<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HORIZON ORGANIC HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2020 84-1405007
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
6311 HORIZON LANE
LONGMONT, COLORADO 80503
(303) 530-2711
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BARNET M. FEINBLUM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HORIZON ORGANIC HOLDING CORPORATION
6311 HORIZON LANE
LONGMONT, COLORADO 80503
(303) 530-2711
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES C. T. LINFIELD, ESQ. THOMAS A. BEVILACQUA, ESQ.
CARRIE L. SCHIFF, ESQ. DAVID A. MAKARECHIAN, ESQ.
COOLEY GODWARD LLP BROBECK, PHLEGER & HARRISON LLP
2595 CANYON BOULEVARD, SUITE 250 TWO EMBARCADERO PLACE, 2200 GENG ROAD
BOULDER, COLORADO 80302-6737 PALO ALTO, CALIFORNIA 94303
(303) 546-4000 (650) 424-0160
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 3,450,000 $11.00 $37,950,000.00 $11,196.00
</TABLE>
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(1) Includes 450,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act
of 1933, as amended.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 30, 1998
PROSPECTUS
3,000,000 SHARES
[LOGO OF HORIZON ORGANIC HOLDING CORPORATION]
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.
It is currently estimated that the initial public offering price will be
between $9.00 and $11.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol HCOW.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6.
--------
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.................................... $ $ $
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Total (3).................................... $ $ $
</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 $750,000.
(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 $ , $
and $ respectively. See "Underwriting."
--------
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 , 1998, at the office of the agent of Hambrecht &
Quist LLC in New York, New York.
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
HANIFEN, IMHOFF INC.
, 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.
<PAGE>
[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
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." (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."]
<PAGE>
[Continuation of the gatefold. Under the caption "Distribution" (photograph
of Idaho farm testing laboratory) 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) 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 dairy products in
the United States, including the leading brand of certified organic fluid milk.
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. 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
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.
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 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.
3
<PAGE>
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.
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.
THE OFFERING
Common Stock offered by the Company....... 3,000,000 shares
Common Stock to be outstanding after the
offering.................................. 8,056,341 shares(1)
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."
Proposed Nasdaq National Market symbol.... HCOW
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
-------- -------- -------- --------- ---------
(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(2)(3)....................... 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(4)................................ $ (.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(5)
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(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 404 $ 811 $13,272
Working capital............................... 2,935 2,520 14,981
Total assets.................................. 32,737 34,501 46,963
Long-term debt................................ 17,960 18,970 4,969
Total stockholders' equity.................... 8,886 8,796 35,462
</TABLE>
4
<PAGE>
- --------------------
(1) 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 $5.36 per share,
respectively. See "Capitalization," "Management--Stock Option Plans" and
Notes to the Company's Consolidated Financial Statements.
(2) 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.
(3) 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.
(4) 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.
(5) As adjusted to reflect the sale of 3,000,000 shares of Common Stock at an
assumed initial public offering price of $10.00 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 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.
5
<PAGE>
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. 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 proposed national
6
<PAGE>
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. 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 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,
7
<PAGE>
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 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
8
<PAGE>
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".
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 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.
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".
9
<PAGE>
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. 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 has spent a
significant amount of money 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.
10
<PAGE>
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 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,
11
<PAGE>
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.
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 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
12
<PAGE>
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 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 will
be 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, 8,056,341 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
13
<PAGE>
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 4,556,137 shares that
are subject to lock-up agreements (the "Lock-Up Agreements") with Hambrecht &
Quist LLC, and an aggregate of 500,204 shares which are "restricted
securities" under Rule 144. Hambrecht & Quist LLC may release all 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,
directors, executive officers and principal stockholders of the Company, and
certain of their affiliates, will beneficially own approximately 46% 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 $5.87 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
14
<PAGE>
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.
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<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 at an assumed initial public
offering price of $10.00 per share are estimated to be $27.2 million ($31.3
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 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 Ag Credit, Inc. ("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, (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".
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<PAGE>
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".
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<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 at an assumed initial
public offering price of $10.00 per share 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, 8,056,341 shares issued and outstanding, as
adjusted(2)............................................ 5 8
Additional paid-in capital(3)........................... 11,859 38,425
Accumulated deficit(4).................................. (2,486) (2,971)
Treasury stock(3)....................................... (582) --
------- -------
Total stockholders' equity............................ 8,796 35,462
------- -------
Total capitalization................................. $27,766 $40,431
======= =======
</TABLE>
- ---------------------
(1) Reflects repayment of Line of Credit with U.S. Bancorp, unsecured
subordinated promissory notes and senior promissory subordinated 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 $5.36
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 assumed initial public offering price of $10.00 per share, the pro forma
net tangible book value of the Company at March 31, 1998 would have been
approximately $33,295,000, or $4.13 per share. This represents an immediate
increase in such net tangible book value of $2.82 per share to existing
stockholders and an immediate dilution of $5.87 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1998................................................ $1.31
Increase per share attributable to new investors......... 2.82
-----
Pro forma net tangible book value per share after the offer-
ing(1)..................................................... 4.13
------
Dilution per share to new investors......................... $ 5.87
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and the new investors 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 and by the investors purchasing shares of
Common Stock in this offering (based upon an assumed initial public offering
price of $10.00 per share):
<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 62.8% $11,283,000 27.3% $ 2.23
New investors............. 3,000,000 37.2 30,000,000 72.7 10.00
--------- ----- ----------- -----
Total................... 8,056,341 100.0% $41,283,000 100.0%
========= ===== =========== =====
</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 $5.36 per share,
respectively. See "Capitalization," "Management--Stock Option Plans" and
Notes to the Company's Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statements of operations data for the
fiscal years ended 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 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)
===== ====== ====== ======= ======= ====== =======
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
<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>
20
<PAGE>
- ---------------------
(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.
(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.
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 dairy products in the United States, including the leading brand of
certified organic fluid milk. 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 generally 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. 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. 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.
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.
23
<PAGE>
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 15 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, it does not have written agreements with its other processors.
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".
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.
24
<PAGE>
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.
25
<PAGE>
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 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 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.
26
<PAGE>
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.
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, $165,000 and $1.3
million and $627,000 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
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<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 activities. 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
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<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 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, including
covenants related to the Company's tangible net worth, working capital ratio,
total liabilities to tangible net worth ratio, minimum working capital
interest coverage ratio, as well as other borrowing base requirements.
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 believes that the net proceeds of this offering, together with
cash generated from operations and funds available under the Line of Credit,
will be sufficient to satisfy its cash requirements through fiscal 1999.
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
30
<PAGE>
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 Company has not
conducted any testing, 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 also is in the process of verifying whether its major
suppliers, service providers, and financial institutions are year 2000
compliant. The Company will continue to make certain investments in its
software and hardware systems and applications to ensure that they are year
2000 compliant. The financial impact to the Company is not anticipated to be
material in any single year.
31
<PAGE>
BUSINESS
OVERVIEW
Horizon produces, processes and markets the leading brand of certified
organic dairy products in the United States, including the leading brand of
certified organic fluid milk. 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. 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 and
natural foods stores. 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 of 64% and a combined market share of 74%, including the
Juniper Valley Farms brand which the Company recently acquired. Additionally,
for the same period Horizon achieved 20% all commodity volume ("ACV")
distribution, a measurement of national supermarket distribution, of its
organic fluid milk, up eight percentage points from the prior year.
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 at the 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.
32
<PAGE>
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 dairy products 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, 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 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 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 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 published
industry statistics, sales of organic foods represent only 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 beginning to meet
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
33
<PAGE>
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 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.
34
<PAGE>
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.
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.]
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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. 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. 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.
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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.
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. 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.
PRODUCTS
Horizon currently markets 43 SKUs of premium-priced organic products under
the Horizon brand, including ten SKUs of fluid milk and 29 SKUs of other dairy
products such as cheese, yogurt, butter, sour cream, cottage cheese and four
SKUs of eggs. Horizon recently acquired the Juniper Valley Farms brand of
organic products, including 22 SKUs of organic fluid milk and two SKUs of
organic orange juice. The Company intends to transition the Juniper Valley
Farms branded products to the Horizon brand over the next 12 months.
The following table sets forth the Horizon organic product line:
THE HORIZON FAMILY OF ORGANIC PRODUCTS
<TABLE>
<CAPTION>
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.
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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 products carry the Company's distinctive, brightly-colored flying cow and
earth logo as well as 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 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.
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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 74%, 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 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 customer's warehouse located
outside of New York City, and are shipped nationally through third-party
trucking companies as orders are received from customers.
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
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.
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 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
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<PAGE>
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.
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. 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.
Horizon has established relationships with 15 dairy processors across the
United States. The dairy processors include five fluid milk processing
locations and ten dairy product processors which process the Company's organic
farm milk into chocolate 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.
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.
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<PAGE>
ACQUISITIONS
Horizon recently completed the acquisition of the Juniper Valley Farms brand
from Worcester. 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. 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.
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), Springfield Creamery (a regional organic and conventional
dairy located in Oregon) and Brown Cow West, Inc. (a regional organic and
conventional dairy located in 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. 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
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<PAGE>
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.
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".
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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 is also considering, as part of formal rulemaking, a proposal to
establish a temporary price floor for farm milk. A price floor may result in
higher prices for farm milk; however, the level of any such price floor and
the impact on the farm milk price cannot be predicted at this time. The
outcomes of the USDA's proposed rules and the price floor proposal are
uncertain.
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.
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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.
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,
44
<PAGE>
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 115 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.
45
<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 October 1979 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
46
<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.
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.
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 Palmer Wireless, Inc., a cellular
telephone system operator, and as a Trustee of Accolade Funds. Mr. Mandigo
received a B.A. and a J.D. degree for the University of Kansas.
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.
BOARD OF DIRECTORS
The Company currently has eight authorized directors. In April 1998, the
Company's Board of Directors (the "Board") approved, subject to stockholder
approval, the amendment and restatement of the Company's Certificate of
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; 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
47
<PAGE>
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 on the
date of his or her election to the Board 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 grant. Each non-employee director also 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.
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.
48
<PAGE>
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.
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 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.
49
<PAGE>
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.
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 $100,000 for services
rendered to the Company during fiscal 1997 (collectively, the "Named Executive
Officers"):
50
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($)(1) ($)(1) (#) ($)(2)
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Barnet M. Feinblum..................
President and Chief Executive
Officer $125,000 $44,109 40,000 $3,577
Paul B. Repetto.....................
Vice President, Marketing and Sec-
retary 115,000 22,310 22,500 3,291
Mark A. Retzloff....................
Vice President, Sales 115,000 30,878 22,500 3,291
</TABLE>
- ---------------------
(1) Includes amounts, if any, deferred pursuant to Section 401(k) of the Code.
(2) Represents matching contributions made by the Company to the 401(k) Plan.
The following table sets forth each grant of stock options made during
fiscal 1997 to each of the Named Executive Officers:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE APPRECIATION
SHARES UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL YEAR(2) ($/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.
51
<PAGE>
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., 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 will be fully vested and exercisable upon his
execution of such agreement. 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
circumstances equitable remedies such as an injunction or other forms of non-
monetary relief would remain
52
<PAGE>
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.
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<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
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<PAGE>
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.
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 $5.36 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 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.
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<PAGE>
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.
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
-------------------- -------- -------- ----------
<S> <C> <C> <C>
Thomas D. McCloskey, Jr....................... $125,000
Marcus B. Peperzak............................ 125,000 $2,566,213(3)
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(3)
Aurora Dairy Corporation...................... 252,988(3)
Aurora Capital Corporation.................... 26,777(3)
McCloskey Trust............................... 500,000(4)
-------- -------- ----------
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 bear interest at prime plus one percent. See "--Sunrise
Organic Farms, Inc.--Sunrise Acquisition".
(4) 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. 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) 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
BENEFICIAL OWNER(1) PRIOR TO OFFERING(2) OFFERING OFFERING
------------------- -------------------- ---------- ----------
<S> <C> <C> <C>
Thomas D. McCloskey, Jr.(3).. 972,516 19.1% 12.0%
Marcus B. Peperzak(4)........ 604,498 11.8 7.5
Boulder Ventures II, 559,496 11.1 6.9
L.P.(5).....................
1634 Walnut Street,
Suite 301
Boulder, CO 80302
Paul B. Repetto(6)........... 435,000 8.6 5.4
Mark A. Retzloff(7).......... 385,282 7.6 4.8
Barnet M. Feinblum(8)........ 316,843 6.1 3.9
Leonard A. Lauder............ 293,517 5.8 3.6
767 Fifth Avenue
New York, NY 10153
J. Thomas Clark(9)........... 170,333 3.4 2.1
Clark R. Mandigo II(10)...... 85,966 1.7 1.1
Richard L. Robinson(11)...... 49,824 * *
All executive officers and
directors as a group (10
persons)(12)................ 3,027,262 56.4 36.2
</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 8,056,341 shares of
Common Stock outstanding after completion of the offering, 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.
(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) Includes 20,000 shares subject to stock options.
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<PAGE>
(7) 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.
(8) 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.
(9) Includes 17,000 shares subject to stock options.
(10) Includes an aggregate of 23,236 shares held in trust for his three
children and 2,000 shares subject to stock options.
(11) Includes 2,000 shares subject to stock options.
(12) Includes 2,719,245 shares, 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 through 11 above.
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<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 $5.36 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.
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
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<PAGE>
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
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 Company has made application for listing the Common Stock 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.
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<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, the Company will have outstanding an
aggregate of 8,056,341 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 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) 442,779 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) 4,556,137 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; and (iv) the remainder of the Restricted Shares 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 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.
62
<PAGE>
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".
63
<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............................................
Piper Jaffray Inc. ..............................................
Hanifen, Imhoff Inc. ............................................
---------
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 propose to 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 $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ 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.
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 4,556,137 shares of Common Stock after this
offering, 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
64
<PAGE>
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.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price are
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. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions and other factors.
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.
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. 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 year ended December 28, 1996 and the fiscal year
ended 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 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.
65
<PAGE>
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.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HORIZON ORGANIC HOLDING CORPORATION
Independent Auditors' Report of KPMG Peat Marwick LLP.................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-8
SUNRISE ORGANIC FARMS, INC.
Independent Auditor's Report............................................. F-21
Financial Statements:
Balance Sheet............................................................ F-22
Statement of Income...................................................... F-24
Statement of Stockholders' Equity........................................ F-25
Statement of Cash Flows.................................................. F-26
Notes to Financial Statements............................................ F-27
</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 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. The statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1995, were audited by other auditors whose report
thereon dated July 10, 1996, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1996 and 1997 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 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
March 6, 1998, except for
Note 18 which is as of April 8, 1998
F-2
<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-3
<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-4
<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-5
<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-6
<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-7
<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, equipment and
cattle 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.
F-8
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 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
F-9
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(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. 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
F-10
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. 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 $5.36 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>
(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 (26.825%) for the period from June 1, 1995 through
December 31, 1995 and $77,000 for the 52 weeks ended December 28, 1996.
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
F-11
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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
F-12
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
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%, pay-
able in quarterly installments with the unpaid balance due
upon the earlier of May 29, 2003, or the Company completing
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 per-
sonally guaranteed by a stockholder........................ -- 951
----- -------
Total long-term debt...................................... -- 18,513
Less current portion........................................ -- (553)
----- -------
Long-term debt, excluding current portion................. $ -- 17,960
===== =======
</TABLE>
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.
F-13
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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)
==== === ===
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):
F-14
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<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>
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 the level of historical taxable income and
projections for future taxable income 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.
F-15
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 OPERATIONS
On May 31, 1995, the Company transferred the assets and liabilities of its
dairy operations to Sunrise (formerly Aurora Dairy Corporation of Idaho, Inc.)
(ADCI) in exchange for 90,373 shares of Sunrise common stock with an estimated
fair value of $1,829,000 or $20.24 per share, resulting in a gain of $656,000
on the disposal of the dairy operations. 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 operations 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 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.
F-16
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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 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.
F-17
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
(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>
F-18
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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.
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
F-19
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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-20
<PAGE>
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.
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, 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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<PAGE>
SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
F-28
<PAGE>
SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-29
<PAGE>
SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
F-30
<PAGE>
SUNRISE ORGANIC FARMS, INC.
(F/K/A AURORA DAIRY CORPORATION OF IDAHO, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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:
<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-31
<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-32
<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-33
<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-34
<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; Orange Juice
Processing, City of Industry, CA; 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; Asceptic 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
"Original operations in 1992" and one red box and the caption "Current
Operations in 1998." The caption "Horizon(R) owns dairy farms in Idaho and
Maryland and is headquartered in the Boulder, Colorado area. Horizon began
operations with a single source of organic farm milk and a yogurt processor
located in Wisconsin and a fluid milk processor located in Iowa. Today,
Horizon uses farmers, processors and warehouses in 30 locations across the
nation." The Horizon logo]
F-35
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS 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 SOLICI-
TATION 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 CIRCUMSTANCES, 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............................................................. 6
Use of Proceeds.......................................................... 16
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................................................................. 32
Management............................................................... 46
Certain Transactions..................................................... 54
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL , 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 ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[LOGO OF HORIZON ORGANIC HOLDING CORPORATION]
COMMON STOCK
----------------
PROSPECTUS
----------------
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
HANIFEN, IMHOFF INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the registrant in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee............................................. $ 11,196.00
NASD filing fee.............................................. 4,295.00
Nasdaq initial listing application fee....................... 5,000.00
Blue sky qualification fee and expenses...................... 5,000.00
Printing and engraving expenses.............................. 125,000.00
Legal fees and expenses...................................... 275,000.00
Accounting fees and expenses................................. 200,000.00
Transfer agent and registrar fees............................ 10,000.00
Miscellaneous................................................ 114,509.00
-----------
Total.................................................... $750,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Certificate of Incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available under Delaware law. In addition, 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, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision 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.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1995, the Company has sold and issued the following
unregistered securities:
1. During the period, the Registrant granted stock options to employees,
consultants, directors and officers of the Registrant as provided
below:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
DATE GRANTS SHARE
---- --------- ---------
<S> <C> <C>
February 1995.......................................... 90,000 $1.25
May 1995............................................... 135,000 $2.10
December 1995.......................................... 25,000 $2.00
July 1996.............................................. 50,000 $3.22
July 1996.............................................. 16,800 $3.38
July 1996.............................................. 20,000 $3.54
August 1996............................................ 5,000 $3.22
September 1996......................................... 17,143 $3.50
May 1997............................................... 109,000 $4.85
May 1997............................................... 9,000 $5.05
December 1997.......................................... 96,125 $6.50
March 1998............................................. 27,500 $6.50
-------
Total.............................................. 600,568
=======
</TABLE>
2. During the period, the Registrant sold to employees, consultants,
directors and affiliates of the Registrant (i) an aggregate of 15,300
shares of Common Stock pursuant to the exercise of a stock option at an
exercise price of $3.38 per share for cash in the aggregate amount of
$51,714.00, and (ii) an aggregate of 7,750 shares of Common Stock
pursuant to the exercise of a stock option at an exercise price of
$5.05 per share for cash in the aggregate amount of $39,137.50.
3. On March 29, 1997, the Registrant sold warrants to purchase an
aggregate of 69,118 shares of Common Stock at an exercise price of
$5.36 per share.
4. On May 29, 1997, the Registrant issued subordinated promissory term
notes in the principal amount of $3,566,514 in exchange for the
Company's purchase of 176,216 shares of common stock of Sunrise Organic
Farms, Inc., a Colorado corporation ("Sunrise") at a cash price of
$20.24 per share of Sunrise common stock.
5. On May 29, 1997, the Registrant issued an aggregate of 3,664,000 shares
of its Common Stock to the holders of securities of Horizon Organic
Dairy, Inc., a Colorado corporation pursuant to the Articles of Merger
filed by Horizon Organic Dairy, Inc. wherein each share of Horizon
Organic Dairy, Inc. was exchanged for one (1) share of the Registrant's
Common Stock.
6. On May 29, 1997, the Registrant (i) issued an aggregate of 855,423
shares of its Common Stock at a cash price of $4.85 per share to
accredited investors; and (ii) issued 490,245 shares of its Common
Stock in exchange for 117,478 shares of Common Stock of Sunrise.
7. On May 29, 1997, the Registrant sold senior subordinated notes and
Common Stock of the Company for a purchase price of $50,000 per unit.
Each unit consisted of a $50,000 senior subordinated note and 2,500
shares of the Company's Common Stock. The Company sold 62 units for an
aggregate issuance of $3,100,000 of senior subordinated notes and
155,000 shares of Common Stock at a value of $4.85 per share in
exchange for the accrued interest due and payable by the Company on
such notes in the amount of $751,750 to four accredited investors.
II-2
<PAGE>
8. On October 8, 1997, the Registrant sold an aggregate of 120 shares of
its Common Stock at a cash price of $6.50 per share to two accredited
investors.
9. On December 18, 1997, the Registrant issued 2,000 shares of its Common
Stock at a cash price of $6.50 per share to a consultant in
consideration for services rendered.
10. On January 6, 1998, the Registrant issued 1,923 shares of its Common
Stock at a cash price of $6.50 per share to a consultant in
consideration for services rendered.
The sales and issuance of securities in the transactions described in
paragraphs (1) and (2) above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (3) through (10) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 Form of Amended and Restated Certificate of Incorporation, to be
effective upon the closing of the offering.
3.3 Bylaws of the Company.
3.4 Form of Amended and Restated Bylaws of the Company, to be effective
upon the closing of the offering.
4.1 Reference is made to Exhibits 3.1 through 3.4
4.2* Specimen stock certificate representing shares of Common Stock of the
Company.
5.1 Opinion of Cooley Godward LLP regarding the legality of the securities
being registered.
10.1 Form of Shareholders Agreement for the Company.
10.2 1998 Equity Incentive Plan.
10.3 Form of Company's Stock Option Agreement.
10.4 1998 Employee Stock Purchase Plan.
10.5 Form of Indemnity Agreement.
10.6 Form of Warrant to Purchase Common Stock.
10.7* Warrant to Purchase Common Stock issued to McCabe Mintz & Co.
10.8 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
the Loan and Security Agreement dated April 6, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.9 Form of Unsecured Subordinated Promissory Note, dated March 20, 1997
of the Company.
10.10 Note and Stock Purchase Agreement, dated May 29, 1997, among the
Company and the Schedule of Purchasers attached thereto.
10.11 Restatement, Amendment and Assumption Agreement, dated as of March 20,
1997 among Farm Credit Services, Sunrise, HOD, Marcus B. Peperzak and
Farm Credit Bank of Wichita and the Modification to Note and Loan
Agreement dated June 23, 1995 and addressed in the Restatement,
Amendment and Assumption Agreement dated March 20, 1997 pertaining to
Farm Credit Bank of Wichita Loan 2371719.
10.12 Asset Purchase Agreement, dated as of April 8, 1998, between the
Company and Worcester Creameries Corp.
10.13 Amended Executive Employment Agreement, effective January 1, 1998,
between the Company and Barnet Feinblum.
10.14 Amended Executive Employment Agreement, effective January 1, 1998,
between the Company and Mark A. Retzloff.
10.15 Amended Executive Employment Agreement, effective January 1, 1998,
between the Company and Paul Repetto.
10.16 Office Lease for Horizon Building, dated October 10, 1996, between HOD
and MUM II, LLC, as amended by the Addendum to Lease and Second
Addendum to Lease, dated October 10, 1996 and Third Addendum to Lease,
dated March 31, 1997.
11.1 Statement re: computation of per share earnings.
21.1 Statement re: subsidiaries of the Company.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Eide Helmeke PLLP.
23.4 Consent of Ober, Kaler, Grimes & Shriver.
24.1 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Company pursuant to the provisions described in Item 14 or otherwise, the
Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer, or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
The undersigned Company undertakes that: (1) for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus as filed as part of the registration statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Company
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act, each post effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Longmont, State of Colorado, on the 30th day of April, 1998.
Horizon Organic Holding Corporation
By: /s/ Barnet M.
Feinblum
Barnet M. Feinblum
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Barnet M.
Feinblum and Don J. Gaidano his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments or any abbreviated
registration statement, and any amendments thereto, filed pursuant to Rule
462(b) increasing the amount of securities for which registration is being
sought) to the Registration Statement on Form S-1, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Marcus B. Peperzak Chairman of the April 30, 1998
- ------------------------------------- Board of Directors
MARCUS B. PEPERZAK
/s/Barnet M. Feinblum President, Chief April 30, 1998
- ------------------------------------- Executive Officer,
BARNET M. FEINBLUM Director (Principal
Executive Officer)
/s/Don J. Gaidano Vice President, April 30, 1998
- ------------------------------------- Finance &
DON J. GAIDANO Administration,
Chief Financial
Officer, and
Treasurer
(Principal
Financial and
Accounting Officer)
II-6
<PAGE>
SIGNATURE TITLE DATE
/s/ Paul B. Repetto Vice President, April 30, 1998
- ------------------------------------- Marketing, Director
PAUL B. REPETTO
/s/ Mark A. Retzloff Vice President, April 30, 1998
- ------------------------------------- Sales, Director
MARK A. RETZLOFF
/s/ Thomas D. McCloskey, Jr. Director April 30, 1998
- -------------------------------------
THOMAS D. MCCLOSKEY, JR.
/s/ J. Thomas Clark Director April 30, 1998
- -------------------------------------
J. THOMAS CLARK
/s/ Clark R. Mandigo II Director April 30, 1998
- -------------------------------------
CLARK R. MANDIGO II
/s/ Richard L. Robinson Director April 30, 1998
- -------------------------------------
RICHARD L. ROBINSON
II-7
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HORIZON ORGANIC HOLDING CORPORATION
ARTICLE ONE
The name of the Corporation is Horizon Organic Holding Corporation.
ARTICLE TWO
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801, and the name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE THREE
The nature of the business is to engage in the lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware (the "DGCL").
ARTICLE FOUR
1. Authorized Shares. The total number of shares of stock which the
-----------------
corporation shall have the authority to issue is ten million (10,000,000)
shares, consisting of eight million (8,000,000) shares of Common Stock having
$0.001 par value and two million (2,000,000) shares of Preferred Stock having
$0.001 par value. Any amendment to the Certificate of Incorporation which shall
increase or decrease the authorized capital stock of the Corporation may be
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of stock of the Corporation entitled to vote.
2. Preferred Stock. The designations and the powers, preferences and
---------------
rights, and the qualifications, limitations or restrictions thereof, of the
Preferred Stock shall be as follows:
a. The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock in
one or more series, with such voting powers full or limited but not to exceed
one vote per share, or without voting powers and with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be expressed in
the resolution or resolutions providing for the issue thereof adopted by the
Board of Directors and as are not expressed in this Certificate of Incorporation
or any amendment thereto, including (but without limiting the generality of the
foregoing) the following:
<PAGE>
i. the designation of such series;
ii. the dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or classes or
on any other series of any class or classes of capital stock of the Corporation,
and whether such dividends shall be cumulative or noncumulative;
iii. whether the shares of such series shall be subject to redemption
by the Corporation, and if made subject to such redemption, the times, prices
and other terms and conditions of such redemption;
iv. the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
v. whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or of any other series of
any class or classes of capital stock of the Corporation, and, if provision be
made for conversion or exchange, the times, prices, rates, adjustments, and
other terms and conditions of such conversion or exchange;
vi. the extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with respect to the
election of directors or otherwise; provided, however, that in no event shall
any holder of any series of Preferred Stock be entitled to more than one vote
for each share of such Preferred Stock held by him;
vii. the restrictions and conditions, if any, upon the issue or
reissue of any additional Preferred Stock ranking on a parity with or prior to
such shares as to dividend or upon dissolution; and
viii. the rights of the holder of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the Corporation, which
rights may be different in the case of a voluntary dissolution than in the case
of an involuntary dissolution.
b. Except as otherwise required by law, and except other matters as may be
stated in the resolutions of the Board of Directors creating any series of
Preferred Stock, the holder of any such series shall have no voting power
whatsoever.
ARTICLE FIVE
The name and address of the incorporator is as follows:
-2-
<PAGE>
Lee F. Sachnoff
Krendl Horowitz & Krendl
370 17th Street, Suite 5350
Denver, Colorado 80202
ARTICLE SIX
The names and addresses of the persons who are to serve as directors of the
Corporation until the first annual meeting of stockholders or until their
successors are elected and qualify are as follows:
Name Address
---- -------
Barnet M. Feinblum 7490 Clubhouse Road, Suite 100
Boulder, Colorado 80301
ARTICLE SEVEN
The Corporation shall indemnify its current or former directors, officers,
employees and agents or any person who served or is serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise from and
against any and all expenses (including attorney fees), liabilities or other
matters to the fullest extent permitted by the DGCL. Such indemnification shall
not be deemed exclusive of any other rights to which such person may be
entitled, under any bylaws, agreements, vote of stockholders or disinterested
directors, or otherwise, both as to actions taken in their official capacity and
as to action in another capacity while holding such office, and shall inure to
the benefit of the heirs, executors and administrators of such persons. The
Corporation shall have the power to enter into agreements providing for
indemnification by the Corporation of current or former officers, directors,
general partners, employees and agents or any other person of or who served any
predecessor corporation, partnership, joint venture, trust or other enterprise
from and against any and all expenses, liabilities or other matters.
ARTICLE EIGHT
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages or breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derives an improper personal benefit.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned being the incorporator designated in
Article Five executes this Certificate of Incorporation, hereby declaring and
certifying that this is his act and deed and the facts herein are true, and
accordingly has hereunto set his hand this 18th day of March, 1997.
----
INCORPORATOR:
/s/ Lee F. Sachnoff
--------------------
Lee F. Sachnoff
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
On this 18th day of March, 1997, before me personally came Lee F. Sachnoff,
----
one of the persons who signed the foregoing certificate of incorporation, known
to me personally to be such, and acknowledged that the said certificate is his
act and deed and that the facts stated therein are
My commission expires: 7-24-97
------------
[NOTARY SEAL]
/s/ Paula A. Ridout
--------------------
Notary Public
-4-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HORIZON ORGANIC HOLDING CORPORATION
A DELAWARE CORPORATION
I.
The undersigned, Barnet M. Feinblum, hereby certifies that:
ONE: He is the duly elected and acting President of Horizon Organic Holding
Corporation.
TWO: The corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on March 20, 1997 under the name
Horizon Organic Holding Corporation.
THREE: This Amended and Restated Certificate of Incorporation restates,
integrates and amends the corporation's Certificate of Incorporation filed on
March 20, 1997, and has been duly adopted in accordance with Sections 242 and
245 of the General Corporation Law of the State of Delaware.
FOUR: The text of the Amended and Restated Certificate of Incorporation of
this corporation is hereby amended and restated to read in its entirety as
follows:
II.
The name of this corporation is HORIZON ORGANIC HOLDING CORPORATION.
III.
The address of the registered office of the corporation in the State of
Delaware is the Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The name of its registered agent at such address
is the Corporation Trust Company.
IV.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
A. CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is
thirty-five million (35,000,000), of which thirty million (30,000,000) shares
shall be Common Stock and five million (5,000,000) shares shall be Preferred
Stock. The Common Stock shall have a par value of $.001 per share and the
Preferred Stock shall have a par value of $.001 per share.
1.
<PAGE>
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. 1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "1933 Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until such director's successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
2.
<PAGE>
3. Subject to the rights of the holders of any series of Preferred
Stock, no director shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be removed
from office at any time with cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock and the Stockholders Agreement, any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other causes and
any newly created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by the
stockholders, except as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, even though less
than a quorum of the Board of Directors and not by the stockholders. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the director for which the vacancy was created
or occurred and until such director's successor shall have been elected and
qualified.
B. 1. Subject to paragraph (i) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
C. 1. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of the shares entitled to cast
not less that ten percent (10%) of the votes at the meeting, and shall be held
at such place, on such date, and at such time as they or he shall fix; provided,
however, that the following registration of any classes of equity securities of
the corporation pursuant to the provisions of the Securities Exchange Act of
1934, as amended, special meetings of the stockholders may only be called by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized Directors.
2. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
3.
<PAGE>
VI.
A. To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits this corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
B. No director of the corporation shall be personally liable to the
corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the General Corporation Law of the State of Delaware
or any amendment thereto or shall be liable by reason that, in addition to any
and all other requirements for such liability, such director (1) shall have
breached the director's duty of loyalty to the corporation or its stockholders,
(2) shall not have acted in good faith, or, in failing to act, shall not have
acted in good faith, (3) shall have acted in manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall have acted
in a manner involving intentional misconduct or a knowing violation of law, or
(4) shall have derived an improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to authorize the further elimination or
limitation of the liability of a director, the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
C. Each person who was or is made a party or is threatened to be made a
party to or is in any way involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or of a
direct or indirect subsidiary of the corporation, or is or was serving at the
request of the corporation as a director of officer of another entity or
enterprise, or was a director or officer of a foreign or domestic corporation
which was predecessor corporation of the corporation or of another entity or
enterprise at the request of such predecessor corporation, shall be indemnified
and held harmless by the corporation, and the corporation shall advance all
expenses incurred by any such person in defense of any such proceeding prior to
its final determination, to the fullest extent authorized by the General
Corporation Law of the State of Delaware. In any proceeding against the
corporation to enforce these rights, such person shall be presumed to be
entitled to indemnification and the corporation shall have the burden of proving
that such person has not met the standards of conduct for permissible
indemnification set forth in the General Corporation Law of the State of
Delaware. The rights to indemnification and advancement of expenses conferred by
this Article VI shall be presumed to have been relied upon by the directors and
officers of the corporation in serving or continuing to serve the corporation
and shall be enforceable as contact rights. Said rights shall not be exclusive
of any other rights to which those seeking indemnification may otherwise be
entitled. The corporation may, upon written demand presented by a director or
officer of the corporation or of a direct or indirect subsidiary of the
corporation, or by a person serving at the request of the corporation as a
director or officer
4.
<PAGE>
of another entity or enterprise, enter into contracts to provide such persons
with specified rights to indemnification, which contracts may confer rights and
protections to the maximum extent permitted by the General Corporation Law of
the State of Delaware, as amended and in effect from time to time.
1. If a claim under this Article VI is not paid in full by the
corporation within sixty (60) days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the corporation to indemnify the
claimant for the amount claimed, but the claimant shall be presumed to be
entitled to indemnification and the corporation shall have the burden of proving
that the claimant has not met the standards of conduct for permissible
indemnification set forth in the General Corporation Law of the Sate of
Delaware.
2. If the General Corporation Law of the State of Delaware is
hereafter amended to permit the corporation to provide broader indemnification
rights than said Law permitted the corporation to provide prior to such
amendment, the indemnification rights conferred by this Article VI shall be
broadened to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
D. Any repeal or modification of any of the foregoing provisions of this
Article VII, including without limitation, any contractual rights arising under
or authorized by it, shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
5.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this certificate on
__________ __, 1998.
_______________________________
Barnet M. Feinblum
President
6.
<PAGE>
EXHIBIT 3.3
Effective: March 20, 1997
BYLAWS
OF
HORIZON ORGANIC HOLDING CORPORATION
Article I
Offices
-------
The Corporation shall maintain a registered office in the State of Delaware
as required by law. The Corporation may also have offices in such other places
either within or without the State of Delaware as the board of directors may
from time to time designate or as the business of the Corporation may require.
Article II
Stockholders
------------
Section 1. Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation shall be held for the election of directors at such date, time, and
place, either within or without the State of Delaware, as may be designated by
resolution of the board of directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 2. Special Meetings. Special meetings of stockholders for any
----------------
purpose or purposes may be called at any time by the president, the board of
directors, or by a committee of the board of directors which has been duly
designated by the board of directors, and whose powers and authority, as
expressly provided in a resolution of the board of directors, include the power
to call such meetings, and special meetings may be called under the
circumstances and in the manner set forth in Article III, Section 3(c), but such
special meetings may not be called by any other person or persons.
Section 3. Place. Meetings of the stockholders of the Corporation shall
-----
be held at such place, within or without the State of Delaware, as may from time
to time be designated by the individual or entity that called the meeting and
stated in the notice of meeting.
Section 4. Notice. Whenever stockholders are required or permitted to
------
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and shall be mailed
or delivered to each stockholder entitled to vote at least
<PAGE>
ten (10) days, but no more than sixty (60) days, prior to the meeting. If
mailed, notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation. Notice of any special meeting shall state in
general terms the purpose or purposes for which the meeting is to be held.
Attendance by a stockholder at a meeting shall constitute a waiver of
notice of such meeting, except when the stockholder attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice, signed by the stockholder entitled to
notice whether before or after the time stated therein, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of stockholders need be specified in any
written waiver of notice.
Section 5. Adjournments. Any meeting of stockholders, annual or special,
------------
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. Quorum and Manner of Acting. Unless otherwise provided by law
---------------------------
or the Certificate of Incorporation, one third of the shares of each class of
stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at a meeting of stockholders. In the absence of a quorum,
the stockholders who are present may, by' majority vote, adjourn the meeting
from time to time in the manner provided in Section 6 of this Article until a
quorum shall be present.
Section 7. Voting; Proxies. Unless otherwise provided in the Certificate
---------------
of Incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders may, in a writing and in accordance with Title
8, Section 212 of the Delaware General Corporation law including but not limited
to the use of facsimile signatures thereon, authorize another person or persons
to act for him by proxy. However, no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period of time. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. Any copy, facsimile
telecommunication or other reliable reproduction of the writing required to duly
execute a proxy may be substituted or used for the original for any and all
purposes provided that such copy, facsimile communication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting
-2-
<PAGE>
in person or by filing an instrument in writing revoking the proxy or another
duly executed proxy beating a later date with the secretary of the Corporation.
Voting at meetings of stockholders need not be by written ballot and need not be
conducted by inspectors unless the holders of a majority of the outstanding
shares of all classes of stock entitled to vote thereon present in person or by
proxy at such meeting shall so determine or unless required by law. All
elections and questions shall, unless otherwise provided by law or by the
Certificate of Incorporation or these bylaws, be decided by the vote of the
holders of a majority of the outstanding shares of stock entitled to vote
thereon present in person or by proxy at the meeting.
Section 8. Conduct of Meetings. Meetings of stockholders shall be
-------------------
presided over by the chairman of the board of the Corporation, if any, or in his
absence by the president of the Corporation, or in the absence of the foregoing
persons, by a chairman designated, by the board of directors, or in the absence
of such designation, by a chairman chosen at the meeting. The secretary of the
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 9. Record Date. Unless expressly provided otherwise in any
-----------
option, warrant or convertible security, in order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. The determination of which stockholders are
entitled to express consent to corporate action in writing without a meeting
shall be made not more than ten (10) days from the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
The board of directors shall have the power to close the stock transfer book at
the time the record date is fixed.
Section 10. Voting of Shares of Certain Holders. A stockholder whose
-----------------------------------
shares are pledged shall be entitled to vote such shares unless in the transfer
books of the Corporation he has expressly empowered the pledgee to vote his
shares, in which case only the pledgee, or his proxy, may vote the shares.
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Shares of its own capital stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall not be entitled to vote or be counted for quorum purposes.
Shares which have been called for redemption shall not be deemed to be
outstanding shares for the purpose of voting or determining the total number of
shares entitled to vote on and after the date on which written notice of
redemption has been sent to holders of such shares and a sum sufficient to
redeem such shares has been irrevocably deposited or set aside to pay the
redemption price to the holders of the shares upon surrender of certificates
representing the shares.
Section 11. List of Stockholders Entitled to Vote. The secretary of the
-------------------------------------
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours of the Corporation, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 12. Action Without a Meeting. Any action required or permitted to
------------------------
be taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. The Corporation shall give prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent to
those stockholders who have not consented in writing.
Article III
Board of Directors
------------------
Section 1. Management of the Corporation. The property, business, and
-----------------------------
affairs of the Corporation shall be managed and controlled by or under the
direction of its board of directors.
Section 2. Number, Tenure and Qualifications. The number of directors of
---------------------------------
the Corporation shall be one or more members as set from time to time by the
board of directors. The
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board of directors shall initially consist of the persons named as directors by
the incorporator, and each director so elected shall hold office until the first
annual meeting of stockholders and until his successor is elected and qualified.
Thereafter, directors shall be elected at each annual meeting of stockholders.
Each director shall hold office until his successor shall have been elected and
qualified or until his earlier resignation or removal. Directors need not be
residents of Delaware or stockholders of the Corporation. Any director may
resign at any time upon written notice to the corporation. Directors shall be
removed in the manner provided in Title 8, Section 141(k) of the Delaware
General Corporation Law.
Section 3. Vacancies.
---------
(a) Vacancies and newly created directorships may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and each director so elected shall hold office until
the expiration of the term of office of the director whom he has replaced and
until his successor is elected and qualified;
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of these
bylaws, vacancies and newly created directorships of such class or classes or
series may be filled by a majority of the directors elected by such class or
classes or series thereof then in office, or by a sole remaining director so
elected;
(c) If at any time, by reason of death or resignation or other cause,
the Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of Title 8 of the Delaware Corporation Law;
(d) If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery of the State of Delaware may, upon application of any
stockholder or stockholders holding at least ten (10%) percent of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the provisions
of Section 211 of Title 8 of the Delaware Corporation Law as far as applicable;
(e) Any director may resign at any time upon written notice to the
Corporation. When one or more directors shall resign from the board of
directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
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resignations shall become effective, and each director so chosen shall hold
office as provided in this Section 3 with respect to the filling of other
vacancies.
Section 4. Maintenance of Books Outside State. The board of directors may
----------------------------------
hold meetings and keep the books of the Corporation outside the State of
Delaware.
Section 5. Regular Meetings. A regular meeting of the board of directors,
----------------
of which no notice shall be necessary and which may be held within or without
the State of Delaware, shall be held immediately following the annual meeting of
the stockholders or immediately following any adjournment thereof for the
purpose of the organization of the board and the election or appointment of
officers for the ensuing year and for the transaction of such other business as
may conveniently and properly be brought before such meeting. The board of
directors may provide by resolution the time and place, either within or outside
Delaware, for the holding of additional regular meetings of the board of
direction without other notice than such resolution.
Section 6. Special Meetings. Special meetings of the board of directors
----------------
may be held at any time or place within or without the State of Delaware
whenever called by order of the chairman of the board, by the president of the
Corporation or by any two directors. Reasonable notice thereof shall be given
by the person or persons calling the meeting.
Section 7. Waiver of Notice. When notice is required, a written waiver of
----------------
notice, signed by the director entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance by a
director at a meeting shall constitute a waiver of notice of such meeting,
except when the director attends a meeting for the purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 8. Conduct of Meetings. At meetings of the board of directors the
-------------------
chairman of the board of the Corporation, if any, or in his absence, the
president of the Corporation, or in his absence, a designated vice-president of
the Corporation shall preside. At all meetings of the board of directors, a
majority of the total number of the board of directors shall constitute a quorum
for the transaction of business, but less than a quorum may adjourn any meeting
from time to time until a quorum shall be present, whereupon the meeting may be
held, as adjourned, without further notice. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors. At any meeting at which every director shall be
present, even though held without any notice, any business may be transacted.
The members of the board of directors, or any committee designated by the board,
may participate in a meeting of the board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 8 shall constitute presence in person at such meeting.
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Section 9. Compensation. The directors shall receive such compensation
------------
for their services as directors and as members of any committee appointed by the
board as may be prescribed by the board of directors and shall be reimbursed by
the Corporation for ordinary and reasonable expenses incurred in the performance
of their duties.
Section 10. Manifestation of Dissent. A director of the Corporation who
------------------------
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 11. Committees of the Board of Directors. The board of directors
------------------------------------
may, by resolution passed by a majority of the whole board of directors,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation, and may appoint chairmen of any such
committees. To the extent provided in the resolution designating such
committee, and except as provided under applicable Delaware law, each such
committee shall have and may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of such absent or disqualified
member.
Section 12. Action Without a Meeting. Any action required or permitted to
------------------------
be taken at any meeting of the board of directors, or of any committee thereof,
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 13. Interested Directors. No contract or transaction between the
--------------------
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of the Corporation's directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the board or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his relationship or interest as to the
contract or transaction are disclosed or are known to the board of directors or
the committee, and the board
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or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stock-holders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
Article IV
Indemnification of Officers, Directors, Employees and Agents
------------------------------------------------------------
Section 1. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
proceeding if he acted in good faith or in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, or with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
proceeding by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in
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respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses which the Court of Chancery or
such other court shall deem proper.
Section 3. To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 4. Any indemnification provided for above (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth above. Such determination shall be made (i) by the board
of directors by a majority vote directors who were not parties to such action,
suit or proceeding even though less than a quorum; or (ii) if there are no such
disinterested directors or if the disinterested directors so direct, by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 5. Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
Section 6. The indemnification and advancement of expenses provided by, or
granted pursuant to, the other provisions of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
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Section 8. For purposes of this Article, references to "the Corporation"
shall include, in addition to the Corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. shall stand in the same
position under the provisions of this Article with respect to the Corporation as
he would have with respect to such constituent corporation if its separate
existence had continued.
Section 9. For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
Section 10. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The rights conferred pursuant to
this Article shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the certificate of
incorporation, these bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 11. Any repeal or modification of the foregoing provisions of this
Article IV shall not adversely affect any right or protection hereunder of a
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
Article V
Officers
--------
Section 1. Election. The board of directors shall elect a president and
--------
secretary and may elect a Chairman of the Board, such vice-presidents as in the
opinion of the board of directors the business of the Corporation requires, and
a treasurer; and it shall elect or appoint from time to time such other or
additional officers including assistant secretaries and assistant treasurers, as
in its opinion are desirable for the conduct of the business of the Corporation.
The Chairman of the Board, if any, shall be a director, but no other officer
shall be required to be a member of the
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board of directors. Any number of offices may be held by the same person. Each
officer shall hold his office until his successor is elected and qualified or
until his earlier resignation or removal.
Section 2. Removal and Vacancies. Any officer may resign at any time upon
---------------------
written notice to the Corporation. Any officer or agent shall be subject to
removal with or without cause at any time by the affirmative vote of a majority
of the whole board of directors, but such removal shall be without prejudice to
the contractual rights of such officer, if any, with the corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by the
board of directors at any regular or special meeting. Any officer, agent, or
employee, other than officers appointed by the board of directors, shall hold
office at the discretion of the officer appointing them. In its discretion the
board of directors, by the vote of a majority of the whole board, may leave
unfilled for any such period as it may fix by resolution any office except those
of president, treasurer, and secretary.
Section 3. Salaries. The salaries of all officers of the corporation will
--------
be fixed by the board of directors except as otherwise directed by the board.
Section 4. Duties of Chairman. The board of directors may elect a
------------------
chairman of the board of directors. The chairman of the board of directors, if
elected, or failing his election, the president, or, in his absence, a
designated vice-president of the Corporation shall preside at all meetings of
the board of directors and the stockholders and shall perform such other duties
as may be prescribed from time to time by the board of directors or by these
bylaws.
Section 5. Duties of President. The president shall be the chief
-------------------
executive and administrative officer of the Corporation. He shall preside at
all meetings of the stockholders and, in the absence of the chairman of the
board, at meetings of the board of directors. He shall perform such duties and
exercise such powers as customarily pertain to the office of president and shall
have general and active supervision over the property, business, and affairs of
the Corporation and over its officers. He may appoint officers, agents, or
employees other than those appointed by the board of directors. He may sign,
execute, and deliver in the name of the Corporation powers of attorney,
contracts, bonds, and other obligations and shall perform such other duties as
may be prescribed from time to time by the board of directors or by these
bylaws.
Section 6. Duties of Vice-Presidents. The vice-presidents shall have such
-------------------------
powers and perform such duties as may be assigned to them by the board of
directors or the president. In the absence or disability of the president, a
vice-president designated by the board or the president shall perform the duties
and exercise the powers of the president. A vice-president may sign and execute
contracts and other obligations pertaining to the regular course of his duties.
Section 7. Duties of Treasurer. The treasurer shall have general custody
-------------------
of all the funds and securities of the Corporation and have general supervision
of the collection and disbursement
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of funds of the Corporation. He shall endorse on behalf of the Corporation for
collection checks, notes, and other obligations, and shall deposit the same to
the credit of the Corporation in such bank or banks or depositories as the board
of directors may designate. He may sign, with the president, or such other
person or persons as may be designated for the purpose by the board of
directors, all bills of exchange or promissory notes of the Corporation. He
shall enter or cause to be entered regularly in the books of the Corporation
full and accurate accounts of all money received and paid by him on account of
the Corporation. He shall at all reasonable times exhibit his books and
accounts to any director of the Corporation upon application at the office of
the Corporation during ordinary business hours; and, whenever required by the
board of directors or the president, shall render a statement of the
Corporation's accounts. He shall perform such other duties as may be prescribed
from time to time by the board of directors or by these bylaws. He shall, if
required by the board, give the Corporation a bond in such sums and with such
sureties as shall be satisfactory to the board, conditioned upon the faithful
performance of his duties and for the restoration to the Corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
The treasurer shall also be the principal accounting officer of the
Corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, help complete books and records of account, prepare
and file all local, state and federal tax returns, prescribe and maintain an
adequate system of internal audit, and prepare and furnish to the president and
the board of directors statements of account showing the financial position of
the Corporation and the results of its operations.
Section 8. Duties of Secretary. The secretary shall keep the minutes of
-------------------
all meetings of the stockholders and of the board of directors, and to the
extent ordered by the board of directors or the president, the minutes of
meetings of all committees. He shall cause notice to be given of meetings of
stockholders, of the board of directors, and of any committee appointed by the
board. He shall prepare at least ten (10) days prior to every stockholders'
meeting a complete list of stockholders as set forth in Article II, Section 11
of these bylaws. He shall have custody of the corporate seal and general charge
of the records, documents, and papers of the Corporation not pertaining to the
performance of the duties vested in other officers, which shall at all
reasonable times be open to the examination of any director. He may sign or
execute contracts with the president or vice president thereunto authorized in
the name of the Corporation and affix the seal of the Corporation thereto. He
shall perform such other duties as may be prescribed from time to time by the
board of directors or by these bylaws. He shall be sworn to the faithful
discharge of his duties.
Section 9. Bank Accounts. In addition to such bank accounts as may be
-------------
authorized in the usual manner by resolution of the board of directors, the
treasurer of the Corporation (with the approval of the president) may authorize
such bank accounts to be opened or maintained in the name and on behalf of the
Corporation as he may deem necessary or appropriate, payments from such bank
accounts to be made upon and according to the check of the Corporation which may
be signed jointly or singly by either the manual or facsimile signature or
signatures of such officer
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<PAGE>
or bonded employee or such officers or bonded employees of the Corporation as
shall be specified in the written instructions of the treasurer of the
Corporation with the approval of the president of the Corporation.
Section 10. Exercise of Rights as Stockholders. Unless otherwise ordered
----------------------------------
by the board of directors, the president or a vice-president thereunto duly
authorized by the president shall have full power and authority on behalf of the
Corporation to attend and to vote at any meeting of stockholders of any
corporation in which this Corporation may hold stock, and may exercise on behalf
of this Corporation any and all of the rights and powers incident to the
ownership of such stock at any such meeting, and shall have the power and
authority to execute and deliver proxies and consents on behalf of this
Corporation in connection with the exercise by this Corporation of the fights
and powers incident to the ownership of such stock. The board of directors,
from time to time, may confer like powers upon any other person or persons.
Section 11. Assistant Officers. The board of directors may elect such
------------------
assistant secretaries and assistant treasurers as the board of directors deems
advisable. Persons so elected may carry out such duties as are assigned to them
by the other officers of the Corporation, and shall, in the absence or
disability of the secretary or treasurer respectively, carry out all duties of
such officers.
Article VI
Stock
-----
Section 1. Issuance of Stock. Authorized but unissued stock of the
-----------------
Corporation may be issued by the board of directors for such consideration as
the board of directors deems appropriate, subject to the provisions of Section 2
of this Article. In the absence of actual fraud in the transaction, the
judgment of the directors as to the value of such consideration shall be
conclusive.
Section 2. Consideration for Stock. Shares of stock with par value may be
-----------------------
issued for such consideration having a value not less than the par value
thereof, in such form and in such manner as is determined from time to time by
the board of directors. Shares of stock without par value may be issued for
such consideration in such form and in such manner as is determined from time to
time by the board of directors.
Section 3. Stock Certificates. Certificates representing shares of the
------------------
Corporation's stock shall be in such form as the board of directors may from
time to time prescribe and shall be signed by the president or a vice-president
and by the treasurer or an assistant treasurer or the secretary or an assistant
secretary. Any or all of the signatures on the certificates may be by
facsimile. The board of directors of the Corporation may provide by resolution
or resolutions that some or all of any or all classes or series of its stock
shall be uncertificated shares.
Section 4. Transfer Agent. The board of directors may appoint one or more
--------------
transfer agents and registrars for the transfer and registration of certificates
of stock of any class, and may
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require that stock certificates shall be countersigned and registered by one or
more of such transfer agents and registrars.
Section 5. Transfer of Stock. Shares of capital stock of the Corporation
-----------------
shall be transferable on the books of the Corporation only by the holder of
record thereof in person or by a duly authorized attorney, upon surrender and
cancellation of certificates for a like number of shares or, in the case of
uncertificated shares, in the manner provided by law.
Section 6. Lost Certificates. In case any certificate representing shares
-----------------
of capital stock of the Corporation or uncertificated shares shall be lost,
stolen, or destroyed, the Corporation may require such proof of the fact and
such indemnity to be given to it and to its transfer agent and registrar, if
any, as shall be deemed necessary or advisable by the Corporation prior to
issuance of a replacement certificate.
Section 7. Holder of Record. The Corporation shall be entitled to treat
----------------
the holder of record of any share or shares of stock as the holder thereof in
fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise expressly provided by
law.
Section 8. Examination of Books by Stockholders. The original or
------------------------------------
duplicate stock ledger of the Corporation containing the names and addresses of
the stockholders and the number of shares held by them and the other books and
records of the Corporation will, at all times during the usual hours of
business, be available for inspection at the Corporation's principal office, and
any stockholder, upon compliance with the conditions set forth in and to the
extent authorized by Title 8, Section 220 of the Delaware General Corporation
Law, will have the right to inspect such books and records.
Article VII
Miscellaneous
-------------
Section 1. Fiscal Year. The board of directors shall have power to fix,
-----------
and from time to time change, the fiscal year of the Corporation.
Section 2. Methods of Notice. Whenever any notice is required to be given
-----------------
in writing to any stockholder or director pursuant to any statute, the
Certificate of Incorporation, or these bylaws, it will not be construed to
require personal or actual notice, and such notice will be deemed for all
purposes to have been sufficiently given at the time the same is deposited in
the United States mail with postage thereon prepaid, or sent by a nationally
recognized overnight delivery service or facsimile addressed to the stockholder
or director at such address as appears on the books of the Corporation.
Whenever any notice may be or is required to be given by telegram to any
director, it will be deemed for all purposes to have been sufficiently given at
the
-14-
<PAGE>
time the same is filed with the telegraph or cable office, properly addressed to
such director at his address set forth on the books of the Corporation.
Section 3. Form of Records. Any records maintained by the Corporation in
---------------
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Article VIII
Amendment
---------
The board of directors shall have the power to add any provision to or
alter or repeal any provision of these bylaws by the vote of a majority of all
of the directors at any regular or special meeting of the board, provided that a
statement of the proposed action shall have been included in the notice or
waiver of notice of such meeting of the board. The stockholders may alter or
repeal any provision of these bylaws by the vote of a majority of the
stockholders at any meeting, provided that a statement of the proposed action
shall have been included in the notice or waiver of notice of such meeting of
stockholders.
THE END
-15-
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
HORIZON ORGANIC HOLDING CORPORATION
(A DELAWARE CORPORATION)
AS ADOPTED BY THE BOARD OF DIRECTORS APRIL 14, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES................................................... 1
Section 1. Registered Office......................................... 1
Section 2. Other Offices............................................. 1
ARTICLE II CORPORATE SEAL............................................ 1
Section 3. Corporate Seal............................................ 1
ARTICLE III STOCKHOLDERS' MEETINGS.................................... 1
Section 4. Place of Meetings......................................... 1
Section 5. Annual Meeting............................................ 1
Section 6. Special Meetings.......................................... 3
Section 7. Notice of Meetings........................................ 4
Section 8. Quorum.................................................... 4
Section 9. Adjournment and Notice of Adjourned Meetings.............. 4
Section 10. Voting Rights............................................. 5
Section 11. Beneficial Owners of Stock................................ 5
Section 12. List of Stockholders...................................... 5
Section 13. Action Without Meeting.................................... 6
Section 14. Organization.............................................. 6
ARTICLE IV DIRECTORS................................................. 7
Section 15. Number and Term of Office................................. 7
Section 16. Powers.................................................... 7
Section 17. Classes of Directors...................................... 7
Section 18. Vacancies................................................. 8
Section 19. Resignation............................................... 8
Section 20. Removal................................................... 8
Section 21. Meetings.................................................. 8
(a) Annual Meetings........................................... 8
(b) Regular Meetings.......................................... 9
(c) Special Meetings.......................................... 9
(d) Telephone Meetings........................................ 9
(e) Notice of Meetings........................................ 9
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUE)
<TABLE>
<CAPTION>
PAGE
<S> <C>
(f) Waiver of Notice.......................................... 9
Section 22. Quorum and Voting......................................... 9
Section 23. Action Without Meeting.................................... 10
Section 24. Fees and Compensation..................................... 10
Section 25. Committees................................................ 10
(a) Executive Committee....................................... 10
(b) Other Committees.......................................... 10
(c) Term...................................................... 10
(d) Meetings.................................................. 11
Section 26. Organization.............................................. 11
ARTICLE V OFFICERS.................................................. 11
Section 27. Officers Designated....................................... 11
Section 28. Tenure and Duties of Officers............................. 12
(a) General................................................... 12
(b) Duties of Chairman of the Board of Directors.............. 12
(c) Duties of President....................................... 12
(d) Duties of Vice Presidents................................. 12
(e) Duties of Secretary....................................... 12
(f) Duties of Chief Financial Officer or Treasurer............ 13
Section 29. Delegation of Authority................................... 13
Section 30. Resignations.............................................. 13
Section 31. Removal................................................... 13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF
SECURITIES OWNED BY THE CORPORATION....................... 13
Section 32. Execution of Corporate Instruments........................ 13
Section 33. Voting of Securities Owned by the Corporation............. 14
ARTICLE VII SHARES OF STOCK........................................... 14
Section 34. Form and Execution of Certificates........................ 14
Section 35. Lost Certificates......................................... 14
Section 36. Transfers................................................. 15
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUE)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 37. Fixing Record Dates............................................... 15
Section 38. Registered Stockholders........................................... 16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION............................... 16
Section 39. Execution of Other Securities..................................... 16
ARTICLE IX DIVIDENDS......................................................... 17
Section 40. Declaration of Dividends.......................................... 17
Section 41. Dividend Reserve.................................................. 17
ARTICLE X FISCAL YEAR....................................................... 17
Section 42. Fiscal Year....................................................... 17
ARTICLE XI INDEMNIFICATION................................................... 17
Section 43. Indemnification of Directors, Officers, Employees and Other Agents 17
(a) Directors and Officers............................................ 17
(b) Employees and Other Agents........................................ 17
(c) Good Faith........................................................ 18
(d) Expenses.......................................................... 18
(e) Enforcement....................................................... 18
(f) Non Exclusivity of Rights......................................... 19
(g) Survival of Rights................................................ 19
(h) Insurance......................................................... 19
(i) Amendments........................................................ 19
(j) Saving Clause..................................................... 19
(k) Certain Definitions............................................... 19
ARTICLE XII NOTICES........................................................... 20
Section 44. Notices........................................................... 20
ARTICLE XIII AMENDMENTS........................................................ 22
Section 45. Amendments........................................................ 22
ARTICLE XIV LOANS TO OFFICERS................................................. 22
Section 46. Loans To Officers................................................. 22
</TABLE>
iii.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
HORIZON ORGANIC HOLDING CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of Newcastle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business in Boulder, Colorado, at such place as may
be fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of Directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought
1.
<PAGE>
before an annual meeting, business must be: (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
sixtieth (60th) day prior to such annual meeting or, in the event public
announcement of the date of such annual meeting is first made by the corporation
fewer than seventy (70) days prior to the date of such annual meeting, the close
of business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the Securities and Exchange Act of
1934, as amended. Notwithstanding anything in these By-Laws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) and the Stockholders Agreement
between the corporation and certain stockholders shall be eligible for election
as Directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for
2.
<PAGE>
election or re election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a Director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a Director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these By-laws, and if he should so determine, he shall so declare at the meeting
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the
Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board for adoption)or (iv)
by the holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting, and shall be held at such place, on such date, and at such
time as they or he shall fix; provided, however, that following registration of
any of the classes of equity securities of the corporation pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, special meetings
of the stockholders may only be called by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized Directors.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board, the
President, any Vice President, or the Secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions of
Section 7 of these By-Laws, that a meeting will be held not
3.
<PAGE>
less than thirty five (35) nor more than one hundred twenty (120) days after the
receipt of the request. Upon determination of the time and place of the meeting,
the officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section 7 of
these Bylaws. If the notice is not given within sixty (60) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these By-Laws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the corporation; provided,
however, that Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors. Where a separate vote by a class or classes
or series is required, a majority of the outstanding shares of such class or
classes or series, present in person or represented by proxy, shall constitute a
quorum entitled to take action with respect to that vote on that matter and the
affirmative vote of the majority (plurality, in the case of the election of
Directors) of shares of such class or classes or series present in person or
represented by proxy at the meeting shall be the act of such class or classes or
series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a
4.
<PAGE>
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 10. VOTING RIGHTS.
(a) For the purpose of determining those stockholders entitled to
vote at any meeting of the stockholders, except as otherwise provided by law,
only persons in whose names shares stand on the stock records of the corporation
on the record date, as provided in Section 12 of these By-Laws, shall be
entitled to vote at any meeting of stockholders. Except as may be otherwise
provided in the Certificate of Incorporation or these By-Laws, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder. Every person entitled to vote shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
SECTION 11. BENEFICIAL OWNERS OF STOCK.
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one (1) votes, such
holder's act binds all; (b) if more than one (1) votes, the act of the majority
so voting binds all; (c) if more than one (1) votes, but the vote is evenly
split on any particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this subsection
(c) shall be a majority or even split in interest.
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
5.
<PAGE>
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the Corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, the most senior Vice President present, or in
the absence of any such officer, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or
6.
<PAGE>
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless, and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these By-Laws. No reduction of the authorized number of
Directors shall have the effect of removing any Director before the Director's
term of office expires, unless such removal is made pursuant to the provisions
of Section 20 hereof.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Closing of the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the Closing of the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III
7.
<PAGE>
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which Directors are to be
elected (including any meeting referred to in Section 20 below) to elect the
number of Directors then constituting the whole Board of Directors.
SECTION 19. RESIGNATION. Any Director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
Directors shall resign from the Board of Directors, effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock and the Stockholders Agreement, no director shall be removed
without cause. Subject to any limitations imposed by law, the Board of
Directors or any individual director may be removed from office at any time with
cause by the affirmative vote of the holders of a majority of the voting power
of all the then-outstanding shares of voting stock of the corporation, entitled
to vote at an election of directors (the "Voting Stock").
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
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(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been determined by the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President or a majority of the Directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Written notice of the time and place of
all special meetings of the Board of Directors shall be given at least one (1)
day before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the Directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
any written waiver of notice or consent unless so required by the Certificate of
Incorporation or these By-Laws. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
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(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by a vote of a majority
of the Directors present, unless a different vote be required by law, the
Certificate of Incorporation or these By-Laws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors, appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and specifically granted by
the Board of Directors, shall have and may exercise when the Board of Directors
is not in session all powers of the Board of Directors in the management of the
business and affairs of the corporation, including, without limitation, the
power and authority to declare a dividend or to authorize the issuance of stock,
except such committee shall not have the power or authority to amend the
Certificate of Incorporation, to adopt an agreement of merger or consolidation,
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, to recommend to the
stockholders of the corporation a dissolution of the corporation or a revocation
of a dissolution or to amend these By-Laws.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these By-Laws.
(c) TERM. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the provisions
of subsections (a) or (b) of this Section 25, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate
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on the date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason remove
any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the Directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall be
the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer or Treasurer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The order of the seniority of the Vice Presidents shall be in the
order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint such other officers and
agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional
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titles to one or more of the officers as it shall deem appropriate. Any one
person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation of
the officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors. The President may appoint one or more Assistant
Secretaries and Assistant Treasurers with such powers and duties as he or she
deems necessary.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order
determined by the Board of Directors, may assume and perform the duties of the
President in the absence or disability of the President or whenever the office
of President is vacant. The Vice Presidents shall perform other duties commonly
incident to their office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these By-Laws of all meetings of the
stockholders, and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these By-Laws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the duties of the Chief
Financial Officer or Treasurer in the absence or disability of the Chief
Financial Officer or Treasurer, and each Assistant Treasurer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the vote or written consent of a majority of
the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these By-Laws, and
such execution or signature shall be binding upon the corporation.
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Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be by
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
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precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix, in advance,
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business or an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to a
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders
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entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate security
may be the imprinted facsimile of the signatures of such persons. Interest
coupons appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
Directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation shall not be
required to indemnify any Director or officer in connection with any proceeding
(or part thereof) initiated by such person or any proceeding by such person
against the corporation or its Directors, officers, employees or other agents
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation or
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law.
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its officers, employees and other agents as set forth in the
Delaware General Corporation Law.
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(c) GOOD FAITH.
(i) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
(1) one or more officers or employees of the corporation
whom the Director or executive officer believed to be reliable and competent in
the matters presented;
(2) counsel, independent accountants or other persons as
to matters which the Director or executive officer believed to be within such
person's professional competence; and
(3) with respect to a Director, a committee of the Board
upon which such Director does not serve, as to matters within such Committee's
designated authority, which committee the Director believes to merit confidence;
so long as, in each case, the Director or executive officer acts without
knowledge that would cause such reliance to be unwarranted.
(ii) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(iii) The provisions of this paragraph (c) shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
(d) EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
(e) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to Directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under
18.
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the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(f) NON EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(g) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(i) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(j) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(k) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or
19.
<PAGE>
judgment and any other costs and expenses of any nature or kind incurred in
connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(iv) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these By-Laws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
20.
<PAGE>
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or By-Laws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or By-Laws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the
21.
<PAGE>
records of the Corporation and have been returned undeliverable, the giving of
such notice to such person shall not be required. Any action or meeting which
shall be taken or held without notice to such person shall have the same force
and effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate need not state that notice was not given to
persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Except as otherwise set forth in paragraph (i) of
Section 43 of these By-Laws, the Bylaws may be altered or amended or new Bylaws
adopted by the affirmative vote of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock. The Board of Directors shall also have the power to adopt, amend
or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in this Section 46 shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
22.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
April 30, 1998
Horizon Organic Holding Corporation
6311 Horizon Lane
Longmont, Colorado 80503
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Horizon Organic Holding Corporation (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), including a prospectus to
be filed With the Commission pursuant to Rule 424(b) of Regulation C promulgated
under the Securities Act of 1933, as amended, and the underwritten public
offering of up to 3,450,000 shares of the Company's Common Stock (the "Shares")
(which amount includes 450,000 shares for which the underwriters have been
granted an over-allotment option).
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, and (ii) reviewed the Company's Certificate of
Incorporation and Bylaws, as amended and as proposed to be amended prior to the
closing of the public offering, and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment were necessary or appropriate to enable us to
render the opinion expressed below.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares (when issued and paid for in accordance with the underwriting
agreement filed as an exhibit to the Registration Statement) will be, validly
issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By: /s/ James C.T. Linfield
--------------------------
James C.T. Linfield
<PAGE>
EXHIBIT 10.1
SHAREHOLDERS AGREEMENT
FOR
HORIZON ORGANIC HOLDING CORPORATION
THIS AGREEMENT is made effective as of the 24th day of May, 1997, among
HORIZON ORGANIC HOLDING CORPORATION, a Delaware corporation, with its principal
office and place of business at 7490 Clubhouse Road, Suite 103, Boulder,
Colorado 80301 (the "Corporation") and the stockholders of the Corporation who
are signatories to this Agreement (individually, a "Shareholder" and
collectively, the "Shareholders").
RECITALS
--------
WHEREAS, the Shareholders, being the record holders of all of the
outstanding capital stock of the Corporation, deem it to be in their best
interests and in the best interests of the Corporation to provide consistent and
uniform management for the Corporation and, therefore, desire to enter into this
Agreement on the terms and conditions set forth herein; and
WHEREAS, the Shareholders also desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the shares of capital stock of the
Corporation, including shares of the Corporation that may be issued hereafter,
and to provide for certain rights and obligations in respect thereto as
hereinafter provided;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
and understandings set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions. The terms "shares of stock of the corporation," "shares
-----------
of Common Stock of the Corporation," or the like, as used in this Agreement
shall be deemed to refer to all shares of the Corporation's Common Stock, no par
value, owned by the Shareholders at the time of execution of this Agreement, any
shares of Common Stock hereafter issued in exchange therefor or by way of
reclassification of shares, merger, consolidation, reorganization,
recapitalization, or otherwise, and any additional shares of such Common Stock
issued to or acquired by the respective Shareholders by reason of dividends
paid, share distributions, exercise of warrants or options, increase in the
outstanding shares, purchase or otherwise.
2. Rights of First Refusal.
-----------------------
a. The Shareholders agree that if any Shareholder desires to sell,
assign, transfer or otherwise dispose of any shares of the Common Stock of the
Corporation, then such Shareholder (the "Transferor") shall first deliver to the
Corporation a written notice (the "Notice") stating his desire to sell such
stock. If the value of the shares of the Common Stock to be sold, assigned or
transferred is $100,000.00 or greater, then the Notice shall also be sent to the
other Shareholders of the Corporation. The Notice must specify the amount of
such stock which he
<PAGE>
desires to sell, and the price at which he is willing to sell such stock. For
purposes of this Agreement, the value of the stock being transferred shall be
the per share purchase price for the proposed transfer multiplied by the number
of shares of the Corporation's stock the Transferor desires to transfer, plus
the number of shares the Transferor has transferred in the ninety (90) days
preceding the date the Corporation receives the Notice.
b. Within fifteen (15) days after receipt of such Notice, the
Corporation may elect to purchase all or any portion of such stock. The
Corporation's election to purchase shares of stock to be sold by the Transferor
at the designated offering price shall be reflected in a written notice to the
Transferor during this fifteen (15) day period. Closing shall take place in the
manner prescribed in Section 2(d).
c. If the value of the Common Stock to be transferred is $100,000.00
or greater, and if the Corporation does not elect to purchase some portion of
such stock as provided in the preceding paragraph, within fifteen (15) days
after termination of the original fifteen (15) day period or after notice from
the Corporation of the number of shares it will not purchase, the Shareholders
who have received the Notice may elect to purchase such portion of such
remaining stock as the number of shares owned by them on the date of receipt of
the Notice shall bear to the total number of shares owned by all such other
Shareholders, excluding the Transferor. If any such Shareholder does not
purchase the proportionate number of shares to which he is entitled, the
remaining such Shareholders may purchase a pro rata portion of the shares not
purchased (the proportion to be based upon the shares owned by the remaining
such Shareholders who wish to purchase) at any time within fifteen (15) days
after the termination of the second fifteen (15) day period, or after notice
from such other Shareholders of the number of shares which they will not
purchase. A Shareholder's election to purchase shares of stock to be sold by the
Transferor at the designated offering price shall be reflected in a written
notice to the Transferor during the appropriate election period.
d. The closing of the purchase will take place on a date selected by
the Transferor and those purchasing shares not more than twenty (20) days after
the end of the latter election period. At the closing, the purchaser shall pay
in cash the purchase price of the stock to be purchased by the purchaser. If
shares of stock designated in the Notice are not the subject of an election to
purchase by the Corporation or a Shareholder, or if the Corporation or a
Shareholder has elected to purchase such stock and fails to do so within the
applicable period for such purchase, the Transferor may within ninety (90) days
after the end of the latter election period sell the stock which has not been
purchased to any person on the terms and at a price the same as set forth in the
Notice. Any such shares so sold shall be subject to the terms and conditions of
this Agreement.
e. The provisions of this Section 2 shall not apply to a bona fide
gift or transfer without consideration of any shares of the Corporation owned by
any Shareholder, or to the sale or transfer of shares to immediate family
members, trusts in which the beneficiaries are immediate family members or, with
the prior written consent of the Corporation, any successor entity of any
Shareholder.
-2-
<PAGE>
3. Rights of Co-Sale.
-----------------
a. In the event that the value of the shares to be transferred by
the Transferor is $100,000.00 or greater and the number of shares to be
transferred by the Transferor is three percent (3%) or greater than the
Corporation's then outstanding stock on a fully diluted basis, then the
provision of this Section 3 shall apply. In such event, the Transferor shall
also state in his Notice to the Corporation and the other Shareholders that the
co-sale rights under Section 3 of the Shareholders Agreement shall apply. It
shall be the responsibility of the Transferor to determine if this Section 3 is
applicable.
b. Within 30 days after receipt of the Notice delivered under
Section 2 above, each Shareholder may also notify the Transferor and the
Corporation (which notice may be included in the notice under Section 2(b)
above) whether it exercises its right of co-sale under the provisions of this
Section 3 in the event all of the offered stock is not purchased by the
Corporation or the Shareholders pursuant to the right of first refusal under
Section 2. If all of the offered stock is not purchased by the Corporation or
the Shareholders pursuant to the right of first refusal under the provisions of
Section 2, then the Transferor and the Shareholders who have so exercised their
right of co-sale shall be entitled to participate in the proposed sale or
transfer pro rata based on the respective numbers of shares held by the
Transferor and each Shareholder (but only to the extent a Shareholder owns, or
may obtain upon conversion, the securities which are the subject of the offer).
Any Shareholder who has notified the Corporation during such 30-day period that
the Shareholder elects to exercise its right of co-sale shall, in the event all
of the offered stock is not sold to the Shareholders pursuant to Section 2, be
obligated to sell its portion of the offered stock in accordance with the terms
of the offer, and the Transferor may only sell his portion of the offered stock.
c. In the event all of the offered stock is not purchased by the
Shareholders pursuant to Section 2(b), and none of the Shareholders exercise its
right of co-sale pursuant to this Section 3, the Transferor may consummate the
sale in accordance with the terms of the Notice and upon no more favorable
terms, provided that if the Transferor does not consummate the sale of the
offered stock in accordance with the terms of the Notice within 90 days after
the expiration of the last election period referred to in Section 2, the offered
stock may not be sold unless the provisions of this Section 3 are complied with
again in connection with such sale.
4. Preemptive Rights.
-----------------
a. The Corporation grants to each Shareholder the right of first
refusal to purchase, on a pro rata basis, all or any part of New Securities (as
defined below) which the Corporation may, from time to time, propose to issue
and sell. A pro rata share, for purposes of this Section, is the ratio that the
sum of the number of shares of capital stock then held by the Shareholder bears
to the sum of the total number of shares of capital stock then outstanding
(including shares issuable upon exercise of options and warrants exercisable
within 60 days of the date of the notice referenced in subsection (c) below).
-3-
<PAGE>
b. "New Securities" shall mean any capital stock of the Corporation,
whether now authorized or not, and any rights, options or warrants to purchase
such capital stock, and any securities of any type whatsoever that are, or may
become, convertible into such capital stock; provided, that "New Securities"
does not include: (i) securities offered pursuant to a Public Offering; (ii)
securities issued to directors, employees or consultants of the Corporation or
any subsidiary as compensation; provided, that the number of shares offered does
not exceed 10% of the then outstanding shares of the Corporation's common stock
on a fully diluted basis; (iii) securities issued in connection with any merger
with, or acquisition of substantially all of the assets of, or a controlling
interest in, any corporation or other entity; or (iv) shares of capital stock
issued in connection with any stock split, stock dividend or recapitalization by
the Corporation.
c. If the Corporation proposes to undertake an issuance of New
Securities, then it shall give the Shareholders written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Corporation proposes to issue the same. The Shareholders shall be
given at least 21 days' prior written notice to agree to purchase all or any
part of such Shareholder's pro-rata share of such issuances of New Securities
for the price and upon the general terms specified in the notice by giving
written notice to the Corporation and stating therein the quantity of New
Securities to be purchased.
d. If the Shareholders fail to exercise in full their right of first
refusal within the applicable periods set forth in Section 4(c), then the
Corporation shall have 90 days thereafter to sell the New Securities respecting
which such Shareholders' rights were not exercised at a price and upon general
terms no more favorable to the purchaser thereof than specified in the
Corporation's notice. If the Corporation has not sold the New Securities within
such 90-day period, then the Corporation shall not thereafter issue or sell any
New Securities without first offering such securities to the Shareholders in the
manner provided above.
e. The Preemptive Right granted under this Section shall expire upon
the closing of the first public offering of securities of the Corporation to the
general public which is effected pursuant to a registration statement fried
with, and declared effective by, the Commission under the Securities Act.
Notwithstanding anything in this Section 4 to the contrary, no Shareholder shall
have preemptive rights if the offer or sale of New Securities would prevent the
Corporation from selling its securities under any federal or state securities
law exemption.
5. Composition of Board of Directors. The Shareholders agree that one
---------------------------------
member of the Board shall be the nominee of the Shareholders listed on Exhibit A
to this Agreement (the "New Investors"); provided, that the initial nominee and
any future nominee to the Board chosen by the New Investors must be approved by
the Corporation's directors elected by the other Shareholders. The Shareholders
agree to vote their shares of the Corporation (whether now owned or hereafter
acquired) to implement the provisions of this Section 5. The Corporation further
agrees that future holders of shares of the Corporation's Common Stock
(including, without limitation, employees and others who may obtain said shares
through exercise of stock options and warrants) shall be required to enter into
an agreement to the effect that they will vote their shares to implement the
provisions of this Section 5.
-4-
<PAGE>
6. Restrictive Legend. Each certificate representing shares of Common
------------------
Stock shall be marked on its reverse side as follows:
"The shares of stock represented by this Certificate are
subject to all the terms of a Shareholder Agreement dated as
of May _____, 1997, between the Company and the owner of the
shares represented by this Certificate and certain other
Shareholders, a copy of which is on file at the office of
the Company. Such Agreement, among other things, limits the
right of the owner to transfer, pledge or encumber the
Shares represented hereby and provides that in certain
circumstances all or any part of the Shares represented
hereby may be purchased by the Company or the Shareholders
at a purchase price computed according to the provisions of
this Agreement."
7. Noncompliance. Any transfer, sale, assignment of other disposal by a
-------------
Shareholder of common stock in a manner which does not comply strictly with the
terms and conditions hereof, including sending Notice in the proper form and to
the proper parties, shall be void ab initio.
-- ------
8. Pledge; Assignment. No Shareholder may assign or pledge any of his
------------------
shares of stock to secure any debt or other obligation without the prior written
consent of the Corporation.
9. Transferees Subject to Agreement. Each transferee of shares of Common
--------------------------------
Stock of the corporation shall agree in writing to the terms and conditions of
this Agreement prior to the transfer to him of a certificate representing shares
of Common Stock of the Corporation and such certificate representing shares of
Common Stock of the Corporation shall bear the restrictive legend set forth in
Section 6 hereof.
10. Implementation of Agreement. A duly authorized officer of the
---------------------------
Corporation and the Shareholders, shall make, execute and deliver any documents
necessary to carry out this Agreement. This Agreement shall be binding upon the
Corporation and the Shareholders, their heirs, legal representatives, successors
and assigns. This Agreement shall be executed in counterparts, with counterpart
signature pages, each of which shall be enforceable against the party actually
executing such counterparts, and all of which together shall constitute one
instrument.
11. Amendment of Agreement. This Agreement may be altered or amended by a
----------------------
writing signed by the Corporation and by Shareholders holding shares
representing not less than seventy-five percent (75%) of the combined voting
power of all shares held by all Shareholders, provided, however, that no such
amendment shall materially and adversely affect the rights of any Shareholder
unless all Shareholders are treated equally. A new party can be added to this
Agreement as a Shareholder upon the signature of that party and the Corporation
only.
-5-
<PAGE>
12. Termination of Agreement. This Agreement shall terminate (i) ten (10)
------------------------
years from the date hereof (unless extended by the Shareholders holding shares
representing not less than seventy-five percent (75 %) of the combined voting
power of all shares held by all Shareholders), or (ii) at such time as the stock
of the Corporation shall become publicly traded, whichever shall first occur.
Upon termination of this Agreement, the Secretary of the Corporation shall, upon
tender of the certificates of shares of Common Stock of the Corporation, delete
the legend endorsed thereon pursuant to Section 6.
13. Notice. Any and all notices or acceptances to be given hereunder,
------
including notices exercising options granted hereunder, may be given by personal
delivery thereof or by registered mail, enclosed in a duly postpaid envelope and
addressed to the post office address of the person to receive such notice as
last appearing upon the records of the Corporation, and if no such address
appears on such records, then to the last known post office address of such
person and upon mailing such notice as aforesaid, the same shall be deemed to
have been duly given, irrespective of the receipt thereof.
14. Colorado Law Governs. This Agreement shall be subject to and governed
--------------------
by the laws of the State of Colorado, irrespective of the fact that one or more
of the parties is or may become a resident of a different state.
15. Prior Agreements Superseded. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subject hereof and thereof and supersedes all prior Shareholders agreements with
regard to such subject.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.
THE CORPORATION:
HORIZON ORGANIC HOLDING CORPORATION,
a Delaware corporation
By:
-----------------------------
Barnet M. Feinblum, President
[COUNTERPART SIGNATURES TO FOLLOW]
-6-
<PAGE>
SHAREHOLDER SIGNATURE PAGE
AGREED TO AND ACCEPTED:
-7-
<PAGE>
EXHIBIT 10.2
HORIZON ORGANIC HOLDING CORPORATION
1998 EQUITY INCENTIVE PLAN
ADOPTED OCTOBER 25, 1995
AMENDED AND RESTATED APRIL 14, 1998
APPROVED BY STOCKHOLDERS APRIL 30, 1998
PLAN TERMINATION DATE: APRIL 13, 2008
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire
restricted stock.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMMON STOCK" means the common stock of the Company:
(f) "COMPANY" means Horizon Organic Holding Corporation, a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services or (ii) who is a member of the Board of Directors of an
Affiliate. However, the term "Consultant" shall not include Directors who are
paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
1.
<PAGE>
(h) "CONTINUOUS SERVICE" means the Stock Award holder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant is not
interrupted or terminated. The Board or the chief executive officer of the
Company may determine, in that party's sole discretion, whether Continuous
Service shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board or the chief executive officer of the Company, including
sick leave, military leave, or any other personal leave; or (ii) transfers
between locations of the Company or between the Company, Affiliates or their
successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the inability of a person to perform the normal
duties of the person's position with the Company or an Affiliate of the Company,
provided that such inability to perform must be certified in writing (a
"Physician's Certificate") by a medical doctor, reasonably acceptable to the
Company.
(l) "EMPLOYEE" means any person employed by the Company or any Affiliate.
Neither service as a Director nor payment of a director's fee by the Company or
an Affiliate shall be sufficient to constitute "employment" by the Company or an
Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock exchange
or traded on The Nasdaq National Market or The Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(2) In the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.
2.
<PAGE>
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan, or if applicable, such other person who holds an outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(y) "PLAN" means this 1998 Equity Incentive Plan.
(z) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including any
Option, a stock bonus and any right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3.
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3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type of Stock Award shall be granted; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; and the number of shares with respect to which a Stock Award shall be
granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 12.
(c) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members (the "Committee"), all of the members of
which Committee may be Non-Employee Directors and/or Outside Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board including the power to delegate to a subcommittee of two or more
Directors (who may or may not be Outside Directors or Non-Employee Directors)
any of the administrative powers to the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter mean the Committee or such
a subcommittee), subject, however, to such resolutions, not inconsistent with
the provisions of the Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(x) are not then subject to Section 16 of the Exchange Act and/or (y) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Option, or (ii) not
persons with respect to whom the Company wishes to comply with Section 162(m) of
the Code.
(d) All actions taken and all interpretations and determinations made by
the Board or Committee in good faith (including determinations of Fair Market
Value) shall be final and binding upon all Optionees, the Company and all other
interested persons. No member of the Board or Committee shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan, and all members of the Board and Committee shall,
4.
<PAGE>
in addition to their right as directors, be fully protected by the Company with
respect to any such action, determination or interpretation.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate seven hundred fifty thousand (750,000) shares of the
Common Stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the stock
not acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. If any shares of Common Stock acquired pursuant to
the exercise of an Option shall for any reason be repurchased by the Company
under a repurchase option provided under the Plan, the stock repurchased by the
Company under such repurchase option shall revert to and again become available
for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant and the Incentive Stock Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than two hundred fifty thousand (250,000) shares of Common Stock in any
calendar year. This subsection 5(c) shall not apply prior to the Listing Date
and, following the Listing Date, shall not apply until (i) the earliest of: (A)
the first material modification of the Plan (including any increase to the
number of shares reserved for issuance under the Plan in accordance with Section
4); (B) the issuance of all of the shares of Common Stock reserved for issuance
under the Plan; (C) the expiration of the Plan; or (D) the first meeting of
stockholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of an equity security under section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or
5.
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certificates will be issued for shares purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Incentive Stock Option on the date the Incentive Stock Option is
granted or such greater amount as required by Section 5(b). The exercise price
of each Nonstatutory Stock Option shall be determined by the Board.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid at the time the Option is exercised, to the extent
permitted by applicable statutes and regulations, either (i) in cash or by check
or (ii) at the discretion of the Board, at the time of the grant of the Option,
under one of the following alternatives:
(1) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds;
(2) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock, held for the period required to avoid a
charge to the Company's reported earnings, and owned free and clear of any
liens, claims, encumbrances or security interests, which Common Stock shall be
valued at its fair market value on the date of exercise;
(3) Pursuant to a deferred payment alternative as described in the
Option Agreement, provided that, at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value" (as defined in the Delaware
General Corporation Law) shall not be made by deferred payment;
(4) In any other form of legal consideration that may be acceptable
to the Board; or
(5) By any combination of the above methods.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person. A Nonstatutory Stock Option may
6.
<PAGE>
be transferable to the extent expressly provided in the Option Agreement;
provided, however, that if the Option Agreement does not specifically provide
for transferability, then such Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a domestic relations order, and shall be exercisable during the
lifetime of the person to whom the Nonstatutory Stock Option is granted only by
such person or any transferee pursuant to a domestic relations order.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
shall vest and become exercisable as provided in the Option Agreement.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Service (or such longer or shorter
period specified in the Option Agreement) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Service (other
than upon the Optionee's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act or any material regulatory requirements of
any foreign jurisdiction, then the Option shall terminate on the earlier of (i)
the expiration of the term of the Option as set forth in the Option Agreement,
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Service
terminates as a result of the Optionee's Disability, the Optionee may exercise
his or her Option, but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise the entire Option, the
shares covered by the unexercisable portion of the Option shall revert to and
again become available for issuance under the Plan no later than thirty (30)
days following the date of termination. If, after termination, the Optionee
does not exercise his or her Option within the time specified herein, the Option
shall terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within the three (3) month or twelve (12) month periods referred to above after
the termination of, the
7.
<PAGE>
Optionee's Continuous Service, the Option may be exercised by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the Optionee's
death pursuant to subsection 6(d), but only within the period ending on the
earlier of (i) the date twelve (12) months following the date of death (or such
longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of such Option as set forth in the Option Agreement. If,
at the time of death, the Optionee was not entitled to exercise the entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become available for issuance under the Plan no later than
thirty (30) days following the date of termination. If, after death, the Option
is not exercised within the time specified herein, the Option shall terminate,
and the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(i) QUALIFIED RETIREMENT OF OPTIONEE. In the event an Optionee's
Continuous Service terminates as a result of the Optionee's Qualified Retirement
(as determined by the Board of Directors or the Committee), the Optionee may
exercise his or her Option, but only within such period of time ending on the
expiration of the term of the Option as set forth in the Option Agreement (or
such shorter period specified in the Option Agreement). If, at the date of such
termination, the Optionee is not entitled to exercise the entire Option, the
shares covered by the unexercisable portion of the Option shall revert to and
again become available for issuance under the Plan no later than thirty (30)
days following the date of termination. If, after such termination, the Optionee
does not exercise his or her Option within the time specified herein, the Option
shall terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time before the Optionee's Continuous
Service terminates to exercise the Option as to any part or all of the shares
subject to the Option prior to the full vesting of the Option. Any unvested
shares so purchased shall be subject to a repurchase right in favor of the
Company or any other restriction the Board determines appropriate.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
(a) Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(1) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such agreement, but in no event shall the purchase price be less
than eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made. Notwithstanding the foregoing, the Board may determine that
eligible participants in the Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company
for its benefit.
8.
<PAGE>
(2) TRANSFERABILITY. A stock bonus or restricted stock purchase
agreement may be transferable to the extent expressly provided in the Stock
Award Agreement; provided, however, that if the Stock Award Agreement does not
specifically provide for transferability, then such stock bonus or restricted
stock purchase award shall not be transferable except by will or the laws of
descent and distribution or pursuant to a domestic relations order, and shall be
exercisable during the lifetime of the person to whom the stock bonus or
restricted stock purchase award is granted only by such person or any transferee
pursuant to a domestic relations order, so long as stock awarded under such
agreement remains subject to any restrictions pursuant to the agreement.
(3) CONSIDERATION. The purchase price of stock acquired pursuant to
a restricted stock purchase agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other arrangement with the person to whom the stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion. Notwithstanding the foregoing, the Board may award stock
pursuant to a stock bonus agreement in consideration for past services actually
rendered to the Company or for its benefit.
(4) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option or reacquisition right in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(5) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person, subject to the
provisions of Section 11.
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
grant Stock Awards and to issue and sell shares of Common Stock upon exercise of
the Stock Awards; provided, however, that this undertaking shall not require the
Company to register under the Securities Act the Plan, any Stock Award or any
stock issued or issuable pursuant to any such Stock Award. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
9.
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10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) No Optionee shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Stock Award
unless and until such person has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Optionee any right to continue in the
employ of the Company or any Affiliate (or to continue acting as a Director or
Consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment of any Employee with or without cause, the right of the
Company's Board of Directors and/or the Company's stockholders to remove any
Director pursuant to the terms of the Company's Bylaws and the provisions of
applicable laws, or the right to terminate the relationship of any Consultant
pursuant to the terms of such Consultant's agreement with the Company or
Affiliate to which such Consultant is providing services.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(a)(2), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may require the Stock Award holder
to provide such other representations, written assurances or information which
the Company shall determine is necessary, desirable or appropriate to comply
with applicable securities and other laws as a condition of granting a Stock
Award to such Stock Award holder or permitting the
10.
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Stock Award holder to exercise such Stock Award. The Company may, upon advice of
counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
Stock Award holder may satisfy any federal, state or local tax withholding
obligation relating to the exercise or acquisition of stock under a Stock Award
by any of the following means or by a combination of such means (in addition to
the Company's right to withhold from any compensation paid to the Stock Award
holder by the Company): (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionee as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(e) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person pursuant to subsection 5(c), and
the outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board, the determination of which
shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company".)
(b) In the event of a Change in Control (as defined herein) any surviving
corporation or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(b)) for those outstanding under the Plan. In
the event any surviving or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then: (i) with respect to Stock Awards held by persons whose Continuous
Service has not terminated prior to such Change in Control, the vesting (and, if
applicable, the exercisability) of Stock Awards held by such persons shall be
accelerated immediately prior to such event, and the Stock Awards terminated if
not exercised at or prior to such event, and (ii) any Company repurchase option
or reacquisition right with respect to shares acquired by such persons under a
Stock Award shall lapse immediately prior to such event and the shares held by
such persons shall be fully vested. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
prior to such event.
11.
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For purposes of this Plan, a "Change in Control" shall mean: (i) a sale of
all or substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation or a reverse
merger in which the Company is the surviving corporation but the shares of the
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise (other than (a) a merger or consolidation in which
stockholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, greater stock voting power of the acquiring
or controlling corporation, and in no event less than a majority of such stock
voting power, (b) a transaction the principal purpose of which is to change the
State of the Company's incorporation, or (c) a merger of the Company into any of
its wholly owned subsidiaries); or (iii) an acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or an Affiliate) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors.
(c) In the event of a dissolution or liquidation of the Company, any Stock
Awards outstanding under the Plan shall terminate if not exercised prior to such
event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
12.
<PAGE>
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Awards; provided, however, that the rights under any Stock
Award shall not be impaired by any such amendment unless (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the day before the tenth (10th)
anniversary of the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as of the Listing Date, but no Stock Awards
granted under the Plan shall be exercised (or, in the case of a stock bonus,
shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
13.
<PAGE>
EXHIBIT 10.3
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the _____________ between HORIZON ORGANIC
HOLDING CORPORATION, a Delaware corporation (the "CORPORATION"), and ____ (the
"EMPLOYEE").
1. STOCK OPTION. Pursuant to the Incentive Stock Option Plan dated
October 25, 1995 of Horizon Organic Dairy, Inc., a Colorado corporation and
wholly-owned subsidiary of the Corporation, which plan as assumed by the
Corporation on May 29, 1997 (the "PLAN"), the Corporation hereby grants to the
Employee an option to purchase ________ shares of the authorized and unissued
common stock of the Corporation at a price of $6.50 per share (the "OPTION").
2. TIME AND METHOD OF EXERCISE OF THE OPTION.
(A) NOTICE. The Option may be exercised in whole or in part by delivery to
the Corporation of written notice in the form of the Notice of
Exercise of Stock Option attached as Attachment III specifying the
number of shares with respect to which the Option is exercised and by
making full payment in cash or certified check of the purchase price
for such shares.
(B) TIME OF EXERCISE. Commencing on January 10, 1999 the Option may be
exercised only to the extent of twenty-five percent of the total
number of shares covered by this Option. An additional twenty-five
percent of the total number of shares covered by this Option may be
exercised on each successive anniversary thereof. The provisions of
this subparagraph (b) are limited as otherwise provided in paragraph
6.
(C) ACCELERATED VESTING. Notwithstanding the restrictions on exercise set
forth in paragraph 2(b) above, Employee may exercise this Option for
all the shares covered by this Option in the event: (i) Employee's
employment with the Corporation terminates because of Employee's death
or disability; or (ii) the Corporation participates in a merger, share
exchange or consolidation with another corporation in which the
Corporation is not the survivor, the Corporation sells all or
substantially all its assets, or any person or party acquires control
of a majority of the issued and outstanding shares of the
Corporation's common stock.
3. ADJUSTMENT OF THE OPTION. In the event of any change in the capital
structure of the Corporation through consolidation, stock dividend, split-up or
other change, appropriate proportionate adjustment shall be made in the number
and purchase price of the shares which may be purchased by the exercise of the
option.
4. EXPIRATION OF OPTION. The Option shall expire (i) December 17, 2002;
(ii) three months following the termination, for any reason other than death or
disability, of the employment of the Employee by the Corporation; (iii) one year
following the termination, on account of death or disability, of the employment
of the Employee by the Corporation; or (iv) upon the completion of the merger or
sale of substantially all of the stock or assets of the
1.
<PAGE>
Corporation, with or to another corporation unless the other corporation elects
to continue the Plan.
5. INVESTMENT REQUIREMENT. The Employee hereby agrees to purchase any
shares by exercise of the Option for investment purposes only and not to resell
any such shares in any manner violating the Securities Act of 1933 (the "Act"),
as amended, any rules promulgated thereunder, or any applicable state statute.
Employee hereby confirms that he has been advised of and understands the
restrictions on resale of stock by virtue of Rule 144 promulgated under the Act.
This restriction or notice thereof shall be placed upon the certificate
representing any shares purchased.
6. TRANSFERABILITY. The Option may not be transferred other than by will
or the laws of descent and distribution and may be exercised during the lifetime
of the Employee only by him.
7. NOTICE TO THE CORPORATION ON SALE OF OPTION SHARES. If Employee sells
any Option Shares (i) within two years of the date of this Agreement, or (ii)
within one year of the date the Option Shares are transferred to him pursuant to
this Agreement, Employee shall notify the Corporation of the date and terms of
such sale. Employee agrees to permit the Corporation to withhold any required
income and payroll taxes from his compensation to the extent required under
Treasury Regulation Section 1.83-6 to permit the Corporation to obtain a
deduction for the amount of compensation income realized by the Employee as a
result of such sale. This notice requirement shall be indicated by a
restrictive legend on any share certificates issued to Employee pursuant to the
terms of this Agreement.
8. BENEFIT. Except as otherwise provided herein, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
heirs, personal representatives, successors and assigns.
9. NO RIGHTS; NO OTHER OPTIONS. Employee hereby acknowledges that the
adoption of the Plan and the grant of the Option pursuant to this Agreement
shall not be construed as giving Employee any legal or equitable right against
the Corporation or any other person except as specifically provided in this
Agreement, nor shall this Agreement be construed as giving Employee the right to
be retained in the employment of the Corporation. Employee hereby acknowledges
that he has no right to acquire any shares of the stock of the Corporation by
the exercise of an option except as expressly set forth in this Agreement or in
another written agreement executed by Employee and the Corporation.
