-----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, RWHMdDiHPnBi0UxxEa216O/vYXMoptTrLWEyryVmVEFNbqSzNhSKbIHOd3xNqqfM MJZdkxkqcCKAEml/SzkNlQ== 0000897069-01-000017.txt : 20010123 0000897069-01-000017.hdr.sgml : 20010123 ACCESSION NUMBER: 0000897069-01-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010112 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-Q SEC ACT: SEC FILE NUMBER: 000-16130 FILM NUMBER: 1508186 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-Q 1 0001.txt NORTHLAND CRANBERRIES, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2000 ------------------ OR TRANSITION REPORT PURSUANT TO SECTION 13 AND 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 or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or organization) 800 First Avenue South P.O. Box 8020 Wisconsin Rapids, Wisconsin 54495-8020 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) Registrant's telephone number, including area code (715) 424-4444 -------------- - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. 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 __ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class A Common Stock January 12, 2000 19,702,221 Class B Common Stock January 12, 2000 636,202 1 NORTHLAND CRANBERRIES, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements........................................... 3 Condensed Consolidated Balance Sheets.......................... 3 Condensed Consolidated Statements of Operations................ 4 Condensed Consolidated Statements of Cash Flows................ 5 Notes to Condensed Consolidated Financial Statements........... 6-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................15-22 Item 3. Quantitative and Qualitative Disclosure About Market Risk................................................. 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 23 Item 3. Defaults Upon Senior Securities................................ 23 Item 5. Other Information.............................................. 23 Item 6. Exhibits and Reports on Form 8-K............................... 24 SIGNATURE...................................................... 24 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------------------------------------------------------------------------------------------------------------------- NORTHLAND CRANBERRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited) November 30, August 31, 2000 2000 ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 468 $ 164 Accounts receivable 15,703 20,650 Current portion of note receivable and accounts receivable - other 8,069 7,787 Refundable income taxes 1,081 1,102 Inventories 48,302 48,201 Prepaid expenses 1,145 908 Assets held for sale 6,645 6,645 ----------- ---------- Total current assets 81,413 85,457 Note receivable, less current portion 25,500 26,000 Property and equipment - net 151,142 153,119 Intangible assets - net 18,980 19,193 Other assets 466 466 ----------- ---------- Total assets $ 277,501 $ 284,235 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 22,628 $ 31,357 Accrued liabilities 20,585 18,489 Current maturities of long-term debt 17,643 12,643 Long-term debt classified as a current liability 159,284 164,459 ----------- ---------- Total current liabilities 220,140 226,948 Long-term debt, less current maturities 3,813 3,927 ----------- ---------- Total liabilities 223,953 230,875 ----------- ---------- Shareholders' equity: Common stock - Class A, $.01 par value, 19,702,221 shares issued and outstanding 197 197 Common stock - Class B, $.01 par value, 636,202 shares issued and outstanding 6 6 Additional paid-in capital 148,977 148,977 Accumulated deficit (95,632) (95,820) ----------- ---------- Total shareholders' equity 53,548 53,360 ----------- ---------- Total liabilities and shareholders' equity $ 277,501 $ 284,235 =========== ========== See notes to condensed consolidated financial statements.
3 NORTHLAND CRANBERRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited)
For the three months ended November 30, 2000 1999 --------- ---------- Revenues $ 44,762 $ 74,967 Cost of sales 30,159 51,555 --------- --------- Gross profit 14,603 23,412 Selling, general and administrative expenses 10,834 19,948 Gain on disposals of property and equipment (410) - --------- --------- Income from operations 4,179 3,464 Interest expense 4,685 2,911 Interest income (694) - --------- --------- Income before income taxes 188 553 Income taxes - 232 --------- --------- Net income $ 188 $ 321 ========= ========= Net income per share: Basic $ 0.01 $ 0.02 Diluted $ 0.01 $ 0.02 Shares used in computing net income per share: Basic 20,338,423 20,304,702 Diluted 20,338,423 20,338,423 See notes to condensed consolidated financial statements.
4 NORTHLAND CRANBERRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (Unaudited)
For the three months ended November 30, 2000 1999 ---- ---- Operating activities: Net income $ 188 $ 321 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 2,115 2,196 Amortization of intangible assets 213 361 Provision for deferred income taxes - 198 Gain on disposals of property and equipment (410) - Changes in assets and liabilities: Receivables, prepaid expenses and other current assets 4,699 (3,836) Inventories (101) (27,783) Accounts payable and accrued liabilities (6,633) 16,898 --------- --------- Net cash provided by (used in) operating activities 71 (11,645) --------- --------- Investing activities: Collection on note receivable 250 - Property and equipment purchases (183) (2,777) Proceeds from disposals of property and equipment 455 - Net decrease in other assets - 91 --------- --------- Net cash provided by (used in) investing activities 522 (2,686) --------- --------- Financing activities: Net increase in borrowings under revolving credit facilities - 15,250 Payments on long-term debt (289) (253) Dividends paid - (809) Proceeds from exercise of stock options - 175 --------- --------- Net cash (used in) provided by financing activities (289) 14,363 --------- --------- Net increase in cash and cash equivalents 304 32 Cash and cash equivalents, beginning of period 164 769 --------- --------- Cash and cash equivalents, end of period $ 468 $ 801 ========= ========= See notes to condensed consolidated financial statements.
5 NORTHLAND CRANBERRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared by Northland Cranberries, Inc. (collectively with its subsidiaries, the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission and reflect normal and recurring adjustments, which are, in the opinion of the Company, considered necessary to present fairly the financial position of the Company as of November 30, 2000 and August 31, 2000 and its related results of operations and cash flows for the three months ended November 30, 2000 and 1999. As permitted by these regulations, these condensed consolidated financial statements do not include all information required by accounting principles generally accepted in the United States of America to be included in an annual set of financial statements; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The Company's condensed consolidated balance sheet as of August 31, 2000 was derived from the Company's latest audited consolidated financial statements. It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the latest audited consolidated financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. Going Concern - The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Recent production levels of cranberries in the United States have been in excess of demand and usage which has resulted in an industry-wide excess of supply of frozen cranberries and cranberry concentrate. Prices paid to growers for raw cranberries are currently below production costs for many growers. In July 2000, the United States Department of Agriculture ("USDA") adopted a federal marketing order which is designed to reduce the industry-wide cranberry crop from levels of that of the past three years. The Company currently operates in a marketplace that has experienced increased levels of competitive price discounting and selling activities as the industry responds to the excess cranberry supply levels. In addition, Federal legislation signed on October 27, 2000 provides for an aggregate of approximately $20 million in direct payments to certain growers with funds from the Commodity Credit Corporation ("CCC") and approximately $30 million in funding for the USDA to purchase cranberry products for school lunch and other meal programs. Management expects to receive approximately $1.1 million in direct payments from the CCC in fiscal 2001 and is currently evaluating its alternatives with respect to participating in the USDA cranberry product purchase programs. During the year ended August 31, 2000, the Company incurred a net loss of approximately $105 million. As shown in the condensed consolidated financial statements and for the reasons stated below, as of November 30, 2000, the Company's current liabilities exceeded its current assets by approximately $138.7 million and the Company was not in compliance with several provisions of certain long-term debt 6 agreements. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As described in Note 3, the Company has not made interest payments on the revolving credit facility since August 31, 2000, and did not make a $5.0 million principal payment due November 30, 2000, and the Company was not in compliance with several provisions of its revolving credit agreement and other long-term debt agreements as of and for the three months ended November 30, 2000 and the year ended August 31, 2000. The Company has entered into a forbearance agreement with the syndicate of banks providing the revolving credit facility which provides for deferral of principal and interest payments on the revolving credit facility until February 12, 2001 as long as the Company is in compliance with the forbearance agreement. Accordingly, as also described in Note 3, because the lenders have not waived these covenant defaults, the balance of the revolving credit facility and long-term debt agreements have been classified as a current liability. Under the terms of the Company's debt agreements, the lenders have the ability to call all outstanding principal and interest thereunder due and payable in the relative short-term. In addition, the Company is not in compliance with the terms of its grower contracts. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to comply with the terms and covenants of its financing agreements, to obtain additional financing or refinancing as may be required, and ultimately to attain successful operations. Management is continuing its efforts to obtain additional funds through additional equity and debt financing, to reduce costs and related near-term working capital requirements and to explore various strategic alternatives related to the sale of all or a portion of the Company's assets or common stock so the Company can meet its obligations and sustain its operations. Despite these efforts, management cannot provide assurance that the Company will be able to obtain additional financing or that cash flows from operations will be sufficient to allow it to meet its obligations. Long-Lived Assets - The Company periodically evaluates the carrying value of property and equipment and intangible assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of an asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Income Taxes - The Company accounts for income taxes using an asset and liability approach which generally requires the recognition of deferred income tax assets and liabilities based on the expected future income tax consequences of events that have previously been recognized in the Company's financial statements or tax returns. In addition, a valuation allowance is recognized if it is more likely than not that some or all of the deferred income tax assets will not be realized. There was no provision for income taxes for the three months ended November 30, 7 2000 as the Company realized a benefit of approximately $64,000 related to the utilization of certain deferred income tax assets (primarily net operating loss carryforwards) for which a valuation allowance had been provided for. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. New Accounting Standards - In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," SFAS 133 and SFAS 138 establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The Company adopted SFAS 133 and SFAS 138 effective September 1, 2000. The Company's adoption of SFAS 133 and SFAS 138 had no significant effect on the Company's consolidated financial statements as the Company does not use derivative financial instruments and is not involved in hedging activities. In May 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-14, "Accounting for Certain Sales Incentives." The Company is currently evaluating the impact of this statement on its consolidated financial statements. This statement is required to be adopted no later than the fourth quarter of fiscal 2001. Reclassifications - Certain amounts previously reported have been reclassified to conform with the current presentation. 