3.   DISPOSITION OF PRIVATE LABEL JUICE 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 $28,000,000 which
     is to be collected over six years and which bears interest at a rate of 10%
     per annum, as well as approximately $6,800,000 in cash (subject to
     potential post-closing adjustments) related to inventory transferred to
     Cliffstar on the closing date.

     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.

     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
     and January 16, 2001. The lawsuit arises out of the sale of the net assets
     of the Company's private label juice


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     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; (5) Cliffstar breached a co-packing
     agreement entered into in connection with the sale by failing to make
     required payments thereunder and other misconduct; and (6) Cliffstar
     breached the Asset Purchase Agreement's arbitration provision, which
     provides that any disagreements over the valuation of finished goods,
     work-in-process and raw material inventory purchased by Cliffstar shall be
     submitted to arbitration for resolution. On April 10, 2001, the Court
     granted the Company's Petition to Compel Arbitration. Accordingly, the
     price dispute over finished goods, work-in-process and raw material
     inventory is currently in arbitration. The Company seeks compensatory
     damages in an amount in excess of $5,000,000, plus punitive damages for
     Cliffstar's breaches of its fiduciary duties and attorneys' fees.

     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 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; (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; and (6) the Company
     breached the Transition Agreement by failing to remit to Cliffstar the
     excess of Cliffstar's interim payment for work-in-process and raw material
     inventory, by withholding a portion of the work-in-process and raw material
     inventory from Cliffstar, and by artificially building up its
     work-in-process and raw material inventory before and after the sale of the
     private label juice business to Cliffstar. Cliffstar seeks compensatory
     damages in an amount not stated in the counterclaims, punitive damages for
     the alleged intentional interference claim, 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.

     On June 7, 2002, the court granted the Company's motion for summary
     judgment and dismissed Cliffstar's fraud claim. 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


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     collectible; (2) the Company has strong factual and legal defenses in all
     material respects to Cliffstar's remaining counterclaims; and (3) the note
     and accounts receivable due from Cliffstar as of May 31, 2002 are
     collectible.

     The action is in the final stages of discovery, with expert discovery
     scheduled to be concluded by August 16, 2002. The court has scheduled trial
     for commencement on October 7, 2002.

     On May 13, 2002, the Company received Cliffstar's earn-out calculation for
     the year 2000. The Company believes that Cliffstar's earn-out calculation
     was not prepared in accordance with the Asset Purchase Agreement. To date,
     Cliffstar has not provided the Company with the earn-out calculation for
     the year 2001. Accordingly, on June 7, 2002, the Company filed a separate
     suit against Cliffstar in the United States District Court, Northern
     District of Illinois, seeking access to all relevant books and records of
     Cliffstar relating to the earn-out calculations and claiming Cliffstar
     breached the Asset Purchase Agreement by failing to pay the Company
     earn-out payments for the years 2000 and 2001. The Company seeks
     compensatory damages in an amount in excess of $1,000,000, plus attorneys'
     fees.

     The resolution of the legal proceedings cannot be predicted with certainty
     at this time. Management intends to vigorously defend the remaining
     counterclaims and to pursue any claims the Company may have against
     Cliffstar, including any actions to collect the amounts outstanding.

     As of May 31, 2002, the note receivable from Cliffstar had an outstanding
     balance of $24,000,000 and the Company had other outstanding accounts
     receivable due from Cliffstar aggregating approximately $5,411,000.

     Cliffstar made the required $250,000 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 has received all scheduled principal payments, together with
     accrued interest at 10%. The Company has recognized interest income on the
     note receivable at a rate of 10% for financial reporting purposes, 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.
 

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