid Expenses for
Feed as a current asset and treating Total Revolving Outstandings as current
liabilities.
<PAGE>
3. Subsection 2.1.1 of the Loan Agreement, Line of Credit, shall be amended
to read in full as follows:
2.1.1 Line of Credit. Bank agrees to make advances ("Line of Credit
Advances") to Borrower from time to time from and after the date of this
Agreement, through and including June 30, 2000 ("Termination Date"); provided
that no such Line of Credit Advance will be made in any amount which, after
giving effect to such Line of Credit Advance, would cause Total Revolving
Outstandings to exceed the Revolving Loan Commitment. ("Line of Credit"). The
Line of Credit Advances shall be evidenced by and repayable in accordance with
the terms of Borrower's promissory note ("Line of Credit Note"), the form of
which is attached as Exhibit 2C. Bank, in its sole and absolute discretion, may
elect to make Line of Credit Advances to Borrower in excess of the amounts
available pursuant to the terms of this Agreement, and any such Line of Credit
Advances shall also be governed by the terms hereof. Bank shall also have the
option, in its sole discretion and without any obligation to do so, to extend
the Termination Date for the making of Line of Credit Advances. In the event
that Bank elects to extend such Termination Date, Bank shall give notice to
Borrower pursuant to Section 10.19.
4. Subsection 2.1.2 of the Loan Agreement, Letters of Credit, shall be
amended to read in full as follows:
2.1.2 Letters of Credit. Bank further agrees to issue its irrevocable
letters of credit (collectively "Letters" and individually, a "Letter") for the
account of Borrower for the benefit of one or more beneficiaries to be named by
Borrower (the "Beneficiary"), whether one or more, in form and substance
acceptable to the Beneficiary provided that no Letter of Credit will be issued
in any amount which, after giving effect to such issuance, would cause (a) Total
Revolving Outstandings to exceed the Revolving Loan Commitment, or (b) the
Letter of Credit Usage to exceed $500,000. If Bank has received documents
purporting to draw under a Letter that Bank believes conform to the requirements
of the Letter, or if Bank has decided that it will comply with Borrower's
written or oral request of authorization to pay a drawing on any Letter that
Bank does not believe conforms to the requirements of the Letter, Bank will
notify Borrower of that fact. Borrower shall reimburse Bank by 9:30 a.m.
(mountain time) on the day on which such drawing is to be paid in an amount
equal to the amount of such drawing. Any amount by which Borrower has failed to
reimburse Bank for the full amount of such drawing by 10:00 a.m. on the date on
which such drawing is to be paid ("Unpaid Drawing"), may be paid by an Bank
initiated Line of Credit Advance. The obligation of Borrower to reimburse Bank
for any amount drawn on any Letter, and the obligation of Borrower to repay Bank
for any Line of Credit Advance made to fund such reimbursement, shall be
absolute, unconditional and irrevocable, shall continue for so long as any
Letter is outstanding notwithstanding any termination of this Agreement, and
shall be paid strictly in accordance with the terms of this Agreement,
notwithstanding any of the following:
<PAGE>
(a) Any lack of validity or enforceability of any Letter;
(b) The existence of any claim, setoff, defense or other
right which Borrower may have or claim at any time
against any beneficiary, transferee or holder of any
Letter (or any Person for whom any such beneficiary,
transferee or holder may be acting), Bank or any
other Person, whether in connection with a Letter,
this Agreement, the transactions contemplated hereby,
or any unrelated transaction; or
(c) Any statement or any other document presented under
any Letter proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect
whatever.
None of Bank or any of the officers, directors or employees
of either of them shall be liable or responsible for, and the
obligations of Borrower to Bank shall not be impaired by:
(d) The use which may be made of any Letter or for any
acts or omissions of any beneficiary, transferee or
holder thereof in connection therewith;
(e) The validity, sufficiency or genuineness of
documents, or of any endorsements thereon, even if
such documents or endorsements should in fact prove
to be in any or all respects invalid, insufficient,
fraudulent or forged;
(f) The acceptance by Bank of documents that appear on
their face to be in order, without responsibility for
further investigation, regardless of any notice or
information to the contrary; or
(g) Any other action of Bank in making or failing to make
payment under any Letter if in good faith and in
conformity with applicable U.S. or foreign laws,
regulations or customs.
<PAGE>
Notwithstanding the foregoing, Borrower shall have a claim against Bank,
and Bank shall be liable to Borrower, to the extent, but only to the extent, of
any direct, as opposed to consequential, damages suffered by Borrower which
Borrower proves were caused by Bank's willful misconduct or gross negligence in
determining whether documents presented under any Letter comply with the terms
thereof.
