-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nlji0brOr388MaunxIRv/b0gl7Ea1RyJxtCl0Llz56JtwVwe/czdr0JX2NrndWwc RGvWfQ147w6uBbc7FmvBMw== 0000897069-97-000479.txt : 19971203 0000897069-97-000479.hdr.sgml : 19971203 ACCESSION NUMBER: 0000897069-97-000479 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971201 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHLAND CRANBERRIES INC /WI/ CENTRAL INDEX KEY: 0000818010 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 391583759 STATE OF INCORPORATION: WI FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16130 FILM NUMBER: 97730953 BUSINESS ADDRESS: STREET 1: 800 FIRST AVE SO STREET 2: P O BOX 8020 CITY: WISCONSIN RAPIDS STATE: WI ZIP: 54494 BUSINESS PHONE: 7154244444 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-16130 Northland Cranberries, Inc. (Exact name of registrant as specified in its charter) Wisconsin 39-1583759 (State of other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 800 First Avenue South P. O. Box 8020 Wisconsin Rapids, Wisconsin 54495-8020 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (715) 424-4444 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting stock held by non-affiliates of the registrant as of November 24, 1997: $187,229,580 Number of shares issued and outstanding of each of the registrant's classes of common stock as of November 24, 1997: Class A Common Stock, $.01 par value: 13,220,370 shares Class B Common Stock, $.01 par value: 636,202 shares PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE: Proxy Statement for 1998 annual meeting of shareholders scheduled to be held January 7, 1998 (incorporated by reference into Part III, to the extent indicated therein). 1997 Annual Report to Shareholders (incorporated by reference into Parts II and IV, to the extent indicated therein). PART I Special Note Regarding Forward-Looking Statements Certain matters discussed in this Annual Report on Form 10-K are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement includes words such as the Company "believes," "anticipates," "expects" or other words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward- looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this Form 10-K and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Item 1. Business. General Northland Cranberries, Inc. ("Company" or "Northland") is a vertically integrated grower, processor and marketer of cranberries and value-added consumer and industrial cranberry products. With 25 cranberry producing marshes and 2,548 planted acres owned or operated in Wisconsin and Massachusetts as of November 15, 1997, Northland is also the world's largest cranberry grower. Since 1993, when Northland first began implementing its "marsh to market" vertical integration strategy by introducing its own Northland brand fresh cranberries, this strategy has been and continues to be the principal strategic focus of the Company. The Company has developed from principally a cranberry grower and member of the Ocean Spray Cranberries, Inc. ("Ocean Spray") marketing cooperative to a grower, purchaser, processor and marketer of cranberries and cranberry products. The Company's current product line includes Northland brand 100% juice cranberry blends, Northland brand fresh cranberries, private label cranberry products, cranberry concentrate, raw frozen cranberries and single-strength cranberry juice. The Company completed the national rollout of its Northland brand 100% juice cranberry blends in fiscal 1997. As of August 31, 1997, Northland's blended cranberry juice product line was available in 48 states and in approximately 18,000 supermarkets, or 60% of supermarkets nationwide. According to data compiled by Information Resources, Inc. ("IRI"), for the 12-week period ended October 12, 1997, the Northland branded juice product line increased its market share in the United States supermarket shelf-stable cranberry beverage category to approximately 6.5% as compared to 1.0% for the 12-week period ended October 6, 1996. For the four-week period ended October 12, 1997, Northland's market share in this category was approximately 8.0%. In fiscal 1998, the Company expects to continue the growth and distribution of its Northland branded juice product line by (i) implementing a comprehensive national marketing plan, including a national television advertising campaign, to continue to increase consumer awareness about the Company's branded juice products; (ii) continuing its trade and price promotion plan through seasonal merchandising and couponing; (iii) introducing new juice flavors and bottle sizes; and (iv) pursuing alternative sales channels, including membership clubs, mass merchandisers, drug and discount stores, convenience stores and industrial food service companies. The Company also plans to continue to pursue sales opportunities for its cranberry juice concentrate and its private label cranberry products, as well as maintaining is seasonal sales of fresh cranberries. Marketing and Sales Marketing The Company's marketing strategy and focus for its Northland 100% juice cranberry blend product line is to highlight the differences in flavor and nutritional content between Northland brand 100% juice cranberry blends and the competing products of Ocean Spray and others containing lesser juice content, as well as the nutritional benefits of cranberry-based beverages. To implement this strategy, in fiscal 1997, the Company developed and coordinated media advertising programs, 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. The Company also entered into a long-term licensing agreement with the Ladies Professional Golf Association to become a corporate sponsor and the official juice of the LPGA. The Company intends to continue aggressively promoting its branded juice product line through increased television advertising in fiscal 1998 and by continuing its trade and price promotion plan, consisting of seasonal merchandising to increase in-store visibility of Northland products and a coupon plan to provide strong trial incentives to first-time buyers and repurchase incentives to established users. Northland anticipates spending approximately $24 million on advertising, promotion and slotting expenses in support of its brand in fiscal 1998, compared to $9 million in fiscal 1997. On June 2, 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) as the former Director of Marketing for the Food Service Division of General Mills Corporation, a position Mr. Kaminski held for four years. See "Executive Officers of the Company." 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 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. Sales Based on industry data, dollar sales of shelf-stable cranberry beverages continued to increase in fiscal 1997, with Northland's entry into certain individual markets appearing to stimulate total segment growth. Northland anticipates that this category growth will continue in fiscal 1998. Northland believes this category growth may allow it to realize increased sales of its branded juice products by expanding distribution and increasing promotion of Northland brand 100% juice products, both within its current markets as well as in new markets. 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 with extensive sales experience working for companies such as Borden, Inc., Ralston Purina Company and Oscar Mayer Foods Corp. The Company's sales staff directs distribution and sale of its branded juice products through a network of approximately 60 independent food brokers in the major geographic regions of the United States. In addition to selling branded juice products, the Company sells Northland brand fresh cranberries to wholesale produce distributors and retail grocery companies during the Thanksgiving and Christmas holiday seasons. Due in part to a cooler than average summer growing season, the fiscal 1997 fresh cranberry crop consisted of smaller-than-average size berries. The reduced average size of the fiscal 1997 fresh cranberry crop resulted in the Company producing, packaging and selling less fresh fruit in fiscal 1997 than in fiscal 1996. Fresh fruit sales in fiscal 1998 are expected to be consistent with fiscal 1997 levels. In addition to the national rollout of its branded juice product line, important elements of the Company's marsh-to-market strategy in fiscal 1997 were to develop initial sales of private label cranberry products and to increase its sales of cranberry juice concentrate. However, during early fiscal 1997, Northland was approached by, and entered into negotiations and reached verbal agreement for the acquisition of, a major private label supplier. In anticipation of closing this planned acquisition, the Company redirected its internal efforts away from attempting to generate sales of its private label products and concentrate so that it could retain cranberries in inventory in order to internally supply the raw materials necessary to meet the ongoing product sales of the acquisition candidate. However, for unknown reasons not related to the Company, the acquisition was suddenly terminated by the seller on the anticipated execution date of the definitive acquisition agreement. As a result, the Company's sales of private label products and cranberry concentrate were adversely effected, and a larger than normal 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. The Company has initiated plans to renew its efforts to establish initital sales of its private label products. According to industry data, approximately $150 million of private label cranberry juice products were sold in supermarkets nationwide in 1997, representing approximately 20% of the total supermarket shelf-stable cranberry juice segment. The Company believes its position as the world's largest cranberry grower would allow private label customers access to a reliable, high quality supply of cranberry-based juice products. Private label juice product sales, however, are very price competitive, and supermarket chains, mass merchandisers and other producers of private label products are often hesitant to change historical suppliers. The Company anticipates that, in order to establish initial private label sales success, it will need to aggressively compete based on product pricing in fiscal 1998. There can be no assurance that the Company will be successful in entering this market or that such sales will be on satisfactory economic terms. 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 approximately 120,000 barrels of concentrate over the next two fiscal years to Wild. The Company believes that its alliance with Wild, combined with its sales of fresh cranberries in the United Kingdom, the Netherlands, Belgium and other European countries, provides the Company with an initial foundation for additional overseas sales and provides potential opportunities for eventual expansion into other foreign markets. In fiscal 1997, the Company had sales of approximately $5.8 million, or 12% of net sales, to one customer. The Company believes the loss of this customer would not have a material adverse effect on the Company since these sales were mostly in the form of cranberry concentrate, and the raw cranberries used to produce such concentrate could, if necessary, be redirected to other customers or into the production of other consumer cranberry products. The Company's wholly-owned subsidiary, Wildhawk, is in the business of selling agricultural chemicals and fertilizer to cranberry growers. The Company also sells cranberry vines to other cranberry growers. Neither Wildhawk sales nor sales of cranberry vines have recently had, nor are they expected to have, a material impact on the Company's revenues or net income. Cranberry Supply General The Company believes an important factor in successfully implementing its marsh to market strategy is controlling a significant and reliable supply of cranberries through its own growing efforts and purchasing 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 November 15, 1997, Northland owned or operated approximately 2,548 planted acres in Wisconsin and Massachusetts. The Company utilizes its significant internal harvest of raw cranberries from its owned and operated acres for a substantial majority of its fruit distribution needs. Because cranberries are currently in limited supply, 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 source of raw cranberries rather than having to rely on third party suppliers. The combination of federal and state 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. Internally Grown and Purchased Supply In the fall of 1996 (i.e., fiscal 1997), the Company harvested 293,000 barrels from 2,107 harvested acres on 24 marshes. While the fiscal 1997 harvest was a record harvest for the Company, production from the Company's northern Wisconsin properties was less than expected, due in large part to small berry size caused by very cold spring and early summer weather. Since the Company's growing costs are relatively fixed, the small berry size resulted in increased cost of goods sold per barrel and lower-than-expected profits per barrel in fiscal 1997. The fall 1997 harvest of 417,000 barrels was a record harvest for the Company. The 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. The Company also purchases raw cranberries from other growers to supplement its own harvested crop. In fiscal 1997, Northland purchased approximately 104,000 barrels of cranberries from other independent growers. The Company has entered into multi-year crop purchase contracts with 27 independent cranberry growers to purchase all of the cranberries harvested from an aggregate of 1,557 planted acres. None of these contracts expires in fiscal 1998. The Company expects the quantity of cranberries purchased under its existing contracts to increase in future 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.
Fiscal Year 1998 1997 1996 1995 1994 (25 Marshes) (1) (25 Marshes) (21 Marshes) (21 Marshes) (18 Marshes) Total planted acres 2,548 2,548 2,368 2,257 1,982 Total acres harvested (2) 2,243 2,107 1,935 1,813 1,519 Total barrels of production 417,000 293,000 287,000 254,000 192,000 _____________________________ (1) Includes data only through November 15, 1997. (2) Includes only acres which are over four years old and on which vines have not otherwise been "mowed." Cranberry vines may be mowed and then replanted on new or existing acreage to create new or renovated cranberry bogs. Although mowing prevents the harvesting of berries from such acres for that season, the mowed acres grow back and typically produce a modest crop in the year after mowing and a normal crop in the second year after mowing.
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. 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 November 15, 1997, 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 November 15, 1997 to approximately 2,548 acres on 25 properties, with over 23,000 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 both domestically and internationally. 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 bog management; and (vi) potential synergies with Northland's existing marsh locations. International Initiatives The Company is involved in certain international supply initiatives and is exploring certain overseas supply opportunities, including an agreement with an Irish state-owned enterprise to conduct planting and testing of cranberry vines on marsh acreage in Ireland. The Company has also entered into a multi-year contract with a cranberry grower in Chile to purchase 20% of that grower's annual harvested crop; however, as a result of difficult growing conditions, the number of cranberries produced by this grower has been limited to date. The Company also continues to explore potential opportunities to develop cranberry-producing acres in several countries in Eastern Europe, as well as in Russia. The Company does not anticipate that these opportunities will produce any material financial benefit to the Company in the near future. Environmental Factors in Cranberry Production The quality and quantity of cranberries produced in any given year is dependent upon certain external environmental 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 (as well as the vine maturation process) 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. 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 1997 of $60 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. The Company received $756,699, $737,721 and $1,078,000 of multi-peril crop insurance proceeds in fiscal 1997, 1996 and 1995, respectively, and paid multi-peril insurance premiums of $872,347, $563,789, and $421,094 in those years respectively. In fiscal 1997, the Company incorporated Northland Insurance Center, Inc., which will assist the Company in procuring insurance against certain crop losses. Processing and Distribution Another integral part of the Company's marsh to market strategy is its capability to internally process its harvested and purchased cranberries. Cranberries harvested from the Company's marshes or purchased from independent suppliers are brought to the Company's 150,000 square foot receiving station and fresh fruit packaging facility in Wisconsin Rapids, Wisconsin. The receiving station 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. The concentrating facility, which is capable of concentrating juice from up to 400,000 barrels of raw cranberries annually, processes raw cranberries into concentrate or single-strength juice. Concentrate and single-strength cranberry juice are sold to various manufacturers of processed consumer cranberry products. The Company also produces a pre-mixed product formulation (or "pre-mix") by formulating single-strength cranberry juice with other fruit juices, which is shipped to co-packers for bottling and packaging of Northland branded juice products. The Company believes its 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. The Company maintains various co-packing agreements (including agreements with two major food manufacturers, Seneca Foods Corporation and Sunsweet Growers, Inc.) to formulate and bottle its processed cranberry blends in six strategic locations nationwide. The Company delivers pre-mix to these co-packers, who the 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 grocery stores and retail outlets. The Company believes that utilizing strategically located co-packers to establish its production/ distribution network lowers freight and production costs, as well as allows for timely response to customer demands. Competition General The markets for consumer cranberry products in which the Company competes are large and very competitive. Substantially all of the major markets for cranberry products in which the Company competes are dominated by Ocean Spray. Ocean Spray, an agricultural marketing cooperative entitled to limited protection under federal anti-trust laws, has over 700 member-growers, representing approximately 70% of all cranberry production in North America. Based on IRI data, for the 12-weeks ended October 12, 1997, Ocean Spray products represented approximately 62% of the supermarket shelf-stable cranberry beverage market, down from approximately 69% for the 12-weeks ended October 6, 1996. For the four- week period ended October 12, 1997, Ocean Spray's market share in this category was approximately 60%. Ocean Spray has significantly greater brand name recognition, marketing and distribution resources than the Company. Branded Juice The Company's 100% juice cranberry blends compete principally with Ocean Spray's branded cranberry juice products, as well as the branded cranberry juice products of other distributors, private label cranberry juice products and other juice and beverage products. The Company's 100% juice cranberry blends are "premium" products competing against other cranberry juice products, most of which are made up of much less than 100% juice. For example, Ocean Spray's cranberry juice cocktail contains only up to 27% cranberry juice and is otherwise supplemented by fructose and water. Like Ocean Spray, most competitors' juices use sugar or corn syrup additives as sweeteners. The Company believes that its premium product formulation provides it with a competitive advantage in the retail consumer market for juice products due to the improved quality and taste between its 100% juice products and competitors' juices which do not contain 100% juice. The Company fully anticipates that Ocean Spray will continue to compete aggresively against Northland's 100% juice cranberry blend products, possibly including reducing product pricing, increasing its advertising expenditures, increasing its trade promotions and other actions. Ocean Spray has significantly more experience in the fruit juice markets, substantially greater brand name recognition and substantially greater marketing and distribution resources than the Company. There can be no assurance that the Company will be successful in competing against Ocean Spray. Fresh Cranberries The Company competes with Ocean Spray and other brand label producers in the market for fresh cranberry sales during the Thanksgiving and Christmas holiday seasons. The Company intends to continue to compete in the fresh cranberry market by continuing to sell Northland brand fresh cranberries, primarily in the United States, at competitive prices. Ocean Spray has significantly more experience in the sale of branded fresh cranberries, substantially greater brand name recognition and substantially greater marketing and distribution resources than the Company. There can be no assurance that the Company will be successful in competing against Ocean Spray in the fresh cranberry market. Private Label Cranberry Products The market for private label cranberry juice, sauce and other processed cranberry products has historically been supplied by a limited number of independent raw cranberry brokers and private label juice processors and marketers. Certain processors have significant experience in the private label fruit juice and processed cranberry products markets and have established co-packing and bottling operations, distributor networks and customer bases. There can be no assurance that the Company will be successful in competing directly or indirectly against certain major independent processors. However, the Company believes that its processing capabilities and internal supply of raw cranberries may provide it with a competitive advantage over those independent processors that must rely on other growers and prevailing market conditions to obtain the raw cranberry supply necessary to compete in the private label market. Moreover, private label cranberry products in general compete against branded cranberry products. The Company intends to compete aggressively based on product pricing to initiate sales of its private label products in fiscal 1998. There can be no assurance that any private label processed cranberry products of the Company or its allied co-packers will be able to compete successfully against other private label products of existing suppliers, or the similar branded products of Ocean Spray or others. 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. Industrial Cranberry Products The Company also competes for the sale of cranberry concentrate, single-strength cranberry juice and frozen whole and sliced cranberries to industrial customers, such as food processors and food service companies. Cranberry concentrate is currently Northland's principal industrial product in terms of sales volume and potential. The Company's industrial customer base includes several major food processing firms. 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 Cranberry Products Regulation The production, packaging, labeling, marketing and distribution of the Company's fresh cranberries and consumer cranberry juice products are subject to the rules and regulations of various federal, state and local food and health agencies, including the United States Food and Drug Administration, the United States Department of Agriculture, the Federal Trade Commission and the Environmental Protection Agency. The Company believes it has complied, and will be able to comply, in all material respects with such rules, regulations and laws. 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 strict regulatory requirement, as well as strict 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 North America, 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, 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 supply of cranberries in fiscal 1998. 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 August 31, 1997, the Company believes a substantial portion of the aggregate costs of such remedial activities will be covered by state reimbursement funds (except in the case of the Massachusetts property), or indemnification claims against the properties' prior owners. The Company believes that no material liabilities will be incurred as a result of remediation activities at any of the affected properties. Proposed regulations were recently 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 supply of cranberries in Wisconsin in the near term. The Cranberry Marketing Committee of the United States Department of Agriculture (the "CMC") has the authority under the provisions of the Federal Cranberry Marketing Order to recommend that the Secretary of the United States Department of Agriculture impose harvest volume restrictions on domestic cranberry growers if the CMC believes there will be an anticipated substantial over-supply of cranberries for the forthcoming crop year. Such volume restrictions have not been imposed since 1971, and based on current market conditions, the Company does not anticipate any such restrictions in the near future; however, there can be no assurance that such volume restrictions will not be imposed on growers in the future. 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. Seasonality The Company's business prior to fiscal 1997 had been extremely seasonal because the Company's historical results of operations had been significantly dependent upon the results of the Company's annual harvest. The successful implementation of the Company's marsh to market strategy is expected to help reduce the extreme seasonality of its business, although the Company expects sales of its juice and fresh fruit to experience seasonal increases during the traditional Thanksgiving and Christmas holiday seasons. Materials and Supplies 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 Wildhawk. 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. The Company believes it would, if necessary, be able to locate additional and alternative sources for any raw materials and supplies without a material delay or adverse effect on its business. 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 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. Employees As of August 31, 1997, the Company had 203 full-time employees, as compared to 141 as of August 31, 1996. The Company also 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 1996. The Company also had 20 full-time employees in sales and marketing as of August 31, 1997, compared to 11 as of August 31, 1996. None of the Company's employees are unionized and the Company believes its relationship with its employees is very good. Item 2. 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. The following table sets forth specific information about each of the Company's 25 cranberry marshes as of November 15, 1997. All of the Company's marshes are owned in fee simple or leased as indicated 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. All of the Company's foregoing current facilities are suitable and adequate for the Company's existing needs. November 15, 1997 Calendar Year Approximate Approximate Acquired Marsh Division Name and Location Marsh Acres Planted Acres or Leased Associates Division (two marshes), Jackson County, Wisconsin . . . . . 4,198 159 1983 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 (two marshes), Wood County, Wisconsin . . . . . . . . . 569 85 1989 Nantucket Division (two marshes), Nantucket County, Massachusetts . . 737 211 1990 Crawford Creek Division (two marshes), Jackson County, Wisconsin . . . . . 304 135 1991 Hills Division, Jackson County, Wisconsin (leased) . . . . . . . . . 465 70 1991 Hanson Division (two marshes), Plymouth County, Massachusetts . . . 2,025 322 1993 Yellow River (two marshes), Juneau County, Wisconsin . . . . . . . . . 1,714 252 1994 Dandy Creek, Monroe County, Wisconsin 350 55 1996 Manitowish Waters (two marshes), Vilas County, Wisconsin . . . . . . . . . 345 182 1996 ------ ------ Total . . . . . . . . . . . . . . 23,207 2,548 ====== ====== Item 3. Legal Proceedings. As of the date hereof, the Company is not a party to any legal proceedings, the adverse outcome of which individually or in the aggregate, in the Company's opinion, would have a material adverse effect on the Company's results of operations or financial condition. Item 4. Submission of Matters to a Vote of Shareholders. No matters were submitted to a vote of the Company's shareholders during the fourth quarter of fiscal 1997. Executive Officers of the Company As of November 15, 1997, each of the Company's executive officers is identified below together with information about each such officer's age, current position with the Company and employment history for at least the past five years: Name Age Current Position John Swendrowski 49 Chairman of the Board and Chief Executive Officer Jerold D. Kaminski 41 President and Chief Operating Officer Robert E. Hawk 42 Executive Vice President and President of Wildhawk, Inc. John A. Pazurek 48 Vice President - Finance, Treasurer and Chief Financial Officer William J. Haddow 49 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 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 continues to serve as Chairman of the Board and Chief Executive Officer and allowed Mr. Kaminski to assume the position of President in June 1997 upon Mr. Kaminski's joining the Company. Mr. Kaminski joined the Company on June 2, 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. Prior to joining the Company, he served as the 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. Prior to appointment to his current positions with the Company, Mr. Kaminski served as a member of both the Audit Committee and the Compensation Committee of the Board of Directors. Mr. Hawk was appointed Executive Vice President in October 1996. Prior to that, Mr. Hawk served as the Company's Vice President - Sales, Marketing and Special Projects since January 1993, and prior thereto he served as Vice President - Operations since January 1989. Mr. Pazurek is a certified public accountant and joined the Company as Controller and Principal Accounting Officer at its inception in May 1987. In May 1990, Mr. Pazurek was promoted to Vice President-Finance and in August 1993 he was promoted to Treasurer. In October 1996, Mr. Pazurek was also appointed Chief Financial Officer. Mr. Haddow was appointed Vice President-Purchasing, Transportation and Budget in October 1996. Prior thereto, he served as Vice President- Purchasing and Transportation from May 1993, and as Assistant Vice President-Purchasing from 1989. Mr. Klus joined the Company in April 1996 as the Director of Strategic Product Planning. He was appointed Vice President-Manufacturing in October 1996. Prior thereto he served as President-Eastern Division of Seneca Foods Corporation in New York from May 1990. Mr. Lukas joined the Company in April 1992 as Vice President of Human Resources and Corporate Counsel. In May 1995 he was promoted to Secretary and in August 1996 to Vice President-Administration. Prior thereto, he practiced law in Wisconsin Rapids, Wisconsin for over 20 years. Mr. Stauner was promoted to Vice President-Agricultural Operations in October 1996. Prior thereto, he served as Vice President-Operations from May 1995, and as Assistant Vice President of Operations since the Company's inception in 1987. Mr. Wilson joined the Company in October 1993 and was promoted to Vice President - East Coast Operations in May 1994. In October 1996, his title changed to Vice President-East Coast. Prior to joining the Company, he served as Manager-Grower Services at Ocean Spray in Lakeville, Massachusetts from 1988. The executive officers of the Company are generally elected annually by the Board of Directors after the annual meeting of shareholders. Each executive officer holds office until his successor has been duly qualified and elected or until his earlier death, resignation or removal. PART II Item 5. Market for the Company's Common Equity and Related Shareholder Matters. All share data appearing in the table below has been adjusted where necessary to reflect the Company's two-for-one stock split effected in the form of a 100% stock dividend on September 3, 1996 on its Class A Common Stock. Sale Price Range of Class A Common Stock (1) First Second Third Fourth Quarter Quarter Quarter Quarter Fiscal Year Ended August 31, 1997 High $25.25 $27.50 $20.75 $19.25 Low $15.25 $17.00 $8.88 $12.69 Fiscal Year Ended August 31, 1996 High $10.00 $11.00 $14.63 $18.13 Low $7.25 $8.50 $9.88 $13.38 _______________ (1) The range of sale prices listed for each quarter includes intra-day trading prices as reported on The Nasdaq Stock Market. On November 25, 1997, there were approximately 9,181 beneficial shareholders for the shares of Class A Common Stock and three shareholders of record for the shares of Class B Common Stock. Shares of Class A Common Stock trade on The Nasdaq Stock Market under the symbol CBRYA. No public market exists for the shares of Class B Common Stock. See Item 6 for information on the Company's cash dividends paid on its Common Stock. On November 25, 1997, the last sale price of shares of Class A Common Stock was $14.1875 per share. Item 6. Selected Financial Data. Pursuant to Instruction G, the information required by this Item is incorporated herein by reference from information included under the caption entitled "Selected Financial Data" set forth in the Company's 1997 Annual Report to Shareholders (the "Annual Report"). Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Pursuant to Instruction G, the information required by this item is incorporated herein by reference from information included under the caption entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" set forth in the Annual Report. Item 8. Financial Statements and Supplementary Data. Pursuant to Instruction G, the Consolidated Balance Sheets of the Company as of August 31, 1997 and 1996, the Consolidated Statements of Operations, Cash Flows and Shareholders' Equity for the years ended August 31, 1997 and 1996, March 31, 1995 and five-month transition period ended August 31, 1995, together with the related Notes to Consolidated Financial Statements (including supplementary financial data), are incorporated herein by reference from information included under the captions having substantially the same titles as set forth in the Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Company. Pursuant to Instruction G, the information required by this item with respect to directors is hereby incorporated herein by reference to the information pertaining thereto set forth under the caption entitled "Election of Directors" in the definitive proxy statement for its 1998 annual meeting of shareholders filed with the Commission pursuant to Regulation 14A on November 25, 1997 ("Proxy Statement"). The information required by Item 405 of Regulation S-K is hereby incorporated by reference to the information set forth under the caption entitled "Other Matters- Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. The required information with respect to executive officers appears at the end of Part I of this Form 10-K. Item 11. Executive Compensation. Pursuant to Instruction G, the information required by this item is hereby incorporated herein by reference to the information pertaining thereto set forth under the caption entitled "Executive Compensation" in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. Pursuant to Instruction G, the information required by this item is hereby incorporated herein by reference to the information pertaining thereto set forth under the caption entitled "Stock Ownership of Management and Others" in the Proxy Statement. Item 13. Certain Relationships and Related Transactions. Pursuant to Instruction G, the information required by this item is hereby incorporated herein by reference to the information pertaining thereto set forth under the captions entitled "Election of Directors- Business Experience" and "Certain Transactions" in the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as part of this Form 10-K: Page Reference 1997 Annual Report 1. Financial Statements to Shareholders Consolidated Balance Sheets as of August 31, 1997 and 1996 19 Consolidated Statements of Operations, Cash Flows and Shareholders' Equity for the fiscal years ended August 31, 1997 and 1996 and March 31, 1995 and the five month transition period ended August 31, 1995 20-22 Notes to Consolidated Financial Statements 22-28 Independent Auditors' Report 18 All other schedules have been omitted as not required or not applicable or the information required to be shown thereon is included in the financial statements and related notes. 3. Exhibits and Reports on Form 8-K. (a) The exhibits filed herewith or incorporated by reference herein are set forth on the attached Exhibit Index.* (b) The Company did not file a Form 8-K with the Securities and Exchange Commission during the fourth quarter of fiscal 1997. ___________ * Exhibits to this Form 10-K, including long-term debt instruments disclosed in Exhibit 4.5, will be furnished to shareholders upon advance payment of a fee of $0.20 per page, plus mailing expenses. Requests for copies should be addressed to John A. Pazurek, Chief Financial Officer, Northland Cranberries, Inc., 800 First Avenue South, P.O. Box 8020, Wisconsin Rapids, Wisconsin 54495-8020. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHLAND CRANBERRIES, INC. Date: November 26, 1997 By: /s/ John Swendrowski John Swendrowski Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed on November 26, 1997 below by the following persons on behalf of the Company and in the capacities and on the dates indicated. By: /s/ John Swendrowski By: /s Jerold D. Kaminski John Swendrowski Jerold D. Kaminski Chairman of the Board, President, Chief Operating Chief Executive Officer Officer and Director and Director By: /s/ John Pazurek By: /s/ John C. Seramur John Pazurek John C. Seramur Vice President-Finance, Treasurer, Director Chief Accounting Officer and Chief Financial Officer By: /s/ Jeffrey J. Jones By: /s/ LeRoy J. Miles Jeffrey J. Jones LeRoy J. Miles Director Director By: /s/ Patrick F. Brennan By: /s/ Robert E. Hawk Patrick F. Brennan Robert E. Hawk Director Executive Vice President and Director By: /s/ Pat Richter Pat Richter Director EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 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 Amendment to the By-Laws of the Company, dated October 21, 1997. 3.3 By-Laws of the Company, as amended and restated. 4.1 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.] 4.2 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.] 4.3 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.] 4.4 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.] 4.5 Amended and Restated Credit Agreement, dated October 3, 1997, between the Company and Harris Trust & Savings Bank. 4.6 Revolving Credit Note, dated October 3, 1997, by the Company in favor of Harris Trust & Savings Bank. 4.7 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.] 4.8 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.] 4.9 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.] 4.10 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.] 4.11 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 4.1 through 4.11, 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 4.5 to this Form 10-K. The Company will furnish a copy of any of such instruments to the Commission upon request. *10.1 1987 Stock Option Plan, dated June 2, 1987, as amended. [Incorporated by reference to Exhibit 10.5 to the Company's Form 10-K for the fiscal year ended December 31, 1987.] *10.2 Forms of Stock Option Agreement, as amended, under 1987 Stock Option Plan. [Incorporated by reference to Exhibit 10.6 to the Company's Form 10-K for the fiscal year ended December 31, 1987.] *10.3 Form of Modification Agreement, dated as of April 16, 1996, between the Company and each of John A. Pazurek, John B. Stauner, John Swendrowski, William J. Haddow and Robert E. Hawk, modifying Stock Option Agreements previously entered into between the parties. [Incorporated by reference to Exhibit 10.3 to the Company's Form 10- K for the fiscal year ended August 31, 1996.] *10.4 1989 Stock Option Plan, as amended. [Incorporated by reference to Exhibit 4.4 to the Company's Form S-8 Registration Statement (Reg. No. 33-32525).] *10.5 Forms of Stock Option Agreements under the 1989 Stock Option Plan, as amended. [Incorporated by reference to Exhibits 4.5-4.8 to the Company's Form S-8 Registration Statement (Reg. No. 33-32525).] *10.6 1995 Stock Option Plan, as amended. *10.7 Form of Stock Option Agreements under the 1995 Stock Option Plan, as amended. [Incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended August 31, 1996.] 10.8 Lease Agreement dated September 5, 1991 between The Equitable Life Assurance Society of the United States and the Company. [Incorporated by reference to Exhibit 10.13 to the Company's Form 10-K for the fiscal year ended March 31, 1992.] 10.9 Agreement dated September 5, 1991 between the Company and Cranberry Hills Partnership. [Incorporated by reference to Exhibit 10.14 to the Company's Form 10-K for the fiscal year ended March 31, 1992.] 10.10 Lease, dated March 31, 1994 between Nantucket Conservation Foundation, Inc. and the Company. [Incorporation by reference to Exhibit 10.11 to the Company's Form 10-K for the fiscal year ended March 31, 1994.] *10.11 Employment and Severance Agreement, dated as of June 2, 1997, between the Company and Jerold D. Kaminski. *10.12 Key Executive Employment and Severance Agreement, dated as of May 8, 1992, between the Company and John Swendrowski. [Incorporated by reference to Exhibit 10.25 to the Company's Form 10-K for the fiscal year ended March 31, 1992.] *10.13 Northland Cranberries, Inc. 1997 Incentive Bonus Plan. *10.14 Northland Cranberries, Inc. 1998 Incentive Bonus Plan. 13 Portions of the 1997 Annual Report to Shareholders expressly incorporated by reference into this Form 10-K. 21 Subsidiary of the Company. [Incorporated by reference to Exhibit 22 to the Company's Form 10-K for the fiscal year ended March 31, 1992.] 23.1 Consent of Deloitte & Touche LLP. 27 Financial Data Schedule. 