<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NORTHLAND CRANBERRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WISCONSIN 39-1583759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 FIRST AVENUE SOUTH JOHN A. PAZUREK
P.O. BOX 8020 VICE PRESIDENT-FINANCE AND CHIEF
WISCONSIN RAPIDS, WISCONSIN 54495-8020 FINANCIAL OFFICER
(715) 424-4444 NORTHLAND CRANBERRIES, INC.
(Address, including zip code, and P.O. BOX 8020
telephone number, including area code, 800 FIRST AVENUE SOUTH
of registrant's principal executive WISCONSIN RAPIDS, WISCONSIN 54495-8020
offices) (715) 424-4444
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
</TABLE>
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
STEVEN R. BARTH DAVID J. SORIN
FOLEY & LARDNER BUCHANAN INGERSOLL
777 EAST WISCONSIN AVENUE 500 COLLEGE ROAD EAST
MILWAUKEE, WISCONSIN 53202 PRINCETON, NEW JERSEY 08540
(414) 271-2400 (609) 987-6800
FACSIMILE: (414) 297-4900 FACSIMILE: (609) 520-0360
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock................. 5,750,000 shares $18.00 $103,500,000 $30,533
</TABLE>
(1) Estimated in accordance with Rule 457(c) under the Securities Act of 1933,
as amended, solely for purposes of calculating the registration fee based
upon the average of the high and low sale prices of the Class A Common Stock
as reported on the Nasdaq National Market on May 18, 1998.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
MAY 20, 1998
5,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
---------
All of the 5,000,000 shares of Class A Common Stock offered hereby are being
sold by Northland Cranberries, Inc. ("Northland" or the "Company"). The
Company's Class A Common Stock is traded on the Nasdaq National Market under the
symbol "CBRYA." On May 19, 1998, the closing sale price of the Class A Common
Stock was $18.31 per share. See "Price Range of Class A Common Stock."
The Company has two classes of common stock, the Class A Common Stock being
offered hereby and Class B Common Stock. On all matters on which shareholders
are entitled to vote, the holders of Class A Common Stock are entitled to one
vote per share and the holders of Class B Common Stock are entitled to three
votes per share. Holders of shares of Class A Common Stock are entitled to
receive cash dividends, if any, equal to at least 110% of any cash dividends
paid on the shares of Class B Common Stock. The Class A Common Stock also has
certain prior rights to liquidation proceeds. Immediately after the completion
of this offering, the shares of Class A Common Stock offered hereby will
represent 24.8% of the aggregate voting power of both classes of common stock.
See "Description of Capital Stock."
--------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 HEREOF FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share.............................................. $ $ $
Total(2)............................................... $ $ $
</TABLE>
(1) Before deducting estimated offering expenses of $500,000 payable by the
Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. To the extent the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
----------------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them,
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that delivery of the shares of Class A Common Stock will be
made at the offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or
about , 1998.
--------------
BT ALEX. BROWN
NATIONSBANC MONTGOMERY SECURITIES LLC
PIPER JAFFRAY INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[GATEFOLD GRAPHICS, PICTURES AND MAPS]
On the far left side of the gatefold, the three charts which are summarized
herein on pages 28-30 appear. The Northland logo appears in the middle of the
gatefold. Four additional color pictures appear on the gatefold with the
following captions:
"Northland's family of 100% juice cranberry blends in 64-ounce
plastic bottles is available in supermarkets nationwide."
"Minot Food Packers, Inc. produces and sells primarily cranberry
private label products as well as branded fruit juice blends and
other cranberry-based consumer products."
"Cranberries are harvested in the fall of each year from
Northland's marshes in Wisconsin and Massachusetts. With 25
cranberry-producing properties owned or leased, Northland is the
world's largest cranberry grower."
"Northland brand 100% juice cranberry blends consist entirely of
all-natural fruit juices, unlike many of the cranberry drinks and
cocktails produced by the Company's competitors which typically
contain 27% juice and are otherwise sweetened with high fructose
corn syrup."
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN PERSONS PARTICIPATING IN THIS
OFFERING MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 UNDER REGULATION
M. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK IN CONNECTION WITH THE OFFERING, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
NORTHLAND-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF THE COMPANY.
THIS PROSPECTUS ALSO INCLUDES TRADE NAMES AND TRADEMARKS OF COMPANIES OTHER THAN
NORTHLAND, INCLUDING THE TRADEMARK MINOT-REGISTERED TRADEMARK- AND OCEAN
SPRAY-REGISTERED TRADEMARK-.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED OR INCORPORATED
BY REFERENCE ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. IN 1995, THE COMPANY CHANGED ITS FISCAL YEAR END FROM
MARCH 31 TO AUGUST 31. THE TERM "TRANSITION PERIOD" AS USED HEREIN REFERS TO THE
FIVE-MONTH PERIOD ENDED AUGUST 31, 1995 ASSOCIATED WITH THE COMPANY'S CHANGE IN
FISCAL YEAR END. TO THE EXTENT NECESSARY, ALL SHARE AND PER SHARE DATA INCLUDED
IN THIS PROSPECTUS HAVE BEEN ADJUSTED FOR NORTHLAND'S TWO-FOR-ONE STOCK SPLIT
EFFECTED ON SEPTEMBER 3, 1996 IN THE FORM OF A 100% STOCK DIVIDEND. UNLESS
STATED OTHERWISE, MARKET SHARE INFORMATION OF THE COMPANY AND OTHERS SET FORTH
IN THIS PROSPECTUS IS BASED ON DOLLAR SALES IN THE UNITED STATES SUPERMARKET
BOTTLED SHELF-STABLE CRANBERRY BEVERAGE CATEGORY FOR THE INDICATED PERIOD AS
REPORTED BY INFORMATION RESOURCES, INC. ("IRI"). THE BOTTLED SHELF-STABLE
CRANBERRY BEVERAGE CATEGORY CONSISTS OF THE BOTTLED SHELF-STABLE CRANBERRY JUICE
SEGMENT AND THE BOTTLED SHELF-STABLE CRANBERRY DRINK SEGMENT AS DEFINED BY IRI
IN ITS INFOSCAN-REGISTERED TRADEMARK- REVIEWS DATABASE. IRI IS AN INDEPENDENT
MARKETING RESEARCH FIRM THAT PROVIDES ITS CUSTOMERS WITH SALES DATA GATHERED
FROM SCANNERS IN SUPERMARKETS WITH ANNUAL SALES OF $2.0 MILLION OR MORE. UNLESS
STATED OTHERWISE, IRI MARKET SHARE DATA INCLUDED IN THIS PROSPECTUS EXCLUDES
SALES THROUGH CHANNELS OTHER THAN SUPERMARKETS. TO DATE, NORTHLAND HAS VERY
LIMITED PRODUCT SALES IN THESE OTHER CHANNELS. THEREFORE, THE IRI DATA SET FORTH
HEREIN MAY OVERSTATE NORTHLAND'S SHARE OF THE OVERALL SHELF-STABLE CRANBERRY
BEVERAGE MARKET. IRI DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF THE DATA
COMPILED BY IT.
THE COMPANY
Northland Cranberries, Inc. ("Northland" or "Company") is a rapidly-growing,
vertically integrated grower, purchaser, processor and marketer of cranberries
and value-added branded and private label cranberry products. The Company
processes, markets and sells NORTHLAND brand 100% juice cranberry blends,
private label cranberry juice, NORTHLAND brand fresh cranberries and other
cranberry products through retail supermarkets and, to a lesser extent, certain
other distribution channels. Northland also sells cranberry juice concentrate to
industrial customers who manufacture cranberry based-products. With 25 cranberry
producing marshes owned or leased, Northland is also the world's largest
cranberry grower. The Company's NORTHLAND brand juice product line consists of
eight flavors, including traditional cranberry, cranberry apple, cranberry
raspberry, cranberry grape, cranberry peach, cranberry cherry, cranberry
blackberry and cranberry strawberry. NORTHLAND branded juice is available
nationwide principally in 64-ounce plastic bottles. In addition, the Company is
currently introducing its NORTHLAND brand 100% juice products nationally in
46-ounce plastic bottles to new and existing supermarket customers and in
gallon-size plastic bottles as well as 16-ounce plastic bottle multi-packs to
warehouse clubs.
First introduced in fiscal 1996, NORTHLAND brand 100% juice cranberry blends
successfully achieved national distribution by the summer of 1997 and is the
fastest growing blended cranberry juice product line known to the Company in
nationwide supermarket distribution. As of March 29, 1998, Northland's blended
cranberry juice products were available in all 50 states and in approximately
23,000 supermarkets representing approximately 76% of the all commodity volume
("ACV") nationwide. For the 12-week period ended March 29, 1998, the market
share of NORTHLAND brand 100% juice products increased to 14.2% compared to 3.2%
for the 12-week period ended March 30, 1997. Based on preliminary estimates from
IRI, due to its scheduled reduction of advertising and trade promotional
activities during April 1998, the Company believes its market share data for the
12-week period ended April 26, 1998 was lower than it was for the 12-week period
ended March 29, 1998. Active promotional activities by the Company are scheduled
to resume for May 1998. The Company's aggressive introduction and development of
its NORTHLAND brand 100% juice cranberry blends product line has resulted in
significant recent revenue growth, with the Company's revenues increasing by 99%
to $48.7 million for the six-month period ended February 28, 1998 from $24.4
million for the comparable fiscal 1997 period.
3
<PAGE>
STRATEGIC MINOT ACQUISITION
On May 20, 1998, Northland entered into a definitive agreement pursuant to
which a newly-created subsidiary will purchase substantially all of the assets,
and assume certain liabilities, of Minot Food Packers, Inc. ("Minot") for $35.6
million in cash and $2.0 million in unregistered Class A Common Stock (the
"Minot Acquisition"). Minot, located in Bridgeton, New Jersey, produces,
markets, sells and distributes primarily cranberry private label products,
including cranberry sauce, as well as a wide variety of non-cranberry private
label juice products. Minot also manufactures and sells its own MINOT branded
juice products and co-packs juice blends and other beverages for other
distributors. For its fiscal year ended June 30, 1997, Minot reported sales of
$41.4 million.
The Company believes the Minot Acquisition will further its MARSH TO MARKET
strategy by providing Northland with the opportunity to significantly expand its
current limited presence in the private label juice market and substantially
broaden its existing product line. The Company anticipates that the Minot
Acquisition will provide well-established private label customer relationships,
a juice manufacturing facility, an extensive private label distribution network
and significant private label management experience and expertise. The Company
also believes the Minot Acquisition will allow it to increase branded product
sales through the ability to offer category management opportunities to
supermarket chains and other retailers.
The Company plans to realize substantial operating and distribution cost
savings and other synergies from the Minot Acquisition, particularly by
substantially reducing the inventory cost of Minot's supply of cranberries by
utilizing Northland's lower-cost internally grown supply of cranberries in the
manufacture of Minot's cranberry products. The Company also believes it can
realize cost savings and other synergies by reducing its reliance on third party
bottlers and co-packers by manufacturing some of its own products at Minot's
juice manufacturing and bottling facility. In addition, the Company believes
that the facilities acquired in the Minot Acquisition will allow it to (i)
reduce transportation costs by shipping cranberries grown on its Massachusetts
properties to Minot's facilities (instead of Northland's facilities in
Wisconsin) for pressing and concentrating; (ii) reduce distribution costs and
lead-times to customers located in the eastern United States; and (iii) provide
additional dry and cold storage for Northland's cranberry inventory.
OPERATING STRATEGIES
Northland has implemented its MARSH TO MARKET vertical integration strategy
by adding value to its raw cranberry supply, thereby increasing the potential
return to the Company from each barrel of its raw cranberries. The Company adds
value from MARSH TO MARKET in the following ways:
- ADDING VALUE TO ITS CRANBERRIES. Northland's value-added efforts direct
its raw cranberry supply into a product mix which can enhance Northland's
profit potential based on customer demand and subject to industry and
other market conditions. The Company has focused its operating strategy in
the areas of branded and private label juice in order to best maximize the
Company's per barrel profit potential.
- ADDING VALUE TO THE SUPERMARKET RETAILER. The Company markets its
NORTHLAND brand 100% juice line as a premium product which adds value for
the benefit of the supermarket retailer from the standpoints of product
differentiation, increased category trade spending, increased product
competition and increased gross margin and inventory turns.
- ADDING VALUE TO THE INDIVIDUAL CONSUMER. Northland believes it has been
able to gain market share by offering individual consumers a high quality,
great tasting, healthy and differentiated branded juice product. The
Company believes its 100% juice products offer improved quality,
nutritional value and taste compared to most other competitors'
cranberry-based drinks and cocktails which do not contain 100% juice. Most
other competitors' cranberry drinks or cocktails, including the
historically
4
<PAGE>
offered products of Ocean Spray, use sugar or high fructose corn syrup
additives as sweeteners and water as fillers.
GROWTH STRATEGIES
Northland believes it is well-positioned to accelerate its revenue and
earnings growth in both the branded and private label markets. Northland's
strategies for accelerating its revenue and earnings growth include:
- ACCELERATING THE GROWTH OF NORTHLAND BRAND JUICES THROUGH INCREASED
MARKETING EXPENDITURES. Northland plans to use a portion of the net
proceeds of this offering to further increase its marketing expenditures,
and in particular its national television advertising campaign, to further
increase its same store sales and market share of NORTHLAND brand 100%
cranberry juice blends.
- CONTINUING TO EXPAND THE NUMBER OF SUPERMARKETS AND OTHER RETAIL OUTLETS
IN WHICH NORTHLAND BRAND PRODUCTS ARE SOLD. The Company intends to
continue aggressively expanding the number of supermarkets nationwide in
which its juice products are sold. The Company is also pursuing increased
distribution of its products to mass merchandisers, drug and discount
stores and foodservice accounts and is developing an entry strategy into
convenience stores.
- INTRODUCING NEW BOTTLE SIZES AND NEW PRODUCTS. To further increase shelf
space, improve shelf position and enhance overall category market share,
Northland has begun to introduce new bottle sizes.
- EXPANDING THE COMPANY'S PRESENCE IN THE PRIVATE LABEL JUICE MARKET. As a
result of the Minot Acquisition, Northland believes that it can
significantly expand its private label juice sales by combining its
attributes as the world's largest cranberry grower and its resulting low
cranberry cost efficiencies, together with Minot's well-established
private label customer relationships, self-contained manufacturing
facilities, excellent reputation, broad private label distribution network
and expertise in private label fruit juice processing, bottling and
marketing.
- EXPLORING ADDITIONAL POTENTIAL STRATEGIC ACQUISITIONS. The Company intends
to explore additional potential strategic acquisitions of other branded
and/or private label juice and beverage manufacturers and distributors
where there may exist opportunities to leverage the Company's key
strengths, complement and expand the breadth and variety of the Company's
product offerings and/or provide synergies and cost efficiency
opportunities to the Company's operations.
The Company's executive offices are located at 800 First Avenue South,
Wisconsin Rapids, Wisconsin 54495-8020, and its telephone number is (715)
424-4444.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by
the Company................... 5,000,000 shares
Class A Common Stock to be
outstanding after the
offering...................... 18,233,498 shares(1)
Use of proceeds................. To fund the cash purchase price of the Minot Acquisition;
to reduce bank indebtedness; to support increased
nationwide promotion of NORTHLAND brand 100% juice
cranberry blends; to enhance Northland's presence in the
private label juice market; and for potential future
acquisitions of other branded and/or private label juice
and beverage manufacturers and distributors
Current annual dividend rate on
Class A Common Stock.......... $0.16 per share
Nasdaq National Market Symbol... CBRYA
</TABLE>
- ------------------------
(1) Excludes (i) 636,202 shares of Class B Common Stock which are convertible on
a share-for-share basis into shares of Class A Common Stock at the option of
the holders; (ii) 1,076,656 shares issuable upon exercise of stock options
outstanding as of the date of this Prospectus at a weighted average exercise
price of $9.62 per share, of which options to purchase 947,076 shares of
Class A Common Stock were exercisable as of the date of this Prospectus; and
(iii) 109,215 shares of Class A Common Stock issuable to pay a portion of
the purchase price to consummate the Minot Acquisition based on a per share
price equal to the closing sale price of the Class A Common Stock on May 19,
1998 as set forth on the cover page of this Prospectus. See
"Business--Strategic Minot Acquisition" and "Description of Capital
Stock--Class A and Class B Common Stock."
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
------------- HISTORICAL PRO FORMA HISTORICAL
-------------------- ----------- -----------------------------------
SIX MONTHS
ENDED SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, AUGUST 31, AUGUST 31, MARCH 31,
------------- -------------------- ----------- ---------------------- -----------
1998(1) 1998 1997 1997(1) 1997 1996(2) 1995(2)
------------- --------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 72,782 $ 48,727 $ 24,433 $ 89,027 $ 47,375 $ 37,608 $ 21,784
Cost of sales....................... 44,639 26,017 11,173 57,371 23,171 16,517 13,057
------------- --------- --------- ----------- --------- ----------- -----------
Gross profit........................ 28,143 22,710 13,260 31,656 24,204 21,091 8,727
Cost and expenses:
Selling, general and
administrative.................. 22,555 18,975 6,334 21,593 15,963 7,020 2,440
Interest.......................... 3,342 3,342 1,910 4,493 4,493 2,657 3,654
------------- --------- --------- ----------- --------- ----------- -----------
Total costs and expenses............ 25,897 22,317 8,244 26,086 20,456 9,677 6,094
------------- --------- --------- ----------- --------- ----------- -----------
Income before income taxes.......... 2,246 393 5,016 5,570 3,748 11,414 2,633
Income taxes........................ 991 176 1,988 2,230 1,516 4,509 1,051
------------- --------- --------- ----------- --------- ----------- -----------
Net income.......................... $ 1,255 $ 217 $ 3,028 $ 3,340 $ 2,232 $ 6,905 $ 1,582
------------- --------- --------- ----------- --------- ----------- -----------
------------- --------- --------- ----------- --------- ----------- -----------
Net income per share--basic:
Weighted average shares
outstanding..................... 16,026 13,858 13,641 15,905 13,737 13,311 8,587
Net income per share.............. $ 0.08 $ 0.02 $ 0.22 $ 0.21 $ 0.16 $ 0.52 $ 0.18
Net income per share--diluted:
Weighted average shares
outstanding..................... 16,490 14,323 14,298 16,477 14,309 13,928 8,891
Net income per share.............. $ 0.08 $ 0.02 $ 0.21 $ 0.20 $ 0.16 $ 0.50 $ 0.18
Cash dividends per share:
Per Class A share................. $ 0.080 $ 0.080 $ 0.080 $ 0.160 $ 0.160 $ 0.145 $ 0.140
Per Class B share................. 0.072 0.072 0.072 0.145 0.145 0.132 0.127
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(3)
--------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................................ $ 59,908 $ 71,165
Total assets.......................................................................... 202,549 244,282
Current liabilities................................................................... 16,210 20,319
Long-term debt........................................................................ 100,784 50,382
Shareholders' equity.................................................................. 75,981 164,007
</TABLE>
- ------------------------------
(1) Gives effect to the following actions as if they had occurred on September
1, 1996: (i) the consummation of the Minot Acquisition and (ii) the
Company's sale of such number of shares of Class A Common Stock at an
assumed price per share equal to the closing sale price of the Class A
Common Stock on May 19, 1998 as set forth on the cover page of this
Prospectus sufficient to pay the cash purchase price of the Minot
Acquisition. See "Use of Proceeds," "Capitalization," "Selected Consolidated
Pro Forma Financial Data" and Unaudited Consolidated Pro Forma Condensed
Financial Statements.
(2) Financial data for the Transition Period is not included in this Summary
Financial Data table, but is included in the table under "Selected
Consolidated Financial Data" and is set forth in the Consolidated Financial
Statements. For the Transition Period, the Company reported total revenues
of $891,000 and a net loss of $1.4 million. See Note 3 of Notes to
Consolidated Financial Statements.
(3) Adjusted to reflect (i) the consummation of the Minot Acquisition as of
February 28, 1998; (ii) the Company's sale of 5,000,000 shares of Class A
Common Stock offered hereby at an assumed price per share equal to the
closing sale price of the Class A Common Stock on May 19, 1998 as set forth
on the cover page of this Prospectus and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company; and (iii) the application of $35.6 million of the
net proceeds of this offering to pay the cash purchase price of the Minot
Acquisition, with the remaining net proceeds used to repay indebtedness. See
"Use of Proceeds" and "Capitalization." If the Minot Acquisition is not
consummated but this offering is completed, then under this column, current
assets would equal $59.9 million; total assets would equal $202.5 million;
current liabilities would equal $13.6 million; long-term debt would equal
$17.4 million; and shareholders' equity would equal $162.0 million. See
"Capitalization" and "Use of Proceeds."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF CLASS A COMMON STOCK OFFERED BY THIS PROSPECTUS. CERTAIN MATTERS DISCUSSED IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING PARTICULARLY
STATEMENTS WHICH INCLUDE WORDS SUCH AS THE COMPANY "BELIEVES," "ANTICIPATES,"
"EXPECTS," "INTENDS," "PROJECTS," "PLANS," "WILL," "COULD," "MAY" OR WORDS OF
SIMILAR IMPORT. WITH RESPECT TO SUCH STATEMENTS, THE COMPANY CLAIMS THE
PROTECTION OF THE DISCLOSURE LIABILITY SAFE HARBOR FOR FORWARD-LOOKING
STATEMENTS CONTAINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING
PARTICULARLY THOSE IMPORTANT RISK FACTORS SET FORTH BELOW, THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. POTENTIAL INVESTORS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS,
WHICH ARE MADE ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION
TO PUBLICLY UPDATE OR RELEASE THE RESULTS OF ANY REVISION TO SUCH FORWARD-
LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE HEREOF OR TO REFLECT THE OCCURRENCE OF SUBSEQUENT EVENTS. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT THE FOLLOWING IMPORTANT RISK FACTORS, IN ADDITION
TO THOSE DISCUSSED ELSEWHERE OR INCORPORATED BY REFERENCE HEREIN, COULD AFFECT
THE FUTURE RESULTS OF THE COMPANY AND CAUSE THOSE RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
RISKS RELATING TO THE MINOT ACQUISITION
The principal purpose of the Minot Acquisition is to allow the Company to
significantly expand its current limited presence in the private label juice
market. However, the Company has limited experience and success in competing in
this market and may not be able to successfully compete in this market after the
Minot Acquisition. There can be no assurance that Minot's historical private
label customers will continue to remain customers of the Company following the
Minot Acquisition at current levels or at all. The loss of significant sales to
private label customers of Minot following the consummation of the Minot
Acquisition could have an adverse effect on the Company's results of operations
and could result in the Company not achieving the benefits expected to be
realized by the Company from the Minot Acquisition. The Company also believes it
is likely that certain of Minot's customers who otherwise compete against
Northland and who contract with Minot to manufacture and bottle (or "co-pack")
their products will not remain co-pack customers of the Company after the Minot
Acquisition. See "Business--Strategic Minot Acquisition." Most of Minot's
employees are unionized and are covered under two separate collective bargaining
agreements which expired on May 15, 1998. Minot's employees are continuing their
employment under the terms of the expired collective bargaining agreements until
renewed or new agreements are entered into. There can be no assurance that these
agreements will be renewed on favorable terms or that Minot or the Company will
not experience a resultant strike or work stoppage. See "Business-- Employees."
In consideration for a reduction reflected in the current purchase price
otherwise payable to Minot, a subsidiary of the Company will assume unfunded
defined benefit pension plan liabilities of Minot. There can be no assurance
that the Company's recognition of those liabilities will not result in an
adverse effect on the Company's results of operations and financial condition.
In order to realize the anticipated benefits from the Minot Acquisition and
to build on the past success and reputation of Minot, Northland believes it must
successfully and promptly integrate the operations of Minot with its existing
operations. Minot is located in Bridgeton, New Jersey and the Company is
headquartered in Wisconsin Rapids, Wisconsin. There can be no assurance that the
Company will not encounter difficulties, added costs and delays in integrating,
transitioning and managing Minot's operations and that these circumstances will
not have an adverse effect on the Company's results of operations and will not
diminish or delay the benefits expected to be realized by the Company from the
Minot Acquisition. Additionally, the integration process will likely divert a
certain amount of management attention away from the Company's ongoing business.
Furthermore, there can be no assurance that Northland will realize the
anticipated level of synergies and cost savings by integrating its operations
with
8
<PAGE>
those of Minot. The failure of the Company to realize these anticipated levels
of synergies and cost savings could adversely affect the Company's results of
operations and the benefits expected to be realized by the Company from the
Minot Acquisition. See "Selected Consolidated Pro Forma Data."
While the Company and Minot have entered into a definitive purchase
agreement with respect to the Minot Acquisition, its closing remains subject to
certain conditions and there can be no assurance that the Minot Acquisition will
be consummated. See "Business--Strategic Minot Acquisition." The Company has
incurred significant costs and expenses associated with the evaluation and
negotiation of, and the preparation for consummating, the Minot Acquisition. If
the Minot Acquisition is not consummated, these costs and expenses will be
charged against the Company's otherwise reportable net income in the period in
which the Minot Acquisition is terminated. The Company has also devoted
significant management time and attention to developing strategies and
positioning resources to facilitate the Company's anticipated expanded presence
in the private label juice market following the Minot Acquisition. Failure to
consummate the Minot Acquisition could materially adversely affect the Company's
results of operations and could result in the Company failing to achieve its
strategic objective of successfully competing in the private label market. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business--Strategic Minot Acquisition."
COMPETITION
The markets for branded consumer cranberry products are intensely
competitive and are dominated by Ocean Spray Cranberries, Inc. ("Ocean Spray").
Ocean Spray reported sales of over $1.4 billion for its fiscal year ended August
31, 1997. For the 12-weeks ended March 29, 1998, Ocean Spray had a leading
market share of approximately 56.6% of the bottled shelf-stable cranberry
beverage market, compared to 14.2% for the Company which held the second largest
market share position for a single company. Ocean Spray's market share of the
overall market for branded bottled shelf-stable cranberry beverages, including
sales through retail channels other than supermarkets, is also significant. The
Company also experiences significant direct competition from Ocean Spray and
others in the fresh cranberry and cranberry concentrate markets. The continued
competitive success of the Company's NORTHLAND brand 100% juice cranberry blend
products will depend on consumers' continued perception of their high quality,
great taste and premium product nature compared to consumers' perceptions
regarding competitive products, particularly those of Ocean Spray. The Company
currently competes directly against certain regional and local cranberry juice
blends which also feature 100% juice content like NORTHLAND juice, and Ocean
Spray recently-announced its planned nationwide introduction of a product line
of 100% juice cranberry blends. There can be no assurance that the introduction
by Ocean Spray or other competitors into national distribution of cranberry
juice blends having 100% juice content in an attempt to compete directly with
the Company's NORTHLAND brand 100% juice product line will not have an adverse
affect on the Company's results of operations and financial condition.
Since the Company uses all natural fruit juices to sweeten its premium 100%
juice branded products rather than high fructose corn syrup, Northland believes
that its premium 100% juice branded products cost more for the Company to
produce than it costs competitors to produce their non-100% juice competitive
cranberry drink and cocktail products. Furthermore, Northland cannot predict the
pricing or promotional activity of its competitors or the effects of such
actions on the sales and market share of the Company's products. Northland's
national or regional market share and its sales volume per percentage
supermarket distribution point may decline as a result of increased promotional
expenditures by Ocean Spray or other competitors or as a result of price cutting
or other competitive trade practices intended to stimulate the sales of
competitive products either nationally, regionally or in significant local
markets. Ocean Spray has significantly more experience than the Company in the
fruit juice and branded consumer cranberry products markets, substantially
greater brand name recognition, substantially greater marketing and distribution
resources, substantially greater market penetration and a substantially wider
variety of sizes and flavors of branded cranberry-based fruit juices and
consumer cranberry products than the
9
<PAGE>
Company. There can be no assurance that the Company will be able to continue to
compete successfully against Ocean Spray or other competitors.
The market for private label cranberry beverages is also highly competitive
and, based on IRI data, for the 52-weeks ended March 1, 1998 represented 20.0%
of bottled shelf-stable cranberry beverage dollar sales in United States
supermarkets. Established processors, including market leaders Cliffstar
Corporation and Clement Pappas & Co., have significant experience in the private
label fruit juice and processed cranberry products markets and have well
established customer relationships, distributor networks and self-contained
bottling operations. To date, the Company has not been able to compete
effectively in the private label market and there can be no assurance that the
Company will be successful in competing in the private label market even after
the Minot Acquisition. Moreover, private label cranberry products in general
compete against branded cranberry products and, in particular, the branded
cranberry products of Ocean Spray and the Company. There can be no assurance
that any private label processed cranberry products of the Company or Minot will
be able to successfully compete against the similar branded products of Ocean
Spray or others or that the Company's or Minot's private label juice products
will not adversely affect the sales of the Company's branded juice line.
BRAND DEVELOPMENT RISK
The Company's NORTHLAND brand 100% juice cranberry blends compete for market
share based primarily on consumer perceptions about the relative quality, taste,
nutritional value and the premium product differentiation of its products versus
those of its competitors, as well as brand recognition, consumer loyalty and
price. As a result, sales of the Company's NORTHLAND juice products may be
adversely affected by, among other things, adverse changes or evolutions in
consumer preferences or perceptions regarding the relative quality, taste or
nutritional value of Northland's products, the relative health or nutritional
benefits of cranberry juice, and particularly the relative health and
nutritional benefits of all natural ingredient 100% juice products (like the
NORTHLAND branded juice products) versus juice drinks and cocktails containing
less than 100% juice and sweetened with high fructose corn syrup. There can be
no assurance that the Company's NORTHLAND brand 100% juice product line will
continue to maintain acceptable levels of consumer acceptance or that new
product introductions by competitors, including particularly Ocean Spray's
recent announcement of its introduction into national distribution of a 100%
juice cranberry blend product line, will not adversely affect Northland's market
share and its results of operations in the future. Demand for Northland's
products may also be adversely affected by consumer product liability or related
health claims or the risk of product tampering or recalls with respect to
Northland's products or similar products of other companies. Additionally, like
most branded food and beverage manufacturers, the Company pays slotting fees to
supermarkets in order to obtain, and in certain cases maintain, supermarket
shelf space for its 100% juice branded products. The failure of the Company's
100% juice branded products to achieve or maintain adequate sales levels at
certain supermarket chains may result in such supermarket chains ceasing their
purchase of the Company's NORTHLAND brand juice or in such chains charging
increased or additional slotting fees payable by the Company. These
circumstances could result in the Company being unable to maintain adequate
supermarket distribution and shelf space to support increasing sales of its
products and could adversely affect the Company's results of operations and
financial condition. Additionally, branded product sales like NORTHLAND 100%
juice cranberry blends are dependent on continuing advertising, trade and
promotional support, all of which require substantial ongoing expenditures which
may adversely impact the Company's results of operations and financial
condition. Changing levels of advertising, trade and promotional support may
also effect the market share for NORTHLAND brand products during the
corresponding period. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Quarterly Results."
The Company has entered into contractual arrangements with various
co-packers and food brokers to manufacture and sell the Company's branded juice
product line. Poor performance by, or the loss of, a co-
10
<PAGE>
packer or one or more existing food brokers in a significant region or market
could have an adverse effect on the Company's results of operations, especially
in the short-term.
AVAILABILITY AND PRICES OF CERTAIN IMPORTANT INGREDIENTS AND OTHER RAW MATERIALS
Northland uses other natural fruit juices, such as white grape juice and
apple juice, to naturally sweeten its NORTHLAND brand 100% juice cranberry
blends. Northland also uses plastic bottles to package its branded and private
label juice products. Many of these natural ingredients are affected by, among
other things, agricultural policies of the United States government and weather
conditions, and from time to time these ingredients and other raw materials may
be unavailable or in short supply. As a result, the prices of these ingredients
and materials have been, and Northland expects them to continue to be, subject
to volatility. Volatility in prices can adversely affect the Company's results
of operations, at least in the short-term. Northland purchases its natural juice
ingredients and plastic bottles on an as needed basis on the spot market, as
well as through natural ingredients forward purchase contracts. The Company does
not generally purchase commodity futures to mitigate against these risks. As a
result, Northland may not be able to pass on price increases in these
ingredients and materials to its customers and its results of operations, at
least for the short-term, may be adversely affected by shortages or price
increases in these ingredients or materials.
RISK OF PRODUCT LIABILITY; PRODUCT RECALLS
Although the Company has never been involved in a product liability lawsuit
or been required to recall any of its products, the sale of food products for
human consumption involves the risk of injury to consumers as a result of
tampering by unauthorized third parties, product contamination or spoilage,
including the presence of foreign objects, substances, chemicals and other
agents, or residues introduced during the growing, harvesting, storage,
processing, manufacturing, handling or transportation phases. There can be no
assurance that consumption of the Company's or Minot's products will not cause a
health-related illness in the future or that the Company will not be subject to
claims or lawsuits relating to such matters or be required to recall any of its
products. The Company maintains product liability insurance in an amount which
the Company believes to be adequate. Minot has represented to the Company that
it also carries product liability insurance which it believes to be adequate.
However, there can be no assurance that product liability claims will not be
asserted against the Company or Minot or that the Company will not be obligated
to recall any of its products. A product liability judgment against the Company
or a product recall could have a material adverse effect on consumers'
perceptions about the quality, healthfulness and safety of the Company's
products and, as a result, the Company's results of operations and financial
condition could be adversely affected.
POTENTIAL VOLATILITY OF FUTURE QUARTERLY OPERATING RESULTS
The Company's results of operations may fluctuate on a quarterly basis as a
result of a number of factors, including the Company's total relative sales
volumes, market share and product mix and those of its competitors, marketing
and promotional expenditures by the Company and its competitors, new product
entries, the success or failure of planned acquisitions (including the Minot
Acquisition), the availability and cost of certain ingredients and raw materials
and other factors. In addition, fluctuations in quarterly results could affect
the market price of the Class A Common Stock in a manner unrelated to the longer
term operating performance and prospects of the Company. See "Possible Stock
Price Volatility" below and "Management's Discussion and Analysis of Results of
Operations and Financial Condition-- Quarterly Results."
CRANBERRY MARKET; SUPPLY AND DEMAND
An oversupply of cranberries could have a depressing effect on the price of
raw cranberries, cranberry concentrate, single-strength juice and other
industrial cranberry products. The supply of raw cranberries
11
<PAGE>
has increased over the last two years and, in particular, in the Company's
current fiscal year as a result of the record North American cranberry crop
harvested in the fall of 1997. This increase in supply has resulted during
fiscal 1998 in reduced prices for cranberry concentrate and other industrial
cranberry products compared to prior year levels. Additionally, annual cranberry
production can fluctuate significantly from year to year depending on
agricultural conditions, which can cause increases or decreases in the overall
annual supply of raw cranberries. To date, substantially all of the world's raw
cranberries have been grown in North America. In recent years, however,
increased attention has been directed at attempts to grow cranberries in
locations outside of North America and to increase the importation of berries
similar to cranberries. There can be no assurance that cranberry production
outside North America or increased imports will not become significant. There
can be no assurance that the supply of raw cranberries will not exceed market
demand or that demand will not decline to less than supply. Continued and
increasing demand for cranberry products may depend on continued significant
advertising expenditures and expanded new cranberry product introductions by
Ocean Spray, Northland and other branded product companies. An industry shortage
of raw cranberries, which occurred in the Company's 1996 and 1997 fiscal years
(i.e., the fall harvests of 1995 and 1996), may have the effect of increasing
the price of raw cranberries, cranberry concentrate, single-strength juice and
other industrial cranberry products. While the Company would benefit from such
higher prices in sales of cranberry concentrate, single-strength juice and other
industrial cranberry products, the Company could be required to pay higher costs
for raw cranberries purchased from other growers. While the Company believes it
may possess certain competitive pricing advantages because of the lower cost of
its internally-grown cranberries, there can be no assurance that certain of the
Company's competitors may not reduce the cranberry juice content of their
cranberry drinks and cocktails in response to reduced market availability of
cranberries. Additionally, changes in consumer perceptions of the relative
healthfulness or safety of cranberries generally could have an adverse effect on
the demand for consumer cranberry products and result in significant changes in
cranberry prices. See "Risk of Product Liability; Product Recalls."
AGRICULTURAL FACTORS
Northland's cranberry production is subject to the variable effects of
weather, crop disease, insect infestation, animal damage, hail and storm damage
and water adequacy. These factors can also affect the storage and selling
quality of Northland's crop, as well as the quantity and quality of raw
cranberries to be purchased by the Company from other growers. Significant
reductions in annual per acre yields can result from any of these factors being
unfavorable on the Company's marshes and such reductions can have, and have had,
an adverse effect on the Company's results of operations. As a result, the
Company's crop yields and production on its individual marshes and on an
aggregate basis can and do fluctuate widely from year to year. While the Company
maintains federal multi-peril crop insurance coverage, such policies insure only
up to 75% of the previous 10 years' average historical yield from the affected
marsh and typically reimburse the Company at an effective rate substantially
below the price which could have been received by the Company actually
harvesting, processing and selling the affected crop as value-added products.
These insurance policies also do not cover destruction or spoilage of the
Company's raw cranberries after harvest or purchase. Such an interruption of
business could have a material adverse affect on the Company's financial
condition and results of operations. See "Business--Cranberry Supply."
The Company uses approved pesticides and herbicides to cultivate its
internally grown cranberry crop. If other hazardous substances are discovered
on, or emanating from, any of the Company's properties and their release
presents a threat of harm to public health or the environment, the Company may
incur potential liability and costs.
AVAILABILITY AND INTEGRATION OF POTENTIAL FUTURE ACQUISITIONS
Part of Northland's business strategy envisions acquiring and integrating
additional branded and/or private label juice or beverage manufacturers and
distributors, as well as additional cranberry marsh
12
<PAGE>
properties. See "Business--Growth Strategies." There can be no assurance that
the Company will be able to identify suitable acquisition candidates or, if
identified, negotiate successfully their acquisition. If the Company is
successful in identifying and negotiating additional suitable acquisitions,
particularly another branded and/or private label juice or beverage manufacturer
and distributor, there can be no assurance that any debt or equity financing
necessary to complete any of such acquisitions can be arranged on terms
satisfactory to the Company or that any such financing will not significantly
increase the Company's leverage or result in additional dilution to existing
shareholders. Moreover, there can be no assurance that the Company will be able
to integrate successfully any acquired operations, or manage or improve the
operating or administrative efficiencies or productivity of any acquired
operations or realize the expected benefits to be achieved from any such
acquisition.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on certain key management personnel, particularly
its Chairman of the Board and Chief Executive Officer, John Swendrowski, and its
President and Chief Operating Officer, Jerold D. Kaminski. The Company does not
maintain key man life insurance on any of its management personnel. The
Company's future success will depend, in part, on its ability to retain its
management personnel and integrate new management personnel, including the
management personnel of Minot, into the Company's operations. See
"Management--Directors and Officers."
PROCESSING FACILITIES RISKS
The Company's principal processing and storage facility and its
concentrating facility are located in Wisconsin Rapids, Wisconsin. The Company
also currently operates a smaller processing facility in Hanson, Massachusetts
for its Massachusetts-grown cranberry crop. Following the consummation of the
Minot Acquisition, the Company will also operate a processing, storage and
bottling facility in Bridgeton, New Jersey. In the event of a fire or other
natural disaster, regulatory actions or other causes which destroy, close or
substantially adversely affect any of these facilities, particularly if such
incidents occurred during or shortly after the annual fall cranberry harvest,
the Company's inventory of cranberries at such affected facility would be
subject to loss and the Company might be unable to receive and process harvested
berries at such facility, manufacture and supply concentrate (if the event
affected the Wisconsin Rapids or Bridgeton facility) or process or ship fresh
cranberries from such facility. Although the Company has business interruption
insurance believed to be adequate to cover most such circumstances, such an
interruption of business could materially adversely affect the Company's results
of operation and financial condition. See "Business--Processing and
Distribution."
RISK OF DILUTION OR INFRINGEMENT OF COMPANY TRADEMARK
The Company's NORTHLAND brand 100% juice cranberry blends and fresh
cranberries are branded consumer products and the Company's efforts to
distinguish its branded products from those of its competitors depends, in part,
on the strength and enforcement of its trademark. There can be no assurance that
competitors will refrain from using trademarks, trade names or trade dress which
dilute or diminish the Company's intellectual property rights or that others
will not imitate Northland's premium branded products. Any such actions may
require the Company to become involved in litigation to protect and enforce its
intellectual property rights. Any such litigation could involve substantial
financial expenditures and the diversion of management's time and attention. Any
effective dilution or diminishment of the Company's trademark could have an
adverse effect on the Company's results of operations and financial condition.
See "Business--Regulation."
REGULATION
The cultivation, production, processing, packaging, labeling, marketing and
distribution of the Company's juice products and fresh cranberries are subject
to the rules and regulations of various federal, state
13
<PAGE>
and local food and health agencies, including the Food and Drug Administration,
the Department of Agriculture, the Federal Trade Commission and the
Environmental Protection Agency. There can be no assurance that future
compliance by the Company or its competitors with such rules, regulations and
laws will not have an adverse effect on the Company's results of operations and
financial condition. See "Business--Regulations."
Past federal and state legislative proposals have attempted to ease the
current regulatory restrictions in the United States governing the development
of wetlands (the preferred growing habitat for cranberries). The Company is
unable to predict the likelihood of enactment of any such legislation in the
future or what impact any such enacted legislation would have on the ability to
develop new cranberry marshes. If proposals are enacted in a manner which would
materially ease restrictions on the development of cranberry marshes, it could
lead to an increase in the long-term supply of raw cranberries which, if not
exceeded by a similar increase in demand, could have a depressing effect on the
pricing of cranberries and cranberry products. While the Government of Canada
and most of Canada's provinces have official "no net loss" policies restricting
the development of wetlands, the impact, interpretation and application of such
policies on the development of wetlands in Canada for cranberry production is
uncertain.
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
As described under "Description of Capital Stock--Certain Statutory
Provisions," the Wisconsin Business Corporation Law contains several statutory
provisions which could also have the effect of discouraging non-negotiated
takeover proposals for the Company or impeding a business combination between
the Company and a major shareholder of the Company. Such provisions include (i)
limiting the voting power of certain shares of certain public corporations which
are held by a person in excess of 20% of the corporation's voting power to 10%
of the full voting power of such excess shares; (ii) requiring a super-majority
vote of shareholders, in addition to any vote otherwise required, to approve
certain business combinations not meeting certain adequacy of price standards;
and (iii) prohibiting certain business combinations between a corporation and a
major shareholder for a period of three years, unless such acquisition has been
approved by the corporation's board of directors prior to the time such major
shareholder became a 10% beneficial owner of shares or under certain other
circumstances. Additionally, the ability of the Company's Board of Directors to
issue shares of Preferred Stock and to determine the terms of such Preferred
Stock, generally without further shareholder approval, could have the effect of
discouraging non-negotiated takeover proposals for the Company. See "Description
of Capital Stock-- Preferred Stock." See also "Description of Capital
Stock--Class A and Class B Common Stock" for a description of the relative
rights and preferences of the Company's Class B Common Stock.
POSSIBLE STOCK PRICE VOLATILITY
The Company believes that factors such as significant adverse changes in the
market share, percentage of supermarket distribution or consumer acceptance of
NORTHLAND brand juice, the Company's ability to successfully compete in the
private label juice market, the success or failure of planned acquisitions
(including the Minot Acquisition), the introduction into nationwide distribution
of new competitive 100% juice products (including Ocean Spray's new 100% juice
cranberry blends line), significant changes in the relative supply and demand
for cranberries, the pricing of and competition for industrial cranberry
products, significant quarterly fluctuations in the Company's results of
operations, differences between the Company's actual results of operations and
those expected by investors and stock market research analysts, changes in
analyst's recommendations or projections, sales of a significant number of
shares of Class A Common Stock into the market by existing shareholders or the
Company, and general stock market or economic conditions, could adversely affect
or cause significant volatility in the market price of the Class A Common Stock.
The stock market has experienced extreme price and volume fluctuations in recent
years. Stock market volatility may adversely affect the market price of the
Class A Common Stock. See "Price Range of Class A Common Stock."
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<PAGE>
SUBSEQUENT SHARE ISSUANCES; SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, of the offer and sale of
additional shares of Class A Common Stock, or the availability of additional
shares for sale, or the market price of the Class A Common Stock prevailing from
time to time. Nevertheless, issuances by the Company of substantial amounts of
newly issued shares of Class A Common Stock in the public market or to effect
business acquisitions could cause dilution to existing shareholders and could
adversely affect the prevailing market price of the Class A Common Stock and the
future ability of the Company to raise equity capital or issue its Class A
Common Stock to effect business acquisitions. Similarly, sales of substantial
amounts of Class A Common Stock in the public market following this offering,
particularly by directors or officers of the Company, or the perception that
such sales could occur, could adversely affect the prevailing market price of
the Class A Common Stock. The Company, as well as its executive officers and
directors beneficially holding an aggregate of 1,376,567 shares of Class A
Common Stock and 636,202 shares of Class B Common Stock as of February 28, 1998,
have agreed that, with the exception of a total of 100,000 shares of Class A
Common Stock, they will not, directly or indirectly, offer, sell or otherwise
dispose of any Class A Common Stock or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, Class A Common Stock for
a period of 90 days after the date of this Prospectus, without the prior written
consent of BT Alex. Brown Incorporated, as representative of the Underwriters.
See "Stock Ownership of Management and Others" and "Underwriting."
On July 22, 1996, the Company filed a registration statement with the
Securities and Exchange Commission covering 1,000,000 shares of its Class A
Common Stock which may be issued by the Company from time to time in connection
with its acquisition of other business operations or properties ("Acquisition
Shelf Registration Statement"). As of February 28, 1998, 730,986 shares remained
eligible for future issuance to complete potential acquisitions under the
Acquisition Shelf Registration Statement. Shares issued under the Acquisition
Shelf Registration Statement will generally be eligible for public sale by the
recipients under the federal securities laws immediately after issuance.
Additionally, in payment of a portion of the purchase price for the Minot
Acquisition, the Company must issue such number of unregistered shares of Class
A Common Stock as have a value of $2.0 million on the closing date of the Minot
Acquisition. Based on an assumed price per share equal to the closing sale price
of the Class A Common Stock on May 18, 1998 as set forth on the cover page of
this Prospectus, the Company would issue 109,215 shares of its Class A Common
Stock to effect the Minot Acquisition. These shares will not be issued under the
Acquisition Shelf Registration Statement. Such shares will be "restricted
securities" under the federal securities laws and will not be eligible for sale
by the recipient thereof in the public market for a period of one year after
closing of the Minot Acquisition. After the first anniversary of the Minot
Acquisition, these restricted shares of Class A Common Stock will be eligible
for sale by the recipient thereof in the public market without registration
under the Securities Act of 1933, as amended ("Securities Act"), subject to
compliance with the resale volume limitations and other restrictions of Rule 144
under the Securities Act. Additionally, beginning from and after the first
anniversary of the Minot Acquisition until the second anniversary thereof, the
recipient of such shares will be eligible to participate with the Company in any
registered public offering (other than offerings in connection with business
acquisitions or employee benefit plans) of the Company's Class A Common Stock
initiated by the Company and on the same terms and conditions as the Company.
The recipient of such shares may not require the Company to register the shares
received in the Minot Acquisition. See "Business--Strategic Minot Acquisition."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of Class A Common Stock
offered hereby are estimated to be $86.0 million ($99.0 million if the
Underwriters' over-allotment option is exercised), assuming a per share sale
price equal to the closing sale price of the Class A Common Stock on May 19,
1998 as set forth on the cover page of this Prospectus and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The Company intends to use $35.6 million of the net proceeds of this
offering to pay the cash purchase price of the Minot Acquisition if this
offering is completed before or simultaneous with the closing of the Minot
Acquisition. See "Business--Strategic Minot Acquisition." The balance of the net
proceeds will be used to reduce bank indebtedness, support increased nationwide
promotion to further accelerate the growth and expansion of the Company's
NORTHLAND brand 100% juice blends and support the Company's anticipated
significantly enhanced presence in the private label juice market following the
Minot Acquisition, as well as to fund potential future acquisitions of other
branded and/or private label juice and beverage manufacturers and distributors
and for working capital and general corporate purposes. If the Minot Acquisition
is not consummated, the entire amount of the net proceeds will be used to reduce
bank indebtedness, support the growth and expansion of NORTHLAND brand products,
fund potential future acquisitions of other branded and/or private label juice
and beverage manufacturers and distributors and for working capital and general
corporate purposes. Pending specific application, Northland intends to use the
net proceeds of this offering to reduce its existing $75.0 million bank
revolving credit facility, which will thereafter remain available for additional
future borrowings by the Company. At February 28, 1998, the Company had
outstanding approximately $67.7 million under such credit facility bearing
interest at a rate of 7.8% per annum as of such date. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition."
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PRICE RANGE OF CLASS A COMMON STOCK
The Company's Class A Common Stock is traded on the Nasdaq National Market
under the symbol "CBRYA." The following table sets forth for the periods
indicated the high and low closing sale prices of the Company's Class A Common
Stock as reported on the Nasdaq National Market, as well as the cash dividends
declared thereon. See "Selected Consolidated Financial Data" for information on
dividends paid on the Company's Class B Common Stock. See the cover page of this
Prospectus for the closing sale price of the Class A Common Stock on May 19,
1998 as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW CASH DIVIDENDS
- ------------------------------------------------------------------------------ --------- --------- ---------------
<S> <C> <C> <C>
FISCAL 1996
November 30, 1995........................................................... $ 10.00 $ 7.25 $ 0.035
February 29, 1996........................................................... 11.00 8.50 0.035
May 31, 1996................................................................ 14.63 9.88 0.035
August 31, 1996............................................................. 18.13 13.38 0.04
FISCAL 1997
November 30, 1996........................................................... $ 25.25 $ 15.25 $ 0.04
February 28, 1997........................................................... 27.50 17.00 0.04
May 31, 1997................................................................ 20.75 8.88 0.04
August 31, 1997............................................................. 19.25 12.69 0.04
FISCAL 1998
November 30, 1997........................................................... $ 21.25 $ 13.00 $ 0.04
February 28, 1998........................................................... 16.50 12.63 0.04
May 31, 1998 (through May 19, 1998)......................................... 19.13 12.75 0.04
</TABLE>
As of April 1, 1998, there were 1,164 holders of record and, based upon
information received from nominee holders, approximately 8,400 beneficial owners
of Class A Common Stock.
DIVIDEND POLICY
The Company has paid cash dividends since 1988 and currently pays cash
dividends quarterly at an annual rate of $0.16 per Class A share. The next
quarterly cash dividend is currently expected to be declared in or about July
1998, with an anticipated record date of on or about July 31, 1998 and an
anticipated payment date of on or about August 14, 1998.
The Company intends to continue paying regular quarterly cash dividends,
subject to declaration thereof by the Board of Directors. Under the Company's
credit agreements, cash dividends declared may not exceed $0.04 per Class A
share during each quarter during fiscal 1998 and thereafter may not exceed 50%
of the Company's then current reported net income. However, the declaration of
dividends will continue to depend principally upon the Company's results of
operations, financial condition and future prospects. For a description of the
restrictions on dividends under the Company's credit agreements, see Note 10 of
Notes to Consolidated Financial Statements. See also "Description of Capital
Stock--Preferred Stock."
17
<PAGE>
CAPITALIZATION
The following table sets forth the current liabilities and capitalization of
the Company (i) as of February 28, 1998 and (ii) pro forma as adjusted to give
effect to the consummation of the Minot Acquisition and the sale by the Company
of the 5,000,000 shares of Class A Common Stock offered hereby at an assumed per
share price equal to the closing sale price of the Class A Common Stock on May
19, 1998 as set forth on the cover page of this Prospectus and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by the Company and the application of the estimated net
proceeds therefrom. See "Business--Strategic Minot Acquisition" and "Use of
Proceeds."
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-------------------------
PRO FORMA AS
ACTUAL ADJUSTED(2)
---------- -------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current liabilities, including current portion of long-term debt................. $ 16,210 $ 20,319
---------- -------------
Long-term debt, less current portion............................................. $ 100,784 $ 50,382
Shareholders' Equity:
Preferred stock, $.01 par value: 5,000,000
shares authorized; no shares outstanding..................................... -- --
Class A common stock, $.01 par value:
60,000,000 shares authorized; 13,226,616
shares issued and outstanding; 18,335,831
shares issued and outstanding, pro forma as adjusted(1)...................... 132 183
Class B common stock, $.01 par value:
4,000,000 shares authorized; 636,202
shares issued and outstanding................................................ 6 6
Additional paid-in capital..................................................... 67,946 155,921
Retained earnings.............................................................. 7,897 7,897
---------- -------------
Total shareholders' equity................................................... 75,981 164,007
---------- -------------
Total capitalization....................................................... $ 176,765 $ 214,389
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) Excludes (i) 636,202 shares of Class B Common Stock which are convertible on
a share-for-share basis into Class A shares at the option of the holders and
(ii) 1,076,656 Class A shares issuable upon exercise of outstanding stock
options as of the date of this Prospectus, but includes pro forma as
adjusted 109,215 shares issuable in payment of a portion of the purchase
price to consummate the Minot Acquisition based on a per share price equal
to the closing sale price of the Class A Common Stock on May 19, 1998 as set
forth on the cover page of this Prospectus. See "Description of Capital
Stock--Class A and Class B Common Stock."
(2) Assumes that the Company uses $35.6 million of the net proceeds of this
offering to pay the cash purchase price of the Minot Acquisition and the
remainder of the net proceeds are used to reduce indebtedness. If the Minot
Acquisition is not consummated, then under this column, current liabilities,
including current portion of long-term debt, would be $13.6 million;
long-term debt, less current portion, would be $17.4 million; preferred
stock would remain unchanged; Class A common stock would be $182,000; Class
B common stock would remain unchanged; additional paid-in capital would be
$153.9 million; retained earnings would remain unchanged; total
shareholders' equity would be $162.0 million; and total capitalization would
be $179.4 million.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data for the
Company. The statement of operations data in the table for the fiscal years
ended August 31, 1997 and 1996, March 31, 1995, and the five-months ended August
31, 1995, and the balance sheet data as of August 31, 1997 and 1996, have been
derived from the Company's audited consolidated financial statements appearing
elsewhere herein. The statement of operations data in the table for the fiscal
years ended March 31, 1994 and 1993, and the balance sheet data as of August 31,
1995, March 31, 1995, 1994 and 1993, have been derived from the Company's
audited consolidated financial statements which are not included herein. The
Company's financial statements and the related selected financial data for the
six months ended February 28, 1998 and 1997 are unaudited but, in the opinion of
management of the Company, reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly such information for those
periods. Results of interim periods are not necessarily indicative of results to
be expected for the year. The following information should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the consolidated financial statements of Northland
and the related notes thereto included or incorporated elsewhere herein.
<TABLE>
<CAPTION>
FIVE
MONTHS
ENDED
SIX MONTHS ENDED FISCAL YEARS ENDED AUGUST FISCAL YEARS ENDED
FEBRUARY 28, AUGUST 31, 31, MARCH 31,
-------------------- -------------------- --------- -------------------------------
1998 1997 1997 1996 1995 1995 1994 1993
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 48,727 $ 24,433 $ 47,375 $ 37,608 $ 891 $ 21,784 $ 18,051 $ 13,000
Cost of sales............................. 26,017 11,173 23,171 16,517 1,401 13,057 8,751 6,345
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit (loss)....................... 22,710 13,260 24,204 21,091 (510) 8,727 9,300 6,655
Costs and expenses:
Selling, general and administrative..... 18,975 6,334 15,963 7,020 1,908 2,440 2,046 1,474
Interest................................ 3,342 1,910 4,493 2,657 1,919 3,654 2,394 2,028
--------- --------- --------- --------- --------- --------- --------- ---------
Total costs and expenses.................. 22,317 8,244 20,456 9,677 3,827 6,094 4,440 3,502
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
change in accounting method............. 393 5,016 3,748 11,414 (4,337) 2,633 4,860 3,153
Income taxes.............................. 176 1,988 1,516 4,509 (1,689) 1,051 1,917 1,210
Change in accounting method(1)............ -- -- -- -- 1,249 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)......................... $ 217 $ 3,028 $ 2,232 $ 6,905 $ (1,399) $ 1,582 $ 2,943 $ 1,943
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share-- basic:
Weighted average shares outstanding..... 13,858 13,641 13,737 13,311 9,128 8,587 8,499 7,419
Net income (loss) per share............. $ 0.02 $ 0.22 $ 0.16 $ 0.52 $ (0.15) $ 0.18 $ 0.35 $ 0.26
Net income (loss) per share-- diluted:
Weighted average shares outstanding..... 14,323 14,298 14,309 13,928 9,394 8,891 8,835 7,637
Net income (loss) per share............. $ 0.02 $ 0.21 $ 0.16 $ 0.50 $ (0.15) $ 0.18 $ 0.33 $ 0.25
Cash dividends per share(2):
Per Class A share....................... $ 0.080 $ 0.080 $ 0.160 $ 0.145 $ 0.060 $ 0.140 $ 0.175 $ 0.080
Per Class B share....................... 0.072 0.072 0.145 0.132 0.055 0.127 0.159 0.073
BALANCE SHEET DATA (END OF PERIOD):
Current assets............................ $ 59,908 $ 33,124 $ 39,691 $ 18,617 $ 11,740 $ 6,746 $ 5,598 $ 8,309
Total assets.............................. 202,549 174,489 180,932 145,485 121,745 107,745 83,074 67,703
Current liabilities....................... 16,210 12,881 11,545 12,067 10,583 10,169 4,485 4,949
Long-term debt............................ 100,784 75,265 83,131 56,978 45,538 55,793 38,945 25,098
Shareholders' equity...................... 75,981 78,209 76,811 69,059 59,113 34,627 33,125 31,572
</TABLE>
- ------------------------------
(1) During the Transition Period, the Company changed its method of deferring
crop growing costs. See Note 2 of Notes to Consolidated Financial
Statements.