5. Subsection 2.5 of the Loan Agreement, Loan Fees, shall be amended to
read in full as follows:
2.5 Loan Fees. Borrower agrees to pay to Bank: (a) a commitment fee for the
Revolving Loan in the amount of Fifty Thousand Dollars ($50,000), on a pro-rata
basis to the next Anniversary Date, payable as of the date of this Amendment and
annually on each Anniversary Date as long as the Line of Credit is available
hereunder; and (b) a fee in connection with the issuance and in connection with
the renewal of each Letter, in the amount of Three and One Half percent (3.5%)
of the face amount of each such Letter, payable in advance upon the issuance and
upon the renewal of each such Letter. Each of the foregoing fees shall be fully
earned on the date it becomes payable and shall be paid by a Bank initiated
Advance pursuant to Section 2.1, without prior demand by Bank.
6. The parties agree that Section 3 of the Loan Agreement, BORROWING BASE,
shall no longer be applicable and is deleted.
7. Subsection 5.1 of the Loan Agreement, Security Interests and Liens,
shall be amended to read in full as follows:
5.1 Security Interests and Liens. To secure the payment and performance of
the Liabilities, Borrower hereby grants to Bank a continuing security interest
in and to the following property and interests in property of Borrower, whether
now owned or existing or hereafter acquired or arising and wheresoever located:
all Accounts, Inventory, Equipment, Farm Products, General Intangibles, Margin
Accounts, Documents, all accessions to, substitutions for, and all replacements,
products and proceeds of the foregoing (including without limitation, proceeds
of insurance policies insuring any of the foregoing), all books and records
pertaining to any of the foregoing (including without limitation, customer
lists, credit files, computer programs, printouts and other computer materials
and records), and all insurance policies insuring any of the foregoing. Borrower
agrees to grant to Bank other and additional security as described in Section
5.16.
<PAGE>
8. Subsection 5.6 of the Loan Agreement, Collection of Accounts, shall be
amended to read in full as follows:
5.6 Collection of Accounts. Upon a Matured Default, Borrower designates,
makes, constitutes and appoints Bank (and all Persons designated by Bank) as
Borrower's true and lawful attorney-in-fact, with power, in Borrower's or Bank's
name, to: (a) demand payment of Accounts; (b) enforce payment of Accounts by
legal proceedings or otherwise; (c) exercise all of Borrower's rights and
remedies with respect to proceedings brought to collect an Account; (d) sell or
assign any Account upon such terms, for such amount and at such time or times as
Bank deems advisable; (e) settle, adjust, compromise, extend or renew any
Account; (f) discharge and release any Account; (g) take control in any manner
of any item of payment or proceeds of any Account; (h) prepare, file and sign
Borrower's name upon any items of payment or proceeds and deposit the same to
Bank's account on account of the Liabilities; (i) endorse Borrower's name upon
any chattel paper, document, instrument, invoice, warehouse receipt, bill of
lading, or similar document or agreement relating to any Account or any goods;
(j) sign Borrower's name on any verification of Accounts and notices to Account
Debtors; (k) prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or similar proceeding against any Account Debtor; and (l) do all acts
and things which are necessary, in Bank's sole discretion, to fulfill Borrower's
obligations under this Agreement. The foregoing power of attorney is coupled
with an interest and is therefore irrevocable.
9. Subsection 5.12 of the Loan Agreement, Remittance of Proceeds to Bank,
shall no longer be applicable and is deleted.
10. Subsection 6.5 of the Loan Agreement, Location of Assets; Chief
Executive Office, shall be amended to read in full as follows:
6.5 Location of Assets; Chief Executive Office. The addresses of the chief
executive office of Borrower is: Mailing Address: P.O. Box 17577, Boulder, CO
80308-7577; and Shipping Address: 6311 Horizon Lane, Longmont, CO 80503 and
Borrower's assets (including without limitation, Inventory and Equipment) are
all located in the locations set forth on part 5 of Exhibit 6A. The books and
records of Borrower, and all of Borrower's chattel paper and records of account
are located at the chief executive office of Borrower. If any change in any of
such locations shall occur, Borrower shall promptly notify Bank of such change.
<PAGE>
11. Part 5 of Exhibit 6A of the Loan Agreement, Locations of Borrower's
Assets, shall be amended to add: Kent County, Maryland.