10. EMPLOYEE SHAREHOLDERS AGREEMENT. Employee agrees and acknowledges
that Employee shall be required to enter into an Employee Shareholders
Agreement, as a condition to the exercise of the Option, which shall restrict
the Employee's ability to pledge, transfer or sell the Corporation's stock
acquired upon exercise of the Option, shall grant the Corporation a right of
first refusal on such stock, and shall grant the Corporation certain redemption
rights on such stock. The Employee Shareholders Agreement shall be in such form
as adopted by the board of directors of the Corporation from time to time.
2.
<PAGE>
11. NOTICE. Except as otherwise specifically provided, any notices to be
given hereunder shall be deemed given upon personal delivery or upon mailing
thereof, if mailed by certified mail, return receipt requested, to the following
addresses (or to such other address or addresses as shall be specified in any
notice given):
In the case of the Corporation:
Horizon Organic Holding Corporation
6311 Horizon Lane
Longmont, CO 80503
In the case of Employee:
Name
----
______________________________
______________________________
______________________________
12. ENTIRE AGREEMENT. This Agreement, together with the documents and
exhibits referred to herein, embodies the entire understanding among the parties
and merges all prior discussions or communications among them, and no party
shall be bound by any definitions, conditions, warranties, or representations
other than as expressly stated in this Agreement or as subsequently set forth in
a writing signed by the duly authorized representatives of all of the parties
hereto.
13. INTERPRETATION. This Agreement shall be construed as a whole and in
accordance with its fair meaning. Captions are for convenience only and shall
not be used in construing meaning. This Agreement and all the schedules or
exhibits incorporated herein by reference shall be interpreted in accordance
with the laws of the State of Delaware.
14. GENDER, TENSE, ETC. Whenever the masculine, feminine or neuter
genders are used herein, as required by the context or particular circumstance,
they shall include each of the other genders as appropriate. Whenever the
singular or plural numbers are used, they shall be deemed to be the other as
required. Wherever the present or past tense is used in this Agreement and the
context or circumstances require another interpretation, the present shall
include the past and future, the future shall include the present, and the past
shall include the present.
15. SEVERABILITY. Notwithstanding paragraph 16 below, if any provision or
any part of any provision of this Agreement shall be void or unenforceable for
any reason whatsoever, then that provision shall be stricken and of no force and
effect. The remaining provisions of this Agreement, however, shall continue in
full force and effect, and to the extent required, shall be modified to preserve
their validity.
16. ALL TERMS MATERIAL. The parties hereby expressly acknowledge and
agree that each and every term and condition of this Agreement is of the essence
of this Agreement, constitutes a material part of the bargained-for
consideration without which this Agreement would not have been executed, and is
a material part of the Agreement.
3.
<PAGE>
17. NO ORAL CHANGE; AMENDMENT. This Agreement may only be changed or
modified and any provisions hereof may only be waived in or by a writing signed
by the party against whom enforcement of any waiver, change or modification is
sought. This Agreement may be amended only in writing by mutual consent of the
parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the above
date.
ATTEST: HORIZON ORGANIC HOLDING CORPORATION
By:_________________________ By:______________________________
Its:________________________ Its:_____________________________
EMPLOYEE:
___________________ Employee's Social
___________________ Security Number:_______________________
4.
<PAGE>
ATTACHMENT III
NOTICE OF EXERCISE OF STOCK OPTION
Horizon Organic Holding Corporation
6311 Horizon Lane
Longmont, CO 80503
Ladies and Gentlemen:
The undersigned has been granted options to purchase shares of the common
stock (the "STOCK") of Horizon Organic Holding Corporation, a Delaware
corporation (the "CORPORATION") pursuant to the terms of the Incentive Stock
Option Plan (the "PLAN"), Stock Option Grant Notice ("GRANT NOTICE") and
Incentive Stock Option Agreement (the "OPTION"); and, by executing this Notice,
the undersigned hereby exercises his option to purchase an aggregate of
_________________________ shares of Stock at a price of $6.50 per share. The
exercise of the option effected hereby is subject to and pursuant to the terms
of the Plan and the Option.
The undersigned hereby exercises the Option for _________________________
shares of Stock of the shares granted to me under the Option. Cash or certified
funds in the amount of $__________ representing the exercise price for the above
shares of Stock, accompany this Notice. Please register my shares of Stock as
indicated below and mail the certificate representing the shares of Stock to me
at the following address:
_______________________________________
_______________________________________
Register shares in the following manner:
_______________________________________
_______________________________________
Mail certificate to the following address:
_______________________________________
_______________________________________
Date:___________________ ___________________________________________
[Signature]
<PAGE>
EXHIBIT 10.4
HORIZON ORGANIC HOLDING CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 14, 1998
APPROVED BY THE STOCKHOLDERS ON APRIL 30, 1998
1. PURPOSE.
(a) The purpose of this 1998 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of Horizon Organic Holding Corporation, a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board or the Committee shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board or the
1.
<PAGE>
Committee, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board or the Committee deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate two hundred fifty thousand (250,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for
issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
2.
<PAGE>
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder, a right with a lower exercise price (or an earlier-granted right, if
two rights have identical exercise prices), will be exercised to the fullest
possible extent before a right with a higher exercise price (or a later-granted
right, if two rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
3.
<PAGE>
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board or
the Committee may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding ten percent (10%) of such employee's
Earnings (as defined in subparagraph 7(a)) during the period which begins on the
Offering Date (or such later date as the Board or the Committee determines for a
particular Offering) and ends on the date stated in the Offering, which date
shall be no later than the end of the Offering. The Board or the Committee
shall establish one or more dates during an Offering (the "Purchase Date(s)") on
which rights granted under the Plan shall be exercised and purchases of Common
Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
4.
<PAGE>
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering an enrollment agreement to the Company within the time
specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company that
is intended to comply with Section 125, Section 401(k), Section 402(e)(3),
Section 402(h) or section 403(b) of the Code, and also including any deferrals
under a non-qualified deferred compensation plan or arrangement established by
the Company), and also, if determined by the Board or the Committee and set
forth in the terms of the Offering, may include any or all of the following: (i)
overtime pay, (ii) commissions, (iii) bonuses, incentive pay, profit sharing and
other remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings shall not
include the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and similar
items of compensation, as determined by the Board or the Committee. The payroll
deductions made for each participant shall be credited to an account for such
participant under the Plan and shall be deposited with the general funds of the
Company. A participant may reduce (including to zero) or increase such payroll
deductions, and an eligible employee may begin such payroll deductions, after
the beginning of any Offering only as provided for in the Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the participant has not
had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated.
A participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new enrollment agreement in
order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of a participant's employment with the Company and
any designated Affiliate, for any reason, and the Company shall distribute to
such terminated employee all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the terminated employee), under the Offering, without interest.
5.
<PAGE>
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each Purchase Date specified in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. Unless
otherwise provided for in the applicable Offering, no fractional shares shall be
issued upon the exercise of rights granted under the Plan. The amount, if any,
of accumulated payroll deductions remaining in each participant's account after
the purchase of shares which is less than the amount required to purchase one
share of stock on the final Purchase Date of an Offering shall be held in each
such participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights
under the Plan, as provided in paragraph 5, in which case such amount shall be
distributed to the participant after such final Purchase Date, without interest.
The amount, if any, of accumulated payroll deductions remaining in any
participant's account on the final Purchase Date of an Offering after the
purchase of shares which is equal to or in excess of the value of one whole
share of common stock shall be distributed in full to the participant after such
Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times keep available as authorized but unissued shares or treasury
shares that number of shares of stock required to satisfy such rights.
6.
<PAGE>
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights granted
under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
7.
<PAGE>
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment if such amendment requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act or any Nasdaq or securities exchange
requirements.
(b) The Board or the Committee may amend the Plan in any respect the Board
or the Committee deems necessary or advisable to provide eligible employees with
the maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee stock purchase
plans and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
8.
<PAGE>
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or terminate
the Plan at any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under the Plan comply with the requirements of Section 423 of the
Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the first date upon which any security
of the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange, or designated (or approved for designation) upon notice
of issuance as a national market security on an interdealer quotation system
(the "Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
17. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
9.
<PAGE>
EXHIBIT 10.5
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of __________, 1998
by and between Horizon Organic Holding Corporation, a Delaware corporation (the
"Corporation"), and _____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in the
capacity as [OFFICER/DIRECTOR] of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
[OFFICER/DIRECTOR] of the Corporation, the Corporation has determined and agreed
to enter into this Agreement with Agent.
NOW, THEREFORE, in consideration of Agent's continued service as
[OFFICER/DIRECTOR] after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
[OFFICER/DIRECTOR] of the Corporation or as a director, officer or other
fiduciary of an affiliate of the Corporation faithfully and to the best of
Agent's ability so long as Agent is duly elected and qualified in accordance
with the provisions of the Bylaws or other applicable charter documents of the
Corporation or such affiliate; provided, however, that Agent may at any time and
for any reason resign from such position (subject to any contractual obligation
that Agent may have assumed apart from this Agreement) and that the Corporation
or any affiliate shall have no obligation under this Agreement to continue Agent
in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(A) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay by reason of any claim or
claims made against or by Agent in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(B) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(A) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(C) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(D) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(E) for which payment actually is made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(F) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and therefore is unenforceable
and that claims for indemnification should be submitted to appropriate courts
for adjudication); or
(G) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification expressly
is required to be made by law, (ii) the proceeding
2
<PAGE>
was authorized by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the Corporation, in its sole discretion, pursuant
to the powers vested in the Corporation under the Code, or (iv) the proceeding
is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(A) the Corporation will be entitled to participate therein at its
own expense;
(B) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent; provided,
however, that the fees and expenses of Agent's separate counsel shall be borne
by the Corporation if (i) the employment of counsel by Agent has been authorized
by the Corporation, (ii) Agent reasonably shall have concluded that there may be
a conflict of interest between the Corporation and Agent in the conduct of the
defense of such action or (iii) the Corporation in fact shall not have employed
counsel to assume the defense of such action. The Corporation shall not be
entitled to
3
<PAGE>
assume the defense of any action, suit or proceeding brought by or on behalf of
the Corporation or as to which Agent shall have made the conclusion provided for
in clause (ii) above; and
(C) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. Promptly following request therefor, the Corporation shall
advance, prior to the final disposition of any proceeding, all expenses incurred
by Agent in connection with such proceeding upon receipt of an undertaking by or
on behalf of Agent to repay such amounts if it shall be determined ultimately
that Agent is not entitled to be indemnified under the provisions of this
Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
90 days of request therefor. Agent, in such enforcement action, if successful in
whole or in part, also shall be entitled to be paid the expense of prosecuting
Agent's claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right Agent may have or hereafter
acquire under any statute, provision of the Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in Agent's official capacity and as to action in
another capacity while holding office.
4
<PAGE>
12. SURVIVAL OF RIGHTS.
(A) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(B) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity contained
herein or unenforceability shall not affect the validity or enforceability of
the other provisions hereof. Furthermore, if this Agreement shall be invalidated
in its entirety on any ground, then the Corporation nevertheless shall indemnify
Agent to the fullest extent provided by the Bylaws, the Code or any other
applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless signed in writing by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed for all purposes to be an
original but all of which together shall constitute this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
5
<PAGE>
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(A) If to Agent, at the address indicated on the signature page
hereof.
(B) If to the Corporation, to
Horizon Organic Holding Corporation
6311 Horizon Lane
Longmont, Colorado 80503
Attn: President
or to such other address as may have been furnished to Agent by the Corporation.
[The rest of this page is intentionally left blank.]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
HORIZON ORGANIC HOLDING CORPORATION
By:________________________________
Name:______________________________
Title:_____________________________
AGENT
___________________________________
(Signature)
Agent Print Name and Address:
___________________________________
___________________________________
7
<PAGE>
EXHIBIT 10.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS
TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
Void after 5:00 p.m., Mountain Daylight
Savings Time March 20, 1999
WARRANT TO PURCHASE COMMON STOCK
HORIZON ORGANIC HOLDING CORPORATION
This is to Certify That, FOR VALUE RECEIVED,
____________________
or registered assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from Horizon Organic Holding Corporation, a Delaware
corporation ("Holding Co."), at any time on or after June 30, 1997, and not
later than 5:00 p.m., Denver Time, on March 20, 1999, ____________ shares of
common stock, having a $0.001 par value of the Holding Co. ("Common Stock") at a
purchase price of $5.355 per share. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for a share
of Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Stock" and the
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price."
This Warrant is one of a series of warrants identical in form issued by the
Holding Co. to purchase an aggregate of Sixty-Nine Thousand One Hundred Eighteen
(69,118) shares of Common Stock of the Holding Co. and the term "Warrants" as
used herein means all such warrants (including this Warrant).
1. Exercise of Warrant. This Warrant may be exercised in whole or in part
-------------------
at any time or from time to time on or after June 30, 1997, but not later than
5:00 p.m., Denver time, on March 20, 1999, or if March 20, 1999, is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender
hereof to the Holding Co. or at the office of its stock transfer agent, if any,
with the Purchase Form annexed hereto duly executed and accompanied by payment
of the Exercise Price for the number of shares specified in such form, together
with all federal and state transfer taxes applicable upon such exercise. If
this Warrant should be exercised in part only, the Holding Co. shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the Holder to purchase
<PAGE>
the balance of the shares purchasable hereunder. Upon receipt by the Holding Co.
of this Warrant at the office or agency of the Holding Co., in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Holding Co. shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
2. Reservation of Shares. The Holding Co. hereby agrees that at all times
---------------------
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant.
3. Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
---------------------------------------
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Holding Co. or at the office of its stock transfer agent, if any,
for other Warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Common Stock purchasable
hereunder. This Warrant may not be sold, transferred, assigned, or hypothecated
without the consent of the Holding Co., which consent shall not be unreasonably
withheld but may be conditioned upon the Holding Co.'s receipt of a legal
opinion satisfactory to Holding Co. from the Holder's counsel that such sale,
transfer, assignment or hypothecation is exempt from registration under all
applicable federal and state laws. Any such assignment shall be made by
surrender of this Warrant to the Holding Co. or at the office of its stock
transfer agent, if any, with a valid assignment duly executed and funds
sufficient to pay any transfer tax; whereupon the Holding Co. shall, without
charge, execute and deliver a new Warrant in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be canceled.
Subject to the foregoing condition, this Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Holding Co. or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations for whole
shares of Common Stock in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants issued in
substitution for or replacement of this Warrant, or into which this Warrant may
be divided or exchanged. Upon receipt by the Holding Co. of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft, or destruction) of indemnification to
Holding Co. and its transfer agent and registrar (if any) as shall be deemed
advisable by Holding Co., and upon surrender and cancellation of this Warrant,
if mutilated, the Holding Co. will execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Holding Co., whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
4. Rights of the Holder. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a shareholder in the Holding Co., either at law or
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Holding Co. except to the extent set
forth herein.
-2-
<PAGE>
5. Adjustments.
-----------
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization, combination of
shares of the Holding Co., or other similar event, occurring after the date
hereof, then the Holder exercising this Warrant shall receive for the aggregate
price paid upon such exercise, the aggregate number and class of shares which
such Holder would have received if this Warrant had been exercise immediately
prior to such stock split, stock dividend recapitalization, combination of
shares, or other similar event. If any adjustment under this Section 5(a) would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares subject to this Warrant shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be an adjustment pursuant
to this Section 5(a), the Holding Co. shall forthwith notify the Holder of this
Warrant of such adjustment, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Holding Co., or other similar event,
occurring after the date hereof, as a result of which shares of Common Stock
shall be changed into the same or a different number of shares of the same or
another class or classes of securities of the Holding Co. or another entity, or
the holders of Common Stock are entitled to receive cash or other property, then
the Holder exercising this Warrant shall receive, for the aggregate price paid
upon such exercise, the aggregate number and class of shares, cash or other
property which such Holder would have received if this Warrant had been
exercised immediately prior to such merger, consolidation, exchange of shares,
separation, reorganization or liquidation, or other similar event. If any
adjustment under this Section 5(b) would create a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares
subject to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this Section
5(b), the Holding Co. shall forthwith notify the Holder of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
6. Transfer to Comply with the Securities Act of 1933.
--------------------------------------------------
(a) This Warrant or the Warrant Stock or any other security issued or
issuable upon exercise of this Warrant may not be offered or sold except in
conformity with the Securities Act of 1933, as amended, and then only against
receipt of an agreement of such person to whom such offer of sale is made to
comply with the provisions of this Section 6 with respect to any resale or other
disposition of such securities.
(b) The Holding Co. may cause the following legend to be set forth on
each Warrant and certificate representing the Warrant Stock or any other
security issued or issuable upon
-3-
<PAGE>
exercise of this Warrant, unless counsel for the Holding Co. is of the opinion
as to any such certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act"), or pursuant to an exemption from registration under the Act,
the availability of which is to be established to the satisfaction of
the Company.
7. Applicable Law. This Warrant shall be governed by, and construed in
--------------
accordance with, the laws of the State of Colorado.
HORIZON ORGANIC HOLDING CORPORATION
By:
-------------------------------
Barnet M. Feinblum, President
Date: May 29, 1997
[SEAL]
Attest:
- -----------------------------------
Don J. Gaidano, Assistant Secretary
-4-
<PAGE>
EXHIBIT 10.8
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT ("AGREEMENT") is made this 15th day of
July, 1997, between Horizon Organic Holding Corporation, a Delaware corporation;
Horizon Organic Dairy, a Colorado corporation ("Horizon Colorado"), Horizon
Organic Dairy, Maryland Farm, Inc., ("Horizon Maryland") a Colorado corporation;
Horizon Organic Dairy, Idaho Farm, Inc., ("Horizon Idaho") a Colorado
Corporation ("BORROWER"), whether one or more), and FBS AG CREDIT, INC., a
Colorado corporation ("FBS AG CREDIT").
RECITAL
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Borrower has requested that FBS Ag Credit make loans, advances, extensions
of credit and/or other financial accommodations to or for the benefit of
Borrower, and FBS Ag Credit is willing to do so on the following terms and
conditions.
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, and of any loans or extensions of credit
or other financial accommodations at any time made to or for the benefit of
Borrower by FBS Ag Credit, Borrower and FBS Ag Credit agree as follows:
1 DEFINITIONS.
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1.1 GENERAL DEFINITIONS. When used herein, the following capitalized
-------------------
terms shall have the meanings indicated, whether used in the singular or the
plural:
"ACCOUNTS" shall mean all present and future rights (including without
--------
limitation, rights under any Margin Accounts) of Borrower to payment for
Inventory or other goods sold or leased or for services rendered, which rights
are not evidenced by instruments or chattel paper, regardless of whether such
rights have been earned by performance.
"ACCOUNT DEBTOR" shall mean the party which is obligated on or under an
--------------
Account or a General Intangible.
"AFFILIATE" shall mean any Person: (a) that directly or indirectly,
---------
through one or more intermediaries, controls or is controlled by, or is under
common control with, Borrower; (b) that directly or beneficially owns or holds
ten percent (10%) or more of any class of the voting stock of Borrower; (c) ten
percent (10%) or more of the voting stock (or in the case of a Person which is
not a corporation, ten percent (10%) or more of the equity interest) of which is
owned directly or beneficially or held by Borrower; or (d) that is a director,
officer, agent or employee of Borrower.
<PAGE>
"ANNIVERSARY DATE" shall mean June 30, 1998 and each June 30 thereafter.
----------------
"BORROWING BASE" shall mean an amount determined and computed as set forth
--------------
in Exhibit 1A.
----------
"BORROWING BASE CERTIFICATE" shall mean a certificate in the form of
--------------------------
Exhibit lB, signed as indicated thereon, setting forth the amount of Borrower's
- ----------
Borrowing Base.
"COLLATERAL" shall mean any and all assets in which FBS Ag Credit may at
----------
any time have a lien or security interest under or pursuant to Section 5.1 or
-----------
otherwise to secure the Liabilities.
"DEFAULT" shall mean the occurrence or existence of: (a) an event which,
-------
through the passage of time or the service of notice or both, would (assuming no
action is taken by Borrower or any other Person to cure the same) mature into a
Matured Default; (b) an event which requires neither the passage of time nor the
service of notice to mature into a Matured Default; or (c) the occurrence of a
breach or a default under any other agreement at any time in existence between
Borrower or an Affiliate and FBS Ag Credit, including without limitation, any of
the Financing Agreements.
"DOCUMENTS" shall mean any and all warehouse receipts, bills of lading or
---------
similar documents of title relating to goods in which Borrower at any time has
an interest.
"EQUIPMENT" shall mean any and all goods, other than Inventory (including
---------
without limitation, equipment, machinery, motor vehicles, mobile homes,
implements, tools, parts and accessories) which are at any time owned by
Borrower, together with any and all accessions, parts and appurtenances.
"FARM PRODUCTS" shall mean all of Borrower's seed and harvested or
-------------
unharvested crops of all types and descriptions, whether annual or perennial
(including without limitation, those crops at any time growing or grown upon
that certain real property described in Exhibit 1D) and all other personal
----------
property of Borrower used or for use in farming operations, including without
limitation, native grass, grain, harvested crops, feed, feed additives, feed
ingredients, feed supplements, fertilizer, hay, silage, supplies (including
without limitation, veterinary supplies and related goods), livestock (including
without limitation, the offspring of such livestock and livestock in gestation)
and any other "farm products" (as defined in the Code).
"FINANCING AGREEMENTS" shall mean all agreements, instruments and
--------------------
documents, including without limitation, this Agreement and all security
-2-
<PAGE>
agreements, loan agreements, notes, letter of credit applications, guarantees,
mortgages, deeds of trust, subordination agreements, pledges, powers of
attorney, consents, assignments, contracts, notices, leases, financing
statements and all other written matter at any time executed by or on behalf of
Borrower and delivered to FBS Ag Credit, together with all amendments and all
agreements and documents referred to therein or contemplated thereby.
"FIRST BANK" shall mean First Bank National Association, a national banking
----------
association with its principal place of business in Minneapolis, Minnesota and
an Affiliate of FBS Ag Credit.
"FIXED CHARGE COVERAGE RATIO" shall mean for any period of determination
---------------------------
and with respect to any Borrower, the ratio of: (a)(i) Unallocated Cash Flow,
plus (ii) the amount of cash interest paid by such Borrower during such period;
over (b)(i) the amount of principal paid by such Borrower during such period
with respect to long term debt, plus (ii) the amount of cash interest paid by
such Person during such period. Notwithstanding the foregoing, FBS Ag Credit
reserves the right from time to time to change the formula for determination of
the Fixed Charge Coverage Ratio.
"GENERAL INTANGIBLES" shall mean all of Borrower's right, title and
-------------------
interest in and to any bank deposit accounts, customer deposit accounts,
deposits, rights related to prepaid expenses, negotiable or nonnegotiable
instruments or securities, chattel paper, choses in action, causes of action and
all other intangible personal property of every kind and nature (other than
Accounts), including without limitation, corporate or other business records,
inventions, designs, patents, patent applications, trademarks, trade names,
trade secrets, goodwill, registrations, copyrights, licenses, franchises,
customer lists, tax refunds, tax refund claims, customs claims, guarantee
claims, cooperative memberships or patronage benefits, rights to any government
subsidy, set aside, diversion, deficiency or disaster payment or payment in
kind, milk bases, brands and brand registrations, water rights (including
without limitation, water stock, ditch rights, well permits, water permits,
applications and the like), Commodity Credit Corporation storage agreements or
contracts, leasehold interests in real and personal property and any security
interests or other security held by or granted to Borrower to secure payment by
any Account Debtor of any of the Accounts, and any other "general intangibles"
(as defined in the Code).
"INVENTORY" shall mean any and all dairy livestock, feed and dairy product
---------
or other goods which shall at any time constitute "inventory" (as defined in the
Code) or Farm Products of Borrower, wherever located (including without
limitation, goods in transit), or which from time to time are held for sale,
lease or consumption in Borrower's business, furnished under any contract of
service or
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<PAGE>
held as raw materials, work in process, finished inventory or supplies
(including without limitation, packaging and/or shipping materials).
"LETTER OF CREDIT USAGE" shall mean as of any date of determination an
----------------------
amount equal to the sum of (a) the amount of all Unpaid Drawings plus (b) the
----
amount available to be drawn under all outstanding Letters of Credit.
"LIABILITIES" shall mean any and all liabilities, obligations and
-----------
indebtedness of Borrower to FBS Ag Credit of any and every kind and nature, at
any time owing, arising, due or payable and howsoever evidenced, created,
incurred, acquired or owing, whether primary, secondary, direct, contingent,
fixed or otherwise (including without limitation, obligations of performance)
and whether arising or existing under this Agreement or any of the other
Financing Agreements or by operation of law.
"MARGIN ACCOUNTS" shall mean all futures contracts or funds and other
---------------
property related to such futures contracts, which Borrower or Borrower's
authorized attorney-in-fact may acquire, accumulate, withdraw or pay out, and
which may be held with any broker, including without limitation, any balance
credited to any Margin Account upon its closing.
"MARYLAND DAIRY" shall mean an operating dairy located in the State of
--------------
Maryland and having at least 600 cow capacity.
"MATURED DEFAULT" shall mean the occurrence or existence of any one or more
---------------
of the following events: (a) Borrower fails to pay any principal or interest
pursuant to any of the other Financing Agreements at the time such principal or
interest becomes due or is declared due; (b) Borrower fails to pay any of the
Liabilities (other than principal and interest) on or before ten (10) days after
such Liabilities become due or are declared due; (c) Borrower fails or neglects
to perform, keep or observe any of the covenants, conditions, promises or
agreements contained in Sections 8.1, 8.2 or 8.4; (d) Borrower fails or
------------ --- ---
neglects to perform, keep or observe any of the covenants, conditions, promises
or agreements contained in this Agreement or in any of the other Financing
Agreements (other than those covenants, conditions, promises and agreements
referred to or covered in (a), (b) and (c) above), and such failure or neglect
--- --- ---
continues for more than thirty (30) days after such failure or neglect first
occurs, provided, however, that such grace period shall not apply, and a
-------- -------
Matured Default shall be deemed to have occurred and to exist immediately if
such failure or neglect may not, in FBS Ag Credit's reasonable determination, be
cured by Borrower during such thirty (30) day grace period; (e) the amount
outstanding under the Line of Credit is in excess of the Borrowing Base; (f) any
warranty or representation at any time made by or on behalf of Borrower in
connection with this
-4-
<PAGE>
Agreement or any of the other Financing Agreements is untrue or incorrect in any
material respect, or any schedule, certificate, statement, report, financial
data, notice, or writing furnished at any time by or on behalf of Borrower to
FBS Ag Credit is untrue or incorrect in any material respect on the date as of
which the facts set forth therein are stated or certified; (g) a judgment in
excess of $ 100,000 is rendered against Borrower and such judgment remains
unsatisfied or undischarged and in effect for thirty (30) consecutive days
without a stay of enforcement or execution, provided, however, that this clause
-------- -------
(g) shall not apply to any judgment for which Borrower is fully insured and with
respect to which the insurer has admitted liability in writing for such
judgment; (h) all or any part of Borrower's assets come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors; (i) a
proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed against
Borrower of any of the Liabilities and such proceeding is not dismissed within
thirty (30) days of the date of its filing, or a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt or receivership law or statute is filed by Borrower of any of the
Liabilities, or Borrower of the Liabilities makes an assignment for the benefit
of creditors; (j) Borrower of any of the Liabilities voluntarily or
involuntarily dissolves or is dissolved, terminates or is terminated or dies;
(k) Borrower is enjoined, restrained, or in any way prevented by the order of
any court or any administrative or regulatory agency or by the termination or
expiration of any permit or license, from conducting all or any material part of
Borrower's business affairs; (1) Borrower of any of the Liabilities fails to
make any payment due or otherwise defaults on any other obligation for borrowed
money and the effect of such failure or default is to cause or permit the holder
of such obligation or a trustee to cause such obligation to become due prior to
its date of maturity; (m) FBS Ag Credit makes an expenditure under Section 10.3;
------------
or (n) FBS Ag Credit, at any time reasonably determines that FBS Ag Credit is
insecure with respect to the amount or quality of Collateral for FBS Ag Credit's
loans to Borrower or the prompt payment of all or any part of the Liabilities,
or that such change has occurred in the condition or affairs (financial or
otherwise) of Borrower or any of Borrower's Affiliates as, in the reasonable
opinion of FBS Ag Credit, materially affects Borrower's ability to make prompt
payment on the Liabilities or materially impairs or is likely to materially
impair the value of the Collateral, including without limitation, the occurrence
of such events as would in FBS Ag Credit's reasonable opinion create the
possibility that, in accordance with any federal, state or local law, or in
accordance with any contract by which Borrower is bound, any Person could assert
liens or setoffs against the Collateral.
"PERSON" shall mean any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (whether national, federal, state,
provincial, county,
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<PAGE>
city, municipal or otherwise, including without limitation, any instrumentality,
division, agency, body or department thereof).
"PRODUCER PAYABLES" shall mean all amounts at any time payable by Borrower
-----------------
for the purchase of Inventory that are, in the reasonable determination of FBS
Ag Credit, secured by a lien.
"PROPERTY" shall mean those premises owned or operated by Borrower,
--------
including without limitation, the real property described in Borrower's
mortgage(s) and/or deed(s) of trust referred to in Section 5.1.
-----------
"REFERENCE RATE" shall mean the Reference Rate quoted by First Bank as of
--------------
12:00 Noon on a given day in Minneapolis, Minnesota, which is a base rate that
First 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
hereto. Borrower acknowledges that said Reference Rate is not necessarily the
lowest index rate used or the lowest rate made available to customers by said
First Bank.
"REVOLVING LOAN COMMITMENT" shall mean at the time any determination
-------------------------
thereof is to be made, the obligation of the FBS Ag Credit 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 $10,000,000 through
December 31, 1997, up to, but not exceeding in the aggregate principal amount at
any time of $10,000,000 after December 31, 1997 in the event a Maryland Dairy is
purchased by Borrower on or before said date and up to, but not exceeding in the
aggregate principal amount at any time of $8,000,000 after December 31, 1997 in
the event a Maryland Dairy is not purchased by Borrower on or before said date.
---
"SUBORDINATED DEBT" shall mean indebtedness of Horizon Organic Dairy, Inc.
-----------------
evidenced by those certain Unsecured Subordinated Promissory Notes, dated March
20, 1997.
"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; prepaid expenses for Eligible Inventory consisting of feed; government
subsidy; set aside; diversion; deficiency or disaster payments receivable which
are properly assigned to FBS Ag Credit; and Commodity Credit Corporation storage
agreement or contract receivables which are properly assigned to FBS Ag Credit,
and by deducting
-6-
<PAGE>
(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.
"TOTAL REVOLVING OUTSTANDINGS" shall mean as of any date of determination,
----------------------------
the sum of (a) the aggregate unpaid principal balance of Line of Credit Advances
outstanding on such date and (b) the Letter of Credit Usage.
"UNALLOCATED CASH FLOW" shall mean, for any period of determination and
---------------------
with respect to any Borrower, a) the net income of such Borrower before
provision for income taxes, interest expense (including without limitation,
implicit interest expense on capitalized leases), depreciation, amortization and
other noncash expenses or charges, excluding (to the extent included): (a)
nonoperating gains (including without limitation, extraordinary or nonrecurring
gains, gains from discontinuance of operations and gains arising from the sale
of assets other than Inventory) during the applicable period; and (b) similar
nonoperating losses during such period, less cash dividends paid, cash interest
----
paid and less capital expenditures.
"UNPAID DRAWING" As defined in Section 2.1.2.
-------------- -------------
"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 and prepaid expenses for Eligible Inventory consisting of
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 and prepaid expenses for Eligible Inventory consisting of
feed as a current asset and treating Total Revolving Outstandings as current
liabilities.
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<PAGE>
1.2 INDEX TO OTHER DEFINITIONS. When used herein the following capitalized
--------------------------
terms shall have the meanings given in the indicated portions of this Agreement:
<TABLE>
<CAPTION>
TERM LOCATION TERM LOCATION
- ---- -------- ---- --------
<S> <C> <C> <C>
Advance, Section 2.7 Agreement introduction
Advances
Beneficiary Section 2.1.2 Borrower Introduction
Code Section 1.4 Default Rate Section 2.2
Eligible Accounts Section 3.1 Eligible Inventory Section 3.2
Environmental Section 6.10 ERISA Section 6.20
Laws
Excess Section 10.20 FBS AG Credit Introduction
Letters Section 2.1.2 Line of Credit, Line Section 2.1.1
of Credit Advances,
Line of Credit Note
Loan Account Section 2.6
Pension Plan Section 6.20
</TABLE>
1.3 ACCOUNTING TERMS. Any accounting terms used in this Agreement which
----------------
are not specifically defined in this Agreement shall have the meanings
customarily given them in accordance with generally accepted accounting
principles, as consistently applied as of the date of this Agreement.
1.4 OTHERS DEFINED IN COLORADO UNIFORM COMMERCIAL CODE. All other terms
--------------------------------------------------
contained in this Agreement (which are not specifically defined in this
Agreement) shall have the meanings set forth in the Uniform Commercial Code of
Colorado ("Code") to the extent the same are used or defined therein.
2 LOANS, LETTERS OF CREDIT AND FEES.
---------------------------------
2.1 LOANS AND LETTERS OF CREDIT. Subject to all of the terms and
---------------------------
conditions contained in this Agreement, FBS Ag Credit agrees to make the
following extensions of credit to or for the benefit of Borrower:
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<PAGE>
2.1.1 LINE OF CREDIT. FBS Ag Credit 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, 1999 ("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 (a) Total Revolving
Outstandings to exceed the lesser of (i) the Revolving Loan Commitment, or (ii)
the then current Borrowing Base. ("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 2A. FBS Ag Credit, 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. FBS Ag Credit 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 FBS Ag Credit elects to extend such Termination Date, FBS Ag Credit shall
give notice to Borrower pursuant to Section 10.19.
-------------
2.1.2 LETTERS OF CREDIT. FBS Ag Credit further agrees to request
-----------------
First Bank to issue its irrevocable letters of credit (collectively "Letters"
and individually, a "Letter") on its behalf 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 lesser of (i) the Revolving Loan Commitment, or (ii)
the then current Borrowing Base, or (b) the Letter of Credit Usage to exceed
$500,000. If First Bank has received documents purporting to draw under a
Letter that First Bank believes conform to the requirements of the Letter, or if
First Bank has decided that it will comply with Borrower's written or oral
request of authorization to pay a drawing on any Letter that First Bank does not
believe conforms to the requirements of the Letter, First Bank or FBS Ag Credit
will notify Borrower of that fact. Borrower shall reimburse First Bank by 9:30
a.m. (Minneapolis 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 First 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 FBS Ag Credit initiated Line of Credit Advance. The obligation of
Borrower to reimburse First Bank for any amount drawn on any Letter, and the
obligation of Borrower to repay FBS Ag Credit 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:
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<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), First 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 First Bank, FBS Ag Credit or any of the officers, directors or employees
of either of them shall be liable or responsible for, and the obligations of
Borrower to First Bank and FBS Ag Credit 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 First 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 First 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.
Notwithstanding the foregoing, Borrower shall have a claim against First Bank
and FBS Ag Credit, and First Bank and/or FBS Ag Credit 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
First Bank's or FBS Ag Credit's willful misconduct or gross negligence in
determining whether documents presented under any Letter comply with the terms
thereof.
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<PAGE>
2.2 DEFAULT RATE. Upon and after a Matured Default and notice thereof to
------------
Borrower, Borrower shall, in lieu of the interest rate set forth in any
promissory note referred to herein, pay to FBS Ag Credit interest from the date
of the Matured Default at a per annum rate which is equal to the Reference Rate
plus four percent (4%) ("DEFAULT RATE") calculated on the outstanding principal
balance of the Liabilities until all of the Liabilities are repaid in full.
2.3 PREPAYMENT. Unless prepayment is restricted by any promissory note
----------
evidencing any portion of the Liabilities, Borrower may, at any time, without
premium or penalty, prepay any portion or the entire balance of the Liabilities.
2.4 PURPOSE. The purpose of the Line of Credit is to finance the
-------
livestock, farming costs, equipment, milk production costs of Horizon Idaho and
Horizon Maryland, as well as the accounts receivable and finished inventories of
Horizon Colorado.
2.5 LOAN FEES. Borrower agrees to pay to FBS Ag Credit: (a) a commitment
---------
fee for the Revolving Loan in the amount of Twenty Five Thousand Dollars
($25,000), payable on the date of this Agreement and annually on each
Anniversary Date as long as Line of Credit Advances are outstanding hereunder;
(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; and (c) an early termination fee payable in the
amount of Two Hundred Thousand Dollars ($200,000) in the event Borrower
terminates this Agreement prior to June 30, 1998 and payable in the amount of
One Hundred Thousand Dollars ($100,000) in the event Borrower terminates this
Agreement prior to June 30, 1999. Each of the foregoing fees shall be fully
earned on the date it becomes payable and shall be paid by an FBS Ag Credit
initiated Advance pursuant to Section 2.1, without prior demand by FBS Ag
-----------
Credit.
2.6 BORROWER'S LOAN ACCOUNT. FBS Ag Credit shall maintain a loan account
-----------------------
("LOAN ACCOUNT") on its books in which shall be recorded: (a) all Line of Credit
Advances made by FBS Ag Credit to Borrower pursuant to this Agreement; (b) all
payments made by Borrower on all such Line of Credit Advances; and (c) all other
appropriate debits and credits as provided in this Agreement, including without
limitation, all fees, charges, expenses and interest. All entries in Borrower's
Loan Account shall be made in accordance with FBS Ag Credit's customary
accounting practices as in effect from time to time. Borrower promises to pay
the amount reflected as owing by and under its Loan Account and all other
obligations hereunder as such amounts become due or are declared due pursuant to
the terms of this Agreement.
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<PAGE>
2.7 STATEMENTS. All Line of Credit Advances (collectively "ADVANCES" and
----------
individually, an "ADVANCE") to Borrower, and all other debits and credits for in
this Agreement, shall be evidenced by entries made by FBS Ag Credit in internal
data control systems showing the date, amount and reason for each such debit or
credit. Until such time as FBS Ag Credit shall have rendered to Borrower
written statements of account, the balance in Borrower's Loan Account, as set
forth on FBS Ag Credit's most recent printout, shall be rebuttable presumptive
evidence of the amounts due and owing FBS Ag Credit by Borrower. On or about
the last day of each calendar month, FBS Ag Credit shall mail to Borrower a
statement setting forth the balance of Borrower's Loan Account, including
without limitation, principal, interest, expenses and fees. Each such statement
shall be subject to subsequent adjustment by FBS Ag Credit but shall, absent
manifest errors or omissions, be presumed correct and binding upon Borrower and
shall constitute an account stated unless, within sixty (60) days after receipt
of any statement from FBS Ag Credit, Borrower shall deliver to FBS Ag Credit
written objection specifying the error or errors, if any, contained in such
statement.
2.8 TERMINATION OF AGREEMENT. FBS Ag Credit shall have the right, without
------------------------
notice to Borrower, to terminate its commitment to make Advances pursuant to
this Agreement immediately upon a Matured Default, or upon the repayment in full
of all of the Liabilities. The Borrower shall have the right, with/out notice
to FBS Ag Credit, to terminate its commitment pursuant to this Agreement upon
the repayment in full of all Liabilities, including all fees. In addition, FBS
Ag Credit's commitment to make Advances pursuant to this Agreement shall be
deemed immediately terminated and all of the Liabilities shall be immediately
due and payable, without notice to Borrower, on the Termination Date if FBS Ag
Credit elects not to extend the Termination Date of the Line of Credit pursuant
to Section 2.1.1. In the event FBS Ag Credit's commitment to make Advances
-------------
pursuant to this Agreement is terminated, the remainder of this Agreement shall
remain in full force and effect until the payment in full of the Liabilities.
Notwithstanding the foregoing, in the event that a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt or receivership law or statute is filed by or against Borrower, or Borrower
makes an assignment for the benefit of creditors, this Agreement shall be deemed
to be terminated immediately, and all the Liabilities shall be due and payable,
provided, however, that in the event a proceeding against Borrower is dismissed
- -------- -------
within thirty (30) days of the date of its filing then this Agreement shall be
deemed to be reinstated as of the date the order of dismissal becomes final and
FBS Ag Credit is given notice thereof.
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<PAGE>
3 BORROWING BASE.
--------------
3.1 ELIGIBLE ACCOUNTS. FBS Ag Credit shall have the right, in the
-----------------
exercise of FBS Ag Credit's reasonable discretion, to determine whether Accounts
are eligible for inclusion in the Borrowing Base at any particular time (such
eligible accounts being referred to as "Eligible Accounts"). Without limiting
FBS Ag Credit's right to determine that Accounts do not constitute Eligible
Accounts, the following Accounts shall not be Eligible Accounts: (a) all
Accounts which are at that time unpaid for a period exceeding sixty (60) days
after the original invoice date of the original invoice related thereto; (b) all
Accounts owing by an Account Debtor if more than twenty percent (20%) of the
Accounts owing by such Account Debtor are at that time unpaid for a period
exceeding sixty (60) days after the invoice due date of the original invoice
related thereto; (c) those Accounts, except Accounts owing from the Account
Debtors listed on Exhibit 3A, of an Account Debtor, the aggregate face amount of
----------
which is in excess of five percent (5%) of the aggregate face amount of all
other Eligible Accounts of all Account Debtors; (d) Accounts which arise out of
transactions with Affiliates; (e) Accounts of an Account Debtor that are located
outside the United States, unless such Accounts are covered by a letter of
credit issued or confirmed by a bank acceptable to FBS Ag Credit; (f) Accounts
which are or may be subject to rights of setoff or counterclaim by the Account
Debtor; and (g) Accounts which in FBS Ag Credit's opinion may be subject to
liens or conflicting claims of ownership, whether such liens or conflicting
claims are asserted or could be asserted by any Person. In the event that
Accounts previously included in the Borrowing Base cease to be Eligible
Accounts, Borrower shall promptly pay to FBS Ag Credit an amount sufficient to
ensure that the Liabilities, other than the Liabilities evidenced by the Line of
Credit Note, shall at no time exceed the then current Borrowing Base.
3.2 ELIGIBLE INVENTORY. FBS Ag Credit shall have the right, in the
------------------
exercise of FBS Ag Credit's reasonable discretion, to determine whether
Inventory is eligible for inclusion in the Borrowing Base at any particular time
(such eligible inventory being referred to as "ELIGIBLE INVENTORY"). Without
limiting FBS Ag Credit's right to determine that Inventory does not constitute
Eligible Inventory, the following Inventory shall not be Eligible Inventory: (a)
Inventory deemed to be out-of-condition or otherwise unmerchantable by the
United States Department of Agriculture, any state's Department of Agriculture,
or any other governmental agency or any department or division thereof having
regulatory authority over Borrower or any of Borrower's assets or activities;
(b) Inventory for which a prepayment has been received; (c) Inventory in the
possession of third parties, unless it is Inventory: (i) at a location shown on
Exhibit 3.B, for which FBS Ag Credit has received a bailee letter satisfactory
- -----------
to FBS Ag Credit, executed by such third party, or (ii) covered by negotiable
warehouse receipts or negotiable bills of lading issued by either: (A) a
warehouseman licensed and bonded by the United States Department
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<PAGE>
of Agriculture or any state's Department of Agriculture, or (B) a recognized
carrier having an office in the United States and in a financial condition
reasonably acceptable to FBS Ag Credit, which receipts or bills of lading
designate FBS Ag Credit directly or by endorsement as the only Person to which
or to the order of which the warehouseman or carrier is legally obligated to
deliver such goods; and (d) Inventory which in FBS Ag Credit's opinion may be
subject to liens or conflicting claims of ownership, whether such liens or
conflicting claims are asserted or could be asserted by any Person. In the event
that Inventory previously included in the Borrowing Base ceases to be Eligible
Inventory, Borrower shall promptly pay to FBS Ag Credit an amount sufficient to
ensure that the Liabilities, other than the Liabilities evidenced by the Line of
Credit Note, shall at no time exceed the then current Borrowing Base.
3.3 ELIGIBLE EQUIPMENT. FBS Ag Credit shall have the right, in the
------------------
exercise of FBS Ag Credit's reasonable discretion, to determine whether
Equipment is eligible for inclusion in the Borrowing Base at any particular time
(such eligible equipment being referred to as "ELIGIBLE EQUIPMENT"). Without
limiting FBS Ag Credit's right to determine that Equipment does not constitute
Eligible Equipment, the following Equipment shall not be Eligible Equipment:
(a) Equipment in the possession of third parties; (b) Equipment which in FBS Ag
Credit's opinion may be subject to liens or conflicting claims of ownership,
whether such liens or conflicting claims are asserted or could be asserted by
any Person; and (c) mobile homes unless specifically approved in writing by FBS
Ag Credit. In the event that Equipment previously included in the Borrowing
Base ceases to be Eligible Equipment, Borrower shall promptly pay to FBS Ag
Credit an amount sufficient to ensure that the Liabilities, other than the
Liabilities evidenced by the Line of Credit Note, shall at no time exceed the
then current Borrowing Base.
3.4 ELIGIBLE PREPAID EXPENSES. FBS Ag Credit shall have the right, in the
-------------------------
exercise of FBS Ag Credit's reasonable discretion, to determine whether amounts
of prepaid expenses are eligible for inclusion in the Borrowing Base at any
particular time (such eligible prepaid expenses being referred to as "ELIGIBLE
PREPAID EXPENSES"). Without limiting FBS Ag Credit's right to determine that
prepaid expenses do not constitute Eligible Prepaid Expenses, the following
prepaid expenses shall not be Eligible Prepaid Expenses: (a) amounts prepaid for
services or for goods, which when received by Borrower would not be Inventory;
(b) all amounts prepaid to any Person, 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; (d) amounts prepaid to a Person that is
located outside the United States unless the performance obligation of such
Person is secured by a letter of credit issued or confirmed by a bank acceptable
to FBS Ag Credit or covered by a performance bond in form and substance
acceptable to FBS Ag Credit; (e) amounts prepaid which may be subject to rights
of setoff or counterclaim by the Person to whom they were paid; and (f) amounts
prepaid, the performance obligation relating to which, in FBS Ag
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<PAGE>
Credit'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. In the event that prepaid
expenses previously included in the Borrowing Base cease to be Eligible Prepaid
Expenses, Borrower shall promptly pay to FBS Ag Credit an amount sufficient to
ensure that the Liabilities, other than the Liabilities evidenced by the Line of
Credit Note, shall at no time exceed the then current Borrowing Base.
4 CONDITIONS TO ADVANCES.
----------------------
Notwithstanding any other provisions to the contrary contained in this
Agreement, the making of any Advance provided for in this Agreement shall be
conditioned upon the following:
4.1 APPROVAL OF FBS AG CREDIT COUNSEL. Legal matters, if any, relating to
---------------------------------
each such Advance shall have been reviewed by and shall be satisfactory to
counsel for FBS Ag Credit.
4.2 COMPLIANCE. All representations and warranties contained in this
----------
Agreement shall be true on and as of the date of the making of such Advance as
if such representations and warranties had been made on and as of such date, and
no Default or Matured Default shall have occurred and be continuing or shall
exist.
4.3 DOCUMENTATION. Borrower shall have executed and/or delivered to FBS
-------------
Ag Credit all of the documents listed on the List of Closing Documents attached
as Exhibit 4A and Borrower's Borrowing Base Certificate setting forth the
----------
Borrowing Base as of the date of Borrower's request for the initial Line of
Credit Advance.
4.4 HEDGING ACTIVITIES. FBS Ag Credit shall be satisfied that Borrower is
------------------
in compliance with Borrower's covenants and agreements contained in Section
-------
5.15.
4.5 DELIVERY OF PROJECTIONS. Borrower shall have delivered to FBS Ag
-----------------------
Credit the month by month budget referred to in Section 7.1(d).
--------------
4.6 ADDITIONAL CONDITIONS PRECEDENT. FBS Ag Credit and its counsel have
-------------------------------
determined that the Subordinated Debt meets FBS underwriting guidelines for
subordinated debt to be treated as equity. Horizon Organic Holding Corporation
shall have sold at least $2.5 Million Dollars of stock as proposed in its
Offering Memorandum for the sale stock through May 23, 1997 or as extended in
accordance therewith.
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<PAGE>
5 SECURITY.
--------
5.1 SECURITY INTERESTS AND LIENS. To secure the payment and performance
----------------------------
of the Liabilities, Borrower hereby grants to FBS Ag Credit 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 FBS Ag Credit other and additional
security as described in Section 5.16.
------------
5.2 ENDORSEMENT BY FBS AG CREDIT. Borrower authorizes FBS Ag Credit to
----------------------------
endorse, in Borrower's name, any item, however received by FBS Ag Credit,
representing payment on or other proceeds of any of the Collateral.
5.3 DELIVERY OF WAREHOUSE RECEIPTS TO FBS AG CREDIT. In the event that
-----------------------------------------------
any Inventory becomes the subject of a negotiable or nonnegotiable warehouse
receipt, said warehouse receipt shall be promptly delivered to FBS Ag Credit
with such endorsements and assignments as are necessary to vest title and
possession in FBS Ag Credit. Provided that a Matured Default does not then
exist and would not be created thereby, FBS Ag Credit shall return such
warehouse receipts to Borrower within two (2) days of Borrower's request
therefor, but only for purposes of negotiation, delivery or exchange in the
ordinary course of Borrower's business, and provided, however, that Borrower
-------- -------
shall comply with such terms and conditions deemed appropriate by FBS Ag Credit
to secure the return to FBS Ag Credit of the proceeds of such warehouse
receipts, where such return of proceeds would be required in accordance with
Borrower's obligations to FBS Ag Credit under the Financing Agreements.
5.4 PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS.
---------------------------------------------------------------
Borrower shall execute and deliver to FBS Ag Credit, concurrently with the a
execution of this Agreement and at any time hereafter, all financing statements
or other documents (and pay the cost of filing or recording the same in all
public offices deemed necessary by FBS Ag Credit), as FBS Ag Credit may request,
in a form satisfactory to FBS Ag Credit, to perfect and keep perfected the
security interest in the Collateral granted by Borrower to FBS Ag Credit and
otherwise to protect and preserve the Collateral and FBS Ag Credit's security
interests. Should Borrower fail to do so, FBS Ag Credit is authorized to sign
any such financing statements as Borrower's agent. Borrower further agrees that
a carbon, photographic, photostatic
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<PAGE>
or other reproduction of this Agreement or of a financing statement is
sufficient as a financing statement. To perfect FBS Ag Credit's security
interest in any Equipment covered by certificates of title, Borrower shall
ensure that all such certificates of title are properly noted or endorsed by the
appropriate state officials whenever such notation or endorsement is, in FBS Ag
Credit's sole determination, either permitted or required as a condition to
perfection.
5.5 LOSS OF VALUE OF COLLATERAL. Borrower shall immediately notify FBS Ag
---------------------------
Credit of any material loss or decrease in the value of the Collateral.
5.6 COLLECTION OF ACCOUNTS. Borrower shall take all reasonable steps,
----------------------
including without limitation, the placement of such designations on invoices as
may be appropriate, to cause all Account Debtors to make all payments to a
lockbox at Colorado National Bank, cash collateral account number to be
designated in writing to FBS Ag Credit. Upon a Matured Default, Borrower
designates, makes, constitutes and appoints FBS Ag Credit (and all Persons
designated by FBS Ag Credit) as Borrower's true and lawful attorney-in-fact,
with power, in Borrower's or FBS Ag Credit'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 FBS Ag Credit 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 FBS Ag Credit'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 (1) do all acts and things
which are necessary, in FBS Ag Credit'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.
5.7 ACCOUNT COVENANTS. Borrower shall: (a) promptly upon Borrower's
-----------------
learning thereof, inform FBS Ag Credit, in writing, of any material delay in
Borrower's performance of any of Borrower's obligations to any Account Debtor or
of any assertion of any claims, offsets or counterclaims by any Account Debtor;
(b) not permit or agree to any extension, compromise or settlement or make any
change or modification of any kind or nature with respect to any Account in
excess of $50,000 (including without limitation, any of the terms thereof
without immediately giving notice to FBS Ag Credit; and (c) promptly upon
Borrower's learning thereof, furnish to and inform FBS Ag Credit of all material
adverse
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<PAGE>
information relaxing to the financial condition of any Account Debtor if
Accounts attributable to such Account Debtor aggregate in excess of $50,000 or
if such information would render such Account no longer an Eligible Account.
5.8 ACCOUNT RECORDS AND VERIFICATION RIGHTS. Borrower represents and
---------------------------------------
warrants to and covenants with FBS Ag Credit that Borrower now keeps and at all
times shall keep correct and accurate records relating to the Accounts and the
financial and payment records of the Account Debtors, all of which records shall
be available upon demand during Borrower's usual business hours to any of FBS Ag
Credit's officers, employees or agents. Any of FBS Ag Credit's officers,
employees or agents shall have the right at any time, in FBS Ag Credit's name,
in the name of a fictional nominee or in the name of Borrower, to verify the
validity, amount or any other matter relating to any Accounts, by mail,
telephone, telegraph or otherwise. Borrower shall promptly notify FBS Ag Credit
of any amounts due and owing from an Account Debtor in excess of $50,000 which
are in dispute for any reason.
5.9 NOTICE TO ACCOUNT DEBTORS. FBS Ag Credit may, in FBS Ag Credit's sole
-------------------------
discretion, at any time or times upon or after a Matured Default, and without
prior notice to Borrower, notify any or all Account Debtors that the Accounts
have been assigned to FBS Ag Credit and that FBS Ag Credit has been granted a
security interest therein. FBS Ag Credit may direct any or all Account Debtors
to make all payments upon the Accounts directly to FBS Ag Credit or to a lockbox
to be established pursuant to Section 5.6. FBS Ag Credit shall furnish Borrower
-----------
with a copy of such notice.
5.10 INVENTORY RECORDS. Borrower represents and warrants to and covenants
-----------------
with FBS Ag Credit that Borrower now keeps and at all times shall keep correct
and accurate records itemizing and describing the kind, type, quality and
quantity of Inventory, Borrower's costs and selling prices of Inventory and
daily withdrawals and additions of Inventory, all of which records shall be
available on demand during Borrower's usual business hours to any of FBS Ag
Credit's officers, employees or agents.
5.11 SPECIAL COLLATERAL. Immediately upon Borrower's receipt thereof and
------------------
upon request by FBS Ag Credit, Borrower shall (except as provided for in Section
-------
5.3 with regard to warehouse receipts) deliver or cause to be delivered to FBS
- ---
Ag Credit, with such endorsements and assignments as are necessary to vest title
and possession in FBS Ag Credit, all chattel paper, instruments and Documents
which Borrower now owns or which Borrower may at any time acquire. Borrower
shall promptly mark all copies of such chattel paper, instruments and Documents
to show that they are subject to FBS Ag Credit's security interest.
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<PAGE>
5.12 REMITTANCE OF PROCEEDS TO FBS AG CREDIT. Except as otherwise provided
---------------------------------------
in Section 5.6, in the event any proceeds of any Collateral shall come into the
-----------
possession of Borrower (or any of Borrower's shareholders, directors, officers,
employees, agents or any Persons acting for or in concert with Borrower),
Borrower or any such Person shall receive, as the sole and exclusive property of
FBS Ag Credit, and as trustee for FBS Ag Credit, all monies, checks, notes,
drafts and all other payments for and/or other proceeds of Collateral, and no
later than the first business day following receipt, Borrower shall remit the
same (or cause the same to be remitted), in kind, to FBS Ag Credit or to such
agent or agents (at such agent's or agents' designated address or addresses) as
are appointed by FBS Ag Credit for that purpose, to be applied to the
Liabilities pursuant to Section 10.14.
-------------
5.13 SAFEKEEPING OF COLLATERAL. Except as otherwise provided in Section
------------------------- -------
10.6, FBS Ag Credit shall not be responsible for: (a) the safekeeping of the
- ----
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency or any other Person relating to the Collateral. All
risk of loss, damage, destruction or diminution in value of the Collateral shall
be borne by Borrower.
5.14 SALES AND USE OF COLLATERAL. Except as set forth in this Section,
---------------------------
Borrower shall not sell, lease, transfer or otherwise dispose of any Collateral.
So long as there shall not have occurred a Matured Default, Inventory may be
sold by Borrower in the ordinary course of Borrower's business, but shall not
otherwise be taken or removed from Borrower's premises, except for raw materials
or work in process for the purpose of conversion into finished goods. Upon a
Matured Default, neither Inventory nor any other Collateral shall be sold or
taken or removed from Borrower's premises, except with the prior written consent
of FBS Ag Credit and upon payment of an amount equivalent to the value of the
Collateral to be sold or removed, such amounts to be paid to FBS Ag Credit to be
applied upon the Liabilities. So long as there shall not have occurred a
Matured Default, Collateral may be used by Borrower in the ordinary course of
Borrower's business, subject to FBS Ag Credit's continuing security interest.
Upon a Matured Default, Collateral shall not be used except with the prior
written consent of FBS Ag Credit.
5.15 MARGIN ACCOUNTS. Unless FBS Ag Credit shall otherwise consent in
---------------
writing, any Margin Accounts shall be kept with a Broker acceptable to FBS Ag
Credit ("Broker"). Borrower represents and warrants to FBS Ag Credit that after
the time any Margin Accounts are opened by Borrower: (a) Borrower is now the
owner, free and clear of all liens, security interests and encumbrances, except
for those in favor of FBS Ag Credit or Broker, of any and all Margin Accounts
which are listed in any financial statements or books and records of Borrower as
being the property of Borrower;and (b) except as otherwise permitted by this
Agreement, Borrower owns no open futures positions which are not either covered
by existing, unsold
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<PAGE>
Inventory or covered by reciprocal contracts for future delivery of the
product by reliable sellers, or directly related to Inventory which Borrower
plans to purchase in the ordinary course of Borrower's business. Concurrently
with the execution of this Agreement, Borrower, the Broker and FBS Ag Credit
have executed an Assignment of Hedging Account and Futures Contracts, in form
and substance acceptable to FBS Ag Credit. All of FBS Ag Credit's rights under
such Assignment of Hedging Account and Futures Contracts shall be in addition to
FBS Ag Credit's rights here-under, and shall also apply to any Margin Accounts
which are maintained, in violation of this Agreement, with any Person other than
the Broker. Borrower warrants that the Margin Accounts will be used solely for
the hedging of Borrower's investments in Inventory and not for speculative
purposes.
5.16 ADDITIONAL SECURITY. A Collateral Assignment of Borrowers'
-------------------
trademarks and tradenames, the form of which is attached as Exhibit 5C.
----------
Collateral Assignments of any long term sales contracts as the same may come
into existence from time to time.
6 WARRANTIES.
----------
Borrower represents and warrants that as of the date of the execution of
this Agreement:
6.1 LITIGATION AND PROCEEDINGS. Except as set forth on Part 1 of Exhibit
-------------------------- -------
6A, no judgments are outstanding against Borrower, nor is there now pending or
- --
threatened any litigation, contested claim, or governmental proceeding by or
against Borrower, except for judgments and pending or threatened litigation,
contested claims and governmental proceedings which are not, in the aggregate,
material to Borrower's financial condition, results of operations or business.
6.2 OTHER AGREEMENTS. Except as set forth on part 2 of Exhibit 6A,
---------------- ----------
Borrower is not in default under any contract, lease or commitment to which
Borrower is a party or by which Borrower is bound. Borrower knows of no
dispute, except as set forth on part 2 of Exhibit 6A or as previously disclosed
----------
to FBS Ag Credit in writing, relating to any contract, lease, or commitment
which is material to the financial success of Borrower.
6.3 LICENSES, PATENTS, COPYRIGHTS, TRADEMARKS AND TRADE NAMES. All of
---------------------------------------------------------
Borrower's licenses, patents, copyrights, trademarks and trade names and all of
Borrower's applications for any of the foregoing are set forth on part 3 of
Exhibit 6A. There is no action, proceeding, claim or complaint pending or
- ----------
threatened to be brought against Borrower by any Person which might jeopardize
any of Borrower's interest in any of the foregoing licenses, patents,
copyrights, trademarks, trade names or applications.
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<PAGE>
6.4 COLLATERAL. Except as contemplated by this Agreement and except as set
----------
forth on part 4 of Exhibit 6A, all of the Collateral is free and clear of all
----------
security interests, liens, claims and encumbrances. No goods held by Borrower on
consignment or under sale or return contracts have been represented to be
Inventory and no amounts receivable by Borrower in respect of the sale of such
goods (except markups or commissions which have been fully earned by Borrower)
have been represented to be Accounts. All Producer Payables which are owing to
suppliers of any of the Collateral have been paid when due and no Person to whom
such Producer Payables are owed has asserted any interest in the Collateral.
Borrower will furnish, at FBS Ag Credit's request, the names and addresses of
all Persons who supply Inventory to Borrower or who deliver goods to Borrower on
consignment or under sale or return contracts.
6.5 LOCATION OF ASSETS; CHIEF EXECUTIVE OFFICE. The chief executive
------------------------------------------
office of Borrower is located at 7490 Clubhouse Rd, #103, Boulder, Colorado
80301 and Borrower's assets (including without limitation, Inventory and
Equipment) are all located in the locations set forth on part 5 of Exhibit 6A.
----------
As of the execution of this Agreement, 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 FBS Ag Credit of such change.
6.6 TAX LIABILITIES. Borrower has filed all federal, state and local tax
---------------
reports and returns required by any law or regulation to be filed by Borrower
and has either duly paid all taxes, duties and charges indicated to be due on
the basis of such returns and reports or has made adequate provision for the
payment thereof, and the assessment of any material amount of additional taxes
in excess of those paid and reported is not reasonably expected. The reserves
for taxes reflected on Borrower's balance sheet are adequate in amount for the
payment of all liabilities for all taxes (whether or not disputed) of Borrower
accrued through the date of such balance sheet. There are no material
unresolved questions or claims concerning any tax liability of Borrower, except
as described on part 6 of Exhibit 6A.
----------
6.7 INDEBTEDNESS AND PRODUCER PAYABLES. Except: (a) for the loans from
----------------------------------
FBS Ag Credit contemplated by this Agreement; (b) as disclosed on part 7 of
Exhibit 6A; and (c) as disclosed on the financial statements identified in
- ----------
Section 6.14, Borrower has no other indebtedness, contingent obligations or
- ------------
liabilities, outstanding bonds, letters of credit or acceptances to any other
Person or loan commitments from any other Person. Borrower's Producer Payables,
other than those being contested in good faith by Borrower, are not past due.
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<PAGE>
6.8 OTHER NAMES. Borrower has not, during the preceding five (5) years,
been known by or used any names other than those disclosed on part 8 of
Exhibit 6A.
- ----------
6.9 AFFILIATES. Borrower has no Affiliates, other than those Persons
----------
disclosed on part 9 of Exhibit 6A, and the legal relationships of Borrower to
----------
each such Affiliate are accurately and completely described thereon.
6.10 ENVIRONMENTAL MATTERS. (a) Except as disclosed on part 10 of Exhibit
--------------------- -------
6A, Borrower has not received any notice to the effect, or has any knowledge,
- --
that the Property or its operations are not in compliance with any of the
requirements of applicable federal, state and local environmental, health and
safety statutes and regulations ("ENVIRONMENTAL LAWS") or are the subject of any
federal or state investigation evaluating whether any remedial action is needed
to respond to a release of any toxic or hazardous waste or substance into the
environment, which noncompliance or remedial action could have a material
adverse effect on the business, operations, Property, assets or conditions
(financial or otherwise) of Borrower; (b) there have been no releases of
hazardous materials at, on or under the Property that, singly or in the
aggregate, have, or may reasonably be expected to have, a material adverse
effect on the financial condition, operations, assets, business, Property or
prospects of Borrower; (c) there are no underground storage tanks, active or
abandoned, including without limitation petroleum storage tanks, on or under the
Property that, singly or in the aggregate, have, or may reasonably be expected
to have, a material adverse effect on the financial condition, operations,
assets, business or Property or prospects of Borrower; (d) Borrower has not
directly transported or directly arranged for the transportation of any
hazardous material to any location which is listed or proposed for listing on
the National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to material claims
against Borrower for any remedial work, damage to natural resources or personal
injury, including without limitation, claims under CERCLA; and (e) except as
disclosed on part 10 of Exhibit 6A, no conditions exist at, on or under the
----------
Property which, with the passage of time, or the giving of notice or both, would
rise to any material liability under any Environmental Laws. Notwithstanding
anything in this Section 6.10 to the contrary the warranties set forth in this
------------
Section 6.10, as to Horizon Idaho, are as to the best of its knowledge.
- ------------
6.11 EXISTENCE. Borrowers are corporations duly organized and in good
---------
standing under the laws of the State of Colorado and Delaware, respectively and
are duly qualified to do business and are in good standing in all states where
such qualification is necessary, except for those jurisdictions in which the
failure so to qualify would not, in the aggregate, have a material adverse
effect on Borrowers' financial condition, results of operations or business.
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<PAGE>
6.12 AUTHORITY. The execution and delivery by Borrower of this Agreement
---------
and all of the other Financing Agreements and the performance of Borrower's
obligations hereunder and thereunder: (a) are within Borrower's powers; (b) are
duly authorized by Borrower's board of directors or board of managers; (c) are
not in contravention of the terms of Borrower's articles or certificate of
incorporation or bylaws; (d) are not in contravention of any law or laws, or of
the terms of any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower or any of Borrower's property is bound; (e) do not
require any governmental consent, registration or approval; (f) do not
contravene any contractual or governmental restriction binding upon Borrower;
and (g) will not, except as contemplated or permitted by this Agreement, result
in the imposition of any lien, charge, security interest or encumbrance upon any
property of Borrower under any existing indenture, mortgage, deed of trust, loan
or credit agreement or other material agreement or instrument to which Borrower
is a party or by which Borrower or any of Borrower's property may be bound or
affected. Borrower shall deliver to FBS Ag Credit, upon FBS Ag Credit's request
therefor, a written opinion of counsel as to the matters described in the
foregoing clauses (a) through (g).
6.13 BINDING EFFECT. This Agreement and all of the other Financing
--------------
Agreements set forth the legal, valid and binding obligations of Borrower and
Lender and are enforceable against Borrower and Lender in accordance with their
respective terms.
6.14 CORRECTNESS OF FINANCIAL STATEMENTS. The financial statements
-----------------------------------
previously delivered by Borrower to FBS Ag Credit present fairly the financial
condition of Borrower, and have been prepared in accordance with generally
accepted accounting principles consistently applied. As of the date of such
financial statements, and since such date, there has been no materially adverse
change in the condition or operation of Borrower, nor has Borrower mortgaged,
pledged or granted a security interest in or encumbered any of Borrower's assets
or properties since such date.
6.15 EMPLOYEE CONTROVERSIES. There are no controversies pending or
----------------------
threatened between Borrower or any of Borrower's employees, other than employee
grievances arising in the ordinary course of Borrower's business which are not,
in the aggregate, material to the financial success of Borrower.
6.16 COMPLIANCE WITH LAWS AND REGULATIONS. Borrower is in compliance
------------------------------------
with all laws, orders, regulations and ordinances of all federal, foreign, state
and local governmental authorities relating to the business operations and the
assets of Borrower, except for laws, orders, regulations and ordinances, the
violation of which would not have an adverse effect on the value of the
Collateral or FBS Ag Credit's interest in any of the Collateral and, in the
aggregate, would not have a
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<PAGE>
material adverse effect on Borrower's financial condition, results of
operations or business. Borrowers are duly licensed as USDA approved dairies
and agrees to furnish copies to FBS Ag Credit of any audits or inspections
conducted by any person relating to such license.
6.17 ACCOUNT WARRANTIES. Borrower warrants and represents to FBS Ag
------------------
Credit that: (a) except as disclosed to FBS Ag Credit from time to time in
writing, all Accounts which are at any time included in the Borrowing Base or
which are reflected on Borrower's financial statements delivered to FBS Ag
Credit pursuant to Section 7.1 are genuine, in all respects what they purport to
-----------
be, have not been reduced to any judgment, are evidenced by not more than one
executed original instrument, agreement, contract or document (which, if any,
has been delivered to FBS Ag Credit), and represent undisputed, bona fide
transactions completed in accordance with the terms and conditions of any
related document; (b) the Accounts have not been sold or pledged to any Person
other than FBS Ag Credit; and (c) except as disclosed to FBS Ag Credit from time
to time in writing, Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectibility of any of the Accounts.
6.18 INVENTORY WARRANTIES. Borrower warrants and represents to FBS Ag
--------------------
Credit that: (a) except for goods covered by Documents which have been
delivered to FBS Ag Credit, and except as promptly disclosed to FBS Ag Credit
from time to time in writing, all Inventory is located on the premises described
in Section 6.5 or is in transit; and (b) except as promptly disclosed to FBS Ag
-----------
Credit from time to time in writing, all Inventory shall be of good and
merchantable quality, free from any defects which might affect the market value
of such Inventory.
6.19 SOLVENCY. Borrower is solvent, able to pay Borrower's debts
--------
generally as such debts mature, and has capital sufficient to carry on
Borrower's business and all businesses in which Borrower is about to engage.
The saleable value of Borrower's total assets at a fair valuation, and at a
present fair saleable value, is greater than the amount of Borrower's total
obligations to all Persons. Borrower will not be rendered insolvent by the
execution or delivery of this Agreement or of any of the other Financing
Agreements or by the transactions contemplated hereunder or thereunder.
6.20 PENSION REFORM ACT. No events, including without limitation, any
------------------
"reportable event" or "prohibited transactions," as those terms are defined in
the Employee Retirement Income Security Act of 1974 as the same may be amended
from time to time ("ERISA"), have occurred in connection with any defined
benefit pension plan ("PENSION PLAN") of Borrower which might constitute grounds
for the termination of any such Pension Plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to
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administer any such Pension Plan. All of Borrower's Pension Plans meet, as
of the date of this Agreement, the minimum funding standards of Section 302 of
ERISA.
6.21 MARGIN SECURITY. Borrower does not own any margin security and none
---------------
of the loans advanced hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulations U or G of the Board of
Governors of the Federal Reserve System.
6.22 SURVIVAL OF WARRANTIES. All representations and warranties contained
----------------------
in this Agreement or any of the other Financing Agreements shall survive the
execution and delivery of this Agreement and shall be true from the date of this
Agreement until the Liabilities shall be paid in full and FBS Ag Credit shall
cease to be committed to make loans under this Agreement.
6.23 EQUIPMENT IDENTIFICATION. Descriptions, including without
------------------------
limitation, serial identification numbers, of all Equipment of Borrower, are
contained on Exhibit 6B.
----------
7 AFFIRMATIVE COVENANTS.
---------------------
Borrower covenants and agrees that so long as any Liabilities remain
outstanding, and (even if there shall be no Liabilities outstanding) so long as
FBS Ag Credit remains committed to make loans under this Agreement:
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 FBS Ag Credit, from time to time and
in a form acceptable to FBS Ag Credit, such information as FBS Ag Credit 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 1997 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 FBS Ag Credit and certified to Borrower by such
independent public accountants as are
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<PAGE>
selected by Borrower and satisfactory to FBS Ag Credit, whose opinion shall be
in scope and substance satisfactory to FBS Ag Credit;
(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:
(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 each case, 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, (ii) copies of
all operating statements for such month prepared by Borrower for its internal
use, including without limitation, statements of cash flow, purchases and sales
of Inventory and other goods, and (iii) a compliance certificate of the chief
financial officer of Borrower in the form attached as Exhibit 7A;
----------
(c) as soon as practicable and in any event within fifteen (15) days
after the end of each monthly accounting period in each fiscal year of Borrower:
(i) Borrowing Base Certificate for Borrower computed as of the last day of such
month, signed by the chief financial officer of Borrower; (ii) an aged trial
balance of all Accounts indicating which Accounts are thirty (30), sixty (60)
and ninety (90) days past the original invoice date of the original invoice
related thereto and listing the names of all Account Debtors, (iii) a listing of
Borrower's accounts payable indicating which accounts payable are more than
thirty (30) days past due;
(d) as soon as practicable and in any event within ninety (90) days of
each fiscal year of Borrower month by month budget for the then current fiscal
year.
7.2 CONDUCT OF BUSINESS. Except as contemplated by this Agreement,
-------------------
Borrower shall: (a) maintain Borrower's existence and maintain in full force
and effect all licenses, bonds, franchises, leases, patents, contracts and other
rights necessary or desirable to the profitable conduct of Borrower's business;
(b) continue in, and limit Borrower's operations to, the same general line of
business as that presently conducted by Borrower; (c) comply with all applicable
laws and regulations of any federal, state or local governmental authority,
except for such laws and regulations the violation of which would not, in the
aggregate, have a material adverse effect on Borrower's financial condition,
results of operations or business; and (d) keep and conduct Borrower's business
separate and apart from the business of Borrower's Affiliates.
7.3 MAINTENANCE OF PROPERTIES. Borrower shall keep Borrower's real
-------------------------
estate, leaseholds, equipment and other fixed assets in good condition, repair
and working
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<PAGE>
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 FBS Ag Credit, 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 the standards and practices adhered to
generally by others in the same businesses as Borrower. Borrower shall reinvest
a minimum of $2,750,000 into the dairy livestock Collateral during the fiscal
year-ending December 31, 1997. In the event Borrower does not purchase the
Maryland Dairy then Borrower shall reinvest a minimum of $2,000,000 into the
dairy livestock Collateral during the fiscal year-ending December 31, 1997.
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.
7.4 BORROWER'S LIABILITY INSURANCE. Borrower shall maintain, at
------------------------------
Borrower's expense, such public liability and property damage insurance as is
ordinarily maintained by other companies in similar businesses, provided,
--------
however, that in no event shall such public liability insurance provide for
- -------
coverage less than $1,000,000 per occurrence for personal injury and $1,000,000
per occurrence for property damage. Borrower's public liability insurance may
provide for a deductible of not more than $50,000 per occurrence. All such
policies of insurance shall be in form and with insurers reasonably acceptable
to FBS Ag Credit and copies thereof, together with all amendments and schedules,
shall be provided to FBS Ag Credit within ten (10) days of Borrower's receipt of
the same.
7.5 BORROWER'S PROPERTY INSURANCE. Borrower shall bear the full risk of
-----------------------------
loss from any cause of any nature whatsoever in respect to the Collateral. At
Borrower's own cost and expense, Borrower shall keep all Collateral fully
insured, with carriers, and in amounts acceptable to FBS Ag Credit, against the
hazards of fire, theft, collision, spoilage, hail, those covered by extended or
all risk coverage insurance and such others as may be required by FBS Ag Credit.
Borrower shall cause to be delivered to FBS Ag Credit the insurance policies
therefor or proper certificates evidencing the same. Such policies shall
provide, in manner satisfactory to FBS Ag Credit, that any losses under such
policies shall be payable first to FBS Ag Credit, as FBS Ag Credit's interest
may appear. Each such policy shall include a provision for thirty (30) days'
prior written notice to FBS Ag Credit of any cancellation or expiration and show
FBS Ag Credit as mortgagee and loss payee as provided in a form of loss payable
endorsement in form and substance satisfactory to FBS Ag Credit. In the event of
any loss covered by any such policy, the carrier named in such policy is
directed by Borrower to make payment for such loss to FBS Ag Credit and not to
Borrower, or to Borrower and FBS Ag Credit jointly. Borrower makes,
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<PAGE>
constitutes and appoints FBS Ag Credit (and all Persons designated by FBS Ag
Credit) as Borrower's true and lawful agent and attorney-in-fact, with power to
make, settle or adjust claims under such policies of insurance (provided,
--------
however, that so long as there shall not have occurred a Matured Default, FBS Ag
- -------
Credit shall consult with Borrower prior to finally making, settling or
adjusting claims under such policies of insurance and will not settle such
claims without Borrower's consent, which consent will not be unreasonably
withheld). The foregoing power of attorney is coupled with an interest and is
therefore irrevocable. If payment as a result of any insurance losses shall be
paid by check, draft or other instrument payable to Borrower, or to Borrower and
FBS Ag Credit jointly, FBS Ag Credit may endorse the name of Borrower on such
check, draft or other instrument, and may do such other things as FBS Ag Credit
may deem advisable to reduce the same to cash. All loss recoveries received by
FBS Ag Credit on account of any such insurance may be applied and credited by
FBS Ag Credit to the Liabilities. Any surplus of insurance proceeds in excess
of the Liabilities shall be paid by FBS Ag Credit to Borrower. Any deficiency
reasonably determined by FBS Ag Credit to exist after application of insurance
proceeds to the Liabilities shall be paid by Borrower to FBS Ag Credit, on
demand. If Borrower fails to procure insurance as provided in this Agreement,
or to keep the same in force, or fails to perform any of Borrower's other
obligations hereunder, then FBS Ag Credit may, at FBS Ag Credit's option, and
without obligation to do so, obtain such insurance and pay the premium thereon
for the account of Borrower, or make whatever other payments FBS Ag Credit may
deem appropriate to protect FBS Ag Credit's security for the Liabilities. Any
such payments shall be additional Liabilities of Borrower to FBS Ag Credit,
payable on demand and secured by the Collateral.
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 $5,000,000 plus 60% of
the cumulative annual positive net income beginning with the fiscal year end and
consolidated financial results of December 31, 1997; (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 3.0 to 1; (d) minimum Working Capital of $4,500,000 if
the Borrower does not purchase the Maryland Dairy; (e) minimum Working Capital
of $6,500,000 if the Borrower does purchase the Maryland Dairy.
7.7 PENSION PLANS. Borrower shall: (a) keep in full force and effect any
-------------
and all Pension Plans which are presently in existence or may, from time to
time, come into existence under ERISA, unless such Pension Plans can be
terminated without material liability to Borrower in connection with such
termination (as distinguished from any continuing funding obligation); (b) make
contributions to all of Borrower's Pension Plans in a timely manner and in an
amount sufficient to comply with the requirements of ERISA; (c) comply with all
requirements of ERISA which relate to such Pension Plans; (d) notify FBS Ag
Credit immediately upon
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<PAGE>
receipt by Borrower of any notice of the institution of any proceeding or other
action which may result in the termination of any Pension Plans; and (e) acquire
and maintain, when available, the contingent employer liability coverage
insurance provided for under Section 4023 of ERISA, such insurance to be
satisfactory to FBS Ag Credit in coverage and amount.
7.8 NOTICE OF SUIT, ADVERSE CHANGE IN BUSINESS OR DEFAULT. Borrower
-----------------------------------------------------
shall, as soon as possible, and in any event within ten (10) days after Borrower
learns of the following, give written notice to FBS Ag Credit of: (a) any
proceeding being instituted or threatened to be instituted by or against
Borrower in any federal, state, local or foreign court or before any commission
or other regulatory body (federal, state, local or foreign) for which claimed
damages exceed $50,000; (b) any material adverse change in the business, assets
or condition, financial or otherwise, of Borrower; and (c) the occurrence of any
Default.
7.9 USE OF PROCEEDS. Borrower shall use Advances only for the purposes
---------------
stated in Section 2.4 and for no other purpose.
-----------
8 NEGATIVE COVENANTS.
------------------
Borrower covenants and agrees that so long as any Liabilities remain
outstanding, and (even if there shall be no Liabilities outstanding) so long as
FBS Ag Credit remains committed to make loans under this Agreement (unless FBS
Ag Credit shall give FBS Ag Credit's prior written consent):
8.1 ENCUMBRANCES. Except for those liens, security interests and
------------
encumbrances presently in existence and reflected in Borrower's financial
statements referred to in Section 6.14 and permitted under Section 6.4, Borrower
------------
shall not create, incur, assume or suffer to exist any security interest,
mortgage, pledge, lien, levy, assessment, attachment, seizure, writ, distress
warrant, or other encumbrance of any nature whatsoever on or with regard to any
Collateral other than: (a) liens securing the payment of taxes, either not yet
due or the validity of which is being contested in good faith by appropriate
proceedings, and as to which Borrower shall, if appropriate under generally
accepted accounting principles, have set aside on Borrower's books and records
adequate reserves; (b) liens securing deposits under workmen's compensation,
unemployment insurance, social security and other similar laws, or securing the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, or securing indemnity, performance or other similar
bonds for the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, or securing statutory obligations or
surety or appeal bonds, or securing indemnity, performance or other similar
bonds in the ordinary course of Borrower's business; (c) liens and security
interests in favor of FBS Ag Credit; (d) liens securing the interests of Broker
in any
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<PAGE>
Margin Account; (e) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of Borrower's real property, and other
liens, security interests and encumbrances on property which are subordinate to
the liens and security interests of FBS Ag Credit and which do not, in FBS Ag
Credit's sole determination: (i) materially impair the use of such property, or
(ii) materially lessen the value of such property for the purposes for which the
same is held by Borrower; and (f) purchase money security interests securing
amounts relating to such items of Equipment as are specifically consented to by
FBS Ag Credit.
8.2 CONSOLIDATIONS, MERGERS OR ACQUISITIONS. Borrower shall not
---------------------------------------
recapitalize or consolidate with, merge with, or otherwise acquire all or
substantially all of the assets or properties of any other Person.
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 FBS Ag
Credit in writing on or prior to such date) in or to Affiliates or any other
Person, except: (a) investments in short term direct obligations of the United
States Government; (b) investments in negotiable certificates of deposit issued
by a bank satisfactory to FBS Ag Credit in FBS Ag Credit's reasonable
determination, made payable to the order of Borrower or to bearer; (c) loans to
officers, directors, employees, or Affiliates as and when permitted by Section
-------
8.9; (d) demand deposits not to exceed $100,000 in the aggregate. Borrower
- ---
shall not invest more than $1,500,000 per year in growing crops.
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 $250,000 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; (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, or Borrower's general
-----------
operating account if no account for the receipt of proceeds is referred to in
Section 5.6; and (d) indebtedness not to exceed $2,000,000 to finance the
purchase of
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<PAGE>
the Maryland Dairy (provided that the Maryland Dairy purchase does not cause any
other covenant violations).
8.5 GUARANTEES AND OTHER CONTINGENT OBLIGATIONS. Borrower shall not
-------------------------------------------
guarantee, endorse or otherwise in any way become or be responsible for
obligations of any other Person, whether by agreement to purchase the
indebtedness of such Person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or loan
for the purpose of paying or discharging any indebtedness or obligation of such
Person or otherwise, except: (a) for endorsements of negotiable instruments for
collection in the ordinary course of business; and (b) that Borrower may
indemnify Borrower's officers, directors, and employees to the extent permitted
under the laws of the State in which Borrower is organized and may indemnify (in
the customary manner) underwriters and any selling shareholders in connection
with any public offering of Borrower's securities.
8.6 DISPOSITION OF PROPERTY. Except as set forth on Exhibit 8A and as
----------------------- ----------
permitted by Section 5.14, Borrower shall not sell, lease, transfer or otherwise
------------
dispose of any of Borrower's properties, assets or rights.
8.7 CAPITAL INVESTMENT LIMITATIONS. Borrower shall not purchase, invest
------------------------------
in or otherwise acquire real estate, equipment or other fixed assets a) in
fiscal year ending 1997 in an amount in excess of $4,000,000 limited to not more
than $3,500,000 for Maryland dairy acquisition and improvements, not more than
$800,000 for other equipment purchases or leases, and if a new Maryland dairy is
not acquired, combined capital expenditures and leases would not be allowed to
exceed $500,000; b) in any fiscal year thereafter, in an amount in excess of the
lesser of $500,000 or an amount that would result in Borrower's Fixed Charge
Coverage Ratio being less than 1.0 to 1 in such fiscal year. 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).
8.8 COMPENSATION OF OFFICERS AND DIRECTORS 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 an amount in excess of $1,000,000 in the aggregate in any of
Borrower's fiscal years.
8.9 LOANS TO AFFILIATES. Except for advances for travel and expenses to
-------------------
Borrower's officers, directors or employees in the ordinary course of Borrower's
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business, Borrower shall not make any loans to any Affiliates or shareholders of
Borrower.
8.10 DISTRIBUTIONS IN RESPECT OF EQUITY, PREPAYMENT OF DEBT. Borrower
------------------------------------------------------
shall not directly or indirectly: (a) redeem any of Borrower's shares of
capital stock; (b) declare any dividends in any year on any class of Borrower's
capital stock; or (c) prepay any principal, interest or other payments on or in
connection with any indebtedness of Borrower other than the Liabilities.
8.11 PREPAYMENT OF DEBT. Borrower shall not directly or indirectly prepay
------------------
any principal, interest or other payments on or in connection with any
indebtedness of Borrower other than the Liabilities.
8.12 ISSUANCE OF STOCK. Borrower shall not issue or distribute any of
-----------------
Borrower's capital stock or other classes of stock for consideration or
otherwise, that, on a cumulative basis, will result in any additional Person
becoming an Affiliate.
8.13 AMENDMENT OF ORGANIZATIONAL DOCUMENTS. Borrower shall not amend
-------------------------------------
Borrower's articles or certificate of incorporation, bylaws or any other
agreement, instrument or document affecting Borrower's organization, management
or governance.
8.14 LEASE LIMITATIONS. Borrower's payment obligations under all
-----------------
operating leases and similar agreements shall not exceed $200,000 in the
aggregate for any fiscal year of Borrower, without prior approval by FBS Ag
Credit.
8.15 USE OF NAMES. Borrower shall not use any names other than those
------------
referred to in Section 6.8, nor shall Borrower change any of said names.
9 DEFAULT AND RIGHTS AND REMEDIES.
-------------------------------
9.1 LIABILITIES. Upon a Matured Default, any or all of the Liabilities
-----------
may, at the option of FBS Ag Credit, and without demand or notice of any kind,
be declared, and thereupon shall become, immediately due and payable, and FBS Ag
Credit shall cease to be committed to make Advances under this Agreement.
Without detracting from the previous sentence, without detracting from any other
rights powers or remedies of FBS Ag Credit under this Agreement and without
creating any defense or excuse with regard to the obligations of Borrower
hereunder, FBS Ag Credit agrees that it will use its best efforts to notify
Borrower of the occurrence or existence of a Matured Default.
9.2 RIGHTS AND REMEDIES GENERALLY. Upon a Matured Default, FBS Ag Credit
-----------------------------
shall have, in addition to any other rights and remedies contained in this
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<PAGE>
Agreement or in any of the other Financing Agreements, all of the rights
and remedies of a secured party under the Code or other applicable laws, all of
which rights and remedies shall be cumulative and nonexclusive, to the extent
permitted bylaw. In addition to all such rights and remedies, the sale, lease
or other disposition of all or any part of the Collateral by FBS Ag Credit after
a Matured Default, may be for cash, credit or both, and FBS Ag Credit may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale, and in lieu of actual payment of such purchase price, may setoff
the amount of such purchase price against the Liabilities then owing. Any sales
of the Collateral may involve the sale of portions of the Collateral at
different times, and at different locations, and may, at FBS Ag Credit's option,
be held at a site or sites different from the site at which all or any part of
the Collateral is located. Any such sales, at FBS Ag Credit's option, may be in
conjunction with or separate from the foreclosure of any mortgage on any
Collateral consisting of real property, and may be adjourned from time to time
with or without notice. FBS Ag Credit may, in its sole discretion, cause the
Collateral to remain on Borrower's premises, at Borrower's expense, pending sale
or other disposition of the Collateral. FBS Ag Credit shall have the right to
conduct such sales on Borrower's premises, at Borrower's expense, or elsewhere,
on such occasion or occasions as FBS Ag Credit may see fit.
9.3 ENTRY UPON PREMISES. Upon a Matured Default, FBS Ag Credit shall have
-------------------
the right to enter upon the premises of Borrower at which any of the Collateral
is located (or is believed to be located) without incurring any obligation to
pay rent to Borrower, or any other place or places where the Collateral is
located (or is believed to be located) and kept, and remove the Collateral
therefrom to the premises of FBS Ag Credit or any agent of FBS Ag Credit, for
such time as FBS Ag Credit may desire, in order to effectively collect or
liquidate the Collateral, or FBS Ag Credit may require Borrower to assemble the
Collateral and make it available to FBS Ag Credit at a place or places to be
designated by FBS Ag Credit which is reasonably convenient to both parties.
Borrower expressly agrees that FBS Ag Credit may, if necessary to gain occupancy
to the premises at which Collateral is located (or is believed to be located),
without further notice to Borrower: (a) hire Borrower's employees to assist in
the loading and transportation of such Collateral; (b) utilize Borrower's
equipment for use in such operation; (c) cut or otherwise temporarily move or
remove any barbed wire or other fencing or similar boundary-maintenance devices;
and (d) pick or otherwise render inoperative any locks on any property not
customarily inhabited by people. Borrower agrees that any such actions
authorized by this Section shall be deemed to have been authorized and not a
breach of the peace if FBS Ag Credit takes reasonable efforts to safeguard all
of Borrower's property.
9.4 SALE OR OTHER DISPOSITION OF COLLATERAL BY FBS AG CREDIT. Any notice
--------------------------------------------------------
required to be given by FBS Ag Credit of a sale, lease or other disposition or
other
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<PAGE>
intended action by FBS Ag Credit with respect to any of the Collateral which is
deposited in the United States mail, postage prepaid and duly addressed to
Borrower at the address specified in Section 10.19, at least ten (10)
-------------
business days prior to such proposed action, shall constitute fair and
commercially reasonable notice to Borrower of any such action. The net proceeds
realized by FBS Ag Credit upon any such sale or other disposition, after
deduction for the expense of retaking, holding, preparing for sale, selling or
the like, and the reasonable legal fees and expenses and other proper fees and
expenses incurred by FBS Ag Credit in connection therewith, shall be applied
toward satisfaction of the Liabilities. FBS Ag Credit shall account Borrower
for any surplus realized upon such sale or other disposition, and Borrower shall
remain liable for any deficiency. The commencement of any action, legal or
equitable, or the rendering of any judgment or decree for any deficiency, shall
not affect FBS Ag Credit's security interest in the Collateral until the
Liabilities shall have been paid in full.
9.5 WAIVER OF DEMAND. Demand, presentment, protest and notice of
----------------
nonpayment are waived by Borrower. Borrower also waives the benefit of all
valuation, appraisal and exemption laws.
9.6 WAIVER OF NOTICE. Upon a Matured Default, Borrower waives, to the
----------------
fullest extent permitted by applicable law, all rights to notice and hearing of
any kind prior to the exercise by FBS Ag Credit of FBS Ag Credit's rights to
repossess the Collateral without judicial process or to replevy, attach or levy
upon the Collateral.
10 MISCELLANEOUS.
-------------
10.1 TIMING OF PAYMENTS. For purposes of determining the outstanding
------------------
balance of the Liabilities, including without limitation, the computations of
interest which may from time to time be owing to FBS Ag Credit, the receipt by
FBS Ag Credit of any check or any other item of payment whether through a
blocked account or lockbox described in Section 5.6 or otherwise, shall not be
-----------
treated as a payment on account of the Liabilities until such check or other
item of payment is actually received by FBS Ag Credit at its office in Denver,
Colorado and is paid to FBS Ag Credit in cash or a cash equivalent.
10.2 ATTORNEYS' FEES AND COSTS. If at any time FBS Ag Credit employs
-------------------------
counsel in connection with protecting or perfecting FBS Ag Credit's security
interest in the Collateral or in connection with any matters contemplated by or
arising out of this Agreement, whether: (a) to commence, defend, or intervene in
any litigation or to file a petition, complaint, answer, motion or other
pleading; (b) to take any other action in or with respect to any suit or
proceeding (bankruptcy or otherwise); (c) to consult with officers of FBS Ag
Credit to advise FBS Ag Credit or to draft documents for FBS Ag Credit in
connection with any of the foregoing or in connection with any
-34-
<PAGE>
release of FBS Ag Credit's claims or security interests or any proposed
extension, amendment or refinancing of the Liabilities; (d) to protect, collect,
lease, sell, take possession of, or liquidate any of the Collateral; or (e) to
attempt to enforce or to enforce any security interest in any of the Collateral,
or to enforce any rights of FBS Ag Credit to collect any of the Liabilities;
then in any of such events, all of the reasonable attorneys' fees arising from
such services, and any related expenses, costs and charges, including without
limitation, all fees of all paralegals, legal assistants and other staff
employed by such attorneys whether outside FBS Ag Credit or in FBS Ag Credit's
legal department, together with interest at the Default Rate provided for in
Section 2.2 if a Matured Default has occurred, or at the highest interest rate
- -----------
set forth in any promissory note referred to herein, shall constitute additional
Liabilities, payable on demand and secured by the Collateral.
10.3 EXPENDITURES BY FBS AG CREDIT. In the event that Borrower shall fail
-----------------------------
to pay taxes, insurance, assessments, costs or expenses which Borrower is, under
any of the terms hereof or of any of the other Financing Agreements, required to
pay, or fails to keep the Collateral free from other security interests, liens
or encumbrances, except as permitted herein, FBS Ag Credit may, in FBS Ag
Credit's sole discretion and without obligation to do so, make expenditures for
any or all of such purposes, and the amount so expended, together with interest
at the Default Rate provided for in Section 2.2, shall constitute additional
-----------
Liabilities, payable on demand and secured by the Collateral.
10.4 FBS AG CREDIT'S COSTS AND EXPENSES AS ADDITIONAL LIABILITIES.
------------------------------------------------------------
Borrower shall reimburse FBS Ag Credit for all expenses and fees paid or
incurred in connection with the documentation, negotiation and closing of the
loans and other financial accommodations described in this Agreement (including
without limitation, filing and recording fees, and the fees and expenses of FBS
Ag Credit's attorneys, paralegals, and legal assistants, whether outside FBS Ag
Credit or in FBS Ag Credit's legal department, and whether such expenses and
fees are incurred prior to or after the closing date). Borrower further agrees
to reimburse FBS Ag Credit for all expenses and fees paid or incurred in
connection with the documentation of any renewal or extension of the loans, any
additional financial accommodations, or any other amendments to this Agreement.
All costs and expenses incurred by FBS Ag Credit with respect to such
negotiation and documentation together with interest at the highest interest
rate set forth in any promissory note referred to herein, shall constitute
additional Liabilities, payable on demand and secured by the Collateral.
10.5 CLAIMS AND TAXES. Borrower agrees to indemnify and hold FBS Ag
----------------
Credit harmless from and against any and all claims, demands, liabilities,
losses, damages, penalties, costs, and expenses (including without limitation,
reasonable attorneys' fees) relating to or in any way arising out of the
possession, use, operation or control of any of Borrower's assets. Borrower
shall pay or cause to be paid all
-35-
<PAGE>
license fees, bonding premiums and related taxes and charges, and shall pay
or cause to be paid all of Borrower's real and personal property taxes,
assessments and charges and all of Borrower's franchise, income, unemployment,
use, excise, old age benefit, withholding, sales and other taxes and other
governmental charges assessed against Borrower, or payable by Borrower, at such
times and in such manner as to prevent any penalty from accruing or any lien or
charge from attaching to Borrower's property, provided, however, that Borrower
-------- -------
shall have the right to contest in good faith, by an appropriate proceeding
promptly initiated and diligently conducted, the validity, amount or imposition
of any such tax, and upon such good faith contest to delay or refuse payment
thereof, if: (a) Borrower establishes adequate reserves to cover such contested
taxes; and (b) such contest does not have a material adverse effect on the
financial condition of Borrower, the ability of Borrower to pay any of the
Liabilities, or the priority or value of FBS Ag Credit's security interests in
the Collateral.
10.6 CUSTODY AND PRESERVATION OF COLLATERAL. FBS Ag Credit shall be
--------------------------------------
deemed to have exercised reasonable care in the custody and preservation of any
of the Collateral in FBS Ag Credit's possession if FBS Ag Credit takes such
action for that purpose as Borrower shall request in writing, but failure by FBS
Ag Credit to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure by FBS Ag Credit to preserve
or protect any right with respect to such Collateral against prior parties, or
to do any act with respect to the preservation of such Collateral not so
requested by Borrower, shall of itself be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
10.7 INSPECTION. FBS Ag Credit (by and through its officers and
----------
employees), or any Person designated by FBS Ag Credit 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 FBS Ag
Credit 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. Borrower
agrees to pay to FBS Ag Credit an annual fee of Thirty Five Thousand Dollars
($35,000) on the date of this Agreement, and on each Anniversary Date as long as
Line of Credit Advances are outstanding hereunder, for all expenses incurred by
or on behalf of FBS Ag Credit in making inspections under this Section,
including without limitation, travel and photocopying expenses, which fee shall
be fully earned on the date it becomes payable and which fee shall be paid by an
FBS Ag Credit initiated Advance pursuant to Section 2.1, without prior
-----------
-36-
<PAGE>
demand by FBS Ag Credit. FBS Ag Credit acknowledges receipt of $12,500 prior to
the date hereof leaving a balance leaving a balance of $12,500 to be paid as of
the date hereof.
10.8 EXAMINATION OF BANKING RECORDS. Borrower consents to the examination
------------------------------
by FBS Ag Credit, FBS Ag Credit's officers, employees and agents, or any of
them, whether or not there shall have occurred a Default or a Matured Default,
of any and all of Borrower's not privileged banking records, wherever they may
be found, and directs any Person which may be in control or possession of such
records (including without limitation, any bank, other financial institution,
accountant or lawyer) to provide such records to FBS Ag Credit and FBS Ag
Credit's officers, employees and agents, upon their request. Such examination
may be conducted by FBS Ag Credit with or without notice to Borrower at the
option of FBS Ag Credit, any such notice being waived by Borrower.
10.9 GOVERNMENTAL REPORTS. Borrower authorizes all duly constituted
--------------------
federal, state and municipal authorities to furnish to FBS Ag Credit copies of
their reports of examinations or inspections of Borrower.