(2) In August 1993, Northland changed its mode of dividend payment from annual
to quarterly. As a result, the fiscal 1994 dividends stated above include
the annual dividend of $0.100 per Class A share and $0.091 per Class B
share, paid in June 1993, plus three quarterly dividends of $0.025 per Class
A share and $0.02275 per Class B share, paid in September 1993, December
1993 and March 1994.
19
<PAGE>
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth selected pro forma financial data of the
Company for the fiscal year ended August 31, 1997 and as of and for the six
months ended February 28, 1998. Northland's fiscal year ends on August 31, while
Minot's fiscal year ends on June 30. The pro forma balance sheet data give
effect to the Minot Acquisition and the issuance and sale by the Company of the
5,000,000 shares of Class A Common Stock offered hereby at an assumed price per
share equal to the closing sale price of the Class A Common Stock on May 19,
1998 as set forth on the cover page of this Prospectus and after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, in each case as if they had occurred on February 28,
1998. The pro forma statement of operations data give effect to (i) the Minot
Acquisition and (ii) the Company's sale of such number of shares of Class A
Common Stock at an assumed price per share equal to the closing price of the
Class A Common Stock on May 18, 1998 as set forth on the cover page of this
Prospectus sufficient to fund the cash purchase price of the Minot Acquisition,
in each case as if such event had occurred on September 1, 1996. Such pro forma
data are not necessarily indicative of the future results of operations of the
Company or the results of operations that would have been realized had the Minot
Acquisition occurred as of the dates or for the periods presented. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Results of Operation and Financial Condition" and the historical
consolidated financial statements of Northland, the unaudited pro forma
condensed consolidated financial statements of Northland and the historical
financial statements of Minot and the related notes thereto included elsewhere
herein. See "Selected Consolidated Financial Data." There can be no assurance
that the Minot Acquisition will be consummated.
Not reflected in the selected consolidated pro forma financial data set
forth below are certain potential cost savings and other synergies which the
Company believes it will be able to realize by acquiring and integrating Minot
into its own operations, including particularly the potential realization of
anticipated substantial reductions in the inventory cost of Minot's supply of
cranberries by utilizing Northland's internally grown and substantially
lower-cost supply of cranberries in the manufacture of Minot's cranberry
products. Also not reflected in the selected consolidated pro forma financial
data set forth below is the expected loss of revenues from certain co-packing
customers of Minot who otherwise compete against Northland and who are not
expected by the Company to continue to be customers of Minot after consummation
of the Minot Acquisition. See "Risk Factors--Risks Relating to the Minot
Acquisition."
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
----------------- -----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................... $ 72,782 $ 89,027
Cost of sales.............................................................. 44,639 57,371
------- -------
Gross profit............................................................... 28,143 31,656
Cost and expenses:
Selling, general and administrative...................................... 22,555 21,593
Interest................................................................. 3,342 4,493
------- -------
Total costs and expenses................................................... 25,897 26,086
------- -------
Income before income taxes................................................. 2,246 5,571
Income taxes............................................................... 991 2,230
------- -------
Net income(1).............................................................. $ 1,255 $ 3,340
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
------------
<S> <C>
BALANCE SHEET DATA:
Current assets................................................................................. $ 71,165
Total assets................................................................................... 244,282
Current liabilities............................................................................ 20,319
Long-term debt................................................................................. 50,382
Shareholders' equity........................................................................... 164,007
</TABLE>
- ------------------------------
(1) Earnings per share is not included in the following data since the Minot
Acquisition would be accretive to earnings on a pro forma historical basis.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
Northland is a rapidly-growing, vertically integrated grower, purchaser,
processor and marketer of cranberries and value-added branded and private label
cranberry products. The Company processes, markets and sells NORTHLAND brand
100% juice cranberry blends, private label cranberry juice, NORTHLAND brand
fresh cranberries and other cranberry products through supermarkets and, to a
lesser extent, certain other distribution channels. Northland also sells
cranberry juice concentrate to industrial customers who manufacture cranberry
based products.
Northland's MARSH TO MARKET vertical integration strategy was initiated in
1993 and has transitioned the Company from a cranberry grower which principally
sold all of its harvested raw cranberries once every year to Ocean Spray to a
fully-integrated independent grower, processor and marketer of the fastest
growing branded cranberry juice product line known to the Company in nationwide
supermarket distribution. Northland was a member-grower of Ocean Spray until the
Company decided to terminate its membership in the cooperative as of August 31,
1993. From that time until March 1996, the Company sold substantially all of its
crop once a year after the annual fall harvest under fixed price contracts to
two large manufacturers of private label cranberry beverages. The Company
determined not to renew those contracts and, in fiscal 1996, the Company began
aggressively implementing its MARSH TO MARKET vertical integration business
strategy by selling cranberries directly to retail customers, including
manufacturing and distributing its own NORTHLAND brand 100% juice cranberry
beverages. Northland began the introduction of its NORTHLAND brand 100% juice
cranberry blends into selected Midwestern markets in fiscal 1996 and, by the end
of fiscal 1997, the Company had completed the product line's rollout into
national supermarket distribution. As a result of this changing and evolving
nature of the Company's business, fiscal 1997 was largely a year of transition
for the Company. See "Quarterly Results" below.
Northland has implemented its MARSH TO MARKET vertical integration strategy
by adding value to its raw cranberry supply, thereby helping to increase the
potential return realizable by the Company from each barrel of its raw
cranberries. After raw cranberries are harvested by Northland during the fall of
each year, each barrel's potential return to Northland depends on the extent of
value-added actions undertaken by the Company in order to process the raw
cranberries into final products for resale. Northland's value-added efforts
direct Northland's raw cranberry supply into a product mix which can best
maximize Northland's per barrel profit potential based on customer demand and
subject to industry and other market conditions.
Sales of NORTHLAND 100% juice cranberry blends have increased rapidly during
fiscal 1998, which the Company attributes largely to its aggressive marketing
and promotional campaign focused on the Company's unique and premium product
formulation. The accelerating growth of the Company's NORTHLAND 100% juice
products during fiscal 1998, coupled with recent intense price competition for
the sale of cranberry concentrate and other industrial cranberry products and
the Company's current limited presence in the private label cranberry drink and
beverage market, has resulted in an increasing substantial majority of the
Company's revenues during fiscal 1998 being generated by sales of the Company's
branded juice line. The Company believes that consummation of the Minot
Acquisition will help to better balance the Company's product mix between
branded and private label sales and reduce the impact on the Company's results
of operations resulting from adverse market conditions for the sale of cranberry
concentrate and other industrial cranberry products. The Company also believes
the Minot Acquisition should further enhance the Company's potential to
recognize additional branded product sales through the creation of a larger
product offering, thus enabling Northland to offer more category management
opportunities to its retail customers.
Components of the Company's cost of goods sold include the inventory costs
of both lower-cost internally harvested cranberries and higher-cost third party
purchased cranberries, as well as ingredient and other raw materials costs for
manufacturing the Company's consumer products. As the largest grower
21
<PAGE>
of cranberries in the world, the Company believes it has a significant cost
advantage for raw cranberries over many of its competitors. The Company believes
that most of its competitors must purchase their raw cranberry supply from third
party growers at substantially higher prices than the costs incurred by the
Company to grow its own internal supply of cranberries. However, because the
Company uses all natural fruit juices to sweeten its branded products rather
than high fructose corn syrup, the Company believes that its premium branded
products cost more for the Company to produce than it costs competitors to
produce their non-100% juice cranberry drink and cocktail products. The
Company's crop growing costs are relatively fixed on a per acre basis, leaving
the size of the crop harvested by the Company each fall as the principal
variable factor in determining the Company's cranberry inventory carrying costs
on a per barrel basis. See "Quarterly Results" below. The other principal
components of the Company's cost of goods sold are labor and overhead costs.
As is customary in the industry, in order to increase supermarket
distribution and market share and build brand name equity for its NORTHLAND
brand 100% juice cranberry blend products, the Company has incurred, and expects
to continue to incur, substantial marketing and promotional expenses. These
marketing and promotional expenses primarily include (i) television advertising;
(ii) consumer promotions, which include targeted coupons and on-package offers;
(iii) trade promotions, which are directed at obtaining retail display support
and achieving key price points; and (iv) slotting fees, which are payments made
to supermarket chains to obtain, and in some cases, maintain supermarket shelf
space for the Company's products. Selling expenses also include commissions paid
to food brokers and costs of the Company's field sales force.
The Company has assessed and continues to assess the impact of the Year 2000
issue on its operations. Based on such assessment, the Company believes that its
computer systems and programs are currently Year 2000 compliant in all material
respects. However, there can be no assurance that the Company's customers,
suppliers, co-packers and brokers will all be Year 2000 compliant or that the
Company's operations will not be adversely effected if they are not compliant.
The Minot Acquisition will be accounted for under the purchase method.
Goodwill recognized as a result of the Minot Acquisition is expected to be
amortized for financial reporting purposes over a 40-year period and such
amortization charges are not expected to materially adversely effect the
Company's reported results of operations.
RESULTS OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO SIX MONTHS ENDED FEBRUARY 28,
1997
Total revenues for the six-month period ended February 28, 1998 increased
99% to $48.7 million from $24.4 million during the same period in fiscal 1997.
The increased fiscal 1998 revenues were due to increased sales of NORTHLAND
brand 100% juice products. Trade industry data for the 12-week period ended
March 1, 1998 indicated NORTHLAND juice products achieved distribution
penetration into approximately 74% of the nation's 30,000 supermarkets and a
12.7% market share of supermarket bottled shelf-stable cranberry beverage dollar
sales on a national basis, up from a 10.6% market share for the previous 12-week
period. The Company believes its increased branded juice sales and resulting
increased market share were primarily due to its aggressive branded product
marketing campaign, which included over $13.0 million in media, consumer
promotion and trade spending during the first six months of fiscal 1998. The
Company plans to continue to aggressively market its branded juice products
throughout the remainder of the fiscal year. The Company continues to experience
intense competition in its efforts to expand its current limited presence in the
private label juice market and in its efforts to sell concentrate and bulk
frozen fruit. Sales of these products in the first half of 1998 were
substantially below initially budgeted expectations principally as a result of
intense price competition.
Cost of sales for the six-month period ended February 28, 1998 was $26.0
million compared to $11.2 million in the fiscal 1997 period, with gross margins
of 46.6% and 54.3%, respectively. The decrease in gross margin for the fiscal
1998 period was primarily due to the Company's changing product mix and
22
<PAGE>
reduced pricing for cranberry concentrate. A majority of fiscal 1998 period
revenues was generated by the Company's branded juice sales compared to fiscal
1997 revenues which were more heavily weighted toward higher margin fresh fruit
and concentrate sales at substantially higher pricing levels. The Company's
gross margins during the remainder of fiscal 1998 will be dependent upon its
product mix and then existing market conditions.
Selling, general and administrative expenses were $19.0 million, or 38.9% of
total revenues, for the six-month period ended February 28, 1998, compared to
$6.3 million, or 25.9% of total revenues, during the same period in the prior
fiscal year. This planned increase in selling, general and administrative
expenses was primarily attributable to the Company's ongoing aggressive
marketing campaign to support the development and growth of its NORTHLAND brand
100% juice products.
Interest expense was $3.3 million for the six-month period ended February
28, 1998 compared to $1.9 million during the same period in fiscal 1997. The
increase in interest expense was due to increased debt levels, which resulted
from funding increasing levels of inventory and accounts receivable to support
the Company's growing consumer cranberry product business, as well as funding
marsh acquisitions and seasonal operating activities.
Consistent with the Company's expectation given its aggressive promotional
activity in support of the growth of its branded juice products, net income and
per share earnings for the six-month period ended February 28, 1998 decreased to
$217,000, or $0.02 per share, from fiscal 1997 first half net income and per
share earnings of $3.0 million, or $0.22 per share.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES. Revenues in fiscal 1997 were $47.4 million, a $9.8 million, or
26.0% increase, from $37.6 million in fiscal 1996. The increase in fiscal 1997
revenues was primarily the result of increased sales of the Company's NORTHLAND
brand 100% juice products, as the Company completed the national rollout of its
branded juice line during its fourth quarter. As of the end of fiscal 1997, the
Company increased the distribution of its branded juice products to
approximately 60% of supermarkets nationwide, compared to approximately 13% at
the end of fiscal 1996. The Company's market share of United States supermarket
shelf-stable cranberry beverages grew from 0.9% for the 12-week period ending
September 8, 1996 to 5.8% for the 12-week period ending September 14, 1997.
Despite the Company's successful rollout of its branded juice line, revenues did
not reach the level expected in fiscal 1997, due principally to the seller's
unexpected and sudden termination of the Company's planned acquisition of a
major private label cranberry juice processor and distributor that would have
enabled the Company to quickly establish a leadership role in the private label
segment of the cranberry juice industry. As a result, a significant amount of
the Company's cranberry supply that was intended for use by the target company
and expected to generate revenue in fiscal 1997 remained in inventory at the end
of the year.
COST OF SALES. Cost of sales increased $6.7 million, or 40.3%, to $23.2
million in fiscal 1997, from $16.5 million in fiscal 1996. The Company's gross
margin in fiscal 1997 was 51.1%, compared to 56.1% in fiscal 1996. The decrease
in gross margin in fiscal 1997 was due to higher inventory costs on a per barrel
basis, the Company's changing product mix and increased price competition for
concentrate sales. The Company's crop growing costs are relatively fixed on a
per acre basis, leaving the size of the crop harvested as the principal variable
factor in determining the Company's inventory carrying cost on a per barrel
basis. Due to the smaller than expected fiscal 1997 crop, the Company's
inventory carrying costs per barrel increased, resulting in increased cost of
sales and reduced gross margin percentages.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $16.0 million in fiscal 1997, compared to $7.0
million in fiscal 1996. As a percent of revenues, selling, general and
administrative expenses increased to 33.7% in fiscal 1997 from 18.7% in fiscal
1996. The increase was due primarily to the Company's national rollout of its
branded juice products. Fiscal 1997 advertising, promotion and slotting expenses
in support of the Company's branded juice rollout totaled $9.0 million.
23
<PAGE>
INTEREST EXPENSE. Fiscal 1997 interest expense was $4.5 million, a $1.8
million increase from fiscal 1996 interest expense of $2.7 million. The increase
in interest expense was due to increased debt levels as a result of funding
property and equipment additions and working capital necessary to fund the full
implementation of the Company's MARSH TO MARKET business strategy.
INCOME TAX EXPENSE. The Company recorded $1.5 million in income tax expense
in fiscal 1997 compared to $4.5 million in fiscal 1996. See Note 13 of Notes to
Consolidated Financial Statements.
NET INCOME. Net income for fiscal 1997 was $2.2 million, compared to fiscal
1996 net income of $6.9 million. Net income per common share-diluted was $0.16
in fiscal 1997, compared to net income per common share-diluted of $0.50 in
fiscal 1996. Weighted average common shares outstanding for fiscal 1997 were
14,309,000 compared to 13,928,000 for fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
GENERAL. As a result of the Company's decision to begin marketing and
selling value-added processed consumer cranberry products, the Company changed
its fiscal year end from March 31 to August 31 in order to correspond the
Company's fiscal year with the new annual business cycle expected to result from
the continued implementation of its MARSH TO MARKET vertical integration
business strategy. This change in fiscal year end was intended to better match
the costs and expenses associated with growing each year's crop with the
expected revenues to be generated from the sales of consumer products produced
from such crop. This discussion compares information relating to the Company's
fiscal 1996 (ending August 31, 1996) performance with fiscal 1995 (ending March
31, 1995).
REVENUES. Revenues in fiscal 1996 were $37.6 million, a $15.8 million
increase from $21.8 million in fiscal 1995. The increase in fiscal 1996 revenues
was due to increased sales of cranberries and cranberry products. The majority
of the Company's fiscal 1996 cranberry crop was sold to independent fruit juice
and sauce processors at fixed pricing under three-year supply agreements, which
expired in March 1996. The Company was able to market the rest of its fruit at
more favorable pricing as a result of the growing demand for cranberry products
and the industry's short supply of available fruit. Fiscal 1996 revenues
benefited from increased sales of NORTHLAND brand fresh fruit, sales of bulk
frozen cranberries and the introductory sales of the NORTHLAND brand 100% juice
product line.
COST OF SALES. Cost of sales increased $3.4 million to $16.5 million in
fiscal 1996, from $13.1 million in fiscal 1995. The increase in fiscal 1996 cost
of sales was due to increases in the Company's productive acres, barrels
harvested, barrels purchased and the cost of sales for the Company's entry into
the branded juice market. The Company's gross margin in fiscal 1996 was 56.1%,
compared to 40.1% in fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $7.0 million in fiscal 1996, compared to $2.4
million in fiscal 1995. The increase was due primarily to additional costs
associated with increased compensation and related expenses partially
attributable to the Company's growth in productive acreage and the Company's
initial rollout of its branded juice products.
INTEREST EXPENSE. Fiscal 1996 interest expense was $2.7 million, a $1.0
million decrease from fiscal 1995 interest expense of $3.7 million. The decrease
was due to decreased debt levels which resulted from the application of proceeds
generated by the Company's August 1995 public offering and sale of 2,300,000
Class A common shares.
INCOME TAX EXPENSE. The Company recorded $4.5 million in income tax expense
in fiscal 1996, compared to $1.1 million in fiscal 1995. As a result of
alternative minimum tax liabilities, $2.8 million in income taxes were paid in
fiscal 1996, compared to $141,000 in fiscal 1995.
NET INCOME. Net income for fiscal 1996 was $6.9 million, compared to fiscal
1995 net income of $1.6 million. Net income per common share-diluted was $0.50
in fiscal 1996, compared to net income per common share-diluted of $0.18 in
fiscal 1995. Weighted average common shares outstanding for fiscal 1996 were
13,928,000 compared to 8,891,000 for fiscal 1995.
24
<PAGE>
FINANCIAL CONDITION
AT AND FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
Net cash used for operating activities in the first six months of fiscal
1998 was $12.3 million compared to $5.0 million used for operating activities in
the same period in fiscal 1997. The increased net cash used for operating
activities during the first half of fiscal 1998 was the result of working
capital increases to support the Company's growing juice business and the
continuing evolving nature of the Company's business into a consumer products
company. Accounts receivable increased $9.3 million primarily due to increased
branded juice sales. Inventory increased $11.0 million due to the purchase of
104,000 barrels of fruit from other independent cranberry growers and increased
raw materials and finished goods inventories necessary to support the Company's
increasing branded juice sales. Accounts payable increased $4.5 million in the
first half of fiscal 1998 primarily due to contract installment payments due
independent cranberry growers for the purchase of their fruit, as well as
purchases of other raw materials inventory to support the Company's growing
branded product sales.
Net cash used for investing activities decreased during the six-month period
ended February 28, 1998 to $4.4 million from $11.6 million during the same
period in the prior fiscal year. The decrease was principally the result of
reduced property and equipment additions. Fiscal 1998 property and equipment
additions were $4.3 million compared to total property and equipment additions
of $12.0 million in the first half of the prior year. Fiscal 1997 property and
equipment additions included $7.1 million for the acquisition of two cranberry
properties.
Net cash provided by financing activities in the six-month period ended
February 28, 1998 was $16.6 million compared to $17.8 million during the same
period in the prior fiscal year. The Company's debt increased $17.9 million
during the first half of fiscal 1998 primarily due to the $15.6 million increase
in seasonal and growth working capital and $4.3 million for property and
equipment additions. Working capital was $43.7 million at February 28, 1998
compared to working capital of $28.1 million at August 31, 1997. The Company's
total debt (including current portion) was $104.6 million at February 28, 1998
for a total debt-to-equity ratio of 1.38 to 1 compared to total debt of $86.8
million and a total debt-to-equity ratio of 1.13 to 1 at August 31, 1997.
Depending upon the future sales levels and relative sales mix of the Company's
products over the remainder of the fiscal year, the Company does not believe
that its working capital requirements will materially increase during the last
half of fiscal 1998. However, the Company believes that its $75.0 million
revolving credit facility, together with cash generated from operations, would
be sufficient to fund any such materially increased working capital
requirements, as well as the Company's ongoing operational needs, over the
remainder of fiscal 1998. As of February 28, 1998, the principal amount
outstanding under the Company's revolving credit facility was $67.7 million,
with an additional $7.3 million available under its credit facility with a
syndicate of regional banks until December 2000.
The Company intends to fund the $35.6 million cash purchase price of the
Minot Acquisition with a portion of the net proceeds of this offering. Net
proceeds in excess of such amount are intended to be used by the Company to
reduce bank indebtedness, further accelerate the growth and expansion of the
Company's NORTHLAND brand 100% juice blends, support Northland's anticipated
significantly enhanced presence in the private label juice market following the
Minot Acquisition and help fund the potential future acquisition of other
branded and/or private label juice or beverage manufacturers and distributors.
If the Minot Acquisition is not consummated, the net proceeds of this offering
will be used by the Company to reduce bank indebtedness, further accelerate the
growth and expansion of the Company's NORTHLAND brand 100% juice blends and help
fund the potential future acquisition of other branded and/or private label
juice or beverage manufacturers and distributors. Pending specific application,
the Company intends to use the net proceeds of this offering to reduce its $75.0
million revolving credit facility, which will thereafter remain available for
future additional borrowings by the Company.
25
<PAGE>
AT AND FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
Net cash used in operating activities in fiscal 1997 was $10.6 million.
Fiscal 1996 cash provided by operating activities was $9.4 million. The $20.0
million change in net cash from operating activities was directly related to the
Company's change in business strategy and the resulting increase in current
assets. The Company's current ratio was 3.4 to 1.0 at the end of fiscal 1997,
compared to a current ratio of 1.5 to 1.0 at the end of fiscal 1996. In prior
years, accounts receivable and inventory levels were minimal at year end as a
result of the Company selling its crop following harvest as fresh fruit or in
bulk. The bulk sales were to two private label bottlers under fixed price supply
agreements with resulting receivables collected within six months after the
harvest. Year-end trade accounts receivable and inventory levels increased
slightly in fiscal 1996 with the Company's entry into the branded juice and
cranberry concentrate markets. The fiscal 1997 national rollout of the Company's
branded juice line and increased cranberry concentrate sales resulted in a $4.4
million increase in accounts receivable to $7.0 million at August 31, 1997, from
$2.6 million at the end of fiscal 1996. Inventories increased by $14.1 million
to $26.5 million at August 31, 1997, compared to inventories of $12.4 million at
August 31, 1996, principally due to the increased raw materials and finished
goods inventories necessary to support branded juice sales. However, part of
this increase was also due to a larger than normal inventory carryover of
cranberry supply as a result of the unexpected terminated acquisition of a
private label juice processor and distributor.
Net cash used for investing activities decreased to $14.2 million in fiscal
1997 from $20.6 million in fiscal 1996. The decrease was principally the result
of significantly reduced property and equipment additions. Fiscal 1997 property
and equipment additions were $8.8 million, compared to $14.5 million in the
prior year. Fiscal 1996 additions included $4.2 million to complete construction
of the Company's concentrate manufacturing facility and $2.9 million to improve
the Company's fruit handling facilities to support the Company's changing
business strategy. In September 1996, the Company completed the acquisition of a
108-acre cranberry property located in Northern Wisconsin. The Company paid for
the acquisition with $4.85 million in cash and 169,014 shares of the Company's
Class A Common Stock. In December 1996, the Company completed the acquisition of
a 73-acre cranberry property located in Central Wisconsin. The Company paid for
the acquisition with $2.18 million in cash and 100,000 shares of the Company's
Class A Common Stock. The Company utilized its bank credit facilities to fund
the cash portion of the acquisitions.
Net cash provided by financing activities increased in fiscal 1997 to $24.8
million, from $11.1 million in fiscal 1996. The increase in cash provided by
financing activities was primarily the result of the Company's increase in
long-term debt used to fund property and equipment additions, cranberry marsh
acquisitions and working capital needs. The Company's total equity increased to
$76.8 million at August 31, 1997, compared to $69.1 million at the end of fiscal
1996. The Company's total debt (including current portion) at fiscal 1997 year
end was $86.8 million, for a total debt-to-equity ratio of 1.1 to 1, compared to
total debt of $60.5 million and debt-to-equity ratio of 0.88 to 1 at August 31,
1996. On October 3, 1997, the Company amended its existing bank credit facility
to increase its revolving credit facility to $75.0 million, increasing its
revolving credit availability by $20.0 million. The new credit facility matures
on December 31, 2000. The amount of unused available borrowings under the
amended credit facility was $25.6 million at August 31, 1997. See Note 10 of
Notes to Consolidated Financial Statements.
QUARTERLY RESULTS
As shown in the table below, the Company's transition from a cranberry
grower which principally sold all of its harvested raw cranberries once every
year to two large manufacturers of private label cranberry beverages to a
fully-integrated independent grower and marketer of the fastest growing branded
cranberry juice product line known to the Company in nationwide supermarket
distribution has resulted in substantial initial unpredictability and
fluctuation in the Company's quarterly results of operations. For example, in
the first quarter of fiscal 1996 (ended November 30, 1995), the Company sold
substantially all of its crop under fixed price contracts to two large
manufacturers of private label cranberry beverages and recognized virtually all
of its fiscal 1996 net income in that quarter. In connection with the
termination by the
26
<PAGE>
Company of those contracts in March 1996, during fiscal 1996 Northland first
began the rollout of its NORTHLAND brand 100% juice cranberry blends and began
the transition from a cranberry grower to a consumer products marketing entity,
less dependent on the annual sale of its internally-grown cranberry crop. As the
Company expanded the rollout of its product line from selected Midwestern
markets into other regions, the Company incurred substantial initial marketing
and promotional expenditures. These expenditures were the principal factor in
the Company's net loss for the fourth quarter of fiscal 1996 (ended August 31,
1996). During fiscal 1997, the Company continued its heavy spending on media
advertising and trade and consumer promotional spending to build NORTHLAND brand
name equity, increase supermarket distribution and market share. During the
fourth quarter of fiscal 1997 (ended August 31, 1997), the Company spent
significant amounts on advertising, promotion and a national television ad
campaign to support the continued national rollout of the NORTHLAND brand 100%
juice cranberry blends. These promotional expenses were the principal factor in
the Company's net loss for the fourth quarter of fiscal 1997. The Company plans
to continue its aggressive marketing and promotional campaign in support of
building a long-term strong presence in the branded juice market and intends to
use a portion of the net proceeds of this offering to further accelerate the
growth and expansion of the Company's NORTHLAND brand 100% juice blends. The
Company's levels of promotional spending during future quarterly periods may
vary, and may vary materially, based on then current market and competitive
conditions and Company-specific factors. These variable levels of promotional
spending may cause the Company's quarterly results to fluctuate.
The Company also anticipates that its quarterly results of operations in the
first and/or second quarter of each fiscal year may be adversely affected by the
Company's use in the manufacturing of its products during such periods of higher
cost cranberries purchased from third-party growers rather than lower cost
internally grown fruit.
The following table contains unaudited selected historical quarterly
information, which includes adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation:
FISCAL QUARTERS ENDED
(in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
------------------------ -------------------------------------------------- -----------
FEB. 28, NOV. 30, AUG. 31, MAY 31, FEB. 28, NOV. 30, AUG. 31,
1998 1997 1997 1997 1997 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 30,296 $ 18,431 $ 12,565 $ 10,377 $ 13,513 $ 10,920 $ 5,246
Cost of sales................. 17,203 8,814 6,937 5,060 6,498 4,675 2,554
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 13,093 9,617 5,628 5,317 7,015 6,245 2,692
Costs and expenses:
Selling, general and
administrative............ 10,971 8,004 5,953 3,676 3,369 2,965 3,124
Interest.................... 1,910 1,432 1,337 1,247 1,115 795 659
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses...... 12,881 9,436 7,290 4,923 4,984 3,760 3,783
Income (loss) before income
taxes....................... 212 181 (1,662) 394 2,531 2,485 (1,091)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ 115 $ 102 $ (1,021) $ 225 $ 1,526 $ 1,502 $ (669)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per share--basic:
Weighted average shares
outstanding............... 13,859 13,856 13,854 13,809 13,760 13,523 13,357
Net income (loss) per
share..................... $ 0.01 $ 0.01 $ (0.07) $ 0.02 $ 0.11 $ 0.11 $ (0.05)
Net income per share--diluted:
Weighted average shares
outstanding............... 14,288 14,358 14,350 14,282 14,402 14,196 13,994
Net income (loss) per
share..................... $ 0.01 $ 0.01 $ (0.07) $ 0.02 $ 0.11 $ 0.11 $ (0.05)
Cash dividends per share:
Per Class A share........... $ 0.040 $ 0.040 $ 0.040 $ 0.040 $ 0.040 $ 0.040 $ 0.040
Per Class B share........... 0.036 0.036 0.036 0.036 0.036 0.036 0.036
<CAPTION>
MAY 31, FEB. 29, NOV. 30,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues...................... $ 6,675 $ 3,984 $ 21,703
Cost of sales................. 2,772 1,901 9,290
----------- ----------- -----------
Gross profit.................. 3,903 2,083 12,413
Costs and expenses:
Selling, general and
administrative............ 1,808 1,107 981
Interest.................... 660 722 616
----------- ----------- -----------
Total costs and expenses...... 2,468 1,829 1,597
Income (loss) before income
taxes....................... 1,435 254 10,816
----------- ----------- -----------
Net income (loss)............. $ 855 $ 149 $ 6,570
----------- ----------- -----------
----------- ----------- -----------
Net income per share--basic:
Weighted average shares
outstanding............... 13,334 13,295 13,257
Net income (loss) per
share..................... $ 0.06 $ 0.01 $ 0.50
Net income per share--diluted:
Weighted average shares
outstanding............... 13,792 13,677 13,582
Net income (loss) per
share..................... $ 0.06 $ 0.01 $ 0.48
Cash dividends per share:
Per Class A share........... $ 0.035 $ 0.035 $ 0.035
Per Class B share........... 0.032 0.032 0.032
</TABLE>
27
<PAGE>
BUSINESS
GENERAL
Northland is a rapidly-growing, vertically integrated grower, purchaser,
processor and marketer of cranberries and value-added branded and private label
cranberry products. The Company processes, markets and sells NORTHLAND brand
100% juice cranberry blends, private label cranberry juice, NORTHLAND brand
fresh cranberries and other cranberry products through retail supermarkets and,
to a lesser extent, certain other distribution channels. Northland also sells
cranberry juice concentrate to industrial customers who manufacture
cranberry-based products. With 25 cranberry producing marshes owned or operated,
Northland is also the world's largest cranberry grower. The Company's NORTHLAND
brand juice product line consists of eight flavors, including traditional
cranberry, cranberry apple, cranberry raspberry, cranberry grape, cranberry
peach, cranberry cherry, cranberry blackberry and cranberry strawberry.
NORTHLAND branded juice is available nationwide principally in 64-ounce plastic
bottles. In addition, the Company is currently introducing its NORTHLAND brand
100% juice products nationally in 46-ounce plastic bottles to new and existing
supermarket customers and in gallon-size plastic bottles as well as 16-ounce
plastic bottle multi-packs to warehouse clubs.
First introduced in fiscal 1996, NORTHLAND brand 100% juice cranberry blends
successfully achieved national distribution by the summer of 1997 and is the
fastest growing branded cranberry juice product line known to the Company in
nationwide supermarket distribution. As of March 29, 1998, Northland's blended
cranberry juice products were available in all 50 states and in approximately
23,000 supermarkets representing approximately 76% of the ACV nationwide. For
the 12-week period ended March 29, 1998, the market share of NORTHLAND brand
100% juice product lines increased to 14.2% compared to 3.2% for the 12-week
period ended March 30, 1997. Based on preliminary estimates from IRI, due to its
scheduled reduction of advertising and trade promotional activities during April
1998, the Company believes its market share data for the 12-week period ended
April 26, 1998 was lower than it was for the 12-week period ended March 29,
1998. Active promotional activities by the Company are scheduled to resume for
May 1998. Additionally, based on such preliminary estimates, the Company
believes its ACV percentage increased for the 12-week period ended April 26,
1998, but that its sales per percentage distribution point decreased because of
the Company securing certain new large supermarket customer accounts late in the
reporting period. The Company's aggressive introduction and successful
development of its NORTHLAND brand 100% juice cranberry blends product line has
resulted in significant recent revenue growth, with the Company's revenues
increasing by 99% to $48.7 million for the six-month period ended February 28,
1998 from $24.4 million for the first six months of fiscal 1997. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Results of Operations."
28
<PAGE>
The following graphs show (i) the increasing market share of the Company's
NORTHLAND brand 100% juice cranberry blends since their introduction in the fall
of 1996 through March 29, 1998; (ii) the comparative percentage market share of
the Company's NORTHLAND brand 100% juice cranberry blends compared to the
competition in all sizes and in the 64-ounce bottle size only (which is the only
bottle size the Company currently has generally available in national
distribution); and (iii) the increasing ACV in which NORTHLAND juice is being
distributed nationwide, as well as the dollar sales per percentage point of
supermarket distribution of the Company's NORTHLAND brand 100% juice cranberry
blends over the indicated periods:
The first graph is a bar graph depicting the Company's market share in the
United States supermarket bottled shelf-stable cranberry beverage market for
various 12 week periods from late 1996 to the present. The "y" axis shows
percentages from 1% to 15%, while the "x" axis shows dates (in four-week
increments) from October 6, 1996 through March 29, 1998. The following lists the
data points comprising each bar in the graph:
[GRAPH--PLOTTING POINTS TO COME]
The second graph consists of two separate pie graphs; one depicts market
share percentages of various competitors in the United States supermarket
bottled shelf-stable cranberry beverages market including all bottle sizes,
while the second depicts the same information with respect to 64-ounce bottle
size alone. The data points for each pie graph are as follows:
[GRAPH--PLOTTING POINTS TO COME]
The third graph depicts both the percentage ACV of Northland brand 100%
juice products and its sales per percentage point of supermarket distribution.
The graph is a line graph superimposed over a bar graph. The line graph
corresponds to a "y" axis on the left side of the graph and represents sales per
percentage point of supermarket distribution. The bar graph corresponds to a "y"
axis on the right side of the graph and represents percentage ACV. The "x" axis
lists various dates from April 21, 1996 through March 29, 1998 in four-week
increments. The data points for each graph are as follows:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
% MARKET SHARE
<S> <C>
Source: IRI 12 Weeks Ending
3/29/98
Shelf Stable Cranberry Beverages
Total U.S.
ALL SIZES
NORTHLAND 14.2%
PRIVATE LABEL 18.3%
OTHER 4.8%
APPLE & EVE 3.4%
LANGERS 2.7%
OCEAN SPRAY 56.6%
64oz ONLY
NORTHLAND 23.6%
PRIVATE LABEL 21.6%
OTHER 2.7%
APPLE & EVE 2.9%
LANGERS 1.8%
OCEAN SPRAY 47.4%
</TABLE>
29
<PAGE>
STRATEGIC MINOT ACQUISITION
On May 20, 1998, Northland entered into a definitive agreement pursuant to
which a newly-created subsidiary will purchase substantially all of the assets,
and assume certain liabilities, of Minot for $35.6 million in cash and $2.0
million in unregistered Class A Common Stock. Minot, located in Bridgeton, New
Jersey (60 miles southeast of Philadelphia, Pennsylvania), produces, markets,
sells and distributes primarily cranberry-based private label products,
including sauces and a wide variety of non-cranberry based private label juice
products. Minot's customers are located mostly in the eastern United States, but
Minot also sells to national accounts. Minot also manufactures and sells its own
MINOT branded juice products. For its fiscal year ended June 30, 1997, Minot
reported sales of $41.4 million.
The closing of the Minot Acquisition is subject to certain limited
conditions, including (i) the Company obtaining financing for the cash portion
of the purchase price; (ii) the absence of certain pending or threatened
litigation; (iii) the expiration or early termination of all waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act; (iv) the receipt of
certain required consents and approvals; (v) the purchase by Minot for resale to
the Company's subsidiary of a certain freezer owned by an affiliated person; and
(vi) certain other customary conditions. The Company has agreed to use its
commercially reasonable best efforts to effect this offering or obtain
alternative equity or debt financing on or before September 30, 1998 (or on or
before December 31, 1998, at Minot's option) in order to fund the cash portion
of the purchase price of the Minot Acquisition. See "Risk Factors--Risks
Relating to the Minot Acquisition." As part of the Minot Acquisition, a
three-year employment agreement will be entered into between Northland's
subsidiary and the sole owner of Minot, Michael A. Morello. Mr. Morello will be
employed as the President of Northland's subsidiary with principal
responsibility for directing the marketing and sale of Northland's private label
products after the closing. See "Use of Proceeds."
The Company believes the Minot Acquisition will further its MARSH TO MARKET
strategy by providing Northland with the opportunity to significantly expand its
current limited presence in the private label juice market. The Company
anticipates that the Minot Acquisition will provide well-established private
label customer relationships, a juice manufacturing facility, an extensive
private label distribution network and significant private label management
experience and expertise. The Company also believes the Minot Acquisition will
allow it to increase branded product sales through product line expansion and
diversification. The Company believes the Minot Acquisition will allow Northland
to offer category management opportunities to supermarkets and other retailers
through the sale of combined branded and private label packages, including a
broad variety of non-cranberry private label juice products, as well as
cranberry sauce and other products. See "Risk Factors--Risks Relating to the
Minot Acquisition."
The Company plans to realize substantial operating and distribution cost
savings and other synergies from the Minot Acquisition, particularly by
substantially reducing the inventory cost of Minot's supply of cranberries by
utilizing Northland's lower-cost internally grown supply of cranberries in the
manufacture of Minot's cranberry products. The Company also believes it can
realize cost savings and other synergies by reducing its reliance on third party
bottlers and co-packers by manufacturing some of its own products at Minot's
juice manufacturing and bottling facility. See "Risk Factors--Risks Relating to
the Minot Acquisition." In addition, the Company believes that the facilities
acquired in the Minot Acquisition will allow it to (i) reduce transportation
costs by shipping cranberries grown on its Massachusetts properties to Minot's
facilities (instead of Northland's facilities in Wisconsin) for pressing and
concentrating; (ii) reduce distribution costs and lead-times to customers
located in the eastern United States; and (iii) provide additional dry and cold
storage for Northland's cranberry inventory. See "Business--Properties."
30
<PAGE>
OPERATING STRATEGIES
Northland has implemented its MARSH TO MARKET vertical integration strategy
by adding value to its raw cranberry supply, thereby increasing the potential
return to the Company from each barrel of its raw cranberries. The Company adds
value from MARSH TO MARKET in the following ways:
- ADDING VALUE TO ITS CRANBERRIES. After raw cranberries are harvested by
Northland during the fall of each year, each barrel's profitability to
Northland depends on the extent of value-added actions it undertakes in
order to process its raw cranberries into a final product for resale.
Northland's value-added efforts direct its raw cranberry supply into a
product mix which can best maximize Northland's per barrel profit
potential based on customer demand and subject to industry and other
market conditions. Northland has the following different principal product
options into which it can process its raw cranberries, listed below in
order of relative return per barrel potential:
-- BRANDED JUICE--processing, pressing and either concentrating or
formulating its raw cranberries into a pre-mixed juice blend for
bottling and sale principally to supermarket chains as NORTHLAND brand
100% juice cranberry blends;
-- PRIVATE LABEL JUICE--processing, pressing and either concentrating or
formulating its raw cranberries into single-strength juice for
bottling and sale to supermarket chains and other retail sellers as
private label cranberry juice products;
-- FRESH CRANBERRIES--using specialized harvesting and processing methods
to package its raw cranberries as NORTHLAND brand seasonal fresh
cranberries in 12-ounce polyurethane bags for sale to wholesale
produce distributors, food brokers and supermarket chains for
Thanksgiving and Christmas consumption; or
-- CONCENTRATE AND OTHER INDUSTRIAL PRODUCTS--processing, pressing and
concentrating its raw cranberries into cranberry juice concentrate or
frozen whole or sliced cranberries for sale to industrial and
foodservice accounts.
The Company has focused its operating strategy in the areas of branded and
private label juice in order to best maximize the Company's per barrel
profit potential.
- ADDING VALUE TO THE SUPERMARKET RETAILER. The Company markets its
NORTHLAND brand 100% juice line as a premium product which adds value for
the benefit of the supermarket retailer from the standpoints of product
differentiation, increased category trade spending, increased product
competition and increased profitability. In marketing its branded juice to
supermarket retailers, Northland emphasizes the potential for retailers to
realize higher gross margins (principally due to Northland's premium
price), as well as faster inventory turns (principally resulting from
Northland's advertising, couponing and trade promotional support
programs), in both cases compared to other competing cranberry drink and
cocktail products.
- ADDING VALUE TO THE INDIVIDUAL CONSUMER. Northland believes it has been
able to gain market share by offering individual consumers a high quality,
great tasting, healthy and differentiated branded juice product.
NORTHLAND'S 100% juice cranberry blends compete against other cranberry
juice and drink products, most of which are made up of much less than 100%
juice. For example, Ocean Spray's traditional cranberry cocktail contains
only 27% juice, and otherwise contains high fructose corn syrup and water.
Like the historically offered products of Ocean Spray, most other
competitors' cranberry drinks or cocktails also use sugar or high fructose
corn syrup additives as sweeteners and water as fillers. As a result of
its 100% juice content and relatively small additional cost compared to
competitive cranberry drink and cocktail products which do not contain
100% juice, the Company believes individual consumers perceive greater
value in purchasing NORTHLAND brand 100% juice blends.
31
<PAGE>
GROWTH STRATEGIES
Northland believes it is well-positioned to accelerate its revenue and
earnings growth in both the branded and private label markets. Northland's
strategies for accelerating its revenue and earnings growth include taking the
following steps:
- ACCELERATING THE GROWTH OF NORTHLAND BRAND JUICES. The Company believes
there are a number of opportunities to accelerate the sales growth of
NORTHLAND brand 100% juice products by:
-- INCREASING SALES TO ITS EXISTING CUSTOMER BASE--Northland plans to use
a portion of the net proceeds of this offering to further increase its
marketing expenditures, and in particular its national television
advertising campaign, to further increase its same store sales and
market share. Because Northland's products have now achieved
relatively broad nationwide supermarket presence, the Company believes
it is in a better position to focus more of its marketing efforts on
promoting NORTHLAND brand name recognition and building long-term
brand equity, further increasing same store sales, as well as
increasing the number of bottle sizes offered on supermarket shelves.
The Company believes that the recent announcement by Ocean Spray of
its planned introduction of a product line of 100% juice cranberry
blends into nationwide distribution in direct competition with
NORTHLAND brand juice may create additional competitive growth
opportunities for the Company and may contribute to further growth of
the 100% juice cranberry blends category to the detriment of the
cranberry drinks and cocktails of Ocean Spray and other competitors.
-- INCREASING SALES TO NEW CUSTOMERS AND THROUGH NEW DISTRIBUTION
CHANNELS--As of March 29, 1998, according to IRI data, the Company had
achieved distribution in supermarkets representing approximately 76%
ACV. The Company intends to continue aggressively expanding the number
of supermarkets nationwide in which its juice products are sold. The
Company also believes the Minot Acquisition will create new
opportunities for selling Northland products to Minot's customers and
Minot products to Northland's customers. The Company is also pursuing
increased distribution of its products to mass merchandisers, drug and
discount stores and foodservice accounts and is developing an entry
strategy into convenience stores.
-- INTRODUCING NEW BOTTLE SIZES AND PRODUCTS--To further increase shelf
space, improve shelf position and enhance overall category market
share, Northland has begun to introduce new bottle sizes, including a
46-ounce plastic bottle in retail supermarkets (which includes the
Company's newest flavor, cranberry blackberry), and a gallon plastic
bottle size and 16-ounce plastic bottle multi-packs in warehouse
clubs.
- EXPANDING PRESENCE IN THE PRIVATE LABEL MARKET. As a result of the Minot
Acquisition, Northland believes that it can significantly expand its
private label juice sales by combining its attributes as the world's
largest cranberry grower and its resulting low cranberry cost
efficiencies, together with Minot's well-established private label
customer relationships, self-contained manufacturing facility, excellent
reputation, broad private label distribution network and expertise in
private label fruit juice processing, bottling and marketing. As a result
of its expanded product line and enhanced presence in the private label
juice and cranberries product market expected to result from the Minot
Acquisition, Northland believes it can offer category management
opportunities to supermarkets and other retailers and increase its shelf
space and overall category market share by introducing and promoting the
sale of combined branded and private label product packages, including a
broad variety of non-cranberry private label juice products, as well as
cranberry sauce and other products.
- EXPLORING ADDITIONAL POTENTIAL STRATEGIC ACQUISITIONS. The Company intends
to explore additional potential strategic acquisitions of other branded
and/or private label juice and beverage manufacturers and distributors
where there may exist opportunities to leverage the Company's key
strengths,
32
<PAGE>
complement and expand the breadth and variety of the Company's product
offerings and/or provide synergies and cost efficiency opportunities to
the Company's operations. The Company also intends to continue exploring
additional potential acquisitions of other cranberry growing properties.
See "Business--Cranberry Supply; Increasing Internal Supply through Marsh
Acquisitions." The Company frequently engages in discussions and
negotiations with potential acquisition candidates; however, other than
with respect to the Minot Acquisition, as of the date of this Prospectus,
the Company has not entered into any definitive agreement to acquire any
such potential candidates. See "Risk Factors--Availability and Integration
of Potential Future Acquisitions."
The Company believes it has established a national infrastructure of juice
manufacturing and food and beverage broker relationships sufficient to allow it
to service all major national customer accounts and support substantial sales
gains. The Company also believes that it has established an experienced and
effective sales and marketing team of 17 individuals to direct and achieve
further branded juice sales increases, led by Chairman and Chief Executive
Officer, John Swendrowski, and President and Chief Operating Officer, Jerold
Kaminski. Mr. Kaminski joined Northland in June 1997 after an 18-year career at
General Mills Corporation in various branded food products divisions. Mr.
Kaminski most recently served General Mills as a Corporate Vice President and
Vice President-Marketing and Sales for General Mills' Gold Medal Division, where
he directed marketing and sales of such well-known consumer products as Betty
Crocker desserts, Bisquick products and Gold Medal flour. The Company also
believes that its employment of the sole shareholder of Minot, Michael A.
Morello, after consummation of the Minot Acquisition to direct the marketing and
sale of the Company's private label products will substantially improve the
Company's ability to successfully compete in this market. See
"Management--Directors and Officers."
INDUSTRY OVERVIEW
Based on available industry data, the fruit beverage industry exceeded $13.0
billion in sales in 1997. The fruit beverage industry is generally divided into
fruit juice (made from 100% juice) and fruit drinks and cocktails (made from
less than 100% juice, mixed with other dilutive ingredients). Cranberry beverage
products, including Ocean Spray's, are typically categorized as fruit drinks and
cocktails.
The supermarket bottled shelf-stable fruit beverage market was approximately
$2.6 billion in sales in 1997 according to IRI data and other industry
estimates, with bottled shelf-stable cranberry beverage supermarket sales of
approximately $728 million.
As illustrated in the table below, based on IRI data, for the 52-week period
ended December 7, 1997, cranberry juice and drink sales led the bottled
shelf-stable fruit beverage market for supermarket sales with a 28% market
share:
<TABLE>
<CAPTION>
MARKET SHARE OF
JUICE CATEGORY SUPERMARKET SALES
- --------------------------------------------------------- 1997 ---------------------
SUPERMARKET SALES
-----------------
(MILLIONS)
<S> <C> <C>
Cranberry................................................ $ 728 28%
Fruit drinks............................................. 506 19
Apple.................................................... 452 17
Grapefruit............................................... 212 8
Grape.................................................... 154 6
Vegetable/tomato......................................... 123 5
Fruit juice blends....................................... 109 4
Prune.................................................... 79 3
Other juice drinks and cocktails......................... 279 10
------ ---
Total market........................................... $ 2,642 100%
------ ---
------ ---
</TABLE>
Cranberry beverages are typically sold as shelf-stable cranberry juice
cocktail, shelf-stable cranberry blended fruit drinks (cranberries blended with
one or more combinations of fruits, including apples,
33
<PAGE>
raspberries, strawberries, cherries and grapes), frozen concentrate,
shelf-stable concentrate and refrigerated juices and drinks. Within the consumer
retail cranberry products market, the industry can be divided between branded
products, which principally include Ocean Spray as well as the Company's
NORTHLAND brand, and the private label products of supermarket chains and mass
merchandisers. Private label products are sold by the manufacturer directly to
supermarket wholesalers and retailers who then market the products under their
own store labels.
Based on IRI data, for the 52-week period ended March 29, 1998, dollar sales
of the bottled shelf-stable cranberry beverage segment increased by 2.7% over
the prior 52-week period, although dollar sales data for the last 12-week period
reflected a decrease in dollar sales over the prior year's comparable 12-week
period. The Company believes that, based on IRI data, this increase in product
category growth over such 52-week period was largely driven by the 120.8% growth
in the dollar sales of bottled shelf-stable 100% juice cranberry beverage
segment for such 52-week period over the prior year. In contrast, dollar sales
of bottled shelf-stable cranberry drinks and cocktails (I.E., beverages
containing less than 100% juice) for the 52-week period ended March 29, 1998
declined by 4.8% from the prior year's period. The Company believes this data
supports the Company's belief that NORTHLAND 100% juice cranberry blends are
stimulating overall category growth in the bottled shelf-stable cranberry
beverage segment.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CATEGORY GROWTH
<S> <C>
SS Bottled Cranberry Beverages - Total
U.S.
Juice Drinks -4.80%
100% Juice 120.8%
Source IHI, 52 weeks ending 3/29/98
</TABLE>
PRODUCTS
GENERAL
The Company's current product line includes NORTHLAND brand 100% juice
cranberry blends, private label cranberry products, NORTHLAND brand fresh
cranberries, cranberry concentrate, and other cranberry products.
NORTHLAND BRAND 100% JUICE CRANBERRY BLENDS
In October 1995, the Company introduced its NORTHLAND brand 100% juice
cranberry blends into selected Midwestern markets. The new product line was the
result of two years of product development and consumer testing. Beginning the
roll-out in Wisconsin and then expanding into other Midwestern states, NORTHLAND
brand 100% juice cranberry blends achieved full national distribution in fiscal
1997 and, as of March 29, 1998, NORTHLAND 100% juice cranberry blends were
available in all 50 states and in approximately 23,000 supermarkets representing
approximately 76% ACV.
34
<PAGE>
The Company currently offers eight flavors of NORTHLAND brand 100% juice,
including traditional cranberry, cranberry blackberry, cranberry cherry,
cranberry grape, cranberry apple, cranberry peach, cranberry raspberry and
cranberry strawberry. Through March 29, 1998, an average of 4.5 flavors were in
distribution in 64-ounce plastic bottles on the shelves at supermarkets
nationwide. The Company intends to increase the average number of juice flavors
available on supermarket shelves. See "Business--Growth Strategies."
Only one bottle size, 64-ounce, of NORTHLAND brand 100% juice has been
generally available in national distribution. However, Northland has recently
begun to introduce new bottle sizes, including a 46-ounce plastic bottle in
retail supermarkets (which includes the Company's newest flavor, cranberry
blackberry), and the gallon plastic bottle size and 16-ounce plastic bottle
multi-packs in warehouse clubs. The Company is also developing an entry strategy
to introduce 16-ounce plastic single-serve sizes into convenience stores. The
Company is developing for future introduction additional bottle sizes and
combinations.
PRIVATE LABEL JUICE
The Company believes that the sale of private label cranberry beverages,
often produced to be a national brand match and appearing on shelves as a
particular store brand, offers Northland the opportunity to complement and
enhance its branded juice business. Unlike the Company's NORTHLAND brand juices,
the Company's private label cranberry drinks are not 100% juice products. The
Company's private label cranberry drinks contain substantially the same
percentage of cranberry juice as many other competitive private label cranberry
drink lines. Following the Minot Acquisition, the Company anticipates being able
to offer additional private label products currently offered by Minot, including
private label jellied and whole cranberry sauce, cranberry juice cocktail,
cranberry juice blends, fruit juice products (including apple, orange,
pineapple, grape, grapefruit and lemon juice), sports drinks and ready-to-drink
teas.
FRESH CRANBERRIES
The Company began packaging and selling fresh cranberries in 12-ounce
polyurethane bags under its NORTHLAND brand name in the fall of 1993 as its
initial step towards directly selling its own value-added branded cranberry
products to retail consumers. Northland intends to continue this value-added
aspect of its business, although as a percent of the Company's total revenues,
sales of fresh cranberries are expected to substantially decrease as a result of
anticipated increases in branded product sales and its anticipated expanded
presence in the private label market as a result of consummating the pending
Minot Acquisition. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
CRANBERRY CONCENTRATE AND OTHER INDUSTRIAL PRODUCTS
The Company produces and sells cranberry concentrate and, to a lesser
extent, single-strength cranberry juice and frozen whole and sliced cranberries,
to industrial customers such as food processors and foodservice companies.
MARKETING AND SALES
NORTHLAND 100% JUICE CRANBERRY BLENDS
To date, the Company's NORTHLAND brand 100% juice cranberry blends have
principally been sold nationally only in supermarkets, which is the single
largest channel for sales of fruit beverages; however, the Company has been
pursuing distribution of its NORTHLAND brand juice product line in
non-supermarket channels, including warehouse club stores, mass merchandisers,
drug stores, convenience stores, superstores and others.
35
<PAGE>
The Company's marketing strategy and focus for its NORTHLAND 100% juice
cranberry blend product line is to highlight the differences in quality, flavor
and nutritional content between NORTHLAND brand 100% juice cranberry blends and
the competing products of Ocean Spray and others containing lesser juice
content. A principal focus of the Company's branded product marketing campaign
has been increasing consumer awareness of NORTHLAND brand 100% juice content
compared to the substantially lower juice content of the non-100% juice drinks
and cocktails of competitive products. The Company believes that its national
television advertising campaign has been successful in better clarifying the
difference between the Company's 100% juice products and the non-100% juice
drinks and cocktails of Ocean Spray and other competitors.
To implement its marketing strategy, in fiscal 1997, the Company developed
and coordinated media advertising plans, consumer and sales promotion programs,
market research and public relations for the NORTHLAND 100% juice cranberry
blend product line. The Company expanded its regional television campaign, which
began in early fiscal 1997, by developing a national television advertising
campaign in connection with the national rollout of its branded juice product
line. During the first half of fiscal 1998, the Company continued to
aggressively promote its branded juice product line through increased television
advertising and by continuing its trade and price promotion plan, consisting of
seasonal merchandising to increase in-store visibility of Northland's products
and a coupon plan to provide strong trial incentives to first-time buyers and
repurchase incentives to established users, as well as to help increase
awareness of the NORTHLAND name and reinforce the Company's 100% juice message.
The Company also believes that its coupons help demonstrate to the retail
community a commitment to NORTHLAND brand and help ensure that retail shelf
movement meets customers' sales benchmarks. For the individual consumer, the
Company believes that its coupons often make Northland's premium price products
substantially equal in net price to competitive products and can serve as an
incentive to prompt purchase. The Company also provides periodic promotional
allowances to retailers and wholesalers. These programs are scheduled so as not
to compete with media and coupon activity to provide continual support for the
NORTHLAND brand and spread both fixed and variable costs across the greatest
amount of product sold. The Company also has a long-term licensing agreement
with the Ladies Professional Golf Association which provides that NORTHLAND
brand 100% juice cranberry blends are the official juice of the LPGA.
At the beginning of fiscal 1998, Northland anticipated spending
approximately $24.0 million on advertising, promotion and slotting expenses in
support of its brand in fiscal 1998, compared to $9.0 million in fiscal 1997.
The Company spent $13.0 million on promoting its brand during the first half of
fiscal 1998 and intends to use a portion of the net proceeds of this offering to
further increase its marketing expenditures, and in particular its national
television advertising campaign, to continue raising consumer awareness of the
NORTHLAND brand name and more clearly differentiating its NORTHLAND 100% juice
cranberry blend line of products from its competition.
On June 9, 1997, the Company hired Jerold D. Kaminski to serve as the
Company's President and Chief Operating Officer, with principal responsibilities
for the continued implementation of the Company's MARSH TO MARKET strategy, and
with particular emphasis on directing and implementing marketing and sales
strategies for the NORTHLAND brand. Mr. Kaminski has extensive management
experience in the food industry (and in particular with the marketing and sale
of branded grocery products). Mr. Kaminski joined Northland after an 18-year
career at General Mills Corporation in various branded food products divisions,
most recently as a Corporate Vice President and Vice President-Marketing and
Sales for General Mills' Gold Medal Division. At General Mills, Mr. Kaminski
supervised the marketing of such well known consumer products as Betty Crocker
desserts, Bisquick products and Gold Medal flour. Prior to that, Mr. Kaminski
served as the Director of Marketing for General Mills' Food Service Division.
See "Management--Directors and Officers."
The Company employs a Director of Marketing (with over 20 years of marketing
experience in the food and consumer products industries), a marketing
coordinator and support staff personnel to oversee
36
<PAGE>
marketing of the Company's branded juice product line. The Company also
internally staffs a creative services department to assist in marketing and
promotional efforts. See "Business--Employees."