12. Subsection 7.1 of the Loan Agreement, Financial and Other Information,
shall be amended to read in full as follows:
7.1 Financial and Other Information. Except as otherwise
expressly provided for in this Agreement, Borrower shall keep proper
books of record and account in which full and true entries will be made
of all dealings and transactions of or in relation to the business
and affairs of Borrower, in accordance with generally accepted
accounting principles consistently applied, and Borrower shall
cause to be furnished to Bank, from time to time and in a form
acceptable to Bank, such information as Bank may reasonably request,
including without limitation, the following:
(a) as soon as practicable and in any event within one hundred
and twenty (120) days after the end of fiscal year 1998 and within
ninety (90) days of each fiscal year of Borrower thereafter, audited
statements of income, retained earnings and changes in the financial
condition of Borrower for each year, and a balance sheet of Borrower
for such year, setting forth in each case, in comparative form,
corresponding figures as of the end of the preceding fiscal year
together with a copy of the management letter, all in reasonable detail
and satisfactory in scope to Bank and certified to Borrower by such
independent public accountants as are selected by Borrower and
satisfactory to Bank, whose opinion shall be in scope and substance
satisfactory to Bank;
(b) as soon as practicable and in any event within thirty (30)
days after the end of each monthly accounting period in each fiscal
year of Borrower in which there are amounts or Letters outstanding
under the Line of Credit: (i) statements of income and retained
earnings of Borrower for such monthly period and for the period from
the beginning of the then current fiscal year to the end of such
monthly period, and a balance sheet of Borrower as of the end of such
monthly period, setting forth, in the case of the statements of income
and retained earnings, in comparative form, figures for the
corresponding periods in the preceding fiscal year, all in reasonable
detail and certified as accurate by the chief financial officer of
Borrower, subject to changes resulting from normal year end
adjustments, and (ii) a compliance certificate of the chief financial
officer of Borrower in the form attached as Exhibit 7A;
<PAGE>
(c) as soon as practicable and in any event within ninety (90)
days of each fiscal year of Borrower, a quarter by quarter budget for
the then current fiscal year.
13. Subsection 7.3 of the Loan Agreement, Maintenance of Properties, shall
be amended to read in full as follows:
7.3 Maintenance of Properties. Borrower shall keep Borrower's real estate,
leaseholds, equipment and other fixed assets in good condition, repair and
working order, normal wear and tear excepted, and shall not allow Borrower's
chief executive office or any of the Collateral to be moved from the locations
set forth in Section 6.5 (or to be placed on consignment) without the written
consent of Bank, which consent shall not be unreasonably withheld. Borrower
shall keep the Inventory in good and merchantable condition and shall, as
applicable, clean, feed, shelter, store, secure, refrigerate, water, medicate,
fumigate, fertilize, cultivate, irrigate, prune, process and otherwise maintain
the Inventory in accordance with the standards and practices adhered to
generally by others in the same businesses as Borrower. Borrower shall reinvest
a minimum of $2,000,000 into the dairy livestock Collateral during the fiscal
year-ending December 31, 1998 and during each fiscal year thereafter.
14. Subsection 7.6 of the Loan Agreement, Financial Covenants and Ratios,
shall be amended to read in full as follows:
7.6 Financial Covenants and Ratios. Borrower shall maintain as of the end
of each month: (a) a Tangible Net Worth of not less than $15,000,000; (b) a
Working Capital Ratio of not less than 1.15 to 1; (c) a ratio of total
liabilities to Tangible Net Worth of not more than 2.0 to 1; and (d) minimum
Working Capital of $10,000,000.
15.Subsection 8.3 of the Loan Agreement, Deposits, Investments, Advances or
Loans, shall be amended to read in full as follows:
8.3 Deposits, Investments, Advances or Loans. Borrower shall not make or
permit to exist deposits, investments, advances or loans (other than loans
existing on the date of the execution of this Agreement and disclosed to Bank in
writing on or prior to such date) in or to Affiliates or any other Person,
except: (a) loans to officers, directors, employees, or Affiliates as and when
permitted by Section 8.9; and (b) the deposits and investments described in
Exhibit 8B. Borrower shall not invest more than $3,000,000 per year in growing
crops unless Working Capital, without considering the investment in growing
crops is greater than $10,000,000.
<PAGE>
16. Subsection 8.4 of the Loan Agreement, Indebtedness, shall be amended to
read in full as follows:
8.4 Indebtedness. Except for those obligations and that indebtedness
presently in existence and reflected in Borrower's financial statements referred
to in Section 6.14 or referred to in Section 6.7, Borrower shall not incur,
create, assume, become or be liable in any manner with respect to, or permit to
exist, any obligations or indebtedness, direct or indirect fixed or contingent,
in excess of $400,000 per year, except: (a) the Liabilities; (b) obligations
secured by liens or security interests permitted under Section 8.1 or contingent
obligations permitted under Section 8.5; or lease obligations permitted under
Section 8.14; and (c) trade obligations, Producer Payables and normal accruals
in the ordinary course of Borrower's business not yet due and payable, or with
respect to which Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings, and then only to the extent that Borrower
has set aside on Borrower's books adequate reserves therefor, if appropriate
under generally accepted accounting principles. Borrower shall not permit to
exist any other depository account for the receipt of prepayments of any type
whatsoever, except the account referred to in Section 5.6.