2. DISPOSITION OF BUSINESS AND RELATED LEGAL PROCEEDINGS On March 8, 2000, the Company sold the net assets of its private label juice business to Cliffstar Corporation ("Cliffstar"), pursuant to an asset purchase agreement ("Asset Purchase Agreement"), dated January 4, 2000. The private label juice business assets sold consisted primarily of finished goods and work-in-process inventories, raw materials inventories consisting of labels and ingredients that relate to customers of the private label juice business (other than cranberry juice and cranberry juice concentrates), certain trademarks and goodwill, contracts relating to the purchase of raw materials inventory and the sale of products, and 135,000 gallons of cranberry juice concentrate. No plants or equipment were included in the sale. Cliffstar also assumed certain obligations under purchased contracts. In connection with the sale, the Company received from Cliffstar an unsecured, subordinated promissory note for $28 million (non-cash investing activity) which will be amortized over six years and which bears interest at a rate of 10% per annum. 8 Additionally, Cliffstar is contractually obligated to make certain annual earn-out payments to the Company for a period of six years from the closing date based generally on operating profit from Cliffstar's sale of cranberry juice products. The Company also entered into certain related agreements with Cliffstar, including among them a co-packing agreement pursuant to which Cliffstar contracted for specified quantities of Cliffstar juice products to be packed by the Company during each year of the period in which Cliffstar is making earn-out payments to the Company. The private label juice business had revenues of approximately $12.5 million for the three months ended November 30, 1999. The Company recognized gross profit of approximately $2.3 million on such revenues during the three months ended November 30, 1999. Information with respect to selling, general and administrative expenses with respect to the private label juice business is not available, as the Company's accounting system does not segregate such expenses by type of product. On July 7, 2000, Cliffstar filed suit against the Company in the United States District Court, Western District of New York, alleging, among other things, that the Company breached certain representations and warranties in the Asset Purchase Agreement. That lawsuit was subsequently dismissed, and on July 31, 2000, the Company filed a lawsuit against Cliffstar in the Northern District of Illinois, which was later amended on October 10, 2000. The lawsuit arises out of the sale of the net assets of the Company's private label juice business to Cliffstar in the transaction that closed on March 8, 2000. The Company claims that (1) Cliffstar breached the Asset Purchase Agreement by failing to make required payments under the Asset Purchase Agreement and by failing to negotiate in good faith concerning a cranberry sauce purchase agreement between the parties; (2) Cliffstar breached an interim cranberry sauce purchase agreement between the two companies by failing to adequately perform and to pay the Company the required amounts due under it; (3) Cliffstar breached its fiduciary duty to the Company based on the same (or similar) conduct; (4) Cliffstar breached the promissory note issued by it in the transaction by failing to make its payments in a timely manner and failing to pay all of the interest due; and (5) Cliffstar breached a co-packing agreement entered into in connection with the sale by failing to make required payments thereunder and other misconduct. The Company also claims that Cliffstar breached its fiduciary duties to the Company. The Company seeks compensatory damages in an amount in excess of $5 million, plus punitive damages for Cliffstar's breaches of its fiduciary duties and attorneys' fees. Cliffstar's answer to the Company's amended complaint was received on November 15, 2000. Cliffstar has asserted counterclaims against the Company, alleging that (1) the Company fraudulently induced Cliffstar to enter into the Asset Purchase Agreement; (2) the Company has breached the Asset Purchase Agreement by failing to negotiate in good faith a cranberry sauce purchase agreement, by failing to provide Cliffstar with sufficient quantities of cranberry concentrate meeting Cliffstar's "specifications," by selling inventory that did not have a commercial value at least equal to the Company's carrying value, by failing to notify Cliffstar that the Company intended to write-down its cranberry inventory, by not providing Cliffstar its selling prices, by decreasing its level of service to customers after the parties signed the Asset Purchase Agreement, and by refusing to turn over certain labels, films and plates relating to the 9 private label juice business to Cliffstar; (3) the Company breached the co-packing agreement by prematurely terminating that agreement; (4) the Company converted the labels, films and plates relating to the private label juice business; and (5) the Company intentionally interfered with Cliffstar's contractual relations, or reasonable expectations of entering into business relations, with the printers who hold the labels, films and plates. Cliffstar seeks compensatory damages in an amount not stated in the counterclaims, punitive damages for the alleged fraudulent inducement and intentional interference claims, and attorneys' fees. The complaint does not seek rescission of the agreement, although Cliffstar reserves the right to seek recovery of rescission-type damages (among other damages) without seeking to unwind the transaction. The Company has denied the allegations of Cliffstar's counterclaims in all material respects. As of November 30, 2000, the note receivable from Cliffstar had an outstanding balance of $27.5 million, and the Company had outstanding accounts receivable and accrued interest due from Cliffstar aggregating approximately $6.1 million. The action is in its early stages. No depositions have been taken or scheduled and the Company has only begun to conduct discovery. It is the opinion of the Company's management, after consulting with outside legal counsel, that, (1) the Company has strong claims for the required payments for cranberry concentrate, co-packing services and cranberry sauce sales and other alleged breaches of the agreements and these amounts owed the Company are valid and collectible; (2) the Company has strong factual and legal defenses in all material respects to Cliffstar's counterclaims; and (3) the note and accrued interest due from Cliffstar is collectible. However, the resolution of the legal proceedings cannot be predicted with certainty at this time. In addition, management intends to vigorously defend the counterclaims against them and to pursue any claims they may have against Cliffstar, including any actions to collect the amounts outstanding. Cliffstar made the required $ 0.25 million principal and related accrued interest payment on the note receivable that was due on May 31, 2000 on June 13, 2000, and the Company, after consulting with its outside legal counsel, concluded that the payment was received late and, thus, the note is in default with future interest accruing at the default rate of 12%. The Company received Cliffstar's scheduled August 31, 2000 principal payment of $ 0.25 million together with approximately $ 0.7 million of accrued interest at 10% on September 8, 2000. The Company received Cliffstar's scheduled November 30, 2000 principal payment of $ 0.25 million together with approximately $ 0.7 million of accrued interest at 10% on December 22, 2000. The Company has recognized interest income on the note receivable at a rate of 10% in the condensed consolidated financial statements, pending the resolution of this matter. Although the note is in default, the Company has classified the balance outstanding in the accompanying condensed consolidated balance sheets in accordance with the scheduled payment dates provided for in the note, as this is how the Company anticipates payments will be received unless the court rules otherwise. 10 3. LONG-TERM DEBT Long-term debt as of November 30 and August 31, 2000 consisted of the following (in thousands): November 30, August 31, 2000 2000 Revolving credit facility with a bank $155,000 $155,000 Term loan payable to insurance company with interest at 8.08% 11,377 11,377 Term loan payable to insurance company with interest at 7.86% 7,719 7,719 Term note with a bank 2,333 2,508 Promissory note with a vendor with interest at 5% 1,600 1,600 Other obligations 2,711 2,825 ------ ----- Total 180,740 181,029 Less:Current maturities of long-term debt 17,643 12,643 Amounts classified as current liability 159,284 164,459 -------- ------- Amounts classified as noncurrent $ 3,813 $ 3,927 ======== ======== The Company was not in compliance with various financial covenants under the revolving credit facility, the two term loans payable to an insurance company, and the term note with a bank as of November 30, 2000 and August 31, 2000, and the Company has not received waivers for any of these covenant defaults. On December 13, 2000 the Company entered into a forbearance agreement with the syndicate of banks providing the revolving credit facility. The agreement provides, among other things, for the deferral of interest and principal payments until February 12, 2001. The Company is also working on a similar forbearance agreement with the insurance company providing term loans. As a result, the borrowings under the revolving credit facility, the two term loans payable to an insurance company and the term note payable to a bank have been classified as a current liability in the accompanying condensed consolidated balance sheets. On March 15, 1999, the Company entered into a credit agreement with its syndicate of banks (the "Credit Agreement") that provides for a revolving credit facility of $140 million. On December 29, 1999, the Credit Agreement was amended, increasing the amount that could be borrowed under the revolving credit facility to $155 million. The Credit Agreement was subsequently amended effective February 29, 2000 and July 17, 2000 for financial covenant defaults. The revolving credit facility terminates on February 28, 2002. Under the terms of the Credit Agreement, the outstanding principal amount is scheduled to be reduced by $5.0 million on the last day of each of the first and third quarters of the Company commencing with the fiscal quarters ending November 30, 2000 and May 31, 2001 and continuing thereafter until the termination date of the agreement (however, the forbearance agreement allows for deferral of the November 30, 2000 principal payment). Under the amended revolving credit facility, the Company, through July 17, 2000, could borrow at the bank's domestic rate (which approximates prime, as defined) or LIBOR plus one and one-quarter percent (1.25%). Effective July 18, 2000, the interest rate was increased to the bank's domestic rate (which approximates prime, as 11 defined), plus 1.25%. Under the terms of the amended revolving credit facility, interest accrues at the bank's domestic rate, plus 2.0%, while the loan is in default. The borrowing option under LIBOR is no longer available. Amounts outstanding under the agreement bear interest at a weighted average of 11.5% and 10.09% as of November 30, 2000 and August 31, 2000, respectively. The Company has not made interest payments to the bank since August 31, 2000, and did not make a $5.0 million principal payment due November 30, 2000. The credit facility is collateralized by substantially all assets of the Company not otherwise collateralized. Included in accrued liabilities as of November 30, 2000 is approximately $5.2 million of outstanding interest on the revolving credit facility. The 8.08% term loan with an insurance company is payable in semi-annual installments, including interest, through July 1, 2004. The loan is collateralized by specific property and equipment. The 7.86% term loan with an insurance company is payable in semi-annual installments, including interest, through August 1, 2008. The interest rate is subject to adjustment in fiscal year 2003, as determined by the insurance company, but the adjusted rate will not exceed 2.25% over the then five-year treasury bond yield. The loan is collateralized by specific property and equipment. The term note with a bank is payable in monthly installments, including interest, through March 2002, at which time the remaining principal must be paid. The interest rate on this term note is 1% per annum less than the prime rate, as defined, or LIBOR plus an applicable rate margin (2%) at the option of the Company. The weighted average interest rate on the outstanding borrowings was 8.5% and 7.79% as of November 30, 2000 and August 31, 2000, respectively. The note is collateralized by specific property and equipment. The two term loans with an insurance company and the bank term note all have higher default interest rates specified while the loans are in default, as defined, if the scheduled principal and interest payments are not made. The Company has made all scheduled principal and interest payments on these loans through November 30, 2000 and has not accrued interest at the higher default rates. The promissory note with a vendor is unsecured and is payable, including interest at 5%, on October 24, 2002. The note provides that each $100 increment of the outstanding principal and accrued interest will be convertible into one share of $100 stated value Series A Convertible Preferred Stock ("Preferred Stock"), which series of Preferred Stock is yet to be established by the Board of Directors of the Company, 180 days after the occurrence of a refinancing, as defined. Each share of Preferred Stock will be convertible into 40 shares of Class A Common Stock at the option of the holder or automatically upon the occurrence of certain events. Each share of Preferred Stock will entitle the holder to receive cumulative annual cash dividends at a rate of 5% on the $100 stated value. The other obligations consist of various term loans with financial institutions with principal and interest due in various amounts through January 2007. These loans are generally collateralized by specific property and equipment. 