The Company's branded juice sales are coordinated by a Director of Sales and
a National Sales Manager-Branded Products (who together have over 35 years of
sales experience in the food and consumer products industries), as well as six
regional sales managers, each with over 15 years of sales experience. The
Company's sales staff has extensive sales experience working for companies such
as Campbell Soup Co., Nabisco Holdings Corp. and Veryfine Products, Inc. The
Company's sales staff directs distribution and sale of its branded juice
products through a network of approximately 60 independent food brokers with
market coverage in all 50 states.
PRIVATE LABEL CRANBERRY JUICE AND OTHER PRIVATE LABEL PRODUCTS
In addition to the national rollout of the Company's branded juice produce
line, an important element of its MARSH TO MARKET strategy has been the
development of private label cranberry and non-cranberry juice drink products
for sale to supermarket chains, mass merchandisers, warehouse clubs and other
retailers. The Company believes the expanded distribution and sale of private
label products will allow it to further leverage its core growing,
manufacturing, marketing and sales capabilities. In addition, the Company
believes that a greater presence in the market for private label products would
improve its operational efficiencies and increase the Company's presence and
importance to retailers in all channels of distribution. Northland has
identified and targeted high profile retail customers and is aggressively
pursuing these customer prospects; however, the Company has experienced intense
price competition in the private label market and has to date been unable to
overcome the well-established supply relationships that competitors maintain
with many key customer accounts and the slow customer approval process for new
suppliers. In fiscal 1997, Northland secured its first customer commitment for
private label cranberry juice products from a supermarket chain operating in a
multi-state area of the Midwest. The Company believes that it can significantly
expand its private label business through the Minot Acquisition. The Company
believes it will be able to realize substantial private label sales by
increasing Minot's business with its existing private label customer base and
through the addition of new private label customers.
Minot has been in the business of manufacturing and marketing primarily
cranberry-based private label products since 1923. Minot has long-standing
relationships with a base of nationally recognized private label retailers, most
of which are located in the eastern United States. As an approved supplier to
these customers, Minot generally is one of several approved suppliers who
actively seek a share of these customers' business for private label drink and
sauce products. An approved supplier's share of a customer's business is most
often determined by submitting the most attractive pricing. It is the Company's
belief that Minot can quickly and significantly increase its share of business
with current customers through more attractive pricing resulting from the lower
cost supply of Northland's internally-grown cranberries as opposed to the higher
price Minot currently pays for the cranberries it purchases from other growers.
The Company also believes Minot's more attractive pricing, excellent reputation
in the private label business, self-contained manufacturing capabilities (in
conjunction with the Company's existing co-packer network), and private label
marketing and sales expertise will significantly increase the likelihood of
attracting new private label customers.
After consummation of the Minot Acquisition, Michael A. Morello will be
employed as President of the Company's newly-established private label
subsidiary which is purchasing Minot's assets. Mr. Morello will be responsible
for directing the marketing and sales of Northland's private label products
nationally. See "Business--Strategic Minot Acquisition."
NORTHLAND BRAND FRESH CRANBERRIES
The Company markets NORTHLAND brand fresh cranberries to retail and
wholesale customers during the months of October through December of each year,
selling direct or via commissioned wholesale produce
37
<PAGE>
distributors and food brokers. Based on IRI data, fresh cranberries is a $28
million category in United States supermarkets. Over the past three years, the
NORTHLAND brand has averaged an approximate 18% market share of the supermarket
fresh cranberries market.
CRANBERRY CONCENTRATE AND OTHER INDUSTRIAL PRODUCTS
The Company sells cranberry concentrate, single-strength cranberry juice and
frozen whole and sliced cranberries to industrial customers, such as food
processors and foodservice companies. Cranberry concentrate is currently
Northland's principal industrial product in terms of sales volume. The Company's
industrial customer base includes several major food processing firms. Sales of
these industrial cranberry products are subject to the market availability of
raw cranberries and are very price competitive. The Company believes that its
position as the world's largest cranberry grower and its ability to internally
process and concentrate its own supply of raw cranberries allows it to offer a
reliable long-term supply of high quality, competitively priced cranberry
products to its industrial customers.
In fiscal 1996, the Company entered into an agreement with Rudolph Wild GmbH
& Co. ("Wild") to supply Wild with cranberry concentrate for Wild's production
of fruit juice and other beverages for distribution exclusively in international
markets. Wild is one of Europe's largest suppliers of natural ingredients for
the production of soft drinks and other fruit beverages. The Company has a
commitment to sell cranberry concentrate to Wild over the next two fiscal years.
CRANBERRY SAUCE
Consummation of the Minot Acquisition will allow the Company to enter the
market for cranberry sauce. Based on IRI data, United States supermarket sales
of cranberry sauce during 1997 exceeded $110 million, with additional volume
sold in other channels such as warehouse club stores and mass merchandisers.
Similar to fresh cranberries, cranberry sauce sales are predominantly made
during the latter part of each calendar year in association with Thanksgiving
and Christmas holiday consumption. According to IRI data, the cranberry sauce
business is currently dominated by Ocean Spray with approximately a 66% market
share, with private label sales comprising approximately 29% of the market
share. The Company also believes that after the Minot Acquisition there will be
an opportunity for it to market and sell NORTHLAND brand cranberry sauce to both
retailers and individual consumers as an alternate to Ocean Spray's branded
sauce line.
PROCESSING AND DISTRIBUTION
Another integral part of the Company's MARSH TO MARKET strategy is its
capability to internally process its harvested and purchased raw cranberries at
the Company's 150,000 square foot receiving station and fresh fruit packaging
facility in Wisconsin Rapids, Wisconsin. Raw cranberries harvested from the
Company's marshes or purchased from independent suppliers are brought to the
receiving station, which is capable of cleaning, drying and electronically color
sorting incoming fresh fruit. Raw cranberries which are to be sold as fresh
fruit during the Thanksgiving and Christmas holiday seasons are stored in a
temperature-controlled facility until they are hand-sorted, packaged and
distributed to food brokers, wholesalers or supermarkets for sale as NORTHLAND
brand fresh cranberries. Raw cranberries which are to be used to make other
consumer cranberry products are cleaned, sorted and stored in the Company's
65,000 square foot freezer facility until they are sent to the Company's 16,000
square foot juice pressing and concentrating facility, which was constructed in
fiscal 1996. Stored raw frozen cranberries can maintain their quality for
several years. The concentrating facility, which is capable of concentrating
juice from up to 400,000 barrels of raw cranberries annually and has significant
available space for expansion, processes raw cranberries into concentrate or
single-strength juice. The Company also produces a pre-mixed product formulation
(or "pre-mix") by formulating single-strength cranberry juice with other fruit
juices, which is then shipped to co-packers for bottling and packaging NORTHLAND
branded juice products. The Company believes its
38
<PAGE>
capability to internally process cranberries increases its ability to control
the distribution and sale of its branded juice products and other value-added
consumer and industrial cranberry products.
In addition to the Company's existing facilities, Northland will acquire in
the Minot Acquisition (i) a 93,000 square foot dry warehousing, receiving and
shipping facility; (ii) an 80,000 square foot processing plant; (iii) four cold
storage facilities, totaling approximately 60,000 square feet, which store
berries, concentrates and raw materials for production of cranberry sauce and
fruit juices; (iv) a 50,000 square foot manufacturing and bottling facility; and
(v) additional office space. These Minot facilities are expected to allow the
Company to (i) reduce transportation costs by shipping cranberries grown on its
Massachusetts properties to Minot's facilities for pressing and concentrating;
(ii) reduce distribution costs and lead-times to customers located in the
eastern United States; and (iii) provide additional dry and cold storage space
for inventory. See "Business--Strategic Minot Acquisition."
The Company maintains co-packing agreements with three food manufacturers,
including Seneca Foods Corporation and Sunsweet Growers, Inc., to formulate and
bottle its processed cranberry blends in six strategic locations nationwide:
Mountain Home, North Carolina; Dundee, New York; Jackson, Wisconsin; Prosser,
Washington; Yuba City, California; and Fort Gibson, Oklahoma. The Company
delivers pre-mix or concentrate to these co-packers, who then re-formulate,
bottle and package the Company's branded juice products for delivery. The
Company's transportation department contracts with independent carriers to
distribute the bottled products to various supermarkets and retail outlets. The
Company believes that utilizing strategically located co-packers helps lower its
freight and production costs, as well as allows for timely response to customer
demands.
CRANBERRY SUPPLY
GENERAL
The Company believes an important factor in its successful implementation of
its MARSH TO MARKET strategy is controlling a significant and reliable supply of
cranberries through its own growing efforts and purchasing raw cranberries from
other growers. Northland is the world's largest cranberry grower, with more
planted acres of cranberries owned or leased than any other grower. As of
February 28, 1998, Northland owned or operated approximately 2,548 planted acres
in Wisconsin and Massachusetts and owned or leased over an additional 20,000
acres of supporting marsh acreage. See "Business--Properties." The Company
utilizes its significant internally harvested supply of raw cranberries from its
owned and operated acres for a substantial majority of its fruit distribution
needs. Northland believes it has a competitive advantage over other independent
cranberry juice product processors and marketers since its position as the
world's largest single grower of cranberries gives it the capability to supply
itself internally with a significant and reliable, lower-cost source of raw
cranberries rather than having to rely on higher-cost third party suppliers. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The combination of existing environmental regulations which
currently restrict the development of wetlands and the long lead-time and
significant capital costs required to develop new marshes to full productivity
have restricted the planting of significant additional cranberry producing
acreage in the United States. See "Business--Regulation."
INTERNALLY GROWN AND PURCHASED SUPPLY
In the fall of 1997 (i.e., fiscal 1998), the Company harvested a record
417,000 barrels of raw cranberries from 2,243 harvested acres on 25 marshes.
This large harvest was due in part to the maturation of hybrid high-yield
cranberry vines which the Company planted in its internal expansion program in
prior years, combined with favorable weather and overall good growing conditions
throughout the cranberry crop producing regions. In the fall of 1996 (i.e.,
fiscal 1997), the Company harvested 293,000 barrels from 2,107 harvested acres
on 24 marshes.
39
<PAGE>
The Company also purchases raw cranberries from other growers to supplement
its own harvested crop. In fiscal 1998, Northland purchased approximately
104,000 barrels of raw cranberries from other independent growers, compared to
approximately 62,000 barrels in fiscal 1997. The Company has entered into
multi-year crop purchase contracts with 27 independent cranberry growers to
purchase all of the raw cranberries harvested from an aggregate of 1,557 planted
acres. These contracts extend through the fall 1998 harvest and terminate on
various dates thereafter, subject to renewal options. The Company expects the
quantity of raw cranberries purchased under its existing contracts to increase
over the next several years as the contracted marsh acreage matures and becomes
more productive. However, there can be no assurance that these existing
contracts will be renewed upon expiration.
The following table shows certain information regarding the Company's
cranberry marshes and production for the fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------------------
1998 1997 1996 1995 1994
(25 MARSHES) (25 MARSHES) (23 MARSHES) (21 MARSHES) (18 MARSHES)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total planted acres....................... 2,548 2,548 2,368 2,257 1,982
Total acres harvested..................... 2,243 2,107 1,935 1,813 1,519
Total barrels of production............... 417,000 293,000 287,000 254,000 192,000
</TABLE>
As a result of existing domestic regulatory constraints on the development
of wetlands, the Company does not anticipate planting significant additional
domestic acreage in the near future. The Company intends to continue attempting
to increase its internal supply principally through pursuing additional marsh
property acquisitions and entering into additional crop purchase agreements. See
"Business--Regulation."
INCREASING INTERNAL SUPPLY THROUGH MARSH ACQUISITIONS
Since its inception, Northland has pursued a business strategy of
aggressively increasing its internal cranberry supply through marsh
acquisitions. For the period from immediately prior to its initial public stock
offering in August 1987 through February 28, 1998, the Company has added,
through acquisitions or leases, a total of 20 marsh properties. During this
period, total planted acreage has increased 656%, from 337 acres to 2,548 acres,
through acquisitions and the Company's internal planting program. In fiscal
1997, the Company acquired two separate marsh properties in Wisconsin consisting
of a total of 181 planted acres. These acquisitions increased the Company's
total planted acreage as of February 28, 1998, to approximately 2,548 acres on
25 properties, with over 20,000 total support acres. The Company intends to
continue pursuing the expansion of its productive capacity through the
cost-effective acquisition or lease of additional cranberry marshes. The Company
evaluates potential acquisition opportunities and determines a range of
potential purchase prices based on several factors, including (i) historical and
prospective productive cranberry yield; (ii) existing and future production
expansion potential; (iii) the amount, type and condition of equipment being
purchased; (iv) the type of facilities associated with the operation; (v)
existing marsh management; and (vi) potential synergies with Northland's
existing marsh locations. Although the Company is frequently involved in
discussions and negotiations concerning potential marsh acquisitions, as of the
date of this Prospectus, the Company has not entered into any definitive
agreements to acquire any new marsh property. See "Risk Factors--Availability
and Integration of Future Acquisitions."
AGRICULTURAL FACTORS IN CRANBERRY PRODUCTION
The quality and quantity of raw cranberries produced in any given year is
dependent upon certain external agricultural factors over which the Company has
little or no control. Extremes or significant variations in temperature,
excessive or inadequate precipitation levels, storms and hail, or crop
infestations can all adversely impact the production in any crop year or years.
While the Company has attempted to mitigate the adverse effects that these
factors may have on its internal cranberry production, the Company's cranberry
production still remains substantially subject to these agricultural factors.
40
<PAGE>
In addition to some geographical diversity in the location of its marshes,
the Company maintains federally-subsidized multi-peril crop insurance coverage
for all of its marshes as part of its efforts to minimize the effects of adverse
agricultural occurrences. The policies insure against unavoidable loss of
production resulting from adverse agricultural conditions, including hail, fire,
insects, plant disease, wildlife, human tampering and malicious damage to the
bogs and the failure of an irrigation system water supply due to an unavoidable
cause. Each of these multi-peril policies insures up to 75%, the maximum
coverage currently available, of the previous 10 years' average crop yield on
the covered marsh's insured acreage at an effective rate for fiscal 1998 of $66
per barrel of insured lost production (rather than the price which could have
been received by actually harvesting and delivering or selling such barrel).
These insurance policies do not cover destruction or spoilage of the Company's
crop after its harvest.
In addition to maintaining insurance, the Company attempts to reduce the
effects of adverse agricultural occurrences through careful crop and marsh
management. Each of the Company's properties typically has a marsh manager and
one or two assistant marsh managers who work closely with senior Company
management to monitor the crop, decide on crop management strategies, and
implement and supervise the work on a year-round basis.
COMPETITION
GENERAL
The markets for consumer cranberry products in which the Company
participates are intensely competitive and are substantially all dominated by
Ocean Spray. Ocean Spray, an agricultural marketing cooperative entitled to
limited protection under federal antitrust laws, has over 750 member-growers of
cranberries, representing approximately 70% of all cranberry production in North
America and reported sales of over $1.4 billion for its fiscal year ended August
31, 1997. Ocean Spray has significantly more experience than the Company in the
fruit juice and branded consumer cranberry products markets, substantially
greater brand name recognition, substantially greater marketing and distribution
resources, substantially greater market penetration and a substantially wider
variety of sizes and flavors of branded cranberry-based fruit juices and
consumer cranberry products than the Company. There can be no assurance that the
Company will be successful in competing against Ocean Spray or others. See "Risk
Factors--Competition."
BRANDED JUICE
The Company's NORTHLAND brand 100% juice cranberry blends compete nationally
principally with Ocean Spray's branded cranberry drinks and cocktails, as well
as the branded cranberry juice, drinks and cocktails of other regional and local
manufacturers, private label cranberry juice, drink and cocktail products and
other juice and beverage products. For the 12-week period ended March 29, 1998,
Ocean Spray had a leading market share of approximately 56.6% of the bottled
shelf-stable cranberry beverage market, compared to 14.2% for Northland with the
second leading single company market share. The NORTHLAND brand 100% juice
cranberry blends are marketed by the Company as premium products compared to
other competing cranberry juice products, most of which are made up of much less
than 100% juice. For example, Ocean Spray's cranberry juice cocktail contains
27% cranberry juice and otherwise consists of high fructose corn syrup and
water. Like the historically offered products of Ocean Spray, most competitors'
drinks and cocktails use sugar or high fructose corn syrup additives as
sweeteners and water as fillers. The Company believes that its 100% juice
products taste better and have better quality and more nutritional benefits than
competitors' drinks and cocktails which do not contain 100% juice. The Company
believes these attributes provide its juice products with a competitive
advantage. However, even though the Company has a cost advantage for raw
cranberries by growing its own internal supply of cranberries, because the
Company uses all natural fruit juices to sweeten its branded products rather
than high fructose corn syrup, the Company believes that its premium branded
products cost more for the
41
<PAGE>
Company to produce than it costs competitors to produce their non-100% juice
competitive cranberry drink and cocktail products. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition." The Company
fully anticipates that Ocean Spray will continue to compete aggressively against
the Company's NORTHLAND brand 100% juice cranberry blend products, possibly
including reducing product pricing, increasing its advertising expenditures,
increasing its trade promotions and other actions. The Company also competes
directly against certain regional and local cranberry juice blends which also
feature 100% juice content like NORTHLAND juice. Recently, Ocean Spray
introduced into national distribution cranberry juice blends having 100% juice
content in an attempt to compete directly nationwide with the Company's
NORTHLAND brand 100% juice product line. The Company believes that Ocean Spray's
introduction of this new product line in direct competition with NORTHLAND brand
100% juice cranberry blends may provide the Company with additional competitive
opportunities and may contribute to further growth of the 100% juice cranberry
blends category to the detriment of the cranberry drinks and cocktails of Ocean
Spray and other competitors. See, however, "Risk Factors--Competition."
PRIVATE LABEL PRODUCTS
Northland considers significantly expanding its current limited presence in
the private label markets to be an integral strategic step in further
implementing its MARSH TO MARKET vertical integration strategy. The market for
private label cranberry products is highly competitive. Established processors,
including market leaders Cliffstar Corporation and Clement-Pappas & Co., have
significant experience in the private label fruit juice and processed cranberry
products markets and have well established customer relationships, effective
distributor networks and self-contained bottling operations. To date, the
Company has not been able to compete effectively in the private label market due
to intense price competition, longstanding relationships between retailers and
existing private label manufacturers and the reluctance of retailers to approve
new manufacturers and vendors. Although the Minot Acquisition is intended to
allow Northland to successfully expand its limited presence in the private label
juice market, there can be no assurance that the Company will be successful in
competing in the private label juice market. Moreover, private label cranberry
products in general compete against branded cranberry products and, in
particular, the branded cranberry products of Ocean Spray and the Company. There
can be no assurance that any private label processed cranberry products of the
Company or Minot will be able to successfully compete against the similar
branded products of Ocean Spray or others or that the Company's or Minot's
private label juice products will not adversely affect the sales of the
Company's branded juice line.
FRESH CRANBERRIES
The Company competes principally with Ocean Spray, as well as other brand
label producers in the market for fresh cranberry sales during the Thanksgiving
and Christmas holiday seasons. The principal competitive factors in the sale of
fresh cranberries are price, quality and reliability of delivery of initially
ordered quantities.
RAW CRANBERRIES
Ocean Spray dominates the raw cranberry market, controlling approximately
70% of the total raw cranberry supply. Northland competes in the market for
purchasing raw cranberries with other independent cranberry product handlers and
processors for the raw cranberries of other independent growers. Principal
competitive factors in the purchase of raw cranberries include price,
organizational loyalty and tradition. The Company could experience increased
competition for the direct purchase of raw cranberries from Ocean Spray if Ocean
Spray were to begin accepting new member-growers. Additionally, in recent years,
efforts have been made to grow cranberries in locations outside of North
America. There can be no assurance that cranberry production outside of North
America will not become significant over the longer term. See "Risk
Factors--Cranberry Market; Supply and Demand."
42
<PAGE>
CRANBERRY CONCENTRATE AND OTHER INDUSTRIAL PRODUCTS
The Company also competes against Ocean Spray and others for the sale of
cranberry concentrate, single-strength cranberry juice and frozen whole and
sliced cranberries to industrial customers, such as food processors and
foodservice companies. Principal competitive factors in the sale of cranberry
concentrate and other industrial cranberry products are price and reliable
supply. The Company believes its position as the world's largest single
cranberry grower and its ability to internally process raw cranberries allows it
to offer a reliable supply of high quality, competitively priced cranberry
products to its industrial customers.
REGULATION
FOOD SAFETY AND LABELING
The Company is subject to the Food, Drug and Cosmetic Act and regulations
promulgated thereunder by the Food and Drug Administration ("FDA"). This
comprehensive regulatory program governs, among other things, the manufacturing,
composition and ingredients, labeling, packaging and safety of food. For
example, the FDA regulates manufacturing practices for foods through its current
"good manufacturing practices" regulations and specifies the recipes for certain
foods. In addition, the Nutrition Labeling and Education Act of 1990 prescribes
the format and content of certain information required to appear on the labels
of food products. The Company is subject to regulation by certain other
governmental agencies, including the Department of Agriculture.
The operations and products of the Company are also subject to state and
local regulation through such measures as licensing of plants, enforcement by
state health agencies of various state standards and inspection of facilities.
Enforcement actions for violations of federal, state and local regulations may
include seizure and condemnation of products, cease and desist orders,
injunctions or monetary penalties.
FEDERAL TRADE COMMISSION
The Company is subject to certain regulations by the Federal Trade
Commission ("FTC"). Advertising of the Company's products, including that
contained on the products' labels, is subject to regulation by the FTC pursuant
to the Federal Trade Commission Act and the regulations promulgated thereunder
and the FDA under the comprehensive regulatory scheme described above.
EMPLOYEE SAFETY REGULATIONS
The Company is subject to certain health and safety regulations, including
regulations issued pursuant to the Occupational Safety and Health Act. These
regulations require the Company to comply with certain manufacturing, health and
safety standards to protect its employees from accidents.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
To obtain permits to create new cranberry marshes in the United States,
cranberry growers and other developers are generally required, pursuant to a
national "no net loss" of wetlands policy, to restore the functional values of
disturbed wetland acreage in an amount equal to at least 100% of the acreage
intended for the development of new cranberry marshes, depending on the type of
wetland impacted. Given this current regulatory requirement, as well as current
water quality legislation in Wisconsin and Massachusetts, the Company believes
it is currently unlikely that the Company, or any other cranberry growers or
other developers in the United States, in the near future will be able to
cost-effectively secure additional permits for further significant cranberry
marsh development or expansion of wetland properties (although the Company and
other growers or developers may renovate existing developed wetlands acreage
from time to time and replant older cranberry vine varieties with
higher-yielding vine varieties).
However, certain independent growers have undertaken efforts in various
states, including Maine, Minnesota, Michigan and Delaware (as well as efforts in
Quebec and British Columbia), to plant, cultivate
43
<PAGE>
and develop new cranberry-producing acreage. Given the aforementioned
environmental regulations, the particular soil and temperature conditions
necessary to effectively grow cranberries and the long lead-time required for
cranberry vines to mature to full production, the Company does not expect these
efforts to materially affect the near-term supply of cranberries.
One of the Company's Wisconsin marshes and one in Massachusetts are the
subjects of various types of activities intended to remediate ground and/or
water contamination caused by previously removed underground storage tanks used
by the prior owners of such properties. All of such circumstances have been
reported to the appropriate state regulatory agencies and are subject to state
supervised remediation plans. Based on information available as of February 28,
1998, the Company believes a substantial portion of the aggregate costs of such
remedial activities at the Wisconsin marsh will be covered by state
reimbursement funds. The Company believes that neither of these remediation
activities will adversely effect the Company's results of operations or
financial condition.
Proposed regulations have been approved by the Wisconsin Department of
Natural Resources ("DNR") to amend portions of the Wisconsin Administrative Code
to lessen the DNR's scrutiny associated with obtaining DNR approval for the
development of cranberry marshes in wetlands. The proposed amendments to the
regulations are currently pending before a committee of the Wisconsin
Legislature, and it is uncertain whether these proposed regulations will
ultimately take effect. The enactment of these proposed regulations in their
current form could relax the standards and procedures for obtaining state water
quality certification to conduct activities in wetlands pursuant to a federal
permit. However, as a result of the continued federal restrictions on wetland
development and the long lead-time associated with the planting and maturation
of cranberry vines, the Company does not expect the proposed regulations, even
if adopted in their current form, to materially affect the near-term supply of
cranberries in Wisconsin.
Other than as set forth above, the Company does not expect existing federal,
state or local environmental or other governmental legislation or regulation to
have a material effect on its capital expenditures, results of operations or
competitive position in the near term.
MATERIALS AND SUPPLIES
Northland uses other natural fruit juices, such as white grape juice and
apple juice, to naturally sweeten its NORTHLAND brand 100% juice cranberry
blends. Northland also uses plastic bottles to package its branded and private
label juice products. From time to time these ingredients and materials may be
unavailable or in short supply. Prices of these ingredients and materials have
been, and Northland expects them to continue to be, subject to volatility. To
help protect against these circumstances, the Company maintains relationships
with multiple suppliers in multiple regions. Northland purchases its natural
juice ingredients and plastic bottles on an as needed basis on the spot market,
as well as through forward purchase contracts for certain ingredients. The
Company does not generally purchase commodity futures to mitigate against these
risks. See "Risk Factors--Availability and Prices of Certain Important
Ingredients and Raw Materials."
The Company purchases bottles, caps, flavorings, juices and packaging either
from its co-packers or independent third parties. The Company obtains a
significant amount of its materials and supplies necessary for its growing and
cultivation of cranberries, including water and sand, from resources located on
its own marshes. The Company also expects to continue purchasing substantially
all of its fertilizer and pesticides from its wholly-owned subsidiary. The
remainder of the Company's raw materials and supplies, including the materials
used to package the Company's fresh fruit, are purchased on the open market from
various sources.
TRADEMARKS AND FORMULAE
The Company owns the NORTHLAND trademark, which is registered in the United
States Patent and Trademark Office. The NORTHLAND trademark is important to the
Company in the sale of its branded fresh cranberries and cranberry juice
products, and the Company expects it to become increasingly more
44
<PAGE>
important as NORTHLAND brand 100% juice cranberry blends continue to grow in
market share and distribution.
NORTHLAND 100% juice cranberry blends utilize proprietary flavor
formulations. The Company attempts to ensure the confidentiality of these
formulations by shipping pre-mix to co-packers and by requiring its co-packers
to enter into confidentiality agreements. However, there can be no assurance
that the actions taken by the Company to protect its trademarks and formulas
will be adequate to prevent imitation of its products by others.
EMPLOYEES
As a result of the Minot Acquisition, the Company's full-time employees are
expected to increase from 210 at February 28, 1998 to approximately 415. The
Company hired approximately 109 additional seasonal workers during the 1997 crop
cultivation season. In addition to the seasonal employees hired for cultivating
cranberries, the Company hired approximately 335 seasonal workers to harvest the
Company's crop and approximately 142 seasonal employees to operate the Company's
cranberry processing and packaging facility from September through December
1997. The Company also had 17 full-time employees in sales and marketing as of
February 28, 1998. None of the Company's employees are unionized and the Company
believes its relationship with its employees is very good; however, Minot's
employees at its Bridgeton, New Jersey facility are unionized and are covered
under two separate collective bargaining agreements with the United Food and
Commercial Workers Union and the International Brotherhood of Teamsters. Both of
these collective bargaining agreements expired on May 15, 1998. Extensions of
the terms of these collective bargaining agreements are currently being
negotiated by Minot. Minot's employees are continuing their employment under the
terms of the expired collective bargaining agreement until renewed or new
agreements are entered into. The Company has been advised by Minot that it has
never experienced a strike or work stoppage. See "Risk Factors--Risk Relating to
the Minot Acquisition."
PROPERTIES
The Company owns its corporate offices in Wisconsin Rapids, Wisconsin
consisting of 12,300 square feet of office space on five acres of land. The
Company also owns a 10,000 square foot building and recently purchased a 40,000
square foot building, both in Wisconsin Rapids, which are used by certain
members of its administrative and operational staff.
The Company owns a 150,000 square foot receiving station and fresh fruit
packaging facility on 40 acres in Wisconsin Rapids. The facility is used to
clean and store the Company's processed cranberries. The facility is also used
to clean, store, sort and package the Company's fresh fruit. The facility
includes a 40,000 square foot cranberry receiving station and fresh fruit
packaging operation, 65,000 square feet of freezer warehousing and 45,000 square
feet of refrigerated storage.
The Company owns a 16,000 square foot juice concentrating facility adjacent
to the Company's current plant site in Wisconsin Rapids. The juice concentrating
facility provides Northland with the capacity to concentrate over 400,000
barrels of cranberries annually.
The Company owns a 49,000 square foot cranberry receiving station located on
a seven-acre parcel of land adjacent to the Hanson Division bogs. This facility
is used for the cleaning of the Company's Massachusetts cranberry crop.
Following the Minot Acquisition, the Company will own the Minot facilities
located in a 300,000 square foot building in Bridgeton, New Jersey
(approximately 60 miles southeast of Philadelphia, Pennsylvania), which include,
among other things: (i) an 80,000 square foot processing plant; (ii) a 93,000
square foot dry warehousing, receiving and shipping facility; (iii) four
cold-storage facilities totaling approximately 60,000 square feet; and (iv) a
50,000 square foot manufacturing and bottling facility.
The following table sets forth specific information about each of the
Company's 25 cranberry marshes as of February 28, 1998. All of the Company's
marshes are owned in fee simple or leased as indicated
45
<PAGE>
below, subject to mortgages (except for its Dandy Creek, Nantucket and Hills
Division Marshes and one of the two marshes in each of the Associate and
Crawford Creek Divisions). All of the Company's marshes have storage buildings
and repair shops for machinery, trucks and harvest and irrigation equipment
maintained at the marshes. Each of the Company's marshes has a house on site or
in close proximity to the site which serves as the marsh manager's residence and
most of the Company's marshes also have residences for assistant marsh managers.
Marsh acreage which is not included in "approximate planted acres" represents
support acreage and is not additional cranberry-growing capacity. All of the
Company's foregoing current facilities are suitable and adequate for the
Company's existing needs and the Company believes that, under current regulatory
restrictions, that it has optimized its ability to plant available acres on such
marsh with producing cranberry vines.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
----------------------------
APPROXIMATE CALENDAR YEAR
MARSH APPROXIMATE ACQUIRED OR
MARSH DIVISION NAME AND LOCATION ACRES(1) PLANTED ACRES LEASED
- ----------------------------------------------------------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
Associates Division (2 marshes), Jackson County, Wisconsin......................... 4,198 159 1983/1996
Meadow Valley Division, Jackson County, Wisconsin.................................. 2,150 76 1984
Fifield Division, Price County, Wisconsin.......................................... 2,460 196 1985
Three Lakes Division, Oneida County, Wisconsin..................................... 1,542 82 1985
Chittamo Division, Douglas and Washburn Counties, Wisconsin........................ 620 55 1985
Biron Division, Wood County, Wisconsin............................................. 473 212 1987
Warrens Division, Monroe County, Wisconsin......................................... 160 63 1987
Trego Division, Washburn County, Wisconsin......................................... 1,715 96 1988
Gordon Division, Douglas County, Wisconsin......................................... 880 149 1988
Mather Division, Juneau County, Wisconsin.......................................... 2,500 148 1989
Nekoosa Division (2 marshes), Wood County, Wisconsin............................... 569 85 1989
Nantucket Division (2 marshes), Nantucket County, Massachusetts (leased)........... 737 211 1990
Crawford Creek Division (2 marshes), Jackson County, Wisconsin..................... 304 135 1991
Hills Division, Jackson County, Wisconsin (leased)................................. 465 70 1991
Hanson Division (2 marshes), Plymouth County, Massachusetts........................ 2,025 322 1993
Yellow River (2 marshes), Juneau County, Wisconsin................................. 1,714 252 1994
Dandy Creek, Monroe County, Wisconsin.............................................. 350 55 1996
Manitowish Waters (2 marshes), Vilas County, Wisconsin............................. 345 182 1996
------ ------
Total............................................................................ 23,207 2,548
------ ------
------ ------
</TABLE>
- ------------------------------
(1) To the extent not planted, these acres provide additional support and
resources to the planted acres.
YEAR 2000 COMPLIANCE
The Company has assessed and continues to assess the impact of the Year 2000
issue on its operations. Based on such assessment, the Company believes that its
computer systems and programs are currently Year 2000 compliant in all material
respects. There can be no assurance that the Company's material customers,
suppliers, co-packers and brokers will all be Year 2000 compliant or that the
Company's operations will not be adversely effected if they are not compliant.
LITIGATION
The Company, in the ordinary course of business, is involved in various
legal proceedings. The Company is also currently subject to a Wisconsin
Department of Revenue audit of certain alleged potential unpaid state sales tax
obligations of the Company on its purchase of certain supplies, equipment and
materials from and after 1989. The Company does not believe the outcome of these
proceedings or sales tax audit will have a material adverse effect on the
Company's results of operations or financial condition.
46
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
As of February 28, 1998, each of the Company's directors and executive
officers is identified below together with information about each such
director's or officer's age, current position with the Company and employment
history for at least the past five years:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
- -------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
John Swendrowski.......... 49 Chairman of the Board, Chief Executive Officer and Director
Jerold D. Kaminski........ 41 President, Chief Operating Officer and Director
Robert E. Hawk............ 42 Executive Vice President and Director
John A. Pazurek........... 48 Vice President-Finance, Treasurer and Chief Financial Officer
William J. Haddow......... 50 Vice President-Purchasing, Transportation and Budget
Steven E. Klus............ 51 Vice President-Manufacturing
David J. Lukas............ 55 Vice President-Administration and Corporate Secretary
John Stauner.............. 35 Vice President-Agricultural Operations
John S. Wilson............ 47 Vice President-East Coast
LeRoy J. Miles............ 62 Director
Patrick F. Brennan........ 66 Director
Jeffrey J. Jones.......... 44 Director
John C. Seramur........... 55 Director
Pat Richter............... 56 Director
</TABLE>
MR. SWENDROWSKI originally founded the Company in May 1987 and served as
President and Chief Executive Officer from May 1987 to June 1997. Mr.
Swendrowski has been the Company's Chairman of the Board and Chief Executive
Officer since its founding in May 1987. Mr. Kaminski assumed the position of
President in June 1997 upon Mr. Kaminski's joining the Company.
MR. KAMINSKI joined the Company on June 9, 1997 as its President and Chief
Operating Officer in order to oversee the continued implementation of the
Company's MARSH TO MARKET strategy, particularly marketing and sales of the
NORTHLAND brand line of cranberry blend juices. Prior to joining the Company, he
served as the Senior Vice President and Director of Marketing for the Food
Service Division of General Mills Corporation since September 1993. Prior
thereto, Mr. Kaminski served as Marketing Director of the Gold Medal Division of
General Mills Corporation from September 1991 to September 1993 and as Marketing
Manager of the Gold Medal Division of General Mills Corporation from February
1989 to September 1991. Mr. Kaminski has been a director of the Company since
1994.
MR. HAWK joined the Company in January 1989 and currently serves as
Executive Vice President. Mr. Hawk served as the Company's Vice
President-Operations from January 1989 to January 1993, and as Vice
President-Sales, Marketing and Special Projects from January 1993 to October
1996. Mr. Hawk was promoted to Executive Vice President in October 1996.
MR. PAZUREK joined the Company in 1987 and currently serves as Vice
President-Finance, Chief Financial Officer and Treasurer. Mr. Pazurek served as
the Company's Controller and Principal Accounting Officer from May 1987 to May
1990, and was promoted to Vice President-Finance in May 1990 and was promoted
again to Treasurer in August 1993. Mr. Pazurek is a certified public accountant.
MR. HADDOW joined the Company in 1989 and currently serves as Vice
President-Purchasing, Transportation and Budget. Mr. Haddow served as the
Company's Assistant Vice President-Purchasing from 1989 to May 1993 and was
promoted to Vice President-Purchasing and Transportation in May 1993. Mr. Haddow
was promoted to Vice President-Purchasing, Transportation and Budget in October
1996.
MR. KLUS joined the Company in April 1996 and currently serves as Vice
President-Manufacturing. Mr. Klus served as Director of Strategic Product
Planning from April 1996 to October 1996. Mr. Klus was
47
<PAGE>
promoted to Vice President-Manufacturing in October 1996. Prior to joining the
Company, Mr. Klus was Eastern Division President of Seneca Foods Corporation
from 1990 until he joined the Company, with management responsibility for
overseeing Seneca's manufacturing operations and nine manufacturing facilities
on the east coast.
MR. LUKAS joined the Company in April 1992 and currently serves as Vice
President-Administration and Corporate Secretary. Mr. Lukas served as Vice
President of Human Resources and Corporate Counsel from April 1992 to August
1996. In May 1995, Mr. Lukas was promoted to Secretary and, in August 1996, he
was promoted to Vice President-Administration. Prior to joining the Company, he
practiced law in Wisconsin Rapids, Wisconsin for over 20 years.
MR. STAUNER joined the Company in 1987 and currently serves as Vice
President-Agricultural Operations. Mr. Stauner served as Assistant Vice
President of Operations from 1987 to May 1995, and as Vice President-Operations
from May 1995 to October 1996. Mr. Stauner was promoted to Vice President-
Agricultural Operations in October 1996.
MR. WILSON joined the Company in October 1993 and currently serves as Vice
President-East Coast. Mr. Wilson served as Vice President-East Coast Operations
from October 1993 to October 1996. Mr. Wilson was promoted to Vice
President-East Coast in October 1996. Prior to joining the Company, he served as
Manager-Grower Services at Ocean Spray in Lakeville, Massachusetts from 1988.
MR. MILES retired as Executive Vice President of the Company on December 31,
1994, and as Corporate Secretary on August 18, 1995, although he still provides
consulting services to the Company. Mr. Miles had held such executive positions
with the Company since May 1987.
MR. BRENNAN retired as President and Chief Executive Officer of Consolidated
Papers, Inc., Wisconsin Rapids, Wisconsin effective as of December 31, 1996, a
position he had held since October 1993. Prior thereto, he served as
Consolidated Papers, Inc.'s President and Chief Operating Officer for five
years, Executive Vice President for over one year and Corporate Vice President
for three years. He recently retired as a director of Consolidated Papers, Inc.
Mr. Brennan currently serves as a director of Betz Laboratories, Inc., Trevose,
Pennsylvania, a manufacturer of specialty chemicals.
MR. JONES has been a partner in the law firm of Foley & Lardner, Milwaukee,
Wisconsin, since January 1987, and has been associated with such firm since
1978. Foley & Lardner has been the Company's general outside legal counsel since
the Company's formation.
MR. SERAMUR has served as Vice Chairman of Associated Banc-Corp since
October 1997. For over 31 years prior thereto, Mr. Seramur served as President,
Chief Executive Officer and Chief Operating Officer of and First Financial Bank
and its parent corporation, First Financial Corporation, a thrift holding
company that merged with Associated Banc-Corp in October 1997. Mr. Seramur is
also a director of Associated Banc-Corp.
MR. RICHTER has been the Director of Athletics at the University of
Wisconsin-Madison since February 1990. Prior thereto, he served as Vice
President-Personnel of Oscar Mayer Foods Co. since 1988. Mr. Richter is also a
director of the Green Bay Packers, Inc., Anchor Bancorp Wisconsin Inc., Madison,
Wisconsin, a financial institution, and Outlook Group Corp., Neenah, Wisconsin,
a printing company.
48
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
SHARE OWNERSHIP
The following table sets forth certain information as of February 28, 1998,
regarding the beneficial ownership and voting power of the Class A Common Stock
(one vote per share) and the Class B Common Stock (three votes per share) held
by (i) each director and certain executive officers of the Company; (ii) all
directors and executive officers of the Company as a group; and (iii) each
person or entity known to the Company to be the beneficial owner of more than 5%
of either class of common stock. All of the persons or entities listed below are
believed by the Company to have sole voting and investment power over the Common
Stock identified as beneficially owned, except as indicated otherwise in the
footnotes to the table.
<TABLE>
<CAPTION>
CLASS A SHARES
BENEFICIALLY CLASS B SHARES PERCENTAGE OF PERCENTAGE OF
OWNED AND BENEFICIALLY AGGREGATE AGGREGATE
PERCENTAGE OF OWNED AND VOTING POWER VOTING POWER
CLASS BEFORE PERCENTAGE OF BEFORE THE AFTER THE
NAME OF INDIVIDUAL OR ENTITY OR NUMBER IN GROUP THE OFFERING CLASS(1) OFFERING(2) OFFERING(2)
- ----------------------------------------------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
John Swendrowski(3).................................. 384,362(4) 601,738(5) 14.2% 10.7%
(2.8)% (94.6)%
Jerold D. Kaminski................................... 30,812(6) -- * *
*
LeRoy J. Miles....................................... 72,671(7) 322,462(8) 1.2% *
* (50.7)%
Robert E. Hawk....................................... 470,660(9) -- 3.1% 2.3%
(3.5)%
John A. Pazurek...................................... 108,034(10) -- * *
*
David J. Lukas....................................... 58,800(11) -- * *
*
John C. Seramur...................................... 72,770(12) -- * *
*
Jeffrey J. Jones..................................... 24,400(13) -- * *
*
Patrick F. Brennan................................... 7,812(14) -- * *
*
Pat Richter.......................................... 1,000 -- * *
*
All directors and executive officers
as a group (14 persons)(15)........................ 1,376,567 636,202 20.7% 15.7%
(9.9)% (100.0)%
OTHER FIVE PERCENT HOLDERS
State of Wisconsin Investment Board(16).............. 1,267,600 -- 8.4% 6.3%
(9.6)%
Wellington Management Co. LLP(17).................... 802,600 -- 5.3% 4.0%
(6.1)%
David L. Babson & Co., Inc.(18)...................... 756,400 -- 5.0% 3.8%
(5.7)%
</TABLE>
- ------------------------
* Denotes less than 1%.
49
<PAGE>
(1) The number of shares beneficially owned by each shareholder is determined
under rules promulgated by the Securities and Exchange Commission ("SEC"),
and the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual or entity has sole or shared voting power
or investment power and also any shares which the individual or entity has
a right to acquire within 60 days of February 28, 1998 through the exercise
of any stock option, warrant or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
shareholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity. The outstanding Class B shares are convertible on a
share-for-share basis into Class A shares at any time at the discretion of
each holder. As a result, a holder of Class B shares is deemed to
beneficially own an equal number of Class A shares. However, in order to
avoid overstatement of the aggregate beneficial ownership of shares of both
classes of the Company's Common Stock, the Class A shares reported in the
table do not include Class A shares which may be acquired upon the
conversion of Class B shares. Similarly, the respective percentages of
outstanding Class A shares reported in the table have been determined with
respect to the total number of Class A shares outstanding on February 28,
1998, excluding Class A shares which may be issued upon conversion of Class
B shares.
(2) Applicable percentage of aggregate voting power before the offering is
based on 15,135,222 aggregate votes represented by shares of Class A Common
Stock and Class B Common Stock outstanding on February 28, 1998 and after
the offering is based on 20,142,104 aggregate votes represented by shares
of Class A Common Stock and Class B Common Stock outstanding as of the date
of this Prospectus as adjusted for this offering (but not adjusted to
reflect the number of shares to be issued in connection with the Minot
Acquisition).
(3) The address of Mr. Swendrowski is 800 First Avenue South, P.O. Box 8020,
Wisconsin Rapids, Wisconsin 54495-8020.
(4) The Class A shares listed include (i) 120,362 shares owned directly by Mr.
Swendrowski or members of his immediate family and (ii) 264,000 shares
which Mr. Swendrowski has the right to acquire upon the exercise of vested
stock options, but does not include 20,000 Class A shares which Mr.
Swendrowski has the right to acquire upon the exercise of vested stock
options granted on April 16, 1998.
(5) The Class B shares listed include (i) 313,740 shares owned directly by Mr.
Swendrowski and (ii) 287,998 shares held by Cranberries Limited, Inc.
("CLI"), a corporation owned by Messrs. Swendrowski and Miles and
controlled by Mr. Swendrowski.
(6) Includes 16,192 Class A shares which Mr. Kaminski has the right to acquire
upon the exercise of vested stock options, but does not include 20,000
Class A shares which Mr. Kaminski has the right to acquire upon the
exercise of vested stock options granted on April 16, 1998. The total does
not reflect the grant to Mr. Kaminski of 12,000 contractually restricted
Class A shares granted June 9, 1997 upon Mr. Kaminski joining the Company.
These shares will vest ratably in 3,000 share increments on each of the
next four anniversaries of Mr. Kaminski's hiring date, as long as Mr.
Kaminski remains employed by the Company on each respective vesting date.
(7) The Class A shares listed include (i) 21,677 shares owned directly by Mr.
Miles; (ii) 48,000 shares which Mr. Miles has the right to acquire upon the
exercise of vested stock options; and (iii) 2,994 shares held for the
account of Mr. Miles' wife.
(8) The Class B shares listed include the 287,998 shares which are deemed to be
beneficially owned by Mr. Miles as an officer and shareholder of CLI. Such
shares are also included under the number of Class B shares deemed to be
beneficially owned by Mr. Swendrowski. See note (4) above.
50
<PAGE>
(9) The Class A shares listed include (i) 288,200 shares owned directly by Mr.
Hawk; (ii) 472 shares owned by his wife; (iii) 19,946 shares held in his
IRA account; (iv) 10,042 held in his wife's IRA account; and (v) 152,000
shares which Mr. Hawk has the right to acquire upon the exercise of vested
stock options.
(10) Includes 86,000 Class A shares which Mr. Pazurek has the right to acquire
upon the exercise of vested stock options, but does not include 10,000
Class A shares which Mr. Pazurek has the right to acquire upon the exercise
of vested stock options granted on April 16, 1998.
(11) Includes 40,000 Class A shares which Mr. Lukas has the right to acquire
upon the exercise of vested stock options, but does not include 5,000 Class
A shares which Mr. Lukas has the right to acquire upon the exercise of
vested stock options granted on April 16, 1998.
(12) Includes 690 Class A shares which Mr. Seramur has the right to acquire upon
the exercise of vested stock options.
(13) Includes 3,794 Class A shares which Mr. Jones has the right to acquire upon
the exercise of vested stock options.
(14) Includes 2,912 Class A shares which Mr. Brennan has the right to acquire
upon the exercise of vested stock options.
(15) In determining the aggregate beneficial ownership of Class A shares and
Class B shares, respectively, for all directors and executive officers as a
group, shares of Common Stock which are deemed to be beneficially owned by
more than one person have been counted only once to avoid overstatement.
The number of Class A shares listed includes 742,834 Class A shares which
certain executive officers and directors have the right to acquire upon the
exercise of vested stock options, but does not include 55,000 Class A
shares which certain executive officers have the right to acquire upon the
exercise of vested stock options granted on April 16, 1998.
(16) The beneficial ownership information given is based on a Schedule 13G filed
by the indicated entity with the SEC on January 26, 1998. The address of
the indicated entity is P.O. Box 7842, Madison, Wisconsin 53707.
(17) The beneficial ownership information given is based on a Schedule 13G filed
by the indicated entity with the SEC on February 9, 1998. The address of
the indicated entity is 75 State Street, Boston, Massachusetts 02109.
(18) The beneficial ownership information given is based on a Schedule 13G filed
by the indicated entity with the SEC on January 20, 1998. The address of
the indicated entity is One Memorial Drive, Cambridge, Massachusetts
02142-1300.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
RELATIVE RIGHTS AND LIMITATIONS
The Company's authorized capital stock consists of 60,000,000 shares of
Class A Common Stock, $.01 par value, 4,000,000 shares of Class B Common Stock,
$.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par value. A total
of 13,233,498 shares of Class A Common Stock and 636,202 shares of Class B
Common Stock were outstanding as of the date of the Prospectus. None of the
Preferred Stock has been issued. The outstanding shares of Class A and Class B
Common Stock are, and the shares of Class A Common Stock to be issued and sold
by the Company in this offering will be, fully paid and nonassessable, except as
provided in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law
("WBCL"), which in general provides for personal liability on the part of
shareholders in an amount up to the par value of shares owned for the unpaid
wages of employees, but not exceeding six months' service in any one case. A
Wisconsin trial court decision interpreted this statute to extend liability up
to the original issue price, rather than the stated par value, of shares
purchased. While this decision was affirmed by the Wisconsin Supreme Court, the
precedential value of such affirmation is uncertain due to an equally divided
court.
The principal relative rights, privileges and limitations of the Company's
shares of Class A and Class B Common Stock and Preferred Stock are summarized
below. The following description of the Company's classes of capital stock does
not purport to be complete and is subject to, and qualified in its entirety by,
reference to the Company's Articles of Incorporation, as amended.
CLASS A AND CLASS B COMMON STOCK
The following discussion of the characteristics of the shares of Class A and
Class B Common Stock is qualified in its entirety by reference to the
description below of the Company's authorized but unissued Preferred Stock,
which could be issued with certain preferential rights over the shares of Class
A and Class B Common Stock.
The Class A shares are entitled to one vote per share and the Class B shares
are entitled to three votes per share on all matters presented to the Company's
shareholders. The holders of the Class A and Class B Common Stock will vote
together as a single class on all such matters presented to shareholders, except
that the Class A and Class B Common Stock will also each vote separately as a
class when required by the WBCL. See "Certain Statutory Provisions" below.
Holders of shares of Class A Common Stock are entitled to receive cash
dividends equal to at least 110% of any cash dividends paid on the shares of
Class B Common Stock. See "Price Range of Class A Common Stock." Holders of
Class B shares are entitled to receive cash dividends when and as declared by
the Board of Directors from funds legally available therefor under the WBCL.
Cash dividends may be paid on the Class A shares without a concurrent cash
dividend being paid on the Class B shares. Pursuant to the Company's Articles of
Incorporation, the Board of Directors must pay a dividend or distribution other
than in cash on the Class A shares in the same amount as any such noncash
dividend or distribution paid on the Class B shares. Each class of Common Stock
is entitled to receive shares of the same respective class issued pursuant to
stock dividends, stock splits and combinations in the same per share proportion
as that distributed on the other class of Common Stock.
The shares of Class A Common Stock have no conversion privileges. The shares
of Class B Common Stock are convertible at the option of the holder thereof, at
any time, into shares of Class A Common Stock on a share-for-share basis.
Additionally, the outstanding shares of Class B Common Stock will be
automatically converted into Class A shares on a share-for-share basis if, at
any time, the outstanding shares of Class B shares fall below 2% of the
outstanding shares of Class A shares. After the offering, the outstanding shares
of Class B Common Stock will constitute 3.5% of the outstanding Class A Common
Stock.
52
<PAGE>
Upon liquidation, dissolution or winding up of the Company, after payment of
all liabilities due creditors of the Company, the holders of the shares of Class
A Common Stock are entitled to receive $1.00 per share (subject to equitable
adjustment in the event of stock splits and other similar events) before any
payment or distribution may be made to holders of the shares of Class B Common
Stock. Thereafter, holders of the shares of Class B Common Stock are entitled to
receive $1.00 per share (subject to similar adjustment) before any further
payment or distribution is made to the holders of the Class A Common Stock.
Thereafter, holders of the Class A shares and Class B shares share on a pro rata
basis in all payments or distributions made upon liquidation, dissolution or
winding up of the Company.
There are no restrictions (other than obtaining the requisite corporate
approval) on additional issuances of shares of Class A Common Stock by the
Company. However, the Company may not issue any additional shares of shares of
Class B Common Stock (other than pursuant to stock dividends and stock splits as
described above) without the approval of a majority of the votes represented by
the outstanding shares of Class A and Class B Common Stock, each voting
separately as a class.
The holders of Class A and Class B Common Stock have no redemption
privileges or preemptive rights.
PREFERRED STOCK
There are 5,000,000 shares of Preferred Stock authorized for potential
issuance by the Company's Articles of Incorporation, none of which have been
issued. The Company's Board of Directors is authorized to issue from time to
time, without shareholder authorization, in one or more designated series,
Preferred Stock with such redemption, exchange, conversion, dividend,
liquidation and voting rights as may be specified in the particular series.
Dividends, if any, on any series of Preferred Stock are to be cumulative from
the date of issuance, payable at such rate and at such times as designated by
the Board of Directors for that series. No dividends or other distributions are
to be payable on the shares of Class A and Class B Common Stock unless dividends
are paid in full on the Preferred Stock and all sinking fund obligations for the
Preferred Stock, if any, are fully funded. In the event of a liquidation or
dissolution of the Company, the issued shares of Preferred Stock would have
priority over the shares of Class A and Class B Common Stock to receive the
amount specified in each particular series out of the remaining assets of the
Company. Additionally, the Board of Directors has authority, to the maximum
extent permitted by the WBCL, to fix and determine the relative rights and
preferences of each series of Preferred Stock. The issuance of one or more
series of Preferred Stock could have an adverse effect on certain rights,
including voting rights, of the holders of shares of Class A and Class B Common
Stock. The Company has no current plans or intention to issue shares of
Preferred Stock.
CERTAIN STATUTORY PROVISIONS
Under the WBCL, a separate class vote would generally be required to approve
an amendment to the Company's Articles of Incorporation (including an amendment
made as part of a proposed merger or other reorganization) if the amendment
would change in a manner prejudicial to the outstanding holders of a class, the
designations, preferences, limitations or other rights of the shares of the
class, and in certain other circumstances.
Section 180.1150 of the WBCL provides that the voting power of shares of
public Wisconsin corporations, such as the Company, held by any person or
persons acting as a group in excess of 20% of the voting power in the election
of directors is limited to 10% of the full voting power of those shares. This
statutory voting restriction does not apply to shares acquired directly from the
Company or shares for which full voting power has been restored pursuant to a
vote of shareholders.
Sections 180.1140 to 180.1144 of the WBCL (the "Wisconsin Business
Combination Statute") regulate a broad range of "business combinations" between
a Wisconsin corporation and an "interested stockholder." The Wisconsin Business
Combination Statute defines a "business combination" to include a
53
<PAGE>
merger or share exchange, sale, lease, exchange, mortgage, pledge, transfer or
other disposition of assets equal to at least 5% of the market value of the
stock or assets of a corporation or 10% of its earning power, issuance of stock
or rights to purchase stock with a market value equal to at least 5% of the
outstanding stock, adoption of a plan of liquidation, and certain other
transactions involving an "interested stockholder." An "interested stockholder"
is defined as a person who beneficially owns, directly or indirectly, 10% of the
voting power of the outstanding voting stock of a corporation or who is an
affiliate or associate of the corporation and beneficially owned 10% of the
voting power of the then outstanding voting stock within the last three years.
The Wisconsin Business Combination Statute prohibits a corporation from engaging
in a business combination (other than a business combination of a type
specifically excluded from the coverage of the statute) with an interested
stockholder for a period of three years following the date such person becomes
an interested stockholder, unless the board of directors approved the business
combination or the acquisition of the stock that resulted in a person becoming
an interested stockholder before such acquisition. Business combinations after
the three-year period following the stock acquisition date are permitted only if
(i) the board of directors approved the acquisition of the stock prior to the
acquisition date; (ii) the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by the interested stockholder;
or (iii) the consideration to be received by shareholders meets certain
requirements of the Wisconsin Business Combination Statute with respect to form
and amount.
Sections 180.1130 to 180.1133 of the WBCL provide that certain "business
combinations" not meeting specified adequacy-of-price standards must be approved
by a vote of at least 80% of the votes entitled to be cast by all shareholders
and by two-thirds of the votes entitled to be cast by shareholders other than a
"significant shareholder" who is a party to the transaction. The term "business
combination" is defined to include, subject to certain exceptions, a merger or
consolidation of the corporation (or any subsidiary thereof) with, or the sale
or other disposition of substantially all of the assets of the corporation to,
any significant shareholder or affiliate thereof. "Significant shareholder" is
defined generally to include a person that is the beneficial owner of 10% or
more of the voting power of the corporation.
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action Restrictions")
provides that, in addition to the vote otherwise required by law or the articles
of incorporation of an issuing public corporation, the approval of the holders
of a majority of the shares entitled to vote is required before such corporation
can take certain actions while a takeover offer is being made or after a
takeover offer has been publicly announced and before it is concluded. Under the
Wisconsin Defensive Action Restrictions, shareholder approval is required for
the corporation to (i) acquire more than 5% of its outstanding voting shares at
a price above the market price from any individual or organization that owns
more than 3% of the outstanding voting shares and has held such shares for less
than two years, unless a similar offer is made to acquire all voting shares or
(ii) sell or option assets of the corporation which amount to at least 10% of
the market value of the corporation, unless the corporation has at least three
independent directors or a majority of the independent directors vote not to
have this provision apply to the corporation. The restrictions described in
clause (i) above may have the effect of deterring a shareholder from acquiring
shares of the Company with the goal of seeking to have the Company repurchase
such shares at a premium over the market price.
The above sections of the WBCL, the existence of the Class B Common Stock
and the ability of the Company's Board of Directors to issue additional shares
of Class A Common Stock or Preferred Stock without further shareholder approval
(subject to any requirements necessary to maintain the quotation of the Class A
shares on the Nasdaq National Market) could have the effect, among others, of
discouraging takeover proposals for the Company or impeding a business
combination between the Company and a major shareholder of the Company. See
"Risk Factors--Certain Anti-takeover Considerations."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, NationsBanc Montgomery Securities LLC and Piper
Jaffray Inc., have severally agreed to purchase from the Company the following
respective numbers of shares of Class A Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BT Alex. Brown Incorporated.................................................
NationsBanc Montgomery Securities LLC.......................................
Piper Jaffray Inc...........................................................
Total................................................................... 5,000,000
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Class A Common Stock offered hereby if any of such
shares are purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Class A Common Stock to the
public at the public offering price set forth on the cover of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After this
offering, the public offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 750,000
additional shares of Class A Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Class A Common Stock to be
purchased by it shown in the above table bears to the total number of shares
offered by the Company hereunder, and the Company will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of the Class A Common Stock offered hereby. If purchased, the Underwriters
will offer such additional shares on the same terms as those on which the
5,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity between the
Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act.