17.Subsection 8.7 of the Loan Agreement, Capital Investment Limitations,
shall be amended to read in full as follows:
8.7 Capital Investment Limitations. Borrower shall not purchase, invest in
or otherwise acquire real estate, equipment or other fixed assets in any fiscal
year, in an amount in excess of the lesser of: (a) $10,000,000; or (b) an amount
that would result in Borrower's violation of Section 7.6. For the purpose of
calculating net annual capital expenditures and capital leases, the
determination would be calculated as: 1) the fiscal year-end net property, plant
and equipment (excluding livestock), minus 2) the beginning of the fiscal year
net property, plant and equipment, plus 3) annual depreciation (excluding
livestock).
18. Subsection 8.8 of the Loan Agreement, Compensation of Officers and
Directors, shall be amended to read in full as follows:
8.8 Compensation of Officers and Directors. If Borrower is in violation of
Section 7.6 at any time during any fiscal year, then Borrower shall not pay
Borrower's officers and directors compensation (including without limitation,
salary, bonus, management fees and incentive compensation of any type other than
stock options) in the aggregate during such fiscal year, in an amount in excess
of the greater of: (a) $1,000,000; or (b) 20% of net income.
<PAGE>
19. Subsection 8.12 of the Loan Agreement, Issuance of Stock, shall be
deleted.
8.14 Lease Limitations. Borrower's payment obligations under all operating
leases and similar agreements shall not exceed $350,000 in the aggregate for any
fiscal year of Borrower, without prior approval by Bank.
20.Subsection 10.7 of the Loan Agreement, Inspection, shall be amended to
read in full as follows:
10.7 Inspection. Bank (by and through its officers and employees), or any
Person designated by Bank in writing, shall have the right from time to time, to
call at Borrower's place or places of business (or any other place where
Collateral or any information as to Collateral is kept or located) during
reasonable business hours, and, without hindrance or delay, to: (a) inspect,
audit, check and make copies of and extracts from Borrower's books, records,
journals, orders, receipts and any correspondence and other data relating to
Borrower's business or to any transactions between the parties to this
Agreement; (b) make such verification concerning the Collateral as Bank may
consider reasonable under the circumstances; and (c) review operating
procedures, review maintenance of property and discuss the affairs, finances and
business of Borrower with Borrower's officers, employees or directors.
21. Subsection 10.19 of the Loan Agreement, Notices, shall be amended to
read in full as follows:
10.19 Notices. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered pursuant to this Agreement
shall be in writing, and shall be sent by manual delivery, telegram, telex,
facsimile transmission, overnight courier or United States mail (postage
prepaid) addressed to the party to be notified as follows:
<PAGE>
(a) If to Bank at:
1600 28th Street
Boulder, Colorado 80301
Attn: Curtis Johns
with a copy to:
Campbell Bohn & Leffert, LLC
370 Seventeenth Street, Suite 3200
Denver, Colorado 80202
(b) If to Borrower at:
P.O. Box 17577
Boulder, CO 80308-7577; or
6311 Horizon Lane
Longmont, CO 80503
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302
22. Conditions to Advances; Documentation. The making of any Advance
provided for in this Amendment shall be conditioned upon the execution and/or
delivery of the following documents to Bank: (i) this Amendment,(ii) the Line
of Credit Note, and (iii) Secretary's Certificates of Board of Directors'
Resolutions authorizing the execution and delivery of this Amendment.
23. Incorporation of Loan Agreement. The parties agree that this Amendment
shall be an integral part of the Loan Agreement, that all of the terms set forth
therein are incorporated in this Amendment by reference, and that all terms of
this Amendment are incorporated into said Loan Agreement as of the date hereof.
All of the terms and provisions of the Loan Agreement which are not modified
herein shall remain in full force and effect. To the extent the terms of this
Amendment conflict with the terms of the Loan Agreement, the terms of this
Amendment shall control.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first written above.
HORIZON ORGANIC HOLDING CORPORATION
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
HORIZON ORGANIC DAIRY, INC.
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
HORIZON ORGANIC DAIRY, MARYLAND FARM, INC.
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
HORIZON ORGANIC DAIRY, IDAHO FARM, INC.
