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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-----------
Commission File No. 000-24337
Horizon Organic Holding Corporation
(a Delaware Corporation)
I.R.S. Employer Identification Number 84-1405007
6311 Horizon Lane
Longmont, Colorado 80503
(303) 530-2711
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X. No .
--- ---
As of July 30, 1999, the registrant had outstanding 9,696,931 shares of
its common stock, $.001 par value per share.
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<PAGE>
HORIZON ORGANIC HOLDING CORPORATION
Form 10-Q
Table of Contents
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets.................................... 3
Consolidated Statements of Operations.......................... 4-5
Consolidated Statements of Cash Flows.......................... 6
Notes to Consolidated Financial Statements..................... 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9-11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 12
Item 6. Exhibits and Reports on Form 8-K.............................. 12
SIGNATURE.............................................................. 13
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financials Statements
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 1999 (unaudited) and December 31, 1998
(in thousands, except share amounts)
ASSETS
June 30 December 31
1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................... $ 3,722 $ 14,384
Marketable securities ....................................................... 12,533 9,923
Trade accounts receivable, net............................................... 7,857 4,873
Inventories.................................................................. 6,260 5,466
Deferred income tax assets................................................... 107 281
Other current assets......................................................... 1,185 563
------------- --------------
Total current assets..................................................... 31,664 35,490
Property, Equipment and Cattle
Cattle, net.................................................................. 10,651 9,725
Property and equipment, net.................................................. 17,508 15,534
------------- --------------
Total property, equipment and cattle..................................... 28,159 25,259
Other Assets:
Intangible assets, net ...................................................... 21,512 8,132
Other assets, net............................................................ 520 475
------------- --------------
Total other assets....................................................... 22,032 8,607
------------- --------------
Total Assets........................................................ $ 81,855 $ 69,356
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable....................................................... $ 5,004 $ 4,693
Current portion of long-term debt............................................ 2,313 434
Other accrued expenses....................................................... 3,875 1,978
Income taxes payable......................................................... 325 87
------------- --------------
Total current liabilities................................................ 11,517 7,192
Long-Term Liabilities:
Long-term debt, less current portion......................................... 11,716 4,923
Deferred income tax liabilities.............................................. 1,222 1,271
------------- --------------
Total long-term liabilities.............................................. 12,938 6,194
------------- --------------
Total liabilities................................................... 24,455 13,386
Stockholders' Equity:
Preferred stock, $.001 par value, authorized 2,000,000 shares; no shares issued
or outstanding........................................................... --- ---
Common stock, $.001 par value, authorized 30,000,000 and 8,000,000 shares,
issued and outstanding 9,696,586 and 9,656,368 shares in 1999 and
1998, respectively....................................................... 10 10
Additional paid-in capital................................................... 58,084 57,845
Accumulated deficit.......................................................... (717) (1,885)
Other comprehensive income................................................... 23 ---
------------- --------------
Total stockholders' equity............................................... 57,400 55,970
------------- --------------
Total Liabilities and Stockholders' Equity.......................... $ 81,855 $ 69,356
============= ==============
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended June 30, 1999 and 1998
(in thousands, except per share amounts)
(unaudited)
1999 1998
---- ----
<S> <C> <C>
Net sales.................................................................. $ 20,590 $ 11,793
Cost of sales.............................................................. 13,358 8,040
-------------- --------------
Gross profit......................................................... 7,232 3,753
-------------- --------------
Operating expenses:
Selling.............................................................. 4,357 2,437
General and administrative........................................... 1,749 756
-------------- --------------
Total operating expenses.......................................... 6,106 3,193
-------------- --------------
Operating income........................................................... 1,126 560
-------------- --------------
Other income (expense):
Interest income (expense)............................................ 24 (662)
Other income (expense), net.......................................... (40) (14)
-------------- --------------
Total other income (expense)...................................... (16) (676)
-------------- --------------
Income (loss) before income taxes................................. 1,110 (116)
Income tax benefit (expense) .............................................. (444) 23
-------------- --------------
Net income (loss)................................................. $ 666 $ (93)
============== ==============
Income (loss) per basic and diluted share -
net income (loss) per share.......................................... $ .07 $ (.02)
============== ==============
Weighted average shares outstanding, basic........................... 9,692 5,056
Weighted average shares outstanding, diluted......................... 10,129 5,056
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1999 and 1998
(in thousands, except per share amounts)
(unaudited)
1999 1998
---- ----
<S> <C> <C>
Net sales.................................................................. $ 37,013 $ 21,895
Cost of sales.............................................................. 24,259 15,064
-------------- --------------
Gross profit......................................................... 12,754 6,831
-------------- --------------
Operating expenses:
Selling.............................................................. 7,941 4,569
General and administrative........................................... 3,033 1,368
-------------- --------------
Total operating expenses.......................................... 10,974 5,937
-------------- --------------
Operating income........................................................... 1,780 894
-------------- --------------
Other income (expense):
Interest income (expense)............................................ 244 (1,133)
Other income (expense), net.......................................... (78) (36)
-------------- --------------
Total other income (expense)...................................... 166 (1,169)
-------------- --------------
Income (loss) before income taxes................................. 1,946 (275)
Income tax benefit (expense) .............................................. (778) 66
-------------- --------------
Net income (loss)................................................. $ 1,168 $ (209)
============== ==============
Income (loss) per basic and diluted share -
net income (loss) per share.......................................... $ .12 $ (.04)
============== ==============
Weighted average shares outstanding, basic........................... 9,679 5,056
Weighted average shares outstanding, diluted......................... 10,116 5,056
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
5
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<TABLE>
<CAPTION>
HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
(in thousands)
(unaudited)
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities.................................. $ 1,858 $ 1,905
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired....................... (5,592) (2,140)
Purchases of marketable securities, net.............................. (2,610) ---
Purchases of equipment............................................... (1,308) (1,121)
Purchases and costs of cattle ....................................... (3,050) (3,018)
Proceeds from equipment sales........................................ 54 45
Proceeds from cattle sales........................................... 616 388
Other, net........................................................... (60) (662)
-------------- --------------
Net cash used in investing activities............................. (11,950) (6,508)
-------------- --------------
Cash flows from financing activities:
Borrowings under long-term lines of credit........................... --- 25,034
Payments on long-term lines of credit................................ --- (22,865)
Repayments of long-term debt, other than lines of credit............. (815) (338)
Proceeds from long-term debt, other than lines of credit............. --- 500
Proceeds from issuance of term note.................................. --- 2,000
Proceeds from the exercise of warrants............................... 137 ---
Proceeds from the issuance of stock under ESPP....................... 55 ---
Proceeds from the exercise of options ............................... 29 ---
-------------- --------------
Net cash provided by (used in) financing activities............... (594) 4,331
-------------- --------------
Change resulting from other comprehensive income........................... 24 ---
Net decrease in cash and cash equivalents.................................. (10,662) (272)
Cash and cash equivalents at beginning of period........................... 14,384 404
-------------- --------------
Cash and cash equivalents at end of period................................. $ 3,722 $ 132
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................. $ 85 $ 943
============== ==============
Cash paid during the period for income taxes......................... $ 522 $ ---
============== ==============
Non-cash investing and financing activities:
Note issued for acquisition ......................................... $ 8,514 $ 4,000
============== ==============
Common stock issued for services..................................... $ --- $ 26
============== ==============
Common stock issued to directors..................................... $ 17 $ ---
============== ==============
Additional capital lease obligations................................. $ --- $ 50
============== ==============
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
6
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HORIZON ORGANIC HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share amounts)
1. Basis of Presentation
The accompanying consolidated financial statements have been prepared by Horizon
Organic Holding Corporation (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally accompanying financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. In management's
opinion, all adjustments necessary for a fair presentation of the results of
operations for the periods presented have been made and are of a normal and
recurring nature. Operating results for the period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
These consolidated financial statements and accompanying notes should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
2. Translation of Foreign Currencies
The accounts of the Company's foreign subsidiary in the United Kingdom
are measured using the local currency which has been designated as the
functional currency. Assets and liabilities are translated at the exchange rate
in effect at the end of the period. Revenues and expenses are translated at the
average exchange rate for the period. Translation adjustments arising from the
use of differing exchange rates from period to period are included in other
comprehensive income in stockholder's equity.
3. Acquisition of Rachels Dairy, Ltd.
In April 1999, the Company acquired all the assets and liabilities of
Rachels Dairy, Ltd. ("Rachels"), a United Kingdom company for $2.4 million in
cash plus acquisition costs of $.4 million. The excess of cost over the fair
value of acquired net assets of $2.5 million is being amortized on a
straight-line basis over 15 years.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Rachels as if the acquisition
has occurred at the beginning of 1999 and 1998, after giving effect to certain
adjustments including amortization of goodwill and income taxes. The proforma
financial information does not necessary reflect the results of operations that
would have occurred has the Company and Rachels constituted a single entity
during such periods.