99 Definitive Proxy Statement for the Company's 1998 annual meeting of shareholders scheduled to he held on January 7, 1998 (previously filed with the Commission under Regulation 14A on November 25, 1997 and incorporated by reference herein to extent indicated in this Form 10-K). * This exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. EX-3.2 2 Amendment to the By-Laws of the Company Pursuant to a resolution of the Board of Directors of the Company, dated October 21, 1997, the By-Laws of the Company were amended by changing the last sentence of Section 3.01 to read as follows: The number of directors of the corporation shall be eight. EX-3.3 3 Amended Effective October 21, 1997 BYLAWS OF NORTHLAND CRANBERRIES, INC. (a Wisconsin corporation) ARTICLE I. OFFICES 1.01. Principal and Business Offices. The corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.02. Registered Office. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the corporation shall be identical to such registered office. ARTICLE II. SHAREHOLDERS 2.01. Annual Meeting. The annual meeting of the shareholders shall be held on the first Wednesday in January of each year (beginning in 1997), or on such other date within thirty days before or after such date as may be fixed by or under the authority of the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the state of Wisconsin, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein, or fixed as herein provided, for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as is practicable. 2.02. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by the Wisconsin Business Corporation Law, may be called by the Board of Directors or the President. The corporation shall call a special meeting of shareholders in the event that the holders of at least 10% of all of the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the corporation one or more written demands for a special meeting describing one or more purposes for which it is to be held. The corporation shall give notice of such a special meeting within thirty days after the date that the demand is delivered to the corporation. 2.03. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Wisconsin, as the place of meeting for any annual or special meeting of shareholders. If no designation is made, the place of meeting shall be the principal office of the corporation. Any meeting may be adjourned to reconvene at any place designated by vote of a majority of the votes represented thereat. 2.04. Notice of Meeting. Written notice stating the date, time and place of any meeting of shareholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days nor more than sixty days before the date of the meeting (unless a different time is provided by the Wisconsin Business Corporation Law or the articles of incorporation), either personally or by mail, by or at the direction of the President or the Secretary, to each shareholder of record entitled to vote at such meeting and to such other persons as required by the Wisconsin Business Corporation Law. If mailed, such notice shall be deemed to be effective when deposited in the United States mall, addressed to the shareholder at his or her address as it appears on the stock record books of the corporation, with postage thereon prepaid. If an annual or special meeting of shareholders is adjourned to a different date, time or place, the corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the corporation shall give notice of the adjourned meeting to persons who are shareholders as of the new record date. 2.045. Proper Business or Purposes of Shareholder Meetings. To be properly brought before a meeting of shareholders, business must be (a) specified in the notice of the meeting (or any supplement thereto) given by or at the discretion of the Board of Directors or otherwise as provided in Section 2.04 hereof; (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before a meeting by a shareholder, the shareholder must have given written notification thereof, either by personal delivery or by United States mall, postage prepaid, to the Secretary of the corporation, and, in the case of an annual meeting, such notification must be given not later than thirty (30) days in advance of the Originally Scheduled Date of such meeting; provided, however, that if the Originally Scheduled Date of such annual meeting is earlier than the date specified in these by laws as the date of the annual meeting and if the Board of Directors does not determine otherwise, or in the case of a special meeting of shareholders, such written notice may be so given and received not later than the close of business on the 15th day following the date of the first public disclosure, which may include any public filing with the Securities and Exchange Commission, of the Originally Scheduled Date of such meeting. Any such notification shall set forth as to each matter the shareholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and, in the event that such business includes a proposal to amend either the articles of incorporation or bylaws of the corporation, the exact language of the proposed amendment; (ii) the name and address of the shareholder proposing such business; (iii) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; and (iv) any material interest of the shareholder in such business. No business shall be conducted at a meeting of shareholders except in accordance with this Section 2.045, and the chairman of any meeting of shareholders may refuse to permit any business to be brought before such meeting without compliance with the foregoing procedures. For purposes of these bylaws, the "Originally Scheduled Date" of any meeting of shareholders shall be the date such meeting is scheduled to occur as specified in the notice of such meeting first generally given to shareholders regardless of whether any subsequent notice is given for such meeting or the record date of such meeting is changed. Nothing contained in this Section 2.045 shall be construed to limit the rights of a shareholder to submit proposals to the corporation which comply with the proxy rules of the Securities and Exchange Commission for inclusion in the corporation's proxy statement for consideration at shareholder meetings. 2.05. Waiver of Notice. A shareholder may wave any notice required by the Wisconsin Business Corporation Law, the articles of incorporation or these bylaws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareholder entitled to the notice, contain the same information that would have been required in the notice under applicable provisions of the Wisconsin Business Corporation Law (except that the time and place of meeting need not be stated) and be delivered to the corporation for inclusion in the corporate records. A shareholder's attendance at a meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 2.06. Fixing of Record Date. The Board of Directors may fix in advance a date as the record date for the purpose of determining shareholders entitled to notice of and to vote at any meeting of shareholders, shareholders entitled to demand a special meeting as contemplated by Section 2.02 hereof, shareholders entitled to take any other action, or shareholders for any other purpose. Such record date shall not be more than seventy days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed by the Board of Directors or by the Wisconsin Business Corporation Law for the determination of shareholders entitled to notice of and to vote at a meeting of shareholders, the record date shall be the close of business on the day before the first notice is given to shareholders. If no record date is fixed by the Board of Directors or by the Wisconsin Business Corporation Law for the determination of shareholders entitled to demand a special meeting as contemplated in Section 2.02 hereof, the record date shall be the date that the first shareholder signs the demand. Except as provided by the Wisconsin Business Corporation Law for a court ordered adjournment, a determination of shareholders entitled to notice of and to vote at a meeting of shareholders is effective for any adjournment of such meeting unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The record date for determining shareholders entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the corporation's shares) or a share dividend is the date on which the Board of Directors authorized the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. 2.07. Shareholders' List for Meetings. After a record date for a special or annual meeting of shareholders has been fixed, the corporation shall prepare a list of the names of all of the shareholders entitled to notice of the meeting. The list shall be arranged by class or series of shares, if any, and show the address of and number of shares held by each shareholder. Such list shall be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder or his or her agent may, on written demand, inspect and, subject to the limitations imposed by the Wisconsin Business Corporation Law, copy the list, during regular business hours and at his or her expense, during the period that it is available for inspection pursuant to this Section 2.07. The corporation shall make the shareholders' list available at the meeting and any shareholder or his or her agent or attorney may inspect the list at any time during the meeting or any adjournment thereof. Refusal or failure to prepare or make available the shareholders' list shall not affect the validity of any action taken at a meeting of shareholders. 2.08. Quorum and Voting Requirements. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Except as otherwise provided in the articles of incorporation or the Wisconsin Business Corporation Law, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation or the Wisconsin Business Corporation Law requires a greater number of affirmative votes. Unless otherwise provided in the articles of incorporation, each director shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Though less than a quorum of the outstanding votes of a voting group are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2.09. Conduct of Meeting. The President, and in his absence or discretion, a Vice President in the order provided under Section 4.07 hereof or as chosen by the President, and in their absence, any person chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairman of the meeting, and the Secretary of the corporation shall act as secretary of all meetings of the shareholders, but, in the absence or upon the request of the Secretary, the presiding officer may appoint any other person to act as secretary of the meeting. 2.10. Proxies. At all meetings of shareholders, a shareholder may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his or her attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the corporation authorized to tabulate votes. An appointment is valid for eleven months from the date of its signing unless a different period is expressly provided in the appointment form. 2.11. Voting of Shares. Except as provided in the articles of incorporation or in the Wisconsin Business Corporation Law, each outstanding share of Class A Common Stock, is entitled to one vote on each matter voted on at a meeting of shareholders and each outstanding share of Class B Common Stock is entitled to three votes on each matter voted on at a meeting of shareholders. 2.12. Action without Meeting. Any action required or permitted by the articles of incorporation or these bylaws or any provision of the Wisconsin Business Corporation Law to be taken at a meeting of the shareholders may be taken without a meeting and without action by the Board of Directors if a written consent or consents, describing the action so taken, is signed by all of the shareholders entitled to vote with respect to the subject matter thereof and delivered to the corporation for inclusion in the corporate records. 2.13. Acceptance of Instruments Showing Shareholder Action. If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of a shareholder, the corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of a shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of a shareholder, the corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder if any of the following apply: (a) The shareholder is an entity and the name signed purports to be that of a officer or agent of the entity. (b) The name purports to be that of a personal representative, administrator, executor, guardian or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation is presented with respect to the vote, consent, waver or proxy appointment. (c) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation is presented with respect to the vote, consent, waiver or proxy appointment. (d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder is presented with respect to the vote, consent, waiver or proxy appointment. (e) Two or more persons are the shareholders as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners. The corporation may reject a vote, consent, waiver or proxy appointment if the Secretary or other officer or agent of the corporation who is authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. ARTICLE III. BOARD OF DIRECTORS 3.01. General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, the Board of Directors. The number of directors of the corporation shall be eight. 3.02. Tenor and Qualifications. Each director shall hold office until the next annual meeting of shareholders and until his or her successor shall have been elected and, if necessary, qualified, or until there is a decrease in the number of directors which takes effect after the expiration of his or her term, or until his or her prior death, resignation or removal. A director may be removed by the shareholders only at a meeting called for the purpose of removing the director, and the meeting notice shall state that the purpose, or one of the purposes, of the meeting is removal of the director. A director may be removed from office with or without cause if the votes cast to remove the director exceeds the number of votes cast not to remove such director. A director may resign at any time by delivering written notice which complies with the Wisconsin Business Corporation Law to the Board of Directors, to the President (in his capacity as chairman of the Board of Directors) or to the corporation. A director's resignation is effective when the notice is delivered unless the notice specifies a later effective date. Directors need not be residents of the State of Wisconsin or shareholders of the corporation. 3.025. Shareholder Nomination Procedure. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any shareholder entitled to vote for the election of directors who complies fully with the requirements of this Section 3.025. Any shareholder entitled to vote for the election of directors at a meeting may nominate a person or persons for election as a director or directors only if written notice of such shareholder's intent to make any such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than: (i) with respect to an election to be held at any annual meeting of shareholders, 30 days in advance of the Originally Scheduled Date of such meeting (provided, however, that if the Originally Scheduled Date of such meeting is earlier than the date specified in these bylaws as the date of the annual meeting and if the Board of Directors does not determine otherwise, such written notice may be so given and received not later than the close of business on the 15th day following the date of the first public disclosure, which may include any public filing with the Securities and Exchange Commission, of the Originally Scheduled Date of such meeting); and (ii) with respect to an election to be held at a special meeting of shareholders, the close of business on the 15th day following the date of first public disclosure, which may include any public filing with the Securities and Exchange Commission, of the Originally Scheduled Date of such meeting. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b)a representation that the shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the corporation if so elected. The chairman of any meeting of shareholders to elect directors and the Board of Directors may refuse to acknowledge the nomination by a shareholder of any person not made in compliance with the foregoing procedure. 3.03. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of shareholders and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be communicated to the directors at or prior to such meeting of shareholders. To the extent practicable, the date, time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings of the Board of Directors shall be communicated amongst and generally agreed upon at any meeting of the Board of Directors. 3.04. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President, Secretary or any two directors. The President or Secretary may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors, and if no other place is fixed the place of the meeting shall be the principal business office of the corporation in the State of Wisconsin. 3.05. Notice: Waiver. Notice of each special meeting of the Board of Directors shall be given by written notice delivered or communicated in person, by telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier, to each director at his business address or at such other address as such director shall have designated in writing filed with the Secretary, in each case not less than forty-eight hours prior to the meeting. The notice need not prescribe the purpose of the special meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be deemed to be effective when the telegram is delivered to the telegraph company. If notice is given by private carrier, such notice shall be deemed to be effective when delivered to the private carrier. Whenever any notice whatever is required to be given to any director of the corporation under the articles of incorporation or these bylaws or any provision of the Wisconsin Business Corporation Law, a waiver thereof in writing, signed at any time, whether before or after the date and time of meeting, by the director entitled to such notice shall be deemed equivalent to the giving of such notice. The corporation shall retain any such waiver as part of the permanent corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 3.06. Quorum. Except as otherwise provided by the Wisconsin Business Corporation Law or by the articles of incorporation or these bylaws, a majority of the number of directors specified in Section 3.01 of these bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Except as otherwise provided by the Wisconsin Business Corporation Law or by the articles of incorporation or by these bylaws, a quorum of any committee of the Board of Directors created pursuant to Section 3.12 hereof shall consist of a majority of the number of directors appointed to serve on the committee. A majority of the directors present (though less than such quorum) may adjourn any meeting of the Board of Directors or any committee thereof, as the case may be, from time to time without further notice. 3.07. Manner of Acting. The affirmative vote of a majority of the directors present at a meeting of the Board of Directors or a committee thereof at which a quorum is present shall be the act of the Board of Directors or such committee, as the case may be, unless the Wisconsin Business Corporation Law, the articles of incorporation or these bylaws require the vote of a greater number of directors. 3.08. Conduct of Meetings. The President, and in his absence, a Vice President in the order provided under Section 4.07, and in their absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the corporation shall act as secretary of all meetings of the Board of Directors but in the absence of the Secretary, the presiding officer may appoint any other person present to act as secretary of the meeting. Minutes of any regular or special meeting of the Board of Directors shall be prepared and distributed to each director. 3.09. Vacancies. Except as provided below, any vacancy occurring in the Board of Directors, including a vacancy resulting from an increase in the number of directors, may be filled by any of the following: (a) the shareholders; (b) the Board of Directors; or (c) if the directors remaining in office constitute fewer than a quorum of the Board of Directors, the directors, by the affirmative vote of a majority of all directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group may vote to fill the vacancy if it is filled by the shareholders, and only the remaining directors elected by that voting group may vote to fill the vacancy if it is filled by the directors. A vacancy that will occur at a specific later date, because of a resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. 3.10. Compensation. The Board of Directors, irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such directors, officers and employees to the corporation. 3.11. Presumption of Assent. A director who is present and is announced as present at a meeting of the Board of Directors or any committee thereof created in accordance with Section 3.12 hereof, when corporate action is taken, assents to the action taken unless any of the following occurs: (a) the director objects at the beginning of the meeting or promptly upon his or her arrival to holding the meeting or transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice that complies with the Wisconsin Business Corporation Law of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. Such right of dissent or abstention shall not apply to a director who votes in favor of the action taken. 3.12. Committees. The Board of Directors by resolution adopted by the affirmative vote of a majority of all of the directors then in office may create one or more committees, appoint members of the Board of Directors to serve on the committees and designate other members of the Board of Directors to serve as alternates. Each committee shall have two or more members who shall, unless otherwise provided by the Board of Directors, serve at the discretion of the Board of Directors. A committee may be authorized to exercise the authority of the Board of Directors, except that a committee may not do any of the following: (a) authorize distributions; (b)approve or propose to shareholders action that the Wisconsin Business Corporation Law requires to be approved by shareholders; (c) fill vacancies on the Board of Directors or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the corporation's articles of incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Unless otherwise provided by the Board of Directors in creating the committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of its authority. 3.13. Telephonic Meetings. Except as herein provided and notwithstanding any place set forth in the notice of the meeting or these bylaws, members of the Board of Directors (and any committees thereof created pursuant to Section 3.12 hereof, may participate in regular or special meetings by, or through the use of, any means of communication by which all participants may simultaneously hear each other, such as by conference telephone. If a meeting is conducted by such means, then at the commencement of such meeting the presiding officer shall inform the participating directors that a meeting is taking place at which official business may be transacted. Any participant in a meeting by such means shall be deemed present in person at such meeting. If action is to be taken at any meeting held by such means on any of the following: (a) a plan of merger or share exchange; (b) a sale, lease, exchange or other disposition of substantial property or assets of the corporation; (c) a voluntary dissolution or the revocation of voluntary dissolution proceedings; or (d) a filing for bankruptcy, then the identity of each director participating in such meeting must be verified by the disclosure at such meeting by each such director of each such director's social security number to the secretary of the meeting before a vote may be taken on any of the foregoing matters. For purposes of the preceding clause (b), the phrase "sale, lease, exchange or other disposition of substantial property or assets" shall mean any sale, lease, exchange or other disposition of property or assets of the corporation having a net book value equal to 10% or more of the net book value of the total assets of the corporation on and as of the close of the fiscal year last ended prior to the date of such meeting and as to which financial statements of the corporation have been prepared. Notwithstanding the foregoing, no action may be taken at any meeting held by such means on any particular matter which the presiding officer determines, in his or her sole discretion, to be inappropriate under the circumstances for action at a meeting held by such means. Such determination shall be made and announced in advance of such meeting. 3.14. Action without Meeting. Any action required or permitted by the Wisconsin Business Corporation Law to be taken at a meeting of the Board of Directors or a committee thereof crated pursuant to Section 3.12 hereof may be taken without a meeting if the action is taken by all members of the Board or of the committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director or committee member and retained by the corporation. Such action shall be effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. ARTICLE IV. OFFICERS 4.01. Number. The principal officers of the corporation shall be a President, the number of Vice Presidents as authorized from time to time by the Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors or the President. The Board of Directors may also authorize any duly authorized officer to appoint one or more officers or assistant officers. Any two or more offices may be held by the same person. 4.02. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as is practicable. Each officer shall hold office until his or her successor shall have been duly elected or until his or her prior death, resignation or removal. 4.03. Removal. The Board of Directors may remove any officer and, unless restricted by the Board of Directors or these bylaws, an officer may remove any officer or assistant officer appointed by that officer, at any time, with or without cause and notwithstanding the contract rights, if any, of the officer removed. The appointment of an officer does not of itself create contract rights. 4.04. Resignation. An officer may resign at any time by delivering notice to the corporation that complies with the Wisconsin Business Corporation Law. The resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. 4.05. Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. If a resignation of an officer is effective at a later date as contemplated by Section 4.04 hereof, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor may not take office until the effective date. 4.06 Chairman of the Board. The Chairman of the Board, if one be chosen by the Board of Directors, shall preside at all meetings of the Board of Directors and of the shareholders and shall perform all duties incident to the office of the Chairman of the Board of the corporation and such other duties as may be prescribed by the Board of Directors from time to time. 4.07 Chief Executive Officer. The Board of Directors shall from time to time designate the Chairman of the Board, if any, or the President of the corporation as the Chief Executive Officer of the corporation. The President shall be the Chief Executive Officer whenever the office of Chairman of the Board of the corporation is vacant. Subject to the control of the Board of Directors, the Chief Executive Officer shall in general supervise and control all of the business and affairs of the corporation. He or she shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint and remove such agents and employees of the corporation as he or she shall deem necessary to prescribe their powers, duties and compensation, and to delegate authority to them. He or she shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, securities, contracts, leases, reports, and all other documents or other instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he or she may authorize any elected President, Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general, he or she shall perform all duties incident to the office of Chief Executive Officer of the corporation and such other duties as may be prescribed by the Board of Directors from time to time. 4.08 President. Unless the Board of Directors otherwise provides, in the absence of the Chairman of the Board or in the event of his or her inability or refusal to act, or in the event of a vacancy in the office of the Chairman of the Board, the President shall perform the duties of the Chairman of the Board, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board. Unless the Board of Directors otherwise provides, in the absence of the Chief Executive Officer or in the event of his or her inability or refusal to act, or in the event of a vacancy in the office of the Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer, and when so acting shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The President shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. He or she shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he or she may authorize any Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general he or she shall perform all duties incident to the office of the President and such other duties as may be prescribed by the Board of Directors from time to time. 4.09 Chief Operating Officer. The Chief Operating Officer shall, subject to the direction of the Board of Directors and the Chief Executive Officer, in general supervise and control the day-to-day business operations of the corporation. He or she shall have authority, subject to such rules as may be prescribed by the Board of Directors, to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he or she may authorize any Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his or her place and stead. In general he or she shall perform all duties incident to the office of the Chief Operating Officer and such other duties as may be prescribed by the Board of Directors from time to time. 4.10. The Vice Presidents. In the absence of the president or in the event of the President's death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Executive Vice President (or in the event of his absence or inability to act, any Vice President in the order designated by the Board of Directors or President, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. The execution of any instrument of the corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the President. 4.11. The Secretary. The Secretary shall: (a) keep minutes of the meetings of the shareholders and of the Board of Directors (and of committees thereof) in one or more books provided for that purpose (including records of actions taken by the shareholders or the Board of Directors (or committees thereof) without a meeting); (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by the Wisconsin Business Corporation Law; (c) be custodian of the corporate records and of the seal of the corporation, if any, and see that the seal of the corporation, if any, is affixed to all documents the execution of which on behalf of the corporation under its seal is required and duly authorized; (d) maintain a record of the shareholders of the corporation, in a form that permits preparation of a list of the names and addresses of all shareholders, by class or series of shares and showing the number and class or series of shares held by each shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned by the President or by the Board of Directors. 4.12. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) maintain appropriate accounting records; (c) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Section 5.04; and (d) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine. 4.13. Assistant Secretaries and Assistant Treasurers. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors or President may from time to time authorize. The Assistant Secretaries may sign with the President or a Vice President certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 4.14. Other Assistants and Acting Officers. The Board of Directors and President shall have the power to appoint, or to authorize any duly appointed officer of the corporation to appoint, any person to act as assistant to any officer, or as agent for the corporation in his or her stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors or an authorized officer shall have the power to perform all the duties of the office to which he or she is so appointed to be an assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors, the President or the appointing officer. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS 5.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages and instruments of assignment or pledge made by the corporation shall be executed in the name of the corporation by the President or one of the Vice Presidents and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when necessary or required, shall affix the corporate seal, if any, thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. 5.02. Loans. The President, or any officer designated by the President, shall have the power to contract on behalf of the corporation, and issue evidences of indebtedness, for indebtedness for borrowed money not exceeding Five Hundred Thousand Dollars ($500,000) without further authorization or approval of the Board of Directors. No indebtedness for borrowed money over such amount shall be contracted on behalf of the corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 5.04. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of a resolution of the Board of Directors. 5.05. Voting of Securities Owned by this Corporation. Subject to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by this corporation may be voted at any meeting of security holders of such other corporation by the President of this corporation if he be present, or in his absence by any Vice President of this corporation who may be present, and (b) whenever, in the judgment of the President, or in his absence, of any Vice President, it is desirable for this corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the President or one of the Vice Presidents of this corporation, without necessity of any authorization by the Board of Directors, affixation of corporate seal, if any, or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this corporation the same as such shares or other securities might be voted by this corporation. ARTICLE VI. CERTIFICATES FOR SHARES; TRANSFER OF SHARES 6.01. Certificates for Shares. Certificates representing shares of the corporation shall be in such form, consistent with the Wisconsin Business Corporation Law, as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except as provided in Section 6.06. 6.02. Facsimile Signatures and Seal. The seal of the corporation, if any, on any certificates for shares may be a facsimile. The signature of the President or Vice President and the Secretary or Assistant Secretary upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the corporation itself or an employee of the corporation. 6.03. Signature by Former Officers. The validity of a share certificate is not affected if a person who signed the certificate (either manually or in facsimile) no longer holds office when the certificate is issued. 6.04. Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and power of an owner. Where a certificate for shares is presented to the corporation with a request to register for transfer, the corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements and (b) the corporation had no duty to inquire into adverse claims or has discharged any such duty. The corporation may require reasonable assurance that such endorsements are genuine and effective and compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors. 6.05. Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the corporation upon the transfer of such shares. 6.06. Lost, Destroyed or Stolen Certificates. Where the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such shares have been acquired by a bona fide purchaser; (b) files with the corporation a sufficient indemnity bond if required by the Board of Directors or any principal officer; and (c) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 6.07. Consideration for Shares. The Board of Directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the corporation. Before the corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. The determination of the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. The corporation may place in escrow shares issued in whole or in part for a contract for future services or benefits, a promissory note, or otherwise for property to be issued in the future, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits or property are received or the promissory note is paid. If the services are not performed, the benefits or property are not received or the promissory note is not paid, the corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. 6.08. Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the corporation. ARTICLE VII. SEAL 7.01. The corporation shall have no corporate seal unless otherwise determined by the Board of Directors. ARTICLE VIII. INDEMNIFICATION 8.01. Certain Definitions. All capitalized terms used in this Article VIII and not otherwise hereinafter defined in this Section 8.01 shall have the meaning set forth in Section 180.0850 of the Statute. The following capitalized terms (including any plural forms thereof) used in this Article VIII shall be defined as follows: (a) "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employee benefit plan, trust or other enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Corporation. (b) "Authority" shall mean the entity selected by the Director or Officer to determine his or her right to indemnification pursuant to Section 8.04. (c) "Board" shall mean the entire then elected and serving Board of Directors of the Corporation, including all members thereof who are Parties to the subject Proceeding or any related Proceeding. (d) "Breach of Duty" shall mean the Director or Officer breached or failed to perform his or her duties to the Corporation and his or her breach of or failure to perform those duties is determined, in accordance with Section 8.04, to constitute misconduct under Section 180.0851(2) (a) 1, 2,3 or 4 of the Statute. (e) "Corporation," as used herein and as defined in the Statute and incorporated by reference into the definitions of certain other capitalized terms used herein, shall mean this Corporation, including, without limitation, any successor corporation or entity to this Corporation by way of merger, consolidation or acquisition of all or substantially all of the capital stock or assets of this Corporation. (f) "Director or Officer" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article VIII, it shall be conclusively presumed that any Director or Officer serving as a director, officer, partner, trustee, member of any governing or decision- making committee, employee or agent of an Affiliate shall be so serving at the request of the Corporation. (g) "Disinterested Quorum" shall mean a quorum of the Board who are not Parties to the subject Proceeding or any related Proceeding. (h) "Party" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article VIII, the term "Party" shall also include any Director or Officer or employee of the Corporation who is or was a witness in a Proceeding at a time when he or she has not otherwise been formally named a Party thereto. (i) "Proceeding" shall have the meaning set forth in the Statute; provided, that, in accordance with Section 180.0859 of the Statute and for purposes of this Article VIII, the term "Ping" shall also include all Proceedings (i) brought under (in whole or in part) the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, their respective state counterparts, and"or any rule or regulation promulgated under any of the foregoing; (ii) brought before an Authority or otherwise to enforce rights hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in which the Director or Officer is a plaintiff or petitioner because he or she is a Director or Officer; provided, however, that any such Proceeding under this subsection (iv) must be authorized by a majority vote of a Disinterested Quorum. (j) "Statute" shall mean Sections 180.0850 through 180.0859, inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes, as the same shall then be in effect, including any amendments thereto, but, in the case of any such amendment, only to the extent such amendment permits or requires the Corporation to provide broader indemnification rights than the Statute permitted or required the Corporation to provide prior to such amendment. 8.02. Mandatory Indemnification of Directors and Officers. To the fullest extent permitted or required by the Statute, the Corporation shall indemnify a Director or Officer against all Liabilities incurred by or on behalf of such Director or Officer in connection with a Proceeding in which the Director or Officer is a Party because he or she is a Director or Officer. 8.03. Procedural Requirements. (a) A Director or Officer who seeks indemnification under Section 8.02 shall make a written request therefor to the Corporation. Subject to Section 8.03(b), within sixty days of the Corporation's receipt of such request, the Corporation shall pay or reimburse the Director or Officer for the entire amount of Liabilities incurred by the Director or Officer in connection with the subject Proceeding (net of any Expenses previously advanced pursuant to Section 8.05). (b) No indemnification shall be required to be paid by the Corporation pursuant to Section 8.02 if, within such sixty-day period, (i) a Disinterested Quorum, by a majority vote thereof, determines that the Director or Officer requesting indemnification engaged in misconduct constituting a Breach of Duty or (ii) a Disinterested Quorum cannot be obtained. (c) In either case of nonpayment pursuant to Section 8.03(b), the Board shall immediately authorize by resolution that an Authority, as provided in Section 8.04, determine whether the Director's or Officer's conduct constituted a Breach of Duty and, therefore, whether indemnification should be denied hereunder. (d) (i) If the Board does not authorize an Authority to determine the Director's or Officer's right to indemnification hereunder within such sixty-day period and"or (ii) if indemnification of the requested amount of Liabilities is paid by the Corporation, then it shall be conclusively presumed for all purposes that a Disinterested Quorum has affirmatively determined that the Director or Officer did not engage in misconduct constituting a Breach of Duty and, in the case of subsection (i) above (but not subsection (ii)), indemnification by the Corporation of the requested amount of Liabilities shall be paid to the Director or Officer immediately. 