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
U.S. BANK NATIONAL ASSOCIATION
By /s/ Curtis F. Johns
Its
<PAGE>
Exhibit 2C to
Loan and Security Agreement
Line of Credit Note
Attached
LINE OF CREDIT NOTE
$20,000,000 Boulder, Colorado
October 14, 1998
FOR VALUE RECEIVED, the undersigned Horizon Organic Holding
Corporation, a Delaware corporation; Horizon Organic Dairy, a Colorado
corporation, Horizon Organic Dairy, Maryland Farm, Inc., a Colorado corporation;
Horizon Organic Dairy, Idaho Farm, Inc., a Colorado Corporation (hereinafter
referred to as "Borrower" whether one or more), promises to pay to the order of
U.S. Bank National Association ( Bank"), at 1600 28th Street, Boulder, Colorado
80301, or at such other place as Bank may designate, in lawful money of the
United States of America, the principal sum of Twenty Million Dollars
($20,000,000) or so much thereof as may be advanced and be outstanding, together
with interest on any and all principal amounts outstanding calculated in
accordance with the provisions set forth below. This Note is issued under that
certain Loan and Security Agreement between Borrower and Bank dated July 15,
1997 (as the same may be amended, replaced, restated and/or supplemented from
time to time, the "Loan Agreement"). All terms not defined herein shall have the
definition given to them in the Loan Agreement.
As used herein, the following terms shall have the following respective
meanings (such terms to be equally applicable to both the singular and plural
forms of the terms defined):
"Advance": a Fixed Rate Advance or a Reference Rate Advance.
"Applicable Margin": with respect to:
(a) Reference Rate Advance: negative .25%
(b) Fixed Rate Advance: positive 1.65%
"Business Day": Any day other than a day on which commercial
banks are authorized or required to close in Denver, Colorado and, if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, a conversion of or into, or an Interest Period for, a Eurodollar Rate
Advance or a notice by the Borrower with respect to any such borrowing, payment,
prepayment or Interest Period, which is also a day on which dealings in U.S.
Dollar deposits are carried on the interbank market selected by Bank for
purposes of setting the Eurodollar Rate.
"Continuation or Conversion Request": A request by the
Borrower to accrue and pay interest on all or some of the Advances at the
Reserve Adjusted LIBOR Rate as set forth herein.
<PAGE>
"Eurodollar Rate": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the lower of the average offered rate
for deposits in United States dollars (rounded upward, if necessary, to the
nearest 1/16 of 1%) for delivery of such deposits on the first day of such
Interest Period, for the number of days in such Interest Period, which appears
on the Reuters Screen or the Telerate Screen, as of 11:00 a.m., London time (or
such other time as of which such rate appears) two Business Days prior to the
first day of such Interest Period, or the rate for such deposits determined by
Bank at such time based on such other published service of general application
as shall be selected by Bank for such purpose; provided, that in lieu of
determining the rate in the foregoing manner, Bank may determine the rate based
on rates at which United States dollar deposits are offered to Bank in the
interbank Eurodollar market at such time for delivery in Immediately Available
Funds on the first day of such Interest Period in an amount approximately equal
to the Advance by Bank to which such Interest Period is to apply (rounded
upward, if necessary, to the nearest 1/16 of 1%). "Reuters Screen" means the
display designated as page "LIBO" on the Reuters Monitor Money Rate Screen (or
such other page as may replace the LIBO page on such service for the purpose of
displaying London interbank offered rates of major banks for United States
dollar deposits). Telerate Screen" means page 3750 on the Telerate Screen (or
such other page as may replace page 3750 on such service for the purpose of
displaying London interbank offered rates of major banks for United States
dollar deposits).
"Fixed Rate Advance": any portion of the funds advanced by
Bank to Borrower pursuant to the Loan Agreement with respect to which Borrower
has, in accordance with the terms hereof, selected to accrue and pay interest by
reference to the Reserve Adjusted LIBOR Rate plus the Applicable Margin.
"Immediately Available Funds": funds with good value on the
day and in the city in which payment is received.
"Initial Advance Request": The initial request for funds by
Borrower as set forth herein.
<PAGE>
"Interest Period": as to any Fixed Rate Advance, the period
commencing on the date such Fixed Rate Advance is made, continued or converted
and ending one, two, three, or six months thereafter, as the Borrower has
selected in its Initial Advance Request or Continuation or Conversion Request;
provided that: (a) the last day of any Interest Period shall not end after the
Maturity Date; and (b) whenever the last day of any Interest Period would
otherwise occur on a day other than a Eurodollar Business Day, with regard to a
Fixed Rate Advance, the last day of such Interest Period shall be extended to
occur on the next succeeding Eurodollar Business Day; provided, that if such
extension would cause the last day of such Interest Period to occur in the
following month, the last day of such Interest Period shall occur on the first
preceding Eurodollar Business Day.