The Company and each of its officers and directors have agreed, subject to
certain exceptions, not to offer to sell, contract to sell, transfer, engage in
any hedging transaction with respect to or otherwise dispose of any shares of
Class A Common Stock for a period of 90 days after the date of this Prospectus
without the prior written consent of BT Alex. Brown Incorporated. BT Alex. Brown
Incorporated may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to these lock-up agreements.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
55
<PAGE>
In connection with this offering, the Underwriters and other persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Class A Common Stock.
Specifically, the Underwriters may over-allot in connection with this offering,
creating a short position in Class A Common Stock for their own account. To
cover over-allotments or to stabilize the price of the Class A Common Stock, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in the
open market. The Underwriters may also impose a penalty bid whereby they may
reclaim selling concessions allowed to an Underwriter or a dealer for
distributing Class A Common Stock in this offering, if the Underwriters
repurchase previously distributed Class A Common Stock in transactions to cover
their short position in stabilization transactions or otherwise. Finally, the
Underwriters may bid for, and purchase, shares of Class A Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of the Class A Common Stock above market levels that may otherwise prevail. The
Underwriters are not required to engage in these activities and may end any of
these activities at anytime.
Piper Jaffray Inc. has in the past provided certain investment banking
services to the Company for customary fees, including advisory services in
connection with the Minot Acquisition. Piper Jaffray Inc., BT Alex. Brown
Incorporated or both of them and/or other Underwriters, may in the future
provide certain investment banking services to the Company.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Foley & Lardner, Milwaukee, Wisconsin, and for
the Underwriters by Buchanan Ingersoll, Princeton, New Jersey. Jeffrey J. Jones,
a partner of Foley & Lardner, is a director of the Company.
EXPERTS
The consolidated financial statements as of August 31, 1997 and 1996 and for
each of the years in the period ended August 31, 1997 and 1996, March 31, 1995
and for the five-month transition period ended August 31, 1995, included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports, which are included
and incorporated by reference herein which reports express an unqualified
opinion and include an explanatory paragraph referring to a change in the method
of deferring crop growing costs, and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Minot included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
56
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-3
under the Securities Act with respect to the Class A Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information filed by the Company with the
SEC may be inspected and copied at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following
regional offices of the SEC: Chicago Regional Office, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and New
York Regional Office, Seven World Trade Center, 13th Floor, New York, New York
10049. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. The SEC maintains an Internet web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC (http://www.sec.gov).
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the SEC pursuant to the Exchange Act
(File No. 0-16130) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
November 30, 1997
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1998.
4. All other reports filed by the Company with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act since August 31, 1997.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). Requests should be
directed to Brian P. Taber, Investor and Public Relations Manager, Northland
Cranberries, Inc., 800 First Avenue South, P.O. Box 8020, Wisconsin Rapids,
Wisconsin 54495-8020 (telephone number (715) 424-4444).
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-1
Consolidated Balance Sheets at August 31, 1997 and 1996.............................. F-2
Consolidated Statements of Operations for the Years Ended August 31, 1997 and 1996,
March 31, 1995, and Five-Month Transition Period Ended August 31, 1995............. F-3
Consolidated Statements of Shareholders' Equity for the Years Ended August 31, 1997
and 1996, March 31, 1995, and Five-Month Transition Period Ended August 31, 1995... F-4
Consolidated Statements of Cash Flows for the Years Ended August 31, 1997 and 1996,
March 31, 1995, and Five-Month Transition Period Ended August 31, 1995............. F-5
Notes to Consolidated Financial Statements........................................... F-6
Unaudited Consolidated Balance Sheets at February 28, 1998 and August 31, 1997....... F-18
Unaudited Consolidated Statements of Operations for the Six Months Ended February 28,
1998 and 1997...................................................................... F-19
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended February 28,
1998 and 1997...................................................................... F-20
Notes to Unaudited Consolidated Financial Statements................................. F-21
MINOT FOOD PACKERS, INC.
Report of Independent Certified Public Accountants................................... F-22
Balance Sheet at June 30, 1997....................................................... F-23
Statement of Income for the Year Ended June 30, 1997................................. F-24
Statement of Stockholders' Equity for the Year Ended June 30, 1997................... F-25
Statement of Cash Flows for the Year Ended June 30, 1997............................. F-26
Notes to Financial Statements........................................................ F-29
Unaudited Balance Sheet at February 28, 1998......................................... F-35
Unaudited Statement of Income for the Eight Months Ended February 28, 1998........... F-36
Unaudited Statement of Cash Flows for the Eight Months Ended February 28, 1998....... F-37
Notes to Unaudited Financial Statements.............................................. F-38
NORTHLAND CRANBERRIES, INC. AND MINOT FOOD PACKERS, INC.
Unaudited Consolidated Pro Forma Condensed Financial Statements...................... F-39
Unaudited Consolidated Pro Forma Condensed Balance Sheets at February 28, 1998....... F-40
Unaudited Consolidated Pro Forma Condensed Statement of Operations for the Year Ended
August 31, 1997.................................................................... F-41
Unaudited Consolidated Pro Forma Condensed Statement of Operations for the Six Months
Ended February 28, 1998............................................................ F-42
Notes to Unaudited Consolidated Pro Forma Condensed Financial Statements............. F-43
</TABLE>
58
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
and Board of Directors of Northland Cranberries, Inc.:
We have audited the accompanying consolidated balance sheets of Northland
Cranberries, Inc. and subsidiary as of August 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended August 31, 1997 and 1996, March 31, 1995 and for the five-month
transition period ended August 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Northland Cranberries, Inc. and
subsidiary at August 31, 1997 and 1996, and the results of their operations and
their cash flows for the years ended August 31, 1997 and 1996, March 31, 1995
and for the five-month transition period ended August 31, 1995, in conformity
with generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, effective
April 1, 1995, the Company changed its method of deferring crop growing costs.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
October 9, 1997 (April 21, 1998 as to Note 1--Net Income (Loss) Per Share)
F-1
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
1997 1996
----------- -----------
Current assets:
Cash and cash equivalents...................................... $ 230,668 $ 266,467
Accounts and notes receivable.................................. 6,995,595 2,631,434
Investments.................................................... 1,259,548 1,259,548
Inventories.................................................... 26,454,087 12,414,426
Prepaid expenses............................................... 1,715,351 921,673
Deferred income taxes.......................................... 3,035,486 1,123,949
----------- -----------
Total current assets....................................... 39,690,735 18,617,497
Property and equipment, net...................................... 138,273,041 122,489,101
Investments and other assets..................................... 2,968,634 4,378,021
----------- -----------
Total assets............................................... $180,932,410 $145,484,619
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 3,806,261 $ 2,592,765
Accrued liabilities............................................ 4,091,661 5,914,422
Current portion of long-term obligations....................... 3,647,000 3,560,000
----------- -----------
Total current liabilities.................................. 11,544,922 12,067,187
Long-term obligations............................................ 83,130,707 56,978,095
Deferred income taxes............................................ 9,445,856 7,380,556
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued.................................................. -- --
Common stock:
Class A, $.01 par value, 13,219,370 and 12,734,286 shares
issued and outstanding, respectively....................... 132,074 127,343
Class B, $.01 par value, 636,202 shares issued and
outstanding................................................ 6,362 6,362
Additional paid-in capital....................................... 67,888,801 60,183,370
Retained earnings................................................ 8,783,688 8,741,706
----------- -----------
76,810,925 69,058,781
----------- -----------
Total liabilities and shareholders' equity................. $180,932,410 $145,484,619
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS
---------------------------- ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, MARCH 31,
1997 1996 1995 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues............................................. $ 47,374,827 $ 37,607,845 $ 890,397 $ 21,783,966
Cost of sales........................................ 23,170,154 16,516,785 1,400,611 13,057,275
------------- ------------- ------------- -------------
Gross profit (loss).................................. 24,204,673 21,091,060 (510,214) 8,726,691
Costs and expenses:
Selling, general and administrative................ 15,963,109 7,020,416 1,907,841 2,439,978
Interest........................................... 4,493,104 2,657,067 1,919,544 3,654,006
------------- ------------- ------------- -------------
Total costs and expenses....................... 20,456,213 9,677,483 3,827,385 6,093,984
------------- ------------- ------------- -------------
Income (loss) before income taxes and cumulative
effect of change in accounting method.............. 3,748,460 11,413,577 (4,337,599) 2,632,707
Income taxes (benefit)............................... 1,516,000 4,509,000 (1,689,000) 1,051,000
------------- ------------- ------------- -------------
Income (loss) before cumulative effect of change in
accounting method.................................. 2,232,460 6,904,577 (2,648,599) 1,581,707
Cumulative effect of change in accounting method (net
of taxes of $806,000).............................. -- -- 1,249,469 --
------------- ------------- ------------- -------------
Net income (loss).................................... $ 2,232,460 $ 6,904,577 $ (1,399,130) $ 1,581,707
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per share--basic:
Income (loss) before cumulative effect of change in
accounting method................................ $ 0.16 $ 0.52 $ (0.28) $ 0.18
Cumulative effect of change in accounting method... -- -- 0.13 --
------------- ------------- ------------- -------------
Net income (loss) per share--basic................... $ 0.16 $ 0.52 $ (0.15) $ 0.18
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per share--diluted:
Income (loss) before cumulative effect of change in
accounting method................................ $ 0.16 $ 0.50 $ (0.28) $ 0.18
Cumulative effect of change in accounting method... -- -- 0.13 --
------------- ------------- ------------- -------------
Net income (loss) per share--diluted................. $ 0.16 $ 0.50 $ (0.15) $ 0.18
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares used in computing net income (loss) per share:
Basic.............................................. 13,736,906 13,311,004 9,128,016 8,586,869
Diluted............................................ 14,308,845 13,927,820 9,393,656 8,890,850
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED TREASURY
CLASS A CLASS B CAPITAL EARNINGS STOCK
---------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balances, April 1, 1994............................ $ 39,370 $ 3,181 $ 27,799,231 $ 5,287,208 $ (3,438)
Common stock issued for acquisition of cranberry
marshes (62,500 shares)........................ 625 -- 986,874 -- --
Stock options exercised.......................... 111 -- 82,084 -- 3,438
Tax benefit from exercise of stock options....... -- -- 39,404 -- --
Cash dividends paid:
$.14 per Class A share......................... -- -- -- (1,112,324) --
$.1272 per Class B share....................... -- -- -- (80,924) --
Net income....................................... -- -- -- 1,581,707 --
---------- --------- ------------- ------------- ---------
Balances, March 31, 1995........................... 40,106 3,181 28,907,593 5,675,667 --
Net proceeds from common stock offering
(2,000,000 shares)............................. 20,000 -- 26,381,133 -- --
Cash dividends paid:
$.06 per Class A share......................... -- -- -- (481,274) --
$.05455 per Class B share...................... -- -- -- (34,705) --
Net loss......................................... -- -- -- (1,399,130) --
---------- --------- ------------- ------------- ---------
Balances, August 31, 1995........................ 60,106 3,181 55,288,726 3,760,558
Net proceeds from common stock offering (300,000
shares)........................................ 3,000 -- 4,013,192 -- --
Common stock issued for acquisition of cranberry
marsh (16,807 shares).......................... 168 -- 399,832 -- --
Common stock issued for cranberries purchased
(29,443 shares)................................ 294 -- 417,796 -- --
Stock options exercised.......................... 103 -- 76,297 -- --
Tax benefit from exercise of stock options....... -- -- 54,380 -- --
Effect of two-for-one stock split................ 63,672 3,181 (66,853) -- --
Cash dividends paid:
$.145 per Class A share........................ -- -- -- (1,839,610) --
$.13175 per Class B share...................... -- -- -- (83,819) --
Net income....................................... -- -- -- 6,904,577 --
---------- --------- ------------- ------------- ---------
Balances, August 31, 1996.......................... 127,343 6,362 60,183,370 8,741,706 --
Common stock issued for acquisition of cranberry
marshes (269,014 shares)....................... 2,690 -- 5,166,930 -- --
Stock options exercised.......................... 2,041 -- 1,544,984 -- --
Tax benefit from exercise of stock options....... -- -- 993,517 -- --
Cash dividends paid:
$.16 per Class A share......................... -- -- -- (2,097,949) --
$.14544 per Class B share...................... -- -- -- (92,529) --
Net income....................................... -- -- -- 2,232,460 --
---------- --------- ------------- ------------- ---------
Balances, August 31, 1997.......................... $ 132,074 $ 6,362 $ 67,888,801 $ 8,783,688 $
---------- --------- ------------- ------------- ---------
---------- --------- ------------- ------------- ---------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS
---------------------------- ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, MARCH 31,
1997 1996 1995 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)................................... $ 2,232,460 $ 6,904,577 $ (1,399,130) $ 1,581,707
Cumulative effect of change in accounting method.... -- -- (1,249,469) --
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization..................... 5,242,804 4,151,448 1,481,176 3,094,708
(Gain) loss on disposal of property and
equipment....................................... (5,059) (25,236) 4,839 (8,331)
Changes in assets and liabilities:
Receivables, prepaid expenses and other current
assets........................................ (5,157,839) (2,256,715) 1,807,428 (1,350,824)
Inventories..................................... (14,039,660) (4,715,542) (5,178,107) (445,206)
Accounts payable and accrued liabilities........ (423,990) 4,031,250 163,632 1,847,874
Deferred income taxes........................... 1,516,000 1,289,000 (883,000) 910,000
------------- ------------- ------------- -------------
Net cash (used in) provided by operating
activities.................................. (10,635,284) 9,378,782 (5,252,631) 5,629,928
------------- ------------- ------------- -------------
Investing activities:
Property and equipment additions.................... (8,812,293) (14,480,765) (5,827,245) (8,716,881)
Proceeds on disposals of property and equipment..... 108,841 152,065 40,229 65,695
Acquisitions of cranberry operations................ (6,765,513) (7,279,818) (4,485,112) (5,046,097)
Net decrease in investments......................... 1,259,548 1,259,548 -- 1,259,548
Other............................................... (26,415) (214,018) (66,507) (145,412)
------------- ------------- ------------- -------------
Net cash used for investing activities........ (14,235,832) (20,562,988) (10,338,635) (12,583,147)
------------- ------------- ------------- -------------
Financing activities:
Proceeds from long-term debt........................ 31,850,000 15,000,000 14,800,000 14,350,000
Payments on long-term debt.......................... (5,610,388) (6,053,365) (24,803,303) (6,626,409)
Dividends paid...................................... (2,190,478) (1,923,429) (515,978) (1,193,248)
Net proceeds from common stock offering............. -- 4,016,192 26,401,133 --
Exercise of stock options........................... 987,650 76,400 -- 85,633
Other............................................... (201,467) (25,819) (153,265) (89,638)
------------- ------------- ------------- -------------
Net cash provided by financing activities..... 24,835,317 11,089,979 15,728,587 6,526,338
------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents.. (35,799) (94,227) 137,321 (426,881)
Cash and cash equivalents, beginning of period........ 266,467 360,694 223,373 650,254
------------- ------------- ------------- -------------
Cash and cash equivalents, end of period.............. $ 230,668 $ 266,467 $ 360,694 $ 223,373
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest (net of interest capitalized)............ $ 4,499,870 $ 2,716,788 $ 2,445,138 $ 3,323,440
Income taxes...................................... 525,000 2,768,000 -- 268,000
Supplemental disclosures of noncash investing and
financing activities (See Notes 5 and 7).
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--The business of Northland Cranberries, Inc. (the
"Company") consists principally of growing and selling cranberries and cranberry
products. In fiscal 1996 and 1995, the Company sold substantially all of its
crop harvested for processing to two independent fruit juice and sauce
processors for their packaging and resale as private label cranberry juice and
sauce, pursuant to contracts which expired on March 31, 1996. In 1993 the
Company first implemented its "from marsh to market" vertical integration
business strategy when it began selling its own Northland brand fresh
cranberries. In fiscal 1996 the Company continued to further this business
strategy with the introduction of its own Northland brand 100% cranberry juice
blends. The Company's vertical integration business strategy includes marketing
and selling frozen fruit, cranberry concentrate and processed branded and
private label cranberry products. The Company sells its products throughout the
United States, although it also sells fresh fruit and cranberry concentrate in
Europe.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, Wildhawk, Inc.
("Wildhawk"). Wildhawk provides chemicals, fertilizers and crop management
services to cranberry growers. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS--Cash equivalents include amounts due from banks and highly
liquid debt instruments purchased with maturities of three months or less.
INVENTORIES--Inventories, which primarily consist of cranberries, juice,
concentrates, packaging supplies, fertilizer and chemical products and deferred
crop costs, are stated at the lower of cost or market. Deferred crop costs
consist of those costs related to the growing of the crop which will be
harvested in the following fiscal year (see also Note 2). Inventories are stated
at lower of cost or market using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost, less
depreciation and amortization computed on the straight-line method over the
estimated useful lives. The costs related to the development of new productive
cranberry beds are capitalized during the development period until commercial
production is achieved (generally the fifth growing season after planting).
Amounts included in construction in progress include construction costs of beds,
dikes and ditches, irrigation systems and costs associated with vine clippings
planted. In addition, during the development period, certain direct and indirect
operating costs are capitalized in construction in progress. The estimated
useful lives are 30-40 years for buildings, land improvements, cranberry vines,
bulkheads and irrigation equipment, and 5-10 years for other depreciable assets.
GOODWILL--Goodwill is amortized using the straight-line method over 40
years. Accumulated amortization at August 31, 1997 and 1996 was $220,668 and
$196,968, respectively. The Company assesses the carrying value of goodwill at
each balance sheet date. Consistent with Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," such assessments include, as
appropriate, a comparison of the estimated future nondiscounted cash flows
anticipated to be generated during the remaining amortization period of the
goodwill to the net carrying value of goodwill. The Company recognizes
diminution in value of goodwill, if any, on a current basis.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires an asset and liability approach to financial accounting
and reporting for income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company believes the carrying
amount of its financial instruments (cash and cash equivalents, accounts
receivable, accounts payable, and notes payable) is a reasonable estimate of the
fair value of these instruments.
REVENUES--The Company realizes revenues from six main sources: sales of
branded juice, concentrate, fresh fruit, frozen fruit, vine clippings sold to
other growers and fertilizer and chemical sales from Wildhawk to other growers.
In addition, the Company carries insurance against crop losses due to hail
damage and other perils.
NET INCOME (LOSS) PER SHARE--Basic net income (loss) per share is computed
by dividing net income (loss) by the weighted average number of common shares
outstanding. Diluted net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding
increased by the number of dilutive potential common shares based on the
treasury stock method. During fiscal 1998 the Company adopted statement of
Financial Accounting Standards No. 128 "Earnings Per Share" and accordingly all
net income (loss) per share amounts for all periods presented have been
restated.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain amounts previously reported have been
reclassified to conform with the current presentation.
ACCOUNTING STANDARDS TO BE ADOPTED--In 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
129, "Disclosure of Information about Capital Structure;" SFAS No. 130,
"Reporting Comprehensive Income;" SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Company is currently in the process
of evaluating the accounting and disclosure effects of these Statements.
2. CHANGE IN ACCOUNTING METHOD
Effective April 1, 1995, the Company changed its method of deferring crop
growing costs to conform with the provisions of Statement of Position 85-3
"Accounting by Agricultural Producers and Agricultural Cooperatives" which had
not been previously adopted by the Company. This change was made to defer crop
growing costs based on a November 1 to October 31 crop year, which management
believes is its natural crop year. Historically, the Company had deferred
certain crop costs based on a crop year of April 1 through October 31. This
change resulted in an increase in net income for the five months ended August
31, 1995 of $1,249,000 (net of income taxes of $806,000), reflecting the
cumulative effect of this change for periods prior to April 1, 1995. The pro
forma effects for the year ended March 31, 1995,
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
2. CHANGE IN ACCOUNTING METHOD (CONTINUED)
assuming the change had been in effect throughout the year, would have been to
increase net income by $195,000, or $0.02 per share.
3. CHANGE IN FISCAL YEAR
The Company changed its fiscal year end from March 31 to August 31 in order
to correspond the Company's fiscal year with the new annual business cycle
resulting from the implementation of its strategy to begin marketing and selling
value-added processed consumer cranberry products. This change in fiscal year
end also better matches the costs and expenses associated with growing each
year's crop with the expected revenues to be generated from the sales of the
consumer products produced from such crop.
4. STOCK SPLIT
On June 26, 1996, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% stock dividend distributed on
September 3, 1996 to shareholders of record on August 15, 1996. Shareholders'
equity has been adjusted by reclassifying from additional paid-in capital to
common stock the par value of the additional shares arising from the split. In
addition, all references in the financial statements to per share amounts, stock
option data and market prices of the Company's stock have been restated.
5. ACQUISITIONS
On September 13, 1994, the Company acquired three productive cranberry bogs
and certain of the associated assets of Yellow River Cranberry Company and Wolfe
Cranberry Company for $18,000,000 plus 62,500 shares of Class A Common Stock.
The purchase price was paid through the delivery of $5,000,000 cash and 62,500
shares of Class A Common Stock upon closing and the issuance of $13,000,000 in
promissory notes. The promissory notes were fully paid as of August 31, 1996.
On June 6, 1995, the Company purchased two productive cranberry bogs and
certain of the associated assets of United Cape Cod Cranberry Limited
Partnership for $14,706,000. The purchase price was paid in cash. The Company
had leased this property from September 13, 1993 until the date of purchase.
On March 15, 1996, the Company acquired the productive cranberry bog and
certain of the associated assets of Mariposa II Cranberries for $3,050,000. The
purchase price was paid through the delivery of $2,050,000 cash and the issuance
of a $1,000,000 promissory note. This promissory note was paid during June 1996.
On July 8, 1996, the Company acquired the productive cranberry bog and
certain of the associated assets of the Koller Cranberry Company for $4,900,000.
The purchase price was paid through the delivery of $4,400,000 cash and 16,807
shares of Class A Common Stock.
On September 27, 1996, the Company acquired the productive cranberry bog and
certain of the associated assets of John E. McFarland & Sons, Inc. for
$7,850,000. The purchase price was paid through the delivery of $4,850,000 cash
and 169,014 shares of Class A Common Stock.
On December 30, 1996, the Company acquired the productive cranberry bog and
certain of the associated assets of Vanatta Cranberry Company LLC for
$4,350,000. The purchase price was paid through the delivery of $2,175,000 cash
and 100,000 shares of Class A Common Stock.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
5. ACQUISITIONS (CONTINUED)
The acquisitions were recorded using the purchase method of accounting and,
accordingly, the results of operations of the acquired businesses are included
in the statements of operations from the date of acquisition. The pro forma
effects, assuming the fiscal 1997 acquisitions had occurred on September 1,
1995, were not significant.
6. INVENTORIES
Inventories at August 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 6,274,305 $ 1,692,403
Finished goods................................................. 9,001,810 1,399,335
Deferred crop costs............................................ 11,177,972 9,322,688
------------- -------------
26,454,087 $ 12,414,426
------------- -------------
------------- -------------
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Land......................................................... $ 7,548,486 $ 7,351,596
Land improvements............................................ 14,709,554 12,346,400
Cranberry vines, bulkheads and irrigation equipment.......... 72,153,272 59,607,337
Buildings and improvements................................... 17,627,758 12,986,763
Equipment and vehicles....................................... 33,428,680 23,727,102
Construction in progress..................................... 16,397,639 25,079,393
-------------- --------------
161,865,389 141,098,591
Less accumulated depreciation and amortization............... 23,592,348 18,609,490
-------------- --------------
$ 138,273,041 $ 122,489,101
-------------- --------------
-------------- --------------
</TABLE>
The Company capitalized $1,398,092, $1,531,405, $557,065 and $1,065,164 of
interest for the years ended August 31, 1997 and 1996, five-month transition
period ended August 31, 1995, and the year ended March 31, 1995, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
8. INVESTMENTS AND OTHER ASSETS
Investments and other assets at August 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Investments....................................................... $ -- $ 1,259,548
Leasehold interests, net.......................................... 1,039,395 1,197,277
Goodwill, net..................................................... 734,010 757,710
Other............................................................. 1,195,229 1,163,486
------------ ------------
$ 2,968,634 $ 4,378,021
------------ ------------
------------ ------------
</TABLE>
On August 31, 1993, the Company terminated its membership in the Ocean Spray
marketing cooperative. Upon termination, Ocean Spray common stock held by the
Company was converted into Ocean Spray 4% preferred stock of equal value and
both the preferred stock and notices of allocation are being redeemed over a
five-year period. Remaining payments of $1,259,548 will be received in fiscal
1998.
9. ACCRUED LIABILITIES
Accrued liabilities at August 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Compensation and other employee benefits.......................... $ 1,038,134 $ 2,870,565
Property taxes.................................................... 469,832 518,181
Interest.......................................................... 331,828 338,594
Commissions....................................................... 320,733 59,678
Income taxes...................................................... 181,976 338,332
Other............................................................. 1,749,158 1,789,072
------------ ------------
$ 4,091,661 $ 5,914,422
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
10. NOTES PAYABLE AND LONG-TERM OBLIGATIONS
Long-term debt at August 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Credit agreement with a bank:
Revolving credit facility.................................... $ 41,500,000 $ 10,050,000
Acquisition credit facility.................................. 7,950,000 9,600,000
Term loan.................................................... 8,400,000 9,450,000
Term loan.................................................... 2,760,000 3,680,000
Term loan.................................................... 3,428,000 4,000,000
Term loan payable to insurance company with interest at
8.69%........................................................ 13,641,173 14,267,752
Term loan payable to insurance company with interest at
7.85%........................................................ 9,098,534 9,490,343
------------- -------------
86,777,707 60,538,095
Less current portion........................................... 3,647,000 3,560,000
------------- -------------
$ 83,130,707 $ 56,978,095
------------- -------------
------------- -------------
</TABLE>
On August 31, 1994, the Company entered into a credit agreement with a bank,
which was subsequently amended on June 7, 1995, November 4, 1996 and October 3,
1997, and provides for a secured revolving credit facility of $75,000,000 and
three secured term credit facilities in the amounts of $4,600,000, $4,000,000
and $10,500,000. The revolving credit facility terminates on December 31, 2000.
However, the Company may request annual extensions. If the Company does not
extend the termination date of the revolving credit facility, all amounts
outstanding under the term loans become payable on the revolving credit facility
termination date. Interest on amounts outstanding under the revolving credit
facility is payable at the bank's domestic rate, the bank's offered rate, or an
adjusted LIBOR rate plus an applicable rate margin, at the option of the
Company. Interest on amounts outstanding under the secured term credit
facilities and secured acquisition credit facility is payable at the bank's
domestic rate, the bank's offered rate, or an adjusted LIBOR rate plus an
applicable rate margin, at the option of the Company. Amounts outstanding under
the first and third secured term credit facilities are due in semi-annual
payments of $460,000 and $525,000, respectively. Amounts outstanding under the
second secured term credit facility are due in semi-annual payments of $286,000
and a final payment of $1,998,000. The Company must pay a commitment fee on the
average daily unused amount of the revolving credit facility.
The amount of unused available borrowings under the amended credit
facilities was $25,550,000 at August 31, 1997.
The 8.69% term loan with an insurance company is payable in semi-annual
installments of $926,562, including interest, through July 1, 2004. The interest
rate will be adjusted in fiscal year 1999, as determined by the insurance
company, but the adjusted rate will not exceed 2.25% over the then five-year
treasury bond yield.
The 7.85% term loan with an insurance company is payable in semi-annual
installments of $564,630, including interest, through August 1, 2008. The
interest rate will be adjusted in fiscal years 1998 and 2003,
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
10. NOTES PAYABLE AND LONG-TERM OBLIGATIONS (CONTINUED)
as determined by the insurance company, but the adjusted rate will not exceed
2.25% over the then five-year treasury bond yield.
Substantially all assets of the Company are pledged as collateral for its
borrowings. The Company's loan agreements require, among other things, that the
Company maintain a certain level of shareholders' equity, ($73,000,000 at August
31, 1997), debt-to-equity ratio and "fixed charge coverage ratio," as defined.
In addition, the agreements place restrictions on the repurchase of stock and do
not allow total cash dividend payments or other distributions, as defined, to
exceed $.04 per Class A share during each quarter in fiscal 1998 and in any
fiscal year thereafter to exceed 50% of the Company's net income for such fiscal
year.
The aggregate scheduled future maturities of long-term obligations for the
next five fiscal years ending August 31 are as follows:
<TABLE>
<S> <C>
1998........................................................... $3,647,000
1999........................................................... 3,742,000
2000........................................................... 10,806,000
2001........................................................... 50,864,000
2002........................................................... 1,535,000
Thereafter..................................................... 16,183,707
----------
$86,777,707
----------
----------
</TABLE>
11. SHAREHOLDERS' EQUITY
The Company is authorized to issue 5,000,000 shares of preferred stock with
a par value of $.01.
The authorized common stock of the Company consists of 60,000,000 shares of
Class A Common Stock and 4,000,000 shares of Class B Common Stock. Outstanding
Class B shares are convertible into Class A shares on a one-for-one basis at any
time. The shares of Class A Common Stock are entitled to one vote per share and
the shares of Class B Common Stock are entitled to three votes per share.
Holders of Class A Common Stock are entitled to receive cash dividends equal to
at least 110% of any cash dividends paid on the shares of Class B Common Stock.
However, cash dividends may be paid on Class A Common Stock without a concurrent
cash dividend being paid on the Class B Common Stock. If at any time the
outstanding shares of Class B Common Stock fall below 2% of the outstanding
shares of Class A Common Stock, they will be automatically converted into Class
A Common Stock.
In August 1995, the Company issued 2,000,000 shares of Class A Common Stock
through a public offering, resulting in net proceeds of approximately
$26,401,000. The Company issued an additional 300,000 shares of Class A Common
Stock in September 1995 pursuant to the Underwriters exercise of its
over-allotment option granted in connection with the August public stock
offering, resulting in net proceeds of approximately $4,016,000.
On July 22, 1996, the Company filed a Form S-4 Registration Statement
("shelf registration") with the Securities and Exchange Commission. The
Registration Statement covers up to 1,000,000 shares of Class A Common Stock of
the Company which may be issued from time to time in connection with
acquisitions by the Company of businesses or properties, or interests therein.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
11. SHAREHOLDERS' EQUITY (CONTINUED)
At August 31, 1997, 2,822,720 shares of Class A Common Stock were reserved
for issuance under the Company's stock option plans, conversion of Class B
Common Stock to Class A Common Stock and the shelf registration.
12. STOCK OPTIONS
In 1987, the Company adopted the 1987 Stock Option Plan (the "1987 Plan"),
which provides for the issuance of 275,000 shares of Class A Common Stock
options to certain executive officers and key employees. Stock options granted
under the 1987 Plan are exercisable at a price equal to market value on the date
of grant for a period determined by the Board of Directors, not to exceed 10
years.
In fiscal 1990, the Company adopted the 1989 Stock Option Plan (the "1989
Plan"), which provides for the issuance of 600,000 shares of Class A Common
Stock options to key employees and directors of the Company. Stock options
granted under the 1989 Plan are exercisable at a price established by the Board
of Directors, which shall not be less than 85% of the market value on the date
of grant for a period determined by the Board of Directors, not to exceed 10
years.
During the five-month transition period ended August 31, 1995, the Company
adopted the 1995 Stock Option Plan (the "1995 Plan"), which provides for the
issuance of 800,000 shares of Class A Common Stock to key employees and
non-employee directors of the Company. Stock options granted under the 1995 Plan
are exercisable at a price established by the Compensation and Stock Option
Committee, which shall not be less than 100% of the fair market value on the
date of grant for a period determined by the Compensation and Stock Option
Committee, not to exceed 10 years.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
PRICE RANGE SHARES EXERCISE PRICE
----------------- ---------- -----------------
<S> <C> <C> <C>
Outstanding at April 1, 1994.................................... $ 2.63 - $ 9.38 680,284 $ 4.42
Granted....................................................... 7.75 - 8.75 97,034 8.70
Exercised..................................................... 2.63 - 7.38 (23,260) 3.68
Cancelled..................................................... 2.63 - 8.63 (9,772) 4.75
----------------- ---------- ------
Outstanding at March 31, 1995................................... 2.63 - 9.38 744,286 4.99
Granted....................................................... 7.25 - 7.25 85,000 7.25
Cancelled..................................................... 3.13 - 8.63 (5,234) 5.97
----------------- ---------- ------
Outstanding at August 31, 1995.................................. 2.63 - 9.38 824,052 5.22
Granted....................................................... 10.88 - 17.75 273,662 10.95
Exercised..................................................... 2.63 - 8.75 (20,560) 3.72
Cancelled..................................................... 3.88 - 8.75 (8,000) 6.96
----------------- ---------- ------
Outstanding at August 31, 1996.................................. 2.63 - 17.75 1,069,154 6.70
Granted....................................................... 12.94 - 18.50 61,500 17.48
Exercised..................................................... 3.75 - 10.88 (204,070) 4.84
Cancelled..................................................... 7.25 - 18.50 (10,800) 12.56
----------------- ---------- ------
Outstanding at August 31, 1997.................................. $ 2.63 - $18.50 915,784 $ 7.77
----------------- ---------- ------
----------------- ---------- ------
Shares exercisable at August 31, 1997........................... $ 2.63 - $17.75 826,484 $ 7.12
----------------- ---------- ------
----------------- ---------- ------
Available for grant after August 31, 1997....................... 489,748
----------
----------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
12. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at August 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- -------------------------
SHARES WEIGHTED SHARES
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT AUGUST REMAINING AVERAGE AT AUGUST AVERAGE
RANGE OF 31, CONTRACTUAL EXERCISE 31, EXERCISE
EXERCISE PRICES 1997 LIFE-YEARS PRICE 1997 PRICE
- ----------------- ------------ --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$2.63 - $ 6.00... 398,150 3.2 $ 4.06 392,150 $ 4.04
6.01 - 10.00.. 194,472 6.3 8.09 169,472 8.12
10.01 - 18.50.. 323,162 8.2 12.15 264,862 11.02
- ----------------- --
------------ ----------- ------------ -----------
$2.63 - $18.50... 915,784 5.6 $ 7.77 826,484 $ 7.12
- ----------------- --
- ----------------- --
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
In Fiscal 1997, the Company adopted the disclosure requirements of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Company has elected to continue to follow the
provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued
to Employees" and its related interpretations; accordingly, no compensation cost
has been reflected in the financial statements for its stock option plan. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of SFAS 123, the Company's net income and net income per share would
have been reduced to the pro forma amounts indicated below (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net Income:
As reported..................................................... $ 2,232,000 $ 6,905,000
Pro forma....................................................... $ 2,124,000 $ 6,037,000
Net Income per share--diluted:
As reported..................................................... $ 0.16 $ 0.50
Pro forma....................................................... $ 0.15 $ 0.44
</TABLE>
For the purpose of these disclosures, the fair value of each option granted
was estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions: expected volatility of 34.2%;
risk-free interest rate of 6.2%; 0.93% dividend rate during the expected term;
and an expected life of 9 years.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
13. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, AUGUST 31, MARCH 31,
1997 1996 1995 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Currently payable:
Federal............................ $ -- $ 2,997,000 $ -- $ 141,000
State.............................. -- 223,000 -- --
------------ ------------ ------------- ------------
-- 3,220,000 -- 141,000
Deferred:
Federal............................ 1,274,000 944,000 (1,368,000) 721,000
State.............................. 242,000 345,000 (321,000) 189,000
------------ ------------ ------------- ------------
1,516,000 1,289,000 (1,689,000) 910,000
------------ ------------ ------------- ------------
$ 1,516,000 $ 4,509,000 $ (1,689,000) $ 1,051,000
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of August 31, 1997 and 1996
consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards......................................... $ 2,979,000 $ 955,000
AMT tax credits and other carryforwards........................ 3,552,000 3,676,000
------------ -------------
6,531,000 4,631,000
------------ -------------
Deferred tax liabilities:
Cranberry sales................................................ 299,000 459,000
Depreciation and amortization.................................. 12,642,000 10,429,000
------------ -------------
12,941,000 10,888,000
------------ -------------
Net deferred tax liability....................................... $ 6,410,000 $ 6,257,000
------------ -------------
------------ -------------
</TABLE>
At August 31, 1997, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $7,597,000, which expire at various
dates through 2012.
A reconciliation of the Federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, AUGUST 31, MARCH 31,
1997 1996 1995 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Statutory tax rate............................ 34.0% 34.0% 34.0% 34.0%
State income taxes, net of Federal tax
benefit..................................... 5.2 5.2 5.2 5.3
Other, net.................................... 1.2 0.3 (0.3) 0.6
--- --- --- ---
Effective tax rate............................ 40.4% 39.5% 38.9% 39.9%
--- --- --- ---
--- --- --- ---
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
14. LEASE COMMITMENTS
On April 10, 1990, the Company acquired leasehold interests in two cranberry
marshes in Nantucket, Massachusetts. On March 31, 1994, the Company entered into
an agreement which extended the original lease term through November 30, 2003.
The unamortized cost of the leasehold interests are being amortized over the
extended lease term on a straight-line basis. Accumulated amortization of the
leasehold interests at August 31, 1997 and 1996 was $1,167,726 and $1,009,843,
respectively. Rental payments are based on 20 percent of gross cash receipts
from agricultural production, subject to certain minimums which are dependent
upon the state-wide average crop yield. Rent expense for the years ended August
31, 1997 and 1996, five-month transition period ended August 31, 1995, and the
year ended March 31, 1995 was $262,796 and $261,166, $0 and $338,984,
respectively.
On September 5, 1991 the Company entered into a net lease with Equitable
Life Assurance Society of the United States ("Equitable") for Cranberry Hills
cranberry marsh, which Equitable purchased on May 3, 1991 from Cranberry Hills
Partnership ("Cranberry Hills"), a partnership controlled by the Company's CEO
and two former directors. The lease, which expires December 31, 2000, provides
for rent payments of $284,625 in year one and increasing to $380,875 in year
nine with a final payment of $214,906 on June 1, 2000. The lease grants the
Company a right of first refusal to purchase the leased premises or to renew the
lease on terms Equitable is prepared to accept from a bona fide third party. The
purchase agreement also provides for payments to Cranberry Hills of 25% of the
premises income, if any, during the term of the lease with Equitable. The amount
expensed in fiscal 1997 and 1996, the five-month transition period ending August
31, 1995 and fiscal 1995 was $85,598, $64,079, $0 and $8,973, respectively.
The future minimum annual payments on noncancelable operating lease
agreements for the next three fiscal years ending August 31 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 376,000
1999............................................................ 371,000
2000............................................................ 401,000
---------
$1,148,000
---------
---------
</TABLE>
The above table does not include any amounts for potential minimum payments
under the Nantucket leasehold interest described above, because such amounts, if
any, are not presently determinable.
15. SUPPLY CONTRACTS
The Company has entered into multiple-year crop purchase contracts, with 27
independent cranberry growers pursuant to which the Company has contracted to
purchase all of the cranberry crop produced on 1,557 planted acres owned by
these growers.
16. 401(k) RETIREMENT PLAN
Effective January 1, 1996, the Company established a 401(k) savings plan
that covers substantially all full-time employees. The Company contributes
amounts based on employee contributions under this plan. The cost of the
Company's contributions to this plan for fiscal 1997 and 1996 was $126,867 and
$63,182, respectively.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1997 AND 1996, MARCH 31, 1995
AND FIVE-MONTH TRANSITION PERIOD ENDED AUGUST 31, 1995
17. SIGNIFICANT CUSTOMERS
As discussed in Note 1, the Company had supply agreements to sell the
majority of its product to two independent fruit juice and sauce processors.
After delivery of the 1995 crop, these agreements expired.
In fiscal years 1997 and 1996, the Company had sales of approximately
$5,797,000 and $4,700,000, or 12.2% and 12.5%, respectively, of net sales to one
customer.
F-17
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1998 AND AUGUST 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
FEBRUARY
28, AUGUST 31,
1998 1997
----------- -----------
Current assets:
Cash and cash equivalents...................................... $ 206,983 $ 230,668
Accounts and notes receivable.................................. 16,490,707 6,995,595
Investments.................................................... -- 1,259,548
Inventories.................................................... 37,414,012 26,454,087
Prepaid expenses............................................... 2,760,639 1,715,351
Deferred income taxes.......................................... 3,035,486 3,035,486
----------- -----------
Total current assets......................................... 59,907,827 39,690,735
Property and equipment--at cost.................................. 166,123,631 161,865,389
Less accumulated depreciation.................................. 26,539,970 23,592,348
----------- -----------
Net property and equipment..................................... 139,583,661 138,273,041
Leasehold interests, net......................................... 960,453 1,039,395
Other............................................................ 2,096,931 1,929,239
----------- -----------
Total assets................................................. $202,548,872 $180,932,410
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 5,013,248 $ 3,806,261
Accrued liabilities............................................ 7,352,909 4,091,661
Current portion of long-term obligations....................... 3,844,000 3,647,000
----------- -----------
Total current liabilities.................................... 16,210,157 11,544,922
Long-term obligations............................................ 100,783,842 83,130,707
Deferred income taxes............................................ 9,574,079 9,445,856
----------- -----------
Total liabilities............................................ 126,568,078 104,121,485
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued.................................................. -- --
Common stock:
Class A, $.01 par value, 13,219,370 and 12,734,286 shares
issued and outstanding, respectively....................... 132,141 132,074
Class B, $.01 par value, 636,202 shares issued and
outstanding................................................ 6,362 6,362
Additional paid-in capital....................................... 67,945,969 67,888,801
Retained earnings................................................ 7,896,322 8,783,688
----------- -----------
75,980,794 76,810,925
----------- -----------
Total liabilities and shareholders' equity................... $202,548,872 $180,932,410
----------- -----------
----------- -----------
</TABLE>
See notes to unaudited consolidated financial statements.
F-18
<PAGE>
NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Revenues........................................................................... $ 48,726,754 $ 24,433,489
Cost of sales...................................................................... 26,016,742 11,172,972
------------- -------------
Gross profit....................................................................... 22,710,012 13,260,517
Costs and expenses:
Selling, general and administrative.............................................. 18,975,651 6,334,579
Interest......................................................................... 3,341,583 1,909,505
------------- -------------
Total costs and expenses....................................................... 22,317,234 8,244,084
------------- -------------
Income before income taxes......................................................... 392,778 5,016,433
Income taxes....................................................................... 176,000 1,988,000
------------- -------------
Net income......................................................................... $ 216,778 $ 3,028,433
------------- -------------
------------- -------------
Basic income per share............................................................. $ 0.02 $ 0.22
------------- -------------
------------- -------------
Diluted income per share........................................................... $ 0.02 $ 0.21
------------- -------------
------------- -------------
</TABLE>
See notes to unaudited consolidated financial statements.
F-19
<PAGE>
NORTHLAND CRANBERRIES. INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Operating activities:
Net income........................................................................ $ 216,778 $ 3,028,433
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization................................................... 3,157,976 2,445,346
Changes in assets and liabilities:
Receivables and other current assets.......................................... (9,280,852) (6,159,051)
Inventories................................................................... (10,959,925) (7,133,246)
Accounts payable and accrued liabilities...................................... 4,468,235 1,223,877
Deferred income taxes......................................................... 128,223 1,601,839
------------- -------------
Net cash used for operating activities...................................... (12,269,565) (4,991,902)
------------- -------------
Investing activities:
Acquisitions of cranberry operations.............................................. 0 (6,765,513)
Property and equipment additions.................................................. (4,265,077) (5,271,051)
Investments....................................................................... 0 1,201,886
Other............................................................................. (118,951) (762,757)
------------- -------------
Net cash used for investing activities...................................... (4,384,028) (11,597,429)
------------- -------------
Financing activities:
Increase in debt.................................................................. 17,850,135 18,330,238
Dividends paid.................................................................... (1,104,144) (1,088,646)
Exercise of stock options......................................................... 57,235 732,000
Other............................................................................. (173,318) (169,582)
------------- -------------
Net cash provided by financing activities................................... 16,629,908 17,804,007
------------- -------------
Net (decrease) increase in cash and cash equivalents................................ (23,685) 1,214,676
Cash and cash equivalents, beginning of period...................................... 230,668 266,467
------------- -------------
Cash and cash equivalents, end of period.................................... $ 206,983 $ 1,481,143
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information
Cash paid during the period for--
Interest (net of interest capitalized).......................................... $ 3,385,242 $ 1,918,765
</TABLE>
See notes to unaudited consolidated financial statements.
F-20
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of the Company, the
foregoing statements contain all adjustments necessary to present fairly the
financial position of the Company as of February 28, 1998, and its results of
operations and cash flows for the six-month period ended February 28, 1998 and
1997, respectively. The Company's consolidated balance sheet as of August 31,
1997 included herein has been taken from the Company's audited financial
statements of that date included in the Company's latest annual report.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements can be
read in conjunction with the financial statements and the notes thereto included
in the Company's latest annual report.
The Company periodically reviews long-lived assets to assess recoverability
and impairments will be recognized in operating results if a permanent
diminution in value were to occur.
F-21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Minot Food Packers, Inc.
Bridgeton, New Jersey
We have audited the accompanying balance sheet of Minot Food Packers, Inc.
as of June 30, 1997, and the related statements of income, stockholder's equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Minot Food Packers, Inc. as
of June 30, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
August 12, 1997,
except for Note 4, which is as of September 4, 1997,
and Note 5, which is as of October 28, 1997.
F-22
<PAGE>
MINOT FOOD PACKERS, INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS (NOTES 4 AND 5)
Current assets
Accounts receivable
Trade, net of allowance for doubtful accounts of $105,612.................. $2,319,991
Related party (Note 9)..................................................... 119,750
Inventories (Note 1)......................................................... 7,305,334
Prepaid expenses and other current assets.................................... 89,907
----------
Total current assets..................................................... 9,834,982
----------
Property, plant and equipment, net (Note 2).................................. 8,804,124
----------
Other assets
Deferred costs, net of accumulated amortization of $267,988 (Note 3)....... 372,504
Deferred financing costs, net of accumulated amortization of $75,146....... 182,200
Cash surrender value of life insurance..................................... 17,853
----------
Total other assets....................................................... 572,557
----------
$19,211,663
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Note payable, bank (Note 4).................................................. $2,510,424
Checks issued against future deposits........................................ 1,028,354
Accounts payable............................................................. 3,328,679
Current maturities of long-term debt (Note 5)................................ 919,838
Current maturities of subordinated debt (Note 6)............................. 17,036
Accrued expenses............................................................. 635,912
----------
Total current liabilities.................................................. 8,440,243
----------
Other liabilities
Long-term debt, net of current maturities (Note 5)........................... 8,926,844
Subordinated debt, net of current maturities (Note 6)........................ 535,229
----------
Total other liabilities.................................................... 9,462,073
----------
Total liabilities.......................................................... 17,902,316
----------
Commitments (Notes 7 and 8)
Stockholder's equity
Common stock, no par value
Authorized 5,000 shares
Issued 2,440 shares........................................................ --
Additional paid-in capital................................................... 489,933
Retained earnings............................................................ 4,153,837
----------
4,643,770
Less treasury stock, at cost, 2,196.5 shares................................... (3,334,423)
----------
Total stockholder's equity............................................... 1,309,347
----------
$19,211,663
----------
----------
</TABLE>
See accompanying Independent Auditors' Report, summary of significant
accounting policies and notes to financial statements.
F-23
<PAGE>
MINOT FOOD PACKERS, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C>
Net sales (Note 10)............................................................ $41,454,067
Cost of products sold.......................................................... 33,709,956
----------
7,744,111
----------
Operating expenses
Selling...................................................................... 2,302,621
Brokerage.................................................................... 876,986
General and administrative................................................... 2,450,145
----------
Total operating expense........................................................ 5,629,752
----------
Income from operations......................................................... 2,114,359
----------
Other income (expense)
Interest expense............................................................. (1,131,461)
Miscellaneous income......................................................... 197,972
----------
Other (expense), net........................................................... (933,489)
----------
Net income..................................................................... $1,180,870
----------
----------
</TABLE>
See accompanying Independent Auditors' Report, summary of significant
accounting policies and notes to financial statements.
F-24
<PAGE>
MINOT FOOD PACKERS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY
------------------------ PAID-IN RETAINED STOCK
SHARES AMOUNT CAPITAL EARNINGS AT COST
----------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996................................ 2,440 $ -- $ 489,933 $ 2,972,967 $ (3,334,423)
Net Income............................................ -- -- 1,180,870 --
----- ----- ---------- ------------ -------------
Balance, June 30, 1997................................ 2,440 $ -- $ 489,933 $ 4,153,837 $ (3,334,423)
----- ----- ---------- ------------ -------------
----- ----- ---------- ------------ -------------
</TABLE>
See accompanying Independent Auditors' Report, summary of significant
accounting policies and notes to financial statements.
F-25
<PAGE>
MINOT FOOD PACKERS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C>
Operating activities
Net income.................................................................... $1,180,870
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization............................................... 892,428
Amortization of intangibles................................................. 141,219
Provision for doubtful accounts............................................. (70,682)
Changes in operating assets and liabilities
(Increase) in accounts receivable............................................. (249,891)
(Increase) in inventories..................................................... (748,850)
(Increase) in accounts receivable, related party.............................. (119,750)
Decrease in prepaid expenses.................................................. 66,270
(Increase) in deferred costs.................................................. (21,701)
(Decrease) in accounts payable................................................ (1,330,722)
Increase in accrued expenses.................................................. 46,401
Increase in checks issued against future deposits............................. 895,263
----------
Net cash provided by operating activities....................................... 680,855
----------
Investing activities
Purchases of property, plant and equipment.................................... (804,377)
Increase in cash surrender value of life insurance............................ (2,055)
----------
Net cash (used in) investing activities......................................... (806,432)
----------
Financing activities
Advances on note payable, bank................................................ 38,665,933
Repayments of note payable, bank.............................................. (38,155,508)
Principal payments on long-term debt.......................................... (370,480)
Principal payments on subordinated debt....................................... (14,368)
----------
Net cash provided by financing activities....................................... 125,577
----------
Change in cash.................................................................. $ --
Cash, beginning of year......................................................... $ --
Cash, end of year............................................................... $ --
----------
Supplemental disclosure of cash flow information
Cash paid during the year for interest........................................ $1,130,155
----------
----------
</TABLE>
See accompanying Independent Auditors' Report, summary of significant
accounting policies and notes to financial statements.
F-26
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEAR ENDED JUNE 30, 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY--Minot Food Packers, Inc. ("Minot" or the "Company") is engaged
in the production and packing of cranberry sauce, fruit juices and juice drinks
for wholesale distribution predominantly in the northeast corridor of the United
States. The Company also performs copacking services of similar products for
certain major retailers of fruit juices and juice drinks.
INVENTORIES--Inventories are stated at the lower of cost or market using the
weighted average cost method.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Depreciation and amortization are computed over the estimated useful lives
of the respective assets using straight-line and accelerated methods. Upon sale
or retirement of assets, the costs and accumulated depreciation and amortization
are eliminated from the accounts and the resulting gain or loss is included in
operations. Expenditures for repairs and maintenance which do not increase the
useful lives of the assets are charged to operations as incurred.
DEFERRED FINANCING COSTS--Costs incurred in connection with long-term
financing have been capitalized and are being amortized over the term of the
related debt. Amortization expense for the year ended June 30, 1997 was $37,572.
DEFERRED COSTS--Costs incurred in connection with label redesign and
preferred slotting arrangements have been capitalized and are being amortized on
a straight-line basis over their estimated useful lives of 15 and 4 years,
respectively.
Fees associated with the development of computer software have been
capitalized and are being amortized on a straight-line basis over 1 to 3 years.
INCOME TAXES--Deferred income taxes are recorded for temporary differences
between: (1) taxable income and pre-tax financial income and (2) the tax bases
of assets or liabilities and their reported amounts in the financial statements.
The Company, with the consent of its stockholder, elected to have its income
taxed under the S Corporation provisions of the Internal Revenue Code, which
provides that, in lieu of corporation income taxes, the stockholder is taxed on
the Company's taxable income. Therefore, no provision or liability for federal
income taxes is reflected in these financial statements.
DEFINED BENEFIT PENSION COSTS--Pension costs are calculated to charge
operations with the pension benefits available to plan participants during the
time the plan participants are employed. The components of pension cost include
the following: contributions, amortization of prior service costs, interest
costs and the net return on assets.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CREDIT RISK--The Company reviews a customer's credit history before
extending credit and establishes an allowance for doubtful accounts based upon
the credit risk of specific customers, historical trends and other information.
Generally, the Company does not require collateral from its customers.
F-27
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's
financial instruments, consisting of receivables, notes payable and accounts
payable, approximate their fair value because of the immediate or short-term
maturity of these financial instruments. Long-term debt and subordinated debt
are based on quoted market prices or where quoted market prices are not
available on the present value of cash flow, discounted at estimated borrowing
rates for similar debt instruments.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company assesses the recoverability of
fixed assets and intangibles based on undiscounted estimated future operating
cash flows. If the Company determines that the carrying values have been
impaired, the measurement and recognition of the impairment will be based on
estimated discounted future operating cash flows. As of June 30, 1997, the
carrying value of these assets has been determined not to be impaired.
F-28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1997
1. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30,
1997
------------
<S> <C>
Raw materials................................................................... $ 3,205,990
Finished goods.................................................................. 2,101,191
Packaging material, supplies and labels......................................... 1,998,153
------------
$ 7,305,334
------------
------------
</TABLE>
2. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES, JUNE 30,
IN YEARS 1997
--------------- -------------
<S> <C> <C>
Land............................................................. -- $ 135,792
Land improvements................................................ 5-39 402,399
Buildings and building improvements.............................. 5-39 3,734,060
Machinery and equipment.......................................... 5-15 12,695,600
Warehouse and warehouse equipment................................ 3-39 1,860,589
Office equipment, furniture and fixtures......................... 3-10 405,496
Transportation equipment......................................... 3-7 105,704
-------------
19,339,640
Less accumulated depreciation and amortization................... 10,535,516
-------------
$ 8,804,124
-------------
-------------
</TABLE>
Depreciation and amortization expense was $892,428 for the year ended June
30, 1997.
3. DEFERRED COSTS
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Label design and redesign......................................................... $ 336,787
Slotting fees..................................................................... 119,576
Computer software................................................................. 184,129
----------
640,492
Less accumulated amortization..................................................... 267,988
----------
$ 372,504
----------
----------
</TABLE>
As a result of mandated Nutritional Labeling and Education Act (NLEA),
regulations effective August 1994, the Company incurred substantial costs in the
design and engineering of product labels. The costs associated with the redesign
have been deferred and are being amortized over a fifteen-year period.
F-29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997
3. DEFERRED COSTS (CONTINUED)
The Company has also paid fees to retail customers to secure desirable shelf
locations for Company products. These so-called slotting fees are being
amortized over the estimated terms of the related agreements, four years.
Total amortization expense was $103,645 for the year ended June 30, 1997.
4. NOTE PAYABLE, BANK
The Company has borrowed $2,510,424 under a $3,500,000 line of credit with a
bank. Interest was payable at the bank's prime rate plus 1% (effectively 9.5% at
June 30, 1997) with borrowings collateralized by substantially all assets of the
Company. The line of credit agreement, as amended on September 4, 1997, reduced
the interest rate charged the Company to the bank's prime rate plus 1/2% and
extended the line to September 30, 1998.
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30,
1997
------------
<S> <C>
Bridge loan, payable to a bank, in the original amount of $5,500,000. On
December 31, 1996, the Company signed an amended and restated mortgage note
which reduced the original note to $4,500,000 and created a $1,000,000 term
loan (see below). The new mortgage note is payable in 35 monthly installments
of $18,750 commencing January 1, 1997 through November 1, 1999 with any
remaining principal payable on the 36th and final payment. Interest was
payable at the bank's prime rate plus 1% (effectively 9.50% at June 30, 1997)
through October 30, 1997, at which time the Company's borrowing rate was
reduced to the bank's prime rate plus 1/2%.................................... $ 4,500,000
Equipment loan, payable to a bank in 120 monthly installments of $38,655
including interest at 9.4%, due August 2005................................... 2,647,707
Term loan, payable to a bank in 36 monthly installments of $12,695 including
interest at 9.05%, due August 1998............................................ 880,399
Term loan, payable to a bank, commencing February 1, 1997 in 18 monthly
principal installments of $8,333 through July 1998 with any remaining amount
payable on August 1, 1998. Interest is payable at the bank's prime rate plus
1% (effectively 9.50% at June 30, 1997)....................................... 1,000,000
Note payable, to a bank, in monthly installments of $6,844 plus interest at 70%
of the bank's prime rate (effectively 5.95% at June 30, 1997)................. 417,366
Restrictive covenant notes payable to former stockholders in monthly
installments of $8,333 including interest through 2002 with interest of
12%........................................................................... 401,210
------------
9,846,682
Less current maturities......................................................... 919,838
------------
$ 8,926,844
------------
------------
</TABLE>
F-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997
5. LONG-TERM DEBT (CONTINUED)
All of the above debt (except for the restrictive covenant notes) are
collateralized by substantially all assets of the Company.
Annual maturities on long-term debt for subsequent years are as follows:
<TABLE>
<CAPTION>
JUNE 30,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 919,838
1999............................................................................ 2,280,464
2000............................................................................ 4,363,140
2001............................................................................ 461,355
2002............................................................................ 500,826
Thereafter...................................................................... 1,321,059
------------
$ 9,846,682
------------
------------
</TABLE>
The Company was not in compliance of the current ratio and working capital
covenants related to the above bank notes at June 30, 1997. The lender has
agreed to waive the covenants which were the subject of such noncompliance as at
June 30, 1997. Additionally, certain covenants including the above mentioned
have been modified and made less restrictive for fiscal 1998 and thereafter,
effective September 4, 1997.