<TABLE>
<CAPTION>
Three months ended Six months ended
(unaudited, dollars in thousands) June 30, June 30,
------------------------- ------------------------
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 20,590 12,742 $ 38,219 23,666
---------- ----------- ---------- ----------
Net loss $ 666 (64) $ 1,187 (180)
---------- ----------- ---------- ----------
Net loss per basic and diluted share $ .12 (.04) $ .07 (.01)
---------- ----------- ---------- ----------
</TABLE>
4. Acquisition of Brand Name
In April 1999, the Company acquired certain intangible assets including
The Organic Cow brand name for $10.9 million. The acquisition was financed with
a cash payment of $2.4 million and a $8.5 million promissory note payable to the
seller, bearing interest at 5.3%, and payable in annual installments over 4
years. The intangible asset of $10.9 million plus acquisition costs of $.3
million are being amortized on a straight-line basis over 15 years .
7
<PAGE>
5. Reportable Segments
The Company has two segments of business, the marketing company and the
dairy farm operations. The marketing company is responsible for acquiring,
processing and marketing organic fluid milk, organic dairy products, and organic
non-dairy products. The dairy farm operations are responsible for producing farm
milk for use by the marketing company in the production of its products and for
sales to third parties. The dairy farms sell organic farm milk to the marketing
company at an intercompany transfer price which approximates fair value. Other
represents operations in the United Kingdom which was acquired in the second
quarter of 1999. The following table sets forth selected segment data for the
period ended June 30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- ------------------------
1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales by Segment
Marketing $ 19,150 11,793 $ 35,573 21,854
Dairy farm operations 5,083 4,322 9,837 8,114
Other 1,440 -- 1,440 --
---------- ----------- ---------- ----------
Total net sales 25,673 16,115 46,850 29,968
Intersegment sales (5,083) (4,322) (9,837) (8,073)
---------- ----------- ---------- ----------
Net sales $ 20,590 11,793 $ 37,013 21,895
---------- ----------- ---------- ----------
Income from Operations
Marketing $ 402 515 $ 801 936
Dairy farm operations 594 45 849 (42)
Other 130 -- 130 --
---------- ----------- ---------- ----------
Income from operations 1,126 560 1,780 894
Interest and other income (expense), net (16) (676) 166 (1,169)
---------- ----------- ---------- ----------
Income (loss) before income taxes $ 1,110 (116) $ 1,946 (275)
---------- ----------- ---------- ----------
</TABLE>
6. 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 following table
sets forth the calculation of earnings (loss) per share for the period ended
June 30, 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 666 (93) $ 1,168 (209)
Common and common equivalent shares outstanding:
Historical common shares outstanding at
beginning of period 9,692 5,056 9,656 5,052
Weighted average common equivalent shares
issued during period -- -- 23 4
---------- --------- ----------- ---------
Weighted average common shares - basic 9,692 5,056 9,679 5,056
Weighted average common equivalent shares
outstanding during period 437 -- 437 --
---------- --------- ----------- ---------
Weighted average common shares - diluted 10,129 5,056 10,116 5,056
========== ========= =========== =========
Net income (loss) per basic and diluted share $ .07 (.02) $ .12 (.04)
========== ========= =========== =========
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This following discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements and accompanying
notes included herein and the Company's Annual Report on Form 10-K for the
fiscal year ended December 31,1998. Except for the historical information
contained herein, the discussion in this Quarterly Report on Form 10-Q contains
certain forward-looking statements that involve risks and uncertainties. Future
events may differ materially from those discussed herein, due to a number of
factors, including uncertainties related to the charges the Company has to pay
as a result of government regulation. These factors are more fully discussed in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, under the headings "Risk Factors - Possibility of Adverse Effects
Resulting from United States Dairy Support Program and Federal Milk Market Order
Program." In addition, the Company's results could also be affected by a number
of other risks and uncertainties which are more fully discussed under the
headings "Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.
Results of Operations
Three Months Ended June 30, 1999, Compared to Three Months Ended June 30, 1998
Net Sales. Net sales for the three months ended June 30, 1999 were
$20.6 million, an increase of $8.8 million, or 75%, from $11.8 million for the
comparable period in 1998. This increase was due to the acquisition of the
Organic Cow brand in the northeast U.S. and Rachels Dairy, Ltd. in the United
Kingdom, as well as, increased sales to existing accounts as the result of
increased distribution, continued development of conventional grocery food
channels, and the introduction of several new products, including organic citrus
juices.
Gross Profit. Gross profit for the three months ended June 30, 1999 was
$7.2 million, an increase of $3.4 million, or 93%, from $3.8 million for the
comparable period in 1998. As a percentage of net sales, gross profit increased
to 35.1% from 31.8%. This increase is due primarily to continued improvements in
operations at the Company's organic dairy farm in Southern Idaho (the "Idaho
Dairy").
Selling Expenses. Selling expenses for the three months ended June 30,
1999 were $4.4 million, an increase of $2.0 million, or 79%, from $2.4 million
for the comparable period in 1998. As a percentage of net sales, selling
expenses was essentially flat at 21.2% versus 20.7% for the comparable period in
1998. The increase in selling expenses was primarily due to increased levels of
marketing expenditures as well as increased costs for expanded distribution.
General and Administrative Expenses. General and administrative
expenses for the three months ended June 30, 1999 were $1.7 million, an increase
of $.9 million, or 131%, from $.8 million during the comparable period in 1998.
As a percentage of net sales, general and administrative expenses increased to
8.5% from 6.4%. This increase is primarily due to increased amortization of
intangible assets, the increased costs associated with becoming a public company
and the buildup of corporate infrastructure to support the Company's growth.
Other Income (Expense), Net. Other income (expense), net for the three
months ended June 30, 1999 was expense of $16,000 compared to an expense of
$676,000 during the comparable period in 1998. This change is primarily
attributable to the reduction in interest expense due to the repayment of $22.0
million of indebtedness during the third quarter of 1998 combined with earnings
from investments in 1999.
Six Months Ended June 30, 1999, Compared to Six Months Ended June 30, 1998
Net Sales. Net sales for the six months ended June 30, 1999 were $37.0
million, an increase of $15.1 million, or 69%, fr om $21.9 million for the
comparable period in 1998. This increase was primarily due to increased sales to
existing accounts as t he result of increased distribution, continued
development of conventional grocery food channels, and the introduction of
several n ew products, including organic citrus juices. In addition, net sales
increased due to the acquisition of the Organic Cow brand in t he northeast U.
S. and Rachels Dairy, Ltd. in the United Kingdom during the second quarter of
1999.
Gross Profit. Gross profit for the six months ended June 30, 1999 was
$12.8 million, an increase of $5.8 million, or 87%, from $6.8 million for the
comparable period in 1998. As a percentage of net sales, gross profit increased
to 34.5% from 31.2%. This increase is due primarily to continued improvements in
operations at the Idaho Dairy which contributed
9
<PAGE>
income versus a loss for the comparable period in 1998. This increase was
partially offset by higher than normal charges under the Federal Milk Market
Order Program during the first quarter of 1999.
Selling Expenses. Selling expenses for the six months ended June 30,
1999 were $7.9 million, an increase of $3.3 million, or 74%, from $4.6 million
for the comparable period in 1998. As a percentage of net sales, selling
expenses were essentially flat at 21.5% versus 20.9% for the comparable period
in 1998. The increase in selling expenses was primarily due to increased levels
of marketing expenditures as well as increased costs for expanded distribution.
General and Administrative Expenses. General and administrative
expenses for the six months ended June 30, 1999 were $3.0 million, an increase
of $1.6 million, or 122%, from $1.4 million during the comparable period in
1998. As a percentage of net sales, general and administrative expenses
increased to 8.2% from 6.2%. This increase is primarily due to increased
amortization of intangible assets, the increased costs associated with becoming
a public company and the buildup of corporate infrastructure to support the
Company's growth.
Other Income (Expense), Net. Other income (expense), net for the six
months ended June 30, 1999 was income of $166,000 compared to an expense of $1.2
million during the comparable period in 1998. This change is primarily
attributable to the reduction in interest expense due to the repayment of $22
million of indebtedness during the third quarter of 1998 combined with earnings
from investments in 1999.
Liquidity and Capital Resources
Cash Provided by Operations. Cash provided by operations during the six
months ended June 30, 1999 and 1998 remain ed consistent at $1.9 million.
Cash Used in Investing Activities. Cash used in investing activities
during the six months ended June 30, 1999 totaled $11.9 million, as compared to
$6.5 million for the comparable period in 1998. The increase was primarily due
to acquisitions and investments in marketable securities in the second quarter
of 1999.
Cash Provided by (Used in) Financing Activities. Cash used in financing
activities during the six months ended June 30, 1999 totaled $594,000 as
compared to $4.3 million provided by financing activities for the comparable
period in 1998. This decrease is primarily due to the Company not utilizing its
line of credit in the 1999.
Company management believes that cash and cash equivalents, cash
generated from operations and the availability under the line of credit will be
sufficient to meet the Company's foreseeable operating and capital expenditure
needs.
Long-term Debt. The Company has a revolving line of credit with U.S.
Bank with a maximum borrowing capacity of $20 million, interest at prime less
.25%, secured by substantially all the assets of the Company, due June 30, 2000.