"Rate Option": the Reference Rate and the Reserve Adjusted
LIBOR Rate, in each case plus the Applicable Margin.
"Reference Rate": the Reference Rate quoted by Bank as of
12:00 Noon on a given day in Minneapolis, Minnesota, which is a base rate that
Bank from time to time establishes and which serves as a basis upon which
effective rates of interest are calculated for those loans which make reference
thereto. Borrower acknowledges that said Reference Rate is not necessarily the
lowest index rate used or the lowest rate made available to customers by Bank.
"Reference Rate Advance": any portion of the funds advanced by
Bank to Borrower pursuant to the Loan Agreement with respect to which Borrower
has not selected, in accordance with the terms hereof, to accrue and pay
interest by reference to the Reserve Adjusted LIBOR Rate plus the Applicable
Margin.
"Regulation D": Regulation D (or any substitute regulations)
of the Board of Governors of the Federal Reserve System (or any successor
thereto), as amended from time to time.
"Reserve Adjusted LIBOR Rate": with respect to each Interest
Period applicable to a Fixed Rate Advance, the rate per annum (rounded up to the
next whole multiple of 1/100 of 1%) equal to the rate obtained by dividing (a)
the Eurodollar Rate; by (b) a percentage equal to 100% minus the maximum reserve
rate in effect on the first day of such Interest Period at which reserves
(including any marginal, supplemental or emergency reserves) would be required
to be maintained by Bank under Regulation D against "Eurocurrency Liabilities"
(as such term is defined in Regulation D); provided, that Reserve Adjusted LIBOR
for the applicable Interest Period shall be adjusted automatically on and as of
the effective date of any change in such maximum reserve rate.
<PAGE>
The outstanding Advances hereunder may be maintained, at the election
of the Borrower as provided herein, as Reference Rate Advances, Fixed Rate
Advances or a combination thereof. The Initial Advance Request and any
subsequent Continuation or Conversion Requests shall specify: (A) whether the
Advance is to be maintained as a Reference Rate Advance or a Fixed Rate Advance;
(B) the proposed date of the Advance, Continuation or Conversion which shall be
a Eurodollar Business Day; (C) the principal amount of the Advance, Continuation
or Conversion, which in the case of a Fixed Rate Advance shall be in the minimum
amount of $1,000,000 and in an integral multiple of $1,000,000; and (D) in the
case of a Fixed Rate Advance, Continuation or Conversion, the Interest Period
therefor. The Borrower shall be limited to four outstanding Fixed Rate Advances
at a time. The Initial Advance Request or any subsequent Continuation or
Conversion Requests for a Reference Rate Advance, Continuation or Conversion
shall be made not later 10:30 a.m. (mountain time) on the Business Day prior to
the proposed date of the Advance, Continuation or Conversion. The Initial
Advance Request or any subsequent Continuation or Conversion Requests for a
Fixed Rate Advance shall be made not later 9:00 a.m. (mountain time) on the
third Eurodollar Business Day prior to the proposed date of the Advance,
Continuation or Conversion.
Borrower shall have the right to make prepayments of principal, without
charge: (i) at any time if the prepayment is on an Advance outstanding as a
Reference Rate Advance; or (ii) on the last day of the Interest Period if the
prepayment is on an Advance outstanding as a Fixed Rate Advance. In the event of
a prepayment of principal on an Advance outstanding as a Fixed Rate Advance
prior to the last day of the Interest Period, whether voluntary or involuntary,
then Borrower shall pay to Bank, upon demand, an amount, if any, that Bank
determines to be approximately equal to its loss of net yield on the Advance
resulting from the early payment of its principal.
Provided that there does not exist any Matured Default under the Loan
Agreement, Borrower shall have the option of: (i) continuing all or a portion of
a Fixed Rate Advance as a Fixed Rate Advance; or (ii) converting all or a
portion of a Reference Rate Advance into a Fixed Rate Advance; further provided,
in each case, however, that Borrower shall give Bank prior notice in writing or
by facsimile of its intent and desire to continue or convert an Advance under
this paragraph (a "Continuation or Conversion Request"). A Continuation or
Conversion Request shall be made in the manner and form, shall comply with the
specifications of, and shall be made at the times as set forth above. In the
event that Bank has not received a proper Continuation or Conversion Request
with respect to any Advance outstanding as a Fixed Rate Advance on the last day
of the Interest Period, then that Advance shall automatically be converted to a
Reference Rate Advance as of the day following the last day of the Interest
Period.