10.10 RELIANCE BY FBS AG CREDIT. All covenants, agreements,
-------------------------
representations and warranties made by Borrower shall, notwithstanding any
investigation by FBS Ag Credit, be deemed to be material to and to have been
relied upon by FBS Ag Credit.
10.11 PARTIES. Whenever in this Agreement there is reference made to any
-------
of the parties, such reference shall be deemed to include, wherever applicable,
a reference to the respective successors and assigns of Borrower and FBS Ag
Credit.
10.12 APPLICABLE LAW; SEVERABILITY. This Agreement shall be construed in
----------------------------
all respects in accordance with, and governed by, the laws and decisions of the
State of Colorado. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Agreement.
10.13 SUBMISSION TO JURISDICTION; WAIVER OF BOND AND TRIAL BY JURY.
------------------------------------------------------------
BORROWER CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT
LOCATED WITHIN THE CITY AND COUNTY OF DENVER, COLORADO AND WAIVES ANY OBJECTION
WHICH BORROWER MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE
--------------------
CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES
-37-
<PAGE>
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON BORROWER, AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO BORROWER AT THE
ADDRESS SET FORTH IN SECTION 10.19. SERVICE SO MADE SHALL BE DEEMED TO BE
-------------
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO BORROWER'S ADDRESS BY BORROWER'S AGENT AS SET FORTH
BELOW. BORROWER IRREVOCABLY APPOINTS MICHAEL D. KILLIN OR SUCH OTHER ATTORNEY AT
THE LAW FIRM OF DORSEY & WHITNEY LLP AS SHE MAY DESIGNATE AS BORROWER'S AGENT
FOR THE PURPOSE OF ACCEPTING THE SERVICE OF ANY PROCESS WITHIN THE STATE OF
COLORADO, AND SUCH AGENT AGREES TO FORWARD PROMPTLY BY MAIL DIRECTED TO BORROWER
AT THE ADDRESS SET FORTH IN SECTION 10.19, ANY PROCESS SERVED UPON SUCH AGENT.
-------------
AT THE OPTION OF FBS AG CREDIT, BORROWER WAIVES, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY, AND WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF FBS AG CREDIT.
10.14 APPLICATION OF PAYMENTS WAIVER. Notwithstanding any contrary
------------------------------
provision contained in this Agreement or in any of the other Financing
Agreements, Borrower irrevocably waives the right to direct the application of
any and all payments at any time received by FBS Ag Credit from Borrower or with
respect to any of the Collateral, and Borrower irrevocably agrees that FBS Ag
Credit shall have the continuing exclusive right to apply and reapply any and
all payments received at any time, whether with respect to the Collateral or
otherwise, against the Liabilities, in such manner as FBS Ag Credit may deem
advisable, notwithstanding any entry by FBS Ag Credit upon any of FBS Ag
Credit's books and records.
10.15 MARSHALLING; PAYMENTS SET ASIDE. FBS Ag Credit shall be under no
-------------------------------
obligation to marshal any assets in favor of Borrower or against or in payment
of any or all of the Liabilities. To the extent that Borrower makes a payment
or payments to FBS Ag Credit or FBS Ag Credit receives any payment or proceeds
of the Collateral for Borrower's benefit or enforces FBS Ag Credit's security
interests or exercises FBS Ag Credit's rights of setoff, and such payment or
payments or the proceeds of such Collateral, enforcement or setoff or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such enforcement or setoff had not
occurred.
-38-
<PAGE>
10.16 SECTION TITLES. The section titles contained in this Agreement
--------------
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties .
10.17 CONTINUING EFFECT. This Agreement, FBS Ag Credit's security
-----------------
interests in the Collateral, and all of the other Financing Agreements shall
continue in full force and effect so long as any Liabilities shall be owed to
FBS Ag Credit and (even if there shall be no Liabilities outstanding) so long as
FBS Ag Credit remains committed to make Advances under this Agreement.
10.18 NO WAIVER. FBS Ag Credit's failure at any time to require strict
---------
performance by Borrower of any provision of this Agreement shall not waive,
affect or diminish any right of FBS Ag Credit thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by FBS Ag Credit
of any Default or Matured Default under this Agreement or any of the other
Financing Agreements, shall not suspend, waive or affect any other Default or
Matured Default under this Agreement or any of the other Financing Agreements,
whether the same is prior or subsequent and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any of
the other Financing Agreements and no Default or Matured Default under this
Agreement or any of the other Financing Agreements, shall be deemed to have been
suspended or waived by FBS Ag Credit unless such suspension or waiver is in
writing signed by an officer of FBS Ag Credit, and directed to Borrower
specifying such suspension or waiver.
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:
(a) If to FBS Ag Credit at:
FBS Ag Credit, Inc.
950 Seventeenth Street, Suite 350
Denver, Colorado 80202
Attn: James A. Bosco
-39-
<PAGE>
with a copy to:
Michael D. Killin
Dorsey & Whitney LLP
370 Seventeenth Street, Suite 4400
Denver, Colorado 80202-5644
(b) If to Borrower at:
Horizon Organic Holding Corporation
7490 Clubhouse Rd, #103
Boulder, Colorado 80301
Horizon Organic Dairy, Inc
7490 Clubhouse Rd, #103
Boulder, Colorado 80301
Horizon Organic Dairy, Idaho Farms, Inc
7490 Clubhouse Rd, #103
Boulder, Colorado 80301
Horizon Organic Dairy, Maryland Farms, Inc
7490 Clubhouse Rd, #103
Boulder, Colorado 80301
with a copy to:
Lee Sachnoff
Krendl Horowitz & Krendl
370 Seventeenth Street, Suite 5350
Denver, Colorado 80202
or, as to each party, addressed to such other address as shall be designated by
such party in a written notice to the other parties. All such notices shall be
deemed given on the date of delivery if manually delivered, on the date of
sending if sent by telegram, telex or facsimile transmission, on the first
business day after the date of sending if sent by overnight courier, or three
(3) days after the date of mailing if mailed.
10.20 MAXIMUM INTEREST. No agreements, conditions, provisions or
----------------
stipulations contained in this Agreement or in any of the other Financing
Agreements, or any Default or Matured Default, or any exercise by FBS Ag Credit
of the right to accelerate the payment of the maturity of principal and
interest, or to
-40-
<PAGE>
exercise any option whatsoever, contained in this Agreement or any of the
other Financing Agreements, or the arising of any contingency whatsoever, shall
entitle FBS Ag Credit to collect, in any event, interest exceeding the maximum
authorized by law, and in no event shall Borrower be obligated to pay interest
exceeding such rate, and all agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind, obligate or
compel Borrower to pay a rate of interest exceeding the maximum allowed by law,
shall be without binding force or effect, at law or in equity, to the extent
only of the excess of interest over such maximum interest allowed by law. In
the event any interest is charged in excess of the maximum allowed by law
("EXCESS"), Borrower acknowledges and stipulates that any such charge shall be
the result of an accidental and bona fide error, and such Excess shall be,
first, applied to reduce the principal of any Liabilities due, and, second,
returned to Borrower, it being the intention of the parties not to enter at any
time into a usurious or otherwise illegal relationship. Borrower and FBS Ag
Credit both recognize that, with fluctuations in the Reference Rate, such an
unintentional result could inadvertently occur. By the execution of this
Agreement, Borrower covenants that: (a) the credit or return of any Excess shall
constitute the acceptance by Borrower of such Excess; and (b) Borrower shall not
seek or pursue any other remedy, legal or equitable, against FBS Ag Credit
based, in whole or in part, upon the charging or receiving of any interest in
excess of the maximum authorized by law. For the purpose of determining whether
or not any Excess has been contracted for, charged or received by FBS Ag Credit,
all interest at any time contracted for, charged or received by FBS Ag Credit in
connection with the Liabilities shall be amortized, prorated, allocated and
spread in equal parts during the entire term of this Agreement.
10.21 ADDITIONAL ADVANCES. All fees, charges, expenses, costs,
-------------------
expenditures, obligations, liabilities, losses, penalties and damages incurred
or suffered by FBS Ag Credit and for which Borrower is bound to indemnify or
reimburse FBS Ag Credit under this Agreement (other than those which may be paid
without demand therefor, by FBS Ag Credit initiated Advances pursuant to Section
-------
2.1) may, at the option of FBS Ag Credit, be paid by FBS Ag Credit initiated
- ---
Advances pursuant to Section 2.1 if such amounts remain unpaid for a period of
-----------
ten (10) days after FBS Ag Credit has made demand therefor.
-41-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
HORIZON ORGANIC HOLDING CORPORATION
By /s/ Don Gaidano By /s/ Barnet M. Feinblum
---------------------------- ----------------------------
Its Chief Financial Officer Its President
------------------------- -------------------------
(SEAL)
HORIZON ORGANIC DAIRY, INC.
By /s/ Don Gaidano By /s/ Barnet M. Feinblum
---------------------------- ----------------------------
Its Chief Financial Officer Its President
------------------------- -------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
By /s/ Don Gaidano By /s/ Barnet M. Feinblum
---------------------------- ----------------------------
Its Chief Financial Officer Its President
------------------------- -------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
IDAHO FARM, INC.
By /s/ Don Gaidano By /s/ Barnet M. Feinblum
---------------------------- ----------------------------
Its Chief Financial Officer Its President
------------------------- -------------------------
(SEAL)
FBS AG CREDIT, INC.
By /s/ Kenneth Warlick
----------------------------
Its Vice President
-------------------------
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<PAGE>
EXHIBIT 1A TO
LOAN AND SECURITY AGREEMENT
BORROWING BASE COMPUTATION
--------------------------
The Borrowing Base shall be determined by calculating the sum of:
80% of the result of the following: Eligible Accounts, as defined in Section
-------
3.1, minus reserves for discounts and spoilage and credit memos;
- ---
75%, but not to exceed $1,800,000, of the result of the following: Eligible
Inventory, as defined in Section 3.2, of Horizon Idaho or Horizon Maryland
-----------
consisting of dairy feed, valued at the lower of cost or nonorganic market
value, less 100% of Producer Payables related thereto;
70% of the result of the following: Eligible Inventory, as defined in Section
-------
3.2, of Horizon Idaho or Horizon Maryland consisting of dairy cow inventory,
- ---
valued at the lower of a) nonorganic market value or b) $1,200 per head so long
as i) there is a 20,000 lb. rolling herd average, ii.) the cows weigh at least
1,000 lbs. and are lactating, and iii) the cows are not more than five years
old, less 100% of Producer Payables related thereto;
70% of the result of the following: Eligible Inventory, as defined in Section
-------
3.2, of Horizon Idaho or Horizon Maryland consisting of dairy springers, valued
- ---
at the lower of a) nonorganic market value or b) $1,000 per head, less 100% of
Producer Payables related thereto;
70% of the result of the following: Eligible Inventory, as defined in Section
-------
3.2, of Horizon Idaho or Horizon Maryland consisting of dairy calves, yearlings
- ---
and bulls, valued at beef market value determined by weight times the basis
adjusted cattle fax quote for similar sex and age of dairy livestock, less 100%
of Producer Payables related thereto;
50%, but not to exceed $750,000, of the result of the following: Eligible
Inventory, as defined in Section 3.2, of Horizon Colorado, consisting of
-----------
processed milk and milk products, valued at the lower cost or market value, less
100% of Producer Payables related thereto (other than Horizon Colorado's
finished warehouse inventories and warehouse payables);
65%, but not to exceed the lower of $150 per acre or $400,000, of the result of
the following: the budgeted investment in growing crops of Horizon Idaho or
Horizon Maryland, less 100% of Producer Payables related thereto;
65%, but not to exceed $300,000, of Eligible Equipment, as defined in Section
-------
3.3, of Horizon Idaho or Horizon Maryland, valued at net liquidation value;
- ---
<PAGE>
65%, but not to exceed $500,000, of Eligible Prepaid Expenses, as defined in
Section 3.4, for dairy feed of Horizon Idaho or Horizon Maryland, valued at
- -----------
valued at the lower of cost or nonorganic market value;
100% of the net equity in Margin Accounts properly assigned to FBS Ag Credit;
and
100 degrees 7o of the cash balance in the lockboxes described in Section 5.6
-----------
or other accounts approved in writing by FBS Ag Credit;
LESS: 100% of the amounts of all uncleared checks related to any of the
foregoing and 100% of Horizon Colorado's finished warehouse inventories and
warehouse payables.
<PAGE>
EXHIBIT 1B TO
LOAN AND SECURITY AGREEMENT
BORROWING BASE CERTIFICATE
--------------------------
Attached
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Borrowing Base Report
as of 5-31-97
================================
<TABLE>
<CAPTION>
Collateral Borrowing
Accounts Receivable: Value Base
----------- ----------
<S> <C> <C> <C> <C>
Accounts Receivable - Dairy $ 1,684,375
Less Ineligible Accounts Receivable:
Past Due per Loan Security Agreement $ 17,936
20% Rule Violation $ 188,628
Affiliate Accounts $ 0
Officer/Employee Accounts $ 0
Contra Accounts $ 116,238
Finance Charges $ 0
Reserve for Discounts, Spoilage, Credit Memos, etc $ 0
Over 5% Concentration $ -
-----------
Net Eligible Accounts Receivable - Dairy $ 1,361,574 80% $ 1,089,259
Net Eligible Accounts Receivable - Farm (Milk) $ 60,710 85% $ 51,604
Net Eligible Accounts Receivable - Farm (Other) $ 0 80% $ 0
Farm Commodity Inventory:
Dairy Commodities (LOCM non-org; limit $1.8MM margined) $892,807.29
Less Ineligible Dairy Commodity Inventory:
Outstanding Commodity Checks $ 272,373
Commodity Payables $ 224,413
-----------
Net Eligible Dairy Commodity Inventory $ 396,021 75% $ 297,016
Prepaid Dairy Commodities (LOCM non-org; limit $500M margined) $ 11,242
Less Ineligible Prepaid Dairy Commodity Inventory:
Outstanding Prepaid Commodity Checks $ 0
Prepaid Commodity Payables $ 0
-----------
Net Eligible Prepaid Dairy Commodity Inventory $ 11,242 65% $ 7,307
Investment in Growing Crops:
Total Investment $ 466,102
Less Capitalized Cost (94,675)
-----------
Eligible Growing Crop Investment (Not>65% of cost, $150/A or $400M marg) $ 371,427 65% $ 241,427
Dairy Herd Inventory:
Dairy Cows Valued @ $1,200/hd 3,446 $1,200 $ 4,135,200
Less Ineligible Dairy Cows Inventory:
Outstanding Cattle Checks $ 0
Cattle Payables $ 573,379
-----------
Net Eligible Dairy Cows Inventory $ 3,561,821 70% $ 2,493,275
Eligible Bred Heifers, Yearlings, Bulls & Calves (beef value) $ 506,540 70% $ 354,578
Eligible Livestock at Offsite Locations (2 MM marg) $ 368,536
Less Ineligible Offsite Livestock Inventory:
Outstanding Backgrounding Checks $ 13,056
Backgrounding Payables $ 65,427
-----------
Net Eligible Livestock Inventory at Offsite Locations $ 290,053 65% $ 188,534
Processed Milk Inventory:
Processed Milk & Products Inventory (LCOM, limit $740M marg) $ 528,526
Less Ineligible Processed Milk & Products Inventory:
Prepayments $ 0
Subject to Purchased Money Security Interest $ 0
Stored at unapproved locations $ 69,500
Consigned Inventory $ 0
Supplies $ 0
-----------
Net Eligible Processed Milk & Products Inventory $ 459,026 50% $ 229,513
Cash in Positive Balance Checking Accounts $ 6,702,033 100% $ 6,702,033
Net Liquidating Value of Hedge Accounts $ 0 100% $ 0
Equipment (FBS value + Purchase - Sales) $ 388,800 65% $ 252,720
Less Reserve for Collateral Related Payables - Horizon Org Dairy $ 0 100% $ 0
=========== ===========
Total Collateral Value $14,109,247
===========
Total Borrowing Base $11,907,266
===========
Credit Line Loan Balance $ 6,038,557
===========
Loan Availability $ 5,868,709
===========
</TABLE>
I certify the above information and the information contained in the
accompanying worksheets to be true and correct, and that no information which
would make the foregoing misleading in any material respect has been omitted,
and in on event of default has occurred or is continuing.
HORIZON ORGANIC HOLDING CORPORATION
By:_____________________________________ Date:_____________
Don Gaidano, Vice President of Finance
Horizon Organic Holding Corporation
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Analysis of Accounts Receivable Eligibility Factors
as of 5-31-97
------------------------------------------------
<TABLE>
<CAPTION>
Customer Total A/R Over 60 Days % of Rec 20% Rule?
- -------------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Alberts Organics East $ 87,538 $ 1,624 2%
Albertson's Dist Center $ 18,702 $ 30 0%
Blair Dist Center $ 37,894 $ 1,010 3%
Cornucopia-Dayville $ 72,556 $ 2,667 4%
Elm Grove Dairy $ 172,108 $ 86,000 50% $ 172,108
Farmland Dairy $ 54,166 $ 310 1%
Food For Health $ 12,411 $ 65 1%
Food Products $ 3,970 $ 7 0%
Goodness Greeness $ 55,980 $ 151 0%
Kehe Foods $ 6,053 $ 820 14%
Lucky Stores $ 45,627 $ 25 0%
Milkco, Inc. $ 11,547 $ 2,016 17%
Mountain People $ 112,605 $ 3,202 3%
Nature's Best $ 59,538 $ 396 1%
Ralph's Grocery $ 80,753 $ 2,434 3%
Smith's Good & Drug $ 5,932 $ 5,932 100% $ 5,932
Sunny Side Farms $ 64,504 $ 699 1%
Stonecrest Natural Foods $ 62,527 $ 1,705 3%
Stow Mills $ 51,796 $ 15 0%
J.N. Straus $ 4,318 $ 1,301 30% $ 4,318
Texas Health Distributors $ 51,117 $ 480 1%
Tree of Life SouthEast $ 6,235 $ 222 4%
Tree of Life SouthWest $ 3,770 $ 1,431 38% $ 3,770
Tree of Life West - Hayward $ 815 $ 58 7%
Vanek Brothers Trucking, Inc. $ 2,500 $ 2,500 100% $ 2,500
Ineligible Due to 20% Rule ---------- ---------
Ineligible Due to 60 Days Past Due Rule: $ 188,628
All 60 Days Past Due Invoice Totals $ 115,100
Less Those Ineligible Due to 20% Rule $ ($97,164)
----------
Net Ineligible Due to 60 Days Past Due Rule $ $17,936
Total Accounts Receivable $ 1,477,811
5% Cutoff for Concentration Rule $ 73,890.57
<CAPTION>
Customer Total A/R Approved? 5% Rule
- -------------------- --------------- ------------ -------------
<S> <C> <C> <C>
Alberts Organics East $ 87,538 Yes $ -
Elm Grove Dairy $ 172,108 Yes $ -
Mountain People $ 112,605 Yes $ -
Ralph's Grocery $ 80,753 Yes $ -
Rainbow Dist. - Denver $ 77,973 Yes $ -
-------------
Ineligible Due to the 5% Concentration Rule $ -
<CAPTION>
Ineligibles
Already
Customer Total A/R Total A/P Excluded Offset Rule
- -------------------- --------------- --------------------------------------
<S> <C> <C> <C> <C>
Clover Stornetta $ 52,157 $ 32,590 $ $32,590
Elm Grove Dairy $ 172,108 $ 105,341 $ 172,108 $ -
Farmland Dairy $ 54,166 $ 110,727 $ 310 $ 53,856
Model Dairy $ 6,232 $ 94,181 $ 6,232
Robinson Dairy $ 23,560 $ 30,647 $ 23,560
-----------
Ineligible Due to the Contra Account Rule $ 116,238
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
HORIZON ORGANIC HOLDING CORPORATION
Notes to Financial Statement
- --------------------------------------------------------------------------------
May 31,1997
- --------------------------------------------------------------------------------
NOTE 1 - ACCOUNTS RECEIVABLE
<TABLE>
<S> <C>
Milk Receivable - Other $60,710
-------------
Milk Receivable - Horizon Organic Dairy, Inc. $698,518
-------------
Receivables - Cattle Sale $1,153,130
-------------
Receivables - ADC & USDC $30,110
-------------
Receivables - Other $26,636
-------------
</TABLE>
NOTE 2 - FEED INVENTORY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Average Book Commercial Borrowing
Amounts Cost Total Market Base Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Calf-Milk Replacer 0.68 $1,299.60 $877.23 $1,400.00 $945.00
Rape Seed 0.00 $0.00 $0.00
Canola Meal 45.00 $195.00 $8,775.00 $200.00 $9,000.00
Rolled Rye 0.00 $0.00 $0.00
Cotton Seed 695.48 $261.00 $181,520.28 $218.00 $151,614.64
Soybean Meal 0.00 $0.00 $0.00
Megalac 0.00 $0.00 $0.00
Rolled Barley 15.00 $189.78 $2,846.70 $136.00 $2,040.00
Calf Grain 12.45 $275.20 $3,426.24 $275.00 $3,423.75
Flax Meal 15.00 $260.00 $3,900.00 $260.00 $3,900.00
Unrolled Barley 2,045.10 $172.78 $353,356.41 $119.00 $243,366.90
Rolled Corn 105.00 $267.00 $28,035.00 $137.00 $14,385.00
Unrolled Corn 446.09 $218.14 $97,310.07 $120.00 $53,530.80
Hay 2,732.93 $134.89 $368,654.25 $120.00 $327,951.60
Rye Silage 120.80 $26.80 $3,237.44 $26.80 $3,237.44
Hay-Oat 0.00 $0.00 $0.00
Milking Premix 24.44 $439.09 $10,731.29 $444.00 $10,851.36
PMS-Molasses 0.00 $0.00 $0.00
Crab Meal 20.00 $450.00 $9,000.00 $450.00 $9,000.00
Corn Silage 250.00 $34.00 $8,500.00 $20.00 $5,000.00
Wheat Silage 0.00 $0.00 $0.00
Sunflower Meal 0.00 $0.00 $0.00
Maternity Premix 2.5 $503.60 $1,259.00 $504.00 $1,260.00
Other Feed $729.60 $729.60
------------------------------------------------------------------------
Total w/o Straw $1,082,158.51 $840,236.09
------------------ ---------------
Straw 1642.85 $32.00 52,571.20 $32.00 $52,571.20
------------------ ---------------
Total $1,134,729.71 $892,807.29
------------------ ---------------
</TABLE>
NOTE 3 - CATTLE INVENTORY
<TABLE>
<CAPTION>
-------------
Dairy
-------------
<S> <C>
Organic Cows 3282
-------------
Commercial Cows 164
-------------
Bulls 68
-------------
<CAPTION>
-------------
Feedlot
-------------
<S> <C>
Steer Calves 0
-------------
Organic Replacement Heifers 1602
-------------
Replacement Heifer Calves 291
-------------
Total Head Count 5407
============
</TABLE>
NOTE 4 - PROCESSED MILK & PRODUCTS INVENTORY
<TABLE>
<CAPTION>
----------------
Amounts
----------------
<S> <C>
50# bags - Dry skim powder milk $329,548
Yogurt - various units $72,989
Cheese products $75,083
Butter products $25,726
Cream cheese products $16,856
Sour cream cultured product $8,324
----------------
Total $528,526
----------------
</TABLE>
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Replacement Heifer Inventory
Values per Cattle-Fax where applicable
As of: 05/31/97
<TABLE>
<CAPTION>
----------- ------------ ----------- ------------ ------------ ---------------
Average Total
Pen Number Average Value Value Value
Number Head Weight per lb. per head per pen
----------- ------------ ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
A-1 20 200 1.00 200.00 4,000.00
A-2 24 220 1.00 220.00 5,280.00
A-3a
A-3b
A-4 47 230 1.00 230.00 10,810.00
A-5 48 270 0.90 243.00 11,664.00
A-6 31 320 0.86 275.20 8,531.20
A-7
A-8
A-9
A-10
B-1
B-2 50 360 0.68 244.80 12,240.00
B-3 50 420 0.68 285.60 14,280.00
B-4 49 450 0.68 306.00 14,994.00
B-5 47 500 0.68 340.00 15,980.00
B-6 44 530 0.68 360.40 15,857.60
B-7
B-8
C-1
C-2
C-3
C-4 21 # 1,225 1,000.00 21,000.00
C-5 59 @ 1,140 1,000.00 59,000.00
C-6 61 @ 1,140 1,000.00 61,000.00
D-1
D-2
D-3
D-4
D-5
D-6
Shop Pasture 78 @ 1,075 1,000.00 78,000.00
Dairy Pasture 89 @ 1,175 1,000.00 89,000.00
+L-3 600 430 0.68 292.40 175,440.00
-M-1 99 975 800.00 79,200.00
-M-2 98 925 800.00 78,400.00
-M-3 87 600 0.68 408.00 35,496.00
Hutches 291 165 1.00 165.00 48,015.00
Hutches
Bulls 66 1,125 * 0.48 540.00 35,640.00
Bulls - 2 1,300 * 0.48 624.00 1,248.00
----------- ------------ ----------- ------------ ------------ ---------------
</TABLE>
-----------------------------------------------
Head in Feedlot and Pasture 784
-----------------------------------------------
Head in Hutches 291
-----------------------------------------------
Head at Canyon Ranch 286
-----------------------------------------------
Head at Cottonwood (L-3) 600
-----------------------------------------------
Total Head 1961
-----------------------------------------------
<TABLE>
<S> <C> <C>
==============================================
@ represents bred heifers Onsite Replacement Value $506,539.80
# represents springer heifers Offsite Replacement Value $368,536.00
* represents bulls ------------
- Located at Canyon Ranch in Crawford, Colorado Total Value: $875,075.80
` Investment in Heifers Located at Cottonwood ============
Cattle Company in Hereford, Texas. These ==============================================
head counts are not included in the "Total Head" number.
+ Located at Cottonwood Cattle Company in Hereford, Texas
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 1D TO
LOAN AND SECURITY AGREEMENT
LEGAL DESCRIPTIONS OF PROPERTY UPON WHICH
-----------------------------------------
GROWING CROPS WILL BE LOCATED
-----------------------------
Attached
<PAGE>
CONTINUATION
SCHEDULE A
Policy Number: 554-433970
PARCEL NO. 1
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
A tract of land in the E 1/2E 1/2 of Section 17, and the NW 1/4NW
1/4 of Section 16, more particularly described as follows:
Beginning at the Northeast corner of said Section 17, also being
the Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the
Northwest corner of said E 1/2E 1/2 Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the
Westerly boundary of said E 1/2E 1/2 Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on
the Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the
Easterly boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with
the Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the
Westerly boundary of said Section 16 to the Northerly boundary
of said Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the
Northerly boundary of said Section 16 to THE POINT OF
BEGINNING.
PARCEL NO. 2
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 16: NW 1/4; W 1/2NE 1/4; SE 1/4NE 1/4; NE 1/2NE 1/4, EXCEPTING
THEREFROM the following described parcel of land:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674
feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet,
more or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF
BEGINNING.
EXCEPTING THEREFROM the highway.
- Continued -
<PAGE>
CONTINUATION
SCHEDULE A
Policy Number: 554-433970
Section 17: NE 1/2NE 1/4; S 1/2NE 1/4; SE 1/4; SE 1/4NW 1/4; E 1/2SW 1/4;
Section 20: E 1/2NE 1/4; N 1/2SE 1/4; NE 1/4SW 1/4;
EXCEPTING THEREFROM a tract of land in the E 1/2 E 1/2, Section
17 and NW 1/4NW 1/4, Section 16, Township 9 South, Range 21, East
of the Boise Meridian, Jerome County, Idaho, more particularly
described as follows:
Beginning at the Northeast corner of said Section 17 also being
the Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the
Northwest corner of said E 1/2E 1/2, Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the
Westerly boundary of said E 1/2E 1/2, Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on
the Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the
Easterly boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with
the Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the
Westerly boundary of said Section 16 to the Northerly boundary
of said Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the
Northerly boundary of said Section 16 to THE POINT OF
BEGINNING.
PARCEL NO. 3
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 16: That part of the NE 1/4NE 1/4, described as follows:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674
feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet,
more or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF
BEGINNING.
EXCEPTING THEREFROM the highway.
- Continued -
<PAGE>
CONTINUATION
SCHEDULE A
Policy Number: 554-433970
PARCEL NO. 4
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 20: SE 1/4SW 1/4; S 1/2SE 1/4;
Section 21: S 1/2SW 1/4; SW 1/4SE 1/4;
Section 28: All of Section 28;
Section 29: E 1/2NE 1/4; SE 1/4;
Section 32: N 1/2NE 1/4;
Section 33: N 1/2NW 1/4; SE 1/4NW 1/4; NE 1/4;
EXCEPTING THEREFROM that part of the SE 1/4SE 1/4 of Section 28,
Township 9 South, Range 21, East of the Boise Meridian, Jerome
County Idaho, described as follows:
Commencing an the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said
Section 28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE
POINT OF BEGINNING;
Thence continuing South 79 degrees 00'21" West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT
OF BEGINNING.
AND EXCEPTING THEREFROM that portion of the NE 1/4SE 1/4 of
Section 28, described as follows:
Beginning at the East quarter corner of said Section 28, which
point shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North boundary of the NE 1/4SE 1/4, 909.75
feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4;
909.75 feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4,
909.75 feet to a point on the East boundary of the NE 1/4SE
1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75
feet to THE TRUE POINT OF BEGINNING.
- Continued -
<PAGE>
CONTINUATION
SCHEDULE A
Policy Number: 554-433970
PARCEL NO. 5
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 16: S 1/2;
EXCEPTING THEREFROM the highway.
PARCEL NO. 6:
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 17: SW 1/4NW 1/4; NW 1/4SW 1/4;
Section 18: N 1/2SE 1/4; E 1/2SW 1/4; SW 1/4SE 1/4;
PARCEL NO. 7
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 22: SE 1/4SW 1/4; S 1/2SE 1/4;
Section 27: E 1/2; NW 1/4SW 1/4; S 1/2NW 1/4; NW 1/4NW 1/4; S 1/2SW 1/4;
NE 1/4SW 1/4, EXCEPTING THEREFROM the following described parcel
of land:
From a Point of Beginning located 714.75 feet, more or less,
North from the Southwest corner of Section 27, to the point of
intersection of said Section line or County road center line
with the North boundary of the Oregon Short Line Railroad
North Side Branch right of way;
Thence running North along the Section line or center line of
said County road, 275.27 feet;
Thence North 78 degrees 46' East and parallel to the said
railroad right of way center line, 2691.57 feet, more or less,
to the point of intersection with the North-South mid-section
line;
Thence South along said mid-section line 275.27 feet, more or
less, to the point of intersection with the North railroad
right-of way boundary;
- Continued -
<PAGE>
CONTINUATION
SCHEDULE A
Policy Number: 554-433970
That portion of the NE 1/4SE 1/4, described as follows:
Beginning at the East quarter corner of said Section 28, which
point shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North boundary of the NE 1/4SE 1/4, 909.75
feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4,
909.75 feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4,
909.75 feet to a point on the East boundary of the NE 1/4SE
1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75
feet to THE TRUE POINT OF BEGINNING.
<PAGE>
CONTINUATION
SCHEDULE A
Policy Number: 554-433970
Thence South 78 degrees 46' West and along said North railroad
right of way boundary, 2691.57 feet, more or less, to THE
POINT OF BEGINNING.
AND EXCEPTING THEREFROM railroad rights of way.
TOGETHER WITH a permanent easement and right of way, including
the perpetual right to enter upon the excepted portion of the
above described property in the SW 1/4 of Section 27, Township 9
South, Range 21, East of the Boise Meridian, for the purpose of
constructing, maintaining and repairing underground pipelines for
irrigation water as set forth in Easement Agreement recorded May
15, 1963 in Book 174 Page 53 as Instrument Number 154714, Jerome
County records.
Section 34: N 1/2NW 1/4; N 1/2NE 1/4;
PARCEL NO. 8
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY, IDAHO
Section 27: NE 1/4NW 1/4;
PARCEL NO. 9
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN,
JEROME COUNTY IDAHO
Section 28: That part of the SE 1/4SE 1/4, described as follows:
Commencing at the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said
Section 28, 395.59 feet;
Thence South 79 degrees 00' 21" West, 485.62 feet to the TRUE POINT OF
BEGINNING;
Thence continuing South 79 degrees 00' 21" West, 154.50 feet;
Thence North 10 degrees 59' 39" West, 55.00 feet;
Thence North 79 degrees 00' 21" East, 154.50 feet;
Thence South 10 degrees 59' 39" East, 55.00 feet to the TRUE POINT OF
BEGINNING.
AND
- Continued -
<PAGE>
BUT EXCLUDING THE FOLLOWING PROPERTY
------------------------------------
Part of the SE 1/4 of Section 28 of Township 9 South, Range 21 East of the Boise
Meridian, Jerome County, State of Idaho.
Beginning at the Southeast corner of Section 28 of T.9 S., R.21 E., B.M., said
corner marked by a 5/8" rebar; Thence North 00 degrees 02 minutes 00 seconds
West along the east line of Section 29 for a distance of 746.58 feet to a 1/2"
rebar which shall be the Point of Beginning;
------------------
THENCE South 78 degrees 49 minutes 25 seconds West for a distance of 885.48
feet to a 1/2" rebar;
THENCE North 00 degrees 02 minutes 00 seconds West for a distance of 885.48
feet to a 1/2" rebar;
THENCE North 78 degrees 49 minutes 25 seconds East for a distance of 885.48
feet to a 1/2" rebar on the east line of Section 28;
THENCE South 00 degrees 02 minutes 00 seconds East along said line for a
distance of 885.48 feet to the Point of Beginning.
------------------
Said property contains 17.66 acres more or less and is subject to a county
road right of way along the east side.
WARRANTY DEED - 2 Smith & Beeks
Attorneys at Law
[address]
<PAGE>
BUT EXCLUDING THE FOLLOWING PROPERTY
Legal Description:
Part of the SE 1/4 of Section 28, Township 9 South, Range 21 East of the Boise
Meridian, Jerome County, State of Idaho.
Beginning at the Southeast corner of Section 28, Township 9 South, Range 21 East
of the Boise Meridian, said corner marked by a 5/8" rebar;
Thence North 00 degrees 02 minutes 00 seconds West along the East line of
Section 28 for a distance of 746.58 feet to a 1/2" rebar which shall be the
Point of Beginning;
Thence South 78 degrees 49 minutes 25 seconds West for a distance of 885.48 feet
to a 1/2" rebar;
Thence North 00 degrees 02 minutes 00 seconds for a distance of 885.48 feet to a
1/2" rebar;
Thence North 78 degrees 49 minutes 25 seconds East for a distance of 885.48 feet
to a 1/2" rebar on the East line of Section 28;
Thence South 00 degrees 02 minutes 00 seconds East along said line for a
distance of 885.48 feet to the Point of the Beginning.
<PAGE>
EXHIBIT 2A TO
LOAN AND SECURITY AGREEMENT
LINE OF CREDIT NOTE
-------------------
Attached
<PAGE>
LINE OF CREDIT NOTE
-------------------
$10,000,000 Denver, Colorado
July 15, 1997
FOR VALUE RECEIVED, the undersigned Horizon Organic Holding Corporation, a
Delaware corporation; Horizon Organic Dairy, a Colorado corporation ("Horizon
Colorado"), Horizon Organic Dairy, Maryland Farm, Inc., ("Horizon Maryland") a
Colorado corporation; Horizon Organic Dairy, Idaho Farm, Inc., ("Horizon Idaho")
a Colorado Corporation (hereinafter referred to as "Borrower" whether one or
more), promises to pay to the order of FBS Ag Credit, Inc., a Colorado
corporation (hereinafter referred to as "FBS Ag Credit") at 950 Seventeenth
Street, Suite 350, Denver, Colorado 80202, or at such other place as FBS Ag
Credit may designate, in lawful money of the United States of America, the
principal sum of Ten Million Dollars ($10,000,000) 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 FBS Ag Credit 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: 1.25%
(b) Fixed Rate Advance: 3.75%
"Business Day": any day of the year in which commercial banks in
------------
Denver, Colorado are not required or authorized to close.
"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.
"Eurodollar Business Day": a Business Day upon which commercial banks
-----------------------
in London, England are open for domestic and international business.
<PAGE>
"Eurodollar Rate": With respect to each Interest Period applicable to
---------------
a Eurodollar Rate Advance, 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 LIBO
page as of 11:00 a.m., London time (or such other time as of which such rate
appears) two Eurodollar Business Days prior to the first day of such Interest
Period, or the rate for such deposits determined by the Agent at such time based
on such other published service of general application as shall be selected by
the Agent for such purpose; provided, that in lieu of determining the rate in
the foregoing manner, the Agent may determine the rate based on rates at which
United States dollar deposits are offered to the Agent 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 the Agent to which such Interest Period is to apply (rounded upward,
if necessary, to the nearest 1/16 of 1%). "Reuters Screen LIBO page" 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).
"Fixed Rate Advance": any portion of the funds advanced by FBS Ag
------------------
Credit 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.
"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.
-2-
<PAGE>
"Rate Option": the Reference Rate and the Reserve Adjusted LIBOR
-----------
Rate, in each case plus the Applicable Margin.
"Reference Rate": the reference rate as quoted by First Bank National
--------------
Association, Minneapolis, Minnesota ("First Bank"), which is a base rate that
First Bank from time to time establishes and which serves as the basis upon
which effective rates of interest are calculated for those loans which make
reference thereto.
"Reference Rate Advance": any portion of the funds advanced by FBS Ag
----------------------
Credit 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 First Bank, National Association 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.
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
-3-
<PAGE>
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 FBS Ag Credit, upon demand, an amount, if any, that
FBS Ag Credit 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 Event of 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 FBS Ag Credit 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 FBS Ag Credit 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
First Bank.
The unpaid balance of this obligation at any time shall be the total
amounts advanced hereunder by FBS Ag Credit 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 FBS Ag Credit.
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
-4-
<PAGE>
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 (lst) day of each month, commencing August 1, 1997. When any interest
is due and payable under this Note, FBS Ag Credit 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 FBS Ag Credit, 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, 1999 ("Maturity Date"),
shall be immediately due and payable, unless such Maturity Date shall be
extended by FBS Ag Credit as set forth below.
Advances hereunder, to the total amount of principal sum stated above, may
be made by FBS Ag Credit 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 FBS Ag Credit at the address designated above. Any such Advances
shall be conclusively presumed to have been made to or for the benefit of
Borrower when FBS Ag Credit 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.
Notwithstanding the provisions of this Note, FBS Ag Credit 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
-5-
<PAGE>
would otherwise be prescribed by this Note. Such overadvances, when made by FBS
Ag Credit shall become an obligation of Borrower and any surety of Borrower's
indebtedness to FBS Ag Credit 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 FBS Ag Credit in excess of the face amount
stated in this Note. FBS Ag Credit 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 FBS Ag Credit and notice thereof shall be given by FBS Ag Credit 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 FBS Ag Credit's option, FBS Ag Credit 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 FBS Ag Credit 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
ATTEST:
By:__________________________ By:__________________________
Barnet M. Feinblum Don Gaidano, V.P. Finance
(SEAL)
HORIZON ORGANIC DAIRY, INC.
ATTEST:
By:__________________________ By:__________________________
Barnet M. Feinblum Don Gaidano, V.P. Finance
(SEAL)
-6-
<PAGE>
HORIZON ORGANIC DAIRY,
IDAHO FARM, INC.
ATTEST:
By:__________________________ By:__________________________
Barnet M. Feinblum Don Gaidano, V.P. Finance
(SEAL)
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
ATTEST:
By:__________________________ By:__________________________
Barnet M. Feinblum Don Gaidano, V.P. Finance
(SEAL)
-7-
<PAGE>
EXHIBIT 3A TO
LOAN AND SECURITY AGREEMENT
ACCOUNT DEBTORS NOT SUBJECT TO LIMITATIONS
------------------------------------------
<PAGE>
EXHIBIT 3B TO
LOAN AND SECURITY AGREEMENT
BAILEE LOCATIONS
----------------
<PAGE>
EXHIBIT 3C TO
LOAN AND SECURITY AGREEMENT
PERSONS TO WHOM ELIGIBLE PREPAID EXPENSES MAY BE PAID
-----------------------------------------------------
<PAGE>
EXHIBIT 4A TO LOAN AND SECURITY AGREEMENT
List of Closing Documents
-------------------------
<TABLE>
<S> <C>
1. Loan and Security Agreement ___________________
2. Line of Credit Note ___________________
3. Secretary's Certificate as to Directors' Resolutions and Incumbency ___________________
4. Certificates of Good Standing
Colorado ___________________
Idaho ___________________
Maryland ___________________
5. Articles or Certificate of Incorporation ___________________
6. Bylaws ___________________
7. UCC Searches as follows:
</TABLE>
HORIZON ORGANIC HOLDINGS CORP., a Delaware Corp.
<TABLE>
<S> <C> <C>
California
----------
Secretary of State ___________________
Colorado
--------
Secretary of State ___________________
Boulder County ___________________
Delta County ___________________
Denver County ___________________
Idaho
-----
Secretary of State ___________________
Cassia County ___________________
Gooding County ___________________
Jerome County ___________________
Illinois
--------
Secretary of State ___________________
Cook County ___________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Iowa
----
Secretary of State ___________________
Clayton County ___________________
Maryland
--------
State Dept. of Assessments & Taxation ___________________
Minnesota
---------
Secretary of State ___________________
Hennepin County ___________________
Nevada
------
Secretary of State ___________________
Storey County ___________________
New Jersey
----------
Secretary of State ___________________
Bergen County ___________________
Texas
-----
Secretary of State ___________________
Deaf Smith County ___________________
Wisconsin
---------
Secretary of State ___________________
Dane County ___________________
Fond du Lac County ___________________
Richland County ___________________
Sauk County ___________________
Sheboygan County ___________________
Vernon County ___________________
</TABLE>
HORIZON ORGANIC DAIRY, INC., a Colorado Corp.
<TABLE>
<S> <C> <C>
California ___________________
----------
Secretary of State ___________________
Colorado
--------
Secretary of State ___________________
Boulder County ___________________
Delta County ___________________
Denver County ___________________
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
Idaho
-----
Secretary of State ___________________
Cassia County ___________________
Gooding County ___________________
Jerome County ___________________
Illinois
--------
Secretary of State ___________________
Cook County ___________________
Iowa
----
Secretary of State ___________________
Clayton County ___________________
Maryland
--------
State Dept. of Assessments & Taxation ___________________
Minnesota
---------
Secretary of State ___________________
Hennepin County ___________________
Nevada
------
Secretary of State ___________________
Storey County ___________________
New Jersey
----------
Secretary of State ___________________
Bergen County ___________________
Texas
-----
Secretary of State ___________________
Deaf Smith County ___________________
Wisconsin
---------
Secretary of State ___________________
Dane County ___________________
Fond du Lac County ___________________
Richland County ___________________
Sauk County ___________________
Sheboygan County ___________________
Vernon County ___________________
</TABLE>
-3-
<PAGE>
HORIZON ORGANIC DAIRY, IDAHO FARMS, INC.,
a Colorado Corp.
<TABLE>
<S> <C> <C>
California
----------
Secretary of State ___________________
Colorado
--------
Secretary of State ___________________
Boulder County ___________________
Delta County ___________________
Denver County ___________________
Idaho
-----
Secretary of State ___________________
Cassia County ___________________
Gooding County ___________________
Jerome County ___________________
Illinois
--------
Secretary of State ___________________
Cook County ___________________
Iowa
----
Secretary of State ___________________
Clayton County ___________________
Maryland
--------
State Dept. of Assessments & Taxation ___________________
Minnesota
---------
Secretary of State ___________________
Hennepin County ___________________
Nevada
------
Secretary of State ___________________
Storey County ___________________
New Jersey
----------
Secretary of State ___________________
Bergen County ___________________
Texas
-----
Secretary of State ___________________
Deaf Smith County ___________________
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
Wisconsin
---------
Secretary of State ___________________
Dane County ___________________
Fond du Lac County ___________________
Richland County ___________________
Sauk County ___________________
Sheboygan County ___________________
Vernon County ___________________
</TABLE>
HORIZON ORGANIC DAIRY, MARYLAND FARMS, INC.,
a Colorado Corp.
<TABLE>
<S> <C> <C>
California
----------
Secretary of State ___________________
Colorado
--------
Secretary of State ___________________
Boulder County ___________________
Delta County ___________________
Denver County ___________________
Idaho
-----
Secretary of State ___________________
Cassia County ___________________
Gooding County ___________________
Jerome County ___________________
Illinois
--------
Secretary of State ___________________
Cook County ___________________
Iowa
----
Secretary of State ___________________
Clayton County ___________________
Maryland
--------
State Dept. of Assessments & Taxation ___________________
Minnesota
---------
Secretary of State ___________________
Hennepin County ___________________
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C>
Nevada
------
Secretary of State ___________________
Storey County ___________________
New Jersey
----------
Secretary of State ___________________
Bergen County ___________________
Texas
-----
Secretary of State ___________________
Deaf Smith County ___________________
Wisconsin
---------
Secretary of State ___________________
Dane County ___________________
Fond du Lac County ___________________
Richland County ___________________
Sauk County ___________________
Sheboygan County ___________________
Vernon County ___________________
9. Opinion of Legal Counsel ___________________
10. Interim Financial Statements as of April 30, 1997 ___________________
11. Trademark Security Agreement ___________________
12. Bailee Letters ___________________
13. Subordination Agreements ___________________
14. Payoff Letters ___________________
</TABLE>
-6-
<PAGE>
EXHIBIT 5C TO
LOAN AND SECURITY AGREEMENT
OTHER SECURITY AGREEMENTS
-------------------------
Attached
<PAGE>
TRADEMARK SECURITY AGREEMENT
----------------------------
WHEREAS, Horizon Organic Holding Corporation, a Delaware corporation;
Horizon Organic Dairy, a Colorado corporation ("Horizon Colorado"), Horizon
Organic Dairy, Maryland Farm, Inc., ("Horizon Maryland") a Colorado corporation;
Horizon Organic Dairy, Idaho Farm, Inc., ("Horizon Idaho") a Colorado
Corporation (the "Borrower") owns the Trademarks and Trademark registrations and
licenses listed on Schedule 1 attached hereto;
----------
WHEREAS, FBS Ag Credit, Inc. ("FBS Ag Credit") and Borrower have entered
into a certain Loan and Security Agreement dated as of July 1~3, 1997 (as said
Loan and Security Agreement may be amended, restated, supplemented or otherwise
modified from time to time, the "Loan Agreement") pursuant to which FBS Ag
Credit shall make loans to the Borrower to provide working capital financing for
the Borrower and to provide funds for other general corporate purposes of the
Borrower; and
WHEREAS, pursuant to the Loan Agreement, the Borrower has granted to FBS Ag
Credit, a security interest in substantially all the assets of the Borrower
including all the Borrower's Trademarks (as defined in the Loan Agreement),
together with any reissues, extensions or renewals thereof, Trademark
registrations, Trademark applications and Trademark licenses, whether presently
existing or hereafter arising or acquired, together with the goodwill of the
business symbolized by the Trademarks and the applications therefor and the
registrations thereof, and all products and proceeds thereof, and to secure the
payment and performance of all amounts owing by Borrower under the Loan
Agreement and the other documents executed in connection therewith;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower does hereby grant to FBS
Ag Credit a continuing security interest in all of Borrower's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Trademark Collateral"),
whether now existing or hereafter arising or acquired:
(i) each Trademark, Trademark registration and Trademark application
including, without limitation, the Trademark and Trademark registration referred
to in Schedule 1 attached hereto, and all of the goodwill of the business
----------
connected with the use of, and symbolized by, each Trademark, Trademark
registration and Trademark application;
(ii) each Trademark license and all of the goodwill of the business
connected with the use of, and symbolized by, each Trademark licensed;
<PAGE>
(iii) all trade names, service marks, trade dress, logos, trade secrets,
and copyrights; and
(iv) all products and proceeds of the foregoing, including without
limitation, any claim by the Borrower against third parties for past, present or
future infringement or dilution of any Trademark or Trademark registration
including, without limitation, the Trademark and Trademark registration listed
on Schedule 1 attached hereto, and any Trademark licensed under any Trademark
----------
license or for injury to the goodwill associated with any Trademark, Trademark
registration or Trademark licensed under any Trademark license.
This security interest is granted in connection with the security interests
granted to FBS Ag Credit to secure the Liabilities (as defined in the Loan
Agreement) and pursuant to the terms thereof. The Borrower hereby further
acknowledges and confirms that the rights and remedies of FBS Ag Credit with
respect to the security interest in the Trademark Collateral granted hereby are
more fully set forth in the Loan Agreement, the terms and provisions of which
are incorporated by reference herein as if fully set forth herein.
IN WITNESS WHEREOF, Borrower has caused this Trademark Security Agreement
to be duly executed by its officer thereunto duly authorized as of July 15,
1997.
HORIZON ORGANIC HOLDING
CORPORATION
Attest: By:_______________________________
By:______________________________ Name:_____________________________
Its:_____________________________ Title:____________________________
HORIZON ORGANIC DAIRY INC.
Attest: By:_______________________________
By:______________________________ Name:_____________________________
Its:_____________________________ Title:____________________________
-2-
<PAGE>
HORIZON ORGANIC DAIRY
IDAHO FARM, INC.
Attest: By:_______________________________
By:______________________________ Name:_____________________________
Its:_____________________________ Title:____________________________
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
Attest: By:_______________________________
By:______________________________ Name:_____________________________
Its:_____________________________ Title:____________________________
FBS AG CREDIT, INC.
950 Seventeenth Street
Suite 350
Denver, Colorado 80202
By:_______________________________
Its:______________________________
-3-
<PAGE>
SCHEDULE 1 TO TRADEMARK SECURITY AGREEMENT
------------------------------------------
<TABLE>
<S> <C> <C> <C>
Ser. No./ Filed/
---------------- ------------
Mark Reg. No. Reg'd Goods/Services
- ------------------- ---------------- ------------ ---------------------------
</TABLE>
SEE ATTACHED
------------
-4-
<PAGE>
[SEAL OF THE UNITED STATES OF AMERICA]
CERTIFICATE OF REGISTRATION
This is to certify that the records of the Patent and Trademark Office show
that an application was filed in said Office for registration of the Mark shown
herein, a copy of said Mark and pertinent data from the Application being
annexed hereto and made a part hereof.
And there having been due compliance with the requirements of the law and
with the regulations prescribed by the Commissioner of Patents and Trademarks.
Upon examination, it appeared that the applicant was entitled to have said
Mark registered under the Trademark Act of 1946, as amended, and the said Mark
has been duly registered this day in the Patent and Trademark Office on the
PRINCIPAL REGISTER
to the registrant named herein.
This registration shall remain in force for TEN years unless sooner
terminated as provided by law.
In Testimony whereof I have hereunto set
my hand and caused the seal of the Patent
and Trademark Office to be affixed this
twenty-eighth day of May 1996.
[SEAL]
[SIGNATURE]
Commissioner of Patents and Trademarks
<PAGE>
Int. CI.: 29
Prior U.S. CI.: 46
Reg. No. 1,975,824
United States Patent and Trademark Office Registered May 28, 1996
================================================================================
TRADEMARK
PRINCIPAL REGISTER
[COMPANY LOGO]
NATURAL HORIZONS, INC. (COLORADO FIRST USE 4-11-1992; IN COMMERCE
CORPORATION) 4-11-92.
7490 CLUBHOUSE ROAD, SUITE 103 NO CLAIM IS MADE TO THE EXCLUSIVE
BOULDER, CO 80301 RIGHT TO USE "ORGANIC", APART FROM
THE MARK AS SHOWN.
FOR: MILK AND DAIRY PRODUCTS, SER. NO. 74-569.818. FILED 9-6-1994.
NAMELY HOMOGENIZED MILK, LOW FAT
MILK, SOUR CREAM AND YOGURT, IN KENNETH D. BATTLE, EXAMINING ATTORNEY
CLASS 29 (U.S. CL. 46)
<PAGE>
[STATE OF CALIFORNIA
SECRETARY OF STATE
CERTIFICATE LETTERHEAD]
SECRETARY OF STATE
TRADEMARK REG NO. 099829 CLASS NO. 46
CERTIFICATE OF REGISTRATION OF TRADEMARK
I, BILL JONES, SECRETARY OF STATE OF THE STATE OF CALIFORNIA, HEREBY CERTIFY:
THAT IN ACCORDANCE WITH THE APPLICATION FILES IN THIS OFFICE THE TRADEMARK
DESCRIBED BELOW HAS BEEN DULY REGISTERED IN THIS OFFICE ON BEHALF OF:
NAME OF APPLICANT: Natural Horizons, Inc.
BUSINESS ADDRESS: 7490 Clubhouse Road, Suite 103, Boulder,
CO 80301
DATE FIRST USED IN CALIFORNIA: September 30, 1993
DATE FIRST USED ANYWHERE: April 11, 1992
DESCRIPTION OF TRADEMARK: Horizon Organic with design of a jumping cow
superimposed on a world globe.
DESCRIPTION OF GOODS ON WHICH THE TRADEMARK IS USED: Perishable dairy products,
including fluid milk, cream and mixtures and types thereof; refrigerated live
culture, soft and frozen yogurt, sour cream, soft and hard cheeses, butter, ice
cream and ice milk.
A COPY, SPECIMEN, FACSIMILE, COUNTERPART OR A REPRODUCTION OF THE MARK IS
ATTACHED
DATE OF REGISTRATION: February 7, 1995
TERM OF REGISTRATION EXTENDS TO AND INCLUDES: February 7, 2005
[SEAL OF STATE OF CALIFORNIA]
IN WITNESS WHEREOF, I EXECUTE THIS
CERTIFICATE AND AFFIX THE GREAT SEAL OF
THE STATE OF CALIFORNIA THIS 8TH DAY OF
FEBRUARY, 1995.
[SIGNATURE]
BILL JONES
SECRETARY OF STATE
<PAGE>
A COPY, SPECIMEN, FACSIMILE, COUNTERPART OR
REPRODUCTION OF TRADEMARK REG. NO. 099829
------
[COMPANY SPECIMEN]
<PAGE>
[LOGO of STATE OF IDAHO DEPARTMENT OF STATE]
I, PETE T. CENARRUSA, Secretary of State of Idaho and custodian of the
record of Trademarks and Service Marks, do hereby certify to the following
Trademark/Service Mark Registration filed on 12/5/94.
Name Of Registrant: NATURAL HORIZONS, INC.
Business Address 7490 CLUBHOUSE ROAD STE. 103
BOULDER, CO 80301
<TABLE>
<S> <C> <C> <C>
File No.: M14684 Class: 46 First Use in Idaho: 09 30 1993 Expiration Date: 12/5/2004
</TABLE>
Goods or Services with which mark is used:
PERISHABLE DAIRY PRODUCTS INCLUDING MILK, AND CREAM, YOGURTS, SOUR
CREAM, HARD AND SOFT CHEESES, ICE CREAM AND ICE MILK
Registered Trademark-Service Mark:
/TM/ "HORIZON ORGANIC" WITH DESIGN OF A JUMPING COW SUPERIMPOSED ON A
WORLD GLOBE.
[COMPANY LOGO]
[SIGNATURE]
[SEAL OF THE STATE OF IDAHO] SECRETARY OF STATE
By [SIGNATURE]
---------------------------
[BORDER FRAME]
<PAGE>
APPLICATION FOR
REGISTRATION OF TRADEMARK-SERVICE MARK
STATE OF IDAHO
MAIL TO: SECRETARY OF STATE, TRADEMARKS, P.O. BOX 83720, BOISE, IDAHO 83720-
0080
The applicant swears that he has adopted and is now using in the State of
Idaho the trademark-service mark identified below, and believes that no other
individual firm, partnership, corporation, association, union, or other
organization has the right to use such trademark-service mark in connection with
the same or similar goods or services identified below in this State, either in
the identical form thereof or in such near resemblance thereto as might be
calculated to deceive or to be mistaken therefor.
1. Name of applicant: NATURAL HORIZONS, INC.
----------------------------------------------------------
2. Business address: 7490 Clubhouse Road, Suite 103, Boulder,
-----------------------------------------------------------
Colorado 80301
---------------
3. If applicant is a partnership, name the general partners:
-------------------
----------------------------------------------------------------------------
4. If applicant is a corporation, give state of incorporation: Colorado
-----------------
5. Describe in detail the exact mark to be registered: Words "Horizon
-------------------------
Organic" with design of a jumping cow superimposed on a world globe.
----------------------------------------------------------------------------
6. Number of class in which above particular goods or services fall: 46
-----------
7. Describe the kind(s) of goods or services in the above class which the
trademark-service mark is used to identify:
---------------------------------
Perishable dairy products including milk and cream, yogurts, sour cream,
------------------------------------------------------------------------
hard and soft cheeses, ice cream and ice milk.
----------------------------------------------
8. Date of first use of trademark-service mark anywhere: 4/11/92
-----------------------
9. Date of first use of trademark-service mark in Idaho: 9/30/93
-----------------------
10. State the manner in which the mark will be used (i.e. on the foods, on
labels or tags, on displays, on signs, on letterheads, in advertising
materials, on business cards, etc.): Applied to cartons and packaging
----------------------------------------
----------------------------------------------------------------------------
11. Person and mailing address to which certificate should be sent: KRENDL
-------------
HOROWITZ & KRENDL, Attention Noel Berge: 370 17th Street, Suite 5350,
----------------------------------------------------------------------------
Denver, Colorado 80202 Phone (303) 629-2400
----------------------- ----------------------------------------------
<TABLE>
<S> <C>
NATURAL HORIZONS, INC.
County of Boulder ) Signed By: /s/ Paul B. Repetto
---------------------- ----------------------------------
) ss. Paul B. Repetto, Vice President
State of Colorado )
----------------------
</TABLE>
I, /s/ Randie R. Parsens , a
------------------------------------------------------------------------
notary public, do certify that on this 16th day of
-----------------------------------
November , 1994, personally appeared before me
- ------------------------------------- --
Paul B. Repetto , who being by me first duly
- ----------------------------------------------
sworn, signed the foregoing instrument in my presence, and stated that
the allegations contained therein are true.
<TABLE>
<S> <C>
--------------------------------------------------------
Signed: /s/ Randie R. Parsens Filing Office Use Only
------------------------------------
Notary public IDAHO SECRETARY OF STATE
19941205 0900 46408 2
In and for the state of Colorado
--------------------------------------- CK #: 7078 CUST# 38310
Residing at Boulder
--------------------------------------------------- T MARKS
My commission expires 9-19-97 1@ 20.00 20.00
------------------------------------------
(SEAL)
" T
Instructions on Reverse $20.00 Revised 1/94
</TABLE>
<PAGE>
[SPECIMEN OF COMPANY LOGO]
<PAGE>
MAIL TO: SECRETARY OF STATE For office use only
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
Denver, CO 80202 941088538 $50.00
(303) 894-2251 SOS 28-09-94 08:30
MUST BE TYPED FAX (303) 894-2242 ------------------------
FILING FEE: $50.00
MUST SUBMIT TWO COPIES
---
AND TWO FACSIMILES
---
OF THE TRADEMARK
APPLICATION FOR REGISTRATION
OF
TRADEMARK OR SERVICE MARK
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
1. NAME AND PRINCIPAL BUSINESS ADDRESS OF OWNER/APPLICANT:
Natural Horizons, Inc. 7490 Clubhouse Road, Suite 103
- -------------------------------------------------------------------------------
NAME STREET SUITE/APT.#
Boulder CO 80301
- --------------------------------------------------------------------------------
CITY STATE ZIP
STATE OF INCORPORATION Colorado (COMPLETE ONLY IF A CORPORATION)
- --------------------------------------------------------------------------------
2. DESCRIPTION OF TRADEMARK -- COMPLETE A OR B, BUT NOT BOTH
------------
A.
WORDS "HORIZON ORGANIC" AND DESIGN
---------------------------------------------------------
<TABLE>
<S> <C> <C>
CHECK ONE: [ ] WORDS ONLY [ ] WORDS WITH STYLIZED LETTERING [X] WORDS AND DESIGN
NO FACSIMILE REQUIRED 2 FACSIMILES REQUIRED 2 FACSIMILES
</TABLE>
B.
DESIGN ONLY - NO WORDS IN TRADEMARK (2 FACSIMILES REQUIRED)
BRIEFLY DESCRIBE THE DESIGN______________________________________________
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
3. CLASSIFICATION Choose ONLY ONE from list on instruction page. Class Number ( 29 )
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. DATE FIRST USED BY APPLICANT OR THE PREDECESSOR IN THE SAME BUSINESS.
COMPLETE BOTH A & B
<TABLE>
<S> <C>
FIRST USED ANYWHERE FIRST USED IN COLORADO
April 11, 1992 April 11, 1992
- --------------------------- ---------------------------------------------------------------------------------------
Date first used anywhere must be same as or earlier than date first used in Colorado.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Form 032
Rev. 7/941
5. MANNER IN WHICH TRADEMARK IS USED -- BE BRIEF
Trademark is applied to cartons and packaging
- --------------------------------------------------------------------------------
________________________________________________________________________________
6. The applicant hereby appoints the Secretary of State as agent for service of
process in any action relating to this registration if the applicant is or
becomes a nonresident or foreign corporation not licensed to do business in this
state or cannot be found in this state.
7. The applicant signs this application for registration under penalty of
perjury and states that s/he is the owner of the mark and that no other person
has the right to use such mark in this state, either in the identical form
thereof or in any near resemblance thereto which might be calculated to deceive
or to be mistaken therefor.
SIGNATURE NATURAL HORIZONS, INC.
By: /s/ Paul B. Repetto
---------------------
Paul B. Repetto, Vice President
-2-
<PAGE>
[COMPANY LOGO]
<PAGE>
MAIL TO: SECRETARY OF STATE For office use only
CORPORATIONS SECTION
1560 BROADWAY, SUITE 200
DENVER, CO 80202 941088538 $50.00
(303) 894-2251 SOS 28-09-94 08:30
MUST BE TYPED FAX (303) 894-2242 ------------------------
FILING FEE: $50.00
MUST SUBMIT TWO COPIES
---
AND TWO FACSIMILES
---
OF THE TRADEMARK
APPLICATION FOR REGISTRATION
OF
TRADEMARK OR SERVICE MARK
PLEASE INCLUDE A TYPED
SELF-ADDRESSED ENVELOPE
1. NAME AND PRINCIPAL BUSINESS ADDRESS OF OWNER/APPLICANT:
Natural Horizons, Inc. 7490 Clubhouse Road, Suite 103
- -------------------------------------------------------------------------------
NAME STREET SUITE/APT.#
Boulder CO 80301
- --------------------------------------------------------------------------------
CITY STATE ZIP
STATE OF INCORPORATION Colorado (COMPLETE ONLY IF A CORPORATION)
- --------------------------------------------------------------------------------
2. DESCRIPTION OF TRADEMARK - COMPLETE A OR B, BUT NOT BOTH
------------
A.
WORDS JOIN THE MOOOOVEMENT
---------------------------------------------------------
<TABLE>
<S> <C> <C>
CHECK ONE: [X] WORDS ONLY [ ] WORDS WITH STYLIZED LETTERING [ ] WORDS AND DESIGN
NO FACSIMILE REQUIRED 2 FACSIMILES REQUIRED 2 FACSIMILES
</TABLE>
B.
DESIGN ONLY - NO WORDS IN TRADEMARK (2 FACSIMILES REQUIRED)
BRIEFLY DESCRIBE THE DESIGN______________________________________________
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
3. CLASSIFICATION Choose ONLY ONE from list on instruction page. Class Number ( 29 )
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. DATE FIRST USED BY APPLICANT OR THE PREDECESSOR IN THE SAME BUSINESS.
COMPLETE BOTH A & B
<TABLE>
<S> <C>
FIRST USED ANYWHERE FIRST USED IN COLORADO
6/20/94 6/20/94
- --------------------------- ---------------------------------------------------------------------------------------
Date first used anywhere must be same as or earlier than date first used in Colorado.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. MANNER IN WHICH TRADEMARK IS USED - BE BRIEF
To identify organic dairy products
- --------------------------------------------------------------------------------
6. The applicant hereby appoints the Secretary of State as agent for service of
process in any action relating to this registration if the applicant is or
becomes a nonresident or foreign corporation not licensed to do business in this
state or cannot be found in this state.
<PAGE>
7. The applicant signs this application for registration under penalty of
perjury and states that s/he is the owner of the mark and that no other person
has the right to use such mark in this state, either in the identical form
thereof or in any near resemblance thereto which might be calculated to deceive
or to be mistaken therefor.
SIGNATURE (Applicant, owner, authorized agent): NATURAL HORIZONS, INC.
By: /s/ Mark Retzloff
------------------------
Its: President
------------------------
<PAGE>
Exhibit 6A to
Loan and Security Agreement
Disclosure Schedule
-------------------
Part 1: Judgments, Litigation, Claims and Proceedings
---------------------------------------------
Horizon Idaho has requested a waiver from the United States Department
of Agriculture from certain reporting requirements in connection with
the 1996 AMTA payment. This waiver has been conditionally approved.
Part 2: Defaults and Disputes
---------------------
None.
Part 3: Licenses, Patents, Copyrights, Trademark, Trade Names and Applications
----------------------------------------------------------------------
Trademarks
----------
Federal Trademark Registration Reg. No. 1,975,824
California Trademark Registration Reg. No. 099829
Colorado Trademark Registrations Reg. No. 941075356 and Reg. No.
941088538
Idaho Trademark Registration: File No. M14684
Trade Names
-----------
Horizon Organic Dairy, Inc. has registered "Natural Horizons, Inc" as
a trade name
<PAGE>
Continuation of Exhibit 6A to
Loan and Security Agreement
Disclosure Schedule (Continued)
-------------------------------
Part 4: Security Interests, Liens, Claims and Encumbrances
--------------------------------------------------
Republic Acceptance Corporation has a security interest in all the
assets of Horizon Colorado.
Farm Credit Services has a security interest in all the assets of
Horizon Idaho.
Horizon Colorado has a subordinated mortgage in the real property or
Horizon Idaho.
Part 5: Locations of Borrower's Assets
------------------------------
1. 7490 Clubhouse Road, Suite 103
Boulder, Colorado 80301
Horizon Idaho
2. 2589 East 500 South
Hazelton, ID 83335
3. See Exhibit 3B (location of inventory)
Part 6: Tax Liability Claims
--------------------
The IRS is auditing the 1995 tax return for Horizon Idaho.
<PAGE>
Continuation of Exhibit 6A to
Loan and Security Agreement
Disclosure Schedule (Continued)
-------------------------------
Part 7: Other Indebtedness
------------------
None.
Part 8: Other Names Used by Borrower
----------------------------
Horizon Idaho: Sunrise organic Farms, Inc.
Aurora Dairy Corporation of Idaho
Horizon Colorado: Natural Horizons, Inc.
Part 9: Affiliates
----------
None.
<PAGE>
Continuation of Exhibit 6A to Loan and Security Agreement
Disclosure Schedule (Continued)
-------------------------------
Part 10: Environmental Matters
---------------------
One of the three properties in Maryland, which Horizon Maryland has
under contract to purchase, has lagoons which contain manure and wash
water form a previous dairy. The permit to use this property as a
dairy issued by the state of Maryland requires that the water and
waste in these lagoons be remediated, which can be accomplished
through spray irrigation.
<PAGE>
EXHIBIT 6B TO
LOAN AND SECURITY AGREEMENT
Equipment
---------
Attached
<PAGE>
Horizon Organic Farm, Inc. - Idaho Farm
Equipment List as of 7/31/97
<TABLE>
<CAPTION>
Insurance
ID # Lease Description Model # Serial # Schedule Date Cond.
<S> <C> <C> <C> <C> <C> <C> <C>
3000 1985 GMC Dump Truck Brigadeer 1GDT9C4C9FV605232 yes fair
3001 1993 Ford Pickup (Roy) 2FTF26G2PCA75965 no good
3003 Roskamp Roller Mill 6831 no good
3004 Green Hay Trailer "Elmlusa" fair
3005 Snapper Riding Lawn Mower May-90 junk
3006 Box Scrapper fair
3008 John Deere Spreader 450 WOO4500X014242 no Sep-91 Fair
3009 Miller Bobcat Welder 225G H930062464 Feb-94 good
3010 Kirby Bale Feeder KRM9456 Mar-94 Fair
3011 Yes 1995 IH Truck 4700 1HTSCACNXSH626577 yes good
3012 Yes Harsh Mixer 575H 57HB4271 good
3013 1994 Kawasaki Mule JK1AFCA12PB504019 yes Fair
3014 1994 Kawasaki Mule JK1AFCA13PB503591 yes Fair
3015 Cat Generator Motor 3406 4RGO2158 yes Good
3016 Generator 400 Kw SR4 1JJ00787 Good
3017 1972 End Dump 24' yes Mar-95 Fair
3020 1976 AMC Jeep DJ5D610692090 no Mar-95 Fair - Poor
3021 1974 AMC Jeep 414209 no Mar-95 Junk
3022 1975 AMC Jeep DJ5D5108638 no Mar-95 Fair - Poor
3023 1976 AMC Jeep DJ5D6106240 no Mar-95 Fair - Poor
3024 1974 AMC Jeep 418438 no Mar-95 Fair - Poor
3025 1976 AMC Jeep DJ5D6108189 yes Apr-95 Fair - Poor
3026 1975 AMC Jeep DJ5D5104315 yes Apr-95 Fair - Poor
3027 Yes 1994 Ford Turbo Diesel (Barney) F250 1FTHX26LXRLA53924 yes Nov-93 Good
3029 1977 GMC truck w/bed TDC927V596472 yes Dec-95 fair
3031 yes 1993 Caterpillar Wheel Loader 928 F 98Z09232 yes Jan-96 good
3032 yes 1996 Caterpillar Wheel Loader 928F 98Z12615 yes Jan-96 good
3034 1986 Ford Feed Truck L8000 1FDXR82AXHVA14507 yes Jun-94 fair feedlot
3035 1987 Mohrlang Feedbox 520 617 yes fair feedlot
3036 Kirby 4-Bale Hay Processor with Scales 8845 yes Jun-94 good
3037 Hay Wagon QSD4 yes Jun-94 fair
3038 1994 Kawasaki Mule KA62 JK1AFCA14PB504023 yes Jun-94 good yes
3039 Push Blade on 3010 John Deere no Jun-94 good
3041 Ace 500 Gallon sprayer 67207 good
3042 Hutchinson 53'8" portable auger good
3043 1971 Peterbilt Truck no 41857P yes fair
3044 4 Wheel Hay Trailer (8' x 14') no no fair feedlot
3045 Great Dane Drop Deck Trailer 1GRDM84230M041601 yes fair
3046 Pup Hay Trailer (Black) no fair
3047 Ford Tractor 4000 fair feedlot
3048 Push blade no B011519600W fair feedlot
3049 1983 Ford Truck w/720 Harsh Mixer 1FDTW8002DVA44573 yes fair
3050 Green Tandem hay trailer no 83455 no fair feedlot
3052 Ford Tractor 4600 D2-NN-7006C yes fair
3053 1974 Honda Motorcycle CT901521604 no junk
3054 83 Mazda P/U B-200 JM2UC123D0713559 no junk
3055 1993 Kawaski 4 wheeler JKBLFBA16P8555943 Apr-93 good
3057 yes 1993 Ford PU 4X4 (Johnny) 2FTHF36G8PCA10303 yes new
3058 Massey Tractor 35 7742 no poor
3059 IHC Grain Drill 510 0390245SC002191 good
3060 Cat Loader (F/L) 920 62K9885 yes fair feedlot
<CAPTION>
Secures Current 4/30/95 6/3/97
Credit Line? Valuation FBS
ID # Lease Description 1=No 2=Yes Value Difference
<S> <C> <C> <C> <C> <C> <C>
3000 1985 GMC Dump Truck 2 $ 15,000 $ 7,000 $ 8,000
3001 1993 Ford Pickup (Roy) 2 $ 12,000 $ 12,000 $ -
3003 Roskamp Roller Mill 2 $ 4,000 $ 2,500 $ 1,500
3004 Green Hay Trailer "Elmlusa" 2 $ 750 $ 1,000 $ (250)
3005 Snapper Riding Lawn Mower 2 $ 200 $ 200
3006 Box Scrapper 2 $ 100 $ 200 $ (100)
3008 John Deere Spreader 2 $ 2,000 $ 1,000 $ 1,000
3009 Miller Bobcat Welder 2 $ 1,000 $ 250 $ 750
3010 Kirby Bale Feeder 2 $ 5,000 $ 2,000 $ 3,000
3011 Yes 1995 IH Truck 1 $ -
3012 Yes Harsh Mixer 1 $ -
3013 1994 Kawasaki Mule 2 $ 7,500 $ 2,500 $ 5,000
3014 1994 Kawasaki Mule 2 $ 7,500 $ 2,500 $ 5,000
3015 Cat Generator Motor 1 $ 20,000 $ 20,000
3016 Generator 400 Kw $ -
3017 1972 End Dump 24' 2 $ 7,850 $ 3,000 $ 4,850
3020 1976 AMC Jeep 2 $ 750 $ 500 $ 250
3021 1974 AMC Jeep 2 $ 750 $ 500 $ 250
3022 1975 AMC Jeep 2 $ 750 $ 500 $ 250
3023 1976 AMC Jeep 2 $ 750 $ 500 $ 250
3024 1974 AMC Jeep 2 $ 750 $ 500 $ 250
3025 1976 AMC Jeep 2 $ 750 $ 500 $ 250
3026 1975 AMC Jeep 2 $ 750 $ 500 $ 250
3027 Yes 1994 Ford Turbo Diesel (Barney) 1 $ -
3029 1977 GMC truck w/bed 2 $ 25,000 $ 10,000 $ 15,000
3031 yes 1993 Caterpillar Wheel Loader 1 $ -
3032 yes 1996 Caterpillar Wheel Loader 1 $ -
3034 1986 Ford Feed Truck 2 $ 35,000 $ 20,000 $ 15,000
3035 1987 Mohrlang Feedbox 2 $ -
3036 Kirby 4-Bale Hay Processor with Scales 2 $ 9,000 $ 5,000 $ 4,000
3037 Hay Wagon 2 $ 2,873 $ 500 $ 2,373
3038 1994 Kawasaki Mule 2 $ 8,808 $ 2,500 $ 6,308
3039 Push Blade on 3010 John Deere 2 $ 200 $ (200)
3041 Ace 500 Gallon sprayer 2 $ 750 $ 300 $ 450
3042 Hutchinson 53'8" portable auger 2 $ 250 $ 500 $ (250)
3043 1971 Peterbilt Truck 2 $ 10,000 $ 5,000 $ 5,000
3044 4 Wheel Hay Trailer (8' x 14') 2 $ 2,000 $ 1,000 $ 1,000
3045 Great Dane Drop Deck Trailer 2 $ 5,500 $ 3,000 $ 2,500
3046 Pup Hay Trailer (Black) 2 $ 2,500 $ 1,500 $ 1,000
3047 Ford Tractor 2 $ 1,000 $ 1,000 $ -
3048 Push blade 2 $ 100 $ 300 $ (200)
3049 1983 Ford Truck w/720 Harsh Mixer 2 $ 15,000 $ 7,500 $ 7,500
3050 Green Tandem hay trailer 2 $ 2,000 $ 2,000 $ -
3052 Ford Tractor 2 $ 6,000 $ 2,000 $ 4,000
3053 1974 Honda Motorcycle 2 $ 100 $ 100
3054 83 Mazda P/U 2 $ 500 $ 500
3055 1993 Kawaski 4 wheeler 2 $ 2,000 $ 1,500 $ 500
3057 yes 1993 Ford PU 4X4 (Johnny) 1 $ -
3058 Massey Tractor 2 $ 2,500 $ 250 $ 2,250
3059 IHC Grain Drill 2 $ 2,000 $ 1,000 $ 1,000
3060 Cat Loader (F/L) 2 $ 20,000 $ 10,000 $ 10,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
3061 Walker 2 1/2T bumper jack M696522986 good
3062 Walker 10T Floor jack J660J15080 good
3063 Band Saw B51265 good
3064 Atland 50T Press P3301 good
3065 Hotsy Steam Cleaner 65858 junk
3066 Durancroft Floor drill press 60119 good
3067 1993 Sanborn Air comp with gas motor M1880009 good
3069 Champion Air Compressor 249290 good
3070 1993 Travalong Cattle Trailer 4DYGS1827P1011408 yes good
3071 Grasshopper Lawn Mower fair
3072 Case Backhoe 5808 8740569 fair
3073 Miller Electric Welder (shop) 150 A-893832 good
3074 Miller Bobcat Gas Motor Welder 225G K8009278 good
3075 Massey Ferguson Ut. Trailer (shop) fair
3076 Briggs 5HP pump 82J358 good
3077 John Deere Tractor 3010 11T18805 yes junk
3078 Pipe Trailer fair
3079 John Deere Tractor 8640 SG12-255604RW yes good
3080 John Deere Tractor 4440 SC-4-1168-369R yes fair
3081 Leon Dozer Blade 22571129 yes good
3082 John Deere Dics, 16' off set 455 10658 good
3083 Case Disc 496 JAG159598 good
3084 John Deere Bush Hog mower 506 W0050GC025122 no fair
3085 Ace 20' Roller Harrow 9101 70929 good
3086 Case Chisel 5700 JAGT0010106 good
3087 Ace 100 gallon sprayer good
3088 IHC Dump Truck (Blue water truck) 106620H326245 no poor
3089 Ferguson Tractor TE48427 yes junk
3090 200 Gallon propane weed burner no fair
3091 John Deere Blade 115 E011519600W fair
3092 EZEE-on Loader mounted on JD 4440 1993 good
3093 Case DiscHitch Hiker 496 good
3094 250 HP GE Motor w/Peerless Pump SSJ508008 yes
3095 Uniclose Booster Motor w/Peerless Pump R1846-00-269 yes yes
3096 350 HP Pump GE Motor w/Peerless Pump NF67178 yes
3061 Walker 2 1/2T bumper jack M696522986 good
3062 Walker 10T Floor jack J660J15080 good
3063 Band Saw B51265 good
3064 Atland 50T Press P3301 good
3065 Hotsy Steam Cleaner 65858 junk
3066 Durancroft Floor drill press 60119 good
3067 1993 Sanborn Air comp with gas motor M1880009 good
3069 Champion Air Compressor 249290 good
3070 1993 Travalong Cattle Trailer 4DYGS1827P1011408 yes good
3071 Grasshopper Lawn Mower fair
3072 Case Backhoe 5808 8740569 fair
3073 Miller Electric Welder (shop) 150 A-893832 good
3074 Miller Bobcat Gas Motor Welder 225G K8009278 good
3075 Massey Ferguson Ut. Trailer (shop) fair
3076 Briggs 5HP pump 82J358 good
3077 John Deere Tractor 3010 11T18805 yes junk
3078 Pipe Trailer fair
3079 John Deere Tractor 8640 SG12-255604RW yes good
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
3061 Walker 2 1/2T bumper jack 2 $ 500 $ 500 $ -
3062 Walker 10T Floor jack 2 $ 100 $ 500 $ (400)
3063 Band Saw 2 $ 350 $ 500 $ (150)
3064 Atland 50T Press 2 $ 250 $ 500 $ (250)
3065 Hotsy Steam Cleaner 2 $ - $ 500 $ (500)
3066 Durancroft Floor drill press 2 $ 150 $ 500 $ (350)
3067 1993 Sanborn Air comp with gas motor 2 $ 50 $ 500 $ (450)
3069 Champion Air Compressor 2 $ 150 $ 500 $ (350)
3070 1993 Travalong Cattle Trailer 2 $ 5,000 $ 2,000 $ 3,000
3071 Grasshopper Lawn Mower 2 $ 250 $ 250
3072 Case Backhoe 2 $ 8,000 $ 5,000 $ 3,000
3073 Miller Electric Welder (shop) 2 $ 500 $ 250 $ 250
3074 Miller Bobcat Gas Motor Welder 2 $ 500 $ 250 $ 250
3075 Massey Ferguson Ut. Trailer (shop) 2 $ 100 $ 100
3076 Briggs 5HP pump 2 $ 150 $ 150
3077 John Deere Tractor 2 $ 5,000 $ 500 $ 4,500
3078 Pipe Trailer 2 $ 1,000 $ 1,000
3079 John Deere Tractor 2 $30,000 $30,000 $ -
3080 John Deere Tractor 2 $30,000 $20,000 $ 10,000
3081 Leon Dozer Blade 2 $ 4,000 $ 2,000 $ 2,000
3082 John Deere Dics, 16' off set 2 $ 8,500 $ 6,000 $ 2,500
3083 Case Disc 2 $ 8,500 $ 7,000 $ 1,500
3084 John Deere Bush Hog mower 2 $ 1,000 $ 500 $ 500
3085 Ace 20' Roller Harrow 2 $ 4,000 $ 7,000 $ (3,000)
3086 Case Chisel 2 $ 7,500 $ 3,000 $ 4,500
3087 Ace 100 gallon sprayer 2 $ 200 $ 300 $ (100)
3088 IHC Dump Truck (Blue water truck) 2 $ 250 $ 500 $ (250)
3089 Ferguson Tractor 2 $ 1,000 $ 1,000
3090 200 Gallon propane weed burner 2 $ 250 $ 250
3091 John Deere Blade 2 $ 750 $ 2,000 $ (1,250)
3092 EZEE-on Loader mounted on JD 4440 2 $ 4,000 $ 2,000 $ 2,000
3093 Case DiscHitch Hiker 2 $ 500 $ 1,000 $ (500)
3094 250 HP GE Motor w/Peerless Pump CVI, East 1 $ -
3095 Uniclose Booster Motor w/Peerless Pump CVI, East 1 $ -
3096 350 HP Pump GE Motor w/Peerless Pump S. Burley Farm 1 $ -
3061 Walker 2 1/2T bumper jack 2 $ 500 $ 500 $ -
3062 Walker 10T Floor jack 2 $ 100 $ 500 $ (400)
3063 Band Saw 2 $ 350 $ 500 $ (150)
3064 Atland 50T Press 2 $ 250 $ 500 $ (250)
3065 Hotsy Steam Cleaner 2 $ - $ 500 $ (500)
3066 Durancroft Floor drill press 2 $ 150 $ 500 $ (350)
3067 1993 Sanborn Air comp with gas motor 2 $ 50 $ 500 $ (450)
3069 Champion Air Compressor 2 $ 150 $ 500 $ (350)
3070 1993 Travalong Cattle Trailer 2 $ 5,000 $ 2,000 $ 3,000
3071 Grasshopper Lawn Mower 2 $ 250 $ 250
3072 Case Backhoe 2 $ 8,000 $ 5,000 $ 3,000
3073 Miller Electric Welder (shop) 2 $ 500 $ 250 $ 250
3074 Miller Bobcat Gas Motor Welder 2 $ 500 $ 250 $ 250
3075 Massey Ferguson Ut. Trailer (shop) 2 $ 100 $ 100
3076 Briggs 5HP pump 2 $ 150 $ 150
3077 John Deere Tractor 2 $ 5,000 $ 500 $ 4,500
3078 Pipe Trailer 2 $ 1,000 $ 1,000
3079 John Deere Tractor 2 $30,000 $30,000 $ -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
3080 John Deere Tractor 4440 SC-4-1168-369R yes fair
3081 Leon Dozer Blade 22571129 yes good
3082 John Deere Dics, 16' off set 455 10658 good
3083 Case Disc 496 JAG159598 good
3084 John Deere Bush Hog mower 506 W0050GC025122 no fair
3085 Ace 20' Roller Harrow 9101 70929 good
3086 Case Chisel 5700 JAGT0010106 good
3087 Ace 100 gallon sprayer good
3088 IHC Dump Truck (Blue water truck) 106620H326245 no poor
3089 Ferguson Tractor TE48427 yes junk
3090 200 Gallon propane weed burner no fair
3091 John Deere Blade 115 E011519600W fair
3092 EZEE-on Loader mounted on JD 4440 1993 good
3093 Case DiscHitch Hiker 496 good
3094 250 HP GE Motor w/Peerless Pump SSJ508008 yes
3095 Uniclose Booster Motor w/Peerless Pump R1846-00-269 yes yes
3096 350 HP Pump GE Motor w/Peerless Pump NF67178 yes
3097 Westinghouse Booster Motor w/Peerless pump 80LI-I-5558 yes
3098 250 HP US Motor w/pump and Booster Motor 1064217 yes
3100 200 HP GE Motor KHJ1018106 yes
3101 w/Lane Bowler Pump 15018 yes
3102 200 HP GE Motor w/pump RTJ415014 yes
3103 150 HP US Motor w/pump no 1151069 yes
3104 250 HP U Holloshaft Motor no 1365076 yes
3105 75 HP Beldor Motor no 1269C yes
3106 Booster Motor 40 HP Beldor 689C yes
3107 9 Tower Valley Pivot 6000 55120 yes
3108 9 Tower Valley Pivot 6000 55078 yes
3109 John Deere 450 Manure Spreader 450 WOO450X015854 yes
3110 New Holland Windrower 2550 567809 yes good
w/ New Holland Head 2214 563804 yes
3111 New Holland 2550 Windrower 567794 yes good
w/2214 Head 563800 yes
3112 John Deere Mulch Flex Planter 7100 044223A good
3113 1988 Dodge Dakota 1B7GN14X4JS721330 yes good
3114 1994 Kawasaki Bayou 220A7 1KBLFBA16RB564502 yes good
3115 1994 Kawasaki Bayou 220A7 JKBLFBA1XRB564261 yes good
3117 75 HP Beldor Motor 1289C yes
3118 40 HP Beldor Motor 689C yes
3119 Uniclosed Motor w/Peerless Pump C1004883 yes
3120 9 Tower Valley 6000 70005 yes
3121 9 Tower Valley 6000 70020 yes
3122 250 HP GE Motor w/Lane Bauer pump HIJ812127 yes
3123 Booster Lane Bauer w/Peerless Pump AL96626-433-5 yes
3124 Booster Westinghouse 100 HP Motor 8008 yes
w/Peerless Pump 80LIII5557
3125 Ford Tractor 4100 DA23BJ7JG11 yes fair
3126 1984 Kenworth Truck K100 1XKKD29X4EK357044 yes fair
3127 Kirby Bale Processor KROT 8806 yes fair
3128 8x30 Box Scraper no Jan-95 good
3129 Valley Model Pivot 8000 75403 yes Dec-94 new
3130 1995 Almar Pocket Paddle 8 row yes Mar-95 new
3131 Yes Cobey Compost Turner 1200 10910 yes May-95 new
001-6021567-000
3132 Yes Case IH Tractor 5230MFD JJF1038747 Yes new
3133 Yes 1994 Ford P/U (Keith) 1FTEF14N2RLB08700 yes good
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
3080 John Deere Tractor 2 $ 30,000 $ 20,000 $ 10,000
3081 Leon Dozer Blade 2 $ 4,000 $ 2,000 $ 2,000
3082 John Deere Dics, 16' off set 2 $ 8,500 $ 6,000 $ 2,500
3083 Case Disc 2 $ 8,500 $ 7,000 $ 1,500
3084 John Deere Bush Hog mower 2 $ 1,000 $ 500 $ 500
3085 Ace 20' Roller Harrow 2 $ 4,000 $ 7,000 $ (3,000)
3086 Case Chisel 2 $ 7,500 $ 3,000 $ 4,500
3087 Ace 100 gallon sprayer 2 $ 200 $ 300 $ (100)
3088 IHC Dump Truck (Blue water truck) 2 $ 250 $ 500 $ (250)
3089 Ferguson Tractor 2 $ 1,000 1,000
3090 200 Gallon propane weed burner 2 $ 250 $ 250
3091 John Deere Blade 2 $ 750 $ 2,000 $ (1,250)
3092 EZEE-on Loader mounted on JD 4440 2 $ 4,000 $ 2,000 $ 2,000
3093 Case DiscHitch Hiker 2 $ 500 $ 1,000 $ (500)
3094 250 HP GE Motor w/Peerless Pump CV I, East 1 $ -
3095 Uniclose Booster Motor w/Peerless Pump CV I, East 1 $ -
3096 350 HP Pump GE Motor w/Peerless Pump S. Burley Farm 1 $ -
3097 Westinghouse Booster Motor w/Peerless pump S. Burley Farm 1 $ -
3098 250 HP US Motor w/pump and Booster Motor West Schodde 1 $ -
3100 200 HP GE Motor West CV I 1 $ -
3101 w/Lane Bowler Pump West CV I 1 $ -
3102 200 HP GE Motor w/pump CV 2 1 $ -
3103 150 HP US Motor w/pump Schaeffer Farm 1 $ -
3104 250 HP U Holloshaft Motor E. Schodde Farms 1 $ -
3105 75 HP Beldor Motor E. Schodde Farm 1 $ -
3106 Booster Motor 40 HP Beldor E. Schodde Farm 1 $ -
3107 9 Tower Valley Pivot E. Schodde Farm 2 $ 18,000 $ (18,000)
3108 9 Tower Valley Pivot W. Schodde Farm 2 $ 18,000 $ (18,000)
3109 John Deere 450 Manure Spreader feedlot 2 $ 1,000 $ 500 $ 500
3110 New Holland Windrower 2 $ 57,800 $ 35,600 $ 22,200
w/ New Holland Head
3111 New Holland 2550 Windrower 2 $ 57,800 $ 35,600 $ 22,200
w/2214 Head
3112 John Deere Mulch Flex Planter 2 $ 5,000 $ 1,500 $ 3,500
3113 1988 Dodge Dakota 2 $ 4,000 $ 4,000 $ -
3114 1994 Kawasaki Bayou 2 $ 2,500 $ 1,500 $ 1,000
3115 1994 Kawasaki Bayou 2 $ 1,500 $ 1,500 $ -
3117 75 HP Beldor Motor W. Schodde 1 $ -
3118 40 HP Beldor Motor W. Schodde 1 $ -
3119 Uniclosed Motor w/Peerless Pump CV 2 1 $ -
3120 9 Tower Valley CV 2 2 $ 20,000 $ 18,000 $ 2,000
3121 9 Tower Valley CV2 2 $ 20,000 $ 18,000 $ 2,000
3122 250 HP GE Motor w/Lane Bauer pump Burley Farm 1 $ -
3123 Booster Lane Bauer w/Peerless Pump Burley Farm 1 $ -
3124 Booster Westinghouse 100 HP Motor Schaeffer Farm 1 $ -
w/Peerless Pump
3125 Ford Tractor 2 $ 5,000 $ 2,000 $ 3,000
3126 1984 Kenworth Truck 2 $ 8,000 $ 4,000 $ 4,000
3127 Kirby Bale Processor KROT 2 $ 9,000 $ 2,500 $ 6,500
3128 8x30 Box Scraper 2 $ 500 $ (500)
3129 Valley Model Pivot 2 $ 15,000 $ 10,000 $ 5,000
3130 1995 Almar Pocket Paddle 8 row 2 $ 2,500 $ (2,500)
3131 Yes Cobey Compost Turner 1 $ -
001-6021567-000
3132 Yes Case IH Tractor 1 $ -
3133 Yes 1994 Ford P/U (Keith) 1 $ -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
3134 Yes 1993 Ford P/U (calf truck) F150 1FTDF15Y6PLA36272 yes good
3135 Tire Scraper yes Dec-96 new
3136 HS Hay Trailor (red) fair
3137 40 HP lagoon pump GE Gould Pump RSJ410105 yes
3138 82 Chevy Pickup w/flatbed 1GCGC24M1CF346106 yes fair
3139 Fruehauf Pup Trailer yes fair
3140 Pipe Trailer (white) yes good
3141 Pipe Trailer (red) yes good
3142 Yes 1995 924F Cat Loader 924F 5NN00316 yes Mar-97 good
3143 Yes 96 Case IH 5230 MFD Tractor 5230MFD JJF1058639 yes Mar-97 new
3144 2440 John Deere Tractor 2440 no junk
3145 Yes 20 ft Case IH Grain Drill 5400 JAG0850448 yes Apr-96 new
3146 Ditch Closer yes fair
3147 The Bale Handler (8 pack) yes good
3148 Allway Rowmaster 8-row Cultivator yes good
3149 Ford Fuel Trailer with Fuel Tank yes fair
3150 (Ranch King?) 16 HP Riding Lawn Mower yes new
136 Totals
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
3134 1 $ -
3135 2 $ -
3136 2 $ 500 $ (500)
3137 1 $ -
3138 2 $1,500 $ 500 $ 1,000
3139 2 $ 2,000 $ (2,000)
3140 2 $ 500 $ (500)
3141 2 $ 500 $ (500)
3142 1 $ -
3143 1 $ -
3144 2 $ -
3145 1 $ -
3146 2 $ 1,500 $ (1,500)
3147 2 $ 1,000 $ (1,000)
3148 2 $ 2,000 $ (2,000)
3149 2 $ 500 $ (500)
-------------------------------------
3150 2 N/A N/A
-------------------------------------
136 Totals $571,631 $388,500 $183,131 $837,218
</TABLE>
<PAGE>
EXHIBIT 7A TO
LOAN AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
----------------------
Attached
<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Compliance Certificate
-------------------------------------------------------------------
-------------------------------------------------------------------
Accompanying Financial Statements as of 5/31/97
--------------
The undersigned officer of Horizon Organic Holding
Corporation, ("the Borrower") hereby submits the
financial statements of the Borrower as of the date
written above, and certifies as follows:
1. That, to the best of my knowledge, "Borrower"
is in compliance with the terms and conditions
of the Note and the Loan Agreements dated as of
July , 1997 between Borrower and FBS Ag Credit
as and
2. That the amounts set forth in this Compliance
Certificate are true, correct and consistent
with generally accepted accounting principals
except as provided in the Loan Agreements as
of the date written above, which amounts are
used to illustrate compliance with certain
quantitative covenants of the Loan Agreements
as follows:
<TABLE>
<CAPTION> Actual Required
---------------- -----------------------
<S> <C> <C> <C>
a. Tangible Net Worth:
Total Tangible Assets 26,041,626
Less Total Liabilities 14,849,083
---------------- ----------------
Equals $11,192,543 At least $8,000,000 plus
---------------- 60% of cumulative positive
net income beginning with
the 12/31/97 financials
b. Working Capital Ratio:
Current Assets $18,836,414
Divided by Current Liabilities $9,922,155
---------------- ----------------
Equals 1.90 Not less than 1.15 to 1
----------------
c. Total Liabilities to Tangible Net Worth Ratio:
Total Liabilities 14,849,083
Divided by Tangible Net Worth $11,192,543
---------------- ----------------
Equals 1.33 Not more than 2.0 to 1
----------------
b. Working Capital:
Current Assets $18,836,414
Less Current Liabilities $9,922,155
---------------- ----------------
Equals $8,914,260 Not less than $4,500,000
----------------
</TABLE>
HORIZON ORGANIC HOLDING CORPORATION
BY:
--------------------------------------
Don Gaidano, Vice President of Finance
Horizon Organic Holding Corporation
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 8A TO
LOAN AND SECURITY AGREEMENT
PERMITTED DISPOSITIONS OF PROPERTY
----------------------------------
None
<PAGE>
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
BETWEEN FBS AG CREDIT, INC.
---------------------------
and
---
HORIZON ORGANIC HOLDING CORPORATION
-----------------------------------
HORIZON ORGANIC DAIRY
---------------------
HORIZON ORGANIC DAIRY, MARYLAND FARM, INC.
------------------------------------------
HORIZON ORGANIC DAIRY, IDAHO FARM, INC.
---------------------------------------
DATED JULY 15, 1997
-------------------
This First Amendment to Loan and Security Agreement (the "Amendment") is
made as of the 23 day of March, 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 FBS Ag Credit, Inc., a
Colorado corporation.
RECITAL
-------
A. An Event of Default has occurred under the Loan and Security Agreement
dated July 15, 1997 (as the same may be amended, replaced, restated and/or
supplemented from time to time, the "Loan Agreement"). FBS Ag Credit has agreed
to waive this particular Event of Default.
B. Borrower wishes to finance the purchase of organic brand labels from
Juniper Valley Farms (the "Brand Label Purchase") and FBS Ag is willing to
consent to this transaction 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 at any time made to or
for the benefit of Borrower by FBS Ag Credit, Borrower and FBS Ag Credit agree
as follows:
1. Acknowledgment of Specific Defaults. Borrower acknowledges the
-----------------------------------
existence of the following Event of Default: As of December 31, 1997 and
through February 28, 1998 Borrower has failed to comply with Subsection 7.6(e)
-----------------
of the Loan Agreement, regarding minimum working capital requirements.
2. Waiver of Specific Defaults. FBS Ag Credit waives the specific Event
---------------------------
of Default enumerated in Section 1 of this Amendment. Notwithstanding the
---------
foregoing waiver, it is expressly understood and agreed that FBS Ag Credit's
failure, at any time or times hereafter, to require strict performance by
Borrower of any provision of the Loan Agreement, including without limitation,
the provisions of Subsection 7.6(e) of the Loan Agreement (as modified by this
-----------------
Amendment), shall not waive, affect or diminish any right of FBS Ag Credit
thereafter to demand strict compliance and performance therewith, and shall not
suspend, waive or affect any other Event of Default, whether the same is prior
or subsequent thereto and whether of the same or a different kind or character.
<PAGE>
3. 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
$5,000,000 plus 60% of the cumulative annual positive net income
beginning with the fiscal year end and consolidated financial
results of December 31, 1997; (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 3.5 to 1 through April 1, 1998, and
thereafter not more than 3.0 to 1; (d) minimum Working Capital of
$3,000,000 after February 28, 1998 through May 31, 1998, $3,500,000
after May 31, 1998 through December 31, 1998 and $4,000,000 after
December 31, 1998.