The revolving line of credit contains 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. There were no amounts outstanding
under the line of credit at June 30, 1999.
In April, in conjunction with The Organic Cow acquisition, the Company
issued an $8.5 million promissory note payable to the seller, bearing interest
at 5.3%, and payable in annual installments over 4 years.
Year 2000. The Year 2000 issue refers to the fact that certain
management information systems use two digit data fields which recognize dates
using the assumption that the first two digits are "19 " (i.e., the number 99 is
recognized as the year 1999). When the year 2000 occurs, these systems could
interpret the year as 1900 versus 2000, which in turn, could result in system
failures or miscalculations causing disruptions of operations of the Company and
its suppliers and customers.
To address this issue, the Company has established a cross-functional
team from across the organization under the sponsorship of the Chief Financial
Officer. This team is implementing a multi-phase plan that includes;
inventorying computer systems, software and equipment to assess the impact of
the Year 2000; contacting third-party suppliers to ascertain their state of
readiness and or compliance; developing solution plans related to upgrading,
modifying or replacing affected systems; testing and certifying results; and
developing contingency plans as necessary.
The Company has completed its initial evaluation of computer systems at
the corporate location. The evaluation revealed that the Company's network
hardware and operating systems, e-mail system, and accounting software are the
major
10
<PAGE>
resources that are affected by the Year 2000 issue. While these systems will
need to be either replaced or upgraded, the identified systems and or programs
are primarily "off the shelf" products with Year 2000 versions currently
available. The Company believes these systems are fully compliant. The Company
is scheduled to complete its evaluation of the computer systems at the Idaho
Dairy and the Maryland Dairy by August 1999 with full compliance expected by
September 1999.
The Company relies heavily on third-party suppliers for many products
and services. As part of its Year 2000 plan, the Company has contacted its
significant suppliers to determine the extent to which the systems of such
suppliers are Year 2000 compliant. In addition, the Company is assessing the
extent to which it could be affected by the failure of such third parties to be
Year 2000 compliant. To date approximately fifty percent of the entities
contacted have responded with the majority of the respondents in some phase of
addressing Year 2000 issues. The Company will continue to contact its
significant suppliers in an effort to minimize any potential Year 2000
compliance impact, however, it is not possible to guarantee their compliance.
The total cost expended to date for the Year 2000 plan has been
minimal. The Company anticipates spending approximate ly $100,000 to make all
systems Year 2000 compliant.
Management believes that it has an effective program in place to
adequately address the Year 2000 issue in a timely manner. Nevertheless, failure
of third parties upon whom the Company's business relies could result in
disruption of the Company's supply of product, late, missed or unapplied
payments, temporary disruptions in order processing and other general problems
related to daily operations. In addition, disruptions in the economy generally
resulting from Year 2000 issues could also adversely affect the Company.
Although, the Company believes its Year 2000 plan will adequately address the
Company's internal issues, the overall risks associated with the Year 2000 issue
cannot be fully identified until the Company receives more responses from
significant suppliers. Accordingly, the amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
The Company expects to develop and implement, where necessary, a
contingency plan by the end of September 1999.
11
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 12, 1999 the Company held its annual meeting of stockholders, at
which the stockholders elected two directors to serve until the annual meeting
of stockholders to be held in 2002, and in each case until their respective
successors are elected and qualified or until such directors' death, resignation
or removal. The stockholders also ratified the selection of KPMG LLP as
independent auditors of the Company for the fiscal year ending December 31,
1999. Votes were cast as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------ -------------- ------------ ------------- --------------
For Against Abstaining Broker
or Withheld Non-Vote
- ------------------------------------------------------------------ -------------- ------------ ------------- --------------
Election of Class I Directors:
Mark A. Retzloff 7,572,172 102,860 N/A N/A
Irwin Gordon. 7,568,486 106,546 N/A N/A
Ratification of KPMG LLP as independent auditors for the fiscal
year ending December 31, 1999 7,590,380 81,480 3,172 None
- ------------------------------------------------------------------ -------------- ------------ ------------- --------------
</TABLE>
Directors whose term of office continued after the annual meeting are: Paul B.
Repetto, Clark Mandigo II, Richard L. Robinson, Barnet M. Feinblum, Thomas D.
McCloskey, and Marcus B. Peperzak.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 10.17 Dairy Business Agreement by and among Horizon Organic Holding
Corporation, H.P. Hood Inc. and The Organic Cow L.L.C. as of
April 30, 1999.
Exhibit 27 Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended June 30, 1999.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HORIZON ORGANIC HOLDING CORPORATION
Date: August 16, 1999 /s/ Don J. Gaidano
------------------------------------
Don J. Gaidano
Vice President, Finance and Administration,
Chief Financial Officer,
Treasurer and Assistant Secretary (principal
financial and accounting officer of the
Company)
13
<PAGE>
================================================================================
Horizon Organic Holding Corporation
Dairy Business Agreement
by and among
Horizon Organic Holding Corporation,
H.P. Hood Inc.
and
The Organic Cow L.L.C.
April 30, 1999
================================================================================
1.
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DAIRY BUSINESS AGREEMENT
This Dairy Business Agreement (the "Agreement") is made as of the 30th day
of April, 1999 (the "Agreement Date") by and among Horizon Organic Holding
Corporation, a Delaware corporation ("Horizon"), H. P. Hood Inc., a
Massachusetts corporation ("Hood"), and The Organic Cow L.L.C., a Vermont
limited liability company ("TOC"), the manager of which is Hood. Hood and TOC
are referred to collectively herein as the "Hood Companies".
WHEREAS, TOC owns all right, title, and interest in the Trademarks (as
defined below), and has established substantial recognition and good will for
the Trademarks in a variety of ways in connection with the TOC Organic Dairy
Business;
WHEREAS, the Hood Companies have relationships with producers, processors
and customers for the production, processing and distribution of products for
the TOC Organic Dairy Business;
WHEREAS, Horizon wishes to expand its supply of raw milk for processing, to
expand its market for the sale of processed organic fluid milk by using Hood's
established East Coast distribution system, and to obtain the Trademarks; and
WHEREAS, the Hood Companies wish to expand and strengthen their marketing
and distribution of organic products, to use Horizon as their sole source of
organic products, and to enter into a long-term supply and distribution
arrangement with Horizon, and sell the Trademarks;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Horizon, Hood and TOC agree as follows:
1. SALE OF ASSETS; RELATED TRANSACTIONS
At the Closing (as defined in Section 3.1 below):
1.1 Sale of Assets. The Hood Companies will sell, assign, transfer, convey
and deliver to Horizon, at the Closing (as defined below), good, valid and
marketable title to the Assets free of any encumbrances other than the Assumed
Obligations on the terms and subject to the conditions set forth in this
Agreement.
1.2 Non-Competition Agreement. The Hood Companies shall enter into a Non-
Competition Agreement substantially in the form attached hereto as Exhibit A
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(the "Non-Competition Agreement").
1.3 Assignment of Rights and Assumption of Assumed Obligations. The Hood
Companies shall assign, transfer, convey and deliver to Horizon all of their
right, title and interest in the Assets, and Horizon shall assume the Assumed
Obligations by delivering the Assignment and Assumption in substantially the
form attached hereto as Exhibit B (the "Assignment").
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1.4 Supply and Distribution Agreement. The parties shall enter into the
Supply and Distribution Agreement substantially in the form attached hereto as
Exhibit C (the "Distribution Agreement").
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1.5 Co-Packing and Interim Processing Agreement. The parties shall enter
into the Co-Packing and Interim Processing Agreement substantially in the form
attached hereto as Exhibit D (the "Processing Agreement")
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The Non-Competition Agreement, the Assignment, the Distribution Agreement and
the Processing Agreement are collectively referred to as the "Transactional
Agreements").
2. MILK SUPPLY PRIOR TO AND AFTER CLOSING
2.1 Amendment Agreements. After the Closing, the Hood Companies will
cooperate with Horizon and use their reasonable commercial efforts to obtain
amendments to the Supply Contracts (the "Amendment Agreements"). The costs
associated with preparing and obtaining the Amendment Agreements will be borne
by Horizon. The Amendment Agreements will provide, effective as of the Closing
Date, that:
(a) All farm milk supplied to Horizon or the Hood Companies for
processing dairy products to be offered for sale as "organic" will be accepted
into the supply only if the farmers from which such supply is purchased certify
that the animals producing the farm milk have been fed organic feed exclusively
during the prior twelve (12) months and have not been treated with antibiotics
or recombinant bovine somatotropin ("rBST") during the prior three (3) months
and, in the future, will be fed organic feed exclusively and will not be treated
with antibiotics or rBST during the term of such farmer's Supply Contract.
(b) Horizon is included as a party and the Hood Companies are removed
as parties, or otherwise permit the Hood Companies to assign their rights under
the Supply Contracts to Horizon.