8.04. Determination of Indemnification. (a) If the Board authorizes an Authority to determine a Director's or Officer's right to indemnification pursuant to Section 8.03, then the Director or Officer requesting indemnification shall have the absolute discretionary authority to select one of the following as such Authority: (i) An independent legal counsel; provided, that such counsel shall be mutually selected by such Director or Officer and by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board; (ii) A panel of three arbitrators selected from the panels of arbitrators of the American Arbitration Association in Wisconsin; provided, that (A) one arbitrator shall be selected by such Director or Officer, the second arbitrator shall be selected by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board, and the third arbitrator shall be selected by the two previously selected arbitrators, and (B) in all other respects (other than this Article VIII), such panel shall be governed by the American Arbitration Association's then existing Commercial Arbitration Rules; or (iii) A court pursuant to and in accordance with Section 180.0854 of the Statute. (b) In any such determination by the selected Authority there shall exist a rebuttable presumption that the Director's or Officer's conduct did not constitute a Breach of Duty and that indemnification against the requested amount of Liabilities is required. The burden of rebutting such a presumption by clear and convincing evidence shall be on the Corporation or such other party asserting that such indemnification should not be allowed. (c) The Authority shall make its determination within sixty days of being selected and shall submit a written opinion of its conclusion simultaneously to both the Corporation and the Director or Officer. (d) If the Authority determines that indemnification is required hereunder, the Corporation shall pay the entire requested amount of Liabilities (net of any Expenses previously advanced pursuant to Section 8.05), including interest thereon at a reasonable rate, as determined by the Authority, within ten days of receipt of the Authority's opinion; provided, that, if it is determined by the Authority that a Director or Officer is entitled to indemnification against Liabilities' incurred in connection with some claims, issues or matters, but not as to other claims, issues or matters, involved in the subject Proceeding, the Corporation shall be required to pay (as set forth above) only the amount of such requested Liabilities as the Authority shall deem appropriate in light of all of the circumstances of such Proceeding. (e) The determination by the Authority that indemnification is required hereunder shall be binding upon the Corporation regardless of any prior determination that the Director or Officer engaged in a Breach of Duty. (f) All Expenses incurred in the determination process under this Section 8.04 by either the Corporation or the Director or Officer, including, without limitation, all Expenses of the selected Authority, shall be paid by the Corporation. 8.05. Mandatory Allowance of Expenses. (a) The Corporation shall pay or reimburse from time to time or at any time, within ten days after the receipt of the Director's or Officer's written request therefor, the reasonable Expenses of the Director or Officer as such Expenses are incurred; provided, the following conditions are satisfied: (i) The Director or Officer furnishes to the Corporation an executed written certificate affirming his or her good faith belief that he or she has not engaged in misconduct which constitutes a Breach of Duty; and (ii) The Director or Officer furnishes to the Corporation an unsecured executed written agreement to repay any advances made under this Section 8.05 if it is ultimately determined by an Authority that he or she is not entitled to be indemnified by the Corporation for such Expenses pursuant to Section 8.04. (b) If the Director or Officer must repay any previously advanced Expenses pursuant to this Section 8.05, such Director or Officer shall not be required to pay interest on such amounts. 8.06 Indemnification and Allowance of Expenses of Certain Others. (a) The Board may, in its sole and absolute discretion a it deems appropriate, pursuant to a majority vote thereof, indemnify a director or officer of an Affiliate (who is not otherwise serving as a Director or Officer) against all Liabilities, and shall advance the reasonable Expenses, incurred by such director or officer in a Proceeding to the same extent hereunder as if such director or officer incurred such Liabilities because he or she was a Director or Officer, if such director or officer is a Party thereto because he or she is or was a director or officer of the Affiliate. (b) The Corporation shall indemnify an employee who is not a Director or Officer, to the extent he or she ha been successful on the merits or otherwise in defense of a Proceeding, for all Expenses incurred in the Proceeding if the employee was a Party because he or she was an employee of the Corporation. (c) The Board may, in its sole and absolute discretion as it deems appropriate, pursuant to a majority vote thereof, indemnify (to the extent not otherwise provided in Section 8.06(b) hereof, against Liabilities incurred by, and/or provide for the allowance of reasonable Expenses of, an employee or authorized agent of the Corporation acting within the scope of his or her duties as such and who is not otherwise a Director or Officer. 8.07. Insurance. The Corporation may purchase and maintain insurance on behalf of a Director or Officer or any individual who is or was an employee or authorized agent of the Corporation against any Liability asserted against or incurred by such individual in his or her capacity as such or arising from his or her status as such, regardless of whether the Corporation is required or permitted to indemnify against any such Liability under this Article VIII. 8.08. Notice to the Corporation. A Director, Officer or employee shall promptly notify the Corporation in writing when he or she has actual knowledge of a Proceeding which may result in a claim of indemnification against Liabilities or allowance of Expenses hereunder, but the failure to do so shall not relieve the Corporation of any liability to the Director, Officer or employee hereunder unless the Corporation shall have been irreparably prejudiced by such failure (as determined, in the case of Directors or Officers only, by an Authority selected pursuant to Section 8.04(a)). 8.09. Severability. If any provision of this Article VIII shall be deemed invalid or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this Article VIII contravene public policy, this Article VIII shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the Corporation, to be modified, amended and/or limited, but only to the extent n to render the same valid and enforceable; it being understood that it is the Corporation's intention to provide the Directors and Officers with the broadest possible protection against personal liability allowable under the Statute. 8.10. Nonexclusivity of Article VIII. The rights of a Director, Officer or employee (or any other person) granted under this Article VIII shall not be deemed exclusive of any other rights to indemnification against Liabilities or allowance of Expenses which the Director, Officer or employee (or such other person) may be entitled to under any written agreement, Board resolution, vote of shareholders of the Corporation or otherwise, including, without limitation, under the Statute. Nothing contained in this Article VIII shall be deemed to limit the Corporation's obligations to indemnify against Liabilities or allow Expenses to a Director, Officer or employee under the Statute. 8.11. Contractual Nature of Article VIII; Repeal or Limitation of Rights. This Article VIII shall be deemed to be a contract between the Corporation and each Director, Officer and employee of the Corporation and any repeal or other limitation of this Article VIII or any repeal or limitation of the Statute or any other applicable law shall not limit any rights of indemnification against Liabilities or allowance of Expenses then existing or arising out of events, acts or omissions occurring prior to such repeal or limitation, including, without limitation, the right to indemnification against Liabilities or allowance of Expenses for Proceedings commenced after such repeal or limitation to enforce this Article VIII with regard to acts, omissions or events arising prior to such repeal or limitation. ARTICLE IX. CONFLICTS OF INTEREST 9.01. Conflict of Interest Policy. No director, officer or other employee of the corporation shall acquire a cranberry producing property or a controlling interest in any entity which owns or operates such a property without first offering the opportunity to purchase such property or controlling interest to the corporation. This prohibition is not applicable to such properties or interests owned by any director, officer or employee of the corporation prior to the date of incorporation of this corporation. This Section 9.01 may only be amended or deleted pursuant to a vote of the corporation's shareholders. ARTICLE X. AMENDMENTS 10.01. By Shareholders. These bylaws may be amended or repealed and new bylaws may be adopted by the shareholders at any annual or special meeting of the shareholders at which a quorum is in attendance. 10.02. By Directors. Except as otherwise provided by the Wisconsin Business Corporation Law or the articles of incorporation, these bylaws may also be amended or repealed and new bylaws may be adopted by the Board of Directors; provided, however, that the shareholders in adopting, amending or g a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw. 10.03. Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors which would be inconsistent with the bylaws then in effect but which is taken or authorized by native vote of not less than the number of votes or the number of directors required to amend the bylaws so that the bylaws would be consistent with such action shall be given the same effect as though the bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. EX-4.5 4 Amended and Restated Credit Agreement Between Northland Cranberries, Inc. and Harris Trust and Savings Bank Dated as of October 3, 1997 Table of Contents Section Description Page SECTION 1. THE CREDITS . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. The Revolving Credit . . . . . . . . . . . . . . 1 Section 1.2. The Term Credit . . . . . . . . . . . . . . . . . 2 Section 1.3. Obligations Several and Not Joint . . . . . . . . 3 Section 1.4. Manner of Borrowing . . . . . . . . . . . . . . . 3 Section 1.5. Letters of Credit . . . . . . . . . . . . . . . . 4 Section 1.6. Reimbursement Obligation . . . . . . . . . . . . 5 SECTION 2. INTEREST . . . . . . . . . . . . . . . . . . . . . . 5 Section 2.1. Options . . . . . . . . . . . . . . . . . . . . . 5 Section 2.2. Domestic Rate Portion . . . . . . . . . . . . . . 5 Section 2.3. LIBOR Portions . . . . . . . . . . . . . . . . . 6 Section 2.4. Offered Rate Portions . . . . . . . . . . . . . . 6 Section 2.5. Computation . . . . . . . . . . . . . . . . . . . 7 Section 2.6. Minimum Amounts . . . . . . . . . . . . . . . . . 7 Section 2.8. Change of Law . . . . . . . . . . . . . . . . . . 8 Section 2.9. Unavailability of Deposits or Inability to Ascertain the Adjusted LIBOR Rate . . . . . . . . 8 Section 2.10. Taxes and Increased Costs . . . . . . . . . . . . 8 Section 2.11. Funding Indemnity . . . . . . . . . . . . . . . . 9 Section 2.12. Lending Branch . . . . . . . . . . . . . . . . . 10 Section 2.13. Discretion of Bank as to Manner of Funding . . . 10 SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.1. Commitment Fees . . . . . . . . . . . . . . . . . 10 Section 3.2. Voluntary Prepayments . . . . . . . . . . . . . . 10 Section 3.3. Mandatory Prepayments . . . . . . . . . . . . . . 11 Section 3.4. Terminations . . . . . . . . . . . . . . . . . . 11 Section 3.5. Place and Application . . . . . . . . . . . . . . 12 Section 3.6. Notations and Requests . . . . . . . . . . . . . 13 Section 3.7. Capital Adequacy . . . . . . . . . . . . . . . . 13 SECTION 4. THE COLLATERAL . . . . . . . . . . . . . . . . . . . 14 Section 4.1. Collateral . . . . . . . . . . . . . . . . . . . 14 Section 4.2. Further Assurances . . . . . . . . . . . . . . . 15 SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 15 Section 5.1. Organization; Authority; Non-Contravention . . . 15 Section 5.2. Subsidiaries . . . . . . . . . . . . . . . . . . 15 Section 5.3. Financial Statements . . . . . . . . . . . . . . 15 Section 5.4. Litigation; Taxes; Consents . . . . . . . . . . . 16 Section 5.5. Regulation U . . . . . . . . . . . . . . . . . . 16 Section 5.6. No Default . . . . . . . . . . . . . . . . . . . 16 Section 5.7. ERISA . . . . . . . . . . . . . . . . . . . . . . 16 Section 5.8. Security Interests and Debt . . . . . . . . . . . 16 Section 5.9. Accurate Information . . . . . . . . . . . . . . 16 Section 5.10. Enforceability . . . . . . . . . . . . . . . . . 17 Section 5.11. No Default Under Other Agreements . . . . . . . . 17 Section 5.12. Status Under Certain Laws . . . . . . . . . . . . 17 Section 5.13. Compliance with Laws . . . . . . . . . . . . . . 17 SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . 18 Section 6.1. All Advances . . . . . . . . . . . . . . . . . . 18 SECTION 7. COMPANY COVENANTS . . . . . . . . . . . . . . . . . 18 Section 7.1. Maintenance of Property . . . . . . . . . . . . . 18 Section 7.2. Taxes . . . . . . . . . . . . . . . . . . . . . . 18 Section 7.3. Maintenance of Insurance . . . . . . . . . . . . 19 Section 7.4. Financial Reports . . . . . . . . . . . . . . . . 19 Section 7.5. Inspection . . . . . . . . . . . . . . . . . . . 20 Section 7.6. Consolidation and Merger . . . . . . . . . . . . 20 Section 7.7. Transactions with Affiliates . . . . . . . . . . 20 Section 7.8. Minimum Net Worth . . . . . . . . . . . . . . . . 20 Section 7.9. Fixed Charge Coverage Ratio . . . . . . . . . . . 21 Section 7.10. Funded Debt to Net Worth Ratio . . . . . . . . . 21 Section 7.11. Net Income . . . . . . . . . . . . . . . . . . . 21 Section 7.12. Liens . . . . . . . . . . . . . . . . . . . . . . 21 Section 7.13. Borrowings and Guaranties . . . . . . . . . . . . 22 Section 7.14. Investments, Loans, Advances and Acquisitions . . 23 Section 7.15. Sale of Property . . . . . . . . . . . . . . . . 24 Section 7.16. Distributions . . . . . . . . . . . . . . . . . . 24 Section 7.17. Notice of Suit or Adverse Change in Business . . 25 Section 7.18. ERISA . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.19. Use of Proceeds . . . . . . . . . . . . . . . . . 25 Section 7.20. Subsidiaries . . . . . . . . . . . . . . . . . . 25 Section 7.21. Additional Capital . . . . . . . . . . . . . . . 25 Section 7.22. Capital Expenditures . . . . . . . . . . . . . . 26 SECTION 8. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . 26 Section 8.1. Events of Default Defined . . . . . . . . . . . . 26 Section 8.2. Remedies for Non-Bankruptcy Defaults . . . . . . 27 Section 8.3. Remedies for Bankruptcy Defaults . . . . . . . . 28 Section 8.4. Collateral for Undrawn L/Cs . . . . . . . . . . . 28 SECTION 9. DEFINITIONS . . . . . . . . . . . . . . . . . . . . 28 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 35 Section 10.1. Holidays . . . . . . . . . . . . . . . . . . . . 35 Section 10.2. No Waiver, Cumulative Remedies . . . . . . . . . 36 Section 10.3. Waivers, Modifications and Amendments . . . . . . 36 Section 10.4. Costs and Expenses . . . . . . . . . . . . . . . 36 Section 10.5. Stamp Taxes . . . . . . . . . . . . . . . . . . . 36 Section 10.6. Survival of Representations . . . . . . . . . . . 37 Section 10.7. Construction . . . . . . . . . . . . . . . . . . 37 Section 10.8. Accounting Principles . . . . . . . . . . . . . . 37 Section 10.9. Addresses for Notices . . . . . . . . . . . . . . 37 Section 10.10. Headings . . . . . . . . . . . . . . . . . . . . 37 Section 10.11. Severability of Provisions . . . . . . . . . . . 37 Section 10.12. Counterparts . . . . . . . . . . . . . . . . . . 37 Section 10.13. Binding Nature, Governing Law, Etc. . . . . . . . 38 Section 10.14. Rights of Participants . . . . . . . . . . . . . 38 Signature Page 39 Exhibit A Revolving Credit Note Exhibit B-1 Term Credit Note One Exhibit B-2 Term Credit Note Two Exhibit B-3 Term Credit Note Three Exhibit C L/C Agreement Exhibit D Opinion of Counsel Exhibit E Compliance Certificate Schedule 7.12 - Permitted Liens Northland Cranberries, Inc. Amended and Restated Credit Agreement Harris Trust and Savings Bank Chicago, Illinois Gentlemen: The undersigned, Northland Cranberries, Inc., a Wisconsin corporation (the "Company") refers to the Credit Agreement dated as of August 31, 1994, as amended and currently in effect between the Company and you (such secured credit agreement as so amended is hereinafter referred to as the "Credit Agreement") pursuant to which you agreed to make a revolving credit (the "Revolving Credit"), a Term Credit (the "Term Credit") and an Acquisition Credit (the "Acquisition Credit") available to the Company, all as more fully set forth therein. You are hereinafter referred to as the "Bank". The Company requests you to make certain further amendments to the Credit Agreement and, for the sake of convenience and clarity, to restate the Credit Agreement in its entirety as so amended. Accordingly, upon your acceptance hereof in the space provided for that purpose below and upon satisfaction of the conditions precedent to effectiveness hereinafter set forth, Sections 1 through 10 of the Credit Agreement and Exhibits A, C, D and E thereto shall be amended and as so amended shall be restated in their entirety to read as follows: SECTION 1. THE CREDITS. Section 1.1. The Revolving Credit. (a) Subject to all of the terms and conditions hereof, the Bank agrees to extend a Revolving Credit to the Company which may be availed of by the Company in its discretion from time to time, be repaid and used again, during the period from the date hereof to and including the Revolving Credit Termination Date. The Revolving Credit may be utilized by the Company in the form of loans (individually a "Revolving Credit Loan" and collectively the "Revolving Credit Loans") and L/Cs (as hereinafter defined), provided that the aggregate amount of the Revolving Credit Loans and Reimbursement Obligations (as hereinafter defined) and the maximum amount available to be drawn under all L/Cs outstanding at any one time shall not exceed $75,000,000 (the "Revolving Credit Commitment"). Each Revolving Credit Loan shall be in a minimum amount of $100,000 or any greater amount that is an integral multiple of $50,000. All Revolving Credit Loans shall be evidenced by a Revolving Credit Note of the Company (the "Revolving Credit Note") payable to the order of the Bank in the amount of its Revolving Credit Commitment, such Revolving Credit Note to be in the form attached hereto as Exhibit A. Without regard to the face principal amount of the Revolving Credit Note, the actual principal amount at any time outstanding and owing by the Company on account thereof during the period ending on the Revolving Credit Termination Date shall be the sum of all advances then or theretofore made thereon less all principal payments actually received thereon during such period. (b) At any time not earlier than 16 months prior to, nor later than 15 months prior to, the Revolving Credit Termination Date then in effect, the Company may request that the Bank extend such Revolving Credit Termination Date to the date one year from such Revolving Credit Termination Date. At any time more than 30 days before such Revolving Credit Termination Date the Bank may propose, by written notice to the Company, an extension of this Agreement to such later date on such terms and conditions as the Bank may then require. If the extension of this Agreement to such later date is acceptable to the Company on the terms and conditions proposed by the Bank, the Company shall notify the Bank of its acceptance no sooner than 30 days and no later than 15 days before the Revolving Credit Termination Date, and such later date will become the Revolving Credit Termination Date hereunder and this Agreement shall otherwise be amended in the manner described in the Bank's notice proposing the extension of this Agreement upon the Bank's receipt of (i) an amendment to this Agreement signed by the Company and the Bank, (ii) resolutions of the Company's Board of Directors authorizing such extension and (iii) an opinion of counsel to the Company equivalent in form and substance to the form of opinion attached hereto as Exhibit D and otherwise acceptable to the Banks. The Bank may further offer to extend the Revolving Credit Termination Date before any such later scheduled Revolving Credit Termination Date in the same manner as set forth above for the initial Revolving Credit Termination Date. Section 1.2. The Term Credit. Subject to all of the terms and conditions hereof, the Bank agrees to make the Term Credit available to the Company in three separate facilities - Term Loan One, Term Loan Two and Term Loan Three. (a) Term Loan One. Subject to all of the terms and conditions hereof, the Bank agrees to make a loan (the "Term Loan One") to the Company under the Term Credit in the amount of $4,600,000. The Term Loan One shall be made in a single advance by no later than the close of business in Chicago, Illinois on June 6, 1995, at which time the commitment of the Bank to make the Term Loan One (the "Term One Commitment") shall expire. The Term Loan One shall be evidenced by a Term Credit Note One of the Company (the "Term Credit Note One") payable to the order of the Bank in the amount of $4,600,000, such Term Credit Note One to be in the form attached hereto as Exhibit B-1. The Term Credit Note One shall be expressed to mature in semi-annual installments of principal, commencing on November 30, 1995 and continuing on the last day of each November and May occurring thereafter to and including May 31, 2000, with each installment to be in the amount of $460,000. (b) Term Loan Two. Subject to all of the terms and conditions hereof, the Bank agrees to make a loan (the "Term Loan Two") to the Company under the Term Credit in the amount of $4,000,000. The Term Loan Two shall be made in four advances of $1,000,000 each by no later than the close of business in Chicago, Illinois on June 5, 1996, at which time the commitment of the Bank to make the Term Loan Two (the "Term Two Commitment") shall expire. The Term Loan Two shall be evidenced by a Term Credit Note Two of the Company (the "Term Credit Note Two") payable to the order of the Bank in the amount of $4,000,000 such Term Credit Note Two to be in the form attached hereto as Exhibit B-2. The Term Credit Note Two shall be expressed to mature in eight (8) semi-annual installments of principal, commencing on November 30, 1996 and continuing on the last day of each May and November occurring thereafter to and including May 31, 2000, with the first seven (7) installments to be in the amount of $286,000 and with the final installment to be in the amount of $1,998,000. (c) Term Loan Three. Subject to all of the terms and conditions hereof, the Bank agrees to make a loan (the "Term Loan Three") to the Company under the Term Credit in the amount of $10,500,000. The Term Loan Three shall be made in a single advance by no later than the close of business in Chicago, Illinois on November 30, 1995, at which time the commitment of the Bank to make the Term Loan Three (the "Term Three Commitment") shall expire. The Term Loan Three shall be evidenced by a Term Credit Note Three of the Company (the "Term Credit Note Three") payable to the order of the Bank in the amount of $10,500,000 such Term Credit Note Three to be in the form attached hereto as Exhibit B-3 with all blanks appropriately completed. The Term Credit Note Three shall be expressed to mature in semi-annual installments of principal, commencing on December 31, 1995 and continuing on the last day of each and every June and December thereafter with a final installment payable on June 30, 2000, with the first nine (9) installments to be in the amount of $525,000 and with the final installment to be in the amount of $5,775,000. Section 1.3. Obligations Several and Not Joint. The failure of one or more Participants to lend in accordance with its Participation Percentage (as defined in the Participation Agreement) shall not relieve the Bank or the other Participant(s) of their obligations to the Company (including without limitation their obligation to lend), but neither the Bank nor any Participant shall be obligated to lend in excess of its Participation Percentage (as defined in the Participation Agreement). The Participation Agreement shall not be modified, amended or restated without the prior written consent of the Company. Section 1.4. Manner of Borrowing. The Company shall notify the Bank (which may be written or oral, but which must be given prior to 11:00 a.m. (Chicago time)) of the date (which may, subject to the immediately preceding parenthetical, be the date on which such notice is given) upon which it requests that any advance be made to it under the Revolving Credit Commitment and of the date it requests any Term Loan be made to it, specifying the amount of each such loan. Subject to all of the terms and conditions hereof, the proceeds of each advance shall be made available to the Company at the office of the Bank in Chicago and in funds there current. Each loan shall initially constitute part of a Domestic Rate Portion except to the extent the Company has otherwise timely elected, all as provided in Section 2 hereof. Section 1.5. Letters of Credit. (a) Generally. Subject to all the terms and conditions hereof, at the Company's request the Bank may in its discretion issue letters of credit (an "L/C" and collectively the "L/Cs") for the account of the Company subject to availability under the Revolving Credit. Each L/C shall be issued pursuant to an application and agreement for letter of credit (the "L/C Agreement") in the form of Exhibit C hereto. The L/Cs shall consist of standby and trade letters of credit; provided that the aggregate undrawn face amount of the L/Cs plus the amount of all unpaid Reimbursement Obligations shall not at any time exceed $5,000,000. Each L/C shall have an expiry date not more than one year from the date of issuance thereof (but in no event later than the Revolving Credit Termination Date). The amount available to be drawn under each L/C issued pursuant hereto shall be deducted from the credit otherwise available under the Revolving Credit. In consideration of the issuance of L/Cs the Company agrees to pay to the Bank (i) a fee (the "L/C Issuance Fee") in the amount equal to one-eighth of one percent (0.125%) of the face amount of each L/C issued hereunder, payable on the date of issuance of each L/C hereunder and on the date of each extension, if any, of the expiry date of each L/C, (ii) a participation fee (the "L/C Participation Fee") in an amount per annum equal to the Applicable Margin for LIBOR Portions of Revolving Credit Loans of the undrawn face amount of each L/C issued hereunder, payable quarterly in arrears on the last day of each February, May, August and November, and (iii) and such drawing, negotiation, amendment and other administrative fees in connection with each L/C as may be established by the Bank from time to time and applicable generally to letters of credit issued by the Bank (the "L/C Administrative Fee"), payable on the date of issuance of each L/C hereunder and on the date required by the Bank. The Bank will use its best efforts to provide the Company thirty days prior notice of any changes to the L/C Administrative Fees, however, the Bank's failure to provide such notice to the Company shall in no way relieve the Company of its obligation to pay such Fees. (b) Fees, Funding, Reimbursement, Etc. Notwithstanding anything contained in any L/C Agreement to the contrary: (i) the Company shall pay fees in connection with each L/C as set forth in Section 1.5(a) hereof, (ii) except for the Collateral and as otherwise provided in Section 3.4(a) hereof, in the absence of an Event of Default, the Bank will not call for the funding by the Company of any amount under an L/C issued for the Company's account, or for any other form of collateral security for the Company's obligations in connection with such L/C, before being presented with a drawing thereunder, and (iii) if the Bank is not timely reimbursed for the amount of any drawing under an L/C on the date such drawing is paid, the Company's obligation to reimburse the Bank for the amount of such drawing shall bear interest at the default rate specified in Section 2.2 hereof. If the Bank issues any L/C with an expiration date that is automatically extended unless the Bank gives notice that the expiration date will not so extend beyond its then scheduled expiration date, the Bank will give such notice of non-renewal before the time necessary to prevent such automatic extension if before such required notice date (i) the expiration date of such L/C if so extended would be after the Revolving Credit Termination Date, or (ii) the Bank's Revolving Credit Commitment has been terminated. Section 1.6. Reimbursement Obligation. The Company is obligated, and hereby unconditionally agrees, to pay in immediately available funds to the Bank each draft drawn and presented under an L/C issued by the Bank hereunder not later than 11:00 a.m. (Chicago time) on the date such draft is presented for payment to the Bank (the obligation of the Company under this Section 1.6 with respect to any L/C is a "Reimbursement Obligation"). The Bank's determination of whether a draft or other request for payment under an L/C complies with the terms of such L/C shall be made in a commercially reasonable manner. If at any time the Company fails to pay any Reimbursement Obligation when due, the Company shall be deemed to have automatically requested a Revolving Credit Loan from the Bank hereunder, as of the maturity date of such Reimbursement Obligation, the proceeds of which loan shall be used to repay such Reimbursement Obligation. Such Loan shall only be made if no Default or Event of Default shall exist and the other conditions set forth in Section 6.1 hereof are satisfied, and shall be subject to availability under the Revolving Credit. If such Loan is not made by the Bank pursuant to this Agreement, the unpaid amount of such Reimbursement Obligation shall be due and payable to the Bank upon demand and shall bear interest at the default rate of interest specified in Section 2.2 hereof. SECTION 2. INTEREST. Section 2.1. Options. Subject to all of the terms and conditions of this Section 2, portions of the principal indebtedness evidenced by the Notes (all of the indebtedness evidenced by a particular Note bearing interest at the same rate for the same period of time being hereinafter referred to as a "Portion") may, at the option of the Company, bear interest with reference to the Domestic Rate (the "Domestic Rate Portions"), with reference to an Offered Rate ("Offered Rate Portions") or with reference to the Adjusted LIBOR Rate ("LIBOR Portions"), and Portions may be converted from time to time from one basis to the other. All of the indebtedness evidenced by each Note which is not part of an LIBOR Portion or an Offered Rate Portion (collectively "Fixed Rate Portions" and individually a "Fixed Rate Portion") shall constitute a single Domestic Rate Portion. All of the indebtedness evidenced by each Note which bears interest with reference to a particular Adjusted LIBOR Rate for a particular Interest Period shall constitute a single LIBOR Portion and all of the indebtedness evidenced by each Note which bears interest with reference to a particular Offered Rate shall constitute a single Offered Rate Portion. The Company promises to pay interest on each Portion at the rates and times specified in this Section 2. Section 2.2. Domestic Rate Portion. Each Domestic Rate Portion shall bear interest (which the Company promises to pay at the times herein provided), at the rate per annum equal to the Domestic Rate as in effect from time to time plus the Applicable Margin, provided that if a Domestic Rate Portion is not paid when due, after giving effect to any grace periods, (whether by lapse of time, acceleration or otherwise), such Portion shall bear interest (which the Company promises to pay at the times hereinafter provided), whether before or after judgment, for the period from the date such Portion became due and until payment in full thereof, at the rate per annum determined by adding 3% to the interest rate which would otherwise be applicable thereto from time to time. Interest on the Domestic Rate Portions shall be payable on the last day of each month in each year and at maturity of the applicable Notes and interest after maturity shall be due and payable upon demand. Section 2.3. LIBOR Portions. Each LIBOR Portion shall bear interest (which the Company promises to pay at the times herein provided) for each Interest Period selected therefor at a rate per annum equal to the Adjusted LIBOR Rate for such Interest Period plus the Applicable Margin, provided that if any LIBOR Portion is not paid when due, after giving effect to any grace periods (whether by lapse of time, acceleration or otherwise) such Portion shall bear interest (which the Company promises to pay at the times hereinafter provided) whether before or after judgment, for the period from the date such Portion became due and until payment in full thereof, through the end of the Interest Period then applicable thereto at the rate per annum determined by adding 3% to the interest rate otherwise applicable thereto, and effective at the end of such Interest Period such LIBOR Portion shall automatically be converted into and added to the applicable Domestic Rate Portion and shall thereafter bear interest at the interest rate applicable to the applicable Domestic Rate Portion after Default. Interest on each LIBOR Portion shall be due and payable on the last day of each Interest Period applicable thereto and, if an Interest Period is longer than three months, then at the end of each three month period and at the end of such Interest Period, and interest after maturity shall be due and payable upon demand. The Company shall notify the Bank on or before 11:00 a.m. (Chicago time) at least three Business Day preceding the end of an Interest Period applicable to an LIBOR Portion whether such LIBOR Portion is to continue as an LIBOR Portion, in which event the Company shall notify the Bank of the new Interest Period selected therefor, and in the event the Company shall fail to so notify the Bank, such LIBOR Portion shall automatically be converted into and added to the applicable Domestic Rate Portion as of and on the last day of such Interest Period. Anything contained herein to the contrary notwithstanding, the obligation of the Bank to create, continue or effect by conversion any LIBOR Portion shall be conditioned upon the fact that at the time no Default or Event of Default shall have occurred and be continuing. Section 2.4. Offered Rate Portions. Each Offered Rate Portion shall bear interest for each Interest Period selected therefor at the Offered Rate for such Interest Period, provided that if any Offered Rate Portion is not paid when due, after giving effect to any grace periods (whether by lapse of time, acceleration or otherwise) such Portion shall bear interest, whether before or after judgment, until payment in full thereof through the end of the Interest Period then applicable thereto at the rate per annum determined by adding 3% to the interest rate which would otherwise be applicable thereto, and effective at the end of such Interest Period such Offered Rate Portion shall automatically be converted into and added to the Domestic Rate Portion and shall thereafter bear interest at the interest rate applicable to the Domestic Rate Portion after Default. Interest on each Offered Rate Portion shall be due and payable on the last day of each Interest Period applicable thereto and interest after maturity (whether by lapse of time, acceleration or otherwise) shall be due and payable upon demand. The Company shall notify the Bank on or before 11:00 a.m. (Chicago time) at least one Business Day preceding the end of an Interest Period applicable to an Offered Rate Portion whether such Offered Rate Portion is to continue as an Offered Rate Portion, in which event the Company shall notify the Bank of the new Interest Period selected therefor, and in the event the Company shall fail to so notify the Bank, such Offered Rate Portion shall automatically be converted into and added to the Domestic Rate Portion as of and on the last day of such Interest Period. The Company understands and agrees that each Offered Rate shall be determined by the Bank in its sole discretion, without reference to any particular index or source of funds, and may be higher than the Domestic Rate or Adjusted LIBOR Rate. Section 2.5. Computation. All interest on the Domestic Rate Portions or the indebtedness evidenced by the Notes shall be computed on the basis of a year of 365/366 days for the actual number of days elapsed and all other interest on the Notes and all fees, charges and commissions due hereunder shall be computed on the basis of a year of 360 days for the actual number of days elapsed. Section 2.6. Minimum Amounts. Each Fixed Rate Portion shall be in a minimum amount of $500,000.00 or any greater amount that is an integral multiple of $100,000.00. Section 2.7. Manner of Rate Selection. The Company shall notify the Bank by 11:00 a.m. Chicago time at least three Business Days prior to the date upon which it requests that any LIBOR Portion be created or that any part of a Domestic Rate Portion or an Offered Rate Portion be converted into a LIBOR Portion, and by 11:00 a.m. (Chicago time) at least one Business Day prior to the Date upon which it requests that any Offered Rate Portion be created or that any part of a Domestic Rate Portion or any part of a LIBOR Portion be converted into an Offered Rate Portion (each such notice to specify in each instance the amount thereof and the Interest Period selected therefor). If any request is made to convert a Fixed Rate Portion into a Domestic Rate Portion, such conversion shall only be made so as to become effective as of the last day of the Interest Period applicable thereto. All requests for the creation, continuance or conversion of Portions under this Agreement shall be irrevocable. Such requests may be written or oral and the Bank is hereby authorized to honor telephonic requests for creations, continuances and conversions received by it from any person identifying themselves as a person who the Bank's records reflect is authorized to act on behalf of the Company hereunder, the Company hereby indemnifying the Bank from any liability or loss ensuing from so acting. Section 2.8. Change of Law. Notwithstanding any other provisions of this Agreement or the Notes, if at any time the Bank shall determine in good faith that any change in applicable laws, treaties or regulations or in the interpretation thereof makes it unlawful for the Bank to create or continue to maintain any Fixed Rate Portion, it shall promptly so notify the Company and the obligation of the Bank to create, continue or maintain such Fixed Rate Portion under this Agreement shall terminate until it is no longer unlawful for the Bank to create, continue or maintain such Fixed Rate Portions. The Company, on demand, shall, if the continued maintenance of a Fixed Rate Portion is unlawful, thereupon prepay the outstanding principal amount of the Fixed Rate Portions, together with all interest accrued thereon and all other amounts payable to the Bank with respect thereto under this Agreement, provided, however, that the Company may instead elect to convert the principal amount of the affected Portion into the applicable Domestic Rate Portion, subject to the terms and conditions of this Agreement. Section 2.9. Unavailability of Deposits or Inability to Ascertain the Adjusted LIBOR Rate. Notwithstanding any other provision of this Agreement or the Notes, if prior to the commencement of any Interest Period, the Bank shall determine that United States dollar deposits in the amount of any LIBOR Portion scheduled to be outstanding during such Interest Period are not readily available to it in the offshore interbank market, the Bank shall promptly give notice thereof to the Company and the obligations of the Bank to create, continue or effect by conversion any LIBOR Portion in such amount and for such Interest Period shall terminate until United States dollar deposits in such amount and for the Interest Period selected by the Company shall again be readily available in the offshore interbank market. Section 2.10. Taxes and Increased Costs. With respect to the Fixed Rate Portions, if the Bank shall determine in good faith that any change after the date hereof in any applicable law, treaty, regulation or guideline (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or any new law, treaty, regulation or guideline, or any interpretation of any of the foregoing by any governmental authority charged with the administration thereof or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending branch or the Portions contemplated by this Agreement (whether or not having the force of law) shall: (a) impose, increase, or deem applicable any reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, or any other acquisition of funds or disbursements by, the Bank which is not in any instance already accounted for in computing the interest rate applicable to such Fixed Rate Portion; (b) subject the Bank, any Fixed Rate Portion or a Note to the extent it evidences such Portions, to any tax (including, without limitation, any United States interest equalization tax or similar tax however named applicable to the acquisition or holding of debt obligations and any interest or penalties with respect thereto), duty, charge, stamp tax, fee, deduction or withholding in respect of this Agreement, any Fixed Rate Portion or a Note to the extent it evidences such a Portion, except such taxes as may be measured by the overall net income or gross receipts of the Bank or its lending branches and imposed by the jurisdiction, or any political subdivision or taxing authority thereof, in which the Bank's principal executive office or its lending branch is located; (c) change the basis of taxation of payments of principal or interest due from the Company to the Bank hereunder or under a Note to the extent it evidences any Fixed Rate Portion (other than by a change in taxation of the overall net income or gross receipts of the Bank); or (d) impose on the Bank any penalty with respect to the foregoing or any other condition regarding this Agreement, its disbursement, any Fixed Rate Portion or a Note to the extent it evidences any Fixed Rate Portion; and the Bank shall determine that the result of any of the foregoing is to increase the cost (whether by incurring a cost or adding to a cost) to the Bank of creating