6. SUBORDINATED DEBT
Term loan payable to the Estate of John P. Morello, unsecured, due in
monthly installments over twenty years, with interest calculated at the prime
rate of Citibank, N.A., adjusted annually (effectively 8.25% at August 5, 1996),
current monthly principal and interest payment of $5,164. Loan is subordinated
to all bank debt, however, regularly scheduled payments of principal and
interest are allowable under the subordination agreement.
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
$ 552,265
Less current maturities........................................................... 17,036
----------
$ 535,229
----------
----------
</TABLE>
Annual maturities on long-term debt for subsequent years are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 17,036
1999.............................................................................. 18,495
2000.............................................................................. 20,081
2001.............................................................................. 21,801
2002.............................................................................. 23,670
Thereafter........................................................................ 451,182
----------
$ 552,265
----------
----------
</TABLE>
F-31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997
7. PENSION PLANS
The Company has a defined benefit pension plan covering substantially all
union employees. The benefits are based on years of service. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future. Plan assets consist primarily of
cash equivalents and marketable securities.
Pension expense for the year ended June 30, 1997 included the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
-------------
<S> <C>
Service costs of the current period............................................ $ 56,525
Interest cost on the projected benefit obligation.............................. 53,241
Actual return on assets held in the plan....................................... (52,878)
Net amortization of transition asset, and net experience gain.................. (11,008)
-------------
Net periodic pension cost...................................................... $ 45,880
-------------
-------------
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30,
1997
----------
<S> <C>
Actuarial present value of benefit obligations
Vested benefit obligation....................................................... $ 761,778
Projected benefit obligation.................................................... 836,093
----------
----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
Costs recognized at June 30, 1997
Projected benefit obligation................................................... $ 836,093
Plan assets at fair value...................................................... 657,569
-----------
Projected benefit obligation in excess of plan assets............................ (178,524)
Unrecognized net asset at transition being recognized over 26.12 years........... (100,019)
Unrecognized prior service cost.................................................. 45,627
Unrecognized net loss from past experience different from assumptions............ 183,111
Minimum required liability adjustment............................................ (128,719)
-----------
Accrued pension cost included in other current liabilities at June 30, 1997...... $ (178,524)
-----------
-----------
</TABLE>
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation was
7% for 1997. The expected long-term rate of return on assets was 8% for the year
ended June 30, 1997.
On July 1, 1988, the Company adopted a profit sharing plan under Section
401(k) of the Internal Revenue Code which covers substantially all non-union
employees. The plan allows employees to defer up to 21% of their compensation on
a pre-tax basis, subject to a statutory dollar limitation. In accordance with
F-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997
7. PENSION PLANS (CONTINUED)
the provisions of the plan, the Company may make discretionary matching
contributions. For the year ended June 30, 1997, the total charge to operations
for discretionary contributions was $21,501.
In addition to the expense for the Company-sponsored plans, the Company had
pension expense of $21,780 in 1997 for contributions to a frozen multi-employer
defined benefit plan which, covered substantially all union employees, as
determined by a collective bargaining agreement. The relative position of the
Company regarding the accumulated plan benefits and plan net assets of the
multi-employer plan has not been determined by the Company and is not included
in the above information.
8. COMMITMENTS
The Company leases transportation and office equipment under noncancelable
operating leases with various expiration dates through July 2001.
The aggregate future minimum lease commitments relating to noncancelable
operating leases as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30, TOTAL
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 23,488
1999............................................................................... 15,863
2000............................................................................... 5,894
2001............................................................................... 4,440
2002............................................................................... 370
---------
$ 50,055
---------
---------
</TABLE>
Rent expense for the year ended June 30, 1997 was $37,496.
On August 5, 1996, the Company entered into a two-year supply agreement with
a vendor for the annual purchase of a minimum of 40,000 barrels of cranberries
at a minimum price of $90 per barrel.
9. RELATED PARTY TRANSACTIONS
The Company contracts for freezer warehousing space with Bridgeton Freezer
Co., L.L.C. (Bridgeton), a company whose owner is the parent of the sole
stockholder of Minot. Included in cost of sales is $226,806 for warehousing
services provided to the Company for the year ended June 30, 1997.
The Company also charged Bridgeton $99,000 for contract labor associated
with freezer warehousing staffing for the year ended June 30, 1997.
10. SIGNIFICANT CUSTOMER
Sales to one customer for the year ended June 30, 1997 totaled approximately
$5,830,000 or 14% of total sales.
F-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1997
11. INCOME TAXES
The provision for income taxes reflects the utilization of the net operating
loss carryforwards as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------
<S> <C>
Current tax expense
State income taxes........................................................... $ 124,000
Benefit of operating loss carryforward....................................... $ (124,000)
-------------
Total current.................................................................. $ --
-------------
-------------
</TABLE>
The Company has deferred tax assets of approximately $219,000 as of June 30,
1997 related to state net operating loss carryforwards, which have yet to be
utilized. At June 30, 1997, the Company has established a 100% valuation
allowance against the deferred tax assets since the recognition of this benefit
cannot be certain. The utilization of these losses to reduce future income taxes
will depend upon the generation of sufficient taxable income prior to the
expiration of the net operating loss carryforwards.
The Company has the following approximate state carryforwards available to
offset future taxable income and related tax liabilities at June 30, 1997:
<TABLE>
<CAPTION>
NET OPERATING
EXPIRATION DATE LOSS CARRYFORWARD
- --------------------------------------------------------------------------- -----------------
<S> <C>
2002....................................................................... $ 444,000
2003....................................................................... 2,275,000
-----------------
$ 2,719,000
-----------------
-----------------
</TABLE>
F-34
<PAGE>
MINOT FOOD PACKERS, INC.
UNAUDITED BALANCE SHEET
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable:
Trade, net of allowance for doubtful accounts of $105,612.................. $2,125,303
Related party.............................................................. 70,535
Inventories.................................................................. 8,831,209
Prepaid expenses and other current assets.................................... 300,460
Deferred income taxes........................................................ 17,772
----------
Total current assets................................................... 11,345,279
----------
Property, plant and equipment, net............................................. 8,673,294
----------
Other assets:
Deferred costs, net of accumulated amortization of $364,629.................. 420,742
Deferred financing costs, net of accumulated amortization of $86,469......... 170,877
Cash surrender value of life insurance....................................... 17,853
----------
Total other assets..................................................... 609,472
----------
Total assets........................................................... $20,628,045
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable, bank........................................................... $2,897,146
Checks issued against future deposits........................................ 1,355,668
Accounts payable............................................................. 3,653,415
Current maturities of long-term debt......................................... 2,333,937
Current maturities of subordinated debt...................................... 18,000
Accrued expenses............................................................. 455,226
----------
Total current liabilities.............................................. 10,713,392
----------
Other liabilities
Long-term debt, net of current maturities.................................... 6,825,664
Subordinated debt, net of current maturities................................. 523,261
Deferred income taxes........................................................ 106,171
----------
Total other liabilities................................................ 7,455,096
----------
Total liabilities...................................................... 18,168,488
----------
Stockholder's equity:
Common stock, no par value
Authorized 5,000 shares
Issued 2,440 shares........................................................ --
Additional paid-in capital................................................... 489,933
Retained earnings............................................................ 5,304,047
----------
5,793,980
Less treasury stock, at cost, 2,196.5 shares................................... (3,334,423)
----------
Total stockholder's equity..................................................... 2,459,557
----------
Total liabilities and stockholder's equity..................................... $20,628,045
----------
----------
</TABLE>
See accompanying note to unaudited financial statements.
F-35
<PAGE>
MINOT FOOD PACKERS, INC.
UNAUDITED STATEMENT OF INCOME
EIGHT MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<S> <C>
Net sales...................................................................... $28,630,842
Cost of products sold.......................................................... 22,427,800
----------
6,203,042
----------
Operating expenses:
Selling...................................................................... 2,247,743
Brokerage.................................................................... 571,955
General and administrative................................................... 1,429,109
----------
Total operating expense................................................ 4,248,807
----------
Income from operations......................................................... 1,954,235
----------
Other income (expense):
Interest expense............................................................. (757,440)
Miscellaneous income......................................................... 41,814
----------
Other (expense), net........................................................... (715,626)
----------
Net income before taxes........................................................ 1,238,609
Income tax expense............................................................. 88,399
----------
Net income..................................................................... $1,150,210
----------
----------
</TABLE>
See accompanying note to unaudited financial statements.
F-36
<PAGE>
MINOT FOOD PACKERS, INC.
UNAUDITED STATEMENT OF CASH FLOWS
EIGHT MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<S> <C>
Operating activities
Net income................................................................... $ 1,150,210
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization.............................................. 589,836
Amortization of intangibles................................................ 107,964
Deferred income taxes...................................................... 88,399
Changes in operating assets and liabilities
Decrease in accounts receivable.......................................... 194,688
(Increase) in inventories................................................ (1,525,875)
Decrease in accounts receivable, related party........................... 49,215
(Increase) in prepaid expenses........................................... (210,553)
(Increase) in deferred costs............................................. (144,879)
Increase in accounts payable............................................. 324,736
(Decrease) in accrued expenses........................................... (180,686)
Increase in checks issued against future deposits........................ 327,314
-----------
Net cash provided by operating activities...................................... 770,369
-----------
Investing activities
Purchases of property, plant and equipment................................... (459,006)
-----------
Financing activities
Advances on note payable, bank............................................... 26,748,227
Repayments of note payable, bank............................................. (26,361,505)
Principal payments on long-term debt......................................... (687,081)
Principal payments on subordinated debt...................................... (11,004)
-----------
Net cash (used in) financing activities........................................ (311,363)
-----------
Change in cash................................................................. --
Cash, beginning of period...................................................... --
-----------
Cash, end of period............................................................ $ --
-----------
-----------
Supplemental disclosure of cash flow information
Cash paid during the year for interest....................................... $ 755,356
-----------
-----------
</TABLE>
See accompanying note to unaudited financial statements.
F-37
<PAGE>
MINOT FOOD PACKERS, INC.
NOTE TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Company, the foregoing statements
contain all adjustments necessary to present fairly the financial position of
the Company as of February 28, 1998, and its results of operations, cash flows
and stockholders' equity for the eight month period ended February 28, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements can be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest audit report.
F-38
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited consolidated pro forma condensed balance sheet
combines the consolidated condensed balance sheet of Northland as of February
28, 1998 and the condensed balance sheet of Minot as of February 28, 1998. The
following unaudited consolidated pro forma condensed statements of operations
combine the consolidated condensed statements of operations of Northland for the
year ended August 31, 1997 and for the six months ended February 28, 1998, with
the condensed statements of Minot for the year ended June 30, 1997 and the six
months ended February 28, 1998, as if the transactions had occurred at the
beginning of the respective periods. The pro forma information is based on the
historical financial statements of Northland and Minot, giving effect to the
transaction under the purchase method of accounting, and the assumptions and
adjustments in the accompanying notes to the pro forma consolidated condensed
financial statements.
The unaudited pro forma consolidated condensed balance sheet and the pro
forma consolidated condensed statements of operations have been prepared by
Northland management based upon the financial statements of Northland and Minot
for the periods indicated, including an estimated preliminary allocation of the
purchase price. Northland is in the process of determining the fair value of the
assets acquired at the date of acquisition. The allocations of the purchase
price assigned to the assets acquired and liabilities is based upon preliminary
estimates and will be revised (possibly materially) when the final fair value
allocations are determined, as will the related income tax effects of the pro
forma adjustments.
The pro forma net income per common share, the pro forma consolidated
condensed operations statements and the pro forma consolidated condensed balance
sheet data are presented for informational purposes only and are not necessarily
indicative either of what the Company's actual results of operations would have
been after giving effect to the assumptions referred to above or of the
Company's future consolidated financial position or results of operations.
F-39
<PAGE>
NORTHLAND CRANBERRIES, INC. AND MINOT FOOD PACKERS, INC.
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED BALANCE SHEETS
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
HISTORICAL
-----------------------
NORTHLAND MINOT
FEBRUARY FEBRUARY PRO FORMA
28, 1998 28, 1998 ADJUSTMENTS(A) PRO FORMA
----------- ---------- ----------- -----------
Current assets:
Cash and cash equivalents........ $ 206,983 $ 206,983
Accounts and notes receivable.... 16,490,707 $2,195,838 $ (70,535)(d) 18,616,010
Inventories...................... 37,414,012 8,831,209 46,245,221
Prepaid expenses................. 2,760,639 300,460 3,061,099
Deferred income taxes............ 3,035,486 17,772 (17,772)(d) 3,035,486
----------- ---------- ----------- -----------
Total current assets....... 59,907,827 11,345,279 (88,307) 71,164,799
Property and equipment, net........ 139,583,661 8,673,294 (8,673,294)(b) 159,083,661
16,000,000(b)
3,500,000(b)
Investments and other assets....... 3,057,384 609,472 10,976,669(c) 14,034,053
(609,472)(d)
----------- ---------- ----------- -----------
Total assets............... $202,548,872 $20,628,045 2$1,105,596 $244,282,513
----------- ---------- -----------
----------- ---------- ----------- -----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank............... $2,897,146 ($2,897,146)(d)
Advances against future
deposits....................... 1,355,668 (1,355,668)(d)
Accounts payable................. $ 5,013,248 3,653,415 $ 8,666,663
Accrued liabilities.............. 7,352,909 455,226 7,808,135
Current portion of long-term
obligations.................... 3,844,000 2,351,937 (2,351,937)(d) 3,844,000
----------- ---------- ----------- -----------
Total current
liabilities.............. 16,210,157 10,713,392 (6,604,751) 20,318,798
Long-term obligations.............. 100,783,842 7,348,925 (7,348,925)(d) 100,783,842
Deferred income taxes.............. 9,574,079 106,171 (106,171)(d) 9,574,079
----------- ---------- ----------- -----------
Total liabilities.......... 126,568,078 18,168,488 (14,059,847) 130,676,719
Shareholders' equity............... 75,980,794 2,459,557 (2,459,557)(d) 113,605,794
2,000,000(e)
35,625,000(f)
----------- ---------- ----------- -----------
Total liabilities and
shareholders' equity..... $202,548,872 $20,628,045 2$1,105,596 $244,282,513
----------- ---------- -----------
----------- ---------- ----------- -----------
-----------
</TABLE>
See notes to unaudited consolidated pro forma financial statements.
F-40
<PAGE>
NORTHLAND CRANBERRIES, INC. AND MINOT FOOD PACKERS, INC.
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
NORTHLAND FISCAL MINOT FISCAL
YEAR ENDED YEAR ENDED JUNE PRO FORMA
AUGUST 31, 1997 30, 1997 ADJUSTMENTS(A) PRO FORMA
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 47,374,827 $ 41,652,039 $ 89,026,866
Cost of sales............................. 23,170,154 33,709,956 $ (902,264)(g) 57,370,568
(141,219)(h)
1,142,857(i)
116,667(j)
274,417(k)
---------------- ---------------- -------------- -------------
Gross profit.............................. 24,204,673 7,942,083 (490,458) 31,656,298
Costs and expenses:
Selling, general and administrative..... 15,963,109 5,629,752 21,592,861
Interest................................ 4,493,104 1,131,461 (1,131,461)(l) 4,493,104
---------------- ---------------- -------------- -------------
Total costs and expenses.......... 20,456,213 6,761,213 (1,131,461) 26,085,965
---------------- ---------------- -------------- -------------
Income before income taxes................ 3,748,460 1,180,870 641,003 5,570,333
Income taxes.............................. 1,516,000 714,000(m) 2,230,000
---------------- ---------------- -------------- -------------
Net income................................ $ 2,232,460 $ 1,180,870 $ (72,997) 3,340,333
---------------- ---------------- -------------
---------------- ---------------- -------------- -------------
--------------
Weighted average shares outstanding....... 13,736,906 109,215(e) 2,058,616(f) 15,904,737
Net income per share--basic............... $ 0.16 $ 0.21
---------------- -------------
---------------- -------------
Weighted average shares outstanding
assuming dilution....................... 14,308,845 109,215(e) 2,058,616(f) 16,476,676
Net income per share--diluted............. $ 0.16 $ 0.20
---------------- -------------
---------------- -------------
</TABLE>
See notes to unaudited consolidated pro forma financial statements.
F-41
<PAGE>
NORTHLAND CRANBERRIES, INC. AND MINOT FOOD PACKERS, INC.
UNAUDITED CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------
NORTHLAND SIX MINOT SIX
MONTHS ENDED MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, PRO FORMA
1998 1998 ADJUSTMENTS(A) PRO FORMA
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues................................... $ 48,726,754 $ 24,055,351 $ 72,782,105
Cost of sales.............................. 26,016,742 18,514,729 $ (660,000)(g) 44,638,441
--(h)
571,429(i)
58,333(j)
137,208(k)
---------------- ---------------- -------------- -------------
Gross profit............................... 22,710,012 5,540,622 (106,970) 28,143,664
Costs and expenses:
Selling, general and administrative...... 18,975,651 3,579,769 22,555,420
Interest................................. 3,341,583 562,862 (562,862)(l) 3,341,583
---------------- ---------------- -------------- -------------
Total costs and expenses........... 22,317,234 4,142,631 (562,862) 25,897,003
---------------- ---------------- -------------- -------------
Income before income taxes................. 392,778 1,397,991 455,892 2,246,661
Income taxes............................... 176,000 88,399 727,000(m) 991,399
---------------- ---------------- -------------- -------------
Net income................................. $ 216,778 $ 1,309,592 (271,108) $ 1,255,262
---------------- ---------------- -------------
---------------- ---------------- -------------- -------------
--------------
Weighted average shares outstanding........ 13,857,974 109,215(e) 2,058,616(f) 16,025,805
Net income per share--basic................ $ 0.02 $ 0.08
---------------- -------------
---------------- -------------
Weighted average shares outstanding
assuming dilution........................ 14,322,661 109,215(e) 2,058,616(f) 16,490,492
Net income per share--diluted.............. $ 0.02 $ 0.08
---------------- -------------
---------------- -------------
</TABLE>
See notes to unaudited consolidated pro forma financial statements.
F-42
<PAGE>
NORTHLAND CRANBERRIES, INC. AND MINOT FOOD PACKERS, INC.
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
<TABLE>
<C> <S>
(a) Reflects those adjustments necessary to record the acquisition of substantially all of
the assets and the assumption of certain liabilities of Minot.
(b) Reflects the removal of Minot property and equipment and records the estimated value
of property and equipment as determined by Northland.
(c) Reflects the estimated portion of the purchase price of the Minot Acquisition
allocated to goodwill.
(d) Reflects the elimination of Minot assets not acquired by Northland and Minot
liabilities not assumed by Northland.
(e) Reflects 109,215 shares of Northland Class A Stock to be issued at an assumed price of
$18.31 per share issued in the Minot Acquisition.
(f) Reflects the sale of 2,058,616 shares of Class A Common Stock at an assumed price of
$18.31 per share pursuant to this offering.
(g) Reflects the reversal of depreciation expense recorded by Minot.
(h) Reflects the reversal of amortization expense recorded by Minot.
(i) Reflects the depreciation expense of Minot assets based upon the change in valuation
of property, plant and equipment. Such property, plant and equipment is being
depreciated over a 14-year period.
(j) Reflects the depreciation expense of Minot's Bridgeton freezer based upon the change
in valuation of the freezer based on appraised values. The freezer is being
depreciated over a 30-year period.
(k) Reflects the amortization of goodwill from the Minot acquisition. Goodwill is being
amortized over a 40-year period.
(l) Reflects the elimination of Minot interest expense as the long-term debt of Minot was
not assumed in the acquisition.
(m) Reflects the income taxes on the pro forma adjustments and Minot pre-tax earnings.
</TABLE>
F-43
<PAGE>
INSIDE BACK COVER
ADDITIONAL NORTHLAND PICTURES
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
AGENT OR DEALER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 16
Price Range of Class A Common Stock............ 17
Dividend Policy................................ 17
Capitalization................................. 18
Selected Consolidated Financial Data........... 19
Selected Consolidated Pro Forma Financial
Data......................................... 20
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 21
Business....................................... 28
Management..................................... 47
Stock Ownership of Management and Others....... 49
Description of Capital Stock................... 52
Underwriting................................... 55
Legal Matters.................................. 56
Experts........................................ 56
Available Information.......................... 57
Incorporation of Certain Information by
Reference.................................... 57
Index to Financial Statements.................. 58
</TABLE>
5,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
------------
PROSPECTUS
------------
BT ALEX. BROWN
NATIONSBANC MONTGOMERY
SECURITIES LLC
PIPER JAFFRAY INC.
, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities offered hereby, other than the underwriting discount, are estimated
to be as follows (except that the SEC registration fee and NASD filing fee are
not estimates):
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 30,533
NASD Filing Fee................................................... 11,264
Legal Fees and Expenses........................................... 150,000
Blue Sky Fees and Expenses........................................ 2,000
Accounting Fees and Expenses...................................... 135,000
Printing Expenses................................................. 120,000
Transfer Agent Fees............................................... 2,500
Miscellaneous..................................................... 48,703
---------
Total......................................................... $ 500,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Sections 180.0850 to 180.0858 of the Wisconsin Business
Corporation Law, directors and officers of the Company are entitled to mandatory
indemnification from the Company against certain liabilities and expenses (i) to
the extent such officers or directors are successful in the defense of a
proceeding and (ii) in proceedings in which the director or officer is not
successful in the defense thereof, unless (in the latter case only) it is
determined that the director or officer breached or failed to perform his duties
to the Company and such breach or failure constituted: (a) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter in
which the director or officer had a material conflict of interest; (b) a
violation of the criminal law unless the director or officer, had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to
believe his or her conduct was unlawful; (c) a transaction from which the
director or officer derived an improper personal profit; or (d) willful
misconduct. Section 180.0859 of the Wisconsin Business Corporation Law
specifically states that it is the public policy of Wisconsin to require or
permit indemnification in connection with a proceeding involving securities
regulation, as described therein, to the extent required or permitted under
Sections 180.0850 to 180.0858 as described above. Additionally, under Section
180.0828 of the Wisconsin Business Corporation Law, directors of the Company are
not subject to personal liability to the Company, its shareholders or any person
asserting rights on behalf thereof for certain breaches or failures to perform
any duty resulting solely from their status as such directors, except in
circumstances paralleling those in subparagraphs (a) through (d) outlined above.
The Company's By-laws require indemnification of the Company's directors and
officers to the fullest extent permitted by the Wisconsin Business Corporation
Law. The indemnification rights provided as set forth above are not exclusive of
any other rights to which a director or an officer of the Company may be
entitled.
The Company also maintains an insurance policy which provides insurance for
officers and directors against certain liabilities.
The Underwriting Agreement provides that the Underwriters will indemnify the
Company and its directors and officers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or will contribute to
payments which may be made in respect thereof.
The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the foregoing liabilities and expenses.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits have been filed (except where otherwise indicated) as
part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.0 Proposed preliminary form of Underwriting Agreement.
2.0 Asset Purchase Agreement, dated as of May 20, 1998, by and among the Company, Minot Food Packers, Inc.
and Michael A. Morello.*
3.1 Articles of Incorporation, as amended, dated January 8, 1997. [Incorporated by reference to Exhibit 3.4
to the Company's Form 10-K for the fiscal year ended August 31, 1996.]
3.2 By-Laws of the Company, as amended and restated. [Incorporated by reference to Exhibit 3.3 to the
Company's Form 10-K for the fiscal year ended August 31, 1997.]
4.1 Article IV of the Company's Articles of Incorporation, as amended. [Incorporated by reference to Exhibit
3.4 to the Company's Form 10-K for the fiscal year ended August 31, 1996.]
4.3 Secured Promissory Note, dated as of June 14, 1989, issued by the Company to The Equitable Life Assurance
Society of the United States. [Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
dated July 7, 1989.]
4.4 Mortgage and Security Agreement, dated as of June 14, 1989, from the Company to The Equitable Life
Assurance Society of the United States. [Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K dated July 7, 1989.]
4.5 Mortgage and Security Agreement dated July 9, 1993, between the Company and The Equitable Life Assurance
Society of the United States. [Incorporated by reference to Exhibit 4.8 to the Company's Form 10-Q
dated November 12, 1993.]
4.6 Modification Agreement, dated as of July 9, 1993, between the Company and The Equitable Life Assurance
Society of the United States. [Incorporated by reference to Exhibit 4.9 to the Company's Form 10-Q
dated November 12, 1993.]
4.7 Amended and Restated Credit Agreement, dated October 3, 1997, between the Company and Harris Trust &
Savings Bank. [Incorporated by reference to Exhibit 4.5 to the Company's Form 10-K for the fiscal year
ended August 31, 1997.]
4.8 Revolving Credit Note, dated October 3, 1997, by the Company in favor of Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.6 to the Company's Form 10-K for the fiscal year ended August
31, 1997.]
4.9 Term Credit Note One, dated June 6, 1995, between the Company and Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.13 to the Company's Form 10-K for the fiscal year ended March
31, 1995.]
4.10 Term Credit Note Two, dated June 6, 1995, between the Company and Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.14 to the Company's Form 10-K for the fiscal year ended March
31, 1995.]
4.11 Term Credit Note Three, dated June 6, 1995, between the Company and Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.15 to the Company's Form 10-K for the fiscal year ended March
31, 1995.]
4.12 Secured Promissory Note, dated July 9, 1993, between the Company and The Equitable Life Assurance Society
of the United States. [Incorporated by reference to Exhibit 4.23 to the Company's Form 10-K for the
fiscal year ended March 31, 1995.]
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.13 Stock Pledge, dated July 9, 1993, between the Company and The Equitable Life Assurance Society of the
United States. [Incorporated by reference to Exhibit 4.24 to the Company's Form 10-K for the fiscal
year ended March 31, 1995.]
OTHER THAN AS SET FORTH IN EXHIBITS 4.3 THROUGH 4.13, THE COMPANY HAS NUMEROUS INSTRUMENTS WHICH DEFINE
THE RIGHTS OF HOLDERS OF LONG-TERM DEBT. THESE INSTRUMENTS, PRIMARILY SECURITY AGREEMENTS AND
MORTGAGES, WERE ENTERED INTO IN CONNECTION WITH DEBT FINANCING PROVIDED BY HARRIS TRUST & SAVINGS BANK,
AND ARE DISCLOSED IN THE AMENDED AND RESTATED CREDIT AGREEMENT FILED AS EXHIBIT 4.7 TO THIS FORM S-3.
THE COMPANY WILL FURNISH A COPY OF ANY OF SUCH INSTRUMENTS TO THE COMMISSION UPON REQUEST.
5.0 Opinion of Foley & Lardner regarding validity of shares.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of BDO Seidman LLP
23.3 Consent of Foley & Lardner (contained in Exhibit 5.0).
24 Powers of Attorney (included on signature page to this Registration Statement).
</TABLE>
- ------------------------
* The schedules and exhibits to this document are not being filed herewith
because Northland believes that the information contained therein should not
be considered material to an investment decision in the Company or such
information is otherwise adequately disclosed in this Form S-3. The
registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wisconsin Rapids, State of Wisconsin, on May 20,
1998.
<TABLE>
<S> <C> <C>
NORTHLAND CRANBERRIES, INC.
By: /s/ JOHN SWENDROWSKI
------------------------------------------
John Swendrowski
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Each person whose signature appears below constitutes and appoints John
Swendrowski, John Pazurek and Jeffrey J. Jones, and each of them individually,
his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed as of the date above by the following
persons in the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ JOHN SWENDROWSKI
-------------------------------------------
John Swendrowski
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND DIRECTOR
By: /s/ JEROLD D. KAMINSKI
-------------------------------------------
Jerold D. Kaminski
PRESIDENT, CHIEF OPERATING
OFFICER AND DIRECTOR
By: /s/ JOHN PAZUREK
-------------------------------------------
John Pazurek
VICE PRESIDENT-FINANCE, TREASURER, CHIEF
ACCOUNTING OFFICER AND CHIEF FINANCIAL
OFFICER
By: /s/ ROBERT E. HAWK
-------------------------------------------
Robert E. Hawk
EXECUTIVE VICE
PRESIDENT AND DIRECTOR
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
By: /s/ JEFFREY J. JONES
-------------------------------------------
Jeffrey J. Jones
DIRECTOR
By: /s/ JOHN C. SERAMUR
-------------------------------------------
John C. Seramur
DIRECTOR
By: /s/ PATRICK F. BRENNAN
-------------------------------------------
Patrick F. Brennan
DIRECTOR
By: /s/ LEROY J. MILES
-------------------------------------------
LeRoy J. Miles
DIRECTOR
By: /s/ PAT RICHTER
-------------------------------------------
Pat Richter
DIRECTOR
</TABLE>
II-5
<PAGE>
NORTHLAND CRANBERRIES, INC.
FORM S-3 REGISTRATION STATEMENT
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
1.0 Proposed preliminary form of Underwriting Agreement
2.0 Asset Purchase Agreement, dated as of May 20, 1998, by and among the Company, Minot Food
Packers, Inc. and Michael A. Morello.*
3.1 Articles of Incorporation, as amended, dated January 8, 1997. [Incorporated by reference to
Exhibit 3.4 to the Company's Form 10-K for the fiscal year ended August 31, 1996.]
3.2 By-Laws of the Company, as amended and restated. [Incorporated by reference to Exhibit 3.3 to
the Company's Form 10-K for the fiscal year ended August 31, 1997.]
4.1 Article IV of the Company's Articles of Incorporation, as amended. [Incorporated by reference to
Exhibit 3.4 to the Company's Form 10-K for the fiscal year ended August 31, 1996.]
4.3 Secured Promissory Note, dated as of June 14, 1989, issued by the Company to The Equitable Life
Assurance Society of the United States. [Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K dated July 7, 1989.]
4.4 Mortgage and Security Agreement, dated as of June 14, 1989, from the Company to The Equitable
Life Assurance Society of the United States. [Incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K dated July 7, 1989.]
4.5 Mortgage and Security Agreement dated July 9, 1993, between the Company and The Equitable Life
Assurance Society of the United States. [Incorporated by reference to Exhibit 4.8 to the
Company's Form 10-Q dated November 12, 1993.]
4.6 Modification Agreement, dated as of July 9, 1993, between the Company and The Equitable Life
Assurance Society of the United States. [Incorporated by reference to Exhibit 4.9 to the
Company's Form 10-Q dated November 12, 1993.]
4.7 Amended and Restated Credit Agreement, dated October 3, 1997, between the Company and Harris
Trust & Savings Bank. [Incorporated by reference to Exhibit 4.5 to the Company's Form 10-K for
the fiscal year ended August 31, 1997.]
4.8 Revolving Credit Note, dated October 3, 1997, by the Company in favor of Harris Trust & Savings
Bank. [Incorporated by reference to Exhibit 4.6 to the Company's Form 10-K for the fiscal year
ended August 31, 1997.]
4.9 Term Credit Note One, dated June 6, 1995, between the Company and Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.13 to the Company's Form 10-K for the fiscal year
ended March 31, 1995.]
4.10 Term Credit Note Two, dated June 6, 1995, between the Company and Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.14 to the Company's Form 10-K for the fiscal year
ended March 31, 1995.]
4.11 Term Credit Note Three, dated June 6, 1995, between the Company and Harris Trust & Savings Bank.
[Incorporated by reference to Exhibit 4.15 to the Company's Form 10-K for the fiscal year
ended March 31, 1995.]
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
4.12 Secured Promissory Note, dated July 9, 1993, between the Company and The Equitable Life
Assurance Society of the United States. [Incorporated by reference to Exhibit 4.23 to the
Company's Form 10-K for the fiscal year ended March 31, 1995.]
4.13 Stock Pledge, dated July 9, 1993, between the Company and The Equitable Life Assurance Society
of the United States. [Incorporated by reference to Exhibit 4.24 to the Company's Form 10-K
for the fiscal year ended March 31, 1995.]
OTHER THAN AS SET FORTH IN EXHIBITS 4.3 THROUGH 4.13, THE COMPANY HAS NUMEROUS INSTRUMENTS WHICH
DEFINE THE RIGHTS OF HOLDERS OF LONG-TERM DEBT. THESE INSTRUMENTS, PRIMARILY SECURITY
AGREEMENTS AND MORTGAGES, WERE ENTERED INTO IN CONNECTION WITH DEBT FINANCING PROVIDED BY
HARRIS TRUST & SAVINGS BANK, AND ARE DISCLOSED IN THE AMENDED AND RESTATED CREDIT AGREEMENT
FILED AS EXHIBIT 4.7 TO THIS FORM S-3. THE COMPANY WILL FURNISH A COPY OF ANY OF SUCH
INSTRUMENTS TO THE COMMISSION UPON REQUEST.
5.0 Opinion of Foley & Lardner regarding validity of shares.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of BDO Seidman LLP
23.3 Consent of Foley & Lardner (contained in Exhibit 5.0).
24 Powers of Attorney (included on signature page to this Registration Statement).
</TABLE>
- ------------------------
* The schedules and exhibits to this document are not being filed herewith
because Northland believes that the information contained therein should not
be considered material to an investment decision in the Company or such
information is otherwise adequately disclosed in this Form S-3. The
registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.
E-2
<PAGE>
DRAFT: 05/15/98
5,000,000 Shares
NORTHLAND CRANBERRIES, INC.
Class A Common Stock
$0.01 Par Value
UNDERWRITING AGREEMENT
June [ ], 1998
BT Alex. Brown Incorporated
NationsBanc Montgomery Securities, LLC
Piper Jaffray Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
Northland Cranberries, Inc., a Wisconsin corporation (the "Company"),
proposes to issue and sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 5,000,000 shares of the Company's Class A
Common Stock, $0.01 par value (the "Firm Shares"). The respective amounts of
the Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. The Company also proposes to
issue and sell at the Underwriters' option up to 750,000 additional shares of
the Company's Class A Common Stock (the "Option Shares") as set forth below.
The Company also has entered into a certain Asset Purchase Agreement dated
May [ ], 1998 (the "Asset Purchase Agreement"), by and among the Company,
Minot Food Packers, Inc., a New Jersey corporation ("Minot"), and Michael A.
Morello, its sole shareholder ("Morello"), to purchase substantially all of
the assets and the operating business of Minot (the "Minot Business") with a
portion of the net proceeds from the sale of the Firm Shares. For the
purposes of this Agreement, unless the context expressly otherwise requires,
references to the Company and the Subsidiaries shall include the Minot
Business as if the acquisition of the Minot Business has been completed.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm
<PAGE>
Shares set forth opposite their respective names in Schedule I, plus their
pro rata portion of the Option Shares if you elect to exercise the
overallotment option in whole or in part for the accounts of the several
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the
"Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to each of the Underwriters
as follows:
(i) A registration statement on Form S-3 (File No. 333-[ ])
with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Rules and Regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder and has been filed with the Commission.
The Company has complied with the conditions for the use of Form S-3.
Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to you and to the extent
applicable, were identical to the electronically transmitted copies
thereof filed with the Commission pursuant to the Commission's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"),
except to the extent permitted by Regulation S-T. Such registration
statement, together with any registration statement filed by the
Company pursuant to Rule 462(b) of the Securities Act, herein referred
to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective
under the Securities Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means the form of prospectus first filed with
the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus." Any
reference herein to the Registration Statement, any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to and
include any documents and information incorporated by reference
therein, and supplements or amendments thereto filed with the
Commission after the date of filing of the Prospectus under Rules
424(b) or 430A, and prior to the termination of the offering of the
Shares by the Underwriters. For purposes of this Agreement, all
references to the Registration Statement, any Preliminary Prospectus,
the Prospectus, any documents incorporated by reference therein, or
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any amendment or supplement to any of the foregoing, shall be deemed
to include the respective copies thereof filed with the Commission
pursuant to EDGAR.
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Wisconsin, with corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement. Each of the subsidiaries of the Company,
as listed in Exhibit A hereto (collectively, the "Subsidiaries"),
has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease
its properties and conduct its business as described in the
Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and
each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of their business requires
such qualification. The outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable (except for certain
statutory personal liability which may be imposed upon shareholders
under Section 180.0622(2)(b) of the Wisconsin Business Corporation
Law ("WBCL")) and to the extent shown in Exhibit A hereto are owned
by the Company or another Subsidiary free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or
other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital
stock or ownership interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Class A Common Stock of the
Company have been duly authorized and validly issued and are fully
paid and nonassessable (except for certain statutory personal
liability which may be imposed upon shareholders under Section
180.0622(2)(b) of the WBCL); the Shares have been duly authorized and
when issued and paid for in accordance with the terms this Agreement,
will be validly issued, fully paid and nonassessable (except for
certain statutory personal liability which may be imposed upon
shareholders under Section 180.0622(2)(b) of the WBCL); and no
preemptive rights of stockholders exist with respect to any of the
Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any shares of Class A Common Stock.
(iv) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. All of the Shares conform to
the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms to the requirements of
the WBCL.
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(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform to, the requirements of the
Securities Act and the Rules and Regulations. The documents
incorporated by reference in the Prospectus, at the time filed with
the Commission conformed, in all respects to the requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") or the Securities
Act, as applicable, and the rules and regulations of the Commission
thereunder, and at such time none of such documents contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading (other than as corrected or updated in a
subsequent filing under the Exchange Act or the Registration
Statement). The Registration Statement and any amendment thereto do
not contain, and will not contain, any untrue statement of a material
fact and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and
in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically
for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes as set forth or incorporated
by reference in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the
Company and the consolidated Subsidiaries, at the indicated dates and
for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary
for a fair presentation of results for such periods have been made.
The summary financial and statistical data included or incorporated by
reference in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis
consistent with the financial statements presented therein and the
books and records of the Company. The pro forma financial statements
and other pro forma financial information included in the Registration
Statement and the Prospectus present fairly in all material respects
the information shown therein, have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the pro forma
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basis described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(vii) Deloitte & Touche LLP and BDO Seidman LLP,, who have
certified certain of the financial statements filed with the
Commission as part of the Registration Statement, are independent
public accountants as required by the Securities Act and the Rules and
Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries before any court or administrative agency or
otherwise which, if determined adversely to the Company or any of the
Subsidiaries, might result in any material adverse change in the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as a whole or prevent the
consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind, except those reflected in such financial statements (or
as described in the Registration Statement) or which are not material
in amount. The Company and the Subsidiaries occupy their leased
properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Registration
Statement.
(x) The Company and the Subsidiaries have filed all federal,
state, local and foreign income tax returns which have been required
to be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such
taxes have become due, except where the Company or a Subsidiary is
contesting such taxes in good faith and in accordance with the laws
and regulations of the applicable jurisdiction. All tax liabilities
have been adequately provided for in the financial statements of the
Company in accordance with generally accepted accounting principles,
and, other than as disclosed in the Registration Statement (which the
Company does not believe will have a material adverse effect on the
results of operations or financial condition of the Company and the
Subsidiaries taken as a whole), the Company does not know of any
actual or proposed additional material tax assessments.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development that could reasonably be expected to result in a
material adverse change in or affecting the earnings,
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business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any material
transaction entered into or any material transaction that is
probable of being entered into by the Company or the Subsidiaries,
other than transactions in the ordinary course of business and
changes and transactions described in or contemplated by the
Registration Statement, as it may be amended or supplemented. The
Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Company's financial
statements, in accordance with generally accepted accounting
principles, which are included in the Registration Statement.
(xii) Neither the Company nor the Subsidiaries is, nor with
the giving of notice or lapse of time or both, will be, in violation
of or in default under its Articles of Incorporation, as amended (the
"Charter"), or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or
by which it, or any of its properties, is bound and which default
would have a material effect on the condition, financial or otherwise
of the Company and the Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated
and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of the
Subsidiaries is a party, or of the Charter or By-laws of the Company
or any of the Subsidiaries or any order, rule or regulation applicable
to the Company or any of the Subsidiaries of any court or of any
regulatory body or administrative agency or other governmental body
having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets and know-how or
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other information or intellectual property rights (collectively,
"Intellectual Property") described in the Prospectus as owned by or
used by the Company and the Subsidiaries or which is necessary to
the conduct of its business as now conducted by the Company and the
Subsidiaries as described in the Prospectus. The Company is not
aware of any infringement of or conflict with the rights or claims
of others with respect to any of the products or Intellectual
Property of the Company or the Subsidiaries which could have a
material adverse effect on the business, financial condition or
prospects of the Company. The Company is not aware of any ongoing
infringement of any of the Intellectual Property rights of the
Company or the Subsidiaries by any third party which could have a
material adverse effect on the business, financial condition or
prospects of the Company and the Subsidiaries taken as a whole.
(xv) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken or may take, directly or indirectly,
any action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Class A Common Stock to
facilitate the sale or resale of the Shares. The Company acknowledges
that the Underwriters may engage in passive market making transactions
in the Shares on Nasdaq National Market in accordance with Rule 103 of
Regulation M.
(xvi) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses.
(xvii) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations of the Commission
thereunder.
(xviii) The Company and each of its Subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xix) The Company and each of its Subsidiaries carries, or is
covered by, insurance in such amounts and covering such risks that the
Company and the Subsidiaries reasonably believe is adequate for the
conduct of their respective businesses and the value of their
respective properties and is customary for companies engaged in
similar industries.
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<PAGE>
(xx) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan," or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(xxi) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder's or broker's
fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xxii) There is no document or contract of a character
required to be described in the Registration Statement or the
Prospectus to be filed as an exhibit to the Registration Statement
which is not described or filed as required. All such contracts to
which the Company or the Subsidiaries are a party have been fully
authorized, executed and delivered by the Company or the Subsidiaries
and constitute valid and binding agreements of the Company or the
Subsidiaries, as the case may be, and are enforceable against the
Company or the Subsidiaries, as the case may be, in accordance with
the terms thereof, except as may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditor's rights generally.
(xxiii) Except as set forth in the Registration Statement and
the Prospectus (i) the property, assets and operations of the Company
and the Subsidiaries comply in all material respects with all
applicable Environmental Laws (as defined below) (except to the extent
that failure to comply with such Environmental Laws would not have a
material adverse effect on the properties, assets, operations,
business or financial condition of the Company and the Subsidiaries
taken as a whole), (ii) to the knowledge of the Company after
reasonable inquiry (except as described in the Registration
Statement), none of the properties, assets or operations of the
Company or the Subsidiaries is the subject of any federal, state or
local investigation evaluating whether any remedial action is needed
to respond to a release of any Hazardous Materials (as defined below)
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<PAGE>
into the environment or is in material contravention of any federal,
state or local law, order or regulation that could have a material
adverse effect on the properties, assets, operations, business or
financial condition of the Company and the Subsidiaries, taken as a
whole (iii) neither the Company nor the Subsidiaries has received any
notice or claim, nor are there pending, threatened or reasonably
anticipated lawsuits against them, with respect to violations of an
Environmental Law or in connection with any release of any Hazardous
Materials into the environment, and (iv) to the knowledge of the
Company, neither the Company nor the Subsidiaries has any material
contingent liability in connection with any release of any Hazardous
Materials into the environment. As used herein, "Environmental Laws"
means any Federal, state, territorial, or local law, common doctrine,
rule, order, decree, judgment, injunction, license, permit or
regulation relating to environmental matters, and "Hazardous
Materials" means those substances that are regulated by or form the
basis of liability under any Environmental Law.
(xxiv) Except where the failure to do so would not have a
material adverse effect on the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a
whole, the Company and the Subsidiaries have obtained and have
maintained in good standing any and all licenses, permits, consents
and authorizations required to be obtained by them under all laws or
regulations relating to their respective businesses, including without
limitation, laws or regulations relating to the manufacture,
production, wholesale and retail sale, storage. labeling and
distribution of products intended for human consumption (collectively,
the "Laws"), and all such licenses, permits, consents and
authorizations remain in full force and effect. The Company and the
Subsidiaries are in compliance with the Laws in all material respects
(except to the extent that failure to comply with such Laws would not
have a material adverse effect on the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a
whole) and there is no pending, or, to the Company's or the
Subsidiaries' knowledge, threatened, action or proceeding against the
Company or any of the Subsidiaries relating to the Laws, other than
any such actions or proceedings which, individually or in the
aggregate, if adversely determined, would not result in a material
adverse effect on the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole.
(xxv) The Company has completed a thorough due diligence
review of the Minot Business and has no reason to believe that any of
the representations or warranties of Minot or Morello set forth in the
Asset Purchase Agreement are not true and accurate in all material
respects.
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<PAGE>
(xxvi) The representations and warranties of the Company set
forth in the Asset Purchase Agreement are true and accurate in all
material respects and the Company has no reason to believe that such
transaction will not be consummated in accordance with the terms set
forth in the Asset Purchase Agreement and as described in the
Registration Statement.
(xxvii) To the Company's knowledge, there are no affiliations
or associations between any member of the NASD and any of the
Company's officers, directors or 5%-or-greater securityholders.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the
Company agrees to issue and sell to the Underwriters and each Underwriter
agrees, severally and not jointly, to purchase, at a price of $[ ] per
share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in
Federal (same day) Funds to an account designated by the Company for the
shares to be issued and sold by it against delivery of certificates
therefor through the facilities of the Depository Trust Company, New York,
New York. Such payment and delivery are to be made through the facilities
of the Depository Trust Company at 10:00 a.m., New York time, on the third
business day after the date of this Agreement or at such other time and
date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the
New York Stock Exchange is open for trading and on which banks in New York
are open for business and not permitted by law or executive order to be
closed.)
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase
the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the
Closing Date, or (ii) only once thereafter within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to
the Company setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at
which such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10
full business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to as
the "Option Closing Date"). If the date of exercise of the
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option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in
the same proportion to the total number of Option Shares being purchased
as the number of Firm Shares being purchased by such Underwriter bears
to the total number of Firm Shares, adjusted by you in such manner as to
avoid fractional shares. The option with respect to the Option Shares
granted hereunder may be exercised only to cover overallotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of
the several Underwriters, may cancel such option at any time prior to
its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment
for the Option Shares shall be made on the Option Closing Date in
Federal (same day) Funds to an account designated by the Company for the
Option Shares to be issued and sold by the Company against delivery of
certificates therefor through the facilities of the Depository Trust
Company, New York, New York.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the
public at the initial public offering price set forth in the Prospectus.
The Representatives may from time to time thereafter change the public
offering price and other selling terms. To the extent, if at all, that any
Option Shares are purchased pursuant to Section 2 hereof, the Underwriters
will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with
a Master Agreement Among Underwriters entered into by you and the several
other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and
timely file with the Commission under Rule 424(b) of the Rules and
Regulations a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness
of the Registration Statement in reliance on Rule 430A of the Rules
and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus or documents incorporated by
reference therein of which the Representatives shall not previously
have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is
not in compliance with the Rules and Regulations, and (C) file on a
timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
subsequent to the date
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of the Prospectus and prior to the offering of the Shares by
Underwriters. To the extent applicable, the copies of the
Registration Statement and each amendment thereto (including all
exhibits filed therewith), any Preliminary Prospectus or Prospectus
(in each case, as amended or supplemented) furnished to the
Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(ii) The Company will advise the Representatives promptly
(A) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any comments
from the Commission, (C) of any request of the Commission for
amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, and (D) of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the
institution of any proceedings for that purpose. The Company will use
its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws
of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications
in effect for so long a period as the Representatives may reasonably
request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Securities
Act, as many copies of the Prospectus in final form, or as thereafter
amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and
all amendments thereto, including all exhibits filed therewith, and
will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), including
documents incorporated by reference therein, and of all amendments
thereto, as the Representatives may reasonably request.
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<PAGE>
(v) The Company will comply with the Securities Act and the
Rules and Regulations, and the Exchange Act and the rules and
regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a
prospectus is required by law to be delivered by an Underwriter or
dealer, any event shall occur as a result of which, in the judgment of
the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company promptly will
either (i) prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the
Prospectus or (ii) prepare and file with the Commission an appropriate
filing under the Exchange Act which shall be incorporated by reference
in the Prospectus so that the Prospectus, as so amended or
supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that the Prospectus will comply
with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement,
which earning statement shall satisfy the requirements of
Section 11(a) of the Securities Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has
been so made available.
(vii) Prior to the Closing Date, the Company will furnish to
the Underwriters, as soon as they have been prepared by or are
available to the Company, a copy of any unaudited interim financial
statements of the Company for any period subsequent to the period
covered by the most recent financial statements appearing in the
Registration Statement and the Prospectus.
(viii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished
by the Company to its shareholders or filed with any securities
exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Securities Act or the Exchange Act. The
Company will deliver to the Representatives similar reports with
respect to significant subsidiaries, as that term is defined in the
Rules and Regulations, which are not consolidated in the Company's
financial statements.
(ix) No offering, sale, short sale or other disposition of any
shares of Class A Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Class A
Common Stock or derivative of
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Class A Common Stock (or agreement for such) will be made for a
period of 90 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than hereunder or with the
prior written consent of BT Alex. Brown, except that the Company
may, without such consent, (A) issue shares upon exercise of
options outstanding on the date of this Agreement issued pursuant
to the Company's 1987 Stock Option Plan, 1989 Stock Option Plan and
1995 Stock Option Plan, (B) grant options, offer to sell and sell
shares of its Class A Common Stock to its employees, directors and
consultants pursuant to the 1995 Stock Option Plan, (C) issue
shares of Series A Common Stock to consummate the acquisition of
the Minot Business as set forth in the Asset Purchase Agreement and
(D) issue shares of capital stock in connection with any other
business acquisition by the Company or the Subsidiaries, provided,
however, that each of the recipients thereof agree not to offer,
sell or otherwise transfer such securities for the remainder of the
90-day period referenced above.
(x) The Company will complete and file an Application for
Listing of Additional Shares with, and use its best efforts to list
the Shares on, The Nasdaq National Market.
(xi) The Company has caused each officer and director of the
Company to furnish to you, on or prior to the date of this agreement,
a letter or letters (a "Lockup Agreement"), in form and substance
satisfactory to the Underwriters, pursuant to which each such person
has agreed for a period expiring 90 days after the date of the
Prospectus not to (A) offer to sell, contract to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of capital
stock of the Company, including shares of common stock of any series
or class, any options, rights or warrants to purchase any shares of
capital stock of the Company (including any stock appreciation right,
or similar right with an exercise or conversion privilege at a price
related to, or derived from, the market price of the capital stock of
the Company) or any securities convertible into or exchangeable for
shares of capital stock of the Company owned directly by such
director, officer or shareholder or with respect to which such
director, officer or shareholder has the power of disposition
(including, without limitation, shares of capital stock of the Company
which such person may be deemed to beneficially own in accordance with
the rules and regulations promulgated under the Exchange Act) or
(B) engage in any hedging transactions (including short sales, put and
call options, cashless collar transactions or other forms of
derivative security transactions) with respect to the Class A Common
Stock that may have an impact on the market price of the Class A
Common Stock.
(xii) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus.
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(xiii) Until November 30, 1999, the Company will notify the
Representatives in writing of any change in its accounting policies
regarding inventory at least 30 days prior to such proposed change.
(xiv) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the 1940 Act.
(xv) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Class A Common Stock.
(xvi) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement, including, without
limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters'
Invitation Letter, the Listing Application, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission;
the filing fees of the NASD; the Additional Listing Fee of The Nasdaq
Stock Market; and the expenses, including the fees and disbursements of
counsel for the Underwriters not to exceed $2,000, incurred in
connection with the qualification of the Shares under State securities
or Blue Sky laws. Any transfer taxes imposed on the sale of the Shares
to the several Underwriters will be paid by the Company. The Company
agrees to pay all costs and expenses of the Underwriters (including the
fees and disbursements of counsel for the Underwriters) incident to the
offer and sale of directed Shares of the Class A Common Stock by the
Underwriters, if any, to employees and persons having business
relationships with the Company. The Company shall not, however, be
required to pay for any of the Underwriters' expenses (other than those
related to qualification under NASD regulation and State securities or
Blue Sky laws) except that, if this Agreement shall not be consummated
because the conditions in Section 6 hereof are not satisfied, or because
this Agreement is terminated by the Representatives pursuant to Section
11(a)(i) or 11(b) hereof, or by reason of any failure, refusal or
inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the
terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or
omission of any Underwriter, then the Company shall reimburse the
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several Underwriters for reasonable and accountable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably
incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations
hereunder up to a maximum of $100,000; but the Company shall not in any
event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the
Shares.
6. CONDITIONS TO OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the
Option Closing Date, as the case may be, of the representations and
warranties of the Company contained herein, and to the performance by the
Company of its covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been
made, and any request of the Commission for additional information (to
be included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to
the knowledge of the Company, shall be contemplated by the Commission,
and no injunction, restraining order or order of any nature by a federal
or state court of competent jurisdiction shall have been issued as of
the Closing Date or Option Closing Date, as the case may be, which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Foley &
Lardner, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing (as such concept now exists under
Wisconsin law) under the laws of the State of Wisconsin, with
corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement.
(ii) The Company has authorized capital stock as set forth under
the caption "Capitalization" in the Prospectus;); all of the Shares
conform in all material respects to the description thereof contained
in the Prospectus; the certificates for the Shares are in due and
proper form under Wisconsin law; the shares of Class A Common Stock,
to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and
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nonassessable (except for certain statutory personal liability
which may be imposed upon shareholders under Section 180.0622(2)(b)
of the WBCL) when issued and paid for as contemplated by this
Agreement; and no preemptive rights of shareholders exist with
respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, (a) there are no
outstanding securities of the Company convertible or exchangeable into
or evidencing the right to purchase or subscribe for any shares of
capital stock of the Company, and (b) there are no outstanding or
authorized options, warrants or rights of any character obligating the
Company to issue any shares of its capital stock or any securities
convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in
the Prospectus, to the knowledge of such counsel, no holder of any
securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively
waived, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares or the right
to have any Class A Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration
under the Securities Act of any shares of Class A Common Stock or
other securities of the Company.
(iv) The Registration Statement has become effective under the
Securities Act and, to the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Securities Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto and documents incorporated by
reference therein as filed with the Commission comply as to form in
all material respects with the requirements of the Securities Act or
Exchange Act, as applicable, and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements and related schedules or financial or statistical
data included or incorporated by reference therein). The conditions
for the use of Form S-3 set forth in the General Instructions thereto
have been satisfied.
(vi) The statements under the captions "Risk Factors --
Regulation," "Risk Factors -- Certain Anti-Takeover Considerations,"
"Risk Factors -- Subsequent Share Issuances; Shares Eligible for
Future Sale," "Business -- Strategic Minot Acquisition," "Business --
Regulation," "Business -- Trademarks and Formulae" and "Description of
Capital Stock" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters of
domestic law, fairly summarize in all material respects the documents
or matters of law to the extent required by the Rules and Regulations
with respect to such documents and matters.
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<PAGE>
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to, or incorporated by
reference in, the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed,
incorporated by reference, or described as required, and such
contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material
respects to the extent required by the Rules and Regulations.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or By-laws
of the Company, or any agreement or instrument known to such counsel
to which the Company or any of the Subsidiaries is a party or by which
the Company or any of the Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by the
NASD or as required by State securities and Blue Sky laws as to which
such counsel need express no opinion), except such as have been
obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
In rendering such opinion, Foley & Lardner may rely as to matters
governed by the laws of states other than Wisconsin or federal laws on
local counsel in such jurisdictions, provided that in each case Foley &
Lardner shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became
effective under the Securities Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the
Securities Act) and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact
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<PAGE>
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations
and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except
that such counsel need express no view as to financial statements,
schedules and statistical information therein). With respect to such
statement, Foley & Lardner may state that their belief is based upon the
procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of David Lukas,
Esq., Vice President- Administration and Corporate Secretary of the
Company, dated as of the Closing Date, or the Option Closing Date as the
case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) Each of the Subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business,
as described in the Registration Statement; and the Company and
each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of its business requires
such qualification, or in which the failure to qualify would have a
materially adverse effect upon the business of the Company and the
Subsidiaries taken as a whole, and to such counsel's knowledge, the
outstanding shares of capital stock of each of the Subsidiaries is
owned free and clear of all liens, encumbrances and equities and
claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership
interests in the Company or the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization in the Prospectus; the
outstanding shares of Class A Common Stock and Class B Common Stock of
the Company, have been duly authorized and validly issued and are
fully paid and nonassessable (except for certain statutory personal
liability which may be imposed upon shareholders under Section
180.0622(2)(b) of the WBCL.
(iii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to, or incorporated by
reference in, the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed,
incorporated by reference, or described as required, and such
contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material
respects to the extent required by the Rules and Regulations.
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<PAGE>
(iv) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of
such counsel which leads him to believe that (i) the Registration
Statement, at the time it became effective under the Securities Act (but
after giving effect to any modifications incorporated therein pursuant to
Rule 430A under the Securities Act) and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein).
(d) The Representatives shall have received from Buchanan
Ingersoll, counsel for the Underwriters, an opinion dated the Closing
Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii), (iv), (ix) and (xi)
of Paragraph (b) of this Section 6, and that the Company is a duly
organized and validly existing corporation under the laws of the State
of Wisconsin. In rendering such opinion, Buchanan Ingersoll or Buchanan
Ingersoll Professional Corporation ("Buchanan Ingersoll") may rely as to
all matters governed other than by the laws of the State of New Jersey
or the Commonwealth of Pennsylvania or federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to
the matters set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the
Securities Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Securities Act) as
of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made,
not misleading (except that in each case such counsel need express no
view as to financial statements, schedules, accounting and statistical
information therein). With respect to such statement, Buchanan
Ingersoll, may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
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(e) The Representatives shall have received from Morgan, Lewis &
Bockius LLP, counsel for Minot, a letter in form and substance satisfactory
to the Representatives, stating that the Underwriters may rely upon their
opinion to the Company in connection with the acquisition of the Minot
Business, as if their opinion were addressed specifically to them. Such
opinion shall be in form and substance satisfactory to the Representatives.