2.2 Non-Amended Supply Contracts. The Hood Companies shall continue to
perform their obligations under all Supply Contracts that are not amended to
name Horizon as a party or to permit assignment to Horizon. The Hood Companies
will sell to Horizon one hundred percent (100%) of the farm milk available under
such Supply Contracts at the cost to the Hood Companies of such farm milk (which
will include no administrative or processing costs other than those incurred by
the Hood Companies to purchase and resell such farm milk to Horizon), and Hood
will agree that no "material changes" will be made by them in such Supply
Contracts (other than as set forth in Section 2.1) unless prior written approval
is received from Horizon. "Material change" means and includes any change in the
number of farms and any change in farm milk pricing. The Hood Companies will
make all reasonable efforts to ensure that the size of the herds on the farms
under such Supply Contracts will not change in any material way, unless approved
in advance in writing by Horizon. The Hood Companies will enforce their rights
under such Supply Contracts on behalf of Horizon at Horizon's reasonable request
and expense, and will designate Horizon as their agents to communicate with the
farmers and to manage the milk supply on their behalf. In that regard, the Hood
Companies further agree that they will not permit any Supply Contract to be
renewed, whether by the consent of the Hood
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Companies or automatically by the terms of such Supply Contract, without
Horizon's prior written consent. Any farmer who is not willing to comply with
the Organic Standards, shall be removed from the organic milk supply at the end
of the current term of such farmer's Supply Contract.
2.3 TOC Employees. Effective the day after the Agreement Date, Horizon will
be free to hire the TOC Business Manager, the TOC Sales Director and the
employees of the Tunbridge, Vermont TOC office. As of the date of first
disclosure pursuant to Section 9.2, Horizon will be allowed to interview each of
the above-named TOC employees to determine their interest in and fit with the
Horizon organization. If Horizon chooses not to offer employment to one or more
of the TOC employees or if one or more of the TOC employees decline an offer of
employment by Horizon, then the Hood Companies will use reasonable efforts to
provide the services of those employees (the "Transition Employees") to Horizon
for a transitional period of up to six (6) months following the Closing Date
(the "Transition Period"). Horizon will reimburse the Hood Companies for all
salary-related costs (i.e. salary plus benefits) for Transition Employees.
During the Transition Period, except for the TOC Sales Manager, the Transition
Employees will spend one hundred percent (100%) of their time on the Horizon
Organic Dairy Business but each will remain an employee of one of the Hood
Companies. The Sales Manager will spend about fifty percent (50%) of his time on
the TOC business, the same percentage of time that he currently spends on TOC
and will remain a Hood employee. At the end of the Transition Period, Horizon
will have no more responsibility for the Transition Employees and the Hood
Companies will no longer have any obligation to make the services of the
Transition Employees available to Horizon.
3. THE CLOSING
3.1 The Closing. The Closing of the transactions provided for in this
Agreement (the Closing) shall take place beginning at approximately 9:00 a.m.
MST on April 30, 1999. At or before such time, the Hood Companies shall transmit
facsimile copies of the original signed documents described in Section 3.2 (b)
through (g) to the offices of the Purchaser's counsel, Cooley Godward llp. Upon
receipt of such facsimile copies, Horizon shall initiate the wire transfer to
the account of the Hood Companies described in Section 4.3. and shall transmit
facsimile copies of the original signed documents described in Section 3.2(b)
through (g) to the offices of the Hood Companies' counsel, Sullivan & Worcester
LLP. Upon notice from Fleet Bank of receipt of the funds, the Hood Companies
shall cause the documents signed by them to be sent to Horizon's counsel, and
Horizon shall cause the documents signed by it to be sent to the offices of Hood
Companies' counsel, in each case by overnight courier, with signature required
upon delivery. If more convenient to do so, the Closing may be held at a
gathering of representatives of Horizon and Hood at the offices of Hood, at
11:30 A.M. on April 30, 1999, or at such other place or time as Horizon may
reasonably designate, but in no event later than 1:00 p.m. MST, April 30, 1999.
The date of the Closing is referred to herein as the "Closing Date."
3.2 Delivery of Consideration and Documentation. At the Closing:
(a) Horizon shall pay Hood the first Installment (as defined below) in
cash by wire transfer as contemplated by Section 5 below; and
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(b) The parties hereto shall execute and deliver to one another the
documents described in Section 4.
4. Closing Conditions.
4.1 Horizon. The obligations of Horizon to consummate the transactions
contemplated hereby are conditioned on the satisfaction, unless waived, of the
following conditions at or prior to the Closing:
(a) Approval of the proposed transactions by Horizon's Board of
Directors;
(b) The representations and warranties of the Hood Companies set forth
in Section 6 shall be true and correct at and as of the Closing Date as if made
on the Closing Date;
(c) The Hood Companies shall have performed or complied with their
agreements and covenants required to be performed or complied with under this
Agreement;
(d) No action, suit or proceeding shall be pending or threatened by or
before any governmental agency or Court wherein an unfavorable judgment, order,
decree, stipulation or injunction would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (C)
affect adversely the right of Horizon to own, operate or control any of the
Assets or exercise its rights under the Contracts following the Closing Date,
and no such judgment, order, decree, stipulation or injunction shall be in
effect;
(e) There shall not have occurred a change, or an event involving a
prospective change, in the Organic Dairy Business which could, individually or
in the aggregate, result in a material adverse effect on the Organic Dairy
Business;
(f) All of the consents from third parties listed in Section 6.4 of the
Disclosure Schedule (the "Consents") shall have been obtained by the Hood
Companies;
(g) The Hood Companies shall have delivered to Horizon a certificate to
the effect that the conditions specified in Section 4.1 (b) (d) and (e) and in
Section 4.2 (a) have been satisfied in all material respects.
(h) Horizon shall have completed its due diligence review of the TOC
Organic Dairy Business as heretofore conducted by the Hood Companies. At the
Closing, Hood must provide Horizon with copies of complete 1998 customer lists
(for the period between July 1998 through December 1998) detailing purchases by
customer by SKU by case cost by month (in cases) for customers in the Territory.
(i) The Hood Companies shall have executed and delivered to Horizon the
Transactional Agreements to which each, respectively, is a party.
(j) The Hood Companies shall have taken such steps as maybe required to
assign the Employment Agreements by and among (i) Peter Flint and the Hood
Companies dated as of May 1, 1997 and (ii) L. Ferris Flint and the Hood
Companies dated as of May 1, 1997
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(together, the "Flint Employment Agreements" and each a "Flint Employment
Agreement") to Horizon.
4.2 Hood. The obligations of the Hood Companies to consummate the
transactions contemplated hereby are conditioned upon:
(a) Approval of the proposed transactions by Hood's Board of
Directors;
(b) The representations and warranties of Horizon set forth in Section
7 shall be true and correct at and as of the Closing Date as if made on the
Closing Date;
(c) Horizon shall have performed or complied with its agreements and
covenants required to be performed or complied with under this Agreement;
(d) No action, suit or proceeding shall be pending or threatened by or
before any court or governmental agency wherein an unfavorable judgment, order,
decree, stipulation or injunction would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of Hood to exercise its rights, or (D) prevent or
inhibit Horizon from performing its obligations under the Distribution
Agreement, and no such judgment, order, decree, stipulation or injunction shall
be in effect;
(e) There shall not have occurred a change, or an event involving a
prospective change, in the business, properties, operations, condition
(financial or otherwise), prospects, assets or liabilities of Horizon which
could, individually or in the aggregate, result in a material adverse effect on
the assets, business, results of operations, condition (financial or otherwise)
or future prospects of Horizon;
(f) Horizon shall have delivered to the Hood Companies a certificate to
the effect that each of the conditions specified in Section 4.2 (b), (d) and (e)
and in Section 4.1 (a) have been satisfied in all material respects, and Horizon
shall have delivered to Hood a complete list of the customers of Horizon
detailing purchases by customer by SKU by case cost by month (in cases) for
customers located within the Territory that purchase from Horizon Organic White
Fluid Milk or Other Organic Dairy Products;.
(g) Horizon shall have executed and delivered to the Hood Companies
each of the Transactional Agreements to which Horizon is a party.
(h) Horizon shall have paid to the Hood Companies the first Installment
described in Section 5, and Horizon shall have delivered to Hood an irrevocable
standby letter of credit in the form attached hereto as Exhibit E (the "Letter
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of Credit").
5. FEES
5.1 Amount and Consideration.
(a) Horizon shall pay the Hood Companies Ten Million Eight Hundred
Fifty-One Thousand Three Hundred Eight and forty-six one hundreths dollars
($10,851,308.46).
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Horizon and Hood agree that the twelve million dollars, when and as paid, shall
be allocated to payment for the Assets.
(b) Horizon shall pay to the Hood Companies the value of the Inventory.
(c) $100 shall be allocated to the payments for the Assets, other than
the Trademarks and Inventory. $10,851,208.46 shall be allocated to payment for
the Trademarks and the payment made in respect of the Inventory shall be
allocated to the Inventory.
(d) The Hood Companies shall reimburse Horizon within 10 days after
receipt of written notice from Horizon that it has made a payment to Peter Flint
of the amounts described in Section 1 of Peter Flint's Employment Agreement to
be assigned hereunder until the earlier of (i) the date of the execution of a
new employment agreement with Peter Flint (if such an agreement is executed as
of the date hereof, Hood shall have no obligation to Horizon with respect to
Peter Flint's Employment Agreement after the Closing), or (ii) June 15, 2001.