12 The debt agreements contain various covenants which include restrictions on dividends and other distributions to shareholders, repurchases of stock, and require the Company to maintain and meet certain minimum levels of shareholders' equity ($125 million as of November 30, 2000) and operating ratios, as defined. The Company has also guaranteed $1.0 million of outstanding obligations to a bank of an independent cranberry grower. The grower is in default with certain terms and conditions contained in the related debt agreements. Management of the Company is of the opinion that the potential for any loss to the Company is minimal. 4. RESTRUCTURING ACCRUALS In the fourth quarter of fiscal 2000, the Company recorded an $8.25 million pre-tax restructuring charge, consisting primarily of a $6.0 million writedown of a manufacturing facility that discontinued production in Bridgeton, New Jersey on November 22, 2000 and $2.25 million of plant closing costs (primarily cleanup, security and insurance costs) and employee termination benefits. Approximately 130 employees received notification of their termination in fiscal 2000 as a result of the restructuring plan, primarily at the Bridgeton facility and in the Company's sales department. The Bridgeton facility is held for sale. The following table summarizes the activity within the recorded accruals during the three months ended November 30, 2000 (in thousands): Accrued at Cash Accrued at August 31, 2000 Payments November 30, 2000 Plant closing costs $ 770 $ 97 $ 673 Employee termination benefits 1,480 589 891 ----- ---- --- Total $2,250 $686 $ 1,564 ====== ==== ======= 5. SUPPLY CONTRACTS The Company has multiple-year crop purchase contracts with 47 independent cranberry growers pursuant to which the Company has contracted to purchase all of the cranberry crop produced on 1,755 planted acres owned by these growers. These contracts generally last for seven years, starting with the 1999 calendar year crop, and pay the growers at a market rate, as defined, for all raw cranberries delivered plus $3 per barrel and certain incentives for premium cranberries. In September 2000, the Company was unable to make an aggregate payment of approximately $0.7 million due to the growers under the terms of the contracts and the Company notified the growers of the Company's intention to also defer payments required in fiscal 2001 under the contract for the 2000 calendar year crop. Accordingly, the Company is currently in default under the terms of the grower contracts. However, the contracted growers harvested and delivered their 2000 calendar year crop to the Company subsequent to August 31, 2000. The Company intends to pursue amendment of the payment terms required under the contracts and seek the necessary waivers from the growers. The ultimate resolution of this matter is currently undeterminable. 13 6. 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. 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. During fiscal 2000, the Company determined that it was no longer economically feasible to operate these marshes and has entered into negotiations to terminate the lease in fiscal 2001. On September 5, 1991, the Company entered into a net lease with Equitable Life Assurance Society of the United States ("Equitable") for the 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 expired on December 31, 2000, granted 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 agreement also provided for payments to Cranberry Hills of 25% of the premises income, if any, during the term of the lease with Equitable. The Company is currently in discussions with Equitable to renew the lease. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINACIAL CONDITION AND RESULTS OF OPERATIONS GENERAL As of November 30, 2000, we remained in default of several covenants of our revolving credit agreement and other long-term debt agreements. We did not make interest payments on our revolving credit facility in the first quarter of fiscal 2001 aggregating $5.2 million and did not make a $5.0 million principal payment due November 30, 2000. However, we continue to work closely with our lenders to renegotiate the terms of our debt arrangements. On December 13, 2000, we entered into a forbearance agreement with our syndicate of banks pursuant to which the banks agreed to allow us to defer principal and interest payments due under our revolving credit facility until February 12, 2001. During this period, the banks also agreed not to exercise various remedies available to them as a result of our defaults as long as we remain in compliance with the terms and conditions of the forbearance agreement. We agreed with the banks to perform certain actions, among them (i) paying the banks a forbearance fee; (ii) obtaining a forbearance agreement and waivers from certain other creditors and third parties; (iii) moving certain company accounts to the agent bank; and (iv) promptly supplying the banks with certain financial and other information. While the forbearance agreement allowed us to defer principal and interest payments due during the first quarter of fiscal 2001, we accrued the full amount of all of the interest expense in our statement of operations. We continue to work closely with the bank group and various third parties to secure compliance with the terms of the forbearance agreement. Additionally, we continue to actively explore alternative sources of debt and equity capital and ways in which we can refinance all or some of our indebtedness, and we expect to receive refinancing proposals from alternative financial institutions prior to the end of the forbearance period. We have recently taken several steps that we believe positively contributed to our results of operations in the first quarter of fiscal 2001: o We entered into a strategic marketing alliance with Crossmark, Inc., a national food broker, effective in the first quarter of fiscal 2001, whereby we combined our sales and marketing efforts and further consolidated our food broker network with Crossmark. o We began to refocus our trade promotional strategies to emphasize profitability as opposed to generating revenue growth and, in the first quarter of fiscal 2001, certain higher-cost promotional activities we entered into in fiscal 2000 expired or were renegotiated. We believe these steps helped to reduce our selling, general and administrative expenses in the first quarter of fiscal 2001. o In the first quarter of fiscal 2001, we increased the cranberry juice content in all of our Northland brand 100% juice cranberry blends to 27% and began the rollout of 15 these new reformulated blends, which we refer to as the "27% Solution." While Northland brand 100% juice blends have always contained 100% fruit juice (as opposed to many of our competitors' products which generally contain a lesser percentage of fruit juice sweetened by fructose or corn syrup), they have historically contained only approximately 15% cranberry juice. We have reformulated our Northland blends to include 27% cranberry juice in response to increasing evidence of the potential health benefits associated with drinking cranberry juice. This reformulation should help to reduce our inventory levels since we will use more cranberries per case of juice products. o We completed the previously announced restructuring of our manufacturing operations (including the closing of our Bridgeton facility and transferring of current volume to our remaining production facilities, the terminating of the receiving and processing of grapes at our Dundee, New York facility, consolidation of production and distribution of frozen concentrate volume for the east coast from our Dundee, New York facility to our Mountain Home, North Carolina facility, and the consolidating of our warehouse storage programs throughout the distribution network), which we believe contributed to our lower cost of sales for the quarter. o We converted $1.6 million in outstanding payables to a vendor into a promissory note convertible into convertible preferred stock (and are pursuing similar arrangements with certain other significant trade creditors). o We reduced total personnel in all areas in an effort to reflect the current needs of our business, which contributed to reduced selling, general and administrative expenses for the quarter. The Cranberry Marketing Committee ("CMC") of the United States Department of Agriculture ("USDA") has the authority to recommend that the Secretary of the USDA impose harvest restrictions on cranberry growers if the CMC believes there will be an oversupply of cranberries for the coming crop year. During fiscal 2000, the Secretary of the USDA, at the request and based on the recommendation of the CMC, invoked a volume regulation to restrict the industry-wide harvest of cranberries for the harvest occurring in the fall of 2000. The restriction generally limited cranberry growers to selling only up to 85% of their historic production levels. In response to this federal volume regulation, we temporarily removed some of our Massachusetts acreage from production during the 2000 growing season and altered certain historical growing activities and practices. As a result of this decision, as well as growing conditions in 2000, we experienced a reduced harvest in the fall of 2000, and we believe that the harvest industry wide is down significantly as well. We believe that part of the reduced fall 2000 harvest is attributable to growers like us engaging in practices designed to comply with the volume regulation, including removing acreage from production, limiting or eliminating fertilizing and other growth-enhancing practices, or failing to harvest certain acreage. 16 In addition to the volume regulation and in response to requests from the grower community, the United States Congress approved a $50 million federally funded assistance program in October 2000. Under this plan, the federal government will make direct cash subsidies totaling $20 million to growers. Of this, we expect to receive approximately $1.1 million before the end of fiscal 2001. In addition, $30 million is to be used by the federal government to purchase cranberry products containing the equivalent of approximately one million barrels of cranberries from the industry on a "bid" basis. This purchase will be used in school lunch and other federal programs directed to the needy and disadvantaged. We have not yet determined whether we will participate in the "bid" portion of this program. While we currently continue to experience cash flow difficulties, we hope to improve our cash position and results of operations through focusing on a return to profitability as opposed to driving increased revenues. RESULTS OF OPERATIONS Total revenues for the three months ended November 30, 2000 were $44.8 million, a decrease of 40.3% from revenues of $75.0 million in the prior year's first quarter. The decrese resulted primarily from (i) the sale of the private label juice business in March of 2000; (ii) reduced co-packing revenue from a major customer that during the quarter switched from an arrangement where we purchased substantially all of the ingredients and sold the customer finished product to a fee for services performed arrangement; and (iii) reduced sales of Northland and Seneca branded products. Trade industry data for the 12-week period ended November 5, 2000 showed that our Northland brand 100% juice products achieved a 10.6% market share of the supermarket shelf-stable cranberry beverage category on a national basis, down from a 10.9% market share for the 12-week period ended November 7, 1999. The total combined market share of supermarket shelf-stable cranberry beverages for our Northland and Seneca branded product lines was 12.5% for the 12-week period ended November 5, 2000 compared to a 12.6% market share for the 12-week period ended November 7, 1999. We anticipate that our total revenues will continue to decrease in fiscal year 2001 as compared to fiscal 2000 primarily as a result of anticipated lower co-packing revenues as well as our change in promotional and pricing strategies to focus more on profitability as opposed to revenue growth. Cost of sales for the first quarter of fiscal 2001 was $30.2 million compared to $51.6 million for the first quarter of fiscal 2000, resulting in gross margins of 32.6% and 31.2% in each respective period. The increase in gross margins in fiscal 2001 was primarily due to the elimination of private label juice revenues and reduced co-packing revenues, both of which carry lower margins than sales of our branded products. We currently anticipate that our gross margin will increase in fiscal 2001 as compared to fiscal 2000 primarily due to (i) our changing product mix (including reduced revenues from co-packing services and the elimination of revenues from lower margin private label juice sales); (ii) the effects of the fiscal 2000 inventory adjustments which reduced cranberry cost to estimated market levels; and (iii) the closing of our Bridgeton, New Jersey facility, the sale of our grape business and our grape receiving station in Portland, New York, and other efficiency measures associated with increasing production levels and reducing overhead at our remaining facilities. 