or maintaining any Fixed Rate Portion hereunder or to reduce the amount of principal or interest received or receivable by the Bank (without benefit of, or credit for, any prorations, exemption, credits or other offsets available under any such laws, treaties, regulations, guidelines or interpretations thereof), then the Company shall pay on demand to the Bank from time to time as specified by the Bank such additional amounts as the Bank shall reasonably determine are sufficient to compensate and indemnify it for such increased cost or reduced amount; provided, however, that (i) the Bank shall promptly notify the Company of an event which might cause it to seek compensation, and the Company shall be obligated to pay only such compensation which is incurred or which arises after the date 60 days prior to the date such notice is given, and (ii) the Company shall have no obligation to pay any amount that would otherwise be payable under this Section solely as a result of the Bank being in a regulatory classification that is lower than the Bank's regulatory classification on the date of this Agreement. If the Bank makes such a claim for compensation, it shall provide to the Company a written explanation of the circumstances giving rise to such claim and a certificate setting forth the computation of the increased cost or reduced amount as a result of any event mentioned herein in reasonable detail and such certificate shall be conclusive if reasonably determined. Section 2.11. Funding Indemnity. In the event the Bank shall incur any loss, cost or expense (including, without limitation, any loss (including loss of profit), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired or contracted to be acquired by the Bank to fund or maintain its part of any Fixed Rate Portion or the relending or reinvesting of such deposits or other funds or amounts paid or prepaid to the Bank), as a result of: (i) any payment of a Fixed Rate Portion on a date other than the last day of the then applicable Interest Period for any reason, whether before or after default, and whether or not such payment is required by any provisions of the Agreement; or (ii) any failure by the Company to create, borrow, continue or effect by conversion any Fixed Rate Portion on the date specified in a notice given pursuant to this Agreement; then upon the demand of the Bank, the Company shall pay to the Bank such amount as will reimburse the Bank for such loss, cost or expense. If the Bank requests such a reimbursement it shall provide the Company with a certificate setting forth the computation of the loss, cost or expense giving rise to the request for reimbursement in reasonable detail and such certificate shall be conclusive if reasonably determined. Section 2.12. Lending Branch. The Bank may, at its option, elect to make, fund or maintain its loans hereunder at such of its branches or offices as the Bank may from time to time elect. Section 2.13. Discretion of Bank as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, the Bank shall be entitled to fund and maintain its funding of all or any part of its Notes in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder (including determinations under Sections 2.9, 2.10 and 2.11 hereof) shall be made as if the Bank had actually funded and maintained each Fixed Rate Portion during Interest Period applicable thereto through the purchase of deposits in the offshore interbank market in the amount of its share of such Fixed Rate Portion, having a maturity corresponding to such Interest Period and bearing an interest rate equal to the interest rate applicable to such Fixed Rate Portion for such Interest Period. SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS. Section 3.1. Commitment Fees. For the period from the date hereof to and including the Revolving Credit Termination Date, the Company shall pay to the Bank a commitment fee at the rate equal to the Applicable Margin per annum on the average daily unused amount of the Revolving Credit Commitment hereunder, such fee to be payable quarterly in arrears on November 30, 1997, and on the last day of each November, February, May and August thereafter to and including, and on, the Revolving Credit Termination Date. Section 3.2. Voluntary Prepayments. Subject to the further provisions of this Section 3.2 the Company shall have the privilege of prepaying the Notes in whole or in part (but if in part then in a minimum amount of $50,000 as to any Note prepaid) at any time upon notice to the Bank (such notices, if received subsequent to 11:00 a.m. (Chicago time) on a given day, to be treated as though received at the opening of business on the next Business Day), by paying to the Bank (i) the principal amount to be prepaid, (ii) if such prepayment prepays a Note in full, accrued interest thereon to the date fixed for prepayment, and (iii) any amount due the Bank under Section 2.11 hereof. Section 3.3. Mandatory Prepayments. (a) Deficiency. In the event that the sum of the outstanding principal amount of the Revolving Credit Note plus the unpaid Reimbursement Obligations plus the amount available to be drawn under all outstanding L/Cs shall at any time and for any reason exceed the Revolving Credit Commitment, the Company shall immediately and without notice or demand pay over the amount of the excess to the Bank as and for a mandatory prepayment on the Revolving Credit Note and unpaid Reimbursement Obligations and, if necessary, as cash collateral for then outstanding L/Cs. (b) Asset Sales. Within five Business Days of the receipt thereof by the Company or any Subsidiary, the Company shall pay over to the Bank as and for a mandatory prepayment on the Term Credit Notes or, at the Company's election, the Revolving Credit Note, any and all net proceeds (i.e. gross proceeds net of reasonable out-of-pocket expenses incurred in effecting the sale or other disposition) derived from any sale or disposition (whether voluntary or involuntary) of assets by the Company or any of its Subsidiaries (excluding (i) sale/leaseback transactions pursuant to Section 7.21, (ii) sales of Permitted Property on which the Equitable Life Assurance Society of the United States has a lien and (iii) sales of inventory in the ordinary course of business); provided, however, that no prepayment shall be required with respect to up to $2,000,000 of net proceeds received from the sale or other disposition of equipment, furniture and fixtures which, in the Company's reasonable judgment, are no longer necessary to the efficient conduct of its business; provided further, however, that if at the time of receipt no amount is outstanding under the Term Credit Notes, then such payment shall be applied to the Revolving Credit Note, the Unpaid Reimbursement Obligations and the outstanding L/Cs. Any prepayment of the Revolving Credit Note pursuant to this Section 3.3(b) shall (until the aggregate amount of all prepayments made under Section 3.3(b), 3.4(b)(i) and 3.4(b)(ii) equals $15,000,000) automatically reduce the Revolving Credit Commitment by a like amount. Section 3.4. Terminations. (a) Voluntary. The Company may at any time and from time to time upon notice to the Bank received on or before 11:00 a.m. (Chicago time) at least three Business Days before the Revolving Credit Termination Date terminate the Revolving Credit Commitment in whole or in part (but if in part then in a minimum amount of $500,000 or any greater amount that is an integral multiple of $100,000). (b) Mandatory. (i) Debt Offerings. Within five Business Days of receipt by the Company of cash proceeds from the issuance or private placement of debt securities pursuant to Section 7.21(i) of this Agreement, the Company shall reduce the Revolving Credit Commitment by an amount equal to 100% of the cash proceeds of such issuance or private placement (net of underwriting discounts and commissions and any other costs and expenses directly incurred and payable in connection therewith); provided, however, that no such reduction shall be required if the aggregate amount of all reductions made pursuant to Sections 3.4(b)(i) and 3.4(b)(ii) is greater than or equal to $15,000,000. (ii) Sale/Leasebacks. Within five Business Days of receipt by the Company of net proceeds from any sale/leaseback transaction pursuant to Section 7.21(ii) of this Agreement, the Company shall reduce the Revolving Credit Commitment by an amount equal to 100% of the net proceeds of such sale/leaseback transaction; provided, however, that no such reduction shall be required if the aggregate amount of all reductions made pursuant to Sections 3.4(b)(i) and 3.4(b)(ii) is greater than or equal to $15,000,000. For purposes of this Section 3.4(b)(ii), "net proceeds" means an amount equal to the cash proceeds received by the Company in respect of such sale less (x) any expenses reasonably incurred by the Company in respect of such sale and (y) the amount of any Debt secured by a lien on such Property and required to be discharged from, and actually discharged from, the proceeds thereof and (z) any taxes actually paid or payable by the Company in connection with such sale. Nothing contained herein shall be interpreted to permit any sale or other dispositions of assets not otherwise permitted by Section 7.15 hereof. (c) Generally. The Company shall, on the date the Revolving Credit Commitment is terminated in whole or in part, prepay the Revolving Credit Note, unpaid Reimbursement Obligations (if any) and the outstanding L/Cs by the amount necessary to reduce the outstanding principal balance of the Revolving Credit Note, the unpaid Reimbursement Obligations and the outstanding L/Cs to the amount to which the Revolving Credit Commitment has been reduced. No termination of the Revolving Credit Commitment pursuant to this Section 3.4 may be reinstated. Section 3.5. Place and Application. All payments of principal, interest, fees and other amounts due hereunder shall be made to the Bank at its office at 111 West Monroe Street, Chicago, Illinois (or at such other place within the continental United States as the Bank may specify) in immediately available and freely transferable funds at the place of payment. All such payments shall be made without setoff or counterclaim and without reduction for, and free from, any and all present or future taxes, levies, imposts, duties, fees, charges, deductions, withholdings, restrictions or conditions of any nature imposed by any government or political subdivision or taxing authority thereof. Payments received by the Bank after 11:00 a.m. (Chicago time) shall be deemed received as of the opening of business on the next Business Day. Unless the Company otherwise directs, payments applicable to the principal of the Notes shall be deemed first applied to the applicable Domestic Rate Portion until payment in full thereof, with any balance applied to the applicable Fixed Rate Portions in the order in which their Interest Periods expire. All prepayments (whether voluntary or required) applicable to the Term Loans shall be applied to such Term Credit Note as the Company directs or, if the Company fails to so direct, shall be applied ratably among the Term Credit Notes, and in any event, such payments shall be applied to such Note or Notes in the inverse order of their maturities. All payments (whether voluntary or required) shall be accompanied by any amount due the Bank under Section 2.11 hereof, but no acceptance of such a payment without requiring payment of amounts due under Section 2.11 shall preclude a later demand by the Bank for any amount due them under Section 2.11 in respect of such payment. Section 3.6. Notations and Requests. All advances made against the Notes, the status of all amounts evidenced by the Notes as constituting part of a Domestic Rate Portion, Offered Rate Portion or LIBOR Portion and the rates of interest and Interest Periods applicable to such Portions shall be recorded by the Bank its books or, at its option in any instance, endorsed on the reverse side of the Notes and the unpaid principal balances and status, rates and Interest Periods so recorded or endorsed by the Bank shall be prima facie evidence in any court or other proceeding brought to enforce the Notes of the principal amount remaining unpaid thereon, the status of the borrowings evidenced thereby and the interest rates and Interest Periods applicable thereto. Prior to any negotiation of any Note the Bank shall endorse thereon the status of all amounts evidenced thereby as constituting part of a Domestic Rate Portion, Offered Rate Portion or LIBOR Portion and the rates of interest and Interest Periods applicable thereto. Section 3.7. Capital Adequacy. If the Bank shall determine that the adoption after the date hereof of any applicable law, rule or regulation regarding capital adequacy, or any change in any existing law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Bank (or its lending office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of its obligations hereunder or credit extended by it hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time as specified by the Bank the Company shall pay such additional amount or amounts as will compensate the Bank for such reduction; provided, however, that (i) the Bank shall promptly notify the Company of an event which might cause it to seek compensation, and the Company shall be obligated to pay only such compensation which is incurred or which arises after the date 60 days prior to the date such notice is given, and (ii) the Company shall have no obligation to pay any amount that would otherwise be payable under this Section solely as a result of the Bank being in a regulatory classification that is lower than the Bank's regulatory classification on the date of this Agreement. A certificate of the Bank claiming compensation under this Section 3.7 and setting forth the additional amount or amounts to be paid to it hereunder in reasonable detail shall be conclusive if reasonably determined. In determining such amount, the Bank may use any reasonable averaging and attribution methods. SECTION 4. THE COLLATERAL. Section 4.1. Collateral. The Revolving Credit Note, the Term Notes, the Reimbursement Obligations and the other obligations of the Company hereunder relating thereto shall be secured by (i) a valid and perfected first priority liens on certain crops of the Company pursuant to the terms of the Security Agreement Re: Crops dated as of August 31, 1994 as amended or restated from time to time, (ii) valid and perfected first priority liens on the fixtures and real property of the Company located in Juneau County, Wisconsin, consisting of approximately 1,236.8 acres acquired by the Company from the Yellow River Cranberry Company (the "Yellow River Marsh"), (iii) valid and perfected first priority liens on the fixtures and real property of the Company located in Price County, Wisconsin, consisting of approximately 2,460 acres (the "Fifield Marsh"), (iv) certain machinery and equipment of the Company located in Wisconsin Rapids, Wisconsin pursuant to the terms of the Security Agreement Re: Equipment dated as of August 31, 1994 as amended or restated from time to time, (v) valid and perfected first priority liens on the fixtures and real property of the Company located in Hanson, Massachusetts, consisting of approximately 1,904 acres acquired by the Company from United Cape Cod Limited Partnership (the "Hanson Marsh"), (vi) valid and perfected first priority liens on the fixtures and real property of the Company located in Wood County, Wisconsin consisting of approximately 106 acres acquired from Lloyd A. Wolfe and Jeanne M. Wolfe (the "Wolfe Marsh"), (vii) valid and perfected first priority liens on the fixtures and real property of the Company located in the Town of Armenia, Juneau County, Wisconsin, consisting of approximately 469 acres acquired from the Yellow River Cranberry Company (the "F Marsh"), (viii) valid and perfected first priority liens on the fixtures and real properties of the Gordon, Nekoosa and a portion of the Biron divisions of the Company located in Wood and Douglas Counties, Wisconsin, (ix) valid and perfected first priority liens on the fixtures and real properties of the Company located in Vilas County, Wisconsin, consisting of approximately 183 acres (the "Manitowish Waters Marsh"), (x) valid and perfected first priority liens on the inventory, farm products and accounts of the Company pursuant to the terms of the Security Agreement Re: Inventory, Farm Products and Receivables dated as of October 3, 1997 as the same may from time to time be amended or rested and (xi) valid and perfected first priority liens on the cranberry bogs acquired by the Company pursuant to Section 7.14(f) hereof. Section 4.2. Further Assurances. The Company agrees that it will from time to time at the request of the Bank execute and deliver such documents and do such acts and things as the Bank may reasonably request in order to provide for or perfect such liens. To the extent necessary to enable the Company to consummate the sale/leaseback transactions or debt offerings pursuant to Section 7.21 hereof, the Bank agrees to release its liens on the Property affected by such transactions and this provision shall govern and control over any language to the contrary in any Collateral Document and any amendments or supplements thereto. SECTION 5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Bank as follows: Section 5.1. Organization; Authority; Non-Contravention. The Company is a corporation duly organized and existing under the laws of the State of Wisconsin, has full and adequate power to carry on its business as now conducted, is duly licensed or qualified in all jurisdictions wherein the nature of its activities requires such licensing or qualifying and where the failure to be so licensed or qualified would have a material adverse effect on the Properties, business or operations of the Company, has full right and authority to enter into this Agreement and the other Loan Documents, to make the borrowings herein provided for, to issue the Note in evidence thereof, to encumber its assets as collateral security therefor, and to perform each and all of the matters and things herein and therein provided for; and this Agreement does not, nor does the performance or observance by the Company of any of the matters or things provided for in the Loan Documents, contravene any provision of law or any charter or by-law provision or any indenture or material agreement of or affecting the Company or any of its Properties. Section 5.2. Subsidiaries. The Company has no Subsidiaries except Wildhawk, Inc., a Wisconsin corporation, W.S.C. Water Management Corp., a Wisconsin corporation, and Northland Cranberries Foreign Sales Corp., a Virgin Islands corporation. Section 5.3. Financial Statements. The Company has heretofore delivered to the Bank a copy of the audit report as of August 31, 1996, of the Company and unaudited financial statements (including a balance sheet and profit and loss statement) of the Company as of, and for the period ending May 31, 1997. Such financial statements have been prepared in accordance with generally accepted accounting principles on a basis consistent, except as otherwise noted therein and except that the interim financial statements are subject to audit and year-end adjustments and for the absence of footnotes, with that of the previous fiscal year or period and fairly reflect the financial position of the Company as of the dates thereof, and the results of their operations for the periods covered thereby. The Company has no significant contingent liabilities other than as indicated on said financial statements and since said date of May 31, 1997, there has been no material adverse change in the condition, financial or otherwise, of the Company. Section 5.4. Litigation; Taxes; Consents. Except as disclosed on Schedule 5.4, there is no litigation or governmental proceeding pending, nor to the knowledge of the Company threatened, against the Company or any Subsidiary which if adversely determined would result in any material adverse change in the Properties, business or operations of the Company and its Subsidiaries taken as a whole. All United States federal income tax returns for the Company and its Subsidiaries required to be filed have been filed on a timely basis (after giving effect to any extensions), and all amounts required to be paid as shown by said returns have been paid. There are no pending or threatened objections to or controversies in respect of the United States federal income tax returns of the Company for any fiscal year which, if adversely determined, would have a material adverse effect on the Company's condition, financial or otherwise. No authorization, consent, license, exemption or filing or registration with any court or governmental department, agency or instrumentality, is or will be necessary to the valid execution, delivery or performance by the Company of the Loan Documents, except for filings required to perfect the Bank's liens in the Collateral. Section 5.5. Regulation U. Neither the Company nor any Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any loan hereunder will be used to purchase or carry any margin stock or to extend credit to others for such a purpose. Section 5.6. No Default. No Event of Default is existing under this Agreement. Section 5.7. ERISA. The Company is in compliance in all material respects with ERISA to the extent applicable to it and has received no notice to the contrary from the PBGC or any other governmental entity or agency. Section 5.8. Security Interests and Debt. There are no security interests, liens or encumbrances on any of the Property of the Company or any Subsidiary except such as are permitted by Section 7.12 of this Agreement, and the Company and its Subsidiaries have no Funded Debt except such as is permitted by Section 7.13 of this Agreement. Section 5.9. Accurate Information. No information, exhibit or report furnished by the Company to the Bank in connection with the negotiation of the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made. The financial projections furnished by the Company to the Bank contain to the Company's knowledge and belief, reasonable projections as of the date hereof of future results of operations and financial position of the Company. Section 5.10. Enforceability. This Agreement and the other Loan Documents are legal, valid and binding agreements of the Company, enforceable against it in accordance with their terms, except as may be limited by (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws or judicial decisions for the relief of debtors or the limitation of creditors' rights generally; and (b) any equitable principles relating to or limiting the rights of creditors generally. Section 5.11. No Default Under Other Agreements. Neither the Company nor any Subsidiary is in default with respect to any note, indenture, loan agreement, mortgage, lease, deed, or other agreement to which it is a party or by which it or its Property is bound, which default might reasonably be expected to materially and adversely affect the Collateral, the repayment of the indebtedness, obligations and liabilities under the Loan Documents, the Bank's rights under the Loan Documents or the Property, business, operations or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. Section 5.12. Status Under Certain Laws. Neither the Company nor any of its Subsidiaries is an "investment company" or a person directly or indirectly controlled by or acting on behalf of an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 5.13. Compliance with Laws. The Company and its Subsidiaries each are in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to their Properties or business operations (including, without limitation, the Occupational Safety and Health Act of 1970, the Americans with Disabilities Act of 1990, and laws and regulations establishing quality criteria and standards for air, water, land and toxic or hazardous wastes and substances), non-compliance with which could reasonably be expected to have a material adverse effect on the financial condition, Properties, business or operations of the Company and its Subsidiaries taken as a whole. Neither the Company nor any Subsidiary has received notice to the effect that its operations are not in compliance with any of the requirements of applicable federal, state or local environmental, health and safety statutes and regulations or are the subject of any governmental investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action would have a material adverse effect on the financial condition, Properties, business or operations of the Company and its Subsidiaries taken as a whole. SECTION 6. CONDITIONS PRECEDENT. Section 6.1. All Advances. The obligation of the Bank to make any advance under the Revolving Credit (including the first advance) or to issue any L/C or to make any Term Loan shall also be subject to the conditions precedent that as of the time of the making of each advance under the Revolving Credit or the issuance of any L/C or the funding of any Term Loan: (a) each of the representations and warranties set forth herein or in the Collateral Documents shall be and remain true and correct in all material respects as of said time except that the representations and warranties made in Section 5.3 hereof shall be deemed to refer to the most recent financial statements delivered to the Bank pursuant to Section 7.4 hereof; (b) no change in the financial condition or business prospects of the Company shall have occurred which the is materially adverse; and (c) no Default or Event of Default shall have occurred and be continuing. Any request made by the Company to the Bank for any extension of credit hereunder shall be deemed to constitute a representation and warranty that the foregoing statements are true and correct in all material respects. SECTION 7. COMPANY COVENANTS. The Company agrees that, so long as any credit is available to or in use by the Company hereunder, except to the extent compliance in any case or cases is waived in writing by the Bank: Section 7.1. Maintenance of Property. The Company will keep and maintain all of its Properties necessary or useful in its business in good condition, and make all necessary renewals, replacements, additions, betterments and improvements thereto; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation and maintenance of any of its Properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business and not disadvantageous in any material respect to the Bank as holder of the Notes. Section 7.2. Taxes. The Company will duly pay and discharge all taxes, rates, assessments, fees and governmental charges upon or against the Company or against its Properties in each case before the same becomes delinquent and before penalties accrue thereon unless and to the extent that the same is being contested in good faith and by appropriate proceedings. Section 7.3. Maintenance of Insurance. The Company will maintain insurance with insurers recognized as financially sound and reputable by prudent business persons in such forms and amounts and against such risks as is usually carried by companies engaged in similar business and owning similar Properties in the same general areas in which the Company operates. The Bank shall be named as loss payee under any insurance policies which relate to the Collateral. The Company shall, at the Bank's request, provide copies to the Bank of all insurance policies and other material related thereto maintained by the Company from time to time. Section 7.4. Financial Reports. The Company will maintain a standard and modern system of accounting in accordance with sound accounting practice and will furnish with reasonable promptness to the Bank and its duly authorized representatives such information respecting the business and financial condition of the Company as may be reasonably requested and, without any request, will furnish to the Bank: (a) as soon as available, and in any event within 45 days after the close of each quarterly fiscal period of the Company a copy of the form 10-Q quarterly report to the Securities and Exchange Commission (the "SEC"); and (b) as soon as available, and in any event within 90 days after the close of each fiscal year, a copy of the audit report for such year and accompanying financial statements, including balance sheet, reconciliation of change in stockholders' equity, profit and loss statement and statement of source and application of funds for the Company showing in comparative form the figures for the previous fiscal year of the Company, all in reasonable detail, prepared and certified by Deloitte & Touche or other independent public accountants of nationally recognized standing selected by the Company; and (c) each of the financial statements furnished to the Bank pursuant to paragraphs (a) and (b) above shall be accompanied by a Compliance Certificate in the form of Exhibit E attached hereto signed by its Vice President-Finance; and (d) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which the Company shall have filed with the SEC or any governmental agency substituted therefor, or any national securities exchange, including copies of the Company's form 10-K annual report, including financial statements audited by Deloitte & Touche or other independent public accountants of nationally recognized standing selected by the Company; (e) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; and (f) as soon as available, and in any event within 30 days prior to the end of each fiscal year of the Company, a copy of the Company's consolidated business plan and operating projections for the following fiscal year, such plan to be in reasonable detail prepared by the Company and in form reasonably satisfactory to the Bank. Section 7.5. Inspection. The Company shall permit the Bank, by its representatives and agents (who may be accompanied by any of the Participants), to inspect any of the Properties, corporate books and financial records of the Company, to examine and make copies of the books of accounts and other financial records of the Company, and to discuss the affairs, finances and accounts of the Company with, and to be advised as to the same by, its officers at such reasonable times and intervals as the Bank may designate upon reasonable advance notice to the Company. So long as no Event of Default shall have occurred and be continuing, the Bank shall perform not more than one field audit of the Collateral per year. The Company shall pay to the Bank from time to time upon demand a reasonable amount, but not to exceed $2,000 per audit, to compensate the Bank for its fees, charges and expenses in connection with the field audits of the Collateral. Section 7.6. Consolidation and Merger. The Company will not consolidate with or merge into any Person, without the prior written consent of the Bank, unless (a) the Company is the surviving entity, (b) the other party to such transaction is in the same or a related line of business as the Company, and (c) both before and after giving effect to such merger or consolidation, no Default or Event of Default shall have occurred and be continuing. Section 7.7. Transactions with Affiliates. The Company will not enter into any transaction, including without limitation, the purchase, sale, lease or exchange of any Property, or the rendering of any service, with any Affiliate of the Company except in the ordinary course of and pursuant to the reasonable requirements of the Company's business and upon fair and reasonable terms no less favorable to the Company than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of the Company. Section 7.8. Minimum Net Worth. The Company will at all times during the periods indicated below maintain Net Worth in an amount not less than: (a) $73,000,000 from August 31, 1997 through August 30, 1998; (b) $78,000,000 on August 31, 1998; and (c) during each fiscal quarter of the Company thereafter, an amount equal to the sum of (i) the minimum amount required to be maintained during the immediately preceding fiscal quarter of the Company plus (ii) an amount equal to 50% of the Company's Net Income for the fiscal quarter of the Company then ended, plus (iii) an amount equal to 75% of the net cash proceeds of the issuance of capital stock or other equity securities of the Company that are not applied as required by Section 3.4(a) of this Agreement. Section 7.9. Fixed Charge Coverage Ratio. The Company will not, as of the last day of each fiscal quarter indicated below, permit its Fixed Charge Coverage Ratio to be less than 1.25 to 1 on the last day of the fiscal quarters ending on May 31, 1998 and August 31, 1998, and 1.5 to 1 on the last day of each fiscal quarter ending thereafter. Section 7.10. Funded Debt to Net Worth Ratio. The Company will not permit the ratio of its Funded Debt to Net Worth to exceed 2.0 to 1 at any time. Section 7.11. Net Income. The Company and its Subsidiaries will not have a net loss of more than $2,000,000 for each of the fiscal quarters of the Company ending on or before August 31, 1997, will not have a net loss of more than $1,500,000 for each fiscal quarter ending during the period from September 1, 1997 through and including February 28, 1998 and will not have a net loss of more than $1,000,000 for any fiscal quarter ending thereafter. Section 7.12. Liens. The Company will not pledge, mortgage or otherwise encumber or subject to or permit to exist upon or be subjected to any lien, charge or security interest of any kind (including any conditional sale or other title retention agreement and any lease in the nature thereof), on any of its Properties of any kind or character at any time owned by the Company other than: (a) liens, pledges or deposits for workmen's compensation, unemployment insurance, old age benefits or social security obligations, taxes, assessments, statutory obligations or other similar charges, good faith deposits made in connection with tenders, contracts or leases to which the Company is a party or other deposits required to be made in the ordinary course of business, provided in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate proceedings and adequate reserves have been provided therefor in accordance with generally accepted accounting principles and that the obligation is not for borrowed money, customer advances, trade payables, or obligations to agricultural producers; (b) the pledge of Property for the purpose of securing an appeal or stay or discharge in the course of any legal proceedings, provided that the aggregate amount of liabilities of the Company so secured by a pledge of Property permitted under this subsection (b) including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (c) liens, pledges, mortgages, security interests, or other charges granted to the Bank for the benefit of the Bank and the Participants; (d) liens, pledges, mortgages, security interests or other charges existing on Permitted Property to the extent they secure indebtedness incurred to finance the purchase or construction of improvements; (e) liens on property existing at the time of their acquisition or liens to secure the payment of all or any part of the purchase price of such property or to secure any indebtedness incurred for the purpose of financing all or any part of the purchase price thereof provided such liens encumber only the property being acquired, purchased or financed and do not extend to any other property or secure any other obligations; (f) liens on Permitted Property of a corporation existing at the time such corporation is purchased by, merged into or consolidated with the Company or at the time of a sale, lease or other disposition of the land, buildings and/or equipment of a corporation or firm as an entirety or substantially as an entirety to the Company; (g) mortgages, pledges, security interests or other encumbrances existing on the date hereof and disclosed on the financial statements referred to in Section 5.3 hereof or in Schedule 7.12 attached hereto; (h) liens for taxes, assessments or governmental charges and liens incident to construction, which are either not delinquent or are being contested in good faith by appropriate proceedings which prevent foreclosure of such liens and for which adequate reserves have been provided, and easements, restrictions, minor title irregularities and similar matters which have no adverse effect upon the ownership and use of the affected Property by the Company; (i) liens on Permitted Property securing indebtedness permitted under Section 7.13 hereof; and (j) liens on the Company's Wisconsin Rapids, Wisconsin office building and land referred to in Section 7.22 hereof. Section 7.13. Borrowings and Guaranties. The Company will not issue, incur, assume, create or have outstanding any indebtedness for borrowed money (including as such all indebtedness representing the deferred purchase price of Property and all obligations of the Company with respect to letters of credit and banker's acceptances) or customer advances, nor be or remain liable, whether as endorser, surety, guarantor or otherwise, for or in respect of any liability or indebtedness of any other Person other than: (a) indebtedness of the Company arising under or pursuant to this Agreement or the other Loan Documents; (b) the liability of the Company arising out of the endorsement for deposit or collection of commercial paper received in the ordinary course of business; (c) indebtedness of the Company existing on the date hereof and disclosed to the Bank in the August 31, 1996 financial statements referred to in Section 5.3 hereof; (d) indebtedness not otherwise permitted by this Section 7.13 which is incurred, directly or indirectly, to finance the acquisition of Property; (e) Funded Debt; and (f) renewals, extensions and refinancings of and amendments to each of the foregoing. Section 7.14. Investments, Loans, Advances and Acquisitions. The Company will not make or retain any investment (whether through the purchase of stock, obligations or otherwise) in or make any loan or advance to, any other Person or acquire substantially as an entirety the Property or business of any other Person, other than: (a) investments in certificates of deposit having a maturity of one year or less issued by the Bank; (b) investments, loans and advances in or to any existing wholly-owned Subsidiary, provided that the respective amounts thereof shall not exceed the amounts disclosed to the Bank in the August 31, 1996 financial statements referred to in Section 5.3 hereof; (c) travel advances, entertainment and moving expenses and directors fees to officers, directors and employees of the Company in the ordinary course of business; (d) receivables arising in the ordinary course of the Company's business; (e) full faith and credit obligations of the United States and securities the payment of principal of and interest on is unconditionally guaranteed by the United States; provided that all such obligations and securities shall have a maturity of one year or less; (f) acquisition of Cranberry Businesses, provided, that (i) such acquisition has the effective written consent or prior approval of the board of directors (or equivalent governing body) of the Person being acquired, (ii) the aggregate cash consideration paid by the Company for the acquisition of cranberry bogs after October 3, 1997 shall not exceed $5,000,000 in each fiscal year without the prior written consent of the Bank and the Participants and (iii) the Company grants to the Bank a first priority lien on the subject bogs; (g) investments in entities engaged in the Cranberry Business; and (h) investments in an amount not to exceed $5,000,000 in a Subsidiary or joint venture engaged in developing cranberry growing properties in the Republic of Ireland; and (i) loans and advances to Wildhawk, Inc. in an aggregate principal amount outstanding at any time not to exceed $500,000. Section 7.15. Sale of Property. The Company will not sell, lease, assign, transfer or otherwise dispose of (whether in one transaction or in a series of transactions) all or a material part of its Property to any other Person; provided, however, that so long as no Event of Default or Default has occurred and is continuing, this Section shall not prohibit: (a) sales of inventory (including crops and severed vines) in the ordinary course of business; (b) sales or leases of surplus, obsolete or worn-out machinery and equipment; and (c) the sale/leaseback transactions permitted by Section 7.21(ii) hereof. For purposes of this Section, "Material Part" shall mean 5% or more of the lesser of the book or fair market value of the Property of the Company. Section 7.16. Distributions. The Company will not, directly or indirectly, (a) declare, make or incur any liability to pay any dividend on or make any other distribution in respect of any class or series of its capital stock (other than dividends payable solely in its capital stock) or (b) purchase, repurchase or otherwise acquire or retire any of its capital stock; provided, however, that so long as no Default or Event of Default shall have occurred and be continuing the Company may (i) repurchase its capital stock provided the aggregate amount expended for such repurchases does not exceed $2,000,000, (ii) pay dividends in an amount not to exceed $0.04 per share during each fiscal quarter of the Company's fiscal years ending August 31, 1997 and August 31, 1998, and (iii) during each fiscal quarter of the Company ending after August 31, 1998, pay dividends in an amount not to exceed 50% of the Company's Net Income for the period beginning September 1, 1998 and ending on the last day of the most recent fiscal quarter. Section 7.17. Notice of Suit or Adverse Change in Business. The Company shall, as soon as possible, and in any event within five Business Days after the Company learns of the following, give written notice to the Bank of (a) any material proceeding(s) being instituted or threatened to be instituted by or against the Company in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign), (b) any material adverse change in the business, Property or condition, financial or otherwise, (including, without limitation, any material loss or depreciation in the value of the Collateral) of the Company and (c) the occurrence of any Default or Event of Default hereunder. Section 7.18. ERISA. The Company will promptly pay and discharge all obligations and liabilities arising under ERISA of a character which if unpaid or unperformed would result in the imposition of a lien against any of its Property and will promptly notify the Bank of (a) the occurrence of any reportable event (as defined in ERISA) which might result in the termination by the PBGC of any Plan, (b) receipt of any notice from PBGC of its intention to seek termination of any such Plan or appointment of a trustee therefor, and (c) its intention to terminate or withdraw from any Plan. The Company will not terminate any such Plan or withdraw therefrom unless it shall be in compliance with all of the terms and conditions of this Agreement after giving effect to any liability to PBGC resulting from such termination or withdrawal. Section 