The Hood Companies will also reimburse Horizon within 10 days after receipt of
written notice from Horizon that it has made a payment to L. Ferris Flint
pursuant to her Employment Agreement to be assigned hereunder which terminates
June 15, 2001.
5.2 Manner of Payment.
(a) Payment of Ten Million Eight Hundred Fifty-One Thousand Three
Hundred Eight and forty-six one hundreths dollars ($10,851,308.46) shall be paid
(x) in cash at Closing in the amount of Two Million Four Hundred Thousand
Dollars ($2,400,000) and (y) by the delivery to Hood at Closing of Horizon's
Promissory Note in the amount of Eight Million Four Hundred Fifty-One Thousand
Three Hundred Eight and forty-six one hundreths dollars ($8,451,308.46), with
simple interest thereon at the rate of five and three tenths percent (5.3%) per
annum. Horizon shall pay at Closing, and on the due date of each installment
under the Promissory Note (each, an "Installment"), by wire transfer of funds to
an account designated by Hood by notice to Horizon at least two (2) business
days prior to the date that the Installment is due.
(b) Within 5 business days after the completion of the physical
inventory provided for in Section 6.15 below, Hood shall deliver a written
statement to Horizon which sets forth the value of the Inventory pursuant to
Section 6.15. Within 5 business days after the receipt of such notice, Horizon
shall pay to Hood in cash the value of such Inventory. In the event that the
parties do not agree on the value of the Inventory set forth in the written
notice provided by Hood, they shall settle any dispute pursuant to the terms of
Section 10.11.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE HOOD COMPANIES
Each of Hood and TOC represent, warrant and covenant, only with respect to
the TOC Organic Dairy Business, to and for the benefit of Horizon, that, except
as set forth in a disclosure schedule dated as of the date of this Agreement and
delivered to Horizon by or on behalf of the Hood Companies (the "Disclosure
Schedule"):
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6.1 Due Organization; No Subsidiaries; Etc. Hood is a corporation duly
incorporated and organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts, and TOC is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Vermont.
6.2 Authority; Binding Nature of Agreements. The Hood Companies have full
corporate power and authority to enter into and to perform their obligations
under the Transactional Agreements, and the execution, delivery and performance
by the Hood Companies of the Transactional Agreements have been duly authorized
by all necessary corporate or limited liability company action on the part of
the Hood Companies and their respective shareholders, board of directors,
members and manager. This Agreement constitutes the legal, valid and binding
obligation of the Hood Companies, enforceable against each of the Hood Companies
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 each of the Hood Companies is a
party, or to which both of the Hood Companies are parties, will constitute the
legal, valid and binding obligation of each or both of the Hood Companies and
will be enforceable against the Hood Companies in accordance with their terms,
except as enforcement may be limited by applicable bankruptcy, insolvency or
other similar laws affecting creditors' rights.
6.3 Non-Contravention; Consents. Neither the execution and delivery of any
of the Transactional Agreements by the Hood Companies, nor the consummation or
performance of any of the transactions by them, 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 Hood Companies are
subject, or to which either of them is subject.
6.4 Financial Information. The Hood Companies have delivered to Horizon the
following financial information regarding the TOC Organic Dairy Business: sales
revenues, marketing expenses, selling expenses and the administrative cost of
operating the Tunbridge, Vermont facility of TOC for the period January 1, 1998
to December 31, 1998. Such information is accurate and complete in all material
respects.
6.5 Absence of Changes. Except as set forth in Section 6.5 of the
Disclosure Schedule, since December 31, 1998:
(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 TOC
Organic Dairy Business;
(b) The Hood Companies have not sold or otherwise transferred, or
leased or licensed, the Assets, or any other assets of the TOC Organic Dairy
Business that are necessary for its operation, to any other person other than
the sale of inventory in the ordinary course of business;
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(c) TOC has not entered into any transaction with respect to the TOC
Organic Dairy Business or the Assets or taken any other action outside the
ordinary course of business with respect to the TOC Organic Dairy Business or
the Assets other than the transactions contemplated hereby; and
(d) The Hood Companies have not agreed, committed or offered (in
writing or otherwise) to take any of the actions referred to in clauses "(b)" or
"(c)" above.
6.6 Title to Assets. The Hood Companies own, and have good, valid and
marketable title to, all of the Assets free and clear of any encumbrances.
Schedule 1.1 identifies all of the Assets that are being sold or transferred to
Horizon.
6.7 Sales. The Hood Companies have previously delivered an accurate and
complete breakdown of the revenues received from the Hood Companies' major TOC
Organic Dairy Business customers for each of the months in the period from
January 1, 1998 through March 31, 1999. To the best of the Hood Companies'
knowledge, the Hood Companies have not received any notice or other
communication (in writing or otherwise), or any other information, indicating
that any major TOC Organic Dairy Business customer of the Hood Companies (for
purposes of this section, "major" means a customer who represents five percent
(5%) or more of TOC sales during such fifteen month period), intends to cease
dealing with the Hood Companies.
6.8 Coupons and Promotions. No promotion, rebate, credit, allowance,
coupon or any other trade or consumer deals on organic products processed,
marketed or sold by the TOC Organic Dairy Business (collectively, the
"Promotions") will continue beyond the Closing Date other than those disclosed
in Section 6.8 (a) of the Disclosure Schedule. The Hood Companies have paid for
or will pay for all Promotions on products invoiced on or before the Closing
Date, including any promotions which have occurred but have not been invoiced.
Section 6.8 (b) of the Disclosure Schedule lists all proposals for new
Promotions that have been presented by the Hood Companies to wholesale or retail
customers on or prior to the Closing Date, but that have not yet been accepted.
6.9 Proprietary Assets.
(a) The Hood Companies:
(i) Have good, valid and marketable title to the Proprietary
Assets, free and clear of all encumbrances, are free to use, modify, copy,
distribute, sell, license or otherwise exploit the Proprietary Assets on an
exclusive basis without infringing upon the rights of others;
(ii) Have no independent knowledge and have not received any oral
or written communication not previously disclosed to Horizon alleging that:
(1) They do not have a valid right to use or otherwise
exploit, or to license others to use or otherwise exploit, the Proprietary
Assets;
(2) The Proprietary Assets are not valid or subsisting; and
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(3) Any of the Proprietary Assets infringes upon or
conflicts with any Proprietary Asset owned or used by any other person; and
(iii) Have not licensed the Proprietary Assets to any Person.
6.10 Contracts.
(a) Section 6.10 of the Disclosure Schedule sets forth a list of each
of the Contracts, and a list of each Consent that Horizon desires the Hood
Companies to obtain. To the best of the Hood Companies' knowledge, each Contract
is valid and in full force and effect.
(b) Except as set forth in Section 6.10 of the Disclosure Schedule, the
Hood Companies have not materially violated or breached, or declared or
committed any default under, any of the Contracts; and, to the best of the
knowledge of the Hood Companies, no other person has violated or breached, or
declared or committed any default under, any of the Contracts. No event has
occurred, and no circumstance or condition exists, that might (with or without
notice or lapse of time) (i) result in a violation or breach of any of the
material provisions of any of the Contracts by the Hood Companies, (ii) to the
best of the Hood Companies' knowledge, give any person the right to declare a
default or exercise any remedy under any of the Contracts, (iii) to the best of
the Hood Companies' knowledge, give any person the right to accelerate the
maturity or performance of any of the Contracts, or (iv) to the best of the Hood
Companies' knowledge, give any person the right to cancel, terminate or modify
any of the Contracts. The Hood Companies have 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 the Contracts. The
Hood Companies have not waived any right under any of the Contracts.
6.11 Liabilities. With regard to the Organic Diary Business:
(a) The Hood Companies have paid all trade concessions on guaranteed
sales, spoilage credits and customer reclamation charges and handling fees
granted for the period from November 1, 1998 through the Closing Date;
(b) To the best of the Hood Companies' knowledge, they have not
received any notice or other communication (in writing or otherwise) from any
person regarding any actual, alleged, possible or potential product liability
claim; and
(c) The Hood Companies have paid all co-op and handling fees which they
were required to pay for the period from November 1, 1998 through the Closing
Date.
6.12 Compliance With Legal Requirements. Except as set forth in Section 6.12
of the Disclosure Schedule: (a) the Hood Companies are in compliance in all
material respects with each legal requirement that is applicable to the TOC
Organic Dairy Business or the ownership or use of any of the Assets; (b) to the
best of the Hood Companies' 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 Hood Companies
of, or a failure on the part of the Hood Companies to comply with, any material
legal requirement; and (c) to the best of the Hood Companies' knowledge, the
Hood Companies have not received any
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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 applicable to the TOC Organic Dairy Business or the ownership or use
of any of the Assets.