4. Notwithstanding the Affirmative and Negative Covenants in the Loan
Agreement that would prohibit the Brand Label Purchase, FBS Ag Credit hereby
consents to the Brand Label Purchase subject to the following conditions: (i)
the purchase price shall not exceed $5,900,000; (ii) financing of the purchase
price shall be on an unsecured basis and shall be repaid within 120 days from
the closing of the transaction. FBS Ag Credit agrees that the effect of the
Brand Label Purchase shall be ignored for purposes of determining compliance
with Subsection 7.6 of the Loan Agreement for 120 days from the closing of the
--------------
transaction.
5. 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.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
<PAGE>
HORIZON ORGANIC HOLDING
CORPORATION
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
------------------------------- -----------------------------------
Its: CFO Its: President
--------------------------- -------------------------------
(SEAL)
HORIZON ORGANIC DAIRY, INC.
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
------------------------------- -----------------------------------
Its: CFO Its: President
--------------------------- -------------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
------------------------------- -----------------------------------
Its: CFO Its: President
---------------------------- -------------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
IDAHO FARM, INC.
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
------------------------------- -----------------------------------
Its: CFO Its: President
--------------------------- -------------------------------
(SEAL)
FBS AG CREDIT, INC.
By: Kenneth Warlick
------------------------------------
Its: V.P.
-----------------------------------
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY
-------------------------------------
AGREEMENT BETWEEN FBS AG CREDIT, INC.
-------------------------------------
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 Second Amendment to Loan and Security Agreement (this "Amendment") is
made as of the 6th day of April, 1998, between Horizon Organic Holding
Corporation, a Delaware corporation; Horizon Organic Dairy, a Colorado
corporation, Horizon Organic Dairy, Inc., 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. BANCORP AG
CREDIT, INC. f/k/a FBS Ag Credit, Inc., a Colorado corporation ("U.S.
Bancorp").
RECITAL
-------
The Borrower has requested that U.S. Bancorp make an additional loan to
Borrower, and U.S. Bancorp 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 and Security Agreement between Borrower and
U.S. Bancorp dated July 15, 1997 (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 U.S.
Bancorp, the Borrower and U.S. Bancorp agree as follows:
1. A new Subsection 2.1.3, shall be added to the Loan Agreement as
----------------
follows:
2.1.3 Term Loan. U.S. Bancorp agrees to advance ("Term Loan
---------
Advance") to Borrower the principal sum of Two Million Dollars ($2,000,000)
("Term Loan"). The Term Loan shall be evidenced by and repayable in accordance
with the terms of Borrower's promissory note ("Term Note"), the form of which is
attached as Exhibit 2B.
----------
2. The following sentence shall be added to Subsection 2.4 of the Loan
--------------
Agreement:
The purpose of the Term Loan is to provide funds for the partial payment of
the Borrower's Juniper Valley Farm's organic brand and label acquisition (the
"Brand & Label Acquisition"), which will cost no more than $6,000,000.
3. In addition to the fees provided for by Subsection 2.5 of the Loan
--------------
Agreement, Borrower agrees to pay to U.S. Bancorp a commitment fee for the Term
Loan in the amount of Two Thousand Five Hundred Dollars ($2,500), payable on the
date of this Amendment.
<PAGE>
4. The following sentence shall be added to Subsection 5.1 of the Loan
--------------
Agreement:
Borrower agrees to grant to U.S. Bancorp liens against Borrower's interests
in real property located in Jerome County, Idaho and Kent County, Maryland,
which liens shall be evidenced by Borrower's mortgages (the "Mortgages"), copies
of which are attached as Exhibit 5A.
----------
5. A new Subsection 7.10, shall be added to the Loan Agreement as follows:
---------------
7.10 Equity and Subordinated Debt Commitments. On or before April 30,
----------------------------------------
1998, Borrower shall obtain equity and subordinated debt loan commitments not
less than $8,000,000 for repayment of the Term Loan on or before July 31, 1998,
for repayment of the balance of the purchase price of the Brand & Label
Acquisition and to replenish the Borrower's working capital.
6. Paragraph 4 of the First Amendment to the Loan Agreement shall be
amended to read in full as follows:
Notwithstanding the Affirmative and Negative Covenants in the Loan
Agreement that would prohibit the Brand Label Purchase, FBS Ag Credit hereby
consents to the Brand Label Purchase subject to the following conditions: (i)
the purchase price shall not exceed $6,000,000; and (ii) financing of the
purchase price shall be repaid within 120 days from the closing of the
transaction. FBS further consents to the execution and delivery of a Security
Agreement, a copy of which is attached hereto as Exhibit 5B, providing for
----------
certain purchase money security interests as set forth therein, together with
related UCC-1 financing statements. FBS Ag Credit agrees that the effect of the
Brand Label Purchase shall be ignored for purposes of determining compliance
with Subsection 7.6 of the Loan Agreement for 120 days from the closing of the
--------------
transaction.
7. 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 U.S. Bancorp: (i) this Amendment, (ii)
the Term Note, (iii) the Mortgages, (iv) Secretary's Certificates of Board of
Directors' Resolutions authorizing the execution and delivery of this Amendment;
and (iv) a UCC-1 financing statement by Horizon Organic Holding Corporation for
filing in the appropriate County in the State of New York.
8. 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.
2.
<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 Gaidano By: /s/ Barnet M. Feinblum
----------------------------- --------------------------------
Its: Assistant Secretary Its: President
------------------------ ------------------------------
(SEAL)
HORIZON ORGANIC DAIRY, INC.
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
----------------------------- ---------------------------------
Its: Assistant Secretary Its: President
------------------------ ------------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
----------------------------- ----------------------------------
Its: Assistant Secretary Its: President
------------------------ ------------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
IDAHO FARM, INC.
By: /s/ Don Gaidano By: /s/ Barnet M. Feinblum
----------------------------- ----------------------------------
Its: Assistant Secretary Its: President
-------------------------- -------------------------------
(SEAL)
U.S. BANCORP AG CREDIT, INC.
By: /s/ Kenneth L. Warlick
------------------------------------
Its: V.P.
---------------------------------
3.
<PAGE>
Exhibit 2B to
Loan and Security Agreement
Term Note
---------
Attached
4.
<PAGE>
TERM NOTE
---------
$2,000,000 Denver, Colorado
April 6, 1998
FOR VALUE RECEIVED, the undersigned Horizon Organic Holding Corporation, a
Delaware corporation; Horizon Organic Dairy, Inc., 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. Bancorp
Ag Credit, Inc. f/k/a FBS Ag Credit, Inc., a Colorado corporation ("U.S.
Bancorp") at 950 Seventeenth Street, Suite 350, Denver, Colorado 80202, or at
such other place as U.S. Bancorp may designate, in lawful money of the United
States of America, the principal sum Two Million Dollars ($2,000,000), together
with interest thereon, to be accrued each month ( accrued on the basis of a 360
day year, actual days elapsed) at a fluctuating rate per annum at all times two
percent (2%) above the Reference Rate as quoted by U.S. Bank National
Association, Minneapolis, Minnesota ("U.S. Bank"), which is a base rate that
U.S. Bank from time to time establishes and which serves as the basis upon
which effective rates of interest are calculated for those loans which make
reference thereto. Each change in the rate of interest hereunder shall become
effective on the date each Reference Rate change is announced within U.S. Bank.
The unpaid balance of this obligation at any time shall be the total
amounts advanced hereunder by U.S. Bancorp 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 U.S. Bancorp.
Interest accrued on this Note shall be payable on the 1st day of each
month, commencing May 1, 1998 by an automatic Line of Credit Advance under
Borrower's Line of Credit.
In addition to the repayment requirements imposed upon Borrower under
Borrower's Loan and Security Agreement with U.S. Bancorp (as the same may be
amended, replaced, restated, and/or supplemented from time to time, 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 to the Loan Agreement or
as a voluntary prepayment shall be applied first to any costs or fees owing by
Borrower to U.S. Bancorp, 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.
<PAGE>
Anything herein or in the Loan Agreement to the contrary notwithstanding,
all principal and interest remaining unpaid on July 31, 1998 ("Maturity Date"),
shall be immediately due and payable, unless such maturity Date shall be
extended by U.S. Bancorp as set forth below.
Advances hereunder, to the total amount of principal sum stated above, may
be made by U.S. Bancorp 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 U.S. Bancorp at the address designated above. Any such Advances
shall be conclusively presumed to have been made to or for the benefit of
Borrower when U.S. Bancorp 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.
Borrower may, at any time, without additional premium or penalty, repay
part or the entire balance of principal or interest owing to U.S. Bancorp under
this Note.
Notwithstanding the provisions of this Note, U.S. Bancorp 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 U.S. Bancorp, shall become an obligation of Borrower and any surety of
Borrower's indebtedness to U.S. Bancorp 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 U.S. Bancorp in excess of
the face amount stated in this Note. U.S. Bancorp 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 U.S. Bancorp and notice thereof shall be
given by U.S. Bancorp 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 U.S. Bancorp's option, U.S. Bancorp 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 U.S. Bancorp 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.
2.
<PAGE>
This note shall be construed in accordance with the laws of the State of
Colorado.
HORIZON ORGANIC HOLDING
CORPORATION
By: By:
------------------------------ -----------------------------------
Its: Its:
--------------------------- --------------------------------
(SEAL)
HORIZON ORGANIC DAIRY, INC.
By: By:
------------------------------ -----------------------------------
Its: Its:
--------------------------- --------------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
By: By:
------------------------------- -----------------------------------
Its: Its:
---------------------------- --------------------------------
(SEAL)
HORIZON ORGANIC DAIRY,
IDAHO FARM, INC.
By: By:
------------------------------- -----------------------------------
Its: Its:
---------------------------- --------------------------------
(SEAL)
3.
<PAGE>
Exhibit 5A to
Loan and Security Agreement
Mortgages
---------
Attached
<PAGE>
REAL ESTATE MORTGAGE
THIS MORTGAGE, made as of the 6th day of April, 1998, between Horizon
Organic Dairy, Maryland Farm, Inc., a Colorado corporation, whose address is c/o
Horizon Organic Holding Corporation, PO Box 17577, Boulder, CO 80308-7577
(hereinafter called "Mortgagor" whether one or more) and U.S. Bancorp Ag Credit,
Inc. f/k/a FBS Ag Credit, Inc., a Colorado corporation, 950 Seventeenth Street,
Suite 350, Denver, Colorado 80202 (hereinafter called "U.S. Bancorp").
WITNESSETH, THAT WHEREAS, the Mortgagor has executed a Loan and Security
Agreement with U.S. Bancorp dated July 15, 1997, as amended by; a Second
Amendment thereto of even date herewith, which Loan and Security Agreement may
be extended and modified from time to time hereafter, and which Agreement
entitles Mortgagor to borrow principal sums from U.S. Bancorp up to the amount
of Twelve Million Dollars ($12,000,000), which indebtedness is and shall be
evidenced by the Promissory Notes of Mortgagor, executed on this date and to be
executed from time to time hereafter, with interest thereon and payable
according to the terms thereof.
NOW, THEREFORE, said Mortgagor, in consideration of these premises, and to
secure up to but not exceeding Five Hundred Thousand Dollars ($500,000) (the
"Amount Secured") of the payment of said Promissory Notes, and any other sums
that may be added to the principal indebtedness under the terms of this
instrument, together with interest on the Amount Secured and any sums advanced
or expended by U.S. Bancorp in protection or enforcement of its interests
hereunder and to secure the prompt performance of all promises, conditions and
covenants related thereto, does hereby mortgage the hereinafter described real
property for the sum of and hereby warrants unto U.S. Bancorp, its successors
and assigns forever, all the following described property, lands and premises
situate in the County of Kent, State of Maryland, to-wit:
That real property described and set forth in Exhibit A attached hereto and
made a part hereof, together with all and singular the privileges and
appurtenances thereunto belonging, including, but not limited to, all
water, water rights, water privileges, ditches, ditch rights, ditch
privileges, rights of way, headgates, flumes, wells, well equipment, pumps,
pumping equipment, pumping accessories, sprinkler systems, fences, corrals,
silos, elevators, storage bins and other storage facilities, warehouses,
buildings, building fixtures, and building equipment, along with all other
fixtures and equipment now or hereafter installed in, attached to or used
in connection with the premises herein described.
Mortgagor and U.S. Bancorp agree that the Amount Secured is based upon the
estimated fair market value of the property described herein after accounting
for permitted prior liens and is the maximum aggregate amount of principal to be
secured at any one time.
<PAGE>
In addition to the real property herein described, this Mortgage covers the
rent, issues and profits derived and to be derived out of said real property.
It is stipulated and agreed, however, that under the foregoing assignment and
pledge of the rents, issues and profits from said real estate, collection of
rents will be enforced only upon delinquency of the Mortgagor in complying with
the terms and provisions of this Real Estate Mortgage, or in the event that
taxes assessed against said real estate become delinquent, U.S. Bancorp is
authorized and directed to assume the management and control of said property
and is hereby directed to let, lease and collect the rents therefrom without
Process of Law or Order of Court, and upon receipt of written request from U.S.
Bancorp, all tenants of and upon receipt of said premises hereby are directed to
pay promptly all rent as it falls due, at the current place designated for
payments in the said Loan and Security Agreement and Promissory Notes, without
further notice from the Mortgagor.
THE SAID MORTGAGOR EXPRESSLY COVENANTS AND AGREES:
To pay promptly when due, all taxes and assessments of every type or nature
levied or assessed against the premises and any claim, lien or encumbrance
against the premises which may be or may become prior to this Mortgage.
To maintain insurance on all improvements, fixtures and equipment on all
premises against loss by fire, extended coverage, and other hazards commonly
insured against by owners of like property, for the benefit of U.S. Bancorp, in
an amount of not less than the replacement value and in a company reasonably
acceptable to U.S. Bancorp. In the event that an insurer elects to pay a fire
or other hazard loss as damages in cash, rather than to repair, rebuild or
replace the property lost or damaged, U.S. Bancorp shall have the option to
apply the proceeds of such cash settlement of fire or other hazard loss upon the
sum hereby secured.
To waive all Homestead Exemptions and all other similar rights now vested
or to be acquired.
Except for existing encumbrances, not to alienate nor to encumber to the
prejudice of U.S. Bancorp, or commit, permit, or suffer any waste, impairment or
deterioration of said property and, regardless of natural depreciation, to keep
said property and the improvements thereon at all times in good condition and
repair, ordinary wear and tear excepted. That U.S. Bancorp shall have the right
to have their authorized representative or representatives enter upon and
inspect such premises at reasonable times, after notice of such proposed
inspection has been given to said Mortgagor, and in the event of any sale or
transfer of the title to the property herein described, such purchaser or new
owner shall be deemed to have assumed and agreed to pay the indebtedness owing
to U.S. Bancorp hereunder, whether or not the instrument evidencing such sale or
transfer expressly so provides, and this covenant shall run with said real
property and remain in full force and effect until said indebtedness is
liquidated.
<PAGE>
That if there shall be any conveyance of any nature or change of ownership,
either legal or equitable, whether recorded or not, of the premises covered
hereby, U.S. Bancorp may declare the entire principal and all accrued interest
due and payable at once, at the sole option and election of U.S. Bancorp, and
foreclosure proceedings may be instituted as for any other default hereunder.
That in the event of the refusal or neglect by Mortgagor to keep said
property and the improvements thereon at all times in good repair, ordinary wear
and tear excepted, to pay promptly all taxes, fire and other hazard insurances
premiums, assessments, levies, liabilities, obligations, principal or interest
on this or any other encumbrance on said real property, or to perform any other
agreement, condition, stipulation, or covenant as herein provided, U.S. Bancorp
may procure such things to be done at Mortgagor's expense and may make any
reasonable expenditure or outlay thereon and add such amounts to the unpaid
principal indebtedness then due U.S. Bancorp and secured by the within Mortgage
of Real Estate.
That U.S. Bancorp shall have the right to file and defend suits at the
expense of Mortgagor and in their name for the recovery of damages to the within
described real property, or, at the expense of Mortgagor, to uphold the lien of
this encumbrance and preserve its right hereunder, but shall incur no personal
liability by their acts or omissions in managing, improving and conserving said
security hereunder, or otherwise.
That all sums expended as costs of such litigation, or advanced by U.S.
Bancorp, in any other contingency herein mentioned (including any attorney's
fees reasonably incurred), shall be repaid by Mortgagor upon demand, or as may
be expressly arranged with U.S. Bancorp, and such sums with interest at the rate
provided in and of the said Promissory Notes shall become so much additional
indebtedness secured by this Mortgage of Real Estate and shall be a lien on said
premises, prior to any right, title or interest attaching or accruing subsequent
to such advances and expenditures, and shall be paid out of the proceeds of the
sale of the property aforesaid, if not otherwise paid by the Mortgagor.
That if any portion of the encumbered property shall be condemned or taken
for public use under the power of eminent domain, or in the event that the
property shall be damaged either by public works or private acts, all damages
and compensation therefor, to the extent of the remaining indebtedness under
said Loan and Security Agreement, Promissory Notes and this Mortgage of Real
Estate, shall be paid to U.S. Bancorp and shall be applied upon the obligations
guaranteed.
Upon default by Mortgagors, under the terms of this Mortgage or the terms
of any other instrument or document evidencing the obligations secured hereby,
U.S. Bancorp shall have the power to sell the aforesaid real property in
accordance with Maryland law.
<PAGE>
That in the event of foreclosure and sale hereunder, the Mortgagor agrees
to pay a reasonable attorney's fee for legal services rendered in such
foreclosure proceedings or suit.
In the event of foreclosure and sale hereunder, U.S. Bancorp shall retain
the right to pursue and receive judgment for any deficiency balance remaining
unpaid after foreclosure, and to exercise all other legal and equitable remedies
for the collection of the indebtedness which it is owed; it being expressly
understood and agreed that all rights and remedies of U.S. Bancorp are
cumulative and may be exercised in any order.
It is further expressly understood and agreed that in the event of
foreclosure and sale hereunder, the obligations of Mortgagor as set forth herein
shall continue and remain in full force and effect during any applicable
redemption period and during such period, the purchaser at the foreclosure sale
may procure such things be done and make any reasonable expenditure or outlay
thereon to fulfill said obligations, which amounts shall be an additional lien
on the premises covered hereby.
That in the event the ownership of the encumbered property, or any part
thereof, becomes vested in a person other than the Mortgagor, U.S. Bancorp may,
without notice to the Mortgagor, extend the time of payment of any or all of the
installments or other payments herein covenanted to be made, and may deal with
such new owner or owners with reference to this Mortgage of Real Estate and the
debt hereby secured in the same manner as with the Mortgagor, without in any way
vitiating or discharging the Mortgagor's liability hereunder, or upon the
indebtedness hereby secured.
That no waiver, express or implied, of the performance of any obligation,
agreement or covenant hereof, shall be deemed or taken to be a waiver of any
other term, condition, obligation, agreement or covenant hereof and the
indulgence of U.S. Bancorp to the Mortgagor or their grantees in not exercising
their option to declare the entire amount secured hereby to be due and payable
upon the happening of any one of the events or conditions herein described,
shall not, even though such indulgence be repeated or extended, be construed as
a waiver of the right of U.S. Bancorp to exercise such option at any time
thereafter and without notice to the Mortgagor.
This Mortgage constitutes a Security Agreement under the Uniform Commercial
Code of the State of Maryland (herein called the "Code") with respect to any
part of the premises which may or might now hereafter be deemed to be personal
property, fixtures or property other than real estate (for the purposes of this
paragraph called "Collateral"); all of the terms, provisions, conditions and
agreements contained in this Mortgage should pertain and apply to the Collateral
as fully and to the same extent as to any other property covered; and, the
following provisions of this paragraph shall not limit the generality or
applicability of any other provision of this Mortgage but shall be an addition
thereto.
<PAGE>
It is further expressly understood and agreed that all covenants and
agreements herein described shall extend to and be binding upon the heirs,
executors, legal representatives, successors and assigns (voluntary and
involuntary by operation of law) of the respective parties hereto.
IN WITNESS WHEREOF, the said Mortgagor has hereunder set their hand and
seal the day and year first above written.
HORIZON ORGANIC DAIRY,
MARYLAND FARM, INC.
By: /s/ Barnet M. Feinblum By: /s/ Don Gaidano
-------------------------------- -----------------------------------
Its: President Its: CFO
----------------------------- ---------------------------
(SEAL)
STATE OF COLORADO )
)ss.
COUNTY OF Boulder )
-------
On this the 22nd day of April , 19 98 , before me, the undersigned
------- --------- ------
officer, personally appeared Barnet Feinblum , known to me to be the person
-------------------
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
In witness whereof I hereunto set my hand and official seal.
My commission expires: 6/23/2001
-----------
/s/ Jennifer Kennedy
--------------------
Notary Public
<PAGE>
ADDED PAGE
(Schedule A. continued)
Policy Number: 21 5192 106 00000023
--------------------
Owners
Policy Number:
---------------------
Loan
ALL that tract or parcel of land situate, lying and being in the Second
Election District of Kent County, Maryland, more particularly described in
accordance with a survey made by Michael A. Scott Inc., Registered Surveyor,
dated May, 1997, as follows:
BEGINNING FOR THE SAME at an iron rod set at the intersection of the
division line between the lands of Calvin D. McHenry et al. (see E.H.P. 195/9)
and the herein described lands with the southeasternmost side of U.S. Route 213
(see S.R.C. Plats 12672-12674).
THENCE, leaving said Route 213 and binding on the division line between the
McHenry lands and the herein described lands South fifty one degrees eight
minutes thirty four seconds East (S 51(degree)08'34" E), a distance of two
thousand six hundred thirty five and 70/100 (2635.70) feet to a point in the
centerline of a stream at the intersection of the division line between the
McHenry lands, lands of Ralph L. Buckel Sr. et ux. (see M.L.M. 93/168) and the
herein described lands. Passing in transit an iron rod set a distance of two
thousand six hundred and 00/100 (2600.00) from the beginning thereof.
THENCE, leaving the McHenry lands and binding on the division line between
the Buckel lands and the herein described lands with the centerline of said
stream the following sixty seven (67) courses and distances: North eighty nine
degrees fifty minutes thirty eight seconds West (N 89(degree)50'38" W), a
distance of seventy and 92/100 (70.92) feet to a point, North seventy nine
degrees thirty nine minutes twenty two seconds West (N 79(degree)39'22" W), a
distance of forty four and 53/100 (44.53) feet to a point, North seventy degrees
twenty three minutes forty four seconds West (N 70(degree)23'44" W), a distance
of forty eight and 38/100 (48.38) feet to a point, South eighty nine degrees
fourteen minutes forty two seconds West (S 89(degree)14'42" W), a distance of
thirty five and 60/100 (35.60) feet to a point, North seventy six degrees twenty
minutes fifty four seconds West (N 76(degree)20'54" W), a distance of sixty
seven and 84/100 (67.84) feet to a point, North seventy degrees thirty minutes
forty one seconds West (N 70(degree)30'41" W), a distance of one hundred forty
and 72/100 (140.72) feet to a point, South fifty two degrees two minutes forty
six seconds West (S 52(degree)02'46" W), a distance of sixty two and 38/100
(62.38) feet to a point, South eighty eight degrees forty minutes three seconds
West (S 88(degree)40'03" W), a distance of fifty two and 60/100 (52.60) feet to
a point, South forty eight degrees nineteen minutes forty seven seconds West (S
48(degree)19'47" W), a distance of fifty and 29/100 (50.29) feet to a point,
South seventy six degrees forty one minutes one seconds West (S 76(degree)41'01"
W), a distance of sixty six and 96/100 (66.96) feet to a point, South sixty six
degrees thirty minutes forty seconds West
POLICY INSERT
Added Page
Reorder From No. 3237 (Rev. 2/89)
<PAGE>
(S 66(degree)30'40" W), a distance of eighteen and 31/100 (18.31) feet to a
point, South fifty one degrees forty two minutes twenty five seconds West (S
51(degree)42'25" W), a distance of one hundred forty one and 82/100 (141.82)
feet to a point, South thirty three degrees eighteen minutes forty seconds West
(S 33(degree)18'40" W), a distance of ninety eight and 68/100 (98.68) feet to a
point, South twenty nine degrees fourteen minutes four seconds West (S
29(degree)14'04" W), a distance of one hundred ninety seven and 58/100 (197.58)
feet to a point, South thirty four degrees twelve minutes fifty three seconds
West (S 34(degree)12'53" W), a distance of eighty four and 28/100 (84.28) feet
to a point, South twelve degrees sixteen minutes ten seconds West (S
12(degree)16'10" W), a distance of eighty three and 64/100 (83.64) feet to a
point, South sixty seven degrees forty two minutes forty five seconds West (S
67(degree)42'45" W), a distance of two hundred thirty four and 92/100 (234.92)
feet to a point, South fifty five degrees thirty two minutes seven seconds West
(S 55(degree)32'07" W), a distance of one hundred and 67/100 (100.67) feet to a
point, South fifty five degrees forty three minutes fifty six seconds West (S
55(degree)43'56" W), a distance of one hundred eighteen and 92/100 (118.92) feet
to a point, South forty two degrees six minutes twenty seven seconds West (S
42(degree)06'27" W), a distance of one hundred and 82/100 (100.82) feet to a
point, South thirty two degrees forty four minutes seven seconds West (S
32(degree)44'07" W), a distance of seventy seven and 75/100 (77.75) feet to a
point, South twenty nine degrees one minutes four seconds West (S
29(degree)01'04" W), a distance of one hundred twenty seven and 68/100 (127.68)
feet to a point, South sixteen degrees fifty nine minutes forty eight seconds
West (S 16(degree)59'48" W), a distance of ninety nine and 83/100 (99.83) feet
to a point, South fifty five degrees thirty minutes nine seconds West (S
55(degree)30'09" W), a distance of one hundred twenty two and 22/100 (122.22)
feet to a point, South fifteen degrees three minutes forty six seconds West (S
15(degree)03'46" W), a distance of twenty six and 85/100 (26.85) feet to a
point, South fifteen degrees fifty two minutes thirty seven seconds East (S
15(degree)52'37" E), a distance of thirty eight and 52/100 (38.52) feet to a
point, South seventeen degrees forty eight minutes twenty nine seconds West (S
17(degree)48'29" W), a distance of forty and 98/100 (40.98) feet to a point,
South fifty eight degrees one minutes eight seconds East (S 58(degree)01'08" E),
a distance of sixty and 23/100 (60.23) feet to a point, South fifty one degrees
thirty three minutes two seconds West (S 51(degree)33'02" W), a distance of
ninety four and 93/100 (94.93) feet to a point, South eighty degrees zero
minutes forty eight seconds West (S 80(degree)00'48" W), a distance of thirty
nine and 44/100 (39.44) feet to a point, South fifty nine degrees eighteen
minutes six seconds West (S 59(degree)18'06" W), a distance of fifty two and
24/100 (52.24) feet to a point, South forty degrees forty two minutes thirty
eight seconds West (S 40(degree)42'38" W), a distance of thirty two and 73/100
(32.73) feet to a point, South twenty two degrees thirty nine minutes seventeen
seconds West (S 22(degree)39'17" W), a distance of ninety one and 67/100 (91.67)
feet to a point, South seventy three degrees sixteen minutes one seconds west (S
73(degree)16'01" W), a distance of one hundred one and 67/100 (101.67) feet to a
point, South eighty eight degrees forty six minutes forty nine seconds West (S
88(degree)46'49" W), a distance of fifty three and 61/100
<PAGE>
(53.61) feet to a point, North sixty four degrees forty nine minutes fifty seven
seconds West (N 64(degree)49'57" W), a distance of nineteen and 38/100 (19.38)
feet to a point, South eighty nine degrees forty minutes thirty seven seconds
West (S 89(degree)40'37" W), a distance of twenty five and 48/100 (25.48) feet
to a point, South eighty degrees fifty two minutes thirty seven seconds West (S
80(degree)52'37" W), a distance of twenty (20.00) feet to a point, South sixty
seven degrees fifty four minutes fifty nine seconds West (S 67(degree)54'59" W),
a distance of sixteen and 37/100 (16.37) feet to a point, South twenty eight
degrees twelve minutes fifty three seconds West (S 28(degree)12'53" W), a
distance of sixty two and 3/100 (62.03) feet to a point, South seven degrees
twenty eight minutes four seconds East (S 07(degree)28'04" E), a distance of
thirty eight and 50/100 (38.50) feet to a point, South thirteen degrees fifty
two minutes fifty seven seconds West (S 13(degree)52'57" W), a distance of
thirty one and 77/100 (31.77) feet to a point, South thirty one degrees zero
minutes fifty eight seconds West (S 31(degree)00'58" W), a distance of eighty
two and 72/100 (82.72) feet to a point, South fourteen degrees eight minutes
thirty one seconds west (S 14(degree)08'31" W), a distance of sixty and 52/100
(60.52) feet to a point, South fifty two degrees twenty eight minutes forty two
seconds West (S 52(degree)28'42" W), a distance of fifty five and 45/100 (55.45)
feet to a point, South twenty seven degrees forty two minutes two seconds West
(S 27(degree)42'02" W), a distance of one hundred five and 55/100 (105.55) feet
to a point, South forty eight degrees thirty eight minutes thirty seconds West
(S 48(degree)38'30" W), a distance of sixty six and 57/100 (66.57) feet to a
point, South thirty one degrees twenty nine minutes thirty one seconds West (S
31(degree)29'31" W), a distance of one hundred nine and 41/100 (109.41) feet to
a point, South fifty one degrees twenty two minutes twenty seven seconds West (S
51(degree)22'27" W), a distance of fifty five and 1/100 (55.01) feet to a point,
South sixteen degrees fifty minutes four seconds West (S 16(degree)50'04" W), a
distance of forty four and 83/100 (44.83) feet to a point, South twenty six
degrees thirty six minutes ten seconds East (S 26(degree)36'10" E), a distance
of forty six and 35/100 (46.35) feet to a point, South twelve degrees twenty
minutes forty six seconds West (S 12(degree)20'46" W), a distance of twenty five
and 6/100 (25.06) feet to a point, South five degrees forty one minutes twenty
two seconds East (S 05(degree)41'22" E), a distance of eighty and 80/100 (80.80)
feet to a point, South four degrees three minutes thirty seven seconds East (S
04(degree)03'37" E), a distance of seventy three and 26/100 (73.26) feet to a
point, South twenty degrees fifty two minutes forty three seconds East (S
20(degree)52'43" E), a distance of seventy and 31/100 (70.31) feet to a point,
South zero degrees twenty minutes three seconds East (S 00(degree)20'03" E), a
distance of eighty four and 61/100 (84.61) feet to a point, South forty nine
degrees seventeen minutes fifty seconds West (S 49(degree)17'50" W), a distance
of eighty and 66/100 (80.66) feet to a point, South sixty two degrees thirty
minutes six seconds West (S 62(degree)30'06" W), a distance of seventy nine and
28/100 (79.28) feet to a point, South forty seven degrees forty minutes fifteen
seconds West (S 47(degree)40'15" W), a distance of fifty and 90/100 (50.90) feet
to a point, South sixty eight degrees twenty minutes twenty four seconds West (S
68(degree)20'24" W), a distance of thirty five and 5/100
<PAGE>
(35.05) feet to a point, South thirty seven degrees twenty four minutes
seventeen seconds West (S 37(degree)24'17" W), a distance of thirty eight and
70/100 (38.70) feet to a point, South fifty four degrees fifty four minutes
forty five seconds West (S 54(degree)54'45" W), a distance of fifty six and
50/100 (56.50) feet to a point, South sixty four degrees thirty one minutes
forty four seconds West (S 64(degree)31'44" W), a distance of thirty nine and
75/100 (39.75) feet to a point, South sixty four degrees two minutes eleven
seconds West (S 64(degree)02'11" W), a distance of forty five and 67/100 (45.67)
feet to a point, South ten degrees thirty minutes thirty three seconds West (S
10(degree)30'33" W), a distance of ninety seven and 27/100 (97.27) feet to a
point, South forty three degrees nineteen minutes eighteen seconds West (S
43(degree)19'18" W), a distance of ninety and 27/100 (90.27) feet to a point,
South thirty three degrees thirty six minutes thirty one seconds West (S
33(degree)36'31" W), a distance of sixty two and 98/100 (62.98) feet to a point
and South thirty three degrees three minutes twenty four seconds West (S
33(degree)03'24" W), a distance of forty one and 70/100 (41.70) feet to a point
at the intersection of the division line between the Buckel lands, lands of John
B. Hildebrandt et el. (see E.H.P. 267/548) and the herein described lands.
THENCE, leaving said stream and the Buckel lands and binding on the
division line between the Hildebrandt lands and the herein described lands South
fifty two degrees forty two minutes fifty six seconds West (S 52(degree)42'56"
W), a distance of nine hundred eighteen and 9/100 (918.09) feet to a point on
the northeasternmost side of Perkins Hill Road (33' wide). Passing in transit an
iron pipe found a distance of nine hundred nine and 12/100 (909.12) feet from
the beginning thereof.
THENCE, leaving the Hildebrandt lands and binding on the northeasternmost
side of said road the following four (4) courses and distances: with the arc of
a curve to the right an arc length of one hundred fifty three and 9/100 (153.09)
feet to the beginning point of a compound curve. Said curve having a radius
length of one thousand two hundred thirty three and 50/100 (1233.50) feet and
being scribed by a chord bearing of North fifty four degrees fifty two minutes
twenty five seconds West (N 54(degree)52'25" W), and a chord length of one
hundred fifty two and 99/100 (152.99) feet. Thence with a compound curve an arc
length of one hundred eighty six and 69/100 (186.69) feet to a point of
tangency. Said curve having a radius length of four hundred eighty three and
50/100 (483.50) feet and being scribed a chord bearing of North forty degrees
fifteen minutes twenty three seconds West (N 40(degree)15'23" W), and a chord
length of one hundred eighty five and 54/100 (185.54) feet. Thence North twenty
nine degrees eleven minutes forty seconds West (N 29(degree)11'40" W), a
distance of four hundred twenty six and 37/100 (426.37) feet to the beginning
point of a curve and thence with the arc of a curve to the left an arc length of
one hundred ten and 74/100 (110.74) feet to a point at the intersection of the
division line between the lands of Hedgewood Limited Partnership (see E.H.P.
118/131) and the herein described lands. Said curve having a radius length of
four hundred sixteen and 50/100 (416.50) feet and being
<PAGE>
scribed by a chord bearing of North thirty six degrees forty eight minutes forty
one seconds West (N 36(degree)48'41" W), and a chord length of one hundred ten
and 41/100 (110.41) feet.
THENCE, leaving Perkins Hill Road and binding on the division line between
the lands of Hedgewood Limited Partnership and the herein described lands the
following two courses and distances: North forty two degrees fifty six minutes
forty seven seconds East (N 42(degree)56'47" E), a distance of seven hundred
twenty five and 31/100 (725.31) feet to an iron rod found. Passing in transit an
iron rod found a distance of seven hundred five and 31/100 (705.31) feet from
the end thereof, and thence North one degrees thirty nine minutes twenty seconds
East (N 01(degree)39'20" E), a distance of two thousand one hundred nineteen and
55/100 (2119.55) feet an iron rod found on a curve on the southeasternmost side
the aforementioned U.S. Route 213.
THENCE, leaving the Hedgewood Limited Partnership lands and binding on the
southeasternmost side of said road with the arc of a curve to the right an arc
length of seven hundred sixty five and 58/100 (765.58) feet to a point at the
intersection of the division line between the lands of Genfarm Partnership I
(see E.H.P. 211/279) and the herein described lands. Said curve having a radius
length of five thousand six hundred twenty seven and 58/100 (5627.58) feet and
being scribed a chord bearing of North thirty six degrees twelve minutes six
seconds East (N 36(degree)12'06" E), and a chord length of seven hundred sixty
four and 99/100 (764.99) feet.
THENCE, leaving said Route 213 and binding on the division line between the
lands of Genfarm Limited Partnership and the herein described lands the
following eleven (11) courses and distances: South fifty nine degrees three
minutes twelve seconds East (S 59(degree)03'12" E), a distance of eighty five
and 34/100 (85.34) feet to an iron pipe found, passing in transit an iron pipe
found a distance of 59/100 (0.59) feet from the beginning thereof, North eighty
nine degrees thirty two minutes thirty eight seconds East (N 89(degree)32'38"
E), a distance of two hundred twenty eight and 88/100 (228.88) feet to an iron
pipe found, South fifty four degrees twenty eight minutes forty two seconds East
(S 54(degree)28'42" E), a distance of three hundred seven and 31/100 (307.31)
feet to an iron rod set, South twenty seven degrees forty six minutes twenty two
seconds East (S 27(degree)46'22" E), a distance of three hundred three and
78/100 (303.78) feet to an iron rod set, South forty seven degrees ten minutes
forty two seconds East (S 47(degree)10'42" E), a distance of four hundred
fifteen and 44/100 (415.44) feet to an iron rod set, North forty two degrees
twenty six minutes fifty eight seconds East (N 42(degree)26'58" E), a distance
of three hundred fifty five and 66/100 (355.66) feet to an iron rod set, North
thirty eight degrees fifty minutes forty eight seconds East (N 38(degree)50'48"
E), a distance of four hundred fourteen and 64/100 (414.64) feet to an iron pipe
found, North forty eight degrees seven minutes two seconds West (N
48(degree)07'02" W), a distance of three hundred seven and 62/100 (307.62) feet
to an iron pipe found, North twenty eight degrees forty one minutes eighteen
seconds East (N 28(degree)41'18" E), a distance of four
<PAGE>
hundred three and 83/100 (403.83) feet to an iron pipe found, North twenty four
degrees thirty three minutes forty two seconds West (N 24(degree)33'42" W), a
distance of two hundred seventy and 94/100 (270.94) feet to an iron pipe found
and North forty nine degrees seventeen minutes two seconds West (N
49(degree)17'02" W), a distance of six hundred thirty one and 74/100 (631.74)
feet to an iron rod set on the southeasternmost side of aforementioned U.S.
Route 213.
THENCE, leaving the lands of Genfarm Partnership I and binding on the
southeasternmost side of said Route 213 North thirty nine degrees twelve minutes
sixteen seconds East (N 39(degree)12'16" E), a distance of two hundred twenty
and 84/100 (220.84) feet to the place of beginning. Containing in all one
hundred sixty two and 857/1000 (162.857) acres of land more or less, as surveyed
by Michael A. Scott Inc. in May 1997, a plat of which is recorded among the Plat
Records for Kent County aforesaid, in Plat Book N.L.M. No. 2, page 63.
BEING the same lands conveyed by Fair Hill Farms Inc., unto the said
Horizon Organic Dairy, Maryland Farm, Inc., a Colorado corporation, by deed
dated July 18, 1997, and recorded among the Land Records of Kent County,
Maryland in Liber M.L.M. No. 123, folio 286, etc.
<PAGE>
Schedule A (Continued)
Legal Description
BEING KNOWN AND DESIGNATED AS a 31.432 acre parcel of land as shown on Plat
entitled "MINOR SUBDIVISION PLAT, EDWIN R. FRY LANDS, 2ND DISTRICT, KENT COUNTY,
MD" dated October 1985 by William R. Nuttle, reg. surveyor, and recorded among
the Land Records of Kent County, Maryland in Plat book EHP No. 2, folio 196.
BEING the same property conveyed unto Horizon Organic Dairy, Maryland Farm,
Inc., a Colorado corporation from Genfarm Partnership I, a Pennsylvania limited
partnership, by deed dated August 7, 1997, and recorded among the Land Records
of Kent County, Maryland August 28, 1997 in Liber 0125, Folio 363.
Case Number 96-1074 Policy Number 136-00-491584
<PAGE>
ADDED PAGE
(Schedule A. continued)
Policy Number: 21 5192 106 00000029
--------------------
Owners
Policy Number:
----------------------
Loan
ALL that piece or parcel of land situate, lying and being in the Second
Election District of Kent County, Maryland, situated near the public road
leading from Urieville to Chesterville adjoining the lands now or formerly of
Clara E. Dudley, Milton Crew, John P. Cochran heirs and others and contained
within the following metes and bounds, courses and distances, to wit:
BEGINNING for the same at a point on a line with the lands of the Cochran
heirs where the "Seward Hope" Farm formerly belonging to C. W. Spry and
afterwards purchased by Alday Clements, and the lands hereby intended to be
conveyed join said Cochran lands and running from thence three (3) courses with
said "Seward Hope" North 87 degrees West 17.92 perches, North 64 3/4 degrees
West 46.40 perches, South 27 degrees West 100.76 perches to the lands now or
formerly of Clara E. Dudley, thence three (3) courses with said Dudley lands
North 44 3/4 degrees West 32.36 perches, North 43 3/4 degrees West 244.24
perches, North 35 degrees West 2.48 perches to the lands formerly belonging to
Benjamin Redmile, thence two (2) courses with the said Redmile lands North
49 1/2 degrees East 3.84 perches, North 78 1/4 degrees East 135.80 perches to
the lands formerly of W. H. Newham but now owned by said Harry Willis; thence
one (1) course with the last mentioned lands South 77 1/4 degrees East 14.28
perches to the lands now or formerly of Milton Crew; thence three (3) courses
with said mentioned lands North 85 degrees East 59.36 perches; North 75 1/4
degrees East 42.76 perches; North 78 1/2 degrees East 31.68 perches to the land
formerly of M.E. Ruth; thence eight (8) courses with said last mentioned lands,
as follows: South 30 1/4 degrees East 11.72 perches; South 24 1/4 degrees East
9.68 perches; South 36 1/4 degrees East 17.4 perches; South 11 degrees East 9
perches; South 6 degrees West 19.84 perches; South 22 1/4 degrees East 2.12
perches; thence South 45 3/4 degrees East 14.64 perches; South 64 degrees East
4.44 perches to the lands of the said John P. Cochran heirs; thence with the
said last mentioned lands of the said John P. Cochran heirs the six (6)
following courses and distances: South 4 1/2 degrees West 24 perches; South 10
degrees West 18.88 perches; South 3 1/2 degrees West 31.12 perches; South 17
degrees West 8.56 perches; South 28 degrees West 6.6 perches; South 15 1/2
degrees West 19.8 perches to the aforesaid beginning point, containing 271
acres, 1 rood and 21 perches of land, more or less.
TOGETHER with the Right of Way or Road as now laid down and used, through
the Farm sold by Charles T. Westcott, Trustee to Alday Clements, as an outlet
from the Farm hereby conveyed to the Urieville Road.
TOGETHER WITH and SUBJECT to the provisions of a Cross Easement Agreement
dated April 1, 1985, and recorded among the Land
POLICY INSERT
Added Page
Reorder Form No. 3237 (Rev. 2/89)
<PAGE>
Records for Kent County, Maryland, in Liber E.H.P. No. 179, folio 121.
BEING the same tract or parcel of land conveyed by William L. Mueller unto
the said Horizon Organic Dairy, Maryland Farm, Inc., a Colorado corporation, by
Deed dated October 27th, 1997, and recorded among the Land Records for Kent
County, Maryland, in Liber M.L.M. No. 129, folio 329, etc.
<PAGE>
REAL ESTATE MORTGAGE
--------------------
THIS MORTGAGE, made as of the 6th day of April, 1998, between Horizon
Organic Dairy, Idaho Farm, Inc. f/k/a Aurora Dairy Corporation of Idaho, a
Colorado Corporation, whose address is c/o Horizon Organic Holding Corporation,
PO Box 17577, Boulder, CO 80308-7577 (hereinafter called "Mortgagor" whether one
or more) and U.S. Bancorp Ag Credit, Inc. f/k/a FBS Ag Credit, Inc., a Colorado
corporation, 950 Seventeenth Street, Suite 350, Denver, Colorado 80202
(hereinafter called "U.S. Bancorp").
WITNESSETH, THAT WHEREAS, the Mortgagor has executed a Loan and Security
Agreement with U.S. Bancorp dated July 15, 1997, as amended by; a Second
Amendment thereto of even date herewith, which Loan and Security Agreement may
be extended and modified from time to time hereafter, and which Agreement
entitles Mortgagor to borrow principal sums from U.S. Bancorp according to the
terms thereof, which indebtedness is and shall be evidenced by the Promissory
Notes of Mortgagor, executed on this date and to be executed from time to time
hereafter, with interest thereon and payable according to the terms thereof.
NOW, THEREFORE, said Mortgagor, in consideration of these premises, and to
secure in part prompt payment of said Promissory Notes, and any other sums that
may be added to the principal indebtedness under the terms of this instrument,
and to secure the prompt performance of all promises, conditions and covenants
related thereto, does hereby mortgage the hereinafter described real property
for the sum of Twelve Million Dollars ($12,000,000) and hereby warrants unto
U.S. Bancorp, its successors and assigns forever, all the following described
property, lands and premises situate in the County of Jerome, State of Idaho,
to-wit:
That real property described and set forth in Exhibit A attached hereto and
made a part hereof, together with all and singular the privileges and
appurtenances thereunto belonging, including, but not limited to, all
water, water rights, water privileges, ditches, ditch rights, ditch
privileges, rights of way, headgates, flumes, wells, well equipment, pumps,
pumping equipment, pumping accessories, sprinkler systems, fences, corrals,
silos, elevators, storage bins and other storage facilities, warehouses,
buildings, building fixtures, and building equipment, along with all other
fixtures and equipment now or hereafter installed in, attached to or used
in connection with the premises herein described.
In addition to the real property herein described, this Mortgage covers the
rent, issues and profits derived and to be derived out of said real property.
It is stipulated and agreed, however, that under the foregoing assignment and
pledge of the rents, issues and profits from said real estate, collection of
rents will be enforced only upon delinquency of the Mortgagor in complying with
the terms and provisions of this Real Estate Mortgage, or in the event that
taxes assessed against said real estate become delinquent U.S. Bancorp is
authorized and directed to assume the management and control of said property
and is hereby directed to let, lease and collect the rents therefrom without
Process of Law or Order of Court, and upon receipt of written request from U.S.
Bancorp, all tenants of and upon receipt of said premises hereby are directed to
pay promptly all rent as it falls
POLICY INSERT
Added Page
Reorder Form No. 3237 (Rev. 2/89)
<PAGE>
due, at the current place designated for payments in the said Loan and Security
Agreement and Promissory Notes, without further notice from the Mortgagor.
THE SAID MORTGAGOR EXPRESSLY COVENANTS AND AGREES:
To pay promptly when due, all taxes and assessments of every type or nature
levied or assessed against the premises and any claim, lien or encumbrance
against the premises which may be or may become prior to this Mortgage.
To maintain insurance on all improvements, fixtures and equipment on all
premises against loss by fire, extended coverage, and other hazards commonly
insured against by owners of like property, for the benefit of U.S. Bancorp, in
an amount of not less than the replacement value and in a company reasonably
acceptable to U.S. Bancorp. In the event that an insurer elects to pay a fire
or other hazard loss as damages in cash, rather than to repair, rebuild or
replace the property lost or damaged U.S. Bancorp shall have the option to apply
the proceeds of such cash settlement of fire or other hazard loss upon the sum
hereby secured.
To waive all Homestead Exemptions and all other similar rights now vested
or to be acquired.
Except for existing encumbrances, not to alienate nor to encumber to the
prejudice of U.S. Bancorp, or commit, permit, or suffer any waste, impairment or
deterioration of said property and, regardless of natural depreciation, to keep
said property and the improvements thereon at all times in good condition and
repair, ordinary wear and tear excepted. That U.S. Bancorp shall have the right
to have their authorized representative or representatives enter upon and
inspect such premises at reasonable times, after notice of such proposed
inspection has been given to said Mortgagor, and in the event of any sale or
transfer of the title to the property herein described, such purchaser or new
owner shall be deemed to have assumed and agreed to pay the indebtedness owing
to U.S. Bancorp hereunder, whether or not the instrument evidencing such sale or
transfer expressly so provides, and this covenant shall run with said real
property and remain in full force and effect until said indebtedness is
liquidated.
That if there shall be any conveyance of any nature or change of ownership,
either legal or equitable, whether recorded or not, of the premises covered
hereby, U.S. Bancorp may declare the entire principal and all accrued interest
due and payable at once, at the sole option and election of U.S. Bancorp, and
foreclosure proceedings may be instituted as for any other default hereunder.
That in the event of the refusal or neglect by Mortgagor to keep said
property and the improvements thereon at all times in good repair, ordinary wear
and tear excepted, to pay promptly all taxes, fire and other hazard insurance
premiums, assessments, levies, liabilities, obligations, principal or interest
on this or any other encumbrance on said real property, or to perform any other
agreement, condition, stipulation, or covenant as herein provided, U.S. Bancorp
may procure such
<PAGE>
things to be done at Mortgagor's expense and may make any reasonable expenditure
or outlay thereon and add such amounts to the unpaid principal indebtedness then
due U.S. Bancorp and secured by the within Mortgage of Real Estate.
That U.S. Bancorp shall have the right to file and defend suits at the
expense of Mortgagor and in their name for the recovery of damages to the within
described real property, or, at the expense of Mortgagor, to uphold the lien of
this encumbrance and preserve its right hereunder, but shall incur no personal
liability by their acts or omissions in managing, improving and conserving said
security hereunder, or otherwise.
That all sums expended as costs of such litigation, or advanced by U.S.
Bancorp, in any other contingency herein mentioned (including any attorney's
fees reasonably incurred), shall be repaid by Mortgagor upon demand, or as may
be expressly arranged with U.S. Bancorp, and such sums with interest at the rate
provided in and of the said Promissory Notes shall become so much additional
indebtedness secured by this Mortgage of Real Estate and shall be a lien on said
premises, prior to any right, title or interest attaching or accruing subsequent
to such advances and expenditures, and shall be paid out of the proceeds of the
sale of the property aforesaid, if not otherwise paid by the Mortgagor.
That if any portion of the encumbered property shall be condemned or taken
for public use under the power of eminent domain, or in the event that the
property shall be damaged either by public works or private acts, all damages
and compensation therefor, to the extent of the remaining indebtedness under
said Loan and Security Agreement, Promissory Notes and this Mortgage of Real
Estate, shall be paid to U.S. Bancorp and shall be applied upon the obligations
guaranteed.
Upon default by Mortgagors, under the terms of this Mortgage or the terms
of any other instrument or document evidencing the obligations secured hereby,
U.S. Bancorp shall have the power to sell the aforesaid real property in
accordance with Idaho law.
That in the event of foreclosure and sale hereunder, the Mortgagor agrees
to pay a reasonable attorney's fee for legal services rendered in such
foreclosure proceedings or suit.
In the event of foreclosure and sale hereunder, U.S. Bancorp shall retain
the right to pursue and receive judgment for any deficiency balance remaining
unpaid after foreclosure, and to exercise all other legal and equitable remedies
for the collection of the indebtedness which it is owed; it being expressly
understood and agreed that all rights and remedies of U.S. Bancorp are
cumulative and may be exercised in any order.
It is further expressly understood and agreed that in the event of
foreclosure and sale hereunder, the obligations of Mortgagor as set forth herein
shall continue and remain in full force and effect during any applicable
redemption period and during such period, the purchaser at the foreclosure sale
may procure such things be done and make any reasonable expenditure or outlay
<PAGE>
thereon to fulfill said obligations, which amounts shall be an additional lien
on the premises covered hereby.
That in the event the ownership of the encumbered property, or any part
thereof, becomes vested in a person other than the Mortgagor, U.S. Bancorp may,
without notice to the Mortgagor, extend the time of payment of any or all of the
installments or other payments herein covenanted to be made, and may deal with
such new owner or owners with reference to this Mortgage of Real Estate and the
debt hereby secured in the same manner as with the Mortgagor, without in any way
vitiating or discharging the Mortgagor's liability hereunder, or upon the
indebtedness hereby secured.
That no waiver, express or implied, of the performance of any obligation,
agreement or covenant hereof, shall be deemed or taken to be a waiver of any
other term, condition, obligation, agreement or covenant hereof and the
indulgence of U.S. Bancorp to the Mortgagor or their grantees in not exercising
their option to declare the entire amount secured hereby to be due and payable
upon the happening of any one of the events or conditions herein described,
shall not, even though such indulgence be repeated or extended, be construed as
a waiver of the right of U.S. Bancorp to exercise such option at any time
thereafter and without notice to the Mortgagor.
This Mortgage constitutes a Security Agreement under the Uniform Commercial
Code of the State of Idaho (herein called the "Code") with respect to any part
of the premises which may or might now hereafter be deemed to be personal
property, fixtures or property other than real estate (for the purposes of this
paragraph called "Collateral"); all of the terms, provisions, conditions and
agreements contained in this Mortgage should pertain and apply to the Collateral
as fully and to the same extent as to any other property covered; and, the
following provisions of this paragraph shall not limit the generality or
applicability of any other provision of this Mortgage but shall be an addition
thereto.
It is further expressly understood and agreed that all covenants and
agreements herein described shall extend to and be binding upon the heirs,
executors, legal representatives, successors and assigns (voluntary and
involuntary by operation of law) of the respective parties hereto.
IN WITNESS WHEREOF, the said Mortgagor has hereunder set their hand and
seal the day and year first above written.
HORIZON ORGANIC DAIRY, IDAHO
FARM, INC.
By: By:
------------------------------- ------------------------------------
Its: Its:
---------------------------- ----------------------------
(SEAL)
<PAGE>
STATE OF )
)ss.
County Of )
On this the ______ day of __________, 19___, before me, the undersigned
officer, personally appeared ____________________, known to me to be the person
whose name is subscribed to the within instrument and acknowledged that he
executed the same for the purposes therein contained.
In witness whereof I hereunto set my hand and official seal.
My commission expires:
-----------------------------
Notary Public
<PAGE>
EXHIBIT A
Page 1 of 5
PARCEL NO. 1
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
A tract of land in the E 1/2 E 1/2 of Section 17, and the NW 1/4 NW 1/4 of
Section 16, more particularly described as follows:
Beginning at the Northeast corner of said Section 17, also being the
Northwest corner of said Section 16;
Thence South 89(degree)44'20" West, 1,320.16 feet to the Northwest corner
of said E 1/2 E 1/2 Section 17;
Thence South 0(degree)07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2 E 1/2 Section 17;
Thence North 89(degree)43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0(degree)06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89(degree)46'14" East, 945.00 feet parallel with the Northerly
boundary of said Section 16;
Thence North 0(degree)06'32" West, 140.00 feet parallel with the Westerly
boundary of said Section 16 to the Northerly boundary of said Section 16;
Thence South 89(degree)46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 2
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: NW 1/4; W 1/2 NE 1/4; SE 1/4 NE 1/4; NE 1/2 NE 1/4,
EXCEPTING THEREFROM the following described parcel of land:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674
feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet,
more or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF
BEGINNING.
EXCEPTING THEREFROM the highway.
Section 17: NE 1/2 NE 1/4; S 1/2 NE 1/4; SE 1/4; SE 1/4 NW 1/4; E
1/2 SW 1/4;
Section 20: E 1/2 NE 1/4; N 1/2 SE 1/4; NE 1/4 SW 1/4;
<PAGE>
Page 2 of 5
EXCEPTING THEREFROM a tract of land in the E 1/2 E 1/2, Section 17 and
NW 1/4 NW 1/4, Section 16, Township 9 South, Range 21, East of the Boise
Meridian, Jerome County, Idaho, more particularly described as follows:
Beginning at the Northeast corner of said Section 17 also being the
Northwest corner of said Section 16;
Thence South 89(degree)44'20" West, 1,320.16 feet to the Northwest
corner of said E 1/2 E 1/2, Section 17;
Thence South 0(degree)07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2 E 1/2, Section 17;
Thence North 89(degree)43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0(degree)06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89(degree)46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0(degree)06'32" West, 140.00 feet parallel with the
Westerly boundary of said Section 16 to the Northerly boundary of
said Section 16;
Thence South 89(degree)46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 3
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: That part of the NE 1/4 NE 1/4, described as follows:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674 feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet, more
or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF BEGINNING.
EXCEPTING THEREFROM the highway.
PARCEL NO. 4
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 20: SE 1/4 SW 1/4; S 1/2 SE 1/4;
Section 21: S 1/2 SW 1/4; SW 1/4 SE 1/4;
Section 28: All of Section 28;
Section 29: E 1/2 NE 1/4; SE 1/4;
Section 32: N 1/2 NE 1/4;
<PAGE>
Page 3 of 5
Section 33: N 1/2 NW 1/4; SE 1/4 NW 1/4; NE 1/4;
EXCEPTING THEREFROM that part of the SE 1/4 SE 1/4 of Section 28,
Township 9 South, Range 21, East of the Boise Meridian, Jerome County
Idaho, described as follows:
Commencing an the Southeast corner of said Section 28;
Thence North 0(degree)02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79(degree)00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79(degree)00'21" West, 154.50 feet;
Thence North 10(degree)59'39" West, 55.00 feet;
Thence North 79(degree)00'21" East, 154.50 feet;
Thence South 10(degree)59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING.
AND EXCEPTING THEREFROM that portion of the NE 1/4 SE 1/4 of Section 28,
described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North boundary of the NE 1/4 SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4 SE 1/4; 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4 SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4 SE 1/4;
Thence North along the East boundary of the NE 1/4 SE 1/4, 909.75
feet to THE TRUE POINT OF BEGINNING.
PARCEL NO. 5
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: S 1/2;
EXCEPTING THEREFROM the highway.
PARCEL NO. 6:
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 17: SW 1/4 NW 1/4; NW 1/4 SW 1/4;
Section 18: N 1/2 SE 1/4; E 1/2 SW 1/4; SW 1/4 SE 1/4;
PARCEL NO. 7
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 22: SE 1/4 SW 1/4; S 1/2 SE 1/4;
<PAGE>
Page 4 of 5
Section 27: E 1/2; NW 1/4 SW 1/4; S 1/2 NW 1/4; NW 1/4 NW 1/4; S 1/2 SW 1/4;
NE 1/4 SW 1/4, EXCEPTING THEREFROM the following described parcel of
land:
From a Point of Beginning located 714.75 feet, more or less, North from
the Southwest corner of Section 27, to the point of intersection of
said Section line or County road center line with the North boundary of
the Oregon Short Line Railroad North Side Branch right of way;
Thence running North along the Section line or center line of said
County road, 275.27 feet;
Thence North 78(degree)46' East and parallel to the said railroad
right of way center line, 2691.57 feet, more or less, to the point of
intersection with the North-South mid-section line;
Thence South along said mid-section line 275.27 feet, more or less, to
the point of intersection with the North railroad right-of way
boundary;
Thence South 78(degree)46' West and along said North railroad right of
way boundary, 2691.57 feet, more or less, to THE POINT OF BEGINNING.
AND EXCEPTING THEREFROM railroad rights of way.
TOGETHER WITH a permanent easement and right of way, including the
perpetual right to enter upon the excepted portion of the above
described property in the SW 1/4 of Section 27, Township 9 South, Range
21, East of the Boise Meridian, for the purpose of constructing,
maintaining and repairing underground pipelines for irrigation water as
set forth in Easement Agreement recorded May 15, 1963 in Book 174 Page
53 as Instrument Number 154714, Jerome County records.
Section 34: N 1/2 NW 1/4; N 1/2 NE 1/4;
PARCEL NO. 8
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 27: NE 1/4 NW 1/4;
PARCEL NO. 9
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 28: That part of the SE 1/4 SE 1/4, described as follows:
Commencing at the Southeast corner of said Section 28;
Thence North 0(degree)02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79(degree)00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79(degree)00'21 West, 154.50 feet;
Thence North 10(degree)59'39" West, 55.00 Feet;
Thence North 79(degree)00'21" East, 154.50 feet;
<PAGE>
Page 5 of 5
Thence South 10(degree)59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING.
AND
That portion of the NE 1/4 SE 1/4, described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North Boundary of the NE 1/4 SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4 SE 1/4, 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4 SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4 SE 1/4;
Thence North along the East boundary of the NE 1/4 SE 1/4, 909.75 feet
to THE TRUE POINT OF BEGINNING.
PARCEL NO. 10
TOWNSHIP 8 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 32: E 1/2 SE 1/4;
Section 33: N 1/2 SW 1/4; S 1/2 NW 1/4; S 1/2 NE 1/4;
EXCEPTING THEREFROM the highway.
<PAGE>
Exhibit 5B to
Loan and Security Agreement
Permitted Security Agreement
----------------------------
Attached
<PAGE>
SECURITY AGREEMENT
------------------
This Security Agreement dated as of April 8, 1998 ("Security Agreement"),
is made by and between Horizon Organic Holding Corporation, a Delaware
corporation, as debtor ("Debtor"), having its principal place of business at
6311 Horizon Lane, Longmont, Colorado 80503, in favor of Worcester Creameries
Corp., the successor by merger to Mountainside Farms, Inc., a New York
corporation, as secured party ("Secured Party"), having its principal place of
business at 155-04 Liberty Avenue, Jamaica, New York 11433.
Recitals
--------
A. Secured Party has agreed to make an extension of credit to Debtor in
the principal amount of $4,000,000 (the "Loan"), evidenced by a Secured
Promissory Note in the principal amount of $4,000,000, dated of even date
herewith (the "Note") in connection with the Asset Purchase Agreement of even
date herewith between Debtor, as purchaser, and Secured Party, as seller (the
"Purchase Agreement").
B. Secured Party is willing to make the Loan to Debtor, but only upon the
condition, among others, that Debtor shall have executed and delivered to
Secured Party this Security Agreement.
Agreement
---------
NOW, THEREFORE, in order to induce Secured Party to make the Loan and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Debtor hereby
represents, warrants, covenants and agrees with and for the benefit of Secured
Party, as follows:
I. Unless otherwise defined herein, the following terms shall have the meanings
(such meanings being equally applicable to both the singular and plural forms of
the terms defined):
"Collateral" means the personal property of Debtor purchased from Secured
Party pursuant to the Purchase Agreement, as more particularly defined in
Exhibit A hereto.
"Contracts" has the meaning set forth on Exhibit A hereto.
"Event of Default" shall have the meaning set forth in paragraph 3 of the
Note, and shall also include breach of the terms of this Agreement.
"Proceeds" shall have the meaning set forth in the UCC.
"Secured Obligations" shall mean the obligations of Debtor under the Note,
this Security Agreement and the Purchase Agreement.
"Trademark" has the meaning set forth on Exhibit A hereto.
1.
<PAGE>
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral
(as hereinafter defined) is governed by the Uniform Commercial Code as in effect
in a jurisdiction other than the State of New York, the term "UCC" shall mean
the Uniform Commercial Code as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such attachment, perfection of priority and
for purposes of definitions related to such provisions.
II. To secure the prompt and complete payment and performance when due
(whether as stated maturity, by acceleration or otherwise) of all the Secured
Obligations and in order to induce Secured Party to cause the loan to be made,
Debtor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers
to Secured Party, and hereby grants to Secured Party, a security interest in all
of Debtor's right, title and interest in, to and under all of the Collateral.
III. A. Notwithstanding anything contained in this Security Agreement to
the contrary, Debtor expressly agrees that it shall remain liable under each of
its Contracts to observe and perform all of the conditions and obligations to be
observed and performed by its thereunder and that it shall perform all of its
duties and obligations thereunder, all in accordance with and pursuant to the
terms and provisions of each such Contract. Secured Party shall not have any
obligation or liability under any Contract by reason of or arising out of this
Security Agreement or the granting to Secured Party of a lien therein or the
receipt by Secured Party of any payment relating to any Contract pursuant
hereto, nor shall Secured Party be required or obligated in any manner to
perform or fulfill any of the obligations of Debtor under or pursuant to any
Contract, or to present or file any claim, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which may be entitled at any time or times.
(a) Secured Party may at any time, upon the occurrence and during the
continuation of any Event of Default, after first notifying Debtor of its
intention to do so, notify parties to the Contracts that the right, title and
interest of Debtor in and under such Contract have been assigned to Secured
Party and that payments shall be made directly to Secured Party. Upon the
request of Secured Party, Debtor shall so notify such parties to such Contracts
of Secured Party's interest. Upon the occurrence and during the continuation of
an Event of Default or potential Event of Default, Secured Party may, in its
name, or in the name of others, communicate with such parties to such Contracts
to verify with such parties, to the Secured Party's satisfaction, the existence,
amount and terms of any such Contracts.
IV. Debtor hereby represents and warrants to Secured Party that:
(b) Except for the security interest in favor of U.S. Bancorp Ag
Credit, Inc., f/k/a FBS Ag Credit, Inc., a Colorado corporation ("Bank"),
pursuant to that certain Loan and Security Agreement dated as of July 15, 1997,
as amended, by and between Debtor, Horizon Organic Dairy, a Colorado
corporation, Horizon Organic Dairy, Maryland Farm, Inc., a Colorado corporation,
Horizon Organic Dairy, Idaho Farm, Inc., a Colorado corporation, and Bank, which
security interest is subordinate to the security interest granted hereunder by
virtue of the Agreement between Bank and Secured Party of even date herewith
(the "Bank Security
2.
<PAGE>
Interest"), and except for the security interest granted to Secured Party under
this Security Agreement, Debtor is the sole legal and equitable owner of each
item of the Collateral, having good, marketable and insurable title thereto,
free and clear of any and all liens, security interests and encumbrances.
(c) Debtor has granted Secured Party a valid first priority security
interest in the Collateral. Upon the timely filing of a financing statement on
form UCC-1 in the proper offices in the appropriate jurisdictions, Secured Party
will have a perfected first priority security interest in all of the Collateral.
Except for the Bank Security Interest, no effective security agreement,
financing statement, equivalent security or lien instrument or continuation
statement covering all or any part of the Collateral exists, except such as may
have been filed by Debtor in favor of Secured Party, on behalf of itself and
pursuant to this Security Agreement.
(d) Debtor has the unqualified right to enter into this Agreement and
to perform its terms. This Agreement is the binding obligation of Debtor,
enforceable in accordance with its terms.
V. Debtor covenants and agrees with Secured Party that from and after the
date of this Agreement and until the Secured Obligations have been performed and
paid in full:
(e) The Debtor is and will remain the sole and exclusive owner of the
entire right, title and interest in and to the Collateral, free and clear of any
liens, charges, claims, rights and encumbrances, including, without limitation,
pledges, assignments, licenses, registered user agreements and covenants by the
Debtor not to sue third persons;
(f) The Debtor will maintain the quality of the Milk Products (as
defined in the Purchase Agreement) associated with the Trademark, at a level
consistent with the quality at the time of this Agreement;
(g) The Debtor will continue to use for the duration of this Agreement,
required statutory notice in connection with its use of the Trademark;
(h) The Debtor shall not abandon the Trademark without Secured Party's
prior written consent. Debtor will not do any act, or omit to do any act,
whereby the Trademark or any registration or application appurtenant thereto,
may become abandoned, invalidated, unenforceable, avoided, avoidable, or will
otherwise diminish in value, and shall notify Secured Party immediately if it
knows of any reason or has reason to know of any ground under which this result
may occur. The Debtor shall take appropriate action at its expense to halt the
infringement of the Trademark;
(i) Debtor shall keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, which Secured Party (and
its employees and agents) may from time to time inspect and photocopy;
(j) Debtor agrees that it will not, without the prior written consent
of Secured Party, consent to, permit or suffer to occur any amendment,
termination, waiver, consent or other modification of any of the Collateral
adversely affecting the interest of the Secured Party therein, and that, upon
the occurrence and continuance of an Event of Default, the Secured Party, to the
3.
<PAGE>
exclusion of the Debtor, may directly exercise all the power and authority to
give or withhold consents, grant any waivers or approvals or make any
determinations under the Purchase Agreement, this Agreement or any other related
document of give any notice thereunder in the interests of the Secured Party
(and with no obligation to the Debtor); and
(k) Debtor will not take any steps to enforce or exercise any of these
rights or remedies under or in respect of any of the Collateral materially
adversely affecting the interest of Secured Party therein without the prior
written consent of Secured Party, and will not take such actions and make such
requests with respect to the Collateral which would adversely affect the
interest of Secured Party under the Purchase Agreement, this Agreement or any
other instruments contemplated hereby or thereby. In addition, Debtor hereby
irrevocably agrees not to exercise and not to permit any of its affiliates to
exercise, and hereby waives any right which it may now or hereafter have to
assert, any set off or counterclaim against or with respect to any of the
Collateral.
VI. Until all of the Secured Obligations have been satisfied in full,
Debtor shall not sell or transfer the Trademark or any interest therein, grant
or assign any security or other interest in the Trademark, or enter into any
license agreement with respect to the Trademark.
VII. The Debtor agrees to execute and deliver to Secured Party such further
papers and to do such other acts as may be necessary and proper to accomplish
the purposes of this Agreement, including without limitation, in order to
perfect or continue the perfection of Secured Party's security interest in all
of the Collateral. At any time and from time to time, upon the written request
of Secured Party, Debtor will promptly and duly execute and deliver any and all
such further instruments and documents and take such further action as Secured
Party may reasonably deem desirable in obtaining the full benefits of this
Agreement and of the rights and powers herein granted, including, without
limitation, the filing of any financing or continuation statements under the UCC
with respect to the liens and security interests granted hereby. Debtor also
hereby authorizes Secured Party to file any such financing or continuation
statement without the signature of Debtor to the extent permitted by applicable
law.
VIII. Upon or after the occurrence of an Event of Default, Secured Party
shall have, in addition to all other right and remedies given it by this
Agreement and the Purchase Agreement, all rights and remedies under applicable
law and all rights and remedies of a secured party under the UCC. Additionally,
the Secured Party may sell at public or private sale or otherwise realize from
time to time upon all or, any of the Collateral. Upon the occurrence and
continuance of an Event of Default, the Secured Party may also (A) commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (B) defend any suit,
action or proceeding brought against Debtor with respect to any Collateral; (C)
settle, compromise, or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as Secured
Party may deem appropriate; (D) use the Trademark and other Collateral for any
purpose whatsoever and, in furtherance thereof, Debtor hereby grants to Secured
Party an irrevocable license therefor; and (E) generally to sell, transfer,
pledge, make any agreement with respect to or otherwise deal with and use any of
the Collateral as fully and completely as though Secured Party were the absolute
owner thereof for all purposes, and to do, at Secured Party's option all acts
and things which Secured Party deems
4.
<PAGE>
necessary to protect, preserve or realize upon the Collateral and Secured
Party's security interest therein, in order to effect the intent of this
Agreement, all as fully and effectively as Debtor might do. The Debtor agrees
that seven (7) days written notice to the Debtor of any public or private sale
or other disposition of any of the Collateral shall be reasonable notice;
provided, however, that no notice shall be required hereunder if not otherwise
required by applicable law. At any such sale or disposition, Secured Party may,
to the extent permitted by law, purchase the whole or any part of the Collateral
sold, free from any right of redemption on the part of the Debtor, which right
the Debtor hereby waives and releases. After deducting from the proceeds of such
sale or other disposition of the Collateral all costs and expenses incurred by
Secured Party in enforcing its rights hereunder (including, without limitation,
all brokers' fees, auctioneers' fees and attorneys' fees actually incurred),
Secured Party shall apply the remainder of such proceeds to the payment of the
Secured Obligations in such order and manner as Secured Party in its sole
discretion may determine. All payments received by Debtor under or in connection
with any of the Collateral shall be held by Debtor in trust for Secured Party,
shall be segregated from other funds of Debtor and shall forthwith upon receipt
by Debtor, be turned over to Secured Party, in the same form as received by
Debtor (duly indorsed by Debtor to Secured Party, if required) and such payments
so received by Secured Party (whether from Debtor or otherwise) may, in the sole
discretion of Secured Party, be held by Secured Party as collateral security
for, and/or then or at any time thereafter applied in whole or in part by
Secured Party against all or any part of, the Secured Obligations in such order
as Secured Party shall elect. Any remainder of the proceeds after payment in
full of the Secured Obligations shall be paid over to the Debtor. If any
deficiency shall arise, the Debtor and each guarantor of the Secured obligations
shall remain jointly and severally liable to Secured Party therefor.
IX. The Debtor hereby irrevocably makes, constitutes and appoints Secured
Party and any officer or agent of Secured Party as Secured Party may select,
with full power of substitution, as the Debtor's true and lawful attorney-in-
fact, with full power to do any or all of the following if an Event of Default
shall occur and be continuing: to endorse the Debtor's name on all applications,
documents, papers and instruments necessary for Secured Party to use the
Trademark, or to grant or issue any exclusive or nonexclusive license under the
Trademark to any other person or entity, or to assign, pledge, convey or
otherwise transfer title in or dispose of the Collateral to any other person or
entity. The Debtor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney shall be irrevocable
until all of the Secured Obligations shall have been satisfied in full. The
powers conferred on Secured Party hereunder are solely to protect its interests
in the Collateral and shall not impose any duty upon it to exercise any such
powers. Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to Debtor for
any act or failure to act, except for its own willful misconduct.
X. Any and all fees, costs and expenses, of whatever kind or nature,
including attorneys' fees and legal expenses, actually incurred by Secured Party
in enforcing this Agreement shall be borne by Debtor.
XI. The Debtor shall use its best efforts to detect any infringers of the
Trademark and shall notify Secured Party in writing of infringements detected.
The Debtor shall have the duty, through counsel acceptable to Secured Party, to
prosecute diligently any trademark application
5.
<PAGE>
for the Trademark, to file and prosecute lawsuits to enforce the Trademark as
are deemed reasonable and necessary in the Secured Party's reasonable judgment,
and to do any and all acts which are deemed necessary or desirable by Secured
Party to preserve and maintain all rights in the Trademark. Any expenses
incurred in connection with such applications or proceedings shall be borne by
the Debtor.
XII. Secured Party shall have the right, but shall in no way be obligated,
to defend any suit or counterclaim in its own name in order to defend the
Trademark and any license hereunder, in which event the Debtor shall, at the
request of Secured Party, do any and all lawful acts and execute any and all
proper documents required by Secured Party in aid of such defense and the Debtor
shall promptly, upon demand, reimburse and indemnify Secured Party for all costs
and expenses incurred by Secured Party in the exercise of its rights under this
paragraph 12.
XIII. If the Debtor fails to comply with any of its obligations hereunder,
to the extent permitted by applicable law, Secured Party may do so in the
Debtor's name or in Secured Party's name, but at the Debtor's expense, and the
Debtor agrees to reimburse Secured Party in full for all expenses, including
attorneys' fees, incurred by Secured Party in prosecuting, defending or
maintaining the Trademark or Secured Party's interest therein pursuant to this
Agreement.
XIV. No course of dealing between the Debtor and Secured Party, nor any
failure to exercise, nor any delay in exercising, on the part of Secured Party,
any right, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
or thereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege.
XV. All of Secured Party's rights and remedies with respect to Collateral,
whether established hereby or by the Purchase Agreement, or by any other
agreements or by law shall be cumulative and may be exercised singularly or
concurrently.
XVI. The provisions of this Agreement are severable, and if any clause or
provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision of this Agreement in any jurisdiction.
XVII. Any notice to Secured Party shall be deemed to have been duly given
when deposited in the mail, certified mail, return receipt requested, postage
prepaid, addressed to Secured Party at its address first above set forth. Any
notice to Debtor hereunder shall be deemed to have been duly given when
deposited in the mail, certified mail, return receipt requested, postage
prepaid, addressed to Debtor at its address first above set forth.
XVIII. This Agreement is subject to modification only by a writing signed
by the parties hereto.
XIX. The benefits and burdens of this Agreement shall inure to the benefit
of and be binding upon the successors and assigns of Secured Party and upon the
successors of the Debtor.
6.
<PAGE>
The Debtor shall not assign its rights or delegate its duties hereunder without
the prior written consent of Secured Party.
XX. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
XXI. Time is of the essence of this Agreement. No person or entity, other
than the parties hereto, shall be deemed to be a beneficiary hereof or have the
right to enforce any of the provisions of this Agreement.
XXII. This Agreement has been negotiated, executed and delivered at, and
shall be deemed to have been made in New York. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York.
XXIII. THE DEBTOR AND SECURED PARTY EACH WAIVE THE RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE COLLATERAL. DEBTOR IRREVOCABLY CONSENTS THAT
ANY LEGAL ACTION OR PROCEEDING AGAINST DEBTOR UNDER, ARISING OUT OF, OR IN ANY
MANNER RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE COURT OF THE STATE
OF NEW YORK LOCATED IN QUEENS COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF NEW YORK. DEBTOR, BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. DEBTOR
FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING DEBTOR MAY BRING, ARISING OUT
OF OR IN ANY MANNER RELATING TO THIS AGREEMENT, SHALL ONLY BE BROUGHT IN ANY
STATE COURT OF THE STATE OF NEW YORK LOCATED IN QUEENS COUNTY OR IN THE UNITED
STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK. DEBTOR ALSO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER
PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO DEBTOR IN
THE MANNER PROVIDED FOR NOTICES IN THIS AGREEMENT. DEBTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON
ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS OR ANY SIMILAR BASIS. DEBTOR SHALL NOT BE ENTITLED IN ANY SUCH ACTION
OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE
OTHER THAN THE STATE OF NEW YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED
BY THE LAWS OF THE STATE OF NEW YORK. NOTHING HEREIN SHALL AFFECT OR IMPAIR IN
ANY MANNER OR TO ANY EXTENT THE RIGHT OF SECURED PARTY TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST DEBTOR IN ANY OTHER JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
7.
<PAGE>
XXIV. Subject to the following provisions hereof, this Security Agreement
shall terminate upon the payment and performance in full of the Secured
Obligations. This Security Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against Debtor for
liquidation or reorganization, should Debtor become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Debtor's property and assets, and
shall continue to be effective or be reinstated, as the case may be, if at any
time payment and performance of the secured Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.
IN WITNESS WHEREOF, each of the parties hereby have caused this Security
Agreement to be executed and delivered by its duly authorized office on the date
first set forth above.
HORIZON ORGANIC HOLDING CORPORATION
By:
---------------------------------------
Title:
------------------------------------
WORCESTER CREAMERIES CORP.
By:
---------------------------------------
Title:
------------------------------------
8.
<PAGE>
STATE OF ____________________________
CITY AND COUNTY OF ________________
BEFORE ME, the undersigned authority, on this day personally appeared
__________________, of HORIZON ORGANIC HOLDINGS CORPORATION, to me known to be
the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed, in the capacity stated, and as the act and deed of said
corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this ____ day of
_____________________ 1998.
-------------------------------------------
Notary Public
My Commission Expires:
[NOTARIAL SEAL]
STATE OF ____________________________
CITY AND COUNTY OF __________________
BEFORE ME, the undersigned authority, on this day personally appeared
__________________, of WORCESTER CREAMERIES CORP., known to me to the person
whose name is subscribed to the foregoing instrument, and acknowledged to me
that he executed the same for the purposes and consideration therein expressed,
in the capacity stated, and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE on this ____ day of
_____________________ 1998.
-----------------------------------------------
Notary Public
My Commission Expires:
[NOTARIAL SEAL]
<PAGE>
Exhibit A
Capitalized terms used but not defined in this Exhibit A have the
respective meanings given to them in that certain Asset Purchase Agreement dated
as of April 8, 1998 (the "Purchase Agreement"), between Horizon Organic Holding
Corporation, a Delaware corporation, as purchaser, and Worcester Creameries
Corp., a New York corporation and successor by merger to Mountainside Farms,
Inc., as seller.
The Collateral shall include all of the following properties, rights,
interests and other tangible and intangible assets of Debtor acquired from
Seller pursuant to the Purchase Agreement relating to the Juniper Valley Farms
Dairy Business:
(a) all advertising and promotional materials;
(b) the customer list;
(c) the name "Juniper Valley Farms," and all trademark and trade name
registrations, trademark and trade name applications, and all
renewals thereof, together with the goodwill connected with and
symbolized by such trademark, trade name, trademark and trade
name registration and trademark and trade name application, and
all rights corresponding thereto throughout the world (the
"Trademark"), and the other proprietary assets identified in the
Purchase Agreement (the "Proprietary Assets");
(d) all rights of Debtor under the Seller's Contracts, other than
rights under the Excluded Assets (the "Contracts");
(e) all Governmental Authorizations relating to the Juniper Valley
Farms Dairy Business held by Debtor (including the Governmental
Authorizations identified in the Seller's Disclosure Schedule);
(f) all claims (including claims for past infringement of Proprietary
Assets) and causes of action of Debtor with respect to the Juniper
Valley Farms Dairy Business against other Persons (regardless of
whether or not such claims and causes of action have been asserted by
the Debtor), and all rights of indemnity, warranty rights, rights of
contribution, rights to refunds, rights of reimbursement and other
rights of recovery possessed by Debtor with respect to the Juniper
Valley Farms Dairy Business (regardless of whether such rights are
currently exercisable); and
(g) to the extent not otherwise included, all Proceeds of each of
the foregoing.
<PAGE>
EXHIBIT 10.9
THIS PROMISSORY NOTE, AND ALL PAYMENTS HEREUNDER, ARE EXPRESSLY SUBORDINATE IN
ALL RESPECTS TO THE MAKER'S INDEBTEDNESS TO
FARM CREDIT SERVICES
UNSECURED SUBORDINATED PROMISSORY NOTE
$ Boulder, Colorado
---------------- March 20, 1997
For value received, HORIZON ORGANIC DAIRY, INC., a Colorado corporation
(the "Maker"), whose address is 7490 Clubhouse Road, Suite 100, Boulder,
Colorado 80301, promises to pay to the order of
________________________________________________________________ (the "Holder"),
whose address is _______________________________________________________, the
principal sum of __________________________________________ ($______________),
plus interest on the unpaid balance from the date stated above until paid in
full at the "Interest Rate" as hereafter defined.
This Note is given by Maker to Holder pursuant to the terms and conditions
of the Acquisition Agreement of even date herewith (the "Acquisition Agreement")
among Maker, Holder and others. This Note is subject to the terms and
conditions set forth in the Acquisition Agreement to the extent that such terms
and conditions are not expressly set forth herein, including, without limitation
partial acceleration of the principal due hereunder, certain offset rights and
Holder's subordination obligations.
For purposes of this Note, "Interest Rate" means a rate per annum equal to
one percent (1%) plus a varying rate per annum that is equal to the prime rate
as announced in the Wall Street Journal, which rate represents the base rate on
corporate loans posted by at least seventy-five percent (75%) of the nation's
thirty (30) largest banks on the date of this Note and September 30 and March 31
of each year, with the first adjustment made on September 30, 1997. Interest
shall be paid monthly in arrears on the last day of each month, with the first
installment due on April 30, 1997.
The entire unpaid balance of principal and all accrued but unpaid interest
on this Note is due and payable in full upon the earlier of: (i) the fifth
anniversary of the "First Closing Date" as defined in the Acquisition Agreement;
(ii) such time that Maker or its assign completes an initial public offering of
its common stock pursuant to an effective registration statement filed with the
Securities and Exchange Commission; (iii) Maker fails to make any payment due
hereunder, which failure continues for ten (10) days after Holder's delivery of
notice of default to Maker; (iv) immediately in the event Maker files for
bankruptcy or similar protection from creditors, consents to the filing against
it of an involuntary petition in bankruptcy, or otherwise admits in writing that
it is insolvent; (v) Maker fails to perform any of its other, non-monetary
obligations hereunder or under the Acquisition Agreement as and when due, which
failure continues for thirty (30) days after Holder's delivery of written notice
to Maker; or (vi) Maker materially breaches any warranty or representation in
the Acquisition Agreement, which breach is not cured within thirty (30) days
after Holder's delivery of written notice to Maker.
<PAGE>
All payments due under this Note shall be made on the day when due to
Holder at Holder's address set forth in the first paragraph, or at such other
place as Holder may designate from time to time.
The Maker waives presentment for payment, protest and notice of nonpayment
and protest. Maker hereby waives and releases any offset, subrogation and any
other rights and claims which it may now or hereafter have against Holder which
would discharge or reduce Maker's unconditional obligation to pay to Holder all
amounts due to Maker in accordance with the terms set forth in this Note.
If the principal balance owed hereunder is not paid when due, including
following the acceleration of the due date as herein provided, the entire amount
of unpaid principal shall thereafter accrue interest at the rate of five percent
(5%) per annum over the Interest Rate until paid in full. In the event of
default, Holder may also elect all or any of the following additional rights:
(i) Holder may offset any debt which Holder may then or thereafter owe Maker
against the amounts owed Holder hereunder; and (ii) Maker agrees to pay all
reasonable costs of collection, including court costs, expenses and reasonable
attorneys' fees incurred in negotiations and litigation.
No indulgences granted from time to time under this Note shall be construed
as a waiver of Holder thereafter to insist upon strict compliance with the terms
of this Note or to affect any other right granted hereunder by the laws of the
State of Colorado.
The Maker shall have the right at any time without penalty to prepay the
entire unpaid balance of principal and accrued interest upon this Note. The
Maker may assign its obligations hereunder to one or more of its affiliates
without Holder's consent, but such assignment shall not discharge Maker's
obligations to Holder hereunder.
This Note and its validity, construction and performance shall be governed
in all respects by the laws of the State of Colorado. Any notice required or
allowed to be given under this Note shall be given in the manner provided under
the Acquisition Agreement.
THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED ON OR PERTAINING
TO, THIS PROMISSORY NOTE.
Dated this day and year set forth above.
HORIZON ORGANIC DAIRY, INC.
By:
-----------------------------
Barnet M. Feinblum, President
-2-
<PAGE>
EXHIBIT 10.10
NOTE AND STOCK PURCHASE AGREEMENT
This NOTE AND STOCK PURCHASE AGREEMENT, dated as of May 29, 1997 (this
"Agreement"), is entered into by and among HORIZON ORGANIC HOLDING CORPORATION,
---------
a Delaware corporation ("Company"), with its principal executive office at 7490
-------
Club House Road, Suite 103, Boulder, Colorado 80301, and THE PERSONS AND
ENTITIES LISTED ON THE SCHEDULE OF PURCHASERS attached hereto as Schedule 1
----------
(each a "Purchaser," and collectively, the "Purchasers").
--------- ----------
RECITALS
--------
A. On the terms and subject to the conditions set forth herein, each
Purchaser is willing to purchase from Company, and Company is willing to sell to
such Purchaser, an investment unit consisting of an unsecured subordinated
promissory note in the principal amount set forth opposite such Purchaser's name
on Schedule 1 hereto and the number of shares of Common Stock of Company set
----------
forth opposite such Purchaser's name on Schedule 1 hereto.
----------
B. Capitalized terms not otherwise defined herein shall have the meaning
set forth in the form of Note (as defined below) attached hereto as Exhibit A.
---------
AGREEMENT
---------
NOW THEREFORE, in consideration of the foregoing, and the representations,
warranties, and conditions set forth below, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. THE NOTES AND THE COMMON STOCK.
------------------------------
(a) Issuance of Notes and Common Stock. At the Closing (as defined
below), Company agrees to issue and sell to each of the Purchasers, and, subject
to all of the terms and conditions hereof, each of the Purchasers agrees to
purchase, investment units (each, a "Unit") consisting of a Secured Promissory
----
Note in the form of Exhibit A hereto (each, a "Note," and collectively, the
----
"Notes") in the principal amount set forth opposite the respective Purchaser's
- ------
name on Schedule 1 hereto and the number of shares of Common Stock of Company
----------
(the "Common Stock") set forth opposite such Purchaser's name on Schedule 1
----------
hereto. Each Unit shall consist of Fifty Thousand Dollars ($50,000) of face
amount of the Note and Two Thousand Five Hundred (2,500) shares of Common Stock
for a purchase price of Fifty Thousand Dollars ($50,000). The obligations of
the Purchasers to purchase Units are several and not joint.
(b) Delivery. The sale and purchase of the Units shall take place at
a closing (the "Closing") to be held at such place and time as Company and the
-------
Purchasers may determine (the "Closing Date"). At the Closing, Company will
------------
deliver to each of the Purchasers the Note and the Common Stock to be purchased
by such Purchaser, against receipt by Company of the corresponding purchase
price set forth on Schedule 1 hereto (the "Purchase Price"). Each of the Notes
---------- --------------
and the Common Stock will be registered in such Purchaser's name in Company's
records.
(c) Use of Proceeds. The proceeds of the sale and issuance of the
Notes shall be used for working capital and general corporate purposes.
<PAGE>
(d) Payments. The Company will make all cash payments due under the
Notes in immediately available funds by 11:00 A.M. San Francisco time on the
date such payment is due in the manner and at the address for such purpose
specified below each Purchaser's name on Schedule 1 hereto, or at such other
----------
address as a Purchaser or other registered holder of a Note may from time to
time direct in writing.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company represents and
-----------------------------------------
warrants to each Purchaser that:
(a) Due Incorporation, Qualification,, etc. Each of Company and its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation; (ii) has the power and
authority to own, lease and operate its properties and carry on its business as
no conducted; and (iii) is duly qualified, licensed to do business and in good
standing as a foreign corporation in each jurisdiction where the failure to be
so qualified or licensed could reasonably be expected to have a Material Adverse
Effect.
(b) Authority. The execution, delivery and performance by Company of
each Transaction Document to be executed by Company and the consummation of the
transactions contemplated thereby (i) are within the power of Company and (ii)
have been duly authorized by all necessary actions on the party of Company.
(c) Enforceability. Each Transaction Document executed, or to be
executed, by Company has been, or will be, duly executed and delivered by
Company and constitutes, or will constitute, a legal, valid and binding
obligation of Company, enforceable against Company in accordance with hits
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by Company of the
Transaction Documents executed by Company and the performance and consummation
of the transactions contemplated thereby do not and will not (i) violate the
Articles or Certificate of Incorporation or Bylaws of the Company or any
material judgment, order, writ, decree, statute, rule or regulation applicable
to Company; (ii) violate any provision of, or result in the breach or the
acceleration of, or entitle any other Person to accelerate (whether after the
giving of notice or lapse of time or both), any material mortgage, indenture,
agreement, instrument or contract to which Company is a party or by which it is
bound; or (iii) result in the creation or imposition of any Lien upon any
property, asset or revenue of Company or the suspension, revocation impairment,
forfeiture, or nonrenewal of any material permit, license, authorization or
approval applicable to Company, its business or operations, or any of its assets
or properties.
(e) Approvals. Unless already obtained or waived, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental authority or other Person (including, without limitation,
the shareholders of any Person) is required in connection with the execution and
delivery of the Transaction Documents executed by Company and the performance
and consummation of the transactions contemplated hereby.
(f) No Violation or Default. None of Company or Company's
Subsidiaries is in violation of or in default with respect to (i) its Articles
or Certificate of Incorporation or Bylaws or any material judgment, order, writ,
decree, statute, rule or regulation applicable to such person; or (ii) any
material mortgage, indenture, agreement, instrument or contract to which such
person is party or by which it is bound (nor is there any waiver in effect
which, if not in effect, would result in such a violation or default), where, in
each case, such violation or
2
<PAGE>
default, individually, or together with all such violations or defaults, could
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, to the best knowledge of the Company's officers
none of Company or Company's Subsidiaries (A) has violated any Environmental
Laws (as defined below), (B) has any liability under any Environmental Laws or
(C) has received notice or other communication of an investigation or is under
investigation by any governmental authority having authority to enforce
Environmental Laws, where such violation, liability or investigation could
reasonably be expected to have a Material Adverse Effect. For purposes of this
Section 2(f), "Environmental Laws" means all judgments, orders, writs, decrees,
------------------
statutes, rules or regulations relating to the protection of human health or the
environment, including, without limitation, (i) all judgments, orders, writs
decrees, statutes, rules or regulations, pertaining to reporting, licensing,
permitting, investigation, and remediation of emissions, discharges, releases,
or threatened releases of hazardous materials, chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or wastes whether
solid, liquid, or gaseous in nature, into the air, surface water, groundwater,
or land, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of chemical substances,
pollutants, contaminants, or hazardous or toxic substances, materials, or
wastes, whether solid, liquid, or gaseous in nature; and (ii) all judgments,
orders, writs, decrees, statues, rules or regulations pertaining to the
protection of the health and safety of employees or the public. No Event of
Default or default, which after the giving of notice or the lapse of time or
both would constitute an Event of Default, has occurred and is continuing.
(g) Litigation. Except as set forth (with estimates of the dollar
amounts involved) in Item 2(g) of Schedule II hereto (the "Disclosure
----------
Schedule"), no actions (including, without limitation, derivative actions),
- --------
suits, proceedings or investigations are pending or, to the knowledge of
Company, threatened against Company or Company's Subsidiaries at law or in
equity in any court or before any other governmental authority which (i) if
adversely determined would (alone or in the aggregate) have a Material Adverse
Effect or (ii) seeks to enjoin, either directly or indirectly, the execution,
delivery or performance by Company of the Transaction Documents or the
transactions contemplated thereby.
(h) Title. Company and Company's Subsidiaries own and have good and
marketable title in fee simple absolute to, or a valid leasehold interest in,
all their respective real properties and good title to their other respective
assets and properties as reflected in the most recent Financial Statements
delivered to Purchasers (except those assets and properties disposed of in the
ordinary course of business since the date of such Financial Statements) and all
respective assets and properties acquired by Company and Company's Subsidiaries
since such date (except those disposed of in the ordinary course of business).
Such assets and properties are subject to no Lien, except for Permitted Liens.
(i) Intellectual Property. To the best of their knowledge, Company
and Company's Subsidiaries own or possess sufficient legal rights to all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, processes and other intellectual property rights
necessary for its business as now conducted and as proposed to be conducted
without any conflict with, or infringement of the rights of, others.
(j) Financial Statements. Except as set forth in Item 2(j) of the
Disclosure Schedule, the Financial Statements of Company which have been
delivered to the Purchasers, (i) are in accordance with the books and records of
Company and its Subsidiaries, which have been maintained in accordance with good
business practice; (ii) have been prepared in conformity with GAAP; and (iii)
fairly present the consolidated financial position of Company as of the dates
presented therein and the results of operations, changes in financial positions
or cash flows, as the case may be, for the periods presented therein. None of
Company or any of Company's Subsidiaries has any contingent obligations,
liability for taxes or other outstanding obligations which are material in the
3
<PAGE>
aggregate, except as disclosed in the Financial Statements for the period ended
[date of last audited Financial Statements] furnished by Company to Purchasers
prior to the date hereof.
(k) Equity Securities. Company's total authorized and issued
capitalization is as set forth in Item 2(k) of the Disclosure Schedule. The
Equity Securities of Company have the respective rights, preferences and
privileges set forth in Company's Certificate of Incorporation in effect on the
date hereof. All of the outstanding Equity Securities of the Company have been
duly authorized and are validly issued, fully paid and nonassessable. Except as
expressly referenced herein or as set forth in Item 2(k) of the Disclosure
Schedule, there are as of the date of this Agreement no options, warrants or
rights to purchase Equity Securities of the Company authorized, issued or
outstanding, nor is Company obligated in any other manner to issue shares of
its Equity Securities. Except as set forth in Item 2(k) of the Disclosure
Schedule, there are no restrictions on the transfer of Equity Securities of
Company, other than those imposed by Company's Certificate of Incorporation and
Bylaws as of the date hereof, or relevant state and federal securities laws, and
no holder of any Equity Security of Company is entitled to preemptive or similar
statutory or contractual rights, either arising pursuant to any agreement or
instrument to which Company is a party or that are otherwise binding upon
Company. The offer and sale of all Equity Securities of Company issued before
the Closing Date complied with or were exempt from registration or qualification
under all applicable federal and state securities laws. Except as expressly
referenced herein or as set forth in Item 2(k) of the Disclosure Schedule, no
Person has the right to demand or other rights to cause Company to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), relating to any Equity Securities of Company presently
- ---------------
outstanding or that may be subsequently issued, or any right to participate in
any such registration statement.
(l) No Agreements to Sell Assets. None of Company or Company's
Subsidiaries has any legal obligation, absolute or contingent, to any Person to
sell the assets of Company or Company's Subsidiaries (other than sales in the
ordinary course of business), or to effect any merger, consolidation or other
reorganization of Company or to enter into any agreement with respect thereto.
(m) Employee Benefit Plans.
(i) Neither company nor any Person (each, an "ERISA
-----
Affiliate") which is treated as a single employer with Company under section 414
- ---------
of the Internal Revenue Code of 1986, as amended (the "Code") has an employee
----
benefit plan (an "Employee Benefit Plan") within the meaning of the Employee
---------------------
Retirement Income Security Act of 1974 (as the same may from time to time be
amended or supplemented, and including any rules or regulations issued in
connection therewith, "ERISA") that is an "employee pension benefit plan"
-----
(within the meaning of section 3(2) of ERISA). Neither Company nor any ERISA
Affiliate has any liability with respect to any post-retirement benefit under
any Employee Benefit Plan which is a welfare plan (as defined in section 3(1) of
ERISA), other than liability for health plan continuation coverage described in
part 6 of Title I(B) of ERISA, which liability for health plan continuation
coverage cannot reasonably be expected to have a Material Adverse Effect.
(ii) Each Employee Benefit Plan complies, in both form and
operation, in all material respects, with its terms, ERISA and the Code, and no
condition exists or event has occurred with respect to any such Employee Benefit
Plan which would result in the incurrence by either Company or any ERISA
Affiliate of any material liability, fine or penalty. Each Employee Benefit
Plan, related trust agreement, arrangement and commitment of Company or any
ERISA Affiliate is legally valid and binding and in full force and effect. No
Employee Benefit Plan is being audited or investigated by any governmental
authority or is subject to any pending
4
<PAGE>
or threatened claim or suit. Neither company nor any ERISA Affiliate nor any
fiduciary of any Employee Benefit Plan has engaged in a prohibited transaction
under section 406 of ERISA or section 4975 of the Code.