17 Selling, general and administrative expenses were $10.8 million, or 24.2% of revenues, for the first quarter of fiscal 2001 compared to $19.9 million, or 26.6% of revenues, in the prior year's first fiscal quarter. The $9.1 million decrease in selling, general and administrative expenses was primarily due to (i) significant reductions in marketing and promotional expenses compared to the first quarter of fiscal 2000 (in which we incurred greater marketing and promotional expense to support the Seneca brand and the launch of a new Seneca line of cranberry juice products, as well as undertook an aggressive marketing campaign to support development and growth of our Northland brand products); (ii) the recent significant revisions to our trade promotional practices to reflect our new focus away from growing sales and market share and toward more profitable operations; (iii) a reduction in personnel costs resulting from our recent restructuring efforts; and (iv) a reduction in personnel costs and selling commissions resulting from our recently announced strategic alliance with Crossmark that outsources and consolidates much of our sales and marketing efforts. The decrease in selling, general and administrative expenses was partially offset by increases in outside professional fees incurred in connection with developing a "turnaround" plan for our operations, negotiating with our lenders regarding the terms of our amended credit facility and related covenant defaults and forbearance agreement, and continuing efforts to seek additional or alternative debt or equity financing. We expect that selling, general and administrative expenses in the remaining quarters of fiscal 2001 will decrease from comparable quarters last year primarily as a result of steps we have taken to focus on increasing profitability as opposed to revenue growth, including the alliance with Crossmark, the planned reduction in trade spending, the consolidation of our warehousing infrastructure and anticipated efficiencies as a result of our new internal information systems. The gain on disposals of property and equipment in the first quarter of fiscal 2001 of $0.4 million resulted primarily from the sale of certain real estate and other assets. Interest expense was $4.7 million in the first quarter of fiscal year 2001 compared to $2.9 million during the same period of fiscal 2000. The increase in interest expense of $1.8 million was due to increased debt levels between the periods and significantly higher interest rates in fiscal 2001 (due in part to revised terms of our revolving credit facility as a result of our defaults thereunder). We remain in default of the terms of our revolving credit facility and other debt agreements with third parties. See "Financial Condition" below. Interest income in the first quarter of fiscal 2001 of $0.7 million was associated with an unsecured, subordinated promissory note we received from Cliffstar in connection with the sale of our private label juice business in March of 2000. There was no income tax expense in the first quarter of fiscal year 2001 as the Company realized a benefit of approximately $64,000 related to the utilization of certain deferred income tax assets (primarily net operating loss carryforwards) for which a valuation allowance had been provided. Future deferred income tax benefits of approximately $30.7 million relating to the fiscal 2000 loss have not been recognized as an asset because of uncertainties with respect to realization of those benefits. These benefits may be recognized in future periods to offset income tax obligations that may need to be recognized. 18 FINANCIAL CONDITION Net cash provided by operating activities was $0.1 million in the first quarter of fiscal 2001 compared to a net cash used in operating activities of $11.6 million in the same period of fiscal 2000. The difference of $11.7 million between periods was primarily due to fiscal 2001 reductions in assets and liabilities compared to significant increases in the same items in fiscal 2000. For example, we would normally experience a seasonal increase in inventory in the first quarter due to the fall harvest of our crop and our purchase of raw cranberries from other independent cranberry growers. However, our inventory increased only $0.1 million in the first quarter of fiscal 2001 compared to an increase of $27.8 million in the first quarter last year. This was primarily because (i) volume intake of raw cranberries was reduced due to the impact of the federal marketing order of the United States Department of Agriculture and prevailing growing conditions related to the fall 2000 harvest; (ii) the price we paid for raw cranberries purchased from our independent growers was down significantly (due primarily to the renegotiated terms of our grower contracts which tie the price we pay for cranberries more closely to prevailing market prices), and our growing and processing costs decreased from the prior year (generally as a result of scaled-back growing operations, reorganized manufacturing operations and overall personnel reductions); (iii) our consolidation of operations, closing of our Bridgeton, New Jersey facility and increased use of cranberries in our Northland branded products resulting from the recent reformulation of those products, which enabled us to decrease raw material and finished goods inventories; and (iv) a reduction in our purchases of other raw materials. Also, receivables, prepaid expenses and other current assets decreased $4.7 million from August 31, 2000 as a result of declining revenue levels, which, along with the deferral of principal and interest payments resulting from our forbearance agreement, provided us additional cash to pay down accounts payable and accrued liabilities by $6.6 million in the first quarter of fiscal 2001. Working capital deficiency decreased $2.8 million to a $(138.7) million deficiency at November 30, 2000 compared to a working capital deficiency of $(141.5) million at August 31, 2000. Our current ratio was 0.4 to 1.0 at both November 30, 2000 and August 31, 2000. If amounts outstanding under our debt arrangements were classified as long-term liabilities instead of current liabilities as of November 30, 2000, working capital would have been $20.6 million, and our current ratio would have been 1.3 to 1.0. We have reached our borrowing capacity under our revolving credit facility and continue to experience cash flow difficulties. We have failed to make payments of interest and principal on our revolving credit facility due in fiscal 2001 and have otherwise defaulted on certain covenants contained in our bank loan agreements as well as certain note agreements with additional third parties. Additionally, we are currently in default under the terms of our grower contracts (see Note 5 to Notes to Condensed Consolidated Financial Statements). We were unable to make an aggregate payment of approximately $0.7 million due on on September 15, 2000 to the growers under the terms of the contracts, and we notified the growers of our intention to also defer payments required in fiscal 2001 under the contract for the 2000 calendar year crop. We intend to pursue amendment of the payment terms required under the contracts and seek the necessary waivers from the growers. 19 To help ease the cash flow burden over the near-term and help allow us to reduce our accounts payable, we intend to continue our focus on profitability as opposed to revenues and for that reason, we intend to spend less on trade promotion in the upcoming fiscal year. Additionally, we have (i) made substantial changes to our pricing and promotional strategies, including entering into the agreement with Crossmark; (ii) converted $1.6 million in outstanding accounts payable into an unsecured convertible promissory note in the principal amount of $1.6 million bearing interest at the rate of 5% per annum and payable in full on October 24, 2002 (which note is convertible into convertible preferred stock under certain circumstances); (iii) completed the conversion of our internal information systems; (iv) revised certain agreements with various trade creditors to obtain payment terms more favorable to us; and (v) entered into a forbearance agreement with our syndicate of banks allowing us to defer principal and interest payments under our revolving credit facility until February 12, 2001. Additionally, we intend to continue to pursue opportunities to refinance our debt in fiscal 2001. Despite these efforts, we cannot assure you that we will be able to obtain additional financing or that cash flow from operations will be sufficient to allow us to manage our payables. We intend to continue to work closely with our trade creditors in managing the terms of our accounts payable. Our net cash provided from investing activities was $0.5 million in the first quarter of fiscal 2001 compared to net cash used of $2.7 million in the first quarter of fiscal 2000. The difference between periods was due to a significant reduction in property and equipment purchases offset by proceeds from disposals of property and equipment and collections on the Cliffstar note in the first quarter of fiscal 2001. Our net cash used in financing activities was $0.3 million in the first quarter of fiscal 2001 compared to cash provided of $14.4 million in the first quarter of the prior year. Our only financing activity in the first quarter of fiscal 2001 was related to payments on certain long-term debt. There were no funds available under our revolving credit facility and dividend payments were suspended indefinitely during the prior fiscal year. Our total debt (including current portion) was $180.7 million at November 30, 2000 and $181.0 million at August 31, 2000 for a total debt to equity ratio of approximately 3.4 to 1.0 at both dates. Depending upon our future sales levels and relative sales mix of our products during the remainder of fiscal 2001, we expect our working capital requirements to fluctuate periodically during fiscal 2001. As of November 30, 2000, we had reached the maximum available amount under our revolving credit facility of $155 million. In both the second and third quarters of fiscal 2000, we obtained waivers of certain covenant defaults under our credit facility that resulted primarily from our operating performance from our syndicate of banks. However, as mentioned, we were not in compliance with several provisions of our revolving credit agreement and other long-term debt agreements (including various covenants of two term loans payable to an insurance company and a term note with a bank) as of and for the quarter ended November 30, 2000, and accordingly, because the lenders have not waived these covenant defaults, the balance of the debt agreement revolving credit facility and long-term debt agreements have been classified as a current liability. As of January 12, 2001, we have not made interest payments on the revolving credit facility in the amount of $6.8 million, and did not make a $5.0 million principal payment due November 30, 2000. Additionally, the interest rate under our revolving credit facility increases to the bank's domestic rate 20 plus 2.0% while we are in default. We have entered into a forbearance agreement with our syndicate of banks which allows us to defer these interest and principal payments until February 12, 2001. We are not certain that we will be able to renegotiate the terms of our credit facility or that we will obtain additional financing prior to the expiration of the forbearance period. By the terms of our credit facility and the forbearance agreement, since we are currently in default of the credit facility, the creditors have the ability to call all outstanding principal and interest thereunder immediately due and payable on February 12, 2001. In such event, it is highly unlikely that we would be able to satisfy such an obligation, and we would likely be unable to continue operation as a going concern. However, we continue to work with our lenders to renegotiate the terms of those agreements. As a result of these factors and others, there is substantial doubt about our ability to continue as a going concern. See Notes 1 and 3 to Notes to Condensed Consolidated Financial Statements included in this Form 10-Q. We continue to actively explore alternative sources of debt and equity capital and ways in which we can refinance all or some of our indebtedness, and we expect to receive refinancing proposals from alternative financial institutions prior to the end of the forbearance period. Additionally, effective following the third quarter dividend payment in fiscal 2000, we have suspended dividend payments on our common stock indefinitely. Unless our lenders call our loans due and payable at the expiration of the forbearance period, we believe that we will be able to fund our ongoing operational needs for the second quarter of fiscal 2001 through (i) cash generated from operations; (ii) our actions to reduce our near-term working capital requirements; and (iii) additional measures to reduce costs and improve cash flow from operations. 