6.13 Proceedings; Orders. There is no pending proceeding, and, to the best
of the knowledge of the Hood Companies, no person has threatened to commence any
proceeding: (i) that involves the TOC Organic Dairy Business or that otherwise
relates to or might affect the TOC Organic Dairy Business 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
contemplated by this Agreement. To the best of the knowledge of the Hood
Companies, 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. There is no order to which
the TOC Organic Dairy Business or any of the Assets is subject; and to the best
knowledge of the Hood Companies, no third party is subject to any order that
adversely affects the TOC Organic Dairy Business or any of the Assets. To the
best of the knowledge of the Hood Companies, there is no proposed order that, if
issued or otherwise put into effect may have the effect of preventing, delaying,
making illegal or otherwise interfering with any of the transactions
contemplated by this Agreement.
6.14 Products. During the two years prior to the Closing Date, no product
manufactured or sold by the Hood Companies under the Trademarks has been the
subject of any recall or other similar action; and no event has occurred, and to
the best of the Hood Companies' 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.
6.15 Organic Claims. With respect to each claim, representation, statement
or warranty, expressed or implied, relating to the organic character of the TOC
Organic Dairy Business' products and their ingredients and constituents, whether
appearing on or communicated in labels, labeling, advertising or in any other
medium whatsoever (each an "Organic Claim"):
(a) All Organic Claims for products bearing the trademarks included in
the Proprietary Assets and/or manufactured, distributed or sold by the TOC
Organic Dairy Business, at all times have been in strict compliance with the
rules of the Northeast Organic Farmers Association of Vermont, by Northeast
Organic Farmers Association of New York or by Maine Organic Farming and
Gardening Association;
(b) The Hood Companies have 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 Hood Companies have not received and are not aware of any
test, laboratory results, pesticide residue samples or other data which
substantiate or may substantiate that any products of do not meet the
representations contained in subsection (a) hereinabove; and
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(d) The Hood Companies have retained, since inception, all records and
documentation necessary or mandated for retention to demonstrate compliance by
the Hood Companies under subsection (a) hereinabove and the Hood Companies have
delivered to Horizon copies of all certifications of the Organic Claims made
under the Organic Standards by the Hood Companies or relating to the TOC Organic
Dairy Business.
6.16 Inventory. The inventory transferred to Horizon (the "Inventory")
will be comprised of the glass bottle inventory from the Bread and Circus
contract and packaging inventory from the Whittier plant. This inventory will be
sold to Horizon at Hood's cost with no mark-up based on a physical inventory
taken within one week of the Closing. All inventory to be transferred to Horizon
will be merchantable, fit for its intended purpose 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.
6.17 Brokers. To the extent that the Hood Companies have agreed to pay
any brokerage commission, finder's fee or similar commission or fee in
connection with any of the transactions contemplated hereby, they will be solely
responsible for the payment of such commission or fee.
6.18 Confidentiality. The Hood Companies will use the customer information
and lists delivered to them by Horizon pursuant to Section 4.2 for planning and
analysis only, and will not share such information or lists with any third
parties.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF HORIZON
Horizon represents, warrants and covenants, to and for the benefit of the
Hood Companies, as follows:
7.1 Due Organization; Subsidiaries. Horizon 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 Horizon.
7.2 Authority; Binding Nature of Agreements. Horizon 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 Horizon have been duly authorized by all necessary corporate action
on the part of Horizon, its board of directors and its stockholders. Horizon
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 Horizon
have been duly authorized by all necessary action on the part of Horizon, its
board of directors and its stockholders. This Agreement constitutes the legal,
valid and binding obligation of Horizon, enforceable against it 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 and delivery of the Transactional Agreements to which it is a party at
the Closing, such agreements will
12.
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constitute the legal, valid and binding obligations of Horizon, enforceable
against Horizon in accordance with their terms, except as enforcement may be
limited by applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights.
7.3 Non-Contravention. Neither the execution and delivery of any of the
Transactional Agreements by Horizon, nor the consummation or performance of any
of the transactions by Horizon, 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 Horizon is subject.
7.4 Brokers. To the extent that Horizon has agreed to pay any brokerage
commission, finder's fee or similar commission or fee in connection with any of
the transactions contemplated hereby, it will be solely responsible for the
payment of such commission or fee.
7.5 Organic Claims. With respect to each Organic Claim relating to the
Horizon Organic Dairy Business' products, ingredients and constituents:
(a) All Organic Claims for products bearing Horizon's trademarks and/or
manufactured, distributed or sold by the Horizon Organic Dairy Business, at all
times have been in strict compliance with Organic Standards;
(b) Horizon 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) Horizon has not received and is not aware of any test, laboratory
results, pesticide residue samples or other data which substantiate or may
substantiate that any products of do not meet the representations contained in
subsection (a) hereinabove; and
(d) Horizon has retained, since inception, all records and
documentation necessary or mandated for retention to demonstrate compliance by
Horizon under subsection (a) hereinabove and upon request, Horizon will deliver
to the Hood Companies copies of all certifications of the Organic Claims made
under the Organic Standards by the Horizon or relating to the Horizon Organic
Dairy Business.
7.6 Confidentiality. Horizon will use the customer information and lists
relating to Hood's UHT customers and HTST DSD customers delivered to it by the
Hood Companies for planning and analysis only, will not share such information
or lists with Horizon's other distributors, and will not directly solicit those
customers.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
8.1 Survival of Representations and Warranties. The representations and
warranties of each party to this Agreement shall survive for the one year period
immediately following the Closing, except the representation set forth in
Section 6.9 which shall survive for five (5) years; provided, however, that if a
Claim Notice (as defined in subsection (c) below)
13.
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relating to any such representation or warranty is given to the Hood Companies
on or prior to the expiration of the applicable representation or warranty,
then, notwithstanding anything to the contrary contained in this Section 8.1,
such representation or warranty 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 8.2) 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 Hood Companies and Horizon or by
means of a final, non-appealable judgment issued by a court of competent
jurisdiction.
8.2 Effect of Investigation. The representations and warranties of each
party hereto and the rights and remedies that may be exercised by Horizon
Indemnitees and the Hood Companies 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 Hood Companies or
Horizon Indemnitees or any of their respective representatives.
8.3 Claim Notices. 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 Horizon or the Hood
Companies, 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.
8.4 Incorporation of Disclosure Schedule. 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 Hood Companies
in this Agreement, and all of the Hood Companies' representations and warranties
contained in this Agreement shall be deemed modified by the Disclosure Schedule
provided by the Hood Companies to the extent provided in such Disclosure
Schedule.
9. FURTHER ACTIONS.
9.1 Cooperation. 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 completing the transactions
contemplated hereby.
9.2 Publicity. The Hood Companies and Horizon agree that, on and at all
times after the Agreement Date, no press release or other publicity concerning
any of the transactions shall be issued or otherwise disseminated by or on
behalf of the Hood Companies or Horizon without the other party's prior written
consent. The Hood Companies and Horizon agree that no public announcement of the
proposed transaction will be made until the earlier of (a) the Agreement Date,
or (b) the parties' mutual agreement to disclose, or (c) disclosure is required
by securities laws or an exchange on which the securities of either party are
listed.
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9.3 Confidentiality. The Disclosure Agreement by and between Horizon and
the Hood Companies dated as of October 28, 1998 (the "Disclosure Agreement")
shall remain in full force and effect at least for the term of the Distribution
Agreement.
10. COMMON PROVISIONS
10.1 Definitions.
"Affiliate" means any entity which, directly or indirectly, is controlled
by Horizon, Hood or TOC, as the case may be. An entity shall be deemed to be in
control of another "subject" entity only if, and for so long as, such first
entity owns or controls more than fifty percent (50%) of the interest or shares
of the subject entity which are entitled to vote in the election of the managing
authority of the subject entity.
"Assets" means those assets set forth in Schedule 1.1 attached hereto.
------------
"Assumed Obligations" means only those obligations set forth in Schedule
--------
1.3 attached hereto.
- ---
"Bulk Milk" means raw, "farm" or pasteurized and farm test or standardized
Organic White Fluid Milk delivered in bulk quantities in tankers.
"Contracts" means the Supply Contracts and the third party co-packing
agreements described on Section 6.10 of the Disclosure Schedule to the Dairy
Business Agreement and the Flint Employment Contracts.
"Co-Packed Products" means organic cottage cheese and organic sour cream.
"Damages" means any financial loss or liability (including legal fees,
expert fees, accounting fees, advisory fees and any cost of investigation
incurred therewith).
"Fresh Milk Products" means all Organic White Fluid Milk irrespective of
the mode of packaging, processed using conventional HTST processing.
"Hood Companies Indemnitees" means the Hood Companies, their successors and
assigns, and their officers, directors, employees, members and agents.
"Horizon Indemnitees" means Horizon, its successors and assigns, and their
officers, directors, employees and agents.
"HTST" means high temperature, short-time processing procedures (i.e.,
processes which attain temperatures of 162 degrees Fahrenheit but which do not
attain temperatures of 285 degrees Fahrenheit).
"Indemnitees" means the Hood Companies Indemnitees and Horizon Indemnitees,
as applicable.
15.
<PAGE>
"Organic Dairy Business" means the processing, distribution and sale of
Organic White Fluid Milk and Other Organic Dairy Products.