(iii) Except as set forth in Item 2(m) of the Disclosure
Schedule, neither Company nor any ERISA Affiliate contributes to any
multiemployer plan within the meaning of ERISA (a "Multiemployer Plan").
------------------
Neither Company nor any ERISA Affiliate has incurred any material liability
(including secondary liability) to any Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan under section 4201
of ERISA or as a result of a sale of assets described in section 4204 of ERISA.
Neither Company nor any ERISA Affiliate has been notified that any Multiemployer
Plan is in reorganization or insolvent under and within the meaning of section
4241 or section 4245 of ERISA or that any Multiemployer Plan intends to
terminate or has been terminated under section 4041A or ERISA.
(n) Other Regulations. None of Company or its Subsidiaries is
subject to regulation under the Investment Company Act of 1940, the Public
Utility Holding Company Act of 1935, the Federal Power Act, any state public
utilities code or to any federal or state statute or regulation limiting its
ability to incur indebtedness.
(o) Governmental Charges and Other Indebtedness. Each of Company and
its Subsidiaries has filed or caused to be filed all tax returns which are
required to be filed by it. Company and Company's Subsidiaries have paid, or
made provision for the payment of, all taxes and other levies, assessments,
fees, claims or other charges imposed by any governmental authority which have
or may have become due pursuant to said returns and all other Indebtedness,
except such taxes, levies, assessments, fees, claims or other charges imposed by
any government authority which have or may have become due pursuant to said
returns and all other Indebtedness, except such taxes, levies, assessments,
fees, claims or other charges or Indebtedness, if any, which are being contested
in good faith and as to which adequate reserves (determined in accordance with
generally accepted accounting principles) have been provided or which could not
reasonably be expected to have a Material Adverse Effect if unpaid.
(p) Subsidiaries, Etc. Except as set forth in Item 2(p) of the
Disclosure Schedule (setting forth the jurisdiction of incorporation, capital
structure and percentage ownership of each shareholder), Company has no
Subsidiaries, is not a partner in any partnership or a joint venturer in any
joint venture.
(q) Solvency, Etc. Company is Solvent (as defined below) and, after
the execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated thereby, each of Company and its Subsidiaries will
be Solvent. "Solvent" shall mean, with respect to any Person on any date, that
-------
on such date to the best knowledge of the officers of Company, (a) the fair
value of the property of such Person is greater than the fair value of the
liabilities (including, without limitation, contingent liabilities) of such
Person, (b) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (c) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital.
(r) Catastrophic Events; Labor Disputes. None of Company or
Company's Subsidiaries and none of their properties is or has been affected by
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or other casualty that could
reasonably be expected to have a Material Adverse Effect in the future. There
are no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements, employee contracts
or employee welfare or incentive plans to which Company or Company's
Subsidiaries is a party, and there are no strikes, lockouts, work stoppages or
slowdowns, or, to the best knowledge of Company, jurisdictional disputes or
organizing activity occurring or threatened which could reasonably be expected
to have a Material Adverse Effect.
5
<PAGE>
(s) No Material Adverse Effect. No event has occurred and no
condition exists which could reasonably be expected to have a Material Adverse
Effect since December 28, 1996.
(t) Accuracy of Information Furnished. None of the Transaction
Documents and none of the other certificates, written statements or written
information furnished to Purchasers by or on behalf of Company or Company's
Subsidiaries in connection with the Transaction Documents or the transactions
contemplated thereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Purchasers recognize that all financial projections
furnished to the Purchasers by or on behalf of Company or Company's Subsidiaries
in connection with the Transaction Documents or the transactions contemplated
thereby are not to be viewed as facts and that actual results during the period
or periods covered by such projections may differ from the projected or
forecasted results.
(u) Certain Agreements of Officers, Employees and Consultants.
(i) No officer, employee or consultant of Company or Company's
Subsidiaries is, or is now expected to be, in violation of any term of any
employment contract, proprietary information agreement, nondisclosure agreement,
noncompetition agreement, or any other contract or agreement or any restrictive
covenant relating to the right of any such officer, employee or consultant to be
employed or retained by Company or Company's Subsidiaries because of the nature
of the business conducted or to be conducted by Company or Company's
Subsidiaries or relating to the use of trade secrets or proprietary information
of others, and to the best of Company's knowledge, after due inquiry, the
continued employment of Company and Company's Subsidiaries officers, employees
and consultants do not subject Company or its Subsidiaries to any liability for
any claim or claims arising out of or in connection with any such contract,
agreement, or covenant.
(ii) To the knowledge of Company, no officers of Company, and
no employee or consultant of Company or Company's Subsidiaries whose
termination, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, has any present intention of
terminating his or her employment or consulting relationship with Company or
Company's Subsidiaries.
(v) Contracts of Commitments; Indebtedness. Except as set forth in
Item 2(v) of the Disclosure Schedule, none of Company or Company's Subsidiaries
and none of their properties is subject to any material judgment, order, writ,
decree, statute, rule or regulation, or any material mortgage, indenture,
agreement, instrument or contract which could reasonably be expected to have a
Material Adverse Effect. Except for this Agreement, the Notes and the other
transaction Documents, and except as set forth in Item 2(v) of the Disclosure
Schedule, neither Company nor any of its Subsidiaries is a party to any
contracts or commitments (or group of related contracts or commitment) involving
more than One Hundred Thousand Dollars ($100,000) or having a term (including
renewals or extensions optional with another party)of more than one (1) year
from the date thereof. Company and its Subsidiaries have no Indebtedness other
than Permitted Indebtedness.
(w) Transactions with Affiliates; Investments. Except as set forth
on the Disclosure Schedule, there are no loans, leases, royalty agreements or
other continuing transactions between Company or its Subsidiaries and any
Affiliate of Company or its Subsidiaries, except transactions in the ordinary
course of business and on terms at least as favorable to Company or its
Subsidiaries as would be the case in an arms-length transaction with an
unaffiliated Person. Except as set forth in the Disclosure Schedule, Company
and its Subsidiaries have no Investments other than Permitted Investments.
6
<PAGE>
(x) Finder's Fees. Neither the Company nor any Purchaser will incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement and the transactions contemplated
hereby.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each Purchaser, for
--------------------------------------------
that Purchaser alone, represents and warrants to Company as follows:
(a) Binding Obligation. Such Purchaser has full legal capacity,
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Each of this Agreement and the Note issued to such
Purchaser is a valid and binding obligation of the Purchaser, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and general principles of equity.
(b) Securities Law compliance. Such Purchaser has been advised that
the Notes and the Common Stock have not been registered under the Securities
Act, or any state securities laws and, therefore, cannot be resold unless they
are registered under the Securities Act and applicable state securities laws or
unless an exemption from such registration requirements is available. Such
Purchaser is aware that Company is under no obligation to effect any such
registration with respect to the Notes or the Common Stock or to file for or
comply with any exemption from registration. Purchaser understands that no
public market now exists for any securities issued by the Company. Such
Purchaser has not been formed solely for thee purpose of making this investment
and is purchasing the Notes and the Common Stock to be acquired by such
Purchaser hereunder for its own account for investment, not as a nominee or
agent, and not with a view to, or for resale in connection with, the
distribution thereof. Such purchaser has such knowledge and experience in
financial and business matters that such Purchaser is capable of evaluating the
merits and risks of such investment, is able to incur a complete loss of such
investment and is able to bear the economic risk of such investment for an
indefinite period of time. Such Purchaser is an accredited investor as such
term is defined in Rule 501 of Regulation D under the Securities Act.
(c) Access to Information. Such Purchaser acknowledges that Company
has given such Purchaser access to the corporate records and accounts of Company
and to all information in its possession relating to Company, has made its
officers and representatives available for interview by such Purchaser, and has
furnished such Purchaser with all documents and other information required for
such Purchaser to make an informed decision with respect to the purchase of the
Notes and the Common Stock.
(d) Compliance with Other Instruments. The execution, delivery and
performance of and compliance with this Agreement, and the issuance of the Notes
and Common Stock have not resulted and will not result in any violation of, or
conflict with, or constitute a default under, any of the terms of any corporate
or partnership restriction or of any indenture, mortgage, deed of trust, pledge,
bank loan or credit agreement, corporate charter, bylaw or any instrument,
document or agreement by which the Purchaser or its properties may be bound or
affected, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Purchaser.
(e) Governmental Consent, Etc. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Purchaser is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Notes or
Common Stock, except for the qualification (or taking such action as may be
necessary to secure an exemption from qualification, if available) or the offer
and sale of the Notes or Common Stock under applicable Blue Sky laws, which
filings
7
<PAGE>
and qualifications, if required, will be accomplished in a timely manner prior
to or promptly upon the completion of the Closing.
4. CONDITIONS TO CLOSING OF THE PURCHASERS. Each Purchaser's obligations
---------------------------------------
at the Closing are subject to the fulfillment, on or prior to the Closing Date,
of all of the following conditions, any of which may be waived in whole or in
party by all of the Purchasers:
(a) Representations and Warranties. The representations and
warranties made by Company in Section 2 hereof shall have been true and correct
when made, and shall be true and correct on the Closing Date.
(b) Approvals and Filings. Except for any notices required or
permitted to be filed after the Closing Date with certain federal and state
securities commissions, Company shall have obtained all governmental approvals
required in connection with the lawful sale and issuance of the Notes and the
Common Stock, and Company shall have obtained all approvals, consents and
waivers required by any other Person in connection with the Transaction
Documents or the transactions contemplated thereby.
(c) Legal Requirements. At the Closing, the sale and issuance by
Company, and the purchase by the Purchasers, of the Notes and the Common Stock
shall be legally permitted by all laws and regulations to which the Purchasers
or Company are subject.
(d) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers.
(e) Opinion of Counsel. There shall have been delivered to the
President a favorable written opinion of Krendl, Horowitz & Krendl; counsel to
Company, in the form of Exhibit B hereto, dated as of the Closing Date.
---------
(f) Transaction Documents. Company shall have duly executed and
delivered to the Purchasers the following documents:
(A) This Agreement;
(B) Each Note and the Common Stock issued hereunder;
(C) A separate Guaranty executed in favor of the holders of the
Notes by each of Horizon Organic Dairy, Inc. and Sunrise
Organic Farms, Inc.; and
(D) The Management Rights Agreement.
(g) Corporate Documents. Company shall have delivered to Purchasers
each of the following:
(i) The Certificate of Incorporation of Company, certified as of
a recent date prior to the Closing Date by the Secretary of State of Delaware.
8
<PAGE>
(ii) A Certificate of Good Standing or comparable certificate
as to Company, certified as of a recent date prior to the Closing Date by the
Secretary of State of Delaware and a Certificate of Good Standing certified as
of a recent date prior to the Closing Date by the Secretary of the State of
Colorado.
(iii) A certificate of the Secretary of Company, dated the
Closing Date, certifying (a) that the Certificate of Incorporation of Company,
delivered to purchasers pursuant to Section 4(h)(i) hereof, is in full force and
effect and has not been amended, supplemented, revoked or repealed since the
date of such certification; (b) that attached thereto is a true and correct copy
of the Bylaws of Company as in effect on the Closing Date; (c) that attached
thereto are true and correct copies of resolutions duly adopted by the Board of
Directors of Company and continuing in effect, which authorize the execution,
delivery and performance by Company of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby; and (d) that there are no proceedings for the dissolution or
liquidation of Company (commenced or threatened); and
(iv) A certificate of the Secretary of Company, dated the
Closing Date, certifying the incumbency, signatures and authority of the
officers of Company authorized to execute and deliver this Agreement, the Notes
and the Common Stock on behalf of Company and perform the Company's obligations
thereunder on behalf of Company.
(h) Common Stock Financing. The Company and certain investors shall
have consummated the sale by the Company and the purchase by such investors of
Common Stock with an aggregate purchase price of not less than $3,000,000 and
all other transactions incident to such sale purchase.
5. CONDITIONS TO OBLIGATIONS OF COMPANY. Company's obligation to issue
------------------------------------
and sell the Notes and Common Stock at the Closing is subject to the
fulfillment, on or prior to the Closing Date, of the following conditions, any
of which may be waived in whole or in party by Company:
(a) Representations and Warranties. The representations and
warranties made by the Purchasers in Section 3 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date.
(b) Approvals and Filings. Except for any notices required or
permitted to be filed after the Closing Date with certain federal and state
securities commissions, Company shall have obtained all governmental approvals
required in connection with the lawful sale and issuance of the Notes and the
Common Stock, and Company shall have obtained all approvals, consents and
waivers required by any other Person in connection with the Transaction
Documents or the transactions contemplated thereby.
(c) Legal Requirements. At the Closing, the sale and issuance by
Company, and the purchase by the Purchasers, of the Notes and the Common Stock
shall be legally permitted by all laws and regulations to which the Purchasers
or Company are subject.
(d) Purchase Price. Each Purchaser shall have delivered to Company
the Purchase Price in respect of the Unit being purchased by such Purchaser
referenced in Section 1(b) hereof.
(e) Shareholders Agreement. Each Purchaser shall have duly executed
in counterparts and delivered to Company the Shareholders Agreement.
9
<PAGE>
6. MISCELLANEOUS.
-------------
(a) Waivers and Amendments. Any provision of this Agreement may be
amended, waived or modified only upon the written consent of Company and holders
of a Majority in Interest.
(b) Governing Law. This Agreement and all actions arising out of or
in connection with this Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law provisions of the State of California or of any other state.
(c) Survival. The representations, warranties, covenants and
agreements made herein shall survive the execution and delivery of this
Agreement.
(d) Successors and Assigns. Subject to the restrictions on transfer
described in Sections 6(e) and 6(f) below, the rights and obligations of Company
and the Purchasers of the Notes and the Common Stock shall be binding upon and
benefit the successors, assigns, heirs, administrators and transferees of the
parties.
(e) Registration, Transfer and Replacement of the Notes. The Notes
issuable under this Agreement shall be registered notes. Company will keep, at
its principal executive office, books for the registration and registration of
transfer of the Notes. Prior to presentation of any Note for registration of
transfer, Company shall treat the Person in whose name such Note is registered
as the owner and holder of such Note for all purposes whatsoever, whether or not
such Note shall be overdue, and the Company shall not be affected by notice to
the contrary. Subject to any restrictions on or conditions to transfer set
forth in any Note, the holder of any Note, at its option, may in person or by
duly authorized attorney surrender the same for exchange at Company's chief
executive office, and promptly thereafter and at Company's expense, except as
provided below, receive in exchange therefor one or more new Note(s), each in
the principal requested by such holder, dated the date to which interest shall
have been paid on the Note so surrendered or, if no interest shall have yet been
so paid, dated the date of the Note so surrendered and registered in the name of
such Person or Persons as shall have been designated in writing by such holder
or its attorney for the same principal amount as the then unpaid principal
amount of the Note so surrendered. Upon receipt by Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and (a) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it; or (b) in the case of
mutilation, upon surrender thereof, the Company, at its expense, will execute
and deliver in lieu thereof a new Note executed in the same manner as the Note
begin replaced, in the same principal amount as the unpaid principal amount of
such Note and dated the date to which interest shall have been paid on such Note
or, if no interest shall have yet been so paid, dated the date of such Note.
(f) Assignment by Company. Neither the Notes nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by Company without the prior written consent of
a Majority in Interest.
(g) Entire Agreement. This Agreement together with the Notes and the
other Transaction Documents constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
All prior writings, communications, understandings and/or agreements are
superseded and merged herein.
10
<PAGE>
(h) Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery, addressed (i)
if to a Purchaser, at such Purchaser's address set forth in the Schedule of
Purchasers attached as Schedule I, or at such other address as such Purchaser
----------
shall have furnished Company in writing, or (ii) if to Company, at its address
set forth at the beginning of the Agreement, or at such other address as Company
shall have furnished to the Purchasers in writing.
(i) Expenses. Company shall pay on demand all reasonable fees and
expenses, including reasonable attorneys' fees and expenses in connection with
the preparation, execution and delivery of this Agreement and the other
Transaction Documents up to a maximum amount of $12,000. Company shall pay on
demand all reasonable fees and expenses, including reasonable attorneys' fees
and expenses, incurred by Purchasers with respect to any amendments or waivers
hereof requested by Company or in the enforcement or attempted enforcement of
any of the obligations of Company to the Purchasers under the Transaction
Documents or in preserving any of the Purchasers' rights and remedies
(including, without limitation, all such fees and expenses incurred in
connection with any "workout" or restructuring affecting the Transaction
Documents or the obligations thereunder or any bankruptcy or similar proceeding
involving Company or any of its Subsidiaries).
(j) Separability of Agreements; Severability of this Agreement.
Company's agreement with each of the purchasers is a separate agreement and the
sale of the Units to each of the Purchasers is a separate sale. Unless
otherwise expressly provided herein, the rights of each Purchaser hereunder are
several rights, not rights jointly held with any of the other Purchasers. Any
invalidity, illegality or limitation on the enforceability of the Agreement or
any part thereof, by any Purchaser whether arising by reason of the law of the
respective Purchaser's domicile or otherwise, shall in no way affect or impair
the validity, legality or enforceability of this Agreement with respect to other
Purchasers. If any provision of this Agreement shall be judicially determined
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
(k) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall be deemed to constitute one instrument.
(l) Legal Representation. Wilson Sonsini Goodrich & Rosati,
Professional Corporation ("WSGR") has acted as legal counsel only to Dominion
Fund IV in connection with this Agreement and the consummation of the
transactions contemplated hereby. The other Purchasers acknowledge and agree
that WSGR has not been engaged to protect or represent the interests of any
other Purchaser and that neither this Agreement nor the transactions
contemplated hereby are intended to create an attorney/client relationship
between WSGR and such Partner.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
date and year first written above.
COMPANY:
HORIZON ORGANIC HOLDING CORPORATION,
a Delaware corporation
By: /s/ Barnet M. Feinblum
------------------------------------
Name: Barnet M. Feinblum
----------------------------------
Title: President
---------------------------------
PURCHASERS:
DOMINION FUND IV,
a Delaware limited partnership
By: Dominion Management IV,
a Delaware limited liability
company, its General Partner
By: /s/ Michael Lee
--------------------------------
Name: Michael Lee
------------------------------
Title: Partner
-----------------------------
THE THOMAS D. MCCLOSKEY, JR. AND BONNIE
P. MCCLOSKEY REVOCABLE TRUST OF 1994
By: /s/ Thomas D. McCloskey
------------------------------------
By: /s/ Bonnie P. McCloskey
------------------------------------
Thomas D. McCloskey and Bonnie
Palmer McCloskey, Co-trustees
/s/ Ellen Dawe
-----------------------------------------
Ellen Dawe
/s/ Pierre Bouret
-----------------------------------------
/s/ Miriam Bouret
-----------------------------------------
Pierre Bouret and Miriam Bouret, Joint
Tenants with Rights of Survivorship
12
<PAGE>
SCHEDULE I
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
UNIT PRINCIPAL
NAME AND ADDRESS UNITS PURCHASE PRICE AMOUNT OF NOTE COMMON STOCK
---------------- ----- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
DOMINION FUND IV 50 $2,500,000 $2,500,000 125,000 shares
</TABLE>
(1) All payments on account of the Notes
shall be made by bank wire transfer
of immediately available funds to:
Comerica Bank - California
1299 Oakmead Parkway
Sunnyvale, CA 94086
ABA No.: 121 137 522
Account No.: 852-785-6549
Account Holder: Dominion Fund IV
Reference: HORIZON ORGANIC HOLDING CORPORATION
(2) Address for all notices:
Dominion Fund IV
44 Montgomery Street, Suite 2200
San Francisco, CA 94104
Attn: Kendall J. Cooper
Tel.: (415) 362-4890
Fax: (415) 394-9245
<PAGE>
<TABLE>
<CAPTION>
UNIT PRINCIPAL
NAME AND ADDRESS UNITS PURCHASE PRICE AMOUNT OF NOTE COMMON STOCK
---------------- ----- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
THE THOMAS D. MCCLOSKEY, JR. AND BONNIE P.
MCCLOSKEY REVOCABLE TRUST OF 1994 10 $500,000 $500,000 25,000 shares
</TABLE>
(1) All payments on account of the Notes
shall be made by bank wire transfer
of immediately available funds to:
__________________________________
__________________________________
__________________________________
ABA No.:
Account No.:
Account Holder:
Reference:
(2) Address for all notices:
The Thomas D. McCloskey, Jr.
and Bonnie P. McCloskey
Revocable Trust of 1994
P.O. Box 7846
Aspen, Colorado 81612
14
<PAGE>
<TABLE>
<CAPTION>
UNIT PRINCIPAL
NAME AND ADDRESS UNITS PURCHASE PRICE AMOUNT OF NOTE COMMON STOCK
---------------- ----- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ELLEN DAWE 1 $50,000 $50,000 2,500 shares
</TABLE>
(1) All payments on account of the Notes
shall be made by bank wire transfer
of immediately available funds to:
_____________________________________
_____________________________________
_____________________________________
ABA No.:
Account No.:
Account Holder:
Reference:
(2) Address for all notices:
Ellen Dawe
5323 Pennsylvania Avenue
Boulder, Colorado 80303
15
<PAGE>
<TABLE>
<CAPTION>
UNIT PRINCIPAL
NAME AND ADDRESS UNITS PURCHASE PRICE AMOUNT OF NOTE COMMON STOCK
---------------- ----- -------------- -------------- -------------
<S> <C> <C> <C> <C>
PIERRE BOURET AND MIRIAM BOURET, JOINT
TENANTS WITH RIGHTS OF SURVIVORSHIP 1 $50,000 $50,000 2,500 shares
</TABLE>
(1) All payments on account of the Notes
shall be made by bank wire transfer
of immediately available funds to:
-------------------------------------
-------------------------------------
-------------------------------------
ABA No.:
Account No.:
Account Holder:
Reference:
(2) Address for all notices:
Pierre Bouret and Miriam Bouret,
Joint Tenants with Rights of Survivorship
P.O. Box 344
Hanalei, Hawaii 96714
16
<PAGE>
SCHEDULE II
DISCLOSURES TO NOTE AND STOCK PURCHASE AGREEMENT
Item 2(g) The Internal Revenue Service is auditing the 1995 tax return for
Sunrise Organic Farms, Inc.
Item 2(j) The Internal Revenue Service is auditing the 1995 tax return for
Sunrise Organic Farms, Inc.
Item 2(k) The capitalization of the Company, excluding the issuance of common
stock under this Agreement and the sale of common stock under the
Company's private placement of even date herewith, is set forth on
Attachment A hereto. The options and warrants presently outstanding
are set forth on Attachment A hereto. The Company's Shareholders'
Agreement and the Shareholders' Agreement for Horizon Organic Dairy,
Inc., provide for preemptive rights. The Company's Shareholders'
Agreement includes restrictions on the transfer of shares.
Item 2(p) The Subsidiaries of the Company are as follows:
1. Horizon Organic Dairy, Inc., a Colorado corporation
2. Horizon Organic Dairy, Idaho Dairy, Inc., f/k/a Sunrise Organic
Farms, Inc., a Colorado corporation
3. Horizon Organic Dairy, Maryland Farm, Inc. a Colorado
corporation
Item 2(v) The material and long-term contracts for the Company and its
Subsidiaries are set forth in the financial statements for Horizon
Organic Dairy, Inc. and Sunrise Organic Farms, Inc., copies of which
have already been provided to the Purchasers. The Company is
indebted to the former shareholders of Sunrise Organic Farms, Inc.,
in the aggregate amount of $3,566,514.
<PAGE>
ATTACHMENT A TO DISCLOSURE SCHEDULE II
<TABLE>
<CAPTION>
SHAREHOLDER/OPTION HOLDER HOD SHARES SOF SHARES TOTAL OPTIONS/
WARRANTS
<S> <C> <C> <C> <C>
Jim Abraham 0 0 0 8,500
Rudra Altman 0 0 0 2,143
Larry Aslett 6,873 7,804 14,677 0
Steve Aslett 6,873 7,804 14,677 0
Aurora Dairy Corporation 0 34,775 34,775 4,903
Aurora Dairy Corporation Pension Plan Trust 129,382 0 129,382 779
BV Horizon Investment LLC 36,402 0 36,402 0
Amy Barr 0 0 0 7,500
Candace B. Bath 2,300 0 2,300 0
John C. Bills 21,350 0 21,350 0
Keith Boone 0 0 0 4,000
Boulder Ventures, L.P. 108,696 0 108,696 0
Pierre Bouret and Miriam Bouret 10,000 0 10,000 0
Pierre Bouret and Miriam Bouret, Joint 10,000 0 10,000 0
Tenants with Rights of Survivorship
Sandy Bowe 0 0 0 500
CVM Equity Fund IV, Ltd. 35,058 0 35,058 0
J. Thomas Clark 153,333 0 153,333 23,000
Michele Cohen as custodian for Ida-Mae Cohen 1,800 0 1,800 0
Michel Cohen as custodian for Bernard Cohen 1,800 0 1,800 0
Jamie B. Coulter 55,071 0 55,071 0
David Dahman 0 0 0 8,000
Ellen Reilly Dawe 20,000 0 20,000 7,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER/OPTION HOLDER HOD SHARES SOF SHARES TOTAL OPTIONS/
WARRANTS
<S> <C> <C> <C> <C>
Charles Diker 7,500 0 7,500 0
Richard H. Ellison 7,500 0 7,500 0
Barnet M. Feinblum 100,000 0 100,000 190,000
Julie Feinblum 25,000 0 25,000 0
The Daniel Ryan Feinblum Trust, Julie A. 5,000 0 5,000 0
Feinblum, Trustee
The Joshua Adam Feinblum Trust, Julie A. 5,000 0 5,000 0
Feinblum, Trustee
Don J. Gaidano 0 0 0 22,000
Alison Gambino 2,000 0 2,000 0
Michael Gilliland and Elizabeth Cook 40,000 0 40,000 0
Christy Goff 0 0 0 500
James William Guerico 20,618 0 20,618 0
S. M. Hassan 5,000 0 5,000 0
JoAn Hay 2,500 0 2,500 0
J & T Enterprises, general partnership 15,000 0 15,000 0
Michael Shaw Jacobs 3,000 0 3,000 0
William R. Jordan, III 12,700 0 12,700 0
Kathleen R. Kaiser 2,000 0 2,000 0
Robert J. Kammer 3,106 0 3,106 0
Sally Keefe 0 0 0 2,000
James Kimsey 42,609 0 42,609 0
Leonard A. Lauder 252,640 0 252,640 0
Harry S. Lederman and Sandra V. Gooch,
Trustees of the Gooch and Lederman Living
Trust dated August 18, 1993 40,000 0 40,000 0
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER/OPTION HOLDER HOD SHARES SOF SHARES TOTAL OPTIONS/
WARRANTS
<S> <C> <C> <C> <C>
Glenn D. Lester and Tamara Kay Lester 5,040 0 5,040 0
Lee O. Lester and Terry L. Lester 3,175 0 3,175 0
Lincoln Trust Company, custodian FBO James
F. Kimsey 112,112 0 112,112 0
Clark Lipscomb 2,150 0 2,150 0
Barney Little 0 7,811 7,811 6,101
Frank Livoti and Adrienne Livoti, Trustees
U/D/T of the Livoti Family Trust
established May 11, 1992 2,000 0 2,000 0
Donald J. LoCoco 7,500 0 7,500 0
Graham Loving 58,806 0 58,806 0
Candace Loving 20,000 0 20,000 0
E. Candace Loving 12,500 0 12,500 0
Candace Loving Stafford 1,554 0 1,554 0
Clark R. Mandigo, II 52,273 0 52,273 8,000
Clark Rogers Mandigo, III 1992 Trust 5,000 0 5,000 0
Keri Catherine Mandigo 1992 Trust 5,000 0 5,000 0
Megan Elizabeth Mandigo 1992 Trust 5,000 0 5,000 0
Molly Callahan Mandigo 1992 Trust 5,000 0 5,000 0
Charles P. Martyn, III 72,273 0 72,273 0
Kris Mattingly 0 0 0 500
McCloskey Ventures, LLC 155,280 0 155,280 0
McCloskey Children's Trust 0 33,111 33,111 4,668
Thomas D. McCloskey, Jr. and Bonnie Palmer
McCloskey, Co-Trustees under a Trust
Agreement dated April 22, 1994 543,334 0 543,334 23,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER/OPTION HOLDER HOD SHARES SOF SHARES TOTAL OPTIONS/
WARRANTS
<S> <C> <C> <C> <C>
The Thomas D. McCloskey Jr. & Bonnie P.
McCloskey Revocable Trust of 1994, Thomas
D. McCloskey and Bonnie P. McCloskey,
Trustees 91,420 0 91,420 0
Gregory S. McDonald 31,872 73,906 105,778 20,000
Scott Sabastian McGinty 2,000 0 2,000 7,000
Jeffrey D. Morgan 7,500 0 7,500 0
David Morton 0 0 0 1,500
Opportunity Investors, LLC 1,500 0 1,500 0
Vickie A.Palmer 67,764 0 67,764 0
Marcus B. Peperzak 163,333 317,353 480,686 60,148
Dan Placke 0 0 0 2,000
William M. Porter, Jr. and Carol Ann Porter 3,000 0 3,000 7,000
Diane P. Radley 1,000 0 1,000 0
Reilly Family Trust 7,106 0 7,106 0
Jeffrey I. Repetto 10,000 0 10,000 0
Leanne C. Repetto 5,000 0 5,000 0
Paul B. Repetto 435,000 0 435,000 35,000
Robert Repetto 22,500 0 22,500 0
James B. Retzloff 5,000 0 5,000 0
Mark A. Retzloff 329,282 0 329,282 35,000
Theresa Retzloff as custodian for Oliver
Retzloff 10,000 0 10,000 0
Theresa Retzloff as custodian for Eileen
Retzloff 10,000 0 10,000 0
Theresa Retzloff as custodian for Bianca
Retzloff 10,000 0 10,000 0
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER/OPTION HOLDER HOD SHARES SOF SHARES TOTAL OPTIONS/
WARRANTS
<S> <C> <C> <C> <C>
Theresa Retzloff 10,000 0 10,000 0
Richard L. Robinson 41,164 0 41,164 8,000
Edward A. Robinson 41,164 0 41,164 0
Christine Ray Santucci 8,050 0 8,050 0
John A. Shields 15,528 0 15,528 0
Victoria H. Smith 2,000 0 2,000 12,000
Anita Stalter 3,931 0 3,931 0
Ralph J. Stalter and Leona Stalter 5,000 0 5,000 0
Ralph Stalter, Jr. and Patricia Booth 2,500 0 2,500 0
Diane Starnick 2,000 0 2,000 0
David Sumrall 0 3,681 3,681 519
Wayne Schwoob 0 0 0 2,000
Elizabeth Valles 1,000 0 1,000 7,000
Joan Vander Pluym 29,403 0 29,403 0
Glenn A. Vigil and Jo C. Vigil 12,500 0 12,500 0
Glenn A. Vigil and Jody C. Vigil, Joint
Tenants with Rights of Survivorship 3,375 0 3,375 0
Waldorf School Association of Boulder, Inc. 10,000 0 10,000 0
Lee M. Warner and Hope Landis Warner, as
Trustees of the Lee and Hope Warner Family
Trust established June 10,1988 3,000 0 3,000 0
Katherine Webster 2,000 0 2,000 0
William Woods 0 4,000 4,000 0
TOTAL 3,664,000 490,245 4,154,245 520,261
</TABLE>
6
<PAGE>
EXHIBIT A
FORM OF NOTE
------------
<PAGE>
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
SENIOR SUBORDINATED PROMISSORY NOTE
-----------------------------------
$ ________________ [Date], 1997
FOR VALUE RECEIVED, HORIZON ORGANIC HOLDING CORPORATION, a Delaware
corporation ("Company") promises to pay to ________________________, a Delaware
limited partnership ("Holder"), or its registered assigns, the principal sum of
_____________________ Dollars ($___________), or such lesser amount as shall
equal the outstanding principal amount hereof, together with interest from the
date of this Note on the unpaid principal balance at a rate equal to eleven
percent (11%) per annum, computed on the basis of the actual number of days
elapsed and a year of 360 days. All unpaid principal, together with any then
unpaid and accrued interest and other amounts payable hereunder, shall be due
and payable on the earlier of (i) [Date], 2003, or (ii) when, in accordance with
the terms hereof, such amounts are declared due and payable by Holder or made
automatically due and payable. This Note is one of the "Notes" issued pursuant
to the Note and Stock Purchase Agreement of even date however (as amended,
modified or supplemented, the "Note Purchase Agreement") between Company and the
Purchasers (as defined in the Note Purchase Agreement).
The following is a statement of the rights of Holder and the conditions to
which this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1. DEFINITIONS. As used in this Note, the following capitalized
-----------
terms have the following meanings:
(a) "Affiliate" shall mean, with respect to any Person, any other
Person which, directly or indirectly, controls, is controlled by or is under
direct or indirect common control with, such Person. For the purposes of this
definition, "control", when used with respect to any Person, means the power or
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
(b) "Business Day" shall mean any day other than a Saturday,
Sunday or public holiday under the laws of California or Colorado or other day
on which banking institutions are authorized or obligated to close in California
or Colorado.
(c) "Company" includes the corporation initially executing this
Note and any person which shall succeed to or assume the obligations of Company
under this Note.
(d) "Consolidated Tangible Assets" means, as of any applicable
date, the difference between (i) the amount shown on the balance sheet of
Company as the total assets of Company and its Subsidiaries on a consolidated
basis minus (ii) the net book value of all assets of the Company and its
Subsidiaries on a consolidated basis which would be treated as intangibles under
GAAP.
-1-
<PAGE>
(e) "Consolidated Total Indebtedness" shall mean, as of any
applicable date, the total Indebtedness of the Company and its Subsidiaries on a
consolidated basis.
(f) "Current Assets" shall mean, as of any applicable date, all
amounts that should in, accordance with GAAP, be included as current assets on
the consolidated balance sheet of Company and its Subsidiaries as at such date,
plus any livestock shown on the consolidated balance sheet of Company and its
Subsidiaries.
(g) "Current Liabilities" shall mean, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Company and its Subsidiaries,
as at such date, including all Indebtedness that is payable upon demand or
within one year from the date of determination thereof unless such Indebtedness
is renewable or extendable at the option of Borrower or any subsidiary to a date
more than one year from the date of determination, plus any liabilities secured
by a lien on livestock, but excluding Indebtedness under any working capital
revolving credit agreement.
(h) "Equity Securities" of any Person shall mean (a) all common
stock, preferred stock, participations, shares, partnership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.
(i) "Event of Default" has the meaning given in Section 5 hereof.
(j) "Financial Statements" shall mean, with respect to any
accounting period for any Person, statements of operations, shareholders equity
and cash flow of such Person for such period, and balance sheets of such Person
as of the end of such period, setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal year if such period
is less than a full fiscal year or, if such period is a full fiscal year,
corresponding figures from the preceding fiscal year, all prepared in reasonable
detail and in accordance with GAAP, except for customary year-end adjustments
and footnotes for interim periods. Unless otherwise indicated, each reference to
Financial Statements of any Person shall be deemed to refer to Financial
Statements prepared on a consolidated basis.
(k) "GAAP" shall mean generally accepted accounting principles as
in effect in the United States from time to time.
(l) "Guaranties" shall mean each Guaranty executed by a
Subsidiary of Company in the form of Exhibit C to the Note Purchase Agreement.
(m) "Holder" shall mean the Person specified in the introductory
paragraph of this Note or any Person who shall at the time be the registered
holder of this Note.
(n) "Indebtedness" shall mean and include the aggregate amount
of, without duplication (a) all obligations for borrowed money, (b) all
obligations evidenced by bond, debentures, notes or other similar instruments,
(c) all obligations to pay the deferred purchase price of property or services
(other than accounts payable incurred in the ordinary course of business
determined in accordance with GAAP), (d) all obligations with respect to capital
leases, (e) all guaranty obligations; (f) all obligations created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person, (g) all reimbursement and other payment
obligations, contingent or otherwise, in respect of letters of credit.
-2-
<PAGE>
(o) "Investment" of any Person shall mean any loan or advance of funds
by such Person to any other Person (other than advances to employees of such
Person for moving and travel expense, drawing accounts and similar expenditures
in the ordinary course of business), any purchase or other acquisition of any
Equity Securities or Indebtedness of any other Person, any capital contribution
by such Person to or any other investment by such Person in any other Person
(including, without limitation, any Indebtedness incurred by such Person of the
type described in clauses (a) and (b) of the definition of "Indebtedness" on
behalf of any other Person); provided, however, that Investments shall not
-----------------
include accounts receivable or other indebtedness owed by customers of such
Person which are current assets and arose from sales or non-exclusive licensing
in the ordinary course of such Person's business.
(p) "Lien" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement or similar instrument under
the Uniform Commercial Code or comparable law of any jurisdiction.
(q) "Liquidity Event" shall mean (i) the closing of firmly
underwritten public offering pursuant to registration statement filed by Company
under the Securities Act of 1933, as amended (the "Act"), or (ii) a sale,
transfer or distribution by the Company of all or substantially all of its
assets (other than any mortgage, pledge or similar transfer whether or not in
the ordinary course of business), or a merger or consolidation of Company with
any other Person such that the holders of Company's outstanding voting
securities immediately prior to such transaction do not own more than 50% of the
combined voting power of the surviving entity's outstanding voting securities
immediately after the transaction, (iii) any "person" (as such term is used in
subsections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")) or group of persons after the date hereof, becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding voting securities, or
(iv) the sale of all or substantially all of the assets of Sunrise, the sale of
any of the capital stock of Sunrise or a merger or consolidation of Sunrise with
or into any Person.
(r) "Majority in Interest" shall mean more than 50% of the aggregate
outstanding principal amount of the Notes issued pursuant to the Note Purchase
Agreement.
(s) "Material Adverse Effect" shall mean a material adverse effect on
(a) the business, assets, operations, prospects or financial or other condition
of Company; (b) the ability of Company to pay or perform the Obligations in
accordance with the terms of this Note; or (c) the rights and remedies of Holder
under this Note or any related document, instrument or agreement.
(t) "Note Purchase Agreement" has the meaning given in the
introductory paragraph hereof.
(u) "Obligations" shall mean and include all loans, advances, debts,
liabilities and obligations, howsoever arising, owed by Company to Holder of
every kind and description whether or not evidenced by any note or instrument
and (whether or not for the payment of money), now existing or hereafter arising
under or pursuant to the terms of the Transaction Documents, including all
interest, fees, charges, expenses, attorneys' fees and costs and accountants'
fees and costs chargeable to and payable by Company hereunder and thereunder, in
each case, whether direct or indirect, absolute or contingent, due or to become
due, and whether not arising after the commencement of a proceeding under title
11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended
------
-3-
<PAGE>
from time to time (including post-petition interest) and whether or not allowed
or allowable as a claim in any such proceeding.
(v) "Permitted Investments" shall mean and include: (a) Deposits with
commercial banks organized under the laws of the United States or a state
thereof to the extent such deposits are fully insured by the Federal Deposit
Insurance Corporation; (b) Investments in marketable obligations issued or fully
guaranteed by the United States and maturing not more than one (1) year from the
date of issuance; (c) Investments in open market commercial paper rated at least
"A1" or "P1" or higher by a national credit rating agency and maturing not more
than one (1) year from the creation thereof; (d) Investments pursuant to or
arising under currency agreements or interest rate agreements entered into in
connection with bona fide hedging arrangements; (e) Investments consisting of
deposit accounts maintained in the ordinary course of business; (f) other
Investments aggregating not in excess of One Hundred Thousand Dollars ($100,000)
at any time; and (g) Investments by the Company in or to its Subsidiaries,
Investments by the Company's Subsidiaries in or to the Company and Investments
by a Subsidiary in or to another Subsidiary.
(w) "Permitted Liens" shall mean and include: (i) Liens for taxes or
other governmental charges not at the time delinquent or thereafter payable
without penalty or being contested in good faith, provided provision is made to
the reasonable satisfaction of Holder for the eventual payment to if
subsequently found payable; (ii) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of Holder for the eventual payment thereof
if subsequently found payable; (iii) deposits under workers' compensation,
unemployment insurance and social security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases, or to secure statutory obligations of surety or appeal bonds or to
secure indemnify, performance or other similar bonds in the ordinary course of
business; (iv) Liens securing obligations under a capital lease if such lease is
permitted under this Note and such Liens do not extend to property other than
the property leased under such capital lease; (v) Liens upon any equipment or
real property acquired or held by Company or any of its Subsidiaries to secure
the purchase price of such equipment or real property or indebtedness incurred
solely for the purpose of financing the acquisition of such equipment or real
property; (vi) easements, reservations, rights of way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property in a manner not materially or adversely affecting the
value or use of such property; (vii) Liens in favor of a collateral agent
holding collateral on behalf of the holders of the Notes and the Sunrise Notes;
and Liens on the assets of Company's Subsidiaries securing working capital and
acquisition financing so long as the incurrence of no Event of Default would
exist immediately prior to or immediately after the incurrence of such
Indebtedness.
(x) "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
(y) "Senior Indebtedness" shall mean, unless expressly subordinated to
or made on a parity with the amounts due under this Note, the principal of,
unpaid interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with, (i) Indebtedness of
Company or its Subsidiaries to banks or commercial finance or other lending
institutions regularly engaged in the business of lending money (excluding
venture capital, investment banking or similar institutions and their affiliates
which sometimes engage in lending activities but which are primarily engaged in
investments in Equity Securities), whether or not secured, (ii) indebtedness
secured by Liens described in clause (v) of the definition of Permitted Liens,
and (iii) any such Indebtedness or any debentures, notes or other evidence of
indebtedness issued in exchange for such Senior
-4-
<PAGE>
Indebtedness, or any indebtedness arising from the satisfaction of such Senior
Indebtedness by a guarantor. "Senior Indebtedness shall not include the Sunrise
Notes.
(z) "Subsidiary" shall mean (a) any corporation of which more than 50%
of the issued and outstanding Equity Securities having ordinary voting power to
elect a majority of the Board of Directors of such corporation is at the time
directly or indirectly owned or controlled by Company, (b) any partnership,
joint venture, or other association of which more than 50% of the equity
interest having the power to vote, direct or control the management of such
partnership, joint venture or other association is at the time directly or
indirectly owned and controlled by Company, and (c) any other entity included in
the financial statements of Company on a consolidated basis.
(aa) "Sunrise" shall mean Sunrise Organic Farms, Inc.
(bb) "Sunrise Notes" shall mean the promissory notes issued under the
Acquisition Agreement, dated as of March 20, 1997.
(cc) "Transaction Documents" shall mean this Note, each of the other
Notes issued under the Note Purchase Agreement, if any, the Note Purchase
agreement and the Guaranties.
2. INTEREST AND PRINCIPAL PAYMENTS.
-------------------------------
(a) Interest Only Period. Company shall make sixteen payments of
accrued and unpaid interest under this Note on the last Business Day of each
calendar quarter commencing on June 30, 1997.
(b) Amortization of Principal and Interest. Commencing on March 31,
2001, and continuing on the last Business Day of each calendar quarter for seven
(7) quarters thereafter, Company shall make a payment to Holder in the amount of
$________, which payments shall fully amortize all principal and interest due
under this Note.
3. PREPAYMENT.
----------
(a) Optional Prepayment. This Note may be prepaid at any time prior
to the second anniversary of the date hereof in whole or in part upon the
payment to Holder of a premium equal to three percent (3%) of the principal
balance prepaid. This Note may be prepaid at any time thereafter in whole or in
part without penalty or premium.
(b) Mandatory Prepayment. This Note shall be prepaid in full upon the
closing of a Liquidity Event. Such prepayment shall be without penalty or
premium unless it occurs prior to the second anniversary of the date hereof in
which case such prepayment shall include a premium of three percent (3%) of the
principal amounts to prepaid.
(c) Provisions Applicable to Prepayments. Any proprietary of this
Note (i) may only be made in connection with the prepayment of all Notes issued
under the Note and Stock Purchase Agreement on a pro rata basis, based on the
respective aggregate outstanding principal amounts of each such Note, and (ii)
will be applied first to the payment of expenses due under this Note, second to
interest accrued on this Note and third, if the amount of prepayment exceeds the
amount of all such expenses and accrued interest, to the payment of principal of
this Note.
-5-
<PAGE>
4. CERTAIN COVENANTS. While any amount its outstanding under this
-----------------
Note, without the prior written consent of a Majority in Interest:
(a) Indebtedness. The Company shall not create, incur, assume or
permit to exist any Indebtedness except (i) the Notes, (ii) the Sunrise Notes,
(iii) Indebtedness ranking pari passu with the Notes and the Sunrise Notes which
does not require any amortization of principal prior to September 30, 2001,
which has an interest rate not in excess of the prime rate at the time of
incurrence plus five percentage points and which has a maturity after September
30, 2003; and (iv) Senior Indebtedness. The Company shall not create, incur,
assume or permit to exist any Indebtedness subordinated to the Senior
Indebtedness but senior to the Notes and the Sunrise Notes.
(b) Liens. Neither Company nor any of its Subsidiaries shall create,
incur, assume or permit to exist any Lien on or with respect to any of its
assets or property of any character, whether now owned or hereafter acquired,
except for Permitted Liens.
(c) Asset Dispositions. Neither Company nor any of its Subsidiaries
shall sell, lease, transfer, license or otherwise dispose of (collectively, a
"Transfer") any of its assets or property, whether now owned or hereafter
- ---------
acquired, except Transfers in the ordinary course of its business (i) consisting
of the sale of inventory, (ii) consisting of sales of worn-out or obsolete
equipment, (iii) consisting of sales between the Subsidiaries or between the
Company and a Subsidiary, and (iv) other Transfers not in excess of Two Hundred
Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year.
(d) Mergers, Acquisitions, Etc. Neither Company nor any of its
Subsidiaries shall consolidate with or merge into any other Person or permit any
other Person to merge into it, or acquire all or substantially all of the assets
or capital stock of any other Person; provided, however, that a wholly-owned
Subsidiary of the Company may merge with and into another wholly-owned
Subsidiary and a Subsidiary of the Company may merge with and into the Company
so long as the Company is the surviving corporation.
(e) Investments. Neither Company nor any of its Subsidiaries shall
make any Investment except for Permitted Investments.
(f) Dividends, Redemptions, Etc. Neither Company nor any of its
Subsidiaries shall (i) pay any dividends or make any distributions on its Equity
Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for
value any of its Equity Securities; (iii) return any capital to any holder of
its Equity Securities; (iv) make any distribution of assets, Equity Securities,
obligations or securities to any holder of its Equity Securities; or (v) set
apart any sum for any such purpose; provided, however, that any Subsidiary may
pay dividends to Company.
(g) Indebtedness Payments. Neither Company nor any of its
Subsidiaries shall (i) prepay, redeem, purchase, defease or otherwise satisfy in
any manner prior to the scheduled repayment thereof any Indebtedness for
borrowed money (other than amounts due under this Note or the other Notes issued
under the Note Purchase Agreement or the Sunrise Notes, all of which shall be
prepaid only on a pro rata basis) or lease obligations, (ii) amend, modify or
otherwise change the terms of any Indebtedness for borrowed money (other than
the Obligations) or lease obligations so as to accelerate the scheduled
repayment thereof or (iii) repay any notes to officers, directors or
shareholders.
(h) Information Rights; Notices. Company shall furnish to Holder the
following:
-6-
<PAGE>
(i) Monthly Financial Statements. Within thirty (30) days after
----------------------------
the last day of each month, a copy of the Financial Statements of Company for
such month and for the fiscal year to date, certified by the chief financial
officer or controller of Company to present fairly the financial condition,
results of operations and other information presented therein and to have been
prepared in accordance with GAAP consistently applied, subject to normal year
end adjustments and except that no footnotes need be included with such
Financial Statements;
(ii) Annual Financial Statements. Within one hundred twenty (120)
---------------------------
days after the close of each fiscal year of Company, (A) copies of the audited
Financial Statements of Company for such year, together with the opinion of
nationally recognized independent auditors that such Financial Statements
present fairly the financial condition, results of operations and other
information presented therein in accordance with GAAP consistently applied, (B)
copies of the reports and management letters delivered by such accountants in
connection with such Financial Statements, and (C) a report containing a
description of projected business prospects (including capital expenditures) and
management's discussion and analysis of financial condition and results of
operation of Company and its Subsidiaries;
(iii) SEC Reports. As soon as possible and in no event later
-----------
than five (5) Business Days after they are sent, made available or filed, copies
of all registration statements and reports filed by Company with the Securities
Exchange Commission and all reports, proxy statements and financial statements
sent or made available by Company to its shareholders generally; and
(iv) Notice of Defaults. Promptly upon the occurrence thereof,
------------------
written notice of the occurrence of any Event of Default hereunder or any event
of default with respect to any Indebtedness of Company.
(v) Compliance Statements. Promptly as they are available and in
---------------------
any event within thirty (30) days of the end of each calendar month a
certificate of Company's Chief Financial Officer or other senior officer stating
that he or she has reviewed the provisions of this Note and that Company is not
in default in the observance or performance of any of the provision hereof, or
if Company shall be so in default, specifying all such defaults and events of
which he or she may have knowledge and setting forth the calculation of
compliance or noncompliance with each of the financial covenants set forth in
Sections 4(l) and 4(m).
(i) Inspection Rights. Holder and its representatives shall have the
right, at any time during normal business hours, upon reasonable prior notice,
to visit and inspect the properties of Company and its corporate, financial and
operating records, and make abstracts therefrom, and to discuss Company's
affairs, finances and accounts with its directors, officers and independent
public accountants. Holder and its representatives shall agree in writing not
to disclose or misuse any confidential information made available to Holder and
its representatives; provided, however, that disclosure of such information may
be made (i) to the subsidiaries or affiliates of Holder, (ii) to prospective
transferees or purchasers of any interest in this Note, provided that they have
entered into a comparable confidentiality agreement in favor of Company and have
delivered a copy to Company, (iii) as required by law, regulations, rule or
order, subpoena, judicial order or similar order and (iv) as may be required in
connection with the examination, audit or similar investigation of Company.
(j) Insurance. Company and its Subsidiaries shall (i) carry and
maintain insurance at its expense of the types and in the amounts customarily
carried from time to time during the term of this Note by other engaged in
substantially the same business as such Person and operating in the same
geographic area as such Person,
-7-
<PAGE>
including, but not limited to, fire, public liability, property damage and
worker's compensation, such insurance to be in such form as is carried with
companies and in amounts satisfactory to Lender, and (ii) deliver to Holder from
time to time, as Holder may request, schedules or insurance certificates setting
forth all insurance then in effect.
(k) Issuance of Stock. Company shall not issue any class of capital
stock having rights preferences or privileges prior or in preference to those of
the Common Stock of Company. No Subsidiary of Company shall issue any Equity
Security to any Person other than Company.
(l) Current Ratio. Company shall maintain, as of the last day of each
calendar month, a ratio of Current Assets to Current Liabilities of at least 1.1
to 1.0.
(m) Leverage Ratio. Company shall not permit, as of the last day of
each calendar month, the ratio of Consolidated Total Indebtedness to
Consolidated Tangible Assets to exceed .825 to 1.0.
(n) Subsidiary Guaranties. Company shall cause each Person which
becomes a Subsidiary after the date hereof to execute and deliver a Guaranty in
the form attached to the Note Purchase Agreement as Exhibit C with such changes
to the recitals thereof as are necessary to reflect the execution thereof after
the date hereof.
5. EVENT OF DEFAULT. The occurrence of any of the following shall
----------------
constitute an "Event of Default" under this Note and the other Transaction
Documents:
(a) Failure to Pay. Company shall fail to pay (i) any principal
payment on the date due hereunder or (ii) any interest or other payment required
under the terms of this Note or any other transaction Document on the date due
and such payment shall not have been made within five (5) days of Company's
receipt of Holder's written notice to Company of such failure to pay; or
(b) Breaches of Certain Covenants. Company or any of its Subsidiaries
shall fail to observe or perform any covenant, obligation, condition or
agreement set forth in Section 4 of this Note (other than a covenant,
obligation, condition or agreement set forth in Section 4(h) or Section 4(j));
or
(c) Breaches of Other Covenants. Company or any of its Subsidiaries
shall fail to observe or perform any other covenant, obligation, condition or
agreement contained in this Note or the other Transaction Documents (other than
those specified in Sections 5(a) and 5(b)) and (i) such failure shall continue
for fifteen (15) days, or (ii) if such failure is not curable within such
fifteen (15) day period, but is reasonably capable of cure within forty-five
(45) days, either (A) such failure shall continue for forty-five (45) days or
(B) Company or its Subsidiary shall not have commenced a cure in a manner
reasonably satisfactory to Holder within the initial fifteen (15) day period; or
(d) Representations and Warranties. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of Company to Holder in writing in connection with this Note or any of
the other Transaction Documents, or as an inducement to Holder to enter into
this Note and the other Transaction Documents, shall be false, incorrect,
incomplete or misleading in any material respect when made or furnished; or
(e) Other Payment Obligations. Company or any if its Subsidiaries (i)
shall fail to pay any Indebtedness in an aggregate amount of One Hundred
Thousand Dollars ($100,000) upon final maturity thereof, or (ii) shall fail
(A)(x) to make any payment when due under the terms of any bond, debenture, note
or other evidence
-8-
<PAGE>
of Indebtedness to be paid by such Person (excluding this Note and the other
Transaction Documents but including any other evidence of Indebtedness of
Company or any of its Subsidiaries to Holder) and such failure shall continue
beyond any period of grace provided with respect thereto, or (y) default in the
observance or performance of any other agreement, term or condition contained in
any such bond, debenture, note or other evidence of Indebtedness, and (B) the
effect of such failure or default is that the holder or holders thereof cause
Indebtedness in an aggregate amount of Twenty-Five Thousand Dollars ($25,000) or
more to become due prior to its stated date of maturity; or
(f) Voluntary Bankruptcy or Insolvency Proceedings. Company or any of
its Subsidiaries shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial
part of its property, (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature, (iii) make a general assignment for the
benefit of its or any of its creditors, (iv) be dissolved or liquidated in full
or in part, (v) become insolvent (as such term may be defined or interpreted
under any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in any involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(g) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
the appointment of a receiver, trustee, liquidator or custodian of Company or
any of its Subsidiaries or of all or a substantial part of the property thereof,
or an involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to Company or any of its Subsidiaries or the debts
thereof under any bankruptcy, insolvency or other similar law now or hereafter
in effect shall be commenced and an order for relief entered or such proceeding
shall not be dismissed or discharged within sixty (60) days of commencement; or
(h) Judgments. A final judgment or order for the payment of money in
excess of One Hundred Thousand Dollars ($100,000) (exclusive of amounts covered
by insurance issued by an insurer not an Affiliate of company) shall be rendered
against Company or any of its Subsidiaries and the same shall remain
undischarged for a period of thirty (30) days during which execution shall not
be effectively stayed, or any judgment, writ, assessment, warrant of attachment,
or execution or similar process shall be issued or levied against a substantial
part of the property of Company or any if its Subsidiaries and such judgment,
writ, or similar process shall not be released, stayed, vacated or otherwise
dismissed within thirty (30) days after issue or levy; or
(i) Guaranties. Any Guaranty shall cease to be, or be asserted by the
guarantor thereunder not to be, a legal, valid and binding obligation of such
guarantor enforceable in accordance with its terms; or
(j) Material Adverse Effect. One or more conditions exist or events
have occurred which could reasonably indicate, or reasonably result in, a
Material Adverse Effect.
6. RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence of any Event of
-----------------------------
Default (other than an Event of Default referred to in Sections 5(f) and 5(g)),
immediately and without notice, all outstanding Obligations payable to Company
hereunder shall automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the other Transaction
Documents to the contrary notwithstanding. In addition to the foregoing
remedies, upon the occurrence or existence of any Event of Default, Holder may
exercise any other right, power or remedy granted to it by the Transaction
Documents or otherwise permitted to it by law, either by suit in equity or by
action at law, or both.
-9-
<PAGE>
7. SUBORDINATION. The indebtedness evidenced by this Note is hereby
-------------
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all Senior Indebtedness.
(a) Insolvency Proceedings. If there shall occur any receivership,
----------------------
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Company,
(i) no amount shall be paid by Company in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (ii) no claim or proof of claim shall be
filed with Company by or on behalf of Holder of this Note which shall assert any
right to receive any payments in respect of the principal of and interest on
this Note except subject to the payment in full of the principal of and interest
on all of the Senior Indebtedness then outstanding.
(b) Default on Senior Indebtedness. If there shall occur an event of
------------------------------
default which has been declared in writing with respect to any Senior
Indebtedness, as defined therein, or in the instrument under which it is
outstanding, permitting the holder to accelerate the maturity thereof and Holder
shall have closing date written notice thereof from the holder of such Senior
Indebtedness, then, unless and until such event of default shall have been cured
or waived or shall have ceased to exist, or all Senior Indebtedness shall have
been paid in full, no payment shall be made in respect of the principal of or
interest on this Note, unless within one hundred eighty (180) days after the
happening of such event of default, the maturity of such Senior Indebtedness
shall not have been accelerated. Not more than one notice may be given to
Holder pursuant to the terms of this Section 7(b) during any 360 day period.
(c) Further Assurances. By acceptance of this Note, Holder agrees to
------------------
execute and deliver customary forms of subordination agreement requested from
time to time by holders of Senior Indebtedness, and as a condition to Holder's
rights hereunder, Company may require that Holder execute such forms of
subordination agreement; provided that such forms shall not impose on Holder
terms materially less favorable than those provided herein.
(d) Other Indebtedness. No indebtedness which does not constitute
------------------
Senior Indebtedness shall be senior in any respect to the indebtedness
represented by this Note.
(e) Subrogation. Subject to the payment in full of all Senior
-----------
Indebtedness, Holder shall be subrogated to the rights of the holder(s) of such
Senior Indebtedness (to the extent of the payments or distributions made to the
holder(s) of such Senior Indebtedness pursuant to the provisions if this Section
7) to receive payments and distributions of assets of Company applicable to the
Senior Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between Company and its creditors, other than the holders
of Senior Indebtedness an Holder, be deemed to be a payment by Company to or on
account of this Note; and for purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which Holder would be
entitled except for hereto provisions of this Section 7 shall, as between
Company and its creditors, other than the holders of Senior Indebtedness and
Holder, be deemed to be a payment by Company to or on account of the Senior
Indebtedness.
(f) No Impairment. Subject to the rights, if any, of the holders of
-------------
Senior Indebtedness under this Section 7 to receive cash, securities or other
properties otherwise payable or deliverable to Holder, nothing contained in this
Section 7 shall impair, as between Company and Holder, the obligation of
Company, subject to the terms and conditions hereof, to pay to Holder the
principal hereof and interest hereon as and when the same become
-10-
<PAGE>
due and payable, or shall prevent Holder, upon default hereunder, from
exercising all rights, powers and remedies otherwise provided herein or by
applicable law.
(g) Lien Subordination. Any Lien of Holder, whether now or hereafter
------------------
existing in connection with the amounts due under this Note, on any assets or
property of Company or any proceeds or revenues therefrom which Holder may have
at any time as security for any amounts due and obligations under this Note
shall be subordinate to all Liens now or hereafter granted to a holder of Senior
Indebtedness by Company or by law, notwithstanding the date, order or method of
attachment or perfection of any such Lien or the provisions of any applicable
law.
(h) Reliance of Holders of Senior Indebtedness. Holder, by its
------------------------------------------
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.
8. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
----------------------
described in Sections 10 and 11 below, the rights and obligations of Company and
Holder of this Note shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties.
9. WAIVER AND AMENDMENT. Any provision of this Note may be amended,
--------------------
waived or modified upon the written consent of Company and holders of a Majority
in Interest of all then outstanding Notes issued pursuant to the Note Purchase
Agreement.
10. TRANSFER OF THIS NOTE. With respect to any offer, sale or other
---------------------
disposition of this Note, Holder will give written notice to Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of Holder's counsel reasonably satisfactory to Company, to the effect that such
offer, sale or other distribution may be effected without registration or
qualification (under any federal or state law then in effect). Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, Company, as promptly as practicable, shall notify Holder that Holder
may sell or otherwise dispose of this Note, all in accordance with the terms of
the notice delivered to Company. If a determination has been made pursuant to
this Section 10 that the opinion of counsel for Holder is not reasonably
satisfactory to Company, Company shall so notify Holder promptly after such
determination has been made. Each Note thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Act. Company may issue stop transfer instructions to its transfer agent
in connection with such restrictions. Subject to the foregoing, transfers of
this Note shall be registered upon registration books maintained for such
purpose by or on behalf of Company as provided in the Note purchase Agreement.
Prior to presentation of this Note for registration of transfer, Company shall
treat the registered holder hereof as the owner and holder of this Note for the
purpose of receiving all payments of principal and interest hereon and for all
other purposes whatsoever, whether or not this Note shall be overdue and Company
shall not be affected by notice to the contrary.
11. ASSIGNMENT BY COMPANY. Neither this Note nor any of the rights,
---------------------
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by Company without the prior written consent of
Holder.
-11-
<PAGE>
12. NOTICES. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by recognized overnight courier or personal delivery at the
respective addresses of the parties as set forth in the Note Purchase Agreement
or on the register maintained by Company. Any party hereto may by notice so
given change its address for future notice hereunder. Notice shall conclusively
be deemed to have been given when received.
13. PARI PASSU NOTES. Holder acknowledges and agrees that the payment of
----------------
all or any portion of the outstanding principal amount of this Note and all
interest hereof shall be pari passu in right of payment and in all other
respects to the other Notes issued pursuant to the Note Purchase Agreement or
pursuant to the terms of such Notes. In the event Holder receives payments in
excess of its pro rata share of Company's payments to the holders of all of the
Notes, then Holder shall hold in trust all such excess payments for the benefit
of the holders of the other Notes and shall pay such amounts held in trust to
such other holders upon demand by such holders.
14. PAYMENT. Payment shall be made in lawful tender of the United States.
-------
15. DEFAULT RATE; USURY. During any period in which and Event of Default
-------------------
has occurred and is continuing, Company shall pay interest on the unpaid
principal balance hereof at a rate per annum equal to the rate otherwise
applicable hereunder plus five percent (5%). In the event any interest is paid
on this Note which is deemed to be in excess of the then legal maximum rate,
then that portion of the interest payment representing an amount in excess of
the then legal maximum rate shall be deemed a payment of principal and applied
against the principal of this Note.
16. EXPENSES; WAIVERS. If action is instituted to collect this Note, the
-----------------
prevailing party shall be entitled to collect from the other all costs and
expenses, including, without limitation, reasonable attorneys' fees and costs,
incurred in connection with such action. Company hereby waives notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor and all other notices or demands relative to this instrument.
17. GOVERNING LAW. This Note and all actions arising out of or in
-------------
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California or of any other state.
18. RIGHT OF FIRST OFFER. Prior to the maturity of this Note, Company
--------------------
shall provide Holder with all requests for additional subordinated debt
financing prior to the time that such requests are provided to other financing
sources. Should Company and Holder fail to agree on the terms and conditions of
such financing within thirty (30) days of such request, then Company may accept
a funding source other than Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, Company has caused this Note to be issued as of the
date first written above.
HORIZON ORGANIC HOLDING CORPORATION,
a Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-13-
<PAGE>
EXHIBIT B
LEGAL OPINION
-------------
<PAGE>
ITEMS TO BE COVERED IN OPINION OF COMPANY COUNSEL
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
(b) The Company has the requisite corporate power and authority to
execute, deliver and perform the Transaction Documents and to issue the Common
Stock issued or issuable under the Transaction Documents. All action on the
part of the Company, its directors, and its shareholders necessary for the
authorization, execution, delivery, and performance of the Transaction Documents
and the issuance of the Common Stock, has been taken. The Transaction Documents
have been duly executed and delivered by an authorized officer of the Company.
(c) The execution, delivery and performance of the Transaction
Documents and the issuance of the Common Stock under the Transaction Documents
(i) do not conflict with or violate any provision of the Company's Certificate
of Incorporation or Bylaws, or applicable law and (ii) do not conflict with or
constitute a default under any provision of any judgment, writ, decree, order or
material agreement, indenture, or instrument to which the Company is a party or
by which it is bound.
(d) The Transaction Documents constitute legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
(e) The authorized capital stock of the Company consists of __________
shares, of which the Company is authorized to issue ______________ shares of
Common Stock, _______________ shares of which are issued and outstanding
immediate prior to closing, __________ shares of Preferred Stock, none of which
are issued and outstanding. All such issued and outstanding shares of Preferred
Stock and Common Stock have been duly authorized and validly issued and, to our
knowledge, are fully paid and nonassessable, and are free of any preemptive or
similar rights contained in the Certificate of Incorporation or Bylaws of the
Company or, to our knowledge, in any agreement to which the Company is a party,
except as specifically provided in the Transaction Documents. The shares of
Common Stock issued under the Note and Stock Purchase Agreement are validly
issued, fully paid and nonassessable. To our knowledge, except for rights
described in the Shareholder Agreement and the Certificate of Incorporation,
there are no other options, warrants, conversion privileges, or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of capital stock or other securities of the Company, or any
other agreements to issue any such securities or rights.
(f) To our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to our knowledge, has the Company received any written
threat thereof), which, either in any case or in the aggregate, are likely to
result in any material adverse change in the business or financial condition of
the Company or any of its properties, or in any material impairment of the right
or ability of the Company to carry on its business as now conducted, or which
questions the validity
<PAGE>
of the Transaction Documents or any action taken or to be taken by the Company
in connection therewith.
(g) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the party of the
Company is required in connection with the valid execution and delivery of the
Transaction Documents, or the offer, sale or issuance of the Common Stock or the
consummation of any other transactions contemplated by the Transaction Documents
except qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) under applicable blue sky laws of
the offer and sale of securities. Our opinion herein is otherwise subject to
the timely and proper completion of all filings and other actions contemplated
herein where such filings and actions are to be undertaken on or after the date
hereof.
(h) Subject to the accuracy of the Purchasers' representations in
Section 4 of the Note and Stock Purchase Agreement, we are of the opinion that
the offer, sale and issuance of the Common stock in conformity with the terms of
the Agreement constitute transactions exempt from the registration requirements
of Section 5 of the Securities Act of 1933, as amended.
-2-
<PAGE>
EXHIBIT C
GUARANTY
--------
-3-
<PAGE>
FORM OF SUBSIDIARY GUARANTY
THIS SUBSIDIARY GUARANTY (this "Guaranty"), dated as of [Date], 1997, is
entered into by [GUARANTOR], a [STATE OF GUARANTOR'S FORMATION] (the
"Guarantor"), in favor of each holder from time to time of a senior subordinated
promissory note (each, a "Note") under the Note Agreement (as defined below)
(collectively, the "Guaranteed Parties").
RECITALS
--------
A. The Guaranteed Parties and Horizon Organic Holding Corporation, a
Delaware corporation ("Company"), the 100% parent of the Guarantor, propose to
enter into that certain Note and Stock Purchase Agreement dated as of [Date],
1997 (as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time, the "Note Agreement"), providing for the
purchase of Notes by the Guaranteed Parties, the proceeds of which are to be
used in part by Guarantor (by way of a loan or capital contribution from
Company). Company, Guarantor and each other guarantor of the Guaranteed
Obligations are sometimes referred to herein as the "Credit Parties". When
capitalized and used herein, terms defined in the Note Agreement and not
otherwise defined herein shall have the meanings ascribed to them in the Note
Agreement; and
B. The Guaranteed Parties have required, as a condition to the extension
of credit under the Note Agreement, that the Guarantor execute and deliver this
Guaranty.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and to induce the Holders
to enter into, and to extend credit under the Note Agreement, the Guarantor
agrees with the Guaranteed Parties as follows:
SECTION 1. THE GUARANTEE. The guarantee of the Guarantor hereunder is as
-------------
follows:
Section 1.1 Guaranty of Extensions of Credit to Company. The
-------------------------------------------
Guarantor hereby unconditionally, absolutely and irrevocably guarantees to the
Guaranteed Parties and their successors, endorsees, transferees and assigns, the
prompt payment (whether at stated maturity, on mandatory prepayment by
acceleration or otherwise) and performance of all of the Obligations of the
Company under the Note Agreement and the other Credit Documents (including all
interest and costs of enforcement which may at any time accrue with respect to
the Obligations or which would accrue but for the operation of any provision or
doctrine with respect to the Bankruptcy Code, as hereinafter defined, and
whether or note an allowed claim) (the "Guaranteed Obligations"). The Guarantor
agrees that this Guaranty is a guaranty of payment and performance and not of
collection, and that its obligations under this Guaranty shall be joint and
several with any other Persons which may at any time or from time to time be or
become directly or indirectly financially responsible to the Guaranteed Parties
with respect to the Guaranteed Obligations and shall be under all circumstances
primary, absolute and unconditional irrespective of, and unaffected by:
-4-
<PAGE>
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, this Guaranty, the Note Agreement any other
Credit Document or other agreement, document or instrument to which any Credit
Party is or are or may become a party;
(b) the absence of any action to enforce this Guaranty, any other
Credit Document or the waiver or consent by the Guaranteed Parties with respect
to any of the provisions hereof or thereof;
(c) any bankruptcy, insolvency, reorganization, arrangement,
adjustment, composition, liquidation or the like of any other Credit Party
including, but not limited to, (i) any Guaranteed Party's election, in any
proceeding instituted under Title 11 of the United States code (11 U.S.C. (S)
101 et seq.) or any replacement or supplemental federal statutes dealing with
------
the bankruptcy of debtors (the "Bankruptcy Code"), of the application of Section
1111(b)(2) of the Bankruptcy Code, (ii) any borrowing or grant of a Lien by the
Company or any other Credit Party as debtor-in-possession, under Section 364 of
the Bankruptcy Code, or (iii) the disallowance of all or any portion of any
Guaranteed Party's claim(s) for repayment of the Guaranteed Obligations under
Section 502 of the Bankruptcy Code;
(d) any merger or consolidation of any Credit Party into or with any
other Person, or any sale, lease or transfer of any or all of the assets of any
other Credit Party to any other Person;
(e) any circumstance which might constitute a defense available to, or
a discharge of any other Credit Party;
(f) any sale, transfer or other disposition of any stock of any Credit
Party;
(g) absence of any notice to, or knowledge by, the Guarantor of the
existence or occurrence of any of the matters or events set forth in the
foregoing subdivisions (a) through (g); or
(h) any other fact or circumstance which might otherwise constitute a
defense available to, or a discharge of, a surety or guarantor;
it being agreed by the Guarantor that its obligations under this Guaranty shall
not be discharged until the payment and performance, in full, of the Guaranteed
Obligations (including all interest and costs of enforcement which may at any
time accrue with respect to the Obligations or which would accrue but for the
operation of any provision of or doctrine with respect to the Bankruptcy Code
and whether or not an allowed claim) or release of the Guarantor by the
Guaranteed Parties, whichever shall occur first. The Guarantor shall be
regarded, and shall be in the same position, as principal debtor (and not merely
as surety) with respect to the Guaranteed Obligations and specifically agrees
that, notwithstanding any discharge of the Company or any other Person or the
operation of any other provision of the Bankruptcy Code with respect to the
Guaranteed Obligations or any such Persons, the Guarantor shall be fully
responsible for paying all interest and costs of enforcement or preservation and
protection of Collateral which may at any time accrue with respect to the
Guaranteed Obligations or which would accrue but for the operation of any
provision of or doctrine with respect to the Bankruptcy Code and whether or not
an allowed claim. The Guarantor expressly waives all rights it may have now or
in the future under any statute, or at common law, or at law or in equity, or
otherwise, to compel the Guaranteed Parties to proceed in respect of the
Guaranteed Obligations against the Company, any other Credit Party or any other
party or against any Collateral before proceeding against, or as a condition to
proceeding against, the Guarantor. The Guarantor agrees that any notice or
directive given at any time to the Guaranteed Parties which is inconsistent
with the waiver in the immediately preceding sentence shall be null and void and
may be ignored by the Guaranteed Parties, and, in addition, may not be pleaded
or introduced as evidence in any litigation relating to this Guaranty
-5-
<PAGE>
for the reason that such pleading or introduction would be at variance with the
written terms of this Guaranty unless the Guaranteed Parties have specifically
agreed otherwise in writing. It is agreed between the Guarantor and the
Guaranteed Parties that the foregoing waivers are of the essence of the
transaction contemplated by the Credit Documents and that, but for this Guaranty
and such waivers, the Guaranteed Parties would decline to enter into the Note
Agreement.
Section 1.2 Maximum Guaranteed Amount. Notwithstanding any other
-------------------------
provision of this Guaranty to the contrary, if the obligations of the Guarantor
hereunder would otherwise be held or determined by a court of competent
jurisdiction in any action or proceeding involving any state corporate law or
any state or Federal bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other law affecting the rights of creditors generally,
to be void, invalid or unenforceable to any extent on account of the amount of
the Guarantor's liability under this Guaranty, then notwithstanding any other
provision of this Guaranty to the contrary, the amount of such liability shall,
without any further action by the Guarantor or any other Person, be
automatically limited and reduced to the highest amount which is valid and
enforceable as determined in such action or proceeding.
Section 1.3 Demand by the Guaranteed Parties. In addition to the
--------------------------------
terms of the Guaranty set forth in Section 1.1 hereof, but subject to the
limitations contained in Section 1.2, and in no manner imposing any other
limitation on such terms, it is expressly understood and agreed that, if any or
all of the then outstanding principal amount of the Guaranteed Obligations
(together with all accrued interest thereon) becomes due and payable, then the
obligations of the Guarantor shall, at the option of the Guaranteed Parties,
without notice or demand, become due and payable and Guarantor shall, upon
demand in writing therefor by the Guaranteed Parties to the Guarantor, pay to
the holder or holders of the Guaranteed Obligations the outstanding Guaranteed
Obligations due and owing to such holder or holders. Payment by the Guarantor
shall be made in dollars to the Guaranteed Parties in accordance with the
amounts owed to each, to be credited and applied upon the Guaranteed
Obligations, in immediately available Federal funds to an account designated by
each Guaranteed Party or at the address set forth in the Note Agreement for the
giving of notice to the Guaranteed Parties or at any other address that may be
specified in writing from time to time by a Guaranteed Party.
Section 1.4 Enforcement of Guaranty. In no event shall the
-----------------------
Guaranteed Parties have any obligation (although it is entitled, at its option)
to proceed against the Company or any other Person before seeking satisfaction
from the Guarantor. The Obligations of Guarantor hereunder are independent of
the obligations of any other guarantor of the Guaranteed Obligations or of any
Credit Party, and a separate action or actions may be brought and prosecuted
against Guarantor whether or not action is brought against any other guarantor
or any other Credit Party, and whether or not any other guarantor or any other
Credit Party be joined in any such action or actions.
Section 1.5 Waiver. In addition to the waivers contained in Section
------
1.1 hereof, the Guarantor waives, and agrees that it shall not at any time
insist upon, plead or in any manner whatever claim or take the benefit or
advantage of, any appraisal, valuation, stay, extension, marshaling of assets or
redemption or similar laws, or exemption, whether now or at any time hereafter
in force, which may delay, prevent or otherwise affect the performance by the
Guarantor of its obligations under, or the enforcement by the Guaranteed Parties
of, this Guaranty. The Guarantor hereby waives diligence, presentment and
demand (whether for nonpayment or protest or of acceptance, maturity, extension
of time, change in nature or form of the Guaranteed Obligations, acceptance of
further security, release of further security, composition or agreement arrived
at as to the amount of, or the terms of, the Guaranteed Obligations, notice of
adverse change in a Company's or any other Credit Party's financial condition or
any other fact which might materially increase the risk to the Guarantor) with
respect to any of the Guaranteed Obligations or all other demands whatsoever and
waives the benefit of all provisions of law
-7-
<PAGE>
which are or might be in conflict with the terms of this Guaranty. The
Guarantor hereby waives any requirement on the part of any holder of any Note to
mitigate the damages resulting from any default under such Note. The Guarantor
represents, warrants and agrees that, as of the date of this Guaranty, its
obligations under this Guaranty are not subject to any offsets or defenses
against any Guaranteed Party or any Credit Party of any kind. The Guarantor
further agrees that its obligations under this Guaranty shall not be subject to
any counterclaims, offsets or defenses against any Guaranteed Party or any
Credit Party of any kind which may arise in the future.
Section 1.6 Benefit of Guaranty. The provisions of this Guaranty are
-------------------
for the ratable benefit of the Guaranteed Parties and their respective
successors, transferees, endorsees and assigns, and nothing herein contained
shall impair, as between the Credit Parties and the Guaranteed Parties, the
obligations of the Credit Parties under the Credit Documents. In the event all
or any part of the Guaranteed Obligations are transferred, endorsed or assigned
by the Guaranteed Parties to any Person or Persons in accordance with the terms
of the Note Agreement, any reference to "Guaranteed Parties" herein shall be
deemed to refer equally to such Person or Persons.
Section 1.7 Modification of Guaranteed Obligations. If the
--------------------------------------
Guaranteed Parties shall at any time or from time to time, with or without the
consent of, or notice to, the Guarantor:
(a) extend other credit to the Company, change the time,
manner or place of payment of, or any other term of, all or any portion of, the
Guaranteed Obligations, or otherwise waive or consent to any departure from, the
terms of any Credit Document;
(b) take any action under or in respect of the Credit
Documents in the exercise of any remedy, power or privilege contained therein or
available to it at law, equity or otherwise, or waive or refrain from exercising
any such remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, the Credit
Documents;
(d) extend or waive the time for and of the Guarantor's, any
Credit Party's or any other Person's performance of, or compliance with, any
term, covenant or agreement on its part to be performed or observed under the
Credit Documents, or waive such performance or compliance or consent to a
failure of, or departure from, such performance or compliance;
(e) take and hold collateral for the payment of the Guaranteed
Obligations, or sell, exchange, release, dispose of, or otherwise deal with, any
collateral to secure any indebtedness of the Guarantor or the Credit Parties to
the Guaranteed Parties;
(f) release or limit the liability of anyone who may be liable
in any manner for the payment of any amounts owed by the Guarantor or any Credit
Party to the Guaranteed Parties;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of the
Guarantor or the Credit Parties are subordinated to the claims of any of the
Guaranteed Parties; and/or
(h) apply any sums by whomever paid or however realized to any
amounts owing by the Guarantor or the Credit Parties to the Guaranteed Parties
in such manner as the Guaranteed Parties shall determine in their discretion;
-8-
<PAGE>
then the Guaranteed Parties shall not incur any liability to the Guarantor
pursuant hereto as a result thereof and no such action shall impair or release
the obligations of the Guarantor under this Guaranty.
Section 1.8 Reinstatement. This Guaranty shall remain in full force
-------------
and effect and continue to be effective in the event any petition is filed by or
against any of the Credit Parties or the Guarantor for liquidation or
reorganization, in the event any of the Credit Parties or the Guarantor becomes
insolvent or makes an assignment for the benefit of creditors or in the event a
receiver or trustee is appointed for all or any significant part of any of the
Credit Parties' or the Guarantor's assets, and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of the
Guaranteed Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by the
Guaranteed Parties, whether as a "voidable preference", "fraudulent conveyance",
or otherwise, all as though such payment or performance had not been made. In
the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Guaranteed Obligations shall be reinstated and deemed reduced
only by such amount paid and not so rescinded, reduced, restored or returned.
Section 1.9 Waiver of Subrogation. GUARANTOR HEREBY IRREVOCABLY
---------------------
WAIVES, WHILE THE GUARANTEED OBLIGATIONS ARE OUTSTANDING, ALL RIGHTS OF
SUBROGATION (WHETHER CONTRACTUAL, UNDER SECTION 509 OF THE BANKRUPTCY CODE,
UNDER COMMON LAW, OR OTHERWISE) TO THE CLAIMS OF THE GUARANTEED PARTIES AGAINST
THE COMPANY AND ALL CONTRACTUAL, STATUTORY OR COMMON LAW RIGHTS OF CONTRIBUTION,
REIMBURSEMENT, INDEMNIFICATION AND SIMILAR RIGHTS AND "CLAIMS" (AS SUCH TERM IS
DEFINED IN THE BANKRUPTCY CODE) AGAINST THE COMPANY WHICH ARISE IN CONNECTION
WITH, OR AS A RESULT OF, THIS GUARANTEE.
Section 1.10 Continuing Guaranty, Transfer of Notes. This Guaranty
--------------------------------------
is a continuing guaranty and shall (i) remain in full force and effect until
payment in full of the Guaranteed Obligations, (ii) be binding upon the
Guarantor and its successors and permitted assigns; and (iii) inure, together
with the rights and remedies of the Guaranteed Parties hereunder, to the benefit
of the Guaranteed Parties and their respective successors, transferees,
endorsees and assigns. Without limiting the generality foregoing clause (iii),
any Holder may, except as limited by the express terms of the Note Agreement,
assign or otherwise transfer any Note held by it to any other person or entity,
and such other person or entity shall thereupon become vested with all the
benefits in respect thereof granted to such Guaranteed Party herein or
otherwise.
Subordination. Notwithstanding anything to the contrary set forth
-------------
herein, the rights of the Guaranteed Parties hereunder shall be subject to the
terms, covenants and agreements set forth in Section 7 of the Notes, the terms
and conditions of which are incorporated herein by this reference.
SECTION 2. SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of any
----------------------------------
Credit Party now or hereafter held by Guarantor is hereby subordinated in right
of payment to the Guaranteed Obligations, and any such indebtedness of any
Credit Party to Guarantor collected or received by Guarantor after an Event of
Default has occurred and is continuing shall be held in trust for the Guaranteed
Parties and shall forthwith be paid over to the Guaranteed Parties ratably
according to the amount owed to each to be credited and applied against the
Guaranteed Obligations but without affecting, impairing or limiting in any
manner the liability of Guarantor under any other provision of this Guaranty.
SECTION 3. REPRESENTATIONS AND COVENANTS. The Guarantor represents and
-----------------------------
warrants that:
-9-
<PAGE>
(a) the execution, delivery and performance by the Guarantor of this
Guaranty is within the Guarantor's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental authority and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or bylaws of the Guarantor or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Guarantor or result in the creation or imposition of any Lien, security interest
or other charge or encumbrance on any asset of the Guarantor; and
(b) this Guaranty constitutes a legal, valid and binding agreement of
the Guarantor, enforceable against the Guarantor in accordance with its terms.
SECTION 4. FURTHER ASSURANCES. The Guarantor agrees, upon the written
------------------
request of the Guaranteed Parties, and at the Guarantor's expense, to execute
and deliver to the Guaranteed Parties, from time to time, any additional
instruments or documents considered necessary by the Guaranteed Parties to cause
this Guaranty to be, become or remain valid and effective in accordance with its
terms.
SECTION 5 MISCELLANEOUS.
-------------
Section 5.1 Amendments. Any amendment or waiver of any provision of
----------
this Guaranty and any consent to any departure by the Guarantor from any
provision of this Guaranty shall be effective only if made or given in writing
by the party against which enforcement is sought.
Section 5.2 Expenses. The Guarantor shall promptly pay to the
--------
Guaranteed Parties, for the ratable benefit of the Guaranteed Parties, the
amount of any and all reasonable out-of-pocket costs and expenses of the
Guaranteed Parties in connection with any matters contemplated by or arising out
of this Guaranty or any of the Credit documents whether (a) to commence, defend,
or intervene in any litigation or to file a petition, complaint, answer, motion
or other pleadings necessary to protect or enforce the rights of the Guaranteed
Parties under this Guaranty or any other Credit Document, (c) to take any other
action in or with respect to any suit or proceeding (bankruptcy or otherwise)
necessary to protect the rights of the Guaranteed Parties under this Guaranty or
any other Credit Document or to respond to any subpoena, deposition or
interrogatory with respect to any litigation involving the Guarantor, or (d) to
attempt to enforce or to enforce any rights of the Guaranteed Parties to collect
any of the Guaranteed Obligations, including all reasonable fees and expenses of
attorneys and paralegals (including charges for inside counsel).
Section 5.3 Headings. The headings in this Guaranty are for purposes
--------
of reference only and shall not otherwise affect the meaning or construction of
any provision of this Guaranty.
Section 5.4 Severability. The provisions of this Guaranty are
------------
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Guaranty in any jurisdiction.
Section 5.5 Notices. All notices, requests and other hereunder shall
-------
be in accordance with the provisions of the Note Agreement with notices to
Guarantor to be directed to the address specified for Company therein.
-10-
<PAGE>
Section 5.6 Remedies Cumulative. Each right, power and remedy of the
-------------------
Guaranteed Parties provided in this Guaranty or now or hereafter existing at law
or in equity or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power or remedy provided for in this
Guaranty or now or hereafter existing at law or in equity or by statute or
otherwise. The exercise or partial exercise by the Guaranteed Parties of any
one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by the Guaranteed Parties of all such other
rights, powers or remedies, and no failure or delay on the part of the
Guaranteed Parties to exercise any such right, power or remedy shall operate as
a waiver thereof.
Section 5.7 Statute of Limitations. To the full extent permitted by
----------------------
applicable law, Guarantor hereby waives the right to plead any statute of
limitations as a defense to performance of its obligations under, or enforcement
of, this Guaranty.
Section 5.8 Final Expression. This Guaranty, together with any other
----------------
agreement executed in connection herewith, is intended by the parties as a final
expression of the Guaranty and is intended as a complete and exclusive statement
of the terms and conditions thereof. Acceptance of or acquiescence in a course
of performance rendered under this Guaranty shall not be relevant to determine
the meaning of this Guaranty even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity.
Section 5.9 Financial Status. The Guarantor hereby assumes
----------------
responsibility for keeping itself informed of the financial condition of the
Company and any and all endorsers and/or other guarantors of any instrument or
document evidencing all or any part of the Guaranteed Obligations and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations or any part thereof that diligent inquiry would reveal, and the
Guarantor hereby agrees that the Guaranteed Parties shall have no duty to advise
the Guarantor of information known to the Guaranteed Parties regarding such
condition or any such circumstances. In the event the Guaranteed Parties, in
their discretion, undertake at any time or from time to time to provide any such
information to the undersigned, the Guaranteed Parties shall be under no
obligation (i) to undertake any investigation not a part of their regular
business routine, (ii) to disclose any information which pursuant to accepted or
reasonable commercial lending practices the Guaranteed Parties wish to maintain
confidential, or (iii) to make any other or future disclosures of such
information or any other information to the Guarantor.
Section 5.10 Assignability. This Guaranty shall be binding on the
-------------
Guarantor and its successors and permitted assigns and shall inure to the
benefit of the Guaranteed Parties and their respective successors, transferees,
endorsees and assigns. The Guarantor may not assign this Guaranty.
Section 5.11 Non-Waiver. The failure of the Guaranteed Parties to
----------
exercise any right or remedy hereunder, or promptly to enforce any such right or
remedy, shall not constitute a waiver thereof, nor give rise to any estoppel
against the Guaranteed Parties, nor excuse the Guarantor from its obligations
hereunder.
Section 5.12 Termination. Subject to the provisions of Section 1.8,
-----------
this Guaranty shall terminate upon the receipt by each of the Guaranteed Parties
of the payment (or prepayment) in full of the Guaranteed Obligations and any
other amounts which may be owing hereunder, or the release of the Guarantor by
the Guaranteed Parties, whichever shall occur first. At the time of such
termination, the Guaranteed Parties, at the request and expense of the
Guarantor, will execute and deliver to the Guarantor a proper instrument or
instruments acknowledging the satisfaction and termination of this Guaranty.
-11-
<PAGE>
Section 5.13 Counterparts. This Guaranty may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which shall together constitute one and the same agreement.
Section 5.14 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
-------------
ENFORCEMENT OF THIS GUARANTEE AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION
WITH THIS GUARANTEE, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA.
[SIGNATURE PAGE FOLLOWS]
-12-
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered as of the date first above written.
[GUARANTOR],
a _________________ corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-13-
<PAGE>
EXHIBIT 10.11
- --------------------------------------------------------------------------------
RESTATEMENT, AMENDMENT AND ASSUMPTION AGREEMENT
BETWEEN
FARM CREDIT SERVICES OF THE MOUNTAIN PLAINS, PCA/FLBA
AND
SUNRISE ORGANIC FARMS, INC.
DATED
AS OF
MARCH 20, 1997
- --------------------------------------------------------------------------------
<PAGE>
RESTATEMENT, AMENDMENT AND ASSUMPTION AGREEMENT
THIS RESTATEMENT, AMENDMENT AND ASSUMPTION AGREEMENT (the "Agreement") is
entered into as of the 20th day of March, 1997, by and among Sunrise Organic
Farms, Inc. ("Sunrise") and its shareholder, Marcus B. Peperzak ("Peperzak");
Horizon Organic Dairy, Inc. ("Horizon") (collectively, the "Transaction
Parties"); Farm Credit Services of the Mountain Plains, PCA ("PCA"); and Farm
Credit Services of the Mountain Plains, FLBA ("FLBA"), acting as attorney-in-
fact for the Farm Credit Bank of Wichita ("FCBW") (collectively, the
"Lenders"), in consideration of the premises hereof and mutual promises made
herein below.
RESTATEMENT
-----------
A. Sunrise is indebted to and is the maker of a promissory note and loan
agreement (the "PCA Note", a copy of which is attached hereto and incorporated
herein as EXHIBIT "A") to PCA dated the 4th day of June, 1996, in the original
principal amount of SEVEN MILLION ONE HUNDRED FIVE THOUSAND TWO HUNDRED SIXTY-
FIVE AND NO/HUNDREDTHS DOLLARS ($7,105,265.00), which matures and becomes due
and payable according to its terms on the 1st day of June, 1998, subject to a
satisfactory credit review on the 1st day of June, 1997. The PCA note bears
interest at the variable rate of 8.05% per annum, as more particularly set out
therein, and the balance outstanding as of 8:00 a.m. on the 20th day of March,
1997 is $6,731,580.00 in principal and $26,180.00 in accrued and unpaid
interest. The parties hereto stipulate that there are no defenses to the
enforceability of the PCA Note or to the sums owing as set forth hereinabove,
and that there are no defaults in its terms.
B. The PCA Note is secured by, in addition to the PCA Stock, a security
agreement (the "PCA Security Agreement", a copy of which is attached hereto and
incorporated herein as EXHIBIT "B"), dated the 4th day of June, 1996, granting
to PCA a first and prior security interest in and to certain personal property
more particularly described therein, and a Security Agreement Extension Sheet
(the "Extension Sheet", a copy of which is attached hereto and incorporated
herein as EXHIBIT "C"), dated the 4th day of June, 1996, setting forth certain
additional collateral secured by the PCA Security Agreement. The parties hereto
stipulate that there are no defenses to the enforceability of the PCA Security
Agreement or Extension Sheet, and that there are no defaults in the terms
thereof.
C. Sunrise is also indebted to and is the maker of a promissory note and loan
agreement (the "FCBW Note" a copy of which is attached hereto and incorporated
herein as Exhibit "D") to FCBW, dated the 23rd day of June, 1995, in the
original principal amount of FOUR MILLION TWO HUNDRED SIXTY-SIX THOUSAND SIX AND
FOUR/HUNDREDTHS DOLLARS ($4,266,006.04), which matures and becomes due and
payable according to its terms on the 1st day of July, 2010. The FCBW Note
bears interest at a beginning rate of 7.79% per annum, as
<PAGE>
more particularly set out therein, and the balance outstanding as of 8:00 a.m.
on the 20th day of March, 1997, is $3,998,710.82 in principal, with $15,909.93
in accrued and unpaid interest. The parties hereto stipulate that there are no
defenses to the enforceability of the FCBW Note or to the sums owing as set
forth hereinabove and that there are no defaults in its terms.
D. The FCBW Note is secured, in addition to the FCBW Stock and the "Additional
Security" provided in the FCBW Note, by a Mortgage and Fixture filing (the
"Mortgage", a copy of which is attached hereto and incorporated herein as
EXHIBIT "E"), dated the 20th day of December, 1994 (the date of the original
note secured by the Mortgage) granting to FCBW a first mortgage lien in and to
certain real property, fixtures, and other rights and privileges more
particularly described therein, with a final installment date of January 1,
2010. The parties hereto stipulate that there are no defenses to the
enforceability of the Mortgage, and that there are no defaults in the terms
thereof.
E. The FCBW Note is also secured by a security agreement (the "FCBW Security
Agreement, a copy of which is attached hereto and incorporated herein as
EXHIBIT "F"), dated the 20th day of December, 1994, granting to FCBW a first and
prior security interest in and to equipment, proceeds and fixtures more
particularly described therein. The parties hereto stipulate that there are no
defenses to the enforceability of the FCBW Security Agreement, and that there
are no defaults in the terms thereof.
F. The FCBW Note, Mortgage and FCBW Security Agreement were entered into
originally on the 20th day of December, 1994 by and between FCBW and Aurora
Dairy Corporation of Idaho ("Aurora"). On or about the 24th day of May, 1995,
Aurora changed its name to Sunrise, and continued in all respects to be liable
on its debt and obligations to FCBW.
G. The Transaction Parties have entered into an Acquisition Agreement, dated as
of March 20, 1997, the result of which will be that seventy percent (70%) of the
stock of Sunrise, the obligor on the PCA Note and the FCBW Note, the PCA
Security Agreement, the Extension Sheet, the Mortgage and the FCBW Security
Agreement (collectively, the "Obligation Documents"), will become owned by
Horizon. Horizon will thereby become an indirect beneficiary (but not a third
party beneficiary) of the extensions of credit by the Lenders. After the closing
of the acquisition, Sunrise may change its name to Horizon Organic Farms, Inc.
("HOF"), but will otherwise continue to operate its business in the same manner
as before the acquisition, and will continue to own its property subject to and
be obligated on the Obligation Documents.
IN CONSIDERATION for the consents to the acquisition by the Lenders and the
continued availability of credit pursuant to the Obligation Documents, and to
provide further assurances to the Lenders of the payment and performance of the
obligations represented by the Obligation Documents, the Transaction Parties
agree as follows:
RESTATEMENT
-----------
The Obligation Documents, as attached hereto in Exhibits A through E, are
and shall be deemed to be restated hereby in their entirety, except as amended
hereby. Sunrise, and after the acquisition and change of name, HOF, will
continue to be liable on all of the obligations to
<PAGE>
the acquisition and change of name, HOF, will continue to be liable on all of
the obligations to PCA and to FCBW, as reflected in the Obligation Documents, to
the same extent as it was obligated to PCA and FCBW before the acquisition and
change of name.
AMENDMENT
---------
The Obligation Documents are hereby amended as follows:
The provision of the PCA Note titled "Borrowing Base Reports" is amended in
its entirety to read:
During the term of the loan the Company shall deliver to PCA, within twenty
(20) days of each fiscal month end, an unaudited borrowing base report (in
the form attached as Exhibit A) in reasonable detail and fairly presenting
the collateral position of the Company. The Company shall remain at all
times within the limits of the borrowing base. If at any time the amount
outstanding on the loan exceeds the borrowing base, the Company shall
immediately notify PCA and repay so much of the loan as is necessary to
reduce the amount outstanding on the loan to the limits of the borrowing
base.
ASSUMPTION
----------
Each of the Transaction Parties does hereby assume and/or reaffirm the PCA
and FCBW debt and obligations reflected in the Obligation Documents in
accordance with the terms thereof and the Restatement and Amendment herein
contained.
Further, the Transaction Parties agree that at any time and from time to
time, upon the request of PCA or FCBW, and at the sole expense of the
Transaction Parties, the appropriate Transaction Party shall promptly execute
and deliver all such further documentation and take such other action as PCA or
FCBW may deem necessary or desirable to preserve and perfect its security
interest in the collateral and to carry out the provisions and purposes of the
Obligation Documents and this Agreement.
Further, the Transaction Parties agree to pay all reasonable out-of-pocket
taxes, costs and expenses (including the fees and expenses of counsel retained
by Lenders) incurred by Lenders in connection with the acquisition of Sunrise,
this Agreement, the change of name from Sunrise to HOF and the further
administration of this Agreement, including without limitation all costs and
expenses incurred in perfecting, maintaining, determining the priority of, and
releasing any obligor or any security for Sunrise's (and HOF's) obligations to
Lenders and any stamp, intangible, transfer, or like tax payable in connection
with this Agreement or the Obligation Documents.
<PAGE>
This Agreement, executed as of the day and year above first written, may be
executed in counterparts and on separate signature pages, but all of which
together shall constitute one and the same Agreement.
SUNRISE ORGANIC FARMS, INC. FARM CREDIT BANK OF WICHITA,
BY ITS ATTORNEY-IN-FACT FARM CREDIT
SERVICES OF THE MOUNTAIN
By: /s/ Marcus B. Peperzak PLAINS, FLBA
----------------------
Title: President
---------
By: /s/ Alan L. Feit
----------------
Title: V.P.
----
/s/ Marcus B. Peperzak
- ----------------------
MARCUS B. PEPERZAK, an individual
FARM CREDIT SERVICES OF THE
MOUNTAIN PLAINS, PCA
HORIZON ORGANIC DIARY, INC.
By: /s/ Alan L. Feit
----------------
By: /s/ Barnet M. Feinblum Title: V.P.