21 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We make certain "forward-looking statements" in this Form 10-Q, such as statements about our future plans, goals and other events which have not yet occurred. We intend that these statements will qualify for the safe harbors from liability provided by the Private Securities Litigation Reform Act of 1995. You can generally identify these forward-looking statements because we use words such as we "believe," "anticipate," "expect" or similar words when we make them. Whether or not these forward-looking statements will be accurate in the future will depend on certain risks and factors including, without limitation, risks associated with (i) the development, market share growth and continued consumer acceptance of our branded juice products, including consumer acceptance of our new 27% Solution; (ii) the disposition of certain litigation related to the sale of the net assets of our private label juice business; (iii) the implementation of the marketing order of the Cranberry Marketing Committee of the United States Department of Agriculture and the cranberry purchase program adopted by the United States Congress; (iv) agricultural factors affecting our crop and the crop of other North American growers; (v) our ability to comply with the terms and conditions of, and to satisfy our responsibilities under, our amended credit facility, with respect to which we are currently in default of certain covenants as well as certain principal and interest payment provisions, as well as our forbearance agreement; (vi) our ability to secure additional financing and/or generate sufficient cash from operations as may be necessary to fund working capital requirements and continue as a going concern; (vii) the results of our previously announced exploration of strategic alternatives; (viii) the results of our internal organizational restructuring, including, without limitation, the results of the restructuring of certain of our sales and marketing functions through our agreement with Crossmark, Inc.; (ix) our ability to manage our trade payables; and (x) our ability to continue to meet the listing requirements of The Nasdaq National Market, including, without limitation, the requirement that our Class A Common Stock maintain a minimum bid price above $1.00 per share. You should consider these risks and factors and the impact they may have when you evaluate our forward-looking statements. We make these statements based only on our knowledge and expectations on the date of this Form 10-Q. We will not necessarily update these statements or other information in this Form 10-Q based on future events or circumstances. Please read this entire Form 10-Q to better understand our business and the risks associated with our operations. Specifically, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of our current financial condition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK - ------------------------------------------------------------------ We have not experienced any material changes in our market risk since August 31, 2000. 22 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. - --------------------------- There was no material change in our litigation with Cliffstar during the first quarter of fiscal 2001. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. - ----------------------------------------- In response to this Item, the information set forth in Note 1 and Note 3 to Notes of Condensed Consolidated Financial Statements contained in Part I of this Quarterly Report on Form 10-Q is hereby incorporated by reference. ITEM 5. OTHER EVENTS. - ---------------------- On January 3, 2001, in the second quarter of fiscal 2001, we received a letter from The Nasdaq Stock Market informing us that our Class A common stock has failed to maintain a minimum bid price of $1.00 over the preceding 30 consecutive trading days as required by Nasdaq rules. Pursuant to Nasdaq rules, we have been provided 90 calendar days, or until April 3, 2001, to regain compliance with this minimum bid price rule. If at anytime before April 3, 2001, the bid price of our Class A common stock is at least $1.00 for a minimum of 10 consecutive trading days, the Nasdaq staff will determine if we then comply with the rule. However, if we cannot demonstrate compliance by that date, the letter indicates that we will be provided with written notification that our securities will be delisted from Nasdaq. At that time, we will have the opportunity to appeal that decision to a Nasdaq Listing Qualifications Panel. We have recently mailed proxy materials to our shareholders for the upcoming annual shareholder meeting scheduled to be held on January 30, 2001 at which our shareholders will be asked to vote on a proposed amendment to our articles of incorporation that would allow us to effect, at the discretion of our Board of Directors, a reverse stock split in one of three ratios at any time prior to January 30, 2002. One purpose of the reverse stock split, if effected, would be to help increase the trading price of our Class A shares to a level above $1.00 minimum bid price per share, which may help us regain compliance with the Nasdaq listing standards. We cannot be certain, however, that we will be able to regain compliance with this minimum bid price rule, even if we are authorized to and effect a reverse stock split. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------------------------------------------ A. Exhibits Exhibits filed with this Form 10-Q report are incorporated herein by reference to the Exhibit Index accompanying this report. B. Form 8-K We did not file any reports on Form 8-K during the quarterly period to which this Form 10-Q relates. 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTHLAND CRANBERRIES, INC. DATE: January 12, 2001 By: /s/John Swendrowski ------------------------------------ John Swendrowski Chairman and Chief Executive Officer 24 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 4 Forbearance Agreement, dated as of December 13, 2000, by and among the Company, NCI Foods, LLC, a Wisconsin limited liability company, various financial institutions and Firstar Bank, N. A., as Agent. 25 EX-4 2 0002.txt FORBEARANCE AGREEMENT FORBEARANCE AGREEMENT THIS FORBEARANCE AGREEMENT (the "Agreement") is made this 13th day of December, 2000, by and among NORTHLAND CRANBERRIES, INC., a Wisconsin corporation, (the "Company"), NCI FOODS, LLC, a Wisconsin limited liability company (the "Guarantor"), various financial institutions which are signatories hereto (together with their respective successors and assigns, collectively, the "Banks") and FIRSTAR BANK, N. A., a national banking association formerly known as Firstar Bank Milwaukee, N. A., for itself and as Agent (the "Agent"). Capitalized terms used herein and not otherwise defined herein have the meanings assigned to such terms in that certain Credit Agreement by and among the Company, the Banks and the Agent, dated as of March 15, 1999, as amended as of May 1, 1999, December 29, 1999, April 13, 2000 and July 17, 2000 (the "Credit Agreement"). R E C I T A L S: WHEREAS, the Company is obligated to the Banks pursuant to (i) the Credit Agreement, (ii) the Revolving Credit Notes and (iii) various other documents executed by the Company in favor of the Banks and/or the Agent (the foregoing and any and all documents and agreements evidencing and/or securing any debts, obligations and liabilities of the Company to any of the Banks or the Agent heretofore, now or hereafter made, incurred, or created, arising out of credit previously granted, credit contemporaneously granted, or granted in the future, whether for principal, interest, fees or any other amount shall be hereinafter referred to as the "Obligations"); and WHEREAS, the Obligations are secured by, among other things, the personal property described in that certain Security Agreement dated as of March 15, 1999, executed by the Company in favor of the Agent (the "Company Security Agreement") and perfected by various financing statements executed by the Company and filed with the appropriate filing offices as described on Exhibit A attached hereto (the property described in the Company Security Agreement and the financing statements on Exhibit A are hereinafter collectively referred to as the "Company Collateral"); and WHEREAS, the Obligations are further secured by, among other things, the fixtures and real properties described in those certain Real Estate Mortgages and those certain Real Estate Mortgages, Security Agreements and Financing Statements (collectively, the "Company Mortgages") granted by the Company in favor of the Agent, each dated as of March 15, 1999, unless otherwise stated on Exhibit B attached hereto, and recorded with the appropriate recording offices as described on Exhibit B (the "Company Real Estate Collateral"); and WHEREAS, the Obligations are further secured by, among other things, the intellectual property described in that certain Notice of Grant of Security Interest in Trademarks granted by the Company in favor of the Agent (the "Company IP Grant"), and perfected by (i) financing statements executed by the Company and filed with the appropriate filing office as described on Exhibit A and (ii) recordation with the United States Patent and Trademark Office on April 8, 1999, at Reel 1882, Frame 0794 (the intellectual property described in the Company IP Grant and the financing statements on Exhibit A are hereinafter collectively referred to as the "Company Trademark Collateral"); and WHEREAS, the Obligations are further secured by, among other things, the personal property described in that certain Collateral Pledge Agreement dated as of April 13, 2000, granted by the Company in favor of the Agent (the "Collateral Pledge Agreement") (the personal property described in the Collateral Pledge Agreement is hereinafter referred to as the "Cliffstar Collateral"); and WHEREAS, the Obligations have been guaranteed pursuant to a continuing Guaranty dated March 15, 1999, executed by Minot Food Packers, Inc. ("Minot"), in favor of the Banks and the Agent (the "Minot Guaranty"); and WHEREAS, the Minot Guaranty and the Credit Agreement are secured by, among other things, (i) the personal property described in that certain Security Agreement dated March 15, 1999, granted by Minot in favor of the Agent (the "Minot Security Agreement") and perfected by various financing statements executed by Minot and filed with the appropriate filing offices as described on Exhibit C attached hereto (the property described in the Minot Security Agreement and the financing statements on Exhibit C are hereinafter collectively referred to as the "Minot Collateral"), and (ii) the intellectual property described in that certain Notice of Grant of Security Interest in Trademarks granted by Minot in favor of the Agent (the "Minot IP Grant") and perfected by (a) financing statements executed by Minot and filed with the appropriate filing office as described on Exhibit C and (b) recordation with the United States Patent and Trademark Office on April 8, 1999, at Reel 1882, Frame 0785 (the intellectual property described in the Minot IP Grant and the financing statements on Exhibit C are hereinafter collectively referred to as the "Minot Trademark Collateral"); and WHEREAS, the Credit Agreement is further secured by, among other things, the fixtures and real property described in that