Interest accrued hereunder shall be computed by reference to the Rate
Option relative to the type of Advance selected by the Borrower in accordance
herewith on the basis of actual days elapsed and a year of 360 days. With
respect to any Reference Rate Advance, the rate of interest accruing hereunder
shall change concurrently with each change in the Reference Rate as announced by
Bank.
<PAGE>
The unpaid balance of this obligation at any time shall be the total
amounts advanced hereunder by Bank together with accrued and unpaid interest,
less the amount of payments made hereon by or for Borrower, which balance may be
endorsed hereon from time to time by Bank.
Interest with respect to Fixed Rate Advances shall be due and payable
as follows. For any Interest Period selected by Borrower which is thirty (30)
days long, interest accrued on this Note shall be payable on the last day of
such interest period. For any Interest Period selected by Borrower which is
greater than thirty (30) days long, interest accrued on this Note shall be
payable on the first day (1st) day following the commencement of such Interest
Period, on the same day of each month following such thirtieth (30th) day, and
on the last day of such Interest Period. Interest with respect to Reference Rate
Advances shall be payable on the first (1st) day of each month, commencing
November 1, 1998. When any interest is due and payable under this Note, Bank may
make an automatic Advance of principal under the Loan Agreement, which Advance
shall be a Reference Rate Advance unless Borrower has otherwise selected, in
accordance with the terms hereof, to accrue and pay interest by reference to the
Reserve Adjusted LIBOR Rate plus the Applicable Margin.
In addition to the repayment requirements imposed upon Borrower under
the Loan Agreement, together with the agreements referred to therein, the
principal amount owing under this Note shall be payable on the Maturity Date as
defined below.
Interim payments made by Borrower either pursuant the Loan Agreement or
as a voluntary prepayment shall be applied first to any costs or fees owing by
Borrower to Bank, shall be applied second to any interest payments owing
hereunder which are due and unpaid, shall be applied third to any outstanding
principal owing hereunder, and shall be applied fourth to interest accrued but
not yet due.
Anything herein or in the Loan Agreement to the contrary
notwithstanding, all principal and interest remaining unpaid on June 30, 2000
("Maturity Date"), shall be immediately due and payable, unless such Maturity
Date shall be extended by Bank as set forth below.
Advances hereunder, to the total amount of principal sum stated above,
may be made by Bank at the oral or written request of Don Gaidano or Barnet M.
Feinblum, who are authorized to request Advances and direct the disposition of
any such Advances until written notice of the revocation of such authority is
received by Bank at the address designated above. Any such Advances shall be
conclusively presumed to have been made to or for the benefit of Borrower when
Bank believes in good faith that such requests and directions have been made by
authorized persons, or when said Advances are mailed to Borrower or deposited to
the credit of the account of Borrower regardless of the fact that persons other
than those authorized hereunder may have authority to draw against such account.
<PAGE>
Notwithstanding the provisions of this Note, Bank shall have the
option, in its sole discretion and without any obligation to do so, to make
Advances to Borrower (or for Borrower's account where authorized to do so under
the Loan Agreement or related documents), in amounts in excess of those amounts
which would otherwise be prescribed by this Note. Such overadvances, when made
by Bank, shall become an obligation of Borrower and any surety of Borrower's
indebtedness to Bank under this Note to the same extent as any other
disbursements hereunder, and notwithstanding the fact that such overadvances may
create a principal balance owing to Bank in excess of the face amount stated in
this Note. Bank shall also have the option, in its sole discretion and without
any obligation to do so, to extend the Maturity Date of the indebtedness
hereunder. Such extensions shall be immediately effective when made by Bank and
notice thereof shall be given by Bank as provided for in the Loan Agreement.
Should any Event of Default occur, as provided for in the Loan
Agreement, which shall not have been cured, if a right to cure is provided for
therein, then at Bank's option, Bank may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand or notice of dishonor, all of which are expressly waived,
and Bank shall have no obligation to make any further Advances hereunder.
Should more than one person or entity sign this Note, the obligations
of each signer shall be joint and several.
This Note shall be construed in accordance with the laws of the State
of Colorado.
HORIZON ORGANIC HOLDING CORPORATION
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
HORIZON ORGANIC DAIRY, INC.
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
HORIZON ORGANIC DAIRY, MARYLAND FARM, INC.
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
HORIZON ORGANIC DAIRY, IDAHO FARM, INC.
By /s/ Don J. Gaidano By /s/ Barnet M. Feinblum
Its Chief Financial Officer Its President & CEO
(SEAL)
<PAGE>
Exhibit 8B to
Loan and Security Agreement
Permitted Deposits and Investments
Attached
Horizon Organic Holding Corp.