(f) The Representatives shall have received from Foley & Lardner,
counsel for the Company in connection with the Minot Acquisition, a letter
in form and substance satisfactory to the Representatives, stating that the
Underwriters may rely upon their opinion to Minot, as if their opinion were
addressed specifically to them. Such opinion shall be in form and
substance satisfactory to the Representatives.
(g) The Representatives shall have received, on each of the dates
hereof, the Closing Date and the Option Closing Date, as the case may be, a
letter dated the date hereof, the Closing Date or the Option Closing Date,
as the case may be, in form and substance satisfactory to you, of Deloitte
& Touche LLP and BDO Seidman LLP confirming that they are independent
public accountants with respect to the Company and Minot, respectively,
within the meaning of the Securities Act and the applicable published Rules
and Regulations thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Securities Act and the related published
Rules and Regulations; and containing such other statements and information
as is ordinarily included in accountants' "comfort letters" to Underwriters
with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and
Prospectus.
(h) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates
of the Chief Executive Officer and the Chief Financial Officer of the
Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Securities Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his or her opinion, as of the effective date
of the Registration
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Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and
Prospectus did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and the Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as a whole whether or not arising
in the ordinary course of business.
(i) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related
matters as the Representatives may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, have been
approved for listing on The Nasdaq National Market.
(k) The Lockup Agreements described in Section 4(a)(xi) are in
full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in
all material respects satisfactory to the Representatives and to Buchanan
Ingersoll, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in
writing or by telegram at or prior to the Closing Date or the Option
Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to issue, sell and deliver the Shares
required to be delivered as and when specified in this Agreement are
subject to the conditions that at the
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Closing Date or the Option Closing Date, as the case may be, no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and in effect or proceedings therefor initiated or
threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(i) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities to
which such Underwriter or any controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (A) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, (B) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (C) any act or failure
to act, or any alleged act or failure to act, by any Underwriter in
connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising
out of or based upon matters covered by clause (A) or (B) above
(provided, that the Company shall not be liable under this clause (C)
to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct); provided, however, that the
Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Representatives specifically for use in
the preparation thereof. This indemnity obligation will be in
addition to any liability which the Company may otherwise have.
(ii) to reimburse each Underwriter and each controlling person
upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or
not such Underwriter or controlling person is a party to any action or
proceeding. In the event that it is finally judicially determined
that the Underwriters were not entitled to receive payments for legal
and other expenses
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pursuant to this subparagraph, the Underwriters will promptly return
all sums that had been advanced pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made; and will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter
will be liable in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by
or through the Representatives specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability
which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to this Section 8, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related
and was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of the provisions of
Section 8(a) or (b). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days
of presentation) the fees and expenses of
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the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in
the case of parties indemnified pursuant to Section 8(a) and by the
Company in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
In addition, the indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or
proceeding of which indemnification may be sought hereunder (whether or
not any indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities,
(or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the
total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission
-25-
<PAGE>
or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d)
shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 8(d),
(i) no Underwriter shall be required to contribute any amount in excess of
the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any
such proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers,
or any person controlling the Company shall be entitled to the benefits of
the indemnity, contribution and reimbursement agreements contained in this
Section 8.
-26-
<PAGE>
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such
date (otherwise than by reason of any default on the part of the Company),
you, as Representatives of the Underwriters, shall use your reasonable
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as
may be agreed upon and upon the terms set forth herein, the Firm Shares or
Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then
(a) if the aggregate number of shares with respect to which such default
shall occur does not exceed 10% of the Firm Shares or Option Shares, as the
case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Shares or Option
Shares, as the case may be, which they are obligated to purchase hereunder,
to purchase the Firm Shares or Option Shares, as the case may be, which
such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case
may be, with respect to which such default shall occur exceeds 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the
Company or you as the Representatives of the Underwriters will have the
right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on
the part of the nondefaulting Underwriters or of the Company except to the
extent provided in Section 8 hereof. In the event of a default by any
Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine
in order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT Alex.
Brown Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
Mr. William Burgess; with a copy to BT Alex. Brown, Incorporated, One
Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006,
Attention General Counsel; if to the Company, to Northland Cranberries,
Inc., P.O. Box 8020, 800 First Avenue South, Wisconsin Rapids, Wisconsin
54495-8020,
-27-
<PAGE>
Attention: Chief Financial Officer, with a copy to Steven R. Barth, Esq.,
Foley & Lardner, 777 E. Wisconsin Avenue, Milwaukee, WI 53202.
11. TERMINATION.
This Agreement may be terminated as follows:
(a) by you by notice to the Company at any time prior to the Closing
Date if any of the following has occurred: (i) since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or any development involving a
prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and the Subsidiaries taken as a
whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company
and the Subsidiaries taken as a whole whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation of hostilities
or declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the
United States would, in your reasonable judgment, make it impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of
the Shares, or (iii) suspension of trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree
or other promulgation of any statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects or may materially and adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by
United States or New York State authorities, (vi) the suspension of trading
of the Company's Class A Common Stock by the Commission or The Nasdaq
National Market, or (vii) the taking of any action by any governmental body
or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets
in the United States;
(b) as provided in Section 6 of this Agreement; or
(c) as provided in Section 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
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<PAGE>
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company
for inclusion in any Prospectus or the Registration Statement consists of
the information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Securities Act and the
information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation
made by or on behalf of any Underwriter or controlling person thereof, or
by or on behalf of the Company or its directors or officers, or
(c) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which she be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
[Remainder of Page Intentionally Left Blank]
-29-
<PAGE>
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
NORTHLAND CRANBERRIES, INC.
By: -----------------------
John Swendrowski
Chairman of the Board and
Chief Executive Officer
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
NationsBanc Montgomery Securities LLC
Piper Jaffray Inc.
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By: ---------------------------
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to Be Purchased
----------- ---------------------
BT Alex. Brown Incorporated ..............
NationsBanc Montgomery Securities LLC ....
Piper Jaffray Inc. .......................
---------
Total 5,000,000
---------
---------
<PAGE>
EXHIBIT A
SUBSIDIARIES
Wildhawk, Inc., a Wisconsin corporation
Northland Cranberries Foreign Sales Corporation, a Virgin Islands corporation
W.S.C. Water Management Corporation, a Wisconsin corporation
Northland Insurance Center, Inc., a Wisconsin corporation
Minot Acquisition Subsidiary, a New Jersey corporation
<PAGE>
DRAFT #8
DATED 05/20/98
DRAFT
ASSET PURCHASE AGREEMENT
BY AND AMONG
NORTHLAND CRANBERRIES, INC.,
MINOT FOOD PACKERS, INC.
AND
MICHAEL A. MORELLO
MAY 20, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . 2
1.1. Assets to be Transferred. . . . . . . . . . . . . . . . . . . . 2
1.2. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . 4
2. ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 5
2.1. Liabilities to be Assumed . . . . . . . . . . . . . . . . . . . 6
2.2. Liabilities Not to be Assumed . . . . . . . . . . . . . . . . . 7
3. PURCHASE PRICE - PAYMENT. . . . . . . . . . . . . . . . . . . . . . . 9
3.1. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2. Payment of Purchase Price . . . . . . . . . . . . . . . . . . . 9
3.3. Allocation of Purchase Price. . . . . . . . . . . . . . . . . . 10
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDER . . . . . . 11
4.1. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3. No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 12
4.5. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . 14
4.7. Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . 15
4.9. Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . 16
4.10. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11. Compliance With Laws and Orders . . . . . . . . . . . . . . . . 17
4.12. Title to and Condition of Properties. . . . . . . . . . . . . . 19
4.13. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.14. Contracts and Commitments . . . . . . . . . . . . . . . . . . . 22
4.15. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.16. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . 24
4.17. Employment Compensation . . . . . . . . . . . . . . . . . . . . 28
4.18. Trade Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.19. Major Customers and Suppliers . . . . . . . . . . . . . . . . . 29
4.20. Product Warranty and Product Liability. . . . . . . . . . . . . 30
4.21. Affiliates' Relationships to Company. . . . . . . . . . . . . . 31
4.22. Assets Necessary to Business. . . . . . . . . . . . . . . . . . 31
4.23. Computer Software and Database. . . . . . . . . . . . . . . . . 31
4.24. No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . 31
4.25. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . 32
5.1. Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.2. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3. Northland Stock. . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4. No Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . 32
5.5. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6. SEC Filing; Financial Statements . . . . . . . . . . . . . . . . 33
5.7. Environmental Audits . . . . . . . . . . . . . . . . . . . . . . 33
5.8. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6. EMPLOYEES - EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . 34
6.1. Buyer's Responsibilities; Affected Employees . . . . . . . . . . 34
6.2. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 34
6.3. Payroll Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4. Termination Benefits . . . . . . . . . . . . . . . . . . . . . . 34
7. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.1. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 35
7.2. Surveys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3. Securities Law Matters . . . . . . . . . . . . . . . . . . . . . 36
7.4. Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . 36
7.5. Employment Agreement . . . . . . . . . . . . . . . . . . . . . . 36
7.6. Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.7. Confidential Information . . . . . . . . . . . . . . . . . . . . 37
7.8. General Release. . . . . . . . . . . . . . . . . . . . . . . . . 38
7.9. HSR Act Filings. . . . . . . . . . . . . . . . . . . . . . . . . 38
7.10. Inventory Purchase Contract. . . . . . . . . . . . . . . . . . . 39
7.11. Registration Rights Agreement. . . . . . . . . . . . . . . . . . 39
7.12. Cooperation Regarding Financial Statements . . . . . . . . . . . 39
7.13. Use of Company's Name. . . . . . . . . . . . . . . . . . . . . . 39
7.14. Sales Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 39
7.15. Unemployment Compensation. . . . . . . . . . . . . . . . . . . . 40
7.16. Access and Records Retention . . . . . . . . . . . . . . . . . . 40
7.17. Co-Pack Agreement. . . . . . . . . . . . . . . . . . . . . . . . 40
7.18. Adjustment for Tax Dividends . . . . . . . . . . . . . . . . . . 40
7.19. Cooperation in Litigation. . . . . . . . . . . . . . . . . . . . 40
7.20. Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.21. Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8. FURTHER COVENANTS OF COMPANY AND THE SHAREHOLDER. . . . . . . . . . . 41
8.1. Access to Information and Records. . . . . . . . . . . . . . . . 41
8.2. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.3. Conduct of Business Pending the Closing. . . . . . . . . . . . . 42
8.4. Change of Corporate Name . . . . . . . . . . . . . . . . . . . . 44
8.5. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.6. Union Contract Negotiations. . . . . . . . . . . . . . . . . . . 44
8.7. Estoppel Certificates. . . . . . . . . . . . . . . . . . . . . . 44
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<PAGE>
8.8. Employee Covenant Agreements . . . . . . . . . . . . . . . . . . 44
8.9. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS . . . . . . . . . . . . . 44
9.1. Representations and Warranties True on the Closing Date . . . . 45
9.2. Compliance With Agreement . . . . . . . . . . . . . . . . . . . 45
9.3. Absence of Litigation . . . . . . . . . . . . . . . . . . . . . 45
9.4. Acquisition of Bridgeton Freezer. . . . . . . . . . . . . . . . 45
9.5. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . 45
9.6. Hart-Scott-Rodino Waiting Period. . . . . . . . . . . . . . . . 45
9.7. Section 1445 Affidavit. . . . . . . . . . . . . . . . . . . . . 46
9.8. ISRA Compliance . . . . . . . . . . . . . . . . . . . . . . . . 46
9.9. Investor Representation Letter. . . . . . . . . . . . . . . . . 46
9.10. Tax Division Notification . . . . . . . . . . . . . . . . . . . 46
9.11. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10. CONDITIONS PRECEDENT TO COMPANY'S AND THE SHAREHOLDER'S OBLIGATIONS . 46
10.1. Representations and Warranties True on the Closing Date . . . . 46
10.2. Compliance With Agreement . . . . . . . . . . . . . . . . . . . 47
10.3. Absence of Litigation . . . . . . . . . . . . . . . . . . . . . 47
10.4. Hart-Scott-Rodino Waiting Period. . . . . . . . . . . . . . . . 47
10.5. Acquisition of Bridgeton Freezer. . . . . . . . . . . . . . . . 47
11. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 47
11.2. By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.3. Indemnification of Third-Party Claims . . . . . . . . . . . . . 48
11.4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.5. Indemnification for Environmental Matters . . . . . . . . . . . 50
11.6. Limitations on Indemnification. . . . . . . . . . . . . . . . . 51
11.7. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.1. Documents to be Delivered by Company and the Shareholder. . . . 52
12.2. Documents to be Delivered by Buyer and Fargo. . . . . . . . . . 54
13. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.1. Right of Termination Without Breach . . . . . . . . . . . . . . 56
13.2. Termination for Breach. . . . . . . . . . . . . . . . . . . . . 56
14. RESOLUTION OF DISPUTES. . . . . . . . . . . . . . . . . . . . . . . . 57
14.1. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 57
14.2. Arbitrators . . . . . . . . . . . . . . . . . . . . . . . . . . 58
14.3. Procedures; No Appeal . . . . . . . . . . . . . . . . . . . . . 58
14.4. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
14.5. Entry of Judgment . . . . . . . . . . . . . . . . . . . . . . . 58
14.6. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 58
14.7. Continued Performance . . . . . . . . . . . . . . . . . . . . . 58
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<PAGE>
14.8. Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . 58
14.9. Escrow Agent Unnecessary. . . . . . . . . . . . . . . . . . 59
15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.1. Disclosure Schedule . . . . . . . . . . . . . . . . . . . . 59
15.2. Further Assurance . . . . . . . . . . . . . . . . . . . . . 59
15.3. Disclosures and Announcements . . . . . . . . . . . . . . . 59
15.4. Assignment; Parties in Interest . . . . . . . . . . . . . . 59
15.5. Equitable Relief. . . . . . . . . . . . . . . . . . . . . . 60
15.6. Law Governing Agreement . . . . . . . . . . . . . . . . . . 60
15.7. Amendment and Modification. . . . . . . . . . . . . . . . . 60
15.8. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
15.9. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 62
15.10. No Recording. . . . . . . . . . . . . . . . . . . . . . . . 63
15.11. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 63
15.12. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 63
15.13. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 63
15.14. Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 63
15.15. Glossary of Terms . . . . . . . . . . . . . . . . . . . . . 64
DISCLOSURE SCHEDULES
Schedule 1.1.(a) - Owned Real Property
Schedule 1.1.(b) - Leased Real Property
Schedule 1.1.(e) - Personal Property Leases
Schedule 1.2.(d) - Cranberry Supply Contracts
Schedule 1.2.(e) - Other Excluded Contracts and Agreements
Schedule 1.2.(f) - Personal Assets
Schedule 1.2.(g) - Life Insurance Policies
Schedule 1.2.(h) - Lawsuit Rights of Recovery
Schedule 2.1.(b)(i) - Assumed Contracts (Not Otherwise Scheduled)
Schedule 2.1.(e) - Assumed Debt Obligations
Schedule 2.2.(f) - Identified Releases
Schedule 2.2.(j) - Liabilities to Affiliates
Schedule 4.1.(c) - Foreign Corporation Qualification
Schedule 4.3 - Violation, Conflict, Default
Schedule 4.4 - Financial Statements, Exceptions, Debt Obligations
Schedule 4.5.(b) - Tax Returns (Exceptions to Representations)
Schedule 4.5.(c) - Tax Audits
Schedule 4.5.(e) - Tax, Other
Schedule 4.6 - Accounts Receivable (Aged Schedule), Exceptions
Schedule 4.7 - Inventory, Off Premises, Exceptions, Customer
Inventory
Schedule 4.8 - Certain Changes
Schedule 4.9 - Off-Balance Sheet Liabilities
Schedule 4.10 - Litigation Matters
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Schedule 4.11.(a) - Non-Compliance with Laws
Schedule 4.11.(b) - Licenses and Permits
Schedule 4.11.(c) - Environmental Matters (Exceptions to
Representations)
Schedule 4.12.(a)(i) - Pre-Closing Liens
Schedule 4.12.(a)(ii) - Post-Closing Liens
Schedule 4.12.(b) - Known Defects
Schedule 4.12.(c) - Exceptions to Real Property
Schedule 4.13 - Insurance
Schedule 4.14.(e) - Contracts for Services
Schedule 4.14.(g) - Collective Bargaining Agreements
Schedule 4.14.(h) - Loan Agreements, etc.
Schedule 4.14.(i) - Guarantees
Schedule 4.14.(k) - Burdensome Contracts
Schedule 4.14.(l) - Material Contracts
Schedule 4.14.(m) - Defaults
Schedule 4.15.(b) - Labor Disputes
Schedule 4.16.(a) - Employee Plans/Agreements
Schedule 4.16.(b) - Employee Plans/Agreements Exceptions
Schedule 4.16.(d) - Underfunding
Schedule 4.16.(e) - Controlled Group
Schedule 4.16.(f) - Employee Plans/Agreements Payments and Compliance
Schedule 4.16.(g) - Post-Retirement Benefits
Schedule 4.17 - Employment Compensation
Schedule 4.18 - Trade Rights
Schedule 4.19.(a) - Major Customers
Schedule 4.19.(b)(i) - Cranberry Supply Contracts
Schedule 4.19.(b)(ii) - Other Suppliers
Schedule 4.19.(c) - Dealers and Distributors
Schedule 4.20 - Product Warranty, Warranty Expense and Liability
Claims
Schedule 4.21.(a) - Contracts with Affiliates
Schedule 4.21.(b) - Affiliated Interests
Schedule 4.21.(c) - Obligations of and to Affiliates
Schedule 4.23 - Computer Software and Database
Schedule 4.24 - Company's and the Shareholder's Brokers and
Finders
Schedule 5.4 - Buyer's Brokers and Finders
Schedule 5.5 - Violations
Schedule 14.4.(c) - Purchase Commitments
EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B - Employment Agreement
Exhibit C - General Release
Exhibit D - Inventory Purchase Agreement
Exhibit E - Registration Rights Agreement
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Exhibit F - Investor Representation Letter
Exhibit G - Opinion Letter of Seller
Exhibit H - Opinion Letter of Buyer
Exhibit I - Environmental Indemnity Agreement
Exhibit J - Co-Pack Agreement
Exhibit K - Plan Assumption Agreement
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DRAFT #8
DATED 05/20/98
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") dated May 20, 1998, by and
among NORTHLAND CRANBERRIES, INC., a Wisconsin corporation ("Buyer"), MINOT FOOD
PACKERS, INC., a New Jersey corporation ("Company") and MICHAEL A. MORELLO, the
sole shareholder of Company ("Shareholder").
RECITALS
A. Company is engaged in the business of producing, packaging,
marketing, distributing and selling under the Company's brand and customers'
private labels (i) cranberry-based products, cranberry sauces, cranberry-juice
cocktails, blended cranberry drinks, (ii) apple juice and cider products and
(iii) other shelf-stable juices and drinks and is engaged in the co-packing of
such products for other branded producers (the "Business"). Shareholder owns
all of the issued and outstanding capital stock of Company.
B. Company's facilities consist of an approximately 130,000 square
foot manufacturing, cold storage, warehouse and office facility, and an
approximately 92,000 square foot warehouse building located in Bridgeton, New
Jersey (the "Facilities").
C. Buyer desires to purchase from Company, Company desires to sell
to Buyer, and the Shareholder desires to cause Company to sell to Buyer the
Business and substantially all of the property and assets of Company. Buyer
intends to assign certain of its rights and obligations under this Agreement
prior to the Closing hereof to a newly formed, wholly-owned subsidiary to be
incorporated under the laws of the State of New Jersey under the initial name of
"Fargo Acquisition Corp." ("Fargo").
D. Company currently contracts for freezer and cold storage space
from Bridgeton Freezer Co., L.L.C., a New Jersey limited liability company
("BFC"), in an approximately 100,000 square foot cold-storage, warehouse and
processing facility owned by BFC (the "Bridgeton Freezer"). Buyer desires to
acquire the Bridgeton Freezer, and Shareholder and Company have arranged for the
acquisition of the Bridgeton Freezer pursuant to a contract for the purchase and
sale of real estate dated May 1, 1998, between BFC, as seller, and Company, as
purchaser (the "Bridgeton Freezer Purchase Contract") for a cash purchase price
in the amount of $3,000,000 (the "Bridgeton Freezer Purchase Price") and to
provide for the conveyance thereof to Buyer as part of the transactions
contemplated by this Agreement.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
<PAGE>
1. PURCHASE AND SALE OF ASSETS
1.1. ASSETS TO BE TRANSFERRED. Subject to the terms and conditions of
this Agreement, on the Closing Date (as hereinafter defined) Company shall, and
Shareholder shall cause Company to, sell, transfer, convey, assign, and deliver
to Buyer (or upon Buyer's request, to Fargo), free and clear of all liens and
encumbrances, and Buyer shall purchase and accept all of the business, rights,
claims and assets (of every kind, nature, character and description, whether
real, personal or mixed, whether tangible or intangible, whether accrued,
contingent or otherwise, and wherever situated) of Company, together with all
rights and privileges associated with such assets and with the business of the
Company, other than the Excluded Assets (as hereinafter defined) (collectively
the "Purchased Assets"). The Purchased Assets shall include, but not be limited
to, the following:
1.1.(a) OWNED REAL PROPERTY. All of the real property, including
fixtures, buildings, improvements, and all appurtenant rights owned by
Company, including the real property described on Schedule 1.1.(a) and to
be acquired pursuant to the Bridgeton Freezer Purchase Contract, as more
particularly described in Section 9.4 hereof (collectively, the "Owned Real
Property"). Specifically, for purposes of the representations and
warranties of Company and Shareholder in this Agreement, the Bridgeton
Freezer shall be deemed to be Owned Real Property with the Bridgeton
Freezer to be conveyed directly to Buyer at Closing as set forth in Section
9.4 hereof.
1.1.(b) LEASED REAL PROPERTY. All of the leases of real property
with respect to real property leased by Company, including the leases (the
"Real Property Leases") described on Schedule 1.1.(b) with respect to the
real property described thereon (the "Leased Real Property").
1.1.(c) PERSONAL PROPERTY. All machinery, equipment, vehicles,
tools, supplies, spare parts, furniture and all other personal property
(other than Excluded Assets and personal property leased pursuant to
Personal Property Leases as hereinafter defined) owned, utilized or held
for use by Company on the Closing Date.
1.1.(d) INVENTORY. All inventories of raw materials,
work-in-process and finished goods (including all such in transit), and
service and repair parts, supplies and components held for resale by
Company on the Closing Date, together with related labels and packaging
materials (collectively the "Inventory").
1.1.(e) PERSONAL PROPERTY LEASES. All leases of machinery,
equipment, vehicles, furniture and other personal property leased by
Company, including all such leases (the "Personal Property Leases")
described in Schedule 1.1(e).
1.1.(f) TRADE RIGHTS. All Company's interest in any Trade Rights.
As used herein, the term "Trade Rights" shall mean and include: (i) all
trademark rights, business identifiers, trade dress, service marks, trade
names, and brand names; (ii) all
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copyrights and all other rights associated therewith and the underlying
works of authorship; (iii) all patents and all proprietary rights
associated therewith; (iv) all contracts or agreements granting any
right, title, license or privilege under the intellectual property
rights of any third party; (v) all inventions, mask works and mask work
registrations, know-how, discoveries, improvements, designs, trade
secrets, shop and royalty rights, employee covenants and agreements
respecting intellectual property and non-competition (other than the
employee agreements set forth on Schedule 1.2(e)) and all other types of
intellectual property; and (vi) all registrations of any of the
foregoing, all applications therefor, all goodwill associated with any
of the foregoing, and all claims for infringement or breach thereof.
1.1.(g) CONTRACTS. All Company's rights in, to and under all
contracts, purchase orders and sales orders (hereinafter "Contracts") of
Company, including, without limitation, the Bridgeton Freezer Purchase
Contract, but excluding the contracts, agreements and insurance policies
described in Sections 1.2(d), 1.2(e) and 1.2(g). To the extent that any
Contract for which assignment to Buyer is provided herein is not assignable
without the consent of another party, this Agreement shall not constitute
an assignment or an attempted assignment thereof if such assignment or
attempted assignment would constitute a breach thereof. The Shareholder,
Company and Buyer agree to use their "Reasonable Best Efforts" (without any
requirement on the part of Buyer to agree to any change in the terms of any
such Contract) to obtain the consent of such other party to the assignment
of any such Contract to Buyer in all cases in which such consent is or may
be required for such assignment. For purposes of this Agreement,
"Reasonable Best Efforts" shall mean the taking or performing of all
commercially reasonable efforts, actions or other measures, provided that
it shall not require that additional costs or expenses be incurred (other
than incidental costs or expenses). If any such consent shall not be
obtained, the Shareholder, Company and Buyer agree to cooperate with each
other in any reasonable arrangement designed to provide for the transfer of
obligations under such Contract to Buyer and provide for Buyer the benefits
intended to be assigned to Buyer under the relevant Contract, including
enforcement at the cost and for the account of Buyer of any and all rights
of Company against the other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. If and to the
extent that such arrangement cannot be made, Buyer, upon notice to Company,
shall have no obligation pursuant to Section 2.1 or otherwise with respect
to any such Contract and any such Contract shall not be deemed to be a
Purchased Asset hereunder. Notwithstanding anything in the foregoing to
the contrary, any contract that is not an Assumed Contract under Section
2.1(b) below shall not be deemed to be a Purchased Asset hereunder.
1.1.(h) COMPUTER SOFTWARE. All computer source codes, programs and
other software of Company, including all machine readable code, printed
listings of code, documentation and related property and information of
Company.
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1.1.(i) LITERATURE. All sales literature, promotional literature,
catalogs and similar materials of Company.
1.1.(j) RECORDS AND FILES. All records and files of Company of
every kind including, without limitation, invoices, customer and vendor
lists, blueprints, specifications, designs, drawings, and operating and
marketing plans, and all other documents, tapes, discs, programs or other
embodiments of information of Company.
1.1.(k) CASH, CASH EQUIVALENTS AND INVESTMENTS. All cash, cash
equivalents and investments of Company.
1.1.(l) NOTES AND ACCOUNTS RECEIVABLE. All notes, drafts and
accounts receivable of Company, including, without limitation, any notes,
drafts, accounts receivable or other obligations owed to Company by any
Affiliate of Company. For purposes of this Agreement, the term "Affiliate"
shall mean the Shareholder and all directors and officers of Company; the
spouse of any such person; any person who would be the heir or descendant
of any such person if he or she were not living (not more remote than first
cousin); and any entity in which any of the foregoing has a significant
ownership or financial interest (except through ownership of less than 5%
of the outstanding shares of any entity whose securities are listed on a
national securities exchange or traded in the over-the-counter market).
1.1.(m) PLAN ASSETS. All rights in and with respect to the assets
associated with the Assumed Employee Plans/Agreements as in Section
4.16(a).
1.1.(n) LICENSES; PERMITS. All licenses, permits, approvals,
certifications and listings of Company.
1.1.(o) CORPORATE NAME. The name "Minot Food Packers" and all other
trade names of Company relating to the Business, and all rights to use or
allow others to use such name.
1.1.(p) GENERAL INTANGIBLES. All goodwill, all prepaid expenses,
advances and deposits, all causes of action arising out of occurrences
before or after the Closing and all other intangible rights and assets,
except for the Lawsuit Rights of Recovery described in Section 1.2(h)
hereof.
1.2. EXCLUDED ASSETS. The provisions of Section 1.1 notwithstanding,
Company shall not sell, transfer, assign, convey or deliver to Buyer, and Buyer
will not purchase or accept the following assets of Company (collectively the
"Excluded Assets"):
1.2.(a) CONSIDERATION AND CERTAIN RIGHTS. The consideration
delivered by Buyer to Company pursuant to this Agreement and the rights of
Company and
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Shareholder under this Agreement and under the documents to be
delivered by Company or Shareholder at the Closing.
1.2.(b) TAX CREDITS AND RECORDS. Federal, state and local income
and franchise tax credits and tax refund claims and associated returns and
records. Buyer shall have reasonable access to such returns and records
and may make excerpts therefrom and copies thereof.
1.2.(c) CORPORATE FRANCHISE. Company's franchise to be a
corporation, its certificate of incorporation, corporate seal, stock books,
minute books and other corporate records having principally to do with the
corporate organization and capitalization of Company. Buyer shall have
reasonable access to such books and records and may make excerpts therefrom
and copies thereof.
1.2.(d) CRANBERRY SUPPLY CONTRACTS. All cranberry supply contracts,
agreements or commitments of Company providing for the purchase by Company
of raw, processed or frozen cranberries or cranberry concentrate, including
without limitation, the cranberry supply contracts described on Schedule
1.2.(d) (the "Cranberry Supply Contracts").
1.2.(e) OTHER EXCLUDED CONTRACTS AND AGREEMENTS. The contracts and
agreements that are listed on Schedule 1.2(e).
1.2.(f) OTHER ASSETS. The personal assets of the Shareholder that
are listed and described on Schedule 1.2.(f).
1.2.(g) LIFE INSURANCE POLICIES. The life insurance policies
insuring the life of the Shareholder that are listed on Schedule 1.2(g).
1.2.(h) LAWSUIT RIGHTS OF RECOVERY. All rights of recovery
pertaining to claims asserted by Company or the Shareholder in the
Litigation described in Schedule 1.2.(h).
1.2.(i) TREASURY SHARES. Shares of Company held in its treasury or
otherwise purchased or re-purchased by Company prior to the Closing Date.
1.2.(j) THIRD PARTY CONFIDENTIAL INFORMATION. All proprietary
information of third parties which Company has agreed not to disclose,
disseminate or transfer to others under confidentiality agreements to which
Company is bound, including but not limited to third party processes,
methodologies and formulae relating to the co-packing of products for other
branded producers (the "Third Party Confidential Information").
2. ASSUMPTION OF LIABILITIES
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<PAGE>
2.1. LIABILITIES TO BE ASSUMED. As used in this Agreement, the term
"Liability" shall mean and include any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown, asserted or
unasserted, liquidated or unliquidated, secured or unsecured. Subject to the
terms and conditions of this Agreement, on the Closing Date, Buyer shall assume
and agree to perform and discharge the following, and only the following
Liabilities of Company (collectively the "Assumed Liabilities"):
2.1.(a) BALANCE SHEET CURRENT LIABILITIES. The accounts payable and
accrued current Liabilities (other than Assumed and Excluded Debt
Obligations) reflected or reserved against on the Recent Balance Sheet (as
defined in Section 4.4).
2.1.(b) CONTRACTUAL LIABILITIES. Company's Liabilities under and
pursuant to the following Contracts and BFC Liabilities under the Contract
described in Schedule 2.1.(b)(i):
(i) All Contracts described in any of Schedules 1.1.(b),
1.1.(e), 2.1(b)(i), 4.14.(g); 4.14(i) and 4.14(l) (other than the
Contracts set forth on Schedule 1.2(e)).
(ii) The Union Contracts, as defined in Section 4.15(a).
(iii) Every other Contract entered into by Company in the
ordinary course of its business (other than contracts described in
Section 2.2(a)(i) and (ii)) which does not involve consideration or
other expenditure by Company payable or performable on or after the
Closing Date in excess of $75,000 or performance over a period of more
than 12 months.
(iv) Any other Contract not described in Section 2.1(b)(i)
through (iii) that Buyer elects to assume by written notice to Company
and Shareholder.
The Contracts described in subsections 2.1.(b)(i) through (iii) above are
hereinafter collectively described as the "Assumed Contracts."
2.1.(c) LIABILITIES UNDER PERMITS AND LICENSES. Company's
Liabilities under any permits or licenses listed in Schedule 4.11.(b) and
assigned to Buyer at the Closing.
2.1.(d) ASSUMED ENVIRONMENTAL LIABILITIES. Company's Liabilities,
if arising in connection with any Environmental Action (as defined below)
which are related in any way to the Company's ownership, operation or
occupancy of the Business or the Facilities and Purchased Assets being
transferred to Buyer, except to the extent that such liabilities relate to
(i) Identified Releases as defined in Section 2.2(f); and/or (ii) to the
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extent Sellers retain responsibility therefor pursuant to the
indemnification in Section 11 of the Agreement. As used herein,
"Environmental Action" means any pollution, threat to the environment, or
exposure to, or manufacture, processing, distribution, use, treatment,
generation, existence, transport, handling, presence, disposal, emission,
discharge, storage, escape, seepage, leakage, or release of, or threatened
release of, any Hazardous Substance (as defined below) in any location. As
used herein,"Hazardous Substance" means pollutants, contaminants,
chemicals, compounds or industrial, toxic, hazardous or petroleum or
petroleum-based substances or wastes, waste waters or byproducts, including
without limitation asbestos, polychlorinated biphenyls or urea
formaldehyde, and any other substances subject to regulation under any
applicable Environmental Law (as defined in Section 4.11(c)). The
Liabilities described in this Section 2.1(d) include, without limitation,
Liabilities arising under any applicable Federal or State Environmental Law
(as defined in Section 4.11(c)) including, without limitation, the Federal
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA").
2.1.(e) LIABILITIES ARISING IN THE ORDINARY COURSE OF BUSINESS.
Company's Liabilities, other than Excluded Liabilities, arising out of the
operations of the Business in the ordinary course or through the ownership
of the Purchased Assets prior to the Closing Date.
2.1.(f) ASSUMED DEBT OBLIGATIONS. Company's Liabilities for
principal and accrued interest as of the Closing Date under those certain
loans identified as "Assumed Debt Obligations" in Schedule 2.1(f) ("Assumed
Debt Obligations"). The principal and accrued and unpaid interest on the
Assumed Debt Obligations in the aggregate as of the close of business on
April 30, 1998, was $12,500,830, as more particularly described in Schedule
2.1(f).
2.1.(g) PRODUCT LIABILITY. Any Liability of Company arising out of
or in any way relating to or resulting from any product manufactured,
assembled or sold on or before the Closing Date (including any Liability of
Company for claims made for injury to persons, damage to property or other
damage, whether made in product liability, tort, breach of warranty or
otherwise), except any Liability for which Sellers retain responsibility
therefor pursuant to the indemnification provisions of Section 11 of this
Agreement arising out of a breach of the representations of Sellers in
Section 4.20.
2.1.(h) PLAN LIABILITIES. All Liabilities in and with respect to
the Assumed Employee Plans/Agreements, as defined in Section 4.16.(a),
except as specifically provided in Sections 2.2(g) or 2.2(i) below.
2.2. LIABILITIES NOT TO BE ASSUMED. Except as and to the extent
specifically set forth in Section 2.1, Buyer is not assuming any Liabilities of
Company and all such Liabilities shall be and remain the responsibility of
Company. Notwithstanding the provisions of Section
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2.1, Buyer is not assuming and Company shall not be deemed to have transferred
to Buyer the following Liabilities of Company (the "Excluded Liabilities"):
2.2.(a) CERTAIN CONTRACTS. The Liabilities of Company under and
pursuant to the following contracts and leases:
(i) All Cranberry Supply Contracts.
(ii) The Contracts identified on Schedules 1.2(e) and 1.2(g).
(iii) Any other Contract that is not assumed by Buyer
pursuant to the provisions of Section 2.1(b) above.
2.2.(b) TAXES ARISING FROM TRANSACTION. Any taxes applicable to the
Company, imposed upon or arising out of the sale or transfer of the
Purchased Assets to Buyer and the other transactions contemplated by this
Agreement, including but not limited to any income, transfer, sales, use,
gross receipts or documentary stamp taxes.
2.2.(c) INCOME AND FRANCHISE TAXES. Any Liability of Company for
Federal income taxes and any state or local income, profit or franchise
taxes (and any penalties or interest due on account thereof).
2.2.(d) INSURED CLAIMS. Any Liability of Company insured against by
the Company, to the extent such Liability is or will be paid by an insurer.
2.2.(e) DEBT OBLIGATIONS. The prepayment penalties, if any, on the
Assumed Debt Obligations that are to be repaid by Buyer at Closing
("Assumed Debt Prepayment Penalties") and any long or short-term debt
obligations of Company (other than the principal, overdrafts and accrued
interest of and with respect to the Assumed Debt Obligations as of Closing
Date) for money borrowed.
2.2.(f) IDENTIFIED RELEASES. Liabilities arising in connection with
the environmental contamination identified on Schedule 2.2(f) (the
"Identified Release") and covered by the Environmental Indemnity Agreement
attached hereto as Exhibit I and/or (ii) to the extent Sellers retain
responsibility therefor pursuant to the indemnification in Section 11 of
this Agreement. The Liabilities described in this Section 2.2(f) include,
without limitation, Liabilities arising under any applicable federal or
state Environmental Law, including, without limitation, the CERCLA.
2.2.(g) LITIGATION MATTERS. Any Liability of Company with respect
to any action, suit, proceeding, arbitration, investigation or inquiry,
whether civil, criminal or administrative ("Litigation"), whether or not
described in Schedule 4.10, with the exception of items (a) (except to the
extent provided in Section 2.2(d)), (b) and (c) under Paragraph 1 of
Schedule 4.10.
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2.2.(h) TRANSACTION EXPENSES. All Liabilities incurred by Company
in connection with this Agreement and the transactions contemplated herein
on or after November 30, 1997 for expenses for which Company and
Shareholder are responsible pursuant to Sections 15.9(a) and (c)
("Transaction Expenses").
2.2.(i) LIABILITY FOR BREACH. Liabilities of Company for any breach
or failure to perform any of Company's covenants and agreements contained
in, or made pursuant to, this Agreement, or, prior to the Closing, any
known breach or failure to perform any of Company's covenants and
agreements contained in any other contract, whether or not assumed
hereunder, including any known breach or failure to perform under any
Employe Plan/Agreement (as defined in Section 4.16(a)) and any breach
arising from assignment of contracts hereunder without consent of third
parties, but not including such liabilities relating to product return or
warranty obligations incurred in the ordinary course of Company's business.
2.2.(j) LIABILITIES TO AFFILIATES. Liabilities of Company to its
present or former Affiliates, including those described in Schedule 2.2(j),
except obligations for compensation for services rendered as an employee
pursuant to plans or practices disclosed in Schedule 4.16.(a), payment
obligations under the Bridgeton Freezer Purchase Contract described in
Section 9.4 and any accrued expenses and liabilities relating to the rental
and operation of the Bridgeton Freezer.
3. PURCHASE PRICE - PAYMENT
3.1. PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Purchased Assets shall be the sum of the following: (i) $24,994,256, payable in
cash as provided in Section 3.2(b) below, (ii) Northland Class A Common Stock,
$0.01 par value ("Northland Stock"), with a value of $2,000,000 on the Closing
Date as determined in Section 3.2(e) below, and (iii) the assumption of the
Assumed Liabilities.
3.2. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid by Buyer
as follows:
3.2.(a) ASSUMPTION OF LIABILITIES.
(i) REPAYMENT OF ASSUMED DEBT OBLIGATIONS. At the Closing, the
Buyer shall pay all principal and accrued interest due on
the Assumed Debt Obligations and the amount of any Assumed
Debt Prepayment Penalties; and
(ii) ASSUMPTION OF OTHER ASSUMED LIABILITIES. At the Closing,
Buyer shall deliver to Company such documents and
instruments as are reasonably
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required to evidence the assumption of the Assumed
Liabilities.
3.2.(b) DEPOSIT WITH ESCROW AGENT. At the Closing, Buyer shall
deliver to the Escrow Agent, under the Escrow Agreement (as defined in
Section 7.4), cash in the amount of $3,000,000 and shall issue in Company's
name and shall deliver to the Escrow Agent that number of shares of
Northland Stock that is equal to $2,000,000 divided by the "Northland Stock
Value" as of the Effective Time, as determined in Section 3.2(e) below.
3.2.(c) CASH TO COMPANY. At the Closing, Buyer shall deliver to
Company cash in an amount equal to (i) $24,994,256, less (ii) the amount
paid in cash to the Escrow Agent pursuant to Section 3.2(b) above, less
(iii) the amount of the Bridgeton Freezer Purchase Price to be paid
pursuant to the Bridgeton Freezer Purchase Contract (before any adjustments
to such purchase price made pursuant to such contract) in accordance with
Sections 3.2(d) and 9.4 of this Agreement, and (iv) less the amount of any
Transaction Expenses paid by Company on or after November 30, 1997; and (v)
less the amount of any Assumed Debt Prepayment Penalties.
3.2.(d) CASH TO BFC. At the Closing, Buyer shall deliver to BFC
cash in an amount equal to the Bridgeton Freezer Purchase Price payable
pursuant to the Bridgeton Freezer Purchase Contract, plus or minus, as
the case may be, any adjustments to such purchase price made pursuant
to such contract.
3.2.(e) NORTHLAND STOCK VALUE. For purposes of this Agreement,
Northland Stock Value shall mean the average of the last reported sale
price (regular way) on the National Association of Securities Dealers
Automated Quotations System ("Nasdaq") exchange for the seven trading days
ending two business days prior to the Closing Date. Notwithstanding
anything contained herein, the Northland Stock Value shall not be less than
$13.66 per share nor greater than $23.66 per share.
3.2.(f) METHOD OF PAYMENT. All payments under this Section 3.2
shall be made in the form of certified or bank cashier's check payable to
the order of the recipient or, at the recipient's option, by wire transfer
of immediately available funds to an account designated by the recipient
not less than 48 hours prior to the time for payment specified herein.
3.3. ALLOCATION OF PURCHASE PRICE. The aggregate Purchase Price
(including the assumption by Buyer of the Assumed Liabilities) shall be
allocated among the Purchased Assets for tax purposes as agreed to in writing
prior to Closing by Buyer and Company, provided, that the allocation of Purchase
Price to inventory shall be based on a physical inventory taken by Buyer's
independent accountants as of the Effective Time and provided, further, that
Company's inventories of raw, processed and frozen cranberries and cranberry
concentrate shall be valued at $70.00 per barrel (or its equivalent) and the
allocation of the Purchase Price to machinery and
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equipment shall not exceed the net book value thereof as reflected on
Company's Recent Balance Sheet. Company and Buyer will follow and use such
allocation in all tax returns, filings or other related reports made by them
to any governmental agencies. To the extent that disclosures of this
allocation are required to be made by the parties to the Internal Revenue
Service ("IRS") under the provisions of Section 1060 of the Internal Revenue
Code of 1986, as amended (the "Code") or any regulations thereunder, Buyer
and Company will disclose such reports to the other prior to filing with the
IRS.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY AND SHAREHOLDER
Company and the Shareholder, jointly and severally, make the following
representations and warranties to Buyer, each of which is true and correct on
the date hereof, shall remain true and correct to and including the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
Buyer, or any knowledge of Buyer other than as specifically disclosed in the
Disclosure Schedule delivered to Buyer at the time of the execution of this
Agreement, and shall survive the Closing of the transactions provided for
herein.
4.1. CORPORATE.
4.1.(a) ORGANIZATION. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Jersey.
4.1.(b) CORPORATE POWER. Company has all requisite corporate power
and authority to own, operate and lease its properties, to carry on its
business as and where such is now being conducted, to enter into this
Agreement and the other documents and instruments to be executed and
delivered by Company pursuant hereto and to carry out the transactions
contemplated hereby and thereby.
4.1.(c) QUALIFICATION. Company is duly licensed or qualified to do
business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by it,
or the nature of its business, makes such licensing or qualification
necessary, except where the failure so to qualify would not have a material
adverse effect upon (i) the Purchased Assets, (ii) the business, operations
or financial condition of the Business, or (iii) the ability of Company or
Shareholder to consummate the transactions contemplated hereby (any of the
foregoing "Material Adverse Effect"). The states in which Company is
licensed or qualified to do business are listed in Schedule 4.1.(c).
4.1.(d) NO SUBSIDIARIES. Company does not own any interest in any
corporation, partnership or other entity.
4.2. AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Company pursuant
hereto and the consummation
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of the transactions contemplated hereby and thereby have been duly authorized
by the Board of Directors of Company and the Shareholder. No other or
further corporate act or proceeding on the part of Company is necessary to
authorize this Agreement or the other documents and instruments to be
executed and delivered by Company pursuant hereto or the consummation of the
transactions contemplated hereby and thereby. This Agreement constitutes,
and when executed and delivered, the other documents and instruments to be
executed and delivered by Company pursuant hereto will constitute, valid
binding agreements of Company, enforceable in accordance with their
respective terms, except as such may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally, and by
general equitable principles.
4.3. NO VIOLATION. Except as set forth on Schedule 4.3, neither the
execution and delivery of this Agreement or the other documents and instruments
to be executed and delivered by Company pursuant hereto, nor the consummation by
Company of the transactions contemplated hereby and thereby (a) will violate any
applicable Law or Order, (b) except for applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), will
require any authorization, consent, approval, exemption or other action by or
notice to any Government Entity (including, without limitation, under any
"plant-closing" or similar law), or (c) subject to obtaining the consents
referred to in Schedule 4.3, will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or accelerate
the performance required by, or result in the creation of any Lien (as defined
in Section 4.12.(a)) upon any of the assets of Company under, any term or
provision of the Certificate of Incorporation or By-laws of Company or of any
contract, commitment, understanding, arrangement, agreement or restriction of
any kind or character to which Company is a party or by which Company or any of
its assets or properties may be bound or affected.
4.4. FINANCIAL STATEMENTS. Included as Schedule 4.4 are true and complete
copies of the financial statements of Company consisting of (i) balance sheets
of Company as of June 30, 1997 and 1996, and the related statements of income
and cash flows for the year ended June 30, 1997 (including the notes contained
therein or annexed thereto), which financial statements were reported on, and
are accompanied by, the signed, unqualified opinion of BDO Seidman, LLP,
independent auditors for Company with respect thereto, and (ii) an unaudited
balance sheet of Company as of February 28, 1998 (the "Recent Balance Sheet"),
and the related unaudited statement of income for the eight months then ended.
Except as disclosed on Schedule 4.4, all of such financial statements (including
all notes and schedules contained therein or annexed thereto) are true, complete
and accurate, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, for the
absence of footnote disclosure) applied on a consistent basis, have been
prepared in accordance with the books and records of Company, and fairly
present, in accordance with generally accepted accounting principles, the
assets, liabilities and financial position, the results of operations and cash
flows of Company as of the dates and for the years and periods indicated. The
principal and accrued interest owed by Company on the Assumed Debt obligations
was $12,500,830.00
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as of the close of business on April 30, 1998 and $12,630,744 as of the close
of business on May 13, 1998, as more specifically described on Schedule
2.1(f) attached hereto.
4.5. TAX MATTERS.
4.5.(a) PROVISION FOR TAXES. The provision made for taxes on the
Recent Balance Sheet is sufficient for the payment of all federal, state,
foreign, county, local and other income, ad valorem, excise, profits,
franchise, occupation, property, payroll, sales, use, gross receipts and
other taxes (and any interest and penalties) and assessments, whether or
not disputed at the date of the Recent Balance Sheet, and for all years and
periods prior thereto. No provision for taxes has been made because
Company is an S corporation for federal income tax purposes and because
Company has sufficient net operating loss carryforwards for New Jersey tax
purposes to offset any New Jersey income taxes on current year's income as
of the date of the Recent Balance Sheet. Since the date of the Recent
Balance Sheet, Company has not incurred any taxes other than taxes incurred
in the ordinary course of business consistent in type and amount with past
practices of Company.
4.5.(b) TAX RETURNS FILED. Except as set forth on Schedule 4.5.(b),
all federal, state, foreign, county, local and other tax returns required
to be filed by or on behalf of Company have been timely filed and when
filed were true and correct in all material respects, and the taxes shown
as due thereon were paid or adequately accrued. Company has duly withheld
and paid all taxes which it is required to withhold and pay relating to
salaries and other compensation heretofore paid to the employees of
Company.
4.5.(c) TAX AUDITS. Except as provided in Schedule 4.5(c), the
federal and state income tax returns of Company for the past five fiscal
years have not been audited by the IRS and appropriate state taxing
authorities for the periods and to the extent set forth in Schedule
4.5.(c), and Company has not received from the IRS or from the tax
authorities of any state, county, local or other jurisdiction any notice of
underpayment of taxes or other deficiency which has not been paid nor any
objection to any return or report filed by Company. There are outstanding
no agreements or waivers extending the statutory period of limitations
applicable to any tax return or report.
4.5.(d) CONSOLIDATED GROUP. Since 1993, Company has not been a
member of an affiliated group of corporations that filed a consolidated
income tax return.
4.5.(e) OTHER. Company has, since July 1, 1987, continuously
maintained the status and qualification of an S corporation pursuant to
section 1361 ET. SEQ. of the Code for federal income tax purposes. Except
as set forth in Schedule 4.5.(e), since June 30, 1991, Company has not (i)
filed any consent or agreement under Section 341(f) of the Code, (ii)
applied for any tax ruling, (iii) entered into a closing agreement with any
taxing authority, (iv) filed an election under Section 338(g) or Section
338(h)(10) of the Code (nor has a deemed election under Section 338(e) of
the
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Code occurred), (v) made any payments, or been a party to an agreement
(including this Agreement) that under any circumstances could obligate it
to make payments that will not be deductible because of Section 280G of the
Code, or (vi) been a party to any tax allocation or tax sharing agreement.
4.6. ACCOUNTS RECEIVABLE. Except as described in Schedule 4.6, all
accounts receivable of Company reflected on the Recent Balance Sheet, and as
incurred in the normal course of business since the date thereof, represent
arm's length sales actually made in the ordinary course of business; are
collectible (net of the reserves shown on the Recent Balance Sheet for doubtful
accounts) in the ordinary course of business without the necessity of commencing
legal proceedings; are subject to no counterclaim or setoff; and are not in
dispute. Schedule 4.6 contains an aged schedule of accounts receivable included
in the Recent Balance Sheet. All accounts receivable of Company as of the
Closing Date will represent arm's length sales actually made in the ordinary
course of business and will be collected (net of the reserve as of the Closing
Date for doubtful accounts) in the ordinary course of business without the
necessity of commencing legal proceedings and will be subject to no counterclaim
or set-off, except for the customary adjustments and discounts reflected on
Schedule 4.6.
4.7. INVENTORY. Except as described in Schedule 4.7, all inventory of
Company reflected on the Recent Balance Sheet consists of a quality and quantity
usable and saleable in the ordinary course of business had a commercial value at
least equal to the value shown on such balance sheet and is valued in accordance
with generally accepted accounting principles at the lower of cost (on a FIFO
basis) or market. All inventory purchased since the date of such balance sheet
consists of a quality and quantity usable and saleable in the ordinary course of
business. Except as set forth in Schedule 4.7, all inventory of Company at
April 30, 1998, is located on premises owned or leased by Company as reflected
in this Agreement. Except as set forth on Schedule 4.7, the cost of finished
goods contained in inventory constitutes items produced (i) pursuant to
contracts or open orders taken in the ordinary course of business, from regular
customers of Company with no recent history of credit problems with respect to
Company or (ii) as floor stock produced in the ordinary course of business;
neither Company nor, to the knowledge of Company and Shareholder, any such
customer is in material breach of the terms of any obligation to the other, and,
to the knowledge of Company and the Shareholder, no valid grounds exist for any
set-off of amounts billable to such customers for the finished goods, except for
the customary adjustments and discounts reflected on Schedule 4.6. All finished
goods are of a quality ordinarily produced in accordance with the requirements
of specifications of customers, are fit for human consumption, are saleable
based on Company's normal sales experience prior to the expiration of their
shelf life, if any, and will require no rework with respect to services
performed prior to Closing in excess of normal reserves established therefor.
Schedule 4.7 sets forth a description of all finished goods that have been
reworked by Company during the previous six months (on a monthly basis). The
term "rework" shall not include relabelling of products in the ordinary course
of business consistent with past practices. All packaging, labels and finished
goods contained in inventory are in compliance in all material respects as to
content, labeling and packaging with applicable laws and regulations (including,
without limitation, those of the U.S. Department of Agriculture and U.S. Food
and
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Drug Administration). Schedule 4.7 contains a list of all inventory supplied
to Company by customers as of May 2, 1998.
4.8. ABSENCE OF CERTAIN CHANGES. Except as and to the extent set forth in
Schedule 4.8, since the date of the Recent Balance Sheet there has not been:
4.8.(a) NO ADVERSE CHANGE. Any change in the financial condition,
assets, Liabilities, business, prospects or operations of Company which has
had or could reasonably be expected to have a Material Adverse Effect on
Company;
4.8.(b) NO DAMAGE. Any loss, damage or destruction, whether covered
by insurance or not, affecting Company's business or properties which has
had or could reasonably be expected to have a Material Adverse Effect on
Company;
4.8.(c) NO INCREASE IN COMPENSATION. Any increase in the
compensation, salaries or wages payable or to become payable to any
employee or agent of Company (including, without limitation, any increase
or change pursuant to any bonus, pension, profit sharing, retirement or
other plan or commitment), or any bonus or other employee benefit granted,
made or accrued, except for bonuses and other special compensation
arrangements for employees that will be paid by Company after Closing or
for which Buyer will be reimbursed or credited with at the Closing;
4.8.(d) NO LABOR DISPUTES. Any labor dispute or disturbance, other
than routine individual grievances which are not material individually or
in the aggregate to the business, financial condition or results of
operations of Company;
4.8.(e) NO NONORDINARY COMMITMENTS. Any commitment or transaction
by Company (including, without limitation, any borrowing or capital
expenditure) other than in the ordinary course of business consistent with
past practice;
4.8.(f) NO DIVIDENDS. Any declaration, setting aside, or payment of
any dividend or any other distribution in respect of Company's capital
stock, except distributions to the Shareholder in the aggregate amount of
$80,000; any redemption, purchase or other acquisition by Company of any
capital stock of Company, or any security relating thereto; or any other
payment to any shareholder of Company as such a shareholder.
4.8.(g) NO DISPOSITION OF PROPERTY. Any sale, lease or other
transfer or disposition of any material properties or assets of Company,
except for the sale of inventory items in the ordinary course of business;
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4.8.(h) NO INDEBTEDNESS. Any indebtedness for borrowed money
incurred, assumed or guaranteed by Company other than advances and draws
for working capital purposes under the Company's existing credit
facilities;
4.8.(i) NO LIENS. Any Lien made on any of the properties or assets
of Company;
4.8.(j) NO AMENDMENT OF CONTRACTS. Any entering into, amendment or
termination by Company of any contract (other than the Cranberry Supply
Contracts), or any waiver of material rights thereunder (including, without
limitation, requesting or accepting of any delivery prior to the Closing
Date under the Ocean Spray Contract described in Schedule 2.2(a)(i) in
advance of or in addition to the normal or regularly scheduled deliveries
thereunder), other than in the ordinary course of business consistent with
past practice or as contemplated by this Agreement or the Inventory
Purchase Agreement (as defined in Section 7.10);
4.8.(k) NO LOANS OR ADVANCES. Any loan or advance (other than
advances to employees in the ordinary course of business for travel and
entertainment in accordance with past practice) to any person including,
but not limited to, any officer, director or employee of Company, or the
Shareholder or Affiliate;
4.8.(l) CREDIT. Any grant of credit to any customer or distributor
on terms or in amounts more favorable than those which have been extended
to such customer or distributor in the past, any write-off, compromise or
other satisfaction of any receivable at less than the face value thereof,
any other change in the terms of any credit heretofore extended, or any
other change of Company's policies or practices with respect to the
granting of credit, (except for routine write-offs or credits to customers
granted in the ordinary course of Company's business consistent with past
practices as described in Schedule 4.6);
4.8.(m) NO ACCOUNTING CHANGES. Any write-off or write-down of any
balance sheet account, or any establishment of or increase or adjustment in
the amount of any reserve (other than in the ordinary course of Company's
business consistent with past practices) or any change in any method of
accounting or accounting practice;
4.8.(n) NO CRANBERRY PURCHASE COMMITMENTS. Any contract or
commitments for the purchase of raw, processed or frozen cranberries,
cranberry juice or cranberry juice concentrate; or
4.8.(o) NO UNUSUAL EVENTS. Any other material event or condition
not in the ordinary course of business of Company which had or would have a
Material Adverse Effect on Company.
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4.9. ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent specifically disclosed in the Recent Balance Sheet, or in
Schedule 4.9, Company does not have any Liabilities other than
commercial liabilities and obligations incurred since the date of the
Recent Balance Sheet in the ordinary course of business and consistent
in amount and nature with past practice and none of which has or will
have a Material Adverse Effect on the business, financial condition or
results of operations of Company. Except as and to the extent described
in the Recent Balance Sheet or in Schedule 4.9, neither Company nor the
Shareholder has knowledge of any basis for the assertion against Company
of any Liability and there are no circumstances, conditions, happenings,
events or arrangements, contractual or otherwise, known to the Company
or the Shareholder, which may give rise to Liabilities, except
commercial liabilities and obligations incurred in the ordinary course
of Company's business and consistent in amount and nature with past
practice.
4.10. NO LITIGATION. Except as set forth in Schedule 4.10, there
is no Litigation pending or to the knowledge of Company and the
Shareholder, threatened against Company, its directors (in such
capacity), its business or any of its assets, nor does Company or the
Shareholder know, or have grounds to know, of any basis for any
Litigation. Schedule 4.10 also identifies all Litigation to which
Company or any of its directors (in such capacity) have been parties
since July 1, 1992. Except as set forth in Schedule 4.10, neither
Company nor its business or assets is subject to any Order.