certain Real Estate Mortgage Security Agreement and Financing Statement dated March 15, 1999 ("the Minot Mortgage"), granted by Minot in favor of the Agent and recorded on April 1, 1999, at Book 2292, Page 131 with the Cumberland County, New Jersey, Register of Deeds Office (the "Minot Real Estate Collateral"). The Minot Collateral, the Minot Real Estate Collateral and the Minot Trademark Collateral are hereinafter collectively referred to as the "Minot Property"; and WHEREAS, Minot has merged into the Company by virtue of the Articles of Merger filed on June 28, 1999, with the New Jersey State Treasury (the "Merger"); and WHEREAS, by virtue of the Merger, the Minot Property has become property of the Company and the Agent has a continuing validly perfected security interest in the Minot Property, and, accordingly, as used in this Agreement, the term "Collateral" shall include the Company Collateral and the Minot Collateral, the term "Real Estate Collateral" shall include the Company Real Estate Collateral and the Minot Real Estate Collateral, and the term "Trademark Collateral" shall include the Company Trademark Collateral and the Minot Trademark Collateral, the term "Security Agreement" shall include the Company Security Agreement and the Minot Security Agreement, the term "Mortgages" shall include the Company Mortgages and 2 the Minot Mortgage, and the term "IP Grant" shall include the Company IP Grant and the Minot IP Grant; and WHEREAS, in connection with the sale of the Company's "Private Label Juice Business" to Cliffstar Corporation ("Cliffstar") and various other sales of parcels of real estate by the Company, various partial releases of financing statements and partial satisfactions of mortgages were provided to the Company as described on Exhibit D. By virtue of such partial releases and satisfactions, the references to "Collateral," "Real Estate Collateral" and "Trademark Collateral" do not include the property which was the subject of such partial releases and satisfactions; and WHEREAS, the Obligations have been guaranteed pursuant to that certain Guaranty dated as of May 1, 1999, executed by the Guarantor in favor of the Banks and the Agent (the "Guaranty"); and WHEREAS, the Guaranty is secured by, among other things, the intellectual property described in that certain Grant of Security Interest in Trademarks dated as of May 1, 1999, granted by Guarantor in favor of the Agent (the "Guarantor IP Grant") and perfected by (i) a financing statement executed by Guarantor and filed on September 8, 1999, with the Wisconsin Department of Financial Institutions as Document No. 01879666 (the "Guarantor Financing Statement") and (ii) recordation of that certain Notice of Grant of Security Interest in Trademark (the "Guarantor Trademark Notice") with the United States Patent and Trademark Office (the property described in the Guarantor IP Grant, the Guarantor Financing Statement and the Guarantor Trademark Notice are hereinafter collectively referred to as the "Guarantor Trademark Collateral"); and WHEREAS, by virtue of the occurrence of certain Events of Default under the Credit Agreement, including those described in the Agent's letter to the Company dated August 23, 2000, and the Company's failure to pay interest due on September 25, 2000, and each day that interest became due thereafter through the date of this Agreement, together with the failure to pay principal that became due on November 30, 2000 (collectively, the "Current Defaults"), the Company is in default of the Obligations and the Obligations are, at the option of the Banks and the Agent, immediately due and payable; and WHEREAS, the Company has requested that the Banks and the Agent forbear from taking action with respect to the Current Defaults in order to allow the Company time to refinance or repay the Obligations; and WHEREAS, the Company has provided the Banks and the Agent with certain information regarding the Company; and WHEREAS, in reliance upon the representations of the Company, the Banks and the Agent, subject to the terms and conditions of this Agreement, have agreed to forbear for the period through and including February 12, 2001 (the "Forbearance Period"), from pursuing their remedies to collect payment of the full amount due pursuant to the Obligations in order to allow the Company time to refinance or otherwise repay the Obligations. 3 NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: A G R E E M E N T 1. Statement of Indebtedness. The Company acknowledges and agrees that pursuant to the Obligations the Company owes the Banks (i) the principal amount of One Hundred Fifty Five Million Dollars ($155,000,000) on the Revolving Credit Notes as of the date hereof, (ii) accrued and unpaid interest under the Revolving Credit Notes as of the date hereof; (iii) interest accruing in accordance with the Obligations and this Agreement subsequent to the date hereof; and (iv) all fees, costs and expenses (including attorneys' fees) of the Banks and the Agent required to be paid pursuant to the Obligations and this Agreement (collectively, the "Indebtedness"). The Company and the Guarantor agree that the Obligations, the Indebtedness, the Guaranty and any document to which the Company or the Guarantor is a party have not been released or forgiven, that they are a legal, valid and binding obligations of the Company and the Guarantor, that they are payable and/or enforceable in accordance with their respective terms, they are due and payable as of the date of this Agreement, and none are subject to any defenses, counterclaims or setoffs whatsoever. The Company and the Guarantor agree that nothing contained in this Agreement shall (i) nullify, extinguish, satisfy, release, discharge, constitute a novation or otherwise affect any of the Company's or the Guarantor's respective obligations to the Banks, (ii) constitute a waiver of any default or (iii) vary or waive any of the terms of the Obligations or the Guaranty. 2. Security Interests of the Banks. The Company and the Guarantor acknowledge and agree that the Security Agreement, the Mortgages, the IP Grant, the Guarantor IP Grant and the Collateral Pledge Agreement (collectively, the "Collateral Documents") are legal, valid and binding obligations of the Company and the Guarantor enforceable in accordance with their respective terms and the Banks and the Agent have a legal, valid, binding, perfected and enforceable security interest and lien, valid against all creditors of and against all purchasers from the Company and the Guarantor (except to the extent otherwise provided in the Wisconsin Uniform Commercial Code with respect to buyers in the ordinary course of business), in the Collateral, the Real Estate Collateral, the Trademark Collateral, the Cliffstar Collateral and the Guarantor Trademark Collateral securing payment of the Indebtedness, and the Collateral, the Real Estate Collateral, the Trademark Collateral, the Cliffstar Collateral and the Guarantor Trademark Collateral are free and clear of all liens whatsoever, other than the lien of the Banks, the Agent and the Permitted Liens. No indenture, mortgage, security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any part of the Collateral, the Real Estate Collateral, the Trademark Collateral, the Cliffstar Collateral or the Guarantor Trademark Collateral is recorded or on file with any public office except those in favor of the Banks, the Agent or a holder of a Permitted Lien. 3. Guaranty. The Guarantor acknowledges and agrees that the Guaranty has not been revoked, released, discharged or forgiven, and is a legal, valid, binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, and is not subject to 4 any defenses, counterclaims or setoffs whatsoever. The Guarantor hereby acknowledges and consents to and agrees to the terms and provisions of this Agreement. Nothing contained herein shall revoke, release, discharge or forgive the obligations of the Guarantor pursuant to the Guaranty. 4. Conditions Precedent. This Agreement shall become effective upon execution of this Agreement by all parties hereto and the Agent's receipt of the following: (a) An executed mortgage in the form of Exhibit E attached hereto as to the Company's receiving station located in Portland, New York; (b) An opinion of Foley & Lardner as to the matters identified on Exhibit F attached hereto; and (c) an executed amendment to Mortgage in the form of Exhibit G attached hereto. From and after the Agent's receipt of the mortgage described in (a) above (the "Additional Mortgage"), the term "Mortgages" as used herein shall also include the Additional Mortgage. 5. Consideration for Forbearance. In consideration of the Banks' and the Agent's agreement to forbear from taking certain actions during the Forbearance Period, the Company agrees that: (a) Upon receipt, but not later than December 22, 2000, the Company shall provide the Agent with an executed copy of an agreement between The Equitable Life Assurance Society of the United States ("Equitable") and the Company, in form and substance satisfactory to the Banks and the Agent in their sole discretion, providing that during the Forbearance Period Equitable (i) will defer all payments of principal and interest which are due or which become due and owing to it from the Company, (ii) will not take any action to foreclose its mortgages on the Company's assets, and (iii) will not accept a surrender or transfer to it of all or any part of its collateral including by way of acceptance of a deed in lien of foreclosure; and (b) Upon receipt, but not later than December 22, 2000, the Company shall provide the Agent with a complete copy of an appraisal of the Company's intangible property including its trademarks and tradenames prepared by Houlihan, Lokey, Howard & Zukin ("Houlihan"), together with copies of all materials provided by the Company to Houlihan and all work papers of Houlihan prepared in connection therewith; and (c) Upon receipt, but not later than December 22, 2000, the Company shall provide the Agent with executed copies of Waivers of Liens substantially in the form of Exhibit H-1 attached hereto as to the warehouse and/or processors listed on Exhibit H-2 attached hereto and in the form of Exhibit H-3 attached hereto as to the landlords listed on Exhibit H-4; and 5 (d) Within three (3) business day of the Company's receipt thereof, the Company shall provide the Agent with such UCC-1 financing statements with respect to the Banks' collateral as are requested by the Agent, each executed by the Company; and (e) Upon receipt, the Company shall provide the Agent with unedited copies of all proposal letters or other writings related to the refinancing of the Obligations, the sale of any assets, or the infusion of new equity; and (f) Upon receipt, but no later than December 22, 2000, the Company shall provide the Agent with a complete copy of an appraisal of the Company's fixed assets including its real property, plants and equipment prepared by Hilco Trading Co., Inc. ("Hilco"), together with copies of all materials provided by the Company to Hilco and all work papers of Hilco prepared in connection therewith; and (g) No later than one (1) business day following the date this Agreement becomes effective, the Company shall deposit in Account Number 754861755 at Firstar Bank, N. A., an account under the sole custody and control of the Agent, acting for itself and as Agent for the Banks (the "Collateral Account"), all funds in the Company's Bank Account Numbers 1129 957, 8026 061, 1137 834 and 1139 178 at Wood County National Bank (the "Old Disbursement Accounts"), and in any other accounts other than Payroll Accounts (as hereinafter defined) and shall make no further deposits of any kind into such accounts at Wood County National Bank or any other account other than the Collateral Account. In addition, all payments received by the Company or the Guarantor, including, without limitation, all proceeds of the Collateral, the Real Estate Collateral, the Trademark Collateral, the Guarantor Trademark Collateral, or the Cliffstar Collateral (collectively, the "Proceeds"), shall, upon receipt, be immediately endorsed for deposit in the Collateral Account and deposited in such account in the same form as received by the Company. Until so deposited, the Company shall hold all such payments and Proceeds in trust for and as the property of the Agent and shall not commingle such payments and Proceeds with any of its other funds or property. The Company acknowledges that it does not have any right, title or interest in and to the Collateral Account or any amounts at any time in such account. Amounts deposited in the Collateral Account shall not bear interest and shall not be subject to withdrawal by the Company, except after full payment and discharge of all of the Obligations and termination of all related credit facilities. The Company shall have no right to make or countermand withdrawals from the Collateral Account. The Company hereby pledges to and grants the Agent a security interest in all funds on deposit in the