---------------------- ----
Title:
--------------------
<PAGE>
NOTE AND LOAN AGREEMENT Loan No. _____________
(Subsequently called the "Note" or "Loan Effective Date 06/04/96
Agreement") --------
FARM CREDIT SERVICES
See attached addendum
For value received, the undersigned ("Borrower", whether one or more),
jointly and severally, promises to pay TO THE ORDER OF Farm Credit Services
--------------------
of the Mountain Plains, PCA
---------------------------------------------------------------------------
("Lender") at Lender's offices, the principal sum of seven million one
----------------------
hundred and five thousand two hundred sixty five and 00/100 dollars
-----------------------------------------------------------
($7,105,265.00), or whatever lesser sum may be outstanding, as follows:
------------
[X] RENEWAL OF EXISTING INDEBTEDNESS. If checked, of the above amount
$5,100,470.00 is a renewal of an existing indebtedness owing to Lender.
------------
This Note is executed and accepted as a renewal of, and amendment to, and
not in payment or satisfaction of the following promissory note(s) executed
by Borrower and payable to Lender:
Date: 05/31/95 Face Amount: $5,789,480.00 Maturity: 06/01/97
---------------------------------------------------------------------------
[X] EXPIRATION DATE: Any undisbursed portion of this commitment shall expire on
June 1, 1997
------------
Provided that Lender may, at its sole option, extend the expiration date.
[_] TERM DATE. (term loans only) The term of this loan will be from
-------------
until .
-----------
REPAYMENT WILL BE AS FOLLOWS:
----------------------------------------------.
Proceeds from the sale of livestock; accounts receivable; inventory
---------------------------------------------------------------------------
and any remaining balance of principal and interest shall be repaid no
later than the expiration date or ending term date, whichever applies, as
noted above.
---------------------------------------------------------------------------
TYPE OF LOAN. 1. Operating Loan Commitment 2. Intermediate Term Loan
3. Other
-------------------------
4. [X] Revolving Line of Credit Loan. If checked, this loan is
reinstateable and to the extent principal payments are made on this loan
from time to time, they shall reinstate Borrower's right to further
disburse on this loan. In no event shall the total indebtedness outstanding
at any time exceed the face amount of this Note.
5. [_] Operating Loan Commitment with maximum outstanding balance of $
-----
If checked, this note has a maximum outstanding balance provision other
than the amount on the face of the Note. Lender may limit or withhold
disbursements if the requested disbursement together with the current
unpaid principal balance exceeds the maximum outstanding balance as shown
above.
PURPOSE. The loan proceeds will be used for [_] Personal
[X] Agricultural [_] Specify ___________________
- --------------------------------------------------------------------------------
COLLATERAL.
[_] UNSECURED. If checked, this Loan Agreement is not secured and the
provisions of this Loan Agreement which relate to Lender's rights in
collateral are not applicable other than with regard to Lender's STOCK and
ADDITIONAL COLLATERAL provisions.
[X] SECURED. Collateral for this loan shall be: as stated in existing Security
-------------------------------
Agreement.
---------
---------------------------------------------------------------------------
INTEREST RATE
INTEREST SHALL BE PAYABLE AS FOLLOWS:
[_] With each repayment [_] Annually from date
[_] At or on expiration or ending [X] Other monthly
term date (whichever applies) ----------------------------
INTEREST SHALL ACCRUE ON THE UNPAID PRINCIPAL BALANCE AT:
[X] A VARIABLE INTEREST RATE. The beginning variable rate in effect on
execution of this Note and Loan Agreement is 8.05 %. Lender, at its sole
----
option, may increase or decrease this rate from time to time as provided by
the Farm Credit Act of 1971, as amended. A variable rate applies to all
outstanding principal not carried at a fixed rate, as specified below.
Differential Interest Rate. Lender may also, at its sole option,
reclassify this loan which may result in an increase or decrease in the
interest rate according to Lender's differential interest rate policy. This
policy permits different rates among borrowers based on loan type, purpose,
amount, quality, funding, operating costs or a combination of these
factors, or for other reasons as are approved by the Farm Credit
Administration. Any differential interest rate shall become effective from
the date of any reclassification.
[_] A FIXED INTEREST RATE. For a term from ____________________ until
____________________,
the interest rate on no more than $____________________ of principal will
be fixed at ________% per annum.
Fixed Rate Conversion. On expiration of any fixed rate time period of
this Note, that portion of the principal carried at that fixed rate will
automatically convert to the variable rate, as outlined above, unless
Borrower requests, and Lender grants, and extension of this Note at a fixed
rate. In the event a fixed rate converts to the variable rate, Borrower's
rate is also subject to periodic charges according to the differential rate
policy as outlined below.
Fixed Rate Prepayment. In the event Borrower prepays any principal
subject to the fixed rate, Borrower shall pay a reinvestment fee of
________% on the principal balance prepaid.
[_] LIFE OF THE LOAN CAP. If checked, the interest rate will never be higher
than ____________ percentage points above the beginning interest rate of
________%.
DEFAULT INTEREST RATE AND ACCELERATION. In the event of default as defined
in this Note and Loan Agreement, the interest rate on any fixed segment
shall be 2 % above the fixed rate. On any variable rate segment, the
---
default interest rate shall be 2 % above the then existing variable rate on
---
this loan. On default by Borrower and at Lender's option, all unpaid
principal and interest shall become immediate due and payable without
notice or demand by Lender. Lender may continue to charge interest, and
default interest if applicable, on any delinquent and/or accelerated
amount.
[ -] SPECIAL CONDITIONS. If checked, in addition to the STANDARD CONDITIONS,
Borrower agrees to the following special conditions:
Borrower agrees to the standard conditions on the reverse hereof.
--------------------------------------------------------------------
See attached addendum for additional conditions.
--------------------------------------------------------------------
--------------------------------------------------------------------
ADDITIONAL PROVISIONS
DISCLOSURE CONSENT. By signing below, borrower agrees that Lender may disclose
financial information to other Farm Credit System institutions. Borrower
further authorizes Lender to request financial information from financial
institutions doing business with the Borrower.
THIS WRITTEN CREDIT AGREEMENT IS THE FINAL EXPRESSION OF THE AGREEMENT BETWEEN
BORROWER AND LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR
CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN THE BORROWER AND THE LENDER. THE
PARTIES AFFIRM THAT NO UNWRITTEN ORAL CREDIT AGREEMENT EXISTS BETWEEN THEM.
<TABLE>
<S> <C>
I agree to the terms of the Note and Loan Agreement, acknowledge receiving a copy.
PREPARED BY:
[Initials]
Signature(s) Lender Farm Credit Services of the Mountain Plains, PCA
-------------------------- ---------------------------------------------------
See attached Addendum (Lender must sign if security is in Kansas)
- -------------------------------------- VERIFIED BY:
By [Initials]
- -------------------------------------- -----------------------------------------
</TABLE>
Exhibit A to Restatement,
Amendment and Assumption
Agreement
<PAGE>
This Addendum is incorporated into and made a part of the Note and Loan
Agreement dated June 4, 1996, executed between Farm Credit Services of the
Mountain Plains, PCA (PCA) and Sunrise Organic Farms, Inc. (Company) for the
original principal amount of $7,105,265.00.
This loan matures June 1, 1998. The continuance of financing during the loan
period is subject to an annual renewal (review) which is set for June 1, 1997.
Continued financing during the period will be subject to and at the sole
discretion of the Farm Credit Services of the Mountain Plains, PCA, based on
PCA's loan performance analysis, borrower compliance with loan covenants as set
forth in this Note Addendum and in adherence with any and al provisions as set
forth interest he attached Note and Loan Agreement.
INTEREST Interest shall accrue on the unpaid principal balance at a
variable interest rate. The beginning rate: variable rate in
effect on execution of this Note and Loan Agreement is 8.05%.
Thereafter, and from time to time, the Lender may establish
different rates of interest, either higher or lower than that
stated above.
At any time, the Borrower may designate (hereinafter referred to
as "carve out") in dollar amount any portion of the unpaid loan
balance accruing interest at the variable rate herein to accrue
interest at a fixed rate for a term corresponding to a 30,60, 90
or 180 day Treasury Bill maturity as selected by Borrower and at
a rate equal to the closing yield of a like maturity Treasury
Bill as quoted by Bloomberg Financial Markets, plus 3.25%
multiplied by 95%. If, at any time, the Treasury Bill maturity is
no longer available on Bloomberg Financial Markets, Lender will
choose a new source which is based on comparable information.
1. The rate of interest fixed in accordance with the foregoing
shall begin accruing on the date Borrower carves out the
portion of the loan balance and shall continue through the
term of the carve out.
2. Upon expiration of the carve out, the unpaid loan balance
previously carved out shall accrue interest at the then
variable rate.
3. A carve out and selection of Treasury Bill maturity shall
occur only in writing, executed by Borrower or his duly
authorized agent, and delivered to Lender.
4. No more than two "carve outs" will be in existence at any
time.
BORROWING BASE
REPORTS: During the term of the loan, the Company shall deliver to PCA,
within twenty (20) days of the end of the each fiscal month end,
an unaudited borrowing base report (Exhibit A)in reasonable
detail and fairly presenting the collateral position of the
company. The Company shall remain within the conditions of the
borrowing base (Exhibit A). In the event that the operation is
not in compliance with borrowing base limits, the loan can be
considered in default.
CONSOLIDATION/
MERGER: The Company will not merger or consolidate with any other person
or entity without the prior written consent of the PCA.
TRANSFER OF
OWNERSHIP: Transfer of majority stock ownership from Marcus B. Peperzak to
any other person or entity without the prior written consent of
the PCA, will give the PCA the right, at its option, to treat the
Note and Loan Agreement as being in default, and PCA may
accelerate the indebtedness. This includes the Stock Option
agreement dated May 31st, 1995 between Natural Horizons, Inc. and
Marcus B. Peperzak.
TRANSACTIONS
WITH
AFFILIATES: The Company will not enter into an transaction(including the
purchase, sale, or exchange of property or the rendering of any
service) with any affiliate except upon fair and reasonable terms
which are at lest as favorable to the Company as would be
obtained in a comparable arm's-length transaction with a non-
affiliate.
REGULATORY
COMPLIANCE: During the term of the loan, failure of the company to maintain
all permits, licenses, minimum capital standards, minimum working
capital standards, or any other requirements of the regulatory
agencies having jurisdiction over the operation of the collateral
property located in the State of Idaho shall constitute an event
of default.
CURRENT &
INTERMEDIATE
RATIO: During the entire term of the loan, the ratio of Current Assets &
Intermediate Assets to Current Liabilities & Intermediate
Liabilities shall not be less than 1.25:1, increasing to 1.40 by
April 30, 1997.
COST BASIS
OWNERS EQUITY: The company shall maintain a minimum cost basis owners equity as
defined of 25.0%. By April 30, 1997, cost basis owner's equity
will increase to a 30.0% minimum.
MARKET VALUE
OWNERS EQUITY: Cost basis balance sheets will be adjusted to a market value
balance sheet of the Company as of 12-31-96 and annually
thereafter. Calculations will be made by using market values as
determined at the sole discretion of the PCA. Said balance
sheets must reflect and maintain owners equity positions of
40.0% by 12-31-96 and a 40.0% owners equity will be maintained
thereafter.
CAPITAL
PURCHASES: Capital purchases (except breeding livestock purchases) and
leases during the loan year (6/1-5/31) will not exceed
$250,000/year.
SUBORDINATED
DEBT PAYMENTS: Any paydown of subordinated debt principal requires prior
written PCA approval. Exchanges of subordinated debt (replacing
a like amount of existing subordinated debt with new
subordinated debt) can occur without prior approval.
<PAGE>
Page 2 of Addendum which is incorporated into and made a part of the Note and
Loan Agreement dated June 4, 1996, executed between Farm Credit Services of the
Mountain Plains, PCA and Sunrise Organic Farms, Inc. for the original principal
amount of $7,105,265.
CAPITAL
WITHDRAWALS: No capital withdrawals are permitted without prior written
approval from PCA.
CAPITAL
INJECTIONS: Total equity and subordinated debt injections of $1,200,000 will
occur by 9/1/96. Of this amount, $1,100,000 will be injected by
7/31/96. It is understood that $200,000 of the $1,200,000 will be
used to replace existing subordinated debt of $200,000.
DOCUMENTATION
OF SUBORDINATED
DEBT AND EQUITY
TRANSACTIONS: Documentation relating to new subordinated debt will be submitted
to PCA with each monthly report. Documentation of equity
injections will also be submitted with each monthly report.
FINANCIAL
REPORTING: During the term of the loan, the Company shall deliver to PCA,
within twenty (20) days of the end of each fiscal month,
unaudited consolidated financial statements showing the Company's
balance sheet and statements of income as of the end of such
month and setting forth in each case the amounts for the
corresponding dates or periods one year earlier, all in
reasonable detail and fairly presenting the financial position of
the Company. Furthermore, the Company shall deliver to PCA, as
soon as practicable after the end of the fiscal year, and in any
event within 140 days thereafter, duplicate copies of the
Company's consolidated balance sheet and consolidated statements
of income and stockholders' equity as of the end of such fiscal
year and setting forth in each case the amountss for the previous
fiscal year, all in reasonable detail and audited by a Firm of
Recognized Certified Public Accountants. Such reports to be
prepared in accordance with generally accepted accounting
principles consistently applied.
PCA TRAVEL
EXPENSES: The Company agrees to reimburse the PCA for expenses incurred for
on site inspections of the Idaho operations. Upon receipt of
travel expense bill statement the Company will remit payment
within 30 days.
DEFINITIONS: "Current Assets": All those Current Assets reported on the April
---------------
30, 1996 Internal Balance Sheet report as completed by Sunrise
Organic Farms, Inc.
"Intermediate Assets": All Cattle inventories, PCA Stock and Milk
-------------------
Coop Retains, producing and non-producing cows, heifers and
bulls which the company has or intends to hold in inventory more
than one year.
"Current Liabilities": Current liabilities of the Company
-------------------
constituting Moneys borrowed from commercial banks or other
persons evidenced by a promissory note or other like written
obligation to pay money or other obligations of the Company,
which must be paid or satisfied within one year, (specifically
excluding subordinated liabilities to PCA due stockholders and
deferred income tax liabilities.)
"Intermediate Liabilities": PCA Revolving Line of credit or any
------------------------
other indebtedness with a maturity more than one year and less
than 5 years, (specifically excluding subordinated liabilities to
PCA due stockholders and deferred income tax liabilities).
"Firm of Recognized Certified Public Accountants": The firm of
-----------------------------------------------
Rhode Scripter and Associates or any other firm of certified
public accountants satisfactory to PCA, if and so long as such
firm is independent with respect to the Person or Persons whose
financial statements are being examined by it.
"Total Liabilities": All liabilities of the Company constituting
-----------------
Moneys borrowed from commercial banks or other persons evidenced
by a promissory note or other like written obligation to pay
money or other obligations of the Company, (specifically
excluding subordinated liabilities to PCA due stockholders and
deferred income tax liabilities).
"Person": Any individual, corporation, partnership, joint
------
venture, trust estate, unincorporated organization, governmental
body.
"Owners Equity": The ratio of Tangible assets less total
-------------
liabilities of the Company divided by Tangible assets.
"Deferred Income Tax Liabilities" are those Deferred Income Tax
-------------------------------
liabilities identified as current, intermediate, or long term
that are not due within one year from the date of the balance
sheets date.
"Tangible Assets": assets of the Company except assets such as
---------------
goodwill, patents, and similar assets of any intangible nature.
"Company": Refers to Sunrise Organic Farms, Inc., a "C"
-------
Corporation.
Sunrise Organic Farms, Inc. a Colorado Corporation
<TABLE>
<S> <C> <C>
/s/ Marcus B. Peperzak Attest /s/ Donna J Getman /s/ Marcus B Peperzak
- -------------------------------- --------------------------- -------------------------------
Marcus B. Peperzak, as President of Donna J. Getman, Secretary Marcus B. Peperzak, Individually
Sunrise Organic Farms, Inc.
</TABLE>
<PAGE>
Exhibit A Sunrise Organic Farms, Inc.
Borrowing Base Report
as of
<TABLE>
<CAPTION>
Collateral Value Borrowing
Base
<S> <C> <C>
MILK RECEIVABLES:
W.D.C.I. (Idaho)
----------
Other - under 90 days (see attached list)
----------
x 80%
----------- -----------
Feed
----------
Supplies
----------
Prepaid
----------
Total Feed Inventory (See Attached List) x 65%
----------- -----------
DAIRY HERD INVENTORY:
Milk Herd
----------
Other
----------
Total
----------
Cows Valued @ not to exceed $1,300 Per Head x 70%
----------- -----------
Investment in Growing Crop
----------
Less Capitalized Cost
----------
Eligible Growing Crop Investment x 0%
(Secured by a perfected security agreement) ----------- -----------
Accounts Payable x 100%
----------- -----------
Cash in checking x 100%
----------- -----------
HEIFER AND STEER INVENTORY:
(see Attached Sheets)
Livestock Value x 70%
----------- -----------
Equipment (PCA value + Purchases = Sales) x 60%
(Leased Equipment not included) ----------- -----------
Total Collateral Value
-----------
Total Borrowing Base
-----------
PCA Loan Balance -----------
Less PCA Stock -----------
Intransit Payments & Drafts (See Attached Sheet) -----------
Accrued Interest -----------
Total Indebtedness -----------
Available
Collateral Margin Borrowing Base
---------- -----------
</TABLE>
The undersigned represents and warrants that the foregoing information is true,
complete and correct, and the receivables reflected herein comply with the
representations and warranties set forth in the Addendum to the Note and Loan
Agreement, and any amendments, if any, thereto, between the undersigned & Farm
Credit Services of the Mountain Plains, PCA (lender)
It is further understood that the Total Indebtedness may not exceed the total
borrowing base or $6,750,000 (net of Stock), which ever is less.
I certify the above information and the information contained in the
accompanying worksheets to be true and correct, and that no information which
would make the foregoing misleading in any material respect has been omitted,
and in on event of default has occurred or is continuing.
Sunrise Organic Farms, Inc.
BY:
-----------------------------------
/s/ Marcus B. Peperzak
-----------------------------------
Marcus B. Peperzak, as President
of Sunrise Organic Farms, Inc.
/s/ Marcus B. Peperzak
-----------------------------------
Marcus B. Peperzak, as Individually
<PAGE>
SECURITY AGREEMENT
Each of the undersigned ("Borrower," whether one or more) and Farm Credit
-----------
Services of the Mountain Plains, PCA ("Lender") enter into this Security
- -------------------------------
Agreement, and agree as follows:
1. CREATION OF SECURITY INTEREST. Borrower grants to the Lender a present
security interest in the property described in Section 2 to secure payment
and performance of all obligations, indebtedness, and liabilities of any
kind, whenever and however incurred, absolute or contingent, due or to become
due, now existing or hereafter arising of the Borrower to the Lender,
including the liabilities arising because of funds advanced at the option of
the Lender.
2. COLLATERAL. The Borrower grants and assigns to the Lender a security
interest in the following property together with all additions, accessions,
replacements, substitutions, proceeds and products therefrom including
natural increase of livestock and any and all property of similar type or
kind now owned or hereafter acquired by the Borrower and used for either
personal, family or household purposes; farming or ranching operations; or
any other business in which the Borrower is or might be engaged.
(Note: When crops or fixtures are taken as collateral, the real estate on
which such are growing or located must be described.)
All processed and nonprocessed feed, grain and harvested crops owned by the
debtor specifically including, but not limited to the following: Calf-Milk
Replacer, Rape Seed, Canola Meal, Almond hulls, Cotton Seed, Soy Flake,
Megalac, Barley, Calf Grain, Oat Silage, Hominy, Corn, Wheat, Hay, Haylage,
Hay-Oat, Lactating DMS, PMS-Molasses, Maternity concentration, Corn Silage,
Wheat Silage, Heifer Molasses, Dry Cow Mineral.
All annual and perennial crops of whatever kind and description grown or
growing or to be planted or produced on land owned, rented, leased or
hereafter purchased specifically including but not limited to the
following: Alfalfa, Corn Silage, Haylage, Barley, Dryland Sorghum Silage,
Barley Silage
OWNS: See attached Exhibit A
All livestock branded or unbranded now owned or in possession of the debtor
or hereafter acquired specifically including, but not limited to, the
following: 1,537 Organic Holstein Cows, 2,321 Commercial Holstein cows, 24
Holstein Bulls, 82 Holstein Steers, 1,111 Organic Replacement Holstein
Heifers, 338 Commercial Replacement Holstein Heifers
BRAND:
#59596-I left hip #60635-I left hip
All farm and ranch machinery and equipment of whatever kind and description
specifically including, but not limited to the following:
ALL FARM MACHINERY AND EQUIPMENT LISTED ON THE ATTACHED SECURITY AGREEMENT
EXTENSION SHEET DATED JUNE 4, 1996.
All Dairy Milking and Processing Equipment including but not limited to
Bulk tanks, Milk Silos, Vacuum Pumps, Refrigerator Units, Ice Machines,
Control Units, Milking Claws and Stainless Steel Pipe.
All inventory now owned or hereafter acquired by the debtor including but
not limited to crops and livestock.
All accounts and general intangibles now owned or hereafter acquired by the
debtor, including but not limited to, all accounts receivable from the sale
of crops, livestock, and milk.
Borrower grants Lender the authority to directly collect accounts
receivable in the event of default.
3. [_] FEEDLOT LOAN. If checked, this security agreement secures a loan to a
feedlot.
4. LOCATION. The Borrower's residence is as stated below and the collateral in
Section 2 will be kept at:
LOCATION COUNTY Adams/Jerome STATE CO/Idaho
--------------------------------------------------------------
NOTICE: SEE OTHER SIDE FOR IMPORTANT INFORMATION; THE SAME BEING INCORPORATED BY
REFERENCE.
Date: June 4, 1996
-------------------------
SUNRISE ORGANIC FARMS, INC., a Colorado Corporation
Name: Name:
----------------------- --------------------------
By: /s/ Marcus B. Peperzak Address: /s/ Marcus B. Peperzak
------------------------- -----------------------
Marcus B Peperzak, President Marcus B Peperzak, Individually
Address:
--------------------
Name: /s/ Donna J. Getman Name: PREPARED BY:
--------------------- --------------------------
attest: Donna J Getman, Secretary [Initials]
VERIFIED BY:
Address: Address: [Initials]
-------------------- -----------------------
THE BORROWER, BY SIGNING THIS SECURITY AGREEMENT, ACKNOWLEDGES THAT HE OR SHE
HAS READ ALL OF THE PROVISIONS OF SUCH AND HAS RECEIVED A COPY OF SUCH.
Exhibit B to Restatement, Amendment and Assumption Agreement
<PAGE>
EXHIBIT A
Page 1 of 5
PARCEL NO. 1
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
A tract of land in the E 1/2E 1/2 of Section 17, and the NW 1/4NW 1/4 of
Section 16, more particularly described as follows:
Beginning at the Northeast corner of said Section 17, also being the
Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the Northwest corner
of said E 1/2E 1/2 Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2E 1/2 Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the Westerly
boundary of said Section 16 to the Northerly boundary of said Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 2
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: NW 1/4; W 1/2NE 1/4; SE 1/4NE 1/4; NE 1/2NE 1/4, EXCEPTING THEREFROM
the following described parcel of land:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674
feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet,
more or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF
BEGINNING.
EXCEPTING THEREFROM the highway.
Section 17: NE 1/2NE 1/4; S 1/2NE 1/4; SE 1/4; SE 1/4NW 1/4; E 1/2SW 1/4;
Section 20: E 1/2NE 1/4; N 1/2SE 1/4; NE 1/4SW 1/4;
<PAGE>
Page 2 of 5
EXCEPTING THEREFROM a tract of land in the E 1/2 E 1/2, Section 17 and
NW 1/4NW 1/4, Section 16, Township 9 South, Range 21, East of the Boise
Meridian, Jerome County, Idaho, more particularly described as follows:
Beginning at the Northeast corner of said Section 17 also being the
Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the Northwest
corner of said E 1/2E 1/2, Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2E 1/2, Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the
Westerly boundary of said Section 16 to the Northerly boundary of said
Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 3
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: That part of the NE 1/4NE 1/4, described as follows:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674 feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet, more
or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF BEGINNING.
EXCEPTING THEREFROM the highway.
PARCEL NO. 4
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 20: SE 1/4SW 1/4; S 1/2SE 1/4;
Section 21: S 1/2SW 1/4; SW 1/4SE 1/4;
Section 28: All of Section 28;
Section 29: E 1/2NE 1/4; SE 1/4;
Section 32: N 1/2NE 1/4;
<PAGE>
Page 3 of 5
Section 33: N 1/2NW 1/4; SE 1/4NW 1/4; NE 1/4;
EXCEPTING THEREFROM that part of the SE 1/4SE 1/4 of Section 28,
Township 9 South, Range 21, East of the Boise Meridian, Jerome
County Idaho, described as follows:
Commencing an the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said
Section 28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE POINT
OF BEGINNING;
Thence continuing South 79 degrees 00'21" West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT
OF BEGINNING.
AND EXCEPTING THEREFROM that portion of the NE 1/4SE 1/4 of
Section 28, described as follows:
Beginning at the East quarter corner of said Section 28, which
point shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North boundary of the NE 1/4SE 1/4, 909.75
feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4;
909.75 feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4,
909.75 feet to a point on the East boundary of the NE 1/4SE 1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75
feet to THE TRUE POINT OF BEGINNING.
PARCEL NO. 5
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: S 1/2;
EXCEPTING THEREFROM the highway.
PARCEL NO. 6:
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 17: SW 1/4NW 1/4; NW 1/4SW 1/4;
Section 18: N 1/2SE 1/4; E 1/2SW 1/4; SW 1/4SE 1/4;
PARCEL NO. 7
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 22: SE 1/4SW 1/4; S 1/2SE 1/4;
<PAGE>
Page 4 of 5
Section 27: E 1/2; NW 1/4SW 1/4; S 1/2NW 1/4; NW 1/4NW 1/4; S 1/2SW 1/4;
NE 1/4SW 1/4, EXCEPTING THEREFROM the following described parcel of
land:
From a Point of Beginning located 714.75 feet, more or less, North
from the Southwest corner of Section 27, to the point of
intersection of said Section line or County road center line with
the North boundary of the Oregon Short Line Railroad North Side
Branch right of way;
Thence running North along the Section line or center line of said
County road, 275.27 feet;
Thence North 78 degrees 46' East and parallel to the said railroad
right of way center line, 2691.57 feet, more or less, to the
point of intersection with the North-South mid-section line;
Thence South along said mid-section line 275.27 feet, more or less,
to the point of intersection with the North railroad right-of way
boundary;
Thence South 78 degrees 46' West and along said North railroad
right of way boundary, 2691.57 feet, more or less, to THE POINT
OF BEGINNING.
AND EXCEPTING THEREFROM railroad rights of way.
TOGETHER WITH a permanent easement and right of way, including the
perpetual right to enter upon the excepted portion of the above
described property in the SW 1/4 of Section 27, Township 9South,
Range 21, East of the Boise Meridian, for the purpose of
constructing, maintaining and repairing underground pipelines for
irrigation water as set forth in Easement Agreement recorded May
15, 1963 in Book 174 Page 53 as Instrument Number 154714, Jerome
County records.
Section 34: N 1/2NW 1/4; N 1/2NE 1/4;
PARCEL NO. 8
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 27: NE 1/4NW 1/4;
PARCEL NO. 9
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 28: That part of the SE 1/4SE 1/4, described as follows:
Commencing at the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79 degrees 00'21 West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 Feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
<PAGE>
Page 5 of 5
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING
AND
That portion of the NE 1/4SE 1/4, described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North Boundary of the NE 1/4SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4, 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4SE 1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75 feet to
THE TRUE POINT OF BEGINNING.
PARCEL NO. 10
TOWNSHIP 8 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 32: E1/2SE1/4;
Section 33: N1/2SW1/4; S1/2NW1/4; S1/2NE1/4;
EXCEPTING THEREFROM the highway.
<PAGE>
SECURITY AGREEMENT EXTENSION SHEET
THIS form is used for listing of additional collateral to be included in the
Security Agreement executed 6-4-96 between the undersigned and Farm Credit
--------------
Services of the Mountain. Plains PCA The collateral described is incorporated in
- -------------------------------------
and made a part of this Agreement by reference and is subject to all of the
terms and provisions of such Agreement.
<TABLE>
<CAPTION>
YEAR MAKE MODEL TYPE ID NUMBER
<S> <C> <C> <C> <C>
CATERPILLER 920 LOADER 62K9558
JOHN DEERE 3010 TRACTOR 11T18605
72 PETERBUILT TRUCK 41857P
SNAPPER RIDING LAWNMOWER
JOHN DEERE 450 MANURE SPREADER 1WOO4500X014242
85 GMC BRIGADEER DUMP TRUCK 1GDT9C4C9FV6052
JOHN DEERE 450 MANURE SPREADER 1W00450X015854
FORD 4100 TRACTOR 1 DA23BJ7JG11
CATERPILLER 400 KW GENERATOR 4RG02158
HAY TRAILER
84 KENWORTH K100 TRUCK 1XKKD29X45K3570
WELDING MACHINE 88012714
END DUMP TRAILER
HAY WAGON (8'x14')
KIRBY BALE FEEDER (4 BALE)
87 FORD TRUCK W/MORLANG 520 BOX
94 KAWASAKI KA62 MULE
75 CHEVY DUMP TRUCK
77 FORD DUMP TRUCK ??0DVC43585
DUMP TRUCK
AIR COMPRESSOR
HUTCHINSON AUGER (53' 8")
CASE 580 BACKHOE 8740569
BAND SAW
BATTERY CHARGER
JOHN DEERE BLADE B011519600W
92 IHC 5700 CHISEL
CASE 496 DISC JAG159598
JOHN DEERE 455 16' DISC 10658
DURANCROFT DRILL PRESS 60119
IHC 510 GRAIN DRILL 03902455C002191
HITCH-HIKE (FOR CASE)
WALKER FLOOR JACK (10T)
WALKER FLOOR JACK (2 1/2T)
JOHN DEERE MOWER
JOHN DEERE MOWER
</TABLE>
Page 1 of 3
Date: June 4, 1996
----------------------
SUNRISE ORGANIC FARMS, Inc., a Colorado Corporation
/s/ Marcus B. Peperzak /s/ Marcus B. Peperzak
- ----------------------------- ------------------------------
Marcus B. Peperzak, President Marcus B. Peperzak, individually
/s/ Donna J. Getman
- -----------------------------
Attest: Donna J. Getman, Secretary
Exhibit C to Restatement, Amendment and Assumption Agreement
<PAGE>
SECURITY AGREEMENT EXTENSION SHEET
THIS form is used for listing of additional collateral to be included in the
Security Agreement executed 6-4-96 between the undersigned and Farm Credit
-------- --------------
Services of the Mountain. Plains PCA
- -------------------------------------
The collateral described is incorporated in and made a part of this Agreement by
reference and is subject to all of the terms and provisions of such Agreement.
<TABLE>
<S> <C> <C> <C> <C>
ATLAND PRESS
BRIGGS 5 HP PORTABLE GEN.
MOTOROLA RADIO
ACE ROLLER HARROW
ACE 500 SPRAYER 65207
SPRAYER (100 GA)
MASSEY TRACTOR 7722
FORD 4000 TRACTOR
JOHN DEERE 4440 TRACTOR 013670R
JOHN DEERE 8640 TRACTOR 008106RW
FORD 4600 TRACTOR C502164
IHC 806 TRACTOR 2606254
TRAILER-PUP-HAY
4 WHEEL HAY TRAILER
TANDEM WHEEL HAY TRAILER
TRAILER-PIPE
GREAT DANE DROP DECK TRAILER 1GRDM84230M0416
MASSEY FERG. TRAILER
83 FORD TRUCK w Harsh 575 box 1FDTW6002DVA445
IHC DUMP TRUCK 106620H326245
WEED BURNER 200 GA
MILLER 150 WELDER
93 TRAVALONG SILVC CATTLE TRAILER 4DYG51827P10114
LEON 14' DOZER BLADE 22571129
EZER ON LOADER
JOHN DEERE 7100 PLANTER 044223A
95 ALMAR 8 ROW POCKET PADDLE
VALLEY CENTER PIVOT (1298') 75403
HONDA 110 ATC 1JH3TB0200CC3311
HONDA ATC 4WHEEL
83 MAZDA PICK-UP JM2UC123DO71355
82 CHEVY PICK-UP W/ FLATBED 1GCGC24MICF3461
93 KAWASAKI MULE
94 KLF 220 A7 RD JKBLFBA16RB5645
94 KLF 220 A7 RD JKBLFBA1XRB5642
94 KAWASAKI KA620 4x4 JK1AFCA12PB5040
94 KAWASAKI KA620 4x4 JK1APCA13PB5035
</TABLE>
Page 2 of 3
Date: June 4, 1996
----------------------
SUNRISE ORGANIC FARMS, Inc., a Colorado Corporation
/s/ Marcus B. Peperzak /s/ Marcus B. Peperzak
- ------------------------------ --------------------------------
Marcus B. Peperzak, President Marcus B. Peperzak, individually
/s/ Donna J. Getman
- ------------------------------ --------------------------------
Attest: Donna J. Getman, Secretary
- ------------------------------ --------------------------------
<PAGE>
SECURITY AGREEMENT EXTENSION SHEET
THIS form is used for listing of additional collateral to be included in the
Security Agreement executed 6-4-96 between the undersigned and Farm Credit
-------- --------------
Services of the Mountain Plains PCA. The collateral described is incorporated in
- -----------------------------------
and made a part of this Agreement by reference and is subject to all of the
terms and provisions of such Agreement.
<TABLE>
<S> <C> <C> <C> <C>
95 CHEVY TAHOE VEHICLE
MAIL JEEPS (3)
486 DX-66 COMPUTER
COMPUTER
RADIO
95 NEW LAP-TOP COMPUTER
95 COMPUTER
92 VALLEY 6000 10 TOWER SPRINKLER 70005
92 VALLEY 6000 10 TOWER SPRINKLER 70020
</TABLE>
Page 3 of 3
Date: June 4, 1996
----------------------
SUNRISE ORGANIC FARMS, Inc., a Colorado Corporation
/s/ Marcus B. Peperzak /s/ Marcus B. Peperzak
- ------------------------------------ --------------------------------
Marcus B. Peperzak, President Marcus B. Peperzak, individually
/s/ Donna J. Getman
- ------------------------------------ --------------------------------
Attest: Donna J. Getman, Secretary
- ------------------------------------ --------------------------------
<PAGE>
NOTE AND LOAN AGREEMENT
FARM CREDIT SERVICES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Loan No. DATE AMENDS NOTE DATED ASSN. BR. NO. REPAYMENT PLAN
<S> <C> <C> <C> <C>
2371719 06/23/95 12/20/94 120-10 Standard/Monthly
- ---------------------------------------------------------------------------------------
</TABLE>
For value received, the undersigned ("Borrower", whether one or more) as
principals, jointly and severally, promise to pay to Farm Credit Bank of Wichita
("Lender") at the office in Wichita, Kansas, or to its order, the principal sum
of Four million two hundred sixty-six thousand six dollars and 04/100---
----------------------------------------------------------------------
dollars ($ 4,266,006.04 ), with a beginning interest rate at 7.79 % per annum
-------------- ------
starting July 1, 1995 on the unmatured principal, with principal and interest
--------------
payable as follows:
Due in 180 consecutive monthly installments on the 1st day of each month as
follows:
179 installments of principal and interest, in the amount of $40,252.69 each
the first due August 1, 1995;
and a final installment consisting of all unpaid principal balance of the
indebtedness, and all accrued interest thereon shall be due and payable on July
----
1, 2010.
- -------
PROVIDED, however, (1) if the period from the date of disbursement or conversion
of the principal sum to the date of the initial installment is more or less than
the regular installment period, the amount may be increased or decreased, so as
to reflect interest actually accruing for that period, or (2) when any different
rate of interest is established as provided below, the amount of each subsequent
installment shall be increased or decreased to reflect the increase or decrease
in the interest rate, but the due date of the increased or decreased installment
shall remain as provided above, or (3) if any advance payment is made, it shall
not operate to reduce the dollar amount of the payments evidenced by this Note
and Loan Agreement, except as Lender may determine at its sole option.
[X] If checked, this Note and Loan Agreement amends a note dated December 20,
-------------
1994 and supersedes it to the extent the terms and conditions are
-----
inconsistent with this Note and Loan Agreement.
- --------------------------------------------------------------------------------
INTEREST RATE AND PAYMENT CHANGES
ADJUSTABLE INTEREST RATE. The interest rate on this loan is adjustable as
follows:
CHANGE DATE. The interest rate may change on July 1, 2000 (mo/day/yr) and
on that day every 5 year(s) thereafter, which is referred to as the Change
Date.
INDEX. Beginning with the first Change Date, interest will be based on an
index. The index is the most recent 30 day average yield on United States
Treasury securities of like maturities, as made available by the Federal
Reserve Board. The most recent index figure available as of the date 45
days before each Change Date, is called the Current Index. If the index is
no longer available, Lender will choose a new index which is based on
comparable information. Lender will give Borrower notice of this change.
CALCULATION OF CHANGES. Before each Change Date, Lender will calculate the
new interest rate by adding two percentage points (2.00%) to the Current
Index. The sum will be the new interest rate until the next Change Date.
Lender will then determine the new amount of the Monthly (monthly,
quarterly, semi-annual, annual) payment.
EFFECTIVE DATE OF CHANGES. The new interest rate will become effective on
each Change Date. Borrower will pay the amount of the new payment beginning
on the first payment date after the Change Date until the amount of the
payment changes again.
ADJUSTMENT TO ADJUSTMENT CAP. Lender shall not increase or decrease the
interest rate more than 4.00 percentage points on any Change Date.
NOTICE OF CHANGES. Lender will mail or deliver, to the Borrower, at
Borrower's last known address, a notice of any change in the amount of the
payment before the effective date of any change. The notice will include
information required by applicable federal law and regulations.
[X] LIFE OF THE LOAN CAP. If checked, the interest rate will never be higher
than 6.00 percentage points above the beginning interest rate of 7.79 %.
------ ------
- --------------------------------------------------------------------------------
PREPAYMENT
[X] NO PENALTY. If checked, all or any part of the principal may be paid in
advance, without penalty. Any advance payment may be applied entirely on
principal, or in part on accrued interest, as Lender may determine at its
sole option.
[_] REINVESTMENT FEE REQUIRED FOR PREPAYMENT. If checked, Borrower agrees to
pay a reinvestment fee of _____% above the then existing rate of interest
on the amount of the principal balance prepaid.
- --------------------------------------------------------------------------------
[X] LATE PAYMENT PENALTY. If checked, Borrower agrees to pay a late payment
penalty of 2% above the billing rate on installments not paid in full on
--------------------------------------------------------------
the scheduled payment date; and continuing until the loan is brought
------------------------------------------------------------------------
current on all payments of: (1) principal and interest not paid when due;
-------
and (2) other payments including insurance, taxes, etc. not paid when due
if Lender advances to make the payments.
- --------------------------------------------------------------------------------
TYPE OF LOAN
[X] Agricultural [_] Rural Home Loan [_] Other __________________
- --------------------------------------------------------------------------------
SECURITY. This Note and Loan Agreement is secured by a mortgage, deed of
trust or security agreement dated December 20, 1994 covering certain real
------------------
estate and/or personal property.
- --------------------------------------------------------------------------------
[X] SPECIAL CONDITIONS. If checked, in addition to the STANDARD CONDITIONS
Borrower agrees to the following special conditions:
See attached Addendum
------------------------------------------------------------------------
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL PROVISIONS
THIS WRITTEN CREDIT AGREEMENT IS THE FINAL EXPRESSION OF THE AGREEMENT BETWEEN
BORROWER AND LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR
CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN THE BORROWER AND THE LENDER. THE
PARTIES AFFIRM THAT NOT UNWRITTEN ORAL CREDIT AGREEMENT EXISTS BETWEEN THEM.
I agree to the terms of the Note and acknowledge receiving a copy.
Sunrise Organic Farms, Inc. PREPARED BY:
[Initials]
Signature(s) Lender
-------------------------- ---------------------------
See attached Addendum
- -------------------------------------- a Corporation as Attorney-in-Fact for
the Farm Credit Bank of Wichita
A Corporation VERIFIED BY:
[Initials]
By
- -------------------------------------- -------------------------------
(Lender must sign if security is
in Kansas)
Exhibit D to Restatement, Amendment and Assumption Agreement
<PAGE>
STANDARD CONDITIONS
While this loan agreement is in effect Borrower will: (1) at Lender's request,
furnish information to Lender relating to Borrower's business and financial
affairs and permit Lender to examine Borrower's books and records; (2) maintain
all other loans with Lender in a current status; (3) allow Lender to inspect and
appraise Lender's collateral; (4) utilize loan proceeds as provided in the
PURPOSE section of this agreement; (5) promptly notify Lender of any potential
material adverse change in financial condition or any possible default under
this or any other loan agreement with this Lender or with any other Lender; (6)
execute all other documents as Lender may lawfully require in connection with
this loan; (7) comply with all terms and conditions of all other documents
executed in connection with this loan; (8) at Lender's request, submit an annual
verified balance sheet and income statement as of Borrower's fiscal year end.
ADDITIONAL SECURITY. LENDER MAY REQUEST ADDITIONAL SECURITY FOR THIS LOAN FROM
TIME TO TIME IN ACCORDANCE WITH APPLICABLE FEDERAL LAW, INCLUDING, WITHOUT
LIMITATION, REQUEST FOR A SECURITY INTEREST IN LENDER'S "FUNDS HELD" AND "FUTURE
PAYMENT FUND" PROGRAMS. BORROWER AGREES TO DELIVER ADDITIONAL COLLATERAL AS
LENDER MAY, IN GOOD FAITH REQUEST.
STOCK
Purchase, Lien and Conversion. Stock purchase and conversion shall be
according to the terms, conditions and designations outlined in applicable fed
law governing the Farm Credit System, regulations of the Farm Credit
Administration and Lender's bylaws. Borrower acknowledges: (1) that the
principal sum of this Note and Loan Agreement includes any sum borrowed to
purchase the maximum amount of stock; (2) Lender has a first lien on
Borrower's stock; and, (3) that stock retirement will be in accordance with
applicable law, regulations and Lender's bylaws governing retirement.
Default. In the event of default on this loan, Borrower agrees that Lender
may retire stock, not to exceed par value or face amount, and apply the
proceeds to principal and/or interest according to applicable law, regulations
and Lender's bylaws in effect at the time of retirement.
Risk. If book value of stock is ever less than par value or face amount or if
Lender's capital becomes impaired, stock may be subject to risk of impairment
and Lender may retire stock according to applicable federal law, regulations
and Lender's bylaws. This in no way affects Borrower's obligation to repay
its loan in full, including any amounts borrowed to purchase stock.
DISCLOSURE, CONSENT. By signing, Borrower agrees that Lender may disclose
financial information to other Farm Credit System institutions. Borrower
further authorizes Lender to request financial information from financial
institutions doing business with the Borrower.
DEFAULT. Borrower is in default of this Note and Loan Agreement under the
following circumstances: (1) Borrower fails to repay principal or interest as
set forth in this Note and Loan Agreement; (2) Borrower materially breaches any
term, condition or representation in any document in connection with this loan
or in connection with any other loan of this, or any other Lender; (3) if any of
Borrower's representations to this, or any other, lender in connection with any
loan prove to be materially false; (4) Lender determines, in its sole
discretion, that Borrower is unable to repay the indebtedness or Lender
otherwise deems itself insecure; (5) Borrower fails to use loan proceeds as set
forth in the PURPOSE section of this Note and Loan Agreement; (6) if, solely in
Lender's judgment, Borrower has experienced a material adverse change in
financial condition; (7) death, dissolution, termination of existence,
insolvency, business failure, petition for or appointment of a receiver,
assignment for the benefit of creditors by, or commencement of any proceeding
under any bankruptcy in insolvency law by or against Borrower, or any guarantor,
endorser, or surety for Borrower.
Remedies. On default and acceleration, Lender may exercise all legal rights
and remedies including, but not limited to, rights and remedies stated in
mortgages and security agreements. Exercise of any right or remedy shall not
exclude exercise of any other right or remedy. The mortgage, deed of trust or
security agreement provisions that advances made by Lender shall become a part
of the debt evidenced by this Note, and also states additional conditions
under which the entire debt may be accelerated and become immediately due and
will be subject to interest and default interest.
Default Interest and Acceleration. In the event of default the interest rate
shall be 2% above the then existing billing rate. On Borrower's default, and
at Lender's option, all unpaid principal, including amounts advanced for
taxes, insurance, etc., interest and default interest, shall become immediate
due and payable without notice or demand by Lender. Lender may continue to
charge interest, and default interest, on the accelerated amount.
Waiver. Any delay or omission by Lender in exercising a right or remedy shall
not waive that right or remedy or any other right or remedy. Any explicit
waiver of default by Lender must be in writing and signed by Lender. No
waiver of default by Lender shall operate as a waiver of any other default or
of the same default on a future occasion.
LEGAL FEES. If this loan is placed in the hands of an attorney for collection
or to protect or enforce any of Lender's rights in bankruptcy or otherwise,
Lender may collect its attorney fees, court costs and other expenses as provided
by applicable law. If allowed by law, all of these expenditures by Lender shall
be secured by security for this loan and shall become principal under this loan.
These expenses shall be immediate payable and shall bear interest as provided in
the INTEREST RATE AND PAYMENT CHANGES paragraph of this Note and Loan Agreement.
Lender shall solely determine the propriety of paying these expenses and
Borrower shall have no action against Lender for payment under this paragraph.
EVIDENCE. Lender's records shall be prima facie evidence of the balance owing
Lender and Borrower shall bear the burden of showing any fault or error.
WAIVER OF DEMAND. Borrower, and any endorser, surety or guarantor of this Note
and Loan Agreement, severally waive presentment for payment, demand, notice of
nonpayment, protest and notice of protest, and diligence in enforcing payment of
this Note.
RELEASE AND EXTENSION. Borrower, and any endorser, surety or guarantor of this
Note and Loan Agreement, severally agree that Lender may at any time, without
notice, release all or any part of the security for this Note and Loan Agreement
(including all or any part of the premises covered the referenced mortgage or
deed of trust); grant extensions, deferments, renewals or reamortizations of any
part of the debt evidenced by this Note and Loan Agreement, and release from
personal liability any one or more of the parties who are or may become liable
for this debt; all without affecting the personal liability of any other party.
SAVINGS CLAUSE. If any provisions of this Note and Loan Agreement are found to
be invalid or unenforceable, they shall no longer be considered to a part of
this Note and Loan Agreement. The remaining provisions shall be valid and
enforceable.
AGENCY APPOINTMENT. Each Borrower appoints every other Borrower as his or her
agent for purposes of the obligations of this loan. Borrower acknowledges that
Lender may conduct transactions with any borrower as if it were conducting
transactions with all borrowers. This authority shall continue until Borrower
revokes or terminates it by giving written notice to Lender.
INCORPORATION BY REFERENCE. This Note and Loan Agreement includes all
amendments, supplements and modifications to it, and also incorporates by
reference the terms of all assignments, instruments, documents, other writings
or written agreements between Borrower and Lender, including without limitation,
applications, loan commitments, notes and security documents.
MERGER. This Note and Loan Agreement supersedes all prior oral negotiations,
representations, and promises which are merged into this writing. This Note and
Loan Agreement, and any amendments, modifications or extensions to it,
constitutes the entire agreement between Borrower and Lender.
BORROWER'S GUARANTEES. By signing, Borrower warrants that Borrower has legal
authority to enter into this transaction, that the terms and conditions of this
contract do not contravene the terms and conditions of any other contract(s) of
the Borrower, that Borrower's representations in connection with this loan are
true and accurate, and that Borrower is not involved in, or has any expectations
of involvement in, any legal action that might impair Borrower's financial
condition or ability to continue business.
CAPTIONS. Captions used in this Note and Loan Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit or describe
the scope or intent of any term or provision.
APPLICABLE LAW. Enforcement of this Note and Loan Agreement and the mortgage,
deed of trust or security agreement shall be governed by federal laws to the
extent applicable, and shall otherwise be governed by the laws of the state in
which the mortgage real estate or personal property is located.
<PAGE>
This Addendum is incorporated into and made a part of the Note and Loan
Agreement for Loan # 2371719 dated June 23, 1995, executed between Farm Credit
Bank of Wichita (FCS) and Sunrise Organic Farms, Inc. (Company) for the original
principal amount of $4,266,006.04.
SPECIAL CONDITIONS:
1. Furnish abstracts of title or title commitment insuring this loan.
2. Provided financing statements and security agreements are furnished on
milking equipment, all irrigation wells, and equipment, all sprinklers and
the milk check proceeds.
3. Provided Marcus B. Peperzak signs the balance sheet provided for the loan.
4. Provided a corporate Resolution to Borrow is furnished.
5. All entities or individuals, who are title holders to the security for this
loan will sign the application and other loan documents.
6. Provided the Natural Horizons, Inc. (NHI) lease is subordinated to this
lien.
7. Provided all state and local zoning, codes, covenants, ordinances and laws
are satisfied, including water and sewage systems.
8. Provided an entity eligibility exam is completed on Sunrise Organic Farms,
Inc, along with a review of the divisive reorganization plan and both are
approved.
9. Provided insurance is furnished as specified in the insurance schedule.
Insurance requirements schedule:
<TABLE>
<S> <C> <C> <C>
Idaho Dairy Facility Burley Farm
Dwelling 79,000. Calf Shed 21,000
Loafing sheds 554,000. Grain Bin 3,000
New maternity shed 38,000.
Maternity Stalls 8,000. Schodde Farm
Sick pen sheds 52,000. Potato Storage 60,000
Commodity Sheds 90,000. Shop 1,600
Shop 17,000. Grain Bin 2,000
Barn/Owned equipment 868,000 Commodity Shed 10,000
Crestview II Farm Dwelling 40,000
Sprinklers 50,000 Sprinklers 30,000
Schafer Farm
Dwelling 14,000
Grain Bin 2,000
</TABLE>
SALE OF SECURITY: The Company shall not sell or further encumber the loan
security without the written consent of Farm Credit Bank of
Wichita, which consent shall not be unreasonably withheld.
FCS will partial release portions of said collateral subject
to the following conditions: 1) The Company is current and in
good standing with FCS and its operating lender; 2) FCS shall
be given prior written notice of each request, and the
Company shall complete a Partial Release Application and pay
any required fees; 3) In the case of real estate, the
property to be partially released will not impede access to
or impair the value of the remaining collateral; 4) The
property to be released is sold or transferred for adequate
consideration; 5) All the net proceeds of the sale or
transfer of the partially released property, or such portion
thereof as determined by FCS at the time of the partial
release, are paid to FCS and applied to the principal balance
of the loan.
SALE OR
TRANSFER OF
NOTE RECEIVABLE: The Company shall not sell, transfer or further encumber the
note receivable from Aurora Dairy Corporation without the
written consent of FCS, which consent shall not be
unreasonably withheld. Consent for sale or transfer will be
granted as long as Company is current and in good standing
with FCS and the sale or transfer does not cause the company
to fail to meet any other loan condition set forth in this
agreement.
CONSOLIDATION/
MERGER: The Company will not merge or consolidate with any other
person or entity without the written consent of FCS, except
the Company may merge or consolidate with another entity,
provided that:
a. the "surviving entity" is organized under the laws of the
US;
b. the "surviving entity" shall be engaged in substantially
the same line of business;
c. the "surviving entity" shall not be in default under the
Loan Agreement or under the note, deed of trust, or other
security document, including all covenants;
d. the "surviving entity" expressly assumes in writing:
(i) the due and punctual payment of the note, and
(ii) the due and punctual performance and observance of
all the covenants in the note, deed of trust, and
loan agreement.
<PAGE>
This is Page Two of the addendum attached to a Note and Loan agreement in the
sum of $4266,006.04 between Farm Credit Bank of Wichita and Sunrise Organic
Farms, Inc. dated June 23, 1995.
TRANSACTIONS WITH
AFFILIATES: The Company will not enter into any transaction (including
the purchase, sale, or exchange of property or the rendering
of any service) with any affiliate except upon fair and
reasonable terms which are at least as favorable to the
Company as would be obtained in a comparable arm's-length
transaction with a non-affiliate.
REGULATORY
COMPLIANCE: During the term of the loan, failure of the Company to
maintain all permits, licenses, minimum capital standards,
minimum working capital standards, or any other requirements
of the regulatory agencies having jurisdiction over the
operation of the collateral property located in the State of
Idaho shall constitute and event of default.
FINANCIAL
COVENANTS: Financial covenants to be based on cost basis balance sheets
consistent to those to be determined by the Farm Credit
Services of the Mountain Plains, PCA (PCA) with respect to:
MAINTENANCE
OF NET WORKING
CAPITAL: During the entire term of the loan, the
ratio of Current Assets to Current
Liabilities shall not be less than 1.25:1.
CURRENT &
INTERMEDIATE
RATIO: During the entire term of the loan, the
ratio of current Assets & Intermediate
Assets to Current Liabilities &
Intermediate Liabilities shall not be less
than 1.15:1.
MAINTENANCE OF
COMPANY'S EQUITY: During the term of the loan, the Company
shall maintain a minimum Shareholders'
Equity (as defined below) of not less than
$ 1,500,000.
TOTAL DEBT/
SHAREHOLDERS'
EQUITY: During the term of the loan, the Company
shall maintain the ratio of Total Debt (as
defined below) to Shareholders' Equity (as
defined below)at not more than 5.0:1.
MARKET VALUE
OWNERS EQUITY: Cost basis balance sheets will be adjusted
to a market value balance sheet of the
Company as of 6-30-95, 12-31-95 and semi-
annually thereafter. Calculations will be
made by using market values as determined
at the sole discretion of the FCS. Said
balance sheets must reflect and maintain
owners equity positions of 36% as of 6-30-
95 and 40% by 12-31-95. 40% owners equity
will be maintained thereafter.
RESTRICTED PAYMENTS/
RESTRICTED
INVESTMENTS: The Company may not declare or make, or incur any liability
to make, any Restricted Payment, and may not make or incur
any liability to make any Restricted Investment unless at the
time of, and after giving effect to the Restricted Payment or
Restricted Investment in questions:
a. no event of default or event, which, with the passage of
time would become an event of default, shall have occurred
or be continuing; and
b. cumulative Restricted Payments and Restricted Investments
from loan closing do not exceed cumulative Net Income from
loan closing to the date of the Restricted Payment or
Restricted Investment in question.
FINANCIAL
REPORTING: During the term of the loan, the Company shall deliver to
FCS, within thirty (30) days of the end of each fiscal
quarter, unaudited consolidated financial statements showing
the Company's balance sheet and statements of income as of
the end of such quarter and setting forth in each case the
figures for the corresponding dates or periods one year
earlier, all in reasonable detail and fairly presenting the
financial position of the Company. Furthermore, the Company
shall deliver to FCS, as soon as practicable after the end of
the fiscal year, and in any event within 150 days thereafter,
duplicate copies of the Company's consolidated balance sheet
and consolidated statements of income and stockholders'
equity as of the end of such fiscal year and setting forth in
each case the figures for the previous fiscal year, all in
reasonable detail and audited by a Firm of Recognized
Certified Public Accountants. Such reports to be prepared in
accordance with generally accepted accounting principles
consistently applied.
DEFINITIONS: "Consolidated Net Income": For any period, the aggregate of
-----------------------
the Net Income of the Company and its consolidated
subsidiaries after eliminating all inter company items and
otherwise computed in accordance with generally accepted
accounting principles.
<PAGE>
This is Page three of the addendum attached to a Note and Loan Agreement in the
sum of $4,266,006.4 between Farm Credit Bank of Wichita and Sunrise Organic
Farms, Inc. dated June 23, 1995.
"Current Assets": All those Assets reported on the December 31, 1994. Audit
---------------
report completed by Rhode Scripter and Associates less milk Quota.
"Intermediate Assets": All Cattle inventories. Producing and non-producing
-------------------
cows, heifers, and bulls in which the company has or intends to hold in
inventory more than one year.
"Current Liabilities": Current liabilities of the company constituting Moneys
--------------------
borrowed from commercial banks or other persons evidenced by a promissory note
or other like written obligation to pay money or other obligations of the
Company, which must be paid or satisfied within one year, specifically
excluding subordinated liabilities due stockholders.
"Intermediate Liabilities": PCA Revolving Line of Credit or any other
------------------------
indebtedness with a maturity more than one year and less than 10 years,
specifically excluding subordinated liabilities due stockholders.
"Firm of Recognized Certified Public Accountants": The firm of Rhode Scripter
-----------------------------------------------
and Associates or any other firm of certified public accountants satisfactory
to FCS, if and so long as such firm is independent with respect to the Person
or Persons whose financial statements are being examined by it.
"Total Debt": All liabilities of the Company constituting Moneys borrowed
----------
from commercial banks or other persons evidenced by a promissory note or other
like written obligation to pay money or other unwritten obligations of the
Company, which must be paid or satisfied, specifically excluding subordinated
liabilities due stockholders.
"Net Income": For any Person for any period, the Net Income of such Person
-----------
for such period determined in accordance with generally accepted accounting
principles, but excluding therefrom: (1) any income of any Person other than
such person unless such earnings are actually received in cash, (2) any
gain/loss arising from the sale of capital assets (not in the ordinary course
of business) or from any extraordinary or unusual items, and (3) any pre-
acquired, pre-merger income of any Person acquired by or merged into such
Person.
"Net working Capital": At any date, the amount by which Current Assets exceed
--------------------
Current Liabilities.
"Person": Any individual, corporation, partnership, joint venture, trust
-------
estate, unincorporated organization, governmental body
"Restricted Investment": Any investment other than the following: (1)
----------------------
investments existing at the time of closing; (2) obligations of the United
States government maturing within one year from the date of acquisition; (3)
certificates of deposit maturing within one year from the date of acquisition
issued by a commercial bank that is a member of the Federal Reserve System;
and (4) commercial paper issued by any corporation organized under the laws of
the United States of America or any state thereof of the District of Columbia
(a) having a net worth of not less that $100 million, (b) rated in the highest
category by Moody's or Standard & Poor's, and (c) maturing within 270 days
from the date of acquisition.
"Restricted Payment": Any payment or the incurrence of any liability to make
-------------------
any payment in cash, property, or other assets in respect of any share held by
any partner of the Company, including without limiting the generality of the
foregoing, payments as partner draws/dividends (including draws/dividends to
reimburse shareholders for any tax liability resulting from taxable income
being allocated to them by the Company) and payment for the purpose of
purchasing, retiring, or redeeming any partner's share.
"Shareholders' Equity": Tangible assets less total liabilities of the
---------------------
Company.
"Tangible Assets": assets of the Company except assets such as goodwill,
----------------
patents, and similar assets of any intangible nature.
"Company": Refers to Aurora Dairy corporation of Idaho, a "C" Corporation.
--------
"FCS" : Refers to Farm Credit Bank of Wichita and / or the Farm Credit
Services of the Mountain Plains, FLBA.
ACCEPTED: /s/ Marcus B. Peperzak
---------------------------
Marcus B. Peperzak , as President of
Sunrise Organic Farms, Inc.
Attest: /s/ Donna J Getman
--------------------------
Donna J Getman, Secretary
/s/ Marcus B. Peperzak
--------------------------
Marcus B. Peperzak, Individually
<PAGE>
After Recording Return to Farm Credit Services
137 22nd Street
Greeley, CO 80631
Customer/Note No. 2371719
Mortgage and Fixture Filing
(Closed End)
On December 20, 1994,
Aurora Dairy Corporation of Idaho, a Colorado Corporation
hereinafter called Mortgagors whose address is 12050 North Pecos, Suite 200
Westminster, CO 80234
grant, convey, warrant, transfer and assign to Farm Credit Bank of Wichita, a
corporation
organized under the Farm Credit Act of 1971 as amended hereinafter called
Mortgagee, whose address is 245 N. Waco Wichita KS 67201 a mortgage and security
interest in property in Jerome County(ies), State of Idaho, more particularly
described in Exhibit "A" attached hereto and incorporated herein, including all
rents, issues, profits, buildings and improvements thereon and in all tenements,
hereditaments, rights, privileges, easements, rights of way and appearances,
including without limitation, private roads grazing privileges, water rights,
ditches and conduits and rights of way therefore, all plumbing, lighting,
heating, cooling, ventilating, elevating, and irrigating apparatus and other
equipment and fixtures now or hereafter belonging to or used in connection
therewith), all of which is hereinafter called "Property".
The following described note(s), Membership Agreement, security documents and
any other documents or instruments signed in connection with the notes and
security documents and any amendments thereto are collectively called the Loan
Documents. This conveyance is intended to secure performance of the covenants
and agreements contained herein and in any of the Loan Documents and payment of
indebtedness under the terms of the note(s) made by Mortgagors to the order of
Mortgagee with interest and advances as provided therein and in the loan
Documents, and any extensions, modifications or renewals thereof.
DATE OF NOTE PRINCIPAL AMOUNT FINAL INSTALLMENT DATE
December 20, 1994 $4,500,000.00 January 1, 2010
The terms of the note(s) and Loan Documents described above provide that the
interest rate, payment terms or amounts due may be indexed, adjusted, renewed or
renegotiated.
THIS MORTGAGE IS ALSO INTENDED TO BE A FIXTURE FILING.
Mortgagors and each of them REPRESENT, WARRANT, COVENANT and AGREE:
1. That they have title to the Property free from encumbrances, except as
described in Exhibit "A"; they have good right and lawful authority to convey
and encumber the same; they will warrant and defend the same forever against
the lawful claims and demands of all persons whomsoever; and they agree this
covenant shall not be extinguished by foreclosure or other transfers.
2. To keep all buildings and other improvements, now or hereafter existing, in
good repair; not to remove or demolish or permit the removal or demolition of
any building or other improvement; to restore promptly in a good and
workmanlike manner any building or improvement which may be damaged or
destroyed; to maintain and cultivate the Property in a good and husbandlike
manner, using approved methods for preserving the fertility and productivity
thereof; not to change or permit change in the use of the Property, and not
to do anything which would reduce the value of the Property.
3. To maintain casualty insurance, naming Mortgagee as loss payee, on all
buildings and improvements, against loss or damage by fire and other risks to
maintain facility insurance, to pay all premiums and charges on all such
insurance when due and to provide Mortgagee satisfactory evidence of such
insurance upon request. All such insurance shall be in such form(s), with
such.
4. To pay all debts and money, secured hereby, when due, to pay, when due; all
taxes, assessments, rents and other charges upon the Property; and to suffer
no other encumbrance, charge or lien on the Property, which would be superior
to this mortgage, except as stated above.
5. To specifically assign and deliver to Mortgagee all rents, royalties, damages
and payments of every kind, including without limitation, insurance,
reimbursements and condemnation awards, at any time accruing, for any
transfer, loss or seizure of the Property, any portion thereof or any rights
therein; Mortgagee may, at its option, apply such amounts in any proportion
to any of the indebtedness hereby secured, and Mortgagee shall have the right
to enter upon the property to make full inspection of the property.
Exhibit E to Restatement, Amendment and Assumption Agreement
Page 1 of 11
<PAGE>
6. To comply with all laws, ordinances, regulations, covenants, conditions and
restrictions affecting the Property and its use, including without
limitation, all environmental laws; not to use or permit the use of the
Property for any unlawful or objectionable purpose; to remedy any
environmental contamination or violation of environmental laws that may occur
or be discovered in the future; to allow Mortgagee access to the property to
inspect its condition and to test and monitor for compliance with applicable
laws (any inspections or tests made by Mortgagee shall be for Mortgagee's
purposes only and shall not be construed to create any responsibility or
liability on the part of Mortgagee to Mortgagors or to any other person), to
forward copies of any notices received form any environmental agencies to
Mortgagee; and to indemnify and hold Mortgagee, its directors, employees,
agents and its successors and assigns, harmless from and against any
environmental claims of any kind, and all costs and expenses incurred in
connection therewith, including, without limitation, attorney's fees.
7. That neither Mortgagors nor, to the best of Mortgagors' knowledge, any prior
owner has created or permitted conditions on the Property which may give rise
to environmental liability, no enforcement actions are pending or threatened;
no underground tanks are located on the Property except as already disclosed;
any such underground tanks currently or previously located on the Property do
not now and never have leaked and no contaminated soil is located on the
Property; and Mortgagors' representations, warranties, covenants and
indemnities herein and in the Loan Documents shall survive satisfaction of
the note(s) and Loan Documents, foreclosure of this mortgage, acceptance of a
deed in lieu of foreclosure or any transfer or abandonment of the Property.
8. To perform all terms and conditions of each water or other contract,
described in Exhibit "A", if any, and to promptly pay all sums due or to
become due under each contract so that no delinquency or default will occur
under such contract(s); not to apply or enter into any federal, state or
local program which limits or restricts the use of the Property, in any way
without prior written consent of Mortgagee; to perform all acts necessary to
perfect and maintain any water permit, certificate, license or other water
interest, however designated, described in or used in conjunction with the
real property described in Exhibit "A"; any assignment of any such interest,
during the term of this mortgage, naming Mortgagee as an assignee shall be
for security purposes and shall not alter Mortgagors' obligations hereunder,
and nay failure of Mortgagors to perform any such obligation shall constitute
an event of default.
9. That the term "Grazing Rights" as hereinafter used refers to that portion of
the Property, if any, consisting of grazing leases, permits, licenses,
privileges, and preferences, or any of them, which have or will be assigned,
mortgaged or waived to Mortgagee, together with any additions, renewals,
replacements or substitutions thereof; if any portion of the Grazing Rights
is a leasehold interest in state lands, such leasehold shall be considered to
be real property; such leasehold and all other real property portions of the
Property constitute a single operating unit; and in the event of foreclosure,
Mortgagee shall have the right to have such leasehold and the other real
property sold as a unit and not in parcels; any statements and
representations in any applications for Grazing Rights are true and correct;
Mortgagors have received no notice that the Grazing Rights have or are to be
terminated, cancelled or modified; and any termination or cancellation of any
of the Grazing Rights shall constitute an event of default under this
Mortgage.
10. To execute any instrument deemed necessary by the Mortgagee to assign,
mortgage or waive such Grazing Rights to the Mortgagee; to pay all fees and
charges, and to perform all acts and things necessary to preserve and keep
in good standing the Grazing Rights to take no action which would adversely
affect the Grazing Rights; to procure renewals of the Grazing Rights upon or
prior to their expiration date; to operate the lands covered by the Grazing
Rights in conjunction with the other real estate portion of the Property and
not to convey or attempt to convey either separately; to forward to
Mortgagee copies of any notices received by Mortgagor regarding the Grazing
Rights; and in the event of foreclosure of this mortgage, to waive all
claims for preference in the Grazing Rights upon demand from the purchaser
of the Property at foreclosure sale, or form any successor to such
purchaser.
11. That if the Property is within an irrigation block and/or subject to water
service contract(s) governed by the provisions of "Federal reclamation law,"
and the regulations issued thereunder, Mortgagors shall comply with the
terms and provisions of said laws, regulations and contracts; Mortgagors,
and each of them, for themselves, their heirs, successors and assigns,
hereby appoint Mortgagee their attorney-in-fact to select and designate the
portion of the Property to be subject to a recordable contract, in the event
Mortgagors become subject to the excess land limitation; if Mortgagors fail
to comply with the terms of said law, regulations or contracts, or if the
delivery of water for the irrigation of the Property is discontinued in
whole or in part Mortgagors shall be in default; in the event the Bureau of
Reclamation determines that continued drainage maintenance on the Property
is no longer feasible, and Mortgagors purchase other lands offered as a
preference purchase right (as an adjustment for wetlands), Mortgagors shall
execute a supplemental mortgage on such lands in favor of the Mortgagee; and
failure to execute such mortgage on demand, shall constitute an event of
default.
12. That in the event of default in any of the covenants or agreements herein,
or in any of the Loan Documents, Mortgagee may, at its option perform the
same, in whole or in part; any advances, including, without limitation,
attorney fees or costs, paid or incurred by Mortgagee to protect or enforce
its rights under the Loan Documents in bankruptcy, appellate proceedings or
otherwise, shall be payable on demand and shall become a part of the
indebtedness secured by this mortgage.
13. That the indebtedness and obligation secured by this mortgage are personal
to the Mortgagers and are not assignable by Mortgagors; Mortgagee relied
upon the credit of Mortgagors, the interest of Mortgagors in the Property
and the financial market conditions then existing when making this loan; if
Mortgagors sell, transfer or convey or contract to sell, transfer or convey
the Property, or any portion thereof, or if the ownership of any corporation
or partnership, owning any portion of the Property shall be changed either
by voluntary or involuntary sale or transfer or by operation of law, without
prior written consent of Mortgagee or if Mortgagors default in the payment
of the indebtedness, or with respect to any warranty, covenant or agreement
in the Loan Documents or if a receiver or trustee for any part of the
Property is appointed, or if any proceeding under the bankruptcy or
insolvency laws is commenced by or against Mortgagors become insolvent, or
if any action is commenced to foreclose or enforce a lien on any portion of
the property, then, Mortgagors shall be in default hereunder.
Page 2 of 11
<PAGE>
14. If the indebtedness is subject to a guarantee from Farmers Home
Administration., then Mortgagors shall be in default under this mortgage
and the above note(s) and Loan Documents should any loan proceeds be used
for a purpose that will contribute to excessive erosion of highly erodible
land or to the conversion of wetlands to produce an agricultural commodity
as further explained in 7 CFR Part 1940 Subpart G, Exhibit M; prior to loss
of the exemption from the highly erodible land conservation restrictions
found in 7CFR Part 12. Mortgagors must demonstrate that Mortgagors are
actively applying an approved conservation plan on that land which has been
determined to be highly erodible prior to 1990 or two years after the Soil
Conservation Service has completed a soil survey for that land, whichever is
after and Mortgagors must demonstrate prior to January 1, 1995 that any
0production after that date of an agricultural commodity on highly erodible
land will be done compliance with an approved Soil Conservation Service
conservation system.
15. That time is of the essence and in the event of default, at Mortgagee's
option, the entire indebtedness secured hereby shall forthwith become due
and payable and bear interest at the rate set forth in the Loan Documents
for delinquent payments. Mortgagee shall have the right to foreclose the
lien of this mortgage, to have a receiver appointed in any court proceeding
to collect any rents, issues and profits from the Property and apply them
against the indebtedness hereby secured and to exercise any rights and
remedies available under the Uniform Commercial Code for the state in which
the property is located, and reasonable notice if required by such Code
shall be five (5) days.
16. That the failure of Mortgagee to exercise any right or option provided
herein, at any time shall not preclude Mortgagee from exercising any of such
rights at any other time the covenant and agreements contained herein shall
be binding on and inure to the benefit of the parties and their respective
heirs, successors and assigns, all rights conferred on Mortgagee are
cumulative and additional to any rights conferred by law, and if any
provision is found to be invalid or unenforceable such invalidity or
unenforceability shall not affect any other provision hereof and the
mortgage shall be construed as though such provision had been omitted.
17. If this mortgage is a residential real estate mortgage, subject to Truth in
Lending Disclosures, that during the existence of the indebtedness hereby
secured Mortgagee, at its option, may collect additional amounts and pay
real property taxes and special assessments levied against the Property,
Mortgagee may elect at any time to pay or not to pay taxes and assessments
notice to any person liable for or making the payments upon the indebtedness
hereby secured or actual payment of any taxes or assessments by Mortgagee
shall constitute an election by Mortgagee to pay taxes and assessments
Mortgagee may elect to pay such taxes and assessments either prior to or
after collecting additional amounts necessary to make each payment, if
Mortgagee elects to pay such taxes and assessments prior to collecting such
additional amounts Mortgagee may add the amounts expended by it for taxes
and assessments to the note(s) balance at the time the payment is made and
such amounts shall bear interest as provided in the note(s) and shall be
secured by the Loan Documents, after any payment of taxes or assessments by
Mortgagee, or after notice of Mortgagee's election to pay taxes and
assessments, if given in advance of paying the taxes and assessments
Mortgagors shall pay to Mortgagee on the first day of each month, commencing
with the next installment in addition to the scheduled installments of
principal and interest due under the note(s), and amount equal to 1/12 of
the annual real property taxes and special assessments as estimated by
Mortgagee, such additional payments shall continue until any subsequent
election by Mortgagee not to pay taxes and assessments.
18. That Mortgagors and each of them, in this instrument for the purpose of
subjecting each of their right, title and interest, if any , in the
Property, whether of record or otherwise and including any right to
possession, to the lien of this mortgage.
19. That the following parties join in this instrument to perfect the lien
offered as security for the loan, but assume no liability for payment of the
indebtedness described in the Loan Documents except for that arising under
paragraph 6 above.
20. Additional covenants, terms, and conditions are contained on the following
described attachments which are incorporated in this mortgage as though set
out here in full:
____ Timber Rider
____ Montana Homestead Acknowledgment
____ Other (describe)
Page 3 of 11
<PAGE>
Mortgagee acknowledges that this mortgage is subject to a security interest in
favor of the Farm Credit Bank of Wichita (Bank) and by its acceptance hereof and
pursuant to and in confirmation of certain agreements and assignments by and
between Mortgagee and Bank, does assign, transfer, and set over the same unto
Bank, its successors and assigns, to secure all obligations of Mortgagee to
Bank, provided that pursuant to such agreements and assignments Mortgagee has
authority to perform all loan servicing and collection actions and activities
hereunder, incliuding without limitation thereto, releasing in whole or in part
and foreclosing judicially or otherwise this mortgage until the Bank, by
instrument recorded in the office in which this mortgage is recorded, revokes
such authority, provided, however, if Bank is the Mortgagee in this transaction,
this paragraph is without effect.
Page 4 of 11
<PAGE>
EXHIBIT A
PARCEL NO. 1
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
A tract of land in the E 1/2E 1/2 of Section 17, and the NW 1/4NW 1/4 of
Section 16, more particularly described as follows:
Beginning at the Northeast corner of said Section 17, also being the
Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the Northwest corner
of said E 1/2E 1/2 Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2E 1/2 Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the Westerly
boundary of said Section 16 to the Northerly boundary of said Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 2
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: NW 1/4; W 1/2NE 1/4; SE 1/4NE 1/4; NE 1/2NE 1/4, EXCEPTING
THEREFROM the following described parcel of land:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674 feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet, more
or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF BEGINNING.
EXCEPTING THEREFROM the highway.
Section 17: NE 1/2NE 1/4; S 1/2NE 1/4; SE 1/4; SE 1/4NW 1/4; E 1/2SW 1/4;
Section 20: E 1/2NE 1/4; N 1/2SE 1/4; NE 1/4SW 1/4;
Page 5 of 11
<PAGE>
EXCEPTING THEREFROM a tract of land in the E 1/2 E 1/2, Section 17 and
NW 1/4NW 1/4, Section 16, Township 9 South, Range 21, East of the Boise
Meridian, Jerome County, Idaho, more particularly described as follows:
Beginning at the Northeast corner of said Section 17 also being the
Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the Northwest
corner of said E 1/2E 1/2, Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2E 1/2, Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the
Westerly boundary of said Section 16 to the Northerly boundary of said
Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 3
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: That part of the NE 1/4NE 1/4, described as follows:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674 feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet, more
or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF BEGINNING.
EXCEPTING THEREFROM the highway.
PARCEL NO. 4
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 20: SE 1/4SW 1/4; S 1/2SE 1/4;
Section 21: S 1/2SW 1/4; SW 1/4SE 1/4;
Section 28: All of Section 28;
Section 29: E 1/2NE 1/4; SE 1/4;
Section 32: N 1/2NE 1/4;
Page 6 of 11
<PAGE>
Section 33: N 1/2NW 1/4; SE 1/4NW 1/4; NE 1/4;
EXCEPTING THEREFROM that part of the SE 1/4SE 1/4 of Section 28,
Township 9 South, Range 21, East of the Boise Meridian, Jerome County
Idaho, described as follows:
Commencing an the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79 degrees 00'21" West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING.
AND EXCEPTING THEREFROM that portion of the NE 1/4SE 1/4 of Section 28,
described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North boundary of the NE 1/4SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4; 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4SE 1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75
feet to THE TRUE POINT OF BEGINNING.
PARCEL NO. 5
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: S 1/2;
EXCEPTING THEREFROM the highway.
PARCEL NO. 6:
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 17: SW 1/4NW 1/4; NW 1/4SW 1/4;
Section 18: N 1/2SE 1/4; E 1/2SW 1/4; SW 1/4SE 1/4;
PARCEL NO. 7
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 22: SE 1/4SW 1/4; S 1/2SE 1/4;
Page 7 of 11
<PAGE>
Section 27: E 1/2; NW 1/4SW 1/4; S 1/2NW 1/4; NW 1/4NW 1/4; S 1/2SW 1/4;
NE 1/4SW 1/4, EXCEPTING THEREFROM the following described parcel of
land:
From a Point of Beginning located 714.75 feet, more or less, North from
the Southwest corner of Section 27, to the point of intersection of
said Section line or County road center line with the North boundary of
the Oregon Short Line Railroad North Side Branch right of way;
Thence running North along the Section line or center line of said
County road, 275.27 feet;
Thence North 78 degrees 46' East and parallel to the said railroad right
of way center line, 2691.57 feet, more or less, to the point of
intersection with the North-South mid-section line;
Thence South along said mid-section line 275.27 feet, more or less, to
the point of intersection with the North railroad right-of way
boundary;
Thence South 78 degrees 46' West and along said North railroad right of
way boundary, 2691.57 feet, more or less, to THE POINT OF BEGINNING.
AND EXCEPTING THEREFROM railroad rights of way.
TOGETHER WITH a permanent easement and right of way, including the
perpetual right to enter upon the excepted portion of the above
described property in the SW 1/4 of Section 27, Township 9South, Range
21, East of the Boise Meridian, for the purpose of constructing,
maintaining and repairing underground pipelines for irrigation water as
set forth in Easement Agreement recorded May 15, 1963 in Book 174 Page
53 as Instrument Number 154714, Jerome County records.
Section 34: N 1/2NW 1/4; N 1/2NE 1/4;
PARCEL NO. 8
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 27: NE 1/4NW 1/4;
PARCEL NO. 9
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 28: That part of the SE 1/4SE 1/4, described as follows:
Commencing at the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79 degrees 00'21 West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 Feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING.
Page 8 of 11
<PAGE>
AND
That portion of the NE 1/4SE 1/4, described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North Boundary of the NE 1/4SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4, 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4SE 1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75 feet to
THE TRUE POINT OF BEGINNING.
PARCEL NO. 10
TOWNSHIP 8 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 32: E1/2SE1/4;
Section 33: N1/2SW1/4; S1/2NW1/4; S1/2NE1/4;
EXCEPTING THEREFROM the highway.
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-07801, Priority Date
August 24,1978."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08015, Priority Date
December 24, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08012."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-02254, Priority Date
March 16, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02284, Priority Date May
16, 1955."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-07688, Priority Date
April 6, 1977."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-02249, Priority Date
March 5, 1954."
Page 9 of 11
<PAGE>
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02248, Priority Date
March 5, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-14601, Priority Date
December 31, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08011B, Priority Date
December 24,1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-08008, Priority Date
December 8, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02430, Priority Date
April 21, 1960."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08004, Priority Date
October 19, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02319, Priority Date May
11, 1957."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08003, Priority Date
December 8, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02424, Priority Date
March 10, 1960."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. G-28496, Priority Date March
10, 1960."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-07351, Priority Date July
16, 1973."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02310, Priority Date
November 20, 1956."
Page 10 of 11
<PAGE>
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08005, Priority Date
December 8, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02376, Priority Date
February 20, 1959."
[SEAL]
AURORA DAIRY CORPORATION OF IDAHO,
a Colorado Corporation
BY /s/ Marcus B. Peperzak /s/ Marcus B. Peperzak
------------------------ ------------------------
Marcus B. Peperzak, President Marcus B. Peperzak
ATTEST /s/ Donna J. Getman
---------------------
Donna J. Getman, Secretary
ACKNOWLEDGEMENT
STATE OF Colorado )
) ss.
COUNTY OF Weld )
The foregoing instrument was acknowledged before me this 20th day of
--------
December , 1994, by Marcus B. Peperzak, President of Aurora Dairy
- ---------------
Corporation of Idaho, a Colorado Corporation and by Donna J. Getman, Secretary
for and in behalf of the corporation and by Marcus B. Peperzak, as an
Individual.
My Commission Expires 3-8-98 /s/ Kara M. Buttolph
-------- ----------------------
Notary Public
[SEAL]
127 22nd Street Greeley, CO 80631
------------------------------------
Notary Address
<PAGE>
SECURITY AGREEMENT
Farm Credit Services
THIS AGREEMENT made this 20th day of December, 1994, between Aurora Dairy
---- -------- ---- ------------
Corporation of Idaho, a Colorado Corporation hereinafter called Debtor, whether
- --------------------------------------------
one or more, and the Farm Credit Bank of Wichita, hereinafter called Secured
---------------------------
Party.
I. CREATION OF SECURITY INTEREST. Debtor hereby grants to Secured Party a
security interest in the Collateral described in Paragraph II to secure
payment and performance of all obligations and indebtedness of Debtor,
existing and future, owing to Secured Party created or incurred pursuant to
this Security Agreement.
II. COLLATERAL. The collateral of this Security Agreement are goods of the
following description, a part of which or all is now or may become fixtures:
See attached Exhibit A
and all appurtenances thereto, replacements, substitutions and additions which
are or will be in Debtor's possession on the land described and located as
follows:
See attached Exhibit A
Exhibit F to Restatement, Amendment and Assumption Agreement
<PAGE>
III. DEBTOR'S OBLIGATIONS.
A. That he will pay to Secured Party:
1. The sum or sums evidenced by the promissory note executed along with
this Security Agreement in accordance with the terms of the note
dated the 20th day of December, 1994, in the amount of $4,500,000.00
---- -------- ----
and
2. All sums, including reasonable attorney's fee where allowed by law
and legal expenses, paid or incurred by Secured Party in pursuing
any of its rights and remedies or in remedying any default pursuant
to this Security Agreement or paid or incurred in protecting the
existence or priority of its interest, and
3. All expenses of taking possession, holding and preparing for
disposing of the Collateral paid or incurred by Secured Party in
pursuing any of its rights and remedies to which it is entitled
under this Security Agreement or the Uniform Commercial Code, and
the amounts so paid or incurred under this provision and Part 2
above shall be secured by this Security Agreement.
4. At Secured Party's option, the entire unpaid indebtedness to Secured
Party, whether created or incurred pursuant to this Security
Agreement or otherwise, upon Debtor's default under Paragraph IV or
if Secured Party deems itself insecure.
B. Debtor's additional obligations:
1. Debtor shall at all times keep the Collateral at the location
described in Paragraph II unless Secured Party consents in advance
and in writing to its removal to another location, and
2. To allow Secured Party, or its agent, to have access to the
Collateral for inspection purposes at any time, and
3. To insure and keep insured all Collateral described in Paragraph II
against loss or damage due to tornado or other windstorm in
companies and amounts satisfactory to Secured Party. Any policy
evidencing such insurance to be deposited with, and loss thereunder
to be payable to Secured Party as its interest may appear. At the
option of Secured Party, and subject to general regulations of the
Farm Credit Administration, sums so received may be used to pay for
reconstruction or replacement of the Collateral: or, if not so
applied may, at the option of the Secured Party, be applied in
payment of matured debt, or as extra payments on unmatured debt in
the manner provided in the note secured hereby.
4. Not to misuse, abuse, waste or allow to deteriorate, except for
ordinary wear and tear, and that he will at his own expense keep the
Collateral in good condition and forthwith replace and repair all
parts which become broken, worn out or damaged without allowing any
lien to be created on the Collateral on account of such replacement
or repairs, and
5. Not to sell, transfer, create or permit to be acquired any other
interest in or against the Collateral, or in any replacements,
substitutions and additions thereto, or permit any charge, including
rent and taxes, to remain unpaid to or by any third person.
At its option Secured Party may procure such insurance, discharge
taxes, liens or security interests or other encumbrances and may pay
for the reapair of any damage or injury to the Collateral for its
preservation and maintenance. Debtor agrees to reimburse Secured Party
on demand for any such payment or expense and until reimbursement, the
amount so expended plus interest in the amount being paid on the note
shall be added to the indebtedness and shall be secured by this
agreement.
C. Debtor further covenants and warrants:
1. That he is the absolute owner of the Collateral and that, except for
the security interest granted herein, it is free from any adverse
lien or security interest.
2. That the statements made in the loan application are true and that
the loan proceeds secured hereby will be used solely for the
purposes set forth in the application.
<PAGE>
3. That the Debtor's residence and place of business, if any, is that
appearing below his signature and that he will immediately advise
the Secured Party in writing of any change of address.
4. The Debtor shall furnish to the Secured Party a list in writing of
buyers, commission merchants and selling agents to or through whom
the Debtor may sell farm products and shall notify the Secured Party
in writing of any previously unlisted buyer, commission merchant or
selling agent at least 7 days prior to any sale of farm products to
or through such previously unlisted persons. A sale of farm products
to or through any person not listed with the Secured Party may
subject the Debtor to a fine of $5,000 or 15% of the value of
benefit received from such sale.
IV. DEFAULT
A. Debtor shall be in default under this agreement upon the happening of
any of the following:
1. Failure to perform, or violation of, any obligations under Paragraph
III or any covenant contained therein or in the payment of any note
secured by this Agreement.
2. Any warranty or representation made to induce Secured Party to
extend credit to the Debtor under this agreement or otherwise is
false in any material respect when made, or
3. When any event occurs which results in the acceleration of the
maturity of the indebtedness of Debtor to others under any
indenture, agreement or undertaking, or
4. Death, dissolution, termination of existence, insolvency, business
failure, or the commencement of any bankruptcy pro-ceeding by or
against Debtor or by or against any guarantor or surety for Debtor.
B. Upon Debtor's default and at any time thereafter or if it deems itself
insecure.
Secured Party:
1. May declare all obligations secured hereby immediately due and
payable and shall have all rights and remedies for default provided
by the Uniform Commercial Code or may pursue its remedy afforded
under the real estate mortgage executed simultaneously with this
Security Agreement and which also secures payment of the note above
described.
2. May require debtor to assemble the Collateral and deliver or make it
available to Secured Party at a place to be designated by Secured
Party and to allow Secured Party to take possession and dispose of
the Collateral.
V. IT IS FURTHER UNDERSTOOD AND AGREED BETWEEN THE PARTIES HERETO that nothing
contained herein shall be construed to obligate Secured Party to make any
loans or advances to Debtor and that the sole purpose of this instrument is
to provide collateral security for presently existing indebtedness and
loans and advances which Secured Party, in its discretion, may hereafter
make;
That no waiver by Secured Party of any default shall operate as a waiver of
any other default or of the same default on a future occasion;
That no party to this instrument shall be discharged by any extension of
time, taking further security, releasing security, or any other act, except
a release or termination of the security interest created hereby upon full
cash payment of the debt secured hereby, including charges and interest;
That if more than one debtor executes this Security Agreement, their
obligations hereunder shall be joint and several;
All rights of Secured Party hereunder shall inure to the benefit of its
successors and assigns; and all promises and duties of Debtor shall bind
his heirs, executors, administrators or assigns.
<PAGE>
<TABLE>
<S> <C>
(For Corporation, Partnership and (For Individual Signatures)
Fiduciary Signatures)
Name: Aurora Dairy Corporation of Idaho /s/ Marcus B. Peperzak
---------------------------------------- ------------------------------------------------
Address: 12050 North Pecos, Ste 200 Marcus B. Peperzak
------------------------------------- Residence Address: 12050 North Pecos, Ste 200
-----------------------------
City, State, County: Westminster, CO Adams City, State, County: Westminster, CO Adams
------------------------- ---------------------------
Residence Address:
/s/ Marcus B. Peperzak President -----------------------------
- ------------------------------- ----------- City, State, County:
Marcus B. Peperzak Title ---------------------------
/s/ Donna J. Getman Secretary ------------------------------------------------
- ------------------------------- ----------- Residence Address:
Title -----------------------------
City, State, County:
- ------------------------------- ----------- ---------------------------
Title
------------------------------------------------
- ------------------------------- ----------- Residence Address:
Title -----------------------------
City, State, County:
---------------------------
</TABLE>
<PAGE>
EXHIBIT A
All milking equipment and facilities including all future additions to,
replacement of, and substitutions for, but not limited to the following:
140 stalls air injectors
4 18' receivers 4 25 h.p. vacuum pumps
moisture traps 52 drop hoses and nozzles
3" U-bends 3" PVC vacuum lines
4 2 h.p. milk pumps 2 4 x 33" line filters
45 milk meters 2 all steel welded flush tanks
Air compressors 2 400,000 BTU boilers
8 water heaters RJB sprayers
104 wide body milking units with wash-in-place stainless holders
Stainless steel wash lines and milk discharge lines
Milk check proceeds in amounts equal to note installments plus any and all
advances.
All wells, pumps, motors, equipment, and sprinkler systems used for irrigation
of the land described below, including all future additions to, replacements of,
or substitutions for:
5 Layne Bowler 10" motors #33603, #45616, #25406, #27167, & #27721
2 Layne Bowler 12" motors #D9651 & # 26211
1 Layne Bowler motor #44122
1 Baldor Booster 75 h.p. motor #1269C
1 Baldor Booster 45 h.p. motor #689C
1 Peerless 10" motor #F10157
2 G.E. 250 h.p. pumps #SSJ508008 & #HTJ812127
2 G.E. 200 h.p. pumps #KHJ1018106 & #RTJ415014
2 U.S. Electric 200 h.p. pumps #1071520 & #1365076
1 U.S. Electric 100 h.p. booster pump #C1004883
1 U.S. Electric 150 h.p. pump #1151069
1 Westinghouse 100 h.p. booster pump #8008
1 U.S. Electric 300 h.p. pump #1308372
1 G.E. 350 h.p. pump #WF67178
1 Peerless 125 h.p. pressure pump #AL96626-433-5
2 Nine (9) Tower Valley Sprinklers #55120 & #55078
2 Valley Corner systems #70005 & #70020
1200' of 12" buried mainline
2640' of 10" buried mainline
900' of 8" buried mainline
1320' of 8" portable mainline
660' of 6" portable mainline
1320' of 12' buried mainline
2640' of 10' buried plastic mainline
1320' of 8" portable mainline
1820' of 6" portable mainline
6600' of 12' buried mainline
1320' of 10' buried mainline
8920' of 8" buried mainline
2640' of 6" buried mainline
<PAGE>
320 sections of 3" Hook & Latch Handline
60 lengths of 4" Ball & Socket Handline
324 lengths of 3" Ball & Socket Handline
448 sections of 3" Ball & Socket Handline
448 sections of 3" Hook & Latch Handline
LEGAL DESCRIPTION
PARCEL NO. 1
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
A tract of land in the E 1/2E 1/2 of Section 17, and the NW 1/4NW 1/4 of
Section 16, more particularly described as follows:
Beginning at the Northeast corner of said Section 17, also being the
Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the Northwest corner
of said E 1/2E 1/2 Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2E 1/2 Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the Westerly
boundary of said Section 16 to the Northerly boundary of said Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 2
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: NW 1/4; W 1/2NE 1/4; SE 1/4NE 1/4; NE 1/2NE 1/4, EXCEPTING
THEREFROM the following described parcel of land:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674 feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet, more
or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF BEGINNING.
EXCEPTING THEREFROM the highway.
Section 17: NE 1/2NE 1/4; S 1/2NE 1/4; SE 1/4; SE 1/4NW 1/4; E 1/2SW 1/4;
<PAGE>
Section 20: E 1/2NE 1/4; N 1/2SE 1/4; NE 1/4SW 1/4;
EXCEPTING THEREFROM a tract of land in the E 1/2 E 1/2, Section 17 and
NW 1/4NW 1/4, Section 16, Township 9 South, Range 21, East of the Boise
Meridian, Jerome County, Idaho, more particularly described as follows:
Beginning at the Northeast corner of said Section 17 also being the
Northwest corner of said Section 16;
Thence South 89 degrees 44'20" West, 1,320.16 feet to the Northwest
corner of said E 1/2E 1/2, Section 17;
Thence South 0 degrees 07'52" East, 3,201.08 feet along the Westerly
boundary of said E 1/2E 1/2, Section 17;
Thence North 89 degrees 43'25" East, 1,318.92 feet to a point on the
Easterly boundary of said Section 17;
Thence North 0 degrees 06'32" West, 3,060.73 feet along the Easterly
boundary of said Section 17;
Thence North 89 degrees 46'14" East, 945.00 feet parallel with the
Northerly boundary of said Section 16;
Thence North 0 degrees 06'32" West, 140.00 feet parallel with the
Westerly boundary of said Section 16 to the Northerly boundary of said
Section 16;
Thence South 89 degrees 46'14" West, 945.00 feet along the Northerly
boundary of said Section 16 to THE POINT OF BEGINNING.
PARCEL NO. 3
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: That part of the NE 1/4NE 1/4, described as follows:
Beginning at the Northeast corner of Section 16;
Thence West along the North line of Section 16, a distance of 674 feet;
Thence South parallel with the East line of Section 16, 327 feet;
Thence East parallel with the North line of Section 16, 674 feet, more
or less, to the East line;
Thence North along said East line, 327 feet to THE POINT OF BEGINNING.
EXCEPTING THEREFROM the highway.
PARCEL NO. 4
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 20: SE 1/4SW 1/4; S 1/2SE 1/4;
Section 21: S 1/2SW 1/4; SW 1/4SE 1/4;
Section 28: All of Section 28;
Section 29: E 1/2NE 1/4; SE 1/4;
<PAGE>
Section 32: N 1/2NE 1/4;
Section 33: N 1/2NW 1/4; SE 1/4NW 1/4; NE 1/4;
EXCEPTING THEREFROM that part of the SE 1/4SE 1/4 of Section 28,
Township 9 South, Range 21, East of the Boise Meridian, Jerome County
Idaho, described as follows:
Commencing an the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79 degrees 00'21" West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING.
AND EXCEPTING THEREFROM that portion of the NE 1/4SE 1/4 of Section 28,
described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North boundary of the NE 1/4SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4; 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4SE 1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75
feet to THE TRUE POINT OF BEGINNING.
PARCEL NO. 5
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 16: S 1/2;
EXCEPTING THEREFROM the highway.
PARCEL NO. 6:
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 17: SW 1/4NW 1/4; NW 1/4SW 1/4;
Section 18: N 1/2SE 1/4; E 1/2SW 1/4; SW 1/4SE 1/4;
PARCEL NO. 7
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 22: SE 1/4SW 1/4; S 1/2SE 1/4;
<PAGE>
Section 27: E 1/2; NW 1/4SW 1/4; S 1/2NW 1/4; NW 1/4NW 1/4; S 1/2SW 1/4;
NE 1/4SW 1/4, EXCEPTING THEREFROM the following described parcel of
land:
From a Point of Beginning located 714.75 feet, more or less, North from
the Southwest corner of Section 27, to the point of intersection of
said Section line or County road center line with the North boundary of
the Oregon Short Line Railroad North Side Branch right of way;
Thence running North along the Section line or center line of said
County road, 275.27 feet;
Thence North 78 degrees 46' East and parallel to the said railroad right
of way center line, 2691.57 feet, more or less, to the point of
intersection with the North-South mid-section line;
Thence South along said mid-section line 275.27 feet, more or less, to
the point of intersection with the North railroad right-of way
boundary;
Thence South 78 degrees 46' West and along said North railroad right of
way boundary, 2691.57 feet, more or less, to THE POINT OF BEGINNING.
AND EXCEPTING THEREFROM railroad rights of way.
TOGETHER WITH a permanent easement and right of way, including the
perpetual right to enter upon the excepted portion of the above
described property in the SW 1/4 of Section 27, Township 9South, Range
21, East of the Boise Meridian, for the purpose of constructing,
maintaining and repairing underground pipelines for irrigation water as
set forth in Easement Agreement recorded May 15, 1963 in Book 174 Page
53 as Instrument Number 154714, Jerome County records.
Section 34: N 1/2NW 1/4; N 1/2NE 1/4;
PARCEL NO. 8
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 27: NE 1/4NW 1/4;
PARCEL NO. 9
TOWNSHIP 9 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 28: That part of the SE 1/4SE 1/4, described as follows:
Commencing at the Southeast corner of said Section 28;
Thence North 0 degrees 02' West along the East boundary of said Section
28, 395.59 feet;
Thence South 79 degrees 00'21" West, 485.62 feet to THE TRUE POINT OF
BEGINNING;
Thence continuing South 79 degrees 00'21 West, 154.50 feet;
Thence North 10 degrees 59'39" West, 55.00 Feet;
Thence North 79 degrees 00'21" East, 154.50 feet;
Thence South 10 degrees 59'39" East, 55.00 feet to THE TRUE POINT OF
BEGINNING.
<PAGE>
AND
That portion of the NE 1/4SE 1/4, described as follows:
Beginning at the East quarter corner of said Section 28, which point
shall be known as THE TRUE POINT OF BEGINNING;
Thence West along the North Boundary of the NE 1/4SE 1/4, 909.75 feet;
Thence South parallel to the East boundary of the NE 1/4SE 1/4, 909.75
feet;
Thence East parallel to the North boundary of the NE 1/4SE 1/4, 909.75
feet to a point on the East boundary of the NE 1/4SE 1/4;
Thence North along the East boundary of the NE 1/4SE 1/4, 909.75 feet to
THE TRUE POINT OF BEGINNING.
PARCEL NO. 10
TOWNSHIP 8 SOUTH, RANGE 21, EAST OF THE BOISE MERIDIAN, JEROME COUNTY, IDAHO
Section 32: E1/2SE1/4;
Section 33: N1/2SW1/4; S1/2NW1/4; S1/2NE1/4;
EXCEPTING THEREFROM the highway.