7.19. Use of Proceeds. The Company shall use the proceeds of the Term Loan Two solely to finance the acquisition and construction of fixed assets constituting the concentrating plant and equipment located at the Company's facilities in Wisconsin Rapids, Wisconsin, and to reimburse the Company for sums already expended by the Company in connection therewith; the Company shall use the proceeds of the Term Loan Three solely to finance the acquisition of the bog in Hanson, Massachusetts; and the Company shall use the proceeds of the Term Loan One and all Revolving Credit Loans made hereunder solely for lawful corporate purposes. Section 7.20. Subsidiaries. The Company will not, directly or indirectly, create or acquire any Subsidiaries without prior approval of the Bank, except for the Ireland operation. Section 7.21. Additional Capital. No later than the date that is one year after the date hereof the Company shall use its best efforts (i) to issue or privately place debt securities maturing no less than five years after the date of issuance and having scheduled principal repayments of less than 50% of the original principal amount thereof during the first five years after they are issued and/or (ii) to consummate a sale/leaseback transaction, such that the gross cash consideration to be received by the Company as a result of the transactions identified in clauses (i) and (ii) above is not less than $15,000,000. Notwithstanding the foregoing, the Company shall not be obligated to enter into any transaction which the Company does not in good faith believe to be in its best interest. Section 7.22. Capital Expenditures. The Company will not expend or become obligated for capital expenditures as determined in accordance with generally accepted accounting principles (excluding amounts spent on cranberry bog acquisitions to the extent permitted by Section 7.14(f) hereof and excluding up to $1,500,000 of amounts actually expended by the Company for the purchase and renovation of its Wisconsin Rapids, Wisconsin office building) in an aggregate amount in excess of $6,000,000 during any fiscal year of the Company. SECTION 8. EVENTS OF DEFAULT AND REMEDIES. Section 8.1. Events of Default Defined. Any one or more of the following shall constitute an Event of Default: (a) Default in the payment within three days when due of any principal of or interest on any Note or Reimbursement Obligation, or in the payment within five days when due of any costs, expenses or fees under this Agreement or any of the other Loan Documents, whether on demand or at the stated due date thereof or as required by Section 2.3 hereof or at any other time provided in this Agreement; (b) Default in the observance or performance of any covenant, condition, agreement or provision in Sections 7.3, 7.4, 7.6, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 7.16, 7.17, 7.19, 7.20, 7.21 or 7.22 of this Agreement, or of any provision of the Collateral Documents requiring the maintenance of insurance on the Collateral subject thereto or dealing with the use or remittance of proceeds of such Collateral; (c) Default in the observance or performance of any covenant, condition, agreement or provision in this Agreement or in any of the other Loan Documents and such default shall continue for 30 days after written notice thereof to the Company by the Bank; (d) Default shall occur under any evidence of indebtedness for borrowed money in an aggregate principal amount in excess of $1,000,000 issued or assumed or guaranteed by the Company or any Subsidiary or under any mortgage, agreement or other similar instrument under which the same may be issued or secured and such default shall continue for a period of time sufficient to permit the acceleration of maturity of any indebtedness evidenced thereby or outstanding thereunder; (e) Any representation or warranty made by the Company herein or in any of the other Loan Documents or in any statement or certificate furnished by it pursuant hereto or thereto proves untrue in any material respect as of the date of the issuance or making thereof; (f) Any judgment or judgments, writ or writs, or warrant or warrants of attachment, or any similar process or processes in an aggregate amount in excess of $500,000 shall be entered or filed against the Company, any Subsidiary or against any of their respective Property or assets and remains unpaid, unvacated, unbonded or unstayed for a period of 30 days from the date of its entry; (g) The Company or any Subsidiary except Wildhawk, Inc. and W.S.C. Water Management Corp. shall (i) have entered involuntarily against it an order for relief under the Bankruptcy Code of 1978, as amended, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due or suspend payment of its obligations, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment or a receiver, custodian, trustee, conservator, liquidator or similar official for it or any substantial part of its Property, (v) institute any proceeding seeking to have entered against it an order for relief under the Bankruptcy Code of 1978, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, marshalling of assets, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) fail to contest in good faith any appointment or proceeding described in Section 8.1(h) hereof, or (vii) take any action in furtherance of any of the foregoing purposes; or (h) A custodian, receiver, trustee, conservator, liquidator or similar official shall be appointed for the Company, any Subsidiary except Wildhawk, Inc. and W.S.C. Water Management Corp. or any substantial part of their respective Property, or a proceeding described in Section 8.1(g)(v) shall be instituted against the Company and such appointment continues undischarged or any such proceeding continues undismissed or unstayed for a period of 60 days. Section 8.2. Remedies for Non-Bankruptcy Defaults. When any Event of Default, other than an Event of Default described in subsections (g) or (h) of Section 8.1 hereof, has occurred and is continuing, the Bank may, by notice to the Company, take either or both of the following actions: (i) terminate the commitments of the Bank hereunder on the date (which may be the date thereof) stated in such notice, and (ii) declare the principal of and the accrued interest on the Notes and Reimbursement Obligations then outstanding to be forthwith due and payable and thereupon said Notes and Reimbursement Obligations, including both principal and interest, shall be and become immediately due and payable together with all other amounts payable under this Agreement without further demand, presentment, protest or notice of any kind. Section 8.3. Remedies for Bankruptcy Defaults. When any Event of Default described in subsections 8.1(g) or 8.1(h) has occurred and is continuing, then the then unpaid balance of the Notes and Reimbursement Obligations, including both principal and interest, and all fees, charges and commissions payable hereunder, shall immediately become due and payable without presentment, demand, protest or notice of any kind, the obligation of the Bank to extend further credit pursuant to any of the terms hereof shall immediately terminate and the Bank may exercise all remedies available to it under the Collateral Documents. Section 8.4. Collateral for Undrawn L/Cs. Promptly following the acceleration of the maturity of the Notes pursuant to Section 8.2 or 8.3 hereof, the Company shall immediately pay to the Bank the full amount available to be drawn under all outstanding L/Cs. The Bank shall hold all such funds and proceeds thereof as additional collateral security for the obligations of the Company to the Bank under the Loan Documents. The Company acknowledges and agrees that the Bank would not have an adequate remedy at law for failure of the Company to honor any of its obligations under this Section 8.4 and that the Bank shall have the right to require the Company to specifically perform such undertaking whether or not any draws have been made under any such L/Cs. SECTION 9. DEFINITIONS. The following terms when used herein shall have the following meanings; such terms to be equally applicable to both the singular and plural of the terms defined (capitalized terms defined elsewhere in this Agreement to have the meanings so ascribed to them in all provisions of this Agreement). "Adjusted LIBOR Rate" shall mean a rate per annum determined pursuant to the following formula: Adjusted LIBOR Rate = ________LIBOR___________ 100%-Reserve Percentage "Affiliate" shall mean any person, firm, corporation or entity (herein collectively called a "Person") directly or indirectly controlling or controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to control another Person for the purposes of this definition if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, common directors, trustees or officers, by contract or otherwise. "Agreement" shall mean this Amended and Restated Credit Agreement, as the same may be supplemented and amended from time to time. "Amortization" shall mean amortization expense determined in accordance with generally accepted accounting principles consistently applied. "Applicable Margin" shall mean, with respect to the commitment fee and each type of Portion described below, the rate of interest per annum shown below for the range of Senior Funded Debt Ratio specified below: Level I Level II Level III Level IV [greater than [greater than [greater than Senior Funded or less than] or less than] or less than] Debt Ratio <1.5X 1.5X and 2.5X 2.5X and 3X 3X Revolving Credit Domestic Rate Margin 0% 0% 0% .25% Revolving Credit LIBOR Margin 1.25% 1.50% 2.00% 2.25% Commitment Fee .25% .25% .385% .50% Term Loan Domestic Rate Margin 0% 0% .50% .75% Term Loan LIBOR Margin 1.75% 2.00% 2.5% 2.75% Not later than five Business Days after receipt by the Bank of financial statements called for by Section 7.4(a), (b) and (c) hereof for each fiscal quarter of the Company (such date being referred to herein as the "Test Date"), the Bank shall (i) determine the Senior Funded Debt Ratio for the applicable period and (ii) promptly notify the Company and the Participants of such determination and of any change in the Applicable Margins resulting therefrom. Any such change in the Applicable Margins shall be effective as of the date the Bank so notifies the Company and the Participants with respect to all Portions outstanding on such date, and such new Applicable Margins shall continue in effect until the effective date of the next quarterly redetermination in accordance with the terms hereof; provided, however, that if the Company is late in delivering such financial statements, and upon receipt of such financial statements the Bank determines that a higher pricing Level is applicable, then such new Applicable Margins (at said higher Level) shall be retroactively effective as of the related Test Date. Each determination of the Senior Funded Debt Ratio and Applicable Margins by the Bank in accordance with the terms hereof shall be conclusive and binding on the Company and the Participants absent manifest error. The Applicable Margins shall first be adjusted upon receipt of the financial statements for the fiscal quarter ending May 31, 1998. From the date hereof until the Applicable Margins are first adjusted pursuant hereto, the Applicable Margins shall be those set forth in Level III above. "Business Day" shall mean any day (other than a Saturday or Sunday) on which banks are generally open for business in Chicago, Illinois and, when used with respect to LIBOR Portions, a day on which banks generally are also dealing in United States Dollar deposits in London, England and Nassau, Bahamas. "Capital Expenditures" shall mean for any period, expenditures for any fixed assets, or for improvements, replacements, substitutions or additions therefor or thereto, which have a useful life of one year or more, including (i) the direct or indirect acquisition of such assets by way of increased product service charges, offset items or otherwise and (ii) the acquisition of such assets pursuant to a lease, to the extent such acquisition would be treated as a capital expenditure pursuant to generally accepted accounting principles consistently applied, but shall not include (a) funds actually expended by the Company for preproduction costs, for the purchase and planting of cranberry vines or for the purchase of additional cranberry marshes permitted by the terms hereof, and (b) payments made under leases of real or personal property, whether or not the acquisition of such real or personal property constituted a Capital Expenditure when made. "Collateral" shall mean all property and rights that may from time to time secure the payment of any of the Company's indebtedness, obligations and liabilities to the Bank under any of the Loan Documents. "Collateral Documents" shall mean all mortgages, deeds of trust, security agreements, assignments, financing statements and other documents as shall from time to time secure any of the Notes and other obligations of the Company to the Bank. "Commitments" shall mean the Revolving Credit Commitment and the Term Credit Commitments. "Cranberry Businesses" shall mean the operation of cranberry bogs (and the development thereof) and the production, distribution, processing, marketing and brokering of cranberries, cranberry products and other fresh fruit or juice products. "Depreciation" shall mean depreciation expense, determined in accordance with generally accepted accounting principles, consistently applied. "Domestic Rate" shall mean a fluctuating interest rate per annum at all times equal to the rate of interest announced by Harris Trust and Savings Bank ("Harris") from time to time as its prime commercial rate with any change in such rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate (the "Harris Prime Rate"), provided that if the rate per annum determined by adding 1/2 of 1% to the rate at which Harris would offer to sell federal funds in the interbank market on or about 10:00 A.M. (Chicago time) on any day (the "Adjusted Fed Funds Rate") shall be higher than the Harris Prime Rate on such day, then the Domestic Rate for such day and for any succeeding day which is not a Business Day shall be such Adjusted Fed Funds Rate. The determination of the Adjusted Fed Funds Rate by the Bank shall be final and conclusive provided it has acted in good faith in connection therewith. "EBITDA" shall mean, with reference to any period, Net Income for such period plus all amounts deducted in arriving at such Net Income amount in respect of (a) Interest Expense of such period, plus (b) federal, state and local income taxes for such period, plus (c) all amounts properly charged for Depreciation and Amortization during such period. "Event of Default" shall mean any event or condition specified as such in Section 8.1 hereof and "Default" shall mean any event or condition which with the lapse of time, the giving of notice or both would constitute an Event of Default. "Fixed Charge Coverage Ratio" shall mean the ratio of: (a) the sum of Net Income plus the increase in Deferred Taxes shown on the Company's audited balance sheet, if any, plus Depreciation and Amortization expense, plus total Interest Expense (in each case, for the four fiscal quarters then ended) to (b) total Interest Expense (for the same four fiscal quarters then ended) plus the scheduled payments of principal on long term debt that will be payable in such period of four fiscal quarters (not including the principal amount of the Loans, Reimbursement Obligations and L/Cs outstanding under this Agreement) (the "Current Maturities"); provided, however, that for the fiscal quarter ending May 31, 1998, the Fixed Charge Coverage Ratio shall be determined on the basis of the amounts specified above for the three fiscal quarters then ended, and only 75% of the amount of the Current Maturities shall be included in the calculation of the Fixed Charge Coverage Ratio as of the last day of such fiscal quarter. "Fixed Rate" shall mean an Adjusted LIBOR Rate or an Offered Rate, as the context may require. "Funded Debt" with respect to any Person shall mean all indebtedness for borrowed money of such Person and with respect to the Company all indebtedness for borrowed money of the Company, in each case maturing by its terms more than one year after, or which is renewable or extendible at the option of such Person for a period ending one year or more after, the date of determination, and shall include indebtedness for borrowed money of such maturity created, assume or guaranteed by such Person either directly or indirectly, including obligations of such maturity secured by liens upon Property of such Person and upon which such entity customarily pays the interest, all current maturities of all such indebtedness of such maturity and all rental payments under capitalized leases of such maturity and all indebtedness outstanding under this Agreement, and in any event including all amounts outstanding under this Agreement. "Interest Expense" shall mean for any period all interest expense during such period, all determined in accordance with generally accepted accounting principles consistently applied. "Interest Period" means, (a) with respect to any LIBOR Portion, the period commencing on, as the case may be, the creation, continuation or conversion date with respect to such LIBOR Portion and ending one (1), two (2), three (3) or six (6) months thereafter as selected by the Company in its notice as provided herein, and (b) with respect to any Offered Rate Portion, the period commencing on, as the case may be, the creation, continuation or conversion date with respect to such Offered Rate Portion and ending 1 to 60 days thereafter as selected by the Company in its notice as provided herein; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day, unless in the case of an Interest Period for a LIBOR Portion the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) no Interest Period may extend beyond the final maturity date of the Note; (iii) the interest rate to be applicable to each Fixed Rate Portion for each Interest Period shall apply from and including the first day of such Interest Period to but excluding the last day thereof; and (iv) no Interest Period may be selected if after giving effect thereto the Company will be unable to make a principal payment scheduled to be made during such Interest Period without paying part of a Fixed Rate Portion on a date other than the last day of the Interest Period applicable thereto. For purposes of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on a numerically corresponding day in the next calendar month, provided, however, if an Interest Period begins on the last day of a month or if there is no numerically corresponding day in the month in which an Interest Period is to end, then such Interest Period shall end on the last Business Day of such month. "L/C" shall have the meaning specified in Section 1.5 hereof. "L/C Administrative Fee" shall have the meaning specified in Section 1.5 hereof. "L/C Agreement" shall have the meaning specified in Section 1.5 hereof. "L/C Issuance Fee" shall have the meaning specified in Section 1.5 hereof. "L/C Participation Fee" shall have the meaning specified in Section 1.5 hereof. "LIBOR Index Rate" shall mean, for any Interest Period applicable to a LIBOR Portion, the rate per annum (rounded upwards, if necessary, to the next higher one hundred-thousandth of a percentage point) for deposits in U.S. dollars for a period equal to such Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m. 12 (London, England time) on the Business Day two (2) Business Days before the commencement of such Interest Period. "LIBOR Rate" shall mean for each Interest Period applicable to a LIBOR Portion, (a) the LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be determined, the arithmetic average of the rate of interest per annum (rounded upwards, if necessary, to nearest 1/100 of 1%) at which deposits in U.S. dollars in immediately available funds are offered to the Bank at 11:00 a.m. (London, England time) on the Business Day two (2) Business Days before the beginning of such Interest Period by major banks in the interbank eurodollar market for a period equal to such Interest Period and in an amount equal or comparable to the principal amount of the LIBOR Portion scheduled to be made by the Bank during such Interest Period. "Loan Documents" shall mean this Agreement, the L/C Agreements, the Collateral Documents and the Notes. "Net Income" shall mean net income determined in accordance with generally accepted accounting principles, consistently applied. "Net Worth" shall mean the sum of all capital stock, preferred stock, capital in excess of par value and retained earnings of the Company, determined in accordance with generally accepted accounting principles, consistently applied. "Notes" shall mean the Revolving Credit Note and the Term Credit Notes and "Note" shall mean any of the Notes. "Offered Rate" shall mean the rate per annum quoted to the Company by the Bank for the applicable Interest Period, such Offered Rate being subject at all times to the provisions of Section 2.4 hereof. "Participants" shall mean, collectively, Mercantile, Norwest, Firstar and any other party to the Participation Agreement (other than the Bank) from time to time; and "Participant" shall mean any of the Participants. "Participation Agreement" shall mean that certain Second Amended and Restated Participation Agreement dated as of October 3, 1997 by and among the Bank, Mercantile Bank National Association ("Mercantile"), Norwest Bank Minnesota, National Association ("Norwest"), Firstar Bank Milwaukee, N.A. ("Firstar") and any other party thereto from time to time, as the same may from time to time be modified, amended or restated pursuant to the terms hereof and thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation. "Permitted Property" shall mean all Property except receivables, crops, inventory and the Collateral. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Plan" shall mean any employee benefit plan covering any officers or employees of the Company, any benefits of which are, or are required to be, guaranteed by PBGC. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Reimbursement Obligation" shall have the meaning specified in Section 1.6 hereof. "Reserve Percentage" shall mean, for the purpose of computing the Adjusted LIBOR Rate, the maximum rate of all reserve requirements (including, without limitation, any marginal emergency, supplemental or other special reserves) imposed by the Board of Governors of the Federal Reserve System (or any successor) under Regulation D on Eurocurrency liabilities (as such term is defined in Regulation D) for the applicable Interest Period as of the first day of such Interest Period, but subject to any amendments to such reserve requirement by such Board or its successor, and taking into account any transitional adjustments thereto becoming effective during such Interest Period. For purposes of this definition, LIBOR Portions shall be deemed to be Eurocurrency liabilities as defined in Regulation D without benefit of or credit for prorations, exemptions or offsets under Regulation D. "Revolving Credit Termination Date" shall mean December 31, 2000, any later date to which such date may be extended from time to time pursuant to Section 1.1(b) hereof, or such earlier date on which the Revolving Credit Commitment is terminated in whole pursuant to Sections 3.5, 8.2 or 8.3 hereof. "Senior Funded Debt Ratio" shall mean, as of any time the same is to be determined, the ratio of the aggregate outstanding principal amount of the Company's Funded Debt at such time to the Company's EBITDA for the four fiscal quarters of the Company most recently ended (but for the fiscal quarter ending May 31, 1998, such determination shall utilize an annualized EBITDA derived from the Company's EBITDA for the three fiscal quarters then ended). "Subsidiary" shall mean collectively any corporation or other entity at least a majority of the outstanding voting shares of which is at the time owned directly or indirectly by the Company and/or its Subsidiaries. "Telerate Page 3750" shall mean the display designated as "Page 3750" on the Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Term Credit Commitments" shall mean, collectively, the Term One Commitment, the Term Two Commitment and the Term Three Commitment. "Term Credit Notes" shall mean, collectively, Term Credit Note One, Term Credit Note Two and Term Credit Note Three; and "Term Credit Note" shall mean any of the Term Credit Notes. "Term Credit Note One" shall have the meaning specified in Section 1.2(a) hereof. "Term Credit Note Two" shall have the meaning specified in Section 1.2(b) hereof. "Term Credit Note Three" shall have the meaning specified in Section 1.2(c) hereof. "Term Loans" shall mean, collectively, the Term Loan One, the Term Loan Two and the Term Loan Three; and "Term Loan" shall mean any of the Term Loans." "Term Loan One" shall have the meaning specified in Section 1.2(a) hereof. "Term Loan Two" shall have the meaning specified in Section 1.2(b) hereof. "Term Loan Three" shall have the meaning specified in Section 1.2(ac hereof. SECTION 10. MISCELLANEOUS. Section 10.1. Holidays. If any principal of any of the Notes shall fall due on a Saturday, Sunday or on another day which is a legal holiday for lenders in the State of Illinois, interest at the rates such Notes bear for the period prior to maturity shall continue to accrue on such principal from the stated due date thereof to and including the next succeeding Business Day on which the same is payable. Section 10.2. No Waiver, Cumulative Remedies. No delay or failure on the part of the Bank in the exercise of any power or right shall operate as a waiver thereof, nor as an acquiescence in any Default or Event of Default nor preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies hereunder of the Bank are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have. Section 10.3. Waivers, Modifications and Amendments. Any provision hereof or of the Notes or Collateral Documents, may be amended, modified, waived or released upon the written consent of the Company and the Bank, and any Default or Event of Default and its consequences may be rescinded and annulled upon the written consent of the Bank. Section 10.4. Costs and Expenses. The Company agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Bank in connection with the negotiation, preparation, execution, delivery, recording and/or filing and/or release of this Agreement, the Notes and the Collateral Documents and the other instruments and documents to be delivered hereunder or thereunder or in connection with the transactions contemplated hereby or thereby or in connection with any consents hereunder or thereunder or waivers or amendments hereto or thereto, including the fees and expenses of counsel for the Bank with respect to all of the foregoing, and all recording, filing, title insurance or other fees, costs and taxes incident to perfecting a lien upon the collateral security for the Notes, and all reasonable costs and expenses (including reasonable attorneys' fees), incurred by the Bank, any security trustee for the Bank or any other holders of a Note in connection with a default or the enforcement of this Agreement, the Notes or the Collateral Documents and the other instruments and documents to be delivered hereunder or thereunder. The Company agrees to indemnify and save the Bank and any security trustee for the Bank harmless from any and all liabilities, losses, costs and expenses incurred by the Bank in connection with any action, suit or proceeding brought against the Bank or security trustee by any person which arises out of the transactions contemplated or financed hereby or by the Notes or Collateral Documents or out of any action or inaction by the Bank or any security Trustee hereunder or thereunder, except for such thereof as is caused by the gross negligence or willful misconduct of the party indemnified. The provisions of this Section 10.4 and the protective provisions of Section 2 hereof shall survive payment of the Notes and the termination of the Commitments hereunder, subject, in the case of the protective provisions contained in Section 2 hereof, to the limitations set forth therein. Section 10.5. Stamp Taxes. Although the Company is of the opinion that no documentary or similar taxes are payable in respect to this Agreement, the Collateral Documents, or the Notes, the Company agrees that it will pay such taxes, including interest and penalties, in the event any such taxes are assessed, irrespective of when such assessment is made and whether or not any credit to it is then in use or available. Section 10.6. Survival of Representations. All representations and warranties made herein or in the Collateral Documents or in certificates given pursuant hereto shall survive the execution and delivery of this Agreement, the Collateral Documents and the Notes, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder. Section 10.7. Construction. The parties hereto acknowledge and agree that this Agreement shall not be construed more favorably in favor of one than the other based upon which party drafted the same, it being acknowledged that all parties hereto contributed substantially to the negotiation and preparation of this Agreement. Section 10.8. Accounting Principles. All computations of compliance with the terms hereof shall be made on the basis of generally accepted principles of accounting applied in a manner consistent with those used in the preparation of the audit report of the Company referred to in the first sentence of Section 5.3 hereof. Section 10.9. Addresses for Notices. All communications provided for herein shall be in writing and shall be deemed to have been given or made when served personally or three days after being deposited in the United States mail addressed, if to the Company, at 800 First Avenue South, Wisconsin Rapids, Wisconsin 54495-8020, Attention: John Swendrowski, if to the Bank at 111 West Monroe Street, Chicago, Illinois 60690, Attention: Agribusiness Division, or at such other address as shall be designated by any party hereto in a written notice given to each party pursuant to this Section 10.9. Section 10.10. Headings. Article and Section headings used in this Agreement are for convenience of reference only and are not a part of this Agreement for any other purpose. Section 10.11. Severability of Provisions. Any provision of this Agreement which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. All rights, remedies and powers provided in this Agreement and the Notes may be exercised only to the extent that the exercise thereof does not violate any applicable mandatory provisions of law, and all the provisions of this Agreement and the Notes are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement or the Notes invalid or unenforceable. Section 10.12. Counterparts. This Agreement may be executed in any number of counterparts, and by different parties hereto on separate counterparts, and all such counterparts taken together shall be deemed to constitute one and the same instrument. Section 10.13. Binding Nature, Governing Law, Etc. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of the Bank and the benefit of its successors and assigns, including any subsequent holder of an interest in the Notes. This Agreement and the Notes and the rights and duties of the parties hereto shall be construed and determined in accordance with, and shall be governed by the internal laws of the State of Illinois without regard to principles of conflicts of law. This Agreement, together with the Notes and Collateral Documents constitutes the entire understanding of the parties with respect to the subject matter hereof and any prior agreements, whether written or oral, with respect thereto are superseded hereby except for prior understandings related to fees payable to the Bank. The Company may not assign its rights hereunder without the written consent of the Bank. Section 10.14. Rights of Participants. (a) The Company authorizes the Bank to disclose to any Participant any financial or other information pertaining to the Company. Each Participant shall be entitled to the full benefit of all indemnities and other provisions relative to reimbursement of the Bank of amounts sufficient to protect the yield of the Bank with respect to the loans hereunder, including, but not limited to Sections 2.8, 2.9, 2.10, 2.11, 3.7 and 10.4 (but only after an Event of Default) hereof; provided, however, if any Participant (each, a "Replaceable Participant") requests compensation pursuant to Sections 2.8, 2.9, 2.10, 2.11 or 3.7 hereof at a rate materially in excess of that requested by any other Participant, the Company may, with the consent of the Bank, which consent shall not be unreasonably withheld, propose that another lender (a "Replacement Participant") which lender may be an existing Participant, be substituted for and replace the Replaceable Participant for purposes of this Agreement. In the event a Replacement Participant is so substituted for the Replaceable Participant, then such substitution shall take place on a date acceptable to the Company, the Replaceable Participant and the Replacement Participant, as the case may be, but in no event later than the latest maturity date of any financial accommodations then outstanding hereunder, and such substitution shall take place through the execution of such instruments and documents as shall, in the opinion of the Bank, be reasonably necessary or appropriate for the Replacement Participant to assume in full the Participation Percentage of the Replaceable Participant (including, without limitation, the execution of any necessary amendment hereto or to the Participation Agreement making any new Replacement Participant a party thereto and such amendments to the Collateral Documents as may be necessary or appropriate to assure the credit extended by such Replacement Participant will be secured by the Collateral Documents as provided herein), providing that such assignment is made without recourse and without any representation or warranty with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Participation Agreement or any other instrument or document furnished pursuant hereto or thereto or with respect to the financial condition of the Company or the performance or observance by the Company of any of its obligations under this Agreement, the Participation Agreement or any other instrument or document furnished pursuant hereto or thereto. As a condition to its execution of such instruments and documents, the Replaceable Participant shall concurrently receive the full amount of its share of the Loans, L/Cs, Reimbursement Obligations, interest thereon and all accrued fees to which it is entitled under this Agreement or the Participation Agreement. All expenses of the Bank incurred in connection with the foregoing shall be paid by the Company. (b) In the event the Bank or any Participant shall receive and retain any payment, whether by set-off or application of deposit balances or otherwise ("Set-off"), on or in respect of any Loan or other obligation outstanding under this Agreement or the other Loan Documents in excess of its ratable share of payments on all such Loans and other obligations then outstanding, then the Bank or such Participant, as applicable, shall purchase for cash at face value, but without recourse, ratably from each of the other Participants or the Bank, as applicable, such amount of such Loans and other obligations held by each such other party (or interest therein) as shall be necessary to cause the Bank or such Participant, as applicable, to share such excess payment ratably with all the other Participants and the Bank; provided, however, that if any such purchase is made by the Bank or any Participant, and if such excess payment or part thereof is thereafter recovered from such purchasing party, the related purchases from the other Participants or the Bank, as the case may be, shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest. For purposes of this Section 10.14(b), the Participants shall be treated as parties to this Agreement." Exhibits A, C, D and E and Schedule 7.12, inclusive of the Credit Agreement shall each be amended, and as so amended shall be restated in their entirety to read as set forth in Exhibits A, C, D and E and Schedule 7.12, hereto, respectively. The amendments reflected in the above and foregoing Amended and Restated Credit Agreement shall not become effective unless and until the following conditions precedent have been satisfied: (a) The Company and the Bank shall have executed this Amended and Restated Credit Agreement (such execution may be in several counterparts and the several parties hereto may execute on separate counterparts); (b) The Bank shall have received the following (each to be properly executed and completed) and the same shall have been approved as to form and substance by the Bank: (i) the Revolving Credit Note; (ii) a Security Agreement Re: Inventory, Farm Products and Receivables, (iii) a Second Amended and Restated Participation Agreement; (iv) supplements to the existing Collateral Documents to confirm and assure that the same secure the various obligations of the Company under the Credit Agreement as amended hereby; (v) endorsements (or binding commitments therefor) to each existing policy of title insurance insuring the liens of those existing Collateral Documents creating liens on real property to confirm that such policy insures that such Collateral Documents, as supplemented as contemplated by this Amended and Restated Credit Agreement, secure the various obligations of the Company under the Credit Agreement as amended and restated hereby; (vi) a Mortgage and Security Agreement with Assignment of Rents from the Company covering the Manitowish Waters Marsh (the "New Wisconsin Mortgage"); (vii) such financing statements relating to the New Wisconsin Mortgage and the Security Agreement Re: Inventory, Farm Products and Receivables as the Bank may require; (viii) a mortgagee's policy of title insurance (or a binding commitment therefor) in the amount of $12,750,000, with a waiver of coinsurance insuring the liens of the New Wisconsin Mortgage to be a valid first liens subject to no defects or objections which are unacceptable to the Bank, together with such direct access reinsurance agreements and endorsements (including without limitation a revolving credit endorsement, a letter of credit endorsement and doing business, usury and zoning endorsements) as the Bank may require; and (ix) copies (executed or certified, as may be appropriate) of all legal documents or proceedings taken in connection with the execution and delivery of this Amended and Restated Credit Agreement and the other instruments and documents contemplated hereby to the extent the Bank or its counsel may reasonably request; (c) Legal matters incident to the execution and delivery of this Amendment and the other instruments and documents contemplated hereby shall be satisfactory to the Bank and its counsel; and the Bank shall have received the favorable written opinion of counsel for the Company in form and substance satisfactory to the Bank and its counsel; (d) Each of the representations and warranties set forth in Section 5 of the Credit Agreement shall be true and correct; (e) The Company shall be in full compliance with all of the terms and conditions of the Credit Agreement and no Event of Default or Default shall have occurred and be continuing thereunder or shall result after giving effect to this Amended and Restated Credit Agreement; (f) The Company shall at the time all other conditions precedent to the effectiveness of the above and foregoing amendments have been satisfied be able to comply with the conditions precedent to borrowing set forth in Section 6 hereof; and (g) The Bank shall have received from the Company a non-refundable closing fee in an amount agreed to by the Bank and the Company. The Company, by its execution of this Amended and Restated Credit Agreement, hereby represents and warrants the following as of the date hereof: (a) each of the representations and warranties set forth in Section 5 of the Amended and Restated Credit Agreement is true and correct, except that the representations and warranties made under Section 5.3 shall be deemed to refer to the most recent financial statements furnished to the Bank by the Company; (b) the Company's Net Worth is at least $73,000,000; and (c) the Company is in full compliance with all of the terms and conditions of the Amended and Restated Credit Agreement and no Event of Default or Default has occurred and is continuing thereunder. Upon your acceptance hereof in the manner hereinafter set forth, this Agreement shall be a contract between us for the purposes hereinabove set forth. Dated as of October 3, 1997. Signature Page; Northland Cranberries, Inc. By /s/ John Swendrowski John Swendrowski Its Chief Executive Officer Accepted and agreed to at Chicago, Illinois as of the day and year last above written. Harris Trust and Savings Bank By /s/ Its Vice President 111 W. Monroe Street Chicago, Illinois 60690 Attention: Agribusiness Division Exhibit A Northland Cranberries, Inc. Revolving Credit Note Chicago, Illinois $75,000,000 October 3, 1997 On the Revolving Credit Termination Date (as defined in the Credit Agreement referred to below), for value received, the undersigned, Northland Cranberries, Inc., a Wisconsin corporation (the "Company"), promises to pay to the order of Harris Trust and Savings Bank (the "Bank"), at the principal office of the Bank in Chicago, Illinois, the principal sum of (i) Seventy-Five Million Dollars ($75,000,000), or (ii) such lesser amount as may at the time of the maturity hereof, whether by acceleration or otherwise, be the aggregate unpaid principal amount of all loans owing from the Company to the Bank under the Revolving Credit provided for in the Credit Agreement hereinafter mentioned. This Note evidences indebtedness loans constituting part of a "Domestic Rate Portion", Offered Rate Portions and "LIBOR Portions" as such terms are defined in that certain Amended and Restated Credit Agreement dated as of October 3, 1997 by and between the Company and Harris Trust and Savings Bank (the "Credit Agreement") made and to be made to the Company by the Bank under the Revolving Credit provided for under the Credit Agreement and the Company hereby promises to pay interest at the office specified above on each loan evidenced hereby at the rates and times specified therefor in the Credit Agreement. Each loan made under the Revolving Credit provided for in the Credit Agreement by the Bank to the Company against this Note, any repayment of principal hereon, the status of each such loan from time to time as part of the Domestic Rate Portion, an Offered Rate Portion or an LIBOR Portion and the interest rates and interest periods applicable thereto shall be endorsed by the holder hereof on the reverse side of this Note or recorded on the books and records of the holder hereof (provided that such entries shall be endorsed on the reverse side hereof prior to any negotiation hereof) and the Company agrees that in any action or proceeding instituted to collect or enforce collection of this Note, the entries so endorsed on the reverse side hereof or recorded on the books and records of the Bank shall be prima facie evidence of the unpaid balance of this Note and the status of each loan from time to time as part of a Domestic Rate Portion, an Offered Rate Portion or an LIBOR Portion and the interest rates and interest periods applicable thereto, absent manifest error. This Note is issued by the Company under the terms and provisions of the Credit Agreement and is secured by the Collateral Documents (as defined in the Credit Agreement), including without limitation a Security Agreements Re: Crops, from the Company, and this Note and the holder hereof are entitled to all of the benefits and security provided for thereby or referred to therein, to which reference is hereby made for a statement thereof. This Note may be declared to be, or be and become, due prior to its expressed maturity upon the occurrence of an Event of Default specified in the Credit Agreement, voluntary prepayments may be made hereon, and certain prepayments are required to be made hereon, all in the events, on the terms and with the effects provided in the Credit Agreement. This Note is issued in substitution and replacement for, and evidences in part the indebtedness previously evidenced by, that certain Revolving Credit Note of the Company dated June 6, 1995 payable to the order of the Bank in the face principal amount of $21,000,000 and that certain Acquisition Credit Note of the Company dated June 6, 1995 payable to the order of the Bank in the face principal amount of $18,000,000. This Note shall be construed in accordance with, and governed by, the internal laws of the State of Illinois without regard to principles of conflict of law. The Company hereby waives presentment for payment and demand. Northland Cranberries, Inc. By /s/ John Swendrowski John Swendrowski Its Chief Executive Officer Exhibit C Letter of Credit Agreement Exhibit D (To Be Retyped On Letterhead Of Counsel And Dated As Of Date Of Closing) __________________, 1997 Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 Gentlemen: We have served as counsel to Northland Cranberries, Inc., a Wisconsin, corporation (the "Company"), in connection with a revolving, term loan and acquisition credit facility being made available by you to the Company. This opinion is delivered to you at the request of the Company pursuant to the Amended and Restated Credit Agreement referred to below. As such counsel, we have supervised the taking of the corporate proceedings necessary to authorize the execution and delivery of, and have examined executed originals of, the following: (a) Amended and Restated Credit Agreement by and between the Company and Harris Trust and Savings Bank (herein, the "Bank"); (b) Revolving Credit Note of the Company payable to the order of the Bank in the principal sum of $75,000,000; (c) Third Supplement to Mortgage and Security Agreement with Assignment of Rents relating to the Gordon Division property in Douglas County, Wisconsin; (d) Third Supplement to Mortgage and Security Agreement with Assignment of Rents relating to the Nekoosa and Biron Divisions' property in Wood County, Wisconsin; (e) Second Supplement to Mortgage and Security Agreement with Assignment of Rents relating to property in Juneau County, Wisconsin (Yellow River Marsh); (f) Second Supplement to Mortgage and Security Agreement with Assignment of Rents relating to property in Wood County, Wisconsin (Wolfe Marsh); (g) Second Supplement to Mortgage and Security Agreement with Assignment of Rents relating to property in Hanson, Massachusetts; (h) First Supplement to Mortgage and Security Agreement with Assignment of Rents relating to property in Juneau County, Wisconsin (F Marsh); (i) First Supplement to Mortgage and Security Agreement with Assignment of Rents relating to property in Price County, Wisconsin (Fifield); (j) Mortgage and Security Agreement with Assignment of Rents relating to property in ___________ County, Wisconsin from the Company to the Bank (Manitowish Waters Marsh); (k) Third Supplement to Security Agreement Re: Equipment from the Company to the Bank; (l) Third Supplement to Security Agreement Re: Crops from the Company to the Bank; (m) Security Agreement Re: Inventory, Farm Products and Receivables from the Company to the Bank; (n) three (3) UCC Financing Statements executed by Company, as debtor, in favor of the Bank, as secured party, with two to be filed in the office of the Wisconsin Secretary of State and one to be recorded as a farm products filing in the Recorder's Office of Wood County, Wisconsin. The documents described above in subparagraphs (a) through (e) are hereinafter collectively referred to as "Loan Documents". We have also examined and are familiar with: (i) A copy of the articles of incorporation of the Company certified as of ______________, 19___ by the Secretary of the State of Wisconsin; (ii) Certificates dated _____________ from the Secretary of the States of _____________ and ______________, respectively, as to the good standing of the Company in those states; (iii) A copy of the by-laws of the Company certified by the Secretary of the Company as being the by-laws of the Company in effect at all times since ____________, 19___; (iv) A copy certified by the Secretary of the Company of certain resolutions adopted by the board of directors [and the stockholders] of the Company; and (v) [Identify any other matters or items pertaining to organization, authority and good standing;] Based upon the foregoing, we are of the opinion that: 1. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Wisconsin with full and adequate corporate power and authority to carry on its business as now conducted and is duly licensed or qualified and in good standing in each jurisdiction wherein the conduct of its business or the assets and properties owned or leased by it require such licensing or qualification. 2. The Company has full right, power and authority to borrow from you, to mortgage, pledge, assign and otherwise encumber its assets and properties as collateral security for such borrowings, to execute and deliver the Loan Documents executed by it and to observe and perform all the matters and things therein provided for. The execution and delivery of the Loan Documents executed by the Company does not, nor will the observance or performance of any of the matters or things therein provided for, contravene any provision of law or of the articles of incorporation, charter or by-laws of the Company (there being no other agreements under which the Company is organized) or, to the best of our knowledge after due inquiry, of any covenant, indenture or agreement binding upon or affecting the Company or any of its properties or assets. 3. The Loan Documents executed by the Company have been duly authorized by all necessary corporate action (no stockholder approval being required), have been executed and delivered by the proper officers of the Company and constitute valid and binding agreements of the Company enforceable against it in accordance with their respective terms, except as such terms may be limited by bankruptcy, insolvency or similar laws and legal or equitable principles affecting or limiting the enforcement of creditors' rights generally. 4. No order, authorization, consent, license or exemption of, or filing or registration with, any court or governmental department, agency, instrumentality or regulatory body, whether local, state or federal, is or will be required in connection with the lawful execution and delivery of the Loan Documents or the observance and performance by the Company of any of the terms thereof. 5. To the best of our knowledge after due inquiry, there is no action, suit, proceeding or investigation at law or in equity before or by any court or public body pending or threatened against or affecting the Company or any of its assets and properties which, if adversely determined, could result in any material adverse change in the properties, business, operations or financial condition of the Company or in the value of the collateral security for your loans and other credit accommodations to the Company. Exhibit E Compliance Certificate This Compliance Certificate is furnished to Harris Trust and Savings Bank (the "Bank") pursuant to that certain Amended and Restated Credit Agreement dated as of October 3, 1997, by and between Northland Cranberries, Inc. (the "Company") and the Bank (the "Credit Agreement"). Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement. The Undersigned hereby certifies that: 1. I am the duly elected ____________________________ of the Company; 2. I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Company and its Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or the occurrence of any event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; 4. The financial statements required by Section 7.4 of the Credit Agreement and being furnished to you concurrently with this certificate are, to the best of my knowledge, true, correct and complete as of the dates and for the periods covered thereby; and 5. The Attachment hereto sets forth financial data and computations evidencing the Company's compliance with certain covenants of the Credit Agreement, all of which data and computations are, to the best of my knowledge, true, complete and correct and have been made in accordance with the relevant Sections of the Credit Agreement. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Company has taken, is taking, or proposes to take with respect to each such condition or event: _______________________________________________ _______________________________________________ _______________________________________________ The foregoing certifications, together with the computations set forth in the Attachment hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this _________ day of __________________ 19___. , (Type or Print Name) (Title) Attachment to Compliance Certificate Northland Cranberries, Inc. Compliance Calculations for Amended and Restated Credit Agreement Dated as of October 3, 1997 Calculations as of _____________, 19___ A. Net Worth (Section 7.8) 1. Net Worth as defined $_________ ========= 2. As listed in Section 7.8, for the date of this Certificate, Net Worth must be in an amount not less than $_________ ========= 3. Company is in compliance? (Circle yes or no) Yes/No ========= B. Fixed Charge Coverage Ratio (Section 7.9) 1. Net Income _______ 2. Sum of a. Increase in Deferred Taxes ________ b. Depreciation expense ________ c. Amortization expense ________ d. Interest Expense ________ Sum of Lines 2a-2d ________ 3. Sum of Lines 1 and 2 ________ 4. Interest Expense ________ 5. Scheduled payments of principal on long term debt ________ 6. Sum of Lines 4 and 5 ________ 7. Ratio of Line 3 to Line 6 ______:1 ("Fixed Charge Coverage Ratio") ======== 8. As listed in Section 7.9, for the date of this Certificate, Fixed Charge Coverage Ratio must be in an amount not less than ______:1 ======== 9. Company is in compliance? Yes/No (Circle Yes or No) C. Funded Debt to Net Worth Ratio (Section 7.10) 1. Funded Debt as defined ________ 2. Net Worth ________ (Line A1) 3. Ratio of Line 1 to Line 2 ______:1 ("Funded Debt to Net Worth Ratio") ======== 4. As listed in Section 7.10, for the date of this Certificate, Funded Debt to Net Worth must be in an amount not greater than ______:1 ======== 5. Company is in compliance? Yes/No (Circle Yes or No) ======== D. Net Income (Section 7.11) 1. Net Income (loss) as defined $________ ======== 2. Net loss must not exceed $( ) ======== 3. Company is in compliance? Yes/No (Circle Yes or No) ======== E. Senior Funded Debt Ratio (commencing May 31, 1998) 1. Senior Funded Debt $________ 2. EBITDA $________ ======== 3. Ratio of Line 1 to Line 2 ______:1 ======== 4. For purposes of determining the Applicable Margins, the ratio set forth on Line 3 above indicates pricing at Level ____ ========== Schedule 7.12 Permitted Liens EX-4.6 5 Northland Cranberries, Inc. Revolving Credit Note Chicago, Illinois $75,000,000 October 3, 1997 On the Revolving Credit Termination Date (as defined in the Credit Agreement referred to below), for value received, the undersigned, Northland Cranberries, Inc., a Wisconsin corporation (the "Company"), promises to pay to the order of Harris Trust and Savings Bank (the "Bank"), at the principal office of the Bank in Chicago, Illinois, the principal sum of (i) Seventy-Five Million Dollars ($75,000,000), or (ii) such lesser amount as may at the time of the maturity hereof, whether by acceleration or otherwise, be the aggregate unpaid principal amount of all loans owing from the Company to the Bank under the Revolving Credit provided for in the Credit Agreement hereinafter mentioned. This Note evidences indebtedness loans constituting part of a "Domestic Rate Portion", Offered Rate Portions and "LIBOR Portions" as such terms are defined in that certain Amended and Restated Credit Agreement dated as of October 3, 1997 by and between the Company and Harris Trust and Savings Bank (the "Credit Agreement") made and to be made to the Company by the Bank under the Revolving Credit provided for under the Credit Agreement and the Company hereby promises to pay interest at the office specified above on each loan evidenced hereby at the rates and times specified therefor in the Credit Agreement. Each loan made under the Revolving Credit provided for in the Credit Agreement by the Bank to the Company against this Note, any repayment of principal hereon, the status of each such loan from time to time as part of the Domestic Rate Portion, an Offered Rate Portion or an LIBOR Portion and the interest rates and interest periods applicable thereto shall be endorsed by the holder hereof on the reverse side of this Note or recorded on the books and records of the holder hereof (provided that such entries shall be endorsed on the reverse side hereof prior to any negotiation hereof) and the Company agrees that in any action or proceeding instituted to collect or enforce collection of this Note, the entries so endorsed on the reverse side hereof or recorded on the books and records of the Bank shall be prima facie evidence of the unpaid balance of this Note and the status of each loan from time to time as part of a Domestic Rate Portion, an Offered Rate Portion or an LIBOR Portion and the interest rates and interest periods applicable thereto, absent manifest error. This Note is issued by the Company under the terms and provisions of the Credit Agreement and is secured by the Collateral Documents (as defined in the Credit Agreement), including without limitation a Security Agreements Re: Crops, from the Company, and this Note and the holder hereof are entitled to all of the benefits and security provided for thereby or referred to therein, to which reference is hereby made for a statement thereof. This Note may be declared to be, or be and become, due prior to its expressed maturity upon the occurrence of an Event of Default specified in the Credit Agreement, voluntary prepayments may be made hereon, and certain prepayments are required to be made hereon, all in the events, on the terms and with the effects provided in the Credit Agreement. This Note is issued in substitution and replacement for, and evidences in part the indebtedness previously evidenced by, that certain Revolving Credit Note of the Company dated June 6, 1995 payable to the order of the Bank in the face principal amount of $21,000,000 and that certain Acquisition Credit Note of the Company dated June 6, 1995 payable to the order of the Bank in the face principal amount of $18,000,000. This Note shall be construed in accordance with, and governed by, the internal laws of the State of Illinois without regard to principles of conflict of law. The Company hereby waives presentment for payment and demand. Northland Cranberries, Inc. By /s/ John Swendrowski John Swendrowski Its Chief Executive Officer EX-10.6 6 NORTHLAND CRANBERRIES, INC. AMENDED 1995 STOCK OPTION PLAN October 21, 1997 Section 1. Purpose The purpose of Northland Cranberries, Inc. 1995 Stock Option Plan (the "Plan") is to promote the best interests of Northland Cranberries, Inc. (the "Company") and its shareholders by providing key employees of the Company and its Affiliates (as defined below) and directors of the Company who are not employees of the Company and its Affiliates with an opportunity to acquire or increase their proprietary interest in the Company. It is intended that the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company by those who are primarily responsible for shaping and carrying out the long-range plans of the Company and securing the Company's continued growth and financial success. Section 2. Definitions As used in the Plan, the following terms shall have the respective meanings set forth below: (a) "Affiliate" shall mean any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control with, the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (c) "Commission" shall mean the Securities and Exchange Commission. (d) "Committee" shall mean the Compensation and Stock Option Committee of the Board of Directors of the Company (or any other committee thereof designated by such Board to administer the Plan); provided, however, that the Committee is composed of not less than two directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3. (e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (f) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (g) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code (or any successor provision thereto). (h) "Key Employee" shall mean any officer or other key employee of the Company or of any Affiliate who is responsible for or contributes to the management, growth or profitability of the business of the Company or any Affiliate as determined by the Committee in its discretion. (i) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option and shall mean any option granted to a Non-Employee Director under Section 6(b) of the Plan. (j) "Non-Employee Director" shall mean any member of the Board of Directors of the Company who is not an employee of the Company and its Affiliates. (k) "Option" shall mean an Incentive Stock Option or a Non- Qualified Stock Option. (l) "Option Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Option granted under the Plan. (m) "Participating Key Employee" shall mean a Key Employee designated to be granted an Award under the Plan. (n) "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof. (o) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the Commission under the Exchange Act, or any successor rule or regulation thereto. (p) "Shares" shall mean shares of Class A common stock of the Company, $0.01 par value, and such other securities or property as may become subject to Options pursuant to an adjustment made under Section 4(b) of the Plan. Section 3. Administration The Plan shall be administered by the Committee; provided, however, that if at any time the Committee shall not be in existence, the functions of the Committee as specified in the Plan shall be exercised by those members of the Board of Directors of the Company who qualify as "disinterested persons" under Rule 16b-3. Subject to the terms of the Plan and applicable laws and without limitation by reason of enumeration, the Committee shall have full discretionary power and authority to: (i) designate Participating Key Employees; (ii) determine the type of Options to be granted to each Participating Key Employee under the Plan; (iii) determine the number of Shares to be subject to each Option granted to Participating Key Employees; (iv) determine the terms and conditions of any Option granted to a Participating Key Employee; (v) determine whether, to what extent and under what circumstances Options granted to Participating Key Employees may be exercised in cash, Shares, other securities or other property, and the method or methods by which Options may be exercised, canceled, forfeited or suspended; (vi) determine whether, to what extent and under what circumstances Shares with respect to Options granted to Participating Key Employees under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Option made under, the Plan (including, without limitation, any Option Agreement); (viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time or from time to time, and shall be final, conclusive and binding upon all Persons, including the Company, any Affiliate, any Participating Key Employee, any holder or beneficiary of any Option, any shareholder and any employee of the Company or of any Affiliate. Section 4. Shares Available for Award (a) Shares Available. Subject to adjustment as provided in Section 4(b): (i) Number of Shares Available. The number of Shares with respect to which Options may be granted under the Plan shall be 800,000 (on a post-September 3, 1996, two-for-one stock split basis). (ii) Accounting for Awards. The number of Shares covered by an Option under the Plan, or to which such Option relates, shall be counted on the date of grant of such Option against the number of Shares available for granting Options under the Plan. (iii) Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to the exercise of an Option may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares. (b) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split- up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares subject to the Plan and which thereafter may be made the subject of Options under the Plan; (ii) the number and type of Shares subject to outstanding Options; and (iii) the grant, purchase or exercise price with respect to any Option, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option; provided, however, in each case, that with respect to Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b) of the Code (or any successor provision thereto); and provided further that the number of Shares subject to any Option shall always be a whole number. Section 5. Eligibility Any Key Employee, including any executive officer or employee- director of the Company or of any Affiliate, who is not a member of the Committee shall be eligible to be designated a Participating Key Employee. All Non-Employee Directors shall receive Non-Qualified Stock Options as provided in Section 6(b). Section 6. Grants of Options (a) Option Awards to Key Employees. The Committee is hereby authorized to grant Options to Key Employees with the terms and conditions as set forth below and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine in its discretion. (i) Exercise Price. The exercise price per Share of an Option granted pursuant to this Section 6(a) shall be determined by the Committee; provided, however, that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the Committee; provided, however, that in no event shall the term of any Option exceed a period of ten years from the date of its grant. (iii) Exercisability and Method of Exercise. An Option shall become exercisable in such manner and within such period or periods and in such installments or otherwise as shall be determined by the Committee. The Committee also shall determine the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other securities, other property or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which payment of the exercise price with respect to any Option may be made or deemed to have been made. (iv) Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code (or any successor provision thereto) and any regulations promulgated thereunder. Notwithstanding any provision in the Plan to the contrary, no Incentive Stock Option may be granted hereunder after the tenth anniversary of the adoption of the Plan by the Board of Directors of the Company. (b) Non-Qualified Stock Option Awards to Non-Employee Directors. Each Non-Employee Director shall automatically be granted Non- Qualified Stock Options under the Plan in the manner set forth in this Section 6(b). A Non-Employee Director may hold more than one Non- Qualified Stock Option, but only on the terms and subject to any restrictions set forth herein. (i) Exercise Price. The exercise price per Share shall be equal to 100% of the Fair Market Value of a Share on the date of grant of such Option. The "market value" of a Share on the date of grant to the Non-Employee Director shall be the last bid price per Share for the Shares in the Nasdaq National Market on the trading date next preceding such grant date; provided, however, that if the principal market for the Shares is then a national securities exchange, the "market value" shall be the closing bid price per Share for the Shares on the principal securities exchange on which the Shares are traded on the trading date next preceding the date of grant, or in either case above, if no trading occurred on the trading date next preceding the date on which the Non-Qualified Stock Option is granted, then the "market price" per Share shall be determined with reference to the next preceding date on which the Shares were traded. (ii) Grant of Options. On the last day of each fiscal year of the Company during the existence of the Plan, each Non- Employee Director shall be automatically granted an Option to purchase 1,000 Shares. All Options granted to Non-Employee Directors shall be Non-Qualified Stock Options. (iii) Exercisability and Termination of Options. Except as expressly provided herein, Non-Qualified Stock Options granted to Non-Employee Directors under the Plan shall not be exercisable until one (1) year from the date on which such Non- Qualified Stock Option is granted and shall terminate on the earlier of: (A) ten years after the date of grant; (B) three months after the Non-Employee Director ceases to be a director of the Company by reason of death, disability or retirement after attaining age 65; or (C) immediately upon the Non-Employee Director ceasing to be a director of the Company for any reason other than by reason of death, disability or retirement. If a Non-Employee Director ceases to be a director of the Company by reason of death, disability or retirement prior to the date the Non-Statutory Stock Option becomes exercisable, the Non-Statutory Stock Option shall become immediately exercisable in full. (iv) Exercise of Options. A Non-Qualified Stock Option granted to a Non-Employee Director may be exercised, subject to its terms and conditions and the terms and conditions of the Plan, in full at any time or in part from time to time by delivery to the Company at its principal office in Wisconsin Rapids, Wisconsin, of a written notice of exercise specifying the number of Shares with respect to which the Non-Qualified Stock Option is being exercised. Any notice of exercise shall be accompanied by full payment of the Option price of the Shares being purchased (x) in cash or its equivalent; (y) by tendering previously acquired shares (valued at their Fair Market Value as of the date of exercise); or (z) by any combination of subparagraphs (x) and (y). No Shares shall be issued until full payment therefor has been made. (c) General. (i) No Consideration for Options. Options shall be granted for no cash consideration unless otherwise determined by the Committee. (ii) Option Agreements. Each Option granted under the Plan shall be evidenced by an Option Agreement in such form (consistent with the terms of the Plan) as shall have been approved by the Committee. (iii) Awards May Be Granted Separately or Together. Options to Participating Key Employees under the Plan may be granted either alone or in addition to, in tandem with, or in substitution for, any other award granted under any other plan of the Company or any Affiliate. Options granted in addition to, or in tandem with, other awards granted under any other plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other awards. (iv) Limits on Transfer of Options. No Option shall be assignable, alienable, saleable or transferable otherwise than by will or by the laws of descent and distribution; provided, however, that a Participating Key Employee at the discretion of the Committee may, and a Non-Employee Director shall, be entitled, in the manner established by the Committee, to designate a beneficiary or beneficiaries to exercise his or her rights, and to receive any property distributable, with respect to any Option upon the death of the Participating Key Employee or the Non-Employee Director, as the case may be. Each Option shall be exercisable, during the lifetime of the Participating Key Employee or the Non-Employee Director, only by such individual or, if permissible under applicable law, by such individual's guardian or legal representative. No Options may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (v) Term of Options. Except as otherwise provided in the Plan, the term of each Option shall be for such period as may be determined by the Committee. (vi) Share Certificates; Representation. All certificates for Shares delivered under the Plan pursuant to the exercise of any Option shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Commission, Nasdaq Stock Market or any stock exchange or other market upon which such Shares are then listed or traded, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Committee may require each Participating Key Employee, Non-Employee Director or other Person who acquires Shares under the Plan by means of an Option originally granted to a Participating Key Employee, Non-Employee Director or other Person to represent to the Company in writing that such Participating Key Employee, Non-Employee Director or other Person is acquiring the Shares without a view to the distribution thereof. Section 7. Amendment and Termination of the Plan; Correction of Defects and Omissions (a) Amendments to and Termination of the Plan. The Board of Directors of the Company may at any time amend, alter, suspend, discontinue or terminate the Plan; provided, however, that shareholder approval of any amendment of the Plan shall also be obtained if otherwise required by: (i) the rules and/or regulations promulgated under Section 16 of the Exchange Act (in order for the Plan to remain qualified under Rule 16b-3); (ii) the Code or any rules promulgated thereunder (in order to allow for Incentive Stock Options to be granted under the Plan); or (iii) the quotation or listing requirements of the Nasdaq National Market or any principal securities exchange or market on which the Shares are then traded (in order to maintain the quotation or listing of the Shares thereon). Termination of the Plan shall not affect the rights of Participating Key Employees and Non-Employee Directors with respect to Options previously granted to them, and all unexpired Options shall continue in force and effect after termination of the Plan except as they may lapse or be terminated by their own terms and conditions. (b) Correction of Defects, Omissions and Inconsistencies. The Committee may in its discretion correct any defect, supply any omission or reconcile any inconsistency in any Option or Option Agreement in the manner and to the extent it shall deem desirable to carry the Plan into effect. Section 8. General Provisions (a) No Rights to Awards. No Key Employee, Participating Key Employee or other Person (other than a Non-Employee Director to the extent provided in Section 6(b) of the Plan) shall have any claim to be granted any Option under the Plan, and there is no obligation for uniformity of treatment of Key Employees, Participating Key Employees or holders or beneficiaries of Options under the Plan. The terms and conditions of Options need not be the same with respect to each Participating Key Employee. (b) Withholding. No later than the date as of which an amount first becomes includable in the gross income of a Participating Key Employee for federal income tax purposes with respect to any Option under the Plan, the Participating Key Employee shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, withholding obligations arising with respect to Options granted to Participating Key Employees under the Plan may be settled with Shares previously owned by the Participating Key Employee; provided, however, that the Participating Key Employee may not settle such obligations with Shares that are part of, or are received upon exercise of, the Option that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and any Affiliate shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participating Key Employee. The Committee may establish such procedures as it deems appropriate for the settling of withholding obligations with Shares, including, without limitation, the establishment of such procedures as may be necessary to satisfy the requirements of Rule 16b-3. With the consent of the Committee, an Option holder may be permitted to satisfy the Company's withholding tax requirements by electing to have the Company withhold shares otherwise issuable to the Option holder. The election shall be made in writing and shall be made according to such rules and in such form as the Company may determine. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) Rights and Status of Recipients of Options. The grant of an Option shall not be construed as giving a Participating Key Employee the right to be retained in the employ of the Company or any Affiliate. Further, the Company or any Affiliate may at any time dismiss a Participating Key Employee from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Option Agreement. The grant of an Option to a Non-Employee Director pursuant to Section 6(b) of the Plan shall confer no right on such Non-Employee Director to continue as a director of the Company. Except for rights accorded under the Plan and under any applicable Option Agreement, Participating Key Employees and Non-Employee Directors shall have no rights as holders of Shares as a result of the granting of Options hereunder. (e) Unfunded Status of the Plan. Unless otherwise determined by the Committee, the Plan shall be unfunded and shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company or the Committee and any Participating Key Employee, Non-Employee Director or other Person. To the extent any Person holds any right by virtue of a grant under the Plan, such right (unless otherwise determined by the Committee) shall be no greater than the right of an unsecured general creditor of the Company. (f) Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the internal laws of the State of Wisconsin and applicable federal law. (g) Severability. If any provision of the Plan or any Option Agreement or any Option is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any Person or Option, or would disqualify the Plan, any Option Agreement or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, any Option Agreement or the Option, such provision shall be stricken as to such jurisdiction, Person or Option, and the remainder of the Plan, any such Option Agreement and any such Option shall remain in full force and effect. (h) No Fractional Shares. No fractional Shares or other securities shall be issued or delivered pursuant to the Plan or any Option Agreement, and the Committee shall determine (except as otherwise provided in the Plan) whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights thereto shall be canceled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Section 9. Effective Date of the Plan The Plan shall be effective as of May 17, 1995 subject to shareholder approval of the Plan within 12 months following the date of adoption of the Plan by the Board of Directors, and all Options granted under the Plan prior to the date of shareholder approval shall be subject to such approval and the effective date of such Option grants shall be deemed to be the date of such shareholder approval. Section 10. Term of the Plan No Option shall be granted under the Plan following the seventh anniversary of its effective date. However, unless otherwise expressly provided in the Plan or in an applicable Option Agreement, any Option theretofore granted may extend beyond such date and, to the extent set forth in the Plan, the authority of the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Option, or to waive any conditions or restrictions with respect to any such Option, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond such date. EX-10.11 7 EMPLOYMENT AND SEVERANCE AGREEMENT THIS AGREEMENT, made and entered into as of the 2nd day of June, 1997, by and between NORTHLAND CRANBERRIES, INC., a Wisconsin corporation ("Company"), and JEROLD D. KAMINSKI ("Executive"). RECITALS A. The Executive has served as a director of the Company since 1994 and has extensive management experience in product marketing, including holding the positions of Director of Marketing for the Food Service Division of General Mills Corporation since September 1993, Marketing Director of the Gold Medal Division of General Mills Corporation, and Marketing Manager of the Gold Medal Division of General Mills Corporation. B. The Board of Directors of the Company (the "Board") believes that the Executive's experience in marketing products within the food industry, combined with his intimate knowledge of the business of the Company, will allow him to provide valuable service to the Company and its shareholders as an executive officer of the Company, and, in particular, in directing, managing and overseeing the growth and expansion of the Company's Northland brand 100% cranberry juice blend product line. C. The Executive desires to be employed by the Company on the terms and conditions hereinafter set forth. D. It is the intention of the parties hereto that this Agreement establish the terms of the Executive's employment by the Company both prior to and subsequent to a Change in Control of the Company (as hereinafter defined), if any such Change of Control of the Company were to occur. Article I of this Agreement establishes the terms and conditions of the Executive's employment prior to any Change in Control of the Company. Articles II and III of this Agreement establish the terms and conditions of the Executive's employment subsequent to any Change in Control of the Company. E. The Company recognizes that circumstances in which a Change in Control of the Company occurs, through acquisition or otherwise, are highly disruptive and will cause uncertainty about the Executive's future employment with the Company without regard to the Executive's competence or past contributions and that such uncertainty may materially adversely affect the Company. F. The Company and the Executive are desirous that any proposal for a Change in Control of the Company will be considered by the Executive objectively, with reference only to the best interests of the Company and its shareholders and without undue regard for the Executive's personal interests. G. To promote continuity of management and attract and retain the services of the Executive and to further align the economic interests of the Executive with those of the Company's shareholders, the Board believes it is in the Company's and its shareholders' best interests to grant an equity interest in the Company to the Executive in the form of 12,000 shares of the Company's Class A Common Stock, $.01 par value ("Stock") (to be adjusted subsequent to the date of this Agreement to take into account the effect of any subsequent stock dividends or stock splits) ("Stock"), which Stock is subject to certain restrictions on transfer by Executive to encourage Executive's longevity of service to the Company. H. To further align the Executive's economic interests with those of the Company and its shareholders, the Board believes it is in the Company's best interests to grant the Executive options to purchase 10,000 shares of Stock pursuant to the terms of the 1995 Stock Option Plan, which options shall be fully vested and immediately exercisable upon grant. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto mutually covenant and agree as follows: ARTICLE I EMPLOYMENT PRIOR TO CHANGE IN CONTROL 1.1 First Employment Period. For purposes of this Agreement, the term "First Employment Period" means the period commencing on the date of this Agreement and ending on the first to occur of the following: (i) the date of termination of the Executive's employment pursuant to the terms of Article I of this Agreement; (ii) a Change in Control of the Company; or (iii) on the first anniversary of the date of this Agreement; provided, however, that the First Employment Period and the provisions of this Agreement relating thereto shall automatically renew for one additional year on the first anniversary of the date of this Agreement and on each anniversary thereafter, unless (a) a Change in Control of the Company has occurred; (b) the date of termination of the Executive's employment pursuant to the terms of Article I of this Agreement has occurred; or (c) at least ninety (90) days prior to such applicable annual anniversary of the date of this Agreement, the Executive shall have delivered to the Company, or the Company shall have delivered to the Executive, written notice that the First Employment Period will not be extended. 1.2 Duties During the First Employment Period. (a) Offices. The Executive shall initially serve as President and Chief Operating Officer of the Company, or in such other offices as determined by the Board, the Chief Executive Officer or the Chairman of the Board, with such duties and responsibilities as are customarily assigned to such positions, and such other duties and responsibilities as may from time to time be assigned to him by the Board, the Chief Executive Officer or the Chairman of the Board. (b) Time. The Executive shall devote his full business time and effort during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive under this Agreement, use Executive's best efforts to carry out such responsibilities faithfully and efficiently and in the best interests of the Company and its shareholders. The Executive shall also serve on such corporate, industry, civic or charitable boards or committees as reasonably requested by the Board, the Chief Executive Officer or the Chairman of the Board. 