Collateral Account from time to time and all proceeds thereof to secure payment of all of the Obligations whether now existing or hereafter arising; and (h) Except with respect to the Company's established accounts for payment of salaries, wage and related payroll taxes and other deductions (the "Payroll Accounts"), the Company shall as soon as reasonably practicable establish its sole disbursement accounts at Firstar Bank, N. A. (the "Disbursement Accounts") and as soon as checks for such accounts are available no further checks shall be issued from the Old Disbursement Accounts. Until the conclusion of the Forbearance Period or the occurrence of an Event 6 of Default hereunder, upon final payment of checks, instruments or other items received in the Collateral Account which are the proceeds of (i) the Company's accounts receivable, (ii) the proceeds of the Cliffstar Collateral to the extent such proceeds are regularly scheduled payments of principal and interest on the note subject to the Collateral Pledge Agreement, (iii) tax refunds, or (iv) direct payments to the Company by the Secretary of Agriculture from the funds of the Commodity Credit Corporation pursuant to the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2001, Pub. L. No. 106-387 (collectively, the "Available Proceeds"), the Agent shall, at the direction of the Company, transmit such funds to the Old Disbursement Accounts (but only until such time as the New Disbursement Accounts have been established and there are no longer any outstanding checks from the Old Disbursement Accounts), the New Disbursement Accounts and Payroll Accounts, but only to the extent necessary to pay checks, drafts or other withdrawals which have been presented for payment against such accounts and only to the extent collected funds in the Collateral Account which are Available Proceeds are available within the time allowed by law to honor items presented for payment. Other than the Available Proceeds, any and all Proceeds deposited in the Collateral Account shall be applied as a permanent reduction of the principal amount of the Indebtedness and Obligations; and (i) On or before December 15, 2000, the Company shall pay to the Agent (i) all of the reasonable legal fees and out-of-pocket expenses incurred through the date hereof by the Banks and the Agent in connection with this Agreement and the Obligations and invoiced on or before December 12, 2000, and (ii) Fourteen Thousand Three Hundred Eighty Two Dollars ($14,382), the costs and expenses paid by the Agent in connection with the field audit recently conducted at the Company in August, 2000, by auditors retained by the Agent; and (j) During the Forbearance Period: (i) The Company shall pay all amounts due employees for wages, salary, and benefits together with state and federal taxes (including, without limitation, all sales, withholding and social security taxes) when due; (ii) No later than each Thursday, the Company shall provide the Agent with (a) weekly cash flow projections, which projections shall forecast a minimum of four (4) weeks, (b) actual results for the preceding week and (c) a variance report comparing actual and projected results for the preceding week, including an explanation of the reasons for such variance; (iii) Within ten (10) business days following the last calendar day of each month, the Company shall provide the Agent with a certificate from the President or Vice President-Finance in sufficient detail demonstrating that the Company has complied with all provisions of this Agreement; 7 (iv) The Company shall provide, in a timely fashion, all additional materials or information, financial or otherwise, reasonably requested by any of the Banks or the Agent or required in accordance with the Credit Agreement; (v) The Company shall furnish to the Agent, on the day the Company first obtains knowledge thereof, notice of the occurrence of any Event of Default (as defined herein) or each event which, with or without the giving of notice or lapse of time or both, would constitute an Event of Default, together with a statement of an authorized representative of the Company setting forth details of such Event of Default; and (vi) The Company shall continue to furnish the Agent in a timely fashion the following written material: (A) on the first day of each week, as of the prior week's end, accounts payable aging for those creditors with outstanding balances in excess of Seventy Five Thousand Dollars ($75,000) and trade accounts receivable aging for those customers with outstanding balances in excess of Seventy Five Thousand Dollars ($75,000), (B) within three (3) business days after receipt by the Company, copies of pleadings with respect to Cliffstar's and the Company's respective law suits against each other, and correspondence from or to the Company relating to any potential settlement of such litigation, (C) within three (3) business days after the occurrence of any such event, notice and description of any lawsuits initiated by any vendors, including copies of any written materials relating to the same, and (D) within thirty (30) days of each month end (1) balance sheet as of such month end; (2) profit and loss statement for the month and fiscal year to date period ended on such date; (3) cash flow statement for the month and fiscal year to date period ended on such date; (4) a Compliance Certificate as required under Section 7.4(d) of the Credit Agreement as of such date; and (5) a narrative regarding the Company's performance during such month including explanations of variances from the Company's projections and summaries of both cash and non-cash expenses and charges which have had material impact on the balance sheet and profit and loss statements during such month, and the status of trade credit including any actions known to have been taken by the Company's vendors after the date hereof to put the Company on a COD or CIA basis, or to stop any further shipments to the Company; and (vii) The Company shall comply with all of the terms of the Obligations; provided, however, that regularly scheduled payments of principal 8 and interest otherwise due prior to the conclusion of the Forbearance Period may be deferred until February 12, 2001, or the earlier termination of the Banks' agreement to forbear; and (viii) Within one (1) business day of the Company's receipt thereof, the Company shall provide the Agent written notice of demand for payment made by the holder of any guaranty made by the Company. (k) Notwithstanding the Banks' agreement to forbear, and notwithstanding the provisions of paragraphs 5(g) and 5(h) hereof, at any time during the Forbearance Period, and without further notice: (a) the Banks may take any or all actions permitted in paragraphs 3(g), 3(i), 5(a), 5(c), 5(d), 5(e), 6 and 7 of the Security Agreement which may be taken following the happening of an Event of Default and regardless of whether the Agent or the Banks have taken any other action following the happening of an Event of Default; and (b) the Agent may notify Cliffstar to make all future payments directly to the Agent for all amounts due and payable under that certain Promissory Note dated March 8, 2000, payable by Cliffstar to the Company; and (l) The Company shall pay to the Agent on February 2, 2001, or the earlier termination of the Banks' agreement to forbear as provided herein, a fee in the amount of Three Hundred Seventy Five Thousand Dollars ($375,000) (the "Forbearance Fee"); provided, however, that the Banks shall credit the outstanding Indebtedness to the extent such fee has been paid if the Company pays the Indebtedness in full on or before February 12, 2001. Interest on the Obligations shall continue to accrue at the default rate as provided in Section 2.2 of the Credit Agreement from November 13, 2000. 6. Forbearance. The Banks and the Agent agree to forbear during the Forbearance Period from seeking immediate payment of the full amount of the Indebtedness, except to the extent provided herein, provided that the Company and the Guarantor strictly comply with all of the terms and conditions of this Agreement and provided further that no "Event of Default" (as hereinafter defined) shall occur. The Banks' and the Agent's agreement contained herein shall not nullify, extinguish, satisfy, release, discharge or otherwise affect the Company's or the Guarantor's obligations to the Banks and to the Agent or constitute a waiver of any Event of Default. The Company and the Guarantor acknowledge and agree that if any of the terms or conditions of this Agreement are not satisfied within the sole discretion of the Banks and the Agent, or any Event of Default occurs, the Banks' and the Agent's agreement to forbear shall terminate in accordance with the terms of this Agreement and the Banks and the Agent shall have all of their rights and remedies. 7. Acknowledgments and Waivers. The Company and the Guarantor acknowledge and agree as follows: (a) All of the Recitals are true and correct. 9 (b) The Current Defaults have occurred and, prior to giving effect to the Banks' and the Agent's agreements contained herein, payment of the entire amount of the Indebtedness is now due from the Company and the Guarantor. The Banks' and the Agent's agreement to forbear is not a waiver of the Current Defaults or any other Default or Event of Default. No further notice of default is required with respect to the Obligations. There has been no promise by the Banks or the Agent, whether express or implied, to forbear beyond the Forbearance Period, and the Company and the Guarantor understand that the Indebtedness is due and payable in any event as of the conclusion of the Forbearance Period or the earlier termination of this Agreement as provided herein. (c) On account of the occurrence of the Current Defaults, pursuant to Section 10.14 of the Credit Agreement, the Company's consent to an assignment of any Note or portion thereof is not required. The Company hereby waives any further requirement for the Company's consent to any assignment of any Note or portion thereof. 8. Representations and Warranties of the Company and the Guarantor. In order to induce the Banks to enter into this Agreement, and in recognition of the fact that the Banks and the Agent are acting in reliance thereupon, the Company (as to the Company) and the Guarantor (as to the Guarantor) hereby covenant, represent and warrant to the Banks and to the Agent that: (a) The Company is duly incorporated and the Guarantor is duly organized, each is validly existing and in good standing under the laws of the State of Wisconsin and each has the power and authority and the legal right to own and operate its property, to lease the property it operates, and to conduct the business in which it is currently engaged. (b) The chief executive office of the Company is, and continues to be, located at 800 First Avenue South, Wisconsin Rapids, Wisconsin 54495-8020. (c) The Company and the Guarantor each has the power and authority to enter into, deliver, issue and perform all of its obligations under this Agreement. This Agreement, when duly executed and delivered on behalf of the Company and the Guarantor, will constitute the legal, valid and binding obligations of the Company and the Guarantor enforceable against the Company and the Guarantor in accordance with its terms. (d) No consent or authorization of, filing with, or act by or in respect of any governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. The execution, delivery and performance of this Agreement (i) has been duly authorized by all necessary action, where applicable, (ii) will not violate any requirement of law or any contractual obligation of the Company or the Guarantor and (iii) will not result in, or require, the creation or imposition of any lien on any of its properties or revenues pursuant to any requirement of law or contractual obligation. 10 (e) No information, financial statement, exhibit or report furnished by the Company or the Guarantor to the Banks and the Agent in connection with the negotiation of, or pursuant to, this Agreement contains any material misstatement of fact, omits to state a material fact, or omits any fact necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. 