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-07801, Priority Date
August 24,1978."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08015, Priority Date
December 24, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08012."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-02254, Priority Date
March 16, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02284, Priority Date May
16, 1955."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-07688, Priority Date
April 6, 1977."
<PAGE>
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-02249, Priority Date
March 5, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02248, Priority Date
March 5, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-14601, Priority Date
December 31, 1954."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08011B, Priority Date
December 24,1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. A36-08008, Priority Date
December 8, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02430, Priority Date
April 21, 1960."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08004, Priority Date
October 19, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02319, Priority Date May
11, 1957."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08003, Priority Date
December 8, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02424, Priority Date
March 10, 1960."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. G-28496, Priority Date March
10, 1960."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-07351, Priority Date July
16, 1973."
<PAGE>
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02310, Priority Date
November 20, 1956."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-08005, Priority Date
December 8, 1981."
"Together with all water rights appurtenant to this property and all wells and
equipment used for irrigation, stockwater, commercial and domestic uses on said
land including, but not limited to, Water Right No. 36-02376, Priority Date
February 20, 1959."
<PAGE>
MODIFICATION TO NOTE AND LOAN AGREEMENT DATED JUNE 23, 1995 AND
ADDRESSED IN THE RESTATEMENT, AMENDMENT AND ASSUMPTION AGREEMENT DATED MARCH 20,
1997 PERTAINING TO FARM CREDIT BANK OF WICHITA (FCBW) LOAN 2371719.
The above stated Note and Loan Agreement are amended as follows:
UNDER THE CATEGORY LABELED "FINANCIAL COVENANTS" (AND RELATED DEFINITIONS),
EXISTING COVENANTS ARE REPLACED WITH THE FOLLOWING:
Financial
Covenants: Borrower will comply with the following covenants and additional
requirements on a consolidated (including statements of Horizon
Organic Holding Corporation, Horizon Organic Dairy, Inc., and
Sunrise Organic Farms, Inc.) basis utilizing Company's audited,
accrual, cost basis balance sheet prepared as of the end of the
Company's fiscal year end by a firm of recognized certified
public accountants:
Minimum Current Ratio: 1.15:1.00
---------------------
Minimum Working Capital: 4,500,000
-----------------------
In the event the Maryland Dairy is financed, the minimum working
capital will increase to $6,500,000.
Maximum Total Liability to Owner Equity Ratio: 2.00:1.00
---------------------------------------------
Minimum Tangible Owner Equity:
-----------------------------
$8.0 million plus 60% of the cumulative annual positive net
income, beginning with the fiscal year end financial results of
December 31, 1997.
For the purposes of financial covenant calculations, the
Revolving Line of Credit of First Bank Systems (or other
replacement lender) will be considered a Current Liability. All
livestock will be considered as a Current Asset. Prepaids will
not be considered as a Current or Tangible Asset unless used for
eligible feed inventory purchases. For the purpose of tangible
net worth calculations, eligible subordinated debts will be
considered as a tangible net worth component.
UNDER THE CATEGORY LABELED "DEFINITIONS", EXISTING DEFINITIONS
ARE REPLACED WITH THE FOLLOWING:
Definitions: "Current Assets": All those Current Assets reported on the May,
---------------
30, 1997 Internal Balance Sheet report as completed by Sunrise
Organic Farms, Inc. and all those Current Assets reported on the
May 24, 1997 Internal Balance Sheet report as completed by Horizon
Organic Farm, Inc. and similar Current Assets shown on a balance
sheet dated June 30, 1997 (to be submitted to FCS) by Horizon
Organic Holding Corporation after eliminating all inter company
items and otherwise computed in accordance with generally accepted
accounting principles.
"Current Liabilities": Current liabilities of the Company
-------------------
constituting Moneys borrowed from commercial banks or other
persons evidenced by a promissory note or other like written
obligation to pay money or other obligations of the Company, which
must be paid or satisfied within one year, specifically excluding
subordinated liabilities due stockholders and after eliminating
all inter company items and otherwise computed in accordance with
generally accepted accounting principles.
<PAGE>
"Firm of Recognized Certified Public Accountants": Refers to a firm
-----------------------------------------------
of certified public accountants satisfactory to FCS, if and so long
as such firm is independent with respect to the Person or Persons
whose financial statements are being examined by it.
"Total Liability": All liabilities of the Company constituting
---------------
Moneys borrowed from commercial banks or other persons evidenced by
a promissory note or other like written obligation to pay money or
other unwritten obligations of the Company, which must be paid or
satisfied, specifically excluding subordinated liabilities.
"Net Income": For any Person for any period, the Net Income of such
Person for such period determined in accordance with generally
accepted accounting principles, but excluding therefrom: (1) any
income of any Person other than such Person unless such earnings
are actually received in cash, (2) any gain/loss arising from the
sale of capital assets (not in the ordinary course of business) or
from any extraordinary or unusual items, and (3) any pre-acquired,
pre-merger income of any Person acquired by or merged into such
Person.
"Working Capital": At any date, the amount by which Current Assets
exceed Current Liabilities.
"Current Ratio": The ratio derived by dividing Current Assets by
-------------
Current Liabilities.
"Person": Any individual, corporation, partnership, joint venture,
------
trust estate, unincorporated organization, governmental body
"Restricted Investment": Any investment other than the following:
---------------------
(1) investments existing at the time of closing; (2) obligations of
the United States government maturing within one year from the date
of acquisition; (3) certificates of deposit maturing within one
year from the date of acquisition issued by a commercial bank that
is a member of the Federal Reserve System; and (4) commercial paper
issued by any corporation organized under the laws of the United
States of America or any state thereof of the District of Columbia
(a) having a net worth of not less than $100 million, (b) rated in
the highest category by Moody's or Standard & Poor's, and (c)
maturing within 270 days from the date of acquisition.
"Restricted Payment": Any payment or the incurrence of any
------------------
liability to make any payment in cash, property, or other assets in
respect of any share held by any partner of the Company, including
without limiting the generality of the foregoing, payments as
partner draws/dividends (including draws/dividends to reimburse
shareholders for any tax liability resulting from taxable income
being allocated to them by the Company) and payment for the purpose
of purchasing, retiring, or redeeming any partners share.
"Owner Equity": The ratio of Tangible Assets less Total Liabilities
------------
of the Company divided by tangible assets.
"Tangible Assets": Assets of the Company except assets such as
---------------
goodwill, patents, and similar assets of any intangible nature.
"Deferred Income Tax Liability": Are those deferred income tax
-----------------------------
liabilities identified as current, intermediate, or long-term that
are not due within one year from the date of the balance sheet's
date.
"Company": Refers to the consolidated operations of Sunrise Organic
-------
Farms, Inc., Horizon Organic Dairy, Inc., and Horizon Organic
Holding Corporation.
"Maryland Dairy": Refers to an operating dairy located in the State
--------------
of Maryland and having at least 600 cow capacity, which is under
present consideration for acquisition by the Company.
"FCS": Refers to Farm Credit Bank of Wichita and/or the Farm
---
Credit Services of the Mountain Plains, FLBA.
<PAGE>
The undersigned understand and agree to the modifications stated above.
SUNRISE ORGANIC FARMS, INC.
By: /s/ Barnet M. Feinblum 8/11/97
---------------------- -------
Date
Title: President
--------------------
MARCUS B. PEPERZAK, An Individual
/s/ Marcus B. Peperzak 8/11/97
--------------------------- -------
Date
HORIZON ORGANIC DAIRY, INC.
By: /s/ Don Gaidano 8/11/97
------------------------ -------
Date
Title: CFO-VP
---------------
The undersigned, being the parent of the above-signing corporations and being
fully advised of the premises and obligations herein concerned and for good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, does hereby assume and undertake the obligations, for the payment
of principal and interest and the performance of covenants, of the Note and Loan
Agreement dated June 23, 1995 and addressed in the Restatement, Amendment and
Assumption Agreement dated March 20, 1997, pertaining to Farm Credit Bank of
Wichita loan #237179 and this Modification thereof, as a co-maker as fully as if
the undersigned was an original maker thereof.
HORIZON ORGANIC HOLDING CORPORATION
By: Don Gaidano 8/11/97
---------------------- -------
Date
Title: CFO-VP
------
<PAGE>
EXHIBIT 10.12
================================================================================
ASSET PURCHASE AGREEMENT
between:
HORIZON ORGANIC HOLDING CORPORATION,
a Delaware corporation
and
WORCESTER CREAMERIES CORP.,
a New York corporation,
_______________________________
DATED AS OF APRIL 8, 1998
_______________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Sale of Assets; Related Transactions...................................... 1
1.1 Sale of Assets...................................................... 1
1.2 Purchase Price...................................................... 1
1.3 Closing............................................................. 2
1.4 Proration........................................................... 3
2. Representations and Warranties of the Seller.............................. 3
2.1 Due Organization; No Subsidiaries; Etc.............................. 3
2.2 Financial Statements................................................ 3
2.3 Absence of Changes.................................................. 3
2.4 Title to Assets..................................................... 4
2.5 Customers........................................................... 4
2.6 Proprietary Assets.................................................. 4
2.7 Contracts........................................................... 6
2.8 Liabilities......................................................... 6
2.9 Compliance With Legal Requirements.................................. 6
2.10 Governmental Authorizations......................................... 7
2.11 Insurance........................................................... 8
2.12 Proceedings; Orders................................................. 8
2.13 Authority; Binding Nature of Agreements............................. 8
2.14 Non-Contravention; Consents......................................... 8
2.15 Brokers............................................................. 9
2.16 Products............................................................ 9
2.17 Organic Claims...................................................... 9
2.18 Coupons and Promotions.............................................. 10
2.19 Inventory........................................................... 10
3. Representations and Warranties of the Purchaser........................... 10
3.1 Due Organization; Subsidiaries...................................... 10
3.2 Authority; Binding Nature of Agreements............................. 10
3.3 Non-Contravention; Consents......................................... 11
3.4 Brokers............................................................. 11
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
4. Indemnification, etc..................................................... 11
4.1 Survival of Representations and Covenants........................... 11
4.2 Indemnification by the Seller....................................... 12
4.3 Indemnification by Purchaser........................................ 13
4.4 Defense of Third Party Claims....................................... 14
4.5 Exercise of Remedies by Indemnitees Other Than Purchaser or Seller.. 15
5. Certain Additional Post-Closing Covenants................................ 15
5.1 Further Actions..................................................... 15
5.2 Publicity........................................................... 16
5.3 Use of Name......................................................... 16
5.4 Amendment Agreement................................................. 16
5.5 Qualification to do Business........................................ 16
6. Miscellaneous Provisions................................................. 17
6.1 Further Assurances.................................................. 17
6.2 Fees and Expenses................................................... 17
6.3 Attorneys' Fees..................................................... 17
6.4 Notices............................................................. 17
6.5 Time of the Essence................................................. 18
6.6 Headings............................................................ 18
6.7 Counterparts........................................................ 18
6.8 Governing Law....................................................... 18
6.9 Successors and Assigns; Parties in Interest......................... 19
6.10 Remedies Cumulative; Specific Performance........................... 19
6.11 Waiver.............................................................. 19
6.12 Amendment........................................................... 20
6.13 Severability........................................................ 20
6.14 Entire Agreement.................................................... 20
6.15 Construction........................................................ 20
</TABLE>
ii.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into as of April 8, 1998, by and
between: HORIZON ORGANIC HOLDING CORPORATION, a Delaware corporation (the
"PURCHASER") and WORCESTER CREAMERIES CORP., a New York corporation and a
successor by merger to Mountainside Farms, Inc. (the "SELLER"). Certain
capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
A. The Seller is engaged in the manufacture and/or wholesale distribution
of organic dairy products, including milk products, orange juice and eggs (the
"JUNIPER VALLEY FARMS DAIRY BUSINESS") which it sells under the "Juniper Valley
Farms" brand name (the "BRAND");
B. The Seller has relationships with producers, processors and customers
for the production, processing and distribution of products for the Juniper
Valley Farms Dairy Business; and
C. The Seller wishes to provide for the sale of the Brand and other
assets of the Juniper Valley Farms Dairy Business to Purchaser and for Purchaser
to enter into a long-term processing and distribution agreement with the Seller
on the terms set forth in this Agreement, with the expectation that the
Purchaser will use such assets to carry on the Juniper Valley Farms Dairy
Business.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. SALE OF ASSETS; RELATED TRANSACTIONS
1.1 SALE OF ASSETS. The Seller shall sell, assign, transfer, convey and
deliver to the Purchaser, at the Closing (as defined below), good, valid and
marketable title to the Assets free of any Encumbrances (other than the Assumed
Liabilities) on the terms and subject to the conditions set forth in this
Agreement.
1.2 PURCHASE PRICE. As consideration for the sale of the Assets to the
Purchaser:
(a) at the Closing, the Purchaser shall pay to the Seller, in cash,
$2,000,000;
(b) at the Closing, in addition to the amount paid to the Seller
under Section 1.2(a), the Purchaser shall deliver a Secured Promissory Note in
the principal amount of $4,000,000 with a maturity date 90 days after the
Closing, in substantially the form of Exhibit B (the "NOTE");
(c) at the Closing, the Purchaser shall assume the Assumed
Liabilities by delivering to the Seller a Bill of Sale and Assignment and
Assumption in substantially the form of Exhibit C;
1.
<PAGE>
(d) at the Closing, the Purchaser shall enter into the Processing
Agreement and the Exclusivity and Distribution Agreement with the Seller in
substantially the forms of Exhibit D1 and D2 (the "PROCESSING AGREEMENT" and the
"EXCLUSIVITY AND DISTRIBUTION AGREEMENT"); and
(e) at the Closing, the Purchaser shall execute and deliver to the
Seller a Security Agreement (the "SECURITY AGREEMENT") and Intellectual Property
Assignment (the "INTELLECTUAL PROPERTY ASSIGNMENT"), in substantially the forms
of Exhibits E1 and E2.
1.3 CLOSING.
(a) The closing of the sale of the Assets to the Purchaser (the
"CLOSING") is taking place contemporaneously with the execution and delivery of
this Agreement simultaneously at the offices of Cooley Godward LLP in Boulder,
Colorado and the offices of Winick & Rich P.C. in New York, New York, at 10:00
a.m. M.T. on April 8, 1998 (the "CLOSING DATE").
(b) At the Closing:
(i) the Seller shall execute and deliver to the Purchaser such
bills of sale, endorsements, assignments and other documents and records as may
(in the reasonable judgment of the Purchaser or its counsel) be necessary or
appropriate to assign, convey, transfer and deliver to the Purchaser the Assets
as contemplated by this Agreement, including such trademark assignments as the
Purchaser shall reasonably request;
(ii) the Purchaser shall pay to the Seller $2,000,000 in cash
by wire transfer as contemplated by Section 1.2(a);
(iii) the Purchaser shall deliver the Note as contemplated by
Section 1.2(b);
(iv) the parties hereto shall execute and deliver the Bill of
Sale and Assignment and Assumption;
(v) the parties hereto shall execute and deliver the Security
Agreement and the Intellectual Property Assignment;
(vi) the Purchaser and the Seller shall execute and deliver the
Processing Agreement and the Exclusivity and Distribution Agreement;
(vii) the Seller shall deliver amendments to the contracts from
each of its organic farm milk suppliers set forth on Part 2.7 of the Disclosure
Schedule which state that should antibiotics be used on any cow in their herds,
they will remove such cow from the milk supply for a period of 90 days (each an
"AMENDMENT AGREEMENT");
(viii) the Purchaser shall deliver to the Seller the guarantees
(the "GUARANTEES") of Horizon Organic Dairy, Inc.; Horizon Organic Dairy, Idaho
Farm, Inc.; and Horizon Organic Dairy, Maryland Farm, Inc., subsidiaries of
Purchaser, substantially in the form
2.
<PAGE>
of Exhibits F1, F2 and F3, for the purpose of securing Purchaser's obligation to
Seller under the Note; and
(ix) the Purchaser shall execute and deliver to the Seller such
Uniform Commercial Code Financing Statements (forms UCC-1) as Seller shall
reasonably request and prepare in order to memorialize Purchaser's grant to
Seller of the security interest contemplated hereby.
1.4 PRORATION. The following items shall be prorated between the parties
as of the Closing insofar as reasonably possible, such that expenses relating to
the time period up to and including the Closing shall be allocated to the Seller
and expenses relating to the time period after the Closing shall be allocated to
the Purchaser: Milk Assessments, pooling charges, PEP organic milk premiums (and
other promotion assessments, audit adjustments and any other similar fees).
Such prorations may be based upon estimates, to the extent necessary, and shall
be subject to subsequent adjustment upon the determination of the actual amounts
of such expenses. To the extent practicable, the Purchaser and the Seller shall
settle and make payment for the proportions within forty-five (45) days of
Closing.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants only with respect to the Juniper Valley
Farms Dairy Business, to and for the benefit of the Indemnitees, that, except as
set forth in the Disclosure Schedule:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC. The Seller is a corporation
duly incorporated and organized, validly existing and in good standing under the
laws of the State of New York. The Seller does not have any subsidiaries, and
does not own, beneficially or otherwise, any shares or other securities of, or
any direct or indirect interest of any nature in, any other Entity.
2.2 FINANCIAL STATEMENTS. The Seller has delivered to the Purchaser the
following financial statements and financial information: the profit and loss
statement for the period April 1, 1997 to December 31, 1997, and sales
information for the month ended January 1998. The financial statements referred
to in this Section 2.2 are accurate and complete in all material respects and
present fairly the financial position of the Seller as of the respective dates
thereof and the results of operations of the Seller for the periods covered
thereby, provided, however, it is understood that such financial statements
reflect certain inter-company and related party transactions and expense sharing
and may not be reflective of Seller's business following its sale of the Assets
contemplated hereby. On or before May 15, 1998, the Seller shall deliver to the
Purchaser sales information for the months ended February 1998 and March 1998.
The Seller has also delivered to the Purchaser the accounts receivable aging,
accounts payable and inventory for the periods as of February 28, 1998 and as of
April 7, 1998.
2.3 ABSENCE OF CHANGES. Except as set forth in Part 2.3 of the Disclosure
Schedule, since January 1, 1997:
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(a) there has not been any material adverse change in, and no event
has occurred that has had a material adverse effect on, the business, condition,
assets, liabilities, operations, financial performance or net income of the
Seller taken as a whole;
(b) the Seller has not sold or otherwise transferred, or leased or
licensed, any asset (including any Proprietary Asset) to any other Person other
than the sale of inventory in the Ordinary Course of Business;
(c) the Seller has not entered into any transaction or taken any
other action outside the Ordinary Course of Business other than the transactions
contemplated hereby; and
(d) the Seller has not agreed, committed or offered (in writing or
otherwise) to take any of the actions referred to in clauses "(b)" or "(c)"
above.
2.4 TITLE TO ASSETS. The Seller owns, and has good, valid and marketable
title to, all of the Assets free and clear of any Encumbrances (other than
Permitted Encumbrances). Part 2.4 of the Disclosure Schedule identifies all of
the Assets that are being leased or licensed to the Seller. The Assets will
collectively constitute, as of the Closing Date, substantially all of the
properties, rights, interests and other tangible and intangible assets necessary
to enable the Purchaser to conduct the Juniper Valley Farms Dairy Business in
the manner in which such business currently is being conducted. The Assets do
not include any trucks or warehouses used in the Juniper Valley Farms Dairy
Business.
2.5 CUSTOMERS. The Seller has previously delivered an accurate and
complete breakdown of the revenues received from, Seller's major Juniper Valley
Farms Dairy Business customers for the periods April 1996 through March 1997 and
April 1997 through December 1997, respectively. To the best of Seller's
President's knowledge, the Seller has not received any notice or other
communication (in writing or otherwise), or any other information, indicating
that any customer or other Person identified or required to be identified
intends to cease dealing with the Seller.
2.6 PROPRIETARY ASSETS.
(a) Part 2.6(a)(1) of the Disclosure Schedule identifies and provides
a brief description of each of the following Proprietary Assets owned by the
Seller: each trademark (whether registered or unregistered) trademark
application, trade name, trade dress, fictitious business name, service mark
(whether registered or unregistered), service mark application, and advertising,
generally (whether registered or unregistered), copyright application. Part
2.6(a)(2) of the Disclosure Schedule identifies and provides a brief description
of each Proprietary Asset that is owned by any other Person and that is licensed
to or used by the Seller (except for any Proprietary Asset that is licensed to
the Seller under any third party software license that (i) is generally
available to the public, and (ii) imposes no future monetary obligation on the
Seller).
(b) The Seller has good, valid and marketable title to all of the
Proprietary Assets identified in Part 2.6(a)(2) of the Disclosure Schedule free
and clear of all Encumbrances (other than Permitted Encumbrances). Except for
any Proprietary Asset identified in Part 2.6(a)(2) of the Disclosure Schedule,
the Seller has sufficient title to all formulations, processes, techniques,
trade secrets, know-how, franchises, systems, computer software, inventions,
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designs, blueprints, engineering drawings, proprietary products, technology,
proprietary rights and other intellectual property rights and intangible assets
that are currently being used by the Seller or that have been used by the Seller
in order to: (a) allow the Seller to conduct its Juniper Valley Farms Dairy
Business in the manner in which such business currently is being conducted and
(b) convey such Proprietary Assets to the Purchaser such that the Purchaser can
conduct its Juniper Valley Farms Dairy Business in a similar fashion. No Person
who was involved in or who contributed in any manner to the creation or
development of any Proprietary Asset that currently is being, or in the past
five years has been, used in the operation of the Seller's business has any
rights in any such Proprietary Asset.
(c) To the best knowledge of the President of Seller, Seller has not
received any communication alleging that the Seller does not have a valid right
to use or otherwise exploit, or to license others to use or otherwise exploit,
all Proprietary Assets. Except as set forth in Part 2.6(c)(1) of the Disclosure
Schedule, the Seller is not obligated under any Contract, and, to the best of
the knowledge of the Seller, is not obligated, to make any payment to any Person
for the use or other exploitation of any Proprietary Asset. Except as set forth
in Part 2.6(c)(2) of the Disclosure Schedule, the Seller is free to use, modify,
copy, distribute, sell, license or otherwise exploit each of the Proprietary
Assets on an exclusive basis (other than Proprietary Assets consisting of
software licensed to the Seller under third party licenses generally available
to the public, with respect to which the Seller's rights are not exclusive).
(d) The Seller has not received any written communication (other than
the correspondence from the United States Patent and Trademark Office, a copy of
which has been provided to Purchaser) alleging that: (i) any trademark, service
mark or copyright that is registered with any Governmental Body and held by the
Seller is not valid or subsisting; (ii) any of the Proprietary Assets infringes
or conflicts with any Proprietary Asset owned or used by any other Person; (iii)
the Seller is infringing, misappropriating or making any unlawful use of, or
that the Seller has at any time infringed, misappropriated or made any unlawful
use of, any Proprietary Asset owned or used by any other Person; or (iv) any
other Person is infringing, misappropriating or making any unlawful use of, or
that any Proprietary Asset owned or used by any other Person infringes or
conflicts with, any of Proprietary Asset of Seller. The Seller has not received
any written communication alleging any possible or potential infringement,
misappropriation or unlawful use of any Proprietary Asset owned or used by any
other Person by the Seller.
(e) The Seller's Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Seller to conduct its Juniper Valley Farms Dairy
Business in the manner in which such business currently is being, or has been,
conducted. The Seller has not licensed any of its Proprietary Assets to any
Person. The Seller has not entered into any covenant not to compete or Contract
limiting its ability to exploit fully any of its Proprietary Assets or to
transact business in any market or geographical area or with any Person. The
Seller has, and the Purchaser will acquire at the Closing, the right to use (i)
the names "Juniper Valley Farms" and "Juniper Valley" and (ii) the other names
and marks identified in Parts 2.6(a)(1) and 2.6(a)(2) of the Disclosure
Schedule.
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2.7 CONTRACTS.
(a) Part 2.7 of the Disclosure Schedule sets forth a copy of each of
Seller's written Contracts as they relate to the Seller's Juniper Valley Farms
Dairy Business. Each such written Contract is valid and in full force and
effect to the best of Seller's knowledge.
(b) Except as set forth in Part 2.7 of the Disclosure Schedule, the
Seller has not materially violated or breached, or declared or committed any
default under, any of Seller's written Contracts; and, to the best of the
knowledge of the Seller, no other Person has violated or breached, or declared
or committed any default under, any of Seller's written Contracts. No event has
occurred, and no circumstance or condition exists, that might (with or without
notice or lapse of time) (A) result in a violation or breach of any of the
material provisions of any of Seller's written Contracts by the Seller, except
for claims under brokerage contracts not being assumed by Purchaser, (B) to the
best of Seller's knowledge, give any Person the right to declare a default or
exercise any remedy under any of Seller's written Contracts, (C) to the best of
Seller's knowledge, give any Person the right to accelerate the maturity or
performance of any of Seller's written Contracts, or (D) to the best of Seller's
knowledge, give any Person the right to cancel, terminate or modify any of
Seller's written Contracts. The Seller has not received any notice or other
communication (in writing or otherwise) regarding any actual, alleged, possible
or potential violation or breach of, or default under, any of Seller's written
Contract. The Seller has not waived any right under any of Seller's written
Contracts.
(c) The Seller's written Contracts provided in Part 2.7 of the
Disclosure Schedule have not been renegotiated.
2.8 LIABILITIES.
(a) The Seller has paid all Milk Assessments of the Seller imposed on
its production or processing operations for the period from January 1, 1998 to
March 31, 1998.
(b) The Seller has paid all trade concessions on guaranteed sales and
spoilage granted for the period from January 1, 1998 to March 31, 1998.
(c) To the best of Seller's President's knowledge, the Seller has not
received any notice or other communication (in writing or otherwise) from any
Person regarding any actual, alleged, possible or potential product liability
claim.
(d) The Seller has paid all co-op and handling fees which it was
required to pay for the period from January 1, 1998 to March 31, 1998.
2.9 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in Part 2.9
of the Disclosure Schedule: (a) the Seller is in compliance in all material
respects with each Legal Requirement that is applicable to it or to the conduct
of Seller's Juniper Valley Farms Dairy Business or the ownership or use of any
of the Assets; provided however, that the Seller may not be qualified or
licensed in every state in which the conduct of their business would require
them to so qualify or be licensed; (b) to the best of Seller's knowledge, no
event has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) constitute or result directly or indirectly in
a violation by the Seller of, or a failure on the part of the Seller to
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comply with, any material Legal Requirement; and (c) to the best of Seller's
President's knowledge, the Seller has not received any notice or other
communication (in writing or otherwise) from any Governmental Body or any other
Person regarding (i) any actual, alleged, possible or potential violation of, or
failure to comply with, any material Legal Requirement, or (ii) any actual,
alleged, possible or potential obligation on the part of the Seller to
undertake, or to bear all or any portion of the cost of, any cleanup or any
remedial, corrective or response action of any material nature. The Seller has
delivered to the Purchaser an accurate and complete copy of each report, study,
survey or other document to which the Seller has access that addresses or
otherwise relates to the compliance of the Seller with, or the applicability to
the Seller of, any Legal Requirement.
2.10 GOVERNMENTAL AUTHORIZATIONS. Part 2.10 of the Disclosure Schedule
identifies each Governmental Authorization that is material to the Seller's
Juniper Valley Farms Dairy Business. The Seller has delivered to the Purchaser
accurate and complete copies of all of the Governmental Authorizations
identified in Part 2.10 of the Disclosure Schedule, including all renewals
thereof and all amendments thereto. Each Governmental Authorization identified
or required to be identified in Part 2.10 of the Disclosure Schedule is valid
and in full force and effect. Except as set forth in Part 2.10 of the
Disclosure Schedule: (i) the Seller is, and has been, in compliance in all
material respects with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Part 2.10 of the
Disclosure Schedule; (ii) to the best of the knowledge of the Seller, no event
has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a violation of or a failure to comply by the Seller with any material term or
requirement of any Governmental Authorization identified or required to be
identified in Part 2.10 of the Disclosure Schedule, or (B) result directly or
indirectly in the revocation, withdrawal, suspension, cancellation, termination
or modification of any Governmental Authorization identified or required to be
identified in Part 2.10 of the Disclosure Schedule; (iii) to the best of
Seller's President's knowledge, the Seller has not received any notice or other
communication (in writing or otherwise) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or potential violation of or
failure to comply with any material term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization; and (iv) all applications required to have
been filed for the renewal of the Governmental Authorizations required to be
identified in Part 2.10 of the Disclosure Schedule have been duly filed on a
timely basis with the appropriate Governmental Bodies, and each other notice or
filing required to have been given or made with respect to such Governmental
Authorizations has been duly given or made on a timely basis with the
appropriate Governmental Body. The Governmental Authorizations identified in
Part 2.10 of the Disclosure Schedule constitute all of the material Governmental
Authorizations necessary (i) to enable the Seller to conduct its Juniper Valley
Farms Dairy Business in the manner in which such business currently is being, or
has been, conducted, and (ii) to permit the Seller to own and use its Assets in
the manner in which they are currently, and, have been, owned and used.
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2.11 INSURANCE. The Seller maintains for the direct or indirect benefit of
the Seller's Juniper Valley Farms Dairy Business, an insurance policy or
policies of not less than $5,000,000 in product liability coverage with an
insurance carrier that, to the best knowledge of the Seller, is solvent,
financially sound and reputable.
2.12 PROCEEDINGS; ORDERS. There is no pending Proceeding, and, to the best
of the knowledge of the Seller, no Person has threatened to commence any
Proceeding: (i) that involves the Seller, its Juniper Valley Farms Dairy
Business or that otherwise relates to or might affect the Juniper Valley Farms
Dairy Business of the Seller or any of the Assets; or (ii) that challenges, or
that may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the Transactions. To the best of the knowledge of the
Seller, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that might directly or indirectly give rise to or serve as
a basis for the commencement of any such Proceeding, other than notices
regarding product dating issues in New York City and Florida. There is no Order
to which the Seller's Juniper Valley Farms Dairy Business, or any of the Assets;
and no Related Party is subject to any Order that relates to the Seller's
Juniper Valley Farms Dairy Business or to any of the Assets. To the best of
the knowledge of the Seller, no employee of the Seller is subject to any Order
that may prohibit such officer or employee from engaging in or continuing any
conduct, activity or practice relating to the Juniper Valley Farms Dairy
Business of the Seller. To the best of the knowledge of the Seller, there is no
proposed Order that, if issued or otherwise put into effect, (i) may have a
material adverse effect on the business, condition, assets, liabilities,
operations, financial performance or net income of the Seller or on the ability
of the Seller to comply with or perform any covenant or obligation under any of
the Transactional Agreements, or (ii) may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the Transactions.
2.13 AUTHORITY; BINDING NATURE OF AGREEMENTS.
(a) The Seller has full corporate power and authority to enter into
and to perform its obligations under each of the Transactional Agreements to
which it is or may become a party; and the execution, delivery and performance
by the Seller of the Transactional Agreements to which it is or may become a
party have been duly authorized by all necessary corporate action on the part of
the Seller and its shareholders and board of directors. This Agreement
constitutes the legal, valid and binding obligation of the Seller, enforceable
against the Seller in accordance with its terms, except as enforcement may be
limited by applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights. Upon the execution of each of the other Transactional
Agreements at the Closing, each of such other Transactional Agreements to which
the Seller is a party will constitute the legal, valid and binding obligation of
the Seller and will be enforceable against the Seller in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy, insolvency
or other similar laws affecting creditors' rights.
2.14 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.14 of the
Disclosure Schedule, neither the execution and delivery of any of the
Transactional Agreements, nor the consummation or performance of any of the
Transactions, will directly or indirectly (with or without notice or lapse of
time):
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(a) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Seller, or any of the assets of the
Seller, is subject;
(b) cause any of the Assets to be reassessed or revalued by any
taxing authority or other Governmental Body;
(c) contravene, conflict with or result in a violation of any of the
material terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is to be included in the Assets or is held by
the Seller or any employee of the Seller;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any material provision of any Contract;
(e) give any Person the right to (i) declare a default or exercise
any remedy under any Contract, (ii) accelerate the maturity or performance of
any Contract, or (iii) cancel, terminate or modify any Contract; or
(f) result in the imposition or creation of any Encumbrance upon or
with respect to any of the Assets.
Except as set forth in Part 2.14 of the Disclosure Schedule, the Seller was
not, and will not be required to make any filing with or give any notice to, or
to obtain any Consent from, any Person in connection with the execution and
delivery of any of the Transactional Agreements or the consummation or
performance of any of the Transactions.
2.15 BROKERS. The Seller has not agreed or become obligated to pay, and
has taken no action that might result in any Person claiming to be entitled to
receive, any brokerage commission, finder's fee or similar commission or fee in
connection with any of the Transactions.
2.16 PRODUCTS. During the two years prior to the Closing Date, no product
manufactured or sold by the Seller under the Brand has been the subject of any
recall or other similar action; and no event has occurred, and to the best of
Seller's knowledge, no condition or circumstance exists, that might (with or
without notice or lapse of time) directly or indirectly give rise to or serve as
a basis for any such recall or other similar action relating to any such
product.
2.17 ORGANIC CLAIMS. With respect to each Organic Claim:
(a) All Organic Claims for products bearing the trademarks included
in the Proprietary Assets and/or manufactured, distributed or sold by the
Seller, at all times have been in strict compliance with the rules of the
Northeast Organic Farming Association of New
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York (with the exception of eggs which are certified under the New Hampshire
Department of Agriculture) (the "ORGANIC LAWS");
(b) The Seller has not received or become aware of any allegations by
governmental or private entities that its products do not conform with the
representations in subsection (a) hereinabove;
(c) The Seller has not received or is aware of any test, laboratory
results, pesticide residue samples or other data which substantiate or may
substantiate that any products of the Seller do not meet the representations
contained in subsection (a) hereinabove; and
(d) The Seller has retained, since inception, all records and
documentation necessary or mandated for retention to demonstrate compliance by
the Seller under subsection (a) hereinabove and the Seller has delivered to the
Purchaser copies of all certifications of the Organic Claims made under the
Organic Laws by Seller or relating to Seller's Juniper Valley Farms Dairy
Business.
2.18 COUPONS AND PROMOTIONS. No Promotion will continue beyond the Closing
Date other than those disclosed in Part 2.18 of the Disclosure Schedule.
2.19 INVENTORY. All inventory of the Seller to be purchased by the
Purchaser will be merchantable, fit for its intended purpose and neither
adulterated nor misbranded within the meaning of, and in full compliance with
the Federal Food Drug and Cosmetic Act of 1938, as amended, the Federal Fair
Packaging and Labeling Act of 1966, as amended, and any other applicable
federal, state or local food and drug, consumer safety or consumer protection
law or regulation and will comply with all other applicable state and local laws
and regulations. The finished goods inventory will be salable in the ordinary
course of business, will not be short-date coded (less than three month's code
date from the date of this Agreement), and will be labeled with labels which
will be currently usable.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants, to and for the benefit of the
Seller, as follows:
3.1 DUE ORGANIZATION; SUBSIDIARIES. The Purchaser is a corporation duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware and qualified to do business and in good standing in
those jurisdictions where the failure to so qualify would have a material
adverse effect on the Purchaser. Other than Horizon Organic Dairy, Inc.,
Horizon Organic Dairy, Idaho Farm, Inc., and Horizon Organic Dairy, Maryland
Farm, Inc., the Purchaser has no subsidiaries and does not own, beneficially or
otherwise, any shares or other securities of, or any direct or indirect interest
of any nature in, any other Entity.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENTS. The Purchaser has the
absolute and unrestricted corporate right, power and authority to enter into and
perform its obligations under this Agreement, and the execution and delivery of
this Agreement by the Purchaser have been duly authorized by all necessary
corporate action on the part of the Purchaser, its board of
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directors and its stockholders. The Purchaser has the absolute and unrestricted
right, power and authority to enter into and perform its obligations under all
Transactional Agreements to which it is a party, and the execution, delivery and
performance of such agreements by the Purchaser have been duly authorized by all
necessary action on the part of the Purchaser, its board of directors and its
stockholders. This Agreement constitutes the legal, valid and binding obligation
of the Purchaser, enforceable against it in accordance with its terms. Upon the
execution and delivery of the Transactional Agreements to which it is a party at
the Closing, such agreements will constitute the legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in accordance
with their terms.
3.3 NON-CONTRAVENTION; CONSENTS. Neither the execution and delivery of
any of the Transactional Agreements by the Purchaser, nor the consummation or
performance of any of the Transactions by the Purchaser, will directly or
indirectly (with or without notice or lapse of time) contravene, conflict with
or result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which the Purchaser is
subject. The Purchaser has not, is not, and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with the execution and delivery of any of the Transactional
Agreements by the Purchaser or the consummation or performance of any of the
Transactions by the Purchaser.
3.4 BROKERS. To the extent that the Purchaser has agreed to pay any
brokerage commission, finder's fee or similar commission or fee in connection
with any of the Transactions, it will be solely responsible for the payment of
such commission or fee.
4. INDEMNIFICATION, ETC
4.1 SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(a) The representations, warranties, covenants and obligations of
each party to this Agreement shall survive for the one year period immediately
following the Closing; provided, however, that if a Claim Notice relating to any
such representation, warranty or rights set forth in any of said Sections is
given to the Seller on or prior to the first anniversary of the Closing Date,
then, notwithstanding anything to the contrary contained in this Section 4.1,
such representation, warranty or rights shall not so expire, but rather shall
remain in full force and effect until such time as each and every claim
(including any indemnification claim asserted by any Indemnitee under Section
4.2) that is based directly or indirectly upon, or that relates directly or
indirectly to, any Breach or alleged Breach of such representation or warranty
or to such rights has been fully and finally resolved, either by means of a
written settlement agreement executed on behalf of the Seller and the Purchaser
or by means of a final, non-appealable judgment issued by a court of competent
jurisdiction.
(b) The representations, warranties, covenants and obligations of
each party hereto and the rights and remedies that may be exercised by the
Purchaser Indemnitees and the Seller Indemnitees, as the case may be, shall not
be limited or otherwise affected by or as a result of any information furnished
to, or any investigation made by or any knowledge of, any of the Seller or
Purchaser Indemnitees or any of their respective Representatives.
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(c) For purposes of this Agreement, a "Claim Notice" relating to a
particular representation or warranty shall be deemed to have been given if any
Indemnitee, acting in good faith, delivers to the Purchaser or Seller, as the
case may be, a written notice stating that such Indemnitee believes that there
is or has been a Breach of such representation or warranty and containing a
brief description of the circumstances supporting such Indemnitee's belief that
there is or has been such a Breach.
(d) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule shall be deemed to be a
representation and warranty made by the Seller or the Purchaser, as the case may
be, in this Agreement, and all of the Seller's and Purchaser's respective
representations and warranties contained in this Agreement shall be deemed
modified by the Disclosure Schedule provided by the Purchaser or the Seller,
respectively, to the extent provided in such Disclosure Schedule.
4.2 INDEMNIFICATION BY THE SELLER.
(a) Subject to Section 4.2(c), the Seller shall hold harmless and
indemnify each of the Purchaser Indemnitees from and against, and shall
compensate and reimburse each of the Purchaser Indemnitees for, any Damages that
are suffered or incurred by any of the Purchaser Indemnitees or to which any of
the Purchaser Indemnitees may otherwise become subject at any time (regardless
of whether or not such Damages relate to any third-party claim) and that arise
from or as a result of, or are connected with:
(i) any material Breach of any of the representations or
warranties made by the Seller in this Agreement or any of the other
Transactional Agreements;
(ii) any material Breach of any representation, warranty,
statement or information made by the Seller contained in the Disclosure
Schedule;
(iii) any Breach of any covenant or obligation of the Seller
contained in any of the Transactional Agreements;
(iv) any Liability of the Seller, other than the Assumed
Liabilities;
(v) any damage or injury to any Person or property (including
loss of use of any property) that occurred or began occurring, or which a third
party claims to have occurred or to have begun occurring, prior to the Closing
arising from or as a result of or connected with any product manufactured, sold
or distributed by the Seller prior to the Closing; or
(vi) any Proceeding commenced by any Purchaser Indemnitee for
the purpose of enforcing any of its rights under this Section 4.2 provided such
Purchaser Indemnitee is successful in such Proceeding.
(b) Subject to Section 4.2(c), the Seller shall not be required to
make any indemnification payment pursuant to Section 4.2(a) for any Breach of
the representations and warranties made by them in this Agreement or the
Disclosure Schedule until such time as the total amount of all Damages
(including the Damages arising from such Breach and all other
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Damages arising from any other Breaches of any representations or warranties)
that have been suffered or incurred by any one or more of the Purchaser
Indemnitees, or to which any one or more of the Indemnitees has or have
otherwise become subject, exceeds $60,000 in the aggregate. If the total amount
of such Damages exceeds $60,000 in the aggregate, the Purchaser Indemnitees
shall be entitled to be indemnified against and compensated and reimbursed for
all Damages exceeding $60,000 suffered or incurred by any one or more of the
Purchaser Indemnitees, or to which any one or more of the Purchaser Indemnitees
has or have otherwise become subject. In no event shall the Seller be required
to make any indemnification payment pursuant to Section 4.2(a) for any Breach of
any of its representations and warranties which exceeds $6,000,000 in the
aggregate.
(c) The limitation on the indemnification obligations of the Seller
that is set forth in Section 4.2(b) shall not apply in any instance in which it
is determined by a court of competent jurisdiction that the Seller has acted
fraudulently.
(d) Purchaser shall not be entitled to offset or otherwise deduct any
amounts due Purchaser from Seller hereunder against any amounts payable by
Purchaser to Seller under any agreement, including but not limited to the
Processing Agreement.
4.3 INDEMNIFICATION BY PURCHASER.
(a) Subject to Section 4.3(c), the Purchaser shall hold harmless and
indemnify each of the Seller Indemnities from and against, and shall compensate
and reimburse each of the Seller Indemnities for, any Damages that are suffered
or incurred by any of the Seller Indemnitees or to which any of the Seller
Indemnitees may otherwise become subject at any time (regardless of whether or
not such Damages relate to any third-party claim) and that arise from or as a
result of, or are connected with:
(i) any failure on the part of the Purchaser to perform and
discharge the Assumed Liabilities on a timely basis;
(ii) any material Breach of any representation or warranty made
by the Purchaser in this Agreement or any of the Transactional Agreements to
which it is a party; or
(iii) any Proceeding commenced by any Seller Indemnitee for the
purpose of enforcing their rights under this Section 4.3 provided such Seller
Indemnitee is successful in such Proceeding.
(b) Subject to Section 4.3(c), the Purchaser shall not be required to
make any indemnification payment pursuant to Section 4.3(a) for any Breach of
any of the representations and warranties made by them in this Agreement or the
Disclosure Schedule until such time as the total amount of all Damages
(including the Damages arising from such Breach and all other Damages arising
from any other Breaches of any representations or warranties) that have been
suffered or incurred by any one or more of the Seller Indemnitees, or to which
any one or more of the Seller Indemnitees
13.
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have otherwise become subject, exceeds $60,000 in the aggregate. If the total
amount of such Damages exceeds $60,000 in the aggregate, the Seller shall be
entitled to be indemnified against and compensated and reimbursed for all
Damages suffered or incurred by any one or more of the Indemnitees, or to which
any one or more of the Seller Indemnitees has or have otherwise become subject.
In no event shall the Purchaser be required to make any indemnification payment
pursuant to Section 4.3(a) for any Breach of any of its representations and
warranties which exceeds $6,000,000 in the aggregate.
(c) The limitation on the indemnification obligations of the
Purchaser that is set forth in Section 4.3(b) shall not apply in any instance in
which it is determined by a court of competent jurisdiction that the Purchaser
has acted fraudulently.
(d) Notwithstanding anything to the contrary herein, the Seller
Indemnitees shall not be entitled to offset or otherwise deduct any amounts due
Seller from Purchaser hereunder against any other amounts payable by Purchaser
to Seller under any agreement, including but not limited to the Processing
Agreement.
4.4 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Proceeding (whether against the
Purchaser or Seller, against any other Purchaser or Seller Indemnitee or against
any other Person) with respect to which the Seller or the Purchaser, as the case
may be, may become obligated to indemnify, hold harmless, compensate or
reimburse any Purchaser or Seller Indemnitee pursuant to this Section 4, the
Purchaser or the Seller, as the case may be, shall have the right, at its
election, to designate the Purchaser or the Seller, as the case may be, to
assume the defense of such claim or Proceeding at the sole expense of the
Purchaser or the Seller, as the case may be. If the Purchaser or Seller so
elects to designate the Purchaser or the Seller, as the case may be, to assume
the defense of any such claim or Proceeding:
(a) the Purchaser or the Seller, as the case may be, shall proceed to
defend such claim or Proceeding in a diligent manner with counsel satisfactory
to the Purchaser or the Seller, as the case may be;
(b) the Purchaser or the Seller, as the case may be, shall make
available to the Seller or the Purchaser, as the case may be, any non-privileged
documents and materials in the possession of the Purchaser or the Seller, as the
case may be, that may be necessary to the defense of such claim or Proceeding;
(c) the Seller or the Purchaser, as the case may be, shall keep the
Purchaser or the Seller, as the case may be, informed of all material
developments and events relating to such claim or Proceeding;
(d) the Purchaser or the Seller, as the case may be, shall have the
right to participate in the defense of such claim or Proceeding;
(e) the Seller or the Purchaser, as the case may be, shall not
settle, adjust or compromise such claim or Proceeding without the prior written
consent of the Purchaser or the Seller, as the case may be, which may not be
unreasonably withheld; and
(f) the Purchaser or the Seller, as the case may be, may at any time
(notwithstanding the prior designation of the Seller or the Purchaser, as the
case may be, to assume the defense of such claim or Proceeding) assume the
defense of such claim or Proceeding.
14.
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If the Purchaser or the Seller, as the case may be, does not
elect to designate the Seller or the Purchaser, as the case may be, to assume
the defense of any such claim or Proceeding (or if, after initially designating
the Seller or the Purchaser, as the case may be, to assume such defense, the
Purchaser or the Seller, as the case may be, elects to assume such defense), the
Purchaser or the Seller, as the case may be, may proceed with the defense of
such claim or Proceeding on its own. If the Purchaser or the Seller, as the case
may be, so proceeds with the defense of any such claim or Proceeding on its own:
(i) the Purchaser or the Seller, as the case may be, shall
proceed to defend such claim or Proceeding in a diligent manner;
(ii) all reasonable expenses relating to the defense of such
claim or Proceeding shall be borne and paid exclusively by the Seller or the
Purchaser, as the case may be;
(iii) the Seller or the Purchaser, as the case may be, shall
make available to the Purchaser or the Seller, as the case may be, any documents
and materials in the possession or control of either of the Seller or the
Purchaser, as the case may be, that may be necessary to the defense of such
claim or Proceeding;
(iv) the Purchaser or the Seller, as the case may be, shall
keep the other party informed of all material developments and events relating
to such claim or Proceeding; and
(v) the Purchaser or the Seller, as the case may be, shall not
have the right to settle, adjust or compromise such claim or Proceeding without
the consent of the other party; provided, however, that the Purchaser or the
Seller, as the case may be shall not unreasonably withhold such consent.
4.5 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PURCHASER OR SELLER.
No Indemnitee (other than the Purchaser or the Seller or any successor thereto
or permitted assignee thereof) shall be permitted to assert any indemnification
claim or exercise any other remedy under this Agreement unless the Purchaser or
the Seller, as the case may be (or any successor thereto or permitted assignee
thereof) shall have consented to the assertion of such indemnification claim or
the exercise of such other remedy.
5. CERTAIN ADDITIONAL POST-CLOSING COVENANTS
5.1 FURTHER ACTIONS. From and after the Closing Date, the parties hereto
and their affiliates and Representatives shall cooperate with each other, and
shall execute and deliver such documents and take such other actions as the
other party may reasonably request, for the purpose of evidencing the
Transactions and putting the Purchaser in possession and control of all of the
Assets. Without limiting the generality of the foregoing, from and after the
Closing Date, the Seller shall promptly remit to the Purchaser any funds that
are received by the Seller and that are included in, or that represent payment
of receivables included in, the Assets. The Seller hereby irrevocably
nominates, constitutes and appoints the Purchaser as the true and lawful
attorney-in-fact of the Seller (with full power of substitution) effective as of
the Closing Date, and hereby authorizes the Purchaser, in the name of and on
behalf of the Seller, to execute, deliver, acknowledge, certify, file and record
any document, to institute and prosecute any Proceeding
15.
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and to take any other action (on or at any time after the Closing Date) that the
Purchaser may deem appropriate for the purpose of (i) collecting, asserting,
enforcing or perfecting any claim, right or interest of any kind that is
included in or relates to any of the Assets, (ii) defending or compromising any
claim or Proceeding relating to any of the Assets in accordance with the
provisions of Section 4 or (iii) otherwise carrying out or facilitating any of
the Transactions. The power of attorney referred to in the preceding sentence is
and shall be coupled with an interest and shall be irrevocable, and shall
survive the dissolution or insolvency of the Seller.
5.2 PUBLICITY.
(a) The Seller and Purchaser agree that, on and at all times after
the Closing Date, no press release or other publicity concerning any of the
Transactions shall be issued or otherwise disseminated by or on behalf of the
Seller or Purchaser without the other party's prior written consent. The Seller
and Purchaser agree to coordinate all press releases or other publicity with the
other party.
(b) The Seller shall ensure that, on and at all times after the
Closing Date, (i) the Seller continues to keep the terms of this Agreement and
the other Transactional Agreements strictly confidential; and (ii) the Seller
keeps strictly confidential, and the Seller shall not use or discloses to any
other Person, any non-public document or other information that relates directly
or indirectly to the business of the Seller, the Purchaser or any affiliate of
the Purchaser; provided, however, that the restrictions set forth in Subsections
5.2(b)(i) and 5.2(b)(ii) shall not apply to (A) any information that is or
becomes generally available to the public other than as a direct or indirect
result of the disclosure of any of such information by the Seller or any
Representative of the Seller; or (B) any information that the Seller is required
by law to disclose (provided that: (X) prior to the disclosure of such
information, the Seller provides the Purchaser with a reasonable opportunity to
seek a protective order or similar remedy with respect to such information, and
(Y) such information, if disclosed, is disclosed only to the extent required by
law).
5.3 USE OF NAME. Immediately after the Closing, the Seller shall not use
the words "Juniper Valley Farms" (or any similar words) or any other word
associated with the Juniper Valley Farms Dairy Business at any time prior to the
Closing Date, except for the purpose of assisting Purchaser with the transition
of the Juniper Valley Farms Dairy Business during the 30 days after the Closing.
Notwithstanding the foregoing, the Seller may use existing packaging for the
sale of organic eggs for the period of time which is the lesser of (a) the
number of days required to use up the existing packaging or (b) 120 days from
the Closing Date.
5.4 AMENDMENT AGREEMENT. To the extent that Seller is unable to deliver
the Amendment Agreements set forth in Section 1.3(b)(vii) above from a specific
organic farm milk producer, Seller agrees to remain responsible for purchasing
the milk from such producer pursuant to such unamended agreement. Purchaser
also shall assume any written Contract with producers who deliver Amendment
Agreements as provided by Section 1.3(b)(vii) hereof on or before April 30,
1998.
5.5 QUALIFICATION TO DO BUSINESS. Seller will qualify to do business in
any State where the Purchaser requests in order to enable Purchaser to prosecute
or defend a claim.
16.
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6. MISCELLANEOUS PROVISIONS
6.1 FURTHER ASSURANCES. Each party hereto shall execute and/or cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at, or after the Closing) for the purpose of carrying out or
evidencing any of the Transactions.
6.2 FEES AND EXPENSES.
(a) Subject to the provisions of Section 4 (including the
indemnification and other obligations of the Seller thereunder), the Seller
shall bear and pay all fees, costs and expenses (including all legal fees and
expenses payable to Winick & Rich, P.C.) that have been incurred or that are in
the future incurred by, on behalf of or for the benefit of the Seller in
connection with: (i) the negotiation, preparation and review of any letter of
intent or similar document relating to any of the Transactions; (ii) the
negotiation, preparation and review of this Agreement (including the Disclosure
Schedule), the other Transactional Agreements and all bills of sale,
assignments, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Transactions; (iii) the
preparation and submission of any filing or notice required to be made or given
in connection with any of the Transactions, and the obtaining of any Consent
required to be obtained in connection with any of the Transactions; and (iv) the
consummation and performance of the Transactions.
(b) Subject to the provisions of Section 4 (including the
indemnification and other obligations of the Seller thereunder), the Purchaser
shall bear and pay all fees, costs and expenses (including all legal fees and
expenses payable to Cooley Godward LLP) that have been incurred or that are in
the future incurred by or on behalf of the Purchaser in connection with: (i) the
negotiation, preparation and review of any letter of intent or similar document
relating to any of the Transactions; (ii) the investigation and review conducted
by the Purchaser and its Representatives with respect to the business of the
Seller; (iii) the negotiation, preparation and review of this Agreement, the
other Transactional Agreements and all bills of sale, assignments, certificates,
opinions and other instruments and documents delivered or to be delivered in
connection with the Transactions; and (iv) the consummation and performance of
the Transactions.
6.3 ATTORNEYS' FEES. If any legal action or other legal proceeding
relating to any of the Transactional Agreements or the enforcement of any
provision of any of the Transactional Agreements is brought against any party to
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
6.4 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
17.
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if to the Seller:
Worcester Creameries Corp.
155-04 Liberty Avenue
Jamaica, NY 11433
Facsimile: (718) 297-6385
Attn: Cyrus Schwartz, President
with a copy to:
Winick & Rich, P.C.
919 Third Avenue
New York, NY 10022
Facsimile: (212) 308-5945
Attn: Alan C. Winick, Esq.
if to the Purchaser:
Horizon Organic Holding Corporation
P.O. Box 17577
Boulder, Colorado 80308
Facsimile: (303) 530-6934
Attn: Barnet Feinblum, President and Chief Executive Officer
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302
Facsimile: (303) 546-4099
Attn: James C.T. Linfield, Esq.
6.5 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
6.6 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
6.7 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
6.8 GOVERNING LAW.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of New York (without
giving effect to principles of conflicts of laws).
18.
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(b) The Seller and Purchaser each agree that, if any Proceeding is
commenced against any Indemnitee by any Person in or before any court or other
tribunal anywhere in the world, then such Indemnitee may proceed against the
Seller or the Purchaser, as the case may be, in or before such court or other
tribunal with respect to any indemnification claim or other claim arising
directly or indirectly from or relating directly or indirectly to such
Proceeding or any of the matters alleged therein or any of the circumstances
giving rise thereto.
(c) Nothing in this Section 6.8 shall be deemed to limit or otherwise
effect the right of any Indemnitee to commence any legal proceeding or otherwise
against the Seller or the Purchaser, as the case may be, in any forum or
jurisdiction.
6.9 SUCCESSORS AND ASSIGNS; PARTIES IN INTEREST.
(a) This Agreement shall be binding upon: the Seller and its
successors and assigns (if any) and the Purchaser and its successors and assigns
(if any). This Agreement shall inure to the benefit of the Seller, the
Purchaser, the other Seller and Purchaser Indemnitees (subject to Section 4),
and the respective successors and assigns (if any) of the foregoing.
(b) The Purchaser shall be prohibited from assigning this Agreement
or any of its rights hereunder at any time while any amounts under the Note
remain outstanding. After all amounts under the Note have been paid in full, the
Purchaser may freely assign any or all of its rights under this Agreement
(including its indemnification rights under Section 4), in whole or in part, to
any other Person without obtaining the consent or approval of any other Person.
The Seller shall not be permitted to assign any of its rights or delegate any of
its obligations under this Agreement without the Purchaser's prior written
consent, which consent shall not be unreasonably withheld.
(c) Except for the provisions of Section 4 hereof, none of the
provisions of this Agreement is intended to provide any rights or remedies to
any Person other than the parties to this Agreement and their respective
successors and assigns (if any). Without limiting the generality of the
foregoing, no creditor of the Seller shall have any rights under this Agreement
or any of the other Transactional Agreements.
6.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. Except as set forth in
Section 4, the rights and remedies of the parties hereto shall be cumulative
(and not alternative). The Seller and the Purchaser agree that in the event of
any Breach or threatened Breach by the Seller or the Purchaser, as the case may
be, of any covenant, obligation or other provision set forth in this Agreement,
the Purchaser or the Seller, as the case may be, shall be entitled (in addition
to any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction restraining
such Breach or threatened Breach.
6.11 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or
19.
<PAGE>
remedy shall preclude any other or further exercise thereof or of any other
power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
6.12 AMENDMENT. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of the Purchaser and the Seller.
6.13 SEVERABILITY. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
6.14 ENTIRE AGREEMENT. The Transactional Agreements set forth the entire
understanding of the parties relating to the subject matter thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter thereof.
6.15 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
20
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The parties to this Agreement have caused this Agreement to be executed and
delivered as of the date first set forth above.
HORIZON ORGANIC HOLDING
CORPORATION,
a Delaware corporation
By: /s/ Barnet Feinblum
------------------------------------
Barnet Feinblum, President and Chief
Executive Officer
WORCESTER CREAMERIES CORP.,
a New York corporation,
By: /s/ Cyrus Schwartz
------------------------------------
Cyrus Schwartz, President
21
<PAGE>
EXHIBIT 10.13
AMENDED EXECUTIVE EMPLOYMENT AGREEMENT
HORIZON ORGANIC HOLDING CORPORATION, a Delaware corporation ("HOH" or the
"Company"), agrees with BARNET FEINBLUM ("Mr. Feinblum") as follows ("Employment
Agreement") effective the 1st day of January, 1998.
1. PURPOSE. Mr. Feinblum is currently the President and Chief Executive
Officer of HOH. Mr. Feinblum and HOH (as successor in interest to Horizon
Organic Dairy, Inc.) are parties to an Employment Agreement dated July 1, 1996.
The parties desire to amend and replace the terms of Mr. Feinblum's employment
by HOH in accordance with the terms and conditions set forth herein.
2. EMPLOYMENT. HOH hereby employs Mr. Feinblum, and Mr. Feinblum agrees to
be employed, as President and Chief Executive Officer of HOH. HOH may from time
to time designate other or additional titles for Mr. Feinblum as deemed
appropriate by the HOH Board of Directors, but HOH and Mr. Feinblum agree that
at all times during the term of this Employment Agreement Mr. Feinblum will be
employed as the President and Chief Executive Officer of HOH. In addition, the
Company shall use its best efforts to cause Mr. Feinblum to be elected to the
Company's Board of Directors so long as this Employment Agreement or any
extension hereof remains in effect.
3. DUTIES. During the term hereof, Mr. Feinblum will devote substantially
all of his full time and effort to the business of HOH. Mr. Feinblum shall have
the right to devote reasonable time to the management of his personal
investments and activities, participation in trade associations or other
organizations seeking to advance the cause of natural and/or organic foods, and
support of community activities; provided, however, that while employed with HOH
Mr. Feinblum shall not be employed by any other company, individual or entity on
a full or part-time basis nor shall he serve as an independent contractor or a
paid consultant. The parties intend that Mr. Feinblum's initial duties hereunder
shall primarily involve duties of the type normally associated with a senior
managerial position in an organization of the size and type of HOH. HOH may
modify, reduce and/or eliminate Mr. Feinblum's duties and objectives at its
reasonable discretion from time to time, provided that at no time will Mr.
Feinblum be required to perform duties or to meet objectives which are
inconsistent with or inappropriate for a member of senior management of HOH.
4. TERM. Unless otherwise terminated as set forth in paragraph 9 below,
the parties agree that this Employment Agreement shall continue in effect for a
period of 24 months from the Effective Date ("Employment Period"). Employment
with HOH shall terminate 24 months from the Effective Date unless otherwise
renewed. HOH will provide notice at least 90 days prior to the end of the
Employment Agreement as to whether it wishes to extend the Employment Agreement.
If it chooses to extend the Employment Agreement, its notice will include
provisions with respect to any increase in compensation or other changes which
would apply. Mr. Feinblum will have a period of 30 days after receipt of the HOH
notice to advise HOH of his decision to accept or reject the renewal. If HOH
proposes a renewal and if Mr. Feinblum agrees to the renewal, then the
Employment Agreement will be renewed for an additional term of 12 months, with
the initial renewal term therefore extending through December 31, 2000.
<PAGE>
5. BASE COMPENSATION. Mr. Feinblum shall receive compensation from HOH as
follows:
(a) Starting on the date hereof, a base salary at an annual rate of
$140,000; and
(b) Annual increases in base compensation shall be established by and
at the sole discretion of the Compensation Committee appointed by the Board of
Directors of HOH.
6. INCENTIVE COMPENSATION. Mr. Feinblum shall be entitled to receive
incentive compensation in accordance with an incentive plan established by the
Compensation Committee or the HOH Board of Director. Incentive compensation will
be based on both individual and corporate factors, but the factors applicable to
Mr. Feinblum will be consistent with those applicable to other members of senior
management. The corporate factors will typically be linked to net operating
income and gross sales. The maximum amount which may be awarded pursuant to the
incentive plan will be an amount equal to 90% of base salary.
7. BENEFITS. Mr. Feinblum will receive four weeks of paid vacation during
each year in which this Agreement remains in effect, plus such public holidays
as are generally recognized by businesses in Colorado, not to exceed 10 days per
year. Up to two weeks of unused vacation time may be carried over to any
subsequent year. Mr. Feinblum will be entitled to participate in any benefit
plans provided to employees of HOH, including health and dental insurance. HOH
shall also provide to Mr. Feinblum life insurance in the minimum amount of
$100,000, disability insurance providing at least 60% of Mr. Feinblum's covered
base salary or $7,000 per month (whichever amount is less), provided that Mr.
Feinblum qualifies for such insurance, and reimbursement of reasonable business
expenses in such manner as the Board of Directors of HOH shall approve from time
to time at its sole discretion. Except as set forth below, all benefits except
those provided by law, shall cease at the termination of this Employment
Agreement.
8. STOCK RIGHTS. HOH agrees to grant to Mr. Feinblum the following stock
option rights under HOH's Incentive Stock Option plan dated October 25, 1995.
(a) Effective upon execution of this Employment Agreement, Mr.
Feinblum shall be granted an option to purchase 20,000 shares of HOH common
stock for a purchase price of $6.50 per share, payable in cash at the time of
issuance. Such option shall terminate if not exercised by January 10, 2003.
(b) All rights to acquire shares hereunder are granted as incentive
stock options and in accordance with such other terms and conditions as HOH may
reasonably establish, including requirements that Mr. Feinblum execute and
comply with all standard agreements of HOH, including an Incentive Stock Option
Agreement, Subscription Agreement and Shareholders Agreement from time to time
in effect with respect to HOH's common shares. Mr. Feinblum shall be solely
responsible for the payment of any individual income taxes which accrue as a
result of the issuance of such options. All options shall lapse, if not
previously exercised, three months after termination of Mr. Feinblum's
employment hereunder.
2.
<PAGE>
(c) Effective upon execution of this Employment Agreement, all 135,000
of the incentive stock options granted to Mr. Feinblum under the Stock Option
Agreement dated June 1, 1995, shall be fully vested and shall be exercisable in
accordance with such Stock Option Agreement.
9. TERMINATION OF EMPLOYMENT. Mr. Feinblum and HOH each acknowledge that
either Party has the right to terminate Mr. Feinblum's employment with HOH
pursuant to the following:
(a) TERMINATION BY THE COMPANY FOR CAUSE. HOH will have the right to
terminate Mr. Feinblum's employment with HOH at any time for "cause". "Cause"
for termination will mean only: (i) Mr. Feinblum has committed any material act
of embezzlement, fraud and/or is convicted of a felony; (ii) Mr. Feinblum
engages in direct unfair competition with HOH and, in any material respect,
willfully breaches his obligations under this Agreement; (iii) Mr. Feinblum
causes material damage to HOH through intentional misconduct or gross neglect of
the duties customary to his office. No activities or inactivities covered by
items (ii) and (iii) will be deemed to be "cause" unless HOH has notified Mr.
Feinblum of such activity or inactivity in writing and Mr. Feinblum has failed
to cure the same within 15 days. In the event Mr. Feinblum is terminated for
cause he will not be entitled to Severance Pay (as defined below), pay in lieu
of notice or any other such compensation set forth in paragraphs 5-8 herein, but
he will be entitled to all compensation, benefits and unreimbursed expenses
accrued through the date of termination.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. HOH will have the right
to terminate Mr. Feinblum's employment with HOH at any time without cause. In
the event Mr. Feinblum is terminated without cause, and upon the execution of a
release by Mr. Feinblum, releasing all claims arising under this Employment
Agreement against HOH as of the date Mr. Feinblum signs such release, HOH shall
pay Mr. Feinblum the following "Severance Pay": (i) Mr. Feinblum's then
applicable base salary for a period of the longer of (A) 12 months after the
termination without cause date or (B) the remainder of the Employment Period,
and (ii) substantially equivalent health, medical, life, disability and other
benefits to the extent permitted by HOH insurance policies or plans, for the
same 12 month period. Severance Pay will further include the payment of any
incentive bonuses which become due under paragraph 6, for the year in which
termination occurs, prorated for the portion of the year during which Mr.
Feinblum continued to be employed by HOH. Such prorated bonus, if any, shall be
paid at the same time as bonuses are paid to other employees who participate in
the incentive bonus plan.
(c) VOLUNTARY TERMINATION BY MR. FEINBLUM. Mr. Feinblum may
voluntarily terminate his employment with HOH at any time, after which no
further compensation will be paid to Mr. Feinblum. To permit HOH to make
arrangements to fill the vacancy created by Mr. Feinblum's departure, Mr.
Feinblum agrees to give HOH 30 days advance notice of any intended resignation.
In the event Mr. Feinblum voluntarily terminates his employment, he will not be
entitled to Severance Pay, pay in lieu of notice or any other such compensation
set forth in paragraphs 5-8 herein, but he will be entitled to all compensation,
benefits and unreimbursed expenses accrued through the date of termination.
3.
<PAGE>
(d) TERMINATION BY MR. FEINBLUM WITH CAUSE. Mr. Feinblum will have the
right to terminate his employment with HOH at any time for "cause". "Cause" for
termination will mean only a material breach of this Agreement by HOH which
breach is not cured by HOH within 15 days after receipt of written notice
thereof from Mr. Feinblum. In the event Mr. Feinblum terminates his agreement
for "cause," the non-competition obligations of this Agreement will terminate
and Mr. Feinblum will be entitled to "SEVERANCE PAY" as defined in 9(b) above.
(e) AUTOMATIC TERMINATION OR EXPIRATION. If not terminated earlier, or
renewed by agreement of the parties, Mr. Feinblum's employment with HOH will
terminate at the end of the Employment Period. If the Company does not offer to
continue Mr. Feinblum's employment following the expiration of this Employment
Agreement (unless there shall have been cause for termination (as defined
above)), or if Mr. Feinblum's employment is continued by mutual agreement
following termination of this Employment Agreement but is thereafter terminated
by the Company without cause (as defined above), the Company shall pay Mr.
Feinblum the Severance Pay, subject to the execution of a general release as set
forth in paragraph 9(b).
10. NON-COMPETITION OBLIGATIONS. In consideration of his employment by HOH
and the Severance Pay to be paid to Mr. Feinblum as further set forth in
paragraph 9 above, Mr. Feinblum agrees that during his employment, and for a
period of 24 months after the termination or expiration of his employment with
HOH, he will not, without first obtaining the express written consent of HOH,
own more than 5% of the outstanding stock of a publicly-traded Competitive
Company (as defined below) or any stock of a privately held Competitive Company,
or participate in the financing, operation, management or control of, any
Competitive Company. A "Competitive Company" is a person, firm, corporation or
business located in the United States that is primarily engaged in the
production or wholesale distribution of organic dairy products sold by HOH, or
which HOH has express plans to sell as of the termination or expiration of Mr.
Feinblum's employment with HOH. Mr. Feinblum further agrees that he will not
induce any employee of HOH to leave the employ of HOH for a period of twenty-
four months after the termination or expiration of his employment with HOH. This
paragraph 10 shall survive the termination or expiration of this Employment
Agreement for any reason.
11. ENFORCEMENT. HOH and Mr. Feinblum agree that any violation or
threatened violation of the terms of this Employment Agreement could cause
immediate and irreparable harm to HOH for which monetary damages would be
inadequate and difficult to ascertain. The parties therefore agree that upon the
existence of any such violation or threatened violation, provided that HOH has
paid and continues to pay Mr. Feinblum his salary, bonus and benefits as
required hereunder, and to honor Mr. Feinblum's stock option rights if any, HOH
may obtain a temporary restraining order, preliminary injunction, or other
appropriate form of equitable relief from any court of competent jurisdiction.
Such relief shall be in addition to and not substitution for any monetary
damages to which HOH might otherwise be entitled.
12. CONTROLLING AGREEMENT. This Employment Agreement supersedes and
replaces in its entirety all prior agreements and understandings between HOH and
Mr. Feinblum relating to Mr. Feinblum's employment by HOH, including without
limitation the Executive Employment Agreement between the parties dated July 1,
1996.
4.
<PAGE>
13. MISCELLANEOUS.
(a) The rights and duties of the parties shall not be assignable by
either party, except that HOH may assign its rights but shall continue to
guarantee its obligations, to any corporation or other business entity which is
controlled by HOH, which controls HOH, or which is a successor by purchase,
merger or otherwise to HOH. The heirs, successors, personal representatives and
assigns of Mr. Feinblum shall have the right to collect any accrued benefits due
Mr. Feinblum hereunder.
(b) This Employment Agreement and all provisions hereof shall bind
and inure to the benefit of HOH, Mr. Feinblum, and their respective personal
representatives, heirs, successors, and permitted assigns, but Mr. Feinblum is
not entitled to assign his rights and obligations hereunder.
(c) This Agreement will be deemed to have been entered into, and it
will be construed and enforced in accordance with the laws of the State of
Colorado as applied to contracts made and to be performed entirely within
Colorado.
(d) Any action to enforce or requiring interpretation of this
Agreement must be brought in a forum located within the State of Colorado.
(e) In the event that any provision of this Employment Agreement
shall be held to be invalid, illegal, or unenforceable, such provision may be
severed, modified or enforced to the extent possible, and such invalidity,
illegality, or unenforceability shall not affect the remainder of this
Employment Agreement, unless such severance would defeat the fundamental
purposes of this Employment Agreement.
(f) This Employment Agreement may be amended or modified only by
written agreement subscribed to by both of the parties hereto.
(g) The waiver by either party of a breach of any provision of this
Employment Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Employment Agreement.
(h) The section headings contained herein are for reference purposes
only and will in no way affect the meaning or interpretation of this Agreement
(i) All notices which are required or may be given under this
Employment Agreement shall be given by certified mail, return receipt requested,
registered mail, or personal service to the following addresses:
(i) If intended for HOH:
Horizon Organic Holdings Corporation
P.O. Box 17577
Boulder, Colorado 80308
5.
<PAGE>
with a copy to:
Cooley Godward llp
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302
(ii) If intended for Mr. Feinblum:
c/o Horizon Organic Holdings Corporation
P.O. Box 17577
Boulder, Colorado 80308
A party may direct from time to time that notices be sent to a different
address by giving the other party notice in writing of the new address.
(j) To ensure rapid and economical resolution of any and all disputes
directly or indirectly arising out of or in any way connected with Mr.
Feinblum's employment with HOH or the termination of that employment or this
Employment Agreement, with the sole exception of disputes which arise under Mr.
Feinblum's obligations pursuant to paragraph 10 above (collectively, the
"Arbitrable Claims"), HOH and Mr. Feinblum each agree that any and all such
disputes, whether of law or fact of any nature whatsoever, will be resolved by
final and binding arbitration under the then existing American Arbitration
Association ("AAA") arbitration procedures. The Arbitrable Claims will include,
but will not be limited to: any and all such claims related to salary, bonuses,
commissions, stock, stock options, or any other ownership interests in HOH,
vacation pay, fringe benefits, expense reimbursements, severance benefits, or
any other form of compensation; claims pursuant to any federal, state or local
law or cause of action including, but not limited to, the federal Civil Rights
Act of 1964, as amended; the federal Age Discrimination in Employment Act, as
amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the
Colorado Anti Discrimination Act of 1957, as amended; the Wage Claim Act, C.R.S.
(S)(S) 8-4-101, et seq., tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; and emotional distress; and breach of the
implied covenant of good faith and fair dealing. Mr. Feinblum and HOH
acknowledge and agree that any and all rights they may otherwise have to resolve
such Arbitrable Claims by jury trial, by a court, or in any forum other than the
AAA, are hereby expressly waived. The arbitrators shall be authorized, in
addition to any other action they may take, to award reasonable attorneys' fees
and costs of arbitration in favor of the prevailing party.
Executed effective the day and year first set forth above.
HORIZON ORGANIC HOLDINGS BARNET FEINBLUM
CORPORATION
By: /s/ Marcus B. Peperzak /s/ Barnet Feinblum
------------------------------- -----------------------------
Title: Chairman
---------------------------- Date:
------------------------
Date: 4/22/98
-----------------------------
6.
<PAGE>
EXHIBIT 10.14
AMENDED EXECUTIVE EMPLOYMENT AGREEMENT
HORIZON ORGANIC HOLDINGS CORPORATION, a Delaware corporation ("HOH" or the
"Company") agrees with MARK A. RETZLOFF ("Mr. Retzloff") as follows ("Employment
Agreement") effective the 1st day of January, 1998.
1. PURPOSE. Mr. Retzloff is currently the Vice-President of Sales of HOH.
Mr. Retzloff and HOH are parties to an Employment Agreement dated July 1, 1996.
The parties desire to amend and replace the terms of Mr. Retzloff's employment
by HOH in accordance with the terms and conditions set forth herein.
2. EMPLOYMENT. HOH hereby employs Mr. Retzloff, and Mr. Retzloff agrees
to be employed, as Vice-President of Sales of HOH. HOH may from time to time
designate other or additional titles for Mr. Retzloff as deemed appropriate by
the HOH Board of Directors, but HOH and Mr. Retzloff agree that at all times
during the term of this Employment Agreement Mr. Retzloff will be employed as
the Vice President of Sales of HOH. In addition, the Company shall use its best
efforts to cause Mr. Retzloff to be elected to the Company's Board of Directors
so long as this Employment Agreement or any extension hereof remains in effect.
3. DUTIES. During the term hereof, Mr. Retzloff will devote substantially
all of his full time and effort to the business of HOH. Mr. Retzloff shall have
the right to devote reasonable time to the management of his personal
investments and activities, participation in trade associations or other
organizations seeking to advance the cause of natural and/or organic foods, and
support of community activities; provided, however, that while employed with HOH
Mr. Retzloff shall not be employed by any other company, individual or entity on
a full or part-time basis nor shall he/she serve as an independent contractor or
a paid consultant. The parties intend that Mr. Retzloff's initial duties
hereunder shall primarily involve duties of the type normally associated with a
senior managerial position in an organization of the size and type of HOH. HOH
may modify, reduce and/or eliminate Mr. Retzloff's duties and objectives at its
reasonable discretion from time to time, provided that at no time will Mr.
Retzloff be required to perform duties or to meet objectives which are
inconsistent with or inappropriate for a member of senior management of HOH.
4. TERM. Unless otherwise terminated as set forth in paragraph 9 below,
the parties agree that this Employment Agreement shall continue in effect for a
period of 24 months from the Effective Date ("Employment Period"). Employment
with HOH shall terminate 24 months from the Effective Date unless otherwise
renewed. HOH will provide notice at least 90 days prior to the end of the
Employment Agreement as to whether it wishes to extend the Employment Agreement.
If it chooses to extend the Employment Agreement, its notice will include
provisions with respect to any increase in compensation or other changes which
would apply. Mr. Retzloff will have a period of 30 days after receipt of the HOH
notice to advise HOH of his decision to accept or reject the renewal. If HOH
proposes a renewal and if Mr. Retzloff agrees to the renewal, then the
Employment Agreement will be renewed for an additional term of 12 months, with
the initial renewal term therefore extending through December 31, 2000.
5. BASE COMPENSATION. Mr. Retzloff shall receive compensation from HOH as
follows:
<PAGE>
(a) Starting on the date hereof, a base salary at an annual rate of
$120,000; and
(b) Annual increases in base compensation shall be established by and
at the sole discretion of the Compensation Committee appointed by the Board of
Directors of HOH.
6. INCENTIVE COMPENSATION. Mr. Retzloff shall be entitled to receive
incentive compensation in accordance with an incentive plan established by the
Compensation Committee or the HOH Board of Directors. Incentive compensation
will be based on both individual and corporate factors, but the factors
applicable to Mr. Retzloff will be consistent with those applicable to other
members of senior management. The corporate factors will typically be linked to
net operating income and gross sales. The maximum amount which may be awarded
pursuant to the incentive plan will be an amount equal to 60% of base salary.
7. BENEFITS. Mr. Retzloff will receive four weeks of paid vacation
during each year in which this Agreement remains in effect, plus such public
holidays as are generally recognized by businesses in Colorado, not to exceed 10
days per year. Up to two weeks of unused vacation time may be carried over to
any subsequent year. Mr. Retzloff will be entitled to participate in any benefit
plans provided to employees of HOH, including health and dental insurance. HOH
shall also provide to Mr. Retzloff life insurance in the minimum amount of
$100,000, disability insurance providing at least 60% of Mr. Retzloff's covered
base salary or $6,000 per month (whichever amount is less), provided that Mr.
Retzloff qualifies for such insurance, and reimbursement of reasonable business
expenses in such manner as the Board of Directors of HOH shall approve from time
to time at its sole discretion. All benefits except those provided by law, shall
cease at the termination of this Employment Agreement.
8. STOCK RIGHTS. HOH agrees to grant to Mr. Retzloff the following stock
option rights under HOH's Incentive Stock Option plan dated October 25, 1995.
(a) Effective upon execution of this Employment Agreement, Mr.
Retzloff shall be granted an option to purchase 12,500 shares of HOH common
stock for a purchase price of $6.50 per share, payable in cash at the time of
issuance. Such option shall terminate if not exercised January 10, 2003.
(b) All rights to acquire shares hereunder are granted as incentive
stock options and in accordance with such other terms and conditions as HOH may
reasonably establish, including requirements that Mr. Retzloff execute and
comply with all standard agreements of HOH, including an Incentive Stock Option
Agreement, Subscription Agreement and Shareholders Agreement from time to time
in effect with respect to HOH's common shares. Mr. Retzloff shall be solely
responsible for the payment of any individual income taxes which accrue as a
result of the issuance of such options. All options shall lapse, if not
previously exercised, three months after termination of Mr. Retzloff's
employment hereunder.
9. TERMINATION OF EMPLOYMENT. Mr. Retzloff and HOH each acknowledge that either
Party has the right to terminate Mr. Retzloff's employment with HOH pursuant to
the following:
2.
<PAGE>
(a) TERMINATION BY THE COMPANY FOR CAUSE. HOH will have the right to
terminate Mr. Retzloff's employment with HOH at any time for "cause". "Cause"
for termination will mean only: (i) Mr. Retzloff has committed any material act
of embezzlement, fraud and/or is convicted of a felony; (ii) Mr. Retzloff
engages in direct unfair competition with HOH and, in any material respect,
willfully breaches his obligations under this Agreement; (iii) Mr. Retzloff
causes material damage to HOH through intentional misconduct or gross neglect of
the duties customary to his/her office. No activities or inactivities covered by
items (ii) and (iii) will be deemed to be "cause" unless HOH has notified Mr.
Retzloff of such activity or inactivity in writing and Mr. Retzloff has failed
to cure the same within 15 days. In the event Mr. Retzloff is terminated for
cause he/she will not be entitled to Severance Pay (as defined below), pay in
lieu of notice or any other such compensation set forth in paragraphs 5-8
herein, but he/she will be entitled to all compensation, benefits and
unreimbursed expenses accrued through the date of termination.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. HOH will have the right
to terminate Mr. Retzloff's employment with HOH at any time without cause. In
the event Mr. Retzloff is terminated without cause, and upon the execution of a
release by Mr. Retzloff, releasing all claims arising under this Employment
Agreement against HOH as of the date Mr. Retzloff signs such release, HOH shall
pay Mr. Retzloff the following "SEVERANCE PAY": (i) Mr. Retzloff's then
applicable base salary for a period of the longer of (A) 12 months after the
termination without cause date or (B) the remainder of the Employment Period,
and (ii) substantially equivalent health, medical, life, disability and other
benefits to the extent permitted by HOH insurance policies or plans, for the
same 12 month period. Severance Pay will further include the payment of any
incentive bonuses which become due under paragraph 6, for the year in which
termination occurs, prorated for the portion of the year during which Mr.
Retzloff continued to be employed by HOH. Such prorated bonus, if any, shall be
paid at the same time as bonuses are paid to other employees who participate in
the incentive bonus plan.
(c) VOLUNTARY TERMINATION BY MR. RETZLOFF. Mr. Retzloff may
voluntarily terminate his employment with HOH at any time, after which no
further compensation will be paid to Mr. Retzloff. To permit HOH to make
arrangements to fill the vacancy created by Mr. Retzloff's departure, Mr.
Retzloff agrees to give HOH 30 days advance notice of any intended resignation.
In the event Mr. Retzloff voluntarily terminates his employment, he will not be
entitled to Severance Pay, pay in lieu of notice or any other such compensation
set forth in paragraphs 5-8 herein, but he will be entitled to all compensation,
benefits and unreimbursed expenses accrued through the date of termination.
(d) TERMINATION BY MR. RETZLOFF WITH CAUSE. Mr. Retzloff will have
the right to terminate his employment with HOH at any time for "cause". "Cause"
for termination will mean only a material breach of this Agreement by HOH which
breach is not cured by HOH within 15 days after receipt of written notice
thereof from Mr. Retzloff. In the event Mr. Retzloff terminates his agreement
for "cause," the non-competition obligations of this Agreement will terminate
and Mr. Retzloff will be entitled to "SEVERANCE PAY" as defined in 9(b) above.
(e) AUTOMATIC TERMINATION OR EXPIRATION. If not terminated earlier,
or renewed by agreement of the parties, Mr. Retzloff's employment with HOH will
terminate at the
3.
<PAGE>
end of the Employment Period. If the Company does not offer to continue Mr.
Retzloff's employment following the expiration of this Employment Agreement
(unless there shall have been cause for termination (as defined above)), or if
Mr. Retzloff's employment is continued by mutual agreement following termination
of this Employment Agreement but is thereafter terminated by the Company without
cause (as defined above), the Company shall pay Mr. Retzloff the Severance Pay,
subject to the execution of a general release as set forth in paragraph 9(b).
10. NON-COMPETITION OBLIGATIONS. In consideration of his employment by
HOH and the Severance Pay to be paid to Mr. Retzloff as further set forth in
paragraph 9 above, Mr. Retzloff agrees that during his employment, and for a
period of 24 months after the termination or expiration of his employment with
HOH, he will not, without first obtaining the express written consent of HOH,
own more than 5% of the outstanding stock of a publicly-traded Competitive
Company (as defined below) or any stock of a privately held Competitive Company,
or participate in the financing, operation, management or control of, any
Competitive Company. A "Competitive Company" is a person, firm, corporation or
business located in the United States that is primarily engaged in the
production or wholesale distribution of organic dairy products sold by HOH, or
which HOH has express plans to sell as of the termination or expiration of Mr.
Retzloff's employment with HOH. Mr. Retzloff further agrees that he will not
induce any employee of HOH to leave the employ of HOH for a period of twenty-
four months after the termination or expiration of his employment with HOH. This
paragraph 10 shall survive the termination or expiration of this Employment
Agreement for any reason.
11. ENFORCEMENT. HOH and Mr. Retzloff agree that any violation or
threatened violation of the terms of this Employment Agreement could cause
immediate and irreparable harm to HOH for which monetary damages would be
inadequate and difficult to ascertain. The parties therefore agree that upon the
existence of any such violation or threatened violation, provided that HOH has
paid and continues to pay Mr. Retzloff his salary, bonus and benefits as
required hereunder, and to honor Mr. Retzloff's stock option rights if any, HOH
may obtain a temporary restraining order, preliminary injunction, or other
appropriate form of equitable relief from any court of competent jurisdiction.
Such relief shall be in addition to and not substitution for any monetary
damages to which HOH might otherwise be entitled.
12. CONTROLLING AGREEMENT. This Employment Agreement supersedes and
replaces in its entirety all prior agreements and understandings between HOH and
Mr. Retzloff relating to Mr. Retzloff's employment by HOH, including without
limitation the Executive Employment Agreement between the parties dated July 1,
1996.
13. MISCELLANEOUS.
(a) The rights and duties of the parties shall not be assignable by
either party, except that HOH may assign its rights but shall continue to
guarantee its obligations, to any corporation or other business entity which is
controlled by HOH, which controls HOH, or which is a successor by purchase,
merger or otherwise to HOH. The heirs, successors, personal representatives and
assigns of Mr. Retzloff shall have the right to collect any accrued benefits due
Mr. Retzloff hereunder.
4.
<PAGE>
(b) This Employment Agreement and all provisions hereof shall bind
and inure to the benefit of HOH, Mr. Retzloff, and their respective personal
representatives, heirs, successors, and permitted assigns, but Mr. Retzloff is
not entitled to assign his rights and obligations hereunder.
(c) This Agreement will be deemed to have been entered into, and it
will be construed and enforced in accordance with the laws of the State of
Colorado as applied to contracts made and to be performed entirely within
Colorado.
(d) Any action to enforce or requiring interpretation of this
Agreement must be brought in a forum located within the State of Colorado.
(e) In the event that any provision of this Employment Agreement
shall be held to be invalid, illegal, or unenforceable, such provision may be
severed, modified or enforced to the extent possible, and such invalidity,
illegality, or unenforceability shall not affect the remainder of this
Employment Agreement, unless such severance would defeat the fundamental
purposes of this Employment Agreement.
(f) This Employment Agreement may be amended or modified only by
written agreement subscribed to by both of the parties hereto.
(g) The waiver by either party of a breach of any provision of this
Employment Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach of the same provision or any other provision of
this Employment Agreement .
(h) The section headings contained herein are for reference purposes
only and will in no way affect the meaning or interpretation of this
Agreement.
(i) All notices which are required or may be given under this
Employment Agreement shall be given by certified mail, return receipt
requested, registered mail, or personal service to the following addresses:
(i) If intended for HOH:
Horizon Organic Holdings Corporation
P.O. Box 17577
Boulder, Colorado 80308
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302
5.
<PAGE>
(ii) If intended for Mr. Retzloff:
c/o Horizon Organic Holdings Corporation
P.O. Box 17577
Boulder, Colorado 80308
A party may direct from time to time that notices be sent to a different
address by giving the other party notice in writing of the new address.
(j) To ensure rapid and economical resolution of any and all disputes
directly or indirectly arising out of or in any way connected with Mr.
Retzloff's employment with HOH or the termination of that employment or this
Employment Agreement, with the sole exception of disputes which arise under Mr.
Retzloff's obligations pursuant to paragraph 10 above (collectively, the
"Arbitrable Claims"), HOH and Mr. Retzloff each agree that any and all such
disputes, whether of law or fact of any nature whatsoever, will be resolved by
final and binding arbitration under the then existing American Arbitration
Association ("AAA") arbitration procedures. The Arbitrable Claims will include,
but will not be limited to: any and all such claims related to salary, bonuses,
commissions, stock, stock options, or any other ownership interests in HOH,
vacation pay, fringe benefits, expense reimbursements, severance benefits, or
any other form of compensation; claims pursuant to any federal, state or local
law or cause of action including, but not limited to, the federal Civil Rights
Act of 1964, as amended; the federal Age Discrimination in Employment Act, as
amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the
Colorado Anti Discrimination Act of 1957, as amended; the Wage Claim Act, C.R.S.
(S)(S)8-4-101, et seq., tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; and emotional distress; and breach of the
implied covenant of good faith and fair dealing. Mr. Retzloff and HOH
acknowledge and agree that any and all rights they may otherwise have to resolve
such Arbitrable Claims by jury trial, by a court, or in any forum other than the
AAA, are hereby expressly waived. The arbitrators shall be authorized, in
addition to any other action they may take, to award reasonable attorneys' fees
and costs of arbitration in favor of the prevailing party.
Executed effective the day and year first set forth above.
HORIZON ORGANIC HOLDINGS CORPORATION MARK RETZLOFF
By:/s/ Marcus B. Peperzak /s/ Mark Retzloff
------------------------------------- --------------------------------
Title: Chairman
----------------------------------
Date: 4/21/98 Date: 4/21/98
----------------------------------- ---------------------------
6.
<PAGE>
EXHIBIT 10.15
AMENDED EXECUTIVE EMPLOYMENT AGREEMENT
HORIZON ORGANIC HOLDING CORPORATION, a Delaware corporation ("HOH" or the
"Company") agrees with PAUL REPETTO ("Mr. Repetto") as follows ("Employment
Agreement") effective the 1st day of January, 1998.
1. PURPOSE. Mr. Repetto is currently the Vice-President of Marketing of
HOH. Mr. Repetto and HOH (as successor in interest to Horizon Organic Dairy,
Inc.) are parties to an Employment Agreement dated July 1, 1996. The parties
desire to amend and replace the terms of Mr. Repetto's employment by HOH in
accordance with the terms and conditions set forth herein.
2. EMPLOYMENT. HOH hereby employs Mr. Repetto, and Mr. Repetto agrees to
be employed, as Vice-President of Marketing of HOH. HOH may from time to time
designate other or additional titles for Mr. Repetto as deemed appropriate by
the HOH Board of Directors, but HOH and Mr. Repetto agree that at all times
during the term of this Employment Agreement Mr. Repetto will be employed as the
Vice President of Marketing of HOH. In addition, the Company shall use its best
efforts to cause Mr. Repetto to be elected to the Company's Board of Directors
so long as this Employment Agreement or any extension hereof remains in effect.
3. DUTIES. During the term hereof, Mr. Repetto will devote substantially
all of his full time and effort to the business of HOH. Mr. Repetto shall have
the right to devote reasonable time to the management of his personal
investments and activities, participation in trade associations or other
organizations seeking to advance the cause of natural and/or organic foods, and
support of community activities; provided, however, that while employed with HOH
Mr. Repetto shall not be employed by any other company, individual or entity on
a full or part-time basis nor shall he serve as an independent contractor or a
paid consultant. The parties intend that Mr. Repetto's initial duties hereunder
shall primarily involve duties of the type normally associated with a senior
managerial position in an organization of the size and type of HOH. HOH may
modify, reduce and/or eliminate Mr. Repetto's duties and objectives at its
reasonable discretion from time to time, provided that at no time will Mr.
Repetto be required to perform duties or to meet objectives which are
inconsistent with or inappropriate for a member of senior management of HOH.
4. TERM. Unless otherwise terminated as set forth in paragraph 9 below,
the parties agree that this Employment Agreement shall continue in effect for a
period of 24 months from the Effective Date ("Employment Period"). Employment
with HOH shall terminate 24 months from the Effective Date unless otherwise
renewed. The Company and Mr. Repetto each acknowledge that Mr. Repetto intends
to retire at the end of the Employment Period in 1999.
5. BASE COMPENSATION. Mr. Repetto shall receive compensation from HOH as
follows:
(a) Starting on the date hereof, a base salary at an annual rate of
$120,000; and
<PAGE>
(b) Annual increases in base compensation shall be established by and
at the sole discretion of the Compensation Committee appointed by the Board of
Directors of HOH.
6. INCENTIVE COMPENSATION. Mr. Repetto shall be entitled to receive
incentive compensation in accordance with an incentive plan established by the
Compensation Committee or the HOH Board of Directors. Incentive compensation
will be based on both individual and corporate factors, but the factors
applicable to Mr. Repetto will be consistent with those applicable to other
members of senior management. The corporate factors will typically be linked to
net operating income and gross sales. The maximum amount which may be awarded
pursuant to the incentive plan will be an amount equal to 60% of base salary.
7. BENEFITS. Mr. Repetto will receive four weeks of paid vacation during
each year in which this Agreement remains in effect, plus such public holidays
as are generally recognized by businesses in Colorado, not to exceed 10 days per
year. Up to two weeks of unused vacation time may be carried over to any
subsequent year. Mr. Repetto will be entitled to participate in any benefit
plans provided to employees of HOH, including health and dental insurance. HOH
shall also provide to Mr. Repetto life insurance in the minimum amount of
$100,000, disability insurance providing at least 60% of Mr. Repetto's covered
base salary or $6,000 per month (whichever amount is less), provided that Mr.
Repetto qualifies for such insurance, and reimbursement of reasonable business
expenses in such manner as the Board of Directors of HOH shall approve from time
to time at its sole discretion. All benefits except those provided by law, shall
cease at the termination of this Employment Agreement.
8. STOCK RIGHTS. HOH agrees to grant to Mr. Repetto the following stock
option rights under HOH's Incentive Stock Option plan dated October 25, 1995.
(a) Effective upon execution of this Employment Agreement, Mr. Repetto
shall be granted an option to purchase 12,500 shares of HOH common stock for a
purchase price of $6.50 per share, payable in cash at the time of issuance. Such
option shall terminate if not exercised by January 10, 2003.
(b) All rights to acquire shares hereunder are granted as incentive
stock options and in accordance with such other terms and conditions as HOH may
reasonably establish, including requirements that Mr. Repetto execute and comply
with all standard agreements of HOH, including an Incentive Stock Option
Agreement, Subscription Agreement and Shareholders Agreement from time to time
in effect with respect to HOH's common shares. Mr. Repetto shall be solely
responsible for the payment of any individual income taxes which accrue as a
result of the issuance of such options. All options shall lapse, if not
previously exercised, three months after termination of Mr. Repetto's employment
hereunder.
9. TERMINATION OF EMPLOYMENT. Mr. Repetto and HOH each acknowledge that
either Party has the right to terminate Mr. Repetto's employment with HOH
pursuant to the following:
(a) TERMINATION BY THE COMPANY FOR CAUSE. HOH will have the right to
terminate Mr. Repetto 's employment with HOH at any time for "cause". "Cause"
for termination will mean only: (i) Mr. Repetto has committed any material act
of embezzlement,
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fraud and/or is convicted of a felony; (ii) Mr. Repetto engages in direct unfair
competition with HOH and, in any material respect, willfully breaches his
obligations under this Agreement; (iii) Mr. Repetto causes material damage to
HOH through intentional misconduct or gross neglect of the duties customary to
his office. No activities or inactivities covered by items (ii) and (iii) will
be deemed to be "cause" unless HOH has notified Mr. Repetto of such activity or
inactivity in writing and Mr. Repetto has failed to cure the same within 15
days. In the event Mr. Repetto is terminated for cause he will not be entitled
to Severance Pay (as defined below), pay in lieu of notice or any other such
compensation set forth in paragraphs 5-8 herein, but he will be entitled to all
compensation, benefits and unreimbursed expenses accrued through the date of
termination.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. HOH will have the right
to terminate Mr. Repetto's employment with HOH at any time without cause. In the
event Mr. Repetto is terminated without cause, and upon the execution of a
release by Mr. Repetto, releasing all claims arising under this Employment
Agreement against HOH as of the date Mr. Repetto signs such release, HOH shall
pay Mr. Repetto the following "SEVERANCE PAY": (i) Mr. Repetto's then applicable
base salary for a period of the longer of (A) 12 months after the termination
without cause date or (B) the remainder of the Employment Period, and (ii)
substantially equivalent health, medical, life, disability and other benefits to
the extent permitted by HOH insurance policies or plans, for the same 12 month
period. Severance Pay will further include the payment of any incentive bonuses
which become due under paragraph 6, for the year in which termination occurs,
prorated for the portion of the year during which Mr. Repetto continued to be
employed by HOH. Such prorated bonus, if any, shall be paid at the same time as
bonuses are paid to other employees who participate in the incentive bonus plan.
(c) VOLUNTARY TERMINATION BY MR. REPETTO. Mr. Repetto may voluntarily
terminate his employment with HOH at any time, after which no further
compensation will be paid to Mr. Repetto. To permit HOH to make arrangements to
fill the vacancy created by Mr. Repetto's departure, Mr. Repetto agrees to give
HOH 30 days advance notice of any intended resignation. In the event Mr. Repetto
voluntarily terminates his employment, he will not be entitled to Severance Pay,
pay in lieu of notice or any other such compensation set forth in paragraphs 5-8
herein, but he will be entitled to all compensation, benefits and unreimbursed
expenses accrued through the date of termination.
(d) TERMINATION BY MR. REPETTO WITH CAUSE. Mr. Repetto will have the
right to terminate his employment with HOH at any time for "cause". "Cause" for
termination will mean only a material breach of this Agreement by HOH which
breach is not cured by HOH within 15 days after receipt of written notice
thereof from Mr. Repetto. In the event Mr. Repetto terminates his agreement for
"cause," the non-competition obligations of this Agreement will terminate and
Mr. Repetto will be entitled to "SEVERANCE PAY" as defined in 9(b) above.
(e) RETIREMENT. Mr. Repetto's employment with HOH will terminate at
the end of the Employment Period as a result of Mr. Repetto's retirement. At the
discretion of HOH and Mr. Repetto, HOH may continue to engage Mr. Repetto as a
consultant on terms to be discussed and mutually agreed to by the parties.
3.