4.11. COMPLIANCE WITH LAWS AND ORDERS.
4.11.(a) COMPLIANCE. Except as set forth in Schedule
4.11.(a), Company (including each and all of its operations,
practices, properties and assets) is in compliance in all material
respects with all applicable statutes, laws, common laws,
ordinances, rules or regulations in effect as of the date hereof or
as of the Closing Date (collectively, "Laws") or any order, writ,
injunction, judgment, plan or decree (collectively, "Orders") of
any court, arbitrator, department, commission, board, bureau,
agency, authority, instrumentality or other body, whether federal,
state, municipal, foreign or other (collectively "Governmental
Entities"), including, without limitation, those applicable to
discrimination in employment, occupational safety and health, trade
practices, competition and pricing, product warranties, zoning,
building and sanitation, employment, retirement and labor
relations, product advertising and the Environmental Laws as
hereinafter defined. Except as set forth in Schedule 4.11.(a),
since 1991 Company has not received notice of any violation or
alleged violation of, and is subject to no Liability for past or
continuing violation of, any Laws or Orders. All reports and
returns required to be filed by Company with any Government Entity
have been filed, and were accurate and complete when filed.
Without limiting the generality of the foregoing:
(i) The operation of Company's business as it is
now conducted does not, nor does any condition existing at any
of the Facilities, in any manner constitute a nuisance or
other tortious interference with the
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rights of any person or persons in such a manner as to give
rise to or constitute the grounds for a non-frivolous suit,
action, claim or demand by any such person or persons seeking
compensation or damages or seeking to restrain, enjoin or
otherwise prohibit any aspect of the conduct of such business
or the manner in which it is now conducted.
(ii) Company has made all required payments to its
unemployment compensation reserve accounts with the
appropriate governmental departments of the states where it is
required to maintain such accounts.
(iii) Company has delivered to Buyer copies of all
reports of Company for the past five years required under the
federal Occupational Safety and Health Act of 1970, as
amended, and under all other applicable health and safety laws
and regulations. The deficiencies, if any, noted on such
reports have been corrected.
4.11.(b) LICENSES AND PERMITS. Company has all material licenses,
permits, approvals, authorizations and consents of all Government
Entities and all certification organizations required for the conduct of
the business (as presently conducted) and operation of the Facilities.
All such licenses, permits, approvals, authorizations and consents are
described in Schedule 4.11.(b) and are in full force and effect. Except
as set forth in Schedule 4.11.(b), since 1991 Company (including its
operations, properties and assets) is and has been in compliance in all
material respects with all such permits and licenses, approvals,
authorizations and consents.
4.11.(c) ENVIRONMENTAL MATTERS. The applicable Laws relating to
pollution or protection of the environment, including Laws relating to
emissions, discharges, generation, storage, releases or threatened
releases of Hazardous Substances into the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Substances including, without limitation, the
Clean Water Act, the Clean Air Act, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act and CERCLA, as amended,
and their state and local counterparts are herein collectively referred
to as the "Environmental Laws". Without limiting the generality of the
foregoing provisions of this Section 4.11(c), and except as set forth on
Schedule 4.11(c), Company is in full compliance with all material
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulations, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder. Except as set forth in Schedule
4.11.(c), there is no Litigation nor any demand, claim, hearing or
notice of violation pending or threatened against Company relating in
any way to the Environmental Laws or any Order issued, entered,
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promulgated or approved thereunder. Except as set forth in Schedule
4.11.(c), there are no past or present (or, to the best of Company's and
the Shareholder's knowledge, future) events, conditions, circumstances,
activities, practices, incidents, actions, omissions or plans which may
interfere with or prevent compliance or continued compliance with the
Environmental Laws or with any Order issued, entered, promulgated or
approved thereunder, or which may give rise to any Liability, including,
without limitation, Liability under CERCLA or similar state or local
Laws, or otherwise form the basis of any Litigation, hearing, notice of
violation, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any Hazardous Substance.
4.12. TITLE TO AND CONDITION OF PROPERTIES.
4.12.(a) MARKETABLE TITLE. Company has good and marketable title
to all the Purchased Assets (other than the Bridgeton Freezer), and BFC
has good and marketable title to the Bridgeton Freezer. Such Purchased
Assets are held free and clear in each case of all mortgages, liens
(statutory or otherwise), security interests, claims, pledges, licenses,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, rights-of-way,
exceptions, limitations, charges or encumbrances of any nature
whatsoever (collectively, "Liens") except those described in Schedule
4.12.(a)(i); and, in the case of Real Property, the following
("Permitted Real Property Liens"): Liens for taxes not yet due or which
are being contested in good faith by appropriate proceedings (and which,
as of the date of the Recent Balance Sheet, have been sufficiently
accrued or reserved against in the Recent Balance Sheet), matters that
would be disclosed by an accurate survey of the Real Property, municipal
and zoning ordinances and easements for public utilities, none of which
interfere with the use of the property as currently utilized and those
matters set forth on Schedule 4.12(a)(ii). None of the Purchased Assets
are subject to any restrictions with respect to the transferability
thereof, except that certain contracts may require the consent to
assignment thereof and certain licenses and permits may not be
assignable. Company has complete and unrestricted power and right to
sell, assign, convey and deliver the Purchased Assets to Buyer as
contemplated hereby. At Closing, Buyer will receive good and marketable
title to all the Purchased Assets, free and clear of all Liens of any
nature whatsoever except those described in Schedule 4.12.(a)(i) and
Permitted Real Property Liens.
4.12.(b) CONDITION. Except as set forth on Schedule 4.12(b), all
tangible assets (real and personal) constituting Purchased Assets
hereunder are in good operating condition and repair, free from any
defects (except for reasonable wear and tear and such defects which are
not significant as do not interfere with the use thereof in the conduct
of the normal operations of Company), and, as of the date of this
Agreement and the Closing Date are, or will then be, sufficient to carry
on the business of Company as conducted during the preceding 12 months.
Except as set forth on Schedule 4.12(b), all
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buildings, plants and other structures owned or otherwise utilized by
Company are in good condition and repair and have no structural defects
or defects (except for reasonable wear and tear and such defects which
are not significant as do not interfere with the use thereof in the
conduct of the normal operations of Company) affecting the plumbing,
electrical, sewerage, or heating, ventilating or air conditioning
systems.
4.12.(c) REAL PROPERTY. Schedules 1.1.(a) and 1.1.(b) set forth
all real property owned, used or occupied by Company, or to be acquired
by Company (the "Real Property"), including a description of all land,
and all encumbrances, easements or rights of way of record (or, if not
of record, of which Company has notice or knowledge) granted on or
appurtenant to or otherwise affecting such Real Property, the zoning
classification thereof, and all plants, buildings or other structures
located thereon. Schedule 1.1.(b) also sets forth, with respect to each
parcel of Real Property which is leased, the duration, size of premises,
rental rate, and renewal, termination, expansion and purchase options of
such lease. There are now in full force and effect duly issued
certificates of occupancy permitting the Real Property and improvements
located thereon to be legally used and occupied as the same are now
constituted. All of the Real Property has permanent rights of access to
dedicated public streets. No fact or condition exists which would
prohibit or adversely affect the ordinary rights of access to and from
the Real Property from and to the existing highways and roads and there
is no pending or threatened restriction or denial, governmental or
otherwise, upon such ingress and egress. Except as disclosed on
Schedule 4.12(c), there is not (i) any claim of adverse possession or
prescriptive rights involving any of the Real Property, (ii) any
structure located on any Real Property which encroaches on or over the
boundaries of neighboring or adjacent properties or (iii) any structure
of any other party which encroaches on or over the boundaries of any of
such Real Property. Except (a) as disclosed on Schedule 4.12(c) or (b)
as may be disclosed by an accurate survey of the Real Property to the
extent that it does not materially interfere with the operation of the
business of the Real Property as currently operated by Company, none of
the Real Property is located in a flood plain, flood hazard area,
wetland or lakeshore erosion area within the meaning of any Law. No
public improvements have been commenced and, to Company's and
Shareholder's knowledge, none are planned which in either case may
result in special assessments against or otherwise materially adversely
affect any Real Property. No portion of any of the Real Property has
been used as a landfill or for storage (other than temporary storage in
the ordinary course of Company's business) or landfill of Hazardous
Substances. Except as disclosed on Schedule 4.12(c), neither Company
nor the Shareholder has notice or knowledge of any (i) planned or
proposed increase in assessed valuations of any Real Property, (ii)
Order requiring repair, alteration, or correction of any existing
condition affecting any Real Property or the systems or improvements
thereat, (iii) condition or defect which could give rise to an order of
the sort referred to in "(ii)" above, or (iv) underground storage tanks,
or any structural, mechanical, or other defects of material significance
affecting any Real Property or the systems or improvements thereat
(including, but not limited to, inadequacy for normal use of mechanical
systems or disposal or water systems at or serving the Real Property).
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4.12.(d) NO CONDEMNATION OR EXPROPRIATION. Neither the whole nor
any portion of the property or any other assets of Company is subject to
any Order to be sold or is being condemned, expropriated or otherwise
taken by any Government Entity with or without payment of compensation
therefor nor, to the best of Company's and Shareholder's knowledge, has
any such condemnation, expropriation or taking been proposed.
4.12.(e) NO CERTIFIED SURVEY MAP REQUIRED. No certified survey
map or other state, municipal, or other governmental approval regarding
the division, platting, or mapping of real estate is required as a
prerequisite to the conveyance by Company to Buyer (or as a prerequisite
to the recording of any conveyance document) of any Owned Real Property
or Leased Real Property pursuant to the terms hereof.
4.13. INSURANCE. Set forth in Schedule 4.13 is a complete and accurate
list and description of all policies of fire, liability, product liability,
workers compensation, health and other forms of insurance presently in effect
with respect to the business and properties of Company, true and correct
copies of which have heretofore been delivered to Buyer. Schedule 4.13
includes, without limitation, the carrier, a summary description of coverage,
the limits of coverage, retention or deductible amounts, amount of annual
premiums, date of expiration with respect to each such policy, and any
pending claims in excess of $5,000. All such policies are valid, outstanding
and enforceable policies and provide insurance coverage for the properties,
assets and operations of Company, of the kinds, in the amounts and against
the risks customarily maintained by organizations similarly situated; and no
such policy (nor any previous policy) is subject to any currently enforceable
retroactive rate or premium adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
arising prior to the date hereof. Schedule 4.13 indicates each policy as to
which (a) the coverage limit has been reached or (b) the total incurred
losses to date equal 75% or more of the coverage limit. No notice of
cancellation or termination has been received with respect to any such
policy, and neither Company nor the Shareholder has knowledge of any act or
omission of Company which could result in cancellation of any such policy
prior to its scheduled expiration date. Company has not been refused any
insurance with respect to any aspect of the operations of the business nor
has its coverage been limited by any insurance carrier to which it has
applied for insurance or with which it has carried insurance during the last
three years. Company has duly and timely made all claims it has been entitled
to make under each policy of insurance. Since July 1, 1991, all products
liability and general liability policies maintained by or for the benefit of
Company have been "occurrence" policies and not "claims made" policies.
There is no claim by Company pending under any such policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies, and neither Company nor the Shareholder knows of any basis for
denial of any claim under any such policy. Company has not received any
written notice from or on behalf of any insurance carrier issuing any such
policy that insurance rates therefor will hereafter be substantially
increased (except to the extent that insurance rates may be increased for all
similarly situated risks) or that there will hereafter be a cancellation or
an increase in a deductible (or an increase in premiums in order to maintain
an existing deductible) or nonrenewal of any such policy. Such policies are
sufficient in all
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material respects for compliance by Company with all requirements of law and
with the requirements of all material contracts to which Company is a party.
4.14. CONTRACTS AND COMMITMENTS.
4.14.(a) REAL PROPERTY LEASES. Except as set forth in Schedule
1.1.(b), Company has no leases of real property.
4.14.(b) PERSONAL PROPERTY LEASES. Except as set forth in Schedule
1.1.(e), Company has no leases of personal property involving consideration
or other expenditure in excess of $10,000 or involving performance over a
period of more than six months.
4.14.(c) PURCHASE COMMITMENTS. Except for the Cranberry Supply
Contracts, Company has no purchase commitments for inventory items or
supplies that, together with amounts on hand, constitute in excess of 12
months normal usage, or which are at an excessive price, nor does Company
have any purchase commitments for equipment with a price in excess of
$50,000, except as set forth on Schedule 14.4(c).
4.14.(d) SALES COMMITMENTS. Company has no sales contracts or
commitments to customers or distributors which aggregate in excess of
$50,000 to any one customer or distributor (or group of affiliated
customers or distributors), other than with respect to sales of inventory
in the ordinary course of business. Company has no sales contracts or
commitments except those made in the ordinary course of business, at arm's
length, and no such contracts or commitments (taken as a whole with respect
to any one customer or distributor) are for a sales price which would
result in a loss to the Company based on conditions and circumstances
existing on the date of this Agreement.
4.14.(e) CONTRACTS FOR SERVICES. Except as disclosed on Schedule
4.14(e), Company has no agreement, understanding, contract or commitment
(written or oral) with any officer, employee, agent, consultant,
distributor, dealer or franchisee that is not cancelable by Company
on notice of not longer than 30 days without liability, penalty or premium
of any nature or kind whatsoever.
4.14.(f) POWERS OF ATTORNEY. The Company has not given a power of
attorney, which is currently in effect, to any person, firm or
corporation for any purpose whatsoever.
4.14.(g) COLLECTIVE BARGAINING AGREEMENTS. Except as set forth in
Schedule 4.14.(g), Company is not a party to any collective bargaining
agreements with any unions, guilds, shop committees or other collective
bargaining groups. Copies of all such agreements have heretofore been
delivered to Buyer.
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4.14.(h) LOAN AGREEMENTS. Except as set forth in Schedule
4.14.(h), Company is not obligated under any loan agreement, promissory
note, letter of credit, or other evidence of indebtedness as a
signatory, guarantor or otherwise.
4.14.(i) GUARANTEES. Except as set forth on Schedule 4.14.(i),
Company has not guaranteed the payment or performance of any person,
firm or corporation, agreed to indemnify any person or act as a surety,
or otherwise agreed to be contingently or secondarily liable for the
obligations of any person.
4.14.(j) CONTRACTS SUBJECT TO RENEGOTIATION. Company is not a
party to any contract with any governmental body which is subject to
renegotiation.
4.14.(k) BURDENSOME OR RESTRICTIVE AGREEMENTS. Except as set
forth on Schedule 4.14(k), Company is not a party to nor is it bound by
any agreement, deed, lease or other instrument which is so burdensome as
to materially affect or impair the operation of Company. Without
limiting the generality of the foregoing, Company is not a party to nor
is it bound by any agreement requiring Company to assign any interest in
any trade secret or proprietary information, or prohibiting or
restricting Company from competing in any business or geographical area
or soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
4.14.(l) OTHER MATERIAL CONTRACTS. Company has no lease, license,
contract or commitment of any nature involving consideration or other
expenditure in excess of $75,000, or involving performance over a period
of more than 12 months, or which is otherwise individually material to
the operations of Company, except as explicitly described in Schedule
4.14.(l) or in any other Schedule.
4.14.(m) NO DEFAULT. Except as set forth on Schedule 4.14(m),
Company is not in default under any lease, contract or commitment, nor
has any event or omission occurred which through the passage of time or
the giving of notice, or both, would constitute a default thereunder or
cause the acceleration of any of Company's obligations or result in the
creation of any Lien on any of the assets owned, used or occupied by
Company. To the knowledge of Company and Shareholder, no third party is
in default under any lease, contract or commitment to which Company is a
party, nor has any event or omission occurred which, through the passage
of time or the giving of notice, or both, would constitute a default
thereunder or give rise to an automatic termination, or the right of
discretionary termination, thereof.
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4.15. LABOR MATTERS.
4.15.(a) UNION CONTRACTS. Company is a party to collective
bargaining agreements with the United Food & Commercial Workers Union,
Local 56 ("UFCW Union"), and the International Brotherhood of Teamsters,
Local Union No. 676 ("Teamsters Union"), which are each effective
through May 14, 1998, with respect to certain employees of Company
located at Company's facility in Bridgeton, New Jersey (the "Union
Contracts"). A copy of the Union Contracts, together with all other
agreements and understandings with the unions referenced therein, have
previously been provided by Company to Buyer. Company is not in
violation or breach of the Union Contracts or any of such other
agreements.
4.15.(b) LABOR DISPUTES. Except as set forth in Schedule
4.15.(b), within the last five years Company has not experienced any
labor disputes or any work stoppage due to labor disagreements in
connection with its business. Except to the extent set forth in
Schedule 4.15.(b), (a) Company is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor
practice; (b) there is no unfair labor practice charge or complaint
against Company pending or, to the knowledge of Company and Shareholder,
threatened; (c) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of Company and Shareholder,
threatened against or affecting Company nor any secondary boycott with
respect to products of Company; (d) there is no representation of the
employees of Company (other than the employees covered by the Union
Contracts) by any labor organization and there are no union organizing
activities among the employees of Seller and, to the knowledge of
Company and Shareholder, no question concerning representation has been
raised or is threatened respecting the employees of Company; (e) no
grievance which might have a material adverse effect on Company, nor any
arbitration proceeding arising out of or under collective bargaining
agreements, is pending and, to the knowledge of Company and Shareholder,
no such claim therefor exists; (f) there are no administrative charges
or court complaints against Company concerning alleged employment
discrimination or other employment related matters pending or, to the
knowledge of Company and Shareholder, threatened before the U.S. Equal
Employment Opportunity Commission or any Government Entity; and (g)
except for the Union Contracts or as set forth on Schedule 4.15.(b), no
representation has been made to any employee regarding longevity of
employment.
4.16. EMPLOYEE BENEFIT PLANS.
4.16.(a) DISCLOSURE. Schedule 4.16.(a) sets forth all pension,
thrift, savings, profit sharing, retirement, incentive bonus or other
bonus, medical, dental, life, accident insurance, benefit, employee
welfare, disability, group insurance, stock purchase, stock option,
stock appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
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programs and arrangements, and any employment or consulting contracts,
"golden parachutes," collective bargaining agreements, severance
agreements or plans, vacation and sick leave plans, programs,
arrangements and policies, including, without limitation, all "employee
benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all employee
manuals, and all written or binding oral statements of policies,
practices or understandings relating to employment, which are sponsored,
maintained or contributed to or are required to be contributed to by
Company and are provided to, for the benefit of, or relate to, any
persons ("Company Employees") employed by Company. The items described
in the foregoing sentence (other than any "multiemployer plan", as
defined in Section 4001 of ERISA (a "Multiemployer Plan") are
hereinafter sometimes referred to collectively as "Employee
Plans/Agreements," and each individually as an "Employee
Plan/Agreement." True and correct copies of all written Employee
Plans/Agreements, including all amendments thereto, have heretofore been
provided to Buyer. Each of the Employee Plans/Agreements is identified
on Schedule 4.16.(a), to the extent applicable, as one or more of the
following: an "employee pension benefit plan" (as defined in Section
3(2) of ERISA), a "defined benefit plan" (as defined in Section 414 of
the Code), an "employee welfare benefit plan" (as defined in Section
3(1) of ERISA), and/or as a plan intended to be qualified under Section
401 of the Code. Except as identified on Schedule 4.16(a), none of the
items described in the first sentence of this Section 4.16(a) is a
Multiemployer Plan, and neither the Company, nor any member of its
current or any prior controlled group (as defined in Section 4001 of
ERISA), has ever contributed or been obligated to contribute to any
Multiemployer Plan. The Employee Plans/Agreements to be assumed by
Buyer pursuant to Section 6.2 are hereinafter sometimes referred to
collectively as the "Assumed Employee Plans/Agreements" and each
individually as an "Assumed Employee Plan Agreement."
4.16.(b) TERMINATIONS, PROCEEDINGS, PENALTIES, ETC. With respect
to each employee benefit plan (including, without limitation, the
Employee Plans/Agreements) that is subject to the provisions of Title IV
of ERISA, other than a Multiemployer Plan, and with respect to which the
Company or any of its assets may, directly or indirectly, be subject to
any Liability, contingent or otherwise, or the imposition of any Lien,
except as specified on Schedule 4.16(b):
(i) no such plan has been terminated so as to subject,
directly or indirectly, any assets of Company to any Liability or the
imposition of any Lien under Title IV of ERISA;
(ii) no proceeding has been initiated or threatened by any
person (including the Pension Benefit Guaranty Corporation ("PBGC"))
to terminate any such plan;
(iii) no condition or event currently exists or currently is
expected to occur that could subject, directly or indirectly, any
assets of
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Company to any Liability or the imposition of any Lien under
Title IV of ERISA, whether to the PBGC or to any other person or
otherwise on account of the termination of any such plan;
(iv) if any such plan were to be terminated as of the
Closing Date, no assets of Company would be subject, directly or
indirectly, to any Liability or the imposition of any Lien under
Title IV of ERISA;
(v) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred with respect to any such plan; and
(vi) no such plan which is subject to Section 302 of ERISA
or Section 412 of the Code has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code, respectively), whether or not waived.
4.16.(c) PROHIBITED TRANSACTIONS, ETC. There have been no
"prohibited transactions" within the meaning of Section 406 or 407 of ERISA
or Section 4975 of the Code for which a statutory or administrative
exemption does not exist with respect to any Employee Plan/Agreement, and
except as disclosed in Schedule 4.16(f) and (g), no event or omission has
occurred in connection with which the Company or any of its assets or any
Assumed Employee Plan/Agreement, directly or indirectly, could be subject
to any Liability under ERISA, the Code or any other Law or Order applicable
to any Assumed Employee Plan/Agreement, or under any agreement, instrument,
Law or Order pursuant to which Company is required to indemnify any person
against liability incurred under any such Law or Order.
4.16.(d) FULL FUNDING. Except to the extent set forth on Schedule
4.16.(d), (as the date of most recent actuarial report) the funds available
under each Assumed Employee Plan/Agreement that is subject to Article IV of
ERISA or Section 412 of the Code, equal or exceed the amounts required to
be paid, or which would be required to be paid if such Plan were terminated
on such date, on account of rights vested or accrued as of the Closing Date
(using the actuarial methods and assumptions then used by Company's
actuaries for such purposes).
4.16.(e) CONTROLLED GROUP; AFFILIATED SERVICE GROUP; LEASED
EMPLOYEES. Except as set forth on Schedule 4.16(e), Company is not and
never has been a member of a controlled group of corporations as defined in
Section 414(b) of the Code or in common control with any unincorporated
trade or business as determined under Section 414(c) of the Code; Company
is not and never has been a member of an "affiliated service group" within
the meaning of Section 414(m) of the Code; and there are not and never have
been any leased employees within the meaning of Section 414(n) of the Code
who perform services for Company, and no individuals are expected to become
leased employees prior to the Closing Date.
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4.16.(f) PAYMENTS AND COMPLIANCE. Except as set forth on Schedule
4.16(f), with respect to each Assumed Employee Plan/Agreement, (i) all
payments due from Company to date have been made and all amounts properly
accrued to date as Liabilities of Company which have not been paid have
been properly recorded on the books of Company and are reflected in the
Recent Balance Sheet; (ii) Company has complied with, and each such
Employee Plan/Agreement conforms in form and operation to, all applicable
laws and regulations, including but not limited to ERISA and the Code, in
all material respects and all reports and information relating to such
Employee Plan/Agreement required to be filed with any governmental entity
have been timely filed; (iii) all reports and information relating to each
such Employee Plan/Agreement required to be disclosed or provided to
participants or their beneficiaries have been timely disclosed or provided;
(iv) each such Employee Plan/Agreement which is intended to qualify under
Section 401 of the Code has received a favorable determination letter from
the IRS with respect to such qualification, its related trust has been
determined to be exempt from taxation under Section 501(a) of the Code,
and, to the knowledge of Company and the Shareholder, nothing has occurred
since the date of such letter that has or is likely to adversely affect
such qualification or exemption; (v) there are no actions, suits or claims
pending (other than routine claims for benefits) or threatened with respect
to such Employee Plan/Agreement or against the assets of such Employee
Plan/Agreement; (vi) no such Employee Plan/Agreement is a plan which is
established and maintained outside the United States primarily for the
benefit of individuals substantially all of whom are nonresident aliens;
and (viii) other than short-term salary continuation or disability benefits
for periods not in excess of six months and the payment of medical claims
not in excess of the attachment points under a stop-loss insurance
contract, the benefits under each Assumed Employee Plan/Agreement that
provides medical, dental, disability, life, accidental death and
dismemberment, travel accident or similar welfare benefit coverage or
benefits on behalf of current or former employees of the Company, are
provided through (or the Company is entitled to reimbursement under) one or
more insurance contracts (including stop-loss insurance contracts) that
have at all times been validly in effect, with respect to which all
required premiums have been paid and with respect to which Company is not
subject to a retroactive premium charge.
4.16.(g) POST-RETIREMENT BENEFITS. Except as set forth on Schedule
4.16(g), no Employee Plan/Agreement provides benefits, including, without
limitation, death or medical benefits (whether or not insured) with respect
to current or former Company Employees beyond their retirement or other
termination of service other than (i) coverage mandated by applicable law,
(ii) death or retirement benefits under any Employee Plan/Agreement that is
an employee pension benefit plan, (iii) deferred compensation benefits
accrued as liabilities on the books of the Company (including the Recent
Balance Sheet), (iv) disability benefits under any Employee Plan/ Agreement
that is an employee welfare benefit plan and which are fully provided for
by insurance or (v) benefits in the nature of severance pay.
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4.16.(h) NO TRIGGERING OF OBLIGATIONS. The consummation of the
transactions contemplated by this Agreement, in and of itself, will not (i)
entitle any current or former employee of Company to severance pay,
unemployment compensation or any other payment, except as expressly
provided in this Agreement, (ii) accelerate the time of payment or vesting,
or increase the amount of compensation due to any such employee or former
employee or (iii) result in any prohibited transaction described in Section
406 of ERISA or Section 4975 of the Code for which an exemption is not
available.
4.16.(i) DELIVERY OF DOCUMENTS. There has been delivered to Buyer,
with respect to each Employee Plan/Agreement:
(i) a copy of the last two annual reports filed with the IRS,
if required under ERISA, with respect to each such Employee
Plan/Agreement;
(ii) a copy of the summary plan description, together with each
summary of material modifications if required under ERISA with respect
to such Employee Plan/Agreement, all material employee communications
relating to such Employee Plan/Agreement, and, unless the Employee
Plan/Agreement is embodied entirely in an insurance policy to which
Company is a party, a true and complete copy of such Employee
Plan/Agreement;
(iii) if the Employee Plan/Agreement is funded through a trust or
any third party funding vehicle (other than an insurance policy), a
copy of the trust or other funding agreement and the latest financial
statements, if any, with respect thereto; and
(iv) the most recent determination letter received from the IRS
with respect to each such Employee Plan/Agreement that is intended to
be a "qualified plan" under Section 401 of the Code.
With respect to each Employee Plan/ Agreement for which an annual report
has been filed with the IRS and delivered to Buyer pursuant to clause (i)
of this Section 4.16.(i), no material adverse change has occurred with
respect to the matters covered by the latest such annual report since the
date thereof.
4.16.(j) FUTURE COMMITMENTS. Company has no announced plan or
legally binding commitment to create any additional Employee
Plans/Agreements or to amend or modify any existing Employee
Plan/Agreement.
4.17. EMPLOYMENT COMPENSATION. Schedule 4.17 contains a true and correct
list of all employees to whom the Company is paying compensation, including
bonuses and incentives, for services rendered or otherwise; and in the case of
salaried employees such list identifies the
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current annual rate of compensation for each employee and in the case of
hourly or commission employees identifies certain reasonable ranges of rates
and the number of employees falling within each such range.
4.18. TRADE RIGHTS. Schedule 4.18 lists all Trade Rights of the type
described in clauses (i), (ii), (iii) or (iv) of Section 1.1.(f) in which
Company now has any interest, specifying whether such Trade Rights are owned,
controlled, used or held (under license or otherwise) by Company, and also
indicating which of such Trade Rights are registered. All Trade Rights shown as
registered in Schedule 4.18 have been properly registered, all pending
registrations and applications have been properly made and filed and all
annuity, maintenance, renewal and other fees relating to registrations or
applications are current. In order to conduct the business of Company, as such
is currently being conducted or proposed to be conducted, Company does not
require any Trade Rights that it does not already have. To the knowledge of
Company and the Shareholder, Company is not infringing and has not infringed any
Trade Rights of another in the operation of the business of Company and to the
knowledge of Company and Shareholder, no other person is infringing the Trade
Rights of Company. Company has not granted any license or made any assignment
of any Trade Right listed on Schedule 4.18, and no other person has any right to
use any Trade Right owned or held by Company. Company does not pay any
royalties or other consideration for the right to use any Trade Rights of
others. There is no Litigation pending or, to the knowledge of Company and
Shareholder, threatened to challenge Company's right, title and interest with
respect to its continued use and right to preclude others from using any Trade
Rights of Company. To the knowledge of Company and the Shareholder, all Trade
Rights of Company are valid, enforceable and in good standing, and there are no
equitable defenses to enforcement based on any act or omission of Company.
4.19. MAJOR CUSTOMERS AND SUPPLIERS.
4.19.(a) MAJOR CUSTOMERS. Schedule 4.19.(a) contains a list of the
15 largest customers, including distributors, of Company for each of the
two most recent fiscal years and for the eight-month period ended February
28, 1998 (determined on the basis of the total dollar amount of net sales)
showing the total dollar amount of net sales to each such customer during
each such year. Neither Company nor the Shareholder has any knowledge or
information of any facts indicating, nor any other reason to believe, that
any of the customers listed on Schedule 4.19.(a) will not continue to be
customers of the business of Company after the Closing at substantially the
same level of purchases as heretofore (other than (i) Ocean Spray
Cranberries, Inc., for co-packing services, (ii) as a result of normal
changes in business demand, or (iii) customers who will not continue to be
customers principally for the reason that Northland will be the owner of
the Business).
4.19.(b) MAJOR SUPPLIERS.
(i) CRANBERRY SUPPLY CONTRACTS. Schedule 4.19(b)(i) contains
complete and correct copies of all Company's contractual arrangements
for the
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purchase or raw, processed or frozen cranberries, cranberry
juice and cranberry juice concentrate.
(ii) OTHER SUPPLIERS. Schedule 4.19(b)(ii) contains a list of
the 15 largest suppliers to Company for each of the two most recent
fiscal years and for the eight-month period ended February 28, 1998
(determined on the basis of the total dollar amount of purchases)
showing the total dollar amount of purchases from each such supplier
during each such year. Schedule 4.19(b)(ii) also contains a true and
correct list of all contracts for the purchase of fruits, vegetables,
fruit juices and fruit juice concentrate (other than contracts for the
purchase of cranberry products described in Schedule 4.19(b)(i)), in
each case identifying in reasonable detail the term, approximate
quantities, price and payment terms. Neither Company nor the
Shareholder has any knowledge or information of any facts indicating,
nor any other reason to believe, that any of the suppliers listed on
Schedule 4.19.(b)(ii) will not continue to be suppliers to the
business of Company after the Closing and will not continue to supply
the business with substantially the same quantity and quality of goods
at competitive prices (other than suppliers who will not continue to
be suppliers principally for the reason that Northland will be the
owner of the Business).
4.19.(c) SALES REPRESENTATIVES. Schedule 4.19.(c) contains a list by
product line of all sales representatives, dealers, distributors and
franchisees of Company, together with representative copies of all sales
representative, dealer, distributor and franchise contracts and policy
statements, and a description of all substantial modifications or
exceptions.
4.20. PRODUCT WARRANTY AND PRODUCT LIABILITY. Schedule 4.20 contains a
true, correct and complete copy of Company's standard warranty or warranties for
sales of Products (as defined below) and, except as stated therein, there are no
warranties, commitments or obligations with respect to the return, repair or
replacement of Products. Schedule 4.20 sets forth the estimated aggregate
annual cost to Company of performing product return or warranty obligations for
customers for each of the three preceding fiscal years and the current fiscal
year to the date of the Recent Balance Sheet. Schedule 4.20 contains a
description of all product liability claims and similar Litigation relating to
Products manufactured or sold, or services rendered, which are presently pending
or which to Company's or the Shareholder's knowledge are threatened, or which
have been asserted or commenced against Company within the last three years, in
which a party thereto either requests injunctive relief or alleges damages in
excess of $10,000 (whether or not covered by insurance). To the knowledge of
Company and Shareholder, there are no defects in design, construction or
manufacture of Products which would adversely affect quality or create an
unusual risk of injury to persons or property. Except as set forth on Schedule
4.20, none of the Products has been the subject of any replacement or recall
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campaign within the past five years and, to knowledge of Company and the
Shareholder, no facts or conditions exist which could reasonably be expected to
result in such a recall campaign. Schedule 4.20 identifies each Form 483 issued
by the U.S. Food and Drug Administration to Company during the last three fiscal
years and the current fiscal year and a description of the circumstances leading
to the issuance of each. To the knowledge of Company and the Shareholder, the
Products have been designed and manufactured so as to meet and comply with all
governmental standards and specifications currently in effect, and have received
all governmental approvals necessary to allow their sale and use. As used in
this Section 4.20, the term "Products" means any and all products currently, or
at any time within the past five years, produced, manufactured, distributed or
sold by Company, or by any predecessor of Company under any brand name or mark
under which products are or have been manufactured, distributed or sold by
Company.
4.21. AFFILIATES' RELATIONSHIPS TO COMPANY.
4.21.(a) CONTRACTS WITH AFFILIATES. All leases, contracts,
agreements or other arrangements between Company and any Affiliate are
described on Schedule 4.21.(a).
4.21.(b) NO ADVERSE INTERESTS. Except as set forth on Schedule
4.21.(b), no Affiliate has any direct or indirect interest in (i) any
entity which does business with Company or is competitive with Company's
business, or (ii) any property, asset or right which is used by Company in
the conduct of its business.
4.21.(c) OBLIGATIONS. All obligations of any Affiliate to Company,
and all obligations of Company to any Affiliate, are listed on Schedule
4.21.(c).
4.22. ASSETS NECESSARY TO BUSINESS. The Purchased Assets include all
property and assets (except for the Excluded Assets), tangible and intangible,
and all leases, licenses and other agreements, which are necessary to permit
Buyer to carry on, or currently used or held for use in, the business of Company
as presently conducted.
4.23. COMPUTER SOFTWARE AND DATABASE. Schedule 4.23 identifies and
describes the functions of all computer software and databases owned, licensed,
leased, internally developed or otherwise used in connection with the Business.
4.24. NO BROKERS OR FINDERS. Except as set forth in Schedule 4.24, neither
Company nor any of its directors, officers, employees, the Shareholder or agents
have retained, employed or used any broker or finder in connection with the
transactions provided for herein or the negotiation thereof.
4.25. DISCLOSURE. No representation or warranty by Company and/or the
Shareholder in this Agreement, nor any statement, certificate, schedule,
document or exhibit hereto furnished or to be furnished by or on behalf of
Company or the Shareholder pursuant to this Agreement or in Volumes I through XI
of the due diligence response binders delivered to Buyer, contains or shall
contain any untrue statement of material fact or omits or shall omit a material
fact
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necessary to make the statements contained therein not misleading. All
statements and information contained in any such certificate, instrument,
Disclosure Schedule or document delivered by or on behalf of Company and/or the
Shareholder shall be deemed representations and warranties by Company and the
Shareholder.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to Company and the
Shareholder, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by Company or any notice to Company,
and shall survive the Closing of the transactions provided for herein.
5.1. CORPORATE.
5.1.(a) ORGANIZATION. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Wisconsin.
5.1.(b) CORPORATE POWER. Buyer has all requisite corporate power to
enter into this Agreement and the other documents and instruments to be
executed and delivered by Buyer and to carry out the transactions
contemplated hereby and thereby.
5.2. AUTHORITY. The execution and delivery of this Agreement and the
other documents and instruments to be executed and delivered by Buyer pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the Board of Directors of Buyer. No other
corporate act or proceeding on the part of Buyer or its shareholders is
necessary to authorize this Agreement or the other documents and instruments to
be executed and delivered by Buyer pursuant hereto or the consummation of the
transactions contemplated hereby and thereby. This Agreement constitutes, and
when executed and delivered, the other documents and instruments to be executed
and delivered by Buyer pursuant hereto will constitute, valid and binding
agreements of Buyer, enforceable in accordance with their respective terms,
except as such may be limited by bankruptcy, insolvency, reorganization or other
laws affecting creditors' rights generally, and by general equitable principles.
5.3. NORTHLAND STOCK. The shares of Northland Stock to be issued to the
Shareholder hereunder pursuant to Section 3.2(d) hereof have been duly
authorized for issuance by Buyer and, upon such issuance by Buyer, such shares
will be validly issued, fully paid and nonassessable (except for any statutory
liabilities for unpaid wage claims and other liabilities of employees under
Wisconsin Statutes Section 180.0622(2)(b)). Northland Stock has never been
assessed under Section 180.0622(2)(b) of the Wisconsin Statutes. The Northland
Stock is listed on the Nasdaq National Market under the symbol "CBRYA."
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5.4. NO BROKERS OR FINDERS. Except as set forth on Schedule 5.4, neither
Buyer nor any of its directors, officers, employees or agents have retained,
employed or used any broker or finder in connection with the transactions
provided for herein or the negotiation thereof.
5.5. NO VIOLATION. Except as set forth on Schedule 5.5 attached hereto,
neither the execution and delivery of the Agreement, nor the consummation by
Buyer of the transactions contemplated hereby (a) will violate any statute or
law or any rule, regulation, order, writ, injunction or decree of any court or
governmental authority; (b) subject to obtaining any consents, approvals or
authorizations required under the HSR Act, will require any authorization,
consent, approval, exemption or other action by or notice to any court,
administrative or governmental agency, instrumentality, commission, authority,
board or body; or (c) will violate or conflict with, or constitute a default (or
an event which, with notice or lapse or time, or both, would constitute a
default) under, or will result in the termination of, or accelerate the
performance required by, or result in the creation of any Lien upon any of the
assets of Buyer or under any term or provision of (i) the articles of
incorporation or bylaws of Buyer or (ii) of any contract, commitment, agreement
or restriction of any kind or character to which Buyer is a party or by which
Buyer or any of its assets or properties may be bound or affected, other than
contracts, commitments, agreements and the like which, if violated or breached,
would not individually or in the aggregate have a Material Adverse Effect on
Buyer.
5.6. SEC FILING; FINANCIAL STATEMENTS. Buyer has made available to the
Shareholder complete copies of each report, schedule, registration statement and
definitive proxy statement filed by Buyer with the Securities and Exchange
Commission ("Commission") since January 1, 1996 (as such documents have since
the time of their filing been amended, the "Northland SEC Documents") which are
all the documents (other than preliminary material) that Buyer was required to
file with the Commission since such date. As of their respective dates, the
Northland SEC Documents complied in all material respects with the requirements
of the Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder applicable to such Northland SEC Documents
and none of the Northland SEC Documents at the time of filing contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Buyer included in the Northland SEC Documents complied as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the Commission)
and present fairly (subject, in the case of the unaudited statements, for
year-end adjustments of a normal recurring nature) the consolidated financial
position of Buyer and its consolidated subsidiary as at the dates thereof and
the consolidated results of operations and cash flows for the periods then
ended.
5.7. ENVIRONMENTAL AUDITS. Buyer has delivered to Company and
Shareholder a copy of all reports, studies and similar due diligence reviews
conducted by Buyer with respect to
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environmental and occupational health and safety compliance pertaining to the
operations of Company and the real estate occupied by Company.
5.8. DISCLOSURE. No representation or warranty by Buyer in this
Agreement, nor any statement, certificate, schedule, document or exhibit hereto
furnished or to be furnished by or on behalf of Buyer pursuant to this Agreement
or in connection with transactions contemplated hereby, contains or shall
contain any untrue statement of material fact or omits or shall omit a material
fact necessary to make the statements contained therein not misleading. All
statements and information contained in any such certificate, schedule,
document, instrument or exhibit delivered by or on behalf of Buyer shall be
deemed representations and warranties by Buyer.
6. EMPLOYEES - EMPLOYEE BENEFITS
6.1. BUYER'S RESPONSIBILITIES; AFFECTED EMPLOYEES. Except with respect to
those employees identified in a written notice from Buyer to Company prior to
Closing and approved by Company, which approval shall not be unreasonably
withheld, Buyer agrees to offer employment, in similar positions, with
comparable compensation and benefits in the aggregate (subject to any agreement
with the Unions identified in Section 4.15(a) as to the modification or
termination of the provisions of the Union Contracts), to all employees of the
Business, including those employees on leave of absence or layoff, as of the
Closing Date, and Company shall use its Reasonable Best Efforts to have the
employees accept such offers. Employees of the Company who accept such offers
and who are employed by Buyer immediately after the Closing shall be referred to
herein as "Affected Employees." Nothing in this Section 6.1 shall be deemed to
require Buyer to employ any such person for any period of time after the Closing
Date or to continue after the Closing Date to maintain any specific benefit plan
except as required by the Union Contracts or under applicable law.
6.2. EMPLOYEE BENEFIT PLANS. Company shall transfer sponsorship to Buyer
and Buyer shall assume sponsorship of, and the assets of and any and all
obligations and liabilities arising under or in connection with the Assumed
Employee Plans/Agreements identified as such on Schedule 4.16(a). Company and
Buyer agree to take all actions as may be necessary or appropriate in order to
effectuate such transfer, including the execution of a Plan Assumption Agreement
in the form of Exhibit K attached hereto.
6.3. PAYROLL TAX. Company, with the cooperation of Buyer, agrees to make
a clean cut-off of payroll and payroll tax reporting with respect to the
Affected Employees paying over to the federal, state and city governments those
amounts respectively withheld or required to be withheld for periods ending on
or prior to the Effective Time. Company and Buyer agree to utilize the
alternate procedure set forth in Revenue Procedures 76-60 for purposes of
forwarding Forms W-2 to the Affected Employees. Under this procedure, Buyer
shall assume the Company's Form W-2 reporting obligations for the Affected
Employees. Buyer shall be responsible for all payroll and payroll tax
obligations after the Effective Time for Affected Employees.
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6.4. TERMINATION BENEFITS. Buyer shall be solely responsible for, and
shall pay or cause to be paid, severance payments and other termination
benefits, if any, to Affected Employees who may become entitled to such benefits
by reason of any events occurring after Closing. If any action on the part of
Company prior to the Closing, or if the sale to Buyer of the business and assets
of Company pursuant to this Agreement or the transactions contemplated hereby,
or, provided that Buyer shall have complied with its responsibilities under
Section 6.1 above, if the failure by Buyer to hire as a permanent employee of
Buyer any employee of Company shall directly or indirectly result in any
Liability (i) for severance payments or termination benefits or (ii) by virtue
of any state, federal or local "plant-closing" or similar law, such Liability
shall be the sole responsibility of Company, and Company and the Shareholder
shall, jointly and severally, indemnify and hold harmless Buyer against such
Liability.
6.5. DELIVERY OF RECORDS. Company shall deliver to Buyer not less than ten
days prior to the Closing Date, with respect to each Assumed Employee
Plan/Agreement, information adequate to determine the liability thereunder,
whether or not contingent, to any Affected Employee or other employee or former
employee who is or was employed by Company and with respect to whom Buyer may
have any liability, and any beneficiary or dependent of any such Affected
Employee, employee or former employee, together with data, records and other
documentation adequate to determine the existence and amount of such liability.
Delivery of such data, records and other documentation shall be made in machine
readable form, if existing, and shall be made by Company or any other person at
the time providing or who has provided services with respect to such Employee
Plan/Agreement. Company or persons designated by Company prior to the Closing
Date will have reasonable access after the Closing Date to such items.
6.6. NO THIRD-PARTY RIGHTS. Nothing in this Agreement, express or implied,
is intended to confer upon any of Company's employees, former employees,
collective bargaining representatives, job applicants, any association or group
of such persons or any Affected Employees any rights or remedies of any nature
or kind whatsoever under or by reason of this Agreement, including, without
limitation, any rights of employment.
7. OTHER MATTERS
7.1. TITLE INSURANCE. At least five business days prior to Closing,
Company, at Buyer's expense, shall provide to Buyer title insurance commitments,
issued by a title insurance company or companies reasonably satisfactory to
Buyer, agreeing to issue to Buyer standard form owner's (or lessee's, as the
case may be) policies of title insurance with respect to all Owned Real
Property, together with a copy of each document to which reference is made in
such commitments. In the case of Owned Real Property, such policies shall be
standard ALTA Form 1990 owner's policies in the full amount of that portion of
the Purchase Price to be allocated respectively to each subject parcel of Owned
Real Property under Section 3.3 hereof, insuring good and marketable title
thereto (expressly including all easements and other appurtenances). All
policies shall insure title in full accordance with the representations and
warranties set forth
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herein and shall be subject only to Permitted Real Property Liens, and such
other conditions and exceptions as shall be reasonably acceptable to Buyer,
and shall contain such endorsements as Buyer shall reasonably request to the
extent available under applicable insurance regulations in New Jersey
(including, but not limited to, an endorsement over rights of creditors, if
requested by Buyer or Buyer's lender).
7.2. SURVEYS. At least five business days prior to Closing, Company, at
Buyer's expense, shall provide to Buyer surveys of all Owned Real Property
prepared in accordance with ALTA/ASCM standards, each dated no more than 90 days
prior to the Closing and each detailing the legal description, the perimeter
boundaries, all improvements located thereon, all easements and encroachments
affecting each such parcel of Owned Real Property and such other matters as may
be reasonably requested by Buyer or the title insurance companies, each
containing a surveyor certificate reasonably acceptable to Buyer and the title
insurance companies, and each prepared by a registered land surveyor
satisfactory to Buyer.
7.3. SECURITIES LAW MATTERS:
7.3.(a) BUYER SEC DOCUMENTS. Buyer shall deliver to Company and
Shareholder (in accordance with the notice provisions of Section 15.8)
concurrently with transmission to its stockholders, one copy of each
financial statement, report, notice or proxy statement sent by Buyer to
stockholders generally and, promptly after filing, one copy of each regular
or periodic report and any registration statement or prospectus filed by
Buyer with any securities exchange or with the Commission.
7.3.(b) COMPLIANCE WITH COMMISSION REGULATIONS AND THE SECURITIES
ACT. Buyer shall take all such reasonable steps and actions that may be
required to maintain its status as a "reporting company" not in default of
the requirements of the Securities Act, the Exchange Act and regulations of
the Commission, as long as the Company or the Shareholder hold shares of
Northland Stock that have not been registered under the Securities Act.
7.3.(c) MAINTAIN LISTING. Buyer shall take all such reasonable
steps and actions that may be required to maintain the listing and posting
for trading of its Class A Common Stock on NASDAQ.
7.4. ESCROW AGREEMENT. At the Closing, Company, Fargo and Buyer shall
execute and deliver an Escrow Agreement (the "Escrow Agreement") in the form of
Exhibit A attached hereto.
7.5. EMPLOYMENT AGREEMENT. At the Closing, Shareholder, Fargo and Buyer
shall execute and deliver an Employment Agreement in the form of Exhibit B
hereto.
7.6. NONCOMPETITION. Subject to the Closing, and as an inducement to
Buyer to execute this Agreement and complete the transactions contemplated
hereby, and in order to preserve the
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goodwill associated with the business of Company being acquired pursuant to
this Agreement, and in addition to and not in limitation of any covenants
contained in any agreement executed and delivered pursuant to Section 7.5
hereof, Company and the Shareholder hereby covenant and agree that for a
period of five years from the Closing Date, they will not, directly or
indirectly:
(i) engage in, continue in or carry on any business which
competes with the Business or is substantially similar thereto,
including owning or controlling any financial interest in any
corporation, partnership, firm or other form of business organization
which is so engaged;
(ii) consult with, advise or assist in any way, whether or not
for consideration, any corporation, partnership, firm or other
business organization which is now or becomes a competitor of Buyer in
any aspect with respect to the Business including, but not limited
to, advertising or otherwise endorsing the products of any such
competitor; soliciting customers or otherwise serving as an
intermediary for any such competitor; loaning money or rendering any
other form of financial assistance to or engaging in any form of
business transaction on other than an arm's length basis with any such
competitor;
(iii) hire, offer to hire, or solicit for employment any Affected
Employee or any person who, at any time during such five-year period,
has been an employee of Buyer engaged in the Business, without the
prior consent of Buyer, until such person has been separated from
employment by the Buyer for at least 180 days; or
(iv) engage in any practice the purpose of which is to evade the
provisions of this covenant not to compete.
provided, however, that the foregoing shall not prohibit the ownership of
securities of corporations which are listed on a national securities
exchange or traded in the national over-the-counter market in an amount
which shall not exceed 5% of the outstanding shares of any such
corporation. The parties agree that the geographic scope of this covenant
not to compete shall extend to all of the United States and the Dominion of
Canada, which is the geographic area in which Company has operated the
Business at some time during the two years preceding the date of this
Agreement. The parties agree that Buyer may sell, assign or otherwise
transfer this covenant not to compete, in whole or in part, to any person,
corporation, firm or entity that purchases all or substantially all of the
business or the Purchased Assets being acquired by Buyer hereunder. In the
event a court of competent jurisdiction determines that the provisions of
this covenant not to compete are excessively broad as to duration,
geographical scope or activity, it is expressly agreed that this covenant
not to compete shall be construed so that the remaining provisions shall
not be affected, but shall remain in full force and effect, and any such
over broad provisions shall be deemed, without further action on the part
of any
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person, to be modified, amended and/or limited, but only to the
extent necessary to render the same valid and enforceable in such
jurisdiction.
7.7. CONFIDENTIAL INFORMATION. Neither Company nor the Shareholder shall
at any time subsequent to the Closing, except as explicitly requested by Buyer
or consistent with the performance by Shareholder of his responsibilities under
the Employment Agreement, use for any purpose, disclose to any person, or keep
or make copies of documents, tapes, discs, programs or other information storage
media ("records") containing, any confidential information concerning the
Business, the Purchased Assets, or the Assumed Liabilities, all such information
being deemed to be transferred to the Buyer hereunder. For purposes hereof,
"confidential information" shall mean and include, without limitation, all Trade
Rights in which Company has an interest, all customer and vendor lists and
related information, all information concerning Company's processes, products,
costs, prices, sales, marketing and distribution methods, properties and assets,
liabilities, finances, employees, all privileged communications and work
product, and any other information not previously disclosed to the public
directly by Company. The foregoing provisions shall not apply to any
information which is an "Excluded Asset" as defined in Section 1.2, or which
relates solely to one or more Excluded Assets. In connection with the
transactions contemplated by this Agreement, Buyer shall cooperate and assist
Company and the Shareholder in the development and implementation of appropriate
procedures to maintain the confidentiality, and avoid any disclosure, use or
transfer, of third party confidential information in breach of confidentiality
obligations of Company to third parties. If at any time after Closing Company
or the Shareholder should discover that it is in possession of any records
containing the confidential information of Buyer, then the party making such
discovery shall immediately turn such records over to Buyer, which shall upon
request make available to the surrendering party any information contained
therein which is not confidential information. Company and the Shareholder
severally agree that they will not assert a waiver or loss of confidential or
privileged status of the information based upon such possession or discovery.
Company hereby consents to Buyer's consultation with legal, accounting and other
professional advisors to Company concerning advice rendered to Company prior to
the Closing regarding the Business, the Purchased Assets or the Assumed
Liabilities, excluding, however, the negotiation and drafting of this Agreement
and the transactions entered into pursuant hereto.
7.8. GENERAL RELEASE. At the Closing, the Shareholder shall deliver a
general release to Buyer, in the form attached hereto as Exhibit C, releasing
Company and the directors, officers, agents and employees of Company from all
Liabilities to the Closing Date, except as may be described in written contracts
disclosed in the Disclosure Schedule and expressly described and excepted from
such releases.
7.9. HSR ACT FILINGS. To the extent such filings have not been completed
prior to the execution of this Agreement, each of Company and Buyer shall, in
cooperation with the other, file any reports or notifications that may be
required to be filed by it under the HSR Act, with the Federal Trade Commission
and the Antitrust Division of the Department of Justice, and shall furnish to
the other all such information in its possession as may be necessary for the
completion of the reports or notifications to be filed by the other. Such
filings with the Federal Trade
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Commission and the Antitrust Division shall be made promptly after the
execution of this Agreement and the parties hereto mutually agree to request
early termination of the review thereof. Prior to making any communication,
written or oral, with the Federal Trade Commission, the Antitrust Division of
the federal Department of Justice or any other governmental agency or
authority or members of their respective staffs with respect to this
Agreement or the transactions contemplated hereby, the parties agree to
consult with the other.
7.10. INVENTORY PURCHASE AGREEMENT. At the Closing, Company and Buyer
shall execute and deliver an Inventory Purchase Agreement (the "Inventory
Purchase Agreement") in the form of Exhibit D attached hereto.
7.11. REGISTRATION RIGHTS AGREEMENT. At the Closing, the Shareholder and
Buyer shall execute and deliver a Registration Rights Agreement (the
"Registration Rights Agreement") in the form of Exhibit E attached hereto.
7.12. COOPERATION REGARDING FINANCIAL STATEMENTS. Company and Shareholder
acknowledge that Buyer will be required to incorporate Company's audited June
30, 1997 Financial Statements into a filing on Form S-3 with the Commission and
that Buyer intends to file such Form S-3 promptly following the execution of
this Agreement. Company and Shareholder agree to cooperate with Buyer, Buyer's
Accountant and BDO Seidman, LLP in connection with such filing and other SEC
filings and reports, including without limitation, by providing such management
letters, representations and certificates regarding the Company's Financial
Statements as may be requested or required. Company and Shareholder acknowledge
that Buyer has provided them with a reasonable opportunity to review the draft
of such Form S-3 dated April 30, 1998, and Buyer agrees to provide Company and
Shareholder with a reasonable opportunity to review any material modifications
or additions to such Form S-3 prior to its filing with the SEC.
7.13. USE OF COMPANY'S NAME. Following the Closing, neither Company nor
any Affiliate shall, without the prior written consent of Buyer, make any use of
the name "Minot Food Packers" or any other name confusingly similar thereto,
except as may be necessary for Company to pay its liabilities, prepare tax
returns and other reports, and to otherwise wind up and conclude its business.
7.14. SALES TAX MATTERS. Company, Shareholder and Buyer agree that Buyer
shall be entitled to provide notice of the transactions contemplated by this
Agreement to the New Jersey Division of Taxation (the "Division") in accordance
with the requirements of N.J.S.A. 54:32B-22. Company, Shareholder and Buyer
further agree that, should the Division notify Buyer that Buyer should withhold
from the Purchase Price any amount of money as an escrow against any possible
tax liability of Company or the Shareholder, Buyer shall be entitled to withhold
such sum from the proceeds to be paid to or for the benefit of Company at the
Closing, with the withheld sum to be held in a third party escrow until such
time as Company shall deliver to Buyer an original certificate from the Division
authorizing Buyer to release the escrowed sums to Company. Buyer shall be
entitled to deliver the escrowed sum to the Division instead of to
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Company to the extent that the Division provides written direction to Buyer
to do so. Buyer shall notify the Division of the pending transactions
contemplated by this Agreement within four business days after the execution
of this Agreement.
7.15. UNEMPLOYMENT COMPENSATION. Company shall, upon the request of Buyer,
cooperate with Buyer in any efforts by Buyer to obtain the transfer of Company's
portion of the New Jersey unemployment compensation fund applicable to Affected
Employees, to the extent Buyer elects to transfer and assume such amounts. In
connection therewith, Company will execute such documents as Buyer may
reasonably request in order to effectuate such transfer.
7.16. ACCESS AND RECORDS RETENTION. Company and Buyer shall each permit
authorized representatives of the other, at all reasonable times after the
Closing, access to their offices, records and accounts which relate to Company
prior to the Closing for the purpose of obtaining any information necessary or
desirable for the preparation and filing of any tax returns or other reports to
any governmental agency for any period or for any other purpose reasonably
related to the rights or obligations of the parties under this Agreement.
Company and Buyer shall each retain such records as the other may reasonably
request, including those which shall be necessary to permit preparation and
filing of federal and state tax returns, for reasonable periods (not less than
those during which additional taxes may be assessed and collected) consistent
with their record retention policies.
7.17. CO-PACK AGREEMENT. Simultaneous with the execution of this
Agreement, Buyer and Company shall enter into an agreement that will provide for
the co-packing of certain quantities of Buyer's branded juice production for up
to a three-year term (the "Co-Pack Agreement").
7.18. ADJUSTMENT FOR TAX DIVIDENDS. Within 45 days following the Closing
Date, Company's Accountants shall certify to Buyer and Company the amount of
Company's taxable income for federal income tax purposes for the period
commencing July 1, 1997, and ending on the date prior to the Closing Date
(determined by a closing of Company's books as of such date and without regard
to the transactions contemplated by this Agreement ("Pre-Sale Taxable Income")).
Within 10 business days thereafter, either (a) Buyer shall pay to Company the
excess, if any, of (i) an amount equal the Company's Pre-Sale Taxable Income
multiplied by 39.6% over (ii) the aggregate amount of dividends distributed by
Company to the Shareholder in the current fiscal year as contemplated by
Sections 4.8(f) and 8.3(e) of this Agreement, or (b) the Company shall pay to
Buyer the excess, if any, of (i) the aggregate amount of dividends distributed
by Company to the Shareholder in the current fiscal year as contemplated by
Sections 4.8(f) and 8.3(e) of this Agreement over (ii) an amount equal to the
Company's Pre-Sale Taxable Income multiplied by 39.6%.