INVESTMENT POLICY
JULY 1, 1998
PURPOSE
This Investment Policy outlines the objectives, procedures, constraints and
permitted investments for Horizon Organic Holding Corp.'s (and Subsidiaries)
(The "Company") short-term investment portfolio. This Investment Policy will be
followed by the Company personnel as well as outside investment managers who may
be appointed to assist in portfolio management. In view of the rapid changes
within the capital markets and the Company's changing investment needs and
objectives, this Investment Policy will be reviewed at least annually with the
Board of Directors.
OBJECTIVES
The basic objectives of the Company's investment program are, in order of
priority:
1. Safety and preservation of the invested funds.
2. Liquidity of investments that is sufficient to meet cash flow requirements.
3. Attainment of a maximum rate of return on invested funds that is consistent
with the first two objectives.
4. Reduce tax liability, when appropriate.
PROCEDURE
The Chief Financial Officer is responsible for overseeing the management of the
Investment Portfolio, including the selection and appointment of professional
investment managers. The Company and its professional investment managers shall
utilize sound fiscal controls and prudent fiduciary practices, consistent with
the objectives stated above. This includes the right to enter into investment
management agreements to buy, sell, trade or swap investment securities on
behalf of the Company. Investment Portfolio turnover will occur when market
conditions allow active management to meet the objectives of the investment
guidelines herein.
If investment manager(s) are appointed, such investment manager(s) will provide
the Company, at least quarterly, reports summarizing investment transactions,
fees, and portfolio results. Portfolio managers will meet as requested with
Company management to discuss portfolio performance, procedures, and make any
necessary adjustments to the portfolio based on changes in underlying investment
objectives.
<PAGE>
ELIGIBLE INVESTMENTS
For purposes of the Investment Policy, eligible investments shall be defined as
any of the following:
1. U.S. Treasury Bills, Notes and Bonds
2. U.S. AAA-Rated Agency Securities
3. Institutional Money Market Funds
4. Banker's Acceptances
5. Certificates of Deposit
6. Corporate Bonds
7. Short-Term Corporate Commercial Paper
Tax-exempt investments including:
8. Auction Rate Preferreds
9. Tax-exempt Commercial Paper
10. Municipal Notes
11. Municipal Bonds
12. Municipal Pre-refunded Securities
Credit Quality Criteria:
All eligible investments must meet the following applicable credit quality
criteria:
* Banks must carry at least a AA debt rating from Moody's or S&P.
* Corporate debt obligations and Municipal obligations must be rated Aa2 or AA
or better by Moody's and S&P respectively.
* No split ratings below AA are allowed.
* Short-Term Corporate Commercial Paper must be rated A1/P1 or better by Moody's
and S&P respectively.
<PAGE>
Investment Limits:
* All investments must be made in U.S. dollars with the exception of trades
designed to hedge a specific currency.
* Investment with any single issuer shall not exceed 10% of the total portfolio
value except obligations of the U.S. Government and Federal Agencies and Money
Market Funds
* Investment in any single issue shall not exceed 5% of the total debt issued by
the issuer.
Investment Maturities:
* Average duration of securities in the portfolio shall not exceed 4 months,
subject to the monthly operating cash requirements of the Company.
* All securities purchased must mature or have a demand feature within 1 year.
* Specific maturity requirements will be provided on an ongoing basis by the
Company's Chief Financial Officer, in accordance with projected cash flows.
OTHER GUIDELINES:
Term to maturity will be selected first on the basis of the Company's cash flow
needs and investment objectives, then structured to maximize investment return.
Exceptions to this policy must be approved in writing by the Company's Executive
Committee or the Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of September 30, 1998, and the consolidated
statement of operations for the nine months ended September 30, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,457
<SECURITIES> 8,837
<RECEIVABLES> 4,499
<ALLOWANCES> (90)
<INVENTORY> 5,600
<CURRENT-ASSETS> 34,829
<PP&E> 26,848
<DEPRECIATION> (2,316)
<TOTAL-ASSETS> 68,052
<CURRENT-LIABILITIES> 7,027
<BONDS> 5,076
0
0
<COMMON> 9
<OTHER-SE> 55,082
<TOTAL-LIABILITY-AND-EQUITY> 68,052
<SALES> 34,657
<TOTAL-REVENUES> 34,657
<CGS> 23,218
<TOTAL-COSTS> 23,218
<OTHER-EXPENSES> 9,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 992
<INCOME-PRETAX> 599
<INCOME-TAX> (286)
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> (414)
<CHANGES> 0
<NET-INCOME> (101)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