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10. NON-COMPETITION OBLIGATIONS. In consideration of his employment by
HOH and the Severance Pay to be paid to Mr. Repetto as further set forth in
paragraph 9 above, Mr. Repetto agrees that during his employment, and for a
period of 24 months after the termination or expiration of his employment with
HOH, he will not, without first obtaining the express written consent of HOH,
own more than 5% of the outstanding stock of a publicly-traded Competitive
Company (as defined below) or any stock of a privately held Competitive Company,
or participate in the financing, operation, management or control of, any
Competitive Company. A "Competitive Company" is a person, firm, corporation or
business located in the United States that is primarily engaged in the
production or wholesale distribution of organic dairy products sold by HOH, or
which HOH has express plans to sell as of the termination or expiration of Mr.
Repetto's employment with HOH. Mr. Repetto further agrees that he will not
induce any employee of HOH to leave the employ of HOH for a period of twenty-
four months after the termination or expiration of his employment with HOH. This
paragraph 10 shall survive the termination or expiration of this Employment
Agreement for any reason.
11. ENFORCEMENT. HOH and Mr. Repetto agree that any violation or
threatened violation of the terms of this Employment Agreement could cause
immediate and irreparable harm to HOH for which monetary damages would be
inadequate and difficult to ascertain. The parties therefore agree that upon the
existence of any such violation or threatened violation, provided that HOH has
paid and continues to pay Mr. Repetto his salary, bonus and benefits as required
hereunder, and to honor Mr. Repetto's stock option rights if any, HOH may obtain
a temporary restraining order, preliminary injunction, or other appropriate form
of equitable relief from any court of competent jurisdiction. Such relief shall
be in addition to and not substitution for any monetary damages to which HOH
might otherwise be entitled.
12. CONTROLLING AGREEMENT. This Employment Agreement supersedes and
replaces in its entirety all prior agreements and understandings between HOH and
Mr. Repetto relating to Mr. Repetto's employment by HOH, including without
limitation the Executive Employment Agreement between the parties dated July 1,
1996.
13. MISCELLANEOUS.
(a) The rights and duties of the parties shall not be assignable by
either party, except that HOH may assign its rights but shall continue to
guarantee its obligations, to any corporation or other business entity which is
controlled by HOH, which controls HOH, or which is a successor by purchase,
merger or otherwise to HOH. The heirs, successors, personal representatives and
assigns of Mr. Repetto shall have the right to collect any accrued benefits due
Mr. Repetto hereunder.
(b) This Employment Agreement and all provisions hereof shall bind
and inure to the benefit of HOH, Mr. Repetto, and their respective personal
representatives, heirs, successors, and permitted assigns, but Mr. Repetto is
not entitled to assign his rights and obligations hereunder.
(c) This Agreement will be deemed to have been entered into, and it
will be construed and enforced in accordance with the laws of the State of
Colorado as applied to contracts made and to be performed entirely within
Colorado.
4.
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(d) Any action to enforce or requiring interpretation of this
Agreement must be brought in a forum located within the State of Colorado.
(e) In the event that any provision of this Employment Agreement shall
be held to be invalid, illegal, or unenforceable, such provision may be
severed, modified or enforced to the extent possible, and such invalidity,
illegality, or unenforceability shall not affect the remainder of this
Employment Agreement, unless such severance would defeat the fundamental
purposes of this Employment Agreement.
(f) This Employment Agreement may be amended or modified only by
written agreement subscribed to by both of the parties hereto.
(g) The waiver by either party of a breach of any provision of this
Employment Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of the same provision or any other
provision of this Employment Agreement.
(h) The section headings contained herein are for reference purposes
only and will in no way affect the meaning or interpretation of this
Agreement
(i) All notices which are required or may be given under this
Employment Agreement shall be given by certified mail, return receipt
requested, registered mail, or personal service to the following addresses:
(i) If intended for HOH:
Horizon Organic Holdings Corporation
P.O. Box 17577
Boulder, Colorado 80308
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302
(ii) If intended for Mr. Repetto:
c/o Horizon Organic Dairy, Inc.
P.O. Box 17577
Boulder, Colorado 80308
A party may direct from time to time that notices be sent to a different
address by giving the other party notice in writing of the new address.
(j) To ensure rapid and economical resolution of any and all disputes
directly or indirectly arising out of or in any way connected with Mr. Repetto's
employment with HOH or the termination of that employment or this Employment
Agreement, with the sole exception of disputes which arise under Mr. Repetto's
obligations pursuant to paragraph 10 above
5.
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(collectively, the "Arbitrable Claims"), HOH and Mr. Repetto each agree that any
and all such disputes, whether of law or fact of any nature whatsoever, will be
resolved by final and binding arbitration under the then existing American
Arbitration Association ("AAA") arbitration procedures. The Arbitrable Claims
will include, but will not be limited to: any and all such claims related to
salary, bonuses, commissions, stock, stock options, or any other ownership
interests in HOH, vacation pay, fringe benefits, expense reimbursements,
severance benefits, or any other form of compensation; claims pursuant to any
federal, state or local law or cause of action including, but not limited to,
the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination
in Employment Act, as amended ("ADEA"); the federal Americans with Disabilities
Act of 1990; the Colorado Anti Discrimination Act of 1957, as amended; the Wage
Claim Act, C.R.S. (S)(S)8-4-101, et seq., tort law; contract law; wrongful
discharge; discrimination; fraud; defamation; and emotional distress; and breach
of the implied covenant of good faith and fair dealing. Mr. Repetto and HOH
acknowledge and agree that any and all rights they may otherwise have to resolve
such Arbitrable Claims by jury trial, by a court, or in any forum other than the
AAA, are hereby expressly waived. The arbitrators shall be authorized, in
addition to any other action they may take, to award reasonable attorneys' fees
and costs of arbitration in favor of the prevailing party.
Executed effective the day and year first set forth above.
HORIZON ORGANIC HOLDINGS CORPORATION PAUL REPETTO
By:/s/ Marcus B. Peperzak /s/ Paul Repetto
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Title: Chairman
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Date: 4/22/98 Date: April 21, 1998
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6.
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EXHIBIT 10.16
OFFICE LEASE
FOR HORIZON BUILDING
Monarch Park
Boulder, Colorado
THIS LEASE (this "Lease"), dated October 10, 1996, is between MUM II, LLC
("Landlord") and Horizon Organic Dairy, Inc. ("Tenant").
For and in consideration of the covenants and agreements herein contained,
Landlord and Tenant hereby agree as follows:
SECTION I: ADDITIONAL DEFINED TERMS
In addition to those terms defined in the introductory paragraph of this
Lease, the following terms shall have the following meanings when used in this
Lease:
(a) Architect's Measurement: Any measurement of area made by
Landlord's architect measuring Usable Area or Rentable Area for all of the space
to be measured based on the Building floor plans, which measurement shall be
conclusive and binding upon both Landlord and Tenant, unless any tenant of the
Building objects to such measurement within sixty (60) days of notice to Tenant
with the calculation of an Architect's Measurement (or in the event of
structural modification to the Building which results in a change in any area of
any floor, within sixty (60) days of notice to Tenant of the recalculation of an
Architect's Measurement), in which case such measurement shall be presumptively
correct but subject to correction if mistaken. The sole effect that a
correction to an Architect's Measurement shall be the calculation of Tenant's
share of the Operation Cost and in no event shall a mistake in an Architect's
Measurement entitle Tenant to any adjustment in the Base Rent or Escalation
Rent. The Architect's Measurements have been made from the outside of exterior
walls to the middle of a demising wall between tenants and to the Common Area
side of a wall between a Common Area and a tenant's area.
(b) Base Operating Cost: An amount equal to $2.01 per square foot of
Building Rentable Area per calendar year which represents an estimate of the
Operating Cost for the entire calendar year in which the Term of this Lease
begins.
(c) Base Rent: The annual amount of rent payable with respect to each
Lease Year during the term of this Lease Payable as set forth in
Section 4(a). The amount of the Base Rent for the first Lease Year shall be
$95,178.06 total, for Suite A plus Suite D, which consists of, $71,013.43 for
Suite A and $24,164.63 for Suite D. The amount of the Base Rent for all Lease
Years after the first Lease Year shall be calculated in the manner set forth in
Section 4(a).
(d) Building: A portion of that certain parcel of real property
described in Exhibit A attached hereto, together with the building known as
Horizon Building and all other improvements located thereon.
(e) Building Rentable Area: 34,585 square feet which has been
determined by Architect's Measurement. If from time to time there is a
structural modification to the Building which results in a change in the area of
any floor of the Building, Building Rentable Area shall, until any further
change, mean the number of square feet as recomputed after such change by
Architect's Measurement.
(f) Commencement Date: The date of the Term of this Lease commences
as determined in accordance with provisions of Section 30.
(g) Common Areas: Those portions of the Building which are made
available for the general use in common of tenants of the Building and their
employees, agents, and invitees, including but not limited to the areas on
individual floors devoted to corridors, elevators, lobbies, restrooms and other
similar facilities, automobile parking areas which are reserved for "visitors
only", driveways, entrances and exits, including all plaza areas, loading areas,
pedestrian walkways and ramps, landscaped areas and stairways.
(h) Default Rate: An annual rate of interest equal to fifteen (15)
percent.
(i) Lease Year:
(i) For the First Lease Year, the period beginning on the Commencement
Date and ending on the last day of the same calendar month in which the
Commencement Date occurred in the next calendar year; and
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(ii) For Lease Years after the First Lease Year, the twelve-month
period beginning on the next day following the expiration of the preceding Lease
Year. If the Term of this Lease shall end prior to the last day of a Lease Year
as defined above, the final Lease Year hereunder shall be deemed to end on the
day the Term of this Lease ends.
(j) Operating Cost: as defined in Section 6(b).
(k) Ordinary Business Hours: The hours of 7:00 a.m. to 6:00 p.m.
Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays, except for any of
such days which may fall on the holidays of New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
(l) Premises: Suites A and D on the first and second floor of the
Building, as generally reflected on the floor plan attached to this Lease as
Exhibit B.
(m) Premises Rentable Area: 6,605.9 square feet in finished office
space in Suite A on the first floor and 6,443.9 square feet in unfinished office
space in Suite D on the second floor for a total of 13,049.8 square feet which
has been determined by Architects Measurement. Premises Rentable Area is the
Premises Usable Area plus Tenant's pro rata share (based upon Premises Usable
Area to other tenant's premises usable area) of the Common Areas. If from time
to time there is a structural modification to the Building which affects the
area of any floor of the Building which contains the Premises, Premises Rentable
Area shall, until further change, mean the number of square feet as recomputed
after such change by Architect's Measurement.
(n) Premises Usable Area: 6,115 square feet of finished office space
in Suite A on the first floor and 5,965 square feet of unfinished office space
in Suite D on the second floor which has been determined by Architect's
Measurement. If from time to time there is a structural modification to the
Building which affects the area of any floor to the building which contains the
Premises, Premises Usable Area shall, until further changes, mean the number of
square feet as computed after such change by Architect's Measurement.
(o) Security Deposit: The amount of $47,600.00 (due at time of
execution of this lease) to be kept on deposit with Landlord by Tenant in
accordance with the provisions of Section 28.
(p) Term: The period beginning at noon on the Commencement Date and
ending at noon on the last day of the calendar month in which the tenth (10th)
anniversary of the Commencement Date occurs.
SECTION 2: LEASE OF PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Premises, together with the non-exclusive right to use the Common Areas for
the purposes for which the Common Areas are intended. The Premises are leased
on the terms and conditions set forth in this Lease.
SECTION 3: TERM
The term of this Lease shall be as set forth in Section l(p), unless sooner
terminated or extended pursuant to the terms of this Lease.
SECTION 4: RENT
(a) Tenant shall pay Landlord during each Lease Year the Base Rent, in
equal monthly installments in the amount of one-twelfth of the Base Rent on the
Commencement Date and on the first day of each succeeding calendar month during
the Term of this Lease; provided that the rent payable on the Commencement Date
-------------
shall be prorated for the remaining days left in the calendar month in which the
Commencement Date occurs. All payments of Base Rent shall be paid in advance,
without notice, set-off or deduction, in lawful money of the United States, at
the address of Landlord set forth in Section 40 of this Lease, or at such other
place as Landlord may from time to time designate in writing. The amount of the
Base Rent for each Lease Year after the first Lease Year shall be increased to
an amount determined by multiplying the amount of the Base Rent in effect for
the preceding Lease Year by an adjustment factor which factor shall be
calculated in the following manner. Such adjustment shall be calculated by
first determining the All Items Consumer Price Index for All Urban Consumers,
CPI-U, Denver (1967 equals 100), as determined by the United States Department
of Labor, Bureau of Labor Statistics as of both the latest date preceding the
date of commencement of the preceding lease year and as of
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the latest date possible in the lease year just preceding the commencement of
the next following lease year. Upon receipt of the second of such index
figures, the percentage of the increase, if any, of the second of such figures
over the first, shall be calculated therefrom (such percentage increases are
herein referred to as the "Index Percentage Change"). An annual rental increase
(herein referred to as Escalation Rent) shall then be computed by multiplying
the Index Percentage Change times the last preceding Base Rent Annual rate as
adjusted and set forth in Section 4. Tenant shall pay one-twelfth (1/12) of the
resulting Escalation Rent each month during the ensuing lease year at the same
time Tenant pays the Base Rent. Such payments shall commence on the first day
of the month following Tenant's receipt of notice setting forth such increase,
which notice shall be sent within sixty (60) days of the beginning of each new
Lease Year. The first monthly rental payment which includes new Escalation Rent
shall also include the Escalation Rent, if any, for each month in the then
current lease year which elapsed prior to Tenant's receipt of Landlord's notice.
If there is no increase in Index Percentage Change, there shall be no
adjustment, but in no event shall the Base Rent and Escalation Rent payable be
less than the Base Rent and Escalation Rent paid during the preceding lease
year. The Base Rent due hereunder shall be apportioned for any fractional
calendar months at the beginning and end of the Term of this Lease and any
renewals and extensions thereof.
(b) If the index specified in Section 4(a) above is discontinued in
its current form, or if the basis on which it was calculated should be revised,
an appropriate conversion of the revised index to a common base will be made
upon conversion factors published by the Bureau of Labor Statistics or upon
conversion factors otherwise made available.
(c) In addition to the Base Rent and the Escalation Rent, Tenant shall
pay Landlord in monthly installments simultaneously with payments of the Base
Rent, one-twelfth (1/12th) the Base Operating Cost times the Premises Rentable
Area and 100% of the Operating Cost adjustment determined as set forth in
Section 6, and such other charges as are required by the terms of this Lease to
be made by Tenant. Any such adjustment or change shall be deemed to be
additional rent and shall be payable in the manner provided for the payment of
Base Rent and shall be recoverable as Base Rent, and Landlord shall have all
rights against Tenant for default in payment thereof as in the case of arrears
of Base Rent.
SECTION 5: USE
(a) Tenant shall use and occupy the Premises for professional or
business offices and storage incidental thereto and for no other purpose.
Tenant shall use the Premises in a careful, safe and Proper manner and shall not
use or Permit the Premises to be used for any purpose prohibited by the
Certificate of Occupancy issued for the Building or the laws of the United
States or the State of Colorado, or the ordinances of the County of Boulder.
Tenant shall neither do nor permit to be done any act or thing upon the Premises
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation carried on upon the Premises or for any reason.
(b) In the event that any official shall hereafter at any time contend
or declare by notice, violation, order or in any other manner whatsoever that
the Premises are used for a purpose which is a violation of any permit,
certificate of occupancy, statute, ordinance or other requirement of law
applicable to the Building or the Premises, Tenant shall, upon five days'
written notice from Landlord, immediately discontinue such use of the Premises.
(c) Tenant, at its sole expense, shall comply with all laws, orders
and regulations of federal, state, county and municipal authorities, and with
any direction of any public officer or officers, pursuant to law, which shall
impose any violation, order or duty upon Landlord or Tenant with respect to the
Premises, or the use or occupation thereof.
SECTION 6: OPERATING COST ADJUSMENT
(a) If in any calendar year the Operating Cost is greater than the
Base Operating Cost, Tenant shall pay to Landlord as additional rent an amount
equal to such excess multiplied by the Premises Rentable Area. Any amount
payable by Tenant to Landlord under this Section 6 shall be paid within thirty
(30) days after written notice thereof by Landlord. Landlord may, either prior
to the beginning of or during any calendar year, compute a bona fide estimate of
Operating Cost for such calendar year. Upon receipt of written notice thereof,
Tenant shall pay to Landlord, in monthly installments simultaneously with
payments of Base Rent under Section 4(a), one-twelfth of the product
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of such estimated Operating Cost and the Premises Rentable Area. An annual
adjustment shall be made between the parties within thirty (30) days after
Landlord's determination of Operating Cost. Any amounts of excess estimated
Operating Cost which Landlord is required to return may be offset by accrued
amounts payable by Tenant to Landlord. If the Term of this Lease ends before
the end of a calendar year, any amount payable by Tenant or Landlord in respect
of that year under this Section 6 shall be adjusted proportionately on a daily
basis utilizing the previous year's determination of Operating Costs and the
obligation to pay such amount shall survive the expiration or earlier
termination of this Lease. In no event shall Landlord be required to make any
payment or refund to Tenant if in any calendar year the Operating Cost is less
than the Base Operating Cost.
(b) As used in this Lease, "Operating Cost" means an amount per square
foot of Building Rentable Area per calendar year determined as set forth below
(projected to an annual figure for the calendar year in which the Building is
first occupied), which represents the actual Operating Cost for any calendar
year during the Term of this Lease.
The Operating Cost (calculated to the nearest cent) shall be determined by
Landlord and shall be equal to the sum of the following in respect of a calendar
year divided by the Building Rentable Area:
(i) All general and special real estate taxes, special assessments,
assessments for improvements, special district or improvement district
assessments, water charges, sewer charges, vault charges and other ad valorem
taxes, rates, levies and assessments payable in respect of such year by Landlord
upon or in respect of the Building by any governmental or quasi-governmental
authority and all taxes specifically imposed in lieu of any such taxes. If due
to a future change in the method of taxation, any franchise, income, profit or
other tax shall be levied against Landlord in whole or in part in lieu of any
tax which would otherwise constitute one of the foregoing taxes or charges or if
there shall be levied against Landlord a tax or license fee measured by gross
rents, such franchise, income, Profit or other tax or license fee shall be
deemed to be a real estate tax for the purposes hereof. The taxes described in
this Section 6(b)(i) shall also include all of Landlord's expenses, including,
but not limited to, attorney's fees, incurred by Landlord in any effort to
minimize such taxes, whether by contesting proposed increases in assessments or
by any other means or procedures appropriate in the circumstances.
(ii) All costs, charges and expenses payable by Landlord (not directly
reimbursed by tenants of the Building or by insurance proceeds) which are
directly attributable to the ownership, operation, maintenance and normal repair
of the Building, including, but not limited to, the cost of utilities, building
supplies, janitorial services with the exception of the janitorial services for
the Premises Rentable Area which shall be provided and paid for by Tenant,
window cleaning services, normal maintenance and repair of the Building and the
Common Areas (including elevators and the periodic refurbishing of the Common
Areas), heating and air conditioning, landscaping, snow removal, parking area
repair and maintenance, insurance (including boiler and machinery, fire and
extended coverage, rental and public liability insurance) and labor costs
incurred in the operation or maintenance of the Building, but excluding in any
case renting commissions and costs of painting or decorating any other tenant's
space. It is mutually understood and agreed that Tenant shall be responsible
directly to the Public Service Co. of Colorado for the payment of gas and
electric utility bills for their Premises Rentable Area.
(iii) The following expenses and costs shall not be included within
the "Operating Costs" for the Building; costs incurred in connection with the
original construction of the Building or in connection with any major change in
the Building; costs of alterations or improvements to the premises of other
tenants; depreciation, interest and principal payments on mortgages and other
debt costs, if any; costs of correcting major and/or latent defects in, or
significant design errors relating to, the design, or construction of the
Building; costs for which the Landlord is reimbursed by any tenant or occupant
of the Building, by insurance proceeds, or by anyone else; the expense for
extraordinary service provided to other tenants of the Building for which
Landlord receives reimbursement; costs associated with the operating of the
business of the Landlord as a separate entity, as the same are distinguished
from the cost of operating the Building; the wages and benefits of any employee
who does not devote substantially all of his or her employee time to the
Building, unless such wages and benefits are prorated to reflect time spent on
operating and managing the Building; fines, penalties and interests; any charges
or expenses accrued by Landlord resulting from its own or its affiliate's
occupancy of any space in the Building; any recalculation of or additional
Operating Costs actually incurred more than three years prior to the year in
which the Landlord proposes that such costs be included; all items and services
for which the Tenant
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or other tenant of the Building reimburses the Landlord or which the Landlord
provides selectively to one or more of the tenants (other than Tenant) without
reimbursement; tax penalties incurred as a result of the Landlord's negligence,
inability, or unwillingness to make payments when due; Landlord's general
overhead and general administrative expenses, provided nothing herein shall be
deemed to prohibit the Landlord from charging a reasonable management fee
computed in accordance with industry custom and otherwise subject to the
limitations herein; costs (including reasonable attorney fees) incurred by
Landlord due to Landlord's violation or any tenant's violation (other than
Tenant) of the terms and conditions of any lease of space in the Building; and
any other expense which in accordance with generally accepted accounting
principles, consistently applied, would not normally be treated as Operating
Costs by landlords of comparable buildings, except for expenses relating to
repair or replacement of the roof, paving, and HVAC equipment, which shall be
included within the "Operating Costs" of the Building.
(c) Tenant shall have the right to inspect all documents reflecting
any part of the Operating Costs and the calculations of any amount payable under
Section 6(a) of this Lease and Landlord shall explain its calculations of
Operating Cost and the amounts due under Section 6(a) once each year upon
request by Tenant. If Tenant wishes to dispute the determination of Operating
Costs under Section 6(b) or the calculation of any amount payable under Section
6(a), Tenant shall give Landlord written notice of such dispute within ninety
(90) days after receipt of notice from Landlord of the matter giving rise to the
dispute. If Tenant does not provide Landlord such notice within such time,
Tenant shall have waived its right to dispute such determination or calculation.
Promptly after the giving of such written notice, Landlord shall cause to be
made a complete audit of Landlord's records relating to the matter in dispute by
a nationally recognized firm of independent certified public accountants
selected by Landlord. The cost of such audit shall be borne by Tenant unless
such audit discloses an error which overstated Operating Cost by more than three
percent of the amount determined by the audit in which event Landlord shall bear
the cost of such audit. If such audit reveals that the amount previously
determined by Landlord was incorrect, a correction shall be made and either
Landlord shall promptly return to Tenant any overpayment or Tenant shall
promptly pay to Landlord any underpayment which was based on such incorrect
amount. Notwithstanding the pendency of any dispute hereunder, Tenant shall
make payments based upon Landlord's determination or calculation until such
determination or calculation has been established hereunder to be incorrect.
SECTION 7: TAXES
(a) Tenant shall pay before delinquency any and all taxes,
assessments, license taxes and other charges levied, assessed or imposed and
which become payable during the Term of this Lease upon Tenant's operations at,
occupancy of, or conduct of business at the Premises or upon equipment,
furniture, appliances, trade fixtures and other personal property of any kind
installed or located at premises; provided however Tenant may pay such amounts
after delinquency to the extent that such delay is necessary to Tenant's good
faith and diligent contest of such amounts, but only so long as there is no risk
of Tenant having any of its assets foreclosed upon or seized by the taxing
authority.
(b) If Tenant shall install or cause Landlord to install special
tenant improvements such as, but not limited to, private elevators, escalators,
interior staircases or other fixtures and fittings which cause an increase in
the assessed value of the Building, then Tenant shall also pay as additional
rent all the taxes specified in Section 6(b)(i) reasonably allocable to such
extraordinary improvements. If the taxing authorities fail to render a separate
tax bill with respect to such improvements, Landlord shall allocate a reasonable
portion of such taxes on the Building to such improvements.
SECTION 8: QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that upon Tenant paying the Base
Rent and additional rent hereunder and observing and performing all the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed, Tenant may peaceably and quietly enjoy the Premises subject,
nevertheless, to the terms and conditions of this Lease and to the underlying
mortgages hereinafter mentioned.
SECTION 9: PREPARATION OF PREMISES
Landlord shall, prior to the commencement of the Term of this Lease,
substantially complete the work in the Premises required to be done by Landlord
as specified in Exhibit C attached hereto. Landlord shall not be required to
timely complete any of such work where Landlord's failure to do so is caused by
any delay, interference with or hindrance
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of such work by Tenant, Tenant's contractor or any of their employees, servants
or agents, by any changes in such work requested by Tenant and agreed to by
Landlord, or by the failure of Tenant or Tenant's contractor to timely and
properly complete any of Tenant's work in the Premises. Any such failure of
Landlord shall not make this Lease void or voidable or alter or affect any of
the terms hereof (with the exception of Section 3, above) and Tenant shall not
be entitled to any abatement of rent therefor. In order that Tenant can plan
its affairs, Landlord shall give Tenant ninety (90) days notice of when Landlord
believes the Commencement Date will occur and thereafter shall keep Tenant
advised as to construction progress and any changes in Landlord's prediction as
to the Commencement Date.
SECTION 10: ACCEPTANCE OF PREMISES
Taking possession of the Premises by Tenant shall be conclusive evidence as
against Tenant that the Premises and the Building were in good and satisfactory
condition when Possession was taken.
SECTION 11: ACCESS TO PREMISES
Landlord and Landlord's agents shall have the right to enter the Premises
at all times to examine them, to show them to prospective purchasers,
mortgagees, lessors or lessees, and to make and perform such decorations,
cleaning, maintenance, repairs, alterations, improvements or additions as
Landlord may deem necessary or desirable for the safety, improvement or
preservation of the Premises or of other portions of the Building, without the
same constituting an eviction of Tenant in whole or in part or entitling Tenant
to any abatement of rent, by reason of loss or interruption of business of
Tenant, or otherwise. If Tenant shall not be personally present to open and
permit an entry into the Premises, at any time when for any reason an entry
therein shall be necessary or permissible, Landlord or Landlord's agents may
enter the Premises by use of a master key, or in an emergency may forcibly enter
the Premises, without rendering Landlord or Landlord's agents liable therefor
(provided that during such entry Landlord or Landlord's agents shall accord
reasonable care to Tenant's property), and without in any manner affecting the
obligations and covenants of this Lease. Landlord shall have the right to
erect, build, use and maintain unexposed pipes, ducts and conduits in and
through the premises. If an excavation shall be made upon land adjacent to the
Building or any part thereof or shall be authorized to be made, Tenant shall
afford to the person causing or authorized to cause such excavation, license to
enter upon the Premises for the purpose of doing such work as such person shall
deem necessary to preserve the Building or any part thereof from injury or
damage and to support any part thereof by proper foundations without any claim
for damages or indemnity against Landlord or diminution or abatement of rent.
Notwithstanding anything to the contrary in this paragraph, Landlord agrees to
use its best efforts not to interfere unreasonably with the Tenant or the
Tenant's business in the course of exercising its rights under this paragraph.
In the event that Landlord's exercise of its rights under this paragraph
prevents Tenant from operating its business for three or more days (unless such
exercise results from Tenant's action, breach of this Lease, or negligence).
Tenant shall be entitled to an abatement of rent until such time that Tenant is
able to operate its business on the Premises.
SECTION 12: ALTERATIONS BY TENANT
(a) Tenant shall make no alterations, decorations, installations,
additions or improvements in or to the Premises without first obtaining the
written consent of Landlord which consent shall not be unreasonably withheld.
Tenant understands that Landlord's consent will be conditioned on Tenant's
compliance with Landlord's requirements as in effect at the time permission is
requested, which requirements will include, but not be limited to Landlord's
approval of plans, specifications, contractors, insurance, and hours of
construction. Tenant will be required to pay Landlord a reasonable fee for
supervising Tenant's contractor and for landlord's related costs, such as, but
not limited to, trash removal, utilities and elevator operators. Prior to the
commencement of any work in or to the Premises by Tenant's contractor, Tenant
shall on request deliver to Landlord certificates issued by applicable insurance
companies evidencing that workmen's compensation and public liability insurance
and property damage insurance, all in amounts and with companies, and on forms
satisfactory to Landlord, are in force and effect and maintained by all
contractors and subcontractors engaged by Tenant to perform such work. Each
such certificate shall provide that it may not be cancelled without ten days'
prior written notice to Landlord.
(b) All articles of personal property, and all movable business and
trade fixtures, machinery and equipment, cabinetwork, furniture and movable
partitions owned or installed by Tenant at its expense in the Premises (and with
respect to which no credit or
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allowance was granted to Tenant by Landlord) shall remain the property of Tenant
and may be removed by Tenant at any time, provided that Tenant, at its expense,
shall repair any damage to the Premises or the Building caused by such removal.
All alterations, decorations, installations, additions or improvements in or to
the Premises other than those specified in the first sentence of this Section
12(b) shall, upon the completion thereof, become the Property of Landlord and
shall be surrendered to Landlord upon the expiration or other termination of the
Term of this Lease. Landlord may elect to require Tenant to remove all or any
part of the Property described in the first sentence of this Section 12(b) at
the expiration or other termination of the Term of this Lease, in which event
such removal shall be done at Tenant's expense, and Tenant shall, at its
expense, repair any damage to the Building or Premises caused by such removal.
(c) Subject to the provisions of Section 11 of this Lease. Tenant
shall be solely responsible for the consequences of Tenant's repairs and
alterations on the Building's structure and on the operation of Building
systems, such as heating, air conditioning, ventilating, electrical and
plumbing, whether or not Tenant had received Landlord's consent to such repairs
or alterations pursuant to this Section 12.
SECTION 13: REPAIRS
(a) Tenant shall take good care of the Premises and the fixtures and
improvements therein, including, but not limited to, carpet, drywall and
fixtures (except for the unexposed pipes, ducts and conduits in and through the
Premises), and, at its sole cost and expense, make repairs, restorations or
replacements as and when needed to preserve them in good working order and
condition. If Tenant fails to make any repairs, restorations or replacements
required by this Lease, Landlord may (but without any obligation to do so) make
such repairs, restorations, or replacements at the expense of Tenant and such
expense shall be due as additional rent. Tenant shall comply with all
provisions of Sections 12 and 14 of this Lease in connection with such repairs,
restorations and replacements.
(b) Landlord shall make repairs, restorations and replacements as and
when needed to those portions of the Building which are not required to be
maintained by Tenant or other tenants of the Building in order to preserve them
in good working order and condition. Landlord shall replace all lamps, tubes
and ballasts used in the Premises either after notice from Tenant or as a result
of any periodic relamping program undertaken by Landlord. Such repairs,
restorations and replacements shall be included within Operating Cost unless the
need for such repairs, restorations and replacements resulted from any fault or
negligence of Tenant or Tenant's employees, agents or invitees, in which event
the amount paid for such repairs, restorations and replacement shall be
immediately due from Tenant to Landlord with interest at the Default Rate from
the dates of Landlord's payments.
(c) There shall be no allowance to Tenant for a diminution of rental
value and no liability on the part of Landlord, by reason of inconvenience,
annoyance or injury to, or interruption of business, arising from Landlord,
Tenant or others making any repairs, restorations, replacements, alterations,
additions or improvements in or to any portion of the Building or the Premises,
or in or to fixtures, appurtenances or equipment thereof or as a result of other
tenants failing to make repairs.
SECTION 14: MECHANIC'S LIENS
(a) Tenant shall pay or cause to be paid all costs for work done by it
or caused to be done by it on the Premises of a character which will or may
result in liens on Landlord's interest therein and Tenant will keep the Premises
free and clear of all mechanic's liens, and other liens on account of work done
for Tenant or persons claiming under it. Tenant shall indemnify and hold
Landlord harmless against any liability, loss, damage, costs or expenses,
including attorney's fees, on account of any claims of any nature whatsoever,
including claims of liens of laborers or material men or others for work
performed for, or materials or supplies furnished to Tenant or persons claiming
under Tenant.
(b) Should any liens be filed or recorded against the Premises or any
action affecting the title thereto be commenced, Tenant shall give Landlord
written notice thereof. Tenant shall thereafter cause such liens to be removed
of record within ten days after the filing of the liens. If Tenant shall desire
to contest any claim of lien, it shall furnish Landlord with security
satisfactory to Landlord of at least 150% of the amount of the claim, plus
estimated costs and interest. For purposes of the preceding sentence, a bond
from a surety company reasonably satisfactory to Landlord in a form reasonably
satisfactory to Landlord shall be satisfactory security. If a final judgment
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establishing the validity or existence of a lien for any amount is entered,
Tenant shall pay and satisfy the same at once. If Tenant shall be in default in
paying any charge for which a mechanic's lien or suit to foreclose the lien has
been recorded or filed, and shall not have given Landlord security as described
above, Landlord may (but without being required to do so) pay such lien or claim
and any costs, and the amount so paid, together with reasonable attorney's fees
incurred in connection therewith, shall be immediately due from Tenant to
Landlord with interest at the Default Rate from the dates of Landlord's
payments.
(c) At least five days prior to the commencement of any work permitted
to be done by persons requested by Tenant on the Premises, Tenant shall notify
Landlord of the proposed work and the names and addresses of the persons
supplying labor and materials for the proposed work so that Landlord may avail
itself of the provisions of statutes such as Section 38-22-105(2) of Colorado
Revised Statutes (1973, as amended). During any such work on the Premises,
Landlord and its representatives shall have the right to go upon and inspect the
Premises at all reasonable times, and shall have the right to post and keep
posted thereon notices such as those provided for by Section 38-22-105(2) or to
take any further action which Landlord may deem to be proper for the protection
of Landlord's interest in the Premises.
SECTION 15: CASUALTY
(a) If the Premises, or the Building, shall be so damaged by fire or
other casualty as to render the Premises untenantable, and if such damage shall
be so great that an architect selected by Landlord shall certify in writing to
Landlord that the Premises, with the exercise of reasonable diligence, but
without the payment of overtime or other premiums cannot be made tenantable
within 180 days from the happening of the fire or other casualty, or if the
damage shall be such that Landlord's architect shall certify that the Premises
can be made tenantable within the 180-day period from the happening of the fire
or other casualty, but insurance proceeds are not made available to Landlord for
repair of such damage, then Landlord may terminate this Lease, and in the event
such fire or other casualty occurs in the final one year of the Term or in the
final one year of any Option Term, Tenant may terminate this Lease. If neither
Landlord or Tenant terminates this Lease as set forth above, then, except as
hereinafter provided, Landlord shall with reasonable promptness, repair the
damage so done except that Landlord shall not be required to repair, replace or
restore any items specified in the first sentence of Section 12(b). In the
event that such repairs are not actually completed within 270 days from the
happening of the fire or other casualty, Tenant may terminate this Lease within
280 days from the beginning of the fire or other casualty. Until such repair is
substantially completed, the Base Rent shall be abated in proportion to the part
of the Premises which is unusable by Tenant in the reasonable conduct of its
business or profession. There shall be no abatement of Base Rent by reason of
any portion of the Premises being unusable for a period of 15 days or less. If
the damage is due to the fault or negligence of Tenant or Tenant's employees,
agents or invitees, there shall be no abatement of Base Rent.
(b) If the Premises, without the fault or negligence of Tenant, shall
be damaged by fire or other casualty, but not so as to render them untenantable,
Landlord shall cause the damage to be repaired with reasonable promptness and
there shall be no abatement of Base Rent or any other amounts due under this
Lease. If the fire or other casualty causing damage to the Premises or other
parts of the Building shall have been caused by the Tenant, or Tenant's
employees, agents or invitees, such damage shall be repaired by Landlord and the
amount paid for such repair shall be immediately due from Tenant to Landlord
with interest at the Default Rate from the dates of Landlord's payments.
(c) If the Building is so damaged by fire or other casualty (although
the Premises are unaffected by such fire or other casualty, or if affected, can
be repaired within 180 days) that Landlord shall deem it advisable to
reconstruct, rebuild or raze the Building, then notwithstanding anything
contained herein to the contrary, this lease may be terminated by Landlord as of
the date of the occurrence of the fire or other casualty by giving written
notice to Tenant of such termination within (30) days after the occurrence of
the fire or other casualty. Within ninety (90) days of such notice of
termination, Tenant shall surrender to Landlord the Premises and all interest
therein under this Lease, and Landlord may re-enter and take possession of the
Premises and remove Tenant therefrom. Tenant shall Pay Base Rent, and all other
sums payable hereunder, duly apportioned as of the date of such termination of
this, Lease, and Landlord and Tenant shall be free and discharged from all
obligations arising hereunder after the date of such termination.
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SECTION 16: EMINENT DOMAIN
(a) If any portion of the Premises or any portion of the Building
shall be taken by right of eminent domain or by condemnation or shall be
conveyed in lieu of any such taking, which shall render the Premises
untenantable, then this Lease, at the option of either Landlord or Tenant
exercised by either party giving written notice to the other of such termination
within thirty (30) days after such taking or conveyance, shall forthwith cease
and terminate and the Base Rent and all other sums payable hereunder shall be
duly apportioned as of the date of such taking or conveyance. Tenant thereupon
shall surrender to Landlord the Premises and all interest therein under this
Lease, and Landlord may re-enter and take possession of the Premises and remove
Tenant therefrom. If neither party exercises the option to terminate this
Lease, Landlord shall make an equitable adjustment of the Base Rent payable by
Tenant for the tenantable portion of the Premises.
(b) If any portion of the Building shall be taken or conveyed as
described above, which shall not render the Premises untenantable, then this
Lease, at the option of Landlord exercised by Landlord giving written notice to
Tenant of such termination within thirty (30) days after such taking or
conveyance, shall forthwith cease and terminate and the Base Rent and all other
sums payable hereunder shall be duly apportioned as of the date of such taking
or conveyance. Tenant thereupon shall surrender to Landlord the Premises and
all interest therein under this Lease, and Landlord may re-enter and take
possession of the Premises and remove Tenant therefrom. If Landlord does not
exercise the option to terminate this Lease, this Lease shall continue in full
force and effect.
(c) In the event of any taking or conveyance described above, Landlord
shall receive the entire award or consideration for the lands and improvements
so taken and Tenant hereby waives all claims against Landlord and assigns to
Landlord all claims against the condemnor for or on account of or incident to
such taking or conveyance, except that Tenant may separately claim and recover
from the condemnor, but not from Landlord, the value of any Personal Property of
Tenant which Tenant was entitled to remove pursuant to this Lease.
SECTION 17: INJURY TO PERSON OR PROPERTY
Tenant shall neither hold nor attempt to hold Landlord or Landlord's
employees or agents liable for, and Tenant shall hold harmless and indemnify
Landlord and Landlord's employees or agents from and against, any and all
demands, claims causes of action, liabilities, or judgements, and any and all
expenses (including, without limitation, attorney's fees) incurred by Landlord
in investigating and resisting the same, arising from any of the following:
(a) Any injury or damage to the person or property of Tenant, any
other tenant in the Building or to any other person rightfully in the Building
for any purpose whatsoever, where the injury or damage is caused by the neglect
or fault of Tenant or Tenant's employees, agents or invitees, or where such
injuries are the result of the violation of laws or ordinances, governmental
orders of any kind, or of the provisions of this Lease including the rules and
regulations provided for in Section 25 of this Lease, by any of such persons.
(b) Any injury or damage of any nature suffered by Tenant or Tenant's
employees, agents or invitees, where the injury or damage is caused by the
interference with or obstruction of deliveries to the Premises by any person;
(c) Any injury or damage of any nature suffered by Tenant or Tenant's
employees, agents or invitees where the injury or damage is caused by the loss
or destruction by any person of furniture, inventory, valuables, files or any
other property kept or stored on the Premises; and
(d) Any injury or damage not specified above to the person or property
of Tenant, or Tenant's employees, agents or invitees, where the injury or damage
is caused by any reason other than the negligence, recklessness or intentional
acts of Landlord or Landlord's employees or agents, including, but not limited
to any injury or damage resulting from fire, explosion, falling plaster or
glass, steam, gas, electricity, water, rain or snow or leaks from any part of
the Building, or from the pipes, appliances or plumbing works or from the roof,
street subsurface or from any other place or by dampness.
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SECTION 18: INSURANCE
(a) At all times during the Term of this Lease, Tenant shall, at its
own expense, maintain (i) public liability insurance for claims for personal
injury or death and property damage with limits of not less than $500,000.00
combined single limit of liability; and (ii) fire and extended coverage
insurance on all property described in the first sentence of Section 12(b) to
the extent of at least 90 percent of their insurable value. All such policies
shall name Landlord as an additional insured party and shall be with insurance
companies and on forms reasonably satisfactory to Landlord. Tenant shall, prior
to Tenant's occupancy of the Premises and thereafter at Landlord's request,
furnish Landlord with copies of all insurance to be maintained by Tenant and
with evidence of payment of the premiums thereon. All such policies shall
contain a clause or endorsement to the effect that they may not be terminated or
amended during the Term of this Lease except after ten days' written notice
thereof to Landlord.
(b) Tenant shall not use or suffer or permit any other firm or person
to use the Premises for any hazardous purpose or in any manner that will
violate, suspend, void, make inoperative or increase the rate of any policies of
insurance of any kind at any time carried by Landlord upon the Premises or the
Building and the fixtures and property therein. Tenant at Tenant's sole expense
shall comply with all rules, orders, regulations or requirements of the board of
fire underwriters, or any other similar body, having jurisdiction over the
Building. Any increase in the cost of any insurance carried by Landlord
attributable to Tenant's activities on the Premises or Tenant's failure to
perform and observe Tenant's obligations and covenants hereunder shall be borne
by Tenant and payable to Landlord, from time to time, on demand.
SECTION 19: SERVICES PROVIDED BY LANDLORD
(a) As long as Tenant is not in default hereunder, Landlord shall
furnish or cause to be furnished the following services:
(i) Passenger elevator service for access to and egress from the
Premises during ordinary Business Hours and subject to call at all other times
(but paid for by Tenant proportionate to its percentage of Building Rentable
Area);
(ii) Heating or air conditioning; provided that Tenant will be solely
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responsible to pay for the power to operate such heating and air conditioning on
the Premises as such utilities will be separately metered;
(iii) Domestic running water for the operation of lavatories,
ordinary drinking fountains in the Common Areas of the Building at all times
(but paid for by Tenant proportionate to its percentage of Building Rentable
Area;
(iv) Common Area janitorial services to be provided (but paid for by
Tenant proportionate to its percentage of the Building Rentable Area);
(v) Electric current for lighting the Premises and the Common Areas of
the Building, for operating ordinary 110-volt portable desk top office equipment
of the type normally used in executive offices, and for operating 220-volt
equipment only as indicated on Exhibit C; provided that Tenant will be solely
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responsible to pay the electric bill to operate such systems on the Premises as
such utilities will be separately metered.
(b) Tenant shall not use or consume water for any purpose other than
ordinary lavatory and drinking purposes. Tenant covenants and agrees that at
all times its use of electric current shall never exceed the capacity of any
wiring installation in or to the Premises.
(c) Landlord shall not be liable to Tenant or any other person, for
direct or consequential damage, or otherwise, for any failure to supply any
heating, air conditioning, elevator, janitor, lighting or other service Landlord
has agreed to supply during any period when Landlord uses reasonable diligence
to supply such services. Landlord reserves the right temporarily to discontinue
such services, or any of them, at such times as maybe necessary by reason of
accident, unavailability of employees, repairs, alterations or improvements,
strikes, lockouts, riots, acts of God, governmental preemption in connection
with a national or local emergency, any rule, order or regulation of any
governmental agency, conditions of supply and demand, Landlord's compliance with
any voluntary or mandatory governmental energy conservation or environmental
protection program or any other happening beyond the control of Landlord.
Landlord shall not be liable for damages to person or property or for injury to,
or interruption of, business
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for any discontinuance permitted under this Section 19, nor shall such
discontinuance in any way be construed as an eviction of Tenant or cause an
abatement of rent or operate to release Tenant from any of Tenant's obligations
hereunder.
SECTION 20: ASSIGNMENT AND SUBLETTING
Tenant shall not assign this Lease or any interest herein or sublet all or
any part of the Premises, or suffer or permit the Premises or any part thereof
to be occupied by others, without the prior written consent of Landlord in each
instance, which consent shall not be unreasonably withheld. Any such attempted
assignment, subletting, or occupancy without Landlord's prior written consent
shall be void and shall confer no rights whatsoever on any party. Tenant will
notify Landlord in writing of any interest in this Lease which Tenant wishes to
assign or any portion of the Premises which Tenant wishes to sublet or permit
others to occupy which notice shall specify the terms and conditions of such
transaction and shall be accompanied by such information as Landlord may require
with respect to the proposed assignee, sublessee or occupant. Upon receipt of
such notice and information, Landlord shall have the right in its discretion,
reasonably exercised, to either:
(i) Consent to such assignment, subletting or occupancy in which event
any rent or other consideration realized by Tenant under any such assignment,
subletting or occupancy in excess of the Base Rent and other sums payable
hereunder, after amortization of the reasonable costs incurred by Tenant for
leasing commissions and leasehold improvements in connection with such
assignment, subletting or occupancy over the term of such assignment, subletting
or occupancy, shall be paid to Landlord by Tenant: or
(ii) Refuse to consent to such assignment, subletting or occupancy,
setting forth its reasons for such refusal, in writing.
If Landlord does not deliver written notice as to Landlord's election of
one of the options referred to above within thirty (30) days after its receipt
of the notice and information from Tenant, Landlord shall be deemed to have
consented to the proposed assignment, subletting or occupancy. If this Lease or
any interest herein is assigned, or if the Premises of any part thereof be
sublet or occupied by anybody other than Tenant, with or without the consent of
Landlord having first been obtained, Landlord may, after default by Tenant,
collect rent from the assignee, subtenant or occupant, and apply the net amount
collected to the Base Rent and other sums due hereunder, but no collection shall
be deemed a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupancy as the tenant hereof or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant contained in
this Lease. The consent by Landlord to an assignment, subletting, or occupancy
arrangement shall not relieve Tenant from primary liability hereunder or from
the obligation to obtain the express consent in writing of Landlord to any
further assignment, subletting, or occupancy arrangement.
SECTION 21: END OF TERM
Upon the expiration or other termination of the Tem of this Lease, Tenant
shall Promptly quit and surrender to Landlord the Premises broom-clean, in good
order and condition, ordinary wear excepted, and Tenant shall remove all of its
movable furniture and other effects and such alterations, additions and
improvements as Landlord shall require Tenant to remove pursuant to Section 12.
All movable furniture and other effects and alterations, additions and
improvements not so shall conclusively be deemed to have been abandoned and
maybe appropriated, sold, stored, destroyed or otherwise disposed of by Landlord
without notice to Tenant or any other person and without obligation to account
therefor; and Tenant shall pay Landlord all expenses incurred in connection with
such property, including, but not limited to, the cost of repairing any damage
to the Building or Premises caused by removal of such property. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this Lease.
SECTION 22: HOLDOVER
If Tenant or any party claiming through or under Tenant shall remain or
continue to be in possession of the Premises or any part thereof after the
termination of this Lease, at Landlord's option, Tenant or such party or both
shall be deemed to be illegally retaining possession or shall be deemed to be a
month to month tenant of the Premises on all the terms and conditions of this
Lease, except that the Base Rent shall be 1.5 times the amount of the Base Rent
for the final Lease Year. Nothing herein contained shall be construed to limit
Landlord's right to obtain Possession of the Premises upon termination of this
Lease by unlawful detainer proceedings or otherwise in the event that Landlord
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does not exercise Landlord's option to treat the continued possession by Tenant
or any party claiming through or under Tenant as a month to month tenancy.
SECTION 23: SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
(a) This Lease is subject and subordinate to all ground and underlying
leases and to all mortgages, trust indentures and other encumbrances which may
now or hereafter affect such leases or all or any portion of the Building and to
all renewals, modifications, consolidations, replacements and extensions
thereof. This clause shall be self-operative and no further instrument or
subordination shall be required to order to effectuate it. Tenant covenants and
agrees nevertheless, to execute and deliver promptly any certificate or other
assurance in confirmation of such subordination requested by any lessor or
mortgagee.
(b) Tenant agrees that in the event any proceedings are brought for
the foreclosure of any mortgage to which this Lease is subject and subordinate,
or any ground lessor retakes possession of the Building. Tenant will attorn to
the purchaser at any such foreclosure sale or such ground lessor (as the case
maybe) and will recognize such Purchaser or ground lessor as its landlord under
this Lease. Any attornment to a purchaser or ground lessor pursuant to this
Section 23 shall occur automatically, but Tenant shall on request by and without
cost to Landlord, ground lessor, or any purchaser execute and deliver any
instruments evidencing such attornment.
(c) Notwithstanding the foregoing, no subordination or attornment
pursuant to the Provisions of this Section 23 shall be effective unless prior to
the date any party desiring such subordination or attornment obtains title to,
or possession of the Building, such party has acknowledged by written notice to
Tenant that this Lease and Tenant's rights hereunder shall continue undisturbed
while Tenant is not in default hereunder; except that party shall not be:
(i) Liable for any act or omission of any prior Landlord or;
(ii) Subject to any offsets or defenses which Tenant might have
against any prior Landlord; or
(iii) Bound by any Base Rent which Tenant might have paid for more
than one month in advance to any prior Landlord.
SECTION 24: STATEMENT OF PERFORMANCE
Each party agrees at any time and from time to time, to execute and deliver
to the other, within twenty (20) days following a request therefor, a statement
in writing certifying that this Lease is in full force and effect, and
unmodified (or specifying any modifications), that the requesting party is not
in default hereunder (or specifying any alleged defaults by the requesting
party), and any further information about this Lease or the Premises which the
requesting party may reasonably request. Each party understands that
prospective purchasers, mortgagees or lessors of the Building and prospective
assignees of this Lease or prospective subleassees or occupants of the Premises
will rely on such certificates. Any failure by either party to respond to a
request within twenty (20) days after receipt of the request shall constitute an
admission that the matters set forth in the requested certificate are true.
SECTION 25: RULES AND REGULATIONS
The rules and regulations set forth on Exhibit D attached hereto are hereby
made a part of this Lease. Landlord may from time to time amend, modify, delete
or add new and additional reasonable rules and regulations for the use, safety,
cleanliness and care of the Premises and the Building, and the comfort, quiet
and convenience of occupants of the Building. Such new or modified rules and
regulations shall be effective upon notice to Tenant from Landlord thereof.
Tenant and Tenant's employees, agents and invitees, shall at all times observe
faithfully and comply strictly with, the rules and regulations set forth on
Exhibit D or as hereinafter modified by Landlord. In the event of any breach of
any rules or regulations set forth on Exhibit D or any amendments or additions
thereto, Landlord shall have all remedies in this Lease provided for in the
event of default by Tenant and shall, in addition have any remedies available at
law or in equity including the right to enjoin any breach of such rules and
regulations. No provision of this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce the rules and regulations or terms,
covenants or conditions in any other lease, against any other tenant or person.
Landlord shall not be liable to Tenant for violation of such rules, regulations,
terms, covenants or conditions by any other tenant, or such tenant's
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employees, agents or invitees, or any other person. To the extent that Landlord
enforces the rules and regulations for the Building, they shall be enforced
uniformly with respect to all tenants.
SECTION 26: SIGNS; BUILDING NAME; DIRECTORY
(a) Tenant shall not install, inscribe, paint or otherwise attach any
sign, advertisement or notice on any part of the outside of the Premises or the
Building or to any part of the inside of the Premises which is visible from
outside of the Premises or in the halls, lobbies, windows or elevator banks of
the Building without the prior consent of Landlord, which consent may be
withheld in Landlord's absolute discretion. Any permitted sign shall comply
with the requirements of any governmental authority having jurisdiction over the
Building. Tenant shall, at Tenant's expense, maintain all permitted signs and
shall, on the expiration or earlier termination of this Lease, and at Tenant's
expense, remove all such Permitted signs and repair any damage caused by such
removal. Landlord shall have the right to remove all non-permitted signs
without notice to Tenant and at the expense of Tenant.
(b) Landlord shall have the right to name the Building and to change
the name, number or designation by which the Building is commonly known. Tenant
shall not use the name of the Building for any purpose other than as the address
of the business or profession to be conducted by Tenant in the Premises.
(c) Landlord shall provide a directory in a conspicuous place in the
Building with names of tenants of the Building. Tenant shall be given one line
on the Building directory. Landlord shall also provide one suite identification
sign adjacent to the main entry door of the Premises in Landlord's standard
form. Tenant shall pay Landlord's reasonable charges for changing such director
listing and identification sign at Tenant's request.
SECTION 27: INDEMNITY; WAIVER
(a) Tenant shall indemnify and hold Landlord harmless from any and all
demands, claims, causes of action, liabilities, judgments, fines and expenses
(including, without limitation, attorney's fees) incurred or suffered by
Landlord by reason of any breach, violation or non-performance by Tenant or
Tenant's employees, agents or invitees of any covenant or provision of this
Lease.
(b) INDEMNIFICATION AND LIABILITY OF LANDLORD. Landlord has no
knowledge of any present violations of applicable federal, state, or local laws
and regulations, including all laws related to toxic hazardous waste. The
tenant shall comply with all applicable federal, state, and local laws and
regulations, including but not limited to the Federal Water Pollution Control
Act, 33 U.S.C. (S)1251, et seq., the Oil Pollution Act, 33 U.S.C. (S)2701 et
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seq., the Clean Air Act, 42 U.S.C. (S)7401, et seq., the Resource Conservation
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and Recovery Act, 42 U.S.C. (S)6901, et seq., and the Comprehensive
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Environmental Response, Control, and Liability Act, 42 U.S.C. (S)9601, et seq.,
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as subsequently amended. The Tenant shall indemnify, defend, and hold the
Landlord harmless for any violations incurred under any such laws and
regulations or for any costs, damages, claims, liabilities, and judgments
arising from past, present, and future acts or judgments arising from past,
present, and future acts or omissions of the Tenant in connection with the use
and/or occupancy authorized by the Lease or other acts of Tenant, agents or
assigns. This indemnification and hold harmless agreement includes, but is not
limited to, acts and omissions of the Tenant in connection with the use and/or
occupancy authorized by the lease which result in: (1) violations of the above
or any applicable laws and regulations; (2) judgments, claims, or demands
assessed against the Landlord; (3) costs, expenses, and damages incurred by the
Landlord; or (4) other releases or threatened releases on or into the land,
property, and other interest of the Landlord by solid waste and/or hazardous
substance(s).
(c) The Tenant's indemnification of the Landlord shall also include
any damages to life or property arising from the Tenant's occupancy or use of
land, property, and other interests of the Landlord. The Landlord has no duty
to inspect leasehold area or to warn of hazards and, if the Landlord does
inspect the area, it shall incur no additional duty nor liability for identified
or non-identified hazards. This covenant may be enforced by the Landlord in a
court of competent jurisdiction.
(d) LANDLORD AND TENANT HEREBY MUTUALLY WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER
ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
LEASE, THE RELATIONSHIP OF
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LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF
INJURY OR DAMAGE.
(e) Binding Arbitration. (i) Any controversy, claim or dispute
arising out of or relating to this Lease or the breach, termination,
enforceability or validity thereof, including without limitation the
determination of the scope or applicability of this Lease to arbitrate, shall be
determined exclusively by binding arbitration in Boulder County before three
arbitrators. The arbitration shall be governed by the American Arbitration
Association under its Commercial Arbitration Rules, provided that at least one
member of the panel shall have relevant knowledge of or experience in the
commercial real estate industry.
(ii) No provision of, nor the exercise of any rights under Section
27(e) shall limit the right of any party; (a) To bring a forcible entry and
detainer, unlawful detainer or eviction action, (b) to exercise self-help
remedies relating to a Landlord lien, or (c) to request and obtain from a court
having jurisdiction before, during or after the pendency of any arbitration,
provisional or ancillary remedies and relief including, but not limited to,
injunctive or mandatory relief or the appointment of a receiver. The
institution and maintenance of an action or judicial proceeding for, or pursuit
of, provisional or ancillary remedies or exercise of self-help remedies shall
not constitute a waiver of the right of any party hereto, even if such party is
the plaintiff, to submit the dispute to arbitration if such party would
otherwise have such right.
(iii) In any such arbitration proceeding, the arbitrator shall not
have the power or authority to award punitive damages to any party. Judgment
upon the award rendered may be entered in any court having jurisdiction.
(iv) Each of the parties shall, subject to the award of the
arbitrators, pay an equal share of the arbitrators' fees. The arbitrators shall
have the power, in the reasonable exercise of their discretion, to award
recovery of all costs and fees (including attorneys' fees, administrative fees,
arbitrators' fees and court costs) to the prevailing party.
SECTION 28: SECURITY
Tenant shall keep on deposit with Landlord at all times during the Term of
this Lease, the Security Deposit as security for the payment by Tenant of the
Base Rent and any other sums due under this Lease and for the faithful
performance of all the terms, conditions and covenants of this Lease. If, at
any time during the Term of this Lease Tenant shall be in default in the
performance of any provision of this Lease, Landlord may, but shall not be
required to, use the Security Deposit or so much thereof as necessary, in
payment of any Base Rent or any other sums due under this Lease in default, in
reimbursement of any expense incurred by Landlord or in payment of the damages
incurred by Landlord by reason of Tenant's default. In such event, Tenant
shall, on written demand of Landlord, forthwith remit to Landlord a sufficient
amount in cash to restore the Security Deposit to its original amount. In the
event the Security Deposit has not been utilized as described above, the
Security Deposit, or as much thereof as has not been utilized for such purposes,
shall be refunded to Tenant, with interest, within sixty (60) days of the end of
the Tem, upon full performance of this Lease by Tenant. Landlord shall have the
right to commingle the Security Deposit with other funds of Landlord, however,
Landlord shall quarterly pay Tenant interest on the average daily principal
balance of the security deposit at an annual rate of eight (8) per cent.
Landlord shall deliver the Security Deposit (plus any accrued interest) to the
purchaser of Landlord's interest in the Premises in the event such interest be
sold, and thereupon, Landlord shall be discharged from further liability with
respect to the Security Deposit.
Notwithstanding the above provisions of this Section 28, if claims of
Landlord exceed the Security Deposit, Tenant shall remain liable for the balance
of such claims. Tenant shall not assign or encumber or attempt to assign or
encumber the Security Deposit provided for herein except that Tenant may assign
such deposit in the event of a permitted assignment of Tenant's entire interest
in this Lease.
SECTION 29: INTENTIONALLY LEFT BLANK
SECTION 30: COMMENCEMENT OF THE TERM
The Term of this Lease shall commence on whichever of the following dates
shall first occur.
(a) The date on or after April 1, 1997, on which the Premises are
substantially ready for occupancy (which shall mean that Landlord shall have
substantially completed the work in the Premises required to be completed by
Landlord as specified in
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Exhibit C, exclusive of minor matters of mechanical and cosmetic adjustment;
provided that, in the event Landlord shall be delayed in completing such work by
any interference with or hindrance of such work by Tenant, Tenant's contractor
or any of their employees, servants or agents or by any changes in such work
requested by Tenant and agreed to by Landlord, the Premises shall be deemed to
have been substantially ready for occupancy on the date on which Landlord would
have substantially completed such work had such delay not occurred; or
(b) The date on which Tenant shall take Possession and occupy the
Premises.
Landlord shall deliver written notice to Tenant specifying the date,
determined in the manner specified above, on which the term of this Lease
commenced, which date shall be the Commencement for all purposes under this
Lease.
SECTION 31: EVENTS OF DEFAULT
The following shall constitute defaults of Tenant hereunder:
(a) Tenant shall fail to pay when due any installment of Base Rent or
any other sum payable by Tenant under terms of this Lease, and Tenant shall fail
to remedy such failure within five (5) days after Landlord shall have given
Tenant written notice specifying such failure;
(b) Tenant shall neglect or fail to perform or observe any of the
covenants herein contained on Tenant's part to be performed or observed and
Tenant shall fail to remedy such default within ten days after Landlord shall
have given to Tenant written notice specifying such neglect or failure (or
within such period, if any, as may be reasonably required to cure such default
if it is of such nature that it cannot be cured within such ten-day period and
proceeds with reasonable diligence thereafter to cure such default);
(c) This Lease or the Premises or any part thereof shall be taken upon
execution or by other process of law directed against Tenant, or shall be taken
upon or subject to any attachment at the instance of any creditor of or claimant
against Tenant, and such, attachment shall not be discharged or disposed of
within thirty (30) days after the levy thereof;
(d) Tenant shall not take possession of the Premises within thirty
(30) days after the Commencement Date or shall vacate or abandon the Premises or
lock the premises so as to prevent the entry therein of Landlord or Landlord's
representatives as permitted by the term of this Lease;
(e) Tenant shall remove or attempt to remove any goods or property
from the Premises other than in the usual course of business;
(f) Tenant shall:
(i) Admit in writing Tenant's inability to pay Tenant's debts
generally as they become due;
(ii) Make an assignment of all or a substantial part of Tenant's
property for the benefit of creditors;
(iii) Apply for or consent to or acquiesce in the appointment of a
receiver, trustee or liquidator of Tenant or of all or a substantial part of
Tenant's property or of the Premises or of Tenant's interest in this Lease; or
(iv) File a voluntary petition in bankruptcy or a petition or an
answer seeking reorganization under any bankruptcy or insolvency law or an
arrangement with creditors, or take advantage of any insolvency law or file an
answer admitting the material allegations of a petition filed against Tenant in
any bankruptcy, reorganization or bankruptcy proceedings; or
(g) The entry of a court order, judgement or decree without the
application, approval or consent of Tenant, approving a petition seeking
reorganization of Tenant under any bankruptcy or insolvency law or appointing a
receiver, trustee or liquidator of Tenant or of all or a substantial part of
Tenant's property or of the Premises or of Tenant's interest in this Lease, or
adjudicating Tenant as bankrupt or insolvent, and such order, judgment or decree
shall not be vacated, set aside or stayed within thirty (30} days from the date
of entry.
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SECTION 32: REMEDIES
If Tenant shall default under this Lease as set forth in Section 31,
Landlord shall have the following rights and remedies in addition to all other
remedies at law or equity, and none, of the following, whether or not exercised
by Landlord, shall preclude the exercise of any other right or remedy whether
herein set forth or existing at law or equity:
(a) Landlord shall have the right to terminate this Lease by giving
Tenant notice in writing, and upon the giving of such notice, this Lease and the
Term hereof as well as the right, title and interest of Tenant under this Lease
shall wholly cease and expire in the same manner and with the same force and
effect (except as to Tenant's liability on the date specified in such notice as
if such date were the expiration date of the Term of this Lease) without the
necessity of re-entry or any other act on Landlord's part. Upon any termination
of this Lease, Tenant shall quit and surrender to Landlord the Premises as set
forth in Section 32. If this Lease is terminated, Tenant shall remain liable to
Landlord for all Base Rent accrued and unpaid and other sums due hereunder to
the date of termination of this Lease and Landlord shall also be entitled to
recover from Tenant the worth at the time of such termination of the excess, if
any, of the amount of Base Rent reserved in this Lease for the balance of the
Term of this Lease (which shall be calculated using an interest rate equal to
the legal rate of interest then in effect) in excess of the then reasonable
rental value of the Premises for the same period. No provision(s) of this Lease
shall limit or prejudice the right of Landlord to prove for and obtain as
liquidated damages by reason of any termination of this Lease, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
(b) Landlord may without demand or notice, re-enter and take
possession of the Premises or any part thereof, and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant, and remove the effects of any and all such persons (forcibly, if
necessary) without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of rent or preceding breach of covenants.
Should landlord elect to re-enter as provided in this Section 32(b), or should
Landlord take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, Landlord may, from time to time, without terminating this
Lease, relet the Premises or any part thereof for such term or terms and at such
rental or rentals, and upon such other conditions as Landlord may deem
advisable, with the right to make alterations and repairs to the Premises. No
such re-entry or repossession of the Premises by Landlord shall be construed as
an election on Landlord's part to terminate this Lease unless a written notice
of termination is given to Tenant by Landlord. No such re-entry or repossession
of the Premises shall relieve Tenant of its liability and obligation under this
Lease, all of which shall survive such re-entry or repossession. Upon the
occurrence of such re-entry or repossession, Landlord shall be entitled to the
amount of the monthly Base Rent, and any other sums which would be payable
hereunder if such re-entry or repossession had not occurred, less the net
proceeds, if any, of any reletting of the Premises after deducting all of
Landlord's reasonable expenses in connection with such reletting, including but
without limitation, all repossession costs, brokerage commissions, legal
expenses, attorney's fees, expenses of employees, alteration costs and expenses
of preparation for such reletting. Tenant shall pay such amount to Landlord on
the days on which the Base Rent or any other sums due hereunder would have been
payable hereunder if possession had not been retaken. In no event shall Tenant
be entitled to receive the excess, if any, of net rent collected by Landlord as
a result of such reletting over the sums payable by Tenant to Landlord
hereunder.
(c) If Tenant shall default in making any payment required to be made
by Tenant (other than payments of Base Rent) or shall default in performing any
other obligations of Tenant under this Lease, Landlord may, but shall not be
obligated to, make such payment or on behalf of Tenant, expend such sum as maybe
necessary to perform such obligation. All sums so expended by Landlord with
interest thereon at the Default Rate shall be repaid by Tenant to Landlord on
demand. No such payment of expenditure by Landlord shall be deemed a waiver of
Tenant's default nor shall it affect any other remedy of Landlord by reason of
such default.
(d) If Tenant shall fail to pay when due any installment of Base Rent
or other sum due under this Lease (even if such failure is timely cured),
Landlord may charge and Tenant shall pay upon demand interest thereon at the
Default Rate, and a collection charge (in addition to any attorney's fees
incurred) equal to five percent (5%) of the amount of said late payment.
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SECTION 33: CONTROL OF THE COMMON AREAS
Landlord shall have the right at any time to change the arrangement or
location of, or both, or to regulate or eliminate the use of the Common Areas
without incurring any liability to Tenant or entitling Tenant to any abatement
of rent and such action shall not constitute an actual or constructive eviction
of Tenant, so long as Tenant's Leasehold interests are not materially affected.
SECTION 34: PARKING PRIVILEGES
Tenant's guest or clients have the same rights to use in common with other
tenants of the Building guests or clients those automobile Parking areas which
are reserved for "visitors only" and which are included within the Common Areas.
SECTION 35: FAILURE TO GIVE PERMISSION; EARLY OCCUPANCY
If Landlord is unable to give possession of the Premises on the
Commencement Date hereof for any reason, including, but not limited to, failure
to complete the Building or the retention of the Premises or any Part thereof by
a prior occupant, Landlord shall not be subject to any liability for failure to
give possession on such date, and, except as set forth in Section 3, the
validity of this Lease shall not be impaired under such circumstances, nor shall
such circumstances be construed to extend the Term of this Lease.
SECTION 36: NO IMPLIED SURRENDER OR WAIVER
The failure of Landlord to seek redress for violation of, or to insist upon
the strict performance of, any covenant or condition of this Lease or any of the
rules and regulations set forth in Exhibit D to this Lease or hereafter adopted
by Landlord shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. If it should be necessary or proper for Landlord to bring any action
under this Lease or to place this Lease with any attorney for the enforcement of
any of Landlord's rights hereunder, then Tenant agrees to pay to Landlord
reasonable attorney's fees. The receipt by Landlord of any sums due hereunder
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the rules and
regulations set forth in Exhibit D, or hereafter adopted, against Tenant or any
other tenant in the Building shall not be deemed a waiver of such rules and
regulations or any part thereof. No provisions of this Lease shall be deemed to
have been waived by Landlord unless such waiver is in writing signed by
Landlord. No act or thing done by Landlord or Landlord's agents during the Term
of this Lease shall be deemed an acceptance of a surrender of the Premises, and
no agreement to accept such surrender shall be valid unless in writing signed by
Landlord. No employees of Landlord or of Landlord's agents shall have any power
to accept the keys of the Premises prior to the termination of this Lease. The
delivery of keys to any employee of Landlord, or of Landlord's agents, shall not
operate as a termination of this Lease or a surrender of the Premises. No
payment by Tenant, or receipt by Landlord, of a lesser amount than any sums due
hereunder, shall be deemed to be other than on account of the earliest
stipulated amount, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such amount or pursue any other
remedy available to Landlord. Time is of the essence hereof.
SECTION 37: PAYMENTS AFTER TERMINATION
No payment of money by Tenant to Landlord after the termination of this
Lease, in any manner, or after the giving of any notice (other than a demand for
payment of money) by Landlord to Tenant, shall reinstate, continue, or extend
the Term of this Lease or make ineffective any notice given to Tenant prior to
the payment of such money. After the service of notice or the commencement of a
suit or after final judgment granting Landlord possession of the Premises,
Landlord may receive and collect any sums due hereunder, and the payment of such
sums shall not make ineffective any notice, or in any manner affect any pending
suit or any judgment theretofore obtained.
SECTION 38: NO REPRESENTATIONS BY LANDLORD; ENTIRE AGREEMENT
Landlord and Landlord's agents have made no representations, warranties,
agreements or promises with respect to the Building or Premises except such as
are expressed herein. The entire contract of the parties is contained herein,
and there are no promises,
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agreements, representations, warranties, conditions or understandings, either
oral or written, between them, other than as are herein set forth.
SECTION 39: BROKERAGE
Tenant represents and warrants that Tenant has dealt only with Landlord in
connection with this Lease and that no broker negotiated this Lease or is
entitled to any Commission in connection herewith. The execution and delivery
of this Lease by Landlord shall be conclusive evidence that Landlord has relied
upon the foregoing representation and warranty. Tenant further agrees to
indemnify and hold harmless Landlord with respect to any claim for broker's
commission or similar compensation brought by any person by reason of Tenant's
acts.
SECTION 40: NOTICE
Any notice, demand or communications concerning the Lease by Landlord to
Tenant shall be in writing and shall be deemed sufficiently given or rendered if
delivered personally to Tenant or any of its officers, or three days after
having been sent by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to Tenant at the most current address of
Tenant known by Landlord, or, after commencement of the Term of this Lease, at
the Premises. Any notice, demand or communication concerning this Lease by
Tenant to Landlord shall be in writing and shall be deemed sufficiently given or
rendered if delivered personally to Landlord or its General Manager or three
days after having been sent by certified or registered United States mail,
postage prepaid, addressed to Landlord at 6676 Gunpark Drive, Suite D, Boulder,
Colorado 80301. Either party shall have the right to designate in writing,
served as above, a different address to which any notice, demand or
communication is to be mailed.
SECTION 41: AMENDMENT OR MODIFICATION
Except as herein otherwise provided, no amendment, alteration, modification
of or addition to this Lease shall be valid or binding unless expressed in
writing and signed by the party or parties to be bound thereby.
SECTION 42: DEFINITION OF LANDLORD
The term "Landlord" as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners at the time in question of the building. In
the event that the interest of the Landlord herein named in the Building is
transferred, whether by sale, lease or sublease, foreclosure, or otherwise, the
named Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and any such transferee that such transferee
has assumed and agreed to carry out any and all covenants and obligations of the
named Landlord and is the Landlord hereunder.
SECTION 43: SEVERABILITY
If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby. It is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added as a
part of this Lease a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
SECTION 44: CAPTIONS; GENDER AND NUMBER
The caption of each Section is added as a matter of convenience only and
shall be considered of no effect in the construction of any provision or
provisions of this Lease. The term "Tenant" herein, or any pronoun used in
place thereof, shall include the masculine, feminine, singular, plural,
individuals, partnerships or corporations where applicable.
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SECTION 45: SUCCESSORS, ASSIGNS; JOINT AND SEVERAL LIABILITY
The covenants, conditions and agreements contained in this Lease shall bind
and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this Lease, obligations imposed upon Tenant under this Lease shall
be joint and several.
SECTION 46: GOVERNING LAW
This Lease shall be governed by and interpreted in accordance with the laws
of the State of Colorado.
SECTION 47: LENDERS PROTECTION CLAUSE
Tenant agrees to give each ground lessor and holder of a mortgage, deed of
trust or other encumbrance secured by the real property described in Exhibit A
attached hereto, by certified or registered mail, a Copy of any notice of
default served upon the Landlord, provided that prior to such notice Tenant has
been notified in writing of the address of such ground lessor or holder. Tenant
further agrees that if Landlord shall have failed to cure such default within
the time provided for in this Lease, then all of such ground lessors and holders
shall have an additional thirty (30) days within which to cure such default or
if such default cannot be cured within that time, then in such additional time
as may be necessary if within such thirty (30) days, such ground lessor or
holder has commenced and is diligently pursuing, the remedies necessary to cure
such default (including, but not limited to, commencement of foreclosure
proceedings, if necessary to effect such cure) in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
EXECUTED as of the date first set forth above.
LANDLORD: TENANT;
MUM II, LLC, HORIZON ORGANIC DAIRY, INC.
/s/ Donald W. Unkefer Jr. /s/ Barnet M. Feinblum
------------------------- ----------------------
By Donald W. Unkefer Jr. By President
Manager/Member
19
<PAGE>
ADDENDUM TO LEASE
THIS Addendum to Lease, dated this 10th day of October, 1996, is between
MUM II, LLC ("Landlord") and Horizon Organic Dairy, Inc. ("Tenant").
WHEREAS, the parties entered into a lease dated October 10, 1996 (the
"Lease"); and
WHEREAS, the parties wish to modify the Lease;
IT IS THEREFORE AGREED AS FOLLOWS:
1. Section 26(c) of the Lease shall be modified so that the Landlord may,
at its discretion, provide the directory in a conspicuous place on the grounds
outside the Building instead of in a conspicuous place in the Building.
2. Section 26(b) of the Lease shall be modified to require the name of the
Building to be the "Horizon Building" during such times as the Lease is in
effect and the Tenant is not in default under the terms of the Lease. Tenant
shall design, acquire at its cost and expense, and pay for the installation of a
sign stating the name of the Building to be placed on the exterior of the
building. Tenant shall submit the design of the sign, as well as drawings
showing where the sign will be placed on an exterior wall of the Building prior
to causing the sign to be constructed. Such sign shall comply with the
requirements of all governmental authorities having jurisdiction over the
building and shall not be installed without the written approval of Landlord,
which approval shall not be unreasonably denied. Upon expiration or earlier
termination of the Lease, Tenant may remove such sign provided that Tenant
repairs all damage caused by such removal.
3. Except as provided in Section 17 of the Lease, subject to the
provisions of paragraph 4 below and only to the extent that Landlord has
insurance coverage to pay the amounts set forth below, Landlord agrees to
indemnify, defend and hold Tenant and its officers, directors, partners and
employees entirely harmless from and against all liabilities, losses, demands,
actions, expenses or claims, including attorney fees and court costs, but
excluding consequential and special damages, for injury to or death of any
person or for damage to any property to the extent that such are determined to
be caused by the misconduct of Landlord, its agents, employees or contractors,
on or about the Premises or Building. None of the events or conditions set
forth in this paragraph shall be deemed a constructive or actual eviction or
entitle Tenant to any abatement or reduction of rent.
4. Notwithstanding the provisions of the preceding paragraph or Section 17
of the Lease, neither Landlord nor Tenant shall be liable to the other for any
damage of the property of the other caused by fire, casualty or the actions of
Landlord, Tenant or their respective employees, agents and contractors, except
to the extent that such property damage is (a) not covered by the property
insurance of the party owning the damaged property required to be maintained
under the terms of this Lease (or if such insurance is not in effect as
required, the amount of such damages which would not have been covered had such
insurance been in effect as required); (b) caused by the intentional actions of
the Landlord or Tenant, as the case may be (i.e. by the indemnifying party); or
(c) are caused by Tenant's installation or removal of alterations or trade
fixtures as provided in the Lease. In connection with the foregoing waiver of
claims, Landlord and Tenant hereby waive any rights of subrogation arising under
their respective property insurance policies.
5. Landlord warrants, represents and covenants to Tenant that the
construction of the improvements to the Premises shall be performed in a good
and workman like manner according to the plans and specifications referred to in
Section 9 of the Lease. Only to the extent that (i) Tenant assumes
responsibility of repairing a particular defect and (ii) such defect pertains to
the Premises, Landlord shall assign to Tenant the warranties, representations
and other rights provided by any contractors, workmen, suppliers or others who
perform services or provides goods for constructing such improvements to the
extent of the sums expended by Tenant for such repairs.
20
<PAGE>
6. Landlord warrants, represents and covenants that the Premises are zoned
for the use set forth in Section 5 of the Lease and that it is not aware that
there will be noncompliance with any federal, state and local laws, rules,
regulations or ordinances, including without limitation, the Americans with
Disabilities Act or any laws relating to toxic hazardous waste as set forth in
Section 27(b) of the Lease, with respect to the Building and surrounding
property owned by Landlord as of the Commencement Date.
7. All other terms of the Lease not modified herein shall remain in full
force and effect.
IN WITNESS WHEREOF the parties hereto have executed this Addendum to Lease
on the day and year first above written.
HORIZON ORGANIC DAIRY, INC.
By /s/ Barnet M. Feinblum
----------------------
President
MUM II, LLC
By /s/ Donald W. Unkefer
---------------------
Donald W. Unkefer, Jr., General Manager
21
<PAGE>
SECOND ADDENDUM TO LEASE
This Second Addendum to Lease, dated this 10th day of October, 1996, is
between MUM II, LLC ("Landlord") and Horizon Organic Dairy, Inc. ("Tenant").
WHEREAS, the parties entered into a Lease, dated October 10, 1996, (the
"Lease"); and
WHEREAS, in consideration for the mutual promises herein contained, the
parties wish to provide for options to extend the Lease and to provide for
assurances of payment by Tenant to Landlord of all obligations due under the
Lease;
IT IS THEREFORE AGREED AS FOLLOWS:
1. Capitalized Words. All capitalized words not otherwise defined herein
-----------------
shall have the meanings given them under the provisions of the Lease.
2. Grant of First Option. Tenant shall have the option to extend the Term
---------------------
of the Lease for an additional five (5) years (the "First Option"); provided
that Tenant is not in default under the Lease at the time the First Option is
exercised.
3. Exercise of First Option. Tenant may only exercise its First Option by
------------------------
written notice to Landlord served upon Landlord during the time period between
nine (9) months and six (6) months prior to the end of the original Term. Once
such notice is served, the Term of the Lease shall automatically be modified so
that the Term of the Lease shall end at noon on the last day of the calendar
month in which the fifteenth (15th) anniversary of the Commencement Date occurs.
4. Grant of Second Option. Provided that Tenant has exercised its First
----------------------
Option, Tenant shall have the option to extend the Term of the Lease for another
five (5) year additional period (the "Second Option"); provided that Tenant is
not in default under the Lease at the time the Second Option is exercised.
5. Exercise of Second Option. Tenant may only exercise its Second Option
-------------------------
by written notice to Landlord served upon Landlord during the time period
between nine (9) months and six (6) months prior to the end of the Term as
modified by the exercise of the First Option. Once such notice is served, the
Term of the Lease shall be automatically modified so that the Lease will end at
noon on the last day of the calendar month in which the twentieth (20th)
anniversary of the Commencement Date occurs.
6. All Provisions of the Lease to Remain the Same During the Option
----------------------------------------------------------------
Periods. All the provisions of the Lease shall remain the same during the
- -------
extended Terms in the event that either or both of the options granted hereunder
are exercised, including, but not limited to, the provisions of the lease
regarding the Escalation Rent.
7. Aurora Dairy Corporation. Landlord and Tenant agree that Landlord may,
in Landlord's sole discretion, lease to Aurora Dairy corporation, a Delaware
corporation, or one of its affiliates ("Aurora") approximately 3,600 square feet
in Suite D (the "Aurora Space") for at least five (5) years and upon such other
terms as Landlord finds satisfactory. Landlord and Aurora may enter directly
into a lease for the Aurora space, in which event, Tenant shall not be entitled
to the use or possession of such space under the terms of the Lease, and
Tenant's rent for Suite D shall be proportionately reduced. Tenant shall have
an option to lease the Aurora Space at the expiration or termination of the
lease between Landlord and Aurora for the Aurora Space at Tenant's then current
per square foot rental rate for Suite A with all terms and conditions the same
as Tenant's then existing Lease. Such option shall be exercised by Tenant on or
before one hundred twenty (120) days prior to the expiration of Landlord's lease
with Aurora, and in the event of an earlier termination of the lease between
Landlord and Aurora for the Aurora Space, within five (5) days of notice that
the Landlord or Aurora intends to terminate the lease prior to its expiration.
Tenant may only exercise such option if the Lease is currently in effect and
Tenant is not in default thereunder. If Tenant exercises its option under this
paragraph, then the Lease shall be amended to include the Aurora Space. If
Tenant does not exercise its option hereunder, then Landlord may lease the
Aurora Space to Aurora or any other party on any terms that Landlord may find
satisfactory to Landlord.
22
<PAGE>
8. All other terms of the Lease not modified herein shall remain in full
force and effect.
IN WITNESS WHEREOF the parties hereto have executed this Addendum to Lease
on the day and year first above written.
HORIZON ORGANIC DAIRY, INC.
By /s/ Barnet M. Feinblum
----------------------
President
MUM II, LLC
By /s/ Donald W. Unkefer, Jr.
--------------------------
Donald W. Unkefer, Jr., General Manager
23
<PAGE>
THIRD ADDENDUM TO LEASE
THIS Third Addendum to Lease dated this 31st. day of March , 1997,
----------- ---------
is between MUM II, LLC (Landlord) and Horizon Organic Dairy, Inc. (Tenant).
WHEREAS, the parties entered into a lease dated October 10, 1996, as
amended by the Addendum to Lease and the Second Addendum to Lease (the "Lease");
and
WHEREAS, the parties wish to modify the Lease,
IT IS THEREFORE AGREED AS FOLLOWS:
1. Capitalized Words. All capitalized words not otherwise defined herein
-----------------
shall have the meanings given them under the provisions of the Lease.
2. Base Rent for Suite D. The per square foot Base Rent for Suite D shall
---------------------
be increased to the same per square foot Base Rent as Suite A. The total Base
Rent for the first Lease Year shall be $140,285.36 total, consisting of
---------------
$71,013.43 for Suite A and $69,271.93 for Suite D, except that Tenant
- ------------ --------------
shall be entitled to a credit of $123.58 per day for each day between the
----------
Commencement Date and October 4, 1997. (Such credit reflects the difference
between the Base Rent rate for finished space and unfinished space.)
3. Finish for Suite D. Suite D shall be finished office space, to be
------------------
finished by Landlord prior to October 4, 1997, as set forth in Exhibits "A" and
"B" attached hereto.
4. No Change in Commencement Date. The Commencement Date shall be the
------------------------------
date set forth in the Lease without reference to whether the finished work set
forth in Section 3 above has been completed. For purposes of Section 30(b) of
the Lease, the Premises shall be considered to be occupied by Tenant so long as
any portion of Suite A is occupied by Tenant.
5. Sublease. Landlord consents to Tenant subleasing the portion of Suite
--------
D shown on Exhibit A to Aurora Dairy Company, Inc. without Tenant paying to
Landlord any portion of the rents received by Tenant from Aurora Dairy Company,
Inc. so long as the sublease is substantially in the form and upon the terms of
the sublease attached hereto as Exhibit "C". Tenant shall remain liable to
Landlord for all of its obligations under the Lease and paragraph 2 hereof
whether or not Aurora Dairy Company, Inc. fulfills its obligations under the
Sublease.
6. Other Terms. All other terms of the Lease not modified herein shall
-----------
remain in full force and effect.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third Addendum to
Lease on the day and year first above written.
HORIZON ORGANIC DAIRY, INC.
By /s/ Barnet M. Feinblum
----------------------
MUM II, LLC
By /s/ Donald W. Unkefer, Jr.
--------------------------
Donald W. Unkfer, Jr., General Manager
25
<PAGE>
EXHIBIT A
[Picture of Horizon building on landscaped lot.]
26
<PAGE>
EXHIBIT B
[Picture of floor plan of the premises.]
27
<PAGE>
EXHIBIT C
Pg 1 of 2
SUBLEASE FOR HORIZON BUILDING
MONARCH PARK
THIS Sublease is made this _____ day of ______________, 1997, by and
between Horizon Organic Dairy, Inc. ("Landlord") and Aurora Dairy Company, Inc.
("Subtenant").
Section 1. Master Lease. This Sublease is subject and subordinate to the
--------- ------------
Lease dated October 10, 1996, as amended by the Addendum to Lease, Second
Addendum to Lease and Third Addendum to Lease, between MUM, II, LLC ("Owner")
and Landlord ("Master Lease"). Subject to the Sections 2 through 7 below, the
parties intend that Landlord shall sublet the Premises (as defined in Section 2
below) to Subtenant upon the same terms and conditions that Landlord is renting
them from Owner. Except as may be inconsistent with the terms hereof, all
terms, covenants and conditions in the Master Lease shall be applicable to this
Sublease with the same force and effect as if Landlord were the Lessor under the
Master Lease and Subtenant were the Lessee thereunder, and in case of any breach
hereof by Subtenant, Landlord shall have all of the rights against Subtenant as
would be available to the Landlord against the Tenant under the Master Lease, if
such breach were by the Tenant thereunder. Subtenant represents that it has
read and is familiar with the terms of the Master Lease. All capitalized words
not otherwise defined herein shall have the meanings given them under the Master
Lease.
Section 2. Lease of Premises. Landlord hereby leases to Subtenant, and
--------- -----------------
Subtenant hereby leases from Landlord, the portion of Suite D of the Horizon
Building shown on Exhibit "A" attached hereto, together with the non-exclusive
right to use the common areas for the purposes for which the common areas are
intended (the "Premises"). The Premises Rentable Area is 3595.2 square feet
which has been determined by Architect's Measurement.
Section 3. Term. The Term of this Sublease shall be from October 4, 1997
--------- ----
to ___ __________ unless sooner terminated or extended pursuant to the terms of
this Sublease.
Section 4. Rent. Subtenant shall pay to Landlord all Base Rent, Operating
--------- ----
Costs, and Escalation Rent attributable to the Premises under the Master Lease.
Section 5. Preparation of Premises. This Sublease is conditioned upon the
--------- -----------------------
completion of the improvements described in Exhibit "A" attached hereto, prior
to October 4, 1997.
Section 6. Insurance. Subtenant shall maintain the insurance required
--------- ---------
under the terms of the Master Lease, except that the policy shall name Landlord
and Owner as
28
<PAGE>
EXHIBIT C
Pg 2 of 2
additional insured parties and shall be with insurance companies and on
forms reasonably satisfactory to both the Landlord and the Owner.
Section 7. Assignment and Subletting. Tenant shall not assign this Lease
--------- -------------------------
or any interest hereto or sublease all or any part of the Premises or suffer or
permit the Premises or any part thereof to be occupied by others without the
prior written consent of Landlord and Owner. Landlord and Owner may each
withhold their consent for any reason in their sole discretion.
IN WITNESS WHEREOF the parties have executed this Sublease on the day and
year first above written.
HORIZON ORGANIC DAIRY, INC.
By
-----------------------------------------------
AURORA DAIRY CORPORATION, INC.
By
-----------------------------------------------
29
<PAGE>
EXHIBIT D
(Attached to and forming a part of Office Lease for Horizon Building)
RULES AND REGULATIONS
The rules and regulations set forth in this Exhibit shall be and
hereby are made a part of the Lease to which they are attached. Whenever the
term "Tenant" is used in these rules and regulations, it shall be deemed to
include Tenant, its employees, agents or invitees. The following rules and
regulations may from time to time be modified by Landlord in the manner set
forth in Article 19 of the Lease.
1. OBSTRUCTION. The sidewalks, entries, passage, corridors, halls,
lobbies, stairways, elevators and other common facilities of the Building shall
be controlled by the Landlord and shall not be obstructed by Tenant or used for
any other purpose other than ingress or egress to and from the Premises. Tenant
shall not place any item in any of such locations, whether or not any such item
constitutes an obstruction, without the prior written consent of the Landlord.
Landlord shall have the right to remove any such obstruction or any such item
without notice to Tenant and at the expense of the Tenant.
2. DELIVERIES. Tenant shall insure that all deliveries of supplies
to the Premises shall be made during the ordinary business hours of the
building. If any person delivering supplies to Tenant damages the elevator or
any other part of the building, Tenant shall pay to landlord upon demand the
amount require to repair such damage.
3. MOVING. If Tenant's movers damage the elevator or an other part
of the Building, Tenant shall pay to Landlord upon demand the amount required to
repair such damage.
4. HEAVY ARTICLES. Tenant shall not place a load upon any floor of
the Premises exceeding 50 lbs. of live load per square foot. Tenant will pay the
fees of the structural engineer of the Building if structural engineering advice
is necessary in planning the positioning of heavy loads. Business machines and
mechanical equipment shall be placed and maintained by Tenant at Tenant's
expanse in settings sufficient to absorb and prevent vibration, noise and
annoyance. Safes and other heavy equipment, the weight of which will not
constitute a hazard or damage the Building or its equipment, shall be moved
into, from and about the Building only during such hours and in such manner as
shall be prescribed by Landlord.
5. NUISANCE. Tenant shall not do or permit anything to be done in
the Premises, or bring or keep anything therein which would in any way
constitute a nuisance or waste, obstruct or interfere with the rights of other
tenants of the Building, or in any way injure or annoy them, or conflict with
the laws relating to fire, or with any
30
<PAGE>
regulations of the fire department, or with any insurance policy upon the
Building or any part thereof, or conflict with any of the rules and ordinances
of any governmental authority having Jurisdiction over the Building. Tenant
shall not cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors, to emanate from the Premises.
6. PASS KEY. The Janitor of the Building may at all times keep a
pass key to the Premises, and he and other agents of the Landlord shall at all
times be allowed admittance to the Premises, with reasonable notice given to
Tenant.
7. LOCKS AND KEYS FOR PREMISES. No additional lock or locks shall be
placed by Tenant on any door in the Building and no existing lock shall be
changed unless written consent of the Landlord shall first have been obtained.
A reasonable number of keys to the Premises and to the toilet rooms, if locked
by Landlord, will be furnished by Landlord and Tenant shall not have any
duplicate keys made. At the termination of this tenancy, Tenant shall promptly
return to Landlord all keys to offices and toilet rooms.
8. USE OF THE WATER FIXTURES. Water closets and other water fixtures
shall not be used for any purpose other than that for which they are intended,
and any damage resulting to such fixtures from misuse on the part of the Tenant
shall be paid for by Tenant.
9. NO ANIMALS, EXCESSIVE NOISE. No animals shall be allowed in the
offices, halls, corridors and elevators in the Building, except guide dogs for
the sight or hearing impaired. No person shall disturb the occupants of this or
adjoining buildings or space by the use of any radio or musical instrument or by
the making of loud or improper noises.
10. BICYCLES. Bicycles or other vehicles shall not be permitted
anywhere inside or on the sidewalks outside of the Building, except in those
areas designated by Landlord for bicycle parking.
11. TRASH. Tenant shall not allow anything to be placed on the
outside of the Building, nor shall anything be thrown by Tenant out of the
windows or doors, or down the corridors, elevator shafts or ventilating ducts or
shafts of the Building. All trash shall be placed in receptacles provided by
Tenant on the Premises or in any receptacles provided by Landlord for the
Building.
12. WINDOWS. Levelor style window coverings shall be installed by
Landlord and no awnings shall be placed over the windows without Landlord's
prior written consent. Tenant agrees to abide by Landlord's rules with respect
to maintaining uniform window coverings at all windows and hallways so that the
Building will present a uniform exterior appearance.
31
<PAGE>
13. HAZARDOUS OPERATIONS AND ITEMS. Tenant shall not install or operate
any steam or gas engine or boiler, or carry on any mechanical business in the
Premises without Landlord's prior written consent, which consent may be withheld
in Landlord's absolute discretion. The use of oil, gas or flammable liquids for
heating, lighting or any other purpose is expressly prohibited. Tenant shall
not bring or permit to be brought or kept in or on the Premises any flammable,
combustible or explosive fluid, material, chemical or substance. Explosives or
other articles deemed extra hazardous shall not be brought into the Building.
14. HOURS FOR REPAIRS, MAINTENANCE AND ALTERATIONS. Any repairs,
maintenance and alterations required or permitted to be done by Tenant under the
Lease shall be done only during the ordinary Business Hours of the Building
unless Landlord shall have first consented to such work being done outside of
such times. If Tenant desires to have such work done by Landlord's employees,
on saturdays or sundays, holidays or weekdays outside of ordinary business
hours, Tenant shall pay the extra cost of such labor.
15. NO DEFACING OF PREMISES. except as permitted below, Tenant shall
not mark upon, paint signs upon, cut, drill into, drive nails or screws into, or
in any way deface the walls, ceilings, partitions or floors of the Premises or
of the Building, and any defacement, damage or injury caused by Tenant shall be
paid for by Tenant. Tenant shall be allowed to hang up pictures, plagues and
decorative items not exceeding 8 square feet in size on the walls of the
Premises.
16. CHAIR PADS. During the entire term of this Lease, Tenant shall, at
its expense, install and maintain under all caster chairs a chair pad to protect
the carpeting.
17. CAPTIONS. The caption for each of these rules and regulations is
added as a matter of convenience only and shall be considered of no effect in
the construction of any provision or provisions of these rules.
32
<PAGE>
EXHIBIT 11.1
HORIZON ORGANIC HOLDING CORPORATION
CALCULATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------------
December 31, December 31, December 31, December 31,
1993 1994 1995 1996
-----------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net income (loss) (163) (434) (509) 27
Common and common equivalents shares outstanding:
Historical common shares outstanding at beginning of period 1,070 1,157 2,672 2,872
Weighted average common and common equivalent shares 56 963 119 392
issued
Weighted average common shares issued-basic 1,126 2,120 2,791 3,264
Weighted average common equivalent shares issued ___ ___ ___ 19
Weighted average common shares issued-diluted 1,126 2,120 2,791 3,283
Basic and diluted earnings (loss) per share (0.14) (0.20) (0.18) 0.01
<CAPTION>
Three month interim
Year ended period ended
------------ --------------------------------
December 31, March 31, March 31,
1997 1997 1998
------------ --------------------------------
(unaudited)
(in thousands except per share amounts)
<S> <C> <C> <C>
Net income (loss) (1,022) (43) (115)
Common and common equivalents shares outstanding:
Historical common shares outstanding at beginning of period 3,649 3,649 5,052
Weighted average common and common equivalent shares 839 10 4
issued
Weighted average common shares issued-basic 4,488 3,659 5,056
Weighted average common equivalent shares issued ___ ___ ___
Weighted average common shares issued-diluted 4,488 3,659 5,056
Basic and diluted earnings (loss) per share (0.23) (0.01) (0.02)
</TABLE>
<PAGE>
EXHIBIT 21.1
Names under
which each
State of subsidiary
The Company's subsidiaries Incorporation does business
- -------------------------- ------------- -------------
Horizon Organic Dairy, Inc. Colorado Horizon Organic Dairy
Horizon Organic Dairy, Horizon Organic Farms
Idaho Farm, Inc. Colorado Horizon Organic Dairy
Horizon Organic Dairy, Horizon Organic Farms
Maryland Farm, Inc. Colorado Horizon Organic Dairy
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
THE BOARD OF DIRECTORS
HORIZON ORGANIC HOLDING CORPORATION
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/KPMG PEAT MARWICK LLP
Boulder, Colorado
April 30, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 9, 1997, with respect to the financial statements
of Sunrise Organic Farms, Inc. (f/k/a Aurora Dairy Corporation of Idaho, Inc.)
in the Registration Statement and the related prospectus of Horizon Organic
Holding Corporation.
/s/ Eide Helmeke PLLP
April 30, 1998
Fargo, North Dakota
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF OBER, KALER, GRIMES & SHRIVER]
April 30, 1998
Horizon Organic Holding Corporation
6311 Horizon Lane
Longmont, Colorado 80503
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-1 of Horizon Organic Holding
Corporation (the "Company") to be filed with the Securities and Exchange
Commission for the registration of the Company's Common Stock and to the related
Prospectus. We hereby consent to the reference to our firm in such Prospectus
under the caption "Experts" as that term applies to our expertise in reviewing
the information contained under the captions "Risk Factors--Possibility of
Adverse Effect Resulting from United States Dairy Support Program and Federal
Milk Marketing Orders" and "Business--Government Regulation" of the Registration
Statement, solely insofar as they constitute summaries of USDA and state
regulatory provisions.
Very truly yours,
OBER, KALER, GRIMES & SHRIVER
/s/ Charles M. English, Jr.
- -----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 MAR-31-1998
<PERIOD-START> DEC-29-1996 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 404 811
<SECURITIES> 0 0
<RECEIVABLES> 2,442 2,804
<ALLOWANCES> (49) (55)
<INVENTORY> 4,870 4,436
<CURRENT-ASSETS> 8,014 8,485
<PP&E> 22,859 24,609
<DEPRECIATION> (969) (1,398)
<TOTAL-ASSETS> 32,737 34,501
<CURRENT-LIABILITIES> 5,079 5,965
<BONDS> 0 0
0 0
0 0
<COMMON> 5 5
<OTHER-SE> 8,881 8,791
<TOTAL-LIABILITY-AND-EQUITY> 32,737 34,501
<SALES> 29,565 10,102
<TOTAL-REVENUES> 29,565 10,102
<CGS> 22,639 7,055
<TOTAL-COSTS> 22,639 7,055
<OTHER-EXPENSES> 8,040 2,713
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,126 492
<INCOME-PRETAX> (2,222) (158)
<INCOME-TAX> (513) (43)
<INCOME-CONTINUING> (1,022) (115)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,022) (115)
<EPS-PRIMARY> (0.23) (0.02)
<EPS-DILUTED> (0.23) (0.02)
</TABLE>