"Organic Market Share" means the weighted average share of total retail
gallons of Organic White Fluid Milk sales divided by the total retail gallons of
all white fluid milk sales (organic and conventional) in the Boston, New York
and Philadelphia IRI districts over a twenty six (26) week period, as measured
by IRI.
"Organic Standards" means the organic standards as practiced by Horizon in
the United States, and as amended from time to time by Horizon, in its sole
discretion, upon sixty (60) days prior written notice to Hood, and the adjective
"organic" means meeting Organic Standards. The organic standards as practiced by
Horizon in the United States are as follows:
"The term Organic Standards means that the milk producing cows have
not received any antibiotics or growth hormones ("rBST" or recombinant
bovine somatotropin) within the twelve (12) month period preceding
production of the milk to be certified as organic, for the twelve (12)
months preceding production and at all other times subsequent are fed
Organic Feed and/or graze in certified Organic Pastures. "Organic Feed"
means feed which is grown and harvested from fields which are and have been
free of synthetic fertilizers and pesticides for the immediately preceding
thirty-six (36) month period and are certified as organic by an independent
certification organization which is reasonably acceptable to Horizon such
as Northeast Organic Farmers Association of Vermont (NOFA-VT), or Northeast
Organic Farmers Association of New York (NOFA-NY), or Maine Organic Farming
and Gardening Association (MOFGA), or Quality Assurance International,
("QAI"). "Organic Pastures" means pastures which are and have been free of
any synthetic fertilizers or pesticides for the immediately preceding
thirty-six (36) month period and are certified organic by NOFA-VT, NOFA-NY,
MOFGA or QAI.
Organic dairy products are made with organic milk produced as
described above and other organic ingredients, and processing,
manufacturing and distribution facilities are certified by an independent
certification organization which is reasonably acceptable to Horizon, such
as NOFA-VT, NOFA-NY, MOFGA or QAI.
"Organic White Fluid Milk" means any fresh fluid whole milk, reduced fat
milk, low fat milk, and fat free milk that has been certified as organic by
NOFA-VT, NOFA-NY, MOFGA, QAI or by any other nationally recognized association
approved by Horizon, and that is labeled or otherwise identified in marketing
materials as "organic".
"Other Organic Dairy Products" means any organic refrigerated or frozen
dairy products, other than Organic White Fluid Milk, together with organic
juices and organic eggs.
"Other Products" means all organic products, dairy and non-dairy, and all
brands of such products, other than UHT Milk Products.
"Person" means any natural individual or any corporation, partnership,
limited liability company, association, trust (inter vivos or testamentary),
business trust, joint stock company,
16.
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joint venture, governmental unit or subdivision or agency thereof, and any other
entity, however organized and whether acting pro-se or in a fiduciary or agency
capacity.
"Process", "Processed", "Processes", or "Processing" means receiving and
storing Bulk Milk and other ingredients, testing, separating and heat treating
such milk, mixing such milk and other ingredients and manufacturing and
packaging, warehousing and loading Fresh Milk Products and Co-Packed Products
for delivery.
"Proprietary Assets" means one or more trademarks (whether registered or
unregistered, and including but not limited to the "Trademarks"), trademark
applications, trade names, trade dress, fictitious business names, service marks
(whether registered or unregistered), service mark applications, registered or
unregistered copyrights or copyright applications, or confidential know-how,
protocols, formulations, operating guides, product standards, processing
specifications and other confidential intellectual property relating primarily
to the Organic Dairy Business owned or used by the Hood Companies. Section
6.9(a) 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 TOC or is used in connection with the Organic Dairy Business.
"Supply Contracts" means the written production and procurement contracts
from the organic farm milk suppliers of the Hood Companies set forth on Section
6.10 of the Disclosure Schedule to the Dairy Business Agreement.
"Territory" means Maine, New Hampshire, Vermont, Rhode Island, Connecticut,
Massachusetts, New York, New Jersey, Maryland, Delaware, Virginia, Pennsylvania,
the District of Columbia, North Carolina, South Carolina, Georgia and Florida
and such other states, if any, as the parties may mutually agree upon in writing
from time to time.
"Trademarks" means the following trademarks: "The Organic Cow" (US
Registration No. 2187282), "The Organic Cow of Vermont" (US Registration No.
1923869), and the trade dress of a cow's head with surrounding wreath (US
Registration No. 2215813).
"UHT Milk Products" means all brands of Organic White Fluid Milk processed
by or for Horizon using UHT processing. UHT Milk Products will also include UHT
organic creams, if Horizon processes UHT organic creams or has UHT organic
creams processed for it.
"UHT" means ultra-high temperature processing (i.e., processes which attain
temperatures of 285 degrees Fahrenheit or higher).
10.2 Indemnities.
(a) Indemnification by Hood. Hood shall indemnify and hold harmless
the Horizon Indemnitees from and against any Damages that they, or any of them,
may suffer or incur as a result of, or arising out of any material breach of any
of the representations, warranties,
17.
<PAGE>
covenants or obligations of the Hood Companies in this Agreement, the
Transactional Agreements or the Disclosure Schedule.
(b) Indemnification by Horizon. Horizon shall indemnify and hold
harmless the Hood Indemnitees from and against any Damages that they, or any of
them, may suffer or incur as a result of, or arising out of any material breach
of any representation, warranty or covenant made by Horizon in this Agreement or
any of the Transactional Agreements.
(c) Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or proceeding with respect to which the
Hood Companies or Horizon, as the case may be (the "Indemnifying Party"), may
become obligated to indemnify, hold harmless, compensate or reimburse any
Horizon or the Hood Companies Indemnitee (the "Indemnified Party") pursuant to
this Section 10 , the Indemnified Party shall have the right, at its election,
to require the Indemnifying Party to assume the defense of such claim or
proceeding at the sole expense of the Indemnifying Party.
(i) If the Indemnified Party so elects to require the
Indemnifying Party to assume the defense of any such claim or proceeding:
(1) The Indemnifying Party shall proceed to defend such
claim or proceeding in a diligent manner with counsel satisfactory to the
Indemnified Party;
(2) The Indemnified Party shall make available to the
Indemnifying Party any non-privileged documents and materials in the possession
of the Indemnified Party that may be necessary to the defense of such claim or
proceeding;
(3) The Indemnifying Party shall keep the Indemnified Party
informed of all material developments and events relating to such claim or
proceeding;
(4) The Indemnified Party shall have the right to
participate in the defense of such claim or proceeding;
(5) The Indemnifying Party shall not settle, adjust or
compromise such claim or proceeding without the prior written consent of the
Indemnified Party, which may not be unreasonably withheld; and
(6) The Indemnified Party may at any time (notwithstanding
the prior requirement that the Indemnifying Party assume the defense of such
claim or proceeding) assume the defense of such claim or proceeding.
(ii) If the Indemnified Party does not elect to require the
Indemnifying Party to assume the defense of any such claim or proceeding (or if,
after initially requiring the Indemnifying Party to assume such defense, the
Indemnified Party elects to assume such defense), the Indemnified Party may
proceed with the defense of such claim or proceeding on its own. If the
Indemnified Party so proceeds with the defense of any such claim or proceeding
on its own:
18.
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(1) The Indemnified Party shall proceed to defend such claim or
proceeding in a diligent manner;
(2) All reasonable expenses relating to the defense of such claim
or proceeding shall be borne and paid exclusively by the Indemnifying Party;
(3) Each party shall make available to the other any documents and
materials in its possession or control that may be necessary or useful to the
defense of such claim or proceeding;
(4) Each party shall keep the other party informed of all material
developments and events relating to such claim or proceeding; and
(d) Each party shall have the right to settle, adjust or compromise
any claim solely against it without the consent of the other party; neither
party shall have the right to settle, adjust or compromise any claim against
both without the consent of the other, which consent shall not be unreasonably
withheld.
10.3 Headings. The 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.
10.4 Severability and Construction. If, for any reason, any provision
herein is determined to be invalid and contrary to, or in conflict with, any
existing or future law or regulation by a court or agency having valid
jurisdiction, such shall not impair the operation of, or have any other effect
upon, such other provisions of this Agreement as may remain otherwise
intelligible, and the latter shall continue to be given full force and effect
and bind the parties hereto; and the invalid provisions shall be deemed not to
be part of this Agreement. Except as expressly provided to the contrary herein,
nothing in this Agreement is intended, nor shall be deemed, to confer upon any
Person or legal entity other than the parties hereto any benefits, rights or
remedies.
10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall be deemed one and the same instrument.
10.6 Entire Agreement; Amendments. This Agreement, including all Schedules
and Exhibits hereto, if any, contain the entire agreement of the parties
concerning the matters described herein and supersede any and all prior
agreements, including the Disclosure Agreement dated as of October 28, 1998 and
Letter of Intent dated as of January 26, 1999, both of which are hereby
terminated with respect to the supply and distribution matters covered hereby.
This Agreement may not be changed except by an agreement in writing signed by
the party against whom enforcement of any change is sought.
10.7 Assignment. Either Horizon or Hood may freely enter into a transaction
pursuant to which it merges with another entity or transfers substantially all
of its assets and liabilities, including its rights under the Dairy Business
Agreement and the Transactional Agreements, to
19.