1.3 Compensation. (a) Salary. During the First Employment Period, the Company shall pay to the Executive an annual salary ("Annual Salary") of $220,000. The Annual Salary shall be payable in accordance with the Company's regular payroll practice for its senior executives, as in effect from time to time. The Annual Salary will be initially reviewed in October, 1998 for adjustment by the Board based on the recommendations of the Company's Chief Executive Officer or Chairman of the Board. Following any such adjustment, the term "Annual Salary" as used in this Agreement shall mean such adjusted salary. (b) Additional Compensation. The Executive shall receive a bonus of $50,000 cash payable upon execution of the Agreement. The Company shall cause the Executive to be eligible to participate in all applicable incentive, savings and retirement plans, practices, policies and programs made available to executives of the Company (including, without limitation, the 1997 Incentive Bonus Plan (at a level to be determined by the Compensation Committee of the Board), the 1995 Stock Option Plan and the 401(k) Plan) to the same extent and subject to the same terms and conditions as other eligible and similarly situated executives of the Company or as otherwise determined by the Board, Chairman of the Board or Chief Executive Officer (such additional benefits as described solely in this sentence are hereinafter referred to as "Additional Compensation"). The Company shall cause the Executive and/or the Executive's family, as the case may be, to be eligible for immediate participation in, and to receive all benefits under, all applicable welfare benefit plans, practices, policies and programs made available to similarly situated executives of the Company, including, without limitation, directors' and officers', medical, dental, group life insurance and accidental death and travel accident insurance plans and programs, to the same extent as other eligible executives of the Company or as otherwise determined by the Board, Chairman of the Board or Chief Executive Officer. (c) Expense Reimbursement. The Company shall reimburse the Executive for all reasonable and documented expenses incurred by the Executive in the performance of the Executive's duties under this Agreement in accordance with the policies and procedures established by the Board for its senior executive officers. (d) Automobile. The Executive shall be entitled to the ordinary and reasonable use of a GMC Suburban or its equivalent in accordance with the Company's existing policies and practices. The Company shall reimburse the Executive for all applicable maintenance expenses not otherwise covered by any manufacturer or dealer warranties. (e) Vacation. The Executive shall be entitled to the number of paid vacation days in each calendar year as determined by the Board or the Chairman of the Board or Chief Executive Officer consistent with policies and practices in effect from time to time for the Company's senior executive officers. Unused vacation shall not accumulate. The Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. (f) Grant of Options to Purchase Stock. The Company hereby grants to the Executive an option to purchase 10,000 shares of Stock pursuant to the terms of the 1995 Stock Option Plan at an exercise price equal to the fair market value of the Stock on the date hereof. Such option shall be fully vested and immediately exercisable upon grant. This option will be evidenced by a separate stock option agreement. 1.4 Grant of Restricted Stock. (a) Grant of Stock. In consideration of the acceptance of employment and the continued employment of the Executive, and as a critical inducement to Executive to enter this Agreement and to better align the Executive's economic interests in the operations of the business with those of the Company's shareholders, the Company grants to the Executive 12,000 shares of Stock (to be adjusted subsequent to the date of this Agreement to take into account the effect of any subsequent stock dividends or stock splits) upon the terms and conditions set forth herein. Such Stock is being issued on the date hereof represented by four (4) stock certificates of equal share amounts (together aggregating 12,000 shares) to be held in trust by the Company until each respective portion of such Stock is fully vested pursuant to Sections 1.4(b) or 1.4(c) hereof. (b) Vesting Schedule. The Stock granted to the Executive pursuant to Section 1.4(a) hereof shall vest in the Executive ratably on the first, second, third and fourth anniversaries of the date of this Agreement (i.e., 3,000 shares on each such date), as long as the Executive is still employed by the Company as its President and Chief Operating Officer on each such respective anniversary with respect to the Stock then vesting. (c) Vesting Upon a Change of Control of the Company. Notwithstanding the vesting schedule in Section 1.4(b) above, (i) all shares of Stock granted to the Executive pursuant to Section 1.4(a) hereof shall vest in the Executive immediately upon a Change in Control of the Company if Executive is then employed by the Company on the date of such a Change in Control of the Company; and (ii) in the event of the Executive's death or disability prior to the fourth anniversary of the date of this Agreement, a pro rata portion (based on the number of days elapsed from the immediately preceding anniversary to the date of death or disability divided by 365) of the Stock that would have vested on the next succeeding anniversary shall vest as of the date of death or disability. (d) Restrictions on Transferability. The Executive may not sell, pledge, encumber, transfer by or pursuant to a gift or bequest or otherwise transfer or dispose of, and the Company will not permit to be sold, encumbered, attached, or otherwise disposed of or transferred in any manner, either voluntarily or by operation of law (collectively referred to as "Transfer"), any Stock granted to the Executive pursuant to this Agreement (or any Stock at any time hereafter acquired by the Executive in respect of such Stock) which has not yet vested pursuant to Section 1.4(b) or 1.4(c) hereof. (e) Termination of Employment. In the event of the Executive's death, disability or termination from employment, any shares of Stock granted to the Executive pursuant to Section 1.4(a) hereof but not yet vested pursuant to Section 1.4(b) or 1.4(c) hereof shall automatically be forfeited and cancelled by the Company and any dividends or other distributions held in trust by the Company pursuant to Section 1.4(g) hereof and applicable to such shares shall automatically be forfeited to the Company. (f) Voting Rights. The Executive shall have voting rights for all Stock granted pursuant to Section 1.4(a) hereof regardless of whether it has vested pursuant to Section 1.4(b) or 1.4(c) hereof; provided, however, that with respect to all unvested shares of Stock, the Executive shall vote all such unvested shares of Stock in accordance with the recommendation of the Board. (g) Dividends and Other Distributions. The Executive shall be entitled to receive all cash dividends and other distributions paid from the date of original issuance of the Stock when and after such shares of Stock have vested pursuant to Section 1.4(b) or 1.4(c) hereof. For shares of Stock granted to the Executive pursuant to this Agreement that have not vested in the Executive in accordance with Section 1.4(b) or 1.4(c) hereof, the Company will hold all cash dividends and other distributions paid with respect to these shares of Stock in trust. Any shares of Stock paid as dividends or distributions on any unvested Stock held in trust by the Company pursuant to this Section 1.4(g) shall be subject to the same restrictions on transferability as the shares of Stock with respect to which they were paid. Dividends or distributions paid in cash on any unvested shares of Stock held in trust by the Company pursuant to this Section 1.4(g) shall be deposited in an interest-bearing money-market or similar account by the Company with any bank or financial institution of its choice, and distributed to Executive when and if the shares of Stock with respect to which such cash dividends or distributions were paid vest in accordance with Section 1.4(b) or 1.4(c) hereof. The Company shall not be liable for any act taken or omitted by it with respect to the investment of cash dividends held by it in trust under this Section 1.4(g) if taken or omitted by it in good faith and in the exercise of its own best judgment. The Executive agrees to indemnify the Company and hold it harmless against any and all liabilities incurred by it under this Section 1.4(g) except for liabilities incurred by the Company from its own willful misconduct or negligence. (h) Endorsement on Stock Certificates. Conspicuously noted on each certificate representing Stock issued to the Executive pursuant to the terms of this Agreement (or hereafter acquired in respect of such stock) shall be a legend reading substantially as follows: "ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR ANY OTHER DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY, AND SUBJECT TO, THE TERMS AND PROVISIONS OF AN EMPLOYMENT AND SEVERANCE AGREEMENT DATED AS OF JUNE ___, 1997. A COPY OF SUCH AGREEMENT AND OF ALL AMENDMENTS OR SUPPLEMENTS THERETO IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY. BY ACCEPTANCE OF THIS CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY THE TERMS OF SAID AGREEMENT AND ALL AMENDMENTS OR SUPPLEMENTS THERETO." Upon the vesting of shares of Stock issued to the Executive pursuant to Sections 1.4(b) or 1.4(c) hereof and upon request of the Executive, the Company shall instruct its transfer agent to remove such legend from the certificate(s) representing such fully vested shares of Stock, and such Stock shall no longer be subject to the Transfer restrictions contained in Section 1.4(d) hereof. 1.5 Termination of Employment During the First Employment Period. (a) Death. The Executive's employment and the First Employment Period shall terminate automatically upon the Executive's death during the First Employment Period. (b) Incapacity. The Company shall be entitled to terminate the Executive's employment and the First Employment Period because of the Executive's Incapacity during the First Employment Period. "Incapacity" means that (i) the Executive has been substantially unable, for a period of 30 consecutive days, to perform the Executive's duties under this Agreement, as a result of physical or mental illness or injury, or (ii) a physician selected by the Company or its insurers has determined that the Executive's incapacity substantially prevents or limits Executive from performing his duties hereunder for an extended or indefinite period. A termination of the Executive's employment by the Company for Incapacity shall be communicated to the Executive by delivery of written notice of such termination, which shall be effective on receipt of such notice by the Executive. (c) By Company. The Company may terminate the Executive's employment and the First Employment Period pursuant to (i) a Forced Termination immediately upon notice to the Executive or (ii) for any other reason upon 30 days written notice to the Executive. For purposes of this Agreement, the term "Forced Termination" shall mean a termination of the Executive's employment during the First Employment Period for (i) the willful and continued failure (following written notice thereof to the Executive and a reasonable opportunity to cure) of the Executive substantially to perform the Executive's duties under this Agreement (other than as a result of Incapacity) or (ii) illegal conduct or gross misconduct by the Executive, in either case that is willful and results in material and demonstrable damage to the business or reputation of the Company. (d) By Executive. The Executive may terminate the Executive's employment and the First Employment Period at any time for any reason or for no reason upon giving the Company written notice at least 90 days prior to the date of termination specified in such notice. 1.6 Obligations of Company upon Termination During the First Employment Period. (a) Death and Incapacity. If Executive's employment is terminated during the First Employment Period by reason of Executive's death or Incapacity, Company shall pay to Executive or, in the case of Executive's death, to Executive's designated beneficiaries (or, if there is no such beneficiary, to Executive's estate or legal representative), in a lump sum in cash within 30 days after the date of termination, the sum of the following amounts (the "Accrued Obligations"): (i) any portion of Executive's Annual Salary through the date of termination that has not yet been paid; (ii) an amount representing the Additional Compensation (which term does not include any shares of Stock granted to the Executive pursuant to Section 1.4(a) hereof) for the period that includes the date of termination, computed by assuming that the amount of all such Additional Compensation would be equal to the maximum amount of such Additional Compensation that Executive would have been eligible to earn for such period, and multiplying that amount by a fraction, the numerator of which is the number of days in such period through the date of termination, and the denominator of which is the total number of days in the relevant period; and (iii) any accrued but unpaid Additional Compensation. All shares of Stock granted to the Executive pursuant to Section 1.4(a) hereof which have not yet vested pursuant to Section 1.4(b) or 1.4(c) hereof on the date of termination of the Executive's employment hereunder shall be forfeited back to the Company and cancelled. (b) Forced Termination By The Company; Termination By Executive. If Executive's employment is terminated by Company pursuant to a Forced Termination during the First Employment Period, or if Executive voluntarily terminates employment during the First Employment Period, the Company shall pay Executive the Annual Salary through the date of termination to the extent not yet paid, and Company shall have no further obligations under this Agreement. All shares of Stock granted to the Executive pursuant to Section 1.4(a) hereof which have not yet vested pursuant to Section 1.4(b) or 1.4(c) hereof on the date of termination of the Executive's employment hereunder shall be forfeited back to the Company and cancelled. (c) By Company During the First Year of Employment Other Than Pursuant to a Forced Termination. If Company shall terminate Executive's employment prior to the first anniversary of the Executive's employment hereunder for any reason other than pursuant to a Forced Termination, Company shall pay to Executive the Annual Salary through the date of termination to the extent not yet paid plus, in lieu of any further salary payments to Executive for periods subsequent to the date of termination, Company shall pay as liquidated damages or severance pay, or both, to Executive on the fifth day following the date of termination, a lump-sum amount equal to the Annual Salary in effect as of the date of termination. All shares of Stock granted to the Executive pursuant to Section 1.4(a) hereof which have not yet vested pursuant to Section 1.4(b) or 1.4(c) hereof on the date of termination of the Executive's employment hereunder shall be forfeited back to the Company and cancelled. ARTICLE II EMPLOYMENT AFTER AFTER A CHANGE IN CONTROL 2.1 Second Employment Period. If a Change in Control of the Company occurs when the Executive is employed by the Company, the Company will continue thereafter to employ the Executive during the Second Employment Period, and the Executive will remain in the employ of the Company, in accordance with and subject to the terms and provisions of this Agreement. 2.2 Duties During the Second Employment Period. During the Second Employment Period, the Executive shall, in the same capacities and positions held by the Executive at the time of the Change in Control of the Company or in such other capacities and positions as may be agreed to by the Company and the Executive in writing, devote the Executive's best efforts and all of the Executive's business time, attention and skill to the business and affairs of the Company, as such business and affairs now exist and as they may hereafter be conducted. The services which are to be performed by the Executive hereunder are to be rendered in the same metropolitan area in which the Executive was employed at the time of such Change in Control of the Company, or in such other place or places as shall be mutually agreed upon in writing by the Executive and the Company from time to time. Without the Executive's consent the Executive shall not be required to be absent from such metropolitan area more than forty- five (45) days in any twelve (12)-month period. 2.3 Compensation During the Second Employment Period. During the Second Employment Period, the Executive shall be compensated as follows: (a) Annual Base Salary. The Executive shall receive, at such intervals and in accordance with such standard policies of the Company as may be in effect immediately prior to the Change in Control of the Company, an annual base salary in cash equivalent of not less that the Annual Salary as in effect immediately prior to the Change in Control of the Company (which base salary shall, unless otherwise agreed in writing by the Executive, include the current receipt by the Executive of any amounts which, prior to the Change in Control of the Company, the Executive had elected to defer, whether such compensation is deferred under Section 401(k) of the Code or otherwise), subject to adjustment as hereinafter provided. (b) Reimbursement. The Executive shall, at such intervals and in accordance with such standard policies as may be in effect immediately prior to the Change in Control of the Company, be reimbursed for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company, including travel expenses and expenses contemplated by Section 1.3(d) hereof. (c) Benefits. The Executive shall be included, to the extent eligible thereunder (which eligibility shall not be conditioned on the Executive's salary grade or on any other requirement which excludes persons of comparable status to the Executive unless such exclusion was in effect for such plan or an equivalent plan immediately prior to the Change in Control of the Company), in any and all plans providing benefits for the Company's salaried employees in general, including but not limited to group life insurance, hospitalization, medical, dental, profit sharing and stock bonus plans; provided, that, in no event shall the aggregate level of benefits under such plans in which the Executive is included be less than the aggregate level of benefits under plans of the Company of the type referred to in this Section 2.3(c) which the Executive was participating immediately prior to the Change in Control of the Company. The Executive shall also be entitled to the use of the automobile pursuant to Section 1.3(d) hereof through the term of the Second Employment Period. (d) Vacation and Holidays. The Executive shall annually be entitled to not less than the amount of paid vacation and not fewer than the number of paid holidays to which the Executive was entitled annually immediately prior to the Change in Control of the Company or such greater amount of paid vacation and number of paid holidays as may be made available annually to other executives of the Company of comparable status and position to the Executive. (e) Executive Benefits. The Executive shall be included in all plans providing additional benefits to executives of the Company of comparable status and position to the Executive, including but not limited to deferred compensation, split-dollar life insurance, supplemental retirement, stock option, stock appreciation, stock bonus, cash bonus and similar or comparable plans; provided, that, in no event shall the aggregate level of benefits under such plans be less than the aggregate level of benefits under plans of the Company of the type referred to in this Section 2.3(e) in which the Executive was participating immediately prior to the Change in Control of the Company. 2.4 Annual Compensation Adjustments During the Second Employment Period. During the Second Employment Period, the Board (or an appropriate committee thereof) will consider and appraise, at least annually, the contributions of the Executive to the Company's operating efficiency, growth, cash flow from operations and operating profits, and, in accordance with the Company's practice prior to the Change in Control of the Company, due consideration shall be given to the upward adjustment of the Executive's base compensation rate, at least annually, commensurate with (i) increases generally given to other executives of the Company of comparable status and position to the Executive, and (ii) as the scope of the Company's operations or the Executive's duties expand. 2.5 Termination During the Second Employment Period For Cause or Without Good Reason. It there is a Covered Termination for Cause or due to the Executive's voluntarily terminating his employment other than for Good Reason (any such terminations to be subject to the procedures set forth in Section 2.11 hereof), then the Executive shall be entitled to receive only Accrued Benefits pursuant to Section 2.7(a) hereof. 2.6 Termination During the Second Employment Period Giving Rise to a Termination Payment. (a) If there is a Covered Termination by the Executive for Good Reason, or by the Company other than by reason of (i) death, (ii) disability pursuant to Section 2.10 hereof, or (iii) Cause, then the Executive shall be entitled to receive, and the Company shall promptly pay, Accrued Benefits pursuant to Section 2.7(a) hereof and, in lieu of further base salary for periods following the Termination Date, as liquidated damages and severance pay, the Termination Payment pursuant to Section 2.7(b) hereof. (b) If there is a Covered Termination and the Executive is entitled to Accrued Benefits and the Termination Payment, then the Executive shall be entitled to the following additional benefits: (i) The Executive shall receive, at the expense of the Company, outplacement services on an individualized basis provided by a nationally recognized executive placement firm selected by the Company. (ii) Until the earlier of the third anniversary of the Termination Date or such time as the Executive has obtained new employment and is covered by benefits which in the aggregate are at least equal in value to the following benefits the Executive shall continue to be covered, at the expense of the Company, by the same or equivalent life insurance, hospitalization, medical and dental coverage as was required hereunder with respect to the Executive immediately prior to the date the Notice of Termination is given. 2.7 Payments. (a) Accrued Benefits. For purposes of this Agreement, the Executive's "Accrued Benefits" shall include the following amounts, payable as described herein: (i) all base salary for the time period commencing on the start of the Second Employment Period and ending with the Termination Date to the extent not yet paid; (ii) reimbursement for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company through the Termination Date; (iii) any and all other cash earned through the Termination Date and deferred at the election of the Executive or pursuant to any deferred compensation plan then in effect; (iv) a lump sum payment of the bonus or incentive compensation otherwise payable to the Executive with respect to the year in which termination occurs under all bonus or incentive compensation plan or plans of the Company in which the Executive is a participant; and (v) all other payments and benefits to which the Executive may be entitled as compensatory fringe benefits, including a lump sum cash payment in an amount equal to the total remaining lease payments due under the lease pursuant to Section 1.3(d), or under the terms of any benefit plan of the Company, including severance payments under the Company's severance policies and practices as in effect immediately prior to the Change in Control of the Company. Payment of Accrued Benefits shall be made promptly in accordance with the Company's prevailing practice with respect to Subsections (i) and (ii) hereof or, with respect to Subsections (iii), (iv) and (v) hereof, pursuant to the terms of the benefit plan or practice establishing such benefits. (b) Termination Payment. The Termination Payment shall be an amount equal to the average of the Executive's annual base salary over the five (5) fiscal years of the Company (or such shorter period) immediately prior to the Change in Control of the Company multiplied by two (2). The Termination Payment shall be paid to the Executive in cash no later than ten (10) business days after the Termination Date. The Executive shall not be required to mitigate the amount of the Termination Payment by securing other employment or otherwise, nor will such Payment be reduced by reason of the Executive securing other employment or for any other reason. It is the intention of the Company and the Executive that no portion of the Termination Payment, Accrued Benefits or any other payment or benefit under this Agreement, or payment to or for the benefit of the Executive under any other agreement or plan of the Company, regardless of whether such payment or benefit was paid or provided for prior to the termination of the Executive's employment hereunder (herein all collectively referred to as the "Total Payments"), be deemed to be an "excess parachute payment" as defined in Section 280G of the Code. It is agreed that the present value of the Total Payments and any other payments to or for the benefit of the Executive in the nature of compensation to which Section 280G of the Code or any successor provision thereto applies (in the aggregate "Total Benefits") shall not exceed an amount equal to one dollar less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code or any successor provision (the "Excise Tax") or which the Company may pay without loss of deduction under Section 280G(a) of the Code or any successor provision thereto. Present value for purposes of this Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code or any successor provision thereto. Within forty-five (45) days following the Termination Date or notice by either party to the other of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment, the Executive and the Company, at the Company's expense, shall obtain the opinion of such legal counsel (the opinion of legal counsel need not be unqualified), and certified public accountants as the Executive may choose, which sets forth (a) the amount of the Base Period Income of the Executive, (b) the present value of Total Benefits, and (c) the amount and present value of any excess parachute payments. In the event that such opinions determine that there would be an excess parachute payment, the Termination Payment or any other payment determined by such counsel to be includible in the Total Benefits, shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his receipt of such opinions or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculation set forth in such opinions the Total Benefits paid to the Executive shall be an amount equal to one dollar less than the maximum amount which the Executive may receive without becoming subject to the Excise Tax (the "Reduced Amount"). For purposes of this Agreement, the term "Base Period Income" shall be an amount equal to the Executive's "annualized includible compensation" from the Company for the "base period" as defined in Sections 280G(d)(1) and (2) of the Code or any successor provisions thereto. In the event that the provisions of Sections 280G and 4999 of the Code or any successor provisions are repealed without succession this provision shall be of no further force or effect. As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by legal counsel and accountants as provided in this provision, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement which should not have been so paid or distributed ("Over-payment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that such legal counsel, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive which such legal counsel believes has a high probability of success or other controlling precedent or substantial authority, determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company if and to the extent such payment would not reduce that amount which is subject to the excise tax under Section 4999 of the Code. In the event that such legal counsel, based upon controlling precedent or other substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable federal rate provide for in Section 7872(f)(2) of the Code. 2.8 Death. (a) Prior to Notice of Termination. Except as provided in Section 2.8(b) hereof, in the event of a Covered Termination due to the Executive's death, the Executive's estate, heirs and beneficiaries shall receive all the Executive's Accrued Benefits through the Termination Date. (b) Following Notice of Termination. In the event the Executive dies after a Notice of Termination is given (i) by the Company, other than by reason of disability, or (ii) by the Executive for Good Reason, the Executive's estate, heirs and beneficiaries shall be entitled to the benefits described in Section 2.8(a) hereof and, subject to the provisions of Article III of this Agreement, to such Termination Payment as the Executive would have been entitled to had the Executive lived. For the purposes of this Subsection (b), the Termination Date shall be the earlier of thirty (30) days following the giving of the Notice of Termination or one day prior to the end of the Second Employment Period, subject to delay pursuant to Section 3.1(j) hereof. 2.9 Retirement. If, during the Second Employment Period, the Executive and the Company shall execute an agreement providing for the early retirement of the Executive from the Company, or the Executive shall otherwise give notice that he is voluntarily choosing to retire early from the Company, the Executive shall receive Accrued Benefits through the Termination Date; provided, that, if the Executive's employment is terminated by the Executive for Good Reason or by the Company other than by reason of death, disability or Cause and the Executive also, in connection with such termination, elects voluntary early retirement, the Executive shall also be entitled to receive a Termination Payment pursuant to Section 2.7(b) hereof. 2.10 Termination for Disability during the Second Employment Period. If, during the Second Employment Period, as a result of the Executive's disability (regardless of whether such illness or injury is job-related), the Executive shall have been absent from the Executive's duties hereunder on a full-time basis for six (6) consecutive months and, within thirty (30) days after the Company notifies the Executive in writing that it intends to terminate the Executive's employment (which notice shall not constitute the Notice of Termination contemplated below), the Executive shall not have returned to the performance of the Executive's duties hereunder on a full-time basis, the Company may terminate the Executive's employment pursuant to a Notice of Termination given in accordance with Section 2.11 hereof. In the event the Executive's employment is terminated on account of the Executive's disability in accordance with this Section 2.10, the Executive shall receive Accrued Benefits in accordance with Section 2.7(a) hereof and shall remain eligible for all benefits provided by any long term disability programs of the Company in effect at the time of such termination. 2.11 Termination Notice and Procedure. Any Covered Termination by the Company or the Executive shall be communicated by written Notice of Termination to the Executive, if such Notice is given by the Company, or to the Company, if such Notice is given by the Executive, all in accordance with the following procedures and those set forth in Section 3.11 hereof: (a) If such termination is for disability, Cause or Good Reason, the Notice of Termination shall indicate in reasonable detail the facts and circumstances alleged to provide a basis for such termination. (b) Any Notice of Termination by the Company pursuant to a Covered Termination shall have been approved, prior to the giving thereof to the Executive, by a resolution duly adopted by a majority of the directors of the Company (or any successor corporation) then in office. (c) The Executive shall have thirty (30) days, or such longer period as the Company may determine to be appropriate, to cure any conduct or act, if curable, alleged to provide grounds for termination of the Executive's employment for Cause under this Agreement. (d) The recipient of the Notice of Termination shall personally deliver, or mail in accordance with Section 3.11 hereof, written notice of any dispute relating to such Notice of Termination to the party giving such Notice within fifteen (15) days after receipt thereof. After the expiration of such fifteen (15) days, the contents of the Notice of Termination shall become final and not subject to dispute. ARTICLE III DEFINITIONS 3.1 Definitions. (a) Cause. For purposes of this Agreement, the term "Cause" means termination by the Company of the Executive's employment after a Change of Control of the Company for any of the following, but only the following, reasons: (i) the engaging by the Executive in intentional conduct not taken in good faith which has caused demonstrable and serious financial injury to the Company, as evidenced by a determination in a binding and final judgement, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative; (ii) conviction of a felony (as evidenced by binding and final judgment, order, or decree of a court of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal) which substantially impairs the Executive's ability to perform his duties or responsibilities; and (iii) continuing willful and unreasonable refusal by the Executive to perform the Executive's duties or responsibilities (unless significantly changed without the Executive's consent). (b) Change in Control of the Company. For purposes of this Agreement, a "Change in Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act. Without limiting the inclusiveness of the definition in the preceding sentence, a Change in Control of the Company shall be deemed to have occurred if: (i) any Person (other than any employee benefit plan of the Company or of any subsidiary of the Company or any Person organized, appointed or established pursuant to the terms of any such benefit plan) is or becomes the Beneficial Owner of securities of the Company representing at least 30% of the combined voting power of the Company's then outstanding securities or 30% of the Company's then outstanding Class A Common Stock; (ii) two or more of the members of the Board are not Continuing Directors; (iii) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's capital stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's capital stock immediately prior to the merger have the same proportionate ownership of capital stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (iv) the shareholders' of the Company approve any plan or proposal for the liquidation or dissolution of the Company. (c) Continuing Director. For purposes of this Agreement, the term "Continuing Director" means any member of the Board who was a member of the Board on the date hereof and any successor of a Continuing Director who is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on such Board. (d) Code. For purposes of this Agreement, the term "Code" means the Internal Revenue Code of 1986, including any amendments thereto or successor tax codes thereof. (e) Covered Termination. For purposes of this Agreement, the term "Covered Termination" means any termination of the Executive's employment where the Termination Date is any date during the Second Employment Period. (f) Good Reason. For purposes of this Agreement, the Executive shall have a "Good Reason" for termination of employment after a Change in Control of the Company in the event of: (i) any breach of this Agreement by the Company, including specifically any breach by the Company of its agreements contained in Sections 3.1, 3.2, 3.3 or 3.4 hereof; (ii) the removal of the Executive from, or any failure to reelect the Executive to, any of the positions held with the Company on the date of the Change in Control of the Company or any other positions with the Company to which the Executive shall thereafter be elected or assigned, except in the event that such removal or failure to reelect relates to the termination by the Company of the Executive's employment for Cause or by reason of disability pursuant to Section 3.10 hereof; (iii) a good faith determination by the Executive that there has been a significant adverse change, without the Executive's written consent, in the Executive's working conditions or status with the Company from such working conditions or status in effect immediately prior to the Change in Control of the Company, including but not limited to (A) a significant change in the nature or scope of the Executive's authority, powers, functions, duties or responsibilities, or (B) a reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements; or (iv) failure by the Company to obtain the Agreement referred to in Section 4.4 hereof as provided therein. (g) Notice of Termination. For purposes of this Agreement, "Notice of Termination" shall mean a written notice given by the Executive to the Company or by the Company to the Executive notifying the recipient party of the Termination of the Executive's employment pursuant to the terms of this Agreement. (h) Person. For purposes of this Agreement, the term "Person" shall mean any individual, firm, partnership, corporation or other entity, including any successor (by merger or otherwise) of such entity, or a group of any of the foregoing acting in consent. (i) Second Employment Period. For purposes of this Agreement, the term "Second Employment Period" means a period commencing on the date of a Change in Control of the Company, and ending at 11:59 p.m. Milwaukee time on the second anniversary of such date. (j) Termination Date. For purposes of this Agreement, except as otherwise provided in Section 2.8(b) and Section 4.4(a) hereof, the term "Termination Date" means (i) if the Executive's employment is terminated by the Executive's death, the date of death; (ii) if the Executive's Employment is terminated by reason of voluntary early retirement, as agreed in writing by the Company and the Executive, the date of such early retirement which is set forth in such written agreement; (iii) if the Executive's employment is terminated by reason of disability pursuant to Section 2.10 hereof, the earlier of thirty (30) days after the Notice of Termination is given or one day prior to the end of the Employment Period; (iv) if the Executive's employment is terminated by the Executive voluntarily (other than for Good Reason), the date the Notice of Termination is given; and (v) if the Executive's employment is terminated by the Company (other than by reason of disability pursuant to Section 2.10 hereof) or by the Executive for Good Reason, the earlier of thirty (30) days after the Notice of Termination is given or one day prior to the end of the Employment Period. Notwithstanding the foregoing, (A) If termination is by the Company for Cause pursuant to Section 3.1(a) of this Agreement and if the Executive has cured the conduct constituting such Cause as described by the Company in its Notice of Termination within such thirty (30) day or shorter period, then the Executive's employment hereunder shall continue as if the Company had not delivered its Notice of Termination. (B) If the Company shall give a Notice of Termination for Cause or by reason of disability and the Executive in good faith notifies the Company that a dispute exists concerning the termination within the fifteen (15) day period following receipt thereof, then the Executive may elect to continue his employment during such dispute and the Termination Date shall be determined under this paragraph. If the Executive so elects and it is thereafter determined that Cause or disability (as the case may be) did exist, the Termination Date shall be the earlier of (1) the date on which the dispute is finally determined, either (x) by mutual written agreement of the parties or (y) in accordance with Section 4.9 hereof, (2) the date of the Executive's death, or (3) one day prior to the end of the Employment Period. If the Executive so elects and it is thereafter determined that Cause or disability (as the case may be) did not exist, then the employment of the Executive hereunder shall continue after such determination as if the Company had not delivered its Notice of Termination and there shall be no Termination Date arising out of such Notice. In either case, this Agreement continues, until the Termination Date, if any, as if the Company had not delivered the Notice of Termination except that, if it is finally determined that the Company properly terminated the Executive for the reason asserted in the Notice of Termination, the Executive shall in no case be entitled to a Termination Payment (as hereinafter defined) arising out of events occurring after the Company delivered its Notice of Termination. (C) If the Executive shall in good faith give a Notice of Termination for Good Reason and the Company notifies the Executive that a dispute exists concerning the termination within the fifteen (15) day period following receipt thereof, then the Executive may elect to continue his employment during such dispute and the Termination Date shall be determined under this paragraph. If the Executive so elects and it is thereafter determined that Good Reason did exist, the Termination Date shall be the earlier of (1) the date on which the dispute is finally determined, either (x) by mutual written agreement of the parties or (y) in accordance with Section 4.9 hereof, (2) the date of the Executive's death or (3) one day prior to the end of the Employment Period. If the Executive so elects and it is thereafter determined that Good Reason did not exist, then the employment of the Executive hereunder shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason and there shall be no Termination Date arising out of such Notice. In either case, this Agreement continues, until the Termination Date, if any, as if the Executive had not delivered the Notice of Termination except that, if it finally determined that Good Reason did exist, the Executive shall in no case be denied the benefits described in Sections 2.6(b) and 2.7 hereof (including a Termination Payment) based on events occurring after the Executive delivered his Notice of Termination. (D) If an opinion is required to be delivered pursuant to Section 2.7(b) hereof and such opinion shall not have been delivered, the Termination Date shall be the earlier of the date on which such opinion is delivered or one day prior to the end of the Employment Period. (E) Except as provided in Paragraphs (B) and (C) above, if the party receiving the Notice of Termination notifies the other party that a dispute exists concerning the termination within the fifteen (15) day period following receipt thereof and it is finally determined that the reason asserted in such Notice of Termination did not exist, then (1) if such Notice was delivered by the Executive, the Executive will be deemed to have voluntarily terminated his employment and (2) if delivered by the Company, the Company will be deemed to have terminated the Executive other than by reason of death, disability or Cause. ARTICLE IV MISCELLANEOUS 4.1 Confidentiality Obligations of the Executive; Noncompetition. (a) Confidentiality. During and for a period of two years following the First Employment Period and the Second Employment Period, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company, except to the extent authorized in writing by the Board or the Chief Executive Officer or required by any court or administrative agency, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of duties as an executive of the Company. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of the Company. All records, files, documents and materials, or copies thereof, relating to the business of the Company which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company and shall be promptly returned to the Company upon termination of employment with the Company. (b) Non-Competition. The Executive agrees that, for a period of one year after the termination of the Executive's employment hereunder, the Executive shall not, within North America, expect as permitted by the Company's prior written consent (which shall not be unreasonably withheld), participate in the management of any business which is a direct and substantial competitor of the Company. The ownership of less than five percent of any class of securities of any corporation listed on a national securities exchange or regularly traded over the counter even though such corporation may be a competitor of the Company as specified above, shall not be deemed as constituting a financial interest in such competitor. 4.2 Expenses and Interest. If, after a Change in Control of the Company, a good faith dispute arises with respect to the enforcement of the Executive's rights under this Agreement or if any legal or arbitration proceeding shall be brought in good faith to enforce or interpret any provision contained herein, or to recover damages for breach hereof, the Executive shall recover from the Company any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of such dispute, legal or arbitration proceeding ("Expenses"), and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by Harris Trust and Savings Bank, Chicago, Illinois from time to time as its prime or base lending rate from the date that payments to him should have been made under this Agreement. Within ten (10) days after the Executive's written request therefor, the Company shall pay to the Executive, or such other person or entity as the Executive may designate in writing to the Company, the Executive's reasonable Expenses in advance of the final disposition or conclusion of any such dispute, legal or arbitration proceeding. 4.3 Payment Obligations Absolute. The Company's obligation during and after the First Employment Period and the Second Employment Period to pay the Executive the amounts and to make the benefit and other arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. Except as provided in Section 4.2 of this Agreement, all amounts payable by the Company hereunder shall be paid without notice or demand. Except as provided in Section 3.7(b) of this Agreement, each and every payment made hereunder by the Company shall be final, and the Company will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 4.4 Successors. (a) If the Company sells, assigns or transfer all or substantially all of its business and assets to any Person, or if the Company merges into or consolidates or otherwise combines with any Person, then the Company shall assign all of its right, title and interest in this Agreement as of the date of such event to such Person, and the Company shall cause such Person, by written agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Agreement upon the Company. Failure of the Company to obtain such agreement shall be a breach of this Agreement constituting "Good Reason" hereunder, except that for purposes of implementing the foregoing, the date upon which such transfer or other succession becomes effective shall be deemed the Termination Date. In case of such assignment by the Company and of assumption and agreement by such Person, as used in this Agreement, "Company" shall thereafter mean such Person which executes and delivers the agreement provided for in this Section 4.4 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law, and this Agreement shall inure to the benefit of and be enforceable by such Person. The Executive shall, in his discretion, be entitled to proceed against any and all of such Persons, any Person which theretofore was such a successor to the company (as defined in the first paragraph of this Agreement) and the Company (as so defined) in any action to enforce any rights of the Executive hereunder. Except as provided in this Subsection, this Agreement shall not be assignable by the Company. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company. (b) This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive under Sections 2.5, 2.6, 2.7, 2.8, 2.9 and 2.10 hereof if the Executive had lived shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives. 4.5 Severability. The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 4.6 Amendment. This Agreement may not be amended or modified at any time except by written instrument executed by the Company and the Executive. 4.7 Withholding. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withhold shall not exceed the minimum amount required to be withheld by the law. The Company shall be entitled to rely on an opinion of a nationally recognized tax counsel if any question as to the amount or requirement of any such withholding shall arise. 4.8 Certain Rules of Construction. No party shall be considered as being responsible for the drafting of this Agreement for the purpose of applying any rule construing ambiguities against the drafter or otherwise. No draft of this Agreement shall be taken into account in construing this Agreement. Any provision of this Agreement which requires an agreement in writing shall be deemed to require that the writing in question be signed by the Executive and an authorized representative of the Company. 4.9 Governing Law; Resolution of Disputes. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive's election, be determined by arbitration under the rules of the American Arbitration Association then in effect or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be Wisconsin Rapids, Wisconsin, or, at the Executive's election, if the Executive is no longer residing or working in the Wisconsin Rapids, Wisconsin metropolitan area, in the judicial district encompassing the city in which the Executive resides. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction notwithstanding their residence or situs, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices. 4.10 Notice. Notices given pursuant to this Agreement shall be in writing and, except as otherwise provided by Section 3.11(d) hereof, shall be deemed given when actually received by the Executive or actually received by the Company's Secretary or any officer of the Company other than the Executive. If mailed, such notices shall be mailed by Unites States registered or certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to Northland Cranberries, Inc., Attention: Secretary, 800 First Avenue South, P.O. Box 8020, Wisconsin Rapids, Wisconsin 54495-8020, or, if to the Executive, at the address set forth below the Executive's signature to this Agreement, or to such other address as the party to be notified shall have heretofore given to the other party in writing. 4.11 No Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time. 4.12 Headings. The heading herein contained are for reference only and shall not affect the meaning or interpretation of any provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. EXECUTIVE NORTHLAND CRANBERRIES, INC. /s/ Jerold D. Kaminski By /s/ John Swendrowski Jerold D. Kaminski John Swendrowski Chairman of the Board and Chief Executive Officer EX-10.13 8 NORTHLAND CRANBERRIES, INC. 1997 INCENTIVE BONUS PLAN 1. PURPOSE. The purpose of the Northland Cranberries, Inc. 1997 Incentive Bonus Plan (the "Plan") is to provide cash bonuses to officers and employees of Northland Cranberries, Inc. or any current or future subsidiaries thereof (collectively, unless the context indicates otherwise, the "Company") if the Company attains certain objectives for earnings per share and other corporate or department objectives and personal goals during the Company's fiscal year ending August 31, 1997 (the "1997 Fiscal Year"). The Board of Directors of the Company (the "Board") believes the Plan will further the interests of the Company and its shareholders by increasing the incentives and personal interest in the financial performance of the Company by those officers and employees who contribute to the Company's continued growth and financial success. 2. ADMINISTRATION. The Plan shall be administered by the Stock Option and Compensation Committee (the "Committee") of the Board. In accordance with the provision of the Plan, the Committee shall have complete authority to approve the employees of the Company who shall be eligible to participate in the Plan for the fiscal year and the amounts of bonuses paid thereto. The Committee shall also have the authority to adopt such rules and regulations for carrying out the Plan, which are not inconsistent with the terms hereof, as it may deem proper and in the best interests of the Company and shall have complete authority and discretion to resolve all questions regarding eligibility, interpretation, administration and application of this Plan and any related agreements of instruments. All such determinations by the Committee shall be final. The existence of the plan or the grant of any bonuses hereunder shall not restrict the ability of the Committee or the Board to grant any other discretionary bonuses to any executive officers, employees or others outside of the Plan. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by at least a majority of a quorum. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made by a unanimous vote at a meeting duly called and held. 3. ELIGIBILITY. Each eligible employee of the company who is selected by Management for participation in the Plan, subject to approval by the Committee, shall be a Participant and shall be assigned to the Bonus Level for his or her position according to the schedule attached as Schedule A. A Participant shall have no rights to be selected for further participation in the Plan or any renewal or replacement thereof in any subsequent fiscal year. Written notice of selection for participation in the Plan shall be given to each Participant as soon as practicable following date of selection. 4. AWARDS TO PARTICIPANTS. Participants shall be entitled to receive from the Company an annual incentive cash compensation award for the 1997 Fiscal Year ("Cash Bonus Award") based on a calculated percentage ("Bonus Percentage") of such Participant's base salary earned during the 1997 Fiscal Year (excluding benefits and bonuses). Such Bonus Percentage shall be determined pursuant to a formula based primarily on the percentage that the "Net Income Per Common Share" of the Company for the 1997 Fiscal Year, bears to the "Target Earnings" for the 1997 Fiscal Year, and other specified criteria. The formula and criteria for determining the Bonus Percentage for each Bonus Level are set forth on Schedule B. Management shall establish department and individual goals for Bonus Levels II through VI and shall set the discretionary bonuses for Bonus Level I seasonal employees, all subject to review by the Committee. The Target Earnings for the 1997 Fiscal Year shall be Net Income Per Common Share of $0.75. 5. PAYMENT OF CASH BONUSES. The Cash Bonus Awards, if any, determined under Section 4 for the 1997 Fiscal Year shall be distributed by the Company to such Participants in cash, or to his or her estate in the event of death of the Participant, no later than November 15, 1997. 6. NET INCOME PER COMMON SHARE. For purposes of the Plan, the Company's "Net Income Per Common Share" for the 1997 Fiscal Year shall be equal to the Company's net income per common share reflected on the Company's audited consolidated financial statement for such fiscal year (excluding extraordinary items, but not the issuance of additional shares of capital stock or rights with respect thereto, other than as set forth in Section 10 below). 7. TERMINATION OF EMPLOYMENT. No Cash Bonus Award shall be made under the Plan for a Participant whose employment with the Company (or subsidiary) is terminated during the 1997 Fiscal Year for reasons other than retirement due to age in accordance with the Company's policies, total or permanent disability, or death, unless approved by the Committee after considering the cause of termination. 8. NEW EMPLOYEES, TRANSFERS BETWEEN BONUS LEVELS. (a) It is contemplated that employees may be approved for participation during a portion of the 1997 Fiscal Year and may be eligible to receive an award for the year based on the number of full months as a Participant. A person newly hired or promoted on or before March 1, 1997, into a position covered by a Bonus Level shall be eligible for participation in the Plan and, if selected by Management, shall have his or her participation in the Plan prorated for the fiscal year. (b) Participants who are promoted or otherwise transfered to a position covered by a different Bonus Level will receive Cash Bonus Awards prorated to months served in each eligible position. 9. POWERS OF COMPANY NOT AFFECTED. The existence of the Plan shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalization, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred, or prior preference stock ahead of or affecting the Company's stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. 10. CAPITAL ADJUSTMENTS AFFECTING STOCK. In the event of a capital adjustment resulting from a stock dividend (other than a stock dividend in lieu of an ordinary cash dividend), stock split, reorganization, spin-off, split-up or distribution of assets to shareholders, recapitalization, merger, consolidation, combination or exchange of shares or the like, the Committee may adjust the determination of net income per common share as it deems appropriate in its sole discretion. The determination of the Committee as to any adjustment shall be final (including any determination that no adjustment is necessary). 11. AMENDMENT. The Board shall have the right to amend the Plan at any time and for any reason; provided, however, that no amendment of the Plan shall, without the consent of the Participants, alter or impair any of the rights or obligations under any bonuses previously earned and declared. 12. TAX WITHHOLDING. The Company may deduct and withhold from any amounts payable to a Participant such amount as may be required for the purpose of satisfying the Company's obligation to withhold federal, state or local taxes. 13. EFFECTIVE DATE; FISCAL YEARS COVERED. The Effective Date of this Plan is September 9, 1996 and the Plan shall apply to and cover the Company's 1997 Fiscal Year. This Plan shall be renewable for additional one-year periods upon action of the Board. 14. RIGHTS OF PARTICIPANTS. (a) No Participant shall have any interest in any specific asset or assets of the Company (or any subsidiary) by reason of any account under the Plan. It is intended that the Company has merely a contractual obligation to make payments when due hereunder. (b) No Participant may assign, pledge, or encumber his or her interest under the Plan, or any part thereof. (c) Nothing contained in this Plan shall be construed to: (i) Give any Participant any right to receive any award other than in the sole discretion of the Committee; (ii) Limit in any way the right of the Company or subsidiary to terminate an Participant's employment at any time; or (iii) Be evidence of any agreement or understanding, express or implied, that a Participant will be retained in any particular position, at any particular rate of remuneration or for any length of time. NORTHLAND CRANBERRIES, INC. 1997 INCENTIVE BONUS PLAN SCHEDULE A MAXIMUM PERCENTAGE BONUS LEVEL POSITIONS OF BASE SALARY VII President and Chief Executive Officer 70% VI Executive Vice-President 60% Vice-President - Chief Financial Officer Vice-President - Corporate Secretary V Vice-President - Purchasing & Budget 50% Vice-President - East Coast Operations Vice-President - Agricultural Operations Vice-President - Manufacturing Department Directors IV Managers 30% III Assistant Managers 20% II Other Full-Time Employees 10% I Seasonal Employees 0% NORTHLAND CRANBERRIES, INC. 1997 INCENTIVE BONUS PLAN SCHEDULE B BONUS LEVEL CRITERIA BONUS PERCENTAGE Sum of: VII Company's Net Income Per Common Share Equals-- 90% or more of Target Earnings 30% 100% or more of Target Earnings 20% More than 100% of Target Earnings 1% for Each Percentage Point over Target Earnings up to 10% Maximum Criteria adopted by Committee Based Discretionary from on Executive's contribution towards enhancement of Company's long-term 0 to 10% outlook __________________ Maximum Bonus 70% of Base Salary VI Company's Net Income Per Common Share Equals-- 90% or more of Target Earnings 20% 100% or more of Target Earnings 20% More than 100% of Target Earnings 1% for Each Percentage Point over Target Earnings up to 10% Maximum Achievement of Department Goals 10% __________________ Maximum Bonus 60% of Base Salary V Company's Net Income Per Common Share Equals-- 90% or more of Target Earnings 10% 100% or more of Target Earnings 15% More than 100% of Target Earnings 1% for Each Percentage Point over Target Earnings up to 10% Maximum Achievement of Department Goals 15% __________________ Maximum Bonus 50% of Base Salary IV Company's Net Income Per Common Share Equals-- 100% or more of Target Earnings 10% More than 100% of Target Earnings 1% for Each Percentage Point over Target Earnings up to 10% Maximum Achievement of Individual Goals 10% __________________ Maximum Bonus 30% of Base Salary III Company's Net Income Per Common Share Equals-- 100% or more of Target Earnings 5% More than 100% of Target Earnings 1% for Each Percentage Point over Target Earnings up to 5% Maximum Achievement of Individual Goals 10% __________________ Maximum Bonus 20% of Base Salary II Company's Net Income Per Common Share Equals-- 100% or more of Target Earnings 5% Achievement of Individual Goals 5% __________________ Maximum Bonus 10% of Base Salary I Discretionary Bonuses EX-10.14 9 NORTHLAND CRANBERRIES, INC. 1998 INCENTIVE BONUS PLAN 1. PURPOSE. The purpose of the Northland Cranberries, Inc. 1998 Incentive Bonus Plan (the "Plan") is to provide cash bonuses to officers and employees of Northland Cranberries, Inc. or any current or future subsidiaries thereof (collectively, unless the context indicates otherwise, the "Company") if the Company attains certain objectives for earnings per share and other corporate or department objectives and personal goals during the Company's fiscal year ending August 31, 1998 (the "1998 Fiscal Year"). The Board of Directors of the Company (the "Board") believes the Plan will further the interests of the Company and its shareholders by increasing the incentives and personal interest in the financial performance of the Company by those officers and employees who contribute to the Company's continued growth and financial success. 2. ADMINISTRATION. The Plan shall be administered by the Stock Option and Compensation Committee (the "Committee") of the Board. In accordance with the provision of the Plan, the Committee shall have complete authority to approve the employees of the Company who shall be eligible to participate in the Plan for the fiscal year and the amounts of bonuses paid thereto. The Committee shall also have the authority to adopt such rules and regulations for carrying out the Plan, which are not inconsistent with the terms hereof, as it may deem proper and in the best interests of the Company and shall have complete authority and discretion to resolve all questions regarding eligibility, interpretation, administration and application of this Plan and any related agreements of instruments. All such determinations by the Committee shall be final. The existence of the plan or the grant of any bonuses hereunder shall not restrict the ability of the Committee or the Board to grant any other discretionary bonuses to any executive officers, employees or others outside of the Plan. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by at least a majority of a quorum. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made by a unanimous vote at a meeting duly called and held. 3. ELIGIBILITY. Each eligible employee of the company who is selected by Management for participation in the Plan, subject to approval by the Committee, shall be a Participant and shall be assigned to the Bonus Level for his or her position according to the schedule attached as Schedule A. A Participant shall have no rights to be selected for further participation in the Plan or any renewal or replacement thereof in any subsequent fiscal year. Written notice of selection for participation in the Plan shall be given to each Participant as soon as practicable following date of selection. 4. AWARDS TO PARTICIPANTS. Participants shall be entitled to receive from the Company an annual incentive cash compensation award for the 1998 Fiscal Year ("Cash Bonus Award") based on a calculated percentage ("Bonus Percentage") of such Participant's base salary earned during the 1998 Fiscal Year (excluding benefits and bonuses). Such Bonus Percentage shall be determined pursuant to a formula based primarily on the percentage that the "Net Income Per Common Share" of the Company for the 1998 Fiscal Year, bears to the "Target Earnings" for the 1998 Fiscal Year, and other specified criteria. The formula and criteria for determining the Bonus Percentage for each Bonus Level are set forth on Schedule B. Management shall establish department and individual goals for Bonus Levels II through VI and shall set the discretionary bonuses for Bonus Level I seasonal employees, all subject to review by the Committee. The Target Earnings for the 1998 Fiscal Year shall be Net Income Per Common Share of $0.90. 5. PAYMENT OF CASH BONUSES. The Cash Bonus Awards, if any, determined under Section 4 for the 1998 Fiscal Year shall be distributed by the Company to such Participants in cash, or to his or her estate in the event of death of the Participant, no later than November 15, 1998. 6. NET INCOME PER COMMON SHARE. For purposes of the Plan, the Company's "Net Income Per Common Share" for the 1998 Fiscal Year shall be equal to the Company's net income per common share reflected on the Company's audited consolidated financial statement for such fiscal year (excluding extraordinary items, but not the issuance of additional shares of capital stock or rights with respect thereto, other than as set forth in Section 10 below). 7. TERMINATION OF EMPLOYMENT. No Cash Bonus Award shall be made under the Plan for a Participant whose employment with the Company (or subsidiary) is terminated during the 1998 Fiscal Year for reasons other than retirement due to age in accordance with the Company's policies, total or permanent disability, or death, unless approved by the Committee after considering the cause of termination. 8. NEW EMPLOYEES, TRANSFERS BETWEEN BONUS LEVELS. (a) It is contemplated that employees may be approved for participation during a portion of the 1998 Fiscal Year and may be eligible to receive an award for the year based on the number of full months as a Participant. A person newly hired or promoted on or before March 1, 1998, into a position covered by a Bonus Level shall be eligible for participation in the Plan and, if selected by Management, shall have his or her participation in the Plan prorated for the fiscal year. (b) Participants who are promoted or otherwise transfered to a position covered by a different Bonus Level will receive Cash Bonus Awards prorated to months served in each eligible position. 9. POWERS OF COMPANY NOT AFFECTED. The existence of the Plan shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalization, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred, or prior preference stock ahead of or affecting the Company's stock or the rights thereof, or dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. 10. CAPITAL ADJUSTMENTS AFFECTING STOCK. In the event of a capital adjustment resulting from a stock dividend (other than a stock dividend in lieu of an ordinary cash dividend), stock split, reorganization, spin-off, split-up or distribution of assets to shareholders, recapitalization, merger, consolidation, combination or exchange of shares or the like, the Committee may adjust the determination of net income per common share as it deems appropriate in its sole discretion. The determination of the Committee as to any adjustment shall be final (including any determination that no adjustment is necessary). 11. AMENDMENT. The Board shall have the right to amend the Plan at any time and for any reason; provided, however, that no amendment of the Plan shall, without the consent of the Participants, alter or impair any of the rights or obligations under any bonuses previously earned and declared. 12. TAX WITHHOLDING. The Company may deduct and withhold from any amounts payable to a Participant such amount as may be required for the purpose of satisfying the Company's obligation to withhold federal, state or local taxes. 13. EFFECTIVE DATE; FISCAL YEARS COVERED. The Effective Date of this Plan is September 22, 1997 and the Plan shall apply to and cover the Company's 1998 Fiscal Year. This Plan shall be renewable for additional one-year periods upon action of the Board. 14. RIGHTS OF PARTICIPANTS. (a) No Participant shall have any interest in any specific asset or assets of the Company (or any subsidiary) by reason of any account under the Plan. It is intended that the Company has merely a contractual obligation to make payments when due hereunder. (b) No Participant may assign, pledge, or encumber his or her interest under the Plan, or any part thereof. (c) Nothing contained in this Plan shall be construed to: (i) Give any Participant any right to receive any award other than in the sole discretion of the Committee; (ii) Limit in any way the right of the Company or subsidiary to terminate an Participant's employment at any time; or (iii) Be evidence of any agreement or understanding, express or implied, that a Participant will be retained in any particular position, at any particular rate of remuneration or for any length of time. NORTHLAND CRANBERRIES, INC. 1998 INCENTIVE BONUS PLAN SCHEDULE A MAXIMUM PERCENTAGE BONUS LEVEL POSITIONS OF BASE SALARY VII Chairman and Chief Executive Officer 70% President and Chief Operating Officer VI Executive Vice-President 60% Vice-President - Chief Financial Officer Vice-President - Corporate Secretary V Vice-President - Purchasing & Budget 50% Vice-President - East Coast Operations Vice-President - Agricultural Operations Vice-President - Manufacturing Department Directors IV Managers 30% III Assistant Managers 20% II Other Full-Time Employees 10% I Seasonal Employees 0% NORTHLAND CRANBERRIES, INC. 1998 INCENTIVE BONUS PLAN SCHEDULE B BONUS CRITERIA BONUS PERCENTAGE LEVEL Sum of: VII Company's Net Income Per Common Share Equals-- 90% or more of Target Earnings 30% 100% or more of Target Earnings 20% More than 100% of Target 1% for Each Percentage Earnings Point over Target Earnings up to 10% Maximum Criteria adopted by Committee Discretionary from Based on Executive's contribution 0 to 10% towards enhancement of Company's _____________________ long-term outlook Maximum Bonus 70% of Base Salary VI Company's Net Income Per Common Share Equals-- 90% or more of Target Earnings 20% 100% or more of Target Earnings 20% More than 100% of Target 1% for Each Percentage Earnings Point over Target Earnings up to 10% Maximum Achievement of Department Goals 10% _____________________ Maximum Bonus 60% of Base Salary V Company's Net Income Per Common Share Equals-- 90% or more of Target Earnings 10% 100% or more of Target Earnings 15% More than 100% of Target 1% for Each Percentage Earnings Point over Target Earnings up to 10% Maximum Achievement of Department Goals 15% _____________________ Maximum Bonus 50% of Base Salary IV Company's Net Income Per Common Share Equals-- 100% or more of Target Earnings 10% More than 100% of Target 1% for Each Percentage Earnings Point over Target Earnings up to 10% Maximum Achievement of Individual Goals 10% _____________________ Maximum Bonus 30% of Base Salary III Company's Net Income Per Common Share Equals-- 100% or more of Target Earnings 5% More than 100% of Target 1% for Each Percentage Earnings Point over Target Earnings up to 5% Maximum Achievement of Individual Goals 10% _____________________ Maximum Bonus 20% of Base Salary II Company's Net Income Per Common Share Equals-- 100% or more of Target Earnings 5% Achievement of Individual Goals 5% _____________________ Maximum Bonus 10% of Base Salary I Discretionary Bonuses EX-13 10 NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data) Five Months Years Ended August 31, Ended Fiscal Years Ended March 31(1) August 31, STATEMENT OF 1997 1996 1995(1) 1995 1994 1993 OPERATIONS DATA: Revenues $47,375 $37,608 $ 891 $21,784 $18,051 $13,000 Cost of sales 23,171 16,517 1,401 13,057 8,751 6,345 ------- ------- ------- -------- ------- ------- Gross profit (loss) 24,204 21,091 (510) 8,727 9,300 6,655 Costs and expenses: Selling, general and administrative 15,963 7,020 1,908 2,440 2,046 1,474 Interest 4,493 2,657 1,919 3,654 2,394 2,028 ------- ------- ------- ------- ------- ------- Total costs and expenses 20,456 9,677 3,827 6,094 4,440 3,502 ------- ------- ------- ------- ------- ------- Income (loss) before income taxes and change in accounting method 3,748 11,414 (4,337) 2,633 4,860 3,153 Income taxes 1,516 4,509 (1,689) 1,051 1,917 1,210 Change in accounting method -- -- 1,249 -- -- -- -------- -------- --------- ------- ------- ------- Net income (loss) $ 2,232 $ 6,905 $(1,399) $ 1,582 $ 2,943 $ 1,943 ========== ========== ========== ========== ========== ========== Weighted average shares outstanding(3) 14,308,845 13,927,820 9,393,656 8,890,850 8,834,774 7,636,712 Per share data:(3) Net income (loss) $0.16 $0.50 $(0.15) $0.18 $0.33 $0.25 Cash dividends:(2) Class A common $0.16 $0.145 $0.06 $0.14 $0.175 $0.08 Class B common $0.145 $0.132 $0.055 $0.127 $0.159 $0.073 August 31 March 31(1) BALANCE SHEET DATA: 1997 1996 1995 1995 1994 1993 Current assets $ 39,691 $ 18,617 $ 11,740 $ 6,746 $ 5,598 $ 8,309 Current liabilities 11,545 12,067 10,583 10,169 4,485 4,949 Total assets 180,932 145,485 121,745 107,745 83,074 67,703 Long-term debt 83,131 56,978 45,538 55,793 38,945 25,098 Shareholders' equity 76,811 69,059 59,113 34,627 33,125 31,572 _______________ (1) The Company changed its fiscal year end from March 31 to August 31, beginning after a five-month interim transitional period ending on August 31, 1995. See Note 3 to 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 $0.20 per Class A share and $0.182 per Class B share, paid in June 1993, plus three quarterly dividends of $0.05 per Class A share and $0.0455 per Class B share, paid in September 1993, December 1993 and March 1994. (3) All share and per share data has been adjusted for the Company's September 3, 1996 stock split.
MANAGEMENT'S DISCUSSION AND ANALYSIS of Results of Operations and Financial Condition RESULTS OF OPERATIONS General Fiscal 1997 continued to be a year of transition for the Company as it aggressively implemented its "from marsh to market" vertical integration business strategy. Prior to fiscal 1997, the Company sold substantially all of its crop under fixed price contracts to two large manufacturers of private label cranberry beverages. With the nonrenewal of those contracts in March 1996, the Company began aggressively selling its own cranberry crop directly to customers, including manufacturing and distributing its own Northland brand 100% juice cranberry beverages to supermarkets. As a result of the Company's changing business nature between fiscal 1996 and 1997, some comparisons between periods are not particularly meaningful or informative. Additionally, per share data has been adjusted for the Company's September 3, 1996 two-for-one stock split, effected in the form of a 100% stock dividend. 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. The Company expects that its Northland brand juice sales will continue to increase in fiscal 1998 as the Company expands its promotional support and distribution of its juice products. The Company, however, believes that sales of its concentrate and private label products will be very price competitive in fiscal 1998. Fresh fruit sales are expected to be consistent with fiscal 1997 levels and are expected to continue to decrease as a percentage of aggregate revenue. 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 costs 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. The Company's fiscal 1998 crop harvest is expected to be at record levels, which will favorably impact fiscal 1998 gross margins. However, other factors such as concentrate and private label pricing and the Company's product mix will likely offset such favorable gross margin enhancements. 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 million. The Company expects to significantly increase market spending in support of its brand to approximately $24 million in fiscal 1998. 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 "from 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. As of August 31, 1997, the Company had net operating loss carry-forwards for federal and state income tax purposes of $7.6 million remaining to offset against future taxable income. 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 was $0.16 in fiscal 1997, compared to net income per common share 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 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 "from 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 was $0.50 in fiscal 1996, compared to net income per common share 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. FINANCIAL CONDITION 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. The Company expects trade accounts receivable and inventory levels to continue to increase in the normal course of business in fiscal 1998 as it continues to increase branded juice, private label and cranberry concentrate sales. 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 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. The Company expects its fiscal 1998 property and equipment additions to be comparable to fiscal 1997. The Company's fiscal 1998 debt service and capital expenditure obligations will be funded with cash generated from operations and by borrowings under the Company's amended October 1997 credit facilities. 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 million, increasing its revolving credit availability by $20 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. Seasonality and Quarterly Results: As shown in the table below, the Company's business prior to fiscal 1997 had been extremely seasonal because the Company's historical results of operations had been significantly dependent upon the results of the Company's annual harvest. The successful implementation of the Company's marsh to market strategy is expected to help reduce the extreme seasonality of its business, although the Company expects its juice sales to experience seasonality during the traditional Thanksgiving and Christmas holiday seasons. 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 (Dollars in thousands, except per share data) Aug. 31, May 31, Feb. 28, Nov. 30, Aug. 31, May 31, Feb. 29, Nov. 30, 1997 1997 1997 1996 1996 1996 1996 1995 Revenues $12,565 $10,377 $13,513 $10,920 $ 5,246 $ 6,675 $ 3,984 $21,703 Income (loss) before income taxes (1,662) 394 2,531 2,485 (1,091) 1,435 254 10,816 Net income (loss) (1,021) 225 1,526 1,502 (669) 855 149 6,570 Net income (loss) per share (0.07) 0.02 0.11 0.11 (0.05) 0.06 0.01 0.48 Dividends per share: Class A 0.04 0.04 0.04 0.04 0.04 0.035 0.035 0.035 Class B 0.036 0.036 0.036 0.036 0.036 0.032 0.032 0.032
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain matters in this Management's Discussion and Analysis, as well as other matters discussed in this annual report are "forward-looking statements" intended to quality for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include such words as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undo reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this annual report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 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 NORTHLAND CRANBERRIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS August 31, 1997 and 1996 ASSETS 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 =========== =========== See notes to consolidated financial statements. 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
Years Ended Five Months August 31, August 31, Ended Year Ended 1997 1996 August 31, 1995 March 31, 1995 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 common and common equivalent share 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 common and common equivalent share $ 0.16 $ 0.50 $ (0.15) $ 0.18 ======== ======== ========== ========
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended August 31, 1997 and 1996, March 31, 1995 and Five-Month Transition Period Ended August 31, 1995
Years Ended Five Months August 31, August 31, Ended Year Ended 1997 1996 August 31, 1995 March 31, 1995 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 (1,350,827) 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 year 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).
See notes to consolidated financial statements. 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
Common Stock Additional Paid-In Retained Treasury Class A Class B Capital Earnings Stock 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 28,907,583 5,675,667 0 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 0 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 0 Common stock issues 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 $ 0 ========= ========= ========== ========== ========
See notes to consolidated financial statements. 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. 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 Per Common and Common Equivalent Share -- Net income per common and common equivalent share is computed based upon the weighted average number of common shares and common equivalent shares (stock options) outstanding during the year (14,308,845, 13,927,820, 9,393,656 and 8,890,850 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). 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. 128, "Earnings Per Share;" 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, 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. 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: 1997 1996 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 ========== ========== 7. PROPERTY AND EQUIPMENT Property and equipment at August 31, 1997 and 1996 were as follows: 1997 1996 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 =========== =========== 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. 8. INVESTMENT AND OTHER ASSETS Investments and other assets at August 31, 1997 and 1996 were as follows: 1997 1996 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 ========= ========= 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: 1997 1996 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 ========= ========= 10 NOTES PAYABLE AND LONG-TERM OBLIGATIONS Long-term debt at August 31, 1997 and 1996 was as follows: 1997 1996 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 ========== ========== 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 nine semi-annual payments of $460,000 and $525,000, respectively. Amounts outstanding under the second secured term credit facility are due in seven 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, 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, in any fiscal year 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: 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 ========== 11. SHAREHOLDER'S 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. 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. Weighted Average Number of Exercise Price Range Shares Price 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 ======= The following table summarizes information about stock options outstanding at August 31, 1997:
Options Outstanding Options Exercisable Shares Weighted Out- Average Weighted Shares Weighted standing Remaining Average Exercisable Average Range of Exercise at August Contractual Exercise at August Exercise Prices 31, 1997 Life-Years Price 31, 1997 Price $ 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 ===== ====== ======= ===== ====== ======== ======
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): 1997 1996 Net Income: As reported $2,232,000 $6,905,000 Pro forma $2,124,000 $6,037,000 Net Income per share: As reported $ 0.16 $ 0.50 Pro forma $ 0.15 $ 0.44 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. 13. INCOME TAXES The provisions for income taxes is as follows: August 31, August 31, August 31, March 31, 1997 1996 1995 1995 Currently payable: Federal $ -- $2,997,000 $ -- $ 141,000 State -- 223,00 -- -- --------- --------- --------- --------- -- 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 ========= ========= ========== ========= 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: 1997 1996 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 ========== ========== 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: August 31, August 31, August 31, March 31, 1997 1996 1995 1995 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% ==== ==== ==== ==== 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 of 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 noncancellable operating lease agreements for the next three fiscal years ending August 31 are as follows: 1998 $ 376,000 1999 371,000 2000 401,000 --------- $1,148,000 ========= 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. 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. EX-23.1 11 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-32525 of Northland Cranberries, Inc. on Form S-8 of our report dated October 9, 1997, (which expresses an unqualified opinion and includes an explanatory paragraph relating to a change in the method of deferring crop growing costs) appearing in the Annual Report on Form 10-K of Northland Cranberries, Inc. for the year ended August 31, 1997. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Milwaukee, Wisconsin November 26, 1997 EX-27 12
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF NORTHLAND CRANBERRIES, INC. AS OF AND FOR THE TWELVE MONTHS ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS AUG-31-1997 SEP-01-1996 AUG-31-1997 230,668 1,259,548 6,995,595 0 26,454,087 39,690,735 161,865,389 23,592,348 180,932,410 11,544,922 83,130,707 0 0 138,436 67,888,801 180,932,410 46,252,656 47,374,827 23,170,154 15,963,109 0 0 4,493,104 3,748,460 1,516,000 2,232,460 0 0 0 2,232,460 0.16 0.16
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