7.19. COOPERATION IN LITIGATION. Each party agrees to fully cooperate with
the other in the defense or prosection of any litigation or proceeding already
instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the business of the Company prior
to the Closing Date (other than litigation arising out of the
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transactions contemplated by this Agreement). The party requesting such
cooperation shall pay the out-of-pocket expenses (including reasonable legal
fees and disbursements) of the party providing such cooperation and, if
applicable, of its officers, directors, employees and agents reasonably
incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for the
salaries or costs of fringe benefits or other similar expenses paid by the
party providing such cooperation to its officers, directors, employees and
agents while assisting in the defense or prosecution of any such litigation
or proceeding. Further, Buyer and Fargo agree to fully cooperate in the
defense or prosecution of any such litigation described in this Section 7.19
by allowing reasonable access to the records of Fargo acquired from Company,
reasonable use of the copy machines of Fargo for copying documents related to
such litigation, and reasonable access to and use of the time of its
employees as witnesses at trial, court or any judicial, administrative or
other proceeding, at the expense of the Shareholder to be billed by Fargo and
paid by the Shareholder provided such expenses are reasonable.
7.20. FINANCING. Buyer will use all commercially reasonable efforts to
obtain the financing necessary to enable Buyer to pay the Purchase Price at the
Closing as required by Section 3 as promptly as possible, as described below:
(i) Buyer will file a Form S-3 registration statement with the
SEC not later than one business day after the date hereof and use all
commercially reasonable efforts as promptly as possible to register
and publicly sell that number of shares of Northland Stock necessary
to provide net proceeds to Buyer not less than the cash portion of the
Purchase Price to be paid by Buyer (or deposited with the Escrow
Agent) at the Closing pursuant to Section 3.2; provided, however, that
Buyer shall not be required to sell such shares at an offer price of
less than $10.00 per share; or
(ii) If such public offering cannot be accomplished, Buyer will
use all commercially reasonable efforts to provide the financing
necessary to consummate the Closing by a private placement of
Northland Stock, a debt financing or a combination of such
transactions as promptly as possible. Buyer acknowledges that time is
of the essence to complete the financing and consummate the Closing.
7.21. OTHER ACTION. Company, the Shareholder and Buyer shall use their
respective Reasonable Best Efforts to cause the fulfillment at the earliest
practicable date of all of the conditions to the parties' obligations to
consummate the transactions contemplated in this Agreement.
8. FURTHER COVENANTS OF COMPANY AND THE SHAREHOLDER
Company and the Shareholder covenant and agree as follows:
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8.1. ACCESS TO INFORMATION AND RECORDS. During the period prior to the
Closing:
8.1.(a) Company shall, and shall cause its officers, employees,
agents, independent accountants and advisors to, furnish to Buyer, its
officers, employees, agents, independent accountants and advisors, at
reasonable times and places, all information in their possession concerning
Company as may be requested, and give such persons access to all of the
properties, books, records, contracts and other documents of or pertaining
to Company that Company or its officers, employees, agents, independent
accountants or advisors shall have in their custody, except documents
pertaining to the representation of Company and Shareholder in connection
with the transactions contemplated by this Agreement.
8.1.(b) With the prior consent of Company in each instance (which
consent shall not be unreasonably withheld), Buyer and its officers,
employees, agents, independent accountants and advisors, shall have access
to vendors, customers, and others having business dealings with Company for
the purpose of performing Buyer's due diligence investigation. Company
shall have the right to have a representative of Company participate in any
communication or meeting between Buyer (or its officers, employees, agents,
independent accountants and advisors) and vendors, customers and others
having business dealings with the Company.
8.2. BANK ACCOUNTS. Not less than ten days prior to the Closing, Company
shall provide to Buyer a list of each bank in which Company has an account or
safe deposit box, the name and number of each such account or box and the names
of all persons authorized to draw thereon or who have access thereto, with the
amounts they are authorized to draw.
8.3. CONDUCT OF BUSINESS PENDING THE CLOSING. From the date hereof until
the Closing, except as otherwise approved in writing by the Buyer:
8.3.(a) NO CHANGES. Company will carry on its business diligently
and in the same manner as heretofore and will not make or institute any
material changes in its methods of purchase, sale, management, accounting
or operation.
8.3.(b) MAINTAIN ORGANIZATION. Company will take such action as may
be reasonably necessary to maintain, preserve, renew and keep in favor and
effect the existence, rights and franchises of Company and will use its
Reasonable Best Efforts to preserve the business organization of Company
intact, to keep available to Buyer the present officers and employees, and
to preserve for Buyer its present relationships with suppliers and
customers and others having business relationships with Company.
8.3.(c) NO BREACH. Company and the Shareholder will not do or omit
any act, or permit any omission or act by any Affiliate, which may cause a
material breach of any material contract, commitment or obligation, or any
breach of any representation, warranty, covenant or agreement made by
Company and/or the
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Shareholder herein, or which would have required disclosure on Schedule
4.8 had it occurred after the date of the Recent Balance Sheet and prior
to the date of this Agreement.
8.3.(d) NO MATERIAL CONTRACTS. No contract or commitment will be
entered into, and no purchase of raw materials or supplies and no sale of
goods or services (real, personal, or mixed, tangible or intangible) will
be made, by or on behalf of Company, except contracts, commitments and
non-material modifications thereof, purchases or sales which are in the
ordinary course of business and consistent with past practice, are not
material to the Company (individually or in the aggregate) and would not
have been required to be disclosed on Schedule 1.1(b) or the Schedules to
Section 4.14 in the Disclosure Schedule had they been in existence on the
date of this Agreement.
8.3.(e) NO CORPORATE CHANGES. Company shall not amend its
Certificate of Incorporation or By-laws or make any changes in authorized
or issued capital stock. Company shall not declare, set aside or pay any
dividend or any other distribution in respect of the capital stock of
Company; redeem, purchase or otherwise acquire any stock of Company or any
security relating thereto; or make any other payment to the Shareholder in
his capacity as a shareholder; provided, however that Company shall be
entitled to declare and pay one or more dividend distributions to the
Shareholder on or before the Closing Date of an amount equal to Company's
projected Pre-Sale Taxable Income multiplied by 39.6%, less the sum of all
prior distributions to the Shareholder since July 1, 1997 with respect to
Company's projected Pre-Sale Taxable Income. Company shall furnish Buyer
with a schedule setting forth the determination of the amount of such
distribution at least five days prior to the declaration thereof.
8.3.(f) MAINTENANCE OF INSURANCE. Company shall maintain all of the
insurance in effect as of the date hereof.
8.3.(g) MAINTENANCE OF PROPERTY. Company shall use, operate,
maintain and repair all property of Company in a normal business manner.
8.3.(h) INTERIM FINANCIALS. Company will provide Buyer with interim
monthly financial statements and other management reports promptly as and
when they are available.
8.3.(i) NO NEGOTIATIONS. Neither Company nor the Shareholder will
directly or indirectly (through a representative or otherwise) solicit or
furnish any information to any prospective buyer, commence, or conduct
presently ongoing, negotiations with any other party or enter into any
agreement with any other party concerning the sale of Company, Company's
assets or business or any material part thereof or any equity securities of
Company (an "Acquisition Proposal"), and Company
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and the Shareholder shall immediately advise Buyer of the receipt of any
Acquisition Proposal.
8.4. CHANGE OF CORPORATE NAME. Concurrently with the Closing, Company
shall change its corporate name to a new name bearing no resemblance to its
present name so as to permit the use of its present name by Buyer and Fargo.
8.5. CONSENTS. Company and the Shareholder will use their Reasonable Best
Efforts prior to Closing to obtain all consents necessary for the consummation
of the transactions contemplated hereby.
8.6. UNION CONTRACT NEGOTIATIONS. Company and Shareholder will use their
Reasonable Best Efforts to obtain an extension or continuance from the UFCW and
Teamsters Unions of the Union Contracts expiring May 14, 1998 upon terms and
conditions not materially less favorable to the Company in the aggregate than
the current Union Contracts. In the event that negotiations shall commence with
respect to the Union Contracts, Company and Shareholder agree to consult on a
regular and continuous basis with Buyer during such negotiations and to not
agree to any increase in wages or benefits, including retirement benefits,
without the prior written consent of Buyer.
8.7. ESTOPPEL CERTIFICATES. Company and Shareholder shall use their
Reasonable Best Efforts to obtain and deliver to Buyer on or prior to the
Closing Date an estoppel certificate or status letter from the landlord under
each lease of real property, which estoppel certificate or status letter shall
certify (i) the lease is valid and in full force and effect; (ii) the amounts
payable by Company under the lease and the date to which the same have been
paid; (iii) whether there are, to the knowledge of said landlord, any defaults
thereunder, and, if so, specifying the nature thereof; and (iv) that the
transactions contemplated by this Agreement will not constitute default under
the lease and that the landlord consents to the assignment of the lease to
Buyer.
8.8. EMPLOYEE COVENANT AGREEMENTS To the extent such contracts are not
terminated or otherwise amended prior to Closing, Company agrees to consent in
writing to the employment by Buyer of each of the employees covered by the
employee non-competition agreements described in Schedule 1.2(e) hereof and to
waive the provisions therein barring employment by Buyer following a termination
of their employment with Company.
8.9. DISCLOSURE. Company and the Shareholder shall have a continuing
obligation to promptly notify Buyer in writing with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedule, but no such disclosure shall cure any breach of any
representation or warranty which is inaccurate.
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9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
9.1. REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by Company and the Shareholder in this
Agreement, and the statements contained in the Disclosure Schedule or in any
instrument, list, certificate or writing delivered by Company pursuant to this
Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made or given on and as of
the Closing Date, except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer; provided, however, that this
Section 9.1 shall not be a condition to Closing unless the failure to satisfy
this condition would have a Material Adverse Effect on Buyer.
9.2. COMPLIANCE WITH AGREEMENT. Company and the Shareholder shall have in
all material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 12.1.
9.3. ABSENCE OF LITIGATION. No Litigation shall have been commenced or
threatened by a party other than Buyer or an affiliate of Buyer, and no
investigation by any Government Entity shall have been commenced, against Buyer,
Company or any of the affiliates, officers or directors of any of them, with
respect to the transactions contemplated hereby, provided that the obligations
of Buyer shall not be affected unless, upon the written advice of Buyer's
counsel, based on a reasonable assessment of the consequence of such Litigation,
it would be inadvisable for Buyer to proceed with the transactions contemplated
by this Agreement; provided, however, that this Section 9.3 shall not be a
condition to Closing unless the failure to satisfy this condition would have a
Material Adverse Effect on Buyer.
9.4. ACQUISITION OF BRIDGETON FREEZER. Simultaneous with the Closing,
Company shall have assigned to Buyer the Bridgeton Freezer Purchase Contract
providing for the purchase of all right, title and interest in the Bridgeton
Freezer, free and clear of all liens and encumbrances, except for Permitted Real
Property Liens, and Company shall have performed all its obligations and
satisfied all conditions to the obligations of BFC under such contract other
than the payment of the purchase price due at Closing under the contract. Upon
payment by Buyer of the Bridgeton Freezer Purchase Price at the Closing, the
Bridgeton Freezer shall be deemed part of the Purchased Assets and Owned Real
Property for all purposes under this Agreement, including, without limitation,
Sections 1.1(a), 4.12, 7.1 and 7.2.
9.5. TITLE INSURANCE. Buyer shall have obtained good and valid title
insurance policies or, in final form, irrevocable title insurance binders, dated
as of the Effective Time, conforming to the specifications set forth in Section
7.1 hereof.
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9.6. HART-SCOTT-RODINO WAITING PERIOD. All applicable waiting periods
related to the HSR Act shall have expired.
9.7. SECTION 1445 AFFIDAVIT. Company shall have delivered to Buyer an
affidavit, in form satisfactory to Buyer, to the effect that Company is not a
"foreign person," "foreign corporation," "foreign partnership," "foreign trust,"
or "foreign estate" under Section 1445 of the Code, and containing all such
other information as is required to comply with the requirements of such
Section.
9.8. ISRA COMPLIANCE. Company and Shareholder shall have received from the
Industrial Site Evaluation element or its successor ("Element") of the New
Jersey Department of Environmental Protection and Energy or its successor
("NJDEPE"), and delivered to Buyer, on or before the Closing Date, either: (i) a
non-applicability letter (or an opinion of Morgan, Lewis & Bockius LLP to the
same effect, based on SIC Codes which Company advises are applicable to
Company); (ii) a DE MINIMIS quantity exemption; or (iii) an unconditional
approval of Company's negative declaration; or cleanup plan approval or an
executed remediation agreement for which Company shall promptly apply pursuant
to ISRA.
9.9. INVESTOR REPRESENTATION LETTER. At or prior to Closing, the
Shareholder shall deliver to Buyer an Investor Representation Letter (the
"Investor Representation Letter") in substantially the form of Exhibit F
attached hereto.
9.10. TAX DIVISION NOTIFICATION. Buyer shall notify the Division of the
pending transactions contemplated by this Agreement within four business days
after the execution of this Agreement and at least 10 days shall have elapsed
after the date on which Buyer notifies the Division of the pending transactions
contemplated by this Agreement.
9.11. FINANCING. Buyer shall have obtained the financing for the cash
portion of the Purchase Price as described in Section 7.20 hereof.
10. CONDITIONS PRECEDENT TO COMPANY'S AND THE SHAREHOLDER'S OBLIGATIONS
Each and every obligation of Company and the Shareholder to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the Closing
of the following conditions:
10.1. REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of the
representations and warranties made by Buyer in this Agreement or in any
instrument, list, certificate or writing delivered by Buyer pursuant to this
Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made or given on and as of
the Closing Date, except for any changes permitted by the terms of this
Agreement or
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consented to in writing by Company; provided, however, that this Section 10.1
shall not be a condition to Closing unless the failure to satisfy this
condition would have a Material Adverse Effect on Buyer.
10.2. COMPLIANCE WITH AGREEMENT. Buyer shall have in all material respects
performed and complied with all of Buyer's agreements and obligations under this
Agreement which are to be performed or complied with by Buyer prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 12.2.
10.3. ABSENCE OF LITIGATION. No Litigation shall have been commenced or
threatened, and no investigation by any Government Entity shall have been
commenced, against Buyer, Company or any of the affiliates, officers or
directors of any of them, with respect to the transactions contemplated hereby;
provided that the obligations of Company shall not be affected unless there is a
reasonable likelihood that as a result of such action, suit, proceeding or
investigation Company will be unable to retain substantially all the
consideration to which it is entitled under this Agreement.
10.4. HART-SCOTT-RODINO WAITING PERIOD. All applicable waiting periods
related to the HSR Act shall have expired.
10.5. ACQUISITION OF BRIDGETON FREEZER. Simultaneous with the Closing and
subject to compliance by Company with Section 9.4 hereof, Buyer shall (i) agree
to assume the Bridgeton Freezer Purchase Contract, (ii) agree to purchase the
Bridgeton Freezer pursuant to such contract, (iii) agree to pay the Bridgeton
Freezer Purchase Price to BFC at the Closing and (iv) at the request of Company,
agree to assume the Ocean Spray Freezer Storage Contract identified on Schedule
2.1(b)(i).
11. INDEMNIFICATION
11.1. BY COMPANY AND THE SHAREHOLDER. Subject to the terms and conditions
of this Article 11, Company and the Shareholder, jointly and severally, hereby
agree to indemnify, defend and hold harmless Buyer, and its directors, officers,
employees and controlled and controlling persons (hereinafter "Buyer's
Affiliates"), from and against all Claims asserted against, resulting to,
imposed upon, or incurred by Buyer, Buyer's Affiliates or the business and
assets transferred to Buyer pursuant to this Agreement, directly or indirectly,
by reason of, arising out of or resulting from
(a) the inaccuracy or breach of any representation or warranty of
Company or the Shareholder contained in or made pursuant to this Agreement
(regardless of whether such breach is deemed "material");
(b) the breach of any covenant of Company or the Shareholder
contained in this Agreement (regardless of whether such breach is deemed
"material");
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(c) any Claim brought by or on behalf of any broker or finder
retained, employed or used by Company or any of its directors, officers,
employees, the Shareholder or agents in connection with the transactions
provided for herein or the negotiation thereof, whether or not disclosed
herein; or
(d) any Claim of or against Company, the Purchased Assets or the
business of Company not specifically assumed by Buyer pursuant hereto.
As used in this Article 11, the term "Claim" shall include (i) all Liabilities;
(ii) all losses, damages, judgments, awards, penalties and settlements; (iii)
all demands, claims, suits, actions, causes of action, proceedings and
assessments, whether or not ultimately determined to be valid; and (iv) all
costs and expenses (including, without limitation, interest (including
prejudgment interest in any litigated or arbitrated matter), court costs and
fees and expenses of attorneys and expert witnesses) of investigating, defending
or asserting any of the foregoing or of enforcing this Agreement.
11.2. BY BUYER. Subject to the terms and conditions of this Article 11,
Buyer hereby agrees to indemnify, defend and hold harmless Company, its
directors, officers, employees and controlling persons, and the Shareholder from
and against all Claims asserted against, resulting to, imposed upon or incurred
by any such person, directly or indirectly, by reason of or resulting from (a)
the inaccuracy or breach of any representation or warranty of Buyer contained in
or made pursuant to this Agreement (regardless of whether such breach is deemed
"material"); (b) the breach of any covenant of Buyer contained in this Agreement
(regardless of whether such breach is deemed "material"); (c) all Claims of or
against Company specifically assumed by Buyer pursuant hereto; or (d) conduct of
the Business by Buyer after the Closing.
11.3. INDEMNIFICATION OF THIRD-PARTY CLAIMS. The following provisions
shall apply to any Claim subject to indemnification which is (i) a suit, action
or arbitration proceeding filed or instituted by any third party, or (ii) any
other form of proceeding or assessment instituted by any Government Entity:
11.3.(a) NOTICE AND DEFENSE. The party or parties to be indemnified
(whether one or more, the "Indemnified Party") will give the party from
whom indemnification is sought (the "Indemnifying Party") prompt written
notice of any such Claim, and the Indemnifying Party will undertake the
defense thereof by representatives chosen by it. The assumption of defense
shall constitute an admission by the Indemnifying Party of its
indemnification obligation hereunder with respect to such Claim, and its
undertaking to pay directly all costs, expenses, damages, judgments,
awards, penalties and assessments incurred in connection therewith.
Failure to give such notice shall not affect the Indemnifying Party's duty
or obligations under this Article 11, except to the extent the Indemnifying
Party is prejudiced thereby. So long as the Indemnifying Party is
defending any such Claim actively and in good faith, the Indemnified Party
shall not settle such Claim. The Indemnified Party shall make available to
the Indemnifying Party or its representatives all records and other
materials
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required by them and in the possession or under the control of the
Indemnified Party, for the use of the Indemnifying Party and its
representatives in defending any such Claim, and shall in other respects
give reasonable cooperation in such defense.
11.3.(b) FAILURE TO DEFEND. If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim
actively and in good faith, the Indemnified Party will (upon further
notice) have the right to undertake the defense, compromise or settlement
of such Claim or consent to the entry of a judgment with respect to such
Claim, on behalf of and for the account and risk of the Indemnifying Party,
and the Indemnifying Party shall thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to judgment.
11.3.(c) INDEMNIFIED PARTY'S RIGHTS. Anything in this Article 11 to
the contrary notwithstanding, (i) if there is a reasonable probability that
a Claim may materially and adversely affect the Indemnified Party other
than as a result of money damages or other money payments, the Indemnified
Party shall have the right to defend, compromise or settle such Claim, and
(ii) the Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any Claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party of a
release from all Liability in respect of such Claim.
11.4. PAYMENT.
11.4.(a) GENERAL. Except as provided in Section 11.4(b), the
Indemnifying Party shall promptly pay the Indemnified Party any amount due
under this Article 11, which payment may be accomplished in whole or in
part, at the option of the Indemnified Party, by the Indemnified Party
setting off any amount owed to the Indemnifying Party by the Indemnified
Party. To the extent set-off is made by an Indemnified Party in
satisfaction or partial satisfaction of an indemnity obligation under this
Article 11 that is disputed by the Indemnifying Party, upon a subsequent
determination by final judgment not subject to appeal that all or a portion
of such indemnity obligation was not owed to the Indemnified Party, the
Indemnified Party shall pay the Indemnifying Party the amount which was set
off and not owed together with interest from the date of set-off until the
date of such payment at an annual rate equal to the prime lending rate then
being published by money center banks. Except as provided in Section
11.4(b), upon judgment, determination, settlement or compromise of any
third party Claim subject to indemnification hereunder, the Indemnifying
Party shall pay promptly on behalf of the Indemnified Party, and/or to the
Indemnified Party in reimbursement of any amount theretofore required to be
paid by it, the amount so determined by judgment, determination, settlement
or compromise and all other Claims of the Indemnified Party with respect
thereto, unless in the case of a judgment an appeal is made from the
judgment. If the Indemnifying Party desires to appeal from an adverse
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judgment, then the Indemnifying Party, if required by law, shall post and
pay the cost of the security or bond to stay execution of the judgment
pending appeal. Upon the payment in full by the Indemnifying Party of such
amounts, the Indemnifying Party shall succeed to the rights of such
Indemnified Party, to the extent not waived in settlement, against the
third party who made such third party Claim.
11.4.(b) PAYMENT THROUGH ESCROW. Notwithstanding the provisions of
Section 11.4(a), Company and the Shareholder shall have indemnification
liabilities under this Article 11 only to the extent of the Escrow Fund (as
defined in the Escrow Agreement) and the sole recourse of Buyer shall be as
a claim, in whole or in part, against the Escrow Fund (exclusive of any
extension thereof past its regular term which occurs solely as a result of
a Claim being made thereunder, other than with respect to such Claim),
provided, however, that following the termination of the Escrow Fund,
Company and Shareholder shall continue to have indemnification liabilities
under this Article 11 for Claims for which the time period described in
11.6 has not expired, but only to the extent of the amount of the Escrow
Fund distributed to Company and/or Shareholder upon the termination
thereof. If Company and/or the Shareholder is determined to owe a Claim
amount pursuant to the procedures set forth in Section 11.4(a), then the
amount due Buyer hereunder shall be satisfied or partially satisfied by the
delivery to the Buyer pursuant to the Escrow Agreement of Northland Stock
or of cash from the Escrow Fund, as determined pursuant to the Escrow
Agreement, in the amount of the Claim to be so satisfied (or, if the amount
of the Escrow Fund is less than the Claim amount, by delivery of the entire
Escrow Fund), and the Claim shall be deemed paid and satisfied upon receipt
by the Buyer of the proper amount. The limitation set forth in this
Section 11.4(b) shall not be applicable with respect to the Excluded
Liabilities, fraud or any intentional, bad faith misrepresentation of
Company or the Shareholder.
11.4.(c) VALUATION OF NORTHLAND STOCK. The per share value of Escrow
Stock for this purpose shall be equal to the average closing price (last
sale price, regular way) of Northland Stock on the Nasdaq exchange (or
other principal exchange or market on which Northland Stock is then listed
or traded) for the seven consecutive trading days immediately preceding a
date determined as follows: (i) in the event Company or Shareholder is
electing to utilize Northland Stock pursuant to Article 2 of the Escrow
Agreement to satisfy a Claim, the date of Company's or the Shareholder's
written notice to the Escrow Agent of such election, (ii) in the event
Company or the Shareholder has failed to elect either to utilize cash or
Northland Stock to satisfy a Claim and Buyer has elected to have Northland
Stock to satisfy the Claim pursuant to Article 2 of the Escrow Agreement,
the date of Buyer's written notice to the Escrow Agent of such election, or
(iii) in the event of the disposition of the Escrow Fund pursuant to
Article 4 of the Escrow Agreement and the retention of a portion of the
Escrow Fund to satisfy pending Claims, November 30, 1999.
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11.5. INDEMNIFICATION FOR ENVIRONMENTAL MATTERS. Without limiting the
generality of the foregoing, Company and the Shareholder, jointly and severally
(hereinafter collectively referred to in this Section 11.5 jointly and severally
as "Sellers"), agree to indemnify, reimburse, hold harmless and defend Buyer
for, from, and against all Claims asserted against, imposed on, or incurred by
Buyer, directly or indirectly, in connection with any Identified Releases to the
extent provided in the Environmental Indemnity Agreement to be entered into
pursuant to Section 2.2(f).
11.6. LIMITATIONS ON INDEMNIFICATION. Except for fraud or any intentional,
bad faith misrepresentation, as to which claims may be brought without
limitation as to time or amount:
11.6.(a) TIME LIMITATION. No claim or action shall be brought under
this Article 11 for breach of a representation or warranty after November
30, 1999. Regardless of the foregoing, however, or any other provision of
this Agreement:
(i) There shall be no time limitation on claims or actions
brought for breach of any representation or warranty made in or
pursuant to Sections 4.1, 4.2 and the first sentence of 4.12(a), and
Company and the Shareholder hereby waive all applicable statutory
limitation periods with respect thereto.
(ii) Any claim or action brought for breach of any
representation or warranty made in or pursuant to Section 4.5 may be
brought at any time until the underlying tax obligation is barred by
the applicable period of limitation under federal and state laws
relating thereto (as such period may be extended by waiver).
(iii) Any claim made by a party hereunder by a demand for
arbitration in accordance with Article 14 hereof for breach of a
representation or warranty prior to the termination of the survival
period for such claim shall be preserved despite the subsequent
termination of such survival period.
(iv) If any act, omission, disclosure or failure to disclosure
shall form the basis for a claim for breach of more than one
representation or warranty, and such claims have different periods of
survival hereunder, the termination of the survival period of one
claim shall not affect a party's right to make a claim based on the
breach of representation or warranty still surviving.
(v) There shall be no time limitation on Claims brought pursuant
to Section 11.5 and the Environmental Indemnity Agreement and Company
and the Shareholder waive all applicable statutory limitation periods
with respect thereto.
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11.6.(b) AMOUNT LIMITATION. Except with respect to claims for
breaches of representations or warranties contained in Sections 4.24 or
5.4, an Indemnified Party shall not be entitled to indemnification under
this Article 11 for breach of a representation or warranty unless the
aggregate of the Indemnifying Party's indemnification obligations to the
Indemnified Party pursuant to this Article 11 (but for this Section
11.6.(b)) exceeds $400,000; and in such event, the Indemnifying Party shall
be liable for indemnification only to the extent of the excess.
11.6.(c) INSURANCE OFFSET. The obligation of an Indemnifying Party
to indemnify any Claim under this Article 11 shall be reduced by any
amounts actually and irrevocably recovered by the Indemnified Party with
respect to such Claim or the underlying facts under insurance policies, (i)
net of any increase that will occur, or is reasonably likely to occur, in
insurance premiums payable by the Indemnified Party, whether by
retrospective premium adjustments or any other premium increase under the
policy or policies under which the claim is made or any other policy, where
the increase results directly from filing the insurance claim and (ii)
less, dollar for dollar, the amount by which the insurance claim when filed
or at any time during the applicable policy period, either singly or in the
aggregate with all other claims made under the applicable policy or
policies, exceeds the policy coverage limit; provided, however, that this
subsection shall apply only if this provision does not constitute an
improper waiver of the insurer's rights of subrogation against the
Indemnifying Party. Nothing contained in this Section 11.6.(c) shall be
deemed to create an obligation of any party hereto to maintain any form or
level of insurance after the Closing, to name any other party as an
additional insured or to obtain approval for any waiver of rights of
subrogation, except as otherwise expressly provided in this Agreement.
11.7. NO WAIVER. The closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing, and regardless of
whether such breach, violation or failure is deemed to be "material".
12. CLOSING
The closing of this transaction ("the Closing") shall take place at the
offices of Morgan, Lewis & Bockius LLP at 9:00 A.M. on a date no later than ten
days following the date on which all of the conditions to the parties'
obligations to close contained in Articles 9 and 10 hereof have been satisfied
(or, if the last such condition is satisfied on or after June 15, 1998, within
five business days thereafter) or at such other time and place as the parties
hereto shall agree upon. Such date is referred to in this Agreement as the
"Closing Date".
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12.1. DOCUMENTS TO BE DELIVERED BY COMPANY AND THE SHAREHOLDER. At the
Closing, Company and the Shareholder shall deliver to Buyer and Fargo the
following documents, in each case duly executed or otherwise in proper form:
12.1.(a) DEEDS, BILLS OF SALE. Bargain and Sale deeds (with
covenants against grantor acts) to real estate and bills of sale and such
other instruments of assignment, transfer, conveyance and endorsement as
will be sufficient in the opinion of Buyer and its counsel to transfer,
assign, convey and deliver to Fargo the Purchased Assets as contemplated
hereby.
12.1.(b) COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officer of Company that each of the representations and
warranties made by Company and the Shareholder in this Agreement is true
and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made or
given on and as of the Closing Date (except for any changes permitted by
the terms of this Agreement or consented to in writing by Buyer), and that
Company and the Shareholder have performed and complied with all of
Company's and the Shareholder's obligations under this Agreement which are
to be performed or complied with on or prior to the Closing Date.
12.1.(c) OPINION OF COUNSEL. A written opinion of Morgan, Lewis &
Bockius LLP, counsel to Company and the Shareholder, dated as of the
Closing Date, addressed to Buyer and Fargo substantially in the form of
Exhibit G hereto, and a reliance letter from such counsel authorizing
Buyer's financing sources to rely on such opinion.
12.1.(d) EMPLOYMENT AGREEMENT. The Employment Agreement referred to
in Section 7.5, duly executed by the Shareholder.
12.1.(e) INVENTORY PURCHASE CONTRACT. The Inventory Purchase
Contract referred to in Section 7.10, duly executed by Company.
12.1.(f) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement referred to in Section 7.11, duly executed by the Shareholder.
12.1.(g) MORTGAGE AND SECURITY RELEASES. Releases of mortgages,
liens and/or financing statements to the extent necessary to terminate any
liens against, or security interests in, any of the Purchased Assets.
12.1.(h) CERTIFIED RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors and the Shareholder of Company authorizing and
approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
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12.1.(i) ESCROW AGREEMENT; STOCK POWERS. The Escrow Agreement duly
executed by Company Shareholder and the Escrow Agent in the form of Exhibit
A hereto and stock powers executed in blank by Company for the certificate
or certificates for the shares of Northland Stock to be delivered to Escrow
Agent pursuant to Section 3.2(b) hereof.
12.1.(j) CERTIFICATE OF INCORPORATION; BY-LAWS. A copy of the
By-laws of Company certified by the secretary of Company, and a copy of the
Certificate of Incorporation of Company certified by the Secretary of State
of the state of New Jersey.
12.1.(k) INCUMBENCY CERTIFICATE. Incumbency certificates relating to
each person executing any document executed and delivered to Buyer pursuant
to the terms hereof.
12.1.(l) GENERAL RELEASE. The General Release referred to in Section
7.8, duly executed by the Shareholder.
12.1.(m) BRIDGETON FREEZER PURCHASE CONTRACT. An assignment of the
Bridgeton Freezer Purchase Contract to Buyer, together with the duly
executed consent of BFC to such assignment, such certificates and other
evidence of compliance by Company of its obligations under the Contract and
satisfaction of the conditions to BFC's obligations thereunder satisfactory
to Buyer's counsel, and the bargain and sale deeds, bills of sale and such
other instruments of conveyance required to be delivered by BFC under the
Bridgeton Freezer Purchase Contract at the closing of the transaction
contemplated therein.
12.1.(n) PLAN ASSUMPTION AGREEMENT. The Plan Assumption Agreement
referred to in Section 6.2, duly executed by Company.
12.1.(o) OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Buyer at or prior to the Closing
pursuant to this Agreement and such other certificates of authority and
documents as Buyer may reasonably request.
12.2. DOCUMENTS TO BE DELIVERED BY BUYER AND FARGO. At the Closing, Buyer
and Fargo shall deliver to Company the following documents, in each case duly
executed or otherwise in proper form:
12.2.(a) CASH PURCHASE PRICE. To Company's lenders, a wire transfer
as required by Section 3.2(a)(i) hereof, to Company a certified or bank
cashier's check (or wire transfer) as required by Section 3.2.(c) hereof,
and to the Escrow Agent, a certified or bank cashier's check (or wire
transfer) as required by Section 3.2.(b) hereof, and to BFC, a certified or
bank cashier's check (or wire transfer) as required by Section 3.2(a)
hereof.
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12.2.(b) NORTHLAND STOCK. To Escrow Agent, a certificate or
certificate for the number of shares of Northland Stock to be issued by
Buyer as required by Section 3.2(b) hereof.
12.2.(c) ASSUMPTION OF LIABILITIES. Such undertakings and
instruments of assumption as will be reasonably sufficient in the opinion
of Company and its counsel to evidence the assumption of Company
Liabilities as provided for in Article 2 and the assumption of the Ocean
Spray Freezer Contract, if requested by Company.
12.2.(d) COMPLIANCE CERTIFICATE. A certificate signed by the chief
executive officers of Buyer and Fargo that the representations and
warranties made by Buyer in this Agreement are true and correct on and as
of the Closing Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing Date (except for
any changes permitted by the terms of this Agreement or consented to in
writing by Company), and that Buyer and Fargo have performed and complied
with all of Buyer's obligations under this Agreement which are to be
performed or complied with on or prior to the Closing Date.
12.2.(e) OPINION OF COUNSEL. A written opinion of Foley & Lardner,
counsel to Buyer and Fargo, dated as of the Closing Date, addressed to
Company, in substantially the form of Exhibit H hereto.
12.2.(f) CERTIFIED RESOLUTIONS. Certified copies of the resolutions
of the Board of Directors of, Buyer and Fargo authorizing and approving
this Agreement and the consummation of the transactions contemplated by
this Agreement.
12.2.(g) ESCROW AGREEMENT. The Escrow Agreement duly executed by
Buyer, Fargo and the Escrow Agent in the form of Exhibit A hereto.
12.2.(h) EMPLOYMENT AGREEMENT. The Employment Agreement referred to
in Section 7.5, duly executed by Buyer and Fargo.
12.2.(i) INVENTORY PURCHASE AGREEMENT. The Inventory Purchase
Agreement referred to in Section 7.10, duly executed by Buyer.
12.2.(j) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement described in Section 7.11, duly executed by Buyer.
12.2.(k) INCUMBENCY CERTIFICATE. Incumbency certificates relating to
each person executing any document executed and delivered to Company by
Buyer pursuant to the terms hereof.
12.2.(l) PLAN ASSUMPTION AGREEMENT. The Plan Assumption Agreement
described in Section 6.2, duly executed by Buyer and Fargo.
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12.2.(m) ASSIGNMENT AND ASSUMPTION OF AGREEMENT. An agreement for
the assignment and assumption (but not novation) of Buyer's rights and
obligations under this Agreement to Fargo, in accordance with Section 15.4
hereof, in form and substance reasonably acceptable to counsel for Company
and Shareholder.
12.2.(n) OTHER DOCUMENTS. All other documents, instruments or
writings required to be delivered to Company at or prior to the Closing
pursuant to this Agreement and such other certificates of authority and
documents as Company may reasonably request.
13. TERMINATION
13.1. RIGHT OF TERMINATION WITHOUT BREACH. This Agreement may be
terminated without further liability of any party at any time prior to the
Closing:
13.1.(a) by mutual written agreement of Buyer, Company and the
Shareholder, or
13.1.(b) by either Buyer or Company if the Closing shall not have
occurred on or before September 30, 1998, provided that Company and
Shareholder may extend such date to December 31, 1998, by written notice to
Buyer not later than September 20, 1998 provided the terminating party has
not, through breach of a representation, warranty or covenant, prevented
the Closing from occurring on or before such date.
13.2. TERMINATION FOR BREACH.
13.2.(a) TERMINATION BY BUYER. If (i) there has been a material
violation by Company of any of the agreements of Company in this Agreement
which is continuing after five business days' prior notice which has not
been waived in writing by Buyer, or (ii) Company shall have attempted to
terminate this Agreement under this Article 13 or otherwise without grounds
to do so, then Buyer may, by written notice to Company at any time prior to
the Closing that such violation or wrongful termination attempt is
continuing, terminate this Agreement with the effect set forth in Section
13.2.(c) hereof.
13.2.(b) TERMINATION BY COMPANY. If (i) there has been a failure of
satisfaction of a condition to the obligations of Company which has not
been waived in writing by Buyer, or (ii) Buyer shall have attempted to
terminate this Agreement under this Article 13 or otherwise without grounds
to do so, then Company may, by written notice to Buyer at any time prior to
the Closing that such violation, breach, failure or wrongful termination
attempt is continuing, terminate this Agreement with the effect set forth
in Section 13.2.(c) hereof.
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13.2.(c) EFFECT OF TERMINATION. Termination of this Agreement
pursuant to this Section 13.2 shall not in any way terminate, limit or
restrict the rights and remedies of any party hereto against any other
party which has violated, breached or failed to satisfy any of the
representations, warranties, covenants, agreements, conditions or other
provisions of this Agreement prior to termination hereof. Company and
Shareholder acknowledge that the Business and Purchased Assets are of a
special, unique and extraordinary character and damages are inadequate to
compensate any breach of this Agreement. Accordingly, in the event Company
shall have attempted to terminate this Agreement under this Article 13 or
otherwise without valid grounds to do so, or shall have otherwise failed or
refused to perform its covenants, agreements and obligations hereunder,
then Buyer, at its sole election and in addition to any other remedy
available to it, may seek a decree of specific performance requiring
Company and Shareholder to fulfill their obligations under this Agreement
and Company and Shareholder agree to waive any defense that an adequate
remedy at law exists. In addition to the right of any party under common
law to redress for any such breach or violation, each party whose breach or
violation has occurred prior to termination shall jointly and severally
indemnify each other party for whose benefit such representation, warranty,
covenant, agreement or other provision was made ("indemnified party") from
and against all losses, damages (including, without limitation,
consequential damages), costs and expenses (including, without limitation,
interest (including prejudgment interest in any litigated matter),
penalties, court costs, and attorneys fees and expenses) asserted against,
resulting to, imposed upon, or incurred by the indemnified party, directly
or indirectly, by reason of, arising out of or resulting from such breach
or violation. Subject to the foregoing, the parties' obligations under
Section 15.9 of this Agreement shall survive termination.
14. RESOLUTION OF DISPUTES
14.1. ARBITRATION. After the Closing, any dispute, controversy or claim
arising out of or relating to this Agreement or the negotiation hereof or entry
hereunto or any contract or agreement entered into pursuant hereto or the
performance by the parties of its or their terms shall be settled by binding
arbitration held in Chicago, Illinois in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, except
as specifically otherwise provided in this Article 14. This Article 14 shall be
construed and enforced in accordance with the Federal Arbitration Act,
notwithstanding any other choice of law provision in this Agreement.
Notwithstanding the foregoing:
14.1.(a) Buyer may, in its discretion, apply to a court of competent
jurisdiction for equitable relief as provided in Section 15.5. Such an
application shall not be deemed a waiver of the right to compel arbitration
pursuant to this Article.
14.1.(b) No party shall be required to submit to arbitration
hereunder unless all persons who are not parties to this Agreement, but who
are necessary parties to a complete resolution of the controversy, submit
to the arbitration process on the same
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terms as the parties hereto. Without limiting the generality of the
foregoing, no claim under Article 11 for the indemnification of a
third-party claim shall be subject to arbitration under this Article
14 unless the third party bringing such claim against the indemnitee
shall agree in writing to the application of this Article 14 of the
resolution of such claim.
14.1.(c) Without the express written consent of all parties, this
Article 14 shall not apply where the amount in controversy, excluding
attorney fees and expenses, exceeds $1,000,000.
14.2. ARBITRATORS. If the matter in controversy (exclusive of attorney
fees and expenses) shall appear, as at the time of the demand for arbitration,
to exceed $500,000, then the panel to be appointed shall consist of three
neutral arbitrators; otherwise, one neutral arbitrator.
14.3. PROCEDURES; NO APPEAL. The arbitrator(s) shall allow such
discovery as the arbitrator(s) determine appropriate under the circumstances
and shall resolve the dispute as expeditiously as practicable, and if
reasonably practicable, within 120 days after the selection of the
arbitrator(s). The arbitrator(s) shall give the parties written notice of
the decision, with the reasons therefor set out, and shall have 30 days
thereafter to reconsider and modify such decision if any party so requests
within 10 days after the decision. Thereafter, the decision of the
arbitrator(s) shall be final, binding, and nonappealable with respect to all
persons, including (without limitation) persons who have failed or refused to
participate in the arbitration process.
14.4. AUTHORITY. The arbitrator(s) shall have authority to award relief
under legal or equitable principles, including interim or preliminary relief,
and to allocate responsibility for the costs of the arbitration and to award
recovery of attorneys fees and expenses in such manner as is determined to be
appropriate by the arbitrator(s).
14.5. ENTRY OF JUDGMENT. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having in personam and subject matter
jurisdiction. Company, Buyer and the Shareholder hereby submit to the in
personam jurisdiction of the Federal and State courts in Chicago, Illinois, for
the purpose of confirming any such award and entering judgment thereon.
14.6. CONFIDENTIALITY. All proceedings under this Article 14, and all
evidence given or discovered pursuant hereto, shall be maintained in confidence
by all parties and by the arbitrators.
14.7. CONTINUED PERFORMANCE. The fact that the dispute resolution
procedures specified in this Article 14 shall have been or may be invoked shall
not excuse any party from performing its obligations under this Agreement and
during the pendency of any such procedure all parties shall continue to perform
their respective obligations in good faith, subject to any rights to terminate
this Agreement that may be available to any party and to the right of setoff
provided in Section 11.4 hereof.
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14.8. TOLLING. All applicable statutes of limitation shall be tolled while
the procedures specified in this Article 14 are pending. The parties will take
such action, if any, required to effectuate such tolling.
14.9. ESCROW AGENT UNNECESSARY. The parties agree that the escrow agent
under and as identified in the Escrow Agreement is not a necessary party to and
shall not be joined in or made party to any arbitration proceeding commenced
under this Article 14.
15. MISCELLANEOUS
15.1. DISCLOSURE SCHEDULE. Information set forth in the Disclosure
Schedule specifically refers to the article and section of this Agreement to
which such information is responsive and such information shall not be deemed to
have been disclosed with respect to any other article or section of this
Agreement or for any other purpose. Nothing in the Disclosure Schedule shall be
deemed adequate to disclose an exception to a representation or warranty made
herein unless the Disclosure Schedule identifies the exception with reasonable
particularity.
15.2. FURTHER ASSURANCE. From time to time, at any party's request and
without further consideration, any other party will execute and deliver to such
party such documents, instruments and consents and take such other action as
such party may reasonably request in order to consummate more effectively the
transactions contemplated hereby, to discharge the covenants of the parties
hereunder and to vest in Buyer good, valid and marketable title to the business
and assets being transferred hereunder.
15.3. DISCLOSURES AND ANNOUNCEMENTS. Both the timing and the content of
all disclosure to third parties and public announcements concerning the
transactions provided for in this Agreement by either Company or Buyer shall be
subject to the approval of the other in all essential respects, except that
Company's approval shall not be required as to any statements and other
information which Buyer may submit to the Securities and Exchange Commission or
Buyer's stockholders or be required to make pursuant to any rule or regulation
of the Securities and Exchange Commission or NASDAQ, etc., or otherwise required
by law; provided that Buyer shall consult with Company to the extent possible
prior to any such submission or statements.
15.4. ASSIGNMENT; PARTIES IN INTEREST.
15.4.(a) ASSIGNMENT. Except as expressly provided herein, the rights
and obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other
party, cause one or more subsidiaries of Buyer to carry out all or part of
the transactions contemplated hereby; provided, however, that Buyer shall,
nevertheless, remain liable for all of its obligations, and those of any
such subsidiary, to Company hereunder.
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15.4.(b) PARTIES IN INTEREST. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the respective successors
and permitted assigns of the parties hereto. Nothing contained herein
shall be deemed to confer upon any other person any right or remedy under
or by reason of this Agreement.
15.5. EQUITABLE RELIEF. Company and the Shareholder agree that any breach
of the Company's obligation to consummate the sale of the Purchased Assets on
the Closing Date, any breach of any noncompetition obligation imposed by Section
7.6 hereof or by any agreement delivered to Buyer pursuant to Section 7.5
hereof, or any breach by Company or the Shareholder of its or their obligations
imposed by Section 7.7 hereof, will result in irreparable injury to Buyer for
which a remedy at law would be inadequate; and that, in addition to any relief
at law which may be available to Buyer for such breach and regardless of any
other provision contained in this Agreement, Buyer shall be entitled to
injunctive and other equitable relief as a court may grant. This Section 15.5
shall not be construed to limit Buyer's right to obtain equitable relief for
other breaches of this Agreement under general equitable standards.
15.6. LAW GOVERNING AGREEMENT. This Agreement shall be construed and
interpreted according to the internal laws of the State of New Jersey, excluding
any choice of law rules that may direct the application of the laws of another
jurisdiction. Process and pleadings mailed to a party at the address provided
in Section 15.8 shall be deemed properly served and accepted for all purposes.
15.7. AMENDMENT AND MODIFICATION. Buyer, Company and the Shareholder may
amend, modify and supplement this Agreement in such manner as may be agreed upon
by them in writing.
15.8. NOTICE. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service.
The respective addresses to be used for all such notices, demands or requests
are as follows:
(a) If to Buyer, to:
Northland Cranberries, Inc.
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, Wisconsin 54495-8020
Attention: John Swendrowski
Facsimile: (715) 422-6800
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(with a copy to)
Jeffrey J. Jones
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Facsimile: (414) 297-4900
or to such other person or address as Buyer shall furnish to Company in writing.
(b) If to Company or the Shareholder, to:
Michael A. Morello
3161 Silverwood Lane
Vineland, New Jersey 08361
Facsimile: (609) 690-0751
Minot Food Packers, Inc.
Penn and Bank Streets
Bridgeton, New Jersey 08302
Attention: Michael A. Morello
Facsimile: (609) 451-1133
(with a copy to)
John F. Bales, III, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103-6093
Facsimile: (215) 963-5299
or to such other person or address as Company shall furnish to Buyer in writing.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after transmission
(and sender shall bear the burden of proof of delivery); if sent by overnight
courier pursuant to this paragraph, such communication shall be deemed delivered
upon receipt; and if sent by U.S. mail pursuant to this paragraph, such
communication shall be deemed delivered as of the date of delivery indicated on
the receipt issued by the relevant postal service, or, if the addressee fails or
refuses to accept delivery, as of the date of such failure or refusal. Any
party to this Agreement may change its address for the purposes of this
Agreement by giving notice thereof in accordance with this Section.
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15.9. EXPENSES. Except as provided in Section 15.9.(f), regardless of
whether or not the transactions contemplated hereby are consummated:
15.9.(a) EXPENSES TO BE PAID BY COMPANY. Company shall pay, and
shall indemnify, defend and hold Buyer harmless from and against, each of
the following:
(i) TRANSFER TAXES. Any sales, use, excise, transfer or other
similar tax imposed with respect to the transactions provided for in
this Agreement, and any interest or penalties related thereto.
(ii) PROFESSIONAL FEES. All fees and expenses of Company's
legal, accounting, investment banking and other professional counsel
in connection with the transactions contemplated hereby, including the
restatement of Company's June 30, 1997, audited financial statements,
except to the extent provided in Section 15.9(b)(iii) and (v) below.
(iii)APPRAISAL FEES. One-half of the fees and expenses for the
appraisal of the Purchased Assets to be obtained pursuant to Section
3.3.
15.9.(b) EXPENSES TO BE PAID BY BUYER. Buyer shall pay, and shall
indemnify, defend and hold Company and Shareholder harmless from and
against each of the following:
(i) HSR FEES. All filing fees for the Hart-Scott-Rodino
application filed pursuant to Section 7.9 hereof.
(ii) ENVIRONMENTAL AUDIT. The fees and other expenses relating
to the environmental audit performed pursuant to Section 7.3 hereof.
(iii) TITLE INSURANCE PREMIUMS AND SURVEY FEES. All premiums for
the issuance of the title insurance policies issued pursuant to
Section 9.5 hereof, and the cost of surveys performed pursuant to
Section 7.2.
(iv)APPRAISAL FEES. One-half of the fees and expenses for the
appraisal of the Purchased Assets to be obtained pursuant to Section
3.3.
(v) CERTAIN ACCOUNTING FEES. Fees of BDO Seidman pertaining to
the review of the financial statements described in Section 4.4 in
connection with the proposed filings of such statements with the
Commission.
15.9.(c) OTHER. Except as otherwise provided herein, each of the
parties shall bear its own expenses and the expenses of its counsel and
other agents in connection with the transactions contemplated hereby.
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15.9.(d) COSTS OF LITIGATION. The parties agree (subject to the
discretion, in an arbitration proceeding, of the arbitrator as set forth in
Section 14.4) that the prevailing party in any action brought with respect
to or to enforce any right or remedy under this Agreement shall be entitled
to recover from the other party or parties all reasonable costs and
expenses of any nature whatsoever incurred by the prevailing party in
connection with such action, including without limitation attorneys' fees
and prejudgment interest.
15.9.(e) BROKERAGE. Except as to any broker or finder described on
Schedule 4.24, who shall be paid by Company, and except as to any broker
or finder described on Schedule 5.4, who shall be paid by Buyer, Company
and Shareholder and Buyer have each represented and warranted to each other
that there is no broker or finder involved or in any way connected with the
transfer provided for herein on their behalf respectively and each agrees
to hold the others harmless from and against all other claims for brokerage
commissions or finder's fees in connection with the execution of this
Agreement or the transactions provided for herein.
15.9.(f) REIMBURSEMENT OF COMPANY EXPENSES. In the event that the
Agreement is terminated pursuant to Section 13.1 hereof by reason of
Buyer's failure or inability (despite all reasonable commercial efforts) to
obtain the financing for the Purchase Price as described in Section 7.20,
Buyer shall promptly reimburse Company for all expenses incurred by Company
in connection with the transactions contemplated by this Agreement, up to a
maximum total of $300,000.
15.10. NO RECORDING. The parties agree that no party hereto shall record
this Agreement.
15.11. ENTIRE AGREEMENT. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
15.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.13. HEADINGS. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
15.14. KNOWLEDGE. References in the Agreement to the "knowledge of
Company" or similar language shall mean the actual knowledge of Michael A.
Morello, Valerie J. Morello, Frederich Anton or David Deon.
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15.15. GLOSSARY OF TERMS. The following sets forth the location of
definitions of capitalized terms defined in the body of this Agreement:
"AFFECTED EMPLOYEES" - Section 6.1
"AFFILIATE" - Section 1.1(l)
"ASSUMED CONTRACTS" - Section 2.1.(b)
"ASSUMED DEBT OBLIGATIONS" - Section 2.1.(f)
"ASSUMED DEBT PREPAYMENT PENALTIES" - Section 2.2.(e)
"ASSUMED EMPLOYEE PLANS/AGREEMENT - Section 4.16(a)
"ASSUMED LIABILITIES" - Section 2.1
"BFC" - Recitals
"BRIDGETON FREEZER" - Recitals
"BRIDGETON FREEZER PURCHASE CONTRACT" - Recitals
"BRIDGETON FREEZER PURCHASE PRICE" - Recitals
"BUYER'S ACCOUNTANTS" - Section 3.3.(c)
"BUYER'S AFFILIATES" - Section 11.1
"CERCLA" - Section 2.2.(g)
"CLAIM" - Section 11.1
"CLOSING" - Preamble to Article 12
"CLOSING DATE" - Section 12
"CODE" - Section 3.3
"COMMISSION" - Section 5.6
"COMPANY EMPLOYEES" - Section 4.16.(a)
"COMPANY'S ACCOUNTANTS" - Section 3.3.(c)(ii)
"CONTRACTS" - Section 1.1.(g)
"CURRENT ASSETS: - Section 3.3(a)
"DEBT OBLIGATIONS" - Section 2.2.(8)
"DISCLOSURE SCHEDULE" - Article 15.1
"EFFECTIVE TIME" - Section 3.3.(b)
"EMPLOYMENT AGREEMENT" - Section 7.5
"EMPLOYEE PLANS/AGREEMENTS" - Section 4.16.(a)
"ENVIRONMENTAL INDEMNITY AGREEMENT" - Exhibit I
"ENVIRONMENTAL LAWS" - Section 4.11.(c)
"ERISA" - Section 4.16.(a)
"ESCROW AGREEMENT" - Section 7.4
"ESTIMATED CLOSING BALANCE SHEET" - Section 3.3.(b)
"EXCLUDED ASSETS" - Section 1.2
"FACILITIES" - Recitals
"FARGO" - Recitals
"FINAL CLOSING BALANCE SHEET" - Section 3.3.(c)(iii)
"GOVERNMENT ENTITIES" - Section 2.2.(m)
"HAZARDOUS SUBSTANCES" - Section 2.2.(g)
"HSR ACT" - Section 4.3
"IRS" - Section 3.3
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"INDEMNIFIED PARTY" - Section 11.3.(a)
"INDEMNIFYING PARTY" - Section 11.3.(a)
"INVENTORY" - Section 1.1.(d)
"INVENTORY PURCHASE AGREEMENT" - Section 7.10
"INVESTOR REPRESENTATION LETTER" - Section 9.9
"LAWS" - Section 4.11(a)
"LEASED REAL PROPERTY" - Section 1.1.(b)
"LIABILITY" - Section 2.1
"LIEN" - Section 4.12.(a)
"LITIGATION" - Section 2.2.(h)
"MATERIAL ADVERSE EFFECT" - Section 4.1(c)
"ORDERS" - Section 4.11(a)
"OWNED REAL PROPERTY" - Section 1.1.(a)
"PBGC" - Section 4.16.(b)(ii)
"PERMITTED REAL PROPERTY LIENS" - Section 4.12.(a)
"PERSONAL PROPERTY LEASES" - Section 1.1.(e)
"PRE-SALE TAXABLE INCOME" - Section 7.18
"PRODUCTS" - Section 4.20
"PURCHASED ASSETS" - Section 1.1
"PURCHASE PRICE" - Section 3.1
"REAL PROPERTY" - Section 4.12.(c)
"REAL PROPERTY LEASES" - Section 1.1.(b)
"REASONABLE BEST EFFORTS" - Section 1.1(g)
"RECENT BALANCE SHEET" - Section 4.4
"REGISTRATION RIGHTS AGREEMENT" - Section 7.11
"SETTLEMENT DATE" - Section 3.2.(e)
"TRADE RIGHTS" - Section 1.1.(f)
Where any group or category of items or matters is defined collectively in the
plural number, any item or matter within such definition may be referred to
using such defined term in the singular number.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
NORTHLAND CRANBERRIES, INC.
By:
------------------------------------
John Swendrowski
Chairman and CEO
MINOT FOOD PACKERS, INC.
By:
-----------------------------------
Michael A. Morello
President
--------------------------------------
Michael A. Morello
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CHICAGO FIRSTAR CENTER SAN DIEGO
JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO
LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE
MADISON TELEPHONE (414) 271-2400 TAMPA
MILWAUKEE FACSIMILE (414) 297-4900 WASHINGTON, D.C.
May 18, 1998
Northland Cranberries, Inc.
800 First Avenue South
P.O. Box 8020
Wisconsin Rapids, WI 54494-8020
Gentlemen:
We have acted as counsel for Northland Cranberries, Inc., a
Wisconsin corporation (the "Company"), in connection with the preparation of
a Form S-3 Registration Statement intended to be initially filed with the
Securities and Exchange Commission on or about May 1, 1998 ("Registration
Statement"), including the Prospectus constituting a part thereof
("Prospectus"), relating to the registration under the Securities Act of
1933, as amended ("Act"), of up to 5,000,000 of shares of the Company's Class
A Common Stock, $.01 par value per share ("Shares"), to be sold by the
Company in the manner set forth in the Registration Statement and Prospectus
and 750,000 additional Shares granted to the underwriters solely to cover
over-allotments, if any. In connection therewith, we have examined: (i) the
Registration Statement, including the Prospectus; (ii) the Company's Articles
of Incorporation and Bylaws; (iii) proceedings of the Board of Directors of
the Company relating to the authorization for issuance of the Shares; and
(iv) such other proceedings, documents and records as we have deemed
necessary to enable us to render this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation validly existing under the
corporate laws of the State of Wisconsin.
2. The Shares, when the price thereof has been determined by
action of the Company's Chief Executive Officer pursuant to the authority
vested in him by the Company's Board of Directors and when issued and paid
for as described in the Registration Statement and Prospectus, will be
legally issued, fully paid and non-assessable and no personal liability will
<PAGE>
Foley & Lardner
Northland Cranberries, Inc.
May 5, 1998
Page 2
attach to the ownership thereof, except for all debts owing to employees of
the Company for services performed therefor, but not exceeding six months
service in any one case, as provided in Section 180.0622(2)(b) of the
Wisconsin Business Corporation Law and as such section may be interpreted by
a court of law.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm therein. In giving
our consent, we do not admit that we are "experts" within the meaning of
Section 11 of the Act or within the category of persons whose consent is
required by Section 7 of the Act.
Very truly yours,
FOLEY & LARDNER
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of this Registration Statement of Northland
Cranberries, Inc. and Subsidiary on Form S-3 of our report dated October 9,
1997 incorporated by reference in the Annual Report on Form 10-K of Northland
Cranberries, Inc. and Subsidiary for the year ended August 31, 1998 and to
the use of our report dated October 9, 1997 (April 21, 1998 as to Note 1 -
Net Income (Loss) Per Share), appearing in this Prospectus, which is part of
this Registration Statement. We also consent to the reference to us under
the headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Milwaukee, Wisconsin
May 4, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Northland Cranberries, Inc.
Wisconsin Rapids, Wisconsin
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated August
12, 1997, relating to the financial statements and schedules of Minot Food
Packers, Inc. for the year ended June 30, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
May 19, 1998