9. Events of Default. An event of default pursuant to this Agreement (an "Event of Default") shall have occurred hereunder if: (a) The Company or the Guarantor fails to comply with any term, covenant or agreement contained herein; or (b) Any representation or warranty made by the Company or the Guarantor herein or in any certificate, document, financial statement or other statement furnished at any time under, and in connection with, this Agreement, the Obligations or the Guaranty proves to have been incorrect in any material respect on or as of the date made; or (c) The Obligations, the Security Agreement, the Mortgages, the IP Grant, the Collateral Pledge Agreement, the Guarantor IP Grant, or any financing statement or mortgage necessary to perfect the security interest granted in the Credit Agreement, the Security Agreement, the Mortgages, the IP Grant, the Collateral Pledge Agreement or the Guarantor IP Grant ceases to be in full force and effect or ceases to create a lien on and security interest in the Collateral, the Real Estate Collateral, the Trademark Collateral, the Cliffstar Collateral or the Guarantor Trademark Collateral or for any other reason the Banks and the Agent shall cease to have a perfected lien on and security interest in any of the foregoing; or (d) Any of this Agreement, the Obligations, the Security Agreement, the Mortgages, the IP Grant, the Collateral Pledge Agreement, the Guaranty or the Guarantor IP Grant shall, at any time after their respective execution and delivery, and for any reason, cease to be in full force and effect or shall be declared null and void or be revoked or terminated, or the validity or enforceability thereof or hereof shall be contested by the parties thereto or the parties thereto shall deny that any of them has any or further liability or obligations thereunder or hereunder, as the case may be; or (e) The Company or the Guarantor (i) admits in writing that it is insolvent; (ii) makes a general assignment for the benefit of creditors; (iii) makes a general assignment to an agent authorized to liquidate a substantial amount of its property; (iv) files, or consents to the filing of, or the Board of Directors of either the Guarantor or the Company votes to authorize the filing of any proceeding, petition or case under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors which constitutes the commencement of a case and/or constitutes an order for relief or which seeks: (A) an adjudication that it is bankrupt or insolvent, (B) a reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to its debts, or (C) the appointment of a receiver, trustee, custodian or other similar official for it or any substantial portion of its 11 assets; (v) has filed against it such a proceeding, petition or case; or (vi) has filed against it any proceeding or action which seeks the issuance of a warrant, attachment, execution, distraint or similar process against any part of its assets with a book value of One Hundred Thousand Dollars ($100,000) or more in the aggregate if such a proceeding or action results in the issuance of such process and such process is not vacated, discharged, stayed or fully bonded within two (2) days of entry thereof; or (f) Any "Event of Default" or "default," as either term is defined in any document comprising the Obligations, the Security Agreement, the Mortgages, the IP Grant, the Guarantor IP Grant, the Collateral Pledge Agreement or the Guaranty, other than the Current Defaults and continuing occurrences of defaults of the same nature, shall occur after the date hereof; provided, however, that the failure to make any regularly scheduled payment of principal or interest that comes due prior to the conclusion of the Forbearance Period or the earlier termination of the Banks' agreement to forbear, as provided herein, or the failure to observe, during the Forbearance Period, any of the financial covenants contained in sections 7.8-7.10 of the Credit Agreement shall not constitute an Event of Default as defined herein; or (g) Equitable takes any action to accelerate or enforce the obligations of the Company to Equitable, or to foreclose its mortgages on the Company's assets or accepts a surrender or transfer to it of all or any part of its collateral including by way of acceptance of a deed in lien of foreclosure; or (h) Any material adverse change in the business, financial condition or property of the Company or the Guarantor shall occur. Upon the occurrence of an Event of Default hereunder, the Forbearance Period shall, at the election of the Required Banks (except with respect to (e) in which event the Forbearance Period shall automatically terminate), immediately terminate, without notice to the Company or the Guarantor, and the Banks and the Agent shall have all of their rights and remedies as provided in the Obligations, the Security Agreement, the Mortgages, the IP Grant, the Collateral Pledge Agreement, the Guaranty and the Guarantor IP Grant, as well as, any further rights and remedies provided by law. In addition to the foregoing remedies, upon the occurrence of an Event of Default (except for an Event of Default occasioned by either the failure to comply with section 5(c) hereof or the failure to deliver the work papers of either Houlihan or Hilco as required under sections 5(b) and 5(f) hereof, respectively) hereunder, the Company shall retain both (i) a manager acceptable to the Required Banks who will assume the responsibilities of a chief executive officer and a chief operating officer and who will report directly to the Board of Directors of the Company and (ii) investment bankers acceptable to the Required Banks to sell the assets of the Company either individually or as a whole. The Company, acting through its Board of Directors, shall make good faith efforts to sell the assets of the Company or the Company as a whole. The Company will provide to the Agent and the Banks all information relating to any expressions of interest in purchasing all or any assets of the Company. In the event the Company receives an offer to purchase any asset of the Company, it will promptly advise the Agent of such offer and, upon request of the Required Banks, it will voluntarily surrender to the Banks any assets subject to such offer to purchase, which assets may then be 12 sold under Article 9 of the Uniform Commercial Code if the Required Banks so elect. The Banks' or the Agent's receipt of any payment after the occurrence of any Event of Default shall not constitute a waiver of the Event of Default or of the Banks' and the Agent's rights and remedies upon such Event of Default. 10. Right to Enter Mortgaged Premises. Upon the occurrence of an Event of Default hereunder, the Banks and the Agent shall have the right to enter and use the property described in the Mortgages, rent free, for such period of time as shall be necessary to liquidate the Collateral. 11. Release. The Company and the Guarantor and each of their affiliates, representatives, officers, directors, agents, employees, and attorneys as well as their predecessors, successors and assigns (collectively, the "Releasing Parties") forever release and discharge the Banks and the Agent and their respective affiliates, officers, directors, shareholders, agents, representatives, attorneys and employees, predecessors, successors and assigns (collectively, the "Released Parties"), and each of them, past and present, from any and all actions, obligations, costs, damages, losses, claims, liabilities and demands of whatever kind and nature which the Releasing Parties have had, now have or hereafter may have, arising from or by reason of or in any way connected with any transaction, matter, event or circumstance which occurred or existed on or prior to the date hereof. It is understood and agreed that this release is not to be construed as an admission of liability on the part of the Banks, the Agent or the Released Parties. 12. Limitation of Liability. Neither the Banks nor the Agent nor any of the Released Parties shall be liable to the Releasing Parties for any action taken, or omitted to be taken, by it or them or any of them under this Agreement or in connection therewith except that no person shall be relieved of any liability imposed by law for gross negligence or willful misconduct. Except as provided in the preceding sentence, no claim may be made by the Releasing Parties against the Banks, the Agent or the Released Parties for any special, indirect, consequential or punitive damages in respect of any breach or wrongful conduct (whether the claim is based in contract or tort or duty imposed by law) arising out of or related to the transactions contemplated by this Agreement or any act, omission or event occurring in connection therewith. The Releasing Parties hereby waive, release and agree not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 13. Miscellaneous. (a) The terms and conditions stated herein shall constitute the complete and exclusive statement of the terms hereof and shall supersede all prior oral or written statements of any kind whatsoever made by the parties or their representatives concerning the terms hereof. No statement or writing subsequent to the date hereof which purports to modify or add to the terms or conditions hereof shall be binding unless contained in a writing which makes specific reference to this Agreement and which is signed by all parties hereto. (b) This Agreement inures to the benefit of the Banks and the Agent and their respective successors and assigns, and it binds the Company and the Guarantor and their 13 respective successors, heirs and assigns. This Agreement may be executed in any number of counterparts, which shall be effective as to each signatory upon execution of any counterpart by such signatory. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of Wisconsin. (d) Without limitation of any terms or provisions of the Obligations or the Guaranty, the Company and the Guarantor shall be obligated to pay all the fees and out-of-pocket expenses incurred by the Banks and the Agent in connection with the review, negotiation, preparation and execution of this Agreement including, but not limited to, all reasonable attorneys' fees and disbursements, and in the event that any action shall be required in order to collect upon the Obligations or the Guaranty, all of the Banks' and the Agent's fees and out-of-pocket expenses incurred in connection therewith, including all reasonable attorneys' fees and disbursements. (e) Except as amended by this Agreement, all of the terms and conditions of the Obligations and the Guaranty shall remain in all other respects in full force and effect. (f) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY OR THE GUARANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OBLIGATIONS OR THE GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF WISCONSIN, COUNTY OF MILWAUKEE. (g) BY EXECUTING AND DELIVERING THIS AGREEMENT, THE COMPANY AND THE GUARANTOR FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES IRREVOCABLY: (i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO IT AT ITS ADDRESS PROVIDED BY ITS SIGNATURE LINE; (iv) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (iii) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION IN ANY SUCH PROCEEDING AND IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; 14 (v) AGREES THAT THE BANKS AND THE AGENT RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY PARTY IN THE COURTS OF ANY OTHER JURISDICTION; AND (vi) AGREES THAT THE PROVISIONS OF THIS SUBSECTION RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE BY LAW. (h) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OBLIGATIONS, THE GUARANTY OR ANY OF THE DEALINGS BETWEEN THE PARTIES HERETO. EACH PARTY HERETO ACKNOWLEDGES THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT AND THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR FUTURE DEALINGS. NORTHLAND CRANBERRIES, INC. 800 First Avenue South By: /s/John Swendrowski -------------------------------------- Wisconsin Rapids, WI 54495-8020 Its: ------------------------------------- NCI FOODS, LLC 800 First Avenue South By: /s/John Swendrowski -------------------------------------- Wisconsin Rapids, WI 54495-8020 Its: ------------------------------------- FIRSTAR BANK, N. A., as Agent and a Bank 777 East Wisconsin Avenue By: /s/ -------------------------------------- Milwaukee, WI 53202 Its: ------------------------------------- WELLS FARGO BANK MINNESOTA, N. A. 730 Second Avenue South, Suite 500 MAC N9314-050 By: /s/ -------------------------------------- Minneapolis, MN 55479 Its: -------------------------------------- [Signatures continued on following page.] 15 U. S. BANK NATIONAL ASSOCIATION MPFP2516 601 Second Avenue South By: /s/ -------------------------------------- Minneapolis, MN 55402-4302 Its: ------------------------------------- BANK OF AMERICA, NATIONAL ASSOCIATION 231 South LaSalle Street By: /s/ -------------------------------------- Chicago, IL 60697 Its: ------------------------------------- ST. FRANCIS BANK, F.S.B. 13400 Bishops Lane, Suite 190 By: /s/ -------------------------------------- Brookfield, WI 53005-6203 Its: ------------------------------------- M&I MARSHALL & ILSLEY BANK 770 North Water Street By: /s/ -------------------------------------- Milwaukee, WI 53202 Its: ------------------------------------- FLEET CAPITAL CORPORATION One South Wacker Drive Suite 1400 By: /s/ -------------------------------------- Chicago, IL 60606 Its: ------------------------------------- BANK ONE, NA 111 East Wisconsin Avenue By: /s/ -------------------------------------- Milwaukee, WI 53202 Its: ------------------------------------- LaSALLE BANK NATIONAL ASSOCIATION 411 East Wisconsin Avenue By: /s/ -------------------------------------- Milwaukee, WI 53202 Its: ------------------------------------- 16 -----END PRIVACY-ENHANCED MESSAGE-----