<PAGE>
another entity, without obtaining the consent or approval of any other person.
Except in connection with such a transaction, neither Horizon nor Hood may
assign any of its rights or delegate any of its obligations under the Dairy
Business Agreement or the Transactional Agreements unless mutually agreed to by
both parties.
10.8 Waiver. Failure of either party to insist upon strict compliance with
any of the terms, covenants and conditions hereof shall not be deemed a waiver
or relinquishment of any similar right or powers hereunder at any subsequent
time.
10.9 Notices. All notices under this Agreement will be in writing and will
be (i) presented personally, (ii) sent by registered air-mail, postage prepaid,
(iii) sent by telephonic facsimile transmission, or (iv) sent by private courier
service addressed as follows, or to such other address as either party may
subsequently designate by this notice procedure.
To Horizon:
Horizon Organic Holding Corporation
6311 Horizon Lane
Longmont, CO 80503
Facsimile: (303) 530-6934
Attention: President
To Hood:
c/o H.P. Hood Inc.
90 Everett Avenue
Chelsea, MA 02150-2301
Facsimile: (617) 887-8477
Attention: Chief Operating Officer
Any such notice or document will be deemed to have been given:
(a) If presented personally or delivered by courier, at the
time of delivery in hand to any adult at the address specified, or at the time
when an adult at the address specified refused to accept delivery; or
(b) If mailed or sent by telephonic facsimile transmission,
upon acknowledgment of receipt by or on behalf of the addressee (but if the
facsimile message was received at a time other than the recipient's normal
business hours, it shall be deemed received at the opening of business on the
next business day in the locality to which the same has been addressed).
In proving such giving of notice it will be sufficient to prove that delivery
was made or that the envelope containing such notice or document was properly
addressed and posted as a prepaid registered letter and was signed for on
delivery to the addressee (or an adult at the address refused to accept
delivery) or that the facsimile was received.
20.
<PAGE>
10.10 Governing Law. This Agreement shall be interpreted and construed
according to the internal laws of the State of Colorado without consideration of
conflicts of laws principles. Any action to enforce this Agreement by Horizon,
including equitable relief, shall be brought in the United States District Court
for the Commonwealth of Massachusetts or the Superior Court for Suffolk County,
Massachusetts, and Horizon consents to the jurisdiction of such courts; any
action to enforce this Agreement by Hood shall be brought in the United States
District Court for the State of Colorado or the District Court for Denver
County, Colorado, and Hood consents to the jurisdiction of such courts.
10.11 Dispute Resolution. In the event any dispute arises between the
parties, the dispute shall be settled by arbitration of the American Arbitration
Association, by a single arbitrator appointed in accordance with the rules of
said organization. If Hood brings the claim, the seat of such arbitration shall
be in Boulder, Colorado. If the claim is brought by Horizon, the seat of such
arbitration shall be in Boston, Massachusetts. All arbitration proceedings shall
be in English. The award of the arbitrator shall be final and binding, shall not
be subject to appeal and may be entered as a final judgment in any court of
competent jurisdiction.
10.12 Effect upon Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
assigns; provided, however:
(a) In the event of a merger of Hood, a sale of substantially all of
Hood's assets, or a similar transaction to which the first sentence of Section
10.7 applies, Hood, or the successor or assignee shall provide Horizon with
written notice of such transaction within 30 days of the closing of such
transaction and if the successor or assignee of Hood is engaged in the organic
dairy business or organic citrus juice business or organic egg business (a
"Competing Entity"), the obligations of the Non-Competition Agreement shall not
be binding upon Hood's successor or assign unless such successor or assign
elects so to be bound and so notifies Horizon within sixty (60) days following
the transaction; and if such successor or assign does not elect to be so bound
in a timely manner, then Horizon may, upon the expiration of the sixty (60) day
period in which such successor or assign could have notified Horizon of its
election to be so bound and continuing for the ensuing sixty (60) day period,
Horizon may elect to terminate the exclusive nature of the distributorship for
Horizon UHT Milk Products under the Distribution Agreement.
(b) In the event that Hood acquires a Competing Entity, by merger or
otherwise, Hood shall provide Horizon with written notice of such transaction
within 30 days of the closing of that acquisition. Horizon may then elect, by
notice to Hood within sixty (60) days following the transaction, to require Hood
to divest itself of the organic dairy business or organic citrus juice business
or organic egg business of such entity, whereupon Hood shall be obliged so to
divest itself within twelve months following the giving of such notice. If Hood
does not divest itself of the Competing Entity, Horizon may elect to terminate
the Distribution Agreement and the Non-Competition Agreement.
10.13 Sale of Horizon. In the event of a merger of Horizon, a sale of
substantially all of Horizon's assets, or a similar transaction to which the
first sentence of Section 10.7 applies, Horizon with written notice of such
transaction within 30 days of the closing of such transaction and if the
successor or assignee of Horizon is a substantial competitor of Hood in the
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conventional dairy business, then Hood shall have one year after the date of
receipt of such written notice (the "Termination Period") to elect, at its sole
discretion, to terminate both the Distribution Agreement and the Non-Competition
Agreement, but Hood may not terminate one agreement and continue the other
agreement. If Hood terminates the Distribution Agreement and the Non-Competition
Agreement, Hood must continue to serve as Horizon's Master Distributor of UHT
Milk products pursuant to the terms of the Distribution Agreement for a
transition period of up to six months from the date of termination (the
"Transition Period"). During the Transition Period, Hood agrees to use
commercially reasonable efforts to continue to grow the UHT Milk Products
business. Horizon must give Hood ninety (90) days notice if Horizon elects to
terminate the Transition Period prior to the six-month anniversary of the
termination of the Distribution Agreement and the Non-Competition Agreement.
During the Transition Period, the Non-Competition Agreement shall remain in
effect. If Hood does not terminate both the Distribution Agreement and the Non-
Competition Agreement during the Termination Period, then both agreements shall
continue in effect pursuant to their terms.
10.14 Growth of the Organic Dairy Business. If the Organic Market Share
exceeds fifteen percent (15%), then either party hereto may terminate the
Distribution Agreement and the Non-Competition Agreement with ninety (90)
written notice to the other party. If either party terminates the Distribution
Agreement and the Non-Competition Agreement pursuant to this Section 10.14, Hood
and Horizon must continue to meet the obligations of the Distribution Agreement
for UHT Milk Products for a transition period of up to one year from the date of
Termination. The one year transition period may be shortened by mutual consent.
22.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement on the day and year first above written.
Horizon Organic Holding Corporation
By: /s/ Barnet M. Feinblum
Barnet M. Feinblum
President and Chief Executive Officer
H.P. Hood Inc.
By: /s/ John A. Kaneb
John A. Kaneb
President and Chief Executive Officer
The Organic Cow L.L.C.
by its Manager, H.P. Hood Inc.
By: /s/ John A Kaneb
John A. Kaneb
President and Chief Executive Officer
23.
<PAGE>
Schedule 1.1
ASSETS
"Assets" shall mean and include all of the following:
(a) all rights of the Hood Companies under the Contracts;
(b) the Trademarks; and
(b) all other Proprietary Assets, including all advertising and
promotional materials possessed by the Hood Companies.
24.
<PAGE>
Schedule 1.3
ASSUMED OBLIGATIONS
Horizon will assume the obligations of the Hood Companies under all of the
Contracts, but only to the extent such obligations (i) arise after the Closing
Date, (ii) do not arise from or relate to any breach by Hood of any provision of
any of such Contracts, (iii) do not arise from or relate to any event,
circumstance or condition occurring or existing on or prior to the Closing Date
that, with notice or lapse of time, would constitute or result in a breach of
any of such Contracts, and (iv) are ascertainable (in nature and amount) solely
by reference to the express terms of such Contracts.
25.
<PAGE>
Exhibit A
Non-Competition Agreement
26.
<PAGE>
Exhibit B
Assignment and Assumption
27.
<PAGE>
Exhibit C
Supply and Distribution Agreement
28.
<PAGE>
Exhibit D
Co-Packing and Interim Processing Agreement
29.
<PAGE>
Exhibit E
Letter of Credit
30.
<PAGE>
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
31.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999, AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,722
<SECURITIES> 12,533
<RECEIVABLES> 7,990
<ALLOWANCES> (133)
<INVENTORY> 6,260
<CURRENT-ASSETS> 31,664
<PP&E> 31,887
<DEPRECIATION> (3,728)
<TOTAL-ASSETS> 81,855
<CURRENT-LIABILITIES> 11,517
<BONDS> 11,716
0
0
<COMMON> 10
<OTHER-SE> 58,084
<TOTAL-LIABILITY-AND-EQUITY> 81,855
<SALES> 37,013
<TOTAL-REVENUES> 37,013
<CGS> 24,259
<TOTAL-COSTS> 24,259
<OTHER-EXPENSES> 10,974
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 244
<INCOME-PRETAX> 1,946
<INCOME-TAX> (778)
<INCOME-CONTINUING> 1,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,168
<EPS-BASIC> .12
<EPS-DILUTED> .12
</TABLE>
